On 5th October 2021, Fortescue Metals Group Limited (FMG) declared ambitious targets to curtail its environmental impact. The West Australian mining company is the fourth largest iron ore producer globally, following BHP, Rio Tinto and Vale. Following up on its objective to reach carbon neutrality by 2030, FMG announced new aims to reach net-zero in scope 3 emissions by 2040. Scope 3 emissions are those that are outside of its operating control but lie within a company’s value chain, and for FMG these largely derive from emissions within the steelmaking industry.
Steelmaking accounts for 7-9% of all direct fossil fuel emissions, therefore iron ore producers are under enormous pressure from investors to take responsibility for the consequences of the product they sell. Whilst iron ore giants BHP and Rio Tinto have failed to set targets for reduction in Scope 3 emissions, FMG has taken the initiative by establishing targets, thus differentiating themselves from the competition. Andrew Forrest, Founder and Chairman of FMG, has shown belief that the decarbonisation of steelmaking could produce huge profits, whilst Elizabeth Gaines, Chief Executive Officer of FMG, proudly announced that ‘Fortescue has commenced the transition from a pure play iron ore producer to green renewables and resources company’.
A key part of FMGs green initiative has been the creation of Fortescue Future Industries (FFI), a global green energy and product company committed to making zero-emission hydrogen from 100% renewable sources. FMG informed its investors that it would pump 10% of its earnings into FFI, having made record pre-tax profits of 14.7 billion USD in the year ending in June 2021. This is part of an effort to fund facilities capable of producing 15 million tonnes of green hydrogen by 2030, by using electrolysers powered by renewable energy to separate oxygen and hydrogen atoms in water. Green hydrogen will be used in the process of creating green iron, which in turn will be used in an Electric Arc Furnace to make steel, completely decarbonising the traditional blast furnace process.
On the 24th January 2022, FMG announced further progress on its pledge, through the acquisition of Williams Advanced Engineering Limited (WAE), in a deal worth 164 million GBP. WAE, a leading engineering and technology business originating from the Williams Formula 1 team, actively supports sustainability and has begun to expand its services to firms outside of the racing world. WAE has formerly partnered with Unilever PLC to reduce energy usage in soap manufacture, and also cut energy requirements for refrigeration through aerodynamic innovation.
The crucial collaboration that will occur between WAE and FMG as a result of this acquisition, will be a transfer of WAEs unique knowledge of high performing lightweight batteries into mining processes in order to decarbonise global operations. Initially, this will be to reduce emissions in the industrial transport sector, for example adapting freight trains by implementing the electric ‘infinity train’ concept, but in the future, it will look to develop industrial equipment and haul trucks. In March 2021, WAE announced an agreement to design, build, assess and incorporate a battery into an electric mining haul truck, the project also included the development of a fast-charging unit that would be used to implement the electric haulage fleet. This acquisition has continued to demonstrate FMGs role as one of the heavy industry’s leaders in its green transition, moving toward clean energy whilst also considering it as a profitable opportunity.
As stated earlier, FMG unveiled record profits in the 2020-21 Australian fiscal year, shipping 182.2 million tonnes of iron ore. In August 2021, Elizabeth Gaines commended ‘a second executive year of record performance, with shipments, earning and operating cash flow surpassing any year in Fortescue’s history’. This has had huge effect on FMGs EPS, rising from 1.54 USD to 3.35 USD, whilst its EBIT margins have risen 14.2 percentage points to 68%. Having pledged to curb their climate change immediately after their most prosperous year, this could presage a period of transition for investor optimism in the company, as FMG demonstrate ESG leadership within their industry. FMG experienced a great deal of insider buying over the past year, demonstrating that those who have the most proficient understanding of the company, notably Andrew Forrest, are highly optimistic.
During the recovery from the COVID-19 pandemic, heavy industry has been thriving and major iron-ore mining companies are seeing a vast increase in revenues due to rising demand in the Chinese steelmaking industry. However, as major emitters, these companies are under increasing pressure to play their part in the fight against climate change. As other, more unsustainable companies struggle to make assurances, these next few years will be crucial. With Fortescue Metal Group’s progressive pledges and innovative methods, they are setting the example for the future of the heavy industry.
By Henry Bagshaw
Sector Head: Philipp Jiang