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Sudden departure of Fortescue’s iron ore CEO triggers speculation

The lack of an explanation for the surprise departure of Fiona Hick, Fortescue Metal’s iron ore CEO, overshadowed the annual results from the world’s number four iron ore group yesterday and saw $3 billion wiped off the company’s value at one stage.

Ms. Hick resigned after less than six months in the role and there was no explanation from the company except anodyne statements from the board and Mr. Forrest.

One statement simply said that “Fiona Hick has made a joint decision with the Fortescue Board to leave the Company and pursue other opportunities.”

But another said, “The departure of Fiona has been both friendly and mutual, and we warmly wish her the best for her future,” Fortescue’s board said in a statement. Forrest also recognized Hick’s contribution to the company. “We thank Fiona for her valuable efforts since joining Fortescue just under six months ago and wish her all the best with her future pursuits,” he said.

Media reports said there was some aggressive questioning of Fortescue executives on Monday’s briefing call, which was not attended by Mr. Forrest.

And yet six months ago, when announcing her appointment, Fortescue and chairman Twiggy Forrest went out of their way to praise her, saying it took a year to find a new head of the company’s most important business, iron ore.

Mr. Forrest said in announcing her appointment late last November that Fortescue had only had three chief executives entering its 20th year, and backed Ms. Hick to deliver after what he said had been a worldwide and year-long search for the right candidate.

The Fortescue founder said he was “thrilled to have found someone so close to home that knows the Pilbara like the back of her hand and that will love this company as much as we all do”.

“Fiona will lead Fortescue Metals into the next phase, potentially the most exciting and fruitful of our company’s highly active history,” he said.

Hick, who joined the company from oil and gas producer Woodside Energy, will be replaced by Dino Otranto, the company’s chief operating officer for iron ore.

Otranto, a former executive from Brazil’s Vale group, will head up the metals business, while Mark Hutchinson will remain the chief executive of the green energy arm.

The news, a weakish result, and a clear sign of cutbacks to its ‘green’ ambitions through Fortescue Energy (which includes) Fortescue Future Industries, saw the shares slip by more than 4% by 1 pm on Monday.

Fortescue revealed a 23% drop in earnings for the year to June, reaching $US4.796 billion, including another asset impairment loss – this time the $US726 million write-down in the value of its Iron Bridge magnetite mine in WA’s Pilbara.

Last month, Fortescue revealed it shipped a record 192 million tonnes of iron ore in 2022-23, generating revenues of $US16.871 billion, down 3% for the year.

Shareholders will receive a final dividend of $A1 per share, down from $1.21 a year ago. That makes a total for the year of $A1.75, down from $A2.07 a year ago.

Fortescue said the Iron Bridge mine “achieved the first concentrate loaded on a ship in July 2023. The updated life of mine C1 cost attributable to Fortescue is estimated at $US45/wet metric tonne.” A year ago, they were $US33 to $US38 a tonne.

Buried in the annual filing with the ASX was a change in policy towards the company (and Mr. Forrest’s) green energy ambitions (which are one and the same).

“Guidance (is) provided for Fortescue Energy, with FY24 net operating expenditure of approximately US$800 million and capital expenditure and investments of approximately US$400 million. This includes operating expenditure incurred for decarbonization.

Fortescue gave a structured timetable and a list of projects for its energy arm as well in yesterday’s statement, which includes a new funding basis for the high-profile FFI (Fortescue Future Industries).

Fortescue Future Industries, at the heart of Forrest’s green hydrogen ambitions, will have to fend for itself, and it will no longer get its budget underwritten by sharing the parent’s net profit after tax.

“Consistent with the new operating segments, going forward, the 10 percent of Fortescue’s NPAT to fund FFI will no longer apply, and all projects and investments will be assessed on their own merits consistent with Fortescue’s capital allocation framework.”

Ten percent of the NPAT this year would have been around $US480 million, down from $US620 million in 2022-23.

But what this decision tells us is that Forrest thinks the 2023-24 year is going to be very tough with little growth in sales and prices. So Fortescue is hauling back on cash outflows.

The dividend has been cut, the FFI funding nexus has been ended, the cost of the Iron Bridge mine has been cut (at a time when the company could afford a $A1 billion plus impairment without too much damage to the bottom line).

Guidance for 2023-24 is for a small rise in iron ore production to 192-197 million tonnes (with 7 million tonnes coming from Iron Bridge). C1 cost for Pilbara hematite of US$18.00 – US$19.00/wet metric tons (wmt) (up from $US17.54 a tonne in 2022-23) and an average Australian US dollar rate of 68 US cents (now just over 64 US cents).

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