ANNUAL REPORT 2009 REPORT ANNUAL GROUP METALS FORTESCUE

1 FORTESCUE METALS GROUP ANNUAL REPORT 2009 1 FMG Fortescue lists debt securities on the Singapore Stock Exchange (STX). 19th November 2009 Annual General Meeting General Annual Stock Exchange Exchange Stock the Official The Company’s securities are quoted on List of the Australian Stock Exchange (ASX). ASX Code: Registry Share Computershare Investor Services Pty Limited Level 2, 45 St Georges Terrace PERTH, WESTERN AUSTRALIA 6000 GPO Box D182 PERTH, WESTERN AUSTRALIA 6001 Tel: +61 9323 2000 Fax: +61 8 9323 2033 For any change in personal details, please contact Computershare. Bankers Limited ANZ Banking Group 77 St Georges Terrace PERTH, WESTERN AUSTRALIA 6000 Commonwealth Bank of Australia Limited 150 St Georges Terrace PERTH, WESTERN AUSTRALIA 6000 Solicitors Clayton Utz 250 St Georges Terrace PERTH, WESTERN AUSTRALIA 6000 DLA Phillips Fox 44 St Georges Terrace PERTH, WESTERN AUSTRALIA 6000

resigned August 2009 appointed August 2009

* ** BDO Kendalls Audit and Assurance (WA) Pty Ltd 128 Hay St SUBIACO, WESTERN AUSTRALIA 6008 Internal Auditors KPMG 235 St Georges Terrace PERTH, WESTERN AUSTRALIA 6000 Auditors Registered Office and Principal Principal and Office Registered Business of Place Level 2, 87 Adelaide Terrace EAST PERTH, WESTERN AUSTRALIA 6004 Tel: +61 8 6218 8888 Fax: +61 8 6218 8880 Website: www.fmgl.com.au Email: [email protected] Company Secretaries Company Rod Campbell Christopher Catlow Ian Cumming – Non-Executive Director ** Ian Cumming – Non-Executive Director Directors Herb Elliott – Chairman Andrew Forrest – Chief Executive Officer Graeme Rowley – Executive Director Russell Scrimshaw – Executive Director Kenneth Ambrecht – Non-Executive Director * Joseph Steinberg – Non- Executive Director Geoff Brayshaw – Non-Executive Director Owen L Hegarty – Non-Executive Director Ian Burston – Non-Executive Director Li Xiaowei – Non-Executive Director Fortescue Metals Group Ltd Group Metals Fortescue ABN 57 002 594 872 ACN 002 594 872 CORPORATE CORPORATE DIRECTORY

2 FORTESCUE METALS GROUP ANNUAL REPORT 2009 2 ANNUAL REPORT 2009 FORTESCUE METALS GROUP haul railway. The world’sheaviest Tenement Report Shareholder Information Independent Auditor’sReport Directors’ Declaration Notes totheFinancialStatements Statements ofChangesinEquity Cash FlowStatements Balance Sheets Income Statements Auditor’s IndependenceDeclaration Remuneration Report Directors’ Report Financial Report ASX BestPracticeRecommendations Map ofFortescue’sOperations Activities Report Chief ExecutiveOfficer’sStatement Chairman’s Report Corporate Directory 120 118 116 115 54 52 51 50 49 48 32 23 21 13 12 8 6 4 2

3 FORTESCUE METALS GROUP ANNUAL REPORT 2009 3 and low cost.” low and on ensuring daily daily ensuring on absolutely focused focused absolutely ahead, Fortescue is is Fortescue ahead, “Looking to the year year the to “Looking production is reliable reliable is production Fortescue Ore being loaded into the FMG Matilda at Herb Elliott Port.

4 FORTESCUE METALS GROUP ANNUAL REPORT 2009 4 from constructionandcommissioning tooperations. operations staff remained firmly focused on the transitiona newcoursetomanagethe global economiccrisis, While our corporate and marketing teams were setting process, railandshiptoChina. continued toselleverytonneoforewecouldmine, steel millsand,despitefluctuatingdemand, maintained ourstrongrelationshipswithChinese Through thehardworkofFortescueteamwe with ourChinesecustomers. relation to shipping andmanagementof our contracts the businessandpresentedsignificantchallengesin The economicdownturnimpactedmanyareasof dramatically, demandcollapsedandpricesfell. later theworldeconomicenvironmentchanged in Australia and around the world. But just a few months insatiable growthofChinafuelledbuoyantconditions strong demandandrecordprices.Theseemingly Company wasshippingoreintoamarketdrivenby At thebeginningofyearunderreview,your to workwiththem. industry workingsidebyside.Ithasbeenaprivilege Fortescue wehavesomeofthebestpeopleinour Great companieshavegreatpeopleandat challenges wehavefacedoverthepast12months. and implement strategies to cope with the many unique Company’s employeestosuccessfullyplan,adapt the yearhasbeenwithoutdoubt,abilityofyour one ofextraordinaryachievement.Thehallmarkfor Fortescue’s firstfullyearofproductionhasbeen REPORT CHAIRMAN’S Chairman Herb Elliott have establishedonwhichtobuildourfuture. at whathasbeenachievedandthestrongbasewe I believewecanalllookbackonthisyearwithpride CEO AndrewForrest,andmyfellowBoardmembers. devoted andhardworkingFortescueteam,ledby I wouldliketotakethisopportunitythankthe cost ironoreproducerinthePilbara. are driventowardsourtargetofbecomingthelowest ensuring dailyproductionisreliableandlowcost.We Looking totheyearahead,Fortescueisfocusedon contribution toourcompany. stands asasolemntributetotheirlivesand was unveiledataceremonyinSouthHedlandand May thisyeara12metrehighrawsteelsculpture in theterribleCycloneGeorgetragedyof2007.In that tothosewholosttheirlives we paidrespect But while we had our successes, we also ensured targets. to furtherexpandouroperationsbeyondoriginal partnership hasprovidedtheplatformforFortescue as akeyequitypartnerinFortescue’sfuture.The Hunan ValinIronandSteelGroupCompanyLtd 18,000 shareholdersandinApril,wewelcomed During theyear,Fortescueattractedanadditional through Fortescue’sport. more than680,000tonnesofthirdpartyoreshipped opening upthePilbaraforthirdpartyaccess,with In December2008,Fortescuealsomadehistoryby support alargescale,longtermironoreproducer. continue toaddtheresourcefoundationswhich and ourexplorationteamiswellpositionedto Fortescue’s Resourcesweresignificantlyincreased And there’smoretocome.Duringtheyear, worldwide. the comingfinancialyearweshouldmovetofourth producer injustourfirstfullyearofoperation.In and alreadyrankasAustralia’sthirdlargestironore We arewellandtrulytheNewForceinIronOre day fromtheCloudbreakminesite. transporting inexcessof100,000tonnesoreeach We arenowregularlymining,processingand tonnes (Mt)oforeinourfirstfullyearoperations. up productionandshippingmorethan27million just twoyears,yourteamturneditshandtoramping rail lineandbuildingamineprocessingfacilityin After themassiveeffortofconstructingport,

5 FORTESCUE METALS GROUP ANNUAL REPORT 2009 5 In fact we have strengthened a number of those In fact we have strengthened a number and relationships with strategic partnerships a Co- alliances. In early 2009, Fortescue signed and Steel HunanValin Iron operation Agreement with a major new Group and welcomed that company as business and shareholder. The relationship provides with supply opportunities for Valin and Fortescue for many potential product development opportunities the Pilbara. also been Across our operations the 2009 year has one of intense activity. up to At Cloudbreak, production quickly ramped We have more than 2.5 million tonnes per month. we as miners surface our of productivity the improved innovative have developed more science around this mining and use of a machine primarily used in coal the infrastructure building. We have also improved miners. layout of our pits to better suit the surface the At our ore processing facility we have enhanced and shape management of size, moisture content of the material we feed in to increase volumes and the introduction of the Desand plant in early 2009 assisted greatly with the management of alumina. “The entire Asian region has has region Asian entire “The sustained and success of decades is Fortescue and ahead growth integral an being to committed journey.” that in partner Ranking with the achievement of Cloudbreak, just 50 kilometres down the road Fortescue has established its second minesite, Christmas Creek. Mining began in May 2009 and since then some 300,000 tonnes has transported by road train to the Cloudbreak ore processing facility while our second new plant is being built at Christmas Creek. The ore from Christmas Creek is used to supplement Cloudbreak ore and ensures a blend of suitable grade and moisture content. Christmas Creek is actually a significantly larger deposit than Cloudbreak, with

Your team met our dream this year when Fortescue Your team met our dream this year when Your truly became the New Force in Iron Ore. which company has shattered the iron ore duopoly and firmly existed in the Pilbara for many decades of established itself as a vital alternative supplier world. The iron ore for the steel mills of Asia and the and entire Asian region has decades of success is committed sustained growth ahead and Fortescue to being an integral partner in that journey. providing We have also opened up the Pilbara by infrastructure services to third parties, commissioned time, our new facilities which were built in record and established new markets across China The generated strong interest throughout Asia. ore Chichester Range is now a major new iron Group supply region and our central Pilbara Solomon project promises to be even bigger again. the Over the past 12 months we have made transformation from development and construction company. to a major operating iron ore production We’ve completed building our open access port at Anderson Point in Port Hedland, constructing a massive mine and processing facility at Cloudbreak in the Pilbara’s Chichester Range and laying some 300 kilometres of rail. Your team has taken each of those pieces of infrastructure through the commissioning phase and ramped up the many facets of our operation, with most now running at or beyond name plate capacity. In the past financial year, we mined, processed, railed and shipped more than 27 million tonnes of ore to over 45 steel mill customers across China. All of this has been achieved in the face of turbulent economic conditions both here and abroad. This challenging economic environment has further proved the extremely high value of Fortescue’s strong relationship with Asia. Fortescue has devoted considerable time and energy to nurturing our relationship with China, which while struggling with the global financial crisis and shipping collapse, has remained strong. STATEMENT OFFICER’S OFFICER’S CHIEF EXECUTIVE EXECUTIVE CHIEF

6 FORTESCUE METALS GROUP ANNUAL REPORT 2009 6 is massive.Locatedtothenorth ofTomPrice of tenements,theexploration upsidepotential Fortescue’s resources.Atour SolomonGroup Our intrepidExplorationTeam hasfurtherincreased converted toasecondshiploading berth. commissioned. Alsotheoriginallaybyberthwas during theyear,asecondstackerwasinstalledand have beenprovenabovedesigncapacityand Both thein-loadandout-loadcircuitsatport breaking recordsandprovingtheirinfrastructure. At theHerbElliottPortyourteamhasalsobeen Association conferenceinShanghai. honoured assuchattheInternationalHeavyHaul the worldwitha40tonneaxleloaddesignandwas has beenrecognisedascurrentlytheheaviestin were completed.Fortescue’sheavyhaulrailway the fullfinancialyear,morethan1,100railjourneys the line,lessthanayearafteroperationsbegan.For every week.InMay,railranthe1000thtraindown increasing theamountoforerailedtoPorteachand target oftheoriginaldefinitivefeasibilitystudyand performances, reducingcycletimesbelowthe The railteamhasbeendeliveringrecord Creek anda substantial villagehas been established. than 200teammembersareworkingatChristmas in theReserves/Resourcestableonpage10.More have some50percentmoreinresourcesasshown compared toCloudbreak’s588milliontonnes.Both a currentreserveestimateof997milliontonnes Chief ExecutiveOfficer Andrew Forrest coming years. strongly consolidateandbuildonthatbaseinthe value group,withgreatrelish.Wenowlookto have joinedthissmallinnumberbutmassive the worldinanycompanyoutsideofmajors.We built averystrongbase,oneunparalleledaround dedication anddetermination.Yourcompanyhas our entireteamfortheirnevergiveupattitudeof It hasbeenagreatyearforFortescueandIthank becoming thelowestcostproducerinPilbara. costs acrossthebusinessandweareonourwayto innovation, mateshipandfrugality.Wehavecut the valueofourstrongfamilyculture,enthusiasm, Fortescue hasbeenfirmlyfocusedonembedding July 2009of1.230 billiontonnes. resource estimateforGlacierValleyannouncedin tonnes. Ontopofthistherewasalsothemaiden Chichester andHamersleyRangesto5.145 billion and Fortescue’stotalResourceEstimateforthe Solomon Groupestimateto2.223billiontonnes Estimate wassignificantlyincreasedtotakethetotal in theHamersleyRanges,Solomon’sResource The RAHCO overburden removal removal overburden RAHCO The system at Cloudbreak. at system

7 FORTESCUE METALS GROUP ANNUAL REPORT 2009 7 the job at Port. Summit 300 recruits on

concepts and further refined and improved on others. concepts and further refined and improved miner As a result of these improvements, surface 113,000 production rates rose significantly, topping tonnes of material mined each day. took delivery Towards the end of the year, Fortescue surface of the first of a series of upgraded Wirtgen miners. The new machine has been specially modified to suit the Pilbara environment and in particular Fortescue’s ore seam mining application. The new machines are more robust with a cutting drum that spans 4.2 metres in width (compared to 2.5 metres for the original machines) which will vastly improve mining rates. Over the 2008/09 financial year, various processing infrastructure at Cloudbreak was commissioned including the desand plant which assisted with the management of alumina and, as a result, reduced the reliance on selective mining which was used early in the year to produce target grade material. The performance of the Ore Processing Facility (OPF), the largest in the Pilbara, also improved significantly over the year due to increased operational understanding which assisted in eliminating bottlenecks. A 24 hour ore processing production rate record of 129,008 tonnes was achieved at Cloudbreak during the year. Once processed, Fortescue’s ore is railed the 256 kilometre journey from the mine to the port site.

The primary focus of operations over the year was the successful ramping of all facets of the integrated mine, rail and port production system. Mining operations now span two sites at Cloudbreak and Christmas Creek which are situated about 50 kilometres apart in the Chichester Ranges in Western Australia’s Pilbara region. Cloudbreak has grown to more than six active pits where over 1,600 Fortescue staff and contractors work to mine and process Fortescue ore. During the year over 30 million tonnes (Mt) of iron ore was mined and over 90Mt of overburden was removed. Christmas Creek commenced mining operations in May 2009 and is operated by a tight team of Fortescue staff and contractors. To the end of the financial year approximately 230,000 tonnes of Christmas Creek ore was blended with Cloudbreak material for shipping to China. Fortescue’s unique use of surface miners was optimised over the year. Hands-on operating experience confirmed many of the feasibility design Operations REPORT ACTIVITIES ACTIVITIES

8 FORTESCUE METALS GROUP ANNUAL REPORT 2009 8 the decision. plans assoontheeconomic environmentjustifies expansion programsoastobe readytoactivate also bedevotingsignificantcorporate energytoits dedicated effortsaroundramp up.Fortescuewill 2009/10 iscostcontroltogether withcontinuing Looking ahead,Fortescue’simmediatefocusin utilising Fortescue’s infrastructure in 2010. independent miner, BC Iron which is expected to start recently Fortescuesignedanagreementwithanother five furthershipmentshavebeencompleted.More China throughtheHerbElliottPortandsincethen 2008, AtlasIronshippeditsfirstcommercialoreto third partyaccesscommitments.InDecember During theyear,Fortescuealsodeliveredonits loading 3.29Mtoforeonto19ships. Fortescue wasattainedinJunewiththePortteam was achievedandamonthlyshippingrecordfor A 12hourshiploadingrecordof100,349tonnes construction. the thirdwharfareaalreadydredgedandreadyfor Elliott Porthassignificantexpansionpotentialwith berths caterforCapesizevesselsandtheHerb be availabletotheshiploader.Bothshiploading hours to0.5hours,allowinganemptyshipalways average changeoverdelaybetweenshipsfrom6.4 3.6Mt oflivecapacityandthesecondberthcut makes availablesixadditionalstockpilesforatotal loading program.Inparticular,thesecondstacker increased flexibilityinmanagingFortescue’sship berth andthesecondstacker,bothofwhichprovide from thecompletionofsecondshiploading plate designcapacity.Portoperationsbenefitted and out-loadcircuitshavebeenprovenatname achievements duringitsinauguralyear.Thein-load Hedland wasalsoasourceofrecordbreaking The performanceofFortescue’sportfacilityatPort railway fromoutsidetheregionofoperation. company thefirstinWesternAustraliatocontrola control centretoPerthfromthePilbara,making design. AlsoinMarch,Fortescuemoveditstrain railway intheworldwitha40tonneaxleload Haul Associationconferenceastheheaviesthaul railway wasrecognisedattheInternationalHeavy Records wereachievedduringtheyearwhen the returnofthattrainfromunloadingatport. cycle timeisfromthestartofloadingatmineto of cycletimebeingreducedtounder20hours– above originalexpectationswiththecriticalmeasure key areastheFortescuerailoperationisperforming the journeytoportinaroundfourhours.Inmany approximately 30,000tonnesofmaterial,making train consistcomprises240wagonsandcarries progressively work-hardentherail.Currentlyeach and weightofeachtrainloadgraduallyincreasedto people, managedover1,200journeyswiththesize During theyearFortescue’srailteamofaround120 different materialtypes. property benefitsfromacrosssectionof and physical ore typeswithinitsfeedstocktocapturechemical will typicallyusebetweensixtoeightdifferentiron Mamba finesproducts.Asbackground,asteelmill a maximumof15percentforcompetitor’sMarra cent oftheirsinterblends(orebasis)comparedto used bymanycustomersatbetween30to45per competitor products.RocketFineshavebeenwidely of itsRocketFinesproductversusalternative conclusively proventhe“valueinuse”proposition its customerbaseandmoreimportantly,hasnow environment, theCompanyneverthelessexpanded industry veryheavily.Inthisextremelydifficultmarket financial crisishittheChineseandGlobalSteel With Fortescuenewlyintoproductiontheglobal the lastyear’snegotiatedbenchmarkprice. represent anapproximate30percentreductionfrom 2008 peakandsettledattheircurrentlevelswhich performance benefits for the buyer. Prices fell from their of deliveringaqualityproductwithdemonstrable shipment negotiation.Theimperativebecameone changed tobecharacterisedasbeingashipmentby underpinned bythebenchmarkpricingsystem,had changed markedly.Thepreviouslyorderlymarket, record prices.ByNovember2008thesituationhad dynamics werestrongandFortescuewasreceiving At thecommencementoffiscalyear,market of technology, mining method and equipment. achievement for a new mine with so many new pieces alignment between actual and target is a remarkable within 0.5percentofthetargetgrade.Theclose cent Fewithcalcinedirongradeof64.3per exported, achievedanaveragegradeof58.92per Shipments ofRocketFines,themainproduct Herb ElliottPortalmosteveryotherday. 160,000 –210,000tonnescapacity,departingthe shipments onCapesizevesselsrangingfrom customers acrossChina.Therewere159individual the year27.3Mtofproductwasshippedtoover45 the globalfinancialmeltdowninlate2008.During its customerbasedespitethedramaticimpactof Fortescue’s marketingteamhascontinuedtogrow Marketing immaterial inthe contextofachangedposition. later partofthe yearandthevolumesareconsidered been adjustedasminingonly commencedinthe estimate forCloudbreak.Christmas Creekhasnot the periodandadjoiningtable showsanadjusted in referencetothevolumeof iron oreminedduring appropriate torestatetheReserves andResources of operationsatCloudbreak.Accordingly itis in thepreviousyear,2009isfirstfullyear While Fortescuecommencedminingoperations Resources Reserves and

9 FORTESCUE METALS GROUP ANNUAL REPORT 2009 9

% % % LOI LOI LOI 8.91 8.34 8.45 8.39 7.87 7.74 7.87 8.16 7.64 7.64 % % % Phos Phos Phos 0.060 0.079 0.076 0.050 0.055 0.058 0.055 0.051 0.057 0.056 % % % 2.89 3.51 3.39 1.97 2.51 2.48 2.47 1.80 2.40 2.36 Alumina Alumina Alumina % % % 6.98 7.00 6.99 3.71 4.24 4.25 4.21 3.60 4.20 4.18 Silica Silica Silica % % % Fe Fe Fe 56.4 56.1 56.2 59.7 58.8 58.8 59.36 58.16 58.53 58.50 Exploration and and Exploration Acquisition Tenement Exploration team over The key focus of Fortescue’s and upgrade of Resource 2009 was the increase Group of tenements and estimates for the Solomon Resource for the Glacier the estimation of a maiden location of tenements refer to Valley tenements (for map on page 12). The Solomon Group contains a total Resource Indicated estimate 2,223Mt split between 543Mt of below and 1,680Mt of Inferred Resources (refer of table). Through the year there were a series this announcements that progressively upgraded 2008 highly prospective project area. In November for Fortescue increased the Resource estimates known two of the Solomon Group tenement areas infill as Valley of the Kings and Firetail. Continuing drilling work resulted in the April 2009 Indicated of 543Mt Resource estimate for the Solomon Group classified which was additional to the 1,680Mt has been Inferred Resource. Further infill drilling that this will undertaken at Firetail and it is expected area. soon result in a Resource upgrade for this 543 134 467 126 1,680 2,223 1,627 2,227 1,459 1,585 Tonnes Tonnes Tonnes millions millions millions

Indicated Inferred Total Solomon Measured Indicated Inferred Total Cloudbreak and Christmas Creek Resource Solomon Group Probable Total Reserve Resource Cloudbreak and Christmas Creek Proved Reserve Cloudbreak and Christmas Creek Please refer to the relevant Competent Persons Statement on page 122. Fortescue Reserve - Resource - Reserve Fortescue

The depletion of Reserve from Cloudbreak The depletion of Reserve 40Mt from the is estimated at approximately activities in November commencement of mining determined through a detailed 2007. This has been out areas and the depletion survey of the mined from the original mining of the surveyed volumes of the depletion block model. In reconciliation has been exported and amount, 29Mt of material surveyed to be stockpiled at approximately 4Mt were as at year end. the port or the mine after the Approximately 1Mt has reported to tailings 1.6Mt de-sanding process. Of the Reserve depletion, placement. has been sterilised due to infrastructure has been It is estimated that approximately 2.5Mt used for used in construction where material was of the various purposes including extensive sheeting port and vast stockpile sites at both the mine and Due to the temporary train loading stockpile areas. ore losses very rapid ramp up in production some have occurred whilst gaining a full understanding method. of both the ore body and the new mining to Going forward, these losses are not expected better continue due to the improved systems and understanding. ACTIVITIES REPORT ACTIVITIES

FORTESCUE METALS GROUP ANNUAL REPORT 2009 10 10 town centre.Dust isaconcerntothePortHedland Elliott Portlocated tothesouthofPortHedland to improveenvironmentalperformance isatitsHerb Another areawhereFortescue isactivelyworking Range miningoperations. Fortescue Marsheswhichborders ourChichester these communitiesareadjacenttothehighlyvalued represented acrossFortescue’stenements.Both into thesehighvalueplantcommunities,whichare Pilbara. Thisworkaimstoaddthebodyofscience samphire andmulgavegetationcommunitiesinthe Department ofEnvironmentandConservationinto by theUniversityofWesternAustraliaand The companyiscurrentlyfundingresearchprojects environmental management. operations andconsistentlymeethighstandardsof aiming toraiseenvironmentalawarenesswithinits Through theseandothertechniques,Fortescueis the tablefrompage120ofthisreport. kilometres. Thedetailsoftheportfolioareprovidedin total Pilbaraportfolionowstandsat71,400square very activethroughtheyearandcompany’s Fortescue’s TenementAcquisitionTeamwasalso per cent. micron size of 28mµ, based on an overall yield of 33.1 grade of67.3percent, alumina of 0.1 per cent and a and calculatedaproductspecificationwithaniron product yieldandcompositionfollowingbeneficiation Davis Tuberecoverytestresultstoshowthelikely mineralisation, theannouncementalsoincluded (refer tablepage122).Asthedepositismagnetite Inferred Resourceof1,230Mtwasannounced and thiswasachievedinJuly2009whenamaiden was foraresourceofoveronebilliontonnes(Bt) Baosteel wassignedin2007.Thefirststagetarget progressively buildingsincetheJointVenturewith Exploration workatGlacierValleyhasbeen financial year. Proactive techniques employed include: disturbance activities across Fortescue’s operations this flora, faunaandvegetationsurveyspriortoground This includesundertakingnearly20,000hectaresof activities suchasconstructionandminingisminimal. environmental impactfromgrounddisturbance Fortescue isproactivelyworkingtoensurethatthe reputation ofenvironmentalexcellence. environmental professionalsbuildingacultureand and globalmarkets.Wehaveadedicatedteamof success, growthandpositioninginthedomestic operations isessentialtoFortescue’slongevity, Minimising theenvironmentalimpactofour Environment ● ● ● ● ● ● supervisors andmanagers. and trainingonenvironmentalissuesforall Progressive rehabilitationandeducation Trapping and relocation of priority fauna species; and Clearing controlstolimitvegetationdisturbance;

training modulesandamobilisationsystem. management systemwhichwillprovideonlineskills, integrated contractor risk managementand In the year ahead Fortescue will introduce an Rate hasalsodecreased. rate of1.8.OurTotalRecountableInjuryFrequency improve thatratetowellundertheironoreindustry cent to6.6.Ourtargetforthenextfinancialyearis Time InjuryFrequencyRateimprovedby43per year fromJuly2008toJune2009,Fortescue’sLoss of zeroharmacrossourentirebusiness.Duringthe Safety isacorevalueandwearebuildingculture standards inhealthandsafetyonoursites. and companyexpectationsfortheimprovementof employees and contractors are able to achievesuccess. Ourfocusisfirmlyfixedonensuring personalour paramount in all our decisions andThe healthandsafetyoftheFortescueteamis central to our business Safety Aboriginal people and then all other Aboriginal people. employment willthenbegiven tolocal,Pilbara Following peoplefromthesegroups, priorityfor business operationswithoutdelay. employment treatmentinreturn forapprovalall with thesegroupscommitFortescue topreferential Native TitleClaims.TheLandAccessAgreements connected totheKariyarra,PalykuandNyiyaparli Highest prioritywillbegiventoAboriginalpeople to secure employment within the mining industry. those Aboriginal people who have to date been unable The focusofSummit300isprovidingemploymentto training andpre-employmentprocesses. provided theysuccessfullycompleteallrequired candidates willbegivenaguaranteeofjob The corecommitmentbehindSummit300isthat have beenemployedonFortescue’soperations. VTEC commenced in 2006, over 200 Aboriginal people is responsibleforallpre-employmenttraining.Since Centre (VTEC)isthedriverbehindthisprogramand Fortescue’s VocationalTrainingandEmployment by 30June2011. 300 newAboriginalpeopleintothecompany Employment Covenant, to employ anadditional CEO AndrewForrest,aspartoftheAustralian established toachievethecommitmentby Fortescue’s Summit 300 program has been Summit 300 together tobetterunderstandandresolvetheissues. industry andgovernmentforumswhoareworking to reducedustandisaparticipantincommunity, Fortescue proactivelymanagestheportfacility areas closetoexistingironorehandlingfacilities. community, largelyduetoproximityofresidential

11 11 FORTESCUE METALS GROUP ANNUAL REPORT 2009 Key MAP OF OPERATIONS OF MAP

FORTESCUE METALS GROUP ANNUAL REPORT 2009 12 12 Fortescue’s website (www.fmgl.com.au). procedures are also available in the corporate governancerecommendations. section ofMore detail on Fortescue’s policiesentities and (Fortescue) complies with the ASX PrinciplesFortescue and associatedMetals Group Ltd (the Company) and its controlledThis statement provides a description of the manner in which RECOMMENDATIONS ASX BEST PRACTICE 13 13 FORTESCUE METALS GROUP ANNUAL REPORT 2009 assuring that appropriate audit arrangements are assuring that appropriate audit arrangements in place; and Formal determinations that are required by Formal determinations that are required statute Fortescue’s constitutional documents, by or by other external regulation. ● ● Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives. In 2009 the company adopted a performance measurement program described as “Good Tonnes” wherein a range of measures were determined as key performance indicators and were reported upon on a monthly basis. This provided a clear and transparent reference point to evaluate the performance of all employee teams inclusive of senior executives. The year end evaluation process was through line management up to the executive committee team whose six members are directly CEO the of performance The CEO. the to answerable the year the during and Board the by assessed is and CEO the with met directors of board Independent matters. remuneration and performance both reviewed The Board has delegated responsibility for the The Board has delegated responsibility CEO’s day-to-day activities to the CEO and the team is direct reports. The Board ensures that the to discharge appropriately qualified and experienced their responsibilities. return a Each new Director is required to sign and key terms letter of appointment which sets out the of the of the Director’s appointment. The contents are consistent letter of appointment for new Directors includes with the ASX Principles. The letter also acknowledgement of the Company’s Director’s Code of Conduct, which has been drafted in accordance with the Code of Conduct of the Australian Institute of principles core defines Code The Directors. Company adhere. to required are Directors all which to

Satisfying itself that the financial statements fairly and accurately set out the financial position and financial performance of the company and also Guidance for and approval of business strategy; Determination of major capital and operating expenditures and major funding activities proposed by management and subsequent monitoring of actual performance against defined expectations; Appointing, evaluating, rewarding, and if necessary the removal of, the Chief Executive Officer (CEO); ● ● ● ● ● ● ● ● The Cloudbreak Human Resources team. The Company has adopted a Statement of Matters The Company has adopted a Statement and Reserved for the Board to further clarify distinguish the roles of Directors and Management. This statement summarises the roles and responsibilities of the Board of the Company. The disclosure of the role and responsibility of the Board is designed to assist those affected by corporate decisions to better understand the respective accountabilities and contributions of the board and management of Fortescue. The Board has specifically reserved the following matters for its decision: Recommendation 1.1: Formalise and Recommendation 1.1: Formalise the Board disclose the functions reserved to and those delegated to management.

Foundations should ASX Principle 1 states that a company and “establish and disclose the respective roles responsibilities of the board and management”. associated Fortescue complies with this principle and recommendations in the following manner: Principle 1: Lay Solid Solid Lay 1: Principle

FORTESCUE METALS GROUP ANNUAL REPORT 2009 14 14 Hunan ValinIron&SteelCompany(Valin). appointment ofMrLiXiaoweiasrepresentative recently, theBoardwasfurtherbolsteredwith Mr OwenHegartyandDrIanBurston.Alsomore with extensiveexperienceintheminingindustry with theadditionoftwonon-executivedirectors and experienceleveloftheboardwasbolstered and marketing.Overthepastyearcomposition including mining,railandportoperations,finance with appropriateexpertiseacrossarangeofsectors BoardofDirectors The Companyhasanexperienced than Recommendation2.1,inthefollowingmanner: this principleand associated recommendations,other responsibilities andduties”.Fortescuecomplieswith and commitmenttoadequatelydischargeits “have aBoardofaneffectivecomposition,size ASX Principle2statesthatacompanyshould Structure Principle 2: Board senior management. have anexplicitstatementastomattersdelegated section ofFortescue’swebsite.Fortescuedoesnot Charter areallavailableinthecorporategovernance Board, theDirector’sCodeofConductandBoard A copyoftheStatementMattersReservedfor Principle 1: Recommendation 1.3:ReportingonASX executive director. the chairmanof theBoardisanindependent, non- Fortescue complieswiththisrecommendation as should beanindependent director. Recommendation 2.2:The chairperson structure servesthecompany well. however, theBoardisofopinionthatcurrent contrary totheASXBestPracticeRecommendations, The Boardrecognisesthatitscurrentcompositionis circumstances. an independentdirector,hasacastingvoteincertain of non-executivedirectorsandthechairman,whois majority ofindependentdirectors,thereisa 2.1 inthatsinceJune2009,itdoesnothavea the BoarddoesnotcomplywithRecommendation interests ofseparatesubstantialshareholders.While independent andtheothertworepresent non-executive andofthese,fiveareconsidered Of the10members,sevenareclassifiedas the appointmentofMrLiasValin’srepresentative. this wasincreasedto10directorsinJunefollowing of 2009,Fortescuehadaboardninedirectorsbut to amaximumof12directors.Duringthemostpart Board istocompriseaminimumofthreedirectorsup In accordancewiththeCompany’sconstitution directors. consist ofamajorityindependent Recommendation 2.1:ABoardshould and theindividualdirectors. performance oftheBoard,itscommittees disclose theprocessforevaluating Recommendation 2.5:TheCompanyshould statement ofintent. and AppointmentofNewDirectorswhichisaclear adopted apolicyknownasProcedureforSelection performance oftheBoard.TheBoardhasalso the appropriateevaluationmethodstoreview the appropriateskillsrequiredofDirectorsand to theBoardonoptimumsizeofBoard, to regularlyreviewandmakerecommendations its nominationsrole,theCommitteeisresponsible available fromFortescue’swebsite.Inregardsto the RemunerationCommitteecharterandis The charterforthiscommitteeisincludedin which formspartoftheRemunerationCommittee. The CompanyhasaNominationsCommittee establish anominationscommittee. Recommendation 2.4:TheBoardshould the sameperson. The positionsofChairmanandCEOarenotfilledby individual. should notbeexercisedbythesame chairperson andchiefexecutiveofficer Recommendation 2.3:Therolesof Directors providedbytheASX. accepted thecriteriatoassess independenceof meetings isdetailedonpage 26. TheBoardhas attendance ofBoardmeetings andCommittee corporate experienceisprovidedonpage23.The The detailofeachDirector’stenureandprior up forelectionbymembersatthe2009AGM. compliance withtheCorporationsAct,theymustgo been appointedasdirectorsbytheBoardandin that twodirectors,MrIanCummingandLi,have out inthetableonnextpage.Itisalsonoted at the2009annualgeneralmeeting(AGM)areset independence (orotherwise)andwhethertheyretire of thisreport,theyeartheirappointment, The namesoftheDirectorsinofficeatdate on Principle2. information indicatedin Recommendation 2.6:Providethe the 2010financialyear. year howeveritisplannedtoholdsuchaneventin such exercisewasconductedinthe2009financial views onperformanceandboardeffectiveness.No questionnaires havebeenusedtogaugedirector’s has heldboardretreatsinthepastwhereevaluation and relevantdirectorsasrequired.Thecompany consultation betweentheChairmanandCEO its committeesbutratherthisisdonebyinformal for evaluatingtheperformanceofboardor The Companydoesnothaveaformalprocess Guide toreporting 15 15 FORTESCUE METALS GROUP ANNUAL REPORT 2009 No No No No No No Yes Yes Yes Yes re-election in 2009 Retiring and seeking Retiring No No No No No Yes Yes Yes Yes Yes Independent the responsibility and accountability the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. ● ● The board has established a Securities Trading Policy which outlines the policy for directors and employees when trading in shares of the Company. Under the policy certain individuals are identified as designated persons and they are subject to explicit non-trading periods which are set around reporting normal the to subject are employees other All periods. Fortescue has established a Directors’ Code of Fortescue has established a Directors’ Conduct together with a more general Employee of Code of Conduct which describes the standards executives ethical behaviour that directors and key Code details are required to maintain. The Directors’ a range of issues relating to director’s responsibilities Law. including those required under Corporations of The code also provides a concise summary of the general principles and duties expected on the Company’s directors with commentary issues relating to professional integrity, conflicts of interest and general duties owed to the Company, stakeholders and creditors. The broader Employee Code of Conduct provides a guide to adherence of appropriate practices so as to maintain confidence in the Company’s integrity. The document sets out the responsibilities and accountability of individuals for reporting or investigating reports of unethical practices. Recommendation 3.2: Establish a policy by securities company in trading concerning directors, senior executives and employees and disclose the policy or a summary of that policy. Executive Executive Executive Executive/ Executive/ Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive

2003 2003 2003 2003 2003 2008 2008 2008 2009 2009 Appointed

Director

the practices necessary to maintain the confidence in the Company’s integrity; the practices necessary to take into account the legal obligations and the reasonable expectations of stakeholders; ● ● Herb Elliott Andrew Forrest (CEO) Graeme Rowley Russell Scrimshaw Ken Ambrecht Geoff Brayshaw Owen Hegarty Ian Burston Li Xiaowei Ian Cumming ● ● Recommendation 3.1: Establish a code of conduct and disclose the code or a summary of the code as to; Decision Making Decision and Responsible Responsible and Principle 3: Ethical Ethical 3: Principle

Reporting on ASX Principle 2: A copy of the Remuneration & Nominations Committee Charter is available in the corporate The governance section of Fortescue’s website. on the Company’s constitution is also available and website and the process for appointment is election of directors is discussed. This process one consistent with the Corporations Act whereby third of directors must retire and put themselves table above forward for re-election every year. As the Elliott displays, this process has resulted In Messrs at the and Ambrecht being nominated for re-election are also forthcoming AGM. Mr Li and Mr Cumming appointed up for election as they have recently been as directors by the board and these appointments need to be put to a vote by shareholders. ASX BEST PRACTICE RECOMMENDATIONS PRACTICE BEST ASX ASX Principle 3 states that a company should “actively promote ethical and responsible decision making”. Fortescue complies with this principle and associated recommendations in the following manner:

FORTESCUE METALS GROUP ANNUAL REPORT 2009 16 16 governance sectionofFortescue’swebsite. Securities TradingPolicyisavailableinthecorporate Code ofConduct,EmployeeConductand recommendations of Principle 3. A copy of the Directors’Fortescue complieswiththebestpractice on Principle3. information indicatedin Recommendation 3.3:Providethe who workfor,orareassociatedwith,Fortescue. the restrictionsondealinginsecuritiesbypeople insider tradingandotherrelevantlawssetsout The policysetsoutabriefsummaryofthelawon recommendation ofthepreferredtradingperiods. insider trading restrictions with the policy containing a on Principle4. information indicatedin Recommendation 4.4:Provide the Fortescue’s website. Management CommitteeCharter thatisavailableon The BoardhasapprovedanAudit&Risk should adoptaformalcharter. Recommendation 4.3:Theauditcommittee major accounting firm. technical expertiseas a previous audit partner of a Chairman oftheBoardandwhoholdsrelevant the committeeisMrGeoffBrayshawwhonot all areconsideredindependent.TheChairmanof comprised offournon-executivedirectorswhom The Audit&RiskManagementCommitteeis should bestructuredsothatit: Recommendation 4.2:Theauditcommittee Recommendation 4.3. & RiskManagementCommitteeisoutlinedunder Management Committee.ThestructureoftheAudit Fortescue hasestablishedanAudit&Risk establish anauditcommittee. Recommendation 4.1:TheBoardshould recommendations inthefollowingmanner: Fortescue complieswiththisprincipleandassociated safeguard theintegrityoftheirfinancialreporting”. have astructuretoindependentlyverifyand ASX Principle4statesthat“Companiesshould Reporting Integrity Principle 4: Financial ● ● ● ● not chairpersonoftheboard. has anindependentchairperson,whois directors; and of whichamajorityareindependent consists ofnon-executivedirectors has atleastthreemembersandonly Guide toreporting Guide toreporting

investment communitywithinformation. Company orprovidejournalistsandmembersofthe authorised toissuepubliccommentsonbehalfofthe executive officerortheirdelegatedpersonsare or publicpresentationsonlythechairman,chief With regardtogeneraldisclosuresatmediabriefings for thatcompliance. accountability ataseniormanagementlevel disclosure requirementsandtoensure ensure compliancewithASXListingRule policies andproceduresdesignedto Recommendation 5.1:Establishwritten recommendations inthefollowingmanner: Fortescue complieswiththisprincipleandassociated material mattersconcerningtheCompany”. “promote timelyandbalanceddisclosureofall ASX Principle5statesthatacompanyshould Disclosure and Balanced Principle 5: Timely of engagementFortescue’sexternalauditor. the externalauditorrelationshipincludingterms Audit &RiskManagementCommitteealsooversees ended 30June2009canbefoundonpage26.The and attendedbymembersoverthefinancialyear from page23.Detailonthenumberofmeetingsheld Mr Elliott,AmbrechtandDrBurstoncanbefound Committee members being Mr Brayshaw (Chairman), The experienceoftheAudit&RiskManagement Fortescue’s website. available inthecorporategovernance sectionof A copyoftheContinuousDisclosure Policyis the ContinuousDisclosure Policy. Recommendation 5.2:Disclose theTermsof including: Corporations ActandunderASXListingRule3.1 requirements atlawundersection674ofthe within whichtheCompanyoperates.Itidentifies requirements includingthestatutoryenvironment The policyprovidesabroadoverviewofthereporting copy ofwhichisavailableonFortescue’swebsite. Fortescue hasaContinuousDisclosurePolicy, ● ● ● ● ● ● ● ● ● ● made duringthetimesincepreviousmeeting. the roleofboardtoreviewalldisclosures disclosure obligations;and decision makerforFortescue’scontinuous the roleofchiefexecutiveofficerasultimate reporting officer; attention oftheCompanyanditsnominated the processforbringingsuchinformationto the type of information that needs to be disclosed; issues andtestsformateriality; 17 17 FORTESCUE METALS GROUP ANNUAL REPORT 2009

Principle 7: 7: Principle and Recognise Risk Manage that a company should ASX Principle 7 states of risk oversight and “establish a sound system control”. Fortescue management and internal and associated complies with this principle the following manner: recommendations in or Recommendation 7.1: The Board appropriate Board committee should and establish policies on risk oversight management. The development of Fortescue’s risk management progress systems and policies has been work in tracked for the past two years. This period has the company’s transformation from project fully fledged implementation to the current position of work producer. As advised last year some early system was done in developing a risk management that covered the port, rail and mine construction done in and operations programs. This work was risk compliance with the Australian/New Zealand and management standard AS/NZS4360:2004 of the was based on a first phase high level review and ratings business. A register of identified risks in thereof was completed and plans established mitigation of the material business risks. The second phase development program was initiated in 2008/09 with the appointment of the specialist risk services group MYR Consulting who have completed a comprehensive bottom-up divisional review of the Company’s risk management structure and reporting systems. The work has been titled the Good Decisions Program as it seeks to formalise the way the company identifies, assesses, controls and reports both risk and opportunities throughout the business for improved governance and management and greater business resilience. After extensive executive interviews and team workshops, the first stage of the program has been completed with the development of a company wide, Enterprise Risk Management (ERM) framework where the top 20 material risks have been identified and the control environments analysed. The program will systematically extend down to lower level risk analysis and its implementation timeframe is by its very nature, long term over the next few years.

Fortescue recognises the importance of shareholder participation in general meetings and supports and encourages that participation. Fortescue communicates effectively with its shareholders and will give shareholders ready access to balanced and understandable information about Fortescue and its corporate proposals; and ● ● ● ● Recommendation 6.2: Reporting on ASX Principle 6: The Company does not have an explicit communications policy, however, it does have a dedicated team of four people who are located across the various operating areas; two at head office in Perth, one at the production site at Cloudbreak and the other at Port Hedland. These people work closely with Fortescue’s community team which is based in Port Hedland and deal with the various community and stakeholder issues that arise within Fortescue’s operations. The Company’s communication strategy is to The Company’s communication strategy with encourage a two way communication channel various shareholders. The Company produces are available newsletters and production reports that the either through the ASX platform or through an email Company’s website. The company has can elect alert system whereby interested parties our to receive copies of ASX lodgements through Further, investor centre attached to the website. make various senior executives of the Company and regular presentations at industry forums for conferences and make themselves available questions at these events. policy is The underlying shareholder communications based on the objective that: Recommendation 6.1: Design and disclose Recommendation 6.1: Design and a communication strategy to promote effective communication with shareholders at and encourage effective participation general meetings. Shareholder Rights Rights Shareholder that a company should ASX Principle 6 states shareholders and facilitate “respect the rights of of those rights”. Fortescue the effective exercise and associated complies with this principle than Recommendation 6.1, recommendations, other in the following manner: Principle 6: 6: Principle ASX BEST PRACTICE RECOMMENDATIONS PRACTICE BEST ASX

FORTESCUE METALS GROUP ANNUAL REPORT 2009 18 18 appropriate managementofthis area. applies therequisiteresources toensurethe continue overthiscurrentyear astheCompany the ongoingdevelopmentof ERMprogramwill and arebeingactioned.Aspreviously indicated, areas offurtherfocusandworkhavebeenidentified the conclusionsofindependentreviewandthat has reportedtotheBoardthatitissatisfiedwith In turn,theAudit&RiskManagementCommittee the extentandeffectivenessofworkconducted. to thecommitteeasanindependentassessmentof been conductedbyKPMGwithareportprovided the Board.Areviewofmanagement’sworkhas to committeeandinturnhasbeenreportedup stage GoodDecisionsProgramhasbeendelivered systems. Areportfollowingthecompletionoffirst and developmentofFortescue’sriskmanagement Management hasadvisedastotheestablishment Through theAudit&RiskManagementCommittee, effectively. on whetherthoseriskarebeingmanaged material businessrisksandreporttoit control systemtomanagethecompany’s implement theriskmanagementandinternal require managementtodesignand Recommendation 7.2:TheBoardshould of thecontrolmeasures. independent testing of the assumptions andvalidation peer reviewoftheworkdone by MYR which involved internal auditservicestoFortescue.Thisincludeda from KPMGwhowereawardedthemandatefor management hasbeensupportedbytheriskteam The workconductedbyMYRConsulting and website. management proceduresisavailable onFortescue’s the philosophybehinddevelopment ofitsrisk A summaryoftheCompany’s policydocumentand Reporting onASXPrinciple7: management. designed toheightenthefocusoneffectiverisk independent internalauditor,arebothmeasures with theappointmentofKPMGasCompany’s appointment ofaHeadRiskManagementtogether manage itsriskmanagementprocess.Therecent work inprogressastheCompanyintendstoactively the entireoperation.Thisdocumentwillremaina reporting onthekeymaterialbusinessrisksacross document thatsetsouttheprocessforcapturingand Fortescue hasdevelopedariskmanagementpolicy on Principle7 information indicatedin Recommendation 7.4:Providethe risk oversightandmanagementinternalcontrol. were basedontheexistenceofasoundsystem Directors statingthattheCompany’sfinancialreports Officer haveprovidedalettertotheBoardof The ChiefExecutiveOfficerandtheFinancial management andinternalcontrolssystem. the operationaleffectiveness,ofrisk Corporations Actcompliancestatusand the ChiefFinancialOfficerasto from theChiefExecutiveOfficerand disclose thatithasreceivedassurances Recommendation 7.3:TheBoardshould Michael StreamleadingaHeritage Guide toreporting Creek Bedmeeting. 19 19 FORTESCUE METALS GROUP ANNUAL REPORT 2009 Reporting on ASX Principle 8: A copy of the Remuneration & Nominations Committee Charter is available in the corporate governance section of Fortescue’s website. www.fmgl.com.au required superannuation contribution, there are no required superannuation the fixed salary component. other payments beyond employees including During 2009, all Fortescue were able to participate non-executive directors, arrangement whereby a in a salary/fee sacrifice base payment amount percentage of a person’s on market share acquisitions by could be diverted to However, given changes to an independent trustee. arrangement, the scheme was tax treatment of this July 2009. suspended as from

The Company has developed a remuneration structure structure remuneration a developed has Company The for its executive directors and senior executives that is based partly on fixed remuneration and partly on incentive based payments. A summary of this payment structure for the 2009 year is provided within the remuneration section of the annual report. The payment structure for non-executive directors is also reviewed within the remuneration section of the annual report. Fees paid to directors do not have any performance element to them. There are no retirement benefits for directors and other than the Recommendation 8.2: Companies should clearly distinguish the structure of non- executive director’s remuneration from that of executive directors and senior executives. The Company has a Remuneration & Nomination The Company has a Remuneration & Nomination the Committee and its charter is available on website. The Company complies with the recommendation people, that the committee consists of at least three directors and it consists of a majority of independent the chairman, Mr Herb Elliott, is an independent director. The other members of the committee Steinberg, during the 2009 financial year were Mr Mr Forrest. Mr Ambrecht, Mr Hegarty and the CEO August 2009, Upon the retirement of Mr Steinberg in committee. Mr Cumming has been appointed to the charter The Company’s objective as stated in the the is to ensure that all senior executives including remuneration CEO and executive directors have their packages reviewed on a regular basis. These pay, base between balance the ensure to aim reviews incentive schemes and superannuation plans are goals. and circumstances Fortescue’s to appropriate Recommendation 8.1: The Board should Recommendation 8.1: The Board establish a remuneration committee. and Responsibly and that a company should ASX Principle 8 states and composition of “ensure that the level and reasonable and its remuneration is sufficient and individual performance relationship to corporate complies with this principle is defined”. Fortescue than and associated recommendations, other Recommendation 8.2, in the following manner: Remunerate Fairly Fairly Remunerate Principle 8: 8: Principle ASX BEST PRACTICE RECOMMENDATIONS PRACTICE BEST ASX

FORTESCUE METALS GROUP ANNUAL REPORT 2009 20 20 REPORT FINANCIAL East Perth,WesternAustralia6004 Level 2,87AdelaideTerrace Registered Office and Principal Place of Business: ABN: Fortescue Metals Group Ltd 30 June 2009 57 002 594 872 The newWirtgen4200surface miner inaction at Cloudbreak.

21 21 FORTESCUE METALS GROUP ANNUAL REPORT 2009 23 32 48 49 50 51 52 54 115 116 Page

Auditors’ Independence Declaration Item Directors’ Report Remuneration Report Income Statements Balance Sheets Cash Flow Statements Statements of Changes in Equity Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available Through the use of the internet, we have ensured that our corporate reporting and other information are globally at minimum cost to the Company. All press releases, financial reports available on the Company’s website at www.fmgl.com.au. The financial report was authorised for issue by the Directors on 10 August 2009. The Company has the power The financial report was authorised for issue by the Directors on 10 August 2009. to amend and reissue the financial report. A description of the nature of Fortescue’s operations and its principal activities is included in the Directors’ A description of the nature of Fortescue’s operations and its principal activities Report on page 23 to 47, which does not form part of this financial report. Level 2, 87 Adelaide Terrace EAST PERTH, WESTERN AUSTRALIA 6004 Fortescue Metals Group Ltd is a company limited by shares, incorporated and domiciled in Australia. Its Fortescue Metals Group Ltd is a company limited by shares, incorporated and registered office and principal place of business is: This financial report covers both Fortescue Metals Group Ltd as an individual entity (the Company) and the This financial report covers both Fortescue Metals Group Ltd as an individual (Fortescue). The financial consolidated entity consisting of Fortescue Metals Group Ltd and its subsidiaries report is presented in United States (US) currency. TABLE OF CONTENTS OF TABLE

FORTESCUE METALS GROUP ANNUAL REPORT 2009 22 22 Mr LiXiaowei–appointed12June2009 Dr IanBurston–appointed13October2008 Mr OwenHegarty–appointed13October2008 Mr GeoffBrayshaw Mr JosephSteinberg Mr KenAmbrecht Mr HerbElliott–Chairman Non-Executive The DirectorsoftheCompanyinofficeduringfinancialyearanduntildatethisreportareasfollows. Directors Ltd (theCompany)andtheentitiesitcontrolledatendof,orduring,yearended30June2009. Your Directorspresenttheirreportontheconsolidatedentity(Fortescue),consistingofFortescueMetalsGroup DIRECTORS’ REPORT sector andhaswonmultipleglobal financeawards. Minerals andEnergyPresident ofAthleticsAustralia.MrForresthasextensiveexperience inthemining Non-Executive ChairmanofSiberiaMiningCorporationLimited, DirectoroftheWestAustralianChamber Venture, Non-ExecutiveChairmanofMolyMinesLtd, ChairmanofArafuraPearlsLtd, Chairman ofAnacondaNickelLimited(nowMinaraResources Ltd),ChairmanoftheMurrinJoint Australian InstituteofMiningandMetallurgy.Hispreviousroles includeChiefExecutiveOfficerandDeputy Children’s Trust.HeisanadjunctprofessoroftheChinaSouthern Universityandalongstandingfellowofthe Remuneration Committee.MrForrestisNon-ExecutiveChairman ofPoseidonNickelLtdandtheAustralian July 2003.HewasalsoInterimChairmanfrom2003until May2005andisamemberoftheCompany’s Mr ForrestisthefounderandChiefExecutiveOfficerofFortescue andhasbeenCEOoftheCompanysince Chief Executive Officer – Age 47 Mr Andrew Forrest the AustralianBroadcastingCommission.MrElliottisaDoctorofQueenslandUniversityTechnology. Mr ElliottistheformerinauguralChairmanofNationalAustraliaDayCommitteeandwasaCommissioneron company GlobalCorporateChallenge.PreviousexecutiverolesincludePresidentofPUMANorthAmerica. been aDirectorofAnsellLimitedandPacificDunlopLtd.HeisalsoChairmantheprivatecorporatehealth Management Committeeuntil5July2007.MrElliottisalsoChairmanofTelstraFoundationLimitedandhas Committee andChairmanoftheRemunerationCommittee.MrElliottwasAuditRisk in May2005andChairmanon16March2007.MrElliottisamemberoftheAuditRiskManagement Mr ElliottwaselectedaNon-ExecutiveIndependentDirectoroftheCompanyinOctober2003,DeputyChairman Chairman - Age 71 Mr Herb Elliott AC, MBE responsibilities and other directorships: Names, qualifications, independence status, experience, special Directors wereinofficefortheentireperiodunlessotherwisestated.

Mr RussellScrimshaw Mr GraemeRowley Mr AndrewForrest Executive 23 23 FORTESCUE METALS GROUP ANNUAL REPORT 2009

Mr Brayshaw was appointed a Non-Executive Director of the Company on 1 July 2007 and was appointed Mr Brayshaw was appointed a Non-Executive Director of the Company on 1 July was formerly an audit Chairman of the Audit and Risk Management Committee on 5 July 2007. Mr Brayshaw has held a number of positions partner with a large international accounting firm and retired in June 2005. He of Chartered Accountants in commerce and professional bodies including National President of the Institute Group Limited, Board in 2002, Independent Director and Audit Committee Chairman of Fortron Insurance Chairman of a Trustee Company member of the Small Business Development Corporation and was formerly the and Chairman of the Audit related to an Aboriginal Corporation. Mr Brayshaw is also a Non-Executive Director Committee of Poseidon Nickel Limited. Mr Geoff Brayshaw AM Brayshaw Geoff Mr 59 Age – Director Non-Executive Mr Steinberg was appointed a Non-Executive Independent Director of the Company in August 2006 and he sits Mr Steinberg was appointed a Non-Executive Independent Director of the Company 1979 and a Director since on the Remuneration Committee. Mr Steinberg has been President since January States of America. Mr Steinberg December 1978 of Leucadia National Corporation Inc. (Leucadia) of the United in Fortescue in August was invited onto the Fortescue Board to represent Leucadia following its investment Jordan Industries, Inc. and 2006. Mr Steinberg is also President and Director of The FINOVA Group, Inc., serves on several non-profit Chairman of HomeFed Corporation. He is a Trustee of New York University and Ltd. from June 2001 through boards. Mr Steinberg served as a director of White Mountains Insurance Group, University and an MBA from to June 2005. Mr Steinberg received an AB in government in 1966 from New York from 1966 to 1968. Harvard Business School in 1970. He served in the United States Peace Corps Mr Joseph Steinberg Joseph Mr 65 Age – Director Non-Executive Mr Ambrecht is a Non-Executive Independent Director of the Company and is a member of the Audit and Risk Mr Ambrecht is a Non-Executive Independent Committee. Mr Ambrecht is the Principal of KCA Associates Management Committee and the Remuneration firm. He is a Non-Executive Director of American Financial LLC., an investment banking and advisory Ltd. Mr Ambrecht was previously a Managing Director at First Albany Corporation Inc and Dominion Petroleum following a 25 year career at Lehman Brothers in New York as Managing Capital and the Royal Bank of Canada Director in the capital markets division. Mr Ken Ambrecht Ambrecht Ken Mr 63 Age – Director Non-Executive Mr Scrimshaw was a Non-Executive Director of the Company from October 2003 to June 2005, at which time Mr Scrimshaw was a Non-Executive Director Mr Scrimshaw was a board member of Commonwealth Properties he became Executive Director, Commercial. New Zealand Australia Pty Ltd, the Garvan Institute Foundation and Ltd, EDS Australia, Mobilesoft Ltd, Telecom Member of the Australian Society of Certified Practicing Accountants. Athletics Australia. He is also an Associate positions within the Commonwealth Bank of Australia, Optus, Mr Scrimshaw previously held senior executive Alcatel, IBM and Amdahl USA. Mr Russell Scrimshaw Russell Mr 60 Age – Director Executive Mr Rowley has been an Executive Director of the Company since October 2003. Previously he was an executive since October 2003. Previously he was an Executive Director of the Company Mr Rowley has been and Argyle Diamonds. Mr Rowley’s previous senior positions in Hamersley Iron with Rio Tinto plc, holding Council for Pilbara Development Commission, the the Dampier Port Authority, the directorships have included Council. State Government’s Technical Advisory of TAFE and the Western Australian the West Pilbara College and of both iron ore ship loading facilities experience in operational management Mr Rowley has extensive the unique Pilbara environment. heavy haul railway within Mr Graeme Rowley AM Rowley Graeme Mr 69 Age – Director Executive DIRECTORS’ REPORT DIRECTORS’

FORTESCUE METALS GROUP ANNUAL REPORT 2009 24 24 elected aDirectoroftheAusIMMinOctoberandtookuppositionJanuary2009. awarded the2005AusIMMInstituteMedalforhisleadershipandachievementsinminingindustry.Hewas listed G-ResourcesLtd.HeisafellowoftheAustralasianInstituteMiningandMetallurgy(AusIMM)was Hegarty isalsoaNon-ExecutiveDirectorofRangeRiverGoldLimitedandExecutiveChairmanHongKong base andpreciousmetalsproducer,developerexplorer.OxianaLtdGroupbecameOzMineralsLtd.Mr Ltd Group,whichgrewfromasmallexplorationcompanytomulti-billiondollarAustralianandAsiafocused business. HewasthefoundingManagingDirectorfrom1995throughtomergerin2008ofOxiana he wasManagingDirectorofRioTintoAsiaandtheGroup’sAustraliancoppergold in theminingindustryAustraliaandinternationally.MrHegartyhad25yearswithRioTintoGroupwhere Mr HegartywasappointedaNon-ExecutiveDirectoron13October2008.Hehasnearly40yearsexperience Non-Executive Director – Age 61 Mr Owen Hegarty Enterprises GroupandGeneralManagerofValinIron&Steel group. Vice ChairmanofLianyuanIronandSteelCoLtd,DeputyGeneral ManagerofHunanProvincialMetallurgy an M.A.fromtheGraduateSchoolofChineseAcademy ofSocialSciences.Hehaspreviouslyservedas Zhongnan UniversityofEconomicsandLaw,specialisingin BusinessEnterpriseManagement,MrLialsoholds of HunanValinsince1999,MrLiisalsoVicePresidentChinaIron&SteelAssociation.Agraduate Agreement withHunanValinIronandSteelGroupCoLtd(HunanValin)on25February2009.Chairman Mr LijoinedtheBoardasaNon-ExecutiveDirectoron12June2009followingFortescue’sSubscription Non-Executive Director – Age 57 Mr Li Xiaowei Citizen oftheYearin1992. Dr BurstonwasawardedtheOrderofAustralia(GeneralDivision)in1993andelectedWesternAustralian executive positions. Previously heworkedfortheCRAGroup(nowpartofRioTinto)where22yearsinvarioussenior Aurora GoldLtdandPortmanLimitedChiefExecutiveOfficerofKalgoorlieConsolidatedMinesPtyLtd. Kanzai MiningCorp.Formerly,DrBurstonheldpositionsasManagingDirectorofHamersleyIronPtyLimited, Chief ExecutiveOfficerofAztecResourcesLtdbetweenJune2003andFebruary2006.HeisalsoaDirector a Non-ExecutiveDirectorofMincorResourcessinceJanuary2003andservedasExecutiveChairman Imdex LtdsinceNovember2000andChairmanDirectorofNRWHoldingsJuly2007.Hehasbeen Chairman ofCapeLambertfromJuly2006toMay2007.DrBurstonhasbeenNon-Executive of CapeLambertIronOrebetweenMay2007andAugust2008previouslyservedasNon-Executive top-level experienceinWesternAustralianandinternationalmining.MostrecentlyhewasExecutiveChairman Dr BurstonwasappointedaNon-ExecutiveDirectoron13October2008.hasmorethan30yearsof Non-Executive Director – Age 74 Dr Ian Burston AM 25 25 FORTESCUE METALS GROUP ANNUAL REPORT 2009 * * * * * 3 3 1 3 3 B - 3 3 3 3 3 3 3 3 3 * * * * * 3 3 1 3 3 A Remuneration Resolutions Executed Number of Circulating * * * * * * 3 5 5 5 B Committee Meetings Audit * * * * * * 2 5 5 5 A - 3 3 3 3 3 3 3 3 3 1 B 19 19 14 19 19 19 14 19 19 Resolutions Eligible Number of Circulating 1 A 18 18 11 19 19 19 11 19 18 Board Meetings

= Not a member of the relevant committee Mr Joseph Steinberg Mr Andrew Forrest Dr Ian Burston Mr Graeme Rowley Mr Geoff Brayshaw Director Mr Herb Elliott Mr Andrew Forrest Mr Graeme Rowley Mr Russell Scrimshaw Mr Ken Ambrecht Mr Joseph Steinberg Mr Geoff Brayshaw Mr Owen Hegarty Dr Ian Burston Mr Li Xiaowei Mr Li Xiaowei Mr Ken Ambrecht Mr Owen Hegarty Mr Herb Elliott Mr Russell Scrimshaw Director * A = Number of meetings attended the Director held office or was a member of the committee B = Number of meetings held during the time during the year

Directors’ Meetings Directors’ during the and of each Board committee held of the Company’s Board of Directors The numbers of meetings attended by each Director were: 30 June 2009, and the numbers of meetings financial year ended DIRECTORS’ REPORT DIRECTORS’ In addition to the scheduled Board and Committee meetings a number of matters were resolved by circulating In addition to the scheduled Board and Committee meetings a number of matters Board Resolutions. The Remuneration Committee also acts as the Nomination Committee.

FORTESCUE METALS GROUP ANNUAL REPORT 2009 26 26 of NewEnglandandaDiplomafromtheSecuritiesInstituteAustralia. Manager withStateBankNSWLtd.MrCampbellholdsaBachelorofAgriculturalEconomicsfromtheUniversity Campbell wasStateManagerWesternAustraliaforRaboBankLtdandbeforethataSenior Mr CampbellwasappointedCompanySecretaryoftheinNovember2004.Priortothattime Age 49 Mr Rod Campbell The followingpeopleheldthepositionofCompanySecretaryatendfinancialyear. Company Secretaries’ Particulars US$452 million(A$645million)toHunanValinIron&Steel CompanyinApril2009. On afinancialside,Fortescuecompletedshareplacement of260millionsharesfortotalconsideration a 24hourperiod. period andaproductionratethroughtheoreprocessingfacility atCloudbreakof129,008tonnesachievedwithin 19 hours.Otherhighlightsincludedashiploadingrateof100,349 tonnesbeingachievedwithina12hourshift Cloudbreak minesitetotheHerbElliottportatPortHedland withacurrentroundtripcycletimenowunder There wereanumberofoperatingmilestonesachievedduring theyearwithover1,100trainjourneysfrom tonnes (Mt)whichwasderivedfromatotalvolumeoforemined of31.0Mt. The rampupofoperationscontinuedduringtheyearwith totalamountoforeshippedbeing27.3million REVIEW OF OPERATIONS No significantchangesinthenatureofactivitiesFortescueoccurredduringyear. the currentminingsites. aggressive explorationandmetallurgicalprogramwhichisprogressivelydevelopingtenementareasoutsideof trucked totheCloudbreakoreprocessingfacilityforinclusioninproductblend.Fortescuealsomaintainsan More recentlyFortescue’ssecondmineatChristmasCreekhascommencedoperationswithproductbeing along Fortescue’sheavyhaulraillinethroughtotheloadingofshipsatportfacilityPortHedland. logistics chainstartingwiththeminingofironorefromFortescue’sCloudbreakminesite,railingproduct The principalactivityofFortescueduringthecoursefinancialyearwasoperationanintegrated Principal Activities Accountants inAustralia. Corporation LimitedandGoldFieldsAustraliaPtyLtd.MrCatlowisaFellowoftheInstituteChartered Executive GeneralManagerFinanceofIlukaResourcesLimitedandChiefFinancialOfficerEnergyEquity sector, havingpreviouslybeenaDirectorofConsolidatedRutileLtdandSierraLtd.Hewasalso has beenCompanySecretarysinceNovember2003.MrCatlowextensiveexperienceintheresources Mr CatlowwaspreviouslyChiefFinancialOfficeroftheCompanyfromSeptember2003toJanuary2009and Age 48 Mr Christopher Catlow

27 27 FORTESCUE METALS GROUP ANNUAL REPORT 2009 dicate dicate n 2008

(63,158) (771,770) US$’000 3,126,563 Represented 2009 508,042 850,692 US$’000 4,408,917

Net profit/(loss) after income tax Net profit/(loss) after Total assets Net assets/(deficit) The Energy Efficiency Opportunities Act 2006 requires Fortescue to assess its energy usage, including The Energy Efficiency Opportunities Act 2006 requires Fortescue to assess its and to report publicly on the the identification, investigation and evaluation of energy saving opportunities, with the Commonwealth assessments undertaken. As required under this Act, Fortescue has registered of 2009. Department of Resources, Energy and Tourism and will report to them by the end to report its annual greenhouse The National Greenhouse and Energy Reporting Act 2007 requires Fortescue from 1 July 2008 to 30 June 2009. gas emissions and energy use. The first measurement period for this Act ran Greenhouse gas and energy date reporting requirements Opportunities Act 2006 and Fortescue is subject to the public reporting requirements of the Energy Efficient Protection (National the National Greenhouse and Energy Reporting Act 2007 and the National Environmental and will be reported later in 2009. Pollutant Inventory) Measure. These requirements relate to the financial year Fortescue’s operations have been inspected by the Department of Minerals and Petroleum (DMP), Department Fortescue’s operations have been inspected by the Department of Minerals and Department of the of Environment and Conservation (DEC), Department of Water and the Commonwealth during the financial year. Environment, Water, Heritage and the Arts (DEWHA) a combined total of six times ministerial conditions across all Fortescue was able to demonstrate a high level of compliance with licence and inspections. ENVIRONMENTAL REGULATIONS ENVIRONMENTAL are governed by a range of environmental legislation and Fortescue’s exploration and mining activities Monitoring is conducted regulations. During this financial year, activities at all Fortescue sites have increased. environmental regulations. Our at these sites to ensure that activities continue to operate in accordance with the performance has been within the requirements of our environmental licences. No dividends have been paid or declared by the Company to members since the end of the previous financial No dividends have been paid or declared the payment of a dividend in respect of the current financial year. year and the Directors do not recommend The consolidated financial report for the financial year ended 30 June 2009, including comparative information The consolidated financial report for the dollars. (Represented), has been presented in US DIVIDENDS that a significant proportion of cash inflows and cash outflows going forward will be denominated in USD. in denominated be will forward going outflows cash and inflows cash of proportion significant a that CORPORATE adopt US dollars (USD) as the functional currency of the Company and On 1 January 2009 Fortescue elected to of an entity is the currency of the primary economic environment all of its subsidiaries. The functional currency reflect the economic substance of the underlying events and in which the entity operates, which should Fortescue’s transition from an exploration to a production company has circumstances relevant to the Company. inflows from iron ore sales. These inflows are denominated in US dollars, resulted in generating significant cash USD Senior Secured Notes and Subordinated Loan Note, i which combined with Fortescue’s significant

OPERATIONS from operations are as follows. The consolidated results DIRECTORS’ REPORT DIRECTORS’

FORTESCUE METALS GROUP ANNUAL REPORT 2009 28 28 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS requirements duringthefinancialyearanduptodateofDirectors’Report. the requirementsofenvironmentallegislationdescribedaboveandisnotawareanybreachthose To thebestofDirectors’knowledge,Fortescuehasadequatesystemsinplacetoensurecompliancewith October 2009. to prepareandsubmititsinitialreporttheGreenhouseEnergyDataOfficerbyrequireddeadlineof31 Fortescue hasimplementedsystemsandprocessesforthecollectioncalculationofdatawillbeable operations ofFortescue andtheexpectedresults ofthoseoperationsinsubsequent financialyears. (except asreportedinthisDirectors’ Report),inrelationtolikelydevelopmentsandbusiness strategiesofthe In theopinionofDirectors itmayprejudicetheinterestsofCompanytoprovideadditional information LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS No othersignificanteventsrequiring disclosurehaveoccurredsince30June2009. approximately 25kilometrestotheeastofFortescuerail line. The tenementisapproximately100kilometressouthofFortescue’s HerbElliottportfacilityatPortHedlandand additional agreedamounttocoverfeasibilitystudiesBaosteel canmovetoa50%interest. with theresourcedefinitionenablesBaosteeltomovea 35%interestintheJV.Uponexpenditureofan Australian subsidiaryofChina’sBaosteelGroupCorporation (Baosteel).Theexplorationexpenditureassociated tenement area.GlacierValleyisheldbyFortescuebutsubject toajointventure(JV)arrangementwithan On 29July2009Fortescueannounceda1.23billiontonne InferredResourceEstimateforitsGlacierValley EVENTS SUBSEQUENT TO REPORTING DATE Other significantchangesinthestateofaffairsFortescuearedescribedbelow: is explainedintheCashFlowStatements. The increaseincontributedequityisexplainedtheStatementsofChangesEquity.netcash Ore andInfrastructureProject. the utilisationofavailablecashreserveswasusedprimarilyforcontinuingdevelopmentPilbaraIron (from $133,182,000to$654,942,000).Netcashreceivedfromtheincreaseincontributedequitycoupledwith equity of$483,085,000(from$746,791,000to$1,229,876,000)andanincreaseincashassets$521,760,000 operation oftheCloudbreakandChristmasCreekironoreminesinPilbarawereanincreasecontributed Significant changesinthestateofaffairsFortescueduringfinancialyearaspartdevelopmentand ● ● ● ● ● ● ● ● largest disputedcontracts; May 2009)leavingonlyfivedisputedcontractsremaining.TheBocimarandClassicwerethe agreements withBocimarInternationalNV(Bocimar)(4February2009)andClassicMaritime(Classic)(27 of AffreightmentandConsecutiveVoyageContracts.SubsequenttothisFortescuenegotiatedsettlement On 5December2008Fortescueexercisedsuspensionofallits10longtermCFRshippingcontracts financial yearwithoreminingbeginninginMay2009; Fortescue’s secondmine,ChristmasCreek,commenceddevelopmentduringthehalfofthis issue waseffectedinthefourthquarterofthisfinancialyear. (US$452 million)innewequitycapital.SubsequenttoAustralianandChinesegovernmentapprovalsthis Fortescue sharesissuedatasubscriptionpriceofA$2.48(US$1.74)persharetoraiseA$645million Group Company(HunanValin)toenableHunanValinproceedwithitsacquisitionof260millionnew On 25February2009FortescuesigneditsShareSubscriptionAgreementwithHunanValinIronandSteel negotiation isongoing; On 19December2008Fortescuealsoterminatedoneofitstimechartercontracts.Thisdisputedcontract

29 29 FORTESCUE METALS GROUP ANNUAL REPORT 2009 Expiry date 11 February 2014 11 February 2014 11 February 2014 11 February 2014 A$2.50 A$2.50 A$2.50 A$2.50 Exercise price Ordinary Shares 2,167,938 972,828,300 19,235,690 8,000,000 6,313,130 277,986,000 33,149 - - - 600,000 600,000 600,000 600,000 granted 2,400,000 Number of options

Directors of Fortescue Metals Group Ltd Mr P Hallam Mr M Minosora Other executives Mr P Huston R Scrimshaw Key management personnel Name Director Mr Herb Elliott Mr Andrew Forrest Mr Graeme Rowley Mr Russell Scrimshaw Mr Ken Ambrecht Mr Joseph Steinberg Mr Geoff Brayshaw Mr Owen Hegarty Dr Ian Burston Mr Li Xiaowei In February 2009, 600,000 incentive options were issued to Mr Russell Scrimshaw. This issue was approved In February 2009, 600,000 incentive options 23 June 2009. The terms and conditions of these options are set out at a general meeting of the Company on during the year. below. No other Directors held options year. financial the of end the since granted been have options No year. financial the during granted were options All SHARE OPTIONS SHARE Officers of the Company Options granted to Directors and year, the Company granted options for no consideration over unissued During or since the end of the financial key management personnel and ordinary shares in the Company to the following Directors and to the following other executives of the Company as part of their remuneration:

DIRECTORS’ INTERESTS DIRECTORS’ by the issued by the Company, as notified of each Director in the shares and options The relevant interest Act 2001, at with S205G(1) of the Corporations Securities Exchange in accordance Directors to the Australian is as follows: the date of this report DIRECTORS’ REPORT DIRECTORS’

FORTESCUE METALS GROUP ANNUAL REPORT 2009 30 30 Company oranyotherbodycorporate. entitled toexercisetheoptions.Theseoptionsdonotentitleholderparticipateinanyshareissueof individuals onconditionthattheyservespecifiedtimeperiodsasanemployeeofFortescuebeforebecoming were issuedpursuanttotheFortescueMetalsGroup’sIncentiveOptionSchemeandhavebeenallotted All optionsexpireontheearlieroftheirexpirydateorterminationemployee’semployment.These unlisted andovertheordinarysharesofCompany. The numberofoptionsonissueintheCompanyatdatethisreportisasfollows.Alltheseare Unissued SharesUnderOptions the policy. relating tootherliabilities.Conditionsofthepolicyalsopreclude disclosuretothirdpartiesoftheamountpaidfor not possibletoapportionthepremiumbetweenamountsrelating totheinsuranceagainstlegalcostsandthose or ofinformationtogainadvantageforthemselvessomeone elseortocausedetrimentFortescue.Itis of conductinvolvingawilfulbreachdutybytheOfficers or theimproperusebyOfficersoftheirposition liabilities incurredbytheOfficersinconnectionwithsuch proceedings, otherthanwheresuchliabilitiesariseout be broughtagainsttheOfficersintheircapacityas ofFortescue,andanyotherpaymentsarisingfrom The liabilitiesinsuredarelegalcoststhatmaybeincurredin defendingcivilorcriminalproceedingsthatmay Officers ofFortescue. Since theendofpreviousfinancialyear,CompanyhaspaidpremiumstoinsureDirectorsand DIRECTORS AND OFFICERS INDEMNITIES AND INSURANCE options asfollows(therewerenoamountsunpaidonthesharesissued): During orsincetheendoffinancialyear,Companyissuedordinarysharesasaresultexercise Shares IssuedonExerciseofOptions Date OptionsGranted Date OptionsGranted 11 February2009 11 February2009 25 January2006 25 January2006 1 June2005 1 June2006 1 June2006 1 June2005 31 December2009 Number Vested 11 February2014 25 January2011 Expiry Date 1 June2011 2,998,110 2,010,938 8,309,130 - Issue PriceofShares Number ofShares 1,029,530 4,744,500 694,250 Issued A$2.50 A$0.70 A$0.57 A$0.27 - Number underOption Issue PriceofShares 2,400,000 2,968,750 1,987,000 2,221,380 A$0.70 A$0.27 A$0.57 A$2.50 31 31 FORTESCUE METALS GROUP ANNUAL REPORT 2009

A - Principles used to determine the nature and amount of remuneration to determine the nature and A - Principles used B - Details of remuneration C - Service agreements remuneration D - Share based E - Additional information Short term and long term incentive plans; Matters relating to Fortescue’s recruitment, retention and termination policies; CEO succession planning; and Nomination and review of applicants for a Board Director position. Chief Executive Officer (CEO) and Executive Director remuneration; Senior executive remuneration; High levels of employee share ownership will drive an alignment of employee and shareholder interests; High levels of employee share ownership that Fortescue operates; Remuneration and reward will be competitive and reasonable within the sector Transparency in terms of disclosure and compliance with relevant legislative requirements. Performance linkage and alignment of executive remuneration to performance of Fortescue and the Performance linkage and alignment of executive remuneration to performance individual executive; and ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● The remuneration strategy is based on the following principles: The remuneration strategy is based on The objective of Fortescue’s remuneration strategy is to ensure that reward for performance is competitive The objective of Fortescue’s remuneration The strategy seeks to align employee and executive reward with the and appropriate for the results delivered. results that contribute to the creation of value for shareholders. achievement of strategic objectives and Fortescue’s remuneration strategy is designed to build a performance oriented culture and attract, retain and Fortescue’s remuneration strategy is designed to meet their full potential. In line with this strategy, Fortescue motivate its employees, encouraging them and incentives. provides market competitive fixed remuneration Key Management Personnel have the authority and responsibility for planning, directing and controlling the Key Management Personnel have the authority Key Management Personnel and the five most highly remunerated activities of Fortescue and other executives. Fortescue, in accordance with S300A of the Corporations Act 2001, are executive officers for the Company and defined on pages 36 and 37. A - PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF OF AMOUNT AND NATURE THE DETERMINE TO USED PRINCIPLES - A REMUNERATION The information provided in this remuneration report has been audited as required by section 308(3C) of the The information provided in this remuneration Corporations Act 2001. The remuneration report is set out under the following main headings: report is set out under the following The remuneration Remuneration Report (Audited) Report Remuneration REMUNERATION REPORT REMUNERATION The role of the Remuneration Committee is to provide assistance and recommendations to the Board in fulfilling The role of the Remuneration Committee is to provide assistance and recommendations its Corporate Governance responsibilities related to the following: The Board has established a Remuneration Committee. The Remuneration Committee operates in accordance The Board has established a Remuneration Committee. The Remuneration Committee by Mr Herb Elliott and with its charter as approved by the Board. The Remuneration Committee is chaired year the Remuneration is comprised in the majority by Independent Non-Executive Directors. During the Committee met three (3) times. Fortescue has structured a remuneration framework that is market competitive and complementary to the Fortescue has structured a remuneration framework that is market competitive reward strategy of the organisation.

FORTESCUE METALS GROUP ANNUAL REPORT 2009 32 32 companies listedwithintheASX,inadditiontoconsideringindividualcontributionandcompetencelevels. employer contributionstosuperannuationfunds.FixedRemunerationisreviewedagainstrelevantcomparator Fixed Remuneration(FR)consistsofbaseremuneration(whichiscalculatedonatotalcostbasis),aswell Fixed Remuneration The remunerationstructurethathasbeenadoptedbyFortescueconsistsofthefollowingcomponents: information toassistinthedischargeofitsresponsibilities. The Committeemayengageindependentexternalconsultantsandadvisorstoprovideanynecessary shares aresubjecttoa12month shareescrowprovisiontoencouragelongtermownership. equivalent aftertaxvalue),is designed toencourageshareownershipamongstemployees. Theseissued employment. The5percentextra paymentincentiveforreceivingsharesissuedbythe company (foran that conditionasat30June,theirentitlementtothepayment willbecomedueuponcompletionof12month’s June 2009andthattheymusthaveservedafull12month’s employment.Forthosewhohadnotsatisfied The conditionsforthepaymentincludethatEligiblestaffmust havebeenintheCompany’semployon30 salary (or15%ifappliedtosharepurchase)forallemployees onpermanentcontracts. record breakingprogressionfromprojecttoproducer,theBoard approvedanexgratiapaymentof10%base acknowledge thoseachievementsinparticularandmoregenerally, thecontributionofemployeesinFortescue’s However, theresultsachievedinfourthquarterof2009 financialyearwereneverthelessoutstanding.To payments weretriggeredundertheCompany’sformalincentive planestablishedpriortothe2009financialyear. As occurredin2008,theKPIsestablishedfor2009Incentive Planwerenotmetandinconsequenceno Directors donotparticipateinanyincentiveschemesestablishedbytheCompany. All employeesandexecutiveshavetheoptiontotakeincentivesincashorsuperannuation.Non-Executive manager approvalapplieswithfinalCEOpriortothefinalisationandpaymentofanyaward. incentive awardsforhisdirectreportsbasedontheachievementoftargets.Forallotheremployeesaoneup indicators (KPIs).AttheendofperformanceperiodCEOmakesrecommendationstoBoardfor For anincentivetobeawarded,Fortescuemusthaveachieveditsbusinesstargetsandkeyperformance designed torewardemployeesandexecutivesformeetingorexceedingtheirobjectives. Fortescue’s currentincentivebasedremunerationstructureisfocusedonshorttomediumtermincentivesand Incentive Schemes to theuncertainty,FortescuehasdecidedsuspendSSSPuntilfinallegislationisenacted. Government’s finalpositionontheincometaxtreatmentofsalarysacrificeshareplansremainsuncertain.Due May 2009,anumberofchangestotheGovernment’sBudgetproposalhavebeenannounced,however the abilitytodefertaxonsharesacquiredunderemployeeshareschemes.Sinceannouncement12 In thefederalbudgeton12May2009,governmentannouncedwithimmediateeffectremovalof salary thattheywishtosacrificeperannum(up50cent). opportunity toparticipateintheSalarySacrificeSharePlan(SSSP).Employeesnominateamountofpre-tax Further toFortescue’saimofencouragingemployeeshareownership,allFortescueemployeeshavean Salary Sacrifice Share Plan ● ● ● ● ● ● Incentive Schemes(FMGIOS) Salary SacrificeSharePlan(SSSP);and Fixed Remuneration(FR)beingannualsalary; 33 33 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - - (579) 2005 480% A$0.24* - - 2006 275% (1,487) A$0.66* - - 2007 256% A$2.43* (31,860) - 2008 252% A$8.52* 139,294 (771,770) - 2009 (68%) 508,042 (A$8.11) 1,830,953

High retention of overall employees, key management personnel and other executives; and High retention of overall employees, key from project to producer. Fortescue’s record breaking progression ● ● % Change in share price $ Change in share price Dividends paid Net profit/(loss) – US$’000 Revenue from iron ore operations – US$’000 ● ● * = Movements have been adjusted to provide reasonable comparative amounts in light of Fortescue’s * = Movements have been adjusted to provide reasonable comparative amounts was split into ten fully paid reorganisation of capital in December 2007, whereby each fully paid ordinary share ordinary shares. Total remuneration for all Non-Executive Directors, last voted upon by shareholders at the 2007 AGM, is not to Total remuneration for all Non-Executive Directors, last voted upon by shareholders with reference to the fees paid exceed A$750,000 per annum and is set based on advice from external advisors base fees are presently to other Non-Executive Directors of comparable companies. Non-Executive Directors’ up to A$80,000 per annum. Non-Executive Directors In considering Fortescue’s performance and benefits for shareholder wealth, the Board have regard to the In considering Fortescue’s performance financial year and the previous four financial years. following indices in respect of the current Consequences of performance on shareholders wealth shareholders on performance of Consequences Remuneration structure Remuneration that the above remuneration structure is generating the desired The Remuneration Committee considers outcomes, evidenced by: A table of unissued shares under option, including expiry date and number of options yet to be exercised, is is exercised, be to yet options of number and date expiry including option, under shares unissued of table A February 11 and 2009 December 31 between expire options Available 31. page on Report Directors’ the in included 2014. The FMGIOS is considered a long term incentive and retention mechanism as it contains vesting conditions mechanism as it contains vesting conditions a long term incentive and retention The FMGIOS is considered price is the a 4 year period. The change in share become exercisable progressively over whereby the options FMGIOS arising from options issued under the for the FMGIOS as the realised value key performance criteria issued the exercise price of the options. The options increase in the share price to above is dependent upon an trade at or only become exercisable if the shares to a share price condition whereby they in 2009 are subject time of the weighted average market price at the consecutive days noting that the volume above A$6.00 for 5 options grant was A$2.50. Fortescue Metals Group Incentive Options Scheme (FMGIOS) Group Incentive Options Scheme Fortescue Metals which provision of options pursuant to the FMGIOS remuneration packaging is the A component of Fortescue’s year 2,400,000 June 2009. During the 2009 financial by approval at a general meeting in was recently refreshed to certain senior executives. options were issued REMUNERATION REPORT REMUNERATION

FORTESCUE METALS GROUP ANNUAL REPORT 2009 34 34 during 2009. (NEDSP), whichwouldbeacquiredonmarket.SeveralNon-ExecutiveDirectorsparticipatedinthearrangement a percentageoftheirremunerationintheCompany’ssharesunderNon-ExecutiveDirectorSharePlan Non-Executive Directorsdonotreceiveshareoptions.mayelecteachyearto annum. receives A$6,000perannum.TheChairmanoftheAuditCommitteeanadditionalA$15,000 an additionalA$4,000perannumcommitteeandthechairofacommittee,otherthanAuditCommittee, Directors’ feescoverallmainBoardactivities.Non-ExecutiveDirectorswhositonaCommitteereceive the RemunerationCommittee.Non-ExecutiveDirectorsdonotreceiveperformancerelatedremuneration. per annumbeingfeesinrecognitionofhismembershiptheAuditCommitteeandpositionasChairman The Chairman’sbasefeeisA$162,000perannum.ChairmanalsoreceivesanadditionalA$10,000 Chris Catlow–formerChiefFinancialOfficer,nowDirector, InvestmentandBusinessDevelopment Russell Scrimshaw–ExecutiveDirectorCommercial Graeme Rowley–ExecutiveDirectorOperations John Blanning–formerHeadofMiningresigned14January 2009 Alan Watling–formerChiefOperatingOfficerresigned 9 January2009 are setoutbelow: The fivenamedCompanyexecutivesandrelevantFortescue executiveswhoreceivedthehighestremuneration Chris Catlow–formerChiefFinancialOfficer,nowDirector, InvestmentandBusinessDevelopment Gordon Cowe–DirectorofProjectsappointed1July2008 andresigned30June2009 Alan Watling–formerChiefOperatingOfficerresigned9January2009 Michael Minosora–ChiefFinancialOfficerappointed19January2009 Paul Hallam–ChiefOperatingOfficerappointed17November2008 Executive Officers Li Xiaowei–appointed12June2009 Ian Burston–appointed13October2008 Owen Hegarty–appointed13October2008 Geoff Brayshaw Joseph Steinberg Ken Ambrecht Russell Scrimshaw Graeme Rowley Andrew Forrest Herb Elliott Directors includes theDirectorsandfollowingexecutiveofficersassetoutbelow: Fortescue whohaveauthorityandresponsibilityforplanning,directingcontrollingtheactivitiesofentity The keymanagementpersonnel(asdefinedinAASB124RelatedPartyDisclosures)oftheCompanyand Amount of remuneration B - DETAILS OF REMUNERATION Executive DirectorfeesaredisclosedinpartBoftheRemunerationReport. Executive Directors 35 35 FORTESCUE METALS GROUP ANNUAL REPORT 2009

of remuneration % remuneration of Value of options as proportion proportion as options of Value ------

10%

performance related % related performance Proportion of remuneration remuneration of Proportion ------

9% 6% 18% Total US$ Total - - - 66,546 58,195 58,841 42,576 42,576 65,816 119,161 137,623 619,110 360,255 683,477 360,255 120,368 175,907 ------(a) US$ based 65,977 Share-

Options

payments Termination benefits US$ benefits Termination ------US$ long term Long leave Other service ------US$ 6,050 5,560 6,928 Post- 3,870 8,138 5,983 75,459 32,750 56,136 32,750 65,655 Super- benefits annuation employment - - - US$ Total 59,833 60,496 58,195 58,841 42,576 54,713 38,706 327,505 561,364 327,505 543,651 113,601 130,695 167,769 ------US$ Non- 1,610 61,415 86,387 benefits monetary Short-term ------US$* Cash bonus 55,106 55,106 11,334 - - - US$ fees 59,833 60,496 58,195 58,841 42,576 70,048 69,280 54,713 38,706 327,505 327,505 486,935 506,258 113,601 Salary & 2008 2009 2008 2009 2008 2009 2008 2008 2009 2009 2009 2008 2009 2009 2008 2009 2009

Mr G Brayshaw Mr J Steinberg Mr L Xiaowei - Xiaowei L Mr appointed 12 June 2008 Mr K Ambrecht Mr G Rowley Mr R Scrimshaw Dr I Burston - appointed 13 October 2008 Executive Mr A Forrest Mr H Elliott Name Ltd Directors of Fortescue Metals Group Non-executive Mr O Hegarty Hegarty O Mr 13 appointed - 2008 October Details of the nature and amount of each major element of remuneration of each Director, other Key remuneration of each Director, other Key and amount of each major element of Details of the nature and Fortescue are: and other executives of the Company Management Personnel Directors’ and Executive Officers’ Remuneration (Company and and (Company Remuneration Officers’ Executive and Directors’ Consolidated) REMUNERATION REPORT REMUNERATION

FORTESCUE METALS GROUP ANNUAL REPORT 2009 36 36 * All keymanagement personnelandotherexecutives areemployedbythe parententity. performance duringthelastquarter acrossalloperationsofFortescue. were paidduringthe2009financial year.Thebonuswasissuedinrecognitionofdramatically improved January 2009 appointed 19 Officer – Chief Financial Mr MMinosora, January 2009 – resigned14 Head ofMining Mr JBlanning, Other executives 9 January2009 Officer –resigned Chief Operating Mr AWatling, November 2008 appointed 17 Officer – Chief Operating Mr PHallam, Other keymanagementpersonnel Directors ofFortescueMetalsGroupLtd Name Development and Business Investment Director, Mr CCatlow, Projects Expansion Head of Mr WRamsey, June 2009 2008, resigned30 appointed 1July Projects – Director of Mr GCowe, and company) (consolidated personnel management and other directors TOTAL: =Bonusesrecognisedduring the2009financialyearwereaccruedasat30June2009, thereforenobonuses 2008 2009 2009 2009 2009 2008 2008 2009 2008 2009 2008 2009 2008 2,328,381 3,032,272 Salary & 449,778 206,534 184,504 252,033 218,325 330,655 264,524 413,922 327,505 438,381 fees US$ - 305,237 46,961 65,723 66,177 bonus 1,812 3,018 Cash US$* ------Short-term monetary benefits 258,010 404,998 14,960 42,421 61,415 1,610 Non- US$ ------3,742,507 2,389,796 449,778 513,061 299,008 228,737 481,709 253,495 330,655 264,524 327,505 438,381 Total US$ - employment annuation benefits 435,929 197,853 Super- 21,615 36,630 79,455 18,631 48,010 25,349 33,065 26,452 32,750 12,546 Post- US$ - service Other leave Long term long US$ ------288,048 348,753 60,705 ------Termination benefits US$ payments Options 103,973 102,971 382,530 297,031 Share- 34,576 65,977 80,626 65,977 79,742 79,742 based US$ (a) - - - 4,909,719 2,884,680 610,396 505,969 444,440 639,389 610,345 344,821 466,691 370,718 439,997 450,927

- Total US$ 30% 17% 24% 33% 22% 22% 18% 7% - - - Proportion of remuneration performance related % 15% 16% 13% 19% 22% 22% 18% 7% - - - Value of options as proportion of remuneration % 37 37 FORTESCUE METALS GROUP ANNUAL REPORT 2009

------7% 22% 18% 22% yield 2008 Dividend At risk - LTI ------rate 10% 13% 16% 19% 15% 5.75% 5.13% 5.75% 6.50% 2009 interest Risk free 1 ------26.40% 26.80% 26.80% 25.50% 2008 volatility Expected date*

At risk - STI ------8% 9% 6% 1% A$0.27 A$0.62 A$0.77 A$2.42 11% 14% 15% 2009 Price of shares on grant ------price* A$0.27 A$0.57 A$0.70 A$2.50 93% 78% 82% 78% 2008 100% 100% 100% 100% 100% 100% Exercise Fair - - - A$0.20 A$0.46 A$0.58 A$1.61 option* 82% 91% 94% 76% 67% 83% 70% 2009 value per 100% 100% 100% 100% 100% 100% 100% Fixed remuneration 1 Jun 2011 25 Jan 2011 11 Feb 2014 31 Dec 2009 Expiry Date

The fair value of the options is calculated at the date of grant using the Binomial model and allocated to using the Binomial model and allocated options is calculated at the date of grant The fair value of the 2007. Each option was split into ten options. 1 Jun 2005 1 Jun 2006

25 Jan 2006 11 Feb 2009 Grant Date = Adjusted in line with the reorganisation of capital of Fortescue Metals Groups Ltd effected on 19 December = Adjusted in line with the reorganisation Mr L Xiaowei Dr I Burston Mr O Hegarty Mr G Brayshaw Mr J Steinberg Mr K Ambrecht Mr R Scrimshaw Mr G Rowley Mr G Cowe Mr A Forrest Mr A Watling Mr W Ramsey Mr C Catlow Mr M Minosora Other executives Mr J Blanning Other key management personnel Mr P Hallam Mr H Elliott Name Directors of Fortescue Metals Group Ltd Directors of Fortescue Metals Group * that are linked to performance and those that are fixed are as follows: The relative proportions of remuneration (a) Notes in relation to the table of Directors, other Key Management Personnel Personnel Management Key other Directors, of table the to relation in Notes remuneration executive’s other and REMUNERATION REPORT REMUNERATION The following factors and assumptions were used in determining the fair value of options on grant date: the fair value of options on grant and assumptions were used in determining The following factors each reporting period evenly over the period from grant date to vesting date. Under the terms of the FMGIOS to vesting date. Under the terms of the evenly over the period from grant date each reporting period The value with 25% vested on each anniversary. vest over a four (4) year period, the options will progressively valuing the to the relevant reporting period. In of the fair value of the options allocated disclosed is the portion account (refer to Section D below). conditions have been taken into options, expected market 1 = Expected volatility is calculated using the AGSM risk measurement for the period 1 = Expected volatility is calculated using

FORTESCUE METALS GROUP ANNUAL REPORT 2009 38 38 Mr AndrewForrest,ChiefExecutiveOfficer remuneration aresetoutbelow. and otherexecutivesareformalisedinaserviceagreement.Themajorprovisionsoftheagreementsrelatingto Remuneration andothertermsofemploymentfortheExecutiveDirectors,KeyManagementPersonnel C - SERVICE AGREEMENTS Bonuses are approved by the Board of Directors as reward for Fortescue achieving its business targets and KPIs. on page33.Therelativeproportions ofremunerationthatarelinkedtoperformance disclosed onpage38. Details of Fortescue’s policy in relation to the proportion of remuneration that is performance related is discussed Details ofperformancerelated remuneration Mr ChristopherCatlow,Director,Investmentand Business Development Mr MichaelMinosora,ChiefFinancialOfficer Mr PaulHallam,ChiefOperatingOfficer Mr RussellScrimshaw,ExecutiveDirectorCommercial Mr GraemeRowley,ExecutiveDirectorPublicPolicy ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Three monthterminationclause annually bytheRemunerationCommittee. Base salary,inclusiveofsuperannuation,fortheyearended 30June2009ofA$650,000,tobereviewed Term ofagreement–Unspecified. Three monthterminationclause. annually bytheRemunerationCommittee. Base salary,inclusiveofsuperannuation,fortheyearended30June2009A$700,000tobereviewed Term ofagreement–Unspecified. Three monthterminationclause. annually bytheRemunerationCommittee. Base salary,inclusiveofsuperannuation,fortheyearended30June2009A$700,000,tobereviewed Term ofagreement–Unspecified. One monthterminationclause. annually bytheRemunerationCommittee. Base salary,inclusiveofsuperannuation,fortheyearended30June2009A$795,000tobereviewed Term ofagreement–Unspecified. Three monthterminationclause. annually bytheRemunerationCommittee. Base salary,inclusiveofsuperannuation,fortheyearended30June2009A$795,000tobereviewed Term ofagreement–Unspecified. Three monthterminationclause. annually bytheRemunerationCommittee. Base salary,inclusiveofsuperannuation,fortheyearended30June2009A$110,000tobereviewed Term ofagreement–Unspecified.

39 39 FORTESCUE METALS GROUP ANNUAL REPORT 2009

------2008* 500,000 250,000 250,000 250,000 during the year ------2009 250,000 250,000 Number of options vested

------2008* during the year ------2009 600,000 600,000 600,000 Number of options granted

Mr L Xiaowei Dr I Burston Mr O Hegarty Mr R Scrimshaw Mr G Rowley Mr A Forrest Mr G Brayshaw Mr A Watling Mr J Steinberg Mr C Catlow Mr G Cowe Mr K Ambrecht Mr M Minosora Directors of Fortescue Metals Group Ltd Directors of Fortescue Metals Group Other executives Mr J Blanning Mr W Ramsey Other key management personnel Mr P Hallam Mr H Elliott Name Options over equity instruments granted as remuneration Options over equity instruments in the Company that were granted as remuneration to each Director, Details of options over ordinary shares executives of the Company and Fortescue are set out below. When Key Management Personnel and other one ordinary share of Fortescue Metals Group Ltd. Further exercisable, each option is convertible into 38 to the financial statements. information on options is set out in note Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible rights. When exercisable, each option the plan carry no dividend or voting Options granted under into one ordinary share. The terms and conditions of each grant of options affecting remuneration of each Director, Key Management remuneration of each Director, Key Management of each grant of options affecting The terms and conditions 30. future reporting periods are set out on page executives in the previous, current or Personnel and other D - SHARE-BASED REMUNERATION SHARE-BASED - D basis which are exercisable on a one-for-one over ordinary shares of the Company, All options refer to options under the FMGIOS. REMUNERATION REPORT REMUNERATION

FORTESCUE METALS GROUP ANNUAL REPORT 2009 40 40 1 =ExpectedvolatilityiscalculatedusingtheAGSMriskmeasurementforperiod * June 2009. key managementperson)havebeenalteredormodifiedby theCompanyduringfinancialyearended30 No termsofequity-settledshare-basedpaymenttransactions (includingoptionsgrantedasremunerationtoa Modification oftermsequity-settledshare-based paymenttransactions Australian dollars): The followingfactorsandassumptionswereusedindeterminingthefairvalueofoptionsongrantdate(in which was11February2009. the pricemustbeatorgreaterthanvolumeweightedaverageforfivedayspriortoofferdate, options havebeenissuedatanexercisepriceofAU$2.50,whichisinaccordancewiththeFMGIOSwhereby trading aboveAU$6forasetperiod.Thepricetargetwasoverdoubletheofsharesongrantdate. Directors haveimposedafurtherrequirementthattheexerciseofoptionsisconditionaluponFortescueshares the optionswillprogressivelyvestoverafour(4)yearperiod,with25%vestedoneachanniversary.Inaddition, During thefinancialyearCompanyissued2,400,000employeeoptions.UndertermsofFMGIOS the underlyingshare,expecteddividendyieldandrisk-freeinterestratefortermofoption. price, thetermofoption,impactdilution,sharepriceatgrantdateandexpectedvolatility date areindependentlydeterminedusingtheBinomialoptionpricingmodelthattakesintoaccountexercise grant datetovestingdate,andtheamountisincludedinremunerationtablesabove.Fairvaluesat The assessedfairvalueatgrantdateofoptionsgrantedtoindividualsisallocatedequallyovertheperiodfrom termination of the individual’s employment. The options are exercisableThe optionswereprovidedatnocosttotherecipients.Allexpireonearlieroftheirexpirydateor on an annual basis four years from grant date. and thenumberofoptionsgrantedduringyearin2008havebeenadjustedtoaccountforthisoptionsplit. reorganised through an option split whereby each option was split into ten options. The numbers of options vested paid ordinaryshares.TomaintainthevalueofoptionsissuedbyFortescue,Fortescue’swerealso reorganisation wasbywayofasharesplitwherebyeachfullypaidordinaryintoten =ThereorganisationofcapitalFortescueMetalsGroupLtdwaseffectedon19December2007. 11 Feb2009 Grant date Expiry date 11 Feb2014 per option Fair value A$1.61 Exercise A$2.50 price on grant Price of shares A$2.42 date Expected volatility 25.50% 1 Risk free interest 6.5% rate Dividend yield - 41 41 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------0.27 0.27 0.82 0.82 0.82 0.57 Share A$ Amount Paid per Amount Paid per ------2008* 250,000 250,000 1,000,000 during the year ------2009 500,000 150,000 100,000 Number of ordinary shares Number of ordinary issued on exercise of options issued on exercise ------18/07/08 30/11/07 07/10/08 31/01/09 01/02/08 24/01/08 of options Date of exercise

= The reorganisation of capital of Fortescue Metals Group Ltd was effected on 19 December 2007. The = The reorganisation of capital of Fortescue Metals Group Ltd was effected on Mr L Xiaowei Dr I Burston Mr O Hegarty Mr R Scrimshaw Mr G Rowley Mr A Forrest Mr A Watling Mr G Cowe Mr G Brayshaw Mr A Watling Mr J Steinberg Mr C Catlow Directors of Fortescue Metals Group Ltd Directors of Fortescue Metals Group Mr M Minosora Mr K Ambrecht Mr J Blanning Mr J Blanning Mr W Ramsey Other executives Mr J Blanning Mr P Hallam Other key management personnel Mr H Elliott Name reorganisation was by way of a share split whereby each fully paid ordinary share was split into ten fully paid reorganisation was by way of a share split whereby each fully paid ordinary share also reorganised through an ordinary shares. To maintain the value of options issued Fortescue’s options were issued on exercise of options option split whereby each option was split into ten options. The numbers of shares during the year in 2008 have been adjusted to account for this option split. *

Exercise of options granted as remuneration Exercise of options of the exercise of options to each Director in the Company provided as a result Details of ordinary shares are set and other executives of Fortescue Group Ltd, other key management personnel of Fortescue Metals out below. REMUNERATION REPORT REMUNERATION

FORTESCUE METALS GROUP ANNUAL REPORT 2009 42 42 value oftheoptionsthatisyettobeexpensed. The maximumvalueoftheoptionsthatisyettovesthasbeendeterminedasamountgrantdatefair date. Nooptionswillvestifconditionsarenotsatisfied,hencetheminimumvalueofoptionyettoisnil. exercised 25%afteroneyear,50%twoyears,75%threeyearsandinfullfourfromgrant in the2009financialyeararepayable2010.TheoptionswereissuedpursuanttoFMGIOSandmaybe because thepersondidnotmeetserviceandperformancecriteriaissetoutbelow.Thebonusesrecognised available bonusorgrantthatwaspaid,vested,inthefinancialyear,andpercentageforfeited For eachcashbonusandgrantofoptionsincludedinthetablesonpages3637,percentage Details ofremuneration-2009cashbonusesandoptions E - ADDITIONAL INFORMATION * Further details relating tooptiontransactions duringthe2009financialyear aresetoutbelow. were paidduringthe2009financial year. Name Directors ofFortescueMetalsGroupLtd Mr WRamsey Mr JBlanning Other executives Mr PHallam Other keymanagementpersonnel Mr HElliott Mr MMinosora Mr KAmbrecht Mr CCatlow Mr GCowe Mr AWatling Mr JSteinberg Mr GBrayshaw Mr AForrest Mr GRowley Mr RScrimshaw Mr OHegarty Dr IBurston Mr LXiaowei =Bonusesrecognisedduring the2009financialyearwereaccruedasat30June2009, thereforenobonuses Paid 15% 14% 11% 6% 9% 8% Cash Bonus % ------Forefeited % ------* Granted Year 2006 2007 2009 2009 2006 2005 2009 ------Vested 100% 50% 75% 50% % ------Forefeited 50% 50% % ------Options 30/06/2010 30/06/2010 30/06/2013 30/06/2013 30/06/2010 30/06/2009 30/06/2013 Financial may vest years in options which ------Minimum grant yet value of to vest total US$ ------yet tovest total value Maximum of grant 578,882 578,882 578,882 45,442 US$ ------43 43 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------D US$ date Value at lapse ------C US$ date 266,487 2,720,279 Value at exercise Value at exercise ------B US$ date 644,859 644,859 644,859 Value at grant ------A % 10% 13% 19% 16% 15% options consisting of Remuneration

The percentage of the value of remuneration consisting of options, based on the value of options The percentage of the value of remuneration consisting of options, based on the expensed during the current year. of options The value at grant date calculated in accordance with AASB 2 Share-based Payment granted during the year as part of remuneration. The value at exercise date of options that were granted as part of remuneration and were exercised The value at exercise date of options that were granted as part of remuneration during the year, being the intrinsic value of the options at that date. that lapsed during the The value at lapse date of options that were granted as part of remuneration and year. Lapsed options refer to options that vested but expired unexercised.

Mr L Xiaowei Dr I Burston Mr O Hegarty Mr R Scrimshaw Mr G Rowley Mr A Forrest Mr G Cowe Mr A Watling Mr G Brayshaw Mr C Catlow Mr J Steinberg Mr M Minosora Mr W Ramsey Mr K Ambrecht Other executives Mr J Blanning Other key management personnel Mr P Hallam Mr H Elliott Name Directors of Fortescue Metals Group Ltd Directors of Fortescue C = D = B = A = REMUNERATION REPORT REMUNERATION

FORTESCUE METALS GROUP ANNUAL REPORT 2009 44 44 This istheendofauditedRemunerationReport. for disclosuretothemarketofalltransactionsorcontractsinvolvingCompany’sshares. in CompanySecuritieswithoutthepriorapprovalofChiefExecutiveOfficer.TheDirectorsareresponsible deal inCompanySecuritieswithoutprovidingwrittennotificationtotheChairman.TheChairmanmustnot including detailingpotentialcivilandcriminalpenaltiesformisuseofinsideinformation.TheDirectorsmustnot The securitiestradingpolicydetailsacceptableandunacceptabletimesforinCompanySecurities (b) (a) in companysecuritiestoinclude: various securities,includingshares,debtnotesandoptions.Fortescue’ssecuritytradingpolicydefinesdealing Fortescue’s securitytradingpolicyprovidesguidanceonacceptabletransactionsindealingtheCompany’s Securities Policy (c)

Entering intoagreementsortransactionswhichoperatetolimittheeconomicriskofaperson’sholdingsin Subscribing for,purchasingorsellingCompanySecuritiesenteringintoanagreementtodoanyofthose Company Securities. things; family companyortrust)totradeinCompanySecurities;and Advising, procuringorencouraginganotherperson(includingafamilymember,friend,associate,colleague, 45 45 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - US$ 2008 32,966 14,298 156,318 203,582 Represented Consolidated - US$ 2009 9,590 25,210 251,035 285,835

all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the all non-audit services have been reviewed and impartiality and objectivity of the auditor; principles relating to auditor independence as set out in APES none of the services undermine the general 110 Code of Ethics for Professional Accountants. ● ● Audit Services: BDO Risk Advisory Services (QLD) Pty Ltd - Risk advisory services Total Remuneration Services other than statutory audit: BDO Consultants (WA) Pty Ltd - Financial due diligence BDO Kendalls Audit & Assurance (WA) Pty Ltd BDO Kendalls Audit & Assurance (WA) - Audit and review of financial reports Amounts received or due and receivable by auditors for: Amounts received or due and receivable - Other assurance services ● ● The Board of Directors has considered the position and, in accordance with the advice received from the Audit accordance with the advice received from has considered the position and, in The Board of Directors standard services is compatible with the general that the provision of the non-audit Committee, is satisfied the Corporations Act 2001. The Directors are satisfied that the of independence for auditors imposed by as set out below, did not compromise the auditor independence provision of non-audit services by the auditor, for the following reasons: requirements of the Corporations Act 2001 Details of the amounts paid or payable to the auditor BDO Kendalls Audit & Assurance (WA) Pty Ltd for audit Kendalls Audit & Assurance (WA) Pty Ltd paid or payable to the auditor BDO Details of the amounts below. provided during the year are set out and non-audit services NON-AUDIT SERVICES NON-AUDIT duties where additional to their statutory audit decide to employ the auditor on assignments The Company may and experience with Fortescue is important. the auditor’s expertise REMUNERATION REPORT REMUNERATION During the year the following fees were paid or payable for services provided by the auditor of the Company, its During the year the following fees were firms. related practices and non-related audit

FORTESCUE METALS GROUP ANNUAL REPORT 2009 46 46 Auditor cases, tothenearestdollar. Report havebeenroundedoffinaccordancewiththatClassOrdertothenearestthousanddollars,orcertain Investments Commission,relatingtotheroundingoffofamounts.AmountsinfinancialreportandDirectors’ Fortescue isofthekindreferredtoinASICClassOrder98/100,issuedbyAustralianSecuritiesand Rounding off The auditor’sindependencedeclarationundersection307CoftheCorporationsAct2001issetoutonpage48. AUDITOR’S INDEPENDENCE DECLARATION Dated atPerththis10thdayofAugust2009. Chairman Herb Elliott This reportismadeinaccordancewitharesolutionoftheDirectors. Corporations Act2001. BDO KendallsAudit&Assurance(WA)PtyLtdcontinuesinofficeaccordancewithsection327ofthe 47 47 FORTESCUE METALS GROUP ANNUAL REPORT 2009 AUDITOR’S INDEPENDENCE INDEPENDENCE AUDITOR’S DECLARATION

FORTESCUE METALS GROUP ANNUAL REPORT 2009 48 48 The aboveincomestatementsshouldbereadinconjunction withtheaccompanyingnotes. For the year ended 30 June 2009 INCOME STATEMENTS Subordinated LoanNote Fair valueadjustmentto members oftheCompany Profit/(loss) attributableto Income taxbenefit/(expense) Profit/(loss) beforeincometax Administration expenses Other income Interest revenue Gross profit Cost ofsales (cents) Basic earnings/(loss)pershare Earnings/(loss) pershare: Revenue (cents) Diluted earnings/(loss)pershare Other financialexpenses – other Net foreignexchangegain/(loss) on borrowings Net foreignexchangegain/(loss)

Note 28 16 15 11 10 17 17 14 13 12 9 US$’000 (1,350,696) 2009 1,124,411 1,830,953 (153,918) (490,945) (568,342) (34,620) 508,042 661,960 480,257 114,598 Consolidated 26,717 9,884 17.70 17.77 Represented US$’000 (1,070,182) (1,103,406) 2008 (771,770) (301,953) (20,409) (90,868) (30,091) 331,636 139,294 224,893 (47.63) (47.63) 48,426 45,910 - US$’000 2009 (44,148) (63,552) (34,620) (14,913) (54,660) (12,279) (8,427) 19,404 39,747 1,037 4,143 1,507 Company - Represented US$’000 2008 (20,409) (16,900) (2,254) 22,707 13,152 5,807 3,852 564 712 148 - - - 49 49 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------1 26 197 5,017 6,320 1,147 6,320 1,899 8,219 2,655 1,899 1,694 22,673 91,774 740,625 121,159 619,466 732,406 732,406 746,791 618,096 (17,040) 2008 US$’000 Represented ------1 31 426 127 Company 4,066 1,498 25,144 24,847 14,623 10,224 (6,842) 325,469 296,131 966,235 105,011 129,858 104,585 452,263 512,443 (61,188) 1,291,704 1,161,846 1,161,846 1,229,876 2009 US$’000 1 26 2,790 1,147 2,655 1,694 22,673 10,504 15,688 80,629 35,844 483,119 404,156 280,175 113,899 132,366 264,065 746,791 133,182 109,976 (63,158) (63,158) (812,604) 3,126,563 2,846,388 1,289,892 1,046,219 2,785,565 3,189,721 2,572,570 2008 US$’000 Represented 1 31 1,498 25,144 31,397 11,889 55,582 13,512 Consolidated 332,449 745,887 960,781 339,085 850,692 850,692 212,254 349,602 319,823 654,942 183,188 121,122 (74,622) (304,562) 4,408,917 3,448,136 1,641,919 1,423,222 3,558,225 2,812,338 1,229,876 2,250,482 2009 US$’000 27 21 25 26 24 30 31 34 27 30 23 22 29 33 32 28 28 18 19 19 20 21 Note

Total assets Total Non-Current Assets Deferred tax assets Other financial assets Property, plant and equipment Intangible assets Total Current Liabilities Development expenditure Total Current Assets Trade and other payables Derivatives held at fair value Total liabilities Net assets / (deficit) Accumulated losses Total equity / (deficiency in equity) Deferred tax liabilities Total Non-Current Liabilities Trade and other payables Exploration and evaluation expenditure Other current assets Current assets Provisions Reserves Equity Contributed equity Non-current liabilities Borrowings Borrowings Current liabilities Non-current assets Trade and other receivables Cash and cash equivalents Trade and other receivables Inventories Financial assets

The above balance sheets should be read in conjunction with the accompanying notes. The above balance sheets should be read in conjunction with the accompanying

BALANCE SHEETS BALANCE 2009 June 30 at As

FORTESCUE METALS GROUP ANNUAL REPORT 2009 50 50 The abovecashflowstatements shouldbereadinconjunctionwiththeaccompanying notes. For the year ended 30 June 2009 CASH FLOW STATEMENTS plant andequipment Payments forpurchaseofother infrastructure assets Payments forpurchaseof Development expenditure Interest received and cashequivalents Net increase/(decrease)incash Proceeds fromborrowings employees Payments tosuppliersand Cash receiptsfromcustomers on cashandequivalents Effect ofexchangeratechanges 1 July Cash andcashequivalentsat financing activities Net cashinflow/(outflow)from Payment oftransactioncosts share capital Proceeds fromtheissueof Cash flowsfromfinancingactivities investing activities Net cashinflow/(outflow)from and equipment Proceeds fromdisposalofplant Transfers tosubsidiaries intangible assets Payments forpurchaseof expenditure Exploration andevaluation Cash flowsfrominvestingactivities operating activities Net cashinflow/(outflow)from Interest paid 30 June Cash andcashequivalents at Repayment ofdeposits Deposits received Repayment ofborrowings Cash flowsfromoperatingactivities Note 35 18 US$’000 (1,198,145) 2009 1,852,369 (544,630) (406,122) (741,743) (190,760) (11,317) (57,221) 133,182 432,215 700,610 453,433 223,180 473,348 654,942 209,806 (2,786) (2,400) Consolidated 96,992 89,545 9,884 (68) - - Represented US$’000 (1,246,338) 2008 1,165,429 (805,430) (536,734) (123,709) (985,106) (133,421) (167,351) (47,141) (19,008) 113,734 394,653 351,067 123,026 133,182 (7,828) (7,080) 43,905 50,666 (364) - - - - US$’000 2009 (142,676) (145,530) (69,426) (16,497) 550,425 453,433 388,398 452,263 (2,786) 48,786 96,992 63,668 4,143 Company (68) 197 ------Represented US$’000 2008 (375,103) (355,731) 343,987 (28,825) (19,008) (33,121) 351,067 (2,005) (7,080) 13,668 13,152 33,318 (364) 197 ------51 51 FORTESCUE METALS GROUP ANNUAL REPORT 2009 (41) (163) 1,338 1,897 1,440 1,344 (4,541) (1,293) 350,547 349,078 971,480 430,840 481,560 483,010 850,692 359,534 508,042 101,335 258,199 (63,158) (77,202) (63,158) (771,770) (165,670) (1,577,580) US$’000 US$’000 US$’000 Total Equity Equity Total Total Equity Equity Total Represented ------(44) (41) (75) (163) 1,338 2,655 1,440 2,699 2,655 2,699 (1,219) (1,474) (77,202) (74,622) (77,202) US$’000 US$’000 US$’000 Reserves Reserves Represented ------971,480 508,042 508,042 101,335 (40,834) (771,770) (812,604) (165,670) (304,562) (812,604) (142,169) losses losses (1,577,580) US$’000 US$’000 US$’000 Represented Accumulated Accumulated Accumulated Accumulated ------3,116 2,818 (4,541) (1,293) 350,547 349,122 746,791 481,560 483,085 397,669 746,791 397,669 1,229,876 equity equity US$’000 US$’000 Contributed Contributed Contributed Contributed Represented 8 8 32 33 32 33 32 33 32 33 33 7(j) 32/33 32/33 Note Note

Transactions with equity holders in their capacity as equity holders: Transactions with equity holders in their Issue of share capital Share issue costs Equity settled share based payment transactions Exercise of options Forfeited options 2008 June 30 at balance closing Restated Total recognised income and expense for the year the for expense and income recognised Total Effect of change in accounting policy Correction of error Transactions with equity holders in their capacity as equity holders: Issue of share capital Share issue costs Equity settled share based payment transactions Exercise of options Forfeited options 2009 June 30 at balance Closing Net loss for the period Foreign currency translation year the for expense and income recognised Total Restated opening balance at 1 July 2007 Restated opening balance at 1 July 2008 Consolidated Net loss for the period Previous opening balance at 1 July 2007 Consolidated Correction of error For the year ended 30 June 2009 June 30 ended year the For Amounts are stated net of tax. the accompanying notes. The above statements of changes in equity should be read in conjunction with

IN EQUITY IN STATEMENTS OF CHANGES CHANGES OF STATEMENTS

FORTESCUE METALS GROUP ANNUAL REPORT 2009 52 52 The abovestatementsofchanges inequityshouldbereadconjunctionwiththeaccompanying notes. Amounts arestatednetoftax. IN EQUITY STATEMENTS OF CHANGES For the year ended 30 June 2009 Opening balanceat1July2008 Company Opening balanceat1July2007 Company Net lossfortheperiod Net lossfortheperiod Total recognised income and expense for the year Foreign currencytranslation Effect ofchangeinaccountingpolicy Exercise ofoptions Share issuecosts Forfeited options Closing balance at 30 June 2009 Equity settledsharebasedpaymenttransactions Issue ofsharecapital Transactions withequityholdersintheircapacityasholders: Total recognised income and expense for the year Exercise ofoptions Share issuecosts Forfeited options Closing balance at 30 June 2008 Equity settledsharebasedpaymenttransactions Issue ofsharecapital Transactions withequityholdersintheircapacityasholders: Note Note 32/33 32/33 7(j) 33 32 33 33 32 33 32 33 32 Represented Contributed Contributed US$’000 US$’000 equity equity 1,229,876 746,791 397,669 481,560 483,085 350,547 746,791 349,122 (1,293) (4,541) 2,818 3,116 ------Accumulated Accumulated Represented US$’000 US$’000 losses losses (17,040) (17,752) (61,188) (17,040) (8,495) 44,148 44,148 9,207 712 ------Represented Reserves Reserves US$’000 US$’000 (9,422) (1,474) (9,422) (6,842) (1,219) 2,655 2,699 1,440 1,338 2,655 (163) (75) (41) (44) ------Represented Total Equity Total Equity US$’000 US$’000 1,161,846 (732,406) (44,148) (53,570) 732,406 382,616 481,560 483,010 350,547 349,078 (9,422) (8,495) (1,293) (4,541) 1,344 9,207 1,440 1,897 1,338 (163) (41) 712 53 53 FORTESCUE METALS GROUP ANNUAL REPORT 2009 dicate dicate n B R

FUNCTIONAL AND PRESENTATION CURRENCY PRESENTATION AND FUNCTIONAL BASIS OF MEASUREMENT OF BASIS STATEMENT OF COMPLIANCE OF STATEMENT derivative financial instruments are measured at fair value; value; and financial instruments at fair value through profit and loss are measured at fair available-for-sale financial assets are measured at fair value. ● ● ● ● ● ● For the year ended 30 June 2009 June 30 ended year the For During the 2008 financial year Fortescue decided to change its accounting policy on accounting for borrowing During the 2008 financial year Fortescue decided to change its accounting policy policy was applied costs (note 7(j)) and expense all borrowing costs incurred. The change in accounting retrospectively and comparatives restated. (C) on the date of those Transactions in foreign currencies have been converted at rates of exchange ruling of such transactions and from transactions. Foreign exchange gains and losses resulting from the settlement The consolidated financial report for the financial year ended 30 June 2009, including comparative information, The consolidated financial report for the financial year ended 30 June 2009, has been presented in US dollars. that a significant proportion of cash inflows and cash outflows going forward will be denominated in USD. in denominated be will forward going outflows cash and inflows cash of proportion significant a that basis except for the following: The consolidated financial statements have been prepared on the historical cost (B) (B) On 1 January 2009 Fortescue elected to adopt US dollars (USD) as the functional currency of the Company and On 1 January 2009 Fortescue elected to of an entity is the currency of the primary economic environment all of its subsidiaries. The functional currency reflect the economic substance of the underlying events and in which the entity operates, which should to a production company has circumstances relevant to the Company. Fortescue’s transition from an exploration are denominated in US dollars, resulted in generating significant cash inflows from iron ore sales. These inflows Subordinated Loan Note, i which combined with Fortescue’s significant USD Senior Secured Notes and (A) (A) been prepared in accordance with Australian Accounting Standards, This general purpose financial report has Australian Accounting Standards Board, Australian Accounting other authoritative pronouncements of the 2001. The financial report of Fortescue Metals Group Limited also Interpretations and the Corporations Act Standards (IFRS) as issued by the International Accounting complies with International Financial Reporting amounts have been reclassified to conform to the current year’s Standards Board (IASB). Certain comparative presentation. Note 2. Note preparation of asis The principal accounting policies adopted in the preparation of the financial report are set out below. These The principal accounting policies adopted to all the year presented, unless otherwise stated. policies have been consistently applied Fortescue Metals Group Ltd (the Company) is a company domiciled in Australia. The address of the Company’s in Australia. The address of the Ltd (the Company) is a company domiciled Fortescue Metals Group statements of WA 6004. The consolidated financial Level 2, 87 Adelaide Terrace East Perth registered office is (together the Company and its subsidiaries and for the year ended 30 June 2009 comprise the Company as at activity is the development and operation of the Cloudbreak and referred to as Fortescue). Fortescue’s principal in Western Australia. Christmas Creek iron ore mines in the Pilbara Note 1. Note entity eporting NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS

FORTESCUE METALS GROUP ANNUAL REPORT 2009 54 54 Limited’s functionalandpresentationcurrency. consolidated financialstatementsarepresentedinUnitedStates(US)dollars,whichisFortescueMetalsGroup of theprimaryeconomicenvironmentinwhichentityoperates(thefunctionalcurrency).Theparentand Items includedinthefinancialstatementsofeachFortescue’sentitiesaremeasuredusingcurrency reported aspartofthefairvaluegainorloss. are recognisedintheincomestatement.Translationdifferencesonassetsandliabilitiescarriedatfairvalue the translationatyearendexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrencies STATEMENTS NOTES TO THE FINANCIAL a numberofways,includingthefollowing: period toperiod.ChangesinreportedReservesmayaffect Fortescue’sfinancialresultsandpositionin additional geologicaldataisgeneratedduringthecourseof operations,estimatesofReservesmaychangefrom Because theeconomicassumptionsusedtoestimateReserves changefromperiodtoperiod,andbecause (JORC Code).TheJORCCoderequirestheuseofreasonable investmentassumptionstocalculateReserves. as classifiedunderAustralasianCodeforReportingofMineral ResourcesandOreReservesDecember2004 resource of2.2Bt,whichincludes141.4milliontonnes(Mt) ofprovedand1,483.6MtprobableReserves, In theChichesterRangeprojectsites,Fortescuehasestimated aReserveof1.625billiontonnes(Bt)from difficult geologicaljudgementsandcalculationstointerpretthedata. be determinedbyanalysinggeologicaldatasuchasdrillingsamples.Thisprocessmayrequirecomplexand Estimating thequantityand/orgradeofReservesrequiressize,shapeanddepthorebodiesorfieldsto recovery rates,productioncosts,transportscommoditydemand,pricesandexchangerates. about arangeofgeological,technicalandeconomicfactors,includingquantities,grades,productiontechniques, Fortescue’s currentminingtenements.InordertocalculateReserves,estimatesandassumptionsarerequired Reserves areestimatesoftheamountproductthatcanbeeconomicallyandlegallyextractedfrom Reserve estimates relevant notestothefinancialstatements. estimates aremade.Furtherdetailsofthenaturetheseassumptionsandconditionsmaybefoundin Fortescue hasidentifiedthefollowingcriticalaccountingpoliciesunderwhichsignificantjudgementsand from theseestimatesunderdifferentassumptionsandconditions. carrying valuesofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmaydiffer ritical accountingvarious factorsitbelievestobereasonableunderthecircumstances,resultsofwhichformbasis estimates period, managementevaluatesitsjudgementsandestimatesbasedonhistoricalexperienceother estimates thataffecthowcertainassets,liabilities,revenue,expensesandequityarereported.Ateachreporting The preparationoftheconsolidatedfinancialstatementsrequiresmanagementtomakejudgementsand Note 3. and significant judgements For the year ended 30 June 2009 ● ● ● ● ● ● Asset carryingvaluesmaybe affectedduetochangesinestimatedfuturecashflows; tax benefits. The carryingvalueofdeferred taxassetsmaychangeduetochangesinestimatesofthe likelyrecoveryof determined bytheunitsofproduction basis,orwheretheusefuleconomiclivesofassets change;and Depreciation andamortisation chargesintheincomestatementmaychangewheresuch chargesare

C

55 55 FORTESCUE METALS GROUP ANNUAL REPORT 2009

Interest under the note is calculated as 4 per cent of the revenue, net of government royalties, from the Interest under the note is calculated as 4 per cent of the revenue, net of government Creek areas only. sale of iron ore FOB Port Hedland from the tenements of the Cloudbreak and Christmas only relevant to iron ore Accordingly the interest is only payable when Fortescue is in production and is 2006; and produced from these two tenement areas for a period of 13 years from 18 August that an interest payment is The note is unsecured and deeply subordinated to any secured debt. In the event will accrue interest at a market earned but not payable due to secured lender restrictions, the amount unpaid interest rate until payment is made. ● ● ● ● For the year ended 30 June 2009 June 30 ended year the For Subordinated Loan Note Valuation 2007 financial year. The key The Company put in place a US$100 million Subordinated Loan Note during the terms and conditions of the facility are: The provision recognised for each site is periodically reviewed and updated based on the facts and The provision recognised for each site is periodically reviewed and updated based operating sites are recognised in circumstances available at the time. Changes to the estimated future costs for the balance sheet by adjusting the rehabilitation asset and provision. Rehabilitation significant estimates Fortescue’s accounting policy for the recognition of rehabilitation provisions requires waste materials and the extent including the magnitude of possible works required for removal or treatment of may result in future actual of work required and the associated costs of rehabilitation work. These uncertainties expenditure differing from the amounts currently provided. The determination of fair value and value in use requires management to make estimates about expected The determination of fair value and value above), operating costs, production and sales volumes, commodity prices, Reserves (see Reserve estimates alter these projections, which rehabilitation costs and future capital expenditure. Changes in circumstances will or all of the carrying value of may impact the recoverable amount of the assets. In such circumstances, some income statement. the assets may be impaired and the impairment would be charged against the Property, plant and equipment – recoverable amount Property, plant and equipment – policy, each asset or cash generating unit is evaluated every In accordance with Fortescue’s accounting are any indications of impairment. If any such indication exists, reporting period to determine whether there is performed and an impairment loss recognised to the extent that a formal estimate of recoverable amount The recoverable amount of an asset or cash generating group of carrying amount exceeds recoverable amount. value less costs to sell and value in use. assets is measured at the higher of fair Development expenditure commercial viability and technical feasibility of the project is established. Development activities commence after determining when a project is commercially viable and technically Judgement is applied by management in new information becomes available. If, after having commenced the feasible. Any judgements may change as that a development asset is impaired, the appropriate amount will be development activity, a judgement is made written off to the income statement.

Exploration and evaluation expenditure Exploration and capitalised expenditure results in expenditure being policy for exploration and evaluation Fortescue’s accounting or where the by future exploitation or sale where it is considered likely to be recoverable for an area of interest permits a reasonable assessment of the existence of Reserves. This activities have not reached a stage which estimates as to future events and circumstances, in particular policy requires management to make certain operation can be established. Any such estimates and assumptions whether an economically viable extraction available. If, after having capitalised the expenditure under the policy, may change as new information becomes expenditure is unlikely, the relevant capitalised amount will be written a judgement is made that recovery of the off to the income statement. NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 3. Critical accounting estimates and significant judgements (continued) judgements significant and estimates accounting Critical 3. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 56 56 in note28(i).Explanationofthecorrectionerrorresultingfromachangeestimatesisincluded8. Explanation of the revaluation of the Subordinated Loan Note from US$1,247,336,000 to US$381,631,000 is included changes inthefollowingmanagementestimates,prevailingmarketconditionsandeconomicforecasts: The notewasrevaluedat30June2009toUS$381,631,000(302008:US$1,247,336,000)inlinewith STATEMENTS NOTES TO THE FINANCIAL Interest revenueoncashbalances isrecognisedusingtheeffectiveinterestmethod. (iii) Interest Revenue fromfreightservices isrecognisedonthebillofladingdatecustomer. (ii) revenue isbasedonthemostrecentlydeterminedestimate ofproductspecifications. on asurveyofthegoodsbycustomer(anassayformineral content);thereforerecognitionofthesales delivered totheshippingagent.Thesesalesagreementsalso allowforanadjustmenttothesalespricebased practical terms,revenueisgenerallyrecognisedonthebill of ladingdate,whichisthedatecommodity destination specifiedbythecustomer,whichistypically vesselonwhichtheproductwillbeshipped.In The majorityofFortescue’ssalesagreementsspecifythat title passeswhentheproductisdeliveredto collectability isreasonablyassured.Thisgenerallywhen titlepasses. quality ofthegoodshasbeendeterminedwithreasonable accuracy, thepriceisfixedordeterminable,and risks andrewardstothecustomer,nofurtherworkorprocessingisrequiredbyFortescue,quantity in theformofanexecutedsalesagreement,orarrangementexists,indicatingtherehasbeenatransfer Revenue fromthesaleofgoodsanddisposalotherassetsisrecognisedwhenpersuasiveevidence,usually (i) transaction andthespecificsofeacharrangement. Fortescue basesitsestimatesonhistoricalresults,takingintoconsiderationthetypeofcustomer, ritical accountingis notconsideredtobereliablymeasurableuntilallcontingenciesrelatingthesalehavebeenresolved. policies flow totheentityandspecificcriteriahavebeenmetforeachofFortescue’sactivities.Theamountrevenue revenue whentheamountofcanbereliablymeasured,itisprobablethatfutureeconomicbenefitswill Revenue ismeasuredatthefairvalueofgrossconsiderationreceivedorreceivable.Fortescuerecognises (A) Note 4. For the year ended 30 June 2009 ● ● ● ● ● ● ● ● ● ●

Traded freight Sale ofgoods The totalReserveestimateofCloudbreakandChristmasCreekhasnotchangedsince30June2008. Western Australianstategovernment;and Expected royaltyrateshavenotchangedsince30June2008andreflectcurrentpayabletothe Subordinated LoanNote; The discountratehasbeenappliedsinceinceptionandreflectstheimplicitinterestof42percent independent resourcesectoranalystoffutureironoreprices; Future ironorepriceswereupdatedtoreflectlowerforecastsprovidedbyMetalyticsPtyLtdbeingan forecast reachingamaximum160MtpainDecember2010); levels fromChristmasCreekandCloudbreakreachingamaximumof95mtpainFebruary2012(2008: Production wasrevisedtoreflectFortescue’sforecastproductionprofileasat30June2009of REVENUE RECOGNITION

C 57 57 FORTESCUE METALS GROUP ANNUAL REPORT 2009 40 years 15 years

- - 5 years 8 years 15 years

- - -

10 3 3 5 25

PROPERTY, PLANT AND EQUIPMENT AND PLANT PROPERTY, Units of production method Straight line method

For the year ended 30 June 2009 June 30 ended year the For The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. date. sheet balance each at appropriate, if adjusted and reviewed, are lives useful and values residual assets’ The (ii) of ore from the mine, these Where the useful life of infrastructure assets is directly linked to the extraction the units of production infrastructure assets are depreciated using the units of production method. In applying from the mine in the period method, depreciation is normally calculated using the quantity of material extracted future periods based on proved as a percentage of the total quantity of material to be extracted in current and and probable Reserves. Vehicles Furniture, fittings and equipment Infrastructure Buildings Machinery (i) from one year to another or Assets within operations where production is not expected to fluctuate significantly a straight line basis as follows: which have a physical life that differs from the related mine are depreciated on Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included Gains and losses on disposal are determined by comparing proceeds with carrying in the income statement. Depreciation is calculated using the straight line method or units or production Depreciation on assets, other than land, amounts, net of their residual values, over their estimated useful lives. method to allocate their cost or revalued Land is not depreciated. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, as asset, separate a as recognised or amount carrying asset’s the in included are costs Subsequent cost the and Fortescue to flow will item the with associated benefits economic future that probable is it when only carrying amount of the replaced part is derecognised. All other repairs of the item can be measured reliably. The statement during the financial period in which they are incurred. and maintenance are charged to the income Subsequent costs The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly The cost of self-constructed assets includes condition ready for its intended use, and the costs of dismantling attributable to bringing an asset to a working site on which they are located. When parts of an item of property, and removing the items and restoring the lives, they are accounted for as separate items (major components) of plant and equipment have different useful software that is integral to the functionality of the related equipment is property, plant and equipment. Purchased capitalised as part of the equipment. Recognition and measurement Recognition and accumulated cost less, where applicable, any plant and equipment is stated at historical Each class of property, cost includes expenditure that is directly attributable to the depreciation and impairment losses. Historical acquisition of the items. NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS (B) (B) Note 4. Critical accounting policies (continued) policies accounting Critical 4. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 58 58 (C) off infulltheincomestatementyearwhichdecisiontoabandonareaismade. forward costsinrelationtothatareaofinterest.Accumulatedanabandonedarewritten A regularreviewisundertakenofeachareainteresttodeterminetheappropriatenesscontinuingcarry assessment oftheexistenceorotherwiseeconomicallyrecoverableReserves. development ofthearea,orwhereactivitiesinareahavenotyetreachedastagethatpermitsreasonable These costsareonlycarriedforwardtotheextentthattheyexpectedberecoupedthroughsuccessful possible reversaloftheimpairmentateachreportingdate. assets orgroupsof(cash-generatingunits).Assetsthathavesufferedanimpairmentarereviewedfor which thereareseparatelyidentifiablecashinflowslargelyindependentofthefromother to sellandvalueinuse.Forthepurposesofassessingimpairment,assetsaregroupedatlowestlevelsfor amount exceedsitsrecoverableamount.Theisthehigherofanasset’sfairvaluelesscosts amount maynotberecoverable.Animpairmentlossisrecognisedforthebywhichasset’scarrying Assets arereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarrying STATEMENTS NOTES TO THE FINANCIAL statement tothe extentthattheywillnotberecoverable inthefuture. area ofinterestisreviewedat theendofeachaccountingperiodandaccumulatedcost written offtotheincome any accumulatedcostinrespect ofthatareaiswrittenoffinthefinancialperioddecision ismade.Each When anareaofinterestisabandoned ortheDirectorsdecidethatitisnotcommercial technicallyfeasible, capitalised totheextentthey are expectedtogiveriseafutureeconomicbenefit. management, arecapitalised.Developmentcostsincurred afterthecommencementofproductionare commissioning newassetsintheperiodbeforetheyarecapable ofoperatinginthemannerintendedby Development costsareaccumulatedinrespectofeachseparate areaofinterest.Costsassociatedwith accounted forasproperty,plantandequipment. to thatareaofinterest.Costsrelatedsurfaceplantandequipment andanyassociatedlandbuildingsare development costs,excavation, studiesandothersubsurfaceexpenditurepertaining Development expenditurecostsincludepastcapitalisedexploration andevaluationcosts,pre-production other thanthatonland,buildingsandplantequipment iscapitalisedunderdevelopmentexpenditure. Once aminingprojecthasbeenestablishedascommercially viableandtechnicallyfeasible,expenditure (E) Exploration andevaluationexpenditureincludes: Exploration andevaluationexpenditureincurredisaccumulatedinrespectofeachidentifiableareainterest. (D) For the year ended 30 June 2009 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● licensing costs. administration coststhataredirectlyattributabletoaspecificexplorationarea;and conducting marketandfinancestudies; surveying transportationandinfrastructurerequirements; determining andexaminingthevaluegradeofresource; exploratory drilling,trenchingandsampling; gathering explorationdatathroughtopographical,geochemicalandgeophysicalstudies; researching andanalysinghistoricalexplorationdata; DEVELOPMENT EXPENDITURE IMPAIRMENT OF ASSETS MINERAL EXPLORATION AND EVALUATION EXPENDITURE

59 59 FORTESCUE METALS GROUP ANNUAL REPORT 2009

DEFERRED STRIPPING STRIPPING DEFERRED

REHABILITATION For the year ended 30 June 2009 June 30 ended year the For Removal of waste material normally continues throughout the life of a mine. This activity is referred to as Removal of waste material normally continues throughout the life of a mine. This production stripping and commences upon extraction of ore. Capitalised development and production stripping costs are classified as Development Expenditure. Capitalised development and production stripping costs are classified as Development an operation for the purpose of Development stripping costs are considered in combination with other assets of undertaking impairment assessments. Overburden and other mine waste materials are often removed during the initial development of a mine in order Overburden and other mine waste materials are often removed during the initial The directly attributable costs to access the mineral deposit. This activity is referred to as development stripping. development costs. Capitalisation (inclusive of an allocation of relevant overhead expenditure) are capitalised as commences upon extraction of development stripping costs ceases and amortisation of those capitalised costs a unit of production basis for of ore. Amortisation of capitalised development stripping costs is determined on each separate area of interest. (G) (G) At each reporting date the rehabilitation liability is re-measured to account for any new disturbance, updated cost At each reporting date the rehabilitation liability is re-measured to account for any and revisions to discount estimates, changes to the estimated lives of operations, new regulatory requirements related rehabilitation asset and rates. Changes to the rehabilitation liability are added to or deducted from the amortised accordingly. Where rehabilitation is expected to be conducted systematically over the life of the operation, rather than at the Where rehabilitation is expected to be conducted present obligation or estimated outstanding continuous rehabilitation time of closure, provision is made for the in line with remaining future work at each balance sheet date and the costs charged to the income statement cash flows. Rehabilitation provisions are initially measured at the expected value of future cash flows required to rehabilitate Rehabilitation provisions are initially measured value. The value of the provision is progressively increased the relevant site, discounted to their present When provisions for rehabilitation are initially recognised, the over time as the effect of discounting unwinds. asset, representing part of the cost of acquiring the future economic corresponding cost is capitalised as an cost of rehabilitation activities is recognised in ‘Development benefits of the operation. The capitalised amortised accordingly. Expenditure’ as rehabilitation assets and The mining, extraction and processing activities of Fortescue give rise to obligations for site rehabilitation. The mining, extraction and processing activities decommissioning and dismantling; removal or treatment of waste Rehabilitation obligations can include facility The extent of work required and the associated costs are materials; land rehabilitation; and site restoration. studies using current restoration standards and techniques. estimated based on feasibility and engineering program are recognised at the time that environmental disturbance Provisions for the cost of each rehabilitation occurs. (F) (F) Development assets are assessed for impairment if facts and circumstances suggest that the carrying amount circumstances suggest that the carrying are assessed for impairment if facts and Development assets purposes of impairment testing, development assets are allocated exceeds the recoverable amount. For the activity relates. The cash generating unit shall not be larger to cash-generating units to which the development than the area of interest. Amortisation of carried forward exploration and development costs is charged on a unit of production basis over costs is charged on a unit of production forward exploration and development Amortisation of carried recoverable Reserves. the life of economically NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 4. Critical accounting policies (continued) policies accounting Critical 4. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 60 60 statement astheyareincurred. mines, thereforeproductionstrippingcostsfortheseminesarenotdeferredbutchargedtotheincome The CloudbreakandChristmasCreekareaofinteresthasminimaloverburdentoremovefromthesealluvial mine ratioareaccountedforprospectivelyfromthedateofchange. stripping expenseforthefinancialyearreflectsestimatedlife-of-mineratio.Changestolife-of- The amountofproductionstrippingcostscapitalisedorchargedinafinancialyearisdeterminedsothatthe follows: When theratioofwastetooreisnotexpectedbeconstant,productionstrippingcostsareaccountedforas estimated life. waste materialtooreextractedforanareaofinterestisexpectedbereasonablyconstantthroughoutits The costsofproductionstrippingarechargedtotheincomestatementasoperatingwhenratio STATEMENTS NOTES TO THE FINANCIAL and presentationcurrency. statements arepresentedinUnited States(US)dollars,whichisFortescueMetalsGroup Limited’sfunctional ignificant accountingprimary economicenvironment inwhichtheentityoperates(‘thefunctionalcurrency’).The consolidatedfinancial policies – Items includedinthefinancial statementsofeachFortescue’sentitiesaremeasured using thecurrencyof (A) income statement Note 5. the liabilityforatleast12monthsafterbalancesheetdate. Borrowings areclassifiedascurrentliabilitiesunlessFortescue hasanunconditionalrighttodefersettlementof assets transferredorliabilitiesassumed,isrecognisedinother incomeorotherexpenses. that hasbeenextinguishedortransferredtoanotherpartyandtheconsiderationpaid,includinganynon-cash contract isdischarged,cancelledorexpired.Thedifferencebetweenthecarryingamountofafinancialliability Borrowings andotherfinancialliabilitiesareremovedfromthebalancesheetwhenobligationspecifiedin on thesepreferencesharesarerecognisedintheincomestatementasinterestcosts. Preference shareswhicharemandatorilyredeemableonaspecificdateclassifiedasliabilities.Thedividend draw-down ofthefacility,areexpensedtoincomestatement. method. Feespaidontheestablishmentofloanfacilitieswhicharenotanincrementalcostrelatingtoactual amount isrecognisedintheincomestatementoverperiodofborrowingsusingeffectiveinterest measured atamortisedcost.Anydifferencebetweentheproceeds(netoftransactioncosts)andredemption Borrowings areinitiallyrecognisedatfairvalue,netoftransactioncostsincurred.subsequently (H) For the year ended 30 June 2009 ● ● ● ● ● ● capitalised strippingcostsischargedtotheincomestatementasoperatingcosts. In subsequentyearswhentheratioofwastetooreislessthanestimatedlife-of-mineratio,aportion stripping costs(inclusiveofanallocationrelevantoverheadexpenditure)iscapitalised;and When thecurrentratioofwastetooreisgreaterthanestimatedlife-of-mineratio,aportion All costsareinitiallychargedtotheincomestatementandclassifiedasoperatingcosts; FOREIGN CURRENCY TRANSACTIONS AND BALANCES BORROWINGS

S 61 61 FORTESCUE METALS GROUP ANNUAL REPORT 2009

FINANCE COSTS FINANCE OTHER INCOME OTHER BORROWING COSTS COSTS BORROWING assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that assets and liabilities for each balance sheet balance sheet; statement are translated at average exchange rates (unless this is income and expenses for each income effect of the rates prevailing on the transaction dates, in not a reasonable approximation of the cumulative at the dates of the transactions); and which case income and expenses are translated as a separate component of equity. all resulting exchange differences are recognised ● ● ● ● ● ● For the year ended 30 June 2009 June 30 ended year the For (D) (D) changes in fair value of Finance costs comprise borrowing costs, unwinding of the discount on provisions, derivatives, borrowing costs and impairment losses recognised on financial assets. Other income comprises, gains on the disposal of available-for-sale financial assets, changes in the fair value of Other income comprises, gains on the disposal of available-for-sale financial revenue. financial assets at fair value through profit or loss and loss and non-operational (C) (C) (B) (B) on borrowings, foreign Borrowing costs are expensed as incurred. Borrowing costs include interest expense with the arrangement of currency gains and losses on borrowings, and any other costs incurred in connection effective interest method. borrowings. Borrowing costs are recognised in the income statement using the

Group companies of which has the currency of a hyperinflationary position of all Fortescue entities (none The results and financial the presentation currency are translated into a functional currency different from the economy) that have as follows: presentation currency NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Translation differences on financial assets and liabilities carried at fair value are reported as part of the fair value Translation differences on financial assets non-monetary financial assets and liabilities such as equities held at gain or loss. Translation differences on in profit or loss as part of the fair value gain or loss. Translation fair value through profit or loss are recognised financial assets are differences on non-monetary financial assets such as equities classified as available-for-sale included in equity. Transactions in foreign currencies have been converted at rates of exchange ruling on the date of those Transactions in foreign currencies have losses resulting from the settlement of such transactions and from the transactions. Foreign exchange gains and of monetary assets and liabilities denominated in foreign currencies are translation at year end exchange rates recognised in the income statement. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, On consolidation, exchange differences of such investments, are taken to equity. When a foreign operation is and of borrowings designated as hedges net investment are repaid, a proportionate share of such exchange sold or any borrowings forming part of the statement, as part of the gain or loss on sale where applicable. differences are recognised in the income Note 5. Significant accounting policies – income statement (continued) statement income – policies accounting Significant 5. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 62 62 ignificant accounting policies – (A) balance sheet Note 6. STATEMENTS NOTES TO THE FINANCIAL recognised inthe incomestatement. a decreasebeloworiginalcost whichisconsideredtobesignificantorprolonged,in casethedecreaseis recognised atfairvalue,with changes infairvaluebeingrecogniseddirectlyaReserve, unlessthechangeis payments andmanagementintends toholdthemforthemediumlongterm.Theseinstruments are Investments aredesignatedas available-for-saleiftheydonothavefixedmaturitiesand fixedordeterminable current assetsunlessmanagement intendstodisposeoftheinvestmentwithin12months ofthereportingdate. are eitherdesignatedinthiscategory ornotclassifiedinanyoftheothercategories.They areincludedinnon- Available-for-sale financialassets,comprisingprincipally marketable equitysecurities,arenon-derivativesthat (iii) Availableforsalefinancialassets The fairvalueofFortescue’sinterestratederivativeisbased oncomparisonstovariableLIBORrates. assets asbeingatfairvaluethroughprofitorloss. instruments, Fortescuedoesnothaveanyassetsheldfortrading norhasitdesignatedanyotherfinancial changes infairvaluerecognisedtheincomestatement. Other thaninterestratederivativefinancial This categorycomprisesonlyinterestrateswaps.Theyare carriedinthebalancesheetatfairvaluewith assets. as heldfortradingunlesstheyaredesignatedhedges.Assetsinthiscategoryclassifiedcurrent Financial assetsatfairvaluethroughprofitorlossarefinancialheldfortrading.Derivativesclassified (ii) Derivatives and receivablesareincludedintradeother(note19). with maturitiesgreaterthan12monthsafterthereportingdatewhichareclassifiedasnon-currentassets.Loans quoted inanactivemarketandincludetradereceivables.Theyareincludedcurrentassets,exceptforthose Loans andreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatnot (i) Loansandreceivables recognition. for whichtheinvestmentswereacquired.Managementdeterminesclassificationofitsatinitial loss, loansandreceivablesavailable-for-salefinancialassets.Theclassificationdependsonthepurpose Fortescue classifiesitsinvestmentsintothefollowingcategories:financialassetsatfairvaluethroughprofitor (C) is established when there is objective evidence that Fortescue will not be able to collect all amounts due. using the effective interest method, less provision for impairment. An allowance for impairment of trade receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost (B) risk ofchangesinvalue. months orlessthatarereadilyconvertibletoknownamountsofcashandwhichsubjectaninsignificant held atcallwithfinancialinstitutions,othershort-term,highlyliquidinvestmentsoriginalmaturitiesofthree For cashflowstatementpresentationpurposes,andequivalentsincludesonhand,deposits For the year ended 30 June 2009 CASH AND CASH EQUIVALENTS FINANCIAL ASSETS TRADE AND OTHER RECEIVABLES

S 63 63 FORTESCUE METALS GROUP ANNUAL REPORT 2009

FINANCIAL LIABILITIES FINANCIAL Fair value through profit or loss

For the year ended 30 June 2009 June 30 ended year the For (i) in the balance sheet at fair value This category comprises only ‘out of-the-money derivatives’. They are carried derivative financial instruments, with changes in fair value recognised in the income statement. Other than these financial liabilities as being at Fortescue does not have any liabilities held for trading nor has it designated any fair value through profit or loss. Fortescue classifies its financial liabilities into one of two categories, depending on the purpose for which the Fortescue classifies its financial liabilities into one of two categories, depending asset was acquired. (D) (D) If there is evidence of impairment for any of Fortescue’s financial assets carried at amortised cost, the loss If there is evidence of impairment for any of Fortescue’s financial assets carried value of estimated future is measured as the difference between the assets carrying amount and the present interest rate. The loss is cash flows. The cash flows are discounted at the financial asset’s original effective the reversal is recognised in recognised in the income statement. If the impairment loss subsequently reverses, the income statement. Impairment whether there is objective evidence that a financial asset or group Fortescue assesses at each balance date of equity securities classified as available-for-sale, a significant or of financial assets is impaired. In the case below its cost is considered as an indicator that the securities are prolonged decline in the fair value of a security available-for-sale financial assets, the cumulative loss – measured as impaired. If any such evidence exists for impairment loss on that financial the difference between the acquisition cost and the current fair value, less any in the income statement. asset preciously recognised in equity – is removed from equity and recognised as available-for-sale Impairment losses recognised in the income statement on equity instruments classified which subsequently reverse are not reversed through the income statement. Details on how the fair value of financial instruments is determined are disclosed in note 6(f). Details on how the fair value of financial Changes in the fair value of monetary securities denominated in a foreign currency and classified as available- Changes in the fair value of monetary securities differences resulting from changes in amortised cost of the security for-sale are analysed between translation of the security. The translation differences related to changes in the and other changes in the carrying amount or loss, and other changes in carrying amount are recognised in equity. amortised cost are recognised in profit and non-monetary securities classified as available-for-sale are Changes in the fair value of other monetary recognised in equity. When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in When securities classified as available-for-sale as gains and losses from investment securities. equity are included in the income statement Recognition and derecognition Recognition and Fortescue on trade-date – the date on which and sales of financial assets are recognised Regular purchased costs for recognised at fair value plus transaction or sell the asset. Investments are initially commits to purchase value through or loss. Financial assets carried at fair not carried at fair value through profit all financial assets fair value and transactions costs are expensed in the income statement. profit or loss are initially recognised at the rights to receive cash flows from the financial assets have expired Financial assets are derecognised when has transferred substantially all the risks and rewards of ownership. or have been transferred and Fortescue NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 6. Significant accounting policies – balance sheet (continued) sheet balance – policies accounting Significant 6. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 64 64 Fair valueiscalculatedbydiscountingestimatedfuturecashflowsusingamarketrateofinterest. Other financialliabilitiesincludethefollowingitems: (ii) Financialliabilitiesmeasuredatamortisedcost STATEMENTS NOTES TO THE FINANCIAL similar leaseagreements. that donothaveaconversion option.Forfinanceleasesthemarketrateofinterestisdetermined byreferenceto liability componentofconvertible notes,themarketrateofinterestisdeterminedbyreference tosimilarliabilities principal andinterestcashflows, discountedatthemarketrateofinterestreporting date.Inrespectofthe Fair value,whichisdetermined fordisclosurepurposes,iscalculatedbasedonthepresent valueofthefuture Borrowings market interestratethatisavailabletoFortescueforsimilar financialinstruments. liabilities fordisclosurepurposesisestimatedbydiscounting thefuturecontractualcashflowsatcurrent to approximatetheirfairvaluesdueshorttermnature. Thefairvalueofnon-currentfinancialassetsand The nominalvaluelessestimatedcreditadjustmentsofcurrent tradereceivablesandpayablesareassumed Trade receivablesandpayables value oftheestimatedfuturecashflows. value fortheremainingfinancialinstruments.Thefair ofinterestrateswapsiscalculatedasthepresent the particularinstrument.Othertechniques,suchasestimated discountedcashflows,areusedtodeterminefair quotes forsimilarinstrumentsareusedlong-termdebt heldandthenadjustedtoreflectriskof assumptions thatarebasedonmarketconditionsexistingateachbalancedate.Quotedpricesordealer derivatives) isdeterminedusingvaluationtechniques.Fortescueusesavarietyofmethodsandmakes The fairvalueoffinancialinstrumentsthatarenottradedinanactivemarket(forexampleover-the-counter Financial instrumentsnottradedinactivemarkets market priceusedforfinancialassetsheldbyFortescueisthecurrentbidprice. and available-for-salesecurities)isbasedonquotedmarketpricesatthebalancesheetdate.The The fairvalueoffinancialinstrumentstradedinactivemarkets(suchaspubliclyderivatives,andtrading Financial instrumentstradedinactivemarkets purposes. Fairvalueshavebeendeterminedbasedonthefollowingmethods. The fairvalueoffinancialassetsandliabilitiesmustbeestimatedformeasurementdisclosure (F) been nochangesinwhatFortescueconsiderstobeequitysincethepreviousperiod. definition ofafinancialliability.Fortescue’sordinarysharesareclassifiedasequityinstruments.Therehave Financial instrumentsissuedbyFortescuearetreatedasequityonlytotheextentthattheydonotmeet (E) For the year ended 30 June 2009 ● ● ● ● coupon payablewhiletheliabilityisoutstanding. includes initialamortisationoftransactioncostsandthosepayableonredemption,aswellanyinterestor a constantrateonthebalanceofliabilitycarriedinsheet.Interestexpensethiscontext effective interestratemethod,whichensuresthatanyexpenseovertheperiodtorepaymentisat of theinstrument.Interestbearingborrowingsaresubsequentlymeasuredatamortisedcostusing Borrowings areinitiallyrecognisedatfairvalue,netofanytransactioncostsdirectlyattributabletotheissue and subsequentlycarriedatamortisedcostusingtheeffectiveinterestmethod; Trade payablesandothershort-termmonetaryliabilities,whichareinitiallyrecognisedatfairvalue FAIR VALUE ESTIMATION EQUITY FINANCIAL INSTRUMENTS 65 65 FORTESCUE METALS GROUP ANNUAL REPORT 2009

INVENTORIES

INTANGIBLE ASSETS INTANGIBLE production overheads, including attributable mining and manufacturing overheads. production overheads, including attributable labour costs, materials and contractor expenses which are directly attributable to the extraction and labour costs, materials and contractor expenses processing of ore; and depreciation of property, plant and equipment used in the the amortisation of development expenditure extraction and processing of ore; and ● ● ● ● ● ● For the year ended 30 June 2009 June 30 ended year the For (ii) Research and development on development projects Research expenditure is recognised as an expense as incurred. Costs incurred as intangible assets when (relating to the design and testing of new or improved products) are recognised feasibility, be completed it is probable that the project will, after considering its commercial and technical The expenditure capitalised and generate future economic benefits and its costs can be measured reliably. direct labour and an appropriate comprises all directly attributable costs, including costs of materials, services, Intangible assets that have a physical life that differs from the related mine are amortised on a straight line basis Intangible assets that have a physical life that differs from the related mine are assets is directly linked to over periods generally ranging from 3 to 6 years. Where the useful life of intangible production method. the extraction of ore from the mine, these assets are amortised on the units of IT development costs include only those costs directly attributable to the development phase and are only IT development costs include only those costs directly attributable to the development an intention and ability to use recognised following completion of technical feasibility and where Fortescue has the asset. (i) IT development and software software and licenses that will Costs incurred in developing products or systems and costs incurred in acquiring cost reduction are capitalised to contribute to future period financial benefits through revenue generation and/or and service, direct payroll and software and systems. Costs capitalised include external direct costs of materials payroll related costs of employees’ time spent on the project. (H) Inventories are valued at the lower of cost and net realisable value. Cost is determined primarily on the basis Inventories are valued at the lower of cost materials and stores is purchase price and for partly processed and of weighted average costs. Cost for raw include: production of costs the purpose this For basis. costing absorption an on derived is cost products saleable (G) (G)

Share-based payment transactions Share-based payment include the Binomial model. Measurement inputs share options is measured using The fair value of employee expected volatility (based on weighted date, exercise price of the instrument, share price at measurement average to publicly available information), weighted adjusted for changes expected due average historic volatility on historical experience and general option holder behaviour), expected expected life of the instruments (based (based on government bonds). Service and non-market performance dividends, and the risk-free interest rate are not taken into account in determining fair value. conditions attached to the transactions NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Stockpiles represent ore that has been extracted and is available for further processing. If there is significant Stockpiles represent ore that has been will be processed it is expensed as incurred. Where the future uncertainty as to when the stockpiled ore with confidence e.g., because it exceeds the mine’s cut off grade, it is processing of this ore can be predicted value. If the ore will not be processed within 12 months after the valued at the lower of cost and net realisable non-current assets. Quantities are assessed primarily through surveys balance sheet date it is included within and assays. Note 6. Significant accounting policies – balance sheet (continued) sheet balance – policies accounting Significant 6. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 66 66 year whichareunpaid.Theamountsunsecuredandusuallypaidwithin30daysofrecognition. These amountsrepresentliabilitiesforgoodsandservicesprovidedtoFortescuepriortheendoffinancial (I) TRADE AND OTHER PAYABLES amortised fromthepointatwhichassetisreadyforuseonastraight-linebasisoveritsusefullife. an expenseasincurred.Capitalisedresearchanddevelopmentcostsarerecordedintangibleassets proportion ofoverheads.Otherdevelopmentexpendituresthatdonotmeetthesecriteriaarerecognisedas STATEMENTS NOTES TO THE FINANCIAL term oftheoption. expected price volatilityoftheunderlyingshare, theexpecteddividendyield andtheriskfreeinterestrate forthe into accounttheexerciseprice, thetermofoption,impactdilution,shareprice atgrantdateand The fairvalueatgrantdateis independentlydeterminedusingtheBinomialoptionpricing modelthattakes during whichtheemployeesbecome unconditionallyentitledtotheoptions. with acorrespondingincrease inequity.Thefairvalueismeasuredatgrantdateandrecognised overtheperiod The fairvalueofoptionsgrantedundertheFMGIOSandPRP arerecognisedasanemployeebenefitexpense out innote38. Option Scheme(FMGIOS)andPerformanceRightsPlan(PRP). Informationrelatingtotheseschemesisset Share-based remunerationbenefitsareprovidedtoemployees viatheFortescueMetalsGroupIncentive (iii) Share-basedpayments match, ascloselypossible,theestimatedfuturecashoutflows. using marketyieldsatthereportingdateonnationalgovernment bondswithtermstomaturityandcurrencythat levels, experienceofemployeedeparturesandperiodsservice. Expectedfuturepaymentsarediscounted reporting dateusingtheprojectedunitcreditmethod.Consideration isgiventoexpectedfuturewageandsalary present valueofexpectedfuturepaymentstobemadeinrespectservicesprovidedbyemployeesupthe The liabilityforlongserviceleaveisrecognisedintheprovisionemployeebenefitsandmeasuredas (ii) Longserviceleave when theliabilitiesaresettled. respect ofemployeesservicesuptothereportingdateandaremeasuredatamountsexpectedbepaid expected tobesettledwithin12monthsofthereportingdatearerecognisedinotherpayablesandaccruals Liabilities forwagesandsalaries,includingnon-monetarybenefits,annualleaveaccumulatingsick (i) Wagesandsalaries,annualleavesick (K) increase intheprovisionduetopassageoftimeisrecognisedasinterestexpense. value reflectscurrentmarketassessmentsofthetimemoneyandrisksspecifictoliability.The to settlethepresentobligationatbalancesheetdate.Thediscountrateuseddetermine Provisions aremeasuredatthepresentvalueofmanagement’sbestestimateexpenditurerequired an outflowwithrespecttoanyoneitemincludedinthesameclassofobligationsmaybesmall. determined byconsideringtheclassofobligationsasawhole.Aprovisionisrecognisedeveniflikelihood Where thereareanumberofsimilarobligations,thelikelihoodthatanoutflowwillberequiredinsettlementis obligation; andtheamountcanbereliablyestimated.Provisionsarenotrecognisedforfutureoperatinglosses. as aresultofpastevents;itismorelikelythannotthatanoutflowresourceswillberequiredtosettlethe Provisions forlegalclaimsarerecognisedwhen:Fortescuehasapresentorconstructiveobligation (J) PROVISIONS For the year ended 30 June 2009 EMPLOYEE BENEFITS 67 67 FORTESCUE METALS GROUP ANNUAL REPORT 2009 S

PRINCIPLES OF CONSOLIDATION OF PRINCIPLES CONTRIBUTED EQUITY CONTRIBUTED Transactions eliminated on consolidation Subsidiaries

For the year ended 30 June 2009 June 30 ended year the For (ii) transactions, are Intra-group balances, and any unrealised income and expenses arising from intra-group of subsidiaries are consistent eliminated in preparing the consolidated financial statements. Accounting policies with the parent. In the Company’s financial statements, investments in subsidiaries are carried at cost. In the Company’s financial statements, investments in subsidiaries are carried The purchase method of accounting is used to account for the acquisition of subsidiaries by the Company. The purchase method of accounting is used to account for the acquisition of subsidiaries Subsidiaries are all those entities (including special purpose entities) controlled by the Company. Control exists Subsidiaries are all those entities (including special purpose entities) controlled and operating policies of an when the Company has the power, directly or indirectly, to govern the financial voting rights that are presently entity so as to obtain benefits from its activities. In assessing control, potential subsidiaries are included in the exercisable or convertible are taken into account. The financial statements of the date that control ceases. They consolidated financial statements from the date that control commences until are de-consolidated from the date that control ceases. The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as The consolidated financial statements incorporate the assets and liabilities of at 30 June 2009 and the results of all subsidiaries for the year then ended. (A) (A) (i) Note 7. 7. Note other - policies accounting ignificant (L) (L) Mandatorily redeemable preference shares are classified as liabilities. Ordinary shares are classified as equity. the issue of new shares or options are shown in equity as a deduction, Incremental costs directly attributable to costs directly attributable to the issue of new shares or options for the net of tax, from the proceeds. Incremental in the cost of the acquisition as part of the purchase consideration. acquisition of a business are not included Fortescue recognises a liability and an expense for bonuses where contractually obliged or where there is a past Fortescue recognises a liability and an obligation. practice that has created a constructive Obligations for contributions to defined contribution superannuation funds are recognised as an expense in profit Obligations for contributions to defined and loss as they are incurred. (v) Bonus plans (iv) Defined contribution superannuation funds (iv) Defined contribution superannuation

The fair value of the options granted is measured to reflect expected market vesting conditions, but excludes expected market vesting conditions, but options granted is measured to reflect The fair value of the Non- profitability and sales growth targets). vesting conditions (for example, the impact of any non-market to become the number of options that are expected are included in assumptions about market vesting conditions expected to of the number of options that are reporting date, the entity revises its estimate exercisable. At each expense recognised each period takes into account the most recent become exercisable. The employee benefit estimates, if any, is recognised in the income statement with a estimate. The impact of the revision to original corresponding adjustment to equity. NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 6. Significant accounting policies – balance sheet (continued) sheet balance – policies accounting Significant 6. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 68 68 (B) to risksandreturnsthataredifferentfromthoseofsegmentsoperatinginothereconomicenvironments. segment isidentifiedwhenproductsorservicesareprovidedwithinaparticulareconomicenvironmentsubject that aresubjecttorisksandreturnsdifferentthoseofotherbusinesssegments.Ageographical A businesssegmentisidentifiedforagroupofassetsandoperationsengagedinprovidingproductsorservices STATEMENTS NOTES TO THE FINANCIAL controlled entitiesinthetaxconsolidated group. (or assets)andthedeferredtax assetsithasassumedfromunusedtaxlossesand taxcreditsfrom In additiontoitsowncurrentand deferredtaxamounts,theCompanyalsorecognises currenttaxliabilities the taxconsolidatedgroupcontinues tobeastandalonetaxpayerinitsownright. to accountfortheirowncurrentanddeferredtaxamounts. These taxamountsaremeasuredasifeachentityin The headentity,FortescueMetalsGroupLtd,andthecontrolled entitiesinthetaxconsolidatedgroupcontinue entity fromthatdate. Fortescue hasimplementedthetaxconsolidationlegislation asof1July2003andisthereforetaxedasingle Tax consolidationlegislation directly inequity. Current anddeferredtaxbalancesattributabletoamounts recognised directlyinequityarealso basis, ortorealisetheassetandsettleliabilitysimultaneously. liabilities areoffsetwheretheentityhasalegallyenforceablerighttoandintendseithersettleonnet and liabilitieswhenthedeferredtaxbalancesrelatetosametaxationauthority.Currentassets Deferred taxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttocurrent of thetemporarydifferencesanditisprobablethatwillnotreverseinforeseeablefuture. tax basesofinvestmentsincontrolledentitieswheretheparententityisabletocontroltimingreversal Deferred taxliabilitiesandassetsarenotrecognisedfortemporarydifferencesbetweenthecarryingamount probable thattherelatedtaxbenefitwillberealised. Deferred taxassetsarereviewedateachreportingdateandreducedtotheextentthatitisnolonger probable thatfuturetaxableamountswillbeavailabletoutilisethosetemporarydifferencesandlosses. Deferred taxassetsarerecognisedfordeductibletemporarydifferencesandunusedlossesonlyifitis is settled. are expectedtoapplywhentherelateddeferredincometaxassetisrealisedorliability determined usingtaxrates(andlaws)thathavebeenenactedorsubstantiallybythereportingdateand that atthetimeoftransactionaffectsneitheraccountingnortaxableprofitorloss.Deferredincometaxis for ifitarisesfrominitialrecognitionofanassetorliabilityinatransactionotherthanbusinesscombination tax bases of assets and liabilities and their carrying amounts. However, the deferred income tax is not accounted Deferred incometaxisprovidedinfull,usingtheliabilitymethod,ontemporarydifferencesarisingbetween liabilities attributabletotemporarydifferencesandunusedtaxlosses. based ontheapplicableincometaxrateforeachjurisdictionadjustedbychangesindeferredassetsand The incometaxexpenseorrevenuefortheperiodispayableoncurrentperiod’staxable (C) For the year ended 30 June 2009 SEGMENT REPORTING INCOME TAX 69 69 FORTESCUE METALS GROUP ANNUAL REPORT 2009

BUSINESS COMBINATIONS BUSINESS EARNINGS PER SHARE SHARE PER EARNINGS GOODS AND SERVICES TAX (GST) TAX SERVICES AND GOODS For the year ended 30 June 2009 June 30 ended year the For (F) GST, except where the amount Revenues, expenses and assets are recognised net of the amount of associated circumstances the GST is of GST incurred is not recoverable from the Australian Tax Office (ATO). In these the expense. Receivables and recognised as part of the cost of acquisition of the asset or as part of an item of GST recoverable from, or payable payables in the balance sheet are shown inclusive of GST. The net amount of to, the ATO is included as a current asset or liability in the balance sheet. (ii) Diluted earnings per share of basic earnings/(loss) per Diluted earnings/(loss) per share adjusts the figures used in the determination costs associated with share to take into account the after income tax effect of interest and other financing shares that would have been dilutive potential ordinary shares and the weighted average number of additional outstanding assuming the conversion of all dilutive potential ordinary shares. (E) (E) (i) Basic earnings/(loss) per share equity holders of the Company, Basic earnings/(loss) per share is calculated by dividing the loss attributable to average number of ordinary excluding any costs of servicing equity other than ordinary shares, by the weighted shares issued during the shares outstanding during the financial year, adjusted for bonus elements in ordinary financial year. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are Where settlement of any part of cash consideration date of exchange. The discount rate used is the entity’s incremental discounted to their present value as at the an independent financier borrowing rate, being the rate at which a similar borrowing could be obtained from under comparable terms and conditions. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are Identifiable assets acquired and liabilities the acquisition date, irrespective of the extent of any minority interest. measured initially at their fair values at the fair value of Fortescue’s share of the identifiable net assets The excess of the cost of acquisition over cost of acquisition is less that Fortescue’s share of the fair value of the acquired is recorded as goodwill. If the acquired, the difference is recognised directly in the income statement, identifiable net assets of the subsidiary and measurement of the net assets acquired. but only after a reassessment of the identification The purchase method of accounting is used to account for all business combinations, including business The purchase method of accounting is under common control, regardless of whether equity instruments combinations involving entities or businesses as the fair value of the assets given, equity instruments issued or or other assets are acquired. Cost is measured of exchange plus costs directly attributable to the acquisition. Where liabilities incurred or assumed at the date the fair value of the instruments is their published market price equity instruments are issued in an acquisition, circumstances, it can be demonstrated that the published price at the at the date of exchange unless, in rare of fair value and that other evidence and valuation methods provide a date of exchange is an unreliable indicator costs arising on the issue of equity instruments are recognised more reliable measure of fair value. Transaction directly in equity. (D) (D) Assets or liabilities arising under tax funding agreements within the tax consolidated entities are recognised the tax consolidated entities are recognised under tax funding agreements within Assets or liabilities arising amounts group. Any differences between the from or payable to other entities in the as amounts receivable a contribution funding agreement are recognised as receivable or payable under the tax assumed and amounts wholly-owned tax consolidated entities. to (or distribution from) NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 7. Significant accounting policies – other (continued) other – policies accounting Significant 7. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 70 70 (i) interpretations issetoutbelow. 2009 reportingperiods.Fortescue’sandtheCompany’sassessmentofimpactthesenewstandards Certain newaccountingstandardsandinterpretationshavebeenpublishedbutarenotyeteffectivefor30June straight-line basisovertheperiodoflease. incentives receivedfromthelessor),exceptforinvestmentproperty,arechargedtoincomestatementona as lesseeareclassifiedoperatingleases(note43).Paymentsmadeunder(netofany Leases inwhichasignificantportionoftherisksandrewardsownershiparenottransferredtoFortescue the shorterofasset’susefullifeandleaseterm. liability foreachperiod.Theproperty,plantandequipmentacquiredunderfinanceleasesisdepreciatedover over theleaseperiodsoastoproduceaconstantperiodicrateofinterestonremainingbalance payment isallocatedbetweentheliabilityandfinancecost.Thecostchargedtoincomestatement rental obligations,netoffinancecharges,areincludedinothershort-termandlong-termpayables.Eachlease value oftheleasedpropertyor,iflower,presentminimumleasepayments.Thecorresponding of ownershipareclassifiedasfinanceleases.Financeleasescapitalisedatthelease’sinceptionfair Leases ofproperty,plantandequipmentwhereFortescue,aslessee,hassubstantiallyalltherisksrewards (G) investing andfinancingactivities,whicharedisclosedasoperatingcashflows. Cash flowsarepresentedinthecashflowstatementonagrossbasis,exceptforGSTcomponentof STATEMENTS NOTES TO THE FINANCIAL (I) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS nearest dollar. been roundedoffinaccordancewiththatClassOrdertothenearestthousanddollars,orcertaincases, Commission, relatingtotheroundingoffofamountsinfinancialreport.Amountsreporthave The CompanyisofakindreferredtoinClassorder98/100,issuedbytheAustralianSecuritiesandInvestments (H) which thecommencementdate forcapitalisationisonoraftertheapplicationdate(1July 2009). prospectively. ThismeansFortescue willapplythestandardtoborrowingcostsrelating qualifyingassetsfor qualifying asset.Theapplication ofthisstandardconstitutesachangeinaccountingpolicy andwillbeapplied the capitalisationofallborrowing costsdirectlyattributabletotheacquisition,construction orproductionofa The revisedAASB123hasremovedtheoptiontoexpense allborrowingcostsand-whenadoptedwillrequire Standards arisingfromAASB123(effective1January2009) (ii) RevisedAASB123BorrowingCostsand2007-6 AmendmentstoAustralianAccounting that ismoreconsistentwiththeinternalreportingprovided to thechiefoperatingdecision-maker. increase inthenumberofreportablesegmentspresented. In addition,thesegmentswillbereportedinamanner resources tooperatingsegments.FortescuewilladoptAASB 8from1July2009.Itislikelytoresultinan what thekeydecisionmakersuseinternallyforevaluating segment performanceanddecidinghowtoallocate ‘management approach’toreportingonfinancialperformance. Theinformationbeingreportedwillbebasedon AASB 8willresultinasignificantchangetheapproach to segmentreporting,asitrequiresadoptionofa arising fromAASB8(effective1January2009) For the year ended 30 June 2009 AASB 8OperatingSegmentsand2007-3AmendmentstoAustralianAccountingStandards ROUNDING OF AMOUNTS LEASES 71 71 FORTESCUE METALS GROUP ANNUAL REPORT 2009 AASB 2007-8 Amendments to AASB 2007-8 Amendments (effective from 1 January 2009) Amendments to Australian Accounting Standards arising from the Annual Amendments to Australian Accounting Standards arising from the Annual Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 Amendments to Australian Accounting Amendments to Australian Accounting Standard - Share-based Payments: Vesting Amendments to Australian Accounting For the year ended 30 June 2009 June 30 ended year the For Improvements Project (effective 1 July 2009) Adoption of Australian- The amendments to AASB 5 Discontinued Operations and AASB 1 First-Time annual improvements project Equivalents to International Financial Reporting Standards are part of the IASB’s are classified as held for sale published in May 2008. They clarify that all of a subsidiary’s assets and liabilities be made for this subsidiary if if a partial disposal sale plan results in loss of control. Relevant disclosures should prospectively to all partial the definition of a discontinued operation is met. Fortescue will apply the amendments disposals of subsidiaries from 1 July 2009. (vi) AASB 2008-6 Further Fortescue will apply the revised standards prospectively to all business combinations and transactions with non- Fortescue will apply the revised standards prospectively to all business combinations controlling interests from 1 July 2009. The revised AASB 127 requires the effects of all transactions with non-controlling interests to be recorded The revised AASB 127 requires the effects of all transactions with non-controlling in goodwill or gains and in equity if there is no change in control and these transactions will no longer result interest in the entity is losses. The standard also specifies the accounting when control is lost. Any remaining is consistent with Fortescue’s remeasured to fair value, and a gain or loss is recognised in profit or loss. This current accounting policy if significant influence is not retained. (effective periods commencing on or after 1 July 2009) (effective periods commencing on or the acquisition method to business combinations, but with some The revised AASB 3 continues to apply to purchase a business are to be recorded at fair value at the significant changes. For example, all payments classified as debt subsequently remeasured through the income acquisition date, with contingent payments basis to measure the non-controlling interest in the statement. There is a choice on an acquisition-by-acquisition of the acquiree’s net assets. acquiree either at fair value or at the non-controlling interest’s proportionate share current policy which is set out in All acquisition-related costs must be expensed. This is different to Fortescue’s note 7(d) above. (v) Revised AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements (v) Revised AASB 3 Business Combinations, and AASB 2008-3 (iii) Revised AASB 101 Presentation of Financial Statements and 101 Presentation of Financial Statements (iii) Revised AASB are service conditions and performance conditions only and that AASB 2008-1 clarifies that vesting conditions are not vesting conditions. It also specifies that all cancellations, other features of a share-based payment should receive the same accounting treatment. Fortescue will apply the whether by the entity or by other parties, it is not expected to affect the accounting for Fortescue’s share-based revised standard from 1 July 2009, but payments. Conditions and Cancellations (iv) AASB 2008-1 NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS 2009) (effective from 1 January Standards arising from AASB 101 Australian Accounting income and of a statement of comprehensive revised AASB 101 requires the presentation The September 2007 in equity, but will not affect any of the amounts recognised in the makes changes to the statement of changes a prior period adjustment or has reclassified items in the financial financial statements. If an entity has made balance sheet (statement of financial position), this one being as at the statements, it will need to disclose a third will apply the revised standard from 1 July 2009. beginning of the comparative period. Fortescue Note 7. Significant accounting policies – other (continued) other – policies accounting Significant 7. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 72 72 investment insubsidiariesatthecarryingamountsofnetassetssubsidiaryratherthansubsidiary’s Furthermore, whenanewintermediateparententityiscreatedininternalreorganisationsitwillmeasureits payment. UndertheCompany’scurrentpolicy,thesedividendsaredeductedfromcostofinvestment. of pre-acquisitionprofits,buttheinvestmentsmayneedtobetestedforimpairmentasaresultdividend subsidiaries, jointlycontrolledentitiesorassociateswillberecognisedasrevenue,eveniftheyarepaidout the revisedrulesprospectivelyfrom1July2009.Afterthatdate,alldividendsreceivedinvestmentsin Reporting StandardsandAABS127ConsolidatedSeparateFinancialStatements.Fortescuewillapply In July2008,theAASBapprovedamendmentsto1First-timeAdoptionofInternationalFinancial Subsidiary, JointlyControlledEntityorAssociate (vii) AASB2008-7 STATEMENTS NOTES TO THE FINANCIAL the allowablealternativetreatment andcapitalisedborrowingcostsrelatedtoqualifying assets. investment ofthoseborrowings. Priortothe2008financialyearFortescueaccountedfor borrowingcostsusing acquisition, constructionorproduction ofaqualifyingasset,lessanyinvestmentincome onthetemporary expenses allborrowingcosts except thatitallowscapitalisationofborrowingcostsdirectly attributabletothe treatment requiresallborrowingcoststobeexpensedinthe periodincurred.Anallowablealternativetreatment AASB 123“BorrowingCosts”permitstwoalternativetreatments forborrowingcosts.Thestandardbenchmark (J) CHANGE IN ACCOUNTING POLICY IN COMPARATIVE YEAR (viii) AASB Interpretation 16 fair value. (ix) AASB2008-8 July 2009. for boththehedginginstrumentandhedgeditem.Fortescuewillapplyinterpretationprospectivelyfrom1 provides guidanceonhowanentityshoulddeterminetheamountstobereclassifiedfromequityprofitorloss foreign operationandthathedginginstrumentsmaybeheldbyanyentityorentitieswithinFortescue.Italso AASB-I 16clarifieswhichforeigncurrencyrisksqualifyashedgedriskinthehedgeofanetinvestment and thatitisalsomeasuredatfairvalue.Fortescuewillapply theinterpretationprospectivelyfrom1July2009. at theircarryingamounts.Theinterpretationfurtherclarifies whenaliabilityforthedividendmustberecognised distribution. ThisisdifferenttoFortescue’scurrentpolicywhich istomeasuredistributionsofnon-cashassets difference betweenthefairvalueandcarryingamount of thedistributedassetsinincomestatementon shareholders. Thesedistributionswillneedtobemeasured atfairvalueandtheentitywillneedtorecognise AASB-I 17appliestosituationswhereanentitypaysdividendsbydistributingnon-cashassetsits to AustralianAccountingStandardsarisingfromAASBInterpretation17 (x) AASBInterpretation17DistributionofNon-cashAssetstoOwnersand2008-13Amendments to haveamaterialimpactonFortescue’sfinancialstatements. designating optionsashedges.Fortescuewillapplytheamendedstandardfrom1July2009.Itisnotexpected component ofafixedratedebt.Italsoprohibitsincludingtimevalueintheone-sidedhedgedriskwhen Errors”. Theamendmentmakestwosignificantchanges.Itprohibitsdesignatinginflationasahedgeable retrospectively inaccordancewithAASB108“AccountingPolicies,ChangesAccountingEstimatesand AASB 2008-8amends139“FinancialInstruments:RecognitionandMeasurement”mustbeapplied 1 July2009). For the year ended 30 June 2009

Amendment toIAS39FinancialInstruments:RecognitionandMeasurement Amendments toAustralianAccountingStandards-CostofanInvestmentina Hedges of a Net Investment in a Foreign Operation (effective 1July2009)

(effective 1 October 2008) (effective 73 73 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - - 712 13,152 13,152 (8,495) (3,945) (3,945) (9,207) 723,199 732,406 2008 US$’000 Company Represented - 45,910 71,001 71,001 165,670 (63,158) (606,100) (282,581) (771,770) (102,512) (236,671) 2008 US$’000 Represented Consolidated C

Loss attributable to members of the Company for the year ended Loss attributable to members of the Company 30 June 2007 Increase in other income Increase in income tax benefit/(expense) Increase in financial expense of the Company 2008 Final profit/(loss) attributable to members Net assets/(deficit) as at 30 June 2007 Increase/(decrease) in intercompany receivable Increase/(decrease) in deferred tax liability Decrease in development expenditure Final net assets/(deficit) at 30 June 2008 Increase/(decrease) in accumulated losses For the year ended 30 June 2009 June 30 ended year the For The change in accounting policy was applied retrospectively. The change in accounting policy had the following The change in accounting policy was applied statements. impact on the 2008 consolidated financial During the 2008 financial year Fortescue decided to adopt the benchmark treatment and expense all borrowing the benchmark treatment and expense year Fortescue decided to adopt During the 2008 financial the conservative approach and better matches Directors believe this provides a more costs as incurred. The of the asset. than expensing them over the life benefits of these borrowings, rather short term future economic NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS

In August 2006 the Company put in place a US$100 million Subordinated Loan Note. The terms of this facility In August 2006 the Company put in place a US$100 million Subordinated Loan in the application of the are set out Note 28(i) to the financial statements. At inception of the loan an error The error relates to the AASB 139 requirements for determining the effective interest rate method occurred. Note liability under AASB incorrect application of the effective interest rate method to the Subordinated Loan rate implicit in the Note based 139 by recognition of a “day 1 loss” instead of applying the 42 per cent interest incorrectly recognised in the on the face value of US$100 million. The day 1 loss totalling US$202 million was interest of the Notes. The 30 June 2007 income statement which should have been reflected in the effective has resulted in a reduction corrected implicit interest rate at inception of the Subordinated Loan Note liability to US$1,247,336,000. This of the Subordinated Loan Note liability at 30 June 2008 from US$2,779,929,000 and 30 June 2008 of has resulted in a decrease in losses for the year ended 30 June 2007 of US$101,335,000 US$971,480,000. treatment at the date of the error An error, where material, is corrected through applying the correct accounting correction was accounted for. and adjusting the comparatives in the financial statements in the year that the Note 8. 8. Note errors of orrection Note 7. Significant accounting policies – other (continued) other – policies accounting Significant 7. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 74 74 consolidated entityasanyconversionofoptionswouldresultinadecreasethenetlosspershare. by 59.96centspershareonbasiclossshare.Dilutedhasnotbeencalculatedforthe The correctionoferrorhadanimpactinthe2008financialyeardecreasingFortescue’slosspershare Note 9. Revenue The impactoftherestatementonprioryearcomparativesforconsolidatedentityisasfollows: STATEMENTS NOTES TO THE FINANCIAL For the year ended 30 June 2009 Increase/(decrease) inaccumulatedlosses Opening accumulatedlossadjustment Increase/(decrease) indeferredtaxliability Restated netassets/(deficit)at30June Decrease inborrowings Net assets/(deficit)asat30June Restated profit/(loss)attributabletomembersoftheCompany Increase inincometaxbenefit/(expense) Net foreignexchangegain/(loss)onborrowings Increase/(decrease) infinancialexpense Fair valueadjustmenttoSubordinatedLoanNote(refernote28(i)) Sale ofironore Shipping revenue 30 June Loss attributabletomembersoftheCompanyforyearended

US$’000 2009 1,830,953 1,571,884

259,069 Consolidated Represented US$’000 2008 139,294 49,297 89,997 Represented US$’000 US$’000 2008 (1,072,815) (1,135,974) (1,743,250) 2009 1,387,830 1,331,156 (416,349) (771,770) (416,349) (63,158) 101,335 (4,419) Consolidated 61,092 39,747 39,747 Company - Represented Represented

US$’000 US$’000 2007 2008 (101,335) (133,195) (43,429) (61,180) (31,860) (43,429) 359,534 144,764 258,199 202,378 22,707 22,707 3,566 - - 75 75 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------21 1,579 1,600 1,600 15,300 15,300 15,300 16,900 2008 US$’000 Represented ------353 Company 1,037 1,037 1,019 1,372 1,372 53,288 53,288 53,288 54,660 2009 US$’000 - - - - - 21 965 8,264 2,079 8,198 2,784 4,903 3,770 3,770 42,158 21,496 87,098 87,098 90,868 2008 US$’000 Represented 353 6,928 2,906 5,339 48,304 88,331 35,946 11,544 26,717 60,419 88,846 52,547 88,846 Consolidated 490,053 104,107 470,636 1,261,850 1,261,850 1,350,696 2009 US$’000

Operating expenses Shipping costs Operating Leases Lease income on facilities Other income Port costs Government royalty Profit on debt buy back Debt forgiven on deposits received (b) Depreciation and amortisation expense Depreciation of property, plant and equipment (a) Operating expenses Mining costs Rail costs Depreciation and amortisation expense Amortisation of intangible assets Amortisation of development expenditure

For the year ended 30 June 2009 June 30 ended year the For Note 11. Other income Other 11. Note

Note 10. Cost of sales of Cost 10. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS

FORTESCUE METALS GROUP ANNUAL REPORT 2009 76 76 accrued interest at9.5percentannum. 2009 isUS$70.9million(2008: US$4.9million).TheseamountsarelikelytobepaidinJuly 2010togetherwith Interest isyettobepaidonthe SubordinatedLoanNote.Theamountrecognisedaspayable asat30June revaluation duringthefinancial yearended30June2009(refernote28). of theSubordinatedLoanNote between1July2008and30June2009,priortoanySubordinated LoanNote 1 =InterestexpenseofUS$258.7 million(2008:US$116.6million)representsthedifference inpresentvalue - borrowings Note 12. Net foreign exchange gain/(loss) STATEMENTS NOTES TO THE FINANCIAL Note 14. Other financial expenses Note 13. Net foreign exchange gain/(loss) - other has resultedintherecognitionofaboveexchangelosses. January 2009thefunctionalcurrencywasAUDandaccordinglychangeinexchangeratesduringthisperiod Fortescue hassignificantborrowingsdenominatedinUScurrency.Duringtheperiodfrom1July2008to For the year ended 30 June 2009 Fair valuelossoninterestswaps Interest expense–PreferenceShares Notes Interest expense–SeniorSecured Note Interest expense–SubordinatedLoan January 2009–June Net foreignexchangegain/(loss)– July 2008–December Net foreignexchangegain/(loss)– July 2008–December Net foreignexchangegain/(loss)– January 2009–June Net foreignexchangegain/(loss)– Debt establishmentcosts 1

US$’000 2009 (559,915) (568,342) 490,945 197,998 258,706 114,598 (8,427) Consolidated 20,574 78,780 35,818 9,309 4,358 Represented US$’000 2008 (138,806) (30,091) 301,953 170,432 116,568 108,715 121,626 103,267 224,893 12,699 2,254 - US$’000 2009 (25,050) (8,427) (8,427) 12,279 26,557 1,507 2,970 9,309 Company - - - - Represented US$’000 2008 2,254 3,852 2,254 4,423 (571) ------77 77 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - - - 564 564 (44) (148) (107) (353) 1,715 1,048 1,175 2,995 1,068 15,191 20,409 (1,151) 2008 US$’000 Represented - - 771 770 (23) Company (409) 6,044 1,399 8,899 19,404 63,552 19,066 18,278 19,404 34,620 107,893 (89,260) 2009 US$’000 - - (101) (353) 1,715 6,942 1,048 1,175 2,995 1,068 15,191 20,409 322,979 331,636 331,022 331,636 1,103,406 2008 US$’000 Represented (409) 6,044 3,440 1,399 8,899 1,261 23,638 16,740 23,638 18,278 34,620 Consolidated (57,105) (120,451) (153,918) (661,960) (198,588) (153,918) 2009 US$’000

Adjustment for prior periods – current tax current – periods prior for Adjustment Deferred tax (b) Numerical reconciliation of income tax benefit/(expense) to prima facie tax payable: (b) Numerical reconciliation of income tax benefit/(expense) to prima Loss/(profit) before tax (a) Income tax benefit/(expense) Current tax Wages and salaries, including superannuation Income tax benefit/(expense) calculated at 30% (2007: 30%) Sundry non-deductible/(deductible) expenses Share based payments expense Share based payments Legal costs Research and development Investment allowance tax current – periods prior for Adjustment Other administration expenses Income tax benefit/(expense) for the year

For the year ended 30 June 2009 June 30 ended year the For Note 16. Income tax benefit/(expense) tax Income 16. Note

Note 15. Administration expenses Administration 15. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Fortescue’s gross wages and salaries, including superannuation, for the financial year ended 30 June 2009 Fortescue’s gross wages and salaries, Wages and salaries, including superannuation, are charged to were US$141,712,000 (2008: US$52,506,000). and are costed to capital, cost of sales or administration expenses applicable cost centres related to their activity where appropriate.

FORTESCUE METALS GROUP ANNUAL REPORT 2009 78 78 considered dilutive astheconversiontothese optionswouldresultinadecrease inthenetlosspershare. During the2008 financialyeartheCompany’s potentialordinaryshares, being itsoptionsgranted,are not funding amountsarerecognisedascurrentintercompanyreceivablesorpayables. may alsorequirepaymentofinterimfundingamountstoassistwithitsobligationspaytaxinstalments.The from theheadentity,whichisissuedassoonpracticableafterendofeachfinancialyear.Theentity The amountsreceivable/payableunderthetaxfundingagreementaredueuponreceiptofadvice reference totheamountsrecognisedinwholly-ownedentities’financialstatements. transferred totheCompanyundertaxconsolidationlegislation.Thefundingamountsaredeterminedby any currenttaxreceivableanddeferredassetsrelatingtounusedlossesorcreditsthatare compensate theCompanyforanycurrenttaxpayableassumedandarecompensatedby The entitieshavealsoenteredintoataxfundingagreementunderwhichthewholly-ownedfully entities inthecaseofadefaultbyheadentity,FortescueMetalsGroupLtd. sharing agreementwhich,intheopinionofDirectors,limitsjointandseveralliabilitywholly-owned On adoptionofthetaxconsolidationlegislation,entitiesingroupenteredintoa from 1July2003.Theaccountingpolicyinrelationtothislegislationissetoutnote7(c). The Companyanditswholly-ownedAustraliancontrolledentitiesimplementedthetaxconsolidationlegislation (c) STATEMENTS NOTES TO THE FINANCIAL 1,620,211,000), calculatedasfollows: of ordinarysharesoutstandingduringthefinancialyearended30June20092,858,944,000(2008: to ordinaryshareholdersofUS$508,042,000(2008:lossUS$771,770,000)andaweightedaveragenumber The calculationofbasicearnings/(loss)pershareat30June2009wasbasedontheprofit/(loss)attributable BASIC EARNINGS/(LOSS) PER SHARE Note 17. Earnings per share For the year ended 30 June 2009 Net profit/(loss)fortheyear Diluted earnings/(loss)pershare (incents) Basic earnings/(loss)pershare(incents) shares (‘000) Weighted averagenumberofordinarysharesandpotential ordinary Profit/(loss) attributabletoordinaryshareholders(US$’000) Diluted earnings/(loss)pershare Weighted averagenumberofordinaryshares(’000) Profit/(loss) attributabletoordinaryshareholders(US$’000) Net profit/(loss)fortheyear Profit/(loss) attributabletoordinaryshares

Tax consolidationlegislation

US$’000 Profit 2009 2009 2,871,071 2,858,944 508,042 508,042 508,042 Consolidated Consolidated 17.70 17.70 17.77 Represented Represented US$’000 2008 2008 1,620,211 1,620,211 (771,770) (771,770) (771,770) (47.63) (47.63) (47.63) 79 79 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - - - 18 179 197 9,039 1,694 1,694 1,267 11,696 596,094 618,096 2008 US$’000 Represented - - - - 21 127 127 Company 3,058 16,513 452,242 452,263 492,872 512,443 2009 US$’000 - - - 18 1,694 1,694 1,267 34,681 11,696 62,332 133,164 133,182 109,976 2008 US$’000 Represented - 21 127 2,657 3,229 10,728 14,678 13,512 56,119 Consolidated 109,162 654,921 654,942 183,188 2009 US$’000

Receivables from sale and leaseback transactions Loan receivable Amounts held pending arbitration of shipping contracts Non-Current Current Trade debtors Cash on hand GST receivables Cash at bank Cash and cash equivalents Security deposits Intercompany receivables Other receivables

For the year ended 30 June 2009 June 30 ended year the For Note 19. Trade and other receivables other and Trade 19. Note

Note 18. Cash and cash equivalents - current - equivalents cash and Cash 18. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Information about Fortescue and the Company’s exposure to foreign currency risk, interest rate risk and price Information about Fortescue and the Company’s exposure to foreign currency their carrying value is assumed risk are disclosed in Note 36. Due to the short term nature of these receivables, to approximate their fair value.

FORTESCUE METALS GROUP ANNUAL REPORT 2009 80 80 Unquoted investmentsareavailable-for-saleassets. US$36,742,000) Inventories recognisedasexpenseduringtheyearended30June2009amountedtoUS$683,466,000(2008: Note 22. Other current assets Note 21. Financial assets Note 20. Inventories STATEMENTS NOTES TO THE FINANCIAL For the year ended 30 June 2009 Prepayments Unquoted investments–atcost Non-Current Listed investments–atfairvalue Current Raw materialsandstores–atcost Iron orestockpiles–atcost US$’000 2009 121,122 Consolidated 25,500 95,622 1,498 1,498 31 31 1 1 Represented US$’000 2008 35,844 26,004 1,147 1,147 9,840 26 26 1 1 US$’000 2009 1,498 1,498 Company 31 31 1 1 - - - Represented US$’000 2008 1,147 1,147 26 26 1 1 - - - 81 81 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------2008 US$’000 Represented ------Company 2009 US$’000 (965) (965) 2,790 8,572 7,828 3,534 15,688 (8,572) 353,557 669,367 1,046,219 1,047,184 1,046,219 2008 US$’000 Represented 2,168 2,790 11,889 52,261 11,267 Consolidated (2,168) 375,121 (52,547) (53,512) 1,423,222 1,476,734 1,046,219 1,423,222 2009 US$’000

Balance at end of year Amortisation of development expenditure development of Amortisation Transfers to development expenditure Carrying amount at end of year Accumulation amortisation Expenditure Net additions of rehabilitation assets Transfer from exploration Balance at beginning of year Reconciliation of movement in carrying amounts Development expenditure at cost Expenditure Carrying amount at beginning of year

For the year ended 30 June 2009 June 30 ended year the For Note 24. Development expenditure Development 24. Note expenditure Note 23. Exploration and evaluation evaluation and Exploration 23. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Expenditure and Property, Plant All expenditure for Port, Rail and Mine Development is included in Development as the higher of its fair and Equipment. The recoverable amount of development expenditure is determined value less costs to sell and its value in use (discounted future cash flows). The ultimate recoupment of costs carried forward for exploration assets is dependent on the successful The ultimate recoupment of costs carried or sale of the respective areas. development and commercial exploitation

FORTESCUE METALS GROUP ANNUAL REPORT 2009 82 82 Note 25. Property, plant and equipment STATEMENTS NOTES TO THE FINANCIAL For the year ended 30 June 2009 Reconciliation ofmovementsincarryingamounts Carrying amountatbeginningofyear Land andBuildings Land andbuildings Depreciation Carrying amountatendofyear Depreciation Additions Accumulated depreciation Carrying amountatendofyear Carrying amountatbeginningofyear Plant andotherequipment Plant andotherofficeequipment Depreciation Disposals Additions Carrying amountatbeginningof year Motor vehicles Carrying amount atendofyear Additions Accumulated depreciation Disposals Motor vehicles Accumulated depreciation Computer equipment Accumulated depreciation Accumulated depreciation Infrastructure assets Total property,plantandequipment Assets underconstruction 1

US$’000 2009 1,399,452 1,641,919 1,363,320 (36,132) 274,533 Consolidated (3,646) (1,473) 3,603 4,342 7,249 3,603 1,611 (807) (22) (51) 232 236 229 229 118 147 138 (3) (7) 96 68 96 - - - - Represented US$’000 2008 1,286,080 1,289,892 1,284,875 (1,120) (2,839) (1,286) (1,205) 4,342 5,172 7,181 4,342 1,611 (19) (29) 218 236 232 232 118 290 147 118 325 (3) (4) 17 42 95 - - - US$’000 2009 (3,646) (1,473) Table continued next page. 3,603 4,342 7,249 3,603 1,611 4,066 Company (807) (22) (51) 232 236 229 229 118 147 138 (3) (7) 96 68 96 ------Represented US$’000 2008 (1,120) (2,839) (1,286) 4,342 5,172 7,181 4,342 1,611 5,017 (19) (29) 218 236 232 232 118 290 147 118 325 (3) (4) 17 42 95 ------83 83 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------14 325 748 (21) (21) (437) 3,686 22,694 19,008 22,673 22,673 2008 US$’000 Represented ------138 325 (187) Company (374) (353) 2,824 22,673 25,518 25,144 25,144 2009 US$’000 - - - - 14 325 748 (21) (21) (437) 3,686 (1,205) 22,694 19,008 22,673 22,673 574,430 843,796 (132,146) 1,284,875 1,286,080 (1,286,080) 2008 US$’000 Represented - - - - - 138 325 (187) (374) (353) 2,824 25,518 22,673 25,144 25,144 Consolidated 274,533 274,533 353,323 (34,927) (239,951) 1,363,320 1,284,875 2009 US$’000 1

Infrastructure assets consist of Mine, Port and Rail infrastructure assets as part of the Pilbara Iron Ore and Infrastructure assets consist of Mine, Port and Rail infrastructure assets as part

Additions Disposals Transfers Carrying amount at end of year Carrying amount at beginning of year Depreciation Carrying amount at end of year Carrying amount at beginning of year Transfers Additions Disposals Carrying amount at end of year Additions Depreciation Carrying amount at beginning of year Reconciliation of movement in carrying amounts Carrying amount at beginning of year Software Software at cost Additions Amortisation Amortisation Balance at end of year Assets under construction Infrastructure assets Computer equipment For the year ended 30 June 2009 June 30 ended year the For Note 26. Intangible assets – non-current – assets Intangible 26. Note 1 = NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Infrastructure Project. Note 25. Property, plant and equipment (table continued) (table equipment and plant Property, 25. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 84 84 Deferred taxassetsandliabilitiesareattributabletothefollowing: Note 27. Deferred tax assets and liabilities STATEMENTS NOTES TO THE FINANCIAL For the year ended 30 June 2009 Borrowing costs Revenue taxlosses Exploration andevaluation Senior SecuredNotes Provisions Property, plantandequipment Property, plantandequipment Subordinated LoanNote Provisions Business relatedcosts Borrowing costs Business relatedcosts Other items Other items Tax (assets)/liabilities Set offtax Revenue taxlosses Net tax(assets)/liabilities Deferred taxassets/(liabilities) Set offoftax Deferred taxassets/(liabilities) Company Consolidated Net unrealised foreign exchange gains Net unrealised foreign exchange gains US$’000 194,636 296,131 194,636 296,131 332,449 332,449 2009 13,614 77,424 89,660 38,917 5,309 6,454 2,322 1,303 1,756 1,756 793 Assets - - - - - Represented US$’000 357,452 483,119 483,119 2008 88,603 31,394 91,774 88,603 91,774 1,077 3,871 1,077 1,149 700 479 245 243 ------

US$’000 (189,472) (212,254) (212,254) (13,726) 2009 (4,813) (4,243) (426) (426) (426) Liabilities ------Represented US$’000 (117,053) (132,366) (132,366) (11,845) 2008 (1,246) (1,272) (2,222) (1,899) (1,899) (627) ------

US$’000 (189,472) (13,726) 194,636 295,705 194,636 295,705 120,195 120,195 2008 (4,813) (2,487) 13,614 77,424 89,660 38,917 5,309 6,454 2,322 1,303 1,756 (426) 793 Net - - Represented US$’000 (117,053) (11,845) 357,452 350,753 350,753 2008 (1,246) (1,272) (1,979) 31,394 88,603 89,875 88,603 89,875 1,077 3,871 1,077 1,149 (627) 700 479 245 - -

85 85 FORTESCUE METALS GROUP ANNUAL REPORT 2009 793 (426) 2,322 1,303 6,454 1,756 5,309 8,432 38,917 89,660 13,614 77,424 (2,487) (4,813) (8,432) 194,636 120,195 295,705 194,636 (13,726) (189,472) Balance Balance 2008 US$’000 US$’000 30 June 09 30 June 09 US$’000 ------Represented - - 562 555 (9,422) Company 186,426 195,293 (76,640) (77,202) US$’000 US$’000 in equity Recognised Recognised intercompany in equity / as 2009 US$’000 (249) (401) (508) 2,949 9,743 5,377 1,511 - - 19,404 37,840 (1,126) (3,567) (1,881) 106,033 100,354 199,564 loss loss (89,260) (153,918) (220,866) (280,027) US$’000 US$’000 in profit or in profit or

Recognised Recognised 2008 480 700 245 US$’000 (627) 1,149 1,077 3,871 1,077 Represented 88,603 89,875 31,394 88,603 (1,272) (1,979) (1,246) 350,753 357,451 (11,845) - - (117,053) Balance Balance US$’000 US$’000 30 June 08 30 June 08 Represented Represented ------Consolidated 2009 1,429 1,429 1,428 9,302 7,874 US$’000 US$’000 US$’000 in equity Recognised Recognised in equity / as Represented Represented intercompany 699 564 780 780 783 113 (949) (279) (641) (891) (186) 8,657 3,871 36,578 (1,076) (6,497) 331,636 337,697 loss loss (47,239) US$’000 US$’000 in profit or in profit or Recognised Recognised Represented Represented - - - 1 297 264 297 132 (903) (631) 79,946 17,688 80,009 19,754 79,946 (5,184) (1,060) (5,348) (69,814) Balance Balance US$’000 US$’000 1 July 07 1 July 07 Represented Represented

Net unrealised foreign exchange gains exchange foreign unrealised Net Consolidation Adjustments Company Consolidated Business related costs Revenue tax losses Business related costs Other items Net unrealised foreign exchange gains Borrowing costs Provisions Property, plant and equipment Property, plant and equipment Provisions Senior Secured Notes Subordinated Loan Note Total increase/(decrease) to inter-company assets of company Total increase/(reduction) to tax expense of company Revenue tax losses Exploration and evaluation Other items Borrowing costs For the year ended 30 June 2009 June 30 ended year the For Movement in temporary differences during the year Movement in temporary Note 27. Deferred tax assets and liabilities (continued) liabilities and assets tax Deferred 27. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS

FORTESCUE METALS GROUP ANNUAL REPORT 2009 86 86 economic forecasts. The Subordinated LoanNotewasrevaluedat 30June2009basedonprevailing marketconditionsand throughout the2008and2009financialyears: The followingreconciliations(non-currentandcurrent)detailthemovementsinFortescue’sborrowingaccounts risk canbefoundinNote36. All borrowingsareinterestbearing.InformationaboutFortescueandtheCompany’sexposuretorate Note 28. Borrowings STATEMENTS NOTES TO THE FINANCIAL For the year ended 30 June 2009 Balance at30June2009 Interest expense (Represented) Balance at30June2008 Debt transfer Foreign exchangegains Interest expense Fair valueadjustment Fair valueadjustment Subordinated LoanNote Balance at1July2008 Balance at1July2007 Preference shares Senior SecuredNotes Preference shares Senior SecuredNotes Subordinated LoanNote Subordinated LoanNote Non-Current Current (iii) (iii) (ii) (ii) (i) (i) US$’000 2009 1,867,625 2,250,482 US$’000 Current 319,823 278,272 206,240 103,359 104,585 Consolidated 10,224 103,359 105,999 105,999 (2,640) 43,783 49,627 12,589 Represented US$’000 - - - 2008 1,431,233 1,141,337 2,572,570 264,065 158,066 105,999 Non-Current US$’000 - - (1,121,771) 1,141,337 1,020,555 1,141,337 (43,783) (72,394) 278,272 258,706 116,568 120,391 US$’000 2009 104,585 104,585 10,224 10,224 Company - - - - US$’000 Represented Total US$’000 (1,124,411) 2008 1,247,336 1,070,182 1,247,336 (72,394) 381,631 258,706 116,568 132,980 ------87 87 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - 9,309 96,992 13,579 (5,071) 170,432 114,809 197,998 554,763 (81,197) (168,036) (152,499) (186,998) 1,739,402 1,589,299 1,589,299 2,073,865 Total US$’000 - 9,309 86,768 13,579 (5,071) 170,432 104,585 197,998 497,391 (71,999) (168,036) (136,685) (186,998) 1,565,522 1,431,233 1,431,233 1,867,625 US$’000 Non-Current ------10,224 10,224 57,372 (9,198) 173,880 158,066 158,066 206,240 (15,814) Current US$’000

The note is unsecured and deeply subordinated to any secured debt. In the event that an interest payment is The note is unsecured and deeply subordinated to any secured debt. In the event will accrue interest at a market earned but not payable due to secured lender restrictions, the amount unpaid interest rate until payment is made. Interest under the note is calculated as 4 per cent of the revenue, net of government royalties, from the Interest under the note is calculated as 4 per cent of the revenue, net of government Creek areas only. sale of iron ore FOB Port Hedland from the tenements of the Cloudbreak and Christmas only relevant to iron ore Accordingly the interest is only payable when Fortescue is in production and is 2006; produced from these two tenement areas for a period of 13 years from 18 August Subordinated Loan Note (through its wholly owned subsidiary Chichester Metals Pty Ltd – Subordinated Loan Note (through its wholly owned subsidiary Chichester ● ●

Senior Secured Notes Recognition of issue of preference shares Balance at 1 July 2008 Balance at 1 July 2007 Senior Secured Notes Interest repayments Foreign exchange gain Interest expense Foreign exchange losses to June 2009 Interest expense Interest repayments Balance at 30 June 2009 Balance at 30 June 2008 (Represented) 2008 June 30 at Balance Balance at 1 July 2008 Interest repayments Debt buy back Interest expense Foreign exchange losses to June 2009 Balance at 30 June 2009 ● ● For the year ended 30 June 2009 June 30 ended year the For previously FMG Chichester Pty Ltd) 2007 financial year. The key The Company put in place a US$100 million Subordinated Loan Note during the terms and conditions of the facility are: i) NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 28. Borrowings (continued) Borrowings 28. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 88 88 The keytermsandconditionsofthenotesare: changes inthefollowingmanagementestimates,prevailingmarketconditionsandeconomicforecasts: The notewasrevaluedat30June2009toUS$381,631,000(302008:US$1,247,336,000)inlinewith interest ratemethodoccurred(refernote8). At inceptionoftheloananerrorinapplicationAASB139requirementsfordeterminingeffective STATEMENTS NOTES TO THE FINANCIAL Exchange. Thisdebthassubsequentlybeenextinguished.Asummaryofthetransactionsareincludedbelow: During thefinancialyearFortescueboughtbackparcelsofitsownlisteddebtthroughSingaporeStock Infrastructure Project. Secured NotesinAugust2006tofacilitatetheconstructionandinitialoperationofPilbaraIronOre The CompanyraisedUS$1,650millioninUSdollardenominatedand€315EuroSenior Pty Ltd–previouslyFMGFinanceLtd) ii) For the year ended 30 June 2009 ● ● ● ● ● ● ● ● ● 9.750% notesdue2013 10.000% notesdue2013 10.625% notesdue2016 Note Description ● ● ● ● ● ● ● ● ●

Senior SecuredNotes(throughitswhollyownedsubsidiaryFMGResources(August2006) cent perannum. swap overitsUS$250million Senior SecuredNotesdue2011,swappingthesenotesto afixedrateof9per December 1ofeachyear,beginning onDecember1,2006.Fortescuehasafloating-to-fixed interestrate cent perannum,accruingfrom August18,2006.InterestispayableonMarch1,June September1and US$250 millionofSeniorSecured Notesdue2011bearinginterestatthree-monthLIBOR plus4.000per 2007. TheCompanyhasswapped thesenotestoafixedrateof9percent;and from August18,2006.InterestispayableonMarch1andSeptember 1ofeachyear,beginningonMarch1, US$1,080 millionofSeniorSecuredNotesdue2016bearing interestat10.625percentannumaccruing August 18,2006.Interest is payable onMarch1 and September1of each year,onMarch1, beginning 2007; €315 millionofSeniorSecuredNotesdue2013bearinginterest at9.750percentannumaccruingfrom 2007; from August 18, 2006. Interest is payable on March 1 and September 1 of each year, beginning on March 1, US$320 millionofSeniorSecuredNotesdue2013bearing interestat10.000percentannumaccruing The totalReserveestimateofCloudbreakandChristmasCreekhasnotchangedsince30June2008. Western Australianstategovernment;and Expected royaltyrateshavenotchangedsince30June2008andreflectcurrentpayabletothe Subordinated LoanNote; The discountratehasbeenappliedsinceinceptionandreflectstheimplicitinterestof42percent independent resourcesectoranalystoffutureironoreprices; Future ironorepriceswereupdatedtoreflectlowerforecastsprovidedbyMetalyticsPtyLtdbeingan forecast reachingamaximum160mtpainDecember2010); levels fromChristmasCreekandCloudbreakreachingamaximumof95mtpainFebruary2012(2008: Production wasrevisedtoreflectFortescue’sforecastproductionprofileasat30June2009of Face value US$1.00 US$1.00 €1.00 Principal Debt $US54,000,000 $US2,500,000 Purchased €16,200,000 Purchase Price $US0.709 $US0.710 €0.624 US$38,340,000 Amount Paid US$1,772,500 €10,106,500 89 89 FORTESCUE METALS GROUP ANNUAL REPORT 2009

Limited voting rights. Term of 8.5 years; Redeemable by Fortescue at any time subject to minimum 30 days notice; up and in relation to the Preference shares to rank in priority to Fortescue’s ordinary shares on a winding payment of distributions; and Dividend coupon rate of 9 per cent fixed p.a. payable six monthly either in cash, or where cash distributions Dividend coupon rate of 9 per cent fixed p.a. payable six monthly either in cash, shares (calculated on the are not able to be made by Fortescue, additional preference shares or ordinary basis of the volume weighted average share price) as elected by Fortescue; They are listed on the Singapore Exchange Securities Trading Limited (the SGX-ST). They are listed on the Singapore Exchange They rank pari passu in right of payment with all existing and future senior indebtedness. in right of payment with all existing and They rank pari passu of FMG and floating charges over the assets among other security documents, fixed They are secured by, FMG Finance Pty Ltd), and the project-related assets of Resources (August 2006) Pty Ltd, (previously Chichester Pty Ltd), Pilbara Mining Alliance Pty Ltd and The Chichester Metals Pty Ltd (previously FMG Guarantors), a charge, assignment or pledge over the bank Pilbara Infrastructure Pty Ltd (the Project Secured Notes will be deposited, share mortgages over all of the accounts in which proceeds of the Senior and FMG Resources (August 2006) Pty Ltd, a featherweight shares in the capital of the Project Guarantors of Fortescue and mortgages of the real property leasehold charge over all of the assets and undertakings tenements. rights of the Project and the Project mining Preference shares recognised as debt Preference shares recognised as

● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● For the year ended 30 June 2009 June 30 ended year the For The key terms for these preference shares are; The Preference Shares shall rank pari passu with the most senior ranking preference shares of the Company The Preference Shares shall rank pari passu the Preference Shares and the and in priority to all other preference shares that are expressed to rank junior to Company’s ordinary shares, in a winding up of the Company. The Preference Shares confers upon the holder the right in a winding up or return of capital to payment of an The Preference Shares confers upon the in priority to any other class of shares ranking behind it. amount equal to the Redemption Amount, iii) redeemable preference shares at a price of $AUD100,000 The Company issued 1,400 fully paid non-converting, preference shares have been recognised as debt in the financial per share on 30 September 2008. These there is not a right for preferential shareholders to share in the statements as unlike ordinary shareholders A holder of Preference Shares is not entitled to share in the residual interests of the assets of Fortescue. Company beyond its Redemption Amount. The Preference Shares rank distribution of any surplus assets of the for the payment of distributions in accordance with these terms. in priority to Fortescue’s ordinary shares

Other key terms of the notes are: Other key terms of the NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 28. Borrowings (continued) Borrowings 28. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 90 90 disclosed forcommercialreasons. settled withBocimarInternationalNVandClassicMaritime. Thedetailsofthisamounthasnotbeenseparately (i) outstandingpotentialsettlementsremainingonitsdisputed contracts;and(ii)outstandingliabilitiestobe disputed contracts.Fortescuehasaccruedfortheliabilityoutstanding asat30June2009thatitbelievesreflects 2009) leavingonlyfivedisputedcontractsremaining.The Bocimar andClassiccontractswerethefivelargest agreements withBocimarInternationalNV(Bocimar)(4February 2009)andClassicMaritime(Classic)(27May Affreightment andConsecutiveVoyageContracts.Subsequent tothisFortescuenegotiatedsettlement On 5December2008Fortescueexercisedsuspensionofallits10longtermCFRshippingcontracts present valuebasedonexpectedfuturecashflows. areas atthereportingdatebasedoncurrentestimatesofcoststorehabilitatesuchareas,discountedtheir recognised inrelationtoFortescue’sironoreoperations.Theprovisionhasbeenmadefullforalldisturbed In accordancewithStateGovernmentlegislativerequirements,aprovisionforsiterehabilitationhasbeen Note 31. Derivative at fair value - current Note 30. Trade and other payables provided innote36. Information aboutFortescue’s andtheCompany’sexposuretocreditrisk,foreignexchange andpriceriskis Risk exposure Note 29. Provisions STATEMENTS NOTES TO THE FINANCIAL For the year ended 30 June 2009 Interest ratederivativeheldat fairvalue Deposits received Non-Current Other payablesandaccruals Trade payables Current Balance at30June Provisions madeduringtheyear Balance at1July Site rehabilitation US$’000 2009 349,602 339,085 349,602 284,042 Consolidated 31,397 31,397 55,043 55,582 39,894 15,688 Represented US$’000 2008 113,899 113,899 10,504 80,629 10,504 80,629 15,688 15,688 - - US$’000 2009 14,623 14,623 Company ------Represented US$’000 2008 6,320 6,320 ------91 91 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - 1,897 1,379 1,219 1,439 (4,541) (1,293) 350,547 397,669 746,791 481,560 1,229,876 US$’000 - - - - US$0.59 US$0.29 US$1.71 US$24.93 Issue Price - - - - 3,217,216 4,697,159 14,063,000 Shares 265,687,743 280,535,780 Number of 2,521,395,801 2,804,363,760 3,089,596,699 * Exercise of options issued under the Fortescue Metals Group Incentive Option Scheme (FMGIOS) Share issue costs Ordinary shares fully paid: Balance at beginning of financial year Shares issued Transfer option expense from reserve for converted options Balance at end of financial year Shares issued Exercise of options issued under the Fortescue Metals Group Incentive Option Scheme (FMGIOS) Transfer option expense from reserve for converted options Reorganisation of capital Share issue costs Balance at end of financial year

Date

1 July 2007 = The reorganisation of capital of Fortescue Metals Group Ltd was effected on 19 December 2007. The = The reorganisation of capital of Fortescue Metals Group Ltd was effected on 30 June 2008 June 30 30 June 2009 June 30 For the year ended 30 June 2009 June 30 ended year the For Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the concept Effective 1 July 1998, the Company Law Review Act abolished the concept of or par value in respect of its of authorised capital. Accordingly, the Company does not have authorised capital issued shares. Fully paid ordinary shares entitle the holder to participate in dividends and to one vote per share at meetings of Fully paid ordinary shares entitle the holder to participate in dividends and to one Company in proportion to the the Company. Ordinary shares participate in the proceeds on winding up of the number of shares held. reorganisation was by way of a share split whereby each fully paid ordinary share was split into ten fully paid reorganisation was by way of a share split whereby each fully paid ordinary share ordinary shares. * A reconciliation of the movement in capital and reserves for the Company and Fortescue can be found in the the Company and Fortescue can be found movement in capital and reserves for A reconciliation of the in Equity. Statements of Changes Note 32. Contributed equity Contributed 32. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS

FORTESCUE METALS GROUP ANNUAL REPORT 2009 92 92 Amounts arestatednetoftax. Amounts arestated netoftax. Equity. options. ThemovementinthesharebasedpaymentsreserveisdisclosedStatementsofChanges The sharebasedpaymentsreserverecordsitemsrecognisedasexpensesonvaluationofemployee THE SHARE BASED PAYMENTS RESERVE Note 33. Reserves STATEMENTS NOTES TO THE FINANCIAL A reconciliationofreservesinincludedbelow: reserve (FCTR). dollar deferredtaxassetsandliabilitiesarerecogniseddirectlyinequitytheforeigncurrencytranslation Foreign currencydifferencesarisingontherevaluationofAustraliandeferredtaxassetsandliabilitiestoUS FOREIGN CURRENCY TRANSLATION RESERVE financial years. June 2009of$610,000.Therehasbeennomovementintheassetrevaluationreserveduring2008or The assetrevaluationreserverecordsrevaluationsofnon-currentassetsandhasacarryingvalueasat30 ASSET REVALUATION RESERVE For the year ended 30 June 2009 Opening balanceat1July2007 Company Opening balanceat1July2007 Consolidated Equity settledsharebasedpaymenttransactions Forfeited options Exercise ofoptions Closing balanceat30June2008(Represented) Equity settledsharebasedpaymenttransactions Forfeited options Exercise ofoptions Closing balanceat30June2008(Represented) Opening balanceat1July2008 Forfeited options Exercise ofoptions Opening balanceat1July2008 Forfeited options Exercise ofoptions Deferred taxtranslationtoUSD Equity settledsharebasedpaymenttransactions Equity settledsharebasedpayment transactions Closing balanceat30June2009 Deferred taxtranslationtoUSD Closing balance at30June2009 Share based payment US$’000 reserve (1,219) (1,219) (1,474) (1,474) 2,089 2,089 1,338 2,045 1,338 2,045 2,045 2,045 1,440 1,440 1,970 1,970 (163) (163) (41) (41) - - revaluation US$’000 reserve Asset 610 610 610 610 610 610 610 610 ------translation currency US$’000 Foreign reserve (77,202) (77,202) (9,422) (9,422) ------reserves US$’000 Total (77,202) (74,622) (1,219) (1,219) (1,474) (9,422) (1,474) (6,842) 2,699 2,699 1,338 2,655 2,655 2,655 2,655 1,440 1,440 (163) (163) 1338 (41) (41) 93 93 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------21 712 (564) 2,254 1,175 2,188 7,365 1,579 (9,370) (2,005) 2008 US$’000 Represented ------353 Company 1,796 9,309 2,970 1,399 8,427 3,700 1,019 18,082 (19,404) (34,579) (44,148) (16,497) 2009 US$’000 - - 21 965 2,254 1,175 2,188 2,784 12,699 77,551 118,965 (69,945) (35,844) (331,636) (177,772) (771,770) (105,183) (133,421) 1,070,182 2008 US$’000 Represented 353 4,358 1,399 3,700 20,574 52,547 35,946 Consolidated 153,918 466,013 541,304 524,953 134,954 473,348 508,042 (11,544) (85,278) (127,246) (101,281) (1,124,411) 2009 US$’000

Tax (benefit)/expense Realised (gain)/loss on foreign exchange Fair value adjustment on Subordinated Loan Note Fair value adjustment on interest rate swaps Net effective interest on borrowings Unrealised (gain)/loss on foreign exchange Debt establishment costs Equity-settled share based payment transactions Operating profit/(loss) before changes in working capital Profit on extinguishment of debt Provision – employee entitlements Amortisation of development expenditure Amortisation of intangible assets Changes in assets and liabilities during the year: Increase/ (decrease) in payables (Increase) /decrease in receivables and prepayments (Increase) /decrease in inventory Net cash from/(used in) operating activities Profit/(loss) for the year Depreciation of property, plant and equipment For the year ended 30 June 2009 June 30 ended year the For

operating activities operating Note 35. Reconciliation of cash flows from from flows cash of Reconciliation 35. Note Total equity for Fortescue is lower than that of the Company. It is not considered that this represents an It is not considered that this represents is lower than that of the Company. Total equity for Fortescue and Christmas through operation of the Cloudbreak there will be significant profit generated impairment event as they fall be able to meet all of its debts as and when The Directors believe Fortescue will Creek iron ore mines. due in line with current cash flow forecasts. Note 34. Total equity Total 34. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS

FORTESCUE METALS GROUP ANNUAL REPORT 2009 94 94 financial statements. used tomeasurethem.Furtherquantitativeinformationinrespectoftheserisksispresentedthroughout This notedescribesFortescue’sobjectives,policiesandprocessesformanagingthoserisksmethods In commonwithallotherbusiness,Fortescueisexposedtorisksthatarisefromitsuseoffinancialinstruments. Note 36. Financial risk management STATEMENTS NOTES TO THE FINANCIAL different methodstomeasuretypesofriskwhichitisexposed. are exclusivelyusedforhedgingpurposes,i.e.notastradingorotherspeculativeinstruments.Fortescueuses performance ofFortescue.Fortescueusesinterestrateswapstohedgeriskexposures.Derivatives on theunpredictabilityoffinancialmarketsandseekstominimisepotentialadverseeffects rate riskandpricerisk),creditliquidityrisk.Fortescue’soverallmanagementprogramfocuses Fortescue’s activitiesexposeittoavarietyoffinancialrisks:marketrisk(includingcurrencyrisk,interest FINANCIAL RISKS affecting Fortescue’scompetitivenessandflexibility.Furtherdetailsregardingthesepoliciesaresetoutbelow. The overallobjectiveoftheBoardistosetpoliciesthatseekreduceriskasfarpossiblewithoutunduly Audit andRiskManagementCommittee. regular andadhocreviewsofriskmanagementcontrolsprocedures,theresultswhicharereportedto Risk ManagementCommitteeisassistedinitsoversightrolebyInternalAudit.Auditundertakesboth management frameworkinrelationtotherisksfacedbyCompanyandFortescue.Fortescue’sAudit Company’s andFortescue’sriskmanagementpoliciesproceduresreviewstheadequacyof Fortescue’s AuditandRiskmanagementCommitteeoverseeshowmonitorscompliancewiththe appropriateness oftheobjectivesandpoliciesitsets. the ChiefFinancialOfficerthroughwhichitreviewseffectivenessofprocessesputinplaceand Risk ManagementCommittee.TheAuditandCommitteereceivesreportsasrequiredfrom operating processesthatensuretheeffectiveimplementationofobjectivesandpoliciestoAudit policies, andwhilstretainingultimateresponsibilityforthem,ithasdelegatedtheauthoritydesigning The BoardhasoverallresponsibilityforthedeterminationofFortescue’sriskmanagementobjectivesand General objectives,policiesandprocesses For the year ended 30 June 2009 95 95 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------26 197 9,039 1,267 1,694 6,320 6,320 596,094 608,317 2008 US$’000 Represented ------31 127 Company 3,058 14,623 492,872 114,809 129,432 452,263 948,351 2009 US$’000 - - - 26 1,694 1,267 62,332 34,681 10,504 80,629 133,182 113,899 233,182 2008 2,836,635 3,041,667 US$’000

Represented - 31 127 2,657 3,229 Consolidated 56,119 10,728 31,397 109,162 349,602 654,942 339,085 836,995 2009 2,570,305 3,290,389 US$’000

MARKET RISK MARKET Foreign exchange risk

Intercompany receivables Security deposits Financial assets Receivables from sale and leaseback transactions Loan receivable contracts Amounts held pending arbitration of shipping Other receivables Deposits received Borrowings Trade receivables Derivative held at fair value Financial liabilities Trade and other payables Financial assets Cash and cash equivalents For the year ended 30 June 2009 June 30 ended year the For Fortescue’s policy is, where possible, to allow group entities to settle liabilities denominated in their functional Fortescue’s policy is, where possible, to allow group entities to settle liabilities Where group entities have currency (USD) with the cash generated from their own operations in that currency. insufficient reserves of that liabilities denominated in a currency other than their functional currency (and have possible, be transferred from currency to settle them) cash already denominated in that currency will, where other entities within Fortescue. (i) (A) (A) financial instruments. It is the Market risk arises from Fortescue’s use of interest bearing and foreign currency because of changes in interest risk that the fair value of future cash flows of a financial instrument will fluctuate factors (other price risk). rates (interest rate risk), foreign exchange rates (currency risk) or other market from various currency Fortescue operates internationally and is exposed to foreign exchange risk arising exposed to currency risk on cash exposures primarily with respect to the Australian dollar and Euro. Fortescue is reserves, deposits received, trade receivables and borrowings. assets and liabilities Foreign exchange risk arises from future commercial transactions and recognised is measured using sensitivity denominated in a currency that is not the entity’s functional currency. The risk exchange contracts as at 30 analysis and cash flow forecasting. Fortescue has not entered into any forward June 2009 and is currently fully exposed to foreign exchange risk.

Fortescue and the Company hold the following financial instruments: Fortescue and the Company NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS PRINCIPAL FINANCIAL INSTRUMENTS FINANCIAL PRINCIPAL Note 36. Financial risk management (continued) management risk Financial 36. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 96 96 set outbelow: The carryingamountsoftheCompany’sfinancialassetsandliabilitiesaredenominatedinUSdollarsexceptas STATEMENTS NOTES TO THE FINANCIAL Company Fortescue For the year ended 30 June 2009 Total financialassets Financial assets Loan receivable Other receivables Intercompany receivables Trade receivables Borrowings Total financialliabilities Deposits received Borrowings Cash andcashequivalents Financial assets Trade andotherpayables Financial liabilities Trade andotherpayables Cash andcashequivalents Derivative heldatfairvalue Financial liabilities Total financialassets arbitration of shipping contracts Amounts heldpending Total financialliabilities leaseback transactions Receivables fromsaleand Trade receivables Financial assets Loan receivable Security deposits Other receivables Financial assets US$’000 US$’000 2,021,242 2,402,241 USD USD 349,602 141,753 243,113 31,397 10,728 75,823 12,152 2,657 ------US$’000 US$’000 AUD AUD 948,351 492,872 114,809 129,432 452,263 339,085 486,663 114,809 549,845 453,894 30 June2009 30 June2009 14,623 17,777 42,018 3,058 3,229 127 127 31 31 - - - - - US$’000 US$’000 EURO EURO 434,254 434,254 26,526 44,037 15,562 1,949 ------US$’000 US$’000 2,570,305 3,290,389 Total Total 948,351 492,872 129,432 114,809 349,602 452,263 339,085 654,942 836,995 109,162 14,623 31,397 10,728 56,119 3,058 2,657 3,229 127 127 31 31 - Represented Represented US$’000 US$’000 2,468,114 2,552,319 USD USD 109,479 154,143 73,701 10,504 34,681 9,039 9,039 9,983 ------Represented Represented US$’000 US$’000 AUD AUD 599,278 596,094 113,899 120,827 30 June2008 30 June2008 58,684 51,076 1,694 1,267 6,320 6,320 6,928 4,621 1,694 1,267 197 26 26 ------Represented Represented US$’000 US$’000 EURO EURO 368,521 368,521 19,082 20,355 1,273 ------Represented Represented US$’000 US$’000 2,836,635 3,041,667 Total Total 608,317 596,094 113,899 133,182 233,182 80,629 10,504 34,681 62,332 1,694 1,267 6,320 9,039 6,320 1,694 1,267 197 26 26 - - - 97 97 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - - - - 40,946 29,648 (40,946) (29,648) US$’000 Profit or loss - - - - Company 40,946 29,648 (40,946) (29,648) Equity US$’000 3,107 4,798 19,511 17,408 (3,107) (4,798) (19,511) (17,408) US$’000 Profit or loss 3,107 4,798 19,511 17,408 Consolidated (3,107) (4,798) (19,511) (17,408) Equity US$’000

decreased equity and increased the Company’s loss, primarily through lower costs and intercompany decreased equity and increased the Company’s loss, primarily through lower costs receivable balances. increased equity and increased Fortescue’s profit, primarily through a lower valuation of Fortescue’s Euro increased equity and increased Fortescue’s profit, primarily through a lower valuation borrowings, by the amounts shown below; and increased equity and decreased the Company’s loss, primarily through higher cash and intercompany increased equity and decreased the Company’s receivable balances. decreased equity and decreased Fortescue’s profit, primarily through a higher valuation of Fortescue’s Euro through a higher valuation of Fortescue’s decreased Fortescue’s profit, primarily decreased equity and and borrowings, by the amounts shown below; ● ● ● ● 30 June 2009 AUD 30 June 2009 AUD 30 June 2008 (Represented) AUD AUD 30 June 2008 (Represented) Euro Euro Euro Euro ● ● ● ● For the year ended 30 June 2009 June 30 ended year the For

Sensitivity analysis a net basis Australian dollar and Euro at 30 June on of the US dollar against the A five per cent strengthening would have: NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is This analysis assumes that all other variables, in particular interest rates, remain performed on the same basis for 2008. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is This analysis assumes that all other variables, performed on the same basis for 2008. Note 36. Financial risk management (continued) management risk Financial 36. Note A five per cent weakening of the US dollar against the Australian dollar and Euro at 30 June on a net basis A five per cent weakening of the US dollar against the Australian dollar and Euro would have:

FORTESCUE METALS GROUP ANNUAL REPORT 2009 98 98 exposure tocommoditypriceriskatthereportingdatewasasfollows: commodity price contracts as at 30 June 2009 and is currently fully exposed to commodity price risk. Fortescue’s market annuallyon1Aprilofeachyearforthefollowing12months.Fortescuehasnotenteredintoanyforward Fortescue andtheCompanyareexposedtocommoditypricerisk.Contractironorepricessetbyglobal (ii) Commoditypricerisk STATEMENTS NOTES TO THE FINANCIAL performed onthesamebasis for2008. by theamountsshownbelow.Thisanalysisassumesthatall othervariablesremainconstant.Theanalysisis Fortescue’s SubordinatedLoanNoteat30Junewouldhave increasedequityandFortescue’sprofit A 10percentweakeningofthefutureironorepriceincluded intradereceivablesandthevaluationmodelfor analysis isperformedonthesamebasisfor2008. revenues andhigherfuturecashinflows.Thisanalysisassumesthatallothervariablesremainconstant.The method ofaccountingforitsassetswhichdoesnotshowthefairvalueimpactonresultingfromhigher projected revenuesonitsSubordinatedLoanNoteborrowing.Conversely,Fortescuehasadoptedthecost because undercurrentaccountingstandardsFortescueisrequiredtoaccountforthefairvalueimpactofhigher 30 JunewouldhavedecreasedequityandFortescue’sprofitbytheamountsshownbelow.Thisis A 10percentstrengtheningofthefutureironorepriceincludedintradereceivablesandvaluationmodelat forecasts includingfutureironoreprices. tenements oftheCloudbreakandChristmasCreekareasonly.Thevaluationnoteisbasedonseveral at 4percentoftherevenue,netgovernmentroyalties,fromsaleironoreFOBPortHedland Borrowings relatestoFortescue’sSubordinatedLoanNote.Noteiscalculated final adjustmenttothesalespricebasedonasurveyofgoodsbycustomer. Trade receivablesrelateprimarilytoUSDironorecommoditysalesandaresubjectpriceriskduepotential Sensitivity analysis

For the year ended 30 June 2009 Total exposure 30 June2008(Represented) 30 June2009 Trade receivables Subordinated loannote 30 June2008(Represented) 30 June2009 US$’000 US$’000 Equity 2009 (120,636) (272,469) (381,631) (20,204) 109,162 120,636 Consolidated Consolidated 20,204 Profit orloss Represented US$’000 US$’000 (1,212,655) (1,247,336) 2008 (120,636) (20,204) 120,636 34,681 20,204 US$’000 US$’000 Equity 2009 (904) Company Company 904 - - - - - Profit orloss Represented US$’000 US$’000 2008 9,039 9,039 (904) 904 - - - 99 99 FORTESCUE METALS GROUP ANNUAL REPORT 2009 10,504 250,000 250,000 181,534 1,247,336 1,439,374 $’000 Balance Represented 2008 $’000 Represented 7.08% 9.75% 30 June 2008 662.62% average Weighted interest rate Represented 250,000 250,000 31,397 381,631 253,083 666,111 $’000 2009 $’000 Balance 9.75% 8.49% 30 June 2009 170.31% average Weighted interest rate

2 - 3 years Borrowings – Subordinated Loan Note Borrowings – Senior Secured Notes Interest rate swaps Net exposure to cash flow interest rate risk For the year ended 30 June 2009 June 30 ended year the For The contract requires settlement of net interest receivable or payable each 90 days. The settlement dates The contract requires settlement of net interest receivable or payable each 90 Notes. The contracts are coincide with the dates on which interest is payable on the underlying Senior Secured settled on a net basis. As at reporting date, Fortescue had the following variable rate borrowings (US$250 million Senior Secured As at reporting date, Fortescue had the Note) and interest rate swap contracts outstanding: Notes due 2011 and the Subordinated Loan Fortescue invests surplus cash in term deposits and in doing so exposes itself to the fluctuations in interest rates Fortescue invests surplus cash in term that are inherent in such a market. (iii) Cash flow and fair value interest rate risk (iii) Cash flow and Interest rate risk finance the cash flows on its long-term debt either to eliminate interest rate risk over It is Fortescue’s policy interest rate risk through the use of floating-to-fixed rate instruments or to mitigate the through the use of fixed interest rate swap over its US$250 million Senior Secured swaps. Fortescue currently has a floating-to-fixed lease contracts. Whilst this is an economic hedge of the cash flow risk Notes due 2011 and various operating Fortescue does not apply hedge accounting. NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 36. Financial risk management (continued) management risk Financial 36. Note At 30 June 2009, the notional principal amount and period of expiry of the interest rate swap contract is as At 30 June 2009, the notional principal amount and period of expiry of the interest follows: Interest rate swap contract – Senior Secured Notes rate notes. It is policy to protect US$250 million of the Senior Secured Notes Facility is denominated in floating entered into interest rate swap Fortescue from exposure to increasing interest rates. Accordingly Fortescue has interest at fixed rates. The fixed contracts under which it is obliged to receive interest at variable rates and to pay interest rate is at 5% and the variable interest rate is based on 3 month LIBOR. An analysis by maturities is provided in (C) below. The Company did not hold any variable rate borrowings or interest rate swap contracts.

FORTESCUE METALS GROUP ANNUAL REPORT 2009 100 100 potential impairment lossonthesereceivables. Fortescue has no receivablespastdueasat 30June2009(2008:$nil),nor doesitconsidertheretobe any acceptable levelasdetermined bytheBoard. ship loadingcoveringapproximately 95%ofthevalueironoreshipped,therebyreducing creditrisktoan Fortescue mitigatesitscredit risk inmostcasesbyobtainingsecuritytheformofletters ofcreditpriorto summarised inthePrincipalFinancial Instrumentssectionofthisnote.Forcommoditytrade receivables The maximumexposuretocredit riskatthereportingdateiscarryingamountof financial assetsas Fortescue hasnotrecognisedanybaddebtexpenseinthe 2009or2008financialyears. investment gradecreditratingandwiththecapacityforpayment offinancialcommitmentsconsideredstrong. financial lossfromdefaults.Cashandcashequivalentsare heldinvariousfinancialinstitutionswithlong-term has adoptedapolicyofonlydealingwithcreditworthycounterparties asameansofmitigatingtherisk Fortescue isexposedtoaconcentrationofriskwithalliron orecustomersbeingChinesecompanies.Fortescue including outstandingreceivablesandcommittedtransactions. derivative financialinstruments,depositswithbanksand institutionsandcreditexposurestocustomers, contractual obligationsresultinginfinanciallosstoFortescue. Creditriskarisesfromcashandequivalents, Credit riskismanagedonaconsolidatedbasis. refers totheriskthatacounterpartywilldefaultonits ( follows: At 30June2009,thenotionalprincipalamountandperiodofexpiryinterestrateswapcontractsareas month LIBOR. pay interestatfixedrates.Therateis2.88%-3.99%andthevariablebasedon3 has enteredintointerestrateswapcontractsunderwhichitisobligedtoreceiveatvariableratesand financial year.ItispolicytoprotectFortescuefromexposureincreasinginterestrates.Accordingly US$10.65 millionofvariableinterestrateoperatingleasecontractswereenteredintoduringthe30June2009 Interest rateswapcontract–OperatingLeases contracts belowareissuedatfixedinterestrateswhichminimisescashflowraterisk. All borrowingsotherthantheUS$250millionSeniorSecuredFloatingRateNotesaboveandoperatinglease recognised. immediately. Intheyearended30June2009alossofUS$13,166,000(2008US$11,911,000)was The gainorlossfrommeasuringthehedginginstrumentatfairvalueisrecognisedinincomestatement STATEMENTS NOTES TO THE FINANCIAL constant theimpactonFortescue’sposttaxprofitandequitypositionwouldnothavebeenmaterial. If variableinterestrateshadchangedby-/+50basispointsfromtheyear-endwithallothervariablesheld Sensitivities recognised. immediately. Intheyearended30June2009alossofUS$7,408,000(2008US$787,000)was The gainorlossfrommeasuringthehedginginstrumentatfairvalueisrecognisedinincomestatement The contractsrequiresettlementofnetinterestreceivableorpayableeach90days. For the year ended 30 June 2009 B 3 -4years ) CREDIT RISK $’000 2009 144,225 144,225 Represented 2008 $’000 92,537 92,537 101 101 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - - - 6,320 6,320 10,504 31,397 14,623 129,432 114,809 634,714 688,687 194,528 $’000 amount 3,041,667 3,290,389 1,966,988 1,418,269 1,428,870 Carrying liabilities - - - 6,320 6,320 10,504 31,397 14,623 209,183 194,560 688,687 113,899 Total $’000 5,630,116 2,804,132 2,859,064 2,137,297 7,759,991 10,732,954 cash flows contractual ------143,441 143,441 $’000 years Over 5 2,559,952 6,821,925 1,442,121 2,027,347 4,794,578 1,117,831 ------3,628 30,671 30,671 13,498 499,213 769,436 183,802 $’000 years 2 and 5 1,971,907 3,056,045 1,018,669 2,556,832 Between ------3,705 9,591 10,224 10,224 80,200 365,860 444,458 171,671 166,252 113,989 278,206 $’000 Between 1 and 2 years ------5,112 5,112 1,669 4,320 85,172 82,443 50,222 83,124 42,800 6-12 178,194 165,567 $’000 months - - - 5,112 6,320 1,502 6,320 3,988 19,735 86,499 83,809 14,623 85,819 47,251 554,203 244,959 381,885 113,899 $’000 months Less than 6

) LIQUIDITY RISK LIQUIDITY ) Fixed rate Fixed rate Fixed rate Variable rate 30 June 2008 Variable rate Fixed rate Fortescue Derivatives (Interest Rate Swaps) 30 June 2009 The Company – At 30 June 2008 (Represented) Non-interest bearing The Company – At 30 June 2009 Non-interest bearing Fortescue - At June 2008 (Represented) Non-interest bearing Fortescue - At June 2009 Non-interest bearing Variable rate Variable rate C For the year ended 30 June 2009 June 30 ended year the For There are no derivatives in the Company.

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through cash and the availability of funding management implies maintaining sufficient Prudent liquidity risk monitoring manages liquidity risk by continuously of committed credit facilities. Fortescue an adequate amount forecast and actual cash flows. Financing arrangements on their borrowing facilities as at 30 June 2009 and 30 June 2008. Fortescue and the Company are fully drawn Maturities of financial liabilities the Company’s financial liabilities into relevant maturity groupings The tables below analyse Fortescue and date to the contractual maturity date. The amounts disclosed in based on the remaining period at the reporting cash flows. the table are the contractual undiscounted The expected maturity profile of Fortescue and the Company’s The maturity profiles below are undiscounted. financial liabilities are analysed below: NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS ( Note 36. Financial risk management (continued) management risk Financial 36. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 102 102 Loan Note. The reductioninthegearingratioduring2009resultedprimarily fromtherevaluationofSubordinated the fairvalueofitsborrowings. financial crisis,thereisnocomparableinstrumentagainstwhichFortescuecanbenchmarkinordertodetermine However, duetotheuniquenatureofFortescue’sborrowingsandlackanactivemarketcurrent cash flowsatthecurrentmarketinterestratethatisavailabletoFortescueforsimilarfinancialinstruments. The fairvalueofborrowingsfordisclosurepurposeswouldbeestimatedbydiscountingthefuturecontractual 3-7 tothefinancialstatements)exceptforborrowingsdisclosedinNote28. represents theirrespectivefairvalues(determinedinaccordancewiththeaccountingpoliciesdisclosednotes purposes. Thecarryingamountoffinancialassetsandliabilitiesrecordedinthestatements The fairvalueoffinancialassetsandliabilitiesmustbeestimatedformeasurementdisclosure ( STATEMENTS NOTES TO THE FINANCIAL 30 June2009and2008wasasfollows: breached anycovenantsduringthe2009or2008financialyears.Fortescue’scapitalmanagementportfolioat There werenochangesinFortescue’sapproachtocapitalmanagementduringtheyear.Fortescuehasnot borrowings andtheadvantagessecurityaffordedbyasoundcapitalposition. The Boardseekstomaintainabalancebetweenthehigherreturnsthatmightbepossiblewithlevelsof share capital,accumulatedlosses,subordinatedloannotesandseniorsecurednotes. return foritsequityshareholdersthroughcapitalgrowth.Fortescueconsiderstocompriseordinary In managingitscapital,Fortescue’sprimaryobjectiveistoensurecontinuedabilityprovideaconsistent ( For the year ended 30 June 2009 E D Gearing ratio Total capital Total equity/(deficiency) Net debt Less: cashandequivalents Total borrowings ) CAPITAL MANAGEMENT ) FAIR VALUE ESTIMATION US$’000 2009 2,766,055 1,915,363 2,570,305 (654,942) 850,692 Consolidated 69% Represented US$’000 2008 2,640,295 2,703,453 2,836,635 (133,182) (63,158) 102% US$’000 2009 1,161,846 (337,454) (452,263) 824,392 114,809 (41%) Company Represented US$’000 2008 732,209 732,406 (197) (197) (0%) - 103 103 FORTESCUE METALS GROUP ANNUAL REPORT 2009 ------132,040 114,318 2009 1,977,992 1,731,634 750,000 750,000 at 30 June Vested and exercisable Represented 2008 US$’000 ------year Vested Company 250,000 250,000 during the 60,705 417,298 278,557 4,270,330 3,513,770 2009 US$’000 ------2009 600,000 600,000 600,000 Balance 2,800,000 1,000,000 at 30 June - - 132,040 114,318 ------1,977,992 1,731,634 year Other changes (500,000) during the (500,000)# Represented 2008 US$’000 ------Consolidated 60,705 (500,000) (500,000) Exercised 417,298 278,557 4,270,330 3,513,770 2009 US$’000 ------600,000 600,000 600,000 1,800,000 Granted as remuneration ------Held at 1 2,000,000 1,000,000 1,000,000 July 2008

Directors of Fortescue Metals Group Ltd Other key management personnel Termination benefits Other long term benefits Post-employment benefits Equity compensation benefits Short-term employee benefits G Cowe A Forrest G Rowley H Elliott R Scrimshaw K Ambrecht J Steinberg G Brayshaw O Hegarty I Burston L Xiaowei P Hallam M Minosora C Catlow A Watling For the year ended 30 June 2009 June 30 ended year the For 2009 # = Options forfeited upon resignation/cessation of employment OPTION OVER EQUITY INSTRUMENTS INSTRUMENTS EQUITY OVER OPTION in the number of options over ordinary shares in the Company held The movement during the reporting period Key Management Person, including their related parties, is as follows: directly, indirectly or beneficially, by each Balances above are recognised on a gross basis. Wages and salaries, disclosed as part of administration Balances above are recognised on a gross recognised net of salary recoveries. expenses in the income statement, are no Director has entered into a material contract with the Company Apart from the details disclosed in this note, financial year and there were no material contracts involving or Fortescue since the end of the previous Directors’ interests existing at year-end. The Key Management Personnel remuneration included in ‘administration expenses’ in the income statement The Key Management Personnel remuneration are as follows: disclosures REMUNERATION PERSONNEL MANAGEMENT KEY Note 37. Key management personnel personnel management Key 37. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS

FORTESCUE METALS GROUP ANNUAL REPORT 2009 104 104 STATEMENTS NOTES TO THE FINANCIAL 2009 Ordinaryshares inadvertently orbeneficially,byeachKeyManagementPerson,includingtheirrelatedparties,aresetoutbelow. The movementduringthereportingperiodinnumberofordinarysharesCompanyhelddirectly, MOVEMENTS IN SHARES * vested duringthe2008financialyearhavebeenadjustedtoaccountforthisoptionsplit. reorganised throughanoptionsplitwherebyeachwasintotenoptions.Thenumbersofoptions paid ordinaryshares.TomaintainthevalueofoptionsissuedbyFortescue,Fortescue’swerealso reorganisation wasbywayofasharesplitwherebyeachfullypaidordinaryintoten 2008 For the year ended 30 June 2009 G Cowe C Catlow A Watling G Brayshaw J Steinberg K Ambrecht R Scrimshaw G Rowley A Forrest Name H Elliott A Forrest G Rowley O Hegarty R Scrimshaw H Elliott I Burston J Steinberg K Ambrecht L Xiaowei(B) G Brayshaw P Hallam M Minosora C Catlow A Watling G Cowe TOTAL Other keymanagementpersonnel Directors ofFortescueMetalsGroupLtd Directors ofFortescueMetalsGroupLtd Other keymanagementpersonnel =ThereorganisationofcapitalFortescueMetalsGroupLtdwaseffectedon19December2007. Held at1July 1,005,493,300 1,329,556,737 277,986,000 20,235,690 2008 8,000,000 2,540,689 6,283,833 8,000,000 1,000,000 17,225 July 2007 Held at1 300,000 100,000 200,000 ------Received on exercise of options remuneration Granted as 500,000 500,000 ------(1,000,000) (1,000,000) Exercised Purchases ------400,000 472,470 27,249 15,924 29,297 ------during the 2,700,000 1,800,000 changes 900,000 year * Other Share split* ------at 30June 2,000,000 1,000,000 1,000,000 Balance 2008 ------(32,665,000)(A) (39,275,000) (1,000,000) (3,310,000) (1,500,000) Sales (400,000) (400,000) during the 750,000 250,000 500,000 Vested year ------Held at30June 1,291,254,207 972,828,300 277,986,000 exercisable Vested and at 30June 19,235,690 1,000,000 2009 500,000 500,000 2,167,938 6,313,130 8,000,000 4,690,000 2008 33,149 ------105 105 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - 17,225 8,000,000 1,000,000 6,283,833 8,000,000 2,540,689 2008 20,235,690 277,986,000 1,329,556,737 1,005,493,300 Held at 30 June ------(225,000) Sales (7,818,050) (3,905,000) (720,000) (C) (2,968,050) (C) - 12,807 900,000 7,200,000 5,851,215 7,200,000 4,951,179 18,860,121 250,187,400 907,090,470 Share split* 1,202,253,192 ------4,418 7,618 7,560 1,418,196 Purchases 1,398,600 (D) ------100,000 100,000 options exercise of Received on - - - 800,000 650,000 800,000 550,000 2,095,569 2007 26,400,000 133,603,399 102,307,830 Held at 1 July

The Directors relevant direct or indirect interest in these Fortescue Metals Group Ltd shares have been The Directors relevant direct or indirect of arrangement. disposed of as a result of a transaction with Opes Prime and are subject to a scheme These disposals do not reflect sales to the benefit of the Directors. LUK-Fortescue LLC LUK-Fortescue LLC held 277,986,000 shares in the Company as at 30 June 2009. and Cumming have is a wholly owned subsidiary of Leucadia National Corporation. Messrs. Steinberg election of a mutually an oral agreement pursuant to which they will consult with each other as to the voting power in acceptable Board of Directors of Leucadia National Corporation. As their collective s608(3)(a) of Leucadia National Corporation exceeds 20 per cent, Mr Steinberg is deemed under Leucadia National the Corporations Act to have a relevant interest in the Fortescue shares in which Corporation has a relevant interest. Mr Forrest’s relevant direct or indirect interest in those Company shares have been disposed of for nil Mr Forrest’s relevant direct or indirect interest of as separate gift transactions. cash consideration, and were disposed Iron and Steel Group Company (Valin), which holds 535,000,000 Mr Xiaowei is Chairman of Hunan Valin Fortescue shares as at 30 June 2009.

= The reorganisation of capital of Fortescue Metals Group Ltd was effected on 19 December 2007. The = The reorganisation of capital of Fortescue Metals Group Ltd was effected on Other key management personnel Directors of Fortescue Metals Group Ltd TOTAL G Cowe G Brayshaw C Catlow A Watling J Steinberg K Ambrecht R Scrimshaw H Elliott G Rowley A Forrest Name For the year ended 30 June 2009 June 30 ended year the For reorganisation was by way of a share split whereby each fully paid ordinary share was split into ten fully paid reorganisation was by way of a share split whereby each fully paid ordinary share ordinary shares. OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL MANAGEMENT KEY WITH TRANSACTIONS OTHER Corporation (Leucadia) The Company has revised its estimate in relation to the liability to Leucadia National at 30 June 2009 to under the terms of the Subordinated Loan Note (see Note 28). The note was revalued related to Mr Joseph Steinberg, US$381,631,000 (30 June 2008: US$1,247,336,000). Leucadia is a company who is a director of Fortescue Metals Group Ltd. Ltd, held €500,000.00 9.75 At 30 June 2009 Mr Joseph Steinberg, who is a director of Fortescue Metals Group was US$34,612. The balance per cent Senior Secured Notes due 2013. Interest paid and payable for the year as at 30 June 2009 was US$705,517 (30 June 2007: US$568,241). * D = C = A = B =

2008 Ordinary shares NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 37. Key management personnel disclosures (continued) disclosures personnel management Key 37. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 106 106 amounts owedtoNRWbyFortescuewereUS$18.6million. million forservicesrenderedbyNRWonthePilbaraIronOreandInfrastructureproject.Asat30June2009 Fortescue’s CloudbreakandChristmasCreekmines.SincehisappointmentFortescuehasincurredUS$69.6 He isalsoChairmanandDirectorofNRWHoldingsLtd(NRW).provideminingcontractingservicesto Dr IanBurstonwasappointedasaNon-ExecutiveDirectorofFortescueMetalsGroupLtdon13October2008. STATEMENTS NOTES TO THE FINANCIAL 1 Australian dollars): The followingfactorsandassumptionswereusedindeterminingthefairvalueofoptionsongrantdate(in days priortotheofferdate,whichwas11February2009. with theFMGIOSwherebypricemustbeatorgreaterthatvolumeweightedaverageforfive share priceatinception.TheoptionshavebeenissuedanexerciseofAU$2.50,whichisinaccordance upon FortescuesharestradingaboveAU$6forasetperiod.Thepricetargetwasapproximatelydoublethe anniversary. Inaddition,Directorshaveimposedafurtherrequirementthattheexerciseofoptionsisconditional terms oftheFMGIOSoptionswillprogressivelyvestovera4yearperiod,with25percentvestedoneach During thefinancialyearCompanyissued2,400,000employeeoptionstocertainkeyexecutives.Under at thedateofgrant. in theCompany.Inaccordancewiththeseprogrammesoptionsareexercisableatmarketpriceofshares at the2005AGM.TheFMGOISentitleskeymanagementpersonnelandsenioremployeestopurchaseshares Shareholders approvedtheimplementationofFortescueMetalsGroupIncentiveOptionScheme(FMGIOS) Note 38. Share based payments (2008: US$596.1million).Theseloanshavebeenrecognisedascurrentreceivables. During thefinancialyearended30June2009,suchloanstosubsidiariestotalledUS$492.9millionreceivable between theCompanyanditscontrolledentitieshavenofixeddateofrepaymentisnon-interestbearing. Loans aremadebytheCompanytowhollyownedsubsidiariesforcapitalpurchases.outstanding Subsidiaries NON-KEY MANAGEMENT PERSONNEL DISCLOSURES The terms and conditions of the grants are as follows, whereby all options are settled by physical delivery of shares: For the year ended 30 June 2009 Option granttokeymanagementinJune2005 Grant date/employeeentitled Option granttokeymanagement inJanuary2006 Option granttokeymanagement inJune2006 Option granttokeymanagement inFebruary2009 Total shareoptions

11 February = ExpectedvolatilityiscalculatedusingtheAGSMriskmeasurement fortheperiod. Grant date 2009 11 February Expiry date 2014 Fair valueper A$1.61 option Exercise A$2.50 price instruments * Number of

20,000,000 31,700,000 4,300,000 5,000,000 2,400,000 grant date shares on Price of A$2.42 Four yearsofservice Four yearsofservice Four yearsofservice Four yearsofservice Vesting conditions Expected volatility 25.50% 1

interest rate Risk free 6.5% Contractual lifeof options 5 years 5 years 5 years 5 years Dividend yield -

107 107 FORTESCUE METALS GROUP ANNUAL REPORT 2009

- - -

- - - - yield (436,847) 2,560,675 2,123,828 18,292,910 11,474,800 21,238,280 19,114,452 (2,945,370) 2008 Dividend Number of options

5.13% 5.75% 5.75% 6.50% - - - - Risk free 0.30 0.27 2.93 2.31 3.06 0.30 0.30 interest rate price average exercise 2008 US$ Weighted 1 Represented - - 26.80% 26.40% 26.80% 25.50% Expected volatility 7,896,005 2,400,000 11,620,380 18,292,910 15,280,410 15,280,410 (4,299,740) (3,012,500) (1,760,290) 2009 Number of options A$0.62 A$0.27 A$0.77 A$2.42 Price of shares on grant date* - - 0.73 0.46 0.33 0.27 0.25 0.31 0.31 0.26 1.64

price average exercise 2009 US$ Weighted price * A$0.57 A$0.27 A$0.70 A$2.50 Exercise A$0.46 A$0.20 A$0.58 A$1.61 option * Fair value per date 2011 2009 2014 Expiry 25 January 11 February 1 June 2011 31 December

2006 2009 2007. Each option was split into ten options. 25 January Grant date = Adjusted in line with the reorganisation of capital of Fortescue Metals Groups Ltd effected on 19 December = Adjusted in line with the reorganisation of capital of Fortescue Metals Groups 11 February 1 June 2005 1 June 2006

Adjusted in line with the reorganisation of capital of Fortescue Metals Groups Ltd effected on 19 December Metals Groups Ltd effected on 19 December the reorganisation of capital of Fortescue = Adjusted in line with Exercisable at 30 June Outstanding at 30 June Forfeited between 20 December and 30 June Exercised between 20 December and 30 June Granted between 20 December and 30 June Outstanding at 1 July Exercised between 1 July and 19 December Granted between 1 July and 19 December Outstanding at 19 December Option split on 19 December Outstanding at 20 December For the year ended 30 June 2009 June 30 ended year the For The number and weighted average exercise prices of share options are as follows: average exercise prices of share The number and weighted 2007. The reorganisation was by way of a share split whereby each fully paid ordinary share was split into ten each fully paid ordinary share was was by way of a share split whereby 2007. The reorganisation each option was split into ten options. Options were also split whereby fully paid ordinary shares.

1 = Expected volatility is calculated using the AGSM risk measurement for the period 1 = Expected volatility is calculated using the AGSM risk measurement for the *

The options outstanding at 30 June 2009 have an exercise price in the range of US$0.22 to US$2.03 and a The options outstanding at 30 June 2009 have an exercise price in the range of weighted average contractual life of 4 years. by reference to the fair The fair value of services received in return for share options granted are measured is measured based on the value of share options granted. The estimate of the fair value of the services received Binomial model. The contractual life of the option is used as an input into this model. of options on grant date: The following factors and assumptions were used in determining the fair value NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS * Note 38. Share based payments (continued) payments based Share 38. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 108 108 EMPLOYEE EXPENSES STATEMENTS NOTES TO THE FINANCIAL A$7,200,000. Fortescue’ssolicitors havebeeninstructedtodefendthecharges. penalty ofA$400,000thuscomprising apotentialaggregatemaximumpenaltytoFortescue anditssubsidiaryof charged with18offencesunder theOccupationalSafety&HealthAct1984.Eachcharge hasamaximum was chargedon18March2009 withoneoffenceanditssubsidiary,ThePilbaraInfrastructure PtyLtd(TPI), Following aninvestigationintoeventssurroundingCyclone GeorgewhichoccurredinMarch2007.Fortescue Cyclone GeorgeFatalities damages resultingfromthisevent. surrounding thefatalityhascommencedbutatthistimethere isinsufficientinformationtoquantifyanypotential The CompanyunderstandsthataCoronialinquestandWorksafe investigationintothecircumstances site involvinganemployeeofUnitedConstructionandwhich tragicallyresultedintheemployee’sdeath. On 11January2008anincidentoccurredduringtheconstruction oftheprocessingplantatCloudbreakMine Fatality atMineSite The trialhasbeencompletedandthepartiesareawaitingadecisionfromCourt. required topay. and A$5,600,000fortheCEOanorderthathecompensateFortescueanypecuniarypenaltyitmaybe deceptive andmisleadingconduct.ASICisseekingcivilpenaltiesofuptoA$6,000,000fromtheCompany provisions oftheCorporationsActunderSection674andalsoabreach1041Hrelatingto The ASICstatementofclaimallegesabreachbytheCompanyandCEOcontinuousdisclosure Corporation (MCC). Corporation (CREC),ChinaHarbourEngineering(CHEC)andMetallurgicalConstruction the Companyin2004.TheagreementsquestionrelatetothosesignedwithChinaRailwayEngineering Fortescue anditsChiefExecutiveOfficerinrelationtomarketdisclosureofcertainagreementssignedby The AustralianSecuritiesandInvestmentCommission(ASIC)hascommencedlegalproceedingsagainst ASIC Proceedings Note 39. Contingent liabilities For the year ended 30 June 2009 Total expense recognised as employee costs Share optionsgrantedin2009–equitysettled Share optionsgrantedin2007–equitysettled Share optionsgrantedin2006–equitysettled Share optionsgrantedin2005–equitysettled US$’000 2009 Consolidated 1,440 301 120 876 143 Represented US$’000 2008 1,338 147 845 346 -

US$’000 2009 1,440 Company 301 120 876 143 Represented US$’000 2008 1,338 147 845 346 - 109 109 FORTESCUE METALS GROUP ANNUAL REPORT 2009

For the year ended 30 June 2009 June 30 ended year the For No other significant events requiring disclosure have occurred since 30 June 2009. No other significant events requiring disclosure have occurred since 30 June The tenement is approximately 100 kilometres south of Fortescue’s Herb Elliott Port at Port Hedland and The tenement is approximately 100 kilometres south of Fortescue’s Herb Elliott approximately 25 kilometres to the east of the Fortescue rail line. Note 40. Subsequent events Subsequent 40. Note a 1.23 billion tonne Inferred Resource Estimate for its Glacier Valley On 29 July 2009 Fortescue announced (JV) arrangement with an tenement area. Glacier Valley is held by Fortescue but is subject to a joint venture expenditure associated Australian subsidiary of China’s Baosteel Group Corporation (Baosteel). The exploration in the JV. Upon expenditure of an with the resource definition enables Baosteel to move to a 35 per cent interest per cent interest. additional agreed amount to cover feasibility studies Baosteel can move to a 50 An action has been commenced against Fortescue’s wholly owned subsidiaries, Chichester Metals Pty Ltd An action has been commenced against Pty Ltd (TPI), following the termination of the services contract. (Chichester) and The Pilbara Infrastructure the action and a counter claim has been lodged. It is not possible to Solicitors have been instructed to defend from this event. quantify potential damages, if any, resulting United Industries WA Pty Ltd Action Fortescue has accrued for the estimated liabilities associated with the remaining suspended contracts in the 30 Fortescue has accrued for the estimated June 2009 financial report. The Company has since reached agreements with two of the ship owners being messrs Bocimar International The Company has since reached agreements five suspended shipping contracts remaining with tenures ranging from NV and Classic Maritime Inc. There are three to five years. Shipping contracts term suspension or termination of all its long Fortescue announced the contractual On 5 December 2008 Contracts. Some ship owners are disputing Affreightment and Consecutive Voyage shipping contracts of Kingdom of claims being lodged in the United take such action, which has led to a number Fortescue’s right to for maritime disputes pursuant to the relevant contracts). The arbitration system (being the legal domicile underway in London and Fortescue has engaged specialist UK arbitration process for these claims is currently maritime legal advisers. NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Note 39. Contingent liabilities (continued) liabilities Contingent 39. Note

FORTESCUE METALS GROUP ANNUAL REPORT 2009 110 110 Note 42. Segment reporting * # @ =ThePilbaraInfrastructurePtyLtdisasubsidiaryofInternational BulkPortsPtyLtd Fortescue operatesexclusively intheironoreexplorationandproductionindustryAustralia. Note 41. Subsidiaries STATEMENTS NOTES TO THE FINANCIAL For the year ended 30 June 2009 Pilbara HousingServicesPtyLtd FMG InternationalPteLtd FMG PacificLimited FMG NorthPilbaraPtyLtd FMG MagnetitePtyLtd Karribi DevelopmentsPtyLtd Pilbara MiningAlliancePtyLtd FMG Resources(Aug2006)PtyLtd* Chichester MetalsPtyLtd# FMG PilbaraPtyLtd International BulkPortsPtyLtd Controlled Entities Fortescue MetalsGroupLtd Company FMG ResourcesPtyLtd The PilbaraInfrastructurePtyLtd@ Parent Entity

= ChichesterMetalsPtyLtd(previouslyFMG Ltd)isasubsidiaryofFMGPilbaraPtyLtd = FMGResources(August2006)PtyLtd(previously Finance PtyLtd)isasubsidiaryofChichester MetalsPtyLtd Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary share Class of Incorporation New Zealand Country of Singapore Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2009 100 100 100 100 100 100 100 100 100 100 100 100 100 % Holding Equity 2008 100 100 100 100 100 100 100 100 100 100 % - - - 2009 US$ 284 275 1 1 1 1 1 1 1 1 1 Company - - - - Cost to 2008 US$ 281 275 1 1 1 1 1 1 ------

111 111 FORTESCUE METALS GROUP ANNUAL REPORT 2009 - 6,740 5,431 12,171 2008 US$’000 Represented - Company 4,453 2,982 7,435 2009 US$’000 51,064 43,648 159,705 254,417 2008 US$’000 Represented 1,660 Consolidated 127,800 328,738 458,198 2009 US$’000

Less than one year Between one and five years More than five years For the year ended 30 June 2009 June 30 ended year the For (C) CAPITAL COMMITMENTS CAPITAL (C) for at the reporting date but As at 30 June 2009 Fortescue has commitments to capital expenditure contracted (2008: US$374.8 million) not recognised as liabilities for mobile mining equipment orders of US$22.2million Project. The majority of this related to the development and production of its Pilbara Iron Ore and Infrastructure equipment is expected to be funded through operating leases. Commitments exist in relation to the project for up to US$87.3 million (2008: US$123.9 million) over the next Commitments exist in relation to the project for up to US$87.3 million (2008: US$123.9 of the Pilbara Iron Ore and financial year, being the current contracts and orders in relation to the construction Infrastructure project. (B) PROJECT COMMITMENTS PROJECT (B) In order to maintain current rights of tenure to exploration tenements, Fortescue is required to outlay lease In order to maintain current rights of tenure to exploration tenements, Fortescue the next financial year (2008: rentals and to meet the minimum expenditure requirements of US$5.1million over US$2.4 million). results and cannot Financial commitments for subsequent periods are contingent upon future exploration exploration leases or when be estimated. These obligations are subject to renegotiation upon expiry of the accounts. application for a mining licence is made and have not been provided for in the (A) EXPLORATION TENEMENT LEASES – COMMITMENTS FOR FOR COMMITMENTS – LEASES TENEMENT EXPLORATION (A) EXPENDITURE Note 44. Commitments 44. Note Non-cancellable operating lease rentals are payable as follows: Non-cancellable operating LEASES AS LESSEE AS LEASES Note 43. Operating leases Operating 43. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS Fortescue also leases various motor vehicles, office equipment and plant and machinery under non-cancellable Fortescue also leases various motor vehicles, terms. operating leases. The leases have varying Fortescue leases various offices and other premises under non-cancellable operating leases expiring within one Fortescue leases various offices and other terms, escalation clauses and renewal rights. On renewal, the terms of to seven years. The leases have varying the leases are renegotiated.

FORTESCUE METALS GROUP ANNUAL REPORT 2009 112 112 Note 45. Auditors remuneration STATEMENTS NOTES TO THE FINANCIAL For the year ended 30 June 2009 - Riskadvisoryservices BDO RiskAdvisoryServices(QLD)PtyLtd - Otherassuranceservices - Financialduediligence BDO Consultants(WA)PtyLtd Auditors ofFortescue Other services - Auditandreview BDO KendallsAudit&Assurance(WA)PtyLtd Auditors ofFortescue Audit andassuranceservices US$’000 2009 286 251 25 10 - Consolidated Represented US$’000 2008 203 156 14 33 - US$’000 2009 286 251 10 25 - Company Represented US$’000 2008 203 156 33 14 - 113 113 FORTESCUE METALS GROUP ANNUAL REPORT 2009

International Bulk Ports Pty Ltd The Pilbara Infrastructure Pty Ltd FMG Resources (Aug 2006) Pty Ltd (previously FMG Finance Pty Ltd) FMG Resources (Aug 2006) Pty Ltd (previously FMG Magnetite Pty Ltd FMG North Pilbara Pty Ltd Pilbara Mining Alliance Pty Ltd Karribi Developments Pty Ltd FMG Resources Pty Ltd Fortescue Metals Group Ltd FMG Pilbara Pty Ltd Chichester Pty Ltd) Chichester Metals Pty Ltd (previously FMG Consolidated income statement and a summary of movements in consolidated Consolidated income statement and

● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● For the year ended 30 June 2009 June 30 ended year the For The ‘Closed Group’ is represented by the above companies is the same as the consolidated group, and as there The ‘Closed Group’ is represented by the above companies is the same as the Company, they also represent the are no other parties to the Deed of Cross Guarantee that are controlled by the consolidated accumulated losses ‘Extended Closed Group’. The income statement and summary movements in at 30 June 2009 for the Closed for the year ended 30 June 2009 along with the consolidated balance sheet as Group are materially the same as that of the consolidated group. a) Group Entities Holding Entity Fortescue Metals Group Ltd and its controlled entities, except FMG Pacific Limited and FMG International Pte FMG Pacific Limited and FMG International Ltd and its controlled entities, except Fortescue Metals Group the others: company guarantees the debts of deed of cross guarantee under which each Ltd, are parties to a Note 46. Deed of cross guarantee cross of Deed 46. Note NOTES TO THE FINANCIAL FINANCIAL THE TO NOTES STATEMENTS By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare By entering into the deed, the wholly-owned under Class Order 98/1418 (as amended) issued by the Australian a financial report and Directors’ Report Securities and Investments Commission. retained profits

FORTESCUE METALS GROUP ANNUAL REPORT 2009 114 114 tatement of changes in equity, accompanying notes, are in accordance with the Corporations Act 2001 The DirectorsoftheCompanydeclarethat: Declaration by Directors ACN 002 594 872 Fortescue Metals Group Ltd and its Controlled Entities DIRECTORS’ DECLARATION Dated atPerththis10thdayofAugust2009. Chairman Herb Elliott behalf oftheDirectorsby: This declarationismadeinaccordancewitharesolutionoftheBoardDirectorsandsignedforon described innote46. obligations orliabilitiestowhichtheyare,maybecome,subjectto,byvirtueofthedeedcrossguarantee companies whicharepartiestothisdeedofcrossguaranteewillasaconsolidatedentitybeablemeetany the debtsofothers.Atdatethisdeclarationtherearereasonablegroundstobelievethat Parties identifiedinnote46arepartiestothedeedofcrossguaranteeunderwhicheachcompanyguarantees 1. 4. 3. 2.

s Officer requiredbysection295A. Report), fortheyearended30June2009,complywithsection300AofCorporationsAct2001. its debtsasandwhentheybecomeduepayable. (b) (a) complywithAccountingStandardsandtheCorporationsRegulations2001; and: The financialstatements,comprisingtheincomestatement,balancesheet,cashflow The DirectorshavebeengiventhedeclarationsbyChiefExecutiveOfficerandFinancial The remunerationdisclosuresincludedintheDirectors’Report(aspartofauditedRemuneration In theDirectors’opinion,therearereasonablegroundstobelievethatCompanywillbeablepay

giveatrueandfairviewofthefinancialpositionasat30June2009performance fortheyearendedonthatdateofcompanyandconsolidatedentity.

115 115 FORTESCUE METALS GROUP ANNUAL REPORT 2009 INDEPENDENT AUDITOR’S INDEPENDENT REPORT

FORTESCUE METALS GROUP ANNUAL REPORT 2009 116 116 117 117 FORTESCUE METALS GROUP ANNUAL REPORT 2009 0.24 0.24 0.31 0.34 0.43 0.46 0.53 1.67 2.05 2.42 3.18 8.99 7.45 7.37 4.99 4.94 4.86 4.14 3.40 89.47 31.46 % of issued capital Notice 1 May 2009 30 April 2009 22 August 2006 30 December 2008 7,296,970 7,300,100 9,650,000 Units 10,553,128 13,235,690 14,287,000 16,453,469 51,788,932 63,274,610 74,710,360 98,242,722 230,399,787 228,007,497 154,267,590 152,724,913 150,198,268 128,024,881 105,268,310 277,986,000 972,828,300 2,766,498,527 8.99 5.92 31.46 17.30 % of Total Shares 972,828,300 535,000,000 277,986,000 182,926,916 Total Shares

Queensland Investment Corporation John Cunningham & Associates Pty Limited WWB Investments Pty Ltd McNeil Nominees Pty Limited Mr William Graeme Rowley Leaping Joey Pty Ltd (The Australian Children’s Trust) Leaping Joey Pty Ltd (The Australian Children’s Bocimar International NV National Nominees Limited HSBC Custody Nominees (Australia) Limited – GSCO ECA HSBC Custody Nominees (Australia) Limited HSBC Custody Nominees (Australia) Limited A/C 2 HSBC Custody Nominees (Australia) Limited JP Morgan Nominees Australia Limited Name ANZ Nominees Limited ANZ Nominees Limited

3 4 5 6 7 8 9 2 1 20 19 18 17 16 15 14 13 12 11 10 Total Rank Substantial Shareholder The Metal Group Hunan Valin Iron and Steel Group Leucadia National Corporation Harbinger Capital Partners Substantial Shareholders Substantial

Top 20 Holders of Ordinary Shares Ordinary of Holders 20 Top SHAREHOLDER INFORMATION SHAREHOLDER 2009 September 7 at as Information

FORTESCUE METALS GROUP ANNUAL REPORT 2009 118 118 Range of Shares Unmarketable Parcels Rounding Minimum $500.00parcelat$4.17perunit Total 10,001 –100,000 5,001 –10,000 100,000 -max 1,001 –5,000 Range 1-1,000 Total Holders 19,471 24,396 50682 3,761 2,785 Minimum parcelsize 269 120 2,925,995,964 3092214863 29,746,276 49,767,208 13,527,052 73,178,363 Units Holders 1,959 % Issued Capital 148,604 94.63 Units 0.96 1.61 0.44 2.37 100 119 119 FORTESCUE METALS GROUP ANNUAL REPORT 2009 E 45/3433 E 47/1818 E 45/3417 E 47/1734 E 45/3366 E 47/1681 E 45/3270 E 47/1671 M 46/350 E 45/2870 E 47/1661 M 46/340 E 45/2858 E 47/1579 M 46/330 E 45/2848 E 47/1446 M 46/320 E 08/2038 E 47/1387 M 45/1141 L 46/64 E 08/1982 E 47/1349 M 45/1103 L 46/49 E 08/1942 E 46/729 M 45/1086 E 08/1903 E 46/708 E 46/610 M 46/423 E 08/1814 E 46/696 E 46/518 M 46/413 E 08/1627 E 45/3461 M 46/403 E 47/1918 E 45/3432 E 47/1809 E 45/3414 E 47/1728 E 45/3365 E 47/1680 E 45/3191 E 47/1670 M 46/349 E 45/2867 E 47/1660 M 46/339 E 45/2857 E 47/1578 M 46/329 E 45/2847 E 47/1435 M 46/319 E 08/2037 E 47/1384 M 45/1128 L 46/62 E 08/1978 E 47/1343 M 45/1102 L 46/48 E 08/1933 E 46/728 M 45/1085 E 08/1902 E 46/706 E 46/601 M 46/422 E 08/1762 E 46/695 E 46/516 M 46/412 E 08/1626 E 45/3460 M 45/1150 M 46/402 E 47/1882

E 45/3431 E 47/1808 E 45/3413 E 47/1703 E 45/3360 E 47/1679 E 45/2973 E 47/1669 M 46/348 E 45/2866 E 47/1659 M 46/338 E 45/2856 E 47/1549 M 46/328 E 45/2846 E 47/1433 M 46/318 L 47/199 E 08/2034 E 47/1383 M 45/1127 L 46/58 E 08/1962 E 47/1342 M 45/1094 L 46/47 E 08/1916 E 46/727 M 45/1084 E 08/1898 E 46/704 E 46/600 M 46/421 E 08/1741 E 46/694 E 46/467 M 46/411 E 08/1624 E 45/3459 M 45/1149 M 46/401 E 47/1879

E 45/3430 E 47/1805 E 45/3412 E 47/1690 E 45/3328 E 47/1678 E 45/2972 E 47/1668 M 46/347 E 45/2865 E 47/1656 M 46/337 P 08/556 E 45/2855 E 47/1543 M 46/327 E 45/2845 E 47/1423 M 46/317 L 47/198 E 08/2004 E 47/1375 M 45/1126 L 46/57 E 08/1961 E 46/832 M 45/1093 L 46/46 E 08/1915 E 46/726 M 45/1083 M 46/454 E 08/1897 E 46/703 E 46/595 M 46/420 E 08/1714 E 45/3486 E 45/2708 M 46/410 E 08/1623 E 45/3448 M 45/1148 M 46/357 E 47/1858

Granted E 47/1140 Granted E 47/1306 Granted E 45/3084 100% all mineral rights

Earning 51% iron ore rights E 45/3429 E 47/1773 E 45/3410 E 47/1688 E 45/3318 E 47/1677 E 45/2971 E 47/1667 M 46/346 Status: E 45/2864 E 47/1655 M 46/336 Status: P 08/505 E 45/2854 E 47/1535 M 46/326 Status: E 45/2844 E 47/1420 M 46/316 L 47/197 E 08/2003 E 47/1370 M 45/1125 L 46/56 E 08/1959 E 46/805 M 45/1092 L 46/40 E 08/1909 E 46/725 M 45/1082 M 46/453 E 08/1896 E 46/702 E 46/590 M 46/419 E 08/1633 E 45/3473 E 45/2652 M 46/409 E 08/1585 E 45/3445 M 45/1147 M 46/356 E 47/1855 100% all mineral rights n/a 100% all mineral rights

100% iron ore rights n/a 100% all mineral rights Option for 100% all minerals rights E 45/3428 E 47/1772 E 45/3402 E 47/1687 E 45/3316 E 47/1676 E 45/2970 E 47/1666 M 46/345 E 45/2863 E 47/1654 M 46/335 E 52/1667 E 45/2853 E 47/1533 M 46/325 E 45/2843 E 47/1419 M 46/315 L 47/196 E 08/2000 E 47/1363 M 45/1124 L 46/55 E 08/1957 E 46/799 M 45/1091 L 46/37 E 08/1908 E 46/724 E 47/1434 M 46/452 E 08/1895 E 46/701 E 46/569 M 46/418 E 08/1632 E 45/3472 E 45/2651 M 46/408 E 08/1550 E 45/3443 M 45/1140 M 46/355 E 47/1854 100% all mineral rights FMG mineral rights status: 100% iron ore rights 40% of all mineral rights FMG mineral rights status: n/a FMG mineral rights status: E 47/1853 E 45/3426 E 47/1768 E 45/3400 E 47/1686 E 45/3310 E 47/1675 E 45/2946 E 47/1665 M 46/344 E 45/2862 E 47/1653 M 46/334 E 47/1650 E 45/2852 E 47/1500 M 46/324 E 45/2842 E 47/1404 M 46/314 L 47/195 E 08/1992 E 47/1361 M 45/1107 L 46/54 E 08/1956 E 46/776 M 45/1090 L 46/36 E 08/1907 E 46/722 E 46/675 M 46/451 E 08/1894 E 46/700 E 46/568 M 46/417 E 08/1631 E 45/3469 E 45/2593 M 46/407 E 08/1548 E 45/3442 M 45/1139 M 46/354 FMG mineral rights status: FMG mineral rights status: Application FMG mineral rights status: FMG mineral rights status: FMG mineral rights status: Granted Application Status: FMG mineral rights status: Granted Granted Application Granted Application Status: FMG mineral rights status: E 47/1852 E 45/3423 E 47/1762 E 45/3399 E 47/1685 E 45/3307 E 47/1674 E 45/2945 E 47/1664 M 46/343 E 45/2861 E 47/1652 M 46/333 E 47/1649 E 45/2851 E 47/1460 M 46/323 E 45/2841 E 47/1397 M 46/293 L 47/194 E 08/1989 E 47/1357 M 45/1106 L 46/53 E 08/1950 E 46/743 M 45/1089 L 46/35 E 08/1906 E 46/716 E 46/623 M 46/450 E 08/1893 E 46/699 E 46/567 M 46/416 E 08/1630 E 45/3466 E 45/2499 L 47/204 M 46/406 E 08/1440 E 45/3441 M 45/1138 M 46/353 Granted Status: Status: Status: Status: Status: Status: FMG mineral rights status: FMG mineral rights status: Status: FMG mineral rights status: E 47/1843 E 45/3422 E 47/1741 E 45/3386 E 47/1684 E 45/3306 E 47/1673 M 46/352 E 45/2920 E 47/1663 M 46/342 E 45/2860 E 47/1651 M 46/332 E 47/1154 E 45/2850 E 47/1453 M 46/322 E 45/2840 E 47/1396 M 46/292 L 47/193 E 08/1986 E 47/1355 M 45/1105 L 46/52 E 08/1949 E 46/741 M 45/1088 L 45/152 E 08/1905 E 46/715 E 46/612 M 46/449 E 08/1878 E 46/698 E 46/566 M 46/415 E 08/1629 E 45/3465 E 45/2498 L 46/60 M 46/405 E 08/1439 E 45/3438 E 47/1863 E 46/666

Flinders Mines Ltd David Ryan Derek Ammon FMG North Pilbara Pty Ltd Cullen Exploration Pty Ltd FMG Pilbara Pty Ltd Contract Power Australia Pty Ltd/Contract Power Holdings Pty Ltd as Trustee for Contract Power Holdings Sub-trust Chichester Pty Ltd Chichester Pty Ltd Chichester Pty Ltd Chichester Pty Ltd Blue Mist Enterprises Pty Ltd Chichester Pty Ltd Application

Application M 47/583 Application M 47/1407 Application M 45/1184 E 47/1833 E 45/3421 E 47/1735 E 45/3369 E 47/1682 E 45/3305 E 47/1672 M 46/351 Status: E 45/2919 E 47/1662 M 46/341 Holder: Status: Holder: P 47/1275 Holder: E 45/2859 E 47/1623 M 46/331 Holder: Status: Status: E 08/1393 L 46/63 Holder: E 45/2849 E 47/1449 M 46/321 Holder: Holder: E 08/2039 E 47/1388 M 45/1142 L 46/66 E 08/1985 E 47/1351 M 45/1104 L 46/51 E 08/1943 E 46/735 M 45/1087 Holder: E 46/413 Holder: G 46/7 E 08/1904 E 46/711 E 46/611 M 46/424 E 08/1816 E 46/697 E 46/519 M 46/414 E 08/1628 E 45/3463 Holder: E 45/2497 L 46/50 Holder: M 46/404 E 08/1432 E 45/3434 Western Australia Tenure Western Australia Holder: E 47/1861 Holder: E 46/664

TENEMENT REPORT TENEMENT 2009 September 7 at as Information

FORTESCUE METALS GROUP ANNUAL REPORT 2009 120 120

E 47/1920 E Holder: Holder: South AustraliaTenure Holder: Holder: New ZealandTenure Status: Status: Status: Holder: Holder: M 47/663 M E 04/1536 E Holder: Holder: E 47/1989 E 238/2009 Holder: Holder: Status: Holder: Holder: Holder: Holder: Holder: 47/1011 E Status: Status: 47/1136 E E 51/1158 E E 47/1398 E E 47/1999 E E 59/1267 E Holder: Holder: E 47/2056 E E 69/2522 E G 45/285 G E 47/2085 E Holder: Holder: E 04/1534 E Holder: 70/3546 E Holder: Holder: 47/301 L E 08/1547 E E 47/2138 E E 47/1319 E E 45/2737 E E 52/1790 E Holder: Holder: P 47/1177 P E 47/1373 E E 52/2264 E Holder: Holder: E 47/1299 E E 47/1480 E E 52/2347 E Holder: Holder: 45/158 L E 52/1779 E E 52/2453 E Holder: Holder: status: rights mineral FMG status: rights mineral FMG Holder: 47/1461 E Holder: 45/2310 E E 47/1191 E P 47/1307 P P 47/1198 P P 47/1405 P P 47/1278 P Holder: Holder: E 47/1333 E P 47/1315 P Holder: Holder: Holder: G 45/275 G P 47/1427 P Application Granted Application Granted Granted Application FMG Resources Pty Ltd Ltd Pty Resources FMG FMG Pacific Ltd Ltd Pacific FMG Prenti Exploration Pty Ltd/ Flinders Mines Ltd Mines Flinders Ltd/ Pty Exploration Prenti FMG Pilbara Pty Ltd Pty Pilbara FMG FMG Pacific Ltd Ltd Pacific FMG Prenti Exploration Pty Ltd/ Flinders Mines Ltd Mines Flinders Ltd/ Pty Exploration Prenti The Pilbara Infrastructure Pty Ltd Pty Infrastructure Pilbara The Ltd Mining Talisman FMG Pilbara Pty Ltd Pty Pilbara FMG Fortescue Metals Group Ltd Group Metals Fortescue FMG Resources Pty Ltd Pty Resources FMG FMG Pilbara Pty Ltd Pty Pilbara FMG Fortescue Metals Group Ltd Group Metals Fortescue Fortescue Metals Group Ltd Group Metals Fortescue Gwalia Tantalum Pty Ltd Pty Tantalum Gwalia Pilbara Iron Ore Pty Ltd Pty Ore Iron Pilbara Ltd Pty Ore Iron Pilbara Ltd Pty Maincoast FMG Pilbara Pty Ltd Pty Pilbara FMG FMG Resources Pty Ltd Pty Resources FMG Ltd Pty Pilbara FMG E 47/1921 E M 47/664 M E 04/1537 E E 47/1990 E E 47/1016 E E 47/1194 E E 51/1159 E E 47/1399 E E 47/2000 E E 59/1279 E E 47/2057 E E 69/2523 E G 45/286 G E 47/2099 E E 59/1275 E E 08/1549 E E 47/2142 E M 45/1180 M E 45/2748 E E 52/1937 E P 47/1178 P E 47/1390 E E 52/2277 E E 47/1300 E E 47/1532 E E 52/2353 E L 45/191 L E 52/2268 E E 52/2454 E E 70/2596 E E 47/1192 E P 47/1308 P P 47/1199 P P 47/1406 P P 47/1280 P E 47/1334 E P 47/1390 P L 47/232 L P 47/1468 P FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG Status: Status: Status: Status: Status: Status: Status: Status: Status: Status: Status: Status: Status: Status: n/a rights mineral all 50% Status: Status: Status: Status: Status: Status: Status: E 47/1923 E 51074 50873 50993 M 47/665 M E 04/1538 E E 47/1991 E 50990 E 47/1195 E AL 70/1 AL 45/199 L E 51/1165 E M 47/1408 M E 47/2020 E E 59/1595 E E 47/2059 E E 69/2524 E L 47/293 L E 47/2102 E E 59/1360 E E 08/1760 08/1760 E E 47/2143 E M 45/1181 M E 45/2749 E E 52/1977 E P 47/1179 P E 47/1391 E E 52/2284 E E 47/1301 E E 47/1702 E E 52/2380 E M 45/1177 M M 47/1404 M E 47/1224 E P 47/1309 P P 47/1210 P P 47/1407 P P 47/1281 P E 47/1352 E P 47/1391 P L 47/302 L P 47/1469 P Status: Status: Status: Status: Application Status: Status: Status: Status: Status: Status: Granted Application Application Granted Granted Granted FMG mineral rights status: status: rights mineral FMG Granted Application Application Granted Application Application Application Granted Granted FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG E 47/1938 E 51213 50874 50994 M 47/666 M E 04/1539 E E 47/1992 E 51016 E 47/1196 E AL 70/2 AL 47/329 L E 51/1166 E M 47/1409 M E 47/2026 E E 59/1608 E E 47/2060 E E 69/2525 E L 47/294 L E 47/2104 E E 77/1385 E E 08/1761 E E 47/2146 E M 45/1182 M E 45/2770 E E 52/1984 E P 47/1180 P E 47/1392 E E 52/2285 E E 47/1302 E E 47/1761 E E 52/2382 E P 47/1252 P M 47/1413 M E 47/1225 E P 47/1398 P P 47/1211 P P 47/1408 P P 47/1282 P E 47/1372 E P 47/1392 P P 47/1470 P FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG

FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG Status: Status: Status: Status: FMG mineral rights status: status: rights mineral FMG FMG mineral rights status: status: rights mineral FMG 100% all mineral rights mineral all 100% 100% coal rights coal 100% FMG mineral rights status: status: rights mineral FMG Application Granted P 47/1513 P E 47/1944 E 51258 50960 M 47/667 M E 45/3221 E E 47/1993 E 51183 AL 70/3 AL 47/330 L E 52/1945 E M 47/1410 M E 47/2035 E E 69/2516 E E 47/2061 E E 69/2526 E L 47/295 L E 47/2105 E E 08/1831 E E 47/2154 E M 45/1183 M E 46/517 E E 52/2007 E E 47/1393 E E 52/2290 E E 45/2510 E E 47/1763 E E 52/2393 E L 47/132 L 47/580 M P 47/1253 P M 47/1431 M E 47/1235 E P 47/1399 P P 47/1237 P P 47/1409 P P 47/1283 P E 47/1436 E P 47/1393 P FMG mineral rights status: status: rights mineral FMG

n/a FMG mineral rights status: status: rights mineral FMG 100% iron ore rights ore iron 100% 100% all mineral rights mineral all 100% 100% all mineral rights except diamonds except rights mineral all 100% n/a 100% all mineral rights mineral all 100%

100% all mineral rights except diamonds except rights mineral all 100% n/a 50% all mineral rights mineral all 50% 100% all mineral rights mineral all 100% P 47/1514 P E 47/1969 E 51267 50961 M 47/668 M E 45/3222 E E 47/1994 E 51209 L 47/331 L E 52/1946 E M 47/1411 M E 47/2036 E E 69/2517 E E 47/2062 E E 69/2527 E L 47/296 L E 47/2106 E E 45/2707 E E 47/2155 E P 47/1172 P E 46/621 E E 52/2034 E E 47/1395 E E 52/2311 E E 45/2535 E E 47/1764 E E 52/2408 E L 47/134 L 47/581 M P 47/1257 P P 08/531 P E 47/1380 E P 47/1400 P P 47/1255 P P 47/1410 P P 47/1284 P E 47/1523 E P 47/1394 P 100% all mineral rights mineral all 100% 100% all mineral rights mineral all 100% Earning 60% iron ore rights ore iron 60% Earning 100% all mineral rights mineral all 100% n/a 100% all mineral rights mineral all 100% P 47/1156 P P 47/1515 P E 47/1985 E 51330 50992 M 47/669 M E 45/3223 E E 47/1995 E 51212 E 52/1947 E M 47/1417 M E 47/2037 E E 69/2518 E E 47/2069 E E 69/2528 E L 47/297 L E 47/2119 E E 45/2709 E E 47/2156 E P 47/1173 P E 46/622 E E 52/2035 E E 47/1447 E E 52/2333 E E 47/1821 E E 52/2414 E L 47/205 L 47/582 M P 47/1270 P P 08/532 P P 47/1401 P P 47/1256 P P 47/1411 P P 47/1285 P E 47/1524 E P 47/1395 P 100% iron ore rights ore iron 100% 100% iron ore rights ore iron 100%

P 47/1414 P E 47/1986 E 50995 M 47/670 M E 45/3224 E E 47/1996 E 51268 E 52/2423 E E 47/2046 E E 69/2519 E E 47/2080 E E 69/2529 E L 47/298 L E 47/2132 E E 45/2712 E E 47/2157 E P 47/1174 P E 46/770 E E 52/2113 E E 47/1448 E E 52/2340 E E 47/1832 E E 52/2415 E P 47/1279 P P 45/2721 P P 47/1402 P P 47/1261 P P 47/1412 P P 47/1287 P P 47/1396 P E 47/1987 E 50996 M 47/671 M E 45/3225 E E 47/1997 E E 57/738 E E 47/2047 E E 69/2520 E E 47/2082 E E 69/2530 E L 47/299 L E 47/2133 E E 45/2713 E E 52/1788 E P 47/1175 P E 47/1155 E E 52/2114 E E 47/1455 E E 52/2341 E E 52/1759 E E 52/2416 E P 47/1286 P P 45/2748 P P 47/1403 P P 47/1262 P P 47/1304 P P 47/1397 P E 47/1988 E M 47/672 M E 45/3226 E E 47/1998 E E 57/756 E E 47/2055 E E 69/2521 E E 47/2083 E E 69/2531 E L 47/300 L E 47/2137 E E 45/2714 E E 52/1789 E P 47/1176 P E 47/1320 E E 52/2205 E E 47/1479 E E 52/2342 E E 52/1760 E E 52/2452 E P 47/1306 P P 45/2749 P P 47/1404 P P 47/1269 P P 47/1305 P P 47/1423 P 121 121 FORTESCUE METALS GROUP ANNUAL REPORT 2009

% % % % % LOI LOI 7.65 7.65 LOI LOI LOI 8.91 8.34 8.45 8.39 7.87 7.74 7.87 7.51 7.66 7.98 % % % % % Phos 0.105 0.105 Phos Phos Phos 0.060 0.079 0.076 0.050 0.055 0.058 0.055 0.066 0.064 0.060 Alumina % % % % % 1.59 1.59 2.89 3.51 3.39 1.97 2.51 2.48 2.47 4.86 5.49 6.83 Silica Alumina Alumina Alumina Alumina % % FeO 38.8 33.4 Silica % % % 6.98 7.00 6.99 3.71 4.24 4.25 4.21 7.58 8.64 10.89 Silica Silica Silica % % FeO 21.4 67.3 Iron Fe % % % Fe Fe Fe 56.4 56.1 56.2 59.36 58.16 58.53 58.50 54.09 52.78 50.00

% % Fe 33.1 33.1 543 134 467 473 695 222 1,680 2,223 1,627 2,227 Recovery Tonnes Tonnes Tonnes millions millions millions 28 mµ 1,230 Tonnes millions Microns “Australasian Code for Reporting of Exploration Results, Mineral Resources * . Tenements included are Mt Lewin, Mt Nicholas and White Knight. Inferred Total Solomon Inferred Indicated Measured Indicated Inferred Christmas Creek Total Cloudbreak and Total Chichester Other Inferred Indicated Summary of Davis Tube Analysis Resource Glacier Valley Resource Solomon Group Resources Chichester Other Resources Chichester Resource Cloudbreak and Christmas Creek and Christmas Resource Cloudbreak Dr Clout, Mr Robinson, Mr Frederickson and Mr Bull are all full time employees of Fortescue Metals Group Dr Clout, Mr Robinson, Mr Frederickson and Mr Bull are all full time employees and compilation of Ltd and provided technical input for Mineral Resource estimations, Reserve calculations sufficient experience which is exploration results. Dr Clout, Mr Robinson, Mr Frederickson and Mr Bull have qualify as a Competent Person relevant to the style of mineralisation and type of deposit under consideration to as defined in the 2004 Edition of the The detail in this report that relates to Mineral Reserves is based on information compiled by Mr Geoffrey Bull The detail in this report that relates to Mineral Reserves is based on information information on mineral who is a Member of The Australasian Institute of Mining and Metallurgy. Supporting processing and products for the reserve estimate was provided by Dr Clout. this report of the matters based Dr Clout, Mr Robinson, Mr Frederickson and Mr Bull consent to the inclusion in on their information in the form and context in which it appears. The detail in this report that relates to Mineral Resources is based on information compiled by Mr Stuart The detail in this report that relates to Mineral Resources is based on information of Mining and Metallurgy Robinson and Dr John Clout, who are both Fellows of The Australasian Institute of The Australasian together with information that was provided by Mr Olaf Frederickson who is a Member Institute of Mining and Metallurgy. and Ore Reserves” was carried out in accordance with The development of the Cloudbreak and Christmas Creek Ore reserve model Code), prepared by the the Australasian Code for Reporting of Mineral Resources and Ore Reserves (JORC the Australian Institute of Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Geoscientists and the Minerals Council of Australia, effective December 2004. Competent Persons Statement Persons Competent *

Joint Venture Resource Total Fortescue Resources Fortescue Total

FORTESCUE METALS GROUP ANNUAL REPORT 2009 122 122

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FORTESCUE METALS GROUP ANNUAL REPORT 2009 124 124