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(Bloomberg) — Three years after he first embarked on a mission to transform an iron ore giant into a clean-energy powerhouse, Fortescue Metals Group Ltd. founder Andrew Forrest is facing a governance storm that may yet imperil his green ambitions.

Last week, in an unexpected move, Chief Executive Officer Fiona Hick resigned from the world’s fourth-largest iron ore producer after less than six months in the role. Two more senior leaders in the group were soon gone, including Guy Debelle, the high-profile former deputy governor at Australia’s central bank, raising difficult questions that are now dominating post-earnings meetings between Fortescue executives and investors.

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While Forrest and the executives have discussed few details, the sudden departures — the first announced shortly before Fortescue’s annual earnings — have resurfaced long-simmering questions over the billionaire’s leadership, and whether his sweeping green plans are at odds with the priorities of a lucrative core business. Iron ore still provides nearly all of Fortescue’s $17 billion of annual revenue, even in the face of a sputtering Chinese economy.

“It really is a cause for concern for Fortescue shareholders about what is going on at a board and management level,” said Gavin Wendt, founding director of industry analyst MineLife, though he added the core business was still operating well. “Shareholders and the market want to see board stability, coherent decision-making, and consistency. They’re not really getting that.”

Fortescue has declined to comment on the meetings or specific concerns, but Forrest himself has brushed worries about exits or China’s property sector aside.

In an interview with Bloomberg this week, he cited the need for focus as the company tries to reinvent itself: “They were good people, but we need constant alignment of interest,” he said. “It’s difficult to grow a new industry, and it’s difficult to break into a new industry while you’re growing.”

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He said the number of departures — in quick succession — was also not a concern as new talent would be brought in: “We’re upgrading all the time.”

Investors are less sanguine. 

Some interviewed by Bloomberg, who declined to be named as they were not authorized to discuss individual holdings publicly, said they were concerned about cash being ploughed into Fortescue Energy, the green arm established in 2020, and the impact of turnover at the top. They also expressed unease over a perceived lack of transparency in the company’s governance.

Fortescue’s shares have fallen 5% since their close on Aug. 25, ahead of Hick’s resignation and annual profit figures dented by China’s disappointing post-Covid rebound.

Analysts from UBS AG, who have already met with Fortescue executives this week, said leadership changes, capital allocation and the economics of energy projects had dominated the discussion.

“FMG explained that while former CEO Fiona Hick and CFO Christine Morris were highly regarded, the fit had not worked,” analysts including Lachlan Shaw said in a note. “A quick response was seen as in the best interests of shareholders and governance.”

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Bloomberg wasn’t immediately able to reach Morris or Hick. In a LinkedIn post, Hick said: “I have valued the experience at Fortescue and I thank the company and its people for the opportunity.” Debelle, who was CFO of the energy arm, declined to comment on the reasons for his departure.

Green Giant

Forrest is an Australian mining heavyweight with a storied history. The great-nephew of Baron John Forrest, the first premier of Western Australia state, he transformed a fledgling resources explorer into Fortescue, an iron ore giant. The company built a new mine, port and railway in Western Australia just as China’s infrastructure boom sent commodity prices rocketing, transforming him into Australia’s richest man.

Now, as part of a climate commitment he attributes to four years spent studying marine biology — he gained a Ph.D in 2019 — Forrest wants to produce 15 million tons globally of green hydrogen using renewable power by 2030. That equates to nearly half of the total global supply anticipated by BloombergNEF that year. In the Democratic Republic of Congo, he’s gunning for a hydropower and green hydrogen project that would be the biggest renewables project in Africa.

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Even laudable ambitions are hard to push through when structural economic changes in China are raising questions over the company’s core iron ore business, which expanded on the back of a then-surging property sector now in the doldrums.

And yet, along with annual results, Fortescue dropped a policy to allocate 10% of earnings to the green-energy arm. Now, metals and energy projects will compete for capital on an equal basis.

Leap of Faith

The firm’s reputation for capital discipline seems to have “gone out the window” with the green-energy push, said David Coates, analyst at Bell Potter Securities Ltd. Jefferies Inc. analysts wrote in a note there was now the risk of a strategy that “prioritizes projects that have relatively low returns” versus higher-returning mining projects.

Fortescue’s capital expenditure for the current financial year will be between $2.8 billion and $3.2 billion, of which $400 million will go to clean energy, according to Fortescue. The latter figure doesn’t, however, include hydrogen investments, which are expected to be announced later this year.

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The UBS analysts said Fortescue executives had described the removal of the 10% rule as a “natural evolution” as the company approached final decisions on a range of energy projects which should compete on their merits. The company is set to decide on five hydrogen or ammonia projects this year.

Forrest, meanwhile, is to be found doubling down. A Perth speech last week, posted online and cited widely by investors and analysts, did little to assuage concerns over the extent of the founder’s fervour for the green businesses. “Individual ambition comes second because what I’m talking about is the future of humanity,” he said, addressing his own “galloping herd” of employees.

He appealed to world leaders before discoursing at length on the ravages caused by extreme temperatures on the human body to an audience including former People’s Bank of China governor Zhou Xiaochuan. 

“The bulls will argue that Fortescue has proven the skeptics wrong in the past as many in the market dismissed the company’s chance of success in iron ore early on,” the Jefferies note said, “but to buy FMG now requires some new leaps of faith.”

—With assistance from Martin Ritchie and David Stringer.

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