GICS - Materials

Fortescue Group Ltd ASX Code: FMG Price: $14.57 12 Mth Target Price: $20.87 Rating: Buy

Business Summary Snapshot Fortescue Metals Group Ltd (FMG) is an iron production and exploration Date 2 October 2021 company with assets located in the region of Western . Market Cap. $44,861m Shares on issue 3,079.0m Chichester Hub: Fortescue's Chichester Hub is located in the Chichester 12 Month High $26.58 12 Month Low Ranges in the Pilbara region of , 263km south of Port $14.15 Hedland and 150km north of Newman. It comprises of and Rating . The total JORC resources stands at 3,[email protected]% Rating Buy Fe which includes a Measured resource of 1,048Mt @ 56.9% Fe, Indicated 12 Mth Target Price $20.87 resource of 1,492Mt @56.0% Fe and Inferred Resource of 619Mt @55.7% Capital Gain 39.5% Fe. The total resource for Cloudbreak mine and Christmas Creek mine Gross Yield 24.2% Implied Total Return stands at 1,090Mt @56.5% Fe and 2,069Mt @ 56.1% Fe. 63.7% Solomon Hub: The Solomon Hub in the Hamersley Ranges is located 60 Investment Fundamentals kilometres (km) north of Tom Price and 120km to the west of Fortescues FYE 30 Jun 2021A 2022F 2023F 2024F Chichester Hub. It comprises the Firetail and Kings Valley mines which Profit $m 13,774.4 9,698.1 7,097.5 6,671.8 together have production capacity of 75mtpa Profit (norm)* $m 13,774.4 9,698.1 7,097.5 6,671.8

Port and Rail: The Company wholly owns and operates its purpose designed EPS* ¢ 446.0 314.0 229.8 216.0 rail and port facilities, constructed to deliver from its mines to Port EPS Growth % 95.4 -29.6 -26.8 -6.0 Hedland and on to its customers. Covering 620km of track, the railway is the P/E* x 3.4 4.8 6.5 6.9 fastest, heavy haul line in the world. The port has five operating berths and is P/E Relative % 0.0 0.0 0.0 0.0 capable of exporting more than 170mtpa DPS ¢ 479.0 333.3 253.4 237.0 Iron Bridge JV: Iron Bridge, located 100km south of Port Hedland, is a joint Yield % 32.0 22.3 16.9 15.8 venture between Fortescue, Taiwans Formosa Group Franking % 100.0 100.0 100.0 100.0 * Adjusted for goodwill and unusual items Latest Research Source: Based on Bell Potter estimates Catching a falling knife Share Price Chart We have run a range of iron ore price scenarios and conclude that the 44% fall in the FMG share price from its closing high $26.30/sh on 29th July to its close yesterday of $14.75/sh looks overdone. Undoubtedly a brutal move that has done serious technical damage to FMG’s share price and sentiment, it should be taken in the context of a business that is making industry leading margins, has an excellent operational track record, costs among the lowest in the industry, is funded for its ongoing capital requirements for replacement and growth and has an exceptionally strong balance sheet. FMG is in a completely different position than in 2015, the last occasion on which we had a major iron ore price correction. While the share price currently looks like a falling knife, we are of the view that it remains a robust and attractive long-term investment and the current market valuation is an opportunity to build exposure. Total Return on $10,000 Investment For more information see research 23 Sept 2021.

Important Disclaimer - This may affect your legal rights: Because this document has been prepared without consideration of any specific client's financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. This is general investment advice only and does not constitute advice to any person. Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended. Fortescue Metals Group Ltd

Profit & Loss ($M) Cash Flow ($M) 2017A 2018A 2019A 2020A 2021A 2017A 2018A 2019A 2020A 2021A Sales Revenue 10,982 9,167 14,206 18,617 29,570 Receipts from Customers 11,399 9,089 12,624 18,511 29,504 Total Revenue ex. Int. 11,000 9,359 14,366 18,764 29,641 Funds from Operations 6,531 4,101 7,100 12,075 22,360 EBITDA 6,101 4,262 8,581 12,111 21,697 Net Operating Cashflow 5,533 2,166 6,236 9,347 16,752 Depreciation & Amort. -1,616 -1,728 -1,705 -2,040 -1,817 Capex -948 -1,219 -1,494 -2,834 -4,499 Goodwill Amortisation ------Acquisitions & Investments -- -74 -- -44 -335 EBIT 4,485 2,534 6,876 10,071 19,880 Sale of Invest. & Subsid. -- -- 86 -- -- Net Interest -628 -850 -361 -323 -298 Net Investing Cashflow -930 -1,266 -1,402 -2,868 -4,824 Profit Before Tax 3,857 1,684 6,515 9,748 19,582 Proceeds from Issues ------Income Tax -1,136 -497 -1,971 -2,849 -5,889 Dividends Paid -982 -1,183 -3,166 -2,805 -7,561 Outside Equity Int. -- 1 ------Net Financing Cashflow -4,267 -2,200 -3,411 -1,867 -9,169 Profit after Tax 2,721 1,189 4,544 6,899 13,694 Net Increase Cash 337 -1,300 1,423 4,613 2,759 Significant Items after Tax ------Cash at Beginning 2,058 2,487 1,231 2,731 6,458 Reported Profit after Tax 2,721 1,189 4,544 6,899 13,694 Exchange Rate Adjust. -5 -19 19 -270 1 Preferred Dividends ------Cash at End 2,389 1,168 2,672 7,074 9,218

Ratios and Substantial Shareholders Balance Sheet ($M) 2017A 2018A 2019A 2020A 2021A 2017A 2018A 2019A 2020A 2021A Profitability Ratios Cash & Equivalent 2,389 1,168 2,672 7,074 9,218 EBITDA Margin % 55.56 46.49 60.40 65.05 73.38 Receivables 183 162 1,316 791 948 EBIT Margin % 40.84 27.65 48.40 54.10 67.23 Inventories 764 671 1,101 1,206 1,612 Net Profit Margin % 24.78 12.97 31.99 37.06 46.31 Other Current Assets 49 231 61 103 138 Return on Equity % 21.53 9.04 30.10 35.79 58.08 Current Assets 3,387 2,232 5,150 9,175 11,917 Return on Assets % 12.80 7.49 17.19 21.06 36.87 Prop. Plant & Equipment 20,385 20,744 22,916 24,877 24,919 Intangibles 9 5 9 10 13 Debt/Safety Ratios Other Non-Current Assets 53 235 64 106 170 Net Debt/Equity % 27.05 31.98 19.60 1.95 -15.10 Non-Current Assets 21,464 21,917 22,932 24,918 25,837 Interest Cover x 7.14 2.98 19.06 31.14 66.72 Total Assets 24,850 24,150 28,082 34,093 37,753 Interest Bearing Debt 5,813 5,378 5,635 7,450 5,656 Top 5 Substantial Shareholders Other Liabilities 6,383 5,604 7,331 7,345 8,508 Minderoo Group Pty Ltd 36.7% Total Liabilities 12,196 10,982 12,966 14,795 14,163 Hunan Valin Group 8.7% Net Assets 12,655 13,167 15,116 19,298 23,590 Share Capital 1,676 1,741 1,684 1,700 1,470 Reserves 51 62 60 90 61 Retained Earnings 10,910 11,346 13,354 17,488 22,048 Outside Equity Int. 18 18 19 19 11 Total Shareholders Equity 12,655 13,167 15,116 19,298 23,590

Current Analyst Recommendations * Principals & Directors Principals Company Secretary Ms Alison Terry Mr Cameron Wilson Directors Mr John (Andrew) Henry Forrest(Non-Executive Chairman,Non-Executive Director) Ms Penelope (Penny) Bingham-Hall(Non-Executive Director) Lord Sebastian Coe(Non-Executive Director) Mr Mark Bradley Barnaba(Non-Executive Director,Lead Independent Director,Non-Executive Deputy Chairman) Ms Elizabeth Anne Gaines(Executive Director,Chief Executive Officer) Dr Jean Baderschneider(Non-Executive Director) Ms Jennifer Morris(Non-Executive Director) Dr Zhiqiang Cao(Non-Executive Director) Dr Ya-Qin Zhang(Non-Executive Director) Ms Julie Shuttleworth(Deputy Chief Executive Officer) * Source: Morningstar. This chart shows the spread of recommendations from those broker analyst's in Australia with research coverage of this stock.

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