The Fortescue Metals Group Limited (ASX: FMG) share price is in focus after revealing it was investing £164 million into a battery acquisition.
Whilst Fortescue is a major miner, it is also looking to decarbonise heavy industry through areas like green hydrogen and renewable energy through its Fortescue Future Industries (FFI).
Fortescue’s battery acquisition
Fortescue is buying Williams Advanced Engineering (WAE) from private equity group EMK Capital and Williams Grand Prix Engineering for £164 million, which is approximately US$223 million.
WAE will be integrated into the company and it will be managed by Fortescue Future Industries. Fortescue has worked closely with WAE since early 2021 to design and build a prototype battery system to power an electric mining haul truck, an important first step in the decarbonisation of Fortescue’s mining haul fleet.
Why buy this business?
Fortescue explained that this acquisition provides critical technology and expertise in high-performance battery systems and electrification and will enable it to accelerate its decarbonisation targets, as well as establishing an important new business growth opportunity. More growth could be helpful for the Fortescue share price.
Together, they will develop battery electric solutions for Fortescue’s rail, mobile haul fleet and other heavy equipment so that it can stop using diesel and reach decarbonisation by 2030. On top of that, Fortescue and WAE will work together to grow WAE’s “world-leading” green technology and engineering business.
One of the first major projects to be developed will be an electric train concept. Further details will be announced early this year.
WAE has been working with tier 1 customers in advanced engineering across the premium automotive and motorsports sectors with revenue of around US$84 million in the 2021 calendar year.
Fortescue acknowledged that the potential global market for WAE is significant and will extend beyond the decarbonisation of Fortescue, further demonstrating its commitment to the diversification of Fortescue to a renewable energy and resources company.
My thoughts on this acquisition and the Fortescue share price
I don’t know much about WAE itself, but expanding in the battery industry seems like smart move by Fortescue.
It’ll help its own decarbonisation goals and offers another growth avenue. The world will need great batteries in the coming years and WAE could become a very important player in the space under Fortescue. Plus, it instantly adds a lot more revenue to FFI.
I think this makes Fortescue a stronger business. The iron ore price keeps going up too. The medium-term for the company will probably be dictated by what happens with iron, but I think Fortescue has a very positive future. For now, I’d only want to consider buying more under at least $19 a share, though an even lower price would be helpful.
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