The Fortescue Metals Group Limited (ASX: FMG) share price is down after revealing its December 2021 quarterly update to the market.
Fortescue is one of the world’s biggest iron ore miners. It also has a growing green energy and decarbonisation segment called Fortescue Future Industries.
Fortescue’s December quarter highlights
For the three months to December 2021, being the second quarter of FY22, iron ore shipments amounted to 47.5mt. This was 4% higher than the first quarter of FY22 and 2% higher than the second quarter of FY22.
Added to the first quarter shipments, the first half of FY22 saw shipments of 93.1mt – this was 3% higher than the first half of FY21. It was a record for a half-year.
In terms of revenue, the average revenue was US$74.36 per dry metric tonne. This represented revenue realisation of 68% of the Platts 62% CFR Index for the quarter. That index is an iron ore price, and Fortescue has lower grade iron.
Turning to costs, C1 costs were US$15.31 per wet metric tonne (wmt), which was in-line with the previous quarter.
Balance sheet and capital moves
Fortescue said that it ended December 2021 with net debt of US$1.7 billion after payment of the FY21 final tax instalment of US$915 million and capital expenditure of US$744 million in the quarter.
Yesterday, it announced the acquisition of UK-based Williams Advanced Engineering (WAE) for approximately US$223 million to provide critical technology and expertise in high-performance battery systems and electrification.
It entered into an exclusive agreement with the Government of the Republic of Gabon to study the opportunity to develop the Belinga Iron Ore Project in the Western African country.
Fortescue Future Industries (FFI) progress
Over time, I think that the Fortescue share price will be more influenced by FFI.
In this quarter, it received planning approval from the Queensland Government for the global green energy manufacturing centre in Gladstone, Queensland. The first stage development is an electrolyser manufacturing facility with an initial capacity of two gigawatts per annum with an investment of up to US$83 million.
Fortescue Future Industries also announced a memorandum of understanding (MoU) with UK construction company JCB and Ryze Hydrogen for the purchase of 10% of FFI’s global green hydrogen production.
It also entered into a master development agreement with the State of Papua New Guinea that will enable FFI to undertake feasibility studies of a portfolio of major green energy and hydrogen projects.
My thoughts on the Fortescue share price and this update
FY22 guidance is for iron ore shipments between 180mt to 185mt. The C1 cost is expected to be US$15 per wmt to US$15.50 per wmt.
Capital expenditure (excluding FFI) guidance has increased by US$200 million to US$3 billion to US$3.4 billion after incorporating the acquisition of WAE.
I think this was a solid update by Fortescue, with another strong quarter of production. It can’t do much about the iron price it gets, though the completion date of December 2022 for the higher-quality Iron Bridge project gets closer.
Fortescue is benefiting from the rising higher iron ore price, though I’m not expecting it to stay this high over the whole year. I think there might be better times to buy Fortescue shares later this year at better value if the iron ore price falls.
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