The Fortescue Metals Group Limited (ASX: FMG) share price has jumped as much as 4% this morning following an announcement to the ASX. Here’s what you need to know.
About FMG
Founded by Andrew Forrest in 2003 and headquartered in Perth, Fortescue is the fourth largest iron-ore producer in the world, up there with the likes of BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO). They are now the lowest cost provider of iron ore to China and they continue to expand their operations into Japan, South Korea and India.
Today’s Announcement
In what Fortescue considers a landmark agreement with Alinta Energy, it has announced that up to 100% of daytime stationary energy requirements at its Chichester Hub iron ore operations will be powered by renewable energy.
The Chichester Solar Gas Hybrid project will see the construction of a 60 mega watt solar photovoltaic generation facility at the Chichester Hub, comprising Fortescue’s Christmas Creek and Cloudbreak mining operations.
Management Commentary
Fortescue CEO Elizabeth Gaines said, “Reliable and competitive energy generation remains an important consideration for the mining sector in Western Australia and as a significant consumer of energy, we continue to identify opportunities that have the potential to lower our costs while also improving our carbon footprint.”
“This landmark project is a first on this scale for the Pilbara and will reduce carbon emissions from stationary generation by around 40 per cent at Fortescue’s Christmas Creek and Cloudbreak mining operations, while driving long-term sustainable cost reductions to maintain Fortescue’s global cost leadership position.”
Are Fortescue Shares A Buy?
I think this is a great announcement from Fortescue and Alinta around renewable energy solutions, an area that Fortescue has been keen to focus on.
Resource companies continue to look at renewables, with Sandfire Resources NL (ASX: SFR)‘s DeGrussa copper gold mine in WA operating one the largest integrated off-grid solar and battery storage facilities in Australia and reportedly, in the world.
While this is a positive announcement for the environment, it doesn’t change the investment case for Fortescue. As an iron ore miner, the company remains a price taker and earnings are a function of the iron ore price.
Fortescue does pay dividends and paid out a substantial $0.90 in total dividends in FY19. However, this included some special dividends that may well be a one-off.
Will iron ore prices rise, or will they stay at this level? I’m not a fan of investing in commodity businesses, particularly when they are seemingly at a high point in the price cycle, so I am personally going to avoid investing in Fortescue.
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At the time of writing David does not have a financial interest in any of the companies mentioned.
