[ 2 ANNUAL REPORT 2012 ANNUAL FORTESCUE METALS GROUP FORTESCUE METALS 4 Chairman’s Statement 48 Remuneration Report 6 Chief Executive Officer’s 65 Auditor’s Independence Statement Declaration 8 Operations Report 66 Financial Statements 10 Reserves and Resources 113 Directors’ Declaration 2 Report 114 Independent Auditor’s 12 Corporate Social Report to the Members Responsibility 117 Shareholder Information 28 Corporate Governance 118 Tenement Report 38 Financial Report 123 Corporate Directory 39 Directors’ Report ANNUAL REPORT 2012 ANNUAL FORTESCUE METALS GROUP FORTESCUE METALS 3 3 CHAIRMAN’S STATEMENT who has left Fortescue for their invaluable contribution. Whenever the opportunity arises you will always be welcome back and, in any event, I trust that your time with us helps spring board your future career. It has been a challenging year in many other ways. With the 4 complex and competitive rigours of construction happening right inside complex operations, our teams have still thrived and complemented each other. In true It has been an honour to Fortescue spirit, the Cloudbreak and Christmas Creek teams chair your company over recovered from two cyclones that the last 12 months as we closed the Port Hedland port in the have built our massive iron March quarter, to still deliver mined The heaviest haul volumes of 19.2 million tonnes in railway in the world. ore presence. Allow me the June quarter, up 41 per cent ANNUAL REPORT 2012 ANNUAL some observations on how from the prior period. During the June quarter we also gathered our customers view us. in Port Hedland to celebrate the of dollars in royalties, taxes and opening of our third berth at Herb government fees. Fortescue is already a production Elliott Port, a major milestone in operation with few peers, yet based Unlike some mining companies, we our expansion plans to 155 million in the world’s most valuable iron didn’t inherit the assets from which tonnes per annum. ore region, the Pilbara. We are one Fortescue was built. We didn’t buy FORTESCUE METALS GROUP FORTESCUE METALS of the world’s largest and most Turning to our fiscal achievements and sell them before we developed reliable producers in developing last year, despite economic them. Fortescue was built from the one of the world’s precious bulk disappointment in Europe and ground up based on grass roots commodities: direct ship, direct the US, Fortescue delivered strong exploration and our belief that despite feed, high-quality iron ore. results for the year to June 30, 2012, the Pilbara driving the creation of with a 53% increase in profit after two of the wealthiest companies in Fortescue supplies its customers tax of US$1.6 billion. Operating the world, it remained an invaluable from the position of being a strong, revenue rose to US$6.7 billion from asset of Australia’s that is both under independent and major producer US$5.4 billion as we lifted iron ore explored and underdeveloped. We operating in a politically stable sales to 55.8 million tonnes, 40% set out to fix that. country. We give our customers the above 2011. While such numbers peace of mind of absolute integrity An emerging Asia, underpinned speak of a significant company, and reliability. by China, has driven demand for as we deliver on our expansion iron ore and pushed up prices over plans you may expect even greater While we have expanded hugely the last 10 years. As we prepare for performance. Accordingly, on the this year to meet the growing China’s leadership transition in 2012 23rd of August, the Board declared demands of our customers, we remain confident in the strength a final fully franked dividend of 4 volatile market conditions in the of its economy and its demand Australian cents per share giving new financial year have led to the for natural resources. We continue you, our patient shareholders, a deliberate slowing of some of the to see strong demand from our prudent return and taking the total final steps of the current expansion. customers, new and old, as we sign dividend for the year to 8 cents. This was done to remove from our up commitments for additional financial forecasts the capital ‘spike’ Despite recent challenges, it’s tonnes of iron ore to be met by our in our final roll-out to 155 million important to remember the expansion. tonnes per annum. The knock on extraordinary progress we’ve made effect of this decision led to a much Our long-term confidence in Asia since our formation in 2003. We’ve more difficult decision. To cut our stems from our increasingly close 4 achieved in nine years what took our cloth to our coat and to considerably relationship with our customers, competitors many decades, thanks reduce staff numbers in order to with industry and with government. to our single-minded pursuit of a match our revised schedule. We had the honour of returning as vision to provide an alternative but a Diamond Sponsor of the Boao very major reliable source of iron Before I discuss our performance in Forum for Asia Conference on the ore to our trading partners. It’s a 2012, I would like to acknowledge Chinese island province of Hainan in vision that has led to the creation of the very real pain this has caused April for the fourth consecutive year. thousands of jobs across Australia in recent months. We farewelled We are proud of our involvement in and significant contribution to a number of dedicated and this event as we continue to build the Australian economy with the very talented employees and our bilateral-relationship with our payment and provisioning of billions contractors and I thank everyone largest trading partner. 5 May 2012: CEO Nev Power with Chairman Andrew Forrest celebrating at the opening ceremony of the third berth at Herb Elliott Port. ANNUAL REPORT 2012 ANNUAL Also, in July, I had the privilege of Fortescue Family has been at the Officer, Nev Power; now very well leading a leadership delegation to fore over the past 12 months as our settled in; his new Director of China, including Michael Chaney Port Hedland, rail and Chichester Operations, the experienced Jamie (Chairman of NAB and Woodside), operations expand. Simultaneously, Frankcombe; our talented and lateral Michael Smith (CEO of ANZ) and our expansions have gathered thinking Director of Development, Anthony Shepherd (President of the pace and our new Solomon mine Peter Meurs; and our Chief Financial GROUP FORTESCUE METALS Business Council of Australia and takes shape. Despite the recent Officer, Stephen Pearce, who like his Chairman of Transfield Services) reduction in staff numbers, we colleagues, has done an outstanding to the preliminary meeting of the remain committed to our Fortescue job this year and flourished during Sino-Australian Business Leaders’ culture – one of family, support and great challenge. Partnership Initiative. enthusiastic teamwork. I look forward to sharing the next The Chinese delegation included Li A highlight for me in 2012 was 12 months with you as we celebrate Ruogu (Chairman/President of the the growth in employment our 10th birthday and realise Export-Import Bank of China), Chang opportunities at Fortescue for our dream of creating one of the Zhenming (Chairman and President Aboriginal people. Our Vocational world’s great mining companies of CITIC Group) and Wang Boming Training Employment Centres from scratch. While we endured (President of the Stock Exchange (VTECs), train Aboriginal people to hardships during the first few Executive Council). We had be job-ready and guarantee them a months of the 2013 financial year, significant discussions on deepening job when they successfully complete we remain confident iron ore prices our international engagement a course. More than a thousand men will firm and we will emerge in driven through the common and women have been through an even stronger position in the interests of our enterprises. We met Fortescue’s Indigenous training months and years ahead. with Vice Premier Wang Qishan to programs and the vast majority are ensure this initiative was supported now gainfully employed. We are We have built a proud Australian at the highest levels. This builds on also committed to building business company, one more determined previous meetings the company has capacity giving Aboriginal people than ever to scale the greater enjoyed with the expected future the opportunity to create more jobs. heights of challenge and President of China, Mr Xi Jinping. We have a target of achieving $1 opportunity in front of it. Thank you billion of contracts to Aboriginal- for all your continued, and deeply Fortescue’s cooperation with China owned businesses and I’m proud appreciated, support and loyalty to and our willingness to take the time to report we have already awarded Fortescue. to understand our partners is also over $500 million. reflected in our establishment of a China Advisory Board to provide During my first year as your advice on ways to foster our economic chairman I was privileged to lead 5 and social bilateral relationship. a dynamic board and work closely with our executive team, as they All of this said, Fortescue’s primary achieved the many and major Andrew Forrest success can be contributed to one challenges set for them. thing: our people. As we prepare to Chairman celebrate our 10th birthday in 2013, I would like to acknowledge the our culture remains our greatest efforts of our leadership team, our asset. The can-do attitude of our new and dynamic Chief Executive this year to take total Port capacity CHIEF EXECUTIVE to approximately 115mtpa. In conjunction with the duplication work of the rail system and the additional train sets now being OFFICER’S STATEMENT commissioned, this completes the infrastructure work required to allow our expansion from the Chichesters and the The new financial year has been commencement and ramp up marked by unprecedented market of the Solomon Firetail mine to volatility which saw iron ore prices take our production capacity to fall quickly and sharply in August 115mtpa by the end of the March 6 and September.