Fortescue Ltd (FMG.AX) Earnings Call Transcript & Summary

[Presentation] Okay. Thank you, the investors amongst us. I'd just like to say that this is a very rare time. I've got the opportunity to be a mate of Mike Cannon-Brookes. And of the 2 of us, haven't really seen an era where change is certain. The green energy industry, be it green hydrogen, green ammonia, direct green electricity, is upon us. It is the lowest cost source of power. We've got our operating costs right. We can extend that through hydrogen to 24 hours a day. There will be a night fight in the telephone box over capital cost. We'll get that right too. You all, I hope, going to remember this evening by the hurdling of massive change, which you can invest in, you can be part of or you can watch happen around you. But it will happen. Many of you know me by the iron ore company I founded 18 years ago, Fortescue Metals Group. What you may not know is that this company is now one of the world's largest mining companies and has one of the best balance sheets and is amongst its world peers the highest in dividend policy. Unlike in the past, we felt you shareholders can do capital better than we can. It's our job to create it for you. So let me give you an example. Despite being around over a century older than us and being several times our market cap, FMG's dividend per share yesterday was 10% higher than BHP's today. They are so many times larger in market cap, even in share price. But you may also not know that FMG has an unheard of little subsidiary which is already giant in the making called the -- called Fortescue Future Industries. I think of FFI, I think of Alphabet and Google, think of a subsidiary becoming much greater than the parent, and why? FFI. Because it has access to huge assets. Thanks to last year, sovereign leaders, political leaders requested in us over 300 gigawatts or 3,000 megawatts of power of pure, green total renewable energy resources and a substantial number of very interesting technologies plus capital for over $1 billion by this June. No debt. As we speak, we're trialing those green technologies in global scale commercial environments, while also rapidly evolving into a green electricity and energy producer of similar scale. It's a plan we've been thinking of for 10 years. We've been working on for 4 and going into overdrive for over 2 years. And tonight, I want to talk to you about FFI. How FMG has engaged not simply as a thought leader and investor, but uniquely, as a major energy and green hydrogen producer. But I have a confession to make, first, ladies and gentlemen. I stand before you generating over 2 million tonnes of carbon greenhouse gases per year. 2 million tonnes, it's a really big number. But it's not even 0.004% of the greenhouse gases of 51 billion tonnes which our planet produces every single year. That's your global warming. The answer isn't to stop mining, which is critical to the production of steel, which is critical to humanity. The answer is to do this with zero emissions energy and steel. Because every day, the sun shines, rivers flow, wind blows. The Earth's core radiate heat. The waste green energy which our little planet produces towards the oil and gas sector, it is millions of gigawatts in scale. Put that into perspective, 2020, all of China only did 2,000 gigawatts. Here in Australia, 70 gigawatts. And this will give you analysts a pause. Because in the room, we have some 300 gigawatts of available energy to us now. That's an oil and gas major. We see the future of energy as hydrogen. I think our greatest natural resource is no longer iron ore, it isn't gold. It isn't oil and it's certainly not coal. It has a limited life. Hydrogen, ladies and gentlemen, is by far the most common element of the universe. We aren't going to run out of it any time soon. It's 75% by mass of the universe. It's here to stay. To make it, all you need to do is run electricity through water. The result is green hydrogen, the cleanest source of energy in the world and up to 70 -- and we know that we can now make it competitively and at scale. We have and we're further developing that technology. But right now, what do we do with hydrogen? It's just a little ingredient in chemical processes. We barely touch its capacity. Well, we need to make it in grand scale. Right now, we do it from burning fossil fuels. That's not going to be the solution, ladies and gentlemen. Green hydrogen, the good stuff, is virtually ignored by the economic world. We're missing a colossal opportunity. The green hydrogen market could create revenues of over USD 12 trillion by 2050, more than any industry whichever exists today. The whole of the iron ore industry is $150 billion, not even 100 that size, just to put it in perspective. This journey to replace fossil fuels is upon us now with green energy, which has been moving at a glacial speed for decades. The energy market now has slipped into high gear that we are seeing almost a violent change. And in the past 6 months, every major company is surpassing government in the world, reaching ahead of government and make -- pulling economic levers to go carbon neutral by 2050 as major governments make huge capital available. The Chinese government, just for instance, has announced they want over 1 million hydrogen cars on the road by 2030. And in Japan, 800,000 hydrogen fuel cell vehicles on the road. We have millions of cars under planning or being made with green energy and hydrogen fuel cells. It's not clear if all those hydrogen fuel cells, electricity will be made with green hydrogen. It could be gray, it could be blue. And gray is relying on expensive form of carbon sequestration. But what is clear is that every consumer in the world, given a choice, will take green as their choice, if it's competitive. Europe has allocated EUR 1 trillion to this to reach zero emissions by 2050, while the United States has allocated $2 trillion of their dollars. Almost every major business in the world is front running their governments, and particularly here in Australia. These are laudable ambitions. Ladies and gentlemen, we have to make our planet green long before 2050 or our planet will be toast. It's why I did a PhD. I wanted to learn this thoroughly, and I have. We have no choice, ladies and gentlemen. Right now, we're heading for a 3-degree Celsius increase. Not 2, not 1.5. That's how science works, you can predict it. Bushfires will rage out of control, and you've seen that. Tourists will no longer visit the Great Barrier Reef, it won't exist. Our cattle and our crops will suffer incessant drought. These are just realities. There's only one solution, and it will require business to work closely with our governments. Green energies need to be available on a scale which matches the oil and gas industry and at a price that care -- compares with fossil fuels. When fossil fuel energy becomes more expensive than renewable energy, that's the tipping point. That's when the world begins the march to a carbon-free future in earnest. Not because it's the right thing to do alone, but because it's great business. And the shift will be lightning fast. You can forget 2050. Zero emissions will begin happening overnight. That's how capitalism works. You can predict that, too. In August last year, myself and a team of 50, in the midst of the worst global epidemic which we have seen, left behind the relative safety of Australia to visit over 40 countries. From the hot and humid democratic Republic of the Congo to the minus 30 degrees to Tajikistan, it was not a glamor trip. Timing was everything. The world was in lockdown. Economies in all markets were collapsing. The diaries of political leaders were eerily empty. And foreigners like us were a rarity in their offices. Those 5 months, I have to admit, were some of the most surreal of my life, ladies and gentlemen. Prior discussions I had on the road, though with business leaders, with political leaders, sovereign leaders, politicians, financiers and technologists, they convinced me this is our time. Green energy is upon us. It made me strongly, no longer hesitantly, optimistic. I felt a change in the global mood. I want to share with you that change. I believe that the impossible only a year or 2 ago is now absolutely possible, [ is real and is upon us ]. I had American Nations captains of industries saying, you have to do this, submitting to me with a high rate of support for green hydrogen, green energy, green ammonia, who's going to produce it? As did Europe. In Bhutan, the Prime Minister opened the borders just for us. They've been closed, completely closed. Everyone who came near us, including the Prime Minister, had to quarantine for 3 weeks. And if you've done quarantine, you know what sacrifice that was. On our way back to Australia, we took an unusual flight path from Kirghistan to Seoul. We flew over Southern Mongolia into China. We passed thousands and thousands of wind towers. And clearly, landmarks and fabrications for tens of thousands of more on that Mongolian-Chinese border. What you're hearing is that the Chinese government is marching ahead of the rest of the world and doing this massive move into green energy without any fanfare. Thank you. Okay. Against this backdrop, I realize that our ambitions with FFI were no longer hugely ambitious. That we're critical. They certainly were no longer radical. I learned that harboring a global ambition to produce green hydrogen and its liquid form ammonia on a scale to begin to match the oil and gas industry is no longer a vapid or vanity dream. It was a reality, which had to happen. And I found many other leaders all over the world who shared this with us. They were looking for a company that was going to take the lead and that global investors like you would support. I felt this change in the air. And the question is not whether green hydrogen will become the next global energy format, it's just a question of by whom. It is who will mass produce? Who will have a ship leaving a port every half an hour in a scale of the greatest energy companies in the world? Which company would be that strong that we could allocate sufficient risk to test green hydrogen of global industrial scale? And last year, the Board and I at Fortescue Metals Group decided that would be Fortescue. We targeted the hardest first hydropower electricity can run 24 hours a day, generated out of -- run of rivers, geothermal, which taps into energy from the Earth's core and, of course, solar and wind, we do so well in Australia. But we're scaling it up on a point which the world hasn't seen. We're looking for 500 gigawatts of energy assets in South America alone and potentially 1,000 gigawatts there to follow. To give you an idea, all of Saudi Aramco does 900 gigawatts of energy. We aim to produce or help to produce and provide over 1,000 gigawatts as Fortescue. Zero emissions, clean energy that is available for consumption straightaway, but no pollution. And not because we're great people with great hearts, but [ cause ] to do anything else, it's a commercial nonsense. But let me come back to iron just for a minute. Most of the world's iron ore precipitated out of oceans over 3 billion years ago when bacteria metabolized iron and it sank to the bottom of the ocean. And that led to these hugely rich iron ore deposits in the Pilbara that we have today. And this strikingly ancient event has led to our very essence of modernization through steel. It's the backbone now of our society. And enterprising organizations all over the world from Germany's ThyssenKrupp, Sweden's [indiscernible], Japan's Nippon Steel are making zero carbon steel in trials. There are 2 ways. One is with direct electricity, you just zap it. And the other's with our old friend, green hydrogen, you get iron. But not with coal, not with emissions. And instead of emitting vast clouds of carbon dioxide, you just simply emit pure water. To strengthen the steel, you similarly add carbon. It disperses into the steel, it stays there, beautiful, only water up the spout. The other way to make green hydrogen, the more radical approach is zapping it or how we're going to do it in the Pilbara with very low temperature iron. FMG is trying both these methods. We aim to start building Australia's first green steel project in the Pilbara of Western Australia, powered entirely by green hydrogen from local wind and solar. And why the Pilbara? Because it's one of the largest iron ore province, if not the largest in the world. But also because it has abundant, immeasurable green energy too. We're in a unique position to scale green steel. Imagine with me for a moment that you went back a couple of decades. We had all the coal of Queensland and all the iron of the Pilbara, some of the largest are both in the world together. We could have been one of the largest steel producers today. What lack of vision could have possibly stopped that? The market and the economics would have driven the bureaucrats out of it, it would have happened. We now have that opportunity here. We have limitless green energy. We have all the iron we could possibly need. We already export over 40% of all the world's total iron ore production. With that sitting in your mind, what could stop us with the cheapest form of electricity in the world, the most abundant source of iron producing 10% of the steel of the world steel industry. When we do that, the immediate multiply impact on our economy will be nation-building. Capturing just 10% of the global steel market will generate some 600,000 jobs directly. Millions more indirectly, easily compensating for the 40,000 jobs, which no government policy is going to save from the Queensland coal industry, and that inevitably goes. And these are not any old jobs, these are [ similar ] jobs, construction jobs, engineering jobs, welding, electricians. Jobs which are there now, which need a better and a brighter future when coal is eventually phased out. And with green hydrogen, we don't have to stop at steel. We can go to fertilizers, we can go to explosives. We have a number of other products and commercial spin-offs. And I'm not talking just town planning, we are talking nation-building. We need that vision. The economics are there, ladies and gentlemen. It needs that leadership. Now I want to tell you what we're trying to do to decarbonize Fortescue to do what we say we're going to do, to be in front of you and stand with you with integrity. I think that's the least we can do. Last week, FMG and FFI announced how we're going to drop our emissions from that 2 million tonnes I told you about to zero by 2030 to help lead the 30% of global carbon emissions that are occupied and not being reduced by global heavy industry. You all hear about energy. We in heavy industry are pretty quiet about what we do, where are the other 30%? We announced FMG's target to achieve carbon neutrality by 2030, 10 years before our former target. At the end of this decade, we'll have our trucks run on renewable electricity. And ultimately, the entire fleet, trucks, trains, ships will run on green energy or green hydrogen. Imagine a fleet of ships, massive trucks, trains, all green. Only steam, pure water is exhaust. We'll provide that technology to institutions. We'll give them the capability of the industry around the world to be able to make this happen. We're going to share this technology on our own as my colleague goes to a world steel meeting. And through that commitment of carbon neutrality, we're going to drive how the green hydrogen demand can grow. Because we won't do it because we're Mother Teresa, we'll do it because it lowers our operating costs by potentially $500 million a year, significant. It's our challenge to stay this course. And of course, it's humanity's challenge as well. It's humanity's enormous carbon challenge. So I again said, our analysts, don't think for a moment that, that herd mentality where for years and years, if not decades, someone else has said, we're going to be the fast second mover. We'll let someone else be the first mover. I welcome that attitude, but I do remind people, that's what many people thought about the Internet. Think of Amazon, think of Facebook, think of Microsoft. The technology wasn't so great. The competition was intense, but they never caught up to those first movers. That advantage just has grown. And by June 30 this year, we're operating with similar speed. We'll develop green iron ore, trains. We'll run our trucks on renewable electricity. Our ships will begin the transition to green ammonia. And this financial year, at least 5 years ahead of our competition, we're going to put green ammonia into a full ship's engine, one which will allow that really dirty fuel bunker sea oil to finally be extinguished to not pollute the world's oceans. Even though you don't see it, it is happening. And analysts, investors, I -- again, I address you. When this happens and really begins to compete, entire portfolios which hold ships in them, they're all going to change in value. Bank sector analysts, I just say, be warned. When loan books are populated with existing and newbuilds on all bunker sea boilers and green ammonia comes in, those values are going to change dramatically. It will work. And when it does, the value of everything changes. And this, of course, as investors, is your opportunity. We're willing to share that knowledge and learn and to help our competitors go green as well. We're already doing this with Vale. We're all in the same boat. We'd like our whole industry to go green. But the shipping industry outstrips the emissions of all of us, Vale, BHP, Fortescue, Rio Tinto. The ships which take out ore overseas pollute even more than we do, and we can commercially stop it. But where we'll get all this hydrogen from? We'll get it by planning large-scale wind and solar electricity. We're planning over 40 gigawatts. Just to remind you, Australia does 70, over 40 gigawatts of power in the Pilbara to make a serious dent in global emissions as opposed to keeping on adding to it. And to my colleagues in the Pilbara, Mike Henry, Jacobs [indiscernible], we're very happy to talk to you too. We will be producing the lowest cost green ammonia and green hydrogen in the world, where your next door neighbors will be very happy to supply you as well. And it's from this speech onwards that I welcome all industry to come and join us in this overall hydrogen, ammonia, green electricity fuel mix, as together we walk away from carbon fuels. We'll have independent verification to be able to audit our march. We'll have the structure to our remuneration policies, which triggers or not, all our executives to measure themselves up to 2030 as we lead the rest of global heavy industry. Our aim is to be the 2 missing links to both supply the green hydrogen and create demand for it. Its energy performance outstrips diesel, oil. And as I've mentioned, too, we're not doing it because we're the faint of heart or we're saints. We're doing it because it makes great business. And once established, these advances will also substantially reduce, as I've mentioned, our own operating costs, FMG's own operating costs. With all these technologies, I see a day when Australia rapidly approaches itself its own zero emissions. And like FMG, substantially reduces our own national operating costs, not just in the global mining industry. I'm a realist. I know that CEOs don't lower cost, but they increase costs through addressing climate change. They're going to get wheeled out, and the next maybe even less principled CEO wheeled in. Don't get me wrong, I do believe that business has and must be steered by ethics. But we also have to be pragmatists. It has to work. For example, I've never invested in coal even through I knew in the decades past, it could have doubled or tripled the size of my company. We didn't do it. I've made an allowance for natural gas because it's a crossover into hydrogen. But I do want to say to all of you that as I stand here in front of you, green hydrogen, green ammonia and green electricity is upon us. You're here to project a future with your analysis, with your forecast and to invest wisely. If you don't, you'll, of course, just be part of the pack, which uses the rear-vision mirror. I'm saying to you with absolute certainty, the green energy future and the green product future is upon us. There will be a huge green steel industry. There will be a huge green fertilizer industry. There will be a huge green energy industry. And it's up to you to choose where you want to be in that or if you want to stay with fossil fuels. It's up to you to choose, do you consume less? Do you live out in the open? Do you not travel? Or in fact, do you turn green and live a much better lifestyle than even you live now. I choose green hydrogen. What do you choose? Thank you.