THE PATHWAY FROM
CONSTRUCTION TO PRODUCTION
2003
The dream begins
2005
S&P/ASX 200 index
2008
First ore on ship
2010
Christmas Creek expanded
2012
57.5mt shipped
2013
80.9mt shipped
2014
155mtpa sustainable
production
2004
Cloudbreak identified
2006
Port Hedland
groundbreaking
2009
27 million tonnes shipped
2011
Solomon construction begins
2013
Firetail opened at Solomon
2014
Kings Valley project
opened at Solomon
www.fmgl.com.au
@FortescueNews
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2014 ANNUAL REPORT
ABN: 57 002 594 872
2014
CORPORATE DIRECTORY
AWARDS
Australian Business Number
Stock Exchange Listings
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
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
Sharon Warburton – Non-Executive Director
Company Secretary
Mark Thomas
Principal Registered Office in Australia
Level 2, 87 Adelaide Terrace
East Perth WA 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 WA 6000
Internal Auditor
KPMG
235 St Georges Terrace
Perth WA 6000
Fortescue Metals Group Limited shares are listed
on the Australian Securities Exchange (ASX)
ASX Code: FMG
Fortescue Share Registry
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please contact Link Market Services.
Annual General Meeting
12 November 2014
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Awards
2014 Platts Global Metals Awards
– Metal Company of the Year
2014 Platts Global Metals Awards
– Rising Star Award
2013 Australasian Institute of Marine Surveyors
– Excellence in the Application of Gears, Motors or
Drives with Metso Mining and Construction
2013 SAP Award of Excellence
– Best Run Development and Testing Technology
2014 Mines and Money Asian Mining Awards
– Project Development of the Year
Platform
2014 Mines and Money Asian Mining Awards
– Deal of the Year
2014 Gartner Asia Pacific Business Process
– Management Excellence Awards
2014 Australian Business Awards
– Community Contribution
2013 Financial Review CFO Awards
– Syndicated Loan of the Year
Worksafe Plan Gold Certificate (TPI)
AustCham Westpac Australia China Business Awards
– Andrew Forrest
2014 Women in Industry
– Excellence in Mining Award – Julie Shuttleworth
WAITTA CIO of the Year
– Vito Forte
2013 Skilled DMC Chairman’s Award
– Damien Ardagh
2013 CCI Apprenticeship Solutions
– Employer Excellence Awards Outstanding Employer
of Mature Age Apprentices and Trainees (large)
Finalist Awards
2014 West Australian of the Year Award Business
– Nev Power
2013 Chartered Institute of Purchasing and Supply
– Procurement Professional Awards
2014 CMEWA Safety and Health Innovation Awards
– Finalist
Best Example of Socially Responsible Procurement
– Finalist
2013 Procurement Leaders Awards
– Excellence Award
2014 Australasian Reporting Awards
– Bronze Medal
2014 International Tetra Awards
– Best Use of Tetra for Transport
Fortescue Metals Group Limited I 2014 Annual Report
Fortescue Metals Group Limited I 2014 Annual Report
OUR VISION
Our vision is to be the
safest, lowest cost iron ore producer
OUR VALUES
1
Safety
Family
Empowerment
Enthusiasm
Determination
Frugality
Integrity
Generating ideas
Set yourself stretch targets
Fortescue Metals Group Limited I 2014 Annual Report
FY14 OPERATION HIGHLIGHTS
August 2013
Official opening of the fourth berth at Herb Elliott Port
October 2013
Surge bin increases outload capacity
Port
March 2014
2,000th ship berthed at Port
February 2014
Fifth berth commenced
construction
December 2013
300 millionth tonne
shipped
September 2013
Robotic ore car maintenance facility opened
November 2013
13th rake fully operational
Rail
2
March 2014
10,000th train
March 2014
Hamersley Line train control
completed
December 2013
Integrated train control
system commissioned
2013
Improved train load out performance -
less than 2.2 hours per train
September 2013
Benefits realised from enhanced processing capabilities
including the reduction of strip ratios
Chichester
Hub
June 2014
Strip ratios at Cloudbreak and Christmas Creek averaged 3.2 for the June 2014 quarter,
slightly below the five-year mine plan of 3.5
November 2013
Power station fully operational
November 2013
Kings Valley OPF first ore
March 2014
Official opening of Kings Valley project
Solomon
Hub
July 2014
First Kings Valley channel iron deposit (CID) mined
June 2014
16 autonomous trucks in operation
Fortescue Metals Group Limited I 2014 Annual Report
CONTENTS
101 3
Fortescue Metals Group Limited I 2014 Annual Report
Corporate directory
About Fortescue
Where we operate
Chairman’s report
Chief Executive Officer’s report
Operations report
Reserves and resources report
Corporate social responsibility
Corporate governance
Financial report
Directors’ report
Remuneration report
Auditor’s independence declaration
Independent auditor’s report to the members
Directors’ declaration
Financial statements
Shareholder information
Tenement report
4
5
6
10
14
18
25
54
73
74
98
120
121
123
124
170
171
ABOUT FORTESCUE
Fortescue Metals Group is the world’s fourth largest producer of iron ore,
having started as a vision just over a decade ago.
Fortescue discovered world-class deposits in the
Pilbara’s Chichester Range and Hamersley Range,
and set about redefining the iron ore industry.
Construction began at its first mine, Cloudbreak,
in 2006 while work also started on a 256 kilometre
railway from Cloudbreak to Port Hedland and on world-
class facilities at Herb Elliott Port. Two years later, and
only five years after the company was formed, Fortescue
shipped its first cargo of iron ore bound for China.
In 2014, Fortescue completed a US$9.2 billion
expansion ahead of schedule increasing its capacity to
155 million tonnes per annum. The company has now
built four mines across its two operating hubs – Chichester
and Solomon.
It operates the fastest and heaviest haul rail network
in the world, where every day 14 trains,
each 2.7 kilometres long, transport about 33,000
tonnes of ore per train from mine to port. Fortescue’s
efficient port operations shipped 124.2 million tonnes
in Financial Year 2014 and the company is targeting
155 to 160 million tonnes in FY15.
Fortescue is now focused on maximising
throughput, bringing down costs, paying back
debt and increasing shareholder value with the
aim of being the safest, lowest cost, most profitable
iron ore producer in the world.
t
4
FY14 HIGHLIGHTS
Ore shipped 54%
EBITDA1 US$bn 58%
124mt
5.6
81mt
58mt
40mt
41mt
2.7
3.0
3.6
1.1
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Revenue US$bn 45%
Net profit after tax US$bn 57%
11.8
8.1
6.7
5.4
3.2
1.0
0.6
2.7
1.6
1.7
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Net debt2 US$bn 32%
C13 US$/wmt 23%
10.5
7.2
6.2
44
48
44
31
34
1.7
2.2
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
1 EBITDA = profit before income tax adjusted for depreciation and amortisation, asset write-
offs, exploration, development and other write-offs, net finance costs and gain or loss on
refinancing (refer page 89 reconciliation).
2 Net debt = debt + cash and cash equivalents
3 C1 = costs of mining, processing, rail and port per wet metric tonne
(refer page 85 reconciliation).
Fortescue Metals Group Limited I 2014 Annual Report
WHERE WE OPERATE
5
Fortescue is the world’s
fourth largest
iron ore producer
2013 Firetail Mine
2013 Kings Valley Project in construction
Fortescue Metals Group Limited I 2014 Annual Report
CHAIRMAN’S REPORT
6
Chairman Andrew Forrest and CEO Nev Power at the official opening of the Kings Valley project at the Solomon Hub
I am delighted to introduce Fortescue’s 2014 annual report. The past year
marked a significant milestone in Fortescue’s evolution by cementing our
hard earned status as the new force in iron ore and placing us on track to
becoming the force in the global iron ore industry.
These achievements stand as testament to the hard work,
determination and faith of the Fortescue family in the
shared ambition of building our company into one of the
world’s leading mining groups. It is an achievement of
which the Board of directors, on behalf of all stakeholders,
are very proud.
Our team has proved their courage to defy the odds,
to prove their detractors wrong, time and time again.
Your company, dear fellow shareholder, has earned
its reputation of translating vision into reality. There
is no better example of their ability to execute on our
long term strategy than the completion of our
US$9.2 billion expansion that nearly tripled our
capacity to 155 million tonnes per annum (mtpa).
the completion of the expansion, our gaze was drawn to
an enormous banner draped against the ore processing
facility. Four words encapsulated a journey that began
around my kitchen table 11 years ago: Turning Vision into
Reality. And there at Kings Valley we took a moment to
revel in what we had achieved and pay tribute to those
who believed in our vision: our wonderful employees,
our contracting partners, our local communities, our
customers and our shareholders. Together, we had the
courage to pursue what many people mocked and for
that, I thank you.
Thank you for the one thing that makes the Fortescue
Family so unique. Our determination to never, ever
give up.
I remember very clearly a high profile analyst saying it
was a 2018 story at the earliest. On 28 March 2014, the
Fortescue Family demonstrated our resolve. As we arrived
at the Kings Valley project at the Solomon Hub to celebrate
Our courage and belief has transformed Fortescue into a
world leader, one of the biggest suppliers of iron ore to
customers throughout Asia. With multiple shipments daily
of this vital steel making ingredient, we are playing a vital
Fortescue Metals Group Limited I 2014 Annual Report
CHAIRMAN’S REPORT
Kings Valley project at the Solomon Hub officially opened by His Excellency Malcom McCusker, Governor of Western Australia
7
role in lifting the economy of other nations out
of poverty. Our iron ore is used in the construction of
homes, hospitals, schools and transportation systems, and
for that we can all be very proud. We are a reliable supplier
of the building blocks of industrialisation and urbanisation,
two very powerful forces combining to produce higher
living standards and better futures for millions of people
in the region fast becoming the epicentre of the global
economy. We are unashamed believers in Asia’s future,
a commitment underscored by our significant investments
in new capacity.
My leadership team can also be proud of the thousands
of jobs Fortescue has created. It is our dedicated staff
that puts the family into the Fortescue Family. They
make a significant contribution to the Australian economy
and broader community through the billions of dollars we
pay to state and federal governments in taxes and royalties.
It is these contributions that allow Fortescue’s success to be
shared across the cities and towns that make up this great
nation of 23 million people. Fortescue plays significant
roles in supporting local communities, who have taken our
friendship to their hearts and welcomed us onto their land.
More than just a mining company, we are a totally involved
member of the communities in which we operate.
In 11 short years, we have built a major business that is
changing lives at home and abroad.
Fortescue’s role as a partner in Asia’s development
was highlighted by the many customers who travelled
thousands of kilometres to join us at the awe inspiring
Solomon Hub. I was delighted to see more than
100 people from China, Korea, Taiwan and Japan in
attendance, with many of them visiting our Pilbara
operations for the first time. Iron ore prices may fluctuate
but our relationship with our customers is as strong as ever.
They appreciate our consistent delivery of high quality iron
ore and we continue to sell every tonne that we produce.
It is Fortescue’s unrelenting commitment to invest in assets
and relationships that will underpin our long term ability
to generate the returns that you, our shareholders, the true
owners of our business, demand of us.
Our ability to deliver for our shareholders is best told
by letting the numbers speak for themselves. Our rapid
expansion to 155mtpa led to a massive increase in shipments
from the Chichester and Solomon hubs in FY14. We exported
a record 124.2 million tonnes, 54 per cent above FY13, and
at a C1 cost of only US$34 per tonne. This is an exceptional
performance but we will maintain a laser like focus on driving
our production costs further down the global cost curve.
We also delivered another strong financial performance.
Net profit after tax in for FY14 rose to a record
US$2.7 billion on the back of revenue of US$11.8 billion.
Fortescue Metals Group Limited I 2014 Annual Report
CHAIRMAN’S REPORT
8
2014 Board visit to Solomon
At 30 June 2014, our cash on hand was US$2.4 billion, which
reflects the strength of operational cashflows, reduced capital
expenditure as our expansion neared completion, and lower
finance costs as we began to deleverage our balance sheet.
Our robust financial position enabled the Board to reward
shareholders with a A$0.10 fully franked final dividend, taking
the full year dividend to A$0.20. Our ability to imagine the
opportunities presented by Asia’s rise, prudently manage risk,
and execute on large scale projects is paying rewards. The
momentum of success is gathering pace.
At year end, our net debt stood at US$7.2 billion. Since
November 2013, we have repaid or committed to repay
a total of US$3.6 billion and we will continue this journey in
FY15. Our ability to repay debt demonstrates our strategy
of expanding rapidly to meet China’s insatiable demand for
iron ore and deliver significant value for our shareholders.
Under our Chief Financial Officer, Stephen Pearce, we’ve
built significant flexibility into our balance sheet. Our
earliest debt repayment isn’t due until 2017, while 60
per cent of our long term debt is available for voluntary
repayment in advance of maturity at our option.
the prestigious Boao Forum for Asia on Hainan Island as
a Diamond Sponsor for the sixth consecutive year. I’m
delighted Fortescue has maintained its close association
with the Boao Forum. It is one of the world’s most significant
platforms for dialogue among political, industry and
economic leaders and this year’s theme was particularly
pertinent with discussions centred on the noble challenge
we all face as leaders – finding new drivers for growth to
continue unlocking the potential of the global economy.
The Forum provided another opportunity to meet with
Chinese Premier Li Keqiang. Together with President
Xi Jinping, Premier Li is seeking to reform the Chinese
economy, and in turn, transition it away from a historical
reliance on exports and fixed asset investment and towards
a greater role for consumption as a driver of growth. We at
Fortescue will closely watch Premier Li’s progress in shaping
the next phase of growth in Australia’s largest trading partner. I
was also honoured to welcome Australian Prime Minister Tony
Abbott who travelled to Boao as part of his first visit to China
as Prime Minister, where he underscored the importance of
the economic relationship between the two countries.
One of our most important relationships, and one that we
work hard to maintain, is our relationship with China, our
largest customer and Australia’s largest trading partner.
Two weeks after hosting our customers, we returned to
During the Forum, I also had the privilege of co-hosting
the third China-Australia Senior Business Leaders’ Forum
(SBLF). The SBLF, which was held for the first time during
the Forum in 2013, is providing an important platform for
Fortescue Metals Group Limited I 2014 Annual Report
CHAIRMAN’S REPORT
Chairman Andrew Forrest meets with Chinese Premier Li Keqiang during the Boao Forum for Asia 2014
9
business-to-business dialogue between Australia and China
and facilitating discussions on challenges and opportunities
in economic, trade, investment, cultural, philanthropic and
political relations between the two countries.
This year has also been gratifying for me personally. I was a
very proud and humble recipient of the AustCham Westpac
Australia China Individual Award which recognises those
who play a leading role in driving the Australia China Bilateral
Relationship. This award was due in part to the success of SBLF,
and I thank everyone involved in this important dialogue.
On behalf of all the Indigenous people working at
Fortescue and all those that helped shape the success and
privilege that Fortescue has had working with Aboriginal
communities, I was honoured to deliver the Creating Parity
Review to Prime Minister Tony Abbott in August 2014. It
is a cohesive and interlinked strategy to end the disparity
between first Australians and other Australians. This is a
subject close to my heart. The Review followed six months
of consultations around the country and recommends
a strategy that delivers a complete end-to-end solution,
without the baggage attached to current government
policies and arrangements. Implemented in full, it will
finally create parity and comprehensively build our society.
Aboriginal communities through training, local employment
and business opportunities. At Fortescue we talk the talk and
walk the walk when it comes to our commitment to improve
the lives of Indigenous Australians. Fortescue established its
first Vocational Training and Employment in Centre in 2006
and opened a second centre in Roebourne in 2010. Their
“welfare-to-work” model, catering for people with little or
no work history, has been an enormous success, so much
so the Federal Government has adopted our employment
model around the country. We have challenged the
Commonwealth to issue $1.3 billion worth of contracts to
Indigenous companies knowing that Fortescue has led the
way having already issued $1.6 billion worth of contracts to
Indigenous companies and joint ventures.
As we look ahead to the next phase of Fortescue’s growth,
I would like to thank the Fortescue Family and my fellow
directors for their leadership and support. We have built a
proud Australian company – the New Force in Iron Ore. Our
first 11 years has been an amazing journey. I look forward
to sharing even greater achievements with you in the years
ahead. The best is yet to come.
The Review would not have been possible without the
support of Fortescue, which is passionate about supporting
Mr Andrew Forrest
Chairman
Fortescue Metals Group Limited I 2014 Annual Report
CHIEF EXECUTIVE OFFICER’S REPORT
Chairman Andrew Forrest with CEO Nev Power at the opening of the Kings Valley project at the Solomon Hub
10
DEAR SHAREHOLDERS
Financial Year 2014 was a year of outstanding delivery for Fortescue.
Our company delivered record results with a total of 124.2 million tonnes
(mt) shipped, a 54 per cent increase on the previous year. C1 costs were
down 23 per cent on the previous year to $34 per wet metric tonne (wmt)
and total delivered cost to customers was US$52/wmt.
We delivered our expansion to 155 million tonnes ahead
of schedule and we passed peak debt, repaying
US$3.1 billion during the year. Fortescue’s record of
delivery reflects the company’s vision of being the safest,
lowest-cost, most profitable iron ore producer.
In March, Fortescue marked the completion of our
US$9.2 billion expansion to 155 million tonnes. The
expansion of mine, port and rail operations had originally
been scheduled for completion at the end of June 2014,
but, through the commitment and innovation of everyone
working on the project, it was completed ahead of
schedule at an industry-leading capital cost of
US$92 per tonne of installed capacity. The expansion
touched almost every part of our operations
and included the construction of the greenfields
Solomon Hub in the Hamersley Ranges, one of the
world’s largest iron ore developments comprising
the 40 million tonnes per annum (mtpa) Kings Valley
project and the 20mtpa Firetail mine; an expansion of
the Christmas Creek mine to 50mtpa; and major
extensions of Fortescue’s world-class rail and port
facilities, including the opening of the fourth berth
at Herb Elliott Port.
Safety
Safety is the highest priority for everyone working at
Fortescue. We were deeply saddened by the tragic deaths
this year of two of our Fortescue family, Kurt Williams and
Allen Zuvela. These incidents serve as a reminder that
everyone in our industry must remain forever vigilant
about our safety and the safety of our mates. The entire
Fortescue family continues to offer their thoughts and
condolences to the families and friends of both men.
The Total Recordable Injury Frequency rate per million
hours worked was 21 per cent lower, down to 6.0 in June
2014 from 7.6 in June 2013. More importantly there
Fortescue Metals Group Limited I 2014 Annual Report CHIEF EXECUTIVE OFFICER’S REPORT
has been a step change in safety leadership. This year
Fortescue engaged a leading global consultant to conduct
an extensive safety review engaging approximately
6,000 people representing every part of the business.
As a result, numerous improvements were made across
operations, including extensive leadership site visits
and a comprehensive study of systems, processes and
procedures. Fortescue is already recognised as a world
leader in our industry across so many areas of our business
and we are committed to becoming a global leader in
safety through the same culture of empowerment.
Financial results
Fortescue delivered record financial results in FY14
with revenue up 45 per cent to US$11.8 billion and net profit
up 57 per cent to US$2.7 billion. Earnings before interest,
taxes, depreciation and amortisation were up 58 per cent
at US$5.6 billion. These record results were delivered on the
back of increased volumes from our successful expansion
and strong marketing of our quality products for an average
realised price of US$106 per dry metric tonne.
Cash on hand was US$2.4 billion at 30 June 2014,
reflecting the continued operational cashflow strength
from increased production, reduced C1 costs and lower
capital expenditure. The increase in operating cashflows
allowed Fortescue to commence its debt repayment
strategy in November 2013 and since then
we have repaid US$3.1 billion and committed an
additional US$0.5 billion repayment in October 2014.
This is an important step as Fortescue funded its
155mtpa expansion by accessing US debt markets
which provided the cheapest most flexible source of
capital. It has always been Fortescue’s intention to
rapidly repay this debt to achieve an initial gearing
target of 40 per cent and our flexible debt maturity
profile facilitates this commitment.
The record financial results, driven by our rapid increase
in capacity, have allowed Fortescue to increase returns
to shareholders and declare total FY14 dividends of
A$0.20 per share fully franked. We continue to progress
towards a 30 to 40 per cent profit payout ratio dividend
policy once the targeted gearing level is achieved.
Operational performance
Fortescue has delivered the fastest ever ramp up in the
history of our industry which has delivered a production
rate of 155mtpa in the June 2014 quarter and 160mtpa
in the month of June. Total ore mined for the year was
104.4mt, up 48 per cent on the previous year.
Construction of the fifth berth at Herb Elliott Port is
expected to be completed by early 2015 and once fully
operational will provide an additional 15 to 20mtpa of
outload capacity. The design and construction of a five
million tonne per annum detrital iron ore (DID) plant at
Solomon will provide a low-cost, efficient processing
solution to supplement our Fortescue Blend. Our expertise
in ore processing and beneficiation is strengthened by
consolidating operational management at Christmas
Creek and Solomon ore processing facilities (OPF) with
Cloudbreak. This allows us to share knowledge across the
company, driving productivity and efficiencies to optimise
our operations.
The exploration team continued to deliver in FY14, with work
at the Solomon Hub leading to an additional 1.16 billion
tonnes being added to the Greater Solomon Mineral Resource.
Our vast tenement footprint in the Pilbara remains an
incredibly valuable core asset and as exploration continues we
look to identify additional, highly prospective opportunities
to further enhance our resource base. While our strategic
focus remains delivery, de-gearing and dividends, we will also
work diligently to continue to evaluate strategic low-cost
options in long-term, high value opportunities.
Bringing down costs
Fortescue has successfully reduced its C1 operating costs
by 23 per cent to US$34/wmt in FY14 with a total delivered
cost of US$56 per dry metric tonnes (dmt). Lowering of
our cost base reflects the establishment of the low cost
Solomon operations, introduction of the Fortescue Blend
product, enhanced processing capacity and a continual
focus on efficiency. While significant cost achievements
have been delivered, we recognise that it is critical to focus
on controllable factors and to continue to manage our
operations as efficiently as possible to continue to drive
Fortescue lower on the global iron ore cost curve.
I believe most Australians understand that the world does
not owe us a living, and at Fortescue everyone embraces
the challenge of thinking every day about how we can
do our jobs more productively and efficiently while
staying focused on safety. The signing of a long-term Gas
Transportation Agreement for the construction of the
longest natural gas pipeline to be built in Western Australia
in a decade will deliver natural gas to the Solomon power
station. Converting the Solomon power station from diesel
to gas is expected to save approximately US$20 million per
year and is expected to be operational in early 2015.
This important piece of infrastructure lays the foundations
for the future gasification of the Pilbara and if competitive
supplies of natural gas are available for long term offtake,
could offer the potential for further savings through
11
Fortescue Metals Group Limited I 2014 Annual Report CHIEF EXECUTIVE OFFICER’S REPORT
12
CEO Nev Power and Chairman Andrew Forrest during a board meeting at Fortescue’s Perth office
extension of the pipeline to the Chichester Hub. In July,
the company signed a 25 year agreement to participate
in a Public Private Partnership with the Government of
Western Australia, Horizon Power and Transalta, which will
build and operate a combined cycle gas power station
in South Hedland by 2017 that will supply energy to our
port and rail operations. A reliable supply of competitive
gas will reduce operating costs and play a significant
role in cutting emissions. That is why Fortescue has
taken a leadership position on the critical issue of gas
sector reform by calling for the enforcement of Retention
Lease “use it or lose it” policies to encourage the rational
and market-based development of Western Australia’s
abundant gas reserves. Despite abundant low-cost natural
gas being discovered offshore WA, the state is heading
for a supply shortage over the next few years because
resources are being warehoused rather than developed.
We have also signed contracts to construct eight very
large ore carriers valued at around US$550 million.
These vessels are being designed for operational
conditions at Port Hedland and will allow us to maximise
shipping volumes and increase efficiencies, which will
have a further positive impact on costs. The eight vessels
are expected to be delivered from late 2016 through
to early 2018 and will carry about 12 per cent of
Fortescue’s ore output.
Market conditions
Much has been written about the iron ore price and
Chinese demand, particularly as the fourth quarter of
FY14 saw the market digesting the large increase in
seaborne iron ore supply. Fortescue continues to receive
strong support from its customer base and is seen as an
alternative, reliable and competitive supplier of seaborne
iron ore. China’s demand for iron ore remains strong
with the government committed to continued economic
growth and urbanisation. Chinese steel production has hit
record levels as the country transitions another 200 million
people to urban living by 2020.
Social responsibility
Throughout the year we have achieved good progress
on the Corporate Social Responsibility targets we have
set ourselves. Our main challenges for the coming year
are safety, reducing energy consumption and continuing
our support of local communities through our business. In
April 2013, we first signed up to the principles of the United
Nations Global Compact and to this date we continue to
show our support through our actions and initiatives. You
can read more about our key actions and achievements in
our Corporate Social Responsibility section of this report.
Fortescue Metals Group Limited I 2014 Annual Report CHIEF EXECUTIVE OFFICER’S REPORT
CEO Nev Power and Chairman Andrew Forrest with Elders from the Yindjibarndi and Eastern Guruma People at the opening of the Kings Valley project at the Solomon Hub
13
Fortescue continues to work toward ending Aboriginal
disparity in the Pilbara and now employs more than
1100 Aboriginal people. Our pioneering Fortescue
Vocational Training and Employment Centres (VTEC)
continue to provide guaranteed jobs for Aboriginal
people and the training and support to succeed in
those jobs. This model has become a template for the
Australian Government and GenerationOne to roll out
nationally. Training for a guaranteed job has broken the
cycle of endless training for training’s sake. The Billion
Opportunities program, which was launched in late
2011, this year reached $1.6 billion in contracts and
sub-contracts awarded to Aboriginal businesses and
joint ventures. Through this program Fortescue is
supporting a generation of Aboriginal entrepreneurs
who will create true empowerment and economic
self-determination.
Fortescue continues its sponsorship of the national
men’s hockey team, the Kookaburras, who were crowned
world and Commonwealth Games champions this year,
while on a local level the company’s sponsorship of the
South Hedland Swans enters its fourth year. The Fortescue
team continued volunteering and raising funds within the
communities where we live and operate; the annual
Roebourne working bee was a great success and
Fortescue raised significant money for a variety of good
causes, particularly Perth’s new Ronald McDonald House
and the Royal Flying Doctor Service.
I would like to thank all of our employees, contracting
partners, traditional owners and joint venture partners for
their great support. Through their commitment Fortescue
has delivered its ambition of developing mines and
infrastructure to produce 155mt of iron ore per year in
record time and at industry leading capital productivity.
These foundations position your company to be the safest
and lowest cost iron ore producer.
We are very excited about the future because we are
building a unique Australian company that will continue
to deliver exceptional results for you and all our
shareholders.
Mr Nev Power
Chief Executive Officer
Fortescue Metals Group Limited I 2014 Annual Report OPERATIONS REPORT
14
Operations Report
In March 2014, Fortescue celebrated one of the most significant milestones
in its 11-year history, the successful completion of the US$9.2 billion
expansion of its port, rail and mining operations in the Pilbara region of
Western Australia to achieve a production capacity of 155 million tonnes
per annum (mtpa). The completion of the project has taken Fortescue a
significant step closer to its vision of becoming the safest, lowest cost,
most profitable producer of iron ore.
Fortescue committed to the expansion in November 2010
and set itself the ambitious target of completing it by
June 2014. Thanks to the hard work and dedication of
thousands of people, Fortescue completed construction
more than six months ahead of schedule.
The expansion included the development of the 60mtpa
Solomon Hub in the Hamersley Ranges comprising the
Kings Valley and nearby Firetail projects; an expansion of
the Christmas Creek mine to 50mtpa; a wet processing
plant at Cloudbreak and major extensions of Fortescue’s
world-class port and rail facilities.
Fortescue’s iron ore operations now include the
90mtpa Chichester Hub, comprising the Cloudbreak
and Christmas Creek mines, the Solomon Hub, more
than 600km of rail and port facilities comprising four
berths and three shiploaders at Herb Elliott Port in
Port Hedland, with construction of a fifth berth
under way.
Fortescue Metals Group Limited I 2014 Annual Report
OPERATIONS REPORT
Highlights
Fortescue achieved a number of key milestones in FY14
as it completed the expansion to 155mtpa, including:
procedures. Fortescue is recognised as a world leader
across many areas of its business and is committed to
becoming a global leader in safety through its culture
of empowerment and determination.
The opening of the fourth berth – the Nick Sexton
berth – at Herb Elliott Port in August 2013, marking the
completion of the US$2.4 billion port expansion
In FY14, Fortescue recorded a Total Recordable Injury
Frequency Rate (TRIFR) of 6.0 per million hours worked,
a 21 per cent improvement over the previous year.
•
•
•
•
•
•
The significant reduction of strip ratios at the
Chichester Hub as benefits were realised from
blending Firetail and Chichester ore and enhanced
processing capabilities following the commissioning
of the Christmas Creek jigs plant and Cloudbreak wet
processing plant in the September quarter 2013
Completion of the expanded railway and the
commissioning of the rail integrated train control
system on the mainline in the December 2013 quarter
Completion of the Kings Valley ore processing facility
(OPF) in October 2013 and first ore through the plant
in November 2013
Completion of all expansion projects at a total cost of
US$9.2 billion or US$92 per annual production tonne in
the June 2014 quarter
Delivery of the targeted 155 million tonne annualised
run rate in the June 2014 quarter and a record 160mtpa
annualised run rate for the month of June
Safety
Fortescue’s greatest asset is its people and safety is one
of the company’s core values.
Tragically, in FY14 there were two fatal accidents at
Christmas Creek, in the Ore Processing Facility and in
the Heavy Vehicle Workshop, which took the lives of
Kurt Williams on 14 August 2013 and Allen Zuvela on
29 December 2013.
Fortescue has taken decisive action to reinforce safety as
its highest priority and engaged an independent auditor
to undertake a comprehensive whole-of-business review
of its safety standards, systems and processes to examine
safety performance and management across every area of
its operations.
Numerous improvements have been made across
operations, including extensive leadership site visits
and a comprehensive study of systems, processes and
15
Production
Fortescue finished FY14 on an outstanding note, shipping
a record 124.2 million tonnes over the 12 month period.
Shipments were 54 per cent higher than the previous
year and within two per cent of the company’s full year
guidance of 127mt. In the June 2014 quarter, Fortescue
achieved a seventh consecutive shipping record of 38.7mt,
a 23 per cent increase over the previous quarter and a
55 per cent increase over the prior comparable period.
Total shipments in FY14 included 4.3 million third
party tonnes.
Fortescue achieved its targeted 155mtpa annualised run
rate in the June 2014 quarter and a record 160 million
tonne annualised shipping rate for the month of June
following the successful ramp up of the Kings Valley OPF.
Total output from all processing facilities increased to
a record 41.1mt in the June quarter, 31 per cent higher
than the prior quarter as Fortescue moved to steady state
operations. Fortescue has provided guidance for shipping
volumes for FY15 of 155 to 160mt, which reflects a full year
of operations from the Kings Valley project.
During the year, Fortescue assumed full ownership and
operational responsibility for the two OPFs at Christmas
Creek and during the June 2014 quarter, Fortescue and
Leighton Contractors completed a successful transition
of full operational responsibility for the two Solomon
Hub OPFs and the train load out facility. These strategic
business decisions have given Fortescue operational
responsibility over all five of its OPFs, which will enable
shared learnings, synergies, economies of scale and
efficiency increases across the business.
Costs
Fortescue’s relentless focus on costs led to a 23 per cent
improvement in FY14 with C1 costs falling to US$34/wmt.
The sharp reduction reflects the lower cost Solomon
operations, improved processing capacity and lower strip
ratios at the Chichester Hub, operational efficiencies and a
lower Australian dollar.
Fortescue Metals Group Limited I 2014 Annual Report
OPERATIONS REPORT
In the June 2014 quarter, Fortescue’s total delivered costs
to customers were US$49/wmt inclusive of C1 costs and
shipping, royalty and administration costs, eight per cent
lower than the prior quarter, while total delivered costs to
customers for the full year were US$52/wmt.
Fortescue is determined to reduce costs even further in
FY15 and is targeting a C1 operating cost of US$31-32/wmt
based on an average US to Australian dollar exchange
rate of 0.90.
Marketing
Fortescue’s suite of products is sold with reference to the
62% Platts index with a market price comparable to other
products which have similar value-in-use properties for
steel production.
A significant increase in new seaborne iron ore supply,
tighter credit conditions in China and relatively high
Chinese port stocks led to a lower price environment in the
second half of FY14. Fortescue achieved an average price
realisation of 86 per cent compared to the average 62%
Platts index in FY14.
16
Fortescue expects supply to re-balance as Chinese port
inventories are drawn down, steel mills re-stock and higher
cost iron ore production leaves the market. As this occurs
and Fortescue transitions to a product suite dominated by
the high quality Fortescue Blend and Kings channel iron
deposit (CID) products, realised prices are expected
to range between 85 and 90 per cent of the 62% Platts
price index.
Chichester Hub
Fortescue’s mining operations in the Chichester Range
comprise Cloudbreak, 150km north of Newman, and
Christmas Creek, 50km to the east of Cloudbreak.
Several major projects were undertaken at the Chichester
Hub as part of the expansion to 155mtpa. These included a
second OPF and jigs plant at Christmas Creek, which lifted
the production capacity to 50mtpa, and the addition of a
wet front end to the processing plant at Cloudbreak.
The benefits of enhanced processing capabilities following
commissioning of the jigs plant and wet front end, along
with Fortescue’s product strategy of blending Chichester
ore with Firetail ore, played a significant role in reducing
the strip ratios at the Chichester Hub in FY14. Strip ratios
averaged 3.5 for FY14, in line with the five-year mine plan
of 3.5.
Solomon Hub
The 60mtpa Solomon Hub is in the Hamersley Ranges,
60km north of Tom Price and 120km to the west of the
Chichester Hub and includes the 20mtpa Firetail project
and 40mtpa Kings Valley project.
The Solomon Hub represents a valuable source of new
production from long life, low cost mining operations.
Its low strip ratios have played a major role in reducing
Fortescue’s overall operating costs while the new
operations have expanded Fortescue’s product mix. Firetail
ore blended with Chichester ore has created an enhanced
product known as the Fortescue Blend, while CID ore from
Kings Valley represents a new stand-alone product.
Fortescue opened Firetail in May 2013 and completed
construction of the Kings Valley OPF in October 2013.
Construction was completed in record time, taking only
179 days from the assembly of first steel. The successful
ramp-up of Kings Valley allowed Fortescue to achieve its
targeted 155 million tonne annualised run rate in the June
quarter 2014 and a record 160 mtpa annualised run rate for
the month of June.
Port and Rail
The expansion of Fortescue’s port and rail operations have
led to consistent operations at and above the annualised run
rate of 155mtpa. Further optimisation work will continue to
deliver increased productivity and efficiency.
In August 2013, Fortescue celebrated the completion of the
US$2.4 billion expansion of Fortescue’s port facilities, a core
component of Fortescue’s US$9.2 billion expansion, to lift the
Port’s export capacity to 155mtpa.
The expansion of Fortescue’s rail line - the heaviest haul line in
the world with a 40 tonne axle load capacity - means 14 train
journeys per day now operate from Cloudbreak, Christmas
Creek and Solomon, with each hauling about 33,000 tonnes
of ore to Herb Elliott Port.
In the December 2013 quarter, Fortescue opened a state-of-the-
art ore car maintenance facility incorporating some of the world’s
most advanced engineering and automated technology in
heavy haul maintenance. The automated facility will maintain
the company’s 3,000 plus ore cars and ancillary fleet.
An Integrated Train Control System (ITCS) was also introduced
where trains are tracked by GPS and operating instructions are
delivered from Fortescue’s Train Control Centre in Perth to the
locomotives via digital communications. The state of the art ITCS
provides greater utilisation efficiency and improved safety.
Fortescue Metals Group Limited I 2014 Annual Report Development
Fortescue River Gas Pipeline
Fortescue is executing a plan to lower energy costs
and reduce its carbon footprint by transitioning its
Pilbara operations from diesel to natural gas. As a first step,
the Fortescue River Gas Pipeline will deliver gas from the
Dampier to Bunbury Pipeline to the Solomon Power Station
with completion scheduled in the March 2015 quarter.
This single initiative will save Fortescue approximately
US$20 million a year as well as reducing carbon emissions.
Compressed Natural Gas (CNG)
As an interim step in advance of completion of the natural
gas pipeline, Fortescue will truck compressed natural
gas (CNG) from facilities in Port Hedland to gas receiving
facilities installed at the Solomon Power Station. Deliveries
are scheduled to commence in October 2014 and will run
until the Fortescue River pipeline is fully commissioned.
AP5 Project
Fortescue is building a fifth wharf at Anderson Point, AP5,
which is scheduled for completion in the March 2015
quarter. The fifth berth will provide additional flexibility
and efficiency at the port.
Detrital Processing Plant
In May 2014, Fortescue approved the construction
of a 5mtpa detrital iron deposit (DID) processing plant
at Solomon. The facility will allow DID ore to be processed,
eliminating the need for a wet plant addition to the
Firetail OPF and freeing the Kings Valley OPF to process
Kings CID ore. The project is expected to take just over a
year and cost approximately US$105 million.
Iron Bridge Project
Fortescue is progressing the Iron Bridge magnetite
project, 100 kilometres south of Port Hedland. The project,
incorporating the North Star and Glacier Valley ore bodies,
is being developed in conjunction with Taiwan’s Formosa
Group and China’s Baosteel Group. By the end of FY14 the
main construction camp was complete, access roads and
earthworks at the North Star OPF were nearing completion
and pre-strip activities were progressing. First production
from the 1.5mtpa Stage 1 is expected in the March
2015 quarter.
Exploration
Fortescue’s FY14 drilling program focused on identifying
and defining new targets for bedded mineralisation in and
around the existing Chichester and Solomon hubs.
OPERATIONS REPORT
Solomon Power Station
17
AP5 construction
Iron Bridge Project construction
Fortescue Metals Group Limited I 2014 Annual Report
18
ORE RESERVES AND RESOURCES REPORT
Ore Reserves and Mineral Resources
Reporting is grouped by operating and development
properties and includes both hematite and
magnetite deposits.
Hematite Ore Reserves total 2.4 billion tonnes (bt) at
an average iron (Fe) grade of 57.3 per cent. Combined
hematite Mineral Resources total 11.6bt at an average
Fe of 56.9 per cent. Magnetite Mineral Resources total
4.7bt at an average mass recovery of 24.2 per cent.
Operating property Ore Reserves and Mineral Resources
have all been reported to the Joint Ore Reserves
Committee (JORC) 2012 standard. Accordingly,
the information in these sections should be read in
conjunction with the respective explanatory Resource
and Reserve information (Fortescue ASX release dated
20 August 2014).
Development property Mineral Resources are a
combination of JORC 2012 and JORC 2004 estimates.
Those development property resources reported to JORC
2012 standard are identified in the Fortescue ASX release
of 20 May 2014 that includes the supporting technical
data. The remaining JORC 2004 resource estimates will
be progressively updated to the JORC 2012 standard as
development priorities dictate.
Magnetite resources have been updated and reported
to the JORC 2012 standards. The resources quoted in this
report should be read in conjunction with the supporting
technical data contained in the corresponding ASX release
dated 20 August 2014.
Audit of the estimation of Mineral Resources and Ore
Reserves is addressed as a sub-set of the annual internal audit
plan approved by the Board Audit and Risk Management
committee (ARMC). Specific audit of the Ore Reserve
process was performed in 2011 and 2013. These audits were
managed by Fortescue’s internal audit service provider with
external technical subject experts.
In addition to routine internal audit, the ARMC monitors
the Ore Reserve and Mineral Resource status and approves
the final outcome. The annual Ore Reserves and Mineral
Resource update is a prescribed activity within the annual
Corporate Planning Calendar that includes a schedule
of regular Executive engagement meetings to approve
assumptions and guide the overall process.
The Mineral Resource and Ore Reserve estimation
processes followed internally are well established and
are subject to systematic internal peer review, including
calibration against operational outcomes. Independent
technical reviews and audits are undertaken on an as-
required basis as an outcome of risk assessment.
Tonnage and quality information contained in the
following tables has been rounded and as a result the
figures may not add up to the totals quoted.
Ore Reserves Operating Properties – Hematite
The 2014 combined Chichester and Solomon hematite
Ore Reserve is a total of 2,374 million dry tonnes (mt) at
an average iron (Fe) grade of 57.3 per cent.
The Ore Reserve is quoted as at June 30, 2014 and is
inclusive of ore stockpiles. Ore Reserves are quoted on
a dry product basis while Mineral Resources are quoted on
a dry in-situ basis.
Company production and sales reporting is based on
wet tonnes. The typical free moisture content of shipped
products is nine per cent.
The proportion of higher confidence Proved Ore Reserve
has been slightly improved as a result of ongoing in-fill
drilling at both the Solomon and the Chichester deposits.
The Chichester Hub (Cloudbreak and Christmas Creek
deposits) contains 1,470mt at an average Fe grade of
57.4 per cent, with 30 per cent of the tonnage in the
Proved Ore Reserve category. While the Cloudbreak
and Christmas Creek deposits are quoted separately
for historical reasons, they effectively represent a single
deposit with ore generally directed to the most proximal of
the three available ore processing facilities (OPFs).
The Ore Reserve estimate for the Solomon Hub is 903mt
at an average Fe of 57.2 per cent, with 16 per cent of the
tonnage in the Proved Ore Reserve category.
The 2014 hematite Ore Reserve estimates were subject
to comprehensive review and update addressing:
•
•
Revisions to the Kings (Solomon CID) resource model and
to grade control models in all near-term mining areas.
a revised processing strategy including accelerated
“dry processing” (rather than beneficiation) of the
Firetail bedded iron deposit (BID) at Solomon.
• ore depletion as a result of sales.
•
•
exclusion of low margin mineralisation to enhance
financial outcomes, and
a revised life of mine (LOM) plan that addresses the
listed items and incorporates the latest information on
long term product strategy and mining and processing
reconciliation trends.
Fortescue Metals Group Limited I 2014 Annual Report
ORE RESERVES AND RESOURCES REPORT
Hematite Ore Reserves – as at 30 June 2014
Hematite Ore Reserves – as at 30 June 2013
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
Probable
Total
Proved
Probable
Total
132
368
500
312
659
970
Proved
444
Probable
1,026
Total
1,470
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
39
136
174
105
624
729
143
760
903
Proved
587
Probable
1,786
Total
2,374
57.7
57.5
57.6
57.3
57.3
57.3
57.4
57.4
57.4
59.2
58.5
58.7
57.6
56.7
56.9
58.0
57.1
57.2
57.6
57.3
57.3
4.20
4.55
4.46
5.72
4.91
5.17
5.27
4.78
4.93
5.66
6.84
6.58
6.14
6.57
6.50
6.01
6.61
6.52
5.45
5.56
5.53
Cloudbreak
0.048
0.052
0.051
8.7
8.1
8.3
136
368
504
Christmas Creek
0.043
0.044
0.044
7.9
7.9
7.9
312
701
1,013
Sub-Total Chichester Hub
0.045
0.047
0.046
0.133
0.106
0.112
8.2
7.9
8.0
Firetail
6.4
6.2
6.3
449
1,069
1,517
29
133
162
Kings and Queens
0.061
0.064
0.064
8.5
8.9
8.8
69
596
665
Sub-Total Solomon Hub
0.081
0.072
0.073
7.9
8.4
8.3
98
729
827
2.35
2.33
2.33
2.45
2.62
2.57
2.42
2.52
2.49
2.66
2.63
2.64
2.22
2.67
2.61
2.34
2.66
2.61
58.2
57.9
57.9
57.4
57.5
57.4
57.6
57.6
57.6
60.5
59.8
59.9
57.7
57.3
57.3
58.5
57.7
57.8
Combined Hematite Ore Reserves
2.40
2.58
2.54
0.053
0.057
0.056
8.1
8.1
8.1
547
1,797
2,344
57.8
57.7
57.7
4.18
4.38
4.33
5.37
4.93
5.06
5.01
4.74
4.82
4.63
5.88
5.66
5.30
6.75
6.60
5.10
6.59
6.42
5.02
5.49
5.38
1.99
2.24
2.17
2.39
2.60
2.53
2.27
2.47
2.41
2.21
2.22
2.22
1.61
2.66
2.55
1.79
2.58
2.48
2.18
2.52
2.44
0.051
0.053
0.052
0.042
0.045
0.044
0.045
0.048
0.047
0.135
0.104
0.109
0.051
0.058
0.057
0.076
0.066
0.068
0.050
0.055
0.054
8.5
8.1
8.2
7.9
7.9
7.9
8.1
7.9
8.0
6.1
5.9
5.9
9.9
8.9
9.0
8.8
8.3
8.4
8.2
8.1
8.1
a)
The diluted mining models used to report the 2014 Ore Reserves are based on 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.
b) Proved Reserves are inclusive of ore stockpiles at the mines and port totalling approximately 30.9mt of dry product.
The Chichester Ore Reserve is inclusive of the Cloudbreak and Christmas Creek BID deposits. Selected Christmas
c)
Creek Ore Reserve will be directed to the Cloudbreak OPF to optimise upgrade performance and balance Cloudbreak
and Christmas Creek OPF lives.
The June 2013 Solomon Reserve was reported on a hub basis. It is restated here including deposit detail to allow
direct comparison with the 2014 statement.
d)
e) Reserve in-situ Fe cut-off grades are approximately 53 per cent for BID deposits and 51 per cent for CID deposits.
19
Fortescue Metals Group Limited I 2014 Annual Report
ORE RESERVES AND RESOURCES REPORT
C1 costs were
23%
for the financial year
20
Mineral Resources Operating Properties –
Hematite
Mineral Resources for the operating properties including
the Chichester and Solomon hubs are stated on a dry
in-situ basis. The Mineral Resources are inclusive of that
portion converted to Ore Reserves, including stockpiles.
As of 30 June 2014, the total Mineral Resource for the
Chichester and Solomon hubs was 5,441mt at an average
Fe grade of 56.5 per cent, a slight increase over that stated
in the prior year. This was accompanied by a slight decrease
in the proportion of higher confidence Measured and
Indicated Mineral Resource mineralisation from
66 per cent to 63 per cent as a result of mining depletion.
The Chichester Hub Mineral Resource totalled 3,222mt
at an average Fe grade of 56.7 per cent, with 70 per cent
of the tonnage in the Measured and Indicated Mineral
Resource categories.
The total Solomon Hub Mineral Resource increased by
11 per cent, totalling 2,219mt at an average Fe grade
of 56.1 per cent, with 51 per cent of the tonnage in the
Measured and Indicated Mineral Resource categories.
Fortescue Metals Group Limited I 2014 Annual Report
ORE RESERVES AND RESOURCES REPORT
Hematite Mineral Resources – as at 30 June 2014 Hematite Mineral Resources – as at 30 June 2013
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
Indicted
Inferred
274
420
469
Total
1,163
Measured
516
Indicted
1,064
Inferred
479
Total
2,059
Measured
790
Indicted
1,484
Inferred
947
Total
3,222
Measured
Indicted
Inferred
Total
Measured
Indicted
Inferred
45
155
170
371
121
818
909
Total
1,848
Measured
Indicted
Inferred
Total
167
973
1,079
2,219
Measured
957
Indicated
Inferred
Total
2,457
2,027
5,441
57.5
56.7
56.3
56.7
57.3
56.6
56.4
56.7
57.4
56.6
56.3
56.7
58.0
58.9
57.6
58.2
56.4
55.7
55.6
55.7
56.8
56.2
55.9
56.1
57.3
56.5
56.1
56.5
Cloudbreak
0.054
0.059
0.057
0.057
8.7
8.3
8.3
8.4
211
473
494
1,178
Christmas Creek
0.047
0.049
0.059
0.050
8.0
7.9
7.2
7.7
457
1,097
491
2,045
Sub-Total Chichester Hub
0.049
0.051
0.058
0.053
0.141
0.107
0.110
0.112
8.2
8.0
7.8
8.0
Firetail
7.3
6.4
6.9
6.7
668
1,569
985
3,222
41
181
141
364
Kings and Queens
0.068
0.065
0.076
0.071
8.5
8.8
8.6
8.7
92
871
676
1,640
Sub-Total Solomon Hub
0.088
0.072
0.082
0.078
8.2
8.4
8.3
8.3
133
1,053
818
2,003
3.06
3.37
3.38
3.30
2.97
3.38
3.21
3.24
3.00
3.37
3.30
3.26
3.35
2.64
3.25
3.00
2.87
3.22
3.41
3.29
3.00
3.12
3.38
3.24
57.0
56.6
56.3
56.6
56.5
56.6
56.4
56.6
56.7
56.6
56.3
56.6
59.7
59.0
57.6
58.5
56.9
55.6
55.2
55.5
57.8
56.2
55.6
56.1
5.43
5.75
6.09
5.84
6.39
5.97
6.55
6.20
6.08
5.90
6.32
6.07
4.84
6.13
6.55
6.15
6.23
7.86
8.07
7.85
5.80
7.56
7.80
7.54
4.86
5.69
6.07
5.65
5.93
5.94
6.54
6.08
5.56
5.87
6.31
5.92
5.80
6.11
6.85
6.41
7.43
7.75
7.86
7.78
6.99
7.49
7.70
7.55
Total Operating Property Hematite Mineral Resource
5.81
6.51
7.05
6.59
3.00
3.28
3.34
3.25
0.056
0.060
0.071
0.063
8.2
8.2
8.1
8.1
801
2,622
1,802
5,226
56.9
56.4
56.0
56.4
6.04
6.57
6.99
6.63
3.02
3.38
3.38
3.31
3.13
3.37
3.21
3.28
3.09
3.37
3.29
3.29
2.56
2.66
3.36
2.92
1.93
3.25
3.42
3.25
2.13
3.15
3.41
3.19
2.93
3.28
3.35
3.25
0.056
0.057
0.057
0.057
0.045
0.048
0.059
0.050
0.048
0.051
0.058
0.053
0.141
0.107
0.105
0.110
0.060
0.066
0.068
0.067
0.085
0.073
0.075
0.074
0.054
0.060
0.065
0.061
8.7
8.2
8.3
8.4
8.0
7.8
7.2
7.7
8.2
8.0
7.8
8.0
6.6
6.2
7.1
6.6
10.0
8.8
8.9
8.9
9.0
8.3
8.6
8.5
8.4
8.1
8.1
8.2
a)
Chichester Hub Mineral Resources are quoted at a cut-off grade of 54 per cent Fe while Solomon Hub Mineral Resources
are quoted at a cut-off grade of 51 per cent Fe.
b) The Measured Mineral Resource estimate includes mine and port ore stockpiles totalling 34.3mt.
c)
The June 2013 Solomon Mineral Resource has been re-stated on a deposit basis to allow comparison.
21
Fortescue Metals Group Limited I 2014 Annual Report 22
ORE RESERVES AND RESOURCES REPORT
Mineral Resources Development Properties – Hematite
The Company announced a 1.16 billion tonne (bt) addition to the Greater Solomon Mineral Resource base in May, 2014 as a
result of a program of exploration drilling. Major increases were in the Sheila Valley and Serenity deposits including additional
bedded, channel iron and detrital mineralisation. Updates to the Eliwana-Flying Fish Mineral Resources were also announced.
At the same time, the Mt Nicholas estimate was removed from the Greater Chichester inventory pending review and re-modelling.
Hematite Mineral Resources – as at 30 June 2014 Hematite Mineral Resources – as at 30 June 2013
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
Indicated
Inferred
Total
-
-
303
303
Measured
-
Indicated
254
Inferred
2,404
Total
2,658
Measured
Indicated
Inferred
Total
Measured
Indicated
-
-
740
740
23
580
Inferred
1,860
Total
2,463
Measured
Indicated
23
834
Inferred
5,307
Total
6,165
Greater Chichester
-
-
0.067
0.067
-
-
7.1
7.1
-
222
473
695
Greater Solomon
-
0.083
0.081
0.082
-
8.3
7.2
7.3
-
-
1,501
1,501
Eliwana and Flying Fish
-
-
0.091
0.091
0.139
0.148
0.147
0.147
-
-
6.5
6.5
Nyidinghu
8.0
8.6
8.8
8.8
-
-
624
624
23
580
1,860
2,463
-
-
3.25
3.25
-
3.45
3.71
3.69
-
-
2.88
2.88
2.21
2.95
3.36
3.25
-
50.0
54.1
52.8
-
-
56.8
56.8
-
-
58.7
58.7
59.6
58.1
57.2
57.4
-
10.89
7.58
8.64
-
-
7.00
7.00
-
-
5.44
5.44
3.56
4.52
5.00
4.87
-
-
5.90
5.90
-
6.70
6.93
6.91
-
-
5.21
5.21
3.56
4.52
5.00
4.87
Total Development Property Hematite Mineral Resources
3.56
5.18
5.95
5.85
2.21
3.10
3.45
3.40
0.139
0.128
0.105
0.108
8.0
8.5
7.7
7.8
23
802
4,458
5,283
59.6
55.8
56.9
56.8
3.56
6.28
6.01
6.04
-
-
57.1
57.1
-
56.6
56.8
56.8
-
-
59.1
59.1
59.6
58.1
57.2
57.4
59.6
57.6
57.3
57.3
-
6.83
4.86
5.49
-
-
3.71
3.71
-
-
3.06
3.06
2.21
2.95
3.36
3.25
2.21
4.02
3.60
3.65
-
0.060
0.066
0.064
-
-
0.080
0.080
-
-
0.091
0.091
0.139
0.148
0.147
0.147
0.139
0.124
0.108
0.110
-
8.0
7.5
7.7
-
-
7.3
7.3
-
-
6.6
6.6
8.0
8.6
8.8
8.8
8.0
8.4
7.9
7.9
a)
b)
c)
d)
The Greater Chichester Mineral Resource includes the Investigator, White Knight and Mt Lewin deposits. Overall, the quality
has increased and tonnage reduced as a result of removal of the Mount Nicholas inventory pending a model review.
The Greater Solomon Mineral Resource includes the Serenity, Sheila Valley, Mount MacLeod, Queens Extension, Cerberus,
Stingray and Raven deposits. The Indicated Mineral Resource is located at the Serenity deposit. The majority of additional
Inferred Mineral Resource is from extensions at Sheila Valley with smaller contributions from Serenity and Mount MacLeod.
All estimates making up Greater Solomon are reported to JORC 2012 standards (ASX release 20 May 2014).
The Greater Chichester and Nyidinghu Mineral Resource is reported to JORC 2004 standards and will be updated to
meet JORC 2012 reporting standards according to development priorities.
All Mineral Resources are quoted on an in-situ basis after applying an appropriate cut-off for each deposit. Details
relating to the cut-offs were provided when the Mineral Resource was first announced.
Fortescue Metals Group Limited I 2014 Annual Report
ORE RESERVES AND RESOURCES REPORT
Mineral Resources Development Properties – Magnetite
Mineral Resource updates for the North Star and Glacier Valley deposits (60.72 per cent Fortescue) were completed in 2014,
incorporating additional drilling, including the results of an in-fill reverse circulation drilling campaign across the North Star
Stage 1 project area. This drilling has confirmed the tonnage of higher confidence Measured and Indicated Mineral Resource,
which can potentially be converted to an Ore Reserve at an improved mass recovery. Peripheral Inferred mineralisation
contained in the prior estimate has been re-assessed based on the improved understanding of the mineralisation controls
and continuity. As a result, the tonnage of low mass recovery, Inferred mineralisation in the hangingwall and footwall has
been reduced with a corresponding significant increase in Mass Recovery.
The Glacier Valley estimate was also updated using the available data, including the improved understanding of
mineralisation continuity and controls. The 2014 Glacier Valley estimate remains wholly Inferred, with the tonnage
increased by 24 per cent, at a better Mass Recovery (2013 Mass Recovery based on MagSus correlation).
Magnetite Mineral Resources – as at 30 June 2014 Magnetite Mineral Resources – as at 30 June 2013
Category
In-situ
Tonnes
(Mt)
Mass
Recovery
%
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
44
679
1,926
2,648
-
-
2,028
2,028
44
679
3,953
4,676
27.2
28.0
23.4
24.6
-
-
23.5
23.5
27.2
28.0
23.5
24.2
Iron
Fe%
32.2
32.2
30.6
31.0
-
-
32.8
32.8
32.2
32.2
31.7
31.8
Silica
Alumina
In-situ
Tonnes
(Mt)
Mass
Recovery
%
SiO2%
Al2O3%
North Star (60.72% Fortescue)
39.8
39.6
40.9
40.6
2.0
1.9
2.5
2.3
-
721
2,847
3,568
Glacier Valley (60.72% Fortescue)
-
-
38.7
38.7
-
-
1.6
1.6
-
-
1,637
1,637
Total Magnetite Mineral Resource
39.8
39.6
39.8
39.8
2.0
1.9
2.1
2.0
-
721
4,484
5,205
-
25.1
19.1
20.3
-
-
-
-
-
25.1
-
-
23
Iron
Fe%
-
31.9
29.1
29.6
-
-
32.2
32.2
-
31.9
30.2
30.5
Silica
Alumina
SiO2%
Al2O3%
-
40.0
41.8
41.5
-
-
38.9
38.9
-
40.0
40.8
40.7
-
2.0
2.9
2.7
-
-
1.7
1.7
-
2.0
2.5
2.4
a)
Magnetite Mineral Resources including the North Star and Glacier Valley deposits are reported according to JORC 2012
standards (ASX release 20 August 2014).
b) All reporting is based on mass recovery expressed as a 9 per cent Davis Tube Recovery (DTR) cut-off.
c) Average concentrate quality based on DTR test results at a 53 micron grind size is ≥66 per cent Fe and ≤six per cent silica.
Fortescue Metals Group Limited I 2014 Annual Report ORE RESERVES AND RESOURCES REPORT
Kings Valley ore processing facility
24
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, Mr David
Frost-Barnes and Mr Lynn Widenbar. Messrs Robinson,
Simpson, Nitschke and Frost-Barnes are all full-time
employees of Fortescue while Mr Widenbar is an
independent consultant. Each provided technical input
for Mineral Resources estimations and compilations of
exploration results.
Mr Robinson is a Fellow of, and Messrs Simpson, Nitschke,
Oliver and Widenbar 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, Frost-Barnes
and Widenbar 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.
Estimated Ore Reserves for the Chichester and Solomon
Hubs for fiscal year 2014 were compiled by Mr Ross Oliver,
a full-time employee of Fortescue.
Messrs Robinson, Simpson, Nitschke, Frost-Barnes,
Widenbar 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.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
25
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 Fortescue
We believe in generating long term value for all of our
stakeholders. We do this by empowering communities,
providing economic opportunity, behaving with respect
and care for people and the environment, taking
responsibility for our presence and doing what we say
we will do. To achieve our Vision, we must operate in a
way that integrates Corporate Social Responsibility (CSR)
principles into everything we do.
Our approach
Our governance framework and management systems are
designed to ensure that we make good decisions, identify
and manage our risks and continuously improve our
performance. These also stem from our Vision of being the
safest, lowest cost, most profitable iron ore producer and
align with our Values of: Safety, Integrity, Family, Enthusiasm,
Empowerment, Determination, Generating Ideas, Frugality,
and Stretch Targets. This approach helps us to manage both
our financial and non-financial risks and to take advantage of
the opportunities they also present. This report provides
an overview of how we approach the management of our
CSR issues and our current performance. This report has been
prepared in accordance with the core requirements of the
Global Reporting Initiative fourth generation guidelines
(GRI G4) Guidelines. Due to the focus of G4 on materiality,
we have reported only on our most material issues this year.
This ensures that our 2014 report is tailored to reflect where
our impact occurs and where we are able to have influence.
A copy of our GRI index is available on our website at
www.fmgl.com.au. Our overall approach to audit and
assurance is outlined in the Corporate Governance section
of this report. At present the only information within this
CSR section that has been independently assured is our
greenhouse gas emissions and energy data.
We adopt a continuous improvement approach to our
performance disclosures. In 2013, we became a signatory
of the United Nations Global Compact (UNGC) and we
continue to make use of the International Council on
Mining and Metals (ICMM) Sustainable Development
Principles. These commitments have also helped to
develop the content of this report.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
eight
targets
achieved
$ 1.6bn
in contracts awarded to
aboriginal
contractors and JVs
Recordable injury
frequency rate
FY14 - 6.0
FY13 - 7.6
%
turnover
voluntary
employee 7%
target
<12%
local procurement
of goods and services
Energy intensity
target
>75%
10.5%
Employee
engagement
above 80%
zero
Level 3
environmental
incidents
15%
by 2015
20%
by 2020
of our labour force to be made up of
Aboriginal people
Result of 12% in FY14
1 target not achieved
Zero fatalities
Tragically there were two fatalities in FY14
zero
discharge to
land of excess
dewatering
GHG intensity
1.8 %
26
2014 SCORECARD - PERFORMANCE AGAINST OUR 12 TARGETS
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 in an open
and honest way. 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-related 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.
Our policies are available on our website www.fmgl.com.au
and they include our:
• Directors’ Code of Conduct
Employees’ Code of Conduct
•
Risk Management Policy
•
Procurement Policy
•
•
Safety Policy
• Diversity Policy
• Community Policy
• Human Rights Policy
•
Environmental Policy
• Climate Change and Energy Management Policy
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
A whistleblower hotline service helps to ensure
compliance. This anonymous service is available to all of
our employees, contractors and our business partners.
It assists us to effectively deal with misconduct and
governance related breaches such as unethical, corrupt or
fraudulent behaviour. A number of reports were received
this year and these were followed up with corrective
action in accordance with our Unethical Behaviour Control
Framework. Some contractors and employees were
dismissed as a result of investigations.
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 it has developed
in its framework are currently industry best practice. We
have reviewed our practices against the Principles and this
has helped us to focus on industry specific issues. We will
continue to use the ICMM Principles to drive performance
improvements into the future. In April 2013, we started to
engage with the UNGC and agreed the UNGC principles
would become part of our business strategy, our culture,
supply chain and day-to-day operations.
Integration of CSR into the business
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 Board has delegated the responsibility for oversight
of risk management to the Audit & Risk Management
Committee (ARMC). The role of the ARMC is explained in
the Corporate Governance section of this report, including
its responsibilities for risk management.
The company has developed the Fortescue Risk
Management Framework (FRMF) which outlines the
methodology, approach and responsibility for the effective
management and oversight of risk within our business.
The FRMF is aligned to ISO 31000, the international
standard for risk management and provides a consistent
approach to the recognition, measurement and evaluation
of risks across our business. It also supports Executive
Management and the Board in meeting their corporate
governance responsibilities. Fortescue is working towards
integrating CSR considerations into our corporate decision-
making processes. We believe that our procurement,
planning and operational management decisions can help
to drive CSR performance improvements.
Engaging our stakeholders
We have a large number of stakeholders who are either
impacted or who influence the way that we operate.
Our success and social licence to operate depends on
proactive and transparent engagement with multiple
stakeholder groups. It is important for us to do what we say
we will do. Our stakeholders include our people, federal,
state and local governments, communities, traditional
owners of land, suppliers, customers, non-government
organisations, pastoral leaseholders, investors and the
media. For Fortescue to be successful over the longer
term in achieving our community goals, it is important
that we proactively and transparently engage with all of
these stakeholder groups. We use many vehicles to engage
our stakeholders including: hard copy reports, electronic
reports, intranet and internet sites, induction and training,
management briefings, company newsletters, employee
surveys, project specific meetings and other informal
communications.
Confirming report content
27
To ensure that our report is meaningful to our business
and to our stakeholders, this year we reviewed the issues
which have formed the basis of our CSR disclosures to date.
Specifically, we developed a list of material issues which
were then prioritised according to:
•
•
•
•
•
A review of our sector and the content of public
disclosure on key issues
The ranking of issues in our risk register and their
relationship to our CSR agenda
Stated commitments and policies of Fortescue
Public interest in issues
Stakeholder interest based on Fortescue’s existing
stakeholder engagement programs (as outlined
in the Corporate Governance section of this report
on page 65).
Based on this assessment, the following issues ranked
most highly this year: employee health and safety, local
community development, biodiversity, land rehabilitation,
energy efficiency, waste, land use and compliance. In the
next reporting cycle we will further refine and confirm the
priority issues with our key stakeholder groups.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
28
FORTESCUE MATERIAL ISSUES 2014
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.
Zero harm
People are our company’s greatest asset and safety is a
core value. We empower employees, business partners and
contractors to make decisions based on the fact that safe
production is the only acceptable standard. As a business
we are committed to continuous improvement of our safety
performance and to providing a safe workplace for all of our
employees, our business partners and our contractors.
In spite of our efforts this year, the Fortescue family
tragically lost two contractor employees in separate
incidents at Christmas Creek. Kurt Williams was fatally
injured on 14 August 2013 in an accident at the Ore
Processing Facility and Allen Zuvela was fatally injured
on 29 December 2014
in an accident at the heavy vehicle workshop, which
also injured a second contractor employee. Another
contractor’s employee was seriously injured in a dump
truck accident at Christmas Creek on 22 October 2013.
Fortescue offers chaplaincy and counselling to colleagues
and family members, however, the loss of two people is
totally unacceptable to all of us and reminds us to be ever
vigilant. Employees, business partners and contractors
should expect to return home safely from work. No one
on a Fortescue site is ever expected to do anything that
compromises safety. Our culture empowers everyone to
take whatever action is required to ensure safe operation,
including stopping production when necessary.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
2.0m
CERTIFICATE
Use fall protection
when working at
height – 2x2
Verify isolations
and confirm stored
energy has been
controlled before
work begins
Obtain
authorisation to
enter explosive
exclusion zones
Secure tools and
barricade work
areas to prevent
dropped objects
Maintain 3 metres
from track and
only work within
authorisation limit
Obtain
authorisation prior
to entering confined
space
Only inflate tyres in
an approved tyre
safety device
Never walk or
work under a
suspended load
Stop at stop
signs and rail
crossings
Follow lightning
instructions
at work
When driving wear
a seat belt and obey
speed limits
Wear a PFD
when working
above water
km /H
LIFE SAVING CHOICES
29
Fortescue is facilitating official investigations and enquiries
into these incidents with the relevant authorities and these
are ongoing. Fortescue was not issued with any safety-
related fines or penalties during the reporting period. The
WA Department of Mines and Petroleum issued Fortescue
special directions under section 21.1 (O) of the Mine Safety
Act 1994 on 30 December 2013, requiring greater direct
supervision and safety checks across all Fortescue mine
sites. The directions were subsequently withdrawn on 7
January 2014 following submission of Fortescue’s action
plan. Fortescue commissioned an independent, external
whole of business review in February 2014 to examine
safety performance and management across every area of
our operations. The review looked at multiple aspects of
safety including culture, systems, policy and reporting and
had open access to our sites, data and people. More than
6,000 employees, contractors and business partners were
engaged and active in this process.
The review found our approach to be leading edge, however
opportunities for improvement were identified and further
work was recommended in four key areas: safety as a value,
line management leadership, contractor management and
site action plans. All recommendations from the review have
been accepted and are being implemented in our business.
Fortescue is committed to remaining eternally vigilant
with respect to safety.
Life Saving Choices
Our key fatality prevention programs are now represented
by three tiers. First, our existing Health and Safety
Management System includes thousands of controls.
Second, our Major Hazards Management Program was
built on eliminating fatality risk at all stages of the mine
lifecycle and features fifty to sixty critical controls. Finally,
our Life Saving Choices empower individuals by focusing
on the fatality risk that the individual has the most direct
control over on the job. They consist of a set of twelve
memorable, simple rules which are enforceable 100 per
cent of the time and applicable to everyone who works
for or with Fortescue. The Life Saving Choices program
was launched in October 2013 and training was delivered
through site leadership teams in the two months prior. To
date, more than 16,000 direct employees and contractors
have been trained and of these 5,613 are new personnel
inducted since January 2014. A further 10,620 employees
and contractors have received additional formal health
and safety training while Life Saving Choices has also been
incorporated into leadership training programs.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Fortescue and Contractor Safety Performance
TRIFR
Fatalities
Iron Ore Industry
LTIFR Average
2011
2012
2013
2014
r
e
b
m
u
N
/
e
t
a
R
16
14
12
10
8
6
4
2
0
30
One of the primary objectives of our Business Plan for
2014 was to improve our total recordable injury frequency
rate (TRIFR) by 15 per cent. To reinforce our safety culture,
rewards are included in the structure of our short term
incentive plan where every Fortescue employee has a
portion of their incentive weighted against our safety
performance measure. The weighting varies for each
individual and ranges from 8 per cent to 33 per cent of
the total opportunity. This measure accounted for 15 per
cent of the CEO’s incentive opportunity and 20.5 per cent
of the Director of Operations and site general managers
incentive opportunity.
Our reporting on safety is aligned with the United States
Government Occupational Safety and Health
Administration (OSHA) guidelines for the recording
and reporting of occupational injuries and illnesses.
During this year we recorded a TRIFR of 6.0 per million
hours worked which represents an improvement of
21 per cent on the previous year’s result of 7.6.
Our safety performance over time is presented in the
charts above and opposite. While we have seen
improvements in our overall injury rate over recent years,
the two fatalities recorded over the past year demonstrate
that lower rates of injury do not necessarily mean that
fatalities will be prevented. Both fatality risk and injury
rates will require our constant focus as we drive our step
change. Safety is our highest priority.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
TRIFR by major business units and operations
2012
2013
2014
Christmas
Creek
Cloudbreak
Port
Rail
Solomon Port and rail
expansion
Resource
geology
Infrastructure
services
r
e
b
m
u
N
/
e
t
a
R
16
14
12
10
8
6
4
2
0
CASE STUDY
31
Great Days for the Royal Flying Doctor Service
Our Great Days Program was developed to help ensure
our milestones for safety, environment, heritage and
construction are consistently managed in our projects.
A Great Day is when everyone goes home the way
they came, having worked safely, hit targets, cared for
the environment and kept to schedule. The premise of
the program is that if we can have just one Great Day,
then there is no reason why we cannot have all Great
Days. As an added incentive, the program links to our
community investment work and for each Great Day
achieved, Fortescue donates funds on a sliding scale to
the Royal Flying Doctor Service (RFDS) for the essential
role they play in saving lives at remote and rural
locations such as ours. The more consecutive Great
Days we have, the larger our contribution. To date we
have donated more than $70,000 and in August last
year we presented a cheque for over $40,000 to Nick
Harvey from the RFDS at a ceremony at Solomon. Paul
Randell, Solomon’s HSE Manager, said the Great Days
Program not only made the sites focus on their targets
but it enabled them to donate important funds to the
RFDS. “The cheque represented the hard work of our
employees and contractors at our Christmas Creek and
Solomon sites. It is a fantastic effort and I hope that we
can continue to work hard to have many more Great
Days,” Paul said.
Nick Harvey (RFDS Executive General Manager Corporate Affairs)
accepts the Great Days contribution at Solomon
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Cloudbreak Vehicle Segregation and
Hierarchy Traffic Rules – Safety Award
Finalist
The implementation of a new traffic management
system at Cloudbreak was proposed at one of our risk
assessment workshops. The system is designed to
address risk associated with vehicle interaction and
lower the risk profile. Hierarchy Road Rules assign right
of way priority to different classes of vehicles to reduce
the risk associated with vehicle crossings or blind
spots. The proposal for vehicle segregation focuses on
eliminating a significant portion of vehicle interaction
in the mining area. The program was recognised as
a finalist in the Safety and Health Innovation Awards
2014 by the Chamber of Minerals and Energy of
Western Australia.
Occupational Hygiene Program
Fortescue has developed an occupational hygiene
program to properly manage occupational health
risks associated with potential exposure to a variety
of health hazards. These hazards include atmospheric
contaminants such as dusts, fibres and fumes.
The program is designed to effectively anticipate,
recognise, evaluate, communicate and control potential
health hazards in the workplace in order to prevent
occupational illness and disease.
Risk based atmospheric contaminant monitoring was
conducted across Fortescue operations throughout
FY14. Monitoring results are compared against
regulated exposure standards and internal action limits
to quantify exposures and assess control effectiveness.
Across three operational mine sites, over 90 per
cent of all monitoring results received were below
action levels showing highly controlled work areas
for atmospheric contaminant exposure. Ventilation
controls are routinely inspected throughout the year to
ensure their effectiveness thus providing a safe working
environment for our employees.
Cloudbreak vehicle segregation is improving safety
32
CASE STUDIES
Dust monitoring is providing a safe working environment for our employees
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
s
t
l
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s
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M
Fortescue atmospheric contaminant monitoring results FY14
8%
7
92%
10%
21
90%
8%
21
92%
Above action level
Below action level
83
185
241
Anderson Point
Christmas Creek
Cloudbreak
Our workforce
Workforce equality and diversity
33
The size of Fortescue’s workforce has grown rapidly
over the past few years, with direct employment peaking
in 2012. Our workforce at 30 June 2014 comprised
4,553 direct employees, with our contractors employing
a further 10,125 people. The changing nature of our
workforce reflects the development and completion
of important infrastructure projects over this period,
such as the Kings Valley project at the Solomon Hub
which employed more than 2,000 people during peak
construction. This transition and the ramping up of mines
and processing facilities have helped us toward our
production goal of 155 million tonnes per annum.
We would like to thank everyone who is no longer with
the business for playing a very important part in achieving
this milestone.
Our employee Code of Conduct establishes the essential
standards of personal and corporate conduct and behaviour
expected of everyone at Fortescue. The Code outlines
the ways in which Fortescue conducts its business and
reinforces the Fortescue values. Our policies on issues
such as equal opportunity and employee discrimination,
diversity, bullying, unethical behaviour and human rights
all stem from the Code of Conduct. These policies and
frameworks work together to provide a fair and equal
workplace that is free from discrimination. In 2014,
we rolled out training programs on bullying and anti-
discriminatory behaviour. As part of our Unethical Control
Behaviour Framework, we assessed areas for bribery and
corruption risk and every one of our leaders across the
business completed ethics training on how to deal with
fraud, bribery and corruption.
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. While we have continued to implement
that plan, we are disappointed that the overall proportion
of women in our workforce reduced to 17.4 per cent this
year from 19.7 per cent in 2013. The proportion of women
in the senior executive increased from 3.2 per cent in 2013
to 10 per cent this year.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
Supporting Women In Fortescue Together
We continued Supporting Women In Fortescue
Together (SWIFT) which was initiated last year by a
small group of Fortescue women keen to enhance the
networking and mentoring opportunities available
to women within Fortescue. This year our activities
included meetings with Board member Sharon
Warburton and our Chaplains Diana Bartlett and Gillian
Lewis to discuss work life balance, becoming a new
parent and career planning.
Over the coming year we will pilot a career resiliency
program called Go Forward, to assist young women
in the company with their career goals, access to
networks and mentoring activities. We also have a new
target of an equal represention of men and women for
our 2015 graduate intake.
Fortescue Director Sharon Warburton with Fortescue 10 year Legend Kaz Floyd
34
CASE STUDY
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Workforce profile: Gender
10%
21
8%
21
92%
241
Male
Female
2012
2013
2014
Indigenous diversity
10%
21
8%
21
92%
241
Non Indigenous
Indigenous
2012
2013
2014
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
We were also pleased to announce the appointment of
another woman to the Board and we welcome Sharon
Warburton to the Fortescue family.
We have continued our long term commitment to
increasing Aboriginal participation in employment
through opportunities within our business. We set
ourselves a target of 15 per cent of Aboriginal employees
in our business by 2015. Such employment opportunities
help us to achieve our aim of being an inclusive
and diverse workplace with multiple benefits to the
communities in which we operate. This year we achieved
another increase in Aboriginal employees to 12 per cent,
which places us within range of our target.
Developing our high performance culture
As a business we continue to challenge ourselves and
others. Setting stretch targets, generating ideas and
empowerment are all core values which need to be
supported by a workforce which is motivated, engaged
and effective. We remain committed to essential training
on safety, environment and cultural awareness. Such
training is key to employees and contractors being able to
meet work expectations.
During the year more than 14,000 users were added to
our employee and contractor online induction system.
A total of 70,958 online inductions were completed during
the year. We delivered quarterly toolbox presentations
to raise awareness of key environmental issues.
113 cultural awareness training sessions were held
discussing our approach to cultural heritage and
local communities.
Fortescue’s apprenticeship program is part of our
commitment to developing our leaders of tomorrow. As
a company we are committed to not only developing the
business as a leader in iron ore mining operations but also
providing the opportunity for our employees to become
leaders in skills, innovation and development within their
chosen careers.
Currently Fortescue employs 58 apprentices across our
operations at Christmas Creek, Cloudbreak, Solomon, Port
and Rail. These numbers will increase to 82 by March 2015
and after apprentices complete their training during
FY15, we will sustain numbers of around 75 by the
end of the 2015 calendar year, exceeding our previous
expectations.
Along with the apprenticeship program, Fortescue has a
well-established national qualifications program in place
with current numbers showing 196 employees registered
on active traineeships across the business. Qualifications
within these traineeships include Diploma of Management,
a Certificate IV in Engineering, Business, Process Plant
Technology, Instrumentation, Work Health and Safety,
Warehousing, Frontline Management and Customer
Contact, Certificate III in Surface Extraction, Rail Operations
and Business.
With our relentless pursuit of safety excellence and
enhancing our duty of care to all employees we continued
with our trade audits across the business to ensure we
have the right people with the right qualifications for the
position they have been employed for.
Fortescue continues to offer employees support for further
education and training including tertiary study, through
our education assistance program.
Fortescue is also committed to enhancing the skills
and knowledge of our leaders through our leadership
development programs. Our site-based Supervisory
Leadership Development program has been operating
for 14 months with over 150 participants. In addition,
our Non-operational Supervisory Development Program
was introduced in May 2014 to develop our Perth-based
leaders. In late 2014, this portfolio of programs will be
revised to ensure future business requirements are being
met. As a result of this review, it is anticipated that a new
Senior Leadership Program and Career Resiliency Program
will commence.
Case Study: Our family friendly environment
Family is one of our core values at Fortescue. We offer
our Fly-In Fly-Out (FIFO) employees a roster of eight days
on and six days off which we believe is leading industry
practice. Our leave policy allows for the purchase of an
additional 10 days of leave and we are also undertaking
a trial of job sharing at Cloudbreak to provide further
flexibility. We acknowledge that being a parent and a FIFO
worker represents many challenges and we encourage
our employees to participate in The Fathering Project, a
not-for-profit organisation which gives advice to fathers on
how to support and encourage their children, particularly
while away from home. Our Home Ownership Assistance
Scheme and commitment to long-term community
development in the regions where we operate also
contribute to building the Fortescue family.
35
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Voluntary employee turnover
16
14
12
10
8
6
4
2
0
e
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r
e
P
36
2011
2012
2013
2014
Measuring employee engagement
Fortescue measures employee engagement in multiple
ways. Voluntary employee turnover is one indication
and retaining employees in the context of our Fly-In
Fly-Out (FIFO) operations is an ongoing demand of doing
business. Our aim is to maintain a voluntary turnover rate
which compares favourably against the industry average
rate of 12.3 per cent. This year our reported voluntary
turnover rate was 7 per cent, compared with 9.7 per cent in
the previous year. During the year, 299 employees left the
business voluntarily while a further 141 left through end of
contract, redundancy or dismissal. We are delighted that our
voluntary turnover rate continues to decline demonstrating
our employees are committed to our future.
The results of the 2014 Fortescue Values Survey were
a very pleasing footnote to a year in which Fortescue’s
senior leadership focused on building and strengthening
our culture. The survey, open to the entire workforce
during June, showed a pleasing improvement in employee
participation and engagement.
Employee engagement, the most significant and
comparable metric from the survey, was recorded at
82 per cent demonstrating a strong increase over
previous engagement rates of 71 per cent in 2013 and
76 per cent in 2012. This measure comprises responses
to questions about the level employees are committed to
Fortescue, prepared to promote the business and willing
to “go the extra mile”. It compares favourably to the
industry benchmark of 70 per cent which comprises
40 Australian companies.
Participation rates for the survey were our highest ever at
81 per cent, significantly higher than 52 per cent in 2013
and 68 per cent in 2012.
Further results of the survey found 89 per cent of people
who responded confirmed we act in accordance with our
own values and 87 per cent are willing to go above and
beyond their duties. More than 82 per cent of people who
responded said they were proud to work for Fortescue and
79 per cent rated the likelihood that they would recommend
Fortescue as an employer at more than 6 out of 10.
Fortescue leadership is committed to the continuing task
of building our culture and achieving even better results in
next year’s survey.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
Natural environment
Built infrastructure
Economic
Managed aquifer recharge,
engagement with government
on environmental management
programs, heritage- traditional owner
surveys, dust control, environment
research and development programs,
sponsorship of local fauna rehabilitation.
People
Apprenticeships, traineeships,
local hiring policies, leading safe
behaviours, cultural awareness
training and FIFO support from
Port Hedland, Roebourne, Fitzroy
Crossing and Carnarvon.
Renewable energy, residential
housing in three communities,
increased accommodation
capacity, the marquee park cafe
and Variety WA.
Employment, local content,
local business capacity,
building fees, licences and
royalties.
Host communities
and
Fortescue
Social
Advancing Indigenous Australians,
VTEC business incubation,
land compensation, culture/
arts, “I’ll Give a Day Mate”,
Fortescue Foundation, Australian
Employment Covenant, enabling
Indigenous Lore tradition, Variety
WA and Doctor housing.
WE PARTNER TO EMPOWER COMMUNITIES
37
Empowering communities and respecting cultures
We seek to empower 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 is committed to providing economic
opportunity to transform the Pilbara.
In FY14, we will pay approximately US$790 million in
income tax with an additional US$717 million in royalties
to the Western Australian State Government’s Royalties
for Regions program which reinvests 25 per cent of
those royalties into projects that help build regional
communities, including healthcare and education.
Fortescue’s commitment to local employment, residential
workforces and Aboriginal people builds on this initiative
and the Pilbara Cities vision to create economically strong
communities.
The social, environment, infrastructure, people and
economic programs as outlined in the diagram above all
touch our local communities in some way. Over the longer
term these programs will generate long term value for us
and our local communities.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Aboriginal Engagement
Vision: Changing lives through opportunity.
38
Fortescue’s vision drives our distinctive approach to
Aboriginal engagement from our native title agreements
and initiatives to our training, employment and business
development. By providing opportunity and support to
the traditional owners and native title holders of the lands
on which we operate, we are seeing lives transformed
from intergenerational poverty to full-time work and
self-employment.
We have active Land Access Agreements in place with
seven Traditional Owner groups in the Pilbara region,
specifically the Palyku, Kariyarra, Nyiyaparli, Bunjima,
Eastern Guruma, Puuti Kunti Kuruma Pinikura and Njamal
People. These Land Access Agreements, along with our
management practices, help us to uphold fundamental
human rights and respect for the Aboriginal communities
that are impacted by our activities. This approach is aligned
with our Human Rights Policy and is consistent with
global frameworks including the United Nations Guiding
Principles on Business and Human Rights, the United
Nations Global Compact and the ICMM Principles.
Heritage
The management of Aboriginal cultural heritage
and respect for Aboriginal culture and traditions
are fundamental aspects of Fortescue’s sustainable
operations. Our Native Title agreements set out a best
practice heritage management regime, which ensures
compliance with the Aboriginal Heritage Act 1972 and
the establishment of a rigorous consultation process with
traditional owners and Native Title parties. During the year
we had no incidents impacting Aboriginal heritage sites,
which is evidence of the effectiveness of our management
procedures and systems.
Fortescue has developed comprehensive Heritage
Management Plans for each of our projects. We work
closely with our Native Title partners in the conduct of
heritage surveys and consult extensively over all approvals
required under the Aboriginal Heritage Act 1972. We have
developed excellent internal processes which ensure
heritage is considered at all levels of project planning and
development. We have a record of re-engineering and
redesigning projects and infrastructure to avoid important
Aboriginal heritage sites, including engraving sites in the
vicinity of Fortescue’s railway lines. Fortescue views the
protection of important Aboriginal heritage as the priority
for our Heritage department and it directly employs key
members from our Native Title partner communities to
support us in this endeavour.
This year our Heritage team worked in partnership with
traditional owners and heritage consultants to introduce
Fortescue’s new Heritage Consultant Standards (The
Standards). The Standards will apply to all heritage
consultants working on Fortescue projects, including
consultants engaged through native title groups or their
heritage service providers. The Standards aim to ensure
that recording and reporting by heritage consultants
meet the professional quality required by Fortescue and in
alignment with the changes to the administration of the
Aboriginal Heritage Act 1972 and proposed amendments
to the Act itself. This will enable the continuation of
Fortescue’s high quality cultural heritage protection
program, and allow us to provide the best outcomes for
identifying and protecting Aboriginal sites.
We understand the importance of educating our workforce
about the significance of Aboriginal heritage and culture.
In consultation with our Native Title partners, Fortescue
delivers a comprehensive program of cross cultural
education. Everyone who starts work on a Fortescue site –
both employees and contractors – is aware of Fortescue’s
commitments to the protection of Aboriginal heritage and
the importance of Fortescue’s relationships with its Native
Title partners. During the year our general induction was
redrafted to include a component on Fortescue’s approach
to Aboriginal engagement. The cross cultural education
session was also delivered to over 2,800 people.
Aboriginal Employment
From the early days of Fortescue, we committed to deliver
substantial outcomes in Aboriginal employment across
our operations. Our first Community Development plan
committed Fortescue to a long term target of 20 per
cent Aboriginal employment, and we aim to reach this
ambitious goal by 2020. Our Native Title agreements also
committed Fortescue to the establishment and operation
of the Vocational Training and Employment Centres (VTEC).
At the end of FY14, our Aboriginal employment rate stood
at 12.2 per cent or 553 people. VTEC was established by
Fortescue in Port Hedland in 2006, and since that time it
has trained and employed over 800 Aboriginal people,
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Turning lives around VTEC and the FIVE
STAR Program
Vivian Trigwell, a Yinjibarndi woman from Roebourne,
launched her mining career through the Fortescue
VTEC program in June 2012. Prior to working with
Fortescue, Vivian had worked as a housekeeper and
factory worker. Upon successful completion of the VTEC
program, Vivan secured a permanent position at our
Christmas Creek mine as a Civil and Infrastructure Crew
Operator and has since been in this role for two years.
The Fortescue FIVE STAR secondary scholarship scheme
offers secondary scholarships to both Fortescue’s
Native Title Partners and children of Fortescue
employees, of which Vivian is both. In 2013 Vivian
applied for a scholarship for her daughter Nikki and
was awarded a placement for Nikki to board at Perth
College commencing in 2014.
The FIVE STAR program’s secondary scholarship scheme
has given Vivian the opportunity for her daughter to
receive a world class education and attend one of the
most prestigious schools in Perth. The scholarship
will support Nikki for the duration of her secondary
education and, dependant on Nikki’s career aspirations,
continue to support her post-secondary education
through another FIVE STAR scheme such as a tertiary
scholarship, cadetship, vocational scholarship or work-
based traineeship.
In collaboration with Nikki, Vivian and Perth College,
Fortescue is creating a long-term education, training
and employment pathway for Nikki.
12 %
of our overall workforce
is Aboriginal
39
VTEC Graduate Vivian Trigwell with Foretscue CEO Nev Power at the VTEC
graduation in 2012
CASE STUDY
including 122 in FY14. The pre-employment program
at VTEC provides job specific training and structured
support to ensure the trainees develop a basic skill level
while addressing their personal barriers to employment.
The barriers to employment depend on the particular
individual, but are broadly represented by the lack of a
driver’s licence, health problems, literacy and numeracy and
personal issues. VTEC has developed specialist programs
in each of these areas. Upon successful completion of the
VTEC pre-employment training the graduate is guaranteed
a job. VTEC’s focus is on local Aboriginal people,
particularly members of our native title groups. Over 300
of our Aboriginal employees are based in the Pilbara and
annual wages paid to Fortescue’s Aboriginal employees are
$66 million which represents around
10 per cent of our total payroll.
Our VTECs are located in Port Hedland and Roebourne
and have been established through a successful
partnership with the Pilbara Institute. We extended the
VTEC program to Fitzroy Crossing in the Kimberley through
a partnership with the Fitzroy Valley Men’s Shed and key
contractor Downer EDI. There are 20 Aboriginal people
from Fitzroy Crossing flying to work with Downer EDI at
Fortescue’s Christmas Creek mine site in the Pilbara.
To enable local Pilbara Aboriginal people to work at remote
mine sites, we operate a regional fly-in fly-out service
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
40
from Port Hedland and Roebourne. We also operate a
service between Fitzroy Crossing and Christmas Creek.
We are committed to providing housing for our local
Pilbara employees, and in particular we provide housing
assistance to 250 Aboriginal employees. This housing
assistance includes a home ownership scheme. We
recently purchased 15 blocks of land in Roebourne and will
soon begin construction on houses, which will be available
for purchase for Fortescue’s local Aboriginal employees.
Our operational sites have dedicated teams who work
towards the successful transition of Aboriginal employees
into the workforce and to promote sustainable long term
employment. Fortescue is currently working on a new
program for VTEC graduates which will be rolled out to our
Solomon and Christmas Creek mine sites during 2015. The
VTEC graduate program will include on the job structured
training with continued focus on personal development
while addressing employment barriers identified during
the pre-employment training. Fortescue’s rate of retention
for our Aboriginal employees was 85 per cent during FY14,
and we aim to improve that to 90 per cent over the next
two years.
Our FIVE STAR program aims to provide long term
professional career pathways for Aboriginal people at
Fortescue. The program provides traineeships, secondary,
tertiary and vocational scholarships, cadetships and
leadership development. So far, 40 Aboriginal people
have had the opportunity to participate in the FIVE STAR
program since its creation two years ago.
Our contractors employ a further 580 Aboriginal
people which represents 11 per cent of the contractor
workforce on our sites. We ensure our contractors have
ambitious Aboriginal employment targets embedded in
their contracts. For example, key embedded operational
contractors have a target of 20 per cent Aboriginal
employment.
Our VTEC program inspired the model promoted by
GenerationOne and now endorsed by the Federal
Government. The Federal Government has committed
$45 million to fund the establishment of VTECs across the
country. At Fortescue we are extremely proud of our role
in the development of this nation leading approach to
Aboriginal employment and training, and importantly
that over 1,100 Aboriginal people are employed on
Fortescue’s sites.
Aboriginal Business Development
We are a national leader in the delivery of opportunities
for Aboriginal businesses. Our commitment to Aboriginal
business development forms a key part of the benefits
delivered under our native title agreements.
In 2011, we set a target to award $1 billion in contracts
to Aboriginal businesses by the end of 2013 through the
Billion Opportunities program. The contracts were not
to be just ‘handed out’, but were instead the responsible
professional engagement of sustainable Aboriginal
businesses, capable of delivering projects in a safe, timely
and cost competitive manner.
In order to achieve this target, we set about transforming
the approach taken to engaging Aboriginal businesses,
and implemented an innovative strategy across our
business to facilitate positive changes in our procurement
processes. The strategy required commitment at the
highest level with Chairman Andrew Forrest and CEO Nev
Power championing the initiative. Fortescue’s dedicated
Aboriginal Business Development team worked closely
with the Procurement team to deliver the strategy,
which included quarantining and carving out contracts,
negotiating contracts directly with Aboriginal businesses,
altering tendering processes, setting and monitoring
targets, the compulsory development of an Aboriginal
engagement strategy by contractors and regular reporting.
The $1 billion target was achieved in June 2013,
18 months into the program and six months ahead of
schedule. One year on, the total value of the more than
160 contracts and sub-contracts awarded to more than
60 Aboriginal businesses is greater than $1.6 billion. That
value represents approximately 10 per cent of Fortescue’s
total procurement since the program was launched.
Importantly, for local Aboriginal people 88 per cent of
these contracts were awarded to businesses associated
with our Native Title partners.
We continue to build on the success of the innovative
Billion Opportunities program and have proven that
with the proper motivation, application and sincerity,
sustainable economic engagement with Aboriginal
communities is achievable.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
Billion Opportunities - contract value
709m
Billion Opportunities - contract value
497m
709m
Billion Opportunities - contract value
182
274m
274m
497m
709m
2011-12
2012-13
497m
2013-14
585
585
113
585
113
11
267
267
201
201
267
29
274m
2011-12
2011-12
2011-12
2012-13
2013-14
11
113
Billion Opportunities - contracts awarded
2012-13
2012-13
2013-14
32
60
2011-12
11
Billion Opportunities - contracts awarded
11
2012-13
2012-13
7
2011-12
2013-14
i
11
Billion Opportunities - contracts awarded
17
29
201
2013-14
29
15
2013-14
15
24
24
21
15
41
182
60
182
60
32
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Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
Largest parcel of contracts to Traditional Owners
This year Fortescue awarded over $500 million of
contracts to six Aboriginal joint ventures and Morris
Corporation Pty Ltd representing the largest ever
package of contracts awarded to Aboriginal businesses.
The contracts cover a range of services including the
preparation of more than 60,000 meals a month and
60,000 room change outs. The contracts include a
target of 20 per cent Aboriginal employment and a
requirement to work with other Aboriginal businesses.
Raylene Button, who is a member of the Kariyarra
Native Title Group, commented, “I hope we lead the
rest of Australia…and that more Aboriginal businesses
get the opportunities we’re getting”. As a part of this
change to our facility at Hamilton in Port Hedland,
Morris Corporation began sourcing over 100 loaves of
bread daily from the local Brumby’s franchise. Residents
now receive fresh bread for their 4.30am start as
opposed to bread being trucked in weekly from Perth.
This is the third year that we have measured and analysed
our procurement spend. The largest proportion of our
procurement spend was with Australian suppliers and
we maintained our proportion of spend with local Pilbara
businesses.
We have also continued the work started last year in
extending our Human Rights Policy which is aligned
with the United Nations Guiding Principles on Business
and Human Rights, the United Nations Global Compact
and the ICMM Principles. The policy commits us to
actively ensure that we are not complicit in human rights
abuses committed by others. We have an active program
with our suppliers communicating what we mean by this
commitment, their compliance requirements and what
constitutes best practice.
We are also sharing this experience, knowledge and
capacity by engaging with Chief Procurement Officers
in other businesses through the Walk Free Foundation,
which aims to end modern slavery.
Fortescue’s Stephen Smith with local South Hedland Brumby’s owner
Elise Denham and Morris Corporation Assistant Manager Adrian Awcock
celebrate a new supply deal in January 2014
42
CASE STUDY
Local procurement
Fortescue purchases large volumes of goods and services
to support the operation of our mines, offices and support
services. We contribute to our communities through
local procurement which preferences suppliers who can
demonstrate either local content or Aboriginal engagement.
For local content, the order of preference is the Pilbara,
Western Australian and then Australian-based suppliers
and we have developed local content targets for each of
our operations. This commitment aims to proactively build
business opportunities and broader economic development
within the Pilbara communities, providing mutual support to
our other training, education and employment programs.
Fortescue supplier spend profile
s
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i
l
l
i
b
$
A
10
8
6
4
2
0
2011
Local suppliers - Pilbara
2012
2013
Australian suppliers
2014
Overseas suppliers
www.walkfreefoundation.org
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
Fortescue and Guma win Supplier Diversity
partnership of the year at the Supply
Nation awards.
Fortescue and GUMA ICRG JV Pty Ltd (Guma) were
proud to accept Supply Nation’s Supplier Diversity
Partnership of the Year award at the Connect 2014
Gala Dinner event held at Sydney’s Town Hall on
27 May 2014.
Guma was formed in 2012 as a ground-breaking
50/50 joint venture between the Nyiyaparli Traditional
Owners of the Pilbara region of Western Australia and
Indigenous Construction Resource Group (ICRG).
Guma is a Supply Nation Certified Supplier and
provides civil maintenance and construction services
to the mining sector. The company is chaired by
prominent Indigenous leader and academic Marcia
Langton and led by Nyiyaparli Traditional Owners
and Directors Raymond Drage, Michael Stream and
Victor Parker.
A Supply Nation member since 2011, Fortescue
first awarded a small sub-contract to Guma in 2013
through it’s Billion Opportunities program, which has
awarded $1.6 billion worth of contracts and sub-
contracts to Aboriginal businesses.
The initial opportunity, a road maintenance
sub-contract at the Cloudbreak mine, allowed
Guma to demonstrate its capability to consistently
deliver a safe, quality service at a competitive price.
Since then, Guma has been awarded a further four
contracts/sub-contracts on Fortescue projects, totalling
more than $60 million.
The partnership has facilitated the expansion
and development of Guma, directly providing new
business opportunities and building its capability,
as well as supporting meaningful employment and
workforce training for Aboriginal people on Fortescue
projects. Guma employs 31 Aboriginal people which
represents 61 per cent of their total workforce.
These opportunities have had a positive flow on
impact into the local Aboriginal communities as well
as other Aboriginal communities located throughout
Western Australia.
43
L-R: Guma ICRG JV Director Clinton Wolf, Guma ICRG JV Chairperson Marcia
Langton and Guma ICRG JV Director Victor Parker
CASE STUDY
Working with neighbours
We have 19 Access Agreements in place with
pastoralists relating to the granting of tenure and
mining and infrastructure operations. These agreements
have been struck following extensive consultation and
include compensation payments, the installation and
supply of pastoral infrastructure such as stock water
points, fencing and stockyards to offset the impact
of our activities on pastoral lands. We have a mutually
beneficial relationship with all of the pastoralists on
whose leases we operate and also offer pastoral
leaseholders the opportunity to provide earthworks
contracting services to Fortescue where appropriate,
which provide them with an alternative source of income.
Fortescue also provides assistance to pastoralists
during mustering activities so they may be conducted
safely within or close to operational areas, and on
occasion provides labour to assist them for musters.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Developing our communities
As we continue to expand our presence in the Pilbara, it is
more important than ever that we continue to work closely
with the community and key stakeholders to ensure that
our plans for growth are closely aligned with the needs of
the community.
Our Chairman Andrew Forrest has made a personal
commitment to a number of community partnerships
through the Minderoo Foundation. Fortescue also
supports these partnerships through our participation
in programs, fundraising and in-kind support. The goals
of programs such as GenerationOne and the Australian
Children’s Trust are strongly aligned with our own goals to
end the disparity between Indigenous and non-Indigenous
Australians. More information can be found on these
programs and their missions at www.generationone.org.au.
We have also continued our commitment to raise funds
for the construction of Ronald McDonald House in Perth,
which will provide much needed support to our regional
employees and communities if their children require
medical treatment in the future. More information can be
found at www.rmhc.org.au/building-new-house.
44
Under our Helping Others program we provide a
community support program which gives grants of up
to $5,000. We believe that our community investments
are more meaningful when we develop projects with
community partners whose values and program objectives
are similar to ours. The grants support community projects
within the council boundaries of the Town of Port Hedland,
the Shire of East Pilbara and the Tom Price area. During
the year we provided a total of $179,000 in community
grants to organisations located in the areas surrounding
these towns. Projects ranged from education and training,
healthy living and community safety to environmental
responsibility and quality of life. This year recipients
included the Port Hedland Junior Cricket Association and
the National Aboriginal Torres Strait Islander Basketball
Association as well as the Aboriginal Family Law Service
and the Port Hedland Music Festival. Eligibility is based on
set criteria, which is outlined by our Community Support
policies available on our website www.fmgl.com.au.
Separate to the Helping Others program, over $1 million
in financial and in-kind support was provided to other,
larger scale community development and support
programs such as the South Hedland Wanangkura
Stadium, local sporting events, housing for doctors
and medical facility funding.
We are committed to developing permanent, residential
workforces in Port Hedland, Karratha and Roebourne
through our major projects, training and employment
opportunities. There are 500 Fortescue families living in
the three towns and 190 of them are FIFO workers. This
reflects our earlier strategy to transition from an interim
FIFO workforce based in Perth to a permanent, regional
workforce based in the Pilbara.
Our Home Ownership Assistance Scheme has helped
to increase the availability of affordable, local housing
in the region. We own at least 70 homes which are
rented by employees and our unique Home Ownership
Assistance Scheme has helped families to establish long
term relationships in the communities of the Pilbara.
Approximately 60 families participate in the scheme which
provides assistance for deposits, stamp duties, interest
and utility bills. The scheme is available to Fortescue
employees and applies to homes built by Fortescue as well
as homes purchased on the open market. Home ownership
engenders a greater sense of community belonging
and is associated with increased participation in other
community endeavours such as sporting clubs, education,
organised events and charities. The future of our company
is directly linked to the viability of such communities.
Case Study: Fortescue provides books for
students in remote areas of the Nullagine
and Marble Bar communities.
Fortescue has teamed up with the Books in Homes
organisation to provide nine books per year to each
of the participating students. In early December,
Shannan Beal and Rachel Nash from the Fortescue
Communications team travelled to Nullagine Primary
and Marble Bar Primary to attend and present at their
annual Book Giving assembly.
The program links early learning back into each
child’s home and helps to ensure learning is seen
as an extended opportunity for both children and their
parents. The program also aims to break the education
inequality found in remote and Indigenous communities
where resources are limited. Around 25 per cent of all
books donated to the children are written by Aboriginal
authors, making sure Indigenous culture and history is
preserved. Books in Homes has now distributed in
excess of 1.4 million books of choice to more than
400 schools across the nation since 2001.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Deadly Beats giving young people a boost
The Youth Involvement Council introduced the Deadly
Beats program to Hedland in FY14. The program was
aimed at boys aged 11 to 16 and ran for six weeks
in November and December 2013. Deadly Beats
teaches its students how to write, record and produce
music together. It also helps boys feel a sense of
accomplishment in completing the program from
beginning to end and gives them an added boost of
pride and self-confidence.
Fortescue made a generous grant to assist with
operational costs of the program and received the
Deadly Beats CD which featured the boys’ hard work.
Stacey, one of the organisers of the program said, “It’s
so rewarding seeing the boys grow within themselves
and experience a newly found confidence within.”
To find out more about the Youth Involvement Council
visit www.yic.com.au
45
Leonard Simpson recording his lines as part of the Deadly Beats program
in December 2013
CASE STUDY
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.
Fortescue respects the need to protect the environment
in which we operate. As we continue to mature and grow
our business, we strive to achieve effective and sustainable
environmental outcomes in project development,
operation and closure. As responsible corporate citizens,
compliance with all relevant environmental laws and
obligations is the minimum standard to which we
operate and the minimum requirement against which
we measure our environmental performance.
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.
We have continued to progressively align all of our
operations with the ISO 14001 standard for environmental
management systems, which is built on the principles of
assessment, control, monitoring and review. This applies
to the whole project life cycle and promotes continuous
improvement in the way we manage the environment.
We have undertaken an internal audit to assess gaps
at both site and corporate level and will progress to
third party audits of this system in 2015 to identify
improvement opportunities.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
46
Environmental approvals and compliance
Fortescue’s operations are governed by the conditions
set out in the approvals and licences issued by
Commonwealth and state 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 on request.
Audits conducted this year against our Ministerial
Statements and Western Australia Environmental
Protection Authority requirements did not find any
material non-compliances.
Greenhouse and Energy
Fortescue reports energy and greenhouse performance
annually under the Australian Federal Government’s
National Greenhouse and Energy Reporting (NGER) Act
2007 and the Energy Efficiency Opportunities (EEO) Act
2006 which is designed to identify energy savings and
efficiency measures. Each year our total emissions, energy
use and energy production are independently audited,
to a limited scope, to ensure we report accurately and
reliably. We also participate in the Carbon Disclosure
Project and our report can be found at www.cdp.net
Fortescue’s greenhouse and energy performance is
reported to the Federal Government on a financial year
basis. Fortescue’s total scope one and two greenhouse
gas emissions for the 2013-2014 reporting period were
1,853,478 tonnes of CO2e which was a net increase of
29 per cent over the previous 12 months. Our scope two
emissions show a material increase through the expansion
of our Port facility and sale of our Solomon power station
to a third party.
Overall, our emissions increased as we ramped up
production, however, the greenhouse gas and energy
intensities associated with our operations have
decreased by 1.8 per cent and an impressive 10.5 per
cent respectively during the year. Monitoring intensity
allows a more practical indication of total work completed
as it takes into account the effects of our full chain of
operations on energy consumption. Our performance
over time is presented on the following page. As we move
from project development and construction to processing,
we expect to see our intensities continue to decrease as
our mining operations mature and take advantage of
more efficient energy options. This year, our Kings Valley
project has lifted total production capacity to our goal of
155 million tonnes per annum and we hope to realise a
consistent downward trend in greenhouse gas and energy
intensity as our operational efficiency becomes steady.
However, at this production capacity our forecast energy
costs are more than US$800 million per annum and energy
efficiency is a significant area of focus.
Diesel fuel continues to be our largest source of fuel
and is used in mining equipment, processing plants,
heavy trucks and generators. It is also used in our heavy-
haul locomotives to transport iron ore hundreds of
kilometres from the Chichester and Solomon hubs to the
port for export.
This year we have commenced a strategy to replace diesel
with gas through the Dampier to Bunbury Natural Gas
Pipeline and the new Fortescue River Gas Pipeline to the
power station at our Solomon Hub. This will save us US$20
million per annum and is a key part of our approach to
reduce energy costs and greenhouse gas emissions and
secure a lower cost energy supply to the region. Although
this will not be completed until 2015, we will utilise a
“virtual pipeline” by trucking compressed natural gas from
Port Hedland which replaces 300,000 litres of diesel each
day and saves 88,000 tonnes of greenhouse gas emissions
per annum from October 2014.
Case Study: Developing our renewable
energy capacity
Over the last 18 months Fortescue has been developing
a number of projects to familiarise the company with the
use of renewable energy. We continue to search for, and
assess, renewable energy opportunities and will develop
these opportunities where they meet the specifications
for power supply to the operations. At some sites this
is in conjunction with, or in place of, existing diesel and
gas fired power generation. Our rail communications
system, for example, runs entirely on solar energy with
350 kilowatt of photovoltaic capacity across
450 kilometres and 130 sites, which includes batteries
as back up for cloudy conditions.
This year, we have also developed various studies
investigating wind monitoring at our Solomon site and
waste heat to solar thermal at Christmas Creek. Our Solar
Diesel Integration Strategy aims to assign solar power
to mine loads and demonstrate high instantaneous
solar penetration, diesel redundancy and fuel offset in
supplying power to these operationally critical loads.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
Energy use
30,000,000
25,000,000
20,000,000
Energy use intensity
Energy use intensity
GHG emissions intensity
GHG emissions intensity
Energy use intensity
2,500
GHG emissions intensity
47
2009-10 2010-11 2011-12
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1,600,000
1,400,000
1,400,000
1,200,000
1,200,000
1,000,000
1,000,000
e
2
O
C
f
o
s
e
n
800,000
n
o
T
800,000
600,000
600,000
400,000
400,000
200,000
200,000
e
2
O
C
f
o
s
e
n
n
o
T
0
0
2007
2007
2008-09
2009-10 2010-11 2011-12
2012-13
2013-14
Total GHG emissions
Total GHG emissions
Total GHG emissions
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
2008
400,000
2008
200,000
0
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
Scope 1
Scope 1
Scope 2
Scope 2
2007
2008
2009
2010
2011
2012
2013
Scope 1
Scope 2
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY
Chichester Hub Rehabilitation
In 2014 Fortescue completed the rehabilitation of two
waste rock dumps at our Cloudbreak and Christmas Creek
sites (the Chichester Hub). The work was undertaken
by NEMMS WPH JV, a joint venture between Western
Plant Hire Pty Ltd and Nyiyaparli Engineering and
Mine Maintenance Services. NEMMS was formed by
senior Nyiyaparli Traditional Owners and is 100 per cent
Indigenous-owned.
The objective of the rehabilitation work was to form
stable structures that will support vegetation
communities. Both sites were the subject of slope
profiling, drainage infrastructure works and topsoil
replacement from nearby clearing activities. Fortescue
proposes to continue this approach with another three
waste rock dumps at the Chichester Hub next year.
Phase One of the rehabilitation works at the Chichester Hub, 2014,
being undertaken by NEMMS WPH JV
48
CASE STUDY
Water management
Water is a significant environmental issue and its
careful management is vital to Fortescue’s operations.
Water scarcity, water quality, water quantity and water
excess are risks to different aspects of our business.
We rely on groundwater to supply our water needs with
the majority of consumption used for ore processing and
dust suppression. We also supply our own camps with
drinking water.
Fortescue operates its own wastewater treatment
plants which enables wastewater to be used in
irrigation in dedicated areas or low quality on-site purposes
such as dust suppression. Wastewater quality is monitored
to ensure that treatment facilities are operating to
standard and that water discharge will not adversely
impact the environment.
We develop Groundwater Management Plans for each
site as a part of regulatory approval. These plans consider
water quality and quantity and help to mitigate and
manage risks. We also participate in the Water Disclosure
Project that helps institutional investors better understand
the business risks and opportunities associated with water
scarcity and other water-related issues.
We continue to use our award winning “Managed Aquifer
Recharge” scheme which injects extracted groundwater
back into the original aquifer once it has been used. This
allows for minimal wastage of water that may otherwise
be lost to evaporation or runoff. Significant monitoring
is in place to ensure that the groundwater returned to
the aquifer is of sufficient quality. Injection of the excess
water minimises the potential impacts to neighbouring
groundwater dependent ecosystems and the Fortescue
Marsh. The scheme will become increasingly important due
to our reliance on groundwater and the shift in our focus
from project development and construction to the de-
watering associated with operations and processing.
This scheme has been in place at Cloudbreak for a
number of years and in 2012 the program was extended
to Christmas Creek. Plans are progressing to install the
infrastructure at the Solomon Hub. So far, we have been
able to inject almost half of all groundwater abstracted
back into the aquifers at Cloudbreak and Christmas Creek.
Injection is undertaken on a continual basis to minimise
the net change in the groundwater table.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY
Our data on water use and wastewater is presented for 1 August 2013 to 31 July 2014.
2014 Water Use
Site
Type
Volume (kL)
Use
Herb Elliott Port
Railway
Scheme Water
Groundwater Abstraction
Groundwater Abstraction
Not tracked
600,000
207,000
Mining Operations
Groundwater Abstraction
138,613,000
Potable supply
Process and dust suppression
Fill compaction, dust suppression for rail
operations and potable water supply
to rail camps.
Dewatering to allow for mining below the water
table, potable water supply and non-dewatering
abstraction for mine use. Processing and refining
ore. Dust suppression on roads.
Returns to the Environment
Groundwater Reinjection
101,776,000
Surface water discharge
Surface Supplementation
(Solomon)
-
232,000
Water is injected into aquifers to minimise
environmental impacts and maintain the
water balance.
No excess groundwater was discharged to
surface during 2013/2014.
Kangeenarina Creek Supplementation Program.
49
2014 Wastewater data
Wastewater discharge (kL )
Site
Cloudbreak
Christmas Creek
Solomon
2013
133,393
302,860
72,726
2014
123,234
242,158
135,566
Fortescue Metals Group Limited I 2014 Annual Report
50
CORPORATE SOCIAL RESPONSIBILITY
Biodiversity and land rehabilitation
Fortescue is committed to conserving the biodiversity of
plant and animal life in the regions in which we operate.
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
the implementation of management plans and monitoring
programs to assess long term biodiversity in the region. We
prioritise species which are classified as significant under the
Commonwealth Environment Protection and Biodiversity
Conservation Act 1999, the Wildlife Conservation Act 1950
and the International Union for Conservation of Nature
(IUCN) Red List. While there are currently no recorded
observations of “rare” or “threatened” flora, there are 28
species of significant fauna recorded in or likely to occur in
the Fortescue operational areas.
Fortescue is currently preparing an Offsets Plan in
consultation with key stakeholders including the
Department of the Environment, Department of Parks
and Wildlife, pastoralists, Rangelands NRM and Greening
Australia. The Plan is required under four of our existing
approvals and will outline landscape scale activities to
address threats to the following threatened fauna species:
Greater Bilby, Northern Quoll, Pilbara Leaf-nosed Bat and
Night Parrot.
The activities will be designed to ensure the better
protection and long-term conservation of the threatened
species and will be undertaken within an area of 1.1 million
hectares in the Hamersley-Fortescue bioregion. The
activities will address the threats of fire management, feral
herbivores, feral predators and weeds. The plan will be
implemented in consultation with stakeholders and other
resources proponents to promote consistency in approaches
to offsetting.
We are continuing to support important work on the
Fortescue Marsh, a nationally recognised wetland which
is the largest ephemeral wetland in the Pilbara. The area
is of high conservation value and is part of an ancient
and complex array of alluvial aquifers and groundwater
systems. Our own environmental assessment studies have
contributed to a greater understanding of the hydrology of
the marsh. We continue to collaborate with State agencies
and academic institutions on research projects, including
surveying and mapping, to examine how the different
vegetation communities relate to one another as a system.
This will help us to better understand the relationship
between the marsh and our own activities.
Fortescue adopts an integrated approach to land
management to ensure that our rehabilitation practices
are reflected throughout each stage of our mining life
cycle. Activities that impact on our land include exploration
drilling, excavation of operational mining pits and land
clearance for infrastructure and transport development.
Rehabilitation is typically undertaken using topsoil and
waste rock stockpiles removed at the time of initial land
disturbance. Fortescue opted in to the WA Government’s
Mine Rehabilitation Fund for our Solomon and Northstar
sites. This is a pooled fund which requires the reporting of
disturbance data, based on type and area and an annual
contribution to the fund calculated as 1 per cent of total
closure liability for rehabilitation. Our Cloudbreak and
Christmas Creek sites are under separate, individual State
Agreements that detail closure requirements.
This year we introduced the use of the RemScan unit. This
is a handheld instrument for the rapid measurement of
total petroleum hydrocarbons (TPH) in soil which can result
from spilling or leaking of fuel. Fortescue is leading the
mining industry in the implementation of this practice, and
in conjunction with the construction of leading edge bio
remediation practices, is succeeding in the effective and
efficient management of contaminated soils. Fortescue also
commissioned the use of specialised equipment that mulch
non-treated timber pallets to a particle size suitable for
potential use in our land rehabilitation work.
Our data on land disturbance and rehabilitation is presented for 1 January 2013 to 30 December 2013.
Land disturbance and rehabilitation in 2013
Site
Total area disturbed (ha)
2013 Rehabilitation (ha)
Total rehabilitation to date (ha)
Herb Elliott Port
Railway Corridor
Mining Operations
365
3,613
17,186
-
-
75
-
889
75
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Transforming waste management across
the Chichester sites
Fortescue operates landfill facilities at Cloudbreak
and Christmas Creek (collectively known as the
Chichester Hub) under the management of our
infrastructure services team and in partnership with a
joint venture (JV) established between Pilbara Logistics
WA and Toxfree. The JV currently operates with a
37 per cent Indigenous workforce and is working
towards the objectives of environmental compliance,
continuous improvement in recycling and reduction of
waste to landfill.
To date the project has been very successful and
currently demonstrates a recycling rate of 75 per cent
of the waste generated. Efficiencies have been gained
by separating the waste at the source and overall
improvements in landfill management. A strong focus
on education and waste management at site level has
improved employee awareness of the strategies and
has assisted waste stream management.
The table below shows the increase in volume of
materials recycled across the Chichester sites and the
resultant landfill space saved. Recycling at Christmas
Creek has significantly improved with an increase from
37 per cent of total waste recycled in FY13 to
73 per cent of total waste recycled in FY14. This
amounts to an increase of 187 per cent in materials
recycled and 4,836 m3 of space saved in the Christmas
Creek landfill. The data presented here is for the 2014
financial year.
Volume of materials recycled across the Chichester
sites (m3)
Type
Aluminium
Paper and Cardboard
HDPE
PET
Steel
Landfill Space Saved
2012/2013
2013/2014
0.2
567.6
377.9
19.4
2512.7
3477.8
4.9
661.6
253.5
82.8
8973.4
9976.2
51
Group Manager Procurement and Supply Chain at Fortescue, Kevin McCafferty
(centre) with Errol Beere (left) and Lincoln Morton (right) of Toxfree Solutions Ltd.
Toxfree provide waste management services to Fortescue as PT Environmental
Services Pty Ltd and is an Indigenous JV between Toxfree and PLWA
CASE STUDY
Waste and recycling
Fortescue generates a significant quantity of waste during
exploration, construction, operation and closure activities.
The waste streams produced are both hazardous and
non-hazardous. No hazardous wastes classified under
the Basel Convention were generated or disposed by
Fortescue during the year. We have several plans which
outline appropriate management actions for the safe
handling, use, transport, storage and disposal of all waste
we generate. Wherever possible we segregate recyclable
materials and engage specialist contractors for collection
and reprocessing.
This year, our waste to landfill reduced considerably to
33,082m3 or by 23 per cent. This can be attributed to waste
reduction initiatives implemented at our Cloudbreak and
Christmas Creek sites.
We are currently investigating other initiatives to reduce
our waste including a bio digester unit that combines
biological waste, green waste and wood chips to deliver a
compost product suitable for our rehabilitation and general
landscaping works. This process will decrease the amount
of putrescible waste being sent to landfill. Fortescue has
also assisted the WA Waste Authority (WAWA) by supplying
data and information on problematic waste streams in
the Pilbara and we will continue to work proactively with
WAWA to find solutions to these issues.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
Centralian Secondary College CREATivE CHANGE Winners
52
Leeuwin Ocean Adventure Foundation Scholarship Recipients
Nambour State School promoting GenerationOne
Leading Social Change
Fortescue’s founder and Chairman Andrew Forrest,
together with his wife Nicola and their family, is dedicated
to helping others. The Forrest’s private company, Minderoo
Group, is Fortescue’s largest shareholder and is focused on
both commercial activities, including significant investments in
property development in the Pilbara, cattle stations and a beef
processing business and also houses one of Australia’s most
significant philanthropic vehicles in the Minderoo Foundation.
Dividends from Minderoo Group’s investment in Fortescue
are being used by Minderoo Foundation to end modern
slavery, fight Aboriginal disadvantage and support
numerous good causes in the Australian community.
Walk Free – a movement fighting to end one
of the world’s greatest evils: modern slavery
There are almost 30 million people in the world today living in
conditions of modern slavery and Walk Free is leading the fight
for their freedom.
Walk Free aims to eradicate modern slavery in a generation by
mobilising a global activist movement, enlisting businesses,
generating the highest quality research to measure slavery
country by country through the Global Slavery Index and
The Learn Earn Legend program encourages Indigenous Australians to finish school
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE SOCIAL RESPONSIBILITY
raising capital to drive change in those countries and
industries bearing the greatest responsibility for slavery today.
The Forrest Review: Creating Parity –
commissioned by the Prime Minister
In 2013, Walk Free released the first Global Slavery Index (GSI) in
London. This was the first time an accurate measure of the scale
of the modern slavery problem had been thoroughly researched
and published. By measuring the problem and addressing
prevalence country by country it is now possible to develop
strategies with in-country Leadership Councils to end slavery.
Early in 2014, Walk Free formed the Global Freedom Network
to eradicate slavery with the facilitation of an historic
collaboration of some of the major faith leaders in the world,
including the Pope (representing the Catholic Church), the
Archbishop of Canterbury (representing the Anglican Church)
and the Grand Imam of Cairo (representing the Sunni Muslim
faith). Other faith leaders are invited to join this effort. Thanks
to Fortescue, Walk Free is having incredible reach and
impact on an issue of massive global importance.
Walk Free has a worldwide movement of some 7.5 million
people that is growing rapidly. The combination of people
power and faith leaders to drive social change, corporate
engagement to ensure no-one can profit from slavery and
well researched measurement through the GSI, provides
the momentum for Leadership Councils and governments
to work together to eradicate modern slavery.
GenerationOne – ending the disparity for
Indigenous Australians
Fortescue has taken an innovative approach to ending
Aboriginal disadvantage through its two Vocational Training
and Employment Centres (VTECs) that provide real jobs and the
training and support to succeed at those jobs. This VTEC model
was the inspiration for the Australian Employment Covenant
(AEC), a three-way commitment by Australian employers, the
Australian Government and Aboriginal people to break the
vicious cycle of unemployment and poverty. So far the AEC has
secured more than 60,000 jobs for Aboriginal Australians.
Next came GenerationOne, which was founded with the
goal of ending Aboriginal disparity in Australia through
employment. GenerationOne has more than a quarter
of a million supporters nationally. Over the past year,
GenerationOne campaigned for and won commitment from
the Australian Government to provide funding for a trial that
connects training to a guaranteed job from an AEC employer.
The goal is to break the cycle of training for training’s sake
that doesn’t lead to a job. As part of the trial, 4,000 jobseekers
will have funded training that leads to a guaranteed job. The
success of the trial will be measured by job retention after six
months. The goal is to prove the success of the model so that
it is adopted as standard policy by the Government.
Australian Prime Minister Tony Abbott commissioned
Fortescue Chairman Andrew Forrest to author The Forrest
Review: Creating Parity to address issues of disparity for
Aboriginal Australians. The completed Review presented
to the Prime Minister in mid-2014 was the result of
an extensive process of consultation with community
stakeholders and reflected Andrew’s deep passion for all
Australians to be afforded dignity and opportunity.
Early Childhood Intervention
Minderoo has developed a strategy paper to focus
attention on the importance of pre and post natal care
and the earliest years of a child’s development. By working
closely with champions in the area of education and
early childhood intervention, it will enable heroes in our
community to lead the way in making a difference so that
children have the best chance of developing into healthy
and contributing members of society.
Community Partnerships
Minderoo is committed to supporting and advocating
for many community organisations in the area of culture
and the arts, plus supporting those in need. Minderoo
is a proud supporter and contributor to numerous
organisations from ballet to museums; Sculpture by
the Sea to the Leeuwin training ship; theatre to art;
supporting the families of SAS soldiers injured or killed
whilst serving; assisting bushfire and flood victims;
helping farmers in hardship; plus many health research
and treatment foundations.
Agricultural Opportunities in China
Fortescue’s deep relationships with China have enabled
Minderoo to take a leading role in creating the Australia-
Sino One Hundred Year Agricultural and Food Safety
Partnership which brings together government, business
and industry leaders from Australia and China to ensure
the Australian agricultural industry is prepared and able
to support China’s food demands. Growing demand
from China for safe food from foreign sources is a huge
opportunity for Australian producers.
The Fortescue commercial philosophy is translated through
these social initiatives so that every resource is applied to
the best purpose and all outcomes are measured to ensure
accountability and success with achieving objectives.
53
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE GOVERNANCE
54
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
55
55
62
65
65
70
70
71
Fortescue Metals Group Limited I 2014 Annual Report 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.
55
1. Overview of Governance at Fortescue
2. Board of Directors
The essential elements of Corporate Governance at
Fortescue are:
2.1 Role and Responsibilities
ASXCGC Recommendations 2nd Edition 1.1, 1.3, 2.5, 2.6
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 diagram above.
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;
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
•
•
•
•
•
•
56
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;
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
and interview conducted by an independent consultant
and supported by the Company Secretary. The results and
recommendations from the evaluation of the board and
committees are anonymised and reported to the full Board
for further consideration and action where required. 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.
Gaining assurance that appropriate audit arrangements
are in place;
2.2 Board Composition
ASXCGC Recommendations 2nd Edition 2.6, 3.2, 3.3, 3.4, 3.5
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
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.
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.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
Period of Office
Retiring and seeking re-election in 2014
Full Year
Full Year
Yes
Retiring and will not be seeking
re-election at the 2014 AGM
Full Year
Retiring and will not be seeking
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
re-election at the 2014 AGM
Yes
No, due for re-election 2016
Yes
Retiring and will not be seeking
re-election at the 2014 AGM
N/A - Managing Director
No, due for re-election 2015
No, due for re-election 2016
No, due for re-election 2016
From 13 November 2013
No, due for re-election 2016
To 13 November 2013
N/A
The directors of the Group during the year were:
Name
Andrew Forrest (Chairman)
Herb Elliott (Deputy Chairman, Lead Independent Director)
Graeme Rowley
Owen Hegarty
Mark Barnaba
Geoff Raby
Herbert Scruggs
Neville Power
Cao Huiquan
Elizabeth Gaines
Peter Meurs
Sharon Warburton
Geoff Brayshaw
57
Changes to the composition of the Board during the year are
summarised below:
•
•
Geoff Brayshaw retired as a director of the company on
13 November 2013;
Sharon Warburton was appointed as a non-executive
director on 13 November 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:
Female
Female %
Male
Male %
Group
Whole of Fortescue
Senior Executive*
Board Members
FY13
738
1
1
FY14
793
4
2
FY13
19.7%
3.2%
8.3%
FY14
17.4%
10.0%
16.7%
FY13
3,014
30
11
FY14
3,770
36
10
FY13
80.3%
96.8%
91.7%
FY14
82.6%
90.0%
83.3%
* Senior Executive means a leadership position title of Director, Group Manager or General Manager.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE GOVERNANCE
The measurable diversity objectives established for FY13 and FY14 financial years and their current status is summarised below:
Objective Area
Objective
Measure and Progress
Governance
1 Equity and Diversity Policy
implemented.
• Policy communicated to the business. Policy loaded on intranet
and communicated to employees.
2 Complaints Procedure
implemented that is
compliant with Fortescue’s
Values and meets Legislative
requirements.
3 Prepare and submit annual
EOWA Report for Fortescue.
• Complaints procedure in place. Fair Call reporting procedure
in place. Investigation process for EEO, Harassment and Bullying
in place.
• Quality report submitted on time annually – EOWA Report
submitted.
• High level analysis undertaken in FY14 which showed little
difference in remuneration levels for males and females in the
same role.
4 Integrate Equity and Diversity
• Training incorporated into induction programs.
Training into Induction
Programs for employees and
contractors.
5 Create an online Equity and
Diversity Training package for
leaders and employees.
6 Communicate and reinforce
the Equity and Diversity Policy
to the whole workforce.
• RESPECT training program developed and rolled out for leaders.
• The current induction includes EEO/Diversity as the online
RESPECT module for employees will be rolled out in FY15.
• Online training package for leaders and employees operational.
RESPECT online training program developed and rolled out for
leaders in FY14. 652 leaders have completed the training.
• RESPECT training program now taught to over 1,600 employees
and contractors.
Training and
development
58
Awareness
7 Highlight diversity in key
company communications,
for example internet and
intranet pages.
• Communicate the outcomes of the pilot “career resiliency”
program for women seeking to move into leadership roles.
• Include diversity in the online leadership induction program
being implemented in FY15.
Gender equality 8 Target equal representation
of women in the graduate/
vacation student intake.
9 Encourage women to
participate in Graduate/
Vacation Programs /
Apprenticeships and
Traineeships.
10 Pilot a “career resiliency”
program to provide mentoring
support for women in
professional and operational
roles seeking to further their
careers in technical roles or
management positions
• Nominate women for industry recognition awards.
• Report on diversity metrics on a quarterly basis and provide
reports to business leaders.
• Monitor tenure data and collect exit interview data to
understand reasons for leaving
• Monitor female participation in senior leadership roles through
6 monthly talent reviews.
• Encourage women to participate in company leadership
programs.
• Participate in key diversity networking groups.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE GOVERNANCE
Objective Area
Objective
Measure and Progress
Remuneration
11 Refresh workforce profile and
• Annual gender pay parity review.
job evaluation.
12 Complete a more detailed
gender equity analysis.
• Pay parity for equivalent positions.
Flexible work
arrangements
13 Assess the effectiveness of the
pilot “Job Share” arrangements
being trialled throughout FY15.
Discrimination
14 Identify opportunities
to extend flexible work
arrangements.
15 Ongoing communication and
training on the following:
• RESPECT
• Code of Conduct
• Equal Employment
Harassment and Bullying
• Fair Treatment
• Whistleblowing
• Policy developed and implemented.
• Evaluation of Job Share arrangements increase and measure
percentage of uptake.
• Request feedback from employees on their priority areas for
improving workplace flexibility
• Policies developed and implemented in FY14.
• Increase the number of employees and contractors to complete
RESPECT training.
2.3 Skills, Knowledge and Experience of Directors
ASXCGC Recommendations 2nd Edition 2.6
and non-executive directors continue to have an
appropriate balance of skills, experience and independence.
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
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.
The following table sets out the composition of skills and experience of the Board (out of 12)
Leadership
• Successful history in business at a senior executive level. (12)
• Understanding/influencing organisational culture. (12)
Financial Acumen
• Experience in financial accounting and reporting,
corporate finance and internal financial controls. (10)
Strategy
• Experience in developing and implementing
successful strategy. (12)
• Ability to provide oversight of management for the
delivery of strategic objectives. (12)
International Experience
• Experience in multiple cultural, regulatory and business
environments. (12)
• Experience with doing business in China and the
Asian region. (11)
Capital Projects
• Experience in the delivery of large-scale capital projects. (9)
Health, Safety, Environment and Community
• Experience related to workplace health and safety. (11)
• Experience with environmental and community issues
in a large organisation. (9)
Mining and Infrastructure
• Large mining organisation experience. (9)
• Large infrastructure organisation experience. (10)
Governance
• Experience in governance with complex organisations. (11)
• Commitment to ensuring effective governance structures. (12)
Sales and Marketing
• Senior executive experience in sales and marketing. (8)
• Detailed knowledge of the Group’s strategy, markets,
and competitors. (11)
59
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
2.4 Terms of Appointment
ASXCGC Recommendations 2nd Edition 1.1
2.5 Chairman
ASXCGC Recommendations 2nd Edition 2.2, 2.3, 2.6
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.
60
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.
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
ASXCGC Recommendations 2nd Edition 2.1, 2.2, 2.6
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 and
have not been a director for such a period that their
independence may have been compromised. 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;
They are not a substantial shareholder of the Company,
or an officer of, or otherwise associated with, a
substantial security holder of the entity;
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;
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
•
•
They have not, within the last three years, been in a
material business relationship with the Group, or an
officer of or otherwise associated directly or indirectly
with, someone with such a relationship; 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
Sharon Warburton
Owen Hegarty
Cao Huiquan
Elizabeth Gaines
Independent (Yes/No)
Director
Independent (Yes/No)
No
Yes
Yes
Yes
No
Yes
Graeme Rowley
Mark Barnaba
Geoff Raby
Herbert Scruggs
Nev Power
Peter Meurs
No
Yes
Yes
Yes
No
No
61
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
ASXCGC Recommendations 2nd Edition 3.1, 3.5
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.
2.9 Remuneration
ASXCGC Recommendations 2nd Edition 8.3
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.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
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 six times. Generally
Board meetings are of one day’s duration and Board
committee meetings precede Board meetings on the
previous day. At least once per year the Board visits each of
the major operations prior to one of the Board meetings.
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
ASXCGC Recommendations 2nd Edition 2.4, 4.1, 4.3, 4.4, 8.1, 8.4
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 & Nomination 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
ASXCGC Recommendations 2nd Edition 2.4, 2.6, 8.1, 8.2, 8.4
The Remuneration & Nominations Committee met four times
during the year. Details of committee members are shown in
the table below:
62
Name
Term
Status
Sharon Warburton
Member from
Independent non-executive director
(Co Chair1 from
13 November 2013
13 November 2013)
Graeme Rowley
(Co Chair1 from
13 November 2013)
Mark Barnaba
(Chair to
13 November 2013)
Herb Elliott
Andrew Forrest
Owen Hegarty
Herbert Scruggs
Member from
Non-independent non-executive director
13 November 2013
Member for full year
Independent non-executive director
Member for full year
Independent non-executive director
Member for full year
Non-independent non-executive director
Member for full year
Independent non-executive director
Member to
Independent non-executive director
13 November 2013
Meetings
Held
Attended
2
2
4
4
4
4
1
2
1
4
3
4
4
1
1 Graeme Rowley was appointed as Co-Chair for the committee to provide initial support for Sharon Warburton who is a
recent appointment to the board.
Fortescue Metals Group Limited I 2014 Annual Report
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;
Chief Executive Officer, non-executive and executive director remuneration policy;
Short term and long term incentive plans;
Recruitment, retention and termination policies;
Succession planning;
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
ASXCGC Recommendations 2nd Edition 4.1, 4.2, 4.3, 4.4
The Audit & Risk Management Committee met four times during the year. Details of committee members are shown in the
table below:
63
Name
Term
Status
Mark Barnaba
Member for full year
Independent non-executive director
(Committee Chair from
1 September 2013)
Graeme Rowley
Herbert Scruggs
Elizabeth Gaines
Member for full year
Non-Independent non-executive director
Member for full year
Independent non-executive director
Member from
Independent non-executive director
1 September 2013
Geoff Brayshaw
Member to
Independent non-executive director
(Committee Chair
13 November 2013
to 1 September 2013)
Meetings
Held
Attended
4
4
4
3
2
4
3
4
3
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.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE GOVERNANCE
PricewaterhouseCoopers (PwC), are the current external
auditors of the Fortescue Group. 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 Corporate Risk & Assurance function is
responsible for the design and delivery of internal audit
activity across the Group. Internal audit activity is designed
to provide assurance that the Group’s risk management and
internal control frameworks are appropriately designed and
operating at the level expected by the Board. Fortescue
has engaged KPMG, Chartered Accountants, to support
the delivery of its internal audit program. KPMG has been
providing this service for the past six 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.
3.3 Finance Committee
The Finance Committee met two times during the year.
Details of committee members are shown in the table below:
Name
Term
Status
Mark Barnaba
Member for full year
Independent non-executive director
(Committee Chair from
1 September 2013)
64
Herbert Scruggs
Member from
Independent non-executive director
1 September 2013
Elizabeth Gaines
Member from
Independent non-executive director
Geoff Brayshaw
(Committee Chair
to 13 November 2013)
1 September 2013
Member to
Independent non-executive director
13 November 2013
Meetings
Held
Attended
2
1
1
2
2
1
1
2
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.
More than.......
24,000
people
worked on T155
Fortescue Metals Group Limited I 2014 Annual Report
4. Engagement with Stakeholders
4.1 Shareholders
ASXCGC Recommendations 2nd Edition 6.1, 6.2
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;
An email alert system that allows interested parties to
register for automated alerts of ASX lodgements and
other information.
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 preferring one-on-one conversations, providing
presentations to community groups, holding displays,
issuing newsletters, media releases and publishing
advertisements.
•
•
•
•
•
CORPORATE GOVERNANCE
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 provision
of economic opportunity for Aboriginal people. This
policy arose because of the desire of Aboriginal people
to gain a greater share of the opportunities presented
by the mining industry. This desire has been expressed
consistently by Aboriginal people and is reflected
in the seven Native Title agreements that we have
established across the Pilbara. Fortescue provides
significant assistance to Aboriginal people in training for
a guaranteed 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. One year on, the total value of
the 160 contracts and sub-contracts awarded to more
than 60 Aboriginal businesses is $1.6 billion. Importantly
for local Aboriginal people 88% of these contracts were
awarded to businesses associated with our Native Title
partners.
65
5.1 Material Risk Exposures
ASXCGC Recommendations 2nd Edition 7.1, 7.4
Fortescue operates in a dynamic business environment that
presents a range of uncertainties that have the potential
to impact, both positively and negatively, on its corporate
objectives. Fortescue acknowledges that risk is inherent in all
aspects of its business and that effective management of risk
and opportunity is essential to our success and future growth.
Fortescue is committed to managing all material risks within
the tolerances set by the Board.
A range of material risks has been identified by
management and the Board that could substantively
impact Fortescue’s ability to create or preserve value for
all of its key stakeholders over the short, medium or long
term. We have listed the following material risks to our
business and how these risks are being managed.
Periodic newsletters, production reports and media
announcements that are available either through the
ASX platform or through the Company’s website; and
5. Risk Management
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
Material Risks
Risk Management Strategy
Fluctuations in
commodity prices (iron
ore) may adversely
impact our results and
future cashflows
Fortescue is subject to the prevailing market price of iron ore, which it has a limited
ability to directly influence. The focus of our risk mitigation strategy has been on
strengthening the corporate balance sheet by repayment of debt and aggressively
pursuing continued reduction of our cost base. This delivers greater financial stability
and resilience to fluctuations in commodity prices.
Deterioration in
economic conditions in
China could impact the
demand for our products
Fortescue’s key trading partners are Chinese steel mills. We maintain an active program
of engagement with all of our customers to support our vision as the supplier of choice
for high quality iron ore. Our significant efforts in supporting and enhancing Sino-
Australian business relationships have also been widely recognised. We promote strong
relationship with all levels of the Chinese government as a partner in supporting the
ongoing economic development within China and resultant demand for our products.
Productivity and cost
pressures could impact
our profit margins and
future cashflows
66
Major, unplanned
disruptions to
our operations or
supply chain
Australia is a high cost operating environment and delivering productivity
improvements and reducing costs is an ongoing challenge. Fortescue has a
highly innovative culture that promotes fresh thinking and new ideas to meet this
challenge. We are global leaders in a range of technical and operational solutions that
have been deployed across our business to maximise the value we obtain from our
ore reserves. In addition, we have a highly collaborative approach to working with
our suppliers and business partners to identify innovative solutions and cost savings.
We have a disciplined and risk based approach to the approval of major capital and
operational expenditure that ensures the optimal allocation of financial resources to
support our business strategy.
Any unplanned and sustained interruption to our operations or supply chain has the
potential to impact our financial performance. Such disruptions can arise from natural
events such as cyclones and flooding or other accidents that result in damage to our
port, rail or mine infrastructure. While the likelihood of many of these risks is considered
rare, Fortescue has adopted a prudent approach that involves a combination of world-
class engineering design, a comprehensive crisis management strategy, operational
contingency planning and structured recovery process to mitigate the impact of such
events should they occur. Our insurance coverage also provides an element of financial
protection associated with loss or damage to our assets.
Health & safety and
environmental incidents
and/or breaches of
regulations could
adversely affect our
people, operations and
reputation
The nature of our operations presents a range of health & safety and environmental
exposures to our people and our business. Our business is subject to a wide range of
legal and regulatory requirements at both a Federal and State level. Safety is one if
Fortescue’s core values and we have set ourselves the ambitious goal of being global
leaders in safety and environmental performance. Fortescue has a very comprehensive
HSES framework that promotes responsibility and accountability at all levels within
the organisation. We have an active program of education, training, monitoring and
reporting within the business that is focused on continuous improvements and learning
from our experiences. We are actively engaged at both a local and global level to
identify and implement leading safety and environmental practices operating within the
mining and resources sector.
Major developments
projects experience
delays to schedule or
increased costs
Fortescue maintains an active portfolio of operational projects that are designed
to enhance the value of the company over the longer term. These projects include
expansion of existing operations, development of new ore resources, increased use
of gas as a fuel source, and the purchase of large ore carriers to support the low
cost delivery of our product to customers. Each of these projects present a range
of technical, operational and financial challenges. Fortescue has a robust and agile
framework for the identification, assessment and delivery of all major products.
This includes an uncompromising focus on operational and financial discipline
supplemented by a comprehensive project management capability. Fortescue has also
embedded strong risk management processes within all major projects to ensure that
critical risks are effectively managed.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
Material Risks
Risk Management Strategy
Performance of our
business partners is
not aligned with
Fortescue expectations
and they do not meet
their obligations
We do not fully exploit
our existing reserves or
discover new reserves
that impacts on our
future results
Fortescue has a large number of business partners that support its operations.
Fortescue has an exposure to the ability of these business partners to perform against
their existing contracts and obligations in a manner that is consistent with our values
and business strategy. Fortescue works collaboratively with its business partners to
achieve superior safety, operational and financial performance. We have transitioned
major elements of our mine sites to an owner/operator model to better control
performance and introduced greater flexibility within our contractual arrangements,
where appropriate. We have conducted safety forums with our major contracting
partners to promote a stronger safety culture across our entire workforce. We have
robust mechanisms to regularly review all major contracts with a focus on performance.
Fortescue has a program of exploration and mining that identifies and exploits new
ore bodies and supports the expansion to our existing ore bodies. Such activities have
a range of risks associated with land tenure, commercial feasibility, environmental
and heritage impacts and regulatory approvals. Successful exploitation of existing
and future reserves is critical to our business success. Fortescue has a comprehensive
product strategy which drives mine- site activity and our near mine exploration
program. This expands our existing resource base to support existing infrastructure.
We have also developed innovative exploration techniques that have enabled us to
commercialise previously unexploited tenements and invest in new sources of ore
including magnetite deposits.
Breaches in our legal
and regulatory
obligations may lead to
fines and potential loss
of licence to operate
Fortescue operates in a highly regulated industry with a complex regulatory
environment at both Federal and State level. We attach a high level of importance
to compliance with all relevant legal and regulatory requirements. Failure to comply
with obligations can have a serious impact on our business ranging from fines and
reputation damage through to temporary or permanent loss of our licence to operate.
Fortescue adopts a risk based approach to managing compliance with its obligations.
Ensuring compliance with our obligations is seen as a collective responsibility at
all levels of the organisation and there is clear accountability and responsibility for
managing compliance.
67
Information technology
and security
Fortescue relies heavily on its information technology (IT) infrastructure to support
the efficient and effective operation of its business. The company faces a range of
risks associated with extended outages of its key IT systems and the security and
privacy of digital information which it retains and manages. Fortescue maintains a
robust IT platform which provides resilience and recovery capability in the event of a
system outage. It monitors and controls access to sensitive and private information
maintained within its key systems. However, the rapid pace of technological change and
the sophistication of cyber security attacks pose ongoing and real risks requiring the
business to maintain a constant vigil.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE GOVERNANCE
5.2 Risk Management Framework
ASXCGC Recommendations 2nd Edition 7.1, 7.4
The Fortescue Risk Management Framework (FRMF)
explains the methodology, approach and responsibility for
the effective management and oversight of risk within our
business. The FRMF is aligned to ISO 31000, the international
standard for risk management, and provides a consistent
approach to the recognition, measurement and evaluation
of risks across our business. It also supports Executive
Management and the Board in meeting their corporate
governance responsibilities.
Risk Management Framework
Board and ARMC
Reporting
Executive Management
Decision making
Line Management
Risk Information Systems
Integrated Process
Relevant and
timely reporting
of risk analysis
and activity to
support good
decision making
Common
understanding
of how risk analysis
will support
key strategic,
operational
and financial
decision making
Identify
68
Monitor
Risks that are
critical to
Fortescue success
Assess
Respond
Strategic Planning
Annual planning and budgeting
Major Capital Expenditure
Business development and major projects
Business decision support
Health, Safety and Environment
Property damage and insurance
Business Continuity
Robust risk
analysis should
be used to
support key
decision making
at all levels
Risk analysis and
decision making
should occur with
a clear
understanding of
corporate
objectives and
willingness and
capacity to take
risk relating to key
activities
The values and
policy framework
provides a
consistent and
transparent
foundation for risk
analysis and
decision making
Business Context
Fortescue Corporate Risk
Policy and Standards
Fortescue HSES Risk Policy
and Standards
Fortescue Vision and Values
Culture and Frameworks
Our approach to risk management is underpinned by
our corporate values and culture. This emphasises that
management, employees and contractors are collectively
responsible for managing all material business risks and
there should be a clear understanding of responsibility and
accountability for risk management. Everyone at Fortescue
has a responsibility to be aware of the risks related to their
activities at every level and to be accountable for ensuring
those risks are effectively managed.
•
•
•
The FRMF sets a framework which aligns risk management
activity at all levels of the business with a three tiered focus
as follows:
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.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
5.4 Annual Executive Declarations
ASXCGC Recommendations 2nd Edition 7.1, 7.2, 7.3, 7.4
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 2014.
69
Fortescue does this by:
•
•
•
•
•
•
•
Embedding risk management into our critical business
activities and processes;
Understanding the threats to and opportunities for
achievement of our objectives;
Application of a structured approach to risk
management which establishes common
understanding, definitions and methodologies;
Consideration of all types of risks and how robust risk
analysis supports better informed decision making;
Using the outcomes of risk assessments to drive actions
and activities that mitigate risks to an acceptable level;
Maintaining a strong focus on the resilience of our
business through reliance on effective recovery plans
for material adverse events; and
Reporting regularly to the Executive Committee and the
Board on the outcomes of risk management activity.
In addition, our Corporate Risk & Assurance function is
focussed on supporting each part of the business to assist
them to better manage their risks and to align efforts across
the business to facilitate our whole of business view of risk.
5.3 Risk Governance
ASXCGC Recommendations 2nd Edition 7.1, 7.4
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 Board has delegated the responsibility for oversight of risk
management to the Audit & Risk Management Committee
(ARMC). The role of the ARMC has been explained earlier in this
Corporate Governance Statement, including its responsibilities
for risk management.
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE GOVERNANCE
6. Conduct of Business
ASXCGC Recommendations 2nd Edition 3.1, 3.5
7. Market Disclosures
ASXCGC Recommendations 2nd Edition 5.1, 5.2
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.
70
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
alsosetsouttherestrictions on dealing in securities by
people who work for, or are associated with Fortescue.
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE GOVERNANCE
8.
Compliance with Corporate Governance Standards
The following table cross-references the ASXCGC Recommendations 2nd Edition to the relevant sections of the Corporate
Governance Statement and the Remuneration Report.
ASX Corporate Governance Council recommendations checklist
Reference
Comply
Principle 1:
Lay solid foundations for management and oversight
1.1
1.2
1.3
Companies should establish the functions reserved to the board and those
delegated to senior executives and disclose those functions.
2.1,2.4
Companies should disclose the process for evaluating the performance of
senior executives.
Remuneration
Report
Companies should provide the information indicated in the Guide to
Reporting on Principle 1.
2.1, Remuneration
Report
Principle 2: Structure the board to add value
2.1
2.2
2.3
2.4
2.5
2.6
A majority of the board should be independent directors.
The chair should be an independent director.
The roles of chair and chief executive officer should not be exercised by the
same individual.
The board should establish a nomination committee.
Companies should disclose the process for evaluating the performance of the
board, its committees and individual directors.
2.6
2.5, 2.6
2.5
3, 3.1
2.1
Companies should provide the information indicated in the Guide to
Reporting on Principle 2.
2.1, 2.2, 2.3, 2.5,
2.6, 3.1
Principle 3: Promote ethical and responsible decision-making
3.1
Companies should establish a code of conduct and disclose the code or
2.7, 6
summary of the code as to:
• the practices necessary to maintain confidence in the company’s integrity
• the practices necessary to take into account their legal obligations and the
reasonable expectations of their stakeholders
• the responsibility and accountability of individuals for reporting and
investigating reports of unethical practices.
Companies should establish a policy concerning diversity and disclose the policy
or a summary of that policy. The policy should include requirements for the
board to establish measurable objectives for achieving gender diversity for the
board to assess annually both the objectives and progress in achieving them.
Companies should disclose in each annual report the measurable objectives
for achieving gender diversity set by the board in accordance with the diversity
policy and progress towards achieving them.
Companies should disclose in each annual report the proportion of women
employees in the whole organisation, women in senior executive positions
and women on the board.
2.2
2.2
2.2
Companies should provide the information indicated in the Guide to reporting
on Principle 3.
2.2, 2.7, 6
3.2
3.3
3.4
3.5
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
71
Fortescue Metals Group Limited I 2014 Annual Report
CORPORATE GOVERNANCE
Principle 4: Safeguard integrity in financial reporting
4.1
4.2
4.3
4.4
The board should establish an audit committee.
The audit committee should be structured so that it:
• consists only of non-executive directors
• consists of a majority of independent directors
• is chaired by an independent chair, who is not chair of the board
• has at least three members.
The audit committee should have a formal charter.
Companies should provide the information indicated in the Guide to
Reporting on Principle 4.
Principle 5: Make timely and balanced disclosure
5.1
5.2
Companies should establish written policies designed to ensure compliance
with ASX Listing Rule disclosure requirements and to ensure accountability
at a senior executive level for that compliance and disclose those policies or a
summary of those policies.
Companies should provide the information indicated in the Guide to
Reporting on Principle 5.
Principle 6: Respect the rights of shareholders
6.1
6.2
72
Companies should design a communications policy for promoting effective
communication with shareholders and encouraging their participation at
general meetings and disclose their policy or a summary of that policy.
Companies should provide the information indicated in the Guide to
Reporting on Principle 6.
Principle 7: Recognise and manage risk
3
3.2
3, 3.2
3, 3.2
7
7
4.1
4.1
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
7.1
7.2
7.3
7.4
Companies should establish policies for the oversight and management of
material business risks and disclose a summary of those policies.
5.1, 5.2, 5.3, 5.4
Yes
The board should require management to design and implement the risk
management and internal control system to manage the company’s material
business risks and report to it on whether those risks are being managed
effectively. The board should disclose that management has reported to it as to
the effectiveness of the company’s management of its material business risks.
The board should disclose whether it has received assurance from the chief
executive officer (or equivalent) and the chief financial officer (or equivalent)
that the declaration provided in accordance with section 295A of the
Corporations Act is founded on a sound system of risk management and
internal control and that the system is operating effectively in all material
respects in relation to financial reporting risks.
5.4
5.4
Yes
Yes
Companies should provide the information indicated in the Guide to
Reporting on Principle 7.
5.1, 5.2, 5.3, 5.4
Yes
Principle 8: Remunerate fairly and responsibly
8.1
8.2
8.3
8.4
The board should establish a remuneration committee.
The remuneration committee should be structured so that it:
• consists of a majority of independent directors
• is chaired by an independent chair
• has at least three members.
3, 3.1
3.1
Companies should clearly distinguish the structure of non-executive directors’
remuneration from that of executive directors and senior executives.
2.9, Remunera-
tion Report
Companies should provide the information indicated in the Guide to
Reporting on Principle 8.
3, 3.1
Yes
Yes
Yes
Yes
Fortescue Metals Group Limited I 2014 Annual Report
FINANCIAL REPORT
73
CONTENTS
Directors’ report
Remuneration report
Auditor’s independence declaration
74
98
120
Independent Auditor’s report to the Members
121
Directors’ declaration
Financial statements
123
124
Fortescue Metals Group Limited I 2014 Annual Report DIRECTORS’ REPORT
Directors’ report
Your Directors submit their report on the Fortescue
consolidated group, consisting of Fortescue Metals Group
Limited (the Company) and the entities that it controlled
during the financial year (the Group or Fortescue).
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).
74
FY14 BOARD MEMBERS
Andrew Forrest
Herb Elliott
Neville Power
Chairman
Non-Executive Director
Deputy Chairman
Non-Executive Director
Chief Executive Officer
Executive Director
Graeme Rowley
Non-Executive Director
Cao Huiquan
Non-Executive Director
Geoff Brayshaw
Owen Hegarty
Non-Executive Director
Retired 13 November 2013
Non-Executive Director
Geoff Raby
Non-Executive Director
Herbert Scruggs
Elizabeth Gaines
Peter Meurs
Non-Executive Director
Non-Executive Director
Executive Director
Sharon Warburton
Mark Barnaba
Non-Executive Director
Non-Executive Director
Mark Thomas
Company Secretary
Fortescue Metals Group Limited I 2014 Annual Report DIRECTORS’ REPORT
Andrew Forrest
Chairman, Non-Executive Director
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 in
August 2011 and remains on the Board as Deputy Chairman
and Lead Independent Director.
Experience
Mr Elliott is 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)
Non-Executive Chairman of dorsaVi Ltd.
Former directorships in the last 3 years (ASX listed entities)
None.
75
Term of Office
Mr Forrest was appointed Chairman of the Company
in July 2003. He became Chief Executive Officer in 2005
and resumed non-executive responsibilities as Chairman
(elect) in July 2011.
Experience
Mr Forrest is Founder, Chairman and a member of the
Company’s Remuneration and Nomination Committee and
has led the company to its A$14 billion market capitalisation
as the fourth largest seaborne iron ore producer. Under
Mr Forrest, Fortescue has made significant investments in
the Australian resources sector of more than US$18 billion.
Mr Forrest is Founder and Chairman of Minderoo
Foundation, Australia’s largest philanthropic organisation,
which operates GenerationOne, The Australian Employment
Covenant and Walk Free, a global campaign to end modern
slavery. He is a Councillor of the Global Citizen Commission
which will report to the United Nations General Assembly
in 2016 on reforming the Universal Declaration of Human
Rights. In 2013, he was appointed by the Prime Minister
of Australia to Chair the Review of Indigenous Training
and Employment Programmes. He is Commonwealth
ambassador for employment and engagement with
disadvantaged communities and Chair of the Foundation of
the Art Gallery of Western Australia.
An Adjunct Professor of the China Southern University and
a long standing Fellow of the Australian Institute of Mining
and Metallurgy, Mr Forrest is a leading representative of
and advocate for the resources sector globally. He is Co-
Chairman of the Senior Business Leaders’ Forum, the leading
formal dialogue for China and Australia’s most senior
business leaders.
Other current directorships (ASX listed entities)
None.
Former directorships in the last 3 years (ASX listed entities)
Non-Executive Chairman of Poseidon Nickel Limited 2007 to
September 2013.
Fortescue Metals Group Limited I 2014 Annual Report DIRECTORS’ REPORT
Mr Neville Power
Chief Executive Officer, Executive Director
Mr Peter Meurs
Executive Director
Term of Office
Mr Meurs was appointed as an Executive Director of
the Company in February 2013.
Experience
Mr Meurs is the Director Development for Fortescue.
His responsibilities span from exploration through studies
to delivery of major capital expansion projects. As part of
this he had direct responsibility for the recently completed
delivery of Fortescue’s 100mt expansion and development
of the plans for future developments.
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,
is 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 the last 3 years (ASX listed entities)
None.
76
Term of Office
Mr Power was appointed Chief Executive Officer
in July 2011, after joining the Company in February of
that year, and joined the Board as an Executive Director
in September 2011.
Experience
Mr Power has more than 30 years’ experience in the mining,
steel and construction industries and has a proven track
record in the delivery of major infrastructure projects,
contract mining and steel manufacturing and distribution.
As the CEO of Fortescue, Mr Power has presided over the
tripling of Fortescue’s iron ore production capacity to over
155 million tonnes per annum, establishing its position as
one of the world’s largest, low cost producers of iron ore.
He has long been a champion of Indigenous employment
and is playing a pivotal role in strengthening and extending
Fortescue’s work in developing Aboriginal businesses as
well as direct employment opportunities. Before joining
Fortescue, Mr Power was Chief Executive Australian
Operations for Thiess Pty Ltd, a wholly-owned subsidiary
of Leighton Holdings, where he was responsible for the
construction business with a turnover of $4 billion per
annum and 3,500 staff delivering some of Australia’s most
significant infrastructure projects.
Mr Power gained over 10 years’ experience in steel
manufacturing and distribution as Chief Executive of the
Reinforcing and Steel Products Division with the Smorgon
Steel Group, one of Australia’s largest and most successful
steel businesses.
He established his mining career with over 20 years’
experience in base metals, gold and coal mining and
mineral processing with Mount Isa Mines.
Mr Power has a Bachelor of Engineering and a Masters of
Business Administration (MBA). He maintains an active
interest in managing the family cattle property and is
an avid aviator, holding both helicopter and fixed wing
licenses with endorsements on a range of aircraft.
Other current directorships (ASX listed entities)
None.
Former directorships in the last 3 years (ASX listed entities)
None.
Fortescue Metals Group Limited I 2014 Annual Report DIRECTORS’ REPORT
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. Ms Gaines
is a director of Mantra Group Limited and the Australian
Federation of Travel Agents Limited.
Other current directorships (ASX listed entities)
Executive Director of Helloworld Limited and Non-
Executive Director of Mantra Group Limited.
Former directorships in the 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 again became a Non-Executive
Director of the Company in March 2010.
77
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 Admedus Ltd. 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 Admedus Ltd.
Former directorships in the 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 in February 2012 as the nominated director on
Fortescue’s Board from Hunan Valin Iron and Steel Group
Company Ltd.
Experience
Mr Cao graduated from the 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 the 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 in
February 2013.
Experience
Ms Gaines is an Executive Director and the Chief Executive
Officer of Helloworld Limited. Prior to this, Ms Gaines was
the Chief Operating Officer & CFO of Helloworld Limited,
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.
Fortescue Metals Group Limited I 2014 Annual Report
DIRECTORS’ REPORT
78
Mr Herbert Scruggs
Non-Executive Director
Term of Office
Mr Scruggs joined the Fortescue Board in August 2011 as a
Non-Executive Director.
Experience
Mr Scruggs is Managing Director of The Cynosure
Group, a U.S. based direct investment company. He is an
expert in corporate recoveries and step change business
improvement. A lawyer by training (BYU 1984), he has held
a number of corporate, government, 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, and MK Gold – including
service on multiple audit and executive committees.
Mr Scruggs served as CEO of Huntsman Financial
Corporation 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 2012, he provided, among other
activities, management services to The Minderoo Group
and the Australian Children’s Trust, where he continues to
serve as a board member.
Other current directorships (ASX listed entities)
None.
Former directorships in the last 3 years (ASX listed entities)
Non-Executive Director, Poseidon Nickel Limited,
September 2012 to February 2014.
Mr Owen Hegarty
Non-Executive Director
Term of Office
Mr Hegarty was appointed as a Non-Executive Director in
October 2008.
Experience
Owen 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. He is also Chairman of
Tigers Realm Minerals Pty Ltd, a private Melbourne based
mining company and Chairman of EMR Capital, a private
equity investment manager focused on resources.
Mr Hegarty is a Director of the AusIMM and a member of a
number of Government and industry advisory groups.
Other current directorships (ASX listed entities)
Non-Executive Director of Tigers Realm Coal Limited and
Highfield Resources Limited.
Former directorships in the last 3 years (ASX listed entities)
None.
Dr Geoff Raby
Non-Executive Director
Term of Office
Dr Raby was appointed as a Non-Executive Director in
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)
Non-Executive Director of Oceana Gold Corporation,
SmartTrans Holdings Limited, Yancoal Australia Limited
and iSentia Group Limited.
Former directorships in the last 3 years (ASX listed entities)
None.
Fortescue Metals Group Limited I 2014 Annual Report
DIRECTORS’ REPORT
Mr Mark Barnaba
Non-Executive Director
Ms Sharon Warburton
Non-Executive Director
Term of Office
Mr Barnaba was appointed as a Non-Executive Director in
February 2010.
Term of Office
Ms Warburton was appointed as a Non-Executive Director
in November 2013.
Experience
Mr Mark Barnaba is Chairman of the Audit and Risk
Management Committee and a member of the
Remuneration and Nomination Committee.
Mr Barnaba currently holds the position of Chairman
with Macquarie Bank Western Australia, Western Power,
Edge Employment Solutions (a disability employment
organization), and the University of Western Australia
Business School. He also serves as an Adjunct Professor
in Investment Banking and Finance and as a member of
the In The Zone Editorial Committee with the University
of Western Australia. Until recently, Mr Barnaba held the
position of co-founder and Executive Chairman of Azure
Capital and was a Non-Executive Chairman of the West
Coast Eagles Football Club and a member of the Rhodes
Scholarship Selection Committee.
Mr Barnaba received his Bachelor of Commerce with first
class honours from the University of Western Australia in
1985 and was awarded the JA Wood University Medal for
top graduate, university wide. He then went onto Harvard
Business School and received an MBA in 1988, graduating
with a high distinction as a Baker Scholar. In 2009,
Mr Barnaba was the recipient of the Western Australian
Citizen of the Year Award in Industry and Commerce.
Other current directorships (ASX listed entities)
None.
Former directorships in the last 3 years (ASX listed entities)
Adept Solutions Ltd.
Experience
Ms Warburton is Executive Director of Strategy and
Finance with Brookfield Multiplex. Prior to this,
Ms Warburton was Chief Planning and Strategy Officer of
United Arab Emirates based company, ALDAR Properties
PJSC, and previously held a variety of senior executive
roles with Brookfield Multiplex including Group General
Manager, Mergers, Acquisitions and Operational Support
and Group General Manager, Strategy and Operations.
She is a Chartered Accountant and has held senior finance
roles at Citigroup and Rio Tinto. She is a member of the
Institute of Chartered Accountants in Australia and a
Graduate of the Australian Institute of Company Directors.
Other current directorships (ASX listed entities)
None.
79
Former directorships in the last 3 years (ASX listed entities)
None.
Mr Mark Thomas
Company Secretary
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 2014 Annual Report
DIRECTORS’ REPORT
Key Management Personnel
Mr Stephen Pearce
Chief Financial Officer
Mr Nick Cernotta
Director Operations
Experience
Mr Pearce joined Fortescue in March 2010 with more than
20 years experience in senior management roles in the
mining, oil and gas and utilities industries. He previously
held the position of Managing Director and CEO of
Southern Cross Electrical Engineering Limited and before
that was Chief Financial Officer with Alinta Limited.
Mr Pearce has previously served as Chairman of Amadeus
Energy Ltd., and Chairman of Surtron Technologies Pty Ltd.
Experience
Mr Cernotta has more than 30 years experience in the
mining industry, spanning various commodities and
operations in Australia, Africa, South East and Central
Asia, Saudi Arabia and Papua New Guinea. Qualified
with a Bachelor of Mining Engineer, Mr Cernotta comes
to Fortescue with a solid operational background and
experience in both the public and private sectors of the
mineral resources industry.
Mr Pearce has a Bachelor of Business from RMIT,
a Graduate Diploma in Company Secretarial Practice
and is a fellow of the Institute of Chartered Accountants
Australia and New Zealand, a Chartered Secretary and
Member of the Australian Institute of Company Directors.
80
Mr Pearce served as a member of the Western
Australian Business and Industry Committee for the
Salvation Army for seven years. He is currently Chairman
of the Lions Eye Institute and a Non-Executive Director
of Cedar Woods Limited.
Prior to joining Fortescue Metals Group, Mr Cernotta was
the Chief Operating Officer for Macmahon Contracting
with responsibility for all domestic underground
contracting and all international offshore surface mining
contracts. Mr Cernotta’s short term with Macmahon
preceded a fruitful and challenging career as Director of
Operations for the Barrick Gold Australia Pacific Regional
Business Unit, which involved a period of rapid growth
through acquisition, new business development ventures
and record profitability. Mr Cernotta has also held senior
executive roles in mining operations and in contracting,
with accountability for Health, Safety and Environmental,
Maintenance, Engineering, Business Improvement and
Technical Services.
Fortescue Metals Group Limited I 2014 Annual Report 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 2014 and the number of meetings attended by each Director were:
Andrew Forrest
Herb Elliott
Mark Barnaba
Sharon Warburton
Owen Hegarty
Geoff Raby
Graeme Rowley
Cao Huiquan1
Elizabeth Gaines
Nev Power
Peter Meurs
Herbert Scruggs
Geoff Brayshaw2
Board meetings
Held
6
6
6
2
6
6
6
6
6
6
6
6
4
Attended
5
5
6
2
6
5
4
3
6
6
6
6
4
Audit
Committee meetings
Remuneration
Finance
Held Attended
*
*
4
*
*
*
4
*
3
*
*
4
2
*
*
4
*
*
*
3
*
3
*
*
4
2
Held
4
4
4
2
4
*
2
*
*
*
*
*
*
Attended
4
3
4
2
4
*
1
*
*
*
*
*
*
Held
*
*
2
*
*
*
2
*
2
*
*
2
2
Attended
*
*
2
*
*
*
2
*
2
*
*
2
2
* 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.
Mr Brayshaw retired in November 2013.
2
81
Operating and financial review
Group overview
Fortescue is the world’s fourth largest iron ore producer,
operating in the iron ore rich Pilbara region of Western
Australia with close proximity to the growing economies
of China, South East Asia and India. Fortescue has delivered
unparalleled growth, evolving from a grassroots explorer
in 2003, to a world leader in iron ore production.
•
•
Increasing shipping capacity at Herb Elliott Port
from 55mtpa to 155mtpa; and
Building the Hamersley rail line to connect the
Solomon Hub to Fortescue’s existing main rail
link from the Chichester Hub to Port Hedland and
increasing the rail network capacity to 155mtpa by
adding a further 125km of track.
During the 2014 financial year (FY14) Fortescue completed
a 100 million tonne (mt) expansion program, increasing
production capacity to 155 million tonnes per annum
(mtpa). Fortescue’s expansion, undertaken to support the
increasing global demand for iron ore, was delivered at an
unprecedented pace with an expansion cost of
US$92 per tonne.
The additional capacity of 100mtpa has been delivered
through:
•
•
Increasing the output of the existing Cloudbreak
and Christmas Creek mines, the Chichester Hub,
from 55mtpa to 95mtpa;
Developing the Firetail and Kings mines, the new
Solomon Hub, to produce 60mtpa;
The success of Fortescue’s expansion demonstrates
original thinking, innovation and determination, with new
benchmarks set in safety, costs, schedule and ramp-up.
The key components of the expansion delivered in FY14
included:
•
•
•
Ramp-up of Firetail operations to a 20mtpa run rate,
completion and ramp-up of the Kings Valley operation;
Completion of the main track line, rail optimisation
controls and train control systems for the main line
and the Hamersley line; and
Commissioning of the fourth berth and surge bin
at Port.
Fortescue Metals Group Limited I 2014 Annual Report
DIRECTORS’ REPORT
All components of the Rail and Port infrastructure, and
the Chichester and Solomon Hubs expansions are now
operational and ramped up to full production capacity.
The targeted 155 million tonne rate per annum was
delivered through the June 2014 quarter and a record
160 million tonnes annualised rate achieved for the
month of June.
Achieving full production capacity has structurally
improved Fortescue’s cost base, reducing C1 operating
costs by 23 per cent to US$34/wmt in the last 12 months,
with a delivered cost to customers of US$52/wmt in
FY14. From a costs perspective, Fortescue continues
to drive down the global cost curve ensuring that it is
well positioned to withstand future volatility in the iron
ore price. Fortescue continues to focus on operational
efficiencies and cost management which, together with
the benefits of a full year of operations from the low cost
Kings Valley mine are expected to result in C1 costs of
US$31/wmt to US$32/wmt in FY15.
Fortescue financed its expansion through operating cash
flows and debt sourced from the US high yield and term
loan markets. As operational cash flows have strengthened,
and capital expenditure decreased, Fortescue has
commenced its accelerated debt repayment strategy. To
date, US$3.1 billion of debt has been repaid. The flexibility
built into Fortescue’s debt profile allows further voluntary
repayments or refinancing in excess of 60 per cent of the
Company’s debt prior to maturity.
Fortescue remains absolutely focused on continuing
to improve shareholder value through identification of
additional operating efficiencies and disciplined capital
management, continuing its drive towards being the
safest, lowest cost and most profitable iron ore producer.
82
Total shipments 124.2mt
54%
for the financial year
Operations
Safety
Health and safety of our people is a core value at Fortescue
and the highest priority in everything we do.
It is with deep regret that two lives were lost in Fortescue
operations during the first half of the 2014 financial year.
In order to prevent these tragedies in the future, Fortescue
has taken decisive actions to reinforce its safety culture
and performance. A number of initiatives have been
implemented, with a particular focus on learnings from
the two fatalities involving contractor employees at
Christmas Creek.
During the year, increased focus has been placed on the
review of safety leadership, culture and systems across
all sites to drive improvement in safety. In addition, an
independent external review was conducted across all
sites, where 6,000 people participated from across each
part of Fortescue’s business to identify opportunities
for improvement. This project is delivering results with
improvement to safety outcomes from focusing on
leadership, contracting processes and the sharing of
incident lessons.
The Total Recordable Injury Frequency Rate per million
hours worked improved by 21 per cent from 7.6 in
June 2013 to 6.0 in June 2014.
Aboriginal engagement
Fortescue’s unique philosophy towards engagement
with Aboriginal communities, particularly our Native Title
Partners, is based on providing sustainable economic
opportunities through business development, training and
employment.
Fortescue is now a national leader in the delivery of
opportunities for Aboriginal businesses. In December 2011
Fortescue set a target to award A$1.0 billion in contracts
to Aboriginal businesses by the end of 2013 through the
Billion Opportunities program. Contracts were awarded
in competitive and open processes in accordance with
Fortescue’s normal governance around procurement and
require Aboriginal businesses to be capable of delivering
projects in a safe, timely and cost competitive manner. The
A$1.0 billion target was achieved in June 2013, 18 months
into the program and six months ahead of schedule. One
year on, the total value of the 160 contracts and sub-
contracts awarded to more than 50 Aboriginal businesses
is A$1.6 billion. Importantly for Pilbara Aboriginal people,
88 per cent of these contracts were awarded to businesses
associated with Fortescue’s Native Title Partners.
Fortescue Metals Group Limited I 2014 Annual Report DIRECTORS’ REPORT
Fortescue continues to drive excellence in Aboriginal
engagement through its contracting partners. The
Company’s procurement policies drive local content and
preferences contracting arrangements with Aboriginal
businesses that meet performance and price standards.
Further, Fortescue’s tender and contractor documentation
requires proposals to contain an Aboriginal Engagement
Strategy, including binding commitments to Aboriginal
employment, training, and local Aboriginal business
capacity building. In FY14, the Company has seen
significant increase in the commitment of Fortescue’s
contracting partners to provide second tier opportunities,
with sub-contracts worth A$233 million awarded to
Aboriginal businesses and joint ventures in FY14.
Fortescue’s Vocational Training and Employment Centre
(VTEC) is a community-based, pre-employment training
and support program for Aboriginal people. VTEC’s vision
is to change lives through employment, which is achieved
by developing and delivering targeted training courses
based on relevant vacancies within Fortescue and its
contractors. The program also provides support in health,
literacy and work experience to help Aboriginal people
with their fit for work requirements and ensure long term
employment. Since its establishment in 2006, VTEC has
helped more than a thousand Aboriginal people through
training, support and employment. 553 employees,
or 12 per cent, of Fortescue’s workforce are Aboriginal.
Fortescue’s VTEC program inspired the model promoted
by GenerationOne and now endorsed by the Federal
Government. The Federal Government has committed
A$45 million to fund the establishment of VTECs across
the country. Fortescue is extremely proud of its
role in the development of this nation leading approach
to Aboriginal employment and training, and importantly
over 1,200 Aboriginal people are employed across
Fortescue’s operations.
Production and shipping performance
Record performance was achieved across the integrated
mine, rail and port supply chain in FY14. As the
expansion projects have been completed and successfully
ramped up through the year, the targeted 155 million
tonne annualised rate was achieved in the June 2014
quarter. Total shipments in FY14 were 124.2 million
tonnes (mt) (2013: 80.9mt) including a record 13.3mt
shipped in the month of June, at a 160 million tonne
annualised rate.
Production and shipments on a wet metric tonne basis
were as follows:
12 months to 30 June (millions of tonnes)
Ore mined
Overburden removed
Ore processed
Ore shipped – Fortescue mined ore
Ore shipped – Fortescue equity ore
Total ore shipped including third party product
2014
140.4
404.5
126.0
118.4
119.9
124.2
2013
94.6
364.5
76.1
75.9
77.8
80.9
Movement
48%
11%
66%
56%
54%
54%
Mining, processing and shipping
Fortescue delivered record mining, processing and shipping volumes for the year. Total shipments increased to 124.2mt,
54 per cent higher than the prior year, and comprised 119.9 million Fortescue equity tonnes and 4.3 million third party tonnes.
Total ore mined increased by 48 per cent to 140.4mt, as operations ramped up across the Chichester and the Solomon Hubs.
Mining, million tonnes (wmt)
Processing, million tonnes (wmt)
Shipping, million tonnes (wmt)
140.4
94.6
64.6
41.3
44.2
38.4
40.6
53.9
126.0
76.1
124.2
80.9
40.1
40.9
57.5
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
83
Total delivered cost, US$/wmt
67
23
69
21
44
48
52
21
31
62
18
44
52
18
34
FY10
FY11
FY12
FY13
FY14
C1
Shipping, royalty and administration
Total delivered costs
Net profit after tax, US$million
Basic earnings per share, US cents
2,740
1,746
1,559
88.00
50.07
56.07
1,019
581
44
48
32.86
18.85
44
48
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Revenue and price realisation
16,000
12,000
8,000
4,000
m
$
S
U
,
e
u
n
e
v
e
r
g
n
i
t
a
r
e
p
O
160
120
80
40
t
m
d
/
$
S
U
,
n
o
i
t
a
s
i
l
a
e
r
e
c
i
r
P
FY10
FY11
FY12
FY13
FY14
Revenue
Realised CFR price
EBITDA, US$million
1,107
FY10
2,661
44
FY11
3,035
48
FY12
5,636
3,575
FY13
FY14
Fortescue Metals Group Limited I 2014 Annual Report
DIRECTORS’ REPORT
As the Firetail project fully ramped up during the year,
Fortescue continued to realise the benefits of blending
low impurity Chichester and higher grade Firetail ore.
This together with the upgrades achieved through the new
processing facilities and beneficiation plants, maximises
product quality enabling reduction in the cut-off grades
and therefore lower strip ratios at the Chichester mines.
These initiatives delivered a strip ratio of 3.5x at the
Chichester Hub in FY14, consistent with the long term mine
plan. The Solomon Hub strip ratio averaged 1.6x for the
year, including 1.3x in the June 2014 quarter as mining was
moving closer to a steady state following the ramp up of
operations at the Kings Valley project.
During the year, Fortescue consolidated its processing
operations through the successful transition of operational
responsibilities from the contracting parties for the two
Christmas Creek OPFs and the two Solomon Hub OPFs.
This now gives Fortescue operational responsibility over
all five of its OPFs, enabling shared learnings, synergies,
economies of scale and efficiencies across the business.
Significant focus continues to be placed on the safe and
efficient operation of OPFs across all sites.
44.2
41.3
64.6
140.4
Mining, million tonnes (wmt)
Rail construction was completed during the year, with rail
optimisation control systems successfully commissioned
on the mainline in December 2013 and on the Hamersley
line in March 2014. Port operations achieved the
94.6
targeted capacity of 155mtpa in July 2013, following
the commissioning of the AP4 berth and integration of
the third ship loader with the third outload circuit. The
annualised 155mtpa run rate was first achieved at Port
over a seven day period in December 2013, followed by
consistent operation at or above this level through the
second half of the financial year. The construction of the
fifth berth at Port Hedland (AP5) is currently underway
and is expected to be complete in the March 2015 quarter,
increasing outload capacity by a further 15 – 20mtpa.
FY10
FY12
FY14
FY10
FY11
FY11
FY13
40.6
38.4
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. In FY14, Fortescue delivered
a 23 per cent reduction in C1 costs to US$34/wet metric
tonne (wmt) (2013: US$44/wmt). This result reflects
the benefits of lower cost Solomon operations, improved
processing capacity lowering strip ratios at the Chichester
Hub, focus on delivering operational efficiencies and the
lower Australian dollar.
Fortescue’s operating costs are largely denominated
in Australian dollars and are subject to movements
in exchange rates with an impact of US$0.25/wmt to
US$0.30/wmt for every one cent movement in the US to
Australian dollar.
Total delivered costs to customers, inclusive of C1 costs,
shipping, state government royalties and administration
charges, were US$52/wmt or US$56/dry metric tonne
(dmt) in FY14.
Processing, million tonnes (wmt)
Shipping, million tonnes (wmt)
Fortescue will continue to focus on cost savings initiatives
and efficiencies at its mines, OPFs and infrastructure assets
to improve productivity and drive further down the global
cost curve.
76.1
Third party ore
126.0
124.2
80.9
57.6
53.9
40.0
40.9
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Total delivered cost, US$/wmt
52
21
31
67
23
44
FY10
FY11
69
21
48
FY12
62
18
44
52
18
34
FY13
FY14
C1
Shipping, royalty and administration
Total delivered costs
Net profit after tax, US$million
Basic earing per share, US cents
2,740
1,746
1,559
88.00
50.07
56.07
1,019
581
44
48
32.86
18.85
44
48
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Revenue and price realisation
t
m
d
/
$
S
U
,
n
o
i
t
a
s
i
l
a
e
r
e
c
i
r
P
160
140
120
100
80
60
40
20
FY10
FY11
FY12
FY13
FY14
Revenue
Realised CFR price
EBITDA, US$million
1,107
FY10
2,661
44
FY11
3,036
48
FY12
5,636
3,575
FY13
FY14
84
m
$
S
U
,
e
u
n
e
v
e
r
g
n
i
t
a
r
e
p
O
14,000
12,000
10,000
8,000
6,000
4,000
2,000
Fortescue Metals Group Limited I 2014 Annual Report
DIRECTORS’ REPORT
The reconciliation of C1 costs and total delivered costs to the amounts disclosed in the financial statements is shown below.
Mining costs
Rail costs
Port costs
Operating leases
C1 costs, US$ million
Ore shipped – Fortescue mined ore
C1, US$/wmt
Shipping costs
Government royalty
Administration expenses
Shipping, royalty and administration, US$/wmt
Total delivered cost, US$/wmt
(i) Notes to the accompanying consolidated financial statements.
Marketing
Note (i)
5
5
5
5
5
5
6
2014
US$m
2013
US$m
3,442
2,851
85
238
252
74
4,006
118.4
34
1,210
775
112
18
52
182
181
133
3,347
75.9
44
769
499
110
18
62
Fortescue’s suite of products is sold with reference to
the 62 per cent Platts CFR index, a benchmark market
reference for seaborne iron ore, with a market price
comparable to other products which have similar value-in-
use properties for steel production.
FY14 has seen a continued increase in iron ore supply
as the major Pilbara iron ore producers have ramped up
production to near full capacity. The increased supply of
seaborne iron ore has created volatility in iron ore prices
during the June 2014 quarter. Fortescue expects iron ore
price to stabilise as supply re-balances in the short term
as Chinese port inventories are drawn down, steel mills re-
stock and higher cost iron ore producers leave the market.
Fortescue has continued to see strong support for its
products with the average realised price of US$106/dmt
(2013: US$114/dmt), based on average 62 per cent Platts
CFR index of US$123/dmt (2013: US$127/dmt). As balance
is restored to the iron ore supply and demand, Fortescue
expects to realise between 85 to 90 per cent of the average
62 per cent Platts CFR index.
Fortescue Metals Group Limited I 2014 Annual Report
DIRECTORS’ REPORT
86
2011 Wharf expansion
2013 Fortescue employees at Kings Valley project
Train load-out module being delivered to Solomon
Development
T155 expansion
The official opening of the Kings Valley project in
March 2014 marked the completion of the expansion
to 155mtpa.
The project was announced in November 2010 and has
delivered:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Three advanced OPFs with wet processing capability
Four new crushing hubs
Over 250km of new rail track
300km of new roads
50km of conveyor systems
Two new berths
Two new train unloaders with associated stock yard
expansion at Herb Elliott Port
Two new aerodromes
Highly automated rail ore car refurbishment facility
A new power station at Solomon and expansion of
power generation capacity at the Chichester Hub
Extensive new fuel receiving and delivering facilities
New rail rolling stock and locomotives
Operations villages at Christmas Creek and Solomon
Significant expansion of the mobile mining fleet
The expansion has been completed for US$9.2 billion
or US$92 per tonne. All components of the Port, Rail,
Chichester Hub and Solomon Hub expansions have been
ramped up and are operating at full capacity.
Fortescue River gas pipeline
Fortescue is executing a plan to lower energy costs and
reduce its carbon footprint by transitioning its Pilbara
operations from diesel to natural gas. As a first step, the
Fortescue River gas pipeline will deliver gas from the
Dampier to Perth Pipeline to the Solomon Power Station
with completion scheduled in the March 2015 quarter.
Compressed Natural Gas (CNG)
As an interim step in advance of completion of the natural
gas pipeline, Fortescue will truck compressed natural
gas (CNG) from facilities in Port Hedland to gas receiving
facilities installed at the Solomon Power Station. Deliveries
are scheduled to commence in August 2014 and will run
until the Fortescue River pipeline is fully commissioned.
AP5 Project
The project to build the fifth wharf at Anderson Point,
AP5, remains on schedule and on budget for completion
in the March 2015 quarter. Dredging was completed in
the June 2014 quarter and installation of wharf piles has
commenced. All major contracts have been awarded and
fabrications of wharf modules are under way in China and
Western Australia.
Fortescue Metals Group Limited I 2014 Annual Report Detrital Processing Plant
Construction of a 5mtpa detrital processing plant at
Solomon will allow processing of detrital ore, eliminating
the need for an expensive wet plant addition to the Firetail
OPF. Project duration is estimated at 55 weeks at a cost of
approximately US$105 million.
Iron Bridge Project
Construction activities continue to achieve planned
milestones for Stage 1 of the Iron Bridge magnetite project.
The main construction camp is complete, access roads
and earthworks at the Northstar OPF are nearing
completion and pre-strip activities are progressing.
Concrete works at the OPF are well advanced with
commencement of structural, mechanical and piping
works. A contract has been awarded for the electrical and
instrumentation package of works. First production from
the 1.5mtpa OPF is expected in the March 2015 quarter.
Incremental Train Control System (ITCS)
ITCS has been implemented across Fortescue’s rail system
and is now fully operational. The system is delivering
improvements in train scheduling, operations and
optimisation of the network.
Autonomous Haulage System
The trial of autonomous trucks at Solomon has
demonstrated that the technology is suitable for
deployment across the Firetail and Kings Valley projects.
Ship construction
During the financial year Fortescue entered into
arrangements for the construction of four highly efficient
very large ore carriers (VLOCs) for a total investment value
of US$275 million. The vessels are scheduled for delivery
from November 2016 to May 2017 with the majority of
payments due upon delivery.
The 260,000 dead weight tonnage class vessels are larger
than the traditional capsize vessels that have dominated
the seaborne market and incorporate design specifications
ideally suited to Port Hedland’s tidal conditions. The VLOCs
design complements the port infrastructure and will
improve load rates, efficiencies and reduce operating costs
at Port. Further savings will be derived as the expected cost
of operating these vessels is well below the current forward
market rates for large capsize vessels.
In July 2014 Fortescue secured construction of four
additional iron ore carriers to be delivered in late 2017 to
early 2018, for a total investment value of US$280 million.
DIRECTORS’ REPORT
2014 Port AP5 expansion
87
Incremental Train Control System
Autonomous trucks at Solomon
Fortescue Metals Group Limited I 2014 Annual Report Mining, million tonnes (wmt)
Processing, million tonnes (wmt)
Shipping, million tonnes (wmt)
41.3
44.2
38.4
40.6
53.9
40.1
40.9
57.5
FY10
Mining, million tonnes (wmt)
FY11
FY12
FY13
FY14
FY10
Processing, million tonnes (wmt)
FY11
FY12
FY13
FY14
FY10
Shipping, million tonnes (wmt)
FY11
FY12
FY13
FY14
140.4
140.4
94.6
64.6
94.6
64.6
41.3
44.2
38.4
Total delivered cost, US$/wmt
53.9
40.6
126.0
76.1
126.0
76.1
124.2
80.9
124.2
80.9
40.1
40.9
57.5
DIRECTORS’ REPORT
FY10
FY11
FY13
FY14
69
FY12
67
52
21
23
21
FY10
62
18
Financial results
31
44
48
44
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
52
18
34
Total delivered cost, US$/wmt
Financial results
FY12
FY11
FY14
FY10
Profit after tax for the year ended 30 June 2014 increased by 57 per cent to US$2,740 million, increasing basic earnings per
69
67
share to 88.00 cents (2013: 56.07 cents).
Shipping, royalty and administration
Total delivered costs
FY13
C1
62
52
21
31
23
21
Net profit after tax, US$million
44
48
18
44
2,740
52
18
34
FY10
FY11
FY12
1,559
1,746
FY13
FY14
C1
Shipping, royalty and administration
1,019
Total delivered costs
Basic earnings per share, US cents
50.07
56.07
32.86
581
Net profit after tax, US$million
44
48
18.85
2,740
Basic earnings per share, US cents
44
48
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
88.00
FY14
88.00
88
Fortescue’s strong financial result reflects improved operational performance, as the expansion to 155mtpa was
completed and record shipments of 124.2mt were delivered in FY14 (2013: 80.9mt). Financial performance highlights
are discussed below.
1,019
Revenue and price realisation
16,000
56.07
50.07
1,559
160
1,746
,
48
44
581
12,000
m
$
Operating sales revenue increased by 45 per cent to US$11,753 million, due to increased shipments, and was partially
S
U
offset by a seven per cent decrease in the realised CFR price. Year on year revenue growth and price realisations are illustrated
e
u
n
in the chart below.
e
v
e
r
g
n
i
t
a
r
e
p
O
Revenue and price realisation
m
d
/
$
S
U
FY10
8,000
FY14
80
18.85
FY12
FY13
FY10
FY11
FY11
FY13
FY12
FY14
120
44
48
t
,
32.86
4,000
40
n
o
i
t
a
s
i
l
a
e
r
e
c
i
r
P
16,000
12,000
8,000
4,000
m
$
S
U
,
e
u
n
e
v
e
r
g
n
i
t
a
r
e
p
O
FY10
FY11
FY12
FY13
FY14
Revenue
Realised CFR price
EBITDA, US$million
FY10
FY11
2,661
Revenue
FY12
3,035
FY13
3,575
FY14
Realised CFR price
160
120
80
40
t
m
d
/
$
S
U
,
n
o
i
t
a
s
i
l
a
e
r
e
c
i
r
P
5,636
1,107
44
48
Fortescue uses earnings before interest, tax, depreciation and amortisation (EBITDA) as a key measure of its financial
performance. In FY14, the Group’s EBITDA improved by 58 per cent to US$5,636 million. The reconciliation of EBITDA to the
FY12
financial metrics reported in the financial statements under Australian accounting standards, together with the five year
EBITDA, US$million
earnings trend, are presented on the following page.
FY10
FY14
FY11
FY13
1,107
FY10
2,661
44
FY11
3,035
48
FY12
5,636
3,575
FY13
FY14
Fortescue Metals Group Limited I 2014 Annual Report
Mining, million tonnes (wmt)
Processing, million tonnes (wmt)
Shipping, million tonnes (wmt)
140.4
94.6
64.6
126.0
76.1
124.2
80.9
41.3
44.2
38.4
40.6
53.9
40.1
40.9
57.5
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Total delivered cost, US$/wmt
67
23
69
21
44
48
52
21
31
62
18
44
52
18
34
FY10
FY11
FY12
FY13
FY14
C1
Shipping, royalty and administration
Total delivered costs
Net profit after tax, US$million
Basic earnings per share, US cents
2,740
DIRECTORS’ REPORT
1,746
1,559
1,019
581
Operating sales revenue
44
48
Cost of sales excluding depreciation and amortisation
FY13
FY14
FY10
FY11
FY12
Gain on disposal of assets and interest in joint venture
18.85
32.86
Note (i)
44
48
FY10
FY11
3
5
4
Net foreign exchange (loss) gain
Re-estimation of unsecured loan notes
Revenue and price realisation
50.07
56.07
2014
US$m
11,753
FY12
(6,078)
FY13
109
(53)
-
(112)
17
5,636
21
(741)
-
(965)
(22)
(16)
3,913
FY14
(1,173)
2,740
4,6
4
6
4
7
7
4
5,6
6
6
88.00
2013
US$m
8,120
(4,703)
FY14
124
96
34
160
(110)
14
3,575
120
33
t
m
d
/
$
S
U
,
n
o
i
t
a
s
i
l
a
e
r
e
c
i
r
P
(586)
80
23
(463)
40
(71)
(45)
2,466
(720)
1,746
,
16,000
Administration expenses
m
Other income
$
S
U
EBITDA
12,000
e
u
Finance income
n
e
v
e
Finance expenses
r
g
n
Net gain on refinancing
i
t
a
r
Depreciation and amortisation
e
p
O
Assets write-off
4,000
8,000
Exploration, development and other
Net profit before tax
FY10
Income tax expense
Net profit after tax
FY11
FY12
FY13
Revenue
Realised CFR price
8
89
(i) Notes to the accompanying consolidated financial statements
EBITDA, US$million
1,107
FY10
2,661
44
FY11
3,035
48
FY12
5,636
3,575
FY13
FY14
The increased shipping volumes lifted profits by
US$2,079 million, with the impact of higher revenue
of US$4,387 million offset by the increased cost base,
including C1 costs of US$1,874 million and shipping
costs of US$434 million.
The impact of higher volumes was partially offset by lower
realised prices, as iron ore market prices softened in the
second half of the financial year. In FY14, Fortescue realised
US$106/dmt (2013: US$114/dmt), based on the 62 per cent
CFR Platts index of US$123/dmt (2013: US$127/dmt).
A 23 per cent reduction has been delivered on a cost
per tonne basis over the last 12 months, with C1 costs
of US$34/wmt (2013: US$44/wmt). The improved
performance reflects lower cost Solomon production,
improved processing capacity and the introduction
of Fortescue blend, lowering strip ratios at the Chichester
Hub, operational efficiencies and the lower Australian
dollar. Total delivered cost, inclusive of state government
royalties, shipping and administration charges, was
US$52/wmt (2013: US$62/wmt).
State government royalty charges increased consistent
with the higher revenue base. Fortescue pays 7.5 per cent
state government royalty for the majority of its products,
with a concession rate of 5 per cent applicable for
beneficiated fines.
Fortescue Metals Group Limited I 2014 Annual Report
US$bn
14
11
7
4
9,000
6,000
3,000
-
(3,000)
(6,000)
(9,000)
Borrowings and cost of borrowings
12%
10%
8%
6%
4%
2%
FY10
FY11
FY12
FY13
FY14
Borrowings
Leucadia notes and Finance leases
Cost of borrowings
Operating cash flow and capital expenditure, US$million
2,778
2,808
3,004
6,248
FY11
FY12
FY13
FY14
(1,477)
(1,931)
1,294
FY10
(584)
DIRECTORS’ REPORT
Operating cash flow
Capital expenditure
(6,044)
(6,355)
EBITDA, US$million
1,203
829
2,079
276
149
33
5,636
3,575
FY13
Volume
Costs
Price
Royalty
Fx
Other
FY14
90
Other non-operating events forming part of the financial
result include:
•
In October 2013 Fortescue completed the formation
of a joint venture with Formosa Plastics Group
(Formosa) to develop the FMG Iron Bridge magnetite
project. As part of the transaction, Formosa acquired
a 31 per cent unincorporated joint venture interest
for US$123 million, generating a pre-tax gain of
US$109 million.
Formosa committed to fund the first US$527 million
of capital expenditure in the FMG Iron Bridge
magnetite project and elected to prepay
US$500 million to access Fortescue’s port facilities
at Herb Elliott Port. The second stage of the
FMG Iron Bridge magnetite project, if approved
by the joint venture partners, will be funded by
a contribution of the next US$1,050 million from
Fortescue’s subsidiary, FMG Iron Bridge Limited.
•
•
•
Net finance expenses for the year of US$720 million
(2013: US$553 million), net of capitalised interest
on expansion projects of US$75 million
(2013: $342 million) and including net loss on
early debt retirement of US$53 million.
Depreciation and amortisation expenses of
US$965 million (2013: US$463 million), following
completion and capitalisation of all components
of the 155mtpa expansion program.
Income tax expense for the year of US$1,173 million
(2013: US$720 million), at an effective income tax rate
of 30 per cent (2013: 29 per cent).
In FY14, Fortescue paid income tax of US$150 million,
with a further US$666 million payable by December 2014.
In addition, US$717 million in state government royalties
were paid to Western Australian State Government.
The number of shares on issue at 30 June 2014 was
3.1 billion and remain unchanged since last year.
Safety
is a core value at Fortescue
Fortescue Metals Group Limited I 2014 Annual Report
12%
10%
8%
6%
4%
2%
91
US$bn
14
11
7
4
9,000
6,000
3,000
-
(3,000)
(6,000)
(9,000)
Borrowings and cost of borrowings
FY10
FY11
FY12
Borrowings
Leucadia notes and Finance leases
FY13
DIRECTORS’ REPORT
FY14
Cost of borrowings
Operating cash flow and capital expenditure, US$million
2,778
2,808
3,004
6,248
FY11
FY12
FY13
FY14
(1,477)
(1,931)
1,294
FY10
(584)
(6,044)
(6,355)
Operating cash flow
Capital expenditure
Cash flows and financial position
Cash and cash equivalents at 30 June 2014 were
US$2,398 million compared to US$2,158 million
at 30 June 2013.
1,203
829
Net cash flows from operating activities increased by
108 per cent to US$6,248 million (2013: US$3,004 million),
reflecting increased production and lower operating costs.
In FY14, Fortescue paid income tax of US$150 million,
with a further US$666 million payable by December 2014.
Operating cash flows for the financial year are inclusive of
US$712 million receipts from iron ore prepayments and
US$500 million port access charge prepayment.
2,079
3,575
Net cash outflow from investing activities, principally
capital expenditure, decreased by 77 per cent to
US$1,392 million, as the capital expenditure peaked in
the previous financial year following completion of the
155mtpa expansion program.
Volume
Costs
FY13
Price
The key factors contributing to the net financing cash
outflows of US$4,625 million were:
EBITDA, US$million
•
•
•
Early debt repayments of US$3.1 billion, including
US$2.04 billion 2015 senior unsecured notes,
US$0.6 billion 2016 senior unsecured notes,
A$0.14 billion preference shares and US$0.3 billion
early settlement of finance leases;
276
149
33
5,636
Interest and finance costs paid of US$853 million
(2013: US$893 million); and
Dividend payments of US$581 million
(2013: US$131 million), including payment of final
dividend of 10 Australian cents per share for the
2013 financial year in October 2013 and interim
dividend of 10 Australian cents per share for the
2014 financial year in April 2014.
Royalty
Other
Fx
FY14
Fortescue operates the
fastest and heaviest
rail network in the world
Fortescue Metals Group Limited I 2014 Annual Report DIRECTORS’ REPORT
Funding and capital management
Fortescue’s net debt position, including finance leases
and cash on hand, improved from US$10.5 billion at
30 June 2013 to US$7.2 billion at 30 June 2014.
Fortescue is focused on reducing its gearing and
commenced an accelerated debt reduction program in
FY14, with the following initiatives successfully completed
during the year:
Redemption of A$140 million preference shares,
completed in November 2013;
Redemption of US$2.04 billion 2015 senior unsecured
notes, completed in December 2013 (US$1.0 billion)
and in March 2014 (US$1.04 billion);
Pay-out of the Christmas Creek OPFs finance lease
liabilities of US$0.3 billion in January 2014; and
Redemption of US$0.6 billion 2016 senior unsecured
notes, completed in March 2014.
In November 2013 Fortescue successfully re-priced the
US$5.0 billion Term Loan, reducing the previous margin
by one per cent to 3.25 per cent from November 2013 and
by a further 0.5 per cent to 2.75 per cent from May 2014.
The loan maturity has been extended by 21 months to
30 June 2019. The total coupon payable on the Term Loan
is calculated as LIBOR, with a LIBOR floor of 1.00 per cent
plus the margin.
The above debt repayment of US$3.1 billion and re-pricing
of the Term Loan delivered an interest saving of
US$165 million in FY14, with the full year savings going
forward of approximately US$300 million per annum.
At 30 June 2014, Fortescue’s weighted average cost of
debt decreased to below six per cent per annum. The
below chart illustrates Fortescue’s finance expenses
together with the costs of funding over the last five years.
Cost of borrowings has been calculated using borrowings
balances and interest rates as at the end of the financial
year and excludes Unsecured Loan Notes (Leucadia notes)
and finance lease liabilities.
10.1%
FY10
Cost of borrowings
7.0%
7.0%
6.3%
5.3%
44
FY11
48
FY12
FY13
FY14
•
•
•
•
%
10
8
6
4
2
92
Fortescue Metals Group Limited I 2014 Annual Report DIRECTORS’ REPORT
Fortescue has built significant flexibility in its debt profile, which facilitates additional repayments and the ability to further
reduce debt and move towards an initial targeted gearing level of 40 per cent. As illustrated in the debt maturity profile
below, Fortescue’s earliest debt maturity is in 2017. Further, a total of US$5.8 billion, or in excess of 60 per cent, of the
Company’s long term debt is available for voluntary repayment in advance of maturity and at Fortescue’s option.
m
$
S
U
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
4,913
Repayable at Fortescue’s option
Callable
in
April 2015
Callable at
Fortescue’s
option
1,000
500
0
0
9
400
1,500
Callable in
November 2015
Callable
in
April 2017
1,000
CY2014
CY2015
CY2016
CY2017
CY2018
CY2019
CY2020
CY2021
CY2022
Senior secured credit facility
Senior unsecured notes
Committed to be paid in October 2014
93
Dividends
The following dividend payments have been completed during the financial year:
•
•
Final fully franked dividend for the year ended 30 June 2013 of 10 Australian cents per share, paid in October 2013;
Interim fully franked dividend for the year ended 30 June 2014 of 10 Australian cents per share, paid in April 2014.
On 20 August 2014, the Directors declared a fully franked dividend of 10 Australian cents per ordinary share payable
on 3 October 2014.
e
r
a
h
s
r
e
p
s
t
n
e
c
D
U
A
20
10
0
0%
FY10
Dividends
21%
16%
16%
FY11
FY12
FY13
FY14
Interim
Final
Dividend payout ratio
21%
20%
10%
0
Fortescue considers a range of factors when determining an appropriate level of dividend, including the Company’s liquidity
position, mid to long term development profile and gearing levels.
Fortescue Metals Group Limited I 2014 Annual Report
DIRECTORS’ REPORT
94
Isak Buitendag, Director Health, Safety and Security
Reclaimer at Port Hedland
The electrical team in Port Hedland checking a cable relay break
on a Stacker at the Port
Strategy
As Fortescue has completed its major expansion program,
the focus has shifted to consolidation of the operations and
maximising the output from the Company’s world class
assets. Whilst each component of the mine, rail and port
operations have been running consistently at the target
capacity over the June 2014 quarter, focus continues on
ways to optimise operations to deliver additional low cost
tonnes from the existing assets base.
From an operational stance Fortescue’s key priority is
the identification of additional efficiencies and driving
the costs down further. In FY15 Fortescue expects to
deliver total shipments of 155 to 160 million tonnes at C1
operating costs of US$31/wmt to US$32/wmt, a 30 per cent
cost reduction over a two year period. Key drivers for the
savings in FY15 will be a full year of production out of Kings
Valley, improved processing capability, and operational
efficiencies and innovations. The construction of VLOCs,
scheduled for completion in 2017 – 2018, will further add
to the reduction of total delivered costs as the vessels are
ideally designed for our Port operations and the expected
cost of operating the vessels is below the current forward
market rates for large capsize vessels.
Fortescue continues to evolve its product strategy, including
a successful launch of Fortescue Blend in FY14, a high
quality product that maximises the benefits of low impurity
Chichester and higher iron content Firetail product. In July
2014, Fortescue introduced its new low alumina, 58 per cent
iron grade Kings CID product, which further complements
Fortescue’s product offering of high value-in-use iron ore fines.
Fortescue is committed to driving down its gearing to the
initial target of 40 per cent. In order to achieve this gearing
target, a further debt repayment of US$2.0 billion to
US$2.5 billion is required, which is expected to be executed
over the next 18 to 24 months. The exact timing of these
repayments will depend on a number of factors, including
iron ore prices and the Australian dollar exchange rate.
Once the gearing target of 40 per cent is achieved,
Fortescue is planning to move to a 30 to 40 per cent
dividend payout ratio.
Fortescue continues to strategically evaluate incremental
growth opportunities, with a number of projects increasing
output with minimal capex underway. These include the
design and construction of a five million tonne per annum
wet processing plant, providing a lower cost and more
efficient solution for the detritals product out of Kings.
The construction of AP5 berth scheduled for completion in
March 2015 is also progressing well and, once complete, will
increase the outload capacity by 15 to 20 million tonnes per year.
Fortescue Metals Group Limited I 2014 Annual Report 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. Fortescue measures its environmental performance
against its regulatory requirements and corporate targets.
Fortescue’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 Fortescue’s Compliance
Assessment Reports dated March 2014, 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.
DIRECTORS’ REPORT
Fortescue Marshes
95
Ring tailed dragon
Mulgara
Fortescue Metals Group Limited I 2014 Annual Report
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 1.85 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.
Directors’ interests
The relevant interest of each Director in the shares, options and performance rights 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:
96
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
S Warburton
Ordinary shares
Options
1,033,479,247
2,167,938
1,254,981
-
52,149
40,000
-
8,000
17,644,951
-
50,000
-
-
-
-
-
-
-
-
-
-
-
Performance
rights
-
-
2,038,602
-
-
-
-
-
-
-
-
26,006,995
7,500,000
792,791
-
-
-
Unissued shares under options and performance rights
Details of the options and performance rights outstanding at 30 June 2014 are as follows:
Employee options 2010
Long term performance rights 2013
Short term performance rights 2014
Long term performance rights 2014
Exercise
price
A$
5.00
Nil
Nil
Nil
Balance
at the end
of the year
Number
7,500,000
2,935,785
3,651,255
5,139,280
19,226,320
Vested and
exercisable at
the end
of the year
Number
Remaining
contractual
life
Months
-
-
-
-
-
10
18
6
30
Fortescue Metals Group Limited I 2014 Annual Report
DIRECTORS’ REPORT
Directors and officers indemnities and insurance
Future developments
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 Fortescue,
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 Fortescue. 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 23 to the financial statements.
The Board of Directors has considered the position
and, in accordance with advice received from the
Audit and 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 and Risk Management Committee to ensure
they do not impact the impartiality and objectivity
of the auditor; and
•
•
Fortescue discloses its likely future developments in the
Strategy section of this report. Further information in
relation to likely developments and the impact on the
operations of the Group has not been included in
this report, as the Directors believe it would result in
unreasonable prejudice to the Group.
Significant change in state of affairs
There have been no significant changes in the state of affairs
of Fortescue, other than disclosed in this report.
Proceedings on behalf of the Group
No person has applied to the Court under section 237 of the
Corporations Act 2001 for leave to bring proceedings on behalf
of the Group, or to intervene in any proceedings to which the
Group is a party, for the purposes of taking responsibility on
behalf of the Group for all or part of those proceedings.
No proceedings have been brought or intervened in on
behalf of the Company with leave of the Court under
section 237 of the Corporations Act 2001.
97
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 Directors’ report and the financial statements
have been rounded off in accordance with that Class Order
to the nearest million dollars, unless otherwise stated.
Events occurring after the reporting period
On 20 August 2014, the Directors declared a final
dividend of 10 Australian cents per ordinary share payable
on 3 October 2014.
On 20 August 2014, Fortescue announced its intention to
redeem US$500 million of the 2018 senior unsecured notes
in October 2014.
This report is made in accordance with a resolution of Directors.
none of the services undermine the general principles
relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants.
Mr Andrew Forrest
Chairman
Dated in Perth this 20th day of August 2014.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
The Directors of Fortescue Metals Group Limited
are pleased to present the Remuneration Report for the
year ended 30 June 2014 (‘FY2014 or FY14’). 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) FY2014 overview and year ahead
c) Governance of our remuneration
d) Executive remuneration strategy
e) Executive remuneration structure
99
100
102
104
105
f ) Key components of Executive remuneration
106
g) How Fortescue performed over the past five years 110
98
h) Securities trading policy
i) Executive contract terms
111
111
j) Detailed remuneration for Executives 112
k) Non-Executive Director remuneration
l)
Equity Instrument disclosures relating to key
management personnel
116
117
Whilst the functional and reporting currency of Fortescue
is 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 2014 Annual Report 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 the Group for FY14 were:
Non-executive Directors
A Forrest
H Elliott
M Barnaba
G Brayshaw
E Gaines
O Hegarty
C Huiquan
G Raby
G Rowley
H Scruggs
S Warburton
Chairman
Deputy Chairman
Non-Executive Director
Non-Executive Director (retired 13 November 2013)
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director (appointed 13 November 2013)
99
Executive Directors
N Power
P Meurs
Chief Executive Officer
Director Development
Other key management personnel (executives)
N Cernotta
S Pearce
D Woodall
Director Operations (appointed 24 March 2014)
Chief Financial Officer
Director Operations (resigned 12 December 2013)
There were no changes to Key Management Personnel after the reporting date.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
b) FY14 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 FY14:
Key Area
Description
Approach to Safety Measure in the event of a fatality
In the event of a fatality, ESSIP participants (Group Managers,
General Managers and Executive) will receive no award for the
Company Safety KPI and all staff at the location where the
fatality occurs will receive no award against Company or
Team Safety KPIs.
FY14 Remuneration Outcomes - Linking Performance and Pay
The following explains how fixed and variable remuneration outcomes were driven by company performance in FY14.
100
Element of Remuneration
Outcome
Total Fixed Remuneration (TFR)
Executive and Senior Staff Incentive Plan (ESSIP)
Long Term Incentive Plan (LTI)
A market review was conducted for the CEO which resulted
in an increase in total fixed remuneration to $2,000,000
(11.1 per cent) effective from 1 July 2014. Prior to this review the
CEO’s fixed remuneration had not increased since February 2011.
A market review was conducted which identified that Executive
total fixed remuneration has fallen below competitive levels.
Accordingly, the Board made a decision to increase fixed
remuneration for Executives (on average) by 3.3 per cent to
re-align with the market and increase retention opportunity.
Prior to this review, fixed remuneration for Executives had not
increased since July 2011.
Awards made in relation to the FY14 ESSIP reflect the
achievement of one of the three company performance
objectives delivering a significant reduction in C1 costs, the
achievement of Company growth objectives and individual
performance objectives. Although the TRIFR measure was
met, no award was made in respect to this measure as detailed
in the FY14 changes above.
Refer to section (f ) for more detail.
The outcome represents an average payment of 76 per cent
of maximum opportunity compared with an average payment
of 78 per cent of maximum opportunity in FY13.
LTI grants were made in December 2013 in respect to the
FY14 LTI plan. The performance period for the FY14 LTI is
1 July 2013 to 30 June 2016 and award outcomes for the
FY14 LTI plan will be reported in the 2016 remuneration report.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
Executive Total Earnings in FY14
Details of remuneration received by the Chief Executive Officer and Executives prepared in accordance with statutory
requirements and accounting standards are detailed on page 112. The table below sets out the total earnings for the
Chief Executive Officer and Executives realised in FY14 – sometimes referred to as ‘actual’ pay. The table includes fixed
remuneration, the cash component of the ESSIP earnings for FY14 performance and the value of the share component
of the FY14 ESSIP that vested.
Name
N Power
S Pearce
P Meurs
N Cernotta2
D Woodall3
Fixed
remuneration1
FY14 ESSIP
Cash Paid
1,800,000
1,050,000
1,050,000
261,941
410,017
-
-
-
57,721
-
FY14 ESSIP4
Shares
Awarded
2,072,780
957,043
872,335
82,784
-
Total Actual
Remuneration
Earned in 2014
3,872,780
2,007,043
1,922,335
402,446
410,017
1 Fixed remuneration includes cash salary, paid leave and superannuation.
2 Mr Cernotta was appointed on 24 March 2014.
3 Mr Woodall resigned on 12 December 2013.
4
The actual share value to the individual is not realised until the shares are awarded. For the purpose of this report the
nominal ESSIP share value for FY14 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$3.1653)
multiplied by the 5 day VWAP of Fortescue shares for the first five trading days of FY15 ($4.5397).
101
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
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
reviewing 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 FY14 consisted solely of Non-Executive Directors. The Chief Executive Officer and others may be invited to
attend meetings by the Committee Chair as required, but have no vote on matters before the Committee.
The process and accountabilities in determining remuneration are shown below:
102
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
• 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
• 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.
Fortescue Metals Group Limited I 2014 Annual Report REMUNERATION REPORT
Use of remuneration consultants
During the year, Egan Associates provided external remuneration advice to the R&NC. During FY14, Egan Associates
provided remuneration recommendations (as defined in the Corporations Act 2001) relating to a review of the structure
for KMP remuneration.
The 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 fee was paid for the remuneration recommendations was A$17,500 (ex GST). Other services provided by Egan
Associates included other advisory services and the fees for all other services were A$8,645 (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 Chair 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
•
Egan Associates provided the remuneration recommendation only to the Chair 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.
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.
103
Fortescue Metals Group Limited I 2014 Annual Report
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 ASX 100 Resources and ASX 30 and also
seeks input from independent remuneration consultants regarding Executive remuneration as detailed in section (c) above.
The overall intent is to ensure that executive remuneration 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
104
Remuneration strategy principle
Purpose
Practice
High levels
of share ownership
Drive alignment of employee
and shareholder interests
A minimum 50 per cent of the ESSIP
paid in shares with Executives able
to elect up to 100 per cent in shares.
LTIP awarded as 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
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’
Fit for purpose
Include flexibility to reflect clear
linkage to business strategy
Business strategy is prioritised;
market practice is only one input
in determining the relevant
framework
Strategic alignment
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
LTI 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
Fortescue Metals Group Limited I 2014 Annual 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 FY14 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 thirty 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. Information provided by Egan
Associates revealed that current total remuneration levels are generally consistent with this policy.
Remuneration Mix
The table below shows the remuneration mix for performance at stretch for the CEO and Direct Reports in FY14:
105
CEO
28%
31%
Direct Reports
36%
28%
41%
36%
0%
20%
40%
60%
80%
100%
TFR
ESSIP (at risk)
LTI (at risk)
* Note the table above represents the remuneration mix for stretch levels of performance for the CEO and CEO Direct
Reports in FY14 and does not take into consideration options granted to Mr Peter Meurs at the start of his employment
or any value that may be attributed to the guarantee provided by the Minderoo Group which supported certain senior
executives in purchasing Fortescue shares on-market.
The above table clearly illustrates the significant proportion of ‘at-risk’ components of executive remuneration and serves
to reinforce the pay-for-performance alignment.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
f) Key components of Executive remuneration
Total Fixed Remuneration
TFR comprises 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 and 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, aligning Executive remuneration with 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. Share rights are granted based on the election
made by the participant and represent the maximum number of shares that may be awarded subject to performance.
Shares rights are calculated based on the Volume Weighted Average Price (VWAP) of Fortescue shares traded over the first
five trading days of the plan year (eg. 1 July 2013 to 5 July 2013).
The maximum incentive opportunity for KMPs in FY14 is shown below:
106
Chief Executive Officer
Direct Reports
112.5 per cent of TFR*
75 per cent of TFR*
1 participant
3 participants
* Note that the actual award outcomes under the ESSIP will be determined by the number of objectives achieved and the
value of the Fortescue shares at time of vesting.
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 financial objectives are met.
The financial performance measures were chosen as they represent the key drivers for the short term success of the Company
and provide a framework for delivering long term value. The non-financial component of the ESSIP is measured with reference
to an assessment against a range of measures. A majority of the non-financial measures are quantitative-based.
Fortescue Metals Group Limited I 2014 Annual Report The performance objectives in 2014 are shown below:
Company Annual Performance
Safety2
Target percentage reduction (15 per cent) in
Total Recordable Injury Frequency Rate (TRIFR)
Production2 Target tonnes shipped
Cost1
Target cost per tonne shipped
Company Growth Performance
Culture2
Growth2
Financial1
Financial1
Physical2
Achieve agreed workforce culture
and engagement targets
Identify and independently verify additional
target expansion opportunities by 30 June 2014
Achieve target annual Absolute Return
on Equity (AROE) of >20%
Achieve Target free cash flow
Target percentage of reserves mined is
converted (after processing losses) to product,
inclusive of quality measurement (e.g. grade
expectations and real mined tonnage)
REMUNERATION REPORT
FY14
Results
Met*
Not Met
Met
Met
Met
Met
Met
CEO
Direct Reports
Weighting Outcome Weighting Outcome
15
15
15
15
10
10
10
0
0
16.43
15
10
10
10
8
8
8
0
8
10
0
0
0
8.73
n/a
8
10
n/a
Met
10
10
8
8
107
Individual Performance
4 objectives based on the business plan
weighted according to business impact
Partially Met
0
0
50
Avg
37.5
1
2
3
Financial Targets.
Non-Financial Targets.
A key element of our culture is to set challenging stretch targets and strive to outperform those targets. In the 2014
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.
* Although the TRIFR measure was achieved in FY14, as a result of the two fatalities during the year, ESSIP participants (Group
Managers, General Managers and Executive) will receive no award for the Company Safety KPI and all staff at the location
where the fatalities occurred will receive no award against Company or Team Safety KPIs.
In FY14, the CEO was measured solely against Company performance outcomes thereby ensuring the alignment between
Company performance, shareholder returns and CEO reward for the performance year.
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 Objectives and Weightings are Determined
ESSIP targets and measures are set on an annual basis and are linked to the annual stretch budget and Fortescue’s strategic
plan. Personal objectives are set at stretch levels of performance with measures and weightings aligned to the individual’s
ability to influence outcomes and ensure focus on critical outcomes.
The following table shows the relationship between the primary ESSIP performance measures for the CEO and other KMP.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
Chief Executive
Officer
FY15
FY14
20%
20%
30%
20%
10%
15%
15%
35%
20%
15%
Chief Financial
Officer
FY15
10%
10%
FY14
8% 8%
42%
43%
25%
28%
Director
Development
FY15
10%
10%
17%
FY14
8% 8%
18%
50%
53%
13%
13%
13%
13%
Director
Operations
FY15
FY14
25%
23%
17%
13%
22%
21%
20%
18%
28%
13%
108
0%
20%
40%
60%
80%
100%
Safety
Production
Financial
Growth
Other
* Other includes measures associated with culture, engagement and functional objectives.
How the ESSIP works: an example
The ESSIP is designed so that participants are generally rewarded similarly to a Fortescue investor over the financial year.
Example:
The example below assumes that Executive A has an incentive opportunity of $100,000 and has elected to take
70 per cent of the incentive in shares.
Details of offer
Nominal Value of full award
VWAP at start of FY14 (1 to 5 July 2013)
Participant Share Weighting
Maximum potential award
Cash (30 per cent of opportunity)
Share Rights (70 per cent of opportunity)
Example outcome
Percentage of incentive opportunity achieved (company and personal performance)
Cash paid (80 per cent of cash component)
Shares awarded (80 per cent of share rights convert to ordinary shares)
$100,000
$3.1653
70%
$30,000
22,115
80%
$24,000
17,692
The actual value of the shares awarded is subject to share price movement thereby ensuring alignment with
shareholder interests.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
ESSIP performance in FY14
Performance rights granted under the ESSIP at the beginning of FY14 are shown below. All the performance rights
issued convert to ordinary shares if all ESSIP objectives are met. The last column details the actual number of share rights
converted to ordinary shares based on actual performance:
Executive
N Power
S Pearce
P Meurs
N Cernotta
D Woodall
ESSIP
performance
rights issued
ESSIP
performance
rights lapsed
ESSIP
performance
rights
forfeited
Performance rights
to convert
to shares for FY14
ESSIP performance
639,750
248,792
248,792
30,527
106,625
183,160
37,976
56,635
12,291
-
-
-
-
-
(106,625)
456,590
210,816
192,157
18,236
-
Unvested share rights lapse once the outcome of the ESSIP is determined.
The table below details the maximum ESSIP cash and share awards against the actual outcomes for FY14. The share
components are based on the share weighting election of each Executive:
Maximum
ESSIP
Service Maximum ESSIP Shares outcome
Maximum
ESSIP
2014
A$
(per cent
of TFR)
TFR
Executive Directors
opportunity Weighting pro-rata
in shares
(per cent) applicable) opportunity
(if
ESSIP
Cash
opportunity awarded ESSIP
(per cent Cash
of TFR) awarded
value at
grant1
ESSIP
share
value
at
award2
109
N Power
P Meurs
Executives
S Pearce
N Cernotta2
1,800,000
112.5
1,050,000
75
1,050,000
950,000
75
75
100
100
100
50
-
-
-
-
-
-
0.27
96,627
2,025,000
787,500
787,500
96,627
71
77
85
60
- 2,072,780
-
872,335
-
957,043
57,791
82,784
1 The value at grant is the participant’s elected weighting in shares (minimum 50 per cent of the total award) divided by
the strike price used to determine the number of share rights granted being the VWAP of Fortescue shares traded over
the first five trading days of the Plan year ($A3.1653).
The actual share value to the individual is not realised until the shares are awarded. For the purpose of this report the
nominal ESSIP share value for FY14 is the number of shares awarded multiplied by the five day VWAP of Fortescue shares
traded over the first five trading days of FY15 (A$4.5397).
2
3 Mr Cernotta was appointed on 24 March 2014.
Long Term Incentive Plan
LTI awards to executives are made under the performance share plan rules and are delivered in the form of Performance
Rights (Rights). Each Right entitles the holder (subject to achievement of the specified performance conditions) to one fully
paid ordinary share in the Company for nil consideration.
The Company uses absolute return on equity (AROE) as the performance measure for assessments of LTI awards.
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.
As with the ESSIP above, the long term incentive plan is designed so that participants are generally rewarded similarly to a
Fortescue investor over the relevant performance period.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
A minimum 20 per cent annual AROE hurdle rate was selected for the following reasons:
•
•
•
20 per cent exceeds the Company’s cost of equity;
The average AROE for the ASX 100 Resources Index from 2009 to 2013 is 8.5 per cent;
The 80th percentile AROE for the ASX 100 Resources Index from 2009 to 2013 is 15 per cent.
The vesting schedule is as follows:
Performance
Below Threshold
Threshold
Target
FY 13
<15%
15%
30+%
Average AROE
FY 14
<20%
20%
30+%
Vesting
Nil
25 per cent of share rights vest
100 per cent of share rights vest
Vesting between threshold and target is calculated linearly.
The performance period for the FY14 LTI is from 1 July 2013 to 30 June 2016. Share Rights will convert to shares at the end
of the three year performance period subject to performance against the AROE performance measure. 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 less than Threshold
Performance will result in 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.
110
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 because they are issued in lieu of salary which would otherwise be payable
and are subject to a monetary limit of A$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 FY14, Fortescue’s share price increased from the FY13 closing price of A$3.04 to A$4.35 at the end of FY14. This represents a
43 per cent increase compared with the ASX 100 Resources index which increased 14.2 per cent over the corresponding period.
Revenue from iron ore operations – US$millon
Net profit – US$million
A$ dividends paid
A$ change in share price
per cent change in share price
2014
11,611
2,740
$0.20
$1.31
43
2013
8,057
1,746
$0.10
2012
6,681
1,559
$0.08
$(1.81)
$(1.45)
(37)
(23)
2011
5,442
1,022
$0.03
$2.23
54
2010
3,220
581
-
$0.43
12
An explanation of how fixed and variable remuneration outcomes were driven by company performance in FY14 is included
in section (b).
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
h) Securities trading policy
Fortescue’s Securities Trading Policy provides clear guidance on how company securities may be dealt with.
The Securities Trading Policy details acceptable and unacceptable periods for trading in Company Securities including
detailing potential civil and criminal penalties for misuse of confidential information.
Fortescue’s Security Trading Policy provides guidance on acceptable transactions in dealing in the Company’s various
securities, including shares, debt notes and options.
The policy also sets out a specific governance approach for how the Chairman and Directors can deal in Company Securities.
The Company’s Security Trading Policy can be accessed from the Corporate Governance section of the Fortescue Website.
i) Executive contract terms
Remuneration and other terms of employment for Executives are formalized in a service agreement.
The CEO and Executives are employed on a rolling basis with no specified fixed term. The CEO and Executives are
remunerated on a total fixed remuneration (TFR) basis inclusive of superannuation and allowances.
The major terms of the agreements relating to remuneration are set out in the table below:
Position
Chief Executive Officer N Power
Executive
Maximum
ESSIP
opportunity
(per cent of TFR)
112.5
Maximum
LTIP
opportunity
(per cent of TFR)
150
TFR*
(A$)
1,800,000
Chief Financial Officer
S Pearce
1,050,000
Director Development
P Meurs
1,050,000
Director Operations
N Cernotta
950,000
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 2014. Reviewed annually by the R&NC.
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 award 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.
111
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
j) Detailed remuneration for Executives
Executive Remuneration for year ending 30 June 2014
Short term employee benefits
Post
employment
employee
Benefits
End
of
Service
Cash
salary
and fees
$A
2014
Executive Directors
Non-
ESSIP
cash monetary Superann- Termination
value1
$A
benefits
$A
benefits
$A
uation
$A
Share-based payments
Total
LTIP
share
value2 Options2 payments3
Other
share-
based
$A
$A
$A
Total
$A
ESSIP
share
value2
$A
N Power
1,775,000
P Meurs
1,025,000
-
-
4,633
4,633
25,000
25,000
-
2,415,361 2,147,767
-
- 6,367,961
-
1,016,511
835,244 2,157,1796 853,272 5,916,839
Executives
S Pearce
1,025,000
- 45,155
N Cernotta4
251,524 57,721
-
25,000
10,417
-
-
D Woodall5 393,350
- 37,884
16,667
277,914
1,115,217
835,244
96,468
-
-
-
-
-
-
- 3,045,616
-
-
416,130
725,815
1 ESSIP cash value payable in respect to FY14 to be paid in September 2014.
2
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 the right.
Other share based payments relate to financial assistance of way of guarantee to Mr Meurs by The Minderoo 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.
3
4 Mr Cernotta was appointed on 24 March 2014.
5 Mr Woodall resigned on 12 December 2013.
6
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 May 2015.
112
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
The graph below represents the actual remuneration mix for KMP in 2014:
100%
80%
60%
40%
20%
0%
30%
45%
25%
27%
38%
35%
11%
29%
30%
16%
14%
49%
51%
N Power
S Pearce
P Meurs
N Cernotta
TFR
ESSIP (at risk)
LTIP(at risk)
Options (at risk)
Other (at risk)
Executive Remuneration for year ending 30 June 2013
Short term employee Benefits
Post
Employment
employee
Benefits
End
of
Service
Cash
Salary
and fees
$A
2013
Non-
ESSIP
Cash monetary Superann- Termination
value1
$A
benefits
$A
benefits
$A
uation
$A
Executive Directors
N Power
1,768,000 708,770 7,000
P Meurs
1,018,000 174,830 7,000
Executives
S Pearce
1,018,000 276,617 7,000
J Frankcombe4 582,705
-
-
D Woodall5 404,817 101,726 2,917
25,000
25,000
25,000
14,583
11,650
-
-
-
113
Share-based payments
Total
LTIP
Share
value2 Options2 payments3
Other
share-
based
$A
$A
$A
Total
$A
ESSIP
Share
value2
$A
820,827 640,466
-
- 3,970,063
446,894 249,071 5,371,4776 853,272 8,145,544
319,212 249,071
45,532
-
-
-
152,973
64,230
-
-
-
- 1,894,900
-
-
642,820
738,313
1 ESSIP cash value payable in respect to FY13 was paid in September 2013.
2
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 the right.
Other share based payments relate to financial assistance of way of guarantee to Mr Meurs by The Minderoo 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.
3
4 Mr Frankcombe resigned on 26 January 2013.
5 Mr Woodall was appointed on 14 January 2013.
6
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 May 2015.
Fortescue Metals Group Limited I 2014 Annual Report
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 Minderoo Group Pty Ltd (formerly
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 lodgement 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 2014 was A$925,453 (2013: 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. The offer is provided at no
cost to Fortescue and the Executive is required to arrange their own finance through a third party and is responsible for all
repayments and associated costs.
Mr Meurs is a participant in the above financial arrangement. Under this arrangement The Minderoo Group Pty Limited
provided Mr Meurs with financial assistance by way of a guarantee for the acquisition of 16,632,614 ordinary shares in the
Company. The fair value attributed to Mr Meurs in relation to this arrangement for the financial year ended 30 June 2014
was A$853,272(2013: A$853,272).
114
There are no current plans to offer this arrangement to any additional employees.
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 years ended
30 June 2014 and 30 June 2013. The value of the rights has been determined using the amount of the grant date fair value.
Name
Grant date
Performance
period
Value per
Rights
rights at
Fair
granted value1 grant date
%
Performance
achieved
Forfeited/
Vested Lapsed
Max
value
to vest
N Power
16/12/2013 1/7/13 to 30/6/16 853,000 $5.09 $4,341,770
Determined in 2016 n/a
10/12/2012 1/7/12 to 30/6/15
545,852 $3.85 $2,101,530 Determined in 2015
n/a
S Pearce
16/12/2013 1/7/13 to 30/6/16 331,723 $5.09 $1,688,470 Determined in 2016
10/12/2012 1/7/12 to 30/6/15 212,276 $3.85
$817,263 Determined in 2015
P Meurs
16/12/2013 1/7/13 to 30/6/16 331,723 $5.09 $1,688,470 Determined in 2016
10/12/2012 1/7/12 to 30/6/15 212,276 $3.85
$817,263 Determined in 2015
N Cernotta
n/a
n/a
-
-
-
D Woodall 16/12/2013 1/7/13 to 30/6/16 284,334 $5.09 $1,447,260
8/02/2013 1/7/12 to 30/6/15 83,249
$4.71
$392,103
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a 284,334
n/a
83,249
- 2,894,513
-
700,510
- 1,125,647
-
272,421
- 1,125,647
-
-
272,421
-
-
-
1
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 the right.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
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.
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
2014
2013
937,500
2,187,500
115
1
Once vested, the options are subject to a further share price performance hurdle before they can be exercised. Half of the
options require a share price of $7.00 with the second half requiring a share price of $8.00 before they can be exercised.
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 has been included in the remuneration tables above. 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 the right.
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 by KMP in FY14.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
k) Non-Executive director remuneration
Non-Executive director fees are not ‘at-risk’, to reflect the nature of their responsibilities.
Non-Executive directors receive fees for both Board and Committee membership. The payment of additional fees
for serving on a Committee recognises the additional time commitment required by non-Executive directors who serve
on a Committee. The Board Chairman attends all Committee meetings but does not receive any additional fees in addition to Board fees.
The maximum aggregate remuneration payable to non-Executive directors is $2.0 million, which was approved by
shareholders at the annual general meeting on 19 November 2010. There have been no changes to the aggregate fee pool
since November 2010. The Board will not seek any increase to this fee pool at the 2014 AGM.
Position
Board Chairman*
Board Deputy Chairman
Non-Executive Director
Audit & Risk Management Committee Chairman
Audit & Risk Management Committee Member
Remuneration & Nomination Committee Chairman
Remuneration & Nomination Committee Member
China Advisory Group Board of Representatives
Finance Sub-Committee Member
116
Fee (A$)
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.
As confirmed by Egan Associates, in aggregate, each individual non-Executive directors’ 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).
Non-executive directors do not receive retirement benefits, nor do they participate in any incentive programs of the Company.
The remuneration of non-Executive directors for the year ended 30 June 2014 and 30 June 2013 is detailed on the
following page.
2014
A Forrest
H Elliott
G Rowley
G Brayshaw1
O Hegarty
C Huiquan
G Raby
H Scruggs
M Barnaba
E Gaines
S Warburton2
Base fees
$A
108,884
195,159
127,032
52,958
127,032
140,000
140,000
133,098
127,032
126,332
80,336
Committee
fees
$A
6,806
6,806
22,228
11,732
6,806
-
60,000
17,750
47,253
15,873
8,608
Other
benefits
$A
8,250
-
2,323
-
-
-
-
-
-
-
-
Superannuation
$A
11,858
21,118
15,299
4,136
13,718
-
-
-
17,864
14,648
9,117
Total
$A
135,798
223,083
166,882
68,826
147,556
140,000
200,000
150,848
192,149
156,853
98,061
1 G Brayshaw retired on 13 November 2013.
2 S Warburton was appointed 13 November 2013.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
Base fees
$A
109,091
190,909
127,273
127,273
52,037
127,273
-
140,000
140,000
127,273
44,865
Committee
fees
$A
6,818
6,818
13,636
41,519
10,593
6,818
-
60,000
22,500
32,727
-
Other
benefits
$A
11,093
-
7,000
-
-
-
-
-
-
-
-
Superannuation
$A
11,591
19,773
14,091
16,909
-
13,409
-
-
-
16,000
4,487
Total
$A
138,593
217,500
162,000
186,001
62,630
147,500
-
200,000
162,500
176,000
49,352
2013
A Forrest
H Elliott
G Rowley
G Brayshaw
K Ambrecht1
O Hegarty
C Huiquan2
G Raby
H Scruggs
M Barnaba
E Gaines3
1 Mr Ambrecht retired on 14 November 2012.
2 Mr Cao Huiquan elected not to receive Directors fees for his role as Hunan Valin’s representative on the Fortescue Board.
3 Ms Gaines was appointed on 22 February 2013.
l) Equity Instrument disclosures relating to key management personnel
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:
117
2014
Name
Balance at
the start
of the year Granted1
Directors of Fortescue
Exercised
/ converted
Forfeited
/ lapsed
Balance at
the end of
the year
Vested
Unvested
Not
exercisable
A Forrest
N Power
G Rowley
H Elliott
G Brayshaw2
O Hegarty
M Barnaba
C Huiquan
H Scruggs
G Raby
E Gaines
S Warburton
-
-
-
-
-
341,158
1,902,138
(143,291)
(61,403)
2,038,602
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,038,602
2,038,602
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
P Meurs
7,664,514
739,722
(82,472)
(28,973)
8,292,791 7,500,000
792,791
8,292,791
Other key management personnel of Fortescue
S Pearce
132,673
739,721
(55,923)
(23,680)
792,791
N Cernotta
-
30,527
-
-
30,527
D Woodall2
52,032
453,395
(20,566)
(484,861)
-
-
-
-
792,791
30,527
-
792,791
30,527
-
1
Performance Rights were granted in accordance with the short term and long term performance rights plans, as disclosed
in note 30 of the financial accounts.
2 Mr Brayshaw and Mr Woodall ceased employment during the 2014 financial year.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
2013
Name
Balance at
the start
of the year Granted1
Exercised
/ converted
Forfeited
/ lapsed
Balance at
the end of
the year
Vested
Unvested
Not
exercisable
-
341,158
-
-
-
-
-
-
-
-
-
-
164,514
Directors of Fortescue
A Forrest
-
419,255
N Power
-
G Rowley
-
H Elliott
K Ambrecht2
-
-
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
81,522
S Pearce
D Woodall
-
J Frankcombe2 37,076
-
(245,369)
-
-
-
-
-
-
-
-
-
-
(53,242)
(53,316)
-
(23,398)
132,673
52,032
132,673
-
(173,886)
-
-
-
-
-
-
-
-
-
-
(60,889)
(28,206)
-
(146,351)
-
341,158
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,664,514 6,562,500
-
341,158
-
-
-
-
-
-
-
-
-
-
1,102,014
132,673
52,032
-
-
-
-
132,673
52,032
-
-
341,158
-
-
-
-
-
-
-
-
-
-
7,664,514
132,673
52,032
-
118
1
Performance Rights were granted in accordance with the short term and long term performance rights plans, as disclosed
in note 30 of the financial accounts.
2 Mr Ambrecht and Mr Frankcombe ceased employment during the 2013 financial year.
Share holdings (Ordinary Shares)
The numbers of shares in the Company held during the financial year by each Director of Fortescue and other key
management personnel of the Groups, including their related parties, are set out below:
2014
Held at
1 July 2013
Received
on conversion
rights
Name
Directors of Fortescue
A Forrest 1,020,690,915
1,111,690
N Power
G Rowley
17,644,951
2,167,938
H Elliott
G Brayshaw2
52,149
40,000
O Hegarty
-
M Barnaba
-
C Huiquan
H Scruggs
-
8,000
G Raby
-
E Gaines
-
S Warburton
P Meurs
25,924,523
Other key management personnel of Fortescue
S Pearce
N Cernotta
D Woodall2
-
143,291
-
-
-
-
-
-
-
-
-
-
82,472
382,304
-
-
55,923
-
20,566
Issued
Purchases
Sales
Transfers
Other1
Held at
30 June 2014
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,788,332
-
-
-
-
-
-
-
-
-
50,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,745
-
-
(175,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 1,033,479,247
1,254,981
-
17,644,951
-
2,167,938
-
(52,149)
-
40,000
-
-
-
-
-
-
-
-
8,000
50,000
-
-
-
26,006,995
-
-
-
(20,566)
284,972
-
-
1
Performance Rights were granted in accordance with the short term and long term performance rights plans, as disclosed
in note 30 of the financial accounts.
2 Mr Brayshaw and Mr Woodall ceased employment during the 2014 financial year.
Fortescue Metals Group Limited I 2014 Annual Report
REMUNERATION REPORT
Issued
Purchases
Sales
Transfers
Other1
Held at
30 June 2013
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000,000
-
-
-
-
-
-
-
-
-
8,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(500,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
- 1,020,690,915
-
-
-
1,111,690
17,644,951
2,167,938
(5,183,030)
-
-
-
-
-
-
-
-
-
-
(42,969)
-
52,149
40,000
-
-
-
8,000
-
25,924,523
382,304
-
-
119
2013
Name
Held at
1 July 2012
Received
on conversion
rights
Directors of Fortescue
A Forrest 1,010,690,915
-
N Power
866,321
245,369
G Rowley
18,144,951
H Elliott
2,167,938
K Ambrecht2 5,183,030
G Brayshaw
O Hegarty
M Barnaba
C Huiquan
H Scruggs
G Raby
E Gaines
52,149
40,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
P Meurs
25,871,281
53,242
Other key management personnel of Fortescue
S Pearce
328,988
53,316
D Woodall
-
-
J Frankcombe2 19,571
23,398
1
Performance Rights were granted in accordance with the short term and long term performance rights plans, as disclosed
in note 30 of the financial accounts.
2 Mr Ambrecht and Mr Frankcombe ceased employment during the 2013 financial year.
Fortescue Metals Group Limited I 2014 Annual Report
AUDITOR’S INDEPENDENCE DECLARATION
AUDITOR’S INDEPENDENCE DECLARATION
120
Fortescue Metals Group Limited I 2014 Annual Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
121
Fortescue Metals Group Limited I 2014 Annual Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
122
Fortescue Metals Group Limited I 2014 Annual Report DIRECTORS’ DECLARATION
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 124 to 168 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 2014 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 28 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 28.
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 the Directors.
123
Mr Andrew Forrest
Chairman
Dated in Perth this 20th day of August 2014.
Fortescue Metals Group Limited I 2014 Annual Report
CONSOLIDATED INCOME STATEMENT AND CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 30 June 2014
Consolidated income statement
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 Company
Non-controlling interest
Profit for the year after income tax
124
Consolidated statement of comprehensive income
Profit for the year after income tax
Other comprehensive income
Items that may be reclassified to profit or loss
Gains (losses) on cash flow hedges taken to equity
Losses (gains) transferred to the initial carrying amount of hedged items
Foreign exchange gain on translation of foreign operations
Total comprehensive income for the year, net of tax
Total comprehensive income for the year is attributable to:
Equity holders of the Company
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
Notes
2014
US$m
2013
US$m
3
5
4
6
7
7
8
11,753
8,120
(7,002)
(5,140)
4,751
2,980
126
(244)
291
(252)
4,633
3,019
21
(741)
33
(586)
3,913
2,466
(1,173)
(720)
2,740
1,746
2,730
1,746
10
-
2,740
1,746
Notes
2014
US$m
2013
US$m
2,740
1,746
21(a)
21(a)
21(a)
23
67
2
(80)
(35)
-
2,832
1,631
2,822
1,631
10
-
2,832
1,631
Notes
Cents
Cents
29(a)
29(a)
88.00
87.85
56.07
56.05
The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction
with the accompanying notes.
Fortescue Metals Group Limited I 2014 Annual Report
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2014
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Current tax receivable
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Other non-current assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Deferred income
Borrowings and finance lease liabilities
Provisions
Current tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred income
Borrowings and finance lease liabilities
Provisions
Deferred joint venture contributions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
125
Notes
2014
US$m
2013
US$m
9
10
11
12
10
13
14
12
15
16
17
18
15
16
17
18
19
20(b)
21(a)
2,398
585
1,467
27
-
2,158
409
961
36
8
4,477
3,572
5
6
18,068
17,159
67
77
40
90
18,217
17,295
22,694
20,867
1,338
1,043
936
154
176
666
38
205
128
-
3,270
1,414
101
556
155
331
9,403
12,486
467
160
1,154
387
-
805
11,841
14,164
15,111
15,578
7,583
5,289
1,289
1,291
69
(49)
6,211
4,043
7,569
5,285
14
4
7,583
5,289
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
Fortescue Metals Group Limited I 2014 Annual Report
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2014
Cash flows from operating activities
Cash receipts from customers
Payments to suppliers and employees
Income tax paid
Notes
2014
US$m
2013
US$m
12,618
8,725
(6,220)
(5,026)
(150)
(695)
Net cash inflow from operating activities
31
6,248
3,004
Cash flows from investing activities
Payments for property, plant and equipment - Fortescue
Payments for property, plant and equipment - joint operations
Receipts of deposits and guarantees
Proceeds from disposal of plant and equipment and sale of jointly controlled assets
Other
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings and finance leases
Repayment of borrowings and finance leases
126
Interest and finance costs paid
Dividends paid
Repayment of customer deposits
Purchase of shares by employee share trust
Transactions with non-controlling interest
Net cash (outflow) inflow from financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
Non-cash investing and financing activities
9
31
(1,931)
(6,355)
(64)
160
262
181
-
3
155
31
(1,392)
(6,166)
-
7,330
(3,092)
(3,232)
(853)
(581)
(82)
(17)
-
(893)
(131)
(80)
(20)
15
(4,625)
2,989
231
2,158
9
(173)
2,343
(12)
2,398
2,158
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Fortescue Metals Group Limited I 2014 Annual Report
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2014
Attributable to equity holders of the Company
Contributed
Retained
equity Reserves earnings Total
US$m US$m
US$m
US$m
Non-con-
trolling Total
interest equity
US$m US$m
Balance at 1 July 2012
Profit for the year
Other comprehensive income
Total comprehensive income for the year, net of tax
1,293
-
-
-
41
-
(115)
(115)
2,428
3,762
1,746
1,746
-
(115)
1,746
1,631
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
(20)
18
-
-
-
-
-
14
-
11
-
-
-
(20)
18
14
(131)
(131)
-
11
Balance at 30 June 2013
1,291
(49)
4,043
5,285
Balance at 1 July 2013
Profit for the year
Other comprehensive income
Total comprehensive income for the year, net of tax
-
-
-
1,291
(49)
4,043
5,285
-
-
-
-
-
-
-
-
4
4
4
10
-
10
-
-
-
-
3,762
1,746
(115)
1,631
(20)
18
14
(131)
15
5,289
5,289
2,740
92
2,832
(17)
10
31
(562)
127
2,730
2,730
-
92
2,730
2,822
-
-
-
(17)
10
31
(562)
(562)
-
92
92
-
(5)
31
-
69
6,211
7,569
14
7,583
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
Balance at 30 June 2014
(17)
15
-
-
1,289
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Fortescue Metals Group Limited I 2014 Annual Report
CONTENTS TO THE NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
128
1
2
Basis of preparation
Segment information
3 Operating sales revenue
4 Other income
5
Cost of sales
6 Other expenses
7
8
9
Finance income and finance expenses
Income tax expense
Cash and cash equivalents
10 Trade and other receivables
11
Inventories
12 Other assets
13 Property, plant and equipment
14
Intangible assets
15 Trade and other payables
16 Deferred income
17 Borrowings and finance lease liabilities
18 Provisions
19 Deferred tax assets and liabilities
20 Contributed equity
21 Reserves
22 Dividends
23 Remuneration of auditors
24 Contingencies
25 Commitments
26 Related party transactions
27
Interests in other entities
28 Deed of cross guarantee
29 Earnings per share
30 Share-based payments
31 Reconciliation of profit after income tax
to net cash inflow from operating activities
32 Parent entity financial information
33 Events occurring after the reporting period
34 Financial risk management
35 Summary of significant accounting policies
129
130
130
131
131
131
132
132
133
133
134
134
135
136
136
136
137
140
141
142
142
143
144
144
144
145
146
147
147
148
150
151
152
152
156
36 Critical accounting estimates and judgements 167
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
1 Basis of preparation
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.
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.
(a) 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.
(b) 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.
(c) 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.
(d) 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 these financial statements are:
129
•
•
•
•
•
•
Income taxes
Iron ore reserve estimates
Exploration and evaluation expenditure
Development expenditure
Property, plant and equipment – recoverable amount
Rehabilitation estimates
The accounting estimates and judgements applied to these areas are disclosed in note 36.
(e) 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.
Fortescue Metals Group Limited I 2014 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
2 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.
Fortescue uses earnings before interest, tax, depreciation and amortisation (EBITDA) as a key measure of its financial
performance. The reconciliation of EBITDA to the net profit after tax is presented below.
EBITDA
Finance income
Finance expenses
Net gain on refinancing
Depreciation and amortisation
Assets write-off
Exploration, development and other
Net profit before tax
Income tax expense
Net profit after tax
130
Note
7
7
4
5,6
6
6
8
2014
US$m
5,636
21
(741)
-
(965)
(22)
(16)
3,913
(1,173)
2,740
2013
US$m
3,575
33
(586)
23
(463)
(71)
(45)
2,466
(720)
1,746
(a) Geographical information
Fortescue operates predominantly in the geographical location of Australia, and this is the location of the vast majority
of the Group’s assets. In presenting information on the basis of geographical segments, segment revenue is based on the
geographical location of customers.
Revenues from external customers
China
Other
2014
US$m
11,315
438
11,753
2013
US$m
7,933
187
8,120
(b) Major customer information
Revenue from one customer amounted to US$2,347 million (2013: US$1,274 million), arising from the sale of iron ore and
related shipment of the product.
3 Operating sales revenue
Sale of iron ore
Sale of joint venture iron ore
Other revenue
2014
US$m
11,485
126
142
11,753
2013
US$m
7,889
168
63
8,120
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
4 Other income
Gain on disposal of assets and interest in joint venture
Net foreign exchange gain
Re-estimation of unsecured loan notes
Net gain on refinancing
Other
5 Cost of sales
Mining costs
Rail costs
Port costs
Operating leases
Shipping costs
Government royalty
Depreciation and amortisation
Other operating expenses
2014
US$m
109
-
-
-
17
126
2014
US$m
3,442
238
252
74
1,210
775
924
87
2013
US$m
124
96
34
23
14
291
2013
US$m
2,851
182
181
133
769
499
437
88
131
(i)
Total employee benefits expense included in cost of sales and administration expenses is US$675 million
(2013: US$635 million).
7,002
5,140
6 Other expenses
Administration expenses
Net foreign exchange loss
Depreciation and amortisation
Assets write-off
Exploration, development and other
2014
US$m
112
53
41
22
16
244
2013
US$m
110
-
26
71
45
252
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
7 Finance income and finance expenses
Net finance expenses
Finance income
Interest income
Finance expenses
Interest expense on borrowings and finance lease liabilities
Interest capitalised (i)
Loss on early redemption of borrowings and finance leases
Other
Net finance expenses
2014
US$m
2013
US$m
21
21
747
(75)
53
16
741
720
33
33
892
(342)
-
36
586
553
132
(i)
For specific borrowings, interest has been capitalised at the rate of interest applicable to specific borrowings that
finance assets under construction, net of interest income from temporary investments on these borrowings. For
general borrowings, the interest capitalised is calculated using a weighted average of rates applicable to relevant
general borrowings during the period. For the year ended 30 June 2014, the capitalisation rate used for specific
borrowings was 6.88 per cent (2013: 6.88 per cent) and 6.90 per cent (2013: 7.09 per cent) for general borrowings.
8
Income tax expense
(a)
Income tax expense
Current tax
Deferred tax
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit before income tax
Tax at the Australian tax rate of 30 per cent (2013: 30 per cent)
Research and development
Adjustments in respect of income tax expense of prior periods
Foreign exchange variations and other translation adjustments
Tax impact of overseas jurisdiction
Share-based payments
Net tax outcome of internal restructure
Other
Income tax expense
2014
US$m
824
349
1,173
2014
US$m
3,913
1,174
9
2
(11)
(9)
(1)
-
9
1,173
2013
US$m
136
584
720
2013
US$m
2,466
740
(20)
(5)
9
-
2
1
(7)
720
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
8
Income tax expense (continued)
(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 35(g).
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. The Company 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.
(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 2014, the Group had a net deferred tax asset balance of
US$4,265 million (2013: US$3,765 million) in relation to MRRT, and it is not probable that future taxable amounts will be
available for their offset. Accordingly, these deferred tax assets have not been recognised.
133
9 Cash and cash equivalents
Cash at bank
Short term deposits
10 Trade and other receivables
Trade debtors – iron ore
Trade debtors – other
GST receivables
Security deposits
Other receivables
Total current receivables
Other receivables
Total non-current receivables
2014
US$m
1,541
857
2,398
2014
US$m
486
44
39
1
15
585
5
5
2013
US$m
690
1,468
2,158
2013
US$m
145
26
46
166
26
409
6
6
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
10 Trade and other receivables (continued)
The carrying value of the receivables approximates their fair value. Information about Fortescue’s exposure to foreign currency
risk, interest rate risk and price risk are disclosed in note 34.
Disclosures relating to receivables from related parties are set out in note 26.
At 30 June 2014, trade receivables of US$9 million (2013: US$4 million) were past due but not impaired. These relate to a number
of customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
Less than 30 days
Between 30 and 60 days
Beyond 60 days
2014
US$m
2013
US$m
7
1
1
9
2
1
1
4
Receivables that are classified as past due are those that have not been settled within the normal terms and conditions that have
been agreed with the customer. None of the receivables past due in the above table are impaired.
All other receivables within trade and other receivables are not impaired as it is expected that these amounts will be received
when due.
134
11 Inventories
Iron ore stockpiles
Warehouse stores and materials
2014
US$m
1,055
412
1,467
2013
US$m
646
315
961
Iron ore stockpiles, warehouse stores and materials are stated at cost. Inventories expensed through cost of sales, including
depreciation, during the year ended 30 June 2014 amounted to US$4,930 million (2013: US$3,784 million).
12 Other assets
Prepayments
Other
Total other current assets
Prepayments
Total other non-current assets
2014
US$m
2013
US$m
27
-
27
77
77
18
18
36
90
90
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
13 Property, plant and equipment
Year ended 30 June 2013
Opening net book value
Transfers of assets
Additions
Capitalised interest
Foreign exchange gains reclassified from reserves
Disposals
Depreciation
Notes
7
21
Changes in restoration and rehabilitation estimate
18
Assets written off
Other
Closing net book value
At 30 June 2013
Cost
Accumulated depreciation
Net book value
Year ended 30 June 2014
Opening net book value
Transfers of assets
Additions
Capitalised interest
6
7
Foreign exchange losses reclassified from reserves 21
Disposals
Depreciation
Changes in restoration and rehabilitation estimate 18
6
Assets written off
Other
Closing net book value
At 30 June 2014
Cost
Accumulated depreciation
Net book value
Plant
and
Land
and
Exploration
and
Assets
under
equipment buildings evaluation development Development Total
US$m
US$m
US$m
US$m
US$m
US$m
2,771
6,025
224
-
-
(43)
(358)
-
(71)
(1)
127
520
-
-
-
(3)
(12)
-
-
-
8,547
632
9,397
(850)
8,547
8,547
4,885
12
-
-
(139)
(847)
-
(22)
(6)
668
(36)
632
632
345
-
-
-
-
(47)
-
-
3
12,430
933
14,090
1,013
(1,660)
12,430
(80)
933
280
(51)
67
-
-
(2)
-
-
-
(30)
264
264
-
264
264
50
99
-
-
(1)
-
-
-
(4)
408
408
-
408
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
135
5,290
(6,972)
1,842
75
67
-
-
-
-
11
313
313
-
313
2,426
1,624
2
-
-
(14)
(136)
87
-
(5)
17,159
(68)
1,955
75
67
(154)
(1,030)
87
(22)
(1)
3,984
18,068
4,397
20,221
(413)
(2,153)
3,984
18,068
Transfers of assets 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$300 million (2013: US$662 million).
The details of the finance leases under which these assets are held are disclosed in note 17.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
14 Intangible assets
Opening net book value
Transfers of assets
Amortisation
Closing net book value
Cost
Accumulated amortisation
Closing net book value
15 Trade and other payables
136
Trade payables
Customer deposits
Other payables and accruals
Total current payables
Customer deposits
Other payables and accruals
Total non-current payables
16 Deferred income
Iron ore prepayments
Port access prepayment
Total current deferred income
Iron ore prepayments
Port access prepayment
Total non-current deferred income
2014
US$m
2013
US$m
40
68
(41)
67
136
(69)
67
19
41
(20)
40
68
(28)
40
2014
US$m
397
65
876
2013
US$m
372
73
598
1,338
1,043
55
46
101
129
26
155
2014
US$m
2013
US$m
825
111
936
223
333
556
38
-
38
331
-
331
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
17 Borrowings and finance lease liabilities
Senior unsecured notes
Senior secured credit facility
Finance lease liabilities
Preference shares
Total current borrowings and finance lease liabilities
Senior unsecured notes
Senior secured credit facility
Finance lease liabilities
Preference shares
2014
US$m
79
73
2
-
154
4,366
4,722
315
-
2013
US$m
121
52
29
3
205
6,970
4,776
613
127
Total non-current borrowings and finance lease liabilities
9,403
12,486
Total borrowings and finance lease liabilities
9,557
12,691
(a) Summary of movements in borrowings and finance lease liabilities
Senior
unsecured
notes
US$m
Senior
secured
credit
facility
US$m
Finance
leases/
facilities
US$m
7,082
-
-
4,844
281
1,502
510
(501)
-
-
-
206
(184)
-
-
74
(66)
-
(39)
(38)
(1,110)
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
Balance at 30 June 2013
7,091
4,828
642
30 June 2014
Balance at 1 July
Initial recognition
Interest expense
Interest and finance lease repayments
Transaction costs
Foreign exchange (gain) loss
Repayment
Balance at 30 June 2014
7,091
4,828
-
437
(465)
22
-
(2,640)
4,445
-
248
(209)
(22)
-
(50)
4,795
642
13
57
(53)
(59)
(10)
(273)
317
Unsecured Unsecured
137
Preference
shares
US$m
loan
notes
US$m
bank
facility
US$m
100
1,230
15
(12)
-
-
Total
US$m
8,501
7,576
892
(893)
(34)
(50)
897
-
74
(117)
(34)
-
(820)
(1,333)
(3,301)
-
-
-
-
-
-
-
-
-
-
12,691
-
-
-
-
-
-
-
-
12,691
13
747
(734)
(59)
(7)
(3,094)
9,557
141
-
13
(13)
-
(11)
-
130
130
-
5
(7)
-
3
(131)
-
Information about Fortescue’s exposure to interest rate risk and foreign exchange rate risk is disclosed in note 34.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
17 Borrowings and finance lease liabilities (continued)
(b) Debt reduction program
During the year ended 30 June 2014, Fortescue commenced an accelerated debt reduction program, and successfully
completed the following initiatives:
• Redemption of A$140 million preference shares, completed in November 2013;
•
Redemption of US$2.04 billion 2015 senior unsecured notes, completed in December 2013 (US$1.0 billion) and
March 2014 (US$1.04 billion);
• Pay-out of finance lease liabilities of US$0.3 billion in January 2014; and
• Redemption of the US$0.6 billion 2016 senior unsecured notes, completed in March 2014.
(c) Refinancing
In November 2013 Fortescue successfully completed the refinancing of the US$5.0 billion term loan, reducing the margin by
one per cent to 3.25 per cent, and extending the maturity date by 21 months to 30 June 2019. The total coupon payable on this
facility is calculated as LIBOR, with a LIBOR floor of 1.00 per cent, plus the margin. In May 2014, the margin reduced by a further
0.50 per cent, to 2.75 per cent.
(d) Key terms of borrowings and finance lease liabilities
The key terms of borrowings and finance lease liabilities are summarised below.
138
(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 early repayment options with interest payable bi-annually:
Date of issue
Date of maturity
Call date (i)
Face value Carrying value
Interest rate Currency
15 December 2010
1 February 2018
Current
25 October 2011
1 November 2019
November 2015
19 March 2012
19 March 2012
1 April 2017
1 April 2022
April 2015
April 2017
900
1,500
1,000
1,000
4,400
922
1,506
1,009
1,008
4,445
6.875%
8.250%
6.000%
6.875%
USD
USD
USD
USD
(i) The date when senior unsecured notes become repayable at Fortescue’s option.
(ii) Senior secured credit facility
Fortescue established a senior secured credit facility of US$5.0 billion in October 2012, which is repayable at Fortescue’s
option. The facility was refinanced in November 2013. The key terms of the facility prior to and after refinancing are
summarised below.
From
To
US$m
October 2012
November 2013
5,000
November 2013 May 2014
May 2014
Current
4,950
4,925
Interest rate (i)
LIBOR + 4.25%
LIBOR + 3.25%
LIBOR + 2.75%
Principal repayments
Maturity
0.25% quarterly
18 October 2017
0.25% quarterly
0.25% quarterly
30 June 2019
30 June 2019
(i) LIBOR with a floor of one per cent.
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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
17 Borrowings and finance lease liabilities (continued)
(iii) Finance lease liabilities
During the year, Fortescue repaid the finance lease liabilities associated with both Ore Processing Facilities (OPFs)
at Christmas Creek. The Group’s finance lease liabilities at 30 June 2014 largely relate to contractual commitments associated
with 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 finance leases. Finance lease liabilities include the effect of discounting as summarised below:
30 June 2013
Future minimum lease payments
Effect of discounting
Present value of minimum lease payments
30 June 2014
Future minimum lease payments
Effect of discounting
Present value of minimum lease payments
Within
one
year
US$m
Between
one year
and five
years
US$m
95
(72)
23
40
(40)
-
393
(263)
130
208
(199)
9
After
five
years
US$m
972
(483)
489
674
(366)
308
Total
US$m
1,460
(818)
642
922
(605)
317
139
(iv) Preference shares
In September 2008 Fortescue issued 1,400 fully paid non-convertible redeemable preference shares at A$100,000 per share,
with a term of 8.5 years. The preference shares had a dividend coupon rate of nine per cent payable bi-annually either in
cash or by issue of additional preference or ordinary shares, as elected by Fortescue. A holder of preference shares was not
entitled to share in the distribution of any surplus assets of the Company beyond its redemption amount. The preference
shares ranked in priority to Fortescue’s ordinary shares for the payment of distributions, had limited voting rights, and were
repayable at Fortescue’s option.
Fortescue redeemed the preference shares in full in November 2013.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
2014
US$m
2013
US$m
18 Provisions
Employee benefits
Restoration and rehabilitation
Total current provisions
Employee benefits
Restoration and rehabilitation
Total non-current provisions
(a) Provision for employee benefits
Movements in the provision for employee benefits during the financial year are set out below:
Carrying amount at 1 July
Changes in employee benefits provision
140
Amounts paid
Carrying amount at 30 June
166
10
176
4
463
467
2014
US$m
127
167
(124)
170
(b) Provision for restoration and rehabilitation
Movements in the provision for restoration and rehabilitation during the financial year are set out below:
Carrying amount at 1 July
Changes in restoration and rehabilitation estimate (i)
Unwinding of discount
Payments for restoration and rehabilitation activities
Carrying amount at 30 June
2014
US$m
388
87
4
(6)
473
(i) A provision for restoration and rehabilitation has been recognised in relation to Fortescue’s iron ore operations.
The provision has been made in full for all disturbed areas at the reporting date based on current estimates of
costs to rehabilitate and for the costs of infrastructure removal, discounted to their present value based on expected
timing of future cash flows.
121
7
128
6
381
387
2013
US$m
102
122
(97)
127
2013
US$m
514
(132)
7
(1)
388
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
19 Deferred tax assets and liabilities
The composition and movement of deferred tax assets and (liabilities) is as follows:
Balance
1 July
2012
US$m
Charged/
(credited) Charged/ Balance
(credited) 30 June
to profit
to equity
or loss
US$m
US$m
2013
US$m
Charged/
(credited) Charged/ Balance
(credited) 30 June
to profit
to equity 2014
or loss
US$m US$m
US$m
(80)
(353)
(54)
(44)
7
(6)
204
1
184
(80)
-
1
160
(531)
(81)
(38)
6
(204)
-
(27)
116
14
(221)
(584)
-
-
-
-
-
-
-
-
-
-
-
-
(79)
(193)
(585)
(125)
(31)
-
-
1
157
36
14
(4)
(270)
(93)
(60)
22
-
-
-
35
28
(7)
(805)
(349)
-
-
-
-
-
-
-
-
-
-
-
-
(83)
(463)
(678)
(185)
(9)
-
-
1
192
64
7
(1,154)
141
Assets
Liabilities
Net assets (liabilities)
2014
US$m
2013
US$m
-
-
19
-
-
23
195
92
10
339
-
75
54
-
2
15
157
95
21
419
2014
US$m
(83)
(463)
(697)
(185)
(9)
(22)
(3)
(28)
(3)
2013
US$m
2014
US$m
2013
US$m
(79)
(268)
(639)
(125)
(33)
(14)
-
(59)
(7)
(83)
(463)
(678)
(185)
(9)
1
192
64
7
(79)
(193)
(585)
(125)
(31)
1
157
36
14
(1,493)
(1,224)
(1,154)
(805)
76
46
(223)
(165)
(147)
(119)
263
373
(1,270)
(1,059)
(1,007)
(686)
Exploration expenditure
Development
Property, plant and equipment
Consumables
Foreign exchange losses (gains)
Senior notes
Unsecured loan notes
Accruals
Provisions
Other financial liabilities
Other items
Exploration expenditure
Development
Property, plant and equipment
Consumables
Foreign exchange losses (gains)
Accruals
Provisions
Other financial liabilities
Other items
Deferred tax assets (liabilities) expected to
be recovered (settled) within 12 months
Deferred tax assets (liabilities) expected to
be recovered (settled) beyond 12 months
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
20 Contributed equity
(a) Share capital
30 June
2014
Number
30 June
2013
Number
Ordinary shares fully paid
3,113,798,151
3,113,798,151
(b) Movements in ordinary share capital
Date
Details
1 July 2012 Opening balance
Purchase of shares under employee share plans
Number
of shares
3,113,798,151
(4,001,750)
Employee share awards exercised net of employee contributions
4,001,750
30 June 2013 Closing balance
1 July 2013 Opening balance
Purchase of shares under employee share plans
3,113,798,151
3,113,798,151
(3,605,211)
Employee share awards exercised net of employee contributions
3,605,211
30 June 2014 Closing balance
3,113,798,151
142
Issue
price
$4.95
$4.45
$4.63
$4.23
US$m
1,293
(20)
18
1,291
1,291
(17)
15
1,289
(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
Share-based payments reserve
Capital reserve
Foreign currency translation
Hedging reserve
Share-based payments reserve
Balance at 1 July
Exercised or converted
Forfeited or lapsed
Share-based payment expense
Balance at 30 June
Capital reserve
Balance at 1 July
Transactions with non-controlling interest
Balance at 30 June
2014
US$m
2013
US$m
55
12
2
-
69
29
(5)
(5)
36
55
12
-
12
29
12
-
(90)
(49)
15
-
-
14
29
1
11
12
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
21 Reserves (continued)
Foreign currency translation reserve
Balance at 1 July
Currency translation differences arising during the year
Balance 30 June
Hedging reserve
Balance at 1 July
Gains (losses) on cash flow hedges taken to equity
Losses (gains) transferred to the initial carrying amount of hedged items
Balance at 30 June
2014
US$m
2013
US$m
-
2
2
(90)
23
67
-
-
-
-
25
(80)
(35)
(90)
(b) Nature and purpose of reserves
(i) Share-based payments reserve
The share-based payments reserve primarily records items recognised as expenses on valuation of employee share
options and rights.
(ii) 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.
143
(iii) Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the
financial statements of foreign operations.
(iv) 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.
22 Dividends
(a) Dividends paid during the year
Final fully franked dividend for the year ended 30 June 2013: A$0.10 per share
(30 June 2012: A$0.04 per share)
Interim fully franked dividend for the half-year ended 31 December 2013:
A$0.10 per share (2012: nil)
(b) Dividends proposed and not recognised as a liability
Fully franked dividend: A$0.10 per share (2013: A$0.10 per share)
2014
US$m
2013
US$m
282
280
562
290
290
131
-
131
282
282
(c) Franking credits
At 30 June 2014, franking credits available were US$539 million (2013: US$652 million). The payment of the final dividend for
the year ended 30 June 2014 will reduce the franking account balance by US$124 million.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
23 Remuneration of auditors
(a) PricewaterhouseCoopers
Audit and other assurance services
Audit and review of financial statements
Other assurance services
Total audit and assurance services
Other services
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
144
(c) Other audit firms
Audit and other services
Audit and review of financial statements - BDO Wellington, New Zealand
2014
US$000
2013
US$000
774
140
914
668
82
750
705
1,619
461
1,211
47
47
26
26
43
43
25
25
Total auditors’ remuneration
1,692
1,279
24 Contingencies
Fortescue had no material contingent liabilities or contingent assets at 30 June 2014 or at the date of this report. Fortescue
occasionally receives claims arising from its activities in the normal course of business. In the opinion of the Directors, all
such matters are covered by insurance or, if not covered, are without merit or are of such a kind or involve such amounts
that would not have a material adverse impact on the operating results or financial position if settled unfavourably.
25 Commitments
30 June 2013
Within one year
Between one and five years
Total
30 June 2014
Within one year
Between one and five years
Total
Capital (i)
US$m
Operating
leases (ii)
US$m
574
9
583
519
252
771
72
104
176
79
176
255
Total
US$m
646
113
759
598
428
1,026
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
25 Commitments (continued)
(i) At 30 June 2014 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.
26 Related party transactions
(a) Subsidiaries
Interests in subsidiaries are set out in note 27.
(b) Key management personnel remuneration
Short term employee benefits
Share-based payments
2014
US$m
6
10
16
2013
US$m
8
9
17
145
In addition to the above, Fortescue paid A$277,914 termination benefits to key management personnel during the
financial year (2013: A$45,532).
Detailed information about the remuneration received by each key management person is provided in the remuneration
report on pages 98 to 119.
(c) Transactions with other related parties
The following transactions occurred with the joint operations partners:
Revenue
Other income
Current receivables
2014
US$m
2013
US$m
96
22
20
91
12
19
(d) Guarantees issued
The Minderoo Group Pty Ltd (formerly 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 2014 was US$985,499 (2013: US$985,499).
No other transactions have occurred with related parties other than subsidiaries, entities with joint control, Directors or key
management personnel as disclosed above.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
27 Interests in other entities
(a) Material 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 35(a):
146
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
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 Training Pty Limited
International Bulk Ports Pty Limited
FMG Resources Pty Limited
FMG America
FMG Nyidinghu Pty Ltd
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
FMG Procurement Services
FMG International Marketing Pte Ltd
FMG Personnel Services Pty Ltd
SS IB Pty Ltd
GMF Insurance Limited
FMG Chichester Personnel Pty Ltd
FMG International Shipping Pte Ltd
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Singapore
Australia
Australia
Australia
Hong Kong
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
Australia
Australia
Australia
Australia
Australia
Australia
Mozambique
Australia
Singapore
Australia
Australia
Guernsey
Australia
Singapore
Class of
shares
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
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Investment
2014
US$
2013
US$
Equity holding
2013
2014
%
%
100
100
100
100
100
100
100
100
100
100
100
100
88
88
88
88
100
100
100
100
100
100
100
100
100
100
88
88
100
100
94
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
88
100
100
100
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
209,053
209,053
1
1
1
1
1
1
88 43,557,023 43,557,023
108
108
88
1
1
100
1
1
100
1
1
94
1
1
100
1
1
100
1
1
50
1
1
100
1
1
100
1
1
100
1
1
100
1
1
100
1
1
100
339
339
100
100
1
1
1
1
100
1
1
100
1
1
100
1
1
100
1
1
100
1
1
100
1
1
100
-
1
-
-
1
-
-
1
-
-
-
1
-
4,690,502
-
-
1
-
-
1
-
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
27
Interests in other entities (continued)
(b) Joint operations
Fortescue, through its wholly-owned subsidiary FMG Pilbara Pty Limited, holds a 25 per cent participating interest
in the Nullagine Iron Ore Joint Venture. The principal activity of Nullagine Iron Ore Joint Venture is the production of iron ore
in the Pilbara region of Western Australia, with Fortescue entitled to receive joint operation output consistent with its
participating interest.
In October 2013, Fortescue, through its 88 per cent owned subsidiaries FMG Magnetite Pty Ltd and FMG North Pilbara Pty Ltd,
formed the Iron Bridge Joint Venture and Glacier Valley Joint Venture to develop and produce its magnetite assets in the
Pilbara region of Western Australia. The Group is entitled to receive joint operation output consistent with its participating
interest of 69 per cent.
28 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 consolidated statement of changes in equity
The consolidated income statement, consolidated statement of comprehensive income and consolidated statement of
changes in equity for the year ended 30 June 2014 along with the consolidated statement of financial position as at
30 June 2014 for the closed group and the extended closed group represented by the above companies are materially the
same as that of the consolidated group.
29 Earnings per share
(a) Earnings per share
Basic
Diluted
2014
Cents
88.00
87.85
2013
Cents
56.07
56.05
147
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
29 Earnings per share (continued)
(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
2014
US$m
2013
US$m
2,740
1,746
2014
Number
2013
Number
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share
3,113,798,151 3,113,784,294
Adjustments for calculation of diluted earnings per share:
Potential ordinary shares
5,133,166
1,443,267
Weighted average number of ordinary and potential ordinary shares used
as the denominator in calculating diluted earnings per share
3,118,931,317 3,115,227,561
(d) Information on the classification of securities
148
(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 and rights are set out in note 30.
30 Share-based payments
(a) Employee Option and Performance Rights Plans
During the financial year Fortescue issued 3,917,818 short term performance rights and 8,038,536 long term performance
rights to employees and senior executives, convertible to one ordinary share per right. The short term rights vest over one
year, and the long term rights vest over three years. Vesting of both the short term and the long term rights are subject to
non-market vesting conditions imposed on each individual participating in the performance rights plans.
Outstanding at 1 July
Performance rights granted
Performance rights forfeited or lapsed
Performance rights converted
Options forfeited
Options exercised
Outstanding at 30 June
Weighted
average
exercise price
2014
A$
3.89
-
-
-
5.69
2.50
1.95
Number of
options
and rights
2014
Number
10,603,847
11,956,354
(1,360,433)
(973,448)
(400,000)
(600,000)
Weighted
average
exercise price
2013
A$
4.51
-
-
-
-
-
Number of
options
and rights
2013
Number
9,151,984
2,443,817
(616,629)
(375,325)
-
-
19,226,320
3.89
10,603,847
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
30 Share-based payments (continued)
The weighted average fair value of performance rights granted during the year ended 30 June 2014 was A$5.09 per right
(2013: A$3.87) for the short term performance rights and A$5.29 per right (2013: A$4.03) for the 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 the right.
The weighted average inputs used to determine the fair value of performance rights granted during the year ended
30 June 2014 were:
(a) share price: A$5.35 (2013: A$4.07)
(b) exercise price: nil (2013: nil)
(c) volatility: 78 per cent (2013: 64 per cent)
(d) option life: 21 months (2013: 24 months)
(e) dividend yield: 2 per cent (2013: 2 per cent)
(f ) risk free interest rate: 2.5 per cent (2013: 3 per cent)
Details of options and performance rights outstanding at 30 June 2014 are presented in the following table:
Employee options 2010
Long term performance rights 2013
Short term performance rights 2014
Long term performance rights 2014
Exercise
price
A$
5.00
Nil
Nil
Nil
Balance
at the end
of the year
Number
7,500,000
2,935,785
3,651,255
5,139,280
19,226,320
Vested and
exercisable at
the end
of the year
Number
Remaining
contractual
life
Months
-
-
-
-
10
18
6
30
149
(b) Other share-based payments
The arrangement between certain of Fortescue’s Executives and The Minderoo Group Pty Ltd, as described in note 26,
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 (2013: US$985,499). The fair value at each grant date was
determined using a Monte-Carlo simulation model that takes into account the four-year life of the instruments, the share
prices at each grant date, the expected price volatility of the underlying share, the expected dividend yield risk free interest
rate for the life of the instruments, the loan value per share, the loan interest rate and the terms of the margin call.
(c) Employee expenses
Total expenses arising from share-based payments transactions recognised during the period as part of employee benefit
expense were as follows:
Share-based payment expense
2014
US$m
31
2013
US$m
14
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
31 Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year after income tax
Income tax expense
Depreciation and amortisation
Assets write-off
Exploration, development and other
Share-based payment expense
Re-estimation of unsecured loan notes
Net unrealised foreign exchange loss (gain)
Interest expense disclosed within financing activities
Interest income disclosed within investing activities
Gain on disposal of interest in joint venture
Loss on early redemption of borrowings and finance leases
Other non-cash items
Working capital adjustments:
Increase in deferred income
150
Increase (decrease) in payables and provisions
(Decrease) increase in receivables
Increase in inventories
Net cash inflow from operating activities
Non-cash investing and financing activities
Acquisition of plant and equipment through finance leases
Other
Total non-cash financing and investing activities
2014
US$m
2,740
1,173
965
22
16
31
-
34
688
(21)
(109)
53
(10)
1,123
250
(302)
(405)
6,248
2014
US$m
(9)
(42)
(51)
2013
US$m
1,746
720
463
71
45
14
(34)
(98)
586
(33)
(124)
-
(18)
364
(644)
190
(244)
3,004
2013
US$m
(223)
26
(197)
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
32 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
Profit for the year(i)
Total comprehensive profit for the year
2014
US$m
2013
US$m
633
8,572
9,205
1,267
94
1,361
657
5,480
6,137
156
568
724
7,844
5,413
1,289
56
6,499
7,844
2,960
2,960
1,291
21
4,101
5,413
1,690
1,690
151
(i) Profit for the year includes dividends received from subsidiaries of US$3,200 million (2013: US$1,600 million).
(b) Guarantees entered into by the parent entity
The parent entity has not provided any financial guarantees other than the cross guarantees, as described in note 28.
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 2014 or 30 June 2013. For information about
guarantees given by the parent entity, please see above.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
33 Events occurring after the reporting period
On 20 August 2014, the Directors declared a final dividend of 10 Australian cents per ordinary share payable on
3 October 2014.
On 20 August 2014, Fortescue announced its intention to redeem US$500 million of the 2018 senior unsecured notes
in October 2014.
34 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 and Risk Management Committee (ARMC), has ultimate responsibility for
oversight of the Fortescue Risk Management Framework (FRMF) and for setting appropriate risk tolerance levels. Day-to-day
management responsibility for execution of the FRMF 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.
(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 exchange risk
Fortescue operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the Australian dollar and the Euro. Fortescue is exposed to currency 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 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 flows in relation to
the 155mtpa expansion program in Australian dollars. All of the projected cash flows related to the expansion program
qualified as highly probable forecast transactions for hedge accounting purposes.
152
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
34 Financial risk management (continued)
The carrying amounts of the Group’s financial assets and liabilities are primarily denominated in three currencies as
set out below:
30 June 2013
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 finance lease liabilities
Trade and other payables
Total financial liabilities
30 June 2014
Financial assets
Cash and cash equivalents
Trade and other receivables
Total financial assets
Financial liabilities
Borrowings and finance lease liabilities
Trade and other payables
Total financial liabilities
USD
US$m
AUD
US$m
EURO
US$m
Total
US$m
1,497
145
-
12
1,654
12,224
380
12,604
USD
US$m
2,110
487
2,597
9,548
619
10,167
660
223
6
-
889
467
816
1,283
1
1
-
-
2
-
2
2
AUD
US$m
EURO
US$m
288
65
353
9
822
831
-
1
1
-
-
-
2,158
369
6
12
2,545
12,691
1,198
13,889
Total
US$m
2,398
553
2,951
9,557
1,441
10,998
153
A change of five per cent in the Australian dollar against the currencies above at 30 June 2014 would have an impact
on pre-tax profit and loss of US$24 million (2013: US$108 million). This analysis assumes that all other variables,
in particular interest rates, remain constant.
(ii) Commodity price risk
The Group is exposed to commodity price risk through iron ore price movements. Fortescue had not entered into any
forward commodity price contracts at 30 June 2014 (2013: nil) and is currently fully exposed to commodity price movements
as follows:
Trade receivables
Derivative held at fair value
2014
US$m
486
-
486
2013
US$m
171
12
183
A change of 15 per cent in commodity prices would have an impact on the Group’s pre-tax profit and loss of US$73 million
(2013: US$24 million). This analysis assumes that all other variables, in particular foreign exchange, remain constant.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
34 Financial risk management (continued)
(iii) Interest rate risk
It is Fortescue’s policy to reduce interest rate risk over the cash flows on its long term debt finance within tolerable levels set
by ARMC through the use of fixed rate instruments whenever appropriate.
Fortescue’s main interest rate risk arises from floating rates on the senior secured credit facility and changes in rates on
short term investments. The Group’s fixed rate borrowings are carried at amortised cost and are not subject to interest rate
risk as defined in AASB 7 Financial Instruments: Disclosures. Other financial instruments of the Group are non-interest bearing
and are also not subject to interest rate risk as defined in AASB 7.
At 30 June 2014, Fortescue had the following variable rate assets and liabilities:
Cash and cash equivalents
Senior secured credit facility
2014
US$m
2,393
(4,795)
(2,402)
2013
US$m
2,143
(4,828)
(2,685)
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.
154
A change of ten basis points in interest rates in variable instruments would have an impact on the Group’s pre-tax profit
and loss of US$3 million (2013: US$7 million). This analysis assumes that all other factors remain constant, including foreign
currency rates.
(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, 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 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 2014
and 30 June 2013.
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 10. 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 cash flows 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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
34 Financial risk management (continued)
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$m
Total
Over 5
years
US$m
contractual Carrying
amount
cash flows
US$m
US$m
30 June 2013
Non-interest bearing
Fixed rate
Variable rate
Total
30 June 2014
Non-interest bearing
Fixed rate
Variable rate
Total
999
345
159
1,503
1,376
187
119
1,682
-
301
154
455
-
177
117
294
26
606
307
939
55
355
234
644
119
6,003
5,452
-
3,933
-
1,144
11,188
6,072
1,144
7,917
4,828
11,574
3,933
18,404
13,889
-
2,786
737
3,523
-
3,485
4,678
8,163
1,431
6,990
5,885
1,431
4,772
4,795
14,306
10,998
Management monitors rolling forecasts of the Group’s cash and overall liquidity position on the basis of expected cash flows.
(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$4,690 million and US$4,925 million respectively. These fair values are based on quoted market prices at the end
of the reporting period and as such are classified as level 1 financial instruments in the fair value hierarchy.
155
(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 finance lease 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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.
(a) Principles of consolidation
(i) Subsidiaries
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 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,
the consolidated statement of comprehensive income, statement of changes in equity and balance sheet respectively.
156
(ii) Joint arrangements
Joint arrangements exist when two or more parties have joint control. Joint control exists when the parties agree
contractually to share control over the activities that significantly affect the entity’s returns (relevant activities), and the
decisions about relevant activities require the unanimous consent of the parties sharing joint control.
Joint arrangements are classified as either joint operations or joint ventures, based on the contractual rights and obligations
between the parties to the arrangement.
Joint operations
If the contractual arrangement specifies the rights to the assets and the obligations for the liabilities for the parties, the
arrangement is classified as a joint operation. The Group recognises its direct right to the assets, liabilities, revenues and expenses
of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been
incorporated in the financial statements under the appropriate headings. Details of the joint operations are set out in note 27.
To support operations and construction projects of some of the joint operations, Fortescue and other parties to the joint
arrangements are required, from time to time, to contribute funds in the form of cash calls, in proportion to their respective
interests in the joint arrangements. These funds, if contributed by the joint venture parties in different financial years, may
give rise to deferred joint venture contribution assets or liabilities.
Joint ventures
If the contractual arrangement grants the parties the right to the arrangement’s net assets, it is classified as a joint venture.
Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the
consolidated balance sheet.
(b) 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.
(c) 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.
Fortescue Metals Group Limited I 2014 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
(d) Foreign currency translation
(i) 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.
(ii) 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.
157
(e) Revenue recognition
Revenue is measured at the fair value of the 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 collectibility is reasonably assured.
Fortescue recognises revenue from the sale of iron ore when the risks and rewards of ownership transfers 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.
(f) 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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
(g) Income tax
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 substantively 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 provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts. However, the deferred income tax is not accounted for if it arises from
the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the
transaction affects neither the accounting nor taxable profit or loss. 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.
158
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 Metals Group Limited and its wholly-owned Australian controlled entities have implemented the tax
consolidation legislation as of 1 July 2002, namely the FMG tax consolidated group, and are therefore taxed as a single
entity from that date.
In addition, FMG Iron Bridge (Aust) Pty Ltd and its wholly-owned Australian controlled entities have implemented the tax
consolidation legislation as of 28 September 2011, namely the FMG Iron Bridge tax consolidated group, and are therefore
taxed as a single entity from that date.
The head entity and the controlled entities in both tax consolidated groups continue to account for their own current and
deferred tax amounts. These tax amounts are measured as if each entity in each tax consolidated group continues to be a
standalone taxpayer in its own right.
In addition to its own current and deferred tax amounts, the head entity of each group 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 each corresponding tax consolidated group.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
Assets or liabilities arising within the tax consolidated entities are recognised as amounts receivable from or payable to
other entities in the tax consolidated 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 FMG 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.
(h) Cash and cash equivalents
Cash and cash equivalents include cash on hand, short term deposits 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.
(i) 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.
Collectibility 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 of the receivables, 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 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.
159
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
(j)
Warehouse stores and materials, work in progress and finished goods are stated at the lower of cost and net realisable value.
Costs for raw materials and stores are 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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
(k) 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.
(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.
(l) Financial liabilities
(i) Trade payables
Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost and 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.
160
(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.
(m) 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 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 derivatives 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 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
(n) 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 assets
under development. 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. 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.
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.
161
(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.
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
Rail and port infrastructure assets
20 – 25 years
25 – 30 years
5 – 20 years
3 – 8 years
40 – 50 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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
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.
(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
162
(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 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
(o) Stripping costs
(i) 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.
(ii) Production stripping costs
Overburden and other mine waste materials continue to be removed throughout the production phase of the mine. This
activity is referred to as production stripping, with the associated costs charged to the income statement, as operating cost,
except when all three criteria below are met:
•
•
•
production stripping activity provides improved access to the specific component of the ore body, and it is probable
that economic benefit arising from the improved access will be realised in future periods;
the Group can identify the component of the ore body for which access has been improved; and
the costs relating to the production stripping activity associated with that component can be measured reliably.
163
If all of the above criteria are met, production stripping costs resulting in improved access to the identified component of
the ore body are capitalised as part of development asset and are amortised over the life of the component of the ore body.
The determination of components of the ore body is individual for each mine. The allocation of costs between production
stripping activity and the costs of ore produced is performed using relevant production measures, typically strip ratios.
Changes to the mine design, technical and economic parameters affecting life of the components and strip ratios, are
accounted for prospectively.
(p) 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.
(q) 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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
Rehabilitation provisions are initially measured at the expected value of future cash flows required to rehabilitate the
relevant site, discounted to their present value using Australian Government bond market yields that match, as closely as
possible, the timing of the estimated future cash outflows. The judgements and estimates applied for the estimation of the
rehabilitation provisions are discussed in note 36.
When provisions for closure and rehabilitation are initially recognised, the corresponding cost is capitalised into the cost
of mine development assets, representing part of the cost of acquiring the future economic benefits of the operation. The
capitalised cost of closure and rehabilitation activities is recognised within development assets and is amortised based on
the units of production method over the life of the mine. 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.
Impairment of non-financial assets
(r)
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.
164
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.
Intangible assets
(s)
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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
(t) 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 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 construction 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.
(u) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which
are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are
presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised
initially at their fair value and subsequently measured at amortised cost using the effective interest method.
(v) 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.
165
(ii) Long service leave
The liability for long service leave is recognised in provisions 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. Consideration is given
to expected future wage and salary levels, probability 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.
(w) 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 30.
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 or rights.
The fair value at grant date is independently determined using 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 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 or right.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
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.
(x) 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.
(y) 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.
166
(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.
(z) Goods and Services Tax (GST)
Revenues, 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.
(aa) Comparatives
Where applicable, certain comparatives have been adjusted to conform with current year presentation.
(ab) New accounting standards and interpretations
(i) New and amended standards adopted by the Group
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning
1 July 2013:
•
•
•
•
AASB 10 Consolidated Financial Statements. AASB 10 introduces certain changes to the consolidation principles,
including the concept of de facto control and changes in relation to special purpose entities. The adoption of AASB 10
had no impact on the amounts recognised in Fortescue’s financial statements.
AASB 11 Joint Arrangements. AASB 11 changes the classification and accounting for joint arrangements based on the
specified rights and obligations of the agreement. Fortescue has determined that its interests in joint arrangements
were not affected by the adoption of the new standard.
AASB 12 Disclosure of Interests in Other Entities. AASB 12 sets out the required disclosures for entities reporting under
AASB 10 and AASB 11. The required disclosure of the new standard is included in note 27 Interests in Other Entities.
AASB 13 Fair Value Measurement. AASB 13 establishes a single framework for measuring fair value of financial and non-
financial items recognised at fair value. Fortescue does not have any significant assets or liabilities recorded at fair value
at 30 June 2014, therefore this standard has not impacted on the current year financial statements.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Summary of significant accounting policies (continued)
•
•
•
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. IFRIC 20 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 benefits from stripping activity during its production stage predominantly relate to the inventory produced.
No adjustments to any of the carrying amounts in the financial statements are required as a result of the adoption of
Interpretation 20.
AASB 124 Related Party Disclosures. AASB 124 removes certain individual key management personnel disclosure
requirements and have no impact on the amounts recognised in the financial statements.
AASB 2011-4 Amendments to Australian Accounting Standards. AASB 2011-4 removes the individual key management
personnel disclosure requirements from the financial statements to the Directors’ report.
(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 2014
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 material
impact on the way the Group accounts for its financial instruments.
167
36 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 at the time. 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.
Fortescue Metals Group Limited I 2014 Annual Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2014
36 Critical accounting estimates and judgements (continued)
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.
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.
168
(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 estimates
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 2014 Annual Report
169
US$9.2 billion
expansion completed
increased capacity to
155
million tonnes
Fortescue Metals Group Limited I 2014 Annual Report SHAREHOLDER INFORMATION
As at 1 September 2014
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
Minderoo Group Pty Ltd
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Valin Investments (Singapore) Pte Ltd
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
Valin Resources Investments (Singapore) Pte Ltd
Emichrome Pty Ltd
Valin Mining Investments (Singapore) Pte Ltd
Citicorp Nominees Pty Limited
AMNL Financing Pty Ltd
AMNL Financing Pty Ltd
BNP Paribas Noms Pty Ltd
Minderoo Group Pty Ltd
The Minderoo Foundation Pty Ltd
WWB Investments Pty Ltd
HSBC Custody Nominees (Australia) Limited-Gsco Eca
AMP Life Limited
Mr William Graeme Rowley
UBS Wealth Management Australia Nominees Pty Ltd
170
Units
944,776,360
333,010,997
297,853,460
228,007,497
184,511,586
155,582,239
154,267,590
94,685,358
70,546,904
63,864,066
30,365,261
25,380,711
18,547,257
14,694,305
11,310,500
9,534,597
8,648,709
8,496,508
7,144,951
6,960,060
% of
Issued Capital
30.34%
10.69%
9.57%
7.32%
5.93%
5.00%
4.95%
3.04%
2.27%
2.05%
0.98%
0.82%
0.60%
0.47%
0.36%
0.31%
0.28%
0.27%
0.23%
0.22%
TOTAL
2,668,188,916
85.69%
Substantial Shareholders
Name
Minderoo Group Pty Ltd and John Andrew Henry Forrest
Hunan Valin Iron And Steel Group
Total Shares
1,033,479,247
458,405,492
% of
Issued Capital
33.19%
14.72%
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 Holders
Units
25,183
25,054
6,317
4,587
369
12,540,583
64,281,276
48,531,516
115,324,595
2,873,120,181
61,510
3,113,798,151
% of
Issued Capital
0.40%
2.06%
1.56%
3.70%
92.27%
100.00%
Unmarketable Parcels
There were 3,445 members holding less than a marketable parcel of shares in the company.
Fortescue Metals Group Limited I 2014 Annual Report
TENEMENT REPORT
As at 1 September 2014
Western Australia Tenure
Holder: Chichester Metals Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E 45/2497-I E 45/2498-I E 45/2499-I E 45/2593-I E 45/2651-I
E 45/2652-I
E 46/467-I
E 46/516-I
E 46/518-I
E 46/519-I
E 46/566-I
E 46/567-I
E 46/568-I
E 46/569-I
E 46/590-I
E 46/595-I
E 46/600-I
E 46/601-I
E 46/610-I
E 46/611-I
E 46/612-I
E 46/623-I
E 46/664-I
E 46/666-I
E 46/675-I
E 47/1320-I E 47/1387-I E 47/1388-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 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
Holder: Chichester Metals Pty Ltd
Status: Granted
FMG mineral rights status: 100% iron ore rights
E 46/413-I
Holder: Chichester Metals Pty Ltd
Status: Granted
FMG mineral rights status: n/a
G 46/7
L 45/152
L 46/100
L 46/111-I
L 46/112-I
L 46/35
L 46/36
L 46/37
L 46/40
L 46/46
L 46/47
L 46/49
L 46/51
L 46/52
L 46/53
L 46/54
L 46/55
L 46/56
L 46/57
L 46/58
L 46/62
L 46/64
L 46/48
L 46/66
L 46/99
L 47/193
L 47/197
L 47/198
Holder: Chichester Metals Pty Ltd
Status: Application
FMG mineral rights status: 100% all mineral rights
171
M 45/1147 M 45/1148 M 45/1149 M 45/1150 M 46/525
Holder: Chichester Metals Pty Ltd
Status: Application
FMG mineral rights status: n/a
L 46/60
L 47/204
L 47/653
L 47/654
L 47/655
L 47/656
L 47/657
L 47/658
L 47/659
L 47/660
L 47/710
L 47/711
Holder: FMG Magnetite Pty Ltd
Status: Granted
FMG mineral rights status: 100% iron ore rights
E 09/1871-I
Holder: FMG Magnetite Pty Ltd
Status: Granted
FMG mineral rights status: n/a
L 45/257
L 45/331-I
L 45/359
Holder: FMG Magnetite Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights (NB.3)
E 45/2510-I E 45/2535-I M 45/1226-I
Holder: FMG Magnetite Pty Ltd
Status: Application
FMG mineral rights status: n/a
L 45/293
L 45/294
L 45/317
L 45/318
L 45/319
L 45/320
L 45/366
L 45/367
Holder: FMG North Pilbara Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E 45/3084-I M 45/1244-I
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG Mineral rights status: 100% all mineral rights
E 08/1432-I E 08/1439-I E 08/1440-I E 08/1547-I E 08/1548-I
E 08/1550-I
E 08/1585-I E 08/1623-I
E 08/1626-I E 08/1627-I E 08/1762-I
E 08/1814-I
E 08/1816-I E 08/1831-I E 08/1933
E 08/1942-I E 08/1943-I
E 08/1959-I
E 08/1962-I E 08/2004-I
E 08/2063-I E 08/2072-I E 08/2117-I
E 08/2118-I
E 08/2137-I E 08/2157-I E 08/2175-I E 08/2193-I E 08/2194-I
E 08/2195-I
E 08/2196-I E 08/2200-I
E 08/2218-I E 08/2284-I E 08/2298-I
E 08/2367
E 08/2398-I E 08/2405-I E 08/2443-I E 08/2459
E 08/2512-I
E 08/2547-I
E 45/2841-I E 45/2842-I
E 45/2844
E 45/2850-I E 45/2851-I
E 45/2852-I
E 45/2853-I E 45/2854-I E 45/2855-I E 45/2856-I E 45/2857-I
E 45/2860-I
E 45/2861-I E 45/2862-I
E 45/2866-I E 45/2867-I E 45/2870-I
E 45/2919
E 45/2920
E 45/2945-I E 45/2946-I E 45/2970-I E 45/2971-I
E 45/2972-I
E 45/2973
E 45/3191-I
E 45/3270-I E 45/3310-I E 45/3318-I
E 45/3328-I
E 45/3366-I E 45/3369
E 45/3399-I E 45/3400-I E 45/3402
E 45/3412-I
E 45/3414-I E 45/3417-I
E 45/3421-I E 45/3422-I E 45/3423
E 45/3426-I
E 45/3428-I E 45/3429-I E 45/3430-I E 45/3431-I E 45/3433-I
E 45/3438-I
E 45/3441
E 45/3442-I
E 45/3443-I E 45/3445-I E 45/3448-I
E 45/3463-I
E 45/3473
E 45/3489-I E 45/3535-I E 45/3536-I E 45/3545-I
E 45/3561-I
E 45/3570-I E 45/3591-I
E 45/3600-I E 45/3605-I E 45/3606-I
E 45/3608-I
E 45/3611-I E 45/3641-I E 45/3650-I E 45/3654-I E 45/3659-I
E 45/3663-I
E 45/3664-I E 45/3697-I
E 45/3698-I E 45/3699-I E 45/3705-I
E 45/3711-I
E 45/3739-I E 45/3746-I E 45/3760-I E 45/3762-I E 45/3764-I
E 45/3767-I
E 45/3816-I E 45/3817-I
E 45/3845-I E 45/3866-I E 45/3938-I
E 45/4001-I
E 45/4040-I E 45/4050-I E 45/4077-I E 45/4083-I E 45/4093-I
E 45/4125-I
E 45/4126-I E 45/4134-I
E 45/4135-I E 45/4148-I E 45/4170-I
E 45/4171-I
E 45/4191-I E 45/4192-I E 45/4202-I E 45/4203
E 45/4204
E 45/4220-I
E 45/4221-I E 45/4222-I
E 45/4227-I E 45/4253-I E 45/4265-I
E 45/4277
E 46/1000
E 46/1009-I E 46/1012-I E 46/517-I
E 46/621-I
E 46/704-I
E 46/706-I
E 46/708-I
E 46/711-I
E 46/724-I
E 46/725-I
E 46/727-I
E 46/728-I
E 46/735-I
E 46/741-I
E 46/743-I
E 46/776-I
E 46/799-I
E 46/832-I
E 46/859-I
E 46/861-I
E 46/862-I
E 46/872-I
E 46/958-I
Fortescue Metals Group Limited I 2014 Annual Report
TENEMENT REPORT
As at 1 September 2014
E 46/964-I
E 46/965-I
E 46/967-I
E 46/986
E 46/990-I
E 46/991-I
E 46/994-I
E 47/1136-I
E 47/1155-I E 47/1194-I E 47/1195-I
E 47/1196-I
E 47/1299-I E 47/1300-I E 47/1301-I E 47/1302-I E 47/1319-I
E 47/1342-I
E 47/1349
E 47/1351-I
E 47/1355-I E 47/1357-I E 47/1361-I
E 47/1363-I
E 47/1370-I E 47/1373-I E 47/1383-I E 47/1384-I E 47/1390-I
E 47/1391-I
E 47/1392-I E 47/1393-I
E 47/1397-I E 47/1404-I E 47/1419-I
E 47/1420-I
E 47/1423-I E 47/1433-I E 47/1435-I E 47/1446-I E 47/1447-I
E 47/1448-I
E 47/1449-I E 47/1453-I
E 47/1455-I E 47/1479-I E 47/1480-I
E 47/1500
E 47/1532-I E 47/1533-I E 47/1543-I E 47/1578-I E 47/1579-I
E 47/1611-I
E 47/1612-I E 47/1613-I
E 47/1614-I E 47/1623-I E 47/1652-I
E 47/1653-I
E 47/1654-I E 47/1655-I E 47/1656-I E 47/1665-I E 47/1668-I
E 47/1669-I
E 47/1670-I E 47/1673-I
E 47/1674-I E 47/1675-I E 47/1679-I
E 47/1681-I
E 47/1682-I E 47/1684-I E 47/1685-I E 47/1686-I E 47/1687-I
E 47/1688-I
E 47/1690-I E 47/1702-I
E 47/1703-I E 47/1728-I E 47/1741-I
E 47/1761-I
E 47/1762
E 47/1763-I E 47/1764-I E 47/1772-I E 47/1808-I
E 47/1809-I
E 47/1821-I E 47/1832-I
E 47/1843-I E 47/1846-I E 47/1855-I
E 47/1920-I
E 47/1921-I E 47/1923-I E 47/1927-I E 47/1944-I E 47/1988-I
E 47/2020-I
E 47/2036-I E 47/2037-I
E 47/2046-I E 47/2055-I E 47/2056-I
E 47/2062-I
E 47/2080-I E 47/2085-I E 47/2119-I E 47/2137-I E 47/2138-I
E 47/2143-I
E 47/2146-I E 47/2157-I
E 47/2160-I E 47/2172-I E 47/2173-I
E 47/2174-I
E 47/2229-I E 47/2234-I E 47/2235-I E 47/2237-I E 47/2238-I
E 47/2239-I
E 47/2240-I E 47/2241-I
E 47/2242-I E 47/2243-I E 47/2244-I
E 47/2285-I
E 47/2331-I E 47/2333-I E 47/2334-I E 47/2336-I E 47/2369-I
E 47/2378-I
E 47/2379-I E 47/2442-I
E 47/2459-I E 47/2465-I E 47/2466
E 47/2475-I
E 47/2476-I E 47/2490-I E 47/2496-I E 47/2506-I E 47/2507-I
E 47/2513-I
E 47/2538-I E 47/2546-I
E 47/2572-I E 47/2573-I E 47/2574-I
E 47/2575-I
E 47/2576-I E 47/2577-I E 47/2578-I E 47/2584-I E 47/2585-I
E 47/2619-I
E 47/2632-I E 47/2637-I
E 47/2638-I E 47/2647-I E 47/2664-I
E 47/2665-I
E 47/2666-I E 47/2678
E 47/2717-I E 47/2718-I E 47/2729-I
E 47/2735-I
E 47/2739-I E 47/2759
E 47/2879-I E 47/2939-I E 47/2940-I
E 47/2941-I
E 47/2958-I E 47/2960-I E 52/1788-I E 52/1789-I E 52/1790-I
E 52/2113-I
E 52/2114-I E 52/2264-I
E 52/2277-I E 52/2290-I E 52/2333-I
E 52/2353-I
E 52/2380-I E 52/2382-I E 52/2393-I E 52/2486-I E 52/2521-I
E 52/2522-I
E 52/2527-I E 52/2725-I
E 52/2731-I E 52/2776-I E 52/2793-I
E 52/2829-I
E 52/2890-I E 52/2892-I E 52/2893-I E 52/2917-I E 52/2924-I
E 52/2928
E 52/2929
E 52/2933
E 52/2991-I E 52/2995-I E 52/3011-I
E 52/3012-I
E 69/2724-I E 69/3038-I E 69/3039-I E 69/3189-I E 77/2074-I M 45/1177 M 47/1413-I M 47/1431-I M 47/1433 M 47/1434 M 47/1453-I M 47/1466
172
M 47/1473 M 47/1474-I M 47/1475 M 47/1492
P 08/617-I
P 08/618-I
P 08/624
P 45/2721-I P 45/2748
P 45/2749
P 45/2786-I P 45/2787-I
P 45/2838-I P 45/2862-I P 45/2863-I P 45/2864-I P 45/2865-I P 45/2889
P 45/2890
P 46/1812
P 46/1813
P 46/1814
P 46/1815
P 47/1211-I
P 47/1257-I P 47/1269-I P 47/1270-I P 47/1278-I P 47/1279-I P 47/1280-I P 47/1281-I P 47/1282-I P 47/1283-I P 47/1284-I P 47/1285-I P 47/1286-I
P 47/1287-I P 47/1304-I P 47/1305-I P 47/1306-I P 47/1307-I P 47/1308-I P 47/1309-I P 47/1315-I P 47/1316-I P 47/1317
P 47/1318
P 47/1390-I
P 47/1391-I P 47/1392-I P 47/1393-I P 47/1394-I P 47/1395-I P 47/1396-I P 47/1397-I P 47/1398-I P 47/1399-I P 47/1400-I P 47/1401-I P 47/1402-I
P 47/1403-I P 47/1404-I P 47/1405-I P 47/1406-I P 47/1407-I P 47/1408-I P 47/1409-I P 47/1410-I P 47/1411-I P 47/1412-I P 47/1423-I P 47/1427-I
P 47/1468-I P 47/1469-I P 47/1470-I P 47/1513-I P 47/1514-I P 47/1536-I P 47/1537-I P 47/1545-I P 47/1552-I P 47/1553-I P 47/1554-I P 47/1555-I
P 47/1581-I P 47/1582-I P 47/1583-I P 47/1604-I P 47/1605-I P 47/1606-I P 47/1607-I P 47/1608-I P 47/1609-I P 47/1610-I P 47/1612-I P 47/1613-I
P 47/1615-I P 47/1616-I P 47/1617-I P 47/1618-I P 47/1623-I P 47/1626-I P 47/1633-I P 47/1634-I P 47/1636-I P 47/1638-I P 47/1639-I P 47/1640-I
P 47/1641-I P 47/1642-I P 47/1643-I P 47/1644-I P 47/1645-I P 47/1646-I P 47/1647-I P 47/1648-I P 47/1649-I P 47/1650-I P 47/1663-I P 47/1664-I
P 47/1665-I P 47/1666-I P 47/1667-I P 47/1668-I P 47/1669-I P 47/1670-I P 47/1671-I P 47/1672-I P 47/1673-I P 47/1674-I P 47/1675-I P 47/1692-I
P 47/1693-I P 47/1694-I P 47/1695-I P 47/1696-I P 47/1697
P 47/1705-I P 47/1706-I P 47/1719-I
E 47/2962
E47/1461
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights (NB.1)
E 46/694-I
E 46/695-I
E 46/696-I
E 46/697-I
E 46/698-I
E 46/699-I
E 46/700-I
E 46/701-I
E 46/702-I
E 46/703-I
E46/715-I
E 46/716-I
E 46/729-I
E 46/805-I
E 46/870-I
E 46/871-I
E 46/878-I
E 46/882-I
E 46/889-I
E 46/966-I
E 46/974-I
E 46/975-I
E 46/980-I
E 46/989-I
E 52/1759-I E 52/1760-I E 52/1779-I E 52/1937-I E 52/1977-I
E 52/1984-I
E 52/2034-I E 52/2035-I
E 52/2311-I E 52/2555-I E 52/2576-I
E 52/2594-I
E 52/2620-I E 52/2626-I E 52/2637-I E 52/2696-I E 52/2699-I
E 52/2737-I
E 52/2738-I E 52/2739-I
E 52/2748-I E 52/2749-I E 52/2830-I
E 52/2854-I
E 52/2856-I E 52/2857-I P 52/1415
P 52/1421
P 52/1422-I
E 52/2347-I
E 52/2414-I E 52/2415-I
E 52/2416-I E 52/2470-I E 52/2745
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG Mineral rights status: 100% iron ore rights, 75% non-iron (NB.2)
E 08/1628-I E 08/1629-I E 08/1630-I E 08/1631-I E 08/1632-I
E 08/1633-I
E 08/1741-I E 08/1878-I
E 08/1915-I E 08/1916-I E 08/1949-I
E 08/1950-I
E 08/1961-I E 08/1985-I E 08/1986-I E 08/1992
E 08/2000-I
E 08/2003-I
E 08/2034-I E 08/2038-I
E 08/2039-I E 08/2065-I E 08/2067-I
E 08/2114-I
E 08/2250-I E 08/2258-I E 08/2293-I E 08/2294-I E 08/2295-I
E 08/2296-I
E 08/2353-I E 08/2354-I
E 08/2364-I E 47/1395-I E 47/1396-I
E 47/1535-I
E 47/1549-I E 47/1677-I E 47/1735-I E 47/1773-I E 47/1833-I
E 47/1879-I
E 47/2035-I E 47/2171-I
E 47/2236-I E 47/2292-I E 47/2587-I
E 47/2636-I
E 52/2484-I E 52/2730-I E 52/2786-I P 47/1237-I
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG Mineral rights status: 100% mineral rights except diamonds
M 47/1408-I M 47/1409-I M 47/1410-I M 47/1411-I M 47/1417-I E 47/1333-I
E 47/1334-I E 47/1352-I
E 47/1372-I E 47/1398-I E 47/1399-I
E 47/1436-I
E 47/1523-I E 47/1524-I
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG mineral rights status: n/a
G 45/275
G 45/285
L 45/158
L 45/191
L 45/240
L 47/232
L 47/293
L 47/294
L 47/296
L 47/301
L 47/351
L 47/360
L 47/361
L 47/362
L 47/363
L 47/367
L 47/381
L 47/382
L 47/391
L 47/392
L 47/397
L 47/471
L 47/472
L 47/693
L 47/700
Fortescue Metals Group Limited I 2014 Annual Report
TENEMENT REPORT
As at 1 September 2014
Holder: FMG Pilbara Pty Ltd
Status: Application
FMG Mineral rights status: 100% all mineral rights
E 08/2088
E 08/2490
E 08/2491
E 08/2497
E 08/2498
E 08/2513
E 08/2516
E 08/2536
E 08/2546
E 08/2548
E 08/2549
E 08/2550
E 08/2557
E 08/2562
E 08/2574
E 08/2594
E 08/2595
E 08/2636
E 08/2608
E 08/2609
E 08/2610
E 08/2611
E 08/2622
E 08/2625
E 08/2626
E 08/2627
E 08/2628
E 08/2630
E 08/2631
E 45/4441
E 45/4103
E 45/4119
E 45/4239
E 45/4289
E 45/4304
E 45/4330
E 45/4337
E 45/4338
E 45/4339
E 45/4356
E 45/4369
E 45/4373
E 45/4378
E 45/4380
E 45/4381
E 45/4383
E 45/4384
E 45/4400
E 45/4401
E 45/4402
E 45/4405
E 45/4406
E 45/4407
E 45/4412
E 45/4415
E 45/4418
E 45/4424
E 45/4425
E 45/4428
E 45/4429
E 45/4448
E 46/1006
E 46/1010
E 46/1013
E 46/1019
E 46/1021
E 46/1024
E 46/1031
E 46/1032
E 46/1034
E 47/1666
E 47/1667
E 47/1818
E 47/2061
E 47/2197
E 47/2223
E 47/2559
E 47/2560
E 47/2675
E 47/2914
E 47/2918
E 47/2919
E 47/2920
E 47/2921
E 47/2922
E 47/2964
E 47/2975
E 47/2977
E 47/2982
E 47/2985
E 47/2986
E 47/2997
E 47/3000
E 47/3001
E 47/3002
E 47/3003
E 47/3004
E 47/3009
E 47/3013
E 47/3014
E 47/3016
E 47/3051
E 47/3056
E 47/3069
E 47/3070
E 47/3080
E 47/3081
E 47/3097
E 47/3098
E 47/3115
E 47/3117
E 47/3123
E 47/3124
E 47/3125
E 47/3126
E 47/3131
E 47/3133
E 47/3150
E 47/3153
E 47/3154
E 47/3155
E 47/3156
E 47/3158
E 47/3159
E 47/3161
E 47/3162
E 47/3163
E 47/3168
E 47/3184
E 47/3186
E 52/2904
E 52/2910
E 52/3000
E 52/3016
E 52/3022
E 52/3030
E 52/3060
E 52/3061
E 52/3085
E 52/3093
E 52/3094
E 52/3097
E 52/3098
E 52/3099
E 52/3107
E 52/3108
E 52/3109
E 59/1934
E 52/3143
E 52/3144
E 52/3147
E 52/3151
E 69/2722
E 69/2726
E 69/2727
E 69/2728
E 69/2729
E 69/3297
E 69/3298
E 69/3301
E 69/3318
M 47/1404 M 47/1456 M 47/1457 M 47/1458 M 47/1459 M 47/1476 M 47/1477
M 47/1478 M 47/1481 M 47/1488 M 47/1489
P 08/531
P 08/532
P 45/2922
P 47/1722
P 52/1485
Holder: FMG Pilbara Pty Ltd
Status: Application
FMG mineral rights status: n/a
L 47/713
L 47/714
L 47/716
L 47/718
L 47/719
Holder: FMG Resources Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E 04/1537
E 04/2129
E 04/2322
E 04/2323
E 29/923
E 29/924
E 29/925
E 29/929
E 29/933
E 29/935
E 45/4349
E 45/4350
E 52/2964
E 52/2967
E 52/2968
E 52/2990
E 57/992
E 59/1956
E 69/2949
E 69/2951
E 69/3176
E 69/3177
E 69/3178
E 69/3198
E 69/3199
E 69/3201
E 69/3229
E 69/3236
E 69/3237
E 69/3242
E 69/3269
E 69/3282
E 45/4150-I
Holder: FMG Resources Pty Ltd
Status: Granted
FMG Mineral rights status: 100% iron ore rights, 75% non-iron (NB.2)
173
E 08/2280-I E 08/2281-I E 08/2282-I
Holder: FMG Resources Pty Ltd
Status: Application
FMG mineral rights status: 100% all mineral rights
E 45/3221
E 45/3224-I E 45/3225-I E 45/3226-I E 52/2621-I
E 52/2947-I
E 52/2950-I E 52/2957-I
E 52/2958-I E 52/2959-I E 52/2960-I
E 52/2961-I
E 52/2979-I E 52/2981-I E 57/738-I
E 57/756-I
E 59/1267-I
E 59/1275-I
E 59/1360-I E59/2004
E 69/2929-I E 69/2930-I E 69/2945-I
E 69/2946-I
E 69/2947-I E 69/2948-I E 69/2950-I E 69/2953-I E 69/2954-I
E 69/2955-I
E 69/2956
E 69/2963-I
E 69/2969-I E 69/2970-I E 69/2971-I
E 69/2993-I
E 69/3125-I E 69/3299
E 69/3300
E 69/3302
E 69/3303
E 69/3304
E 69/3305
E 69/3310
E 69/3312
E 69/3313
E 69/3314
Holder: Pilbara Gas Pipeline Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
L 45/334
L 45/336
L 45/339
L 45/342
L 45/343
L 45/344
L 45/345
L 45/346
L 45/347
L 45/349
L 45/352-I
L 45/353-I
L 47/696
L 47/697
Holder: Pilbara Gas Pipeline Pty Ltd
Status: Application
FMG mineral rights status: n/a
L 45/332
L 45/333
L 45/335
L 45/337
L 45/338
L 45/340
L 45/341
L 45/348
L 47/695
Holder: Pilbara Iron Ore Pty Ltd
Status: Granted
FMG mineral rights status: 50% all mineral rights
E 47/1191
E 47/1192
E 47/1224-I E 47/1225-I E 47/1235
M 47/580-I
E 47/1380-I P 47/1414
Holder: Pilbara Iron Ore Pty Ltd
Status: Application
FMG mineral rights status: n/a
L 47/205
Holder: Pilbara Water and Power Pty Ltd
Status: Granted
FMG mineral rights status: n/a
L 45/272
L 45/289
L 45/291
L 45/292-I
L 45/325-I
L 45/360
L 45/361
L 45/364
Holder: Pilbara Water and Power Pty Ltd
Status: Application
FMG mineral rights status: n/a
L 45/362
L 45/363
Holder: The Pilbara Infrastructure Pty Ltd
Status: Granted
FMG mineral rights status: n/a
AL 70/1
G 45/286
L 45/199
L 45/222
L 45/223
L 45/224
L 46/86
L 46/87
L 46/96
L 47/375
Holder: The Pilbara Infrastructure Pty Ltd
Status: Application
FMG mineral rights status: n/a
L 47/661
Fortescue Metals Group Limited I 2014 Annual Report
TENEMENT REPORT
As at 1 September 2014
Third Party Tenure
Holder: Aldershot Resources Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E 52/1763
Holder: Archipelago Nominees Pty Ltd
Status: Application
FMG mineral rights status: 100% all mineral rights except rock products
M45/1229
Holder: Audax Minerals Pty Ltd
Status: Granted
FMG mineral rights status: Earning 80% interest all mineral rights
E45/2763
Holder: BC Iron Ltd
Status: Granted
FMG mineral rights status: 25% iron ore rights
E 45/2552
E 45/2717
E 46/522
E 46/523
E 46/651
E 46/652
E 46/653
E 46/654
E 46/655
E 46/656
E 46/657
E 46/658
E 46/663
M 46/515
M 46/522
M 46/523
E 45/3790
Holder: BC Iron Ltd
Status: Granted
FMG mineral rights status: n/a
G 46/8
G 46/9
L 46/68
L 46/73
L 46/74
L 46/75
L 46/76
L 46/79
L 46/80
L 46/81
L 46/82
Holder: BC Iron Nullagine Pty Ltd
Status: Granted
FMG mineral rights status: 25% iron ore rights
E 46/928-I
E 46/929-I
E 46/930-I
E 46/931-I
E 46/969-I
E 46/970-I
Holder: BC IronNullagine Pty Ltd
Status: Granted
FMG mineral rights status: n/a
L 46/83
L 46/84
L 46/85
L 46/93
L 46/94
L 46/95
L 46/83
L 46/84
L 46/85
L 46/93
L 46/94
L 46/95
Holder: Blue Mist Enterprises Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E 47/1861
E 47/1863
Holder: Chrysalis Resources Ltd
Status: Granted
FMG mineral rights status: Option for 100% all mineral rights
E 47/1838
P 47/1538
174
Holder: Cullen Exploration Pty Ltd
Status: Granted
FMG mineral rights status: 51% iron ore rights
E 08/1393-I E 47/1154-I E 47/1649-I E 47/1650-I P 08/556-I
Holder: Cullen Exploration Pty Ltd
Status: Granted
FMG mineral rights status: Earning 51% iron ore rights
E 52/1667-I
Holder: Cullen Exploration Pty Ltd
Status: Application
FMG mineral rights status: 51% iron ore rights
M 08/502
M 47/1490
Holder: David Ryan
P47/1275
Status: Granted
FMG mineral rights status: Option for 100% all mineral rights
Holder: Derek Ammon
Status: Granted
FMG mineral rights status: 40% all mineral rights (NB.4)
E 47/1140-I
Holder: Derek Ammon
Status: Application
FMG mineral rights status: 40% all mineral rights (NB.4)
M 47/583
Holder: Flinders Mines Ltd
Status: Granted
FMG mineral rights status: 100% iron ore rights
E 47/1011-I E 47/1016-I E 47/1306-I M 47/1407-I
Holder: Flinders Mines Ltd
Status: Application
FMG mineral rights status: 100% iron ore rights
M 47/672
M 47/663
M 47/664
M 47/665
M 47/666
M 47/667
M 47/668
M 47/669
M 47/670
M 47/671
Holder: Global Advanced Metals Wodgina Pty Ltd
Status: Granted
FMG mineral rights status: Right to earn 60% iron ore rights
E 45/4024
E 45/4025
Holder: Livno Consolidated Pty Ltd
Status: Granted
FMG mineral rights status: Beneficial right to earn 100% mineral rights
E 45/4021
Holder: Maincoast Pty Ltd
Status: Application
FMG mineral rights status: 100% all mineral rights
E70/2596
Fortescue Metals Group Limited I 2014 Annual Report
TENEMENT REPORT
As at 1 September 2014
South Australia Tenure
Holder: FMG Resources Pty Ltd
Status: Granted
EL 5023
EL 5024
EL 5025
EL 5026
EL 5027
EL 5028
EL 5029
EL 5030
EL 5031
EL 5032
EL 5061
EL 5062
EL 5063
EL 5197
EL 5237
EL 5338
NB 1 - Joint Venture with Iron Bull Ashburton Pty Ltd. Iron Bull are farming-in to earn up to an 50% interest in the 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 per cent.
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 per
cent by Baosteel Resources International Co. Ltd.
NB.4 - This has been contested and is currently being litigated
175
Fortescue Metals Group Limited I 2014 Annual Report
176
Fortescue Metals Group Limited I 2014 Annual Report CORPORATE DIRECTORY
AWARDS
Australian Business Number
Stock Exchange Listings
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
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
Sharon Warburton – Non-Executive Director
Company Secretary
Mark Thomas
Principal Registered Office in Australia
Level 2, 87 Adelaide Terrace
East Perth WA 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 WA 6000
Internal Auditor
KPMG
235 St Georges Terrace
Perth WA 6000
Fortescue Metals Group Limited shares are listed
on the Australian Securities Exchange (ASX)
ASX Code: FMG
Fortescue Share Registry
Link Market Services Limited
Level 4 Central Park
152 St Georges Terrace
Perth WA 6000
Locked Bag A14
Sydney South NSW 1235
Phone: 1300 733 136 (Australia)
+61 2 8280 7603 (International)
Fax: (02) 9287 0309
Web: www.linkmarketservices.com.au
For any change in personal details,
please contact Link Market Services.
Annual General Meeting
12 November 2014
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Awards
2014 Platts Global Metals Awards
– Metal Company of the Year
2014 Platts Global Metals Awards
– Rising Star Award
2013 Australasian Institute of Marine Surveyors
– Excellence in the Application of Gears, Motors or
Drives with Metso Mining and Construction
2013 SAP Award of Excellence
– Best Run Development and Testing Technology
2014 Mines and Money Asian Mining Awards
– Project Development of the Year
Platform
2014 Mines and Money Asian Mining Awards
– Deal of the Year
2014 Gartner Asia Pacific Business Process
– Management Excellence Awards
2014 Australian Business Awards
– Community Contribution
2013 Financial Review CFO Awards
– Syndicated Loan of the Year
Worksafe Plan Gold Certificate (TPI)
AustCham Westpac Australia China Business Awards
– Andrew Forrest
2014 Women in Industry
– Excellence in Mining Award – Julie Shuttleworth
WAITTA CIO of the Year
– Vito Forte
2013 Skilled DMC Chairman’s Award
– Damien Ardagh
2013 CCI Apprenticeship Solutions
– Employer Excellence Awards Outstanding Employer
of Mature Age Apprentices and Trainees (large)
Finalist Awards
2014 West Australian of the Year Award Business
– Nev Power
2013 Chartered Institute of Purchasing and Supply
– Procurement Professional Awards
2014 CMEWA Safety and Health Innovation Awards
– Finalist
Best Example of Socially Responsible Procurement
– Finalist
2013 Procurement Leaders Awards
– Excellence Award
2014 Australasian Reporting Awards
– Bronze Medal
2014 International Tetra Awards
– Best Use of Tetra for Transport
Fortescue Metals Group Limited I 2014 Annual Report
Fortescue Metals Group Limited I 2014 Annual Report
THE PATHWAY FROM
CONSTRUCTION TO PRODUCTION
2003
The dream begins
2005
S&P/ASX 200 index
2008
First ore on ship
2010
Christmas Creek expanded
2012
57.5mt shipped
2013
80.9mt shipped
2014
155mtpa sustainable
production
2004
Cloudbreak identified
2006
Port Hedland
groundbreaking
2009
27 million tonnes shipped
2011
Solomon construction begins
2013
Firetail opened at Solomon
2014
Kings Valley project
opened at Solomon
www.fmgl.com.au
@FortescueNews
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2014 ANNUAL REPORT
ABN: 57 002 594 872
2014