00:00Before we get into energy diversification and something that obviously your chairman has talked at length about,
00:08was there anything that the premier said in his speech about rebalancing and opening up and importing more
00:15that talked directly to you about China's, either directly or indirectly, China's iron ore demand?
00:22Thanks for having me again here at CDF, Stephen.
00:25Yeah, you referenced the Premier Li Chiang's speech yesterday.
00:29What stood out for me was the three key points around stability that he made.
00:35Policy, economics domestically, and international trade.
00:40And for us, in moments like this, it's really important to see political leadership stand up
00:45and talk about long-term stability in moments of crisis which are impacting us all.
00:51You had a good six-month results that were out, I believe, what, in January or so.
00:56It was better than expected.
00:58How do you see demand going forward?
01:00Because not only China is talking about rebalancing,
01:03but they're also facing headwinds in this economy with rebalancing and the pursuit of rebalancing
01:09because we've had this four-year-long property crisis.
01:12What are you seeing going forward into this year with the added headwind of the oil shock
01:17that potentially could limit some growth in China?
01:21Well, I think, as Premier Li Chiang mentioned yesterday,
01:24the stability is core and in front of the 15th five-year plan,
01:30amongst that the diversification of its economy in China.
01:33And we're seeing, certainly from Fortescue's perspective,
01:36the direct benefits of a rebalanced economy here in China.
01:41On the demand for our product side of iron ore,
01:44we continue to see a flattening but strong demand on a much, much bigger economy here
01:52that China has established over the last 20 years.
01:54But more importantly for us is a diversification from its traditional growth sectors of property
02:00into automotives, into technology, and really what we're here to talk about,
02:06particularly today, is its transition away from an oil-based economy.
02:10And we see significant amounts of steel going into that change,
02:16as well as other commodities like copper.
02:18Well, that's a good point.
02:20Before we talk about that energy transition, let's talk about the prospects,
02:23because none of us know when or where the off-ramp is for this war.
02:28There could be recessionary pressures, not only on the rest of the world, but China.
02:32They have resilience built in, but it can only last so long.
02:35So where are you gaming out your contingency plans,
02:39if indeed China does, like much of the world,
02:42if we go to $300 or beyond even the price of oil,
02:46if there's recessionary pressures in that?
02:48Look, most mining companies around the world
02:51are heavily reliant on the supply of oil to run their operations.
02:55Our peer group, every $0.10 change and only $0.10 change of the oil price
03:02will impact us all by about half a billion dollars.
03:05And you can take the most educated guess probably of all of us, Stephen,
03:09on where the oil price will end up.
03:11This has had serious ramifications for our industry.
03:14And I want to bring that point to attention to everyone around the world.
03:19This is not just the mums and dads being impacted by fuel bowser costs.
03:23Every part of our sector is going to be impacted by this.
03:27And that is exactly why we at Fortescue are doing what we're doing.
03:30In the next two years, we'll be completely off diesel.
03:35That's nearly 1 billion litres equivalent.
03:37Now, we're doing this for climate.
03:39We're doing this for security, which is very topical now.
03:42And fundamentally, we're doing this for economics.
03:44At the prior long-term oil price,
03:47we're talking about another $3 to $4 off our cost base.
03:51We're already in the box seat.
03:53Taking another 15% to 20% off our cost base
03:57would create now an expansive distance between us and second place.
04:03What does it mean for your diversification into your product mix?
04:07Almost all of your earnings are from the core product, Iron Ore.
04:10You've been wanting to get further into copper
04:12as the rivals, BHP and Rio, obviously have and want to as well.
04:18You just purchased the last bit of Alta Copper in Canada with their interest.
04:24How do you see that offer mix and the product mix changing given these headwinds?
04:29Look, I think first and foremost,
04:31we talk about the majority part of our business, which is iron ore.
04:34And as I said, the diversification that we're going through will
04:39continuously bring us to the lowest end of that cost curve,
04:42which positions us well from a market size at 200 million tons.
04:47Products now that cater at the high, mid and low grade sector.
04:51And as you've said, we've concluded our acquisition of Alta Copper.
04:55It's a Canadian-based organization, but its asset is in Peru.
04:58We've been there for a number of years.
05:01I think it hasn't got the attention of the world media yet
05:04because we didn't pay that much for it.
05:06But it is one of the largest untapped copper deposits
05:10yet to be properly explored and developed on the planet.
05:16That was an acquisition.
05:17We've got another three or four interesting projects in our own backyard,
05:21which we call drill bit projects,
05:23which is really where Fortescue started.
05:25Value through the drill bit is our strategy.
05:27We're not going to risk the balance sheet by mega acquisitions.
05:31We're going to do more surgical acquisitions like you saw with Alta.
05:34And in the iron ore business, Redhawk, we concluded towards the end of last year,
05:39which is a massively value accretive position we've taken
05:43to extend the life of our iron ore business.
05:45What's your M&A outlook, given the shocks that we're facing right now?
05:49If certain commodities, you know, if you want to diversify into these other commodities,
05:55where would you be looking?
05:56Look, right now it's all about securing fuel, sustain our operations,
06:01expand and fast track our electrification journey,
06:05which we're well on track to deliver,
06:07and then opportunistically look at what's in the market
06:10as a result of these interruptions.
06:13What's the outlook then for Andrew Forrest's goal?
06:17And that was green hydrogen.
06:20You've shelved that for now because, again, the high price of electricity,
06:24which is not helped by the high price of oil right now.
06:27Where do you see that going for?
06:28Is it done and dusted right now?
06:30No, absolutely not.
06:31I mean, hydrogen is still first and foremost at the center of what we're doing.
06:36But hydrogen, ammonia, green metal,
06:38a lot of the derivatives are all based off that green electron.
06:43And right now, particularly what we're doing in decarbonizing our operations,
06:48it's all about the green electron.
06:50And now with the adoption of an AI operating system
06:53over the entire ecosystem we've created,
06:56we've built two to three gigawatts of generation.
06:58We've got a 5.6 gigawatt hour battery.
07:01We're now delivering green electrons to our own backyard
07:05at a cost point which will enable that hydrogen and ammonia to be generated very soon.
07:12I want to go back to iron ore because, again, since 2002,
07:16all the iron ore producers essentially have entered into,
07:20well, BHP has been a little bit more contentious with the CMRG,
07:23the China Mineral Resources Group,
07:25the Stained Ode Enterprise that essentially has been assigned
07:28to manage iron ore pricing and negotiations.
07:32They want it tied to more of a domestic benchmark,
07:35whereas the global players want to see those international benchmark views.
07:39How has your relationship with China changed since the CMRG was established?
07:43And have you talked at all with your rivals, BHP and Rinto?
07:47Maybe you come in together in these negotiations as a unified force.
07:52Look, I was here in Beijing when the CMRG was first introduced to us in the iron ore sector.
08:01However, our relationships with China go back far beyond 2022
08:05when the CMRG really started to grow its influence in the market.
08:11Now, from that moment on, though, it was very clear.
08:13The message is we procure all of your iron ore.
08:16You get all your money from the US.
08:18You get all your equipment from the US.
08:20We need to look at opening up that relationship.
08:25We've already been doing that.
08:27We put $6.2 billion in the ground to decarbonise our operations
08:32using solar panels from China, wind turbines from China, batteries from China.
08:37We now have a massive lending facility in RMB worth $14 billion RMB
08:43as part of our financing office.
08:46We have the largest procurement order ever of ex-CMG trucks worth over $1 billion US dollars.
08:52But if CMRG is digging in its heels at behests of the central government here,
08:56at what point does this possibly turn contentious like it's done with BHP?
09:00Well, I think when you say you're digging in its heels,
09:02digging the heels on what point?
09:03And what are we trying to solve for?
09:05A little bit more control on pricing and negotiations.
09:07Well, if that's the assumption that the CMRG has empowered to do.
09:12The CMRG from our point, remember I was there in the very first conversation,
09:16was about sharing the prosperity of an iron ore supply chain.
09:20I think it's been conflated around the pricing negotiation right now
09:24and some of the optics with some of our peers.
09:27For us, it's about maintaining long-term relationships
09:31with a world of the network of China to improve our economics.
09:36Remember, $2 to $4 a tonne, it's going to further reduce it using Chinese capital,
09:42using Chinese infrastructure, and now Chinese mining equipment.
09:45That's a pretty impressive argument you can make to anybody
09:51saying Fortescue may be now a unique offering in the market
09:56compared to some of our peers.
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