Are Fortescue shares back on the menu amid job cuts?

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A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop

Fortescue Metals Group Limited (ASX: FMG) shares are often a talking point in the media, with its major mining operations and green ambitions through Fortescue Future Industries (FFI). But, could the ASX mining share’s move to cut jobs be a way to boost investor confidence in the business?

Job losses

According to reporting by the Australian Financial Review, the mining giant made some workers redundant last week. One of the newspaper’s sources said that the job losses amount to less than one hundred.

The importance of each job shouldn’t be discounted, and it’s possible this could amount to a sizeable annualised reduction of costs, depending on the size of the pay.

The AFR reported on comments from a Fortescue spokeswoman who said:

This is business as usual for rapidly evolving global companies. We are always looking for opportunities for continuous business improvement to maintain our industry-leading cost position.

Right now we are growing globally and allocating resources swiftly to North America, responding to the Inflation Reduction Act.

Projects such as Iron Bridge are coming into production phase soon, while our work in Gabon is just kicking off. As this occurs project staffing naturally ebbs and flows.

The newspaper also reported that sources close to Fortescue noted that the company’s “overall headcount” could rise in the year ahead despite the redundancies as it looks to make final investment decisions on “at least five” FFI green energy projects before the end of 2023.

What effect will this have on the Fortescue share price in the long term?

I’d assume that investors of every business would want their company to be having the right-sized workforce for the tasks and projects at hand. For a business of Fortescue’s size, I would guess that there are always people coming and going.

However, it comes at a time when there are a wide number of tech companies that have been laying off workers. This is happening on the ASX as well. For example, last week it was announced that Xero Limited (ASX: XRO) would be cutting between 700 to 800 roles globally to streamline its operations and boost its operating profitability.

While Fortescue may save its bottom line some money with these cost cuts, in the short-term it could be the iron ore price that has the biggest impact on the Fortescue share price. The iron ore price has reached around US$130 per tonne according to Commsec. But, while Goldman Sachs suggests the iron ore price could reach US$150 per tonne in the next few months, it’s certainly possible it could fall to US$110 as well.

In the long term, Fortescue’s efforts to produce green hydrogen, green ammonia and advanced batteries could have the largest impact on whether the company can continue its success or not.

Fortescue share price snapshot

Over the last six months, Fortescue shares have risen over 22%.

The post Are Fortescue shares back on the menu amid job cuts? appeared first on The Motley Fool Australia.

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More reading

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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