Melbourne: Fortescue reported a sharp decline in first-half profit on Thursday, falling short of analysts’ expectations. The company also announced that it is reassessing the timelines for certain green energy projects due to policy uncertainty stemming from the Trump administration.
Australia’s leading iron ore producers, including Rio Tinto and BHP, have faced shrinking profits, returning to pre-pandemic levels. This downturn is attributed to declining iron ore prices amid weakening Chinese demand, particularly in the struggling property sector.
The world’s fourth-largest iron ore miner reported a 53% drop in underlying attributable net profit after tax, reaching $1.55 billion for the six months ending December 31. The decline was driven by falling commodity prices and escalating costs. This figure fell short of the Visible Alpha consensus estimate of $1.76 billion.
Additionally, Fortescue declared an interim dividend of A$0.50 per share, which was 7% below market expectations. The disappointing earnings report led to a 7.5% drop in Fortescue’s shares, marking a sharper decline compared to its major competitors.
“Given revenue was in line… the result is attributed to higher costs,” analysts at Macquarie noted. The company’s revenue stood at $7.6 billion, aligning with market expectations. However, unit costs rose by 8% to $19.17 per tonne due to inflationary pressures.
Fortescue also revised its capital expenditure forecast for its green energy division, lowering it to $400 million from an earlier projection of $500 million. The miner cited market uncertainty, particularly due to the Trump administration’s directive for federal agencies to halt grant payments under the Inflation Reduction Act.
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In July 2023, Fortescue had already indicated that its green energy arm, Fortescue Energy, was unlikely to meet its ambitious goal of producing 15 million metric tons of green hydrogen by 2030. Green iron, a key component of the company’s sustainability push, is produced by reducing iron ore with hydrogen gas before being converted into steel via an electric arc furnace.
“Market will want to see energy capex (capital expenditure) and opex (operating expenditure) cut further,” Citi analysts stated in a note.
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The company is now reconsidering the development schedules of key projects, including the U.S.-based Arizona project and Australia’s Gladstone hydrogen project. Additionally, Fortescue announced that it is reviewing the timeline for achieving full capacity at its Iron Bridge magnetite facility, which aims to produce 22 million tonnes annually. However, the company remains on track to meet its fiscal 2025 shipping target of 5.0 to 9.0 million metric tonnes.
