MELBOURNE (Reuters) – Fortescue Metals Group increased its dividend payout Thursday, but the boom in costs at a major development project in Western Australia is tarnishing its ambition to become a green energy powerhouse.
The world’s fourth-largest iron ore miner now estimates the cost of its Iron Bridge magnetite project to be $ 3 billion, $ 400 million more than previously estimated as it delays first production to the second half of 2022 from the first half.
Earlier this week, Fortescue announced the resignation of its chief operating officer and two iron ore executives as part of a 12-week review of the high-grade ore project – a major part of the miner’s strategy to upgrade its product to win market share. and meet China’s preference for high quality ore.
“With (the review) underway, we have limited confidence in the new guidance,” RBC said in a report, while Moody’s called the swelling, caused by increased labor and logistics costs, “credit negative.”
The project is expected to produce 22 million tonnes when fully upgraded.
An update to the project was made with the miner’s first-half earnings report on Thursday which posted a 66% jump in profit, a record dividend and boosted its annual delivery forecast.
“I think what has happened in the last 24-48 hours has indeed given the market pause on its plans to deliver new projects, new technology overseas,” said UBS analyst Glyn Lawcock.
“(But) the market is very surprised by the fact that they are getting good payouts. I think the market is concerned about the jump in capital spending on Iron Bridge, commitments to spend more on renewable energy, and to reduce dividends. “
Joining BHP Group and Rio Tinto counterparts in giving investors the benefit of strong iron ore prices back, Fortescue announced a higher-than-expected interim dividend of A $ 1.47 per share, up from A $ 0.76 last year. .
China’s focus on infrastructure last year pushed up iron ore prices by more than 50%.
Fortescue last year embarked on an aggressive plan to develop a worldwide renewable energy project, called Fortescue Future Industries, and led by billionaire founder and largest shareholder Andrew Forrest, known as “Twiggy”.
Forrest, Australia’s second richest person, saw his personal fortune grow by A $ 1.65 billion ($ 1.28 billion) on Thursday thanks to his 36.3% stake in the company.
Among the projects are ammonia and hydrogen, and technology to use hydrogen produced from renewable energy to make steel, which is now one of the most polluting industries in the world.
Fortescue disclosed details of funding for FFI, with an allocation of 10% of net profit after tax, or approximately $ 400 million, to fund renewable energy growth, and another 10% to fund other resource growth options.
Despite the green push, Fortescue has refused to follow its counterparts Rio Tinto and Glencore who this week said they would set a coverage target of 3 to reduce customer emissions. Gaines said Fortescue was focused on reducing emissions on a “global scale”.
Fortescue’s first-half profit after tax was $ 4.08 billion, up from $ 2.45 billion a year earlier. This is in line with a $ 4.09 billion consensus of 10 analysts put together by research firm Vuma Financial.
Iron ore shipments are estimated to be in the range of 178-182 million tonnes for the financial year, up from the previous range of 175-180 million tonnes. Its stake was up 1.9% to A $ 24.88.
($ 1 = 1.2897 Australian dollars)
Reporting by Sameer Manekar and Rushil Dutta in Bengaluru; Edited by Arun Koyyur and Jacqueline Wong