Annual Report 2016
ABN 57 002 594 872
People. Innovation. Performance.
THE YEAR AT A GLANCE
SAFETY
Total Recordable
Injury Frequency Rate
4.3
169.4
million tonnes shipped
Operating cost
43%
Revenue
US$7.1
billion
US$2.9
billion debt
retired
8 TH
anniversary
of first
ore on ship
Second
towage
licence
“Fortescue’s Trade Up”
launched
a pathway to an apprenticeship
Reduction of
8%
in greenhouse
gas emissions
Contracts to Aboriginal companies and Joint Ventures
A$1.8 billion
2.17
Ore Reserves
11.6
billion tonnes
Mineral Resources
Contents
Overview
3
Operating and Financial Review
13
Reserves and Resources
25
Corporate Social Responsibility
39
Governance
Financial Report
65
67
Remuneration Report
115
Corporate Information
147
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 1
About Fortescue
About this report
This report has been prepared for Fortescue’s stakeholders
in line with Fortescue’s statutory and regulatory obligations.
The Company is committed to becoming the safest, lowest
cost, most profitable iron ore producer and the information
within this report outlines Fortescue’s performance and the
journey to realising this vision in a manner that reflects the
Company’s core values.
This report provides a summary of Fortescue’s operations
and financial position for the financial year ended 30 June
2016. All references to Fortescue, the Group, the Company,
we, us and our refer to Fortescue Metals Group Limited
(ABN 57 002 594 872) and its subsidiaries. All references
to a year are the financial year ended 30 June 2016 unless
otherwise stated. All dollar figures are in US currency unless
otherwise stated.
Fortescue Metals Group is a global leader in the iron ore industry,
recognised for its culture, innovation and industry-leading
development of world class infrastructure and mining assets in the
Pilbara, Western Australia.
Since it was founded in 2003, Fortescue has discovered and
developed major iron ore deposits and constructed some of the
most significant mines in the world.
Now producing 165 – 170 million tonnes of iron ore per annum, the
Company has grown to be one of the largest global iron ore
producers and is focussed on its vision of being the safest, lowest
cost, most profitable iron ore producer.
The Company’s operations span four mine sites in the Pilbara. The
Chichester Hub, which includes the Cloudbreak and Christmas Creek
mines, is located in the Chichester Ranges and the Solomon Hub, in
the Hamersley Ranges, includes the Firetail and Kings Valley mines.
Fortescue owns and operates an integrated supply chain including
its five berth Herb Elliott Port in Port Hedland and the fastest, heavy
haul railway in the world with up to 42 tonne axle load capacity over
620km of track. With only a ten-day seaborne journey from Port
Hedland to China, Fortescue has longstanding relationships with
customers and stakeholders in China and has contributed to China’s
remarkable economic development and ongoing urban growth.
Embracing innovation is deeply engrained in Fortescue’s approach
to business, as the first company in Western Australia to control a
railway from outside a region of operation and the first company in
the world to use CAT autonomous haulage technology on a
commercial scale.
As a proud West Australian company, Fortescue values its
relationship with key stakeholders by working together to positively
manage and create opportunities for Aboriginal people, build up
communities, protect the environment and strengthen the broader
Australian economy.
The world’s best address for iron ore
Fortescue holds the largest tenement position in the Pilbara.
2 I FORTESCUE METALS GROUP LIMITED OVERVIEW
2 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
Overview
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 3
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 3
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Chairman’s Message
Andrew Forrest
I am delighted to describe Fortescue’s outstanding results for
2016. From one of Australia’s most successful, largest and most
vociferous explorers we have transitioned through planning,
construction, commissioning, and back into planning and
construction, to truly build global scale operations. We have
gone on to finally prove our mettle as an operations company
with very few peers worldwide, as we take our place as one of
the world’s most efficient iron ore producers.
At Fortescue, the Board’s attitude is that it is there to lead and
guide; we never pretend to be a managing board. In this way,
the responsibility for our performance is entirely mutual, with
management fully empowered to achieve its goals. We hold
Board meetings every quarter and not monthly, yet we are
flexible and agile, meeting several times a day electronically if
that is what the situation requires.
Australia’s mining industry is very well positioned to fuel the
great arc of the developing world, from China through the
sub-continent, the Middle East and into Africa. China’s visionary
“One Belt, One Road” infrastructure strategy has continued to
develop, and the opportunities for northern Australia are now
also emerging. Fortescue’s engagement with senior Government
and business leaders throughout the region, through strong
relationships and our ongoing sponsorship of the Boao
Forum, continues to drive our business. During the year, very
successful meetings of the Australia-China Senior Business
Leaders’ Forum (SBLF) were held in Sydney as well as on Hainan
Island in conjunction with the Boao Forum. China’s and Asia’s
strength, combined with Fortescue’s outstanding performance,
have allowed shareholders a rewarding dividend policy which
directly funds the philanthropic work of Fortescue’s founding
shareholder, Minderoo.
While maintaining strict financial and operational controls,
we encourage a corporation that feels non-bureaucratic
and friendly, and in which we all treat each other with the
preciousness we would our family. This doesn’t mean we
don’t hold each other to account; we certainly do. However,
it is done with encouragement and where a problem can’t
be beaten by a known path, together management and
the Board – in fact, all of us – take responsibility for finding
another solution.
The Minderoo Foundation and Fortescue continue to
support large numbers of diverse philanthropic pursuits in
Australia and throughout the world, and I hope that you are
as heartened as I am by our involvement. Together we drive
a number of initiatives including supporting the vulnerable
and disadvantaged, encouraging community vibrancy and
highlighting the critical importance of early years wellbeing as
well as whole-of-life education.
Our Board sets targets that require all of our teams to lift our
business performance to the next level. Most importantly,
safety continues to steadily improve, and at the same time
the team’s achievement on cost reduction has been truly
excellent. The result, positioning us at the very lowest end
of the global cost curve, is highly commendable and will
ensure our business is strong and well placed to withstand the
inevitable challenges that the market will continue to send
our way. Management has well and truly met our targets and
we have been in lock step with them for the journey.
Walk Free Foundation
Global Freedom Network. Following on from the historic
signing by global faith leaders of the Joint Declaration of
Religious Leaders Against Modern Slavery in December 2014,
further Declaration signings occurred in Canberra and New
Delhi, in December 2015. 39 leaders representing 19 faiths have
now signed the Declaration. The December 2015 events were
the catalyst for the introduction of the Australian Freedom
Network and the Indian Freedom Network, as other nations and
leaders joined us in working to end modern slavery.
Global Slavery Index (GSI). The third GSI was launched in May
to worldwide fanfare and critical acclaim. In the biggest and
most comprehensive report yet, the GSI found that an estimated
45.8 million people around the world are in slavery, with 58 per
cent of those people living in India, China, Pakistan, Bangladesh
and Uzbekistan. We can’t act if we don’t know the size and scale
of this abhorrent practice, and the GSI is an important piece of
global research that continues to provide us with impetus to
encourage governments, business and civil society to act with
speed and commitment.
Other Walk Free Foundation initiatives and affiliated
organisations, such as the Bali Process in conjunction with
the Australian Government, Global Fund to End Slavery, the
Freedom Fund and Walk Free Movement, are ensuring a
coordinated effort to eradicate modern slavery.
4 I FORTESCUE METALS GROUP LIMITED OVERVIEW
research, Indigenous affairs, disaster response and the arts. The
act of giving expands our horizons, stimulates our intellect and
nurtures us. We are proud that through our success, as fellow
Fortescue shareholders, you are able to contribute and be part of
programs that are making a difference all over the world.
Conclusion
Our Board has continued to provide its expertise and experience
to our great company as we make great strides towards realising
our vision – to be the safest, lowest cost, most profitable iron
ore producer. During the year we announced that Peter Meurs,
an early pioneer and believer in Fortescue, would step down
from the Board and we gratefully acknowledge his outstanding
contribution to Fortescue’s infrastructure and mine development
capability. The very successful T155 US$9 billion expansion
project stands among Peter’s many achievements at Fortescue
and we wish him all the very best with his future endeavors.
Stephen Pearce, our high performing CFO has now been
appointed as an Executive Director in addition to his ongoing
role as an integral member of the executive management team.
Our CEO, Nev Power, has led the excellent results achieved by the
Fortescue team during the year. His leadership and unwavering
focus on delivering against each and every one of our critical
goals represents an extraordinary achievement, resulting in long-
term sustainable growth for shareholders.
In building communities carefully through generosity and
ensuring the environment is preserved, the future of Australian
mining is one that is more relevant than ever to this nation and
the world it supplies. More importantly, my personal goal for
Fortescue and Minderoo is that together we recognise our role
in addressing the challenges that go beyond mere business
outcomes.
It is the results that we achieve in these challenges that build the
platforms to ensure the next generation inherits, as much as is in
our own control, a better world.
OVERVIEW
GenerationOne
Fortescue’s commitment to Indigenous employment
is complementary to the programs operated by
GenerationOne, which has secured a commitment for
over 62,000 jobs across corporate Australia. Through the
Vocational Training and Employment Centres (VTEC)
initiative, pioneered by Fortescue and now funded by the
Federal Government, GenerationOne achieved one of its
key goals - facilitating long-term sustainable employment
for a further 5,000 First Australians. This brings the
total number of jobs filled through GenerationOne to
over 28,000. More broadly, the Creating Parity Review,
produced at the request of the Prime Minister and
Cabinet, gained much traction during the financial
year. Trials of the Healthy Welfare Card are under way
in Ceduna, SA, and Kununurra, WA, and there are
strong early indicators of success. Other Creating Parity
recommendations are in progress.
Thrive by Five
We believe every child in Australia should be given
the best chance to reach their potential. Thrive by Five,
an initiative that has attracted substantial Australian
Government support, encompasses this belief, and puts
effort into contributing to a national shift in attitudes,
policy and practice so that children’s critical first few years
of life are prioritised.
Key achievements include a partnership with the
Telethon Kids Institute to increase the translation of
evidence to practice and policy and the commencement
of the Australian Government’s A$20 million Connected
Beginnings initiative based on our recommendations.
Locally, we are working with Challis Primary School
in Armadale, Western Australia, where children have
enjoyed massive improvements in developmental
outcomes following our four year investment in the
Challis Parenting and Early Learning Centre.
Forrest Research Foundation
Our A$65 million partnership across the five Western
Australian universities has now seen eight scholarships
awarded to outstanding students who are conducting
ground breaking research in various areas. Plans for
Forrest Hall at The University of Western Australia were
completed and construction will begin this year.
Arts, Culture and the Community
Building cultural capital through an effective talent
pipeline is an important pursuit, and the focus has been
on a collaboration with the Western Australian Academy
of Performing Arts (WAAPA), where we have supported
the visiting artists program. Among many community
support projects, the Foundation responded with great
energy to the bush fire disaster in Yarloop, provided
scholarships for primary and secondary students and
supported organisations ranging from Channel 7
Telethon and St Vincent de Paul through to a men’s shed
in Fitzroy Crossing.
To date, the Minderoo Foundation, with Fortescue’s
unwavering support, has supported more than 250
initiatives and committed over A$245 million across
Australia and abroad including projects in education,
FORTESCUE METALS GROUP LIMITED 2015 ANNUAL REPORT I 5
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 5
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Chief Executive Officer’s Report
Nev Power
Our strategic focus is on achieving our vision to be the safest,
lowest cost, most profitable iron ore producer and the operating
results achieved by the whole team during FY16 on safety,
production and costs have brought that vision closer to reality.
During 2016, our entire Fortescue team has performed
extremely well to deliver against all key elements of our safety
and business strategy, resulting in a substantially improved
competitive position, global cost leadership, a strong balance
sheet and a resilient platform for future growth.
Safety performance continues to deliver steady
improvement with a further 15 per cent reduction achieved
in Total Recordable Injury Frequency Rate (TRIFR) during
the year, meeting our FY16 target. The safety of all of our
people is our highest priority and we will strive for further
improvement through safety leadership, shared best
practices, engagement and empowerment of our teams as
we continue to build our strong workplace culture. During
FY16, our company wide Safety Excellence and Culture
Survey provided clear direction on our focus and priorities
for the year ahead.
At Fortescue, our safety value means that we look after
our mates, and ourselves – we are our brother’s and sister’s
keeper. We aspire to safety leadership across all of our
operations and will work to continually improve our safety
performance in FY17 and beyond.
Maximising value from our world-class assets, while being
highly responsive to the market and our customers’ needs
drives our leadership and all key decisions. Our differentiating
culture of stretch performance, shaped by our strong values is
a key factor in Fortescue’s consistent delivery against each of
our challenging targets.
Consistent production and operating excellence has
underpinned our performance in FY16. With completion of
our second full year of operation following the Company’s
development and construction phase, our business is
strategically positioned to maximise returns from consistent
production, optimising our ore bodies and Ore Processing
Facility (OPF) upgrade performance.
Production in FY16 of 169.4mt maintained our consistent
production rate, including a slight uplift due to favourable
weather conditions, and will continue through FY17 at
165-170mt.
Our unwavering drive for cost reductions continues to deliver
outstanding results. We exited FY16 with our C1 cost at
US$14.31/wmt for the fourth quarter, and our guidance for FY17
of US$12-13/wmt includes sustained continuous improvements.
Our highly successful approach to productivity and efficiency
gains is embedded in all of our operating processes and will
deliver further gains through operational excellence, innovation,
and our values-driven approach to embrace and deliver against
stretch targets.
Cost savings of US$1.9 billion were achieved during FY16,
bringing cumulative cost savings since we reached full
operating capacity to US$3.5 billion. Fortescue is now firmly
positioned at the very lowest end of the global cost curve
and we are well placed to achieve further improvements in
FY17 through innovation and our ongoing productivity and
efficiency focus. This result clearly demonstrates successful
delivery of a critical strategic target resulting in a significant
improvement in our business resilience as well as our
competitive position.
Market outlook for FY17 is positive as urbanisation and
industrialisation in China underpins ongoing domestic steel
demand and regional growth through the massive One Belt,
One Road infrastructure plan.
Fortescue’s exports represent 18 per cent of China’s iron ore
imports with over 700 million tonnes shipped to our Chinese
customers to date, while we also continue to grow our
presence in markets including Japan, South Korea and the
emerging economies.
Excellent financial performance has been delivered for
FY16, as cost reductions have contributed to strong cash flows
from operations which in turn have been applied to further
reduce our debt. Sustaining capital expenditure for FY16
was US$1.33/wmt, well below our guidance estimate and
reflecting the young age of our high quality assets.
6 I FORTESCUE METALS GROUP LIMITED OVERVIEW
OVERVIEW
Net profit after tax for FY16 was US$985 million with the
positive contribution from cost reductions more than
offsetting the impact of the lower iron ore price compared to
FY15. This outcome, crucial to delivery of our strategic cost
reduction target, has been achieved through the efforts of
all of our teams and ensures that the cost savings provide a
sustainable platform for further improvement.
Debt repayment during the year totalled US$2.9 billion
reducing net debt to US$5.2 billion. We are fast approaching
our initial balance sheet targets with our net gearing ratio
now below 40 per cent and set to improve further with
ongoing strong cash flows from operations.
Building stronger communities, ensuring that the benefits
from our operations are shared is a core commitment for
Fortescue and we are proud of the contributions we have
made to employment, education and business development
in the communities supporting our business. Our direct
Aboriginal employment has risen to 14 per cent, with
Fortescue and its contractors now employing more than
1,100 Aboriginal people across all sites.
Nev Power, CEO: Look north and create
a vision for the future
We can all reflect on how different the Australia of today
might be if the first European settlements had been
established in the tropics rather than on the shores of Botany
Bay, the south-west of WA or Tasmania.
Without dwelling on what might have been, the fact is that
northern Australia now provides a wealth of untapped potential.
WA is in the same time zone as much of Asia and all of China,
facilitating business relationships and regional travel, and all
of northern Australia has the geographic proximity to those
markets that ensures we also have a significant shipping
advantage, another key factor in our favour.
In order for northern Australia’s enormous potential to be
fully realised, a clear focus will be required by governments
at all levels, business and the community. Creating a future
vision for our own Pilbara region in WA will be a vital first
step on this path.
The value of contracts awarded under the Billion
Opportunities program stands at A$1.8 billion, building
capability and skills in businesses owned wholly or partially
by Aboriginal people.
Our Fortescue team provided the skills, hard work, passion
and commitment required to deliver these outstanding
results for our organisation in FY16. Every single group
across the business has excelled and can all feel very proud
of what has been achieved together.
I take this opportunity to thank each and every one of our
great Fortescue family for their innovative ideas, tireless work
and contributions on our journey to be the world’s safest,
lowest cost, most profitable iron ore producer.
Development and investments by mining, resource and energy
companies across northern Australia have provided the catalyst
for major regional development to date and will be one of the key
sectors that will contribute to the next phase.
We can also look to our neighbours on the east coast, with
towns such as Mackay and Townsville providing great
examples of vibrant, sustainable communities that have
grown with the workforces for their key industry sectors.
As we embark on this next phase, our focus must be on building
our towns in the Pilbara into vibrant and sustainable communities
that will attract and retain the workforce and families for those
key industry sectors and companies to thrive.
Business, governments and communities working together
will give us the best opportunity to achieve this goal.
Governments must not only provide the core health and
education services but must also ensure that these are
targeted to the needs of the workforce we want to attract.
At the same time, business will provide the jobs, training and
primary income while continuing to build the capability in
infrastructure, energy and transportation that all contribute to
our region’s competitive advantage.
Finally, community organisations will play an important role
in building the social fabric through arts, culture, sporting and
recreational activities, which must all be at a level that will
make the regional lifestyle at least comparable, if not more
attractive, to the bigger cities.
Companies such as Fortescue Metals Group will also
contribute through their community engagement and
continued efforts to end Aboriginal disparity through training,
employment and business opportunities.
Commitment to a shared vision for the Pilbara and for
northern Australia will position us strongly to attract and
retain a diverse workforce, build our industries and grow
sustainable communities for the future.
Abridged version – full article published in
The West Australian on 20 November 2015.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 7
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Fortescue’s Value Chain
Innovation in process and design has been a key component of Fortescue’s strategy
in challenging industry standards to more efficiently and effectively deliver
our product suite from mine to market
1
Exploration and discovery
• Challenging geological thinking to identify valuable deposits
2
Extraction and Recovery
• Innovative use of technology suitable
to our deposits
3
PROCESSSING
• Ore processing facility
design and wet
processing optimise
output
5
Blending and Stockpiling
• Port design facilitates blending and stockpiling of product suite
4
MINE TO PORT
• Heaviest haul rail
at 42t axle load
7
MARKETING
• Helping customers achieve
best value in use
6
Ship Loading
• 3 shiploaders
• 5 berths maximise outload capacity
and utilisation
8
shipping
• Delivery to our international customers’
specifications
• VLOCs
8 I FORTESCUE METALS GROUP LIMITED OVERVIEW
8 I FORTESCUE METALS GROUP LIMITED OVERVIEW
OVERVIEW
Fortescue’s Board
Fortescue has a talented and diverse Board committed to
enhancing and protecting the interests of shareholders and
other stakeholders and fulfilling a strong governance role
over the Company’s affairs. The Board has an appropriate mix
of executive and non-executive directors to support its role.
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, Fortescue’s
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 appointment and
reappointment of directors is intended to maintain
and enhance the overall quality of the Board through a
composition which reflects a diversity of skills, experience,
gender and age.
All new Board members benefit from a comprehensive
induction process that supports their understanding of
Fortescue’s business. There is also a range of support given
to Board members which enables them to stay strongly
connected to the Company and its culture. These include:
• Significant contribution to the annual strategy setting
process conducted with executive and senior management
• Regular briefings from executive and senior management
regarding all major business areas, tailored site visits and
annual site tours to operational locations
• Biannual visits to China to meet with key customers
and strengthen their understanding of the Company’s
key markets
• Regular formal and informal opportunities for the directors
to meet with management and staff.
The directors also undertake an annual competency self-
assessment to evaluate whether the Board, as a whole,
maintains an appropriate mix of skills and experience to
effectively fulfil its role. Opportunities for improvement are
incorporated into director training and consideration for new
director appointments.
The Board has established Committees to assist in the
execution of its duties and to ensure that important and
complex issues are given appropriate consideration. The
primary Committees of the Board are the Remuneration and
Nominations Committee, the Audit and Risk Management
Committee and the Finance Committee. Each Committee has
an independent, non-executive Chair and operates under its
own Charter which has been approved by the Board.
Directors are expected to act independently, ethically and
comply with all relevant requirements of the Corporations
Act 2001, ASX Listing Rules and the Company’s constitution.
The Company actively promotes ethical and responsible
decision making through its values and Code of Conduct that
embodies these values. There is a formal process to identify,
disclose and manage potential conflicts of interest, should
they arise. In this regard, the roles of Vice Chairman and the
Lead Independent Director are a cornerstone that ensures the
interests of all shareholders are protected equally.
The Board and each of its three primary Committees have
established a formal process to evaluate their performance
annually. The process is undertaken by an independent
consultant and supported by the Company Secretary. The
most recent review was undertaken in February 2016. The
results and recommendations are reported to the full Board
for further consideration and agreement of improvement
actions, where required.
At the date of this report, the Board has eight non-executive
directors and two executive directors being Chief Executive
Officer, Mr Nev Power, and Chief Financial Officer, Mr Stephen
Pearce. Mr Pearce was appointed as a director on 21 June 2016.
Previously, Mr Peter Meurs acted as an Executive Director prior
to his resignation on 18 April 2016. The Board believes that
an appropriate mix of non-executive and executive directors
is beneficial to its role and provides strong operational and
financial insights into the business. The Board has maintained
a consistent compliment of two executive directors in recent
years and has consistently maintained a majority of
independent directors.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 9
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Andrew Forrest
Chairman
Mr Forrest was appointed Chairman in July 2003 and
Chief Executive Officer in 2005. In July 2011 Mr Forrest
resumed responsibilities as Chairman (elect). Mr Forrest
is the Founder of the Company and is also the Founder
and Chairman of Minderoo Foundation, Australia’s
largest philanthropic organisation which operates
GenerationOne, The Australian Employment Covenant
and Walk Free. He was appointed by the Prime Minister as
Chair of the Indigenous Jobs and Training Review in 2013
(the Forrest Review).
Mr Forrest holds other positions including Chairman
Global Freedom Network, Councillor Global Citizen
Commission, Commonwealth Ambassador for
Employment and Engagement with disadvantaged
communities, Vice Patron of the SAS Resources Fund,
Chair of the Foundation of the Art Gallery of Western
Australia, Adjunct Professor of the China Southern
University, Fellow of the Australian Institute of Mining
and Metallurgy, Co-Chairman of the China Australia
Senior Business Leaders’ Forum.
Current directorships (ASX listed entities): None
Committee membership: Member: Remuneration and
Nomination Committee and Finance Committee
Mr Hegarty was appointed Vice Chairman in November
2014 having served as a Non-Executive Director since
October 2008. Mr Hegarty has 40 years’ experience in
the global mining industry, 25 years’ with the Rio Tinto
group including Managing Director of Rio Tinto Asia and
Managing Director of the Group’s Australian copper and
gold business. Mr Hegarty was Founder and CEO of the
Oxiana Ltd Group (now OZ Minerals Ltd).
Owen Hegarty
Vice Chairman
Mr Hegarty is a former Director of the AusIMM and was
awarded the AusIMM Institute Medal in 2006 and the
G.J. Stokes Memorial Award in 2008 for achievements in
the mining industry. Mr Hegarty is also a member of a
number of government and industry advisory groups and
Chairman of EMR Capital.
Current directorships (ASX listed entities): Chairman:
Tigers Realm Minerals Pty Ltd, Non-Executive Director:
Tigers Realm Coal Limited and Highfield Resources
Limited
Committee membership: Member: Remuneration and
Nomination Committee
Mr Barnaba was appointed Lead Independent Director
in November 2014, having served as a Non-Executive
Director since February 2010. Mr Barnaba serves as both
Chairman of Macquarie Group, Western Australia and as
Chairman and Global Head, Resources Group, Macquarie
Capital, co-founder (and previously Co-Executive
Chairman) of Azure Capital, previously the Chairman of
Western Power, Edge Employment Solutions, the West
Coast Eagles Football Club and Alinta Infrastructure
Holdings. He was appointed by the Premier to Chair the
WA Steering Committee of the Commonwealth Business
Forum in CHOGM in 2011.
Mr Barnaba holds a Bachelor of Commerce with first class
honours from the University of Western Australia and an
MBA from Harvard Business School, graduating with a
high distinction as a Baker Scholar. Mr Barnaba is a Fellow
of the Australian Institute of Company Directors.
Current directorships: (ASX listed entities): None
Committee membership: Chair: Audit and Risk
Management Committee and Finance Committee,
Member: Remuneration and Nomination Committee
Mr Power was appointed Chief Executive Officer in July
2011, and Executive Director in September 2011.
Mr Power has extensive experience with more than 30 years’
exposure to the mining, steel and construction industries.
Prior to joining Fortescue, Mr Power held Chief Executive
positions at Thiess and the Smorgon Steel Group.
Mr Power has led Fortescue’s commitment to safety
excellence, and to the Billion Opportunities program
which has awarded over A$1.8 billion in contracts to
Aboriginal businesses. He is also a passionate advocate
for the development of northern Australia and for its
communities to reach their full potential.
He is a Fellow of both Engineers Australia and the AusIMM
and a member of the Australian Institute of Company
Directors. He holds a Bachelor of Engineering and a
Master of Business Administration. Mr Power has a long
history in agribusiness and aviation, holding both fixed
wing and helicopter commercial pilot licenses.
Current directorships: (ASX listed entities): None
Mr Pearce was appointed as an Executive Director in June
2016, after joining Fortescue in March 2010. Mr Pearce has
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 Chief Executive Officer of Southern Cross Electrical
Engineering Limited and prior to that Chief Financial
Officer of Alinta Limited.
He 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 member of the Governance Institute of
Australia and Australian Institute of Company Directors.
Mr Pearce is currently Chairman of the Lions Eye Institute.
Current directorships (ASX listed entities): Non-Executive
Director: Cedar Woods Limited
Mr Meurs was appointed as an Executive Director of the
Company in February 2013 after joining Fortescue as
Director Development in 2010. Mr Meurs resigned from
the Board on 18 April 2016.
Mr Meurs was previously the Managing Director at
WorleyParsons with project management and
company development experience in hydrocarbons,
minerals and metals.
Mr Meurs is a Fellow of Engineers Australia and a member
of the Australia Institute of Company Directors.
Current directorships (ASX listed entities): None
Mark Barnaba
Lead Independent Director
Nev Power
Chief Executive Officer,
Executive Director
Stephen Pearce
Chief Financial Officer,
Executive Director
Peter Meurs
Executive Director
10 I FORTESCUE METALS GROUP LIMITED OVERVIEW
Jean Baderschneider
Non-Executive Director
Elizabeth Gaines
Non-Executive Director
Cao Huiquan
Non-Executive Director
Geoff Raby
Non-Executive Director
Sharon Warburton
Non-Executive Director
Ian Wells
Company Secretary
Ms Baderschneider was appointed as a Non-Executive
Director in January 2015. She brings 30 years’ experience
with ExxonMobil in global operations, strategic sourcing
and supply chain management roles including as Vice-
President, Global Procurement. Previously a member
of the Board of Directors of the Institute for Supply
Management, the Executive Board of the National
Minority Supplier Development Council (NMSDC)
and Presidential appointee to the US Department of
Commerce’s National Advisory Council of Minority
Business Enterprises in February 2011.
Ms Baderschneider is a past Board member of The
Center of Advanced Purchasing Studies (CAPS) and
Procurement Councils of The Conference Board and the
Corporate Executive Board.
Ms Baderschneider is a member of Advisory Councils of
President Lincoln’s Cottage (Executive Committee), the
Ford’s Theatre, and the ILR School at Cornell University.
She is also a member of Cornell’s President’s Council of
Cornell Women and the Board of Trustees of the Maret
School in Washington, D.C.
Current directorships (ASX listed entities): None
Ms Gaines was appointed as a Non-Executive Director in
February 2013. She has extensive operational experience
as a group executive running large businesses and a
proven track record in internal business and financial
leadership. Ms Gaines is the former Chief Executive Officer
of Helloworld Limited. Prior to this, Ms Gaines was Chief
Financial Officer of the Stella Group, Chief Finance and
Operations Director of UK-based Entertainment Rights Plc
and Chief Executive Officer of Heytesbury Pty Limited.
Ms Gaines is a member of the Chartered Accountants
Australia and New Zealand, the Australian Institute of
Company Directors and Chief Executive Women. She is
a Commissioner of Tourism WA and in August 2016 was
appointed to the Board of 7-Eleven Stores Pty Ltd.
Current directorships (ASX listed entities): Non-
Executive Director: NEXTDC Limited, Nine Entertainment
Co. Holdings Limited and ImpediMed Limited
Former directorships in the last 3 years (ASX Listed
Entities): Executive Director Helloworld Limited, Non-
Executive Director of Mantra Group Limited
Committee membership: Member: Audit and Risk
Management Committee and Finance Committee
Mr Cao was nominated by Hunan Valin Iron & Steel
Group Company Ltd to join Fortescue’s Board as a
Non-Executive Director in February 2012. Mr Cao
joined Hunan Xiangtan Iron & Steel Co. Ltd in 1991,
was appointed General Manager in 2003 and in
2005 was appointed General Manager of Hunan
Valin Iron & Steel Co Ltd. Mr Cao was appointed
Chairman of Hunan Valin Iron & Steel Group Co.
Ltd, Chairman and CEO of Hunan Valin Steel Co Ltd
in 2011. He currently serves as Chairman of Hunan
Valin Iron and Steel Group Co., Ltd and Chairman of
Hunan Valin Steel Co., Ltd
Current directorships (ASX listed entities): None
Mr Raby was appointed as a Non-Executive Director in
August 2011. He formerly served as Australia’s Ambassador
to the People’s Republic of China between 2007 and
2011. Mr Raby has also held positions including Deputy
Secretary in the Department of Foreign Affairs and
Trade (DFAT), Australia’s Ambassador to the World Trade
Organisation (1998-2001), Australia’s APEC Ambassador
(2003-2005), and Head of DFAT’s Office of Trade
Negotiations and Head of the Trade Policy Issues Division
at the OECD, Paris. He has been the Chair of DFAT’s Audit
Committee and an ex officio member of the Boards of
Austrade and Export Finance and Insurance Corporation.
Current directorships (ASX listed entities): Non-
Executive Director: Oceana Gold Corporation, Yancoal
Australia Limited and iSentia Group Limited
Former directorships in the last 3 years (ASX Listed
Entities): Non-Executive Director: SmartTrans Holdings
Limited, Sm@rtTrans Limited and YPB Group Ltd
Ms Warburton was appointed as a Non-Executive
Director in November 2013. She has previously held
positions as Executive Director of Strategy and Finance
with Brookfield Multiplex, Chief Planning and Strategy
Officer of UAE based ALDAR Properties PJSC, and senior
executive roles with Multiplex, Citigroup and Rio Tinto.
Ms Warburton is a Fellow of the Chartered Accountants
Australia New Zealand. She is a Graduate of the
Australian Institute of Company Directors and a member
of Chief Executive Women.
She is Chairman of the northern Australia Infrastructure
Facility, Director of Western Power and member of the
Takeovers Panel.
Current directorships (ASX listed entities): Non-
Executive Director: Wellard Limited and Gold Road
Resources Limited
Committee membership: Chair: Remuneration and
Nomination Committee, Member: Audit and Risk
Management Committee
Mr Wells was appointed as Company Secretary in
February 2015, after joining Fortescue in 2010 as
Group Manager, Treasury and Business Planning.
With more than 20 years’ experience in senior
finance and management roles in the mining, energy
infrastructure and healthcare industries, Mr Wells
was previously Chief Financial Officer at Singapore
Power subsidiary Jemena Limited, and also held senior
executive roles at Alinta Limited.
Mr Thomas was appointed as Company Secretary in
June 2010, joining Fortescue in April 2004 as Group
Financial Controller. Mr Thomas is the Group Manager
of Infrastructure Services and acts as joint Company
Secretary. He has extensive experience in accounting
and finance, IT and business administration in the
mining and professional service industries.
Mr Wells holds a Bachelor of Business in Accounting,
is a Fellow of CPA Australia, a Certified Finance and
Treasury Professional, and a member of the Australian
Institute of Company Directors. He is also a Director of
not-for-profit Alzheimer’s Australia WA and a member
of the Salvation Army business advisory committee.
Mr Thomas has a Bachelor of Commerce, Graduate
Diploma in Applied Corporate Governance and an
Master of Business Administration. He is a Certified
Practising Accountant and a Fellow of Governance
Institute of Australia Chartered Secretaries Australia.
Mark Thomas
Group Manager Infrastructure
Services, Company Secretary
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 11
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewOperating and Financial ReviewCorporate Social ResponsibilityCorporate Information Executive team
Mr Power was appointed as Chief
Executive Officer in July 2011 and has
over 30 years’ experience in the mining,
steel and construction industries.
Please refer to the Board of Directors
section for more details on Mr Power’s
experience.
Mr Cernotta was appointed as Director,
Operations in March 2014 with 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. Prior to joining
Fortescue Mr Cernotta held the position
of Chief Operating Officer, Macmahon
Contracting and prior to that Director of
Operations for the Barrick Gold Australia
Pacific Regional Business Unit.
Mr Langmead was appointed Director
External Relations in January 2014
after joining Fortescue in January 2013
as Group Manager Corporate Affairs.
Previously Mr Langmead held senior
corporate affairs roles in the Australian
business units of global oil and gas
companies. He served in senior staff roles
for Ministers in the Howard-Anderson
and Howard-Vaile governments
and commenced his career as an
agribusiness journalist.
Mr Carter joined Fortescue in 2011
from WorleyParsons in the USA. He was
appointed Group Manager, Development
in November 2014 following the delivery
of the Solomon Project, for which he
was the Project Director. Mr Carter
holds Bachelor degrees with honours
in Electrical Engineering and Law,
and has over 25 years of engineering,
construction and project experience
in Africa, South America, Europe, New
Zealand and Australia.
Mr Watson joined Fortescue in 2011
and was appointed Group Manager
Health and Safety in 2014. Mr Watson
has held a number of senior corporate
health and safety roles in large mining
companies over the last 15 years. His total
career in health and safety spans over
25 years in a number of industries and
commodities. Mr Watson holds a Masters
in Occupational Health and Safety.
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.
Please refer to the Board of
Directors section for more details on Mr
Pearce’s experience.
Mr Liu joined Fortescue in 2003 and was
appointed as Director of Sales and Marketing
in 2011 after completing his post-graduate
studies at the University of Western Australia.
Having spent nearly 30 years in Perth, Mr
Liu has strong experience in trade and
investment projects between Australia and
China. He brings a deep understanding
of Asian, particularly Chinese, culture and
business practices to Fortescue’s strategy of
securing long term partnerships with the
major steel mills in Asia.
Ms O’Farrell joined Fortescue in October
2013 as Group Manager Fortescue
People, joining the Executive team in
December 2014. Ms O’Farrell previously
held executive human resources roles in
major Australian resources companies.
Ms O’Farrell brings deep experience in
strategic people management, diversity
and Aboriginal employment and holds a
Bachelor of Economics degree (Honours in
Industrial Relations) from the University of
Western Australia.
Mr Huston joined Fortescue in January 2005
with over 20 years’ experience in legal and
corporate advisory roles. Prior to joining
Fortescue. Mr Huston spent 12 years’ as a
Partner of the law firm now known as Norton
Rose and 10 years in private equity, mergers
and acquisitions.
Mr Lynch joined Fortescue in June 2016
and has over 28 years’ of experience in
the Australian and global mining sector
including coal, copper, gold, lead, and
zinc. He has held a number of senior roles,
including directorships of several publicly
listed junior mining companies including
Managing Director of ASX listed Cokal Ltd
(ASX:CKA) and prior to that as President and
CEO of Waratah Coal Inc (TSX:WCI).
Stephen Pearce
Chief Financial Officer,
Executive Director
David Liu
Director of Sales
and Marketing
Linda O’Farrell
Group Manager
Fortescue People
Peter Huston
Director Corporate
Services, Chief
General Counsel
Peter Lynch
Director Business
Development
Nev Power
Chief Executive Officer
Executive Director
Nick Cernotta
Director
Operations
Tim Langmead
Director External
Relations
Simon Carter
Group Manager
Development
Rob Watson
Group Manager
Health and Safety
12 I FORTESCUE METALS GROUP LIMITED OVERVIEW
Operating and financial review
Highlights
$15
.43
/wmt
43 per cent decrease from prior year
$1.6 billion
at 30 June 2016
Positive cash margins from cost reductions
s
t
s
o
c
1
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a
C
s $2.9 billion
debt retired in FY16
n 169.4 million
tonnes
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Consistent operating performance
$7.1billion
A key global supplier of iron ore
$3.2 billion
Focus on productivity and efficiency lowers costs
$985 million
212 per cent increase from prior year
t
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Debt repayments above six billion since
November 2013
$5.2 billion
at 30 June 2016
Net gearing lowered to 38%
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 13
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 13
OPERATING AND FINANCIAL REVIEW
Overview of operations
Chichester Hub
The Chichester Hub in the Chichester Ranges,
comprising the Cloudbreak and Christmas Creek
mines, has an annual production capacity in excess
of 90 million tonnes per annum (mtpa) from three
Ore Processing Facilities (OPFs).
Consistent and sustained output delivered from
the OPFs has allowed Fortescue to continue
optimisation of its product strategy through
enhanced blending and beneficiation. This
innovative approach has enabled Fortescue to
increase iron upgrades and reduce impurities, which
has resulted in lower mining cut-off grades, further
optimising ore bodies and sustainably reducing strip
ratios, while improving final product specifications.
During the year, Fortescue began transitioning to
a full owner operator model at Christmas Creek.
This will further reduce Fortescue’s costs through
ongoing improvement of the efficiency and
productivity of the site.
Solomon Hub
The Solomon Hub in the Hamersley Ranges is located 60km
north of Tom Price and 120km to the west of the Chichester
Hub. It comprises the Firetail and Kings Valley mines which
together have production capacity in excess of 70mtpa.
Solomon represents a valuable source of production
by blending higher grade, low cost Firetail ore with low
phosphorous Chichester ore to create the high quality
Fortescue blend.
During the year, Fortescue continued to expand the use of
autonomous haulage at both the Kings Valley and Firetail
mines. Since the autonomous haulage system (AHS) was
deployed at Solomon in 2012, over 200mt of material has
been safely moved. The integration of AHS into Solomon has
seen a 20 per cent productivity improvement compared to the
regular fleet.
14 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
Iron Bridge
Iron Bridge, located 100km south of Port Hedland, is a
joint venture between Fortescue, Taiwan’s Formosa Group
and China’s Baosteel Group, incorporating the world class
North Star and Glacier Valley Magnetite ore bodies. The
development of a large scale pilot plant and successful
testing of an innovative, low cost production process
was completed during Stage One of the project. Subject to
market conditions and approval by joint venture partners,
Stage Two will deliver product via a pipeline to storage and
handling facilities in Port Hedland.
OPERATING AND FINANCIAL REVIEW
Overview of operations
Rail and Port
Fortescue wholly owns and operates its purpose designed
rail and port facilities, constructed to deliver iron ore
from its mines to Port Hedland and onto its customers.
The Company’s railway covers 620km and is the fastest,
heavy haul line in the world. The Company’s world class
rail operations run a cycle of 13 trains a day with each train
carrying up to 35,000 tonnes of iron ore directly to Herb
Elliott Port.
The efficient design and layout, optimal berthing
configuration and ongoing innovation to increase
productivity makes Fortescue’s Port the most efficient bulk
port operation in Australia. The site sits on two hundred
hectares of land and comprises three inload and outload
circuits with three train unloaders, 54km of conveyor
systems, three stackers, three reclaimers, transfer stations,
drive stations, sample stations, and power and control
systems. The Port has five operating berths and is capable of
efficiently exporting more than 165mtpa.
In May 2016, Fortescue was awarded a second towage
licence for the Port at Port Hedland. This will ensure
Fortescue can provide long term, sustainable towage
services crucial to meeting customer needs.
Exploration
Fortescue has the largest tenement portfolio in the Pilbara.
Details of the Ore Reserves and Mineral Resources are
summarised in the Reserves and Resources Report on
pages 25 to 37.
While exploration activity in FY16 was primarily focussed
on Fortescue’s iron ore tenements, the Company continues
to undertake early stage, low cost exploration on copper-
gold prospective tenements in South Australia and New
South Wales. Fortescue is also assessing high potential,
early stage exploration tenements in highly prospective
areas of Ecuador. This exploration is in line with Fortescue’s
strategy of focussing on its core iron ore business while
creating low cost future optionality.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 15
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewOperating and Financial ReviewCorporate Social ResponsibilityCorporate Information OPERATING AND FINANCIAL REVIEW
Key performance indicators
Safety
TRIFR 4.3
15
Production
C1 costs
169.4mt
2
$15.43
43
/wmt
Fortescue’s FY16 results demonstrate the focus on business fundamentals and the consistent delivery of steady, sustainable cost
reductions supported by outstanding performance across all aspects of operations. Fortescue’s team continued to innovate and
deliver excellent progress on key areas within the Company’s control that support its vision to become the safest, lowest cost, most
profitable iron ore producer, including:
• Continuous steady improvements in safety performance
• Sustainable production delivering maximum value from the Company’s assets
• Productivity, efficiency and innovation further reducing costs.
In FY16, Fortescue delivered strong results on each of the above key strategic targets and continued to apply cash generated by
operations to debt repayments, significantly strengthening the Company’s balance sheet.
Safety
The health and safety of our people is core to Fortescue’s values and the Company’s commitment to becoming a global leader
in safety. Fortescue’s Total Recordable Injury Frequency Rate (TRIFR), used as a measure of its safety performance, has been
progressively reducing year on year, with a 15 per cent reduction in FY16 to 4.3. The Company remains focussed on delivering
progressive improvement in its safety performance to achieve its vision of zero injury and harm across the entire business.
TRIFR, per million hours worked
9.2
7.6
6.0
5.1
4.3
10
8
6
4
2
FY12
FY13
FY14
FY15
FY16
Further information on the Company’s safety performance in FY16 and on Fortescue’s approach to safety is set out on pages 44 to 45.
16 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
16 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW
Key performance indicators
Production
In FY16, Fortescue continued to operate at a consistent production rate, delivering total shipments of 169.4mt. Production and
shipments for the year on a wet metric tonnes (wmt) basis are outlined below.
12 months to 30 June (million tonnes)
Ore mined
Overburden removed
Ore processed
Shipments – Fortescue mined ore
Shipments – Fortescue equity ore
Total ore shipped including third party product
2016
181.1
195.9
167.6
166.8
167.4
169.4
2015
Movement, %
164.1
300.0
153.6
160.2
161.4
165.4
+10
-35
+9
+4
+4
+2
Mining, million tonnes (wmt)
Processing, million tonnes (wmt)
Shipments, million tonnes (wmt)
181.1
164.1
140.4
167.6
153.6
165.4 169.4
126.0
124.2
94.6
64.6
76.1
53.9
80.9
57.5
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
Mining volumes and processing throughput support shipments of 165mt to 170mt per year. Iron ore stockpiles at the mines and
product stocks at the OPFs and at Port are maintained at optimum levels to support these production targets and continue to be
managed closely to ensure product quality and specifications.
OPF performance continued to improve following the successful implementation of a number of projects during the year
enhancing iron ore recovery and plant reliability. A key focus at the OPFs is on increase of iron upgrades and reduction of
impurities, allowing product cut-off grades to be lowered and reducing strip ratios while maintaining the overall product grade.
Through these initiatives, the strip ratio has continued to decrease averaging 1.1 for the year, including 1.2 at the Chichester Hub
and 0.8 at the Solomon Hub. These improvements to strip ratio reflect the strategic investment made by Fortescue in processing
capacity, supported by a sustained focus on mining efficiencies and improved ore body modelling.
The Company’s rail and port infrastructure has continued to support its mining and processing operations throughout the year.
Fortescue’s Port capacity exceeds current operating targets and the Company’s focus remains on maximising the value of its
ore bodies and infrastructure assets through beneficiation, operating efficiencies and productivity improvements.
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FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 17
OPERATING AND FINANCIAL REVIEW
Key performance indicators
Costs
Steady, consistent cost reductions delivered through FY16 demonstrate operational excellence across the mines, OPFs and
infrastructure, together with ongoing delivery of productivity and efficiency improvement programs. C1 costs averaged
US$15.43/wmt in FY16, a 43 per cent reduction from the prior year. This result includes an average C1 cost of US$14.31/wmt for
the June 2016 quarter. Fortescue’s C1 cost reduction journey, with ten consecutive quarters of progressive cost improvements,
is illustrated at the bottom of this page.
Progressive cost reductions delivered by Fortescue in recent years represent sustainable, long term improvements in operating
costs, supporting mine lives in excess of 20 years.
Key focus areas which have contributed to the 43 per cent reduction in C1 costs during the year include:
• OPF performance, with improved upgrades and yields, enhanced plant reliability and shutdown optimisations
• Mine planning, design and mining methodology
• Cross-site operational synergies
• Contractor insourcing programs
• Mining equipment and labour productivity
• Autonomous haulage system
• Procurement initiatives to maximise the value of products and services procured into the business
• Benefits of the lower Australian dollar and declining oil prices.
As focus continues on innovation, productivity and efficiencies, the full year FY17 C1 cost is estimated at US$12-13/wmt, based
on an Australian dollar exchange rate of 0.75 and an oil price of US$50 per barrel (WTI).
34.88
34.03
32.08
C1 costs journey, US$/wmt
28.48
25.90
22.16
16.90
15.80
14.79
14.31
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
18 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
18 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW
Financial results and position
Fortescue’s FY16 financial results are underpinned by strong operational performance and the
continued success of the productivity and efficiency drive. Improved profitability with strong
cash flow generation through the year enabled significant debt reductions, which reshaped the
Company’s balance sheet, improving credit metrics.
Key metrics
Revenue
Underlying EBITDA1
Net profit after tax
Earnings per share
Cash from operating activities
Capital expenditure – Fortescue
Free cash flows
Cash and cash equivalents
Debt
Net debt
C1 costs
Key ratios
Gearing
Net gearing
Underlying EBITDA margin
Return on equity
US cents
US$/wmt
2016
US$m
2015
US$m
7,083
3,195
985
31.6
3,023
304
2,719
1,583
6,771
5,188
15.43
%
45
38
45
12
8,574
2,506
316
10.2
2,037
626
1,411
2,381
9,569
7,188
27.15
%
56
49
29
4
1 Refer to page 20 for the reconciliation of Underlying EBITDA to the financial metrics reported in the financial statements under Australian
Accounting Standards.
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FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 19
OPERATING AND FINANCIAL REVIEW
Financial results and position
Financial performance
In FY16, Fortescue delivered net profit after tax of US$985 million and earnings per share of 31.6 cents (FY15: US$316 million
and 10.2 cents). This result has been achieved despite a 29 per cent reduction in the iron ore price and demonstrates strong
operational performance and significant improvement in operating margins.
Underlying EBITDA
Fortescue uses Underlying EBITDA, defined as earnings before interest, tax, depreciation and amortisation, exploration,
development and other expenses as a key measure of its financial performance. In FY16, Fortescue’s operations generated
Underlying EBITDA of US$3,195 million (FY15: US$2,506 million). The reconciliation of Underlying EBITDA to the financial metrics
reported in the financial statements under Australian Accounting Standards is presented below.
Operating sales revenue
Cost of sales excluding depreciation and amortisation
Gain on disposal of assets
Net foreign exchange (loss) gain
Administration expenses
Other income
Underlying EBITDA
Finance income
Finance expenses
Depreciation and amortisation
Exploration, development and other
Net profit before tax
Income tax expense
Net profit after tax
1 Notes to the accompanying financial statements.
Note1
3
5
4
4, 6
6
4
7
7
5, 6
6
8
2016
US$m
7,083
(3,841)
1
(2)
(52)
6
3,195
214
(675)
(1,244)
(136)
1,354
(369)
985
2015
US$m
8,574
(6,051)
3
68
(94)
6
2,506
15
(644)
(1,405)
(52)
420
(104)
316
The 27 per cent improvement in Underlying EBITDA has been delivered through reductions in C1 operating costs, contributing
US$1,956 million to the result and fully offsetting the impact of lower iron ore prices as illustrated below.
Underlying EBITDA, US$ million
377
1,743
1,956
70
70
18
3,195
2,506
117
FY15
Volume
C1 costs
Shipping
costs
Price
Royalty
Fx
Other
FY16
20 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW
Financial results and position
Financial performance (continued)
Revenue
Sale of iron ore
Sale of joint venture ore
Other revenue
Operating sales revenue
Shipments – Fortescue mined ore
Shipments – Fortescue’s share of joint venture ore
62% Fe CFR Platts index
Realised price
1 Notes to the accompanying financial statements.
Note1
3
3
3
mt
mt
US$/dmt
US$/dmt
2016
US$m
6,923
24
136
7,083
166.8
0.6
51
45
2015
US$m
8,323
67
184
8,574
160.2
1.2
72
57
8,574
1,743
Revenue, US$ million
343
43
48
7,083
(i) Key movements in
operating sales revenue
Revenue decreased by 17 per cent
or US$1,491 million as a result of
a 29 per cent reduction in the iron
ore price, offset by the impact of
improved price realisations.
Other key factors impacting
Fortescue’s revenue in FY16 were
the increase in Fortescue’s iron
ore shipments and lower sale of
joint venture iron ore following
temporary suspension of the
Nullagine Iron Ore Joint Venture
operations in December 2015.
FY15
Price
Volume
Sale of joint
venture ore
Other
FY16
(ii) Price realisations
Revenue and iron ore price
US$m
12,000
9,000
6,000
3,000
Fortescue products are priced
relative to the 62% Fe CFR Platts
index, which averaged US$51/dmt
for the year (FY15: US$72/dmt).
Realised prices average in the range
of 85 to 90 per cent of this index.
In FY16, Fortescue realised
US$45/dmt (FY15: US$57/dmt).
11,753
8,120
6,716
8,574
7,083
FY12
FY13
FY14
FY15
FY16
Revenue
CFR 62% Fe Platts index
US$/dmt
160
120
80
40
0
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 21
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewOperating and Financial ReviewCorporate Social ResponsibilityCorporate Information OPERATING AND FINANCIAL REVIEW
Financial results and position
Financial performance (continued)
Production costs
The reconciliation of C1 costs and total delivered costs to customers to the financial metrics reported in the financial
statements under Australian Accounting Standards is set out below.
Mining and processing costs
Rail costs
Port costs
Operating leases
C1 costs, US$ million
Shipments – Fortescue mined ore, mt
C1, US$/wmt
Shipping costs
Government royalty2
Administration expenses
Shipping, royalty and administration, US$/wmt
Total delivered cost, US$/wmt
1 Notes to the accompanying financial statements.
Note1
5
5
5
5
5
5
6
2016
US$m
2,092
201
204
76
2,573
166.8
15
781
446
52
8
23
2015
US$m
3,765
230
274
80
4,349
160.2
27
1,112
516
94
11
38
2 Fortescue pays 7.5 per cent State Government royalty for the majority of its iron ore products, with a concession rate of five per cent applicable
to beneficiated fines.
Key factors contributing to the FY16 operating costs performance are discussed on page 18.
Total delivered cost, US$/wmt
Total delivered cost to customers, inclusive of C1 costs,
shipping, state government royalties and administration
charges, were US$23/wmt (FY15: US$38/wmt).
69
21
62
18
52
18
48
FY12
44
FY13
34
FY14
38
11
27
FY15
23
8
15
FY16
C1
Shipping, royalty and administration
Total delivered cost
Non-operating events
Key non-operating matters forming part of the financial result include:
• Net gain on debt redemption of US$150 million (FY15: net loss of US$45 million)
• Depreciation and amortisation expenses of US$1,244 million (FY15: US$1,405 million)
•
•
Exploration, development and other expenses of US$136 million, following the temporary suspension of the Nullagine Iron
Ore Joint Venture operations and review of capital projects (FY15: US$52 million)
Income tax expense for the year of US$369 million at an effective income tax rate of 27 per cent (FY15: US$104 million at a
rate of 25 per cent).
Shares on issue
The number of shares on issue at 30 June 2016 was 3,113,798,151 and remained unchanged since last year.
22 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW
Financial results and position
Balance sheet strength
Strong cash generation underpinned by consistent operating performance and sustainable cost reductions delivered across
the supply chain enabled Fortescue to accelerate debt repayments. In FY16, Fortescue successfully retired US$2.9 billion of debt,
generating a net gain on redemption of US$150 million and delivering annual interest savings of US$186 million. As a result
of these debt repayments, the net gearing ratio dropped to 38 per cent with gross gearing expected to fall below 40 per cent
during FY17.
Key metrics
At 30 June 2016, Fortescue’s net debt position was US$5,188 million (FY15: US$7,188 million), inclusive of finance leases and cash
on hand.
Borrowings and finance lease liabilities
Cash and cash equivalents
Net debt
Equity
Gearing
Net gearing
1 Notes to the accompanying financial statements.
Note1
10(a)
10(b)
2016
US$m
6,771
(1,583)
5,188
8,406
45%
38%
2015
US$m
9,569
(2,381)
7,188
7,537
56%
49%
Cash and debt, US$ billion
Gearing and net gearing
12.7
8.5
9.6
9.6
2.3
2.2
2.4
2.4
6.8
1.6
12.7
10.5
8.5
6.2
9.6
9.6
7.2
7.2
6.8
80%
60%
40%
5.2
20%
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
Borrowings and finance
lease liabilities
Cash on hand
Borrowings and finance lease liabilities
Net debt
Net gearing (RHS)
Gearing (RHS)
Debt profile
Fortescue continues to maintain a flexible debt profile with no maintenance covenants. The Senior Secured Credit Facility,
representing 58 per cent of total institutional debt at 30 June 2016, is available for voluntary repayment or refinance at
Fortescue’s sole discretion.
Debt maturity profile
US$m
6,000
5,000
4,000
3,000
2,000
1,000
0
3,676
2,160
478
CY2016
CY2017
CY2018
CY2019
CY2020
CY2021
CY2022
Senior Secured Credit Facility
Senior Secured Notes
Senior Unsecured Notes
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 23
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewOperating and Financial ReviewCorporate Social ResponsibilityCorporate Information OPERATING AND FINANCIAL REVIEW
Financial results and position
Cash flow generation and capital discipline
Fortescue’s free cash flows, representing net cash proceeds generated by operations after capital allocations, have improved by
93 per cent to US$2,719 million.
Cash flows from operating activities
Capital expenditure – Fortescue
Free cash flow
2016
US$m
3,023
(304)
2,719
2015
US$m
2,037
(626)
1,411
Cash and cash equivalents at 30 June 2016 were US$1,583 million compared to US$2,381 million at 30 June 2015, with the key
cash movements for the financial year outlined below.
Cash generated by operations
Key factors contributing to the 48 per cent improvement in operating cash flows to US$3,023 million (FY15: US$2,037 million):
•
•
•
Significant reduction in the operating cost base together with a marginal increase in shipments have outweighed a 29 per
cent decrease in the iron ore market price
Net reduction in customer prepayments of US$312 million, with US$412 million amortised through delivery of iron ore
offset by US$100 million received during the year
Net income tax refund of US$66 million following revision of tax positions for prior years, with US$267 million of income tax
attributable to FY16 payable in December 2016.
Capital allocations
Fortescue’s capital expenditure for the year reduced to US$304 million (FY15: US$626 million):
•
•
Lower capital spend reflects the ex-growth nature of Fortescue’s capital profile with newly installed processing and
infrastructure assets, a weaker Australian dollar and general deflation following the decline in commodity prices reducing
capital project costs in the Pilbara
Sustaining capital is closely managed to ensure reliability of operations and delivery of maximum value from the Company’s
world class assets, and is estimated at US$2/wmt in FY17.
Joint venture capital expenditure of US$56 million (FY15: US$223 million) primarily relates to the Iron Bridge project and has
been predominantly funded by the Formosa Plastics Group.
Commitment to debt reduction
Fortescue’s net financing cash outflows of US$3,462 million (FY15: US$1,235 million) for the year included US$2,695 million
applied to debt repayments (FY15: US$161 million, net of proceeds from refinancing), US$627 million interest and finance costs
(FY15: US$605 million) and US$114 million dividend payments (FY15: US$343 million).
Shareholder returns and dividends
Earnings have improved to 31.6 cents per share with return on equity of 12 per cent delivered during the year (FY15: 10.2 cents
per share and four per cent respectively).
Net profit after tax
Earnings per share
Return on equity
Interim dividend
Final dividend
Total dividend
Dividend payout ratio
US$m
US cents
AUD cents per share
AUD cents per share
AUD cents per share
2016
2015
985
31.6
12%
3
12
15
36%
316
10.2
4%
3
2
5
41%
Total dividend of 15 Australian cents per share represents a 36 per cent dividend payout ratio and an appropriate balance
between debt repayments and dividend distributions.
24 I FORTESCUE METALS GROUP LIMITED OPERATING AND FINANCIAL REVIEW
Reserves and Resources
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 25
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 25
RESERVES AND RESOURCES
Ore Reserves and Mineral Resources Report
Ore Reserves and Mineral Resources
Reporting is grouped by operating and development
properties and includes both Hematite and Magnetite
deposits.
Ore Reserves Operating Properties – Hematite
The 2016 combined Chichester and Solomon Hematite
Ore Reserve is a total of 2,173 million dry tonnes (mt) at an
average Fe grade of 57.2 per cent.
Hematite Ore Reserves total 2.17 billion tonnes (bt) at an
average iron (Fe) grade of 57.2 per cent. Combined Hematite
Mineral Resources total 11.6bt at an average Fe of 56.8 per cent.
The Ore Reserve is quoted as at 30 June 2016 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.
Magnetite Ore Reserves total 0.7bt at an average mass
recovery of 27.2 per cent. Magnetite Mineral Resources total
6.7bt at an average mass recovery of 24.1 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 19 August 2016). Development
property Mineral Resources are a combination of JORC 2012
and JORC 2004 estimates. Those development property
Mineral Resources reported to JORC 2012 standard are
identified in the Fortescue ASX release on 20 May 2014
and 8 January 2015 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 Mineral Resources have been updated and
reported to the JORC 2012 standards. The Mineral Resources
quoted in this report should be read in conjunction with the
supporting technical data contained in the corresponding
ASX release dated 19 August 2016.
Audit of the estimation of Ore Reserves and Mineral
Resources is addressed as a sub-set of the annual internal
audit plan approved by the Audit and Risk Management
Committee (ARMC). Specific audit of the Ore Reserve process
was performed in 2011, 2013, 2015 and 2016. These audits
were managed by Fortescue’s internal audit service provider
with external technical subject experts.
In addition to the 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 Ore Reserve and Mineral Resource 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.
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 increased from
726mt to 755mt 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 1,444mt at an average Fe grade of 57.3 per cent, a
decrease of 165mt due to mining depletion, use of less selective
mining method (excavator vs surface miner) and re-modelling
of Christmas Creek Resource (implementing recommendations
from the latest external audit). Proven Ore Reserve constitutes
43 per cent of Chichester Ore Reserve. 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 728mt at an
average Fe grade of 56.9 per cent, a decrease of 63mt due to
production. Solomon Ore Reserve consists of 19 per cent of
the tonnage in the Proved Ore Reserve category.
The 2016 Hematite Ore Reserve estimates were subject to
comprehensive review and update addressing:
•
•
•
•
Revisions to the Cloudbreak Resource model and to grade
control models in all near-term mining areas (increase)
Revisions to the Christmas Creek Resource model and
to grade control models in all near-term mining areas
(decrease)
Revisions of ore loss and dilution factors based on the
last two years of operational history at Solomon and
11 months of newly adopted excavator mining at the
Chichesters
Revisions to the processing response through all OPFs
based on updated test work (Cloudbreak OPF) and
operational history (Kings OPF)
• Ore depletion as a result of sales
•
•
Re-optimisation of mine plans to maximise the benefit of
cost reductions across all Fortescue’s operations, including
increased excavator mining at the Chichester Hub
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.
26 I FORTESCUE METALS GROUP LIMITED RESERVES AND RESOURCES
Hematite Ore Reserves - as at 30 June 2016
30 June 2016
30 June 2015
Product
Tonnes
(mt)
Iron
Fe
%
Silica
SiO2
%
Alumina
Al2O3
%
Phos
P
%
Loss On
Ignition
LOI %
Product
Tonnes
(mt)
Iron
Fe
%
Silica
SiO2
%
Alumina
Al2O3
%
Phos
P
%
Loss On
Ignition
LOI %
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
291
249
541
325
579
904
616
828
57.6
57.1
5.15
5.95
57.3
5.52
57.4
57.1
5.73
5.62
57.2
5.66
57.5
57.1
5.45
5.72
Total
1,444
57.3
5.61
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
19
100
119
120
489
609
138
590
728
58.4
59.2
5.79
5.83
59.1
5.82
56.0
56.6
6.81
6.85
56.5
6.85
56.3
57.1
6.67
6.68
56.9
6.68
Proved
755
Probable
1,418
57.3
57.1
5.68
6.12
Total
2,173
57.2
5.97
2.82
2.84
2.83
2.77
3.05
2.95
2.79
2.99
2.91
2.70
2.51
2.54
2.51
2.73
2.69
2.53
2.69
2.66
2.74
2.87
2.82
Cloudbreak
8.50
7.97
8.25
268
265
533
57.3
57.1
4.99
5.25
57.2
5.12
Christmas Creek
7.47
7.34
7.38
346
730
57.9
57.8
5.60
5.01
1,076
57.8
5.20
0.054
0.059
0.056
0.043
0.049
0.047
Sub-total Chichester Hub
0.048
0.052
0.050
0.127
0.111
0.113
0.077
0.062
0.065
0.084
0.070
0.073
7.96
7.53
7.71
615
994
57.6
57.6
5.33
5.07
1,609
57.6
5.17
Firetail
7.29
6.23
6.40
23
118
142
58.2
58.7
5.99
6.42
58.6
6.35
Kings and Queens
10.15
8.87
9.12
89
561
650
56.6
56.2
7.23
7.09
56.3
7.11
Sub-total Solomon Hub
9.76
8.42
8.67
111
680
791
57.0
56.7
6.96
6.97
56.7
6.97
Total Hematite Ore Reserves
0.055
0.059
0.058
8.29
7.90
8.03
726
1,674
57.5
57.2
5.58
5.84
2,400
57.3
5.77
2.83
2.85
2.84
2.62
2.80
2.74
2.71
2.81
2.77
3.22
2.46
2.58
2.29
2.80
2.73
2.49
2.74
2.70
2.68
2.78
2.75
0.052
0.052
0.052
0.046
0.047
0.047
0.049
0.049
0.049
0.142
0.109
0.115
0.067
0.064
0.064
0.084
0.072
0.073
0.054
0.058
0.057
8.5
8.1
8.3
7.9
8.0
8.0
8.1
8.0
8.1
6.8
6.4
6.5
9.0
8.9
8.9
8.5
8.4
8.5
8.2
8.2
8.2
1 The diluted mining models used to report the 2016 Ore Reserves are based on Christmas Creek Mineral Resource model reported in 2016,
Solomon Mineral Resource models revised in 2014 and Cloudbreak Resource model completed 2016. Diluted mining models are validated by
reconciliation against historical production.
2 Proved Reserves are inclusive of ore stockpiles at the mines and port totalling approximately 16.1mt on dry product basis.
3 The Chichester Ore Reserve is inclusive of the Cloudbreak and Christmas Creek BID deposits. Selected Christmas Creek Ore Reserve will be
directed to the Cloudbreak OPF to optimise upgrade performance and balance Cloudbreak and Christmas Creek OPF lives.
4 Reserve in-situ Fe cut-off grades are approximately 52.5 per cent for BID deposits and 51.5 per cent for CID deposits.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 27
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information RESERVES AND RESOURCES l ORE RESERVES AND MINERAL RESOURCES REPORT
Ore Reserve Development Properties – Magnetite
The 2016 Ore Reserves for Magnetite are from the Iron
Bridge project. Ore Reserves for the project total 705mt at an
average mass recovery of 27.2 per cent.
The Magnetite Ore Reserve is quoted as at 30 June 2016.
Ore Reserves are quoted on a dry in-situ tonnes basis prior
to processing.
No Company sales or production have occurred for Magnetite
as at 30 June 2016. When shipping occurs production will be
quoted in wet tonnes. The typical free moisture content of
shipped products is below eight per cent.
Magnetite Ore Reserves – as at 30 June 2016
All Magnetite Ore Reserves are classified as Probable Ore
Reserves. These are estimated from utilising a portion of the
Indicated plus Measured Mineral Resources from within the
North Star mining study pit. Additional Indicated Resources
from outside the study pit and the Glacier Valley area have
not been included in this Ore Reserve study.
The Magnetite Ore Reserves have been estimated by
independent consultants (Golder Associates) using detailed
information on mining parameters, geotechnical studies,
metallurgical processing, and financial analysis information.
This was gained from the Iron Bridge feasibility study.
30 June 2016
30 June 2015
In-Situ
Tonnes
(mt)
DTR
mass
recovery
%
Product
iron
Fe
%
Product
Silica
SiO2
%
Product
Alumina
Al2O3
%
In-Situ
Tonnes
(mt)
DTR
mass
recovery
%
Product
iron
Fe
%
Product
Silica
SiO2
%
Product
Alumina
Al2O3
%
North Star (60.72%)
-
705
705
-
27.2
27.2
-
67.2
67.2
-
5.5
5.5
-
0.25
0.25
-
705
705
-
27.2
27.2
-
67.2
67.2
-
5.5
5.5
-
0.25
0.25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
705
705
27.2
27.2
67.2
67.2
5.5
5.5
Glacier Valley (60.72%)
-
-
-
-
-
-
West Star (60.72%)
-
-
-
-
-
-
Total Magnetite Ore Reserves
-
0.25
0.25
-
705
705
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27.2
27.2
67.2
67.2
5.5
5.5
0.25
0.25
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
1 Magnetite Ore Reserves are a result of a mining study only upon the North Star deposit. Utilising 705mt of Measured plus Indicated Mineral
Resources within a defined optimal pit design.
2 All reporting is based on Mass Recovery expressed as a 9 per cent Davis Tube Recovery (DTR) cut-off.
3 All Ore Reserves are reported on a dry-tonnage basis.
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 at 30 June 2016, the total Mineral Resource for the
Chichester and Solomon Hubs was 5,261mt at an average Fe
grade of 56.0 per cent, a slight decrease over that stated in
the prior year. This was accompanied by a slight increase in
the proportion of higher confidence Measured and Indicated
Mineral Resource mineralisation from 67 per cent to 70 per
cent as a result of in-fill drilling.
The Chichester Hub Mineral Resource totalled 3,159mt at
an average Fe grade of 56.2 per cent, with 80 per cent of
the tonnage in the Measured and Indicated Mineral
Resource categories.
The total Solomon Hub Mineral Resource totalled 2,097mt
at an average Fe grade of 55.9 per cent, with 54 per cent of
the tonnage in the Measured and Indicated Mineral
Resource categories.
28 I FORTESCUE METALS GROUP LIMITED RESERVES AND RESOURCES
RESERVES AND RESOURCES l ORE RESERVES AND MINERAL RESOURCES REPORT
Hematite Mineral Resources – as at 30 June 2016
30 June 2016
30 June 2015
In-Situ
Tonnes
(mt)
Iron
Fe
%
Silica
SiO2
%
Alumina
Al2O3
%
Phos
P
%
Loss On
Ignition
LOI %
In-Situ
Tonnes
(mt)
Iron
Fe
%
Silica
SiO2
%
Alumina
Al2O3
%
Phos
P
%
Loss On
Ignition
LOI %
Measured
Indicated
Inferred
Total
514
438
138
56.8
56.1
56.3
5.48
6.70
6.47
1,090
56.5
6.10
Measured
535
Indicated
1,054
Inferred
480
57.0
55.9
55.5
6.15
6.77
7.12
3.40
3.45
3.53
3.44
3.07
3.71
3.73
0.055
0.059
0.052
0.057
0.047
0.049
0.054
Total
2,069
56.1
6.69
3.55
0.050
Cloudbreak
8.6
8.1
7.8
8.3
386
374
280
57.2
56.5
56.0
5.25
6.38
6.82
3.29
3.32
3.60
0.052
0.053
0.052
1,039
56.6
6.08
3.39
0.053
Christmas Creek
8.0
7.9
7.9
7.9
499
1,237
505
57.0
56.3
55.9
6.11
6.12
6.92
3.09
3.52
3.35
0.047
0.048
0.059
2,241
56.4
6.30
3.39
0.050
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
Sub-total Chichester Hub
1,048
1,492
619
56.9
56.0
55.7
5.82
6.75
6.98
3.24
3.64
3.68
0.051
0.052
0.054
3,159
56.2
6.49
3.51
0.052
32
146
132
310
222
729
836
57.7
59.0
57.3
5.91
6.12
6.92
3.18
2.63
3.38
0.128
0.111
0.108
58.2
6.44
3.01
0.111
55.2
55.6
55.5
7.31
7.98
7.78
2.90
3.29
3.48
0.091
0.064
0.076
1,788
55.5
7.81
3.33
0.073
8.3
7.9
7.9
8.0
7.7
6.2
7.1
6.8
885
1,610
785
57.1
56.4
56.0
5.74
6.18
6.88
3.18
3.47
3.44
0.049
0.049
0.056
3,280
56.5
6.23
3.39
0.051
Firetail
32
152
157
341
57.7
59.0
57.5
6.00
6.09
6.89
3.57
2.54
3.29
0.140
0.110
0.108
58.2
6.45
2.98
0.112
Kings and Queens
10.1
8.6
8.7
8.8
119
817
858
53.8
55.7
55.6
7.30
7.75
7.83
2.56
3.21
3.43
0.071
0.065
0.077
1,794
55.5
7.76
3.28
0.071
Sub-total Solomon Hub
254
876
968
55.5
56.2
55.8
7.14
7.67
7.67
2.94
3.18
3.46
0.096
0.072
0.080
2,097
55.9
7.60
3.28
0.079
9.8
8.2
8.5
8.5
150
970
1,015
54.6
56.2
55.9
7.03
7.49
7.69
2.78
3.11
3.41
0.086
0.072
0.081
2,135
55.9
7.55
3.23
0.078
Total Hematite Operational Mineral Resources
1,307
2,368
1,587
56.4
56.0
55.7
6.05
7.09
7.40
5,261
56.0
6.93
3.17
3.47
3.55
3.42
0.059
0.060
0.070
0.063
8.6
8.0
8.2
8.2
1,035
2,580
1,800
56.7
56.3
55.9
5.92
6.67
7.34
3.12
3.34
3.42
0.055
0.058
0.071
5,415
56.2
6.75
3.32
0.061
8.6
8.2
8.1
8.3
8.1
8.0
7.3
7.8
8.3
8.0
7.6
8.0
7.3
6.4
6.9
6.7
8.6
8.8
8.6
8.7
8.3
8.4
8.4
8.4
8.3
8.2
8.0
8.1
1 Chichester Hub Mineral Resources are quoted at a cut-off grade of 53.5 per cent Fe while Solomon Hub Mineral Resources are quoted at a cut-
off grade of 51 per cent Fe.
2 The Measured Mineral Resource estimate includes mine and port ore stockpiles totalling 20mt.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 29
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information Mineral Resources Development Properties – Hematite
Development property Mineral Resources include both JORC 2012 and JORC 2004 compliant estimates. The remaining JORC
2004 resource estimates will be progressively updated to the JORC 2012 standard as development priorities dictate.
Hematite Mineral Resources – as at 30 June 2016
30 June 2016
30 June 2015
In-Situ
Tonnes
(mt)
Iron
Fe
%
Silica
SiO2
%
Alumina
Al2O3
%
Phos
P
%
Loss On
Ignition
LOI %
In-Situ
Tonnes
(mt)
Iron
Fe
%
Silica
SiO2
%
Alumina
Al2O3
%
Phos
P
%
Loss On
Ignition
LOI %
Measured
Indicated
Inferred
Total
Measured
Indicated
-
82
409
491
-
254
Inferred
2,404
-
57.9
57.0
-
6.30
6.66
57.1
6.60
-
56.6
56.8
-
6.70
6.93
Total
2,658
56.8
6.91
Measured
Indicated
Inferred
Total
Measured
Indicated
-
-
740
740
23
580
Inferred
1,860
-
-
-
-
59.1
5.21
59.1
5.21
2.88
2.88
0.091
0.091
59.6
58.1
57.2
3.56
4.52
5.00
2.21
2.95
3.36
0.139
0.148
0.147
-
2.99
3.61
3.51
-
3.45
3.71
3.69
-
-
-
0.053
0.059
0.058
-
0.083
0.081
0.082
-
-
Greater Chichester
-
6.8
6.8
6.8
-
82
409
491
-
57.9
57.0
-
6.30
6.66
57.1
6.60
Greater Solomon
-
8.3
7.2
7.3
-
254
2,404
-
56.6
56.8
-
6.70
6.93
2,658
56.8
6.91
Eliwana and Flying Fish
-
-
6.5
6.5
-
-
740
740
-
-
-
-
59.1
5.21
59.1
5.21
Nyidinghu
23
580
1,860
59.6
58.1
57.2
3.56
4.52
5.00
8.0
8.6
8.8
8.8
-
2.99
3.61
3.51
-
3.45
3.71
3.69
-
-
2.88
2.88
2.21
2.95
3.36
-
0.053
0.059
0.058
-
0.083
0.081
0.082
-
-
0.091
0.091
0.139
0.148
0.147
Total
2,463
57.4
4.87
3.25
0.147
2,463
57.4
4.87
3.25
0.147
Total Hematite Development Mineral Resources
Measured
Indicated
23
916
Inferred
5,413
59.6
57.6
57.3
3.56
5.28
6.01
2.21
3.09
3.47
0.139
0.121
0.104
Total
6,353
57.4
5.90
3.41
0.107
8.0
8.3
7.6
7.7
23
916
5,413
59.6
57.6
57.3
3.56
5.28
6.01
2.21
3.09
3.47
0.139
0.121
0.104
6,353
57.4
5.90
3.41
0.107
1 The Greater Chichester Mineral Resource includes the Investigator, White Knight, Kutayi and Mount Lewin deposits.
2 The Greater Solomon Mineral Resource includes the Serenity, Sheila Valley, Mount MacLeod, Queens Extension, Cerberus, Stingray and Raven
deposits.
3 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 each Mineral Resource was first announced.
30 I FORTESCUE METALS GROUP LIMITED RESERVES AND RESOURCES
-
6.8
6.8
6.8
-
8.3
7.2
7.3
-
-
6.5
6.5
8.0
8.6
8.8
8.8
8.0
8.3
7.6
7.7
Mineral Resources Development Properties – Magnetite
Mineral Resource updates for the North Star, Eastern
Limb, West Star and Glacier Valley deposits (60.72 per cent
Fortescue) were completed in 2016, incorporating additional
drilling, including the results of an in-fill reverse circulation
drilling campaign across all areas. This drilling has confirmed
the tonnage of higher confidence Measured and Indicated
Mineral Resource at North Star, Eastern Limb and Glacier
Valley, which can potentially be converted to an Ore
Reserve. The increase in Magnetite Mineral Resources is
predominantly driven by the recent discovery of the Eastern
Limb deposit, adjacent to the North Star deposit.
Magnetite Mineral Resources – as at 30 June 2016
30 June 2016
30 June 2015
In-Situ
Tonnes
(mt)
DTR
mass
recovery
%
In-situ
iron
Fe
%
In-situ
Silica
SiO2
%
In-situ
Alumina
Al2O3
%
In-Situ
Tonnes
(mt)
DTR
mass
recovery
%
In-situ
iron
Fe
%
In-situ
Silica
SiO2
%
In-situ
Alumina
Al2O3
%
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
76
936
2,651
3,664
-
350
2,434
2,784
-
-
258
258
Measured
76
Indicated
Inferred
Total
1,286
5,344
6,706
28.7
26.8
24.7
25.3
-
25.1
222
22.5
-
-
23.5
23.5
28.7
26.4
23.5
24.1
North Star plus Eastern Limb (60.72%)
39.42
40.50
41.23
41.01
-
39.301
39.06
39.06
-
-
42.90
42.90
1.90
2.29
2.62
2.52
77
708
1,877
2,663
Glacier Valley (60.72%)
-
1.66
1.76
1.74
-
343
2,238
2,581
West Star (60.72%)
-
-
3.20
3.20
-
-
261
261
28.5
26.6
23.6
24.5
-
24.3
21.5
21.9
-
-
21.7
21.7
Total Magnetite Mineral Resources
39.42
40.10
40.32
40.27
1.90
2.12
2.26
2.22
77
1,051
4,376
5,504
28.5
25.9
22.4
23.2
32.4
31.7
30.5
30.9
-
32.6
32.2
32.2
-
-
28.3
28.3
32.4
32.0
31.2
31.4
32.4
31.1
30.5
30.7
-
32.8
32.4
32.5
-
-
29.0
29.0
32.4
31.6
31.3
31.4
39.45
39.85
41.97
40.63
-
39.10
39.26
39.24
-
-
43.35
43.35
39.45
39.61
40.23
40.10
1.90
2.02
2.52
2.37
-
1.72
1.78
1.77
-
-
3.40
3.40
1.90
1.92
2.19
2.14
1 Magnetite Mineral Resource estimates, including the North Star, Eastern Limb, Glacier Valley and West Star deposits, are reported according to
JORC 2012 standards.
2 All reporting is based on Mass Recovery expressed as a 9 per cent Davis Tube Recovery (DTR) cut-off.
3 All Mineral Resources are reported on a dry-tonnage basis.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 31
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information 2.2bt
Ore
Reserves
Competent Persons Statement
The detail in this report that relates to Hematite Mineral
Resources is based on information compiled by Mr Stuart
Robinson, Mr Nicholas Nitschke and Mr David Frost-Barnes.
Messrs Robinson, Nitschke and Frost-Barnes are all full-
time employees of Fortescue. Each provided technical
input for Mineral Resources estimations and compilations
of exploration results. The detail in this report that relates
to Magnetite Mineral Resources is based on information
compiled by Mr Lynn Widenbar, an independent consultant
for Widenbar and Associates. He supplied technical input for
Magnetite Mineral Resources estimations and compilation of
exploration results.
Estimated Ore Reserves for the Chichester and Solomon Hubs
for FY16 were compiled by Mr Martin Slavik and Mr Oliver
Wang, full-time employees of Fortescue. Estimated Magnetite
Ore Reserves for the Iron Bridge project for FY16 were
compiled by Mr Glenn Turnbull, an independent consultant for
Golder Associates.
Mr Robinson is a Fellow of, and Messrs Nitschke, Slavik, Wang,
Widenbar and Turnbull 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, Nitschke, 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.
Messrs Slavik, Wang and Turnbull have sufficient experience
that is relevant to the estimation, assessment, evaluation
and economic extraction of Ore Reserves, and to the activity
for which they are accepting responsibility to be qualified as
Competent Persons as defined in the JORC code.
Messrs Robinson, Nitschke, Frost-Barnes, Slavik, Wang,
Widenbar and Turnbull 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.
32 I FORTESCUE METALS GROUP LIMITED RESERVES AND RESOURCES
RESERVES AND RESOURCES l TENEMENTS
Western Australia Tenure
Holder: Chichester Metals Pty Ltd Status: Granted
Holder: Chichester Metals Pty Ltd Status: Application
FMG mineral rights status: 100% all mineral rights
FMG mineral rights status: N/A
E 45/2497
E 45/2498
E 45/2499
E 45/2593
E 45/2651
L 47/653
L 47/657
L 47/659
E 45/2652
E 46/467
E 46/516
E 46/518
E 46/519
E 46/566
E 46/567
E 46/568
E 46/569
E 46/590
E 46/595
E 46/600
E 46/601
E 46/610
E 46/611
E 46/612
E 46/623
E 46/664
E 46/666
E 46/675
E 47/1320
E 47/1387
E 47/1388
E 47/1434
E 47/2177
M 45/1082 M 45/1083 M 45/1084 M 45/1085 M 45/1086
Holder: FMG Magnetite Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights (Note: 1)
E 45/2510
E 45/2535 M 45/1226
M 45/1087 M 45/1088 M 45/1089 M 45/1090 M 45/1091
Holder: FMG Magnetite Pty Ltd
Status: Granted
M 45/1092 M 45/1093 M 45/1094 M 45/1102 M 45/1103
FMG mineral rights status: N/A (Note: 1)
M 45/1104 M 45/1105 M 45/1106 M 45/1107 M 45/1124
L 45/257
L 45/293
L 45/294
L 45/317
L 45/318
M 45/1125 M 45/1126 M 45/1127 M 45/1128 M 45/1138
L 45/331
M 45/1139 M 45/1140 M 45/1141 M 45/1142 M 46/292
M 46/293 M 46/314 M 46/315 M 46/316 M 46/317
M 46/318 M 46/319 M 46/320 M 46/321 M 46/322
M 46/323 M 46/324 M 46/325 M 46/326 M 46/327
M 46/328 M 46/329 M 46/330 M 46/331 M 46/332
M 46/333 M 46/334 M 46/335 M 46/336 M 46/337
M 46/338 M 46/339 M 46/340 M 46/341 M 46/342
M 46/343 M 46/344 M 46/345 M 46/346 M 46/347
M 46/348 M 46/349 M 46/350 M 46/351 M 46/352
Holder: FMG Magnetite Pty Ltd
Status: Application
FMG mineral rights status: N/A (Note: 1)
L 45/320
L 45/319
Holder: FMG Magnetite Pty Ltd and Formosa Steel IB Pty Ltd
Status: Granted
FMG mineral rights status: 69% all mineral rights (Note: 1, 2)
M 46/353 M 46/354 M 46/355 M 46/356 M 46/357
E 45/4606
M 46/401 M 46/402 M 46/403 M 46/404 M 46/405
M 46/406 M 46/407 M 46/408 M 46/409 M 46/410
Holder: FMG Magnetite Pty Ltd and Formosa Steel IB Pty Ltd
M 46/411 M 46/412 M 46/413 M 46/414 M 46/415
Status: Granted
M 46/416 M 46/417 M 46/418 M 46/419 M 46/420
M 46/421 M 46/422 M 46/423 M 46/424 M 46/449
M 46/450 M 46/451 M 46/452 M 46/453 M 46/454
M 47/1461
FMG mineral rights status: N/A (Note: 1, 2)
L 45/359
L 45/366
L 45/367
Holder: Chichester Metals Pty Ltd Status: Granted
FMG mineral rights status: 100% iron ore rights
E 46/413
Holder: Chichester Metals Pty Ltd Status: Granted
FMG mineral rights status: N/A
G 46/7
L 46/35
L 46/47
L 46/53
L 46/58
L 45/152
L 46/100
L 46/111
L 46/112
L 46/36
L 46/48
L 46/54
L 46/62
L 46/37
L 46/49
L 46/55
L 46/64
L 46/40
L 46/51
L 46/56
L 46/66
L 46/46
L 46/52
L 46/57
L 46/99
L 47/193
L 47/197
L 47/198
L 47/654
L 47/655
Holder: FMG Magnetite Pty Ltd and Formosa Steel IB Pty Ltd
Status: Application
FMG mineral rights status: N/A (Note: 1, 2)
L 45/397
Holder: FMG North Pilbara Pty Ltd Status: Granted
FMG mineral rights status: 100% all mineral rights (Note: 1)
E 45/3084 M 45/1244
Holder: FMG North Pilbara Pty Ltd Status: Application
FMG mineral rights status: 100% all mineral rights (Note: 1)
P 45/3010
L 47/656
L 47/658
L 47/660
L 47/693
L 47/710
Holder: Pilbara Water & Power Pty Ltd
L 47/711
Status: Granted
FMG mineral rights status: N/A (Note: 1)
L 45/272
L 45/289
L 45/291
L 45/292
L 45/325
L 45/360
L 45/361
L 45/364
L 45/389
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 33
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information RESERVES AND RESOURCES l TENEMENTS
Western Australia Tenure continued
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E 08/1393 E 08/1440 E 08/1626 E 08/1627 E 08/1631
E 47/2666 E 47/2675 E 47/2729 E 47/2739 E 47/2879
E 08/1878 E 08/1933 E 08/1962 E 08/2003 E 08/2072
E 47/2914 E 47/2918 E 47/2919 E 47/2920 E 47/2921
E 08/2137 E 08/2200 E 08/2258 E 08/2284 E 08/2398
E 47/2922 E 47/2986 E 47/3001 E 47/3004 E 47/3013
E 08/2490 E 08/2491 E 08/2497 E 08/2498 E 08/2550
E 47/3014 E 47/3016 E 47/3051 E 47/3080 E 47/3081
E 08/2557 E 08/2577 E 08/2594 E 08/2625 E 08/2626
E 47/3125 E 47/3126 E 47/3133 E 47/3150 E 47/3153
E 08/2627 E 08/2652 E 08/2653 E 08/2658 E 08/2662
E 47/3161 E 47/3162 E 47/3163 E 47/3194 E 47/3201
E 08/2683 E 08/2686 E 08/2687 E 08/2688 E 08/2689
E 47/3207 E 47/3211 E 47/3218 E 47/3219 E 47/3220
E 08/2690 E 08/2691 E 08/2696 E 08/2697 E 08/2700
E 47/3225 E 47/3226 E 47/3227 E 47/3228 E 47/3245
E 08/2704 E 08/2705 E 08/2706 E 08/2721 E 08/2728
E 47/3252 E 47/3254 E 47/3255 E 47/3264 E 47/3270
E 45/2870 E 45/2945 E 45/3191 E 45/3414 E 45/3438
E 47/3280 E 47/3291 E 47/3292 E 47/3296 E 47/3307
E 45/3473 E 45/3545 E 45/3641 E 45/3659 E 45/3697
E 47/3311 E 47/3313 E 47/3315 E 47/3318 E 47/3321
E 45/3698 E 45/3705 E 45/3760 E 45/3816 E 45/4148
E 47/3334 E 47/3347 E 52/1763 E 52/1779 E 52/1788
E 45/4227 E 45/4239 E 45/4265 E 45/4304 E 45/4356
E 52/1789 E 52/1790 E 52/1937 E 52/2034 E 52/2035
E 45/4380 E 45/4429 E 45/4450 E 45/4451 E 45/4466
E 52/2114 E 52/2311 E 52/2521 E 52/2522 E 52/2555
E 45/4479 E 45/4489 E 45/4498 E 45/4525 E 45/4526
E 52/2594 E 52/2620 E 52/2637 E 52/2730 E 52/2745
E 45/4528 E 45/4529 E 45/4530 E 45/4531 E 45/4532
E 52/2748 E 52/2928 E 52/2933 E 52/3016 E 52/3060
E 45/4549 E 46/1000 E 46/1009 E 46/1034 E 46/1048
E 52/3097 E 52/3107 E 52/3108 E 52/3134 E 52/3135
E 46/1055 E 46/1074 E 46/1079 E 46/517
E 46/621
E 52/3160 E 52/3184 E 52/3204 E 52/3206 E 52/3207
E 46/694
E 46/695
E 46/697
E 46/698
E 46/699
E 52/3208 E 52/3209 E 52/3210 E 52/3211 E 52/3213
E 46/701
E 46/706
E 46/711
E 46/729
E 46/741
E 52/3243 E 52/3244 E 52/3245 E 52/3247 E 52/3256
E 46/743
E 46/776
E 46/799
E 46/805
E 46/859
E 52/3261 E 52/3294 E 52/3312 E 52/3343 M 45/1177
E 46/861
E 46/862
E 46/870
E 46/878
E 46/889
M 47/1407 M 47/1408 M 47/1409 M 47/1410 M 47/1411
E 46/965
E 46/966
E 46/967
E 46/980
E 46/986
M 47/1413 M 47/1417 M 47/1431 M 47/1433 M 47/1434
E 46/989
E 47/1011 E 47/1016 E 47/1136 E 47/1154
M 47/1453 M 47/1466 M 47/1473 M 47/1474 M 47/1475
E 47/1155 E 47/1194 E 47/1195 E 47/1196 E 47/1299
M 47/1488 M 47/1489 M 47/1492 P 08/531
P 08/532
E 47/1300 E 47/1301 E 47/1302 E 47/1306 E 47/1319
P 08/556
P 08/624
P 45/2748 P 45/2862 P 45/2863
E 47/1342 E 47/1349 E 47/1351 E 47/1355 E 47/1357
P 45/2864 P 45/2865 P 45/2932 P 45/2934 P 47/1257
E 47/1370 E 47/1373 E 47/1383 E 47/1384 E 47/1390
P 47/1269 P 47/1270 P 47/1278 P 47/1279 P 47/1286
E 47/1391 E 47/1392 E 47/1393 E 47/1395 E 47/1396
P 47/1287 P 47/1304 P 47/1305 P 47/1306 P 47/1309
E 47/1397 E 47/1404 E 47/1419 E 47/1420 E 47/1423
P 47/1316 P 47/1317 P 47/1318 P 47/1397 P 47/1404
E 47/1433 E 47/1435 E 47/1446 E 47/1447 E 47/1448
P 47/1407 P 47/1408 P 47/1409 P 47/1410 P 47/1411
E 47/1449 E 47/1453 E 47/1455 E 47/1461 E 47/1479
P 47/1412 P 47/1423 P 47/1427 P 47/1469 P 47/1470
E 47/1500 E 47/1532 E 47/1533 E 47/1543 E 47/1578
P 47/1545 P 47/1553 P 47/1554 P 47/1609 P 47/1633
E 47/1579 E 47/1613 E 47/1614 E 47/1623 E 47/1649
P 47/1640 P 47/1641 P 47/1642 P 47/1643 P 47/1644
E 47/1650 E 47/1675 E 47/1677 E 47/1681 E 47/1682
P 47/1645 P 47/1646 P 47/1647 P 47/1649 P 47/1650
E 47/1684 E 47/1685 E 47/1686 E 47/1687 E 47/1690
P 47/1663 P 47/1664 P 47/1665 P 47/1666 P 47/1667
E 47/1702 E 47/1703 E 47/1728 E 47/1735 E 47/1741
P 47/1668 P 47/1669 P 47/1670 P 47/1671 P 47/1672
E 47/1761 E 47/1762 E 47/1763 E 47/1764 E 47/1772
P 47/1673 P 47/1674 P 47/1675 P 47/1696 P 47/1722
E 47/1809 E 47/1818 E 47/1821 E 47/1832 E 47/1833
P 47/1735 P 47/1736 P 47/1768 P 47/1771 P 52/1421
E 47/1846 E 47/1861 E 47/1879 E 47/1920 E 47/1921
P 52/1422 P 52/1485
E 47/1927 E 47/1944 E 47/1988 E 47/2037 E 47/2061
E 47/2062 E 47/2085 E 47/2119 E 47/2143 E 47/2146
E 47/2160 E 47/2172 E 47/2173 E 47/2239 E 47/2240
E 47/2285 E 47/2331 E 47/2333 E 47/2378 E 47/2442
E 47/2465 E 47/2496 E 47/2538 E 47/2664 E 47/2665
34 I FORTESCUE METALS GROUP LIMITED RESERVES AND RESOURCES
RESERVES AND RESOURCES l TENEMENTS
Western Australia Tenure continued
Holder: FMG Pilbara Pty Ltd
Status: Granted
E 47/3501 E 47/3505 E 47/3506 E 47/3511 E 47/3512
FMG mineral rights status:
100% iron ore rights, 37.76% non-iron (Note 3)
E 47/3513 E 47/3517 E 52/3233 E 52/3303 E 52/3309
E 52/3310 E 52/3369 E 52/3370 E 52/3371 E 52/3372
E 08/1632 E 08/1915 E 08/1949 E 08/1950 E 08/2000
E 52/3373 E 52/3374 E 52/3375 E 52/3376 E 52/3377
E 08/2038 E 08/2039 E 08/2065 E 08/2067 E 08/2114
E 52/3378 E 52/3396 E 52/3441 M08/502 M 47/1456
E 47/1773 E 47/2171 E 47/2236 E 47/2292 E 52/2484
M 47/1457 M 47/1458 M 47/1459 M 47/1476 M 47/1477
E 52/2786
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights except
diamonds
M 47/1478 M 47/1481 M 47/1490 M 47/1493 M 47/1497
M 47/1508 M 47/1509 M 47/1510 M 47/1511 P 47/1772
P 47/1774 P 47/1775 P 47/1776 P 47/1777 P 52/1523
P 52/1524 P 52/1525
E 47/1333 E 47/1334 E 47/1352 E 47/1372 E 47/1398
Holder: FMG Pilbara Pty Ltd
Status: Application
E 47/1399 E 47/1436 E 47/1523 E 47/1524
FMG mineral rights status: N/A
L 47/713
L 47/714
L 47/716
L 47/752
L 47/754
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG mineral rights status: N/A
Holder: FMG Resources Pty Ltd
Status: Granted
G 45/275
G 45/285
L 45/158
L 45/191
L 45/240
FMG mineral rights status: 100% all mineral rights
L 47/232
L 47/293
L 47/294
L 47/296
L 47/301
E 29/929
E 29/938
E 29/946
E 45/4150 E 45/4349
L 47/351
L 47/360
L 47/361
L 47/362
L 47/363
E 45/4350 E 45/4576 E 45/4577 E59/1275
E59/1360
L 47/367
L 47/381
L 47/382
L 47/391
L 47/392
E 69/3304 E 69/3305 E 69/3385 E 77/2157 E 77/2158
L 47/397
L 47/471
L 47/472
L 47/700
E 77/2159 E 77/2262 E 77/2292 P 29/2359
Holder: FMG Pilbara Pty Ltd
Status: Application
Holder: FMG Resources Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E 08/2609 E 08/2778 E 08/2786 E 08/2790 E 08/2792
FMG mineral rights status: 100% iron ore rights, 36.76%
non-iron (Note 3)
E 08/2804 E 08/2805 E 08/2806 E 08/2827 E 08/2849
E 08/2280 E 08/2282
E 45/4369 E 45/4497 E 45/4545 E 45/4578 E 45/4579
E 45/4580 E 45/4581 E 45/4582 E 45/4589 E 45/4591
E 45/4664 E 45/4718 E 45/4720 E 45/4725 E 45/4728
E 45/4755 E 45/4756 E 45/4781 E 45/4783 E 45/4792
E 45/4793 E 45/4794 E 45/4795 E 46/1045 E 46/1046
E 46/1047 E 46/1049 E 46/1053 E 46/1071 E 46/1072
Holder: FMG Resources Pty Ltd
Status: Application
FMG mineral rights status: 100% all mineral rights
E 04/2323 E 04/2129 E 04/2322 E 45/4737 E 77/2357
E 46/1076 E 46/1077 E 46/1078 E 46/1080 E 46/1081
Holder: Pilbara Gas Pipeline Pty Ltd Status: Granted
E 46/1085 E 46/1097 E 46/1101 E 46/1117 E 46/1120
FMG mineral rights status: N/A
E 46/1121 E 46/1122 E 46/1125 E 46/1126 E 46/1127
L 45/334
L 45/336
L 45/339
L 45/342
L 45/343
E 46/1128 E 46/1135 E 46/1136 E 46/1137 E 46/1139
L 45/344
L 45/345
L 45/346
L 45/347
L 45/349
E 47/2985 E 47/3097 E 47/3098 E 47/3171 E 47/3205
L 45/352
L 45/353
L 47/696
L 47/697
E 47/3222 E 47/3258 E 47/3262 E 47/3263 E 47/3277
E 47/3278 E 47/3279 E 47/3332 E 47/3333 E 47/3335
E 47/3343 E 47/3350 E 47/3372 E 47/3379 E 47/3380
E 47/3381 E 47/3397 E 47/3402 E 47/3403 E 47/3404
E 47/3405 E 47/3406 E 47/3407 E 47/3408 E 47/3409
E 47/3410 E 47/3411 E 47/3424 E 47/3432 E 47/3435
E 47/3438 E 47/3444 E 47/3445 E 47/3448 E 47/3451
E 47/3454 E 47/3455 E 47/3463 E 47/3464 E 47/3482
E 47/3483 E 47/3484 E 47/3498 E 47/3499 E 47/3500
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 45/348
L 47/695
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 35
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information RESERVES AND RESOURCES l TENEMENTS
Western Australia Tenure continued
Holder: Pilbara Iron Ore Pty Ltd
Status: Granted
Holder: The Pilbara Infrastructure Pty Ltd
FMG mineral rights status: 50% all mineral rights (Note 4)
Status: Granted
E 47/1191 E 47/1192 E 47/1224 E 47/1225 E 47/1235
FMG mineral rights status: N/A
E 47/1380 M 47/580
AL 70/1 (L 1SA) G45/286
L45/199
L46/86
L46/87
L46/96
Holder: Pilbara Iron Ore Pty Ltd
Status: Application
FMG mineral rights status: N/A (Note 4)
Holder: The Pilbara Infrastructure Pty Ltd
L 47/205
Third Party Tenure
Status: Application
FMG mineral rights status: N/A
L47/661
L47/758
L47/759
L47/760
L47/761
Holder: Ammon, Derek
Status: Granted
Holder: BC Iron Nullagine Pty Ltd
Status: Granted
FMG mineral rights status: 40% all mineral rights (Note 5)
FMG mineral rights status: N/A (Note 6)
E 47/1140
Holder: Ammon, Derek
Status: Application
FMG mineral rights status: 40% all mineral rights (Note 5)
M 47/583
L 46/79
L 46/80
L 46/81
L 46/82
L 46/84
L 46/85
L 46/93
L 46/94
L 46/83
L 46/95
L 46/114
L 46/118
L 46/119
Holder: Cullen Exploration Pty Ltd Status: Granted
FMG mineral rights status: Beneficial right to earn
51% iron ore rights
Holder: Archipelago Nominees Pty Ltd
Status: Granted
E52/1667
FMG mineral rights status: 100% all mineral rights except
rock products
M 45/1229
Holder: Dynasty Resources Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E 47/3094
Holder: Baldock FE Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
Holder: Global Advanced Metals Pty Ltd
E 47/2774
Status: Granted
Holder: BC Iron Ltd
Status: Granted
FMG mineral rights status: 25% iron ore rights (Note 6)
FMG mineral rights status: 100% iron ore rights
E 45/4025
E 45/4024
E 46/522
E 46/523
M 46/515
Holder: Livno Consolidated Pty Ltd Status: Granted
Holder: BC Iron Ltd
Status: Granted
FMG mineral rights status: N/A (Note 6)
G 46/8
G 46/9
L 46/68
L 46/73
L 46/74
L 46/75
L 46/76
FMG mineral rights status: Beneficial right to earn
100% all mineral rights
E 45/4021
Holder: Ryan, David
Status: Granted
FMG mineral rights status: 100% all mineral rights
except crocidolite
Holder: BC Iron Ltd
Status: Granted
FMG mineral rights status: 25% iron ore rights (Note 6)
E 45/2717
E 46/524
E 46/651
E 46/652
E 46/655
P 47/1275
E 46/663
E 46/928
E 46/969 M 46/522 M 46/523
Holder: Williamson, Richard
Status: Granted
FMG mineral rights status: 100% all mineral rights
except tiger eye
P 47/1695
36 I FORTESCUE METALS GROUP LIMITED RESERVES AND RESOURCES
RESERVES AND RESOURCES l TENEMENTS
New South Wales Tenure
Holder: Gold and Copper Resources Pty Ltd
Holder: Lucknow Gold Limited
Status: Granted
Status: Granted
FMG mineral rights status: Earning 51% metallic mineral
rights (Note 7)
EL 6040
EL 6588
EL 7194
EL 7599
EL 8330
EL 8331
EL 8332
Holder: Gosling Creek Pty Ld
Status: Granted
FMG mineral rights status: Earning 51% metallic mineral
rights (Note 7)
EL 6455 (partial)
Holder: Tom's Waterhole Pty Ltd
Status: Granted
FMG mineral rights status: Earning 51% metallic mineral
rights (Note 7)
FMG mineral rights status: Earning 51% metallic mineral
rights (Note 7)
EL 6456
EL 6481
Holder: Gum Ridge Mining Pty Ld Status: Granted
FMG mineral rights status: Earning 51% metallic mineral
rights (Note 7)
EL 6249
EL 6562
South Australian Tenure
Holder: FMG Resources Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
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
EL 5394
EL 5449
EL 5451
EL 5467
EL 5600
Notes
1 FMG Magnetite Pty Ltd, FMG North Pilbara Pty Ltd and Pilbara Water and Power Pty Ltd are subsidiaries of FMG Iron Bridge Limited which is owned
88 per cent by Fortescue Metals Group Ltd and 12 per cent by Baosteel Resources International Co. Ltd.
2 Joint Venture with FMG Magnetite Pty Ltd and Formosa Steel IB Pty Ltd. Formosa holds 31 per cent interest in title.
3 Joint Venture with Northern Star Resources Ltd. Northern Star Resources Ltd holds a 63.24 per cent beneficial interest in non-iron mineral rights.
4 Unincorporated Joint Venture between Fortescue Metals Limited and Consolidated Minerals Limited.
5 Title has been contested and is currently being litigated.
6 Joint Venture with FMG Pilbara Pty Ltd, BC Iron Nullagine Pty Ltd and BC Iron Ltd. BCI holds 75 per cent interest in title.
7 Joint Venture with FMG Resources Pty Ltd and Gold and Copper Resources Pty Ltd, Gosling Creek Pty Ltd, Gum Ridge Mining Pty Ltd, Lucknow Gold
Limited, Tom’s Waterhole Pty Ltd. Fortescue are farming in to earn up to a 51 per cent interest in the metallic mineral rights.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 37
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information
Values
Safety
• Working together to be global safety leaders
• We care about the health and wellbeing of people
• I am my brothers’ and sisters’ keeper
Family
• Care for your work mates
• Think of the whole business - not just your part
• Be committed as one
• Celebrate success
Integrity
• Honesty in our words and actions
• Doing what we say we will do
Determination
• Drive for outcomes
• Never give up
Generating ideas
• Never accept the status quo
• Always be on the lookout for better ways
Empowerment
• Always take action
• Authority to do what you said you would do
• Ability to act in the best interest of the business
Frugality
• Use your brains not your cheque book
• Save every dollar you can
• Find a way to do the same job for less money
Set yourself Stretch Targets
Enthusiasm
• Be enthusiastic
• Be energetic
• Be positive
38 I FORTESCUE METALS GROUP LIMITED
Corporate Social
Responsibility
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 39
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 39
CORPORATE SOCIAL RESPONSIBILITY
What does CSR mean to Fortescue?
Fortescue’s commitment to delivering positive social change by contributing to ending
disadvantage amongst Aboriginal people in the Pilbara, promoting diversity in the
workplace and addressing environmental challenges such as climate change, are important
elements of the Company’s CSR strategy.
Fortescue recognises that in order to achieve its vision
of being the safest, lowest cost, most profitable iron ore
producer, Corporate Social Responsibility (CSR) must be a
focus in every aspect of the business.
Leveraging the significant opportunities that arise from
its operations, both for people and the environment, is
central to Fortescue’s approach to CSR. CSR is Fortescue’s
commitment to behave ethically, to create value for the
company’s stakeholders and to leave the communities
and the environments in which the Company operates in a
demonstrably better position.
Approach to CSR
Fortescue’s values sit at the apex of the Company’s approach
to CSR. The Fortescue values set the ethical and moral
compass by which the Company undertakes its business.
The Code of Conduct establishes the essential standards of
personal and corporate conduct and behaviour expected
of all Fortescue People. Fortescue endorses or has formally
joined a number of voluntary initiatives promoting the
highest level of standards in relation to CSR including
engaging with the United Nations Global Compact (UNGC).
This report communicates the Company’s progress against
the principles of the UNGC and informs Fortescue’s
stakeholders. These voluntary commitments and principles
guide Fortescue’s approach to CSR.
CSR reporting
This report contains Standard Disclosures from the Global
Reporting Initiative (GRI) Sustainability Reporting Guidelines,
which are also referenced in the ASX Corporate Governance
Principles and Recommendations. A copy of the GRI
Navigational Index is available at www.fmgl.com.au
The overall approach to audit and assurance is outlined in
the Corporate Governance Statement, which is available
at fmgl.com.au, with the data on Greenhouse Gas (GHG)
emissions, total energy consumption and total energy
production independently assured.
This information was the subject of a limited assurance
by auditors, PricewaterhouseCoopers, in accordance
with the National Greenhouse and Energy Reporting
(Audit) Determination 2009 and ASAE 3410: Assurance
Engagements on Greenhouse Gas Statements (ASAE
3410), as well as the Australian Standard on Assurance
Engagements. In addition, the results of our Aboriginal
contracting strategy, Billion Opportunities, were audited by
the Group’s internal audit function.
Fortescue’s CSR report takes into account:
• Review and prioritisation of issues identified in Fortescue’s
Risk Management Framework
• Materiality assessment carried out in development of the
updated CSR strategy
• The content of public disclosure on key issues within the
industry
• Fortescue’s commitments and policies which guide its CSR
agenda
• Requirements of relevant global frameworks such as
the UNGC, International Council on Mining and Metals
(ICMM) and GRI
• Stakeholder interests and concerns based on Fortescue’s
existing stakeholder engagement programs.
40 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
Looking ahead to FY17
During FY16, Fortescue reviewed its approach to CSR and
will refresh its approach in FY17. Through the new CSR
strategy, Fortescue aims to further enhance the highly
developed sustainability and community development
initiatives in place.
Development of the CSR strategy brought together
expertise and experience in corporate governance, health
and safety, procurement, environment, people, community,
engineering and operations from across the business.
The process focussed on materiality and risk assessment,
considered stakeholders and identified opportunities
to make a significant contribution in the environments
and communities in which Fortescue operates. These
opportunities in turn will be underpinned by a set of key
objectives which will drive corporate wide targets.
During 2017, Fortescue’s operational sites will develop
local CSR plans to implement the whole of business
strategy and further integrate sustainable development
considerations within Fortescue’s corporate decision-
making process. Fortescue anticipates that from 2017,
the Company’s sustainability reporting will reflect the
CSR strategy and localised CSR implementation plans
and will seek to be in accordance with the GRI G4
standard.
Focus areas
The following environmental, social and broader economic
considerations were considered in the CSR report and are
explored further in this section:
• Ethical conduct, bribery and corruption
• Ending modern slavery and ethical supply chain
• Human rights
• Tax transparency and governance
• Employee health, safety and wellbeing
• Local community engagement – residential workforce,
local and Aboriginal content
• Engaging with stakeholders
• Climate change
• Water resources
• Biodiversity
• Life of mine planning – environmental and community
• Economic performance.
The aspect boundaries are within the narrative of this report.
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FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 41
Business ethics
Fortescue clearly articulates and maintains ethical business
principles and practices and implements sound systems of corporate
governance. Business risks are identified through valid data and
sound science, and managed with CSR incorporated into decision
making processes. Fortescue implements effective engagement and
communication practices with key stakeholder groups and commits to
transparent reporting of its performance to stakeholders.
Fortescue has a number of policies in place which are specific to
its CSR agenda, including:
• Employee Code of Conduct
• Directors Code of Conduct
• Risk Management Policy
• Procurement Policy
• Safety Policy
• Diversity Policy
• Anti-Bribery and Corruption Policy
• Environment Policy
• Human Rights Policy.
These policies help govern business activities and set clear
expectations regarding business practices. They are supported
by established management systems which assist the business in
the day to day management of CSR issues and performance. The
policies are available at www.fmgl.com.au
Employee and Director Code of Conduct
The Employee Code of Conduct embraces the Company’s values
and provides guidance on the standards of behaviour expected
from the entire Fortescue family including directors, employees,
contractors, suppliers and business partners. Fortescue has also
established a separate Directors Code of Conduct and directors
are bound by both Codes. Fortescue is committed to achieving
and maintaining a reputation as an employer of choice, an ethical
business partner and a good corporate citizen, with the Codes
aligned to the UNGC principles on human rights.
Fortescue prides itself on an established reputation for acting
with integrity, honesty and in compliance with all applicable
laws and regulations. The Company maintains a formal policy of
zero-tolerance of corruption in all its forms, including bribery, and
has a Business Integrity and Ethics Committee and a specialist
Business Integrity Manager. In addition, Fortescue participates
in voluntary anti-corruption initiatives including the Australian
Business Integrity Council, and delivers role specific anti-fraud and
corruption training and certification.
Anti-Bribery and Corruption
The Anti-Bribery and Corruption compliance program includes
regular and specialist fraud and corruption risk assessments
that consider the potential fraud, bribery and corruption risks
associated with the business, employees, third-party partners and
geographic locations in which the Company operates.
Fortescue has a process in place for investigating allegations
as well as a number of channels for employees and others to
confidentially report suspected or actual misconduct or violations
of Company policy, such as the Whistleblower hotline and ‘Speak
Up’ program. This year, some employees and contractors were
terminated following investigations.
The Company is committed to sourcing through suppliers that
adhere to Fortescue’s standards, including the Human Rights Policy,
Code of Conduct and Procurement Policy, and conducts compliance
audits of suppliers. More detailed information can be found in the
Corporate Governance Statement at www.fmgl.com.au
Ending modern slavery
Fortescue has made a public commitment to protect and promote
human rights and, in particular, has stated that it has zero tolerance
for modern slavery, forced or child labour in its supply chain.
Fortescue has business wide policies in place to prevent, detect and
remedy instances of forced labour within its own operations, and the
operations of its suppliers and business partners.
The foundation documents for implementing Fortescue’s ending
modern slavery movement are the Human Rights Policy and Code
of Conduct. Both are available at www.fmgl.com.au. The Company
acknowledges the ‘Guiding Principles on Business and Human
Rights: Implementing the United Nations “Protect, Respect and
Remedy” Framework (2011)’.
Fortescue has adopted a number of procurement requirements to
demonstrate this commitment:
• All suppliers are subjected to a robust risk assessment and due
diligence process
• All suppliers are requested to sign a statutory declaration
certifying that they have investigated their own labour practices
and those of their direct suppliers to ensure they use no slavery
or forced labour; that they have all necessary policies and
processes in place to ensure ongoing compliance; and that they
have taken actions and investigations to confirm the accuracy
of these statements
• Fortescue supply contracts include a clause on forced labour
and slavery, requiring each contractor to warrant that it has
thoroughly investigated its labour practices and those of its direct
suppliers to ensure there is no forced labour or slavery anywhere
in the contractor’s business or that of its direct suppliers; and that
the contractor has put in place policies and processes.
• Fortescue employs a Business Integrity Manager responsible
for evaluating the risk of slavery within Fortescue’s supply
chain, undertaking audits where necessary and implementing
corrective action if required
• Fortescue has established a range of mechanisms for a
Whistleblower hotline to confidentially identify breaches of the Code
• Any identified issues are followed up at the highest level and
steps are taken to address the situation.
42 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
Tax transparency and governance
Fortescue’s overarching tax strategy of operating in good
faith, with transparency, and fully complying with the
prevailing tax laws of all jurisdictions where business is
undertaken reinforces our classification as a compliant and
low risk taxpayer by all revenue authorities. Fortescue seeks
to have good working relationships with revenue authorities
and to fully discharge its tax obligations whilst not incurring
any additional unnecessary costs or liabilities.
Fortescue achieves its tax strategy by employing a
designated tax team whose primary function is to be
proactively involved in the business operations to ensure
all tax risks are identified and managed in accordance with
Fortescue’s formal Tax Risk and Governance Framework.
The tax function is responsible for managing all relevant
relationships with regulators, external expert advisors, and
industry bodies. Through the creation of strong relationships
with these external parties, Fortescue ensures mutual
trust and cooperation is fostered, which in turn allows
for proactive and appropriate tax risk management to be
achieved.
Tax risks are reported and monitored on an ongoing basis.
Fortescue’s comprehensive Tax Risk and Governance
Framework prescribes the process of identifying,
characterising and managing tax risks, and requires any
significant tax issues and risks to be escalated and reported
in a timely manner through the Chief Financial Officer, the
Audit and Risk Management Committee, and ultimately the
Fortescue Board.
Tax contribution
Fortescue operates in Australia and a variety of international
locations and pays taxes according to the prevailing tax
laws in each jurisdiction. The breadth of taxes applicable
to Fortescue’s business encompass Company taxes, value
added taxes, royalties, stamp duties, excise and import
duties, withholding taxes and comprehensive employer
taxes such as fringe benefits taxes, payroll taxes and various
employee insurances. As Fortescue’s main operations are
located and operated in Australia the majority of the Group’s
tax liabilities are paid in Australia. Furthermore, given the
current structure of Fortescue’s international operations, and
the application of Australia’s Controlled Foreign Companies
(CFC) tax rules, all relevant foreign income is ultimately
attributed to, and assessed in Australia at prevailing
Australian rates of tax.
A summary of Fortescue’s 2016 financial year tax obligations
are detailed below:
FY16 Tax obligations US$m
Fortescue regularly evaluates commercial opportunities
to enhance shareholder value. The Fortescue tax team is
actively involved in all proposed opportunities to ensure that
all tax sensitivities in relevant jurisdictions are thoroughly
considered, and all potential tax risks are identified and
appropriately addressed in a complete and timely manner.
202
9
313
US$978
454
Company
Royalties
Foreign
Employment
Fortescue recognises the need for broad and comprehensive
tax reporting and is committed to the ongoing development
of transparent reporting metrics in relation to all of its taxes
paid in Australia and overseas. Fortescue is committed to
achieving this by focussing on the continuous improvement
of internal tax policies, application of industry best practices,
consideration of feedback from key stakeholders and the
adoption of relevant legislative developments.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 43
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information Safety
A safe and healthy workforce
Fortescue is committed to being a global leader in safety
and believes it is everyone’s responsibility to be their
brother’s and sister’s keeper. The focus on safety leadership
and culture empowers everyone at Fortescue to pause and
reassess the task to ensure it is always safe.
Approach to safety
Fortescue recognises health and safety is inherent to
productive mining and adopts a continuous improvement
approach to health and safety performance. Safety is
embedded in Fortescue’s Risk Management Framework
which is focussed on all operations that have a potential
impact on health and safety.
Fortescue’s Health and Safety Program is represented as a
tiered system which provides a common approach across
the business.
• Safety is Fortescue’s highest priority and one of the
Company’s values
• Safety leadership is inherent in Fortescue’s vision to be the
safest, lowest cost, most profitable iron ore producer
• The Health and Safety Management System is the
overarching framework which includes all of the controls
required to achieve safe outcomes
• The Major Hazard Control Standards Management
Program features 59 common and 14 site specific critical
controls. These critical controls are monitored by leaders
to ensure fatality risks are minimised
• Life Saving Choices empower individuals to manage the
safety risk where they have direct control on the job.
They consist of a set of 12 memorable, simple rules for all
employees and contractors
• A blueprint for managing mental health outlines
Fortescue’s comprehensive approach to effectively
managing the health and wellbeing of the workforce.
Fortescue’s Health and Safety Program
Vision
and Values
Health, Safety
and
Environment Policy
Health, Safety, Environment
and
Security Management Standards
Major Hazard Control Standards
HSES Plans, Procedures, Forms, Systems
HSES Management Systems, Management Plans, Procedures,
Standard Work Instructions and JHAs
44 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
HEALTH AND SAFETY
MANAGEMENT SYSTEM
MAJOR HAZARD CONTROLS
LIFE SAVING CHOICES
Contractor Shutdown Leadership
Planned shutdown maintenance is an integral part of the
operation of a mine site. During a planned shutdown period,
anywhere between 50 and 700 extra workers can be on site.
In FY16, Fortescue introduced a Shutdown Safety Leadership
training program. The program was designed in consultation
with Fortescue’s key contracting partners and is primarily
focussed on enhancing the skills and knowledge of the
leadership team to improve shutdown safety performance.
This program is part of a series of new initiatives aimed
at aligning contractor supervision and leadership with
Fortescue’s safety priorities. Forums are co-presented by
Fortescue shutdown leaders and senior leaders from major
contractors, focussing on four key areas:
1. Fatality prevention
2. Current shutdown safety performance
3. Safety culture and leadership
4. Roles of the supervisor, including areas of responsibility.
Over 130 contractor leaders have participated in the program
since March 2016. Feedback from participants indicates the
program has been a success, contributing positively to the
culture and engagement of the shutdown teams. The success
of this program will continue to increase the alignment
between Fortescue and its contracting companies.
Safety culture
Team attitude
and benefits
Leader
behaviours
Team
behaviours
Safety
climate
Safety reporting
Fortescue’s 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.
In FY16, Fortescue’s TRIFR reduced to 4.3 per million hours
worked, a 15 per cent improvement compared to the previous
year and a 70 per cent improvement over the past five years.
In May 2016, an independent, external Safety Excellence
Survey of employees and contractors was conducted with over
6,000 responses received. The survey is in its third consecutive
year and is a key tool for engaging with team members
and recognising and identifying further improvement
opportunities to Fortescue’s unique safety culture.
Following an investigation into the December 2013 fatal injury
of Alan Zuvela in an accident in the heavy vehicle workshop at
Christmas Creek, the WA Department of Mines and Petroleum
charged Mesa West Pty Ltd, a contracting company working
at Fortescue for failing to provide a safe working environment.
Mesa West pleaded guilty and was fined A$20,000 in May 2016.
In May 2016, The Pilbara Infrastructure Pty Ltd pleaded guilty
to a charge relating to an incident which took place at Port
Hedland in July 2011, in which Mr Bevan Coutts sustained
serious injuries. The Pilbara Infrastructure Pty Ltd was fined
A$50,000.
Understanding exposure: situational awareness and
hazard assessment
As part of Fortescue’s ongoing commitment to creating a safer
workplace, a new approach to safe management of tasks was
introduced, encompassing:
• Greater emphasis on situational awareness – look up, down
and around
•
•
Increased focus on exposure through assessment of the hazards and
behaviours that could lead to incidents and injuries
Identification of changes (hold points) that could increase exposures
before the commencement of a task.
Since the launch in November 2015, over 8,000 employees and
contractors have been trained in how to understand and control
exposures and recognise changes in exposure that could lead to
injuries and incidents.
What are the hazards over head?
What are the hazards from knee to ground?
What are the hazards from knee to head all around?
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 45
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information The Leadership Excellence Pathway continues to strengthen
Fortescue’s internal leadership group. Delivered internally
by subject matter experts and senior leaders, the program
involves a four-day Leadership Fundamentals Program,
site-based Leadership Development Program, and external
leadership forums. During the year, 532 current and
emerging leaders completed formal leadership training.
Meet Jeffrey Farrell, Supervisor – Mobile Maintenance
Fortescue is committed to supporting the next generation of
Aboriginal leaders, helping them challenge the status quo and
take positive steps towards becoming future business leaders.
In late 2015, the Leadership and Excellence in Aboriginal
People (LEAP) program was launched with 14 participants,
including Jeffrey Farrell.
Jeffrey has been working at the Mobile Maintenance
department at Christmas Creek for over two years.
After completing the LEAP program, which gives motivated
and high performing Aboriginal employees the opportunity
to be coached for future leadership roles, Jeffrey was
promoted into the role of Ancillary Fleet 2IC. He is now part
of the Mobile Maintenance planning team which schedule
maintenance for the 250 mobile assets at Christmas Creek.
Due to his hard work and leadership ability, Jeffrey was
recently promoted to Supervisor.
“The LEAP program gave me insight as to what is required
to be a leader and helped me realise that a leadership role
is something that I can achieve,” Jeffrey said.
People
Working together
Fortescue’s workforce
Fortescue is a values-based business with a strong,
differentiated culture. The Company believes that by
leveraging the unique and differentiating culture of its
greatest asset, its people, it will achieve stretch targets in all
its key pillars.
As Fortescue has moved from the construction phase to
steady state operations, at a time of volatility in the iron
ore market, the Company has been focussed on operating
as efficiently and productively as possible. A thorough
organisational review was performed, initiating a number
of key projects focussed on improving productivity
and efficiency. It is important to note that Fortescue’s
commitment to stretch targets for diversity have been
maintained throughout the organisational reviews, including
reaching 20 per cent Aboriginal employment by 2020 and 25
per cent female employment by 2020.
As at 30 June 2016, Fortescue employed 3,890 direct
employees, with contractors employing a further
4,205 people at operational sites (excluding shutdown
contractors). In total, 52 per cent of employees are covered
by enterprise agreements.
As at 30 June 2016, annualised voluntary turnover was
13.6 per cent. In the fourth quarter of FY16, the voluntary
turnover rate trended downwards at 7.4 per cent.
A number of internal channels are used to regularly engage
with the geographically disparate Fortescue family and to
communicate transparent, accurate and timely information.
Key channels include:
• Fortescue Hub, the company’s intranet, which was
upgraded to be mobile responsive
• Fortescue TV installed across all of Fortescue’s
operations in 57 locations
• Fortescoop, fortnightly internal newsletter launched
• Weekly, whole of team meetings which are streamed
live to sites.
Maintaining a high performance culture
Fortescue’s leaders are critical to reinforcing, and
leveraging, the Company’s unique culture to drive
business performance. Together with their teams, leaders
are empowered to focus on innovation to achieve the
Company’s safety, cost and production targets.
46 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
In FY16, Fortescue introduced Skills Assessment Workshops.
The workshops are like an ‘all-day-interview’ where Aboriginal
people wanting to access training and employment
opportunities with Fortescue, participate in a series of activities
designed to assess various skills. On finishing the workshop,
participants can progress directly to the VTEC program or are
supported to commence VTEC training at a later date. In FY16,
152 people participated in the workshops and 84 individuals
have since successfully obtained employment at Fortescue
through VTEC. One of these graduates, was employed through
the VTEC Fresh Start program, which guarantees low-risk
Aboriginal prisoners at Roebourne Prison in the state’s north
west a full-time job after completing vocational training courses
that they start while in prison. After successfully completing
the course and upon release, the trainees enter a two week,
site-based training program and are guaranteed a job on
graduation, empowering them to take control of their lives.
Aboriginal engagement initiatives for FY17
The measurable Aboriginal engagement objectives for
FY17 form five key themes:
1.
2.
3.
4.
5.
Promote Aboriginal participation, with a target of
20 per cent by 2020
Build talent pools through opportunities within
Fortescue’s programs for Aboriginal people including
VTEC, extending the Trade Up program to target
Aboriginal people in trades, developing training
pathways into roles in processing and support
departments and encouraging Aboriginal employees to
obtain professional qualifications
Create a workplace which supports Aboriginal
employment through recognition and celebration of
success and increase the uptake of flexible working
arrangements such as job share, part time work and
flexible working practices
Provide family support options including organising
family site visits and implementing a plan for
community based family support
Promote opportunities for Aboriginal employees to
move into leadership positions through the LEAP program,
Aboriginal leaders and CEO for a Day Program.
CORPORATE SOCIAL RESPONSIBILITY l PEOPLE
Creating opportunities through
education and training
Graduate and apprentice programs
Fortescue’s successful graduate program has been running for
five years with 100 per cent of graduates securing employment
at the end of the program. Fortescue offers opportunities in
the science based disciplines including mechanical, electrical,
mining and process control engineering, metallurgy and
geology. The programs are Fly-in Fly-out (FIFO) based to ensure
that operational experience is provided to broaden these new
mining employees’ career opportunities.
An industry leading initiative, Fortescue’s apprenticeship
program has also run for over five years, with many apprentices
receiving awards and accolades from industry bodies and
TAFEs for their skills and professionalism. To date, 272 successful
trades graduates have secured permanent employment on
completion. In FY16, there were 63 apprentices, 28 per cent of
which were Aboriginal and eight per cent female.
Covering a range of trades to support the business including
electricians, heavy vehicle mechanics, fixed plant mechanics,
fabricators and light vehicle mechanics, all apprentices are
rotated around the sites to ensure they receive maximum
learning opportunities.
Creating opportunities for all employees is paramount.
Fortescue understands the importance of focussing its efforts
to ensure Aboriginal employees receive equitable outcomes to
their peers. Fortescue currently has an Aboriginal participation
rate of 14 per cent and expects to increase this to 20 per cent by
2020. Fundamental to the provision of meaningful employment
is to ensure the development of the Aboriginal workforce
through successful training programs.
Fortescue’s Trade Up
Fortescue’s Trade Up Program forms part of Fortescue’s
commitment to sustainable employment opportunities
beyond operational roles. A pathway to an apprenticeship
for Aboriginal employees, Fortescue’s Trade Up program
was launched in September 2015 with the support of key
contracting partners Downer, Goodline, Thiess, GUMA, ICRG,
DVG and EGWYC. Currently there are 38 Trade Up trainees,
with 21 per cent female participation.
Vocational Training and Employment Centres
The Fortescue Vocational Training and Employment Centres
(VTECs) in Port Hedland and Roebourne train and facilitate
employment for Aboriginal people into Fortescue’s mine sites.
Based on the simple but compelling idea that at the end of
training with Fortescue, you are guaranteed a job, Fortescue’s
VTEC model has been recognised as leading edge by the
Federal Government, which has adopted the model and rolled
out VTECs across Australia. VTEC aims to create resilience in
future employees through a model of providing personal and
family support for every individual, tailoring programs for
individuals to succeed in long term careers and high level of
mentoring and coaching in a culturally sensitive manner.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 47
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information 14% Aboriginal
participation
(national best practice)
84 people trained
through VTEC
33%
female VTEC
participants
Living the family values
‘Speak Up’ program
Ensuring Fortescue is a safe and happy workplace is a
fundamental Fortescue value. Whether it’s about a safety
breach, bullying and harassment or inappropriate use of
alcohol and drugs, employees feel empowered to ‘speak up’.
The program provides a number of confidential channels
for people to share their concerns in a fair, balanced and
confidential manner. It’s all about employees being their
brothers’ and sisters’ keeper.
Building on the success of ‘Speak Up’, and following
consultation within the business, Fortescue will refresh the
RESPECT training program in FY17 to ensure continued,
positive engagement.
Workforce equality and diversity
Fortescue is committed to providing a safe, balanced and fair
working environment where core values drive behaviour and
a strong culture.
The Fortescue Board of Directors proudly includes three
female directors, out of a total of ten. In September 2015,
Fortescue announced its membership of the 30% Club
Australia, a club which aims for 30 per cent of women on ASX
200 boards by 2018.
A breakdown of female representation across the whole of
Fortescue, and at senior levels is listed below:
Meet Jessica Mattingley, Electrical Project Engineer
Jessica Mattingley is an Electrical Project Engineer
in Fortescue’s Operational Projects team. The Projects
team is responsible for the design and delivery of
capital projects across all sites in order to achieve increased
operating efficiencies and overall business improvements.
Having joined Fortescue through the vacation program
in 2011, Jessica went on to complete the Graduate
program. The Graduate program allowed her to rotate
through Fortescue’s sites and departments to gain a
whole of business perspective while developing her
technical skills in different fields.
Reflecting on her time at Fortescue, Jessica says she
enjoys working with her team to achieve results.
“At Fortescue, you always need to think differently to
achieve results in such a fast-paced environment. We
always find a better way of doing something and that
keeps things interesting,” Jessica said.
In FY16, 33 participants accepted the opportunity to work
on the FIFO, vacation program. Of the participants, 50 per
cent were female.
Employee
Group
Whole of
Fortescue
Senior
Executive
Board
Members
Female
Female %
Male
Male %
FY14
FY15
FY16
FY14
FY15
FY16
FY14
FY15
FY16
FY14
FY15
FY16
793
657
628
17.4% 16.2% 16.1%
3,770
3,401
3,270
82.6% 83.8% 83.9%
4
2
6
3
5
3
9.5% 16.2% 14.3%
16.7% 30.0% 30.0%
38
10
31
7
30
90.5% 83.8% 85.7%
7
83.3% 70.0% 70.0%
Meet Jade Wilson, Apprentice Fixed Plant Mechanic
As a young girl, Jade Wilson remembers her dad
pulling things apart, fixing them and putting them
back together, leaving her with a strong interest in
how things work. Jade, a Umadai woman, joined
Fortescue in 2012 as a civil operator and was very keen
to develop her skills further. However, her applications
for apprenticeship training were unsuccessful mainly
due to her limited formal education.
Fortescue’s Trade Up was designed to provide a pathway
to an apprenticeship for Fortescue’s Aboriginal employees.
Participants are selected annually to start a 12-month,
nationally accredited traineeship, after which they have the
opportunity to begin a four-year apprenticeship program.
Jade Wilson says Fortescue’s Trade Up “is a great
opportunity to better my studies and knowledge while
I work in the role I want and learn on the job.”
Jade recently began her apprenticeship as a Fixed
Plant Mechanic thanks to the program.
48 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY l PEOPLE
Gender initiatives for FY16
Each year the Board review and approve measurable diversity objectives. The objectives for FY16 and progress against these are summarised
below.
Identified
Opportunity
Build on female
participation
rate, across the
business and
in targeted
departments
Recommended Measurable Objectives FY16
Progress
Establish a Diversity Stakeholder Group
Stakeholders engaged through consultation and
planning sessions to set targets and strategies
Targeted recruitment and development practices,
including shortlisting female candidates for all roles
Recruitment team ensured women were shortlisted
and interviewed. 21% of offers were made to females
Set female participation goals when conducting
insourcing or hiring programs
Establish a dedicated apprenticeship program to
increase female and Aboriginal participation in trade
roles. Target 25% participation in apprenticeship,
traineeship and graduate positions
Increase female participation rates for departments
with below company representation:
• Process plants
• Maintenance
• Mine services/NPI
Recruitment providers have female targets of 20%
Female participation rates:
• Fortescue’s Trade Up 21%
• Graduate program 28%
• Apprentice program 7%
Diversity targets set for the insourcing of positions
at Christmas Creek, during the transition to owner-
operator mining
Improve retention
rate of females to
match or better
male turnover
rates
Focus on site based females and females returning
from parental leave, by identifying opportunities to
extend flexible work arrangements
Identify and offer training opportunities to aspiring
female leaders
Provide diversity updates at bi-monthly General
Manager meetings and quarterly presentations
Work with industry bodies to promote gender
diversity and build awareness of ways to increase
female participation
Continue to build
awareness of
the benefits of
gender diversity
within the
business
Annualised voluntary turnover rates for men and
women have increased largely as a result of the roster
change, however the gap in turnover between males
and females has declined
Two new family day care units were established in
the Port Hedland Community under a partnership
between Fortescue and One Tree
Currently 137 employees are on job share arrangements
The Career Resiliency program targeting aspiring female
leaders was held in October 2015 and in May 2016, for
the third time
CEO for a Day
Q2 - Valma Papertalk, Civil Operator
Q3 - Rowena Roberts, Aboriginal Development
Superintendent
Q4 – Careen Lee, Surface Mining Supervisor
Monthly reporting in place and targets for female and
Aboriginal employment set at 25% and 20% by 2020
respectively
Support University of WA Young Engineers, Women in
Engineering High Tea
Participate in AMMA’s Resource Kids Connect
promoting STEM in young, female students
Group Manager, Fortescue People presented at
industry events promoting diversity in the workplace
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 49
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information CORPORATE SOCIAL RESPONSIBILITY l PEOPLE
Identified
Opportunity
Continue to build
awareness of
the benefits of
gender diversity
within the
business
Ensure
remuneration
outcomes are
based on job
value
Recommended Measurable Objectives FY16
Progress
Nominate female employees for internal and
industry awards
Internal recognition program, Northern Spirits, includes
an award ‘Inspiring female employees to thrive’
Ongoing diversity and equal opportunity
communication and training, including:
•
•
•
•
•
RESPECT
Code of Conduct
Equal Employment Harassment and Bullying
Fair treatment
Whistleblowing Policy
Review and update Fortescue’s Diversity Policy
Seven female employees submitted for FY16 CME
Women in Resources awards
Included in all inductions and leadership programs
along with ‘Speak Up’ internal communications
campaigns
Review completed by the Company Secretary in May
2016
Obtain employee feedback on diversity via a
company wide survey
Safety Excellence and Culture Survey completed in May
2016
Complete annual gender remuneration parity
review and implement recommended actions
Gender equity pay review completed in FY16
Anomalies corrected and communicated to those
affected
FY17 Diversity Plan
The FY17 Diversity Plan has been developed following four business wide consultation sessions with over 250 employees. The sessions
illustrated what Fortescue’s employees thought the Company’s strengths and opportunities were to further strengthen diversity.
Generally, employees viewed diversity as: “Developing teams with a broad range of personalities, skills and experience, and
embracing the new ideas and innovative ways of doing things that come from this. Celebrating and respecting people’s differences
and committing to being inclusive at all times.”
The measurable diversity objectives for FY17 form five key themes:
• Continue to increase the female participation rate:
- Company wide target set at 25 per cent for female participation by 2020.
• Build talent pools:
- Set targets for internal and external recruitment providers of 20 per cent female participation by FY17
- Attract parents to return to work following career breaks
- Develop training pathways into ore processing roles
- Encourage female employees to obtain professional qualifications.
• Create a workplace which supports diversity:
- Celebrate success in diversity through the Company’s recognition programs
- Encourage all eligible employees to access paid parental leave and to return to work following parental leave.
• Provide childcare options so families can balance work and family responsibilities
- Develop a crèche / study area for Fortescue’s Perth office
- Support employees when attending company meetings and ‘keep in touch’ with childcare options
- Review day care options
- Support employees with family responsibilities through family site visits and community based family support.
• Support and promote opportunities for aspiring female leaders:
-
Identify females with leadership potential through talent reviews and ensure participation in leadership
development programs
- Continue the Career Resiliency Program, the CEO for a Day initiative and mentoring programs.
50 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
Community
Building strong communities
A vision for empowerment
Empowerment is a Fortescue value and fundamental to the
approach of building vibrant and strong local communities
by providing opportunities for training, education,
employment and business development.
Fortescue is committed to local employment, a residential
workforce, and training and employment for Aboriginal
people to create opportunities and growth within the
regions in which it operates. Fortescue’s community team
is guided by the philosophy of being welcomed by the
communities that host its business activities. It works
towards this goal through effective engagement with
stakeholders, respect for cultural heritage and diversity,
investment in community projects and programs, and
fostering a strong residential workforce.
This approach is underpinned by Fortescue’s commitment
to the Western Australian Government to contribute to
sustainable community and social benefits as outlined in the
Company’s Community Development Plans and Reports.
Meet Catriona Dowding, Community Advisor
A Ngarluma woman from Roebourne, Catriona Dowding
is a member of the community team at Fortescue, based
at the South Hedland Shopping Centre. Catriona and the
community team interact with more than 700 Port Hedland
residents every year. Catriona oversees the two community
grant rounds held annually in the Town of Port Hedland, East
Pilbara shire and the towns of Tom Price and Roebourne. She
also represents Fortescue in the local community, including
as a member of the organising committee for Port Hedland’s
120th birthday celebrations.
Having lived in remote communities before, Catriona’s
goal is to contribute to communities, such as Port Hedland
in a meaningful way. “I am really proud to be part of a
team that is dedicated to making Port Hedland the best it
can be,” Catriona said.
Contributing to ending Aboriginal disadvantage
Fortescue believes that its operations provide a unique
opportunity to empower generational change in the
Aboriginal communities of the Pilbara. Fortescue’s
commitment to employing, training and providing business
opportunities to Aboriginal communities is central to
the way it conducts its business. These programs have
been developed in close consultation with Aboriginal
communities determined to see Aboriginal people take their
stake in the Pilbara, and the broader Australian economy.
Investing in sustainable Aboriginal businesses
Fortescue’s Billion Opportunities program commenced
in 2011 as an initiative to promote sustainable business
opportunities for Aboriginal people. Aligning with
Fortescue’s commitment to support local businesses,
Billion Opportunities forms a critical element of Fortescue’s
approach to ensuring economic opportunity is the key
benefit to flow from Native Title agreements.
Since its inception, Billion Opportunities has awarded 238
contracts and sub-contracts worth more than A$1.8 billion
to 102 Aboriginal owned businesses and joint ventures, with
a particular focus on Traditional Owner involvement. In April
2016, an internal audit review noted that despite challenging
market conditions, Billion Opportunities indicates a
continuing upward trend, which reflects positively on
Fortescue’s continued commitment to provide opportunities
and award contracts to Aboriginal businesses.
Meet Sheila and Leon Torzyn, Print Junction
owner-operators
Sheila and Leon are owner-operators of Print Junction,
a graphic design and print business and a beneficiary of
Fortescue’s Billion Opportunities program. Their relationship
with Fortescue began in 2012 with a print run for their
business worth A$293. It’s come a long way since, having
secured a three year contract for over A$1 million in late
2015, which was the first contract Print Junction had
received in 20 years of business. It is this unique, long term
business relationship that won Fortescue and Print Junction
the Supply Nation Supplier to Corporate Partnership of the
Year award at Connect 2016 Supplier Diversity Awards.
Leon said it was an honour to receive the award. “Print
Junction have grown with this experience and we
appreciate the opportunities that Fortescue has provided,”
he said.
Read more about Fortescue’s Aboriginal employment and
development program in the People Section of this CSR
report at page 47.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 51
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Contributing to vibrant communities
Fortescue’s vision for northern Australia includes building the
towns in the Pilbara into vibrant and sustainable communities.
As part of this commitment, Fortescue provides support to
various community facilities and events delivered by the
Town of Port Hedland, including Wanangkura Stadium and
the north west Festival. In addition, Fortescue’s partnership
with the South Hedland Swans Australian Rules Football
Club has been renewed for a further five year term. As a
sponsor of both the national women’s (Hockeyroos) and men’s
(Kookaburras) hockey teams, Fortescue and Hockey Australia
deliver the National Indigenous Hockey Program.
Fortescue believes good educational opportunities are
key to strengthening and building regional communities.
Fortescue is an operational sponsor of the Hedland Senior
High School’s Trade Training Centre, providing students with
a pathway to employment in the mining industry and other
industries requiring trade qualified students. Fortescue also
hosted the students at its Port Hedland facilities during work
placement week.
Fortescue understands access to childcare can be a real
barrier to employment for parents in regional communities.
In FY16, two new family day care units were established in
the Port Hedland community under a partnership between
Fortescue and One Tree, a community based provider
of family day care services. This much needed resource
provides childcare services to Fortescue employees and the
broader community.
In 2016, Fortescue continued its support of the Young
Australian Art and Literacy Awards: Pilbara Region in FY16
for a fifth consecutive year. Delivered to eight Pilbara schools
by leading children’s authors and illustrators, the program
aims to develop literacy, teach creativity and increase school
attendance levels, with a view to addressing the broader
concern of child suicide rates in remote communities.
Fortescue supports local careers in trade
Fortescue is proud to partner with Hedland Senior High
School to provide operational funding to its Trade Training
Centre. Worth A$300,000 over three years, the agreement
covers the purchase of equipment and materials for the
Centre, allowing the students to learn key skills in a hands-on
environment with high quality machinery and equipment.
The skills and experiences the students gain through
facilities like the Trade Training Centre allow them to remain
in their local community and seek careers in the industries
that are operating where they live.
Hedland Senior High School Principal, Kelly Summers,
said, “Our partnerships with local industry and companies
such as Fortescue are vital in supporting students to
develop a wider understanding of employment and the
responsibilities and expectations they will have to meet as
apprentices and trainees.”
Grade 11 and 12 students can apply to study a Certificate II
in Engineering Pathways through the Centre, which teaches
them to use workshop machinery, as well as critical safety
skills and general industry knowledge.
The entire Fortescue family has been working together to
contribute to the new Ronald McDonald House in Perth,
raising A$200,000 in two years. The new facility was opened
in December 2015. Ronald McDonald House provides much
needed accommodation and support to regional and remote
children and their families in Perth for medical treatment. The
Royal Flying Doctor Service (RFDS) is another highly valuable
resource for the people of the Pilbara, and Fortescue employees
participated in several fundraising activities for the RFDS across
the sites.
Fortescue stands behind Australia’s campaign to prevent men’s violence against women
Fortescue also supported the Hedland Women’s Refuge
through a partnership with the VTEC training program to
upgrade the outdoor area at the refuge during their ten week
work readiness training.
In FY16, Fortescue supported several community initiatives
aimed at ending violence against women and increasing
female participation in the workforce. White Ribbon Day is
a national campaign to end men’s violence against women.
During the year, CEO, Nev Power, was accredited as a White
Ribbon Ambassador.
“I became a White Ribbon Ambassador because I am in
a position to influence, educate and show leadership on
this issue, not only in our workplace, but also in the wider
community,” Mr Power said.
Critically acclaimed Australian actress, Claudia Karvan, joined
Mr Power in speaking out against violence towards women
and encouraged employees to take the White Ribbon oath
during a series of events held across site. In Port Hedland,
Fortescue employees participated in the annual White
Ribbon Day march.
52 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY l COMMUNITY
Fortescue supports one of Australia’s most
gender-equal sports
Meet Ayla Stewart, Personal Assistant to General
Manager of Cloudbreak
Fortescue has been a supporter of the Kookaburras, Australia’s
national men’s hockey team, since 2012. In January 2016,
Fortescue was delighted to extend their support of this
fantastic sport to the Hockeyroos, Australia’s national women’s
hockey team.
CEO, Nev Power, said the sponsorship of the Hockeyroos was an
opportunity to publicly demonstrate Fortescue’s commitment
to gender equality.
Ayla is an Aboriginal woman from the Pilbara region with
continued links to family, tradition and culture. A proud
Warnman (Martu) woman, Ayla holds a close connection
to the Nyangumarta people having been raised by her
grandmother. Ayla commenced at Fortescue’s Cloudbreak
mine as an operator in 2014, after successfully graduating
from VTEC. In April 2014, Ayla was able to purchase her
own home with the assistance of Fortescue’s Pilbara Home
Ownership Scheme.
“Hockey Australia pools sponsorship revenues and pays
female and male athletes equally, but by signing on
formally as a sponsor, we are very excited to be more
directly associated with the Hockeyroos,” he said.
Ayla and her family are one of 72 families who have
purchased properties through the Scheme. Fortescue
maintains a further 375 rental properties, highlighting the
commitment to a residential workforce.
Reflecting on the sponsorship agreement, Australian
Sports Commission Chair John Wylie said, “Fortescue is
taking a commendable leadership stance in improving
gender diversity and its sponsorship of the Hockeyroos is
highly encouraging for Australian sport and business.”
Through the partnership with Hockey Australia, Fortescue is the
principal sponsor of the National Indigenous Hockey Program
which delivers hockey workshops to Pilbara schools.
Living in our communities
Fortescue recognises the need to build the towns in the
Pilbara into vibrant and sustainable communities that will
attract and retain the workforce and their families required
by the mining industry to thrive.
With this in mind, Fortescue is committed to growing its
Pilbara residential operational workforce. Fortescue currently
has 524 residential employees in the Pilbara and provides
housing support to 456 employees.
In order to ensure Fortescue provides opportunities
for local Aboriginal people to work on its remote
Pilbara mine sites, Fortescue provides a FIFO service
to 221 employees based in the towns of Port Hedland,
Roebourne and Karratha. This unique arrangement
ensures Aboriginal people in regional towns can access
employment opportunities on remote mine sites which
would otherwise be staffed by FIFO workers outside of
the region. These employees are also entitled to housing
assistance, helping to ease pressure on the limited public
housing stocks in the Pilbara.
Now the Personal Assistant to the General Manager of
Cloudbreak, Maryanne Kelly, Ayla says that becoming
a home owner is a sense of accomplishment. “Without
the support and guidance of Fortescue’s Pilbara Home
Ownership Scheme this opportunity would have not been
achievable,” Ayla said.
Respecting our neighbours
Fortescue is committed to developing strong relationships
with key stakeholders, especially those directly affected
by its operations, such as pastoralists who operate cattle
stations in the vicinity. Since its inception, Fortescue has
worked its operations around 74 different pastoral leases in
the Pilbara and Gascoyne region. The level of engagement
with the pastoralists depends on the nature of the activity
being carried out by Fortescue. Generally the relationship
starts with exploration and continues through infrastructure
development and mining operations.
Fortescue is proud of the relationships it has developed with
the pastoralists in the Pilbara through a hands on and open
approach.
Vince George and Matt Clements from the Pastoral Access team
are responsible for building and maintaining relationships with
pastoral leaseholders and compliance with Fortescue’s Land
Access Agreements and tenement conditions.
Vince and Matt are often on the road, travelling hundreds of
kilometres between stations and sites including Exploration,
Rail and Mining.
Meet Vince George and Matt Clements, Pastoral Access team
Fortescue currently holds 19 Land Access Agreements with
pastoral leaseholders, with some leases having been in
operation for over 130 years.
An average day for the Pastoral Access team can involve assisting
stations with mustering cattle near Fortescue’s operational areas,
installing and maintaining stock watering points, fencing, as well
as donating material or equipment to the stations that are no
longer of use to the Company.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 53
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information Herb Elliott Port
NJAMAL
Iron Bridge
Marble Bar
Chichester
Hub
Cloudbreak
PALYKU
Pilbara
Western Australia
Current Operations
Under Development
MIB
Christmas Creek
Karratha
Roebourne
KARIYARRA
NGARLUMA/
YINDJIBARNDI
Solomon
Hub
YINDJIBARNDI
Firetail
Kings
EASTERN
GURUMA
Tom Price
Paraburdoo
PKKP
NYIYAPARLI
Newman
Working together to manage heritage
Fortescue is committed to the identification and protection
of Aboriginal heritage and believes it is important to increase
shared knowledge of Aboriginal culture in order to develop a
richer understanding of Australia’s first people.
The identification and management of Aboriginal cultural
heritage is fundamental to Fortescue’s approach to
sustainable operations. Fortescue consults closely with its
Native Title partners and government to ensure effective
cultural heritage management outcomes and commitment
to compliance with all applicable legislation, including
the Western Australian Aboriginal Heritage Act 1972 (AHA).
Fortescue is proud to report that there were no incidents
impacting on Aboriginal heritage sites this year.
More than
5,000
heritage places
managed
0reportable
heritage
incidents
190,000ha 6,800ha
ethnographically
surveyed
archaeologically
surveyed
Aboriginal Heritage and Native Title
Building partnerships
Fortescue continues to build on its excellent long-standing
relationships with its Native Title partners across the Pilbara.
Fortescue has Land Access Agreements (LAAs) in place with
seven Native Title groups in the Pilbara region, specifically
the Kariyarra, Palyku, Nyiyaparli, Martu Idja Banjima,
Eastern Guruma, Puuti Kunti Kuruma Pinikura and Njamal
People, and works closely with the Wirlu-murra Yindjibarndi
Aboriginal Corporation (WMYAC) as a representative of
Yindjibarndi Traditional Owners.
In 2015, Fortescue commenced negotiations with several
Native Title Partners to convert the earliest LAAs, executed
in 2005, to Indigenous Land Use Agreements (ILUAs). An
ILUA is a special type of statutory agreement established
through the Native Title Act. Fortescue consulted extensively
with its Native Title partners in the development of the
ILUAs. While the ILUAs enhance Fortescue’s security of
tenure, they also expand the range of opportunities
offered to the Native Title partners, with a particular focus
on additional resources being allocated to business and
community development programs.
The first of the ILUAs, between Fortescue and the
Nyiyaparli People, was authorised by the Nyiyaparli
Traditional Owners at a whole of community meeting in
Port Hedland in early 2016. The authorised ILUA will now
be considered by the National Native Title Tribunal and
is expected to be registered in late 2016. Under the ILUA,
Fortescue will work even more closely with the Nyiyaparli
People to identify and deliver community and business
development opportunities.
Fortescue expects to convert the remaining Land Access
Agreements into ILUAs with most Native Title partners
through 2016 and 2017.
In addition to its LAAs and ILUAs, Fortescue has concluded
20 heritage agreements to facilitate exploration activities
with nine Native Title groups.
54 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY l COMMUNITY
Community and culture
Fortescue’s heritage team also works with Native Title
partners on broader cultural, community, research and
communications projects. Following the launch of the
Gamburlarna Project with the WMYAC in 2014, a number of
sub-projects have been conducted, including an interactive
cultural mapping activity, support for a music education
program at Roebourne District High School and the ‘Untold
Stories’ video project. Fortescue’s contribution to the project
thus far of A$1.2 million, will be supplemented by a further
commitment of A$1.8 million over the coming years.
Meet Bruce Monadee, Senior Elder
The Untold Stories project is an initiative of the Gamburlarna
Project. The Project has seen 20 community members,
including Big hART’s Yijala Yala Project and Wirlu-murra
Yindjibarndi Aboriginal Corporation work together to record
the stories of some Yindjibarndi elders.
Senior Elder, Bruce Monadee, has been involved in the
filming from the beginning. Bruce said it was about time he
told his story and had it recorded properly.
“It is important to record what we have done and what
happened. We have been walking with the other elders,
roaming the Fortescue River and where we grew up. It was
good to say how we felt when we first become a part of
Roebourne, meeting other tribes and reflecting on how
that made us feel and how it affected us,” he said.
Some of the significant heritage sites, which the Company
has committed to avoid and protect in collaboration
with Traditional Owners, include the 42,000 year old
Kakutangutanta rock shelter adjacent to a mining area at
Christmas Creek and the Satellite Springs ethnographic site
at the Kings Valley mine.
Following the development of new Heritage Consultant
Standards (the Standards) in FY15, a new heritage consultant
induction and performance management procedure
has been implemented. This has resulted in further
improvements in the quality and transparency of heritage
survey outcomes, keeping pace with ongoing changes to the
administration and application of heritage legislation.
Building cultural understanding
Working adjacent to known heritage areas presents a
unique opportunity for employees and contractors to
better understand, respect and promote Aboriginal
history, heritage and culture. In FY16, Fortescue heritage
staff organised and attended ten heritage sub-committee
meetings with Native Title partners to ensure transparent
and open dialogue is maintained about heritage processes,
approvals, compliance and Fortescue’s operations.
In consultation with its Native Title partners, Fortescue
delivers a comprehensive program of cross-cultural and
heritage education for all employees and contractors. In
FY16, 6,900 employees and contractors participated in
Fortescue’s Aboriginal Engagement sessions. Over 2,800
employees and contractors engaged in cross-cultural
awareness programs delivered across Fortescue sites.
An educational video on Fortescue’s heritage processes was
developed and launched during 2015 NAIDOC Week, in
celebration of the theme: We all Stand on Sacred Ground:
Learn, Respect and Celebrate. The video can be viewed at:
www.fmgl.com.au
Percentage spend Australia and overseas
Billion Opportunities contracts awarded
1.51%
98.49%
Australia
Overseas
21
24
15
20
27
11
9
13
10
22
17
11
FY13
FY14
FY15
FY16
2323
10
7
FY12
Native Title Group
Aboriginal contractor
Traditional Owner
Billion Opportunities contract value (A$ millions)
Fortescue supplier spend profile (A$ millions)
36
88
29
185
549
299
32
60
182
13
187
176
3
11
29
FY12
FY13
FY14
FY15
FY16
Native Title Group
Aboriginal contractor
Traditional Owner
500
120
200
70
6,100
5,700
200
50
3,300
FY14
FY15
FY16
Australian suppliers
Local suppliers - Pilbara
Overseas suppliers
O
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v
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w
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FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 55
CORPORATE SOCIAL RESPONSIBILITY l COMMUNITY
Engaging with stakeholders
Effective stakeholder engagement is at the heart of any long-term social license to operate. Fortescue is committed to ensuring
we deliver the highest possible benefits to the Company’s stakeholders over the long term.
Customers
Stakeholders: Customers are China, Japan, South Korea and other parts of Asia
Interests and concerns:
Stakeholder engagement and response:
• Safe, reliable and consistent supply and delivery of
• Regular face to face and electronic communication
blended iron ore products
• Maintainenance of strong technical and commercial
relationships through timely, open and honest
communication, delivering on Fortescue’s promise
• Shanghai and Singapore offices with in-country employees
• Highly skilled and experienced marketing and sales team
• Quality control of Fortescue products
• Targeted continuous improvement programs
• Visits to customer operations
Employees
Stakeholders: Employees working across Fortescue’s operations
Interests and concerns:
• Ensuring a safe workplace
• Fostering a rewarding work environment, where
employees feel empowered through career
development and opportunities
Engagement:
•
Internal communication events, such as Future Forums and
Fortescue Pulse with the CEO and executive leadership team
• Leadership Excellence Pathway to provide professional
development for employees
• Building a strong and unique culture through a
• Annual safety and culture survey and regular safety engagement
values-driven approach
on performance and improvement
• Celebrate and respect people’s differences and
• Employee recognition programs, Northern Spirits and Legends
commit to being inclusive at all times
Local and Aboriginal communities
•
Internal communications channels including prestart meetings,
company emails, site notices, intranet, internal newsletter,
Fortescue TV, live-streamed whole of team meetings and events
Stakeholders: Local and Aboriginal communities in close proximity to Fortescue’s operations and
the broader Western Australian community
Interests and concerns:
Engagement:
• Potential environmental and social impacts
• Dedicated community office
associated with Fortescue’s operations
• Sustainable community development through
local content, employment, training and education,
business development and opportunities, and
investment in services and amenities
• Culture and heritage management
• Community consultation and engagement
• Fortescue-hosted community events
• Fortescue Community Support program, Helping Others
• Partnerships and investments in significant projects, including the
Gamburlana Project
• Fortescue VTEC
• Dedicated heritage, pastoralist and Aboriginal development teams
Traditional Owners
Stakeholders: Traditional Owners and Native Title groups of the land on which Fortescue operates
Interests and concerns:
Engagement:
• Compliance with Land Access Agreements,
• Dedicated Aboriginal heritage, Native Title and Aboriginal
including heritage and Native Title compliance
development teams
• Strengthening cultural awareness and
• Progressive negotiated review of Land Access Agreements and
understanding
registration of Indigenous Land Use Agreements
• Creating opportunities through training,
employment, and business development
• Regular communication and consultation with Native Title groups
and prescribed working group committees
• Support for Aboriginal heritage protection and promotion activities
• Fortescue Vocational Training and Employment Centres (VTEC)
• Targeted and tailored business development meetings
• Fortescue hosted business and employment exhibitions and events
56 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
• Local content procurement targets
CORPORATE SOCIAL RESPONSIBILITY l COMMUNITY
Engaging with stakeholders continued
Government and regulators
Stakeholders: Federal, State and Local Government agencies and regulators
Interests and concerns:
Engagement:
• Environmental, social and fiscal performance and
• Regular engagement with Government and regulators at Federal,
compliance
State and local levels
• Legislative and regulatory policy frameworks
• Regulatory information
• Land access and approvals
• Community development
Educational institutions
• Public information including financial results and community
reports
Stakeholders: Local schools, universities, and other educational institutions
Interests and concerns:
Engagement:
• Creating career pathways and opportunities,
• Fortescue’s Five Star Program which includes high school
including in the Pilbara
scholarships, cadetships and school and work based traineeships
• Supporting Aboriginal students and creating
• University graduate program
economic opportunity through education and
training
• Attracting high calibre employees by positioning the
Company as an employer of choice
•
Involvement in local career exhibitions such as AMMA Resource
Kids Connect
• Site visits and work placement opportunities
• Hedland Senior High School Trade Training Centre
Non-government organisations
Stakeholders: Local, regional and international organisations concerning environment, human rights,
sustainability and corporate social responsibility
Interests and concerns:
• Risk management
• Community engagement
• Environmental performance
• Human rights
• Compliance
Suppliers and contractors
Engagement:
•
Involvement in UNGC forums
• Partnerships in delivery of services and supporting programs
• Reporting
• ASX announcements and media releases
• Environment and community departments
• Engagement and consultation
• Corporate policies
Stakeholders: Businesses local to Fortescue’s operations in the Pilbara, Western Australia and Australia
Interests and concerns:
Engagement:
• Ensuring economic opportunity through sustainable
• Strategic relationships with contractors and suppliers
business development
• Regular meetings, communication and reviews with strategic
• Working closely with suppliers and contractors to
suppliers and contractors
achieve mutually beneficial outcomes
• Early engagement with key contractors and suppliers for major
• Transparent communication throughout contract
projects
award process and meeting agreements and
processes on an ongoing basis
• Local content procurement targets
• The Billion Opportunities program
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 57
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information Environmental management systems
Fortescue’s Environment Policy was updated during FY16
to reflect the Company’s commitment to continually
improve processes and measure the progress against
environmental objectives.
Fortescue’s environmental commitments and activities
reflect the ICMM and UNGC principles and align with the ISO
14001 standard for Environmental Management Systems.
The Company’s environmental management system
identifies, communicates and monitors aspects of operations
that have the potential to impact the environment, and
direct management and improvement activities accordingly.
In FY16, Environmental Improvement Plans were developed
for each operational area to ensure a continual focus on
effective management.
Internal auditing against the Company’s environmental
obligations continued throughout the year with the results
providing a key indicator of performance. These internal
audits were supplemented with an independent external
review commissioned at the Cloudbreak mine site. This
review demonstrated that Fortescue “has well established
environmental management processes and systems that
were generally well implemented resulting in a high level
of environmental performance and compliance.” A number
of recommendations were also considered and incorporated
into Fortescue’s day to day operations as part of the
Company’s journey towards environmental excellence.
Audits conducted on Ministerial Statements by The Western
Australian Office of the Environmental Protection Authority
(EPA) did not identify any material non-compliances.
Environment
Protecting the Environment
Reducing Fortescue’s environmental impact
Fortescue is committed to safeguarding the environment
for future generations through responsible environmental
management. The Company takes a precautionary approach to
environmental challenges and continues to invest in initiatives
and technologies that minimise its environmental impacts and
contribute to sustainable environmental benefits.
Central to Fortescue’s commitment to environmental
management is the Company’s Environment Policy which
focuses on minimising, mitigating and remediating the impacts
of its operations. As a responsible corporate citizen, compliance
with all relevant environmental laws and obligations is the
minimum standard to which Fortescue operates and the
minimum requirement against which the Company measures
environmental performance.
Fortescue’s environmental management includes the
development of impact assessments, management plans,
monitoring programs and detailed reports and registers.
An extensive library of these resources is available at
www.fmgl.com.au
In FY16, Fortescue recorded an environmental incident at
its Christmas Creek mining operations that resulted in the
accidental discharge of saline water into the surrounding
environment. Occurrences like these, in sensitive
environments, have the potential for material environmental
impact and as such, Fortescue is committed to ensuring that
its environmental controls and monitoring programs ensure
that associated risks are as low as reasonably practicable. The
discharge did not reach or impact the regionally significant
Fortescue Marshes and was reported to the Department of
Environment Regulation. Fortescue will continue to monitor
the impacts of the incident.
8%
reduction in
GHG emissions
0
surface water
discharge
40,000ha
biological
surveying and
monitoring
80%
Chichester
overburden
backfilled to pits
58 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY l ENVIRONMENT
Greenhouse Gas emissions and energy
Fortescue recognises its responsibility to actively improve
energy use and minimise Greenhouse Gas (GHG) emissions
to reduce its contribution to climate change and impact on
the environment.
The Company’s transition into the operations phase has
allowed for an even greater focus on energy efficiency and
energy intensity targets. Initiatives driving further sustainable
reductions in overall GHG and energy intensity include:
Fortescue’s operations and approach to GHG is compliant
with:
• Australian Federal Government’s National Greenhouse and
•
Improvement in strip ratios across Fortescue’s mines has
resulted in less energy being consumed, per tonne of
material removed
Energy Reporting (NGER) Act 2007
•
Improved ore recovery from Fortescue’s wet plant operations
• The Fortescue River Gas Pipeline has reduced Fortescue’s
Solomon mine site diesel consumption by 102 million litres
for FY16, representing a total carbon CO2e abatement of
approximately 35,000 tonnes
• The Pilbara Power Project will see a reduction in natural
gas usage by Fortescue’s Port operations, resulting in a
carbon abatement of 88,000 tonnes CO2e per annum from
existing FY16 consumption.
• The international Carbon Disclosure Project
• The Company’s Climate Change and Energy
Management Policy
• The Company’s Greenhouse Gas Emissions and Energy
Reporting Management Plan.
Whilst production output remained relatively steady,
Fortescue’s total scope one and scope two GHG emissions
for the FY16 reporting period were 1.772 million tonnes of
CO2e, representing a strong net decrease of eight per cent
compared with the previous 12 months.
Monitoring emission and energy use intensity is a practical
indication of GHG performance as it takes into account
the effects of the Company’s entire operations on energy
consumption. In FY16, Fortescue’s GHG and energy intensities
stabilised and improved with a 1.5–1.9 per cent improvement
from FY15.
Energy use intensity
GHG emissions intensity
GJ of energy consumed (‘000) / million tonnes of
material mined, processed, railed and shipped
Total tonnes of C02e (‘000) / million tonnes of
material mined, processed, railed and shipped
32
31
27
28
26
0.10
2.0
0.14
1.9
0.3
1.7
0.4
1.6
0.4
1.6
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
Energy Use
GJ of energy consumed (m)
26
27
25
21
16
Scope 1
Scope 2
Total GHG Emissions
Tonnes of CO2e (m)
0.29
1.5
0.37
1.5
0.36
0.36
1.4
1.4
0.1
1.3
0.5
1.0
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
Scope 1
Scope 2
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 59
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information CORPORATE SOCIAL RESPONSIBILITY l ENVIRONMENT
Water management
Effective management of water resources is fundamental to
the sustainability of Fortescue’s operations, the environment
and the communities within which the business operates.
Fortescue takes a proactive approach to responsible water
management and complies with all relevant water licensing
requirements set by government and industry regulators.
Dewatering and other mining related water uses account
for the majority of all water abstracted or produced in the
Pilbara. Fortescue continually assesses and manages its water
resources, applying adaptive responses to water excess,
water scarcity, water quality and waste water treatment.
Wherever possible, waste water treatment plant discharge
is recycled for other onsite applications including dust
suppression and landscape irrigation.
Fortescue’s operations are guided by site specific
Groundwater Management Plans and informed by the
Department of Water 2013 Strategic Policy 2.09, which
recommends a hierarchical approach for the use of mine
dewatering surplus.
The Papa Waringka and the Fortescue Marsh
Fortescue’s innovative approach to minimise its impact
on groundwater has been recognised by the International
Water Association, winning a top Project Innovation Award
in 2012 at the World Water Congress. The Papa Waringka
(Nyipali language for water in the ground) Managed Aquifer
Recharge (MAR) program at the Chichester Hub sees water
from mine dewatering reinjected down dip. This approach
minimises potential indirect impacts to neighbouring
water users, groundwater dependent ecosystems and the
Fortescue Marsh.
The Fortescue Marsh is listed on the Directory of Important
Wetlands of Australia as a wetland of national significance
and is considered to be a unique wetland landform in
Western Australia. Significant monitoring is in place to ensure
the quality of water is returned to the aquifer. Smaller MAR
systems are successfully protecting groundwater fed pools
at Solomon from dewatering impacts and enabling the
Company to manage potential for environmental impact.
Climate change
Fortescue is focussed on addressing the impacts of climate
change by reducing its emissions and investing in low-
emission technology. The Company is also committed to
ensuring the resilience of its operations under various climate
change scenarios.
Severe weather events
Fortescue’s existing assets have limited exposure to
interruptions caused by predicted outcomes such as extreme
weather events, increasing average temperatures and water
scarcity. Regardless, the risk of these events are factored into
project designs as well as annual business forecasts. Developed
with the impact of climate change in mind, site specific designs
are created for each project and reassessed if necessary.
To improve the accuracy of this process and validate current
understanding of the effects of climate change, the Company
utilises continuous weather monitoring and literature scans and
conducts regular business impact and risk assessment studies.
All of Fortescue’s infrastructure meets Australian standards and
codes for wind and maritime structures. Australian standards
wind code recommendations for the most severe cyclone
region are applied to all facilities within the Port Hedland area
and are extended to infrastructure in less at risk zones.
Water supply
The availability of suitable quality process water for plant
and operations in order to sustain production is another key
consideration in preparing the business for the potential
physical effects of climate change. During planning and risk
assessment work, the predicted volume and quality of water
supply from dewatering is calculated for two year, five year
and life of mine timeframes and compared against predicted
and forecast demand growth.
The potential lack of water supply is evaluated as part of the
risk assessment process and financial analysis is completed
on these options. Alternative water management practices,
such as improved efficiency measures or additional
supply options, are incorporated into development and
construction.
Fortescue’s water management and associated monitoring
program is critical to ensure there are no unplanned long
term or offsite impacts to the water dependent ecosystems
and habitats adjacent to its operations. Vegetation health
and groundwater levels and quality monitoring programs
demonstrates Fortescue’s effective management on this
valuable resource.
Meet Andrew Jackson, Operational Hyrdogeologist
Andrew, an Operational Hydrogeologist, has been with
Fortescue for five years. He works with the dewatering and
mine planning teams to develop strategies to mitigate
groundwater related issues. By understanding the current
hydrogeological conditions, Andrew and the teams work
together to prevent and minimise delays to mining, maintain
dewatering and injection targets, and ensure Fortescue is
adhering to its groundwater related environmental obligations.
Andrew’s work is critical to the success of Fortescue’s
award winning, Managed Aquifer Recharge scheme, the
Papa Waringka. “I am very proud to work on a project that
represents world’s best environmental practice and ensures
groundwater levels within the Fortescue Marsh are not
adversely impacted by mining operations,” Andrew said.
60 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY l ENVIRONMENT
Technology
A number of technological advances designed to reduce
Fortescue’s environmental impact and improve water
use efficiency are currently being assessed. One of the
technology advances being explored is telemetry of flow
meters on pipelines which can reduce the size of spills by
providing real time monitoring. Fortescue is also testing the
use of filters to separate and recover water from processing
waste. It is anticipated that some technology advances will
be rolled out in FY17.
Water use
Site
Type
Volume
(kL) 2016
Volume
(kL) 2015 Use
Herb Elliott Port
Scheme water
5,584
7,636
Potable supply
Groundwater abstraction
744,618
625,187
Process and dust suppression
Desalination
Railway
Groundwater abstraction
290,125
159,802
280,457
Process and dust suppression
265,000 Dust suppression for rail operations and
potable water supply to construction
camps
Mining operations
Groundwater abstraction
176,145,306
169,074,323 Dewatering to allow for mining below
water table, potable water supply and non-
dewatering abstraction for mine use
Returns to the environment
Groundwater reinjection
120,621,000
115,954,853 Water is injected into aquifers to minimise
environmental impacts and maintain water
balance
Surface water discharge
-
- No excess groundwater was discharged to
surface during FY16
Supplementation
838,471
- Water to minimise impact to groundwater
Evaporation and seepage
993,000
255,000
fed pools
Evaporative losses from uncovered transfer
ponds and seepage from unlined brackish
ponds
Groundwater use
Wastewater data
Site
Christmas Creek
Solomon
Cloudbreak
Ore processing facilities
30,023,021
27,641,559
Processing and refining ore
Camp supply
1,090,631
870,131
Potable supply
Dust suppression
8,417,552
8,845,326 Dust suppression on roads
Wastewater discharge (kL)
2016
2015
206,870
276,899
137,935
140,257
141,117
134,552
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Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information CORPORATE SOCIAL RESPONSIBILITY l ENVIRONMENT
Protecting the biodiversity of the Pilbara
Fortescue acknowledges and appreciates the unique
biodiversity within the Pilbara region, as well as the potential
impact of its operations on that biodiversity. Working with
regulation authorities and the Traditional Owners as the
guardians of the environment, Fortescue ensures there are
appropriate actions in place to understand, minimise and
mitigate these impacts, and contributes to the conservation
of biodiversity in the Pilbara through an integrated approach
to land use planning.
The Company employs biodiversity consultants, as well
as in-house experts, to survey and monitor its operations
and surrounding environments. The findings from these
programs, as well as the outcomes of research investments,
are continually integrated into environmental management
plans and procedures to ensure that ongoing review and
improvement is embedded in its management and decision
making processes.
The Company prioritises 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, Fortescue’s operational areas.
Fortescue’s offset programs are guided by the Company’s
Environment Policy through minimising and mitigating net
environmental impacts. Such projects include invasive species
management conducted in partnership with the Department
of Parks and Wildlife and research funding to implement
threatened species recovery programs.
Meet Catherine Bozanich, Senior Environmental Advisor
Cath is a part-time Senior Environmental Advisor and is
responsible for developing and implementing Fortescue’s
environmental offsets programs and gaining and maintaining
approvals for Fortescue’s rail lines. Having worked in
Fortescue’s environmental team for more than eight years,
Cath has been focussing on Fortescue’s key offset programs
which include a five year feral cat baiting program at the
Fortescue Marsh and research into the elusive Night Parrot.
She is currently working with key stakeholders including
government agencies, to design a research program to study
the interactions between feral cats, dingoes and wild dogs
within Karijini National Park. One of the aims of this program
will be to determine whether
dingoes and wild dogs can help
control feral cat numbers in the
Pilbara.
“I have been lucky enough to
continue my career
working part time while my
daughters were young and the
offsets work has been really
rewarding and something I am
very proud of,” Cath said.
Meet Todd Edwards, Senior Environmental Specialist
Todd oversees Fortescue’s innovative biological monitoring
programs, to protect and enhance the biodiversity of
the Pilbara. One example of this is the Northern Quoll
monitoring program which uses radio collars to map
the behaviours and travel distances of this endangered
marsupial. As part of this program, Fortescue has partnered
with the Department of Parks and Wildlife to improve
overall efficiency and veracity of the data by leveraging a
much larger, regional program, with 40,000ha surveyed
and monitored. Todd’s work has helped provide evidence
of Fortescue’s sustainable environmental management and
has established that Fortescue’s activities are not impacting
upon the species.
Protecting the Fortescue Marsh
Fortescue’s funding of an external, full-time Fortescue Marsh
Conservation Officer in Karratha continued throughout the
year with the objective of preserving and improving the
conservation wetland.
A strategic Fortescue Marsh fencing plan aimed at the removal
of, and prevention of feral herbivores from the Marsh was
developed in FY16. This fencing program has been designed to
reduce impacts such as soil compaction and erosion, selective
grazing, introduction and spread of weeds as well as the fouling
of available water sources. Fortescue also funds additional land
management programs including invasive species control
which align with the fencing plan.
Fortescue’s environmental assessment studies have played
an important role in creating a greater understanding of
the hydrology of the marsh. The Company works closely
with state agencies and academic institutions on dedicated
research projects in the area, including surveying and
mapping, to help the business better understand and
responsibly manage the relationship between the Marsh and
its activities. This cooperative approach is aligned with the
Western Australian EPAs approach to assessing the cumulative
impacts of development projects in the Pilbara.
Contributing to scientific knowledge
Maintaining relationships with academic institutions and
scientific experts allows Fortescue to obtain rigorous advice
and information on the preservation and restoration of pre-
operational environments. During the year, targeted research
and provision of funds to further the knowledge base of
threatened Pilbara species continued. Specifically, surveys
were commissioned into species such as the Pilbara Leaf-
nosed Bat and the Pilbara Olive Python. In addition to these
activities, targeted research to further the knowledge base of
threatened Pilbara species such as the Night Parrot and the
Northern Quoll continued, with over A$2 million provided to
conservation funds or on ground survey programs in the past
five years.
62 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
Sustainable land rehabilitation
Fortescue applies an integrated approach to land
management to ensure responsible rehabilitation practices
are reflected throughout every stage of the mining life-cycle.
The Company’s rehabilitation and revegetation monitoring
procedure incorporates the assessment of various indices,
such as species diversity and composition as well as nutrient
cycling, infiltration and erosion assessments.
Flinders waste rock dump
In FY16, major earthworks commenced on the 160ha Flinders
waste rock dump at Christmas Creek, the largest waste dump
within Fortescue’s operations. The rehabilitation of this waste
rock dump provided an exceptional opportunity to incorporate
Fortescue’s rehabilitation and closure commitments with its
Aboriginal training and development programs.
The rehabilitation works will continue into 2017 with a number
of profile trials to take place. The findings of these trails will
contribute to the final landform design, vegetation profile and
sustainable rehabilitation success.
Rehabilitation monitoring
Progressive rehabilitation activities have been integrated
into Fortescue’s standard operating procedures to ensure the
required environmental performance objectives will be met
on closure. These activities include:
• Ongoing geochemical and physical characterisation of the
mineral waste rock
• Placement of mineral waste rock into pits after the ore
is mined
• Regular review, including computer modelling, of
proposed post-mining landforms and water systems
• Earthwork and revegetation activities
• Monitoring of local water quality and vegetation
health indicators.
This year enhancements made to Fortescue’s mine planning
systems have enabled mineral waste rock to be tracked more
effectively through the mining life-cycle. These will be used
to improve reporting on progressive rehabilitation in the future.
Rehabilitation monitoring of Fortescue’s operational sites is
completed by an independent specialist on an annual basis.
In calendar year 2015, monitoring was completed in
accordance with Fortescue’s Rehabilitation and Revegetation
Monitoring Procedure.
The monitoring results identified three sites at Solomon
Hub, and 12 sites along the Fortescue Main Line Rail that
have reached all completion criteria, with the exception of
one criterion that could not be readily assessed. A number
of rehabilitated sites at Christmas Creek are also progressing
towards meeting completion criteria.
Other examples of the monitoring undertaken in FY16
include:
• Transect and photograph point monitoring, including
vegetation assessment and Landscape Function Analysis
(LFA)
•
Innovative bio-indicator monitoring at five mulga control
sites at Cloudbreak
• Rehabilitation seeding trial at Christmas Creek to
investigate the success of rehabilitation with varying
quantities of native seed mixes
• Main Line Rail and Hamersley Line rehabilitated areas
assessed for conservation significant fauna usage using
motion cameras and targeted searches.
The results provide evidence that Fortescue’s rehabilitation
activities are effective in rehabilitating disturbed lands back
to functional self-subsisting ecosystems.
Fortescue’s data on land disturbance and rehabilitation is presented on a calendar year basis, 1 January to 31 December.
Land disturbance and rehabilitation in 2015
Site
Herb Elliott Port
Railway corridor
Mining operations
Total area
disturbed (ha)
2015
Rehabilitation (ha)
2014
Rehabilitation (ha)
Total rehabilitation
to date (ha)
362
5,386
19,869
-
23
1,1941
-
148
13
-
2,086
1,2821
1 Includes the backfill of mined out pit voids.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 63
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information CORPORATE SOCIAL RESPONSIBILITY l ENVIRONMENT
Waste and recycling
Fortescue is focussed on both the reduction of waste, as well
as how much waste is disposed of in landfill. During the year,
more than 80 per cent of waste delivered to the Company’s
landfill sites was reused or recycled. In 2016, and extending
into 2017, the introduction of sludge presses into the waste
management process will reduce the amount of liquid
waste disposed of offsite by approximately 3,000 tonnes
per annum at both the Newman and Tom Price facilities.
The construction of these sludge presses will include the
installation of a ‘hot rot’ composting unit, further reducing
the disposal of waste material to landfill.
Waste from the processing facilities, as well as overburden
removed to access Fortescue’s ore bodies, is disposed of
onsite with much of the waste put back into mined out pits.
Within the Chichester region, 81.5 per cent of overburden
was returned to pits as backfill.
Both non-hazardous and hazardous waste is generated
across Fortescue’s operations, managed by Fortescue’s Waste
Management Plan and Hazardous Materials Management
Procedure respectively. No hazardous wastes classified under
the Basel Convention were generated or disposed of by
Fortescue during FY16.
Closure planning
Fortescue’s closure planning is focussed on returning the
land to a state that will provide future use and value post
resource development. Closure plans and financial provisions
to execute these plans are developed and maintained for all
of Fortescue’s operational sites.
Initial consideration of mine closure occurs in the feasibility
phase of project development, with the mine closure plan
implemented progressively over time. The plans are updated
regularly with findings from targeted research and trials
to ensure maximum effectiveness in rehabilitation and
remediation activities.
A key component in the development and fulfilment of the
Company’s closure plans is the consultation and engagement
of local stakeholders, including Traditional Owners and
regulators, to ensure that land is returned in a state that
supports future opportunity and long-term benefit.
In FY16, Fortescue voluntarily engaged with an EPA led
working group to share learnings and processes associated
with mine rehabilitation and closure within the resources
industry. Fortescue remains engaged in the development of
the outcomes and recommendations from the Group.
Site
Waste rock 2016 (tonnes)
Landfill space saved at Cloudbreak
Total overburden mined
Total ore mined
Total tailings
195,926,944
181,132,674
21,697,270
Meet Doug Banfield – Village Operations Manager
Each year, Fortescue’s Solomon mine site uses over 3.5
million plastic food containers for employee lunches. In an
effort to minimise waste and save money, Doug suggested
using reusable containers instead. During FY16, residents
at Solomon were given five reusable containers and an
insulated bag, with the containers able to be washed after
use by the employee ready for the next use. Doug’s simple
idea will save Fortescue approximately A$300,000 a year.
Importantly, this small change to daily routines is also
stopping 3.5 million plastic containers becoming landfill.
This initiative has also been adopted by the residents at
Fortescue’s village in Newman, resulting in a 90 per cent
reduction of the waste.
64 I FORTESCUE METALS GROUP LIMITED CORPORATE SOCIAL RESPONSIBILITY
1,875
13,610
15,486
Total tonnes
Tonnes recycled
General waste (landfill)
Landfill space saved at Christmas Creek
2,407
11,628m3
14,393
16,801
Total tonnes
Tonnes recycled
General waste (landfill)
Landfill space saved at Solomon
3,870
6,781
10,651
Total tonnes
Tonnes recycled
General waste (landfill)
Governance
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 65
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 65
GOVERNANCE
Overview of Governance
Effective corporate governance is a critical element contributing to the longer term success
of Fortescue. The Board and all levels of management are fully committed to maintaining and
enhancing corporate governance so that it continues to contribute to Fortescue’s vision to be
the safest, lowest cost, most profitable iron ore producer.
Fortescue is committed to meeting the requirements
of the ASX Corporate Governance Council Principles
and Recommendations 3rd Edition (Principles and
Recommendations). The cornerstone principles of corporate
governance at Fortescue are:
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
to make effective and efficient decisions, with appropriate
consequences delivered for failures to follow those processes.
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, stakeholders and
the market generally.
Integrity: Developing and maintaining a corporate culture
committed to ethical behaviour and compliance with the law.
Stewardship: Developing and maintaining a Company
wide recognition that the Group is managed for the benefit
of its shareholders, taking account of the interests of
other stakeholders.
Fortescue’s Corporate Governance Statement is available at
www.fmgl.com.au
Fortescue’s governance framework
Board of Directors
Board Sub-Committees
Audit and Risk
Management
Committee
Remuneration
and Nomination
Committee
Finance
Committee
Policies and
procedures
Corporate culture
and values
Fortescue Risk
Management
Framework
Chief Executive Officer
Executive and
Line management
Independent Assurance Functions
66 I FORTESCUE METALS GROUP LIMITED GOVERNANCE
Financial report
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 67
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 67
FINANCIAL REPORT
Directors’ report
Fortescue Metals Group Limited
Your Directors present their report on the Fortescue
consolidated group, comprising the Company and its
controlled entities, for the year ended 30 June 2016.
Directors
The Directors of the Company in office during the financial year
and until the date of this report, their qualifications, experience
and directorships held in listed companies at any time during the
last three years, are set out on pages 10 to 11.
The Directors’ meetings, including meetings of the Company’s
Board of Directors and of each Board committee held during the
year ended 30 June 2016 and the number of meetings attended
by each Director are shown in section 2.3 of the Corporate
Governance Statement1.
The relevant interests 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:
Director
A Forrest
O Hegarty
M Barnaba
N Power
S Pearce
J Baderschneider
E Gaines
C Huiquan
G Raby
S Warburton
Ordinary
shares
Performance
rights
1,037,479,247
40,000
20,000
2,526,307
227,409
138,000
50,000
-
8,000
50,750
-
-
-
3,805,250
1,416,675
-
-
-
-
-
The remuneration of Directors and Key Management
Personnel are detailed in the Remuneration Report on pages
115 to 146.
Operating and financial review
Fortescue’s principal activities during the year were exploration,
development, production, processing and sale of iron ore.
There were no significant changes to the nature of the Group’s
principal activities during FY16.
The overview of Fortescue’s operations, including a discussion
of strategic priorities and outlook, key aspects of operating and
financial performance and key business risks are contained in
the following sections of the Annual Report: Overview on pages
3 to 12, Operating and Financial Review on pages 13 to 24 and
Corporate Governance Statement1 (sections 5.1 Material risk
exposures and 5.2 Fortescue Risk Management Framework).
Dividends
Net profit after tax
US$m
2016
985
2015
316
Interim dividend
A$ cents per share
Final dividend
A$ cents per share
Total dividend
A$ cents per share
3
12
15
3
2
5
The following dividend payments were made during the
financial year:
• Final fully franked dividend for the year ended 30 June 2015
of two Australian cents per share, paid in October 2015
•
Interim fully franked dividend for the year ended
30 June 2016 of three Australian cents per share, paid in
April 2016.
Environmental regulation and compliance
Fortescue is committed to minimising the environmental
impacts of its operations, with an appropriate focus placed
on continuous monitoring of environmental matters and
compliance with environmental regulations.
The details of Fortescue’s environmental performance
including compliance with the relevant environmental
legislation are presented on page 58.
Greenhouse Gas emissions and energy
Fortescue complies with the Australian Government’s National
Greenhouse and Energy Reporting Act 2007 (Cth) and recognises
its responsibility to actively improve energy use and minimise
greenhouse gas emissions to reduce its contribution to climate
change and impact on the environment.
The details of Greenhouse Gas emissions and energy strategy,
compliance and reporting are presented on page 59.
1 Corporate Governance Statement is available at www.fmgl.com.au.
68 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
FINANCIAL REPORT
Directors’ report
Fortescue Metals Group Limited
Unissued shares under performance rights
Details of the performance rights outstanding at 30 June 2016 are as follows:
Long term performance rights 2014
Long term performance rights 2015
Short term performance rights 2016
Long term performance rights 2016
Exercise price
Balance at the
end of the year
A$
-
-
-
-
(number)
3,582,111
3,095,545
3,487,484
8,190,718
18,355,858
Vested and
exercisable at the
end of the year
Remaining
contractual life
(number)
(years)
-
-
-
-
-
0.3
2.3
14.5
14.5
1,177,128 of the 2015 short term performance rights were converted to shares in FY16, while the remaining 262,045 of the
2015 short term performance rights lapsed during the year. 2,306,253 of the 2013 long term performance rights were converted
to shares in FY16, while the remaining 191,046 of the 2013 long term performance rights lapsed during the year.
Company secretaries
Ian Wells and Mark Thomas are joint Company Secretaries of
Fortescue. Details of their qualifications and experience are set
out on page 11.
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.
Directors and officers indemnities and insurance
Since the end of the previous financial year, the Company
has paid premiums to insure the Directors and Officers of
Fortescue.
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 20 to the financial statements.
The liabilities insured are legal costs that may be incurred
in defending civil 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 amounts paid for the policy.
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 and 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
• None of the services undermine the general principles
relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants.
The auditor’s independence declaration, as required under
section 307C of the Corporations Act 2001, is set out on page
71 and forms part of this report.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 69
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information FINANCIAL REPORT
Directors’ report
Fortescue Metals Group Limited
Future developments
The Overview section set out on pages 3 to 12 and the
Operating and Financial Review section set out on pages 13
to 24 of this Annual Report provide an indication of the
Group’s likely developments and expected results. In the
opinion of the Directors, disclosure of any further information
about these matters and the impact on Fortescue’s operations
could result in unreasonable prejudice to the Group and has
not been included in this report.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations
Instrument 2016/191, 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
instrument to the nearest million dollars, unless otherwise
stated.
Significant changes in state of affairs
There have been no significant changes in the state of affairs
of Fortescue, other than those 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 Fortescue, or to intervene in any proceedings to which
Fortescue is a party, for the purposes of taking responsibility
on behalf of Fortescue 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.
Events occurring after the reporting period
On 22 August 2016, the Directors declared a final dividend
of 12 Australian cents per ordinary share payable in
October 2016.
Signed in accordance with a resolution of the Directors.
Andrew Forrest
Chairman
Dated in Perth this 22nd day of August 2016.
70 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Auditor’s Independence Declaration
As lead auditor for the audit of Fortescue Metals Group Limited for the year ended 30 June 2016, I
declare that to the best of my knowledge and belief, there have been:
1.
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
2.
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Fortescue Metals Group Limited and the entities it controlled during
the period.
Nick Henry
Partner
PricewaterhouseCoopers
Perth
22 August 2016
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 71
Independent auditor’s report to the members of Fortescue
Metals Group Limited
Report on the financial report
We have audited the accompanying financial report of Fortescue Metals Group Limited (the company),
which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated
income statement and consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year ended on that date, a summary
of significant accounting policies, other explanatory notes and the directors’ declaration for the
Fortescue Metals Group Limited Group (the consolidated entity). The consolidated entity comprises
the company and the entities it controlled at year’s end or from time to time during the financial year.
Directors' responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the consolidated
entity’s preparation and fair presentation of the financial report in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
72 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Auditor’s opinion
In our opinion:
(a)
the financial report of Fortescue Metals Group Limited is in accordance with the Corporations
Act 2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity's financial position as at 30 June
2016 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations
2001.
(b)
the financial report and notes also comply with International Financial Reporting Standards as
disclosed in Note 1.
Report on the Remuneration Report
We have audited the remuneration report included in pages 121 to 146 of the annual report for the year
ended 30 June 2016. The directors of the company are responsible for the preparation and
presentation of the remuneration report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the remuneration report of Fortescue Metals Group Limited for the year ended 30
June 2016 complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Nick Henry
Partner
Perth
22 August 2016
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 73
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Directors’ declaration
Fortescue Metals Group Limited
In the Directors’ opinion:
(a) The financial statements and notes set out on pages 75 to 113 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 at 30 June 2016 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 21 will be able to meet any obligations or liabilities to which they are, or may become, subject to by
virtue of the deed of cross guarantee described in note 21.
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.
Andrew Forrest
Chairman
Dated in Perth this 22nd day of August 2016.
74 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Consolidated income statement
For the year ended 30 June 2016
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
Note
3
5
4
6
7
7
8
2016
US$m
7,083
(5,064)
2,019
7
(211)
1,815
214
(675)
1,354
(369)
985
984
1
985
2015
US$m
8,574
(7,427)
1,147
77
(175)
1,049
15
(644)
420
(104)
316
317
(1)
316
Consolidated statement of comprehensive income
For the year ended 30 June 2016
Profit for the year after income tax
Other comprehensive income:
Other comprehensive income items
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
2016
US$m
2015
US$m
985
-
985
984
1
985
316
-
316
317
(1)
316
Earnings per share for profit attributable to the ordinary equity holders of the Company:
Basic earnings per share
Diluted earnings per share
9
9
31.6
31.6
10.2
10.2
Note
Cents
Cents
The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 75
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Consolidated statement of financial position
At 30 June 2016
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivable
Other current assets
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
Note
10(b)
11(a)
11(c)
2016
US$m
2015
US$m
1,583
2,381
241
554
-
45
291
773
35
49
2,423
3,529
11(a)
13
4
6
16,867
17,729
15
28
16,914
19,337
44
52
17,831
21,360
11(b)
11(d)
10(a)
14
11(b)
11(d)
10(a)
14
18(c)
15
10(d)
622
485
93
167
267
739
620
155
174
-
1,634
1,688
69
308
6,678
489
253
1,500
9,297
10,931
8,406
1,301
33
7,058
8,392
14
8,406
69
591
9,414
428
261
1,372
12,135
13,823
7,537
1,294
46
6,184
7,524
13
7,537
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
76 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Consolidated statement of cash flows
For the year ended 30 June 2016
Cash flows from operating activities
Cash receipts from customers
Payments to suppliers and employees
Income tax received (paid)
Net cash inflow from operating activities
10(c)(i)
Cash flows from investing activities
Payments for property, plant and equipment - Fortescue
Payments for property, plant and equipment - joint operations
Contributions from joint venture partners
Interest received
Proceeds from disposal of plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings and finance leases
Interest and finance costs paid
Dividends paid
Repayment of customer deposits
Purchase of shares by employee share trust
Net cash outflow from financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
10(b)
Non-cash investing and financing activities are disclosed in note 10(c)(ii).
Note
2016
US$m
2015
US$m
6,693
(3,736)
66
3,023
(304)
(56)
-
22
2
8,537
(5,971)
(529)
2,037
(626)
(223)
101
15
7
(336)
(726)
-
(2,695)
(627)
(114)
(5)
(21)
2,206
(2,367)
(605)
(343)
(96)
(30)
(3,462)
(1,235)
(775)
2,381
(23)
1,583
76
2,398
(93)
2,381
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 77
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Consolidated statement of changes in equity
For the year ended 30 June 2016
Attributable to equity holders of the Company
Contributed
equity Reserves
Retained
earnings
Total
Non-
controlling
interest
Total
equity
US$m
US$m
US$m US$m
US$m
US$m
Balance at 1 July 2014
Profit (loss) for the year
Total comprehensive income for the year, net of tax
Transactions with owners:
Purchase of shares under employee share plans
Employee share awards exercised net of employee contributions
Expired options and rights
Equity settled share-based payment transactions
Dividends paid
Balance at 30 June 2015
Profit for the year
Total comprehensive income for the year, net of tax
Transactions with owners:
Purchase of shares under employee share plans
Employee share awards exercised net of employee contributions
Expired options and rights
Equity settled share-based payment transactions
Dividends paid
Other
Balance at 30 June 2016
1,289
69
6,211
7,569
-
-
(30)
35
-
-
-
-
-
-
(13)
(19)
9
-
317
317
317
317
-
-
19
-
(30)
22
-
9
(363)
(363)
1,294
46
6,184
7,524
-
-
(21)
28
-
-
-
-
1,301
-
-
-
(12)
(3)
(3)
-
5
33
984
984
984
984
-
-
3
-
(21)
16
-
(3)
(113)
(113)
-
5
14
(1)
(1)
-
-
-
-
-
13
1
1
-
-
-
-
-
-
7,583
316
316
(30)
22
-
9
(363)
7,537
985
985
(21)
16
-
(3)
(113)
5
7,058
8,392
14
8,406
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
78 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements
For the year ended 30 June 2016
1
Basis of preparation
Financial performance
Segment information
2
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
Earnings per share
Capital management
10 Capital management
10(a) Borrowings and finance lease liabilities
10(b) Cash and cash equivalents
10(c) Cash flow information
10(d) Contributed equity
10(e) Dividends
11 Working capital
11(a) Trade and other receivables
11(b) Trade and other payables
11(c) Inventories
11(d) Deferred income
12 Financial risk management
80
81
81
81
82
82
82
83
83
84
85
86
87
88
89
89
89
89
90
90
90
Key balance sheet items
13 Property, plant and equipment
14 Provisions
15 Deferred tax assets and liabilities
Unrecognised items
16 Commitments and contingencies
17 Events occurring after the reporting period
Other information
18 Related party transactions
19 Share-based payments
20 Remuneration of auditors
21 Deed of cross guarantee
22 Parent entity financial information
23
Interests in other entities
24 Summary of significant accounting policies
25 Critical accounting estimates and judgements
94
95
96
97
97
98
99
100
101
101
102
103
113
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 79
Notes to the consolidated financial statements l Basis of preparation
For the year ended 30 June 2016
1
Basis of preparation
The financial statements cover the consolidated group comprising 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 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
The 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 estimates, judgements and assumptions. Application of
different assumptions and estimates may have a significant impact on Fortescue’s net assets and financial results. Estimates and
assumptions are reviewed on an ongoing basis and are based on the latest available information at each reporting date. Actual
results may differ from the estimates.
The areas involving a higher degree of judgement and complexity, or areas where assumptions are significant to the financial
statements are:
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 25.
(e) Rounding of amounts
All amounts in the financial statements have been rounded to the nearest million dollars, except as indicated, in accordance with
the ASIC Corporations Instrument 2016/191.
80 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Financial performance
For the year ended 30 June 2016
2
Segment information
Fortescue’s chief operating decision maker, identified as the Chief Executive Officer, reviews the Group’s financial performance
and makes significant operating decisions having regard to all aspects of the integrated operation, with the key financial
information presented internally for management purposes on a consolidated basis. Accordingly, no reportable operating
segments have been identified in presenting the Group’s consolidated financial performance.
Fortescue uses Underlying EBITDA defined as earnings before interest, tax, depreciation and amortisation, exploration,
development and other expenses, as a key measure of its financial performance. The reconciliation of Underlying EBITDA to
the net profit after tax is presented below.
Underlying EBITDA
Finance income
Finance expenses
Depreciation and amortisation
Exploration, development and other
Net profit before tax
Income tax expense
Net profit after tax
Note
7
7
5, 6
6
8
2016
US$m
3,195
214
(675)
(1,244)
(136)
1,354
(369)
985
2015
US$m
2,506
15
(644)
(1,405)
(52)
420
(104)
316
(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.
Revenue from external customers
China
Other
2016
US$m
2015
US$m
6,787
296
7,083
8,047
527
8,574
(b) Major customer information
Revenue from one customer amounted to US$1,577 million (2015: US$3,563 million), arising from the sale of iron ore and
the related shipment of product.
3
Operating sales revenue
Sale of iron ore
Sale of joint venture iron ore
Other revenue
4
Other income
Net foreign exchange gain
Gain on disposal of assets
Other
2016
US$m
6,923
24
136
7,083
2015
US$m
8,323
67
184
8,574
2016
US$m
2015
US$m
-
1
6
7
68
3
6
77
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 81
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Notes to the consolidated financial statements l Financial performance
For the year ended 30 June 2016
5
Cost of sales
Mining and processing costs
Rail costs
Port costs
Operating leases
Shipping costs
Government royalty
Depreciation and amortisation
Other operating expenses
2016
US$m
2015
US$m
2,092
3,765
201
204
76
781
446
1,223
41
5,064
230
274
80
1,112
516
1,376
74
7,427
Total employee benefits expense included in cost of sales and administration expenses is US$538 million (2015: US$740 million).
6
Other expenses
Exploration, development and other1
Administration expenses
Depreciation and amortisation
Net foreign exchange loss
2016
US$m
2015
US$m
136
52
21
2
211
52
94
29
-
175
1 Exploration, development and other expenses include an impairment provision following suspension of the Nullagine Iron Ore Joint Venture
operations of US$32 million, and provisions in relation to specific assets and capital projects deferred pending market conditions of US$59 million.
7
Finance income and finance expenses
Finance income
Gain on early debt redemption
Interest income
Finance expenses
Interest expense on borrowings and finance lease liabilities
Interest capitalised
Loss on early debt redemption
Other
2016
US$m
2015
US$m
192
22
214
621
(2)
42
14
675
-
15
15
590
(7)
45
16
644
82 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Financial performance
For the year ended 30 June 2016
8
Income tax expense
(a) Income tax expense
Current tax
Deferred tax
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit before income tax
Tax at the Australian tax rate of 30 per cent (2015: 30 per cent)
Research and development
Adjustments in respect of income tax expense of prior periods
Foreign exchange variations and other translation adjustments
Tax impact of overseas jurisdiction
Share-based payments
Other
Income tax expense
9
Earnings per share
(a) Earnings per share
Basic
Diluted
2016
US$m
241
128
369
2016
US$m
1,354
406
(8)
(15)
(2)
5
(9)
(8)
369
2016
Cents
31.6
31.6
2015
US$m
(112)
216
104
2015
US$m
420
126
(8)
6
(16)
1
3
(8)
104
2015
Cents
10.2
10.2
(b) Reconciliation of earnings used in calculating earnings per share
US$m
US$m
Profit attributable to the ordinary equity holders of the Company used in calculating
basic and diluted earnings per share
984
317
(c) Weighted average number of shares used as denominator
Number
Number
Weighted average number of ordinary shares used as the denominator in calculating
basic earnings per share
3,111,801,515
3,113,525,034
Adjustments for calculation of diluted earnings per share:
Potential ordinary shares
5,569,334
6,371,996
Weighted average number of ordinary and potential ordinary shares used as the
denominator in calculating diluted earnings per share
3,117,370,849
3,119,897,030
(d) Information on the classification of securities
Performance 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 performance rights are set out in note 19.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 83
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Notes to the consolidated financial statements l Capital management
For the year ended 30 June 2016
10
Capital management
Fortescue’s capital management policy supports its strategic objectives and provides a framework to maintain a strong capital
structure to deliver consistent returns to its shareholders and sustain future developments and expansion of the business.
Fortescue’s capital includes shareholders’ equity, reserves and net debt. Net debt is defined as a combination of cash and cash
equivalents, borrowings and finance lease liabilities.
Borrowings and finance lease liabilities
Cash and cash equivalents
Net debt
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Capital management involves a continuous process of:
• Monitoring and controlling the capital structure
Note
10(a)
10(b)
2016
US$m
6,771
(1,583)
5,188
8,392
14
8,406
2015
US$m
9,569
(2,381)
7,188
7,524
13
7,537
• Evaluating capital requirements against the risks arising from Fortescue’s activities and the environment it operates in
• Raising, refinancing and repaying of debt
• Development, maintenance and implementation of the dividend policy, including the dividend reinvestment plan.
To achieve its primary capital management objective of maintaining a strong capital structure, Fortescue has developed target
ranges for a number of financial indicators. These indicators include gearing, net gearing, debt to Underlying EBITDA and interest
coverage ratio, and are monitored together with a number of other financial and non-financial indicators. Target ranges for the
financial ratios vary upon the investment and commodity cycles. During periods of intensive investment, for example expansion
programs, or a commodity downturn, the capital management policy contemplates interim ratio levels returning to targeted longer
term levels. Interim levels acknowledge and consider the requirements, in certain circumstances, for remedial actions to be taken.
The Company’s flexible debt profile does not contain any maintenance covenants and allows for voluntary debt repayments
at Fortescue’s sole option, refinancing of debt prior to maturity and facilitates the debt repayment strategy to lower its
gearing levels.
84 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Capital management
For the year ended 30 June 2016
For the year ended 30 June 2016
10
Capital management (continued)
(a) Borrowings and finance lease liabilities
Senior secured credit facility
Senior secured notes
Senior unsecured notes
Finance lease liabilities
Total current borrowings and finance lease liabilities
Senior secured credit facility
Senior secured notes
Senior unsecured notes
Finance lease liabilities
Total non-current borrowings and finance lease liabilities
2016
US$m
2015
US$m
4
70
8
11
93
3,627
2,082
475
494
6,678
80
39
31
5
155
4,717
2,209
2,032
456
9,414
Total borrowings and finance lease liabilities
6,771
9,569
(i)
Senior secured credit facility
The facility is due to mature in June 2019, has a face value of US$3,676 million (30 June 2015: US$4,863 million), a coupon
rate of LIBOR + 3.25 per cent (30 June 2015: LIBOR + 2.75 per cent ) and is repayable at Fortescue’s option. The coupon rate varies
within a range of LIBOR + 2.75 per cent to LIBOR + 3.50 per cent, with a LIBOR floor of one per cent. The facility is secured over
principally all of the assets of the Company and its subsidiaries, subject to certain limited exceptions, with the security shared on
a pari passu basis with the senior secured notes.
(ii) Senior secured notes
Senior secured notes are due to mature in March 2022, have a face value of US$2,160 million (30 June 2015: US$2,300 million),
a coupon rate of 9.75 per cent and will become repayable at Fortescue’s option from March 2018. The notes are secured over
principally all of the assets of the Company and its subsidiaries, subject to certain limited exceptions, with the security shared on
a pari passu basis with the senior secured credit facility.
(iii) Senior unsecured notes
Senior unsecured notes are due to mature in April 2022, have a face value of US$478 million (30 June 2015: US$1,000 million), a
coupon rate of 6.875 per cent and will become repayable at Fortescue’s option from April 2017. The carrying value at 30 June 2015
also included senior notes that were due to mature in November 2019, had a face value of US$1,049 million and a coupon interest
of 8.25 per cent. These notes were repaid in full during the year ended 30 June 2016.
(iv)
Finance lease liabilities
Finance lease liabilities largely relate to contractual commitments associated with the Solomon Power Station and Fortescue River
Gas Pipeline, and incorporate the effect of discounting. In the event of default, the assets revert to the lessor.
30 June 2015
Lease expenditure commitments
Effect of discounting
Finance lease liabilities
30 June 2016
Lease expenditure commitments
Effect of discounting
Finance lease liabilities
Within
one year
US$m
Between one
year and
five years
US$m
After five
years
US$m
Total
US$m
65
(62)
3
73
(63)
10
256
(241)
15
295
(245)
50
1,004
(561)
443
954
(509)
445
1,325
(864)
461
1,322
(817)
505
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 85
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Notes to the consolidated financial statements l Capital management
For the year ended 30 June 2016
For the year ended 30 June 2016
10
Capital management (continued)
(a) Borrowings and finance lease liabilities (continued)
(v) Summary of movements in borrowings and finance lease liabilities
At 1 July 2014
Initial recognition
Interest expense
Interest and finance lease repayments
Transaction costs
Repayments
At 30 June 2015
Initial recognition
Interest expense
Interest and finance lease repayments
Transaction costs
Foreign exchange gain
Repayments
At 30 June 2016
Senior
secured
credit facility
US$m
Senior
secured
notes
US$m
Senior
unsecured
notes
US$m
Finance
leases
US$m
4,795
-
223
(171)
-
(50)
4,797
-
235
(229)
15
-
(1,187)
3,631
-
2,300
42
-
(94)
-
2,248
-
221
(183)
6
-
(140)
2,152
4,445
-
279
(321)
10
(2,350)1
2,063
-
104
(126)
13
-
(1,571)2
483
317
141
46
(43)
-
-
461
51
61
(64)
-
(4)
-
505
Total
US$m
9,557
2,441
590
(535)
(84)
(2,400)
9,569
51
621
(602)
34
(4)
(2,898)
6,771
1 Includes repayment of US$1,000 million of the 2017 senior unsecured notes, US$900 million of the 2018 senior unsecured notes and
US$450 million of the 2019 senior unsecured notes.
2 Includes repayment of US$1,049 million of the 2019 senior unsecured notes and US$522 million of the 2022 senior unsecured notes.
Information about Fortescue’s exposure to interest rate risk and foreign exchange rate risk disclosed in note 12.
(b) Cash and cash equivalents
Cash at bank
Short term deposits
2016
US$m
769
814
1,583
2015
US$m
1,279
1,102
2,381
Cash and cash equivalents do not have any restrictions by contractual or legal arrangements. At 30 June 2015, Fortescue had
US$320 million reserved for repayment, repurchase and other forms of debt retirement.
86 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Capital management
For the year ended 30 June 2016
For the year ended 30 June 2016
10
Capital management (continued)
(c) Cash flow information
(i) Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year after income tax
Income tax expense
Depreciation and amortisation
Exploration, development and other
Share-based payment (benefit) expense
Net unrealised foreign exchange loss
Finance income and expenses not classified as operating activities
Gain on disposal of assets
Other non-cash items
Working capital adjustments:
Decrease in deferred income
Decrease in payables and provisions
Decrease in receivables
Decrease in inventories
(ii) Non-cash investing and financing activities
Acquisition of property, plant and equipment by means of finance leases
Other
2016
US$m
985
369
1,244
136
(3)
22
461
(1)
(7)
(418)
(34)
80
189
3,023
(51)
-
(51)
2015
US$m
316
104
1,405
52
9
72
629
(3)
(6)
(281)
(1,074)
299
515
2,037
(141)
42
(99)
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 87
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For the year ended 30 June 2016
10
Capital management (continued)
(d) Contributed equity
(i)
Share capital
Share
capital
US$m
1,296
-
-
1,296
2016
Treasury
shares
US$m
(2)
(21)
28
5
Share
capital
US$m
1,296
-
-
1,296
2015
Treasury
shares
US$m
(7)
(30)
35
(2)
Total
US$m
1,294
(21)
28
1,301
Total
US$m
1,289
(30)
35
1,294
At 1 July
Purchase of shares under employee
share plans
Employee share awards exercised
net of employee contributions
At 30 June
(ii) Movements in share capital issued
Share
capital
Number
2016
Treasury
shares
Number
Total
Number
Share
capital
Number
2015
Treasury
shares
Number
Total
Number
Share capital issued
Ordinary shares fully paid
3,113,435,477
362,674 3,113,798,151 3,113,683,561
114,590 3,113,798,151
Movements in shares
At 1 July
Purchase of shares under employee
share plans
Employee share awards exercised
net of employee contributions
3,113,683,561
114,590 3,113,798,151 3,113,798,151
-
3,113,798,151
(15,188,032)
15,188,032
14,939,948
(14,939,948)
-
-
(8,082,221)
8,082,221
7,967,631
(7,967,631)
-
-
At 30 June
3,113,435,477
362,674 3,113,798,151 3,113,683,561
114,590
3,113,798,151
(iii) Ordinary shares
Ordinary shares are fully paid and entitle the holders to one vote per share and the rights to participate in dividends. Ordinary shares
participate in the proceeds on winding up of the Company in proportion to the number of shares held.
(iv) Treasury shares
Movements in treasury shares represent acquisition of the Company’s shares on market and allocation of shares to the Company’s
employees from the vesting of awards and exercise of rights under the employee share-based payment plans.
88 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Capital management
For the year ended 30 June 2016
10
Capital management (continued)
(e) Dividends
(i) Dividends paid during the year
Final fully franked dividend for the year ended 30 June 2015: A$0.02 per share
(30 June 2014: A$0.10 per share)
Interim fully franked dividend for the half-year ended 31 December 2015:
A$0.03 per share (31 December 2014: A$0.03 per share)
(ii) Dividends declared and not recognised as a liability
Final fully franked dividend: A$0.12 per share (2015: A$0.02 per share)
2016
US$m
2015
US$m
46
67
113
285
285
290
73
363
46
46
(iii) Franking credits
At 30 June 2016, franking credits available were A$791 million (2015: A$951 million). The payment of the final dividend for
the year ended 30 June 2016 will reduce the franking account balance by A$160 million.
11
Working capital
(a) Trade and other receivables
Trade debtors - iron ore
GST receivables
Other receivables
Total current receivables
Other receivables
Total non-current receivables
2016
US$m
2015
US$m
210
11
20
241
4
4
242
7
42
291
6
6
Carrying value of the receivables approximates their fair value. Information about Fortescue’s exposure to foreign currency
risk, interest rate risk and price risk pertaining to trade and other receivables balances is disclosed in note 12.
Disclosures relating to receivables from related parties are set out in note 18.
(b) Trade and other payables
Trade payables
Customer deposits
Other payables and accruals
Total current payables
Customer deposits
Other payables and accruals
Total non-current payables
2016
US$m
2015
US$m
190
-
432
622
50
19
69
178
5
556
739
50
19
69
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 89
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For the year ended 30 June 2016
11
Working capital (continued)
(c)
Inventories
Iron ore stockpiles
Warehouse stores and materials
2016
US$m
2015
US$m
229
325
554
328
445
773
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 2016 amounted to US$3,796 million (2015: US$5,725 million). During the year,
inventory write-offs of US$11 million (2015: US$22 million) were recognised in relation to specific items of warehouse stores and
materials that were identified as obsolete.
(d) Deferred income
Iron ore prepayments
Port access prepayment
Total current deferred income
Iron ore prepayments
Port access prepayment
Total non-current deferred income
2016
US$m
2015
US$m
374
111
485
197
111
308
509
111
620
369
222
591
12
Financial risk management
Fortescue is exposed to a range of financial risks, including market risk, credit risk and liquidity risk. Fortescue established a risk
management framework that provides a structured approach to the identification and control of risks across the business, sets
the appropriate risk tolerance levels and incorporates active management of financial risks. The risk management framework
has been approved by the Board of Directors, through the Audit and Risk Management Committee. The day to day management
responsibility for execution of the risk management framework has been delegated to the CEO and the CFO. Periodically the CFO
reports to the Audit and Risk Management Committee 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 iron ore price (commodity price risk), interest rates (interest rate risk) and foreign exchange rates (foreign currency
exchange risk).
(i) Commodity price risk
Fortescue is exposed to the commodity price risk, as its iron ore sales are predominantly subject to prevailing market prices.
Fortescue has limited ability to directly influence market prices of iron ore and manages the commodity price risk through focus
on improving its cash margins and strengthening the corporate balance sheet through refinancing and early debt repayments.
The majority of Fortescue’s iron ore sales contracts are structured on a provisional pricing basis, with the final sales price
determined using the iron ore price indices on or after the vessel’s arrival to the port of discharge. The estimated consideration
in relation to the provisionally priced contracts is marked to market using the spot iron ore price at the end of each reporting
period with the impact of the iron ore price movements recorded as an adjustment to operating sales revenue. At 30 June 2016,
Fortescue had 14 million tonnes of iron ore sales (2015: 16 million tonnes) that remained subject to provisional pricing, with
the final price to be determined in the following financial year. A 15 per cent movement in the realised iron ore price on these
provisionally priced sales would have an impact on the Group’s profit of US$85 million (2015: 20 per cent movement would
have an impact on the Group’s profit of US$150 million), before the impact of taxation. This analysis assumes all other factors,
including the foreign currency exchange rates, held constant.
90 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Capital management
For the year ended 30 June 2016
12
Financial risk management (continued)
(a) Market risk (continued)
(ii)
Interest rate risk
The Group’s interest rate risk arises from variable rates on the senior secured credit facility and, to a lesser extent, changes in
rates applicable to the short term deposits forming part of cash and cash equivalents.
Fortescue’s policy is to reduce interest rate risk over the cash flows on its long term debt funding through the use of fixed
rate instruments whenever appropriate.
Fortescue’s variable rate financial assets and liabilities at the end of the financial year are summarised below:
Cash and cash equivalents
Senior secured credit facility
Note
10(b)
10(a)
2016
US$m
1,583
(3,631)
(2,048)
2015
US$m
2,381
(4,797)
(2,416)
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.
A change of five basis points in interest rates on variable instruments would have an impact on the Group’s profit of US$1 million
(2015: a change of ten basis points would impact profit by US$3 million), before the impact of taxation. This analysis assumes
that all other factors remain constant, including foreign currency rates.
(iii) Foreign currency exchange risk
Fortescue operates in Australia, and is exposed to movements in the Australian dollar exchange rate, with a significant portion of
its operating costs and capital expenditure incurred and paid in Australian dollars.
Fortescue’s risk management policy is to target specific levels at which to convert United States dollars to Australian dollars by
entering into either spot or short term forward exchange contracts. The Group does not enter into transactions that qualify as
hedging for hedge accounting purposes.
The carrying amounts of the financial assets and liabilities denominated in Australian dollars (expressed in US dollars) are set
out below:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Borrowings and finance lease liabilities
Trade and other payables
2016
US$m
2015
US$m
30
24
54
143
336
479
99
47
146
151
407
558
A change of five per cent in the Australian dollar exchange rate would have an impact on the Group’s profit of US$21 million
(2015: a change of ten per cent would have an impact of US$42 million), before the impact of taxation. This analysis assumes that
all other variables, including interest rates and iron ore price, remain constant.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 91
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For the year ended 30 June 2016
12
Financial risk management (continued)
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to Fortescue,
and is managed on a consolidated basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial
institutions and receivables from customers.
Fortescue is exposed to a concentration of credit risk with the majority of its iron ore customers 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 years ended 30 June 2016 and 30 June 2015.
The exposure to credit risk from cash and short term deposits held in banks is managed by the treasury department and
monitored by the CFO. Fortescue minimises its credit risk by holding funds with a range of financial institutions with credit
ratings approved by the Board.
At 30 June 2016, Fortescue had US$6 million (2015: US$11 million) of trade receivables which were not settled within the normal
terms and conditions agreed with the customers. These past due receivables relate to a number of customers for whom there is
no recent history of default and are not considered impaired.
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. Fortescue
manages liquidity risk by maintaining adequate cash reserves and banking facilities, by continuously monitoring actual and
forecast cash flows and by matching the maturity profiles of its assets and liabilities.
The table below analyses Fortescue’s financial liabilities into relevant maturity groupings based on the period to the contracted
maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than 6
months
Between
6 and 12
months
Between
1 and 2
years
Between
2 and 5
years
US$m
US$m
US$m
US$m
Over 5
years
US$m
Total
contractual
cash flows
Carrying
amount
US$m
US$m
30 June 2015
Non-interest bearing
Fixed rate
Variable rate
30 June 2016
Non-interest bearing
Fixed rate
Variable rate
760
223
118
1,101
622
158
73
853
-
221
135
356
-
158
70
228
-
445
269
714
19
318
140
477
-
2,335
5,284
7,619
-
951
3,820
4,771
50
4,890
-
810
8,114
5,806
810
4,772
4,797
4,940
14,730
10,379
50
3,835
-
691
5,420
4,103
3,885
10,214
691
3,140
3,631
7,462
Management monitors rolling forecasts of the Group’s cash and overall liquidity position on the basis of expected cash flows.
92 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Capital management
For the year ended 30 June 2016
12
Financial risk management (continued)
(d) Fair values
All financial assets and financial liabilities, with the exception of derivatives, are initially recognised at the fair value of the
consideration paid or received, net of directly attributable transaction costs. Subsequently, the financial assets and financial
liabilities, other than derivatives, are measured at amortised cost.
Fortescue’s listed debt instruments, including the senior secured credit facility, senior secured notes and senior unsecured notes
are classified as level 1 financial instruments in the fair value hierarchy, with their fair values based on quoted market prices at
the end of the financial year, as outlined below.
2016
2015
Carrying value
US$m
Fair value
US$m
Carrying value
US$m
Fair value
US$m
Senior secured credit facility
Senior secured notes
Senior unsecured notes
3,631
2,152
483
3,499
2,386
455
4,797
2,248
2,063
4,347
2,373
1,596
The carrying values of other financial assets and financial liabilities approximate their fair values.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 93
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Notes to the consolidated financial statements l Key balance sheet items
For the year ended 30 June 2016
13
Property, plant and equipment
Plant and
equipment
US$m
Land and
buildings
US$m
Note
Exploration
and
evaluation
US$m
Assets under
development
US$m
Development
US$m
Total
US$m
Net carrying value
At 1 July 2014
Transfers of assets
Additions
Capitalised interest
Disposals
Depreciation
7
Changes in restoration and rehabilitation estimate 14(b)
Other
At 30 June 2015
Cost
Accumulated depreciation
Net carrying value
At 1 July 2015
Transfers of assets
Additions
Capitalised interest
Depreciation
7
Changes in restoration and rehabilitation estimate 14(b)
Other
At 30 June 2016
Cost
Accumulated depreciation
12,430
933
536
139
-
(1)
(995)
-
(2)
12,107
14,762
(2,655)
12,107
207
52
-
(898)
-
(12)
11,456
14,993
(3,537)
1
-
-
(4)
(58)
-
-
872
1,010
(138)
872
38
-
-
(61)
-
-
849
1,044
(195)
408
71
291
-
-
-
14
(16)
768
768
-
768
(19)
70
-
-
(8)
(39)
772
772
-
313
(603)
539
7
-
-
-
(11)
245
245
-
245
(255)
284
2
-
-
(49)
227
227
-
3,984
18,068
24
(5)
-
-
29
964
7
(5)
(207)
(1,260)
(59)
-
(45)
(29)
3,737
17,729
4,357
21,142
(620)
(3,413)
3,737
17,729
31
-
-
2
406
2
(241)
(1,200)
61
(25)
53
(125)
3,563
16,867
4,397
21,433
(834)
(4,566)
Transfers of assets were made between the categories of property, plant and equipment, intangible assets, exploration and evaluation
and development expenditure.
Property, plant and equipment includes assets held under finance leases of US$434 million (2015: US$403 million). The details of the
finance leases under which these assets are held are disclosed in note 10(a).
Other movements include an impairment provision following suspension of the Nullagine Iron Ore Joint Venture operations for the full
value of US$32 million, a provision in relation to specific assets and capital projects deferred pending market conditions of US$59 million,
and a US$34 million write-off of previously capitalised exploration costs on relinquished tenements.
94 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Key balance sheet items
For the year ended 30 June 2016
14
Provisions
Employee benefits
Restoration and rehabilitation
Total current provisions
Employee benefits
Restoration and rehabilitation
Total non-current provisions
(a) Provision for employee benefits
Movements in the provision for employee benefits during the year are set out below:
At 1 July
Changes in employee benefits provision
Amounts paid
At 30 June
2016
US$m
2015
US$m
167
-
167
2
487
489
2016
US$m
172
134
(137)
169
168
6
174
4
424
428
2015
US$m
170
110
(108)
172
Provision for employee benefits includes the Group’s liability for long service leave, annual leave and employee incentives.
The current portion includes all of the accrued annual leave and the portion of long service leave where employees have
completed their required period of service. The estimated amount of current annual leave and long service leave not expected
to be paid in the next 12 months is US$30 million (30 June 2015: US$30 million).
(b) Provision for restoration and rehabilitation
Movements in the provision for restoration and rehabilitation during the year are set out below:
At 1 July
Changes in restoration and rehabilitation estimate
Unwinding of discount
Payments for restoration and rehabilitation activities
At 30 June
2016
US$m
2015
US$m
430
53
4
-
487
473
(45)
4
(2)
430
The provision for restoration and rehabilitation has been made in full for all disturbed areas at the reporting date based on
current cost estimates for rehabilitation and infrastructure removal, discounted to their present value based on expected timing
of future cash flows.
Payments for restoration and rehabilitation activites exclude ongoing rehabilitation performed as part of normal operations.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 95
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Notes to the consolidated financial statements l Key balance sheet items
For the year ended 30 June 2016
15
Deferred tax assets and liabilities
Deferred tax assets
Deferred tax liabilities
(a) Composition of and movements in deferred tax assets and liabilities
2016
US$m
355
(1,855)
(1,500)
2015
US$m
397
(1,769)
(1,372)
Exploration expenditure
Development
Property, plant and equipment
Inventories
Foreign exchange losses (gains)
Provisions
Other financial liabilities
Other items
Deferred tax assets
Deferred tax liabilities
Charged / (credited) to
the income statement
2016
US$m
2015
US$m
-
-
-
-
1
201
139
14
355
-
-
35
-
1
184
137
40
397
2016
US$m
(118)
(510)
(1,079)
(121)
(5)
(5)
(13)
(4)
2015
US$m
(92)
(511)
(945)
(162)
(3)
(4)
(23)
(29)
2016
US$m
(26)
1
(169)
41
(2)
16
12
(1)
2015
US$m
(9)
(48)
(232)
23
7
(12)
50
3
(1,855)
(1,769)
(128)
(218)
(b) Tax losses
At 30 June 2016, the Group had income tax losses with a tax benefit of US$12 million (2015: US$6 million) which are not
recognised as deferred tax assets. The Group recognises the benefit of tax losses only to the extent of anticipated future taxable
income or gains in relevant jurisdictions. These losses do not expire.
96 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Unrecognised items
For the year ended 30 June 2016
16
Commitments and contingencies
30 June 2015
Within one year
Between one and five years
30 June 2016
Within one year
Between one and five years
Capital
US$m
Operating
leases
US$m
Total
US$m
138
438
576
290
183
473
107
174
281
61
98
159
245
612
857
351
281
632
(i) Capital commitments
At 30 June 2016, Fortescue had contractual commitments to capital expenditure not recognised as liabilities, including
commitments associated with the construction of very large iron ore carriers of US$271 million (2015: US$62 million) within
12 months after the end of the year and US$183 million (2015: US$438 million) between one and five years after the end
of the year.
(ii) Operating lease commitments
Fortescue leases various offices and other premises under non-cancellable operating leases expiring within one to four years.
The leases have varying terms, escalation clauses and renewal rights. The terms of the leases are renegotiated on renewal.
Fortescue also leases mobile equipment, plant and machinery and office equipment under non-cancellable operating leases.
The leases have varying terms.
Fortescue had no material contingent liabilities or contingent assets at 30 June 2016 or at the date of this report. Fortescue
occasionally receives claims arising from its activities in the normal course of business. In the opinion of the Directors, all such
matters are covered by insurance or, if not covered, are without merit or are of such a kind or involve such amounts that would
not have a material adverse impact on the operating results or financial position if settled unfavourably.
17
Events occurring after the reporting period
On 22 August 2016, the Directors declared a final dividend of 12 Australian cents per ordinary share payable in October 2016.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 97
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
18
Related party transactions
(a) Subsidiaries and joint operations
Interests in significant subsidiaries and joint operations are set out in note 23.
(b) Key management personnel remuneration
Short term employee benefits
Share-based payments
Post employment benefits
2016
US$’000
2015
US$’000
8,161
(1,242)
135
7,054
6,521
5,984
169
12,674
Detailed information about the remuneration received by each key management person is provided in the remuneration report
on pages 115 to 146.
(c) Transactions with other related parties
The following transactions occurred with joint operation partners:
Other revenue
Current receivables
Deferred joint venture contributions
2016
US$’000
2015
US$’000
30,749
70,892
1,742
253,361
19,318
260,749
The deferred joint venture contributions liability reflects the timing of cash call contributions to the Iron Bridge Joint Venture by
Fortescue and other joint operation partners.
(d) Guarantees issued
During the financial year ended 30 June 2012, the Minderoo Group Pty Ltd (formerly The Metal Group Pty Ltd), an entity
controlled by the Chairman, provided financial assistance by way of guarantee to certain of Fortescue’s executives to purchase
the Company’s shares. US$985 thousand expense was recognised during the year ended 30 June 2015 in relation to the
agreement. The agreement concluded during the year ended 30 June 2015.
98 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the financial statements l Other information
For the year ended 30 June 2016
19
Share-based payments
(a) Employee options and Performance Rights Plans
During the year ended 30 June 2016, Fortescue issued 3,870,459 (2015: 1,671,456) short term performance rights and 9,211,984
(2015: 3,752,129) long term performance rights to employees and senior executives, convertible to one ordinary share per right.
The short term rights vest over one year, and the long term rights vest over three years.
2016
2015
Weighted
average
exercise price
Weighted
average
exercise price
A$
Number
-
-
-
-
-
-
11,622,892
13,082,443
(2,866,096)
(3,483,381)
-
18,355,858
A$
1.95
-
-
-
5.00
-
Number
19,226,320
5,423,585
(2,718,618)
(2,808,395)
(7,500,000)
11,622,892
Outstanding at 1 July
Performance rights granted
Performance rights forfeited or lapsed
Performance rights converted
Options forfeited or expired during the year
Outstanding at 30 June
The weighted average fair value of performance rights granted during the year ended 30 June 2016 was A$1.79 per right
(2015: A$2.49) for the short term performance rights and A$1.72 per right (2015: A$2.37) for the long term performance rights. The
estimated fair value of the short term performance rights was determined using a trinomial option pricing model and the estimated
fair value of the long term performance rights was determined using a combination of analytical approaches, binomial tree and
Monte-Carlo simulations. The fair value estimation takes into account the exercise price, the effective life of the right, 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 2016 were:
• share price: A$1.81 (2015: A$2.55)
• exercise price: nil (2015: nil)
• volatility: 52 per cent (2015: 62 per cent)
• effective life: 2.2 years (2015: 1.9 years)
• dividend yield: 2 per cent (2015: 3 per cent)
• risk free interest rate: 2.0 per cent (2015: 2.5 per cent).
Details of performance rights outstanding at 30 June 2016 are presented in the following table:
Exercise
price
Balance at
the end of
the year
Vested and
exercisable
at the end
of the year
Remaining
contractual
life
Vesting conditions
A$
Number
Number
Years
Market
Non-market
Long term performance rights 2014
Long term performance rights 2015
Short term performance rights 2016
Long term performance rights 2016
-
-
-
-
3,582,111
3,095,545
3,487,484
8,190,718
18,355,858
-
-
-
-
-
0.3
2.3
14.5
14.5
-
-
-
Yes
Yes
Yes
Yes
Yes
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 99
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For the year ended 30 June 2016
19
Share-based payments (continued)
(b) Other share-based payments
The arrangement between certain of Fortescue’s executives and The Minderoo Group Pty Ltd, as described in note 18,
constitutes a share-based payment. The estimated fair value of this share-based payment at grant date was US$3,941,996
including US$985,499 expensed during the year ended 30 June 2015. The fair value at each grant date was determined using
a Monte-Carlo simulation model that takes into account the four-year life of the instruments, the share prices at each grant
date, the expected price volatility of the underlying share, the expected dividend yield, risk free interest rate for the life of the
instruments, the loan value per share, the loan interest rate and the terms of the margin call. The agreement concluded during
the year ended 30 June 2015.
(c) Employee expenses
Total expenses arising from share-based payments transactions recognised during the period as part of employee benefit
expense were as follows:
Share-based payment (benefit) expense
20
Remuneration of auditors
PricewaterhouseCoopers Australia
Audit and other assurance services
Audit and review of financial statements
Other assurance services
Total audit and assurance services
Other services
Consulting services
Total remuneration of PricewaterhouseCoopers Australia
Network firms of PricewaterhouseCoopers Australia
Audit and other assurance services
Audit and review of financial statements
Total remuneration of network firms of PricewaterhouseCoopers Australia
2016
US$m
(3)
2015
US$m
9
2016
US$’000
2015
US$’000
722
34
756
194
950
46
46
830
501
1,331
205
1,536
49
49
Total auditors’ remuneration
996
1,585
100 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
21
Deed of cross guarantee
Fortescue Metals Group Limited and certain of its subsidiaries are parties to a deed of cross guarantee under which each
company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the
requirement to prepare a financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian
Securities and Investments Commission.
Holding entity
• Fortescue Metals Group Limited
Group entities
• FMG Pilbara Pty Limited
• Chichester Metals Pty Limited
• FMG Resources (August 2006) Pty Limited
• FMG Resources Pty Limited
•
International Bulk Ports Pty Limited
• The Pilbara Infrastructure Pty Limited
• FMG Solomon Pty Limited
(a)
Consolidated income statement, consolidated statement of comprehensive income, consolidated statement of
financial position and consolidated statement of changes in equity
The consolidated income statement, consolidated statement of comprehensive income and consolidated statement of changes
in equity for the year ended 30 June 2016 along with the consolidated statement of financial position at 30 June 2016 for the
closed group and the extended closed group represented by the above companies are materially the same as that of the Group.
22
Parent entity financial information
(a) Summary financial information
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Retained earnings
Total equity
Profit for the year
Total comprehensive income for the year
2016
US$m
101
10,273
10,374
325
85
410
9,964
1,301
14
8,649
9,964
601
601
2015
US$m
198
9,395
9,593
31
77
108
9,485
1,294
33
8,158
9,485
2,002
2,002
The parent entity’s financial information has been prepared on the same basis, including the accounting policies, as the
consolidated financial information, except as outlined below:
•
Investments in subsidiaries, associates and joint operations have been accounted for at cost; and
• Profit for the year includes dividends received from subsidiaries of US$500 million (2015: $2,045 million).
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 101
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For the year ended 30 June 2016
22
Parent entity financial information (continued)
(b) Guarantees entered into by the parent entity
The parent entity is a party to the following guarantees:
• Deed of cross guarantee, as described in note 21; and
• Guarantees forming part of the Fortescue’s senior debt arrangements associated with the senior secured credit facility, the
senior secured notes and the senior unsecured notes, which includes providing security to the secured debt holders with
respect to the assets of the Company and certain of its subsidiaries, as described in note 10(a).
No liability was recognised by the parent entity or the Group in relation to these guarantees.
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities at 30 June 2016 or 30 June 2015.
23
Interests in other entities
(a) Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following significant subsidiaries, in accordance
with the accounting policy described in note 24(a)(i):
Controlled entities
Chichester Metals Pty Limited
FMG International Pte Limited
FMG International Shipping Pte Ltd
FMG Iron Bridge Limited
FMG Magnetite Pty Limited
FMG North Pilbara Pty Limited
FMG Pilbara Pty Limited
FMG Procurement Services
FMG Resources (August 2006) Pty Limited
FMG Solomon Pty Limited
Karribi Developments Pty Limited
Pilbara Housing Services Pty Limited
Pilbara Power Pty Limited
The Pilbara Infrastructure Pty Limited
Equity holding
Investment
Country of
incorporation
Class
of shares
2016
%
2015
%
Australia
Singapore
Singapore
Hong Kong
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
88
88
88
100
100
100
100
100
100
100
100
100
100
100
88
88
88
100
100
100
100
100
100
100
100
2016
US$
1
2015
US$
1
209,053
209,053
1
1
43,557,023
43,557,023
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
102 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
23
Interests in other entities (continued)
(b) Joint operations
The consolidated financial statements incorporate Fortescue’s share in the assets, liabilities and results of the following principal
joint operations, in accordance with the accounting policy described in note 24(a)(ii).
Joint
operations
Country of
incorporation
Holding entity
Principal activities
2016
2015
Participating interest, %
Nullagine Iron Ore
Joint Venture
Australia
FMG Pilbara Pty Ltd
Iron Bridge
Joint Venture
Glacier Valley
Joint Venture
Australia
FMG Magnetite Pty Ltd
Australia
FMG North Pilbara Pty Ltd Iron ore exploration
Iron ore mining
and processing1
Development of magnetite
assets and production of
magnetite concentrate
25
69
69
25
69
69
1 During the year ended 30 June 2016, the operations of the Nullagine Iron Ore Joint Venture were suspended pending market conditions.
24
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
Subsidiaries
(i)
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries, being the
entities controlled by the Company. Control exists when the Group is exposed to, or has right to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
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. Subsidiaries are consolidated from the effective date of acquisition to the effective
date of disposal.
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, consolidated statement of changes in equity and consolidated statement
of financial position respectively.
Joint arrangements
(ii)
A joint arrangement is an arrangement 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 a right to the assets and the obligations for the liabilities for the parties, the
arrangement is classified as 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 23.
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 parties to the joint arrangements in different financial
years, may give rise to deferred joint venture contribution assets or liabilities.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 103
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Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
(a) Principles of consolidation (continued)
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) Foreign currency translation
Transactions in foreign currencies have been converted at rates of exchange at the date of those transactions. Monetary assets
and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the reporting date, with the
resulting gains and losses recognised in the income statement, except as set out below:
• For qualifying cash flow hedges, the gains and losses arising on foreign currency translations are deferred in other
comprehensive income
• Translation differences on site rehabilitation provisions are capitalised as part of the development assets.
Gains and losses on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
(d) 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.
Sale of products
(i)
Revenue from the sale of products is recognised when persuasive evidence exists, usually in the form of an executed sales
agreement, indicating that there has been a transfer of risks and rewards of ownership to the customer, no further work or
processing is required by the Group, the quantity and quality of the products have been determined with reasonable accuracy,
the price can be reasonably estimated and collectability is reasonably assured.
For iron ore sales, the above conditions are generally satisfied when title passes to the customer, typically on the bill of lading
date when ore is delivered to the vessel. Accordingly, revenue from sales of iron ore is recognised on the bill of lading date at an
invoiced amount.
For the majority of Fortescue’s contracts the sale price included in the original invoice is referred to as provisional price and is
subsequently adjusted to reflect market prices over a quotation period stipulated in the sales contract, typically on or after the
vessel’s arrival to the port of discharge. Refer to note 12(a)(i) for further information on provisionally priced contracts, including
accounting for mark to market adjustments.
(ii) Services revenue
Revenue from the provision of services is recognised in the accounting period in which the services are rendered.
Interest income
(iii)
Interest income is accrued using the effective interest rate method.
(e) 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.
104 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
Income tax
(f)
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 for 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.
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.
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.
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 the income statement, 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 and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as at
1 July 2002, namely the FMG tax consolidated group, and are therefore taxed as a single entity from that date. FMG Iron Bridge
(Aust) Pty Ltd and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as at 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.
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 Fortescue 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.
(g) 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.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 105
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Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
(h) 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.
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’s carrying amount and the present value
of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are
not discounted if the effect of discounting is immaterial.
The amount of the impairment allowance is recognised in the income statement within 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 administration
expenses.
Inventories
(i)
Warehouse stores and materials, work in progress and finished goods are stated at the lower of cost and net realisable value.
Cost for raw materials and stores is determined as the purchase price. For partly processed and saleable iron ore, cost is based on
the weighted average cost method and includes:
•
Materials and production costs, directly attributable to the extraction, processing and transportation of iron ore to the
existing location
• Production and transportation overheads
• Depreciation of property, plant and equipment used in the extraction, processing and transportation of iron ore.
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.
(j) Financial assets
Fortescue classifies its financial assets into loans and 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. Loans and receivables are initially measured at fair
value and subsequently carried at amortised cost. At the end of each reporting period loans and receivables are reviewed for
impairment, with the difference between the carrying amount and the present value of estimated future cash flows recognised
in the income statement.
Financial assets through profit or loss
(ii)
This category comprises only derivative financial instruments. They are carried on the balance sheet at fair value with changes in
fair value recognised in the income statement.
(k) Financial liabilities
Trade payables
(i)
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.
(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.
Borrowings are derecognised when the contractual obligations are discharged, cancelled or expire, or when the terms of an
existing borrowing are substantially modified. Any difference between the carrying amount of a derecognised liability and the
carrying amount of the new liability is recognised in the income statement.
106 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
(k) Financial liabilities (continued)
(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 the income statement over
the lease period to reflect a constant periodic rate of interest on the remaining balance of the liability for each period.
(l) 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. 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 the income statement and determined
by comparing proceeds from the sale of the assets to their carrying amount.
(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 the income statement during the
financial period in which they are incurred.
(iii) Depreciation
Depreciation of 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.
The estimated useful lives for the principal categories of property, plant and equipment depreciated on a straight-line basis are
as follows:
• buildings
• rolling stock
• plant and equipment
20 to 40 years
25 to 30 years
2 to 20 years
• rail and port infrastructure assets 40 to 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.
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 mines.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 107
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Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
(l) Property, plant and equipment (continued)
(iv) Exploration, evaluation and development expenditure
Exploration and evaluation activities involve the search for mineral resources, the determination of technical feasibility and the
assessment of commercial viability of an identified resource. Exploration and evaluation expenditure incurred is accumulated
and capitalised in respect of each identifiable area of interest, and carried forward to the extent that:
• Rights to tenure of the identifiable area of interest are current
• At least one of the following conditions is also met:
-
-
The expenditure is expected to be recouped through the successful development of the identifiable area of interest,
or alternatively by its sale; or
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 within exploration, development and other expenses in the income statement.
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 the decision is made. Each area of interest is reviewed at the
end of each accounting period and the accumulated costs written off to the income statement 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 mines.
(m) 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.
108 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
(m) Stripping costs (continued)
(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
• The costs relating to the production stripping activity associated with that component can be measured reliably.
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.
(n) 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 income statement 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 the income statement on
a straight-line basis over the lease term.
(o) 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 include decommissioning of facilities, removal or treatment of waste materials, land rehabilitation and site restoration.
The extent of work required and the associated costs are estimated using current restoration standards and techniques. Provisions
for the cost of each rehabilitation program are recognised at the time that environmental disturbance occurs.
Rehabilitation provisions are initially measured at the expected value of future cash flows required to rehabilitate the relevant
site, discounted to their present value 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 25.
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.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 109
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information
Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
Impairment of non-financial assets
(p)
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. The Group conducts an internal review of asset values bi-annually, which is used as a source of information to assess
for any indications of impairment. External factors, such as changes in expected future prices, costs and other market factors
are also monitored to assess for indications of impairment. If any such indication exists, an estimate of the asset’s recoverable
amount is calculated, being the higher of fair value less direct costs to sell and the asset’s value in use. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between
knowledgeable and willing parties. Fair value for mineral assets is generally determined using independent market assumptions
to calculate the present value of the estimated future cash flows expected to arise from the continued use of the asset, including
any expansion prospects, and its eventual disposal. These cash flows are discounted using an appropriate discount rate to arrive
at a net present value of the asset.
Value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use
of the asset in its present form and its eventual disposal, discounted using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not
been adjusted. Value in use is determined by applying assumptions specific to the Group’s continued use and does not take into
account future development.
In testing for indications of impairment and performing impairment calculations, assets are considered as collective groups
and referred to as cash generating units. Cash generating units are the smallest identifiable groups of assets and liabilities that
generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Impaired assets are reviewed for possible reversal of the impairment at each reporting date.
(q) Finance costs
Finance costs principally represent interest expense and are recognised as incurred except when associated with major projects
involving substantial development and construction periods. In addition, finance costs include losses arising on derecognition of
finance liabilities at above their carrying value, unwinding of the discount on provisions and bank charges.
Interest expense and other borrowing costs directly attributable to major projects are added to the cost of the project assets
until such time as the assets are substantially ready for their intended use or sale. Where funds are used to finance an asset form
part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general
borrowings during the 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.
(r) Employee benefits
(i) Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of
the reporting date are recognised in other payables and accruals in respect of employee services up to the reporting date. They
are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Long service leave
The liability for long service leave is recognised in 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. 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.
110 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
(s) Share-based payments
Share-based remuneration benefits are provided to employees under the Fortescue’s Performance Rights Plan, as set out in note 19.
The fair value of rights is measured at grant date, as set out in note 19, and is recognised as an employee benefits expense over
the period during which the employees become unconditionally entitled to the rights, with a corresponding increase in equity.
The fair value of the rights granted is measured to reflect expected market vesting conditions, but excludes the impact of any
non-market vesting conditions (for example, profitability). Non-market vesting conditions are included in assumptions about the
number of rights that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number
of rights 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 the income statement with a
corresponding adjustment to equity.
(t) 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.
(u) 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.
(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.
(v) 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.
(w) Comparatives
Where applicable, certain comparatives have been adjusted to conform with current year presentation.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 111
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
24
Summary of significant accounting policies (continued)
(x) 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 2015:
• 2014-1 Amendments to Australian Accounting Standards Part A: Annual Improvements 2010-2012 and 2011-2013 Cycles.
AASB 2014-1 introduced annual improvements that resulted in changes to various standards
The adoption of the 2010-2012 and 2011-2013 annual improvement cycles had no impact on the amounts recognised and
disclosures in Fortescue’s financial statements.
(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 2016 reporting
periods. These standards and interpretations have not been early adopted.
• AASB 9 Financial Instruments (effective for annual reporting periods beginning on or after 1 January 2018).
AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities and
introduces new rules for hedge accounting. Fortescue has determined that AASB 9 will have no material impact on the way
the Group accounts for its financial instruments
•
•
AASB 15 Revenue from Contracts with Customers (effective for annual reporting periods beginning on or after
1 January 2018). AASB 15 introduces new framework for accounting for revenue and will replace AASB 118 Revenue and
AASB 111 Construction Contracts. The new standard is based on the principle that revenue is recognised when control over
goods and services transfers to a customer, therefore the notion of control replaces the existing notion of risks and rewards.
Management is continuing to assess the impact of the new standard on Fortescue’s financial statements
AASB 16 Leases (effective for annual reporting periods beginning on or after 1 January 2019). AASB 16 introduces new
framework for accounting for leases and will replace AASB 117 Leases. The new standard will primarily affect the accounting
by lessees and will result in the recognition of almost all leases on the balance sheet. The standard removes the current
distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item)
and a financial liability to pay rentals for almost all lease contracts. Management is continuing to assess the impact of the
new standard on Fortescue’s financial statements.
112 I FORTESCUE METALS GROUP LIMITED FINANCIAL REPORT
Notes to the consolidated financial statements l Other information
For the year ended 30 June 2016
25
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.
Iron ore reserve estimates
(a)
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 the income statement may change where such charges are determined by the
units of production method, or where the useful economic lives of assets change
• The carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of tax benefits.
(b) 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 the income statement.
(c) 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 the income statement.
(d) 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 the income statement.
(e) 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 2016 ANNUAL REPORT I 113
Reserves and ResourcesGovernanceFinancial ReportRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewCorporate Information
Have a crack
Closing the gap by
supporting Aboriginal
development
Inspiring female
employees to thrive
Closing the gap by
supporting Aboriginal
development
Going the
extra mile for our
community
Building
a great
team culture
g
e
c
u il d i n
r
g
a
a m
B
e
t
t
a
u lt
e
r
u
Have a crack
Closing the gap by
supporting Aboriginal
development
Inspiring female
employees to thrive
H
ave a crack
Keeping ourselves
and our
mates safe
Going the
extra mile for our
community
Going the
extra mile for our
community
Keeping ourselves
and our
mates safe
Inspiring female
employees to thrive
Keeping ourselves
and our
mates safe
Building
a great
team culture
114 I FORTESCUE METALS GROUP LIMITED
Remuneration Report
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 115
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 115
REMUNERATION REPORT
1.
1.1
FY16 Overview and year ahead
FY16 Remuneration outcomes
- linking performance to pay
2.
2.1
Remuneration governance
The Remuneration and Nomination Committee
2.2 Use of remuneration consultants
2.3 Clawback Policy
2.4
Securities Trading Policy
2.5 Minimum shareholding and holding conditions
Executive remuneration strategy
3.
3.1 Remuneration Policy
3.2 How remuneration practices align with
our reward strategy
Executive remuneration structure
4.
4.1 Remuneration mix
121
123
124
124
124
124
125
125
126
5.7 Critical Initiative Incentive Payment
5.8
Long Term Incentive Plan (LTIP)
5.8.1 FY14 and FY15 Long Term Incentive Plan
5.8.2 FY14 LTIP performance outcomes
5.8.3 FY14 LTIP awards
5.8.4 FY15 LTIP performance
5.8.5 FY16 LTIP (New Plan)
5.8.6 FY16 LTIP operation
5.9
Salary Sacrifice Share Plan
How executive remuneration is reported
6.
6.1 Actual remuneration paid in FY16
6.2
Statutory remuneration disclosures for executives
132
132
132
133
133
134
134
134
138
139
140
6.3 Details of performance grants to executive directors 141
6.4 Details of share based payments relating to LTI
7.
Executive contract terms
5.
5.1
Incentive plan operation and
performance outcomes
Executive and Senior Staff Incentive Plan (ESSIP)
Non-executive director remuneration
8.
8.1 Non-executive director Remuneration Policy
127
8.2 Non-executive director fee pool
5.2 How ESSIP objectives and weightings are determined 127
8.3 Non-executive director fee structure
5.3 How the ESSIP works: an example
5.4 How Fortescue performed over the past five years
5.5
FY16 ESSIP performance outcomes
5.6
FY16 ESSIP awards
128
128
129
131
8.4 Non-executive director remuneration paid
9.
Equity instrument disclosures
relating to Key Management Personnel
9.1 Options and performance rights
9.2
Shareholdings (ordinary shares)
116 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
142
143
143
143
144
144
145
145
146
REMUNERATION REPORT
Remuneration Report
From the Remuneration and Nomination Committee Chair
On behalf of the Directors of Fortescue Metals Group Limited I am pleased to present the Remuneration Report for the year
ended 30 June 2016 (‘FY2016 or FY16’).
Our Remuneration Report is designed to provide you, our shareholders, with information on key Committee activities
undertaken during the year. Details of remuneration paid to Directors and Key Management Personnel (‘KMP or Executives’) in
FY2016 demonstrate how reward outcomes link to Company strategy, performance and value to shareholders.
Market context
As reported in the Operating and Financial Review, FY16 has achieved strong results during another challenging year with
market volatility and external factors impacting shareholder returns across the industry.
A governing principle of Fortescue’s remuneration strategy is to ensure management are held accountable for achieving stretch
targets on the critical deliverables of safety, production and cost. For FY16, the Board determined aggressive targets for each
and designed incentives specifically to drive business transformation, financial performance and protect shareholder value, as
follows:
•
Improvement in safety of at least 15% over FY15, ensuring continued improvement of this most critical measure
• A focus on cost reduction at the highest level, to achieve significant and sustainable cost savings in addition to the target set
by the Board in FY15, at that time crucial to the sustainability of the business in the context of a falling iron ore price
• Delivery of process efficiency, productivity improvement and efficiency across the business, fundamental to strengthening
Fortescue’s resilience, preserving shareholder value and developing a platform for future growth.
The following chart illustrates the high correlation of the Fortescue share price to movements in the iron ore price, a key external
factor outside management’s control.
$6.00
$5.50
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$130
$110
$90
$70
$50
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FMG ASX share price (A$) (LHS)
62% Iron ore index(US$) (RHS)
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FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 117
REMUNERATION REPORT
Sustainable cost reduction
In FY15, the Board tasked the CEO and CFO specifically to safely
deliver significant cost savings that it believed were fundamental
to business sustainability in light of a falling iron ore price. Given its
essential nature to Fortescue, a continued focus on cost reduction in
FY16 and criticality of achieving further significant and sustainable
cost reductions was reinforced by the Board. The Company’s
leadership team has continued to focus on the key drivers of financial
performance within their control, including process efficiency,
productivity improvement and cost reduction. They have taken the
necessary actions required to strengthen Fortescue’s resilience to the
current economic environment, preserving shareholder value and
developing a platform for future growth.
C1 costs are an important key performance indicator, representing
the operating costs of mining, processing, rail and port on a per
tonne basis, including allocation of direct administration charges
and production overheads. The chart opposite shows the reduction
in C1 costs from FY12 to FY16. FY16 was again a successful
year, highlighting the delivery of continuous, sustainable cost
improvements achieved through development of assets, efficiencies,
productivity and cost savings.
US$/wmt
60
50
40
30
20
10
0
48
44
34
27
15
Exit FY17 at
$12-13
FY12
FY13
FY14
FY15
FY16
FY17
Guidance
Fortescue’s successful drive to reduce C1 costs, together with reduction in all costs of the business reflect further progress in
securing the Company’s strong competitive position among its global peers. Whilst cost reduction has been reported across the
industry of between 41 – 48 per cent since 2013, Fortescue by comparison, has reduced C1 costs by more than 70 per cent as
illustrated by the charts below.
C1 cost US$/wmt
C1 cost reduction 2013-2016
$60
$50
$40
$30
$20
$10
$0
74%
45%
H1 2013
H2 2013
H1 2014
H2 2014
H1 2015
H2 2015
H1 2016
H2 2016
Fortescue Peer average
Fortescue
Peer average
The cost saving actions delivered by the leadership team have successfully maintained underlying EBITDA margins and
delivered shareholder value, as illustrated by the charts below.
FY14-FY16 cash savings since achieving
full operating capacity US$bn
Underlying EBITDA margin
1.9
3.5
0.8
55%
41%
51%
39%
30%
29%
0.8
FY14
FY15
FY16
Delivered
Savings
1HY14
2HY14
1HY15
2HY15
1HY16
2HY16
Underlying EBITDA margin
Average
118 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l FY16 Remuneration
FY16 Remuneration
Fixed remuneration
For the second successive year in line with economic and
industry sentiment, the FY17 Annual Remuneration Review
(effective from 1 July 2016) resulted in a decision to maintain
fixed remuneration at current levels across the business.
‘At Risk’ remuneration
A significant portion of the value that executives may
receive in respect to performance based incentives, or the
‘at risk’ component of their remuneration arrangements
is subject to both Company and share price performance.
A minimum of 50 per cent (with the ability to elect up to
100 per cent) of the Short Term Incentive and 100 per cent
of the Long Term Incentive is offered in the form of share
rights, the value of which is based on the share price at the
beginning of the performance period. This means that the
value of the share rights is subject to the same share price
performance experienced by shareholders over the relevant
period. The actual value realised by executives is based on
the share price at the time the share rights are awarded and
value received at the end of the performance period. This
ensures that awards are fully aligned with the shareholder
experience over the same period.
In FY16, Fortescue’s management team have continued
to provide strong leadership in operational performance
driving safe and sustainable improvements across the
business. This performance has resulted in continued
reduction in Total Recordable Injury Frequency Rate, a
significant reduction in total delivered costs, achievement
of annual production targets and the generation of strong
cash flows. Accordingly, these results have delivered a solid
foundation for the continued reduction of debt. These
achievements are reflected in the outcomes of the FY16
Executive and Senior Staff Incentive Plan (ESSIP) which has
delivered an average award of 102 per cent of maximum
opportunity. In considering incentive payments, the Board
take careful consideration in setting and assessing awards
to ensure there is a strong link between remuneration and
performance.
The three year performance period for the FY14 Long Term
Incentive Plan (LTIP) concluded on 30 June 2016, with the
Plan meeting its Absolute Return on Equity (AROE) threshold
of 20 per cent and 25 per cent of share rights granted under
the Plan vesting.
Fortescue’s share price and total shareholder return for the
one year short term and three year long term incentive
performance periods are provided below.
Period
1 Year
3 Year
At start
of period
A$1.91
A$3.04
Share Price
At end
of period Increase
A$3.50
A$3.50
83%
15%
TSR
87.6%
27.4%
Fortescue’s share price performance
vs the ASX 100 Resources Index
One year performance
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
5
1
/
6
0
/
0
3
5
1
/
7
0
/
1
3
5
1
/
8
0
/
1
3
5
1
/
9
0
/
0
3
5
1
/
0
1
/
1
3
5
1
/
1
1
/
0
3
5
1
/
2
1
/
1
3
6
1
/
1
0
/
1
3
6
1
/
2
0
/
9
2
6
1
/
3
0
/
1
3
6
1
/
4
0
/
0
3
6
1
/
5
0
/
1
3
6
1
/
6
0
/
0
3
ASX 100 Resources Index (RHS)
FMG ASX share price A$ps (LHS)
Three year performance
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
3
1
/
6
0
/
0
3
3
1
/
8
0
/
1
3
3
1
/
0
1
/
1
3
3
1
/
2
1
/
1
3
4
1
/
2
0
/
8
2
4
1
/
4
0
/
0
3
4
1
/
6
0
/
0
3
4
1
/
8
0
/
1
3
4
1
/
0
1
/
1
3
4
1
/
2
1
/
1
3
5
1
/
2
0
/
8
2
5
1
/
4
0
/
0
3
5
1
/
6
0
/
0
3
5
1
/
8
0
/
1
3
5
1
/
0
1
/
1
3
5
1
/
2
1
/
1
3
6
1
/
2
0
/
9
2
6
1
/
4
0
/
0
3
6
1
/
6
0
/
0
3
ASX 100 Resources Index (RHS)
FMG ASX share price A$ps (LHS)
Critical initiatives
Critical initiatives identified by the Board for implementation
over FY16 and the previous financial year were required to ensure
continued business sustainability and value protection in the
context of the falling iron ore price and consequent market
shifts. These initiatives included stability of the leadership team
and aggressive cost reduction targets, to be driven in particular
by the CEO and CFO.
In the opinion of the Board, the CEO and CFO demonstrated
outstanding leadership and extraordinary achievement in
creating long term sustainable value for shareholders in the
period up to and including the FY16 performance year. This
achievement includes the delivery of cost savings of US$1.6
billion for the financial years 2013 to 2015 and the development
of a clear and deliverable plan for achieving additional cost
savings of US$1.9 billion in FY16.
Recognising the nature of cost savings as fundamental to the
sustainability of Fortescue, the Board exercised its discretion to
approve a one-off award payment to the CEO of A$2,000,000 and
to the CFO of A$500,000, representing in total less than 0.1 per
cent of the cost savings delivered at the time of payment.
In considering the reasonableness of the proposed payments, the
Board formally engaged Egan Associates.
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CEO remuneration
The total remuneration actually delivered to the CEO (and other
executives) is subject to performance hurdles and to the share
price movement, with a significant proportion delivered in share
based incentives subject to the same variability as experienced by
shareholders.
Fortescue is committed to providing competitive remuneration
packages to executives and senior employees and the Board
benchmarks remuneration components against major indices
including the ASX 50 and the ASX 100 Resources Index
and comparable roles in peer group companies. The Board
acknowledges that market conditions, share price and market
capitalisation may change the Company’s relative comparator
group. At 30 June 2015 Fortescue was ranked #55 on the ASX 100
by market capitalisation, improving to #32 at 30 June 2016.
Long Term Incentive Plan
As reported in the FY15 Remuneration Report, the Board
reviewed the operation of the Long Term Incentive Plan (LTIP)
taking into account the objectives of the Company’s broader
remuneration strategy, general market conditions and the range
of performance hurdles utilised by leading resource companies
both regionally and globally. The review resulted in the
introduction of an additional two performance hurdles, Relative
Total Shareholder Return and a basket of Strategic Measures
designed to enhance the existing plan. Absolute Return on
Equity has been retained as a key performance measure.
This combination of financial and strategic metrics support a
framework for long term growth.
The amended LTIP was approved by Shareholders at the 2015
Annual General meeting and has been implemented in FY16.
Further details on its operation are provided in Section 5 of this
Remuneration Report.
Conclusion
Fortescue’s remuneration strategy is designed to motivate,
attract and retain employees to deliver on the Company’s
strategic objectives. For executives and senior staff this includes
a high proportion of at risk remuneration which is fundamentally
aligned to shareholder returns. At its core, the strategy drives
management accountability for the achievement of stretch
targets for the business, through a balance of financial and non-
financial measures.
Consistent with the Board’s strategy, remuneration outcomes
for FY16 reflect the achievement of all critical safety, production
and cost deliverables for the year. The improvement in safety
performance, a focus on cost reduction at the highest level
and crucial process efficiency and productivity gains have
strengthened Fortescue’s resilience, increased shareholder value
and have provided the platform for future growth.
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 FY16 were:
Non-executive Directors
Chairman
A Forrest
Vice Chair
O Hegarty
M Barnaba
Lead Independent Director
Non-Executive Director
E Gaines
C Huiquan
Non-Executive Director
Non-Executive Director
G Raby
S Warburton
Non-Executive Director
J Baderschneider Non-Executive Director
Executive Directors
N Power
P Meurs
S Pearce
Chief Executive Officer
Director Development (resigned 18 April 2016)
Chief Financial Officer (appointed as an
Executive Director 21 June 2016)
Other key management personnel (Executives)
Director Operations
N Cernotta
Within this Remuneration Report reference to
“Executive(s)” includes Executive Directors and Other
Key Management Personnel.
There have been no changes to Key Management Personnel
after the reporting date.
The information provided in this Remuneration Report has
been prepared in accordance with requirements under the
Corporations Act 2001 and Accounting Standards. Further details
in regard to Company Directors can be found in the Corporate
Governance Section of the Annual Report.
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. This report forms part of the Directors’ Report
and unless otherwise indicated the following sections have been
audited in accordance with section 308 (3c) of the Corporations
Act 2001.
Sharon Warburton
REMUNERATION & NOMINATION COMMITTEE CHAIR
Safety
TRIFR 4.3
15
Production
C1 costs
169.4mt
2
$15.43
43
/wmt
120 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l FY16 Overview and year ahead
1 FY16 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 shareholder value.
Fortescue’s Board and Remuneration and Nomination Committee (RNC) are committed to the 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.
1.1 FY16 Remuneration outcomes - linking performance and pay
The Board takes into consideration both quantitative and qualitative assessments when deliberating on
Executive remuneration to ensure that reward outcomes reflect both Company and individual performance.
The following explains how fixed and variable remuneration outcomes were driven by performance in FY16.
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Delivery
Performance Measures
Outcomes
Cash, superannuation and
optional salary sacrifice
benefits
An individual’s TFR is a fixed
/ guaranteed element of
remuneration
Element of
Remuneration
Total Fixed
Remuneration
(TFR)
Further details are
provided on page
143
Short Term
Incentive Plan
Executive and
Senior Staff
Incentive Plan
(ESSIP)
Further details are
provided on page
127
Minimum 50 per cent (up
to 100 per on election)
in share rights with the
balance in cash
Share rights are granted
based on share price
at the beginning of the
performance period with
value realised at time of
award at the end of the
performance period
Movement in share price
over the performance
period directly affects the
value received ensuring
full alignment with returns
to shareholders over the
performance period
Long Term
Incentive Plan
(LTIP)
Further details are
provided on page
132
Critical Initiative
Incentive Payment
Share rights are granted
based on share price
at the beginning of the
performance period with
value realised at time of
award at the end of the
performance period
Movement in share price
over the performance
period directly affects the
value received ensuring
strong correlation with
returns to shareholders
over the course of the
same period
One-off cash payment
122 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
In consideration of fixed remuneration levels
and current business climate, a freeze of fixed
remuneration was implemented across the
Company in FY16
A market review was conducted for the CEO and
Executive in May 2016 resulting in no change
to current fixed remuneration for the second
successive year
TFR is benchmarked against companies in the ASX
100 Resources Index
Awards made in relation to the FY16 ESSIP
reflect the achievement of:
• All three Company Annual Targets achieved:
• 15% reduction in TRIFR
• 43% reduction in C1 costs
• 2% above target production
• Company Growth Targets achieved
•
Individual performance objectives for
Executives other than the CEO
The outcome represents an average payment
of 102 per cent of maximum opportunity
compared with an average payment of 81 per
cent of maximum opportunity in FY15
Refer to section 5 for further detail
FY14 LTIP
Threshold AROE performance of 20% was
achieved
The FY15 and FY16 LTIP performance periods
remain open
An additional Incentive Payment was
awarded to the CEO of A$2,000,000 and the
CFO of A$500,000 in recognition of their
extraordinary achievement in the delivery of
cost savings to the Company of US$1.6 billion
for the financial years 2013 to 2015 and the
commitment to deliver further cost savings
of US$1.9 billion in 2016 ensuring Fortescue’s
improved global competitiveness. Arising
from the improvements achieved, the above
incentive payments were determined by the
Board and in aggregate equate to less than 0.1
per cent of the cost savings generated
A balanced scorecard of
performance measures
including financial and non-
financial measures. Financial
measures represent the key
drivers of financial performance
underlying EBITDA and NPAT
Company Annual Targets
• Safety
• Production
• Cost
Company Growth Targets
• AROE
• Physical
• Culture
CEO Performance
• Measured on Company Annual
plus Growth Targets
Other KMP Performance
• As per the CEO plus an
additional 4-5 Personal KPIs
aligned to business plan and set
at stretch levels of performance
FY14 LTIP for the period 1 July
2013 to 30 June 2016
• Measured solely against single
financial AROE Targets
FY15 LTIP for the period 1 July
2014 to 30 June 2017
• Measured solely against single
financial AROE Targets
FY16 LTIP measured against
• AROE (33%)
• TSR (33%)
• Strategic Measures (34%)
Business critical initiatives
including aggressive cost
reduction targets and leadership
stability required to deliver
sustainable long term value for
shareholders
REMUNERATION REPORT l Remuneration governance
2 Remuneration governance
At Fortescue, we believe that robust governance is critical to underpinning the effectiveness of our remuneration strategy.
2.1 The Remuneration and Nomination Committee
The Remuneration and Nomination Committee (RNC) operates under a Board-approved Charter. The purpose of the committee is to
provide assistance and recommendations to the Board to ensure that it is able to fulfil its responsibilities relating to the following:
• Remuneration strategy
• Non-Executive Director remuneration
• Chief Executive Officer and Executive Director remuneration
• Senior Executive remuneration
• Short term and long term incentive plans
• Annual Performance Review of the CEO
• Succession planning
• Diversity strategy
• Gender Pay equity
• Matters relating to the Company’s recruitment, retention and termination policies
• Nomination and Review of applicants for the Board Director position
• Committee Member Appointments.
A copy of the Charter is available under the Corporate Governance section at www.fmgl.com.au
The RNC in FY16 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:
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
REMUNERATION
CONSULTANTS
Will be engaged directly
by management other than in
respect of KMP’s to provide
advice and market data to
ensure Fortescue’s
remuneration position
remains competitive
BOARD OF DIRECTORS
• Approving the remuneration of Non-Executive Directors and CEO
• Ensuring remuneration practices are competitive and align with the attraction
and retention policies of the Company
BOARD REMUNERATION AND NOMINATION COMMITTEE
Advise the Board on:
• Remuneration policies and practices • Non-Executive Director remuneration
• Executive remuneration
HUMAN RESOURCES MANAGEMENT
• Implementation of remuneration policies and practices
• Advising the Remuneration and Nomination Committee of changing statutory and market conditions
• Provides relevant information to the Remuneration and Nomination Committee to assist with decisions
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2.2 Use of remuneration consultants
The Committee has the resources and authority appropriate to perform its duties and responsibilities, including the authority to
engage external professionals on terms it deems appropriate.
During the year ended 30 June 2016, the Committee engaged Egan Associates in relation to the reasonableness of the critical
initiative incentive payment made to the CEO and CFO and a review of Non-executive director fees. Recommendations
received from Egan Associates were provided as input into the decision making process and the Committee considered the
recommendations along with other factors in making its decision.
The following table shows the fees relating to remuneration recommendations paid to Egan Associates:
Advice and/or services provided
Fees (excluding GST)
Research and remuneration recommendations - Non-executive director fees
Reasonableness of critical initiative incentive payment – CEO and CFO
Total
10,290
7,500
17,790
Fortescue Management were not involved in the formulation of any remuneration recommendations but provided factual
information to assist Egan Associates. The Committee and Board are satisfied that the remuneration recommendations received
from Egan Associates during the year were free from undue influence from members of Fortescue’s KMP.
The Committee also retained Egan Associates in relation to the review of policies and practices and the provision of general
information on market trends, it did not incorporate providing the Committee with any remuneration recommendations as
defined by the Corporations Act 2001.
2.3 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.
2.4. 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 Securities 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 Securities Trading Policy can be accessed from the Corporate Governance section at www.fmgl.com.au
2.5 Minimum shareholding and holding conditions
All Directors and employees are encouraged to own Fortescue shares and the Company enables employee participation as a
shareholder through short and long term incentives, salary sacrifice and dividend reinvestment programs.
Fortescue does not have a formal minimum shareholding policy or mandatory holding condition on awarded shares however it
is important to note:
• A minimum of 79 per cent of the ‘at risk’ component of Executive remuneration is granted in share rights
•
The nominal value of share rights is determined at the commencement of the performance period motivating executives to
hold shares and grow shareholder value
• The combined number of share rights granted and shares awarded exceeds TFR
•
Following recent changes to tax legislation, all Fortescue incentives (both short and long term) offered from FY16 will be
awarded as vested rights. Participants having up to 15 years to exercise the vested rights into shares and income tax is
deferred until exercise.
124 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l Executive remuneration strategy
3 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 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
• Alignment to the long term goals of the Company.
3.1 Remuneration Policy
Fortescue is committed to providing competitive remuneration packages to our executives and senior employees. Fortescue
benchmarks remuneration components against major indices such as the ASX 50 and the ASX 100 Resources Index as well as
comparable roles in peer group companies. The Board acknowledges that market conditions, share price and market capitalisation
may change the Company’s relative comparator group from time to time.
The Board, however, has a long term strategy to ensure that executive remuneration is appropriately positioned to motivate, attract
and retain key executives and senior employees through the commodity cycles to deliver on the current and long term strategic
activities of the Company.
In FY15 Fortescue was ranked #55 on the ASX 100 by market capitalisation and improved to #32 at 30 June 2016.
Information may also be sought from independent remuneration consultants regarding Executive remuneration as and when
required as detailed in section 2.
3.2 How remuneration practices align with our reward strategy
Remuneration strategy principle
Policy
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 Index
and other relevant indices
Performance focus
Fit for purpose
Strategic alignment
Provide fair reward in
line with individual and
Company achievements
Executive remuneration mix
targets a minimum of 64 per cent
of the total opportunity ‘at risk’
Include flexibility to reflect clear
linkage to business strategy
Business strategy is prioritised;
market practice is only one input in
determining the relevant framework
Support delivery of long
term business strategy and
growth aspirations
Incentives are measured on financial
and non-financial performance
to support sustainable growth
Shareholder and
Executive alignment
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
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4 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 comprise:
• Total Fixed Remuneration (TFR)
• Executive & Senior Staff Incentive Plan (ESSIP)
• Long Term Incentive Plan (LTIP).
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 on the Australian Securities
Exchange. 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.
The number of share rights granted under both ESSIP (which account for a minimum of half the incentive) and LTIP (which is
granted solely in share rights) are determined based on the share price at the start of the relevant performance period. This
means that the movement in share price over the performance period directly affects the value received by executives and
ensures full alignment with returns to shareholders over the course of the same period.
The remuneration mix (shown in the section below) clearly illustrates the significant proportion of ‘at risk’ components of
executive remuneration and reinforces the pay for performance policy alignment adopted by the Board. Further, a minimum
79 per cent (up to a maximum of 100 per cent) of the total ‘at risk’ component is offered in the form of share rights and subject
to share price movement fully aligned with shareholders calculated based on the share price at the commencement of the
performance year. This means that over three quarters of the value to the individual of the combined ESSIP and LTIP is tied
directly to the share price at the time of award ensuring that executive reward is aligned to shareholder value.
4.1 Remuneration mix
The table below shows the remuneration mix for superior performance when stretch hurdles have been met for both the
CEO and his direct reports in FY16:
CEO
28
31
Direct reports
36
28
41
36
Total at risk
72%
64%
0%
20%
40%
60%
80%
100%
TFR
ESSIP (at risk)
LTIP (at risk)
The chart below represents the actual remuneration mix for KMP in 2016:
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
24%
9%
43%
15%
10%
22%
41%
58%
53%
47%
24%
34%
20%
N Power
S Pearce
P Meurs
N Cernotta
TFR
STI (at risk)
LTI (at risk)
Other
126 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l Incentive plan operation and performance outcomes
5
Incentive plan operation and performance outcomes
5.1 Executive and Senior Staff Incentive Plan (ESSIP)
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.
The CEO’s ESSIP potential award is linked solely to Company objectives with executive’s ESSIP potential award linked 60 per cent
to Company objectives, and 40 per cent to individual performance, aligning CEO and executive remuneration with Company
performance during the Plan Year.
The maximum ESSIP opportunity is established at the beginning of the financial year for each Executive. The ESSIP 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 ESSIP 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.
ESSIP share rights are calculated based on the Volume Weighted Average Price (VWAP) of Fortescue shares traded over the first
five trading days of the performance period (eg. 1 July 2015 to 7 July 2015).
The maximum incentive opportunity for KMPs in FY16 is shown below:
Chief Executive Officer
CEO Direct Reports
112.5 per cent of TFR*
75 per cent of TFR*
1 participant
3 participants
* Note that the 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 Board
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.
5.2 How ESSIP 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
and reflect an appropriate balance between financial and non-financial targets
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 deliverables.
The following table shows the relationship between the primary ESSIP performance measures for the CEO and other KMP.
• The CEO has 55 per cent financial and 45 per cent non-financial targets
•
Financial and non-financial targets are aligned specifically to the executive’s respective roles and responsibilities and range
from 35 per cent to 65 per cent.
CEO
CFO
Director
Operations
FY17
FY16
FY17
FY16
FY17
FY16
15
15
25
25
25
25
22.5
22.5
22.5
22.5
12.5
12.5
42.5
42.5
20
20
20
20
10
10
10
10
24.5
24.5
22.5
22.5
10
10
18
18
0%
20%
40%
60%
80%
100%
Safety
Production
Financial
Growth
Culture/Other
* Other includes measures associated with engagement and functional objectives.
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5.3 How the ESSIP works: an example
ESSIP participant rewards are designed to reflect Company performance and provide alignment with shareholder outcomes by
linking a minimum of half the ESSIP to share price movement 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 FY16 (1 to 7 July 2015)
Participant Share Weighting
Potential Award
Cash (30 per cent of opportunity)
Nominal value of share rights (70 per cent)
Share Rights granted (70 per cent of opportunity)(ie $70,000 ÷ $1.8002)
Example Outcome
Percentage of incentive opportunity achieved (Company and personal performance)
Cash paid (80% of cash component)
Shares Awarded (80% of share rights convert to ordinary shares)
$100,000
$1.8002
70%
$30,000
$70,000
38,885
80%
$24,000
31,108
The number of share rights granted in respect to the FY16 ESSIP is determined based on the VWAP at the start of the
performance period which was A$1.8002.
•
•
If the share price at the time of award is higher, executives will receive higher value per share right
If the share price at the time of award is lower, the value to executives is decreased.
The value of share rights is therefore aligned with shareholder interests as executives receive value consistent with share price
movements.
5.4 How Fortescue performed over the past five years
Fortescue continues to build on its performance over the past five years, showing strong performance in safety, production and
costs 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 FY16, Fortescue’s share price increased from the FY15 closing price of A$1.91 to A$3.50 at the end of FY16. This represents a 83
per cent increase compared with the ASX 100 Resources index which decreased 17 per cent over the corresponding period.
Total Tonnes Shipped (wmt)
Revenue from iron ore operations - US$millon
EBITDA - US$million
Profit after income tax - US$million
Return on Equity %
Gearing (Book value of Debt/Debt + Equity)
Dividends paid A$ per share
Share Price A$
- change in share price A$
- change in share price %
2016
169.4
$6,947
$3,195
$985
12%
45%
$0.05
$3.50
$1.59
83%
2015
165.4
$8,390
$2,506
$316
4%
56%
$0.13
$1.91
($2.44)
(56)%
2014
124.2
$11,611
$5,636
$2,740
43%
56%
$0.20
$4.35
$1.31
43%
2013
80.9
$8,057
$3,575
$1,746
39%
71%
$0.04
$3.04
($1.81)
(37)%
2012
57.5
$6,681
$3,035
$1,559
50%
69%
$0.08
$4.90
($1.45)
(23)%
The non-IFRS information included in the table above has not been subject to audit.
An explanation of how fixed and variable remuneration outcomes were driven by Company performance in FY16 is included in
section 1.
128 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l Incentive plan operation and performance outcomes (continued)
5.5 FY16 ESSIP performance outcomes
ESSIP awards are based on an assessment of Company and individual performance. Company performance comprises
company annual and growth measures designed to drive 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.
Company annual and growth performance objectives are set by the Fortescue Board in line with the annual business planning
and budgeting process and are established in line with a culture of stretch targets. The weighting for each target are reviewed
annually and may vary from year to year to reflect its criticality, effort to achieve and impact on the business.
Financial targets account for 55 per cent of the Company and growth performance objectives for the CEO with the non-financial
targets accounting for the remaining 45 per cent. The mix of financial and non-financial objectives for executives varies and are
specific to their roles and responsibilities.
The financial performance measures were chosen as they represent the key drivers of financial performance (underlying
EBITDA, NPAT) 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.
A key element of our culture is to set challenging stretch targets and strive to outperform those targets. When deliberating on
performance outcomes, the Board considers the level of achievement against stretch targets and in circumstances where above target
performance is achieved, the Board may approve an above target award to reflect the degree of outperformance by the business.
In the 2016 year the Board set a number of key targets in respect of cost reduction across all operating and support functions
and challenging production targets. These targets are a high priority for the Board and they have approved an above target
award in respect to both measures to reflect the degree of outperformance by the business in this area.
The Board had determined the relative weighting and mix of performance objectives for the CEO and executives in order to
deliver long term sustainable value.
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The performance objectives in 2016 are shown below:
Objective &
Stretch Target
FY16 Short Term Incentive Outcomes
Weighting (% of STI)
CEO
Direct
Reports
Result
Achievement
Company Annual Performance
Safety1
•
TRIFR ≤ 4.33
25
15
Met
Production
22.5
12.5
Exceeded
•
Tonnes Shipped ≥
165 million wmt
C1 Cost
22.5
12.5
Exceeded
•
•
C1 cost ≤ US$17.56/
wmt
June Exit C1 Costs ≤
US$15.00/wmt
Keeping our people safe is our highest priority and in
FY16 Fortescue continued its trend in reducing TRIFR
achieving a 15 per cent reduction from 5.1 to 4.33.
Full year production exceeded target by 2 per cent with
169.4 million wmt total iron ore tonnes shipped in
FY16.
The Board approved an outperformance award for
this measure.
FY16 was again a successful year highlighting
the delivery of continuous, sustainable cost
improvements achieved through development of
assets, efficiencies, productivity and cost savings.
Both cost targets were exceeded by 12.1 per cent
and 4.6 per cent respectively with C1 costs for FY16
further decreasing to US$15.43/wmt and Q4 C1 cost
of $US14.31/wmt.
The Board approved an outperformance award for
this measure.
10
10
10
Company Growth Performance
Financial
•
AROE >12%
Physical
•
Target tonnes and
quality achieved
whilst maintaining
mine life
Culture
•
•
Safety Survey
participation rate
≥75%
Voluntary turnover
Rate ≤10%.
Personal Objectives
10
Met
10
Met
Continued focus on process efficiencies and costs have
had a positive impact on profitability and return on
equity with 12.4 per cent AROE achieved in FY16.
FY16 target production rate of 165mtpa, design strip
ratio and production specifications have been achieved
whilst maintaining the mine life for each site.
Included
in
personal
KPIs
Met
Safety Survey participation of 85 per cent exceeded
target.
Voluntary Turnover Target achieved with FY16 Rate of
9.2 per cent
Personal Objectives
n/a
40
•
4 to 5 personal
objectives set at
stretch levels of
performance against
the FY16 Business Plan
Partially
met
Personal objectives are assessed by the CEO and
recommended outcomes approved by the Board.
1In the event of a fatality no award is made for the Safety KPI.
The non-IFRS information included in the table above has not been subject to audit.
130 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l Incentive plan operation and performance outcomes (continued)
In FY16, 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 2016 after the release of the Company’s audited full year results and with final
approval from the Board.
Further details in regard to the Company’s full year results are set out in the Director’s Report on page 68 to 70.
5.6 FY16 ESSIP awards
Share rights granted under the ESSIP at the beginning of FY16 are shown below. All the share rights granted convert to ordinary
shares if all ESSIP objectives are met. The deferred ESSIP performance shares reflect the value at the commencement of the
performance year when shares are nominally allocated. The ultimate value of these share rights to the executives will reflect
either an improvement or decline in the Company’s share price over the deferral period. The adoption of this deferral program is
specifically to ensure that performance awards made to executives have a value which reflects sustainable value of shareholder’s
investment in the Company.
Over the performance period the share price increased by 83 per cent and total shareholder return for one year was 88 per cent.
The ESSIP has awarded on average 102 per cent of maximum opportunity.
The last column in the table below details the actual number of share rights converted to ordinary shares based on actual performance:
Executive
N Power
S Pearce
P Meurs
N Cernotta
ESSIP Share
Rights Granted
ESSIP Share
Rights Lapsed
ESSIP Share
Rights Forfeited
Share Rights to convert to
shares for FY16
ESSIP performance
624,931
229,662
229,662
197,895
-
-
-
(2,375)
-
-
(229,662)
-
624,931
229,662
-
195,520
Unvested share rights lapse once the total at risk outcome of the ESSIP is determined.
The table below details the maximum ESSIP cash and share awards against the actual outcomes for FY16. The share components
are based on the share weighting election of each Executive:
FY16
A$
Maximum
ESSIP
opportunity
(% of TFR)
TFR
Weighting
in shares
(%)
Maximum
ESSIP Cash
opportunity
Maximum
ESSIP Shares
opportunity -
value atgrant1
ESSIP
outcome
(%)
ESSIP Cash
awarded
ESSIP
Shares
awarded-
value at
award2
Executive Directors
N Power
$2,000,000
112.5%
P Meurs3
$1,102,500
S Pearce
$1,102,500
75%
75%
50%
50%
50%
$1,125,000
$1,125,000
$ 413,438
$413,438
$413,438
$413,438
108.4%
104.8%
104.8%
$1,313,999
$2,349,116
$779,983
-
$453,127
$863,299
Executives
N Cernotta
$950,000
75%
50%
$356,250
$356,250
98.8%
$351,975
$734,960
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
(A$1.8002).
2 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 FY16 is the number of shares awarded multiplied by the five day VWAP of Fortescue shares traded over the first five trading days of FY17
(A$3.759).
3 Mr Meurs received a pro-rata cash payment for accrued entitlements of FY16 ESSIP paid at the same time other executives receive their FY16
ESSIP award.
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5.7 Critical Initiative Incentive Payment
A key objective of both the CEO and CFO has been to drive productivity improvement and substantially reduce operating costs
to meet the standards of global low cost producers in ensuring Fortescue’s long term sustainability.
The Board approved a cash payment to the CEO and CFO during the year recognising their leadership and extraordinary
achievement in creating long term sustainable value for shareholders through the delivery of cost savings to the Company of
US$1.6 billion for the financial years 2013 to 2015 and their commitment to the agreed outperformance of stretch targets for
FY2016 required to achieve further additional cost saving of US$1.9 billion.
Arising from the significant savings and productivity gains, a one-off cash payment was made to the CEO of A$2,000,000 and to
the CFO of A$500,000. The combined payment represents approximately 0.1 per cent of the cost savings delivered at the time of
payment.
5.8 Long Term Incentive Plan (LTIP)
The LTIP is granted in the form of share rights at the commencement of the three year performance period with awards vesting
subject to the achievement of the specified performance conditions. The three year performance period, performance measures
and date of assessment and award for each of the LTIPs are as follows:
Plan
FY14 LTIP
FY15 LTIP
FY16 LTIP
Performance Period
Performance Measure
Assessment and Award
1 July 2013 to 30 June 2016
1 July 2014 to 30 June 2017
AROE
AROE
September 2016
September 2017
1 July 2015 to 30 June 2018
AROE, TSR and Strategic Measures September 2018
5.8.1 FY14 and FY15 Long Term Incentive Plan
FY14 and FY15 LTIP awards to executives are made under the performance share plan rules and are delivered in the form of
Share 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 LTIP awards assessed over
the three year performance period.
AROE was selected as the performance measure for the FY14 and FY15 LTIP 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)
• AROE performance in excess of the Company’s cost of equity capital will deliver shareholder value.
Consistent with the ESSIP, the long term incentive plan is designed to provide alignment with shareholder outcomes by linking
the value of the LTIP to share price movement over the financial year.
A minimum 20 per cent annual AROE hurdle rate was selected for the FY14 and FY15 LTIPs following reasons:
• 20 per cent exceeds the Company’s cost of equity
• The average AROE for the ASX 100 Resources Index from 2010 to 2014 was 9.2 per cent
• The 80th percentile AROE for the ASX 100 Resources Index from 2010 to 2014 was 15.6 per cent.
The vesting schedule is as follows:
Average AROE
Performance
Below Threshold
Threshold
Target
FY14
<20%
20%
>30%
Vesting between threshold and target is calculated on a linear basis.
FY15
<20%
20%
>30 %
Vesting
Nil
25 per cent of share rights vest
100 per cent of share rights vest
The performance period for the FY14 LTIP is from 1 July 2013 to 30 June 2016 and for the FY15 LTIP is from 1 July 2014 to 30
June 2017. 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.
132 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l Incentive plan operation and performance outcomes (continued)
5.8.2 FY14 LTIP performance outcomes
The performance period for the FY14 LTIP is from 1 July 2013 to 30 June 2016. The AROE average for the three year performance
period of 20 per cent (as shown in the table below) met the minimum threshold resulting in 25 per cent of share rights vesting
under this plan.
Year ending
30 June 2014
30 June 2015
30 June 2016
Average ROE
Vesting Level
FY14 LTIP Performance Outcomes
ROE Performance (%)
43
4
12
20
25
All the share rights issued convert to ordinary shares if the LTIP AROE target is met. The deferred LTIP performance shares reflect
the value at the commencement of the performance period when shares are nominally allocated. The ultimate value of these
share rights to the executives reflect either an improvement or decline in the Company’s share price over the deferral period.
The adoption of this deferral program is specifically to ensure that performance awards made to executives have a value which
reflects sustainable value of shareholder’s investment in the Company.
Over the performance period Fortescue’s share price increased by 15.4 per cent and total shareholder return for the three year
period was 27.4 per cent.
5.8.3 FY14 LTIP awards
Share Rights granted under the LTIP at the beginning of FY14 are shown below. The last column details the actual number of
share rights converted to ordinary shares based on actual performance.
• Unvested share rights lapse once the outcome of the LTIP is determined
• Mr Cernotta was appointed on 24 March 2014 and accordingly, did not participate in the FY14 LTIP
• Mr Meur’s share rights forfeited on resignation.
FY14 LTIP
Executive
N Power
S Pearce
P Meurs
N Cernotta
LTIP Share
Rights issued
LTIP Share
Rights Lapsed
LTIP Share
Rights Forfeited
Share Rights to convert to
shares for performance
853,000
331,723
331,723
-
(639,750)
(248,792)
-
-
-
-
(331,723)
-
213,250
82,931
-
-
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The table below details the maximum LTIP share awards against the actual outcomes for FY16.
• The value at grant is the participant’s total fixed remuneration at grant multiplied by the maximum LTIP opportunity
•
The actual share value to the individual is not realised until the shares are awarded. For the purpose of this report the nominal
share value for FY16 is the number of shares awarded multiplied by the five day VWAP of Fortescue shares traded over the first
five trading days of FY17 (A$3.759)
• Mr Meurs resigned effective 18 April 2016
• Mr Meurs will receive a pro-rata cash payment of A$289,917 representing accrued benefits for the FY14 LTIP
• Mr Cernotta was appointed on 24 March 2014 and accordingly, did not participate in the FY14 LTIP.
FY14 LTIP
TFR at Grant
Maximum LTIP
opportunity (per cent
of TFR)
Maximum LTIP Shares
opportunity - value
at grant
LTIP
Shares
awarded
LTIP Shares
awarded value
at award
A$
Executive Directors
N Power
P Meurs
S Pearce
Executives
N Cernotta
$1,800,000
$1,050,000
$1,050,000
-
150%
100%
100%
-
$2,700,000
213,250
$801,607
$1,050,000
-
-
$1,050,000
82,931
$311,738
-
-
-
FY15 LTIP performance
5.8.4
The performance period for the FY15 LTIP is from 1 July 2014 to 30 June 2017. Performance outcomes will be reported in the
FY17 Remuneration Report.
FY16 LTIP (New Plan)
5.8.5
In FY15, the Board reviewed the operation of the LTIP in light of the objectives of its broader remuneration strategy, general
market practice and the range of performance hurdles utilised by leading resources companies both regionally and globally.
The existing program was based on a single financial measure being absolute return on equity earned and measured over a
three year period. The ability to achieve threshold AROE for the existing plan in future years has been heavily impacted by the
decrease in the iron ore price, notwithstanding the significant cost reduction and production performance by the Company.
The reduction in the iron ore price, which is outside the control of the Company’s executives, has overshadowed the successful
implementation of the initiatives which have achieved or exceeded, all of the pre-agreed stretch targets for safety, production,
cost and capital expenditure.
In light of the conclusions arising out of the Board’s review of the LTIP, the Board approved an amendment to the plan designed
to enhance the alignment between the Company’s executives and shareholders, rewarding performance that drives long term
growth and delivers shareholder value while promoting executive retention.
FY16 LTIP operation
5.8.6
The performance period for the FY16 LTIP is from 1 July 2015 to 30 June 2018. The FY16 LTIP operates under the performance
rights plan rules as approved by Shareholders at the Company’s Annual General Meeting on 11 November 2015. The FY16 LTIP is
granted in the form of Share 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 FY16 LTIP is assessed against multiple performance measures weighted as follows:
• Absolute Return on Equity (33 per cent)
• Total Shareholder Return relative to the ASX 100 Resources comparator group (33 per cent)
• A basket of strategic measures (34 per cent).
The relative weighting between financial and strategic measures is important and provides the ability to assess performance
across a cyclical market. Retaining AROE and adding relative TSR is also important as both are market measure that are aligned
with delivering shareholder value.
134 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l Incentive plan operation and performance outcomes (continued)
Each of the performance measures provide for a determination by the Board that the Company has performed at a Threshold,
Target or Stretch level. These graduated levels of performance have been included in order to align and reward executives
through market cycles. In the event that performance is at the target level in respect of the relevant performance measure,
executives will be entitled to 100 per cent of the tranche of LTIP share rights to which the performance measure relates. Where
performance is at the stretch level, executives will be entitled to 150 per cent of the tranche of LTIP share rights to which the
performance measure relates.
Nevertheless, if the target for any individual performance measure is exceeded, so that up to 150 per cent of the relevant
number of LTIP share rights may vest, the maximum number of LTIP share rights that may vest across the three performance
measures is capped in aggregate at 100 per cent of share rights granted under the plan.
The Board believes that by incorporating the stretch level of performance into the vesting schedule, the Company will be better
able to effectively reward and recognise executives in years where outstanding performance is achieved. This will serve as
further motivation and assist in retention through more challenging periods.
Absolute Return on Equity (AROE)
AROE performance is measured over the relevant three year performance period.
As part of the Board’s consideration of the new LTIP plan, consideration was given to the minimum AROE threshold. This
consideration included the current market cycle and historical performance of the ASX 100 Resources comparator group.
Historical Performance of the ASX 100 Resources:
• Average AROE for FY11 to FY15 was 7 per cent
• Average AROE for FY15 was 2.6 per cent, down from 7 per cent in FY14.
In light of this assessment, the Board lowered the minimum threshold from 20 per cent to 15 per cent based on the following:
• 15 per cent is a suitably aggressive target which exceeds the Company’s cost of equity
• An annual 15 per cent AROE would be at least the 70th quartile of performance of the ASX 100 Resources index in any of the past
five years
• The stretch target of >30 per cent would be at least the 80th percentile of the ASX 100 Resources index in any of the past five years.
The AROE vesting schedule is as follows:
Performance
Below Threshold
Threshold
Target
Stretch
FY16 LTIP Target and Vesting Schedule
Average ROE
Portion of tranche that vests
<15%
15%
30%
>30%
Nil
25 per cent of share rights vest
100 per cent of share rights vest
150 per cent of share rights vest
Vesting between Threshold and Target performance levels is calculated on a linear basis with the stretch element considered together with the
achievement of all performance measures and subject to the aggregate performance cap.
135 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
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Total Shareholder Return (TSR)
TSR is a measure of the performance of the Company’s shares over a three year period against the ASX 100 Resources Index
(noted below). It combines share price appreciation and dividends paid to show the total return to the shareholder expressed as
a percentage.
Relative TSR hurdles are valuable because the Company needs to outperform a peer group of participants to receive any reward
and therefore, is aligned to relative market performance. The ASX 100 Resources Index1 has been chosen as the comparator
group because this is a transparent market indicator, includes Fortescue’s ASX Listed commodity market peers and represents
the peer group that Fortescue competes with for investment.
When formulating the vesting schedule for the TSR performance measure, the Board considered both local and international
market practice. In line with the Company’s approach to setting stretch targets, the Board determined that a vesting schedule
more aggressive than standard market practice was required in order to align executive reward for this performance measure
with superior shareholder returns. The vesting criteria for both threshold and target have been set at the 60th percentile and
80th percentile (respectively) higher than standard market practice whilst the plan also provides for a premium grant of awards
where Fortescue delivers the market leading total shareholder return over the performance period.
The TSR vesting schedule is as follows:
Performance
Below Threshold
Threshold
Target
Stretch
FY16 LTIP TSR target and vesting schedule
Average TSR
Portion of tranche that vests
Below the 60th percentile
Nil
At the 60th percentile
25 per cent of share rights vest
At the 80th percentile
100 per cent of share rights vest
At the 100th percentile
150 per cent of share rights vest
Vesting between performance levels is calculated on a linear basis with the stretch element considered together with the achievement of all
performance measures and subject to the aggregate performance cap.
The Board acknowledge that a relative TSR hurdle can result in unintended outcomes. The intent is to ensure no win-fall gains
or undue penalty. In the event that TSR is negative but the relative TSR hurdle is achieved, the Board will consider overall
performance and circumstances and may, at its absolute discretion, reduce the level of vesting or determine that no award will
be made in respect to the TSR measure.
1 Members of the ASX 100 Resources Index as at 30 June 2016 are as follows:
Alumina Ltd
BHP Billiton Ltd
BlueScope Steel Ltd
Caltex Australia Ltd
Fortescue Metals Group Ltd
Iluka Resources Ltd
Newcrest Mining Ltd
Oil Search Ltd
Origin Energy Ltd
Rio Tinto Ltd
Santos Ltd
South32 Ltd
Woodside Petroleum Ltd
136 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 136
REMUNERATION REPORT l Incentive plan operation and performance outcomes (continued)
Strategic Measures
As part of the enhancements made to the LTIP, the Company has introduced a basket of five strategic measures with associated
key performance indicators aimed at directing performance toward the achievement of the Company’s long term objectives
(strategic objectives).
The strategic objectives devised by the Board specifically relate to key milestones and objectives that are fundamental to the
Company’s sustainability, continuing development and growth and delivery of shareholder returns. The balanced scorecard
approach ensures that Executives continue to focus on the delivery of key milestones that drive long term value and that the
Board has the ability to reward these achievements even in times when external factors outside the control of executives may
impact shareholder returns.
Strategic measures and objectives for the FY16 LTIP are as follows:
Performance Measure
Objective (KPI)
Link to Strategy
Safety
• Improve Fortescue’s relative position
Safety leadership
FY16 LTIP Strategic Measures and Objectives
Performance
against the global safety culture
benchmark
• Improve Fortescue’s relative position
on the global cost curve with a future
target to have a C1 cost which is the
lowest in the world
• Reduce all-in cash cost
• Maximise production capacity without
increasing capital expenditure budget.
Competitive position, cash flow and
efficient use of capital
Resource Management
• Increase long term resources quantity
Long term sustainability
and value
• No net decrease in mine life
• Quantity, quality and diversity of
tenements.
Growth
• Diversify customer base
Growth and diversity of income
Balance Sheet Management
• Reduce gearing (Debt/Debt + Equity)
• Strategic options for growth in iron ore
and other commodities.
to target levels
• Overall cost of financing
• Maintain cash on hand at Board
approved levels
• Balance sheet flexibility
Capital efficiency, cash flow and long
term sustainability
Performance targets for each strategic objective are set and assessed annually for each financial year of the relevant three year
performance period. This approach provides the Company with the flexibility to respond to economic and industry challenges as
they occur to ensure that performance targets are always relevant and drive long term shareholder value.
Whether a strategic objective has been achieved is measured at the end of the relevant financial year on an outcome basis as follows:
Outcome
Did not meet
Threshold
Target
Exceeded
Score
0
1
2
3
Annual performance outcomes are assessed and approved by the Board at the end of each financial year with approved
outcomes banked each year for inclusion in the overall LTIP assessment at the end of the performance period.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 137
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The strategic measure vesting schedule is as follows:
Performance
Below Threshold
Threshold
Target
Stretch
FY16 LTIP Strategic measure target and vesting schedule
Score
Portion of tranche that vests
<5
5
10
15
Nil
25 per cent of share rights vest
100 per cent of share rights vest
150 per cent of share rights vest
Vesting between performance levels is calculated on a linear basis with the stretch element considered together with the achievement of all
performance measures and subject to the aggregate performance cap.
The performance period for the FY16 LTIP is from 1 July 2015 to 30 June 2018. Share Rights vest at the end of the three year
performance period subject to performance against the three measures.
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.
Performance outcomes of the FY16 LTIP will be reported in the Company’s FY18 Remuneration Report.
5.9 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 Salary
Sacrifice Share Plan (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.
138 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l How executive remuneration is reported
6 How executive remuneration is reported
Executive remuneration is reported in a number of ways throughout this report differences of which are driven by the following:
•
•
Total remuneration package – represents the current remuneration package at stretch target comprising fixed remuneration
plus the value of the ESSIP and LTIP at the applicable participating percentage. There was no increase to total fixed
remuneration in 2016. Refer to section 7 for further information.
Actual remuneration paid – represents the actual value realised by the individual and includes fixed remuneration, any cash
incentives paid and the value of equity at the time the shares were awarded.
-
ESSIP shares granted at A$1.8002 share price and valued at award based on A$3.759 being the five day VWAP at the
beginning of FY17
- LTIP shares granted at A$3.1653 share price and awarded at A$3.759
-
Value received by Executives is subject to performance and share price movement aligned with shareholder value. Refer to
the table below for further information.
• Statutory remuneration – represents remuneration including share based payments calculated in accordance with
Australian Accounting Standards including the fair value attributed to the FY16 ESSIP share component plus one year each
of the FY14, FY15 and FY16 LTIP. In 2016, total remuneration is less than prior years due to a negative accounting expense for
share based payments. Refer to section 6.2 for further information.
6.1 Actual remuneration paid in FY16
The Board follows a structured process for ensuring that executive remuneration is aligned to shareholder value and stretch
targets are set for the incentive plans which are reflective of market conditions and other challenges facing the industry. The
value of actual pay realised by executives is reflective of the following:
•
•
FY16 ESSIP is awarded partly in Shares (minimum 50 up to 100 per cent determined on election) with the balance (0-50%)
awarded in cash
FY16 ESSIP and FY14 LTIP Share Rights were granted based on the share price at the beginning of the performance period
with value realised at the time of award. The increase in share price over the respective performance periods has resulted in an
increase in equity value to executives in respect to these plans.
The following table shows the actual remuneration value realised by the individual and includes fixed remuneration, any cash
incentives paid and the nominal value of equity at the time the shares are awarded. The following key points should be read in
conjunction with the table below:
• Fixed remuneration includes cash salary, paid leave and superannuation
•
The FY16 ESSIP and FY14 LTIP actual share value to the individual is not realised until the shares are awarded in September
2016. For the purpose of this report the nominal value of the ESSIP and LTIP share values is calculated as the number of share
rights vested multiplied by A$3.759 being the volume weighted average price of Fortescue Shares for the first five trading
days of FY17
• The FY14 LTIP met its 20 per cent threshold resulting in 25 per cent of share rights vesting
•
Total Remuneration Earned in FY16 for both Mr Power and Mr Pearce includes an additional one-off critical initiative incentive
payment
• Mr Meurs’ fixed remuneration and accrued benefits for the FY16 ESSIP and FY14 LTIP have been awarded on a pro-rata basis
and in cash
•
Mr Cernotta was appointed on 24 March 2014 and accordingly, did not participate in the FY14 LTIP, his total remuneration
opportunity does not include any value under this plan.
A$
Name
N Power
S Pearce
P Meurs
N Cernotta
Fixed
remuneration $
2,000,000
1,102,500
260,885
950,000
FY16 ESSIP
Cash Paid $
1,313,999
453,127
779,983
351,975
FY16 ESSIP
Shares
Awarded $
Critical Initiative
Incentive
Payment
FY14 LTIP
Awarded $
Total Actual
Remuneration
Earned in FY16
2,349,116
863,299
-
734,960
2,000,000
500,000
-
-
801,607
311,738
289,917
-
8,464,722
3,230,664
1,330,785
2,036,935
The non IFRS information included in the table above has not been subject to audit.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 139
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6.2 Statutory remuneration disclosures for executives
Statutory remuneration disclosures are prepared in accordance with Australian Accounting Standards and include share based
payments expensed during the financial year, calculated in accordance with AASB 2 Share based payments.
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
Statutory remuneration differs significantly from actual remuneration paid to executives due to the accounting treatment of
share based payments. For details of remuneration actually paid to the Chief Executive Officer and executives in FY16 refer to
section 6.1.
Statutory Remuneration Disclosures for year ending 30 June 2016
• ESSIP cash value payable in respect to FY16 will be paid in September 2016
•
In FY16, an accounting expense reversal related to ESSIP and LTIP share rights resulted in a reduction in total statutory
remuneration compared to the prior year due to:
-
-
A partial reversal of share-based payment expense following completion of the 3 year performance period ended
30 June 2016, and the assessment of performance outcomes of the FY14 LTIP
A partial reversal of share-based payment expense as a result of the estimated vesting outcomes of the FY15 LTIP for the
3 year period ending 30 June 2017.
• FY16 ESSIP and FY14 LTIP awarded to Mr Meurs represents accrued benefits as a pro-rata cash payment
• Mr Meurs FY16 ESSIP, FY14 LTIP, FY15 LTIP and FY16 LTIP share rights were forfeited upon his resignation in April 2016
• Mr Meurs’ other payment relates to accrued annual leave and long service leave entitlements paid out on resignation.
Short-term employee benefits
Post
Employ-
ment
Benefits
End of
service
Share based payments
ESSIP
Cash
value for
2016
Plan
Year
Cash
Salary
and
fees
FY14
LTIP
Cash
Value
FY16
$A
Executive Directors
Other
Incentive
payment
Non-
monetary
benefits
Superan-
nuation
Other
payment
ESSIP
Share
value
LTIP
Share
value
Other
share-
based
pay-
ments
Total
N Power
1,963,000 1,313,999
- 2,000,000
P Meurs
233,385
779,983 289,917
-
8,186
3,087
S Pearce
1,067,700
453,127
-
500,000
4,093
30,000
27,500
27,800
- 1,118,626 (1,109,672)
170,193
-
(1,316,302)
-
411,095
(446,444)
-
-
-
5,324,139
187,763
2,017,371
Executives
N Cernotta 920,000
351,975
-
-
-
30,000
-
349,981
220,640
-
1,872,596
Statutory Remuneration Disclosures for year ending 30 June 2015
• ESSIP cash value payable in respect to FY15 paid in September 2015
•
•
The value of ESSIP and LTIP share rights was assessed using a trinomial pricing model that takes into account the price of
Fortescue shares at the grant date, expected price volatility of the underlying share, the term of the right, the expected
divided yield and the risk-free interest rate for the term of the right and represents the accounting value expensed in FY15
Other share based payments relate to financial assistance by 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
• Mr Meurs FY15 ESSIP was awarded on a pro-rata basis
• Mr Cernotta was appointed on 24 March 2014 and accordingly, did not participate in the FY13 LTIP.
140 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l How executive remuneration is reported (continued)
Short-term employee benefits
Post
Employ-
ment
Benefits
End of
service
Share based payments
Cash
Salary
and
fees
ESSIP
Cash
value for
2015
Plan Year
FY15
$A
Executive Directors
Non-
monetary
benefits
Superan-
nuation
Other
payment
ESSIP
Share
value
LTIP
Share
value Options
Other
share-
based
pay-
ments
Total
N Power
1,972,500
956,250
P Meurs
767,283
180,879
4,205
3,168
27,500
27,500
Executives
S Pearce
1,076,100
210,853
4,205
N Cernotta
906,931
301,031
-
26,400
27,500
-
-
-
-
524,499
2,507,263
99,212
963,897
269,856
963,897
165,114
165,169
-
-
-
-
-
5,992,217
853,272 2,895,211
-
-
2,351,311
1,565,745
6.3 Details of performance grants to executive directors
At the 2015 AGM, shareholders approved the maximum number of share rights to be granted to Mr Power and Mr Meurs
without further shareholder approval as shown in the table below. Actual performance rights are granted annually by the board
in accordance with the Performance Rights Plan.
Mr Power
ESSIP Share Rights
LTIP Share Rights
Total
Mr Meurs
ESSIP Share Rights
LTIP Share Rights
Total
Maximum Share right grant FY16 to FY18
Share rights granted in FY16
3,671,425
4,895,232
8,566,657
1,249,862
1,666,482
2,916,344
Maximum Share right grant FY16 to FY18
Share rights granted in FY16
1,349,249
1,798,999
3,148,248
459,324
612,432
1,071,756
The issue of Share Rights to participants will not have a diluting effect on the percentage interest of shareholders
holdings if the Share Rights vest into shares acquired on market.
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6.4 Details of share based payments relating to LTI
The following table provides details of the number of share rights granted under the LTIP during the financial years ended 30 June
2014 to 30 June 2016. The value of the rights has been determined using the amount of the grant date fair value.
• 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
• Mr Meurs share rights were forfeited upon his resignation on 18 April 2016
• Mr Cernotta was appointed on 24 March 2014 and accordingly, did not participate in the FY14 LTIP.
Name
LTIP
Plan
Grant
Date
Performance
Period
No. Share
rights
granted
Value per
share right
granted
Value of
rights
granted at
Grant Date
%
Performance
Achieved Vested
Forteited
/ Lapsed
FY14
16/12/2013
N Power
FY15
9/12/2014
FY16
14/12/2015
FY14
16/12/2013
S Pearce
FY15
9/12/2014
FY16
14/12/2015
FY14
16/12/2013
P Meurs
FY15
9/12/2014
FY16
14/12/2015
FY14
16/12/2013
N Cernotta FY15
9/12/2014
FY16
14/12/2015
1/7/13 to
30/6/16
1/7/14 to
30/6/17
1/7/15 to
30/6/18
1/7/13 to
30/6/16
1/7/14 to
30/6/17
1/7/15 to
30/6/18
1/7/13 to
30/6/16
1/7/14 to
30/6/17
1/7/15 to
30/6/18
1/7/13 to
30/6/16
1/7/14 to
30/6/17
1/7/15 to
30/6/18
853,000
$5.09 $4,341,770
25% 213,250
639,750
660,837
$2.37 $1,566,184
Determined in 2017
1,666,482
$1.72 $2,866,349
Determined in 2018
331,723
$5.09 $1,688,470
25% 82,931 248,792
242,858
$2.37
$575,573
Determined in 2017
612,432
$1.72 $1,053,383
Determined in 2018
331,723
$5.09 $1,688,470
242,858
$2.37
$575,573
612,432
$1.72 $1,053,383
-
$5.09
-
n/a
n/a
n/a
n/a
n/a 331,723
n/a 242,858
n/a 612,432
n/a
n/a
209,265
$2.37
$ 495,958
Determined in 2017
527,720
$1.72
$907,678
Determined in 2018
142 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l Executive contract terms
7 Executive contract terms
Total Remuneration Package and other terms of employment for Executives are formalised in a service agreement.
The CEO and Executives are employed on a rolling basis with no specified fixed term. The CEO and executives are remunerated
on a total fixed remuneration (TFR) basis inclusive of superannuation and allowances. There was no remuneration increase or
changes in terms in FY16.
The major terms of the agreements relating to remuneration are set out in the table below:
A$
Position
Maximum
ESSIP opportunity
Maximum LTIP
opportunity
Executive
TFR* ($)
% of TFR
$
% of TFR
$
Chief Executive Officer
N Power
$2,000,000
112.5% $2,250,000
Chief Financial Officer
S Pearce
$1,102,500
Director Operations
N Cernotta
$950,000
75%
75%
$826,875
$712,500
150%
100%
100%
$3,000,000
$1,102,500
$950,000
* Total Fixed Remuneration as at 30 June 2016. Reviewed annually by the RNC.
Nominal
Value of Total
Remuneration
Package at
100% of target
$7,250,000
$3,031,875
$2,612,500
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
Board 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 LTIP, the executive will forfeit
all entitlement to any award under the LTIP. 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 LTIP, the Board at its sole discretion may elect to make a
pro-rata LTIP award based on service up to the termination date.
Termination benefits for KMP comply with the limits set by the Corporations Act 2001 that do not require shareholder approval.
8 Non-executive director remuneration
8.1 Non-executive director Remuneration Policy
Fortescue’s policy on non-executive director remuneration requires that non-executive director fees are:
• Not ‘at risk’ to reflect the nature of their responsibilities and safeguard their independence
• Market competitive with fees set at levels comparable with non-executive director remuneration of comparable companies.
8.2 Non-executive director fee pool
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 $2.0 million, which was approved by shareholders at
the annual general meeting on 19 November 2010. There have been no changes to the aggregate fee pool since November 2010.
The Board will not seek any increase to this fee pool at the 2016 AGM.
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8.3 Non-executive director fee structure
Non-Executive Director fees (inclusive of superannuation) are outlined in the table below:
Position
Board Chairman1
Vice Chairman
Lead Independent Director
Non-Executive Director
Audit & Risk Management Committee Chair
Audit & Risk Management Committee Member
Remuneration & Nomination Committee Chair
Remuneration & Nomination Committee Member
China Advisory Group Board of Representatives
Finance Sub-Committee Member
FY16 Fee (A$)
-
170,000
170,000
140,000
40,000
15,000
15,000
7,500
60,000
6,000
1The Chairman of the Board has elected to forego Directors fees and receives no form of remuneration.
8.4 Non-executive director remuneration paid
The remuneration of non-Executive directors for the year ended 30 June 2016 and 30 June 2015 is detailed below.
FY16 $A
A Forrest
O Hegarty
C Huiquan
G Raby
M Barnaba
E Gaines
S Warburton
J Baderschneider
Base fees
Committee fees
Other benefits
Superannuation
Total
-
153,846
140,000
140,000
153,846
126,697
126,697
140,000
-
6,787
-
60,000
48,416
19,005
27,150
-
-
-
-
-
-
-
-
-
-
16,866
-
-
21,237
15,299
16,154
-
-
177,499
140,000
200,000
223,499
161,001
170,001
140,000
Non-executive directors do not receive retirement benefits, nor do they participate in any incentive programs of the Company.
FY15 $A
A Forrest
O Hegarty
M Barnaba
J Baderschneider2
E Gaines
C Huiquan
G Raby
S Warburton
H Elliott1
G Rowley1
H Scruggs1
Base fees
Committee fees
Other benefits
Superannuation
Total
108,687
144,071
144,071
63,320
126,801
140,000
140,000
126,801
69,754
46,502
51,269
10,247
6,793
48,456
-
19,021
-
60,000
22,221
2,491
9,965
7,690
16,075
-
-
-
-
-
-
-
-
30,456
17,499
12,488
15,841
20,215
-
15,311
-
-
15,647
7,586
5,929
-
147,497
166,705
212,742
63,320
161,133
140,000
200,000
164,669
79,831
92,852
76,458
1 H Elliott, G Rowley and H Scruggs retired 13 November 2014.
2 J Baderschneider was appointed 19 January 2015.
144 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
REMUNERATION REPORT l Equity instrument disclosures relating to Key Management Personnel
9 Equity instrument disclosures relating to Key Management Personnel
9.1 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:
FY16
Balance at
the start of
the year
Granted1
Exercised /
converted
Forfeited /
lapsed
Balance at
the end of
the year
Vested
Unvested
Not
exercisable
Directors of Fortescue
A Forrest
N Power
O Hegarty
C Huiquan
G Raby
M Barnaba
E Gaines
S Warburton
J Baderschneider
P Meurs2
S Pearce
-
-
-
-
-
2,307,503
2,291,413
(714,736)
(78,930)
3,805,250
-
-
-
-
-
-
-
877,929
914,358
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
842,094
(235,881)
(1,484,142)
-
-
-
-
-
-
-
-
842,094
(304,413)
(35,364)
1,416,675
Other key management personnel of Fortescue
N Cernotta
287,740
725,615
(66,311)
(12,164)
934,880
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,805,250
3,805,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,416,675
1,416,675
934,880
934,880
1 Performance Rights were granted in accordance with the short term and long term performance rights plans, as disclosed in note 19 of the
financial report.
2 P Meurs retired on 18 April 2016.
Balance at
the start of
the year
Granted1
Exercised /
converted
Forfeited /
lapsed
Balance at
the end of
the year
FY15
Vested
Unvested
Not
exercisable
Directors of Fortescue
A Forrest
N Power
H Elliott2
G Rowley2
O Hegarty
C Huiquan
G Raby
H Scruggs2
M Barnaba
E Gaines
S Warburton
J Baderschneider3
-
-
-
-
-
2,038,602
908,651
(456,590)
(183,160)
2,307,503
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
P Meurs
8,292,791
333,930
(192,157)
(7,556,635)4
877,929
Other key management personnel of Fortescue
S Pearce
N Cernotta
792,791
370,359
(210,816)
(37,976)
914,358
30,527
287,740
(18,236)
(12,291)
287,740
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,307,503
-
-
-
-
-
-
-
-
-
877,929
914,358
287,740
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 Performance Rights were granted in accordance with the short term and long term performance rights plans, as disclosed in note 19 of the
financial report.
2 H Elliott, G Rowley and H Scruggs retired on 13 November 2014.
3 J Baderschneider was appointed on 19 January 2015.
4 Includes 7,500,000 options which expired in May 2015.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 145
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate Social ResponsibilityOperating and Financial ReviewFinancial ReportCorporate Information REMUNERATION REPORT l Equity instrument disclosures relating to Key Management Personnel
9.2 Shareholdings (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 Group, including their related parties, are set out below:
FY16
Held at
1 July 2015
Received on
conversion
of rights
Directors of Fortescue
Issued Purchases
Sales
Transfers
Other1
A Forrest
N Power
O Hegarty
C Huiquan
G Raby
M Barnaba
E Gaines
S Warburton
1,037,479,247
-
1,811,571
714,736
40,000
-
8,000
20,000
50,000
50,750
-
-
-
-
-
-
-
J Baderschneider
138,000
P Meurs2
S Pearce
26,199,152
107,577
235,881
304,413
Other key management personnel of Fortescue
N Cernotta
18,236
66,311
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(16,632,614)
2,500
(187,185)
-
(34,547)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(9,802,419)
-
-
Held at 30
June 2016
1,037,479,247
2,526,307
40,000
-
8,000
20,000
50,000
50,750
138,000
-
227,305
50,000
1 Negative amounts reflect the result of leaving the Company during the year.
2 P Meurs retired on 18 April 2016.
FY15
Held at
1 July 2014
Received on
conversion
of rights
Directors of Fortescue
A Forrest
N Power
H Elliott2
G Rowley2
O Hegarty
C Huiquan
G Raby
H Scruggs2
M Barnaba
E Gaines
S Warburton
J Baderschneider3
1,033,479,247
-
1,254,981
456,590
2,167,938
17,644,951
40,000
-
8,000
-
-
50,000
-
-
-
-
-
-
-
-
-
-
-
-
P Meurs
26,006,995
192,157
Other key management personnel of Fortescue
S Pearce
N Cernotta
284,972
210,816
-
18,236
Issued
Purchases
Sales
Transfers
Other1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,000,000
100,000
-
-
-
-
-
-
20,000
50,750
138,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,860
(390,071)
-
-
-
-
Held at 30
June 2015
-
-
1,037,479,247
1,811,571
(2,167,938)
(17,644,951)
-
-
-
-
-
-
-
-
-
-
-
-
-
40,000
-
8,000
-
20,000
50,000
50,750
138,000
26,199,152
107,577
18,236
1 Negative amounts reflect the result of leaving the Company during the year.
2 H Elliott, G Rowley and H Scruggs retired 13 November 2014.
3 J Baderschneider was appointed 19 January 2015.
146 I FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT
Corporate Information
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 147
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 147
CORPORATE INFORMATION l AS AT 29 JULY 2016
Shareholder Information
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
Valin Resources Investments (Singapore) Pte Ltd
National Nominees Limited
Citicorp Nominees Pty Limited
Emichrome Pty Ltd
Valin Mining Investments (Singapore) Pte Ltd
AMNL Financing Pty Ltd
BNP Paribas Noms Pty Ltd
UBS Nominees Pty Ltd
AMNL Financing Pty Ltd
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited-Gsco Eca
The Minderoo Foundation Pty Ltd
Pacific Custodians Pty Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
Mr William Graeme Rowley
Units
917,485,795
412,811,126
321,217,161
228,007,497
154,267,590
141,248,531
135,023,002
94,685,358
76,130,405
71,365,581
60,405,799
39,805,227
30,365,261
23,357,081
12,759,981
11,310,500
10,398,685
8,064,243
7,327,325
7,144,951
% of issued capital
29.47
13.26
10.32
7.32
4.95
4.54
4.34
3.04
2.44
2.29
1.94
1.28
0.98
0.75
0.41
0.36
0.33
0.26
0.24
0.23
Total
2,763,181,099
88.74
Substantial shareholders
Name
Minderoo Group Pty Ltd and John Andrew Forrest
Hunan Valin Iron and Steel
Capital Research Global Investors
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
Total holders
22,037
20,026
4,947
3,746
319
51,075
Total shares
1,037,479,247
458,405,492
251,992,113
Units
10,374,342
50,452,913
37,583,513
92,357,638
2,923,029,745
3,113,798,151
% of issued capital
33.32
14.72
8.09
% of issued capital
0.33
1.62
1.21
2.97
93.87
100.00
Unmarketable parcels
There were 3,168 members holding less than a marketable parcel of shares in the Company.
148 I FORTESCUE METALS GROUP LIMITED CORPORATE INFORMATION
CORPORATE INFORMATION
Business Directory
Australian Business Number
ABN 57 002 594 872
Registered Office Australia
Level 2, 87 Adelaide Terrace
East Perth, WA 6004
T: +61 8 6218 8888
F: +61 8 6218 8880
W: www.fmgl.com.au
E: fmgl@fmgl.com.au
Auditor
PricewaterhouseCoopers
Level 15, 125 St Georges Terrace
Perth, WA 6000
Securities Exchange Listings
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
T: 1300 733 136
T: +61 2 8280 7603 (International)
F: +61 2 9287 0309
W: www.linkmarketservices.com.au
Prefer email?
If you would prefer to receive information such as annual
reports, notices of meetings and announcements via email,
you can change your communication preferences on the
Registry website:
www.linkmarketservices.com.au
Event Calendar 2016
Key dates for Fortescue shareholders in 2016.
Please note dates are subject to review.
Full Year Results Announcement
22 August 2016
September Quarter Production Report
20 October 2016
Annual General Meeting
9 November 2016
FY16 Key Announcements
August 2015
• Fortescue Ore Reserves and Mineral Resources update
September 2015
• Fortescue launches ‘Trade Up’ Aboriginal
Apprenticeship program
• Fortescue joins 30% club, 30% representation of
females on the Board
• Fortescue completes US$750 million debt tender
December 2015
• Fortescue awards supply contract to Aboriginal joint
venture business
January 2016
• Fortescue supports one of Australia’s most gender-equal
sports by signing the Hockeyroos, Australia’s national
women’s hockey team
April 2016
• Changes to Christmas Creek Mining Operations
• Resignation of Mr Peter Meurs
• Fortescue initiates US$577 million repayment of
2019 Notes
May 2016
• Fortescue announces US$650m repayment of 2019
Term Loan
• Fortescue secures the Second Towage Licence at
Port Hedland
June 2016
• Appointment of Mr Stephen Pearce to Fortescue Board
• Fortescue announces a further US$500m repayment
of 2019 Term Loan
FY16 Awards
2016 Supply Nation Supplier Diversity Awards
• Supplier to Corporate Partnership of the Year
2015 Swann Group National Association
of Women in Construction
• Crystal Vision Award winner, Sharon Warburton
FY16 Award Finalist
2015 CME Women in Resources Awards
• Outstanding Company Initiative, ‘Trade Up’ program
2015 Westpac AFR 100 Women of
Influence Finalist
• Board Management category, Sharon Warburton
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 149
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate InformationCorporate Social ResponsibilityOperating and Financial ReviewFinancial Report CORPORATE INFORMATION
Glossary
Aboriginal owned businesses
Contractors, joint ventures, sub-contractors or other legal entities
owned by Aboriginal people.
Direct employees
Total number of employees including permanent, fixed term and part-
time. Does not include contractors.
Australian Accounting Standards
Australian accounting standards are developed, issued and maintained
by the Australian Accounting Standards Board, an Australian
Government agency under the Australian Securities and Investments
Commission Act 2001.
dmt
Dry metric tonnes.
dmtu
Dry metric tonne unit.
AMMA
The Australian Mines and Metals Association.
ASX
The Australian Securities Exchange.
EPA
Environmental Protection Authority.
Fe
The chemical symbol for iron.
ASX 100 Resource Index
A capitalisation-weighted index which measures the performance of
the resources sector of the ASX 100. The index is calculated on an end
of day basis.
FIFO
Fly-in Fly-out is defined as circumstances of work where the place of
work is sufficiently isolated from the worker’s place of residence to
make daily commute impractical.
ASX Corporate Governance Principles and Recommendations
(Third Edition)
Principles and recommendations developed and released by the
ASX Corporate Governance Council on the corporate governance
practices to be adopted by ASX listed entities and which are designed
to promote investor confidence and to assist listed entities to meet
shareholder expectations.
Beneficiation
Beneficiation is a process whereby ore is pulverised into fine particles
and the higher grade material is separated, often magnetically, from
the gangue (waste).
BID
Bedded Iron Deposit.
bt
Billion tonnes.
C1 Cost
Operating costs of mining, processing, rail and port on a per tonne
basis, including allocation of direct administration charges and
production overheads. The reconciliation of C1 to the amounts
disclosed in the financial statements on page 22 prepared under the
Australian Accounting Standards.
CFR
A delivery term that indicates that the shipment price includes the cost
of goods, freight costs and marine costs associated with a particular
delivery.
Chichester Hub
Fortescue’s mining hub with two operating iron ore mines, Cloudbreak
and Christmas Creek, located in the Pilbara, approximately 250
kilometres south east of Fortescue’s Herb Elliott Port in Port Hedland.
CID
Channel Iron Deposit.
CO2e
Carbon dioxide equivalent which is the internationally recognised
measure of greenhouse gas emissions.
Contractors
Non-Fortescue employees, working with the Company to support
specific business activities.
Corporations Act
Corporations Act 2001 of the Commonwealth of Australia.
DID
Detrital Iron Deposit.
Fortescue
Fortescue Metals Group Limited (ACN 002 594 872) and its subsidiaries.
Fortescue River Gas Pipeline
A 270 kilometre gas pipeline which delivers natural gas from the
Dampier to Bunbury Pipeline to the main power station in the
Solomon Hub.
FY
Refers to a Financial Year.
Gearing
Debt / (debt + equity).
GJ
Gigajoules.
GRI
The Global Reporting Initiative (GRI) is an international independent
organisation which has developed a standard for sustainability
reporting and disclosure.
Ha
Hectares.
Hematite
An iron ore compound with an average iron ore content of between
57% and 63% Fe. Hematite deposits are typically large, close to the
surface and mined via open pits.
HSES
Health, safety, environment and security.
ICMM
The International Council on Mining and Metals was established in
2001 to act as a catalyst for performance improvement in the mining
and metals industry.
ILUA
Statutory agreement between a native title group and others about
the use of land and waters.
Indicated Resource
As defined in the JORC Code, that part of a mineral resource for which
tonnage, densities, shape, physical characteristics, grade and mineral
content can be estimated with a reasonable level of confidence. It
is based on exploration, sampling and testing information gathered
through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes. The locations are too widely or
inappropriately spaced to confirm geological and/or grade continuity
but are spaced closely enough for continuity to be assumed.
150 I FORTESCUE METALS GROUP LIMITED CORPORATE INFORMATION
CORPORATE INFORMATION
Glossary
Inferred Resource
As defined in the JORC Code, that part of a mineral resource for
which tonnage, grade and mineral content can be estimated with a
low level of confidence. It is inferred from geological evidence and
assumed but not verified geological and/or grade continuity. It is
based on information gathered through appropriate techniques
from locations such as outcrops, trenches, pits, workings and drill
holes which may be limited or of uncertain quality and reliability.
International Financial Reporting Standards
International Financial Reporting Standards (IFRS) is a single set of
accounting standards, developed and maintained by the IASB with
the intention of those standards being capable of being applied on a
globally consistent basis.
Iron Bridge Joint Venture
Unincorporated joint venture between Fortescue subsidiary Iron
Bridge Limited (69%) and a subsidiary of Formosa Plastics Group
(31%) to develop the Iron Bridge Magnetite project. FMG Iron Bridge
Limited is jointly owned by Fortescue (88%) and a subsidiary of
Baosteel (12%).
IUCN
International Union for Conservation of Nature.
JORC Code
The Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves 2004 or 2012 Edition, as the case may
be, each prepared by the Joint Ore Reserves Committee of the
Australian Institute of Mining and Metallurgy, Australian Institute
of Geoscientists and Mineral Council of Australia, as amended or
supplemented from time to time.
Key Management Personnel
Key Management Personnel (KMP) are 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.
Kings CID Fines
Fortescue’s stand-alone product produced from Channel Iron
Deposit Ore from its Kings mine in the Solomon Hub, with an iron
grade of 57.3% Fe.
kL
Kilolitre.
Local supplier
Suppliers based in the Pilbara region.
LOM
Life of Mine, being the number of years over which available reserves
will be extracted.
m3
Cubic metres.
Magnetite
An iron ore compound that is typically a lower grade ore than
Hematite iron ore because of a lower iron content.
Magnetite ore requires significant beneficiation to form a saleable
concentrate. After beneficiation, Magnetite ore can be pelletised for
direct use as a high-grade raw material for steel production.
Measured Resource
As defined in the JORC Code, that part of a mineral resource for
which tonnage densities, shape, physical characteristics, grade and
mineral content can be estimated with a high level of confidence.
It is based on detailed and reliable exploration, sampling and
testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes.
The locations are spaced closely enough to confirm geological and
grade continuity.
mt
Million tonnes.
mtpa
Million tonnes per annum.
Net gearing
(Debt - cash) / (debt - cash + equity).
NGER
The National Greenhouse and Energy Reporting (NGER) Scheme
was introduced in 2007 to provide data and accounting in
relation to Greenhouse Gas emissions and energy consumption
and production. The NGER Scheme operates under the National
Greenhouse and Energy Reporting Act 2007 (NGER Act).
NPAT
Net profit after tax.
OPF
Ore Processing Facility.
Pilbara
The Pilbara region in the north west of Western Australia.
Probable Reserve
As defined in the JORC Code, the economically mineable part of an
indicated mineral resource, and in some circumstances, a measured
mineral resource. It includes diluting materials and allowances for
losses which may occur when the material is mined. Appropriate
assessments and studies have been carried out, and include
consideration of and modification by realistically assumed mining,
metallurgical, economic, marketing, legal, environmental, social and
governmental factors. These assessments demonstrate at the time of
reporting that extraction could reasonably be justified.
Proved Reserve
As defined in the JORC Code, the economically mineable part of
a measured mineral resource. It includes diluting materials and
allowances for losses which may occur when the material is mined.
Appropriate assessments and studies have been carried out, and
include consideration of and modification by realistically assumed
mining, metallurgical, economic, marketing, legal, environmental,
social and governmental factors. These assessments demonstrate at
the time of reporting that extraction could reasonably be justified.
Reserves or Ore Reserves
As defined in the JORC Code, the economically mineable part of a
measured mineral resource and/or an indicated mineral resource.
It includes diluting materials and allowances for losses, which
may occur when the material is mined. Appropriate assessments
and studies have been carried out, and include consideration of
and modification by realistically assumed mining, metallurgical,
economic, marketing, legal, environmental, social and governmental
factors. These assessments demonstrate at the time of reporting
that extraction could reasonably be justified. Mineral reserves are
sub-divided in order of increasing confidence into probable mineral
reserves and proven mineral reserves. Where capitalised, this term
refers to Fortescue’s estimated reserves.
Resources or Mineral Resources
As defined in the JORC Code, a concentration or occurrence of
material of intrinsic economic interest in or on the Earth’s crust in
such form, quantity and quality that there are reasonable prospects
for eventual economic extraction. The location, quantity, grade,
geological characteristics and continuity of a mineral resource
are known, estimated or interpreted from specific geological
evidence and knowledge. Mineral resources are sub-divided, in
order of increasing geological confidence, into inferred, indicated
and measured categories. Where capitalised, this term refers to
Fortescue’s estimated resources.
FORTESCUE METALS GROUP LIMITED 2016 ANNUAL REPORT I 151
Reserves and ResourcesGovernanceRemuneration Report OverviewCorporate InformationCorporate Social ResponsibilityOperating and Financial ReviewFinancial Report CORPORATE INFORMATION
Glossary
Rocket Fines
A product containing approximately 59% Fe upon shipment and
produced by Fortescue from the Chichester Hub.
Senior Executive
Leadership position title of Director, Group Manager or General
Manager.
Solomon Hub
A mining hub with two operating iron ore mines, Firetail and
Kings. The Hub is located approximately 60 kilometres north of the
township of Tom Price and 120 kilometres west of the railway that
links the Chichester Hub to Port Hedland.
Super Special Fines
Fortescue’s flagship iron ore product from the Chichester Hub, with
an iron grade of 56.4% Fe.
TRIFR
Total Recordable Injury Frequently Rate per million man hours
worked, comprising lost time injuries, restricted work and medical
treatments.
Underlying EBITDA
Underlying EBITDA is defined as earnings before interest, tax,
depreciation and amortisation, exploration, development and other
expenses. The reconciliation of Underlying EBITDA to the financial
metrics reported in the financial statements under Australian
Accounting Standards is presented on page 20.
Underlying EBITDA margin
Underlying EBITDA / Operating sales revenue.
UNGC
United Nations Global Compact provides a leadership platform
for business that are committed to aligning their strategies and
operations with ten universally accepted principles in human rights,
labour, environment and
anti-corruption.
Voluntary employee turnover
Permanent and fixed term employees who left Fortescue voluntarily
for reasons not initiated by the Company.
VTEC
Vocational Training and Employment Centre.
wmt
Wet metric tonnes.
WMYAC
Wirlu-murra Yindjibarndi Aboriginal Corporation.
WTI
West Texas Intermediate.
152 I FORTESCUE METALS GROUP LIMITED CORPORATE INFORMATION
Fortescue’s vision
is to be the safest,
lowest cost, most profitable
iron ore producer
www.fmgl.com.au
@FortescueNews
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
57.5mtpa shipped
2013
80.9mtpa shipped
2014
155mtpa sustainable production
2015
Fortescue River Gas Pipeline completion
2015
165mtpa shipped sustainable production
2016
$2.9 billion debt repaid in FY16
2004
Cloudbreak identified
2006
Port Hedland groundbreaking
2009
27mtpa shipped
2011
Solomon construction begins
2013
Firetail opened at Solomon
2014
Kings Valley project opened at Solomon
2015
Anderson Point Berth 5 completion
2015
500 millionth tonne of ore shipped
2016
Eighth anniversary of first ore on ship
2016
169.4mtpa shipped at end of FY16
www.fmgl.com.au
@FortescueNews
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