Fortescue [ASX:FMG] Shares Flat on $1.5 Billion Senior Notes Offering

Fortescue [ASX:FMG] Shares Flat on $1.5 Billion Senior Notes Offering

Fortescue Metals Group [ASX:FMG] completed a US$1.5 billion senior notes offering to fund its decarbonisation initiatives.

FMG shares were flat on the news, trading at $21.70 a share.

FMG has had a turbulent 12 months, falling heavily late last year in parallel with a sinking iron ore price.

However, with iron ore getting back up to around US$160 a tonne recently, the fortunes of miners like FMG, Rio Tinto [ASX:RIO] and BHP Group [ASX:BHP] are changing.

For instance, Fortescue is up 50% in the last six months, and BHP is up 35%.

ASX:FMG stock prices graph


Fortescue’s Senior Notes Offering

Last week, Fortescue Chair Andrew Forrest pledged to produce and export enough green hydrogen to Germany to replace a third of Germany’s gas imports from Russia.

Part of that ambition, which Forrest said could require a US$50 billion investment, involved Fortescue signed a memorandum of understanding with German energy group E.ON.

Under that MoU, FMG and E.ON would develop a hydrogen supply chain between Australia, Germany, and the Netherlands.

E.ON hopes to then distribute the hydrogen to its 50 million customers, replacing gas.

Fortescue was talking about teaming up with Williams Advanced Engineering to look into an ‘Infinity Train’, an electric train that also uses gravity to transport its iron ore.

FMG:ASX iron ore train

Fortescue iron ore train, to become electric ‘Infinity Train’.
Source: Fortescue

The announcements may have left some wondering how FMG plans to fund its ambitions.

Today’s announced senior notes offering may be the answer.

US$800 million of the US$1.5 billion senior notes offering is slated to assist FMG’s Eligible Green Projects. This facility runs for 10 years with an interest rate of 6.125%.

The US$800 million will fund the 150MW solar generation component of FMG’s Pilbara Energy Connect (PEC) Project, the acquisition of Williams Advanced Engineering, and the hydrogen mobility project at Christmas Creek.

Up until now, the expenses for these projects have been covered by free cash flow.

The remaining US$700 million will go towards general corporate purposes. This facility will run for eight years on an interest rate of 5.875%.

Fortescue CEO Elizabeth Gaines commented:

Fortescue’s Sustainability Financing Framework recognises the global growth in sustainability and green sources of capital. The successful completion of Fortescue’s inaugural green financing offering demonstrates the Company’s passion and commitment to integrate sustainability into all aspects of our business, as we take a global leadership position in the green energy transition.’

Fortescue CFO Ian Wells added:

The company maintains a strong balance sheet underpinned by investment grade credit metrics. The success of this transaction demonstrates the ongoing support for Fortescue’s industry leading decarbonisation targets and further optimises our capital structure.’

Fortescue Share Price Outlook

The world is quickly shifting to greener energy. Russia’s invasion of Ukraine only speeds up the transition.

Fortescue’s big planned spending on green decarbonisation initiatives could be a smart move that positions FMG for long-term success.

Securing early deals with the likes of E.ON is also prudent.

Of course, at the end of the day, Fortescue is a business. Its planned decarbonisation initiatives will, in the final analysis, be appraised on how well they pan out as investments.

Now, whether FMG is a good investment or not partly depends on how much one thinks the stock is worth.

But how do you come up with a fair valuation? What do you base it on?

If you’re interested in finding out how to approach valuing businesses, I suggest checking out our free report on just that.

Access our report here: ‘How to Find Bargain-Priced Superstars after a Big Sell-Off’.


Kiryll Prakapenka,
For The Daily Reckoning Australia