Founder and chair of Fortescue Metals Group Limited (ASX: FMG) Andrew 'Twiggy' Forrest has been beating the drum for green hydrogen at the COP26 climate summit. Though, the ambitious goals set out for its green subsidiary are causing some shareholder anxiety.
As Fortescue Future Industries touts its bold vision for an extensive portfolio of green energy projects, analysts and investors are becoming wary of the gobsmacking amount of cash that would be required. In fact, Twiggy has earmarked hundreds of billions that it would take to make the vision a reality.
For Fortescue shareholders, the question is: how much will the iron ore producer need to contribute?
Running the numbers on the green dream
ASX-listed Fortescue Metals, for better or for worse, is now heavily involved in the emerging hydrogen industry. The company's subsidiary, Fortescue Future Industries (FFI), now effectively represents the linchpin of the iron ore giant's 2030 carbon neutrality target. As part of this endeavour, FFI hopes to be producing 15 million tonne of hydrogen per year by the end of the decade.
Unsurprisingly, this requires a lot of infrastructure and investment between now and the end goal. According to The Australian, the current estimate is in the ballpark of $195 billion.
Remarkably, this figure only accounts for the projects that have already been outlined. To actually reach the targeted 15 million tonne of hydrogen annually, the number could be north of US$500 billion. For context, ASX-listed Fortescue Metals currently has a market capitalisation of ~$45 billion. So, where is all the cash going to come from to fund these developments?
At this stage, Fortescue CEO Elizabeth Gaines has noted only 10% of the company's net profits will go towards FFI projects. This contribution will be alongside its current dividend policy, giving income investors some peace of mind.
In addition to these funds, Twiggy admits that the majority of the funds will rely upon large institutional investment.
The implementation capital – which over time will be hundreds of billions of dollars – much of that capital will be… funded by the world's greatest institutions, who must invest in humanity's journey to a zero-carbon future.
Andrew Forrest, Fortescue Metals Group chair
Mitigating risk to ASX-listed Fortescue Metals
Perhaps reassuring shareholders, Fortescue Metals Group released a sustainable finance framework yesterday. This document outlines the future use of green and social debt instruments for investing in green and social projects.
Importantly, FFI projects that proceed to construction will raise their own debt and equity, separate from Fortescue Metals. This will likely be done by securing the debt against the assets under construction, leaving the parent company's balance sheet untouched.
