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Iron ore giant Fortescue bets on green hydrogen in zero-carbon push

Aussie mining company to ease dependence on China and cultivate Japanese market

SYDNEY -- Fortescue Metals Group, an iron ore heavyweight supporting carbon-intensive steelmaking, has dived into the green hydrogen business in a mad dash to achieve carbon neutrality by 2030.

The world's No. 4 iron ore producer plans to start making "zero-emission" hydrogen using renewable energy as early as 2023 for export to Japan and other energy-hungry economies.

"We obviously are known as a very significant supplier of iron ore," but Fortescue is "looking at the opportunity to develop and expand our overall business to the supply of green energy and particularly green hydrogen," CEO Elizabeth Gaines told Nikkei in an interview.

Fortescue has set its sights on Tasmania for a production site. The island state last year became fully powered by renewable electricity and aims to double renewable energy generation by 2040. Fortescue aims to make an investment decision this year on hydrogen production and to use hydrogen and nitrogen to manufacture an annual 250,000 tons of ammonia.

Fortescue is also eyeing Western Australia, home to its headquarters and mines, to tap the state government's support "for the development of a hydrogen export market," said Gaines. The company said in March that a subsidiary signed a memorandum of understanding with a leading Brazilian port operator to explore joint development of a green hydrogen plant in Rio de Janeiro.

Fortescue CEO Elizabeth Gaines (Photo by Fumi Matsumoto)

Fortescue is well-positioned to make these investments. Iron ore prices surged after a 2019 collapse of a mine waste dam in Brazil and have recently remained high at $160 to $170 per ton -- a far cry from under $40 at the end of 2015. The market is also getting a boost from China's strong appetite for infrastructure spending to recover from a coronavirus-imposed slump.

Fortescue was founded in 2003 by Chairman Andrew Forrest, a former stockbroker and nickel mine executive. It emerged as the world's fourth-largest iron ore producer in less than two decades by building an extensive customer network in China. The company earned a record net profit of $4.7 billion for the year ended June 2020, up 49% from a year earlier, on revenue growth of 29% to $12.8 billion.

But the iron ore business is increasingly facing a murky future as steelmakers shift from blast furnaces, which uses iron ore, to electric-arc furnaces, which tap steel scrap to reduce carbon footprints. Fortescue's dependency on China, which takes on 90% of the company's exports -- is risky as well. The iron ore producer's net profit sank to around $300 million in the year ended June 2015, after the China-led resources investment frenzy tapered off. The rising tensions between Beijing and Canberra are also a worrisome factor.

Japan, which has pledged to achieve net-zero greenhouse gas emissions by 2050, figures prominently in the company's hydrogen push.

"Japan would be a key target market for us," Gaines said. "Japan is also focused on hydrogen as a source of clean, renewable energy. So we would envisage that Japan would be a target market," she added.

Fortescue signed a memorandum of understanding with Kawasaki Heavy Industries and Iwatani in November on developing a business model for exporting liquid green hydrogen. Forrest is likely to be visiting the East Asian country soon, according to an industry insider -- a trip that is "definitely hydrogen-related," said the insider.

Fortescue is also committed to using hydrogen itself. To achieve carbon neutrality by 2030 -- a decade sooner than its old target and two decades earlier than Rio Tinto and BHP Group -- the company is considering using hydrogen fuel for drill rigs and green ammonia for iron-ore-shipping ships and freight trains.

After stepping down as CEO in 2011, Forrest left management to leaders including Gaines and pivoted to philanthropy. Now he is on the front lines of the company's push into hydrogen, pledging to spend the next 10 years addressing climate change in an interview with The Australian Financial Review published in January.

Forrest was Australia's second-richest person in a 2020 ranking by the newspaper. Can a man who built an iron ore giant pull off another feat by building a major hydrogen business? The first test will be meeting the carbon neutrality target by 2030.

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