Understanding the business of Fortescue

JC Project Freedom Fortescue

Fortescue (the ticker symbol is ASX: FMG) was established in 2003. Fortescue is a West Australian company. Fortescue is expanding globally, developing and acquiring green technologies while producing iron ores. With mining assets in Pilbara, Fortescue has been shipping more than 2 tonnes of iron ore to its customers since 2008.

Fortescue’s port mining infrastructure is connected to the five berths Herb Elliott Port and Judith Street Harbour towage facility in Port Hedland via heavy haul railway. It has 3 mining hubs, 760 km of rails, and 8 ore carriers.

Fortescue has led the way globally in embracing automation in its operations which both contributes to a safer working environment for the team members and underpins significant productivity and efficiency improvements.

Today, its autonomous fleet is among the largest in the world with over 190 trucks operating across the mine sites. Fortescue continues to look for other opportunities for automation and artificial intelligence to drive greater efficiency across the business. This includes the use of data to predict outcomes, optimize plans and schedules, and improve overall performance, the expansion of autonomy to fixed plant and non-mining equipment, and the application of relocatable conveyor technology.

The Pilbara Energy Connect (PEC) project, together with the Chichester Solar Gas Hybrid Project, will deliver 25 percent of stationary energy requirements from solar power by FY25, enabling renewable electricity generated at any of Fortescue’s sites to move between our operations in Port Hedland, Iron Bridge, Cloudbreak, Christmas Creek, Solomon and Eliwana, via over 500km of transmission lines.

Fortescue has already finished building 320 kilometers of transmission lines to connect Solomon to Iron Bridge through to Port Hedland and is on track to commission a 100-megawatt solar farm near our Iron Bridge operations by the middle of 2024. 

Fortescue is in the early stage of global expansion on opportunities that support decarbonization and electrification of the transport sector. Fortescue has a well-established presence in Latin America, including Argentina where we currently hold tenements prospective for copper-gold. We are also assessing exploration and development opportunities in Peru, Chile, and Brazil. Fortescue has a 31 percent stake in TSX-listed Alta Copper and we are focused on advancing the Canariaco project in Peru. In Kazakhstan, a range of copper targets are being progressed to drilling while work in Portugal is focused on the development of lithium opportunities.

Fortescue has dozens of green energy and green hydrogen projects under development globally. They have projects in Norway, Australia, Canada, Kenya, Congo, the United States, Argentina and Brazil. The customers are industrial companies in the USA, Australia, Singapore, and large energy companies in Europe. Fortescue established the building blocks of a new global renewable energy value chain by developing breakthrough green technology for trucks, trains, planes, ships, electrolyzers, solar, cables, wind, batteries, hydrogen fuel cells, and the digital industry.

Market positioning

FMG is primarily focused on iron ore, with a strong emphasis on low-cost production. There is an increasing investment in green energy and sustainability initiatives. Refer back to other competitors BHP and Rio Tinto. BHP has a wide diversified portfolio across multiple commodities. It has strong operational efficiency and a significant global presence. Rio Tinto has a strong position in iron ore and aluminum.

Financial

Financial Statements
Valuation Ratios and Profitability Ratios
Liquidity and Solvency Ratios
Dividend Ratios

Revenue has grown from AUD 8.74 billion in 2018 to AUD 27.8 billion in 2024, with a CAGR of 21%.

EBIT has grown from AUD 2.24 billion in 2018 to AUD 12.96 billion in 2024, with a CAGR of 34%.

Free Cash Flow has grown from AUD 0.57 billion in 2018 to AUD 7.7 billion in 2024, with a CAGR of 54%.

ROE in 2024 is 30.81%, ROA in 2024 is 19.31%.

Current Ratio in 2024 is 2.67, Fortescue is well positioned to cover its short term obligations.

Debt to Equity ratio in 2024 is low at 28%.

Dividend yield is high at close to 9.2% with 70% dividend payout ratio.

Source: Fortescue

Conclusion

For investors with a tolerance for volatility in the iron ore market, Fortescue offers potential for capital appreciation and strong dividends. However, it’s essential to stay vigilant regarding market conditions and geopolitical developments that could impact the iron ore sector.

This is not an investment recommendation but purely for my own education and entertainment purposes.


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