Fortescue Ltd

Good morning, everyone, and welcome to Fortescue's FY22 results presentation. Joining me today in Perth is Elizabeth Gaines, Chief Executive of Fortescue. Elizabeth, you could not have been a more effective, gracious leader. You've crossed between, in my view, a Queen Boudicca and a Mother Teresa whenever required, and a result throughout COVID-19 strength of new projects and great operations bear that testimony. You've been wise, humble, sharp as a tack, always living our values, teaching them wherever you've gone. Alongside us is Ian Wells, Fortescue's Chief Financial Officer. I'm delighted that we're also joined by Fortescue Future Industries' Chief Executive Officer, Mark Hutchison. I have excused Guy DeBell. He had a minor biking accident accident on the weekend, will be back on his pins shortly, and his role will be covered by all of us, and particularly by Hutch, our CEO of FFI. Whether you're participating via phone or webcast, thank you for joining us. Those who've joined us via webcast, you'll be able to follow along with the slides, and those who've dialed in separately, a copy of our FY22 results presentation is available on our website. That brings me to our full year results. They build on the record operation performance we released to the market only a few weeks ago. And today's announcement is just truly a testament to the hard work, dedication of the entire Fortescue team, guided as we are by our unique values and culture, just as relevant today as they were when Fortescue was established. As you know, we merged just 19 years ago at David amongst the Pilbara and global iron ore galleys. Tiny though fast, sure, agile and innovative, we had no ground, hardly any capital, and certainly no way of getting anything we did find to market. Understandably, the task was written off as impossible. You can be forgiven for thinking the same about now. Fortistry will once again be the catalyst for change. As we are now, back then, we were humble, frugal, empowered, enthusiastic and just a little courageous, with determination as steely as our product. We will never give up. These values guided us to become one of the largest iron ore producers and certainly the most efficient in the world. To bear that out, this year Fortescue shipped a record of 189 million tonnes of iron ore, despite the immense headwinds posed by COVID and rising inflation. This coming year, we're aiming to break further records with guidance for shipments of 187 to 192 million tonnes. Iron Bridge will come online, capable of delivering 22 million tonnes of high-grade 67% iron concentrate, and despite funding this massive new asset, our balance sheet has remained very strong. These records and the prospect of even greater performance is exciting, but to me, knowing our Fortescue family so well, and our tremendous capability, I'm actually not surprised. What did surprise me is how this great team, revolving around our values, embraced so rapidly with heartfelt commitment the massive challenge of transforming our company to green, to be the first major heavy industry company in the world to do so. Having travelled all over the world, several times prior to and during the formal establishment of FFI, I can assure you this group, with their courage, determination, enthusiasm and innovation, is without peer. It is often said that when you come to a fork in the road, take it. And over the long term, the cost of not doing so, of indecision, of dithering, can be very costly. We extend this with the great poet Robert Frost. who remembered his most important days, his greatest memories, as when he took the road less travelled. We're unashamedly unafraid of being decisive and consistently taking the road less travelled. So today we have two choices. First, we can turn a blind eye to the rapidly changing global business and regulatory climate, and of course, to climate change itself. Evidence of that change you see deleteriously now all over the world. Or we can transition, as we all believe we must, into a global green metals, minerals, energy technology and development company capable of delivering not only green iron ore, but also all of the minerals critical to the green energy transition. Fortescue can and will lead the green energy revolution. And once again, set record-breaking industry benchmarks in everything we do.

We have already begun.

As I return to Chief Executive Chairman role, I'm equally excited to welcome former President and CEO of General Electric Europe and previously GE China, Mark Hutchison, with former Reserve Bank of Australia Deputy Governor, Dr Guy DeBell. to FFI's strong leadership team. We're bringing global leaders with a proven track record in managing large-scale, complex global organisations and projects, which goes to the heart of our vision for Fortescue, bound together as we are by our common values and philosophy. Our operations do and will require green energy, and every time we produce green energy globally, we will need green metals. This is a symbiotic transition into becoming one global green metals, green energy, green technology and development company with clearly some of our major advantages is the clarity and line of sight that FFI provides into the future macro global demand trends for not only green energy, but also green metals and minerals. FFI's web of country and regional leaders established when hardly anyone else was traveling during the entire reign of COVID on our planet, has not only identified very serious opportunities in energy, but also minerals, as you can see with Gabon, with Belinda. The FFI team, global team, feeds trends and analysis for all metals, minerals, and energy demand worldwide to the entire group. Our family value continues under this philosophy and binds us together. We are Fortescue. We will harness our We Are Fortescue delivery models across our growing overseas portfolio for both green, energy and metals. A philosophy, a set of values that whether projects are big or small, Australian or global, they work. We'll supply each other, we'll supply the world, literally becoming a powerhouse in where the world's greatest need is, to go green, to supply the energy and supply the metals. And of course, leading by this example, sharing our green fuels and innovative green technology with the world, we will drive the elimination of global emissions that threaten all nature and all humanity. In this process, we'll generate substantial value for all shareholders. And team, as we move into FY23, we have one combined mission, to commercially destroy global warming while creating an even stronger global business. Handing over to you, Elizabeth.

Thank you, Andrew. So turning to safety, and I want to commend the entire team for continuing to look out for their mates on our journey to zero harm. Our total recordable injury frequency rate continues to improve, with the team achieving our lowest TRIFA of 1.8. And this was against the backdrop of another challenging year with multiple COVID lockdowns in Western Australia and across the nation. And of course, we cannot forget the tragic passing of our team member, David Armstrong, as a result of an incident at the Solomon Hub on the 30th of September. The health and safety of all of our team members is our highest priority. And this event has been devastating for the entire Fortescue family. And David is missed by all of those who worked with him. Her fatality is a very sharp reminder of why safety is our highest focus, and we're working with David's family to facilitate a memorial to recognise David's passing and his contribution to the Fortescue family. During the year, the industry also faced some confronting truths as we worked to better understand people's experiences of sexual harassment at mining operations in Western Australia. The findings from the West Australian Parliamentary Inquiry were deeply concerning for the industry. And at Fortescue, we have a zero tolerance approach to bullying, harassment and discrimination. And through our ongoing workplace integrity review, we continue to implement a range of initiatives to further enhance the health and well-being of all team members, aligned with our unique culture, which embraces diversity and inclusiveness. Safety will remain at the heart of our culture and values, and we will continue to empower everyone at Fortescue to take control and look out for their mates on our journey to zero harm. So onto the FY22 results and the strong performance by the team across the entire supply chain contributed to our highest ever annual shipments of 189 million tonnes, exceeding the top end of guidance. And this contributed to revenue of $17.4 billion and net profit after tax of $6.2 billion, which is the second highest in Fortescue's history. And reflecting our focus on cost management and ongoing investments in innovation and technology, we've maintained our industry-leading cost position with C1 costs for FY22 of $15.91 a tonne. And reflecting this outstanding performance and our strong commitment to delivering shareholder returns, we have today announced a final dividend of $1.21 per share, and this, along with our interim dividend of 86 cents, represents total dividends of $2.07, which is a payout ratio of 75% of full year net profit after tax, and represents distributions to shareholders of 6.4 billion Australian dollars. And this dividend distribution is consistent with our stated intent to target the upper end of our policy to pay out a range of 50 to 80% of net profit after tax. Sustainability is integrated in all aspects of Fortescue's business and we are committed to ensuring that communities continue to benefit from our growth and development as we take a global leadership position in the green energy transition. Today we also released our FY22 sustainability report and our separate climate change report. The sustainability report details Fortescue's performance against key material sustainability commitments and targets and forms a critical component of our business strategy. Our continued commitment to empowering thriving communities was demonstrated by our delivery of 27.6 billion Australian dollars in total global economic contribution this year. And that included $5.3 billion in taxes, state royalties and other government payments. We continue to see the enormous benefits that Fortescue's success has provided to our communities. And this is evident through initiatives such as our Billion Opportunities Program, which has resulted in more than $4 billion in contracts and subcontracts awarded to Aboriginal businesses since the initiative was launched in 2011. And we're proud to be one of Australia's largest employers of Aboriginal people. representing 10% of our Australian workforce and 15% of our Pilbara operations. I believe our inclusive, diverse culture has strongly influenced Fortisview's industry-leading performance, and I'm proud that we continue to lead from the front with 50% female representation on our board of directors and a diverse management team with women representing 27% of senior leadership. And we know that diversity delivers the best results. It is not just the right thing to do, it is the smart thing to do. And as an industry, we have a responsibility to ensure as many women as possible have the opportunity to participate in and make a strong contribution to the resources sector. Increasing female employment remains a key priority for Fortescue. And I'm really pleased that since 2020, so that's only over the last two years, the number of females employed at Fortescue has increased by 60%. Fortescue is transitioning to an integrated global green energy and resources company. And for our size and scale, there is no other mining company in the world that is taking the action we are to eliminate emissions. We've set a target to decarbonize our operations by 2030, two decades earlier than commitments made by most of the mining industry globally. And we've set a target to achieve net zero scope three emissions by 2040. Fortescue Future Industries is the key enabler of these targets. with a range of heavy industry decarbonisation initiatives underway to eliminate our reliance on fossil fuels. And we're already seeing the benefits of our decarbonisation initiatives through the energisation of the 60 megawatt Chichester Solar Gas hybrid project, which has displaced 78 million litres of diesel usage in FY22. And we're investing in renewable energy through Pilbara Energy Connect, which includes transmission infrastructure, hybrid solar gas generation and large-scale battery storage. And on that note, I'm absolutely delighted to hand over to Mark Hutchinson, CEO of FFI, to say a few words. Mark.

Good. Thank you very much, Elizabeth. Can I take a moment to acknowledge your invaluable contribution to Fortescue? Your hard work and successes have helped place this company in the best position it can be to take the actions needed to now eliminate emissions. By virtue of this, Fortescue is not only leading by example, but it has also already begun its transition into the global green energy resources and technology company of tomorrow that you described. Today, Fortescue's assets and infrastructure rival the best in the world and is from this outstanding platform that we are now positioned for serious growth through FFI. Australia's largest export is iron ore, but our other major export is emissions. FFI will lead the world in eliminating emissions from heavy industry, starting with the decarbonisation of Fortescue's own operations, while driving the establishment of a new market for renewables, green energy that can replace fossil fuels. FFI will build on Fortescue's reputation for operational excellence and capital discipline, and we are absolutely committed to maintaining Fortescue's strong balance sheet. I joined Fortescue Future Industries because it is clear that Fortescue is a company that lives and breathes its values. I see two clear objectives for the FFI business. The first is to provide the technology and the innovation required to eliminate Fortescue's emissions wherever possible. And by significantly reducing our reliance on diesel, we'll also be reducing costs. Much of the technology we need to deliver on this, we will develop ourselves in-house. And FFI, like FMG, is a serious technology company. We will also leverage the technology that is available elsewhere. The acquisition of Williams Advanced Engineering and Fortigu's partnership with Liebherr demonstrate this. The second objective is to make green hydrogen a quality and at speed and fulfill our obligation to our customers. The work that our chairman and the FFI team have done over the past two years on the supply side of the business puts us way ahead of the game. Our focus now is on building out the demand side. We are already in a very strong position. Our MOUs with E.ON and Convestro are a fantastic base, but there is more to be done And are we progressing towards committed offtake agreements in Europe, Asia and the United States? There is significant global demand for the green hydrogen and green energy we will produce and for the technology the FFI is developing. There are various estimates that green hydrogen will become a multi-trillion dollar market. There is also considerable international capital for green projects. And the world's largest asset managers are committed to funding the climate transition. The geopolitical environment has only served to speed this up. Policy setting across Europe are helping to ensure that the production of green energy, and green hydrogen in particular, is competitive. The recent passage of the Inflation Reduction Act sees the U.S. position itself as a potential green hydrogen superpower. And energy security is leading more and more countries to green energy solutions. With the rise of this new industry comes environmental benefits as well as economic ones. Our role as a new leadership team is to ensure FFI remain at the forefront of this global movement and that FFI takes full advantage of the huge environmental and economic opportunities that come with it. And we have never been in a better shape to be able to continue to grow the business and deliver returns to Fortis Hughes shareholders. Our greatest asset is the speed at which we work. We've seen significant progress on a number of projects across FFI's portfolio of work during the financial year. This includes at Gladstone in Queensland, where construction of our green energy manufacturing centre is well-progressed with the first electrolyzer to be manufactured next calendar year. At Gibson Island, we are working to convert Incitec Pivot's existing ammonia production facility to produce green ammonia from renewable energy with studies progressing on this project. Our focus now is razor sharp on project delivery. In the short term, we'll focus on prioritizing the projects that will ensure our time, our resources, and our funds deliver the outcomes we, our customers, and our shareholders expect. I look forward to updating you on all this work in the coming months. On that note, I'd like to invite Ian to provide an update on Fortescue's financial performance.

Thanks, Mark, and hi, everyone. I'd just like to start by saying it's always a privilege to present a summary of our financial performance. And you can see from our disclosures today that we've again reported a transparent and clean set of results. We generated strong earnings and cash flows in FY22 by remaining focused on what we can control, delivering consistent operating performance with a strong focus on cost management and capital discipline. That drives margin, cash flow generation, and return on capital. So turning to the numbers, revenue of $17 billion was the second highest in the company's history, and combined with strong cost discipline contributed to EBITDA of $10.6 billion, and that was in an EBITDA margin of 61% and noting there was some margin compression relative to FY21 and that was resulting from the lower iron ore prices and the industry-wide cost inflation. That equates to an EBITDA margin of $63 per tonne for the iron ore business and for those on the webcast you can see that Fortescue has continued to generate strong margins through the cycle and in fact our average EBITDA margin in the past five years is now over $55 a tonne. As we discussed in the June quarterly release, our C1 cost of production increased due to higher diesel costs, labour rates and other consumables like ammonium nitrate. And our FY23 cost guidance of $18 to $18.75 per tonne takes all of that into account together with the lag effect of ongoing inflationary pressures and importantly maintains Fortescue's industry leading cost position. EBITDA flows through to NPAT with NPAT of $6.2 billion, which translates to US dollar earnings of $2.01 per share and in Aussie dollar terms $2.77. Those earnings provide a return on capital employed of 36% and implies a trailing PE multiple of less than seven times the current share price. On the next slide of the webcast shows EBITDA and MPAT waterfall relative to FY21 and you can see all the moving parts including impacts of volume, price and costs. Another point to note is that FFI's incurred expenditure increased to $386 million and that's reflecting the increased activity from $104 million in the prior year. We move to cash flow. As a reminder, FY22 net operating cash flow of $6.6 billion included the payment of the prior period final FY21 tax instalment of $900 million and a point to note that during the year we varied our instalment rates to better align cash flow with earnings and therefore we don't expect these timing differences going forward. FY22 CAPEX was $3.1 billion, free cash flow generation was $3.6 billion. When we compare that with $6.2 billion of net profit after tax, free cash flow was lower due to two key items. The $1 billion prior year tax payment that I mentioned earlier And the second point is CAPEX is $1.5 billion higher than depreciation as we continue to invest back into the business and invest in growth. And that investment will be reflected in an increase in depreciation year on year, of course, as Ironbridge transitions to operations. And as discussed on the June quarterly call, our FY23 CAPEX is a range of $2.7 to $3.1 billion, excluding FFI. Fortescue's balance sheet remains strong with cash on hand of $5.2 billion at 30th of June. This includes reserve cash of $2.6 billion for the final dividend, which we pay next month, and $1.1 billion committed to FFI, both in accordance with our capital allocation framework. Gross debt increased to $6.1 billion that was following the drawdown of $400 million from our term loan facility and the completion of a $1.5 billion offering of senior notes, which importantly included Fortescue's inaugural green bond issue of $800 million. If you're on the webcast, we've shown our credit metrics remain well inside of our targeted investment grade levels, which are gross debt to EBITDA of one to two times and gross gearing of 30 to 40% through the cycle. That means we have balance sheet capacity to fund future growth and we'll continue to proactively manage our debt maturity profile and also look to optimise our debt capital structure. On shareholder returns, the fully franked final dividend declared by the board takes the FY22 total dividend to $2.07 per share. That implies a fully frank dividend yield of more than 10% in the current share price. And that capital return is consistent with our capital allocation framework, which, as a reminder, incorporates the four pillars of reinvesting in the business, maintaining a strong balance sheet, capital returns to shareholders, and investing in growth. And that includes the allocation of 10% of impact to fund FFI. FFI's anticipated expenditure this year is $600 to $700 million, inclusive of $100 million in capital expenditure and $500 to $600 million, which we recognise as an operating expense. And to reiterate, the FFI's projects will be funded with project finance, separately secured through the substantial market demand for green investments, noting the widespread investor interest in FFI across the full spectrum of its investors, ranging from retail through to institutional investors, and sovereign wealth funds, and right across the whole capital structure. Discipline capital allocation is a core competency and really important for us. And for us, that comes back to doing what we say we're going to do, and that's evident on the slide. You can see on the webcast that since FY14, so that's over the past nine years, Fortescue has generated over $45 billion of net operating cash flow. We've reinvested $14 billion back into the business and into growth. We've repaid over $7 billion of debt on a net basis and declared nearly $22 billion of dividends and that represents over $9 Australian dollars per share and equates to an average payout of almost 70% of net profit since 2014. So in closing, you can see we're really proud of delivering the second strongest financial result in the company's history underpinned by record operational performance and this is a result of focusing on the things that we can control consistent and predictable operating performance, strong cost management and disciplined cost allocation. And on that note, Elizabeth, I'll hand it back to you.

Thanks very much, Ian. And in summary, we've achieved outstanding results in FY22 with record shipments contributing to the second highest earnings and operating cash flow in Fortescue's history. To the Ironbridge Magnetite project and FFI, we're investing in the growth of our iron ore operations. as well as pursuing ambitious global opportunities in iron ore, renewable energy and green industries. And we've already seen a strong start to FY23 and we remain agile and responsive to market conditions to ensure that we remain a reliable supplier of iron ore to our customers. On behalf of Fortescue's board and executives, I'd like to thank the entire Fortescue family for their contributions in FY22. Our success is truly a testament to their hard work and dedication. And by keeping safety and family at the heart of everything we do, I know that we will continue to position ourselves for future success. And on that note, I'll hand back to Ashley to facilitate Q&A. Thank you.

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. In the interest of time, we ask that you limit to two questions per person. Please press star one to rejoin the queue if you wish to ask further questions. Your first question comes from Hayden Bairstow with Macquarie. Please go ahead.

Good morning, Andrew, Elizabeth and Ian and the rest of the team. Just a couple of questions on capital, if I may. The first one just on the iron ore business. Just keen to understand, obviously this year we've got the rest of Ironbridge in sort of the the growth capex, and we can understand the sustaining outlook in iron ore, but just keen to get a feel for hub development and growth capex 24, 25 as we work towards NIDINU, what sort of range we should be thinking about, how that might grow over and above staining for that period. And the second one's on FFI, a similar sort of question. You've got a sort of base cost now we can see in operating costs for FFI, but again, that capex allocation within that sort of guidance for 23. Is that likely to step up materially in the next couple of years as you start advancing some of these projects? Thanks.

Ian, did you want to take that first one?

Yeah, just on the first one, Hayden, as we discussed at the quarterly, our sustaining capital really is driven by mine plan and then the reinvestment in the existing assets and maintaining availability which drives production, the small hubs will continue for a little bit longer and we spoke about Nittanyou and an investment decision for Nittanyou later in the decade, in the middle of the decade around FY25 and then the other thing to consider is our, probably the next most material item is the fleet replacement cycle and of course that fleet replacement cycle we're aligning with our decarbonisation initiatives and clearly that kicks off around the middle of the decade as well. So they're kind of the key moving parts in FFI CapEx.

Yeah, mark your head. Yes, so look, the guidance we've given on CapEx for this year will be, you know, I think we'll be within that, but actually it steps up over the coming years. But I'll just say that there's an enormous amount of capital out there looking to invest in projects that we're going to do, So it's how we manage that capital going forward in light of tapping into that big source of funding for the projects we're going to do.

Great, thanks for that.

Your next question comes from Lyndon Fagan with JP Morgan. Please go ahead.

Thanks very much. I'd like to ask Mark and Andrew about FFI, if I may. I guess the first one is really just a high-level question on how you would tell the market to value FFI. I mean, we've got 600 to 700 million out the door this year, but at this stage, we don't really have a project list to try and value or any real assets that we can attribute to this major amount of spend, which I imagine ratchets up materially over the coming years. I guess in addition to that, I'm wondering if the 15 million tonnes of hydrogen target by 2030 still stands. We're seven years away from that. We'd need to be half of that in three years to even meet that. I'm wondering if you can try and help frame that target. That was the first question. Thanks.

I saw a number of first questions in that first question. I mean, if you can imagine, and it does amaze me how forgiving iron ore analysts are when you've got massive iron ore deposits and guaranteed markets and the technology to get it into market. Even though you're not in production, you've proven the resource, you've If you can imagine that, Lyndon, times 130, that's how I see FFI. I haven't ever tried to value the company, but I've had expressions of interest made to me by fund-to-fund managers, by big infrastructure managers. They've talked around 20 billion US. So I say that just because you're all professional analysts and that is discussion, but that's the kind of overture given to me to try and entice us to list FFI, which I don't think is in Fortescue's best interest because the integration we have is bearing such serious fruit. And the two together gives us the greatest opportunity of being that world lead, that world example that a heavy industry company can actually materially reduce its operating costs, materially improve its margins. by going green, by not smoking billions of dollars of cash each year in fossil fuel, but rather creating it not only ourselves, but exporting it along with the technology and the know-how to everywhere else. And we don't intend to lose value on that. We don't intend to be the Xerox who invented everything and had Apple steal the show. We are very careful about capturing the value for our shareholders but making sure we drive the commercial destruction of climate change of global warming while building a really valuable business as you can see by the conversations which i've had hutch for the for the more granular yeah so on the 15 million tons i'd answer it two ways actually linda i think on the supply side like now i've been very fortunate and to come into this business where andrew elizabeth and the team done an amazing job of

They're scouring the world for projects for us to work with. And so we have plenty of projects to pick which ones we need to do to fill the supply side. On the demand side, we already have a 5 million ton MOU with E.ON, and there's others in the works as well. So I see no issue at all with the demand side at all. So I think the 15 million tons still stands for 2030. If you kind of think about how big our market is ahead of us, it's kind of the replacement of the entire fossil fuel, you know, network globally. So it's kind of, you know, it's almost like going back to 1907 when BP and Shell were formed, actually. And, you know, probably people then said, oh, you guys are crazy. It's never going to work. And, you know, history has told us that's differently. We're at that inflection point now, actually. And we've got a massive market ahead of us. So I'm very confident that the 15 million tonnes will be there.

The scale of 15 million tonnes is really serious, Tim. It's over a third of the calorific energy which Germany used to import from Russia. So it's meaningful, Tim.

Thanks very much for that discussion. A quick follow-up. Andrew, you've spoken before about the green steel opportunity and the meeting you had with analysts, which is a couple of years ago now, you talked about a flow sheet at low temperature that the CSIRO was working on and it felt like at the time you'd cracked the code there and we really haven't heard anything since. I'm wondering if you're able to share where that's up to and whether... the trial plant that was proposed is going ahead and what the opportunity there is. Thanks.

The trial plant is going ahead. We did crack the code. We did produce iron metal, green. We are still assessing to ensure that it can come in as we do at the lowest end of the cost curve. We're not going to bring in a product which is... which is at the wrong end of the cost curve. We need to be hyper-competitive when we enter a market. And we're also looking at ways, further ways, we're not losing focus on that, but just extending focus that we can leap from that to, or actually from iron ore straight into green steel. So we have other horses in the race and... We're not losing touch with any of them, but that is the way of new technology and new technology breakthroughs.

Thanks very much.

Your next question comes from Khan Pekka with the Royal Bank of Canada. Please go ahead.

Hi, Andrew, Elizabeth, Mark, Ian and team. Two questions for me. The first one is on FFI. I think last year, Andrew, you mentioned that FFI's investments were split into four priorities. One of those being green fleet development. However, Williams Advanced Engineering was acquired under FMG, not FFI. Just wondering why it wasn't funded by FFI. And are there any of the 120 projects flagged in the annual report that will be funded by FMG, such as the Infinity Train?

Well, of course, we don't see anything divisible between FFI and FMG. We're the one family, one organisation. FI is brought into existence because it needs to roll at a different speed and culture, which would not be optimal for a very large, high-proficient operating company yet. And when it does, we will make that evolution. But look, we see Williams as just being such a natural fit for F&G because the first cab off the rank is the Infinity train. We use parabolic energy to send the train back up the hill, never any external source of energy nor external source of pollutions and it is continuing to yield dividends because we now have a large scale battery source and I don't know any other major industry which is challenged by energy storage which has that but we do. We're also looking at the stock standard perhaps the elephant in the room stored pumped hydro energy in pumped hydro clearly we have the elevation we need around our operations to send our organisations green with another form of battery which is natural so all of these things are in the mix and we will continue to push ahead with green fleet because it's how we will send our organisation green by 2030 and there will be further information We're released on this. And I think I've covered the bulk of your question. Hutch, did you want to add anything?

I think if we look at our project list, I think we've got a lot ahead of us. And we're excited to come back to you in a few months' time to take you through some of those. And we'll be making announcements by the end of the year on some.

Sure, thank you. And the second question was on the iron ore business. particularly around the reserve and resources. So just in the Solomon Hub increase in terms of reserves, talk about a revenue factor forecast or that increase in revenue factor. I was wondering what that specifically was referring to. Is that internal iron ore forecasts or FX? And on the Chichester Hub, there was talk about metallurgical factor change. Was that relating to the OPS?

Thanks.

Yeah, look, I think in terms of Solomon, that would be some of our internal assumptions, whether that's iron ore price or FX, so that goes into the model. Chichester, I think Andy will come back and give you a bit more detail around that, Khan, in terms of, you know, it's probably more around strip ratio, densities, so we can give you some more information.

Sure, thank you. I'll pass it on.

Your next question comes from Robert Stein with CLSA. Please go ahead.

Hi, team. First off, congratulations, Elizabeth, on your achievements in the role and best of luck in the future. I've just got a few questions on growth. Mark, it's good to have you on the call to be able to focus a bit of the Q&A on hydrogen. So just leveraging that opportunity. Noting your comments in the ST and the need for Europe to subsidise H2 investment, how dependent are the economics of bulk H2 import into Europe on government subsidies? And is that a risk? Should governments redeploy investment into other energy sources such as nuclear or direct renewables? Can it wash its face without those subsidies? And I've got a second question.

Yeah, look, thanks, Robert. Look, I think I'll answer that by looking at the United States first. I mean, the subsidy on green hydrogen in the United States is historic, actually, because it makes it competitive with grey hydrogen. And I think other places around the world should really take note. I come from the renewables world, part of my world at GE, and it's like going back to when the renewables market started. That impetus from government to get the industry going was really, really important because then you got scale and you could then smash through the cost of renewables to where they are today. So the same thing is going to happen to green hydrogen today. Now, it doesn't mean that it's uncompetitive, because there's a demand out there for the product, and we're going to work through it with the Europeans. But certainly, as I said in the Financial Times there, I really hope that Europe takes note and does something, because they need it more than anybody at the moment.

So I guess just noting that the subsidies are flowing through to smash costs, if that does reduce barriers to entry, what makes you know, say, for example, Australian hydrogen exports competitive in that type of framework, noting the high transportation costs and the couple of times you have to handle it to overcome those energy barriers?

Yeah. So, look, Australia plays a huge part just because of the sheer size of what we can do here. And I think, you know, America is going to be very, very focused on their own domestic, you know, economy. So, you know, initially, they're probably not going to think about, you know, exporting. So I think Australia has this opportunity to really become a green hydrogen powerhouse. And the cost, you know, the more scale we get, the cost is going to come down and become more competitive.

Your next question comes from John Tumazos with John Tumazos, very independent research.

Thank you very much. Can you give us a little bit of guidance as to when we could see sales revenue from green ammonia or battery haul trucks, other revenues so we can begin to place a value on FFI?

Yeah, so thanks, John.

putting a lot of focus on getting ahead with making green hydrogen. And I'm really hoping that we will have some available 24-25 timeframe.

You can really run it from how quickly we complete our Gladstone electrolyzer factory. The world's short of electrolyzers. As soon as we have them, we'll start making hydrogen shortly afterwards.

And just on the green haul trucks, John, the priority will be actually Fortescue for our own decarbonisation. So that won't necessarily generate a revenue stream, but it's part of our fleet replacement. But what we'll see is the elimination of diesel and the benefits that will flow from that. So keeping our costs low will be one of the... So it may not be a revenue line at that point in time, but it'll certainly be helping to contribute to lower costs. And then over time, that technology will certainly be able to be commercialised.

I think I'd add the demand side, Mark's points on demand side, once these green haul trucks are there and the battery solutions provided by Williams, clearly the demand is there, there's no supply.

So that's another example of not being too concerned about the demand side.

Your next question comes from Lachlan Shaw with UBS. Please go ahead.

Yeah, hi, Andrew, Elizabeth. First, Elizabeth, congratulations. Well done, and best of luck in the future. Just a couple of questions from me. So, again, just on FFI and, I guess, hydrogen. So, hydrogen is quite challenging to store and transport at reasonable costs. Just interested to understand, you know, how you're looking at the R&D and technology roadmap to try and innovate and to try and bring those costs down So not just green ammonia, but more generally across the value chain?

Yes. So look, there's a number of ways to transport hydrogen. And I think I'll start with the United States where in that domestic market, there's the infrastructure available to not only produce near your customers, but also use the existing infrastructure to do that. So that's a different answer than maybe the rest of the world where we have to ship it. And when you ship, you have to convert it to green ammonia, green methane, and we're working with our customers to really understand what they want, actually. So, you know, the innovations, you know, we're working on that. It's a big part of the equation, and that's one of the many projects we have at the moment to make sure we can deliver in a cost-effective manner to our customers.

Right.

Your next question comes from Glenn Lawcock with Baron Joey. Please go ahead.

Good morning, Andrew. Andrew, just a couple of questions for yourself. Firstly, could you maybe help me understand how you delineate between projects that go into FMG versus, say, Wylou? You know, it feels like FMG maybe has missed out on a couple of opportunities that I thought might have fitted better to them, thinking like Neuront. And then secondly, just your thoughts on the new CEO. Is that still something you're pursuing? You know, should we expect a CEO for FMG sometime this year? Thanks.

Thanks, Glenn. Great questions, mate. No, look, while I've been there to catch projects which FMG have made a decision not to pursue, and if we believe, like Squadron Energy, that they're better off within the group, particularly for knowledge, like Clark Creek or Sun Cable, Narant's a good example. There's a 500-kilometre road there, which our analysts at the time believed wouldn't be built, so that would be a stranded asset, potentially worthless. Next election comes along and of course the government says actually we want to build a road to free industry for all those native people in that massive region. So if you like, it follows a very strict Fortescue First policy. I know Elizabeth will be delighted to give you details of that, but it is a very strict Fortescue First policy and We will let projects go through to the market unless we think there's strategic value in them staying within the group and then Tatarang will spend its own funds to keep it within the group. And we've had very real benefit from that as Fortescue Metals. Secondly, the chief executive search, Glyn. To be brutal, it's not our highest priority. It's It's a wonderful priority. We are seeing fantastic people. But we have, if you like, appointments which we want to make, which are even more important to the evolution of a global green metals and green energy company. So we're not going to be rushed. I know there's been a bit of media attention around it, but look, they don't run the company. They're not our shareholders. The shareholders have signalled to us very directly, very firmly, that they're perfectly happy with the leadership of this company as it is. And I do intend to appoint a chief executive, but I don't intend to be rushed into it. And I will continue to build, Glyn, as I promised on the resignation of Elizabeth, and you will recall that we said we needed 10 to 12 fantastic leaders to allow Fortescue to properly emerge as to what the world really needs. That's been our priority. We started Fortescue Metals Group on that basis and the Fortescue organisation will continue on that basis. We believe the world needs, Glenn, a global powerhouse in green energy and green metals and the provider of the technology to bridge those gaps and send the mining industry and eventually what has to happen, Glenn. We don't have a choice about this, mate. Global heavy industry has to go green. Otherwise... Just cook your kids, mate. So I do want to say that we are rolling ahead, but we have critical appointments which will announce in the future, and one of them could well be the Fortescue Metals Chief Executive, but we aren't in a hurry.

All right. Thanks, Andrew.

Your next question comes from Khan Pekka with Royal Bank of Canada. Please go ahead.

Hi, Andrew, Elizabeth, team. Thanks for taking my follow-up. Just another quick one on FFI. There was a proposed Asian Renewable Energy Hub. It's located in the Pilbara, and they were talking about a design capacity of 15 gigawatts of renewable capacity, and they had indicated a cost of around $25 to $30 billion. Should we view this similar to the capital intensity of the projects being proposed in the renewable space by FFI?

Look, I think we're working through the cost of what we're trying to do at the moment, and so I wouldn't use that as a benchmark at all, actually. You know, we're going to look at the most cost-effective way to make green hydrogen. The enormity of what is needed on the power side is just huge, actually. You're talking, you know, many, many gigawatts of power. And so finding the most efficient way most cost effective power around the world including Australia is our priority at the moment but we look forward to coming back to you on that in the not too distant future.

I need to be very clear we've made serious breakthroughs in how to produce electrolysers and the like and we're not rushing into our first project because we want it to be hyper competitive when we do. It took us a long while to get Fortescue to the lowest operating cost in the world for iron ore and we intend to be that with green energy.

And I might just remind everyone that Aloana was built for a capital intensity of around $43 a ton versus a recently completed project elsewhere in the Pilbara that was more like $79 a ton. So I think we've demonstrated time and again that we're able to have the lowest capital intensity and we do that through being innovative and applying all of our thinking and learnings to each project.

Understood. Thank you. And just one last one. I think this one would probably be for Ian. But just on the balance sheet, we've seen, I think, about 470-odd mil of long-term iron ore stockpiles build.

Just wondering what that was in... Yeah, Khan, we made that change at the half-year, and that's basically running those stockpiles through the life-and-mine model, and they won't be mined in the next 12 months. So that's the definition of a non-current asset using it in 12 months. So that's more of a technical answer and that's why you've seen it there but I'd note that we made that change at the half year.

Your next question comes from Peter O'Connor with Shaw & Partners. Please go ahead.

Elizabeth, congratulations and wish you well and great job done. Mark, great to have you on the call. Just thinking about the supply side ahead. And you talked about demand, totally agree with where demand's coming from, and you've got a lot of things to build. We talk on a lot of these calls about inflationary pressures, both in dollar terms and also just sourcing labor, but the right labor. Can you just talk to the sourcing of skills, labor, parts, goods, services, et cetera, to do this build? Is that the bottleneck, and how does that look, and how does that play out?

So, look, Peter, thanks very much, and I'm very happy to be here and talking to you today. I think I'm very blessed to come into this business where Andrew, Elizabeth, and the team has scoured the world for projects, and so we have over 100 different projects to choose from to make a business from. So I think, as I said, I'm quite fortunate to have that position so I can get to choose where we actually make the green hydrogen. So I think on the inflation side, Obviously, it's a concern, but the demand side is going to – it challenges to get going very, very quickly. And if anything, I'm concerned about is the supply of equipment because just the enormity of what we have to do, and you look at what the world makes now, we need a lot of supply. So one thing we're doing is focusing very much on what's available in the marketplace, but also – as I mentioned in the earlier discussion, was what can we actually do ourselves? And that's going to be a very important part of the equation, and that's why we talk about really evolving into a much bigger technology company going forward.

Your next question comes from Saul Kavanagh with Credit Suisse. Please go ahead.

Thank you. I just have a couple of quick questions centering around, obviously, the election of the new ALP governments. The first one's around, what do you see as the risk profile regarding union negotiations under the new government? And the second one is regarding the proposed changes to the safeguard mechanism, the 43% emissions reduction target by 2030, and what the risks are to costs to meet that in the near term, and also what do you see as the opportunities perhaps on a longer-term horizon.

Well, maybe I'll start with the union negotiations.

Look, I think there's a skills summit this week. Fortunately for Fortescue, Andrew's going to be at that skills summit, and I think that sort of is an opportunity to set some of those discussions around we need to attract skills to Australia. We need people to be... you know, trained to transition to green energy in particular. So schools and unions are part of this discussion. They're going to be there at the school summit. So this is part of actually collectively understanding what's in the best interests of our economy and for the workforce. From our perspective, that risk profile is actually very low because we don't have a unionised workforce. So we have our own enterprise bargaining arrangements. We have very little engagement with unions. So I think from a Fortescue risk profile, that risk is low. But importantly, we want to have settings in place that really do attract people with those right skills who can actually help us transition. And one of the things we know is we're an employer of choice and we are attracting great talent, like Mark, because of the vision that's been set for our transition from a resources company to a resources and green energy company. So we're seeing great traction in the labour market

And Saul, I'd add to that, mate, that Sandra here, that unions are always welcome on any Fortescue operational construction site. They can rock on in any time they like. It's just when they get there, there's not a lot to do. As they get told by workers all throughout operations, if they want to contact Elizabeth, if they want to contact the chairman, well, they've got the number, they've got the email address, they can just do it. So there isn't a big role for intermediaries.

Your next question comes from Lyndon Fagan with JP Morgan. Please go ahead.

Thanks again. Andrew, I was just fascinated by the $20 billion valuation that you were talking about in relation to FFI. I'm just wondering how that was arrived at again. I might have missed it initially. I think you said it was some fund managers or something that put that to you, but it would be great to explore that a bit more. And then the second question was just on the zero emission mining trucks, wondering which solution we're heading in for that direction. Is it a hydrogen fuel cell or is it more likely to be a full battery electric solution in terms of the first trucks that appear on a Fortescue mine site? Thanks.

Thanks, Lyndon. I made clear it was the solicitation from a very large group to ask me to consider separately listing FFI and I've described to you all why we didn't pursue that solicitation. I do see, Lyndon, that you don't see the immense value in FFI and that'll just have to come clear over time. I have drawn the analogy which is accurate that If you imagine a whole bunch of ore bodies which have been established, that's what we have in 120 projects, where in the process you can't do it for chopped liver and by the other day these are really big projects. Then when you have immense markets for that product, you now need to have the technology which is going to be competitive and which is uncontroversial in the banking community, in the project finance and and infrastructure investment community uncontroversial technology to link that ore body or green energy to the marketplace. And that's precisely what we're doing and institutions who really get where the future of world energy has to come from. And remember, Lyndon, this is not a choice. We can screw around arguing about the economics, but at the end of the day, when global warming really begins to hit. We've only just seen the start of it. There isn't a choice about this. So I do see that there's a very strong market. Those customers from Europe who have come to Australia, who have looked at our projects, have said we've got one issue. You're likely to sell to Asia because it's on the way to Europe, where we really want to make sure that we tie you guys up to make sure you get past what will be huge Asian markets in order to get to what is for us an existential risk, which is green energy into Europe. In terms of the mining trucks, we're a little energy agnostic here, Linda. We have a huge head start with batteries. You can see that by the Infinity train. You can see it by the confidence, which we have with 120 huge world-leading companies for efficiency trucks being delivered without a power source. And we supply that power source. It is likely to be batteries because we could solve that straight away. We have the technology, we have the know-how, we can do it at once. Will we exclude a fuel cell? Absolutely not. There's huge symmetry in a source of hydrogen to a store of electricity batteries. in creating long-term green power. So I'd just say we have a plan B, Lyndon, which is bulletproof, which is batteries.

We're not ruling out the plan A. And Andrew, if I might just add, it could well be, Lyndon, that hydrogen fuel cell is more efficient and effective for long-haul distances and battery electric for short-haul distances. So the fact that we have both options and we're exploring both options is actually a benefit to our ongoing mining operations.

Your next question comes from Robert Stein with CLSA. Please go ahead.

Thanks for the opportunity for a follow-up. Just maybe asking the question I asked earlier from a different perspective. So if I get transmission losses in trying to transport the renewable energy generated in the Pilbara in Europe, why would I not get a better economic return by building renewable infrastructure closer to the end market? That's just something I'm trying to understand in terms of being able to value Fortescue's Australian proposals or potential projects in relation to, you know, potential hydrogen projects elsewhere.

So, Robert, I think, you know, we are looking at projects in Europe, and you're right to, you know, think about that's probably where you start, actually, because it's obviously closer. But... I think we see that there's going to be great demand for green hydrogen from around the world, including Asia, as Andrew mentioned. So Australia will play a big part in that. I think the only issue in Europe you have is that it's more challenged on producing the green energy at scale that probably Australia can. So initially, I think maybe some of the projects will be in Europe. but just given the scale of what needs to happen, this is a massive opportunity for Australia actually to become the Saudi Arabia of the green energy world.

So we're doing both. Thank you.

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

Andrew, can I try and marry a philosophical concept with an accounting one and just Taking on board your comments from, I think, two questions ago, we said, we have to do this. We have no choice. This is an existential issue, which I agree with and I totally understand. Does that mean the first segment of addressing Fortescue scope one, scope two, scope three emissions is sustaining capital?

It's a really good question. I'm going to look at that. Rocky, that's a hell of a good idea, mate. I'm not sure if the If those much more intelligent than I am have already thought of it within thought of you. But Rocky, I would say that these projects will lead to a very long tail of frank dividends because they will lead to a lot of capital. Rocky, while you're there, you have been watching the iron ore industry seriously and you'd have seen Simundu and all the tribulations, the billions of dollars which have been absolutely barbecued in the pursuit of that project, which is now in a country under the control of a military junta. And I just look at that and think, we have Balinga, which is for scale and value easily the comparable of Simundu. It didn't cost us billions. It didn't cost us even a fraction of that. We paid for it with our reputation. The president of the country asked who FFI was. He wanted his country to go green, not just watch other companies do it, and was told that they're also the best mining company in the world. So we were invited into that country to develop that project, which has had a cacophony of other suitors. And the government chose us. in joint venture with one of their largest employers and investors. And that will be a huge project, which will be, I think, just a complete answer to Simundu for Fortescue. But don't also discount Rocky and analysts that in Fortescue, in the Pilbara, we have a string of excellent growth projects as well. So I just wanted to say, don't take your eye off iron ore. But yes, the energy business will give us massive leverage to the world going green and we're seeing it right now.

Peter, I might just add as well on that question on sustaining capital, which is a really good one. We are actually aligning the greening of the fleet to our fleet replacement cycle. So that will naturally be part of sustaining capital because we were going to need to replace that fleet anyway. We're already thinking along those lines, so that's another good reminder.

Rocky, you know, we chopped through, like all the others, a few billion dollars a year in fossil fuels. We literally smoke it. It will be a great day and I think a serious revenue and margin improving day when we've made all our own fuels.

I think the return on investment is slightly different to sustaining capital insofar as there's a cost offset. plus also an enhancement, a potential enhancement in revenue. And whilst Eliwana, we looked at a replacement mine, which is akin to sustaining, but remembering that Eliwana added production. So we actually internally thought about it and we talked to the market about Eliwana being a growth project. So I don't know, my view, Chairman, is that the decarbonisation is more akin to growth than sustaining. The replacement of the vehicles is clearly sustaining, but we're also lining that up from an efficiency perspective. So maybe it's a hybrid.

Yeah, it's a hybrid. It's like I used to get asked, will you go for capital growth or income? And I've said both. In your case, Rocky, it'll be both.

Thank you. That is all the time we have for questions today. I'll now hand back to Dr. Forrest for closing remarks.

Well, thanks, Tim. I really, really appreciate you guys paying so much attention. I can't miss this with your attention to thank Elizabeth again for her immense contribution to Fortescue over the last decade odd. You have shown Elizabeth without any doubt that women aren't better than men and men aren't better than women, but the diversity of thought is irreplaceable in Fortescue. vibrant organizations like ours and um and you have brought that you've been a fantastic chief financial officer when you joined and non-executive director before that as as chief executive you've shot the lights out so um i just want to thank you for the immense contribution you've made to our company's history to date um and then say from stepping down to stepping back up to global ambassador we're really going to need you to let the world know that This green energy, green hydrogen solution is on its doorstep and it's walking in. To track record and guiding our operational leadership through autonomy, advanced tech, sophisticated major projects, analysts, just think through this for a second. Our trucks, which are autonomous, right, they are straight against the profit and loss. They literally, if you added them all up, they go around Australia a couple of times each day. in terms of kilometres run. If you add them up a bit further, our autonomous distance has gone to the moon and back 125 times. If you take it a bit further in a couple of years' time, we'd have even made it to the sun. So this is a company which you've driven to be at the technical edge of the mining industry and, of course, perfect then to go green. Elizabeth? I'd like it recorded that I see you and we all do in Fortescue as one of Australia's truly inspiring leaders. Your integrity and respect will be with us always. You are the perfect, perfect role model to be our global ambassador and we wish you super well in coming back. Thank you, Elizabeth.

Thank you, Andrew, so much for those very kind words and you've been a true leader in really taking the lead in corporate Australia in encouraging diversity in all its forms. And I'm certainly very grateful to you for your support of me on this amazing journey. It's certainly been a privilege being part of Fortescue's journey for almost a decade. And I've seen Fortescue continue to go from strength to strength. And certainly the 2022 financial year was no different with another year of outstanding performance. I'm truly excited about the future and being Global Green Ambassador is just such a privilege, but it's no secret. that our success would not be possible without the hard work and dedication of our people. This is not about one person. This is about thousands of people who show their commitment every day to our strong culture and values. And I, again, thank them for their contributions to this outstanding set of results. So thank you, everyone. Thanks for joining in. Stay safe, take care, and we'll see you soon.