109 109 FORTESCUE METALS GROUP ANNUAL REPORT 2010 106 106 FORTESCUE METALS GROUP ANNUAL REPORT 2010 run rate of55Mtpa. expanded Chichester Huboperation hasatargeted supply chain. When completed 2011, the inearly the site withFortescue’s existing rail andport as wellunder construction asarail spurto connect expanding withanewore processing facility second minesite Creek Christmas are currently tonnes perannum(Mtpa). The operations at our Cloudbreak isproducing at arate of40million theChichester Hub,In ourfirstminesite at Australia, withourheadoffice located in Perth. operations based inthePilbara region of Western integrated business comprised of mine, rail and port of thePilbara’s vast resources. Fortescue is an are continuing to unlockthesignificant potential of rapidly onlineandwe bringing newprojects are stillgrowing. Fortescue has anenviable record third largest iron ore producer inAustralia andwe for ChinainMay 2008,Fortescue hasbecome the Since loading ourfirstiron ore shipment bound EXPORTER OF IRON ORE. WORLD’S FOURTH LARGEST PRODUCER AND FORTESCUE METALS GROUP LTD IS THE extensive tenement footprint across thePilbara. the businessmoves to takefulladvantage ofits central and Solomon Western Hubtenements as is well positionedto takeiron ore from Fortescue’s Anketell Point. This strategically hub located export at facility based onthedevelopment ofanewport Stage Two are progressing, notingthat theseare through to Port Hedland. Studies for Solomon to Fortescue’sspur linking existing supplychain rail alonga140kilometre will betransported targetwhich hasaproduction of60Mtpa.Product thecommencement ofStage One underwrite already beendelineated ofwhich1.86Btwill 2.86billiontonnesSome (Bt)ofresource has concluded with plans for a two stage development. At Hub, theSolomon afeasibility studyisbeing toproduction 90Mtpa. on thedrawing board total withplansto lift Further expansion of theChichester Hubisalso ourselves. from us.performance We insistonthesamefrom best thevery familyofstakeholdersexpect Our proud achievements ofoursustainability sofar. presents. that sustainability opportunities We are capabilities, andrealise manage ourrisks the have to continuously improve oursustainability recognise that inorder to grow ourbusinesswe That is, itisintegrated we into do. everything We We to consider bebusinessasusual. sustainability Sustainability work and ourshareholders. contractors, thecommunities inwhichwe live and of allstakeholders, includingouremployees, handled safely andefficiently forthebenefit processed, railed andshippedeachmonth are themillionsoftonnesensuring ofiron ore mined, All Fortescue team membersare focused on profitable and safest iron ore producer. Fortescue’s visionisto bethelowest cost, most Vision for environmental management. to ISO1400l,certified theinternational standard grown timber. Paper andprinter manufacturer are frommanufactured pulpsourced from plantation based inksonpaperthat ischlorinefree and isprintedThis usingvegetable annualreport CONTENTS 105 102 100 98 97 48 47 35 26 25 16 10 8 4 3 2 Corporate directory Tenement report Shareholder information to the Members Independent Auditor’s report Directors’ Declaration Financial statements Declaration Auditor’s Independence Remuneration report Directors’ report Financial report Recommendations ASX Best Practice Sustainability report Reserves and Resources report Operations report statement Chief Executive Officer’s Chairman’s statement

1 FORTESCUE METALS GROUP ANNUAL REPORT 2010 1 2

FORTESCUE METALS GROUP ANNUAL REPORT 2010 2 STATEMENT CHAIRMAN’S Fortescue team theyear during andnow have 2,225 our peopleandculture. We continued to grow our but asalways, assetis ourmostvaluable andpowerful over oftheFortescue thepast12months story part All ofthesebusinessachievements are animportant Company’s Hubs– “Three Two Ports” strategy. development inthePilbara paved theway for the Government ofAnketell Point port asthenext Company. Endorsement by the Western Australian HubwillbeamassiveSolomon step forward for your Cloudbreak Creek andChristmas combined, the theresourcealmost twice two ofourfirst minesites major mineral resource, Fortescue’s Hub. Solomon With foralso underway what istheworld’s bestundeveloped first phase to be complete 2011. by early Planning is Creekexpansion oftheChristmas minesite withthe reality for your Company. Work onthe isunderway Growing andexpanding willalways beavisionand they buildastrong basefor ourfuture expansion. Fortescue’s to generate ability exceptional returns and These outstandingachievements are of atruereflection up 44percent on theprevious year. US$1,107 millionandwe shipped40.1milliontonnes, cent. Cash flow from operations rose 134per cent to EBITDA ofUS$1,288million, anincrease of129per with strongrecord financial performance underlying achievement for Fortescue. Your Company returned a This financial year hasbeena year ofsignificant onthefrontfirmly foot for the exciting year ahead. enviable positionwe now holdandputyour Company and tireless team have delivered Fortescue to the cash flow andanenthusiastic prices, strong andincreasing minesites, commodity rising levels from two expanding reliable andgrowing production world’s bestaddress for iron ore, A world class resource inthe also continues to train andemploy Aboriginal people andourSummit300program, Fortescue Centre (VTEC) Through the Vocational, Training andEmployment traditional landowners inthePilbara. a great andculture ofour understandingofthehistory our cross cultural awareness training whichgives them the size oftheteam, allmembersfindtime to complete operations andinheadoffice.rail Regardless andport of Fortescue across exploration, peopleworking ourmine, Herb Elliott Herb continuing support. On behalfofyour Board, thankyou allfor your his own. our Company delivering onourdreams to chaseafew of Fortescue Board butretired from hisday to day role with team members, Graeme remained hasfortunately o Director Graeme Row wholeFortescueOur team farewelled retiring Executive for allindustries. taxation system andtheintroduction ofafairer regime Fortescue isstilladvocating for acomplete review ofthe ResourcesMineral Rent Tax hasnow beenproposed, this ill-conceived tax. While theslightly more reasonable economy. Your team didnot hesitate to standupagainst thestrengthundermine ithadlent theAustralian threatened to destroy ourgreat resources and sector a Resource SuperProfits Tax and took us by surprise country. The LaborGovernment’s decisionto introduce an even more insidiousattack from withinourown facedfinancial crisis, andtheminingindustry Fortescue we rode outthelastofshockwaves from theglobal This year hasnotbeenwithoutitschallenges. Justas ofthebusiness. sections ofourteam193 Aboriginal across employees all part were well onourway to achievingthat target with Aboriginal June2010,we peopleby 30June2011.In commits Fortescue to employing anadditional300 from thePilbara andbeyond. The Summit300program A stacker and reclaimer in action at ley inMarch. Oneofourfounding Fortescue’s Herb Elliott Port. n the OFFICER’S STATEMENT CHIEF EXECUTIVE any Pilbara mine. two years, In your team hasachieved hasbeenthefastestwithout parallel. ramp upof It The growth ofourflagshipmineCloudbreak is story significant revenuesrising cashbalances. and andprice increaseswith production generating the2010financial In year, we delivered strong cashflows a strong andsustainableiron ore producing company. our minesandinfrastructure, Fortescue hasmatured into After seven years ofplanning, buildingandramping up point amajorturning for2010 marked your Company. operation. aneventualplanned to increase 160Mtpa to support the Fortescue Board later thisyear, whileresources are detailed feasibility studywhichwillbe delivered to plansforOur Hubwillbe outlinedina theSolomon development ofa60Mtpaminingoperation at Solomon. thetargeted Stagetonnes One whichwillunderwrite for Hubaloneof2.86billion portfolio theSolomon precedent inAustralian history. We now have aResource believe theexploration team’s achievement iswithout all Australians, backin2003,I from astandingstart success ofourexploration terms ofvalue team. for In All of Fortescue hasbeenbuiltontheincredible employment. throughgiving indigenouspeopleself-determination adopted nationally to finally “do welfare outofajob” by isour positions inourindustry. that isbeing It VTEC levels andtrains themintoandrewarding exacting This centre takesindigenouspeopleofalleducational Vocational Training andEmployment Centre (VTEC). employment disparity, we are alsodeveloping ourown Employment Covenant to remove indigenous GenerationOne of andthe national efforts Australian communities. the While we are supporting actively Company to thelocalandwiderAustralian ismaking Equally exciting isthestrong contribution that your already building upon. with amajorplatform for growth, aplatform we are boxesfinancial market butbecauseitprovides Fortescue of notbecauseit ticks aseries All ofthisisimportant a runrate for themonth ofover 50Mtpawas achieved. post reporting date performance in September 2010 term target of55Mtpaasshown inthe to hittheir short when gross loadrates inthePilbara. They are well ontheway shipments at rates upto 44Mtpaanddelivered thebest continued to reduce times. cycle Port Our Team logged increased axleloads to the40tonne design rate and Running theworld’s heaviest haulrailway, theRail Team Hedland Operations Team alsohitstretch targets. Along ourrailway andat ElliottPort, ourHerb stable operation delivering reliable tonnes. decades. theyear, During Cloudbreak matured into a results whichtook othermajorminingcompanies

customers andcreated beyond othermarkets China, year we shippedto more than45Chinesesteel mill for Fortescue ore healthy. remains very the During demand market, afield to our export further Looking per cent to below levels. iron ore industry Frequency (LTIFR) Rate 12month rolling average by 65 story. theyear During we reduced ourLost Time Injury Safety continues to oftheFortescue beanintegral part 2011. Quarter at aminimum targeted rate of55Mtpaby theJune completed, thecombined Chichester Hubwillproduce Creek 2011.Once isscheduledfor theMarch Quarter at Christmas currentlyunder construction facility Creek. Wetore new a processing of commissioning linked through to Christmas Cloudbreak rail linewillbe existing Port Hedlandto ofthe extension kilometre December thisyear,By a50 thefinancial during year. mine site was completed grow Creek ourChristmas amount ofthework to asignificantoperations; infact, also plannedfor ourexisting Further expansion is Andrew Forrest Company’s history. the mostexciting andgrowth orientated inthe period for staying thecourse aswe enter now what isperhaps challenges ahead. To allourstakeholders, Ithankyou andteam workfrugality aswe meetourmajor and askyou to step up, again,your energy, innovation, at Fortescue for theircontribution over thepastyear committed andenthusiastic Board. Ithankeveryone team hasnever beenstronger andisleadby a continue delivering onourpromises. management Our strong teamvery inplace andwe are well equippedto and growth plannedfor theyear ahead. We have a Your Company isenergised andready for theexpansion levels.already backto pre-GFC inJapanandKoreaon year is in2009 andsteel making in Chinacontinue to rise, by more than10percent year continuing to strengthen. Forecasts for steel production substantial andfastrate andconsumer demandis China,therealIn economy isstillgrowing at a affordable andefficient. in thegrowth ofthedeveloping world bothmore element thiscritical contributingis directly to making has encouragedfacilitiesacross Asia steel and making ofFortescueability to dowhat itsaidwas goingto do, less competitive withoutFortescue. The continued material, iron ore, would and bemuchmore uncertain world’ssteel making supplyof itsmostessential raw Fortescue’s progress andstrongly encourage us. The customers now around theworld whoapplaud across Asia andEurope. Your Company hasenthusiastic

3 FORTESCUE METALS GROUP ANNUAL REPORT 2010 3

4 4

FORTESCUE METALS GROUP ANNUAL REPORT 2010 4 Donald McKenzie - Port operations In our second full year of production and export, oursecond fullyearIn andexport, ofproduction to suittheore body. mining rate andwere specificallydesigned minerswhichdeliver ahigher surface oflarger,the arrival generation 4200 next at Cloudbreakefforts were boosted by operations. the year, During ore mining and progressed towards steady state the site completed itsrapid ramp up increased 13per cent over theyear as Ore minedat ourflagship mineCloudbreak 2011. Quarter CreekChristmas expansion comes onlineintheMarch This annualisedrunrate willgrow to 55Mtpaonce the strong 2010. runrate of45MtpaintheJuneQuarter miningatCreek, theChichester Hubculminated ina of ouroperating minesites, Cloudbreak andChristmas The firstofourhubsistheChichester Hub.Made up now grouped underthetagline Three Hubs-Two Ports. Fortescue’s operations andplannedexpansion areas are growth. ofthissystem andachievingdoubledigitof allsections infrastructure, constantly and port testing thecapacity the operating ofourintegrated boundaries mine, rail Throughout theyear, to push we opportunity took every region of Western Australia. (Mt) ofiron ore from ouroperations inthisore rich and thisyear produced andshipped39milliontonnes Company hasthelargest tenement area inthePilbara proximity to Chinaandthegrowing Asian markets. Your world’s bestlocation for iron ore largely dueto its holdings inthePilbara, alocation recognised asthe Fortescue continued to capitaliseonoursignificant OPERATIONS REPORT commissioning in the March Quarter 2011. commissioning intheMarch Quarter the OPFisprogressing to scheduleandisontrack for Port Hedlandto Cloudbreak rail line. of Construction (OPF) to extension the facility andbuilda50kilometre Creekthe Christmas mine, anore construct processing 2009, theFortescue Board took adecisionto expand byprocessing rail to Port andtransport Hedland.late In the operation hashauledore by truckto Cloudbreak for Since mining beganatCreek Christmas inMay 2009, CreekChristmas iscurrently inanexpansion phase. ore initsfirst year ofoperations. As mentioned above newestOur minesite, Creek Christmas mined6.5Mt of AUSTRALIA WESTERN THE PILBARA - Western Anketell Hub Point

Solomon Hedland Hub Port Herb ElliottPort Herb

Cloudbreak Creek Christmas Chichester

Hub KEY Planned Operational

5 FORTESCUE METALS GROUP ANNUAL REPORT 2010 5 6

FORTESCUE METALS GROUP ANNUAL REPORT 2010 6 to studiesplanthat 400Mtpa.Our ore from boththe hub.export Anketell ofup Port hasaplannedcapacity development site for thePilbara’s multi-user next the Western Australian Government asitspreferred theyear,During Anketell Point was nominated by on June29th. metres, was loadedwith221,788tonnes ofFortescue ore at Port Hedland. MVAnangelto Hailiat 321.95 berth our Port team loadedthelargest andlongestvessel ever vessels andonthesecond lastday ofthefinancial year, theyear,During Fortescue’s ElliottPort loaded223 Herb 32,880 tonnes ofiron ore. Port Hedlandrail atotal linenow netweight carries of 2010.Eachtrain ontheCloudbreak journey to January international 40tonne bestpractice axleloadsinearly successfully completed inlate 2009,enablingamove to The ramp upofFortescue’s rail operation was 45 customers across China. Fortescue’s andexported transported ore to more than Elliott Port at Port Hedlandwas strong astheteams alongourexisting railwayActivity andat theHerb defined andwillbeprogressively developed over 2011. theyear.during Various exploration targets have been Exploration was drilling initiated at the Western Hub operation targeted to beinramp upmodeby June2012. plansforOur includea60Mtpafirststage Solomon exploration targeting prospects upto five billion tonnes. 2.86 billiontonnes ofresource andwe have identified At we Solomon have already delineated more than 2010. Board inthe December Quarter study for Hub the which Solomon will be delivered to the development team worked onadefinitive feasibility plans to set upminingoperations. theyear, During our are currently for exploring iron ore anddeveloping third hubs, Huband Solomon Western Hub, where we To thewest oftheChichester Hubare oursecond and directly north to Anketell Port. north directly transported along a new 250 kilometre heavy haul railway second andthe stage ofSolomon Western Hubwillbe Christmas Creek expansion is brought online in early 2011. ramp uptowards term whenthe 55Mtpaintheshort ahead,Looking Fortescue’s operations willcontinue to miners inthePilbara. commitment to access provide to junior third party ore onFortescue’s railway, expanding Fortescue’s 2010,BCIronwillbegin transporting December Quarter has beenshippedthrough Fortescue’s the During port. total, ore 2010.In during more than1.9Mtofthird party tonnes through ElliottPort onseven theHerb ships access commitments. Atlas Ironshipped1.16million Fortescue alsocontinued to deliver onitsthird party Cloudbreak. in Brampton pit, through the ore body miners powering One of the 4200 surface completed in late 2009, enabling practice 40 tonne axle loads in rail operation was successfully a move to international best The ramp up of Fortescue’s early January 2010. the sellerarranges for theshippingthereby enabling to customer basis-referred to asCFRsales. Generally, regime alsoallows for saleprices to beseton adelivered over of2010. thelater part particularly The newpricing higher price received by Fortescue for itsproduct, supply anddemanddynamics. This translated to a systempricing andalsomore underlying closelyreflects number ofadvantages asitisamore responsive market achieved theyear. during This mechanism hasa pricing The transition mechanismwas basedpricing to anIndex ramp up over 2011. base willincrease astheChichester Hubcontinues to Company that salesoutsideofitscore expects Chinese ofoverallthis isonlyasmallproportion sales, the number ofnonChinesecustomers, andwhilecurrently theyear,During Fortescue alsomadeshipments to a provides operating efficiencies tothe steel mill. throughdistribution thesintering process whichinturn finesmaterialthe Rocket allowing for more efficient heat ofthesintering process; and2)thecoarsepart nature of ~ 64percent once themolecularwater isevaporated as shipped grade ofaround 59percent concentrates upto 1) thecalcinediron ‘Fe’ grade ofmaterial where the process. The responsible two mainfactors for thisare per cent component oftheirfeed stock into thesinter with many customers finesasa30-45 usingRocket useofFortescuein theincreased product proportional within eachcustomer’s sinter blend. This was reflected Finesits Rocket entrenched material becoming further overFortescue 45customers services across Chinawith system. index mechanismbasedonamarket of anewpricing regimedismantling pricing ofthebenchmark infavor customer base, diversification andthe ofthemarket theyearduring includingcontinued growth inthe There were several milestones marketing achieved MARKETING 221,788 tonnes of Fortescue ore. ship ever to dock at Port Hedland and sailed away with Fortescue’s Herb Elliott Port - Anangel Haili is the largest Anangel Destiny (left) and Anangel Haili (right) at relative to itsmainiron ore competition from Brazil. The freight advantage that Australia hasfor salesinto China arrangements.their pricing highlights the This further producers withfreight advantages to capture thosein are provided inthetabl 85,000km year, growing that Pilbara tenement holdingto Our Tenement Acquisition team was this equallyactive Pilbara. Fortescue’s massive tenement holding, thelargest inthe out to the Western Hubarea to continue to capitalize on The Exploration team hasnow expanded itsoperations centIndicatedInferred. isclassifiedasand920Mt thisResource,August. Of 310Mtor approximately 25per culminated inamaidenresource of1.23Btannounced in rail line, anextensive program drilling 2010 during approximately to theeastofFortescue’s 25kilometres Fortescue’s at Port Hedlandand ElliottPort facility Herb Star tenement area,At southof 100kilometres theNorth Resources of753Mt. Resources of108milliontonnes (Mt)andIndicated increased to 2.86billiontonnes (Bt) beingMeasured The total Resource Portfolio for Hub theSolomon and amaidenresource Star. for North resulting inanumber ofupgrades for Hub theSolomon Fortescue’s Exploration team year, hadanotheractive TENEMENTS EXPLORATION AND of shippingfrom Brazil. ore from Australia ismore than$10pertonne over that rates, thecost advantage buttypically ofshippingiron freight cost advantage varieswithinternational shipping 2 , a 19 per cent increase. The details of the portfolio e from page102ofthisrepor

t.

7 FORTESCUE METALS GROUP ANNUAL REPORT 2010 7 8

FORTESCUE METALS GROUP ANNUAL REPORT 2010 8 Reserves model. This work conducted willbe once over upon finalised the2011financial be year and will reported estimationsuchas,that formedtheassumptionsoforiginal reserve material density, pitoptimisationandrecalibration ofthe resource sterilised through amounts;4)reserve stockpiled thelocation ofChristmasCreek infrastructure. The team isreviewing theunderlying factors NOTE 1:Areconciliation intailings;3)increase in isasfollows: tonnes; ofthedepleted1)shipped 2)material volume reported asreported to the Reserve. to theReserve. the economic assessment ofmineablematerial, willadd Indicated orMeasured categories and, given theypass Inferred these infill drilling tonnes willmove to the model reflects Fortescue’s beliefthat withadditional 2.59% Alumina. The inclusionofthismaterial intheLOM Inferred tonnes that grade 57.9%Fe, 4.18%Si02, and Life (LOM) ofMine pitshellalsocontains 311Mtof additionto stated thereserves In in Table 1,Fortescue’s (referencefactors Note 1). change isdueto miningdepletionandore recovery which compares to the2009estimate of1,585Mt. The Table 1. The 2010estimate is1,540milliontonnes (Mt) Cloudbreak Creek and Christmas depositisshown in The restated estimate reserve for thecombined model. mined areas and reconciliation withtheoriginal reserve depletionwas throughreserve ofthe athorough survey Creek over 2010. The process for determination ofthe up miningoperations at bothCloudbreak andChristmas A restatement and Resources follows of Reserves ramped Reserves Total Reserve Probable Proved Christmas Creek TABLE Cloudbreak 1.Reserves and REPORT RESERVES AND RESOURCES Tonnes 1,540 1,441 (Mt) 98 58.78 58.79 59.75 and Christmas Creekand Christmas isprovided in Table 2. The revised A restatement oftheResource estimate for Cloudbreak Resources estimates are shown in Tables 3through to 7. with theASXover thecourse of2010. The detailofthese Star are unchangedfrom statements prior North lodged Stage 2)andthemagnetite depositsat Glacier Valley and areas, Group theSolomon (dividedinto Stage 1and including Chichester depositsoutsidecurrent mining The Resource estimate tablesfor otherdeposits an increase inMeasured tonnes. was inIndicatedandInferred areduction categories but toprior mining. The netresult ofthegrade control work following grade control withintheexisting pits drilling and alsoanadjustment withintheestimation categories thedepletionfromnumber reflects miningactivities Fe % SiO2 4.18 4.20 3.51 % Al2O3 . 2.37 2.41 1.78 % 0.056 0.057 0.053 % P 7.63 7.64 8.15 LOI % Numbers areNumbers to subject rounding. Resources Magnetite Total Star North Indicated Measured TABLE 3.Resources Chichester Other Total Cloudbreak and Christmas Creek Inferred Indicated Measured Christmas Creek TABLE 2.Resources Cloudbreak and Inferred TABLE 4.Resources Stage 1 Solomon Total Chichester Other Inferred Indicated TABLE Star 7.Resource North Total Glacier Valley Inferred Indicated TABLE 6.Glacier Valley Total Stage 2 Solomon Inferred Indicated Measured TABLE 5.Resources Stage 2 Solomon Total Stage 1 Solomon Inferred Indicated Measured (Mt) Tonnes (Mt) Tonnes Tonnes Tonnes Tonnes Tonnes 2,143 1,014 1,588 1,014 1845 (Mt) (Mt) (Mt) (Mt) 695 473 222 389 167 1230 1230 1230 750 108 986 920 310 - - - - % Fe % Fe 58.61 52.78 58.01 58.66 59.45 54.09 50.00 56.0 56.5 56.5 58.4 56.0 56.3 Fe Fe Fe Fe 32.0 33.1 % % % % 31.7 32.9 33.1 - - - - 10.89 FeO FeO 8.64 4.11 SiO2 SiO2 SiO2 SiO2 4.20 4.12 3.88 7.58 7.32 7.07 7.17 5.43 7.32 7.17 % % % % 20.7 21.4 - - - 20.5 21.3 21.4 - Al2O3 Al2O3 Al2O3 Al2O3 2.40 5.49 4.86 6.83 2.44 2.44 1.95 3.84 3.10 % SiO2 % SiO2 3.07 2.03 3.84 3.24 % % % % - - - 40.3 38.8 40.6 39.4 38.8 0.064 - 0.081 0.075 0.066 0.060 0.071 0.083 0.081 0.078 0.06 0.06 0.05 0.05 % Al2O3 % Al2O3 % % % % P P P P - - - 1.59 2.21 1.76 1.59 2.1 7.86 7.66 - 7.51 7.98 7.93 7.82 8.04 8.06 8.43 8.42 8.51 8.06 8.44 LOI LOI LOI LOI % % % % % P % P - - - 0.098 0.105 0.098 0.096 0.105 Includes: • • • Includes: • • • •

Investigator White Knight Mt Nicolas Mt Lewin Sheila Valley Firetail Kings - % LOI % LOI 6.43 7.65 6.53 6.14 7.65 -

9 FORTESCUE METALS GROUP ANNUAL REPORT 2010 9

10 10 10 FORTESCUE METALS GROUP ANNUAL REPORT 2010 hectares of core closed-canopy During construction, less than 13 mangrove seedlings has occurred. then recruitment and growth of new mangroves were disturbed and since

SUSTAINABILITY REPORT from ourselves. fromperformance us. We insistonthesame best family ofstakeholders thevery expect achievementsour sustainability sofar. Our presents.that sustainability We are proud of manage ourrisksandrealise theopportunities improve capabilities, oursustainability grow ourbusinesswe have to continuously weeverything do. We realise that inorder to business asusual. That is, itisintegrated into At Fortescue, we consider to be sustainability What meansto us sustainability thinking. are resilient activities production andforward that underpinoursupply, maintenance and help usto ensure that thebusiness processes priorities.sustainability These prioritieswill from us. This work helped usto identify our external stakeholders aboutwhat they expect and spoke to someofourvalued internal and business. We trends alsoexamined industry of how we across managesustainability our areview early2010 weDuring undertook approachOur to sustainability 11 11 FORTESCUEFORTESCUE METALS GROUP ANNUAL REPORT 2010 12 12 FORTESCUE METALS GROUP ANNUAL REPORT 2010 calculated hours. onthebasisof 1,000,000person 1 frugality, determination, stretch targets andintegrity. empowerment, family, generating ideas, enthusiasm, policies. These mechanismsreinforce ourvalues of forumsthrough arange and ofdecision-making At present, at Fortescue sustainability isgoverned on themannerinwhichwe govern ourselves. The ofourbusinesswilldepend long-term sustainability annually.appropriate onourperformance andreport implement governance bestpractice systems where We willidentify andmanageourbusinessrisks, GovernanceOur to prevent andmanagefuture injuries. safety incidents to ensure that we implement programs 2.5. We willcontinue to review andanalyse trends in average iscurrently belowperformance of theindustry of 65percent. We are that happy ourLTIFR to report rate frequency (LTIFR inourlosttimeinjury a reduction 2010weDuring experienced zero fatalities andachieved effective anduses a cooperative approach. ensure that what we implement isrelevant, meaningful, to engage thewholeFortescue Family inthisprocess to this system across ouroperations. approach Our willbe yearnext we plan to focus ontheimplementation of a dedicated contractor management system. the Over tailored health and safety standards. This willencompass safety systems ofnewstreamlined andthedrafting and work encompassed areview ofour current healthand a newhealthandsafety program for thebusiness. This theyearDuring we commenced thedevelopment of contractors. to achieve asafe workplace for our staffand safetyOur culture alignswithourcore values Safety Our performance A snapshot of our sustainability LTIFR refers to Fortescue both andContractor andis staff 1 ) date. operate, thework we doandthesuccess we have hadto These Fortescue oftheway values are we thebackbone cent Australian average for (FIFO) mining fly-in-fly-out turnover rate of15.65percent, whichbetters the20per turnover rate. 2010we In achieved anemployee We continue to operate witharelatively low employee people by theendofJune2010. operations. This year ourcontractor basegrew to 2,016 have continued to grow asaresult oftheramp upin a large numberofcontractors. Contractor numbers 2,225 employees. by businessisalso supported Our workforce. This year ourtotal workforce grew to As ouroperations grow anddevelop, sodoes our Workforce profile everyone intheFortescue Family. empowers, the wellbeing values after of andlooks We culture that willbuildahighperformance Our People • • • • • include: performance sustainability business. Policies that specificallyhelpus to manageour across tofor settheexpectations our performance serve Fortescue hasdeveloped anumberofpolicieswhich success ontheground. commitments, implement strategies andmeasure our organisation thenhelpsusto deliver onourpolicy for establishingbusinesspoliciesandKPIs. entire Our andopportunities. risks The Executive hasresponsibility Committee oftheBoard hasoversight ofFortescue’s At thehighestlevel, theAudit Management andRisk Environmental Policy and Community Policy; Safety Policy; Employees’ Code ofConduct; Directors’ Code ofConduct; such flow-on benefits tothelocalsuch flow-on community. area. These initiatives demonstrate the firststagesof programof ahousingconstruction inthePort Hedland Aboriginal training program andtheinitiation (VTEC) of our Vocational Training and Employment Centre SouthHedland,Development in the Office continuation oftheCommunity Initiatives to date includethesupport services. lead to increased flow onspending oninfrastructure and ofthelocaleconomyalso believe will that oursupport where possibleandpaying rates, taxes androyalties. We employment, locally purchasing materials andservices Australia. We believe thiscanbeachieved through development inregionalthe socio-economic Western to share oursuccess andto have on apositive impact today, tomorrow andinthelongterm. We alsoaim Fortescue thePilbara iscommitted to region supporting communities.prosperity inourlocal collaborative that drive partnerships value and our community stakeholders. We willdevelop We andtransparently willengageopenly with Our Local Communities obligations.heritage aware andtrained inthemanagement ofourcultural whojoinstheFortescueeveryone Family shouldbe process iscultural training. heritage We feel that Another keyarea offocus our company during induction near future. focuswill provide onthisarea oftraining further inthe on thejob. ofthe newsafety Implementation standard key area process offocus theinduction and bothduring androle specifictraining.inductions Safety training isa All ofouremployees andcontractors receive company Training anddevelopment labourintheminingsector.skilled economic environmentexternal of andtheshortage operations. This isquite anachievement given the Fortescue workforce profile program designed to equiplocalindigenouspeople for Aboriginal people.opportunities The centre runsa Fortescue’s towards isadoorway employment VTEC inthecommunity Building skills equip people with the necessary skills for thosejobs. skills equip peoplewiththenecessary Aboriginal people. Training isprovided to develop and works for by identifying employment opportunities Established in2006,andlocated Hedland, inSouth VTEC to gainemploymentwith theskills inminingsector. indigenous employment. atCreek Christmas to drivecontracting partners program willalsofocus withour onworking aheadtoLooking 2011,theSummit 300 employed through theprogram. with closeto 200peoplealready trained and we are well ontheway to reaching ourtarget The program commenced inmid2009and for thelongterm. skills are helpingourcommunities to gainworkforce their land. This isoneof the ways inwhichwe Fortescue’ssupporting miningoperations on desire to secure goodjobsinexchange for of the300jobs. Fortescue hasrecognised their formal target agreements willbetheprimary native titlegroups withwhichFortescue has Fortescue. Aboriginal people who belong to the prepare 300peoplefor employment within Summit 300willusetraining programs to by June2011. Fortescue orwithourpartners Aboriginal peoplefor employment within program, Summit300pledgesto prepare 300 Working intandemwithour VTEC the Australian Employment Covenant. behind Fortescue’s commitment to Summit 300istheprogram Case Study - Summit 300 13 13 FORTESCUE METALS GROUP ANNUAL REPORT 2010 14 14 FORTESCUE METALS GROUP ANNUAL REPORT 2010 report. report. We builtuponwhatlastyear was reported to 2010weIn publishedoursecond public environment to enhance biodiversity. rehabilitate for ourlandandwilllook opportunities improve our resource efficiency. We will progressively meet ourlicence requirements. We willstrive to We willmanageourenvironmental and impacts Our Environment have thefirsttimethat theyare raised withus. endeavour to resolve any concerns may thecommunity consistent inourdealingswiththecommunity. We We work withthevalues ofbeingopen,honestand the communities inwhichwe live andoperate. celebrations. This to isourway ofshowing oursupport Fortescue isrepresented at events majorcommunity and Port HedlandOperations leadershipteam ensures that group incommunity Fortescue’s activities. participate groupslocal community andencourages to everyone staff andtheirfamiliesmoving into the Pilbara with Fortescue’s employee integration program helps connect to strengthening ofourlocalcommunities. thefabric for ouremployeesthink itisimportant to contribute communities to become self-supporting. We also andencouraging ourlocal support delivering in-kind Fortescue’s strategy focuses support community on issuesandcomplaintscommunity beingformally raised. to proactive engagement hasresulted few invery address any concerns that may arise. This approach with thecommunities andagenciesintheseareas to travels throughout thePilbara onaregular basistalking Community Development Plans. The team community toagencies andthecommunity implement our collaboratively withlocalgovernment, government HedlandShoppingCentre.South The team works Fortescue’s Community team isbasedinPort Hedland’s Community engagement andinvestment Environment team. surveillance by the constantly under operations is around our Port The air quality the Carbon Disclosure Project (CDP). and disclosure. We under alsosubmitted ourfirst report demonstrate continuous improvement intransparency any orrelied otherpurpose uponby any otherparty. in accordance andshouldnotbeusedfor withtheAct wasGroup indetermining whethertheNGERreporting solely for ofassistingFortescue thepurpose Metals reporting. This limited was assurance prepared report limited to assurance Fortescue report onthisNGER 2010 undertheNGERAct. KPMG issuedanunqualified Change andEnergy forthe Efficiency yearended30June Group Ltd’s ofClimate to theDepartment reporting assurance engagement ofFortescue inrespect Metals by alimited KPMG, whowas engagedto undertake The above NGERemissionestimates were reviewed CreekChristmas mine. relatedconstruction greenhouse gasemissions at our increase onlast year. ofthisincrease Much resulted from overburden minedintheyear. This isa14percent of CO CO Fortescue, theseemissionswere 484,419tonnes of suppliedto of emissionsassociated withelectricity CO 2007,were (NGER)Act 444,705tonnes of Reporting undertheNational Greenhouseas reported andEnergy Fortescue’s greenhouse direct gasemissionsfor 2010, accessed onourwebsite our environmental canbe thefullreport performance, For informationalso outlinedinthisreport. on further waste, water, airquality, natural habitats andtraining are environmental approvals, energy andgreenhouse, governance structures. Strategies andresults for our our environmental and risks, impacts, opportunities These comprehensive contain information reports on

2 2 -e. -e. This equates to approximately 3100tonnes dioxide (carbon equivalents).-e After consideration 2 overburden and ore mined Tonnes CO -e emitted milliontonnes for ofore-e every and 2 - e/Million Tonnes of www.fmgl.com.au . biodiversity. opportunities to enhance our land and will look for progressively rehabilitate resource efficiency. We will We will strive to improve our 15 15 FORTESCUE METALS GROUP ANNUAL REPORT 2010 16 16 FORTESCUE METALS GROUP ANNUAL REPORT 2010 • • • • for itsdecision: The Board the hasspecifically followingreserved matters board andmanagement ofFortescue. the respective accountabilities and contributions ofthe affected by corporate decisions to better understand responsibilities oftheBoard isdesigned to assistthose Board oftheCompany. The disclosure oftheroles and therolessummarises andresponsibilities ofthe the roles ofDirectors andManagement. This statement anddistinguish for clarify theBoardReserved to further The Company hasalsoadopted aStatement ofMatters delegated to management. reservedto theBoard andthose the functions Recommendation 1.1:Formalise anddisclose following manner: andassociatedthis principle recommendations inthe the Board andmanagement”. Fortescue complies with and disclosetherespective roles andresponsibilities of ASX Principle 1states that acompany should “establish Principle 1: Lay Solid Foundations website in thecorporate governance ofFortescue’s section on Fortescue’s policiesandprocedures are alsoavailable Principles andassociated recommendations. More detail its controlled entities (Fortescue) complies withtheASX which Fortescue Group Metals Ltd (theCompany) and This statement provides ofthemanner in adescription by other external regulation.by otherexternal Fortescue’s constitutional documents, by statute or Formal determinations that are required by by management; and expenditures proposed andmajorfundingactivities Determination ofmajorcapitaland operating Guidance for andapproval ofbusinessstrategy; the removal oftheChiefExecutive Officer (CEO); Appointing, evaluating, rewarding and, ifnecessary, RECOMMENDATIONS ASX BEST PRACTICE www.fmgl.com.au . qualified and experienced to discharge their The Board ensures that theteam isappropriately today theCEOandExecutive activities Directors. The Board hasdelegated responsibility for theday-to- remuneration matters. met withtheCEO andreviewed and bothperformance the yearduring Board theIndependent ofDirectors oftheCEOisassessedby theBoard and performance to andanswerablereporting to directly theCEO. The line management withthekeysenior executives the ESSIP. The year endevaluation process was through The 2010financial year isthefirst yearofoperation of same asaninvestor over thecourse ofthefinancial year. those influential employees are the positioned exactly ofthefinancial year into thecashamount, start ensuring five day volume weighted average share price at the rightsto sharesperformance isderived by dividingthe shares andcash.Akeyfeature isthat thenumberof oftherole.the seniority Any award istakenequallyin of theemployee’s total remuneration, determined by Performance.Individual Participation isat apercentage Annual Performance, Growth Performance and by theCommittee. The ESSIPhasthree categories: and Nomination Committee and awards are approved roles. Participation isby invitation oftheRemuneration (ESSIP) appliesto approximately 40peopleinleadership The Fortescue ExecutiveIncentive Staff andSenior Plan ofseniorexecutives.performance disclose theprocess for evaluating the Recommendation 1.2:Companies should Directors are required to adhere. Directors. The Code defines core principles to whichall Code oftheAustralian ofConduct ofCompany Institute Conduct, whichhasbeendraftedinaccordance withthe oftheCompany’sacknowledgement Directors’ Code of with theASXPrinciples. The letter alsoincludes letter ofappointment for newDirectors are consistent of theDirector’s appointment. The contents ofthe letter ofappointment whichsetsoutthekeyterms Each newDirector isrequired to sign andreturn a responsibilities. serves thecompanyserves well. The Board isoftheopinionthat thecurrent structure independent directors. of with Recommendation 2.1inthat ithasamajority up aNon-Executive Director Role. The Board complies Graeme Rowley retired asanExecutive Director to take representing substantial shareholder interests andMr and ofthesesixare considered independent, two are the 11members, nineare classified asnon executive following Of Barnaba. Mark theappointment ofMr its board from 10directors to 11directors inFebruary to amaximumof12directors. Fortescue increased Board isto comprise aminimumofthree directors up accordanceIn withtheCompany’s constitution the ofindependent directors.majority Recommendation 2.1:ABoard shouldconsist ofa corporate advisory and management consulting. Executive Director with extensive experience in industry, bolstered with the addition of Mr Mark Barnaba as a Non- composition and experience level of the board was marketing and steel production. Over the past year the operations,including mining, rail finance, andport acrosswith appropriate arange ofsectors expertise The Company hasanexperienced Board ofDirectors recommendations, inthefollowing manner: Fortescue complies andassociated withthisprinciple to adequately discharge itsresponsibilities andduties”. Board of an effective composition, size and commitment ASX Principle 2states that acompany should “have a Principle 2: Board Structure management. an explicit statement asto matters delegated to senior ofFortescue’ssection website. Fortescue doesnothave are allavailableCharter inthecorporate governance Board, theDirectors’ Code andtheBoard ofConduct A copy oftheStatement for the ofMatters Reserved Principle 1. onASX Recommendation 1.3:Reporting Chairman oftheBoardChairman isanindependent, Non-Executive Fortescue complies withthisrecommendation asthe an independent director. Recommendation 2.2: The chairpersonshouldbe on performance andBoard effectiveness.on performance questionnaires have beenusedto gaugeDirectors’ views has heldBoard retreats inthepastwhere evaluation and relevant directors asrequired. The company consultation andthe CEO between theChairman committees butrather thisisdoneby informal oftheboardevaluating orits theperformance The Company doesnothave aformal process for the individualDirectors. oftheBoard,performance itsCommittees and disclose theprocess for evaluating the Recommendation 2.5: The Company should statement ofintent. and Appointment ofNewDirectors whichisaclear asaProcedure known adopted apolicy for Selection oftheBoard.the performance The Board hasalso and theappropriate evaluation methodsto review the Board, required theappropriate skills ofDirectors recommendations to theBoard ontheoptimumsize of Committee isresponsible to regularly review andmake website. regards In to itsnominations role, the andisavailableCommittee from charter Fortescue’s for thiscommittee isincludedintheRemuneration oftheRemuneration Committee.forms part The charter The Company hasaNominations Committee which a nominations committee. Recommendation 2.4: The Board should establish same person. The andCEOare positionsofChairman notfilled by the exercised by thesameindividual. and chiefexecutive officer shouldnotbe Recommendation 2.3: The roles ofchairperson Director. 17 17 FORTESCUE METALS GROUP ANNUAL REPORT 2010 18 18 FORTESCUE METALS GROUP ANNUAL REPORT 2010 • • the code asto; of anddisclosethecodeconduct orasummary Recommendation acode 3.1:Establish of recommendations inthefollowing manner. Fortescue complies andassociated withthis principle promote ethicalandresponsible decisionmaking”. ASX Principle 3states that acompany should “actively Decision Making Principle 3: Ethical and Responsible voted uponby shareholders. to have hisappointment this isthefirstopportunity and isnow AGM upforat theforthcoming election given wasBarnaba appointed asaDirector inFebruary 2010 ofdirectors isdiscussed.appointment andelection Mr is alsoavailable onthewebsite andtheprocess for of Fortescue’s website. The Company’s constitution isavailable inthecorporateCharter governance section A copy oftheRemuneration &Nominations Committee Reporting on ASX Principle 2 the ASX. tocriteria assessindependence ofDirectors provided by is detailedonpage30. attendance ofBoard meetingsand Committee meetings corporateprior experience is provided from page26. The table above. The detailofeachDirector’s tenure and at are the2010Annual GeneralMeeting setoutinthe andwhethertheyretireindependence (orotherwise) theyear oftheirappointment,this report, their The namesoftheDirectors inoffice atthe date of indicated onPrinciple to inGuide 2. reporting Recommendation 2.6:Provide theinformation Mark Barnaba Mark Li Xiaowei Ian Buston Hegarty Owen BrayshawGeoff Ian Cumming Ken Ambrecht Russell Scrimshaw Graeme Rowley Andrew Forrest (CEO) Elliott Herb Director expectations ofstakeholders;expectations and the legalobligations andthereasonable to takethe practices necessary into account confidence inthe Company’s integrity; to maintainthe practices the necessary

The Board hasaccepted the Appointed 2003 2003 2010 2009 2008 2008 2007 2009 2003 2003 2003 Executive/ Non- Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Executive Executive Executive • for, orare associated withFortescue. by ondealing insecurities peoplewhoworkrestrictions insider trading andotherrelevant laws andsetsoutthe ofthelaw on summary sets outabrief The policy recommendation ofthepreferred trading periods. containing a withthe policy trading restrictions other employees to Insider are thenormal subject whichareperiods periods. setaround All reporting topersons andtheyare explicit nontrading subject individualsare identified asdesignated certain policy when trading inshares oftheCompany. Underthe for Directors andemployeeswhich outlinesthepolicy The Board hasestablished aSecurities Trading Policy ofthat policy. orasummary disclose thepolicy directors, seniorexecutives andemployees and concerning trading incompany securitiesby Recommendation apolicy 3.2:Establish investigating ofunethicalpractices. reports and accountability or ofindividualsfor reporting integrity. The document setsouttheresponsibilities so asto maintain confidence inthe Company’s a guideto adherence ofappropriate practices The broader Employee Code provides ofConduct stakeholders andcreditors. of interest andgeneral dutiesowed to theCompany, on issuesrelating to professional integrity, conflicts oftheCompany’sexpected Directors withcommentary ofthegeneral andduties principles a concise summary required under Corporations Law. The code also provides relating to Directors’ responsibilities includingthose to maintain. The Directors’ code detailsarange ofissues behaviour that directors andkeyexecutives are required thestandards whichdescribes Conduct ofethical together with amore general Employee Code of Fortescue hasestablishedaDirector Code ofConduct reports ofunethicalpractices.reports andinvestigatingindividuals for reporting the responsibility andaccountability of Independent Yes Yes Yes Yes Yes Yes No No No No No Retiring and seeking andseeking Retiring re-election in2010 re-election N/A Yes Yes Yes No No No No No No No should adoptaformal charter. Recommendation 4.3: The auditcommittee of amajoraccounting firm. relevant asaprevious auditpartner technical expertise ofthe boardis notthechairman andwho holdsthe Brayshaw ofthecommitteeGeoff Chairman isMr who Directors ofwhomallare considered independent. The The auditcommittee iscomprised offour NonExecutive • • • • sothatshould bestructured it; Recommendation 4.2: The Audit Committee Recommendation 4.3. oftheauditcommitteestructure isoutlinedunder Fortescue hasestablishedanauditcommittee. The an Audit Committee. Recommendation 4.1: The Board shouldestablish the following manner. andassociatedwith thisprinciple recommendations in integrity oftheirfinancial reporting”. complies Fortescue tostructure independently verify andsafeguard the ASX Principle 4states that “Companies shouldhave a Principle 4: Financial Reporting Integrity governance ofFortescue’s section website. Securities Trading Policy isavailable inthecorporate Code ofConduct, Employee Code and ofConduct recommendations ofPrinciple 3.Acopy oftheDirectors’ Fortescue complies withthebestpractise indicated onPrinciple to inGuide 3. reporting Recommendation 3.3:Provide theinformation at leastthree members. chairperson oftheboard; and an independent chairperson,whoisnot ofindependent Directors; a majority only consists ofnon-executive Directors; Recommendation 4.4:Provide theinformation that isavailable onFortescue’s website. The Board hasapproved anAudit Committee Charter • • • ASX ListingRule3.1including: 674oftheCorporationsunder section andunder Act Company operates. identifies requirements It at law environmentincluding thestatutory withinwhichthe provides a broad of overview the requirementsreporting of whichisavailable onFortescue’s website. The policy Fortescue hasaContinuous Disclosure Policy, acopy management level for that compliance. and to ensure accountability at asenior with ASXListingRuledisclosure requirements and procedures designed to ensure compliance Recommendation written 5.1:Establish policies following manner. andassociatedthis principle recommendations inthe concerning theCompany”. Fortescue complies with timely andbalanced disclosure ofallmaterial matters ASX Principle 5states that acompany should “promote Disclosure Principle 5: Timely and Balanced engagement ofFortescue’s auditor. external auditor relationshipthe external includingtheterms of found onpage30. The Audit Committee alsooversees over thefinancial year ended30June2010canbe number ofmeetingsheldandattended by members Dr Burston canbefound from onthe page26.Detail BrayshawMr Ambrecht Elliott, Mr (Chairman), and Mr The experience oftheAudit Committee membersbeing indicated onPrinciple to inGuide 4. reporting reporting officer; officer; reporting attention oftheCompany anditsnominated the process for bringing suchinformation to the ofinformationthe type that needsto bedisclosed; issues andtests for materiality; 19 19 FORTESCUE METALS GROUP ANNUAL REPORT 2010 20 20 FORTESCUE METALS GROUP ANNUAL REPORT 2010 the website. Further, variousseniorexecutives ofthe lodgements through ourinvestor centre attached to to receiveinterested canelect copies parties ofASX The Companysystem whereby has anemailalert the ASXplatform orthrough theCompany’s website. that are reports availableproduction eitherthrough The Company produces variousnewsletters and a two way communication channel withshareholders. The Company’s communication strategy isto encourage meetings encourage at general effective participation communication withshareholders and communication strategy to promote effective Recommendation 6.1:Design anddisclose a Recommendation 6.1,inthefollowing manner. andassociatedprinciple recommendations, otherthan exercise ofthoserights”. Fortescue complies withthis the rightsofshareholders andfacilitate theeffective ASX Principle 6states that acompany should “respect Principle 6: Shareholder Rights the corporate governance ofFortescue’s section website. A copy oftheContinuous Disclosure Policy isavailable in Continuous Disclosure Policy Recommendation the 5.2:Disclose Terms ofthe with information. andmembersoftheinvestmentjournalists community public comments onbehalfoftheCompany orprovide or theirdelegated person/sare to authorised issue or publicpresentations theCEO only theChairman, With regard to general disclosures at mediabriefings • • during thetimesinceduring theprevious meeting. the role oftheBoard to review alldisclosures made disclosure obligations; and decision makerfor Fortescue’s continuous the role oftheChief Executive asultimate Officer

questions at theseevents. and conferences andmakethemselves available for Company makeregular forums presentations at industry evaluating andmanaging material to: risks program, whichincorporates processes for identifying, 2009,Directors approvedIn Fortescue’s Decisions Good risk oversight andmanagement Board committee should establishpolicieson Recommendation 7.1: The Board orappropriate manner. and associated recommendations inthefollowing internal control”. Fortescue complies with thisprinciple a soundsystem oversight ofrisk andmanagement and ASX Principle 7states that acompany should “establish Principle 7: Recognise and Manage Risk Fortescue’s operations. andstakeholderissuesthatwithin community arise which isbasedinPort Hedlandanddealwiththevarious people work incloselywithFortescue’s team community at Cloudbreak andthe otherat Port Hedland. These areas ofheadoffice intwo site atthe production Perth, people whoare located across thevariousoperating howeverpolicy itdoeshave adedicated team offive The Company doesnothave anexplicit communications Principle 6: onASX Recommendation 6.2:Reporting • • that:based ontheobjective The shareholder is underlying communications policy encourages that participation. and ingeneral meetingsandsupports participation Fortescue recognises of the shareholderimportance about Fortescue anditscorporate proposals; and access to balanced andunderstandableinformation shareholders and willgive shareholders ready Fortescue communicates effectively withits managed effectively. to itonwhetherthose risk areand report being manage thecompany’s material business risks management and internal control system to management to design andimplement therisk Recommendation 7.2: The Board shouldrequire risks.and marketing operational, development, project,corporate andsales andthemanagement ofstrategic,financial reporting in accordanceOfficer withthePrinciples relating to the ChiefExecutive andtheChief Officer Financial statement from management andrisk certification The Directors have received andconsidered thefinancial Standards. Decisions the Good tolerance andrisk business risk incorporated criteria in “Material” are risks determined according to wholeof • • • The Standards provide that theBoard isresponsible to: Program Decisions Good Policy, System andStandards. The Board’s oversight role isgoverned by Fortescue’s • • • material andtheirmanagement. business risks review andprovide management feedback on Fortescue Group; Metals and communicate theoverall profile risk ofthe toleranceestablish risk andcriteria; management. through business continuity, andinsurance security extreme events ourbusinessasusual impacting intheface objectives of achieving ourcritical remaining aresilient businessthat iscapableof and compliance andcommunity; obligations for health, safety, environment, heritage, maintaining asustainablebusinessthat meetsour objectives; sales andmarketing operational, development, project,corporate and the achievement ofFortescue’s strategic, management andopportunities. ofrisks better outcomes through aculture ofeffective enablesFortescue Decisions Good People to deliver • • • • • The Decisionsprogram Good willassistin: for businessimprovement.realise opportunities to deliveraffect ourcapacity and onourobjectives to to recognise actively andcontrol threats that might requires Fortescue People at alllevels oftheorganisation inourbusiness. appliesto Decisions It allactivities Good term environment withinwhichwe operate. available information considering thecurrent andlonger mustbemadeonthebasisofbest Decisions Good • • • We will achieve this by ensuring a consistent approach to: meeting corporate governance responsibilities. reviews; and andopportunity risk in participation horizontally withcross department aligned and businessapproach vertically downbreaking silosandencouraging asingle, the businessisprotected); procedures whilstensuring (minimisebureaucracy targeting thedevelopment ofrequired policiesand accountable for thedecisionstheymake; peopleare andensuring aiding decisionmaking communication; achieving themfor and better decisionmaking and corporate to andtherisks objectives strategic, andlinking operationalarticulating where necessary. action further taking isrequired; action and determining whetherfurther andevaluatingcapturing andopportunities; risks

21 21 FORTESCUE METALS GROUP ANNUAL REPORT 2010 22 22 FORTESCUE METALS GROUP ANNUAL REPORT 2010 new anddeveloping company, Fortescue mustwork reviewed by theBoard. The planrecognises that, asa 2010,whichhasbeen plan, commencing 1January isgoverned by management athree activity Risk year and reporting. authority organisational governsstructure lines of communication, specific management roles and responsibilities andan StandardsThe Decisions Good provide for various andrelatedrisks controls are identified andevaluated. scheduled workshop reviews, basedrisk which during inregular, participation relevant experts external personnel, includingallseniormanagement and program,Decisions provides for relevant Fortescue ofmaterialManagement risks, governed by the Good Management ofmaterial risks • • • • • that isexpected FortescueIt will: people • • • Fortescue iscommitted to: actions. take responsibility for andimplement required reviews; and whereparticipate, required, andopportunity inrisk to day activities; embrace thephilosophy inday Decisions ofGood responsibilities; value own andcolleagues’ contributions and Decisions; andrationaleunderstand theobjectives ofGood all levels. businessgoalsareensuring clearandunderstood at and Decisions; Good in making training andeducation ofourpeople undertaking integrating inallactivities; Decisions Good

of adeveloping andexpanding business. company andto ensure ourapproach mirrors theneeds the effective managementrisk inallareas of ofthe systematically to develop andenhance oursystem for profiles (LevelRisk) are from 2 reported four areas ofthe Fortescue’s three year strategic objectives. Businessrisk The strategic profile risk (Level against Risk) is 1reported and control profile. andinternal environmentexternal the risk impacting onchangesto the business risks, includecommentary Materialrisks,and keyactivities. covering strategic and on theeffectivenessrisk management ofthesystem control profiles againstthoseobjectives, a commentary and relevant ofrisk businessobjectives, asummary andDecember), comprising astatement(June of biannually andcontrol isundertaken Risk reporting criteria. Decisions material againsttheGood risks effectiveness ofthe Fortescue’s management ofour to theboard hasreported Management asto control effectiveness criteria. workshop reviews basedrisk againststandard and risk effectively. “Effectiveness” isdetermined during whether material are businessrisks beingmanaged The board hasrequired to management iton to report ofmanagement reviewand thisisthesubject andaudit. to improve actions controlsfurther over material risks, owners have responsibility for implementing required The Standards provide that nominated andcontrol risk program. effectiveness and required improvements to the as theyare developed andprovide feedback onthe against plan,discussandapprove newStandards program includingreview management risk activity meets monthly to ensure management control ofthe from operations, projects, corporate anddevelopment, A Steering Group, comprising seniorrepresentatives Metals GroupMetals for theyear ended30June2010that: control compliance andcontrol systems of Fortescue 2. With regard to riskmanagement andinternal and whentheybecome dueandpayable. believe that thecompany willbeableto pay itsdebtsas d. 2001; and thereto are inaccordance withtheCorporations Act c. consolidated entity; ofthe companyfinancial positionandperformance and a trueandfairview, inallmaterial respects, ofthe b. with Accounting Standards inallmaterial respects; a. ended 30June2010that: statements ofFortescue Group Metals for theyear 1. With regard to theintegrity ofthefinancial stating that: have provided astatement to theBoard ofDirectors The ChiefExecutive and Chief Officer Financial management andinternal controls system. and theoperational effectiveness, oftherisk as to theCorporations compliance Act status Executive andthe Chief Officer Officer Financial that ithasreceived assurances from theChief Recommendation 7.3: The Board shoulddisclose criteria. identified in other material impacts risk Fortescue’srisk environment, community, reputation, compliance and covers financial(revenue,Reporting cost), safety, eachagainstrelevant risk, businessobjectives.project business namelycorporate, operational, and marketing In ouropinion,thefinancialstatementsIn andnotes The financialstatements andnotes thereto comply The financial statements andnotes thereto give In ouropinion,thereIn are reasonable grounds to internal compliance andcontrol systems which,inall is founded onasoundsystem management ofrisk and integrity ofthefinancialstatements andnotes thereto a. website. management procedures isavailable onFortescue’s the philosophy behindthedevelopment ofitsrisk oftheCompany’sA summary document and policy Reporting on ASX Principle 7: • • • material to: risks processes for identifying, evaluating andmanaging Fortescue’s program Decisions Good incorporates indicated onPrinciple to inGuide 7. reporting Recommendation 7.4:Provide theinformation and control systems. operation management ofrisk andinternal compliance 2010 that would indicate any material changeto the c. efficiently, inall and material respects; are risks sales andmarketing operating effectively and reporting, strategic, operational, project,corporate and control systems to theextenttheyrelate to financial b. the Board ofDirectors; material respects, implement thepoliciesadopted by The management risk andinternal compliance and Nothing hascome to ourattention since 30June The statements madein1above regarding the management. through businesscontinuity, andinsurance security extreme events ourbusinessasusual impacting intheface objectives of achieving ourcritical remaining aresilient businessthat iscapableof and heritage, compliance andcommunity; our obligations for health, safety, environment, maintaining asustainablebusinessthat meets objectives; sales andmarketing operational, development, project,corporate and the achievement ofFortescue’s strategic, 23 23 FORTESCUE METALS GROUP ANNUAL REPORT 2010 24 24 FORTESCUE METALS GROUP ANNUAL REPORT 2010 remuneration oftheannualreport. section forstructure the2010year isprovided withinthe incentive ofthispayment basedpayments. Asummary onfixed on is basedpartly remuneration andpartly for itsexecutive directors andsenior executives that The Company hasdeveloped aremuneration structure directors andseniorexecutives. director’s remuneration from that ofexecutive ofnonexecutivedistinguish thestructure Recommendation 8.2:Companies shouldclearly circumstances andgoals. superannuation plansare appropriate to Fortescue’s the balance between basepay, incentive schemes and reviewed onaregular basis. These reviews aimto ensure executive directors have theirremuneration packages ensure that allsenior executives includingtheCEOand The Company’s isto asstated objective inthecharter Forrest. and theCEOMr Ambrecht, Hegarty Mr The othermembersofcommittee Cumming, are Mr Mr Elliott, isanindependent Herb director. Mr chairman, ofindependent directorsconsists andthe of amajority that theCommittee consists ofat leastthree people, it The Company complies withtherecommendation isavailableCommittee onthewebsite. anditscharter The Company hasaRemuneration &Nomination a remuneration committee. Recommendation 8.1: The Board shouldestablish recommendations. Fortescue complies andassociated withthisprinciple corporate isdefined”. andindividualperformance is sufficient and reasonable andits relationship to that thelevel andcomposition ofremuneration ASX Principle 8states that acompany should “ensure Responsibly Principle 8: Remunerate Fairly and fees paidto directors mustnothave any performance As providedreport. for inFortescue’s constitution, reviewed withintheremuneration oftheannual section The payment for structure nonexecutive directors isalso of Fortescue’s website: isavailable inthecorporateCharter governance section A copy oftheRemuneration &Nominations Committee Reporting on ASX Principle 8: interests that was released inDecember 2009. governing the deferral of tax on Employee Share Scheme executive directors. The thenewlegislation SSSPreflects for(SSSP) was re-instated Fortescue employees andnon 2010,thecompany’sDuring Share Sacrifice Plan Salary component.fixed salary contribution, there are nootherpayments beyond the directors andotherthantherequired superannuation element to them. There are noretirement benefits for www.fmgl.com.au . Fortescue Metals Group Limited ABN: 57 002 594 872 For the year ended 30 June 2010 98 97 48 47 35 26 REPORT FINANCIAL to the Members Independent Auditor’s report Directors’ Declaration Financial statements Declaration Auditor’s Independence Remuneration report Directors’ report 25 25 FORTESCUE METALS GROUP ANNUAL REPORT 2010 26 26 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Former inlast3years directorships (ASX listed entities): since July2007) current (ASXOther directorships listed entities): Medal, The Australian Medal, Centenary Western Australian Governor’s Award and Citizen ofthe Year. extensive andhaswon experience intheminingsector multipleglobalfinance awards as well as The Australian Sports beingtheAustralianof charities Employment Covenant, Generation OneandAustralian Children’s Trust. Forrest Mr has West Australian andEnergy ChamberofMinerals andPresident ofAthletics Australia. Hehasalsofounded anumber Executive roles previously Finance includedDirector oftheAustralian Export andInsurance Corporation, Director ofthe Limited,of Anaconda Nickel nowResources Joint Minara Limited, Murrin oftheMurrin and Chairman Venture. Non- andMetallurgy.of Mining previous His executive roles includefounder, Chief Executive Chairman Deputy and Officer Trust. Professor He isanAdjunct University andalongstandingFellow oftheChinaSouthern oftheAustralian Institute Nomination Committee. Forrest Mr isNon-Executive ofPoseidon Chairman Limited andtheAustralian Nickel Children’s fromHe wasChairman theInterim July2003until May 2005andisamemberofthe Company’s Remuneration and ForrestMr isthefounder andChiefExecutive of Officer andhasbeenCEOofthe Company Fortescue since July2003. Experience ForrestMr was appointed asaDirector andChiefExecutive inJuly2003. Officer Term ofOffice Mr Andrew Forrest (Chief Executive Officer, Executive Director) Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): of Technology. and was aCommissioner oftheAustralian University oftheQueensland Broadcasting ElliottisaDoctor Commission. Mr President Elliottistheformer inaugural oftheNational Mr America. Chairman Australia ofPUMA Day North Committee oftheprivatealso Chairman corporate healthcompany Global Corporate Challenge. Previous executive roles include of is Chairman Telstra Foundation Limited andisaformer Director ofAnsell Limited andPacificDunlop Limited. Heis Nomination Committee. HewasoftheAuditCommittee Management Chairman Elliott andRisk until 5July2007.Mr ElliottisamemberoftheAuditCommittee Management Mr andRisk oftheRemuneration andChairman and Experience inMarchand Chairman 2007. Elliottwas appointedMr asaNon-Executive inMay Director 2005 oftheCompanyChairman 2003,Deputy inOctober Term ofOffice Mr Herb Elliott AC, MBE (Chairman, Non-Executive Director) Information on Directors JosephSteinbergMr -resigned 28August 2009 IanCummingMr -appointed 28August 2009 -appointed Barnaba 19February Mark 2010 Mr Graeme Rowley -retiredMr asanExecutive Director 2March 2010 LiXiaoweiMr Dr IanBurston Hegarty Owen Mr Brayshaw Geoff Mr KenAmbrechtMr Elliott-Chairman 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 entity, consisting ofFortescue Group Metals Limited DIRECTORS’ REPORT

None Poseidon Limited (Chairman Nickel andNon-Executive Director None None

Mr RussellScrimshaw Mr AndrewMr Forrest Executive

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 Mr Ken Ambrecht (Non-Executive Director) Former inlast3years directorships (ASX listed entities): Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): and Nomination Committee. Cumming in 1970.Mr isalsoamemberoftheRemuneration BusinessSchool in 1962andhisMBAfrom Harvard Kansas Development ofSmallIslandDeveloping States. Cumming Mr received hisBAdegree inZoology from theUniversity of the Board ofDean’s Advisors andtheUnited for BusinessSchool Nations GlobalSummit for theHarvard Sustainable Board ofGovernors of The Nature Conservancy, State theUtah Board ofRegents, theBoard ofDirectors ofBallet West, by hisleadership roles inlocal andnational organisations. involvement His hasincludedmembershiponthe National Corporation, AmeriCredit Corp andJefferiesMr GroupInc. asevidenced Cummingis committed service to community 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 Mr Ian M Cumming (Non-Executive Director) Former inlast3years directorships (ASX listed entities): Other current (ASXOther directorships listed entities): executive positionswithintheCommonwealth BankofAustralia, Optus, Alcatel, IBMandAmdahl USA. Associate oftheAustralian ofCertified Practising Member Accountants. Society Scrimshaw previouslyMr heldsenior Telecom Foundation NewZealand Institute Australia Limited, Pty theGarvan andAthletics Australia. Heisalsoan isaformer Scrimshaw boardMr memberofCommonwealth Properties Limited, EDSAustralia,Limited, Mobilesoft Experience in June2005. was Scrimshaw appointedMr asaNon-Executive Director oftheCompany 2003andasanExecutive inOctober Director Term ofoffice Mr Russell Scrimshaw (Executive Director) Other current (ASXOther directorships listed entities): Pilbara environment. experience inoperational management ofbothiron ore haulrailway ship loadingfacilitiesandheavy withintheunique Council. Rowley iscurrently oftheNational Mr Chairman Centre for Excellence Rowley hasextensive inDesalination.Mr the Council for the West Pilbara College of TAFE and the Western Australian State Government’s Technical Advisory Rowley’sMr previous directorships have includedtheDampierPort Authority, thePilbara Development Commission, Previously, hewas anexecutive withRio Tinto plc, holdingseniorpositionswithHamersleyIronandArgyle Diamonds. Rowley retiredMr asanExecutive Director oftheCompany inMarch 2010to continue asaNon-Executive Director. Experience Rowley was appointedMr asanExecutive Director inMay 2003. Term ofOffice Mr Graeme Rowley AM (Non-Executive Director) DIRECTORS’ REPORT None. None. None. None. None. None. None. None. 27 27 FORTESCUE METALS GROUP ANNUAL REPORT 2010 28 28 FORTESCUE METALS GROUP ANNUAL REPORT 2010 DIRECTORS’ REPORT Imdex Limited (fromImdex November 2009). 2000to October August 2008),Auvex Resources Limited (Chairman andNon-Executive 2009to September2009), Director from January current (ASXOther directorships listed entities): awarded theOrder ofAustralia (General Division)in1993andwas elected Western Australian Citizen ofthe Year in1992. worked for ofRio Group theCRA (now part Tinto plc)for 22years invariousseniorexecutive positions. DrBurston was LimitedPty Limited. andPortman Limited Kalgoorlie andChiefExecutive Mines Consolidated of Officer Previously he Corporation. Formerly, Limited, DrBurston heldpositionsasManagingDirector ofHamersleyIronPty Aurora Gold Mining June 2003andFebruary oftheBroome 2006.HeisalsotheChairman Port andaDirector Authority ofKanzai asExecutive 2003andserved andChiefExecutive Aztec Resources Chairman since of January Limited Officer between HoldingsLimited since July2007.HehasalsobeenaNon-ExecutiveDirector ofNRW Resources Director ofMincor NL August 2008.DrBurston was Non-Executive Limited from ofImdex Chairman 2000to and 2009andhasbeenChairman Resources Limited ofCape fromChairman Lambert June2006to May 2007andExecutive from Chairman May 2007to Dr Burston hasmore than30years ofexperience in Western Australian andinternational mining. Hewas Non-Executive Experience Dr Burston was appointed aNon-Executive 2008. Director on13October Term ofoffice Dr Ian Burston AM (Non-Executive Director) (resignedMinerals asNon-Executive Director inDecember 2008). Former inlast3years directorships (ASX listed entities): Executive Director since March 2010). 2010 andNon-Executive Director since November 2009),Condor Limited (Chairman Nickel since June2010andNon- ResourcesJuly 2007),Mincor NL(Non-Executive Limited Gold 2003),Carrick (Chairman since June Director since January 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 a multi-billiondollar, baseandprecious metalsexplorer, developer andproducer. was awarded theAusIMM Hegarty Mr was thefounder andCEOofOxiana Limited (now Limited) Oz whichgrew Minerals from asmallexploration company to was ManagingDirector ofRio Tinto Asia andalsoManagingDirector oftheAustralian copper andgoldbusiness. He hasover 40years experience in theglobalminingindustry, Hegarty Mr including25years withRio Tinto plcwhere he Experience was appointed asaNon-Executive 2008. Hegarty Director inOctober Mr Term ofOffice Mr Owen Hegarty (Non-Executive Director) Former inlast3years directorships (ASX listed entities): current (PlclistedOther directorships entities): Poseidon Limited. Nickel of anAboriginal Corporation. Brayshaw Mr isalsoaNon-Executive oftheAudit 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 in July2007. BrayshawMr was appointed asaNon-Executive oftheAuditCommittee Director Management andChairman andRisk Term ofOffice Mr Geoff Brayshaw AM (Non-Executive Director)

Poseidon Limited (since Nickel February 2008). NRW HoldingsLimited (Chairman andNon-ExecutiveNRW Director since None. None. Cape Lambert Resources LimitedCape (between July2006and Lambert Limited RiverGold (from July1994toRange June2010),Oz University of Western Australia, aMastersofBusinessAdministration andisaCertified Practising Accountant. administration intheminingandprofessional industries. Mr services Thomas hasaBachelorofCommerce from the number ofprofessional providers. service Hehasextensive experience inaccounting andfinance, ITandbusiness industries, Mr services Thomas hasalsoheldseniorfinanceGoldfields positionswiththe Australia Group and witha Finance andIT thenGroup Finance. Manager With more than15years experience intheminingandprofessional Mr Thomas joinedFortescue 2004 intherole inApril of Group Financial Controller and went onto become Headof Experience Mr Thomas was appointed Company inJune2010. Secretary Term ofoffice Mr Mark Thomas 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 Mr Rod Campbell The following peopleheldthepositionofCompany at theendoffinancial year. Secretary Company Secretaries’ particulars Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): Year AwardandCommerce. inIndustry asaBakerScholar.with ahighdistinction was Barnaba therecipient 2009Mr ofthe In Western Australian Citizen ofthe top graduate, university wide. Hethenwent andreceived BusinessSchool onto Harvard anMBAin1988,graduating first classhonoursfrom theUniversity of Western Australia in1985and was awarded theJA Medal Wood University for Committee. received Barnaba Selection Scholarship Mr held positionsontheRhodes hisBachelorofCommerce with employment organisation), Western Power, andaDirector previously oftheAustralia Barnaba Institute. Mr Indonesia and Finance. ofthe HeistheChairman West Coast Eagles Football Club, Edge Employment (adisability Solutions the University of Western Australia Professor asanAdjunct where BusinessSchool healsoserves inInvestment Banking &Companyand worked of withMcKinsey isaChairman Barnaba inAustralia, Africa. Mr andSouth theUnited Kingdom in Perth, Western Australia. hasabackground Barnaba Mr inindustry, andmanagement consulting corporate advisory isaco-founder Barnaba andExecutiveMr Capital, ofAzure Chairman anindependent boutiquecorporate advisorbased Experience was Barnaba appointed asaNon-ExecutiveMr Director inFebruary 2010. Term ofoffice Mark Barnaba (Non-Executive Director) Former inlast3years directorships (ASX listed entities): current (ASXOther directorships listed entities): of Manager Valin Iron&Steel Group. Iron andSteel Co ofHunanProvincial Limited, GeneralManager Deputy Metallurgy Enterprises Group andGeneral Graduate oftheChineseAcademy School Sciences. ofSocial as Hehaspreviously served Vice ofLianyuan Chairman 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 Mr Li Xiaowei (Non-Executive Director) DIRECTORS’ REPORT None. None. None. None. 29 29 FORTESCUE METALS GROUP ANNUAL REPORT 2010 30 30 FORTESCUE METALS GROUP ANNUAL REPORT 2010 scheduled for to Creek 31DecemberoftheChristmas 2010.Construction completion ore inthequarter processing tonnes perannumfrom theChichester oftherail An Ranges. extension linefrom Cloudbreak to Creek Christmas is The expansion ofFortescue’s Creek Christmas operation iscontinuing onscheduleto deliver of55million production 30 June2010. system.the longstandingBenchmark The spot price for iron ore hasincreased by 70percent the12months during to linewiththebroader theCompanyIn iron ore moved industry to regime anewindex pricing following thedemise of Production andshipments for thefinancial year were as follows on a wet metric tonne basis; resulted inrecord levels production at allfacilities. acrossA strong theintegrated performance the12months supplychainduring to 30June2010 has mine, rail andport month rolling average to 30June2010hasdecreased 65percent to below levels. iron ore industry isshownImproving inthekeystatistics safetywhere performance Fortescue’s Lost Frequency 12 Rate Time Injury Fortescue hasbuiltonitscommitment to safety through theimplementation ofaHazard Program. Management Review of operations No significant changes inthenature of oftheactivities occurred the during Fortescue year. metallurgical program whichisprogressively developing tenement areas outsideofthecurrent miningsites. operation ofanintegrated supplychain.Fortescue mine, alsomaintains anaggressive rail andport exploration and ofFortescue istheminingofironThe activity ore principal from itsCloudbreak Creek andChristmas minesites andthe Principal activities oftherelevant* =Notamember committee. B =Number of meetings held during the time the director held office or was a member of the committee during the year. ofmeetingsattended.A =Number 30 June2010,andthenumbersofmeetingsattended by eachdirector were: The numbersofmeetingsthecompany’s board ofdirectors andofeachboard committee theyear heldduring ended Directors’ Meetings DIRECTORS’ REPORT Ore shipped (including third party product) Ore shipped(includingthird party Ore processed Overburden removed Ore mined Barnaba Mark Mr IanCummingMr LiXiaoweiMr Dr IanBurston Hegarty Owen Mr Brayshaw Geoff Mr Graeme Rowley Mr KenAmbrechtMr RussellScrimshaw Mr AndrewMr Forrest Elliott Herb Mr Director

Board meetings 10 10 10 A 2 9 7 8 8 9 9 9 10 10 10 10 10 10 10 10 10 10 B 2 113,861,580 40,093,093 38,418,568 41,255,407 Tonnes A 7 7 7 7 * * * * * * * 2010 Audit

Committee Meetings B 7 7 7 7 * * * * * * * 104,080,840 27,844,966 27,793,158 31,005,907 Tonnes 2009 Remuneration

A 2 2 2 1 2 * * * * * * Increase +44% +38% +33% +9%

B 2 2 2 2 2 * * * * * * DIRECTORS’ REPORT and energy data isconsistent, accurate andcomparative. financial year. The Group will usingfinancialcontinue yearperiods toensureto thatreport itspublic greenhouse gas emissions andenergy across useandproduction allof itsoperations. The 2009NGERsubmission related to the2009 independently audited andverified. The Group is Scoperequired itsannual1and2 greenhouse to gas report Fortescue delivered itsfirst The 2007 Act National Greenhouse andEnergy Reporting implemented anddeferred willbepubliclyreported. implementation oftheseamendments to current willbeassessedandthosemodifications practices that are both operations to highlightrail current and port withthepotential practices to deliver energy savings. The potential for for implementation acrossopportunities itsbusinessareas. thepastyear, In at mine, anenergy auditwas undertaken Fortescue isahighenergy consumer and isboundby provisions to withintheEEO Act identify energy saving Act 2006 The Opportunities Energy Efficiency laterwill bereported in2010. 2007. Act andtheNationalAct) Greenhouse andEnergy Reporting These requirements relate to thefinancial year and The Fortescue requirements to Group the publicreporting issubject ofthe Greenhouse gasandenergy requirements date reporting improve environmental are documented performance andimplemented through acontinuous improvement process. regularThe auditsto internal Grouptest andexternal ourstandards alsoundertakes andprocedures. to Opportunities of acombinedthe Department total offourWater theyear. timesduring (DoW) (OEPA), andPetroleum ofMinerals ofEnvironment theDepartment (DMP)and (DEC), theDepartment andConservation The Group’s operations have andaudited ofthe by beeninspected theOffice Environmental Protection Authority 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 and IrrigationAct 1914. approvals, includingtheprovisions ofthe The Fortescue Group’s are exploration, governed activities mining, by arange rail ofenvironmental andport regulatory Environmental regulation the Board ofDirectors donotrecommend thepayment ofthecurrent ofadividendinrespect financial year. No dividendshave beenpaid ordeclared by theCompany to memberssince theendofprevious financial year and Dividends which cannot be untilrectified has greaterregardingFortescue and the applicationcertainty clarity of the proposed tax. and the Solomon Western Hubsonhold. The newtaxproposals, ifimplemented, may create financinguncertainties proposed resources Resources astheMineral tax(now Rent known Tax) forced theCompany to place development of As previously advised, Fortescue maintained themomentum ofitsDFSprocessthe that theimpact despite thefact December 2010quarter. Progress HubDFSisproceeding ontheSolomon to plan. date forThe delivery expected submissionto theBoard isthe ofthe2010calendaryear.the latter part that isexpected adetailedworks programthe mineplan.It willbepresented to theBoard for itsconsideration during Studies for theexpansion from 55Mtpaupto 95Mtpaare well advanced withthemainfocus now onconfirmation of other sites includingthe Western Hubandmagnetite projects. the completion oftheDefinitive across Study (DFS) Feasibility Solomon Hub;and3)the for the review ofopportunities expansion oftheChichesterfinalisation Hubbeyond ofstudies thecurrentfor thefurther 55Mtpa program;works 2) Fortescue’s Development andExploration group have beenfocused across anumberofareas including:1)the units at theendofSeptember2010. currently scheduledfor March 2011. The accommodation villageisonschedule for handover offirstaccommodation (OPF)facility isprogressing commenced well withwork andwet sections onallprincipal commissioning oftheOPFis National Greenhouse and Energy Reporting (NGER)Act 2007 National Greenhouse andEnergy Reporting Environmental Protection Act 1986, Energy Efficient Opportunities Act 2006 Opportunities Energy Efficient the Mining Act 1978 Mining submissionin2009whichwas and the Rights inWaterRights (EEO 31 31 FORTESCUE METALS GROUP ANNUAL REPORT 2010 32 32 FORTESCUE METALS GROUP ANNUAL REPORT 2010 part oftheirremuneration: part shares intheCompany to thefollowing directors, keymanagement personnelandotherexecutives oftheCompany as orsince theendoffinancial During year, the Company granted options for no consideration over unissuedordinary Unissued shares under options is asfollows: the Australian Exchange Securities inaccordance withS205G(1)oftheCorporations 2001,at Act thedate ofthisreport The relevant interest ofeachDirector intheshares andoptionsissuedby theCompany, asnotified by theDirectors to Directors’ Interests Fortescue results andtheexpected ofthoseoperations insubsequent financial years. inthisDirectors’as reported inrelation to likelydevelopments Report), andbusinessstrategies oftheoperations of theopinionofDirectors itmayIn prejudice theinterests oftheCompany to provide additionalinformation (except Likely developments and expected results of operations There hasbeennoothermaterial event requiring disclosure subsequent to ended30June2010. theperiod 310Mt orapproximately 25percent oftheResource isclassifiedasindicated and920Mtasinferred. On 10August 2010 Fortescue announced a1.23BtResource Star Estimate tenement thisResource, for area. Of itsNorth CreekChristmas operation. The contract isfor aterm ofsixyears andisvalued at approximately A$3billion. On 5August 2010 Fortescue entered into acontract withDowner EDILimited to at provide its miningservices resourcesSolomon to 2.86Btupfrom portfolio 2.7Bt. On 15July2010Fortescue announced a160Mtincrease toresource theSolomon portfolio. This thetotal brings Events subsequent to reporting date management systems are in place to maintain compliance with anaggressive strategicFortescue isundertaking review andimprovementthe planto ensure that suitableenvironmental environmental regulatory obligations and commitments. miningequipment, powerinclude ourmobilesurface stations andourlocomotives. Diesel combustion isthelargest source ofgreenhouse gasemissionsat Fortescue. sources ofdieseluse The primary DIRECTORS’ REPORT Mr IanCummingMr Barnaba Mark Mr LiXiaoweiMr Dr IanBurston Hegarty Owen Mr JosephSteinbergMr Brayshaw Geoff Mr KenAmbrechtMr RussellScrimshaw Mr Graeme Rowley Mr AndrewMr Forrest Elliott Herb Mr Director Mr PMeurs Mr PersonnelKey Management Name Number ofoptionsgrantedNumber 7,500,000 Ordinary shares Ordinary 1,008,591,122 Exercise price A$ 972,830,215 19,235,690 6,313,130 8,000,000 2,167,938 44,149 ------$5.00 13 May 2015 Expiry date Expiry 600,000 Options 600,000 ------• • for thefollowing reasons: the auditor, assetoutbelow, didnotcompromise theauditor independence requirements ofthe auditors imposedby the is satisfied that is theprovisioncompatible withthegeneral standard ofthenon-auditservices ofindependence for The Board ofDirectors hasconsidered thepositionand, inaccordance withadvice received from theaudit committee, 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 Non-audit services other liabilities. alsopreclude Conditions disclosure ofthe amount paidfor ofthepolicy to third thepolicy. parties thepremium between amounts relatingpossible to apportion to theinsurance againstlegalcosts andthoserelating to information to gainadvantage for themselves orsomeoneelseto causedetriment to 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 the endoftheprevious financial year, the Company haspaidpremiums Officersto insure ofthe theDirectors and Directors and officers indemnities and insurance follows (there were noamounts unpaidontheshares issued): orsince theendoffinancial During year, the sharesCompany asa issuedordinary result ofthe exercise ofoptionsas Shares issued on exercise of options other bodycorporate. to exercise theoptions. These inany optionsdonotentitle theholderto share participate issueoftheCompany orany asanemployee specifiedtimeperiods individuals oncondition that of theyserve beforeFortescue becoming entitled were issuedpursuant to theFortescue Group’s Metals Incentive (FMGIOS) OptionScheme andhave beenallotted to dateAll ortermination optionsexpire oftheemployee’s oftheirexpiry ontheearlier employment. These options and over shares oftheCompany. theordinary The numberofoptionsonissueintheCompany atisasfollows. thedate ofthisreport All oftheseoptionsare unlisted Unissued shares under options DIRECTORS’ REPORT Date optionsgranted Date optionsgranted Code ofEthics forProfessional Accountants. thegeneral relating undermine principles to auditorNone oftheservices independence asset outinAPES110 and oftheauditor; andobjectivity theimpartiality impact haveAll beenreviewed non-auditservices by theAudit Committee Management andRisk to ensure theydonot 11 February 2009 11 February 2009 25 January 2006 25 January 25 January 2006 25 January 13 May 2010 13 May 2010 1 June2006 1 June2005 1 June2006 Corporations Act 2001. 11 February 2014 25 January 2011 25 January 13 May 2015 Expiry date Expiry 1 June2011 Number vestedNumber The Directors are satisfied that theprovisionby ofnon-auditservices 1,050,000 1,046,875 450,000 - - Issue price ofshares A$ Issue price ofshares A$ $5.00 $2.50 $0.70 $0.57 $0.27 $5.00 $2.50 $0.70 $0.57 Number ofsharesNumber issued Number underoption Number Corporations Act 2001 11,577,500 7,222,630 1,240,000 1,268,750 4,713,880 7,500,000 1,800,000 1,708,750 568,750 - -

33 33 FORTESCUE METALS GROUP ANNUAL REPORT 2010 34 34 FORTESCUE METALS GROUP ANNUAL REPORT 2010 andnon-relatedpractices auditfirms. theyearDuring thefollowing fees were paidorpayable provided for by services theauditor oftheCompany, itsrelated DIRECTORS’ REPORT Total remuneration for otherassurance services Financial duediligence BDO Consultants (WA) Ltd Pty audit otherthanstatutory 2. Services Total remuneration for auditservices assurance services Other Audit andreview offinancial reports BDO Audit (WA) Ltd Pty 1. Audit services 363,566 342,257 21,309 Consolidated 2010 US$ 428 428

276,245 251,035 25,210 9,590 9,590 2009 US$

• • • The remuneration that structure hasbeen adopted by Fortescue consists ofthefollowing components: assist inthedischarge ofitsresponsibilities. The Committee may consultants engageindependent external andadvisorsto provide information any to necessary • • • • • • in fulfillingits CorporateGovernance responsibilities related to the following: The role oftheRemuneration and Nomination Committee isto provide assistance andrecommendations to theBoard and Nomination Committee theyear. during mettwice by Non-Executive Independent chaired Elliottandiscomprised inthemajority Herb by Directors. Mr The Remuneration operates inaccordance asapproved withitscharter by theBoard. The Remuneration andNomination Committee is The Board hasestablishedaRemuneration andNomination Committee. The Remuneration andNomination Committee strategy oftheorganisation. Fortescue aremuneration hasstructured framework thatcompetitive to ismarket thereward andcomplementary • • • • The remuneration strategy isbasedonthefollowing principles: 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 for Fortescue Group, inaccordance withS300Aofthe Fortescue andotherexecutives. Personnel KeyManagement andthefive mosthighly remunerated ExecutiveOfficers PersonnelKey Management have andresponsibility for theauthority planning, andcontrolling directing of theactivities (a) Principles used to determine the nature and amount of remuneration Corporations Act 2001. The information provided inthisremuneration hasbeenaudited ofthe asrequired report 308(3C) by section (f) (e) (d) (c) (b) (a) The remuneration issetoutunderthefollowing report mainheadings: Remuneration report REMUNERATION REPORT Incentive Schemes. Share Sacrifice Plan; and Salary Fixed Remuneration beingannualsalary; Nomination andreview ofapplicants for aBoard position. Succession planning;and Matters relating to recruitment, retention andtermination policies; term andlongterm incentiveShort plans; executiveSenior remuneration; Chief Executive and Officer Executive Director remuneration; Transparency interms ofdisclosure andcompliance withrelevant legislative requirements. executive; and andalignmentPerformance ofexecutive linkage remuneration ofFortescue to andtheindividual performance Remuneration andreward willbecompetitive andreasonable that Fortescue withinthesector operates; levelsHigh ofemployee share ownership willdrive analignment ofemployee andshareholder interests; Security policy Security Additional information remunerationShare-based agreementsService Details ofremuneration Principles usedto determine thenature andamount ofremuneration Corporations Act 2001 , are definedonpage37. 35 35 FORTESCUE METALS GROUP ANNUAL REPORT 2010 36 36 FORTESCUE METALS GROUP ANNUAL REPORT 2010 capital share 2007,whereby inDecember was eachfullypaidordinary shares. splitinto ten fullypaidordinary * =Movements have adjusted been to provide reasonable comparative amountsinlightof Fortescue’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 Consequences onshareholder ofperformances wealth • • desired outcomes, evidenced by: The Remuneration andNomination Committee considers that theabove remuneration isgenerating structure the Remuneration structure the Directors’ onpage32and33.Available 2011and13May 2015. optionsexpire Report between 25January date andnumberofoptionsyetA tableofunissuedshares to underoption,includingexpiry beexercised, isincludedin five days prior to theoffer date, which was13 May 2010. accordance withtheFMGIOS whereby theprice mustbeat orgreater that thevolume weighted average price for the 1 andA$8.00for Tranche 2for asetperiod. The optionshave beenissuedat anexercise price ofA$5.00,whichisin requirementfurther that theexercise ofoptionsisconditional uponFortescue shares trading above A$7.00for Tranche over afour year period, with25percent date. vesting addition,Directors oneachanniversary have In imposeda Tranche 1willvest over athree year period, with33.3percent date. vesting oneachanniversary Tranche 2willvest thefinancial During year the Company issued7,500,000employeetwo optionsunder equaltranches to an executive. Fortescue Group Metals Incentive Scheme Options The 2010financial year isthefirst yearofoperation oftheESSIP. those influentialensuring employees are the same as an investor positioned exactly over the course of the financial year. by dividingthefive day volume weighted average ofthefinancial share year into price thecashamount,at thestart award istakenequallyinshares andcash.Akeyfeature rightsto shares isthat thenumberofperformance isderived Participation isat apercentage oftheemployee’s total remuneration, oftherole. determined by theseniority Any Committee. The ESSIPhasthree categories: Annual Performance, Growth PerformancePerformance. andIndividual roles. Participation isby invitation oftheRemuneration andNomination Committee andawards are approved by the The Fortescue ExecutiveIncentive Staff andSenior Plan (ESSIP)applies to approximately 40peopleinleadership to consideration 30June2011after ofthefullyear results for thefinancial year to 30June2010. ofthesixmonthsbeen madeinrespect to 31December 2010.Any finalpayment thefinancial willbemadeduring year paymentpermanent employees tenure conditions. has for whosatisfy andperformance certain Apartial performance the Group’s indicators (KPIs)andteam keyperformance KPIs(for example, theCloudbreak Mine Team). isopento all It The FortescueIncentive Staff Plan (SIP)operating inthe2010financial yearisstructured to reward achievement of Incentive Plans has beenreinstated to these reflect recent changes. introducing thereforms received Royal Assent on14December 2009. The Company’s SSSPthat was suspendedin2009 which thetotal value isnotmore sacrifice arrangement. than$5,000andisacquired solelyunderasalary The legislation on Employee Share interests Scheme sacrifice offeredschemeis now only available underasalary toanemployee in As announced inthe 2009/10Federal Budget, Employee Share rulestook Scheme onsignificant changes.Deferral oftax Sacrifice Share Plan (SSSP) Salary addition to considering theindividualcontribution andcompetence levels. contributions to superannuation funds. Fixed Remuneration isreviewed againstrelevant comparator companies, in Fixed Remuneration consists ofbaseremuneration (whichiscalculated onatotal cost basis),aswell asemployer Fixed Remuneration REMUNERATION REPORT % Changeinshare price A$ 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. retention High ofoverall employees, keymanagement personnelandotherexecutives; and 3,220,062 580,946 $0.43 2010 12% - 1,830,953 508,042 $(8.11)* (68)% 2009 - (771,770) 139,294 $8.52* 252% 2008 - (31,860) $2.43* 252% 2007 - - (1,487) $0.66* 275% 2006 - - Mr IsakBuitendag Cloudbreak -General Manager Mine Mr Stephen PearceMr -Chief Financial Officer Mr William -Director Projects Ramsey PeterMr -Director Development Meurs PaulMr Hallam-Director Operations The five named group executives ofthe Group who Fortescue receive thehighest remuneration are setoutbelow: IsakBuitendagCloudbreak -GeneralManager Mine Mr Stephen PearceMr -ChiefFinancial Officer Mr William -Director Projects Ramsey PeterMr -Director Development Meurs PaulMr Hallam-Director Operations Executive Officers JosephSteinbergMr -resigned 28August 2009 IanCummingMr -appointed 28August 2009 -appointed Barnaba 19February Mark 2010 Mr Graeme Rowley Mr LiXiaoweiMr Dr IanBurston Hegarty Owen Mr Brayshaw Geoff Mr KenAmbrechtMr RussellScrimshaw Mr AndrewMr Forrest Elliott Herb Mr Directors the Directors andthefollowing executive officers assetoutbelow: Group whohave andresponsibility for authority planning, andcontrolling includes directing oftheentity theactivities The keymanagement personnel(asdefinedinAASB124 Amounts ofremuneration (b) Details of remuneration Executive Director (b) fees oftheRemuneration Report. are disclosedinpart Executive Directors would beacquired onmarket. percentage oftheirremuneration intheCompany’s shares undertheNon-Executive Director Share plan(NEDSP),which Non-Executive Directors donotreceive share options. Non-Executive eachyear Directors may to elect receive a The oftheAudit Chairman Committee receives anadditionalA$15,000perannum. annum percommittee andthechairofacommittee, other thantheAudit Committee, receives A$14,000perannum. cover allmainBoard Non-Executive activities. Directors whositonaBoard Committee receive anadditionalA$5,000per Nomination Committee. Non-Executive Directors donotreceive related performance remuneration. Directors’ fees fees inrecognition ofhismembershiptheAudit Committee of theRemuneration andpositionasChairman and The Chairman’s basefee isA$250,000perannum. The alsoreceives Chairman anadditionalA$15,000perannumbeing fees are presently upto A$120,000perannum. reference to thefees paidto otherNon-Executive Directors ofcomparable companies. Non-Executive Directors’ base in November 2009,isnotto exceed A$1,000,000perannumandissetbasedonadvice from advisorswith external Total remuneration for allNon-Executive Directors, lastvoted uponby shareholders at theAnnual GeneralMeeting Non-executive Directors REMUNERATION REPORT

Related Party Disclosures Related Party ) oftheCompany andtheFortescue 37 37 FORTESCUE METALS GROUP ANNUAL REPORT 2010 38 38 FORTESCUE METALS GROUP ANNUAL REPORT 2010 All key andotherexecutives managementpersonnel are employed by theparent entity. ** Includesremuneration asanExecutive from Director 1July2009to 2March 2010. across alloperationsimproved duringthelastquarter ofFortescue. performance * Bonuses recognised duringthe2010financial year were accrued asat30June2010.bonusThe was issuedin recognition of Directors’ and Executive Officers’ Remuneration REMUNERATION REPORT Personnel Management and otherKey Total Directors Cloudbreak Mine General Manager IBuitendag - Mr March 2010) (commenced 2 Financial Officer SPearceMr -Chief Director Projects Mr - W Ramsey May 2010) (commenced 12 Development Director - PMeurs Mr Director Operations PHallam- Mr KeyOther Management Personnel RScrimshaw Mr AForrestMr Executive Directors 2009 resigned 28August JSteinbergMr - August 2009 - appointed 28 ICummingMr February 2010 - appointed 19 MBarnaba Mr LXiaoweiMr OHegarty Mr Dr IBurston KAmbrechtMr GBrayshawMr GRowley ** Mr HElliott Mr Non-Executive Directors 2010

Cash salary Cash salary 3,822,756 and fees US$ 447,348 227,876 416,992 115,750 612,069 653,890 592,561 163,736 88,210 45,942 33,557 85,857 78,320 86,152 87,622 86,874 employee benefits - Short-term Short-term bonus* 325,798 Cash US$ 51,545 62,549 72,172 63,752 12,028 63,752

------

monetary benefits Non- US$ 78,697 54,179 15,215 6,736 2,567

------

employment Superan benefits nuation 303,020 Post- US$ 51,225 39,895 28,977 54,931 39,687 47,379 10,024 3,356 7,832 8,687 7,351 3,676

------

Long-term vice leave Long ser benefits US$ ------benefits benefits nation Termi US$ ------1,072,234 Options US$ 689,212 161,215 161,215 60,592 Share-based Share-based payments ------5,602,505 Total US$ 722,753 203,631 527,870 237,794 595,064 808,638 939,322 926,236 116,998 36,913 85,857 86,152 86,152 87,622 95,561 45,942

- Directors’ and Executive Officers’ Remuneration (continued) REMUNERATION REPORT (Consolidated and Personnel Management and otherKey Total Directors 2009 resigned 14 January Head ofMining, JBlanning- Mr executivesOther 2009 January Officer, resigned 9 Chief Operating A Mr Watling - 2009 resigned 30June Director Projects, GCoweMr - retired 2June2010 Developments, and Business Investments Director CCatlowMr - September 2009 officer, resigned 25 Chief Financial - MMinosora Mr Director Operations PHallam- Mr KeyOther Management Personnel RScrimshaw Mr GRowley Mr AForrestMr Executive Directors LXiaoweiMr Dr IBurston OHegarty Mr GBrayshawMr JSteinbergMr KAmbrechtMr HElliott Mr Non-Executive Directors 2009 Company)

Cash salary Cash salary 3,032,282 and fees US$ 252,033 438,381 413,922 206,534 218,325 506,258 486,935 184,504 70,048 42,576 38,706 60,496 58,851 54,713 employee benefits - - Short-term Short-term bonus* 305,237 Cash US$ 66,177 46,961 65,723 55,106 55,106 11,334 3,018 1,812

------

monetary benefits 404,998 Non- US$ 258,010 86,387 42,421 14,960 1,610 1,610

------

employment Superan benefits nuation 435,929 Post- US$ 65,655 18,631 36,630 12,546 48,010 25,349 79,455 56,136 75,459 8,138 3,870 6,050

- - - - -

Long-term vice leave Long ser benefits US$ ------benefits benefits nation Termi 348,753 US$ 288,048 60,705 ------Options 382,530 US$ 103,973 80,626 65,977 65,977 65,977 Share-based Share-based payments ------4,909,729 Total US$ 175,907 120,368 639,389 610,396 450,927 610,345 344,821 444,440 683,477 619,110 42,576 42,576 66,546 58,851

- - 39 39 FORTESCUE METALS GROUP ANNUAL REPORT 2010 40 40 FORTESCUE METALS GROUP ANNUAL REPORT 2010 **This individual eitherretired orresigned priorto 30June2010. remuneration consisting ofoptions, basedonthevalue duringtheyear. ofoptionsexpensed * Since thelongterm incentives are provided exclusively by way ofoptions, thepercentages disclosedalsoreflectthe value of The relative ofremuneration proportions that are andthosethat are linkedto fixed performance are as follows: REMUNERATION REPORT Mr JBlanning** Mr executivesOther GCowe**Mr MMinosora** Mr A Mr Watling** CCatlow**Mr IBuitendag Mr Mr W Ramsey SPearceMr PMeurs Mr PHallam Mr Key Management PersonnelOther JSteinbergMr ‑resigned 28August 2009 ICummingMr ‑appointed 28August 2009 LXiaoweiMr ‑appointed MBarnaba 19FebruaryMr 2010 Dr IBurston OHegarty Mr GBrayshawMr KAmbrechtMr GRowley Mr HElliott Mr RScrimshaw Mr AForrestMr ofFortescueDirectors Group Metals Limited Fixed remuneration 2010 100 100 100 100 100 100 100 100 100 90 15 91 76 90 79 75 % ‑ ‑ ‑ ‑ ‑ ‑ 2009 100 100 100 100 100 100 100 91 82 94 83 67 76 70 % ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 2010 10 10 11 % 9 7 8 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ At risk‑STI 2009 14 11 15 % 9 8 6 1 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 2010 17 10 85 17 % At risk‑LTI * ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 2009 10 16 19 13 15 % ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Incentives are approved by theBoard ofDirectors asreward for Fortescue achievingitsbusiness targets andKPIs. ofremunerationproportions that are are linkedto disclosedonpage40. performance ofFortescue’sDetails inrelation related to policy performance remuneration isdiscussedonpage33. relatedDetails ofperformance remuneration • • • Isak Buitendag,Mr General Cloudbreak Manager Mine • • • Mr William Ramsey, Projects Director • • • PeterMr Meurs,Development Director • • • StephenMr Pearce, Chief Financial Officer • • • PaulMr Operations Hallam,Director • • • RussellScrimshaw,Mr Executive andMarketing Sales Director • • • AndrewMr Forrest, Chief Executive Officer set outbelow. executives areagreement. formalised inaservice The majorprovisions oftheagreements relating to remuneration are Remuneration andotherterms ofemployment for theExecutive Directors, Personnel otherKeyManagement andother (c) Service agreements REMUNERATION REPORT Three month termination clause. the Remuneration andNomination Committee. Base salary, inclusive ofsuperannuation, for theyear ended30June2010ofA$520,000,to bereviewed annuallyby Term ofagreement -Unspecified. Three month termination clause. the Remuneration andNomination Committee. Base salary, inclusive ofsuperannuation, for theyear ended30June2010ofA$500,000,to bereviewed annuallyby Term ofagreement -Unspecified. Three month termination clause. by theRemuneration andNomination Committee. Base salary, inclusive ofsuperannuation, for theyear ended30June2010ofA$1,000,000to be reviewed annually Term ofagreement -Unspecified. Three month termination clause. the Remuneration andNomination Committee. Base salary, inclusive ofsuperannuation, for theyear ended30June2010ofA$800,000,to be reviewed annuallyby Term ofagreement -Unspecified. Three month termination clause. the Remuneration andNomination Committee. Base salary, inclusive ofsuperannuation, for theyear ended30June2010ofA$800,000,to be reviewed annuallyby Term ofagreement -Unspecified. One month termination clause. the Remuneration andNomination Committee. Base salary, inclusive ofsuperannuation, for theyear ended30June2010ofA$795,000to bereviewed annuallyby Term ofagreement -Unspecified. Three month termination clause. the Remuneration andNomination Committee. Base salary, inclusive ofsuperannuation, for theyear ended30June2010ofA$110,000,to bereviewed annuallyby Term ofagreement -Unspecified.

The relative 41 41 FORTESCUE METALS GROUP ANNUAL REPORT 2010 42 42 FORTESCUE METALS GROUP ANNUAL REPORT 2010 out inNotes 28and37to thefinancialstatements. option isconvertibleshare into ofFortescue oneordinary Group Metals Limited. Further information onoptionsisset PersonnelManagement andotherexecutives oftheCompany andFortescue are setoutbelow. When exercisable, each ofoptionsover sharesDetails intheCompany ordinary that were granted asremuneration to eachDirector, Key overOptions instruments granted equity asremuneration share.one ordinary nodividendorvotingOptions granted rights. undertheplancarry When exercisable, eachoptionisconvertible into and otherexecutives inthecurrent are periods orfuture setoutbelow. reporting The terms andconditions ofeachgrant ofoptionsaffecting remuneration ofeachDirector,Management Key Personnel FMGIOS. All optionsrefer to optionsover shares oftheCompany, ordinary whichare exercisable onaonefor onebasisunderthe (d) Share-based remuneration weighted average price for thefive days prior to theoffer date, which was13 May 2010. price ofA$5.00,which isinaccordance withtheFMGIOS whereby theprice mustbeat orgreater than thevolume requirements (Tranche 1 -A$7.00and Tranche 2-A$8.00)for asetperiod. The optionshave beenissued at anexercise requirementa further that theexercise ofoptionsisconditional uponFortescue shares trading price above certain a four year period, with25percent date. vesting addition,theBoard oneachanniversary ofDirectors hasimposed In progressively vest over athree year period, with33.3percent and vesting on eachanniversary Tranche 2willvest over thefinancial During year the Company issued7,500,000employeetwo, optionsunder equaltranches. Tranche 1will share,underlying free dividendyieldandthe risk theexpected interest rate for theterm oftheoption. price, ofdilution,theshare price theterm at oftheoption,impact grant date price volatility andexpected ofthe independently determined usingthe Trinomial orBinomialOptionPricing modelthat takesinto account theexercise date to vesting date, andtheamount isincludedintheremuneration tablesabove. Fair values 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 mettheoptionsare exercisable evenly on The options were provided at nocost to therecipients. date Allor optionsexpire oftheirexpiry ontheearlier REMUNERATION REPORT Mr AForrestMr ofFortescueDirectors Group Metals Limited Name Mr IBuitendag Mr SPearceMr PMeurs Mr Mr W Ramsey PHallam Mr KeyOther Management Personnel oftheCompany MBarnaba Mr ICummingMr LXiaoweiMr Dr IBurston OHegarty Mr GRowley Mr GBrayshawMr JSteinbergMr KAmbrechtMr HElliott Mr RScrimshaw Mr Number ofoptionsgrantedNumber during 7,500,000 2010 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ the calendar yearthe calendar

600,000 600,000 2009 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Number ofoptionsvestedNumber duringthe 150,000 150,000 2010 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ year 2009 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Metals GroupMetals Limited, Personnel otherKeyManagement andotherexecutives ofFortescue are setoutbelow. shares intheCompany ofordinary Details provided asaresult of theexercise ofoptionsto eachDirector ofFortescue Exercise ofoptionsgranted asremuneration management person)have been altered ormodified by the Company thefinancial during yearended30June2010. settledshareNo terms ofequity basedpayment (includingoptionsgranted transactions asremuneration to akey Modification settledshare of terms ofequity basedpayment transactions (h)dividendyield:nil free (g)risk interest rate: 5.00percent 76.40percent volatility: expected (f) (e)price ofshares ongrant date: A$4.35 (d)exercise price: A$5.00 date: 13May 2015 (b) expiry (a)grant date: 13May 2010 dollars): The following andassumptions were factors usedindetermining thefairvalue ofoptionsongrant date (inAustralian REMUNERATION REPORT Mr IBuitendag Mr PMeurs Mr Mr W Ramsey SPearceMr PHallam Mr KeyOther Management Personnel oftheCompany LXiaoweiMr ICummingMr MBarnaba Mr Dr IBurston OHegarty Mr RScrimshaw Mr GRowley Mr AForrestMr GBrayshawMr JSteinbergMr KAmbrechtMr HElliott Mr ofFortescueDirectors Group Metals Limited Name (c) fairvalue peroption: Tranche 2-A$2.65(US$2.40) Tranche 1-A$2.66(US$2.40) Date ofexercise of options ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ of options during the year shares issuedonexercise Number of ordinary ofordinary Number 2010 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Amount share paidper A$ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ $‑ 43 43 FORTESCUE METALS GROUP ANNUAL REPORT 2010 44 44 FORTESCUE METALS GROUP ANNUAL REPORT 2010 fair value oftheoptionsthat isyet to beexpensed. vest isnil. The maximumvalue oftheoptionsthat isyet to vest hasbeendetermined astheamount ofthegrant date to four year period. Nooptionswillvest ifconditions are notsatisfied, hence theminimum value oftheoption yet to financial year are payable in2011. The options were issuedpursuant to the FMGIOS andmay be exercised over athree issetoutbelow. criteria and performance person didnotmeettheservice The incentives recognised inthe2010 bonus orgrant that was paid, orthat vested, inthefinancial year, andthepercentage that was becausethe forfeited For eachcashbonusandgrant ofoptionsincludedinthetablesonpages38and42,percentage oftheavailable Details ofremuneration -2010cashincentives andoptions (e) Additional information REMUNERATION REPORT Mr Mr W Ramsey PMeurs Mr HElliott Mr Name Mr IBuitendag Mr SPearceMr PHallam Mr KeyOther Management Personnel ICummingMr MBarnaba Mr GBrayshawMr JSteinbergMr LXiaoweiMr Dr IBurston OHegarty Mr RScrimshaw Mr AForrestMr GRowley Mr KAmbrechtMr bonus Cash Paid 10% 11% 10% 8% 7% 9% % - - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Forfeited % ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ granted 2010 2009 2009 Year - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Share-based compensation (options) benefits Share-based Vested 25% 25% % ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Forfeited % ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ options may 2013 &2014 Financial years in which 2013 2013 vest ------Minimum Minimum grant yet value of to vest total $ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ total value yet to vest Maximum Maximum 17,277,931 of grant 483,644 483,644 $ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ REMUNERATION REPORT (ii) (i) tosecurities include: securities, including shares, debtnotes andoptions. Fortescue’s Security Trading Policy definesdealingin company Fortescue’s Security Trading Policy provides guidance onacceptable indealingtheCompany’s transactions various Securities policy (f) vesting condition was notsatisfied. The value isdetermined atthetimeoflapsing, butassumingthe condition was satisfied. D =The value atlapsedate ofoptionsthatwere ofremuneration granted aspart andthat lapsedduringtheyear because a the intrinsicvalue oftheoptionsatthatdate. C =The value atexercise date ofoptionsthatwere ofremuneration granted aspart andwere exercised duringtheyear, being B =The value atgrant date calculated inaccordance withAASB Payment 2Share-based ofoptionsgranted. current year. A =The percentage ofthevalue ofremuneration consisting ofoptions, basedonthevalue duringthe ofoptionsexpensed (iii) Mr IBuitendag Mr Mr W Ramsey PMeurs Mr SPearceMr PHallam Mr KeyOther Management Personnel 28 August 2009 JSteinbergMr ‑resigned appointed 28August 2009 IanCummingMr ‑ 2010 appointed 19February ‑ Barnaba Mark Mr LXiaoweiMr Dr IBurston OHegarty Mr GRowley Mr GBrayshawMr KAmbrechtMr HElliott Mr RScrimshaw Mr AForrestMr Name Advising, procuring orencouraging another person(includingafamilymember, friend, associate, colleague, things; for,Subscribing purchasing orsellingCompany orentering into Securities anagreement to doany ofthose Company Securities. Entering into agreements whichoperate ortransactions to limittheeconomic ofaperson’s risk holdingsin family company orfamilytrust)to trade inCompany and Securities; Remuneration consisting of options 85% 17% 17% A ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Value at grant date 17,967,143 644,589 644,589 US$ B ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Value at exercise date US$ C ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Value at lapsedate US$ D ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 45 45 FORTESCUE METALS GROUP ANNUAL REPORT 2010 46 46 FORTESCUE METALS GROUP ANNUAL REPORT 2010 26 August 2010 Perth Chairman Mr Herb Elliott ismadeinaccordanceThis report witharesolution ofDirectors. BDO Audit (WA) Ltd continues Pty inoffice in accordance 327ofthe withsection Auditor rounded offin accordance 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 Rounding of amounts on page47. A copy oftheAuditor’s Declaration Independence asrequired 307Cofthe undersection Auditor’s Independence Declaration This is the end of the audited Remuneration Report. orcontracts involving ofalltransactions market theCompany’s shares. approval withouttheprior Securities oftheChiefExecutive Officer. TheDirectors are responsible fordisclosure tothe Company withoutproviding Securities written notification to theChairman. mustnotdealin The Chairman Company detailing potential penaltiesfor civilandcriminal misuseofconfidential information. The Directors mustnotdealin The Securities Trading Policy detailsacceptable andunacceptable for periods trading inCompany including Securities REMUNERATION REPORT Corporations Act 2001. Corporations Act 2001 issetout AUDITOR’S INDEPENDENCE DECLARATION 47 47 FORTESCUE METALS GROUP ANNUAL REPORT 2010 48 48 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Company’s website at at minimumcost to theCompany. All press releases, andotherinformation are financial reports available onthe Through theuseofinternet, we have ensured that ourcorporate istimely, reporting complete andavailable globally amend andreissue thefinancialstatements. The financialstatements were authorised for issue by theDirectors on26 August 2010. The Company hasthepower to ofthefinancial statements.pages 26to 34,whichdoesnotform part ofthenatureA description ofFortescue’s isincludedintheDirectors’ operations activities anditsprincipal on Report EAST PERTH, WESTERN AUSTRALIA, 6004 Level 2,87Adelaide Terrace Fortescue Group Metals Limited officeprincipal place and ofbusinessis: Fortescue Group Metals Limited isacompany limited by shares, incorporated anddomiciledinAustralia. registered Its subsidiaries. The financialstatements are presented inUnited States (US)currency. These financialstatements cover the consolidated group consisting of Metals Group Limited andits Fortescue Contents FINANCIAL STATEMENTS 98 97 53 52 51 50 49 Independent Auditor’s report to the Members Directors’ Declaration Notes to the financial statements Statement of cash flows Statement of changes in equity Balance sheet Statement of comprehensive income www.fmgl.com.au

. The above consolidated statement ofcomprehensive income read shouldbe inconjunction withtheaccompanying notes. Statement of comprehensive income FINANCIAL STATEMENTS Diluted pershare earnings pershareBasic earnings holders oftheparent entity: shareEarnings per for profit equity attributable to theordinary Owners ofFortescue Group Metals Owners Limited Total comprehensive income for theyear isattributableto: Total comprehensive income for theyear comprehensiveOther income for theyear, netoftax Deferred taxtranslation to USdollars Revaluation ofavailable for salefinancialassets comprehensiveOther income Profit for the year Profit for the year taxbenefit/(expense) Income Profitbefore income tax Finance costs Administration expenses Net foreign exchange gain/(loss) Expenses income Other Revenue Re Cost ofsales ‑ estimation ofsubordinated loannote Notes Notes 36 36 23 8 7 7 7 6 5 (2,125,552) 3,220,062 (394,215) (279,986) US$’000 (24,705) 581,014 581,014 581,014 580,946 580,946 579,176 99,487 84,085 Consolidated Cents 1,770 18.82 18.85 2010 68 68 - (1,350,696) 1,124,411 1,828,598 (153,918) (490,945) (453,744) 661,960 US$’000 (77,202) (77,202) (34,620) 430,840 430,840 430,840 508,042 508,042 38,956 Cents 17.70 17.77 2009 - 49 49 FORTESCUE METALS GROUP ANNUAL REPORT 2010 50 50 FORTESCUE METALS GROUP ANNUAL REPORT 2010 The above consolidated balance read sheetshould be inconjunction withtheaccompanying notes. FINANCIAL STATEMENTS Balance sheet Total equity Reserves Contributed equity EQUITY Net assets Total liabilities Provisions Derivatives held at fair value Borrowings Trade andotherpayables Current liabilities LIABILITIES Total assets Total non‑ Intangible assets Deferred taxassets Trade andotherreceivables Non‑ Group Limited Capital attributableto andreserves owners ofFortescue Metals earnings/(losses) Retained Total non‑ Trade andother payables Borrowings Non‑ Total current liabilities Development expenditure Exploration andevaluation Property, plant andequipment Total current assets current assets Other financialassets Other Inventories Trade andotherreceivables Cash andcashequivalents Current assets ASSETS current assets current liabilities current assets current liabilities Notes 27(b) 26(b) 16(b) 27(a) 16(a) 18 17 15 14 13 22 25 23 21 20 19 12 11 10 9 1,911,897 1,701,550 1,235,538 1,476,665 1,476,665 1,274,650 1,476,665 3,826,888 2,937,728 2,508,902 5,303,553 3,602,003 1,512,017 US$’000 (74,369) 121,965 188,291 268,745 276,384 371,792 889,160 466,761 406,114 22,750 57,034 16,285 29,496 Consolidated 3,878 8,881 2010

95 1,641,919 1,229,876 3,345,971 2,655,666 2,250,482 4,196,663 3,235,881 1,423,222 (304,562) US$’000 (74,622) 120,195 960,782 850,692 850,692 850,692 349,602 690,305 319,823 339,085 121,122 183,189 654,942 25,144 13,512 55,582 31,397 11,889 1,498 2009 31 FINANCIAL STATEMENTS Statement of changes in equity The above read shouldbe inconjunction withtheaccompanying statements ofchangesinequity notes. Amounts are stated netoftaxation. Transactions withownersasowners: intheircapacity Total comprehensive income for theyear Balance at 1July2008 Consolidated Closing balance at 30June2010 transactions settledshare-based Equity Forfeited options Exercise ofoptions Issue ofshare capital Transactions withownersasowners: intheircapacity Total comprehensive income for theyear Balance at 1July2009 Balance at 30June2009 transactions settledshare-based Equity Share issuecosts Forfeited options Exercise ofoptions Issue ofshare capital Notes 27 26 27 26 26 27 32 27 26 26 Attributable to owners ofFortescue Group Metals Limited Contributed 1,274,650 1,229,876 1,229,876 US$’000 483,085 481,560 746,941 equity (1,293) 44,774 40,977 2,818 3,797 ------Reserves US$’000 (74,639) (74,622) (77,202) (74,622) (1,474) (1,586) 1,440 2,655 2,227 (456) (75) (41) 185 68 - - - Accumulated (304,862) (812,604) (304,562) US$’000 276,384 508,042 580,946 losses ------1,476,665 US$’000 (63,158) 850,692 483,010 481,560 430,840 581,014 850,692 (1,293) 44,959 40,977 1,440 1,344 2,227 2,211 Total (456) (41) 51 51 FORTESCUE METALS GROUP ANNUAL REPORT 2010 52 52 FORTESCUE METALS GROUP ANNUAL REPORT 2010 The above consolidated statement ofcash flowsbe should read in withtheaccompanyingconjunction notes. Statement of cash flows FINANCIAL STATEMENTS Cash equivalents andcash at endofyear Effects of exchange rate changesoncashand equivalents Cash andcashequivalents at thebeginning ofthefinancial year Net increaseequivalents andcash incash inflowNetactivities cash from financing Repayment ofdeposits receivedDeposits Repayment ofborrowings Proceeds from borrowings Proceeds from theissueofshare capital Cash flowsactivities from financing outflowNet cash from investing activities Proceeds from disposalofplant andequipment Payment ofdepositsfor government guarantees Payment for purchase ofintangible assets Payments for purchase ofproperty, plant andequipment Development expenditure Exploration andevaluation expenditure Cash flows from investing activities inflowNet cash from operating activities Interest paid Interest received Payments to suppliersandemployees Cash receipts from customers Cash flows from operating activities Notes 35 9 (2,046,046) 1,107,552 1,295,586 3,341,632 1,235,538 (405,868) (160,352) (206,943) (583,154) US$’000 (17,607) (10,000) (27,734) 654,942 540,951 (5,661) 18,909 39,645 16,553 30,000 28,407 Consolidated 2,214 2010 - - (1,198,145) 1,852,369 (544,698) (406,122) (190,760) (741,743) US$’000 (11,317) (57,221) 473,348 654,224 654,942 133,182 432,215 700,610 209,806 453,433 223,180 (2,786) (2,400) 89,545 96,992 9,884 2009 - Contents of the notes to the financial statements NOTES TO THE FINANCIAL STATEMENTS 75 74 74 73 73 67 65 57 96 95 94 94 93 93 92 91 91 91 88 86 86 85 84 81 81 81 80 80 80 78 78 77 76 76 76 76 76 75 Note 8. Income tax expense Note 7. Expenses Note 6. Other income Note 5. Revenue Note 4. Segment information Note 3. Financial risk management Note 2. Critical accounting estimates and judgements Note 1. Summary of significant accounting policies Note 38. Parent entity financial information Note 37. Share Note 36. Earnings per share Note 35. Reconciliation of profit after income tax to net cash inflow from operatingactivities Note 34. Subsequent events Note 33. Deed of cross guarantee Note 32. Subsidiaries Note 31. Commitments Note 30. Contingent liabilities Note 29. Remuneration of auditors Note 28. Key management personnel disclosures Note 27. Reserves and retained earnings Note 26. Contributed equity Note 25. Non Note 24. Non Note 23. Non Note 22. Non Note 21. Derivative at fair value Note 20. Current liabilities Note 19. Current liabilities Note 18. Non Note 17. Non Note 16. Non Note 15. Non Note 14. Non Note 13. Current assets Note 12. Current assets Note 11. Current assets Note 10. Current assets Note 9. Current assets ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ current liabilities current liabilities current liabilities current liabilities current assets current assets current assets current assets current assets ‑ based payments ‑ Cash and cash equivalents ‑ ‑ ‑ ‑ Other current assets Other financial assets Inventories Trade and other receivables ‑ ‑ Borrowings Trade and other payables ‑ ‑ ‑ ‑ ‑ Intangible assets Deferred tax assets Exploration and evaluation, development and mine properties Property, plant and equipment Receivables ‑ ‑ ‑ ‑ ‑ Provisions Deferred tax liabilities Borrowings Trade and other payables Current

53 53 FORTESCUE METALS GROUP ANNUAL REPORT 2010 54 54 FORTESCUE METALS GROUP ANNUAL REPORT 2010 segments for Fortescue norhasthere been anyonthemeasurement otherimpact ofthegroup’s assetsandliabilities. basis asthat usedfor purposes. internal reporting The adoptionof AASB8hasnotchangedthedisclosure ofoperating The newstandard requires a ‘management approach’, underwhichsegment information ispresented onthesame The group hasadopted AASB8Operating Segments from 1July2009.AASB8replaces AASB114Segment Reporting. Change inaccounting policy 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 (c) Segment reporting preparing theconsolidated financialstatements. Accounting are policiesofsubsidiaries consistent withtheparent. Intra-group balances, andany unrealised income from andexpenses arising intra-group transactions, are eliminated in (ii) Transactions eliminated onconsolidation The purchase methodofaccounting isusedto account for theacquisition by ofsubsidiaries theCompany. date that control ceases. statements from thedate that control commences until thedate that control ceases. from the They are de-consolidated convertible are takeninto account. The financialstatements are ofsubsidiaries includedinthe consolidated financial toIn assessing obtain benefitsfromcontrol, itsactivities. potential rightsvoting that are presently exercisable or the Company hasthepower, orindirectly, directly to govern thefinancialandoperating soas policiesofanentity areSubsidiaries allthoseentitiesentities) (includingspecialpurpose controlled by theCompany. Control exists when June 2010andtheresults for ofallsubsidiaries theyear thenended. The consolidated financialstatements incorporate ofthe theassetsandliabilitiesofall subsidiaries Company as at 30 (i) Subsidiaries (b) Principles of consolidation profit orloss. available-for-sale financialassets, financialassetsandliabilities(includingderivative instruments) atfair valuethrough These financialstatements have beenprepared underthehistorical cost convention, asmodified bythe revaluation of Historical cost convention Standards (IFRS)asissuedby theInternationalAccounting Standards Board (IASB). The consolidated financialstatements ofthe Metals Group International also comply with Fortescue Reporting Financial Compliance withIFRS inflows andcashoutflows going willbedenominated inUSdollars. forward significant US dollar seniorsecured notes andsubordinated loannote, indicate thatof cash asignificant proportion cash inflows from iron ore sales. These inflows are denominated inUSdollars, which combinedwith Fortescue’s the Company. Fortescue’s transition from an exploration to companya production has resulted in generating significant operates,entity theeconomic whichshouldreflect substance events oftheunderlying andcircumstances relevant to economic environmentits subsidiaries. oftheprimary inwhichthe isthecurrency ofanentity currency The functional 2009Fortescue adoptedoftheCompany UnitedOn 1January Statescurrency andallof (US)dollarsasthefunctional Interpretations andtheCorporations 2001. Act Standards, otherauthoritative pronouncements oftheAustralian Accounting Standards Board, Australia Accounting These general financialstatements purpose have beenprepared inaccordance with Australian Accounting (a) Basis of preparation isincludedNoteindividual entity 38. consequence ofa change to the financial statements for Metals Group Limited are asanindividualentity nolongerpresentedFortescue asthe statements are for theconsolidated consisting entity ofFortescue Group Metals Limited anditssubsidiaries. Separate below. These policieshave beenconsistently appliedto alltheyears presented, stated. unlessotherwise The financial The accounting principal policiesadopted inthepreparation ofthese consolidated financial statements are setout Note 1. Summary of significant accounting policies NOTES TO THE FINANCIAL STATEMENTS Corporations Act 2001, however, limited financialinformation for the Company asan NOTES TO THE FINANCIAL STATEMENTS Statement ofComprehensive Income. Translation differences at fair onassetsandliabilitiescarried valueare reported year endexchange assetsandliabilitiesdenominated rates inforeign ofmonetary currencies are recognised inthe Foreign exchange gainsandlossesresulting from andfrom thesettlement ofsuchtransactions thetranslation at Transactions inforeign currencies have beenconverted at rates ofexchange ruling onthedate ofthosetransactions. (ii) Transactions andbalances statements are presented inUSdollars, whichistheCompany’s andpresentation functional currency. economic environment operates currency). inwhichtheentity (thefunctional The parent andconsolidated financial includedinthefinancialstatementsItems ofeach Fortescue’s entities are oftheprimary measured usingthecurrency (i) Functional andpresentation currency (d) Foreign currency translation Note 1. Summary of significant accounting policies (continued) Revenue from isrecognised freight services onthebillofladingdate ofthecustomer. (ii) Traded freight consideration receivable. its finaldestination.Revenue onprovisionally priced salesis recognised basedontheestimated fair value ofthe total final pricing. typicallywhenanoticeThe date ofpricing is offinal readinessis received whenthearrived vessel has at may subsequently occur dependingonmovements inquoted orcontractual iron market ore prices to the date of Additionally, thesalesprice isdetermined onaprovisional basisat thedate ofsaleandadjustments to thesalesprice estimate specifications. ofproduct the goodsby thecustomer, therefore therecognition of thesalesrevenue isbasedon themostrecently determined ofFortescue’sThe majority executed salesagreements allow for of anadjustment to thesalesprice basedonasurvey Fortescue recognises revenue andrewards whentherisks transfers to thebuyer thebillofladingdate. whichistypically determined withreasonable accuracy, theprice canbereasonably estimated, isreasonably assured. andcollectability to thecustomer, work orprocessing isrequired nofurther by theGroup, ofthe goodshasbeen andquality thequantity form ofanexecuted salesagreement, oranarrangement exists, indicating there hasbeenatransfer andrewards ofrisks Revenue from thesaleofgoodsanddisposalotherassetsisrecognised whenpersuasive evidence, usuallyinthe ofgoods (i) Sale arrangement. on historical results, into consideration ofcustomer, taking thetype andthespecificsofeach oftransaction thetype to bereliably measurable until allcontingencies relating to thesalehave beenresolved. Fortescue basesitsestimates have andspecificcriteria entity beenmet for eachof Fortescue’s activities. The amount of revenue isnot considered when theamount ofrevenue canbereliably measured, itisprobable that future economic benefitswillflow tothe Revenue is measured at thefairvalue ofthegross consideration received orreceivable. Fortescue recognises revenue (e) Revenue recognition recognised intheStatement ofComprehensive ofthegainorloss onsalewhere applicable. Income, aspart ofthenetinvestmentborrowings forming part are repaid, share aproportionate ofsuchexchange differences are borrowings designated ashedgesofsuchinvestments, are takento equity. When aforeign operation issoldorany 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. as part All resulting exchange differences are recognised asaseparate component ofequity. dates, inwhichcaseincome andexpenses are translated at thedates and ofthetransactions); (unless thisisnotareasonable approximation ofthecumulative effectofthe rates prevailing onthetransaction andexpenses forIncome eachStatement ofComprehensive are Income translated at average exchange rates sheet; Assets and liabilitiesfor eachbalance sheetpresented are translated at theclosingrate at thedate ofthat balance 55 55 FORTESCUE METALS GROUP ANNUAL REPORT 2010 56 56 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Deferred income taxisprovided differences infull, method, usingtheliability ontemporary between thetax arising differencesto temporary and to unusedtaxlosses. 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.assets andnon-operational income comprises gainsonthedisposalofavailableOther for salefinancialassets, changesinthefair value offinancial Other income (f) loans isrecognised usingtheoriginal effective interest rate. interest rate oftheinstrument, andcontinues unwinding thediscount asinterest income. Interest income onimpaired amount to itsrecoverablethe carrying amount, beingtheestimated future cashflow discounted at theoriginal effective Interest income isrecognised usingtheeffective interest method. When a receivable isimpaired, the Company reduces (iii) Interest income Note 1. Summary of significant accounting policies (continued) net offinance charges, andlong-term payables. are includedin othershort-term Eachleasepayment isallocated or,leased property iflower, thepresent value oftheminimumlease payments. The corresponding rental obligations, ownership are classifiedasfinance leases. Finance leases are capitalised atthelease’s inception atthefair valueofthe Leases ofproperty, plant andequipment where Fortescue, aslessee, hassubstantially andrewards alltherisks of (h) Leases owned taxconsolidated entities. receivable orpayable underthetaxfundingagreement are recognised asacontribution to from) (ordistribution wholly receivable from orpayable to otherentities inthegroup. Any differences between theamounts assumedandamounts Assets undertaxfundingagreements orliabilitiesarising withinthetaxconsolidated entities are recognised asamounts entities inthetaxconsolidated group. assets) andthedeferred taxassets ithasassumedfrom unusedtaxlossesandcredits from controlled additionto itsownIn current anddeferred taxamounts, theCompany alsorecognises 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 thetaxconsolidation legislation asof1July2003andistherefore taxed asasingleentity (i) Tax consolidation legislation equity. Current anddeferred taxbalances attributableto amounts recognised are inequity alsorecognised directly in directly simultaneously.the assetandsettleliability are offset where hasalegallyenforceable theentity right to offset and intends either tosettleonanetbasis, or to realise liabilities andwhenthedeferred taxbalances relate to thesametaxation authority. Current taxassetsandliabilities Deferred taxassetsandliabilitiesare offset whenthere isalegallyenforceableright to offset current taxassetsand differencestemporary anditisprobable that thedifferences willnot reverse inthe foreseeable future. tax basesofinvestments inforeign operations where thecompany isableto control thetimingofreversal ofthe Deferred taxliabilitiesandassetsare notrecognised differences foramount 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 affectsneitheraccountingof 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 NOTES TO THE FINANCIAL STATEMENTS (i) Impairment of assets ofthelease.the period except for investment property, are charged to theStatement ofComprehensive onastraight-line Income basisover classified asoperating leases. Payments madeunderoperating leases(netofany incentives received from thelessor), risks and Leases ofthe rewards inwhichasignificant of portion ownership are nottransferred to aslesseeare Fortescue useful life andtheleaseterm. period. The property, plant andequipment acquired underfinance leasesisdepreciated oftheasset’s over theshorter soastothe leaseperiod produce aconstant rate periodic ofinterest ontheremaining for balance oftheliability each andfinance between theliability cost. The finance costischarged tothe Statement of Comprehensive Income over Note 1. Summary of significant accounting policies (continued) non-current assets.non-current Quantities are through andassays. assessed primarily surveys net realisable value. theore If willnotbeprocessed the balance within12months after sheetdate it is includedwithin be predicted withconfidence (if, for example, it exceeds themine’s cutoff grade), itis valued atthe lower of costand oreas to willbeprocessed whenthestockpiled itisexpensed asincurred. Where thefuture processing ofthisore can representStockpiles ore thatand is availablehas been extracted processing. for further there If is significant uncertainty • • • costproducts isderived costing onanabsorption basis. For the costs include: thispurpose of production weighted average costs. Cost for raw materials andstores ispurchase processed price andfor andsaleable partly Inventories are valued at thelower ofcost andnetrealisable value. Cost onthebasisof isdetermined primarily (l) Inventories written offare credited againstother expenses inprofit orloss. subsequent period, itiswritten offagainsttheallowance account. Subsequent recoveries ofamounts previously When atrade receivable for whichanimpairmentallowance hadbeenrecognised ina becomes uncollectible The amount oftheimpairmentlossisrecognised intheStatement ofComprehensive withinotherexpenses. Income receivables are notdiscounted iftheeffectofdiscounting isimmaterial. of estimated future cashflows, discounted at theoriginal effective interest rate. Cash flowsterm relating toshort The amount oftheimpairmentallowance isthedifference between theasset’s amount andthepresent value carrying reorganisation, inpayments are anddefaultordelinquency considered indicators that thetrade receivable isimpaired. receivables. Significant financialdifficultiesofthe debtor, orfinancial bankruptcy thatthe probability debtor will enter evidence that the Company allamounts willnotbeableto dueaccording collect to theoriginal terms ofthe are amount directly. written off by reducing thecarrying An allowance account isusedwhenthere isobjective oftrade receivablesCollectability isreviewed onan ongoingbasis. whichareto Debts beuncollectible known established whenthere evidence isobjective that Fortescue allamounts willnotbeableto due. collect the effective interest method, lessprovision for impairment. An allowance for impairmentoftrade receivables is Trade andotherreceivables are recognised initiallyat cost fairvalue andsubsequentlyusing measured at amortised (k) Trade receivables value. or lessthat are readily convertible amounts to toofcashandwhichare aninsignificant known risk ofchangesin subject highlyliquidinvestmentsterm, call withfinancialinstitutionsandothershort withoriginal maturitiesofthree months For Statement ofCash Flows presentation purposes, cashandequivalents includescashonhand, depositsheldat Cash (j) and cash equivalents date.at eachreporting units).Assets(cash-generating that have suffered animpairmentare reviewed for possible reversal oftheimpairment identifiable cashinflows which are largely independent ofthecashinflows fromotherassetsor groupsofassets in use. For ofassessingimpairment, assetsare thepurposes grouped at thelowest levels for whichthere are separately exceeds itsrecoverable amount. The recoverable amount isthehigherofanasset’s fairvalue lesscosts to sellandvalue may notberecoverable. An impairmentlossisrecognised for theamount by whichtheasset’s amount carrying Assets are reviewed for impairmentwhenever events orchangesincircumstances amount indicate that thecarrying NOTES TO THE FINANCIAL STATEMENTS Production overheads, overheads. including attributableminingandmanufacturing andprocessing of ore;extraction and ofdevelopmentThe expenditure amortisation anddepreciation ofproperty, plant andequipment usedinthe ore; Labour costs, materials andcontractor andprocessing expenses whichare attributableto directly of theextraction

57 57 FORTESCUE METALS GROUP ANNUAL REPORT 2010 58 58 FORTESCUE METALS GROUP ANNUAL REPORT 2010 value recognised intheStatement ofComprehensive thaninterest Income. Other rate derivative financialinstruments, comprises onlyinterestThis category rate swaps. They are inthebalance sheetat carried fairvalue withchangesinfair for trading unlesstheyare designated ashedges. are Assets classifiedascurrent inthiscategory assets. Financial assetsat fairvalue through profit orlossare financialassetsheld for trading. Derivatives are classifiedasheld (ii) Derivatives in trade andotherreceivables note. date whichare assets. thereporting than 12months after classifiedasnon-current Loans and receivables are included and include trademarket active receivables. They are included in current assets, except for those with maturities greater Loans andreceivables are financialassetswithfixed non-derivative ordeterminable payments that are notquoted inan (i) Loans andreceivables investments were acquired. determines Management theclassification ofitsinvestments at initial recognition. loans andreceivables andavailable-for-sale financialassets. The classification dependsonthepurpose forwhichthe Fortescue classifiesitsinvestments into the following categories: financialassets atfair valuethrough profit orloss, (m) Financial assets Note 1. Summary of significant accounting policies (continued) are notreversed through the Statement ofComprehensive Income. Statement ofComprehensive instruments classifiedas which subsequently onequity available-for-sale Income reverse removed from andrecognised equity inthe Statement ofComprehensive lossesrecognised Income. Impairment inthe cost andthecurrent fairvalue, lessany impairmentlossonthat financialassetpreviously recognised –is inequity exists for available-for-sale financialassets, thecumulative loss–measured asthedifference between the acquisition below itscostfair value ofasecurity is considered asanindicator that are thesecurities impaired. any If suchevidence classifiedas assets isimpaired. securities available-for-sale, thecaseofequity asignificant In or prolonged declineinthe Fortescue assessesat each balance date whether there evidence isobjective that afinancialassetor group offinancial Impairment onhowDetails thefairvalue offinancialinstruments isdetermined are disclosedinNote 3. classifiedas are securities available-for-sale recognised andnon-monetary inequity.other monetary recognised amount are inprofit orloss,recognised andotherchangesincarrying inequity. Changesinthefair value of amount ofthesecurity.changes inthecarrying The translation differences cost arerelated to changesintheamortised are analysed between translation differences andother cost ofthesecurity resulting from changesinamortised denominated securities inaforeign -sale Changes inthefairvalue andclassifiedas ofmonetary available-for currency included intheStatement ofComprehensive asgainsandlossesfrom Income investment securities. When classifiedas are securities available-for-sale sold, theaccumulated fair value adjustments recognised are inequity transferred andFortescue hastransferred substantiallyandrewards alltherisks ofownership. assets are derecognised whentherightsto receive cashflows from thefinancialassets have expired or have been recognised at costs fairvalue are andtransactions expensed intheStatement ofComprehensive Income. Financial at fairvaluenot carried through profit orloss. at fair Financial assetscarried valuethrough profit orloss are initially purchase orsell theasset. Investments are initiallyrecognised atcosts fairvalue for plustransaction allfinancialassets purchasedRegular andsalesoffinancialassetsare –thedate onwhich recognised commits ontrade-date to Fortescue Recognition andderecognition Income. considered to besignificant orprolonged, inwhichcasethedecrease is recognised inthe Statement of Comprehensive changes infairvalue beingrecognised inareserve, directly unlessthechangeisadecrease below original cost whichis management intends to holdthemfor themediumto longterm. These instruments are recognised at fairvalue, with are designated asavailable-for-sale iftheydonothave fixed maturitiesandfixed ordeterminable payments and assets unlessmanagement intends to disposeoftheinvestment date. within12months ofthereporting Investments either designated ornotclassifiedinany oftheothercategories. inthiscategory They are includedinnon-current Available-for-sale securities, financialassets, are equity marketable that principally non-derivatives arecomprising (iii) Available for salefinancialassets The fairvalue ofFortescue’s interest rate derivative isbasedoncomparisons to variableLIBORrates. through profit orloss. Fortescue doesnothave any assetsheldfor trading norhasitdesignated any otherfinancialassetsasbeing at fair value NOTES TO THE FINANCIAL STATEMENTS

(i) Fair value through profit andloss was acquired. Fortescue classifiesitsfinancialliabilities into oneof two categories, dependingonthepurpose forwhichtheliability (n) Financial liabilities Comprehensive Income. Comprehensive theimpairmentlosssubsequently Income. reverses, If thereversal isrecognised intheStatement of flows are discounted at thefinancialasset’soriginal effective interest rate. Thelossis recognised inthe Statement of as thedifference amount andthepresent value ofestimated between theassetscarrying future cashflows. Thecash thereIf isevidence ofimpairmentfor any ofFortescue’s cost, thelossismeasured at amortised financialassetscarried Note 1. Summary of significant accounting policies (continued) determined by reference to theamounts recognised entities’ inthewholly-owned financialstatements. 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 underwhichthewhollyowned entities fully compensate controlled entities inthetaxconsolidated group. tax liabilities(orassets)andthe deferred from taxassetsarising unused taxlossesandunusedcredits assumedfrom additionto itsownIn current anddeferred taxamounts, Fortescue Group Metals Limited alsorecognises thecurrent group continues to beastandalonetaxpayer initsown right. their own current anddeferred taxamounts. These taxamounts are measured inthetaxconsolidated asifeachentity The headentity, Fortescue Group Metals Limited, andthecontrolled entities inthetax consolidated group account for consolidation legislation. Fortescue Group Metals Australian Limited and itswholly-owned controlled entities have implemented thetax (ii) Tax consolidation legislation amount oftheseinvestments.rather from thanbeing deducted thecarrying Fortescue Group Metals Limited. Dividendsreceived from associates are recognised intheparent entity’s profit orloss, Investments insubsidiaries, associates andjoint venture entities are accounted for at cost inthefinancialstatements of (i) Investments insubsidiaries, associates andjoint venture entities on thesamebasisasconsolidated financialstatements, except assetoutbelow. The financialinformation for theparent entity, Metals Group Limited,Fortescue disclosedinNote 38hasbeenprepared (p) Parent entity financial information what Fortescue considers since to theprevious beequity period. of afinancialliability. Fortescue’s shares are instruments. ordinary classifiedasequity There have beennochangesin Financial instruments issuedby Fortescue are treated onlyto theextentthat asequity theydonotmeetthedefinition (o) Equity financial instruments Fair value is calculated by discounting estimated future cashflows usingamarket rate ofinterest. • • financialliabilitiesincludethe followingOther items: (ii) Financial cost liabilitiesmeasured at amortised being at fairvalue through profit orloss. instruments, Fortescue doesnothave any liabilitiesheldfor trading norhasitdesignated any financialliabilitiesas changes infairvalue recognised intheStatement ofComprehensive thanthesederivative Income. financial Other comprises only This category ‘out-of-the-money derivatives’. They are inthebalance sheetat carried fairvalue with NOTES TO THE FINANCIAL STATEMENTS outstanding. costs andthosepayabletransaction onredemption, aswell asany interest orcoupon payable is whiletheliability inthebalance sheet. carried of Interestbalance of theliability expense inthiscontext includesinitialamortisation rate method, whichensures that any interest expense over to theperiod repayment isat aconstant rate onthe instrument. Interest borrowings bearing are cost subsequentlyusingtheeffective measured interest at amortised Borrowings are initiallyrecognised at fairvalue, netofany costs attributableto directly transaction theissueof cost usingtheeffective interest atsubsequently amortised carried method;and Trade liabilities, whichare initiallyrecognised monetary payables andothershort-term at fairvalue and 59 59 FORTESCUE METALS GROUP ANNUAL REPORT 2010 60 60 FORTESCUE METALS GROUP ANNUAL REPORT 2010 The fairvalue offinancialassetsandliabilitiesmustbeestimated formeasurement disclosure purposes. Fair (q) Fair value estimation of theinvestment. compensation, thefairvalues oftheseguarantees are accounted for ascontributions ofthecost andrecognised aspart Where theparent hasprovided entity financialguarantees in relation to loansandpayables ofsubsidiaries for no (iii) Financial guarantees recognised asacontribution to from) taxconsolidated (ordistribution wholly-owned entities. Any difference between theamounts assumedandamounts receivable orpayable underthetaxfundingagreement are amounts receivable from orpayable to otherentities inthegroup. Assets undertaxfundingagreements orliabilitiesarising withthetaxconsolidated entities are recognised ascurrent payment ofinterim fundingamounts to assist withitsobligations to pay taxinstalments. head entity, theendofeachfinancial after year. whichisissuedassoonpracticable mayThe headentity also require The amounts receivable/payable underthetaxfundingagreement are dueuponreceipt ofthefundingadvice from the Note 1. Summary of significant accounting policies (continued) charged to the Statement ofComprehensive in whichtheyare thefinancial period during incurred. Income be measured reliably. is derecognised. amount of thereplaced part The All carrying other repairs and maintenance are it isprobable that future economic benefitsassociated withtheitem willflow to andthe costofthe item can Fortescue Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when Subsequent costs Purchased that isintegral software oftherelated oftheequipment. to equipment thefunctionality iscapitalisedaspart different useful lives, theyare accounted for as separate items (major components) ofproperty, plant andequipment. items andrestoring thesite onwhichtheyare located. ofanitem ofproperty,When plant parts andequipment have to condition bringing anassetto ready aworking for itsintended use, andthecosts ofdismantling andremoving the assetsincludesthecostThe ofmaterials labour, anddirect cost ofself-constructed any othercosts attributable directly of theitems. depreciation andimpairmentlosses. cost includesexpenditure Historical that attributableto isdirectly theacquisition Each classofproperty, plant andequipment isstated at historical cost less, where applicable, any accumulated Recognition andmeasurement (r) Property, plant and equipment conditions attached are to thetransactions nottakeninto account indetermining fairvalue. dividends, andthe risk-free interest rate performance andnon-market (basedongovernment bonds).Service lifeexpected of theinstruments (basedonhistorical experience andgeneral optionholderbehaviour), expected average historic volatility adjusted for dueto changesexpected publiclyavailable information), weighted average include share price at measurement date, exercise price oftheinstrument, volatility expected (basedonweighted The fairvalue ofemployee share optionsismeasured model. usingeitherabinomialortrinomial Measurement inputs payment transactions Share-based that isavailable to Fortescue for similarfinancialinstruments. for disclosure isestimated purposes by discounting thefuture contractual cashflows at thecurrent interest market rate approximate nature. theirfairvalues dueto theirshort-term The financialassetsandliabilities fairvalue ofnon-current The nominalvalue lessestimated credit adjustments ofcurrent trade receivables andpayables are assumedto Trade receivables andpayables instruments. techniques, suchasestimated discounted cashflows, are used to determine fair value for the remaining financial areOther usedfor instrument. long-term debtinstruments heldandthenadjustedrisk oftheparticular to reflect conditionson market existing at eachbalance date. prices Quoted ordealerquotes market for similarinstruments is determined usingvaluation techniques. Fortescue ofmethodsandmakesassumptionsthat are usesavariety based The fairvalue offinancialinstruments that are (for nottraded market inanactive example over-the-counter-derivatives) Financial instruments nottraded markets inactive for financialassetsheld by isthecurrent bidprice.Fortescue isbasedonquotedavailable-for-sale prices securities) at market thebalance sheetdate. The quoted price used market The fairvalue offinancialinstruments (suchaspubliclytraded traded markets derivatives, inactive andtrading and Financial instruments traded markets inactive values have beendetermined basedonthefollowing methods. NOTES TO THE FINANCIAL STATEMENTS

have aphysical life that differs from the related mineare depreciated onastraight linebasisas follows: Assets withinoperations where to significantly isnotexpected fluctuate production from one year toanotherorwhich (i) Straight linemethod Statement ofComprehensive Income andlossesondisposalareGains amount. determined by comparing proceeds withcarrying These are includedinthe depreciated. to allocate theircost orrevalued amounts, netoftheirresidual values, over theirestimated usefullives. Landisnot Depreciation onassets, otherthanland, iscalculated usingthestraight method linemethodorunitsproduction Depreciation Note 1. Summary of significant accounting policies (continued) impairment losses recognised onfinancialassets. Finance costs comprise borrowing costs, unwinding ofthediscount onprovisions andderivatives, borrowing costs and (u) Finance costs required to complete and prepare theassetfor itsintended borrowing useorsale. costs Other are expensed. Borrowing costs incurred for ofany theconstruction qualifyingassetare oftimethat theperiod is capitalisedduring (t) Borrowing costs over itsusefullife, whichvariesfrom three to five years. recorded from thepoint asintangibleat whichtheassetisready assetsandamortised for useonastraight linebasis recognised asanexpense are notrecognised asanassetinasubsequent period. Capitalised development costs are expenditures that are donot meet thesecriteria recognised asanexpense asincurred. Development costs previously including costs ofmaterials, labourandanappropriate of overheads. direct development services, proportion Other benefits andits costs canbemeasured reliably. The expenditure capitalised alldirectly attributable costs,comprises will,project considering itscommercial after andtechnical feasibility, becompleted andgenerate future economic the design andtesting ofneworimproved are products) recognised asintangible assetswhenitisprobable that the Research expenditure isrecognised asanexpense asincurred. Costs incurred ondevelopment (relating projects to (ii) Research anddevelopment ofore from method.extraction ontheunitsofproduction themine, theseassetsare amortised generallyperiods ranging from three to sixyears. Where theusefullife ofintangible linkedto assetsisdirectly the Intangible assetsthat have aphysical life that differs from the onastraightrelated linebasis mineareover amortised following completion oftechnical feasibility andwhere Fortescue hasanintention to usethe asset. andability IT development costs includeonlythosecosts attributableto directly thedevelopment phaseandare onlyrecognised related costs ofemployees’ timespent ontheproject. andsystems.software Costscosts payroll direct direct ofmaterials capitalisedincludeexternal andservice, andpayroll contribute to future financialbenefitsthrough period revenue generation and/or costare capitalised reduction to Costs incurred indeveloping orsystems products andcosts incurred andlicenses inacquiring software that will (i) ITdevelopment andsoftware (s) Intangible assets incurrent andfutureextracted basedonproved periods andprobable reserves. from ofmaterial asapercentage themineinperiod the quantity extracted ofthe total ofmaterial quantity to be method, method.applyingtheunitsofproduction the unitsofproduction depreciation In calculated isnormally using Where ofore theusefullife from linkedto ofanassetisdirectly theextraction themine, theassetisdepreciated using method (ii) Unitsofproduction The assets’ residual values andusefullives are reviewed, andadjusted ifappropriate, at eachbalance sheetdate. • • • • • NOTES TO THE FINANCIAL STATEMENTS Leased plant andequipment Furniture, fittingsandequipment Motor Vehicles Machinery Buildings 5‑15 years 3‑8 years 3‑5 years 10‑15 years 25‑40 years 61 61 FORTESCUE METALS GROUP ANNUAL REPORT 2010 62 62 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Liabilities for wages and salaries, including non-monetary benefits,Liabilities for annualleave wages andsalaries, includingnon-monetary andaccumulating sickleave expected (i) Wages andsalaries, annualleave andsickleave (w) Employee benefits to thepassageoftimeisrecognised asinterest expense. assessmentsmarket ofthetimevaluespecific ofmoneyandtherisks to theliability. The increase intheprovision due 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 item includedinthesameclassofobligations may besmall. class ofobligations asawhole. Aprovision isrecognised even ifthelikelihoodofanoutflow with to anyrespect one of similarobligations, thelikelihoodthat anoutflow willbe required insettlement isdetermined by the considering amount canbereliably estimated. Provisions are notrecognised for future operating losses. Where there are anumber of pastevents, itismore likelythannotthat anoutflow of resources willbe required to settletheobligation andthe Provisions for legalclaimsare recognised whenFortescue hasapresent legalorconstructive obligation asaresult (v) Provisions Note 1. Summary of significant accounting policies (continued) included in the cost of the acquisition as part ofthepurchase consideration.included inthe cost ofthe acquisition aspart the proceeds. Incremental costs attributableto directly theissueofnewshares for theacquisition ofabusinessare not Incremental costs attributableto directly theissue of newshares netoftax,from are asadeduction, shown inequity shares areOrdinary classifiedasequity. (x) Contributed equity thatpractice hascreated aconstructive obligation. Fortescue recognises andanexpense for aliability bonuseswhere contractually obligedorwhere there isapast plans (iv) Bonus adjustment to equity. revision to original estimates, ifany, isrecognised intheStatement ofComprehensive withacorresponding Income employee benefit expense recognised takesinto eachperiod account themost recent estimate. ofthe The impact date,reporting revises theentity itsestimate ofthenumberoptionsthat are to expected become exercisable. The conditions are includedinassumptionsaboutthenumberofoptionsthat are to expected become exercisable. At each ofany vestingimpact non‑market conditions (for example, profitability andsales growth targets). vesting Non‑market The fairvalue of the optionsgranted ismeasured market to vesting reflect expected conditions, but excludes the of theoption. price volatility share,expected oftheunderlying free dividendyieldandtherisk theexpected interest rate for theterm takes into account theexercise price, ofdilution,theshare price theterm at oftheoption,impact grant date and The fairvalue at grant date modelthat isindependently optionpricing determined usingeither abinomialortrinomial the employees become unconditionally entitled to theoptions. corresponding increase inequity. The fairvalue ismeasured at grant date andrecognised over which during theperiod The fairvalue ofoptionsgranted undertheFMGIOS andPRPare recognised asanemployee benefit expense witha Information relating to theseschemesissetoutinNote 37. Share (iii) Share the estimated future cashoutflows. date onnationalreporting government that match, andcurrency bondswithterms ascloselypossible, to maturity future Expected payments ofservice. of employee andperiods are departures discounted yieldsat usingmarket the using theprojected unitcredit method. Consideration isgiven levels, to future expected wageexperience andsalary value future ofexpected provided payments to by ofservices bemadeinrespect employees date upto thereporting leave forThe liability isrecognised longservice intheprovision for employee benefitsandmeasured asthepresent leave(ii) Long service are settled. date uptoemployees andare thereporting measured services at theamountsto expected bepaidwhentheliabilities dateto besettled within12monthsare ofthereporting recognised inotherpayables andaccruals of inrespect NOTES TO THE FINANCIAL STATEMENTS ‑based remuneration benefitsare provided to employees viathe FMGIOS andRights Plan (PRP). Performance ‑based payments

development ofthearea, inthearea orwhere have activities notyet reached astagethatreasonable permits These costs are forward to onlycarried theextentthat theyare to expected berecouped through thesuccessful • • • • • • • • Exploration andevaluation expenditure includes: Exploration andevaluation expenditure incurred isaccumulated ofeachidentifiable inrespect area ofinterest. (z) Mineral exploration and evaluation expenditure dilutive shares. potential ordinary the weighted average numberofadditionalshares that would have beenoutstandingassumingtheconversion ofall incomethe after taxeffectofinterest andotherfinancing costsassociated withdilutive shares potential and ordinary Diluted pershare earnings adjuststhefigures usedinthedetermination pershare ofbasicearnings to takeinto account (ii) Diluted earningspershare thefinancial during year, adjusted shares thefinancial issuedduring for bonuselements inordinary year. shares, otherthanordinary by equity theweightedcosts average ofservicing shares outstanding numberofordinary Basic per earnings share is calculated by dividing the profit attributable holdersto of equity the Company, excluding any earningspershare(i) Basic (y) Earnings per share equity. consideration paidincludingany attributableincremental directly costs (netofincome taxes) isrecognised in directly from andtheassociateddeducted equity shares are cancelled. Nogainorlossisrecognised intheprofit orlossandthe reacquires theentity If instruments, itsown equity for example astheresult ofashare buy Note 1. Summary of significant accounting policies (continued) units to which the development activity relates.units to whichthedevelopment activity The cashgenerating unitshallnot belarger than thearea of interest. the recoverable amount. For ofimpairmenttesting, thepurposes development assets are allocated to cash‑ Development assetsare amount exceeds assessedfor andcircumstances impairmentiffacts suggestthat thecarrying of economically recoverable reserves. forward exploration of carried and developmentAmortisation costs ischarged onabasisoverunit of production the life toIncome theextentthat theywillnotbe recoverable inthefuture. is reviewed at theendofeachaccounting andaccumulated period cost written off to the Statement of Comprehensive accumulated cost ofthat inrespect area the decisionismade. iswritten offinthefinancialperiod Each area of interest When an area 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 capable ofoperating inthemannerintended by management, are capitalised. Development costs are accumulated ofeachseparate inrespect area ofinterest. Costs associated with commissioning equipment. plant andequipment andanyto associated surface landandbuildingsare accounted for asproperty, plant and excavation, to that area expenditure ofinterest. development pertaining studiesandothersubsurface Costs related costs includepreviously capitalisedexploration andevaluation costs, pre on land, buildingsandplant andequipment iscapitalisedunderdevelopment expenditure. Development expenditure Once hasbeenestablishedascommercially amining project viableandtechnically feasible, expenditure otherthanthat (aa) Development expenditure Statement ofComprehensive intheyear Income inwhichthedecisionto abandonthearea ismade. costs inrelation to that area ofinterest. Accumulated costs inrelation to anabandonedarea are written offinfullthe ofeachareaA regular ofinterest review isundertaken to determine theappropriateness forward ofcontinuing to carry ofeconomicallyassessment recoverable oftheexistence orotherwise reserves. NOTES TO THE FINANCIAL STATEMENTS Licensing costs. Administration costs that are attributableto directly aspecific exploration area; and andfinance market Conducting studies; andinfrastructure requirements; transportation Surveying andexaminingDetermining thevalue andgrade oftheresource; drilling,Exploratory trenching andsampling; explorationGathering data through topographical, geochemicalandgeophysical studies; Researching andanalysing historical exploration data;

production development‑production costs, development back, thoseinstruments are‑back, generating 63 63 FORTESCUE METALS GROUP ANNUAL REPORT 2010 64 64 FORTESCUE METALS GROUP ANNUAL REPORT 2010 closure, provision ismadefor thepresent obligation orestimated outstandingcontinuous rehabilitation work at each Where rehabilitation to isexpected systematically beconducted over thelife oftheoperation, rather thanat thetimeof accordingly.amortised capitalised cost ofrehabilitation isrecognised activities in ‘Development Expenditure’ asrehabilitation assetsand capitalised asanasset, representingofthecost ofacquiring thefuture economic part benefitsoftheoperation. The effect ofdiscounting unwinds. When provisions for rehabilitation are initially recognised, the corresponding cost is relevant site, discounted to theirpresent value. The value oftheprovision isprogressively increased over timeasthe Rehabilitation provisions are initiallymeasured atvalue theexpected offuture cashflows required to rehabilitate the 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. (ab) Rehabilitation Note 1. Summary of significant accounting policies (continued) these new standards and interpretations issetoutbelow. and have periods reporting notyet beenappliedinthefinancial report. The Company’s of assessment oftheimpact newaccountingCertain standards and interpretations have for been publishedthat are 30June 2010 notmandatory New accounting(af) standards and interpretations rounded offinaccordance withthat ClassOrder to the nearest cases, thousand dollars, thenearest orin dollar.certain Commission, relating to the ‘rounding off’ Amounts ofamountsinthe financial inthefinancialhave been report report. The Company referred is ofakind to inClass order 98/100, issuedby the Australian andInvestments Securities (ae) Rounding of amounts whicharefinancing activities, disclosedasoperating cashflows. Cash flows are presented inthecashflow statement ona gross basis, except fortheGST component of investing and inthebalance sheet.asset orliability are shown inclusive ofGST. The netamount ofGSTrecoverable from, orpayable to, theATO isincludedasacurrent of anitem oftheexpense.the cost ofacquisition Receivables oftheassetoraspart andpayables inthebalance sheet incurred isnotrecoverable from theAustralian Tax Office (ATO). Inthesecircumstances of theGSTis recognised aspart Revenues, expenses andassetsare recognised netoftheamount ofassociated GST, except where theamount ofGST (ad) Goods and Services Tax (GST) astheyareIncome incurred. therefore costs stripping for production theseminesare notdeferred butcharged to theStatement ofComprehensive The Cloudbreak Creek andChristmas area ofinterest hasminimaloverburden to remove from thesealluvialmines, ofore. andcommencesstripping uponextraction Removal ofwaste material continues normally throughout thelife ofamine. isreferredThis activity to asproduction impairment assessments. costsstripping are considered incombination withother assets ofanoperation for ofundertaking thepurpose Capitalised development costs stripping are andproduction classifiedas ‘Development Expenditure’.Development area ofinterest. ofcapitaliseddevelopment costs stripping basisfor isdeterminedAmortisation onaunitofproduction eachseparate development ofthosecapitalisedcostsore. commences costs stripping ceases uponextraction andamortisation (inclusive ofan allocation ofrelevant overhead expenditure) are capitalisedasdevelopment costs. Capitalisation of to access themineral deposit. isreferredThis activity to asdevelopment stripping. The attributablecosts directly Overburden andotherminewaste materials are removed often theinitialdevelopment during ofamineinorder (ac) Deferred stripping accordingly. Changes to therehabilitation are liability from addedto ordeducted therelated rehabilitation assetandamortised estimates, changesto theestimated lives ofoperations, requirements newregulatory andrevisions to discount rates. dateAt therehabilitation eachreporting isre liability flows. balance sheetdate andthecosts charged to theStatement ofComprehensive inlinewithremaining Income future cash NOTES TO THE FINANCIAL STATEMENTS ‑measured to account for any newdisturbance, updated cost swap). It requiresswap). It againorlossto berecognised inprofit orlosswhichismeasured asthedifference between the by thedebtor isextinguished instruments issuingitsownthat to the liability equity thecreditor (debtfor equity AASB Interpretation theaccounting 19clarifies whenanentity renegotiates the ofitsdebtwiththe terms result Amendments to Australian Accounting Standards arisingfrom Interpretation 19(effective 1July2010) (ii) AASBInterpretationinstruments andAASB2009‑13 financialliabilitieswithequity 19Extinguishing AASB 9. 2013andthecompany isyetuntil 1 January to assessitsfullimpact. The Company hasnotyet decidedwhento adopt of financialassetsandislikely to affectthe company’s accounting foritsfinancialassets. Thestandard isnotapplicable NovemberIn 2009,theAASBissued9Financial whichaddresses Instruments theclassification andmeasurement (i) AASB9Financial Instruments Note 1. Summary of significant accounting policies (continued) • • • including thefollowing: may reserves affect Changes inreported Fortescue’s financial resultsandfinancialpositioninanumberof ways, geological data isgenerated thecourse during ofoperations, estimates may ofreserves changefrom to period period. theeconomicBecause assumptionsusedto estimate changefrom reserves to period period, andbecauseadditional requires theuseofreasonable investment assumptionsto calculate reserves. Code).Australasian Resources December 2004(JORC ofMineral Code andOre forReserves Reporting The Code JORC of 2.2Bt, whichincludes126milliontonnes (Mt)ofproved and1,459Mtofprobable reserves, asclassifiedunder sites, project theChichester Range FortescueIn hasestimated of1.625billion tonnes areserve (Bt) from aresource calculations to interpret thedata. geological datasamples. suchasdrilling This process may require complex anddifficultgeological judgements and and/or grade requires ofreserves thesize, shapeanddepthofore bodiesorfields to bedetermined by analysing costs, costs,production demand, commodity transports prices andexchange commodity rates. Estimating thequantity of geological, technical andeconomic factors, includingquantities, grades, techniques, production recovery rates, current mining tenements. order In to calculate reserves, estimates andassumptionsare required aboutarange are estimatesReserves from oftheamount that ofproduct canbeeconomically Fortescue’s andlegallyextracted estimates(i) Reserve financial statements. are made. Further detailsofthenature oftheseassumptionsandconditions may befound intherelevant notes to the Fortescue hasidentified the following accounting critical policiesunderwhichsignificant judgements andestimates assumptions andconditions. that are notreadily apparent from othersources. results Actual may differ from theseestimates underdifferent reasonable under thecircumstances, values ofassetsandliabilities theresults ofwhichform thebasisofcarrying evaluates itsjudgements and estimates basedonhistoricalitbelieves experience andonothervariousfactors to be assets,affect howliabilities, certain revenue, are period,expenses andequity management reported. At each reporting The preparation oftheconsolidated financialstatements requires management to makejudgements andestimates that Note 2. Critical accounting estimates and judgements None oftheotheramendments orinterpretations are to expected affectthefinancial resultsofthe Group. Fortescue (iii) EarlyadoptionofAASB2009-5 is onlyrequired ifsuchanamount isregularly provided to thechiefoperating decisionmaker. amended by theAASBinMay 2009by AASB2009‑5to that clarify disclosure oftotal segment assetsfor eachreportable availableThe to theelection FortescueadoptAASB2009‑5.Paragraph early Group hasundertaken 23ofAASB8was entered into any debtfor swaps since equity that date. only retrospectively appliedfrom presented thebeginning period oftheearliest (1July2009)andthecompany hasnot interpretation to isnotexpected have from 1July2010.It anyonthecompany’s impact financialstatements since itis instruments issued. andthefair value oftheequity value ofthefinancialliability carrying The company willapplythe NOTES TO THE FINANCIAL STATEMENTS The carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of tax benefits. charges are determined by basis, theunitsofproduction orwhere theusefuleconomic lives ofassetschange;and charges intheStatementDepreciation andamortisation ofComprehensive may Income changewhere such values may beaffected due Assetto changesinestimated carrying future cashflows; 65 65 FORTESCUE METALS GROUP ANNUAL REPORT 2010 66 66 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Statement ofComprehensive Income. activity, ajudgement ismadethat adevelopment assetisimpaired, theappropriate amount willbewritten off to the Any judgements may changeasnewinformation becomes available. If, having after commenced thedevelopment Judgement isappliedby management iscommercially indetermining whenaproject viableandtechnically feasible. commenceDevelopment commercial after activities andtechnical feasibility isestablished. viability oftheproject (iii) Development expenditure Income. of theexpenditure isunlikely, therelevant capitalisedamount willbewritten off to the Statement of Comprehensive becomes available. If, having after capitalisedtheexpenditure underthepolicy, ajudgement ismadethat recovery 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 Fortescue’s for accounting exploration policy andevaluation expenditure results inexpenditure beingcapitalisedfor (ii) Exploration andevaluation expenditure Note 2. Critical accounting estimates and judgements (continued) • • in linewithchangesthefollowing management estimates, prevailing conditions market and economic forecasts: amount ofthenote was reThe carrying • • are:conditions ofthefacility The Company putinplace aUS$100millionsubordinated loannote the2007financial during year. The key and terms (vi) Subordinated loannote valuation adjusting therehabilitation assetandprovision. available at thetime. Changesto theestimated future costs for operating sites are recognised inthebalance sheetby The provision recognised for eachsite reviewed isperiodically andcircumstances andupdated basedonthefacts 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 (v) Rehabilitation impairment would becharged againsttheStatement ofComprehensive Income. amount value oftheassets. suchcircumstances, oftheassetsmay In beimpaired andthe someorallofthecarrying future capitalexpenditure. Changesincircumstances willalter theseprojections, therecoverable whichmay impact and salesvolumes, prices, commodity (see reserves ‘reserve estimates’ above), operating costs, rehabilitation costs and The determination offairvalue andvalue inuserequires management to makeestimates production aboutexpected of fairvalue lesscosts to sellandvalue inuse. recoverable amount. The recoverable amount ofanassetorcashgenerating group ofassetsismeasured at thehigher of recoverable andanimpairmentlossisrecognised amount exceeds amount isperformed to theextentthat carrying toperiod determine whetherthere are any any indications ofimpairment. If suchindication exists, aformal estimate accordanceIn withFortescue’s accounting policy, eachassetorcashgenerating reporting unitisevaluated every (iv) Property, plant andequipment –recoverable amount NOTES TO THE FINANCIAL STATEMENTS resource analyst offuture sector iron ore prices; Future iron ore prices were updated to the reflect forecasts provided Limited,Pty Metalytics anindependent by (2009: forecast reaching amaximum95Mtpainthe12months to June2012); from Creek Christmas andCloudbreak reaching amaximumrunrate of90Mtpainthe12months to June2014 Production was revised to reflect Fortescue’s forecast profile production as levels at30June2010of production until payment ismade. butnotpayableearned dueto secured lenderrestrictions, theamount unpaidwillaccrue interest at 9.5percent The note isunsecured anddeeplysubordinated to any secured theevent debt. In that aninterest payment is tenement areas for of13years aperiod from 18August 2006;and interest isonlypayable whenFortescue andisonlyrelevant isinproduction to iron ore produced from these two iron ore FOBPort Hedlandfrom thetenements oftheCloudbreak Creek andChristmas areas only. Accordingly the Interest underthenote iscalculated asfour percent oftherevenue, netofgovernment royalties, from thesaleof ‑ estimated at 30June2010to US$826,240,000(30June2009:US$381,631,000) The carrying amount ofthefinancialassetsand liabilitiesinthetableaboveThe carrying isassumed to approximate their fair value. US$826.2 million is included in the non-current borrowingsUS$826.2 millionisincludedinthenon-current note. value re The explanation ofthecarrying • • • Note 2. Critical accounting estimates and judgements (continued) The company holdsthefollowing financialinstruments: exposed. or otherspeculative instruments. Fortescue usesdifferent methods to measure different risk typesof towhichitis swaps to hedge interest rate exposures. risk Derivatives are exclusively usedfor hedging purposes, i.e. notastrading performance. andseeks financial markets to minimisepotential adverse effectsonfinancial Fortescue uses interest rate Fortescue’s risk. creditprice risk), andliquidity risk overall management risk program focuses of ontheunpredictability Fortescue’s interestrisk, raterisk (includingcurrency risk and risks: market exposeoffinancial itto avariety activities Financial risks Fortescue’s competitiveness andflexibility. details regarding thesepoliciesareFurther setoutbelow. The overall oftheBoard objective isto setpoliciesthat seekto reduce asfarpossiblewithoutundulyaffecting risk Committee. managementof risk controls andprocedures, theresults ofwhichare to theAudit reported Management andRisk Committee isassisted initsoversight role by bothregular Audit. Internal andadhocreviews Audit Internal undertakes framework inrelation to faced therisks by theCompany andFortescue. Fortescue’s Audit Management andRisk Fortescue Group’s management risk policiesandprocedures management oftherisk andreviews theadequacy Fortescue’s AuditCommittee Management andRisk oversees how management monitors compliance withthe it reviews theeffectiveness oftheprocesses putinplace andtheappropriateness andpoliciesitsets. oftheobjectives The AuditCommittee Management andRisk receives asrequired reports from theChiefFinancial through Officer which that ensure theeffective implementation andpolicies Management oftheobjectives to the Risk Committee.Audit and whilst retaining ultimate responsibility for for them,it has delegated theauthority designing andoperating processes The Board hasoverall responsibility for thedetermination ofFortescue’s management andpolicies, risk objectives and General objectives, policiesandprocesses them. Further quantitative information ispresented oftheserisks inrespect throughout thesefinancialstatements. note Fortescue’s describes objectives, policiesandprocesses for managing andmethodsusedto thoserisks measure common withallotherbusiness,In Fortescue isexposed to thatfrom risks arise itsuseoffinancialinstruments. This Note 3. Financial risk management NOTES TO THE FINANCIAL STATEMENTS Derivatives heldat fairvalues Trade andotherpayables Borrowings Financial liabilities Financial assets Trade receivables Cash andcash equivalents Financial assets The total estimate reserve ofCloudbreak Creek and Christmas hasnotchangedsince 30June2009. Western Australian State Government; and royaltyExpected rates have notchangedsince current 30June2009andreflect royalty rates payable to the subordinated loannote; The discount rate hasbeenappliedsince inception theimplicitinterest andreflects rate of42per cent ofthe ‑ estimation ofthesubordinated loannote from US$381.6millionto 3,764,854 2,975,663 1,492,207 1,235,538 US$’000 772,906 256,574 16,285 Consolidated 2010 95

3,290,389 2,570,305 US$’000 688,687 836,996 182,023 654,942 31,397

2009 31 67 67 FORTESCUE METALS GROUP ANNUAL REPORT 2010 68 68 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Foreign exchange from arises risk future commercial andrecognised transactions assetsandliabilities denominated received, trade receivables andborrowings. to withrespect theAustralianprimarily dollarandEuro. Fortescue oncashreserves, risk deposits isexposed to currency Fortescue operates internationally andisexposed to foreign exchange exposures from arising risk variouscurrency Fortescue. settle them)cashalready denominated will, inthat where currency possible, betransferred from otherentities within (andhave currency to ofthat insufficient currency otherthantheirfunctional denominated reserves inacurrency withthecashgenerated(US Dollar) from theirown operations inthat currency. Where group entities have liabilities Fortescue’s is, where policy possible, to allow group entities to currency settleliabilitiesdenominated intheirfunctional (i) Foreign exchange risk rate foreign risk), exchange (otherprice risk). factors orothermarket rates risk) (currency the fairvalue offuture cashflows ofafinancialinstrument becauseofchangesin willfluctuate interest rates (interest from arises risk Fortescue’sMarket useofinterest andforeign bearing risk thatIt isthe financialinstruments. currency (a) Market risk Note 3. Financial risk management (continued) out below: amounts ofthegroup’sThe carrying financialassetsandliabilitiesare denominated inthree different currencies asset exposed to foreign exchange risk. forecasting. Fortescue hasnotentered into any forward exchange contracts asat 30June2010andiscurrently fully that isnottheentity’sin acurrency currency. functional The ismeasured analysis risk andcashflow usingsensitivity NOTES TO THE FINANCIAL STATEMENTS Financial assets Trade andotherreceivables Cash andcashequivalents Financial assets Financial assets Trade andother receivables Cash andcash equivalents Financial assets Total financialliabilities Derivative held at fair values Trade andotherpayables Borrowings Financial liabilities Total financialassets Total financialliabilities Derivative heldat fairvalues Trade andotherpayables Borrowings Financial liabilities Total financial assets 2,865,252 1,135,511 2,402,241 2,477,175 2,021,242 US$'000 US$'000 243,114 101,360 141,754 371,792 172,479 963,032 349,602 16,285 31,397 USD USD - - US$'000 US$'000 521,445 330,730 456,894 548,846 249,561 485,663 401,114 120,331 339,085 114,809 63,152 81,074 30 June2010 30 June2009 AUD AUD 95 31 - - US$'000 US$'000 378,157 434,254 378,157 434,254 25,966 44,036 22,945 17,511 26,525 EURO EURO 3,021 ------1,235,538 3,764,854 2,975,663 1,492,207 3,290,389 2,570,305 US$'000 US$'000 654,942 772,906 256,574 688,687 836,996 182,023 16,285 31,397 Total Total 95 31 exposed to commodity price risk. Fortescue’sexposed to price risk. commodity exposure date to atwas price risk thereporting asfollows: commodity index. Fortescue hasnotentered into any price forward contracts commodity asat 30June2010andiscurrently fully The Fortescue Group Contract iron isexposed to price ore risk. commodity prices are basedonaninternational iron ore (ii) Commodity price risk Note 3. Financial risk management (continued) minimises cashflow interest raterisk. All borrowings otherthantheUS$250millionseniorsecured floating rate notes are issued at fixed interest rates which immediately.Income The gainor lossfrom thehedging measuring instrument at fairvalue isrecognised intheStatement ofComprehensive the dates onwhichinterest ispayable seniorsecured ontheunderlying notes. The contracts are settledonanetbasis. The contract requires settlement ofnetinterest receivable orpayable each90days. The settlement dates coincide with oftheinterestAt rate amountofexpiry 30June2010,thenotionalprincipal andperiod swap contract isasfollows: per cent andthe variableinterest rate isbasedonthree month LIBOR. which itisobligedto receive interest at variablerates andto pay interest at fixed rates. The fixed interest rate is at five from exposure to increasing interest rates. Accordingly, Fortescue has entered into interest rate swap contracts under US$250 millionoftheseniorsecured isdenominated notes facility infloating to protectrate notes.It ispolicy Fortescue Interest rate swap contract ‑seniorsecured notes An analysis by maturitiesisprovided in(c)below. 2011 andthesubordinated loannote) and interest rate swap contracts outstanding: date,As at reporting Fortescue hadthefollowing variablerate borrowings (US$250millionseniorsecured notes due inherent insuchamarket. Fortescue invests cashinterm depositsand indoingsoexposesinterest surplus itselfto thefluctuations rates that are currently hasa floating‑to use offixed rate instruments or to mitigaterisk through the theuseoffloating‑to isFortescue’sIt eitherto eliminate interest policy rate over risk thecashflows onitslong‑term debtfinance through the Interest rate risk (iii) Cash flow andfair value interest rate risk NOTES TO THE FINANCIAL STATEMENTS Trade receivables Subordinated loannote 1 -2years Net exposure to cashflow interest raterisk Interest rate swaps Borrowings -seniorsecured notes Borrowings -subordinated loannote Consolidated ‑fixed interest rate swap over itsUS$250millionseniorsecured notes duein2011. 30 June2010 1,093,472 (826,240) US$’000 US$’000 US$’000 158,992 250,000 250,947 826,240 16,285 ‑fixed interest rate swaps. Fortescue Consolidated 2010 2010 30June2009 (381,631) US$’000 US$’000 US$’000 109,163 250,000 666,111 253,083 381,631 31,397 2009 2009 69 69 FORTESCUE METALS GROUP ANNUAL REPORT 2010 70 70 FORTESCUE METALS GROUP ANNUAL REPORT 2010 rate risk, foreignrate risk, exchange andotherprice risk. risk The following of the Fortescue the sensitivity table summarises Group’s financial assets and financial liabilities to interest iron ore prices. term rates; itsforeign exchange isto risk theAustralian andEuro Dollar rates dueto spot isprimarily andotherprice risk to rates. market its sensitivity The Company’s maininterest rate exposures are to LIBORand Australian USDollar short The Company ranges period to estimate ofrateover hasusedtheactual observed the andprice fluctuations reporting analysis(iv) Summarisedsensitivity Note 3. Financial risk management (continued) including outstanding receivables andcommitted transactions. derivative financialinstruments, depositswithbanksandfinancialinstitutions and credit exposures tocustomers, contractual obligations resulting infinancialloss to Credit fromFortescue. risk arises cashandequivalents, Credit ismanagedonaconsolidated risk basis. Credit refers risk willdefaultonits to that therisk a counterparty (b) Credit risk NOTES TO THE FINANCIAL STATEMENTS (decrease) increase/ Total value held at fair Derivatives payables and other Trade Borrowings Financial liabilities assets Financial receivables and other Trade equivalents and cash Cash Financial assets (decrease) increase/ Total value held at fair Derivatives payables and other Trade Borrowings Financial liabilities assets Financial receivables and other Trade equivalents and cash Cash Financial assets 30 June 30 June 2009 2010 Carrying Carrying Carrying 2,975,663 1,235,538 2,570,305 US$’000 US$’000 amount amount 688, 687 182,023 654,942 772,906 256,574 31,397 16,285 31 95 US$’000 US$’000 Profit Profit (3,275) (3,089) (3,089) (3,275) (1,250) 1,250 (625) 625 ‑50 bps ‑25 bps ------US$’000 US$’000 equity equity Other Other Other Interest rate risk Interest rate risk ------US$’000 US$’000 Profit Profit (1,250) 3,275 1,250 3,275 3,089 3,089 (625) 625 +50 bps +25 bps ------US$’000 US$’000 equity equity Other Other Other ------US$’000 US$’000 (27,251) (43,098) Profit Profit (8,330) (3,921) (6,452) 28,900 16,370 54,370 40,111 49,849 (10) (1) ‑10% ‑5% - - Foreign exchange risk Foreign exchange risk US$’000 US$’000 equity equity Other Other Other Other ------US$’000 US$’000 (28,900) (16,730) (54,370) (40,111) (49,849) Profit Profit 27,251 43,098 8,330 3,921 6,452 10 +10% 1 +5% - - US$’000 US$’000 equity equity Other Other Other Other ------US$’000 US$’000 (63,596) (10,916) 199,152 262,786 Profit Profit 20,201 31,120 (38) (3) ‑40% ‑10% ------US$’000 US$’000 equity equity Other Other Other Other Other price risk Other Other price risk Other ------US$’000 US$’000 (199,152) (262,786) Profit Profit (20,201) (31,120) 63,596 10,916 +40% +10% 38 3 ------US$’000 US$’000 equity equity Other Other Other Other ------liabilities are analysed below: profilesThe maturity below are undiscounted. profile maturity ofThe expected andthe Company’s Fortescue financial contractual undiscounted cash flows. datethe remaining date. atto period thereporting thecontractual maturity The amounts disclosedinthetableare the The tablesbelow analyse Fortescue andtheCompany’s financialliabilitiesinto relevantgroupings maturity basedon Maturities offinancialliabilities The Fortescue Group isfullydrawn ontheirborrowing facilitiesasat 30June2010and2009. Financing arrangements cashflows.and actual adequate amount of committed credit facilities. Fortescueby risk continuously managesliquidity monitoring forecast Prudent management risk impliesmaintaining sufficient cashandthe liquidity offundingthrough availability an (c) Liquidity risk impairment lossonthesereceivables. Fortescue hasnoreceivables pastdueasat 30June2010(2009:$nil),nordoesitconsider there to beany potential determined by theBoard. approximately 95percent ofthevalue ofiron ore shipped, thereby reducing credit to risk anacceptable level as its creditintheform inmostcasesby ofletters risk obtainingsecurity ofcredit to prior shiploadingcovering in thePrincipal Financial ofthisnote. section For Instruments trade commodity receivables Fortescue mitigates The amount maximumexposureofthefinancialassetsassummarised to date credit atisthecarrying risk thereporting Fortescue hasnotrecognised any baddebtexpense inthe2010or2009financial 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 beingChinesecompanies. Note 3. Financial risk management (continued) NOTES TO THE FINANCIAL STATEMENTS swaps) Net settled(Interest rate Derivatives Total non‑ Fixed rate Variable rate Non‑interest bearing Non‑ At 30June2009 Interest rate swaps Derivatives Total non‑ Fixed rate Variable rate Non‑interest bearing Non‑ At 30June2010 derivatives derivatives derivatives derivatives Less than6 Less than6 US$’000 US$’000 months months 554,113 381,885 812,033 182,377 530,118 86,409 85,819 99,538 3,988 2,429 US$’000 US$’000 months months 6 ‑12 6 ‑12 178,194 208,444 105,141 85,172 50,222 42,800 97,303 4,320 8,023 6,000 Between Between US$’000 US$’000 1 and2 1 and2 years years 365,860 171,671 113,989 756,040 199,948 471,274 80,200 84,818 9,591 5,833 Between Between US$’000 US$’000 2 and5 2 and5 1,971,907 1,018,669 1,402,476 1,028,607 years years 769,436 183,802 192,956 180,913 13,498 - US$’000 US$’000 2,559,952 1,442,121 1,117,831 3,917,762 2,345,686 1,572,076 Over 5 Over 5 years years - - - - contractual contractual cash flowscash flowscash US$’000 US$’000 5,630,026 2,804,042 2,137,297 7,096,755 2,943,269 3,351,637 Total Total 688,687 801,849 31,397 16,285 liabilities liabilities Carrying Carrying US$’000 US$’000 (assets)/ (assets)/ Amount Amount 3,290,389 1,966,988 3,801,238 1,922,203 1,077,186 634,714 688,687 801,849 31,397 16,285 71 71 FORTESCUE METALS GROUP ANNUAL REPORT 2010 72 72 FORTESCUE METALS GROUP ANNUAL REPORT 2010 was asfollows: covenants the 2010or2009financial during years. Fortescue’s at 30June2010and2009 capitalmanagement portfolio There were nochangesinFortescue’s approach to capitalmanagement theyear. during Fortescue hasnotbreached any borrowings offered andtheadvantages andsecurity by asoundcapitalposition. The Board seeksto maintain abalance between thehigherreturns that might bepossiblewithhigher levels of accumulated losses, subordinated loan notes and seniorsecured notes. for shareholders itsequity through capitalgrowth. Fortescue share considers itscapitalto capital, comprise itsordinary managing itscapital,In Fortescue’s isto objective ensure itscontinued to provide ability primary aconsistent return (e) Capital management in level 3. a valuation technique for inputs, theseinstruments is based onsignificantsuchinstruments are unobservable included present value oftheestimated future cashflows. These instruments are includedinlevelInthecircumstances 2. where to determine fairvalue for theremaining financialinstruments. The fair value ofinterest rate swaps iscalculated asthe value for long‑term debtfor disclosure techniques, purposes. Other suchasestimated discounted cashflows, are used period. prices Quoted ordealerquotes market forend ofeachreporting similarinstruments are used to estimate fair The Company ofmethodsandmakesassumptionsthat are usesavariety conditions basedonmarket existing at the The fairvalue of financial instruments that are isdetermined nottradedusing market valuation inanactive techniques. price usedfor financialassetsheld by the Company isthecurrent bidprice. These instruments are includedinlevel 1. available The fairvalue offinancialinstruments (suchaspubliclytraded traded markets derivatives, inactive andtrading and Comparative information hasnotbeenprovided aspermitted by thetransitional provisions ofthenewrules. The following tablepresents thegroup’s assetsandliabilitiesmeasured andrecognised at fairvalue at 30June2010. inputs)(level 3). data market (unobservable (c)inputsfor that are theassetorliability notbasedonobservable (derived (asprices) orindirectly directly from prices) (level 2);and (b) inputsotherthanquoted prices includedwithinlevel for 1that are theassetorliability, observable either (a)quoted prices for (unadjusted) markets inactive identical assetsorliabilities(level 1); hierarchy: Disclosures whichrequires disclosure offairvalue measurements by level ofthefollowing fairvalue measurement As of1July2009,Fortescue Group Metals Limited hasadopted theamendment to AASB7Financial Instruments: inorderbenchmark to determine thefairvalue oftheseborrowings. nature ofFortescue’s subordinated loannote, there isnocomparable instrument againstwhichFortescue can value oftheseniorsecured notes isacloseapproximationcarrying oftheirfairvalue. However, dueto theunique 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 Note 3. Financial risk management (continued) NOTES TO THE FINANCIAL STATEMENTS Total liabilities Derivatives held at fair value Borrowings Liabilities Total assets - Equity securities -Equity Available Assets Group ‑asat 30June2010 ‑for ‑for sale securities) is based on quoted market prices at the end of the reporting period. isbasedonquoted prices‑sale securities) at market theendofreporting The quoted market ‑sale financialassets

US$’000 Level 1 95 95 - - - US$’000 842,525 826,240 Level 2 16,285 - - US$’000 Level 3 - - - - - US$’000 842,525 826,240 16,285 Total 95 95 Note 3. Financial risk management (continued) related shipment ofproduct. Revenue from onecustomer amounted to from US$308million(2009:US$121million),arising thesaleofiron ore and customerMajor information location ofcustomers. assets. presenting In information onthebasisofgeographical segments, segment revenue isbasedonthegeographical Fortescue operates predominantly inthegeographical location ofAustralia, andthisisthelocation ofallsegment Geographical information No operating segments have beenaggregated to form theabove operating segment. reportable oftheoperating segments,performance hasbeenidentified astheChiefExecutiveOfficer. decision maker. The chiefoperating decisionmaker, who isresponsible for allocating resources andassessing Operating segments are inamannerconsistent reported provided withtheinternal reporting to thechiefoperating Note 4. Segment information dueto higheroperatingequity profit. The ratio inthegearing 2010resulted reduction during from primarily anincrease incashandequivalents and Note 5. Revenue NOTES TO THE FINANCIAL STATEMENTS Total capital Total equity Net debt Less cashandequivalents Total borrowings Sale of third party product ofthirdSale party Shipping revenue ofironSale ore comprehensive income Total revenue from external customers statement per of Other China Revenues from external customers ratioGearing 3,220,062 3,113,779 3,220,062 2,575,670 US$’000 US$’000 106,283 592,754 51,638 Consolidated Consolidated 2010 2010 (1,235,538) 3,216,790 1,476,665 1,740,125 2,975,663 US$’000 Consolidated 2010 54% 1,828,598 1,569,530 1,828,598 1,792,166 2,766,055 1,915,363 2,570,305 (654,942) US$’000 US$’000 US$’000 259,068 850,692 36,432 2009 2009 2009 69% - 73 73 FORTESCUE METALS GROUP ANNUAL REPORT 2010 74 74 FORTESCUE METALS GROUP ANNUAL REPORT 2010

Note 6. Other income negotiated settlements for longterm CFRcontracts andaprovision for acontract dispute that isyet to besettled. Shipping costs includeanamount ofUS$58.8million(FY2009:US$130.2million)that relates to anallowance for Note 7. Expenses NOTES TO THE FINANCIAL STATEMENTS Debt forgivenDebt ondepositsreceived Profit ondebtbuyback access port Third party Net gainondisposalproperty, plant andequipment Interest rate swaps income Other Interest received Accomodation costs on‑ Debt establishmentDebt costs Other Interest expense ondepositsreceived Interest rate swaps Interest expense ‑preference shares Interest expense ‑seniorsecured notes Interest expense ‑subordinated loannote Finance costs administration expenses Other Legal costs Share basedpayments expense Wages andsalaries, includingsuperannuation Administration expenses ofdevelopment expenditureAmortisation ofintangible assets Amortisation Depreciation of property, plant andequipment Depreciation expense andamortisation Purchases product ofthird party Government royalty Shipping costs Operating leases Port costs costs Rail costs Mining Operating expenses Net gainsandexpenses Lease income onfacilities charged to third parties 1,972,378 US$’000 US$’000 394,215 201,207 164,623 153,174 150,558 612,267 141,552 101,238 867,375 84,085 18,909 38,405 10,090 10,911 24,705 11,118 71,302 80,298 28,697 70,691 Consolidated Consolidated 8,998 3,613 8,285 5,875 5,904 1,480 3,892 1,771 7,924 1,574 2010 2010 - - - - 1,261,850 US$’000 US$’000 490,945 197,998 258,706 490,053 104,107 470,636 38,956 11,544 20,574 34,620 18,278 88,846 52,547 35,946 88,331 48,304 60,419 2,906 6,928 2,355 4,370 9,884 4,358 9,309 8,899 1,399 6,044 2009 2009 879 353 90 - - - - consolidation legislation. The inrelation accounting to policy thislegislation issetoutinNote 1(g). Fortescue Group Metals Limited anditswholly (c) Tax consolidation legislation recognised ascurrent intercompany receivables orpayables. payment ofinterim fundingamounts to assistwithitsobligations to pay taxinstalments. The fundingamounts are head entity, theendofeachfinancial after year. whichisissuedassoonpracticable mayThe headentity also require The amounts receivable/payable underthetaxfundingagreement are dueuponreceipt ofthefundingadvice from the 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 taxassets relating to unusedtaxlosses orunusedtaxcredits 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, limits thejoint andseveral ofthewholly liability On adoptionofthetaxconsolidation legislation, theentities inthetaxconsolidated group entered into ataxsharing Note 8. Income tax expense Cash and cash equivalents Note 9. Current assets - NOTES TO THE FINANCIAL STATEMENTS Tax Losses previously notrecognised translation ontaxbase Effectofcurrency Adjustment for ‑current periods prior tax Investment allowance Research anddevelopment Share based payments non‑ Sundry Taxcalculating in ofamounts taxableincome: effect whichare notdeductible/(taxable) Tax at theAustralian taxrate of30%(2009‑30%) Profit from continuing operations before income tax expense (b) Numerical reconciliation of income tax expense to prima facie tax payable Adjustments for current periods taxofprior Deferred tax Current tax (a) Income tax (benefit)/expense Cash at bank Cash onhand deductible/(deductible) expenses deductible/(deductible)

‑ owned Australian controlled entities have implemented thetax ‑ owned entities’ financialstatements. ‑ owned entities fullycompensate 1,235,538 1,235,530 (173,753) US$’000 US$’000 (26,709) 579,176 (1,417) (1,770) (1,770) 24,939 83,413 61,523 26,709 Consolidated Consolidated 5,798 (503) 2010 2010 8 - - ‑ owned entities inthe (198,588) (153,918) US$’000 US$’000 (23,638) 661,960 153,918 120,451 654,942 654,921 16,740 57,105 23,638 1,261 3,440 (409) 2009 2009 21 - - 75 75 FORTESCUE METALS GROUP ANNUAL REPORT 2010 76 76 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Note 3. Due to the short term natureNote ofthesereceivables, tovalue 3.Due isassumedto theshort approximate theircarrying theirfairvalue. Information aboutFortescue anditsexposure to interest foreign risk, rate are currency andprice risk risk disclosedin US$683.5 million) Inventories recognised theyear asexpense during ended30June2010amounted to US$1,168.4million (2009: Trade and other receivables Note 10. Current assets - Receivables Note 14. Current assets - Other current assets Note 13. Current assets - Other financial assets Note 12. Current assets - Inventories Note 11. Current assets - NOTES TO THE FINANCIAL STATEMENTS Other receivablesOther deposits Security GST receivables Trade debtors Loan receivable Receivables from saleandleasebacktransactions Amounts heldpendingarbitration ofshippingcontracts Prepayments Listed investments -at fairvalue ‑atIron ore cost stockpiles materialsRaw andstores ‑at cost

US$’000 US$’000 US$’000 US$’000 US$’000 268,745 158,992 188,291 136,532 51,759 84,993 16,048 Consolidated Consolidated Consolidated Consolidated Consolidated 8,712 3,878 1,030 2,848 8,881 8,881 2010 2010 2010 2010 2010 95 95 - US$’000 US$’000 US$’000 US$’000 US$’000 183,189 109,163 121,122 25,500 56,119 14,678 13,512 10,728 95,622 3,229 2,657 1,498 1,498 2009 2009 2009 2009 2009 127 31 31 Note 15. Non-current assets - Property, plant and equipment comprehensive income asthere was noamount includedin theassetrevaluation relating surplus to theassets. The impairmentlossrelates assets nolongerinuse. to certain The wholeamount was recognised inthestatement of (a) Impairment loss NOTES TO THE FINANCIAL STATEMENTS Impairment Impairment amount net book Opening Year ended30June2010 amount Net book depreciation Accumulated Cost At 30June2009 amount net book Closing charge Depreciation Disposals Additions amount net book Opening Year ended30June2009 amount Net book depreciation Accumulated value Cost orfair At 30June2010 amount net book Closing charge Depreciation depreciation accumulated Transfer of cost assets at Transfers of Disposals Additions loss buildings Land and Land US$’000 102,621 (7,337) (4,749) (2,581) (7,696) 87,821 95,158 87,821 229 229 236 229 232 (3) (7) (3) - - - equipment Plant and 1,266,951 1,360,925 1,266,951 1,367,027 US$’000 (93,974) (66,873) (33,033) (17,098) (1,629) (3,646) 14,954 3,603 3,603 7,249 3,603 4,342 (807) 68 - fittings and equipment Furniture, US$’000 2,872 3,735 2,872 3,872 (184) (137) (863) (679) ------US$’000 vehicles Motor (22) (83) (32) (51) 147 118 140 (7) 96 57 57 96 96 ------Leasehold improve- US$’000 (1,522) (1,510) ments 1,927 3,449 1,927 3,606 (156) (13) ------Assets under construction US$’000 (90,396) 274,533 274,533 274,533 547,796 547,796 547,796 363,659 274,533 274,533 ------equipment Computer US$’000 (8,249) (6,455) (1,611) (1,473) 12,722 12,721 1,611 4,473 4,473 (187) (320) 138 325 138 138 - - - - Infrastructure (1,399,451) 1,399,452 1,363,320 1,284,875 1,363,320 1,363,320 (239,951) US$’000 (34,927) (36,132) 353,323 36,131 assets ------1,683,228 1,641,919 1,289,892 1,911,897 2,023,925 1,911,897 1,641,919 1,641,919 (239,951) (112,028) US$’000 (35,946) (80,298) (24,794) (41,309) 627,924 378,613 (3,543) Total - - 77 77 FORTESCUE METALS GROUP ANNUAL REPORT 2010 78 78 FORTESCUE METALS GROUP ANNUAL REPORT 2010 its value inuse(discounted cashflows). The recoverable amount ofdevelopment expenditure isdetermined asthehigherofitsfairvalue lesscosts to selland development andcommercial exploitation, oralternatively, saleoftherespective areas ofinterest. The recoverabilityamount oftheexploration andevaluation assetsisdependent onsuccessful ofthecarrying and mine properties Note 16. Non-current assets - Exploration and evaluation, development Deferred tax assets Note 17. Non-current assets - (b) Development expenditure (a) Exploration and evaluation NOTES TO THE FINANCIAL STATEMENTS Net deferred tax assets Set Total deferred taxassets Exploration andevaluation Inventories Development Property, plant andequipment Revenue taxlosses items Other Business related costs Provisions Accruals Subordinated loannotes securedSenior notes Borrowing costs Net unrealised foreign exchange gains The balance comprises differences temporary attributable to: Net development expenditure Accumulated Depreciation Development expenditure at cost Balance as at 30 June ofdevelopment expenditureAmortisation Transfer from intangible assets Transfer from exploration Additions ofrehabilitation assets Expenditure Balance as at 1 July Balance asat 30June Less: expenditure transferred to development properties Expenditure incurred Balance asat 1July ‑ off ofdeferred taxliabilitiespursuant to set

‑ off provisions (note 24)

1,423,222 1,512,017 1,636,831 1,512,017 (481,854) (124,814) US$’000 US$’000 US$’000 (71,302) 159,277 121,965 603,819 208,668 247,872 29,496 17,607 11,889 58,068 30,258 31,293 12,486 Consolidated Consolidated Consolidated 6,045 1,061 1,912 5,564 2010 2010 2010 519 820 73 - - - -

1,046,219 1,423,222 1,476,734 1,423,222 (212,254) US$’000 US$’000 US$’000 (53,512) (52,547) 375,121 120,195 332,449 194,636 (2,168) 52,261 11,889 11,267 38,917 77,424 13,614 2,790 1,756 5,309 2,168 2009 2009 2009 793 ------Note 17. Non-current assets - Deferred tax assets (continued)

Movements - Consolidated Movements - Consolidated Movements - Consolidated NOTES TO THE FINANCIAL STATEMENTS Revenue taxlosses items Other Business related costs Provisions Accruals Subordinated loannote securedSenior notes Borrowing costs Inventories Property, plant andequipment Deferred to taxassetsexpected berecovered within12months Closing balance at 30June Charged to equity Credited/(charged) to the statement of comprehensive income (note 8) Opening balance at 1July Net unrealised foreign exchange gains/losses Development Exploration expenditure Revenue tax losses items Other Business related costs Provisions Subordinated loannote securedSenior notes Net unrealised foreign exchange gains/losses Property, plant andequipment Deferred tax assets expected to be recovered after more than 12 months 1 July2008 1 July2009 US$'000 US$'000 Balance Balance 332,449 194,636 483,121 357,452 31,394 38,917 77,424 13,614 88,603 1,756 5,309 1,077 3,871 793 245 479 ------Recognised Recognised in profit or in profit or (151,234) (280,028) US$'000 US$'000 (31,394) 271,370 170,448 106,033 (7,624) (1,128) (5,309) 14,032 30,258 58,068 37,840 4,289 1,912 5,564 5,309 1,511 9,743 (248) loss loss 268 519 73 US$’000 603,819 375,682 228,137 603,819 271,370 332,449 Consolidated 2010 Recognised Recognised in equity in equity US$'000 US$'000 - 562 562 ------(151,234) US$'000 US$'000 Balance Balance 30 June 30 June US$’000 603,819 208,668 247,872 332,449 194,636 332,449 286,467 332,449 483,121 45,982 31,293 12,486 30,258 58,068 38,917 77,424 13,614 6,045 1,061 1,912 5,564 5,309 1,756 2009 2010 2009 519 793 562 73 - - 79 79 FORTESCUE METALS GROUP ANNUAL REPORT 2010 80 80 FORTESCUE METALS GROUP ANNUAL REPORT 2010 found inNote 3. All borrowings are interest bearing. Fortescue Information about andtheCompany’s exposure to interest rate riskcan be settlement remaining onthecontract. Fortescue hasaccrued anamount for outstandingat 30June2010that theoutstandingpotential reflects theliability and Consecutive Voyage. At 30June2010,theCompany hadnegotiated settlements for allbutoneofthesecontracts. On 5December 2008,Fortescue exercised suspensionofallits10longterm CFRshippingContracts ofAfreightment Borrowings Note 20. Current liabilities - Trade and other payables Note 19. Current liabilities - Note 18. Non-current assets - Intangible assets NOTES TO THE FINANCIAL STATEMENTS Total current borrowings Total unsecured current borrowings Subordinated loannote Unsecured Total secured current borrowings Preference shares securedSenior notes Secured payables andaccrualsOther Trade payables Net bookamount Accumulated andimpairment amortisation Computer ‑at cost software At 30June2010 Closing netbookamount Amortisation Transfer to development Opening netbookamount Year ended30June2010 Net bookamount Accumulated amortisation Computer ‑at cost software At 30June2009 Closing netbookamount Amortisation Additions ‑at cost Opening netbookamount Year ended30June2009

US$’000 US$’000 466,761 255,306 255,306 211,455 200,716 406,114 343,094 10,739 63,020 Consolidated Consolidated 2010 2010 Computer software US$’000 US$’000 US$’000 319,823 103,359 103,359 216,464 206,240 339,085 284,042 (1,574) (1,948) 22,750 25,144 25,144 25,518 25,144 25,518 10,224 55,043 22,750 24,698 (820) (374) (374) 2009 2009 - NOTES TO THE FINANCIAL STATEMENTS Information abouttheFortescue Group’s exposure foreign to credit risk, exchange isprovided andprice risk inNote 3. exposureRisk

Current Note 21. Derivative at fair value - Borrowings Note 23. Non-current liabilities - Trade and other payables Note 22. Non-current liabilities - Interest rate derivative heldat fairvalue Total borrowings borrowingsNon-current Current borrowings Total non‑ Total unsecured non‑ Subordinated loannote Unsecured Total secured non‑ Preference shares securedSenior notes Secured receivedDeposits current borrowings current borrowings current borrowings

2,975,663 2,508,902 2,508,902 1,937,968 1,828,376 US$’000 US$’000 US$’000 US$’000 371,792 466,761 570,934 570,934 109,592 16,285 16,285 Consolidated Consolidated Consolidated Consolidated 2010 2010 2010 2010 2,570,305 2,250,482 2,250,482 1,972,210 1,867,625 US$’000 US$’000 US$’000 US$’000 349,602 319,823 278,272 278,272 104,585 31,397 31,397 2009 2009 2009 2009 81 81 FORTESCUE METALS GROUP ANNUAL REPORT 2010 82 82 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Note 23. Non-current liabilities - Borrowings (continued) • • with changesinthefollowing management estimates, prevailing conditions market andeconomic forecasts: amount ofthenote was reThe carrying • • are:conditions ofthefacility The Company putinplace aUS$100millionsubordinated loannote the2007financial during year. The key and terms Limited (a) Subordinated loan note (through its wholly owned subsidiary Chichester Metals Pty NOTES TO THE FINANCIAL STATEMENTS Interest expense Recognition ofissuepreference shares Charged/(credited) to profit orloss Balance at 1July2008 2009 Balance as at 30 June2010 shares Interest repayments inform ofordinary Foreign exchange (gain)/loss buyback Debt Adjustment for changeinestimate Interest repayments Interest expense Recognition ofissuepreference shares Balance at 1July 2009 2010 Balance asat 30June2009 Foreign exchange (gain)/losses buyback Debt Adjustment for changeinestimate Interest repayments resource analyst offuture sector iron ore prices; Future iron ore prices were updated to reflect forecasts provided Limited beinganindependentPty Metalytics by (2009: forecast reaching amaximum95Mtpainthe12months to June2012); from Creek Christmas andCloudbreak reaching amaximumrunrate of90Mtpainthe12months to June2014 Production was revised to reflect Fortescue’s forecast profile production as levels at30June2010of production interest rate until payment ismade. butnotpayableearned dueto secured lenderrestrictions, theamount unpaidwillaccrue interest at amarket The note isunsecured anddeeplysubordinated to any secured theevent debt. In that aninterest payment is tenement areas for of13years aperiod from 18August 2006;and interest isonlypayable whenFortescue andisonlyrelevant isinproduction to iron ore produced from these two iron ore FOBPort Hedlandfrom thetenements oftheCloudbreak Creek andChristmas areas only. Accordingly the Interest underthenote iscalculated asfour percent oftherevenue, netofgovernment royalties, from thesaleof ‑ previously FMG Chichester Pty Limited) ‑ estimated at 30June2010to US$826,240,000(2009:US$381,631,000)inline Preference

US$’000 (10,707) 114,809 114,809 120,331 shares (5,071) 13,579 96,992 10,911 9,309 5,318 ------Subordinated (1,124,411) loan note 1,247,336 US$’000 381,631 381,631 258,706 826,240 279,986 164,623 ------Senior securedSenior 2,073,865 2,073,865 1,589,299 2,029,092 (186,998) (193,254) US$’000 (81,197) (52,726) 554,763 197,998 201,207 note ------(1,124,411) 2,570,305 2,570,305 2,836,635 2,975,663 (192,069) (193,254) US$’000 (81,197) (10,707) (47,408) 568,342 466,013 279,986 376,741 96,992 Total - - 2006) Pty Limited (b) Senior secured notes (through its wholly owned subsidiary FMG Resources (August • • • Note 23. Non-current liabilities - Borrowings (continued) equal to the Redemption Amount, in priority toequal to any Amount, theRedemption inpriority behindit. other classofshares ranking The Preference Shares confer upontheholder therightinawindinguporreturn ofcapitalto payment ofanamount inaccordancedistributions withtheseterms. beyond Amount. itsRedemption The Preference to Shares FMG’s rank inpriority shares for ordinary thepayment of Fortescue. AholderofPreference Shares isnotentitled to share ofany inthedistribution assetsoftheCompany surplus shareholders thereordinary isnotarightfor preferential shareholders to share intheresidual interests oftheassets on 30September2008. These preference shares have beenrecognised asdebtin thefinancialstatements asunlike The Company issued1,400fullypaidnon‑ (c) Preference shares recognised as debt • • • keyterms ofthenote are:Other • • • • The keyterms andconditions ofthenotes are: notes inAugust 2006to facilitate andinitialoperation theconstruction ofthePilbara IronOre Project. andInfrastructure The Company raised US$1,650millioninUSdollardenominated and€315millioninEuro denominated seniorsecured NOTES TO THE FINANCIAL STATEMENTS The total estimate reserve ofCloudbreak Creek and Christmas hasnotchangedsince 30June2009. Western Australian State Government; and royaltyExpected rates have notchangedsince current 30June2009andreflect royalty rates payable to the subordinated loannote; The discount rate hasbeenappliedsince inception theimplicitinterest andreflects rate of42per cent ofthe They are listed ontheSingapore Exchange Securities Trading Limited. mining tenements; and leaseholdrightsoftheProject oftherealandProject ofFortescue property andmortgages and undertakings the Project Guarantors andFMG Resources (August Limited, 2006)Pty afeatherweight charge over allofthe assets which proceeds oftheseniorsecured notes were deposited, over share alloftheshares mortgages inthecapitalof Limited (theProject Pty Guarantors),Infrastructure acharge, assignment orpledgeover thebankaccounts in Limited (previously Pty FMGMetals Limited), Pilbara ChichesterLimited Pty Alliance and Pty Mining The Pilbara (August Limited, 2006)Pty (previously FMG Finance Limited), andtheproject Pty They are secured by, documents, amongothersecurity fixed andfloating charges over theassetsof Resources FMG They rank passuinrightofpayment pari withallexisting andfuture seniorindebtedness; million seniorsecured notes due2011,swapping thesenotes to afixed rate ofnineper cent perannum. each year, beginning on1December 2006.Fortescue hasafloating‑to annum, accruing from 18August 2006.Interest ispayable on1March, 1June, 1SeptemberandDecember of US$250 millionofseniorsecured notes interest due2011bearing at three August 2006.Interest ispayable on1March and1September ofeachyear, beginning on1March 2007;and US$1,080 millionofseniorsecured notes interest due2016bearing at 10.625percent perannumaccruing from 18 August 2006.Interest ispayable on1March and1September ofeachyear, beginning on1March 2007; €315 millionofseniorsecured notes interest due2013bearing at 9.750percent perannumaccruing from 18 August 2006.Interest ispayable on1March and1Septemberofeachyear, beginning on1March 2007; US$320 millionofseniorsecured notes interest due2013bearing at 10.000percent perannumaccruing from 18 ‑ previously FMG Finance Pty Limited) converting, redeemable preference shares at aprice of$A100,000pershare

‑fixed interest rate swap over itsUS$250 ‑month LIBORplus4.000percent per ‑related assetsofChichester

83 83 FORTESCUE METALS GROUP ANNUAL REPORT 2010 84 84 FORTESCUE METALS GROUP ANNUAL REPORT 2010 • • • • • 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 Note 23. Non-current liabilities - Borrowings (continued) Movements - Consolidated Deferred tax liabilities Note 24. Non-current liabilities - NOTES TO THE FINANCIAL STATEMENTS Other items Other Borrowing costs Net unrealised foreign exchange gains/losses Property, plant andequipment Exploration expenditure Deferred tax liabilities expected to be settled after more than 12 months Deferred to taxliabilitiesexpected besettledwithin12months Net deferred taxliabilities offofdeferredSet tax liabilitiespursuant to setoff provisions (Note 17) Total deferred taxliabilities items Other Borrowing costs Provisions Accruals Subordinated loannote securedSenior notes Net unrealised foreign exchange gains/losses Inventories Property, plant andequipment Development Exploration andevaluation Other The balance comprises differences temporary attributable to: Limited voting rights. and of distributions; Preference shares to toFortescue’s rank inpriority shares onawindingupandinrelation ordinary to thepayment byRedeemable Fortescue at any to minimum30days timesubject notice; Term of8.5years; volume weighted average share by price) aselected Fortescue; not ableto bemadeby Fortescue, additionalpreference shares shares (calculated orordinary onthebasisof Dividend coupon rate ofninepercent fixed p.a. payable sixmonthly eitherincash,orwhere are cashdistributions

1 July2008 (132,365) (117,053) US$'000 Balance (11,845) (2,221) (1,246) - Recognised in profit or (189,472) US$'000 194,255 (2,687) (2,022) (1,881) (3,567) loss (481,854) (461,784) (481,854) (268,733) US$’000 (20,070) (85,456) (66,692) (34,229) (11,448) (14,631) 481,854 Consolidated (424) (146) 2010 Recognised (95) in equity US$'000 - - - (77,202) (77,202) - - - - (212,254) (189,472) (212,254) (194,285) (212,254) (189,472) US$'000 Balance 30 June US$’000 (13,726) (17,969) (13,726) 212,254 (4,243) (4,813) (4,243) (4,813) 2009 2009 ------Movements inprovisions thefinancial during year are setoutbelow: (a) Movements in provisions 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 24. Non-current liabilities - Deferred tax liabilities (continued) Provisions Note 25. Non-current liabilities - Movements - Consolidated NOTES TO THE FINANCIAL STATEMENTS Carrying amount at 30June Carrying Change inprovision required Accretion expense amount at 1July Carrying Site rehabilitation items Other Borrowing costs Net unrealised foreign exchange gains/losses Inventories Property, plant andequipment Development Exploration expenditure Provisions Accruals Subordinated loannote securedSenior notes

1 July2009 (212,254) (189,472) US$'000 Balance (13,726) (4,243) (4,813) ------Recognised in profit or (269,600) US$'000 (85,456) (66,692) (34,229) (11,448) (79,261) (14,631) 13,726 3,819 4,813 (146) loss (95) US$’000 US$’000 57,034 55,582 57,034 Consolidated 1,452 2010 2010 Recognised in equity US$'000 ------(481,854) (268,733) US$'000 Balance 30 June US$’000 US$’000 (85,456) (66,692) (34,229) (11,448) (14,631) 55,582 39,894 15,688 55,582 2010 (424) (146) 2009 2009 (95) - - - 85 85 FORTESCUE METALS GROUP ANNUAL REPORT 2010 86 86 FORTESCUE METALS GROUP ANNUAL REPORT 2010 (b) Movements in ordinary share capital Note 26. Contributed equity Ordinary shares haveOrdinary noparvalue andthecompany doesnothave alimited amountcapital. ofauthorised shares held. Company. intheproceeds shares participate onwindingupoftheCompany Ordinary to thenumberof inproportion Fully shares individendsandto entitle onevote theholderto paidordinary participate pershare at meetingsofthe (c) Ordinary shares (a) Share capital (a) Reserves Note 27. Reserves and retained earnings NOTES TO THE FINANCIAL STATEMENTS Fully paid shares Ordinary Foreign translation reserve currency Asset revaluation reserve payment reserve Share-based 30 June2010 1 July2009 30 June2009 1 July2008 Date

Balance for converted options Transfer optionexpense from reserve (FMGIOS)Option Scheme Fortescue Group Metals Incentive Exercise ofoptionsissuedunderthe Shares issued Opening balance Balance Share issuecost for converted options Transfer optionexpense from reserve (FMIOS)Option Scheme Forsecue Group Metals Incentive Exercise ofoptionsissuedunderthe Shares issued Opening balance Details Number ofsharesNumber

2,804,363,760 3,107,196,989 3,089,596,699 3,089,596,699 280,535,780 10,682,660 4,697,159 6,917,630 3,107,196,989 - - - US$’000 (74,369) (77,202) Issue price Consolidated 2,155 2010 2010 $0.29 $1.71 $0.33 $3.83 678 3,089,596,699 1,274,650 1,229,876 1,229,876 US$’000 US$’000 (74,622) (77,202) 481,560 746,791 (1,293) 40,977 1,970 1,439 1,379 1,586 2,211 2009 2009 610 deferred taxassetsandliabilitiesare recognised intheforeign inequity directly translation reserve. currency Foreign differences currency onthe arising revaluation of Australian deferred taxassetsandliabilities to USdollar (iii) Foreign translation currency reserve 30 June2010ofUS$678,000. The assetrevaluation records reserve value asat revaluations assetsheldat fairvalue ofnon-current andhasacarrying (ii) Asset revaluation reserve movement intheshare basedpayments isdisclosedintheStatements reserve ofChanges inEquity. The share basedpayments records reserve items recognised asexpenses onvaluation ofemployee share options. The (i) Share basedpayments reserve (c) Nature and purpose of reserves Movements in retained earnings were as follows: (b) Retained earnings Asset revaluation reserve Movements Foreign translation currency reserve Movements Share-based payment reserve Share-based Movements Note 27. Reserves and retained earnings (continued) NOTES TO THE FINANCIAL STATEMENTS Balance 30 June Revaluation ofavailable for salefinancialassets Balance 1 July Balance 30 June Deferred taxtranslation to USDollars Balance 1 July Balance 30June2010 Net profit for the year Balance 1July2009 Balance 30June settledshareEquity basedpayment transactions Forfeited options Exercise ofoptions Balance 1July

(304,562) US$’000 US$’000 US$’000 US$’000 (77,202) (77,202) 276,384 580,946 (1,586) Consolidated Consolidated Consolidated Consolidated 2,155 2,227 1,970 (456) 2010 2010 2010 2010 610 678 68 - (304,562) (812,604) US$’000 US$’000 US$’000 US$’000 (77,202) (77,202) 508,042 (1,474) 1,970 1,440 2,045 2009 2009 2009 2009 (41) 610 610 - - 87 87 FORTESCUE METALS GROUP ANNUAL REPORT 2010 88 88 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Detailed remunerationDetailed disclosures are onpages35to provided46. intheRemuneration Report Comprehensive are Income asfollows: The Personnel KeyManagement remuneration includedwithin ‘administration expenses’ intheStatement of (a) Key management personnel remuneration Note 28. key management personnel disclosures 2010 orbeneficially,indirectly by eachkeymanagement person,includingtheir isas related parties, follows: The inthenumberofoptionsover movement shares period intheCompany ordinary thereporting during helddirectly, over(i) Options instruments equity (b) Equity instrument disclosures relating to key management personnel existing at year end. Fortescue since theendofprevious financial year andthere were nomaterial involvingcontracts Directors’ interests from thedetailsdisclosedinthisnote,Apart noDirector hasentered into amaterial contract withtheCompany or Statement ofComprehensive Income, are recoveries. recognised netofsalary Balances above are recognised onagross basis. Wages ofadministration expenses inthe andsalaries, disclosedaspart NOTES TO THE FINANCIAL STATEMENTS Termination benefits Post employment benefits term employee benefits Short I Buitendag P Meurs W Ramsey S Pearce P Hallam KeyOther Management Personnel oftheCompany I Cumming M Barnaba L Xiaowei I Burston O Hegarty G Brayshaw J Steinberg K Ambrecht H Elliott G Rowley R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name compensationEquity benefits start ofthe start Balance at 600,000 600,000 year ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ compensation Granted as 7,500,000 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Exercised ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ during the changes Other Other year ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Balance at end ofthe 7,500,000 600,000 600,000 year ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 5,602,505 1,072,234 4,227,251 150,000 150,000 Vested 303,020 Consolidated 2010 US$ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - Unvested 7,500,000 450,000 450,000 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ exercisable 4,270,330 3,513,770 7,500,000 278,557 417,298 600,000 600,000 60,705 2009 US$ Not ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 2010 Ordinary shares orbeneficially,inadvertently by eachkeymanagement person,including their arerelated setoutbelow. parties, sharesThe intheCompany inthenumberofordinary movement period thereporting helddirectly, during (ii) Share holdings resignation/cessation upon ofemployment. forfeited * =Options 2009 Note 28. Key management personnel disclosures (continued) NOTES TO THE FINANCIAL STATEMENTS I Buitendag W Ramsey P Meurs S Pearce P Hallam KeyOther Management Personnel oftheCompany I Cumming J Steinberg M Barnaba L Xiaowei I Burston O Hegarty G Brayshaw K Ambrecht G Rowley H Elliott R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name A Watling C Catlow M Minosora P Hallam KeyOther Management Personnel oftheCompany M Barnaba L Xiaowei I Burston O Hegarty G Brayshaw J Steinberg K Ambrecht H Elliott G Rowley R Scrimshaw A Forrest ofFortescueDirectors Group Metals Limited Name start ofthe start Balance at 1,000,000 1,000,000 277,986,000 972,828,300 19,235,690 July 2009 2,167,938 8,000,000 6,313,130 Held at 1 year 33,149 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ compensation Received on exercise of Granted as options 600,000 600,000 600,000 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Exercised (500,000) Purchases 500,000 A 7,500,000 11,000 8,300 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ during the (500,000)* changes (500,000) A Other Other year Sales ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Balance at end ofthe ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 1,000,000 600,000 600,000 600,000 (277,986,000) B 277,986,000 B year ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Transfers 750,000 Vested ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ (277,986,000) B ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Unvested 600,000 250,000 600,000 600,000 10,157 Other 1,915 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ exercisable 972,830,215 June 2010 19,235,690 Held at 30 7,500,000 6,313,130 2,167,938 8,000,000 600,000 250,000 600,000 600,000 10,157 44,149 8,300 Not ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 89 89 FORTESCUE METALS GROUP ANNUAL REPORT 2010 90 90 FORTESCUE METALS GROUP ANNUAL REPORT 2010 2009 Ordinary shares in LUK Fortescue isnow cent lessthan20per andsotheydonothave arelative interest inany securitiesheldby LUK Fortescue. Fortescue. to thechangeindirector Due during2010,therelative holdingwas transferred IanCumming. to Mr Their collective voting powers powers inLeucadia NationalCorporation exceeded cent 20 per they were taken to have arelative holdinginany securitiesheldby LUK mutually acceptable Board ofLeucadia ofDirectors NationalCorporation (whichwhollyowns LUK Fortescue, LLC). theircollective As voting B =IanCumming Steinberg andJoseph have anoral agreement pursuant to whichtheyconsult ofa witheachotherasto theelection interest. A =Graeme Rowley transferred shares to theRowley 500,000ordinary Foundation Limited, acompany Pty inwhichheholdsanindirect Note 28. Key management personnel disclosures (continued) loans have been eliminated onconsolidation. year ended30June2010,suchloansto totalled subsidiaries US$728.6millionreceivable (2009: US$492.9million). These Company anditscontrolled entities have nofixed date of repayment andis non-interest bearing. the financial During Loans are madeby theCompany for subsidiaries to wholly-owned capitalpurchases. Loans outstandingbetween the Subsidiaries (i) Non-key management personneldisclosures Valin isacompany related LiXiaowei. to adirector Mr ofIronOreSales to Hunan Valin for theyear ended30June2010totalled US$98.3million(2009:US$58.8million).Hunan rendered by NRW. As at 30June2010amounts owed by Fortescue to NRW were nil. Cloudbreak Creek andChristmas mines. Since hisappointment Fortescue hasincurred US$142.9 millionfor services provideto Fortescue’s NRW miningcontracting services HoldingsLimited (NRW). andDirector ofNRW is alsoChairman Dr IanBurston was appointed asaNon-Executive Director ofFortescue Group 2008.He Metals Limited on13October 2009 was US$500,000. cent seniorsecured notes due2013.Interest paidandpayable for theyear was US$67,665. The balance asat 30June JosephSteinberg,At 30June2010Mr whowas aDirector ofFortescue Group Metals Limited, heldUS$500,0009.75per IanCumming,and Mr whoisaDirector ofFortescue Group Metals Limited. 2009: US$381.6million).Leucadia isacompany related JosephSteinberg to Mr (resigned asaDirector inAugust 2009) terms ofthesubordinated loannote (seeNote 28). The note was revalued at 30June2010to US$826.2million(30June The Company hasrevised itsestimate inrelation to to Leucadia theliability National Corporation (Leucadia) underthe (c) Other transactions with directors and key management personnel NOTES TO THE FINANCIAL STATEMENTS G Cowe A Watling C Catlow M Minosora P Hallam KeyOther Management Personnel oftheCompany L Xiaowei I Burston O Hegarty G Brayshaw J Steinberg K Ambrecht R Scrimshaw H Elliott G Rowley A Forrest ofFortescueDirectors Group Metals Limited Name

Held at 1July 1,005,493,300 277,986,000 20,235,690 1,000,000 8,000,000 6,283,833 8,000,000 2,540,689 17,225 2008 ------Received on exercise of options ------Purchases 400,000 500,000 15,924 29,297 27,249 ------(32,665,000) (1,000,000) (1,500,000) (3,310,000) (400,000) (400,000) Sales ------Transfers ------Other ------Held at 30June 277,986,000 972,828,300 19,235,690 6,313,130 8,000,000 2,167,938 4,690,000 33,149 2009 - - - - On February 4th,2010ASIClodgedaNotice ofAppeal intheFederal of Court Western Australia. Forrest.and Mr contraventions allegedby ASICwere dismissedby theFederal Costs Court. were alsoawarded infavour ofFortescue brought by ASIC.Fortescue andFortescue’s co On December 23rd 2009judgement was handeddown by theFederal proceedings inthecivilpenalty Court ASIC Proceedings The Company hadcontingent liabilitiesat of: 30June2010inrespect (a) Contingent liabilities Note 30. Contingent liabilities development ofitsPilbara andproduction IronOre Project. andInfrastructure recognised asliabilitiesfor mobileminingequipment orders ofUS$89.0million(2009:US$22.2million)related to the As at 30June2010Fortescue hascommitments to capitalexpenditure contracted for date atbut not thereporting (a) Capital commitments Note 31. Commitments defending thecharges. thus comprising apotential aggregate ofA$7,200,000.Fortescue to Fortescue is maximumpenalty anditssubsidiary 18 offencesOccupational underthe Safety ofA$400,000 1984.Eachcharge &Health hasamaximumpenalty Act charged on18March 2009withoneoffence and itssubsidiary, Limited,The Pty Infrastructure chargedPilbara with Following aninvestigation into events surrounding Cyclone George whichoccurred inMarch 2007,Fortescue was Cyclone George Fatalities are awaiting thedecisionofArbiter.parties in2009. insolvency The issueisbeingdetermined through anarbitration process whichhasbeencompleted andthe the contract was terminated. There isonesuspendedshippingcontract remaining where theshipowner went into to asuspended shippingcontract. Damageswere awarded to Zodiac andtheconclusion ofthisdispute meansthat thesixmonths ended30June2010ajudgementDuring was handeddown infavour ofZodiac inrelation Maritime Shipping contracts Note 29. Remuneration of auditors NOTES TO THE FINANCIAL STATEMENTS Total auditors’ remuneration Financial duediligence services Other BDO Consultants (WA) Ltd Pty audit otherthanstatutory Services assurance services Other Audit andreview Audit andotherassurance services BDO Audit (WA) Ltd Pty Audit services ‑ defendant andCEO, Andrew Mr Forrest, were successful and all ofthe 363,994 342,257 21,309 Consolidated 2010 US$ 428 285,835 251,035 25,210 9,590 2009 US$ 91 91 FORTESCUE METALS GROUP ANNUAL REPORT 2010 92 92 FORTESCUE METALS GROUP ANNUAL REPORT 2010 accordance innote described withtheaccounting1(b): policy The consolidated financialstatements incorporate theassets, liabilitiesand results ofthe following in subsidiaries Note 32. Subsidiaries a mininglicence ismadeandhave notbeenprovided for intheaccounts. estimated. These oftheexploration obligations to are renegotiation leasesorwhenapplication subject for uponexpiry Financial commitments for subsequentare periods contingent uponfuture exploration results and cannotbe to meetthe minimumexpenditure requirements ofUS$6.8millionover financial thenext year(2009:US$5.1million). orderIn to maintain current rightsoftenure to exploration tenements, Fortescue isrequired to outlay leaserentals and (c) Exploration tenement leases - commitments for expenditure operating leases. The terms. leaseshave varying Fortescue alsoleasesvariousmotor vehicles, undernon-cancellable office equipment andplant and machinery are renegotiated. seven years. The terms, leaseshave escalation clausesandrenewal varying rights. Onrenewal, theterms oftheleases Fortescue leasesvariousoffices operating andother withinone leasespremises undernon-cancellable expiring to Non‑ (b) Lease commitments : Company as lessee Note 31. Commitments (continued) NOTES TO THE FINANCIAL STATEMENTS Later thanfive years oneandfiveBetween years Within oneyear Masters Way Limited **** HomesPty LimitedFMG ** 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 (AUG Limited *** 2006)Pty Limited ** Chichester Pty Metals FMG Pilbara Limited Pty FMG Limited Resources Pty The Limited Pilbara * Pty Infrastructure Limited International BulkPorts Pty Controlled entities Fortescue Group Metals Limited Name ofentity cancellable operating leaserentals are payable asfollows: incorporation New Zealand Country of Singapore Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Class of shares

Equity holding Equity 2010 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 % US$’000 - 413,891 291,517 122,374 Consolidated 2010 2009 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - % - 2010 Investment US$ 348 339 1 1 1 1 1 1 1 1 1 ------US$’000 458,198 328,738 127,800 1,660 2009 2009 US$ 284 275 1 1 1 1 1 1 1 1 1 ------• • • • • • • • • • Group Entities • Holding Entity Limited, to adeedofcross are guarantee parties underwhicheachcompany guarantees thedebtsofothers: Fortescue Group Metals Limited anditscontrolled entities, except FMG Pacific Limited and InternationalPteFMG Note 33. Deed of cross guarantee **** *** ** * Note 32. Subsidiaries (continued) There hasbeennoothermaterial event requiring disclosure subsequent to ended30June2010. theperiod 310Mt orapproximately 25percent oftheResource isclassifiedasindicated and920Mtasinferred. On 10August 2010Fortescue announced a1.23Bt Resource Star Estimate tenement thisResource, for area. Of itsNorth Creek operation. The contract isfor aterm ofsixyears andisvalued at approximately A$3billion. On 5 August 2010 Fortescue entered into a contract with Downer EDI Limited to provide at its Christmas mining services resourcesSolomon to 2.86Btupfrom portfolio 2.70Bt. On 15July2010Fortescue announced a160Mtincrease toresource theSolomon portfolio. This the total brings Note 34. Subsequent events materially thesameasthat oftheconsolidated group. for theyear ended30June2010alongwiththeconsolidated balance sheetasat 30June2010for theClosedGroup are Closed Group’. The statement ofcomprehensive movements income inconsolidated andsummary accumulated losses to ofCross theDeed Guaranteeother parties that are controlled by theCompany, theyalsorepresent the ‘Extended The ‘Closed Group’ represented by theabove companies isthesameasconsolidated group, andasthere are no consolidated retained earnings (a) Consolidated statement of comprehensive income and summary of movements in NOTES TO THE FINANCIAL STATEMENTS The Limited Pilbara Pty Infrastructure Limited International BulkPorts Pty FMG Limited Resources Pty Limited Developments Pty Karribi Pilbara Limited Alliance Pty Mining PilbaraFMG Limited Pty North FMG Limited Magnetite Pty FMG Resources (Aug Limited (previously 2006)Pty FMG Finance Limited) Pty Limited (previouslyChichester Pty FMG Metals Limited) Chichester Pty FMG Pilbara Limited Pty Fortescue Group Metals Limited Master Limited.Way Pty ofPilbara Limited HousingServices isasubsidiary HomesPty Limited. Pty Metals FMG Resources (August Limited (previously 2006)Pty FMG ofChichester Finance Limited) isasubsidiary Pty ofFMG PilbaraThis Limited. isasubsidiary entity Pty Limited note 33. ofInternationalBulkPorts Pty The Limited Pilbara isasubsidiary Pty Infrastructure

93 93 FORTESCUE METALS GROUP ANNUAL REPORT 2010 94 94 FORTESCUE METALS GROUP ANNUAL REPORT 2010

per share (c) Reconciliations ofearningsusedincalculating earnings Note 36. Earnings per share tax to net cash inflow from operating activities Note 35. Reconciliation of profit after income NOTES TO THE FINANCIAL STATEMENTS calculating diluted pershare earnings Profit holders ofthe company equity usedin attributable to theordinary the company usedincalculatingpershare basicearnings Profit from holdersof continuing operations equity attributable to theordinary shareDiluted earningsper calculating pershare basicearnings from continuing operations Profit holdersofthe company equity usedin attributable to theordinary share earningsper Basic company From continuing holdersofthe operationsequity attributableto theordinary (b) Diluted earnings per share company From continuing holdersofthe operationsequity attributableto theordinary (a) Basic earnings per share Net cashinflow from operating activities Increaseinpayables Increaseininventory Increaseinreceivables andprepayments theyearChange inassetsandliabilitiesduring Issue ofbonusshares Net exchange difference Tax (benefit)/expense Fair value adjustment onsubordinated loannote Interest rate swaps establishmentDebt costs Net effective interest onborrowings settledshareEquity basedpayment transactions Provision -employee entitlements Provision -rehabilitation Profit ofdebt on extinguishment Profit assets ondisposalofnon-current Write offofassetsnolongerinuse ofdevelopment expenditureAmortisation ofintangible assets Amortisation Depreciation ofproperty, plant andequipment Profit for the year

1,107,552 US$’000 US$’000 (83,676) (15,221) (67,169) (47,047) 279,986 185,419 580,946 580,946 580,946 580,946 580,946 100,031 (1,770) (3,612) 17,247 71,520 80,296 Consolidated Consolidated Consolidated Cents 1,766 1,452 3,543 1,574 18.82 18.85 2,267 2010 2010 2010 - - (1,124,411) (101,281) US$’000 US$’000 (11,544) (85,278) 414,058 153,918 466,013 508,042 508,042 508,042 508,042 508,042 473,348 134,954 20,574 52,547 35,946 Cents 4,358 1,399 3,700 17.70 17.77 2009 2009 2009 353 - - - - that thevolume weighted average price for thefive days prior to theoffer date, which was13 May 2010. issued at anexercise price ofA$5.00,whichisinaccordance withtheFMGIOS whereby theprice mustbeat orgreater above A$7.00for Tranche 1andA$8.00for Tranche 2for offive aperiod consecutive days. The optionshave been requirementDirectors have imposedafurther that theexercise ofoptionsisconditional uponFortescue shares trading date. Tranche 2willvest over afour year period, with25percent vested dated. addition, oneachanniversary In per tranche) to akeyexecutive. Tranche 1willvest over athree period, with33.3percent vested oneachanniversary thefinancial During year the Company issued7,500,000employeetwo optionsunder equaltranches (3,750,000options (a) Employee option plan Note 37. Share-based payments Expected volatility iscalculatedExpected usingtheAGSM measurement risk for theperiod. (h) dividendyield:nil free(g) risk interest rate: 5per cent 76.40per cent volatility: expected (f) (e) price ofshares ongrant date: A$4.35 (d) exercise price: A$5.00 Tranche 2-A$2.65(US$2.40) Tranche 1-A$2.66(US$2.40) (c) fairvalue peroption: date: 13May 2015 (b) expiry (a) grant date: 13May 2010 The model inputsfor optionsgranted theyear during ended30June2010 included: Fair value ofoptions granted dollars): The following andassumptionswere factors usedindetermining thefairvalue ofoptionsongrant date (inAustralian denominator (d) Weighted average numberofshares usedasthe Note 36. Earnings per share (continued) NOTES TO THE FINANCIAL STATEMENTS as thedenominator incalculating diluted pershare earnings Weighted average shares shares andpotential numberofordinary used ordinary Potential shares ordinary Adjustments for calculation ofdiluted pershare: earnings calculating pershare basicearnings Weighted average shares usedasthedenominator numberofordinary in Outstanding atOutstanding 30June Granted theyear during Forfeited theyear during Exercised theyear during atOutstanding 1July Excercisable at 30June Weighted average excercise price 2010 0.33 0.73 0.59 3.32 4.41 2.14 US$ Number ofoptions

(6,917,630) 11,577,500 11,620,380 2,277,500 7,500,000 (625,250) Number 2010

Weighted average exercise price

3,086,858,116 3,081,948,244 4,909,872 2009 0.73 1.64 0.33 0.25 0.27 0.46 Number US$ Consolidated 2010 Number ofoptions 2,871,073,526 2,858,943,600 (4,299,740) (4,772,790) 18,292,910 11,620,380 12,129,926 7,896,005 2,400,000 Number Number 2009 2009

95 95 FORTESCUE METALS GROUP ANNUAL REPORT 2010 96 96 FORTESCUE METALS GROUP ANNUAL REPORT 2010 The individualfinancialstatements for theparent show entity the following aggregate amounts: (a) Summary financial information Note 38. Parent entity financial information Note 37. Share-based payments (continued) guarantees given by theparent entity, pleaseseeabove. The parent didnothave entity any contingent liabilitiesasat 30June 2010or30June2009.For information about (c) Contingent liabilities of the parent entity value oftheguarantees isimmaterial. was recognisedNo liability by theparent or theconsolidated entity inrelation entity to thecross guarantees, asthefair Group Limited, inNote asdescribed 33.Nodeficienciesofassets exist inany ofthese companies. The parent hasnotprovided entity any financialguarantees otherthanthecross guarantees given by Metals Fortescue (b) Guarantees entered into by the parent entity (b) Employee expenses NOTES TO THE FINANCIAL STATEMENTS Forfeited options Share optionsgranted Total comprehensive income Profit orloss for the year Total equity earnings Retained Reserves Contributed equity Shareholders' equity Net assets Total liabilities liabilities Non-current Current liabilities Total assets assets Non-current Current assets Balance sheet

1,690,300 1,274,649 1,690,300 1,947,193 1,173,557 US$’000 Number 483,506 483,438 422,249 256,893 157,509 773,636 (6,598) 99,384 Consolidated 1,768 2,227 (459) 2010 2010 Company 1,161,846 1,229,876 1,161,846 1,291,704 Number US$’000 (53,570) (44,148) (61,188) 129,858 105,011 325,469 966,235 (6,842) 24,847 1,399 1,440 2009 2009 (41) due andpayable; (b) there are reasonable grounds to believe that theCompany willbeableto pay itsdebtsasand when theybecome financial year endedonthat date; (ii)GivingatrueandfairviewoftheGroup’s financialpositionas for the at 30June2010andofitsperformance (i)Complying withAccounting Standards, the including: (a) thefinancialstatements andnotes setoutonpages48 to 96 theDirectors’In opinion: Dated at Perth this26thday ofAugust 2010. Chairman Mr Herb Elliott Directors by: This declaration ismadeinaccordance witharesolution oftheBoard ofDirectors andissigned for andonbehalfofthe they are, ormay become, to, subject ofthedeedcross guarantee by inNote virtue described 33. to thisdeedofcross guaranteeparties willasaconsolidated beableto entity meetany obligations orliabilitiesto which of theothers. At thedate ofthisdeclaration there are reasonable grounds to believe that thecompanies whichare Parties identified in Noteto the deed of cross 32 are guarantee parties under which each company guarantees the debts 295Aofthe section The Directors have beengiven thedeclarations by theChiefExecutive andChief Officer Financial required by issued by theInternationalAccounting Standards Board. (d) Note 1(a)confirms that thefinancialstatements alsoInternational complywiththe Standards as Reporting Financial 300Aofthe ended 30June2010,comply withsection (c) theremuneration disclosures includedintheDirectors’ for theyear ofaudited Remuneration Report) (aspart Report DIRECTORS’ DECLARATION

reporting requirements; reporting Corporations Act 2001. Corporations Regulations2001 Corporations Act 2001

are inaccordance withthe ; and and other mandatory professionaland othermandatory Corporations Act 2001,

97 97 FORTESCUE METALS GROUP ANNUAL REPORT 2010 98 98 FORTESCUE METALS GROUP ANNUAL REPORT 2010 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS 99 99 FORTESCUE METALS GROUP ANNUAL REPORT 2010 100 100 FORTESCUE METALS GROUP ANNUAL REPORT 2010 SHAREHOLDER INFORMATION Top 20 Holders of Ordinary Shares Substantial Shareholders Information as at 9 September 2010 LUK-FORTESCUE LLC HUNAN VALIN ANDSTEELGROUP IRON THE METAL LTD PTY GROUP Substantial Shareholder Total 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Rank JOHN CUNNINGHAM &ASSOCIATES LTD PTY AMP LIFELIMITED LTD PTY LEAPING JOEY AUST CHILDREN'S [THE TRUST] LTD INVESTMENTS PTY WWB LIMITED COGENT NOMINEESPTY MR ROWLEY WILLIAM GRAEME BOCIMAR INTERNATIONAL NV THE METAL LTD PTY GROUP HSBC CUSTODY NOMINEES(AUSTRALIA) LIMITED-A/C2 LTD PTY EMICHROME NATIONAL NOMINEESLIMITED NOMINEESAUSTRALIAJ PMORGAN LIMITED VALIN MININGINVESTMENTS (SINGAPORE)PTELTD VALIN INVESTMENTS RESOURCES (SINGAPORE)PTELTD HSBC CUSTODY NOMINEES(AUSTRALIA) LIMITED INCOMEANZ NOMINEESLIMITED LIMITED CITICORP NOMINEESPTY VALIN INVESTMENTS (SINGAPORE)PTELTD LUK-FORTESCUE LLC THE METAL LTD PTY GROUP Name 247,986,000 535,000,000 936,828,300 Shares Total % of Total Shares 17.17 30.15 7.98 Units 2,765,735,675 113,609,845 151,224,913 154,267,590 172,138,213 177,597,535 193,326,144 228,007,497 247,986,000 936,828,300 11,927,216 12,735,690 23,774,758 36,000,000 83,271,842 91,118,282 99,764,440 7,000,100 7,536,895 8,000,000 9,620,415 30 December 2008 22 August 2006 30 April 2009 30 April Notice capital issued % of 30.15 89.00 3.66 4.87 4.96 5.54 5.71 6.22 7.34 7.98 0.23 0.24 0.26 0.31 0.38 0.41 0.77 1.16 2.68 2.93 3.21 Range of Shares Information as at 9 September 2010 Unmarketable Parcels SHAREHOLDER INFORMATION 10,001 –100,000 5,001 –10,000 1,001 –5,000 1-1,000 Range Minimum $500.00parcelMinimum at $4.92perunit Total 100,000 -max Total Holders 52,433 20,539 24,635 Minimum parcelMinimum size 102 2,758 4,208 293 3,107,598,392 2,938,352815 69,670,938 33,081,289 53,043,900 13,449,450 Holders 1777 Units % Issued Capital Units 116431 100.00 94.55 2.24 1.07 1.71 0.43 101 101 FORTESCUE METALS GROUP ANNUAL REPORT 2010 102 102 FORTESCUE METALS GROUP ANNUAL REPORT 2010 Western Australia Tenure Information as at 10 September 2010 TENEMENT REPORT E 45/3423 E 45/3365 E 45/2972 E 45/2865 E 45/2855 E 08/2200 E 08/2088 E 08/2038 E 08/1950 E 08/1905 E 08/1878 E 08/1628 E 08/1432 FMGHolder: Pilbara Ltd Status: Pty Application FMG mineral rights status: 100%allmineral rights L 47/302 G 45/275 FMGHolder: Pilbara Ltd Status: Pty Granted FMG mineral rightsstatus: n/a E 47/1333 FMGHolder: Pilbara Ltd Status: Pty Granted FMG mineral rightsstatus: 100%allmineral rightsexcept diamonds P 47/1427 P 47/1404 P 47/1306 E 52/2416 E 52/2277 E 47/2056 E 47/1821 E 47/1455 E 47/1155 E 45/3442 E 45/2848 E 45/2713 E 08/1547 FMGHolder: Pilbara Ltd Status: Pty Granted FMG mineral rightsstatus: 100%allmineral rights L 46/60 Ltd Status: ChichesterPty Application Metals Holder: FMG mineral rightsstatus: n/a E 46/664 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%iron ore rights 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 45/1104 M 45/1087 E 46/611 E 46/519 E 45/2497 Ltd Status: ChichesterPty Granted Metals Holder: FMG mineral rightsstatus: 100%allmineral rights M 46/332 M 46/322 M 46/292 M 45/1105 M 45/1088 E 46/612 E 46/566 E 45/2498 E 45/3426 E 45/3369 E 45/2973 E 45/2866 E 45/2856 E 45/2842 E 08/2114 E 08/2039 E 08/1959 E 08/1906 E 08/1893 E 08/1629 E 08/1439 L 47/351 G 45/285 E 47/1334 P 47/1468 P 47/1405 P 47/1307 E 52/2486 E 52/2284 E 47/2080 E 47/1832 E 47/1479 E 47/1320 E 45/3443 E 45/3360 E 45/2714 E 08/1549 L 46/78 E 46/666 L 47/193 L 46/52 L 45/152 M 46/449 M 46/415 M 46/405 M 46/352 M 46/342 P 47/1469 P 47/1406 P 47/1308 E 52/2555 E 52/2285 E 47/2085 E 47/1920 E 47/1480 E 47/1373 E 45/3552 E 45/3366 E 45/2737 E 08/1760 L 47/204 M 45/1138 L 47/194 L 46/53 L 46/35 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 45/1106 M 45/1089 E 46/623 E 46/567 E 45/2499 E 45/3433 E 45/3399 E 45/3191 E 45/2867 E 45/2857 E 45/2843 E 08/2117 E 08/2059 E 08/1962 E 08/1907 E 08/1894 E 08/1630 E 08/1440 L 47/360 G 45/286 E 47/1352 P 47/1470 P 47/1407 P 47/1309 M 45/1177 E 52/2290 E 47/2146 E 47/2026 E 47/1532 E 47/1390 E 46/517 E 45/3386 E 45/2748 E 08/1761 M 45/1139 L 47/195 L 46/54 L 46/36 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 45/1107 M 45/1090 E 46/675 E 46/568 E 45/2593 E 45/3434 E 45/3400 E 45/3270 E 45/2870 E 45/2858 E 45/2844 E 08/2137 E 08/2060 E 08/1978 E 08/1908 E 08/1895 E 08/1631 E 08/1548 L 47/232 E 47/1372 P 47/1408 P 47/1398 P 47/1252 E 52/2311 E 47/2157 E 47/2035 E 47/1611 E 47/1391 E 46/621 E 45/3414 E 45/2749 E 08/1831 M 45/1140 L 47/196 L 46/55 L 46/37 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 45/1124 M 45/1091 E 47/1434 E 46/569 E 45/2651 E 45/3438 E 45/3402 E 45/3305 E 45/2919 E 45/2859 E 45/2849 E 08/2157 E 08/2061 E 08/1982 E 08/1915 E 08/1896 E 08/1632 E 08/1550 L 47/293 E 47/1436 L 46/56 L 46/40 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 45/1125 M 45/1092 M 45/1082 E 46/590 E 45/2652 E 45/3441 E 45/3412 E 45/3306 E 45/2920 E 45/2860 E 45/2850 E 08/2175 E 08/2062 E 08/1986 E 08/1916 E 08/1897 E 08/1633 E 08/1585 L 47/294 E 47/1523 P 47/1409 P 47/1399 P 47/1253 E 52/2333 E 47/2172 E 47/2036 E 47/1612 E 47/1392 E 46/706 E 45/3428 E 45/2840 E 08/1961 M 45/1147 L 47/197 L 46/57 L 46/46 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 45/1126 M 45/1093 M 45/1083 E 46/595 E 45/2708 E 45/3445 E 45/3413 E 45/3307 E 45/2945 E 45/2861 E 45/2851 E 08/2193 E 08/2063 E 08/2000 E 08/1933 E 08/1898 E 08/1741 E 08/1623 L 47/296 E 47/1524 P 47/1410 P 47/1400 P 47/1257 E 52/2353 E 52/1759 E 47/2037 E 47/1702 E 47/1393 E 46/716 E 45/3429 E 45/2841 E 08/1985 M 45/1148 L 47/198 L 46/58 L 46/47 M 46/421 M 46/411 M 46/401 M 46/348 M 46/338 M 46/328 M 46/318 M 45/1127 M 45/1094 M 45/1084 E 46/600 E 46/467 E 45/3448 E 45/3417 E 45/3310 E 45/2946 E 45/2862 E 45/2852 E 08/2194 E 08/2065 E 08/2003 E 08/1942 E 08/1902 E 08/1762 E 08/1624 L 47/298 P 47/1411 P 47/1401 P 47/1270 E 52/2380 E 52/1760 E 47/2046 E 47/1761 E 47/1395 E 46/770 E 45/3430 E 45/2845 E 08/1992 M 45/1149 L 47/199 L 46/62 L 46/48 M 46/422 M 46/412 M 46/402 M 46/349 M 46/339 M 46/329 M 46/319 M 45/1128 M 45/1102 M 45/1085 E 46/601 E 46/516 E 45/3463 E 45/3421 E 45/3318 E 45/2970 E 45/2863 E 45/2853 E 08/2195 E 08/2067 E 08/2004 E 08/1943 E 08/1903 E 08/1814 E 08/1626 L 47/299 P 47/1412 P 47/1402 P 47/1279 E 52/2414 E 52/1779 E 47/2047 E 47/1763 E 47/1447 E 46/799 E 45/3431 E 45/2846 E 45/2707 M 45/1150 L 46/64 L 46/49 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 45/1103 M 45/1086 E 46/610 E 46/518 E 45/3465 E 45/3422 E 45/3328 E 45/2971 E 45/2864 E 45/2854 E 08/2196 E 08/2072 E 08/2034 E 08/1949 E 08/1904 E 08/1816 E 08/1627 L 47/300 P 47/1423 P 47/1403 P 47/1286 E 52/2415 E 52/2268 E 47/2055 E 47/1764 E 47/1448 E 46/832 E 45/3432 E 45/2847 E 45/2709 Information as at 10 September 2010 Western Australia Tenure (continued) TENEMENT REPORT E 04/1534 FMGHolder: Ltd Resources Status: Pty Granted FMG mineral rightsstatus: 100%allmineral rights M 45/1184 Pilbara FMGLtdHolder: Status: Pty Application North FMG mineral rightsstatus: 100%allmineral rights E 45/3084 Pilbara FMGLtdHolder: Status: Pty Granted North FMG mineral rightsstatus: 100%allmineral rights M 47/1408 FMGHolder: Pilbara Ltd Status: Pty Application FMG mineral rightsstatus: 100%allmineral rightsexcept diamonds E 45/3466 E 08/2118 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 E 47/1370 E 46/886 E 46/776 E 46/715 E 46/697 E 45/3699 E 45/3650 E 45/3570 P 47/1176 E 45/2510 Fortescue GroupHolder: Metals Ltd Status: Granted FMG mineral rightsstatus: 100% all mineral rights E 69/2525 E 59/1608 E 51/1166 E 45/3563 E 04/1536 FMGHolder: Ltd Resources Status: Pty Application FMG mineral rightsstatus: 100% allmineral rights L 47/368 L47/295 FMGHolder: Pilbara Ltd Status: Pty Application FMG mineral rightsstatus: n/a P 47/1552 P 47/1393 P 47/1283 P 47/1210 P 08/618 M 47/1404 E 52/2594 E 52/2393 E 52/2034 E 47/2387 E 47/2334 E 47/2241 E 47/2223 E 47/2143 E 47/1998 E 47/1988 E 47/1818 E 47/1703 E 47/1677 E 47/1667 E 47/1655 E 47/1535 E 47/1420 L 47/375 L 47/297 M 47/1409 P 47/1553 P 47/1394 P 47/1284 P 47/1211 P 08/619 M 47/1413 E 69/2722 E 52/2453 E 52/2035 E 47/2388 E 47/2336 E 47/2242 E 47/2226 E 47/2159 E 47/1999 E 47/1989 E 47/1833 E 47/1728 E 47/1679 E 47/1668 E 47/1656 E 47/1543 E 47/1423 E 47/1375 E 46/889 E 46/805 E 46/724 E 46/698 E 45/3711 E 45/3654 E 45/3591 E 45/3469 P 47/1177 E 47/1319 L 45/191 E 45/2535 E 69/2526 E 69/2516 E 52/1945 E 45/3564 E 04/1537 E 59/1275 L 47/381 L 47/301 M 47/1410 P 47/1554 P 47/1395 P 47/1285 P 47/1237 P 08/620 M 47/1431 E 69/2723 E 52/2454 E 52/2113 E 47/2389 E 47/2337 E 47/2243 E 47/2229 E 47/2160 E 47/2000 E 47/1990 E 47/1843 E 47/1734 E 47/1681 E 47/1669 E 47/1659 E 47/1549 E 47/1433 E 47/1383 E 47/1342 E 46/859 E 46/725 E 46/699 E 45/3735 E 45/3658 E 45/3600 E 45/3472 P 47/1178 M 45/1180 E 47/1299 E 69/2527 E 69/2517 E 52/1946 E 45/3565 E 04/1538 E 59/1360 P 47/1179 M 45/1181 E 47/1300 E 69/2528 E 69/2518 E 52/1947 E 45/3566 E 04/1539 E 77/1385 L 47/382 L 47/350 M 47/1411 P 47/1555 P 47/1396 P 47/1287 P 47/1261 P 08/621 M 47/1433 E 69/2724 E 52/2470 E 52/2114 E 47/2390 E 47/2357 E 47/2244 E 47/2234 E 47/2171 E 47/2020 E 47/1991 E 47/1855 E 47/1735 E 47/1682 E 47/1670 E 47/1660 E 47/1578 E 47/1435 E 47/1384 E 47/1343 E 46/861 E 46/726 E 46/700 E 45/3738 E 45/3659 E 45/3603 E 45/3473 E 47/2173 E 47/2061 E 47/1992 E 47/1879 E 47/1741 E 47/1684 E 47/1671 E 47/1661 E 47/1579 E 47/1446 E 47/1387 E 47/1349 E 46/862 E 46/727 E 46/701 E 45/3739 E 45/3663 E 45/3605 E 45/3489 P 47/1180 M 45/1182 E 47/1301 E 69/2529 E 69/2519 E 52/2423 E 45/3567 E 45/3221 L 47/383 L 47/354 M 47/1417 E 45/3705 P 47/1397 P 47/1304 P 47/1262 P 08/622 M 47/1434 E 69/2725 E 52/2484 E 52/2264 E 52/1788 E 47/2358 E 47/2285 E 47/2235 E 47/2174 E 47/2062 E 47/1993 E 47/1921 E 47/1762 E 47/1685 E 47/1672 E 47/1662 E 47/1623 E 47/1449 E 47/1388 E 47/1351 E 46/870 E 46/728 E 46/702 E 45/3746 E 45/3664 E 45/3606 E 45/3535 M 45/1183 E 47/1302 E 69/2530 E 69/2520 E 57/738 E 45/3568 E 45/3222 L 47/355 E 47/1398 P 47/1513 P 47/1305 P 47/1269 P 45/2721 M 47/1440 E 69/2726 E 52/2521 E 52/2340 E 52/1789 E 47/2368 E 47/2292 E 47/2236 E 47/2177 E 47/2119 E 47/1994 E 47/1923 E 47/1772 E 47/1686 E 47/1673 E 47/1663 E 47/1651 E 47/1453 E 47/1396 E 47/1355 E 46/871 E 46/729 E 46/703 E 45/3704 E 45/3683 E 45/3608 E 45/3536 P 47/1172 E 69/2531 E 69/2521 E 57/756 E 45/3569 E 45/3223 L 47/361 E 47/1399 P 47/1514 P 47/1315 P 47/1278 P 45/2748 M 47/1441 E 69/2727 E 52/2522 E 52/2341 E 52/1790 E 47/2369 E 47/2311 E 47/2237 E 47/2178 E 47/2133 E 47/1995 E 47/1938 E 47/1773 E 47/1687 E 47/1674 E 47/1664 E 47/1652 E 47/1460 E 47/1397 E 47/1357 E 46/872 E 46/735 E 46/704 E 46/694 E 45/3696 E 45/3611 E 45/3545 P 47/1173 E 70/3546 E 69/2522 E 59/1267 E 51/1158 E 45/3224 L 47/362 P 47/1536 P 47/1390 P 47/1280 P 45/2749 P 08/531 E 69/2728 E 52/2527 E 52/2342 E 52/1937 E 47/2370 E 47/2312 E 47/2238 E 47/2197 E 47/2137 E 47/1996 E 47/1944 E 47/1808 E 47/1688 E 47/1675 E 47/1665 E 47/1653 E 47/1500 E 47/1404 E 47/1361 E 46/878 E 46/741 E 46/708 E 46/695 E 45/3697 E 45/3641 E 45/3549 P 47/1174 E 69/2523 E 59/1279 E 51/1159 E 45/3225 L 47/363 P 47/1537 P 47/1391 P 47/1281 P 47/1198 P 08/532 E 69/2729 E 52/2575 E 52/2347 E 52/1977 E 47/2378 E 47/2331 E 47/2239 E 47/2198 E 47/2138 E 47/1997 E 47/1985 E 47/1809 E 47/1690 E 47/1676 E 47/1666 E 47/1654 E 47/1533 E 47/1419 E 47/1363 E 46/882 E 46/743 E 46/711 E 46/696 E 45/3698 E 45/3642 E 45/3561 P 47/1175 E 69/2524 E 59/1595 E 51/1165 E 45/3226 L 47/367 P 47/1545 P 47/1392 P 47/1282 P 47/1199 P 08/617 M 45/1196 E 52/2576 E 52/2382 E 52/1984 E 47/2379 E 47/2333 E 47/2240 103 103 FORTESCUE METALS GROUP ANNUAL REPORT 2010 104 104 FORTESCUE METALS GROUP ANNUAL REPORT 2010 New Zealand Tenure Queensland Tenure South Australia Tenure Western Australia Tenure (continued) Information as at 10 September 2010 TENEMENT REPORT 52604 FMGHolder: Pacific LtdPty Status: Application FMG mineralrights status: 100%allmineralrights 52147 50990 FMGHolder: Pacific LtdPty Status: Granted FMG mineralrights status: 100% rightscoal 50993 FMGHolder: Pacific LtdPty Status: Granted FMG mineralrights status: 100%allmineralrights EPC 1970 FMGHolder: Ltd Resources Status: Pty Granted FMG mineral rightsstatus: 100%allcoal rights EPC 1972 FMGHolder: Ltd Resources Status: Pty Application FMG mineral rightsstatus: 100% coal rights EL 4414 FMGHolder: Ltd Resources Status: Pty Granted FMG mineral rightsstatus: 100%allmineral 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 E 47/1846 Grange ResourcesHolder: Ltd Status: Granted FMG mineral rightsstatus: 100%allmineral rights M 47/1407 M 47/663 Flinders LtdHolder: Status: Mines Application FMG mineral rightsstatus: 100%iron ore rights 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 L 46/63 Status: Application FMG mineral rightsstatus: n/a Contract PowerHolder: Australia Ltd /Contract Pty Power Ltd as HoldingsPty Trustee for Contract Power HoldingsSub-trust 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 47/132 PilbaraHolder: Ltd Iron Ore Status: Pty Application FMG mineral rightsstatus: n/a M 47/580 PilbaraHolder: Ltd Iron Ore Status: Pty Application FMG mineral rightsstatus: 50%allmineral rights E 47/1191 PilbaraHolder: Ltd Iron Ore Status: Pty Granted FMG mineral rightsstatus: 50%allmineral rights AL 70/1 Holder: The Ltd Pilbara Status: Pty Granted Infrastructure FMG mineral rightsstatus: n/a L 47/329 Holder: The Ltd Pilbara Status: Pty Application Infrastructure FMG mineral rightsstatus: n/a M 47/581 E 47/1192 AL 70/2 52606 51016 50994 EPC 1980 EPC 1975 E 47/1194 E 47/1863 E 70/2596 M 47/664 E 47/1016 E 47/1154 L 47/134 L 47/330 E 47/1195 M 47/665 E 47/1306 E 47/1649 L 47/205 M 47/582 E 47/1224 AL 70/3 52727 51183 50873 EPC 1984 EPC 2010 L 47/331 E 47/1196 M 47/666 E 47/1650 E 47/1225 L 45/199 52728 51209 50874 EPC 2013 L 45/222 51212 50961 EPC 2090 M 47/667 E 52/1667 E 47/1235 L 46/86 L 45/223 E 47/1380 L 45/224 L 46/87 51213 50960 M 47/668 P 08/505 P 47/1156 51074 50992 M 47/669 P 08/556 P 47/1414 51267 50995 M 47/670 51330 50996 M 47/671

51258 M 47/672 Mr LiXiaoweiMr ‑NonExecutive Director Dr IanBurston ‑NonExecutive Director ‑NonExecutive Director Hegarty Owen Mr Brayshaw Geoff Mr ‑NonExecutive Director KenAmbrechtMr ‑NonExecutive Director Graeme Rowley ‑NonExecutiveMr Director ‑Executive RussellScrimshaw Mr Director AndrewMr Forrest ‑ChiefExecutive Officer Elliott‑Chairman Herb Mr Directors ABN 57002594872 Australian BusinessNumber CORPORATE DIRECTORY form andcontext inwhichitappears. ofthematters basedontheirinformationinthe consent Simpson,Bull andBong to theinclusioninthisreport Messrs Robinson,Glassock, andMetallurgy,of Mining the Australian Institute andtheMinerals ofGeoscientists Council ofAustralia,December 2004. effective ofMineral Resources Code), (JORC prepared Committee andOreReserves byReporting of theAustralasian Ore Reserves theJoint Institute The development oftheCloudbreak was andChristmasCreekmodel Orereserve carried outinaccordance withtheAustralasian Code for and OreReserves”. as aCompetent Person asdefinedinthe2004 Edition ofthe ofExploration“Australasian Results,Mineral forReporting Code Resources haveBull andBong sufficientexperience whichis relevant understyle ofmineralisation ofdeposit type consideration tothe and to qualify input forMineral Resource calculations estimations, Reserve andcompilation ofexploration results. Simpson, MessrsRobinson,Glassock, are Simpson,BullandBong allfulltimeemployeesMessrs Robinson,Glassock, ofFortescue Metals Group Ltd andprovided technical ofThe Members Australasianboth andMetallurgy. Institute ofMining thatrelates to isbased oninformationcompiled MineralBong whoareMr Alan The by Geoffrey detailinthisreport Reserves Bulland Mr Australasian andMetallurgy. Institute ofMining The Australasian Clayton SimpsonwhoareofThe andMr andMetallurgy Members InstituteMarkGlassock both ofMining andMr thatrelates to MineralThe detailinthisreport Resources RobinsonwhoisaFellow isbasedoninformationcompiled by Stuart Mr of Competent Persons Statement 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 Mark Thomas CampbellRod Company Secretaries IanCummingMr ‑NonExecutive Director ‑NonExecutive Barnaba Mark DirectorMr Perth WESTERN AUSTRALIA, 6001 GPO Box D182 Perth WESTERN AUSTRALIA, 6000 Level 2,45St Georges Terrace Computershare Limited Pty Investor Services Share Register Exchange (SGX) Fortescue ontheSingapore listsdebtsecurities Stock ASX Code: FMG Australian Exchange Securities (ASX) Fortescue Group Metals Limited shares are listed onthe Stock Exchange Listings Sydney SOUTH NEW WALES, 2000 2 Park Street Citigroup Limited Pty Perth WESTERN AUSTRALIA, 6000 77 St Georges Terrace Group Limited ANZ Banking Bankers Meeting. preferences andNotices forof items likeAnnual Reports your Shareholder detailsto alter your communication Head to electronically. You cansave paperandreceive thisreport 19th November 2010 Annual General Meeting Computershare. For any changeinpersonaldetails, pleasecontact Tel: +61893232000Fax: +61893232033 www.computershare.com andloginwith 105 105 FORTESCUE METALS GROUP ANNUAL REPORT 2010 108 108 FORTESCUE METALS GROUP ANNUAL REPORT 2010