Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — Investor Presentation (March 2016)
49 slides from Fortescue's investor presentation, March 2016
Slide 1: Corporate Presentation
Corporate Presentation Working together. Delivering results.
Slide 2: Forward looking statements
Forward looking statements Important Notice Additional Information The purpose of this presentation is to provide general information about This presentation should be read in conjunction with the Annual Report at 30 Fortescue Metals Group Limited ("Fortescue"). It is not recommended that June 2015,
Slide 3: Building a world class company
Building a world class company Core supplier to China’s growth Safety focus First ore Low cost Engagement Empowerment Leadership in 2008 producer Shipped over 165mt Production rate 620mt Unique culture 3
Slide 4: Fortescue: The New Force in Iron Ore
Fortescue The New Force in ron Ore
Slide 5: Our Vision: The safest, lowest cost, most profitable iron ore producer
Our Vision: The safest, lowest cost, most profitable iron ore producer ” ¢ Ww Safety Family Fortescue Integrity Determination Set yourself Enthusiasm Empowerment Generatingideas Frugality stretch targets
Slide 6: Strategic delivery of targets
Strategic delivery of targets Culture, continuous improvement, speed and flexibility maximise asset base FY14 165mt achieved & maintained FY12-16 Costs to $13/t FY16 exit FY15-16 Capex lowered < $2/t FY13-16 Net debt $4.4bn lower FY11 Consistent dividend policy 6
Slide 7: 1HY16 Earnings
1HY16 Earnings Operational performance + sustainable cost reductions support financial results Underlying NPAT EBITDA 1 84mt shipped US$319m Rate maintained US$1.3bn Capex $88m Net debt Interim dividend A$0.03/share 1HFY16 US$1.1bn lower 1 Refer to attached glossary for definition of non-IFRS terms
Slide 8: Continuous + sustainable cost improvements
Continuous + sustainable cost improvements Through development of assets, efficiencies, productivity and cost savings US$/wmt 1 Solomon operations 60 50 48 44 2 Blending strategy 58% Fe 40 34 3 Processing, wet plants + de-sands 30 27 20 15 4 Operational efficiencies Exit FY16 at 10 5 Fx and fuel dec
Slide 9: Delivering US$13/wmt
Delivering US$13/wmt Continuing efficiency and productivity improvements Savings Sustainable cost reductions Savings initiatives (US$/wmt) US$/wmt 16 • Improved upgrades and yield Processing • Shutdown optimisation 0.70 14 3 • Enhanced plant reliability 1 12 • Maximising equipment productivity 10 •
Slide 10: Breakeven index price
Breakeven index price Continuing to reduce breakeven price US$/t 40 USD:AUD 0.71 3.3 28.8 30 2.5 1.5 23.0 3.2 20 0.4 18.3 1.4 3.5 13.0 10 0 C1 exit rate Shipping Royalty Admin Delivered Interest Sustaining Total wmt Moisture Dmtu Breakeven cost to China capex cost adjustments price 10
Slide 11: Operating and financial performance
Operating and financial performance
Slide 12: Financial keys
Financial keys Maintaining margins through cost + production performance C1 cost Operating cashflow $16/wmt US$3.5bn US$1.4bn Operating cost savings 1HFY16 FY14 - FY16 US$1.1bn Net debt US$200m Debt repurchased US$6.1bn Sustaining capital FY16 12
Slide 13: Earnings
Earnings Operational performance supports strong financial results Revenue and Price Underlying EBITDA, US$ millions 6 140 Price realisation, US$/dmt Operating revenue, US$bn 3,220 105 4 2,416 70 1,440 1,301 2 1,066 35 0 - 1HY14 2HY14 1HY15 2HY15 1HY16 1HY14 2HY14 1HY15 2HY15 1HY16 Revenue Realised
Slide 14: Underlying EBITDA
Underlying EBITDA Cost + production performance offsetting price weakness Underlying EBITDA, US$ millions Underlying EBITDA Margin 55% 1,387 41% 39% Average 30% 29% 1,440 27 96 1,301 54 27 1,568 HY15 Volume Cost Price Royalty Fx Other HY16 1HY14 2HY14 1HY15 2HY15 1HY16 14
Slide 15: Cash savings
Cash savings FY14 – 16 cash savings since achieving full operating capacity US$bn 4.0 3.0 0.8 1.1 2.0 3.5 2.7 0.8 1.0 0.8 - FY14 FY15 1HY16 Delivered savings Expected 2HY16 Savings FY14 - FY16 15
Slide 16: Balance sheet
ats Fortescue = Balance sheet
Slide 17: Available cash balances
Available cash balances Operating cash flows supporting continuing debt repayments US$bn • US$2.3bn cash at 31 Dec 2.5 2 • Strong cash flows Available for 1.5 debt repayment • Target 40% gearing 1 (Debt:Debt + equity) 0.5 Base liquidity • Target liquidity US$1-1.5bn 0 1H16 cash balance Liquidity 17
Slide 18: Capital expenditure
Capital expenditure Post expansion, capex is sustainable at current levels Capital profile • Sustaining capex US$200m US$bn mt shipped 7.5 175 • Sustainable mine lives 6.0 140 4.5 105 • No expansion capex 3.0 70 1.5 35 • D&A ~US$7.50/wmt 0.0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 0 (guidance) 18
Slide 19: Debt maturity profile
Debt maturity profile Net debt reduced by US$4.4bn to date US$ millions 5,000 4,839 4,000 3,000 2,000 1,000 2,160 Extended Runway 577 478 0 CY2016 0 CY2017 CY2018 CY2019 CY2020 CY2021 CY2022 Senior Secured Credit Facility Senior Unsecured Notes Senior Secured Notes 19
Slide 20: Debt repayments
Debt repayments Free cash flows support debt reduction to initial 40% gearing target US$ millions % 14,000 80 12,000 70 60 10,000 50 8,000 40 12,691 6,000 10,533 30 9,557 9,569 4,000 8,448 7,159 7,188 20 6,130 2,000 10 - 0 FY13 FY14 FY15 HY16 Total Debt Net Debt Net Gearing (RHS) 20
Slide 21: Key credit metrics
Key credit metrics Operating cash flows supporting metrics Cash and debt (US$bn) Gearing: Debt / (Debt + Equity) 11.6 9.6 9.6 63% 9.1 8.4 56% 56% 54% 52% 2.9 2.4 1.6 2.4 2.3 1HY14 2HY14 1HY15 2HY15 1HY16 1HY14 2HY14 1HY15 2HY15 1HY16 Underlying EBITDA / Interest Debt / Underlying EBITDA 3.8x 3.6x 6.
Slide 22: Maximising value
Fortescue The New Force in Iron Ore
Slide 23: Maximise asset base
Maximise asset base Maintaining mine lives +20 years 165mtpa Mt / grade Strip ratio • Maintained ~58% Fe product grade 200 5 160 4 • Strategic investments in: Lower cost Solomon mines 120 3 OPF upgrade Fortescue blend 80 2 • Improved ore body definition 40 1 • Future technology + blending 0 FY
Slide 24: Product strategy
Product strategy Strategy continues to evolve to maximise value from asset base Solving to maximise • Optimised 58% product range • Product blending Product • Enhanced processing • Improved ore body definition Mine Costs Life 24
Slide 25: Revised strip ratios
Revised strip ratios FY16 strip ratio remains consistent in 2HFY16 at 1.2 Maintained mine life FY17 - FY20 LOM Chichester 1.6 2.3 C1 Solomon 1.2 1.8 Strip Costs Combined 1.4 2.1 ratios Improvements to continue as ore processing and blending optimised 25
Slide 26: Step 1. Product from single mine source
Step 1. Product from single mine source… Dry plant only with product grade of 59% Strip ratio 5.4 Pit Production inventory at cut off grade 57.5% limit 26
Slide 27: Step 2. Blending with Firetail
Step 2. Blending with Firetail… Dry plant + blending with Firetail, product grade of 57.5% Strip ratio 3.5 New pit limit + = Product inventory at cut off grade 55% 27
Slide 28: Step 3. Blending + wet processing
Step 3. Blending + wet processing Blending with Firetail + wet processing, product grade 57.5% Strip ratio 2.3 New pit limit + + = Production inventory at cut off grade of 54% 28
Slide 29: Maximising flat tonnes / grade
Maximising flat tonnes / grade OPF upgrade and blending reduces cut-off grade + strip ratios Fe content Fe cut-off grade Dry processing Wet processing Step 1 Step 2 Step 3 Based on Cloudbreak production inventory 29
Slide 30: Wet process beneficiation
Wet process beneficiation Extracting more Fe and removing Si & Al to improve cut off grades 30
Slide 31: Hematite reserves
Hematite reserves Reserve life maintained through improved recovery + blending 3,000 180 165 2,500 150 Hematite reserves mt Tonnes shipped mt 2,000 827 791 120 716 903 592 1,500 90 1,000 60 1,540 1,547 1,495 1,517 1,470 1,609 500 30 - 0 2010 2011 2012 2013 2014 2015 Chichester Hub Solomon Hub Tonnes
Slide 32: Market
Market
Slide 33: Core supplier to Asia
Core supplier to Asia Well established 17% market share of imported iron ore to China • Low impurity 58% Fe average • High value in use • Large diverse customer base • Reliable consistent delivery • Proximity to high growth region 33
Slide 34: China's long term growth remains strong
China’s long term growth remains strong 300 million people expected to be urbanised by 2030 • Steel stock-in-use 1/3 USA • Steel demand above 800mtpa • Competitive and rising steel exports: - One Belt One Road over billion tonnes • Short term growth stabilising • Real estate market recovery 34
Slide 35: Steel consumption to build economy
Steel consumption to build economy Above 800mtpa – driven by policy decisions Source: Wood Mackenzie 35
Slide 36: Chinese cities in 2030
Chinese cities in 2030 300 million people still to urbanise – 16 million per year 70% of the population (1bn) will be living in cities Source: Wood Mackenzie 36
Slide 37: Iron ore supply in balance…sentiment driving price
Iron ore supply in balance…sentiment driving price Port stocks remaining stable Days Coverage US$ 50 $210 IO Inventory days coverage (days) $190 62% Fe CFR (RHS) 40 $170 $150 30 $130 $110 20 $90 $70 10 $50 0 $30 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Jan-11 Jan-
Slide 38: Futures trading – Dalian Commodities Exchange
Futures trading – Dalian Commodities Exchange Setting price below supply-demand balance 2,000,000 $18.00 MAY 14 IOEK14 Comdty 1,800,000 $16.00 SEP 14 IOEU14 Comdty 1,600,000 $14.00 JAN 15 IOEF15 Comdty 1,400,000 $12.00 1,200,000 MAY 15 IOEK5 Comdty $10.00 US$bn 1,000,000 $8.00 SEP 15 IOEU5 Comdty 80
Slide 39: Price realisation
US$/dmt $0 $20 $40 $60 $80 $100 29/07/2014 29/08/2014 29/09/2014 29/10/2014 Platts 62 CFR 29/11/2014 Price realisation 29/12/2014 29/01/2015 28/02/2015 31/03/2015 30/04/2015 MBIO58 [P] CFR 31/05/2015 30/06/2015 Consistently realising at 85-90% of 62 Platts index 31/07/2015 31/08/2015 30/09/2015 31/1
Slide 40: Reserves and resources
Reserves and resources
Slide 41: Resource portfolio supports asset base
Resource portfolio supports asset base Largest Pilbara tenement footprint 12,000 2,463 2,463 Mineral Resources dry in situ (Mt) 10,000 2,463 740 740 8,000 2,013 624 1,032 624 624 6,000 4,877 4,793 3,504 3,070 3,070 2,860 4,000 2,224 1,715 695 303 491 695 695 5,504 695 695 695 5,205 4,676 2,000 3,237
Slide 42: Supporting our local community
Supporting our local community
Slide 43: Ending Aboriginal disparity in the Pilbara
Ending Aboriginal disparity in the Pilbara Creating opportunities through training, employment and business opportunity 43
Slide 44: Focused strategy
ANS coresse Focused strategy
Slide 45: Moving down the global cost curve
Moving down the global cost curve China's Iron Ore Supply CFR Costs (including royalties & ocean freight)
Slide 46: Strategic delivery
Strategic delivery Culture, continuous improvement, speed and flexibility maximise asset base Consistent 165mtpa Lowering costs to US$13/wmt Maximising cash flows Debt repayment Expect further improvements 46
Slide 47: The new force in iron ore
The new force in iron ore Continuous improvement, reliable and efficient delivery Sustainable low cost World class producer assets & people 165mt Unique culture drives performance Production rate 47
Slide 48: www.fmgl.com.au
www.fmgl.com.au @FortescueNews Proudly supporting:
Slide 49: Glossary
Glossary C1: Operating costs of mining, processing, rail and port. The reconciliation of C1 to the amounts disclosed in the financial statements prepared under the Australian accounting standards is provided in the Financial Report for the half year ended 31 December 2015 accompanying this announcem
Fortescue Metals Group — Investor Presentation (March 2016) on 6ix