Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — Corporate Update (October 2013)
45 slides from Fortescue's corporate update, Oct 23, 2013
Slide 1: Investor Site Tour Presentation
Investor Site Tour Presentation For personal use only 23 October 2013
Slide 2: Disclaimer
Disclaimer For personal use only Important Notice The purpose of this presentation is to provide general information about Fortescue Metals Group Limited ("Fortescue"). It is not recommended that any person makes any investment decision in relation to Fortescue based on this presentation. This prese
Slide 3: Introduction
Introduction For personal use only Nev Power
Slide 4: Production and costs
Production and costs Continued growth of all operations For personal use only Ore Mined (wmt) Ore Processed (wmt) 40 25 35 20 30 Million tonnes 25 15 Million tonnes 20 10 15 10 5 5 0 0 Total Ore Shipped (wmt) Strip Ratios 30 6.0 6.0 25 5.0 5.0 Third Party Ore 4.0 4.0 Million tonnes 20 3.0 3.0 15 2.0
Slide 5: Highlights
Highlights September 2013 Quarter For personal use only • Average realised CFR sales price of US$121/dmt • C1 costs US$33.17/wmt • Quarterly shipments of 25.9mt, 4% increase from previous quarter • Cash on hand of US$2.8bn • Debt reduction programme commenced • Kings commissioning underway 5
Slide 6: Fortescue's Pilbara operations
Fortescue’s Pilbara operations For personal use only 6
Slide 7: A differentiated model
A differentiated model Delivering results For personal use only Relationships Direct relationships with sub contractors and local suppliers China Leveraging China’s growth and manufacturing capability Speed Speed of delivery – time is money Planning Planning for scale today and efficiency into the f
Slide 8: Financials
Financials For personal use only Stephen Pearce
Slide 9: Financial Summary FY13
Financial Summary FY13 September 2013 Quarter For personal use only • Cash $2.8bn at 30 Sept with Formosa proceeds $623m in Oct • Past peak Net Debt - $9.3bn (excluding finance leases) • Debt repayment commenced • Strong operational cash flows, revenue stream and lower costs • Flexible debt structur
Slide 10: Simplified and flexible debt capital structure
Simplified and flexible debt capital structure Voluntary repayment or refinancing options over US$7.6bn of facilities For personal use only 5,000 5,000 4,500 Term Loan 4,000 repayable at any time 3,500 Preference Shares to be repaid on 3,000 11 Nov 2013 US$m 2,500 2,000 2,040 1,500 128 1,500 2015 an
Slide 11: Operating margins support
Operating margins support Fortescue’s average realised selling price and C1 costs For personal use only US$/wmt 62% Platts US$/dmt 180 180 160 160 $146 140 140 $119 120 $110 $115 $114 $111 120 $73 $102 $103 100 100 $40 $89 $42 $49 $58 $33 $60 80 $21 $48 80 60 $23 $23 60 $21 $18 $18 $19 $18 $19 $18 4
Slide 12: Sustained operating cost reduction
Sustained operating cost reduction C1 trending lower as steady state operations commence For personal use only C1 Cash Cost (US$/wmt shipped) Strip Ratio 6.0 C1 estimate for the remainder of FY14 5.0 4.0 3.0 2.0 1.0 0.0 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 FY12 FY13 FY14 C
Slide 13: Operational savings > US$400 in FY13
Operational savings > US$400 in FY13 For personal use only • Significant permanent cost removed from the business • Product strategy improves operational efficiencies • Improved procurement function generates saving Grade control contractors Drill and blast contractors Haulage Fleet utilisation and
Slide 14: Breakeven cash price
Breakeven cash price Reduced to low US$70’s / t (62% CFR basis) For personal use only 100 80 60 40 20 0 C1 Admin and Fixed Shipping Royalties Interest Realised Grade, Breakeven Breakeven minimal sustainable elements FMG discount and price - FY14 price - 12 capex US$/wmt moisture months ago CFR Deliv
Slide 15: Financial analysis
Financial analysis For personal use only US$ cents 100 EPS CFPS 80 60 96.5 89.3 90.2 40 50.1 56.1 20 41.6 32.9 18.9 0 2010 2011 2012 2013 FY14 forecast PE ratio 18x 16x 14x 12x 10x 8x 5.73x 6x 4x 2x 0x 15 Source: Bloomberg at 21 September 2013
Slide 16: Development
Development For personal use only Peter Meurs
Slide 17: Iron Bridge – Two stages of development
Iron Bridge – Two stages of development Stage 11 –production Stage productiontotocommence commenceQ1 Q12015 2015 For personal use only Q1 2015 2016 Stage 1: 1.5mtpa Stage 2: 10mtpa mHematite Magnetite 10mtpa ROM 40mtpa ROM 1-2mtpa 66% Fe 10mtpa 68% Fe M&P - $338m M&P - $1.44bn Port - $17m Port - $10
Slide 18: Iron Bridge magnetite deposit
12km long x 400m wide x 600m deep Iron Bridge magnetite deposit For personal use only Magnetic Hematite – “At surface” – DTR ~20% 400m – Fe 66% 30 m 300 m 550 m Life of Mine Pit Shell 18
Slide 19: Port - flexible design for future growth
Port - flexible design for future growth Fourthberth Fourth berthcommissioned commissionedwith withfifth fifthberth berthapproved approved For personal use only AP3 AP2 AP1 AP4 AP5 19
Slide 20: FMG Exploration Tenements as of October 2013
FMG Exploration Tenements as of October 2013 a = f ~4 = 7: ie “ Peedamulla ; @ : Mt Rove y Ravens ging seegy Zion 3 White Knight q a Eliwana ‘Holek i x < - os Fig Trees if Kutayi om Price =e Nyidinghu Giga Panhandle 1 Mt Lewin’ Wyloo South 5 i te Wonmunna Horatio Turee Creek: Snowy Mountain y Legend
Slide 21: Near mine exploration - Solomon
Near mine exploration - Solomon For personal use only Firetail North ~25-50Mt BID & DID Exploration RIO owned Mining Leases Target Other BID and DID pods within Solomon East within Solomon East ~50 -100Mt DID & BID ~25-50Mt Exploration Target Exploration Target Sheila Valley Fredrick ~200Mt BID & DI
Slide 22: Resource portfolio sets expansion platform
Resource portfolio sets expansion platform Leverage existing assets for low cost growth For personal use only 18,000 16,000 14,000 5,205 5,205 12,000 Mineral Resources (Mt) 3,236 10,000 2,465 2,463 2,463 8,000 2,013 624 624 1,032 624 624 1,230 6,000 1,230 3,247 3,504 3,070 3,070 2,860 4,000 1,715 2,
Slide 23: Operations
Operations For personal use only David Woodall
Slide 24: Reserve & LOM projected life (by Hub)
Reserve & LOM projected life (by Hub) For personal use only 160 140 120 Annual Sales Mt wet 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Years Chichester Hub Reserve Chichester Hub LOM Resource Solomon Hub Reserve Solomon Hub LOM Resource •
Slide 25: Product strategy
Product strategy Revised product strategy at 155mtpa - average grade 58% For personal use only Bonnie Fines 6mtpa Super Special Fines 30mtpa Fortescue Blend Rocket 70mtpa 10mtpa Kings CID 40mtpa • Focused on maximising resource recovery • Optimising revenue by an integrated product 25
Slide 26: Importance of upgrade
Importance of upgrade Opportunity – innovation to further improve resource recovery and lower cash costs For personal use only Lower Lower OPF Product Strip C1 Costs Upgrades Ratio Wet plants and jigs upgrade to deliver: • Increased resource recovery • Lower cut-off grade • Lower strip ratios 4.5x t
Slide 27: OPF Schematic Flowsheet
OPF Schematic Flowsheet For personal use only Scrubbers 70% dry ROM Feed Wet ROM Feed Crushing / Front Screening End 30% to Upgrade Desands Plant Tails Product • Cloudbreak - 40 Mt • Firetail – 20 Mt • Christmas Creek • Kings – 40 Mt - OPF #1 – 23Mt - OPF # 2 – 27 Mt 27
Slide 28: Rail Snapshot
Rail Snapshot For personal use only • Ore trains 32,800 Net Tonne; full Electric Controlled Pneumatics; targeting sub 24 hour cycle. • 13 ore rakes (460,000 tpd). • Double header plus banker operation. • Slow speed loading at 1.5 kph rotary tip; indexing at 0.54 mps; 90 sec tip cycle. • Perth based
Slide 29: Rail Operations – Infrastructure Complete
Rail Operations – Infrastructure Complete For personal use only • 40 tonne axle load, heaviest in the world • 155Mt ore and 950 Ml per year 29
Slide 30: Port operations - flexible and efficient
Port operations - flexible and efficient For personal use only Inload Capacity – 180 Mtpa Out Load Capacity – 155 Mtpa Best 7 day Performance • Inload – 125 Mt • Outload – 148 Mt • Three Inload and Out load Circuits 30
Slide 31: Truck Utilisation: First and last Loads
Truck Utilisation : First and last Loads Trucks For personal use only Time to First load (Diggers) Time of Last load (Diggers) before end of shift 20:00 22:00 19:00 18:00 Time (mins) Time (mins) 20:00 17:00 18:00 16:00 15:00 16:00 14:00 12 12 12 12 13 13 13 13 13 13 12 12 12 12 13 13 13 13 13 13 /20
Slide 32: Operating Equipment Efficiency
Operating Equipment Efficiency For personal use only OEE RH340 OEE 4200 Oct-Dec 12 Jan-Jun 13 Jul-Oct 13 Oct-Dec 12 Jan-Jun 13 Jul-Oct 13 110.0% 90.0% UCL=84.9% 100.0% UCL=102.1% 80.0% 90.0% _ 70.0% X=68.5% 80.0% _ OEE % OEE % 60.0% 70.0% X=68.3% LCL=52.2% 60.0% 50.0% 50.0% 40.0% 40.0% 30.0% LCL=34.
Slide 33: Train Unloader Optimisation
Train Unloader 2 Optimisation For personal use only Histogram TUL Dump Times Normal Phase 0.07 Baseline Pilot Project 0.06 C ontrol Mean StDev N 0.05 225.0 17.06 22 213.0 14.95 10 206.5 5.666 15 Density 0.04 0.03 0.02 0.01 0.00 180 195 210 225 240 255 Time Av Tip Time Per Car • Average unload time r
Slide 34: Market
For personal use only Nev Power Market
Slide 35: Long term confidence in China
Long term confidence in China Lower growth rates but still strong in absolute volumes For personal use only • Strong underlying economy ~ 7.8 per cent GDP growth • New leaders committed to growth • Steel consumption greater than 2.1mt per day • Urbanisation and infrastructure driving steel demand •
Slide 36: China GDP volume
China GDP volume Lower growth rates but very strong in absolute volumes For personal use only GDP Trillion RMB GDP % Growth 60 16 14 50 12 40 10 30 8 6 20 4 10 2 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 GDP % Growth 36
Slide 37: Steel consumption per capita
Steel consumption per capita China has only just reached levels of consumption of developed countries For personal use only Kg per capita 900 800 700 600 500 400 300 200 100 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 China USA Japan Germany Source: Macquarie 37
Slide 38: More Railway & Urban Subway Needed in China
More Railway & Urban Subway Needed in China For personal use only cm/per capita 80 74 • China has 126 cities 70 >4 million people with a dozen 60 operational subways 51 50 46 • RMB2 trillion 41 40 investment in 4,300 kilometers of subway 30 • Subway steel 20 consumption is three 10 9 times higher th
Slide 39: Strong rebounds follow price drops
For personal use only 39 $100 $110 $120 $130 $140 $150 $170 $180 $190 $200 $160 $80 $90 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Strong rebounds follow price drops Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 History shows price vol
Slide 40: Trends reinforce seaborne advantage
Trends reinforce seaborne advantage New super mills built to capitalise on seaborne trade For personal use only • 460 mills – 51% private owned • 35 iron ore coastal ports • Coastal mines highest cost • New ~10mtpa Tonkin Gulf Baosteel, Wisco and Formosa Ha Tinh (22mtpa) super mills • 88% steel prod
Slide 41: Moving down the global cost curve
Moving down the global cost curve Targeting Targeting bottom quartile bottom quartile For personal use only October 2013 CFR Cost of China's Iron Ore Supply – August 2013 (including royalties & freight) 200 Domestic Chinese Ore Australia Brazil India 150 South Africa Other US$/dry tonne 100 50 Forte
Slide 42: Making a difference
Making a difference Fortescue is changing lives through training and employment For personal use only Direct Aboriginal 466 employees 12% Aboriginal people in Fortescue workforce 472 Aboriginal people employed by contractors Contracts awarded to $1.3bn Aboriginal companies and joint ventures 42
Slide 43: Delivering on targets
Delivering on targets For personal use only Strong financial results Expansion to 155mtpa Improved liquidity reduces net debt with repayments in 2013 Move to a dividend pay out ratio Flexible incremental growth Unique culture drives performance 43
Slide 44: For personal use only
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Slide 45: Glossary
Glossary Definition of non-IFRS terms For personal use only EBITDA Profit before income tax adjusted for depreciation and amortisation, impairment expense, other write offs, net finance costs and gain on refinancing. Return on equity Profit for the year after income tax divided by total equity. Retu
Fortescue Metals Group — Corporate Update (October 2013) on 6ix