Slide 1: FY19 Half Year Results
FY19 Half Year Results February 2019 Together we are Fortescue
Slide 2: Forward looking statements
Forward looking statements Disclaimer Important Notice Additional Information The purpose of this presentation is to provide general information about Fortescue This presentation should be read in conjunction with the Annual Report at Metals Group Limited ("Fortescue"). It is not recommended that an
Slide 3: Integrated mining and infrastructure operations
Integrated mining and infrastructure operations Focus on safety, production and cost 3
Slide 4: Safety and unique culture
Safety and unique culture Looking out TRIFR 4.0 for our mates (12MMA) Targeted safety improvement TRIFR 3.5 initiatives (YTD) 4
Slide 5: A world class company
A world class company >1.1 billion ~170mtpa tonnes shipped Production rate Core supplier Low cost to China producer 5
Slide 6: HY19 highlights
HY19 highlights US$1.6bn A$0.30/share NPAT Underlying US$644m dividends EBITDA US$13.11/wmt West Pilbara 82.7mt Fines shipped C1 cost Shipments commenced 6
Slide 7: Increasing shareholder returns
Increasing shareholder returns A$0.19/share A$0.11/share Fully franked Fully franked Interim dividend Special dividend 65% pay-out ratio A$139m 50-80% of full Share buy-back year NPAT Average price of Dividend pay-out policy A$3.997/share 7
Slide 8: Creating shared value
Creating shared value Ensuring communities benefit from our growth and development Setting high Creating Safeguarding standards positive social the environment change 8
Slide 9: Setting high standards
Setting high standards Championing safety, preserving Aboriginal heritage, embracing diversity, demonstrating integrity 18% Female employment 24% Female senior managers Over A$3bn in Corporate Tax and A$4.8bn Royalties paid Over 5,000 Aboriginal heritage places managed 9
Slide 10: Creating positive social change
Creating positive social change Building local communities, empowering Aboriginal people and eradicating modern slavery 13% Aboriginal employment across Australian workforce Over A$2.2bn contracts with Aboriginal businesses 824 Aboriginal team members trained and employed via VTEC Support of Modern
Slide 11: Safeguarding the environment
Safeguarding the environment Protecting biodiversity, managing water resources, reducing greenhouse gas emissions and waste 91.7 million kL of water directly reinjected into aquifers 88% recycled waste GHG emissions intensity reduced by 13.5% since FY15 Expanded climate related financial disclosure
Slide 12: Financials
w Fortescue “he New Ferein Fon Ore
Slide 13: HY19 financial results
HY19 financial results US$644m US$962m US$1.1bn Cash on hand Cash from NPAT operations US$0.21 US$1.6bn A$0.30/share Earnings per Underlying Dividends share EBITDA declared 13
Slide 14: HY19 highlights
HY19 highlights Delivering strong results Underlying EBITDA NPAT Revenue US$m US$m US$m 5,000 2,500 5,000 4,000 4,000 2,000 3,000 3,000 1,500 2,000 2,000 1,000 1,000 1,000 500 0 0 0 1H17 2H17 1H18 2H18 1H19 1H17 2H17 1H18 2H18 1H19 1H17 2H17 1H18 2H18 1H19 14
Slide 15: Price and margins
Price and margins Cost leadership and efficient operations generating cash margins US$/dmt Underlying EBITDA per dmt 62 Platts CFR Index 90 Fortescue realised price Avg Underlying EBITDA per dmt 80 70 60 50 40 30 20 10 20 15 17 24 33 27 24 17 21 - 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19 15
Slide 16: Sustainable cost improvements
Sustainable cost improvements C1 US$/wmt 48 44 Structural improvements Solomon + blending + processing 34 27 Productivity and efficiency Utilisation, recoveries, maintenance 15 13 12 13 Innovation and technology Autonomy, conveyor, ore carriers, data analysis FY12 FY13 FY14 FY15 FY16 FY17 FY18 1H19
Slide 17: Underlying EBITDA
Underlying EBITDA Strong margins maintained at an average realised ore price of $47/dmt Underlying EBITDA Margin US$m 2,000 50% 482 26 19 55 46% 10 1,633 42% 1,500 1,354 46 41 44 1,000 500 - 2HY18 Volume C1 costs Shipping Realised Royalties Foreign Other Other 1HY19 1H18 2H18 1H19 costs price exchan
Slide 18: Dividends
Dividends Interim dividend A$0.19/share (65% of 1H19 NPAT) and special dividend A$0.11/share Earnings per share Interim dividends A$cents / share US cents 60 40 55 30 11 40 39 20 20 19 20 22 21 10 11 10 11 10 0 0 3 3 HY14 HY15 HY16 HY17 HY18 HY19 1HY14 1HY15 1HY16 1HY17 1HY18 1HY19 18 Dividend Speci
Slide 19: Share buy-back
Share buy-back A$500m on market program continues through to October 2019 Values of shares acquired (A$) • A$139m of shares acquired since 139 launch of program • Shares acquired at an average price of A$3.997/share • All shares acquired have been cancelled 361 Balance of program (A$) 19
Slide 20: Debt repayments
Debt repayments Flexible structure with target gearing achieved US$m % Debt Net debt Gross gearing (RHS) Net gearing (RHS) 16,000 80 12,000 12,691 60 10,533 9,557 9,569 8,000 40 7,159 7,188 6,771 4,000 5,188 20 4,471 3,975 3,998 3,112 3,036 2,633 0 0 FY13 FY14 FY15 FY16 FY17 FY18 1H19 20
Slide 21: Debt profile
Debt profile Flexible structure, lower annual interest costs with investment grade terms supports ongoing operations and future growth US$m Syndicated Term Loan Senior Unsecured Notes 2,000 1,500 1,400 1,000 750 750 500 500 0 CY2019 CY2020 CY2021 CY2022 CY2023 CY2024 21
Slide 22: FY19 capital expenditure
FY19 capital expenditure Disciplined capital allocation, investing in the core iron ore business, innovation and growth Sustaining capital 308 272 HY19 capital spend on track Sustaining capital ~$3.50/wmt Development 66 34 Investing in innovation Ore carrier and towage 64 16 Exploration and growth E
Slide 23: Cash flow
Cash flow Continuing to generate strong cash flows from operations Net cash from operations, US$m Capital expenditure, US$m Free cash flows, US$m 948 530 418 411 413 -2 HY18 HY19 HY18 HY19 HY18 HY19 23
Slide 24: Capital allocation
Capital allocation Disciplined allocation to capital investment and shareholder returns FY16 – US$3.1bn FY17 – US$4.0bn FY18 – US$2.2bn HY19 – US$0.9bn Capital expenditure Net debt repayments Dividends Share buy back 24
Slide 25: Credit metrics
Credit metrics Key metrics reflecting investment grade and financial strength Gross gearing (%) Net gearing (%) 56% 56% 49% 49% 45% 38% 31% 29% 29% 21% 24% 23% FY14 FY15 FY16 FY17 FY18 1H19 FY14 FY15 FY16 FY17 FY18 1H19 Gross debt to underlying EBITDA (x) Net debt to underlying EBITDA (x) 3.8x 2.9x
Slide 26: Market
Market 26
Slide 27: Integrated operations and marketing
Integrated operations and marketing Market Marketing and drivers product strategy alignment Operational Margin delivery optimisation 27
Slide 28: Strong demand for Fortescue products in China and other regions
Strong demand for Fortescue products in China and other regions China steel production increased 12% in 2018 to 928mt • Proximity to high growth region • Responsive to market needs • Diverse customer base • Half year sales outside China 10 per cent • Maiden shipments to new Indonesian and German cus
Slide 29: Chinese steel mill profits moderating
Chinese steel mill profits moderating 250 90 225 85 China steel 200 Steel Product Margin (US$/t) 80 margins moderating 175 % of profitable mills 74 75 150 Focus moved to 125 70 100 88 input costs 65 75 60 Increasing demand 50 55 25 42 for lower Fe products 0 50 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov
Slide 30: Iron ore price
Iron ore price Variation driven by steel mill profitability with price spreads narrowing due to lower steel margins 160% 140% % Mysteel 62 Port Index 120% 100% 80% 60% 40% Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 30 FBF - Mysteel SSF - Mysteel Mystee
Slide 31: West Pilbara Fines
West Pilbara Fines Typical grade WPF Platts First shipments in Dec 2018 IODEX 62 Iron content (Fe) 60.1 62.0 8-10mt in FY19 Alumina (Al2O3) 2.3 2.25 Growing to ~40mtpa for 20+ years Silica (SiO2) 4.7 4.0 on completion of Eliwana Phosphorous (P) 0.075 0.09 Offtake agreements with customers 31
Slide 32: Optimise product mix
Optimise product mix 1H19 average realised price Product mix optimisation delivers real value: increased 18% v 2H18: Tonnes shipped millions Product Product 1H19 FY18 (wmt) mix % mix % • Introduction of West Pilbara Fines Fortescue Blend 39.2 48% 75.0 44% • Increased Fortescue Blend shipments Kings
Slide 33: Operations and Innovation
Operations and Innovation 33
Slide 34: Innovation drives productivity and efficiency
Innovation drives productivity and efficiency Focus on people and process Data analytics Generate value from assets Maximising margins 34
Slide 35: Automated mining
Automated mining Delivering productivity and efficiency improvements AHS AHS Relocatable operation conversion conveyor 24.7million km safely 47 Trucks converted at Operating at full capacity travelled Christmas Creek Autonomous Remote Data analytics drills integrated Driving productivity operations
Slide 36: Eliwana mine and rail project
Eliwana mine and rail project US$1.275bn capital investment Underpins West Pilbara 143km rail Fines 30mtpa dry OPF First ore on train Dec 2020 36
Slide 37: Eliwana Development progress
Eliwana Development progress Majority of major equipment tendered and in line with budget On target for delivery on time Detailed design well progressed and budget using in-house integrated team 200 person fly camp mobilised Construction tenders early 2019 37
Slide 38: West Pilbara Fines – Pre Eliwana
West Pilbara Fines – Pre Eliwana Maximising value from high Fe areas 38
Slide 39: Fortescue ore carriers
Fortescue ore carriers Eight ore carriers now operational Designed to Completed 114 voyages optimise efficient port infrastructure 29mt of iron ore to China to date 14% annual volume 39
Slide 40: Tugs
Tugs Secured the second towage Long-term licence at Port Hedland in 2016 sustainable Operational readiness phase with towage services go live mid 2019 Eight tugs including six Advanced Rotor Tugs 85-32W Innovative, nine berth tug haven 40
Slide 41: Tailings storage facilities (TSFs)
Tailings storage facilities (TSFs) Fortescue has no TSFs constructed using the sequential upstream raise method 3 active TSFs Designed and 6 inactive TSFs • 1 in-pit operated in • 3 in-pit • 2 above ground compliance with • 3 above ground retained by waste rock DMIRS and ANCOLD* retained by waste ro
Slide 42: Growth and Development
Growth and Development 42
Slide 43: Significant Pilbara footprint for long life production
Significant Pilbara footprint for long life production 43
Slide 44: Strategic mine plan to 2050
Strategic mine plan to 2050 West Pilbara Fines at Flexible Exploration 40mtpa product mix Western Hub Nydinghu Stage 2 Long mine potential lives prospects 44
Slide 45: Iron Bridge
Iron Bridge Active assessment with JV partners +67% Fe magnetite concentrate product Process test work positive Project scale to optimise value Non-recourse financing options 45
Slide 46: Exploration in Australia
Exploration in Australia Iron ore Largest tenement Lithium holding in the Pilbara Copper South NSW Australia ~2,000km2 tenure ~10,000km2 tenure 46
Slide 47: Opportunities in Latin America
Opportunities in Latin America Exploration is key to low cost growth opportunities Ecuador Drilling at Santa 32 concessions Ana, Ecuador Potential for porphyry concessions to copper commence 2019 Argentina Colombia 48 tenements 64 applications for exploration concessions. in San Juan prospective Pro
Slide 48: Energy strategy
Energy strategy Renewable energy Gas opportunities options including leveraging the solar Fortescue River Gas Pipeline Innovation and Collaboration with automation industry, reducing mobile community and fleet requirements business 48
Slide 49: Landmark partnership with CSIRO
Landmark partnership with CSIRO Develop and commercialise hydrogen technology Metal membrane technology has potential for bulk hydrogen transportation Potential for export market opportunities Potential fuel source for 49 operational requirements
Slide 50: FY19 Guidance
FY19 Guidance 165-173mt US$12-13/wmt Shipments C1 cost Including 8-10mt WPF towards top end of range US$1.2bn Dividend policy 50-80% Capital spend pay-out of NPAT 50
Slide 51: Key strategic focus
Key strategic focus Balance sheet Long term strength sustainability Growth and Returns to development shareholders options 51
Slide 52: Fortescue's values
Fortescue’s values Our Vision: The safest, lowest cost, most profitable mining company 52
Slide 53: Fortescue www.fmgl.com.au
4: Fortescue www.fmgl.com.au The New Force in Iron Ore W FortescueNews
Slide 54: Glossary
Glossary C1 - Operating costs of mining, processing, rail and port on a per tonne basis, Underlying EBITDA - Earnings before interest, tax, depreciation and amortisation, including allocation of direct administration charges and production overheads. exploration, development and other expenses. CFR