Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — H1 FY2015 Earnings Presentation
40 slides from Fortescue's earnings presentation, Feb 17, 2015
Slide 1: Corporate Presentation
Corporate Presentation For personal use only February 2015
Slide 2: Disclaimer
Disclaimer Important Notice For personal use only 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: Building a world class company
Building a world class company Reliable and competitive supplier to Asia For personal use only • First ore 2008 • Over 455mt shipped to Dec • 165mt production rate • Low cost producer • Unique culture 3
Slide 4: For personal use only
For personal use only
Slide 5: The safest, lowest cost, most profitable iron ore producer
at O UJ R \/ I S I 0 The safest, lowest cost, Fortescue most profitable iron ore producer Our Values 4 Safety Family osAVlOy, : ty Frugality Empowerment , os ¢ 3 ane ~ Integrity Dy) Fortescue © Enthusiasm Generating ideas Determination Set yourself stretch targets
Slide 6: Safety is at the heart of Fortescue's family values
Safety is at the heart of Fortescue’s family 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 7
Slide 7: Operating performance – 1HY15
Operating performance – 1HY15 Cost and efficiency focus For personal use only 82.7mt 1H Costs $30/t Steady state 9% improvement 165 mtpa Annualised run rate Consistent Q on Q C1 $27/t in Dec Sweating the assets US$1.6bn C1 $25-26/t cash on hand 2HY15 Guidance 8
Slide 8: Costs reduction journey
Costs reduction journey Focus on efficiencies and costs improvements 90 For personal use only 8 9 6 9 7 60 18 5 6 6 4 18 20 2 All in cost per wmt, inc 16 4 2 interest + sustaining capex 13 30 Delivered cost 10 50 39 C1 – mining, processing rail 33 34 30 and port 25 - 1HY13 2HY13 1HY14 2HY14 1HY15 Ou
Slide 9: Financials
For personal use only Financials
Slide 10: Earnings
Earnings Operational performance supports strong financial results For personal use only Revenue and price realisation Underlying EBITDA1, US$ millions 8.0 140 Price realisation, US$/dmt Operating revenue, US$bn 3,220 6.0 105 2,441 2,416 4.0 70 1,440 1,134 2.0 35 - - 1HY13 2HY13 1HY14 2HY14 1HY15 1H
Slide 11: Underlying EBITDA
Underlying EBITDA Production and cost management remain key focus 7,000 For personal use only 6,000 414 4,322 2,019 5,000 4,000 3,220 3,000 2,000 88 21 1,440 1,000 - 1HY14 Volume Cost Price Royalty Other 1HY15 • Increased shipments - record production 53% • Continued focus on production costs C1 US$
Slide 12: Delivered cost
Delivered cost C1 guidance lowered to US$25-26/wmt in 2HY15 For personal use only 80 60 18 18 20 16 40 13 10 50 20 39 33 34 30 25 - 1HY13 2HY13 1HY14 2HY14 1HY15 Outlook C1 costs Other operating costs • Total delivered cost US$43/wmt (US$47/dmt) in 1HY15 • Total delivered costs guidance US$35/wmt (U
Slide 13: Production costs
Production costs 42% reduction generating ~ US$3.1bn lower costs For personal use only CB and CC1 operations $48 Driving down the global cost curve FY12 58mt production @ SR 4.3 with 2 OPF’s + 3 Berths CC2, Hamersley line, Firetail, CB WFE FY13 $44 81mt production @ SR 3.9 from 4 OPF’s + 3 Berths AP
Slide 14: Capital expenditure
Capital expenditure Significant reduction in expenditure as expansion complete For personal use only Capital profile FY15 Capital US$bn mt shipped 7.5 175 Exploration 40 6.0 140 250 Operational capital 4.5 105 3.0 70 360 Development and optimisation 1.5 35 projects 0.0 0 FY10 FY11 FY12 FY13 FY14 FY1
Slide 15: US$3.7bn re-paid since November 2013
US$3.7bn re-paid since November 2013 No debt repayments due until April 2017 For personal use only Current ratings Corporate Term Loan Notes Moody’s Ba1/Stable Baa3 Ba2 S&P BB+/Stable BBB BB Fitch BB+/Stable BBB- BB+ Flexibility with US$5.3bn available for voluntary repayment and US$7.8bn by Nov 201
Slide 16: Capital management
Capital management Focus on debt reduction lowering interest costs For personal use only Debt repayments US$3.7bn Average cost of borrowings • • Gross debt reduced to 6.33% 6.33% US$9.1bn 5.79% 5.35% • Borrowing costs reduced by 5.27% US$330m p.a. • Interim dividends A$0.03 / share fully franked 1HY
Slide 17: Key credit metrics
Key credit metrics Moving towards investment grade metrics For personal use only Debt to Underlying EBITDA Gearing: Debt / (Debt + Equity) 76% 71% 63% 4.8x 56% 54% 3.5x 2.0x 2.3x 1.7x 1HY13 2HY13 1HY14 2HY14 1HY15 1HY13 2HY13 1HY14 2HY14 1HY15 Interest coverage: Underlying EBITDA / Interest Cash and
Slide 18: Cash flow
Cash flow Focus on working capital and cash management For personal use only US$m 6,000 4,000 3,646 2,525 2,602 2,000 905 479 - (577) (436) (2,000) (1,354) (1,815) (4,000) (4,540) (6,000) 1HY13 2HY13 1HY14 2HY14 1HY15 Operating cash flow Capital expenditure 19
Slide 19: Development
For personal use only Development
Slide 20: AP5 and Iron Bridge Projects
AP5 and Iron Bridge Projects Projects remain on schedule for March 2015 For personal use only Iron Bridge 5th Berth 5th Berth 1.5mtpa Stage 1 commissioning in June 15 Q increasing increasing capacity capacity by 15 -20mtpa by 15-20mtpa 21
Slide 21: Fortescue River Gas Pipeline
Fortescue River Gas Pipeline Stage 1 to Solomon Hub, lowering costs and improving efficiencies For personal use only 270km gas pipeline 22
Slide 22: Autonomous Haulage Solution (AHS)
Autonomous Haulage Solution (AHS) Trials commenced FY13 For personal use only • 20 trucks operating at Kings • 10-20% operational efficiencies • 56mt ore hauled to date • Safety benefits 23
Slide 23: Market
For personal use only Market
Slide 24: China's growth remains strong
China’s growth remains strong Long term fundamentals remain positive For personal use only • RMB 10 trillion in projects approved: – 300 projects RMB 7 trillion starting in 2015 – NDRC approved 16 railways, 11 roads and 5 airports in December Quarter • “New Silk Road” project US$1.6 trillion • 300 m
Slide 25: Steel consumption per capita
Steel consumption per capita China has only just reached levels of consumption of a developed country For personal use only 2014 - 2020 Forecast Kg per capita 800 700 600 500 400 300 200 GDP 100 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 China US 26 Source: Macquarie Research
Slide 26: Demand for seaborne supply
Demand for seaborne supply New coastal capacity moving away from domestic iron ore For personal use only Iron Ore Reserves New/proposed steel capacity Seaborne iron ore Seaborne iron ore imports (Ex. Australia, Brazil etc.) 27 Source: ANZ Research
Slide 27: Price Realisation
For personal use only 28 20 40 60 80 0 100 US$/dmt 1/07/2014 8/07/2014 15/07/2014 22/07/2014 29/07/2014 5/08/2014 12/08/2014 19/08/2014 Price Realisation Platts 62 CFR 26/08/2014 2/09/2014 9/09/2014 16/09/2014 23/09/2014 30/09/2014 7/10/2014 14/10/2014 21/10/2014 MBIO58 [P] CFR 28/10/2014 4/11/2014
Slide 28: Reserves and resources
Reserves and resources For personal use only
Slide 29: Resource portfolio supports asset base
Resource portfolio supports asset base Drilling as required and extend through near mine exploration For personal use only 12,000 2,463 Mineral Resources dry in situ (Mt) 10,000 2,463 2,013 740 8,000 624 624 1,032 624 4,877 6,000 3,246 3,504 3,070 2,860 4,000 1,715 2,224 695 695 491 695 695 695 695
Slide 30: Mine lives based on current reserves
Mine lives based on current reserves Fortescue mine lives compare favourably For personal use only Reserve and Resource Tonnages (dry) Ore Reserve Life (Years) 18 25 20 12 15 10 6 5 0 0 FMG BHPBIO RTIO FMG(155/175) BHPBIO (245/290) RTIO (330/360) Reserves M&I Resources Total Resources Current guidan
Slide 31: Hematite reserves
Hematite reserves Reserve base supports extended operations For personal use only • Focused exploration programs Million Tonnes* Fe % Cloudbreak 500 57.6 • Significant reserve lives Christmas Creek 970 57.3 Chichester Total 1,470 57.4 • Maximise low impurity ore bodies Firetail 174 58.7 Significant
Slide 32: Supporting our local community
Supporting our local community For personal use only
Slide 33: Building our economy
Building our economy Unlocking the potential of WA’s North West 15,000 For personal use only employed A$800m* wages p.a. A$2.1bn taxes and royalties FY14 A$490m local Pilbara spend FY14 34 * applies to full time employee wages only
Slide 34: Ending Aboriginal disparity in the Pilbara
Ending Aboriginal disparity in the Pilbara Creating opportunities through training, employment and business opportunity For personal use only 1,200 Aboriginal employees 12% Aboriginal people in Fortescue workforce A$1.7 Contracts to Aboriginal bncompanies and JV’s VTEC Roebourne, Training Centres So
Slide 35: Clear strategy
For personal use only Clear strategy
Slide 36: Moving down the global cost curve
Moving down the global cost curve Targeting bottom quartile For personal use only China Iron Ore Supply CFR Costs – Oct 2014 (including royalties and freight) 200 Domestic Chinese Ore Australia Brazil India 150 South Africa Other US$/dry tonne 100 50 Fortescue 0 0 100 200 300 400 500 600 700 800 900
Slide 37: Port – flexible design for future growth
Port – flexible design for future growth Fifth berth under construction For personal use only AP4 AP5 38
Slide 38: The New Force in Iron Ore
The New Force in Iron Ore For personal use only • Low cost producer 155mtpa++ • Fast capital efficient delivery • World class hardware + software • Unique culture drives performance 39
Slide 39: For personal use only
For personal use only www.fmgl.com.au @FortescueNews Proudly supporting: Proudly supporting:
Slide 40: Glossary
Glossary Definition of non-IFRS terms For personal use only NPAT = net profit after income tax Underlying EBITDA = Earnings before interest, tax, depreciation and amortisation, exploration, development and other expenses. The reconciliation of Underlying EBITDA to the financial metrics disclosed in
Fortescue Metals Group — H1 FY2015 Earnings Presentation on 6ix