Efficient Operations

Rapid Expansion For personal use only use personal For FORTESCUE GROUP LTD IS ’S NEW FORCE IN

IRON . For personal use only use personal For For personal use only innovative andnever, thinking, frugality ever setting andachieving stretch targets through Fortescue Family works towards thisgoalby most profitable producer. The entire visionistoOur bethesafest, lowest cost and arriving atElliottPort. Herb arriving ofFortescue’sCover part Image: second reclaimer Hub.Solomon powerhouse through thedevelopment ofthe and transform to a155mtpa resource atproduction ourexisting minesites your Company aswe continue to increase The year ahead isanexciting onefor world’s majorresource powerhouses. positioning your Company asoneofthe now totalling more than10billiontonnes, grow withFortescue’s resource inventory The development pipelinecontinues to HubisscheduledforSolomon June2013. upto a60mtpaRamp operation at the miningoperation,next Hub. theSolomon iswellconstruction at underway Fortescue’s integrated supplychainand rail andport Expansion workplace across istaking the 90mtpa. grow at production theChichester Hubto hasbegunoninfrastructure toconstruction Creek have ramped upto 55mtpa and operations at Cloudbreak andChristmas (mtpa) transformation isunderway. Existing Fortescue’s 155milliontonne perannum communities inwhichwe live andwork. employees, andthe ourcontracting partners all stakeholders, including ourShareholders, region of for thebenefitof the potential oftheiron ore richPilbara giving up. We are committed to unlocking 131 126 124 121 120 44 34 33 24 14 12 64 63 9 7 4 Remuneration Report Directors’ Report Financial Report Corporate Governance Report Sustainability Report andResources Reserves Operations Report Statement Chief Executive Officer’s Chairman’s Statement Corporate Directory Tenement Report Shareholder Information to theMembers Report Auditor’sIndependent Directors’ Declaration Financial Statements Declaration Auditor’s Independence

3 FORTESCUE METALS GROUP ANNUAL REPORT 2011 3 4 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only4 STATEMENT CHAIRMAN’S ours ishappening righthere. read abouthappeningoffshore, major miningdevelopments we Company isthat unlikemost I appreciate mostaboutour As your what newChairman, implementation. innovation of serious inallaspects from onlynewdiscoveries and assetbase, wroughtand delivery of amassive newresource supply funded, exciting growth. Growth well planned,industry. well short, In infrastructure to theworld steel ofourresourcesimportance and our capability. Growth intheglobal of ourleadershipteam. Growth in our people. Growth inthedepth culture. Growth of intheability Growth inthestrength ofour has onlyjustbegun. Yet ourcompany’s growth some $5.5billiondollars. revenuesreporting of Ore onShip to aCompany has transitioned from First threeIn years Fortescue industry players.industry between offairness or principles any proper standard ofgovernance rushed through inignorance of motivated, taxation policy. Policy thoughtpoorly out, election by ourCompany andothersfrom the severe headwindssuffered major economic growth despite andeconomy.community This is is Australian. Helpingto buildour expansion inourmininghistory, (mtpa), thebiggestsinglestep to 155milliontonnes perannum with Australia, butourexpansion common headlinescompeting “new Pilbaras” in West Africa are or America inSouth Big projects encouragement andenthusiasm. to leadwithhumility,personality other leaderswiththestrength of Nev joinsPeter andour Meurs founding theCompany. of July, eight years to theday since when Istepped down onthe18th the role ofChiefExecutive Officer NevPowerof Mr whotook on was thewelcoming to Fortescue challenges ahead. Amajorevent team, we are well equippedfor the With newappointments across the Fortescue, asusual, willpersevere. “everything”. they answered, Almost asone made to your life?” has gettingajob difference“What For personal use only training andguaranteed jobsfor and ourongoingcommitment to The real power ofthis achievement been poured into thiseffort. how much passionandenergy had faces allaround meshowed just celebration andthesmiling, excited this commitment was causefor 300 target. The achievement of achievement ofourSummit -to celebrate the Centre (VTEC) Training and Employment - thehomebaseofour Vocational business gathered inPort Hedland ofour members from allparts when agroup ofFortescue team moments cameonlymonths ago One ofmy mostsatisfying measurable difference. and logistics, we have made through ourreputation, leadership negligible cost to Shareholders, but philanthropic contributions at our Company hasmademeaningful Shareholders. Also, for some years, all ourstaff,Board membersand I owe agreat debtofgratitude to me to transition to non-executive. behind us, thetimewas rightfor three years ofcareful planning With astrong executive team and construction. relationships for miningand andcontractor the steel industry competence inexploration, , matchesdirectly ourkeyareas of Further, Nev’s also array ofskills encourage innovation andintegrity. delegate andto empower and They have theconfidence to Second andthird train unloaders and rail loopsat Hedland In construction: construction: In

and rail operations isrolling out development of T155’s mining, port that theintegratedI canreport andexcitementmix ofexpectation internally as known T155. It’s witha uptoproduction 155mt -atarget Fortescue level to thenext of plans onyour behalf to take your Board approved expansion With theoperations team ontrack, ambitions. our expansion andoperational of thesevalues that willdeliver forward itisthecontinuation reflected inourpast year.Going achieve great outcomes that are provided theenvironment to coreJune 2011.Our values have 55 milliontonne (mt) runrate in thatof production delivered the the newrail spurandtheramp up Creek mine, thecommissioning of completion ofthenewChristmas milestone achievements asthe office. Thesedrive values such teams andbeyond to thePerth throughextends to ouroperations evident from our graduates VTEC same senseofachievement that is ofourvalues platform. key part The Such individualempowerment isa “everything”. Almost asonetheyanswered, getting ajobmadeto your life?” question. difference“What has with Fortescue, Iaskedthemone who hadtrained andsecured jobs withthemenandwomen Speaking the sidelinesofcelebration. our first Australians was shown on milestones inthecoming year. We willcontinue thekey to report rapidly, according to planandbudget. rapidly, according to planandbudget.” and rail operations isrolling out development of T155’s mining, port that theintegrated“I canreport under construction Herb ElliottPort third berth Christmas Creek

5 FORTESCUE METALS GROUP ANNUAL REPORT 2011 5 6 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only6 Chairman.” asyour serve privilege to it isnow agreat satisfying and extremely CEO have been years asyour pasteight “The requirements longinto thefuture. secure Fortescue’s infrastructure development ofAnketell Port, and determination to goaheadwith Hub, cementing Fortescue’s resource estimate for the Western announcement ofa625mt maiden over withthe the10btbarrier team pushedourresource portfolio Only amonth later theexploration areexpect, already advanced. development plans, asyou would growing resource portfolio. Its valuable additionto Fortescue’s asignificantCloudbreak, and at neighbouring Nyidinghu, grade iron Brockman formation than onebilliontonnes ofhigh February ofmore ofthediscovery example istheannouncement in Arecentthese opportunities. to bothcreate andoptimise has theenergy andforesight The integrated Fortescue team implementation teams. development, finance and industry then leave therest to ourbest-of- iron ore platform, production and a355mtpa base to underwrite Company’s andResource Reserve exploration target isto shore upthe their minimumgrowth plans, our iron ore isrequired to sustain supply ofcompetitive highquality indicate that ourindependent growth economies continue to just begun.Shouldtheworld’s team tell methat we have only resources andtheexploration 10 billiontonnes (bt)ofiron ore competitors. hasalready yielded It thesize ofall world, dwarfing iron ore miningregion inthe prospective andprofitable industry. 85,000km no parallel intheglobalmining A footprint that, putsimply, has its tenement footprint. Fortescue hasestablishedover infrastructure platform that utilising theworld-competitive The keyto ourgrowth plansis 2 ofthemost appreciated ashiscommitment to previous since Chairman 2007isas steady handas he hasset. His mentorship and standard that guidance,Elliott for hiswonderful I would Herb liketo thankMr over taking thisrole In Chairman. a great asyour to privilege serve extremely satisfying anditisnow eight years asyour CEOhave been ofFortescue.support The past your continuing andunwavering Board, Iwould liketo thankyou for closingandonbehalfofyourIn grow substantially. resourceBoth areas are to expected massive growth. that isfacilitating Fortescue’s possible, andcreating theplatform the previously thought impossible and allourpeoplefor rendering mining companies, Ithank God into oneoftheworld’s foremost developing world. As we evolve Australian economy andthe to grow itscontribution to the Fortescue realises itsfullpotential share withyou thejourney as I lookforward to continuing to made valuable contributions. Board members. They have already Raby asnew Geoff andMr Scruggs Directors. We welcome Bud Mr recently retired asaNon-Executive IanCummingBurston and Mr who I would Ian alsolike to thankMr was accepted withregret. Finally, a keyexecutive andclosefriend, retirementHis from theBoard as to amajormininghouse.maturity Fortescue’s development early and playedScrimshaw apivotal role in independent Director. Russell Mr continue hiscontribution aslead at Cloudbreak minerinaction 4200 surface For personal use only ore miner and exporter is ore is minerand exporter annum (mtpa) majoriron a 55milliontonnes per Pilbara tenements into couple ofunder-explored from anidea backed by a Fortescue’s development The magnificent of story OFFICER’S STATEMENT CHIEF EXECUTIVE such as India, providessuch asIndia, Australia growth ofemerging economies continues, combined withthe The massive strength ofChina the process. and transforming the company in by 100mtpa capacity production Fortescue story, growing our anewchapteron writing ofthe The team here isnow focused of thespeeddevelopment. andwas inawethe Fortescue story company inFebruary 2011,Iknew Even before Ijoinedthisamazing precedent. well andwithout known growth to 155mtpa. The Solomon Hub, ofthe thesite ofthemajority is progressing well at theSolomon ofkeyinfrastructureConstruction achieving ourgrowth targets. integrated andare allcommitted to development andcorporate are teams across operations, asset. Fortescue’s important very teams isjust oneexample ofthis naturemutually supportive ofour expansion at Fortescue andthe Culture isthekeyto successful address for iron ore. tenements andtheworld’s best of Fortescue’s 85,000km Ore to come to thePilbara, home to fueltheirgrowth andfor Iron Australia first for the raw materials emerging economies to thinkof we canto encourage theworld’s We willcontinue to dowhatever for thefuture. build astrong andresilient country faced across theworld butinfact only weather theeconomic storm to not with auniqueopportunity berth isalmostcomplete berth thethird fact, 2012. In to becompleted late in Elliott Port are on track Expansion works at Herb processing andtransport. planning through to of theprocess from mine technology at all stages progressive mining for innovative and become a showcase transformation andwill edge ofFortescue’s Hub isat theleading 2 of September as this report wentSeptember asthisreport to delivered andputinplace inlate with thesecond shiploader Chichester Hub. stage ofexpansion withinthe successful completion ofthefirst achieved theyear during was the One ofthemajormilestones and willincludefour newbridges. 2013 will becompleted inJanuary Hub.Solomon The rail expansion spurlineto the on the130km Chichester Hub. Work isunderway and theCloudbreak minesite inthe duplication between Port Hedland for oftrack the120kilometres areearthworks well advanced Along theFortescue railway, outlining thework at Port Hedland. updated page photo onthenext and train unloaders. There’s an on thesecond andthird rail loop workexpansion andconstruction is well advanced, asisthestockyard press. Dredging for berth thefourth world.” around the Australia and operating in many others from the this company differentiates people are what attitude ofour never give up” do,the “can culture and Fortescue’s

7 FORTESCUE METALS GROUP ANNUAL REPORT 2011 7

8 8 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only8 Chichester Hubto 90mtpa. atand willtakeproduction the and ramped upby theendof2012 is dueto befullycommissioned second phaseofexpansion work overland conveyor system. This of theremote crushinghuband for thedesign, buildandoperation and contracts have beenawarded being expanded to 1,600rooms the accommodation villageis the second OPFatCreek, Christmas for earthworks and undertaking capacity. Teams are now inplace up to meetthenewproduction year andminingwas ramped commissioned thefinancial during All phaseoneinfrastructure was (OPF)facility was constructed. Creek anda20mtpa ore processing Cloudbreak through to Christmas from line was50km extended just14months,In Fortescue’s rail 55mtpa inJune. rateannualised production of team still achieved themilestone and February, buttheoperations the year, inJanuary particularly was asignificant challenge during tonne (mt) ofore. Adverse weather our shippedtonnes to 41million the past12months, increasing strongly overthe team performed Moving over to ouroperations, expansion operations runalongsiderapid Herb ElliottPort: efficient most important ingredientsmost important inthe news onwhat I believe are the Finally, Iwant to share withyou end ofSeptember. declared inAugust andpaidat the year offour Australian cents was final fullyfranked dividend for the cents pershare thisyear. earlier A maiden dividendofthree Australian excited to announce Fortescue’s The wholeteam was pleasedand focus for Fortescue 2011/12. during reducing these costs isamajor increased thepastyear during and $5,442.1m. Operating costs have the backofincreased revenue of for theyear to $1,022.6millionon per cent increase inprofit tax after strongly delivering a76 performed Financially, your Company Australian economies. benefit the Western Australian and expansion andthesewill project operations for ourUS$8.4billion phaseandintothe construction of jobswillbecreated through to your Fortescue team. Thousands continues to behighlyimportant contractors andlocalsuppliers and operations, engaging local Across ourexpansion projects Nev Power over thecoming 12months. Fortescue’s chapter withyou next and Ilookforward to sharing Thank you for your ongoingsupport workforce.Indigenous and includesa10percent more than3,000team members Fortescue Family which now totals that culture anddevelop our CEO willbeto protect andgrow One ofmy keyresponsibilities as nimble andproactive. Company, allowing usto remain you seetakeplace inour making is embodiedby therapid decision Australia andaround theworld. It the many othersoperating in differentiates this company from attitude ofourpeopleare what and the “can do, never give up” our culture. Fortescue’s culture -ourpeopleand Fortescue story development.” of thespeed and was inawe Fortescue story the I knew February 2011, Company in amazing I joinedthis “Even before For personal use only through to June2013. greenfields projects, scheduled to take place continues ofbrownfields inamixture and financial year while development to 155mtpa maintain the55mtpa rate across the2012 Fortescue’s operations are well placed to OPERATIONS REPORT

9 FORTESCUE METALS GROUP ANNUAL REPORT 2011 9

10 10 10 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only the train loadoutinthe December completion oftherail to extension to2011 andprior that the Facility (OPF) Quarter intheApril Creekthe Christmas Ore Processing including thecommissioning of CreekChristmas expansion, was by underpinned the$US630m The increased to 55mtpa capacity around thesametime. iron ore processed inoneweek and atotal onemilliontonnes of iron ore intheJuneQuarter early 100 millionth tonne ofFortescue operations included shippingthe Fortescue’s third fullyear of Particular highlights throughout June 2011. million (mt) runrate in achievement ofthat 55 andtheresulting capacity tonnes perannum(mtpa) expansion to 55million the rapid andsuccessful year was epitomised by operations overport the Fortescue’s mine, rail and The of performance locomotive at Christmas Creek Ore beingloadedonto aFortescue During thelastthreeDuring months of offthe Pilbara activity coast. occasions dueto tropical cyclone by site closures ontwo separate Port operations were alsoimpeded inshippingvolumes.reduction the Pilbara witha15percent by rainimpacted heavy across in2011,operationsEarly were manage risk. remain rigorousto inourefforts andcolleaguesfriends whilewe sympathies went to Paul’s family, workshop. Fortescue’s deepest (AMS) at theAMS onsiteService was engagedby Ausdrill Mining the tragic death ofPaul Torre. Paul Cloudbreak minewhichresulted in accident occurred at Fortescue’s onDecember 24th2010,an Sadly customer demandfor Fortescue ore. deposits to deliver onstrong its vast tenements and extensive Fortescue to continue developing Financial andhasenabled Crisis since theGlobal undertaken The expansion was the first Creek miningactivity. ongoing ramp upofChristmas 2010,aswell asthe Quarter Cloudbreak Steady operations at Elliott Port inPort Hedland. the Chichester Hubto theHerb to fivecapacity loadedtrains from strengthened Fortescue’s dailyrail 240 ore carsand20spare ore cars of anadditionalrake of delivery additions to thefleetand 2011. December Quarter The new inthe scheduled for delivery with anadditionalfive locomotives 2011, intheJuneQuarter early the existing fleetof15GEDash-9s locomotivesfour SD-90 to support operationsof tookRail delivery approximately 3.4mt. for thesingleCloudbreak plant of to monthly theprior average rate plants to 5.2mt inJune compared Cloudbreak Creek and Christmas processing volumes for the the combined endofyear ore OPF coming onlinebolstered Significantly, Creek theChristmas at approximately 35mtpa. maintained asteady state operations atMining Cloudbreak rate inthemonth ofJune. the achievement ofthe 55mtpa run rebound occurred culminating in the financial year, asignificant For personal use only port underpinned thecontinued underpinned port atthe optimisation andefficiency and afocus onmachine Business improvement strategies your Company’s history. short at itshighestthroughput rates in as Fortescue continues to operate simultaneously,being undertaken the 155mtpa works program is expansion associated with and port rail Creek, Christmas duplication Significantly, mining expansion at take place through to June2013. greenfields projects, scheduled to ofbrownfieldsin amixture and development to 155mtpa continues across the2012 financial year while placed to maintain the55mtpa rate Fortescue’s operations are well CreekChristmas minesite. inaccessible BCIrondepositnearthe infrastructure from thepreviously utilisingFortescue’safter rail Iron Ore Joint Venture was shipped Fortescue andBCIron’s Nullagine February 2011thefirstore from party commitment whenon24th Fortescue alsouphelditsthird customers across Asia. ore was shippedto more than45 achieved. For the fullyear, 41mt of when the55mtpa runrate was right upuntil the30thJune2011 increase inthroughput capacity, expansion. Christmas Creek the $US630m underpinned by 55mtpa was to capacity The increased 55mtpa inJune2011 Fortescue hitarunrate of Cloudbreak mineintheChichester duesouthofthe kilometres At Project, theNyidinghu 35 continues. area oftheSolomon western part to expand theresource baseinthe Resources of791mt. Further work million tonnes (mt) andIndicated Measured Resources of108 3.07 billiontonnes (bt)including Hubincreasedthe Solomon to The total Resource Portfolio for operations. wasproject transferred to management ofthisexpansion develop Huband theSolomon the Board took adecisionto Novemberand Eliwana. In 2010, resource estimates for Nyidinghu Hubandmaiden the Solomon in anumberofupgrades for year,another active resulting Fortescue’s Exploration team had Tenements Exploration and to capitaliseonFortescue’s massive in the Western Hubandelsewhere announced. Exploration continues Inferred Resources of624mt were the In Western Hubarea new announcement. exploration results since that resource, asaresult ofencouraging regarding anexpansion ofthis announcements willbemade that isexpected further 2011. It 1.03bt was announced inFebruary Hub, anewInferred Resource of showing expansion area Stockyard at theHerbElliottPort Australian tenement holdingto Fortescue’sgrowing Western was thisyear, equallyactive Our Tenement Acquisition team the Pilbara. tenement holding, thelargest in report. are provided from page126ofthis 106,000km the Solomon Hub the Solomon Earthworks are well at underway 2 . Details of the portfolio oftheportfolio . Details 11 11 FORTESCUE METALS GROUP ANNUAL REPORT 2011 12 12 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Ore Reserves -asatOre June302011 Reserves which 38mt were Proved Reserves were 1,547milliontonnes (mt), of estimates for theChichester Hub As at June302011,Ore Reserve Ore Reserves RESOURCES REPORT RESERVES AND were announced fiscal during Resource Mineral estimatesMaiden of approximately 57 percent Fe. 3,070mt withanaverage iron grade Resources were estimated at The totalHubMineral Solomon of approximately 53percent Fe. 695mt withanaverage iron grade wereOther) estimated at a total of (ChichesterChichester Range Resources Mineral inthe Other approximately 57percent Fe. with anaverage iron grade of were estimated at 2,550mt ResourcesChichester HubMineral As ofJune30,2011,total Mineral Resources The Measured andIndicatedResources below are inclusive Resources ofthoseMineral modified to produce theOreReserves. All tonnes andProduct bothROM are dry. Total HubOre Reserves Solomon Probable Proved HubbySolomon Category Total Chichester HubOre Reserves Probable Proved Chichester Hubby Category Mining Pty Ltd tonnes onaROM basis. Pty Mining determinationThe for maidenore Hubwas announced Reserve theSolomon onMay 20,2011,andhasbeenestimated by Coffey estimatesChichester HubOre for Reserves fiscal2010and2009. Chichester Hubfor fiscal2011are notdirectly comparable estimate to theOre Reserves Solomon Hub for the for fiscal2011,or tonnesthan onaROM basis, aswas estimates. thecasewithitspreviously reserve reported As aresult, for Ore the Reserves estimated from September2011,Fortescue to Ore theChichesterIn report tonnes elected Hubonaproduct Reserves basisrather

# * Resources of2,465mt (311mt Company hasestimated Mineral iron ore sites for whichthe twohas identified magnetite iron ore. addition,Fortescue In eachcontainNyidinghu hematite Hub,Solomon Western Huband Chichester Hub, Chichester Other, The resources Mineral at the of approximately 58percent. 1,032mt, with anaverage iron grade Nydinghuwere project estimated at total Inferred Resources for the approximately 59percent and with anaverage iron grade of Hub were estimated at 624mt Inferred Resources for the Western project. the Nyidinghu Total 2011 for the Western Huband for Hubwere theSolomon 716mt as tonnes basis. estimates Ore Reserve Fe product andmeasured onadry grade ofapproximately 58percent withanaverageReserves, iron and 1,509mt were Probable Product Tonnes Tonnes 1,547 1,509 ROM (mt) (mt) 716 716 38 - 58.3 56.3 Fe% Fe% Iron Iron 58.2 60.0 56.3 -

SiO SiO Silica Silica 5.08 7.66 5.12 3.33 7.66 2 2 % % -

Aluminium Aluminium Al Al tonnes basis. cent Fe, ROM asmeasured onadry iron grade ofapproximately 56per Probable withanaverage Reserves of June30,2011,whichallwere oxide oxide releases for eachof theseprojects. can befound intherelevant ASX methods ofresource estimation below. information Detailed onthe inthecharts and 2009are setforth locations asofJune30,2011,2010 Inferred Resources for eachofthese Resources, IndicatedResources and regarding theamount ofMeasured oftonnes andgrade A summary approximately 30percent). Fe (basedonarecovery rate of grade ofapproximately 67percent beneficiated to aprocessed iron Fe, whichcanpotentially be of approximately 33percent cent, withanaverage iron grade Tube of20per recovery cut-off Inferred Resources) usingDavis Indicated Resources and2,154mt 2 2 O O 2.24 2.93 2.25 1.85 2.93 3 3 % % - Phosphorus Phosphorus

0.052 0.073 0.051 0.059 0.073 P% P% - ignition ignition Loss on Loss on LOI % LOI % 8.37 8.37 7.6 7.6 8.2 - For personal use only Bartlett, afulltimeemployee ofFortescue,Bartlett, Hub for fiscal2011 wereRic Mr compiled by Estimated for Ore theChichester Reserves compilations ofexploration results. for Resources Mineral estimations and of Fortescue andprovided technical input Frost-Barnes are allfull-timeemployees Simpsonand Glassock, Robinson, Messrs Clayton David Frost-Barnes. SimpsonandMr Mr Glassock, Mark Mr Robinson, Stuart by Mr Resources isbasedoninformation compiled that relatesThe detailinthisreport to Mineral Competent Persons Statement Mineral Resources -asat June302011 (c (b) (a) Total Mineral Resources Total Magnetite Inferred Indicated Magnetite by category Total Nyidinghu(b) Inferred Indicated Measured byNyidinghu category Total WesternHub(a) Inferred Indicated Measured category Western Hubby Total Hub Solomon Inferred Indicated Measured category HubbySolomon Total Chichester Other Inferred Indicated Measured category byChichester Other Total Chichester Hub Inferred Indicated Measured category Chichester Hubby

) arrangement withathird party. Approximately 1,234mt oftheseInferred Resources are attributableto theGlacier Valley to area, ajoint venture whichissubject The maidenInferred Resource determination for was project announced onFebruary theNyidinghu 25,2011. The maidenInferred Resource determination for the Western Hubwas announced onMarch 23,2011. (c) Tonnes Tonnes Tonnes Tonnes Tonnes Tonnes 10,436 2,465 1,032 3,070 2,550 2,154 1,032 2,171 1,724 (mt) (mt) (mt) (mt) (mt) (mt) 624 695 586 240 311 624 791 108 473 222 - - - - - 32.6 58.0 58.7 56.5 52.8 57.3 Fe% Fe% Fe% Fe% Fe% Fe% Iron Iron Iron Iron Iron Iron 55.9 57.6 59.1 32.5 32.9 58.0 58.7 56.3 56.6 58.4 54.1 50.0 n/a Glassock, Simpson and Bartlett are Members SimpsonandBartlett Glassock, isaFellow Robinson Mr of, andMessrs Code.the JORC qualifies asa Competent Person asdefinedin andMetallurgy and ofMining Institute isaFellow Hearne Mr oftheAustralasian Ltd,Pty anindependent miningconsultancy. ofCoffeycompiled JohnHearne byMining Mr basis, andare basedontheinformation Hub have beenprepared tonnes ona ROM Estimates for ofOre theSolomon Reserves basis. and have beenprepared tonnes ona product - - - - -

SiO SiO SiO SiO SiO SiO 39.52 10.89 39.55 39.35 Silica Silica Silica Silica Silica Silica 7.09 8.64 5.42 4.63 5.44 7.19 7.05 5.43 7.58 6.54 5.23 4.08 4.63 5.44 n/a 2 2 2 2 2 2 % % % % % % - - - - -

Aluminium oxide Aluminium oxide Aluminium oxide Aluminium oxide Aluminium oxide Aluminium oxide Al Al Al Al Al Al 2 2 2 2 2 2 O O O O O O 3.35 5.49 2.77 1.85 3.06 3.06 3.54 3.03 2.03 4.86 6.83 3.23 2.70 2.09 1.86 1.76 3.06 3.06 n/a 3 3 3 3 3 3 % % % % % % - - - - - form andcontext inwhichitappears. the matters basedontheirinformation inthe consented of to theinclusion inthisreport Frost-Barnes, have andHearne each Bartlett Simpson, Glassock, Robinson, Messrs defined intheJORC Code. each bequalifiedasa Competent Person as ofdepositunderconsiderationand type to which isrelevant ofmineralisation to thetype and Frost-Barnes have sufficient experience Simpson,Bartlett Glassock, Robinson, Messrs of Materials,the Institute and Mining. Minerals Metallurgy. Frost-Barnes Mr isamemberof of, theAustralasian and ofMining Institute Phosphorus Phosphorus Phosphorus Phosphorus Phosphorus Phosphorus 0.076 0.064 0.053 0.101 0.015 0.091 0.077 0.073 0.083 0.066 0.060 0.055 0.053 0.051 0.102 0.096 0.015 0.091 n/a P% P% P% P% P% P% - - - - - Loss onignition Loss onignition Loss onignition Loss onignition Loss onignition Loss onignition LOI % LOI % LOI % LOI % LOI % LOI % n/a 7.1 8.5 6.6 8.1 7.7 7.8 7.2 6.1 8.5 6.6 8.0 8.3 8.5 7.5 8.0 8.0 7.8 8.1 - - - - - 13 13 FORTESCUE METALS GROUP ANNUAL REPORT 2011 14 14 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only REPORT SUSTAINABILITY means to us sustainability What and leverage theopportunities help usto manageourrisks Applying theseprinciples will into that everything we do. planning for thefuture and ofimpact reduction principles ofefficiency, We lookto integrate the ofeveryday business.is part To us, managing sustainability Pilbara. iron ore producer inthe lowest cost, mostprofitable achieve ourvision ofbeingthe willhelpusto sustainability believe that ourapproach to the longterm. Ultimately we resilience asabusinessover which contribute to our that they provide, bothof For personal use only and have usedtheGRIto guide we have builtuponthisapproach environmental reporting. This year guidelinesto informreporting our Initiative (GRI) G3 Global Reporting pastyearsIn we have usedthe decisions aboutourbusiness. stakeholders to makeinformed that thisdisclosure willhelpour financial performance. We believe develop ourdisclosure onournon- each year we lookto improve and As you willsee,Annual Report. inour performance sustainability have presented areview ofour This isthesecond year we performance sustainability managing our approachOur to website www.fmgl.com.au. GRI level checkisavailable onour B application level. Acopy ofour is selfdeclared as GRI reporting reporting. Our performance and broaden oursustainability the keyfocus areas for our willremain ofpriorities collection priorities. We believe that this map ourkeysustainability great dealofwork to strategically D operation. from eachyear ofsuccessful cumulative gathering ofexperience in oursystems. We alsoapplya requirements andimprovements capacity, newcompliance we are driven by higherproduction continually evolving. As acompany The context inwhichwe operate is what we have achieved sofar. develop and buildupon to further findings ofthis review willhelpus KPIs in sustainability review ofthesesystems andour acomprehensivewe undertook isaccuratewe report and reliable, areas.priority To ensure that what ineachofthese performance and processes to manageour We useanumberofsystems some timeto come. management forsustainability uring 2010/11weuring unde 2010/11 rtook a rtook . The 15 15 FORTESCUE METALS GROUP ANNUAL REPORT 2011 16 16 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Hazard Control Standards; and established arange ofMajor at theselocations. We also to Hazards identify ourMajor and healthrepresentatives; of ourworkforce, includingsafety involved asignificant cross-section andPort. Rail These workshops Creek, at Christmas Cloudbreak, across ourexisting operations sites completed ofworkshops aseries year. Through thisprogram we progressed well the during control has risks; ofourfatality focussing onidentification and Hazards Program, Management ofourMajor Implementation andexpansion works.construction and prepare for upcoming existing healthandsafety program to develop andconsolidate our theyearDuring we continued our staffand contractors. and achieves asafe workplace for that alignswithourcore values We willfoster asafety culture Safety Our performance sustainability Our 1.4 over period. thereporting This Frequency (LTIFR) Rate measured Fortescue’s Lost Time Injury other areas ofthebusiness. and expand itto encompass all implementation oftheprogram coming year, we willcontinue the baseline assessment. the Over these through anindependent against measured ourperformance

investment andfocus. ofthat continuing the importance asareminder accident of serves improve their safety practices. This our contractors astheycontinuously We willalsocontinue to work with manage hazards at ouroperations. significant to effort control and death andcontinues to invest is deeplysaddenedby thetragic 2010. The wholeFortescue Family a contractor inDecember fatality our Cloudbreak site experienced Fortescue regrets that to report averagebelow of2.5. the industry year. LTIFR Our results remain well over safety performance thelast that we have putinto managing our reflective ofthe andeffort work from lastyearperformance andis improvement is afurther inour

Injury Statistics Fortescue andContractor Performance Safety 0 1 2 3 4 5 6 7 8 Iron Ore industry LTIFRIron Ore industry average LTIFR*

2007-2008 2008 -2009 2009-2010 2010-2011 2007-2008 2008-20092009-20102010-2011 Fatalities the basisof1,000,000personhours. Contractor staffandiscalculated on *LTIFR refers to bothFortescue and our campinfrastructure. associated of withtheconstruction to ensure that theymanagerisks work withourbuildingcontractors Fortescue. We willcontinue to be forever remembered within employees andtheirfamilies will on ouremployees, ourcontractors’ by Cyclone George anditseffect George. The devastation caused involvement orresponse to Cyclone by nomeans closesFortescue’s was notat fault. This decision the Magistrate found that Fortescue devastating, we are pleasedthat Cyclone George in2007have been of 2007. Although theimpacts campinMarchrail construction the death oftwo workers at our cleared ofallcharges relating to 2011,Fortescue early wasIn

For personal use only multitude ofsystems andprocesses byThese a policies are supported • • • • • • across ourbusiness. These include: performance our sustainability policies whichhelpusto manage We have developed anumber of that ourbusinessisasuccess. sureshare responsibility inmaking commitments on theground. We all ofourstrategiesthe delivery and entire familyistheninvolved in andsuccess.performance Our andto measureto our setpolicy Executive team helpthebusiness Our andopportunities. risks Board has oversight for Fortescue’s CommitteeManagement ofthe The Fortescue Audit &Risk values andto manage ourrisks. help ourstaff to live the Fortescue All ofthesemechanismscombined, policies andmanagement systems. forums,a range ofdecision-making businessisgovernedOur through over thelongerterm. resilient andsustainablebusiness ofbuildinga aspects important governance isoneofthemost level andat ouroperations. Good completed at boththecorporate procedures. This work hasbeen corporate governance policiesand continued to buildonour thepastyearOver we have annually. onourperformance and report effective governance systems our businessrisks, implement We willidentify andmanage GovernanceOur 20% 10% 15% Management Policy.Management Climate ChangeandEnergy Environment and Policy; Community Policy; Safety Policy; Employees’ Code ofConduct; Directors’ Code ofConduct; Fortescue Employee TurnoverFortescue 0% 5% 2007-2008 2008 -2009 2009-2010 2010-2011 2007-2008 2008 -20092009-2010 2010-2011

contractors engagedat theendof over theyear withatotal of2075 numbers remained relatively steady a large contractor base. Contractor byalso continues to besupported of 3013employees. business Our financial year we employed a total record levels. At theclose ofthe This year ourworkforce grew to numbers alsocontinue to grow. company, ourstaffand contractor As arapidly-growing mining Workforce profile everyone intheFortescue Family. thewell-being after of and looks culture that empowers, values We willbuildahighperformance PeopleOur or unethicalbehaviour. corruption issues suchassuspected Family are encouraged to report All membersoftheFortescue available to allstaffand contractors. hotline service. ismade This service have implemented awhistleblower area.addition,we In each policy in to manageourperformance consideration for ourbusiness. Workplace diversity isanimportant June 2011.

Employee Numbers Fortescue WorkforceProfile 1000 1500 2000 2500 3000 3500 500 0 2007-2008 2008 -2009 2009-2010 2010-2011 2007-2008 2008-20092009-20102010-2011 500 167

Male 1202 320 measure for ourbusinessis diversity Another important women at Executive orBoard level. positions. At present there are no cent oftheavailable management Women currently hold9.6per positions are heldby women. Approximately 23percent ofour FIFO operations. approximately 22percent for other below theaverage turnover rate of 14.96 percent. This isstillwell decreased slightly from 15.65to turnover rate for theperiod low turnover rate. rolling Our we are arelatively happy to report (FIFO) nature ofouroperations, andtheflyinout industry labourinthemining of skilled economic environment, ashortage Given thestresses oftheexternal page.next is detailedinthecasestudyon Aboriginal employment approach Further information onour and development initiatives. employment initiatives, training housing inregional areas, pre models, theprovision ofsustainable regional Aboriginal employment include anongoingfocus onour Aboriginal colleagues. This will ofour and career opportunities and strengthen employment We improve willwork to further per cent ofour total workforce. employees comprised over 9.5 the endofJune2011,Aboriginal Atemployment opportunities. we candothisis through direct Western Australia. Oneoftheways the Aboriginal of community within andskills building capacity continue to becommitted to employment. WeAboriginal 1762 463 Female 2316 697

17 1717 FORTESCUE METALS GROUP ANNUAL REPORT 2011

18 18 18 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Australians. more than35percent Aboriginal cent residential andcomprised of of around 140peopleis100per HerbElliottPort workforceOur housing. training, employment and to traditional owners, that embraces payments isastory dimensional. It a up”“hand ismulti- Aboriginal Australians investment that gives local The Fortescue social For personal use only self empowering future for all jobs replacing welfare anda real training andguaranteed Aboriginal people;that is, for localcommunities and need to reflect real opportunities that our LandAccess Agreements Within thiscontext, we recognise Aboriginal people. training andemployment oflocal Fortescue iscommitted to the Employment Lives Through Changing Fortescue,One Family; One Case Study path into theworkforce and isanalternative Services VTEC Services VTEC local people. as at theendofJunehastrained 25 established inSeptember2010,and was Roebourne Our VTEC 2011. Aboriginal asat theendofJune 9.5 percent ofourworkforce was or itscontractors. As stated above, 500 peoplefor work withFortescue in 2006,the hastrained over VTEC First Hedland establishedinSouth prospects. to improve theiremployment to assistAboriginal people support employment programs and work readiness, training, skills employment. The centres provide enable Aboriginal training and cornerstonesour community that Roebourne. These two centres are Hedlandand at South (VTEC) Training andEmployment Centres Fortescue isproud ofits Vocational TrainingVTEC Family. ofourFortescueembraced part families are acritical, respected and employees, contractors andtheir AboriginalOur Australian housing. owners, training, employment and embraces payments to traditional that isastory dimensional. It Australians a up”“hand ismulti- that gives localAboriginal The Fortescue socialinvestment Aboriginal people. opportunities for Aboriginal opportunities as acatalyst andproviding Fortescue iscommitted to acting contracts to Aboriginal owned Native Title Groups), award sub- local Aboriginal people(including contractors that train andemploy consideration isalsogiven to joint venture arrangement. Greater orina subcontractors, partners Native Title Groups) eitheras Aboriginal businesses(including are Aboriginal owned, engage consideration to Contractors that Fortescue gives greater businesses. work experience, improving Aboriginal peopleto gainvaluable management. This work enables house maintenance andpest Hedland, includinglandscaping, contract work inPort undertakes Aboriginal Businesses Aboriginal people. economically strengthen thelocal million in2011. This ishelpingto across sites was closeto $26 Fortescue’s Aboriginal employees The total income received by Anketell. at port multi-user bulkexport workforce at theproposed new to deploy this is anopportunity our Pilbara operations until there to initially willbefly-in-fly-out people from who Roebourne employing 100Aboriginal Fortescue hascommitted to Australians. more than35per cent Aboriginal cent residential andcomprised of of around 140people is100per ElliottPort workforce Herb Our Chichester Huboperations. out roster from Hedlandto our who commute on a fly-in-fly- Fortescue Aboriginal colleagues Port Hedlandincludes115local residentialOur workforce at Employment employment withFortescue. training programs ordirect VTEC to progress intoopportunity the candidates have Services the VTEC employment barriers. work routines andaddressing Encouraging Sport two years.next programconstruction the during and hopesto begin ahousing program employees to Roebourne itshousingassistanceextending Fortescue isalsocommitted to programconstruction inthetown. budgeting for afive year housing housing inHedlandandiscurrently Fortescue willcontinue to invest in Generation One. Fortescue isafoundation enablerof Refer: www.generationone.org.au. one generation -ourgeneration. Australiansand non-Indigenous in between Indigenous the disparity allAustraliansbring together to end GenerationOne isamovement to GenerationOne by 30June 2011. employing 300Aboriginal people self imposed24month target of org.au. Fortescue hasachieved its Refer to: www.fiftythousandjobs. Australian Employment Covenant. achievement to thegoalsof that gave form, definitionand Fortescue was akeydriver Australian Employment Covenant and self-harm. crime, substance abuse, violence protective againstjuvenile factors aspowerful alsoserves Sport attendance, andhealthoutcomes. cohesion, improve schoolandwork to strengthen social is important programs for Aboriginal Australians andrecreationbelieves sport Hedland andRoebourne. Fortescue at South ofsport its support Fortescue negotiating isactively Housing projects. onFortescue period reporting Australians asoftheend employing over 170Aboriginal Fortescue’s contractors were andassubcontractors.both direct annum onAboriginal contractors, approximately $40millionper Fortescue currently spends Aboriginal workforce participation. and/or have acommitment to to theAboriginal Community Contractors, and, provide benefits 19 19 FORTESCUE METALS GROUP ANNUAL REPORT 2011 20 20 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only we meetourown needsandwill as needs ofthelocal community consistently work to meetthe need for ongoingsupport. We communities andremove the of thelocal that buildthecapacity outcomes for ourcommunities focusOur isoncreating sustainable tomorrow andinthelongterm. thePilbara regionsupporting today, Policy that commits usto We have Community anactive we say we willdo. be openandhonestdowhat for thesideeffects of ourpresence, and care, takebroad responsibility communities, behave withrespect At Fortescue we aimto enhance Community engagement sustaining value andprosperity. communitieslocal to drive self that empowerpartnerships We willdevelop collaborative LocalOur Communities processinduction andonthejob. training are delivered the bothduring awareness training. of These types environmental training andcultural focus includesafety training, training. Keyareas ofongoing androle specific inductions equipped we provide company our employees andcontractors are work expectations. To ensure that and effectively deliver ontheir are well equippedto successfully that ouremployees isimportant It Training and development

across thePilbara. at variouslocations capability and contractors to increase for localbusinesses opportunities Aboriginal people. We alsoprovide training andemployment of workforces, localemployment, with itscommitment to residential Government’s Pilbara Cities vision the support Western Australian and locallevel. We actively communities at botharegional Fortescue invests inour Community investment initiatives. innovative and partnerships through capacity community mutual benefit. We look to build thatobjectives aimto provide established setofcommunity various ways. We alsohave an in to capacity buildcommunity At Fortescue, asacatalyst we act Community Capacity Fortescue to Partners Build which we depend. with thePilbara communities upon endeavour to share oursuccess Heritage opportunities, dustcontrol. opportunities, Heritage obligations agreed withgovernment, weed control,opportunities, waterRe-investing Variety WA, housing. Doctor LoreIndigenous tradition, Covenant andenabling Australian Employment Fortescue Foundation, arts, “I’ll Give aDay Mate”, compensation, culture/ business incubation, land Australians, VTEC, Advancing Indigenous We to buildcommunity capacity partner Natural Social

support from Port Hedland, Roebourne,support hiring policies,hiring leading safe behaviours, Apprenticeships, traineeships, local cultural awareness training, FIFO Fitzroy Crossing andCarnarvon. Community Fortescue People and Our • Port Hedland: initiatives ofcommunity in worth Fortescue isfunding$3million Amenities Community Supporting These include: which willcontribute to thisvision. local investments inPort Hedland We have made anumberoflarge • •

Variety WA isoneofmany causes establishment andoperation Facilitate andsponsorthe programs for localchildren. by Variety WAits towards profit from thesale to beused a houseinHedland, withthe Helping Varietybuild WAto town. and retain more to the doctors housing initiative to attract for agovernmentSupport hospitality. environment for workers in a vocational training meeting point andprovide asacommunity which canact Park (underconstruction), of acafe withinanewMarquee which Fortescue supports and theMarquee Park Cafe, accommodation capacity communities, increased licences androyalties. Infrastructure energy, residential Employment, local business capacity business capacity housing inthree Economic building, fees, content, local Variety WA. Renewable

For personal use only an additionalvalue of$16million. Hedland, andhasleasedhousesto of newhousesinPort andSouth $100 millionontheconstruction To date, Fortescue hasspent almost scheme. assistance ofFortescue’s housing bydirectly employees withthe the existing orpurchased market, houses whichare eitherleasedfrom workforce lives locallyin330 Chichester Huboperations. This and ourPort, Rail supports workforce at Port Hedlandthat has establishedaresidential thepastfewDuring years Fortescue Investing inaresidential workforce inventory withten houses. has commenced its Tom Price buying orleasinghouses, Fortescue purchasing residential land, and/or in Tom Price. To date, through upto 100dwellingsconstruct Fortescue intends to acquire or Hub,implementing theSolomon As apositive sideeffectof Fortescue families. to accommodate theadditional of housesat Hedlandissufficient out from until the local supply interim workforce willbefly-in fly- Hedland.Hedland andSouth The to aresidential workforce inPort Fortescue retains itscommitment residential workforce at Hedland. to supplement its current transitional workforce arrangement is implementing aninterim and To achieve thisgrowth, Fortescue to increase by upto 140people. our Chichester Hubisalsoexpected people onafly-in-fly-outrosterto Employment oflocalAboriginal by anestimated 660people. workforcesPort andRail willincrease Pilbara. As aresult, ourestimated expansion program across the mid 2013through aUS$8.4billion expansion. We insize willtriple by will undergo atransformative two years thenext FortescueOver Investing inhousing contractors. accommodation for employees and term which assistsinmeetingshort public motel Hedland, at South program. Fortescue alsorunsa in afive year housing construction Hedland iscurrently budgeted for Continuing investment inPort environmental incidents to the theyearDuring we five reported www.fmgl.com.au. available onourwebsite: and awareness. is The fullreport restored, environmental training air quality, habitats protected and management, water management, energy andgreenhouse, waste areas ofapprovals andcompliance, inthe synopsis ofourperformance providedThis report adetailed third Public Environment Report. theyearDuring we publishedour requirements. which helpusto managethese of tailored management plans management system andanumber have developed anenvironmental planning andperformance. We environmental management, us to meet standards ofeffective licences. These conditions require Statements,Ministerial and permits by theconditions setoutinour operationsOur are governed and Management Environmental Compliance resource efficiency. and we willstrive to improve our meet ourlicence requirements environmental and impacts We willmanageour EnvironmentOur 300housesinKarratha. construct approvals, intends to acquire or funding andinternal andexternal outcome oftheFeasibility Study, the of suitablelandandservices, ofcourse to theavailabilitysubject regionally basedworkforce and continues to becommitted to a Pilbara Port at Anketell. Fortescue involves anewrailway lineandnew of itsCentral Pilbara Project which Fortescue isstudyingthefeasibility and improving energy efficiency reducing greenhouse emissions Policy. This Policy recognises that Change andEnergy Management the development ofourClimate greenhouse gasemissionswith to energy consumption and 2011weIn formalised our approach Greenhouse andEnergy regulating agencies. being takenonbehalfofthe action resolved withnofurther regulators. All incidents were

is important to theCompany’sis important Energy Reporting (NGER)Act 2007. Energy Reporting the completed under ourthird report Project (CDP). We successfully to theCarbon Disclosurereport submitted oursecond voluntary greenhouse andenergy. We requirements intheareas of reporting and voluntary commitment to bothmandatory demonstrated ourcontinued theyearDuring we also advantage. longevity, growth andcompetitive reporting period. reporting overburden moved the during divided by thetonnes ofore and intensity asouremissions Fortescue, we measure greenhouse in ourgreenhouse intensity. At represented a0.4percent decrease absolute emissionsfrom lastyear, it this was a33percent increase in power supplies(Scope2). Whilst emissions from ourthird party emissions and40,242tCO comprised 601,533tCO dioxide equivalents (tCO were 641,775tonnes ofcarbon total greenhouse gasemissions theperiod, Fortescue’sDuring auditors, KPMG. limited level ofassurance by our to a was subject This NGERreport National Greenhouse and 2 -e in direct indirect -e 2 -e). This -e). 2 -e of -e

21 21 FORTESCUE METALS GROUP ANNUAL REPORT 2011 22 22 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only transport ofiron ore.transport response In processing and extraction, the exploration, development, significant amount ofenergy in company, Fortescue consumes a As arapidly-growing mining or relied uponby any otherparty. not beusedfor any otherpurpose accordance andshould withtheAct was in whether theNGERreporting assisting Fortescue indetermining prepared solelyfor of thepurpose This limited was assurance report Fortescue onthisNGERreporting. limited to assurance report Act. KPMG issuedanunqualified 30 June2011undertheNGER Energy forthe Efficiency yearended ofClimate Changeand Department of Fortescue’s to the reporting assurance engagement inrespect alimited engaged to undertake were reviewed by KPMG, whowas The above NGERemissionestimates period. reporting the during activity construction ratios stripping production, and is acombined result ofincreased The increase inabsolute emissions GHG Intensity Tonnes of C02e / million tonnes of overburden and ore mined 1000 1500 2000 2500 3000 3500 4000 500 0 2007-2008 2008 -2009 2009-2010 2010-2011 2007-2008 2008-20092009-20102010-2011 Scope 1intensity efficiencies in2011andbeyond. continue to search for new consumption. Fortescue will may helpreduce ourenergy have discovered many ideasthat facilities. Through thiswork we mining, andport rail transport all ouroperations including workOur onEEOencompassed financial year. at theendofeach reporting program isongoingandrequires (2006) (EEO)Act Opportunities Efficiency the requirements ofthe energy savings inaccordance with identify areas for significant comprehensive program to a Fortescue undertook to ourgrowing consumption, . Our participation intheEEO participation . Our Scope 2intensity Energy Water Awards andtheAustralian AustralianWestern Water was recognised at boththe This highlysuccessful initiative minimise environmental effects. waterconserve for future useand use to thegroundwater system to and return thebalance site after water for dewatering ofore pits, process allows usto withdraw intheregion.and quality The effect on groundwater levels aquifers, greatly reducing our waterof extracted backinto approximately 73percent Cloudbreak allowed usto return of groundwater at reinjection Aquifer Recharge (MAR) Scheme management. Managed Our inminesite water the industry management system isleading The Cloudbreak water Groundwater Management Award-winning Case Study period ofoperation.period withinsuchabrief industry management inthemining leadership positiononwater our Water Team inachievinga testament to thehard work of differenta andis sectors This award isopento several inthewaterprojects industry. and innovative infrastructure Innovation Award for significant Projectwith theInfrastructure Water Association awards For personal use only For information onour further proud of. This isanachievement we are very in minesite water management. and water management industries of Water asleadingthemining Awards andthestate Department Australianthe Western Water by theAustralian Water Association, management hasbeenrecognised in asustainablemanner. water Our that we manageit it isimportant As groundwater isafinite resource sourced from thesurrounding area. operations, we rely ongroundwater toDue theisolated nature ofour Recognition in ourPublic Environment Report. these research ispresented projects modelling.quality More detailon Samphire plants anddustair and studies onthelocalMulga communities,Marsh vegetation focusprojects on theFortescue research underway. projects These We currently have amultitude of which we operate. andtheenvironmentsimpact in understand ourenvironmental research willhelpusto better academics andinstitutions. This withleading partnerships environmental research We are committed to establishing Environmental research www.fmgl.com.au. is available onour website: Public Environment which Report, water management, refer to our

sustained by surface moisture sustained by surface dependence andisgenerally haslowMarsh groundwater vegetation ofthe onthefringe research indicate that The findingsofthis early and variedclimate conditions. vegetation water requirements water sources,and surface which accounts for ground computer simulation model sampling andtheuseofa vegetation. This includessoil to thewater requirements of which groundwater makes is to identify the contribution One focal point ofthisstudy our Chichester operations. Fortescue that adjoins Marsh moisture around characteristics groundwater profile andsoil aims to understand theunique of aresearch which project implemented the firstphase thisfinancial During year we Water at theMarsh Case Study growth inthearea. composition andvegetation detailed information aboutsoil refined to incorporate more the modellingprogram willbe futureIn stagesofthisproject, potential groundwater impacts. help inform our management of conditions. These findingscan highly resilient to variedclimate indicate that thevegetation is and highrates ofevaporation of anextended “dry season” retained inclay soils. Modelling which impact growth.which impact and theenvironmental factors identifying thevarietiespresent, in theregion. This includes Samphire vegetation populations to comprehensively survey University of Western Australia atCouncil project the (ARC) funded anAustralian Research since 2008,Fortescue has As anongoingpartnership Samphire research Case Study monitoring programs. Fortescue’s existing vegetation will guidetheimprovement of The findingsofthe research papers detailingtheresearch. and several scientific journal publication ofaPhD thesis completion in2011withthe This isscheduledfor project conditions are maintained. that suitableenvironmental of localvegetation and ensure accurately monitor thehealth information Fortescue canmore for Samphire growth. With this determine theidealconditions environmental conditions to and response to changesin assessed for keyhealthindicators Samphire populations are 23 23 FORTESCUE METALS GROUP ANNUAL REPORT 2011 24 24 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only 32 32 32 31 30 29 24 24 Contents GOVERNANCE CORPORATE Pursuit andachievement ofour achievement ofourgoals. the approved strategies to ensure relies onmanagement to deliver achievement and ofthisobjective The Board isresponsible for the long term value for itsshareholders. Fortescue willcreate sustainable Pilbara. achievingourgoals, By profitable iron ore producer inthe vision to be thelowest cost, most benefits ofour growth we have a iron ore. order In to maximisethe continued strength indemandfor to takeadvantage of the expected expanding capacity ourproduction strategies andplansare focused on international markets. Our of iron ore andsupplierto Fortescue isamajorproducer Fortescue Governance at of 1. Overview will bereflected in a new Corporate Fortescue iswell recognised and of corporate governance to importance stakeholders. The and interacts withitsvarious in whichtheGroup isgoverned standards whichdrive theway and corporate governance corporate governance framework through astrong andeffective goals issignificantly enhanced Standards Corporate Governance 8. Compliance with 7. Market Disclosures 6. Conduct ofBusiness Management 5. Risk Stakeholders 4. Engagement with 3. Board Committees 2. Board ofDirectors Governance at Fortescue of 1. Overview

• • follows: responsibilities oftheBoard are as the Board whichstates that thekey Statement for ofMatters Reserved The Board hasestablisheda responsibilities. and experienced to discharge their team isappropriately qualified ensures that themanagement grow that relationship. The Board team and works hard to foster and and theexecutive management relationshipworking between it ofastrong andhealthyimportance The Board understandsthecritical the Group isproperly managed. stakeholders andto ensure that of shareholders andotherkey enhance and protect theinterests of theGroup. The Board’s focus isto shareholders for theperformance The Board isresponsible to the Responsibilities and 2.1 Role 2. Board ofDirectors executive levels. at Board andsenior importantly governance across thebusinessand appropriate focus oncorporate growth strategies, there isan that as Fortescue realises itsrapid governance andensure practices framework willenhance existing corporate maturity. The new to rapid growth anddeveloping challenges faced by theGroup due This thegovernance willreflect is currently underdevelopment. Governance Framework, which management; proposed byfunding activities expenditures andmajor major capitalandoperating plans, newinvestments, management andapproving andstrategiesobjectives with Developing corporate (CEO); the ChiefExecutive Officer and, ifnecessary, removing of,performance rewarding Appointing, evaluating the

• • • • • Monitoring performance performance Monitoring arrangements are inplace; that appropriate audit assuranceGaining reporting; monitoring financialandother Further, approving and appropriately.and functioning control processes are inplace management andinternal financial, compliance,risk that proper operational, acceptable levels ofassurance and controls inplace andgain appropriate systems reporting Satisfying itselfthat there are the Group; of and financialperformance disclose thefinancialposition Group andaccurately fairly financial statements of the Satisfying itselfthat theannual areas ofoperation; or located inour geographic several communities living from ourinteraction withthe development issuesarising issues andcommunity environmental management and occupational healthrisks, business risks, includingsafety managementOverseeing of state ofhealth theGroup; understand at alltimesthe operational information to andreviewingexpectations against definedperformance For personal use only the CEOremains accountable to the oftheGroup.performance Whilst through thosedelegations for the remains accountable to theBoard of theCEOandhence theCEO matters delegated to theauthority forDelegations ofAuthority The Board hasalsoestablished • • improvement actions. ofany proposedconsiders aspart where appropriate, which the Board recommendations for improvement each casethecommittees provide where required.and action In considerationBoard for further process, andare to the reported in eachcaseleadingtheevaluation committee members, withtheChair committees isagreed amongst results oftheevaluation ofthe on aformal questionnaire and the annually. The process willbebased self evaluate theirperformance implemented aformal process to committees have recently The Board andeachofitstwo changes are approved by theBoard. required to thesedocuments, such or change. Where changesare any areas requiring improvement continued relevance andto identify reviewed annuallyto assess areDelegations ofAuthority for theBoardReserved andthe theStatementBoth ofMatters inthisAnnual Report. Report Remuneration details ofwhichare disclosedinthe Executives,of theCEOandSenior annual evaluation oftheperformance has establishedaprocess for the of corporate objectives. The Board and progress towards achievement the Board onkeyoperational issues consideration oftheCEO’s to report Boardduring meetingsfor CEO. Appropriate timeisallocated monitoring thedecisionsof A keyfocus ofBoard meetingsis establishedbyboundaries theBoard. for thebusinesswithin decisions hebelieves are appropriate Board, heisfree to makewhatever shareholders. to andadvising Reporting consistent withthat Code; and and that Group is practice appropriate Code ofConduct that the Group hasadopted an matters andgainingassurance legally andresponsibly onall that Ensuring theGroup acts

by theBoard mustretire andmay the ManagingDirector, appointed new Director, withtheexception of Additionally,seek re-election. any eachyearGeneral Meeting andmay Director, mustretire at theAnnual with theexception oftheManaging Directors. One third ofthe Directors, of three andamaximum oftwelve the Board musthave aminimum Under thecompany’s Constitution, 2.2 Board Composition is beingconsidered. assessment ofindividualDirectors review, aprocess for performance evaluation process. ofthat As apart Board iscurrently reviewing its ofthecompany,maturity the required. With theincreasing and therelevant Directors as consultation between theChairman this hasbeendoneby informal evaluated previously butrather Directors hasnotbeenformally of The individualperformance Secretary. with theassistance oftheCompany are agreedactions upon andacted by improvement theChairman, the entire Board andagain,led at Board level involvingundertaken A similarprocess isto be Geoff BrayshawGeoff Ken Ambrecht Graeme Rowley Lead Director) Independent Chairman, Elliott(Deputy Herb Andrew Forrest (Chairman) Name Neville Power Scruggs Herbert Raby Geoff Russell Scrimshaw Ian Cumming Barnaba Mark Li Xiaowei Ian Burston Hegarty Owen From 1September2011 From 26August 2011 From 18August 2011 To 26August 2011 To 1September2011 Full Year Full Year To 18August 2011 Full Year Full Year Full Year Full Year Full Year Full Year Period ofoffice meetings andBoard Committee executives whoattend Board The Board alsohasaccess to senior effectively. governance ofthebusiness of shareholder interests and to achieve thepromotion and non-executive Directors appropriate balance ofexecutive composition represents an The Board believes that its appointment. intheyear of seek re-election out below: The Directors of theGroup are set by Board members. available at othertimesasrequired meetings by invitation andwhoare producer. profitable iron ore lowest cost, most a visionto bethe growth we have the benefitsofour orderIn to maximise N/A Yes Yes Retired Retired No No Retired Yes No No Yes No Yes in 2011 re-election seeking and Retiring

25 25 FORTESCUE METALS GROUP ANNUAL REPORT 2011 26 26 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only • • • • • are below: summarised Board since the2010 Annual Report Changes to thecomposition ofthe in Australia have highlighted the corporate governance reviews The Board isaware that various based onmerit. is inplace andthat alldecisionsare environment ofequalopportunity committed to that ensuring an and performance. The Board is relevant to theircompetence beliefs, orany not otherfactor sexuality, nationality, religious of race, gender, age, physical ability, people for theright jobregardless isto recruit theright our policy As withallroles intheCompany, responsibilities to Shareholders. of theBoard indischarging its which are relevant to theneeds attributes and otherimportant to be, experience, skills, knowledge the Board hasbeen,andcontinues newDirectors forBoard inseeking positions. driver for the The primary applicants for theBoard Director nomination andreview of Committee considers the The Remuneration &Nomination • • • Non-Executive Director on18 Raby was appointed Geoff asa August 2011; Director oftheCompany on18 Ian Burston retired asa Fortescue; Andrew Forrest, thefounder of 2011, andwas succeeded by on18AugustChairman from hisrole asNon-Executive ElliottsteppedHerb down on18July2011; Officer Forrest astheChiefExecutive Nev Power succeeded Andrew September 2011. as anExecutive Director on1 Neville Power was appointed September 2011;and Director oftheCompany on1 Ian Cumming retired asa Director on26August 2011; appointed asa Non-Executive was Scruggs Herbert 2011; of theCompany on26August retiredScrimshaw asaDirector Non-Executive Director. Mr becamea Russell Scrimshaw inJune2011, & Marketing as Executive Director Sales Following hisretirement August 2011; August 2011. Non-Executive Director on26 was appointed Scruggs asa Mr Term ofOffice Executive Director) (Non- Scruggs Herbert Mr included below. oftheirexperience is a summary of theAnnual and Financial Report joined theboard therelease after Power andMr Scruggs Mr Report. Directors’ inthisAnnual Report experience isprovided inthe oftheDirectors’A summary business. experience that are relevant to the gaining access to newideas and of corporate whilst knowledge an appropriate level ofretention there isalsoafocus onachieving to theBoard,is alsoimportant so Retention ofcorporate knowledge independence. balance experience and of skills, continue to have anappropriate and Non-Executive Directors to ensure that theExecutive its composition, thereby working the Board maintains afocus on of thebusiness. This meansthat level to ensure effective governance at Board experience isnecessary backgrounds, and knowledge and relevant range ofskills, The Board believes that adiverse Experience ofDirectors 2.3 Skills, Knowledge and 300 program. about thesuccess ofourSummit recent Company announcements This hasbeenwell documented in in whichtheCompany operates. people from thegeographic areas its record inemploying Aboriginal proud of Fortescue isparticularly by abroad ofsociety. cross section the Company enjoys representation business diversity isexcellent and AcrossAnnual theentire Report. ofthis Section Sustainability Fortescue are includedinthe diversity detailsforGender level oftheCompany. impediments to diversity at any there ofensuring objective are no whichwilldrive the diversity policy with thefinalisation ofits formal issue moreyear fullyinthenext Board plansto address thediversity lack ofdiversity at Board level. The Sangart – including service on –includingservice Sangart Empire Insurance, and MKGold & Power, News, Deseret Morning LightInvestment Barbados Bank, held companies includingAmerican boards ofpublicaswell asprivately onanumberof served Scruggs Mr long haulfibre opticcarrier. insurancecasualty company, anda and for aproperty anational bank, other seniormanagement roles the chiefexecutive officer andin United States, as having served equally extensive, inthe primarily operational experienceHis is Trustees. Boardof theUniversity ofUtah of the Governor andChairman ofUtah positions includingChiefofStaff to government, politicalandcivic has heldanumberofcorporate, by training (BYU Scruggs 1984),Mr business improvement. Alawyer recoveries andstep change business leadership, corporate in isanexpert Scruggs Mr Experience years (ASX Listed Entities): Former inlast 3 Directorships Listed Entities): CurrentOther (ASX Directorships Children’s Trust. The Group andtheAustralian to consultingactivities, services He now provides, amongother Andrew Forrest inFortescue. original decisionto invest alongside was instrumental inLeucadia’s Asset Group. Management He he was president ofLeucadia Corporation (NYSE: LUK), where worked for Leucadia National Foundation andpreviously as well astheHuntsman Cancer of Huntsman Financial Corporation recently served asCEO Scruggs Mr committees. multiple auditandexecutive beliefs. nationality, religious ability, sexuality, age, physical of race, gender, job regardless people for theright recruit theright isto policy Our None

None For personal use only the positionofChiefExecutive Prior to Fortescue, Nevheld in September2011. Fortescue Group Metals Ltd Board CEO inJuly2011andjoinedthe February 2011,was appointed PowerMr joinedFortescue in Experience 2011. Executive Director on1September PowerMr was appointed asan Term ofOffice Executive Director) Executive Officer, Neville PowerMr (Chief years (ASX Listed Entities): Former inlast3 Directorships Listed Entities): CurrentOther (ASX Directorships on arange ofaircraft. wing licenses withendorsements holding bothhelicopter andfixed andisanavid aviator,property in managing thefamilycattle He maintains interest anactive from theUniversity ofQueensland. andanMBA Queensland Southern Engineering from University of PowerMr hasaBachelor metals, goldandcoal sectors. processing operations inthebase in underground, opencutand through aprogression ofroles career inthemining industry Nev spentyears theearlier his downstream processing. growth and insteel making overseeing organic andacquisitive a positionheheldfor sixyears Products DivisioninFebruary 2001, Executive Reinforcing andSteel appointed to therole ofChief Smorgon Steel Group Ltd. Hewas in seniorexecutive positionswith Nev alsospent more than 10years industries. watermining, andhealth transport, acrossand buildingprojects the most significant infrastructure responsible for someofAustralia’s and 3,500staff.In this role, Nev was turnover of$4billionperannum businesswitha construction was responsible for theAustralian Ltd,Pty for three years where he Leighton Group subsidiary, Thiess Australian Operations for the None

None The letter ofappointment also fmgl.com.au. which canbeobtainedat www. Company’s Constitution, acopy of 2001,ASXListingRulesandthe Act upon themby theCorporations with allrequirements imposed Directors are to expected comply decisions before theBoard. and contributing to allimportant Group, aswell asbeinginvolved assist insettingstandards for the ethicallyinalldealingsand act the status quoconstructively, to independently by challenging Directors are to expected act as required. Boardroom tableandat othertimes at the their considerable expertise they are to expected contribute and experience andknowledge have adiverse range ofskills, isrecognisedIt that Directors members ofaBoard committee. Board committees where theyare contribute to thebusinessof addition, Directors are to expected website at www.fmgl.com.au. In accessed through theCompany’s for theBoard, whichcanalsobe the Statement ofMatters Reserved relating to thematters setoutin contribute to theGroup primarily com.au. Directors are to expected Company’s website at www.fmgl. can beaccessed through the basis ofremuneration. The letter are appointed, includingthe the terms onwhichDirectors of appointment that contains The Board hasadopted aletter offer themselves for re-election. three yearsevery andare ableto to retire by rotation at leastonce Managing Director, are required Directors, withtheexception ofthe 2.4 Terms ofAppointment reviewed annually. appointment to theBoard andare by theBoard to prior aDirector’s Executive Directors are considered Board. The commitments ofNon- Group approval withprior ofthe accept appointments outsidethe its Non-Executive Directors to isFortescue to practice It allow responsibilities asDirectors. to adequately discharge their are required to commit inorder the amount oftimethat Directors provides about cleardirection the CEO. Forrest, Mr whilstbeing andwasas Chairman previously Forrest Elliott succeedsHerb Mr by theBoard inAugust 2011.Mr role ofNon-Executive Chairman Fortescue, was appointed to the Andrew Forrest, thefounder of team. with theCEOandhisExecutive maintaining strong relationships Shareholders interests and operates effectively inprotecting to develop acohesive Board which oftheChairman’sA keypart role is the broader businesscontext. the Group, bothinternally andin Board andpromote theinterests of responsibility to leadthe primary The oftheGroup Chairman hasa 2.5 Chairman the Group. discharge theirresponsibilities to they have thetimeavailable to fully thatto specificallyacknowledge Executive Directors are required Non- themselves for re-election, Prior to appointment, oroffering • including thefollowing: if theysatisfy establishedcriteria, are considered to beindependent are madeby theBoard. Directors forefront decisions whenimportant of Shareholders are always at the in order to ensure that theinterests Directors isimportant Independent Board believes of that amajority in judgment and actions. The obligation to be independent All Fortescue Directors have an 2.6 Independence Chairman. Non-Executivethe role ofDeputy Lead Director in Independent Company. Elliottisthe Herb Mr significant shareholding inthe his previous role asCEOandhis Director duetoan Independent a Non-Executive Director, isnot Directors oftheGroup; with theGroup otherthanas contractual relationships must have noothermaterial such remuneration. Directors make theDirector reliant on of suchamounts that could providedfor are services not fees paidto themby theGroup Director oftheCompany. Any They are aNon-Executive

27 27 FORTESCUE METALS GROUP ANNUAL REPORT 2011 28 28 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only • • Directors, basedontheabove thetenDirectors. Non-Executive Of The Board hasten Non-Executive regarding that matter. involved inthedecision-making interest, that Director ceases to be Director hasamaterial personal consider amatter inwhichthe a Director may be required to acircumstanceIf whereby arises assessments ofindependence. so that theBoard canmakeregular to exercise independent judgement be perceived to affect, theirability circumstances that may affect, or Directors are required to disclose interests oftheGroup at alltimes. Directors are inthebest ableto act is designed to ensure that all essence theaboveIn guidance • • • more thanfive per cent ofthe Corporations asholding Act this beingdefinedinthe shareholder oftheCompany, They are notasubstantial Group. inthebestinterestsact ofthe tointerfere withtheirability be perceived to materially which could reasonably They are free from any interest and customer; with amaterial supplieror associated orindirectly directly an officer oforotherwise supplier oftheGroup, or They are notamaterial consultant to theGroup; of amaterial adviseror three years, beenaprincipal They have not, withinthelast ontheBoard; serving ceasing suchemployment and ofthreeperiod years between the Group orthere hasbeena in anExecutive by capacity They have notbeenemployed voting shares oftheCompany; personal gain. use confidential information for ethicallyand donot the Group act that allDirectors andemployees of designedof Conduct to ensure The Board hasimplemented aCode 2.7 Use ofInformation to thefinancialstatements. Standards are disclosedinthenotes to InternationalFinancial Reporting Director related entities pursuant withDirectors or transactions are classifiedas related party Transactions theyear during which not anindependent director. is becausetheChairman Chairman there may be, aconflict for the where there is, oritisperceived point andcoordination ofcontact Director toIndependent provide a has beenappointed astheLead Elliott Mr Chairman, As Deputy • • • • Non-Independent • • • • • • • Independent Non-Independent: considered to beindependent and lists below shows Directors whoare the variousBoard committees. The chairandinvolvementdeputy in viathe including chairmanship Director independence iscritical, wherein allareas ofBoard activity independent Directors involved The Board believes that ithas considered to beNon-Independent. be independent andthree are sevencriteria, are considered to Li Xiaowei Nev Power Graeme Rowley Andrew Forrest Scruggs Herbert Raby Geoff Hegarty Owen Barnaba Mark BrayshawGeoff Ken Ambrecht Elliott Herb

for Board andBoard committee including adequate timeto prepare their responsibilities effectively, time to the Group to discharge are required to allocate sufficient to fulfilits role.necessary Directors The Board as meetsasoften 2.10 Meetings Report. inthisAnnual Remuneration Report Non-Executive) are setoutinthe paid to Directors (Executive and policies andtheremuneration oftheremunerationDetails 2.9 Remuneration cannot beunreasonably withheld. circumstances, butsuchapproval isrequiredthe Chairman inthese Company. Prior written approval of advice at theexpense ofthe to seekindependent professional their responsibilities, have theright withthedischargeconnection of Directors andBoard committees, in Advice2.8 Independent provided Services. by LinkMarket oversight oftheshare services registry isalsoresponsible forSecretary these responsibilities, theCompany asrequired.services additionto In for advice andsupport Secretary have access to theCompany governance matters. All Directors with andadvisingtheBoard on Board procedures are complied is alsoresponsible for that ensuring effectively. The CompanySecretary to enabletheBoard to function mechanisms appropriate support establishing andmaintaining Board and isresponsible for appointed and removed by the The Company is Secretary 2.11 Company Secretary required. meetings withmanagement as addition,Board membershold In previous day. precede Board meetingsonthe and Board committee meetings meetings are of oneday’s duration met sixtimes. GenerallyBoard thecurrentDuring year theBoard Group’s operational sites. meetings andinjoiningvisitsto the For personal use only Audit Management Committee &Risk Meetings Remuneration &Nomination Committee Meetings available to allBoard members. papers andminutes are made Committee meetingagendas, to eachcommittee. services support The Company provides Secretary before matters are resolved. matters informed onallimportant the Board sothat theBoard isfully the outcomes ofitsdeliberations to Committee isrequired to report is delegated by theBoard. Each Board, andunderwhichauthority approvedits own Charter by the Each ofthesecommittees has Committee.Management Committee andtheAudit &Risk Remuneration &Nomination committees oftheBoard are the consideration theyrequire. Current issues are given thedetailed andcomplexensure that important execution ofitsdutiesand to committees to assistinthe The Board hasestablished 3. Board Committees Mark Barnaba (Chairman Barnaba Mark Hegarty Owen Andrew Forrest Ian Cumming Ken Ambrecht 18 August 2011) Elliott(ChairmanHerb to Name from 18August 2011) Mark Barnaba Mark Ian Burston Ken Ambrecht (Chairman) BrayshawGeoff Elliott Herb Name Member fromMember 30June2011 toMember 18August 2011 forMember fullyear forMember fullyear toMember 30June2011 Term August 2011 fromMember 18 forMember fullyear forMember fullyear September 2011 toMember 1 forMember fullyear forMember fullyear Term

• • • • • including: range ofmatters related to itsrole, The committee considers adiverse and Board membernominations. remuneration andpractice policy assist theBoard initsoversight of The role ofthecommittee isto above.directly members are shown inthetable the year. ofcommittee Details Committee metfour timesduring The Remuneration &Nomination Nomination Committee 3.1 Remuneration & Succession planning; termination policies; Recruitment, retention and incentive plans; term andlongterm Short Director remuneration policy; Non-Executive andExecutive Chief Executive Officer, policy; ExecutiveSenior remuneration Independent Non-ExecutiveIndependent Director Non-ExecutiveNon-Independent Director Non-ExecutiveIndependent Director Non-ExecutiveIndependent Director Non-ExecutiveIndependent Director Status Independent Non-ExecutiveIndependent Director Non-ExecutiveIndependent Director Non-Executive that date after until 18 July2011andNon-Independent ExecutiveNon-Independent Director Director Non-ExecutiveNon-Independent Non-ExecutiveIndependent Director Non-ExecutiveIndependent Director Status • • Management Committee 3.2 Audit &Risk set outintheRemuneration Report. related to remuneration matters are onbehalfoftheBoard activities Full detailsofthecommittee’s of theGroup. internal management auditandrisk audit, and reporting, external related to financialmanagement responsibilities for allmatters assist theBoard initsoversight The role ofthecommittee isto the bottom ofthispage. members are shown inthetableat the year. ofcommittee Details Committee metfive timesduring The Audit Management &Risk appointments. Board Committee and applicants for Board positions; positions andreview of Nominations for Board

- 4 4 4 4 4 Held Meetings - 5 5 5 5 Held Meetings

- 3 3 1 4 4 Attended - 3 5 5 5 Attended 29 29 FORTESCUE METALS GROUP ANNUAL REPORT 2011

30 30 30 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only The committee alsomonitors standards.financial reporting developments ininternational fraud andmisappropriation) and policies relating to potential policies(including and reporting applicable financialmanagement financial control environment, statements, ofthe theadequacy reviews theannualfinancial This meansthat thecommittee Corporations requirements. Act & Recommendations andthe Corporate Governance Principles with theASXListingRules, theASX the Board inregard to compliance audit. The committee alsoassists relation andinternal to external statements, andtheprocesses in including theannualfinancial to preparation offinancial reports, management processes inrelation The committee monitors as to ofthe the truth andfairness role isto form anopinion primary appointed auditors whose external Corporations Act, theGroup has accordanceIn withthe internal auditors. and and thework oftheexternal material to risks thebusiness activity, onmitigating itsimpact managemententerprise risk independence. and quality demonstrate auditors who appoints external The Group

and incentive arrangements. Group’s annualfinancial statements Constitution, adoptionofthe changes to theCompany’s ofDirectors,including election to vote onkeybusinessissues, which istheforum for Shareholders attend theAnnual General Meeting, Shareholders are encouraged to the strategy are below. summarised with Shareholders. of Keyaspects for engaging andcommunicating The Board hasdeveloped astrategy excellence.and performance achievement ofstrategic objectives them for delivering value through Shareholders and isaccountable to The Board represents theGroup’s 4.1 Shareholders Stakeholders 4. Engagement with internal auditors. address by the issuesreported proposed by management to audit reviews, includingactions monitors findingsfrom internal annual internal auditplanand The committee approves the for threeservice years. KPMG hasbeenproviding this Accountants, to provide theservice. appointed KPMG, Chartered the needsofGroup andhas bestsuits internal audit function has decidedthat anoutsourced across theGroup. The committee control environment ismaintained that a strongrisk and financial ofensuring part isacritical function robust basedinternal andrisk audit The committee believes that a fees. annual auditplanandrelated audit committee reviews thescope ofthe and theoutcomes ofitsaudit. The committee onitsindependence to the and annuallyreports committee meetings by invitation Corporations Act. BDOattends five years inaccordance withthe every audit engagement partners Group. isBDO’s It to rotate policy auditors oftheFortescueexternal Accountants, are thecurrent independence. BDO, Chartered who demonstrate and quality Group auditors appoints external annual financialstatements. The

• • • • • throughout theyear including; effectively withShareholders to ensure that itcommunicates formal andinformal measures however, theBoard usesvarious formal communications policy, The Company doesnothave a process as well asourAboriginal Pilbara, through theNative Title with Aboriginal peopleinthe Fortescue hasastrong engagement and society. environment, the builtenvironment people, economies, thenatural for and secure opportunities to positively managechange with ourstakeholders, we align investors andthemedia. Together non-government organisations, of land, suppliers, customers, communities, traditional owners Australian andlocalgovernments, our people, Federal, Western stakeholdersinclude Our advertorials. newsletters andpublishingmedia Groups, holdingdisplays, issuing presentations to target community conversations,on-one providing communities, preferring one- professionals that are resident in engaging relations community of mechanismsthat include communicate usinganumber our stakeholdersiscritical. We and proactive engagement with this effective communication host ouractivities. To achieve welcomed by communities that corporate citizen ofchoice that is At Fortescue, we aspire to be the 4.2 Stakeholders ASX lodgements. register for of automated alerts allows interested to parties system that An emailalert Company’s website; and ASX platform orthrough the available eitherthrough the announcements that are andmedia reports production Periodic newsletters, conferences; forums and at industry and answer sessions Presentations andquestion investor representatives; investment and community briefings to the Regular and mediarelations resources; A team ofdedicated investor For personal use only and Employment Centre teams. Vocationaland Training Heritage focused on working with each part focused witheachpart onworking managemententerprise risk team is accountability. This meansthat the business unitfor management and are assigned to therelevant that allmaterial businessrisks essence,In thisapproach means whole business. management across ofrisk the approacha structured to the the Company hasdeveloped in theglobaliron ore market, As anemerging majorplayer ofthebusiness. evident inallparts ofstakeholders,expectations are growth, includingthefuture growth. The challengesofrapid Fortescue’s success andfuture isessential to and opportunity effective managementrisk of The Board believes that Methodology Management 5.1 Risk Management 5. Risk ajobintheCompany.securing assistance to Aboriginal peoplein promised to provide significant mining operations, Fortescue has exchange for theirconsent to our established across thePilbara. In Title agreements that we have inthesixNativeenshrined by Aboriginal peopleandare have beenexpressed consistently mining industry. These demands presented byopportunities the to gainagreater share ofthe demands by Aboriginal people arose becauseof This policy employment ofAboriginal people. inrelation to policy theactive The Company hasalong-standing Codes ofConduct. development of through the decision making and responsible promotes ethical Fortescue actively

• in thefollowing list: with athree tiered focus asdescribed at alllevels ofthebusiness activity which aligns management risk evaluated. The RMPsetsaframework isidentifiedcontrol and activity context withinwhich and structure addition, thestandards provide the In evaluation andrating ofrisk. approach to theidentification, are thekeydrivers for aconsistent comprised ofsixstandards which The RMPisaGroup wideframework theseactivities. Group undertakes withinwhichthe the structure CommitteeManagement provides (RMP) approved by theAudit &Risk Programme Management The Risk tolerable levels. maintain within businessrisks are drivenactions by adesire to ofthebusiness. in eachpart These achieve identified key objectives are driven by what isrequired to development ofmitigating controls profile. Assessmentrisk and of facilitate awholeofbusinessrisk across theentire organisation to andto their risks align efforts identify, assessandbetter manage of thebusinessto assistthemto • • conditions. business asusual impact extreme events whichmay inthefaceobjectives of capable ofachievingcritical a resilient businessthat is Building andmaintaining and andcommunity; heritage and safety, theenvironment, Group’s obligations for health business that meetsthe asustainable Maintaining objectives; developmental andcorporate strategic, operational, Achievement oftheGroup’s management at Fortescue are: The two keyforums for risk Shareholders and protecting assets. with theaimofenhancingvalue to mitigate material businessrisks systems isto identify, assessand andinternalstructure control managementrisk governance focus oftheGroup’sThe primary Governance Management 5.2 Risk residual to risk acceptable levels. drives down management activity arerisks owned andthat risk ensure that allmaterial business withineachbusinessunittoof risk RMSG alsooversees management responsibility to theRMSG. The of theplanandhasareporting isresponsible Risk for delivery by theARMC. The Group Manager such planbeingapproved annually Function,of theEnterprise Risk focus for theRMSGiswork plan Executives inthebusiness. Akey is comprised ofthemostsenior and RMSG hasitsown Charter requirements oftheARMC. including compliance withthe across thebusiness, activity risk management forum for considering The RMSGisthekeyExecutive management. its responsibilities for enterprise risk Governance Statement, including inthisCorporateexplained earlier CommitteeManagement hasbeen The role oftheAudit &Risk Group (RMSG). 2. Steering Management The Risk Committee and (ARMC); 1. The Audit Management &Risk 31 31 FORTESCUE METALS GROUP ANNUAL REPORT 2011 32 32 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only providing the support forproviding theCEO thesupport environment. additionto In key elements ofthecontrol are broad andconsider the The Executive declarations 2001. Act 295(A)Section oftheCorporations pursuant to ASXPrinciple 7and and theChiefFinancial Officer Board by theChiefExecutive Officer to the thecertifications to support senior Executives inthebusiness requires declarations from themost at Executive level. The process processcertification isundertaken 2001,anextensiveAct annual 295(A)section oftheCorporations “Recognise andmanagerisk” and requirements ofASXPrinciple 7 accordanceIn withthe Declarations 5.3 Annual Executive are aware ofthe code. and contractors undertheircontrol required to ensure that employees Executives are aware that theyare on theCompany’s website. needs. Eachcode canbeaccessed employees to suittheirparticular separately for theDirectors andthe separate Codes tailored ofConduct of Codes ofConduct. There are through thedevelopmentmaking ethical andresponsible decision Fortescue promotes actively Conduct 6.1 Employee Code of Business 6. Conduct of year ended30June 2011. annual financialstatements for the consideration andapproval ofthe were received by theBoard to prior by theCEOandCFO certifications 295(A) Corporations 2001 Act The ASXPrinciple 7andSection completed. by theCommittee are until actions through thisprocess are monitored Improvement identified actions for improvement.opportunities environment where there are identifying areas ofthe control uses thisprocess asameansof Committee, Management & Risk above, theBoard, through theAudit asnoted and CFOcertifications

• • Rule 3.1,including: Corporations andASXListing Act 674ofthe pursuant to Section setsoutthelegalposition policy which theGroup operates. The environmentthe statutory within requirementsreporting including provides abroad of the overview Company’s website. The policy copy ofwhichisavailable onthe Continuous Disclosure Policy, a the Group hasestablisheda timely basis. For thispurpose to theGroup’s ona activities material information inrelation stakeholders fullyinformed of Shareholders and other ofkeeping the importance The Board understands 7. Market Disclosures or are associated withFortescue. bysecurities peoplewhowork for, ondealingin out therestrictions other relevant laws andalsosets of thelaw oninsidertrading and summary setsoutabrief The policy trading periods. recommendation ofthepreferred containing a with thepolicy insidertradingnormal restrictions other employees to are the subject periods.set around All reporting non-trading whichare periods withregardpolicy to explicit are required to comply withthe as designated personsandthey peopleare identified certain policy shares oftheCompany. Underthe and employees whentrading in for Directors outlines thepolicy Securities Trading Policy which The Board hasestablisheda TradingSecurities 6.2 follow up. for appointed independent party and automatically referred to an arereported treated seriously Policy andhotlineallmatters the Group operates a Whistleblower additionto CodesIn ofConduct, Company. before theycommence withthe requirements ofthecode inwriting to readthe andacknowledge New employees are required The type ofinformationThe type that Issues andtests for materiality;

quarterly production results, production the quarterly yearly financial statements, the ASX,investor briefings, half Copies ofannouncements to information. of theinvestment with community or provide andmembers journalists comments onbehalfoftheGroup are to authorised issue public the CEOortheirdelegated person/s presentations, onlytheChairman, at orpublic media briefings With regard to general disclosures • • • and Recommendations. Corporate Governance Principles Fortescue complies withtheASX Corporate Governance Statement, disclosed inthis Unless otherwise Standards Corporate Governance 8. Compliance with www.fmgl.com.au. Company’s website at: information are posted to the andother relevant Annual Report meeting. sincethe period thelastBoard all disclosures madeduring The role oftheBoard to review obligations; and continuous disclosure decision makerfor Fortescue’s The role oftheCEOasultimate officer; nominated reporting of theCompany andits information to theattention The process for bringing such needs to bedisclosed;

FINANCIAL REPORT

As at 19 August 2011

Contents

34 Directors’ Report 33 44 Remuneration Report 63 Auditor’s Independence Declaration 64 Financial Statements 120 Directors’ Declaration 121 Independent Auditor’s Report to the Members ANNUAL REPORT 2011 ANNUAL

FORTESCUE METALS GROUP FORTESCUE METALS For personal use only use personal For 33 34 34 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only IanCummingMr Graeme Rowley Mr KenAmbrechtMr RussellScrimshaw Mr AndrewMr Forrest Elliott Herb Mr Non-Executive were inoffice stated). forthe entire unlessotherwise period The Directors oftheCompany inoffice thefinancial during yearand untilthe areasdate ofthis follows report (Directors Directors Group). (the Company orFortescue) andtheentities that itcontrolled thefinancial during year (theGroup orthe Fortescue Your ontheFortescue Directors consolidated submittheirreport group, consisting ofFortescue Group Metals Limited Former inlast3years directorships (ASX listed entities): since July2007)and Trustee oftheSASResources Trust since July2011. current (ASXOther directorships listed entities): andthe Medal Centenary Western Australian Governor’s Award for Citizen ofthe Year for Regional Development. and haswonin theminingsector multiple globalfinance awards as well asMedal, The Australian Sports The Australian Australian Employment Covenant, Generation OneandAustralian Children’s Trust. Forrest Mr hasextensive experience andEnergyof Minerals andPresident ofAthletics Australia. Hehasalsofounded beingthe anumberofcharities Financeinclude Director oftheAustralian Export andInsurance Corporation, Director ofthe West Australian Chamber Resources Joint of Minara Limited, Murrin oftheMurrin and Chairman Venture. Non-Executive roles previously held andMetallurgy.Mining previous His executive roles includefounder, Chief Executive Chairman Deputy and Officer ProfessorHe isanAdjunct University andalongstandingFellow oftheChinaSouthern oftheAustralian of Institute largeststatus globaliron asthefourth ore exporter. Since theinception ofFortescue Forrest in2003, Mr ledthecompany to itscurrent capitalisation $19billionmarket and initiatives, Generation Oneand The Australian Employment Covenant. also Non-Executive of Poseidon Chairman Limited andtheAustralian Nickel Children’s Trust that operates, amongother ForrestMr isthefounder, andamemberoftheCompany’s Chairman Remuneration andNomination Committee. Heis Experience inJuly2011.Hewas appointed Non-Executiveand was appointed Chairman-elect on18August Chairman 2011. ForrestMr was founding Executive oftheCompany Chairman in2003,thenappointed ChiefExecutive in2005 Officer Term ofOffice AndrewMr Forrest (Chairman, Non-Executive Director) Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): University of oftheQueensland President ElliottisaDoctor Mr America. ofPUMATechnology. North ElliottwasCommission. alsoaDirector ofthe Mr World OlympiansAssociation. Previous executive roles include Committee, aCommissioner oftheAustralian Broadcasting oftheAustralian Chairman Commission andDeputy Sport former Director ofAnsell Ltd andPacificDunlop Ltd.Inaugural oftheNational Chairman He was the Australia Day until heresigned from of thecommittee ElliotthasbeenChairman inJune2011.Mr Foundation Ltd andisa ElliottisamemberoftheRemuneration andNomination Committee.Mr Hewas amemberoftheAudit Committee Experience and Lead Director. Independent inMarchand Chairman 2007.Heretired on18August asChairman 2011andremains Chairman ontheBoard asDeputy Elliottwas appointedMr asaNon-Executive inMay Director 2005 oftheCompanyChairman 2003,Deputy inOctober Term ofOffice HerbElliottAC,Mr Chairman, Lead MBE(Deputy Director) Independent Information onDirectors DIRECTORS’ REPORT

Dr Geoff Raby -appointed Dr Geoff 18 August 2011 Barnaba Mark Mr LiXiaoweiMr Dr IanBurston -retired 18August 2011 Hegarty Owen Mr Brayshaw Geoff Mr

Poseidon Limited (Chairman Nickel andNon-Executive Director None.

None. None.

For personal use only Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): Cumming1970. Mr isalsoamember oftheRemuneration andNomination Committee. received hisBAdegree inZoology in Business School in1962andhisMBAfrom from Harvard theUniversity ofKansas and theUnited Nations GlobalSummitfor SustainableDevelopment ofSmallIsland Developing States. Cumming Mr Board ofRegents, theBoard ofDirectors ofBallet West, theBoard ofDean’s Advisors for BusinessSchool theHarvard involvement hasincluded membershipontheNational Board ofGovernors of The Nature Conservancy, State theUtah asevidencedis committed by hisleadershiproles to service community inlocalandnational organisations. His Corporation andJefferiesBoard onthe GroupInc and hepreviously of Americredit served Corp.Mr Cumming New York baseddiversified company with extensive interests.Mr Cummingisalsoadirector ofSkyWestInc, HomeFed oftheBoard asaDirector Cumming andChairman ofLeucadiaSince June1978,Mr hasserved National Corporation, a Experience CummingMr was appointed asaNon-Executive Director inAugust 2009. Term ofOffice IanCummingMr (Non-Executive Director) Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): the uniquePilbara environment. extensive experience inoperational management ofbothiron ore haulrailway shiploadingfacilitiesandheavy within Council. Rowley iscurrentlyAdvisory oftheNational Mr Chairman Centre for Excellence Rowley has inDesalination.Mr Commission, theCouncil for the West Pilbara College of TAFE andthe Western Australian State Government’s Technical Rowley’sDiamonds. Mr previous directorships have includedtheDampierPort Authority, thePilbara Development Rowley was anexecutiveMr withRio Tinto plcandpreviously heldseniorpositionswithHamersleyIronandArgyle Experience Fortescue, Rowley becameaNon-Executive Mr Director oftheCompany inMarch 2010. Rowley was appointedMr asanExecutive Director inMay 2003.Following hisretirement from executive dutieswith Term ofOffice Graeme RowleyMr AM (Non-Executive Director) Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): Canada following a25year career at Lehman Brothers inNew York division. asManagingDirector ofthecapitalmarkets Petroleumof Dominion Limited, ManagingDirector at First Albany Capital andManagingDirector oftheRoyal Bankof Financialof American Ambrecht Brands Inc.Mr Corporation was andSpectrum previously Inc aNon-Executive Director Committee. HeisthePrincipal ofKCA Associates, andaNon-Executive firm afinancial Director consulting andadvisory AmbrechtMr isamemberoftheAuditCommittee Management andRisk andtheRemuneration andNomination Experience AmbrechtMr was appointed asaNon-Executive 2003. Director inOctober Term ofOffice KenMr Ambrecht (Non-Executive Director) Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): previously heldseniorexecutive positionswithintheCommonwealth BankofAustralia, Optus, Alcatel, IBMandAmdahl USA. Plc. isanAssociate Scrimshaw oftheAustralian ofCertified Mr Practising Member Accountants. Society Scrimshaw Mr Executive Director Company ofCleveland Mining Limited andNon-Executive Minerals Director ofUKAIM-listedSirius Telecom Foundation NewZealand Institute Australia Limited, Pty theGarvan andAthletics Australia. HeisaNon- isaformer Scrimshaw boardMr memberofCommonwealth Properties Limited, EDSAustralia,Limited, Mobilesoft Experience Non-Executive Director oftheCompany on1July2011. Director inJune2005.Following hisretirement from executive dutieswithFortescue, Mr. againbecamea Scrimshaw was Scrimshaw appointedMr asaNon-Executive Director oftheCompany 2003andbecameanExecutive inOctober Term ofOffice RussellScrimshaw (Non-ExecutiveMr Director) DIRECTORS’ REPORT

Cleveland Mining CompanyCleveland Mining Limited. None. None. None.

None. None. None. None.

35 35 FORTESCUE METALS GROUP ANNUAL REPORT 2011 36 36 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Mr Owen Hegarty (Non-Executive Owen Hegarty Director) Mr Term ofOffice Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): Poseidon Limited. Nickel of anAboriginal Corporation. Brayshaw Mr isalsoaNon-Executive of theAudit Director andChairman Committee of Board memberoftheSmallBusinessDevelopment Corporation andwas formerly ofa theChairman Trustee Company Accountantsof Chartered Director andAudit in2002,Independent Committee ofAVEA Chairman Insurance Limited, has heldanumberofpositionsincommerce andwithprofessional bodiesincludingNational President oftheInstitute BrayshawMr withalarge international was accounting formerly anauditpartner until firm he retired inJune2005.He Experience July 2007. BrayshawMr was appointed asaNon-Executive oftheAuditCommittee Director Management andChairman &Risk in Term ofOffice Brayshaw Geoff Mr AM (Non-ExecutiveDirector) 2009 to August 2010)andCondor Limited (Non-Executive Nickel Director from March 2010to August 2010). Limited (fromImdex November Limited 2009),Carrick (Non-Executive 2000to October Director from November August 2008),Auvex Resources Limited (Chairman andNon-Executive 2009to September2009), Director from January Former inlast3years directorships (ASX listed entities): ResourcesJuly 2007),Mincor NL(Non-Executive 2003). Director since January current (ASXOther directorships listed entities): the Year in1992. Dr Burston was awarded theOrder ofAustralia (General Division)in1993andwas elected Western Australian Citizen of Previously heworked for ofRio Group theCRA (now part Tinto plc) for 22years invariousseniorexecutive positions. Aurora LimitedPty Limited. Gold andPortman Limited Kalgoorlie andChief Executive Mines Consolidated of Officer Corporation. Mining Formerly,of Kanzai Limited, DrBurston heldpositionsasManagingDirector ofHamersleyIronPty Limited between June2003andFebruary 2006.DrBurston oftheBroome istheChairman PortandaDirector Authority asExecutive 2003andserved andChiefExecutiveResources Aztec Resources Chairman NLsince of January Officer HoldingsLimited since July2007.HehasalsobeenaNon-Executive andDirector ofNRW Chairman Director ofMincor May 2007to August 2008.DrBurston was Non-Executive Limited from ofImdex Chairman 2000to 2009andhasbeen Executive Resources Limited ofCape from Chairman Lambert June2006to May 2007andExecutive from Chairman Dr Burston hasmore than30years ofexperience in Western Australian andinternational mining. Hewas theNon- Experience 18 August 2011. Dr Burston was appointed asaNon-Executive 2008andretired Director on13October asaNon-Executive Director on Term ofOffice IanBurstonDr AM (Non-Executive Director) LimitedOz (resigned Minerals asNon-Executive Director inDecember 2008). Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): based miningcompany. HallofFameMining of isalsoChairman Foundation. Limited, Hegarty Tigers Pty aprivate Mr Minerals Realm Melbourne the AusIMM, Australian amemberoftheSouth andPetroleum Minerals Group, Expert andaDirector ofthe WA based Executive Vice Group Limited, ofCSTMining Chairman alsoaHongKonglisted miningcompany. HeisaDirector of isExecutive Hegarty Vice ofHongKonglisted Chairman GResources Group Limited, agoldminingcompany and in2006andtheG.J. Medal Institute Award Stokes Memorial in2008for hisachievements intheminingindustry. Mr multi-billion dollar, baseandprecious metalsexplorer, developer andproducer. was awarded theAusIMM Hegarty Mr the founder andCEOofOxiana Limited (now Limited) Oz whichgrew Minerals from asmallexploration company to a was ManagingDirector ofRio Tinto Asia andalsoManagingDirector oftheAustralian copper andgoldbusiness. Hewas hasover 40years experience in theglobalminingindustry, Hegarty Mr including25years withRio Tinto plcwhere he Experience was appointed asaNon-Executive 2008. Hegarty Director in October Mr DIRECTORS’ REPORT Poseidon Limited (Non-Executive Nickel Director since February 2008). NRW HoldingsLimited (Chairman andNon-ExecutiveNRW Director since None.

None. Resources LimitedCape (between July2006and Lambert Limited RiverGold (from July1994toRange June2010),

For personal use only of DFAT’s Audit Committee asan andserved at theAustralian 1986and1991hewasBetween HeadoftheEconomic Section Embassy, Beijing. HehasbeentheChair (2003-2005), HeadofDFAT’s of Office Trade Negotiations andHeadofthe Trade IssuesDivision attheOECD, Policy Paris. trade, having beenAustralia’s Ambassador to the World Trade Organisation (1998-2001),Australia’s APECAmbassador ofForeign intheDepartment Secretary Affairs and Trade(DFAT). Hehas extensive experience ininternational affairsand Raby was Dr Geoff Australia’s Ambassador to the People’sRepublic ofChina(2007-2011). Prior to that, heDeputy was a Experience was appointedDr Raby asaNon-Executive Director on18August 2011. Term ofOffice Raby (Non-Executive Geoff Dr Director) current (ASXOther directorships listed entities): and in2009was therecipient ofthe Western Australian Citizen ofthe Year AwardandCommerce. inIndustry WA BusinessNews award for themostoutstandingbusinessleaderinState of Western Australia underthe age of40 1988, graduating asaBakerScholar. withahighdistinction was Barnaba thejoint winneroftheinaugural 2002,Mr In forUniversity Medal top graduate, university wide. Hethenwent andreceived BusinessSchool onto Harvard anMBAin Commerce withfirstclasshonoursfrom theUniversity of Western Australia in1985and was awarded the JA Wood Committee.Football received Barnaba Selection Scholarship Mr ClubandamemberoftheRhodes hisBachelorof of co-founder andExecutive Capital ofAzure andwas Chairman aNon-Executive ofthe Chairman West Coast Eagles The Zone Editorial Committee withtheUniversity of Western Australia. Until recently, heldtheposition Barnaba Mr Professor asanAdjunct Business School. Healsoserves inInvestmentandFinance Banking andasamemberoftheIn Power, Edgeemployment Employment (adisability organisation), Solutions andtheUniversity of Western Australia isaNon-Executive Barnaba Mr Director ofAdept Solutions. Hecurrently with holdsthepositionofChairman Western Experience August 2011. Committee was Barnaba appointed oftheRemuneration Chairman andNomination inJune2011.Mr Committee on18 was Barnaba appointed asaNon-ExecutiveMr Director inFebruary 2010andjoinedtheAudit Management andRisk Term ofOffice (Non-Executive Barnaba Mark Mr Director) Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): of Valin Iron&Steel Group. and Steel Co ofHunanProvincial Limited, GeneralManager Deputy Metallurgy Enterprises Group andGeneralManager Graduate oftheChineseAcademy School Sciences. ofSocial as Hehaspreviously served Vice ofLianyuan Chairman Iron University ofEconomics andLaw, specialisinginBusinessEnterprise Management, andalsoholdsanMA from the of Hunan Valin since 1999and Vice President ofChinaIron&Steel Xiaowei Association. Mr isagraduate ofZhongnan Co Limited’s (Hunan Valin) shares for subscription inFortescue ordinary on25February 2009.HehasbeenChairman XiaoweiMr joinedtheBoard asaNon-Executive Director on12June2009following Hunan Valin IronandSteel Group Experience XiaoweiMr was appointed asaNon-Executive Director inJune2009. Term ofOffice LiXiaoweiMr (Non-Executive Director) Former inlast3years directorships (ASX listed entities): July 2011. current (ASXOther directorships listed entities): Insurance Corporation). Former inlast3years directorships (ASX listed entities): DIRECTORS’ REPORT

ex officio None. OceanaGold CorporationOceanaGold andSmartTrans HoldingsLimited since Adept (Non-Executive Solutions Director since July2011). member of the Boards of Austrade and EFIC (Export Finance memberoftheBoards ofAustrade andEFIC(Export and

None. None. None.

37 37 FORTESCUE METALS GROUP ANNUAL REPORT 2011 38 38 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Mr Mr Thomas was appointed Company inJune2010. Secretary Term ofOffice ThomasMark Mr The following peopleheldthepositionofCompany at theendoffinancial year. Secretary Company Secretaries * - Not a member oftherelevant* -Notamember committee. ofmeetingsheldduringthetimedirectorB -Number heldoffice or ofthe wasamember committee duringthe year. ofmeetingsattended.A -Number 30 June2011,andthenumbersofmeetingsattended by eachdirector were: The numberofmeetingsthecompany’s board ofdirectors andofeachboard committee theyear heldduring ended Directors’ Meetings Agricultural Economics from ofAustralia. theUniversity ofNewEnglandandaDiplomafromInstitute theSecurities Australia Limited andbefore withState that Manager was aSenior BankNSWLimited. Campbell holdsaBachelorof Mr Prior to hisappointment asCompany Secretary, Campbell was State Mr Manager Western Australia for RaboBank Experience Campbell was appointedMr Company inNovember 2004. Secretary Term ofOffice Campbell Rod Mr Administration andisaCertified Practising Accountant. the University of Western Australia, Graduate DiplomainApplied Corporate Governance, aMastersofBusiness administration intheminingandprofessional industries. Mr services Thomas hasaBachelorofCommerce from a numberofprofessional providers. service Hehasextensive experience inaccounting andfinance, ITandbusiness industries, Mr services Thomas hasalsoheldseniorfinanceGoldfields positionswiththe Australia Group andwith Finance andITthenGroup Finance. Manager With more than15years experience intheminingandprofessional Mr Thomas joinedFortescue 2004intherole inApril ofGroup Financial Controller andwent onto become Headof Experience DIRECTORS’ REPORT M Barnaba I Cumming L Xiaowei I Burston O Hegarty G Brayshaw G Rowley K Ambrecht R Scrimshaw A Forrest H Elliott Director Board meetings A 5 5 6 6 6 6 6 4 1 4 4 B 6 6 6 6 6 6 6 6 6 6 6 A 3 5 5 5 * * * * * * * Audit Committee Meetings B 5 5 5 5 * * * * * * * Remuneration A 1 3 4 3 4

* * * * * B 4 4 4 4 4 * * * * * * For personal use only DIRECTORS’ REPORT 155mtpa expansion program capital expenditure to andnecessary sustain existing infrastructure. $1,480.9 millionintheyear ended30June2011, anincrease of $916.7millionwhichisconsistent withFortescue’s Net cashoutflow from investing increased from activities $564.2millioninthe year ended30June2010 to continued strong andhigheraverage operating performance iron ore prices. operations before interest increased by $1,484.0millionto $2,778.2millionintheyear a ended30June2011reflecting Cash andcash equivalents increased by $1,427.2millionto $2,662.7millionat 30June2011.Netcashinflow from refinancing of Fortescue’s seniorsecured 2010. notesOctober in of theseniorsecured fees notes of$668.4millionandbridging facility andinterest of$30.9millionfollowing onthe net finance expenses of$375.3millionintheprior year. This increase driven isprimarily by apremium on redemption Total refinancing costs andnetfinance expenses were $1,148.9million forthe year ended30June2011 compared to thelargely Australianimpacting dollardenominated cost ofproduction. the total material moved ratio) (strip andthecontinued appreciation oftheAustralian dollaragainsttheUS Cost ofsalesincreased by 30percent to $2,757.6millionfor thefullyear. costs pertonne Higher were driven by dueto prices. highercommodity ended 30June2011primarily Operating salesrevenue increased from $3,220.1millionfor theyear ended30June2010to $5,442.1millionfor theyear year.the prior Fortescue recorded aprofit tax after for the year ended30June2011of$1,022.6million compared to $580.9millionin Production andshipments for thefinancial year were as follows ona wet metric tonne basis; resulted inincreased rate withanannualisedproduction production of55mtpa achieved inthemonth ofJune. acrossstrong theintegrated performance the12months supplychainduring to 30June2011has mine, rail andport significantlyThe was impacted operational by performance and weather events inJanuary February. Nonetheless, a comparable withsomeofthebestinindustry. that Fortescuein maturity hasbeenableto accomplish over thelasttwo years. With aclosingCIFRof7.7,Fortescue is year. infocus,The shift firstfrom and losttimeinjuries to classifiedinjuries now to recordable injuries, theshifts reflects a strongly improved Rate overall Injury Frequency (CIFR) improving safety withtheClassified performance, 25% year on programs.Management combination In withagreater emphasisonfieldleadership, hasonce againdeliveredFortescue determination to achieve zero through harm continued implementation Hazards ofourMajor andContractor maintenance accident at Cloudbreak mineon24December 2010. This tragic outcome hasreinforced theCompany’s acommitted insafety management,Notwithstanding effort Paul Torre was fatally injured inamobileequipment Review ofoperations No significant changesinthenature of oftheactivities occurred the during Fortescue year. current miningsites. continues anexploration andmetallurgical program whichisprogressively developing tenement areas outsideofthe andrail infrastructure to increase fromhubs andexpand production theport 55mtpa to 155mtpa. Fortescue also programsubsequently commenced to an$8,400.0millionexpansionary develop theChichestermining andSolomon operation ofanintegrated theyear supplychain.During Fortescue mine, received rail andport Board approval and ofFortescue istheminingofironThe activity ore principal from itsCloudbreak Creek andChristmas minesites andthe Principal activities Ore shipped (including third party product) Ore shipped(including third party Ore processed Overburden removed Ore mined 162,257,272 40,896,035 40,619,852 44,157,628 Tonnes 2011

113,861,580 40,093,093 38,418,568 41,255,407 Tonnes 2010

Increase

+42% +2% +6% +7%

39 39 FORTESCUE METALS GROUP ANNUAL REPORT 2011 40 40 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Port Hedland, are beingprogressed. additionHematiteIn projects, optionsfor Star Magnetite from deposit, thedevelopment located 90km oftheNorth (ChichesterNyidinghu Hub) andFlying Fish Hub). /Eliwana (Western the benefitsandimplications developmentfor theinclusionofearliest ofthe recently announcedResource for Huband the developmentthe Solomon of new minesaround therail head. The studieshave beenupdated to include Feasibility at Anketell/Dixon facility studywork rail continues linefrom Island, onthenewmulti-userport anew 250km developmentsOther on schedulefor completion to enable train operations to Hubinlate theSolomon 2012. wagons andlocomotives iswell progressed of track requirements withthemajority accounted for. The remains project inboththeseareasconstruction andat variouscampswell underway. The procurement strategy for rail, sleepers, Approvals to spurwere commence onboththemainline andSolomon construction received inJune2011with Rail to commence theSeptember2011quarter. during unloaders. dredging Initial at South West Creek hassuccessfullydredging beencompleted work isexpected andfurther the large scaleequipment requirements suchasstackersandreclaimers, associated andnewtrain earthworks areacontractors mobilisedtoto accommodate site. withintheport Significant has beenundertaken work construction Four systemmooring at Berth to improve shipefficiency. Anumberofmajor contracts have been awarded and The expansion at ElliottPort remains Five Herb onschedulewithplanchangesto defer Berth andincludeanautomated Port plans.the mineandproduction contractorphase ofearly involvement andresource andmetallurgical definitiondrilling sampling continue to support The majorcontracts (OPF, overland conveyors, stockyard, are crushinghub, progressing campsand airport) into thefinal over providescommunity thecommencement certainty andsubsequent mininginthisarea. ofconstruction the Hub. Afavourable rulingfrom theNative Title Tribunal inrelation to ongoingnegotiations withthe Yindjibarndi andenvironmentHeritage approvals continue to beachieved onscheduleallowing access to at begin construction Hub Solomon the June2011quarter. continues construction onsiteEarly withroads, andaccommodation bulkearthworks commenced construction during Creek was awarded bringing firm commitments for thisproject to approximately 60 per cent ofthe scope.total project conveyor system. Additionally, adesign, buildandoperate contract for theexpansion ofthepower station at Christmas the design, buildandoperation ofthesecond Creek Christmas OPF, together witharemote crushinghubandoverland The second Creek stageoftheChristmas expansion isprogressing onschedulewithsignificant contracts awarded for Christmas Creek -Phase 2Expansion New Projects 55-155mtpa oforefirst production from thenewly prior commissioned OPFalloccurring to30June2011. CreekExpansion oftheChristmas mineprogressed firsttrain loadingand well oftherail withtheextension network, Chichester Hub40–55mtpa Expansion $600.0 millionunsecured syndicated was successfully bankfacility establishedinJune2011. remainsThis facility undrawn. ofthefundingfor theexpansion. $1,500.0 millioninDecember 2010aspart To a provide andsupport additionalliquidity Fortescue hascommenced the T155 expansion program to increase from production 55mtpa to 155mtpa andraised whichhadnotpreviously beenpossible.notes allowing opportunities Fortescue to pursueexpansionary To thisextent, unsecured notes. This refinancing removed the covenantsrestrictive which existed undertheoriginal seniorsecured theyearDuring Fortescue successfully refinanced itsseniorsecured notes through theissueof$2,040.0millioninsenior Refinancing Australian cents pershare, payable on30September2011. On 19August 2011 theDirectors declared afinalfullyfranked dividend for the year ended30June2011of four was paid on31March 2011. The Directors announced thedeclaration oftheCompany’s maidendividend ofthree Australian cents pershare which Dividends DIRECTORS’ REPORT For personal use only Greenhouse gasandenergy requirements date reporting The 2010Annual Environmental was submitted inJuly2011. report andPetroleum. ofMines ofEnvironmental andtheDepartment the Department andConservation of various regulating includingtheDepartment authorities Water, ofthe theOffice Environmental Protection Authority, The Fortescue group annually onitsenvironmental andcompliance reports to through performance ahostofreports Environmental monitoring requirements performance improve environmental are documented performance andimplemented through acontinuous improvement process. regularThe auditsto internal Grouptest andexternal ourstandards alsoundertakes andprocedures. to Opportunities andPetroleum ofMines (DMP)acombinedand theDepartment total offour theyear. timesduring The Group’s operations haveofEnvironment andaudited by beeninspected (DEC), theDepartment andConservation the Annual Environmental Report. environmental obligations andcommitments. The Company’s environmental requirement performance in isreported has keptpace withourexpansion at thesesites to ensure that Fortescue continues to operate inaccordance withits The Group’s operations continue to expand at allsites. We have responded by ourenvironmental ensuring monitoring Act 1978 Mining approvals, includingtheprovisions ofspecificstate agreements the andacts, The Fortescue Group’s are exploration, governed activities mining, by arange rail ofenvironmental andport regulatory Environmental regulation ofthistax. estimate oftheimpact position ofFortescue. Accordingly, Fortescue’s financialstatements for the year ended30June2011donotincludean introduced into Parliament, whichthetaxwill difficulthave tofullyunderstandtheimpact onthefinancial itisvery ofthelegislation are 17significant Given parts yet thatto be afurther released for consideration before being developed regime isnotpassedinto law. andwillconsider allpossiblealternativesthe introduction oftheMRRT to ensure that thisillconceived andhastily The Federal government ispursuinga1July2012commencement for regime. theMRRT Fortescue strongly opposes MRRT place to record andmaintain compliance withitsenvironmental obligations andcommitments. regulatory Fortescue isprogressing withitsimprovement planto ensure that suitable environmental management systems are in miningequipment, powerinclude ourmobilesurface stations andour locomotives. Diesel combustion isthelargest source ofgreenhouse gasemissionsat Fortescue. sources ofdieseluse The primary ofthisAnnualpresented Report. section intheSustainability public greenhouse gasandenergy data isconsistent, accurate andcomparative. The results ofthissubmissionare related to the2009/10financial year. The Group will usingfinancialcontinue yearperiods toensureto thatreport its greenhouse gasemissionsandenergy across useandproduction allofitsoperations. The 2010NGERsubmission submissions independently audited andverified. The Group is Scoperequired itsannual1and2 to report Fortescue continues underthe to report Act). The Fortescue requirements to Group thepublicreporting issubject ofthe DIRECTORS’ REPORT These requirements relate to the2010financial year and Decemberwere in 2010. reported andthe Rights inWaterRights andIrrigationAct 1914. National Greenhouse and Energy Reporting (NGER)Act 2007 National Greenhouse andEnergy Reporting Energy Efficient Opportunities Act 2006(EEO Opportunities Energy Efficient Environmental Protection Act 1986, andhave its the 41 41 FORTESCUE METALS GROUP ANNUAL REPORT 2011 42 42 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only follows (there were no amounts unpaidontheshares issued): orsince theendoffinancial During year, the sharescompany asa issuedordinary result ofthe exercise of optionsas Shares issuedonexercise ofoptions share issueofthe Company orany otherbodycorporate. ofFortescueconditional shares. upontheperformance These inany optionsdonotentitle theholderto participate requirementthe options. addition,theDirectors have In imposedfurther that theexercise optionsis price ofcertain asanemployee specifiedtimeperiods on condition that of theyserve beforeFortescue becoming entitled to exercise issued pursuant to theFortescue Group’s Metals Incentive (IOS) andhave OptionScheme beenallotted to individuals dateAll ortermination optionsexpire oftheemployee’s oftheirexpiry ontheearlier employment. These optionswere and over shares oftheCompany. theordinary The numberofoptionsonissueintheCompany atisasfollows. thedate ofthisreport All oftheseoptionsare unlisted Unissued shares underoptions as follows: the Australian Exchange Securities inaccordance with5205G(1)ofthe The relevant interest ofeachDirector intheshares andoptionsissuedby theCompany asnotified by theDirectors to Directors’ Interests DIRECTORS’ REPORT G Raby M Barnaba L Xiaowei I Burston O Hegarty I Cumming G Brayshaw K Ambrecht R Scrimshaw G Rowley A Forrest H Elliott Director Date optionsgranted Date optionsgranted 3 December 2010 3 December 2010 11 February 2009 11 February 2009 25 January 2006 25 January 13 May 2010 13 May 2010 1 June2006 20 September2015 11 February 2014 Number vestedNumber 13 May 2015 Expiry date Expiry 2,187,500 450,000 - - - Ordinary Shares Ordinary 964,848,823 19,144,951 6,303,030 7,590,055 2,167,938 Issue price ofshares A$ Issue price ofshares A$ 20,000 52,149 - - - - - Corporations Act 2001, $5.69 $5.00 $2.50 5.69 5.00 2.50 0.70 0.57 Options 600,000 Number ofsharesNumber issued upon exerciseupon ofoptions atis the date ofthisreport Number underoption Number ------Performance Rights 1,690,000 7,500,000 1,650,000 150,000 543,750 400,000 - - 122,459 20,221 ------For personal use only Non-audit services practices andnonrelatedpractices audit firms: theyearDuring thefollowing fees were paidorpayable provided for by services theauditor oftheCompany, itsrelated Corporations Act 2001 by theauditor,audit services assetoutbelow, didnotcompromise theauditor independence requirements ofthe independence for auditors imposedby the Committee, issatisfied that is theprovisioncompatible withthegeneral standard ofthenonauditservices of The Board ofDirectors hasconsidered thepositionand, inaccordance withadvice received from theAudit &Risk provided theyear during audit services are setoutbelow. oftheamountsDetails paidorpayable to theauditor BDOAudit (WA) Ltd andrelated Pty entities for auditandnon auditor’s andexperience withFortescue isimportant. expertise The Company may decideto employ theauditor onassignments auditdutieswhere additionalto the theirstatutory other liabilities. alsopreclude Conditions disclosure oftheamount paidfor ofthepolicy to third thepolicy. parties thepremium between amounts relatingpossible to apportion to theinsurance againstlegalcosts andthoserelating to information to gainadvantage for themselves orsomeoneelseto causedetrimentto theFortescue Group. isnot It involvingconduct ortheimproper Officers awilfulbreach by oftheirpositionor theOfficers use ofduty bythe withsuch liabilities incurred in byproceedings, connection theOfficers otherthanwherearise outof suchliabilities Officers ofthe as Fortescuebrought intheircapacity Group, againsttheOfficers and anyother paymentsarising from The liabilitiesinsured are legalcosts that may beincurred indefending proceedings civilorcriminal that may be Fortescue Group. Since theendofprevious financial year, the Company haspaidpremiums Officersto insure ofthe theDirectors and andofficersDirectors indemnitiesandinsurance DIRECTORS’ REPORT Total auditors' remuneration Audit offinancialstatements Audit andotherassurance services auditfirms Other Total remuneration ofBDOAudit (WA) Ltd Pty Audit andreview Audit andotherassurance services BDO Audit (WA) Ltd Pty Audit services Agreed uponprocedures services Other assurance services Other • • Code ofEthics forProfessional Accountants. thegeneral relating undermine principles to auditornone oftheservices independence assetoutinAPES110 and oftheauditor; and objectivity impartiality have beenreviewedall nonauditservices by theAudit Committee & Risk to the ensure theydonotimpact for thefollowing reasons:

Corporations Act 2001 . The directors are satisfied that theprovision ofnon US$'000 2011 915 842 217 155 470 73 343 364 21 US$'000 2010 364 - - 43 43 FORTESCUE METALS GROUP ANNUAL REPORT 2011 44 44 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only remunerated inAustralian dollars. accurate ofthe andfairreflection remuneration of practices asallDirectors,Fortescue, Executives andemployees are Fortescue isUSdollars, itistheDirectors’ viewthat presentation ofinformation inAustralian dollarsprovides a more This remuneration hasbeenprepared report inAustralian dollars(A$). of currency andreporting Whilst thefunctional ispresentedThe underthefollowing 2011Remuneration Report sections: the Directors’ Report. hasbeenaudited ofthe asrequired 308(3C) Remuneration by Report section Corporations Act 2001 The Directors ofFortescue Group Metals Limited (theCompany orFortescue), inaccordance 300Aofthe withsection REMUNERATION REPORT Securities TradingSecurities Policy Remuneration Outcomes andKMP Directors Remuneration Strategy Remuneration Overview Section , present the Remuneration Report for, present year theRemunerationended30June2011. Report The information provided inthe securities. Guidance onacceptable indealingtheCompany’s transactions various The contract terms ofexecutives andotherkeymanagement personnel. management personnelin2011. remuneration oftheactual Details received by executives andotherkey Committee fees). components of non-executive director remuneration (suchasBoard and The namesandpositionsofnon-executive directors includingthe shareholder protection. Examples ofhow align objectives to businessgoalsandprovide long-term forIncentive objectives Plan2011. andtheperformance oftheExecutive criteria The andperformance Staff structure &Senior ofthemajorcomponentsDetails ofremuneration. the Annual Report. and otherkeymanagement personnelwhoseremuneration isdisclosedin The namesandpositionsofnon-executive directors, executive directors remunerationincluding theuseofexternal consultants. oftheBoardThe andRemuneration andNomination function Committee, What iscovered Corporations Act 2001 and forms part of andforms part Page 24 20 15 31 For personal use only The period. R&NCmetfour thereporting timesduring advise theR&NC. remuneration advisors. Subsequent to theendof2011financial year, Egan Associates have beenappointed to and are ofexternal considered period, theR&NCdidnotuseservices to beindependent.thereporting During remuneration toThe engageexternal R&NChastheauthority advisorswhodo not provide advice to management matters before theCommittee. The ChiefExecutive and others may be Officer invited to attend bythe Committee butwill Chairman, have no vote on The Board hasdetermined that from July2011membershipoftheR&NCwillbeexclusive to Non-Executive Directors. The R&NCfor financial year 2011 consisted ofthe following members: isavailableA copy undertheCorporate ofthecharter Governance oftheFortescue section website. asapprovedcharter by theBoard. includesbutisnotlimited to:The charter The Board hasestablishedaRemuneration andNomination Committeewhichoperates inaccordance (R&NC) withits The Board’s role inremuneration Remuneration Overview The current fees are outlinedinthetablebelow: number ofadditionalnon-executive directors, includingdirectors sourced internationally. previous annual aggregate capofA$1,000,000to A$2,000,000. This arose from primarily therequirement to appoint a At oftheCompany theAnnual GeneralMeeting on19November 2010,shareholders approved anincrease from the Non-executive directorremuneration REMUNERATION REPORT Finance Member Sub-Committee R&NC Member R&NC Chairman Audit Committee Member Audit Committee Chairman Non-Executive Director Board Chairman Position • • • • • • • • • • Mr Owen Hegarty (Non-Executive, Director). Hegarty Owen Independent Mr AndrewMr Forrest (Chief Executive Officer) IanCummingMr (Non-Executive director) KenAmbrechtMr (Non-Executive, Director) Independent ofCommittee ElliottasChairman Herb (Non-Executive,Mr Lead Director) Independent requirements for Board positionvacancies. managing board nomination, including determining candidate andexperience addressing criteria, skills Recruitment, retention, management, succession performance planningandtermination policies;and basedplans;and Equity Executive incentive plans; Executive director andseniormanagement remuneration; Executive remuneration policy; Fee (A$)

120,000 250,000 15,000 10,000 4,000 5,000 5,000 45 45 FORTESCUE METALS GROUP ANNUAL REPORT 2011 46 46 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only 30 June2011,theExecutives listed were theKMPandamongfive highest remunerated inthe Company. entity, orindirectly, directly includingany Director (whetherExecutiveofthat entity. orotherwise) For the year ending KMP are andresponsibility for thosepeople having authority planning, andcontrolling directing ofthe theactivities Key Management Personnel (KMP) legislation, are incorporated intheabove aggregate fees. Superannuation contributions onbehalfofDirectors, whichasaminimumcomply withsuperannuation guarantee * Chairman those companies ranked ontheASXbetween 5and25. The tablebelow setsouttheNon-executive Directors’ aggregate emoluments compared to medianfor themarket REMUNERATION REPORT W Ramsey P Meurs P Hallam S Pearce N Power Executives R Scrimshaw A Forrest Executive Directors Total L Xiaowei G Rowley O Hegarty I Cumming I Burston G Brayshaw M Barnaba K Ambrecht H Elliott Name Director Director Director Director Director Director Director Director Chairman Position Base FeeBase 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 250,000 Management Audit &Risk Committee 15,000*

5,000 5,000 5,000 Director Projects Director Development Director Operations Chief Financial Officer Chief Operating Officer Executive Director&Marketing Sales Chief Executive Officer

& Nominations Remuneration Committee 10,000* 5,000 5,000 5,000

Aggregate 1,265,000 120,000 120,000 125,000 125,000 125,000 135,000 125,000 130,000 260,000 Fees ASX market

2,507,565 median 239,744 239,744 239,744 239,744 239,744 239,744 239,744 239,774 589,583 For personal use only ownership andto motivate attract, and retain thoseemployees. the2011financial In year, an award underthisscheme Incentive (IOS) Scheme Options whilethesharesdisposal restrictions remain intheSSSP. deferred for upto seven years. As acondition ofbeingable to defer shares, theincome taxontheordinary there are the SSSP. Provided shares are ordinary keptintheSSSP, shares income taxontheacquisition canbe oftheseordinary up to eachpay amaximum ofA$5,000perannum(to bededucted inequalamounts), to acquire shares under ordinary to theconditions ofthatapplies (subject Employees Act). andexecutives may salary, nominate anamount ofpre-tax Sacrifice Share Plan (SSSP) Salary categories andweightingsperformance included: toextended employees holdingpositionsat theDirector, andGroup levels. GeneralManager Manager The ESSIP in theESSIPisby Board invitation onanannualfinancial year basis(the Plan Year) andthat invitation willusuallybe period. Participation thereporting during objectives performance the Company achievingcertain andtheparticipant ExecutiveIncentive Staff &Senior Plan (ESSIP) which prevails for similarroles inotherleadingASXcompanies. relevant taxes. The level of TFR isbasedontheExecutive’s responsibilities, experience andqualifications andthemarket Total Fixed Remuneration (TFR) The detailsbelow thevariouscomponents describe ofremuneration at Fortescue: the achievement ofCompany andgrowth performance targets andindividualobjectives. Executive remuneration hasafixed component andarisk variable at component, thepayment ofwhichisdependent on Executive remuneration structure for the50percent received inshares, by isimpacted movement intheCompany’s share price inthe relevant financial year. retains afocus ontheindividualparticipant’s position andcontribution. The participant’s incentive actual award value, focusedWhile incentive theESSIPisaperformance plan,withanemphasis onachievingkeycorporate objectives, it motivate when compared keystaffhasalessenedutility to theESSIP. istheR&NC’sIt viewthat theattractiveness ofoptionsasacore element ofmanagement reward to and assist, attract Changes to taxlaws have diminishedtheattractiveness oftheIOSas: Company’s needsat thetime. Options issuedinthesecircumstancesconditions applied, haverelevant andservice various performance to the them to the Company, where wasto periods critical theGroup’s theircontinued service orinparticular development. 48 month period. From timeto time, theBoard hasmadegrants to KMPat theirtimeofappointment inorder to attract relatedperformance conditions). Optionsare issuedfor nilconsideration andwillgenerally vest infour tranches over a which outlinesthenumberofoptions, theissuedate, exercise price andany exercise conditions (whichmay include Traditionally at thediscretion oftheBoard, offers have beenmade to eligible employees through anoffer document was madeto an Executive. REMUNERATION REPORT • • • • • • • • would beinshares and50percent would bepayable incash. For the2011Plan Year, theESSIPrequired that 50percent oftheaward ultimately received by aparticipant by theR&NC;and foreach criteria KMPisundertaken to manageronceassessment removed issubject approval under andaudit. Adetailedreview ofperformance PerformanceIndividual (50percent). Performance are criteria tailored to theindividualparticipant’s role and growth; Company Growth Performance (20percent), incorporates conversion includingreserves factors andearnings Company Annual Performance (30percent), incorporates cost includingproduction, andsafety. factors The leverage ofoptionswhentheshare price ismature ispotentially modest. expense valuethe prior oftheaward; and theeventIn that theoffer lapses,to the subject vesting conditions, the Company may notbeentitled to reverse That value istreated asanexpense by theCompany over thevesting oftheaward. andamortised period The assessed value oftheoptionsat thetimeofgrant istaxableto theindividualinthat financial year;

is madeupofbasesalary, cashallowances, employee benefits, superannuation and is designed by to eligible encourage employees participation through share

is a scheme to which Subdivision 83A-C of the Income oftheIncome is aschemeto whichSubdivision83A-C Tax Assessment 1997 Act

provides the ‘at risk’ component ofremuneration andisbasedon

47 47 FORTESCUE METALS GROUP ANNUAL REPORT 2011 48 48 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only capital inDecember 2007,whereby share was splitinto eachfullypaidordinary shares. ten fullypaidordinary *Movements have beenadjusted to provide reasonable comparative amounts inlight ofFortescue’s reorganisation of indices ofthecurrent inrespect financial year andtheprevious four financial years. considering Fortescue’sIn andbenefits for shareholder performance Boardwealth, the have regard to the following The R&NCconsiders that theabove remuneration isgenerating structure thedesired outcomes evidenced by: provide acompetitive executive remuneration platform. introducing aLong Term Incentive plan(LTI), butispresently oftheviewthat theCompany’s TFR levels andtheESSIP Term Incentive (STI)plans, have basedincentive long term equity plans. The of R&NCkeepsopentheprospect The R&NCismindfulthat otherleadingminingcompanies inAustralia, inadditionto fixed remuneration andShort REMUNERATION REPORT % Changeinshare price A$ Changeinshare price Dividends paid Net profit/(loss) -US$'000 Revenue from iron ore operations -US$'000 • • Fortescue’s record progression breaking from to project producer. retentionHigh ofemployees, KMPandotherexecutives; and 1,022,555 5,442,101 A$2.23 A$0.03 2011 54% 3,220,062 580,946 A$0.43 2010 12% - 1,830,953 A$(8.11)* 508,042 (68)% 2009 - (771,770) A$8.52* 139,294 252% 2008 - (31,860) A$2.43* 252% 2007 - - For personal use only remuneration: The diagram below explains theprocess andaccountabilities ofthevariousareas withinFortescue inrelation to setting the Company. The advice willbeprovided to directly theR&NCorto oneoftheotherNon-Executive Directors. KMP andNon-Executive Directors. The consultant willnotbepermitted to provide advice to directly management of The Company hasengagedEgan Associates to provide advice to theCompany onremuneration matters relating to Australasia, AON HewittandHayGroup purposes. andisusedfor benchmarking paid to allemployees andexecutives isrelevant andcompetitive. data issourced Market from &Company McDonald Fortescue to subscribes anumberofmarket-specific remuneration inorder surveys to ensure that the remuneration remunerationSetting levels REMUNERATION REPORT management. influence of that isfree of relating to KMP or information provide advice Committee to and Nomination Remuneration the Board or bydirectly May beengaged consultants Remuneration • • • for:Responsible Human Resources Management • • • Advises theBoard on: Remuneration andNomination Committee • • for:Responsible Board ofDirectors Nomination Committee to assistwithdecisions. Provides relevant information to theRemuneration and conditions; market changing statutory Advising theRemuneration andNomination Committee of ofremunerationImplementation policiesandpractices; Executive remuneration. Non-executive director remuneration; and Remuneration policiesandpractices; andretentionwith theattraction policiesoftheCompany. remunerationEnsuring are practices competitive andalign and theCEO; Approving theremuneration ofnon-executive directors competitive. position remains remuneration Fortescue’s KMP to ensure of in respect other than management bydirectly Will beengaged consultants Remuneration 49 49 FORTESCUE METALS GROUP ANNUAL REPORT 2011 50 50 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only The tablebelow outlinesthe to Company ensures objectives that remuneration variesinlinewiththeCompany’s thePlan during performance Year. thatagainst objectives drive shareholder 50percent value. ofakeyemployee’s Linking potential award undertheESSIP The oftheESSIPisto purpose reward keyFortescue management basedonCompany andindividualperformance The oftheESSIP structure increments to cent. 100 per The minimum amountto taken be shares willremain cent, inrightsto at50per ordinary butcan increased be cent in10per * For the2012Plan Year, to take mayelect upto cent 100per ofany ESSIPparticipants award shares. inrightsto ordinary The diagram below demonstrates how Fortescue’s remuneration align practices withitsstrategy: The remuneration strategy isbasedonthefollowing principles: program. provide competitive market remuneration and ‘at risk’ aligned reward performance intheform ofanannualincentive oftalent intheresourcesthe globalshortage sector, remain keypoints offocus oftheR&NC.Fortescue endeavours to its standingintheAustralian ranked market, inthetop listed Securities twenty companies. These circumstances and The Company isincreasingly mindfulofitsstandingastheworld’s largest iron fourth ore producer andexplorer and competitive fixed remuneration andincentives. its employees, encouraging themto meettheirfullpotential. linewiththisstrategy, In Fortescue provides market Fortescue’s remuneration strategy oriented isdesigned culture to buildaperformance retain andattract, andmotivate Remuneration Strategy REMUNERATION REPORT incentive at 30June2011. plan participation inthe2011Plan The 43participants Year represents approximately 1.5percent ofthe2,889employees eligible for General Manager LevelGeneral Manager Roles Director Level Roles Chief Operating Officer Chief Executive Officer Total Other Company andindividual ofthe to performance Remuneration linked remuneration Market competitive ownership levelsHigh ofshare Strategy • • • Individual rewardIndividual linkedto isdirectly Company andshareholder interests. performance levelsHigh ofemployee share ownership willdrive analignment ofemployee andshareholder interests; and companies; Remuneration andreward willbecompetitive intheresources andfor sector seniorroles againstleadingASX

maximum Practice • • • • • • 50% of the ESSIP is linked to the personal performance objectives oftheindividual objectives 50% oftheESSIPislinkedto thepersonalperformance measures 50% oftheESSIPislinkedto company annualandgrowth performance Remuneration levels andretain willattract keyexecutives leading ASXcompanies Executive remuneration againsttherelevant isbenchmarked sector market executives through share ownership Incentive isdesigned Options Scheme to motivate attract, andretain key 50% oftheExecutiveIncentive Staff &Senior Plan ispaidinshares* possible payment* 100% of TFR 100% of TFR 150% 60% of TFR 60% of TFR 75% achievable undertheESSIPrulesfor the2011Plan Year:

43 participants 26 participants 10 participants 5 participants 2 participants For personal use only dry metrictonne unitprice achieveddry by Fortescue Actuals onsalesofeachproduct. adjusted to includeremoval ofthe adjusted* Wherebudgethasbeen US$/A$ fortheactual exchange rate (average over theyear) CFRequivalent andtheactual ^ CIFRincludesfatalities, losttimeinjuriesandrestricted work injuries and thevalue oftheFortescue shares attimeofgranting. * Note thatthemaximum value possible ofawards determined undertheESSIPwillbe by thenumber ofobjectives achieved objective: oftheESSIPfor objectives The the2011Plan tablebelow theperformance describes Year andtheweighting for each person leaves to 30Junebutprior thepayment after date, thepersonremains eligible for any award. approval. The ESSIPaward andmadeat theperiod usualpayment during date. ispro-rated basedonservice the If managersleaving thePlanSenior during Year are noteligible to receive theESSIPaward, unlessby specificR&NC on thefollowing conditions: New seniormanagerscommencing withtheCompany aPlan during Year are intheESSIPbased eligible to participate award of20,588shares. award would be made (A$168,000 ofpotential A$210,000). This would result inacashpayment ofA$84,000 andan werethe individualobjectives completed, butonlythree ofthefive company objectives were attained, an80per cent (TFR ofA$350,000and60per cent incentive rate) usingthesamefigures and If for thesakeof example, assumingall the five dayVWAP oftheshares inclusive ofthe date theshares are granted (approved Board).by the the award shares. shares of25,735ordinary whichare Ordinary awarded underthe ESSIPhave ataxablevalue based on trading days intheapplicable Plan Year. July2010therelevant In VWAP share price was A$4.08,whichwould result in component ofA$105,000isdividedby thevolume weighted average ofFortescue price (VWAP) shares over thefirstfive experience thesameresult asaFortescue investor ofthefinancial year. at thestart share In thiscasetheordinary A$105,000 would shares. beincashandA$105,000appliedto ordinary Akeyfeature oftheESSIPisthat participants a TFR ofA$350,000anda60percent incentive rate hasapotential award theaward ofA$210,000.If was paidinfull, the 2011Plan Year, 50percent shares. willbepaidincashand50percent inordinary For with example, aparticipant are objectives assessedandtheawardperformance for eachpersonisdetermined. Whatever thelevel ofaward, for forFortescue ESSIPawards andtheindividualKMPperformance whichrelate to theyear ended30June2011. The and withfinalapproval fromBoard. the Amountsare therefore inthisreflected report of basedontheperformance The payment ofany award therelease undertheESSIPismadeinSeptemberafter oftheCompany’s audited results shareholder by preventing wastage oftheresource that andensuring budgeted financialsare met. The Company Growth are objectives Performance designed to category protect thelongterm interests ofthe revaluation oftheLeucadia note andotherabnormals. REMUNERATION REPORT Individual PerformanceIndividual Financial Physical Company Growth Performance Cost Safety Production Company Annual Performance • • Any payment will be pro-rated based on the service start date.Any payment start willbepro-rated basedontheservice The seniormanagermustbeemployed to prior inthePlan 1April Year; and 4 objectives basedonthebusinessplanat4 objectives 12.5percent each Achieve target percentage ofadjusted NPAT budget* losses) to product. Target percentage minedare ofreserves converted processing (after Target cost pertonne shipped Target Rate percentageInjury Frequency (CIFR)^ inClassified reduction Target tonnes shipped

Weighting cent) (per 10 10 10 50 10 10 51 51 FORTESCUE METALS GROUP ANNUAL REPORT 2011 52 52 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only exceeded Directors’ appropriate expectations rewards have beenmade. not fullyreceived theirincentive ofthelastfive inthemajority years. However, whenthe Company’s has performance incentive awards have notbeenmetinanumberofyears. Accordingly, seniormanagement, includingKMPs, have 50 companies, dueto ofitsannualincentive therigour program andthehurdles setby theBoard, theconditions for While theCompany over recent years hasexperienced share price growth well above theindex anditspeerASXtop The tablebelow andweightings outlines thecashstructure for undertheSIPrulesfor eachobjective the2011Plan Year: The tablebelow outlinesthemaximumpossibleawards achievable undertheSIPrulesfor the2011Plan Year: escrow from period thedate ofissue. between cashandshares. Shares are issuedat thefive dayVWAP at thetimeofissueandareto a12month subject their incentive increased by 50percent oftheawarded amount. The SIPdoesnotprovide to allocate theability To encourage share ownership, further thoseemployees to have whoelect theiraward inFortescue shares, willhave predominantly basedonCompany andbusinessunitobjectives. against annualobjectives. andSuperintendent Manager level employees have personalobjectives, buttheSIPis ESSIP, oftheSIPisto thepurpose reward Fortescue employees basedonCompany andbusinessunitperformance The SIPalsooperates undertheauspices of theR&NCandappliesto permanentFortescue employees. Similarto the TheIncentive oftheStaff structure Plan (SIP) REMUNERATION REPORT Superintendent level levelManager Employee Group Total All otheremployees Superintendent level levelManager All otheremployees Company Objectives Performance category As ESSIPAnnual per 5% 5% 5% 22.5% of TFR ifshares 30% of TFR ifshares 45% of TFR ifshares

15% of TFR ifcash 20% of TFR ifcash 30% of TFR ifcash Business Unit 3-4 objectives Objectives

10% 10% 10%

Personal Objectives 4 objectives 15% n/a 5%

2,846 participants 2,639 participants 121 participants 86 participants Total 15% 20% 30%

For personal use only PerformanceIndividual categories, shares. therightswillconvert to ordinary on theachievement of rightsto sharesThe numbersofperformance granted undertheESSIPfor the2011Plan Year are listed below. Based The tablebelow demonstrates theremuneration mixfor Fortescue’s KMPfor theyear ending30June2011: Remuneration mix of theyear ended 30June2011are listed below: Performanceand Individual categories of the ESSIP, the number of rightswhich shareswill convert to inrespect ordinary Based onthelikelyachievement intheCompany oftheobjectives Annual Performance, Company Growth Performance REMUNERATION REPORT A Forrest Executive W Ramsey P Meurs P Hallam S Pearce N Power R Scrimshaw A Forrest Executive W Ramsey (ineligible) W Ramsey P Meurs P Hallam S Pearce N Power R Scrimshaw Percentage of total reward . . 100% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 % Andrew Forrest 40% 60%

all the objectives intheCompany theobjectives Annual Performance, Company Growth Performance and Scrimshaw Performance to Rights convert shares Russell 45% 44% 11% Performance Issued Rights Neville Power 40% 60%

Fixe 122,550 122,550 122,550 123,627 122,550 Stephen d Pearce 55,148 20,221 85,784 78,125 85,784 86,538 85,784 14,154 50% 50% S T I

0 L T I

Hallam Paul 45% 44% 11%

Meurs Peter 13% 13% 74%

1 2 Ramsey William 23% 77%

53 53 FORTESCUE METALS GROUP ANNUAL REPORT 2011 54 54 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only ESSIP share value relates to aproject completion incentive madeto Mr. Ramsey inMay2011. 7 6 contribution towards thisusage. 5 endingon30June2010wasfour monthperiod madeinthe2011Financial year. 4 interest rate fortheterm oftheoption. price oftheunderlyingshare, volatility ofadditionalmarket theeffect conditions, dividendyieldandtheriskfree theexpected takes into account theexercise price, ofdilution,theshare theterm oftheoption,impact price atgrant date andexpected 3 1 July2011(A$6.44). the firstfive trading daysofthe Plan Year (A$4.08) multiplied bythe five day VWAPofFortescue shares up toandinclusive of 2 1 The tablebelow setsouttheremuneration paidto Directors andKMPfor year ending30June2011: accounting standards reveals asubstantial notionalbenefitofthat allocation. circumstance isPeter where Meurs theallocation ofoptionsat thetimeofhisappointment andincompliance with executives thoughwell ofthemarket, generally below inthethird thetop quartile. quartile The exception to this Forrest) executive remuneration incorporating fixed remuneration andincentives, bothcashandequity, place Egan Associates reveals that directors’ emoluments are modestby comparison andthat market (exclusive ofAndrew The R&NChave obtainedindependent advice from Egan Associates inrelation to theKMPs. Information provided by andKMPRemunerationDirectors Outcomes REMUNERATION REPORT W Ramsey P Meurs P Hallam S Pearce N Power keyOther management oftheCompany personnel R Scrimshaw A Forrest Executive directors I Cumming M Barnaba L Xiaowei O Hegarty I Burston K Ambrecht G Brayshaw G Rowley H Elliott Non-executive directors 2011 Mr. in inthe2011ESSIP due to 2011.The hisresignation amountreported on1April Ramsey isnotentitled to participate occasional include benefits private Non-monetary useofthe Company aircraft into account taking theindividual’s Mr. Cumming hadnotpreviously received remuneration forhisBoard priorto membership 1March 2010.Payment forthe The fair value ofoptionsisdetermined atgrant date usingeitherabinomialortrinomiallattice that optionpricingmodel ESSIP share value for2011Plan Year cent is50per oftheestimated total award dividedby theVWAP ofFortescue shares for ESSIP cash value cent is50per oftheestimated award. Mr. Power was appointed on14 February 2011. 6 5 7 4 Cash salary Cash salary and fees Short-term employeeShort-term benefits 408,739 950,000 947,167 968,000 647,855 948,833 100,000 166,667 113,106 120,000 113,636 125,000 134,000 126,363 109,091 240,530 $AUD 1 ESSIP cash ESSIP cash 2011 plan value for 350,000 318,750 350,000 353,077 350,000 57,750 $AUD year ------monetary monetary benefits 167,638 $AUD 5,269 3,649 7,000 7,000 2,602 Non------employment annuation benefits Super- 41,825 50,000 50,000 25,000 64,785 10,000 12,637 10,909 24,053 50,000 11,309 11,364 $AUD Post - - - -

entitlements Accrued 236,236 service End of 17,743 $AUD leave ------2 ESSIP share year ahead 2011 plan Share-based paymentsShare-based 1,570,703 value for 552,451 503,125 552,451 557,308 552,451 91,154 $AUD ------5,818,028 Options 241,399 241,399 $AUD 3 ------2,044,279 7,724,128 2,067,441 1,902,451 1,625,627 2,378,919 134,000 139,000 120,000 264,583 426,542 166,667 124,415 120,000 125,000 125,000 $AUD Total

For personal use only 1 interest rate fortheterm oftheoption. price oftheunderlyingshare, volatility ofadditionalmarket theeffect conditions, dividendyieldandtheriskfree theexpected takes into account theexercise price, ofdilution,theshare theterm oftheoption,impact price atgrant date andexpected 7 6 5 4 3 2 bonus awarded inAugust 2009to allFortescue staff. amended to the reflect conversion to $AUD usingan average rate of$0.8821: The tablebelow setsouttheremuneration paidto Directors andKMPfor year ending30June2010. The tablehasbeen REMUNERATION REPORT W Ramsey P Meurs P Hallam S Pearce keyOther management oftheCompany personnel R Scrimshaw A Forrest Executive directors I Cumming M Barnaba L Xiaowei O Hegarty I Burston K Ambrecht G Brayshaw G Rowley H Elliott Non-executive directors 2010 The fair value ofoptionsisdetermined atgrant date usingeitherabinomialor trinomiallattice that optionpricingmodel Mr. Meurswas appointed on13May2010. Mr. Pearce was appointed on2March 2010. Mr. Cumming was appointed on28August 2009. Mr. Barnabawas appointed on19February 2010. payments(taxable amountsofFY10ESSIPequity Includestheactual value) awarded 2010. inSeptember discretionary amountsofFY10ESSIPcash Includestheactual paymentsawarded 2010together withaone-off inSeptember 6 5 3 4 Cash salary Cash salary and fees Short-term employeeShort-term benefits 472,744 131,226 693,903 258,343 741,316 100,004 671,787 185,628 52,085 38,044 97,336 88,791 97,671 99,337 98,489 $AUD 1 Short-term Short-term incentive 224,995 385,468 127,927 386,519 184,002 78,949 $AUD ------monetary monetary benefits 17,249 61,423 $AUD 7,637 2,910 Non------employment annuation benefits Super- 11,364 58,074 45,229 62,275 44,993 53,714 $AUD 3,805 8,879 9,848 4,167 8,334 Post - - - -

entitlements Accrued service End of $AUD leave ------2 Short-term Short-term incentive Share-based paymentsShare-based 143,879 198,428 391,025 164,740 404,671 84,106 $AUD ------Options 765,111 241,399 241,399 $AUD 7 ------1,074,991 1,818,211 1,827,616 282,060 108,338 230,857 958,442 900,504 562,254 52,085 41,848 97,336 97,671 97,671 99,337 $AUD Total 55 55 FORTESCUE METALS GROUP ANNUAL REPORT 2011 56 56 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only ordinary share ofFortescueordinary Group Metals Limited. other executives oftheCompany andFortescue are setoutbelow. When exercisable, eachoptionisconvertible into one ofoptionsover sharesDetails intheCompany ordinary that were granted asremuneration to eachDirector, KMPand overOptions instruments granted equity asremuneration share.one ordinary nodividendorvotingOptions granted rights. undertheplancarry When exercisable, eachoptionisconvertible into the current are periods orfuture setoutbelow. reporting The terms andconditions ofeachgrant ofoptionsaffecting remuneration ofeachDirector, KMPandother executives in All optionsrefer to optionsover shares oftheCompany, ordinary whichare exercisable onaonefor onebasisundertheIOS. remunerationShare-based option. the effectofadditionalmarket conditions,risk free dividendyieldandthe the interestexpected rate for the ofthe term ofdilution,theshare priceterm at oftheoption,impact grant date, price volatility share, expected oftheunderlying latticedetermined usingthetrinomial models that orbinomialoptionpricing takeinto account theexercise price, the date to vesting date, andtheamount isincludedintheremuneration tablesabove. The fairvalues at grant date are The assessed fairvalue at grant date ofoptionsgranted to individualsisallocated equallyover from theperiod grant an annualbasisover thefour years from grant date. termination oftheindividual’s employment. hurdles Once are performance metthe optionsare exercisable evenly on The optionswere provided at nocost to therecipients. date All or optionsexpire oftheirexpiry ontheearlier REMUNERATION REPORT N Power W Ramsey P Meurs P Hallam S Pearce keyOther management oftheCompany personnel I Burston O Hegarty I Cumming M Barnaba L Xiaowei G Brayshaw K Ambrecht G Rowley H Elliott R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name Number ofoptionsgrantedNumber 2011 ------7,500,000 2010 ------Number ofoptionsvestedNumber during 2,187,500 150,000 150,000 2011 ------150,000 150,000 2010 ------For personal use only REMUNERATION REPORT Metals GroupMetals Limited, Personnel otherKey Management andotherexecutives ofFortescue are setoutbelow. shares intheCompany ofordinary Details provided asaresult oftheexercise ofoptionsto eachDirector ofFortescue Exercise ofoptionsgranted asremuneration management person)have beenaltered ormodified by the Company thefinancial during yearended30June2011. settledshareNo terms ofequity basedpayment (includingoptionsgranted transactions asremuneration to akey payment transactions Modifications settledshare-based of terms ofequity A Forrest ofFortescueDirectors Group Metals Limited R Scrimshaw Name G Rowley H Elliott G Brayshaw K Ambrecht L Xiaowei I Cumming M Barnaba O Hegarty S Pearce keyOther management oftheCompany personnel I Burston W Ramsey P Meurs P Hallam N Power 5 November 2010 Date ofexercise of options ------Number of ordinary ofordinary Number exercise ofoptions shares issuedon during theyear 150,000 ------Amount paid per shareper 2.50 A$ ------

57 57 FORTESCUE METALS GROUP ANNUAL REPORT 2011 58 58 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only options issetoutinnote 36to thefinancialstatements. determined astheamount ofthegrant date fairvalue oftheoptionsthat isyet to beexpensed. Further information on the minimumvalue oftheoptionyet to vest isnil. The maximumvalue oftheoptionsthat isyet to vest hasbeen IOS andmay beexercised over athree to four year period. Nooptionswillvest ifconditions are notsatisfied, hence recognised inthe2011financial year are payable inthe2012financial year. Theoptions were issuedpursuant tothe issetoutbelow. criteria andperformance was forfeited becausethepersondidnotmeetservice The incentives available incentive orgrant that was paidorpayable, orthat vested, inthefinancial year, andthepercentage that For eachincentive schemeandgrant ofoptionsincludedinthetablesonpages54and55,percentage ofthe Additional information -detailsofremuneration -2011cashincentives andoptions REMUNERATION REPORT P Hallam S Pearce keyOther management oftheCompany personnel I Burston O Hegarty I Cumming M Barnaba L Xiaowei G Brayshaw K Ambrecht G Rowley H Elliott R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name N Power W Ramsey P Meurs possible payment payment possible ESSIP bonus cash cash ESSIP bonus percentage of and shares - maximum maximum achieved 70% 70% 64% 70% 70% 70% ------

7,500,000 Number 600,000 600,000 ------year granted Financial 2010 2009 2009 ------Share-based compensation (options) benefits Share-based Vested ina % year 25% 29% 25% ------Forfeited in % a year ------options may 2012 -2013 2013 -2014 2012 -2013 Financial years in which vest ------of grant yet total value Minimum Minimum $A to vest ------total value of grant yet to 13,362,624 Maximum Maximum $A 390,868 390,868 vest ------For personal use only vesting condition was notsatisfied. The value isdetermined atthetimeoflapsing, butassumingthe condition was satisfied. D -The value atlapsedate ofoptionsthatwere ofremuneration granted aspart andthatlapsedduringtheyear because a the intrinsicvalue oftheoptionsatthatdate. C -The value atexercise date ofoptionsthatwere ofremuneration granted aspart andwere exercised duringtheyear, being B -The value atthegrant date calculated inaccordance withAASB Payment 2Share-based ofoptionsgranted. current year. A -The percentage ofthevalue ofremuneration consisting ofoptions, basedonthevalue duringthe ofoptionsexpensed REMUNERATION REPORT N Power W Ramsey P Meurs P Hallam S Pearce keyOther management oftheCompany personnel I Burston O Hegarty I Cumming M Barnaba L Xiaowei G Brayshaw K Ambrecht G Rowley H Elliott R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name Remuneration consisting of options 75% 12% 10% % A ------Granted inayear A$ B ------excercised inayear Value ofoptions 648,000 A$ C ------Lapsed inayearLapsed A$ D ------59 59 FORTESCUE METALS GROUP ANNUAL REPORT 2011 60 60 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only REMUNERATION REPORT 5 4 capacity. 3 Operating Officer. 2 from 18August 2011. 1 agreement. The majorprovisions oftheagreements relating to remuneration are setoutinthetablebelow: Remuneration andotherterms ofemployment for theExecutive Directors andKMPare formalised inaservice agreements Service Mr Ramsey resigned Mr from Fortescue effectiveApril 2011. from 1 resigned asanExecutive Scrimshaw Mr effective Director 30June2011.Hewill continue inaNonExecutive to act Director Power Mr assumedtherole ofChiefExecutive effective 18July2011. Mr Prior Officer tothis positionofChief Power heldthe Forrest Mr resigned from ofChiefExecutive hisposition on18July2011andwillassumethe roleofChairmaneffective Officer Mr HallamannouncedMr hisresignation from FortescueSeptember 2011. effective from 2 Director Projects Director Development Director Operations and Marketing Executive Director Sales Chief Financial Officer Chief Operating Officer Chief Executive Officer Position Mr PeterMr Meurs PaulMr Hallam RussellScrimshaw Mr Stephen PearceMr NevillePowerMr AndrewMr Forrest Executive Mr William Ramsey WilliamMr 4 2 1 5 3

ESSIP participating percentageESSIP participating 100percent. A$1,000,000 whichisto bereviewed annually by theR&NC. Total Fixed Remuneration for theyear ended30June2011of Three month termination clause. percentageESSIP participating 150percent. A$1,800,000 whichisto bereviewed annuallyby theR&NC. Total Fixed Remuneration for theyear ended30June2011of Three month termination clause. percentageESSIP participating 150percent. of A$110,000whichisto bereviewed annuallyby theR&NC. Total Fixed Remuneration for theyear ended30June2011 Terms ofagreement Three month termination clause. One month termination clause. percentageESSIP participating 75percent. of A$600,000whichisto bereviewed annuallyby theR&NC. Total Fixed Remuneration for theyear ended30June2011 Three month termination clause. percentageESSIP participating 100percent. A$1,000,000 whichisto bereviewed annually by theR&NC. Total Fixed Remuneration for theyear ended30June2011of Three month termination clause. percentageESSIP participating 100percent. A$1,000,000 whichisto bereviewed annually by theR&NC. Total Fixed Remuneration for theyear ended30June2011of One month termination clause. percentageESSIP participating 100percent. A$1,000,000 whichisto bereviewed annually by theR&NC. Total Fixed Remuneration for theyear ended30June2011of For personal use only REMUNERATION REPORT This istheendofaudited Remuneration Report. website. The Company’s Security Trading Policy canbeaccessed from theCorporate Governance oftheFortescue section are responsible for disclosure orcontracts involving to ofalltransactions themarket theCompany’s shares. mustnotdealinCompanyChairman approval withouttheprior Securities oftheChiefExecutive Officer. TheDirectors The Directors mustnotdealinCompany withoutproviding Securities written notification to theChairman. The detailing potential penaltiesfor civilandcriminal misuseofconfidential information. The Securities Trading Policy detailsacceptable andunacceptable for periods trading inCompany including Securities tosecurities include: securities, includingshares, debtnotes andoptions. Fortescue’s Security Trading Policy definesdealingin company Fortescue’s Security Trading Policy provides guidance onacceptable indealingtheCompany’s transactions various TradingSecurities Policy • • • Company Securities. Entering into agreements which operate ortransactions to limittheeconomic ofaperson’s risk holdingsin family company orfamilytrust)to trade inCompany and Securities; Advising, procuring orencouraging anotherperson(includingafamilymember, friend, associate, colleague, things; for,Subscribing purchasing orsellingCompany orentering into Securities anagreement to doany ofthose 61 61 FORTESCUE METALS GROUP ANNUAL REPORT 2011 62 62 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only This report ismadeinaccordanceThis report witharesolution ofDirectors. BDO Audit (WA) Ltd continues Pty inoffice in accordance 327ofthe withsection Auditor rounded offinaccordance withthat ClassOrder to thenearest cases, thousanddollars, to thenearest orin certain dollar. Commission, relating to therounding offofamounts. andDirectors’ Amounts inthefinancial report have been Report referredFortescue isofthekind to inASICClassOrder 98/100,issuedby theAustralian andInvestments Securities ofamountsRounding page.on thenext A copy oftheAuditor’s Declaration Independence asrequired 307Cofthe undersection Auditor’s Independence Declaration Dated at Perth this19thday ofAugust 2011. Chairman AndrewMr Forrest DIRECTORS’ REPORT

Corporations Act 2001. Corporations Act 2001 issetout For personal use only AUDITOR’S INDEPENDENCEDECLARATION 63 63 FORTESCUE METALS GROUP ANNUAL REPORT 2011 64 64 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Contents FINANCIAL STATEMENTS 121 120 69 68 67 66 65 Independent Auditor’sIndependent to theMembers report Directors’ Declaration Notes to thefinancial statements Statement ofcashflows Statement ofchangesinequity Balance sheet Statement ofcomprehensive income For personal use only STATEMENT OFCOMPREHENSIVEINCOME The above statement ofcomprehensive income read shouldbe inconjunction withtheaccompanying notes. Diluted pershare earnings pershareBasic earnings the parent entity: shareEarnings per for profit holdersof equity attributable to theordinary Total comprehensive income for theyear Refinancing costs Net foreign exchange (loss)/gain ofunsecured loannotes Re-estimation Operating profit Administration expenses income Other Gross profit Cost ofsales Operating salesrevenue Revaluation ofavailable for salefinancialassets comprehensiveOther income Profit for the year Profit for the incomeyear after tax tax(expense)/benefit Income Profitbefore income tax Net finance expenses Notes 25(a) 20(f) 35 35 8 7 7 7 6 7 5 (2,757,586) 5,442,102 1,022,555 1,335,068 2,637,773 2,684,516 1,022,617 1,022,555 (312,513) (429,698) (719,201) US$'000 (60,960) (92,846) (96,724) 49,981 Cents 32.83 32.86 2011 62 (2,125,552) 1,134,981 1,094,510 3,220,062 (375,306) (279,986) US$'000 581,014 580,946 579,176 580,946 (24,705) 99,487 65,176 Cents 1,770 18.82 18.85 2010 68 - 65 65 FORTESCUE METALS GROUP ANNUAL REPORT 2011 66 66 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only BALANCE SHEET The above balance read sheetshouldbe inconjunction withtheaccompanying notes. Other financialliabilities Other Current taxpayable Derivatives held at fair value Borrowings Trade andotherpayables Current Liabilities Liabilities Total assets Total assets non-current Deferred taxassets Intangible assets Exploration, evaluation anddevelopment expenditure Property, plant andequipment Trade andotherreceivables Non-current assets Total current assets current assets Other Inventories Trade andotherreceivables Cash andcashequivalents Current assets Assets Total attributable equity to holdersof Fortescue Group Metals Limited earnings Retained Reserves Contributed equity Equity Net assets Total liabilities Total liabilities non-current Deferred taxliabilities Provisions financialliabilities Other Borrowings Trade andotherpayables Non-current liabilities Total current liabilities

Notes 25(a) 16 15 14 13 11 12 10 24 16 22 23 20 18 23 21 19 17 9 5,131,640 3,494,226 2,434,303 2,434,303 6,191,563 5,074,035 1,117,528 8,625,866 3,422,426 1,670,939 2,662,719 1,125,932 1,295,033 4,465,230 US$'000 416,538 399,731 132,113 192,637 184,424 197,146 812,610 21,315 16,960 15,238 13,338 99,631 17,153 90,619 2011 - - 12,844 3,602,004 1,645,061 1,476,665 1,476,665 3,770,400 3,071,637 5,247,065 2,089,308 1,364,103 1,235,538 1,274,650 2,748,509 US$'000 698,763 (74,369) 121,965 188,291 212,256 276,384 265,615 227,154 442,480 22,750 57,034 16,285 3,878 8,976 2010 479 - - For personal use only STATEMENT OFCHANGESINEQUITY The above read shouldbe inconjunction withtheaccompanying statements ofchanges inequity notes. ofthereserves.description Amounts are stated netoftaxation. Refer to note 24(b) for ofmovements description inshare capitalandnote 25for the Balance at 30June2011 Dividends paid assets ofnon-financial as part cash flow hedges recognised Net changeinfairvalue of Equity settled share-based settledshare-based Equity hedges in fairvalue ofcashflow ofchanges Effective portion payments transactions Forfeited options Exercise ofoptions currency change intaxfunctional Transfer resulting from Issue ofshare capital Transactions withownersasowners: intheircapacity for theyear Total comprehensive income Balance at 1July2010 Balance at 30June2010 payments transactions settledshare-based Equity Exercise ofoptions Forfeited options Issue ofshare capital Transactions withownersasowners: intheircapacity for theyear Total comprehensive income Balance at 1July2009 1,295,033 1,274,650 1,229,876 1,274,650 Contributed - - US$'000 17,523 40,977 2,860 3,797 equity ------740 678 678 610 62 68 revaluation US$'000 reserve Asset ------translation - (77,202) (77,202) (77,202) US$'000 currency currency 77,202 Foreign reserve ------9,161 2,155 2,155 1,970 Share-based Share-based - - US$'000 payments (1,045) (1,586) reserve 8,066 2,227 (456) (15) ------3,437 - - - - - US$'000 (11,589) Hedging 15,026 reserve ------1,125,932 276,384 276,384 580,946 (304,562) 1,022,555 US$'000 (95,820) (77,202) Retained earnings 15 ------1,022,617 2,434,303 1,476,665 1,476,665 850,692 581,014 US$'000 (95,820) (11,589) 15,026 17,523 40,977 8,066 1,815 2,227 2,211 equity (456) Total - -

67 67 FORTESCUE METALS GROUP ANNUAL REPORT 2011 68 68 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only STATEMENT OFCASHFLOWS The above statement ofcash flowsbe should read in withthe accompanyingconjunction notes. Cash equivalents andcash at theendofyear Effects of exchange rate changesincashandequivalents Cash andcashequivalents at thebeginning ofthefinancial year Net increaseequivalents andcash incash inflow/Net cash Dividends paid Repayment ofcustomer deposits Proceeds from customer deposits ofderivativeSettlement heldat fairvalue Interest andfinance costs paid Syndicated establishment fee loanfacility Premium onbuybackofseniorsecured notes Repayment ofborrowings Proceeds from borrowings Proceeds from theissueofshare capital Cash flowsactivities from financing outflowNet cash from investing activities Interest received Proceeds from disposalofplant andequipment Contributions to joint ventures Payment ofdepositsandguarantees Payments for exploration, evaluation anddevelopment expenditure Cash flows from investing activities inflowNet cash from operating activities Payments to suppliersandemployees Cash receipts from customers Cash flows from operating activities

(outflow)activities from financing Notes 38 9 (1,480,908) (1,428,203) (2,626,697) (2,009,120) 2,778,162 2,662,719 1,370,173 3,450,386 5,404,859 1,235,538 (117,800) (464,147) (668,353) US$'000 (48,764) (36,123) (95,820) (11,840) (12,202) 72,919 22,201 57,008 1,815 9,981 2011 - (2,047,498) 1,294,134 1,235,538 (564,247) (188,936) 3,341,632 (583,829) (205,498) US$'000 540,951 (27,734) (10,000) 654,942 (5,661) 18,909 28,407 39,645 30,000 2,223 2010 ------For personal use only Contents ofthenotes to thefinancialstatements NOTES TO THEFINANCIALSTATEMENTS 119 119 118 116 116 115 114 113 112 111 110 110 107 107 106 105 104 104 103 100 100 99 99 98 98 97 96 95 95 94 94 93 92 91 91 91 84 82 70 Note 8.Income taxexpense Note 7.Expenses incomeNote 6.Other Note 5.Operating salesrevenue Note 4.Segment information Note 3.Financial riskmanagement Note 2.Critical accounting estimates andjudgements ofsignificant accountingNote 1.Summary policies Note 39.Subsequent events Note 38.Reconciliation ofprofit income after tax to netcashinflow from operatingactivities Note 37.Parent financialinformation entity Note 36.Share Note 35.Earningspershare Note 34.Interests injoint ventures Note 33.Deedofcross guarantee Note 32.Subsidiaries transactions Note 31.Related party Note 30. Commitments Note 29. Contingent liabilities Note 28. Remuneration of auditors Note 27. Key management personnel Note 26. Dividends Note 25. Reserves Note 24. Contributed equity financialliabilities Note 23. Other Note 22. Provisions Note 21. Derivatives heldat fairvalue Note 20. Borrowings -non-current Note 19. Borrowings -current Note 18. Trade andotherpayables -non-current Note 17. Trade andotherpayables -current Note 16. Deferred taxes Note 15. Intangible assets Note 14. Exploration, evaluation anddevelopment expenditure Note 13. Property, plant andequipment Note 12.Inventories Note 11. Trade andotherreceivables -non-current Note 10. Trade andotherreceivables -current Note 9.Cash andcashequivalents ‑based payments 69 69 FORTESCUE METALS GROUP ANNUAL REPORT 2011 70 70 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only (c) Joint ventures ‑jointly controlled assets The acquisition method ofaccounting isused to account for theacquisition by ofsubsidiaries theCompany. intra‑ accounting policies. All intercompany balances andtransactions, includingunrealised profits from andlossesarising The financial statements are ofsubsidiaries prepared asthe period Company,for thesame reporting using consistent of comprehensive income from theeffective date ofacquisition andup to theeffective date ofdisposal, asappropriate. acquired andexpenses ofsubsidiaries Income theyear ordisposedofduring are includedintheconsolidated statement soastoan entity obtainbenefitsfrom itsactivities. the Company. Control isachieved whentheCompany hasthepower to govern thefinancialandoperating policiesof The consolidated financialstatements incorporate thefinancialstatements ofthe Company and entities controlled by (b) Principles ofconsolidation rounded offin accordance withthat ClassOrder stated.to thenearest thousanddollars, unlessotherwise Commission, relating to the “rounding off” Amounts ofamounts inthefinancial inthefinancialhave been report report. The Company referred isofakind to inClassorder 98/100,issuedby theAustralian andInvestments Securities ofamounts(v) Rounding disclosed innote 2. of judgement orcomplexity, orareas where assumptionsandestimates are significant to thefinancialstatements, are exercise theirjudgement intheprocess ofapplyingtheGroup’s accounting policies. The areas involving ahigherdegree The preparation offinancialstatements accountingrequires critical themanagement estimatesto use and certain to (iv) Critical accounting estimates and presentation currency. The financialstatements are presented inUnited stated, States dollars, whichistheGroup’s unlessotherwise functional (iii) Functional andpresentation currency through profit orloss. available for salefinancialassetsmeasured at fair value andderivative financialinstruments accounted for atfair value These financialstatements have beenprepared underthehistorical cost convention, asmodified bythe revaluation of (ii) Historicalcost convention as issuedby theInternationalAccounting Standards Board (IASB). The consolidated financialstatements oftheGroupInternational also comply with Standards (IFRS) Reporting Financial (i) Compliance withIFRS Interpretations, andthe other authoritative pronouncements oftheAustralian Accounting Standards Board (AASB), includingAustralian These general financialstatements purpose have beenprepared inaccordance with Australian Accounting Standards, ofpreparation(a) Basis subsidiaries, together referred to asFortescue ortheGroup. financial statements cover the consolidated group consisting of Metals Group Limited (the Fortescue Company) andits out below. These policieshave beenconsistently appliedto alltheyears presented, stated. unlessotherwise These The accounting principal policiesadopted inthepreparation ofthese consolidated financial statements are set ofsignificant accountingNote 1.Summary policies to theGroup’s interest inthejointly controlled assets. reliably. All suchamounts are measured inaccordance withtheterms ofeachagreement, whichisusuallyinproportion the economic benefitsassociated willflow withthetransactions toor from the Group and the amount canbemeasured the outputofjointly controlled assets, anditsshare ofjoint venture expenses, are recognised whenitisprobable that in jointly controlled assetsare accounted for onanaccruals basis. from Income thesaleoruseofGroup’s share of relevant andclassifiedaccording entity to theirnature. Liabilitiesand expenses incurredofinterests in directly respect controlled assetsandliabilitiesincurred jointly withotherventurers are recognised inthefinancial statements ofthe underjoint venture itsactivities When arrangements aGroup directly, undertakes entity theGroup’s share ofjointly control).and operating policiesoftheventure (joint contractual arrangements that require theunanimous consent ofeachtheventurers regarding thestrategic financial through joint anumberofbusinessactivities ventures.The Group undertakes Joint ventures are established through NOTES TO THEFINANCIALSTATEMENTS group transactions, have beeneliminated infull. Corporations Act 2001. For personal use only NOTES TO THEFINANCIALSTATEMENTS (i) Functional andpresentation currency (e) Foreign translation currency oftheoperating segments,performance hasbeenidentified astheChiefExecutiveOfficer. decision maker. The chiefoperating decisionmaker, whoisresponsible for allocating resources andassessing Operating segments are inamannerconsistent reported provided withtheinternal reporting to thechiefoperating (d) Segment reporting the extentofGroup’s ownership interest. The transactions, balances andunrealised between theGroup gainsontransactions andjoint ventures are eliminated to ofsignificant accountingNote 1.Summary policies(continued) revenue isbased onthemostrecently determined estimate specifications. of product of theironto ore thesalesprice basedona survey shipment by thecustomer, therefore therecognition ofthesales the billofladingdate.which istypically ofFortescue’sThe majority executed salesagreements allow for anadjustment Fortescue recognises revenue from thesaleofiron ore andrewards whentherisks ofownership transfers to the buyer reasonably assured. of thegoodshasbeendetermined withreasonable accuracy, theprice canbereasonably is estimated andcollectability rewards ofownership to thecustomer, work orprocessing isrequired nofurther by theGroup, andquality thequantity form ofanexecuted salesagreement, oranarrangement exists, indicating that there hasbeenatransfer and ofrisks Revenue from thesaleofgoodsanddisposalotherassetsisrecognised whenpersuasive evidence, usuallyinthe ofgoods (i) Sale andthespecificdetailsofeacharrangement. oftransaction the type have beenresolved. Fortescue basesitsestimates onhistorical results, into consideration ofcustomer, taking thetype entity. The amount ofrevenue isnotconsidered to bereliably measurable until allcontingencies relating to thesale when theamount ofrevenue canbereliably measured anditisprobable that future economic benefitswillflow tothe Revenue ismeasured at thefairvalue ofthegross consideration received orreceivable. Fortescue recognises revenue Revenue recognition (f) of theforeign operation andtranslated at theclosingrate. andfairvalue adjustmentsontheacquisitionGoodwill arising ofaforeign operation are treated asassetsandliabilities exchange difference is reclassifiedpart ofthegainorlossonsalewhere to applicable.profit or loss, as operation issoldorany ofthenetinvestment borrowings forming part are repaid, share aproportionate ofthe borrowings designated ashedgesoftheinvestment, are recognised inothercomprehensive income. When aforeign On consolidation, exchange differences from arising thetranslation ofany netinvestment in foreign entities, andof • • • asfollows:currency economy) different that have currency afunctional from thepresentation are translated currency into thepresentation The results andfinancialpositionofall ofa entities (noneofwhichhasthecurrency hyperinflationary Fortescue (iii) Foreign operations ofthefairvalue gainorloss. at fairvalueliabilities carried are aspart reported are deferred inothercomprehensive income asqualifyingcashflow hedges. Translation differences onassetsand assetsandliabilities denominated inforeignof monetary currencies are recognised inprofit or loss, except whenthey Foreign exchange gainsandlosses resulting from andfrom thesettlement ofsuch transactions theyear Transactions inforeign currencies have beenconverted at rates ofexchange ruling at thedate ofthosetransactions. (ii) Transactions andbalances which istheGroup’s andthepresentation for currency currency theconsolidated functional financialstatements. financial statements, the results andthefinancialpositionofeach Group entity are expressed inUnited States dollars, economic environment For operates currency). inwhichtheentity (thefunctional oftheconsolidated thepurpose includedinthefinancialstatementsItems ofeach Fortescue’s entities are oftheprimary measured usingthecurrency all resulting exchange differences are recognised inother comprehensive income andaccumulated inequity. are used);and rates significantly fluctuated theperiod, during inwhichcasethe exchange rates atthe dates ofthe transactions income and expense items are translated at average exchange rates for presented theperiods (unlessexchange assets andliabilitiesare translated at theclosingforeign exchange rate at thedate ofthebalance sheet; ‑ end translation 71 71 FORTESCUE METALS GROUP ANNUAL REPORT 2011 72 72 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only the applicableincome taxrate adjusted for by changesindeferred eachjurisdiction taxassetsandliabilitiesattributable The income taxexpense orrevenue for isthetaxpayable theperiod onthecurrent period’s taxableincome basedon (g) Income tax revenue canbemeasured reliably. Interest income isaccrued usingtheeffective interest rate method. Interest income isrecognised whenitisprobable that theeconomic benefitswillflow tothe Group andtheamount of (iii) Interest income Revenue from isrecognised theprovision are ofservices in theaccounting rendered. inwhichtheservices period revenue(ii) Services consideration receivable. its finaldestination.Revenue onprovisionally priced salesis recognised basedontheestimated fair value ofthe total final pricing. typicallywhenanoticeThe date ofpricing is offinal readinessis received whenthearrived vesselhas at may subsequently occur dependingonmovements inquoted orcontractual iron market ore prices to thedate of Additionally, the salesprice isdetermined onaprovisional basisat thedate ofsaleandadjustments to thesalesprice ofsignificant accountingNote 1.Summary policies(continued) entities inthetaxconsolidated group. assets) andthedeferred taxassetsithasassumedfrom unusedtaxlossesand unusedtaxcredits from controlled additionto itsownIn current anddeferred taxamounts, theCompany also recognises thecurrent taxliabilities(or consolidated group continues to beastandalonetaxpayer initsown right. account for theirown current anddeferred taxamounts. These taxamounts are measured inthetax asifeachentity The headentity, Fortescue Group Metals Limited andthecontrolled entities inthetaxconsolidated group continue to from that date. Fortescue hasimplemented thetax consolidation legislation asof 1July2002andistherefore taxed asasingleentity equity. Current anddeferred taxbalances attributableto amounts recognised are inequity alsorecognised directly in directly simultaneously.the liability Group hasalegallyenforceable rightto offset andintends either to settleonanetbasis, or to realise theassetandsettle the deferred taxbalances relate to thesametaxation authority. Current taxassetsandliabilitiesare offset where the Deferred taxassetsandliabilitiesare offset whenthereright isalegal to offset current taxassetsandliabilitieswhen differencestemporary anditisprobable that thedifferences willnot reverse inthe foreseeable future. tax basesofinvestments inforeign operations where theGroup is ableto control thetimingofreversal ofthe Deferred taxliabilitiesandassetsare notrecognised differences foramounts and temporary between thecarrying the related taxbenefitwillbe realised. Deferred taxassetsare reviewed date atandare eachreporting reduced to theextentthat itisnolongerprobable that future taxableamounts willbeavailable differences to utilisethosetemporary andlosses. Deferred taxassetsare recognised differences fortemporary deductible andunusedtaxlosses onlyifitisprobable that the related deferred income taxassetisrealised orthedeferred issettled. income taxliability rates (andlaws) that have date by orsubstantiallyandare enacted thereporting to beenenacted expected applywhen affectsneithertheaccountingof thetransaction nortaxableprofit orloss. Deferred income taxisdetermined usingtax fromarises initialrecognition otherthana businesscombination inatransaction that at ofanassetorliability thetime amounts. However,bases ofassetsandliabilitiestheircarrying thedeferred income taxisnotaccounted for ifit Deferred income taxisprovided differences infull, method, usingtheliability ontemporary between thetax arising be paidto thetaxation authorities. regulation to interpretation. establishesprovisions issubject It where appropriate onthebasisofamountsto expected evaluates periodically Management positionstakenintaxreturns to withrespect situations inwhichtheapplicabletax inthecountries period where thecompany’send ofthereporting operate subsidiaries andgenerate taxableincome. The current income taxcharge iscalculated onthebasisoftaxation laws orsubstantively enacted at the enacted differencesto temporary and to unusedtaxlosses. NOTES TO THEFINANCIALSTATEMENTS For personal use only insignificantrisk ofchangesin value. highly liquidinvestments that are readily convertible amounts to toofcashandwhichare an known subject Cash andcashequivalents includecashonhand, depositsheldat callwithfinancialinstitutionsandother short (h) Cash andcash equivalents obligation defaultby theheadentity. opinion oftheDirectors, limitsthejoint andseveral ofthewholly liability All theentities inthetaxconsolidated group have entered into avalid and current agreement taxsharing which,inthe wholly receivable orpayable underthetaxfundingagreement are recognised asacontribution to from) (ordistribution receivable from orpayable to otherentities inthegroup. Any differences between theamounts assumedandamounts Assets undertaxfundingagreements orliabilitiesarising withinthetaxconsolidated entities are recognised asamounts financial assets at fair value through profit orloss are recognised immediately in profit or loss. the financialassets, asappropriate, oninitial recognition. costs directly attributable Transaction to theacquisition of of financialassets, otherthanfinancialassets atfair value through profit orloss, arededucted fromthefair valueof Financial assetsare initially measured at fair value. Transaction costs that are attributableto directly theacquisition investments were acquired. determines Management theclassification ofitsinvestments at initial recognition. through profit orlossand available for salefinancialassets. Theclassificationpurpose dependsonthe forwhichthe Fortescue classifies itsinvestments into the following categories: loansand receivables, financialassets atfair value (k) Financial assets date itisincludedwithinnon‑ at thelower ofcost andnetrealisable value. theore If willnotbeprocessed thebalance within12months after sheet processing ofthisore canbepredicted with confidence (if, for example, it exceeds theGroup’s cutoff grade), itis valued ore as willbeprocessedto whenthestockpiled significant itis uncertainty expensed asincurred. Where thefuture representIron ore stockpiles ore andisavailable processing that hasbeenextracted for orsale. there further If is • • • based ontheweighted average cost methodandincludes: Cost for raw materials andstores isdetermined asthepurchase price. For processed andsaleableiron partly ore, cost is materialsRaw andstores, work inprogress andfinishedgoodsare stated at thelower of cost andnet realisable value. Inventories (j) credited againstotheradministration expenses. period, it iswritten offagainsttheallowance account. Subsequent recoveries ofamounts previously written off are a trade receivable for whichanimpairmentallowance hadbeenrecognised inasubsequent becomes uncollectible The amount oftheimpairmentallowance isrecognised inprofit andlosswithinotheradministration expenses. When short present value ofestimated future cashflows, discounted at theoriginal effective interest rate. Cash flows relating to be collected. The amount ofthe impairmentallowance isthedifference between theasset’s amount andthe carrying reorganisation inpayments are anddefaultordelinquency considered indicators that thetrade receivable may not directly. Significant financialdifficultiesofthe debtor, orfinancial bankruptcy thatthe probability debtor will enter trade receivables israised. areamount whichareto Debts beuncollectible written known off by reducing thecarrying allamountsnot beableto dueaccording collect to theoriginal terms ofthereceivables, anallowance for impairmentof oftrade receivablesCollectability isreviewed onamonthly basis. When there evidence isobjective that Fortescue will when there evidence isobjective that Fortescue allamounts willnotbeableto due. collect effective interest method, lessprovision for impairment. An allowance for impairmentoftrade receivables isestablished Trade andotherreceivables are recognised initiallyat cost fairvalue andsubsequentlyusingthe measured at amortised (i) Tradereceivables NOTES TO THEFINANCIALSTATEMENTS appropriate portion offixedappropriate and variable overhead portion expenditure. expenditure inbringingtransportation suchinventories to theirexisting location andcondition, together withan overheads,production overheads; and includingattributableminingandmanufacturing of ore; labour costs, materials andcontractor andprocessing expenses which are attributableto directly theextraction ‑term receivables are notdiscounted iftheeffectofdiscounting isimmaterial. ‑ owned taxconsolidated entities. current assets. surveys. Quantities are through assessedprimarily internal andthird party ‑ owned entities inthecaseofanincome tax ‑term,

73 73 FORTESCUE METALS GROUP ANNUAL REPORT 2011 74 74 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Available for securities, salefinancialassets, are equity marketable principally non‑ comprising (iii) Available for salefinancialassets The fairvalue ofFortescue’s interest rate derivative was basedoncomparisons to variableLIBORrates. any assetsheldfor trading norhasitdesignated any otherfinancialassetsasbeing at fair value through profit orloss. value recognised inprofitOther thaninterest andloss. rate derivative financialinstruments, doesnot have Fortescue comprises onlyinterestThis category rate swaps. They are inthebalance sheetat carried fairvalue withchangesinfair for trading unlesstheyare designated ashedges. Financial assetsat fairvalue through profit orlossare financialassetsheld for trading. Derivatives are classifiedasheld (ii) Financial assetsthrough profit orloss date whichare thereporting than 12months after classifiedasnon‑ andincludetrade market receivables.active They are includedincurrent assets, except for thosewithmaturitiesgreater Loans andreceivables are non‑ (i) Loans andreceivables ofsignificant accountingNote 1.Summary policies(continued) instrument. for alossitincursbecausespecifieddebtor fails to makepayments whendueinaccordance withthe ofadebt terms A financialguarantee isa thatcontract contract requires theissuer to makespecified payments to reimbursetheholder (iii) Financial guarantee contract liabilities Fair value iscalculated by discounting estimated future cashflows usingamarket rate ofinterest. relates. toperiod whichthefacility hasnotbeendrawnthat thefacility down, thefee over iscapitalisedwithinothercurrent the assetsto beamortised instrument’s effective interest rate and recognised asan expense over theestimated ofthefacility. period To the extent probable willbedrawn that someorallofthefacility thiscasethefee down. In isrecognised asanadjustment to the Fees paidontheestablishment ofloanfacilitiesare recognised costs oftheloanto astransaction theextent that itis and thosepayable onredemption, aswell asany interest orcoupon payable isoutstanding. whiletheliability inthebalance costs sheet. carried oftransaction Interestthe liability expense inthiscontext includesinitialamortisation method, whichensures that any interest expense over to theperiod repayment isat aconstant rate onthebalance of After initialrecognition, interest borrowings bearing arecost usingtheeffective measured interest at amortised rate Borrowings are initiallyrecognised at fairvalue, netofany costs. attributabletransaction directly cost usingtheeffective interestat amortised method. Trade payables andothershort (ii) Financial cost liabilitiesmeasured at amortised loss. have any liabilitiesheldfor trading norhasitdesignated any financialliabilitiesasbeing at fair value through profit or changes infairvalue recognised inprofitOther thanthesederivative orloss. financialinstruments, doesnot Fortescue comprises onlyderivativeThis category financialinstruments. They are inthebalance sheet carried at fair value with (i) Fair value through profit andloss was acquired.liability Fortescue classifiesitsfinancialliabilities into oneofthe following categories, dependingonthepurpose forwhichthe (l) Financial liabilities impairment loss. a significant or prolonged decrease below original cost, inwhichcasethedecrease is recognised inprofit orlossasan changes infairvalue beingrecognised inothercomprehensive directly income, unlessthechangeisconsidered to be management intends to holdthemfor themediumto longterm. These instruments are recognised at fairvalue, with are designated asavailable assets unlessmanagement intends to disposeoftheinvestment date. within12months ofthereporting Investments either designated ornotclassifiedinany oftheothercategories. inthiscategory They are includedinnon‑ NOTES TO THEFINANCIALSTATEMENTS ‑for ‑sale iftheydonothave fixed maturitiesandfixed ordeterminable payments and derivative financialassetswithfixed ordeterminable payments that are notquoted inan term monetary liabilities, are initiallyrecognised‑term monetary at fairvalue andsubsequently carried current assets. derivatives that are current For personal use only fluctuations. Fortescue hasimplemented anon‑ (m) Hedgeaccounting through profit andloss, are subsequently measured at thehigherof: Financial guarantee contract liabilitiesare initiallymeasured at theirfairvalues and, ifnotdesignated asat fairvalue ofsignificant accountingNote 1.Summary policies(continued) the assets. depreciation andimpairmentloss. cost includesexpenditure Historical that attributable to isdirectly theacquisition of Each classofproperty, plant andequipment isstated at historical cost less, where applicable, any accumulated (i) Recognition andmeasurement (o) Property, plant andequipment recognised asacontribution to, from, ordistribution wholly Any difference between theamounts assumedandamounts receivable orpayable underthetaxfundingagreement are amounts receivablenon-current from orpayable to otherentities intheGroup. Assets undertaxfundingagreements orliabilitiesarising withthetaxconsolidated entities are recognised as require payment ofinterim fundingamounts to assistwithitsobligations to pay taxinstalments. the headentity, theendofeachfinancial after year. whichisissuedassoonpracticable mayThe headentity also The amounts receivable orpayable underthetaxfundingagreement are dueuponreceipt ofthefundingadvice from amounts recognised inthewholly to theCompany underthetaxconsolidation legislation. The fundingamounts are determined by reference to the any current taxreceivable anddeferred taxassetsrelating to unusedtaxlossesorcredits that are transferred entities fullycompensate theCompany for any current taxpayable assumedandare compensated by theCompany for consolidation legislation. The entities have alsoentered into ataxfundingagreement underwhichthewholly Fortescue Group Metals Limited anditswholly (ii) Tax consolidation legislation Fortescue Group Metals Limited. Investments insubsidiaries, associates andjoint ventures are accounted for at cost inthefinancialstatements of (i) Investments insubsidiaries, associates andjoint ventures on thesamebasisasconsolidated financialstatements, except assetoutbelow. The financialinformation for theparent entity, Metals Group Limited,Fortescue disclosedinnote 37hasbeenprepared (n) Parent financialinformation entity other comprehensive income isimmediately reclassified to profit orloss. prospectively. theforecast If to isnolongerexpected occur, transaction thecumulative gainorlossthatin was reported When acashflow hedgenolongermeetsthecriteria for hedgeaccounting thenhedgeaccounting isdiscontinued losses previously deferred inothercomprehensive income are transferred from andadjustthecost oftheasset. equity When theforecast that isbeinghedgedresults transaction intherecognition ofanon‑financialassetthegainsand is recognisedthe ineffective immediately portion inprofit orloss. designated andqualifyascashflow hedgesis recognised inother comprehensive income. The gainorloss relating to ofchangesinthefair value ofcashassetsdue Theto themovements effective portion in foreign exchange rates that are Cash flow hedges to thehedgedrisk. hedging instrument ishighlyeffective inoffsetting changesinfair valuesorcash flows ofthehedged item attributable transactions. Furthermore, at theinception ofthehedgeandonanongoingbasis, theGroup documents whetherthe varioushedge and thehedgeditem, management anditsstrategy alongwithitsrisk objectives for undertaking At theinception ofthehedgerelationship, documents therelationship theentity between thehedging instrument NOTES TO THEFINANCIALSTATEMENTS • • the revenue recognition policies set out in note 1(f) above. the revenue recognition policiessetoutinnote 1(f) the amount initiallyrecognised less, where appropriate, recognised cumulative amortisation inaccordance with Contingent LiabilitiesandContingent Assets; the amount oftheobligation underthecontract, asdetermined inaccordance withAASB137

‑ owned entities’ financialstatements. derivative hedgestrategy to associated hedgeitsrisks withforeign currency ‑ owned Australian controlled entities have implemented thetax and ‑ owned taxconsolidated entities. Provisions,

‑ owned 75 75 FORTESCUE METALS GROUP ANNUAL REPORT 2011 76 76 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Subsequent costs are included intheasset’s amount orrecognised asaseparate carrying asset, asappropriate, only (ii) Subsequent costs equipment ordevelopment assets, asappropriate. be capableofoperating inthemannerintended by management, theassetsare transferred into property, plant and expenditure. Uponcommissioning, whichisthedate for whentheassetisinlocation and conditionitto necessary areAssets underconstruction includedasassetsunderdevelopment withinexploration, evaluation anddevelopment assets are capitalised. purchases ofproperty, plant andequipment. Borrowing costs related to ofqualifying theacquisition orconstruction Cost alsomay includetransfers from ofany equity gainorlossonqualifyingcashflow hedgesof foreign currency the equipment. and equipment. Purchased that isintegral software oftherelated to equipment thefunctionality iscapitalisedaspart property, plant andequipment have different usefullives, theyare accounted for asseparate items ofproperty, plant attributable to condition bringing anassetto ready aworking for itsintended use. ofanitemWhen of separate parts The cost ofself‑ ofsignificant accountingNote 1.Summary policies(continued) a straight classified asoperating leases. Payments madeunderoperating leases are recognised asan expense inprofit andlosson risks and Leases ofthe rewards inwhichasignificant of portion ownership are nottransferred to aslesseeare Fortescue acquired underfinance leasesisdepreciated oftheasset’s over theshorter usefullife andthelease term. rateperiodic ofinterest ontheremaining for balance oftheliability eachperiod. The property, plant andequipment andfinance the liability cost andthe finance costis charged to profit andlossperiod overthelease to aconstant reflect lease obligations are includedinothershort the leasedassetsor, iflower, theestimated present value oftheminimumleasepayments. The corresponding finance ownership are classified as finance leases. Finance leases are capitalised attheinception ofthelease atthefair valueof Leases ofproperty, plant andequipment where Fortescue, aslessee, hassubstantiallyandrewards alltherisks of (p) Leases depletion oftheestimated proven andprobable reserves. method.using theunitsofproduction to charge the proportional The methodisanamortised unitsofproduction Where ofiron theusefullife ore linkedto ofanassetisdirectly theextraction from themine, theassetisdepreciated method Units ofproduction with theeffectofany changesinestimate accounted for onaprospective basis. The estimated usefullives, residual values anddepreciation methodare reviewed period, at theendofeachreporting depreciated onastraight Assets within operations where theusefullife isnotdependent onthequantities ofiron ore produced are generally Straight linemethod by amount. comparing proceeds from thesaleofassetswiththeircarrying ondisposalofproperty, andlossesarising Gains plant andequipment are recognised inprofit orlossanddetermined commissioning. Landisnotdepreciated. to allocate theircost, netofresidual values, over theestimated usefullives. Depreciation commences onthedate of Depreciation on assets, otherthanland, iscalculated usingthestraight (iii) Depreciation inwhichtheyare thefinancialperiod loss during incurred. cost ofthe item canbemeasured reliably. On‑ when itisprobable that future economic benefitsassociated withthesesubsequent costs willflow to andthe Fortescue NOTES TO THEFINANCIALSTATEMENTS • • • • • Leased plant andequipment Furniture, fittings andequipment Motor vehicles Machinery Buildings 3 20 ‑line basisover ofthelease. theperiod constructed assetsincludesthecostconstructed ofmaterials labourandany anddirect othercosts directly

‑line basisover theestimated usefullives oftheassetsasfollows:

‑term andlong‑term payables. Eachleasepayment isallocated between going repairs and maintenance are recognised asanexpense inprofit and

5 ‑15years 3 ‑8years 3 ‑5years ‑ 25 years ‑ 40 years

line method or units of production method ‑line methodorunitsofproduction For personal use only (r) Exploration, evaluation anddevelopment expenditure All otherborrowing costs are recognised inprofit inwhichtheyare orlossintheperiod incurred. fromqualifying assetsisdeducted theborrowing costs eligible for capitalisation. Investment investment income onthetemporary earned ofspecificborrowings pendingtheir expenditure on those assets, until suchtimeastheassetsare substantially ready for theirintended useorsale. that necessarily takeasubstantialoftimeto period getready for theirintended useorsale, are addedto thecost of Borrowing costs attributableto ofqualifyingassets, directly orproduction theacquisition, construction whichare assets (q) Capitalised borrowing costs ofsignificant accountingNote 1.Summary policies(continued) associated landandbuildingsare accounted for asproperty, plant andequipment. to that area expenditure ofinterest. pertaining other subsurface Costs related plant andequipment andany to surface previously capitalisedexploration andevaluation costs, pre on land, buildings, plant andequipment iscapitalisedasdevelopment expenditure. Development expenditure includes Once hasbeenestablished ascommercially aminingproject viableandtechnically feasible, expenditure otherthanthat then reclassified from exploration andevaluation expenditure to development expenditure. demonstrable, exploration andevaluation assetsattributable to that area ofinterest are first tested for impairment and Once ofmineral thetechnical resources feasibility andcommercial oftheextraction viability inanarea ofinterest are amount that would have beendetermined hadnoimpairmentlossbeenrecognised for theassetinprevious years. of itsrecoverable amount amount, doesnotexceed butonlyto theextentthat theincreased thecarrying carrying Where animpairment loss subsequently reverses, amount oftheassetisincreased to therevised thecarrying estimate written down to itsrecoverable amount. Any isrecognised suchimpairment arising inprofit and loss for the year. impairment where value suchindicators might notberecoverable thetest exist. indicates If that thecarrying theassetis Exploration and evaluation assetsare reviewed date at for eachreporting indicators ofimpairmentandtested for profit andlossinthe year inwhichthedecision to abandonthearea ismade. costs inrelation to that area ofinterest. Accumulated costs inrelation to anabandonedarea are written offinfull ofeachareaA regular ofinterest review isundertaken to determine theappropriateness forward ofcontinuing to carry following conditions are satisfied: and evaluation assetintheyear inwhichtheyare incurred. These costs are forward to onlycarried theextentthat the Exploration andevaluation expenditure related to eachidentifiable area ofinterest are recognised asan exploration and includes: accumulated ofeachidentifiable inrespect area ofinterest. Exploration andevaluation expenditure ismeasured at cost and theassessment ofcommercial ofanidentified viability resource. Exploration andevaluation expenditure incurred is involvesExploration andevaluation activity thesearch for mineral resources, thedetermination oftechnical feasibility NOTES TO THEFINANCIALSTATEMENTS • • • • • • • • • • at leastoneofthefollowing conditions isalso met: rights to tenure oftheidentifiable area ofinterest are current; and licensing costs. administration costs that are attributable to directly aspecific exploration area; and andfinance market studies; conducting andinfrastructure requirements; transportation surveying determining andexamining thevalue andgrade oftheresource; drilling,exploratory trenching andsampling; gathering exploration data through topographical, geochemicalandgeophysical studies; researching andanalysing historical exploration data; in,orinrelationand activities to, thearea ofinterest. areasonablepermits ofeconomically assessmentrecoverable oftheexistence orotherwise reserves intheidentifiableii) where area activities ofinterest have date not at the reached astagethatreporting interest, oralternatively, by itssale;or i) theexpenditure to isexpected berecouped through thesuccessful development oftheidentifiable area of production development‑production costs, development studiesand

77 77 FORTESCUE METALS GROUP ANNUAL REPORT 2011 78 78 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only of information to assessfor any factors,future indicationssuchaschangesinexpected ofimpairment. prices, External may notberecoverable. The Group aninternal review conducts ofassetvalues bi‑annually, whichisusedasasource Assets are reviewed for impairmentwhenever events orchangesincircumstances amount indicate that thecarrying ofnon‑financialassets (s) Impairment of economically recoverable reserves. forward exploration of carried and developmentAmortisation costs is charged onabasisoverunit of production the life that they willnotberecoverable inthefuture. is reviewed at theendofeachaccounting andthe accumulated period costs written off to profitextent andloss tothe accumulated cost ofthat inrespect area thedecisionismade. iswritten offinthefinancialperiod Each area of interest When anarea ofinterest isabandonedortheDirectors decidethat itisnotcommercial ortechnically feasible, any give to rise afuture economic benefit. Development costs incurred thecommencement after are ofproduction capitalisedto theextenttheyare to expected beforenew assetsintheperiod theyare capableofoperating inthemannerintended by management, are capitalised. Development costs are accumulated ofeachseparate inrespect area ofinterest. Costs associated withcommissioning ofsignificant accountingNote 1.Summary policies(continued) estimated. more likelythannotthat anoutflow of resources willbe required to settlethe obligation andtheamount canbe reliably Provisions are recognised whenFortescue hasapresent legalorconstructive obligation asaresult ofpastevents, itis (v) Provisions unwinding ofthediscount onprovisions andimpairmentlossesrecognised onfinancialassets. Finance costs comprise interest expense, except where theyare incurred for ofaqualifyingasset, theconstruction (u) Finance costs onastraight linebasisoverIntangible assetsare generally amortised periods ranging from 3to 5years. following completion oftechnical feasibility andwhere Fortescue hasanintention to usetheasset. andability IT development costs includeonlythosecosts attributableto directly thedevelopment phaseandare onlyrecognised costs ofemployees’ timespent ontheproject. Costs costs direct ofmaterials capitalised includeexternal payroll andconsultants direct services, andpayroll related contribute to future financialbenefitsthrough period revenue generation or costare capitalisedassoftware. reduction Costs incurred indeveloping orsystems products andcosts incurred andlicenses inacquiring software that will (t) Intangible assets Impaired assetsare reviewed for possiblereversal date. oftheimpairmentat eachreporting assets. and liabilitiesthat generate cashinflows that are largely independent ofthecashinflows from otherassetsor groups of groups andreferred to ascashgenerating units. Cash generating unitsare thesmallest identifiable groups ofassets testing impairmentcalculations, forIn assetsare indications ofimpairmentandperforming considered ascollective continued useand doesnottakeinto account future development. future cashflows have notbeenadjusted. Value inuseisdetermined by applyingassumptionsspecific tothe Group’s current assessments market ofthetimevaluespecific ofmoneyandtherisks to theasset for whichtheestimates of use oftheassetinitspresent form anditseventual disposal, discounted usingapre Value inuseisdetermined asthepresent value oftheestimated future cashflows from to arise expected the continued These cashflows are discounted usinganappropriate discount rate to arrive at anetpresent value oftheasset. prospects, anditseventual may disposal, takeinto usingassumptionsthat account. anindependentparticipant market of theestimated future cashflows from to arise expected the continued useoftheasset, includingany expansion Fair andwillingparties. between knowledgeable value for mineral assetsisgenerally determined asthepresent value Fair value is determined astheamount that would beobtainedfrom thesaleofassetinanarm’s lengthtransaction recoverable amount. asset’s value inuse. An impairmentlossisrecognised for theamount by whichtheasset’s amount exceeds its carrying an estimate ofthe asset’s recoverable amount iscalculated, beingthehigheroffairvalue costs lessdirect to sellandthe arecosts factors alsomonitored andothermarket to assessfor any indications ofimpairment. If suchindication exists, NOTES TO THEFINANCIALSTATEMENTS ‑tax discount rate that reflects For personal use only the employees become unconditionally entitled to theoptions. corresponding increase inequity. The fairvalue ismeasured at grant date andrecognised over which during theperiod The fairvalue ofoptionsgranted undertheIOSandPRPare recognised asanemployee benefit expense witha (IOS)andPerformance PlanScheme (PRP).Information Rights relating to theseschemesissetoutinnote 36. Share (iii) Share benefits. can bedeferred beyond 12monthsdate from isrecognised thereporting inthenon‑ is recognised inthecurrent provision for employee benefits. leave The liability for longservice for whichsettlement leave forThe liability for longservice date whichsettlement within12monthscannotbe deferred ofthereporting the estimated future cashoutflows. date onAustralianreporting that Government match, andcurrency bondswithterms ascloselypossible, to maturity future Expected payments ofservice. of employee andperiods are departures discounted yields at usingmarket the using theprojected unitcredit method. Consideration isgiven levels, to future expected wageexperience andsalary value future of expected provided payments to by ofservices bemade inrespect employees date upto thereporting leave forThe liability isrecognised longservice intheprovision for employee benefitsandmeasured asthepresent leave(ii) Long service are settled. date uptoemployee andare thereporting measured services at theamountsto expected bepaidwhentheliabilities dateto besettledwithin12monthsare ofthereporting recognised inotherpayables andaccruals of inrespect benefits,Liabilities for annualleave wages andsalaries, includingnon‑monetary andaccumulating sickleave expected (i) Wages andsalaries, annualleave andsickleave (w) Employee benefits the passageoftimeisrecognised asinterest expense. assessmentsmarket ofthetimevaluespecific ofmoneyandtherisks to theliability. The increase intheprovision due to present obligation at thebalance sheetdate. The discount rate usedto determine thepresent value current reflects Provisions are measured at thepresent value ofmanagement’s bestestimate oftheexpenditure required to settlethe ofsignificant accountingNote 1.Summary policies(continued) period. discretion oftheCompany, onorbefore butnotdistributed at period the endofthereporting theendof thereporting Provision ismade for theamount ofany dividenddeclared, beingappropriately andnolongerat authorised the (y) Dividends proceeds. Incremental costs attributableto directly theissueofnewshares netoftax,from are the asadeduction, shown inequity shares areOrdinary classifiedasequity. (x) Contributed equity thatpast practice hascreated aconstructive obligation. Fortescue recognises andanexpense for aliability incentive payments where contractually obligedorwhere there isa (iv) Incentive plans revision to original estimates, ifany, isrecognised inprofit and losswitha corresponding adjustment to equity. The employee benefit expense recognised takesinto eachperiod account themost recent estimate. ofthe The impact date,each reporting revises theentity itsestimate ofthenumberoptionsthat are to expected become exercisable. conditions are includedinassumptionsaboutthenumberofoptionsthat are to expected become exercisable. At ofany vestingimpact non‑market conditions (for example, profitability andsales growth targets). vesting Non‑market The fairvalue oftheoptionsgranted ismeasured market to vesting reflect expected conditions, but excludes the freedividend yieldandtherisk interest rate for theterm oftheoption. date price volatility share, andexpected oftheunderlying theeffectofadditionalmarket conditions, the expected model that takesinto account theexercise price, ofdilution,theshare price theterm at oftheoption,impact grant The fairvalue at grant date isindependently lattice determined usingeither abinomialortrinomial optionpricing NOTES TO THEFINANCIALSTATEMENTS ‑based remuneration benefitsare provided to employees viathe Metals Group’s Fortescue Incentive Option ‑based payments current provision for employee 79 79 FORTESCUE METALS GROUP ANNUAL REPORT 2011 80 80 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only of eachrehabilitation program are recognised at thetimethat environmental disturbance occurs. based onfeasibility andengineering studiesusingcurrent restoration standards andtechniques. Provisions for thecost materials, landrehabilitation andsite restoration. The extentofwork required andtheassociated costs are estimated decommissioningRehabilitation obligations anddismantling, canincludefacility removal ortreatment ofwaste The andprocessing mining,ofFortescue activities give extraction to rise obligations for site rehabilitation. (aa) Rehabilitation the effectsofallpotential shares dilutive that ordinary were thefinancial outstandingduring year. shareholders by theweighted average shares thefinancial onissueduring numberofordinary year, adjusting after for Diluted pershare earnings iscalculated by dividingthenetprofit for thefinancial year attributable to the ordinary (ii) Diluted earningspershare shareholders by theweighted average shares thefinancial onissueduring numberofordinary year. pershareBasic earnings iscalculated by dividingthenetprofit for thefinancial year attributable tothe ordinary earningspershare(i) Basic (z) Earningspershare ofsignificant accountingNote 1.Summary policies(continued) financing activities, whicharefinancing activities, disclosedasoperating cashflows. Cash flows are presented inthecashflow statement ona gross basis, except fortheGST component of investing and current inthebalance sheet. assetorliability sheet are shown inclusive ofGST. The netamount of GSTrecoverable from, orpayable to, theATO isincludedasa ofanitem oftheexpense. ofthecost ofacquisition Receivables oftheassetoraspart andpayablespart inthebalance incurred isnotrecoverable from theAustralian Taxation Office (ATO). Inthese circumstances theGST is recognised as Revenues, expenses andassetsare recognised netoftheamount ofassociated GST, except where theamount ofGST andServices (ac) Goods Tax (GST) area ofinterest are notdeferred butcharged to profit andlossastheyare incurred. ofiron andcommencesstripping ore. uponextraction Production costs stripping for Cloudbreak Creek andChristmas Removal of waste material continues normally throughout thelife ofamine. isreferredThis activity to asproduction impairment assessments. costsstripping are considered incombination withotherassetsofanoperation for ofundertaking thepurpose Capitalised development costs stripping are andproduction classifiedasdevelopment expenditure.Development of capitaliseddevelopment costs stripping basisfor isdetermined onaunitofproduction eachseparate area ofinterest. ofthosecapitalisedcostsiron commences costs ore.stripping ceases uponextraction andamortisation Amortisation of anallocation ofrelevant overhead expenditure, are capitalisedasdevelopment costs. Capitalisation ofdevelopment access themineral deposit. isreferredThis activity to asdevelopment stripping. The attributablecosts, directly inclusive Overburden andotherminewaste materials are removed often theinitialdevelopment during ofamineinorder to (ab) Deferred stripping the related accordingly. rehabilitation assetandamortised environmental policiesandrevised discount rates. Changesto therehabilitation are liability from addedto ordeducted estimates, changesto theestimated reserves, resources andlives ofoperations, requirements, newregulatory dateAt therehabilitation eachreporting isre liability balance sheet date andthecosts charged to profit andlossinlinewith remaining future cashflows. closure, provision ismadefor thepresent obligation orestimated outstandingcontinuous rehabilitation work at each Where rehabilitation to isexpected systematically beconducted over thelife oftheoperation, rather thanat thetimeof over timeastheeffectofdiscounting unwinds, creating an expense recognised inthefinancialstatements. based ontheunits‑ capitalised cost ofclosure andrehabilitation isrecognised activities withindevelopment expenditure andamortised cost ofthe related asset, representingofthecost ofacquiring thefuture economic part benefitsoftheoperation. The When provisions for closure andrehabilitation are initiallyrecognised, thecorresponding cost iscapitalisedinto the rehabilitation provisions are discussedinnote 2. the relevant site, discounted to theirpresent value. The judgements andestimates appliedfor theestimation ofthe Rehabilitation provisions are initiallymeasured atvalue theexpected offuture cashflows required to rehabilitate NOTES TO THEFINANCIALSTATEMENTS production methodoverof‑production thelife ofthemine. The value oftheprovision isprogressively increased ‑measured to account for any newdisturbance, updated cost For personal use only beginning 1July2010: The following newstandards andamendments to standards for are thefirsttime mandatory for thefinancial year (i) New andamendedstandards adopted by theGroup (ad) New accounting standards andinterpretations ofsignificant accountingNote 1.Summary policies(continued) new standards and interpretations issetoutbelow. andhave periods reporting notyet beenappliedinthefinancial report. The Group’s ofthese assessment oftheimpact newaccountingCertain standards andinterpretations have for beenpublishedthat are 30June2011 notmandatory (ii) New accounting standards andinterpretations notyet adopted affect future periods. The adoptionofthesestandards didnothave anyonthecurrent orany period andisnotlikelyto impact period prior NOTES TO THEFINANCIALSTATEMENTS • • • • • • • • • • • classified as either joint operations (where parties withjointclassified aseitherjoint operationscontrol (where parties haverights to assetsandobligations for 2013). IFRS11introduces changesto theaccounting certain for joint arrangements. Joint arrangments willbe IFRS 11 ofthestandard.impact The AASBhasnotyet updated theAustralian equivalent ofIFRS10. controlde facto andchangesinrelation to entities. thespecialpurpose Fortescue iscontinuing to assessthe 2013).IFRS10introduces changesto theconsolidation principles, certain 1 January includingtheconcept of IFRS 10 the Group’s disclosures. The Group intends to applytheamendment from 1July2011. fromarising transferred financialassets. The amendments are not to haveexpected any on significant impact Financial Instruments:Disclosures (effective beginning 1July2011). periods Amendments onorafter made to AASB7 for annual reporting AASB 2010‑6 AASB 2010‑3 AASB 2009‑10 Transactions; AASB 2009‑8 Project ‑adopted by early theGroup inthe2010financial report; AASB 2009‑5 January 2013 butisavailable for adoption. FortescueJanuary early is continuing to assessitsfull impact. measurement andderecognition offinancialassetsandliabilities. Thestandard 1 isnotapplicable until 2013).AASB9addresses theclassification, (effective beginning 1January periods onorafter for annual reporting AASB 9andAASB to Australian 2010‑7Amendments Accounting Standards arisingfrom AASB 2010) 9 (December AASB 9 these are nolongerrequired by AASB1054. the financialstatements willnolongerincludedisclosures aboutcapitalandother expenditure commitments as supply ofinventories). When thestandard isadopted for thefirsttime for thefinancial yearending30June2012, class ofcapitalcommitments contracted (otherthancommitments for period for at theend ofthereporting the Convergence Project. AASB1054Australian Additional Disclosures removes therequirement to discloseeach for July 2011).AASB1054,issuedinMay 2011,moves additionalAustralian specificdisclosure requirements for AASB 1054 However, onany there willbenoimpact oftheamounts recognised inthefinancialstatements. standard isfirstadopted, there willbechanges to thepresentation ofthestatement of comprehensive income. comprehensive income withUSGAAP. Fortescue willapplytheamendedstandard from 1July2013. When the July 2013).IAS1,amendedinJune2011,introduces amendments to align thepresentation items ofother IAS 1 ofthestandard.assess theimpact The AASBhasnotyet updated theAustralian equivalent ofIFRS13. at fairvalue onthebalance sheetordisclosedinthenotes to thefinancialstatements. is continuing to Fortescue IFRS 13establishesasingleframework for fairvalue measuring offinancialandnon‑items recognised IFRS 13 updated theAustralian equivalent ofIFRS11. for method. usingtheequity Fortescue iscontinuing ofthestandard. to assesstheimpact The AASBhasnotyet Joint arrangements asaseparate structured vehicle willgenerally betreated asjoint ventures andaccounted liabilities) orjoint ventures withjoint control (where parties have rightsto thenetassetsof arrangement). ‑profit entities from various Australian Accounting Standards into this Standard asa result of Trans‑ Presentation ofFinancial Statements Financial Instruments Fair Value Measurement ArrangementsJoint Consolidated Financial Statements Australian Additional Disclosures Amendments to AustralianAmendments Accounting Standards to AustralianAmendments Accounting Standards to AustralianAmendments Accounting Standards ‑Group Cash‑settled Share to AustralianFurther Amendments Accounting Standards Amendments to AustralianAmendments Accounting Standards ‑ClassificationRights Issues; of (effective for the annual reporting periods commencing on or after 1 January (effective 1January periods commencing onorafter for theannual reporting andAASB2009‑11 (effective for annual reporting periods commencing on or after 1 January 2013). (effective 1January periods commencing onorafter for annual reporting inNovember 2010,introduce additionaldisclosures exposures ofrisk inrespect (effective 1 periods commencing onorafter for annual reporting (effective periods commencing onorafter for theannual reporting (effective beginning 1 periods onorafter for annual reporting Amendments to AustralianAmendments Accounting Standards arisingfrom ‑Disclosures on Transfers ofFinancial Assets from arising theAnnual Improvements Project. arising from arising theAnnual Improvements ‑based Payment and Tasman

81 81 FORTESCUE METALS GROUP ANNUAL REPORT 2011 82 82 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only calculations to interpret thedata. analysing geological data samples. suchasdrilling This requires complex anddifficultgeological judgements and andgradequantity ofore requires reserves thesize, shapeand depthofore bodiesorfields to bedetermined by rates, costs, costs, production demand, commodity transport prices andexchange commodity rates. Estimating the a range ofgeological, technical andeconomic factors, includingquantities, grades, techniques, production recovery Fortescue’s current mining tenements. order In to calculate ore reserves, estimates andassumptionsare required about Iron ore are reserves estimates from oftheamount that ofproduct canbeeconomically and legallyextracted (ii) Iron ore reserveestimates profits. utilised. The oftheentities to utilisation ofthetax lossesdependsontheability generate sufficient future taxable differencestaxable temporary relating againstwhichtheunusedtaxlosses canbe to thesametaxation authority Fortescue hasrecognised deferred taxassetsrelating forward totaxlosses carried theextentthere are sufficient income inwhichsuchdetermination taxassetsandliabilitiesintheperiod is made. matters isdifferent from theamounts that were initially recorded, suchdifferences thecurrent anddeferred willimpact estimates itstaxliabilitiesbasedontheGroup’s understanding ofthetaxlaw. Where the finaltaxoutcome ofthese course ofbusinessfor the ordinary Fortescue during whichtheultimate taxdetermination isuncertain. undertaken judgement isrequired indetermining theprovisions for income taxes. There andcalculations transactions are certain The to Group income taxes issubject inAustralia where ithasforeign andjurisdictions operations. Significant (i) Income taxes by management inthepreparation ofthesefinancial statements. Fortescue hasidentified the following accounting critical policieswhere significant judgements andestimates are made estimates under different assumptionsand conditions. values ofassetsandliabilitiesthat are notreadily apparent from othersources. results Actual may differ from these itbelievesvarious factors to bereasonable underthecircumstances, the results ofwhichform thebasisofcarrying period, management evaluatesreporting itsjudgements andestimates basedonhistorical experience andon other and form assets, assumptionsthat affecthowliabilities, certain revenue, are expenses andequity reported. At each The preparation oftheconsolidated financialstatements requires management to makejudgements andestimates Note 2.Critical accounting estimates andjudgements Where comparatives applicable, certain have beenadjusted to conform withcurrent year presentation. (ae) Comparatives NOTES TO THEFINANCIALSTATEMENTS Note 1. Summary ofsignificant accountingNote 1.Summary policies(continued) • • • two the AASBofficially introduced a reviseddifferential framework in Australia. reporting a Underthis framework, Accounting Standards arisingfrom Reduced DisclosureRequirements AASB 1053 onanybe noimpact oftheamounts recognised inthefinancialstatements. Fortescue willneedto discloseany anditsassociates. between itssubsidiaries transactions However, there will related party. Fortescue willapplytheamendedstandard from 1July2011. When theamendments are applied, 2011andmustbeappliedretrospectively.1 January The amendmentandsimplifiesthedefinitionofa clarifies issued arevised Disclosures. AASB124Related iseffective Party It for accounting beginning periods onorafter DecemberIn 2009theAASB 2011). (effective beginning 1January periods onorafter for annual reporting AASB124 Revised statements. Fortescue intends to applytheamendment from 1July2012. entirely by sale. The amendmentto isnotexpected have any on significant impact Fortescue’s financial introduces arebuttable presumption that investment whichismeasured at fairvalue isrecovered property amount ofthe relevant assetsorliabilities,the carrying that isthrough useorthrough sale. The amendment to thetax reflect consequences that would follow from the way managementto expects recover orsettle measured using thefairvalue model. AASB112requires themeasurement ofdeferred taxassetsandliabilities approachpractical for deferred measuring taxliabilitiesanddeferred taxassetswheninvestment is property DecemberIn 2010,theAASBamended112 2012). (effective from 1January AASB 2010‑8 entity. Disclosure Requirements. The two standards willtherefore have onthefinancialstatements noimpact ofthe Fortescue islisted ontheASXandisnoteligible to adoptthenewAustralian Accounting Standards ‑Reduced ‑tier differential regime applies to allentitiesreporting that prepare general financialstatements. purpose Application ofTiers ofAustralian Accounting Standards Amendments to AustralianAmendments Accounting Standards Tax: ‑Deferred Recovery ofUnderlyingAssets Related Party Disclosures Related Party andAASB2009‑12 Amendments to AustralianAmendments Accounting Standards andAASB2010‑2

(effective from 1July2013).On 30June2010

Income Taxes Amendments to AustralianAmendments to provide a

For personal use only Fortescue’s for accounting exploration policy andevaluation expenditure results inexpenditure beingcapitalisedfor (iii) Exploration andevaluation expenditure including thefollowing: may reserves affect Changes inreported Fortescue’s financial resultsandfinancialpositioninanumberof ways, geological data isgenerated thecourse during ofoperations, estimates may ofreserves change from to period period. theeconomicBecause assumptionsusedto estimate changefrom reserves to period period, andbecauseadditional Note 2.Critical accounting estimates andjudgements (continued) management estimates andassumptions, prevailing conditions market andeconomic forecasts: to amount re ofthenote issubject The carrying on iron ore produced andshippedfrom thesetwo tenement areas for of13years aperiod from 18August 2006. Hedland from thetenements oftheCloudbreak Creek andChristmas areas only. Accordingly theinterest isonlypayable is calculated as 4percent oftherevenue, netofgovernment royalties, from thesaleofiron ore free onboard (FOB)Port The Company putinplace aUS$100millionunsecured loannote the2007financial during year.Interest underthenote (vii) Unsecured loannote the amounts currently provided. the associated costs ofrehabilitation work. mayThese result uncertainties expenditure infuture actual differing from magnitude ofpossibleworks required for removal ortreatment ofwaste materials andtheextentofwork required and Fortescue’s for accounting therecognition policy ofrehabilitation provisions requires significant estimates includingthe (vi) Rehabilitation and theimpairmentwould becharged to profit and loss. recoverable amount value oftheassets. suchcircumstances, oftheassetsmay In beimpaired someorallofthecarrying costs and future capitalexpenditure. Changesincircumstances willalter theseprojections, the whichmay impact and salesvolumes, prices, commodity (see reserves ‘iron ore estimates’ reserve above), operating costs, rehabilitation The determination offairvalue andvalue inuserequires management to makeestimates production aboutexpected (v) Property, plant and equipment –recoverable amount appropriate amount willbewritten off to profit andloss. If, having after commenced thedevelopment activity, ajudgement ismadethat adevelopment assetisimpaired, the exercising thisjudgement, management isrequired estimates andassumptionsasto to thefuture makecertain events. Judgement isappliedby management iscommercially indetermining whenaproject viableandtechnically feasible. In commenceDevelopment commercial after activities andtechnical feasibility isestablished. viability oftheproject (iv) Development expenditure the expenditure isunlikely, therelevant capitalisedamount willbewritten off to profit andloss. becomes available. If, having after capitalisedtheexpenditure underthepolicy, ajudgement ismadethat recovery of operation canbeestablished.viable extraction Any suchestimates andassumptionsmay changeasnewinformation estimatesmanagement asto to future makecertain events andcircumstances, whetheraneconomically inparticular have notreached areasonable astagewhichpermits assessment oftheexistence ofreserves. requiresThis policy an area ofinterest where itisconsidered likelyto berecoverable by future exploitation orsalewhere theactivities NOTES TO THEFINANCIALSTATEMENTS • • • • • • • • The carrying value ofdeferredThe taxassetsmay carrying changedueto changesinestimates ofthelikelyrecovery oftaxbenefits. basis,units ofproduction orwhere theusefuleconomic lives ofassetschange;and charges inprofitDepreciation andlossmay andamortisation changewhere suchcharges are determined by the values may beaffected due Assetto changesinestimated carrying future cashflows; The estimate reserve ofCloudbreak Creek andChristmas area. royaltyExpected rates payable to the Western Australian state government; and note; The discount rate, determined asimplicitinterest rate of42percent andappliedsince inception oftheloan Forecast future iron ore prices determined by anindependent resource analyst offuture sector iron ore prices; Forecast profile production from Creek Christmas andCloudbreak area ofinterest; ‑ estimation at each reporting dateestimation atinlinewithchangesthefollowing eachreporting 83 83 FORTESCUE METALS GROUP ANNUAL REPORT 2011 84 84 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only oversight role by anindependent internal auditor. regularThe reviews internal auditor management undertakes ofrisk to faced therisks by theCompany andFortescue. Fortescue’s AuditCommittee Management andRisk isassisted inits managementrisk policiesandprocedures management oftherisk framework andreviews inrelation theadequacy Fortescue’s AuditCommittee Management andRisk oversees how management monitors compliance withtheGroup’s andpoliciesitsets.the objectives relevant Executives through whichitreviews theeffectiveness oftheprocesses putinplace andtheappropriateness of The AuditCommittee Management andRisk receives asrequired reports from theChiefFinancial andother Officer that ensure theeffective implementation andpolicies Management oftheobjectives to the Risk Committee.Audit and whilst retaining ultimate responsibility for for them,ithasdelegated the authority designing andoperating processes The Board hasoverall responsibility for thedetermination ofFortescue’s management andpolicies, risk objectives and (i) General objectives, policiesandprocesses seeks to minimisepotential adverse effectsonfinancialperformance. Fortescue’s risk. liquidity overall management risk program and focuses offinancialmarkets ontheunpredictability thenormal Thecourse of risks thatduring financialarise Fortescue’s creditrisk and operationsrisk, market comprise Note 3.Financial riskmanagement and otherreceivables, borrowings, trade and otherpayables and otherfinancialassetsandliabilities. to withrespect theAustralianprimarily dollarandEuro. Fortescue oncashreserves, risk trade isexposed to currency Fortescue operates internationally andisexposed to foreign exchange exposures from arising risk variouscurrency (i) Foreign exchange risk price risk). (commodity becauseofchanges ininterestfluctuate rates (interest raterisk), foreign exchangerisk) oriron rates ore (currency prices risk thatIt isthefair financial instruments.value offuturecurrency cashflows ofafinancialinstrument will from arises risk Fortescue’sMarket exposure to andtheuseofinterest price risk commodity andforeign bearing (a) Market risk liabilities approximate theirfairvalues. financial liabilities, otherthanderivatives, arecost. measured at amortised values ofthefinancialassetsand The carrying the consideration paid orreceived, costs. attributabletransaction netofdirectly Subsequently, thefinancialassetsand All financial assetsandfinancialliabilities, withthe exception ofderivatives, are initially recognised atthefair valueof amountThe ofeachclassfinancialassetsandliabilities. following tabledisclosesthecarrying Fortescue’s competitiveness andflexibility. The overall oftheBoard objective isto setpoliciesthat seekto reduce asfarpossiblewithoutundulyaffecting risk Committee.Management controls andprocedures across Fortescue’s businessoperations, theresults ofwhichare to theAudit reported andRisk NOTES TO THEFINANCIALSTATEMENTS Derivatives heldat fairvalue Finance leaseliabilities Trade andotherpayables Borrowings Financial liabilities financialassets Other Trade andotherreceivables Cash andcashequivalents Financial assets

5,868,080 3,040,353 4,662,376 2,662,719 US$'000 208,615 997,089 369,114 8,520 2011 - 3,810,368 1,435,719 2,975,663 1,235,538 US$'000 805,576 200,086 16,285 12,844 2010 95 For personal use only projects. in Australian dollarscontracted andhighlyprobable forecast expenditure associated withtheGroup’s expansion cash flows into Australian dollars to eliminate foreign cashflow exposure currency onequivalent amounts denominated flow hedgestrategy isdesigned to proceedsconvert from created theissuance ofdebtandliquidity from operating Fortescue hasimplemented anon‑ already denominated will, inthat where currency possible, betransferred from otherentities withinFortescue. currency, otherthantheirfunctional in acurrency andhave tosettlethem,cash ofthat insufficient currency reserves with thecashgenerated from theirown operations inthat currency. Where Group entities have liabilitiesdenominated Fortescue’s is, where policy possible, to allow Group entities to currency settleliabilitiesdenominated intheirfunctional Note 3.Financial riskmanagement (continued) below: amounts ofthegroup’sThe carrying financialassetsandliabilitiesare denominated infive differentcurrencies assetout flow forecasting. hasnotenteredFortescue into any exchangeforward as contracts at 30June2011. that isnottheentity’scurrency currency. functional The exposure to ismeasured analysis risks andcash usingsensitivity Foreign exchange from arises risk future commercial andrecognised transactions assetsandliabilities denominated ina NOTES TO THEFINANCIALSTATEMENTS Finance leaseliabilities Trade andotherpayables Borrowings Financial liabilities Total financialassets financialassets Other Trade andotherreceivables Cash andcashequivalents Financial assets Total financialliabilities Finance leaseliabilities Trade andotherpayables Borrowings Financial liabilities Total financialassets financialassets Other Trade andother receivables Cash andcash equivalents Financial assets Total financialliabilities Derivatives held at fair value derivative foreign exchange rate cashflow hedgestrategy. The non‑ 1,079,022 4,847,246 2,129,730 3,050,269 2,477,175 4,508,473 1,929,402 US$'000 US$'000 556,809 115,990 963,032 338,773 200,328 16,285 USD USD - - - - 1,020,834 US$'000 US$'000 898,490 381,942 330,730 248,767 120,331 249,561 208,615 658,316 153,903 159,955 730,015 81,074 12,844 8,520 AUD AUD 95 - US$'000 US$'000 378,157 378,157 10,645 25,967 22,945 30 June2010 30 June2011 EURO EURO 8,779 1,866 3,022 ------US$'000 US$'000 1,420 1,368 NZD NZD 52 ------US$'000 US$'000 RMB RMB 68 68 derivative cash ------1,435,719 5,868,080 3,040,353 3,810,368 4,662,376 2,662,719 2,975,663 1,235,538 US$'000 US$'000 805,576 200,086 208,615 997,089 369,114 16,285 12,844 8,520 Total Total 95 85 85 FORTESCUE METALS GROUP ANNUAL REPORT 2011 86 86 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only through theuseoffixed rate instruments or to mitigaterisk through the theuseoffloating‑to isFortescue’sIt eitherto substantially eliminate policy interest rate over risk thecashflows onitslong‑term debtfinance (iii) Interest rate risk date was asfollows: and iscurrentlyFortescue’s fullyexposed to price risk. commodity exposure to at price risk thereporting commodity international iron ore index. Fortescue hasnotentered into any price forward contracts commodity asat 30June2011 The Group isexposed to through price risk commodity themovement incontract iron ore prices that are basedonan (ii) Commodity price risk Note 3.Financial riskmanagement (continued) inherent insuchamarket. Fortescue invests cashinterm depositsand indoingsoexposesinterest surplus itselfto thefluctuations rates that are secured notes. This interest rate swap together withthefloating rate seniorsecured notes the were during year. extinguished As at 30June2010 Fortescue hadafloating‑to Disclosures. cost to andare interest notsubject are at amortised carried rate asdefinedinAASB7 risk Fortescue currently doesnothave floating rate financialinstruments. The Group’s fixed borrowingsrate and receivables NOTES TO THEFINANCIALSTATEMENTS Net exposure to cashflow interest rate risk Interest rate swaps Borrowings ‑seniorsecured notes Unsecured loannote Trade receivables ‑fixed interest rate swap over itsUS$250million Euro 30 June2011 Financial Instruments: ‑fixed interest rate swaps. US$'000 ‑ (943,913) denominated senior denominated senior US$'000 195,261 2011 - - - 30 June2010 (826,240) US$'000 US$'000 267,232 102,503 250,947 16,285 2010 For personal use only

its foreign exchange isto risk theAustralian andEuro Dollar rates isdueto price risk andcommodity spotiron ore prices. estimate to rates. market itssensitivity The Group’s maininterest rate exposures are to Australian short The Group hasusedranges ofrate that approximate andprice fluctuations the period ratesto over observed the reporting analysis(iv) Summarisedsensitivity Note 3.Financial riskmanagement (continued) NOTES TO THEFINANCIALSTATEMENTS (decrease) increase/ Total liabilities lease Finance payables and other Trade Borrowings liabilities Financial assets financial Other receivables and other Trade equivalents and cash Cash assets Financial 2011 30 June (decrease) increase/ Total value held at fair Derivatives liabilities lease Finance payables and other Trade Borrowings liabilities Financial assets financial Other receivables and other Trade equivalents and cash Cash assets Financial 2010 30 June 2,662,719 4,662,376 2,975,663 1,235,538 Carrying Carrying Carrying Carrying US$'000 US$'000 amount amount 208,615 997,089 369,114 805,576 200,086 16,285 12,844 8,520 95 US$'000 US$'000 Pre-tax Pre-tax Pre-tax Pre-tax (6,657) (3,089) (6,657) (3,089) profit profit (625) 625 ‑25 bps ‑25 bps ------US$'000 US$'000 Interest rate risk Interest rate risk equity equity Other Other Other Other ------US$'000 US$'000 Pre-tax Pre-tax Pre-tax Pre-tax profit profit 6,657 3,089 6,657 3,089 (625) 625 +25 bps +25 bps ------US$'000 US$'000 equity equity Other Other Other Other ------(193,122) US$'000 US$'000 (20,861) (65,832) (15,390) (16,879) (73,325) (27,251) Pre-tax Pre-tax Pre-tax Pre-tax 54,369 (8,330) 38,142 49,849 profit profit 1,969 (835) (10) ‑10% ‑10% - Foreign exchange risk Foreign exchange risk US$'000 US$'000 equity equity Other Other Other Other (17) (17) ------US$'000 US$'000 (54,369) 193,122 (38,142) (49,849) Pre-tax Pre-tax Pre-tax Pre-tax (1,969) 20,861 65,832 15,390 16,879 73,325 27,251 profit profit 8,330 835 +10% +10% 10 - US$'000 US$'000 equity equity Other Other Other Other 17 17 ------US$'000 US$'000 178,821 213,154 (57,157) (49,594) 235,978 262,786 Pre-tax Pre-tax Pre-tax Pre-tax profit profit (38) ‑25% ‑40% ------US$'000 US$'000 Other price risk Other Other price risk Other equity equity Other Other Other Other ‑term interest rates; ------(178,821) (213,154) (235,978) (262,786) US$'000 US$'000 Pre-tax Pre-tax Pre-tax Pre-tax 57,157 49,594 profit profit +25% +40% 38 ------US$'000 US$'000 equity equity Other Other Other Other

------87 87 FORTESCUE METALS GROUP ANNUAL REPORT 2011 88 88 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only expansion programmes. subsidiaries. to isexpected The beusedfor andgeneralFortescue’s facility corporate liquidity to purposes support senior notes, andmatures on29June2014.Fortescue’s obligations undertheFacility are guaranteed ofits by certain rate. The Facility contains negative andaffirmative covenants that are substantially consistent with Fortescue’s existing to whichupto US$600millionisavailable onarevolving basisat amargin of3.25percent over thefloating LIBOR On 29June2011,Fortescue entered into aSyndicated Loan Facility (Facility) pursuant withninebankcounterparties, reduce risk. liquidity further The tablebelow sets out detailsofcashandequivalents andundrawn facilitiesthat theGroup hasat itsdisposalto (i) Financing arrangements andforecastactual cashflows, and by matching profiles thematurity offinancialassetsandliabilities. facilities, byGroup risk maintaining by adequate manages liquidity andbanking continuously cashreserves monitoring that istherisk Group risk willnotbeabletoLiquidity meetitsfinancial obligations asandwhentheyfalldue. The risk (c) Liquidity impairment lossonthesereceivables. The analysis ofreceivables pastdueispresented innote 10(a).Fortescue doesnotconsider there to beany potential receipt ofabillladingcovering approximately 95percent ofthevalue ofiron ore shipped. trade receivables Fortescue mitigates itscreditintheform inmostcasesby ofletters risk obtainingsecurity ofcredit on The amount maximumexposureofthefinancialassets. to date credit atisthecarrying risk thereporting For commodity institutions withthecredit ratings approved by theBoard. and monitored by theBoard ofDirectors. Fortescue minimisesthecredit by risks holdingfundswitharange offinancial The exposure to thecredit from risk cashandshort Fortescue hasnotrecognised any baddebtexpense inthe2011or2010financial years. investment grade credit ratingfor andwiththecapacity payment offinancial commitments considered strong. of financiallossfrom defaults. Cash andcash equivalents are heldinfinancialinstitutionswithlong‑term various asameansofmitigatingFortescue ofonlydealingwithcredit therisk counterparties worthy hasadopted apolicy Fortescue isexposed to aconcentration ofitsiron ore withthemajority ofrisk customers beinglocated inChina. derivative financialinstruments, depositswithbanksandfinancialinstitutions receivables from customers. contractual obligations resulting infinancialloss to Credit fromFortescue. risk arises cashandequivalents at bank, Credit ismanagedonaconsolidated risk basis. Credit refers risk willdefaultonits to that therisk acounterparty (b) Credit risk Note 3.Financial riskmanagement (continued) NOTES TO THEFINANCIALSTATEMENTS Syndicated ‑amount used loanfacility Syndicated ‑amount unused loanfacility Cash andcashequivalents

term deposits held in banks is managed by the treasury department department ‑term depositsheldinbanksismanagedby thetreasury 3,262,719 2,662,719 US$'000 600,000 2011 - 1,235,538 1,235,538 US$'000 2010 - - For personal use only undiscounted cashflows. date date. attoperiod thereporting thecontractual maturity The amounts disclosedinthetableare thecontractual The tablesbelow analyse theGroup’s financialliabilitiesinto relevantgroupings maturity basedonthe remaining (ii) Maturities offinancialliabilities Note 3.Financial riskmanagement (continued) AASB 7 of theseborrowings. notes, there isnocomparable instrument againstwhichFortescue inorder canbenchmark to determine thefairvalue shares are acloseapproximation oftheirfairvalue. However, dueto theuniquenature ofFortescue’s unsecured loan 2011),seniorunsecured value oftheseniorsecured notes inOctober notes andpreference (extinguished carrying flows at thecurrent interest market rate that is available to for similarfinancialinstruments.Fortescue Thecurrent The fairvalue ofborrowings for disclosure would purposes beestimated by discounting thefuture contractual cash disclosure purposes. The fairvalue offinancialassetsandliabilitiesmustbeestimated for recognition andmeasurement for (d) Fair value estimation NOTES TO THEFINANCIALSTATEMENTS Derivatives Total non‑ Fixed rate Variable rate Non‑interest bearing Non‑ 30 June2010 Total non‑ Fixed rate Non‑interest bearing Non‑ 30 June2011 Total derivatives rate swaps) Net settled(interest • • • derivatives derivatives Level inputs). data market (unobservable 3‑inputsfor that are theasset orliability notbasedonobservable (derived (asprices) orindirectly either directly from prices); and Level 2‑inputsotherthanquoted prices includedwithinlevel for 1that are theassetorliability, observable Level 1‑quoted prices for (unadjusted) markets inactive identical assetsorliabilities; Financial Instruments:Disclosures derivatives derivatives

Less than6 Less than6 US$'000 US$'000 715,144 998,578 months months 272,513 726,065 319,312 383,611 12,221 2,429 2,429 requires disclosure ofthelevels offairvalue measurements by hierarchy: US$'000 US$'000 363,701 198,141 months months 323,701 179,987 12,154 40,000 8,023 6 ‑12 6 ‑12 6,000 8,023 Between Between US$'000 US$'000 747,584 707,257 452,626 254,074 674,257 1 and2 1 and2 40,884 33,000 5,833 years years 5,833 1,400,645 4,729,413 1,336,645 4,681,413 Between Between US$'000 US$'000 2 and5 2 and5 64,000 48,000 years years - - - 3,917,763 2,545,310 3,917,763 2,545,310 US$'000 US$'000 Over 5 Over 5 years years - - - - - contractual contractual contractual contractual 6,979,277 9,344,259 cash flowscash cash flowscash 6,206,333 8,497,194 US$'000 US$'000 278,449 494,495 847,065 16,285 16,285 Total Total 3,683,759 5,868,080 liabilities liabilities 2,938,317 5,021,015 Carrying Carrying Carrying Carrying US$'000 US$'000 amount amount 250,947 494,495 847,065 16,285 16,285 89 89 FORTESCUE METALS GROUP ANNUAL REPORT 2011 90 90 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only as at 30 June2010. The following tablepresents thegroup’s assetsandliabilitiesmeasured andrecognised at fairvalue at 30June2011and Note 3.Financial riskmanagement (continued) in certain circumstances,in certain for to remedial betaken. action interim ratio levels moving to atargeted longer term level. levels andconsider Interim therequirements, acknowledge investment, for example expansion programmes, contemplates downturn, the capitalpolicy cycle oracommodity Target ranges for ratios are provided dependent upontheinvestment ofintensive periods cycle. andcommodity During divided by finance costs) and leverage ratio (netdebtdivided by EBITDA). to, ratios gearing (calculated interest asnetdebtdividedby netdebtplusequity), coverage ratio (calculated asEBITDA The Group monitors capitalusingfinancial andnon‑financialindicators. Financial indicators include, butare notlimited development, cycles. expansion, andcommodity production The Group targets consistent capitalstructure aconservative withinvestment grade credit throughout metrics the Statement ofChangesinEquity. oftheGroupbank balances) andtheequity (comprising issuedcapital, and retained reserves asdetailedinthe earnings The oftheGroup capital structure consists ofnetdebt(borrowings asdetailedinnotes 19and20offset by cashand development andexpansion ofthebusinessandto provide consistent returns shareholders. to itsequity Fortescue’s provides capitalmanagement aframework policy to maintain astrong to capital structure sustainthefuture (e) Capital management in level 3. a valuation technique for inputs, theseinstruments isbasedonsignificantsuchinstruments are unobservable included present value oftheestimated future cashflows. These instruments are includedinlevelInthecircumstances 2. where determine fairvalue for theremaining financialinstruments. The fair value ofinterest rate swaps iscalculated asthe for long‑term debtfor disclosuretechniques, purposes. Other suchasestimated discounted cash flows, are used to period. prices Quoted ordealerquotes market forof eachreporting similarinstruments are usedto estimate fairvalue The Group ofmethodsandmakesassumptionsthat are usesavariety conditions basedonmarket existing at theend The fairvalue offinancialinstruments that are isdetermined nottradedusing market valuation inanactive techniques. price usedfor financialassetsheld by theGroup isthecurrent bid price. These instruments are includedinlevel 1. available for period. isbasedonquoted prices salesecurities) at market theendofreporting The quoted market The fairvalue offinancialinstruments (suchaspubliclytraded traded markets derivatives, inactive andtrading and NOTES TO THEFINANCIALSTATEMENTS Total assets securities Available for salefinancialassets‑equity Assets 30 June2011 Total liabilities Derivatives heldat fairvalue Liabilities Total assets securities Available for salefinancialassets‑equity Assets 30 June2010

US$'000 US$'000 Level 1 Level 1 175 175 95 95 - -

- - - - US$'000 US$'000 Level 2 Level 2 16,285 16,285 - - - - US$'000 US$'000 Level 3 Level 3 - -

US$'000 US$'000 16,285 16,285 Total Total 175 175 95 95 For personal use only and related shipment ofproduct. Revenue from onecustomer amounted to from US$386.6million (2010:US$308.0million),arising thesaleofiron ore customer(ii) Major information the geographical location ofcustomers. of thesegment assets. presenting In information onthebasisofgeographical segments, segment revenue isbasedon Fortescue operates predominantly inthegeographical location ofAustralia, andthisisthelocation ofthevast majority (i) Geographical information No operating segments have beenaggregated to form theabove consolidated information. isprovidedThe internal reporting to thechiefoperating decisionmakerontheconsolidated basis. oftheoperating segments,performance hasbeenidentified astheChiefExecutiveOfficer. decision maker. The chiefoperating decisionmaker, whoisresponsible for allocating resources andassessing Operating segments are inamannerconsistent reported provided withtheinternal reporting to thechiefoperating Note 4.Segment information

NOTES TO THEFINANCIALSTATEMENTS Other income Other Provision ofservices access port Third party incomeNote 6.Other product ofthirdSale party ofironSale ore Note 5.Operating salesrevenue Total revenue from external customers statement per ofcomprehensive income Other China Revenues from external customers 5,442,102 5,442,102 5,269,935 5,377,252 US$'000 US$'000 US$'000 172,167 49,981 16,790 15,785 17,406 64,850 2011 2011 2011 3,220,062 3,220,062 3,113,779 3,168,424 US$'000 US$'000 US$'000 106,283 65,176 17,773 38,405 51,638 8,998 2010 2010 2010 91 91 FORTESCUE METALS GROUP ANNUAL REPORT 2011 92 92 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only (2010: US$285.1 million). Total employee benefits expense, includedin cost of sales andadministration expenses isUS$437.6million 30 June2011,thecapitalisation rate was 5.68%(2010:nil). netofinterestassets underconstruction, income investments from temporary ontheseborrowings. For theyear ended ** Interest hasbeencapitalisedat therate ofinterest applicableto specificborrowings financingthedevelopment share ofjoint venture cost ofsales. andFortescue’s operating product,infrastructure services expenses includethecost* Other ofpurchasing third party NOTES TO THEFINANCIALSTATEMENTS Redemption ofborrowingsRedemption cost above amortised feesBridging facility andinterest Premium onbuybackofseniorsecured notes Refinancing costs Net finance expenses Interest income Finance income Other Interest capitalised** Movement infairvalue ofderivative instrument Unwinding ofdiscount onsite rehabilitation provision Finance leaseinterest Interest expense ondepositsreceived Interest expense onborrowings Finance costs Net finance expenses administration expenses Other Legal andconsultants fees Share basedpayments expense Wages andsalaries, includingsuperannuation Administration expenses ofintangibleImpairment assets-software ofintangible assets Amortisation ofdevelopment expenditureAmortisation Depreciation ofproperty, plant andequipment Depreciation expense andamortisation operating expenses* Other Depreciation andamortisation Government royalty Shipping costs Operating leases Port costs costs Rail costs Mining Cost ofsales Note 7.Expenses 2,757,586 1,384,324 US$'000 177,376 719,201 429,698 454,289 (42,577) 114,686 177,376 289,406 508,524 134,005 127,767 668,353 482,513 96,724 (1,564) 51,400 39,258 96,926 19,966 30,882 24,591 31,672 22,367 36,390 7,553 3,737 2,965 3,534 4,173 5,245 6,295 2011

2,125,552 US$'000 153,174 375,306 394,215 153,174 150,558 612,267 124,552 101,238 884,375 376,741 24,705 71,302 80,298 28,697 70,691 18,909 10,090 11,118 1,574 2,876 1,480 1,452 1,576 3,892 1,771 7,924 2010 ------For personal use only (b) Reconciliation ofincome(b) taxexpense to primafacietaxpayable (a) Income taxexpense / Note 8.Income taxexpense are recognised intercompany as non-current receivables orpayables. require payment ofinterim fundingamounts to assistwithitsobligations to pay taxinstalments. The fundingamounts the headentity, theendofeachfinancial after year. whichisissuedassoonpracticable mayThe headentity also The amounts receivable orpayable underthetaxfundingagreement are dueuponreceipt ofthefundingadvice from determined by reference to theamounts recognised inthe wholly are transferred to Fortescue Group Metals Limited underthetaxconsolidation legislation. The fundingamounts are Limited for any current taxreceivable anddeferred taxassetsrelating to unusedtaxlossesorcredits that Fortescue Group Metals Limited for any current taxpayable assumedandare compensated by Fortescue Group Metals The entities have alsoentered into ataxfundingagreement underwhichthewholly case ofadefaultby theheadentity, Fortescue Group Metals Limited. agreement which,intheopinionofdirectors, limitsthejoint andseveral ofthewholly liability On adoptionofthetaxconsolidation legislation, theentities inthetaxconsolidated group entered into ataxsharing consolidation legislation. The inrelation accounting to policy thislegislation issetoutinnote 1(g). Fortescue Group Metals Limited anditswholly (c) Tax consolidation legislation NOTES TO THEFINANCIALSTATEMENTS Net deferred tax-credited to directly equity credited to equity: recognised innetprofit orlossother comprehensive income butdirectly Aggregate current anddeferred periodandnot taxarisinginthereporting Tax lossespreviously notrecognised translation ontaxbase Effect ofcurrency Adjustment for periods prior Research anddevelopment concession Share basedpayments expenses non-deductible Sundry taxable income: Tax incalculating ofamounts effect whichare (non-deductible)/deductible Tax at theAustralian taxrate of30%(2010:30%) Profit from continuing operations before income tax expense Deferred tax Current tax

(benefit) ‑ owned Australian controlled entities have implemented thetax ‑ owned entities’ financialstatements. ‑ owned entities fully compensate 90,619 (312,513) 1,335,068 (400,520) US$'000 312,513 221,894 (1,756) ‑ 80,739 owned entities in the (298) 5,250 3,692 2011 (298) (102) 184 (173,753) US$'000 579,176 (1,770) (1,417) (1,770) 83,413 61,523 26,709 1,770 5,798 2010 (503) - - - 93 93 FORTESCUE METALS GROUP ANNUAL REPORT 2011 94 94 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only (2010: nil). Cash andcashequivalents balances at 30June2011donothave any by restrictions contractual orlegalarrangements Cash equivalents includeshort that have beenagreed withthecustomer. Noneofthereceivables pastdueintheabove tableare impaired. Receivables that are classifiedaspastdueare thosethat have and notbeensettledwithinthenormal terms conditions oftheseotherclasses, thatcredit itisexpected theseamounts will bereceived history whendue. The otherclasses withintrade andotherreceivables donotcontain impaired assetsandare notpastdue. Basedonthe these trade receivables isasfollows: relate to anumberofindependent customers for whomthere isnorecent ofdefault. history The ageinganalysis of As at 30June2011, trade receivables ofUS$44.7million(2010:US$8.0million)were pastduebutnotimpaired. These (a) Past duebutnotimpaired Disclosures relating to receivables from are related setoutinnote 31. parties term naturenote ofthesereceivables, to value 3.Due isassumedto theshort approximate theircarrying theirfairvalue. Information aboutFortescue anditsexposure to interest foreign risk, rate are currency andprice risk risk disclosedin NOTES TO THEFINANCIALSTATEMENTS Between 60and90daysBetween 30and60daysBetween Less than30days receivablesOther deposits Security GST receivables Trade debtors Note 10. Trade andotherreceivables ‑current deposits Short-term Cash at bank Cash onhand Note 9.Cash andcashequivalents term deposits with an original maturity ofsixmonths orless.‑term depositswithanoriginal maturity 2,662,719 2,235,305 US$'000 US$'000 US$'000 399,731 137,014 195,261 427,402 44,668 35,375 37,363 32,081 3,515 3,790 2011 2011 2011 12 1,235,538 1,235,530 US$'000 US$'000 US$'000 212,256 102,503 84,993 16,048 7,976 6,207 1,257 8,712 2010 2010 2010 512 8 - For personal use only The fairvalue ofthenon‑ None ofthenon‑ US$1,180.9 million) Inventories includedincost theyear ofsalesduring ended30June2011amounted to US$1,743.0million(2010: NOTES TO THEFINANCIALSTATEMENTS Iron ore stockpiles -atIron ore cost stockpiles materialsRaw andstores -at cost Note 12.Inventories Other Employee housingloans Amounts heldpendingarbitration ofshippingcontracts Note 11. Trade andotherreceivables ‑non-current current receivables are impaired orpastduebutnotimpaired. current receivables approximates value. theircarrying US$'000 US$'000 416,538 330,018 16,960 86,520 12,202 3,177 1,581 2011 2011 US$'000 US$'000 188,291 136,532 51,759 3,878 1,030 2,848 2010 2010 - 95 95 FORTESCUE METALS GROUP ANNUAL REPORT 2011 96 96 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only The details offinance leasesunderwhichtheseassetsare heldare disclosedinnote 23. Property, plant andequipment includesassetsheldunderfinance leasesofUS$200.7million(2010:US$12.8million). assets andexploration, evaluation anddevelopment costs. Transfers ofassetsat cost comprise transfers between thecategories ofproperty, plant andequipment, intangible there was noamount included intheassetrevaluation relating surplus to theassets. lossesrelate assetsnolongerinuse. * Impairment to certain The whole amount was recognised inprofit andlossas NOTES TO THEFINANCIALSTATEMENTS Net book valueNet book Accumulated depreciation Cost At 30June2011 valueClosing netbook Depreciation Disposals Additions Transfers ofassetsat cost Opening netbookvalue 30 June2011 valueNet book Accumulated depreciation Cost At 30June2010 valueClosing netbook Depreciation Impairment* Disposals Additions Transfers ofassetsat cost Opening netbookvalue 30 June2010 Note 13.Property, plant andequipment equipment 1,276,282 1,276,282 1,574,950 1,574,950 plant and Property, 1,380,972 1,292,740 1,791,087 1,276,282 (104,690) (216,137) (111,446) US$'000 (75,549) (17,097) 242,101 168,013 (3,540) 14,954 64,774 - buildings Land and Land US$'000 (10,563) (12,486) 106,552 87,821 87,821 95,989 95,989 (7,337) (4,749) (7,696) (3,240) 95,158 25,622 74,647 23,894 87,821 (3) - - 1,364,103 1,364,103 1,670,939 1,670,939 1,476,130 1,367,387 1,897,639 1,364,103 (112,027) (226,700) (114,686) US$'000 (80,298) (24,793) (12,486) 242,101 191,907 (3,543) 14,954 90,396 Total For personal use only NOTES TO THEFINANCIALSTATEMENTS Note 14.Exploration, evaluation anddevelopment expenditure development andcommercial exploitation, oralternatively, saleoftherespective areas ofinterest. The recoverability amount oftheexploration andevaluation assetsisdependent onsuccessful ofthecarrying assets andexploration, evaluation anddevelopment costs. Transfers ofassetsat cost comprise transfers between thecategories ofproperty, plant andequipment, intangible Interest capitalised iscalculated aseffective interest expense onspecificborrowings forqualifyingassets. fair value lesscosts to sellanditsvalue inuse(discounted cashflows). The recoverable amount ofassetsunderdevelopment anddevelopment expenditure isdetermined asthehigherofits Transfers ofassetsat cost Opening netbookvalue 30 June2010 Closing net book valueClosing netbook Depreciation and amortisation Foreign exchange movements takento reserves Capitalised interest Additions Transfers ofassetsat cost Opening netbookvalue 30 June2011 valueClosing netbook Depreciation andamortisation Additions Exploration Exploration evaluation evaluation US$'000 US$'000 142,133 112,637 29,496 17,607 11,889 29,496 and and ------development development Assets under Assets under 1,904,489 1,351,364 (220,382) US$'000 US$'000 747,485 (90,396) (16,555) 468,406 369,475 747,485 42,577 - - Development Development 1,312,327 1,375,804 1,328,280 1,312,327 US$'000 US$'000 (71,302) (51,400) 54,529 96,257 18,620 820 - -

2,089,308 3,422,426 1,709,644 1,560,258 2,089,308 (201,762) US$'000 US$'000 (71,302) (89,576) (51,400) (16,555) 540,542 42,577 Total Total 97 97 FORTESCUE METALS GROUP ANNUAL REPORT 2011 98 98 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only The composition andmovement ofdeferred taxassetsandliabilitiesisasfollows: Note 16.Deferred taxes NOTES TO THEFINANCIALSTATEMENTS Closing net book valueClosing netbook Accumulated amortisation Computer -at cost software valueClosing netbook Impairment Amortisation Transfers to development Opening netbookvalue Note 15.Intangible assets exchange (gains)/losses Net unrealised foreign Inventories amortisation Depreciation and Exploration expenditure Revenue taxlosses items Other Share basedpayments Business related costs Provisions Accruals Borrowings Finance costs (189,472) US$'000 120,195 Balance (13,726) 194,636 (2,487) (4,813) 38,917 91,038 1 July 5,309 2009 793 - - -

to profit or (credited) Charged/ US$'000 (39,538) (10,929) (7,770) (5,565) 14,032 17,172 19,290 1,770 8,107 1,817 4,886 268 loss - (credited) Charged/ to equity US$'000 ------(195,037) US$'000 121,965 Balance 30 June (34,229) (10,929) 208,668 108,210 31,147 5,620 1,061 1,817 5,564 2010 73 - to profit or (221,894) (credited) (208,668) Charged/ US$'000 (10,271) (15,027) (99,613) (41,268) 109,826 (6,257) (1,417) (5,064) 54,141 2,082 (358) loss US$'000 21,315 21,315 (credited) (3,737) (7,553) (3,737) 25,052 22,750 Charged/ to equity US$'000 9,855 2011 (1,471) 1,769 298 ------(294,650) (99,631) US$'000 US$'000 Balance 30 June (25,956) (41,195) 218,036 22,750 22,750 (6,122) (1,948) (1,574) 24,890 19,912 24,698 25,144 3,851 2011 2010 (820) 703 400 500 - - For personal use only Note 16. Deferred taxes (continued) As at 30June2011 Fortescue forward revenue hasutilisedallcarried losses(2010:US$695.7million). recognised adeferred taxasset. At 30June2011, Fortescue hadcapitaltaxlossesofUS$18.3million(2010:million)onwhich Fortescue hasnot Tax losses

NOTES TO THEFINANCIALSTATEMENTS Exploration expenditure Net unrealised foreign exchange Inventories Depreciation andamortisation Customer deposits Note 18. Trade andotherpayables ‑non payables andaccrualsOther Customer deposits Trade payables Note 17. Trade andotherpayables ‑current Revenue tax losses items Other Share basedpayments Business related costs Provisions Accruals Borrowings Finance costs gains/(losses)

US$'000 348,330 218,036 71,574 24,890 19,912 8,464 3,851 2011 703 400 500 Assets - - - US$'000 603,818 260,358 208,668 31,293 88,326 6,044 1,061 1,912 5,564 2010 519 73 - - current (447,961) (366,224) US$'000 (41,195) (14,586) (25,956) 2011 Liabilities ------(481,853) (152,148) (283,363) US$'000 (34,229) (11,448) 2010 (424) (146) (95) - - - - - Net assets/(liabilities) US$'000 US$'000 184,424 812,610 184,424 482,149 237,861 (294,650) 92,600 (99,631) US$'000 (41,195) (25,956) 218,036 2011 2011 (6,122) 24,890 19,912 3,851 2011 703 400 500 - (195,037) US$'000 US$'000 US$'000 265,615 442,480 121,965 (34,229) (10,929) 265,615 273,283 106,177 108,210 208,668 63,020 31,147 5,620 1,061 1,817 5,564 2010 2010 2010 73 - 99 99 FORTESCUE METALS GROUP ANNUAL REPORT 2011 100 100 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only All borrowings are interest bearing. Information aboutFortescue’s exposure to interest rate andforeign risk exchange The keyterms andconditions ofthenotes are: development Hubandthecontinued oftheSolomon development oftheGroup’s infrastructure. rail andport proceeds willbeusedto facilitate theplannedexpansion oftheexisting operations at theChichester Hub, theinitial comprising US$600milliondueinFebruary 2016andUS$900milliondueinFebruary 2018. same subsidiary The net offering On 13DecemberforUS$1,500million of unsecured 2010,afurther loan notes was completed through the offering together with cashonhand were used to refinance the Syndicated Facility. completed anoffering for US$2,040millionofunsecured loannotes dueNovember 1,2015. The netproceeds from the 2010,Fortescue,On 29October FMG through itswhollyownedResources subsidiary (August Limited, 2006)Pty issued in2006. million. The netproceeds together withcashonhandwere usedto satisfy anddischarge Secured Notes theSenior 2010,FortescueOn 7October entered into Unsecured aSenior Syndicated Facility (Syndicated Facility) ofUS$2,040 Unsecured(a) Senior Notes rate canbefound risk innote 3. NOTES TO THEFINANCIALSTATEMENTS Total borrowings non-current Total unsecured borrowings non-current Preference shares Unsecured loan notes unsecuredSenior notes Unsecured Total secured borrowings non-current securedSenior notes Secured Note 20.Borrowings ‑non Total current borrowings Total unsecured current borrowings Preference shares Unsecured loannotes unsecuredSenior notes Unsecured Total secured current borrowings securedSenior notes Secured Note 19.Borrowings ‑current • • • from 15December 2010.Interest ispayable onFebruary 1andAugust 1ofeachyear, beginning on1August 2011. $US900 millionof seniorunsecured notes dueFebruary interest 1,2018bearing at 6.875percent perannumaccruing August 2011. accruing from 15December 2010.Interest ispayable onFebruary 1andAugust 1ofeachyear, beginning on1 $US600 millionofseniorunsecured notes dueFebruary interest 1,2016bearing at 6.375percent perannum May 1,2011. accruing from November 8,2010.Interest ispayable onMay 1andNovember 1 of eachyear, beginning on $US2,040 millionofseniorunsecured notes dueNovember interest 1,2015bearing at seven percent perannum current Notes 20(b) 20(d) 20(a) 20(c) Notes 20(b) 20(d) 20(a) 20(c) 4,465,230 4,465,230 US$'000 197,146 197,146 3,484,589 113,835 US$'000 150,563 830,078 79,971 3,340 2011 2011 - - - - 2,748,509 1,969,917 1,969,917 US$'000 227,154 167,979 US$'000 778,592 165,279 117,631 660,961 59,175 59,175 2,700 2010 2010

- - For personal use only On 15July2006,Leucadia National Corporation for subscribed US$100millionofunsecured loannotes issuedby (b) Unsecured loannotes keyterms ofthenotes are:Other Note 20. Borrowings (continued) -non-current The keyterms andconditionsSecured Notes oftheSenior were: Syndicated Facility. NovemberIn Secured Notes 2010theSenior were redeemed, usingcashonhandandthenetproceeds from the and initialoperation oftheCloudbreak Creek andChristmas andrail minesandrelated infrastructure. port million inUSdollardenominated and€315millioninEuro denominated Secured Notes Senior to fundthedevelopment AugustIn 2006,FMG Resources (August Limited, 2006)Pty awholly Secured Notes(c) Senior • • • • • with changesinthefollowing management estimates, prevailing conditions market andeconomic forecasts: amount ofthenote was reThe carrying conditions ofthenotes are: ofFortescue Limited, Group Metals Chichester Pty Limited. awhollyowned Metals subsidiary The keyterms and NOTES TO THEFINANCIALSTATEMENTS • • • • • • • • • The total estimate reserve of Cloudbreak Creek andChristmas areas. 1July2012andfrom 6.5percent 1July2013;and 6.5 percent to starting 7.5percent starting that isexpected royalty ratesIt payable to Western Australian state government willincrease from 5.625percent to subordinated loannote; The discount rate hasbeenappliedsince inception theimplicitinterest andreflects rate of42per cent ofthe resource analyst offuture sector iron ore prices; Future iron ore prices were updated to reflect forecasts provided Limited,Pty Metalytics anindependent by CreekChristmas areas; Production was revised to reflect Fortescue’s forecast profile production as at30June2011 from Cloudbreak and beginning onDecember 1,2006.Fortescue hadafloating‑to accruing from August 18,2006.Interest payable onMarch 1,JuneSeptember1andDecember 1ofeachyear, US$250 millionofseniorsecured notes interest due2011bearing at three month LIBORplus4.000%perannum, 18, 2006.Interest payable onMarch 1andSeptemberofeachyear, beginning onMarch 1,2007. US$1,080 millionofseniorsecured notes interest due2016bearing at 10.625%perannumaccruing from August 2006. Interest payable onMarch 1andSeptemberofeachyear, beginning onMarch 1,2007. €315 millionofseniorsecured notes interest due2013bearing at 9.750%perannumaccruing from August 18, 18, 2006.Interest payable onMarch 1andSeptemberofeachyear, beginning onMarch 1,2007. US$320 millionofseniorsecured notes interest due2013bearing at 10.000%perannumaccruing from August The ofUS$100millionisrepayable principal infullAugust 2019. first payment was madeinJuly2010;and the saleofiron ore FOBPort Hedlandfrom thetenements oftheCloudbreak Creek andChristmas areas only. The Interest payable underthenote iscalculated asfour percent oftherevenue, netofgovernment royalties, from subsidiaries. The notes are unconditionally guaranteed onaseniorunsecured basisby theCompany ofits andcertain Company; The notes rank passuinrightofpayment pari withallotherexisting andfuture seniorindebtedness ofthe The notes are seniorinrightofpayment to allfuture subordinated indebtedness oftheCompany; rate swap was settled as part of theredemptionrate Secured Notes. oftheSenior swap was settledaspart senior secured notes due2011,swapping thesenotes to afixed rate ofnineper cent perannum.theinterest ‑ estimated at 30June 2011 to US$943.9million(2010:US$826.2million)inline ‑ ‑fixed interest rate swap over itsUS$250million owned subsidiary oftheCompany,owned subsidiary raised US$1,650 101 101 FORTESCUE METALS GROUP ANNUAL REPORT 2011 102 102 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only The Company issued1,400fullypaidnon‑ (d) Preference shares recognised asdebt keyterms ofthenote were:Other Note 20. Borrowings (continued) -non-current Fortescue entered into asyndicated inJune2011.Refer loanfacility to note 3(c)for thedetailsoffacility. (e) Credit facilities The keyterms for thesepreference shares are; shares,ordinary inawindingupoftheCompany. to allotherpreferencepriority shares that are expressed to rank juniorto thepreference shares andtheCompany’s The preference preference shares shallrank passuwiththemostseniorranking pari shares oftheCompany andin equal to the redemptionto any amount, inpriority behindit. otherclassofshares ranking The preference shares confer upontheholderrightinawindinguporreturn ofcapitalto payment ofanamount the payment inaccordance ofdistributions withtheseterms. the Company beyond itsredemption amount. The preference to shares Fortescue’s rank inpriority shares for ordinary on 30September2008.Aholderofpreference shares isnotentitled to share ofany inthedistribution assetsof surplus NOTES TO THEFINANCIALSTATEMENTS • • • • • • • • Project andtheProject miningtenements. leaseholdrightsofthe ofthereal ofFortescue property andmortgages over alloftheassetsandundertakings in thecapitalofProject Guarantors and FMG Resources (August Limited, 2006)Pty afeatherweight charge accounts inwhichproceeds oftheseniorsecured notes were deposited, over share alloftheshares mortgages The Limited Pilbara (the Pty Infrastructure “Project Guarantors”), acharge, assignment orpledgeover thebank Limited (previouslyChichester Pty FMG Metals Limited), Pilbara ChichesterLimited Pty Allianceand Pty Mining Resources (August Limited, 2006)Pty (previously FMG Finance Limited), andtheproject Pty They were secured by, documents, amongothersecurity fixed andfloating charges over theassetsof FMG They ranked passuinrightofpayment pari withallexisting andfuture seniorindebtedness. Limited voting rights. payment and ofdistributions; Preference shares to to Fortescue’s rank inpriority shares onawindingupandinrelation ordinary to the byRedeemable Fortescue at anyto minimum30days timesubject notice; Term of8.5years; on thebasisofvolume weighted average share by price) aselected Fortescue; aredistributions notableto bemadeby Fortescue, additionalpreference shares shares (calculated orordinary Dividend coupon rate ofninepercent fixed perannumpayable sixmonthly eitherincash,or where cash Prior to redemption thenotes were listed ontheSingapore Stock Exchange.

converting, redeemable preference shares at aprice of$A100,000pershare

‑related assetsof

For personal use only The interest rate derivative heldat fairvalue was settledinDecember 2010. amount ofborrowings approximatesThe carrying date. theirfairvalue at thereporting ofmovements Summary inborrowings (f) Note 20. Borrowings (continued) -non-current NOTES TO THEFINANCIALSTATEMENTS Interest rate derivative heldat fairvalue Note 21.Derivatives heldat fairvalue Balance at 30June2011 ofseniorsecuredRedemption notes shares ordinary Interest repayments intheform of Foreign exchange loss ofunsecured loannotes Re-estimation Interest repayments Interest expense recognitionInitial Balance at 1July 2010 30 June2011 Balance at 30June2010 shares ordinary Interest repayments intheform of Foreign exchange loss/(gain) ofunsecured loannotes Re-estimation Interest payments Interest expense Balance at 1July2009 30 June2010 Preference US$'000 120,331 153,903 (10,707) 120,331 114,809 shares (5,908) (6,170) 10,911 31,011 14,639 5,318 - - - - - Unsecured loan notes (241,331) US$'000 826,240 943,913 826,240 279,986 164,623 381,631 266,158 92,846 ------

(1,989,523) 2,029,092 2,029,092 2,073,865 (193,254) (127,820) US$'000 secured (52,726) 201,207 Senior Senior 41,650 46,601 notes

------unsecured 3,564,560 3,481,638 US$'000 US$'000 (72,193) 155,115 Senior Senior notes 2011 ------(1,989,523) 2,975,663 4,662,376 2,975,663 2,570,305 3,481,638 (193,254) (447,514) US$'000 US$'000 (10,707) (47,408) 279,986 376,741 482,513 16,285 (5,908) 16,285 72,661 92,846 2010 Total 103 103 FORTESCUE METALS GROUP ANNUAL REPORT 2011 104 104 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only (a) Finance leaseliabilities Movements inprovisions thefinancial during year are setoutbelow: future cashflows. date basedoncurrent estimates ofcosts to rehabilitate suchareas, discounted to theirpresent value basedonexpected in relation to Fortescue’s iron ore operations. The provision hasbeenmadeinfullfor areas alldisturbed at thereporting accordanceIn withState Government legislative requirements, aprovision for site rehabilitation hasbeenrecognised Note 22.Provisions NOTES TO THEFINANCIALSTATEMENTS Present value ofminimumleasepayments Effect ofdiscounting Future minimumleasepayments 30 June2011 Present value ofminimumleasepayments Effect ofdiscounting Future minimumleasepayments 30 June2010 financialliabilities Other Finance leaseliabilities financialliabilities‑non Other financialliabilities Other Finance leaseliabilities financialliabilities‑currentOther financialliabilities Note 23.Other amount atCarrying 30June offoreignImpact exchange revaluation Accretion expense Additional provision recognised amount at 1July Carrying

current Within one US$'000 (15,902) 17,096 12,844 32,998 12,923 year (79) one andfive Between US$'000 (59,255) 152,303 93,048 years - - - After five US$'000 US$'000 192,637 132,113 US$'000 191,519 (15,756) 17,153 114,227 98,471 17,096 15,955 55,590 57,034 1,118 3,534 2011 2011 years 57 - - - US$'000 US$'000 US$'000 208,615 (90,913) 299,528 12,844 57,034 12,844 12,844 55,582 12,923 1,452 2010 2010 Total 479 479 (79) - - - - For personal use only (b) Movements share capital inordinary (a) Share capital Note 24.Contributed equity shares held. Company. intheproceeds shares participate onwindingupoftheCompany Ordinary to thenumberof inproportion Fully shares individendsandto entitle onevote theholderto paidordinary participate pershare at meetingsofthe shares (c) Ordinary NOTES TO THEFINANCIALSTATEMENTS Ordinary shares fullypaid Ordinary 30 June2011 30 June2010 1 July2010 1 July2009 Date Balance for converted options Transfer ofoptionexpense from reserve Option Scheme Fortescue Group Metals Incentive Exercise ofoptionsissuedunderthe Shares issued Opening balance Balance for converted options Transfer ofoptionexpense from reserve Option Scheme Fortescue Group Metals Incentive Exercise ofoptionsissuedunderthe Shares issued Opening balance Details 3,107,196,989 3,113,498,151 3,089,596,699 3,107,196,989 Number of Number 10,682,660 6,917,630 2,383,750 3,917,412 shares 3,113,498,151 - - 2011 Issue price $0.33 $3.83 $0.76 $4.47 3,107,196,989 1,274,650 1,295,033 1,229,876 1,274,650 US$'000 40,977 17,523 1,586 2,211 1,045 1,815 2010 105 105 FORTESCUE METALS GROUP ANNUAL REPORT 2011 106 106 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only (a) Reserves Note 25.Reserves non‑financial hedgeditems. of deferred tax. The cumulative deferred gainorlossonthe hedgeisrecognised asanadjustment to the initial cost of The hedging represents reserve hedging gainsandlossesrecognised ofcash flow hedges, ontheeffective net portion (i) Hedging reserve (b) Nature andpurposeofreserves NOTES TO THEFINANCIALSTATEMENTS Balance 30June Transfer resulting currency from changeintaxfunctional Balance 1July Foreign translation currency reserve Balance 30June Revaluation ofavailable for salefinancialassets Balance 1 July Asset revaluation reserve Balance 30June Deferred tax Share optionsexpense accrued for unvested options Forfeited options Exercise ofoptions Balance 1 July paymentsShare-based reserve Balance 30June assets, netofdeferred tax Net cashflow hedgemovements reclassified on recognition ofnon-financialhedged Net cashflow hedgefair value gains, netofdeferred tax Balance 1 July Hedging reserve Movements Foreign translation reserve currency Asset revaluation reserve payments reserve Share-based Hedging reserve US$'000 US$'000 (77,202) (11,589) 13,338 (1,045) 15,026 77,202 9,161 3,437 9,161 3,437 1,771 6,295 2,155 2011 2011 740 (15) 740 678 62 - - - (74,369) (77,202) US$'000 US$'000 (77,202) (77,202) (1,586) 2,155 2,155 2,227 1,970 2010 2010 (456) 678 678 610 68 ------For personal use only existing at year end. Fortescue since theendofprevious financial year andthere were no material involvingcontracts Directors’ interests from the detailsdisclosedinthisnote,Apart noDirector hasentered into amaterial contract withtheCompany or profit andlossstatement, are recoveries.recognised netofsalary Balances above are recognised onagross basis. Wages ofadministration expenses inthe andsalaries, disclosedaspart remunerationDetailed disclosures are provided intheremuneration report. Comprehensive are Income asfollows: The Personnel KeyManagement remuneration includedwithin ‘administration expenses’ intheStatement of (a) Key management personnelremuneration Note 27.Key management personnel Note 26.Dividends deferred taxassetsandliabilitiesare recognised intheforeign inequity directly translation reserve. currency Foreign differences currency onthe arising revaluation of Australian deferred taxassetsandliabilities to USdollar (iv) Foreign translation currency reserve available The assetrevaluation records reserve revaluations ofnon‑ (iii) Asset revaluation reserve movement intheshare basedpayments isdisclosedintheStatements reserve ofChangesinEquity. The share basedpayments records reserve items recognised asexpenses onvaluation ofemployee share options. The (ii) Share basedpayments reserve NOTES TO THEFINANCIALSTATEMENTS Equity compensationEquity benefits payments Share-based Post-employment benefits employeeShort-term benefits Fully franked dividendfor theyear ended30June2011:A$0.04pershare (2010:nil) (b) proposed Dividend andnotrecognised asaliability At 30June2011 Fortescue credits available hadnofranking (2010:nil). share (31December 2009:nil) unfrankedInterim dividendfor thehalf‑ paidduringtheyear(a) Dividend ‑for ‑sale financialinvestments. year ended31December 2010:A$0.03per current assetsheldat fairvalue andrevaluations of

US$'000 US$'000 US$000 128,837 18,665 95,820 4,375 5,560 8,122 2011 2011 2011 608 US$'000 US$'000 US$000 5,603 1,073 4,227 2010 2010 2010 303 - - - 107 107 FORTESCUE METALS GROUP ANNUAL REPORT 2011 108 108 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only remain anon‑ retired* RussellScrimshaw asanexecutive director effective 30June2011.Russellhasaccepted Fortescue’s invitation to orbeneficially,indirectly Management by eachoftheKey Personnel, includingtheir isas related parties, follows: The inthenumberofoptionsover movement shares period intheCompany ordinary thereporting during helddirectly, over(i) Options instruments equity (b) instrument Equity disclosures relating to key management personnel Note 27. Key management personnel(continued) A Forrest ofFortescueDirectors Group Metals Limited Name 2011 I Buitendag P Meurs W Ramsey S Pearce P Hallam keyOther management oftheCompany personnel I Cumming M Barnaba L Xiaowei I Burston O Hegarty G Brayshaw K Ambrecht H Elliott G Rowley R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name 2010 N Power W Ramsey P Meurs S Pearce P Hallam keyOther management oftheCompany personnel I Cumming M Barnaba L Xiaowei I Burston O Hegarty G Brayshaw K Ambrecht H Elliott G Rowley R Scrimshaw* NOTES TO THEFINANCIALSTATEMENTS executive director andhasalsoagreed, at theCompany’s request, to provide on‑ start ofthe start start ofthe start Balance at Balance at 7,500,000 600,000 600,000 600,000 600,000 year year ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ compensation compensation Granted as Granted as 7,500,000 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Exercised Exercised (150,000) ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ during theyear during theyear Other changes Other Other changes Other ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Balance at end ofthe Balance at end ofthe 7,500,000 7,500,000 600,000 600,000 450,000 600,000 year year ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 2,187,500 150,000 300,000 150,000 150,000 Vested Vested going advisory services. going advisory ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ Unvested 7,500,000 Unvested 5,312,500 450,000 450,000 300,000 300,000 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ exercisable exercisable 7,500,000 7,500,000 600,000 600,000 300,000 300,000 Not Not ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ For personal use only beneficially, Management by eachKey Person, includingtheir arerelated setoutbelow. parties, sharesThe intheCompany inthenumberofordinary movement period thereporting helddirectly, during or indirectly (ii) Share holdings Note 27. Key management personnel(continued) NOTES TO THEFINANCIALSTATEMENTS S Pearce keyOther management oftheCompany personnel I Cumming M Barnaba I Burston W Ramsey P Hallam S Pearce keyOther management oftheCompany personnel J Steinberg I Cumming M Barnaba L Xiaowei G Brayshaw K Ambrecht G Rowley H Elliott R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name 2010 N Power W Ramsey P Meurs P Hallam L Xiaowei O Hegarty G Brayshaw K Ambrecht G Rowley H Elliott R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name 2011 I Buitendag P Meurs 277,986,000 972,828,300 972,830,215 19,235,690 19,235,690 July 2010 July 2009 2,167,938 8,000,000 6,313,130 2,167,938 8,000,000 7,500,000 6,313,130 Held at 1 Held at 1 408,802 375,000 33,149 10,157 44,149 8,300 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Received on Received on exercise of exercise of options options 150,000 ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Senior StaffSenior Senior StaffSenior Executive Executive Issued as Issued as scheme scheme 293,900 part of part part of part 86,510 36,447 89,526 18,608 8,802 ------Purchases Purchases 7,500,000 500,000 652,882 11,000 50,000 20,000 31,832 25,000 8,000 8,300 529 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ (500,000) (122,571) (500,000) Sales Sales ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ (277,986,000) 277,986,000 (8,000,000) Transfers Transfers (10,100) ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ (277,986,000)

10,157 Other Other 1,915 866 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - - - - - ‑ 972,830,215 964,848,823 June 2010 June 2011 19,235,690 19,144,951 Held at 30 Held at 30 6,313,130 2,167,938 8,000,000 8,152,882 6,303,030 2,167,938 7,590,055 7,500,000 702,702 246,667 408,802 44,149 50,000 45,613 20,000 52,149 10,157 8,300 - - - - ‑ - - ‑ ‑ 109 109 FORTESCUE METALS GROUP ANNUAL REPORT 2011 110 110 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only (2010: nil). the financial year (2010:US$73.3million). As at 30June2011amounts owed by to NRW wereFortescue US$16.6million Cloudbreak Creek andChristmas mines. Fortescue hasincurredrendered US$179.5millionfor during services by NRW provideto Fortescue’s NRW miningcontracting services HoldingsLimited (NRW). andDirector ofNRW is alsoChairman Dr IanBurston was appointed as aNon‑Executive Director ofFortescue Group 2008.He Metals Limited on13October withdirectorsandkey transactions management personnel (c) Other Note 27. Key management personnel(continued) It isnotcurrently possibletoIt provide anaccurate estimate ofthelikelyquantum ofthedispute. Deed. are preparing forThe parties thehearing, to whichisexpected takeplace inlate September2011. The Determination inaccordance dispute hasbeensubmitted to Expert withthe provisions ofthegoverning Note (Leucadia Notes). Leucadia hasdisputed themethodusedby Fortescue to calculate theinterest payable ontheunsecured loannotes Leucadia National Corporation (Leucadia) –Interest Calculation Dispute imposed uponFortescue, andto alsodisqualify Mr. Forrest from managing corporations. Forrest personally. ASIChave appliedfor orders to makeMr. Forrest personallyliablefor any civilpenaltiesorcosts with maximumpenaltiessought by ASICofapproximately A$6million from Fortescue andA$4.4millionfrom Mr. These proceedings andthedecision by theFull Federal oftheAppeal inrespect by ASICare Court civilandnotcriminal, beforehearing ajudgeofthe Federal basedonthecontraventions Court found by theFull Federal Court. theapplication for 2012.If during specialleave Court isunsuccessful,the High thenthematter willproceed to apenalty heard on29September2011,andifsuccessful willthenleadto ofFortescue’s afullhearing andMr. Forrest’s appealin Forrest lodgedanapplication for specialleave to Court. appeal to the High The specialleave islikelyto hearing be On 18February 2011,theFull Federal upheldtheAppeal. response, Court In on18March 2011,Fortescue andMr. Federal inNovember Court 2010. by ASICwere dismissedby theFederal ASICappealed(Appeal) Court. thedecisionandAppeal was heard by theFull ASIC. Fortescue andFortescue’s Mr. co-defendant, Andrew Forrest, were successful andallofthecontraventions alleged On 23December 2009,judgement was handeddown by theFederal proceedings inthecivilpenalty brought Court by ASIC Proceedings Note 29.Contingent liabilities NOTES TO THEFINANCIALSTATEMENTS Total auditors' remuneration Audit offinancialstatements Audit andotherassurance services auditfirms Other Total remuneration ofBDOAudit (WA) Ltd Pty Agreed uponprocedures services Other assurance services Other Audit andreview Audit andotherassurance services BDO Audit (WA) Ltd Pty Audit services Note 28.Remuneration ofauditors US$'000 2011 915 842 217 155 470 73 343 364 21 US$'000 2010 364 - - For personal use only are renegotiated. seven years. The terms, leaseshave escalation clausesandrenewal varying rights. Onrenewal, theterms oftheleases Fortescue leasesvarious offices andother premises undernon‑ expenditure requirements andliquidity willbemetfrom operating cashflows and existing facilities. recognised asliabilities. Fortescue that thesecontractual commitments expects for expenditure, together withother At 30June2011 Fortescue hascommitments to capitalexpenditure contracted for date atbutnot thereporting (a) Capital commitments Note 30.Commitments Mr. Forrest concerned ofChichester andFortescue. intheallegedconduct asapersonknowingly contained orimpliedintheLeucadia Agreement. Subscription relation In to Mr. Forrest, Leucadia seeksdamagesfrom Leucadia alsoseeksdamagesfor allegedbreaches ofrepresentations andwarranties given by Chichester andFortescue December 2010. 2010,theyfiledastatementon 22October ofclaim.Chichester, Mr. and Fortescue Forrest filedtheirdefense on22 On 1September2010,Leucadia of ofsummonsintheSupreme andBaldwinfiledawrit Court Western Australia, and Leucadia Notes, andthereby reduce theamount ofinterest payable to BaldwinontheLeucadia Notes itholds. additional loannotes issuedundertheterms oftheNote Poll Deed would share intheinterest calculated onthe to Leucadia undertheNote Poll. Deed Baldwinisthecurrent holderoftheexisting Leucadia Notes. Arguably any On 18August 2006, Chichester issuedloannotes, guaranteed by Fortescue, amount intheprincipal ofUS$100million notes undertheNote Poll Deed orders againstChichester, andseeking Fortescue andMr. Forrest. restraining Limited (Chichester) ChichesterPty Metals andFortescue from issuingorcausingto beissuedadditional Leucadia National Corporation andBaldwinEnterprises (Baldwin)have initiated orders injunctive proceedings seeking Leucadia –Note Issuance Dispute Note 29. Contingent liabilities operating leases. The terms. leaseshave varying Fortescue alsoleasesvariousmotor vehicles, undernon‑ office equipment andplant andmachinery NOTES TO THEFINANCIALSTATEMENTS Between oneandfiveBetween years Within oneyear Operating leasecommitments payable: (b) Operating leasecommitments Later thanfive years oneandfiveBetween years Within oneyear Contacted butnotprovided for inthefinancialstatements andpayable:

cancellable operating withinoneto leases expiring 2,193,511 2,190,913 US$'000 US$'000 259,463 138,870 120,593 2,598 2011 2011 cancellable - 368,223 89,000 243,531 124,692 89,000 US$'000 US$'000 2010 2010 - - 111 111 FORTESCUE METALS GROUP ANNUAL REPORT 2011 112 112 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only key management personnelasdisclosedabove. haveNo othertransactions occurred otherthansubsidiaries, withrelated entities withjoint control, parties directors or (b) Transactions withotherrelated parties Disclosure relating to keymanagement personnelare setoutinnote 27. (a) Key management personnel transactions Note 31.Related party Fortescue’s share ofjoint venture commitments inrelation to exploration tenement leasesisdisclosedinnote 34. a mininglicence is madeandhave notbeenprovided for inthefinancialstatements. estimated. These oftheexploration obligations to are renegotiation leasesorwhenapplication subject for uponexpiry Financial commitments for subsequentare periods contingent uponfuture exploration results andcannotbe to meettheminimumexpenditure requirements ofUS$13.2millionover financial thenext year (2010:US$11.7million). orderIn to maintain current rights oftenure to exploration tenements, Fortescue isrequired to outlay leaserentals and (c) Exploration tenement leases‑commitments for expenditure Note 30. Commitments (continued) NOTES TO THEFINANCIALSTATEMENTS

For personal use only accordance innote described withtheaccounting 1(b): policy The consolidated financialstatements incorporate theassets, liabilitiesand results ofthe following in subsidiaries Note 32.Subsidiaries

NOTES TO THEFINANCIALSTATEMENTS International Bulk Ports Pty Limited International BulkPorts Pty Controlled entities Fortescue Group Metals Limited FMG Pilbara Limited Pty FMG Limited Resources Pty The Limited* Pilbara Pty Infrastructure FMG Limited Capital Pty FMG Limited Air Pty FMG (Aust) IronBridge Limited***** Pty FMG Limited IronBridge Masters Way Limited**** HomesPty Limited**FMG Pty Solomon Limited Pty Pilbara HousingServices FMG InternationalPteLimited FMG Pacific Limited PilbaraFMG Limited Pty North FMG Limited Magnetite Pty Limited Developments Pty Karribi Pilbara Limited Alliance Pty Mining FMG Resources (August Limited*** 2006)Pty Limited** Chichester Pty Metals ***** **** *** ** *

FMG ofFMG (Aust) Limited. IronBridge IronBridge Limited isasubsidary Pty Masters Way Limited HomesPty Limited. Pty Metals FMG Resources (August Limited (previously 2006)Pty FMG ofChichester Finance Limited) isasubsidiary Pty ofFMG PilbaraThis Limited. isasubsidiary entity Pty Limited. ofInternationalBulkPorts Pty The Limited Pilbara isasubsidiary Pty Infrastructure is a subsidiary of is asubsidiary New Zealand Hong Kong Singapore Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Pilbara Housing Services Pty Limited. Pty Pilbara HousingServices Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Equity holding Equity 2011 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 % - 2010 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 % - - - - - 108 1 1 459 Investment 2011 1 1 1 1 1 US$ 1 339 1 1 1 1 ------348 2010 1 1 1 1 1 US$ 1 339 1 1 1 ------113 113 FORTESCUE METALS GROUP ANNUAL REPORT 2011 114 114 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only the above companies are materially thesameasthat oftheconsolidated group. ended 30June2011alongwiththeconsolidated balance sheetasat 30June2011for theclosedgroup represented by The statement ofcomprehensive movements income inconsolidated andsummary accumulated lossesfor theyear consolidated retained earnings (a) Consolidated statement ofcomprehensive ofmovements income andsummary in Group Entities Holding Entity company guarantees thedebtsofothers: to adeedofcrossFortescue are guarantee ofitssubsidiaries Group parties Metals Limited underwhicheach andcertain Note 33.Deedofcross guarantee NOTES TO THEFINANCIALSTATEMENTS • • • • • • • • FMG Solomon Pty LimitedFMG Pty Solomon The Limited Pilbara Pty Infrastructure Limited International BulkPorts Pty FMG Limited Resources Pty FMG Resources (August Limited 2006)Pty Limited Chichester Pty Metals FMG Pilbara Limited Pty Fortescue Group Metals Limited For personal use only (b) Fortescue’s share ofjoint venture commitments didnot haveAs any at 30June2011,thepartnership contingent liabilitiesnotprovided for in thebalance sheet. partnership. exceedThe assetsofthepartnership itsdebts. intheNullagine IronOre Joint Each ofthepartners Venture are jointly andseverally liablefor thedebtsof following classifications: venture are includedinthebalance sheet, inaccordance innote described withtheaccounting1(c),under policy entitled to receive 50percent ofthejoint venture output. The Group’s interests intheassetsemployed inthejoint Nullagine IronOre Joint Venture. The joint venture’s of iron istheproduction ore inthePilbara, activity withFortescue Fortescue, FMG through itswhollyownedPilbara Limited, subsidiary interest Pty holdsa50percent participating inthe (a) Jointly controlled assets Note 34.Interests injoint ventures NOTES TO THEFINANCIALSTATEMENTS Within oneyear Capital commitments Net assets Share ofliabilitiesemployed injoint venture Total liabilities non-current Provisions Loans andborrowings Non-current liabilities Total current liabilities Trade payables andaccruals Current liabilities Share ofassetsemployed injoint venture Total assets non-current Exploration, evaluation anddevelopment expenditure Property, plant andequipment Non-current assets Total current assets current assets Other Inventories Cash andcashequivalents -includedinothercurrent assets Current assets Between oneandfiveBetween years Within oneyear Exploration expenditure commitments notrecognised asaliability 22,987 34,278 44,002 27,864 16,138 78,280 55,293 3,141 4,027 19,010 36,283 12,843 26,876 16,138 1,791 8,353 2,598 4,027 543 988 US$'000 US$'000 2011 2011 US$'000 US$'000

2010 2010 ------115 115 FORTESCUE METALS GROUP ANNUAL REPORT 2011 116 116 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only for thefive consecutive trading days prior to the grant date, whichDecemberwas 3 2010. Fortescue incentive schemewhereby theexercise price mustbeat orgreater thanthevolume weighted average price consecutive trading days. The optionshave beenissuedat theexercise price ofA$5.69,whichisinaccordance withthe is conditional uponFortescue shares trading above A$7.83for tranche 1andA$9.10for tranche 2for offive aperiod date. requirement addition,theDirectorseach anniversary have In imposedafurther that theexercise price ofoptions 33.3 percent date. vesting oneachanniversary Tranche 2willvest over afour year period, with25percent vesting on two equaltranches (200,000optionspertranche) to anemployee. Tranche 1will vest over athree year period, with thefinancial During year ended30June2011the Company issued400,000employee options(2010:7,500,000)under (a) Employee Plan Option Note 36.Share out innote 36. options have notbeenincluded inthedetermination pershare. ofbasicearnings relating Details to theoptionsare set have beenincludedinthedetermination ofdiluted pershare earnings to theextentto whichtheyare dilutive. The Options granted to employees undertheFortescue incentive planare considered to shares bepotential and ordinary (i) Options earningspershare(a) Basic Note 35.Earningspershare NOTES TO THEFINANCIALSTATEMENTS as thedenominator incalculating diluted pershare earnings Weighted average shares shares andpotential numberofordinary used ordinary Potential shares ordinary Adjustments for calculation ofdiluted pershare: earnings calculating pershare basicearnings Weighted average shares usedasthedenominator numberofordinary in calculating diluted pershare earnings Profit holdersofthe equity Company attributable to theordinary usedin shareDiluted earningsper calculating pershare basicearnings Profit holdersofthe equity Company attributable to theordinary usedin share earningsper Basic Company From continuing holdersofthe operationequity attributableto theordinary (b) Diluted earnings pershare Company From continuing holdersofthe operationsequity attributableto theordinary ‑based payments 1,022,555 3,114,474,554 3,111,466,228 3,008,326 32.83 32.86 1,022,555 US$'000 Number Cents 2011 2011 2011 3,086,858,116 3,081,948,244 4,909,872 580,946 580,946 18.82 18.85 US$'000 Number Cents 2010 2010 2010 For personal use only of additional market conditions,of additionalmarket free dividendyieldandtherisk theexpected interest rate for theterm oftheoption. ofdilution,theshare price atoption, theimpact grant date, price volatility share, expected oftheunderlying theeffect was lattice determined usingatrinomial modelthat optionpricing takesinto account the exercise price, theterm ofthe (2010: A$2.66peroption)for tranche 1andA$3.87peroption (2010:A$2.65)for tranche 2. The fairvalue at grant date The assessedfairvalue at grant date ofoptionsgranted theyear during ended30June2011was A$3.88peroption Fair value ofoptionsgranted which was 13May 2010. whereby theprice mustbeat orgreater thanthevolume weighted average price for thefive days prior to theoffer date, options have beenissuedat anexercise price ofA$5.00,whichisinaccordance withtheFortescue incentive scheme Fortescue shares trading above A$7.00for tranche 1andA$8.00for tranche 2for offive aperiod consecutive days. The date. requirement addition,the Directors have In imposedafurther that theexercise ofoptionsisconditional upon date.vesting oneachanniversary Tranche 2vests over afour year period, with25percent vesting oneachanniversary tranches (3,750,000optionspertranche) to akeyexecutive. Tranche 1vests over athree year period, with33.3percent thefinancial During year ended30June2010the Company issued7,500,000employeetwo optionsunder equal paymentsNote (continued) 36. Share-based NOTES TO THEFINANCIALSTATEMENTS Total 3 December 2010 13 May 2010 11 February 2009 1 June2006 25 January 2006 25 January 2011 Total 13 May 2010 11 February 2009 1 June2006 2006 25 January 2010 Grant Date Exercisable at 30June atOutstanding 30June Granted theyear during Forfeited theyear during Exercised theyear during atOutstanding 1July 2015 20 September 13 May 2015 2014 11 February 1 June2011 2011 25 January 13 May 2015 2014 11 February 1 June2011 2011 25 January date Expiry Weighted average Exercise $0.703 $0.569 $0.703 $0.569 exercise price $5.69 $5.00 $2.50 $5.00 $2.50 price ($A) 11,577,500 start ofthe start Balance at 6,881,250 2011 7,500,000 1,800,000 1,708,750 2,400,000 2,643,750 1,837,500 4.59 US$ 5.69 0.57 0.76 3.32 2.70 568,750 year Number ofoptions Number - - during the 7,500,000 7,500,000 Granted 400,000 400,000 (2,383,750) 11,577,500 9,550,000 year Number (43,750) 400,000 750,000 ------2011 (2,383,750) (2,203,750) during the (1,690,000) (1,268,750) Exercised (150,000) (543,750) (935,000) year Weighted average - - - - exercise price during the (600,000) Forfeited (600,000) (43,750) (18,750) (25,000) year 2010 3.32 US$ 4.41 2.14 0.33 0.73 0.59 ------11,577,500 Balance at end ofthe 9,550,000 7,500,000 1,650,000 7,500,000 1,800,000 1,708,750 Number ofoptions Number 400,000 568,750 year - - 11,577,500 (6,917,630) 11,620,380 exercisable Vested and 7,500,000 2,727,500 2,727,500 (625,250) Number 1,708,750 at endof the year 750,000 750,000 450,000 568,750 2010 - - - - - 117 117 FORTESCUE METALS GROUP ANNUAL REPORT 2011 118 118 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only The individualfinancialstatements for theparent show entity the following aggregate amounts: financialinformation (a) Summary Note 37.Parent financialinformation entity The modelinputsfor optionsgranted theyear during ended30June2011included: paymentsNote (continued) 36. Share-based NOTES TO THEFINANCIALSTATEMENTS Profit for the year Total equity earnings Retained Reserves Contributed equity Net assets Total liabilities liabilities Non-current Current liabilities Total assets assets Non-current Current assets Balance sheet payment expense Share-based Employee expenses (b) Employee expenses Total comprehensive income for theyear (g) (f) (e) (d) (c) (b) (a) dividend yield:nil risk 62.15percent (2010:76.40percent) volatility: expected price ofshares on grant date: A$6.50(2010:A$4.35) exercise price: A$5.69(2010:A$5.00) date: 20September2015(2010:13May 2015) expiry grant date: 3December 2010(2010:13May 2010) ‑free interest rate: 5.20percent (2010:5.00percent) 3,306,584 3,306,584 3,743,695 2,001,650 1,295,033 3,450,863 6,295 US$'000 US$'000 437,111

421,343 411,912 437,111 292,832 6,295 9,901 2011 2011 - 1,768 1,768 1,386,847 1,386,847 1,608,753 1,274,649 1,472,530 US$'000 US$'000 221,906 179,984 179,916 118,796 122,522 136,223 (6,598) 99,384 2010 2010 For personal use only Note 39.Subsequent events The parent didnothave entity any contingent liabilitiesasat 30June2011or2010,otherthandisclosedin (c) Contingent liabilitiesoftheparent entity value of theguarantees isimmaterial. was recognisedNo liability by theparent ortheconsolidated entity inrelation entity to thecross guarantees, asthefair Group Limited, innote asdescribed 33. The parent hasnotprovided entity any financialguarantees otherthanthecross guarantees given by Metals Fortescue (b) Guarantees entered into by theparent entity Note 37. Parent financialinformation entity (continued) payable on30September2011. On 19August 2011,theDirectors declared afinalfullyfranked dividendof four Australian share cents perordinary from operating activities Note 38.Reconciliation ofprofit income after tax to netcashinflow note 29.For information aboutguarantees given by theparent entity, pleaseseeabove. NOTES TO THEFINANCIALSTATEMENTS Total financingandinvesting non-cash activities Acquisition ofplant andequipment by finance lease Interest paidby theissue of shares financingandinvestingNon-cash activities inflowNet cash from operating activities Working capitaladjustments: interestDeduct income relating to investing activities Add refinancingactivities) costs (disclosedwithinfinancing Add interest expense (disclosedwithinfinancingactivities) Net foreign exchange loss/(gain) Tax expense / value ofseniorunsecured notes ofcarrying Re-estimation settledshareEquity Accretion expense Loss /(profit) assets ondisposalofnon-current ofobsolete software Impairment Depreciation and amortisation Profit for the year Increase ininventory Increase inreceivables Increase inpayables andprovisions

(benefit) ‑based payment transactions

2011 2,778,162 (210,229) 1,022,555 (204,321) (215,404) (113,248) US$'000 (24,591) 308,639 719,201 450,755 312,513 169,823 (5,908) 37,195 92,846 6,295 3,534 7,553 496

1,294,134 (10,707) US$'000 (18,909) (83,805) (10,707) (67,169) (47,044) 111,590 383,981 279,986 153,174 580,946 (1,770) (3,612) 1,771 1,452 3,543 2010

- -

119 119 FORTESCUE METALS GROUP ANNUAL REPORT 2011 120 120 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Dated at Perth this19thday ofAugust 2011. Chairman AndrewMr Forrest Signed in accordance witharesolution oftheDirectors. 4. 3. 2. including: 1. DIRECTORS’ DECLARATION compliance Standards. withInternational Financial Reporting The directors draw attention to note 1(a)to theconsolidated financialstatements, whichincludesastatement of 295A with Section This declaration receiving hasbeenmadeafter thedeclarations required to bemadeto thedirectors inaccordance Guarantee between theCompany andthoseGroup entities pursuant to ASICClassOrder 98/1418. to meetany obligations orliabilitiesto ofCross whichtheyareoftheDeed ormay to by become subject virtue There are reasonable grounds to believe that theCompany andtheGroup entities identified innote 32willbeable theopinionofdirectors ofFortescueIn Group Metals Limited (theCompany): report setoutonpages14to 31to theDirectors’report are inaccordance report, withthe (a) The consolidated financialstatements andnotes that are setoutonpages34 Remunerationto 89andthe

(ii) giving atrueandfairviewoftheGroup’s financialpositionas at 30June2011andofits (i) complying withAustralian Accounting Standards andthe

performance, forperformance, thefinancial year endedonthat date; and of theCorporations Act 2001

for thefinancial year ended30June2011. Corporations Regulations2001 Corporations Act 2001 ; and , For personal use only INDEPENDENT AUDITOR’S REPORTTO THEMEMBERS 121 121 FORTESCUE METALS GROUP ANNUAL REPORT 2011 122 122 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only INDEPENDENT AUDITOR’S REPORTTO THEMEMBERS For personal use only 123 123 FORTESCUE METALS GROUP ANNUAL REPORT 2011 124 124 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Top Shares 20HoldersofOrdinary Information asat 28September2011 SHAREHOLDER INFORMATION Rank Total 20 19 18 17 16 15 14 13 12 11 10 4 3 2 1 9 8 7 6 5 National NomineesLimited Valin Investments (Singapore) PteLtd HSBC Custody Nominees(Australia) Limited -A/C2 LtdThe Group Metal Pty Name WWB Investments Ltd WWB Pty Ltd UBS NomineesPty Mr William Graeme Rowley Cogent Limited NomineesPty AMP Life Limited HSBC Custody Nominees(Australia) Limited -A/C2 LtdThe Group Metal Pty Leucadia National Corporation Limited Citicorp NomineesPty Valin Investments Mining (Singapore) PteLtd LtdEmichrome Pty LUK-Fortescue Llc LtdThe Group Metal Pty Valin Resources Investments (Singapore) PteLtd JP Morgan NomineesAustralia Limited JP Morgan NomineesAustralia Limited 2,656,085,271 117,500,000 154,267,590 177,650,907 180,385,339 181,245,947 228,007,497 269,606,025 811,328,300 73,278,125 80,910,892 91,807,598 95,586,000 12,644,951 15,049,231 15,675,707 35,682,396 36,000,000 60,000,000 9,594,815 9,863,951 Units capital issued 85.30 26.06 2.35 2.60 2.95 3.07 3.77 4.95 5.71 5.79 5.82 7.32 8.66 0.31 0.32 0.41 0.48 0.50 1.15 1.16 1.93 % of For personal use only Range ofSharesRange Substantial Shareholders Information asat 28September2011 There were parcel 2,775membersholdinglessthanamarketable ofshares inthecompany. Unmarketable Parcels SHAREHOLDER INFORMATION Range Hunan Valin IronandSteel Group The Group Metal Ltd Substantial Shareholder Total 100,000 -max 10,001 –100,000 5,001 –10,000 1,001 –5,000 1-1,000 Total Holders 65,076 26,823 28,344 3,630 5,963 316 3,113,798,151 Total Shares 2,892,615,297 468,769,480 964,828,300 89,556,775 46,335,504 69,859,298 15,431,277 Units % of Total Shares % Issued Capital 100.00 92.90 15.05 30.99 2.88 1.49 2.24 0.50 125 125 FORTESCUE METALS GROUP ANNUAL REPORT 2011 126 126 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only WesternAustralian Tenure Information asat 14September2011 TENEMENT REPORT E 47/1855 E 47/1392 P 47/1427 P 47/1404 P 47/1306 P 45/2749 E 52/2620 E 52/2416 E 52/2333 E 52/1937 E 47/2442 E 47/2242 E 47/2173 E 47/2085 E 47/1988 E 47/1764 E 47/1623 E 47/1388 E 46/871 E 46/727 E 46/701 E 45/3698 E 45/3442 E 45/3413 E 45/3270 E 08/2195 E 08/1986 E 08/1741 E 08/1439 FMGHolder: Pilbara Ltd Status: Pty Granted FMG mineral rightsstatus: 100%allmineral rights L 46/78 Ltd Status: ChichesterPty Application Metals Holder: FMG mineral rightsstatus: n/a M 45/1147 Ltd Status: ChichesterPty Application Metals Holder: FMG mineral rightsstatus: 100%allmineral rights L 46/66 L 46/51 G 46/7 Ltd Status: ChichesterPty Granted Metals Holder: FMG mineral rightsstatus: n/a E 46/413 Ltd Status: ChichesterPty Granted Metals Holder: FMG mineral rightsstatus: 100%alliron ore rights M 46/454 M 46/420 M 46/410 M 46/357 M 46/347 M 46/337 M 46/327 M 46/317 M 45/1138 M 45/1103 M 45/1086 E 46/611 E 46/519 E 45/2497 Ltd Status: ChichesterPty Granted Metals Holder: FMG mineral rightsstatus: 100%allmineral rights P 47/1210 E 52/2626 E 52/2470 E 52/2340 E 52/1977 E 47/2459 E 47/2243 E 47/2174 E 47/2119 E 47/2026 E 47/1772 E 47/1668 E 47/1420 E 46/872 E 46/728 E 46/702 E 46/517 E 45/3443 E 45/3414 E 45/3310 E 08/2196 E 08/1992 E 08/1760 E 08/1440 L 47/204 M 45/1148 L 47/193 L 46/52 L 45/152 M 46/421 M 46/411 M 46/401 M 46/348 M 46/338 M 46/328 M 46/318 M 45/1139 M 45/1104 M 45/1087 E 46/612 E 46/566 E 45/2498 E 47/2241 E 47/1393 P 47/1468 P 47/1405 P 47/1307 E 47/1681 E 47/1423 E 46/882 E 46/729 E 46/703 E 46/621 E 45/3469 E 45/3421 E 45/3318 E 08/2200 E 08/2003 E 08/1761 E 08/1547 L 46/60 M 45/1149 L 47/197 L 46/53 L 46/35 M 46/422 M 46/412 M 46/402 M 46/349 M 46/339 M 46/329 M 46/319 M 45/1140 M 45/1105 M 45/1088 E 46/623 E 46/567 E 45/2499 E 52/1759 E 47/1395 P 47/1469 P 47/1406 P 47/1308 P 47/1211 E 52/2637 E 52/2484 E 52/2341 E 52/2113 E 47/2466 E 47/2244 E 47/2177 E 47/2138 E 47/2035 E 47/1808 E 52/1760 E 47/1396 P 47/1470 P 47/1407 P 47/1309 P 47/1237 E 52/2699 E 52/2486 E 52/2342 E 52/2114 E 47/2470 E 47/2285 E 47/2226 E 47/2143 E 47/2036 E 47/1809 E 47/1688 E 47/1446 E 47/1320 E 46/741 E 46/704 E 46/694 E 45/3552 E 45/3422 E 45/3328 E 45/2841 E 08/2034 E 08/1762 E 08/1549 M 45/1150 L 47/198 L 46/54 L 46/36 M 46/423 M 46/413 M 46/403 M 46/350 M 46/340 M 46/330 M 46/320 M 45/1141 M 45/1106 M 45/1089 E 46/664 E 46/568 E 45/2593 E 52/2034 E 47/1455 P 47/1513 P 47/1408 P 47/1398 P 47/1252 WA/14EOS E 52/2521 E 52/2353 E 52/2264 E 47/2475 E 47/2292 E 47/2229 E 47/2146 E 47/2037 E 47/1821 E 47/1702 E 47/1447 E 47/1351 E 46/776 E 46/706 E 46/695 E 45/3561 E 45/3428 E 45/3360 E 45/2843 E 08/2065 E 08/1831 E 08/1624 E 46/666 L 46/55 L 46/37 M 46/424 M 46/414 M 46/404 M 46/351 M 46/341 M 46/331 M 46/321 M 45/1142 M 45/1107 M 45/1090 E 46/675 E 46/569 E 45/2651 L 46/40 M 46/449 M 46/415 M 46/405 M 46/352 M 46/342 M 46/332 M 46/322 M 46/292 M 45/1124 M 45/1091 E 47/1434 E 46/590 E 45/2652 E 52/2035 E 47/1479 P 47/1514 P 47/1409 P 47/1399 P 47/1253 M 45/1177 E 52/2522 E 52/2380 E 52/2277 E 47/2476 E 47/2331 E 47/2234 E 47/2157 E 47/2046 E 47/1832 E 47/1703 E 47/1448 E 47/1355 E 46/799 E 46/708 E 46/696 E 45/3570 E 45/3429 E 45/3366 E 45/2847 E 08/2114 E 08/1942 E 08/1628 L 46/56 L 46/46 M 46/450 M 46/416 M 46/406 M 46/353 M 46/343 M 46/333 M 46/323 M 46/293 M 45/1125 M 45/1092 M 45/1082 E 46/595 E 45/2708 E 47/1480 P 47/1555 P 47/1410 P 47/1400 P 47/1257 M 47/1413 E 52/2527 E 52/2382 E 52/2284 E 52/1779 E 47/2334 E 47/2236 E 47/2159 E 47/2055 E 47/1920 E 47/1735 E 47/1449 E 47/1370 E 46/805 E 46/715 E 46/697 E 45/3611 E 45/3430 E 45/3369 E 45/2863 E 08/2117 E 08/1949 E 08/1629 L 46/57 L 46/47 M 46/451 M 46/417 M 46/407 M 46/354 M 46/344 M 46/334 M 46/324 M 46/314 M 45/1126 M 45/1093 M 45/1083 E 46/600 E 46/467 E 47/1611 E 47/1155 P 47/1411 P 47/1401 P 47/1270 M 47/1431 E 52/2555 E 52/2393 E 52/2285 E 52/1788 E 47/2378 E 47/2237 E 47/2160 E 47/2056 E 47/1921 E 47/1741 E 47/1532 E 47/1373 E 46/832 E 46/716 E 46/698 E 45/3650 E 45/3431 E 45/3386 E 45/2864 E 08/2157 E 08/1959 E 08/1630 L 46/58 L 46/48 M 46/452 M 46/418 M 46/408 M 46/355 M 46/345 M 46/335 M 46/325 M 46/315 M 45/1127 M 45/1094 M 45/1084 E 46/601 E 46/516 E 47/1612 E 47/1390 P 47/1412 P 47/1402 P 47/1279 P 45/2721 E 52/2576 E 52/2414 E 52/2290 E 52/1789 E 47/2379 E 47/2238 E 47/2171 E 47/2062 E 47/1923 E 47/1761 E 47/1533 E 47/1375 E 46/859 E 46/725 E 46/699 E 45/3658 E 45/3433 E 45/3399 E 45/2865 E 08/2193 E 08/1961 E 08/1631 L 46/62 L 46/49 M 46/453 M 46/419 M 46/409 M 46/356 M 46/346 M 46/336 M 46/326 M 46/316 M 45/1128 M 45/1102 M 45/1085 E 46/610 E 46/518 E 47/1846 E 47/1391 P 47/1423 P 47/1403 P 47/1286 P 45/2748 E 52/2594 E 52/2415 E 52/2311 E 52/1790 E 47/2431 E 47/2240 E 47/2172 E 47/2080 E 47/1944 E 47/1763 E 47/1579 E 47/1387 E 46/870 E 46/726 E 46/700 E 45/3697 E 45/3438 E 45/3412 E 45/2866 E 08/2194 E 08/1985 E 08/1632 L 46/64 For personal use only Western Australian Tenure (continued) Information asat 14September2011 TENEMENT REPORT E 08/1432 FMGHolder: Pilbara Ltd Status: Pty Application FMG mineral rightsstatus: 100%allmineral rights L 47/391 L 47/302 G 45/275 FMGHolder: Pilbara Ltd Status: Pty Granted FMG mineral rightsstatus: n/a M 47/1409 E 47/1333 FMGHolder: Pilbara Ltd Status: Pty Granted FMG mineral rightsstatus: 100%allmineral rightsexcept diamonds E 52/2621 E 04/1534 FMGHolder: Ltd Resources Status: Pty Granted FMG mineral rightsstatus: 100%allmineral rights M 45/1211 Pilbara FMG LtdHolder: Status: Pty Application North FMG mineral rights status: 100%allmineral rights E 45/3084 Pilbara FMGLtdHolder: Status: Pty Granted North FMG mineral rightsstatus: 100%allmineral rights L 47/507 L 47/367 L 45/240 FMGHolder: Pilbara Ltd Status: Pty Application FMG mineral rights status: n/a M 47/1408 FMGHolder: Pilbara Ltd Status: Pty Application FMG mineral rights status: 100%allmineral rightsexcept diamonds P 47/1616 P 47/1605 P 47/1537 P 47/1315 P 47/1278 P 08/621 M 47/1458 E 69/2729 E 51/1493 E 47/2572 E 47/2491 E 47/2235 E 47/1997 E 47/1843 E 47/1684 E 47/1666 E 47/1549 E 47/1384 E 46/862 E 45/3817 E 45/3699 E 45/3591 E 45/3426 E 45/2972 E 45/2861 E 45/2851 E 08/2286 E 08/2067 E 08/1982 E 08/1905 E 08/1878 P 47/1606 P 47/1545 P 47/1390 P 47/1280 P 08/622 M 47/1459 E 69/2965 E 52/1984 E 47/2573 E 47/2496 E 47/2239 E 47/1998 E 47/1879 E 47/1685 E 47/1667 E 47/1578 E 47/1397 E 46/878 E 45/3825 E 45/3705 E 45/3600 E 45/3441 E 45/2973 E 45/2862 E 45/2852 E 08/2287 E 08/2072 E 08/2000 E 08/1906 E 08/1893 E 08/1548 L 47/392 L 47/351 G 45/285 M 47/1410 E 47/1334 E 59/1267 E 16/420 M 45/1212 L 47/368 L 45/241 M 47/1409 P 47/1617 E 59/1275 E 51/1158 M 45/1213 L 47/382 L 45/242 M 47/1410 P 47/1618 P 47/1607 P 47/1552 P 47/1391 P 47/1281 P 08/624 M 47/1461 M 45/1196 E 52/2347 E 47/2574 E 47/2506 E 47/2333 E 47/1999 E 47/1989 E 47/1686 E 47/1669 E 47/1651 E 47/1404 E 46/889 E 45/3845 E 45/3711 E 45/3605 E 45/3445 E 45/3191 E 45/2867 E 45/2853 E 08/2293 E 08/2088 E 08/2004 E 08/1907 E 08/1894 E 08/1550 L 47/393 L 47/360 G 45/286 M 47/1411 E 47/1352 E 59/1360 E 51/1159 M 45/1184 L 47/394 L 45/243 M 47/1411 P 47/1623 P 47/1608 P 47/1553 P 47/1392 P 47/1282 P 45/2786 M 47/1466 M 47/1404 E 52/2696 E 47/2575 E 47/2507 E 47/2336 E 47/2000 E 47/1990 E 47/1687 E 47/1670 E 47/1652 E 47/1419 E 47/1342 E 45/3866 E 45/3739 E 45/3606 E 45/3448 E 45/3305 E 45/2870 E 45/2854 E 08/2294 E 08/2137 E 08/2038 E 08/1908 E 08/1895 E 08/1585 L 47/297 L 47/232 E 47/1372 E 45/3608 E 45/3463 E 45/3306 E 45/2919 E 45/2855 E 08/2295 E 08/2175 E 08/2039 E 08/1915 E 08/1896 E 08/1623 L 47/301 L 47/293 E 47/1398 E 70/3546 E 51/1165 L 47/395 L 45/244 M 47/1417 P 47/1626 P 47/1609 P 47/1554 P 47/1393 P 47/1283 P 45/2787 P 08/531 M 47/1433 E 69/2722 E 47/2576 E 47/2513 E 47/2337 E 47/2020 E 47/1991 E 47/1690 E 47/1673 E 47/1653 E 47/1433 E 47/1343 E 45/3938 E 45/3746 E 45/3641 E 45/3473 E 45/3307 E 45/2920 E 45/2856 E 08/2296 E 08/2218 E 08/2059 E 08/1916 E 08/1897 E 08/1626 L 47/362 L 47/294 E 47/1399 E 70/4013 E 51/1166 L 47/396 L 45/245 E 47/1398 P 47/1633 P 47/1610 P 47/1581 P 47/1394 P 47/1284 P 47/1198 P 08/532 M 47/1434 E 69/2724 E 47/2577 E 47/2538 E 47/2357 E 47/2061 E 47/1992 E 47/1728 E 47/1674 E 47/1654 E 47/1435 E 47/1349 E 46/711 E 45/3760 E 45/3654 E 45/3489 E 45/3400 E 45/2945 E 45/2857 E 08/2298 E 08/2250 E 08/2060 E 08/1933 E 08/1898 E 08/1627 L 47/363 L 47/296 E 47/1436 E 70/4014 E 52/1945 L 47/397 L 45/246 E 47/1399 P 47/1634 P 47/1612 P 47/1582 P 47/1395 P 47/1285 P 47/1199 P 08/617 M 47/1441 E 69/2725 E 47/2578 E 47/2546 E 47/2358 E 47/2137 E 47/1993 E 47/1762 E 47/1675 E 47/1655 E 47/1453 E 47/1357 E 46/724 E 45/3762 E 45/3659 E 45/3535 E 45/3402 E 45/2946 E 45/2858 E 45/2842 E 08/2258 E 08/2061 E 08/1943 E 08/1902 E 08/1633 L 47/375 L 47/298 E 47/1523 E 77/1385 E 52/1946 L 47/471 L 47/295 P 52/1415 P 47/1613 P 47/1583 P 47/1396 P 47/1287 P 47/1261 P 08/618 M 47/1453 E 69/2726 E 47/2579 E 47/2547 E 47/2369 E 47/2197 E 47/1994 E 47/1773 E 47/1677 E 47/1656 E 47/1500 E 47/1361 E 46/735 E 45/3764 E 45/3663 E 45/3536 E 45/3417 E 45/2970 E 45/2859 E 45/2844 E 08/2263 E 08/2062 E 08/1950 E 08/1903 E 08/1814 L 47/381 L 47/299 E 47/1524 E 52/1947 L 47/472 L 47/350 P 47/1614 P 47/1603 P 47/1397 P 47/1304 P 47/1262 P 08/619 M 47/1456 E 69/2727 E 47/2584 E 47/2559 E 47/2465 E 47/2198 E 47/1995 E 47/1818 E 47/1679 E 47/1660 E 47/1535 E 47/1363 E 46/743 E 45/3767 E 45/3664 E 45/3545 E 45/3423 E 45/2971 E 45/2860 E 45/2850 E 08/2284 E 08/2063 E 08/1962 E 08/1904 E 08/1816 L 47/383 L 47/300 M 47/1408 E 52/2423 L 47/473 L 47/361 P 47/1615 P 47/1604 P 47/1536 P 47/1305 P 47/1269 P 08/620 M 47/1457 E 69/2728 E 47/2585 E 47/2560 E 47/2490 E 47/2223 E 47/1996 E 47/1833 E 47/1682 E 47/1665 E 47/1543 E 47/1383 E 46/861 E 45/3816 127 127 FORTESCUE METALS GROUP ANNUAL REPORT 2011 128 128 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only Western Australian Tenure (continued) Information asat 14September2011 TENEMENT REPORT E 47/1011 Flinders LtdHolder: Status: Mines Granted FMG mineral rightsstatus: 100%iron ore rights E 08/1393 Cullen LtdHolder: Exploration Status: Pty Granted FMG mineral rightsstatus:51%iron Earning ore rights L46/63 Contract PowerHolder: Australia P 47/1275 Status: David Granted Ryan Holder: FMG mineral rightsstatus: Optionfor 100% allmineral rights M 47/583 Derek AmmonHolder: Status: Application FMG mineral rightsstatus: 40%allmineral rights E 47/1140 Derek AmmonHolder: Status: Granted FMG mineral rightsstatus: 40%allmineral rights L 47/205 PilbaraHolder: Ltd IronOre Status: Pty Application FMG mineral rightsstatus: n/a M 47/580 PilbaraHolder: Ltd IronOre Status: Pty Application FMG mineral rightsstatus: 50%allmineral rights E 47/1191 PilbaraHolder: Ltd IronOre Status: Pty Granted FMG mineral rights status: 50%allmineral rights L 47/511 L 47/500 L 47/490 L 47/480 L 47/467 L 47/457 L 47/447 L 47/437 L 47/427 L 47/536 L 47/526 L 47/516 Holder: The Ltd Pilbara Status: Pty Application Infrastructure FMG mineral rightsstatus: n/a AL 70/1 Holder: The Ltd Pilbara Status: Pty Granted Infrastructure FMG mineral rightsstatus: n/a P 47/1177 E 47/1319 Fortescue GroupHolder: Metals Ltd Status: Application FMG mineral rightsstatus: 100%allmineral rights L 45/158 Fortescue GroupHolder: Metals Ltd Status: Granted FMG mineral rightsstatus: n/a L 45/257 L 45/268 FMGHolder: Ltd Magnetite Status: Pty Granted FMG mineral rightsstatus: n/a E 09/1871 FMGHolder: Ltd Magnetite Status: Pty Application FMG mineral rightsstatus: 100%allmineral rights E 45/2510 FMGHolder: Ltd Magnetite Status: Pty Granted FMG mineral rightsstatus: 100%allmineral rights E 77/1906 E 69/2962 E 69/2948 E 69/2527 E 69/2517 E 57/738 E 45/3225 E 08/2282 E 04/1536 FMGHolder: Ltd Resources Status: Pty Application FMG mineral rightsstatus: 100%allmineral rights E 69/2963 E 69/2949 E 69/2528 E 69/2518 E 57/756 E 45/3226 E 09/1872 E 04/1537 E 47/1016 E 47/1154 M 47/581 E 47/1192 L 46/96 L 47/501 L 47/491 L 47/481 L 47/468 L 47/458 L 47/448 L 47/438 L 47/428 L 47/537 L 47/527 L 47/517 L 45/199 P 47/1178 M 45/1180 L 45/191 L 45/269 E 45/2535 E 77/1907 E 47/1224 L 47/415 L 47/502 L 47/492 L 47/482 L 47/469 L 47/459 L 47/449 L 47/439 L 47/429 L 47/538 L 47/528 L 47/518 L 45/222 P 47/1179 M 45/1181 L 45/270 E 77/1932 E 69/2969 E 69/2950 E 69/2529 E 69/2519 E 59/1279 E 45/3563 E 09/1873 E 04/1538 E 47/1306 E 47/1649 M 47/582

Status: Application FMG mineral rightsstatus: n/a L 47/329 L 47/503 L 47/493 L 47/483 L 47/470 L 47/460 L 47/450 L 47/440 L 47/430 L 47/539 L 47/529 L 47/519 L 45/223 P 47/1180 M 45/1182 L 45/271 E 77/1954 E 69/2970 E 69/2951 E 69/2530 E 69/2520 E 59/1779 E 45/3564 E 09/1874 E 47/1650 E 47/1225 E 04/1539 E 52/1667 E 47/1235 L 47/330 L 47/504 L 47/494 L 47/484 L 47/474 L 47/461 L 47/451 L 47/441 L 47/431 L 47/540 L 47/530 L 47/520 L 45/224 M 45/1183 L 45/272 P 77/4056 E 69/2971 E 69/2953 E 69/2531 E 69/2521 E 63/1500 E 45/3565 E 29/824 E 04/2129 L 45/273 P 77/4057 E 69/2993 E 69/2954 E 69/2929 E 69/2522 E 63/1501 E 45/3566 E 30/432 E 08/2259 P 08/556 E 47/1380 L 47/331 L 47/505 L 47/495 L 47/485 L 47/475 L 47/462 L 47/452 L 47/442 L 47/432 L 47/541 L 47/531 L 47/521 L 46/86 P 47/1172 L 45/274 P 77/4058 E 74/500 E 69/2955 E 69/2930 E 69/2523 E 63/1502 E 45/3567 E 45/3221 E 08/2260 P 47/1156 L 47/506 L 47/496 L 47/486 L 47/476 L 47/463 L 47/453 L 47/443 L 47/433 L 47/542 L 47/532 L 47/522 L 46/87 P 47/1173 L 45/262 P 77/4059 E 74/501 E 69/2956 E 69/2945 E 69/2524 E 63/1503 E 45/3568 E 45/3222 E 08/2261 P 47/1414 L 47/508 L 47/497 L 47/487 L 47/477 L 47/464 L 47/454 L 47/444 L 47/434 L 47/424 L 47/533 L 47/523 P 47/1174 L 45/263 P 77/4060 E 74/504 E 69/2960 E 69/2946 E 69/2525 E 63/1504 E 45/3569 E 45/3223 E 08/2280 L 47/509 L 47/498 L 47/488 L 47/478 L 47/465 L 47/455 L 47/445 L 47/435 L 47/425 L 47/534 L 47/524 P 47/1175 L 45/264 E 74/506 E 69/2961 E 69/2947 E 69/2526 E 69/2516 E 52/2701 E 45/3224 E 08/2281 L 47/510 L 47/499 L 47/489 L 47/479 L 47/466 L 47/456 L 47/446 L 47/436 L 47/426 L 47/535 L 47/525 P 47/1176 For personal use only Western Australian Tenure (continued) New Zealand TenureNew TenureQueensland Australian Tenure South Information asat 14September2011 TENEMENT REPORT 52727 FMGHolder: Pacific LtdPty Status: Application FMG mineralrights status: 100%allmineralrights 53694 50990 FMGHolder: Pacific LtdPty Status: Granted FMG mineralrights status: 100% rights coal 50993 FMGHolder: Pacific LtdPty Status: Granted FMG mineralrights status: 100%allmineralrights EPC 1972 FMGHolder: Ltd Resources Status: Pty Granted FMG mineral rightsstatus: 100%allcoal rights EPC 1984 FMGHolder: Ltd Resources Status: Pty Granted FMG mineral rightsstatus: 100%coal rights 2011/00158 ELA 2011/00130 ELA FMGHolder: Ltd Resources Status: Pty Application FMG mineral rightsstatus: 100%allmineral rights P 47/1316 Flint,Holder: Warrick JohnStatus: Granted FMG mineral rightsstatus: 100%allmineral rights L 46/82 G 46/8 BCIronLtdHolder: Status: Granted FMG mineral rightsstatus: n/a E 46/657 E 45/2552 BCIronLtdHolder: Status: Granted FMG mineral rightsstatus: 50%iron ore rights E 47/1136 Holder: Talisman Ltd Status: Mining Granted FMG mineral rightsstatus: 100%iron ore rights E 47/1861 Ltd Status: Enterprises Pty Granted BlueMist FMGHolder: mineral rightsstatus: 100%allmineral rights E 45/2310 Gwalia Holder: Tantalum Ltd Status: Pty Application FMG mineral rightsstatus:60%iron Earning ore rights E 47/1461 Ltd Status: MaincoastPty ApplicationHolder: FMG mineral rightsstatus: 100%allmineral rights M 47/1407 M 47/663 Flinders LtdHolder: Status: Mines Application FMG mineral rightsstatus: 100%iron ore rights

52728 51183 50994 EPC 1975 2011/00131 ELA P 47/1317 G 46/9 E 46/658 E 45/2717 E 47/1194 E 47/1863 E 70/2596 M 47/664 51209 50873 EPC 2010 2011/00134 ELA P 47/1318 L 46/68 E 46/663 E 46/522 E 47/1195 M 47/665 51212 50874 2011/00135 ELA L 46/73 M 46/515 E 46/523 E 47/1196 M 47/666 EPC 2013 L 46/74 E 46/651 M 47/667 51213 50961 2011/00136 ELA EPC 2090 L 46/75 E 46/652 M 47/668 51074 50960 2011/00137 ELA EPC 2321 L 46/76 E 46/653 M 47/669 51267 50995 2011/00154 ELA L 46/79 E 46/654 M 47/670 51330 52604 2011/00155 ELA L 46/80 E 46/655 M 47/671 2011/00156 ELA 51258 52606 L 46/81 E 46/656 M 47/672 2011/00157 ELA 52147 129 129 FORTESCUE METALS GROUP ANNUAL REPORT 2011 130 130 For personalFORTESCUE METALSuse GROUP ANNUAL REPORT 2011 only For personal use only Mark Barnaba –Non-Executive Barnaba Mark Director Li Xiaowei –Non-Executive Director –Non-Executive Director Hegarty Owen BrayshawGeoff –Non-Executive Director Ken Ambrecht –Non-Executive Director Graeme Rowley –Non-Executive Director Nev Power –Executive Director Elliott–Non-ExecutiveHerb Chairman Deputy Andrew Forrest –Non-Executive Chairman Directors ABN 57002594872 Australian BusinessNumber CORPORATE DIRECTORY Link Market Services. Link Market For any changeinpersonaldetails, pleasecontact Fax: +61292870303 Tel: 1300733136or+6128280760 Sydney SOUTH , 1235 Locked BagA14 Perth WESTERN AUSTRALIA, 6000 Ground floor,Georges 178 St Terrace Limited Services Link Market Share Register ASX Code: FMG Australian Exchange Securities (ASX) Fortescue Group Metals Limited shares are listed onthe Stock Exchange Listings Perth WESTERN AUSTRALIA, 6000 235 St Georges Terrace KPMG Internal Auditor Subiaco WESTERN AUSTRALIA, 6008 38 Station Street BDO Audit (WA) Ltd Pty Auditor Email: [email protected] Website: www.fmgl.com.au Tel: +61862188888Fax: +61862188880 East Perth WESTERN AUSTRALIA 6004 Level 2,87Adelaide Terrace Principal Registered in Office Australia CampbellRod Thomas Mark Company Secretaries -Non-Executive Scruggs Director Herbert Raby –Non-Executive Geoff Director

Registry website: www.linkmarketservices.com.au. Registry communication preferences orby logging inviathe Please usetheenclosedform to alter your friendly. savings, andourcommunications are environmentally delivery, ofelectronic security there are significant cost prompt information andhave theconvenience and receive communication –securityholders securityholder We believe benefitsfrom everyone electronic meetings andotheradvices. to notices includingannualreports, securityholders, of yearEvery we are required to communicate information and helptheenvironment There isabetter way to access your information Prefer email? 9th November 2011 Annual General Meeting

131 131 FORTESCUE METALS GROUP ANNUAL REPORT 2011 For personal use only