The Fortescue Metals Group Ltd (ASX: FMG) share price is down after announcing its net zero emissions spending plans.
Fortescue is a major iron ore miner, it has plans to become net zero across its iron ore operations by 2030.
Fortescue’s major spending plans
The iron ore miner said that it’s going to spend US$6.2 billion of capital expenditure by 2030 to end ‘fossil fuel risk’ and reduce operating costs by US$818 million per year.
Fortescue said it expects to generate attractive economic returns from its investment arising from the operating cost savings due to the elimination of diesel, natural gas, and carbon offset purchases from its supply chain.
Management believe the business is well positioned to capitalise on first-mover advantage and the ability to commercialise decarbonisation technologies.
The capital investment will largely be for between FY24 to FY28.
How much will Fortescue save?
Fortescue outlined that it will avoid 3 million tonnes of CO2 per annum. Another benefit will be that Fortescue won’t be exposed to the volatility of fossil fuel prices, reducing the risk of its operating cost profile.
It said that there will be net operating cost savings of US$818 million per annum from 2030, at prevailing market prices of diesel, gas and Australian Carbon Credit Units (ACCUs).
It will be a cumulative operating cost saving of US$3 billion by 2030, with a payback of capital by 2034, at “prevailing” market prices.
It will also “establish a significant new green growth opportunity by producing a carbon free iron ore product and through the commercialisation of decarbonisation technologies.”
What will Fortescue be investing in?
This investment includes the deployment of an additional 2-3 GW of renewable energy generation and battery storage and the estimated incremental costs associated with a green mining fleet and locomotives.
Management comments
Fortescue Executive Chairman, Dr Andrew Forrest said:
There’s no doubt that the energy landscape has changed dramatically over the past two years and this change has accelerated since Russia invaded Ukraine.
We are already seeing direct benefits of the transition away from fossil fuels – we avoided 78m litres of diesel usage at our Chichester Hub in FY22 – but we must accelerate our transition to the post fossil fuel era, driving global scale industrial change as climate change continues to worsen.
It will also protect our cost base, enhance our margins and set an example that a post fossil fuel era is good commercial, common sense.
Fortescue, FFI and FMG, is moving at speed to transition into a global green metals, minerals, energy and technology Company, capable of delivering not just green iron ore but also the minerals, knowledge and technology critical to the energy transition.
Final thoughts on the Fortescue share price
This is a big investment by Fortescue. But, it’s a key part of Fortescue Future Industries’ (FFI’s) purpose to decarbonise the overall business.
Fortescue is a very interesting business. I’m a shareholder, but largely because of the green hydrogen production plans. I have used times of weakness for the iron ore price to invest in Fortescue shares.
I’d be interested in buying more Fortescue shares at a share price below $16, but I already own a decent amount. If it were my first investment, I’d be happy to buy a few shares today.
