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Peter Meurs, Fortescue Metals Group Ltd - Fortescue Metals Group

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Peter Meurs, Director Development, Fortescue Metals Group delivered this presentation the 2014 AJM Global Iron Ore & Steel Forecast Conference and Exhibition. …

Peter Meurs, Director Development, Fortescue Metals Group delivered this presentation the 2014 AJM Global Iron Ore & Steel Forecast Conference and Exhibition.

The annual AJM Global Iron Ore and Steel Conference is the world's largest gathering of iron ore and steel executives. Over the past 16 years thousands of industry personnel have attended, recognising it as the conference that delivers vital information on the status of the global iron ore and steel sectors.

For more information, visit http://www.globalironore.com.au/home

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  • 1. Peter Meurs, Director of Development 17th Annual Global Iron Ore and Steel Forecast Conference
  • 2. 2 Disclaimer Important Notice The purpose of this presentation is to provide general information about Fortescue Metals Group Ltd ("Fortescue"). It is not recommended that any person makes any investment decision in relation to Fortescue based on this presentation. This presentation contains certain statements which may constitute "forward-looking statements". Such statements are only predictions and are subject to inherent risks and uncertainties which could cause actual values, results, performance or achievements to differ materially from those expressed, implied or projected in any forward-looking statements. No representation or warranty, express or implied, is made by Fortescue that the material contained in this presentation will be achieved or prove to be correct. Except for statutory liability which cannot be excluded, each of Fortescue, its officers, employees and advisers expressly disclaims any responsibility for the accuracy or completeness of the material contained in this presentation and excludes all liability whatsoever (including in negligence) for any loss or damage which may be suffered by any person as a consequence of any information in this presentation or any error or omission therefrom. Fortescue accepts no responsibility to update any person regarding any inaccuracy, omission or change in information in this presentation or any other information made available to a person nor any obligation to furnish the person with any further information. Additional Information This presentation should be read in conjunction with the Annual Financial Report as at 30 June 2012, the half year financial statements together with any announcements made by Fortescue in accordance with its continuous disclosure obligations arising under the Corporations Act 2001. Any references to reserve and resource estimations should be read in conjunction with Fortescue’s 2013 Annual Report which is available on the Fortescue website. Fortescue confirms that it is not aware of any new information or data that materially affects the mineral resources and ore reserves statement included in the 2013 Annual Report. All amounts within this presentation are stated in United States Dollars consistent with the Functional Currency of the Fortescue Metals Group Limited. Tables contained within this presentation may contain immaterial rounding differences.
  • 3. 3 The Story Begins…2003 An Original Vision The Pilbara is iron ore rich... China will need more iron ore to develop
  • 4. 4 • First ore 2008 • 100mt expansion 2011-2013 • Over 320mt shipped to end of Feb 2014 • Ramping up to 155mtpa in 2014 Building a world class company Our first decade – setting audacious goals
  • 5. 5 Delivering results A differentiated model China Leveraging China’s growth and manufacturing capability Speed Speed of delivery - time is money Planning Planning for scale today and efficiency into the future Relationships Direct relationships with sub contractors and local suppliers Culture Fortescue’s unique culture is the key
  • 6. 6 Mini Miners Calendar Colouring Competition Safety is at the heart of Fortescue’s family values Our Highest Priority is Safety • Increased engagement with all employees and contractors • Stepped up visible leadership • Driving a step change in safety • Reinforcement of our Life Saving Choices • External review of safety leadership and performance • Empowerment for everyone to work safely and look after their mates “my brother’s keeper”
  • 7. 7 Solomon in January 2011 – a bit to do… Building world class assets … to get to this in 2013
  • 8. 8 Towards 155mtpa We got there…
  • 9. 10 Continued growth in all operational areas At the end of our first decade of building Ore mined (wmt) Ore processed (wmt) Ore shipped (wmt) Milliontonnes Milliontonnes Milliontonnes C1 (US$/wmt) 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 0 5 10 15 20 25 30 35 40 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 0 5 10 15 20 25 30 35 40 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Third party ore 52.56 46.04 49.44 50.48 43.61 36.01 33.17 32.99 30.00 35.00 40.00 45.00 50.00 55.00 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14
  • 10. 11 C1 trending lower as steady state operations commence Breakeven cash price in low US$70/t, 62% CFR basis Q3 – Q4 increase in C1 through ramp up of Kings and wet season Sustained operating cost reduction 0.0 1.0 2.0 3.0 4.0 5.0 6.0 0 10 20 30 40 50 60 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 (est) Q4 FY14 (est) FY12 FY13 FY14 (est) Strip Ratio C1 Cash Cost (US$/wmt shipped) C1 cash cost (US$/wmt shipped) Strip ratio (RHS) Estimate for Q3 and Q4
  • 11. 12 CAPEX declines rapidly as production climbs New decade – new era 0 20 40 60 80 100 120 140 160 180 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 FY10 FY11 FY12 FY13 FY14 (est) FY15 (est) Tonnes shipped millions Total spend US$ billions Operating spend Capital spend Tonnes shipped (RHS) 2014 and 2015 estimates
  • 12. 13 • Record revenue US$5.9bn  77% • EBITDA of US$3.2bn  184% • NPAT US$1.7bn  260% • Debt paid/called US$3.1bn – interest savings of US$300m • Dividend A$0.10 fully franked Highlights 1H14 Record financial results
  • 13. 14 China GDP growth 7.5% in 2014 • Steel demand growth ~8% 2013 • Imported iron ore +10% to 820mt • +200m people to urbanise by 2020 Strong underlying economy “China is still a developing country… development remains the key to solving all our country’s problems… We must keep development as the central task and maintain a proper economic growth rate.” Premier Li Keqiang National People’s Congress Beijing, 5 March 2014
  • 14. 15 New coastal steel capacity moving away from domestic iron ore Demand for seaborne supply Iron Ore Reserves New/proposed steel capacity Seaborne iron ore Seaborne iron ore imports (Ex. Australia, Brazil etc.)Source: ANZ Research
  • 15. Leverage existing assets for low cost growth Resource portfolio sets expansion platform MineralResources(Mt) 16 2,266 2,227 2,143 2,550 2,550 3,379 3,222 695 695 695 695 695 695 695 1,715 2,224 2,860 3,070 3,070 3,247 3,504 624 624 624 624 1,032 2,013 2,463 2,463 - 1,230 1,230 2,465 3,236 5,205 5,205 - 2,000 4,000 6,000 8,000 10,000 12,000 2008 2009 2010 2011 2012 2013 2014 Chichester Hub Chichester Other Solomon Hub Western Hub Nyidinghu Magnetite
  • 16. 17 Exploration and development • Fortescue has the largest tenement portfolio in the Pilbara • Near mine exploration continuing • Long term resources discovered • Many future development options Over 85,000km2 of tenements in the Pilbara
  • 17. 18 Product Strategy • Focused on maximising resource recovery • Optimising revenue by an integrated product Revised product strategy at 155mtpa - average grade 58% Fortescue Blend 70mtpa Kings CID 40mtpa Rocket 10mtpa Super Special Fines 30mtpa Bonnie Fines 6mtpa
  • 18. 19 Fourth berth commissioned with fifth berth underway AP1 AP2 AP5 AP3 AP4 Port – flexible design for future growth • Maximising throughput capacity Herb Elliott Port • Wharf structure designed to support shiploader and extension of existing conveyors • Reclamation works onshore adjacent to existing stockyard
  • 19. 20 AP5 Schedule of works Q1 2014 • Dredging underway Q2 2014 • Marine Structures construction Q3 2014 • Materials Handling installation Q4 2014 • Berth E&I installation Q1 2015 • Marine Structures complete
  • 20. 21 Fortescue River Gas Pipeline Dampier Karratha Solomon Hub Fortescue River Gas Pipeline - Stage 1 Chichester Hub Pannawonica North Star Costs reduction with options for expansion
  • 21. 22 • Diversified diesel-natural gas-LNG energy model • Long term cost reductions • Reliable energy supply in the Pilbara • Reduced carbon emissions • Policy and market reform needed to deliver appropriate solutions for Domestic Gas supply Needs policy and market reform A new energy model
  • 22. 1. Incremental production from optimising existing assets 2. Continue debt reduction ~40% gearing 3. Moving to investment grade metrics 4. Dividend payout ratio to 30-40% once gearing achieved 5. Continued exploration of our extensive Pilbara tenements 6. Early work to secure strategic options in high value opportunities Increasing shareholder returns Beyond 155mtpa 23
  • 23. 24 • Strong JV partners • North Star Phase 1 underway • Proving new concepts • Options to proceed with full scale plant Magnetite Iron Bridge - 100km south of Port Hedland
  • 24. 13% ~ 500 ~ 450 US$1.5bn+ Direct Aboriginal employees Aboriginal people in Fortescue workforce Aboriginal people employed by contractors Contracts to Aboriginal companies and JV’s Jobs and opportunities replacing welfare Making a difference 25
  • 25. 26 • Strong financial results • Expansion to 155mtpa • Debt reduction underway • Increasing dividends • Flexible incremental growth • Unique culture drives performance 10 years strong Delivering on targets
  • 26. Proudly supporting: Sign up to alerts online: www.fmgl.com.au 27