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Just Daydreaming ?

Fortescue looking for other commodities but the move has to be 

By Darren Gray

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Fortescue Metals Group boss Elizabeth Gaines says one of her goals as chief executive officer is that the company’s exploration activities find another commodity that could be mined.

Ms Gaines said like many miners Fortescue was “optimistic” about the future for copper, and has concessions in Ecuador that are prospective for copper and gold. The miner has established an office in the country but drilling has not started.

Fortescue's port facility at Port Hedland, Western Australia.CREDIT:BRENDON THORNE

The company is also establishing a presence in Argentina, a country which it believes is prospective for copper, gold and lithium.

Fortescue is currently a pure-play iron ore producer, producing about 170 million tonnes of iron ore per annum from its operations in the Pilbara in Western Australia. It is the world’s lowest-cost iron ore producer.

So moving into another commodity, and Fortescue has signalled its interest in other commodities a number of times, would be a significant step for the miner founded by Andrew “Twiggy” Forrest.

“At the moment we are exploring for other commodities, so yes, one of my goals would be that we see through our exploration activities that we find something that we can take through feasibility and investment decision to the point where potentially we’re embarking on an operation in a new commodity,” Ms Gaines told Fairfax Media.

“It’s not growth for growth’s sake, it needs to be the right thing and in the right conditions,” she said.

“Like a lot of mining companies at the moment we’re optimistic about the future for copper in particular, given the growth in electric vehicles that’s predicted,” she said.

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“It’s less about a preference, it’s more about homing into the areas that we think are most prospective. And then we’ll undertake a very diligent drilling and exploration program. We’re not going to rush this for the sake of it,” she said.

Fortescue founder and chairman Mr Forrest also discussed the potential for the miner to diversify in public comments last month as the miner celebrated the 10th anniversary of its first iron ore shipments to China.

And in comments to Fairfax Media last week, Mr Forrest said Ms Gaines, who started as chief executive in February, would shape the company “by delivering new projects which may well be in other fields but are delivered through our world-renowned expertise. Remember, our expertise isn’t iron ore, that’s just the commodity. Our expertise is the establishment of large scale, highly efficient operations.”

Last week Fortescue said its board had approved the development of the Eliwana iron ore mine in the Pilbara, with an estimated capital cost of $US1275 million. The project also includes 143 kilometres of new railway.

The mine, which will open up Fortescue’s so-called Western Hub region, will help the miner lift the iron grade of its ores, and address the challenge of “discounts” that have been applied to its exports to China and hit its revenue.

The miner said Eliwana underpinned the introduction of a 60 per cent iron grade product, which is higher than its current ores, from the second half of fiscal 2019.

In a research note in the wake of the Eliwana decision, analysts led by UBS’ global head of mining research, Glyn Lawcock, lifted their price target for the miner to $5.75 (up from $5.50 per share).

UBS said it made sense for FMG to explore strategies that could “enable it to receive better margins” in the China market.

UBS calculated the adoption of the new product strategy could cut the discounts on Fortescue’s ores, and could lift revenue by about $US600 million a year, assuming a $US60 a tonne price for an industry benchmark product.

“FMG has a track record of setting ambitious goals and achieving them,” UBS said.

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Darren Gray

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Darren is the mining and agribusiness reporter for The Age and The Sydney Morning Herald.