Working together. Delivering results. ABN 57 002 594 872 I 2015 Annual Report THE YEAR AT A GLANCE SAFETY Operating cost Total Recordable 5.1 Injury Frequency Rate (TRIFR) 21% 165.4 Revenue million tonnes shipped for FY15 US$8.6 13% billion Aboriginal employment achieved Fifth berth at Herb Elliott Port Commissioned March 2015 Fortescue River A$ Gas Pipeline 1.8 billion construction completed Contracts to Aboriginal companies and JVs 17.3 2.4 billion tonnes Ore Reserves Mineral Resources ABOUT FORTESCUE Overview 3 Fortescue Metals Group is a global leader in the iron ore industry, recognised for its culture, innovation and industry-leading development of world class infrastructure and mining assets in the Pilbara, Western Australia. Since it was founded in 2003, Fortescue has discovered and developed significant iron ore deposits and constructed some Operating and Financial Review 19 of the largest mines in the world. The Chichester Hub, which includes the Cloudbreak and Christmas Creek mines, is located in the Chichester Ranges, and produces more than 90 million tonnes per annum (mtpa) of iron ore and an additional six mtpa from Fortescue’s joint venture with BC Iron. The Solomon Hub is located in the Hamersley Ranges, and includes Reserves and Resources 33 the Firetail and Kings Valley mines which produce in excess of 70 mtpa. Fortescue has constructed world class facilities at its five berth Herb Elliott Port in Port Hedland, and operates the fastest, heavy haul railway in the world with up to 42 tonne axle load capacity over 620km of track, including 12 bridges. The company is now producing 165 million tonnes of iron ore per annum and is focused on being the safest, lowest cost, Corporate Social Responsibility 45 most profitable iron ore producer. As a proud West Australian company, Fortescue values its relationship with key stakeholders by working together to positively manage and create opportunities for Aboriginal people, communities, the environment and the broader Australian economy. Governance 75 ABOUT THIS REPORT This report has been prepared for Fortescue’s stakeholders in line with our statutory and regulatory obligations. The Company is committed to becoming the safest, lowest cost, most profitable iron ore producer and the information within this report outlines Financial Report 93 Fortescue’s performance and the journey to realising this vision in a manner that reflects the Company’s core values. This report provides a summary of Fortescue’s operations and financial position for the financial year ended 30 June 2015. All references to Fortescue, the Group, the Company, we, us and our refer to Fortescue Metals Group Limited (ABN 57 002 594 872) and its subsidiaries. All references to a year are the financial year Remuneration Report 143 ended 30 June 2015 unless otherwise stated. All dollar figures are in US currency unless otherwise stated. Corporate Information 163 FORTESCUE METALS GROUP LIMITED 2015 ANNUAL REPORT I 1 OPERATINGThe best address AND FINANCIAL for iron REVIEW ore HIGHLIGHTS Fortescue holds the largest tenement position in the Pilbara. 2 I FORTESCUE METALS GROUP LIMITED OVERVIEW Operating and Corporate Social Overview Reserves and Resources Governance Financial Report Remuneration Report Corporate Information 3 I Financial Review Responsibility 2015 ANNUAL REPORT 2015 ANNUAL FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Report Report Information I Remuneration I Corporate I Operating and Financial Review I Reserves and Resources I Corporate Social Responsibility I Governance I Financial Social I Reserves Responsibility I Governance and Resources I Corporate Review and Financial I Operating Overview OVERVIEW CHAIRMAN’S MESSAGE Andrew Forrest I am delighted to provide the Chairman’s Report on your Company’s While we too can make good money on incremental expansion tonnes, performance during the 2014-15 financial year. Our operations are we fail to see any logic in doing so when we lower the value for all our mining, processing, shipping and exploring our valuable iron ore at tonnes we produce on your behalf. The net gain on the extra tonne is a steady canter of 165 million tonnes per annum. Sitting within our completely overwhelmed by the overall loss caused by lowering the iron arsenal is the ability to accelerate production significantly, quickly ore price, by pushing incremental tonnes into a market that doesn’t want and very cost efficiently. Operating costs, which continue to fall, are them. The logic that you keep expanding just because you can squeeze already a match for the best in the industry. an extra tonne out of your machines, applies well to mining juniors that won’t put a dent in the market, but is market vandalism and self harm At Fortescue, you “always do what you say you are going to do”. As a when industry leaders do it. The buyers make a picnic out of you and shareholder, I am grateful for that attitude because during a year of that’s exactly what happened to the Australian iron ore industry. intense price volatility in the iron ore market, our Company has delivered outstanding results across the key performance measures of safety, And that industry is massive. It impacts every Australian and every production and cost, and accumulated substantial cash on our balance Australian is a stakeholder. At Fortescue we have worked hard to educate sheet. The strength of the relationships we enjoy with our customers are the media, government and the broader community of the importance driven not only because we produce exactly the product they need, but of iron ore to the Australian economy, responding to the urgent need also because the substantial market share they have given us is met for much greater transparency on the practices, contribution and with deep respect. They can and do rely on us because our product is challenges for the industry as a whole. It’s only fair the public receives predictable, excellent value, and our team is great to deal with. the same level of information as well run national industries. Previously the iron ore industry has studiously resisted such transparency, using As of 30 June 2015 we have US$2.4bn in cash and as such net debt industry bodies and lobbyists to pursue this objective. of US$7.2bn. Our world class assets are worth in the tens of $billions. Today, like every other, we will add several million dollars to that Iron ore is inelastic in demand. That simply means our customers have balance sheet - while employing some 8,600 people. Your Company is a strong need for the product to a point and are not particularly price in great shape and, of all the majors, we are proud to pay our fair share sensitive up to reaching that point. However, once that need has been of tax. We are the only iron ore major to not channel iron ore through realised, any further product offering will see the price collapse. We have offshore tax minimising marketing hubs. seen that this year. Our customers won’t take more iron ore even if our competitors offered to give it away. All the arguments we have seen this Australia must ask itself if the skewed business playing field working year trying to explain away overproduction into weak markets don’t hold against locals is what it wants? In our industry multinational water. Stepping back it is easy to see that the logic of demand inelasticity competitors pay less tax per iron ore production unit than their major overwhelms the excuses given by multinationals for expanding into a local competitor. Is this the industry playing field it expects Australian weak market, which has so diminished Australia’s national income. based taxpayers to successfully compete in, or to level the playing field are we being in effect encouraged to move offshore as well? Earlier this year, iron ore demand and supply was in balance, with stockpiles declining and all shipments being sold. However downward When the market turns and does require additional iron ore, we will price volatility was driven by the expectation of irrational oversupply be there, fast and inexpensively. Yet it won’t be Fortescue that pushes behaviour. Sophisticated markets predicted multinational iron ore the iron ore price down in weak markets to the detriment of the producers would be driven by the market share ambitions of their economy, simply because our machines have spare capacity. Fortescue corporate managers, who, in attempting to explain their behaviour, grew to this very strong base in equally strong markets. We met would argue they are simply running their machines hard. In other real demand with real production. In weak markets we also act in a words, seemingly suggesting that their machines set their corporate rational manner and slow or even stop expansion. supply strategy. 4 I FORTESCUE METALS GROUP LIMITED OVERVIEW Overview The markets predicted that the multinationals would pursue market The Freedom Fund has liberated over 2,000 people from slavery share ahead of total returns for shareholders and public stakeholders, and impacted on a further 55,000 lives in Northern India and Nepal. and they were right. While the Walk Free Movement, working with our partners, have had successful campaign with 11 governments, the European Parliament, Against this backdrop, we remain confident in our own competitiveness the International Labour Organization and eight major companies and the strong fundamentals of the Chinese market. Projected GDP have also adopted our anti-slavery recommendations. remains strong and the important US$140 billion “Belt & Road” Review Financial Operating and Operating infrastructure plan will drive solid growth and demand for steel for GenerationOne decades to come. To this end, our longstanding relationships with GenerationOne, the Foundation’s vehicle to help eliminate the our customers and stakeholders in China are all part of what makes indigenous disparity through employment, entered a new phase in Fortescue unique.