Ground Breakers: Green dream punctuates FMG’s quarterly update as iron ore mainstay keeps growing
Andrew Forrest’s iron ore giant and green energy dream factory Fortescue Metals Group (ASX:FMG) produced a record first quarter for iron ore shipments, mailing 47.5Mt of the stuff into Asia in the September quarter.
It puts the $50 billion ASX 20 giant on track early doors to hit its planned 187-192Mt production target for 2023, with costs of US$17.69/wmt up 3% on the previous quarter but below full year guidance of US$18-18.75/t.
The result was a slight beat against consensus on both production and costs.
In another positive for the iron ore major, which finished the quarter with US$3.3 billion in the bank after a US$2.4b dividend payment and US$653m capex bill, price realisations against the Platts 62% Fe index for its lower grade ore rose from 78% in June to 85%, with FMG pulling in a realised price of US$87/dmt for the quarter.
That came against the Platts average of US$103/dmt, far higher than similarly low grade but far smaller scale MinRes’ (ASX:MIN) 70% realisation reported yesterday.
But it was down from US$108/dmt in the June quarter and US$118/dmt a year ago.
There is some extra detail on project milestones at Iron Bridge as well, the 67% Fe magnetite project where first production is due in the March quarter and FMG expects to ship ~1Mt of its full 22Mtpa runrate in FY23.
But otherwise the new boss (same as the old boss) executive chairman Twiggy Forrest, has his eyes focused squarely on the bigger question of decarbonising Fortescue (and of course the world), brandishing the US$6.2 billion commitment it made during the quarter to remove Scope 1 and 2 emissions at its Pilbara ops by 2030.
“Guided by our unique culture and values, Fortescue is leading the green energy transition and setting record-breaking industry benchmarks,” he said.
“We are establishing the building blocks of a new, global renewable energy value chain spanning technology, manufacturing, green energy generation and distribution which will deliver significant returns to our shareholders.
“Last month at the United Nations General Assembly, Fortescue announced it would step beyond fossil fuels and lead heavy industry to achieve real zero emissions (Scope 1 and 2) across our iron ore operations by 2030.
“We will save an estimated US$3 billion by 2030 as a result, rising to annual savings of US$818 million once fully implemented. Our roadmap outlines the technology, timetable, strategy and costings required to decarbonise profitably, avoid financial, commercial, environmental and social risk, and future-proof the business. We urge other emitters like us to follow.
“Business as usual is over. There has been a historic underinvestment in clean energy globally. The maintenance and subsidy of fossil fuels has a detrimental climatic impact and prolongs their prolific use.”
Twiggy called for subsidies ‘globally’ for green energy to help the resources industry decarbonise.
“We are making the choice to turn off fossil fuels to provide stronger outcomes for our shareholders and better outcomes for the planet. The acceleration of the energy transition for the resources industry requires subsidies for green energy globally,” he said.
“This will be a core message we will take to COP27 next month to help enable other companies to join us.”
Lynas Rare Earths (ASX:LYC) copped a big fall in NdPr production out of its Kuantan processing facility in Malaysia from 1579t in June to 1045t in the September quarter after a major water outage crimped output at the plant.
Lower prices, both because of lower benchmark pricing and an increase in sales of the lower value product cerium, saw revenue fall from $294.5m in the June quarter to $163.8m in the September quarter with sales receipts of $234m on an average selling price of $49.3/kg, the lowest since the first quarter of FY22 ($44.6/kg).
NdPr oxide prices in China fell from a record average of US$139/kg in the March quarter to an average of US$78/kg in the month of September.
Lynas, which sells mainly outside of China as the largest producer of rare earths outside the dominant Middle Kingdom, said prices had started to improve late in the quarter but would be dependent on China’s economic recovery.
“Rare Earth prices were quite volatile during this quarter. NdPr oxide pricing started to decrease in July and this continued until mid-September prior to rebounding and stabilising at around 700 RMB/kg at the end of the quarter,” the company said.
“This corresponds to USD88/kg CIF1 China. This pricing trend was triggered by concerns that the 25% production quota increase in China would lead to oversupply.
“However, once these concerns were found to be excessive, prices started to recover.
“Future pricing trends will depend mainly on the economic recovery in China, which has seen weak demand in the recent past.”
Lynas has responded to what it views as a major uptick in future demand from the energy transition for rare earths, used in permanent magnets for wind turbines, electric vehicles and other high tech applications, with a major expansion of its downstream processing and mining operations.
A $500 million expansion of its Mt Weld mine to more than double NdPr production to 12,000t was announced in August, with work also advanced on the construction of a plant in Kalgoorlie, near the Laverton mine.
However, CEO Amanda Lacaze did disclose changes would see a cost increase of 15% over the initial $500 million budget estimate at the project. This all seems somewhat negative.
But Lynas’ shares are up ~5%. It is still a money making venture. Even with the lower revenue, Lynas saw its closing cash and short term deposits lift from $965.6m to $1.0266 billion in the September quarter.
Australian companies, we are told, have a habit more than any others of taking a lackadaisical approach to reporting season, paying homage to our carefree and procrastinatory nature.
So they all get backloaded into the last couple of days of the window, clouding whatever else may be going on out there in the wilds.
We have a bunch of goldies to catch up on in due course, check out Monster of Rock later today for a summary. Champion Iron (ASX:CIA) also announced a 10c Canadian interim dividend, despite an 82% drop in profits on lower iron ore prices from CAD$338.935m to CAD$61.084m for the half year ended September 30.
Lower iron ore prices were to blame, with iron ore concentrate sales lifting 22% YoY to 4.8Mt from 3.9Mt in 2021.
Outside of reporting season we have some other stuff going on, not all of it good.
Core Lithium (ASX:CXO) is down over 7% after the evaporation of a proposed deal to supply spodumene from its new Finniss mine in the Northern Territory to Elon Musk’s Tesla.
It comes shortly after the firm sold its first product from Finniss as a DSO product, taking advantage of strong demand in Asia for lithium raw materials, with prices for chemicals and spod at record levels.
Core says around 80% of Finniss offtake is contracted to Chinese partners Ganfeng and Yahua, but its inability to convert Tesla’s term sheet into a purchase agreement could worry some investors.
Core CEO Gareth Manderson says the market for lithium remains strong.
“I want to thank Tesla for the time taken to negotiate with Core and look forward to maintaining an open and ongoing dialogue,” he said.
“The recent DSO sale, predicted commencement of lithium concentrate sales in H1 2023 and an increasing lithium price environment indicate that Core Lithium is well positioned to capitalise on the high demand and current shortage of available battery grade lithium spodumene concentrate.”