Fortescue share price falls after dividend drop, profit down 23% in FY23 result

There is yet another leadership change at Fortescue.

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The Fortescue Metals Group Ltd (ASX: FMG) share price has fallen around 5% after the ASX mining share revealed its FY23 report this morning.

Fortescue shares closed at $20.93 each on Friday afternoon and at the time of writing, are trading for $19.97 a share, a drop of 4.6%.

Let's check Fortescue's result for the 12 months to 30 June 2023.

Fortescue share price drops after impairment in FY23 result

The business achieved record iron ore shipments during the year of 192 million tonnes, which was the top end of its market guidance. Fortescue announced a final dividend per share of $1 after the operational performance.

The company spoke about Iron Bridge, Fortescue's new high-grade project, which started production in May 2023.

Fortescue said aligning Iron Bridge's operating cost structure with market conditions contributed to a life of mine C1 cost estimate of approximately US$45 per wet metric tonne (wmt), attributable to Fortescue. The ASX mining share has recognised a pre-tax impairment charge of US$1 billion on Iron Bridge after reviewing the carrying value of its assets.

Fortescue said the majority of the Iron Bridge assets are the assembled plant, pipelines, and infrastructure, as well as less tangible components like the cost of the pilot and demonstration plants and capitalised interest. There was also the impact of increasing discount rates due to higher interest rates.

What else happened in FY23?

Fortescue said its Fortescue 'energy' division has been split into three segments. First is Fortescue Future Industries (FFI), its green energy project development and production business. Second is Fortescue WAE, its battery and fleet technology development and manufacturing segment. Third is Fortescue hydrogen systems, the electrolyser and hydrogen production systems development and manufacturing business.

The Fortescue energy division is targeting five final investment decisions by the end of the 2023 calendar year, with priority projects in Australia, the US, Norway, Brazil, and Kenya. In the future, these projects could support the Fortescue share price.

Construction works have been completed on the 2GW Gladstone electrolyser manufacturing facility. It has started manual assembly of in-house designed proton exchange membrane (PEM) electrolyser stocks, with an automated assembly line due for delivery and installation in FY24.

It has continued research and development into green iron and green steel, including agreements with China Baowu Steel Group and Primetals and Voestalpine.

New mining CEO

While it didn't happen during FY23, the company announced today it has appointed Dino Otranto as CEO of the Fortescue Metals division. This is a quick change from previous CEO Fiona Hicks who was only appointed at the end of November 2022. The decision for Hicks to leave was described as "mutual".

Otranto joined Fortescue in 2021 as chief operating officer and has more than 20 years of experience in the global energy and resources industry.

Fortescue also announced former CSIRO leader Dr Larry Marshall is joining as a non-executive director to guide the company's overall technology pathway, particularly in energy, metals investments, and strategy.

The company also said that it will not be specifically allocating 10% of Fortescue's net profit to fund FFI any more. Instead, all projects and investments will be assessed "on their own merits", consistent with the company's capital allocation framework.

What did Fortescue management say?

The new Fortescue Metals CEO Dino Otranto said:

I am honoured and humbled to be appointed CEO of Fortescue Metals. We are a unique company at a unique point in time. The opportunity before us is immense. I am proud to be working alongside our people and alongside Hutch [FFI Global CEO Dr Mark Hutchinson] as we forge the next chapter in our history.

The team has delivered a fourth consecutive year of record operational performance for FY23, contributing to underlying net profit after tax of US$5.5 billion and free cash flow of US$4.3 billion. This was achieved while maintaining our focus on safety, with a Total Recordable Injury Frequency Rate of 1.8 across our iron ore operations.

Fortescue celebrated a number of significant milestones during the financial year including first production at our Iron Bridge Magnetite project, and first ore mined from the Belinga Iron Ore project in Gabon as part of the early stage mine development.

Outlook

The business has provided FY24 guidance of iron ore shipments of between 192mt to 197mt, including approximately 7mt for Iron Bridge.

FY24 C1 cost for Pilbara hematite is between US$18 to US$19 per wmt.

Fortescue Metals capital expenditure is expected to be between US$2.8 billion to US$3.2 billion. Fortescue energy net operating expenditure is guided to be US$800 million and capital expenditure and investments are projected to be US$400 million (excluding projects subject to final investment decisions).

Fortescue share price snapshot

Over the past 12 months, Fortescue shares have risen around 5%, while the S&P/ASX 200 Index (ASX: XJO) has gained 2.5%.

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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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