Hydrogen future for Australian iron ore: Fortescue

Australian iron ore exporter Fortescue Metals expects to gain a price premium for its iron ore once it moves to carbon neutral production by 2030, and for customers to pay a bigger premium to buy green iron made using hydrogen direct from Fortescue.

In the short term the firm expects a seasonal rebound in iron ore prices in October-December, as transitory disruptions to Chinese demand for iron ore ease, Fortescue's chief executive Elizabeth Gains told investors after reporting a net profit of $10.3bn for the year to 30 June, up from $4.7bn the previous year.

In the medium term it expects a premium for its iron ore by supplying low or zero carbon iron ore using green hydrogen trucks and renewable electricity. In the longer term it expects iron ore customers to migrate from buying green iron ore to buying direct reduced green iron direct from Fortescue in Western Australia (WA) or elsewhere.

This could include further processing ore from Fortescue's 22mn t/yr Iron Bridge magnetite project, which is expected to produce a 67pc Fe concentrate by the end of 2022. The firm is keeping its options open on the markets for this ore, including whether to see it as a standalone product or to blend it with other ores to increase the overall Fe content.

The impurity profile of Fortescue's ores will begin to rise over the next few years, as mine plans mature and the firm reaches lower-grade regions of its ore bodies. But the discounts this could attract can be offset by premiums steelmakers will be prepared to pay for green iron ore.

Fortescue, through its Future Industries subsidiary, plans to export 15mn t of hydrogen made from using renewable electricity sources to Europe by 2030. This will be made economic by lower cost production methods and equipment.

"Green hydrogen is the way out of global warming," Fortescue's chairman and founder Andrew Forrest said. "We don't intend to lose money out of turning Fortescue green," he added.

The cost of an electrolyser used to make hydrogen is less than a quarter what it was a couple of years ago, he said. This reduction in the cost base, combined with large capital funds keen to invest in carbon reduction schemes, makes it financially achievable to turn Fortescue into a green energy corporation.

Forrest and Gaines expect to announce targets for reducing Fortescue's scope three carbon emissions by the end of September, and they are working with customers to set ambitious targets.

Fortescue aims to export 180mn-185mn t of iron ore in the year to 30 June, at a C1 cash cost of $15-15.50/wet metric tonne (wmt). This is less than half the expected cash cost for the $33-38/wmt expected for Iron Bridge concentrate.

By Jo Clarke