Why did the Fortescue share price sink in FY22?

FY22 saw Fortescue’s fortunes follow the iron ore price, but the mining giant also advanced its green ambitions.

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Three miners wearing hard hats and high vis vests take a break on site at a mine as the Fortescue share price drops in FY22

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Key points

  • Fortescue had a rough FY22 amid a decline in the iron ore price
  • The iron ore price fell around US$100 per tonne over the year
  • Fortescue has been focused on growing its green division, Fortescue Future Industries

The Fortescue Metals Group Limited (ASX: FMG) share price had a rough time during the 2022 financial year.

Shares in the iron ore mining giant fell by almost 30% over FY22.

Fortescue isn’t the only ASX resource share to experience significant volatility over the past year. However, it fell further than the biggest of the bunch, BHP Group Ltd (ASX: BHP).

As a price-taker, Fortescue has to accept whatever price it can get for the commodities it produces.

As a pure-play iron ore producer, it’s the iron ore price that has a very large and direct influence on Fortescue revenue, net profit after tax (NPAT), cash flow and dividends. Not to mention the Fortescue share price.

Iron ore rollercoaster drags Fortescue share price down

Fortescue has seen its fortunes rise and fall with the iron ore price over FY22.

At the start of FY22, the iron ore price was elevated. It was above US$210 per tonne.

Since then, it has dropped down to around US$115 per tonne. While that’s nowhere near as low as it was during November 2021, it’s still a big fall.

So, with the iron ore price not too far off halving over the year, it’s not surprising that the Fortescue share price has fallen heavily.

The company expects its FY22 iron ore shipments to be between 185mt and 188mt.

Leadership change

One of the biggest items of news out of the company during FY22 was the announcement that Andrew Forrest would be returning to a more active role. He will become the executive chair of the company in August.

Current CEO Elizabeth Gaines will remain on the Fortescue board as a non-executive director. She will take up the role of global brand ambassador for Fortescue Future Industries (FFI).

Dr Mark Hutchison will become the CEO of FFI by the end of 2022.

Green progress

Fortescue’s green division, FFI, has made a number of announcements over the last 12 months showing how much progress it has made.

Early on in the financial year, it said that it was going to build a ‘global green energy manufacturing centre’ in Gladstone, Queensland. The first stage of development is an electrolyser factory with an initial capacity of two gigawatts.

FFI has a vision of making green hydrogen the most globally-traded seaborne commodity in the world. It could have a larger influence on the Fortescue share price as time goes on.

It has already secured customers for a large amount of its planned production. By 2030, FFI wants to grow its production to 15 million tonnes per year.

In November 2021, two UK companies signed a multi-billion-pound deal to purchase 10% of FFI’s global green hydrogen production.

FFI also signed a deal with German energy network operator, E.ON to supply up to five million tonnes per annum of green hydrogen, equating to a third of the planned total.

Fortescue also rapidly advanced its green ambitions by acquiring the UK-based Williams Advanced Engineering (WAE) for around US$223 million.

The company is described as a leading provider of high-performance battery and electrification technologies.

Fortescue will use WAE to help develop battery-electric solutions for Fortescue’s vehicles and equipment and also grow WAE’s green tech and engineering business.

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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