Forrest’s Fortescue Future Industries has kicked off two projects in Queensland – a catalyser factory in Gladstone and a study into converting Incitec Pivot’s Gibson Island plant into a hydrogen user. It also recently bought battery storage systems company Williams Advanced Engineering, an offshoot of the Formula 1 motorsport company for $310 million.
There were also plans to adopt electric trains at its iron ore operations in Western Australia and it has signed a long-term hydrogen supply deal with a German chemicals maker.
But Morgans analyst Adrian Prendergast said there were execution risks with FFI, including R&D risk.
“Fortescue Metals continues to pursue what we see as a very aggressive push into a large number of ESG-themed industries in different geographies,” Prendergast said.
“Our concern here is FMG’s low starting point in each of the new markets it is pursuing, which suggest capital efficiency will be the first victim before getting to any considerations artound the long-term return profile.
“With the potential for the steel activity to mature in 2022, we are interested to see how FMG’s large ESG themed framework sustains a downcycle in iron ore.
“While seeking to diversify outside iron ore, we would argue the move into FFI (which would see a long period of losses while FMG is established), is actually equivalent to increasing FMG’s dependent in iron ore earnings.”
Morgans is not alone in its bearish report. Citi, Credit Suisse and Goldman Sachs have all been negative on the plans.