Fortescue faces fresh headache in green ammonia chase

Fortescue supplier Plug Power has warned it needs cash or it faces financial collapse, throwing up another hurdle to Andrew Forrest’s green ambitions.

Fortescue is facing fresh challenges to deliver on its green ambitions, with a major supplier for its first green ammonia production facility warning on Friday that it faces collapse without an urgent cash injection.

Fortescue announced in October that Plug Power was the preferred supplier of 550MW in electrolysers for the green ammonia plant the company plans to build with Incitec Pivot at Gibson Island in Queensland.

But Plug shares tumbled more than 40 per cent in the US on Friday after the company warned shareholders it faced potential collapse within a year if it was not able to raise fresh equity or debt to cover its financial needs.

“In light of the company’s projected capital expenditure and operating requirements under its current business plan, the company is projecting that its existing cash and available for sale and equity securities will not be sufficient to fund its operations through the next twelve months,” Plug said.

Speaking to analysts on Friday Plug chief financial officer Paul Middleton said the “going concern” warning was driven by the need to comply with corporate accounting standards, and Plug was confident it could raise debt to cover its obligations.

“It’s a lot more conservative obviously than what we feel like,” he said.

“But I have a $US5bn ($9.43bn) balance sheet that’s unlevered.

“I mean, I really don’t have any debt. So, we still are extremely confident about the range of parties and solutions that we’re working with.”

A spokeswoman for Fortescue said the company had no concerns about Plug’s financial position or ability to deliver on the order, and was proceeding as planned with its green investment options.

She said Fortescue had kept open multiple options for electrolyser supplies – including its own manufacturing plant at Gladstone in Queensland, and “working with multiple partners on supply”.

Plug said in its September quarter report, released on Friday, that it booked a loss of $US726.4m for the first nine months of 2023, and had burned through $US863.9m in cash in the same period.

The company said it had $US1.3bn in working capital – but only $US110.8m in unrestricted cash and equivalents available to fund its ongoing operations.

Plug and Fortescue also have a deal for the Australian resources major to take up to a 40 per cent stake in Plug’s Texas hydrogen plant and for Plug to take up to a 25 per cent stake in a plant Fortescue wants to build in ­Arizona.

No terms of that deal have yet been announced, but Mr Middleton told analysts that a further equity selldown to Fortescue could be a consideration in its financing options, but was not Plug’s preference.

“My bias selfishly is to not sell equity out of those plants because that obviously is the most expensive capital,” he said.

“So it’s better for Plug, but we have to think more broadly than that, given the breadth of agenda that we have and the capital needs and the solutions that we have and the timing and also the partners that we’re working with.

“I mean in the case of Fortescue, the fact that they’ve got interesting investment alternatives and platforms that we can co-invest in their platforms, that can be a meaningful opportunity for us.”

Plug shares collapsed almost 40.5 per cent, or by $US2.40 to $US3.53 in trading on the Nasdaq on Friday. At the start of this year Plug traded as high as $US18.88.

Fortescue shares closed up 1.3 per cent on Friday at $23.75.

The iron ore heavyweight has rallied almost 16 per cent in the past seven weeks, having closed in the red on only 10 of the past 35 trading days. The stock is up nearly 34 per cent since this time last year.