Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — Shareholder Meeting (November 2003)
42 slides from Fortescue's shareholder meeting presentation, Nov 28, 2003
Slide 1: FMG 2003 Annual General Meeting
FMG 2003 Annual General Meeting The world Iron Ore Industry is changing rapidly Customers are driving this and the catalyst is the Fortescue Metals Group 1
Slide 2: Contents
Contents ‹ Industry/Company Overview ‹ Development Timetable ‹ FMG’s Resources ‹ The Market ‹ FMG’s Infrastructure plans ‹ Finance Structure and Execution Feeding the Dragon - JP Morgan 2
Slide 3: Global concern - United Nations Shanghai Steel Conference 2003
Global concern - United Nations Shanghai Steel Conference 2003 “In the international market, the industry is very concentrated” “Three companies account for 70% of sea-borne trade” “Further consolidation is likely...” “Maybe counterbalanced by increasing Chinese overseas investment” United Nations C
Slide 4: Remove the Bottleneck
REMOVE THE BOTTLENECK ‹ The worlds largest iron ore region (the Australian Pilbara) has an infrastucture bottleneck, favouring existing suppliers ‹ Owners restricted access and “shut out” all competition ‹ World iron markets have outgrown this and Government is demanding change, supporting FMG ‹ Unp
Slide 5: Progression to new ore types
Progression to new ore types Brockman blends (lumps & fines 1960-70s Robe pisolite fines 1960 to 2003 Pellets (start close) A shift in ore usage 1970s to “high value in Brockman blend, with increasing Marra Mamba use”products Detrital lump, supplement to blend (FMG Ores) 1980s Newman OB 29 Marra Mam
Slide 6: The Company
THE COMPANY “If you do not change you can become extinct” Dr Spencer Johnson - Who moved My Cheese? 6
Slide 7: Fortescue Metals Group Ltd
Fortescue Metals Group Ltd Stock Exchange Ticker: FMG Shares on issue (fully diluted): 178 million Market Capitalisation (@60 cents): $100 million Largest Shareholders: Shares (diluted) Number % Interest Directors & Management 118.1 million 66.3% Emichrome Asia 15.2 million 8.5% Cons. Minerals (Mind
Slide 8: FMG Development Time Line
FMG Development Time Line 1700 1360 Ship Commission 1020 Construction Tender Process Engineering Design 680 Approvals Finance Definitive Feasibility Pre Feas Study 340 Interim Pre Feas Study Scoping Study 0 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 20
Slide 9: Board of Directors
Board of Directors ‹ Andrew Forrest ‹ Ken Ambrecht ‹ Seb Coe OBE ‹ Herb Elliott AC MBE ‹ Chris Linegar ‹ Graeme Rowley AM ‹ Russell Scrimshaw 9
Slide 10: Executives
Executives ‹ Andrew Forrest CEO CEO ANDREW ANDREWFORREST ‹ Graeme Rowley FORREST ‹ Harry Adams ‹ Chris Catlow ‹ Philip Kirchlechner GM OPERATIONS GM OPERATIONS GRAEME ROWLEY GRAEME ROWLEY ‹ Richard Monti ‹ Barry Knight ‹ Eduardo Valenzuela RESOURCE DEVELOPMENT RESOURCE DEVELOPMENT MARKETING MARKETIN
Slide 11: The Resources
THE RESOURCES FMG has major drilling programmes underway and is highly acquisitive 11
Slide 12: Mineral Tenements
MINERAL TENEMENTS Text 3,850 square kilometres of prospective tenements 12
Slide 13: Chichester Ranges & Mt Nicholas
Resource Definition Chichester Ranges & Mt Nicholas Aim- To identify at least 20 years product at 35Mt per annum for Chichester Ranges & Mt Nicholas area ~ 700Mt to 750Mt Mt Nicholas Recent Work ‹ Drilling intersected Nammuldi member of the Marra Mamba Iron Formation (MMIF) ‹ Geological/mineralisati
Slide 14: Mt Nicholas - Recent Progress
Resource Definition Mt Nicholas - Recent Progress Weeks since the start of drilling: 11 Remaining programme: 60 weeks ‹ Pre-resource mining estimate of 300Mt product @ 58% iron ‹ Successful initial scouting programme has already identified approximately 40% of the targeted estimate ‹ This material r
Slide 15: Mt Nicholas - Recent Progress
Resource Definition Mt Nicholas - Recent Progress ‹ Mineralisation remains open down dip in many areas ‹ Attractive stripping ratio of approximately 0.72 includes an allowance for ends and ramps ‹ Beneficiation process uses common technology 15
Slide 16: Mt Nicholas - Future Developments
Resource Definition Mt. Nicholas - Future Developments Stepped exploration program reflecting the current status of the various projects ‹ Extend the current drill grid to capture mineralisation that remains open down dip, drill rig currently on site ‹ Infill drilling program planned to bring curren
Slide 17: Other Projects - Recent Progress
Resource Definition Other Projects - Recent Progress Mt Lewin • October mapping revealed three attractive targets similar to material drilled at Mt Nicholas - Drilling to follow Tongololo Creek • November mapping revealed several prospective targets displaying similar characteristics to Mt Nicholas
Slide 18: Other Projects - Future Developments
Resource Definition Other Projects - Future Developments Mt Lewin • Drill the identified targets on the existing grid • Quickly review technical data and infill drill areas of mineralisation • Model mineralisation and metallurgicaly test representative samples Tongololo Creek • Drill the targets ide
Slide 19: Other Projects - Future Developments
Resource Definition Other Projects - Future Developments Chichester Ranges • Mapping will commence once the tenements are granted early 2004. • Targets identified will be drill tested at appropriate spacing • Very large tenement group. • 200 kilometers of strike length (5 times Mt Nicholas) New Acqu
Slide 20: bel Junction "
ee B * bel Junction " Yandicoogina ~ al Seth PST/N156 PaTtST e Weeli Wolli . Ge Hope Downs «"« & Ea7/1192 Mindy Mindy 4B wae
Slide 21: Slide 21
Slide 22: Total Estimated Volumes of Mesas
510,000 Total Estimated Volumes of Mesas 8.45 Million m? ° Yandicoogina Weeli . Se Hope Downs e« e 0) Fe Deposits
Slide 23: Major Regional Tenement Holders
Major Regional Tenement Holders East Pilbara Iron Ore Project 23
Slide 24: The New Suppliers
THE NEW SUPPLIERS ‹ FMG drilling shows potential for huge resources Targeting 20 - 35 Mtpa stand alone project Strike length 150 kilometres, drilling advanced 100% FMG ‹ Consolidated Minerals (Mindy Mindy) Targeting 10 Mtpa stand alone project Drilling programme advanced 50% FMG Mindy Mindy and FMG
Slide 25: Grade Comparisons
GRADE COMPARISONS Mindy Mindy targeted grade ~ 57% to 60% Rio Tinto Robe River ~ 57.5% BHP Billiton Yandicoogina ~ 57.5% Hamersley Iron Yandi ~ 58.3% Mt Nicholas targeted grade ~ 58% to 60%+ Source: Tex Report, GSJBW “Improved technology and the lower cost of the new ore types (Yandi and Marra Mamba
Slide 26: The Market
THE MARKET “Old beliefs do not lead you to new cheese” Dr Spencer Johnson - Who moved My Cheese? 26
Slide 27: Steel Demand - Growth!
STEEL DEMAND – GROWTH! China dominates future world steel production 27
Slide 28: Ore Demand Outpacing Supply
ORE DEMAND OUTPACING SUPPLY ‹ Current supply chain incapable of meeting demand growth ‹ Existing “best case” seaborne capacity forecast to increase to 620 mtpa from 480 mtpa by 2007 ‹ World seaborne iron ore consumption to increase 480 to 700 mtpa by 2007 ‹ 80 mtpa is needed, to contributed to by FM
Slide 29: Future Supply Constraints
Future Supply Constraints Supplier Constraint Fragmented low quality mines High energy cost China Environmental concerns “Wheelbarrow” operations Bureaucratic limitations India* Poor logistic economics South American growing internal iron ore demand Brazil* Significant freight cost disadvantage to A
Slide 30: Iron Ore Shipments - % increase
Iron Ore Shipments - % increase 1000 % Increase since 1990 800 600 400 200 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Western Australian Exports Chinese Imports Source: DoIR/JP Morgan 30
Slide 31: The Pilbara, the lowest supply costs
The Pilbara, the lowest supply costs Cost difference of US$8.00 to $10.00 in additional shipping cost per tonne from Brazil (CVRD) to growth markets 31
Slide 32: Competition for Ore
Million Tonnes 10 12 0 2 4 6 8 1978 1979 1980 1981 1982 1983 1984 1985 Source: DOIR 1986 1987 1988 1989 1990 Million Tonnes 0 10 20 30 40 50 1991 1973 1992 1993 1974 1994 1975 1995 1976 1996 1977 1997 1978 1998 1979 TAIWAN 1999 1980 2000 1981 2001 1982 1983 1984 1985 1986 1987 1988 Million Tonnes 19
Slide 33: The Infrastructure
THE INFRASTRUCTURE 33
Slide 34: Operating cost advantage for new infrastructure
Operating cost advantage for new infrastructure Infrastructure Brownfields FMG Optimal Design for General Original Design for 5Mtpa 100Mtpa Expansion means Construction based on Rail duplication of older latest technology technology Expansion means Design flexibility for Port replacement but not pha
Slide 35: No existing producer (brownfields) capital cost advantage
No existing producer (brownfields) capital cost advantage Company Tonnes (expansion) A$million BHP Billiton Iron Ore 40 million (Option C) 2,000 Rio Tinto/Hamersley 50 million 1,900~2,300 FMG 45 million 1,850 Source: JP Morgan for BHPB IO and RT Hammersley 35
Slide 36: FMG Rail - Excellence in Heavy Haul
FMG RAIL - EXCELLENCE IN HEAVY HAUL Total Capital Cost at 50Mta A$806m Train Sets (rolling stock) $221m Above Track $70m Below Track $515m Total $806m (incl.15%contingency) FMG personnel achieved 100% increase in efficiency in other Pilbara operations - as measured by net tonne per kilometre per emp
Slide 37: FMG Port - More Tonnes Less Time Less Cost
FMG PORT - MORE TONNES LESS TIME LESS COST Total Capital Cost at 50Mtpa $470m Dumper (rail car tippers) $70m Stackers, Reclaimers $84m Plant & Yard $84m Dredging $56m Wharf $176m Total $470m (incl.15%contingency) FMG personnel achieved 40% increase in port capacity measured by Tonnes per annum shipp
Slide 38: Proposed Financial Structure Maximising Returns for Investors
Proposed Financial Structure Maximising Returns for Investors 38
Slide 39: Proposed Finance - Pilbara Infrastructure Fund (PIF)
Proposed Finance - Pilbara Infrastructure Fund (PIF) FMG Retained Equity in PIF = 40% Sources Capital Contributed % Equity/Debt Infrastructure Investors 20% Equity Shipping/Rail Groups 10% Equity Iron Ore Customers 20% Equity Equipment Leases 10% Debt Supplier/Construction Groups 20% Debt (and suppo
Slide 40: Proposed Finance - Mines
Proposed Finance - MINES FMG Retained Equity - 100% Sources Capital Contributed % Equity/Debt FMG (pre-closing) equity 20% Equity Customer “Product” Equity 20% Equity Equipment Leases 10% Debt US Capital Markets 50% Debt 100% Debt/Equity Ratio 60:40 40
Slide 41: Managing Future Risks/Threats
Managing Future Risks/Threats Challenges Response Price Reduction Lowest cost producer Long term structured/customer finance Long term contract partnerships Infrastructure Rationalisation Ahead of the game Leader in efficient systems Company Takeover Company structure & ownership Ensures value reten
Slide 42: FMG - Swimming with the Tide
FMG - SWIMMING WITH THE TIDE ‹ Growing demand for iron ore far exceeds supply ‹ With FMG infrastructure, the Pilbara will meet demand ‹ FMG has the ore, the people and the commitment to make it happen ‹ China’s demand is driving structural change Fortescue Metals Group 42
Fortescue Metals Group — Shareholder Meeting (November 2003) on 6ix