The Fortescue Ltd (ASX: FMG) share price is up 5% after the company received a boost from China and announced a major US$2.8 billion deal.
China to boost economy
China has announced its biggest stimulus since COVID-19 to help the economy.
According to reporting by Reuters, People’s Bank of China (PBOC) Governor Pan Gongsheng said the central bank will cut the amount of cash that banks must hold as reserves by 50 basis points (0.50%), called the reserve requirement ratios (RRR), which will unlock $142 billion of new lending.
The RRR may be lowered by another 25 basis points to 50 basis points (0.25% to 0.50%) later this year.
The PBOC will also reduce various interest rates, including a 50 basis point (0.50%) reduction on average interest rates for existing mortgages. There was also a reduction in the minimum downpayment requirement to 15%.
Overall, this could help the Chinese economy and property market, which could help increase demand for steel and, therefore, iron, which would help Fortescue shares.
Major Fortescue deal
The company announced it has signed a US$2.8 billion green equipment partnership Liebherr for zero emission mining.
The equipment will be powered by the battery power system developed by Fortescue Zero. The two businesses are also producing an autonomous electric battery haulage solution for large scale mining operations.
This deal is part of Fortescue transitioning its diesel mining fleet to a zero emission fleet. It has a goal of producing zero emissions with its Australian iron ore by 2030.
Fortescue is expecting to purchase approximately 360 autonomous battery electric trucks, 55 electric excavators and 60 powered powered dozers. This represents around two thirds of the current Fortescue mining fleet, which used approximately 450 million litres of diesel in FY24.
The phased supply of the equipment started in October 2023 and is planned to be completed by 2030.
Fortescue said this is the largest single contract in its history.
Management commentary
The Fortescue Executive Chair Andrew Forrest:
This is an important next step in our 2030 Real Zero target – to eliminate emissions from our Australian terrestrial iron ore operations by the end of the decade. The world needs Real Zero now – it simply cannot afford to wait. The green solutions we need are here today, and Fortescue Zero is supplying them and rolling them out across our massive mining operations. Fortescue Zero developed this battery technology and jointly developed the Automated Haulage Solution, leading the way to provide green innovative solutions to eliminate emissions from heavy industry.
We invite all companies in the mining, heavy industry and haulage sectors to join us. The solutions are there, and the missing ingredient is leadership. The time of others persuading you that greenwashing is a better return to shareholders and your community is over. Fortescue invites you to join us. We can together be the trailblazers who forge the world’s move away from fossil fuels.
Final thoughts on the Fortescue share price
I wouldn’t call it a cheap buy now – it has rebounded strongly over the past two weeks. However, the next time it sinks it could be an interesting contrarian opportunity.
For now, there are other ASX dividend shares I’d rather buy for income. But, it’s good to see things rebound for the ASX mining share.
