A DECADE OF GROWTH 2013 ANNUAL REPORT 2003 ABN: 57 002 594 872 The dream begins 2004 Cloudbreak identified 2005 ASX 200 listing 2006 Port Hedland ground-breaking 2007 Construction at 70% 2008 First ore on ship 2009 27mt shipped 2010 Christmas Creek expanded 2011 Solomon Hub developed 2012 57.5mt shipped 2013 Firetail opened www.fmgl.com.au CONTENTS • Chairman’s Statement 2 • Chief Executive Officer’s Statement 6 ‘ • Operations Report 8 ‘ Fortescue has continually faced challenges • Reserves and Resources Report 10 and embraced opportunities and it is this ability, ‘‘to respond quickly to a changing landscape, • Corporate Social Responsibility 15 which has been key to its success. • Corporate Governance 38 Andrew Forrest, Chairman • Financial Report 50 • Directors’ Report 51 • Remuneration Report 67 • Auditor’s Independence Declaration 85 • Financial Statements 86 • Directors’ Declaration 139 • Independent Auditor’s Report to the Members 140 • Shareholder Information 143 • Tenement Report 144 • Corporate Directory 148 FY13 HIGHLIGHTS Ore Shipped 80.9mt Revenue US$8.1bn EBITDA US$3.6bn NPAT US$1.7bn C1 Costs US$44/wmt EBITDA – is calculated as profit before income tax adjusted for depreciation and amortisation, impairment expense, other write offs, net finance costs and gain on refinancing. NPAT – net profit after tax. C1 – operating costs of mining, processing, rail and port on a per tonne basis. Fortescue Metals Group Limited I Annual Report 2013 I 1 CHAIRMAN’S REPORT In Fortescue’s formative years, camps occupied by exploration teams, geologists, environmentalists and anthropologists were dotted across the Pilbara as we mapped, drilled, planned and consulted our great company into existence. Similarly, others city-hopped the globe, stretching credit card limits, staying at cheap hotels, doing their own washing and selling the vision to any good soul that gave them the time to listen. With an annual iron ore production in all of Australia in 2003 of a mere 180 million tonnes per annum (mtpa), not much more than Fortescue’s planned production this coming year, we were confident that Fortescue had a challenging but bright future in a market that, even though dominated by global players, lacked serious competition. Like every year at Fortescue, the next five years were nothing less than extraordinary. Our never, ever give up attitude saved the team despite multiple short term setbacks. We found Celebrating our first decade huge new ore bodies that had to be pre-sold by the marketing This is a defining year and decade for our stakeholders! Even team to the world’s steel industry to help finance our two- though we are a company that never stands still, I want to berth deep water port and a 300 kilometre railway line to link devote this Chairman’s report to celebrating our first decade. the entire operation to the huge Cloudbreak ore preparation It is worthwhile reflecting on the remarkable journey to date plant, still the largest single plant ever built. It will only be that has delivered a new and fundamental player into the surpassed by the Kings ore preparation plant on completion Australian economy and has provided employment and better this year. Every single milestone of that first stage was reached lifestyles to so many people. Fortescue is in good health and despite the tragedy of Cyclone George and multiple other match fit to meet the many challenges ahead. challenges and failures. Overcoming all these hurdles, our first commercial shipment of Fortescue-mined iron ore sailed out Ten years ago Fortescue’s early pioneers sat around my kitchen of Port Hedland on May 15, 2008. It was a defining moment. table poring over maps of underexplored, huge Pilbara lands. While the evident geology was massive, those vast lands were The dream that had involved so many thousands of people mostly unpegged or soon would be dropped. We challenged had been realised. Yet only a few months later, the Global the big companies, and some in bureaucracy, to cooperate Financial Crisis struck, iron ore demand collapsed and prices with the intent of the mining act. While the hidden ‘geopoly’ plummeted. We were deeply thankful that we had pushed attitude protecting the major companies was typical of the ourselves so hard to have the operations complete in time, so times, vast, unexplored and unutilised areas would soon strong revenues shielded us when the worst of the crisis hit. become subject to Fortescue challenge. It was the hard work of the Fortescue team in maintaining Our dream was simultaneously singular and vast - to develop strong relationships with our Chinese customers that enabled massive infrastructure to be able to market previously stranded us to continue to sell every tonne of ore we could produce; iron ore deposits, all of which we were yet to discover, and no easy feat considering that many of our competitors were market those new ores to the global steel industry. unable to do the same. By the end of the 2009 crisis year, we had shipped 27 million tonnes to over 45 steel mill customers across We hoped and planned for success, back then daring only to China. Through mutually difficult times we had supported and imagine that in some 10 years, Fortescue would be operating cemented our relationship with the Chinese steel industry. four world class iron ore mines, boast the fastest, heaviest haul railway in the world, possess Australia’s most efficient iron ore 2010 represented a significant turning point for Fortescue, port, enjoy strong customer relationships across the globe, which had matured into a strong and sustainable producer. and have huge untapped exploration. The vast strike lengths The year saw us ship 40.1 million tonnes (a 44 per cent and potential mineralisation is of a scale that could dwarf increase on the previous year) and planning began for the anything that our highly successful existing programs have leap to 155mtpa. From only a start-up, this would cement our discovered so far. position as one of the world’s leading iron ore producers. 21 II FortescueFortescue Metals Metals Group Group Limited Ltd I Annual I Annual Report Report 2013 2013 ‘ A major achievement for our business ‘ during FY13 was the early achievement of our ‘‘goal of awarding A$1billion in contracts to Aboriginal contractors by December 2013. Growth recovered at pace in the emerging economies so there was no time to relax. Fortescue had a major contribution to make in the independent, stable supply of high quality iron ore to the rapidly growing Asian economies. The US$9.0 billion expansion program was brave but would enable Fortescue to leverage existing infrastructure and its massive land holding across the Pilbara, which will eventually be judged by history as nothing more than common sense. With the 155mtpa expansion well underway, Fortescue was able to maintain its momentum in 2011 to ship 42 million tonnes. Significantly, an annualised production rate of 55mtpa was achieved and in 2012 we exceeded our target of 55 million tonnes, shipping more than 57mtpa. The past 10 years has seen an incredible effort in reaching milestones, breaking records, and development of many industry innovations by Billion Opportunities celebration Fortescue people. FY13 performance In reviewing FY13, I am delighted with our strong financial performance, continued success in reducing operating costs and record production of 80.9 million tonnes shipped. Our CEO, Nev Power, who is doing a cracking job, will discuss this further in his report. Opening of Nick Sexton Berth Financial Despite a challenging period of volatility during the early part of business and academia is a reflection of the mutual esteem in FY13, we recorded a net profit after tax (NPAT) of US$1.7 billion on which we hold our customers and other strong supporters. the back of a 12 per cent increase in revenue to US$8.1 billion and 9 per cent rise in EBITDA to US$3.6 billion. Increased Boao this year also hosted the inaugural meeting of the volumes from our Chichester mines, supported by initial Firetail Australia-China Senior Business Leaders’ Forum (SBLF), the tonnes were the key drivers behind this performance. At the first ever permanent and high level business-to-business same time we reduced our C1 costs to US$44 per wet metric interaction between the two countries. This critical bilateral tonne (wmt), which is 9 per cent lower than the prior year. relationship had drifted badly, so it was exciting to witness the leadership of Australian business strengthening it back Operational to its previous state. From an operations perspective, this year is very significant as it witnessed the commissioning of our fourth mine, Firetail, and Asia’s economies in general continue to grow at a rate will see the completion of our fifth at Kings, all in only five years. that is the envy of the rest of the world. We remain confident that China, in particular, will sustain its urbanisation and Fortescue has shown exceptional congeniality, for which I industrialisation process, switching from economic reliance am deeply grateful, in the high level of cooperation practiced on exports to internal consumption to drive demand like a between the often combative operations and construction self-combusting engine. This ensures the long term strength teams. As a result, we are now well positioned to hit our of Fortescue through our unique stable, high quality iron ore initial targets of shipping 155mtpa of high quality iron ore to supply and strong relationships. our customers. As an example, Formosa is building the world’s largest International single steel manufacturing facility of 22mtpa in Vietnam. The Fortescue/China relationship has continued to thrive. In This visionary new project, being completed by one the April this year, we returned for a fifth consecutive year to the world’s largest manufacturing companies, signals their Boao Forum for Asia.