Market watchers are likely aware of Fortescue Metals Group Limited‘s (ASX: FMG) now-infamous green-hydrogen-focused, renewable energy branch, Fortescue Future Industries (FFI).
The subsidiary has recently signed a contract to build a hydrogen manufacturing equipment facility in Queensland. It has also entered an agreement that will see it selling 10% of its hydrogen output to United Kingdom-based entities.
But, with Fortescue Metals sinking 10% of its profits into the venture, how long will it take FFI to turn a profit?
That question was posed to Fortescue Metals’ CEO Elizabeth Gaines at the company’s annual general meeting earlier this month. Here’s how she responded.
Fortescue Future Industries profitability ‘some time’ away
Unfortunately, Gaines didn’t provide an estimate for how long it will take for FFI to earn its keep. Instead, she noted, “there will be some time between now and [when FFI becomes profitable]”.
However, she did say the business isn’t really about profits:
At the core of the activities of FFI is actually the decarbonisation of Fortescue, and we see that as a very important part of FFI’s activities.
If you think about our goal to be carbon neutral by 2030, we see that as a significant commercial opportunity for Fortescue to generate more profits, to lower our costs, to get a premium for our iron ore – which will be green.
Though, Gaines said the company still predicts its green energy leg will generate “significant profits” in the future:
There’s great reasons to undertake this transition to green energy, but at the forefront of that is the commercial opportunity, and we will use the same discipline we’ve taken in the past to develop in the iron ore business and apply that same rigour and capital discipline to any projects for FFI…
If we don’t decarbonise… we [risk losing] the diesel fuel rebate, we will see a new carbon charge introduced, the cost of offsets will skyrocket…
So, not doing it will actually have a significant detriment on our overall profitability.
Gaines also said the risks facing the company’s bottom line include increasingly volatile fuel costs.
FFI is working to create a fleet of hydrogen-powered vehicles to support Fortescue Metals’ iron ore production. The company’s goal is to make sure the hydrogen-powered fleet is cheaper to run than the diesel-powered alternative.
As of Friday’s close, the Fortescue Metals share price is $17.19.