Good. Thanks very much, and hello, everybody, and welcome to Fortescue's Annual Result presentation. At the outset, I'd like to take you through a change of our leadership team. The board has decided to expedite the appointment of Dino Otranto as Chief Executive Officer of Fortescue Metals. I want to congratulate Dino, who is a very valued member of the Fortescue family. I've worked with Dino over the last few year or so, and it's very excited to have you in this position. So, congratulations, Dino. Fiona Hick has made a joint decision with the Fortescue board to leave the company and leaves it in very good hands. The departure of Fiona has been both friendly and mutual, and we warmly wish her the best for her future.
Joining me today in Perth is Dino Otranto, Fortescue Metals' new CEO, and Christine Morris, Fortescue Metals Chief Financial Officer. Whether you are participating via phone or webcast, thank you for joining us today. Those who have joined us by webcast will be able to follow along with the slides on the screen. For those who have dialed in separately, a copy of our FY 20 23 result presentation is available on our website. Before handing over to Dino, I'd like you to draw your attention to the forward-looking statement disclaimer, which is included in the presentation on slide 2. It is important to refer to this disclaimer as the presentation and today's call contains forward-looking information. So Dino, congratulations, and over to you.
Thank you so much, Hutch. I'd like to begin by thanking Fiona for her contributions over the last six months, and second Hutch's comments in wishing her well. I'm thrilled to be here today with you as CEO of the Fortescue Metals business. This business is built on a culture unlike any I have ever seen, and over the past 20 years, our team has drawn on its DNA to achieve amazing things. I'm honored to be part of the Fortescue team, and I firmly believe that our strength is in our people. We are a unique company at a unique point in time. The opportunity before us is immense, and I'm so proud and humbled to be working alongside our people and alongside you, Hutch, as we forge the next chapter in our history.
One of the clearest examples of the strength of our team is our operational performance. Today, our full -year results build on the record operational performance we shared at our quarterly updates a few weeks ago. FY 20 23 was our fourth consecutive year of record shipments, a true testament to the hard work and dedication of the entire Fortescue team, who are guided by our unique culture and values. These values are just as relevant today as they were when Fortescue was established 20 years ago. This coming year, we are aiming to break further records with guidance of 192 to 197 million tonnes shipped. Turning to safety, I want to commend the entire team for continuing to look out for their mates. Safety is our most important value and is deeply ingrained in our culture.
In FY 20 23, we recorded a total recordable injury frequency rate of 1.8 across our iron operations, and successfully reduced our injury risk profile by 22% compared to the previous time last year. Now on to the financial results, and the strong performance by the team across the entire supply chain contributed to record shipments of 192 million tonnes, achieving the top end of market guidance. Our laser focus on cost management and ongoing investment in innovation and technology contributed to our industry-leading cost position with C1 costs for FY 2023 of $17.54 per wet metric ton. This contributed to revenue of AUD 16.9 billion, statutory net profit after tax of AUD 4.8 billion, and underlying net profit after tax of AUD 5.5 billion.
Reflecting this outstanding performance and our strong commitment to delivering shareholder returns, we have today announced a final dividend of AUD 1 per share, and I'll hand over to Christine shortly, who'll provide a few more details. In addition to shareholder returns, Fortescue continues to invest in growth. At Iron Bridge, the first shipment has arrived at Formosa Steel plant in Vietnam, and I'll add to that, on spec. Iron Bridge is a premium-grade magnetite product, not only broadening our portfolio of products and providing diversification opportunities, but is also critically important in the energy transition to make green iron. Today, we have provided an update on its carrying value and costs, which Christine will detail shortly. Fortescue is not immune to industry-wide cost inflation over the past few years, and discount rates are largely out of our controls, but do have a material impact.
Iron Bridge adds significant value to our iron ore operations, increasing our production and shipment capacity, while enabling us to further enhance our product mix to our customers. This is, as I said before, particularly important in decarbonizing the steel industry. Our focus is now on achieving a safe and efficient ramp-up to full capacity of 22 million tonnes. We're also focused on unlocking the potential value of the Belinga Iron Ore Project in Gabon, where we have a major exploration drilling campaign underway. Geological mapping and sampling programs continue to show that the Belinga project has the potential to be of significant scale and grade. In parallel with the exploration, studies continued on the potential for a large-scale development with a focus on the infrastructure solution and transport corridor....
Additionally, this year, we commenced the early-stage mining development during the financial year and remain on track for a shipment by the end of this calendar year. The insights from this early work is so critical for us in ensuring we set this project up for success in the future. We've had tremendous support from the local communities and government, and we continue to work together to maintain the highest standards of community and environmental consultation. Therefore, Fortescue's sustainability is inherent in everything we do. We are dedicated to be a leader in this space by integrating sustainability in all aspects of Fortescue's business . Today, we released our annual reporting suite, which includes our sustainability report and our climate change report.
Fortescue's economic contribution helps give back to the communities in which we operate in Australia and around the world, with payments to employees, suppliers, shareholders, and governments totaling AUD 26.3 billion this year. We continue to see the benefits of initiatives such as our Billion Opportunities program, which has awarded more than AUD 4.6 billion in contracts to First Nations businesses since 2011. I'm so proud to have First Nations colleagues representing 10% of our Australian workforce and 16% of our operational workforce in the Pilbara. We know diversity delivers the best results, and I, and I believe Fortescue's inclusive, diverse culture has strongly influenced our industry-leading performance. Through our Fortescue Family Diversity Plan, we are building a workforce that reflects the communities in which we live. Increasing female participation remains a key priority for us.
Our female employment rate was stable in FY 2023, with females holding 23% of total positions and 30% of senior leadership positions. Through Fortescue Energy, we are taking action to eliminate emissions. On that note, let me hand over to Hutch to tell a little bit more about this exciting journey.
Good. Thanks very much, Dino. The progress we are making on our decarbonization journey really does demonstrate how committed we are as a company to stepping beyond fossil fuels. Watching the way our metals and energy businesses are working together so efficiently and effectively towards this shared mission, really does speak a lot about the Fortescue DNA. Not only are we developing new technology, we're testing new systems, rethinking the way traditional mining operations are powered and run, and are mitigating a lot of business risk, aimed to reduce operating costs, and demonstrating that some of the largest emitting sectors can actually profitably decarbonize. Eliminating emissions can also deliver great value for our shareholders, as it enables us to enter the growing market for zero- emission power systems, commercialization of green technologies as well, and access across sustainable financing opportunities.
It has just been under a year since we announced our Real Zero target at the United Nations General Assembly in New York. Real Zero means no fossil fuels and no offsets. Every day since, we've been looking at new and innovative ways to get there. We have identified solutions we plan to adopt to eliminate approximately 90% of terrestrial Scope 1 and Scope 2 emissions from our Australian iron operations, and we're working on the additional 10% diligently. We are planning to eliminate Scope 1 and Scope 2 emissions from across the rest of the business as well, including Fortescue Energy. As part of this, the FY 2024 onwards, Fortescue will no longer buy carbon offsets unless required to by law.
It has long been, in our view, that offsets must only be used as a temporary solution while the technology or innovation required to decarbonize completely is developed. As our progress to date demonstrates, we are hard at work driving this innovation, and through our energy business, helping to produce green alternatives to fossil fuels. Throughout the FY 2023 , Fortescue Energy prioritized and progressed our global portfolio of green energy projects. We have a target, as we've talked about before, to take five of these to final investment decision by the end of this calendar year. We're also investing across the value chain, developing the technology, the IP, and the manufacturing capability we will need to support both the green energy transition and the decarbonization of heavy industry.
We're working at speed and scale never seen before, and over the course of the last financial year as a business, we've put the building blocks in place to help deliver on our mission and reflect our global energy and technology portfolio. In recent months, we've also formalized the structure of Fortescue Energy, which at this stage comprises three vertically integrated operating segments. Firstly, Fortescue Future Industries will focus on the production of green energy infrastructure. Secondly, Fortescue WAE, which brings together the Williams Technology business and Fortescue's Green Fleet technology, will focus on battery and fleet technology to decarbonize heavy industry. And thirdly, Fortescue Hydrogen Systems, which will lead our work on hydrogen production systems and including electrolyzers, product development and supply chain, as well as manufacturing of that.
It would also oversee the Green Energy Manufacturing Centre in Gladstone, which will test our prototype electrolyzers and our manufacturing of our PEM technology, which will be fully automated. The establishment of this segment comes alongside the appointment of Dr Larry Marshall to the Fortescue Board, who brings with him considerable experience in the commercialization of new technology. The green energy transition and the demand for alternatives to fossil fuels are gaining more and more momentum, and the policy landscape for renewable looks markedly different than it did a year ago. Key programs like the IRA in the United States and the Green Industry Plan in Europe, which includes funding mechanisms like H2 Global, targeting at green hydrogen production, are already supercharging investment in the green energy transition. We are also optimistic that governments here in Australia and in other jurisdictions will continue to respond to staying competitive.
As a business, we are driving green energy projects at scale and speed, and our delivery timetable means we need to focus our efforts on those that make the most commercial and economic sense. We are committed to progress projects to FID this year. As outlined a few weeks ago, projects in Australia, the U.S., Brazil, Norway, and Kenya are tracking well, and we do have others in the global portfolio as well. We know that this is an ambitious target with an ambitious timeline, but we also know that the world can no longer afford to wait for green energy at scale. I look forward to updating you further on our progress in the coming months. And with that note, I'd like to hand over to Christine. Christine?
Hi, Hutch, and good morning, afternoon, or evening to everyone on the call. The team has delivered another year of strong earnings, cash flow generation, and capital returns, all while the company continues to transition, and we are focused on presenting transparent financial statements and guidance. Turning to the results. Revenue of AUD 16.9 billion was down 3% on FY 2022 and was the third highest in the company's history. This revenue, combined with disciplined cost management, contributed to EBITDA of AUD 10 billion, a strong EBITDA margin of 59%. This equates for the iron ore business to an EBITDA margin of $60 per ton. You can see on this coming slide that Fortescue has continued to generate strong margins through the cycle, and in fact, the average EBITDA in the past five years is over $60 per ton.
We reported a statutory net profit after tax of AUD 4.8 billion, after recognizing a non-cash, post-tax impairment expense of AUD 726 million relating to Iron Bridge. In concluding on the carrying value assessment, management considered the nature of costs carried forward. The majority of asset value is the assembled plant, pipelines, and infrastructure, but there are also less tangible components like the cost of the pilot and demonstration plants and capitalized interest. These items and the impact of increasing discount rates accounted for the impairment taken of AUD 1 billion. We provided guidance on the ramp-up schedule last month, and you can see that today we are providing an update to the life- of- the- mine real C1 cost estimate to approximately $45 per ton.
This is the cost attributable to Fortescue, meaning that it is net of fees for the port and port services that we are providing to the joint venture. As the project construction nears completion, we have updated the capital estimate to AUD 4 billion, with Fortescue's share, AUD 3.1 billion. As Dino said, Iron truly is a strategic investment that substantially enhances our iron ore operations. Adjusting for this impairment charge, the FY 2023 underlying NPAT was AUD 5.5 billion, the third highest earnings in Fortescue's history. This next slide shows the underlying EBITDA and NPAT waterfall relative to FY 2022, where you can see the components, including the impacts of volume, price, and cost. Additionally, I want to call out that the group's operating segments have been realigned to Fortescue Metals and Fortescue Energy to reflect their strategic objectives and operations.
The segment results are disclosed in the notes of the financial statements, with energy comprising of FFI, Fortescue WAE, and Fortescue Hydrogen Systems. Moving to cash flow, slide 20 demonstrates that the business continues to generate strong operating and free cash flow. Net operating cash flow increased 12% compared to FY 2022, which was impacted by the payment of the final FY 2021 tax installment. Free cash flow increased by 19% compared to FY 2022 to AUD 4.3 billion. Moving to CapEx, FY 2023 capital expenditure and investment was AUD 3.2 billion, up marginally year-over-year, and this comprised of AUD 2.8 billion in Fortescue Metals and AUD 0.4 billion in Fortescue Energy.
The main components of metals CapEx were AUD 1.4 billion of sustaining and hub development and around AUD 950 million of major iron ore projects, which was predominantly Iron Bridge. As we guided in the quarterly production report last month, FY 2024 CapEx for Fortescue Metals is expected to be between AUD 2.8 billion and AUD 3.2 billion. Fortescue Energy, FY 2024 anticipated capital expenditure is around AUD 400 million. This includes FFI CapEx and investment we previously guided to, including WAE's investment in new manufacturing facilities and hydrogen systems, investment in electrolysis technology and manufacturing capability. Noting this is prior to green energy projects, subject to final investment decision. For those projects, we intend to disclose the CapEx profile along with other economic parameters on reaching a project FID. Turning to the balance sheet.
Fortescue balance sheet remains strong, with cash on hand of AUD 4.3 billion at 30 June, which includes reserved cash of approximately AUD 2 billion for the final dividend to be paid next month. Gross debt decreased to AUD 5.1 billion as we proactively repaid the AUD 750 million note due 2024 using cash on hand. You can also see our healthy credit metrics on this slide, and we're committed to targeting a minimum BB+/Ba1 credit rating through the cycle. In addition to maintaining a strong balance sheet, Fortescue's capital allocation framework continues to prioritize returning capital to shareholders. Our dividend policy remains unchanged, targeting a payout of 50%-80% of underlying NPAT.
The final dividend declared by the Board today takes the FY 2023 total dividend to AUD 1.75 per share, which represents a 65% payout at the midpoint of the range. It implies a fully franked dividend yield of more than 8% on Friday's share price. Consistent with the new operating segments, going forward, the 10% of Fortescue's NPAT to fund FFI will no longer apply, and all projects and investments will be assessed on their own merits, consistent with Fortescue's capital allocation framework. We have provided clear guidance for both segments. Fortescue Energy FY 2024 net operating expenditure is anticipated at around AUD 800 million. This is OpEx, net of WAE external revenue and should be considered as the EBITDA line. It is comparable to the reported energy segment EBITDA loss of AUD 617 million in FY 2023.
The approximate AUD 200 million increase implied from the guidance is around half for decarbonization and half on the expansion of WAE and hydrogen systems. I'm sure there are some questions, and we will now move to the Q&A part of the call. Back to our Operator.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. In the interest of time, we ask that you please limit to two questions per person. If you wish to ask further questions, you may rejoin the queue by pressing star one again. Your first question comes from James Redfern with Bank of America. Please go ahead.
Oh, good morning, Mark, Dino, and Christine. First of all, Dino, congratulations on the new role as CEO of Fortescue Metals. My first question is regarding the sudden departure of Fiona Hick. I guess, I guess the wording is it's a joint decision, and she leaves on good terms, which is great. But I just want to dig a bit further into exactly why Fiona left after only six months in the role. If we can dig into that, please.
Look, thanks, James. Good morning, and Mark here. Look, I think, firstly, I'd like to congratulate Dino also. He's a very valuable member of the Fortescue family. Wonderful experience. I've been working well with him over the last 12 months and very excited to have him in the new role. We did give a statement this morning, which I'd turn your attention to. I respect the decision of Fiona, and I wish her well in her new role going forward. And I just respect the decision of the Board and her, and I'd ask you to look at that release. So thank you.
Okay. All right. Thanks. Thanks, thanks, Mark. Second question is regarding the capital allocation framework. So, previously, 10% of underlying NPAT was allocated to FFI. That's no longer going to apply going forward. So if we work on the basis that the minimum payout ratio is 50%, is it feasible that up to 50% of NPAT could be allocated to FFI going forward to fund these, these green projects? Thank you.
Yeah, look, thanks, James. I think the way to think about this, we're at a point now where we're now looking at two segments, the metal segment and the energy segment. And we're at a point where there will be a number of investments, like we've talked about today, and also projects coming down the pipeline. And these all these projects, whether it's metals or energy, are going to have to, you know, compete on their own merits. And so we'll have a capital allocation process based on that, and focus very much on using external funds as well. So, there is no intention that there's a certain percentage either side. Each project will compete on its own merits going forward.
Your next question comes from Rahul Anand with Morgan Stanley Australia. Please go ahead.
Hi, good morning, Dino, Mark, Christine, and team. Dino, congratulations as well. Look, first one's on the OpEx estimates. A bit of a change there from your quarterly going to AUD 800 million. Can I touch upon a couple of things? Firstly, what constitutes the increase? You know, is this the level we should be anticipating going forward, or are there one-off items here in terms of expenses that you're classifying as operating expense? That's the first one. Thanks.
Yeah. So thank you very much, Rahul. So I'll turn over to Christine to answer that.
I will again, we're guiding on OpEx based on the segment because these businesses are really being run as such. You know, as I mentioned in the script, the increase is tied to the decarbonization efforts and also to the expansion of WAE and hydrogen systems, and we have lots of exciting developments on that. I'm not going to speculate expenses past the year we're guiding for, but that will be considered as part of, you know, again, our overall capital allocation, and budgeting is part of that when we look at the respective activities of energy and metals.
Yeah. So are there any one-offs here at all, or, I mean, is this the, the level that we expect going forward?
There are no one-offs, and as I said, we're guiding for 2024. I'm not speculating as to 2025.
Understood. Okay. Look, for my second question, slide 22 talks about how your emissions might increase on, on the back of, Iron Bridge coming online. So a couple of questions there. Firstly, obviously, you've talked about the impairments, today for Iron Bridge, but importantly, if you were to abate, I presume there's energy-related emissions here that are, you know, leading to the increase here in emissions. If you do abate those, is it fair to say that the C1 cost for the project will go up further in terms of, you know, your estimation of that abatement?
Yeah, let me pass to Dino for that.
No, thanks, Rahul. Good question, and we aren't shying away from our CO2 profile in the next few years. We've been quite open with that. Our decarbonization plan absolutely takes into consideration the successful ramp-up of Iron Bridge. In fact, decarbonization gives us huge opportunity. For Iron Bridge, which consumes a large amount of stationary power, solar and wind, which are very mature technologies and off-the-shelf, which we've already started to build, we look to that technology, on top of the electric and hydrogen-based trucks that we have in development, to lower our operating costs, for Iron Bridge. And again, look forward to bringing that in, post the peak of ramp-up. Rahul, good question.
Your next question comes from Paul Young with Goldman Sachs. Please go ahead.
Good morning, Mark, Dino, and Christine. Just an FYI that we've had 30 minutes to digest these results, and the full set of accounts don't appear to be out yet, by the way. And, Mark, I know that with respect to Fiona's departure, I hear your explanation, but I do think shareholders deserve a better explanation, seeing as that she's departed with only after five months in the role, and also considering the C-suite changes in the past two or three years. So the stock's down 6%, by the way, and then I just think that shareholders need a better explanation. Dino, first question for you is on your appointment and, you know, where you think the company could improve.
What changes would you like to make, and particularly, any changes to strategy and projects?
Yeah, sorry. Thanks so much, Paul. Just firstly, on the accounts, the company section will re-release those very shortly. And I'll hand over to Dino.
Yeah, thanks. On the back of the last couple of years of being in this business, I've been really, really impressed by the amount of technology and innovation that's going on. And as we get a more complex flow sheet with bringing on Iron Bridge and our exciting Gabonese project, the opportunity for us to use, you know, some of the technology that's on the horizon, AI, for instance, in one of them, in eking out every single incremental opportunity we have in our supply chain, I think is the next stage of performance for our operation.
It does get a little bit harder year-on-year as you're beating records, but that's almost, you know, it gives us wind in our sails, to be honest, particularly in the operations in our integrated operating center here at the Hive, to continue looking for that next iteration.
So just Paul, on the question on the stock being down, I think the market is maybe assuming that they-- we're gonna spend a lot more on energy. I think the message from us today is that we're at a point where projects have to compete because we wanna make sure we get the best results for our shareholders, and the capital will go where we get the best returns. So that's that's the way we're thinking very much about how we kind of allocate capital going forward to the metals business and to the energy business. On Fiona's departure, it was mutually agreed between her and the Board. I respect that, and I wish Fiona well in whatever she does next.
Okay. Mark, maybe just on the spend piece, I mean, the slight increase in CapEx guidance for the year, I think about AUD 100 million, that looks like that's mostly Iron Bridge, and that's tickled up again. I think this is probably the third time it's tickled up by AUD 100 million. You know, what are the risks of further increases in CapEx at Iron Bridge? And just with respect to the write-down, you know, was it all cost related, or was there actually... Have you assumed, or is there any change in the ramp-up profile on the asset?
... Yeah, thanks so much. I'll come to Dino here.
Yeah, sure. It's right to call out the additional AUD 100 million-AUD 4 billion for the Fortescue share AUD 3.1 billion. We are though in ramp- up with the successful delivery of our first ship. So we certainly see that now, right at the very end, and now we've already started the operations. On the mechanics of the impairment, handing over to Christine.
Yeah, well, I mean, ultimately, you know, these impairment calculations are fairly complex, but the bottom line is, and the announced ramp- up has changed from when we initially announced it, so that means everybody knows that. So, really what matters going forward is that we are still expecting very reasonable, you know, very profitable life- of- mine C1 cost for that operation.
Your next question comes from Lyndon Fagan with JP Morgan. Please go ahead.
Thanks very much. So I guess the first question I've got is abandoning the 10% of NPAT to fund FFI, which was probably always a bit confusing. But in relation to now, what is likely to be a really significant wave of project approvals, how, I mean, are there any limits to how much capital can be injected into Fortescue Energy to build all these things? And I guess the natural follow on is around dividend funding. Is there any, I mean, should we expect that some years won't have a 50%-80% payout as a result of removing that policy? And then I did have a follow-up on Iron Bridge. Thanks.
Yeah, look, thanks so much, Lyndon. Look, I think what we want to do is to make sure that the business is aligned internally. So the Williams business now falls under Fortescue Energy. We will compete for capital. We wanna make sure the shareholders gets the best possible return, so there is no preconceived idea about how much we spend on the energy business going forward. It just makes sure that we actually compete what the best projects will make sure that they have the right returns for shareholders here. On the dividend policy, our policy has been announced between 50%-80%. That does not change, and the investors can expect that going forward.
Okay. And I guess on Iron Bridge, I just wanted to hone in again on the impairment charge. A $1 billion impairment seems very aggressive in quite a good iron ore priced environment. I mean, obviously we've got the new operating cost estimate, but that alone doesn't seem to justify such a large- scale impairment. I'm wondering if you can share any of the other parameters that guide the operational valuation assessment. Things like sustaining CapEx would be pretty handy to get, and anything else that you think might be relevant. And now that you have delivered a shipment, what sort of achieved pricing outcome have you gotten there from that shipment? Thanks.
Yeah, look, thanks. Let me ask Christine and Dino to answer that.
I mean, first, you know, I'll refer you to the footnotes in our financial statements, you know, and they, these typically go through the various assumptions that underlie the sensitivities of the impairment calculation. You know, again, when we first guided to Iron Bridge two years ago, we had way less information on the actual operations of the mine, and we do have this now. And I'll remind, you know, everybody that in interest rates have risen significantly over the last two years and that, you know, these models are highly sensitive to interest rates.
With respect to the expected pricing for the product, you know, I'll turn that over to Dino, but of course, we do expect a premium for the high- grade in line with the transition of the steel industry to green steel. But Dino, I'll let you address that.
No, thanks. And also one major pivot from 2021 guidance was the decision to contract- mine for the first part of the operation, which saw us release some of the capital in the early days. And again, another reminder of the inflationary position has changed quite a lot in 2023. In terms of the pricing received for our first product, the first ship went to our Formosa joint venture partner, and we certainly achieved pricing in line with what you'd expect from the market at this stage for our product.
Your next question comes from Kaan Peker with RBC. Please go ahead.
Good morning, Mark, Dino, and team. Just the first question, probably following on from Paul's question, but just wanted to understand about that replacement process for the CEO. It seems pretty speedy. What sort of external candidates were looked at, and just the process in general, if you could maybe shed some light on that, and I'll follow up with a second question. Thanks.
So, Kaan, thanks so much. As I said, it's a, you know, mutual decision between Fiona and the Board. Dino has been a very important part of our operation here. He's done a great job, and but I'm very excited to have him in the role here. The Board decided to expedite the appointment of Dino into this role, and we're very excited to have him in this position.
So the process, any details around that, and-
... The Board made a unanimous decision to expedite Dino enter this role, Grant.
Thank you. And just the second one's on FFI, or the scrapping of that 10% funding. However, there's already been flagged five projects, going to FID on their own merit, as you, as you say. So obviously, that would suggest that you know the economics of the five projects. Is there something that you could share with us with regards to that?
Yeah, so look, we're working really hard on getting these projects across the line. Each project is different because obviously, you're operating these in different environments around the world. We're working hard on making sure we get the right returns. Our target is to get to double- digit. That's so important we do that. We will, over the next few months, we will come out and tell the market on when they reach FID. The projects are tracking well at the moment. I'm very confident we'll get there by the end of the year.
Your next question comes from Robert Stein with CLSA. Please go ahead.
Hi, team. Thanks for the opportunity. Just a question around the capital allocation framework. So if a lot of the investments for FFI are going to be OpEx, you know, potentially until capitalized in R&D in nature, does that mean that they are basically deducted before the NPAT line, i.e., the payout ratio occurs after the expense item? So we're not getting, you know, a purely discretionary competition of capital in those investments? That's the first. I've got a follow-up, please.
Yes, so that's correct. That's the correct assumption. I think just to make sure we all understand that our intention on these projects is to fund them with non-recourse debt, and also to bring other capital partners in at some stage to decrease our investment in the project. But we will be the developer and the operator of these projects going forward.
Thank you. And then the follow-up question is, look, with the, with the movement of, of Fiona and, and, and now Dino coming into, coming into the top role, and this isn't a, a comment on, on individuals, but more a comment on process. With two sort of CEOs of, divisions that are competing for funding, previously, there was, you know, train tracks around how much funding FFI got, but now there's increasing competition for capital. Who at the executive level within the company makes a decision on, you know, makes a go-forward decision on which projects get taken to the Board? How those projects are presented, and, and how do you prioritize that capital investment, given that, you know, arguably both yourself, Mark and, and Dino are competing for the same dollar?
So, that's a great question. Thanks so much. I, Dino and myself will be working very closely together to make sure that the best projects go up to the board, who will make the ultimate decision on the investments for the company.
Your next question comes from Glyn Lawcock with Barrenjoey. Please go ahead.
Morning, Dino and Mark. Firstly, just one for you, Dino. Just on Iron Bridge pricing, you said you're getting what you'd expect from the market. I look at your nearest peer just up the road, CITIC Pacific. I think they're just getting the 65% index with no premium. Is that sort of what we can expect at the moment? And how would that compare to... I think when you sanctioned the project, you were talking about the 65% index with a decent premium, but it still just seems like that premium's gone. Thanks.
Yeah. Thanks, Glyn. Great question. Obviously, it's Fe- adjusted, so we are getting more than the flat 65%. But we are seeing the premium market evolve, particularly as we understand the value and use for our product, which has also got low impurities, not just high-grade iron ore, makes it a great precursor into the hydrogen-based reduction process for green steel.
Okay. But I mean, you're obviously not getting close to the premiums we talked about when the project was sanctioned, I guess, at the moment.
Look, as I said, as the outset, this product is in huge demand right now. And we do see a premium market evolving in time as we get more of this material onto market.
Yep, sure. And then maybe just a question for both yourself and Mark. I mean, Mark, you just said before, you know, we'll be working hard to get a double-digit return on your projects in FFI. I mean, how would that compare against... I mean, if Dino comes up with an iron ore project, I'm pretty sure they're gonna end up with returns well in excess of, you know, low double digit. So how, how does it actually compete?
Well, I think you have to look at really the difference of the risk and the returns for different projects. Energy projects are different than mining projects. And that's our job to offer up to the board the best possible opportunities on both the mining and on the energy side, and it'll be up to the Board to decide.
Your next question comes from David Coates with Bell Potter Securities. Please go ahead.
Thanks so much. Good morning, everyone. Apologies—I apologize if I missed some commentary on this, just the Iron Bridge write down. Can you just give us a sense of the proportion that AUD 726 million represents of the prior carrying value?
... I'll hand over to Christine, maybe she has a question on that.
Yeah, remember, the 726 is post-tax. The pre-tax impairment is AUD 1 billion, and the prior accounting value was AUD 3.5 billion. So it's about just under reserved.
Okay, thank you. Yes, I'd probably just comment that that does seem like a fairly large write-down, so early in the stage of a long life project. Thank you. That's it for me. Bye.
Thank you.
Your next question comes from George Eadie with UBS. Please go ahead.
G'day, just following up on the Iron Bridge carrying value right down and the comment about offsetting by increasing strong outlook for future product pricing. Is this more common on iron ore prices or the higher, higher grade premium? I'll come back with a second. Thanks.
Dino here. I can jump in on that. Certainly, the higher grade on top of the 62% for the premiums. 65%, sorry.
No change to fundamental underlying sort of 62% assumptions then, or?
Uh, no.
And then maybe just lastly on that, so, in the assumption going forward over the medium term about sticky OpEx, obviously, you've seen the costs go up since May 2021, about 27%. Is that sort of a medium long- term OpEx staying higher for longer? Or is there any cost out sort of at the back end still on that?
Now, look, good question on controllables relevant. As we're ramping up now, we're understanding our cost profile, certainly a lot more matured than two years ago when we gave guidance before. We've incurred the inflationary pressures. I'll let you pick a number on the inflationary effect over the next two years, but guidance is life- of- mine, right? And again, we're coming back to this grade of the product that we're getting, the overall capital we've put into this project thus far, and the costs that we're now announcing; we absolutely back this project and think it's gonna create cash in the long term.
Your next question comes from Rurika Imahashi with Nikkei. Please go ahead.
Hello, thank you for having us today. My question is, as uncertainty over China's economic growth looms large, how do you view the significance of the business diversification, and how will you direct the transition to move forward under your help?
Yeah, look, thank you so much for the question. Look, I'll talk from the energy perspective, and I'll get Dino to talk on the metal side. But the opportunity on the energy part is absolutely enormous as we think about the energy transition happening in the world and the opportunity that presents to us and how we're positioned as a first mover. I think is gonna really be a big advantage for our shareholders. Dino?
Look, I'm in absolute lockstep with Hutch on this one. I have no doubt that a decarbonized iron ore product, this decade is gonna be in huge demand and, in fact, be critical. We don't actually talk about iron ore as being one of the critical minerals to help us address climate change. Steel will be used and continue to be used as countries around the world come to grips with what is happening across the entire world. We need to continue to invest in new technology, new infrastructure, to turn this tide.
Your next question comes from Peter Kerr with the Australian Financial Review. Please go ahead.
G'day, Dino. G'day, Mark. Thank you for your time. You've talked a bit about culture, Dino, today, and I know on the ASX today, the company's put out a corporate governance statement. So as we stand here today, looking forward as you two gentlemen lead your respective divisions, what is gonna be the standard for workplace relationships? Are they allowed? Do they need to be disclosed? And what will be the policy if there is a power imbalance in those relationships?
So thanks, Peter. Good morning. Look, you know, we have the highest level of corporate governance, and all our policies are available on the company website. I'd ask you to go and a look at those, and as I said, we take this very seriously.
No problems. Then, Dino, do you have a separate answer?
No, absolutely, aligned.
Your next question comes from Nick Evans with The Australian. Please go ahead.
Yeah, g'day, guys. So I just have two: the first is, just in relation to Fiona Hicks departure. When was that decision made? Because on the paperwork, it looks like it sort of happened in a, in a fair hurry. And my second question relates to, that competition between FFI projects and iron ore projects. Mark, assuming that, following on from Lyndon's, question earlier on, assuming that, that you get low double digits and something that Dino takes forward, gets, you know, a fair bit better than that, is it fair to assume that it's theoretically possible now that, that no FFI project would be authorized, would be given FID by the, by the Fortescue Board if it can't match those numbers?
Look, Nick, I definitely hope not. So, so, because I, you know, I totally believe these projects are gonna be fantastic for shareholders. So we will endeavor to—Our job is to present to the Board the best possible projects, then it's up to the Board to decide on the returns. They, you know, they're different projects. Any energy project is different than the metal mining projects, and so the Board will have to decide, look at all the risks involved in assessing which is the best place to put the capital. On the question you had on Fiona, the decision was mutually agreed between her and the Board on the 27 August.
The board decided to appoint Dino by expediting his promotion to that position.
Thanks, Mark.
Your next question comes from Danielle Le Messurier with The West Australian. Please go ahead.
Good morning, all. Thanks for taking my question this morning. Excuse me. Just a quick one on the investigation that was commissioned by the Fortescue Board into Andrew Forrest having a relationship with an employee. Was that Seyfarth Shaw investigation linked to any of the 34 cases of alleged sexual harassment on Fortescue mine sites that have been raised by WorkSafe? And can you tell us whether Mr Forrest was involved in one or more of those cases? Thanks.
Look, the answer is no. This is a confidential Board report, and Fortescue has, you know, resolutely, you know, committed to the highest standard of corporate governance, operates, operates across the business. And in keeping with our long-standing practices, we do not comment on deliberations of the Board.
Your next question comes from Eric Johnston with The Australian. Please go ahead.
Good day, Mark. Thanks for taking my question. Just two here, maybe related. Where's the Chairman today, Andrew Forrest? Is he, he made a decision not to join the call? There are a lot of questions from both media and analysts about the CEO process. And also, if I can just squeeze one in. Can I confirm, was Fiona at the weekend celebrations up in Pilbara?
Look, yes, Andrew actually hasn't been around for the last few calls, so he's let us take those calls, which is fantastic. He's not available today. Fiona was actually at the celebration, and we had a wonderful time up there of the 20 years of celebrating this wonderful company and what has achieved over that 20-year period.
Your next question comes from Elan Miller with AL Capital. Please go ahead.
Elan, are you there?
Your next question comes from James Redfern with Bank of America. Please go ahead.
Yeah, hi. Hi, Dino, Mark, and Christine. Maybe slightly. I want to ask about Nyidinghu, which is a replacement mine. Just wondering if you could please provide some guidance or color on when we might see that project move to FID. It was previously slated for late this decade, but I said there's some speculation it could be in the next couple of years. Thank you.
Yeah, I'll hand it, Dino.
Yeah, no problem. And, as we mentioned on the last call, we actually have enabled the Nyidinghu project to be kicked into the next decade. We have started our approval process, though, and that gives us the most time to make sure that we work with our First Nations groups in that area to set this project up, right. And, again, the reason why we're able to do that was on the back of more results on near mine exploration, and they're always the best and cheapest comes to bring into your portfolio. But Nyidinghu is certainly still there. We are continuing to explore and define the ore body more so. It is a big ore body, and at some stage, I'm sure it'll come into the portfolio.
Okay, thanks. And can I just a second question if I can, please? Thanks, Dino. Just want to check some numbers on Iron Bridge. So it says, Fortescue share of the CapEx is AUD 3.1 billion, and the impairment is AUD 1 billion. So just to... Like, where do we kind of land on the carrying value at the moment, please?
As of 3.5 minus 1, 2.5.
Your next question comes from Rahul Anand with Morgan Stanley. Please go ahead.
Oh, hi, team. Thanks again for the opportunity. One on your decarbonization, please. Look, you mentioned in your introductory comments that you have plans for, you know, abatement of circa 90%, and you're still awaiting the pathway for the other 10%. Are you able to provide a bit of color? What is that 10% that you don't have plans for currently? And then for the other 90%, how should we think about, you know, those plans? I mean, what stage are they at the moment? That's the first one. Thanks.
Yeah. So, let me pass to Christiaan Heyning, who heads up the decarbonization.
Good morning, Christiaan Heyning here, Director of Decarbonization. Great questions. Let me go in reverse order. So for the 90%, we have a really good idea of what we are going to do, and we are zeroing in on a very, let's say, limited number of technological pathways to get there. We will communicate the FIDs when ready. On the remaining 10%, there's still a wide range of opportunities to... Sorry, of technical ways of achieving that emission reduction. And that means that we are still earlier in the process in deciding which way to go. An example there, for example, would be how to get rid of some of the emissions associated with blasting. There's various technological ways, and we're working with our partners to figure out which one that will be.
Another is remote gen sets that are not close to good connection. Again, there's various ways we can get rid of those emissions. And so we're very comfortable that we will, we'll be able to get rid of those emissions. The reason why we give that 10% is that we haven't chosen the preferred technological path yet.
Okay, so for the other 90%, you have identified the technological path, is that fair?
... Yes, that's fair.
Okay, brilliant. Thank-
Your next question comes from Lyndon Fagan with JP Morgan. Please go ahead.
Thanks very much. Look, I really wanted to hone in again on the AUD 800 million spend for Fortescue Energy. Last read we got, there was about 800 employees, and I'm assuming they're all not earning AUD 1 million. Can you maybe give an update of how many employees are being carried in this division, so that we can kinda get an idea of how to project this number going forward? And I mean, yeah, if there's any other color, that would be helpful. Thanks.
Yeah. So, we have about 1,000-plus within the FFI part of the business, and we put now the WAE team underneath that as well, which is another 700 or so people in that business as we continue to grow and very much focused on the decarbonization of the company.
Thanks.
Your next question comes from Robert Stein with CLSA. Please go ahead.
Hi, team. If I think back to, I guess, one of the key advantages that Fortescue has, it's this operational capability and the ability through, you know, various generations of management to drive, you know, cost improvements and productivity through the assets. With the turnover in management and, you know, and it's been across the board, not just at the CEO level, is it a risk that such turnover can start to, I guess, erode that operational discipline throughout the operations, which has really been the key feature? And how do, I guess, the management team, you know, Dino and Mark, think about that in terms of providing the stability going forward to sort of set those baselines for improvement? Thank you.
Let me turn it to Dino now.
Yeah. Thanks, Rob. And just some actual numbers of turnover. We're still inherently very, very low in terms of our overall leadership turnover. And my two years into Fortescue, it, this organization does not rely on just one or two people to drive direction. We have a cohort of nearly 20,000 people all swimming and rowing in the same directions. So, and that's evidenced by our results, right? So the reporting of executive turnover started 18, 18 months to two years ago, and we haven't missed a beat. In fact, we've probably gone above what people ever thought was possible again. And next year, we're biting off another huge stretch target for the business.
As soon as 1 July ticked over, there was no difference from 30th of June when we hit the record. We just start again, and we're gonna keep going, and we're never gonna give up. The only thing that's changed now is what's on the horizon is a bit of a bigger challenge, and we need every horse in the race galloping now in the right way. But I'm left with no doubt whatsoever that we've got the most amazing team behind a crazy vision that we've got, and we're gonna nail it. Yeah.
So look, thank you-
...
Sorry, yeah. That's the question. Yeah. So look, thank you very much, all of you, to joining the call today. I wanted to close by again congratulating Dino with a new role and looking very much forward to working with him. We really do have an amazing opportunity ahead of us as a company. We have an incredible mission, and I'm looking forward very much to joining Dino, and on this journey together, as we really become a fully integrated green technology, energy, and metals company. We had outstanding results in financial year 2023, with a fourth consecutive year record operating performance, contributing to the third highest earnings of Fortescue's 20-year history.
It is through this operating excellence and our disciplined approach to capital allocation and ongoing investment in metals, green energy, and green technology, that we really will position the company in the best possible position for our shareholders. I look forward all to speaking to you again soon. Thanks so much for joining us today.