2013 ANNUAL REPORT
ABN: 57 002 594 872
A DECADE
OF GROWTH
2003
The dream begins
2005
ASX 200 listing
2007
Construction at 70%
2009
27mt shipped
2011
Solomon Hub developed
2013
Firetail opened
2004
Cloudbreak identified
2006
Port Hedland ground-breaking
2008
First ore on ship
2010
Christmas Creek expanded
2012
57.5mt shipped
www.fmgl.com.au
CONTENTS
• Chairman’s Statement
• Chief Executive Officer’s Statement
• Operations Report
• Reserves and Resources Report
• Corporate Social Responsibility
• Corporate Governance
•
Financial Report
• Directors’ Report
• Remuneration Report
• Auditor’s Independence Declaration
•
Financial Statements
• Directors’ Declaration
•
•
Independent Auditor’s Report to the Members
Shareholder Information
• Tenement Report
• Corporate Directory
2
6
8
10
15
38
50
51
67
85
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139
140
143
144
148
‘‘
Fortescue has continually faced challenges
and embraced opportunities and it is this ability,
to respond quickly to a changing landscape,
which has been key to its success.
‘‘
Andrew Forrest, Chairman
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
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
huge new ore bodies that had to be pre-sold by the marketing
team to the world’s steel industry to help finance our two-
berth deep water port and a 300 kilometre railway line to link
the entire operation to the huge Cloudbreak ore preparation
plant, still the largest single plant ever built. It will only be
surpassed by the Kings ore preparation plant on completion
this year. Every single milestone of that first stage was reached
despite the tragedy of Cyclone George and multiple other
challenges and failures. Overcoming all these hurdles, our first
commercial shipment of Fortescue-mined iron ore sailed out
of Port Hedland on May 15, 2008. It was a defining moment.
The dream that had involved so many thousands of people
had been realised. Yet only a few months later, the Global
Financial Crisis struck, iron ore demand collapsed and prices
plummeted. We were deeply thankful that we had pushed
ourselves so hard to have the operations complete in time, so
strong revenues shielded us when the worst of the crisis hit.
It was the hard work of the Fortescue team in maintaining
strong relationships with our Chinese customers that enabled
us to continue to sell every tonne of ore we could produce;
no easy feat considering that many of our competitors were
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
China. Through mutually difficult times we had supported and
cemented our relationship with the Chinese steel industry.
2010 represented a significant turning point for Fortescue,
which had matured into a strong and sustainable producer.
The year saw us ship 40.1 million tonnes (a 44 per cent
increase on the previous year) and planning began for the
leap to 155mtpa. From only a start-up, this would cement our
position as one of the world’s leading iron ore producers.
Celebrating our first decade
This is a defining year and decade for our stakeholders! Even
though we are a company that never stands still, I want to
devote this Chairman’s report to celebrating our first decade.
It is worthwhile reflecting on the remarkable journey to date
that has delivered a new and fundamental player into the
Australian economy and has provided employment and better
lifestyles to so many people. Fortescue is in good health and
match fit to meet the many challenges ahead.
Ten years ago Fortescue’s early pioneers sat around my kitchen
table poring over maps of underexplored, huge Pilbara lands.
While the evident geology was massive, those vast lands were
mostly unpegged or soon would be dropped. We challenged
the big companies, and some in bureaucracy, to cooperate
with the intent of the mining act. While the hidden ‘geopoly’
attitude protecting the major companies was typical of the
times, vast, unexplored and unutilised areas would soon
become subject to Fortescue challenge.
Our dream was simultaneously singular and vast - to develop
massive infrastructure to be able to market previously stranded
iron ore deposits, all of which we were yet to discover, and
market those new ores to the global steel industry.
We hoped and planned for success, back then daring only to
imagine that in some 10 years, Fortescue would be operating
four world class iron ore mines, boast the fastest, heaviest haul
railway in the world, possess Australia’s most efficient iron ore
port, enjoy strong customer relationships across the globe,
and have huge untapped exploration. The vast strike lengths
and potential mineralisation is of a scale that could dwarf
anything that our highly successful existing programs have
discovered so far.
2 I Fortescue Metals Group Limited I Annual Report 2013
1 I Fortescue Metals Group Ltd I Annual Report 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
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.
Financial
Despite a challenging period of volatility during the early part of
FY13, we recorded a net profit after tax (NPAT) of US$1.7 billion on
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
volumes from our Chichester mines, supported by initial Firetail
tonnes were the key drivers behind this performance. At the
same time we reduced our C1 costs to US$44 per wet metric
tonne (wmt), which is 9 per cent lower than the prior year.
Operational
From an operations perspective, this year is very significant as
it witnessed the commissioning of our fourth mine, Firetail, and
will see the completion of our fifth at Kings, all in only five years.
Fortescue has shown exceptional congeniality, for which I
am deeply grateful, in the high level of cooperation practiced
between the often combative operations and construction
teams. As a result, we are now well positioned to hit our
initial targets of shipping 155mtpa of high quality iron ore to
our customers.
International
The Fortescue/China relationship has continued to thrive. In
April this year, we returned for a fifth consecutive year to the
Boao Forum for Asia. Our presence and top level sponsorship
of this eminent gathering of persons from government,
Billion Opportunities celebration
Opening of Nick Sexton Berth
business and academia is a reflection of the mutual esteem in
which we hold our customers and other strong supporters.
Boao this year also hosted the inaugural meeting of the
Australia-China Senior Business Leaders’ Forum (SBLF), the
first ever permanent and high level business-to-business
interaction between the two countries. This critical bilateral
relationship had drifted badly, so it was exciting to witness
the leadership of Australian business strengthening it back
to its previous state.
Asia’s economies in general continue to grow at a rate
that is the envy of the rest of the world. We remain confident
that China, in particular, will sustain its urbanisation and
industrialisation process, switching from economic reliance
on exports to internal consumption to drive demand like a
self-combusting engine. This ensures the long term strength
of Fortescue through our unique stable, high quality iron ore
supply and strong relationships.
As an example, Formosa is building the world’s largest
single steel manufacturing facility of 22mtpa in Vietnam.
This visionary new project, being completed by one the
world’s largest manufacturing companies, signals their
confidence that the Asian growth miracle does not stop
at the doorstep of China.
Fortescue Metals Group Limited I Annual Report 2013 I 3
Fortescue Metals Group Ltd I Annual Report 2013 I 2
CHAIRMAN’S REPORT
Opening of Firetail
Development
It is particularly significant for Fortescue, not just for the
supply of our iron ore to this facility, but also for the joint
venture recently formed between Formosa and Fortescue
that will lead to the development of our Iron Bridge magnetite
project. Like most of the challenges that Fortescue has set
itself, this project was also derided by the critics. Yet it has
created an asset of major value to Fortescue and injected
significant liquidity into our balance sheet. Fortescue’s
now famous exploration team is also continuing its highly
successful track record throughout this year, constantly
discovering new opportunities for future development.
Opportunities
From a local perspective, I think one of our most satisfying
achievements was reaching our goal of awarding A$1billion
in competitive contracts to Aboriginal businesses. Our rapid
expansion to 155mtpa has created many opportunities for
Aboriginal businesses to actively participate in Fortescue’s
growth, through direct contracts, joint ventures or
sub-contracts with Fortescue’s major contractors.
Our Billion Opportunities Program has set a significant
benchmark for the creation of genuine opportunities for
Aboriginal-owned businesses. The Leader of the Opposition,
The Hon. Tony Abbott, has both thrown down the gauntlet
to Australian industry to follow our example and adopted the
“training directly to a guaranteed job” model of one of our
most successful philanthropic efforts, GenerationOne.
If elected, he pledged to follow the GenerationOne model in
the Coalition’s Indigenous Policy, also guaranteeing 5,000 new
training positions for unemployed indigenous people.
abundant on-going training and employment opportunities
to Aboriginal people. VTEC has aided Fortescue’s inexorable
march to its 15 per cent indigenous participation target in our
workforce by 2015. We currently sit proudly at 12.3 per cent
and now we have so many first Australians in our workforce, we
are commencing the push for greater indigenous participation
in management and senior supervisory positions.
The future
The manner in which we have made these achievements over
the past 10 years has made us resilient and will ensure our
growth and strength into the future. Fortescue has continually
faced challenges and embraced opportunities and it is this
ability, to respond quickly to a changing landscape, which has
been key to its success. Equally important has been the support
and backing of our dedicated shareholders, loyal stakeholders,
unified Board, spirited leadership and passionate workforce.
All of us have been in some way Fortescue pioneers even
though there are 10,000 more of us than there were around
the kitchen table. It took an additional 15,000 workers like
us just to build our Solomon project. For every person who
has gathered Fortescue dust on their boots and joined our
team in any way, I welcome you to look back in 10 years’
time knowing that you too were a Fortescue pioneer. Your
determination to march with Fortescue boldly into the future
is deeply appreciated.
In this vein, Fortescue’s Vocational Training and Employment
(VTEC) program, established in WA in 2006, is providing
Andrew Forrest, Chairman
4 I Fortescue Metals Group Limited I Annual Report 2013
4 I Fortescue Metals Group Limited I Annual Report 2013
CHAIRMAN’S REPORT
CHAIRMAN’S REPORT
‘‘
For every person who has gathered Fortescue
dust on their boots and joined our team
in any way, I welcome you to look back in
10 years’ time knowing that you too were
a Fortescue pioneer.
‘‘
Andrew Forrest, Chairman
Fortescue Metals Group Limited I Annual Report 2013 I 5
Fortescue Metals Group Limited I Annual Report 2013 I 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CHIEF EXECUTIVE
OFFICER’S STATEMENT
performance was driven by increased volumes from our
Chichester operations and early production from our Firetail
Mine. The increased volumes more than offset a 13 per cent
reduction in realised iron ore price, which averaged US$114
per dry metric tonne (dmt) for the year.
The strong financial result was also underpinned by a
significant reduction in our cash costs (C1) to just over
US$36 per wet metric tonne (wmt) in the June quarter. This
represents a 17 per cent improvement over the March quarter
and highlights the completion and commissioning of new
processing facilities and beneficiation plants across our mining
operations. These facilities maximise product quality and
ore upgrade allowing us to significantly reduce our cut-off
grades and therefore lower strip ratios at the Chichester mines.
We’ve also begun blending ore from these mines with ore
from Firetail to create a new product called Fortescue Blend.
These initiatives, along with a continuous focus on efficiency
and productivity, are playing a significant role in lowering
our overall costs and, importantly, continuing to improve our
already strong position on the global cost curve.
With approximately 70 per cent of our operating costs
denominated in Australian dollars we also benefitted from a
fall in the currency against the US dollar towards the end of the
year. The Australian dollar decreased from US$1.04 to US$0.99
in the June quarter, leading to a further US$1.89 reduction in
our C1 costs for that period.
Operational Performance
Consistent improvements over the past 12 months ensured
a strong finish to FY13. This includes our achievement of a
record 120 mtpa shipping run rate in the month of June and
the shipping of almost 81 million tonnes of ore for the full
year. With the completion of the Kings mine later this year
we will have spread our production across two mining hubs
comprising five mines feeding five ore processing facilities.
This, together with the improvement in cost, demonstrates
that we are delivering against our strategic objective to
be one of the world’s most reliable, efficient and low cost
producers of iron ore.
The performance of our operations and development teams
has been impressive. Since early 2011, our teams at Christmas
Creek and Cloudbreak, the Herb Eliott Port and throughout
our rail operations have worked alongside one of the largest
construction projects in Australia. The whole company worked
together as one, highlighting the value of our strong culture
to deliver world class performance in construction and
operations simultaneously.
This effort has ensured that we have been able to maximise
output from all of our operations and deliver robust financial
results during the expansion phase.
Dear shareholders
It is a great pleasure to provide you with an overview of our
performance for FY13 and reflect on the key milestones that
have brought Fortescue within sight of our annual production
target of 155 million tonnes of iron ore.
We emerged stronger and more resilient from the period of
iron ore price volatility early in FY13 and finished the year on a
fantastic note with the outstanding Fortescue team delivering
record results from our world class assets. We’ve since
celebrated our 10th anniversary, prompting us to pause and
reflect on our extraordinary growth and look to the future with
confidence and excitement.
We’ve already had reason to celebrate with the completion in
August of the US$2.4 billion expansion of our port facilities at
the Herb Elliott Port, the official opening of the Firetail Mine
at the Solomon Hub in May and the opening of the Fortescue
Hamersley Line in December. We are now fast approaching
the completion and commissioning of our 40mtpa Kings Mine,
which represents the final component of our US$9 billion
expansion that will effectively treble our production capacity.
We also moved a significant step forward in the development
of our world class magnetite assets with the recent
announcement of a US$1.15 billion investment by the Formosa
Group, Taiwan’s largest private company, in the FMG Iron
Bridge Joint Venture. FMG Iron Bridge Ltd owns the North Star
and Glacier Valley magnetite iron ore deposits, located about
100 kilometres south of Port Hedland.
Solid Financial Results
Fortescue achieved a 12 per cent increase in FY13 full year
net profit to US$1.7 billion. Revenue increased 21 per cent
to US$8.1 billion, while profit before income tax and finance
expenses rose nine per cent to US$3.6 billion. Our strong
6 I Fortescue Metals Group Limited I Annual Report 2013
1 I Fortescue Metals Group Ltd I Annual Report 2013 ‘‘We set yet another production record for the June
‘‘
quarter, achieved a 120 million tonne per annum
shipping run rate in the month of June and shipped
almost 81 million tonnes of ore for the full year.
Importantly, Fortescue’s strong commitment to safety led to a 17
per cent improvement in our Total Recordable Injury Frequency
Rate (TRIFR) in FY13. Our improved safety performance is
built on the principles of pragmatic safety leadership, and we
have numerous programs in place aimed at providing a safe
workplace for all our employees and contracting partners.
Unfortunately and in spite of all of our efforts in 2013, the
Fortescue family is grieving the loss of a contractor’s employee,
Kurt Williams, in an accident at the Christmas Creek Ore
Processing Facility on 14 August. Our thoughts and prayers
are with Kurt’s partner, loving family and friends.
Balance Sheet Strength
We finished FY13 in a strong position in terms of our capital
structure and balance sheet. The flexibility built into our
debt structures enables us to manage debt well in advance
of maturity dates, either through voluntary repayments or
refinancing. At June 30, 2013, net debt stood at US$9.9 billion,
taking into account our US$2.2 billion cash on hand, excluding
finance leases of around US$600 million. It is important to note
that our first debt repayment is not due until November 2015.
Fortescue continues to progress initiatives, including
prepayments from customers and other asset sales processes
to release value for shareholders with the intention of directing
proceeds towards to early repayment of debt and accelerate
the balance sheet de-gearing. Even without further asset sales,
we can achieve a sustainable level of gearing in the short to
medium term. Our expansion projects are close to completion,
on schedule and within budget, iron ore prices continue to trade
within or above our expected range of US$110 to US$130 a
tonne and we have every confidence demand for our products,
particularly from China, will remain strong.
Community
As we rapidly grow our presence in the Pilbara, we continue to
work closely with the communities in which we operate. Our
activities in this area have a strong focus on job creation, skills
transfer and furthering Aboriginal training, employment and
business development. A key focus is our Vocational, Training
and Employment Centres (VTEC) in Hedland and Roebourne,
which have helped increase the number of Fortescue’s direct
Aboriginal employees to over 12 per cent of our direct workforce
at the end of June 2013. An additional 504 Indigenous people
were employed by our contracting partners. In August 2013,
we also celebrated the achievement of awarding more than
A$1 billion in contracts to Aboriginal businesses as part of our
industry-leading Billion Opportunities Progam.
Our community initiatives also include the support of
community partnerships with the Minderoo Foundation
including the movement to end indigenous disparity,
Pre-start at Firetail
Roebourne working bee
GenerationOne. In addition, we have focussed in 2013 on a
fundraising campaign for the new Ronald McDonald House
which benefits families of regional children requiring hospital
treatment in Perth; sponsorship of the national men’s hockey
team, the Kookaburras, and the South Hedland Swans Football
Club. Fortescue’s annual working bee at Roebourne District
High School was again a great success during the year.
Conclusion
We enter the 2014 financial year with our goal of becoming
an iron ore miner of global scale firmly in our sights. We will
finish the first half of 2014 with capacity to produce 155 mtpa
from an integrated supply chain comprising five mines and
processing facilities, the fastest, heaviest haul rail system in the
world and world class port infrastructure.
I congratulate all of our employees, our contracting partners
and stakeholders for their contribution to our incredible
journey. Thanks to the hard work and commitment of these
many people, we are building a great Australian company for
today and many generations to come.
Nev Power, Chief Executive Officer
Fortescue Metals Group Limited I Annual Report 2013 I 7
Fortescue Metals Group Ltd I Annual Report 2013 I 2 OPERATIONS REPORT
Total shipments for the full year were
80.9 million tonnes, an increase of 41 per cent
on the previous year.
Fortescue is rapidly approaching the completion of
its US$9 billion expansion to 155 million tonnes per annum
(mtpa) of production and export capacity following the
achievement of a number of outstanding results in FY13.
We finished the year on an exceptional note, with production
records established across our port, rail and mining operations
and a significant reduction in cash costs (C1). As these
results demonstrate, Fortescue is realising the benefits of its
investment in mining and infrastructure and is delivering
on its strategy of becoming a world class, low cost producer
of iron ore.
Our rapid growth in FY13 led to the celebration of a number
of milestones, including:
• The commissioning of our second ore processing facility
at Christmas Creek in October 2012.
• The first train departing the Solomon Hub bound for
Port Hedland on the Fortescue Hamersley Line
in December 2012.
• The formal opening of the Firetail Mine at Solomon
in May 2013.
Importantly, Fortescue achieved these results while
maintaining a strong commitment to safety. This led
to a significant 17 per cent improvement in our Total
Recordable Injury Frequency Rate (TRIFR) in FY13
through strong emphasis on field leadership, coaching
programs designed to reinforce key safety behaviours
and the successful operation of the Major Hazards and
Contractor Management Program. Tragically, early in
FY14 a contract worker at our Christmas Creek Mine
was fatally injured while undertaking maintenance work.
We are deeply saddened by this incident and offer our
sincere condolences to the deceased worker’s family,
friends and workmates.
Production
Fortescue finished FY13 on a positive note, shipping a record
25mt for the June quarter to take total shipments for the full
year to 80.9mt, 41 per cent higher than the previous year.
A record operating performance in the month of June led to
a 120mtpa shipping run rate, 5mtpa ahead of expectations.
Ore mined during the June quarter increased to 34.3mt,
35 per cent higher than the previous quarter largely due
to a fall in strip ratios and a continued focus on operational
efficiencies. Significantly, this was achieved despite
unseasonal wet weather which impacted the production
performance of the port and mines during the June quarter.
Fortescue is reaping the benefits of its investment in mining
and ore processing facilities (OPFs) which maximise product
quality and improve efficiency to deliver sustainable lower
operating costs. Commissioning of the wet plants at our
Chichester Hub during FY13 enabled the mining of lower cut
off grades while maintaining product quality. The addition
of Firetail ore from Solomon to produce the new Fortescue
Blend underpins ongoing product and cost benefits. This new
blended product, which was formally launched in August
2013, realises the benefits of the low impurity Chichester ore
and higher iron content Firetail products.
The ramp up of the second OPF at Christmas Creek in the
December quarter underpinned an annualised shipping run rate
of more than 100mtpa for the month of December while the
commissioning of the 20mtpa Firetail Mine in the first half of FY13
increased Fortescue’s nameplate production capacity to 115mtpa.
Fortescue announced in December 2012 that it would
complete the nearby 40mtpa Kings Mine at Solomon
by the end of calendar year 2013. Fortescue had deferred the
8 I Fortescue Metals Group Limited I Annual Report 2013
‘‘‘‘
development in September 2012 in response to volatile
market conditions. The completion of Kings will mark the
final leg of Fortescue’s US$9 billion expansion to 155mtpa
across the supply chain by the end of December and underpin
sustainable production at a run rate of 155mtpa after the
wet season at the end of March quarter 2014.
Port and rail
Fortescue’s integrated rail and port operations continued to
exceed expectations with 25.1mt of ore delivered to the port
during the June 2013 quarter, an increase of 22 per cent on
the 20.6 mt delivered during the March quarter.
Rail capacity is growing in line with rapidly increasing
volumes from Fortescue’s mining operations with the
completion of turns outs and passing sections on both the
mainline and the new Fortescue Hamersley Line in the June
quarter. The full scope of work for track and signals and
communications will be completed in the first quarter of
FY14 while the commissioning of the new digital train control
system is underway. Two further rakes of ore cars
are due for delivery during December 2013 quarter.
Fortescue achieved a major milestone at Herb Elliott Port in
July 2013 with the delivery of first ore on ship from its fourth
berth, named the Nick Sexton Berth after a much-loved
member of the Fortescue Family who passed away early in
2013. The berth was formally opened by WA Treasurer and
Minister for Transport Troy Buswell in August. It represents the
last major component of Fortescue’s US$2.4 billion expansion
to lift export capacity at Herb Elliott Port to 155mtpa.
C1 costs reductions
Fortescue’s overall C1 costs for FY13 were US$44.09 per
wet metric tonne (wmt), a nine per cent improvement over
FY12. Although C1 costs fluctuated during the course of FY13
significant improvements were achieved during the March
and June quarters as a result of sustained reductions in strip
ratios, operational efficiencies and a continuous focus on
cost reductions.
C1 costs decreased to US$36.01wmt in the June quarter,
a 17 per cent reduction on the March quarter. In Q3, C1 costs
were US$43.61 / wmt, 14 per cent lower than the December
quarter. In the first half of FY2013, a stronger Australian dollar,
coupled with higher strip ratios, ramp up in production and
higher cost inventories, had elevated C1 costs to US$50.48 /
wmt in the December quarter from US$49.44 / wmt during
the September 2012 quarter.
OPERATIONS REPORT
Exploration and tenements
Fortescue continues development studies to optimise the
potential of the increased resources arising from exploration
activities. Exploration activity during the June 2013 quarter
focussed on defining extensions to known mineralisation
around the greater Solomon area and targeting known
mineralised channel iron deposit (CID) systems. Modest
exploration and drilling targeted the Western hub during
the March quarter with one rig focussed on defining
extensions to known mineralisation at Eliwana in both the
Brockman Iron and Marra Mamba Iron formations. Visual
estimates displayed encouraging mineralisation in
both targeted horizons.
FMG Iron Bridge
Fortescue took a significant step towards the development
of its magnetite assets in the Pilbara with the announcement
in August 2013 of a US$1.15 billion investment by Formosa.
Formosa is Taiwan’s largest private company. Fortescue
owns an 88 per cent interest in FMG Iron Bridge Ltd with the
remaining 12 per cent interest held by a subsidiary of Baosteel
Group Corporation, one of China’s largest steel mills.
FMG Iron Bridge Ltd owns the world class North Star and
Glacier Valley iron ore deposits, located about 100 kilometres
south of Port Hedland.
Iron Bridge has a land access agreement in place with the
Njamal people and Stage One of the project has achieved
major environmental approvals.
Fortescue Metals Group Limited I Annual Report 2013 I 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
ORE RESERVES AND
MINERAL RESOURCES
‘‘
The 2013 combined Chichester and Solomon Ore
Reserve is a total of 2,344 million dry tonnes (Mt)
at an average Fe grade of 57.7per cent,
a 12 per cent tonnage increase from 2012 at
a slightly lower ore quality.
‘‘
Ore Reserves – Operating Properties
The 2013 combined Chichester and Solomon Ore Reserve
is a total of 2,344 million dry tonnes (Mt) at an average iron
(Fe) grade of 57.7 per cent, a 12 per cent tonnage increase
from 2012 at a slightly lower ore quality. The Ore Reserve is
quoted as at June 30, 2013.
Company production and sales reporting is based on wet
tonnes with a typical free moisture content of 9 per cent,
as shipped. The 2013 Ore Reserve estimates have all been
updated over the previous year to incorporate the
impacts of:
• Updates to the various resource models.
• On-going reconciliation with ore sales.
• The long term marketing and product strategy.
•
•
Impacts of ore beneficiation through wet processing plants.
Synergies arising from producing a blended product from
multiple sites and ore types.
In addition to the tonnage increase, the proportion of higher
confidence Proved Ore Reserve has increased significantly.
This is a result of on going in-fill drilling at both Solomon
and the Chichester deposits. Increases in Chichester Mineral
Resource confidence initially reported in 2012 were not
recognised in the 2012 Ore Reserve because it was produced
by depletion of the prior year’s estimate.
The Chichester Hub contained 1,517 Mt at an average
Fe grade of 57.6 per cent Fe, with 30 per cent of the tonnage
in the Proved Ore Reserve category.
The Ore Reserve estimate for the Solomon Hub is 827 Mt
at an average Fe of 57.8 per cent, with 12 per cent of the
tonnage in the Proved Ore Reserve category. Ore Reserves
for the operating properties, including the Chichester and
Solomon hubs, are stated on a dry product basis and exclude
stockpiles. The Solomon Hub Ore Reserve was quoted on
an in-situ basis in 2012.
10 I Fortescue Metals Group Limited I Annual Report 2013
ORE RESERVES AND
MINERAL RESOURCES
ORE RESERVES AND
MINERAL RESOURCES
Ore Reserves – as at June 30 2013
Ore Reserves – as at June 30 2012
Category
Product
Tonnes
(Mt)
Iron
Silica
Alumina
Phos
Fe%
SiO2%
Al2O3%
P%
Loss On
Ignition
LOI%
Product
Tonnes
(Mt)
Iron
Silica
Alumina
Phos
Fe%
SiO2%
Al2O3%
P%
Loss On
Ignition
LOI%
Proved
449
Probable
1,069
Total
1,517
Proved
Probable
Total
98
729
827
57.6
57.6
57.6
58.5
57.7
57.8
5.01
4.74
4.82
5.10
6.59
6.42
2.27
2.47
2.41
1.79
2.58
2.48
Chichester Hub
0.045
0.048
0.047
8.1
7.9
8.0
31
1,464
1,495
Solomon Hub
0.076
0.066
0.068
8.8
8.3
8.4
-
592
592
Combined
59.9
58.2
58.3
-
58.4
58.4
3.41
5.13
5.09
-
6.10
6.10
1.85
2.24
2.24
-
2.35
2.35
0.061
0.052
0.052
-
0.073
0.073
8.1
7.6
7.6
-
8.3
8.3
Proved
547
Probable
1,797
Total
2,344
57.8
57.7
57.7
5.02
5.49
5.38
2.18
2.52
2.44
0.050
0.055
0.054
8.2
8.1
8.1
31
2,056
2,087
59.9
58.3
58.3
3.41
5.41
5.38
1.85
2.28
2.27
0.061
0.058
0.058
8.1
7.8
7.8
Tonnage figures have been rounded and as a result the figures may not add up to the totals quoted.
Ore Reserve table notes:
a)
The Chichester Ore Reserve includes the Cloudbreak and Christmas Creek deposits; the Solomon Hub Ore Reserve includes
the Firetail, Kings and Queens deposits.
b)
c)
d)
e)
The diluted mining models used to report the 2013 Ore Reserves are based on updated Chichester Mineral Resource models
reported in 2012 and revised Solomon Mineral Resource models completed this year. Diluted mining models are validated
by reconciliation against historical production.
The increase in Proved Ore Reserve for both hubs reflects the increase in the proportion of higher confidence Measured
Mineral Resource associated with on-going in-fill drilling.
Overall Ore Reserve tonnage has increased by 12 per cent (at slightly lower grade) after taking into account FY13 mining
depletion. Slightly lower Ore Reserve quality was a result of the product strategy and quality synergies associated with
blending Firetail and Chichester products.
Typical feed upgrade factors through Chichester wet ore processing facilities (OPF’s) are Fe 1.025, silica 0.80, alumina
0.75 with a mass yield of 84 per cent. The Solomon deposits include multiple ore types (channel iron, bedded iron and
detritals) with variable processing responses. Average Solomon feed upgrade factors are Fe 1.037, Silica 0.80,
alumina 0.80 with a mass yield of 84 per cent.
f )
The June 2012 Solomon Hub Ore Reserve was reported on an in-situ basis. It is re-stated here on a product basis to allow
direct comparison.
Fortescue Metals Group Limited I Annual Report 2013 I 11
Fortescue Metals Group Ltd I Annual Report 2013 I 2
ORE RESERVES AND
MINERAL RESOURCES
Mineral Resources – Operating Properties
Mineral Resources for the operating properties including the Chichester and Solomon hubs are stated on a dry in-situ basis.
The Mineral Resources stated are inclusive of the Ore Reserves.
As of June 30, 2013, the total Mineral Resource for the Chichester and Solomon hubs was 5,226 mt at an average Fe grade
of 56.4 per cent, essentially unchanged from that stated in the prior year. This was accompanied by a steady increase in the
proportion of higher confidence Measured and Indicated Mineral Resource mineralisation from 63 per cent to 66 per cent
as a result of on-going in-fill drilling.
The Chichester Hub Mineral Resource totalled 3,222 mt at an average Fe grade of 56.6 per cent Fe, with 69 per cent of the
tonnage in the Measured and Indicated Mineral Resource categories.
The Solomon Hub Mineral Resource totalled 2,003mt at an average Fe grade of 56.1 per cent, with 59 per cent of the tonnage
in the Measured and Indicated Mineral Resource categories.
Mineral Resources – as at June 30 2013
Mineral Resources – as at June 30 2012
Category
In-situ
Tonnes
(Mt)
Iron
Silica
Alumina
Phos
Fe%
SiO2%
Al2O3%
P%
Loss On
Ignition
LOI%
In-situ
Tonnes
(Mt)
Iron
Silica
Alumina
Phos
Fe%
SiO2%
Al2O3%
P%
Loss On
Ignition
LOI%
Measured
668
Indicated
1,569
Inferred
985
Total
3,222
Measured
133
Indicated
1,053
Inferred
Total
818
2,003
Measured
801
Indicated
2,622
Inferred
1,802
Total
5,226
56.7
56.6
56.3
56.6
57.8
56.2
55.6
56.1
56.9
56.4
56.0
56.4
6.08
5.90
6.32
6.07
5.80
7.56
7.80
7.54
6.04
6.57
6.99
6.63
3.09
3.37
3.29
3.29
2.13
3.15
3.41
3.19
2.93
3.28
3.35
3.25
Chichester Hub
0.048
0.051
0.058
0.053
8.2
8.0
7.8
8.0
420
1,891
1,068
3,379
Solomon Hub
0.085
0.073
0.075
0.074
0.054
0.060
0.065
0.061
9.0
8.3
8.6
8.5
Combined
8.4
8.1
8.1
8.2
108
791
846
1,745
527
2,681
1,915
5,123
56.7
56.6
56.4
56.6
58.4
56.6
56.0
56.4
57.1
56.6
56.2
56.5
6.15
5.94
6.29
6.08
5.43
7.05
7.51
7.17
6.00
6.27
6.83
6.45
3.05
3.31
3.28
3.27
2.03
3.03
3.28
3.09
2.84
3.23
3.28
3.21
0.045
0.051
0.057
0.052
0.082
0.073
0.073
0.074
0.053
0.058
0.064
0.060
8.2
8.0
7.8
8.0
8.5
8.3
8.5
8.4
8.2
8.1
8.1
8.1
Tonnage figures have been rounded and as a result the figures may not add up to the totals quoted.
Mineral Resource table notes:
(a)
The Chichester Mineral Resource includes the Cloudbreak and Christmas Creek deposits while the Solomon Mineral Resource
includes the Firetail, Kings and Queens deposits.
(b) The June 2012 Solomon Hub Mineral Resource has been re-stated to only include the operational properties.
(c)
The increase in the Solomon Measured and Indicated Mineral Resources as a result of in-fill drilling has more than offset
reductions in the Chichester deposits due to FY13 mining depletion
12 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 ORE RESERVES AND
MINERAL RESOURCES
Mineral Resources – Development Properties
Mineral Resources – as at June 30 2013
Mineral Resources – as at June 30 2012
Category
In-situ
Tonnes
(Mt)
Iron
Silica
Alumina
Phos
Fe%
SiO2%
Al2O3%
P%
Loss On
Ignition
LOI%
In-situ
Tonnes
(Mt)
Iron
Silica
Alumina
Phos
Fe%
SiO2%
Al2O3%
P%
Loss On
Ignition
LOI%
Chichester Other Hub
222
473
695
50.0
54.1
52.8
10.89
7.58
8.64
6.83
4.86
5.49
0.060
0.066
0.064
8.0
7.5
7.7
222
473
695
50.0
54.1
52.8
10.89
7.58
8.64
6.83
4.86
5.49
0.060
0.066
0.064
8.0
7.5
7.7
Solomon Other Hub
1,501
1,501
56.8
56.8
7.00
7.00
3.71
3.71
0.080
0.080
7.3
7.3
1,501
1,501
56.8
56.8
7.00
7.00
3.71
3.71
0.080
0.080
7.3
7.3
Western Hub
58.7
58.7
59.6
58.1
57.2
57.4
59.6
55.8
56.9
56.8
31.9
30.2
30.4
5.44
5.44
3.56
4.52
5.00
4.87
3.56
6.28
6.01
6.04
39.9
40.8
40.7
3.06
3.06
2.21
2.95
3.36
3.25
0.091
0.091
0.139
0.148
0.147
0.147
6.6
6.6
624
624
58.7
58.7
5.44
5.44
3.06
3.06
0.091
0.091
6.6
6.6
Nyidinghu
8.0
8.6
8.8
8.8
2,013
2,013
57.5
57.5
4.97
4.97
3.26
3.26
0.145
0.145
Total Hematite Goethite Mineral Resources
2.21
4.0
3.60
3.65
2.0
2.5
2.4
0.139
0.124
0.108
0.110
0.099
0.100
0.100
8.0
8.4
7.9
7.9
Magnetite
7.2
8.3
8.1
222
4,611
4,833
102
672
2,463
3,237
Total Mineral Resources
50.0
57.1
56.7
32.7
31.9
32.3
32.2
10.89
5.96
6.19
39.14
39.74
39.18
39.30
6.83
3.54
3.70
1.78
1.94
1.84
1.85
0.060
0.108
0.106
0.102
0.096
0.100
0.099
102
894
7,074
8,070
8.6
8.6
8.0
7.8
7.8
6.5
7.4
7.9
7.8
Tonnage figures have been rounded and as a result the figures may not add up to the totals quoted.
Fortescue Metals Group Limited I Annual Report 2013 I 13
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
624
624
Measured
23
Indicated
580
Inferred
Total
1,860
2,463
Measured
Indicated
Inferred
Total
23
802
4,458
5,283
Measured
Indicated
720
Inferred
Total
4,484
5,205
Measured
23
Indicated
1,522
Inferred
8,942
Total
10,488
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 ORE RESERVES AND
MINERAL RESOURCES
Mineral Resource table notes:
(a)
All Mineral Resources are quoted on an in-situ basis after applying an appropriate cut-off for each deposit. Details relating
to the cut-off’s were provided when the Mineral Resource was first announced.
(b)
The Magnetite Mineral Resource estimation was completed by Golder Associates using data supplied by Fortescue.
For details refer to the ASX release; ‘FMG Iron Bridge Resource increases to 5.2 billion tonnes, 12th December 2012’.
(c)
The Total Mineral Resources are quoted as tonnages only. It is not appropriate to quote average grades as
Hematite-Goethite Resources are a very different mineralisation type to Magnetite Resources.
Competent Persons Statement
The detail in this report that relates to Mineral Resources is based on information compiled by Mr Stuart Robinson,
Mr Clayton Simpson, Mr Nicholas Nitschke and Mr David Frost-Barnes. Messrs Robinson, Simpson, Nitschke and Frost-Barnes
are all full-time employees of Fortescue and provided technical input for Mineral Resources estimations and compilations
of exploration results.
Estimated Ore Reserves for the Chichester and Solomon Hubs for fiscal 2013 were compiled by Mr Ross Oliver, a full time
employee of Fortescue.
Mr Robinson is a Fellow of, and Messrs Simpson, Nitschke and Oliver are Members of, the Australasian Institute of Mining and
Metallurgy. Mr Frost-Barnes is a member of the Institute of Materials, Minerals and Mining. Messrs Robinson, Simpson, Nitschke,
Oliver and Frost-Barnes have sufficient experience relevant to the type of mineralisation and type of deposit under consideration
to each be qualified as a Competent Person as defined in the JORC Code.
Messrs Robinson, Simpson, Nitschke, Frost-Barnes and Oliver have each consented to the inclusion in this report of the matters
based on their information in the form and context in which it appears.
14 I Fortescue Metals Group Limited I Annual Report 2013
14 I Fortescue Metals Group Limited I Annual Report 2013
ORE RESERVES AND
MINERAL RESOURCES
CORPORATE SOCIAL
RESPONSIBILITY
‘‘Fortescue aspires to be a corporate citizen of
that host its activities. ‘‘
choice that is welcomed by the communities
Our priorities
Safety
Environment
Robust and
resilient
operations
Shareholder value
creation
Result
Profitable and
sustainable growth
Talented,
engaged
and
productive
workforce
Management
of risks and
performance
measurement
Operational
efficiency and
reduced costs
People
Local
Communities
Governance
Bruce Bung director Nyiyaparli Engineering Mine Maintenance Service
(NEMMS) signs contract under Billion Opportunities program
Fortescue Metals Group Limited I Annual Report 2013 I 15
Fortescue Metals Group Limited I Annual Report 2013 I 15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 CORPORATE SOCIAL
RESPONSIBILITY
Corporate Social Responsibility
Fortescue aspires to be a corporate citizen of choice that is
welcomed by the communities that host its activities.
What Corporate Social Responsibility means to us
At Fortescue we aim to enhance communities, behave with
respect and care for people and the environment, take
broad responsibility for the effects of our presence and
do what we say we will do. To achieve this Vision, we are
committed to operating in a way that integrates Corporate
Social Responsibility (CSR) principles into everything we do.
We believe that applying integrated thinking and practices
will generate long-term value for all of our stakeholders.
This approach will ensure that we protect our people and
our business partners, respect our local communities and
minimise our impact on the environment.
Our approach to managing and reporting on our
CSR performance
Our governance framework and management systems are
the basis upon which we make our decisions, proactively
identify and manage our risks and continuously improve our
performance. We strive to effectively align our activities with
our Vision of being the lowest cost, most profitable iron ore
producer, and our Values of Integrity, Family, Enthusiasm,
Empowerment, Determination, Generating Ideas, Frugality
and Stretch Targets. Our Vision and Values underpin both
our management of financial and non-financial risks and
the accomplishment of the opportunities that they provide.
We firmly believe that proactive management of our CSR
performance will generate value and will contribute to our
business resilience over the long term.
This report provides an overview of how we approach the
management of our CSR performance. Our fourth CSR report
continues to align with the Global Reporting Initiative (GRI) G3
Guidelines and the Mining Sector Supplement and has been
independently confirmed as GRI B application level.
A copy of our GRI level check is available at www.fmgl.com.
au. Our whole of business approach to audit and assurance is
outlined in the Corporate Governance section of this report.
Our greenhouse gas emissions and energy data have been
independently assured.
Each year we strive to improve our performance disclosures.
The International Council on Mining and Metals (ICMM)
Sustainable Development Principles have helped to shape
the content of this year’s report. In April 2013, we became a
signatory to the UN Global Compact (UNGC). The UNGC is
a set of 10 universal principles in the areas of human rights,
enviroment and anti-corruption. Where possible we have
commenced reporting on progress aligning our operations
and strategies with the UNGC Principles. Our first full and
official Communication on Progress (COP) with regard to the
UNGC will be contained in our 2014 CSR report.
In developing the content of this CSR report we have used
the GRI guidelines, the ICMM Principles, the UNGC Principles,
our risk management activities and internal processes. This
approach ensures that our communication to stakeholders is
clearly linked to our CSR priorities, the creation of shareholder
value and our performance results.
16 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE SOCIAL
RESPONSIBILITY
CORPORATE SOCIAL
RESPONSIBILITY
Our CSR scorecard and key programs to deliver on our commitments
Our Commitments
Key Initiatives for FY14
Our Targets
Business ethics and governance
• Upgrade our Extranet
system to ensure that we
clearly communicate our
ethics and governance
expectations with our
business partners and
suppliers.
• Proactively engage with
our supply chain on human
rights performance.
Compliance with ASX Governance
Principles.
Integration of Sustainability into Risk
Management Programs.
Consideration of ICMM Sustainable
Development Principles in our
management systems.
Integration of the UN Global Compact
principles into the way we do business
and report on our progress.
KPI Performance
2010
2011
2012
2013
Achieved
Achieved
Achieved
Achieved
NA
NA
Underway
Achieved
NA
NA
NA
Underway
NA
NA
NA
Underway
Disclosure of Sustainability Performance
in accordance with GRI Level B.
Achieved
Achieved
Achieved
Achieved
• Eliminate high risk HS
Zero fatalities.
incidents.
• Reduce injury / illness.
•
Increase level of HS
compliance.
Total Recordable Injury Frequency Rate
to reduce year-on-year.
Have year-on-year improvements
in Aboriginal participation rates for
employees and contractors.
0
NA
1
14.2
0
9.2
0
7.6
NA
NA
Achieved
Achieved
We will clearly articulate our ethical
business principles and practices
and implement sound systems of
corporate governance. We will identify
and manage our business risks and
incorporate CSR into our decision-
making processes.
We will implement effective
engagement and communication
practices with our key stakeholder
groups. We will transparently report on
our performance to
our stakeholders.
A safe, healthy and engaged
workforce
We will foster a safety culture that
aligns with our core Values and
achieves a safe workplace for our
employees and contractors. We will
value and look after the well being of
everyone in the Fortescue family.
We will nurture our high performance
culture and aim to provide a workplace
that is diverse, fair and empowering.
600 Indigenous employees by the end FY13.
NA
NA
403
461
Voluntary employee turnover less than 15%.
15.6%
15.0%
14.2%
9.7%
Employee engagement scores to be ≥80%.
NA
NA
Achieved
Not
Achieved
Improving the capability of our leaders.
NA
NA
Achieved
Achieved
Contribute to community services and
facilities each year.
Achieved
Achieved
Achieved
Achieved
Maintain local procurement of goods
and services for operations over 75%.
NA
NA
Achieved
Achieved
Award $1 billion in contracts with
Aboriginal contractors and joint
ventures’ (cumulative totals).
100 people to graduate from VTEC
training programs in FY 2013.
NA
$129m
$404M
$1.11
billion
60
102
162
105
Building community capacity and
respecting cultures
We will contribute to the social,
economic and institutional
development of the communities in
which we operate.
We will be the corporate citizen
of choice that is welcomed by the
communities that host our activities.
We will respect the culture and
traditions of Indigenous people
affected by our activities and strive to
positively impact their lives.
• Undertake awareness
raising and training on our
Human Rights Policy.
•
Implementing Cultural
Heritage Research
Projects with our Native
Title partners.
• Award a further $180 million
in contracts to Aboriginal
Businesses.
Reducing our environmental impact
•
We are committed to managing our
environmental impacts and meeting
our licence requirements.
We take a precautionary approach
to the environment and will invest in
initiatives and technologies that not
only make good business sense but
also reduce our environmental impact.
Investigate the viability of
tyre and waste oil recycling
at our mine sites.
Zero level 3 environmental incidents.
Achieved
Achieved
Achieved
Not
Achieved
• Progress stage 2
rehabilitation program at
Cloudbreak mine site.
Zero discharge to land of excess
dewatering.
Not
Achieved
Achieved
Achieved
Achieved
Trial at least one renewable or
carbon free energy source at each
Fortescue project.
NA
NA
Achieved
Achieved
Fortescue Metals Group Limited I Annual Report 2013 I 17
CORPORATE SOCIAL
RESPONSIBILITY
Business ethics and governance
We will clearly articulate our ethical business principles
and practices and implement sound systems of corporate
governance. We will identify and manage our business risks
and incorporate CSR into our decision-making processes.
We will implement effective engagement and communication
practices with our key stakeholder groups. We will
transparently report on our performance to our stakeholders.
Our governance systems
Fortescue is committed to implementing and maintaining
ethical business practices, sound systems of corporate
governance and engaging with our stakeholders openly
and honestly. Detailed information on our approach to
governance and stakeholder engagement can be found in
the Corporate Governance section of this report.
We have a number of specific CSR Policies in place which help
us to govern our business activities and to clearly articulate our
expectations with regard to business behaviours. These Policies
are supported by established management systems which assist
the business in the day-to-day management of CSR performance.
In 2012, we made a commitment to review and strengthen
governance systems to reflect the greater global focus of the
business. This review resulted in the revision of existing and the
development of a number of new policies and processes.
This included an update of the Code of Conduct and the launch
of the newly-developed Unethical Behaviour Control Framework.
A number of our policies are available at www.fmgl.com.au.
To assist in ensuring compliance with these Policies is
achieved we have established a whistleblower hotline. This
independent and anonymous service is made available
to all of our employees, contractors and business partners.
It assists us to effectively deal with governance related
breaches such as unethical, corrupt or fraudulent behaviour.
Any investigations arising from whistleblower reports will be
dealt with through our newly developed Unethical Behaviour
Control Framework.
Adoption of global CSR governance frameworks
In 2012, we made a commitment to consider the ICMM
Sustainable Development Principles in our management systems.
While we are not currently a signatory to the ICMM, we believe
that the Principles reflect industry best practice. The review
of our current practices against these Principles has assisted
Fortescue to focus on industry specific issues in both our
management practices and our reporting. We will continue to
use the ICMM principles and the supporting guidance to drive
performance improvements into the future.
As a signatory of the UN Global Compact, we are committed
to aligning our business strategy, our culture and day-to-
day operations to the principles. It also further commits
us to working closely with our business partners and our
supply chain. We have commenced an assessment to identify
where the UNGC Principles are not already integrated into
our operations. This review will continue over the short and
medium term.
Integration of CSR into our risk management framework
Our Audit and Risk Management Committee (ARMC)
is responsible for oversight of our risk management
performance. This includes establishing the risk management
Policy and Framework, monitoring risk management activity,
monitoring changes in the risk profile of the business at a
whole of business level and monitoring effectiveness of the
18 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE SOCIAL
RESPONSIBILITY
business control environment. The ARMC is a Committee of
the Board, and is comprised of mostly independent members.
The activities of the Committee are set out in a Charter
approved by the Board.
The ARMC together with senior executives, drive the
implementation of Fortescue’s Risk Management Program
(RMP). The RMP sets a framework which aligns risk
management activity at all levels of the business and consists
of several standards which drive identification, evaluation and
rating of risk.
Material business risks identified through this process
are assigned to relevant business units for management
and mitigation where required. In this way, there is direct
accountability for effective management of risk. Our CSR
risks are integrated into Fortescue’s company-wide RMP.
Collaboration between our risk team and our various technical
functions allows us to implement risk management strategies
that are based on valid data and accurate science. This
alignment in approach and integration of financial and non-
financial risks into one streamlined program enables us to
manage and reduce risk over the longer term.
Integration of CSR into our decision-making processes
Fortescue is working to ensure that CSR considerations are
integrated into our corporate decision-making processes.
As such, our procurement, planning and operational
management decisions can help to drive CSR performance
improvements.
During the year we focused on reviewing our procurement
frameworks and our supply chain. We updated our
Procurement Policy to ensure that it aligned with our Human
Rights Policy contained in the Code of Conduct. Our standard
purchase order and long form contract terms and conditions
were also updated to clearly articulate our commitment to
business ethics and good governance.
To support these policy and governance updates, and to
deliver on the commitment we made last year, we engaged
with all of our suppliers through a formal communication
process to seek information on their Human Rights
performance. We also undertook a detailed risk and spend
analysis of our current procurement profile. This analysis
helped us to better understand human rights and governance
risks in our supply chain. The outcomes will also help to shape
how we evaluate supplier performance in the future.
CORPORATE SOCIAL
RESPONSIBILITY
Zero tolerance towards forced labour
Fortescue has a business-wide policy in place to prevent,
detect and remediate forced labour within our own operations,
and the operations of our suppliers and business partners.
The elimination of forced and compulsory labour is among
the 10 principles of the UNGC.
The foundation of the Fortescue policy is our Code of
Conduct, which establishes the essential standards of
personal and corporate conduct and behaviour expected
of all who work for or with Fortescue, including directors,
employees, contractors, suppliers and business partners.
The Code clearly states that we recognise, respect and
uphold the human rights of every individual, being at a
minimum those protected by the Universal Declaration of
Human Rights. We will actively seek to ensure we are not
complicit in human rights abuses committed by others.
Our zero tolerance policy on forced labour is reflected in
our Procurement Policy and contracts. Our Procurement
Policy states that “to meet our commitments we will have a
zero tolerance for modern slavery, forced labour and human
trafficking in our supply chain.”
All Fortescue contracts for supply include a clause on forced
labour and slavery, where the Contractor warrants that it has
thoroughly investigated its labour practices, and those of its
direct suppliers, to ensure there is no forced labour or slavery
anywhere in the Contractors business or by any of
the direct suppliers of the company; and that it has put in
place processes, procedures, investigations and compliance
systems to ensure that that this will remain the case at
all times.Suspected breaches can be reported via the
whistleblower hotline.
Fortescue proactively seeks to understand and identify risk in
its supply chains. Supply chain mapping has been undertaken
to identify areas of most risk. Depending on the level of risk
identified, different oversight processes are put in place.
Where necessary, we have audited suppliers and worked
with suppliers to ensure problems are identified and
remediated. In addition, we have clearly communicated our
expectations to employees and suppliers regarding zero
tolerance for forced labour. This is done through our Supply
Policy, the requirement of the Statutory Declaration and the
contractual clause.
Where issues are identified these are quickly followed up
at the highest level, and steps taken to address the situation.
Fortescue Metals Group Limited I Annual Report 2013 I 19
CORPORATE SOCIAL
RESPONSIBILITY
Case Study: Managing waste as a resource
Our day-to-day operational decisions can positively
influence our CSR and environment performance.
Over the past year our Infrastructure Services team has
taken over the management of waste at all of our sites.
This streamlining of management has generated both
efficiencies and cost gains for the business.
Many of our waste materials have commercial value and
we have adopted a new approach to managing waste.
As a business we now view waste as a resource. This
change in thinking has led to the implementation of
effective management strategies to segregate our waste.
Recycling rates at our mines have increased from less than
20 per cent of waste up to approximately 80 per cent. This
change in recycling has also resulted in financial gains for
the business via the sale of this material to third parties.
The funds generated are used to support our community
investment program.
This demonstrates that proactive integration of CSR into
the way we do business not only benefits our business,
it also has a positive impact on the environment and our
communities.
A safe, healthy and engaged workforce
We will foster a safety culture that aligns with our core
Values and achieves a safe workplace for our employees
and contractors.
We will value and look after the well-being of everyone in
the Fortescue family. We will nurture our high performance
culture and aim to provide a workplace that is diverse, fair
and empowering.
Driving safety performance
Fortescue continues to foster a safety culture that aligns with
our business Values and our Safety Policy. As a business we
are committed to continuous improvement of our safety
performance and to providing a safe workplace for all of our
employees, business partners and contractors.
We proactively engage with our key stakeholders on the
importance of safety and we have developed thorough
systems and risk management practices which help us to
drive our safety culture. During the year we continued to
implement the Future State safety culture and action plan.
This is built on the principles of pragmatic safety leadership,
doing things safely, a risk-based approach, consistent
verified standards and clear expectations.
20 I Fortescue Metals Group Limited I Annual Report 2013
Our Major Hazard Management Program is designed to
eliminate fatality risk in our business. We continued to
monitor improvements in compliance with the Major Hazard
Control Standards through our audit programs at each site.
We also have regular independent safety management system
audits for all of our operational sites. These annual audits will
help to ensure that we continuously improve and refine our
standards, our culture and safety in the workplace.
During the year we continued to implement our
contractor management system. To drive further
improvements and to increase awareness of Fortescue’s
requirements we also expanded the program to cover our
next tier of contractors. At our sites we also focused on
behavioural-based field leadership practices. Effective and
consistent leadership is a key component of delivering on our
safety culture objectives.
In previous years we have reported on both our Lost Time
Injury Frequency Rate (LTIFR) and our Total Recordable
Injury Frequency Rate (TRIFR). Moving forward, and in
line with industry reporting trends, we will report only on
TRIFR performance. It is however worth noting that LTIFR
performance was in line with the previous year.
CORPORATE SOCIAL
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Case Study: Improving well-being for our
FIFO workforce
In 2013, Fortescue implemented a number of strategies
and events to improve the health and well- being of
our Fly in, Fly Out (FIFO) workforce and families.
Workers were encouraged to participate in several
programs throughout the year including “Movember”,
the flu vaccine program and City to Surf marathon
activities. Programs are coordinated by dedicated Health
and Wellness Specialists and backed by our Fortescue
Chaplains who are members of every on-site community.
In 2013, Fortescue continued our relationship with
Act Belong Commit, a community-based campaign that
encourages people to take action to improve their mental
health and well-being.
Building relationships is crucial to the program’s success.
Fortescue maintains relationships with commercial and
not- for- profit organisations including, NIB, Luxottica,
Act Belong Commit and Kinetic Health.
During FY13 we did not experience any fatalities and our
employee and contractor TRIFR performance improved by
17 per cent to 7.6. Our safety performance over time is
presented in the graph below. Fortescue was not issued with
any safety related fines or penalties during the reporting
period. Driving improvement in our safety performance will
be a continued area of focus for the business over the short,
medium and long term.
Fortescue and Contractor Safety Performance
r
e
b
m
u
N
/
e
t
a
R
16
14
12
10
8
6
4
2
0
TRIFR
Fatalities
Iron Ore Industry
LTIFR Average
2010-2011
2011-2012
2012-2013
Fortescue Metals Group Limited I Annual Report 2013 I 21
CORPORATE SOCIAL
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Case Study: Supporting women
in Fortescue Metals Group
SWIFT (Supporting Women In Fortescue Together) was
initiated in March 2013 by a small group of Fortescue
women, keen to enhance the networking and mentoring
opportunities available to women within Fortescue.
The SWIFT committee recognised early that reaching
Fortescue’s diverse staff would require engagement with
support from both women and men at different levels
within the organisation; acknowledging that supporting
women is not just a woman’s job.
The SWIFT Inaugural Breakfast was a great success, with
more than 120 attendees filling the venue to capacity.
Speeches by Elizabeth Gaines (Fortescue board member)
and Danielle Bancroft (2012 winner of the Chamber of
Minerals & Energy of WA “People’s Choice Award” for Women
in Resources) were well received, providing insight into the
challenges faced by women at different levels, working in
varied disciplines. As an extension of the inaugural event,
attendees were asked to provide their thoughts on what
they hoped to gain through involvement with SWIFT. These
insights have been applied to a strong vision statement.
Our workforce profile
As at the end of FY2013, Fortescue directly employed
3,752 people, with our contractors employing a further
14,536 people. We would like to acknowledge the efforts of
all Fortescue people to build this company. And we thank
those no longer with the business for playing their role in the
ongoing transformation of Fortescue.
Workforce equality and diversity
During the reporting year Fortescue updated its Code of
Conduct and developed an Unethical Behaviour Control
Framework. These policies and frameworks work together to
ensure that we provide a fair and equal workplace that is free
from discrimination.
Workplace diversity is important to Fortescue and we are
committed to providing a balanced and inclusive working
environment. We have a documented Diversity Policy
and Plan that is built on our values and aligns with ASX
requirements. Implementation of our Diversity Plan continued
during 2013 and we were delighted to appoint our first
female Director to the Fortescue Board. We maintained the
proportion of women in our workforce at 20 per cent. Women
currently comprise 17.5 per cent of the managers
in our business, however there are currently no women on
our executive management team.
22 I Fortescue Metals Group Limited I Annual Report 2013
Since our inception we have maintained a long-term
commitment to increasing Aboriginal participation in the
workforce through providing opportunities within our
business. This approach contributes to strengthening the
resilience of the communities where we operate.
Our commitment has the co-benefit of driving diversity
and inclusiveness in our workforce. We are happy to report
that we have continued to be successful in increasing
Aboriginal participation rates in the Fortescue workforce.
The percentage of Aboriginal employees in our business
increased again this year to 12.3 per cent against our target
of 15 per cent by 2015. We have a number of mechanisms in
place to help drive performance against this target – one of
these, the “Five Star Program”, is explained in further detail
in the case study on page 32.
CORPORATE SOCIAL
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‘‘We remain committed to our
growth targets. ‘‘
in-house trainee and apprenticeship
programs to ensure we meet our future
topics across the business. A total of 137 cultural awareness
training sessions were held which provided 2,833 employees
and contractors with essential information on our approach
to cultural heritage and our local communities.
We remain committed to our in-house trainee and
apprenticeship programs to ensure that we are geared to
meet our future growth targets. During the year we recruited
40 individuals for our mainstream apprentice program.
We are well progressed towards achieving our goal
of 65 mainstream apprentices by March 2014. We also
welcomed a further 38 people into our trades up-skill
program and 45 people into our nationally recognised
(non-trades) qualification program. Our traineeships cover
a variety of functions within our business, including the areas
of Warehouse Operations and Process Plant Operations
(Iron Ore Processing). Of the above 123 people, 74 were
existing employees and 49 were new employees.
Nurturing our high performance culture
As a business, Fortescue continues to focus on a culture
of achievement, challenging the norm and setting and
achieving stretch targets. We want to ensure that our
workplace culture is not only innovative, but also fully
engaged and highly effective. Essential training of our
employees and contractors continued throughout the year.
General and role specific inductions remained a focus for
the business and our commitment to essential training on
safety, environment and cultural awareness was continued.
This training is crucial to ensuring that our employees and
contractors are well equipped to successfully and effectively
deliver on their work expectations. Cost constraints on our
ability to invest in non-essential training and development
programs for our employees is represented by reduced
investment of 2 per cent of payroll spend on training and
development, compared to 4.9 per cent last financial year.
During the year more than 18,735 users were added to our
employee and contractor online induction system, while a
total of 60,004 online inductions were completed. Safety
training undertaken during the year covered topics including
Job Hazard Analysis, fatigue, incident investigation and safety
observations. We also continued to deliver quarterly Toolbox
talks to raise awareness of key environmental issues. During
the year we delivered 6,070 talks on various environmental
Fortescue Metals Group Limited I Annual Report 2013 I 23
CORPORATE SOCIAL
RESPONSIBILITY
Case Study: “Have A Crack” campaign
In August 2012, a competition was launched to find
innovative and creative ideas to make Fortescue a more
competitive and successful business. For employees who
had yet to witness the full force of Fortescue’s innovation
culture, “Have A Crack” showed them what we are all about.
The competition was open to everyone. Ideas could be
submitted by people working on a Fortescue site, friends,
relatives and everyone else in- between. It was defined
by innovation, creativity and audacity. It was about direct
communication. Whether you were on the shop floor
or in the corporate office, your idea went straight to the
“Have A Crack” nerve centre. This meant we could shine a
spotlight on the best and the brightest ideas, no matter
who suggested them.
More than 2,700 ideas were generated. Prizes were
offered for ideas that reduced costs, but also for the most
audacious and innovative. “Have A Crack” was a great
way for the business to collect new ideas that solved
real business problems. It also had the added benefit of
generating engagement from our workforce.
Fortescue continued to offer employees support for
further education and training through our education
assistance program. Courses covered include Certificate IV,
Diplomas, Advanced Diplomas, Undergraduate Degrees and
Postgraduate Qualifications including Masters’ degrees. We
also offer graduate programs and leadership development
programs. During the year we put our first round of leaders
through a newly tailored Leadership Development Program
for Fortescue’s 300+ Operational Supervisors, across Mines,
Port and Rail. The program is designed to continuously
develop the skills and capabilities of Fortescue’s frontline
operational leaders, whilst emphasising what skills,
knowledge and behaviours are required to be an effective,
consistent and respected leader. A feature of this program
has been a customised 360 degree feedback tool, which
has highlighted the enthusiasm from Supervisors for
development and feedback opportunities, provided strong
feedback and encouragement for high performers, and
provided a meaningful opportunity for Supervisors
to collaborate with their Superintendents to achieve their
key learning goals as they progress through the
seven-month program.
Measuring engagement
Fortescue measures employee satisfaction through a number
of mechanisms. Two key measures are employee turnover
and employee engagement.
Retaining talented employees within the context
of Fly-in Fly-Out (FIFO) operations remains a challenge
to our business. External economic conditions have however
changed over the past year which has resulted in less
competition for talent in the marketplace. Fortescue has
had a lower than industry average voluntary turnover rate
of 22 per cent for a number of years.
This year our reported voluntary turnover rate was
9.7 per cent which is in line with our target of less than
15 per cent. This figure demonstrates that our employees
are committed to the business and our future.
We concluded Future Forums for employees during
FY13 and a second company-wide Fortescue Values
Survey was conducted during the year to track
employee engagement.
24 I Fortescue Metals Group Limited I Annual Report 2013
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Case Study: Oldest evidence of traditional
ancestors in the Pilbara
During the year our Heritage Team made a historic and
significant discovery. A rock shelter near Fortescue’s
Christmas Creek mine was found to contain evidence of
the oldest known Aboriginal occupation in the Pilbara.
Using carbon dating analysis, archaeologists were able
to ascertain that charcoal pieces excavated from the rock
shelter are at least 41,000 years old.
Fortescue has worked closely with the traditional owners,
the Nyiyaparli People and their heritage consultants since
2006 to identify and protect significant heritage sites in
the region. More than 430 square kilometres have been
surveyed so far. This work has identified and recorded
more than 1,800 sites, including 45 rock shelters.
During 2012, Fortescue committed to funding a heritage
research project with the Nyiyaparli People aimed at
promoting the results of heritage work carried out on
Fortescue sites to the wider community.
Building community capacity and
respecting cultures
We will contribute to the social, economic and
institutional development of the communities in which
we operate. We will be the corporate citizen of choice that
is welcomed by the communities that host our activities.
We will respect the culture and traditions of indigenous
people affected by our activities and strive to positively
impact their lives.
What we believe in
Fortescue has a long-standing and demonstrated
commitment to building community capacity. It is our aim
to develop, strengthen and empower the communities
within which we operate. Our efforts and the programs that
we initiate aim to leave a legacy of sustainable community
resilience. The social, environment, infrastructure, people
and economic programs outlined on page 26 touch our
local communities in some way. Over the longer term these
programs aim to build capacity and generate sustained value
for our local communities.
To ensure that we maintain our social licence to operate,
it is important that the entire Fortescue family behaves with
respect and care for our local communities, in particular the
cultural heritage of Aboriginal People. It is also important
for us to do what we say we will do. We have a large number
of community stakeholders who are either impacted by, or
who influence the way that we operate. These include our
people, Federal, State and local governments, communities,
traditional owners of land, suppliers, customers, non-
government organisations, pastoral leaseholders, investors
and media. For Fortescue to remain successful in achieving
our community goals, it is important that we proactively
and transparently engage with all stakeholder groups.
Fortescue Metals Group Limited I Annual Report 2013 I 25
CORPORATE SOCIAL
RESPONSIBILITY
We partner to build community capacity
Host Communities and Fortescue
Social
• Advancing Indigenous Australians
• Business incubation
• Culture/arts
• Fortescue Foundation
• Australian Employment Covenant
• Enabling Indigenous Lore tradition
• VTEC
• Land compensation
• “I’ll Give a Day Mate”
• Variety WA
• Doctor housing
Economic
• Employment
• Local business capacity building
• Licences
• Local content
• Fees
• Royalties
Natural Environment
• Re-investing water opportunities
• Weed control
• Obligations agreed with government
• Heritage opportunities
• Dust control
Aboriginal Engagement
Fortescue has had a long term commitment to reduce
the disparity between Indigenous and non-Indigenous
Australians and to improve the economic capacity of
Aboriginal Australians. We enter into comprehensive Land
Access Agreements with Traditional Landowners which
provide for best practice cultural heritage management and
maximise the opportunities for training, employment and
business creation.
Respecting Traditional Owners and cultural heritage
Our business is built on respecting the culture, heritage and
traditions of the Aboriginal people and communities who
are affected by our activities. Our Code of Conduct formalises
our commitment to enhancing the wellbeing of communities
along with behaving with respect and care for people and the
environment. It also commits everyone in the Fortescue family
to taking responsibility for the effects of our presence, and to
do what we say we will do.
To ensure that all of our employees and contractors are
aware of our approach everyone is required to undertake
cross-cultural awareness training. Such training helps to build
appreciation, respect and collaboration across our
26 I Fortescue Metals Group Limited I Annual Report 2013
People
• Apprenticeships
• Traineeships
• Local hiring policies
• Leading safe behaviours
• Cultural awareness training
• FIFO support from Port Hedland, Roebourne,
Fitzroy Crossing and Carnarvon
Built Infrastructure
• Renewable energy
• Residential housing in three communities
• Increased accommodation capacity
• The Marquee Park Cafe
• Variety WA
entire workforce. To ensure that our workplace is respectful,
inclusive and supportive we also have Aboriginal mentors and
Indigenous Development Coordinators located at our sites.
Our established Land Access Agreements, along with our
management practices help us to uphold fundamental human
rights and respect for Aboriginal communities touched by our
activities. This approach is in keeping with Fortescue’s Human
Rights Policy, and is aligned with the United Nations Guiding
Principles on Business and Human Rights, the UNGC, the
ICMM Principles and reflects applicable domestic laws within
the jurisdictions within which we operate.
We have Land Access Agreements in place with seven
Traditional Owner groups in the Pilbara, comprising the
Palyku, Kariyarra, Nyiyaparli, Bunjima, Eastern Guruma, Puuti
Kunti Kuruma Pinikura and Njamal People.
CORPORATE SOCIAL
RESPONSIBILITY
CORPORATE SOCIAL
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Case Study: UN visit to North Star recognises
historic nature of Fortescue’s agreement with
the Njamal People
In August 2012 Fortescue, in partnership with the Njamal
People, hosted a visit to the remote North Star magnetite
project by the United Nations Special Rapportuer on
the rights of Indigenous People, Dr James Anaya, and
a delegation from Australia’s National Congress of First
People’s. The visit was instigated by the Njamal people
and followed Fortescue’s participation in the inaugural
Extractive Industries Roundtable Symposium organised
by the Congress and the UN. The intention was to provide
Dr Anaya with insight into the unique agreement reached
between Fortescue and the Njamal People.
It also provided the Njamal with an opportunity to explain
the importance of the relationship with Fortescue, both
in terms of ensuring that mining development on Njamal
traditional lands occurs with Njamal consent and that the
Njamal receive long-term sustainable benefits from the
development. Under the agreement, the Njamal people
will joint-venture with Fortescue in a mining operation on
Njamal traditional lands.
Promoting economic development in our
Aboriginal Communities
Fortescue believes that sustainable economic development
is generated by supporting Aboriginal businesses and
developing economic capacity within Native Title Groups.
Our Land Access Agreements support this goal by setting
benchmarks for local Aboriginal content across our operations
and incentivising Aboriginal business development activities.
Internally, we have a number of frameworks and programs in
place to assist us in meeting these commitments, such as:
• Our Procurement Policy drives local content and
preferences contracting arrangements with Aboriginal
businesses that meet performance and price standards;
• Our tender and contractor documentation requires all
proposals to contain an Aboriginal Engagement Strategy,
including binding commitments to Aboriginal employment,
training, and local Aboriginal business capacity building.
Additionally, our unique A Billion Opportunities Program
aims to develop the economic capacity of Native Title Groups
by delivering on business development, mentoring and
training goals.
Fortescue Metals Group Limited I Annual Report 2013 I 27
During the year we concluded a further 30 heritage
agreements for exploration activities with other Traditional
Owner groups across the Pilbara.
We proactively manage cultural heritage through a team
of people located across our operations including Perth,
Port Hedland and at our Christmas Creek, Solomon and
exploration sites. Our team includes representatives of the
Traditional Owners who help Fortescue manage
their heritage. The identification and management of
culturally important sites is fundamental to Fortescue’s
approach to sustainable operations. We have identified
over 5,000 heritage sites, during extensive archaeological
and anthropological surveys. Our approach ensures that
Fortescue‘s operational and expansion activities comply with
statutory obligations under the Aboriginal Heritage Act 1972
(AHA) and our commitment to heritage management made
in our Land Access and heritage agreements.
CORPORATE SOCIAL
RESPONSIBILITY
Billion Opportunities
The Billion Opportunities Program proactively supports
Aboriginal businesses that provide real job opportunities
for Aboriginal people. The program has demonstrated
tangible economic outcomes for Aboriginal groups. Through
the program Fortescue delivered on a commitment to
award $1 billion of contracts to Aboriginal contractors and
joint ventures by December, 2013. These contracts enable
Aboriginal businesses to participate in Fortescue’s growing
operations and builds each business’ capacity and capabilities
to provide jobs to Aboriginal people.
Since 2010, Fortescue has awarded 102 contracts/sub-
contracts worth a total of $1.11 billion to Aboriginal
businesses, thus achieving our target six months’ ahead
of schedule.
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Billion Opportunities - Contract Value
Billion Opportunities - Contract Value
Aboriginal Contractors
Aboriginal Contractors
Traditional Owners
Traditional Owners
Native Title Groups
Native Title Groups
2010-2011
2011-2012
2012-2013
2010-2011
2011-2012
2012-2013
Billion Opportunities - Contracts Awarded
Billion Opportunities - Contracts Awarded
Aboriginal Contractors
2010-2011
2011-2012
2012-2013
2010-2011
2011-2012
2012-2013
Aboriginal Business Spend
Aboriginal Contractors
Traditional Owners
Traditional Owners
Native Title Groups
Native Title Groups
Contractor Spend
Fortescue Direct Spend
800
800
600
600
400
400
200
200
0
0
60
60
50
50
40
40
30
30
20
20
10
10
0
0
300
250
200
150
100
50
0
2011-2012
2012-2013
28 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE SOCIAL
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CORPORATE SOCIAL
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Case Study: Traditional Owners boost
economic independence
Martu Idja Banjima (MIB) of the central Pilbara is expanding
its business offering to the mining industry, demonstrating
why economic participation is better than mining handouts.
A year after joining with Morris Corporation to provide
catering and facilities management at Solomon, MIB
purchased 25 per cent of construction signage company
Corsign and established its own traffic management business
which undertook work on the Fortescue Hamersley Line.
“Economic participation opens up possibilities for Aboriginal
businesses to use profits and skills gained from running a
business to build capacity and move towards genuine economic
independence that can outlast the life of a mine. The old model
of mining companies paying money into trusts for disbursement
by the few, rather than delivering meaningful jobs and economic
participation to the many, has failed to address the disparity
suffered by Aboriginal people” – Fortescue CEO, Nev Power.
“Fortescue is bringing Aboriginal people and contractors to the
table, which is exactly what Aboriginal businesses need. The rest
is up to us to build our capacity and invest our profits into new
development opportunities.” – MIB Director, Carmen Murdock.
Driving local and Aboriginal employment
Fortescue has a long-standing commitment to providing
employment opportunities within our local communities.
A regionally based workforce has benefits for Fortescue
and local community economies. Many of our employees
are locally-based in the Pilbara.
As a business Fortescue is committed to increasing
participation of Aboriginal People in employment, and this
commitment is embedded in our Land Access Agreements.
We actively contribute to the goals of Generation One (www.
generationone.org) and have an overall target to increase the
number of Aboriginal employees working in our business to
15 per cent by 2015.
Our Vocational Training and Employment Centres (VTEC)
provide a pathway to employment for Aboriginal People
through support and training. More information on VTEC is
presented in the case study on page 30. We currently employ
a total of 461 Indigenous people compared to 403 in 2012.
%
100
80
60
40
20
0
Percentage of Indigenous Employees
Non-indigenous
Employees
Indigenous
Employees
2011-2012
2012-2013
Fortescue Metals Group Limited I Annual Report 2013 I 29
CORPORATE SOCIAL
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Case Study: VTEC
We believe strongly that Aboriginal communities should
benefit from our operations through local employment.
We established the Vocational Training and Employment
Centres (VTEC) in 2006 to provide a pathway to employment
at Fortescue and with our contractors through training and
support. VTEC is a “welfare-to-work” model catering to those
people with little or no work history who have been passed
over by the mining industry previously. VTEC has assisted
over 1,000 people with training and support since inception.
We recognise the challenges facing Aboriginal People
making the transition into full-time employment. The VTEC
model provides a holistic approach aimed at addressing
barriers to employment including driver’s licence issues,
health issues, housing and personal issues, while delivering
job specific training.
Most importantly, we guarantee that if the trainee
successfully completes the VTEC program they are assured
of a job with Fortescue or one of our contractors.
In 2013 we had a target to facilitate 100 graduates from
VTEC training programs. This target was exceeded with a
total of 105 graduates gaining employment through VTEC.
Driving value through our procurement activities
As a business we purchase large volumes of goods and services
to support our operations at all locations. We believe we
can positively contribute to regional and local communities
through our procurement activities. We have been committed
to driving local procurement activities for a number of years.
This commitment aims to proactively build economic capacity
within the Pilbara communities in which we operate. As part of
this commitment we undertake the following activities:
• Facilitation of tender submissions with local Pilbara businesses.
• Active engagement with our major contractors to promote local
business development activities through the tender process.
• Development of partnerships with Federal, State and local
government agencies and non-government agencies to
facilitate and implement projects and initiatives on local
economic development, regional issues and community
capacity-building.
• Development of agreed local content targets for
each operation. This year was the second in which we
measured and analysed our procurement spend. Whilst
our overall project-based expenditure with suppliers has
peaked as we head toward project completion, we will
continue our commitment to supporting the Pilbara and
Australian economies through our operational spend.
This performance aligns with the commitment made
last year to provide local Pilbara community businesses
with opportunities to provide goods and services to our
Chichester Hub, Port and Rail network operations.
Fortescue Supplier Spend Profile
Local Suppliers - Pilbara
Overseas Suppliers
Australian Suppliers
s
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B
$
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A
12
10
8
6
4
2
0
30 I Fortescue Metals Group Limited I Annual Report 2013
FY11/12
FY12/13
CORPORATE SOCIAL
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Our Procurement Policy underpins our proactive engagement with contractors that demonstrate a commitment to the
employment and capacity development of Aboriginal people. Their performance is also monitored through the Aboriginal
Engagement Strategy that each contractor needs to submit to us as part of the tendering process. This approach leads to
beneficial outcomes for both parties and is in alignment with our values to engage contractors that share our vision for Aboriginal
employment. Our contractors currently employ a further 528 Aboriginal people bringing the total to 989 across our workforce.
700
600
500
400
300
200
100
0
Jan-
Mar
2011
Apr-
Jun
2011
Jul-
Sept
2011
Oct-
Dec
2011
Jan-
Mar
2012
Apr-
Jun
2012
Jul-
Sep
2012
Oct-
Dec
2012
Jan-
Mar
2013
Apr-
Jun
2013
Aboriginal Employed - Contractors
115
174
304
478
544
630
527
301
427
528
Aboriginal Employed - Fortescue
259
287
308
327
356
397
406
422
428
461
Investing in and developing our communities
Fortescue is committed to aligning our community
partnerships and investment activities with our own goals
and those of our regional and local communities. As a result,
all of our activities have a strong focus on local employment,
capacity and infrastructure building, and Aboriginal development.
At an organisational level we support community partnerships
with GenerationOne and the Australian Children’s Trust (ACT).
The goals of these two organisations are strongly aligned with
Fortescue’s goals to end the disparity between Indigenous and
non-Indigenous Australians. Fortescue is a foundation partner of
GenerationOne and a key contributor to the success of the ACT.
More information can be found on these programs and their
missions at www.generationone.org.au and
www.australianchildrenstrust.org.au.
During the year we made a commitment to support the construction
of the re-developed Ronald McDonald House in Perth. We are
supporting this charity because of the wonderful assistance it provides
to regional families whose children are required to attend Perth for
hospitalisation and treatment. Personal commitments of $2 million and
$400,000 were made by the Forrest and Meurs families respectively.
Fortescue has a fundraising campaign in place to match this generous
contribution by 2015. Ronald McDonald House will provide much
needed support to our regional employees and communities
when their children require medical treatment in the future. More
information can be found at www.rmhc.org.au/building-new-house.
At a regional level we actively support the Western Australian
Government’s Pilbara Cities Vision and our development
and infrastructure investment activities closely link to this
initiative. The Pilbara Cities Vision focuses on developing a
residential workforce, local employment and the training and
development of Aboriginal people. We have made a number of
key investments through funding of the following initiatives:
• Investing over $100 million in the construction of new houses
in Port Hedland and budgeting for a five year housing
construction program. Fortescue has also invested in existing
lots in South Hedland, Tom Price and Roebourne. We continue
to seek additional lots to support our Pilbara residential
workforce requirements.
• Contributing funds to enable the upgrade of 36 kilometres
of road in the Shire of East Pilbara.
• Helping a children’s charity to build a house in Port Hedland,
with the profit from the sale to be used by Variety WA
towards its programs for local children.
• Establishing a world class iron ore metallurgical testing
plant at Newman that will help increase local employment
opportunities and local community business opportunities.
• Establishing and maintaining Vocational Training and
Employment Centres at South Hedland and Roebourne,
which provide work readiness, skills training, employment
programs and support to assist Aboriginal people to move
into jobs with Fortescue.
Fortescue Metals Group Limited I Annual Report 2013 I 31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CORPORATE SOCIAL
RESPONSIBILITY
Case Study: Five Star Program
Our Five Star Program helps us to deliver on our long-standing
goal of ending the disparity between Aboriginal and non-
Aboriginal Australians. The program provides opportunities for
Aboriginal people, in particular our Aboriginal employees and
those with whom we have Land Access Agreements, to obtain
skills training and education.
The Program consists of five schemes which are:
• Fortescue Aboriginal Scholarship Scheme, providing
secondary education support.
• Fortescue Aboriginal Vocation Scheme, a school-based
traineeship during which recipients are encouraged to
complete years 11 and 12 while completing a Certificate II.
• Fortescue Aboriginal Cadetship Scheme, linking students enrolled
at university with Fortescue to provide work placements and
ongoing employment once they finish their studies.
• Fortescue Aboriginal Leadership Scheme, including a Frontline
Manager Program and a Leadership Recognition Award.
• Fortescue Tertiary and Vocational Scholarship Scheme.
We currently have 24 participants in the Five Star program and
we aim to increase this to 40 in FY14. We believe this program
will help us to further support Aboriginal Australians while
contributing positively to our culture.
• Supporting a government housing initiative to attract and
retain more doctors to Port Hedland.
• Sponsorship of the Hockey Australia National Indigenous
Program, initially piloted at Roebourne, which is assisting
the local school to deliver positive school student
performance and behavioural change through sport.
• Sponsorship of the South Hedland Swans Football Club
to help provide positive behavioural change to potential
candidates of the VTEC program through sport.
We also have an active Community Support program
Fortescue Helping Others, which supports projects, groups
and initiatives that have a positive impact in the community.
Grants of up to $5,000 are available to eligible applicants to
support community projects within the Council boundaries
of the Town of Port Hedland, the Shire of East Pilbara, and the
Tom Price area. We focus on support of community projects
which embrace:
• Education and training
• Improving quality of life
• Encouraging healthy living
• Indigenous capacity building
• Empowering community members and leaders
• Encouraging community involvement
• Opportunities and development for children and youth
• Connect residents to their community
• Community safety
• Environmental responsibility
Last year we committed to provide grants to community
organisations within Port Hedland, Tom Price and Newman.
During the year we provided a total of almost $100,000
in community grants to Pilbara organisations under the
Fortescue Helping Others Program. Eligibility is determined
based on established criteria, which are outlined by our
Community Support policies available at www.fmgl.com.au.
Case Study: Supporting the Royal Flying Doctor Service
Fortescue has long recognised the importance of the Royal Flying Doctor Service (RFDS) in providing primary health care and 24-
hour emergency services to those who live, work and travel in rural and remote communities within the Pilbara, and wider Australia.
During the year Fortescue donated more than $93,000 to the RFDS. This was achieved through the joint fundraising efforts of our
Solomon team, our Christmas Creek expansion project safety program, and the sale of recyclable scrap metal at our operational
sites. The funds raised by Fortescue will be used by the RFDS to purchase a portable critical care monitor, an infant incubator and
three video laryngoscopes.
32 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE SOCIAL
RESPONSIBILITY
CORPORATE SOCIAL
RESPONSIBILITY
Case Study: Rolling up our sleeves
More than 30 representatives from Fortescue and Pilbara
Institute rolled up their sleeves and put their handyman
skills to work during the company’s inaugural working bee at
the Minurmarghali Mia campus in Roebourne. The campus
is Pilbara Institute’s major training and education facility in
Roebourne as well as the Roebourne arm of Fortescue’s VTEC.
Volunteers helped to tidy up the grounds, improve the
gardens and replace damaged fencing and paving.
The Roebourne working bee was inspired by
Fortescue Chief Executive Nev Power’s recent involvement
in a similar event in Aurukun in western Cape York,
Queensland. Mr Power, along with a number of business
and political leaders, swapped his suit for a polo shirt
and working boots to help rebuild a library for the local
Aurukun school.
Case Study: Building safer roads
In late 2012, Fortescue delivered the Port Hedland community a safer, more efficient way of crossing the company’s railway on
the Great Northern Highway. This was achieved through the construction of a new vehicle overpass. This infrastructure project
reflects Fortescue’s ongoing commitment to the community of Port Hedland. It will remove long delays waiting for Fortescue
trains to cross the Great Northern Highway.
The overpass was built in collaboration with Main Roads Western Australia and followed a period of community consultation
in 2011. A public observation platform was also constructed to enable tourists and the community to view Fortescue at work.
The existing section of the Great Northern Highway that was disturbed during the construction process was rehabilitated in line
with Fortescue’s commitment to the environment.
Case Study: Recognition of our support
During the year, Fortescue was honoured to receive Lifeline WA’s ”Corporate Contribution Award”at the 25th Lifeline WA Report to the
People. The award recognises outstanding efforts in raising awareness and funds to support people in crisis and suicide prevention.
Lifeline’s major fundraising event for last year was the Walk for Hope, instigated by one of our mine operators from Cloudbreak
who was personally touched by the tragedy of suicide. The long walk of 1000kms from Carnarvon to Perth raised $120,000 for
suicide awareness and prevention.
Lifeline WA delivers services that aim to prevent suicide, support people in crisis and create opportunities for emotional
wellbeing. They provide 24/7 telephone crisis support, education programs, information and resources for help seekers and
caregivers and more, all of which are dependent on community contributions, corporate partnerships and fundraising.
For more information on Lifeline WA visit www.lifelinewa.org.au.
Fortescue Metals Group Limited I Annual Report 2013 I 33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 CORPORATE SOCIAL
RESPONSIBILITY
Reducing our environmental impact
We are committed to managing our environmental
impacts and meeting our licence requirements. We take a
precautionary approach to our environmental challenges
and will invest in initiatives and technologies that not
only make good business sense but also reduce our
environmental impact.
During the year we published our fifth Public Environment
Report. The report provides a detailed synopsis of our
performance in the areas of approvals and compliance, energy
and greenhouse, waste management, water management,
air quality, habitats protected and restored, environmental
training and awareness, and our research. The highlights are
summarised in this report and the full report is available at
www.fmgl.com.au.
Environmental management systems
Our Environment Policy outlines our mission to maintain
sound environmental management procedures to
minimise our impact. The overall objectives of this Policy
are achieved with the implementation of our management
system and subject matter specific management plans. Our
environmental commitments also align with those required
by the ICMM and UNGC Principles.
Last year we committed to the continued implementation of
our ISO 14001 aligned environmental management system.
This system helps to provide all of our operations with
effective environmental management that is built on the
principles of assessment, control and monitoring. We have
worked to embed environmental management into each
stage of our project life cycle. As a business we will remain
focused on using technology to reduce our environmental
impacts and to leverage business and cost efficiency gains.
Environmental approvals and compliance
Fortescue’s operations are governed by the conditions set out
in the Ministerial statements, licences and approvals issued
by various government bodies. These conditions require us
to meet standards of effective environmental management,
planning and performance. Management Plans that assist us
to meet these conditions are available at www.fmgl.com.au.
During 2012 there were a small number of non-compliances
with monitoring and reporting obligations. These were
either addressed with regulators at the time of occurrence
or summarised in annual report submissions to various
authorities including the Office of the Environmental
Protection Authority and the Department of Environment
Regulation. None of these non-compliances resulted in fines
or regulatory sanctions.
34 I Fortescue Metals Group Limited I Annual Report 2013
Greenhouse and energy
Fortescue is committed to complying with all greenhouse
and energy legislation and regulatory requirements, and
has had robust reporting processes in place for several
years. Fortescue reports its performance annually under the
Australian Federal Government’s National Greenhouse and
Energy Reporting (NGER) Act. It is also a participant in the
Federal Government’s Energy Efficiency Opportunities (EEO)
program, designed to identify energy savings and efficiency
measures. The EEO program fits well with Fortescue’s existing
culture of frugality in seeking to run our operations as
efficiently and cost-effectively as possible.
Each year our total emissions, energy use and energy
production’s independently audited. Fortescue is most
affected by the Australian Government’s carbon pricing
mechanism via the reduction in the fuel tax credit offered
to offroad users of liquid fuels, in particular diesel fuel used
across our mining operations. We are also affected by the
pricing impact on third party electricity generators, passed
through to Fortescue in locations where we purchase
electricity from the grid.
Fortescue’s Greenhouse Gas (GHG) and energy use
performance is reported to the Federal Government on a
financial year basis. Fortescue’s total Scope One and Two
GHG emissions for the 2012-2013 reporting period were 1.43
million tonnes of carbon dioxide equivalent (CO2e) which
was a net increase of 27 per cent over the previous 12 months.
Although our total GHG emissions increased over the year, of
particular note is the impressive reduction of both the Energy
Use and GHG intensities associated with the Company’s
operations. Both intensity indicators decreased by almost
seven per cent during the year which is attributed to the
commencement of operations at Solomon project, the ramp up
of production at our Chichester mines and the overall increase
in utilisation and efficiencies of supporting infrastructure.
Mainline rail duplication has increased the effective delivery
of ore to the two new inload circuits at our port while revised
mining methods at the Chichester’s – to significantly reduce
our strip ratios – has assisted in the reduction of emission
intensities. Our performance over time is presented in the
graphs below. In the next few years intensities are expected
to decrease further as mining operations and supporting
functions continue to refine processes and deliver efficiencies.
CORPORATE SOCIAL
RESPONSIBILITY
CORPORATE SOCIAL
RESPONSIBILITY
Energy Use Intensity
35,000
30,000
25,000
20,000
,15,000
10,000
5,000
0
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2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
GHG Emissions Intensity
Scope 2
intensity (EMM)
Scope 1
intensity (EMM)
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
i
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Water
Groundwater management is an integral part of Fortescue’s
mining operations. Groundwater abstraction is required to
lower the water level, allow access to the ore body and meet
water use requirements for the mine.
At the Chichester Operations, dewatering substantially
exceeds the mine water use requirements. A managed aquifer
recharge system called Papa Warringka (Nyiyaparli for Water
in the Ground), which effectively returns excess water to
the groundwater system, is employed to conserve valuable
brackish water and mitigate potential environmental impacts
associated with surface discharge of water and groundwater
level drawdown.
In operation since 2008 at Cloudbreak and expanded
to Christmas Creek in 2011, Papa Warringka currently
abstracts approximately 100 GL/a and returns 70 GL/a to the
groundwater system, with a net abstraction of approximately
30 GL/a. This innovative achievement has been recognised
by the International Water Association’s prestigious Global
Innovation Award for Water Management and Infrastructure,
and is highly regarded by government regulators and
Indigenous stakeholders as an example of best practice.
Construction water supply activities are planned to transition
to operational dewatering and mine water supply activities in
late 2013.
Fortescue Metals Group Limited I Annual Report 2013 I 35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CORPORATE SOCIAL
RESPONSIBILITY
Case Study: Driving progress on
rehabilitation
It is our objective to integrate corporate responsibility
and environmental thinking into the way we do business.
In the past year we have had great success through
this integrated thinking and decision-making in the
area of rehabilitation.
Land clearance for rail infrastructure results in a
number of “borrow pits” being generated. These pits
of temporarily disturbed land are used for earthworks
during construction. As part of our new rail construction
contract we integrated the requirement for rehabilitation
into our payment milestones. This upfront thinking has
driven 90 per cent completion of rehabilitation during
construction activity rather than leaving the work to
be completed at the end of the process.
Biodiversity management and research
Fortescue is committed to conserving the biodiversity of plant
and animal life in the regions within which we operate.
We also use integrated land management approaches in
our planning to ensure that our rehabilitation practices are
integrated throughout the stages of our mining life-cycle.
Fortescue’s land impact includes exploration drilling to identify
and measure the presence of mineral deposits, excavation of
operational mining pits, and land clearance for infrastructure
and transport development. Because land clearance for
infrastructure purposes is long-term or permanent, we ensure
that we place our support infrastructure in locations that will
minimise the need to disturb existing habitats. Rehabilitation
is typically undertaken using topsoil and waste rock stockpiles
removed at the time of initial land disturbance. Using this
approach we remove the need to transport additional
materials to the site of rehabilitation.
2012 saw the execution of approximately two years of
research into material characterisation and landform design
with the commencement of large scale rehabilitation at our
Cloudbreak mine site. Three waste rock dumps were re-
profiled to engineered designs in stage one of our progressive
rehabilitation plans. Stage two rehabilitation programs, which
include the replacement of growth medium and drainage
infrastructure, are planned for delivery in 2013.
36 I Fortescue Metals Group Limited I Annual Report 2013
Prior to construction and development of any major mine site
or individual operation, specialist consultants are engaged to
undertake flora and fauna surveys and catalogue the species
present in the region. During operation, risks to local flora and
fauna are managed by Fortescue via a number of management
plans and monitoring programs to assess long term biodiversity
in the region.
In 2012, we continued to fund and participate in research
via partnerships with the University of Western Australia
and Commonwealth Scientific and Industrial Research
Organisation (CSIRO). Our research is focused on the unique
waterways and vegetation in the local areas around our mine
sites. The Fortescue Marsh forms a large part of this area.
Through our research we are seeking to better understand the
natural environmental balance that exists in the region and
whether our operational and environmental management
activities are likely to have an impact or benefit. This research
will lead to a better understanding on how to focus our
environmental management. It also acts as a monitoring
indicator on the health of the region to ensure that we do not
adversely affect the local environment.
Significant funding was also provided directly to the
Department of Environment and Conservation to support
research programs into threatened fauna including the
Northern Quoll and the Greater Bilby.
CORPORATE SOCIAL
RESPONSIBILITY
CORPORATE SOCIAL
RESPONSIBILITY
Case Study: Supporting Local Wildlife
Management
The Kanyana Wildlife Rehabilitation Centre is a not-for-profit
organisation in Perth that is renowned for its commitment
to caring for sick, injured, orphaned and displaced native
wildlife. The Centre treats more than 2,000 animals each year
with support from 307 volunteers and just two
full-time employees.
In addition to their outstanding work with wildlife,
Kanyana received the Bethanie Medallion in November 2011.
The Bethanie Medallion is an honorary citation presented in
recognition of an individual or organisation having a history
of consistently delivering an exceptional standard of service
in an area of the aged care sector. It has been demonstrated
at Kanyana that victims of Alzheimer’s disease achieve an
improvement in their condition when working with animals.
Fortescue donated over $30,250 to the Centre through funds
raised from Fortescue’s scrap metal recycling program.
The funds will be used to refurbish the Centre’s reptile room.
Case Study: Samphire Research
North Western Australia has many diverse and abundant populations of Samphire species, with some being unique to the
region and having limited documented knowledge. Fortescue has a long-term research funding partnership with the University
of Western Australia to develop an increased knowledge base on Samphire species in the vicinity of the Fortescue Marsh.
Our Samphire research has been ongoing since as early as 2008. The results of this series of research have been undertaken
as a UWA PhD thesis.
Fortescue’s Samphire studies aim to document the general characteristics of Pilbara Samphire species and make specific research
on the tolerance of Samphire to stresses caused by changes to the water level and salinity in the surrounding environment.
This research informs our environmental risk assessments when determining safe levels of groundwater quality that will support
local vegetation. It also seeks to identify “early warning indicators” of vegetation stress to enable Fortescue to identify if and when
vegetation is deteriorating and take appropriate action where possible.
Fortescue Metals Group Limited I Annual Report 2013 I 37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 CORPORATE GOVERNANCE
Contents
• Overview of Governance at Fortescue
• Board of Directors
• Board Committees
•
Engagement with Stakeholders
• Risk Management
• Conduct of Business
• Market Disclosures
• Compliance with Corporate Governance Standards
38
39
44
46
47
48
48
48
1. Overview of Governance at Fortescue
The essential elements of Corporate Governance at Fortescue are:
Transparency
Being clear and unambiguous about the company’s structure, operations and performance, both externally and internally, and
maintaining a genuine dialogue with, and providing insight to, legitimate stakeholders and the market generally
Corporate accountability
Ensuring that there is clarity of decision making within the company, with processes in place to ensure that the right people
have the right authority for the company to make effective and efficient decisions, with appropriate consequences delivered for
failures to follow those processes
Stewardship
Developing and maintaining a company-wide recognition that the company is managed for the benefit of its members,
taking reasonable account of the interests of other legitimate stakeholders
Integrity
Developing and maintaining a corporate culture committed to ethical behaviour and compliance with the law.
The governance structure at Fortescue is represented by the following diagram.
38 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Shareholders
Board of Directors
Ensures appropriate Corporate Governance Practices are in place
Board Remuneration
and Nominations Committee
Responsible for remuneration policy and practice
and Board Member Nominations
Board Audit and Risk
Management Committee
Responsible for all matters related to financial
reporting, audit and risk management
Chief Executive Officer
The Board delegates authority to the CEO for all matters that are not
reserved for the Board or one of its committees
Executive Committee
Fortescue Corporate Governance practices are driven by the extensive experience and diverse capabilities of our Board and Executive Team.
They are informed by our commitment to long term sustainability, our obligations to stakeholders including regulatory authorities,
and clear delegations of authority. This is all underpinned by our culture and supported by policies relevant to occupational health and safety,
the environment and social and governance responsibilities.
Alignment with our Corporate Governance Practices is assured by independent internal and external audit functions,
dedicated health and safety and environmental compliance functions and well defined accountability and reporting lines.
2. Board of Directors
2.1 Role and Responsibilities
The Board is responsible to the shareholders for the performance of the Group. The Board’s focus is to enhance and protect the
interests of shareholders and other key stakeholders and to ensure that the Group is properly managed. The Board understands
the critical importance of a strong and healthy working relationship between it and the executive management team and
works hard to foster and grow that relationship. The Board ensures that the management team is appropriately qualified and
experienced to discharge their responsibilities.
The Board has established a Statement of Matters Reserved for the Board which states that the key responsibilities of the Board
are as follows:
•
•
•
•
•
•
•
•
•
Appointing, evaluating the performance of, rewarding and if necessary removing the Chief Executive Officer (CEO);
Developing corporate objectives and strategies with management and approving plans, new investments, major capital
and operating expenditures and major funding activities proposed by management;
Monitoring performance against defined performance expectations and reviewing operational information to understand
at all times the state of health of the Group;
Overseeing management of business risks, including safety and occupational health risks, environmental management
issues and community development issues arising from our interaction with the several communities living or located
in our geographic areas of operation;
Satisfying itself that the annual financial statements of the Group fairly and accurately disclose the financial position and
financial performance of the Group;
Satisfying itself that there are appropriate reporting systems and controls in place and gain acceptable levels of assurance
that proper operational, financial, compliance, risk management and internal control processes are in place and functioning
appropriately. Further, approving and monitoring financial and other reporting;
Gaining assurance that appropriate audit arrangements are in place;
Ensuring that the Group acts legally and responsibly on all matters and gaining assurance that the Group has adopted
an appropriate Code of Conduct and that Group practice is consistent with that Code; and
Reporting to and advising shareholders.
Fortescue Metals Group Limited I Annual Report 2013 I 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 CORPORATE GOVERNANCE
The Board has also established Delegations of Authority for matters delegated to the authority of the CEO and hence the
CEO remains accountable to the Board through those delegations for the performance of the Group. Whilst the CEO remains
accountable to the Board, he is free to make whatever decisions he believes are appropriate for the business within the
boundaries established by the Board.
A key focus of Board meetings is monitoring the decisions of the CEO. Appropriate time is allocated during Board meetings
for consideration of the CEO’s report to the Board on key operational issues and progress towards achievement of corporate
objectives. The Board has established the key performance indicators against which the performance of the CEO is evaluated.
These KPI’s are discussed in the Remuneration Report in this Annual Report.
Both the Statement of Matters Reserved for the Board and the Delegations of Authority are reviewed annually to assess
continued relevance and to identify any areas requiring improvement or change. Where changes are required to these
documents, such changes are approved by the Board.
The Board and each of its two primary committees have established a process to evaluate their performance annually.
The process is based on a formal questionnaire with the Chair in each case leading the evaluation process supported by
the Company Secretary. The results and recommendations from the evaluation of the committees are reported to the Board
for further consideration and action where required. At Board level the entire Board agrees improvement actions where
appropriate and these are acted upon utilising support from the Company Secretary.
The individual performance of directors is considered during the Board and Committee performance evaluation process in
addition to ongoing consultation between the Chairman, Deputy Chairman and the relevant directors as required.
2.2 Board Composition
Under the company’s Constitution, the Board must have a minimum of three and a maximum of twelve directors. No director,
other than a managing director, may retain office without re-election for more than three years or past the third annual general
meeting following the director’s appointment, whichever is the longer. Additionally, any new director, with the exception of the
Managing Director, appointed by the Board must retire and may seek re-election in the year of appointment.
The Board believes that its composition represents an appropriate balance of executive and non-executive directors to achieve
the promotion of shareholder interests and governance of the business effectively.
The Board also has access to senior executives who attend Board meetings and Board Committee meetings by invitation and
who are available at other times as required by Board members.
The directors of the Group during the year were:
Name
Andrew Forrest (Chairman)
Herb Elliott (Deputy Chairman, Lead Independent Director)
Graeme Rowley
Geoff Brayshaw
Period of Office
Full Year
Full Year
Full Year
Full Year
Owen Hegarty
Mark Barnaba
Geoff Raby
Herbert Scruggs
Neville Power
Cao Huiquan
Elizabeth Gaines
Peter Meurs
Ken Ambrecht
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
From 22 February 2013
From 22 February 2013
To 14 November 2012
Retiring and seeking re-election in 2013
No
No
No
Retiring and will not be seeking
re-election at the 2013 AGM
No
Yes
No
No
N/A
No
Yes
Yes
N/A
40 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Changes to the composition of the Board during the year are summarised below:
•
•
•
Ken Ambrecht retired as a director of the company on 14 November 2012;
Elizabeth Gaines was appointed as a non-executive director on 22 February 2013;
Peter Meurs was appointed as an executive director on 22 February 2013;
The primary driver for the Board in seeking new directors has been, and continues to be, the skills, experience, knowledge and
other important attributes which are relevant to the needs of the Board in discharging its responsibilities to shareholders. As
with all roles in the company, our policy is to recruit the best person for each role regardless of race, gender, age, physical ability,
sexuality, nationality, religious beliefs, or any other factor not relevant to their competence and performance. The Board is
committed to ensuring that an environment of equal opportunity is in place and that all decisions are based on merit.
The Board has implemented a diversity policy and measurable objectives which reflect Fortescue’s commitment to ensuring that
there are no impediments to diversity at any level of the company. The policy can be accessed through the corporate governance
section of the company’s web site.
Fortescue’s workforce gender profile is summarised below:
Whole of Fortescue
Senior Executive
Board Members
Female
750
1
1
Female %
20.0
3.2
8.3
Male
3,001
30
11
Male %
80.0
96.8
91.7
The measurable diversity objectives established for the 2013 financial year and their current status is summarised below:
Objective Area
Objective
Measure
Current Status
Governance
Implement an Equity and
Diversity Policy that complies with
Legislative requirements.
Policy developed and
communicated to the business.
Policy loaded on intranet and
communicated to employees.
Implement a Complaints
Procedure that is compliant with
Fortescue’s Values and meets
Legislative requirements.
Complaints procedure in place.
Whistleblower hotline reporting
procedure in place. Investigation
process for EEO, Harassment and
Bullying in place.
Prepare and submit annual EOWA
Report for Fortescue.
Quality report submitted on
time annually.
EOWA Report submitted.
Leadership
Training
Establish Executive Mentoring
Programs for groups with
minorities in leadership roles
Integrate Equity and Diversity
Training into Induction Programs
for employees and contractors.
Mentoring Program in place.
Training incorporated into
induction programs.
Create an online Equity and
Diversity Training package for
leaders and employees.
Online training package
for leaders and employees
operational.
Communicate and reinforce the
Equity and Diversity Policy to the
whole workforce.
Workforce and contractors have
attended a training session.
Five Star program implemented
for Aboriginal up and coming
leaders in the business.
RESPECT training program now
included in all formal training and
induction process.
RESPECT online training program
being developed.
RESPECT training program now
taught to over 1,100 employees.
Policy and
Procedure
Develop and implement flexible
working arrangement guidelines.
Policy developed and approved.
Flexible Work Arrangement
Guidelines developed, to be
implemented.
Develop and implement a paid
parental leave policy.
Policy developed and approved.
Parental Leave Policy introduced
1 January 2013.
Fortescue Metals Group Limited I Annual Report 2013 I 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CORPORATE GOVERNANCE
2.3 Skills, Knowledge and Experience of Directors
The Board believes that a diverse and relevant range of skills, backgrounds, knowledge and experience is necessary at Board
level to ensure effective governance of the business. This means that the Board maintains a focus on its composition, thereby
working to ensure that the executive and non-executive directors continue to have an appropriate balance of skills, experience
and independence.
Retention of corporate knowledge is also important to the Board, so there is also a focus on achieving an appropriate level of
retention of corporate knowledge whilst gaining access to new ideas and experience that are relevant to the business.
2.4 Terms of Appointment
Directors, with the exception of the Managing Director, are required to retire by rotation at least once every three years and
are able to offer themselves for re-election. The Board has adopted a letter of appointment that contains the terms on which
directors are appointed, including the basis of remuneration. The letter can be accessed through the corporate governance
section of the company’s web site. Directors are expected to contribute to the Company primarily relating to the matters set out
in Statement of Matters Reserved for the Board, which can also be accessed through the corporate governance section of the
company’s web site. In addition, directors are expected to contribute to the business of the Board committees where they are
members of a Board committee. It is recognised that directors have a diverse range of skills, experience and knowledge and they
are expected to contribute their considerable expertise at the boardroom table and at other times as required.
Directors are expected to act independently by challenging the status quo constructively, to act ethically in all dealings and assist
in setting standards for the Group, as well as being involved and contributing to all important decisions before the Board.
Directors are expected to comply with all requirements imposed upon them by the Corporations Act 2001, ASX Listing Rules and
the company’s Constitution, a copy of which can be obtained from the corporate governance section of the company’s web site.
The letter of appointment also provides clear direction about the amount of time that directors are required to commit in order
to adequately discharge their responsibilities as directors.
It is Fortescue practice to allow its non-executive directors to accept appointments outside the group with prior approval of the
Board. The commitments of non-executive directors are considered by the Board prior to a director’s appointment to the Board
and are reviewed annually.
Prior to appointment, or offering themselves for re-election, non-executive directors are required to specifically acknowledge
that they have the time available to fully discharge their responsibilities to the Group.
2.5 Chairman
The Chairman of the Group has a primary responsibility to lead the Board and promote the interests of the Group, both internally
and in the broader business context. A key part of the Chairman’s role is to develop a cohesive Board which operates effectively
in protecting shareholders interests and maintaining strong relationships with the CEO and his executive team.
Andrew Forrest, the founder of Fortescue, was appointed to the role of Non-Executive Chairman by the Board in August 2011. Mr
Forrest succeeds Mr Herb Elliott as Chairman and was previously the CEO. Mr Forrest, whilst being a non-executive director, is not
an independent director due to his previous role as CEO and his significant shareholding in the company. Mr Herb Elliott is the
lead independent director in the role of Deputy Non-Executive Chairman.
2.6 Independence
All Fortescue Directors have an obligation to be independent in judgment and actions. The Board believes that having a majority
of independent directors is important in order to ensure that the interests of shareholders are always at the forefront when
important decisions are made by the Board. Directors are considered to be independent if they satisfy established criteria,
including the following:
• They are a non-executive director of the company. Any fees paid to them by the Group for services provided are not of such
amounts that could make the director reliant on such remuneration. Directors must have no other material contractual
relationships with the Group other than as directors of the Group;
42 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
• They are not a substantial shareholder of the company, this being defined in the Corporations Act as holding more than 5% of
the voting shares of the company;
• They have not been employed in an executive capacity by the Group or there has been a period of three years between
ceasing such employment and serving on the board
• They have not, within the last three years, been a principal of a material adviser or consultant to the Group;
• They are not a material supplier of the group, or an officer of or otherwise associated directly or indirectly with a material
supplier or customer; and
• They are free from any interest which could reasonably be perceived to materially interfere with their ability to act in the best
interests of the Group.
In essence the above guidance is designed to ensure that all directors are able to act in the best interests of the Group at all times.
Directors are required to disclose circumstances that may affect, or be perceived to affect, their ability to exercise independent
judgement so that the Board can make regular assessments of independence. If a circumstance arises whereby a director may
be required to consider a matter in which the director has a material personal interest, that director ceases to be involved in the
decision making regarding that matter.
The Board has ten non-executive directors. Of the ten non-executive directors, based on the above criteria, seven are
considered to be independent and three are considered to be non-independent. The Board believes that it has independent
directors involved in all areas of Board activity where director independence is critical, including chairmanship via the deputy
chair and involvement in the various Board committees. The table below shows directors who are considered to be independent
and non-independent:
Director
Andrew Forrest
Herb Elliott
Geoff Brayshaw
Owen Hegarty
Cao Huiquan
Elizabeth Gaines
Independent (Yes/No)
No
Yes
Yes
Yes
No
Yes
Director
Graeme Rowley
Mark Barnaba
Geoff Raby
Herbert Scruggs
Nev Power
Peter Meurs
Independent (Yes/No)
No
Yes
Yes
Yes
No
No
As Deputy Chairman, Mr Elliott has been appointed as the Lead Independent Director to represent the interests of shareholders
where the Chairman is unable to do so due to his non-independent status.
The Deputy Chairman’s role includes the following responsibilities:
• Chairing the Board and shareholder meetings when the Chairman is unable to do so;
• Representing the Board as the Senior Independent Director when the Chairman is unable to do so due to his non independent status;
• Acting as principle liaison between the Independent Directors and the Chairman; and
• Approval of meeting agendas and quality of information provided to the board.
Transactions during the year which are classified as related party transactions with directors or director related entities pursuant
to International Financial Reporting Standards are disclosed in the notes to the financial statements.
2.7 Use of Information
The Board has implemented a Code of Conduct designed to ensure that all directors and employees of the Group act ethically
and do not use confidential information for personal gain.
2.8 Independent Advice
Directors and Board committees, in connection with the discharge of their responsibilities, have the right to seek independent
professional advice at the expense of the company. Prior written approval of the Chairman is required in these circumstances,
but such approval cannot be unreasonable withheld.
Fortescue Metals Group Limited I Annual Report 2013 I 43
CORPORATE GOVERNANCE
2.9 Remuneration
Details of the remuneration policies and the remuneration paid to directors (executive and non-executive) are set out in the
Remuneration Report in this Annual Report.
2.10 Meetings
The Board meets as often as necessary to fulfil its role. Directors are required to allocate sufficient time to the Group to discharge
their responsibilities effectively, including adequate time to prepare for Board and Board committee meetings and in joining
visits to the Group’s operational sites.
During the current year the Board met sixteen times. Generally Board meetings are of one day’s duration and Board committee
meetings precede Board meetings on the previous day.
In addition, Board members hold meetings with management as required.
2.11 Company Secretary
The Company Secretary is appointed and removed by the Board and is responsible for establishing and maintaining appropriate
support mechanisms to enable the Board to function effectively. The Company Secretary is also responsible for ensuring that
Board procedures are complied with and advising the Board on governance matters. All directors have access to the Company
Secretary for advice and support services as required. In addition to these responsibilities, the Company Secretary is also
responsible for oversight of the share registry services provided by Link Market Services.
3. Board Committees
The Board has established committees to assist in the execution of its duties and to ensure that important and complex issues
are given the detailed consideration they require. The primary committees of the Board are the Remuneration & Nominations
Committee and the Audit & Risk Management Committee. The Board has also formed a Finance Committee that meets as
required to provide guidance and oversight for management on behalf of the Board, when major financing initiatives are
underway or being finalised.
The primary committees have their own Charters approved by the Board, and under which authority is delegated by the Board.
Each Committee is required to report the outcomes of its deliberations to the Board so that the Board is fully informed on all
important matters before matters are resolved.
The Company Secretary provides support services to each committee. Committee meeting agendas, papers and minutes are
made available to all Board members.
3.1 Remuneration & Nomination Committee
The Remuneration & Nominations Committee met five times during the year. Details of committee members are shown in the
table below:
Name
Mark Barnaba (Chairman)
Herb Elliott
Andrew Forrest
Owen Hegarty
Herbert Scruggs
Ken Ambrecht
Term
Member for full year
Member for full year
Member for full year
Member for full year
Member for full year
Member to 14 November 2012
Status
Independent non-executive director
Independent non-executive director
Non-independent non-executive director
Independent non-executive director
Independent non-executive director
Independent non-executive director
Meetings
Held Attended
5
5
5
5
5
3
5
4
4
5
5
2
44 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
The role of the committee is to assist the Board in its oversight of remuneration policy and practice and Board member
nominations. The committee considers a diverse range of matters related to its role, including:
• Senior executive remuneration policy;
• Short term and long term incentive plans;
• Chief Executive Officer, non-executive and executive director remuneration policy;
• Succession planning;
• Recruitment, retention and termination policies;
• Nominations for Board positions and review of applicants for Board positions; and
• Board Committee appointments.
Full details of the committee’s activities on behalf of the Board related to remuneration matters are set out in the Remuneration Report.
3.2 Audit & Risk Management Committee
The Audit & Risk Management Committee met five times during the year. Details of committee members are shown in the table below:
Name
Geoff Brayshaw (Chairman)
Mark Barnaba
Graeme Rowley
Herbert Scruggs
Ken Ambrecht
Term
Member for full year
Member for full year
Status
Independent non-executive director
Independent non-executive director
Member from 8 November 2011 Non-Independent non-executive director
Member from 8 November 2011
Member to 14 November 2012
Independent non-executive director
Independent non-executive director
Meetings
Held Attended
5
5
5
5
3
5
5
5
5
2
The role of the committee is to assist the Board in its oversight responsibilities for all matters related to financial management
and reporting, external audit, internal audit and risk management of the Group. The committee monitors management processes
in relation to preparation of financial reports, including the annual financial statements, and the processes in relation to external
and internal audit. The committee also assists the Board in regard to compliance with the ASX Listing Rules, the ASX Corporate
Governance Principles & Recommendations and the Corporations Act requirements.
This means that the committee reviews the annual financial statements, the adequacy of the financial control environment,
applicable financial management and reporting policies (including policies relating to potential fraud and misappropriation) and
developments in international financial reporting standards. The committee also monitors enterprise risk management activity and
its impact on mitigating material risks to the business. The committee also monitors the work of the external and internal auditors.
In accordance with the Corporations Act, the Group has appointed external auditors whose primary role is to form an opinion as
to the truth and fairness of the annual financial statements. The Group appoints an external auditor who demonstrates quality
of service and independence. Shareholders passed a special resolution at the 2012 AGM to appoint PricewaterhouseCoopers
(PwC) as auditor of the company. The transition to PwC has been without problem. It is PwC’s policy to rotate audit engagement
partners every five years in accordance with the Corporations Act. PwC attend committee meetings by invitation and report
annually to the committee on its independence and the outcomes of its audit. The committee reviews the scope of the annual
audit plan and related audit fees.
The committee believes that a robust and risk based internal audit function is a critical part of ensuring that a strong financial risk
and control environment is maintained across the Group. The committee has decided that an outsourced internal audit function
best suits the needs of the Group and has appointed KPMG, Chartered Accountants, to provide the service. KPMG has been
providing this service for five years. The committee approves the annual internal audit plan and monitors findings from internal
audit reviews, including actions proposed by management to address issues reported by the internal auditors.
Fortescue Metals Group Limited I Annual Report 2013 I 45
Fortescue Metals Group Limited I Annual Report 2013 I 45
CORPORATE GOVERNANCE
3.3 Finance Committee
The Finance Committee met three times during the year. Details of committee members are shown in the table below:
Name
Geoff Brayshaw (Chairman)
Mark Barnaba
Ken Ambrecht
Term
Member for full year
Member for full year
Member to 14 November 2012
Status
Independent non-executive director
Independent non-executive director
Independent non-executive director
Meetings
Held Attended
3
3
3
3
3
3
The role of the committee is to meet as required to provide guidance and oversight for management, on behalf of the Board,
when major financing initiatives are underway or being finalised.
4. Engagement with Stakeholders
4.1 Shareholders
The Board represents the group’s shareholders and is accountable to them for delivering value through achievement of strategic
objectives and performance excellence.
Shareholders are encouraged to attend the Annual General Meeting, which is the forum for shareholders to vote on key
business issues, including election of directors, changes to the company’s Constitution, adoption of the Group’s annual financial
statements and incentive arrangements.
The Company has implemented a Continuous Disclosure and Market Communications Policy which is available on the
corporate governance section of the company website. The board uses various formal and informal measures to ensure that it
communicates effectively with shareholders throughout the year including;
• A team of dedicated investor and media relations resources;
• Regular briefings to the investment community and investor representatives;
• Presentations and question and answer sessions at industry forums and conferences
• Periodic newsletters, production reports and media announcements that are available either through the ASX platform or
through the Company’s website; and
• An email alert system that allows interested parties to register for automated alerts of ASX lodgements.
4.2 Stakeholders
At Fortescue we aspire to be the corporate citizen of choice that is welcomed by communities that host our activities. To achieve this
effective communication and proactive engagement with our stakeholders is critical. We communicate using a number of mechanisms
that include engaging community relations professionals that are resident in communities, preferring one-on-one conversations,
providing presentations to target community groups, holding displays, issuing newsletters and publishing media advertorials.
Our stakeholders include our people, Federal, Western Australian and local governments, communities, traditional owners of land,
suppliers, customers, non-government organisations, investors and the media. Together with our stakeholders, we align to positively
manage change and secure opportunities for people, economies, the natural environment, the built environment and society.
Fortescue has a strong engagement with Aboriginal people in the Pilbara, through the Native Title process as well as our
Aboriginal Heritage and Vocational Training and Employment Centre teams. The company has a long-standing policy in relation
to the active employment of Aboriginal people. This policy arose because of demands by Aboriginal people to gain a greater
share of the opportunities presented by the mining industry. These demands have been expressed consistently by Aboriginal
people and are enshrined in the seven Native Title agreements that we have established across the Pilbara. In exchange for
their consent to our mining operations, Fortescue provides significant assistance to Aboriginal people in securing a job in the
company. In addition Fortescue made a commitment to award $1 billion worth of contracts to Aboriginal contractors and joint
ventures by the end of 2013, this commitment was achieved six months ahead of target.
46 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
5. Risk Management
5.1 Risk Management Methodology
The Board believes that effective management of risk and opportunity is essential to Fortescue’s success and future growth.
The challenges of rapid growth, including the future expectations of stakeholders, are evident in all parts of the business.
As an emerging major player in the global iron ore market, the company has developed a structured approach to the
management of risk across the whole business.
In essence, this approach means that all material business risks are assigned to the relevant business unit for management and
accountability. This means that the enterprise risk management team is focused on working with each part of the business to
assist them to identify, assess and better manage their risks and to align efforts across the entire organisation to facilitate a whole
of business risk profile. Assessment of risk and development of mitigating controls are driven by what is required to achieve
identified key objectives in each part of the business. These actions are driven by a desire to maintain business risks within
tolerable levels.
The Risk Management Programme (RMP) approved by the Audit & Risk Management Committee provides the structure within
which the Group undertakes these activities. The RMP is a group wide framework comprised of six standards which are the key
drivers for a consistent approach to the identification, evaluation and rating of risk. In addition, the standards provide the context
and structure within which control activity is identified and evaluated. The RMP sets a framework which aligns risk management
activity at all levels of the business with a three tiered focus as described below:
• Achievement of the Group’s strategic, operational, developmental and corporate objectives;
• Maintaining a sustainable business that meets the group’s obligations for health & safety, the environment, heritage and
community; and
• Building and maintaining a resilient business that is capable of achieving critical objectives in the face of extreme events
which may impact business as usual conditions
5.2 Risk Management Governance
The primary focus of the Group’s risk management governance structure and internal control systems is to identify, assess and
mitigate material business risks with the aim of enhancing value to shareholders and protecting assets.
The key forum for risk management at Fortescue is the Audit & Risk Management Committee (ARMC).
The role of the Audit & Risk Management Committee has been explained earlier in this Corporate Governance Statement,
including its responsibilities for enterprise risk management.
5.3 Annual Executive Declarations
In accordance with the requirements of ASX Principle 7 “Recognise and manage risk” and section 295(A) of the Corporations Act
2001, an extensive annual certification process is undertaken at executive level. The process requires declarations from the most
senior executives in the business to support the certifications to the Board by the Chief Executive Officer and the Chief Financial
Officer pursuant to ASX Principle 7 and Section 295(A) of the Corporations Act 2001.
The executive declarations are broad and consider the key elements of the control environment. In addition to providing the
support for the CEO and CFO certifications as noted above, the Board, through the Audit & Risk Management Committee,
uses this process as a means of identifying areas of the control environment where there are opportunities for improvement.
Improvement actions identified through this process are monitored by the Committee until actions are completed.
The ASX Principle 7 and Section 295(A) Corporations Act 2001 certifications by the CEO and CFO were received by the Board prior
to consideration and approval of the annual financial statements for the year ended 30 June 2013.
Fortescue Metals Group Limited I Annual Report 2013 I 47
CORPORATE GOVERNANCE
6. Conduct of Business
6.1 Employee Code of Conduct
The Group actively promotes ethical and responsible decision making through our values and the code of conduct that
embodies these values. The code can be accessed on the corporate governance section of the company’s web site. Everyone who
works for or with Fortescue, including directors, employees, contractors, suppliers and business partners is expected to comply
with the Code. In addition they are required to ensure that employees, contractors, suppliers and any other parties under their
supervision or direction with whom we do business are aware of and comply with the Code. New employees are required to read
and acknowledge the requirements of the code in writing before they commence with the company.
In addition to Codes of Conduct, the Group operates a Whistleblower hotline and all matters reported are treated seriously and
automatically referred to an appointed independent party for follow up. People who report incidents of misconduct in good faith
will be granted the full protection of the Board of Fortescue. Unauthorised disclosure of the identity, or information from which
the identity of a person who has made a report can be determined, is a breach of the Code of Conduct.
6.2 Securities Trading
The Board has established a Securities Trading Policy which outlines the policy for directors and employees when trading in
shares of the company. Under the policy certain people are identified as designated persons and they are required to comply
with the policy with regard to explicit non-trading periods which are set around reporting periods. All other employees are
subject to the normal insider trading restrictions with the policy containing a recommendation of the preferred trading periods.
The policy sets out a brief summary of the law on insider trading and other relevant laws and also sets out the restrictions on
dealing in securities by people who work for, or are associated with Fortescue.
7. Market Disclosures
The Board understands the importance of keeping shareholders and other stakeholders fully informed of material information
in relation to the Group’s activities on a timely basis. For this purpose the Group has established a Continuous Disclosure and
Market Communications Policy, a copy of which is available on the corporate governance section of the company’s web site.
This Continuous Disclosure and Market Communications Policy summarises the processes that have been adopted to ensure
Fortescue complies with its disclosure obligations. A Disclosure Committee is responsible for the implementation of the policy.
This policy applies to all directors, employees, contractors, suppliers and business partners and is reviewed annually to ensure
that it remains effective in guiding disclosure in accordance with Fortescue’s disclosure obligations.
With regard to general disclosures at media briefings or public presentations, only the Chairman, the CEO or their delegated
person/s are authorised to issue public comments on behalf of the Group or provide journalists and members of the investment
community with information.
Copies of announcements to the ASX, investor briefings, half yearly financial statements, quarterly production results,
the Annual report and other relevant information are posted to the company’s web site at www.fmgl.com.au.
8. Compliance with Corporate Governance Standards
Unless otherwise disclosed in this Corporate Governance Statement, Fortescue complies with the ASX Corporate Governance
Principles and Recommendations.
48 I Fortescue Metals Group Limited I Annual Report 2013
CORPORATE GOVERNANCE
‘‘
With the completion of the Kings mine later this
year we will have spread our risk across two
mining hubs comprising five mines feeding five
processing facilities.
‘‘
Nev Power, CEO
Fortescue Metals Group Limited I Annual Report 2013 I 49
Fortescue Metals Group Limited I Annual Report 2013 I 49
FINANCIAL REPORT
Contents
• Directors’ Report
• Remuneration Report
• Auditor’s Independence Declaration
•
Financial Statements
• Directors’ Declaration
•
Independent Auditor’s Report to the Members
51
67
85
86
139
140
50 I Fortescue Metals Group Limited I Annual Report 2013
50 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 DIRECTORS’ REPORT
Directors’ report
Your Directors submit their report on the Fortescue consolidated group, consisting of Fortescue Metals Group Limited (the
Company or Fortescue) and the entities that it controlled during the financial year (the Group or the Fortescue Group).
Directors
The Directors of the Company in office during the financial year and until the date of this report are as follows (Directors were
in office for the entire period unless otherwise stated).
Non-Executive
Mr Andrew Forrest (Chairman)
Mr Herb Elliott
Mr Mark Barnaba
Mr Geoff Brayshaw
Mr Owen Hegarty
Mr Cao Huiquan
Executive
Mr Neville Power (Chief Executive Officer)
Information on directors
Dr Geoff Raby
Mr Graeme Rowley
Mr Herbert (Bud) Scruggs
Ms Elizabeth Gaines (appointed 22 February 2013)
Mr Ken Ambrecht (retired 14 November 2012)
Mr Peter Meurs (appointed 22 February 2013)
Mr Andrew Forrest (Chairman, Non-Executive Director)
Term of Office
Mr Forrest was appointed Chairman of the Company in July 2003. He became Chief Executive Officer in 2005 before resigning
to take up non-executive responsibilities again as Chairman (elect) in July 2011.
Experience
Mr Forrest is the founder, Chairman and member of the Company’s Remuneration and Nomination Committee. He is also
Non-Executive Chairman of Poseidon Nickel Limited and the Australian Children’s Trust that operates, among other initiatives,
GenerationOne, The Australian Employment Covenant and Walk Free, a new global campaign to end modern slavery (see
WalkFree.org). Since the inception of Fortescue in 2003, Mr Forrest led the Company to its current A$13 billion market
capitalisation and status as the fourth largest global iron ore exporter. As a start-up company, Fortescue’s investment in the
Australian resources sector is without parallel, having spent or committed up to the present day, some US$18 billion. He is
an Adjunct Professor of the China Southern University and a long standing Fellow of the Australian Institute of Mining and
Metallurgy. His previous executive roles include founding Chairman, Chief Executive Officer and Deputy Chairman of Minara
Resources Limited and Chairman of the Murrin Murrin Joint Venture. Non-executive roles previously included Director of the
Australian Export Finance and Insurance Corporation, Director of the West Australian Chamber of Minerals and Energy and
President of Athletics Australia. He has also founded and chaired a number of charities being the Australian Employment
Covenant, Generation One, the Australian Children’s Trust and Walk Free. Mr Forrest has been a Trustee of the SAS Resources Trust
since July 2011. Mr Forrest has extensive experience in the mining sector and has won multiple global finance awards as well as
The Australian Sports Medal, The Australian Centenary Medal, the Australian Medical Society’s (WA) 2012 President’s Award and
the Western Australian Governor’s Award for Citizen of the Year for Regional Development.
Other current directorships (ASX listed entities): Poseidon Nickel Limited (Chairman and Non-Executive Director since July 2007).
Former directorships in last 3 years (ASX listed entities): None.
Fortescue Metals Group Limited I Annual Report 2013 I 51
Fortescue Metals Group Ltd I Annual Report 2013 I 2NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 DIRECTORS’ REPORT
Mr Herb Elliott AC, MBE (Deputy Chairman, Non-Executive Director)
Term of Office
Mr Elliott was appointed as a Non-Executive Director of the Company in October 2003, Deputy Chairman in May 2005 and
Chairman in March 2007. He retired as Chairman on 18 August 2011 and remains on the Board as Deputy Chairman and Lead
Independent Director.
Experience
Mr Elliott resides as a member of the Remuneration and Nomination Committee. He was a member of the Audit Committee until
he resigned from the committee in May 2011. Mr Elliott has been Chairman of Telstra Foundation Ltd and is a former Director of
Ansell Ltd and Pacific Dunlop Ltd. He was the Inaugural Chairman of the National Australia Day Committee, a Commissioner of
the Australian Broadcasting Commission and Deputy Chairman of the Australian Sport Commission. Mr Elliott was also a Director
of the World Olympians Association. Previous executive roles include President of PUMA North America. Mr Elliott is a Doctor of
the Queensland University of Technology.
Other current directorships (ASX listed entities): None.
Former directorships in last 3 years (ASX listed entities): None.
Mr Neville Power (Chief Executive Officer)
Term of Office
Mr Power was appointed Chief Executive Officer of Fortescue Metals Group on 18 July 2011 after joining the company in
February 2011. On 1 September 2011, Mr Power accepted an invitation of the Board to serve as an Executive Director.
Experience
Mr Power has an extensive background in the mining, construction and steel industries. Mr Power was previously
Chief Executive Australia Operations with Thiess, where he was responsible for some of Australia’s most significant projects,
with a turnover of A$4 billion per annum and 3,500 staff. He also spent over ten years in senior executive positions at Smorgon
Steel Group, leading steel making, downstream processing, and distribution businesses in Australia and overseas. Mr Power has
a bachelor’s degree in Engineering from the University of Southern Queensland and an MBA from the University of Queensland.
Other current directorships (ASX listed entities): None.
Former directorships in last 3 years (ASX listed entities): None.
52 I Fortescue Metals Group Limited I Annual Report 2013
52 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Mr Mark Barnaba (Non-Executive Director)
Term of Office
Mr Barnaba was appointed as a Non-Executive Director in February 2010.
Experience
Mr Barnaba serves as both Chairman of Macquarie Group, Western Australia and as Chairman, Global Resources Group,
Macquarie Capital. He is also Chairman of The University of Western Australia’s Business School Board and an Adjunct Professor
in Investment Banking & Finance at the UWA Business School. Mark is the Chairman of Black Swan State Theatre Company,
co-founder (and previously co-executive Chairman) of Azure Capital and previously has been the Chairman of Western Power,
Edge Employment Solutions, the West Coast Eagles Football Club and Alinta Infrastructure Holdings. He was also appointed
by the Premier to chair the WA Steering Committee of the Commonwealth Business Forum for CHOGM in 2011. Mark attended
The University of Western Australia and received a Bachelor of Commerce degree with first class honours, being awarded the
JA Wood University medal for top graduate of his year. He then directly entered Harvard Business School receiving an MBA,
graduating with high distinction as a Baker Scholar. Post Business School Mark spent the majority of his time with McKinsey
and Company, overseas, before returning to Australia in the mid 1990s. In 2002, Mark was the joint winner of the inaugural WA
Business News award for the most outstanding business leader in the State of Western Australia under the age of 40 and in 2009,
was the recipient of the WA Citizen of the Year Award in Industry and Commerce. In 2012, Mark received an Honorary Doctor of
Commerce from The University of Western Australia and was granted the Honorary designation FCPA from CPA Australia. Mark is
a Fellow of the Australian Institute of Company Directors.
Other current directorships (ASX listed entities): None.
Former directorships in last 3 years (ASX listed entities): Adept Solutions Ltd.
Mr Geoff Brayshaw AM (Non-Executive Director)
Term of Office
Mr Brayshaw was appointed as a Non-Executive Director and Chairman of the Audit & Risk Management Committee in July 2007.
Experience
Mr Brayshaw was formerly an audit partner with a large international accounting firm until he retired in June 2005. He has held
a number of positions in commerce and with professional bodies including National President of the Institute of Chartered
Accountants in 2002, Independent Director and Audit Committee Chairman of AVEA Insurance Limited, Board member of the
Small Business Development Corporation and was formerly the Chairman of a Trustee Company of an Aboriginal Corporation.
Mr Brayshaw is also a Non-Executive Director, Chairman of the Audit Committee of Poseidon Nickel Limited and a Fellow of the
Institute of Company Directors.
Other current directorships (ASX listed entities): Poseidon Nickel Limited (since February 2008).
Former directorships in last 3 years (ASX listed entities): None.
Fortescue Metals Group Limited I Annual Report 2013 I 53
Fortescue Metals Group Limited I Annual Report 2013 I 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
Mr Owen Hegarty (Non-Executive Director)
Term of Office
Mr Hegarty was appointed as a Non-Executive Director in October 2008.
Experience
Mr Hegarty has some 40 years experience in the global mining industry, including 25 years with the Rio Tinto group where he
was Managing Director of Rio Tinto Asia and Managing Director of the Group’s Australian copper and gold business. He was the
founder and CEO of the Oxiana Ltd Group (now OZ Minerals Ltd), which grew from a small exploration company to a multi-billion
dollar Australia, Asia and Pacific focused base and precious metals producer, developer and explorer. Mr Hegarty was awarded
the AusIMM Institute Medal in 2006 and the G.J. Stokes Memorial Award in 2008 for his achievements in the mining industry.
Mr Hegarty is Executive Vice Chairman of Hong Kong listed G-Resources Group Ltd, a gold mining company. Mr Hegarty is also
Chairman of Tigers Realm Minerals Pty Ltd, a private Melbourne based mining company and a Non-Executive Director of ASX
listed Tigers Realm Coal Ltd. He is Chairman of EMR Capital, a private equity investment manager focussed on resources. He is a
Director of The AusIMM and a member of a number of Government and industry advisory groups.
Other current directorships (ASX listed entities): Tigers Realm Coal Limited (appointed as Non-Executive Director in October 2010),
Highfield Resources Limited (appointed as Non-Executive Director in August 2013).
Former directorships in last 3 years (ASX listed entities): None.
Mr Cao Huiquan (Non-Executive Director)
Term of Office
Mr Cao Huiquan joined the Board as a Non-Executive Director on 27 February 2012 as the nominated director on Fortescue’s
Board from Hunan Valin Iron and Steel Group Company Ltd.
Experience
Mr Cao graduated from Department of Physics, Beijing University in 1988 and obtained his Master Degree of Metal Physics from
University of Science and Technology Beijing in 1991. He was an on-the job Ph.D. of Engineering of Central Iron & Steel Research
Institute, and was enrolled in the EMBA programme, China Europe International Business School in 2009. In 1991, he joined
Hunan Xiangtan Iron and Steel Co., Ltd and was appointed as General Manager in 2003. In 2005, he was appointed as General
Manager of Hunan Valin Iron & Steel Co., Ltd (formerly Hunan Valin Steel Tube & Wire Co., Ltd), and then concurrently held the
position of General Manager of Lianyuan Iron and Steel Group Co., Ltd since 2010. He is now the Chairman of Hunan Valin Iron
and Steel Group Co., Ltd, the Chairman and CEO of Valin Iron & Steel Co., Ltd and General Manager of Valin Xiangtan Iron & Steel
Group Co., Ltd.
Other current directorships (ASX listed entities): None.
Former directorships in last 3 years (ASX listed entities): None.
54 I Fortescue Metals Group Limited I Annual Report 2013
54 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Dr Geoff Raby (Non-Executive Director)
Term of Office
Dr Raby was appointed as a Non-Executive Director on 18 August 2011.
Experience
Dr Geoff Raby was Australia’s Ambassador to the People’s Republic of China (2007-2011). Prior to that, he was a Deputy Secretary
in the Department of Foreign Affairs and Trade (DFAT). He has extensive experience in international affairs and trade, having been
Australia’s Ambassador to the World Trade Organisation (1998-2001), Australia’s APEC Ambassador (2003-2005), Head of DFAT’s
Office of Trade Negotiations and Head of the Trade Policy Issues Division at the OECD, Paris. Between 1986 and 1991 he was Head
of the Economic Section at the Australian Embassy, Beijing. He has been the Chair of DFAT’s Audit Committee and served as an ex
officio member of the Boards of Austrade and EFIC (Export Finance and Insurance Corporation).
Other current directorships (ASX listed entities): OceanaGold Corporation and SmartTrans Holdings Limited since July 2011,
Yancoal Australia Limited.
Former directorships in last 3 years (ASX listed entities): None.
Mr Graeme Rowley AM (Non-Executive Director)
Term of Office
Mr Rowley was appointed as an Executive Director in May 2003. Following his retirement from executive duties with Fortescue,
Mr Rowley became a Non-Executive Director of the Company in March 2010.
Experience
Mr Rowley was an executive with Rio Tinto plc and previously held senior positions with Hamersley Iron and Argyle Diamonds.
Mr Rowley’s previous directorships have included the Dampier Port Authority, the Pilbara Development Commission, the Council
for the West Pilbara College of TAFE and the Western Australian State Government’s Technical Advisory Council. Mr Rowley is
currently Chairman of the National Centre for Excellence in Desalination and he is also a Non-Executive Director of the Allied
Healthcare Group. Mr Rowley has extensive experience in operational management of both iron ore ship loading facilities and
heavy haul railway within the unique Pilbara environment.
Other current directorships (ASX listed entities): Non-Executive Director of Allied Healthcare Group Limited.
Former directorships in last 3 years (ASX listed entities): None.
Fortescue Metals Group Limited I Annual Report 2013 I 55
Fortescue Metals Group Limited I Annual Report 2013 I 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
Mr Herbert (Bud) Scruggs (Non-Executive Director)
Term of Office
Mr Scruggs joined the Fortescue Board in August 2011 as a Non-Executive Director.
Experience
Mr Scruggs in an expert in corporate recoveries and step change business improvement. A lawyer by training (BYU 1984), he
has held a number of corporate, government, political and civic positions including Chief of Staff to the Governor of Utah and
Chairman of the University of Utah Board of Trustees. Mr Scruggs served on a number of boards of public as well as privately held
companies including American Investment Bank, Barbados Light & Power, Deseret Morning News, Empire Insurance, MK Gold
and Sangart – including service on multiple audit and executive committees. Mr Scruggs served as CEO of Huntsman Financial
Corporation as well as the Huntsman Cancer Foundation and previously worked as President of the Leucadia Asset Management
Group. He was instrumental in Leucadia’s original decision to invest alongside Andrew Forrest in Fortescue. From July 2011
through December 2013, he provided, among other activities, management services to The Metal Group and the Australian
Children’s Trust, where he continues to serve as a board member.
Other current directorships (ASX listed entities): Alternate Non-Executive Director, Poseidon Nickel Board since September 2012.
Former directorships in last 3 years (ASX listed entities): None.
Ms Elizabeth Gaines (Non-Executive Director)
Term of Office
Ms Gaines was appointed as a Non-Executive Director on 22 February 2013.
Experience
Ms Gaines is an Executive Director and the Chief Operating Officer & CFO of Jetset Travelworld Limited. Prior to this, Ms Gaines
was the Chief Financial Officer of the Stella Group, Chief Finance and Operations Director of UK-based Entertainment Rights Plc
and was previously Chief Executive Officer of Heytesbury Pty Limited. Ms Gaines has held senior treasury and finance roles at
BankWest in Australia and Kleinwort Benson in the UK and qualified as a Chartered Accountant with Ernst & Young. Ms Gaines is
a member of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors and holds a
Bachelor of Commerce degree and Master of Applied Finance degree.
Other current directorships (ASX listed entities): Jetset Travelworld Limited.
Former directorships in last 3 years (ASX listed entities): None.
56 I Fortescue Metals Group Limited I Annual Report 2013
56 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Mr Peter Meurs (Executive Director)
Term of Office
Mr Meurs was appointed as an Executive Director of Fortescue Metals Group on 22 February 2013.
Experience
Mr Meurs is currently the Director Development for Fortescue. His responsibilities span from exploration through studies and
project development through to delivery of major capital expansion projects. As part of this he has direct responsibility for the
delivery of Fortescue’s current 100mt expansion and development of the plans for future developments. The current expansion
includes the development of the new Solomon Mines, adding another Ore Processing Facility (OPF) to expand the capacity of
the Chichester mine and the addition of port and rail infrastructure to take Fortescue’s production capacity to 155mtpa.
Prior to Mr Meurs commencing with Fortescue in May 2010, he held the position of Managing Director at WorleyParsons.
He was a key contributor to the growth and development of WorleyParsons after joining the company in 1988. During his time
at WorleyParsons, Peter functioned in project management and company development roles including establishment of the
foundations of the process business, the establishment and growth of alliance and integrated services contracts in
Hydrocarbons and Minerals & Metals and the development of the New Zealand business. Mr Meurs has a Bachelor Degree in
Mechanical Engineering, a Fellow of the Institution of Engineers Australia and is also a member of the Australian Institute of
Company Directors.
Other current directorships (ASX listed entities): None.
Former directorships in last 3 years (ASX listed entities): None.
Company Secretary
Mr Mark Thomas
Term of Office
Mr Thomas was appointed Company Secretary in June 2010.
Experience
Mr Thomas joined Fortescue in April 2004 in the role of Group Financial Controller and went on to become Head of Finance
and IT and then Group Manager Finance. With more than 15 years experience in the mining and professional services industries,
Mr Thomas has also held senior finance positions with the Goldfields Australia Group and with a number of professional service
providers. He has extensive experience in accounting and finance, IT and business administration in the mining and professional
services industries. Mr Thomas has a Bachelor of Commerce from the University of Western Australia, Graduate Diploma in
Applied Corporate Governance, a Masters of Business Administration and is a Certified Practising Accountant and a Fellow of
Chartered Secretaries Australia.
Fortescue Metals Group Limited I Annual Report 2013 I 57
Fortescue Metals Group Limited I Annual Report 2013 I 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
Directors’ meetings
The number of meetings of the Company’s Board of Directors and of each Board committee held during the year ended
30 June 2013, and the number of meetings attended by each Director were:
Mr Andrew Forrest
Mr Herb Elliott
Mr Neville Power
Mr Mark Barnaba
Mr Geoff Brayshaw
Mr Owen Hegarty
Mr Cao Huiquan1
Dr Geoff Raby
Mr Graeme W Rowley
Mr Herbert Scruggs
Ms Elizabeth Gaines
Mr Ken Ambrecht
Mr Peter Meurs
Board
meetings
Audit
Attended
12
15
16
16
16
14
3
14
12
16
4
6
5
Held
16
16
16
16
16
16
16
16
16
16
5
10
5
Attended
*
*
*
5
5
*
*
*
5
5
*
2
*
Held
*
*
*
5
5
*
*
*
5
5
*
3
*
Committee meetings
Remuneration
Held
5
5
*
5
*
5
*
*
*
5
*
3
*
Attended
4
4
*
5
*
5
*
*
*
5
*
2
*
Finance
Attended
*
*
*
3
3
*
*
*
*
*
*
3
*
Held
*
*
*
3
3
*
*
*
*
*
*
3
*
* Not a member of the relevant committee.
1 Mr Cao Huiquan was unable to attend numerous meetings during the year due to potential conflict of interest in his role as
Chairman Valin Iron and Steel Co Ltd.
Operating and financial review
Group overview
Fortescue is an independent iron ore producer operating in the Pilbara region of Western Australia. Fortescue is a young
company that proudly celebrated its tenth anniversary in July 2013 with first ore shipped to China in May 2008. In November 2010,
the Company announced a major expansion program to increase its production capacity from 55 million tonnes per annum (mtpa)
to 155mtpa. As Fortescue is now nearing completion of the expansion program, it is beginning to realise the benefits of its
significant investment in the integrated mine and infrastructure projects through increased production output, operating
efficiencies, enhanced processing capacity and the integration of low cost Solomon mines.
Fortescue is currently operating three mine sites and is continuing the development of the Kings mine at Solomon. With the
Christmas Creek operation fully ramped up during the year, Fortescue’s Chichester Hub is now operating at full capacity.
This, together with the Firetail commissioning in May 2013, allowed Fortescue to achieve an annualised run rate of 120mtpa in
the month of June 2013, 5mtpa ahead of target.
Operations
Safety
On 14 August 2013, a contract worker at Fortescue’s Christmas Creek mine was fatally injured whilst undertaking maintenance work.
The Fortescue family is deeply saddened by the incident and is providing support and counselling to employees and family members.
An investigation into the incident is currently being undertaken by Fortescue together with the relevant civil and mine authorities.
Safety remains a key focus for Fortescue and we continued to foster our safety culture to achieve a safe workplace for our
employees and contractors. During the year Fortescue achieved a 17.4 per cent reduction in the total recordable injury frequency
rate (TRIFR) from 9.2 to 7.6 through strong emphasis on field leadership, coaching programs designed to reinforce key safety
behaviours and the successful operation of the Major Hazards and Contractor Management Program.
58 I Fortescue Metals Group Limited I Annual Report 2013
58 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Aboriginal engagement
Fortescue is committed to provide training, employment and business development opportunities to Aboriginal people.
At the end of June 2013, Fortescue employed 461 Aboriginal people, approximately 12 per cent of its workforce, with an
additional 528 employed by its contracting partners.
In early August 2013 Fortescue proudly celebrated achieving its target of awarding A$1.0 billion in contracts to Aboriginal
businesses, an initiative launched in December 2011. Since then, Fortescue has awarded 102 contracts and subcontracts to more
than 50 Aboriginal businesses. To be included in the program, a business had to be at least 25 per cent owned by an Aboriginal
person or group. Of the contracts awarded, more than 80 per cent were to Aboriginal businesses that were at least 50 per cent
Aboriginal-owned. The target was achieved six months ahead of schedule, demonstrating Fortescue’s determination, size and
ability to move quickly relative to its peers.
Production and shipping
Record operational results were delivered during the year, transforming Fortescue into a mining company of global scale.
Continued strong performance across the integrated mine, rail and port supply chain during the year has resulted in record
tonnes shipped of 80.9 million tonnes (mt) (2012: 57.5mt) including a record 10.0mt shipped in the month of June, an annualised
rate of 120mtpa, 5mtpa ahead of expectations.
Production and shipments on a wet metric tonne basis were as follows:
12 months to 30 June (millions of tonnes)
Ore mined
Overburden removed
Ore processed
Ore shipped including third party product
2013
94.6
364.5
76.1
80.9
2012
64.6
276.8
53.9
57.5
Movement
46%
32%
41%
41%
Mining, processing and shipping
Shipments during the financial year were 41 per cent higher than the prior year and comprised 77.8 million Fortescue equity
tonnes and 3.1 million third party tonnes. Total ore mined increased to 94.6mt, 46 per cent higher than the prior year, as strip
ratios declined and operations continued to focus on efficiencies. These record output results were achieved despite unseasonal
wet weather which impacted the production performance of the port and mines during the June quarter.
Fortescue’s significant investment in mining and ore processing facilities (OPFs) provide for the maximisation of product
quality and improve efficiency to deliver sustainable lower operating costs. Commissioning of wet plants at the Chichester
mines have enabled mining of lower cut off grades whilst maintaining product quality. This, together with the introduction of
Solomon ore to produce the Fortescue blend, is a key element of the revised product strategy and underpins ongoing product
and cost benefits.
Work is continuing on a revision to the life of mine plans at the Chichester and Solomon Hubs which are expected to deliver strip
ratios of 3.5x and 1.4x respectively, consistent with current results and the associated revised five year mine plan.
Combined OPF output increased by 41 per cent from the prior year to 76.1mt while commissioning the wet plants, addressing
asset reliability issues at the Chichester mines, completing construction and ramping up at Firetail. Ancillary in-pit crushing was
also used during the year to supplement ore production.
Fortescue’s integrated rail and port operations continued to exceed expectations with 81.6mt of ore delivered to the port during
the year, an increase of 42 per cent compared to the prior year. Loading capacity at the port increased during June 2013 to
120mtpa from three berths and two shiploaders and increased to 155mtpa when the fourth berth (AP4) and third shiploader
were commissioned in July 2013.
Fortescue Metals Group Limited I Annual Report 2013 I 59
Fortescue Metals Group Limited I Annual Report 2013 I 59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 DIRECTORS’ REPORT
Production costs
Fortescue refers to the operating costs of mining, processing, rail and port on a per tonne basis as C1. This measure is used
internally and during other external results presentations to communicate Fortescue’s operating cost performance.
During the year, Fortescue’s C1 costs reduced by nine per cent to US$44.09 per wet metric tonne (wmt). Importantly, C1 costs
were declining through the year reaching US$36.01/wmt in the June 2013 quarter. The key factors supporting consistent cost
improvements were commissioning of wet plants at the Chichester mines enabling mining of lower cut off grades to decrease
strip ratios, incorporation of low cost Solomon ore and maintaining focus on operational efficiencies and cost reductions.
During the financial year Fortescue experienced significant market volatility where iron ore prices fell sharply in August and
September 2012. In response to the difficult market conditions Fortescue implemented a number of cost savings initiatives that
delivered a total of US$0.4 billion in savings between September 2012 and June 2013, US$0.1 billion in excess of the initial internal
targets. These measures, together with the strong operational performance, have put Fortescue in a strong position to withstand
future volatility.
Expansion program 55mtpa to 155mtpa
Fortescue’s 155mtpa expansion and development program has delivered a number of key milestones during the course of financial
year 2013 enabling the delivery of an annualised shipping rate of 120mtpa during the month of June. This has been achieved
through the completion of processing facilities and mining activity at Christmas Creek – Phase 2 expansion area (Christmas Creek 2),
development of rail and port infrastructure and the ramp up of the 20mtpa Firetail mine and processing facility.
Completion of the expansion projects is expected to occur on time in the December 2013 quarter as the 40mtpa Kings mine and
OPF are ramped up to full operating capacity.
The expansion remains on target for completion within the revised budget of US$9.0 billion.
Key elements of the expansion program delivered during financial year 2013 are set out below.
Christmas Creek – Phase 2 expansion
Construction of the OPF at Christmas Creek 2 was complete in September 2012, 14 months after construction commenced, and
was ramped up to full operational capacity during the December 2012 quarter. The Jigs plant, which removes shale, providing
additional ore upgrade, has been completed and is currently ramping up to full production.
All major infrastructure works have now been completed at Christmas Creek 2 and the mining contract was awarded to
Macmahon Holdings Ltd.
Solomon Hub
First ore from Solomon’s Firetail mine was achieved in December 2012 together with commissioning of stockyards, stackers and
the reclaimer. Mine development and construction of the Firetail OPF progressed in line with expectations although wet weather
and minor engineering issues delayed commissioning of the OPF until May 2013. The crushing circuit and OPF subsequently
achieved full design capacity of 20mtpa by the end of the year.
Significant progress has been made at Kings which is now the key area of construction focus. All Kings OPF modules are on site
with construction of the OPF well underway and expected to be complete in October 2013. Ramp up of the OPF to its operating
capacity of 40mtpa will occur during the December 2013 quarter.
Leighton Contractors Pty Ltd have been awarded the mining contracts for both Firetail and Kings mines and will also manage
operations of the OPFs, stockyards and rail load out facilities.
60 I Fortescue Metals Group Limited I Annual Report 2013
60 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 DIRECTORS’ REPORT
DIRECTORS’ REPORT
Port
During the year the second and third train unloaders were commissioned increasing Port in-load capacity by 120mtpa to
180mtpa. Construction of associated conveyor, stacker and re-claimer infrastructure was also completed enabling a record
outload performance of 120mtpa to be achieved during the month of June.
First ore on ship was achieved from Berth 4 in July 2013, integrating the third ship loader with the third outload circuit from the
stockyards. This major milestone completes the main expansion of the Port facilities, which now comprises three train unloaders,
three stackers, three reclaimers and three ship loaders across four berths to deliver a 155mtpa run rate.
All approvals have been put in place for Berth 5 and construction is scheduled to commence towards the end of calendar 2013 year.
Rail
The rail expansion projects continued to complete turnouts and passing sections on both the mainline and Fortescue Hamersley
lines. The commissioning of the East Turner duplication close to Port and the Christmas Creek “Jones Siding” have added
considerable additional flexibility to the mainline rail as capacity continues to grow in line with production requirements.
Signalling works have continued together with rail handovers and several new communication and trackside control sites were
completed and put into operation. The full scope of work for track, signalling and communications is scheduled for completion
during September 2013. Commissioning of the new digital train control system has commenced and is expected to be fully
operational by December 2013.
A new automated ore car maintenance workshop has been commissioned, significantly improving ore car maintenance
efficiency. Two further rakes of ore cars are due for delivery by the end of calendar 2013, increasing the total number of
operational train sets to 13.
Market
Iron ore markets and prices experienced significant volatility during the 2013 financial year. However, the demand for Fortescue
products remained strong with the average realised price for the year of US$114/dmt (2012: US$131/dmt), based on an average
62 per cent Platts CFR index price of US$127/dmt (2012: US$151/dmt).
Record levels of crude steel production in China were maintained during the June quarter, actual June steel output of 64.7mt
(2.2mt per day) following a record 67.0mt in May (2.2mt per day), according to the China Iron & Steel Association. January to
June 2013 crude steel output was up 7.4 per cent to 389.9mt which equates to an annualised rate of 779.8mt, compared to actual
production of 716.5mt in 2012.
These high levels of steel production, improving steel prices and the current low level of iron ore inventory held by the steel mills
have resulted in recent iron ore re-stocking and stability of iron ore prices.
The formal introduction of Fortescue’s new upgraded product (58.3 per cent Fe) called ‘Fortescue Blend’, will occur during August.
This blended product fully realises the benefits of the low impurity Chichester and higher iron content Firetail products.
Fortescue Metals Group Limited I Annual Report 2013 I 61
Fortescue Metals Group Limited I Annual Report 2013 I 61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 DIRECTORS’ REPORT
Financial results, cash flows and financial position
Financial results
Profit after tax for the year ended 30 June 2013 increased by 12 per cent to US$1,746 million. Key factors contributing to current
year performance are discussed below.
Operating sales revenue increased by 21 per cent to US$8,120 million during the year, primarily due to the 41 per cent increase in
iron ore shipments, but was partially offset by a 13 per cent decrease in realised iron ore prices.
Total cost of sales increased by 28 per cent to US$5,140 million for the full year, consistent with higher production volumes.
Importantly, total costs per tonne decreased by nine per cent from the previous financial year reflecting operational efficiencies
and a continuous drive to reduce costs. As part of the expansion project Fortescue is now realising the benefits through the
significant investment in mining and ore processing facilities which maximise product quality and improve efficiency to deliver
lower sustainable operating costs.
Other non-operating events forming part of the financial result include the following:
• Refinancing through establishing a senior secured term loan facility of US$5.0 billion and retiring of all existing unsecured
bank facilities and repayment of unsecured loan notes. The net gain on refinancing was US$23 million.
• Sale of 25 per cent of the Nullagine Iron Ore Joint Venture, reducing Fortescue’s share in the joint venture from 50 per cent to
25 per cent and realising a gain of US$124 million.
• Net finance expenses for the year of US$553 million (2012: US$505 million), including capitalised interest on expansion
projects of US$342 million (2012: US$196 million).
Income tax expense of US$720 million (2012: US$704 million) was recognised during the year, at an effective tax rate of 29 per cent.
Total income tax paid for the year was US$695 million together with an additional amount of US$427 million in royalties paid to
Western Australian State Government. No MRRT was paid or is expected to be paid.
Basic earnings per share for the year was 56.07 cents compared to 50.07 cents in previous year. The number of shares on issue
at 30 June 2013 was 3.1 billion and remained unchanged since last year.
Cash flows
Cash and cash equivalents at 30 June 2013 were US$2,158 million compared to US$2,343 million at 30 June 2012. Cash balances
were maintained during a period of significant capital expenditure as net cash flow from operating activities increased by seven
per cent to US$3,004 million for the full year after income tax payments of US$695 million and US$396 million proceeds from
customer prepayments.
Net cash outflow from investing activities was US$6,166 million (2012: US$5,990 million) and predominantly comprised
expenditure on T155 expansion projects.
Net cash flows from financing activities were US$2,989 million (2012: US$2,793 million), including net movements in borrowings
of US$4,098 million mainly as a result of refinancing completed in October 2012, offset by interest payments of US$893 million
and a US$131 million final 2012 dividend payment.
Financial position
The key factors affecting Fortescue’s financial position at 30 June 2013 were driven by capital expenditure on T155 expansion
program, resulting in a 51 per cent increase in the net book value of property, plant and equipment to US$17,159 million and the
associated financing, increasing total debt by 49 per cent to US$12,691 million at the end of the financial year. At 30 June 2013,
Fortescue’s net debt was US$10,533 million.
Outlook
Fortescue’s key focus is completion of the T155 expansion projects and delivery of its production targets.
62 I Fortescue Metals Group Limited I Annual Report 2013
62 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 DIRECTORS’ REPORT
DIRECTORS’ REPORT
The majority of Fortescue’s revenue is generated from customers in China. Expectations are that China’s GDP will grow at
approximately 7.5 per cent per annum and will increasingly generate domestic consumption growth as it continues to develop
and urbanise. This growth is estimated to support increases in steel production requiring higher levels of seaborne iron ore to
be imported. China will remain Fortescue’s core market, however, opportunities to diversify its customer base into alternative
regions are being explored.
From an operations perspective Fortescue will continue to search for opportunities to drive costs down further. This will naturally
occur as the lower cost mines at Solomon are brought online and ramped up to full production. There will continue to be a focus
on operational efficiencies and development of Fortescue’s enhanced processing capacity, reduction in strip ratios and lowering
of total mining costs.
The flexibility contained within Fortescue’s debt capital structure provides a number of options to reduce debt. This may be
achieved through the sale of a minority interest in Fortescue’s rail and port infrastructure assets or through the significant
increase in operational cashflows as production levels reach 155mtpa and capital expenditure levels reduce following completion
of the expansion projects. In addition, alternative cash generating initiatives such as customer prepayments and other asset sales,
such as the sale of 31 per cent interest in the magnetite tenements through establishing a joint venture with Formosa Plastics
Group completed in August 2013, continue to be evaluated.
As debt is paid down and credit quality improves Fortescue plans to move to a dividend payout ratio of 30 per cent to 40 per cent
over time.
Fortescue continues to evaluate its portfolio of high value assets and exploration tenements to identify high value, low capital
intensive growth opportunities to take advantage of its existing integrated supply chain.
Environmental regulation and performance
Fortescue is committed to minimising the impact of its operations on the environment. The Board takes seriously the need for
continuous monitoring of environmental matters and compliance with environmental regulations.
Fortescue’s exploration, mining, rail and port activities are subject to various environmental regulations under both State and
Commonwealth legislation.
Fortescue manages compliance with its environmental responsibilities and sets its objectives and targets through its
Environmental Management System. Fortescue identifies risks of environmental impact from its projects and operations and
sets improvement plans for the highest environmental risks. The Group measures its environmental performance against its
regulatory requirements and corporate targets. The Group’s environmental performance is reported to a hierarchy
of management.
As a part of the Environmental Management System, Fortescue also conducts internal environmental reviews, audits and
inspections to identify and quantify potential risks to Fortescue and to review compliance with its environmental obligations.
The fundamental aim of each activity is to minimise or prevent adverse environmental consequences and to promote a culture of
compliance. Fortescue strives to continually improve its environmental performance by a systematic review of its environmental
risks. During the financial year, certain aspects of the Fortescue’s operations were routinely inspected by the Department
of Environment Regulation (DER) (previously the Department of Environment and Conservation) and the Department of
Sustainability, Environment, Water, Population and Communities (DSEWPC). Work continued to resolve a number of potential
non-compliances relating to works approvals and licences identified and reported to the DER in 2012.
During the financial year, Fortescue has submitted numerous environmental reports and statements to regulators detailing
Fortescue’s environmental performance and level of compliance with relevant instruments. This includes the Fortescue’s
Compliance Assessment Reports dated March 2013, which were provided to the Office of the Environmental Protection
Authority, and the Annual Environmental Reports submitted to the Department of Mines and Petroleum and the Department
of State Development.
Fortescue Metals Group Limited I Annual Report 2013 I 63
Fortescue Metals Group Limited I Annual Report 2013 I 63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
Greenhouse gas and energy reporting
Fortescue complies with the Australian government National Greenhouse and Energy Reporting Act 2007 (Cth) and the Energy
Efficiency Opportunities Act 2006 (Cth). Fortescue is committed to proactively managing energy consumption and greenhouse
gas emissions wherever practical and is guided by a formal internal policy. The total Scope 1 and Scope 2 greenhouse gas
emissions for the most recent reporting period were 1.43 million tonnes of carbon dioxide equivalents.
Fortescue’s greenhouse emissions are almost entirely related to combustion of diesel fuel and, therefore, the Company was not
considered a liable entity under the Clean Energy Legislation carbon scheme. Fortescue will continue to pay the carbon price
through reduced diesel rebates and will maintain a watching brief for any potential amendments to the Clean Energy legislation
in order to understand and prepare for their influence on the Group’s management or reporting requirements.
Directors’ interests
The relevant interest of each Director in the shares and options issued by the Company as notified by the Directors to the
Australian Securities Exchange in accordance with section 5205G(1) of the Corporations Act 2001, at the date of this report
are as follows:
Director
A Forrest
H Elliott
N Power
M Barnaba
G Brayshaw
O Hegarty
C Huiquan
G Raby
G Rowley
H Scruggs
E Gaines
P Meurs
Ordinary shares
1,020,690,915
2,167,938
1,111,690
-
52,149
40,000
-
8,000
17,644,951
-
-
25,924,523
Options
-
-
-
-
-
-
-
-
-
-
-
7,500,000
Performance
rights
-
-
341,158
-
-
-
-
-
-
-
-
164,514
Unissued shares under options and performance rights
Details of the options and performance rights outstanding at 30 June 2013 are as follows:
Exercise
price
A$
2.50
5.00
5.69
Nil
Nil
Balance
at the end
of the year
Number
600,000
7,500,000
400,000
1,300,551
803,296
Vested and
exercisable at
the end
of the year
Number
600,000
-
-
-
-
Remaining
contractual
life
Months
7
22
27
6
30
10,603,847
600,000
Employee options 2009
Employee options 2010
Employee options 2011
Short term performance rights 2013
Long term performance rights 2013
64 I Fortescue Metals Group Limited I Annual Report 2013
64 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Directors and officers indemnities and insurance
Since the end of the previous financial year, the Company has paid premiums to insure the Directors and Officers of Fortescue.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against
the Officers in their capacity as Officers of the Fortescue Group, and any other payments arising from liabilities incurred by the
Officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach
of duty by the Officers or the improper use by the Officers of their position or of information to gain advantage for themselves
or someone else or to cause detriment to the Fortescue Group. It is not possible to apportion the premium between amounts
relating to the insurance against legal costs and those relating to other liabilities. Conditions of the policy also preclude
disclosure to third parties of the amount paid for the policy.
Non-audit services
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor has
relevant expertise and experience and where the auditor’s independence is not compromised.
Details of the amounts paid or payable to the auditor PricewaterhouseCoopers Australia and related entities for audit and non-
audit services provided during the year are set out in note 25 to the Financial Statements.
The Board of Directors has considered the position and, in accordance with advice received from the Audit & Risk Management
Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set
out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services have been reviewed by the Audit & Risk Management Committee to ensure they do not impact the
impartiality and objectivity of the auditor; and
• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants.
Fortescue Metals Group Limited I Annual Report 2013 I 65
Fortescue Metals Group Limited I Annual Report 2013 I 65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
Dividends
On 22 August 2013, the Directors declared a final fully franked dividend of ten Australian cents per ordinary share payable
on 4 October 2013.
Events occurring after the reporting period
In August 2013 Fortescue and Formosa Plastics Group (Formosa) entered into a joint venture agreement to develop the
FMG Iron Bridge magnetite project. The joint venture remains subject to Australian Foreign Investment Review Board and
Taiwan Investment Commission approval.
Under the arrangement, Formosa, through its subsidiary Formosa Steel IB Pty Ltd, will:
• Acquire a 31 per cent unincorporated joint venture interest in FMG Iron Bridge Join Venture for US$123 million.
•
•
•
•
Fund the first US$527 million of capital expenditure on the FMG Iron Bridge Project development. This funding
covers construction of Stage One which will commence on completion of the transaction at an estimated capital
cost of US$340 million.
Participate in Stage Two of the FMG Iron Bridge Project, subject to receipt of relevant Government approvals and Joint
Venture sanction. If approved, Stage Two would be funded by the balance of the Formosa’s initial funding, a contribution
of the next US$1,050 million from FMG Iron Bridge Limited, followed by proportional contributions (31 per cent Formosa,
69 per cent FMG Iron Bridge Limited).
Agree to purchase up to three mtpa of iron ore at market prices to supply Formosa Ha Tinh Steel mill when
commissioned.
Elect to prepay US$500 million upfront to The Pilbara Infrastructure Pty Ltd to access Fortescue port facilities at Herb
Elliott Port under separate infrastructure access agreements.
This report is made in accordance with a resolution of Directors.
Mr Andrew Forrest
Chairman
Dated at Perth this 22nd day of August 2013.
66 I Fortescue Metals Group Limited I Annual Report 2013
66 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
DIRECTORS’ REPORT
REMUNERATION REPORT
The Directors of Fortescue Metals Group Limited
(‘the Company’ or ‘Fortescue’) are pleased to present
the Remuneration Report for the year ended
30 June 2013. This report forms part of the
Directors’ Report and has been audited in accordance
with section 308 (3c) of the Corporations Act 2001.
The report is outlined in the following sections:
a)
Who this report covers
b)
FY13 overview and year ahead
c)
Governance of our remuneration
d)
Executive remuneration strategy
e)
Executive remuneration structure
f )
Key components of Executive remuneration
g)
How Fortescue performed over the past five years
h)
Securities trading policy
i)
Executive contract terms
j)
Detailed remuneration for Executives
k)
Non-Executive director remuneration
Whilst the functional and reporting currency of
Fortescue is in US dollars, it is the Directors’ view that
presentation of the information in Australian dollars
provides a more accurate and fair reflection of the
remuneration practices of Fortescue, as all Directors,
Executives and employees are remunerated in
Australian dollars.
Fortescue Metals Group Limited I Annual Report 2013 I 67
Fortescue Metals Group Limited I Annual Report 2013 I 67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 REMUNERATION REPORT
a) Who this report covers
This report outlines the remuneration arrangements for Fortescue’s Key Management Personnel (KMP).
KMP are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the
entity, directly or indirectly, including any director (whether Executive or otherwise) of that entity.
The KMP of Fortescue for FY13 were:
NON-EXECUTIVE DIRECTORS
A Forrest
H Elliott
K Ambrecht
M Barnaba
G Brayshaw
E Gaines
O Hegarty
C Huiquan
G Raby
G Rowley
H Scruggs
EXECUTIVE DIRECTORS
N Power
P Meurs
EXECUTIVES
J Frankcombe
S Pearce
D Woodall
Chairman
Deputy Chairman and Lead Independent Director
Non-Executive Director – Retired 14 November 2012
Non-Executive Director
Non-Executive Director – Retiring at 2013 AGM
Non-Executive Director – Appointed 22 February 2013
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Executive Director Developments – Appointed 22 February 2013
Director Operations – Resigned 26 January 2013
Chief Financial Officer
Director Operations – Appointed 14 January 2013
There were no changes to KMP after the reporting date.
b) FY13 overview and year ahead
Fortescue’s remuneration strategy seeks to build a performance orientated culture by attracting and retaining the best possible
people to align with driving increased shareholder value.
Fortescue’s Board and Remuneration and Nomination Committee (R&NC) are committed to continued review and refinement of
the remuneration strategy to ensure it meets the changing needs of the organisation, maintains market competitiveness, and
aligns to shareholder interests.
In support of the remuneration strategy, the following table highlights key changes made in FY13:
68 I Fortescue Metals Group Limited I Annual Report 2013
68 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
REMUNERATION REPORT
Change made
Rationale
Introduction of a long term incentive plan (LTI)
delivering rights to Fortescue shares that vest
subject to the achievement of absolute return
on equity (AROE) targets measured over a three
year performance period.
Participants’ Executive and Senior Staff Incentive Plan
(ESSIP) opportunity has been reduced by 25 per cent to
accommodate the introduction of the LTI grant.
Replaced the Relative Total Shareholder Return
performance objective under the ESSIP with an AROE
performance objective.
To enhance the longer-term strategic alignment of
executive remuneration with shareholder interests through
the introduction of a performance measure that reflects
shareholder returns.
AROE is a critical measure of Fortescue’s performance and
ensures that Executives have a more holistic focus on and
are incentivised by shareholder returns on both a short-term
and long-term basis.
For details of the plan, see section (e) of this report.
As a result of the introduction of the LTI plan, the overall
remuneration mix has been rebalanced with a 25 per cent
reduction in maximum ESSIP opportunity and potential LTI
upside, based on performance exceeding AROE targets,
of up to four times the value of the ESSIP reduction.
AROE is a critical measure of Fortescue’s performance
and ensures that Executives have a more holistic focus on
and are incentivised by shareholder returns on both a
short-term and long-term basis.
FY13 Remuneration Outcomes – Linking Performance and Pay
The following explains how fixed and variable remuneration outcomes were driven by company performance in FY13.
Fixed Remuneration
In consideration of market fixed remuneration rates, current business climate and enhancing the emphasis on ‘at risk’
remuneration, no change was made to Executive fixed remuneration. Fixed remuneration remains at July 2011 levels.
Variable Remuneration
FY13 Executive and Senior Staff Incentive Plan
Awards made in relation to the FY13 ESSIP reflect the achievement of two of three company performance objectives, delivering
a significant improvement in safety performance and reduction in C1 costs, the achievement of Company growth objectives
including AROE and efficiency of reserves mined and individual performance objectives. Refer to section (e) for more detail.
The outcome represents an average payment of 78 per cent of maximum opportunity compared with an average payment
of 49 per cent of maximum opportunity in FY2012.
FY13 Long Term Incentive Plan (LTI)
LTI grants were made in December 2012, replacing 25 per cent of the ESSIP opportunity to further enhance the longer term ‘at
risk’ remuneration mix for Executives. The performance period for the 2013 LTI is 1 July 2012 to 30 June 2015 and final award
outcomes for the 2013 LTI plan will be reported in the 2015 remuneration report.
Fortescue Metals Group Limited I Annual Report 2013 I 69
Fortescue Metals Group Limited I Annual Report 2013 I 69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 REMUNERATION REPORT
Executive Total Earnings in 2013
Details of remuneration received by the Chief Executive Officer and executives prepared in accordance with statutory
requirements and accounting standards are detailed on page 31. The table below sets out the total earnings for the Chief
Executive Officer and executives in FY13 – sometimes referred to as ‘actual’ pay. The table includes fixed remuneration, the cash
component of the ESSIP earned for FY13 performance and the value of the share component of the FY13 ESSIP that vested.
Name
N Power
S Pearce
J Frankcombe2
P Meurs
D Woodall3
Fixed
remuneration1
1,800,000
1,050,000
597,288
1,050,000
419,384
FY 13 ESSIP
Cash Paid
708,770
276,617
n/a
174,830
101,726
FY13 ESSIP4
Shares
Awarded
453,559
177,013
n/a
261,049
65,098
Total Actual
Remuneration
Earned in 2013
2,962,329
1,503,630
597,288
1,485,879
586,208
1 Fixed remuneration includes cash salary, paid leave, superannuation, and non-monetary benefits
2 Mr Frankcombe resigned on 26 January 2013
3 Mr Woodall commenced on 14 January 2013
4 ESSIP share value for FY13 is the value of the participant’s elected weighting in shares (minimum 50 per cent of the total award)
divided by the VWAP of Fortescue Shares for the first five trading days of the plan year (A$4.9464) multiplied by the 5 day VWAP of
Fortescue shares for the first five trading days of FY14 (A$3.1653).
c) Governance of our remuneration
At Fortescue, we believe that robust governance is critical to underpinning the effectiveness of our remuneration strategy.
The Remuneration and Nomination Committee operates under a Board-approved charter. This includes responsibility for
renewing and reporting to the Board on Executive remuneration policy and practices such as remuneration levels and incentive
plans. It also includes recruitment, retention, performance management, succession planning and termination policies and
managing Board nomination, including determining candidate criteria and addressing skills and experience requirements for
Board position vacancies.
A copy of the charter is available under the Corporate Governance section of the Fortescue Website.
The R&NC in FY13 consisted solely of Non-Executive Directors. The Chief Executive Officer and others may be invited to attend
meetings by the Committee Chairman as required, but have no vote on matters before the Committee.
70 I Fortescue Metals Group Limited I Annual Report 2013
70 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
REMUNERATION REPORT
The process and accountabilities in determining remuneration are shown below:
Remuneration
consultants
May be engaged
directly by
the Board or
Remuneration
and Nomination
Committee to
provide advice
or information
relating to KMP
that is free from
influence of
management.
Board of Directors
Responsible for:
• Approving the remuneration of non-executive directors
and the CEO; and
• Ensuring remuneration practices are competitive and align
with the attraction and retention policies of the Company.
Remuneration and Nomination Committee
Advises the Board on:
• Remuneration policies and practices;
• Non-executive director remuneration; and
• Executive remuneration.
Human Resources Management
Responsible for:
• Implementation of remuneration policies and practices;
• Advising the Remuneration and Nomination Committee of
changing statutory market conditions;
• Provides relevant information to the Remuneration and
Nomination Committee to assist with decisions.
Remuneration
consultants
Will be engaged
directly by
management
other than
in respect
of KMPs to
provide advice
and market
data to ensure
Fortescue’s
remuneration
position remains
competitive.
Use of remuneration consultants
During the year, Egan Associates provided external remuneration advice to the R&NC. During financial year 2013,
Egan Associates provided the following remuneration recommendations (as defined in the Corporations Act 2001):
•
Review of company incentive structure
The above remuneration recommendations were provided to the R&NC as an input into decision making only. The R&NC
considered the recommendations, along with other factors, in making its remuneration decisions.
The total fees paid for the remuneration recommendations was A$10,250 (ex GST). Other services provided by Egan Associates
included other advisory services and the fees for all other services was $24,925 (ex GST).
The following arrangements were made to ensure that the advice was free of undue influence by members of the KMP:
•
•
•
Egan Associates was engaged by the Chairman of the R&NC of the Board;
Fortescue Management were not involved in the formulation of any remuneration recommendations, but provided factual
information to assist Egan Associates; and
Egan Associates provided the remuneration recommendation only to the Chairman of the R&NC.
Due to the implementation of these measures, the Board and R&NC are satisfied that the advice provided was free from undue
influence from members of Fortescue’s KMP and Egan Associates have provided a written statement to this effect.
Fortescue Metals Group Limited I Annual Report 2013 I 71
Fortescue Metals Group Limited I Annual Report 2013 I 71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
d) Executive remuneration strategy
Fortescue’s reward strategy seeks to build a performance orientated culture that supports the achievement of our strategic
vision and to attract, retain and motivate its employees by providing market competitive fixed remuneration and incentives.
The reward strategy also supports Fortescue’s extraordinary growth and progression as one of the world’s leading producers of
iron ore through:
•
•
•
being well positioned to deliver fair and market competitive rewards;
supporting a clear performance focus; and
alignment to the long-term goals of the organisation.
Fortescue is committed to providing competitive remuneration packages to our Executives and senior employees. Fortescue
benchmarks remuneration components against major indices such as the ASX 100 Resources and ASX 30 and also seeks input
from independent remuneration consultants regarding Executive remuneration as detailed in section (b). The overall intent is to
ensure the executive remuneration program is appropriately positioned to motivate, attract and retain key Executives and senior
employees to deliver on the current and long term strategic activities of the Company.
How remuneration practices align with our reward strategy
Remuneration strategy principle
Purpose
Practice
High levels
of share ownership
Drive alignment of employee and
shareholder interests
LTIP awarded as shares. A minimum
50 per cent of the ESSIP paid in shares
with Executives able to elect up to
100 per cent in shares
Market competitive
remuneration
Attract and retain key talent and
be competitive against relevant
companies
Remuneration is benchmarked
against the ASX 100 Resources and
ASX 30 Indices
Performance focus
Fit for purpose
Strategic alignment
Provide fair reward in line with
individual and company
achievements
Executive remuneration mix targets
a minimum of 63 per cent of the total
opportunity ‘at risk’
Include flexibility to reflect clear
linkage to business strategy
Business strategy is prioritised;
market practice is only one input in
determining the relevant framework
Support delivery of long-term
business strategy and growth
aspirations
Incentives are measured on
financial and non-financial
performance to support
sustainable growth
Shareholder
and Executive alignment
Introduction of a LTI (to apply from
FY13) rewarding sustained
performance over a three year period
A significant portion of executive
remuneration granted as performance
rights vesting subject to short and
long-term performance hurdles
72 I Fortescue Metals Group Limited I Annual Report 2013
72 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 REMUNERATION REPORT
REMUNERATION REPORT
e) Executive remuneration structure
Executive remuneration has a fixed component and a variable ‘at risk’ component, the payment of which is dependent on
the achievement of Company performance and growth targets and individual objectives.
The key components of the executive remuneration structure for the FY13 comprised:
•
•
•
Total Fixed Remuneration (TFR);
Executive & Senior Staff Incentive Plan (ESSIP); and
Long Term Incentive Plan (LTI).
Remuneration may also include participation in the Salary Sacrifice Share Plan (SSSP).
Total remuneration comprising each of these components is benchmarked against the market taking into account the
Company’s position as the world’s fourth largest iron ore producer and explorer and its ranking in the top twenty listed
Australian companies. Remuneration is benchmarked against companies in the ASX 100 Resources Index, with total
remuneration targeted at the third quartile. Total reward opportunities are intended to provide Executives the opportunity
to earn 75th percentile rewards for outstanding performance against stretch targets set. Information provided by Egan
Associates revealed that current total remuneration levels are generally consistent with this policy.
Remuneration Mix
The table below demonstrates the revised remuneration mix for performance at stretch, which is reflective of the introduction
of the LTI, and reduction in ESSIP opportunity, for KMPs for FY13:
TFR
ESSIP (at risk)
LTI (at risk)
CEO – FY12
40%
60%
CEO – FY13
28%
31%
CEO Direct Reports – FY12
50%
41%
50%
CEO Direct Reports – FY13
36%
27%
37%
0%
20%
40%
60%
80%
100%
* Note: the table above represents the target remuneration mix for the CEO and CEO direct reports in 2013 and does not take into
consideration options granted to Mr Meurs at the start of his employment or his voluntary participation in the Executive Loan Plan.
The above table clearly illustrates the significantly increased ‘at-risk’ components of the new remuneration structure compared
to the corresponding FY2012 structure. The new structure serves to reinforce the pay-for-performance alignment desired by
shareholders and their representatives / advisers.
Fortescue Metals Group Limited I Annual Report 2013 I 73
Fortescue Metals Group Limited I Annual Report 2013 I 73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
Clawback Policy
Fortescue operates a Clawback Policy. Clawback will be initiated where in the opinion of the Board:
1) an Award, which would not have otherwise vested, vests or may vest as a result directly or indirectly of:
a)
b)
the fraud, dishonesty or breach of obligations (including, without limitation, a material misstatement of
financial information) of any person; or
any other action or omission (whether intentional or inadvertent) of any person, the Board may make a determination
to ensure that no unfair benefit is obtained by any Participant; or
2)
an Award, which may otherwise have vested, has not vested as a result directly or indirectly of any circumstance
referred to in paragraphs (1)(a) or (b) above, the Board may reconsider the level of satisfaction of the applicable
Conditions and reinstate and vest any Award that may have lapsed to the extent that the Board determines
appropriate in the circumstances.
f) Key components of Executive remuneration
Total Fixed Remuneration
TFR is made up of base salary, cash allowances (such as site-based or location allowances), employee benefits and
superannuation. The level of TFR is based on the Executive’s responsibilities, experience and qualifications. Company
and individual performance are considered during the annual remuneration review process.
Executive & Senior Staff Incentive Plan
The purpose of the ESSIP is to incentivise and reward key Fortescue Executives (including KMP) for achieving Company
and individual performance objectives that drive shareholder value.
An Executive’s ESSIP potential award is linked 50 per cent to Company objectives, and 50 per cent to individual performance,
linking Executive remuneration to Company performance during the Plan Year.
A maximum incentive opportunity is established at the beginning of the financial year for each Executive. The incentive is delivered
as a minimum of 50 per cent in ordinary shares, and a maximum of 50 per cent in cash. The plan allows participants to elect to
receive up to 100 per cent of the incentive in shares. The maximum incentive opportunity for KMPs in 2013 is shown below:
Chief Executive Officer
CEO Direct Reports
112.5 per cent of TFR*
75 per cent of TFR*
1 participant
3 participants
* Note that the maximum possible value of awards under the ESSIP will be determined by the number of objectives achieved
and the value of the Fortescue shares at time of vesting.
* Due to the introduction of the LTI plan in FY13, there has been a corresponding reduction in maximum ESSIP opportunity from FY13.
The maximum ESSIP opportunities for FY13 have been reduced by 25 per cent.
Individuals who leave during the year (i.e. before 30 June) are not eligible to receive an ESSIP award, unless by specific R&NC
approval. On receipt of such approval, the ESSIP is pro-rated based on service during the period, and made at the usual payment
date, which is around September of each year, post release of audited and approved full year results. Individuals who commence
during the year similarly will have awards under the ESSIP pro-rated based on service during the performance period.
ESSIP performance objectives
ESSIP awards are made based on an assessment of Company and individual performance. Company performance comprises
company annual performance and company growth performance, and is designed to provide both a short and long-term
perspective on performance, and protect the long-term interests of the shareholder by seeking to ensure efficient processing
of reserves mined and that financials objectives are met.
74 I Fortescue Metals Group Limited I Annual Report 2013
74 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
REMUNERATION REPORT
The performance objectives in 2013 are shown below:
Company Annual Performance
Production(2)
Safety(2)
Cost(1)
Company Growth Performance
Growth(2)
Financial(1,3)
Physical(2)
Target tonnes shipped
Target percentage reduction (15 per cent) in
Total Recordable Injury Frequency Rate (TRIFR)
Target cost per tonne shipped
Deliver agreed actions from the 2012 Board
Strategic Planning Workshop
Achieve target annual Absolute Return on Equity
(AROE) of >15 per cent
Target percentage of reserves mined is converted
(after processing losses) to product, inclusive
of quality measurement (e.g. grade expectations
and real mined tonnage)
Weighting
8
8
8
8
10
Results
per cent
Not met
Met
Met
Partially met
Met
8
Met
Outcome
per cent
0
8
114
2
10
8
Individual Performance
4 objectives based on the business plan at
12.5 per cent each
50
Partially met
avg 39
(1) Financial Targets
(2) Non-Financial Targets
(3) The 2012 Remuneration Report stated Relative Total Shareholder Return as a growth performance measure for the
2013 ESSIP. Its replacement with AROE was approved by the Board after the report was lodged.
(4) A key element of our culture is to set challenging stretch targets and strive to outperform those targets. In the 2013 year we set
ourselves a number of key targets in respect of cost reduction across all operating and support functions. These cost reduction
targets are a high priority for the Board and they have approved an above target award to reflect the degree of outperformance by
the business in this area. This is contrasted with the production measure where the business fell marginally short of the stretch target
and received no award for this element.
The CEO’s Individual Performance Objectives for the reporting period related to:
•
•
•
•
specific deliverables for the T155 Expansion Project;
funding options for future growth opportunities;
specific projects related to operating costs; and
strengthening and maintaining Fortescue’s differentiating culture.
Payment of ESSIP awards are made in September after the release of the Company’s audited results and with final approval
from the Board.
How the ESSIP works: an example
The ESSIP is designed so that participants are generally rewarded the same result as a Fortescue investor over the financial year.
Example:
Executive A has an incentive opportunity of $100,000. The minimum value of the share component of this incentive
opportunity is $50,000.
At the beginning of the year, the share component is divided by the volume weighted average price (VWAP) of Fortescue shares
over the first five trading days of the year (eg in July 2012). In July 2012, the relevant VWAP was A$4.95. This results in an award
of 10,108 shares at the end of the year to Executive A provided the performance conditions are met.
Executive A may elect to receive up to 100 per cent of the incentive opportunity in shares.
Fortescue Metals Group Limited I Annual Report 2013 I 75
Fortescue Metals Group Limited I Annual Report 2013 I 75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
Historical ESSIP performance
Due to the rigorous annual incentive program and challenging hurdles set by the Board, the conditions for incentive awards have
not been fully met in a number of years.
Accordingly, senior management, including KMPs, have not fully received their incentive in the majority of the last five years.
The table below outlines the actual results of the FY2012 ESSIP against the targets that were set:
Company Annual Performance
Production
Safety
Cost
Company Growth Performance
Physical
Achieve: budgeted tonnes shipped
Achieve: 15 per cent reduction in Total
Recordable Injury Frequency Rate (TRIFR)
Achieve: target cost per tonne shipped
Financial
Achieve: target % of reserves mined converted
(after processing losses) to product, inclusive
of quality measurement (e.g. grade expectations
and real mined tonnage).
Achieve: Relative TSR > 50th percentile
benchmarked against ASX100 Resources
index. 50 per cent payment @ 50th percentile
progressing to 100 per cent at 75th percentile.
Individual Performance
4 objectives based on the business plan
at 12.5 per cent each
Weighting
10
10
10
10
10
50
Results
per cent
Not met
Met
Not met
Outcome
per cent
0
10
0
Not met
0
Partially met
5.4
Partially met
avg 43
ESSIP performance in FY13
Performance rights granted under the ESSIP at the beginning of FY13 are shown below. All the performance rights issued convert
to ordinary shares if all ESSIP objectives are met. The third column details the actual number of share rights that will be converted
to ordinary shares based on actual performance:
Executive
N Power
S Pearce
J Frankcombe1
P Meurs
D Woodall
ESSIP
performance
rights
issued
204,695
79,604
79,604
111,445
31,219
ESSIP
performance
rights
lapsed
61,404
23,681
-
28,973
10,653
ESSIP
performance
rights
forfeighted
-
-
(79,604)
-
-
Performance rights
to convert
to shares for FY13
ESSIP performance
143,291
55,923
-
82,472
20,566
1 Mr Frankcombe resigned on 26 January 2013.
Unvested share rights lapse once the outcome of the ESSIP is determined.
76 I Fortescue Metals Group Limited I Annual Report 2013
76 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
REMUNERATION REPORT
The table below details the maximum ESSIP cash and share awards against the actual outcomes for the 2013 year. The share
components are based on the share weighting election of each Executive:
TFR
2013
A$
Executive Directors
N Power
Key Management Personnel
S Pearce
P Meurs
D Woodall
1,050,000
1,050,000
900,000
1,800,000
(per cent
of TFR)
112.5
75
75
75
Maximum
ESSIP
Service Maximum
opportunity Weighting pro-rata
in shares
(per cent) applicable) opportunity
(if
ESSIP
Cash
ESSIP
Maximum outcome
awarded
(per cent
opportunity of TFR)
ESSIP
Shares
ESSIP
Cash
awarded
ESSIP
Shares1
50
50
70
50
-
1,012,500
1,012,500
79
708,770
453,559
-
-
0.46
393,750
236,250
154,418
393,750
551,250
154,418
53
56
49
276,617
174,830
101,726
177,013
261,049
65,098
1 ESSIP share value for FY13 is the value of the participant’s elected weighting in shares (minimum 50 per cent of the total
award) divided by the VWAP of Fortescue shares for the first five trading days of the Plan year (A$4.9464) multiplied by the
five day VWAP of Fortescue shares for the first 5 days of FY2014 (A$3.1653).
2 Mr Woodall commenced on 14 January 2013.
Long Term Incentive Plan
As stated previously, the Board resolved to introduce a new LTI plan in 2013 with awards considered annually. The purpose of
the LTI is to reinforce the criticality of AROE as Fortescue progresses from a multi-project focus to one of the largest producers
of iron ore in the world. The Board believes that the introduction of the LTI at this time will continue to support the retention
and motivation of our Executives and other key talent, increase the long-term focus of the incentive schemes and reinforce
alignment with shareholder interests.
LTI awards to executives are made under the employee share option plan and are delivered in the form of Performance Rights
(Rights). Each Right entitles the holder (subject to achievement of the specified performance conditions) to a maximum of four
fully paid ordinary shares in the Company for nil consideration.
The number of Rights issued to each participant under the FY13 LTI is based on the amount equal to the 25 per cent reduction in
ESSIP (Base Award). The Executive has the ability to earn up to four times the Base Award should the average AROE achieved over
the three year performance period exceed target. There is no opportunity to retest LTI performance.
The Company uses AROE as the performance measure for the LTI.
AROE was selected as the LTI performance measure for the following reasons:
•
•
AROE is one of the most important value metrics reflecting profit earned relative to shareholders equity (the amount of
capital invested by shareholders); and
AROE performance in excess of the Company’s cost of equity capital will deliver shareholder value
A minimum 15 per cent (FY14: 20 per cent) annual AROE hurdle rate was selected for the following reasons:
•
•
•
15 per cent exceeds the Company’s cost of equity;
the average AROE for the ASX 100 Resources Index from 2008 to 2012 is 5.3 per cent; and
the 80th percentile AROE for the ASX 100 Resources Index from 2008 to 2012 is 21 per cent.
Fortescue Metals Group Limited I Annual Report 2013 I 77
Fortescue Metals Group Limited I Annual Report 2013 I 77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
The vesting schedule is as follows:
Average AROE
FY13
<15%
20%
25%
30% +
FY14
<20%
23%
26.67%
30% +
Conversion Factor
Nil
2x the base award
3x the base award
4x the base award
Rights will convert to shares at the end of the three year vesting period if 15 per cent per annum (FY14: 20 per cent per annum)
average AROE is achieved, increasing (on a linear scale) to a maximum of 4 times the base award when an average AROE of
30 per cent per annum or more is achieved. The average AROE over three years will be measured as the sum of AROE for years
1, 2 and 3 divided by 3. Average AROE of less than 15 per cent per annum will see no award.
In the event of a change of control of the Company, the performance period end date will generally be brought forward to the
date of the change of control and awards will vest over this shortened period, subject to ultimate Board discretion.
The Clawback Policy also applies to this plan.
Salary Sacrifice Share Plan
Executives may nominate an amount (up to A$5,000 per annum) of pre-tax salary to acquire ordinary shares under the SSSP.
Provided ordinary shares are kept in the SSSP, income tax on the acquisition of these ordinary shares can be deferred by the
Executive for up to seven years. Disposal restrictions apply while the shares remain in the SSSP. Shares acquired under this plan
are not subject to performance conditions becuase they are issued in lieu of salary which would otherwise be payable and are
subject to a monetary limited of $5,000 per annum.
g) How Fortescue performed over the past five years
Fortescue continues to build on its performance over the past five years, showing strong growth in revenue and net profit
to deliver shareholder wealth.
In considering Fortescue’s performance and benefits for shareholder wealth, the Board have regard to the following indices in
respect of the current financial year and the previous four financial years.
In FY13, Fortescue’s share price was impacted by volatility in global capital and commodity markets, decreasing from the FY2012
closing price of A$ $4.85 to A$3.04 at the end of 2013. This represents a 37 per cent reduction compared with the
ASX100 Resource Index which fell 6 per cent over the corresponding period.
Revenue from iron ore operations – US$millon
Net profit/(loss) – US$million
A$ dividends paid
A$ change in share price
per cent change in share price
2013
8,057
1,746
$0.10
$(1.81)
(37)
2012
6,681
1,559
$0.08
$(1.45)
(23)
2011
5,442
1,022
$0.03
$2.23
54
2010
3,220
581
-
$0.43
12
2009
1,831
508
-
$(8.11)*
(68)
An explanation of how fixed and variable remuneration outcomes were driven by company performance in FY13 is included in
section(b).
h) Securities trading policy
Fortescue’s Securities Trading Policy provides clear guidance on how company securities may be dealt with.
The Securities Trading Policy details acceptable and unacceptable periods for trading in Company Securities including detailing
potential civil and criminal penalties for misuse of confidential information.
78 I Fortescue Metals Group Limited I Annual Report 2013
78 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
REMUNERATION REPORT
Fortescue’s Security Trading Policy provides guidance on acceptable transactions in dealing in the Company’s various securities,
including shares, debt notes and options.
The policy also sets out a specific governance approach for how the Chairman and Directors can deal in company securities.
The Company’s Security Trading Policy can be accessed from the Corporate Governance section of the Fortescue Website.
Executive contract terms
i)
Remuneration and other terms of employment for Executives are formalized in a service agreement.
The CEO and Executives are employed on a rolling basis with no specified fixed term. The CEO and Executives are remunerated
on a total fixed remuneration (TFR) basis inclusive of superannuation and allowances.
The major terms of the agreements relating to remuneration are set out in the table below:
Position
Chief Executive Officer
Executive
Mr Neville Power
Maximum Maximum
ESSIP
LTIP
opportunity opportunity
(per cent
of TFR)
150
(per cent
of TFR)
112.5
TFR*
(A$)
1,800,000
Chief Financial Officer
Mr Stephen Pearce
1,050,000
Director Development
Mr Peter Meurs
1,050,000
Director Operations
Mr David Woodall
900,000
75
75
75
100
100
100
Termination clause
Three months written notice
(or three months TFR in lieu)
Three months written notice
(or three months TFR in lieu)
Three months written notice
(or three months TFR in lieu)
Three months written notice
(or three months TFR in lieu)
* Total Fixed Remuneration as of 30 June 2013. Reviewed annually by the R&NC. Remains at July 2011 levels.
All Executives are required to provide written notice of three months to terminate their service agreement. Should
Executives not provide sufficient notice they will forfeit the monetary equivalent (calculated based on TFR) of any shortfall
in the notice period.
If an Executive resigns and leaves the Company prior to 30 June in any year, the Executive will forfeit all entitlement to
any payment under the ESSIP. If an Executive retires, is made redundant or leaves the Company as a result of a negotiated
termination, the R&NC Committee at its sole discretion may elect to make a pro-rata ESSIP payment based on service up
to the termination date.
If the Executive resigns and leaves the Company prior to 30 June in the year of vesting under the LTI, the Executive will forfeit
all entitlement to any award under the LTI. If an Executive retires, is made redundant or leaves the Company as a result of
a negotiated termination prior to 30 June in the year of vesting under the LTI, the R&NC Committee at its sole discretion may
elect to make a pro-rata LTI award based on service up to the termination date.
Termination benefits for KMP comply with the limits set by the Corporations Act that do not require shareholder approval.
Fortescue Metals Group Limited I Annual Report 2013 I 79
Fortescue Metals Group Limited I Annual Report 2013 I 79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
j) Detailed remuneration for Executives
Executive Remuneration for year ending 30 June 2013
Short-term
employee
Benefits
Post
Employment
Benefits
End
of
Service
Share-based payments
Total
Maximum Maximum
ESSIP
Cash
value for
ESSIP
Share
value for
2013
Plan
Plan Year1 benefits uation entitlements Year2
$A
Non-
2013 monetary rann-
Supe- Accrued
leave
$A
$A
$A
$A
LTIP
Share
value
perfor-
mance
rights2 Options3 payments4 Total
Other
share-
based
$A
$A
$A
$A
Cash
Salary
and fees
$A
1,768,000
708,770
7,000 25,000
-
820,827
640,466
-
- 3,970,063
1,018,000
582,705
1,018,000
404,817
276,617
-
174,830
101,726
7,000 25,000
14,583
7,000 25,000
2,917 11,650
-
45,532
-
-
319,212
-
446,894
152,973
249,071
-
- 1,894,900
-
642,820
-
-
249,071 5,371,4777 853,272 8,145,544
738,313
64,230
-
-
2013
Executive Directors
N Power
Executives
S Pearce
J Frankcombe5
P Meurs
D Woodall6
1 ESSIP cash value payable in respect to FY13 to be paid in September 2013.
2
3
4
The value of ESSIP and LTIP performance rights was assessed using trinomial pricing model that takes into account the price of
Fortescue shares at the grant date, expected price volatility of the underlying share, the term of the right, the expected divided
yield, estimated share conversion factor and the risk-free interest rate for the term of the right and represents the accounting value
expensed in FY13.
The fair value of options is determined at grant date using either or trinomial lattice option pricing model that takes into account
the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the
underlying share, the effect of additional market conditions, the expected dividend yield, estimated conversion factor and the risk free
interest rate for the term of the option.
Other share based payments relate to financial assistance by way of guarantee provided to Mr Meurs by The Metal Group Pty Ltd
to purchase Fortescue shares under an approved arrangement. The fair value at grant date was determined using a Monte Carlo
simulation model, which takes into account the following inputs: the life of the instruments, the price of the underlying share, the
expected volatility of the underlying share price, the dividends expected on the underlying share, the risk-free interest rate for the life
of the instruments, the loan value per share, the interest, fees and charges on the loan and the terms of the margin call.
5 Mr Frankcombe resigned on 26 January 2013.
6 Mr Woodall commenced on 14 January 2013.
7 Once vested, the options are subject to a further share price performance condition. Half of the options require a share price of
$7.00 with the second half requiring a minimum share price of $8.00 before they can be exercised. The exercise price of each option
is $5.00 and the expiry date is 13 May 2015.
The graph below represents the actual remuneration mix for KMP in FY13.
16%
39%
45%
13%
31%
31%
55%
100%
80%
60%
40%
20%
0%
9%
34%
57%
10%
66%
3%
8%
15%
N Power
S Pearce
TFR
ESSIP (at risk)
LTI (at risk)
P Meurs
Options (at risk)
D Woodall
Other (at risk)
80 I Fortescue Metals Group Limited I Annual Report 2013
80 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
REMUNERATION REPORT
Executive Remuneration for year ending 30 June 2012
Short-term
employee
Benefits
Post
Employment
Benefits
End
of
Service
Share-based payments
Total
ESSIP
Cash
value for
2012
Cash
Salary
and fees Plan Year
$A
$A
ESSIP
Share
value for
2012
Non-
monetary
Plan
benefits uation entitlements Year2
$A
Accrued
leave
Supe-
rann-
$A
$A
$A
Other
share-
based
Options3 payments4
$A
$A
Total
$A
2012
Executive Directors
A Forrest5
N Power6
Key Management Personnel
S Pearce
P Hallam7
J Frankcombe9
P Meurs
130,216
1,755,442
1,020,083
170,903
461,977
999,250
-
-
17,677
7,000
17,784
-
37,558 - 1,214,679
-
-
-
-
-
165,677
3,014,679
343,350
-
150,185
146,948
7,000
1,224
-
7,000
25,000 - 263,910 -
(91,930)8
15,049
-
2,749
22,917
-
- 115,437
47,917 - 263,547 5,833,96810
-
-
-
853,272
1,659,343
97,995
750,516
8,151,902
1 ESSIP cash value is a minimum of 50% of the estimated award.
2
ESSIP estimated share value for 2012 Plan Year is the value of the participant’s elected weighting in shares (minimum 50 per cent
of the total estimated award) divided by the VWAP of Fortescue shares for the first five trading days of the Plan year ($6.44) multiplied
by the five day VWAP of Fortescue shares for the first 5 days of FY13 ($4.95).
The fair value of options is determined at grant date using a trinomial lattice option pricing model that takes into account the
exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility
of the underlying share, the effect of additional market conditions, the expected dividend yield and the risk free interest rate for the
term of the option.
Other share based payments relate to financial assistance by way of guarantee provided to Mr. Meurs by The Metal Group Pty Ltd
to purchase Fortescue shares under an approved arrangement. The fair value at grant date was determined using a Monte Carlo
simulation model, which takes into account the following inputs: the life of the instruments, the price of the underlying share, the
expected volatility of the underlying share price, the dividends expected on the underlying share, the risk-free interest rate for the life
of the instruments, the loan value per share, the interest, fees and charges on the loan and the terms of the margin call.
Mr Forrest commenced as Chairman on 18 July 2011, ceasing to be an Executive Director at this time. The amounts above include the
full year earnings as CEO and Chairman. Non-monetary benefits include occasional private use of the Company aircraft taking into
account the individual’s contribution towards usage.
Mr Power commenced as Chief Executive Officer on 18 July 2011, prior to this he held the position of Chief Operating Officer.
The amounts above include the full year earnings as CEO and COO.
3
4
5
6
7 Mr Hallam retired on 4 September 2011.
8 Mr Hallam forfeited 300,000 options on retirement.
9 Mr Frankcombe commenced on 16 January 2012.
10 Once vested, the options are subject to a further share price performance condition. Half of the options require a share price of
$7.00 with the second half requiring a minimum share price of $8.00 before they can be exercised. The exercise price of each option
is $5.00 and the expiry date is 13 May 2015.
Fortescue Metals Group Limited I Annual Report 2013 I 81
Fortescue Metals Group Limited I Annual Report 2013 I 81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
Share-based remuneration
Options over equity instruments granted as remuneration
During the year ending 30 June 2012, the Board of Fortescue Metals Group Limited consented to The Metal Group Pty Ltd,
an entity controlled by the Chairman, to offer an arrangement to provide financial assistance to allow certain senior executives
of Fortescue to purchase the Company’s shares on market. The arrangement was effected through a number of separate
transactions and appropriate disclosures made via lodgment of an Appendix 3Y as required by the ASX Listing Rules.
The arrangement constitutes a share-based payment transaction and has been measured with reference to the fair value of the
benefit received by the executives and is recognised as an expense on a straight-line basis over a four-year vesting period, in line
with the service conditions. The fair value was determined at grant date using Monte-Carlo simulation model. Total share-based
payment expense in relation to the arrangement for the financial year ended 30 June 2013 was A$925,453 (2012: A$925,453).
The purpose was to provide an opportunity for a limited number of senior individuals critical to Fortescue’s performance to be
incentivised and remunerated through increased direct share ownership (reinforcing alignment with shareholder interests),
and further enhance Fortescue’s ability to retain these individuals over the long term.
Details of share based payments relating to LTI
The following table provides details of the number of share rights granted under the LTI during the financial year ended
30 June 2013. The value of the rights has been determined using the amount of the grant date fair value.
Name
N Power
S Pearce
J Frankcombe2
P Meurs
D Woodall
Grant
Date
Rights
Performance
Granted
Period
10/12/12 1/7/13 to 30/6/15 136,463
53,069
10/12/12 1/7/13 to 30/6/15
53,069
10/12/12 1/7/13 to 30/6/15
53,069
10/12/12 1/7/13 to 30/6/15
20,813
08/02/13 1/7/13 to 30/6/15
No. Share Value per Value of
share
Rights at
right1 Grant Date
$15.40
$2,101,530
$15.40
$15.40
$15.40
$18.84
%
Performance
Achieved
Determined in 2015
$817,263 Determined in 2015
$817,263
$817,263 Determined in 2015
$392,117 Determined in 2015
n/a
Forfeited/
Lapsed
-
-
53,069
-
-
Vested
n/a
n/a
n/a
n/a
n/a
1 The value of LTI performance rights was assessed using a trinomial pricing model that takes into account the price of Fortescue
shares at the grant date, expected price volatility of the underlying share, the term of the right, the expected divided yield, estimated
conversion factor and the risk-free interest rate for the term of the right.
2 Mr Frankcombe resigned on 26 January 2013.
Details of share based payments relating to LTI.
Legacy Incentive Option Scheme (IOS)
Details of options over ordinary shares in the Company that were granted under the legacy Incentive Option Scheme (IOS) as
remuneration to KMP are set out below. The plan has now been discontinued; however some grants still remain on foot and
continue to vest.
All options refer to options over ordinary shares of the Company, which are exercisable on a one for one basis under the IOS.
Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible into one
ordinary share.
82 I Fortescue Metals Group Limited I Annual Report 2013
82 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
REMUNERATION REPORT
The terms and conditions of each grant of options affecting KMP remuneration in the current or future reporting periods are set
out below.
The IOS provided eligible employees with options subject to share price performance and time conditions determined by the
Board. These awards were typically targeted at KMP at the time of appointment, or to retain selected individuals critical to the
Company’s development. The options typically vested in 3 tranches over a 36 month period.
When exercisable, each option is convertible into one ordinary share of Fortescue Metals Group Limited.
Name
Directors of Fortescue Metals Group Limited
Other key management personnel of the Company
P Meurs1
Number of options vested
2013
2012
2,187,500
2,187,500
1 Once vested, the options are subject to a further share price performance condition. Half of the options require a share price of
$7.00 with the second half requiring a minimum share price of $8.00 before they can be exercised. The exercise price of each option
is $5.00 and the expiry date is 13 May 2015.
The options were provided at no cost to the recipients. All options expire on the earlier of their expiry date or termination of the
individual’s employment. Once performance hurdles (share price performance and time conditions) are met, the options are
exercisable evenly on an annual basis over the four years from grant date.
The assessed fair value of options at grant date will be granted to individuals equally over the grant to vesting date period.
The amount is included in the remuneration tables above. The fair values at grant date are determined using the trinomial
lattice or binomial option pricing models that take into account the exercise price, the term of the option, the impact of dilution,
the share price at grant date, expected price volatility of the underlying share, the effect of additional market conditions, the
expected dividend yield and the risk free interest rate for the term of the option.
There were no amendments to the terms and conditions of options awarded as remuneration since their award date.
Exercise of options granted as remuneration
No options were exercised in 2013.
k)
Non-Executive director remuneration
Non-Executive directors fees are not ‘at-risk’, to reflect the nature of their responsibilities.
Non-Executive directors receive fees for both Board and Committee membership. The maximum aggregate remuneration payable
to non-Executive directors is $2.0m, which was approved by shareholders at the annual general meeting on 19 November 2010.
There have been no changes to the aggregate fee pool over the last 12 months. The current fees (inclusive of superannuation) are
outlined in the table below:
Position
Board Chairman*
Board Deputy Chairman
Non-Executive Director
Audit & Risk Management Committee Chairman
Audit & Risk Management Committee Member
Remuneration & Nomination Committee Chairman
Remuneration & Nomination Committee Member
China Advisory Board Member
Finance Sub-Committee Member
Fee (A$)
120,000
210,000
140,000
40,000
15,000
15,000
7,500
60,000
6,000
* The Board Chairman has elected to receive an annual fee significantly below market and other Fortescue director norms.
Fortescue Metals Group Limited I Annual Report 2013 I 83
Fortescue Metals Group Limited I Annual Report 2013 I 83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
As confirmed by Egan Associates, in aggregate, each individual non-Executive director’s total fees are below the market median
for non-Executive directors of similarly sized companies (e.g. companies ranked on the ASX50 or ASX100 Resources).
2013
A Forrest
H Elliott
G Rowley
G Brayshaw
K Ambrecht1
O Hegarty
C Huiquan2
G Raby
H Scruggs
M Barnaba
E Gaines3
Base
fees
$A
109,091
190,909
127,273
127,273
52,037
127,273
-
140,000
140,000
127,273
44,865
Committee
Chairman Committee
fees
-
-
-
36,364
-
-
-
-
-
13,636
-
fees
6,818
6,818
13,636
5,455
10,593
6,818
-
60,000
22,500
19,091
-
Other
benefits
11,093
-
7,000
-
-
-
-
-
-
-
-
Superann-
uation
11,591
19,773
14,091
16,909
-
13,409
-
-
-
16,000
4,487
1 Mr Ambrecht retired on 14 November 2012.
2 Mr Huiquan has elected not to receive board fees in his role as Hunan Valin’s representative on Fortescue’s Board.
3 Ms Gaines commenced on 22 February 2013.
2012
H Elliott
G Rowley
G Brayshaw
K Ambrecht
I Burston1
O Hegarty
L Xiaowei2
C Huiquan3
G Raby4
H Scruggs5
M Barnaba
R Scrimshaw6
Base
fees
$A
170,919
115,152
115,152
126,667
15,918
115,152
80,000
46,667
111,269
108,639
115,152
19,349
Committee
Chairman Committee
fees
1,344
21,212
-
-
-
-
-
-
-
9,090
-
fees
4,545
5,972
1,818
16,167
663
5,303
-
-
52,301
10,639
9,737
-
Other
benefits
-
-
-
-
-
-
-
-
-
-
-
(91,930)
Superann-
uation
17,681
12,112
13,818
-
-
12,045
-
-
-
-
13,398
2,017
Total
138,593
217,500
162,000
186,001
62,630
147,500
-
200,000
162,500
176,000
49,352
Total
194,489
133,236
152,000
142,834
16,581
132,500
80,000
46,667
163,570
119,278
147,377
(70,564)
1 Dr Burston resigned on 18 August 2011.
2 Mr Li resigned on 29 February 2012.
3 Mr Cao commenced on 1 March 2012 and has elected not to receive board fees in his role as Hunan Valin’s representative
on Fortescue’s Board.
4 Dr Raby commenced on 18 August 2011.
5 Mr Scruggs commenced on 25 August 2011.
6 Mr Scrimshaw resigned as Non-Executive Director on 27 August 2011.
84 I Fortescue Metals Group Limited I Annual Report 2013
84 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
REMUNERATION REPORT
AUDITOR’S INDEPENDENCE
DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of Fortescue Metals Group Limited for the year ended 30 June 2013, I
declare that to the best of my knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Fortescue Metals Group Limited and the entities it controlled during
the period.
Nick Henry
Partner
PricewaterhouseCoopers
Perth
22 August 2013
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Fortescue Metals Group Limited I Annual Report 2013 I 85
Fortescue Metals Group Limited I Annual Report 2013 I 85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 FINANCIAL STATEMENTS
Contents
• Consolidated income statement and
consolidated statement of comprehensive income
• Consolidated statement of financial position
• Consolidated statement of cash flows
• Consolidated statement of changes in equity
• Notes to the consolidated financial statements
• Directors’ declaration
87
88
89
90
91
139
86 I Fortescue Metals Group Limited I Annual Report 2013
86 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CONSOLIDATED INCOME STATEMENT AND
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2013
Consolidated income statement
Notes
Operating sales revenue
Cost of sales
Gross profit
Other income
Other expenses
Profit before income tax and net finance expenses
Finance income
Finance expenses
Profit before income tax
Income tax expense
Profit for the year after income tax
Profit for the year is attributable to:
Equity holders of the parent
Non-controlling interest
Profit for the year after income tax
Consolidated statement of comprehensive income
Profit for the year after income tax
Other comprehensive income
Items that may be reclassified to profit and loss
(Losses)/gains on cash flow hedges taken to equity
Gains transferred to the initial carrying amount of hedged items
Total comprehensive income for the year, net of tax
Total comprehensive income for the year is attributable to:
Equity holders of the parent
Non-controlling interest
Total comprehensive income for the year, net of tax
Earnings per share for profit attributable to the ordinary
equity holders of the Company:
Basic earnings per share
Diluted earnings per share
4
6
5
7
8
8
9
2013
US$m
8,120
(5,140)
2,980
291
(252)
3,019
33
(586)
2,466
(720)
1,746
1,746
-
1,746
2012
US$m
6,716
(4,008)
2,708
171
(111)
2,768
60
(565)
2,263
(704)
1,559
1,559
-
1,559
Notes
2013
US$m
2012
US$m
1,746
1,559
21(a)
21(a)
(80)
(35)
109
(87)
1,631
1,581
1,631
-
1,631
1,581
-
1,581
Notes
Cents
Cents
32(a)
32(a)
56.07
56.05
50.07
50.06
The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
Fortescue Metals Group Limited I Annual Report 2013 I 87
Fortescue Metals Group Limited I Annual Report 2013 I 87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2013
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Current tax receivable
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings and finance lease liabilities
Provisions
Deferred income
Current tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings and finance lease liabilities
Provisions
Deferred tax liabilities
Deferred income
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Notes
2013
US$m
2012
US$m
10
11
12
13
11
14
15
16
17
18
16
17
18
19
20(b)
21(a)
2,158
2,343
409
961
126
8
588
617
102
-
3,662
3,650
6
17,159
40
17,205
20,867
37
11,357
19
11,413
15,063
1,043
1,182
205
128
38
-
283
100
-
551
1,414
2,116
155
12,486
387
805
331
14,164
15,578
5,289
1,291
(49)
4,043
5,285
4
5,289
225
8,218
516
221
5
9,185
11,301
3,762
1,293
41
2,428
3,762
-
3,762
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
88 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 1 I Fortescue Metals Group Ltd I Annual Report 2013
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2013
Notes
2013
US$m
2012
US$m
Cash flows from operating activities
Cash receipts from customers
Payments to suppliers and employees
Income tax paid
Net cash inflow from operating activities
34
Cash flows from investing activities
Payments for property, plant and equipment
Movement in deposits and guarantees
Proceeds from disposal of plant and equipment and partial sale of jointly controlled assets
Interest received
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings and finance leases
Repayment of borrowings and finance leases
Interest and finance costs paid
Proceeds from customer deposits
Repayment of customer deposits
Dividends paid
Purchase of shares by employee share trust
Transactions with non-controlling interest
Net cash inflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
Non-cash investing and financing activities
10
34
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
8,725
(5,026)
(695)
3,004
6,625
(3,694)
(123)
2,808
(6,355)
(6,044)
3
155
31
(70)
71
53
(6,166)
(5,990)
7,330
(3,232)
(893)
-
(80)
(131)
(20)
15
3,638
(15)
(584)
100
(95)
(251)
-
-
2,989
2,793
(173)
2,343
(12)
2,158
(389)
2,663
69
2,343
Fortescue Metals Group Limited I Annual Report 2013 I 89
Fortescue Metals Group Limited I Annual Report 2013 I 89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2013
Attributable to equity holders of the Company
Contributed
equity
US$m
US$m
Reserves earnings Total
Retained
Non-con-
trolling Total
interest equity
US$m US$m US$m US$m
Balance at 1 July 2011
Profit for the year
Other comprehensive income
Total comprehensive income for the year, net of tax
Transactions with owners in their capacity as owners, net of tax:
Issue of share capital
Purchase of shares under employee share plans
Employee share awards exercised net of employee contributions
Forfeited options
Equity settled share-based payment transactions
Dividends paid
Balance at 30 June 2012
Balance at 1 July 2012
Profit for the year
Other comprehensive income
Total comprehensive income for the year, net of tax
Transactions with owners in their capacity as owners, net of tax:
Purchase of shares under employee share plans
Employee share awards exercised net of employee contributions
Equity settled share-based payment transactions
Dividends paid
Transactions with non-controlling interest
1,295
13
1,126
2,434
-
-
-
1
(14)
11
-
-
-
-
22
22
1,559
1,559
-
22
1,559
1,581
-
-
-
(1)
7
-
-
-
-
-
-
1
(14)
11
(1)
7
(257)
(257)
1,293
41
2,428
3,762
1,293
41
2,428
3,762
-
-
-
(20)
18
-
-
-
-
1,746
1,746
(115)
-
(115)
(115)
1,746
1,631
-
-
14
-
11
-
-
-
(20)
18
14
(131)
(131)
-
11
Balance at 30 June 2013
1,291
(49)
4,043
5,285
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
4
2,434
1,559
22
1,581
1
(14)
11
(1)
7
(257)
3,762
3,762
1,746
(115)
1,631
(20)
18
14
(131)
15
5,289
90 I Fortescue Metals Group Limited I Annual Report 2013
90 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2013
• 1
• 2
CONTENTS
of the notes to the
consolidated financial statements
Summary of significant accounting policies
92
Critical accounting estimates and
judgements
• 3
Segment information
• 4 Operating sales revenue
• 5 Other income
• 6
Cost of sales
• 7 Other expenses
• 8
• 9
Finance income and finance expenses
Income tax expense
• 10 Cash and cash equivalents
• 11 Trade and other receivables
• 12
Inventories
• 13 Other current assets
• 14 Property, plant and equipment
• 15
Intangible assets
• 16 Trade and other payables
• 17 Borrowings and finance lease liabilities
• 18 Provisions
• 19 Deferred tax liabilities
• 20 Contributed equity
• 21 Reserves
• 22 Financial risk management
• 23 Dividends
• 24 Key management personnel disclosures
• 25 Remuneration of auditors
• 26 Contingencies
• 27 Commitments
• 28 Related party transactions
• 29 Subsidiaries and transactions with non-
controlling interests
• 30 Deed of cross guarantee
• 31
Interests in joint ventures
• 32 Earnings per share
• 33 Share-based payments
• 34 Reconciliation of profit after income tax to
net cash inflow from operating activities
• 35 Parent entity financial information
104
106
106
106
107
107
107
108
109
109
110
110
111
112
112
113
116
117
118
118
119
124
125
128
129
129
130
131
132
133
134
135
136
137
• 36 Events occurring after the reporting period 138
Fortescue Metals Group Limited I Annual Report 2013 I 91
Fortescue Metals Group Limited I Annual Report 2013 I 91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements
cover the consolidated group consisting of Fortescue Metals Group Limited (the Company) and its subsidiaries, together
referred to as Fortescue or the Group. Fortescue is a for-profit entity for the purposes of preparing these financial statements.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other
authoritative pronouncements of the Australian Accounting Standards Board (AASB), including Australian Interpretations,
and the Corporations Act 2001.
(i) Compliance with IFRS
The consolidated financial statements of the Group also comply with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board.
(ii) Historical cost convention
These financial statements have been prepared under the historical cost convention, except for certain financial instruments,
which have been measured at fair value.
(iii) Critical accounting estimates
The preparation of financial statements requires management to use certain critical accounting estimates and to exercise their
judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.
(iv) Rounding of amounts
The Company is of a kind referred to in Class order 98/100, issued by the Australian Securities and Investments Commission,
relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in
accordance with that Class Order to the nearest million dollars, unless otherwise stated.
(b) Principles of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company. Control is achieved when the Company has the power to govern the financial and operating policies of the entity,
generally accompanying a shareholding of more than one half of the voting rights.
Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated income statement
and consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of
disposal, as appropriate.
The financial statements of subsidiaries are prepared for the same reporting period as the Company, using consistent
accounting policies. All intercompany balances and transactions, including unrealised profits and losses arising from intra-group
transactions, have been eliminated in full.
The acquisition method of accounting is used to account for the Group’s business combinations.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement
and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement
of financial position respectively.
92 I Fortescue Metals Group Limited I Annual Report 2013
92 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1 Summary of significant accounting policies (continued)
(c) Joint ventures – jointly controlled assets
The Group undertakes a number of business activities through joint ventures. Joint ventures are established through contractual
arrangements that require the unanimous consent of each of the venturers regarding the strategic financial and operating
policies of the venture (joint control).
When a Group entity undertakes its activities under joint venture arrangements directly, the Group’s share of jointly controlled
assets and liabilities incurred jointly with other venturers are recognised in the financial statements of the relevant entity and
classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are
accounted for on an accruals basis. Income from the sale or use of the Group’s share of the output of jointly controlled assets, and
its share of joint venture expenses, are recognised when it is probable that the economic benefits associated with the transactions
will flow to or from the Group and the amount can be measured reliably. All such amounts are measured in accordance with the
terms of each agreement, which is usually in proportion to the Group’s interest in the jointly controlled assets.
The transactions, balances and unrealised gains on transactions between the Group and joint ventures are eliminated to the
extent of the Group’s ownership interest.
(d) Employee share trust
The Group has formed a trust to administer its employee share schemes. The trust is consolidated, as the substance of the
relationship is that the trust is controlled by the Group. Shares held by the share trust are disclosed as treasury shares and
deducted from contributed equity.
(e) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Chief Executive Officer.
(f) Foreign currency translation
(i) Functional and presentation currency
The financial statements are presented in United States dollars, which is the Group’s reporting currency and the functional
currency of the parent and the majority of its subsidiaries.
(ii) Transactions and balances
Transactions in foreign currencies have been converted at rates of exchange ruling at the date of those transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the year end translation of monetary
assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when they are deferred in other
comprehensive income as qualifying cash flow hedges. Translation differences on assets and liabilities carried at fair value are
reported as part of the fair value gain or loss.
Fortescue Metals Group Limited I Annual Report 2013 I 93
Fortescue Metals Group Limited I Annual Report 2013 I 93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
(iii) Foreign operations
The results and financial position of foreign operations that have a functional currency different from the presentation currency
are translated into the presentation currency as follows:
•
•
•
assets and liabilities are translated at the closing foreign exchange rate at the date of the balance sheet;
income and expense items are translated at average exchange rates for the periods presented (unless exchange rates
fluctuated significantly during the period, in which case the exchange rates at the dates of the transactions are used); and
all resulting exchange differences are recognised in other comprehensive income and accumulated in equity.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings
designated as hedges of the investment, are recognised in other comprehensive income. Should a foreign operation be sold or
any borrowings forming part of the net investment be repaid, a proportionate share of the exchange difference is reclassified to
profit or loss, as part of the gain or loss on sale where applicable.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
(g) Revenue recognition
Revenue is measured at the fair value of the gross consideration received or receivable. Fortescue recognises revenue when the
amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the entity and specific
criteria have been met for each of the Group’s activities as described below.
(i) Sale of products
Revenue from the sale of products is recognised when persuasive evidence exists, usually in the form of an executed sales
agreement, indicating that there has been a transfer of risks and rewards of ownership to the customer, no further work or
processing is required by the Group, the quantity and quality of the products have been determined with reasonable accuracy,
the price can be reasonably estimated and collectability is reasonably assured.
Fortescue recognises revenue from the sale of iron ore when the risks and rewards of ownership transfer to the buyer. The sales
price is determined on a provisional basis and adjustments to the sales price may subsequently occur depending on movements
in quoted market or contractual iron ore prices to the date of final pricing and final product specifications. The date of final
pricing is typically when a notice of readiness is received when the vessel has arrived at its final destination.
Revenue is recognised based on the estimated fair value of the total consideration receivable. The fair value of the final
consideration is re-estimated at each reporting date and any changes in the fair value are recognised as an adjustment
to revenue.
(ii) Services revenue
Revenue from the provision of services is recognised in the accounting period in which the services are rendered.
(iii) Interest income
Interest income is accrued using the effective interest rate method.
(h) Deferred income
Deferred income represents payments collected but not earned at the end of the reporting period. These payments are
recognised as revenue when the goods are delivered or services are provided.
94 I Fortescue Metals Group Limited I Annual Report 2013
94 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
Income tax
(i)
The income tax expense for the year is the tax payable on the current year’s taxable income based on the applicable income tax
rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to
unused tax losses.
The current income tax charge is calculated on the basis of the taxation laws enacted or substantially enacted at the end of
the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which the applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the taxation authorities.
Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the reporting date
and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for future deductible temporary differences and carry forward of unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realised.
Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amounts and tax bases of
investments in foreign operations where the Group is able to control the timing of the reversal of the temporary differences and
it is probable that the differences will not be reversed in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legal right to offset current tax assets and liabilities and when the deferred
tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Group has a legally
enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit and loss, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in
equity, respectively.
Fortescue has implemented the tax consolidation legislation as of 1 July 2002 and is therefore taxed as a single entity from that date.
The head entity, Fortescue Metals Group Limited, and the controlled entities in the tax consolidated group continue to account
for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group
continues to be a standalone taxpayer in its own right.
In addition to its own current and deferred tax amounts, the Company also recognises the current tax liabilities (or assets)
and the deferred tax assets it has assumed from unused tax losses and unused tax credits from controlled entities in the tax
consolidated group.
Assets or liabilities arising under tax funding agreements within the tax consolidated entities are recognised as amounts
receivable from or payable to other entities in the Group. Any differences between the amounts assumed and amounts
receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned
tax consolidated entities.
All the entities in the tax consolidated group have entered into a valid and current tax sharing agreement which, in the opinion
of the Directors, limits the joint and several liability of the wholly-owned entities in the case of an income tax obligation default
by the head entity.
Fortescue Metals Group Limited I Annual Report 2013 I 95
Fortescue Metals Group Limited I Annual Report 2013 I 95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
(j) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term highly liquid
investments that are subject to an insignificant risk of changes in value, and are readily convertible to known amounts of cash.
(k) Trade receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less provision for impairment. An allowance for impairment of trade receivables is established when there is
objective evidence that Fortescue will not be able to collect all amounts due.
Collectability of trade receivables is reviewed on a monthly basis. When there is objective evidence that Fortescue will not
be able to collect all amounts due according to the original terms, an allowance for impairment of trade receivables is raised.
Total receivables which are known to be uncollectible are written off by reducing the carrying amount directly. Significant
financial difficulties of the customer, probability that the customer will enter bankruptcy or financial re-organisation and
default or delinquency in payments are considered indicators that the trade receivable may not be collected. The amount of
the impairment allowance is the difference between the trade receivable’s carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not
discounted if the effect of discounting is immaterial.
The amount of the impairment allowance is recognised in profit and loss within other administration expenses. When a trade
receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is
written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other
administration expenses.
Inventories
(l)
Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost for
raw materials and stores is determined as the purchase price. For partly processed and saleable iron ore, cost is based on the
weighted average cost method and includes:
•
•
•
•
labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of iron ore;
production overheads, including attributable mining and manufacturing overheads;
the depreciation of mine development assets and of property, plant and equipment used in the extraction, processing
and transportation of iron ore; and
transportation expenditure in bringing such inventories to their existing location and condition, together with an
appropriate portion of fixed and variable overhead expenditure.
Iron ore stockpiles represent iron ore that has been extracted and is available for further processing or sale. Quantities are
assessed primarily through internal and third party surveys. Where there is an indication that inventories are obsolete or
damaged, these inventories are written down to net realisable value. Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
(m) Financial assets
Fortescue classifies its financial assets into loans, receivables and financial assets at fair value through profit or loss.
The classification depends on the purpose for which the financial assets were acquired. Management determines the
classification of its financial assets at initial recognition.
96 I Fortescue Metals Group Limited I Annual Report 2013
96 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
(i) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market and include trade receivables. They are included in current assets, except for those with maturities greater
than 12 months after the reporting date which are classified as non-current assets.
(ii) Financial assets through profit or loss
This category comprises only derivative financial instruments. They are carried in the balance sheet at fair value with changes
in fair value recognised in profit or loss.
(n) Financial liabilities
(i) Trade payables
Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost. These amounts
represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise
when the Group has an obligation to make future payments in respect of the purchase of these goods and services.
(ii) Borrowings
Borrowings are initially recognised at fair value of the consideration received, less directly attributable transaction costs.
After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in profit or loss when the liabilities are derecognised.
(iii) Finance lease liabilities
The Group has finance lease liabilities in relation to certain items of property, plant and equipment. Finance lease liabilities
are initially recognised at the fair value of the underlying assets or, if lower, the estimated present value of the minimum lease
payments. Each lease payment is allocated between the liability and finance cost and the finance cost is charged to profit and
loss over the lease period to reflect a constant periodic rate of interest on the remaining balance of the liability for each period.
(o) Derivatives and hedge accounting
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether
the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates
certain derivatives such as forward contracts and non-derivative instruments as hedges of foreign exchange risk associated with
the cash flows of highly probable forecast transactions.
The effective portion of changes in the fair value of hedged instruments that are designated and qualify as cash flow hedges is
recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective
portion is immediately recognised in profit or loss within other income or other expense.
The Group documents at the inception of the hedging transaction the relationship between hedging instruments and
hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in
hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of
hedged items.
When the forecast transaction that is being hedged results in the recognition of a non-financial asset, the gains and losses
previously deferred in other comprehensive income are transferred from equity and adjust the cost of the asset.
When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in equity is recognised when the forecast transaction is ultimately recognised in profit
or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is
immediately reclassified to profit or loss.
Fortescue Metals Group Limited I Annual Report 2013 I 97
Fortescue Metals Group Limited I Annual Report 2013 I 97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1 Summary of significant accounting policies (continued)
(p) Property, plant and equipment
(i) Recognition and measurement
Each class of property, plant and equipment is stated at historical cost less, where applicable, any accumulated depreciation
and impairment loss. Historical cost includes expenditure that is directly attributable to the acquisition of the assets.
The cost of self-constructed assets includes the cost of materials and direct labour and any other costs directly attributable
to bringing an asset to a working condition ready for its intended use. Assets under construction are recognised in exploration,
evaluation and development expenditure. Upon commissioning, which is the date when the asset is in the location and condition
necessary for it to be capable of operating in the manner intended by management, the assets are transferred into property,
plant and equipment or development assets, as appropriate.
Cost may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases
of property, plant and equipment. Borrowing costs related to the acquisition or construction of qualifying assets are capitalised.
When separate parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is
capitalised as part of the equipment.
(ii) Subsequent costs
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with these subsequent costs will flow to Fortescue and the cost of the item
can be measured reliably. Ongoing repairs and maintenance are recognised as an expense in profit and loss during the financial
period in which they are incurred.
(iii) Depreciation
Depreciation on assets, other than land which is not depreciated, is calculated using the straight-line method or units of
production method, net of residual values, over estimated useful lives. Depreciation commences on the date when an asset
is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner
intended by management. Assets acquired under finance leases are depreciated over the shorter of the individual asset’s useful
life and the lease term.
Gains and losses arising on disposal of property, plant and equipment are recognised in profit or loss and determined by
comparing proceeds from the sale of the assets to their carrying amount.
Straight-line method
Where the useful life is not linked to the quantities of iron ore produced, assets are generally depreciated on a straight-line basis
over the estimated useful lives of the assets as follows:
•
•
•
•
Buildings
Rolling stock
Plant and equipment
Furniture, fittings and equipment
20 – 25 years
25 – 30 years
5 – 20 years
3 – 8 years
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period with the
effect of any changes in estimate accounted for on a prospective basis.
Units of production method
Where the useful life of an asset is directly linked to the extraction of iron ore from a mine, the asset is depreciated using the units
of production method. The units of production method is an amortised charge proportional to the depletion of the estimated
proven and probable reserves at the mine.
98 I Fortescue Metals Group Limited I Annual Report 2013
98 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
(iv) Exploration, evaluation and development expenditure
Exploration and evaluation activities involve the search for mineral resources, the determination of technical feasibility
and the assessment of commercial viability of an identified resource. Exploration and evaluation expenditure incurred is
accumulated in respect of each identifiable area of interest.
Exploration and evaluation expenditure is capitalised and carried forward to the extent that:
•
•
rights to tenure of the identifiable area of interest are current; and
at least one of the following conditions is also met:
(i)
the expenditure is expected to be recouped through the successful development of the identifiable area of interest,
or alternatively, by its sale; or
(ii)
where activities in the identifiable area of interest have not at the reporting date reached a stage that permits a
reasonable assessment of the existence or otherwise of economically recoverable reserves and activities in, or in relation
to, the area of interest are continuing.
Exploration and evaluation assets are reviewed at each reporting date for indicators of impairment and tested for impairment
where such indicators exist. If the test indicates that the carrying value might not be recoverable, the asset is written down to
its recoverable amount. These charges are recognised as impairment expense in profit and loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its
recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would
have been determined had no impairment loss been recognised for the asset in previous years.
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are
demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then
reclassified from exploration and evaluation expenditure to development expenditure.
Development expenditure includes capitalised exploration and evaluation costs, pre-production development costs,
development studies and other expenditure pertaining to that area of interest. Costs related to surface plant and equipment
and any associated land and buildings are accounted for as property, plant and equipment.
Development costs are accumulated in respect of each separate area of interest. Costs associated with commissioning new
assets in the period before they are capable of operating in the manner intended by management, are capitalised. Development
costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future
economic benefit.
When an area of interest is abandoned or the Directors decide that it is not commercially or technically feasible, any accumulated
cost in respect of that area is written off in the financial period that decision is made. Each area of interest is reviewed at the end
of each accounting period and the accumulated costs written off to profit and loss to the extent that they will not be recoverable
in the future.
Amortisation of development costs capitalised is charged on a unit of production basis over the life of estimated proven and
probable reserves at the mine.
Fortescue Metals Group Limited I Annual Report 2013 I 99
Fortescue Metals Group Limited I Annual Report 2013 I 99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
(q) Development stripping costs
Overburden and other mine waste materials are often removed during the initial development of a mine in order to access the
mineral deposit. This activity is referred to as development stripping and the directly attributable costs, inclusive of an allocation
of relevant overhead expenditure, are capitalised as development costs. Capitalisation of development stripping costs ceases and
amortisation of those capitalised costs commences upon commercial extraction of ore. Amortisation of capitalised development
stripping costs is determined on a unit of production basis for each area of interest.
Development stripping costs are considered in combination with other assets of an operation for the purpose of undertaking
impairment assessments.
Waste removal costs incurred during the production stage of mine, referred to as deferred stripping costs, are expensed as
incurred and form part of operational costs.
(r) Leases
Leases of assets where Fortescue, as lessee, has substantially all the risks and rewards of ownership, are classified as finance
leases. Assets acquired under finance leases are capitalised at the lower of the fair value of the underlying assets or the present
value of the future minimum lease payments. The corresponding finance lease liability is classified as borrowings. Each lease
payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period
so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Leases in which a significant portion of the risks and rewards of ownership are not transferred to Fortescue as lessee are classified
as operating leases. Payments made under operating leases are recognised as an expense in profit and loss on a straight-line
basis over the period of the lease.
(s) Rehabilitation provision
Provisions are recognised when Fortescue has a present legal or constructive obligation as a result of past events, it is more likely
than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
The mining, extraction and processing activities of Fortescue give rise to obligations for site rehabilitation. Rehabilitation obligations
can include facility decommissioning and dismantling, removal or treatment of waste materials, land rehabilitation and site
restoration. The extent of work required and the associated costs are estimated using current restoration standards and techniques.
Provisions for the cost of each rehabilitation program are recognised at the time that environmental disturbance occurs.
Rehabilitation provisions are initially measured at the expected value of future cash flows required to rehabilitate the relevant
site, discounted to their present value. The judgements and estimates applied for the estimation of the rehabilitation provisions
are discussed in note 2.
When provisions for closure and rehabilitation are initially recognised, the corresponding cost is capitalised into the cost of the
related assets and is amortised using the units of production method. The value of the provision is progressively increased over
time as the effect of discounting unwinds, creating an expense recognised in finance costs.
At each reporting date the rehabilitation liability is re-measured to account for any new disturbance, updated cost estimates,
inflation, changes to the estimated reserves and lives of operations, new regulatory requirements, environmental policies and
revised discount rates. Changes to the rehabilitation liability are added to or deducted from the related rehabilitation asset and
amortised accordingly.
100 I Fortescue Metals Group Limited I Annual Report 2013
100 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
Impairment of non-financial assets
(t)
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. The Group conducts an internal review of asset values bi-annually, which is used as a source of information to assess
for any indications of impairment. External factors, such as changes in expected future prices, costs and other market factors
are also monitored to assess for indications of impairment. If any such indication exists, an estimate of the asset’s recoverable
amount is calculated, being the higher of fair value less direct costs to sell and the asset’s value in use. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between
knowledgeable and willing parties. Fair value for mineral assets is generally determined using independent market assumptions
to calculate the present value of the estimated future cash flows expected to arise from the continued use of the asset, including
any expansion prospects, and its eventual disposal. These cash flows are discounted using an appropriate discount rate to arrive
at a net present value of the asset.
Value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use
of the asset in its present form and its eventual disposal, discounted using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not
been adjusted. Value in use is determined by applying assumptions specific to the Group’s continued use and does not take into
account future development.
In testing for indications of impairment and performing impairment calculations, assets are considered as collective groups
and referred to as cash generating units. Cash generating units are the smallest identifiable groups of assets and liabilities that
generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Impaired assets are reviewed for possible reversal of the impairment at each reporting date.
(u) Intangible assets
Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute
to future period financial benefits through revenue generation or cost reduction are capitalised as software.
Costs capitalised include external direct costs of materials and consultants services, direct payroll and payroll related costs of
employees’ time spent on the project.
IT development costs include only those costs directly attributable to the development phase and are only recognised following
completion of technical feasibility and where Fortescue has an intention and ability to use the asset.
Intangible assets are amortised on a straight-line basis over periods generally ranging from 3 to 5 years.
(v) Finance costs
Finance costs comprise interest expense, excluding interest expenses incurred for the construction of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use or sale, unwinding of the discount on
provisions and impairment losses recognised on financial assets.
Interest expense and other borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.
Where funds are used to finance an asset form part of general borrowings, the amount capitalised is calculated using a weighted
average of rates applicable to relevant general borrowings during the period.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets
is deducted from the borrowing costs eligible for capitalisation.
Fortescue Metals Group Limited I Annual Report 2013 I 101
Fortescue Metals Group Limited I Annual Report 2013 I 101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
(w) Employee benefits
(i) Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months
of the reporting date are recognised in other payables and accruals in respect of employee services up to the reporting date.
They are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Long service leave
The liability for long service leave is recognised in other payables and measured as the present value of expected future
payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit
method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of
service. Expected future payments are discounted using market yields at the reporting date on Australian Government bonds
with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
The liability for long service leave for which settlement within 12 months of the reporting date cannot be deferred is recognised
in the current provision for employee benefits. The liability for long service leave for which settlement can be deferred beyond
12 months from the reporting date is recognised in the non-current provision for employee benefits.
(x) Share-based payments
Share-based remuneration benefits are primarily provided to employees via the Fortescue Metals Group Incentive Option
Scheme (FMGIOS) and Performance Rights Plan (PRP). Information relating to these schemes is set out in note 33.
The fair value of options granted under the FMGIOS and PRP are recognised as an employee benefit expense with
a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which
the employees become unconditionally entitled to the options.
The fair value at grant date is determined using a trinomial option pricing model that takes into account the exercise price,
the term of the option, the impact of dilution, the share price at grant date, expected price volatility of the underlying share,
the effect of additional market conditions, the expected dividend yield, estimated share conversion factor and the risk free
interest rate for the term of the option or right.
The fair value of the options and rights granted is measured to reflect expected market vesting conditions, but excludes the
impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions
are included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the
entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense
recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is
recognised in profit and loss with a corresponding adjustment to equity.
(y) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the
Company, on or before the end of the reporting period but not distributed at the end of the reporting period.
(z) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing profit for the year after income tax attributable to the ordinary shareholders by
the weighted average number of ordinary shares on issue during the financial year.
102 I Fortescue Metals Group Limited I Annual Report 2013
102 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
(ii) Diluted earnings per share
Diluted earnings per share is calculated by dividing profit for the year after income tax attributable to the ordinary shareholders
by the weighted average number of ordinary shares on issue during the financial year, after adjusting for the effects of all
potential dilutive ordinary shares that were outstanding during the financial year.
(aa) Goods and Services Tax (GST)
Revenue, expenses and assets are recognised net of the amount of associated GST, except where the amount of GST incurred
is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of
acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of
GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.
Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing
activities, which is disclosed as an operating cash flow.
(ab) Comparatives
Where applicable, certain comparatives have been adjusted to conform with current year presentation.
(ac) New accounting standards and interpretations
(i) New and amended standards adopted by the Group
New standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2012
have not affected the amounts recognised in the current period or any prior period and are not likely to affect future periods.
However, amendments made to AASB 101 Presentation of Financial Statements effective 1 July 2012 now requires the statement
of comprehensive income to separately disclose other comprehensive income between items that may be reclassified to profit or
loss if certain conditions are met and those that are not permitted to be reclassified to profit or loss.
(ii) New accounting standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2013 reporting
periods. These standards and interpretations have not been early adopted.
•
•
•
•
AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9
and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective for
annual reporting periods beginning on or after 1 January 2015). AASB 9 addresses the classification, measurement and
derecognition of financial assets and financial liabilities. Fortescue has determined that AASB 9 will have no impact on the
way the Group accounts for its financial instruments.
AASB 10 Consolidated Financial Statements (effective for the annual reporting periods commencing on or after
1 January 2013). AASB 10 introduces certain changes to the consolidation principles, including the concept of de facto
control and changes in relation to special purpose entities. Fortescue has determined that AASB 10 will have no impact
on the Group’s current composition.
AASB 11 Joint Arrangements (effective for the annual reporting periods commencing on or after 1 January 2013).
AASB 11 changes the classification and accounting for joint arrangements based on the specified rights and obligations
of the agreement. Fortescue has determined that AASB 11 will have no impact on accounting for its existing joint
arrangements.
AASB 12 Disclosure of Interests in Other Entities and AASB 128 Investments in Associates and Joint Ventures and
AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Venture Arrangements
Standards (effective 1 January 2013). AASB 12 sets out the required disclosures for entities reporting under AASB 10 and
AASB 11. Application of this standard by Fortescue will not affect any amounts recognised in the financial statements,
but will impact the type of information disclosed in relation to the Group’s investments.
Fortescue Metals Group Limited I Annual Report 2013 I 103
Fortescue Metals Group Limited I Annual Report 2013 I 103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
1
Summary of significant accounting policies (continued)
•
•
AASB 13 Fair Value Measurement (effective for annual reporting periods commencing on or after 1 January 2013). AASB 13
establishes a single framework for measuring fair value of financial and non-financial items recognised at fair value. Fortescue
is continuing to assess the impact of AASB 13 and has yet to determine which, if any, of its current measurement techniques
will have to change as the result of the new guidance. Based on the preliminary analysis, no material impact is expected.
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective for the annual reporting periods commencing on
or after 1 January 2013). IFRIC 20 will be adopted by Fortescue from 1 July 2013. It addresses the accounting for deferred
stripping costs and requires the capitalisation of the component of waste removal costs that provides an improved access
to the ore body. Fortescue has determined that, given the nature of its iron ore reserves and extraction methods used, the
benefit of waste removal during the production stage of a mine is realised solely in the form of iron ore inventory produced.
IFRIC 20, therefore, will have no material impact on the way waste removal costs are currently being recognised.
There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future transactions.
2 Critical accounting estimates and judgements
The preparation of the consolidated financial statements requires management to make judgements and estimates and form
assumptions that affect how certain assets, liabilities, revenue, expenses and equity are reported. At each reporting period,
management evaluates its judgements and estimates based on historical experience and on other factors it believes to be
reasonable under the circumstances, the results of which form the basis of the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
Fortescue has identified the following critical accounting policies where significant judgements and estimates are made by
management in the preparation of these financial statements.
Income taxes
(i)
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is
required in determining the provisions for income taxes. There are certain transactions and calculations undertaken during
the ordinary course of business for which the ultimate tax determination may be subject to change. Fortescue estimates its tax
liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the
period in which such determination is made.
Fortescue recognises deferred tax assets relating to carried forward tax losses to the extent they can be utilised. The utilisation of
the tax losses depends on the ability of the entities to generate sufficient future taxable profits.
Iron ore reserve estimates
(ii)
Iron ore reserves are estimates of the amount of product that can be economically and legally extracted from Fortescue’s current
mining tenements. In order to calculate ore reserves, estimates and assumptions are required about a range of geological,
technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport
costs, commodity demand, commodity prices and exchange rates. Estimating the quantity and grade of ore reserves requires the
size, shape and depth of ore bodies or fields to be determined by analysing geological data such as drilling samples. This requires
complex and difficult geological judgements and calculations to interpret the data.
104 I Fortescue Metals Group Limited I Annual Report 2013
104 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
2 Critical accounting estimates and judgements (continued)
As economic assumptions used to estimate reserves change and as additional geological data is generated during the course of
operations, estimates of reserves may vary from period to period. Changes in reported reserves may affect Fortescue’s financial
results and financial position in a number of ways, including the following:
•
•
•
asset carrying values may be affected due to changes in estimated future cash flows;
depreciation and amortisation charges in profit and loss may change where such charges are determined by the units of
production basis, or where the useful economic lives of assets change; and
the carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of tax benefits.
(iii) Exploration and evaluation expenditure
Fortescue’s accounting policy for exploration and evaluation expenditure results in expenditure being capitalised for an area
of interest where it is considered likely to be recoverable by future exploitation or sale or where the activities have not reached
a stage which permits a reasonable assessment of the existence of reserves. This policy requires management to make certain
estimates as to future events and circumstances, in particular whether an economically viable extraction operation can be
established. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised
the expenditure under the policy, a judgement is made that recovery of the expenditure is unlikely, the relevant capitalised
amount will be written off to profit and loss.
(iv) Development expenditure
Development activities commence after commercial viability and technical feasibility of the project is established. Judgement
is applied by management in determining when a project is commercially viable and technically feasible. In exercising this
judgement, management is required to make certain estimates and assumptions as to the future events. If, after having
commenced the development activity, a judgement is made that a development asset is impaired, the relevant capitalised
amount will be written off to profit and loss.
(v) Property, plant and equipment – recoverable amount
The determination of fair value and value in use requires management to make estimates about expected production and sales
volumes, commodity prices, reserves (see ‘iron ore reserve estimates’ above), operating costs, rehabilitation costs and future
capital expenditure. Changes in circumstances may alter these projections, which may impact the recoverable amount of the
assets. In such circumstances, some or all of the carrying value of the assets may be impaired and the impairment would be
charged to profit and loss.
(vi) Rehabilitation
Fortescue’s accounting policy for the recognition of rehabilitation provisions requires significant estimates including the
magnitude of possible works required for the removal of infrastructure and of rehabilitation works, future cost of performing the
work, the inflation and discount rates and the timing of cash flows. These uncertainties may result in future actual expenditure
differing from the amounts currently provided.
Fortescue Metals Group Limited I Annual Report 2013 I 105
Fortescue Metals Group Limited I Annual Report 2013 I 105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
3 Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Chief Executive Officer.
The internal reporting is provided to the chief operating decision maker on a consolidated basis.
No operating segments have been aggregated to form the above consolidated information.
(a) Geographical information
Fortescue operates predominantly in the geographical location of Australia, and this is the location of the vast majority of the
Group’s assets. In presenting information on the basis of geographical segments, segment revenue is based on the geographical
location of customers.
Revenues from external customers
China
Other
2013
US$m
7,933
187
8,120
2012
US$m
6,479
237
6,716
(b) Major customer information
Revenue from one customer amounted to US$1,274 million (2012: US$1,022 million), arising from the sale of iron ore and related
shipment of the product.
4 Operating sales revenue
Sale of iron ore
Sale of third party product
Other revenue
5 Other income
Gain on disposal of interest in joint venture
Net foreign exchange gain
Re-estimation of unsecured loan notes
Net gain on refinancing
Other
106 I Fortescue Metals Group Limited I Annual Report 2013
106 I Fortescue Metals Group Limited I Annual Report 2013
2013
US$m
7,889
168
63
8,120
2013
US$m
124
96
34
23
14
291
2012
US$m
6,489
192
35
6,716
2012
US$m
-
-
156
-
15
171
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
6 Cost of sales
Mining costs
Rail costs
Port costs
Operating leases
Shipping costs
Government royalty
Depreciation and amortisation
Other operating expenses
2013
US$m
2,851
182
181
133
769
499
437
88
2012
US$m
2,202
139
125
145
672
366
260
99
5,140
4,008
Total employee benefits expense included in cost of sales and administration expenses is US$635 million (2012: US$492 million).
7 Other expenses
Administration expenses
Impairment (i)
Exploration, development and other
Depreciation and amortisation
2013
US$m
110
71
45
26
252
2012
US$m
104
1
-
6
111
(i)
Fortescue recognised an impairment charge of US$71 million in relation to specific items of mining equipment that were
identified as obsolete.
8 Finance income and finance expenses
Net finance expenses
Finance income
Interest income
Finance expenses
Interest expense on borrowings and finance lease liabilities
Interest capitalised (i)
Other
Net finance expenses
2013
US$m
2012
US$m
33
33
892
(342)
36
586
553
60
60
731
(196)
30
565
505
(i)
For specific borrowings, interest has been capitalised at the rate of interest applicable to specific borrowings that finance
assets under construction, net of interest income from temporary investments on these borrowings. For general borrowings,
the interest capitalised is calculated using a weighted average of rates applicable to relevant general borrowings during the
period. For the year ended 30 June 2013, the capitalisation rate used for specific borrowings was 6.88 per cent
(2012: 6.45 per cent) and 7.09 per cent (2012: nil) for general borrowings.
Fortescue Metals Group Limited I Annual Report 2013 I 107
Fortescue Metals Group Limited I Annual Report 2013 I 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
9
Income tax expense
(a)
Income tax expense
Current tax
Deferred tax
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit before income tax
Tax at the Australian tax rate of 30.0% (2012: 30.0%)
Research and development
Foreign exchange variations and other translation adjustments
Share-based payments
Net tax outcome of internal restructure
Adjustments in respect of income tax expense of prior periods
Other items
Income tax expense
2013
US$m
136
584
720
2013
US$m
2,466
740
(20)
9
2
1
(5)
(7)
2012
US$m
583
121
704
2012
US$m
2,263
679
(9)
1
4
16
13
-
720
704
(c) Tax consolidation legislation
The Company and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.
The accounting policy in relation to this legislation is set out in note 1(i).
On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement
which, in the opinion of the directors, limits the joint and several liability of the wholly-owned entities in the case of a default by
the head entity, Fortescue Metals Group Limited.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate
the Company for any current tax payable assumed and are compensated by the Company for any current tax receivable and
deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the Company under the tax
consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned
entities’ financial statements.
The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head
entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of
interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as non-current
intercompany receivables or payables.
108 I Fortescue Metals Group Limited I Annual Report 2013
108 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
9
Income tax expense (continued)
(d) MRRT
On 19 March 2012, the Australian Government passed through the Senate, the Minerals Resource Rent Tax Act 2012,
with application to certain profits arising from the extraction of iron ore and coal in Australia. MRRT is considered to be
income tax for Australian accounting purposes, is imposed on a project-by-project basis to upstream operations only and is
applied from 1 July 2012. The effective tax rate is 22.5 per cent. At 30 June 2013 Fortescue has a net deferred tax asset balance
of US$3,765 million (2012: US$3,505 million) in relation to MRRT, and it is not probable that future taxable amounts will be
available for their offset. Accordingly, these deferred tax assets have not been recognised.
10 Cash and cash equivalents
Cash at bank
Short-term deposits
11 Trade and other receivables
Trade debtors
GST receivables
Security deposits
Other receivables
Total current receivables
Other receivables
Total non-current receivables
2013
US$m
690
1,468
2,158
2012
US$m
129
2,214
2,343
2013
US$m
2012
US$m
171
46
166
26
409
6
6
262
104
186
36
588
37
37
Information about Fortescue and its exposure to foreign currency risk, interest rate risk and price risk are disclosed in note 22.
The carrying value of the receivables approximates their fair value.
Disclosures relating to receivables from related parties are set out in note 28.
Fortescue Metals Group Limited I Annual Report 2013 I 109
Fortescue Metals Group Limited I Annual Report 2013 I 109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
11 Trade and other receivables (continued)
As at 30 June 2013, trade receivables of US$4 million (2012: US$6 million) were past due but not impaired. These relate to a
number of customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
Less than 30 days
Between 30 and 60 days
Greater than 60 days
2013
US$m
2012
US$m
2
1
1
4
2
-
4
6
Receivables that are classified as past due are those that have not been settled within the normal terms and conditions that have
been agreed with the customer. None of the receivables past due in the above table are impaired.
All other receivables within trade and other receivables are not impaired as it is expected that these amounts will be received
when due.
12 Inventories
Iron ore stockpiles
Raw materials and stores
2013
US$m
646
315
961
2012
US$m
470
147
617
Raw materials and iron ore stockpiles are stated at cost. Inventories expensed through cost of sales, including depreciation,
during the year ended 30 June 2013 amounted to US$3,784 million (2012: US$2,871 million).
13 Other current assets
Prepayments
Derivative instruments held at fair value
Joint venture cash and cash equivalents
2013
US$m
108
12
6
126
2012
US$m
90
2
10
102
110 I Fortescue Metals Group Limited I Annual Report 2013
110 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
14 Property, plant and equipment
Plant
and
Land
and
Exploration
and
Assets
under
equipment buildings evaluation development Development
Notes
US$m
US$m
US$m
US$m
US$m
Total
US$m
Year ended 30 June 2012
Opening net book value
Transfers of assets
Additions
Capitalised interest
8
Foreign exchange gains reclassified from reserves
21(a)
Disposals
Depreciation
Changes in restoration and rehabilitation estimate
18(b)
Impairment
Closing net book value
At 30 June 2012
Cost
Accumulated depreciation
Net book value
Year ended 30 June 2013
Opening net book value
Transfers of assets
Additions
Capitalised interest
7
8
Foreign exchange gains reclassified from reserves
21(a)
Disposals
Depreciation
Changes in restoration and rehabilitation estimate
18(b)
Impairment
Other
7
7
1,575
1,377
16
-
-
(31)
(166)
-
-
96
55
-
-
-
(18)
(6)
-
-
2,771
127
3,146
(375)
2,771
2,771
6,025
224
-
-
(43)
(358)
-
(71)
(1)
143
(16)
127
127
520
-
-
-
(3)
(12)
-
-
-
Closing net book value
8,547
632
At 30 June 2013
Cost
Accumulated depreciation
Net book value
9,397
(850)
8,547
668
(36)
632
142
(19)
158
-
-
-
-
-
(1)
280
280
-
280
280
(51)
67
-
-
(2)
-
-
-
(30)
264
264
-
264
1,904
(1,987)
5,904
196
(87)
-
-
-
-
1,376
5,093
572
14
-
-
-
(90)
377
-
(2)
6,092
196
(87)
(49)
(262)
377
(1)
5,930
2,249
11,357
5,930
2,517
12,016
-
(268)
(659)
5,930
2,249
11,357
5,930
(6,959)
6,101
342
(35)
-
(76)
-
-
(13)
2,249
424
2
-
-
(19)
(97)
(132)
-
(1)
11,357
(41)
6,394
342
(35)
(67)
(543)
(132)
(71)
(45)
5,290
2,426
17,159
5,290
2,702
18,321
-
(276)
(1,162)
5,290
2,426
17,159
Transfers of assets at cost were made between the categories of property, plant and equipment, intangible assets
and exploration, evaluation and development expenditure.
Property, plant and equipment includes assets held under finance leases of US$662 million (2012: US$278 million). The details
of the finance leases under which these assets are held are disclosed in note 17.
Fortescue Metals Group Limited I Annual Report 2013 I 111
Fortescue Metals Group Limited I Annual Report 2013 I 111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
2013
US$m
2012
US$m
19
41
(20)
40
68
(28)
40
21
2
(4)
19
27
(8)
19
2013
US$m
372
73
598
2012
US$m
616
81
485
1,043
1,182
129
26
155
201
24
225
15 Intangible assets
Opening net book value
Transfers of assets
Amortisation
Closing net book value
Computer software
Accumulated amortisation
Closing net book value
16 Trade and other payables
Trade payables
Customer deposits
Other payables and accruals
Total current payables
Customer deposits
Other payables and accruals
Total non-current payables
112 I Fortescue Metals Group Limited I Annual Report 2013
112 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
17 Borrowings and finance lease liabilities
Current
Senior unsecured notes
Senior secured credit facility
Finance lease liabilities
Preference shares
Unsecured loan notes
Syndicated lease facility
Non-current
Senior unsecured notes
Senior secured credit facility
Finance lease liabilities
Preference shares
Unsecured loan notes
Unsecured bank facility
Syndicated lease facility
Total borrowings and finance lease liabilities
2013
US$m
2012
US$m
121
52
29
3
-
-
205
6,970
4,776
613
127
-
-
-
126
-
12
3
127
15
283
6,956
-
170
138
770
100
84
12,486
8,218
12,691
8,501
Fortescue Metals Group Limited I Annual Report 2013 I 113
Fortescue Metals Group Limited I Annual Report 2013 I 113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
17 Borrowings and finance lease liabilities (continued)
(a) Summary of movements in borrowings and finance lease liabilities
Movements in borrowings and finance lease liabilities during the financial year are set out below:
Senior
Senior
secured
unsecured credit
facility
US$m
notes
US$m
Finance
leases/
facilities
US$m
Unsecured Unsecured
Preference
shares
US$m
loan
notes
US$m
bank
facility
US$m
30 June 2012
Balance at 1 July
Initial recognition
Interest expense
Interest and finance lease repayments
Re-estimation of unsecured loan notes
Foreign exchange gain
Balance at 30 June 2012
30 June 2013
Balance at 1 July
Initial recognition
Interest expense
Interest and finance lease repayments
Re-estimation of unsecured loan notes
Foreign exchange gain
Repayment
3,565
3,462
374
(319)
-
-
7,082
7,082
-
-
-
-
-
-
-
-
209
99
15
(29)
-
(13)
281
281
-
4,844
1,502
510
(501)
-
-
-
206
(184)
-
-
74
(66)
-
(39)
(38)
(1,110)
Balance at 30 June 2013
7,091
4,828
642
154
-
11
(13)
-
(11)
141
141
-
13
(13)
-
(11)
-
130
Total
US$m
4,872
3,661
731
(583)
(156)
(24)
-
100
-
-
-
-
100
8,501
100
1,230
15
(12)
-
-
8,501
7,576
892
(893)
(34)
(50)
944
-
331
(222)
(156)
-
897
897
-
74
(117)
(34)
-
(820)
(1,333)
-
-
(3,301)
12,691
Information about Fortescue’s exposure to interest rate risk and foreign exchange rate risk can be found in note 22.
(b) Refinancing
In October 2012 Fortescue established a senior secured credit facility of US$5.0 billion. The proceeds from the facility were used
to repay the unsecured loan notes, refinance all existing secured bank facilities and provide Fortescue with additional liquidity.
As a result a net gain of US$23 million was recognised in profit and loss.
114 I Fortescue Metals Group Limited I Annual Report 2013
114 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
17 Borrowings and finance lease liabilities (continued)
(c) Key terms of borrowings and finance lease liabilities
The key terms of borrowings and finance lease liabilities are summarised below.
(i) Senior unsecured notes
The Group’s senior unsecured notes are held in its wholly-owned subsidiary FMG Resources (August 2006) Pty Limited and
comprise the following tranches which have earlier repayment options with interest repayable bi-annually:
US$m
Currency
Senior unsecured notes
Senior unsecured notes
Senior unsecured notes
Senior unsecured notes
Senior unsecured notes
Senior unsecured notes
USD
USD
USD
USD
USD
USD
Interest
rate
7.000%
6.375%
6.875%
8.250%
6.000%
6.875%
Date of issue
Date of maturity
8 November 2010
1 November 2015
15 December 2010
1 February 2016
15 December 2010
1 February 2018
25 October 2011
1 November 2019
19 March 2012
19 March 2012
1 April 2017
1 April 2022
Face
value
2,040
600
900
1,500
1,000
1,000
7,040
Carrying
value
2,038
614
921
1,505
1,006
1,007
7,091
(ii) Senior secured credit facility
Fortescue established a senior secured credit facility of US$5.0 billion during October 2012, which is repayable at any time at
Fortescue’s option. The facility’s coupon rate is LIBOR plus 4.25 per cent with a LIBOR floor of one per cent representing the
minimum LIBOR base used to calculate the coupon rate. Principal repayments of 0.25 per cent are made quarterly with the final
residual principal repayment at maturity in October 2017.
The facility is secured by a first priority perfected lien on all of the assets of the Company and certain of its subsidiaries subject
to certain limited exceptions.
(iii) Finance lease liabilities
The Group’s finance lease liabilities relate to contractual commitments associated with Fortescue’s OPFs at Christmas Creek and
the Solomon Power Station. In the event of default, the assets revert to the lessor. The future minimum lease payments represent the
Group’s commitments in relation to the finance leases. Finance lease liabilities include the effect of discounting as summarised below:
30 June 2012
Future minimum lease payments
Effect of discounting
Present value of minimum lease payments
30 June 2013
Future minimum lease payments
Effect of discounting
Present value of minimum lease payments
Between
one year
and five
years
US$m
Within one
year
US$m
49
(17)
32
95
(72)
23
228
(55)
173
393
(263)
130
After
five
years
US$m
84
(8)
76
972
(483)
489
Total
US$m
361
(80)
281
1,460
(818)
642
Fortescue Metals Group Limited I Annual Report 2013 I 115
Fortescue Metals Group Limited I Annual Report 2013 I 115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
17 Borrowings and finance lease liabilities (continued)
(iv) Preference shares
In September 2008 Fortescue issued 1,400 fully paid non-convertible redeemable preference shares at A$100,000 per share, with a
term of 8.5 years. A dividend coupon rate of nine per cent is payable bi-annually either in cash or by issue of additional preference
or ordinary shares, as elected by Fortescue. A holder of preference shares is not entitled to share in the distribution of any surplus
assets of the Company beyond its redemption amount. The preference shares rank in priority to Fortescue’s ordinary shares for the
payment of distributions, have limited voting rights, and are repayable at Fortescue’s option.
18 Provisions
Employee benefits
Restoration and rehabilitation
Total current provisions
Employee benefits
Restoration and rehabilitation
Total non-current provisions
(a) Provision for employee benefits
Movements in the provision for employee benefits during the financial year are set out below:
Carrying amount at 1 July
Changes in employee benefits provision
Amounts paid
Carrying amount at 30 June
(b) Provision for restoration and rehabilitation
Movements in rehabilitation provision during the financial year are set out below:
Carrying amount at 1 July
Changes in restoration and rehabilitation estimate (i)
Unwinding of discount on the rehabilitation provision
Payments for rehabilitation activities
Carrying amount at 30 June
2013
US$m
2012
US$m
121
7
128
6
381
387
2013
US$m
102
122
(97)
127
2013
US$m
514
(132)
7
(1)
388
100
-
100
2
514
516
2012
US$m
80
86
(64)
102
2012
US$m
132
377
5
-
514
(i)
A provision for restoration and rehabilitation has been recognised in relation to Fortescue’s iron ore operations. The provision
has been made in full for all disturbed areas at the reporting date based on current estimates of costs to rehabilitate and for
the costs of infrastructure removal, discounted to their present value based on expected timing of future cash flows.
116 I Fortescue Metals Group Limited I Annual Report 2013
116 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
19 Deferred tax liabilities
The composition and movement of deferred tax assets and (liabilities) is as follows:
Exploration expenditure
Development
Property, plant and equipment
Consumables
Balance
1 July
2011
US$m
(41)
(67)
(228)
(26)
Unrealised foreign exchange losses / (gains) 20
Senior notes
Unsecured loan notes
Accruals
Provisions
Other financial liabilities
Other items
-
217
1
25
-
(1)
Charged/
(credited) Charged/
(credited)
to profit
to equity
or loss
US$m
US$m
Balance
30 June
2012
US$m
Charged/
(credited) Charged/
(credited)
to profit
to equity
or loss
US$m
US$m
Balance
30 June
2013
US$m
(39)
(286)
174
(18)
(13)
(6)
(13)
-
159
(80)
1
-
-
-
-
-
-
-
-
-
-
-
-
(80)
(353)
(54)
(44)
7
(6)
204
1
184
(80)
-
(221)
1
160
(531)
(81)
(38)
6
(204)
-
(27)
116
14
(584)
-
-
-
-
-
-
-
-
-
-
-
-
(79)
(193)
(585)
(125)
(31)
-
-
1
157
36
14
(805)
Assets
Liabilities
Net assets / (liabilities)
(100)
(121)
2013
US$m
2012
US$m
Exploration expenditure
Development
Property, plant and equipment
Consumables
Unrealised foreign exchange losses / (gains)
Senior notes
Unsecured loan notes
Accruals
Provisions
Other financial liabilities
Other items
-
75
54
-
2
-
-
15
157
95
21
419
2013
US$m
(79)
(268)
(639)
(125)
(33)
-
-
(14)
-
(59)
(7)
-
15
92
-
7
1
204
10
184
-
2
515
(1,224)
2012
US$m
(80)
(368)
(146)
(44)
-
(7)
-
(9)
-
(80)
(2)
(736)
2013
US$m
(79)
(193)
(585)
(125)
(31)
-
-
1
157
36
14
2012
US$m
(80)
(353)
(54)
(44)
7
(6)
204
1
184
(80)
-
(805)
(221)
Fortescue Metals Group Limited I Annual Report 2013 I 117
Fortescue Metals Group Limited I Annual Report 2013 I 117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
20 Contributed equity
(a) Share capital
Ordinary shares fully paid
(b) Movements in ordinary share capital
Date
Details
1 July 2011
Opening balance
Exercise of options
Purchase of shares under employee share plans
30 June
2013
Number
3,113,798,151
30 June
2012
Number
3,113,798,151
Number of
shares
3,113,498,151
300,000
(2,678,467)
Issue
price
$2.64
$5.55
$4.27
$4.95
$4.45
US$m
1,295
1
(14)
11
1,293
1,293
(20)
18
1,291
Employee share awards exercised net of employee contributions
2,678,467
30 June 2012 Closing balance
1 July 2012
Opening balance
Purchase of shares under employee share plans
3,113,798,151
3,113,798,151
(4,001,750)
Employee share awards exercised net of employee contributions
4,001,750
30 June 2013 Closing balance
3,113,798,151
(c) Ordinary shares
Fully paid ordinary shares entitle the holder to participate in dividends and to one vote per share at meetings of the Company.
Ordinary shares participate in the proceeds on winding up of the Company in proportion to the number of shares held.
21 Reserves
(a) Reserves
Hedging reserve
Share-based payments reserve
Capital reserve
118 I Fortescue Metals Group Limited I Annual Report 2013
118 I Fortescue Metals Group Limited I Annual Report 2013
2013
US$m
(90)
29
12
(49)
2012
US$m
25
15
1
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
21 Reserves (continued)
Hedging reserve
Balance at 1 July
(Losses)/gains on cash flow hedges taken to equity
Gains transferred to the initial carrying amount of hedged items
Balance at 30 June
Share-based payments reserve
Balance at 1 July
Forfeited options
Share-based payment expense
Balance at 30 June
Capital reserve
Balance at 1 July
Transactions with non-controlling interest
Balance at 30 June
2013
US$m
2012
US$m
25
(80)
(35)
(90)
15
-
14
29
1
11
12
3
109
(87)
25
9
(1)
7
15
1
-
1
(b) Nature and purpose of reserves
(i) Hedging reserve
The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The
cumulative deferred gain or loss on the hedge is recognised as an adjustment to the initial cost of non-financial hedged items.
(ii) Share-based payments reserve
The share-based payments reserve primarily records items recognised as expenses on valuation of employee share options and
rights. The movement in the share-based payments reserve is disclosed in the statement of changes in equity.
(iii) Capital reserve
The capital reserve records equity contributions by the holder of the non-controlling interest and revaluations of non-current
assets held at fair value.
22 Financial risk management
Fortescue has a risk management programme that provides a structured approach to the management of risks across the
business. The programme incorporates active management of financial risks arising from Fortescue’s activities to ensure that
such risks are maintained within tolerable levels as required by the Board of Directors. Financial risks include market risk,
credit risk and liquidity risk.
The Board of Directors, through the Audit & Risk Management Committee (ARMC), has ultimate responsibility for oversight
of the Fortescue Risk Management Programme (RMP) and for setting appropriate risk tolerance levels. Day-to-day management
responsibility for execution of the RMP has been delegated to the CEO and the CFO. Periodically the CFO reports to the ARMC
on risk management performance, including management of financial risks.
The key elements of financial risk are further explained below.
Fortescue Metals Group Limited I Annual Report 2013 I 119
Fortescue Metals Group Limited I Annual Report 2013 I 119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
22 Financial risk management (continued)
(a) Market risk
Market risk arises from Fortescue’s exposure to commodity price risk and the use of interest bearing and foreign currency
financial instruments. It is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates (foreign currency exchange risk), iron ore prices (commodity price risk) or interest rates
(interest rate risk).
(i) Foreign currency exchange risk
Fortescue operates internationally and is exposed to foreign currency exchange risk arising from various currency exposures
primarily with respect to the Australian dollar and Euro. Fortescue is exposed to foreign currency exchange risk on cash reserves,
trade and other receivables, borrowings, trade and other payables, derivatives held at fair value and other financial assets and
liabilities.
Fortescue’s policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency with
the cash generated from their own operations in that currency.
Fortescue’s exposure to foreign currency exchange risks is measured using sensitivity analysis and cash flow forecasting.
Fortescue’s risk management policy is to target specific levels at which to convert United States dollars to Australian dollars by
entering into either spot or short-term forward exchange contracts and to hedge a portion of anticipated cash flow in relation to
the 155mtpa expansion program in Australian dollars. All of the projected cash flows related to the expansion program qualify as
highly probable forecast transactions for hedge accounting purposes.
The carrying amounts of the Group’s financial assets and liabilities are primarily denominated in three currencies as set out below:
30 June 2012
Financial assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Derivatives held at fair value
Total financial assets
Financial liabilities
Borrowings and other financial liabilities
Trade and other payables
Total financial liabilities
30 June 2013
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives held at fair value
Other financial assets
Total financial assets
Financial liabilities
Borrowings and other financial liabilities
Trade and other payables
Total financial liabilities
120 I Fortescue Metals Group Limited I Annual Report 2013
120 I Fortescue Metals Group Limited I Annual Report 2013
USD
US$m
AUD
US$m
EURO
US$m
Total
US$m
1,146
282
10
2
1,194
208
-
-
1,440
1,402
8,178
393
8,571
1,497
145
12
-
1,654
12,224
380
12,604
323
1,114
1,437
660
223
-
6
889
467
816
1,283
3
1
-
-
4
-
-
-
1
1
-
-
2
-
2
2
2,343
491
10
2
2,846
8,501
1,507
10,008
2,158
369
12
6
2,545
12,691
1,198
13,889
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
22 Financial risk management (continued)
(ii) Commodity price risk
The Group is exposed to commodity price risk through iron ore price movements. Fortescue has not entered into any forward
commodity price contracts at 30 June 2013 (2012: nil) and is currently fully exposed to commodity price movements as follows:
Trade receivables
Derivative held at fair value
Unsecured loan notes
2013
US$m
171
12
-
183
2012
US$m
262
-
(897)
(635)
(iii) Interest rate risk
It is Fortescue’s policy to reduce interest rate risk over the cash flows on its long-term debt finance within tolerable levels set by
ARMC through the use of fixed rate instruments whenever appropriate.
Fortescue’s main interest rate risk arises from floating rates on the senior secured credit facility and changes in rates on
short-term investments. The Group’s fixed rate borrowings are carried at amortised cost and are not subject to interest rate risk
as defined in AASB 7 Financial Instruments: Disclosures. Other financial instruments of the Group are non-interest bearing and are
also not subject to interest rate risk as defined in AASB 7.
At 30 June 2013, Fortescue had the following variable rate financial assets and liabilities:
Cash and cash equivalents
Senior secured credit facility
Syndicated finance lease facility
Unsecured bank facility
2013
US$m
2,143
(4,828)
-
-
2012
US$m
2,303
-
(99)
(100)
(2,685)
2,104
Management analyses the Group’s interest rate exposure on a regular basis by simulation of various scenarios taking into
consideration refinancing, renewal of existing positions, alternative financing options and hedging.
(iv) Summarised sensitivity analysis
The Group has used ranges of rate and price fluctuations that approximate the rates observed over the reporting period to
estimate its sensitivity to market rates. The Group’s main interest rate exposures are to LIBOR and Australian short-term interest
rates; its foreign exchange risk is to the Australian Dollar and Euro rates and commodity price risk is due to spot iron ore prices.
Fortescue Metals Group Limited I Annual Report 2013 I 121
Fortescue Metals Group Limited I Annual Report 2013 I 121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
22 Financial risk management (continued)
The following table summarises the Group’s financial assets and liabilities’ exposure to the various elements of market risk.
Interest rate risk
-10 bps
+10 bps
Foreign exchange risk
+5%
-5%
Commodity price risk
-15%
+15%
Carrying Pre-tax Other Pre-tax Other Pre-tax Other Pre-tax Other Pre-tax Other Pre-tax Other
equity
profit
profit equity
amount profit
US$m
US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m
equity profit
profit equity
equity
equity
profit
At 30 June 2012
Financial assets
Cash and cash
equivalents
Trade and other
receivables
Other financial
assets
Derivatives held
at fair value
Financial
liabilities
Borrowings and
other financial
liabilities
Trade and other
payables
Total (decrease) /
increase
At 30 June 2013
Financial assets
Cash and cash
equivalents
Trade and other
receivables
Derivatives held
at fair value
Other financial
assets
Financial
liabilities
Borrowings and
other financial
liabilities
Trade and other
payables
Total (decrease) /
increase
2,343
(2)
491
10
2
8,501
1,514
-
-
-
-
-
(2)
2,158
(2)
369
12
6
-
-
-
12,691
(5)
1,198
-
(7)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
-
-
-
-
-
2
2
-
-
-
5
-
7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(60)
(10)
-
-
(16)
(56)
(142)
(33)
(11)
-
-
(23)
(41)
(108)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60
10
-
-
16
56
142
33
11
-
-
23
41
108
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(40)
-
-
135
-
95
-
(22)
(2)
-
-
-
(24)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
40
-
-
(135)
-
(95)
-
22
2
-
-
-
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
122 I Fortescue Metals Group Limited I Annual Report 2013
122 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
22 Financial risk management (continued)
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to
Fortescue and is managed on a consolidated basis. Credit risk arises from cash and cash equivalents at bank, derivative financial
instruments, deposits with banks and financial institutions and receivables from customers.
Fortescue is exposed to a concentration of risk with the majority of its iron ore customers being located in China. This risk is
mitigated by a policy of only trading with creditworthy counterparties and Fortescue further mitigates its credit risk by obtaining
security in the form of letters of credit on receipt of a bill of lading covering approximately 95 per cent of the value of iron ore
shipped. Fortescue has not recognised any bad debt expense from trading counterparties in the financial years ended
30 June 2013 and 30 June 2012.
The exposure to the credit risk from cash and short-term deposits held in banks is managed by the treasury department and
monitored by the Board of Directors. Fortescue minimises the credit risks by holding funds with a range of financial institutions
with the credit ratings approved by the Board.
The analysis of receivables past due is presented in note 11. Fortescue does not consider there to be any potential impairment
loss on these receivables.
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. The Group
manages liquidity risk by maintaining adequate cash reserves and banking facilities, by continuously monitoring actual and
forecast cashflows and by matching the maturity profiles of financial assets and liabilities.
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the period to the contracted
maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less
than 6
months
US$m
Between
6 and 12
months
US$m
Between
1 and 2
years
US$m
Between
2 and 5
years
US$m
1,261
448
7
1,716
999
345
159
1,503
-
399
11
410
-
301
154
455
29
929
21
979
26
606
307
939
116
6,233
164
6,513
119
6,003
5,452
11,574
Over 5
years
US$m
-
5,041
5
5,046
-
3,933
-
3,933
Total
contractual
cash flows
US$m
Carrying
amount
US$m
1,406
13,050
208
14,664
1,144
11,188
6,072
18,404
1,406
8,403
199
10,008
1,144
7,917
4,828
13,889
30 June 2012
Non-interest bearing
Fixed rate
Variable rate
Total
30 June 2013
Non-interest bearing
Fixed rate
Variable rate
Total
Management monitors rolling forecasts of the Group’s cash and overall liquidity position on the basis of expected cash flows.
Fortescue Metals Group Limited I Annual Report 2013 I 123
Fortescue Metals Group Limited I Annual Report 2013 I 123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
22 Financial risk management (continued)
(d) Fair values
All financial assets and financial liabilities, with the exception of derivatives, are initially recognised at the fair value of the
consideration paid or received, net of directly attributable transaction costs. Subsequently, the financial assets and financial
liabilities, other than derivatives, are measured at amortised cost. The carrying values of the financial assets and liabilities
approximate their fair values, with the exception of the senior unsecured notes and senior secured credit facility with the fair
values of US$7,087 million and US$4,988 million respectively. These fair values are determined with reference to quoted prices
in active markets.
(e) Capital management
Fortescue’s capital management policy provides a framework to maintain a strong capital structure to sustain the future
development and expansion of the business and to provide consistent returns to its equity shareholders.
The capital structure of the Group consists of net debt (borrowings and other financial liabilities as detailed in note 17 offset
by cash and bank balances) and the equity of the Group (comprising issued capital, reserves and retained earnings as detailed
in the statement of changes in equity).
Fortescue has built significant flexibility in its debt capital structure. This flexibility allows Fortescue to manage debt through
voluntary repayment or refinancing to extend maturity dates to match the Group’s long life assets.
The Group monitors capital using financial and non-financial indicators. Financial indicators include, but are not limited to,
gearing, interest coverage and leverage ratios.
Target ranges for ratios are provided dependent upon the investment and commodity cycle. During periods of intensive
investment, for example expansion programmes, or a commodity cycle downturn, the capital policy contemplates interim
ratio levels moving to a targeted longer term level. Interim levels acknowledge and consider the requirements, in certain
circumstances, for remedial action to be taken.
23 Dividends
(a) Dividends paid during the year
Final fully franked dividend for the year ended 30 June 2012: A$0.04 per share
(30 June 2011: A$0.04 per share)
Interim fully franked dividend for the half-year ended 31 December 2012: nil (2012: A$0.04 per share)
(b) Dividends proposed and not recognised as a liability
Final fully franked dividend: A$0.10 per share (2012: A$0.04 per share)
2013
US$m
2012
US$m
131
-
131
2013
US$m
282
282
123
134
257
2012
US$m
131
131
(c) Franking credits
At 30 June 2013, franking credits available were US$652 million (2012: US$13 million). The payment of the final dividend for the
year ended 30 June 2013 will reduce the franking account balance by US$121 million.
124 I Fortescue Metals Group Limited I Annual Report 2013
124 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
24 Key management personnel disclosures
(a) Key management personnel remuneration
Short-term employee benefits
Share-based payments
Equity compensation benefits
2013
US$m
2012
US$m
8
9
-
17
5
7
2
14
Detailed remuneration disclosures are provided in the remuneration report.
Apart from the details disclosed in this note, no Director has entered into a material contract with the Company or Fortescue since
the end of the previous financial year and there were no material contracts involving Directors’ interests existing at 30 June 2013.
Fortescue Metals Group Limited I Annual Report 2013 I 125
Fortescue Metals Group Limited I Annual Report 2013 I 125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
24 Key management personnel disclosures (continued)
(b) Equity instrument disclosures relating to key management personnel
(i) Options and performance rights
The movement during the reporting period in the number of options and performance rights over ordinary shares in the Company
held directly, indirectly or beneficially, by each of the Key Management Personnel, including their related parties, is as follows:
2012
Balance at
start of the
year
Exercised /
converted
Granted*
-
-
600,000
-
-
-
-
-
-
-
-
-
Name
Directors of Fortescue
A Forrest
N Power
R Scrimshaw
G Rowley
H Elliott
K Ambrecht
G Brayshaw
O Hegarty
M Barnaba
G Raby
H Scruggs
C Huiquan
Other key management personnel of Fortescue
P Hallam
S Pearce
P Meurs
J Frankcombe
-
419,255
-
-
-
-
-
-
-
-
-
-
450,000
-
7,500,000
-
-
81,522
114,131
37,076
-
-
(300,000)
-
-
-
-
-
-
-
-
-
(150,000)
-
-
-
Exercised /
converted
2013
Balance at
start of the
year
Granted*
Name
Directors of Fortescue
-
A Forrest
419,255
N Power
-
G Rowley
-
H Elliott
-
K Ambrecht**
-
G Brayshaw
-
O Hegarty
-
M Barnaba
-
C Huiquan
-
H Scruggs
-
G Raby
-
E Gaines
P Meurs
7,614,131
Other key management personnel of Fortescue
S Pearce
D Woodall
J Frankcombe**
-
341,158
-
-
-
-
-
-
-
-
-
-
164,514
132,673
52,032
132,673
81,522
-
37,076
Forfeited /
lapsed
Balance at
end of the
year
Vested
Unvested exercisable
Not
-
-
(300,000)
-
-
-
-
-
-
-
-
-
-
419,255
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
419,255
-
-
-
-
-
-
-
-
-
-
-
419,255
-
-
-
-
-
-
-
-
-
-
(300,000)
-
-
-
-
81,522
7,614,131
37,076
-
-
4,375,000
-
-
81,522
-
81,522
3,239,131 7,614,131
37,076
37,076
Forfeited /
lapsed
Balance at
end of the
year
Vested
Unvested exercisable
Not
-
(245,369)
-
-
-
-
-
-
-
-
-
-
(53,242)
-
(173,886)
-
-
-
-
-
-
-
-
-
-
-
341,158
-
-
-
-
-
-
-
-
-
-
(60,889) 7,664,514
-
-
-
-
-
-
-
-
-
-
-
-
-
341,158
-
-
-
-
-
-
-
-
-
-
6,562,500 1,102,014
-
341,158
-
-
-
-
-
-
-
-
-
-
7,664,514
(53,316)
-
(23,398)
(28,206)
-
(146,351)
132,673
52,032
-
-
-
-
132,673
52,032
-
132,673
52,032
-
* Performance rights were granted in accordance with the short term and long term performance rights plans, as disclosed in
note 33.
** Mr Ambrecht and Mr Frankcombe resigned during the current financial year.
126 I Fortescue Metals Group Limited I Annual Report 2013
126 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
24 Key management personnel disclosures (continued)
(ii) Share holdings
The numbers of shares in the Company held during the financial year by each Director of Fortescue and other key management
personnel of the Group, including their related parties, are set out below:
2012
Held at 1
July 2011
Received on
conversion
of rights
964,848,823
7,590,055
2,167,938
50,000
-
52,149
-
20,000
-
-
-
19,144,951
-
-
6,303,030
Name
Ordinary Shares
Directors of Fortescue
A Forrest
R Scrimshaw
H Elliott
N Power
M Barnaba
G Brayshaw
O Hegarty
I Burston
L Xiaowei
I Cumming
G Raby
G Rowley
C Huiquan
H Scruggs
K Ambrecht
Other key management personnel of Fortescue
S Pearce
P Hallam
P Meurs
J Frankcombe
2013
45,613
246,667
8,152,882
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Received on
conversion
of rights
Name
Ordinary Shares
Directors of Fortescue
A Forrest
H Elliott
N Power
M Barnaba
G Brayshaw
O Hegarty
G Raby
G Rowley
C Huiquan
H Scruggs
E Gaines
K Ambrecht
P Meurs
Other key management personnel of Fortescue
S Pearce
D Woodall
J Frankcombe
1,010,690,915
2,167,938
866,321
-
52,149
40,000
-
18,144,951
-
-
-
5,183,030
25,871,281
-
-
245,369
-
-
-
-
-
-
-
-
-
53,242
328,988
-
19,571
53,316
-
23,398
Held at 1
July 2012
Issued
Purchases
Sales
Transfers
Other**
Held at 30
June 2012
12,840
-
-
24,839
-
-
-
-
-
-
-
-
-
-
-
45,829,252*
-
-
791,482
-
-
40,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,000,000)
-
-
(1,120,000)
85,785
-
197,590
-
85,785 17,632,614
19,571
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 1,010,690,915
-
2,167,938
866,321
-
52,149
40,000
-
-
-
-
18,144,951
-
-
5,183,030
(7,590,055)
-
-
-
-
-
(20,000)
-
-
-
-
-
-
-
-
(246,667)
-
-
328,988
-
25,871,281
19,571
Issued
Purchases
Sales
Transfers
Other**
Held at 30
June 2013
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000,000
-
-
-
-
-
8,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(500,000)
-
-
-
-
-
- 1,020,690,915
2,167,938
-
1,111,690
-
-
-
52,149
-
40,000
-
-
8,000
17,644,951
-
-
-
-
-
-
-
(5,183,030)
-
25,924,523
-
-
-
-
-
-
(42,969)
382,304
-
-
Includes 16,632,614 shares in which A Forrest and P Meurs both have a beneficial interest.
*
** Reflects resignation or retirement.
Fortescue Metals Group Limited I Annual Report 2013 I 127
Fortescue Metals Group Limited I Annual Report 2013 I 127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
24 Key management personnel disclosures (continued)
(c) Other transactions with key management personnel
Mr Meurs is a participant in the financial arrangement provided by The Metal Group Pty Limited, as disclosed in note 28.
Under this arrangement The Metal Group Pty Limited provided Mr Meurs with financial assistance by way of guarantees for the
acquisition of 16,632,614 ordinary shares in the Company. The benefit received by Mr Meurs for the financial year ended
30 June 2013 was US$908,634 (2012: US$908,634).
Mr Barnaba is a Non-Executive Director of Fortescue and is also the Chairman of Macquarie Group WA. Dr Raby is a Non-Executive
Director of Fortescue and is also a Vice Chairman of Macquarie Group China. During the financial year Fortescue entered into a
financing arrangement with Macquarie Bank Limited in relation to short term insurance contracts for US$22,095,000. The total
amount payable by Fortescue in relation to the financing arrangement at 30 June 2013 is US$4,009,000. In addition, Fortescue
incurred A$1,225,000 in relation to consulting services provided by Macquarie during the year. Total amount payable by
Fortescue in relation to the consulting services at 30 June 2013 is A$1,225,000.
25 Remuneration of auditors
(a) PricewaterhouseCoopers Australia
Audit and other assurance services
Audit and review of financial statements
Other assurance services
Other services
Other consulting services
Total remuneration of PricewaterhouseCoopers Australia
(b) Network firms of PricewaterhouseCoopers Australia
Audit and other assurance services
Audit and review of financial statements
Total remuneration of network firms of PricewaterhouseCoopers Australia
(c) Other audit firms
Audit and other assurance services
Audit and review of financial statements – BDO Audit (WA) Pty Ltd
Audit and review of financial statements – other firms
Other services
Other consulting services – BDO Audit (WA) Pty Ltd
Total remuneration of other audit firms
2013
US$’000
2012
US$’000
668
82
461
1,211
-
-
-
-
2013
US$’000
2012
US$’000
43
43
-
-
2013
US$’000
2012
US$’000
-
-
-
-
523
299
180
1,002
Total auditors’ remuneration
1,254
1,002
128 I Fortescue Metals Group Limited I Annual Report 2013
128 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
26 Contingencies
Fortescue had no material contingent liabilities or contingent assets at 30 June 2013 or at the date of this report. Fortescue
occasionally receives claims arising from its activities in the normal course of business. In the opinion of the Directors, all such
matters are covered by insurance or, if not covered, are without merit or are of such a kind or involve such amounts that would
not have a material adverse impact on the operating results or financial position if settled unfavourably.
27 Commitments
30 June 2012
Within one year
Between one and five years
Total
30 June 2013
Within one year
Between one and five years
Total
Capital
US$m
4,312
27
4,339
574
9
583
Operating
leases
US$m
127
159
286
72
104
176
Total
US$m
4,439
186
4,625
646
113
759
(i) At 30 June 2013 Fortescue had contractual commitments to capital expenditure not recognised as liabilities.
(ii)
Fortescue leases various offices and other premises under non-cancellable operating leases expiring within one to
seven years. The leases have varying terms, escalation clauses and renewal rights. The terms of the leases are renegotiated
on renewal.
Fortescue also leases mobile equipment, plant and machinery and office equipment under non-cancellable operating
leases. The leases have varying terms.
Fortescue Metals Group Limited I Annual Report 2013 I 129
Fortescue Metals Group Limited I Annual Report 2013 I 129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
28 Related party transactions
(a) Subsidiaries
Interests in subsidiaries are set out in note 29.
(b) Key management personnel
Disclosures relating to key management personnel are set out in note 24.
(c) Transactions with other related parties
The following amounts originated from the provision of third party port access to the joint venture. 50 per cent of these amounts
were eliminated on consolidation for the six months ending December 2012, and 25 per cent since January following the sale of
25 per cent share in the Nullagine Iron Ore Joint Venture.
Revenue
Current receivables
2013
US$m
2012
US$m
91
19
64
21
No other transactions have occurred with related parties other than subsidiaries, entities with joint control, Directors or key
management personnel as disclosed above.
(d) Guarantees issued
The Metal Group Pty Ltd, an entity controlled by Andrew Forrest, has entered into arrangements to provide financial assistance
by way of guarantee to certain of Fortescue’s Executives to purchase the Company’s shares. The arrangement, which constitutes
a share-based payment transaction, has been measured with the reference to the fair value of the benefit received by the
Executives and is recognised as an expense on a straight-line basis over a four-year vesting period, in line with the service
conditions. The fair value was determined at grant date using a Monte-Carlo simulation model. The total share-based payment
expense in relation to the arrangement for the financial year ended 30 June 2013 was US$985,499 (2012: US$985,499).
130 I Fortescue Metals Group Limited I Annual Report 2013
130 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
29 Subsidiaries and transactions with non-controlling interests
(a) Significant investments in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries in
accordance with the accounting policy described in note 1(b):
Controlled entities
The Pilbara Infrastructure Pty Limited
FMG Pilbara Pty Limited
Chichester Metals Pty Limited
FMG Resources (August 2006) Pty Limited
Pilbara Mining Alliance Pty Limited
Karribi Developments Pty Limited
FMG Magnetite Pty Limited
FMG North Pilbara Pty Limited
FMG Pacific Limited
FMG International Pte Limited
Pilbara Housing Services Pty Limited
FMG Solomon Pty Limited
Masters Way Homes Pty Limited
FMG Iron Bridge Limited
FMG Iron Bridge (Aust) Pty Limited
FMG Air Pty Limited
FMG Capital Pty Limited
Glacier Valley Management Company Pty Limited
Pilbara Water and Power Pty Limited
FMG Exploration Pty Limited
FMG Minerals Pty Limited
Pilbara Iron Ore Pty Limited
Fortescue Services Pty Limited
FMG Personnel Pty Limited
VTEC Services Pty Limited
FMG IOC Pty Limited
FMG Mining Services Pty Limited
FMG Training Pty Limited
International Bulk Ports Pty Limited
FMG Resources Pty Limited
FMG America Finance, Inc.
FMG Nyidinghu Pty Limited
Pilbara Power Pty Limited
Pilbara Ports Pty Limited
Pilbara Gas Pipeline Pty Limited
FMG JV Company Pty Limited
FMG Ashburton Pty Limited
African Fortescue, Limitada
Country of
incorporation
Class of
shares
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
New Zealand Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Mozambique Ordinary
Singapore
Australia
Australia
Australia
Hong Kong
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
Australia
Australia
Australia
Australia
Australia
Australia
Equity holding
2012
2013
%
%
100
100
100
100
100
100
100
100
100
100
100
100
100
88
100
88
100
100
100
100
100
100
100
100
100
100
100
88
100
88
100
100
100
100
100
94
100
88
100
100
100
100
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
-
100
-
100
-
100
-
100
-
100
-
100
-
100
Investment
2013
US$
1
1
1
1
1
1
1
1
1
209,053
1
1
1
43,557,023
108
1
1
1
1
1
1
1
1
1
1
1
1
1
1
339
1
1
1
1
1
1
1
1
2012
US$
1
1
1
1
1
1
1
1
1
209,053
1
1
1
27,861,023
108
1
1
1
1
1
1
1
1
1
1
1
1
1
1
339
-
-
-
-
-
-
-
-
(b) Transactions with non-controlling interests
In July 2012, a third party contributed US$15 million to Fortescue’s subsidiary FMG Iron Bridge Limited in exchange of shares
issued by the subsidiary, representing 12 per cent of its share capital.
Fortescue Metals Group Limited I Annual Report 2013 I 131
Fortescue Metals Group Limited I Annual Report 2013 I 131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
30 Deed of cross guarantee
Fortescue Metals Group Limited and certain of its subsidiaries are parties to a deed of cross guarantee under which each
company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the
requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian
Securities and Investments Commission.
Holding Entity
•
Fortescue Metals Group Limited
Group Entities
•
•
•
•
•
•
•
FMG Pilbara Pty Limited
Chichester Metals Pty Limited
FMG Resources (August 2006) Pty Limited
FMG Resources Pty Limited
International Bulk Ports Pty Limited
The Pilbara Infrastructure Pty Limited
FMG Solomon Pty Limited
(a)
Consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial
position and summary of movements in consolidated retained earnings
The consolidated income statement, consolidated statement of comprehensive income and summary movements in
consolidated statement of changes in equity for the year ended 30 June 2013 along with the consolidated statement of financial
position as at 30 June 2013 for the closed group and the extended closed group represented by the above companies are
materially the same as that of the consolidated group.
132 I Fortescue Metals Group Limited I Annual Report 2013
132 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
31 Interests in joint ventures
(a) Jointly controlled assets
Fortescue, through its wholly owned subsidiary FMG Pilbara Pty Limited, holds a participating interest in the Nullagine Iron
Ore Joint Venture (the joint venture). The joint venture’s activity is the production of iron ore in the Pilbara region of Western
Australia, with Fortescue entitled to receive joint venture output consistent with its participating interest in the joint venture.
During the year, Fortescue sold 50 per cent of its share in the joint venture, reducing its participating interest from 50 per cent to
25 per cent. A gain of US$124 million was recognised on the disposal of Fortescue’s interest in the joint venture. Fortescue retains
joint control and the Group’s interests in the assets employed in the joint venture are included in the consolidated statement of
financial position, in accordance with the accounting policy described in note 1(c), under the following classifications:
Current assets
Cash and cash equivalents – included in other current assets
Inventories
Other current assets
Non-current assets
Property, plant and equipment
Share of assets employed in joint venture
Current liabilities
Trade payables and accruals
Non-current liabilities
Loans and borrowings
Provisions
Share of liabilities employed in joint venture
Net assets
(b) Fortescue’s share of joint venture commitments
Contracted but not provided for in the financial statements and payable:
Within one year
Between one and five years
2013
US$m
2012
US$m
6
3
1
10
38
38
48
13
13
1
1
2
15
33
10
4
2
16
74
74
90
29
29
21
1
22
51
39
2013
US$m
2012
US$m
-
-
-
9
2
11
Fortescue Metals Group Limited I Annual Report 2013 I 133
Fortescue Metals Group Limited I Annual Report 2013 I 133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
32 Earnings per share
(a) Earnings per share
Basic
Diluted
(b) Reconciliation of earnings used in calculating earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating basic and diluted earnings per share
(c) Weighted average number of shares used as denominator
Weighted average number of ordinary shares used as the denominator
in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Potential ordinary shares
2013
Cents
56.07
56.05
2012
Cents
50.07
50.06
2013
US$m
2012
US$m
1,746
1,559
2013
Number
2012
Number
3,113,784,294
3,113,680,118
1,443,267
783,453
Weighted average number of ordinary and potential ordinary shares used
as the denominator in calculating diluted earnings per share
3,115,227,561
3,114,463,571
(d) Information on the classification of securities
(i) Options and rights
Options and rights granted to employees under the Fortescue incentive plan are considered to be potential ordinary shares and
have been included in the determination of diluted earnings per share to the extent to which they are dilutive. Details relating to
the options are set out in note 33.
134 I Fortescue Metals Group Limited I Annual Report 2013
134 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
33 Share-based payments
(a) Employee Option and Performance Rights Plans
During the financial year Fortescue issued 1,504,533 short term performance rights and 939,284 long term performance rights
to employees and senior executives. The short term performance rights are convertible to one ordinary share per right and vest
over the first financial year. The long term performance rights are convertible to a maximum of four ordinary shares per right
and vest over three financial years. The vesting of both the short term and long term plans are subject to non-market vesting
conditions imposed for each individual participating in the performance rights plans.
Outstanding at 1 July
Granted during the year
Forfeited / lapsed during the year
Exercised / converted during the year
Weighted
average
exercise price
2013
A$
4.51
Nil
Nil
Nil
3.89
Number of
options
and rights
2013
Number
9,151,984
2,443,817
(616,629)
(375,325)
10,603,847
Weighted
average
exercise price
2012
A$
4.60
Nil
2.50
2.50
4.51
Number of
options
and rights
2012
Number
9,550,000
651,984
(600,000)
(450,000)
9,151,984
The weighted average fair value of performance rights granted during the year ended 30 June 2013 was A$4.03 per right
for short term performance rights and A$15.50 per right for long term performance rights. The estimated fair value was
determined using a trinomial option pricing model that takes into account the exercise price, the term of the option, the
impact of dilution, the share price at grant date, expected price volatility of the underlying share, the effect of additional market
conditions, the expected dividend yield, estimated share conversion factor and the risk-free interest rate for the term of right.
Details of the options and performance rights outstanding at 30 June 2013 are presented in the following table.
Employee options 2009
Employee options 2010
Employee options 2011
Short term performance rights 2013
Long term performance rights 2013
Exercise
price
A$
2.50
5.00
5.69
Nil
Nil
Balance
at the end
of the year
Number
600,000
7,500,000
400,000
1,300,551
803,296
Vested and
exercisable at
the end
of the year
Number
600,000
-
-
-
-
Remaining
contractual
life
Months
7
22
27
6
30
10,603,847
600,000
(b) Other share-based payments
The arrangement between certain of Fortescue’s Executives and The Metal Group Pty Ltd, as described in note 28, constitutes
a share-based payment. The assessed fair value of this share-based payment at grant date was US$3,941,996, including
US$985,499 expensed during the financial year (2012: US$985,499). The fair value at each grant date was determined using
a Monte-Carlo simulation model that takes into account the four-year life of the instruments, the share prices at each grant
date, the expected price volatility of the underlying share, the expected dividend yield, risk-free interest rate for the life of the
instruments, the loan value per share, the loan interest rate and the terms of the margin call.
Fortescue Metals Group Limited I Annual Report 2013 I 135
Fortescue Metals Group Limited I Annual Report 2013 I 135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
33 Share-based payments (continued)
(c) Employee expenses
Total expenses arising from share-based payments transactions recognised during the period as part of employee benefit
expense were as follows:
Share-based payment expense
2013
US$m
14
2012
US$m
7
34 Reconciliation of profit after income tax to net cash inflow from operating activities
2013
US$m
1,746
720
463
71
45
14
(34)
(98)
586
(33)
(124)
(18)
(280)
190
(244)
2012
US$m
1,559
704
266
1
-
7
(156)
21
565
(60)
-
(7)
176
(67)
(201)
3,004
2,808
2013
US$m
(223)
26
(197)
2012
US$m
(99)
-
(99)
Profit for the year after income tax
Income tax expense
Depreciation and amortisation
Impairment
Exploration, development and other
Share-based payment expense
Re-estimation of unsecured loan notes
Net foreign exchange loss
Interest expense disclosed within financing activities
Interest income disclosed within investing activities
Gain on disposal of interest in joint venture
Other non-cash items
Working capital adjustments
(Decrease)/increase in payables and provisions
Decrease/(increase) in receivables
Increase in inventory
Net cash inflow from operating activities
Non-cash financing and investing activities
Acquisition of plant and equipment through finance leases
Other
Total non-cash financing and investing activities
136 I Fortescue Metals Group Limited I Annual Report 2013
136 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
35 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
Profit for the year*
Total comprehensive income for the year
2013
US$m
657
5,480
6,137
156
568
724
2012
US$m
258
4,744
5,002
950
202
1,152
5,413
3,850
1,291
21
4,101
5,413
1,690
1,690
1,293
15
2,542
3,850
797
797
* Profit for the year includes dividends received from subsidiaries of US$1,600 million (2012: US$800 million).
(b) Guarantees entered into by the parent entity
The parent entity has not provided any financial guarantees other than the cross guarantees given by Fortescue Metals
Group Limited, as described in note 30.
No liability was recognised by the parent entity or the consolidated entity in relation to the cross guarantees.
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2013 or 30 June 2012, other than as disclosed in note 26.
For information about guarantees given by the parent entity, please see above.
Fortescue Metals Group Limited I Annual Report 2013 I 137
Fortescue Metals Group Limited I Annual Report 2013 I 137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
36 Events occurring after the reporting period
On 22 August 2013, the Directors declared a final fully franked dividend of ten Australian cents per ordinary share payable
on 4 October 2013.
In August 2013 Fortescue and Formosa Plastics Group (Formosa) entered into a joint venture agreement to develop the
FMG Iron Bridge magnetite project. The joint venture remains subject to Australian Foreign Investment Review Board
and Taiwan Investment Commission approval.
Under the arrangement, Formosa, through its subsidiary Formosa Steel IB Pty Ltd, will:
•
•
•
•
•
Acquire a 31 per cent unincorporated joint venture interest in FMG Iron Bridge Joint Venture for US$123 million.
Fund the first US$527 million of capital expenditure on the FMG Iron Bridge Project development. This funding
covers construction of Stage One which will commence on completion of the transaction at an estimated capital
cost of US$340 million.
Participate in Stage Two of the FMG Iron Bridge Project, subject to receipt of relevant Government approvals and Joint
Venture sanction. If approved, Stage Two would be funded by the balance of the Formosa’s initial funding, a contribution
of the next US$1,050 million from FMG Iron Bridge Limited, followed by proportional contributions (31 per cent Formosa,
69 per cent FMG Iron Bridge Limited).
Agree to purchase up to three million tonnes per annum of iron ore at market prices to supply Formosa Ha Tinh Steel mill
when commissioned.
Elect to prepay US$500 million upfront to The Pilbara Infrastructure Pty Ltd to access Fortescue port facilities at Herb
Elliott Port under separate infrastructure access agreements.
138 I Fortescue Metals Group Limited I Annual Report 2013
138 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2013
DIRECTORS’ DECLARATION
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 86 to 138 are in accordance with the Corporations Act 2001,
including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements, and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance
for the year ended on that date, and
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable, and
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group
identified in note 30 will be able to meet any obligations or liabilities to which they are, or may become, subject by
virtue of the deed of cross guarantee described in note 30.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by
section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of Directors.
Mr Andrew Forrest
Chairman
Dated at Perth this 22nd day of August 2013.
Fortescue Metals Group Limited I Annual Report 2013 I 139
Fortescue Metals Group Limited I Annual Report 2013 I 139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS
TO THE MEMBERS
Independent auditor’s report to the members of
Fortescue Metals Group Limited
Report on the financial report
We have audited the accompanying financial report of Fortescue Metals Group Limited (the company),
which comprises the statement of financial position as at 30 June 2013, the income statement and
statement of comprehensive income, statement of changes in equity and statement of cash flows for
the year ended on that date, a summary of significant accounting policies, other explanatory notes and
the directors’ declaration for the Fortescue Metals Group Limited Group (the consolidated entity). The
consolidated entity comprises the company and the entities it controlled at year’s end or from time to
time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the consolidated
entity’s preparation and fair presentation of the financial report in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
140 I Fortescue Metals Group Limited I Annual Report 2013
140 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS
Auditor’s opinion
In our opinion:
(a)
the financial report of Fortescue Metals Group Limited is in accordance with the Corporations
Act 2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity's financial position as at 30 June
2013 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001.
(b)
the financial report and notes also comply with International Financial Reporting Standards as
disclosed in Note 1.
Report on the Remuneration Report
We have audited the remuneration report included in pages 67 to 84 of the directors’ report for the
year ended 30 June 2013. The directors of the company are responsible for the preparation and
presentation of the remuneration report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the remuneration report of Fortescue Metals Group Limited for the year ended 30
June 2013, complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Nick Henry
Partner
Perth, WA
22 August 2013
Fortescue Metals Group Limited I Annual Report 2013 I 141
Fortescue Metals Group Limited I Annual Report 2013 I 141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 ‘‘
The past ten years has seen an incredible effort
in reaching milestones, breaking records, and
development of many industry innovations by
Fortescue people.
‘‘
Andrew Forrest, Chairman
142 I Fortescue Metals Group Limited I Annual Report 2013
142 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 SHAREHOLDER INFORMATION
TENEMENT REPORT
Information as at 16 September 2013
Information as at 31 July 2013
Top 20 Holders of Ordinary Shares
Rank Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
TOTAL
The Metal Group Pty Ltd
HSBC Custody Nominees (Australia) Limited
Valin Investments (Singapore) Pte Ltd
J P Morgan Nominees Australia Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
Valin Resources Investments (Singapore) Pte Ltd
Emichrome Pty Ltd
Quinambo Nominees Pty Limited
Citicorp Nominees Pty Limited
Valin Mining Investments (Singapore) Pte Ltd
The Metal Group Pty Ltd
JP Morgan Nominees Australia Limited
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
AMP Life Limited
Mr William Graeme Rowley
AMNL Financing Pty Ltd
The Minderoo Foundation Pty Ltd
Neweconomy Com Au Nominees Pty Limited
Substantial Shareholders
Units
932,177,650
301,989,129
228,007,497
220,555,980
178,280,840
156,371,468
154,267,590
94,685,358
91,452,228
73,614,563
70,546,904
60,305,142
25,948,777
22,563,330
15,041,902
13,576,657
11,644,951
10,135,135
9,874,500
9,585,315
2,680,624,916
Name
The Metal Group Pty Ltd And John Andrew Henry Forrest
Hunan Valin Iron And Steel Group
Total Shares
1,020,690,915
458,405,492
Range of Shares
Range
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and Over
Total
Unmarketable Parcels
Total Holders
25,997
24,388
5,887
3,918
352
60,542
Units
13,709,501
63,697,427
45,685,131
97,894,455
2,892,811,637
3,113,798,151
% of
issued
Capital
29.94%
9.70%
7.32%
7.08%
5.73%
5.02%
4.95%
3.04%
2.94%
2.36%
2.27%
1.94%
0.83%
0.72%
0.48%
0.44%
0.37%
0.33%
0.32%
0.31%
86.09%
% of
issued
Capital
32.78%
14.72%
% of
issued
Capital
0.44%
2.05%
1.47%
3.14%
92.90%
100.00%
There were 2,506 members holding less than a marketable parcel of shares in the company.
Fortescue Metals Group Limited I Annual Report 2013 I 143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
TENEMENT REPORT
As at 23 September 2013
Western Australia Tenure
Status: Granted
E 46/567-I
E 46/666
E 45/2652-I
E 46/595-I
E 47/1388-I
FMG Mineral rights status: 100% all mineral rights
E 46/518-I
E 46/413-I
E 46/612-I
E 46/601-I
Holder: Chichester Metals Pty Ltd
E 45/2708
E 45/2497-I E 45/2498-I E 45/2499-I E 45/2593-I E 45/2651-I
E 46/600-I
E 46/569-I
E 46/568-I
E 46/566-I
E 46/590-I
E 46/664-I
E 47/1434-I E 47/2177-I M 45/1082-I M 45/1083-I M 45/1084-I M 45/1085-I
E 47/1320-I E 47/1387-I
E 46/675-I
M 45/1086-I M 45/1087-I M 45/1088-I M 45/1089-I M 45/1090-I M 45/1091-I M 45/1092-I M 45/1093-I M 45/1094-I M 45/1102-I M 45/1103-I M 45/1104-I
M 45/1105-I M 45/1106-I M 45/1107-I M 45/1124-I M 45/1125-I M 45/1126-I M 45/1127-I M 45/1128-I M 45/1138-I M 45/1139-I M 45/1140-I M 45/1141-I
M 45/1142-I M 46/292-I M 46/293-I M 46/314-I M 46/315-I M 46/316-I M 46/317-I M 46/318-I M 46/319-I M 46/320-I M 46/321-I M 46/322-I
M 46/323-I M 46/324-I M 46/325-I M 46/326-I M 46/327-I M 46/328-I M 46/329-I M 46/330-I M 46/331-I M 46/332-I M 46/333-I M 46/334-I
M 46/335-I M 46/336-I M 46/337-I M 46/338-I M 46/339-I M 46/340-I M 46/341-I M 46/342-I M 46/343-I M 46/344-I M 46/345-I M 46/346-I
M 46/347-I M 46/348-I M 46/349-I M 46/350-I M 46/351-I M 46/352-I M 46/353-I M 46/354-I M 46/355-I M 46/356-I M 46/357-I M 46/401-I
M 46/402-I M 46/403-I M 46/404-I M 46/405-I M 46/406-I M 46/407-I M 46/408-I M 46/409-I M 46/410-I M 46/411-I M 46/412-I M 46/413-I
M 46/414-I M 46/415-I M 46/416-I M 46/417-I M 46/418-I M 46/419-I M 46/420-I M 46/421-I M 46/422-I M 46/423-I M 46/424-I M 46/449-I
M 46/450-I M 46/451-I M 46/452-I M 46/453-I M 46/454-I M 47/1461
E 46/519-I
E 46/623-I
E 46/467-I
E 46/610-I
E 46/516-I
E 46/611-I
Holder: Chichester Metals Pty Ltd
E 46/413-I
Status: Granted
FMG Mineral rights status: 100% iron ore rights
Holder: Chichester Metals Pty Ltd
L 46/35
L 45/152
G 46/7
L 46/55
L 46/54
L 46/53
L 47/193
L 46/36
L 46/112-I
L 46/36
L 46/56
L 47/197
Status: Granted
L 46/37
L 46/57
L 47/198
L 46/40
L 46/58
L 46/46
L 46/62
FMG Mineral rights status: n/a
L 46/47
L 46/64
L 46/48
L 46/66
L 46/49
L 46/99
L 46/51
L 46/100
L 46/52
L 46/111-I
Holder: Chichester Metals Pty Ltd
M 45/1147 M 45/1148 M 45/1149 M 45/1150 M 46/525
Status: Application
FMG Mineral rights status: 100% all mineral rights
Holder: Chichester Metals Pty Ltd
L 47/204
L 46/60
L 47/653
L 47/654
Status: Granted
L 47/655
L 47/656
L 47/657
FMG Mineral rights status: n/a
L 47/658
L 47/659
L 47/660
Status: Granted
E 45/3386-I E 45/3399-I E 45/3402
Holder: FMG Pilbara Pty Ltd
E 08/1585-I E 08/1623-I
E 08/1440-I E 08/1547-I E 08/1548
E 08/2061-I E 08/2062-I E 08/2063
E 08/2117-I E 08/2118-I
E 08/2403-I E 08/2404-I E 08/2405-I E 45/2841-I E 45/2842-I
E 45/2855-I E 45/2856-I E 45/2857-I E 45/2858-I E 45/2860-I
E 45/2870-I E 45/2945-I E 45/2946-I E 45/2971-I E 45/2972-I
E 45/3366-I E 45/3369
E 45/3428-I E 45/3429-I E 45/3430-I E 45/3431-I E 45/3433-I
E 45/3535-I E 45/3536-I E 45/3545-I
E 45/3469-I E 45/3473
E 45/3641-I E 45/3650-I E 45/3654-I E 45/3659-I E 45/3663-I
E 45/3764-I E 45/3767-I E 45/3816-I E 45/3866-I
E 45/3760
E 46/517-I
E 45/4134-I E 45/4135-I E 45/4148
E 45/4125
E 46/704-I
E 46/703-I
E 46/702-I
E 46/701-I
E 46/700-I
E 46/735-I
E 46/729-I
E 46/728-I
E 46/727-I
E 46/726-I
E 46/872-I
E 46/871-I
E 46/870-I
E 46/862-I
E 46/861-I
E 46/980
E 46/967-I
E 47/1136-I
E 46/975-I
E 46/974-I
E 47/1302-I E 47/1319-I E 47/1349
E 47/1351-I E 47/1355-I
E 47/1391-I E 47/1392-I E 47/1393-I E 47/1419-I E 47/1420-I
E 47/1532-I E 47/1533-I
E 47/1479-I E 47/1480-I E 47/1500
E 47/1651-I E 47/1652-I E 47/1653-I E 47/1654-I E 47/1655-I
E 47/1681-I E 47/1682-I E 47/1684-I E 47/1685-I E 47/1686-I
E 47/1761-I E 47/1762
E 47/1763-I E 47/1764-I E 47/1772-I
E 47/1920-I E 47/1921-I E 47/1923-I E 47/1927-I E 47/1944-I
E 47/2056-I E 47/2062-I E 47/2080-I E 47/2085-I E 47/2119-I
E 47/2173-I E 47/2174-I E 47/2229-I E 47/2234-I E 47/2235-I
E 47/2244-I E 47/2285-I E 47/2331-I E 47/2333-I E 47/2334-I
E 47/2470-I E 47/2475-I E 47/2476-I E 47/2490-I
E 47/2466
E 47/2579-I E 47/2584
E 47/2585-I E 47/2619-I E 47/2632-I
E 47/2735-I E 52/1759-I E 52/1760-I E 52/1779-I E 52/1788-I
E 52/2114-I E 52/2264-I E 52/2277-I E 52/2290-I E 52/2311-I
E 52/2382-I E 52/2393-I E 52/2414-I E 52/2415-I E 52/2416-I
E 52/2594-I E 52/2620-I E 52/2626-I E 52/2637-I E 52/2696-I
E 08/1624-I
E 08/2193-I
E 45/2843-I
E 45/2861-I
E 45/2973
E 45/3412-I
E 45/3438-I
E 45/3561-I
E 45/3664-I
E 45/3845
E 46/621-I
E 46/706-I
E 46/741-I
E 46/878-I
E 47/1155-I
E 47/1357-I
E 47/1423-I
E 47/1543-I
E 47/1656-I
E 47/1687-I
E 47/1808-I
E 47/1988-I
E 47/2137-I
E 47/2237-I
E 47/2336
E 47/2496-I
E 47/2637-I
E 52/1789-I
E 52/2333-I
E 52/2470-I
E 52/2699-I
FMG Mineral rights status: 100% all mineral rights
E 45/3442
E 08/1762-I E 08/1831-I
E 08/2194-I E 08/2195-I
E 45/2850-I
E 45/2844
E 45/2862-I E 45/2863-I
E 45/3191-I E 45/3270-I
E 45/3413-I E 45/3414-I
E 45/3441
E 45/3570-I E 45/3591-I
E 45/3697-I E 45/3698-I
E 45/4001-I
E 45/3938
E 46/695-I
E 46/694-I
E 46/711-I
E 46/708-I
E 46/776-I
E 46/743-I
E 46/882-I
E 46/889-I
E 47/1194-I E 47/1195-I
E 47/1361-I E 47/1363-I
E 47/1446-I E 47/1447-I
E 47/1579-I E 47/1611-I
E 47/1665-I E 47/1668-I
E 47/1688-I E 47/1690-I
E 47/1809-I E 47/1821-I
E 47/2020-I E 47/2026-I
E 47/2138-I E 47/2143-I
E 47/2238-I E 47/2239-I
E 47/2369-I E 47/2378-I
E 47/2506-I E 47/2507-I
E 47/2638-I E 47/2647-I
E 52/1790-I E 52/1937-I
E 52/2340-I E 52/2341-I
E 52/2486-I E 52/2521-I
E 52/2725-I E 52/2731-I
E 08/1942-I E 08/1943-I E 08/1959-I
E 08/2196-I E 08/2218-I E 08/2286-I
E 45/2851-I E 45/2852-I E 45/2853-I
E 45/2864-I E 45/2865-I E 45/2866-I
E 45/3310-I E 45/3318-I E 45/3328-I
E 45/3417-I E 45/3421-I E 45/3422-I
E 45/3443
E 45/3448-I
E 45/3445
E 45/3600-I E 45/3606-I E 45/3608-I
E 45/3699-I E 45/3711-I E 45/3739-I
E 45/4040-I E 45/4050-I E 45/4077
E 46/698-I
E 46/697-I
E 46/696-I
E 46/724-I
E 46/716-I
E 46/715-I
E 46/832-I
E 46/805-I
E 46/799-I
E 46/958-I
E 46/965-I
E 46/964-I
E 47/1196-I E 47/1299-I E 47/1300-I
E 47/1370-I E 47/1372-I E 47/1373-I
E 47/1448-I E 47/1449-I E 47/1453-I
E 47/1612-I E 47/1613-I E 47/1614-I
E 47/1673-I E 47/1674-I E 47/1675-I
E 47/1702-I E 47/1703-I E 47/1728-I
E 47/1832-I E 47/1843-I E 47/1846-I
E 47/2036-I E 47/2037-I E 47/2046-I
E 47/2146-I E 47/2157-I E 47/2160-I
E 47/2240-I E 47/2241-I E 47/2242-I
E 47/2379-I E 47/2442-I E 47/2459-I
E 47/2513-I E 47/2538-I E 47/2546-I
E 47/2664-I E 47/2665-I E 47/2717-I
E 52/1977-I E 52/2034-I E 52/2035-I
E 52/2342-I E 52/2347-I E 52/2353-I
E 52/2522-I E 52/2527-I E 52/2555
E 52/2738-I E 52/2739-I E 52/2748-I
E 08/2060-I
E 08/2287-I
E 45/2854-I
E 45/2867-I
E 45/3360-I
E 45/3426-I
E 45/3463-I
E 45/3611-I
E 45/3746
E 45/4083-I
E 46/699-I
E 46/725-I
E 46/859-I
E 46/966-I
E 47/1301-I
E 47/1390-I
E 47/1455-I
E 47/1623-I
E 47/1679-I
E 47/1741-I
E 47/1855-I
E 47/2055-I
E 47/2172-I
E 47/2243-I
E 47/2465-I
E 47/2575-I
E 47/2718-I
E 52/2113-I
E 52/2380-I
E 52/2576-I
E 52/2749-I
144 I Fortescue Metals Group Limited I Annual Report 2013
144 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
TENEMENT REPORT
As at 23 September 2013
TENEMENT REPORT
As at 23 September 2013
Western Australia Tenure (continued)
E 52/2924
P 45/2749
E 52/2857-I
Status: Granted
P 45/2721-I P 45/2748
FMG Mineral rights status: 100% all mineral rights
E 52/2928
Pilbara Pty Ltd
E 52/2776-I E 52/2793-I E 52/2829-I E 52/2830-I E 52/2856-I
E 52/2929
E 77/2054-I E 77/2074-I M 47/1431-I M 47/1433 M 47/1434 M 47/1453-I M 47/1466 M 47/1474-I P 08/617-I
P 08/622-I
P 45/2786-I
P 47/1257-I P 47/1269-I P 47/1270-I P 47/1278-I P 47/1279-I
P 47/1287-I P 47/1304-I P 47/1305-I P 47/1306-I P 47/1307-I
P 47/1391-I P 47/1392-I P 47/1393-I P 47/1394-I P 47/1395-I
P 47/1403-I P 47/1404-I P 47/1405-I P 47/1406-I P 47/1407-I
P 47/1468-I P 47/1469-I P 47/1470-I P 47/1513-I P 47/1514-I
P 47/1581-I P 47/1582-I P 47/1583-I P 47/1604-I P 47/1605-I
P 47/1614-I P 47/1615-I P 47/1616-I P 47/1617-I P 47/1618-I
P 47/1640-I P 47/1641-I P 47/1642-I P 47/1643-I P 47/1644-I
P 47/1668-I P 47/1669-I P 47/1670-I P 47/1671-I P 47/1672-I
P 47/1696-I P 52/1415
P 45/2838-I P 45/2862-I
P 47/1281-I P 47/1282-I
P 47/1309-I P 47/1315-I
P 47/1397-I P 47/1398-I
P 47/1409-I P 47/1410-I
P 47/1537-I P 47/1545-I
P 47/1607-I P 47/1608-I
P 47/1626-I P 47/1633-I
P 47/1646-I P 47/1647-I
P 47/1674-I P 47/1675-I
P 45/2787-I
P 47/1280-I
P 47/1308-I
P 47/1396-I
P 47/1408-I
P 47/1536-I
P 47/1606-I
P 47/1623-I
P 47/1645-I
P 47/1673-I
E 69/2724-I E 69/3038-I
P 08/619-I
P 08/618-I
P 45/2863-I P 45/2864-I P 45/2865-I
P 47/1283-I P 47/1284-I P 47/1285-I
P 47/1316-I P 47/1317
P 47/1399-I P 47/1400-I P 47/1401-I
P 47/1411-I P 47/1412-I P 47/1423-I
P 47/1552-I P 47/1553-I P 47/1554-I
P 47/1609-I P 47/1610-I P 47/1612-I
P 47/1634-I P 47/1636-I P 47/1638-I
P 47/1648-I P 47/1649-I P 47/1650-I
P 47/1692-I P 47/1693-I P 47/1694-I
P 52/1422-I WA/14EOS
P 47/1318
E 69/3039-I
P 08/620-I
P 47/1211-I
P 47/1286-I
P 47/1390-I
P 47/1402-I
P 47/1427-I
P 47/1555-I
P 47/1613-I
P 47/1639-I
P 47/1667-I
P 47/1695-I
Holder: FMG Pilbara Pty Ltd
E 08/1432-I E 08/1439-I E 08/1550-I E 08/1626-I E 08/1814-I
E 08/2175-I E 08/2200-I E 08/2284-I E 08/2298-I P 08/624
Status: Granted
E 08/1816-I
E 08/1933
FMG Mineral rights status: 100% iron ore rights (NB. 1)
E 08/1962-I
E 08/2004-I E 08/2072-I E 08/2137-I
E 08/2157-I
Holder: FMG Pilbara Pty Ltd
E 08/1628-I E 08/1629-I E 08/1630-I E 08/1631-I E 08/1632-I
E 08/2000-I
E 08/1961-I E 08/1985-I E 08/1986-I E 08/1992
E 08/2250-I E 08/2258-I E 08/2293-I E 08/2294-I E 08/2295-I
E 47/1549-I E 47/1677-I E 47/1735-I E 47/1773-I E 47/1833-I
P 47/1237-I
E 52/2484-I E 52/2730-I E 52/2786-I P 08/647-I
Status: Granted
E 08/1633-I
E 08/2003-I
E 08/2296-I
E 47/1879-I
E 08/1741-I E 08/1878-I
E 08/2034-I E 08/2038-I
E 08/2353-I E 08/2354-I
E 47/2035-I E 47/2171-I
FMG Mineral rights status: 100% iron ore rights, 75% non-iron (NB.2)
E 08/1950-I
E 08/1915-I E 08/1916-I E 08/1949-I
E 08/2114-I
E 08/2039-I E 08/2065-I E 08/2067-I
E 47/1535-I
E 08/2364-I E 47/1395-I E 47/1396-I
E 47/2636-I
E 47/2236-I E 47/2292-I E 47/2587-I
Holder: FMG Pilbara Pty Ltd
E 47/1333
E 47/1334
M 47/1411 M47/1417
E 47/1352
E 47/1372
Status: Granted
E 47/1398
E 47/1399
E 47/1436
FMG Mineral rights status: 100% mineral rights except diamonds
E 47/1523
E 47/1524 M 47/1408 M 47/1409 M 47/1410
Holder: FMG Pilbara Pty Ltd
G 45/275
L 47/361
G 45/285
L 47/362
L 45/158
L 47/363
L 45/191
L 47/367
Status: Granted
L 45/240
L 47/381
L 47/232
L 47/382
L 47/293
L 47/391
FMG Mineral rights status: n/a
L 47/294
L 47/392
L 47/296
L 47/397
L 47/301
L 47/471
L 47/351
M 45/1177 M 47/1413-I
L 47/360
E 08/1894
E 08/2398
E 08/2522
E 45/3705
E 45/4166
E 45/4227
E 46/994
E 47/1660
E 47/2197
E 47/2666
E 47/2879
E 47/2940
E 52/2892
E 52/2986
Holder: FMG Pilbara Pty Ltd
E 08/2367
E 08/1893
E 08/2516
E 08/2391
E 45/3489
E 08/2521
E 45/4161
E 45/3605
E 45/4221
E 45/4162
E 46/990
E 45/4222
E 47/1435
E 46/991
E 47/1999
E 47/1578
E 47/2578
E 47/2061
E 47/2831
E 47/2618
E 47/2922
E 47/2832
E 52/2745
E 47/2939
E 52/2919
E 52/2890
E 52/2933
M 47/1404
M 47/1456 M 47/1457 M 47/1458 M 47/1459 M 47/1473 M 47/1475 M 47/1476 M 47/1477 M 47/1478 M 47/1481 M 47/1488 M 47/1489
P 08/531
P 47/1706
P 52/1421
FMG mineral rights status: 100% all mineral rights
E 08/1908
E 08/2497
E 45/3306
E 45/4107
E 45/4203
E 45/4265
E 47/1384
E 47/1990
E 47/2573
E 47/2759
E 47/2918
E 47/2964
E 52/2913
E 69/2727
Status: Application
E 08/1905
E 08/2459
E 45/2920
E 45/4056
E 45/4191
E 45/4250
E 46/1002
E 47/1669
E 47/2559
E 47/2689
E 47/2882
E 47/2958
E 52/2904
E 59/1934
E 08/1907
E 08/2491
E 45/3305
E 45/4103
E 45/4202
E 45/4254
E 47/1383
E 47/1818
E 47/2572
E 47/2739
E 47/2914
E 47/2962
E 52/2912
E 69/2726
E 08/2088
E 08/2513
E 45/3423
E 45/4157
E 45/4220
E 46/989
E 47/1433
E 47/1998
E 47/2577
E 47/2830
E 47/2921
E 52/2737
E 52/2918
E 69/3189
E 08/1903
E 08/2402
E 45/2859
E 45/3762
E 45/4170
E 45/4248
E 46/997
E 47/1666
E 47/2198
E 47/2675
E 47/2880
E 47/2941
E 52/2893
E 52/2988
E 08/1906
E 08/2490
E 45/2970
E 45/4093
E45/4192
E 45/4253
E 47/1342
E 47/1670
E 47/2560
E 47/2729
E 47/2883
E 47/2960
E 52/2910
E 69/2722
E 08/1904
E 08/2443
E 45/2919
E 45/3817
E 45/4171
E 45/4249
E 46/1000
E 47/1667
E 47/2223
E 47/2678
E 47/2881
E 47/2957
E 52/2903
E52/2989
E 08/2059
E 08/2512
E 45/3400
E 45/4126
E 45/4217
E 46/986
E 47/1404
E 47/1997
E 47/2576
E 47/2829
E 47/2920
E 52/2732
E 52/2917
E 69/2729
E 08/1982
E 08/2498
E 45/3307
E 45/4119
E 45/4204
E 46/977
E 47/1397
E 47/1992
E 47/2574
E 47/2828
E 47/2919
E 52/1984
E 52/2915
E 69/2728
P 45/2890
P 46/1812
P 46/1813
P 46/1815
P 47/1697
P 47/1705
P 45/2889
P 46/1814
P 08/621
P 08/532
Holder: FMG Pilbara Pty Ltd
E 08/1627
E 08/2398
Status: Application
FMG Mineral rights status: 100% iron ore rights (NB. 1)
Holder: FMG Pilbara Pty Ltd
L 47/368
L 47/472
L 47/693
Status: Application
FMG Mineral rights status: n/a
L 47/700
Holder: FMG Magnetite Pty Ltd
E 09/1871-I E 45/2510-I E 45/2535-I M 45/1226-I
Status: Granted
FMG mineral rights status: 100% all mineral rights (NB.3)
Fortescue Metals Group Limited I Annual Report 2013 I 145
Fortescue Metals Group Limited I Annual Report 2013 I 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
TENEMENT REPORT
As at 23 September 2013
Western Australia Tenure (continued)
Holder: FMG Magnetite Pty Ltd
L 45/257
L 45/272
L 45/289
Holder: FMG Magnetite Pty Ltd
L 45/293
L 45/294
L 45/317
L 45/291
Status: Granted
L 45/292-I
L 45/325-I
FMG Mineral rights status: n/a
L 45/318
Status: Application
L 45/319
L 45/320
L 45/331
FMG Mineral rights status: n/a
Holder: FMG North Pilbara Pty Ltd
E 45/3084-I M 45/1184-I M 45/1211-I M 45/1212-I M 45/1213-I
Status: Granted
FMG mineral rights status: 100% all mineral rights (NB.3)
Holder: FMG Resources Pty Ltd
E 04/1534-I E 08/2259-I E 09/1872-I E 09/1873-I E 16/420-I
E 51/1166-I E 52/1945-I E 52/1946-I E 52/1947-I E 52/2423-I
E 63/1500-I E 63/1501-I E 63/1502-I E 63/1503-I E 69/2929
E 69/2954-I E 69/2955-I E 69/2956
E 69/2969-I
E 69/2963
Status: Granted
E 30/432-I
E 52/2621-I
E 69/2930
E 69/2970-I
FMG mineral rights status: 100% all mineral rights
E 45/3224
E 45/3225
E 52/2854-I E 57/738-I
E 69/2945-I E 69/2946-I
E 69/2971-I E 69/2993-I
E 51/1158-I E 51/1159-I
E 45/3226
E 57/756-I
E 59/1267-I E 59/1275-I
E 69/2947-I E 69/2948-I E 69/2950-I
E 77/1932-I
E 74/504-I
E 74/500-I
E 51/1165-I
E 59/1360-I
E 69/2953-I
Holder: FMG Resources Pty Ltd
E 08/2280-I E 08/2281-I E 08/2282-I
Status: Granted
FMG Mineral rights status: 100% iron ore rights, 75% non-iron (NB.2)
Holder: FMG Resources Pty Ltd
E 04/1536
E 52/2949
E 52/2967
E 69/3176
P 77/4058
E 04/1537
E 52/2950
E 52/2968
E 69/3177
P 77/4059
E 04/2129
E 52/2957
E 52/2979
E 69/3198
P 77/4060
E 04/2322
E 52/2958
E 52/2980
E 69/3199
Status: Application
E 04/2323
E 52/2959
E 52/2981
E 69/3200
E 45/3221
E 52/2960
E 52/2990
E 69/3201
E 45/4150
E 52/2961
E 59/1279
E 69/3214
FMG mineral rights status: 100% all mineral rights
E 51/1574
E 52/2962
E 59/1956
E 69/3229
E 52/2946
E 52/2964
E 69/2951
E 69/3178
E 51/1575
E 52/2963
E 69/2949
E 69/3231
E 52/2947
E 52/2965
E 69/3118
P 77/4056
E 52/2948
E 52/2966
E 69/3125
P 77/4057
Holder: Fortescue Metals Group Ltd
P 47/1663-I P 47/1664-I P 47/1665-I P 47/1666-I
Status: Granted
FMG mineral rights status: 100% all mineral rights
Holder: The Pilbara Infrastructure Pty Ltd
AL 70/1
G 45/286
L 45/222
L 45/223
Holder: The Pilbara Infrastructure Pty Ltd
L 47/661
Holder: Global Advanced Metals Pty Ltd
E 45/4024
E 45/4025
Holder: Maincoast Pty Ltd
E 47/1461
E 70/2596
Status: Granted
L 45/224
L 46/86
L 46/87
FMG mineral rights status: n/a
L 46/96
L 47/375
Status: Application
FMG mineral rights status: n/a
Status: Application
FMG mineral rights status: Earning 60% iron ore rights
Status: Application
FMG mineral rights status: 100% all mineral rights
Holder: Pilbara Iron Ore Pty Ltd
E 47/1191
E 47/1192
E 47/1224-I E 47/1225-I E 47/1235
E 47/1380-I M 47/580
Status: Granted
FMG mineral rights status: 50% all mineral rights
P 47/1414
Holder: Pilbara Iron Ore Pty Ltd
L 47/205
Holder: Contract Power Australia Pty Ltd
L 46/63
Holder: Derek Ammon
E 47/1140
Holder: Derek Ammon
M 47/583
Status: Application
FMG mineral rights status: n/a
Status: Application
FMG mineral rights status: n/a
Status: Granted
FMG mineral rights status: 40% all mineral rights (NB.4)
Status: Application
FMG mineral rights status: 40% all mineral rights (NB.4)
Holder: Cullen Exploration Pty Ltd
E 08/1393-I E 47/1154-I E 47/1649-I E 47/1650-I P 08/556-I
Status: Granted
FMG mineral rights status: 51% iron ore rights
Holder: Cullen Exploration Pty Ltd
E 52/1667-I
Status: Granted
FMG mineral rights status: Earning 51% iron ore rights
146 I Fortescue Metals Group Limited I Annual Report 2013
146 I Fortescue Metals Group Limited I Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
TENEMENT REPORT
As at 23 September 2013
TENEMENT REPORT
As at 23 September 2013
Western Australia Tenure (continued)
Holder: Cullen Exploration Pty Ltd
M 08/502
M 47/1490
Holder: David Ryan
P 47/1275
Holder: Blue Mist Enterprises Pty Ltd
E 47/1863
E 47/1861
Status: Application
FMG mineral rights status: 51% iron ore rights
Status: Granted
FMG mineral rights status: Option for 100% all mineral rights
Status: Granted
FMG mineral rights status: 100% all mineral rights
Holder: Flinders Mines Ltd
E 47/1011-I E 47/1016-I E 47/1306-I M 47/1407-I
Status: Granted
FMG mineral rights status: 100% iron ore rights
Holder: Flinders Mines Ltd
M 47/663
M 47/664
M 47/665
M 47/666
Status: Application
M 47/667
M 47/668
M 47/669
FMG mineral rights status: 100% iron ore rights
M 47/670
M 47/671
M 47/672
Holder: BC Iron Ltd
E 45/2552-I E 45/2717-I E 46/522
E 45/3790
M 46/515
E 46/663
E 46/523
E 46/928
Status: Granted
E 46/651
E 46/929
E 46/652
E 46/930
L 46/68
L 46/93
L 46/73
L 46/94
Status: Granted
L 46/74
L 46/95
L 46/75
Holder: BC Iron Ltd
G 46/9
G 46/8
L 46/85
L 46/84
Holder: BC Iron Ltd
M 46/522
M 46/523
E 46/653
E46/931
L 46/76
FMG mineral rights status: 50% iron ore rights
E 46/654
E46/969
E 46/655
E 46/970
E 46/656
E 46/657
E 46/658
FMG mineral rights status: n/a
L 46/79
L 46/80
L 46/81
L 46/82
L 46/83
Status: Application
FMG mineral rights status: 50% iron ore rights
Holder: Aldershot Resources Ltd
E 52/1763-I
Holder: Livno Consolidated Pty Ltd
E45/4021
Status: Granted
FMG mineral rights status: Exclusive licence to explore for all minerals (NB.5)
Status: Application
FMG mineral rights status: Beneficial right to earn 100% mineral rights
Holder: Pilbara Gas Pipeline Pty Ltd
L 45/334
L 45/333
L 45/332
L 45/346
L 45/345
L 45/344
L 45/335
L 45/347
Status: Application
L 45/336
L 45/348
L 45/337
L 45/349
L 45/338
L 45/352
Queensland Tenure
FMG mineral rights status: n/a
L 45/339
L 45/353
L 45/340
L 47/695
L 45/341
L 47/696
L 45/342
L 47/697
L 45/343
Holder: FMG Resources Pty Ltd
EPC 1972
EPC 1975
EPC 2013
South Australia Tenure
Holder: FMG Resources Pty Ltd
EL 5023
EL 5063
EL 5024
EL 5197
EL 5025
EL 5237
Status: Application
EPC 2090
EL 5026
Status: Granted
EL 5027
EL 5028
EL 5029
EL 5030
EL 5031
EL 5032
EL 5061
EL 5062
Holder: FMG Resources Pty Ltd
EL 2013/00086
New Zealand Tenure
Status: Application
Holder: FMG Pacific Limited
EP 50994
EP 51212
EP 51258
EP 52147
Status: Granted
EP 52604
EP 52887
EP 54658
PP 50960
PP 50961
Holder: FMG Pacific Limited
CSL 52727
CSL 52728
Status: Application
NB 1 - Kalamazoo Resources Ltd has 12 month exclusive option to assess and then option to farm-in to earn 50% interest in non-iron mineral rights.
NB.2 - Joint Venture with Northern Star Resources Ltd. Northern Star Resources hold 25% beneficial interest in non-iron mineral rights and are farming-in to earn an
additional 35%.
NB.3 - FMG North Pilbara Pty Ltd/FMG Magnetite Pty Ltd are subsidiaries of FMG Iron Bridge Limited which is owned 88% by Fortescue Metals Group Ltd and 12% by
Baosteel Resources International Co. Ltd.
NB.4 - This has been contested and is currently being litigated.
NB.5 - In addition; option to purchase outright.
Fortescue Metals Group Limited I Annual Report 2013 I 147
Fortescue Metals Group Limited I Annual Report 2013 I 147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013
CORPORATE DIRECTORY
Australian Business Number
ABN 57 002 594 872
Directors
Andrew Forrest – Non-Executive Chairman
Herb Elliott – Non-Executive Deputy Chairman
Nev Power – Executive Director
Graeme Rowley – Non-Executive Director
Geoff Brayshaw – Non-Executive Director
Owen Hegarty – Non-Executive Director
Cao Huiquan – Non-Executive Director
Mark Barnaba – Non-Executive Director
Geoff Raby – Non-Executive Director
Herbert Scruggs – Non-Executive Director
Elizabeth Gaines – Non-Executive Director
Peter Meurs – Executive Director
Company Secretary
Mark Thomas
Principal Registered Office in Australia
Level 2, 87 Adelaide Terrace
East Perth WESTERN AUSTRALIA 6004
Tel: +61 8 6218 8888 Fax: +61 8 6218 8880
Website: www.fmgl.com.au
Email: fmgl@fmgl.com.au
Auditor
PricewaterhouseCoopers
Level 15, 125 St Georges Terrace
Perth WESTERN AUSTRALIA 6000
Internal Auditor
KPMG
235 St Georges Terrace
Perth WESTERN AUSTRALIA 6000
148 I Fortescue Metals Group Limited I Annual Report 2013
148 I Fortescue Metals Group Limited I Annual Report 2013
Stock Exchange Listings
Fortescue Metals Group Limited shares are listed
on the Australian Securities Exchange (ASX)
ASX Code: FMG
Fortescue Share Registry
C/ – Link Market Services Limited
1A Homebush Bay Drive
Rhodes NEW SOUTH WALES, 2138
Locked Bag A14
Sydney South NEW SOUTH WALES, 1235
Tel: 1300 554 474 or + 61 2 8280 7111
Fax: +61 2 9287 0303
For any change in personal details,
please contact Link Market Services.
Annual General Meeting
13th November 2013
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2013 CONTENTS
• Chairman’s Statement
• Chief Executive Officer’s Statement
• Operations Report
• Reserves and Resources Report
• Corporate Social Responsibility
• Corporate Governance
•
Financial Report
• Directors’ Report
• Remuneration Report
• Auditor’s Independence Declaration
•
Financial Statements
• Directors’ Declaration
•
•
Independent Auditor’s Report to the Members
Shareholder Information
• Tenement Report
• Corporate Directory
2
6
8
10
15
38
50
51
67
85
86
139
140
143
144
148
‘‘
Fortescue has continually faced challenges
and embraced opportunities and it is this ability,
to respond quickly to a changing landscape,
which has been key to its success.
‘‘
Andrew Forrest, Chairman
2013 ANNUAL REPORT
ABN: 57 002 594 872
A DECADE
OF GROWTH
2003
The dream begins
2005
ASX 200 listing
2007
Construction at 70%
2009
27mt shipped
2011
Solomon Hub developed
2013
Firetail opened
2004
Cloudbreak identified
2006
Port Hedland ground-breaking
2008
First ore on ship
2010
Christmas Creek expanded
2012
57.5mt shipped
www.fmgl.com.au