Full Year 2026 Fortescue Ltd Earnings Call
Speaker #1: Leo and Apple Paget, our CFO. Last month we reported our quarterly production results, including record first-half shipments of 100.2 million tons. We did this while keeping our people safe, and costs low.
Speaker #1: Hematite C1 unit costs were 18.64 per ton for the half, cementing our industry-leading cost position. We delivered 4.5 billion in underlying EBITDA and 1.9 billion in net profit after tax.
Speaker #1: Reflecting these strong results, the board has declared a fully-franked interim dividend of 62 cents per share. That's a 65% payout of NPAT and returns 1.9 billion Aussie ie dollars to our shareholders.
Speaker #1: And we're also investing in decarbonizing our operations, which will drive our costs down even further. We made a heap of progress this half. Construction is underway on the 133-megawatt Nullingon wind project, two large battery energy storage systems have been delivered at North Star Junction and Eliwana, and our Cloud Break solar farm is two-thirds complete.
Speaker #1: We are now installing over 3,600 solar panels each and every day. With another gigawatt kicking off imminently. We started switching out our diesel equipment with 12 electric excavators and 1 electric drill now up and running.
Speaker #1: Our first XCMG electric wheel loader and wheel dozer have just finished being built, and we'll start seeing them and our electric trucks rolling off the production line this year.
Speaker #1: We also recently started commissioning our two new battery electric locomotives. And we're not doing this alone. We're working with Global Partners like BYD, XCMG, Liebherr, Envision, and Longi to deliver decarb at scale.
Speaker #1: By removing diesel from our operations, we're taking structural costs out of the business. The less diesel we consume, the less exposure we have to price volatility.
Speaker #1: And that means stronger and more predictable margins. On green metal, construction at Christmas Creek is going well. We're on track for first production this year, which will make it the first project at this scale to produce green metal using peel refines.
Speaker #1: The steel industry is changing. Customers want low-emission steel and China is looking for partners to make that happen. If the peel brewer wants to stay in the game, we need to adapt.
Speaker #1: And that means working with China to decarbonize its steel industry. There's an exciting opportunity here for Australia and China. And I'll be back there next month to continue these discussions with the mills and renewable energy companies.
Speaker #1: On Ironbridge, a continues to ramp up steadily. Since operations began, we've shipped 14 million tonnes of high-grade magnetite concentrate at an average grade of 67% iron.
Speaker #1: We're seeing record operating time and throughput, and throughput and recovery are improving month on month as the team continues to optimize the secondary grinding circuit.
Speaker #1: During the half, we announced an updated Hematite Life of Mine plan. This creates significant value and gives us more certainty over the long term.
Speaker #1: The planned the plan is underpinned by the inclusion of blacksmiths and involves a refinement of product mix. It is also designed to reduce the total material moved, which will help further reduce costs.
Speaker #1: Exploration at Mindy South, Nidnew, and Wiley North continues. Expanding the resource base and keeping our options open. Before handing over to Gus, I'd like to give a big thank you to the entire Fortescue crew and all our partners for their outstanding efforts this half.
Speaker #1: We've had record production, strong safety performance, and stayed laser-focused on lowering costs. With that, I'll hand over to Gus for an update on energy and growth.
Speaker #2: Gracias, Dino. Buenas noches a todos. I'm contractor agent to everyone on another incredible set of results. It's a huge team effort across our global Fortescue family.
Speaker #2: We're building on that rocket-solid foundation, combining our expertise as a world-leading mining business with innovation and groundbreaking technology. We are exploring global opportunities in a discipline and commercially focused way, looking at metals, critical minerals, energy, and technology.
Speaker #2: Our global partnerships are key to our future success and to achieving real zero. We've joined forces with BYD, Longi, and Vision Energy, Liebherr, and XCMG, accelerating our deployment of solar wind batteries and energy storage.
Speaker #2: Those partnerships also strengthen and add a new layer to our longstanding relationship in China. For almost two decades, we have been a reliable supplier of iron ore.
Speaker #2: And we continue to see strong demand for our products with low-grade discounts, continuing to narrow through the first half. This has helped us deliver stronger results for the business.
Speaker #2: That track record means we are well placed to navigate market dynamics and continue to deliver reliable for our customer needs. Actively advancing growth opportunities also helps securing long-term resilience and diversified returns.
Speaker #2: Exploration is a big part of that. It's how we started and continue to grow our peel brewer operations. Beyond that, we are strengthening our global footprint through our diversified portfolio of metals and critical minerals projects.
Speaker #2: We expect to finalize shortly the acquisition of Alta Copper, strengthening our copper portfolio in Latin America. Once the transaction is completed, our immediate focus would be on technical reviews, community engagement, and advancing the studies required to inform future development decisions.
Speaker #2: This would build on our existing critical mineral exploration activities in Argentina, Australia, Canada, and Kazakhstan. Exploration and study activities also continue to advance at the Berlinga Iron Ore Project in Gabon, planning is also advancing for the delivery of an integrated mine rail and port solution.
Speaker #2: We continue to look at future opportunities to diversify and develop green energy globally, maintaining a pipeline of electron molecules and technology projects. We're doing this with a discipline and commercial-focused mindset.
Speaker #2: When markets are ready and when the economics stack up, we will provide updates on the progress of projects. In the meantime, we're not just waiting for that to happen.
Speaker #2: Technology is key to unlocking our global growth opportunities. We're investing in research and development to engineer the breakthrough technologies we need. Fortescue Zero is the driver of that innovation for our business.
Speaker #2: In the last six months, we've progressed the power system for our T264 trucks, with the first two on-site later this year. Our battery intelligence software Elysia has acquired Citara to boost capability beyond EVs to support and monitor battery energy storage system.
Speaker #2: We're also investing in developing the technology that will drive down the cost of green hydrogen launch a green iron industry and deliver our green metals project.
Speaker #2: On that note, thank you again to our teams for an incredible first half. Let's go now to Apple to dive deeper into our financial results.
Speaker #3: Thank you, Gus. And a big hello to everyone from London. It is my absolute pleasure to share some details of our financial performance where highlights for me include margin expansion, underpinned by cost discipline, and an increase in cash generation and further optimization of our balance sheet.
Speaker #3: On the results, first half revenue of $8.4 billion was 10% higher than the same period last year, driven by record first half shipments and a 7% increase in our Hematite realized price to $91 per tonne.
Speaker #3: Our focus on operational efficiency and cost discipline is reflected in our industry-leading cost position, with the Hematite C1 unit cost of $18.64 per ton 3% lower than H1 last year.
Speaker #3: This is despite inflationary pressures. We have a clear pathway to delivering on our full-year C1 unit cost guidance of $17.50 to $18.50 per ton at the guidance exchange rate.
Speaker #3: Of AUD 65 cents. Just a reminder, if sensitivities are important, given the recent strengthening of the Aussie dollar, and a 1 cent movement in the exchange rate impacts C1 costs by around 16 cents.
Speaker #3: Strong cost control together with higher prices resulting in underlying EBITDA increasing 23% to 4.5 billion, as the EBITDA margin expanded 5% points to 53%.
Speaker #3: This flow through to a 23% increase in NPAT to 1.9 billion US dollars, with a healthy return on capital employed of 20%. For those on the webcast, you can see from this slide the reconciliation of the year-on-year change in NPAT.
Speaker #3: Below EBITDA, the key moving parts include higher depreciation and amortization, and an increase in expiration development and other expenses. Depreciation rose 19% on H1 FY25, mainly attributable to our growing asset base, consistent with our capital program.
Speaker #3: Moving to the next slide, which shows Fortescue's consistently strong generation of cash. Net cash flow from operating activities increased by 32% to 3.2 billion, and free cash flow more than doubled year-on-year to 1.5 billion dollars.
Speaker #3: This is after investing $1.7 billion in CapEx, including $1 billion in sustaining and hub development, and $426 million on decarbonization. As you can see here, our balance sheet remains in great shape.
Speaker #3: Cash on hand at 31 December was $4.7 billion, and net debt was $1 billion. And during the first half, we further enhanced our debt capital structure, including the successful syndication of a low-cost R&B term loan, the repayment of a US dollar term loan facility, and the repurchase of some of our senior unsecured notes.
Speaker #3: This diversified our funding sources and lowered Fortescue's 's weighted average cost of debt by over 60 basis points, while increasing the weighted average tenure.
Speaker #3: You can see Fortescue's credit metrics on this slide, with gross debt to EBITDA of 0.7 times and gross gearing of 22%, resulting in plenty of headroom.
Speaker #3: A strong balance sheet is fundamental to Fortescue's capital allocation framework, as is our commitment to return capital to shareholders. And as you've already heard from Dino, the board has declared a fully franked interim dividend of 62 Australian cents per share.
Speaker #3: The dividend is 24% higher than the FY25 interim dividend and represents a payout of 65% of first half NPAT, consistent with our dividend policy to pay out 50 to 80% of full-year underlying NPAT.
Speaker #3: In closing, we've delivered strong financial results in the first half, underpinned by record shipments strong pricing and disciplined cost and capital management. I'll hand back to the operator to facilitate the Q&A, where we welcome your questions.
Speaker #1: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two.
Speaker #1: If you're on a speakerphone, please pick up the handset to ask your question. We ask today that you please limit yourself to two questions per person, after which you may then re-enter the queue.
Speaker #1: Your first question today comes from Rahul Anand, with Morgan Stanley. Please go ahead.
Speaker #4: Oh, hi. Good morning, team. Or rather, good evening, team. Thank you for the call. I just wanted to ask a couple of questions. The first one on perhaps the CMRG side of things, a couple of your peers in the industry have briefly discussed and talked about sort of how those discussions are progressing.
Speaker #4: Just wanted to get your views on sort of how you're seeing those discussions and basically are you making any progress in terms of which direction you're headed in, or are we still in the testing phase of sort of what's going to eventuate?
Speaker #4: Obviously, the newspapers are also talking about the government looking at it. So any sort of color there would be much appreciated, and I'll come back with a second.
Speaker #4: Thanks.
Speaker #2: Thanks, Rahul. Look, this is not a new conversation for us, is how I'd start out the answer. It's been ongoing now for a couple of years.
Speaker #2: We have a strategy on how to diversify our overall relationship with China it's been a longstanding relationship. Our products are moving well. We expect that to continue.
Speaker #2: On maybe the more specificity of the current conversations, I'll hand over to Ben Kuchel, who's with me here, our director of marketing.
Speaker #5: Thanks, Dino, and thanks for the question. I mean, we won't be going into, obviously, the specifics of the discussion, but they are ongoing. I think you can probably think of them as phased discussions.
Speaker #5: These sorts of commercial negotiations are in many ways part of our industry and have been so for many years. So in that sense, no major changes.
Speaker #4: Sure. Okay. Thank you. And then, look, the second one's just around future growth and we briefly talked about in the introductory comments around Gabon and also the copper side of things.
Speaker #4: I guess these are genuinely transformational opportunities for the company and basically on the iron ore side with the high grade and then obviously copper is well liked by the market.
Speaker #4: I guess my question's more around where do you see the critical path items for both these projects? At what point do you think you can start materializing a bit more in terms of studies CapEx numbers, timelines, for these two growth opportunities?
Speaker #4: Just for the market to perhaps give them a bit more value or to understand the impacts on the business better?
Speaker #5: Yes. Thank you for the question. In both, you mentioned Gabon clearly. We are advancing in the ground. We've had been working in Gabon for the last couple of years.
Speaker #5: We have Nick online, if you want to if Nick, you want to give any update on the exploration front, on what we are doing in Gabon to concerning the updates on CapEx is too premature to discuss about them.
Speaker #5: Both in Gabon and probably as I said, in the acquisition that we are finalizing for Alta Copper, so Nick, do you want to discuss about both because they are in an exploration phase?
Speaker #5: You want to give any update of people on the ground in both Gabon and in Peru, please?
Speaker #6: Yes. Yes, thanks, Gus. From a Bolinga project perspective, drilling continues. We're excited over the coming months to test some of the other targets in the eastern part of the concession, which we've just secured approvals for.
Speaker #6: So we'll be doing some initial drilling there. The results to date have been in line with expectations. And we're looking to really focus, I guess, in on the areas that have the most high grade and lump potential as priority for our exploration projects.
Speaker #6: In Bolinga, from a Peru perspective, specifically the Alta Canriarco project, initial work will very much be focused on securing community and social access so we can get on ground to reassess the work that has been done previously by Alta and then start progressing our own exploration study work as we push that project through.
Speaker #6: We are excited about the project. There's a significant resource there that has the potential to grow. So we're very keen to progress that as fast as we can to ensure we get on ground as quick as we possibly can to push the study work.
Speaker #1: Your next question comes from Rob Stein with Macquarie. Please go ahead.
Speaker #7: Dino and team, look, a quick one, just on, I guess, costs going forward and where you see the industry structure settling out. Obviously, iron ore would supply growth and potentially demand flatlining we'll see limitations to price upside.
Speaker #7: But on the cost side, you're obviously taking a lot of action to reduce your cost base, decarbonization, the investments in AI. I'm just curious around where you see yourselves leading the drive to take costs lower.
Speaker #2: Thanks, Rob, for acknowledging that industry-leading cost position that we announced today. And it's part of our DNA, really. So we pull every single lever that we can.
Speaker #2: The real exciting ones for us, though, is decarbonization. You're talking about the offset of all of our diesel, and you can do the numbers yourself.
Speaker #2: We've already flagged the potential 2 to 4 dollar a ton cost impact before 2030. So that's really exciting for us. You've rightly mentioned AI.
Speaker #2: We have already have a number of agents operating within our scheduling and rail network, which is
Speaker #1: His yielding more volume upside at this stage However , we are have banked some cost savings already this coming forecast In that space .
Speaker #1: So look for us . Just to recap , being the forefront of the of the curve is has been existential for Fortescue and that will remain .
Speaker #2: And Rob , just to further add to Dino's excellent comments , you know , as you mentioned , it is about controlling what we can control .
Speaker #2: And one of that is cost . But you have to remember , we also have a very , very healthy balance sheet that is well set up .
Speaker #2: And positioned to support future growth and CapEx as required , as evidenced by our credit metrics
Speaker #3: Thanks , Dino . Maybe just a to take that a bit further . So what are you seeing in your investments to date and what you're developing from an IP point of view that allows you to take more bets on differentiated resources ?
Speaker #3: Maybe I'll put it or resources that may not necessarily be a hotly contested . How are you thinking about using that to extract value ?
Speaker #3: For example , you know , what do you see in ultra copper ? That means that you can develop the resource cheaper , faster , with low labor intensity that can , that can ultimately drive value .
Speaker #1: Yeah . Look , I mean , I think our record for capital intensity speaks for itself . We , we have deployed capital , I'd say ahead of our peers in the program , we expect to apply that same project mentality to any of our projects around , around the world .
Speaker #1: One specific technology that that we have already disclosed is an investment we made in a , in a process which removes arsenic from copper ore bodies .
Speaker #1: And we , we look to then apply that at our copper project to further improve the deployed capital in the processing infrastructure
Speaker #4: Thank you . Your next question comes from Paul Young with Goldman Sachs . Please go ahead
Speaker #5: Thanks . Evening , Dana . Gus and Apple . Hope you're all well . First question is more just a housekeeping one actually on CapEx .
Speaker #5: Dina , I think it was a bit over $400 million in the half . And guidance implies it has to step up to 500 to 700 in the second half .
Speaker #5: More broadly , though , actually the questions on , you know , looking on the go for when is peak , when is the peak year for decarb spend
Speaker #1: Next couple of years . Paul . This is really the first significant year of expenditure . We see our equipment turning up this year .
Speaker #1: It's where the majority of expensed . And it will take a couple of years for for that to conclude .
Speaker #2: And Paul , just to add to that , you're absolutely right . We're not changing our guidance . We spent , you know , $426 million in the first half .
Speaker #2: We will still we will continue to spend up to the 900 to 1.2 billion guidance . Just just FYI , we've spent about 800 million up to 30th June last year .
Speaker #2: Let's say we spend another billion dollars . We've given the $6.2 billion in real terms . We've probably got a run rate of about billion dollars left to the end of the decade .
Speaker #2: However , it is going to be lumpy and as Dino said , probably next couple of years would , would , would continue to grow .
Speaker #5: Okay , thanks . Thanks , Apple . And then , you know , broadly , just looking at the go forward , I mean , that the strategy and the outlook for CapEx and projects for FMG has changed considerably considerably over the last 2 or 3 years .
Speaker #5: I mean , you're not spending anything on , on , on hydrogen projects now . That's that's reduced . And that pipeline is reduced .
Speaker #5: The balance sheet is strong , but the forward looking CapEx will probably stay around the 4 to 4.5 billion mark . You know , if the Decarb program , then you've got the the the replacement mines , which kick in .
Speaker #5: And I see you've added another one to the , the mix while north , which is , you know , on the small side , but still the replacement mine CapEx Dino will kick in , you know , quite aggressively at the end of the decade .
Speaker #5: And then , you know , over a five year period . And at the same time now we're , we're taking on potentially two .
Speaker #5: Yes , exciting , interesting projects . Gabon and County Rico in , in Peru and just basic benchmarking . I mean , these are minimum $5 billion projects .
Speaker #5: I would have thought . And possibly FID by the end of the decade . So yeah , the balance sheet is probably stronger than now than what you thought .
Speaker #5: So I'm just trying to match up , you know , how do you think about , you know , do you have enough capacity towards the end of the decade ?
Speaker #5: And is f I'd on these projects by end of decade , sort of realistic within your your budgeting
Speaker #1: Yeah . Thanks , Paul . Look , I think largely you're on point based on what we've said . I mean , we've been talking about the new .
Speaker #1: And Mindy , for the last five years . And every time it's still another 5 or 10 years out . So that's , that's our objective .
Speaker #1: Thank you for picking up Wally North that we bought in . So that's another one of the smaller outlooks . I think I reminded everyone on the call last time blacksmith as a standalone will open up a corridor to serenity as well .
Speaker #1: So we're looking forward to to that coming in . So our objective is to defer near as , as much as we can there currently still in the timeline as as you as you have suggested .
Speaker #1: I'll just let Apple speak to the balance sheet capacity for any projects . And I think , again , we're really well positioned .
Speaker #2: Yeah . Paul . Look , we we have , as I've mentioned in the past , purposefully entered into this investment cycle with very , very strong cash position to draw from .
Speaker #2: We've got plenty of headroom . I do question some of your comments around $5 billion here and there on FIDs . You know , we're not there yet .
Speaker #2: I think the best prediction of the future is probably the past , including this year . It is going to be lumpy in nature , but we have done everything that we possibly can to keep it as even as possible and as low as possible , whilst not impacting production , safety .
Speaker #2: And of course , opex
Speaker #4: Your next question comes from Kaan Peker with RBC . Please go ahead .
Speaker #6: Good afternoon Dino . Gus and Andy . First question is on hematite shipments . Have there been any annual contracts reset on a blended benchmark basis already ?
Speaker #6: And if so , can you quantify the the portion of that and I'll come back with a second .
Speaker #1: Okay . Straight to you , Ben .
Speaker #7: Thanks for the question . Look , I mean , again , we don't comment on on contractual specifics , which of course are confidential in nature .
Speaker #7: What I am happy to say is that , you know , when it comes to the of pricing for our products , whether it's under long term contract or spot contracts or any other form of pricing is intended to ensure that we achieve competitive market based pricing .
Speaker #7: And the index component of that is one component . But importantly for our products , there's a discount that is that is applied on a product specific basis .
Speaker #7: And then result will continue to deliver market based pricing for our products
Speaker #6: Sure . I mean , just maybe pressing on that , I mean , it is , you have previously mentioned that you are going to mix benchmarks .
Speaker #6: There's no indication of when that would start or has that already started
Speaker #7: When it comes to the pricing references that we are using , look , I mean , we've historically used Platts 62 , when that was existed .
Speaker #7: Obviously , the shift to 61 indexes applied from January . There was always going to be some shift in underlying reference indices from that point in time
Speaker #4: Your next question comes from Lachlan Shaw with UBS . Please go ahead Lachlan Shaw your line is live . Please proceed with your question
Speaker #8: Good evening guys . Sorry . You Apple team . I hope you're well too . From me . So firstly , just in terms of the the Decarb obviously pleasing progress , you're stepping up the pace of rollout of solar cells , batteries and wind turbines in the Pilbara .
Speaker #8: I wanted to ask , how is the sort of performance and cost of install they're progressing versus expectations ? And I'll come back with my second .
Speaker #1: Look really , really well every every solar installation is coming in cheaper than the last . And , and the batteries , as we talked about before , we've got , we've got an amazing partnership with BYD and we're really just starting to roll out the batteries .
Speaker #1: So I guess the next important milestone for us on our solar installation is looking at an automated process . So in , in Australia , more than half the costs are in labor for installation .
Speaker #1: So we're really excited about , you know , a couple technologies . We've got in our back pocket that we're rolling out now for the rest of the solar farm that we're we're building
Speaker #8: Great . Thank you . And then just my second one is , is , I suppose , a market question . So sitting here today , we've , we've got elevated port stocks in China .
Speaker #8: We've just come out of Lunar New Year . Interested in what your team on the ground is reporting back to you about the sentiment and the mood in the market there .
Speaker #8: And to what extent the current fundamentals you think reflect sort of the usual seasonality around port stocks , or maybe there's more of an underlying issue there .
Speaker #8: So any comment , comments or color that you can help us with in terms of the market would be appreciated . Thank you
Speaker #7: Yeah . Thanks . Thanks for the question . It's Ben Kuchel here . Sales and marketing director . I'll take that one . Look , I think we've only just come out of Lunar New Year .
Speaker #7: So it's probably quite early to get a lot of detailed information from from the ground post post new year . But you know , I think the expectation leading into the to the new year was that there would be a continuation of existing production , at least for a period of time after the holidays .
Speaker #7: You can probably anticipate that we're going to head into sort of March , April , May , and that's typically a period of higher crude steel production .
Speaker #7: And that's what I would anticipate this year as well . You know , the outlook for this year more more generally , I think is similar to last year .
Speaker #7: And in that sense should be a stronger year for for crude steel production , similar to last year
Speaker #4: Your next question comes from Lyndon Fagan with JP Morgan . Please go ahead .
Speaker #9: Thanks very much . And g'day , everyone . Dino , just wanted to focus in on the energy division . There was some talk of it being EBITDA break even .
Speaker #9: We're still losing a couple of hundred million dollars in a half . I can see that revenue ticked down ever so slightly , and there's been a bit of R&D spend pulled back .
Speaker #9: But have you have you got any sort of new guidance on when we can expect that division to , I guess , not be a drag on the numbers
Speaker #1: Thanks , Lyndon , but I'll hand over to Gus , mate . He leads that .
Speaker #10: Oh yes , we know it's a straight answer . Again , R&D again . It's it's a dynamic process . Again , we we take care and we try , as I mentioned before , to bring technology constantly into every single project that we .
Speaker #10: We take on . Clearly , we had , again , as everything on R&D , it's , it's , has its risks But again , we're on the forefront of that technology , trying to make it happen .
Speaker #10: So we will we will , we will address this when it comes . If there's some breakthroughs into our projects .
Speaker #2: And to add to that , Lyndon , we are heading in the right direction . Our H1 net opex is 201 million . That's a 45 reduction million , 45% reduction from US 365 million in H1 last year .
Speaker #2: And as you know , Gus would attest to our R&D has reduced a lot . But that reflects our strategic pivot and refocus of Fortescue during that period .
Speaker #2: And we have moved away from in-house manufacturing and streamlined the portfolio to focus on , on priority technologies . And this will result in a reduction in R&D run rate .
Speaker #2: But we will see , you know , hopefully over the next handful of years , a turnaround of that into a positive territory
Speaker #9: Thanks . And I guess my next one is , is just more thinking about Fortescue as an investment proposition . I guess you're going into a period of being ex-growth from an earnings point of view .
Speaker #9: You know , I guess what , what would you say to prospective investors to make them want to buy the stock ? I mean , we've got Gabon coming , copper coming .
Speaker #9: But their next decade in reality , we've got high CapEx for the foreseeable future . I guess what what what would you put out there as a reason for shareholders to or prospective shareholders to buy the stock
Speaker #1: I think relative to our peers trading at a pretty good price , right . We will continue to strip costs out of the business .
Speaker #1: We're deploying technology at a rate of knots , unseen in any other organization in mining . We believe that the commercial proposition and we're going hard at diversifying a copper business .
Speaker #1: So yep . You call it Alta , which has got some , you know , in that in that time where he talked about we've got a couple of other exploration copper plays in our own backyard , which we're really excited about .
Speaker #1: Look , and fundamentally look at the divvy . I mean , it's a it's a significant cash generating business in whatever way you look at it , in whatever cycle , where the where the cheapest iron ore producer on the market , I mean , I think it's a no brainer
Speaker #4: Your next question comes from Glyn Lawcock with Barrenjoey . Please go ahead
Speaker #8: Morning , team .
Speaker #11: Just a couple of ones . Firstly , just you said you've rolled out some . I think electric excavators a couple of trains , locomotives , anything you're seeing at the moment , are there any teething issues how the battery life going ?
Speaker #11: Maybe a little bit early , but just any observations you might be able to share . And then the second one is for Apple very quickly , just DNA stepped up again in the first half , about 150 million half and a half .
Speaker #11: And that was that . Previous one was up 100 on the half before that . So just anything you could share with with what the second half looks like conscious .
Speaker #11: You are obviously stepping up your spend . So just anything you could add . Thank you
Speaker #1: I'll take the first one . I'll hand over to . Apple Look , these are electric excavators . For instance are performing well above our expectations that we basically getting to record equivalent rates within the first month .
Speaker #1: A of months of of using them . As with any new piece of equipment , you have a few teething issues and commissioning , but we're well and true that through that I think the upside is is coming back to the energy grid that we're building .
Speaker #1: It is a it's phenomenal what you can do with electrification . Now , the grids working exactly as as expected , our battery storage facilities , for instance , have have already saved a number of blackout situations on our network as the system is much faster to respond than the typical hydrocarbon or diesel generator .
Speaker #1: For instance . So we we see it to be a much more reliable , much less maintenance intervention as as the fleet goes on .
Speaker #1: So , you know , I just remind everyone we're we're at the start of the technology at the moment . And we're already cheaper than the diesel counterpart
Speaker #2: And to your second question , absolutely right . 1.45 billion and a half , up 19% compared to prior period . You know , it's it's attributable to a few things .
Speaker #2: And as you mentioned , when you have a growing asset base , you do have an increase in depreciation and a step up in , in depreciation .
Speaker #2: And that's attributable to , to the investment in sustaining and hub development . And also don't forget the transition of our decarbonization assets , which have now become operational , like peak four and Ironbridge .
Speaker #2: To your question , what does it look like for the second half ? Expect the same run rate as this half
Speaker #4: Your next question comes from Mitch Ryan with Jefferies . Please go ahead .
Speaker #12: Thanks . Taking my question , this is just a follow up to question . Just around the R&D spend . So , you know , it was it was run rate of $270 million , a half last year .
Speaker #12: And then 175 in this half . How do we think about that going forward ? Will that continue to fall as you're decreasing some of that spend
Speaker #10: Again , as I mentioned , I think I addressed earlier , but I will is we we relook at the R&D budget last year , mainly because we had a lot of a lot of programs there that we were again , testing to see , which was the most suitable for the Decarb and other projects objectives .
Speaker #10: We are redoing the budgets again for next year as we speak Addressing again all what Dino mentioned about what is being taken advantage into our Decarb product .
Speaker #10: So again , we will be disciplined and we'll look at how commercial this R&D will be mainly having the main objective to decarb our own projects as we are doing .
Speaker #10: And then that will have the commercial analysis into the budget that is coming in the next couple of months .
Speaker #12: Okay . That's it for me . Thank you .
Speaker #10: Thank you .
Speaker #4: Your next question comes from John C to with John Tumazos very independent research . Please go ahead
Speaker #13: We have so much wonderful work that's been done on the green front and a lot of money that's been spent . And I know it takes time for the projects to come together and show us revenue Do you think Fortescue would take a partner , sell a 20% stake so that there'd be a marker in the market quantifying the value or a partner shows respect and pays to get in and bear some of the cost
Speaker #10: Again . Yeah . Sorry about the noise . Somebody sprinkling coffee late Well , we we analyze again . We are on the stage that we are trying to bring , as I said , bring forward the projects As long as we can .
Speaker #10: Obviously we will de-risk if we have to into into partnerships and de-risking capital . If needed . At the moment we are not in that stage , as I said , and I think on the latest call that you heard me since I took this position , that the market is not there for most of the projects , and that comes back to the to the growth new mindset of being commercially disciplined and that decision that at the moment , and I appreciate your observation , but at the moment , we are not in that stage to look at partnerships .
Speaker #10: So but yes , it's always an option . And we always look at every potential partnership to just bring projects to light . But it's not looking at the moment that we are going through that
Speaker #13: Thank you
Speaker #4: Your next question comes from Brad Thompson with the Australian . Please go ahead .
Speaker #14: Hi , Dino . Gus and Apple and team . Thanks for your time . Congratulations on the record shipments from Port Hedland in the first half .
Speaker #14: Just just wondering about that . Your guidance is up to 205 million tonnes . You've got an allocation of 210 . Would you ?
Speaker #14: Have you got any interest in another berth there in Port Hedland or are you happy at 210 million tonnes for the foreseeable future
Speaker #1: Thanks , Brad . Look , we we are always evaluating optionality . Right now we see our license limit at 210 in our current capacity is a pretty , pretty good sweet spot for for our portfolio in the near term
Speaker #14: Thank you . And I could just ask us a question about Fortescue zero with the reset last year , Gus , how many employees did you what sort of size workforce did you settle at ?
Speaker #10: How are you , Brad ?
Speaker #15: Good . Thanks , guys . Good
Speaker #10: Well , yes , we we we went through that process . And again , it's still going . So that detail I can I don't have so but as as we discussed previously , we are going through again Through the the process and and as I said before , R&D for us and technology is very important .
Speaker #10: So we are . What I can tell you and I and I've been today with Travis going through the different , the different Projects and programs that we have in zero .
Speaker #10: And still it looks really promising . I would probably update it a little further down . As I said , in the next couple of weeks , but but again , we have a lot of people still doing amazing things
Speaker #4: Your next question comes from Melanie Burton with Thomson Reuters . Please go ahead
Speaker #16: Hi , everyone . Thanks for your time today . So we can see that you we can see that you're increasing your copper footprint with with Alto and , you know , perhaps there could be some more near dated copper growth .
Speaker #16: So you know , are you . There's obviously a lot of M&A in the sector at the minute . Big scale M&A . I wonder how you're thinking about that given your growth options in copper and iron ore .
Speaker #16: Are , you know , much longer dated . Is that is that something that's , you know , you're actively thinking about ? Yeah .
Speaker #16: Thank you
Speaker #10: Again , we , we have a lot of options , but and mainly , as you know , critical minerals is clearly on our main strategic view , Alta copper is , is there again , like Dino mentioned , there are other exciting projects that we can update at the moment because we are not significant , but they look quite promising .
Speaker #10: So again , as I said before , some of the other projects on molecules and electrons are taking longer because again , as we said , the market is not there and we are not we again , we are very disciplined commercially and we'll wait for the right moment to to happen .
Speaker #10: But again , focusing in diversification and in critical minerals
Speaker #16: You diversification , critical minerals at the minute appears to be ultra copper , which is in the 2030s . Is there any color that you can give us around these copper , you know , copper exploration that you found in Australia or , or otherwise ?
Speaker #16: When we think about critical minerals , we're thinking about an array of minerals beyond copper . Is that the way that you're thinking about it or just focusing on copper ?
Speaker #10: No , I mentioned critical minerals because we have a rare earth project in Brazil . And Nick , I don't know if you want to expand on that .
Speaker #10: Also , copper in Kazakhstan and in North America as well . So apart from Latin America , we mentioned with Peru , Argentina , Chile .
Speaker #10: Nick , do you want to expand into into the portfolio , please ?
Speaker #17: Sure . Thanks , Gus . Yeah . That's right . We've got a number of copper projects globally . I'll call out a couple specifically in Canada , in British Columbia , where we've got some very exciting tenements that sit between two world class mines that we are going to fast track to drilling this year Similar in in Kazakhstan .
Speaker #17: We've got a suite of projects that will be progressed to drilling . We look to drill about 1500 zero meters . This this field season , testing a number of both porphyry targets as well as a couple sedimentary copper targets within the Sarysu basin .
Speaker #17: So our focus from an exploration perspective is is still try and pick up tenements in in world class terrains . And that's that's what we're doing .
Speaker #17: As Gus touched on , we'll be aggressively testing these targets through the portfolio over the coming 12 to 24 months
Speaker #4: So next question comes from Brandon Howe with capital Brief . Please go ahead .
Speaker #12: Hi .
Speaker #3: Tim .
Speaker #12: Thanks very much for the time this morning . Just a couple of questions . First of all , does Fortescue have any concerns about the potential flow through impact to iron ore earnings from the Australian government's move to put tariffs on Chinese steel ?
Speaker #12: And secondly , Fortescue's green iron partner , steel has warned that these tariffs , if not given an exemption for its own green steel products , could undermine Australia's transition efforts .
Speaker #12: Is that a position that you agree with ? Thanks
Speaker #7: Sure . It's Ben Kuchel here . Thanks for the question . I mean , I've noticed the the commentary in this in this space .
Speaker #7: Look , I think , you know , we're not a party to the to the discussions going on around steel tariffs , as you might imagine .
Speaker #7: But , you know , I think from our perspective , you know , free trade is , is a is a key to our success and has been a key element to Australia's success over many , many years .
Speaker #7: So from our perspective , you know , trade barriers are something that we would have to , you know , understand in detail
Speaker #12: And did you have any thoughts on Bauer Steel's comments
Speaker #7: I think your question is probably better directed to steel .
Speaker #12: Thanks
Speaker #4: Your next question comes from Mark Wimbridge with AFR . Please go ahead .
Speaker #15: Good morning . Evening , guys . Just a quick one from me today . Everyone else has covered everything quite well . Is there any update on Gladstone and your discussions with the Queensland Government ?
Speaker #15: There
Speaker #10: Well , we are , as you know , we we have a very good discussions and we are progressing into finding a solution .
Speaker #10: Again , as we said , we are probably one of the biggest taxpayers in Australia and we want to do the right thing .
Speaker #10: So we are working very collaborative with the government and we'll continue to do so .
Speaker #15: But you haven't reached a figure yet ?
Speaker #10: Not yet .
Speaker #15: Okay . Thank you .
Speaker #4: Your next question comes from Kaan Peker with RBC . Please go ahead .
Speaker #6: Hi again team . Sorry I got cut off before I could ask my second . Just on the 55% Fe strategy . Have you guys shipped any trial parcels of the new product ?
Speaker #6: Any comments about realization ? And if there is a difference in the spread , what would trigger the reintroduction of West Pilbara fines or something similar of that ?
Speaker #6: Great . Thanks
Speaker #7: Sure . Thanks for the question , Kaan . It's Ben Kuchel here . I'll have a crack at answering it for you . You know , at this stage , the the lower grade product goes into production later this calendar year .
Speaker #7: You know , we're going to be focusing closely on engaging customers over the . Well , we've already been engaging with customers , but we'll continue to engage closely with customers in the coming months ahead of the start of production , to place that product for for maximum value and , you know , at this stage , it's probably too early to to form a view on what realization will average over time .
Speaker #7: In the future
Speaker #1: Sorry .
Speaker #18: It's Andy here . We didn't quite catch the last part of that question , but if you recall , the refinement in product mix and the change in mine plan has resulted in a very significant reduction in TMM over the life of mine .
Speaker #18: So that's over the next 20 years , the strip ratio is going to be smoother . It's going to average about 1.6 . So we talked about some very significant value accretion as a result of the product mix refinement and life of mine sort of change .
Speaker #18: So we need to see a very significant and evidence of a sustained move in pricing relativities to look at , you know , walking back , the strategy , but clearly that would remain an option for us .
Speaker #18: And I think we said at the time , Khan , that we would have the flexibility to reintroduce a higher grade product once we've developed some of the larger hubs into the next decade .
Speaker #6: Sure . Thank you
Speaker #4: Your next question comes from Lachlan Shaw with UBS . Please go ahead
Speaker #8: Evening , Tim . Thanks for taking my follow up question . I just had one long dated , I know , but the molten oxide electrolysis cell that you're now sort of starting to talk to in terms of zero carbon ion .
Speaker #8: What's the critical pathway here ? There's a lot of new elements in terms of how that comes to market potential reagents , waste management , how do we think about that ?
Speaker #8: That's obviously is it 20 mid 2030s . We should be thinking about what's the what's the sort of thinking there on timing . Thanks
Speaker #1: Well , thanks for the question , Lachlan . It's actually pretty exciting . Some of the development we've done on it , there is the critical path is now to get the balance of plant design done .
Speaker #1: It's similar to a Bayer circuit that we're looking at . So it's not not too complex . The most exciting thing though is the energy intensity .
Speaker #1: So it's the work is to get the cost of the electron down which which we're working pretty hard on . And then we'll see that technology come through .
Speaker #1: We are , we are looking at some building a pilot , a much larger pilot plant up in the Pilbara . When we're ready
Speaker #4: There are no further questions at this time . I'll now hand back to Mr. Dino Otranto for closing remarks
Speaker #1: I look , just thank you , everyone , for joining us on the call today with some some great questions . We went over time .
