Shares in Fortescue Metals dropped more than 7% today with a barrage of bad news hitting the market this week. The miner revealed an H1 FY25 profit of just US$1.55 billion - less than half that of H1 2024, compounded with a $1.8 billion legal action over its Solomon iron ore hub and the Trump administration pausing grant payments for its American green energy initiatives.
Depressed iron ore prices and production costs are - as they have been with both BHP (ASX : BHP) and Rio Tinto (ASX: RIO) - to blame for lower profit margins for iron ore producers - of which, and unlike the other two, is a much more dominant revenue creator for FMG (ASX : FMG).
The numbers
FMG's net profit after tax (NPAT) for the half ending December 31 was $1.55 billion, missing its estimate of $1.55 billion - 53% lower year-on-year when it posted an NPAT of $3.34 billion.
Net cash flow from operating came in at US$2.4 billion and free cash flow was US$0.7 billion, after investing US$1.8 billion in capex during H1 FY25.
The expenditure was made up of:
- US$1.3 billion in iron ore hub opex and development (inclusive of fleet deposits of US$235 million)
- US$160 million for exploration and studies
- US$27 million for iron ore projects
- US$139 million for decarbonisation
- US$145 million by Fortescue Energy
The Andrew Forrest-led miner still paid out a 65% of the H1 FY25 NPAT (which it did in H1 FY24), consistent with its policy to pay to shareholders 50-80% of full year underlying NPAT.
Iron Bridge continued to ramp up in H1 FY25 and is on track to achieve FY25 guidance with shipments of 5-9Mt of ore and is reviewing its schedule for ramp up to nameplate capacity of 22Mtpa.
Amber signal for green energy advances
FMG's foray into green energy projects may be under threat too, citing volatility in the market.
“With the Trump administration instructing federal agencies to pause grant payments under the Inflation Reduction Act, questions over the implementation of Renewable Energy Directive III (RED III) in Europe and pending global elections, including in Australia,” FMG said in its press release.
“As a result, the development timeframes of Fortescue’s Arizona Project and Gladstone PEM50 project are being reconsidered. Fortescue anticipates having greater clarity on the impact of these external factors by the end of the financial year.”
While FY25 capex has been revised down from US$500m to US$400m, FMG says work is progressing on its portfolio of green energy projects which “show significant potential”.
“Feasibility studies and planning approvals continue to progress for the Holmaneset project in Norway and Pecém in Brazil,” the miner said.
FMG has $1 billion worth of approved hydrogen projects across both Australia and the U.S. and is considering halting their progress to see what further actions President Trump's administration enact in the green energy sector.
Land marked lawsuit
The Yindjibarndi people have launched legal action against Fortescue and the WA Government, seeking $1.8 billion in arrears over the Solomon iron ore hub in WA's Pilbara.
The traditional owners, which were granted Native Title rights in 2017, are seeking $1.1 billion compensation from the WA Government and for lost economic benefits and cultural and spiritual damage caused by the project.
The claim, initially filed in the Federal Court in March 2023, is over ~75 per cent of the Solomon hub tenements that are on Yindjibarndi land that FMG has been mining for a decade.
At the time of writing, Fortescue (ASX: FMG) stock was trading at A$18.02, down 7.33% from Wednesday's close of $19.45. Fortescue's market cap stands at $55.76 billion.
