Green clarity but few answers on Fortescue management turmoil: analysts
Fortescue’s move to calm the horses offered few answers on management churn and did little to calm the nerves of analysts.
Fortescue Metals Group’s Australian investor roadshow has done little to calm the nerves of analysts in the wake of a tumultuous period that saw the departure of more key executives last week.
Fortescue Energy boss Mark Hutchinson and newly installed mining boss Dino Otranto spoke to analysts and investors in Sydney and Melbourne this week after the sudden departure of Fiona Hick and chief financial officer Christine Morris.
Analysts were told that executive chairman Andrew Forrest – who fronted a similar investor tour in April – was travelling and unavailable. Instead, in an unusual step, Mark Barnaba – Fortescue’s deputy chairman and lead independent director (at least for the moment) – made himself available to answer questions around the company’s governance, in the wake of Fortescue’s extraordinary executive churn over the last two years.
One analyst present at the Sydney meeting told The Australian few concrete explanations for the departures of Ms Hick and Ms Morris were given, other than the company’s line they had turned out to be the “wrong fit” for Fortescue and the company’s board had thought it better to act swiftly in response – to preserve Fortescue’s “get it done” culture at the risk of exacerbating concerns over management stability within the company. Sources say that Mr Barnaba gave a long-winded and evasive answer to direct questions as to whether concerns over audit and risk governance processes were raised by Ms Hick and Ms Morris.
In a client note on Thursday, UBS mining analyst Lachlan Shaw said Fortescue executives had clarified the company’s green energy plans, with the five projects likely to be given the green light this year: a smaller green ammonia project at Gibson Island in Queensland, a green hydrogen plant in Phoenix in the US, a second small green hydrogen project in Brazil, and ammonia projects in Norway and Kenya.
“The second wave of projects are larger at up to a million tonnes per annum green hydrogen and green ammonia,” Mr Shaw said.
“Energy projects will be 50 to 60 per cent project debt-financed, non-recourse to Fortescue, with Fortescue looking to sell down 50 to 75 per cent of their equity.”
Barrenjoey analyst Glynn Lawcock said analysts had been told all projects would have fixed-price take-or-pay contracts before being sanctioned, and costs and expected returns would be provided to the market when investments were announced.
The company was targeting internal rates of return in the “mid-teens” for early energy projects, Mr Lawcock said – and green hydrogen remained the company’s ultimate goal, even though most early projects would target green ammonia production as it was easier to transport.
Both analysts maintained sell or underweight ratings on Fortescue stock, however.
“We remain cautious near-term on expected weakness in iron ore prices as steel production caps roll out into the fourth quarter of 2023, and until the market starts to learn more detail of Fortescue Energy project returns, capital allocation and expected free cash flow yield and returns,” Mr Shaw said.
Analysts at Global Mining Research noted this week that Fortescue had highest portion of analyst sell recommendations among the global mining majors.
Fortescue shares closed down 47c to $19.87 on Thursday.
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