Fortescue forges bold $9.2 billion plan to be carbon neutral by 2030

Andrew ‘Twiggy’ Forrest’s Fortescue Metals Group (ASX: FMG), a founding member of US President Joe Biden’s First Movers Coalition, has detailed its bold ambition to be net zero by 2030 with a US$6.2 billion ($9.2 billion) decarbonisation strategy for the group’s iron ore operations.

Fortescue, which earlier this year announced plans to develop the world’s first regenerating battery electric iron or trains as part of a move to bring forward its net zero plan by 10 years, has gone all in with a strategy that Forrest says has been accelerated by the energy crisis created by Russia’s invasion of Ukraine.

The proposal is expected to cut Fortescue’s CO2 emissions by three million tonnes a year and slash operating costs by US$818 million ($1.2 billion) annually as the company eliminates diesel, natural gas, and carbon offset purchases from its supply chain.

Fortescue is forecasting cumulative cost savings of US$3 billion ($4.46 billion) by 2030, leading to a payback of capital by 2034.

The company says the plan will de-risk the company’s cost profile by eliminating exposure to the volatility of fossil fuel prices. The direct action also removes corporate risk associated with changes in pricing of carbon offsets, while also creating a green growth opportunity by producing a carbon free iron ore product.

Notably, the strategy lays the groundwork for Fortescue to access increasingly green driven capital markets.

Forrest, the executive chairman of Fortescue, made the announcement in New York at a CEO roundtable on the invitation of the First Movers Coalition and the United Nations Global Compact with the company describing the strategy as a world-leading decarbonisation plan.

“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,” says Forrest.

“We are already seeing direct benefits of the transition away from fossil fuels - we avoided 78 million 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 says it’s positioned to capitalise on its first-mover advantage and to commercialise decarbonisation technologies being explored by its Fortescue Future Industries (FFI) subsidiary, including the battery-powered iron or trains.

“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,” says Forrest.

“Consistent with Fortescue’s disciplined approach to capital allocation, this investment in renewable energy and decarbonisation is expected to generate attractive economic returns for our shareholders through energy cost savings and a sharp reduction in carbon offset purchases, together with a lower risk cost profile and improvement in the integrity of our assets.”

In May this year, Fortescue announced it was bringing forward its net zero plan by 10 years from 2040 to 2030, aided by investments to develop green electricity, green hydrogen and green ammonia projects in Australia.

That announcement came on the heels of Fortescue acquiring the UK-based Williams Advanced Engineering in March and announcing a partnership to deliver the first parabolic, or gravity powered, drive trains to the Infinity locomotives scheduled to be operational by the end of 2026.

The company’s latest US$6.2 billion investment to drive its net zero ambitions is largely planned for FY24 to FY28.

Among the planned investments will be the ramping up of renewable energy generation across its operations by an extra two to three gigawatts. There will be additional investment in converting its mining fleet and locomotives to run on green power. The capital outlay to replace the fleet will be timed to align with the scheduled replacement life cycle of the equipment. The company is also looking at optimising local wind and solar resources.