By Peter Ker
Investors want Fortescue to increase its dividends after the iron ore giant smashed its previous export record and said it would spend less on clean energy, officially mothballing hydrogen developments in the US.
The announcement pushed shares in the world’s fourth-biggest iron ore exporter up by more than 4 per cent, with the company signalling it could grow export volumes and lower production costs in the year ahead.
The market value of Fortescue, led by billionaire chairman Andrew Forrest, has risen by 31 per cent over the past month as a rally in the iron ore price rewarded the miner for its strong performance. The stock closed at $19 per share on Thursday; its highest level since the middle of February.
Fortescue said on Thursday that it had shipped 198.4 million tonnes of iron ore in the 12 months to June, up from 191.6 million the previous year. This beat the previous record of 192 million tonnes set in 2023. Fortescue said it could grow iron ore export volumes by up to 3 per cent in the year ahead.
The surge in iron ore volumes in the past financial year also helped drive Fortescue’s unit costs lower by 1.3 per cent to $US17.99 a tonne. The unit cost result was much better than the $US19.75 a tonne that Fortescue had warned investors to expect, and was the first time since 2020 that unit costs were consecutively lower than the previous year.
The fall in Fortescue’s unit costs was delivered in a year when the company’s rivals BHP and Rio Tinto are on track to report higher unit costs. Citi analyst Paul McTaggart said investors should take the strong iron ore performance and the reduced spending on the hydrogen projects as “a positive”.
Fortescue’s metals and operations chief executive Dino Otranto said the fall in costs was partially driven by lower strip ratios – the amount of waste rock shifted to access the ore – than had been assumed at the start of the year.
The company said unit costs may fall further, telling investors each tonne would cost between $US17.50 and $US18.50 to produce in the year to June 2026. Continued volume growth comes as investors weigh concerns about falling demand from Chinese mills that supply that country’s struggling property industry. China buys the vast majority of Fortescue’s ore.
Ore with 62 per cent iron was fetching $US104 a tonne on July 23, according to S&P Global Platts, having rallied recently on signs the Chinese government may boost spending on infrastructure.
Otranto was in China last week accompanying Prime Minister Anthony Albanese, and said there was “strong support from both Australia and China to collaborate on a green iron ore and steel supply chain”.
The strong performance by Fortescue’s flagship iron ore division contrasts with ongoing challenges facing its clean energy ambitions.
The company confirmed its Arizona hydrogen and Gladstone electrolyser projects would not go ahead, revealing that it would take a $US150 million ($227 million) impairment charge.
The Arizona project was forecast to cost $US550 million to build and would have created a hub on the outskirts of Phoenix that would make clean hydrogen then offer refuelling services to passing trucks.
The project was approved by the Fortescue board of directors in November 2023, but was looking shaky within six months of that approval when the Biden administration released hydrogen subsidies that were not as attractive for the Arizona project as Fortescue had expected.
Fortescue warned in February that the return of Donald Trump to the White House had forced it to pause work on that project, given the new administration was significantly less supportive of clean hydrogen projects.
Thursday’s announcement was the final nail in the coffin for the Arizona project and also a $US150 million development to make green hydrogen at Gladstone in Queensland. Fortescue is still building one of the three clean energy projects approved by the board in November 2023, a $US50 million green iron plant at its Christmas Creek mine in Western Australia’s Pilbara.
The green iron plant was supposed to deliver first production before the end of this year. Otranto said on Thursday that the deadline was “an extreme stretch target” but the project was “largely still on track for that”.
WAM Leaders portfolio manager John Ayoub said Fortescue should be praised for being willing to walk away from its clean energy projects when they no longer made sense, adding that the reduced spending on those developments could be returned to shareholders.
“We can take some solace in their pivot … what we now know is they are not going to take the company to the brink,” he said. “Their ability to pay those dividends to shareholders should continue to improve.”
The surge in iron ore volumes comes despite a much slower than expected ramp-up at Fortescue’s Iron Bridge magnetite project in the Pilbara, which has been delayed by almost five years and where costs have blown out by $2.2 billion. Iron Bridge is designed to produce 22 million tonnes of high-grade concentrate each year, but Fortescue said in May that it would not achieve that rate until 2028. Iron Bridge is expected to deliver between 10 million and 12 million tonnes in the year to June 2026.
