Where will Fortescue shares be in 5 years?

Fortescue Metals Group Limited (ASX: FMG) shares are a sizeable position in my portfolio. Certainly, I like where the business is headed over the next five years and beyond.

Its weighting in my portfolio is a bit bigger after the 18% rise in the Fortescue share price over the last month.

But I’m not particularly concerned about short-term movements. It could go up or down 10% and that wouldn’t motivate me to do anything – I wouldn’t buy or sell.

In five years, I think the business can achieve a lot and make progress towards its key goals. Here are the things I’m expecting from the business:

Operational cost savings through decarbonising

One of the main things that Fortescue is working on is a US$6.2 billion capital investment plan to decarbonise its business by 2030.

This includes the deployment of an additional 2GW to 3GW of renewable energy generation and battery storage, as well as the estimated incremental costs related to a green mining fleet and locomotives.

It’s expecting to achieve net operating cost savings of US$818 million per year from 2030 (at energy prices at the time of the announcement in September 2022). This will save the business a total of US$3 billion by 2030 and the payback of capital will occur by 2034.

Spending on this plan starts getting serious in FY24 and is expected to be largely finished by FY28 so in five years, I think a lot of Fortescue’s activity will be completed or getting fairly close to being finished.

Ramping up green hydrogen production

The biggest impact on Fortescue shares could be its plans to produce green energy in the coming years. It wants to be making 15mt of green hydrogen per year by 2030. But that production won’t all come online at once.

The first place where Fortescue could start production is at the Gibson Island ammonia facility owned by Incitec Pivot Ltd (ASX: IPL). The two businesses have commenced the front-end engineering design.

The Fortescue Future Industries (FFI) CEO Mark Hutchison said that he’s hoping production will start in 2024 or 2025. Time will tell which projects will come next after that but I expect several will be in the works in five years, if not before.

Diversification of resources

Fortescue is best known for its large iron ore operations.

But, the company is on the hunt for other resources. While iron ore will continue to play a major part in the company’s long-term success, it’s also trying to find lithium in Western Australia, South America, and Portugal.

The idea is that Fortescue could supply the future-facing resources that Fortescue Future Industries will need in large scale to build and supply its green aspirations.

Lithium is a key focus for the business. But, it could also find cobalt, graphite, and copper.

Uncertainty about iron

I’m not sure what the iron ore price will be in the future, particularly in five years from now.

There are potential positives and negatives.

China could be sourcing more iron ore from different locations, such as Africa. However, Fortescue is also looking into developing a large iron ore project in Africa.

Fortescue is reportedly looking at supplying green iron ore for making green steel in Asia and perhaps in Europe. If it is successful with these endeavours, Fortescue won’t be as dependent on selling iron ore to China. This would be good diversification of its customer base if it can achieve that in the next five years.

Foolish takeaway

While I don’t know what Fortescue shares are going to do in the next few years, I am optimistic about the company’s plans for green energy and decarbonising heavy machinery.

The post Where will Fortescue shares be in 5 years? appeared first on The Motley Fool Australia.

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More reading

• If you bought $20,000 worth of Fortescue shares this year, here’s how much dividend income you’d have
• Skin in the game: The ASX share in my portfolio I’m most excited about
• Does an investment in Fortescue shares provide the ‘healthiest’ ASX exposure to iron ore?
• 3 reasons this fundie is still bullish on ASX mining shares
• Could this put a dent in Fortescue’s green hydrogen dreams?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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