Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — Investor Day (October 2015)
68 slides from Fortescue's investor day presentation, Oct 27, 2015
Slide 1: Investor Briefing
For personal use only Investor Briefing 27 October 2015
Slide 2: Forward Looking Statements Disclaimer
Forward Looking Statements For personal use only Disclaimer 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 Financial Fortescue Metals Group Limited ("Fortescue"). It is n
Slide 3: Building a world class company
Building a world class company Core supplier to China’s growth For personal use only 3
Slide 4: Building a world class company
Building a world class company Core supplier to China’s growth For personal use only Founded First ore Low cost in 2003 in 2008 producer Shipped over 165mt 580mt Production rate Unique culture 4
Slide 5: The safest, lowest cost, most profitable iron ore producer
at O J R V/ I S I @ The safest, lowest cost, Fortescue most profitable iron ore producer Our Values | Safety Family oxAVIOy, . ty Frugality Empowerment A x ¢ 3 an 9 . oo Integrity Dy) Fortescue © Enthusiasm Generating ideas Determination Set yourself stretch targets
Slide 6: Safety is at the heart of Fortescue's values
Safety is at the heart of Fortescue’s values My brothers’ / sisters’ keeper For personal use only • Safety Priorities 1 Look after yourself 2 Look after your mates • Engagement active participation • Empowerment to make decisions • Encouragement to speak up • Leadership strong and visible 6
Slide 7: Key themes
Key themes For personal use only Product Sustainable Expansions performance complete Mine Life Costs Established Cashflow Continuous product suite supports improvement balance sheet focus 7
Slide 8: Delivery of sustainable cost improvements
Delivery of sustainable cost improvements For personal use only Through development of assets, efficiencies, productivity and costs saving C1 US$/wmt 1 Solomon operations 60 50 48 2 Blending strategy 58% Fe 44 40 34 3 Processing, wet plants + de-sands 30 27 18 4 Operational efficiencies 20 Exit FY16
Slide 9: Financials
Financials For personal use only Stephen Pearce, CFO
Slide 10: Financial keys
Financial keys For personal use only Operational performance supporting financial results Cost Controlling the controllable Capital spend improvement costs + $2/wmt $15/wmt production sustainable Generating Shipping and operating procurement US$384m Debt repurchased cashflows initiatives 10
Slide 11: Path to US$15/wmt in Q4 FY16
Path to US$15/wmt in Q4 FY16 For personal use only Continued realisation from efficiency and productivity improvements Savings Savings initiatives (US$/wmt) 18 • Improved upgrades and yield OPF • Shutdown optimisation 0.90 16 • Enhanced plant reliability 4 14 2 • Maximising equipment productivity 12
Slide 12: Breakeven index price
Breakeven index price For personal use only Continuing to reduce breakeven price US$ 50 USD:AUD 0.72 5 39 40 3 2 31 30 4 2 0.5 25 36 5 20 18 10 15 - C1 Shipping Royalty Admin Delivered Interest Sustaining Total wmt Moisture Price Breakeven cost to capex cost adjustments price China FY16 cost and bre
Slide 13: Balance sheet
For personal use only Balance sheet
Slide 14: Capital expenditure
Capital expenditure For personal use only Sustainable capex at US$2/wmt post expansion • FY16 guidance US$2/wmt Capital profile or US$330m US$bn mt shipped 7.5 175 • Expansions complete 6.0 140 • Long life installed asset 4.5 105 3.0 70 • Significant mine lives 1.5 35 • D+A ~US$7.50/wmt 0.0 FY10 FY1
Slide 15: Available cash balances
Available cash balances For personal use only Operating cashflows supporting continuing debt repayments • US$2.6bn cash FY15 op cashflow • Operating cashflows strong Q1 FY 16 op cashflow • Repayment options being considered Available cash Cash available for debt repayments • Target 40% gearing (Debt
Slide 16: Debt maturity profile
Debt maturity profile For personal use only On market buybacks US$384m principal value 5,000 4,500 4,851 4,000 3,500 3,000 US$m 2,500 2,000 1,500 1,000 2,160 500 Extended Runway 889 917 0 CY2015 CY2016 0 CY2017 CY2018 CY2019 CY2020 CY2021 CY2022 Senior Secured Credit Facility Senior Unsecured Notes
Slide 17: Shipping, IT and Procurement
For personal use only Shipping, IT and Procurement
Slide 18: Shipping: Vessel Mix
Shipping For personal use only Vessel Mix FY16 YTD TARGET 25% 46% 54% 75% <200k DWT >200k DWT <200k DWT >200k DWT • Vessels increase load efficiency, large deadweight (DWT) capacity and shallow draft • FY16 54% of volume >200k DWT and 45% in FY15 • Moving towards target of 75% >200k DWT • Limited su
Slide 19: Shipping: VLOC Operational Benefits
Shipping For personal use only VLOC Operational Benefits • Maximise tidal capacity • VLOC’s designed for Port Hedland efficiency • Delivery from Nov 2016 to Mar 2018 • 1st steel cutting September 2015, ahead of schedule • Funding options being considered
Slide 20: Procurement and IT
Procurement and IT For personal use only Capturing cost deflation and process improvements • Sourcing, negotiation and tender processes • Aggregation of materials and equipment demand • Supplier consolidating across operations • Productivity improvements key partners • Leverage inventory optimisatio
Slide 21: Operations
Operations For personal use only Nick Cernotta, Director Operations
Slide 22: We have three key assets to work with
We have three key assets to work with For personal use only Infrastructure Ore body 1 2 3 People and equipment / resource 22
Slide 23: Safety excellence
Safety excellence For personal use only The focus • Leadership creating a Safe Culture – Employees – Contractors • Major Hazards – identify and control exposures • Continuous improvement – Learning from incidents 23
Slide 24: Solomon Snapshot
Solomon For personal use only Snapshot 2 x OPF’s 70mtpa 26mtpa Firetail – dry plant 44mtpa Kings – wet plant Firetail Bedded/detrital product with high Fe and phos blended with low phos from Chichesters Kings Kings CID Fines, a low alumina channel iron product; and Western Fines, a bedded/detrital p
Slide 25: Christmas Creek Snapshot
Christmas Creek For personal use only Snapshot Average annual production; 55mtpa 2 x Ore Processing Facilities Approximate total workforce; 2,400 650 Fortescue, 1750 contractors 2011 Mine was established 153mtpa Total material movement 25
Slide 26: Cloudbreak Snapshot
Cloudbreak For personal use only Snapshot 36mtpa Annual production Approximate total workforce; 1,644 1320 Fortescue, 324 contractors Wet front end added to reduce 2012 feed grade 100mtpa Total material movement 26
Slide 27: Rail Snapshot
Rail For personal use only Snapshot Worlds heaviest haul 620km track Approximate total workforce; 460 460 people 380 Fortescue, 80 contractors 35kt/train 3 loco, 250 ore cars trains Longer 3kms with average cycle time 22hrs Faster 80km/hr speeds Heavier 42t axle loads 27
Slide 28: Herb Elliot Port
Herb Elliot Port For personal use only Part of the worlds largest bulk port by annual throughput Australia’s most efficient bulk Port Approximate total workforce 335 263 Fortescue, 72 contractors 3 train loops, 3 TUL’s 36,000tph and 3 stackers unload at a combined rate 3 reclaimers, 3 shiploaders 36
Slide 29: Integrated Ore body / Resource Planning
For personal use only Integrated Ore body / Planning Resource
Slide 30: Different types of iron mineralisation: Secondary deposits
Different types of iron mineralisation For personal use only Secondary deposits Chichester Example Section BID (Bedded Iron Deposit) • Supergene – BIF enriched by surface processes e.g. Chichesters and Firetail • Hypogene – BIF enriched by hydrothermal processes e.g. Hook Pit 30
Slide 31: Different types of iron mineralisation: Tertiary deposits
Different types of iron mineralisation For personal use only Tertiary deposits Solomon Example Section Recent alluvium (gravels and silts) Marginal CID (clay dominant material) Detrital Iron Formation (iron rich alluvium) Basal CID (clay and conglomerates) Oakover Formation (calcrete and silcrete) L
Slide 32: Product strategy
Product strategy For personal use only Strategy maximises value from asset base • Beneficiation of ore Solving to maximise Product • Lower cut-off grades • Fortescue Blend Mine Life Costs • Product consistency 32
Slide 33: Blending + wet processing
Blending + wet processing For personal use only Blending with Firetail + wet processing, product grade 57.5% Strip ratio reduced from 5.4 to 2.3 New pit limit + + = Production inventory at cut off grade of 54% 33
Slide 34: Maximising flat tonnes / grade
Maximising flat tonnes / grade For personal use only 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 34
Slide 35: Wet process beneficiation
Wet process beneficiation For personal use only Extracting more Fe and removing Si & Al to improve cut off grades 35
Slide 36: Chichester plant upgrades
Chichester plant upgrades For personal use only Cloudbreak upgrades Christmas Creek upgrades Oct-14 Sep-15 Oct-14 Sep-15 Fe Upgrades 101.7% 102.3% Fe Upgrades 102.1% 102.9% Si Upgrade 86.1% 84.9% Si Upgrade 85.6% 81.6% Al Upgrade 84.5% 80.4% Al Upgrade 80.7% 77.8% Wet Yield 84.7% 83.6% Wet Yield 83.
Slide 37: Mine planning overview
Mine planning overview For personal use only Data Pilbara Resource Hydrogeological Capture Geology Definition Model Ore Body Statutory Reporting Models Resource & Reserves Strategic Product Mining Cut-off Grade and Planning Selection Methodology Shell Selection LOM Inventory Operations LOM Five and
Slide 38: Strip ratios
Strip ratios For personal use only Strategy and people delivering sustained reductions in strip ratios Maintained mine life Revised strip ratio Years 1-5 Life of mine C1 Strip Chichester Hub 1.6 2.3 Costs ratios Solomon Hub 2.0 1.7 Expect improvements to continue 38
Slide 39: Solomon Autonomous Haulage Operations
Solomon For personal use only Autonomous Haulage Operations (AHS) 109mt Material hauled to date 41 trucks Valley of Kings Mine Full Solomon Deployment 70 trucks Valley of Kings Operation Firetail Operation Safety and Collision avoidance Productivity 39
Slide 40: Fleet productivity
Fleet productivity For personal use only AHS now delivering clear productivity benefits Truck Productivity: • AHS productivity Kings AHS vs Manned Trucks increased 38% since May 2015 (Mar 15 – Sep 15) (Index, Manned Fleet Mar 15 = 100) 130 • Productivity of manned fleet 120 has improved 13% 110 100
Slide 41: Journey to US$15/wmt and beyond
STRICTLY PRIVATE & CONFIDENTIAL Journey to US$15/wmt and beyond For personal use only Next wave of savings initiatives to deliver lower costs OPF Procurement • Upgrades and yield • Market deflation • Shutdown optimisation • Consolidation • Plant reliability • Re-negotiation Mining New initiatives •
Slide 42: Market
For personal use only Market Nev Power, CEO
Slide 43: Core supplier to Asia
Core supplier to Asia For personal use only Well established 18% 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 43
Slide 44: China's long term growth remains strong
China’s long term growth remains strong For personal use only 300 million people to urbanise 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
Slide 45: Steel consumption to build economy
Steel consumption to build economy Above 800mtpa – driven by policy decisions For personal use only Source: Wood Mackenzie 45
Slide 46: Iron ore supply in balance…sentiment driving price
Iron ore supply in balance…sentiment driving price For personal use only Port stocks continuing to decline, currently at 83mt 50 $220 IO Inventory days coverage (days) $200 62% Fe CFR (RHS) 40 $180 $160 Days Coverage 30 $140 $120 20 $100 $80 10 $60 0 $40 Jul-10 Sep-10 Nov-10 Jul-11 Sep-11 Nov-11 Jul
Slide 47: Futures trading – Dalian Commodities Exchange
Futures trading – Dalian Commodities Exchange For personal use only Setting price below supply-demand balance 1,800,000 $18 MAY 14 IOEK14 Comdty 1,600,000 $16 SEP 14 IOEU14 Comdty Open Contracts (1 = 100mt) 1,400,000 $14 JAN 15 IOEF5 Comdty 1,200,000 $12 MAY 15 IOEK5 Comdty $10 US$bn 1,000,000 SEP 1
Slide 48: Moving down the global cost curve
Moving down the global cost curve For personal use only China's Iron Ore Supply CFR Costs (including royalties & ocean freight) Source: Metalytics
Slide 49: Price realisation and demand
Price realisation and demand For personal use only Market (Antony) David Liu, Director Sales and Marketing
Slide 50: Iron ore market remains tight
Iron ore market remains tight China’s iron ore imports strong despite poor steel market For personal use only • China domestic and Non major supply is the at risk tonnage With major suppliers being the winner higher cost seaborne ore exiting • Majors increasing market share • Higher cost seaborne su
Slide 51: Biggest increase in supply has already hit the market
Biggest increase in supply has already hit the market Increased competition in the “contestable” seaborne market For personal use only • Largest net increases in Major seaborne supply (WMT) supply (Q2 2014 and Q3 2015) • Incremental increase in 2016 50Mt • Vale’s SD11 planned late 2016 is the major
Slide 52: Price adjustments improving
For personal use only Source: Metalytics 100% 83% 88% 90% 93% 95% 98% 80% 85% 2/01/2014 2/02/2014 2/03/2014 2/04/2014 MBIO 58+P 2/05/2014 2/06/2014 2/07/2014 2/08/2014 2/09/2014 Platts 58 2/10/2014 Price adjustments improving 2/11/2014 2/12/2014 20 day moving ave dmtu adjustment to Platts 62% 2/01/2
Slide 53: Driving higher price realisation
Driving higher price realisation For personal use only Realised 91% in FY16 Q1 v 89% in FY15 Q4 $100 100% • Improved dmtu adjustments $90 95% $80 $70 • Pricing at average monthly QP 90% $60 $50 85% • Mills more focussed on margin $40 80% $30 $20 75% • Less driven by production $10 volumes $0 70% 29/
Slide 54: Value In Use drives price realization and cash flow
Value In Use drives price realization and cash flow For personal use only What is VIU ? • “Ores ain’t Ores” • Ore characteristics influence productivity • Estimates the value of an ore to the mill • Critical to FMG as it drives price realisation and cash flow • Oversupplied steel market drives focus
Slide 55: Key points
Key points For personal use only • Strong market demand for FMG ore • Price realisations improved • Steel market fundamentals need to improve • Iron ore market in balance and demand holding 55
Slide 56: Development and Resources
Development and Resources For personal use only Simon Carter
Slide 57: Exploration
Exploration For personal use only • Highly skilled successful exploration team • Additional 750mt new and infill deposits over the last year • Low cost exploration led copper opportunity in NSW • Continuing to underpin the future on Fortescue through long term resource discovery 57
Slide 58: Resource portfolio supports asset base
Resource portfolio supports asset base For personal use only 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
Slide 59: Iron Bridge: Overview of project
Iron Bridge For personal use only Overview of project • Joint venture between Fortescue, Formosa and Baosteel • Excellent location ~ 100km south of Port Hedland • Largest Iron Ore Resource in Australia • Proven development team • Lowest capital intensity magnetite project in Australia 59
Slide 60: Iron Bridge - Stage highlights
Iron Bridge - Stage 1 highlights For personal use only Proven development approach • Safe build at a TRIFR injury rate of 3.25 per million man hours • Stretch targets achieved – breaking ground to first ore <14 months • Stage 1 on budget and on schedule • Process validation progressing • Major equip
Slide 61: Iron Bridge - Stage highlights
Iron Bridge - Stage 2 highlights For personal use only FID decision is scheduled for H1 2016 • Well developed mine plan supports a >67% Fe low impurity product • Lowest quartile magnetite global operating cost • Low energy process technology • Secure Port access 61
Slide 62: Supporting our local community
Supporting our local community For personal use only Nev Power, CEO
Slide 63: Ending Aboriginal disparity in the Pilbara
Ending Aboriginal disparity in the Pilbara For personal use only Creating opportunities through training, employment and business opportunity 63
Slide 64: Focused strategy
For personal use only Focused strategy
Slide 65: Moving down the global cost curve
Moving down the global cost curve For personal use only China's 2015 Iron Ore Supply CFR Costs (including royalties & ocean freight) 150 China Domestic Concentrate Australia Brazil India South Africa Other 100 US$/dry tonne 50 Other Australia DSO Fortescue Rio Tinto Vale Pilbara BHPB 0 0 100 200 300
Slide 66: The new force in iron ore
The new force in iron ore For personal use only Unique culture drives performance Sustainable low cost World class producer assets + people Reliable 165mt Efficient Production rate Delivery 66
Slide 67: For personal use only
For personal use only www.fmgl.com.au @FortescueNews Proudly supporting:
Slide 68: Glossary
Glossary For personal use only 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 full year ended 30 June 2015 accompany