Another one that wants lithium - FMG!!!
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Andrew Forrest wants Fortescue’s miners to supply its clean energy division with battery minerals, but those plans will need to coexist with shrinking profits.
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Fortescue wants to mine its own lithium as margins shrink
Peter KerResources reporter
Oct 27, 2022 – 4.30pm
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Fortescue executive chairman Andrew Forrest says he wants the mining side of the business to supply the “future facing” metals required by its clean energy division, and soaring diesel costs demonstrate why the company wants to push into clean energy.
The unit cost of producing Fortescue’s iron ore in the past three months was 16 per cent higher than the same period of last year, despite a slump in the Australian dollar over the same period reducing the company’s US dollar denominated costs.
A tight labour market and soaring diesel prices drove overall costs higher and Mr Forrest said the diesel price surge vindicated the company’s previous efforts to install solar power and gas-fired power as well as its plan to manufacture batteries and hydrogen in future.
“Our biggest cost driver is fossil fuel, diesel in particular, we have mitigated that to a point with gas, but the big one is diesel and that is why we started the decarbonisation process,” he said.
Dr Forrest said Fortescue’s plan to eliminate consumption of fossil fuels by 2030 would “shave 20 to 25 per cent off our costs, if not a little more by that stage”.
Fortescue is being squeezed between rising input costs, sliding iron ore prices and a big looming spend on its plan to become a clean energy producer.
Benchmark ore with 62 per cent iron was fetching $US87.80 a tonne on October 27, well below the $US119.65 a tonne recorded by Platts for October 27 last year.
Macquarie analysts said continued lockdowns in China to curb the spread of the COVID-19 pandemic were dampening demand for iron ore, while a recovery in sales in the Chinese property sector had also stalled in recent weeks.
Analyst consensus measured by Bloomberg predicts that Fortescue’s underlying profits in 2022-23 will be about 28 per cent lower than last year, which itself was almost 40 per cent below the bumper $US10.2 billion profit announced in August 2021.
Fortescue acquired battery manufacturer Williams Advanced Engineering earlier this year, which will likely stoke its need for battery minerals such as lithium, cobalt, graphite and copper.
Fortescue will also need to buy large volumes of platinum group elements like iridium if its plan to become a manufacturer of hydrogen electrolysers comes to fruition.
Fortescue has been exploring for lithium in Western Australia, South America and Portugal since about 2016 but has not discovered a project of material size.
Asked how the Fortescue Future Industries (FFI) clean energy division would source the lithium and battery minerals it requires, Dr Forrest said he ideally wanted the mining division to be the supplier.
“Fortescue Metals group is a fantastic explorer and developer but also acquirer of assets and as you’ve heard us say in the past, we will be taking responsibility as a mining and exploration company without many peers in success to deliver the battery metals and the future facing metals which FFI needs,” he said.
“The beauty of FFI is that it gives us a really clear view into the future of what [minerals] are going to be required by when.”
Lithium prices have risen more than tenfold over the past two years on strong demand and tight supply, but Dr Forrest poured cold water on the outlook for the sector.
“I am just not seeing a shortage, there is so many lithium projects we get offered so it is just one of those things that is just not keeping me awake at night at all,” he said.
Dr Forrest praised the Albanese government for its approach to clean energy in Tuesday’s budget, which
revealed the push toward net zero would cost at least $24.9 billion over the next decade, with much of that going on electricity transmission infrastructure.
“In the medium term the $25 billion they’ve put towards green energy is a good start, if we had been doing this many, many years ago we would have the lowest cost energy in the world and the most abundant,” he said.
Fortescue shipped 47.5 million tonnes of iron ore from Western Australia over the past three months – the highest volumes ever achieved by the company in the three months to September 30.
UBS had expected Fortescue to ship 47 million tonnes in the period.
Fortescue has told investors to expect between 187 million and 192 million tonnes of iron ore to be shipped from Western Australia in the year to June 2023.
Fortescue said in August that 1 million tonnes of those exports would come from the Iron Bridge magnetite project.
Iron Bridge harvests low-grade iron deposits and uses an energy-intensive process to turn the ore into a concentrate with 67 per cent iron, under a business model that has higher costs than traditional iron ore mining but should also receive higher prices to reflect the higher iron grades.
Dr Forrest said on Thursday that Fortescue was “likely” to sell Iron Bridge’s magnetite concentrate as a discrete product but would retain the flexibility to blend or “shandy” it through its traditional iron ore products to raise the overall iron content of those products.
Fortescue said in July that Iron Bridge would cost between $US3.6 billion and $US3.8 billion to construct and would deliver its first iron ore before March 31, 2023.
Those cost and schedule estimates were reaffirmed on Thursday.
Those cost and schedule estimates have blown out since the project was approved in April 2019, when Fortescue said it would cost $US2.9 billion and deliver first ore before June 2022.
The original plan had Iron Bridge ramping up to full production by June 2023.
Peter Ker covers resource companies for The Australian Financial Review, based in Melbourne.Connect with Peter on
Twitter. Email Peter at
pker@afr.com
