Fortescue Ltd

Thank you, Bernadette, and good morning or afternoon, everybody, and welcome to Fortescue's FY21 half-year results presentation. And joining me today in Perth is Ian Wells, Chief Financial Officer. We also released a separate statement today regarding the Ironbridge project. However, I'll first focus on the half-year results. The first half of the financial year has been a record period for Fortescue, with the team delivering excellent results across all of our operations. And most pleasingly, our total recordable injury frequency rate, or TRIFA, reduced to 2.1 at 31 December, and that's 13% lower than 30 June 2020. We're encouraged by this progress as we maintain our unwavering commitment to protecting the health and wellbeing of our team, particularly during the global pandemic. Fortescue maintains a comprehensive COVID-19 risk management strategy, and key measures remain in place to safeguard Fortescue team members and communities. And I am pleased to report that there have been no cases of COVID-19 across Fortescue's operational sites. And we do also continue to provide ongoing support to our team members who have been impacted by the West Australia border closures, and we do greatly appreciate their ongoing commitment. So turning to the half-year results, Fortescue's performance for the first half of FY21 has been outstanding. And we are very proud of the whole team who have delivered our best half-year operating and financial results since the company was established. The board have declared the single largest dividend in the company's history of $1.47 per share, and that's an 80% payout of net profit after tax, which is consistent with our target to pay the upper end of our stated dividend policy range. And this dividend continues our excellent track record of delivering enhanced returns to our shareholders. The company's record performance generated half-year revenue of $9.3 billion, and that exceeded the prior comparable period by 44%. with realised prices increasing by 42%, outperforming the increase in the Plat 62 CFR index of 32% for the half year. Our continued focus on cost management contributed to underlying EBITDA of $6.6 billion and an increased margin of $80 per dry metric tonne for the half year. Our outstanding cost position, together with the breadth of our product mix, resulted in a net profit after tax of $4.1 billion. and earnings per share of US $1.33 or Australian dollars $1.84, and that's an increase of 66% from the prior corresponding period. And in an important operational highlight in the half year, Fortescue celebrated first ore at the Ellawanna mine in December, and that is a significant milestone for the development of our iron ore operations in the Western Hub region of the Pilbara. Our world-class integrated operations and customer-focused marketing strategy, together with completion of Ellawanna, positions Fortescue strongly for the second half of the year to deliver sustained returns to our shareholders. Our continued focus on sustainability generated strong recognition throughout the half with a number of highlights, and that included inclusion in the 2020 Dow Jones Sustainability Indices, an upgraded status in the latest MSCI ESG ratings, and the recent award of a gold class distinction in the S&P Global Sustainability Awards. Fortescue also made the 2020 Best Companies for Women to Advance list, positioning it among the leading companies internationally for supporting the development of female leaders, and I am personally really pleased that our commitment to diversity is driving outcomes for female leaders in our team. During the half, Fortescue has continued to invest in a range of practical initiatives to decarbonise our operations, and that will underpin our industry-leading emissions target of net zero operational emissions by 2040. And this includes the important role that Fortescue Future Industries is taking in the global development of renewable energy, building on the projects we have underway in green hydrogen, both in Australia and globally. And EM will speak to the capital allocation framework as we invest in these exciting diversification opportunities. As most of you would be aware, we announced some changes to our leadership and projects team on Tuesday, including the resignation of Operating Officer Greg Lilliman Director of Projects, Don Hymer, and Director of Ironbridge, Marnie MacDonald. Greg has made a significant contribution to Fortescue since he joined in January 2017. The success of our integrated marketing and operations strategy is a lasting legacy of Greg's strategic focus and his commitment to our success over that period. And I understand that describing the decisions that were made at Fortescue this week on the basis of our values against the backdrop of our culture is not typical corporate language. And we've had that feedback from a number of external stakeholders. However, I don't step back from this values-based language, as it is absolutely fundamental to the way that we do things. What I do want to make clear is that Greg didn't do anything wrong in the sense of the usual financial, behavioural or business conduct parameters by which senior executives are judged. What he did was to miss the fact that the Ironbridge project had suffered a breakdown in teen culture. And in turn, this resulted in poor communication at the senior leadership level and a lack of empowerment across the organisation. News wasn't being shared and that meant that challenges weren't being addressed in a timely way by involving others who could bring ideas and work together on solutions. I've worked closely with Greg for the last four years and I know that he takes his leadership accountability very seriously. The fact that he didn't see the failings that were impacting the team culture or somehow miss the implications that subsequently came to light was the reason that he made the incredibly difficult decision to resign. And as he described that decision, it was quite simply that at the end of the day, he felt accountable for the team and their behaviour and did not believe that he had any other alternatives. I have great respect for Greg and I wish him all the very best for the future. Returning now to the update on our Ironbridge Magnus Art project. And as we flagged in our December quarterly last month, a detailed review was conducted and considered the forecast capital estimate and schedule for the project, taking into account the strength of the Australian dollar, access to resources and specialist skills, as well as other market factors. The outcome of that review indicated a revised capital estimate of up to $3 billion for the project, with first production expected in the second half of calendar year 2022, subject to validation through further technical and commercial assessment and Ironbridge joint venture approval. A technical and commercial assessment is underway and is scheduled to be completed in 12 weeks. And the key areas of focus will include the assessment of the magnetite concentrate transportation solution and return water pipeline support headland, enhanced utilisation of Fortescue's port and rail infrastructure, our contractor strategy and selection, and logistics infrastructure to maintain the schedule for the delivery of large modular components through port headland. Limited project works on critical path items will continue during the next 12 weeks. including engineering, off-site fabrication, procurement activities and site-based civil works. And leading this review is a highly experienced team, led by Acting Projects Director Derek Brown, who brings more than three and a half decades of mining sector experience, and most recently has done an excellent job at leading our Solomon operations. Supporting Derek are Andrew Hamilton, Project Director Ironbridge, Corey Dennis, Project Director Port, Rail, Pipelines and Power, and Warren Harris, Project Director Ironbridge, OPF and Operational Projects, all of whom have had first-hand experience at successfully delivering large-scale projects at Fortescue. And using a consistent approach to the Illawarra Mine and Rail Project, Corey will have responsibility for the port and transport, and Warren has responsibility for the mine. And I have every confidence that this team will draw on all of Fortescue's DNA our world-class expertise and our values as we challenge ourselves through innovative thinking and capital discipline. On that, I'll hand over to Ian to take us through the financials. Ian.

Thanks, Elizabeth, and hi, everyone. Our first half FY20 performance has set records across all of our key financial metrics, and we've again reported a clean set of numbers. Strength in the iron-on market has obviously contributed with the performance underpinned, as always, by us focusing on the things that we can control. Our integrated planning processes supporting our operations and marketing strategy continues through the company, including all of our support functions. And it's the planning and then execution that is really driving the best commercial outcomes right across the business. So starting on the P&L and revenue for the first half was $9.3 billion with volume, market price and realisation all contributing significantly. And as we mentioned at the quarterly Ford excuse, realised prices have remained at around 85% of the index for two years now. Revenue combined with disciplined capital management resulted in EBITDA of US $6.6 billion at an EBITDA margin of 71%. And drilling down on that margin, our first EBITDA was $80 per dry metric tonne. And that represents a $28 increase or 53% increase compared to last year. EBITDA flowed through to net profit after tax of $4.1 billion, up 66% on the prior period. And just for context, that compares to last year's full-year net profit after tax of $4.7 billion. So a very strong first half. If you're watching on the webcast, slide 11 is the CFO's favorite chart. And we obviously have leveraged to the price cycle and also clearly demonstrated the ability to generate strong margins through that cycle. And in fact, Fortescue's average EBITDA margin sits at almost US $40 per ton since FY16. And those results were of course impacted by market factors together with the things that we can control and putting a focus on total costs. So not just C1, together with volume and product mix, so our focus on both revenue and cost drives optimised margins. It's also worth noting that our enhanced product mix, including the introduction of Westpool refines, occurred in late 2018. On C1 costs at $12.78 per tonne in the first half, that shows that we've held costs flat when you compare that to $12.73 reported this time last year. And today we updated our full year C1 cost guidance to a range of US $13.50 to $14 per tonne. And this is based on a revision of the assumed FY21 average of the US exchange rate, 75 cents, up from the previous 70 cent assumption. So there's three points I'd like to make. And the first one is the guidance means we're assuming an average of 77 cents in the second half. The second point is that you will call our C1 cost sensitivity is 13 cents per one, every one cent Aussie dollar movement. So when you do the math, you can see that our updated guidance is showing that we have mitigated some of that cost pressure. And also as a reminder of the impact of operational readiness and post-construction ramp up at Aliwana. And so the cost of Eliwana will be incurred in the second half cost of production now that Eliwana has produced first ores and also transitioned to an operating mine site. Moving to cash flow, and we've talked about it previously, our free cash flow, and that's the cash flow available for dividends and debt correlates to after-tax earnings when depreciation and capex align. Total capex in the half was US $1.9 billion, and that compares with depreciation of US $670 million. So the difference of $1.2 billion represents our investment in growth, so the Aliwana Iron Bridge and energy projects. Free cash flow in the first half was $2.5 billion, and the reconciliation to the US $4.1 billion net profit after tax obviously includes that $1.2 billion investment in major projects, and it also reflects the timing of the tax payments. And just as a reminder from this month, our tax instalment rate will increase. So moving to the balance sheet, low net debt and strong credit metrics means we have balance sheet capacity. And as I've said before, we continue to assess iron bridge debt funding options, and we'll also look to proactively refinance debt prior to maturity. We reported the quarterly gross debt for 4.1 billion and net debt of 110 million at 31 December 2020. And gross debt fell from 5.1 billion at 30 during 2020 And that's because we repaid the revolver during the first half, which was obviously drawn at 30 June 2020. So with the last 12 months of EBITDA at US $10.8 billion, our gross debt to EBITDA is down to less than 0.5 times. And gross gearing, that's the book value of debt over debt plus equity of 21%. So most ratios are well below our targeted investment grade metrics, which are one to two times gross debt to EBITDA and 30% to 40% gross gearing through the cycle. And disciplined capital allocation for us comes back to doing what we say we're going to do, and delivering returns to shareholders is a clear focus for us. Given our strong liquidity position, including $4 billion of cash on hand and the $1 billion undrawn revolver, payment of the interim dividend of Aussie $1.47 has been brought forward to the 24th of March, so prior to the end of the quarter, And that's earlier than previously we paid our interim dividend in early April. So including the FY20 final dividend of one Aussie dollar per share, our trailing fully franked dividend yield is about 10% based on Quartus' current share price. Now moving to capital expenditure, our guidance for FY21 has been refined to the upper end of the range of $3 billion to $3.4 billion. A couple of things to call out on the updated guidance, the updated Aussie-US dollar exchange rate that I spoke to earlier. We've had some timing of spend on major projects, noting that we've now factored in, or have factored in, of course, the completion of Iliwana, and we've also invested approximately $50 million in our rail system, and that supports an increase in shipments guidance for FY21. So moving to capital allocation, and if you're on the webcast, slide 15, which is my second favourite chart. And on that chart, you can see since 2014, that was the year we ramped up production to over 100 million tonnes, following what we call the T155 investment. Over that period, Fortescue's generated $40 billion of EBITDA and an average margin of 54% and reported $19 billion of net profit after tax. generating an average return on capital employed of 26%. So of the $30 billion of net operating cash flow generated over this period, $9.5 billion has been reinvested back in the business in both sustaining and growth capex. We've repaid $9.3 billion worth of debt and $12.6 billion of dividends have been distributed to shareholders, inclusive of the dividend that was declared today. And that represents a payout ratio of 66% of net profit after tax over that period. a commitment to target the top end of our dividend payout range of 80%, and the remaining 20% of NPAT is then available to fund growth. And to provide further clarity on our capital allocation framework, we've guided this morning of our intent to allocate 10% of net profit after tax to FFI renewables growth and the other 10% for resource growth opportunities. Of course, while this is a target, any funding is subject to the fierce competition for capital we have across Fortescue and ultimately will be a function of free cash flow at the time. So as I hand back to Elizabeth, you can see that Fortescue achieved outstanding results in the first half. Our balance sheet strength and liquidity position provides confidence in the outlook and puts us in a very strong position for the second half of the financial year. Central to our consistent and predictable performance is our values and there was a stark reminder of this the importance of this this week, and never losing sight of living and breathing the values, all of the values, all of the time. Remaining focused on the things that we can control, which is safety, delivering on our integrated operations and marketing strategies, while maintaining operating and capital discipline, which optimises margins, and that means we can deliver returns to shareholders. Elizabeth, back to you.

Thanks, Ian. We've seen a strong start to FY21 and we are continuing to deliver benefits to all stakeholders, including our customers, team members and the communities in which we operate. And to that end, during the period, our Billion Opportunities Program continued to award sustainable business opportunities for Aboriginal people. We've now achieved the significant milestone of awarding contracts and subcontracts to Aboriginal businesses and joint ventures. with a total value of Australian dollars $3 billion since the initiative began in 2011. As of 31 December 2020, Aboriginal people represent 10% of Fortescue's total workforce and 14% of our Pilbara operations employees. So in closing, this has been a challenging week for the Fortescue family. This is a great company with a huge depth of talent and experience, and it's because of this that Fortescue delivered such outstanding results for the first half of FY21. Our ability to deliver increased returns to our shareholders is underpinned by our operational excellence, together with a successful execution of our strategy through balanced strengths, enhanced product mix, and our industry-leading cost position. So we're obviously now well and truly into the second half of the financial year, and our guidance is for iron ore shipments in the range of 178 to 182 million tonnes, C1 cost guidance in the range of $13.50 to $14 a metric tonne, and capital expenditure at the upper end of our previously guided range of $3 to $3.4 billion. And as always, the team remains focused on what we can control, safety, production and cost. This month in Western Australia, we experienced a five-day hard lockdown and our team members remain committed and worked closely with us, many showing their dedication and staying on site for longer shifts. And I also want to acknowledge the recent bushfires near Perth that had a devastating impact on our wider community. This event was personal to us at Fortescue as we had a number of team members who were directly impacted. And I'm very proud to see members of our Fortescue family volunteering to support firefighters. And of course, we continue to support our partners, Mindaroo, through the fantastic work they do with the Mindaroo Fire Fund. It is in situations like this that our Fortescue values shine their brightest. And I want to thank all our Fortescue families for never losing sight of our responsibility to look out for their mates. Thank you. I'll hand back to Bernadette to facilitate Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Please note there is a limit of two questions per participant. If you wish to ask further questions, please re-register. Your first question comes from Raoul Anand of Morgan Stanley. Please go ahead.

Hi Elizabeth and Ian, thanks for taking my question. Perhaps if we can please start with the capital allocation framework, your commitment to allocate 10% of earnings to FFI specifically. Just wanted to understand if there's an update here on what potential opportunities there are or getting close to fruition and then also slide 13 shows the potential wind farm. I just wanted to check, is that something that's going to sit within FFI and not FMG like the Pilbara Energy Connect? I'll come back with the second thing.

Maybe I'll start with the second question first about the wind farm. Look, we're looking at a range of opportunities. I think that's an image that we've used to really show the opportunity for renewable energy. The Pilbara has an abundance of wind and solar energy and currently we're actually installing life-scale solar. So, you know, there are studies underway to look at the opportunities for further wind and solar in the Pilbara to tap into that for our renewable energy. But our current focus at the moment is largely on solar. But certainly the FFI team are looking at and undertaking studies on the potential for wind. In terms of the allocation of earnings to FFI, I think what we've done is actually just spelt out our framework. So we're targeting the upper end of our dividend policy payout ratio, when the upper end being at 80%. We're saying that there is half of that to FFI and renewables and half to other opportunities. In terms of FFI, the team have actually been able to identify a number of opportunities globally and they are now undertaking further work and studies. We have indicated previously that we anticipate we will be investing about $100 million in FFI this financial year. The 10% of net profit after tax is there to facilitate further studies, but they still will need to come to the board for approval under a very disciplined capital allocation framework. And the studies that they're looking at include some of the global opportunities that they've identified on the recent FFI global trip, but also we have referenced the Tasmania opportunity as well for green ammonia in Tasmania. So those are the near-term opportunities there. certainly more domestic in terms of Pilbara and Tasmania, but also assessing a number of opportunities globally.

Thank you. Your next question comes from James Redfern of Bank of America. Please go ahead.

Hi, Elizabeth and Ian. First question is on Ironbridge. The indicated CapEx of $3 billion up from 2.6 is a 15% increase. which is a lot lower than some of the market commentary around a fair to fortunate increase. So this is obviously a positive outcome. How confident should we be that the CAPEX will be around this $3 billion mark? I think that's the first question.

Well, I think, James, we are undertaking a further technical assessment. I mean, we've clearly done a lot of work in the detailed review, but there is further technical assessment required. That's a preliminary estimate of up to $3 billion. There's a range of factors that have contributed to that that's There's currency, there's general materials costs, you know, that includes access to labour and mobility, and also schedule and logistics is a big part of that. So there will be further work underway. As you know, we're very focused on being innovative and ensuring that we are able to deliver the project at the lowest capital intensity. So that's where the focus will be. But there has been significant work to arrive at that preliminary estimate, and the next 12 weeks we'll be firming that up

Okay, thank you. And look, my second question, and I hope you don't mind me asking, there were some obviously very big changes this week in the leadership team and both yourself and Ian are not going to be receiving any incentive payment for FY21. Just wondering, in regards to yourself and Ian, was that a self-imposed move or was that placed upon you by the board?

Look, I think, James, we won't comment further on that.

Thank you. Your next question comes from Lyndon Fargan of JP Morgan. Please go ahead.

Lyndon Fargan Thanks a lot. So the first question is on Iron Bridge. I just wanted to understand a bit more about the technical assessment that's being undertaken. I'm just wondering what that actually involves and whether you've in fact pinned down the flow sheet and just sort of feels like a term that really should be applied pre-project, not necessarily during construction. So I'm just really trying to get a better handle on that. And then the second question is, with regard to the 10% of NPAT going into FFI, I guess if I look at Bloomberg consensus, we're a bit over $8 billion this year. So is it as simple as $800 million going into next year's CapEx budgets? Or is this some sort of through the cycle type average? Thanks.

Yeah, thanks, Lyndon. Look, on Ironbridge, there is no issues with the process. And as you know, we invested $500 million in the pilot and demonstration plants. We've produced the concentrate. So this is not an issue at all to do with the process flow sheet. The areas that we've called out that we are reviewing is the magnetite concentrate transportation and return water pipelines. looking at opportunities to utilise Fortisview's port and rail infrastructure. There's contracts of strategy and selection, as well as logistics infrastructure. But there's nothing about the processing plant itself that has arisen as a result of the review. We're very confident in the processing plant. But there are things that have occurred, whether they are related to the access to labour, the mobility of labour, some of the contractor... selection and their access to labour that are causing us to review those particular areas for the next 12 weeks.

Thank you. Your next question?

Sorry, Ian will deal with the FFI.

Sorry, Emily. And just on the FFI, perhaps a practical example. This is a framework and as I mentioned, our capital allocation process where there's gonna be a competition for capital and dependent on the cash flows at the time. And a practical example is net profit after tax for the half was 4.1 billion. 20% of that is 820 million. And I stepped you through the reconciliation where we've allocated $1.2 billion to growth. Now, that's clearly 100% reinvested back in the business. So FFI is currently in the study phase. Projects come up and projects will be considered within that capital allocation framework. So I think the practical application is perhaps a good... example of how it would work, but clearly at the time of making an investment decision and at the time of allocating the capital to the, as Elizabeth said, those exciting projects which are going to come up in the future.

Thank you. Your next question is from Khan Pika of Royal Bank of Canada. Please go ahead.

Good morning, Elizabeth and team. Thanks for taking my question. Just on the CAPEX increase, I'm wondering if you could provide some sort of split-buy component. Given that we've had a step up in CAPEX and the project's still under review, don't you think it's appropriate to give a little bit more transparency around where the CAPEX is being spent and what's increased? And I'll ask a second question following.

Well, look, I think that'll be part of this technical assessment when we get to in this 12-week period. We've indicated that there have been There's been a detailed review. There are a number of factors that have contributed to that, including strength of the Australian dollar and the other market factors that we're seeing, particularly with access to labour and mobility. And I think you can see from the areas that we are assessing as part of this detailed technical assessment that that's where the key area of focus is in terms of the overall capital estimate. And, you know, the magnetite concentrate transportation and return water pipelines is a key area of that focus.

Sure, thank you. And also, just wondering, there's five binding offtake agreements already with Ironbridge, around five million tonnes odd. When do they commence? And I suppose, are they sort of drop-dead dates that's been committed to? Thanks.

No, they're linked to production. You can't sell a product without producing it. So we haven't, we've got the contract set up, but it's back to production.

Thank you. Your next question is from Paul Young of Goldman Sachs. Please go ahead.

Hi Elizabeth and Ian. A tough week, no doubt. Just a few questions from me. First one is for Ian on sustaining capex, which ran at 650 mil for the half. That's a little bit high. It has been trending high for the last couple of years. Is that a good run rate, Ian, to sort of double that and drag that right in our models? Or do you think that that could be lumpy and could actually increase? And the second question is on FFI again and When you look at projects, investing in projects and how they compete for capital with, say, minerals projects, do you actually have a lower hurdle rate for renewables projects? We're seeing out there projects, I guess, approved on IRRs of 5% and lower. Is that sort of what way you think about renewables? The direction requires a lower hurdle rate than, say, investing in your own business in the Pilbara?

Perhaps take the second one, wash your mouth out. We've got a lower hurdle rate, Paula. The answer is that it depends. And, you know, you've got to take a different view to the different projects. But at the end of the day, getting an appropriate return on capital for the capital employed and relative to the next best option. So I wouldn't leave you with the expectation that we're going to lower our hurdle rate, but it does depend on the project. And also the funding solution where we're talking about the cash that's being allocated to FFI through our capital allocation framework. But any project with NSFI, the extent to which they're raising debt capital, that would be non-recourse to Fortescue. So I think that's on FFI.

Yeah, I mean, they'll be looking, as you would expect, for low capital intensity projects. lowest cost quartile. So that framework that was applied to our iron ore operations would also apply to any projects developed by FFI. So we won't be doing what everybody else is doing. We'll be targeting a very low capital intensity and low operating costs.

And just on sustaining capital, if we go back to original guidance and the billion dollars was split up into two component parts, what we'd call sustaining capital, but also operations development capital as well. And so the WINS project, which was successfully commissioned and is running and ramping up, is part of our operations development capital. That's a bit lumpy. And with WINS being in the first half, obviously that looks like the first half is a bit higher than the average, which is right. But it really, in terms of your long run, It depends on your iron ore price, because if we can afford to do short payback, high return projects, we will. But if we can't afford it, then it pulls back to sort of a number of, in the order of, we've talked about 700 to $800 million a year. So it depends on what you've got in your model, and you can't put a billion dollars if it's got a low iron ore price, but if you've got a higher iron ore price, we're obviously going to be investing in the things like winds and bias, other things to mitigate cost pressure as well, and similarly that goes to the assumptions on the cost of production. The other point I'd make on the minor hub development, you know, those sort of hub developments such as the Queens, which is sort of at the back end of its process. As those come up, we'll call those out separately. So you'd need to make an, obviously, assumption on that going forward. But that $1 billion round numbers is the right number for now.

Thank you. Your next question comes from Hayden Bairstow of Macquarie. Please go ahead.

Good morning, guys. Just a couple for me. Just back on Ironbridge, just wanted to touch, Elizabeth, Your comments about sharing the infrastructure, is there anything sort of structurally at issue with building a pipeline and the oil flowing to port? Is there any concerns about them? It's effectively all downhill, so I don't imagine there's that much of a problem. Or is it just timing and cost to deliver it, and hence that's what's under review, because that could be the key issue for the project. And then secondly, just on the capital allocation, I mean, the capex increase for Ironbridge at $3 billion. I assume that's on the new currency adjustment. So it's only like an 8% increase if you take that away. So it doesn't seem to be that much. And then is that part of the 10% of resource growth opportunities that you sort of allocate out separately as part of the sort of 80% of dividends and the rest goes to that over the next couple of years? Or is that captured within the sustaining capital assumptions?

Maybe I'll deal with the pipeline. I think it's more that current market conditions, labour, access to skilled resources and installation. So the pipeline itself, as you rightly point out, is a relatively straightforward solution, albeit as there are some challenges to do with the corrosive nature of the water, but we have a solution for that. So it's more around installation costs that is driving this review because the installation costs in this current market environment do require further assessment. So that's the focus for this review. Ian, did you want to touch on the capital allocation?

Yeah, and perhaps just to clarify, when we talk about resource growth, that includes iron ore or magnetite as opposed to other resource. So broadly, you know, resource and renewables, we've talked about that. So that's a category. So Ironbridge is well in that resource growth category.

Thank you. Your next question comes from Peter O'Connor, Offshore and Partners. Please go ahead.

Good afternoon, Elizabeth and Ian. Two questions. Firstly on FFI. Ian, the likely first timing of a major project to the board and the capital allocation process seem to be suggesting it's cash only as part of that 10%, so it's not a levered total number?

Yes, so first-timing, that's impossible to say.

With clarity. I mean, with certainty, there's a lot of work to be undertaken.

We're in the studies phase. We're allocating to FFI our admin costs, which we've spoken about. And in terms of the allocation of capital to FFI, that would be the unlevered amount, clearly. And as I said earlier, the expectations of any debt funding associated with FFI projects would be non-recourse.

And Peter, I should clarify that there is a Tasmania opportunity that we're actively considering, which we have disclosed before. And there are studies underway looking at that opportunity. And we would expect that there would be some proposal taken to the board during the course of this year.

Thank you. Your next question comes from Robert Stein of CLSA. Please go ahead.

Hi, Elizabeth and Ian. Great result. Just two quick questions. The first one regarding Ironbridge. If we adjust for FX and expected wage inflation, as we've previously talked, we get the lion's share of the $400 million capex. So, therefore, are the costs you're targeting really scope and contractor rates worth the shedges of lay and risk that you're introducing, given the higher short-term on all prices that are generally forecast to weaken over time? And second question is regarding 100 million cash hedging losses. I think we said in the previous quarterly that the QP lab was virtually non-existent and that we could assume price of the day. So with the hedging losses, is that assumption still valid? And is the hedge program being maintained given the robust market view and the $4 billion of cash that you have? Thank you.

Thanks, Robert. Maybe I'll take the first one around Ironbridge. Look, obviously, you're right, there are some of these escalations in the market, but one of the other challenges is around schedule, and that's why we're also considering some of the logistics infrastructure. I mean, the port of Port Hedland is a busy port. We've got large offshore modulars being fabricated, which will need to be delivered through Port Hedland, and what we're finding is that's putting some pressure both on cost but also on schedule. So that's part of the assessment that we'll be making over the next 12 weeks. But you're absolutely right. I mean, the focus is to both schedule and forecast final costs. And that's why we need to do that work, taking into account some of those issues we've seen around those, as I said before, general market factors, labour costs and the like. But schedule is also part of this 12-week assessment. And we do have a number of options, but one particular option regarding how we can improve the delivery schedule for those large modular components, but that does need that 12-week period to fully assess that option.

Yep. And on the hedging, the hedging loss is in relation to some risk management activities that we took to support the sales increase domestically into China, so the Fortescue Shanghai trading. So it's important to note that we don't take the loss... Thank you. Your next question. Oop.

It's still going. Keep going.

So perhaps, I'm not sure where that cut off, but the hedging position was in relation to risk management for our increase in sales domestically into China, and that's not a long-term position. That position will be closed out at the end of this quarter. And it's important to note that we'll then have full exposure to the iron ore price changes going forward. And again, an important point that it's not a long-term position.

And the average realized price on those hedge instruments was $111 compared to our average realized price of $114. But there is no, that activity has ceased.

Thank you. Your next question comes from David Coates of Bell Potter Securities. Please go ahead.

Congratulations on a great result. It would have been a tough week. My question is on Ironbridge. If I read your update correctly in that limited project works will continue during the next 12 weeks, is the implication that a number of other work streams have been sort of shut down for that time? And if so, what sort of scale back has occurred with work on Ironbridge?

Yeah, so David, there's some activities that will slowdown. I'm not sure it's a complete shutdown, although some of the areas that we're assessing, there will be a significant slowdown. I think more importantly, during this 12-week period, we'll avoid what would have otherwise been a ramp-up. And I think that's the key, is we're going to take this period to do that commercial and technical assessment and avoid further ramping up during that period of other contractors and later mobilisation. So this really is a focus more on Continuing with the activities that we outlined in the release, which includes engineering, offsite fabrication, procurement activities and site-based civil work. So those will continue. Other areas will slow down. But really, this is an opportunity to do that assessment and avoid what would have otherwise been a significant ramp up.

No worries. Thanks very much.

Thank you. Your next question comes from Glynne Lawcock of UBS. Please go ahead.

Hi, Elizabeth. Look, I guess I'm still trying to wrap my head around Ironbridge and the events of the last 48 hours. I mean, slowing down, changing contractors or contractor strategy, I mean, for anyone who's ever built anything, this seems to lend itself to increasing capex, and a 15% increase so far doesn't really support the announcements of the last 48 hours. So I'm just trying to square that circle. I know it's a hard one to answer. And then the second one is just with FFI, I know it's going to be a project by project basis, but in terms of debt versus equity, do you have a sense as to when you go to fund your first project, would it be 50-50? I'm just trying to figure out how much it will be short for the SKU money and how much will be project finance. Thanks.

Thanks, Glenn. I'll take that first question. Look, the events of the last 48 hours, as I said, said earlier, not a reflection of the capital estimate. I think, you know, first and foremost, that's not the changes that we've made, not as a result of the capital estimate. As I outlined earlier, you know, this really was about a breakdown in team culture and, you know, not an assessment of that capital estimate. So they are different issues. There are some factors that arose as a result of that detailed review, not only around capital estimate, but also some of these other challenges around the team culture and the escalation of information and the ability to take the opportunity to call on all of our great ideas and people who could work on solutions. So, yeah, I guess there's not more I can say about that other than it's not a reflection of the capital estimate. Obviously, you had a point as well around, you know, contractor selection and strategy. The plan is not to increase capital costs. The plan is to do everything we can to be able to bring that project successfully and at a low capital intensity. So that's where the focus will be. But, you know, there are some areas where contracts have yet to be awarded and some quite significant contracts that this is the opportunity to really reassess and take the time, including the pipeline installation, as we've seen the... the estimates, this is the opportunity to reassess those areas that we've pointed out there, the transportation solution as well as the utilisation of all these port and rail infrastructure.

Ian, if you want to... OK, thanks. We're not on FFI in the split as yet, so I think it's too early to sort of really make a... to give you anything definitive, because it will ultimately depend on the types of projects that, you know, major infrastructure projects are funded differently to perhaps the Tasmania project that Elizabeth spoke about earlier. And, you know, we'll have to give you that level of detail once we have visibility on it ourselves, I guess, is the simple answer, to be honest.

Thank you. Your next question comes from John Tomazos of Very Independent Research, LLC. Please go ahead.

Thank you all for your service to the company, both those included and departed recently. Today, early today for you, I hosted a meeting for a Quebec iron ore project, magnetite, that opined that it was better to be 65.1% Fe than targeting 67 or 68 because of the electricity consumption for a fine grind They don't have any carbon goals and they get renewable hydro Really really cheap because there's too much hydro in Quebec Yeah, could you tell us what the fine grind is 16 microns what microns it is? For iron bridge and how sure you are that the pilot studies are accurate and how much the capital is for the solar or wind to deliver the grind size to get the 67%. Sure.

I think in terms of the energy costs, we have a separate project, which is the Pilbara Energy Connect project. So that is separate to the Ironbridge project, remembering that Ironbridge is a joint venture project. So Pilbara Energy Connect is a project of Fortescue, which is $700 million for the large scale installation of solar as well as additional gas generation capacity at Solomon. So obviously energy was a big part of our initial assessment on the project and the work we actually undertook through the pilot and demonstration plants to ensure that it is energy efficient and to add an innovative step of dry processing So that is, I think the end result is that 30 microns. But there has been a lot of work on this in terms of energy efficiency, the addition of dry processing at the front end of the process. And obviously, as I said separately, we have a low cost energy solution which incorporates large scale renewables and gas generation.

And perhaps the scenario work that's been done on the relativity between 67 or 65 and working in an integrated way with the operations and marketing team together with our customers and that's how we landed on the 67.1 product. Thank you.

Your next question comes from Sam Webb of Credit Suisse. Please go ahead.

Thanks Elizabeth and Ian. Just back to the capital allocation quickly. In the event you go through a period where there isn't some lumpy capital to spend in FFI or the other resources, is that cash then ring-fenced or can that potentially come back to shareholders? And then just secondly, what is being targeted in that 10% bucket in other growth opportunities? Is it wildly different from, you know, your current exploration targets that you have now, or is there anything new that you're targeting with that 10% spend?

Well, maybe I'll start with that one, Sam, and we'll talk about Ringfix Capital. Look, it is consistent with the opportunities that we're already considering in, you know, our other commodity diversification and exploration activities, so it's not inconsistent with that. diversification opportunity as well as in iron ore as well to further increase our iron ore resource and opportunities in the iron ore sector. Ian, you might want to talk about the ring fence capital.

Yeah, Sam, I wouldn't think about it being ring fence because cash is fungible. What we're talking about is an allocation methodology that's going to be subject to the point in time. So if you look at the capital allocation that we've done just for this half is that we've allocated 80% of net profit after tax, which is a material proportion of our cash on hand. It's at the end of the period. So it's not ring-fenced and cash is functional and it's part of managing the group capital allocation and obviously cash flow is an important input into that together with the projects and then funding the projects at the time of making the investment decision.

Thank you. Your next question is a follow-up of Lyndon Fargan from JP Morgan. Please go ahead.

Thanks for that. So just going back to Tassie, assuming you do take an FID and this thing's built, just wondering if the green ammonia is something that would be used by Fortescue to decarbonise or whether this is something you would be looking to sell to third parties. And the other follow-up I had was on the green steel pilot plant. It looks as though this is targeted for construction starting... within 24 months. I'm wondering whether that's looking to utilize Iron Bridge product or existing product from Fortescue's other operations and whether you can provide a hint on the technology that's being looked at. Thanks.

Well, Lyndon, I can't give a hint on the technology yet because there's a number of technology solutions that have been assessed. In terms of The magnetite concentrate, there is actually a product that's already been produced for the pilot plant as well. But all options in terms of the feed in for the pilot plant will be considered as part of that technical assessment. And in terms of Tasmania, I think, again, the team will look at those opportunities, whether it's for utilisation by Fortescue as part of our decarbonisation or whether that is intended for third parties, but that's part of the studies phase that is underway at the moment. So we can't really give you a firm and definitive view on that yet, but both those options would be part of that assessment.

Thank you. Your next question is a follow-up from James Peaker of Royal Bank of Canada. Please go ahead.

Thanks for taking my question again. Just one on FFI. So if we take 10% of net income, about 800 mil this year, all these renewable projects have capital intensities of 2 to 4 billion per gigawatt. How do we bridge that gap to that 100 to 200 gigawatt target? And I've got a question after that.

Well, I think that capital allocation is to support studies phase. If there is a project that... is presented for consideration and approval, then the funding of that project will be part of that consideration.

Okay. And also, just back on Ironbridge, even taking that $3 billion capital number, in terms of capital intensity per tunnel process, Ironbridge has similar capital intensity with magnetite projects currently being developed, which don't have port. Despite a magnetite project which requires tertiary processing and wet verification, how do we get to that low capital intensity?

Well, I think that low capital intensity is part of Sawdust Hughes' approach. We've studied the project in detail. That whole was to arrive at a lower capital intensity through using innovation. And I did mention as well that the power solution is a separate project funded by Fortescue, with the Ironbridge project being the joint venture. But it does use 20% less water and 30% less power than other similar processes, and that's the innovation that went into the pilot and demonstration phase. So that was studied comprehensively before we reached fifth.

Thank you. Your next question comes from Peter O'Connor of Shore and Partners. Please go ahead.

So Elizabeth, the pipeline, and thinking about what you review over the next 12 weeks, is a change of scope of your transport option with magnetite part of this? So is it a pipeline slash rail? Would you, could you rail magnetite material? Is that part of this scope? So on the review? And I have a follow-up.

Peter, the review will assess that and the technical viability of that. Yes, you can actually transport menu type on rail. That's not an issue. But part of the assessment is just looking at the estimated cost of the pipeline installation versus, as we've said, looking at enhanced utilisation of our existing infrastructure. So that's the assessment that we'll be undertaking. But yes, you can transport menu type by rail.

And a follow-up is on the dividend, Ian. The payout ratio over the last couple of years, you've always targeted the range you've guided. 65% seems to be the way the first half has dropped out over the last couple of periods. Do we take today's 80% as a guide going forward that you'll stick to that high end of the range?

Yeah, we're targeting the top end of the range because the strength of the outlook together with the cash generated in the quarter is the top end of the range, so...

Well, I think, Peter, I would add as well that, you know, seasonally, if you look in the past, you know, our first half performance has probably been lower than our second half performance. We've always had historically a very strong June quarter, so there's been some seasonality. But what you've seen, actually, in this first half was that record performance, and we shipped 90.7 million tonnes. Given our guidance, there's, I guess, a slightly more even distribution of performance.

And to be fair, we said we were targeting the top end of the range, and that's exactly what we've done. Yeah.

Thank you. Your final question comes from Paul Young of Goldman Sachs. Please go ahead.

Hi again, Elizabeth and Ian. A question on the shipments guidance of 178 to 182. It'd be really impressive if you can push above the 180 mark, which is, I guess in theory, well, it's a theoretical capacity of the card up as being 60 million tonnes each. What's your sense or any update on whether you can squeeze that beyond the 182 and where the bottleneck might be? Is it on the rail or is actually the car numbers you think can actually do more than 182? Second question I had is actually on the iron ore market. No questions on that today. I know this is the last call. Yeah, quite amazing. But the last call you did on the quarterly, you actually mentioned that the expectation was that Chinese stockpiles could actually fall to 100 million tonnes by the end of the March quarter, just by conversations with steel mills, we're only a day or two post-Chinese New Year. It's very early stage. What's your sense on takeaway capacity and restocking by steel mills that you've seen post-Chinese New Year so far?

Yeah, thanks, Paul. In terms of that above 180 million tonnes, as Ian mentioned in our updated capital guidance, we have invested in some additional rail fleets, so that's where the challenge has been to really push. that rail optimisation in terms of the car dumpers. We're always looking at ways to optimise performance through the car dumpers. They have demonstrated that there is some additional capacity, but really it's been about the rail fleets and we are investing in additional ore cars to alleviate that issue. But that's a constant area that's under review for us, which is how to optimise our installed infrastructure and we'll be doing even more work on that as we move forward. In terms of the iron ore market, what we're seeing is it's pretty stable at the moment, actually. You know, there hasn't been that sort of same drawdown. The seasonal trend hasn't been as significant as you might have seen in the past. You know, activity has stayed fairly consistent through Chinese New Year with less people travelling back to their homes, obviously with China and COVID restrictions. So we've actually seen that it's pretty stable.

Thank you. There are no further questions at this time. I'll now hand back to Ms. Gaines for closing remarks.

Thanks, everybody. Thanks for joining us. Obviously, a very pleasing set of results and the highest single half-year performance since the company was established with a record dividend. So a pleasing set of results and the team are positioned very strongly to deliver in this second half. So thank you. Look forward to speaking to you again soon.