Annual Report 2017
Together we are Fortescue
ABN 57 002 594 872
The year at a glance
TOTAL RECORDABLE INJURY
FREQUENCY RATE FOR FY17
2.9
FY16 – 4.3
PRODUCTION
170.4
SHIPPED
MT
C1 COSTS
REVENUE
US$
12.82
FY16 – US$15.43 /WMT
US$
/WMT
8.4
FY16 – US$7.1 BILLION
BILLION
CONTRACTS AWARDED TO ABORIGINAL
COMPANIES AND JVs
TAX CONTRIBUTION
A$
1.95
FY16 – A$1.8 BILLION
BILLION
A$
2
BILLION
FY16 – A$1.3 BILLION
FORTESCUE ORE CARRIERS
GREENHOUSE GAS EMISSIONS
INTENSITY REDUCED BY
4
FY18 – COMPLETED FLEET
OF 8 ORE CARRIERS
8%
FROM FY15
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 2017. 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 2017 unless otherwise stated. All dollar figures are in US currency unless otherwise stated.
Contents
Overview
Operating and Financial Review
Ore Reserves and Mineral Resources
Corporate Social Responsibility
Governance
Financial Report
Remuneration Report
Corporate Directory
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FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
1
About Fortescue
Fortescue Metals Group is a global leader in the iron ore industry, recognised for
its unique culture, innovation and industry-leading development of world class
infrastructure and mining assets in the Pilbara, Western Australia.
Fortescue’s longstanding relationships
with customers in China has grown
from the first commercial shipment
of iron ore in 2008 to the Company
now supplying 17 per cent of China’s
seaborne iron ore and expanding into
Japan, South Korea and India.
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.
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. The Company is focussed on its
vision of being the safest, lowest cost,
most profitable iron ore producer.
Now producing 170 million tonnes
of iron ore per annum, Fortescue
has grown to be one of the largest
global iron ore producers and has been
recognised as the lowest cost seaborne
supplier of iron ore into China based
on Metalytics Resource Sector
Economics analysis.
Fortescue owns and operates integrated
operations spanning three mine sites
in the Pilbara, the five berth Herb Elliott
Port in Port Hedland and the fastest,
heavy haul railway in the world.
A natural extension of Fortescue’s
supply chain, the fleet of eight
Fortescue Ore Carriers were designed
to complement the industry leading
efficiency of Fortescue’s port.
As the first Company in Western
Australia to control a railway from
outside the region of operation and
the first Company in the world to use
CAT autonomous haulage technology
on a commercial scale, Fortescue is
continuing to introduce leading edge
technology across the business.
Innovation in process and design is a
key component of Fortescue’s strategy
to efficiently and effectively deliver
products from mine to market.
Port Hedland
HERB ELLIOTT PORT
Karratha
Roebourne
WESTERN HUB
SOLOMON HUB
Firetail
Kings
Tom Price
Paraburdoo
Marble Bar
IRON BRIDGE
Pilbara
Western Australia
Current operations
Under development
Nullagine
CHICHESTER HUB
Cloudbreak
Christmas Creek
NYIDINGHU
Newman
FORTESCUE’S VISION
To be the safest, lowest cost, most profitable iron ore producer
FORTESCUE’S VALUES
Safety I Family I Integrity I Courage and Determination I Generating ideas I Empowerment I Frugality I Stretch targets I Enthusiasm I Humility
2
FORTESCUE METALS GROUP LIMITED I OVERVIEW
OVERVIEW
Together we are Fortescue
Chairman’s message
Andrew Forrest AO
We’re proud of our diversity, the strength and
contribution by each of our Directors and the benefits
that diversity brings to our Board’s core strategic
and governance role.
Our company has delivered a truly
outstanding result for 2017.
We can all be proud of the disciplined
execution of a clear strategy to continue
to reduce debt, optimise the production
from our world class assets, explore
low cost options for future growth
while achieving strong returns for all
of us, as shareholders.
Our vision to be the world’s safest,
lowest cost, most profitable iron ore
producer is firmly within our reach
and the entire team has once again
demonstrated its outstanding capability,
with Metalytics recognising Fortescue
as the world’s lowest cost producer of
seaborne iron ore to China – a genuinely
exceptional achievement. A sustained
focus on safety improvement and
consistent production from our top tier
mining and infrastructure assets places
our Company in the best position for
the future.
Our Board leads and empowers the
CEO and the entire Fortescue team to
achieve these results. During the year,
we have renewed and refreshed the
composition of our Board, welcoming
Ms Penny Bingham-Hall and Ms Jenn
Morris as Non-Executive Directors.
Penny brings a wealth of experience
from her roles in construction and steel,
while Jenn contributes a perspective on
building a performance culture, from her
background leading change management
and as a dual Olympic gold medallist.
Ms Elizabeth Gaines successfully
transitioned from her role as a Non-
Executive Director to take on the position
of Chief Financial Officer and become a
key member of the Executive team.
We’re proud of our diversity, the
strength and contribution by each of
our Directors and the benefits that
diversity brings to the core strategic and
governance role that our Board provides.
We continue to set challenging stretch
targets for the organisation and in
FY17 have been delighted by the
outcomes that the team has delivered.
Significant improvement in safety,
consistent production and securing
the lowest cost position into China are
measures of which we can all be truly
proud.
As a Board, we also farewelled Owen
Hegarty and Geoff Raby, and thanked
them for their tremendous contributions
to Fortescue’s success over their
respective terms.
During FY17, our close engagement
with China continued and I was
delighted to join with other business
and Government leaders to welcome
Premier Li to Australia during a visit
that again underpinned the strength of
our two countries’ bilateral relationship.
We supported the prestigious Boao
Forum for Asia as a Diamond Sponsor
for the ninth consecutive year, with
the Australia-China Business Leaders
Forum continuing its influential
meetings through the participation
of leading business contributors from
both countries.
The closeness and mutual support
between Fortescue and our customers
and stakeholders mirrors the strength
of the engagement at the most senior
levels of Government and we value our
relationships very highly.
Fortescue’s dividends have enabled
Nicola and I, through the Minderoo
Foundation, to continue our support for
major initiatives which now include:
• Cancer. Working with the finest
• Education. Supporting higher
education and breakthrough research,
through the provision of PhD and
post-doctoral scholarships and
facilities throughout Australia.
• Early childhood. Ensuring every
Australian child has the best possible
chance to thrive, through initiatives
that will include the creation of a
blueprint around the development
of children in the critical years, from
conception to five years old, that can
become a global prototype.
• Creating parity. Encouraging
education, training and employment
initiatives that help to remove
obstacles in people’s lives and end
disparity between Indigenous and
non-Indigenous Australians.
• Modern slavery. Making Australia
and the world safer by ensuring that
every child and adult can expect,
and receives, freedom, through the
elimination of modern slavery globally.
• Communities. Supporting arts,
culture, environmental, community
and small organisations that can make
a big impact, particularly to the lives
of underprivileged communities and
individuals.
I would like to convey my sincere
congratulations and thanks to our CEO,
Nev Power and the whole Fortescue team.
Nev has provided the leadership and focus
to empower the team to again deliver
against the challenging stretch targets
that we set for ourselves, generating
the outstanding returns for all of us, as
shareholders in this great Company.
minds and institutions in Australia
and internationally in collaborations
that will make cancer non-lethal for
the coming generation and eventually
a disease that does not profoundly
impact people’s lifestyles.
It is through building success in
our business that we can support
the communities in which we operate
and Fortescue has once again
demonstrated its commitment and
ability to do just that.
4
FORTESCUE METALS GROUP LIMITED I OVERVIEW
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Minderoo Foundation announces
largest ever donation of A$400m
In May 2017, Nicola and I had the honour of announcing
a donation of A$400 million to be used to strengthen
communities and support vulnerable and disadvantaged
people in Australia and overseas.
We are in this privileged position thanks to the Fortescue
family. It’s through the hard work and dedication of everyone
at Fortescue that the Minderoo Foundation has been funded,
through the dividends we have received, to support a wide
range of philanthropic initiatives in Australia and across
the globe.
The A$400 million donation will capitalise on and expand
the work of the Minderoo Foundation and its partners,
as well as fund new programs and initiatives in Australia
and around the world, focussing on the following areas:
• Cancer
• Education
• Creating parity
• Modern slavery
• Early childhood
• Communities
I am a strong believer in encouraging other Australians
to give, not just money, but their time, energy and other
resources that can make a difference in addressing some of
society’s most complex issues. The challenge is to give with
your heart, mind and soul; to give cleverly so that maximum
impact is achieved over the longer term.
Nicola and I founded the Minderoo Foundation with
the belief in the power of giving a hand up rather than a
hand out. It gives me great pride to see this philosophy
demonstrated at Fortescue every day.
We thank everyone at Fortescue for their efforts and support.
The outstanding financial performance of Fortescue has
benefited all shareholders.
As shareholders, Nicola and I have chosen to use our
dividends to fund the important work of the Minderoo
Foundation to support and contribute to programs that
are making a difference all over the world.
“ I am a strong believer in encouraging other Australians to give,
not just money, but their time, energy and other resources that can
make a difference in addressing some of society’s most complex issues.”
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
Chief Executive Officer’s report
Nev Power
Fortescue’s culture is underpinned by our safety
and family values. We know that the importance
of looking out for our mates and ourselves resonates
very strongly across our business.
During FY17, Fortescue has achieved
excellent results by delivering against
the key elements of our strategy. All of
our focus has been on debt repayment
and capital flexibility, investment in the
long term sustainability of our core iron
ore business and developing low cost
growth options, while generating
strong returns for our shareholders.
Safety performance has continued
to improve across the business and
we are pleased to report a 33 per cent
reduction in Total Recordable Injury
Frequency Rate (TRIFR) for the year.
The results of our Safety Excellence and
Culture Survey have again demonstrated
a high level of engagement by all of our
teams. With a participation rate of 92
per cent and improvement across all key
measures, the survey indicates that we
are heading in the right direction and
have a solid foundation in place to build
further on these achievements.
Fortescue’s culture is underpinned
by our safety and family values. We
know that the importance of looking
out for our mates and ourselves
resonates very strongly across our
business, providing us with core
shared goals that will foster
ongoing improvement.
Diversity remains a key focus as
we build a workforce that is truly
representative of our community
and embraces diversity of thinking
to foster ongoing innovation across
the business. Building on our
successful Aboriginal employee
engagement programs, throughout
the year we have implemented the
practical initiatives needed to create a
welcoming, supportive and encouraging
environment for women.
Today, 15.8 per cent of our workforce is
Aboriginal and 17.3 per cent female.
Consistent production was sustained
in FY17 with delivery of 170.4 million
tonnes from our mining operations
at the Chichester and Solomon Hubs
through our world class port and rail
infrastructure. Responsiveness to our
customers’ needs has driven refinements
to our product strategy, meeting the
core requirements of quality, timely
delivery and flexibility.
Four new ore carriers were delivered
during FY17 with an additional four
to be delivered during FY18, further
enhancing the industry leading
efficiency of our port operations.
Cost performance has been a core
element of Fortescue’s success in FY17.
With our sustained productivity and
efficiency focus, costs have reduced a
further 17 per cent compared to FY16.
From November 2016, Fortescue’s
position as the lowest cost provider
of seaborne iron ore to China has
been recognised and maintained by
Metalytics Resource Sector Economic
analysis.
Guidance for our C1 cost of US$11-12
will ensure that our cost reduction
momentum journey is sustained, as we
optimise technology and innovation
across all areas of the business.
China’s growth continues to underpin
demand for steel with the emerging
markets in Asia also participating
in regional growth through China’s
visionary One Belt One Road strategy.
Fortescue’s relationship with China was
strengthened further with a financing
agreement with China Development
Bank Financial Leasing Co., Ltd (CDB
Leasing) for the ore carrier fleet,
representing the largest direct funding
arrangement provided by a major
Chinese financier for a non-Chinese
company in Australia.
The construction of the ore carriers
at China’s Jiangsu Yangzijiang and
Guangzhou Shipbuilding International
shipyards is another example of
Fortescue’s successful efforts to expand
our collaboration with Chinese industry.
Fortescue’s financial results reflect the
excellent operating outcomes, with net
profit after tax of US$2,093 million,
an increase of 112 per cent compared to
FY16. Revenue for the year increased
by 19 per cent from US$7,083m to
US$8,447m, with sustained cost
reductions contributing to strong cash
flows. We have continued to reduce
our debt during the year repaying a
further US$2.7 billion, with net gearing
ratio now at 21 per cent and our
nearest term debt maturity in 2022.
Disciplined capital management, further
strengthening our balance sheet and
generating returns for our shareholders
remain our key priorities.
Our commitment to communities
ensures they benefit from the growth
and development of our business.
This year we delivered more training,
employment and business development
opportunities for Aboriginal people and
our award-winning Billion Opportunities
program grew to almost A$2 billion
in contracts awarded to Aboriginal
businesses and joint-ventures since the
program’s inception in 2011.
This year has been marked by recognition
of Fortescue’s success externally and
we were proud to receive a number
of industry awards during FY17. I have
had the honour of accepting a number
of these awards on behalf of the
Fortescue team, all of which have been
made possible by the great efforts and
hard work of all of our employees and
contractors.
My sincere congratulations and thanks
go to all of the Fortescue team for their
contributions to an outstanding year.
6
FORTESCUE METALS GROUP LIMITED I OVERVIEW
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Fortescue’s commitment to diversity
In FY17, Fortescue continued to foster a culture that truly embraces and celebrates
diversity across our Company.
To be the best Company we can be, we need the very best
ideas, across every part of our business. The best ideas
come from a diverse workforce: teams with a broad range
of backgrounds, skills, experience and personalities and to
make our business strong, we need to ensure our talented
women have the opportunity to reach their potential and fully
contribute to Fortescue.
This year, Fortescue took important steps towards increasing
diversity, determined to implement workable measures to
make a real change.
• The number of males accessing primary carer’s paid parental
leave increased as did the number of females, with 94 per
cent of female employees returning from parental leave
• 248 Fortescue employees, including site based team
members, benefitted from tailored job share and flexible
working arrangements.
In addition to this, we were very proud to announce in
November 2016 that Fortescue was the first ASX 20 Company
to have five women on our Board of Directors. Today, more
than 50 per cent of our Board members are female.
• Overall female employment reached 17.3 per cent
• 23.6 per cent of management positions are now held by
women, up from 20 per cent in 2016
• Close to 25 per cent of participants in the Trade Up
program are female
I was also delighted to host two Business Update Networking
events for working parents and particularly mothers and
expectant mothers, to talk about how Fortescue is supporting
a diverse workforce, while also hearing directly from the
community on how we can assist parents returning to work
after starting a family.
• The Fortescue Family Room opened in the Fortescue Centre
in Perth as a short-term crèche service
“ Creating a welcoming, supportive and encouraging environment for
women directly enhances Fortescue’s success by improving its diversity.
We want to make a real difference by providing practical solutions to
support women and parents in the workplace.”
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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
its 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 Fortescue’s deposits
3
Processing
Ore processing facility
design and wet processing
optimise output
4
Mine to port
Heaviest haul rail
at 42t axle load
5
Blending and stockpiling
Port design facilitates blending and stockpiling of product suite
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 Fortescue’s international customers’
specifications
• 8 Fortescue Ore Carriers
8
FORTESCUE METALS GROUP LIMITED I OVERVIEW
The Board
Overview
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 primary driver for the Board in seeking new directors
is skills and experience which are relevant to the needs of
the Board in discharging its responsibilities to shareholders.
Fortescue’s policy is to assess all potential Board candidates
without regard to 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:
• Opportunities for 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
Nomination Committee, the Audit and Risk Management
Committee and the Finance Committee. Each Committee has
a 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 Chair 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 process to evaluate their performance annually.
The process is based on a formal questionnaire and interview
conducted by an independent consultant and supported
by the Company Secretary. The most recent review was
undertaken by Ernst & Young in February 2017. 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 seven non-executive
directors and two executive directors being Chief Executive
Officer (CEO), Mr Nev Power, and Chief Financial Officer (CFO),
Ms Elizabeth Gaines. Ms Gaines’ executive appointment
followed subsequent to her appointment as the CFO on
6 February 2017.
Previously, Mr Stephen Pearce acted as an executive director
prior to his resignation on 23 September 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 complement of two executive
directors in recent years.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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9
The Board
The Board is responsible to the shareholders for the performance of the Company.
Its focus is to enhance and protect the interests of shareholders and other
key stakeholders and to ensure that the Company is properly managed.
L-R Non-Executive Director Jennifer Morris, Chief Financial Officer and Executive Director Elizabeth Gaines, Chief Executive Officer and Managing
Director Nev Power, Non-Executive Director Sharon Warburton, Chairman Andrew Forrest AO, Non-Executive Director Jean Baderschneider,
Lead Independent Director Mark Barnaba AM, Non-Executive Director Penny Bingham-Hall, Non-Executive Director Cao Huiquan
Andrew Forrest AO
Chairman
Mark Barnaba AM
Lead Independent Director
Appointed Chairman in July 2003.
Chief Executive Officer in 2005 to July 2011.
Lead Independent Director since November 2014;
Non-Executive Director since February 2010.
Mr Forrest is Fortescue’s Founder and is also the Founder and
Chairman of the Minderoo Foundation, Australia’s largest
philanthropic organisation which operates GenerationOne,
The Australian Employment Covenant and Walk Free.
In 2013, Mr Forrest was appointed by the Prime Minister
to Chair the Indigenous Jobs and Training Review. He was
named Western Australia’s nominee as Australian of the Year
in 2016 and West Australian of the Year in 2017 in recognition
of his outstanding contribution to the community.
Mr Forrest also founded, developed and funded the Murrin
Murrin nickel and cobalt operation, one of the largest
producers of nickel and cobalt in the world. Murrin Murrin is
considered by experts to be the most successful, and lowest
capital and operating cost operations of all the new wave of
laterite nickel producers.
A leading representative and advocate for the resources
sector globally, Mr Forrest is an Adjunct Professor of the China
Southern University and is a Fellow of the Australian Institute
of Mining and Metallurgy.
Committee membership: Remuneration and Nomination
Committee (Member), Finance Committee (Member) as at
30 June 2017. Finance Committee (Chair) as at 19 July 2017.
Effective 1 September 2017, Mr Barnaba is a member of the
Board of the Reserve Bank of Australia. He is also Chairman
of the State Theatre Company of Western Australia, and is an
Adjunct Professor of Finance and Investment Banking at the
University of Western Australia.
He is co-founder of Azure Capital and has previously served
as Chairman of Western Power Corporation, The West Coast
Eagles AFL Club and Alinta Infrastructure Holdings. In 2011,
he was appointed by the Premier to chair the WA Steering
Committee of the Commonwealth Business Forum for
CHOGM. Previously, Mr Barnaba worked for McKinsey and
Company and also recently held several senior executive roles
at Macquarie Group, where until 31 August 2017, Mr Barnaba
served as Chairman and Global Head of Natural Resources for
Macquarie Capital.
Mr Barnaba holds a Bachelor of Commerce (Honours)
from the University of Western Australia and a Master of
Business Administration with High Distinction from Harvard
Business School. He is a Fellow of the Australian Institute of
Company Directors.
Committee memberships: Audit and Risk Management
Committee (Chair) and Remuneration and Nomination
Committee (Member).
10
FORTESCUE METALS GROUP LIMITED I OVERVIEW
The Board
Nev Power
Chief Executive Officer and Managing Director
Jean Baderschneider
Non-Executive Director
Chief Executive Officer since July 2011; Managing Director
since September 2011.
Mr Power has more than 30 years’ experience in the mining,
steel and construction industries and a proven track record
in the delivery of major infrastructure projects, mining and
steel manufacturing and distribution.
Prior to joining Fortescue, Mr Power held Chief Executive
positions at Thiess and Smorgon Steel Group. As Fortescue’s
Chief Executive Officer, Mr Power has led the Company’s
strong, values based culture, commitment to safety
excellence, to improving diversity and to the Billion
Opportunities program which has awarded close to
A$2 billion in contracts to Aboriginal businesses. Mr Power
also has a long history in agribusiness and aviation holding
both fixed wing and helicopter commercial pilot licenses.
Mr Power is 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 and the International Advisory Board for Lingnan
(University) College, Sun Yat-sen University. Mr Power is a
INSEAD graduate, and holds a Bachelor of Engineering and
a Master of Business Administration.
Elizabeth Gaines
Chief Financial Officer and Executive Director
Chief Financial Officer and Executive Director since February
2017; Former Non-Executive Director since February 2013.
Ms Gaines is a highly experienced Chief Financial Officer with
extensive international experience in all aspects of financial,
treasury and commercial management. Ms Gaines has held
Chief Financial Officer roles in Australia and the UK in a
number of sectors including construction and infrastructure,
agribusiness and travel and hospitality. Ms Gaines is highly
experienced in global debt and capital markets.
Ms Gaines is the former Chief Executive Officer of Helloworld
Limited and Heytesbury Pty Limited and has also held the
position of Chief Financial Officer at the Stella Group and
Entertainment Rights Plc.
A member of Chartered Accountants Australia and New
Zealand, the Australian Institute of Company Directors and
Chief Executive Women, Ms Gaines holds a Bachelor of
Commerce degree and Master of Applied Finance degree.
Former directorships in the last three years (ASX Listed
Entities): NEXTDC Limited (Non-Executive Director), Mantra
Group Limited (Non-Executive Director), Nine Entertainment
Co. Holdings Limited (Non-Executive Director), lmpediMed
Limited (Non-Executive Director), Helloworld Limited
(Executive Director).
Non-Executive Director since January 2015.
Dr Baderschneider retired from ExxonMobil in 2013 following
a 30-year career where she had responsibility for operations
around the world and served as Vice-President of Global
Procurement. She has deep experience with high-risk
operations/locations and complex partnerships.
Dr Baderschneider is a past member of the Board of Directors
of the Institute for Supply Management. She served on the
Executive Board of The Center for Advanced Purchasing
Studies (CAPS) and the Procurement Council of both The
Conference Board and Corporate Executive Board. She also
served on the Executive Board of the National Minority
Supplier Development Council and was the Presidential
appointee to the US Department of Commerce’s National
Advisory Council of Minority Business Enterprises.
Penny Bingham-Hall
Non-Executive Director
Non-Executive Director since November 2016.
Ms Bingham-Hall brings significant operational skills and
experience from executive roles including Head of Strategy at
Leighton Holdings (now CIMIC) – Australia’s largest construction,
contract mining, infrastructure and property development group
– together with 20 years’ experience as a company director.
Ms Bingham-Hall is a Fellow of the Australian Institute of
Company Directors, a Senior Fellow of the Financial Securities
Institute of Australasia and a member of Chief Executive
Women and WomenCorporateDirectors Foundation.
She holds a Bachelor of Arts (Industrial Design).
Other current directorships (ASX listed entities):
BlueScope Steel Limited (Non-Executive Director),
DEXUS Property Group (Non-Executive Director).
Committee Membership: Finance Committee (Member),
Audit and Risk Management Committee (Member).
Cao Huiquan
Non-Executive Director
Non-Executive Director since February 2012 (nominated
director from Hunan Valin Iron and Steel Group Company Ltd).
Mr Cao is currently the Chairman of Hunan Valin Iron and Steel
Group Co Ltd and Chairman and Chief Executive Officer of
Hunan Valin Steel Co Ltd.
He joined Hunan Xiangtan Iron & Steel Co Ltd in 1991 and
was appointed General Manager in 2003. In 2005, he was
appointed Chief Executive Officer of Hunan Valin Steel Co Ltd
and concurrently held the position of General Manager of
Lianyuan Iron and Steel Group Co Ltd.
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The Board
Jennifer Morris
Non-Executive Director
Owen Hegarty
Vice Chair
Non-Executive Director since November 2016.
Ms Morris is a former partner in the Consulting Division of
Deloitte, where she specialised in complex large-scale business
transformation programs, and strategy development. She
also has extensive applied expertise in leadership and a
demonstrated understanding of how to design and deliver
a performance culture and high performing teams to deliver
sustained and thriving performance at the elite level.
She currently serves as Chief Executive Officer of the Walk
Free Foundation and is a Commissioner of the Board of the
Australian Sports Commission.
Ms Morris is a Fellow of Leadership WA, a member of the
Australian Institute of Company Directors, an affiliate member
of Chartered Accountants Australia and New Zealand and
dual Olympic gold medallist. She holds a Bachelor of Arts
(Psychology and Journalism) and completed the Finance for
Executives at INSEAD.
Committee Membership: Remuneration and Nomination
Committee (Member), Audit and Risk Management
Committee (Member).
Sharon Warburton
Non-Executive Director
Non-Executive Director since November 2013 and
appointed Vice Chair as at 19 July 2017.
Ms Warburton has extensive experience in the mining,
infrastructure and construction sectors. She gained
substantial operational, commercial and risk management
experience in the global resources sector through her time as
an executive at Rio Tinto. She has also previously held senior
executive positions at Brookfield Multiplex, ALDAR Properties
PJSC, Multiplex and Citigroup.
In 2016, she was appointed Chairman of the Northern Australia
Infrastructure Facility and currently serves as a Director at
Western Power and the Perth Children’s Hospital Foundation.
Ms Warburton is a Fellow of the Institute of Chartered
Accountants Australia and New Zealand, a graduate of the
Australian Institute of Company Directors, a Fellow of Australian
Institute of Building and a member of Chief Executive Women.
Mr Hegarty was appointed Vice Chair in November
2014 having served as a Non-Executive Director since
October 2008.
Mr Hegarty has 40 years’ experience in the global mining
industry, including 25 years with the Rio Tinto group.
Mr Hegarty retired from Fortescue’s Board in December 2016.
Stephen Pearce
Chief Financial Officer and Executive Director
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.
Mr Pearce resigned from Fortescue’s Board in September 2016
and resigned from his position as Chief Financial Officer in
December 2016.
Geoff Raby
Non-Executive Director
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 retired from Fortescue’s Board in December 2016
and continues to work with Fortescue in a consultant capacity,
assisting with China relations.
Alison Terry
Company Secretary
Ms Terry was appointed Company Secretary in February 2017, after
joining Fortescue in 2014 as Group Manager Corporate Affairs.
With significant experience in corporate affairs, legal,
company secretarial and general management, Ms Terry has
previously held senior executive and Board roles across a
number of sectors including automotive, telecommunications
and superannuation.
She holds a Bachelor of Economics and Bachelor of Laws
(Honours) and a Graduate Diploma of Business (Accounting).
Other current directorships (ASX listed entities): Gold Road
Resources Limited (Non-Executive Director), NEXTDC Limited
(Non-Executive Director).
Ian Wells
Company Secretary
Former directorships in the last three years (ASX Listed
Entities): Wellard Limited.
Committee membership: Remuneration and Nomination
Committee (Chair) and Finance Committee (Chair) as at
30 June 2017.
Vice Chair, Remuneration and Nomination Committee (Chair),
Audit and Risk Management Committee (Member) and
Finance Committee (Member) as at 19 July 2017.
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
holds a Bachelor of Business in Accounting and is a graduate
of the Australian Institute of Company Directors.
12
FORTESCUE METALS GROUP LIMITED I OVERVIEW
Executive team
Fortescue’s leadership
Fortescue’s executive team is accountable for the safety of its people, upholding the
Company’s values, acting with integrity and honesty, and leading the business to achieve its
vision of becoming the safest, lowest cost, most profitable iron ore producer in the world.
L-R: Director Business Development Tony Swiericzuk, Director Operations Greg Lilleyman, Chief Financial Officer Elizabeth Gaines,
Director External Relations Tim Langmead, Group Manager Fortescue People Linda O’Farrell, Chief Executive Officer Nev Power,
Company Secretary and Group Manager Corporate Affairs Alison Terry, Director Corporate Services and Chief General Counsel Peter Huston,
Director Sales and Marketing David Liu, Group Manager Health and Safety Robert Watson
Nev Power
Chief Executive Officer
Elizabeth Gaines
Chief Financial Officer
Greg Lilleyman
Director Operations
Mr Power was appointed Chief
Executive Officer in July 2011 and
has more than 30 years’ experience
in the mining, steel and construction
industries. Before joining Fortescue,
he held Chief Executive positions at
Thiess and the Smorgon Steel Group.
Please refer to the Board of Director’s
section on page 11 for more details on
Mr Power’s experience.
Ms Gaines assumed the role of
Chief Financial Officer in February
2017. A highly experienced Chief
Financial Officer and regarded as
a financial and governance expert,
Ms Gaines brings significant global,
commercial and operational experience
from a range of industry sectors to
complement Fortescue’s highly
capable finance team.
Please refer to the Board of Director’s
section on page 11 for more details on
Ms Gaines’ experience.
Mr Lilleyman joined Fortescue in January
2017. With over 28 years’ experience in
the mining sector, he brings a wealth
of industry knowledge with a personal
style and approach strongly aligned with
Fortescue’s values and culture.
His extensive experience in leading
safety and operational excellence
combined with his thorough
knowledge and passion for technology
and innovation provides for further
development of Fortescue’s strong
operational and cost performance.
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Executive team
Peter Huston
Director Corporate Services
and Chief General Counsel
Linda O’Farrell
Group Manager Fortescue
People
Mr Huston brought over 20 years’
experience in legal and corporate
advisory roles when he joined
Fortescue as Chief General Counsel in
January 2005. Mr Huston joined the
executive team in January 2009.
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.
Tim Langmead
Director External Relations
Mr Langmead was appointed Director
External Relations in January 2014, after
joining Fortescue as Group Manager
Corporate Affairs in January 2013.
Previously, Mr Langmead held senior
corporate affairs roles in the Australian
business units of global oil and gas
companies. Mr Langmead served in
senior staff roles for Ministers in the
Howard-Anderson and Howard-Vaile
governments and commenced his
career as an agribusiness journalist.
David Liu
Director Sales and Marketing
Mr Liu joined Fortescue in 2003 and
was appointed as Director Sales and
Marketing in 2011 following the
completion of 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. Mr Liu 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. Having held a number
of executive human resources roles in
major Australian resource companies,
Ms O’Farrell brings strong experience in
strategic people management, diversity
and Aboriginal employment.
Ms O’Farrell holds a Bachelor of
Economics (Honours in Industrial
Relations) from the University of
Western Australia.
Tony Swiericzuk
Director Business Development
Mr Swiericzuk was appointed Director
Business Development in April 2017.
Mr Swiericzuk started his career at
Fortescue in 2009 as General Manager
Port and later General Manager
Christmas Creek, overseeing the ramp
up of operations at both sites.
With more than 20 years of industry
knowledge, Mr Swiericzuk’s previous
experience is diverse and includes
material handling, rail, port, steelworks
in Australia and Indonesia.
Mr Swiericzuk holds a Bachelor of
Engineering degree (Honours in Mining
and Mineral Engineering) and a Master
of Business Administration.
Alison Terry
Company Secretary and Group
Manager Corporate Affairs
Ms Terry was appointed Company
Secretary in February 2017, after joining
Fortescue in 2014 as Group Manager
Corporate Affairs.
With significant experience in
corporate affairs, legal, company
secretarial and general management,
Ms Terry has previously held senior
executive and Board roles across
a number of sectors including
automotive, telecommunications and
superannuation.
Ms Terry holds Bachelor of Economics
and Bachelor of Laws (Honours) and a
Graduate Diploma of Business (Accounting).
Rob Watson
Group Manager Health and Safety
Mr Watson was appointed Group
Manager Health and Safety in 2014 after
joining Fortescue in 2011. Prior to this
Mr Watson spent 15 years in a number of
senior corporate health and safety roles
in large mining companies.
His 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.
Nick Cernotta
Director Operations
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.
Mr Cernotta resigned from Fortescue on
31 January 2017.
Peter Lynch
Director Business Development
It is with great sadness to report that
Mr Peter Lynch, Fortescue’s Business
Development Director tragically died
in an aircraft incident in Perth on
January 26, 2017.
Mr Lynch joined Fortescue in June 2016
with over 28 years’ of experience in the
Australian and global mining sector
including coal, copper, gold, lead,
and zinc.
In his short time at Fortescue, Peter
had already been integral in the
development of Fortescue’s exploration
projects and was an impressive leader
who loved to recognise his team for
their efforts.
Fortescue would like to extend its
deepest sympathies to the family,
friends and colleagues of Peter once
again; he is deeply missed by
everyone at Fortescue.
14
FORTESCUE METALS GROUP LIMITED I OVERVIEW
OPERATING AND
FINANCIAL REVIEW
Overview
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 15
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 15
Operating and financial highlights
PRODUCTION
C1 COSTS
170.4
MT
US$
12.82
/WMT
US$
REVENUE
8.4
BILLION
CASH ON HAND
US$
1.8 BILLION
UNDERLYING EBITDA
DEBT REPAYMENTS
US$
4.7
BILLION
US$
2.7
BILLION DEBT RETIRED
NET PROFIT AFTER TAX
NET DEBT
US$
2.1
BILLION
US$
2.6
BILLION
16
FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW
Overview of operations
PRODUCTION
CAPACITY
70 - 75 MTPA
Solomon Hub
The Solomon Hub in the Hamersley Ranges is located
60 kilometres (km) north of Tom Price and 120km to the west
of Fortescue’s Chichester Hub. It comprises the Firetail and
Kings Valley mines which together have production capacity
of 70 to 75 million tonnes per annum (mtpa). 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.
Fortescue successfully deployed CAT autonomous haulage
technology (AHS) at the Solomon Hub in 2012, achieving a
20 per cent improvement in productivity.
During the year, Fortescue announced the expansion
of AHS at both the Kings Valley and Firetail mines to
further improve productivity across the site.
Chichester Hub
The Chichester Hub in the Chichester Ranges, comprising
the Cloudbreak and Christmas Creek mines, has an annual
production capacity of 100mtpa 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, increasing iron upgrades and
reducing impurities. This has resulted in lower mining
cut-off grades, further optimising ore bodies and sustainably
reducing strip ratios.
During FY17, Fortescue’s Integrated Operations Centre
(IOC) in Perth expanded to include Christmas Creek and
Cloudbreak’s mine control, as well as Christmas Creek’s
mine planning. The remote operation utilises the latest
technology and ensures improved safety, reliability and
efficiency of the operation.
Building on the success of AHS at the Solomon Hub,
the implementation plan for the rollout of AHS at the
Chichester Hub from FY18 is underway. The Company
is also investing in an innovative relocatable conveyor
to be trialled at the Cloudbreak mine.
CHRISTMAS CREEK
CLOUDBREAK
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Overview of operations
Port and Rail
Fortescue wholly owns and operates its purpose designed rail
and port facilities, constructed to deliver iron ore from its mines
to Port Hedland and on to its customers. Covering 620km of
track, the railway is the fastest, heavy haul line in the world.
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 port has five operating berths and is capable
of efficiently exporting more than 170mtpa.
A natural extension of Fortescue’s supply chain, the Company’s
ore carriers were designed to complement the industry
leading efficiency of Fortescue’s port. FMG Nicola, Grace,
Sophia and Sydney made their maiden voyage into Herb Elliot
Port in FY17. The remaining four vessels will be delivered by
mid-2018.
FIRETAIL
REPLACEMENT
PROJECT
EXPECTED
DECISION FY18
Iron Ore projects
Firetail is an important component of the Fortescue Blend
product and the replacement strategy will ensure the
Company maintains the integrity and quality of its product
range. During FY17, Fortescue continued to study all options
for the Firetail replacement project with a decision between
the Western Hub and Nyidinghu expected during FY18.
Iron Bridge, located 100km south of Port Hedland, is a joint
venture between Fortescue, Taiwan’s Formosa Group and
China’s Baosteel Resources Ltd, a subsidiary of China’s Baowu
Group incorporating the world class North Star and Glacier
Valley Magnetite ore bodies. Building on the development of a
large scale pilot plant and successful testing of an innovative,
low cost production process already completed, future
developments will deliver product via a pipeline to storage
and handling facilities in Port Hedland. This will be subject to
market conditions and approval by joint venture partners.
Exploration
Fortescue holds the largest tenement portfolio in the Pilbara.
Details of the Company’s reserves and resources are
summarised in the Ore Reserves and Minerals Resources
Report on pages 29 to 42. Exploration activity in FY17 was
primarily focussed on Fortescue’s iron ore tenements to
maintain mine life and sustain product quality in the
Company’s core iron ore business.
During the year Fortescue continued to undertake early stage,
low cost exploration on copper-gold prospective tenements in
South Australia and New South Wales and assessed high potential,
early stage exploration tenements in Ecuador, where Fortescue
was granted 32 exploration areas. This exploration is in line with
Fortescue’s strategy of focussing on its core iron ore business
while creating low cost future optionality.
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FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW
Key performance indicators
Improved
Safety
33%
2.9 Total Recordable
Injury Frequency Rate
Consistent
Production
1%
170.4 mt
Reduced
Cost
17 %
12.82 /wmt
US$
Fortescue’s FY17 results demonstrate the continued focus on fundamental business
drivers and delivered consistent performance across all operations.
Fortescue’s teams continue to innovate and deliver
excellent progress on key areas within the Company’s
control as it implements its vision of being the safest,
lowest cost, most profitable iron ore producer, including:
• Significant improvement in safety performance
• Sustainable production delivering maximum value
from the Company’s assets
• Consistent drive to lower costs and improve productivity
and efficiency.
In FY17, Fortescue delivered on each of these key
strategic targets and continued to reduce its debt,
invest in its core iron ore business and deliver returns
to shareholders.
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Key performance indicators
Safety
The health and safety of Fortescue’s people is at the heart of the Company’s values
and its 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, including a 33 per cent
reduction in FY17 to 2.9.
The Company is focussed on delivering progressive improvement
in its safety performance and promoting the behaviour to always
look out for your mates and yourselves to achieve its vision
of zero injury and harm across the entire business.
Total Recordable Injury Frequency rate
9.2
7.6
6.0
5.1
4.3
2.9
FY12
FY13
FY14
FY15
FY16
FY17
Production
In FY17, Fortescue achieved production records across mining, shipping and processing
while continuing to lower costs.
This demonstrates the consistent delivery of outstanding operational performance across all aspects of the business.
Production and shipments on a wet metric tonnes basis are outlined below.
12 months to 30 June 2017 (million tonnes)
Ore mined
Overburden removed
Ore processed
Shipments – Fortescue mined ore
Shipments – Fortescue equity ore
Total ore shipped including third party product
2017
197.8
204.9
172.2
170.4
170.4
170.4
2016
Movement (%)
181.1
195.9
167.6
166.8
167.4
169.4
+9
+5
+3
+2
+2
+1
Mining, million tonnes (wmt)
Processing, million tonnes (wmt)
Shipments, million tonnes (wmt)
197.8
181.1
164.1
140.4
94.6
172.2
167.6
153.6
165.4 169.4 170.4
126.0
76.1
124.2
80.9
FY13
FY14
FY15
FY16 FY17
FY13
FY14
FY15
FY16 FY17
FY13
FY14
FY15
FY16 FY17
Mining volumes and processing throughput continue to support shipments of 170mt per year. Iron ore stockpiles
at the mines and product stocks at the ore processing facilities and at Port are maintained at optimum levels to support
production targets and continue to be managed closely to ensure product quality and specifications.
Strip ratios across the business were maintained at 1.0 in FY17. Fortescue continues to meet customer demands through
its wet processing capability, achieving sustained improvements in metallurgical upgrades through the OPFs, as well
as plant reliability.
The efficiency of Fortescue’s rail and port infrastructure supported the Company’s mining and processing operations through
FY17. Fortescue’s focus remains on maximising the value of its ore bodies and infrastructure assets through beneficiation,
operating efficiencies and productivity improvements.
20
FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW
Key performance indicators
Costs
Fortescue’s focus on productivity and efficiency has again lowered C1 costs demonstrated
by operational excellence across mines, OPFs and infrastructure.
C1 costs averaged US$12.82/wmt in FY17, a 17 per cent
improvement over the prior year. This result includes an
average C1 cost of US$12.16/wmt for the June quarter.
Fortescue’s C1 cost reduction journey is illustrated below.
Progressive cost reductions delivered by Fortescue in recent
years represent sustainable, long term improvements in
operating costs, supporting life of mine in excess of 20 years.
Key focus areas which have contributed to a 17 per cent
improvement 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 collaboration
• Contractor insourcing programs
• Procurement initiatives to maximise the value of
products and services purchased
• Mining equipment and labour productivity
• Use of autonomous technology.
As the Company continues to focus on innovation,
productivity and efficiencies, the full year FY18
C1 cost is estimated at US$11-12/wmt, based on
an assumed Australian dollar exchange rate of 0.75
and oil price of US$53 per barrel (WTI).
C1 cost reduction journey, US$/wmt
FY15 US$27.15/wmt
32.08
28.48
25.90
22.16
FY16 US$15.43/wmt
16.90
15.80
14.79
14.31
13.55
12.54
13.06
12.16
FY17 US$12.82/wmt
Q1FY15
Q2FY15
Q3FY15 Q4FY15
Q1FY16 Q2FY16
Q3FY16 Q4FY16
Q1FY17 Q2FY17
Q3FY17 Q4FY17
SHIPPING
Fortescue Ore Carriers
Fortescue celebrated the delivery of its first four ore carriers during FY17.
FMG Nicola, Grace, Sophia and Sydney
were constructed at Jiangsu’s Yangzijiang
Shipyard, reflecting close relationships
in China, its largest market.
The ore carriers are a natural extension
of the Company’s supply chain and
will play a significant role in increasing
efficiencies at Port and lowering costs.
Designed to maximise the tonnage
per ship and improve loading rates,
the ships will also enable the safe
manoeuvring within the port and the
channel. A further four ore carriers are
being built at Guangzhou Shipyard
International, with delivery of the
final vessel expected in mid-2018.
When fully operational, the fleet
will provide approximately
12 per cent of Fortescue’s total
shipping requirements.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Financial results and position
Fortescue’s financial performance improved in FY17 with strong operational results
increasing margins and generating strong free cash flows.
These financial outcomes demonstrate consistency of operations, productivity and an unwavering focus on efficiency with
the emphasis on maximising the benefits of technology and innovation. Free cash flows generated by operations has been
consistently applied to debt reductions, strengthening Fortescue’s balance sheet and maximising shareholder returns.
Key metrics
Revenue
Underlying EBITDA1
Net profit after tax
Earnings per share
Cash from operating activities
Capital expenditure – Fortescue
Free cash flows
Cash and cash equivalents
Debt
Net debt
C1 costs
Key ratios
Gearing
Net gearing
Underlying EBITDA margin
Return on equity
US cents
US$/wmt
2017
US$m
2016
US$m
8,447
4,744
2,093
67.3
4,256
716
3,540
1,838
4,471
2,633
13
%
31
21
56
23
7,083
3,195
985
31.6
2,446
304
2,142
1,583
6,771
5,188
15
%
45
38
45
12
1 Refer to page 23 for the definition and reconciliation of Underlying EBITDA to the financial metrics reported in the financial statements under
Australian Accounting Standards.
22
FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW
Financial results and position
Financial performance
In FY17, Fortescue delivered net profit after tax of US$2,093 million and earnings per share of 67.3 cents (FY16: US$985 million
and 31.6 cents). This result reflects a significant improvement in operating margins and reduced financing expenses.
Underlying EBITDA
Underlying EBITDA, is a key measure of Fortescue’s financial performance and is defined as earnings before interest, tax,
depreciation and amortisation, exploration, development and other expenses. In FY17, Fortescue’s operations generated
Underlying EBITDA of US$4,744 million (FY16: US$3,195 million). The reconciliation of Underlying EBITDA to the financial
metrics reported in the financial statements under Australian Accounting Standards is presented below.
The 48 per cent improvement in Underlying EBITDA reflects improved iron ore prices and the delivery of C1 operating cost
reductions contributing US$1,262 million and US$445 million to the result respectively, as illustrated below.
Underlying EBITDA, US$ million
1,262
99
15
20
4,744
445
131
3,195
77
FY16
Volume
C1 costs
Shipping
costs
Price
Royalty
Fx
Other
FY17
Operating sales revenue
Cost of sales excluding depreciation and amortisation
Net foreign exchange gain (loss)
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
4,6
6
4
7
7
5,6
6
14
2017
US$m
8,447
(3,661)
13
(56)
1
4,744
19
(502)
(1,243)
(51)
2,967
(874)
2,093
2016
US$m
7,083
(3,841)
(2)
(52)
7
3,195
214
(675)
(1,244)
(136)
1,354
(369)
985
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Financial results and position
Revenue
Sale of iron ore
Other revenue
Sale of joint venture ore
Operating sales revenue
Shipments – Fortescue mined ore
Shipments – Fortescue’s share of joint venture ore
62% Fe CFR Platts index
Revenue realised
1 Notes to the accompanying financial statements.
Note1
3
3
3
mt
mt
US$/dmt
US$/dmt
2017
US$m
8,335
112
-
8,447
170.4
-
70
53
2016
US$m
6,923
136
24
7,083
166.8
0.6
51
45
In FY17, Fortescue realised US$53/dmt (FY16: US$45/dmt), based on the 62 per cent CFR Platts index of US$70/dmt
(FY16: US$51/dmt).
US$m
12,000
9,000
6,000
3,000
Revenue and realisation
11,753
US$/dmt
160
8,120
8,574
8,447
120
6,716
7,083
FY12
FY13
FY14
FY15
FY16
FY17
Revenue
CFR 62% price realisation
80
40
0
In FY17, Fortescue delivered net profit after tax of US$2,093 million and
earnings per share of 67.3 cents (FY16: US$985 million and 31.6 cents).
This result reflects a significant improvement in operating margins and
reduced financing expenses.
24
FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW
Financial results and position
Production costs
Total cost of product delivered to customers, inclusive of C1 costs, shipping, state government royalties and administration
charges, was US$22/wmt (FY16: US$23/wmt).
Total delivered cost, US$/wmt
69
21
62
18
48
FY12
44
FY13
52
18
34
FY14
38
11
27
FY15
23
8
15
22
9
13
FY16
FY17
C1
Shipping, royalty and administration
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 presented 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$/wmt
1 Notes to the accompanying financial statements.
Note1
5
5
5
5
5
5
6
2017
US$m
1,780
192
183
29
2,184
170.4
13
929
545
56
9
22
2016
US$m
2,092
201
204
76
2,573
166.8
15
781
446
52
8
23
2 Fortescue pays a 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 FY17 operating costs performance are discussed on page 21.
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Financial results and position
Non-operating costs
Key non-operating costs forming part of the financial result include:
• Net loss on early redemption of US$59 million (FY16: net gain of US$150 million)
• Interest expense of US$430 million reduced by US$191 million compared to the prior year of US$621m, following debt
repayments of US$2.7 billion in FY17 (FY16: US$2.7 billion)
• Depreciation and amortisation expenses of US$1,243 million (FY16: US$1,244 million)
•
Income tax expense for the year of US$874 million at an effective income tax rate of 29 per cent (FY16: US$369 million
at a rate of 27 per cent).
Balance sheet strength
Generation of free cash flow through consistent operating performance combined with improved market conditions
and sustainable cost reductions across operations enabled Fortescue to repay US$2.7 billion of debt and refinance an additional
US$1.5 billion during the year. The Company’s net gearing ratio has reduced to 21 per cent while extending its earliest debt maturity
to 2022.
Key metrics
At 30 June 2017, Fortescue’s net debt position was US$2,633 million (FY16: US$5,188 million), inclusive of finance leases
and cash on hand.
Borrowings
Finance lease liabilities
Cash and cash equivalents
Net debt
Equity
Gearing
Net gearing
1 Notes to the accompanying financial statements.
* This is calculated on debt plus equity.
Note1
9(a)
9(a)
9(b)
2017
US$m
3,653
818
(1,838)
2,633
9,734
31%*
21%*
2016
US$m
6,266
505
(1,583)
5,188
8,406
45%
38%
Cash and debt, US$ billion
Gearing and net gearing
12.7
8.5
9.6
9.6
2.3
2.2
2.4
2.4
6.8
4.5
1.6
1.8
12.7
10.5
8.5
6.2
9.6
9.6
7.2
7.2
6.8
80%
60%
40%
20%
5.2
4.5
2.6
FY12
FY13
FY14
FY15
FY16
FY17
FY12
FY13
FY14
FY15
FY16
FY17
Borrowings and finance
lease liabilities
Cash on hand
Borrowings and finance lease liabilities
Net debt
Net gearing (RHS)
Gearing (RHS)
26
FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW
Financial results and position
Debt profile
The Company’s debt maturity profile at 30 June 2017 is set out below. Fortescue maintains a flexible debt portfolio with no
financial maintenance covenants across all instruments.
Debt maturity profile
US$m
3,000
2,000
1,000
0
2,160
750
750
CY2017
CY2018
CY2019
CY2020
CY2021
CY2022
CY2023
CY2024
Senior Secured Notes
Senior Unsecured Notes
Ore carrier facility
During the year, Fortescue completed an agreement with the China Development Bank Financing Leasing Co., Ltd to finance
the construction costs for eight ore carriers. The finance lease facility of US$473 million will fund 85 per cent of the ore carriers’
costs for a minimum of 12 years on highly flexible terms, including early repayment and extension options. At 30 June 2017,
US$234 million of the facility has been utilised following delivery of the first four ore carriers during the year. The remaining
funds under the facility will be drawn on progressively on delivery of each ship.
This transaction is an important milestone in Fortescue’s funding strategy, building and broadening the Company’s relationships
with China, and represents the largest direct funding arrangement provided by a major Chinese financier for a non-Chinese
company in Australia.
Cash flow generation and capital discipline
Fortescue’s strong free cash flow performance during the year reflects improved positive cash margins together with a focus on
working capital efficiencies and disciplined capital management. Free cash flow, representing net cash proceeds generated by
operations after capital allocations, has improved by 65 per cent to US$3,540 million.
Cash flows from operating activities
Capital expenditure – Fortescue
Free cash flow
2017
US$m
4,256
(716)
3,540
2016
US$m
2,446
(304)
2,142
Cash and cash equivalents at 30 June 2017 were US$1,838 million compared to US$1,583 million at 30 June 2016, with the key
cash movements for the financial year outlined on the next page.
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Financial results and position
Cash generated by operations
Key factors contributing to the 74 per cent improvement in operating cash inflows to US$4,256 million
(FY16: US$2,446 million):
• 19 per cent increase in revenue as a result of improved iron ore price
• 17 per cent reduction in C1 costs
• Net increase in customer prepayments of US$223 million (FY16: net decrease of US$312 million) with US$500 million
received offset by US$275 million amortisation through delivery of iron ore during the year
• Lower interest payments of US$412 million (FY16: US$599 million) as debt repayments continued in FY17
•
Income tax payments of US$375 million were made during the year including US$267 million attributable to FY16.
The final FY17 payment of US$685 million is scheduled for December 2017.
Capital expenditure
Fortescue’s capital expenditure for the year increased to US$716 million (FY16: US$304 million):
•
Includes sustaining capital of US$354 million, US$260 million ore carrier construction, US$63 million development capital
and US$39 million on exploration
• Maintenance capital is closely managed to ensure sustainability of operations and delivery of maximum value from
the Company’s world class assets, with sustaining capital estimated at US$3/wmt in FY18.
• Joint venture capital expenditure of US$13 million (FY16: US$56 million) relates to the Iron Bridge project and has been
predominantly funded by Formosa Plastics Group.
Commitment to debt reduction
Fortescue’s debt reduction strategy continued in FY17 as the Company applied free cash flow to debt reduction. Fortescue’s net
financing cash outflows increased to US$3,282 million (FY16: US$2,863 million):
• Debt repayments of US$2,687 million (FY16: US$2,695 million)
• Refinancing of US$1,500 million and receipt of US$234 million from the ore carrier facility
• Dividend payments of US$755 million (FY16: US$114 million).
Dividends and shareholder return
Earnings have improved to 67.3 cents per share with return on equity of 23 per cent delivered during the year
(FY16: 31.6 cents per share and 12 per cent respectively).
Net profit after tax
Earnings per share
Return on equity
Interim dividend
Final dividend
Total dividend
Dividend payout ratio
US$m
US cents
AUD cents per share
AUD cents per share
AUD cents per share
2017
US$m
2,093
67.3
23%
20
25
45
52%
2016
US$m
985
31.6
12%
3
12
15
36%
Total dividend of 45 Australian cents per share represents a 52 per cent dividend payout ratio.
28
FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW
ORE RESERVES AND
MINERAL RESOURCES
FY17 Update
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 29
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 29
Ore reserves and mineral resources report
Ore Reserves and Mineral Resources
Ore Reserves Operating Properties – Hematite
Reporting is grouped by operating and development
properties and includes both Hematite and
Magnetite deposits.
The 2017 combined Chichester and Solomon Hematite Ore
Reserve is a total of 2,191 million dry tonnes (mt) at an average
iron (Fe) grade of 57.2 per cent.
Hematite Ore Reserves total 2.19 billion tonnes (bt) at an
average iron (Fe) grade of 57.2 per cent. Combined Hematite
Mineral Resources total 13bt at an average Fe of 56.8 per cent.
Magnetite Ore Reserves total 0.7bt at an average mass
recovery of 27.2 per cent for a 67 per cent Fe grade product.
Magnetite Mineral Resources total 7.9bt at an average mass
recovery of 23.3 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
Mineral Resource and Ore Reserve information (Fortescue
ASX release dated 18 August 2017). 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 releases on 18 August 2017, 8 January
2015 and 20 May 2014 that includes the supporting technical
data. The remaining JORC 2004 Mineral 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 18 August 2017.
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. An independent audit of the Valley of the
Kings Resource Model was conducted in December 2016.
In addition to routine internal audit, auditing of the estimation
of Mineral Resources and Ore Reserves is addressed as a
sub-set of the annual internal audit plan approved by the
Board Audit and Risk Management Committee (ARMC).
Specific audit of the Ore Reserve process was performed in
2011, 2013, 2015, 2016 and 2017. These audits were managed
by Fortescue’s internal audit service provider with external
technical subject experts. The 2015, 2016 and 2017 Ore
Reserves audits were carried out by independent external
technical consultants.
The ARMC also 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.
Tonnage and quality information contained in the following
tables have been rounded and as a result the figures may not
add up to the totals quoted.
Ore Reserves are quoted on a dry product basis while
Mineral Resources are quoted on a dry in-situ basis.
(Company production and sales reporting is based on wet
tonnes. The typical free moisture content of shipped products
is nine per cent).
The Ore Reserve is quoted as at 30 June 2017 and is inclusive
of ore and product stockpiles at mines. Product stockpiles at
port have been excluded from contributing to Ore Reserves.
The proportion of higher confidence Proved Ore Reserve
has remained essentially unchanged (reducing from 755mt
to 746mt) 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 1,517mt at an average Fe grade of
57.2 per cent, an increase of 73mt due to change in pit
geometry at Cloudbreak, inclusion of the Kutayi eastern
extension in the Christmas Creek Life of Mine plan and
on-going grade control drilling. Proved Ore Reserve constitutes
42 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 674mt at
an average Fe grade of 57.3 per cent, a decrease of 55mt due
to production but with an increase in ore quality. A number
of higher grade additions have been made to Solomon Ore
Reserves over the last 12 months, including brownfields
extensions of the Firetail and Kings deposits. Solomon Ore
Reserve consists of 17 per cent of the tonnage
in the Proved Ore Reserve category.
The 2017 Hematite Ore Reserve estimates were subject to
comprehensive review and update addressing:
• Revisions to the Cloudbreak pit geometry (increase)
• Addition of the Kutayi deposit to the Christmas Creek
resource base (increase)
• Addition of the Pinnacles, Radio Tower Hill and Frederick
deposits to the Solomon resource base (increase)
• Revisions of ore loss and dilution factors based on
12 months of operational history at all mines (minor)
• Revisions to the processing response through all Ore
Processing Facilities (OPFs) based on updated test work
and operational history (minor)
• Ore depletion as a result of sales (decrease)
• Re-optimisation of mine geometries to maximise the benefit
of cost reductions across all Fortescue operations and new
additions to the resource base
• 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.
30
FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES
Ore reserves and mineral resources report
Hematite Ore Reserves – as at 30 June 2017
June 2017
June 2016
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 %
Cloudbreak
Proved
Probable
Total
304
289
593
Christmas Creek
Proved
Probable
Total
326
597
924
57.5
57.2
5.21
5.97
57.4
5.58
57.1
57.0
5.86
5.96
57.0
5.93
Sub-total Chichester Hub
Proved
Probable
631
886
57.3
57.1
5.54
5.96
2.81
2.75
2.78
2.81
3.03
2.95
2.81
2.94
0.052
0.058
0.055
0.043
0.047
0.046
0.047
0.051
8.49
8.00
8.25
7.81
7.57
7.66
8.14
7.71
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
2.82
2.84
2.83
2.77
3.05
2.95
2.79
2.99
0.054
0.059
0.056
0.043
0.049
0.047
0.048
0.052
8.50
7.97
8.25
7.47
7.34
7.38
7.96
7.53
Total
1,517
57.2
5.79
2.88
0.049
7.89
1,444
57.3
5.61
2.91
0.050
7.71
Firetail
Proved
Probable
Total
13
112
125
59.0
59.3
5.57
5.75
59.2
5.73
Kings and Queens
Proved
Probable
Total
103
446
548
56.3
56.9
6.60
6.36
56.8
6.40
Sub-total Solomon Hub
Proved
Probable
Total
116
558
674
56.6
57.4
6.48
6.23
57.3
6.28
Total Hematite Ore Reserves
Proved
746
Probable
1,444
57.2
57.2
5.69
6.07
Total
2,191
57.2
5.94
Notes in reference to table
2.40
2.53
2.51
2.40
2.61
2.57
2.40
2.59
2.56
2.75
2.80
2.78
0.114
0.107
0.107
0.073
0.064
0.065
0.078
0.072
0.073
0.052
0.059
0.057
7.18
6.38
6.46
9.95
9.13
9.29
9.64
8.58
8.76
8.37
8.05
8.16
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
755
1,418
57.3
57.1
5.68
6.12
2,173
57.2
5.97
2.70
2.51
2.54
2.51
2.73
2.69
2.53
2.69
2.66
2.74
2.87
2.82
0.127
0.111
0.113
0.077
0.062
0.065
0.084
0.070
0.073
0.055
0.059
0.058
7.29
6.23
6.40
10.15
8.87
9.12
9.76
8.42
8.67
8.29
7.90
8.03
• The diluted mining models used to report the 2017 Ore Reserves are based on Christmas Creek Mineral Resource model completed in 2016,
Firetail Mineral Resource model revised in 2014, Cloudbreak Mineral Resource model completed in 2016 and Kings Mineral Resource model
released in 2017. Diluted mining models are validated by reconciliation against historical production.
• Proved Ore Reserves are inclusive of ore stockpiles at the mines totalling approximately 20.8mt on dry product basis.
• The Chichester Ore Reserve is inclusive of the Cloudbreak, Christmas Creek and Kutayi Bedded Iron Deposits. Selected Christmas Creek Ore
Reserves will be directed to the Cloudbreak OPF to optimise upgrade performance and balance Cloudbreak and Christmas Creek OPF lives.
• Ore Reserve in-situ Fe cut-off grades are an outcome of scheduling and vary by ore type and deposit through time.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Ore reserves and mineral resources report
Ore Reserves – Magnetite
The 2017 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 for a 67 per cent Fe grade product.
The Magnetite Ore Reserve is quoted as at 30 June 2017.
Ore Reserves are quoted on a dry in-situ tonnes basis prior
to processing.
All Magnetite Ore Reserves are classified as Probable Ore
Reserves. These have been estimated from Indicated plus
Measured Mineral Resources from within the North Star
mining study pit. Additional Indicated Mineral Resources
from outside the study pit (including the Eastern Limb,
Glacier Valley and West Star deposits) have not been included
in these Ore Reserves.
No Company sales or production have occurred for Magnetite
as at 30 June 2017. Price forecasting has been based on a
dry tonnage basis. When shipping occurs production will be
quoted in wet tonnes. The typical free moisture content of
shipped products is nine per cent.
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 taken from
the Iron Bridge feasibility study.
Magnetite Ore Reserves – as at 30 June 2017
June 2017
June 2016
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% Fortescue) - Eastern Limb currently not assessed
Proved
Probable
Total
-
705
705
-
27.2
27.2
-
67.2
67.2
-
5.52
5.52
-
0.25
0.25
-
705
705
-
27.2
27.2
-
67.2
67.2
-
5.52
5.52
-
0.25
0.25
Glacier Valley (60.72% Fortescue)
Proved
Probable
Total
-
-
-
-
-
-
West Star (60.72% Fortescue)
Proved
Probable
Total
-
-
-
-
-
-
Total Magnetite Ore Reserves
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Proved
Probable
Total
-
705
705
-
27.2
27.2
-
67.2
67.2
-
5.52
5.52
-
0.25
0.25
-
705
705
-
27.2
27.2
-
67.2
67.2
-
5.52
5.52
-
0.25
0.25
Notes in reference to table
• Magnetite Ore Reserves are a result of a mining study only upon the North Star deposit. Utilising 705mt of Measured plus Indicated Mineral
Resources reported within a defined pit design.
• All reporting is based on Mass Recovery expressed as a nine per cent Davis Tube Recovery (DTR) cut-off.
• 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 2017, the total Mineral Resource for the
Chichester and Solomon hubs was 5,279mt at an average Fe
grade of 56.0 per cent, a slight increase 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 70 per cent to
73 per cent as a result of infill drilling.
The Chichester Hub Mineral Resource totalled 3,170mt 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 2,109mt at an
average Fe grade of 55.5 per cent, with 62 per cent of the tonnage
in the Measured and Indicated Mineral Resource categories.
32
FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES
Ore reserves and mineral resources report
Hematite Mineral Resources (Operating Properties) – as at 30 June 2017
June 2017
June 2016
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 %
Cloudbreak
Measured
Indicated
Inferred
478
438
138
56.7
56.1
56.3
5.60
6.70
6.46
Total
1,055
56.4
6.17
Christmas Creek
Measured
522
Indicated
1,088
Inferred
505
56.9
56.1
55.6
6.12
6.74
7.09
Total
2,115
56.2
6.67
Sub-total Chichester Hub
Measured
1,000
Indicated
1,526
Inferred
643
56.8
56.1
55.8
5.87
6.73
6.95
Total
3,170
56.2
6.50
Firetail
Measured
Indicated
Inferred
Total
21
193
134
348
58.1
58.3
57.2
5.43
6.62
7.34
57.9
6.83
Kings and Queens
Measured
Indicated
Inferred
196
893
671
55.0
55.2
54.9
7.81
8.00
8.22
Total
1,761
55.1
8.06
Sub-total Solomon Hub
Measured
217
Indicated
1,087
Inferred
805
55.3
55.7
55.3
7.59
7.75
8.07
Total
2,109
55.5
7.86
3.45
3.46
3.53
3.46
3.12
3.67
3.74
3.55
3.28
3.61
3.69
3.52
2.93
2.78
3.36
3.01
2.92
3.37
3.60
3.41
2.92
3.27
3.56
3.34
Total Hematite Operational Mineral Resources
Measured
1,218
Indicated
Inferred
2,613
1,448
56.6
55.9
55.5
6.18
7.15
7.58
Total
5,279
56.0
7.04
3.21
3.47
3.62
3.45
Notes in reference to table
0.056
0.059
0.052
0.057
0.047
0.050
0.054
0.050
0.051
0.053
0.054
0.052
0.128
0.113
0.107
0.111
0.086
0.073
0.079
0.076
0.090
0.080
0.083
0.082
0.058
0.064
0.070
0.064
8.6
8.1
7.8
8.3
8.0
7.8
7.8
7.9
8.3
7.9
7.8
8.0
7.9
6.6
7.0
6.8
9.9
9.1
9.0
9.2
9.7
8.7
8.7
8.8
8.6
8.2
8.3
8.3
514
438
138
56.8
56.1
56.3
5.48
6.70
6.47
3.40
3.45
3.53
0.055
0.059
0.052
1,090
56.5
6.10
3.44
0.057
535
1,054
480
57.0
55.9
55.5
6.15
6.77
7.12
3.07
3.71
3.73
0.047
0.049
0.054
2,069
56.1
6.69
3.55
0.050
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
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
1,307
2,368
1,587
56.4
56.0
55.7
6.05
7.09
7.40
3.17
3.47
3.55
0.059
0.060
0.070
5,261
56.0
6.93
3.42
0.063
8.6
8.1
7.8
8.3
8.0
7.9
7.9
7.9
8.3
7.9
7.9
8.0
7.7
6.2
7.1
6.8
10.1
8.6
8.7
8.8
9.8
8.2
8.5
8.5
8.6
8.0
8.2
8.2
• Chichester Hub Mineral Resources are quoted at a cut-off of 53.5 per cent Fe and Solomon Hub Mineral Resources are quoted at a cut-off grade of
51.5 per cent Fe.
• The Chichester Hub Mineral Resources now include those at Kutayi which were previously reported under Development Properties. Fortescue
is yet to remodel BCI Mineral Resources.
• The Measured Mineral Resource estimate includes mine stockpiles totalling approximately 22mt.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Ore reserves and mineral resources report
Mineral Resources Development Properties – Hematite
Fortescue has announced a 1.4 billion tonnes (bt) addition to
the Western Hub Mineral Resource as a result of exploration
drilling, including increases to the existing Eliwana and Flying Fish
deposits. This update to the development properties is reported
to JORC 2012 standard as identified in the Fortescue ASX releases
on 18 August 2017, 8 January 2015 and 20 May 2014 that
includes the supporting technical data.
The Kutayi deposit in the Greater Chichester has been
transferred to the Chichester operating properties.
The consequent reduction in tonnes in the Greater Chichester
Mineral Resources has been partly offset by increases in the
Investigator and White Knight Mineral Resources as a result of
additional drilling completed in these areas.
Hematite Mineral Resources (Development Properties) – as at 30 June 2017
June 2017
June 2016
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 %
Greater Chichester
Measured
Indicated
Inferred
Total
-
-
433
433
Greater Solomon
Measured
-
Indicated
254
Inferred
2,404
-
-
-
-
56.4
7.10
56.4
7.10
-
56.6
56.8
-
6.70
6.93
Total
2,658
56.8
6.91
Western Hub
Measured
Indicated
-
-
-
-
-
-
-
-
3.77
3.77
-
3.45
3.71
3.69
-
-
-
-
0.058
0.058
-
0.083
0.081
0.082
-
-
Inferred
2,125
57.9
5.53
Total
2,125
57.9
5.53
2.93
2.93
0.094
0.094
Nyidinghu
Measured
Indicated
23
580
Inferred
1,860
59.6
58.1
57.2
3.56
4.52
5.00
2.21
2.95
3.36
0.139
0.148
0.147
Total
2,463
57.4
4.87
3.25
0.147
Total Development Mineral Resources
Measured
Indicated
23
834
Inferred
6,823
59.6
57.6
57.2
3.56
5.18
5.98
2.21
3.11
3.38
0.139
0.128
0.102
Total
7,680
57.3
5.89
3.35
0.105
Notes in reference to table
-
-
7.0
7.0
-
8.3
7.2
7.3
-
-
7.9
7.9
8.0
8.6
8.8
8.8
8.0
8.5
7.9
7.9
-
82
409
491
-
57.9
57.0
-
6.30
6.66
57.1
6.60
-
254
2,404
-
56.6
56.8
-
6.70
6.93
2,658
56.8
6.91
-
-
740
740
-
-
-
-
59.1
5.21
59.1
5.21
23
580
1,860
59.6
58.1
57.2
3.56
4.52
5.00
-
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
2,463
57.4
4.87
3.25
0.147
23
916
5,416
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
-
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
• The Greater Chichester Mineral Resource includes the Investigator, White Knight and Mount Lewin deposits.
• The Greater Solomon Mineral Resource includes the Serenity, Sheila Valley, Mount MacLeod, Queens Extension, Cerberus,
Stingray and Raven deposits.
• The Western Hub Mineral Resource includes the Eliwana, Flying Fish, Cobra, Lora, Zorb, Farquhar, Elevation, Boolgeeda CID
and Wyloo North deposits.
• 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.
34
FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES
Ore reserves and mineral resources report
Mineral Resources Development Properties – Magnetite
Mineral Resource updates for the North Star, West Star and
Glacier Valley deposits (60.72 per cent Fortescue) were completed
in 2017, incorporating additional drilling, including the results
of an infill reverse circulation drilling campaign across all areas.
This drilling has confirmed the tonnage of higher confidence
Measured and Indicated Mineral Resources at North Star, Eastern
Limb and Glacier Valley, which can potentially be converted to
an Ore Reserve. Mineral Resources have improved across several
deposits with infill drilling resulting in an increase to Indicated
and Measured Mineral Resources in the North Star, Eastern Limb
and Glacier Valley deposits.
Magnetite Mineral Resources – as at 30 June 2017
June 2017
June 2016
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
%
North Star + Eastern Limb (60.72% Fortescue)
Measured
Indicated
77
989
Inferred
3,231
28.6
27.8
24.1
32.4
31.1
29.6
39.44
40.48
41.80
1.91
2.28
2.88
76
936
2,651
28.7
26.8
24.7
32.4
31.1
30.5
39.42
40.50
41.23
1.90
2.29
2.62
Total
4,297
25.1
30.0
41.46
2.73
3,664
25.3
30.7
41.01
2.52
Glacier Valley (60.72% Fortescue)
Measured
-
Indicated
477
Inferred
2,844
-
24.1
20.5
Total
3,321
21.1
West Star (60.72% Fortescue)
Measured
Indicated
Inferred
Total
-
-
274
274
-
-
23.5
23.5
Total Magnetite Mineral Resources
Measured
77
Indicated
Inferred
1,466
6,350
28.6
26.6
22.5
-
32.4
30.7
30.9
-
-
28.3
28.3
32.4
31.5
30.0
-
39.33
40.69
-
1.74
2.19
-
350
2,434
-
25.1
22.2
40.50
2.13
2,784
22.5
-
-
-
-
43.43
43.43
3.43
3.43
-
-
258
258
39.44
40.11
41.38
1.91
2.11
2.60
76
1,286
5,344
-
-
23.5
23.5
28.7
26.4
23.5
-
32.8
32.4
32.5
-
-
29.0
29.0
32.4
31.6
31.3
-
39.01
39.06
39.06
-
-
-
1.66
1.76
1.74
-
-
42.90
42.90
3.20
3.20
39.42
40.10
40.32
1.90
2.12
2.26
Total
7,892
23.3
30.3
41.12
2.50
6,706
24.1
31.4
40.27
2.22
Notes in reference to table
• Magnetite Mineral Resource estimates, including the North Star, Eastern Limb, Glacier Valley and West Star deposits, are reported according
to JORC 2012 standards.
• All reporting is based on Mass Recovery expressed as a nine per cent Davis Tube Recovery (DTR) cut-off.
• All Mineral Resources are reported on a dry-tonnage basis.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Ore reserves and mineral resources report
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, Ms Erin Retz and
Mr David Frost-Barnes; full-time employees of Fortescue.
Each provided technical input for Mineral Resource
estimations. The detail in this report that relates to
Magnetite Mineral Resources is based on information
complied by Mr Lynn Widenbar, an independent
consultant for Widenbar and Associates. Mr Widenbar
provided technical input for Mineral Resource estimations.
Estimated Ore Reserves for the Chichester and Solomon
Hubs for fiscal year 2017 were compiled by Mr Martin Slavik,
Mr Oliver Wang and Mr Chris Fowers; full-time employees
of Fortescue. Estimated Magnetite Ore Reserves for the
Iron Bridge project for fiscal year 2017 were compiled
by Mr Glenn Turnbull, an independent consultant for
Golder Associates.
Mr Robinson is a Fellow of, and Mr Nitschke, Ms Retz,
Mr Slavik, Mr Wang, Mr Fowers, Mr Widenbar and Mr 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.
Mr Robinson, Mr Nitschke, Ms Retz, Mr Frost-Barnes, Mr Slavik,
Mr Wang, Mr Fowers, Mr Widenbar and Mr Turnbull have
sufficient experience relevant to the style of mineralisation and
type of deposit under consideration and to the activity which
they are undertaking to qualify as a Competent Person as defined
in the 2012 Edition of the ‘Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves’.
Mr Robinson, Mr Nitschke, Ms Retz, Mr Frost-Barnes, Mr Slavik,
Mr Wang, Mr Fowers, Mr Widenbar and Mr Turnbull consent
to the inclusion in this report of the matters based on this
information in the form and context in which it appears.
n
lom o
o
S
2.2bt
Ore
Reserves
Hub
r
C
h
ic
heste
Hematite Ore Reserves total
2.2 billion tonnes at an average
grade of 57.2% Fe
36
FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES
Ore reserves and mineral resources 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: 100% all mineral rights
E45/2497
E45/2498
E45/2499
E45/2593
E45/2651
M45/1258
E45/2652
E46/566
E46/467
E46/516
E46/518
E46/519
E46/595
E46/567
E46/568
E46/569
E46/590
E46/612
E46/600
E46/601
E46/610
E46/611
E47/1320
E46/623
E46/664
E46/666
E46/675
M45/1082 E47/1387
E47/1388
E47/1434
E47/2177 M45/1086 M45/1083 M45/1084 M45/1089
M45/1085 M45/1091 M45/1087 M45/1088 M45/1094
Holder: Chichester Metals Pty Ltd Status: Application
FMG mineral rights status: N/A
L47/653
L47/657
L47/659
Holder: FMG Magnetite Pty Ltd
Status: Granted
M45/1090 M45/1103 M45/1092 M45/1093 M45/1106
FMG mineral rights status: 100% all mineral rights (Note: 1)
M45/1102 M45/1124 M45/1104 M45/1105 M45/1127
E 45/2510
E 45/2535 M 45/1226
M45/1107 M45/1138 M45/1125 M45/1126 M45/1141
M45/1128 M46/316 M45/1139 M45/1140 M46/314
M45/1142 M46/321 M46/292 M46/293 M46/319
M46/315 M46/326 M46/317 M46/318 M46/324
M46/320 M46/331 M46/322 M46/323 M46/329
M46/325 M46/336 M46/327 M46/328 M46/334
M46/330 M46/341 M46/332 M46/333 M46/339
M46/335 M46/346 M46/337 M46/338 M46/344
M46/340 M46/351 M46/342 M46/343 M46/349
Holder: FMG Magnetite Pty Ltd
Status: Granted
FMG mineral rights status: N/A (Note: 1)
L 45/257
L 45/293
L 45/294
L 45/317
L 45/318
L45/319
L 45/331
Holder: FMG Magnetite Pty Ltd
FMG mineral rights status: N/A (Note: 1)
Status: Application
M46/345 M46/356 M46/347 M46/348 M46/354
L 45/320
M46/350 M46/404 M46/352 M46/353 M46/402
M46/355 M46/409 M46/357 M46/401 M46/407
M46/403 M46/414 M46/405 M46/406 M46/412
M46/408 M46/419 M46/410 M46/411 M46/417
M46/413 M46/424 M46/415 M46/416 M46/422
M46/418 M46/454 M46/420 M46/421 M46/451
M46/423 M47/1461 M46/449 M46/450 M46/452
M46/453
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
G46/7
L45/152
L46/36
L46/100
L46/111
L46/112
L46/35
L46/46
L46/52
L46/66
L46/47
L46/99
L46/48
L46/57
L46/37
L46/49
L46/62
L46/40
L46/51
L46/64
Holder: FMG Magnetite Pty Ltd and Formosa Steel IB Pty Ltd
Status: Granted
FMG mineral rights status: 69% all mineral rights
(Note: 1 and 2)
E 45/4606
Holder: FMG Magnetite Pty Ltd and Formosa Steel IB Pty Ltd
Status: Granted
FMG mineral rights status: N/A (Note: 1 and 2)
L 45/359
L 45/366
L 45/367
Holder: FMG Magnetite Pty Ltd and Formosa Steel IB Pty Ltd
Status: Application
FMG mineral rights status: N/A (Note: 1 and 2)
L 45/397
Holder: FMG North Pilbara Pty Ltd Status: Granted
FMG mineral rights status: 100% all mineral rights (Note: 1)
L47/193
L46/53
L47/198
L47/654
L47/655
E 45/3084 M 45/1244 P 45/3010
L47/656
L47/197
L47/658
L47/660
L47/693
L47/710
L47/711
L47/778
Holder: Pilbara Water & Power Pty Ltd
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 I 2017 ANNUAL REPORT
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37
Ore reserves and mineral resources tenements
Western Australia Tenure continued
Holder: FMG Nullagine Pty Ltd
Status: Granted
Holder: FMG Nullagine Pty Ltd
Status: Granted
FMG mineral rights status: 100% iron ore rights
FMG mineral rights status: N/A
E45/2717
E46/522
E46/523
E46/651
E46/652
E46/655
E46/663
E46/928
E46/969
M46/515
M46/522 M46/523
G46/9
L46/80
L46/93
L46/114
L46/118
L46/119
L46/74
L46/82
L46/95
L46/83
L46/84
L46/85
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights
E08/1393
E08/1440
E08/1878
E08/2003
E08/2072
E47/3094
E47/3126
E47/3150
E47/3153
E47/3161
E08/2137
E08/2200
E08/2398
E08/2594
E08/2652
E47/3162
E47/3163
E47/3194
E47/3205
E47/3207
E08/2653
E08/2662
E08/2721
E08/2778
E08/2792
E47/3211
E47/3218
E47/3220
E47/3222
E47/3225
E08/2827
E08/2932
E45/2870
E45/3191
E45/3414
E47/3226
E47/3227
E47/3245
E47/3252
E47/3264
E45/3473
E45/3438
E45/3545
E45/3641
E45/3659
E47/3270
E47/3280
E47/3291
E47/3292
E47/3296
E45/3697
E45/3698
E45/3760
E45/3816
E45/3705
E47/3311
E47/3313
E47/3315
E47/3318
E47/3321
E45/4148
E45/4227
E45/4265
E45/4356
E45/4450
E47/3334
E47/3335
E47/3347
E47/3350
E47/3379
E45/4451
E45/4466
E45/4498
E45/4525
E45/4526
E47/3380
E47/3381
E47/3397
E47/3402
E47/3403
E45/4529
E45/4530
E45/4531
E45/4532
E45/4528
E47/3404
E47/3405
E47/3406
E47/3438
E47/3444
E45/4549
E45/4578
E45/4664
E45/4725
E45/4728
E47/3448
E47/3451
E47/3454
E47/3455
E47/3464
E46/517
E46/621
E46/699
E46/701
E46/706
E47/3498
E47/3499
E47/3500
E47/3501
E47/3505
E46/711
E46/741
E46/743
E46/776
E46/799
E47/3506
E47/3512
E47/3513
E47/3517
E47/3561
E46/859
E46/861
E46/862
E46/965
E46/967
E47/3562
E47/3563
E52/1763
E52/1779
E52/1788
E46/980
E46/986
E46/989
E46/1000
E46/1009
E52/1789
E52/1790
E52/1937
E52/2034
E52/2035
E46/1034
E46/1045
E46/1055
E46/1071
E46/1074
E52/2114
E52/2311
E52/2521
E52/2522
E52/2555
E46/1076
E46/1077
E46/1079
E46/1080
E46/1085
E52/2594
E52/2620
E52/2637
E52/2745
E52/2748
E46/1120
E46/1128
E46/1142
E46/1146
E46/1152
E52/2928
E52/2933
E52/3060
E52/3097
E52/3107
E46/1155
E47/1011
E47/1016
E47/1136
E47/1154
E52/3134
E52/3135
E52/3160
E52/3184
E52/3204
E47/1155
E47/1194
E47/1195
E47/1196
E47/1299
E52/3208
E52/3209
E52/3210
E52/3211
E52/3213
E47/1300
E47/1301
E47/1302
E47/1306
E47/1319
E52/3233
E52/3247
E52/3261
E52/3294
E52/3343
E47/1342
E47/1349
E47/1351
E47/1355
E47/1357
E52/3369
E52/3370
E52/3371
E52/3372
E52/3373
E47/1370
E47/1373
E47/1383
E47/1384
E47/1390
E52/3396
E52/3441
E52/3471 M08/502 M45/1177
E47/1391
E47/1392
E47/1393
E47/1395
E47/1396
M47/1407 M47/1408 M47/1409 M47/1410 M47/1411
E47/1397
E47/1404
E47/1419
E47/1420
E47/1423
M47/1413 M47/1417 M47/1431 M47/1433 M47/1434
E47/1433
E47/1435
E47/1446
E47/1447
E47/1448
M47/1453 M47/1466 M47/1473 M47/1474 M47/1475
E47/1449
E47/1453
E47/1455
E47/1461
E47/1500
M47/1488 M47/1489 M47/1490 M47/1492 M47/1508
E47/1532
E47/1533
E47/1543
E47/1578
E47/1579
M47/1509 P08/531
P08/532
P45/2862
P45/2863
E47/1614
E47/1623
E47/1650
E47/1675
E47/1681
P45/2864
P45/2865
P45/2932
P47/1257
P47/1269
E47/1684
E47/1690
E47/1702
E47/1703
E47/1728
P47/1278
P47/1279
P47/1286
P47/1287
P47/1304
E47/1741
E47/1761
E47/1762
E47/1763
E47/1764
P47/1305
P47/1306
P47/1309
P47/1397
P47/1407
E47/1772
E47/1809
E47/1818
E47/1821
E47/1832
P47/1408
P47/1409
P47/1410
P47/1411
P47/1412
E47/1846
E47/1861
E47/1920
E47/1921
E47/1927
P47/1423
P47/1427
P47/1469
P47/1470
P47/1545
E47/1944
E47/1988
E47/2037
E47/2085
E47/2119
P47/1554
P47/1609
P47/1633
P47/1642
P47/1643
E47/2146
E47/2160
E47/2171
E47/2172
E47/2173
P47/1649
P47/1650
P47/1663
P47/1664
P47/1665
E47/2239
E47/2240
E47/2285
E47/2292
E47/2331
P47/1666
P47/1667
P47/1668
P47/1669
P47/1670
E47/2333
E47/2378
E47/2465
E47/2496
E47/2538
P47/1671
P47/1672
P47/1673
P47/1674
P47/1675
E47/2664
E47/2665
E47/2666
E47/2675
E47/2729
P47/1722
P47/1735
P47/1736
P47/1768
P47/1771
E47/2739
E47/2879
E47/2914
E47/2918
E47/2919
P47/1775
P47/1776
P47/1777
P47/1774
P52/1485
E47/2920
E47/2921
E47/2922
E47/2985
E47/2986
P52/1523
P52/1524
P52/1525
E47/3001
E47/3004
E47/3013
E47/3014
E47/3081
38
FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES
Ore reserves and mineral resources tenements
Western Australia Tenure continued
Holder: FMG Pilbara Pty Ltd
Status: Granted
Holder: FMG Resources Pty Ltd
Status: Granted
FMG mineral rights status:
100% iron ore rights, 34.81% non-iron (Note 3)
E 08/1915 E 08/2000 E 08/2065 E 08/2067 E 08/2114
E 47/1773 E 47/2236 E 52/2786
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG mineral rights status:
100% all mineral rights except diamonds
E 47/1333 E 47/1334 E 47/1352 E 47/1372 E 47/1398
E 47/1399 E 47/1436 E 47/1523 E 47/1524
FMG mineral rights status: 100% all mineral rights
E28/2660
E28/2661
E28/2662
E45/4021
E45/4150
E45/4349
E45/4350
E45/4576
E45/4577
E45/4737
E47/2774
E59/1360
E77/2157
E77/2158
E77/2159
E77/2262
E77/2292
Holder: FMG Resources Pty Ltd
Status: Granted
FMG mineral rights status: N/A (Note 4)
E29/929
E29/938
E29/946
E59/1275
P29/2359
Holder: FMG Pilbara Pty Ltd
Status: Granted
FMG mineral rights status: N/A
Holder: FMG Resources Pty Ltd
Status: Application
FMG mineral rights status: 100% all mineral rights
G45/275
G45/285
L45/158
L45/191
L45/240
E28/2663
E28/2664
L47/232
L47/293
L47/294
L47/296
L47/301
L47/351
L47/360
L47/361
L47/362
L47/363
L47/367
L47/381
L47/382
L47/391
L47/392
L47/397
L47/471
L47/472
L47/700
L47/713
L47/752
L47/754
L47/770
L47/774
L47/777
Holder: FMG Pilbara Pty Ltd
Status: Application
FMG mineral rights status: 100% all mineral rights
E08/2849
E08/2930
E45/4545
E45/4579
E45/4580
E45/4581
E45/4582
E45/4718
E45/4720
E45/4954
E45/4864
E46/1046
E46/1047
E46/1072
E45/4781
E46/1101
E46/1117
E46/1121
E46/1122
E46/1081
E46/1127
E46/1135
E46/1136
E46/1145
E46/1125
E47/3098
E47/3171
E47/3262
E47/3263
E46/1158
E47/3278
E47/3279
E47/3372
E47/3424
E47/3277
E47/3435
E47/3482
E47/3483
E47/3484
E47/3432
E47/3527
E47/3548
E47/3572
E47/3581
E47/3511
E47/3588
E47/3598
E47/3628
E47/3649
E47/3587
E47/3685
E47/3686
E47/3688
E47/3689
E47/3658
Holder: Pilbara Gas Pipeline Pty Ltd Status: Granted
FMG mineral rights status: N/A
L45/334
L45/335
L45/336
L45/339
L45/342
L45/343
L45/344
L45/345
L45/346
L45/347
L45/349
L45/352
L45/353
L47/696
L47/697
Holder: Pilbara Gas Pipeline Pty Ltd Status: Application
FMG mineral rights status: N/A
L45/332
L45/333
L45/337
L45/338
L45/340
L45/348
L47/695
Holder: Pilbara Iron Ore Pty Ltd
Status: Granted
FMG mineral rights status: 50% all mineral rights (Note 5)
E47/1191
E47/1192
E47/1224
E47/1225
E47/1235
E47/1380 M47/580
P47/1816
Holder: Pilbara Iron Ore Pty Ltd
Status: Application
E47/3739
E47/3740
E47/3741
E52/3482
E47/3690
FMG mineral rights status: N/A (Note 5)
M47/1457 M47/1458 M47/1459 M47/1476 M47/1456
L 47/205
M47/1478 M47/1481 M47/1493 M47/1497 M47/1477
M47/1511 M47/1513 M47/1518 M47/1519 M47/1510
M47/1522 M47/1523 M47/1524 M47/1525 M47/1520
M47/1530 M47/1531 M47/1526 P47/1772
R47/14
Holder: FMG Pilbara Pty Ltd
Status: Application
FMG mineral rights status: N/A
L47/714
L47/716
L47/790
L47/802
Holder: The Pilbara Infrastructure Pty Ltd Status: Granted
FMG mineral rights status: N/A
AL 70/1 (L 1SA) G45/286
L45/199
L46/96
Holder: The Pilbara Infrastructure Pty Ltd Status: Application
FMG mineral rights status: N/A
L47/758
L47/759
L47/760
L47/761
L47/794
L47/795
L47/796
L47/797
L47/798
L47/799
L47/800
L47/801
L47/803
L47/804
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Ore reserves and mineral resources tenements
Third Party Tenure
Holder: Ammon, Derek
Status: Granted
FMG mineral rights status: 40% all mineral rights (Note 6)
E47/1140
Holder: Ammon, Derek
Status: Application
FMG mineral rights status: 40% all mineral rights (Note 6)
M47/583
Holder: Archipelago Nominees Pty Ltd
Status: Granted
FMG mineral rights status: 100% all mineral rights except
rock products
M 45/1229
Holder: Cullen Exploration Pty Ltd
Status: Granted
FMG mineral rights status: Beneficial right to earn 51%
iron ore rights
E52/1667
Holder: Ryan, David
Status: Granted
FMG mineral rights status: 100% all mineral rights
except tiger eye
P 47/1275
Holder: Ryan, David
Status: Application
FMG mineral rights status: 100% all mineral rights
except tiger eye
M47/1502
Holder: Williamson, Richard
Status: Granted
FMG mineral rights status: 100% all mineral rights
except tiger eye
P 47/1695
Holder: Wodgina Lithium Pty Ltd
Status: Granted
FMG mineral rights status: 100% iron ore rights
E 45/4024
E 45/4025
South Australian Tenure
Holder: FMG Resources Pty Ltd
Status: Granted
Holder: FMG Resources Pty Ltd Status: Application
FMG mineral rights status: 100% all mineral rights
FMG mineral rights status: 100% all mineral rights
EL5023
EL5024
EL5025
EL5026
EL5028
ELA 2017/00089
ELA 2017/00120
ELA 2017/00132
EL5030
EL5031
EL5237
EL5338
EL5451
ELA 2017/00134
ELA 2017/00137
ELA 2017/00140
EL5467
EL5748
EL5750
EL5782
EL5825
ELA 2017/00141
ELA 2017/00142
ELA 2017/00143
EL5854
EL5884
EL5912
EL5967
EL5968
20
GRANTED
TENEMENTS
Total area
6,177km2
40
FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES
Ore reserves and mineral resources tenements
New South Wales Tenure
Holder: Blue Jacket Mining Pty Ltd
Holder: Gum Ridge Mining Pty Ltd
Status: Granted
Status: Granted
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 8)
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 7)
EL6315
EL6249
EL6562
Holder: Columbine Resources Pty Ltd
Status: Granted
Holder: Imperial Gold 2 Pty Ltd
Status: Granted
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 8)
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 8)
EL6378
EL7207
Holder: Gold and Copper Resources Pty Ltd
Status: Granted
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 7)
Holder: Lucknow Gold Limited
Status: Granted
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 7)
EL6040
EL6588
EL7194
EL7599
EL8330
EL6455 (partial)
EL8331
EL8332
Holder: Gold and Copper Resources Pty Ltd
Status: Granted
Holder: Sams Reef Mining Pty Ltd
Status: Granted
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 8)
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 7)
EL6268
EL6377
EL6466
EL7130
EL8265
EL8408
EL8409
EL8410
EL8411
EL8412
EL8413
Holder: Tom’s Waterhole Pty Ltd
EL8423
EL8425
EL8488
EL8445
Status: Granted
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 7)
EL6456
Holder: Gosling Creek Pty Ltd
Status: Granted
FMG mineral rights status: Earning 51% metallic
mineral rights (Note 7)
EL6481
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, a subsidiary of China’s Baowu Group.
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 hold 63.24 per cent beneficial interest in non-iron mineral rights.
4. Subject to Sale Agreement.
5. Unincorporated Joint Venture between Fortescue Metals Limited and Consolidated Minerals Limited.
6. Title has been contested and is currently being litigated.
7. Joint Venture with FMG Resources Pty Ltd and Gold and Copper Resources Pty Ltd, Gosling Creek Pty Ld, Gum Ridge Mining Pty Ltd, Lucknow
Gold Limited, Tom’s Waterhole Pty Ltd. FMG are farming in to earn up to an 51per cent interest in the metallic mineral rights.
8. Joint Venture with FMG Resources Pty Ltd and Gold and Copper Resources Pty Ltd, Blue Jacket Mining Pty Ltd, Columbine Resources Pty Ltd,
Sams Reef Mining Pty Ltd, Imperial Gold 2 Pty Ltd. FMG Resources Pty Ltd are farming in to earn up to an 51 per cent interest in the metallic
mineral rights.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Ore reserves and mineral resources tenements
Ecuador
Santa Ana
100000149
10a
2a
7a
7b
7c
7d
7e
7f
7g
7h
7i
7j
7k
7l
7m
50000640
100000211
70000247
70000240
70000241
70000248
70000243
70000245
70000242
70000244
70000246
10000324
20000218
10000325
10000326
8a
8b
8c
8d
8e
8f
8g
8h
8i
8j2
8k
8l
8m
8n
8o
8p
50000628
90000344
90000345
90000346
50000629
50000630
50000631
50000632
50000633
50000636
50000634
50000635
50000639
50000637
50000638
50000641
32 concessions covering over 1,300km2
42
FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES
CORPORATE SOCIAL
RESPONSIBILITY
FY17 Strategy
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 43
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 43
Corporate social responsibilty highlights
TOTAL RECORDABLE INJURY
FREQUENCY RATE FOR FY17
2.9
FY16 - 4.3
FEMALE EMPLOYMENT
17.3%
FY16 - 15%
ABORIGINAL WORKFORCE
15.8%
FY16 - 14%
FIRST ALL-FEMALE CLASS
OF FORTESCUE
VTEC
GRADUATES
CONTRACTS AWARDED TO ABORIGINAL
COMPANIES AND JVs
GREENHOUSE GAS EMISSIONS
INTESITY REDUCED BY
BILLION
A$1.95
FY16 - A$1.8 BILLION
%
8
FROM FY15
EMPLOYEES RETURNED FROM
PARENTAL LEAVE
96
%
PREVIOUS 12 MONTHS: 85%
TOTAL PROCUREMENT SPEND
IN AUSTRALIA
98.5
%
FY16 - 98.49%
44
FORTESCUE METALS GROUP LIMITED I CORPORATE SOCIAL RESPONSIBILITY
Fortescue’s approach
Creating shared value
Since its formation in 2003, Fortescue has demonstrated a
strong commitment to ensuring communities benefit from its
growth and development. It 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
embedded within all aspects of its business.
Empowerment is at the heart of Fortescue’s approach to
CSR – as is an absolute determination to practical outcomes.
It is about Fortescue’s ability to empower individuals within
its Company and communities to be their best; to find
innovative solutions to the most complex business and societal
challenges and to find ways to improve the business bottom
line while delivering positive change.
CSR is Fortescue’s commitment to behave ethically, to
create value for the Company’s stakeholders, to protect the
environment and to empower and partner with communities
to build capability and capacity.
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.
Compliance with all relevant legalisation and obligations
including those that govern health, safety and environmental
obligations is the absolute minimum standard to which the
Company adheres.
Fortescue’s values form the foundation of the Company’s
approach to CSR. These values set the ethical and moral
compass by which business is undertaken. Fortescue’s Code of
Conduct establishes the essential standards of personal and
corporate conduct and behaviour. This strong base supports
the Company’s Commitments and Principles and leads into the
development and implementation of policies, opportunities
and objectives, ultimately informing the application of specific
business unit targets, processes and plans.
Fortescue’s commitment to delivering positive social change
by contributing to ending disadvantage amongst Aboriginal
Fortescue’s commitment to CSR starts with the CEO and is
supported by the Board and executive team.
Targets
Opportunities
and Objectives
Fortescue’s Policies
Voluntary Commitments
and Principles
Code of Conduct
Vision and Values
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Corporate social responsibility
CORPORATE SOCIAL RESPONSIBILITY
Setting
high standards
By championing
safety, preserving Aboriginal
heritage, embracing diversity
and demonstrating integrity
Creating positive
social change
By building local communities,
empowering Aboriginal people
and eradicating modern slavery
in Fortescue’s supply chain
Safeguarding
the environment
By protecting biodiversity,
managing water resources,
reducing Greenhouse Gas
emissions and waste
CSR strategy
Through its updated CSR Strategy, Fortescue aims to
further enhance the highly developed sustainability and
community initiatives already in place. The document also
outlines its commitments, objectives and targets in a central
location. The strategy continues Fortescue’s approach of
setting stretch targets and holding itself and others to
account to deliver tangible, durable results.
The process included a review of existing CSR activities
against international reporting standards, peer review
and consideration of known internal and external
stakeholder interests and materiality. The strategy
was also informed by the United Nations Global Impact
and the International Council of Mining and Metals
Principles.
Updating the CSR strategy brought together expertise and
experience from across the business. Following a thorough
consultation and review process, the views of stakeholders
have been used to form the basis of Company-wide
objectives and relevant indicators.
Fortescue will maximise the resources and energy
of its business to deliver positive outcomes in the three
core areas highlighted above. The full Corporate Social
Responsibility Report is available at www.fmgl.com.au.
46
FORTESCUE METALS GROUP LIMITED I CORPORATE SOCIAL RESPONSIBILITY
GOVERNANCE
FY17 Review
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 47
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 47
Governance
Overview
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 supports the intent of the ASX Corporate
Governance Council Principles and Recommendations
3rd Edition (Principles and Recommendations) and meets
the specific requirements of the Principles and Recommendations,
unless disclosed otherwise. 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 authorised approval 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.
Stewardship: Developing and maintaining
a Company-wide recognition that Fortescue is
managed for the benefit of its shareholders, taking
account of the interests of other stakeholders.
Integrity: Developing and maintaining a corporate culture
committed to ethical behaviour and compliance with the law.
The full Corporate Governance Statement is available
at www.fmgl.com.au.
Fortescue’s governance framework
Corporate culture and values
Board of Directors
Board sub-committees
Audit and Risk
Management
Committee
Remuneration
and Nomination
Committee
Finance
Committee
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Chief Executive Officer
Executive and
Line management
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FORTESCUE METALS GROUP LIMITED I GOVERNANCE
FINANCIAL REPORT
FY17 Performance
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 49
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 49
Directors’ report
At 30 June 2017
Your Directors present their report on the Fortescue consolidated group, comprising
the Company and its controlled entities, for the year ended 30 June 2017.
Directors
The Directors of the Company in office during the 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 12.
The Directors’ meetings, including meetings of the Company’s
Board of Directors and of each Board committee held during
the year ended 30 June 2017 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 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
M Barnaba
N Power
E Gaines
J Baderschneider
C Huiquan
S Warburton
P Bingham-Hall
J Morris
Ordinary
shares
Performance
rights
1,038,800,000
20,000
2,951,238
50,000
138,000
-
50,750
35,000
-
-
-
3,424,686
-
-
-
-
-
-
The remuneration of Directors and Key Management
Personnel are detailed in the Remuneration Report on
pages 101 to 132.
1 Corporate Governance Statement is available on Fortescue’s
website at www.fmgl.com.au
50
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Directors’ report
At 30 June 2017
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 FY17.
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 14, Operating and Financial Review on pages 15 to 28 and Corporate Governance Statement1 section 5 Risk Management.
Dividends
Net profit after tax
Interim dividend
Final dividend
Total dividend
US$m
A$ cents per share
A$ cents per share
A$ cents per share
2017
2,093
20
25
45
2016
985
3
12
15
The following dividend payments were made during the year:
• Final fully franked dividend for the year ended 30 June 2016 of A$0.12 per share, paid in October 2016
• Interim fully franked dividend for the year ended 30 June 2017 of A$0.20 per share, paid in April 2017.
Environmental regulation and compliance
Fortescue is committed to minimising the environmental impacts of its operations, with an appropriate focus placed on
continuous monitoring of environmental matters and compliance with environmental regulations.
The details of Fortescue’s environmental performance including compliance with the relevant environmental legislation are
presented in Fortescue’s Corporate Social Responsibility Report2 .
Greenhouse Gas Emissions and energy
Fortescue complies with the Australian Government’s National Greenhouse and Energy Reporting Act 2007 (Cth) and recognises
its responsibility to actively improve energy use and minimise greenhouse gas emissions to reduce its contribution to climate
change and impact on the environment.
The details of Greenhouse Gas Emissions and energy strategy, compliance and reporting are presented in Fortescue’s Corporate
Social Responsibility Report2.
Unissued shares under performance rights
Details of the performance rights outstanding at 30 June 2017 are as follows:
Exercise price
A$
Balance at the end
of the year
Number
Short term performance rights 2016
Short term performance rights 2017
Long term performance rights 2015
Long term performance rights 2016
Long term performance rights 2017
-
-
-
-
-
1,376,649
1,719,915
2,643,422
6,800,593
3,254,445
Vested and
exercisable at the
end of the year
Number
1,376,649
-
-
-
-
Remaining
contractual life
Years
13.5
14.3
0.3
13.5
14.3
In FY17, 2,084,214 of the 2016 short term performance rights were exercised and 895,536 long term performance rights were
converted to shares.
1 Corporate Governance Statement is available on Fortescue’s website at www.fmgl.com.au
2 Corporate Social Responsibility Report is available on Fortescue’s website at www.fmgl.com.au
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Directors’ report
At 30 June 2017
Company Secretary
Future developments
Alison Terry and Ian Wells are Company Secretaries
of Fortescue. Details of their qualifications and experience
are set out on page 12.
Directors and Officers indemnities and insurance
Since the end of the previous financial year, the Company
has paid premiums to insure the Directors and Officers of
Fortescue.
The liabilities insured are legal costs that may be incurred
in defending civil proceedings that may be brought against
the Officers in their capacity as Officers of Fortescue, and any
other payments arising from liabilities incurred by the Officers
in connection with such proceedings, other than where such
liabilities arise out of conduct involving a wilful breach of duty
by the Officers or the improper use by the Officers of their
position or of information to gain advantage for themselves or
someone else or to cause detriment to Fortescue.
It is not possible to apportion the premium between amounts
relating to the insurance against legal costs and those relating
to other liabilities. Conditions of the policy also preclude
disclosure to third parties of the amount paid for the policy.
The Overview section set out on pages 3 to 14 and the
Operating and Financial Review section set out on pages 15 to
28 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.
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.
Non-audit services
Rounding of amounts
The Company may decide to employ the auditor on
assignments additional to their statutory audit duties where
the auditor has relevant expertise and experience and where
the auditor’s independence is not compromised.
Details of the amounts paid or payable to the auditor
PricewaterhouseCoopers Australia and related entities
for audit and non-audit services provided during the year
are set out in note 19 to the financial statements.
The Board of Directors has considered the position and,
in accordance with advice received from the Audit and Risk
Management Committee, is satisfied that the provision of
the non-audit services is compatible with the general
standard of independence for auditors imposed by the
Corporations Act 2001 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
53 and forms part of this report.
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.
Events occurring after the reporting period
On 20 July 2017, the Federal Court of Australia handed down
its reasons for judgment in the matter of Warrie (formerly TJ) (on
behalf of the Yindjibarndi People) v State of Western Australia, in
which Fortescue is the second respondent. In the Company’s
view, the Court’s decision has no impact on the current and future
operations or mining tenure at the Solomon Hub. Fortescue has
no commercial concerns and does not anticipate any material
impact following the decision.
On 28 July 2017, the Company executed a US$525 million
revolving credit facility.
On 1 August 2017, the Company announced the repurchase of
the Solomon Power Station for a total of US$348 million.
On 21 August 2017, the Directors declared a final dividend of
25 Australian cents per ordinary share payable in October 2017.
Signed in accordance with a resolution of the Directors.
Andrew Forrest AO
Chairman
Dated in Perth this 21st day of August 2017.
52
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Auditor’s independence declaration
As lead auditor for the audit of Fortescue Metals Group Limited for the year ended 30 June 2017, I declare that to the best of my
knowledge and belief, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Fortescue Metals Group Limited and the entities it controlled during the period.
Nick Henry
Partner
PricewaterhouseCoopers
Perth
21 August 2017
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Independent auditor’s report
To the shareholders of Fortescue Metals Group Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Fortescue Metals Group Limited (the Company) and its controlled entities (together,
the Group) is in accordance with the Corporations Act 2001, including:
1.
giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year
then ended
2.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
• the consolidated statement of financial position as at 30 June 2017
• the consolidated income statement for the year then ended
• the consolidated statement of comprehensive income for the year then ended
• the consolidated statement of changes in equity for the year then ended
• the consolidated statement of cash flows for the year then ended
• the notes to the consolidated financial statements, which include a summary of significant accounting policies
• the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of the financial report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and
the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical
responsibilities in accordance with the Code.
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.
54
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Independent auditor’s report
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report
as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls
and the industry in which it operates.
Materiality
Key audit
matters
Audit scope
Materiality
For the purpose of our audit we used overall Group materiality of US$79 million, which represents approximately 5% of the three
year average profit before tax of the Group for the current and two previous years.
We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing
and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.
We chose Group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most
commonly measured. We applied a three year average to address potential volatility in the calculation of materiality that arises
from iron ore price fluctuations between years.
We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable
thresholds.
Audit scope
Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving
assumptions and inherently uncertain future events.
The primary activity of the Group is the operation of integrated iron ore mining operations and infrastructure comprising various
iron ore mines in the Chichester and Hamersley ranges, a rail network and port facilities in Port Hedland. Our audit procedures
were predominately performed in Perth where many of the Corporate and Group Operations functions are centralised and this
was supported by visits to the mining operations at Solomon, Cloudbreak and Christmas Creek, the port and rail facilities at Port
Hedland and the Iron Bridge magnetite project.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the
outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Audit and Risk
Management Committee.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Independent auditor’s report
Key audit matter
Revenue from iron ore sales
(Refer to note 3 and 11(a)(i))
For the year ended 30 June 2017 the Group recognised
revenue of US$8,335 million from the sale of iron ore.
We focussed on this area as revenue from iron ore sales
was the most significant balance in the consolidated income
statement. Our audit approach included additional focus
on two specific non-cash period end adjustments to revenue
as follows:
(i) Re-measurement of provisional sales
How our audit addressed the key audit matter
In addition to the audit procedures we performed over
revenue, we addressed the two specific non-cash period
end adjustments to revenue as follows:
The value of revenue recognised each period is impacted
by the Group’s provisional pricing arrangements where
the final sales price is determined based on iron ore prices
subsequent to the vessel’s arrival at the port of discharge.
For a sample of sales contracts open at balance date, we
inspected the sales contracts and assessed key terms of
the sale including the volume of sales and duration of the
provisional sales period.
The Group initially recognises sales at the shipment date
price and re-estimates the consideration to be received
using the spot iron ore price at the end of each reporting
period, with the impact of the iron ore price movements
until final settlement recorded as an adjustment to
operating sales revenue.
ii) Deferred income
For the sample of sales contracts tested, we recalculated
the recorded provisional pricing adjustments to sales revenue
and found them to be consistent with external commodity
price data.
The Group has some customers who pay in advance for
the future supply of iron ore. These advance prepayments
are treated as deferred income and recognised as revenue
in the income statement when the associated iron ore is
delivered to the customer.
We checked that the sale contracts underlying the payments
from customers received in advance included terms that the
obligation will be settled by the future physical delivery of
iron ore to determine if classification as deferred income was
appropriate.
Financing of ore carriers
(Refer to note 9(a) and 12)
During the year ended 30 June 2017, the Group entered into
a new financing arrangement for the purchase cost
of eight Fortescue ore carriers (ore carriers) that the Group
has committed to procure to provide shipping services to its
customers.
The ore carriers financing arrangements attach to individual
vessels and are drawn down upon delivery of each vessel.
At 30 June 2017, the Group had accepted delivery of four ore
carriers and had received US$234 million of finance funding.
This financing transaction was a key audit matter as it was a
non-routine arrangement and due to its impact on the Group’s
financial position at 30 June 2017.
For prepayments treated as deferred income at balance date,
we obtained confirmation from the Group’s customers of the
arrangement and remaining value outstanding to be settled
in the future delivery of iron ore.
To assess the financial transaction, we performed the
following audit procedures, amongst others:
• We inspected the financing agreements between the
Group and the financier and assessed whether the Group’s
conclusion to treat the arrangement as a finance lease was
consistent with its accounting policies
• We checked that the transaction costs associated with this
new finance arrangement were capitalised and included
within the effective interest rate applied to the finance
arrangement.
56
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Independent auditor’s report
Key audit matter How our audit addressed the key audit matter
Carrying value of exploration and evaluation assets
(Refer to note 12 and 24(b))
At 30 June 2017 the Group recognised an asset of
US$813 million of exploration and evaluation expenditure.
This was a key audit matter as the continued recognition
as an asset requires judgement by the Group around the
likelihood of recovery through future exploitation or sale of
the asset. If a judgement is made by the Group that recovery
of the expenditure is unlikely, the relevant capitalised amount
will be written off as an impairment expense to the income
statement.
The majority of the Group’s capitalised exploration and
evaluation assets relate to its wholly owned Pilbara regional
exploration tenements and its 69% interest in the Iron Bridge
Joint Venture (IBJV) which is evaluating the Iron Bridge
magnetite project (the IBJV Project).
We particularly focussed on the Group’s judgement that
the IBJV remains an exploration and evaluation asset which
has not progressed sufficiently to be categorised as a
development asset.
To assess the carrying value of the Group’s exploration
and evaluation assets, we performed the following audit
procedures, amongst others:
• We assessed whether the Group had right of tenure to its
exploration and evaluation assets on a sample basis and
whether ongoing exploration and/or evaluation activities
exist to support the continued capitalisation of these assets
under the Group’s accounting policies
• We held discussions with Group management on the status
of the IBJV Project, which indicated that further evaluation
and optimisation work was required in advance of a
development decision and such work is continuing
• We visited the IBJV Project mine and Stage 1 pilot
processing plant in June 2017 to observe the current state
of this project. We also inspected minutes of the IBJV
Committee meetings throughout the year and noted an
FY18 budgeted work program was approved for further
evaluation testing of the pilot plant
• We found that the Group’s continued treatment of the
IBJV Project as an exploration and evaluation asset was
consistent with the current status of the IBJV Project and the
approvals granted by the IBJV Committee.
Restoration and rehabilitation obligations
Refer to note 13 and 24(e))
The Group recognised provisions for restoration and
rehabilitation obligations of US$559 million as at
30 June 2017.
To assess the Group’s restoration and rehabilitation
obligations, we performed the following audit procedures,
amongst others:
This was a key audit matter as the calculation of these
provisions requires judgement by the Group in estimating
the magnitude of possible works required for the removal
of infrastructure and rehabilitation works, the future cost of
performing the work, when rehabilitation activities will take
place and the economic assumptions such as inflation and
discount rate relevant to such liabilities.
The judgement required by the Group to estimate such
costs is further compounded by the fact that there has been
limited restoration and rehabilitation activity by the Group or
historical precedent against which to benchmark estimates
of future costs.
The Group reviews the restoration and rehabilitation
obligations on an annual basis, using experts to provide
support in its assessment where appropriate. This review
incorporates consideration of the effects of any changes
in regulations and the Group’s anticipated approach to
restoration and rehabilitation.
• We evaluated the Group’s rehabilitation and restoration
cost forecasts including the process by which they were
developed. We also checked the mathematical accuracy of
the underlying calculations
• We considered the competence and objectivity of the
Group’s experts who reviewed the closure plan and
associated cost estimates
• We evaluated the expected timing of restoration and
rehabilitation activities and found them to be consistent
with the life of mine plan for each mining operation
• We benchmarked key market related assumptions including
inflation rates and discount rates against external market
data and found them to be consistent
• We assessed provision movements in the year relating to
restoration and rehabilitation obligations and found them
to be consistent with our understanding of the Group’s
operations and associated rehabilitation plans.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Independent auditor’s report
Other information
The directors are responsible for the other information. The other information comprises the Overview, Operating and Financial
Review, Ore Reserves and Mineral Resources, Corporate Social Responsibility, Governance, Directors’ Report and Corporate
Directory included in the Group’s Annual Report for the year ended 30 June 2017 but does not include the financial report and
our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained
in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors 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 gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards
Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report.
58
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Independent auditor’s report
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 105 to 132 of the directors’ report for the year ended 30 June 2017.
In our opinion, the remuneration report of Fortescue Metals Group Limited for the year ended 30 June 2017 complies with
section 300A of the Corporations Act 2001.
Responsibilities
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.
PricewaterhouseCoopers
Nick Henry
Partner
Perth
21 August 2017
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Directors’ declaration
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 61 to 99 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 2017 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 20 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 20.
Note 1(a) confirms that the financial statements 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 AO
Chairman
Dated in Perth this 21st day of August 2017.
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FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Consolidated income statement
For the year ended 30 June 2017
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 after income tax 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
14(a)
2017
US$m
8,447
(4,888)
3,559
14
(123)
3,450
19
(502)
2016
US$m
7,083
(5,064)
2,019
7
(211)
1,815
214
(675)
2,967
1,354
(874)
2,093
2,093
-
2,093
(369)
985
984
1
985
Consolidated statement of comprehensive income
For the year ended 30 June 2017
Profit for the year after income tax
Other comprehensive income:
Other comprehensive income items
Total comprehensive income for the year, net of tax
Total comprehensive income for the year, net of tax is attributable to:
Equity holders of the Company
Non-controlling interest
Total comprehensive income for the year, net of tax
2017
US$m
2,093
-
2,093
2,093
-
2,093
2016
US$m
985
-
985
984
1
985
Earnings per share for profit attributable to the ordinary equity holders of the Company:
Basic earnings per share
Diluted earnings per share
8
8
67.3
67.0
31.6
31.6
Note
Cents
Cents
The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Consolidated statement of financial position
At 30 June 2017
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Deferred income
Borrowings and finance lease liabilities
Provisions
Current tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred income
Borrowings and finance lease liabilities
Provisions
Deferred joint venture contributions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Note
9(b)
10(a)
10(c)
2017
US$m
2016
US$m
1,838
1,583
141
588
38
241
554
45
2,605
2,423
10(a)
12
3
4
16,493
16,867
7
7
16,510
19,115
15
28
16,914
19,337
10(b)
10(d)
9(a)
13
14(a)
10(b)
10(d)
9(a)
13
17(c)
14(b)
9(d)
708
461
121
227
685
622
485
93
167
267
2,202
1,634
50
447
4,350
509
266
1,557
7,179
9,381
9,734
1,289
39
8,392
9,720
14
9,734
69
308
6,678
489
253
1,500
9,297
10,931
8,406
1,301
33
7,058
8,392
14
8,406
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
62
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Consolidated statement of cash flows
For the year ended 30 June 2017
Cash flows from operating activities
Cash receipts from customers
Payments to suppliers and employees
Cash generated from operations
Interest received
Interest paid
Income tax (paid) received
Note
2017
US$m
2016
US$m
8,768
(3,744)
5,024
19
(412)
(375)
6,693
(3,736)
2,957
22
(599)
66
Net cash inflow from operating activities
9(c)(i)
4,256
2,446
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
Proceeds from disposal of plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings and finance leases
Repayment of borrowings and finance leases
Finance costs paid
Dividends paid
Repayment of customer deposits
Purchase of shares by employee share trust
Net cash outflow from financing activities
Net increase (decrease) 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
9(b)
Non-cash investing and financing activities are disclosed in note 9(c)(ii).
(716)
(13)
12
2
(304)
(56)
-
2
(715)
(358)
1,734
(4,187)
(47)
(755)
-
(27)
-
(2,695)
(28)
(114)
(5)
(21)
(3,282)
(2,863)
259
1,583
(4)
1,838
(775)
2,381
(23)
1,583
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Consolidated statement of changes in equity
For the year ended 30 June 2017
Balance at 1 July 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
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
Equity settled share-based payment transactions
Dividends paid
Other
Balance at 30 June 2017
Attributable to equity holders of the Company
Contributed
equity
Reserves
Retained
earnings
Total
Non-
controlling
interest
US$m
US$m
US$m
US$m
US$m
Total
equity
US$m
1,294
46
6,184
7,524
13
7,537
-
-
(21)
28
-
-
-
-
-
-
-
(12)
(3)
(3)
-
5
984
984
984
984
-
-
3
-
(21)
16
-
(3)
(113)
(113)
-
5
1
1
-
-
-
-
-
-
985
985
(21)
16
-
(3)
(113)
5
1,301
33
7,058
8,392
14
8,406
-
-
(27)
15
-
-
-
1,289
-
-
-
(7)
16
-
(3)
39
2,093
2,093
2,093
2,093
-
-
-
(27)
8
16
(762)
(762)
3
-
-
-
-
-
-
-
-
2,093
2,093
(27)
8
16
(762)
-
8,392
9,720
14
9,734
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
64
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements
For the year ended 30 June 2017
Basis of preparation
Basis of preparation
1
Financial performance
Segment information
2
3 Operating sales revenue
4 Other income
5
Cost of sales
6 Other expenses
7
8
Finance income and finance expenses
Earnings per share
Capital management
Capital management
9
9(a)
Borrowings and finance lease liabilities
9(b) Cash and cash equivalents
9(c)
Cash flow information
9(d) Contributed equity
9(e) Dividends
10 Working capital
10(a) Trade and other receivables
10(b) Trade and other payables
10(c)
Inventories
10(d) Deferred income
11 Financial risk management
Key balance sheet items
12 Property, plant and equipment
13 Provisions
66
67
67
68
68
68
69
69
70
70
72
73
73
74
74
74
75
75
75
76
79
80
Taxation
14 Taxation
14(a)
Income tax expense
14(b) Deferred tax assets and liabilities
14(c) Unrecognised tax losses
Unrecognised items
15 Commitments and contingencies
16
Events occurring after the reporting period
Other information
17 Related party transactions
18 Share-based payments
19 Remuneration of auditors
20 Deed of cross guarantee
21 Parent entity financial information
22
Interests in other entities
23 Summary of significant accounting policies
24 Critical accounting estimates and judgements
81
81
82
83
84
84
85
86
87
87
88
89
90
99
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Basis of preparation
For the year ended 30 June 2017
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 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 Company 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 24.
(e) Changes in accounting policy - consolidated statement of cash flows
Under AASB 107 Statement of Cash Flows, interest can be classified as an operating, investing or financing activity
and the Group had previously disclosed interest paid as a financing activity and interest received as an investing
activity. In the current period, Fortescue changed its accounting policy to disclose interest as an operating activity
in the consolidated statement of cash flows to better align with the policy adopted by its industry peers.
The impact of this change in policy is to reclassify US$412 million (FY16: US$599 million) of interest paid out of
financing activities and US$19 million (FY16: US$22 million) of interest received out of investing activities into
operating activities.
(f) Rounding of amounts
All amounts in the financial statements have been rounded to the nearest million dollars, except as indicated,
in accordance with the ASIC Corporations Instrument 2016/191.
66
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Financial performance
For the year ended 30 June 2017
2
Segment information
Fortescue’s chief operating decision maker, identified as the Chief Executive Officer, reviews the Group’s financial
performance and makes significant operating decisions having regard to all aspects of the integrated operation, with
the key financial information presented internally for management purposes on a consolidated basis. Accordingly, no
reportable operating segments have been identified in presenting the Group’s consolidated financial performance.
Fortescue uses Underlying EBITDA defined as earnings before interest, tax, depreciation and amortisation, exploration,
development and other expenses, as a key measure of its financial performance. The reconciliation of Underlying EBITDA
to the net profit after tax is presented below.
Underlying EBITDA
Finance income
Finance expenses
Depreciation and amortisation
Exploration, development and other
Profit before income tax
Income tax expense
Profit for the year after income tax
(a) Geographical information
Note
2017
US$m
2016
US$m
4,744
3,195
7
7
5, 6
6
14
19
(502)
(1,243)
(51)
2,967
(874)
2,093
214
(675)
(1,244)
(136)
1,354
(369)
985
Fortescue operates predominantly in the geographical location of Australia, and this is the location of the vast
majority of the Group’s assets. In presenting information on the basis of geographical segments, segment revenue
is based on the geographical location of customers.
Revenue from external customers
China
Other
(b) Major customer information
2017
US$m
2016
US$m
7,995
452
8,447
6,787
296
7,083
Revenue from one customer amounted to US$3,702 million (2016: US$1,577 million), arising from the sale of iron ore
and the related shipment of product.
3
Operating sales revenue
Sale of iron ore
Other revenue
Sale of joint venture iron ore
2017
US$m
8,335
112
-
2016
US$m
6,923
136
24
8,447
7,083
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Notes to the consolidated financial statements I Financial performance
For the year ended 30 June 2017
4
Other income
Net foreign exchange gain
Other
5
Cost of sales
Mining and processing costs
Rail costs
Port costs
Operating leases
Shipping costs
Government royalty
Depreciation and amortisation
Other operating expenses
2017
US$m
2016
US$m
13
1
14
-
7
7
2017
US$m
2016
US$m
1,780
2,092
192
183
29
929
545
1,227
3
4,888
201
204
76
781
446
1,223
41
5,064
Total employee benefits expense included in cost of sales and administration expenses is US$579 million (2016: US$538 million).
6
Other expenses
Administration expenses
Exploration, development and other1
Depreciation and amortisation
Net foreign exchange loss
2017
US$m
2016
US$m
56
51
16
-
123
52
136
21
2
211
1 During the year ended 30 June 2016, exploration, development and other expenses included 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$59 million.
68
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Financial performance
For the year ended 30 June 2017
7
Finance income and finance expenses
Finance income
Interest income
Gain on early debt redemption
Finance expenses
Interest expense on borrowings and finance lease liabilities
Loss on early debt redemption
Other
8
Earnings per share
(a) Earnings per share
Basic
Diluted
2017
US$m
2016
US$m
19
-
19
430
59
13
502
22
192
214
621
42
12
675
2017
Cents
67.3
67.0
2016
Cents
31.6
31.6
(b) Reconciliation of earnings used in calculating earnings per share
US$m
US$m
Profit attributable to the ordinary equity holders of the Company used
in calculating basic and diluted earnings per share
2,093
984
(c) Weighted average number of shares used as the denominator
Number
Number
Weighted average number of ordinary shares used as the denominator
in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Potential ordinary shares
Weighted average number of ordinary and potential ordinary shares
used as the denominator in calculating diluted earnings per share
(d) Information on the classification of securities
3,111,190,703
3,111,801,515
11,112,712
5,569,334
3,122,303,415
3,117,370,849
Performance rights granted to employees under the Fortescue incentive plan are considered to be potential ordinary
shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive.
Details relating to the performance rights are set out in note 18.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
9
Capital management
Fortescue’s capital management policy supports its strategic objectives and provides a framework to maintain a strong capital
structure to deliver consistent returns to its shareholders and sustain future developments and expansion of the business.
Fortescue’s capital includes shareholders’ equity, reserves and net debt. Net debt is defined as a combination of cash and
cash equivalents, borrowings and finance lease liabilities.
Borrowings
Finance lease liabilities
Cash and cash equivalents
Net debt
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Capital management involves a continuous process of:
Note
9(a)
9(a)
9(b)
2017
US$m
3,653
818
(1,838)
2,633
9,720
14
9,734
2016
US$m
6,266
505
(1,583)
5,188
8,392
14
8,406
• Evaluating capital requirements against the risks arising from Fortescue’s activities and its operating environment
• 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 a targeted longer term level. Interim levels acknowledge and consider the requirements,
in certain circumstances, for remedial actions to be taken.
During the financial year ended 30 June 2017, Fortescue repaid US$2.7 billion of debt lowering gearing levels and
improving credit metrics, together with a US$1.5 billion refinancing to extend the debt maturity profile and earliest
maturity to 2022. The terms and conditions of Fortescue’s debt facilitates its strategy of refinancing and debt repayment
prior to maturity, with the 2022 senior secured notes prepayable from March 2018, at the Company’s sole option.
No financial maintenance covenants apply to any of the Company’s debt.
(a) Borrowings and finance lease liabilities
Senior secured notes
Senior unsecured notes
Finance lease liabilities
Senior secured credit facility
Total current borrowings and finance lease liabilities
Senior secured notes
Senior unsecured notes
Finance lease liabilities
Senior secured credit facility
Total non-current borrowings and finance lease liabilities
Total borrowings and finance lease liabilities
70
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
2017
US$m
2016
US$m
70
9
42
-
121
2,093
1,481
776
-
4,350
4,471
70
8
11
4
93
2,082
475
494
3,627
6,678
6,771
Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
9
Capital management (continued)
(a) Borrowings and finance lease liabilities (continued)
(i) Refinancing
During the year ended 30 June 2017, Fortescue successfully completed a US$1,500 million senior unsecured notes
issue. The proceeds were utilised to repay the remaining US$976 million of the senior secured credit facility and
redeem the outstanding US$478 million of senior unsecured notes due to mature in April 2022.
(ii) Senior secured notes
The senior secured notes are due to mature in November 2022, have a face value of US$2,160 million (30 June 2016:
US$2,160 million), a coupon rate of 9.75 per cent and will become callable 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 all existing and future senior unsecured indebtedness.
(iii) Senior unsecured notes
At 30 June 2017 the Company had the following senior unsecured notes on issue:
• Senior unsecured notes due to mature in May 2022, have a face value of US$750 million,
a coupon rate of 4.75 per cent and have a non-call life of 5 years
• Senior unsecured notes due to mature in May 2024, have a face value of US$750 million,
a coupon rate of 5.125 per cent and have a non-call life of 7 years.
At 30 June 2016 the senior unsecured notes on issue were due to mature in April 2022, had a face value of
US$478 million and a coupon interest of 6.875 per cent. These notes were repaid in full during the year ended
30 June 2017.
(iv) Senior secured credit facility
During the year ended 30 June 2017, the senior secured credit facility was repaid in full through US$2.7 billion
of voluntary debt repayments and US$976 million paid through refinancing. The facility was due to mature in
June 2019 and as at 30 June 2016 had a face value of US$3,676 million and a coupon rate within a range of
LIBOR + 2.75 to LIBOR + 3.25 per cent.
(v) Finance lease liabilities
Finance lease liabilities largely relate to contractual commitments associated with ore carriers, the Solomon Power
Station, the Fortescue River Gas Pipeline and heavy mobile fleet. In the event of default, the assets revert to the lessor.
30 June 2016
Lease expenditure commitments
Effect of discounting
Finance lease liabilities
30 June 2017
Lease expenditure commitments
Effect of discounting
Finance lease liabilities
Within
one year
US$m
Between one
year and
five years
US$m
After five
years
US$m
73
(63)
10
120
(79)
41
295
(245)
50
468
(285)
183
954
(509)
445
1,093
(499)
594
Total
US$m
1,322
(817)
505
1,681
(863)
818
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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R
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Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
9
Capital management (continued)
(a) Borrowings and finance lease liabilities (continued)
(vi) Summary of movements in borrowings and finance lease liabilities
Senior
secured
notes
US$m
Senior
unsecured
notes
US$m
Finance
leases
US$m
Senior
secured
credit facility
US$m
Total
US$m
Balance at 1 July 2015
Initial recognition
Interest expense
Interest and finance lease repayments
Transaction costs
Foreign exchange gain
Repayments
Balance at 30 June 2016
Balance at 1 July 2016
Initial recognition
Interest expense
Interest and finance lease repayments
Transaction costs
Foreign exchange loss
Repayments
2,248
-
221
(183)
6
-
(140)
2,152
2,152
-
221
(210)
-
-
-
Balance at 30 June 2017
2,163
2,063
-
104
(126)
13
-
(1,571)1
483
483
1,500
41
(40)
(16)
-
(478)
1,490
461
51
61
(64)
-
(4)
-
505
505
323
70
(84)
-
4
-
818
4,797
-
235
(229)
15
-
(1,187)
3,631
3,631
-
98
(93)
40
-
(3,676)
-
9,569
51
621
(602)
34
(4)
(2,898)
6,771
6,771
1,823
430
(427)
24
4
(4,154)
4,471
1 The year ended 30 June 2016 includes repayment of US$1,049 million of the 2019 senior unsecured notes and US$522 million of the 2022
senior unsecured notes.
Information about Fortescue’s exposure to interest rate risk and foreign exchange rate risk disclosed in note 11.
(b) Cash and cash equivalents
Cash at bank
Short term deposits
2017
US$m
923
915
2016
US$m
769
814
1,838
1,583
Cash and cash equivalents do not have any restrictions by contractual or legal arrangements.
72
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
9
Capital management (continued)
(c) Cash flow information
(i) Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year after income tax
Depreciation and amortisation
Exploration, development and other
Share-based payment expense (benefit)
Net unrealised foreign exchange loss
Net loss (gain) on early debt redemption
Other non-cash items
Working capital adjustments:
Decrease in trade and other receivables
(Increase) decrease in inventories
Decrease in other assets
Increase (decrease) in trade and other payables
Increase (decrease) in deferred income
Increase (decrease) in employee benefit provisions
Increase in current tax payable
Increase in deferred tax liabilities
2017
US$m
2,093
1,243
51
16
2
59
32
101
(34)
28
67
115
8
418
57
2016
US$m
985
1,244
136
(3)
22
(150)
21
52
219
28
(117)
(418)
(3)
302
128
Net cash inflow from operating activities
4,256
2,446
(ii) Non-cash investing and financing activities
Acquisition of property, plant and equipment by means of finance leases
(d) Contributed equity
(i) Share capital
2017
US$m
(110)
2016
US$m
(51)
Issued
shares
Number
Treasury
shares
Number
Contributed
equity
Number
Issued
shares
US$m
Treasury
shares
US$m
Contributed
equity
US$m
At 1 July 2015
3,113,798,151
(114,590)
3,113,683,561
1,296
Purchase of shares under
employee share plans
Employee share awards exercised
net of employee contributions
-
-
(15,188,032)
(15,188,032)
14,939,948
14,939,948
-
-
At 30 June 2016
3,113,798,151
(362,674)
3,113,435,477
1,296
Purchase of shares under
employee share plans
Employee share awards exercised
net of employee contributions
-
-
(7,214,860)
(7,214,860)
5,118,613
5,118,613
-
-
At 30 June 2017
3,113,798,151
(2,458,921) 3,111,339,230
1,296
(2)
(21)
28
5
(27)
15
(7)
1,294
(21)
28
1,301
(27)
15
1,289
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
9
Capital management (continued)
(d) Contributed equity (continued)
(ii) Issued shares
Issued 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.
(iii) 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.
(e) Dividends
(i) Dividends paid during the year
Final fully franked dividend for the year ended 30 June 2016:
A$0.12 per share (30 June 2015: A$0.02 per share)
Interim fully franked dividend for the half-year ended 31 December 2016:
A$0.20 per share (31 December 2015: A$0.03 per share)
Total dividends paid
(ii) Dividends declared and not recognised as a liability
Final fully franked dividend: A$0.25per share (2016: A$0.12 per share)
(iii) Franking credits
2017
US$m
2016
US$m
285
477
762
46
67
113
2017
US$m
2016
US$m
614
285
At 30 June 2017, franking credits available were A$856 million (2016: A$791million). The payment of the final dividend for
the year ended 30 June 2017 will reduce the franking account balance by A$334 million.
10
Working capital
(a) Trade and other receivables
Trade debtors - iron ore
GST receivables
Other receivables
Total current receivables
Other receivables
Total non-current receivables
2017
US$m
2016
US$m
113
9
19
141
3
3
210
11
20
241
4
4
The carrying value of the receivables approximates their fair value. Information about Fortescue’s exposure to foreign
currency risk, interest rate risk and price risk pertaining to the trade and other receivables balances is disclosed in note 11.
Disclosures relating to receivables from related parties are set out in note 17.
74
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
10
Working capital (continued)
(b) Trade and other payables
Trade payables
Other payables and accruals
Total current payables
Customer deposits
Other payables and accruals
Total non-current payables
(c) Inventories
Iron ore stockpiles
Warehouse stores and materials
Total inventories
2017
US$m
2016
US$m
234
474
708
50
-
50
190
432
622
50
19
69
2017
US$m
2016
US$m
277
311
588
229
325
554
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 2017 amounted to US$3,411 million (2016: US$3,796 million).
During the year, inventory write-offs of US$31 million (2016: US$11 million) were recognised in relation to specific items
of warehouse stores and materials that were identified as obsolete.
(d) Deferred income
Iron ore prepayments
Port access prepayment
Total current deferred income
Iron ore prepayments
Port access prepayment
Total non-current deferred income
2017
US$m
2016
US$m
350
111
461
447
-
447
374
111
485
197
111
308
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
11
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 the 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 2017, Fortescue had 27 million tonnes of iron ore sales (2016: 14 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$161 million (2016: US$85 million), before the impact of taxation. This analysis assumes all other factors, including
the foreign currency exchange rates, held constant.
(ii) Interest rate risk
The Group’s interest rate risk arises from variable rates on the finance leases relating to ore carriers and, to a lesser
extent, changes in rates applicable to the short term deposits forming part of cash and cash equivalents.
Fortescue’s policy is to reduce interest rate risk over the cash flows on its long term debt funding through the use of
fixed rate instruments whenever appropriate.
Fortescue’s variable rate financial assets and liabilities at the end of the financial year are summarised below:
Cash and cash equivalents
Finance leases
Senior secured credit facility
Note
9(b)
9(a)
2017
US$m
1,838
(213)
-
1,625
2016
US$m
1,583
-
(3,631)
(2,048)
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 in variable instruments would have an impact on the Group’s profit
of US$1 million (2016: US$1 million), before the impact of taxation. This analysis assumes that all other factors remain
constant, including foreign currency rates.
76
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
11
Financial risk management (continued)
(a) Market risk (continued)
(iii) Foreign currency exchange risk
Fortescue operates in Australia, and is exposed to the movements in the Australian dollar exchange rate, with
a significant portion of its operating costs and capital expenditure incurred and paid in Australian dollars.
Fortescue’s risk management policy is to target specific levels at which to convert United States dollars to Australian
dollars by entering into either spot or short term forward exchange contracts. The Group has not entered into
transactions that qualify as hedging for hedge accounting purposes.
The carrying amounts of the financial assets and liabilities denominated in Australian dollars (expressed in US dollar),
are set out below:
Financial assets
Cash and cash equivalents
Trade and other receivables
Total financial assets
Financial liabilities
Borrowings and finance lease liabilities
Trade and other payables
Total financial liabilities
2017
US$m
2016
US$m
19
22
41
150
351
501
30
24
54
143
336
479
A change of five per cent in the Australian dollar exchange rate would have a net impact on the Group’s profit of
US$23 million (2016: US$21million), before the impact of taxation. This analysis assumes that all other variables,
including interest rates and iron ore price, remain constant.
(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 2017 and 30 June 2016.
The exposure to the credit risk from cash and short-term deposits held in banks is managed by the treasury department
and monitored by the CFO. Fortescue minimises the credit risks by holding funds with a range of financial institutions with
credit ratings approved by the Board.
At 30 June 2017, Fortescue had US$5 million (2016: US$6 million) of trade receivables which have not been settled within
the normal terms and conditions agreed with the customer. These past due receivables relate to a number of customers
for whom there is no recent history of default and are not considered impaired.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Capital management
For the year ended 30 June 2017
11
Financial risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. Fortescue
manages liquidity risk by maintaining adequate cash reserves and banking facilities, by continuously monitoring actual
and forecast cash flows and by matching the maturity profiles of its assets and liabilities.
The table below analyses Fortescue’s financial liabilities into relevant maturity groupings based on the period to the
contracted maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than
6 months
US$m
Between
6 and 12
months
US$m
Between
1 and 2
years
US$m
Between
2 and 5
years
US$m
Over 5
years
US$m
Total
contractual
cash flows
US$m
Carrying
amount
US$m
30 June 2016
Non-interest bearing
Fixed rate
Variable rate
30 June 2017
Non-interest bearing
Fixed rate
Variable rate
622
158
73
853
708
190
11
909
-
158
70
228
-
190
11
201
19
318
140
477
-
394
22
416
-
951
3,820
4,771
50
4,026
71
4,147
50
3,835
-
691
5,420
4,103
3,885
10,214
-
1,699
193
1,892
758
6,499
308
7,565
691
3,140
3,631
7,462
758
4,258
213
5,229
Management monitors rolling forecasts of the Group’s cash and overall liquidity position on the basis of expected cash flows.
(d) Fair values
All financial assets and financial liabilities, with the exception of derivatives, are initially recognised at the fair value of the
consideration paid or received, net of directly attributable transaction costs. Subsequently, the financial assets and financial
liabilities, other than derivatives, are measured at amortised cost.
Fortescue’s listed debt instruments, including 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.
Senior secured notes
Senior unsecured notes
Senior secured credit facility
2017
2016
Carrying
value
US$m
2,163
1,490
-
Fair
value
US$m
2,460
1,507
-
Carrying
value
US$m
2,152
483
3,631
Fair
value
US$m
2,386
455
3,499
The carrying values of other financial assets and financial liabilities approximate their fair values.
78
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Key balance sheet items
For the year ended 30 June 2017
12
Property, plant and equipment
Plant
and
equipment
US$m
Land
and
buildings
US$m
Exploration
and
evaluation
US$m
Assets
under
development
US$m
Note
Development
US$m
Total
US$m
Net carrying value
At 1 July 2015
Transfer of assets
Additions
Depreciation
Changes in restoration
and rehabilitation estimate
13(b)
Other
At 30 June 2016
Cost
Accumulated depreciation
Net carrying value
At 1 July 2016
Transfer of assets
Additions
Depreciation
Changes in restoration
and rehabilitation estimate
13(b)
Other
At 30 June 2017
Cost
Accumulated depreciation
12,107
207
52
(898)
-
(12)
872
38
-
(61)
-
-
11,456
849
14,993
(3,537)
1,044
(195)
11,456
573
111
(984)
-
-
11,156
15,677
(4,521)
849
10
-
(62)
-
(1)
796
1,053
(257)
768
(19)
70
-
(8)
(39)
772
772
-
772
(4)
57
-
1
(13)
813
813
-
245
(255)
284
-
-
(47)
227
227
-
227
(602)
670
-
-
(4)
291
291
-
3,737
17,729
31
-
2
406
(241)
(1,200)
61
(25)
53
(123)
3,563
16,867
4,397
(834)
21,433
(4,566)
3,563
16,867
19
-
(4)
838
(218)
(1,264)
68
5
69
(13)
3,437
16,493
4,489
(1,052)
22,323
(5,830)
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$505 million (2016: US$434 million).
The details of the finance leases under which these assets are held are disclosed in note 9(a).
During the year ended 30 June 2016 other movements included 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$34 million write-off of previously
capitalised exploration costs on relinquished tenements.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Key balance sheet items
For the year ended 30 June 2017
13
Provisions
Employee benefits
Restoration and rehabilitation
Total current provisions
Employee benefits
Restoration and rehabilitation
Total non-current provisions
(a) Provision for employee benefits
Movements in the provision for employee benefits during the financial year are set out below:
At 1 July
Changes in employee benefits provision
Amounts paid
At 30 June
2017
US$m
2016
US$m
174
53
227
3
506
509
2017
US$m
169
138
(130)
177
167
-
167
2
487
489
2016
US$m
172
134
(137)
169
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$38 million (2016: US$30 million).
(b) Provision for restoration and rehabilitation
Movements in the provision for restoration and rehabilitation during the year are set out below:
At 1 July
Changes in restoration and rehabilitation estimate
Unwinding of discount
At 30 June
2017
US$m
2016
US$m
487
69
3
559
430
53
4
487
The provision for restoration and rehabilitation has been made for all disturbed areas at the reporting date based on
current cost estimates for rehabilitation and infrastructure removal, discounted to their present value based on expected
timing of future cash flows.
Provisions for restoration and rehabilitation activities exclude ongoing rehabilitation performed as a part of normal
operations.
80
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Taxation
For the year ended 30 June 2017
14
Taxation
For the year ended 30 June 2017, Fortescue is a signatory to the Board of Taxation’s voluntary Tax Transparency Code
(“TTC”). The TTC recommends a number of additional tax disclosures to be publicly available, in two separate parts.
The Part A disclosure requirements are included in this note.
(a) Income tax expense
Current tax
Deferred tax
Consolidated
group
2017
US$m
Consolidated
group
2016
US$m
817
57
874
241
128
369
(i) Prima facie income tax expense reconciliation
Fortescue operates in a number of jurisdictions and pays income taxes accordingly. The Company’s effective corporate
income tax rate is reflective of the statutory corporate income tax rates in each jurisdiction. The majority of the Group’s
taxes are paid in Australia consistent with the location of its mining operations. The Australian Group includes Fortescue’s
wholly-owned Australian entities.
For the year ended 30 June 2017, the Group’s global effective tax rate was 29.5 per cent. This is in line with the Australia
corporate tax rate of 30 per cent.
Profit before income tax expense
Tax at the Australian tax rate of 30 per cent
Research and development
Adjustments in respect of income tax expense of prior periods
Foreign exchange variations and other transactions adjustments
Tax impact of overseas jurisdiction
Share based payments
Other
Income tax expense
Effective tax rate
Consolidated
group
2017
US$m
Australian
group
2017
US$m
Consolidated
group
2016
US$m
Australian
group
2016
US$m
2,967
890
2,913
874
1,354
406
(4)
(1)
(6)
-
(5)
-
(4)
3
(6)
7
(5)
-
(8)
(15)
(2)
5
(9)
(8)
874
29.5%
869
29.8%
369
27.3%
1,321
396
(8)
(15)
(1)
5
(9)
(10)
358
27.1%
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Taxation
For the year ended 30 June 2017
14
Taxation (continued)
(a) Income tax expense (continued)
(ii) Reconciliation of income tax expense to current tax payable
Income tax expense in the consolidated income statement
Deferred tax expense
Prior year under/over provision
Tax payments made to tax authorities1
Impact of foreign exchange on income tax payable2
Current tax payable at 30 June
Consolidated
group
2017
US$m
Consolidated
group
2016
US$m
874
(57)
6
823
(115)
(23)
685
369
(128)
72
313
(39)
(7)
267
1 In Australia Fortescue pays pay as you go (PAYG) instalments based on a set rate, as advised by the Australian Taxation Office.
2 Fortescue’s income tax payments are made in the local currency of the country where taxes are due, being predominantly
Australian Dollars.
(b) Deferred tax assets and liabilities
Fortescue recognises a timing difference where there are differences between the accounting and tax treatment of an
expense resulting in future tax payable or receivable amount. Deferred tax assets and liabilities are measured at the
relevant tax rates enacted for the reporting period. The company’s major deferred tax assets and liabilities also arise in
Australia, specifically with reference to the level of capital investment in the Pilbara.
Deferred tax assets
Deferred tax liabilities
Consolidated
group
2017
US$m
Consolidated
group
2016
US$m
470
(2,027)
(1,557)
355
(1,855)
(1,500)
82
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Taxation
For the year ended 30 June 2017
14
Taxation (continued)
(b) Deferred tax assets and liabilities (continued)
Composition of and movements in deferred tax assets and liabilities
Deferred tax assets
consolidated group
Deferred tax liabilities
consolidated group
Charged / (credited) to
the income statement
consolidated group
2017
US$m
2016
US$m
2017
US$m
2016
US$m
2017
US$m
2016
US$m
-
-
-
-
-
220
225
25
470
-
-
-
-
1
202
139
13
355
(123)
(540)
(1,220)
(127)
(1)
(1)
(11)
(4)
(118)
(510)
(1,079)
(121)
(5)
(5)
(13)
(4)
(5)
(30)
(141)
(6)
4
24
88
9
(26)
1
(169)
41
(2)
16
12
(1)
(2,027)
(1,855)
(57)
(128)
Temporary differences arising from
Exploration expenditure
Development
Property, plant and equipment
Inventories
Foreign exchange losses (gains)
Provisions
Other financial liabilities
Other items
(c) Unrecognised tax losses
At 30 June 2017, the Group had income tax losses with a tax benefit of US$23 million (2016: US$12 million) which are not
recognised as deferred tax assets. The Group recognises the benefit of tax losses only to the extent of anticipated future
taxable income or gains in relevant jurisdictions. These losses do not expire.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Unrecognised items
For the year ended 30 June 2017
15
Commitments and contingencies
30 June 2016
Within one year
Between one and five years
30 June 2017
Within one year
Between one and five years
(i) Capital commitments
Capital
US$m
Operating
leases
US$m
Total
US$m
290
183
473
327
16
343
61
98
159
64
24
88
351
281
632
391
40
431
At 30 June 2017, Fortescue had contractual commitments to capital expenditure not recognised as liabilities,
including commitments associated with the construction of ore carriers of US$196 million (2016: US$271 million)
within 12 months and nil (2016: US$183 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 2017 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.
16
Events occurring after the reporting period
On 20 July 2017, the Federal Court handed down its reasons for judgment on the matter of Warrie (formerly TJ) (on behalf of the
Yindjibarndi People) v State of Western Australia, in which Fortescue is the second respondent. In the Company’s view, the Court’s
decision has no impact on the current and future operations or mining tenure at the Solomon Hub. Fortescue has no commercial
concerns and does not anticipate any material impact following the decision.
On 28 July 2017, the Company executed a US$525 million revolving credit facility.
On 1 August 2017, the Company announced the repurchase of the Solomon Power Station for a total of US$348 million.
On 21 August 2017, the Directors declared a final dividend of 25 Australian cents per ordinary share payable in October 2017.
84
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
17
Related party transactions
(a) Subsidiaries and joint operations
Interests in significant subsidiaries and joint operations are set out in note 22.
(b) Key Management Personnel remuneration
Short term employee benefits
Share-based payments
Post employment benefits
2017
US$’000
2016
US$’000
7,469
2,273
141
9,883
8,161
(1,242)
135
7,054
Detailed information about the remuneration received by each Key Management Personnel is provided in the
remuneration report on pages 101 to 132.
(c) Transactions with other related parties
The following transactions occurred with joint operations partners:
Other revenue
Deferred joint venture contributions
Current receivables
2017
US$’000
2016
US$’000
2,785
265,800
274
30,749
253,361
1,742
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.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
18
Share-based payments
(a) Employee Performance Rights Plans
During the year ended 30 June 2017, Fortescue issued 1,874,545 (2016: 3,870,459) short term performance rights and
3,666,789 (2016: 9,211,984) 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 and have an
exercise price of nil (2016: nil).
Outstanding at 1 July
Performance rights granted
Performance rights forfeited or lapsed
Performance rights converted or exercised
Outstanding at 30 June
2017
Number
18,355,858
5,541,334
(5,122,418)
(2,979,750)
15,795,024
2016
Number
11,622,892
13,082,443
(2,866,096)
(3,483,381)
18,355,858
The weighted average fair value of performance rights granted during the year ended 30 June 2017 was A$4.85 per right
(2016: A$1.79) for the short term performance rights and A$4.61 per right (2016: A$1.72) 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 simulation. 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 2017 were:
• Share price: A$4.99 (2016: A$1.81)
• Effective life: 2.2 years (2016: 2.2 years)
• Exercise price: nil (2016: nil)
• Dividend yield: 3.5 per cent (2016: 2 per cent)
• Volatility: 68 per cent (2016: 52 per cent)
• Risk free interest rate: 2 per cent (2016: 2 per cent)
Details of performance rights outstanding at 30 June 2017 are presented in the following table:
Exercise
price
Balance at
the end of
the year
Vested and
exercisable
at the end
of the year
Remaining
contractual
life
Vesting conditions
A$
Number
Number
Years
Market
Non-market
-
-
-
-
-
-
1,376,649
1,376,649
1,719,915
2,643,422
6,800,593
3,254,445
-
-
-
-
15,795,024
1,376,649
13.5
14.3
0.3
13.5
14.3
-
-
-
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Short term performance rights 2016
Short term performance rights 2017
Long term performance rights 2015
Long term performance rights 2016
Long term performance rights 2017
(b) Employee expenses
Total expenses arising from share-based payments transactions recognised during the period as part of employee benefit
expense were as follows:
Share-based payment expense (benefit)
2017
US$m
2016
US$m
16
(3)
86
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
19
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
Other assurance services
Total auditor's remuneration
20
Deed of cross guarantee
2017
US$’000
2016
US$’000
791
338
1,129
122
1,251
63
-
63
1,314
722
34
756
194
950
46
-
46
996
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 Corporation Instrument 2016/785 issued by
the Australian Securities and Investments Commission.
Holding entity
• Fortescue Metals Group Limited
Group entities
• FMG Pilbara Pty Limited
• Chichester Metals Pty Limited
During the year ended 30 June 2017, these group
entities were added to the deed of cross guarantee:
• FMG Nyidinghu Pty Limited
• FMG Procurement Services Pty Limited
• Pilbara Gas Pipeline Pty Limited
• Pilbara Marine Pty Limited
• FMG Resources (August 2006) Pty Limited
• Pilbara Power Pty Limited
• International Bulk Ports Pty Limited
• FMG JV Company Pty Limited
• The Pilbara Infrastructure Pty Limited
• FMG Ashburton Pty Limited
• FMG Solomon Pty Limited
• Pilbara Mining Alliance Pty Limited
• Fortescue Services Pty Limited
• FMG Personnel Pty Limited
• FMG Personnel Services Pty Limited
• CSRP Pty Limited
• FMG Training 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 2017 along with the consolidated statement of financial position at
30 June 2017 for the closed group and the extended closed group represented by the above companies are materially
the same as that of the Group.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
21
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
2017
US$m
2016
US$m
158
10,161
10,319
759
43
802
101
10,273
10,374
325
85
410
9,517
9,964
1,289
22
8,206
9,517
319
319
1,301
14
8,649
9,964
601
601
The parent entity’s financial information has been prepared using 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$410 million (2016: US$500 million).
(b) Guarantees entered into by the parent entity
The parent entity is a party to the following guarantees:
• Deed of cross guarantee, as described in note 20; and
• Guarantees forming part of Fortescue’s senior debt arrangements associated with the senior secured notes
and the senior unsecured notes. The senior secured notes include providing security to the secured debt holders
with respect to the assets of the Company and certain of its subsidiaries, as described in note 9(a).
No liability was recognised by the parent entity or the Group in relation to these guarantees.
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities at 30 June 2017 or 30 June 2016.
88
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
22
Interests in other entities
(a) Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following significant subsidiaries,
in accordance with the accounting policy described in note 23(a)(i):
Controlled entities
Country of
incorporation
Class
of shares
2017
%
2016
%
2017
US$
2016
US$
Equity holding
Investment
Chichester Metals Pty Ltd
Australia
Ordinary
FMG International Pte Ltd
Singapore
Ordinary
FMG International Shipping Pte Ltd
Singapore
Ordinary
FMG Iron Bridge Ltd
Hong Kong
Ordinary
FMG Magnetite Pty Ltd
Australia
Ordinary
FMG North Pilbara Pty Ltd
Australia
Ordinary
FMG Pilbara Pty Ltd
Australia
Ordinary
FMG Procurement Services
Australia
Ordinary
FMG Resources (August 2006) Pty Ltd
Australia
Ordinary
FMG Solomon Pty Ltd
Australia
Ordinary
Karribi Developments Pty Ltd
Australia
Ordinary
Pilbara Housing Services Pty Ltd
Australia
Ordinary
Pilbara Power Pty Ltd
Australia
Ordinary
The Pilbara Infrastructure Pty Ltd
Australia
Ordinary
FMG Hong Kong Shipping Ltd
Hong Kong
Ordinary
(b) Joint operations
100
100
100
88
88
88
100
100
100
100
100
100
100
100
100
100
100
100
88
88
88
100
100
100
100
100
100
100
100
-
1
1
209,053
209,053
1
1
43,557,023
43,557,023
1
1
1
1
1
1
1
1
1
1
64,837,148
1
1
1
1
1
1
1
1
1
1
-
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 23(a)(ii):
Participating interest
%
Joint
operations
Country of
incorporation
Holding entity
Principal activities
2017
2016
Iron Bridge
Joint Venture
Glacier Valley
Joint Venture
Nullagine Iron Ore
Joint Venture
Australia
FMG Magnetite Pty Ltd
Development of magnetite
assets and production of
magnetite concentrate
Australia
FMG North Pilbara Pty Ltd Iron ore exploration
Australia
FMG Pilbara Pty Ltd
Iron ore mining and
processing1
69
69
N/A
69
69
25
1 During the year ended 30 June 2017, Fortescue acquired the remaining 75 per cent interest in the Nullagine Iron Ore Joint Venture.
During the year ended 30 June 2016, the operations of the Nullagine Iron Ore Joint Venture were suspended pending market conditions.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated
financial statements are set out below.
(a) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate
the financial statements of the Company and 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.
(ii) Joint arrangements
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 a joint
operation. The Group recognises its direct right to
the assets, liabilities, revenues and expenses of joint
operations and its share of any jointly held or incurred
assets, liabilities, revenues and expenses. These
have been incorporated in the financial statements
under the appropriate headings. Details of the joint
operations are set out in note 22.
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.
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 of
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 on the following page.
90
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
Summary of significant accounting policies (continued)
(d) Revenue recognition (continued)
(i) Sale of products
Revenue from the sale of products is recognised when
persuasive evidence exists, usually in the form of an
executed sales agreement, indicating that there has
been a transfer of risks and rewards of ownership to
the customer, no further work or processing is required
by the Group, the quantity and quality of the products
have been determined with reasonable accuracy, the
price can be reasonably estimated and collectability is
reasonably assured.
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 the
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 11(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.
(iii) Interest income
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.
(f) Income tax
The income tax expense for the year is the tax payable
on the current year’s taxable income based on the
applicable income tax rate for each jurisdiction. Income
tax on the profit or loss for the period comprises
current and deferred tax.
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. Current income tax represents the
expected tax payable on the taxable income for the
year and any adjustments to tax payable in respect to
previous years.
Where the amount of tax payable or recoverable
is uncertain, a provision is established based on
the Group’s understanding of applicable tax law at
the time. Settlement of these matters may result in
changes to current and deferred income tax if the
settlement differs from the provision.
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 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.
Fortescue and its wholly-owned Australian entities
have implemented the tax consolidation legislation
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 each
corresponding tax consolidated group.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
Summary of significant accounting policies (continued)
(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.
(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
other administration expenses.
(i) Inventories
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.
(ii) Financial assets through profit or loss
This category comprises only derivative financial
instruments. They are carried in the balance sheet at fair
value with changes in fair value recognised in profit or loss.
(k) Financial liabilities
(i) Trade payables
Trade and other payables are initially recognised at fair
value and subsequently carried at amortised cost and
represent liabilities for goods and services provided to
the Group prior to the end of the financial year that are
unpaid.
(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.
92
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
Summary of significant accounting policies (continued)
(k) Financial liabilities (continued)
(iii) Finance lease liabilities
(ii) Subsequent costs
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.
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
(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.
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 20 to 40 years
• Rolling stock 25 to 30 years
• Plant and equipment 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 I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
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; and
• At least one of the following conditions is also met:
(i) The expenditure is expected to be recouped
through the successful development of the
identifiable area of interest, alternatively by its
sale; or
(ii) Where activities in the identifiable area of
interest have not, at the reporting date, reached
a stage that permits a reasonable assessment
of the existence or otherwise of economically
recoverable reserves and activities in, or in
relation to, the area of interest, are continuing.
Exploration and evaluation assets are reviewed at
each reporting date for indicators of impairment and
tested for impairment where such indicators exist. If
the test indicates that the carrying value might not be
recoverable, the asset is written down to its recoverable
amount. These charges are recognised 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.
(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.
94
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
Summary of significant accounting policies (continued)
(m) Stripping costs (continued)
(ii) Production stripping costs (continued)
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 24.
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.
(p) Impairment of non-financial assets
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 at each reporting date, 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.
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
Summary of significant accounting policies (continued)
(p) Impairment of non-financial assets (continued)
(ii) Long service leave
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.
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.
Impaired assets are reviewed for possible reversal of the
impairment at each reporting date.
(s) Share-based payments
(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.
Share-based remuneration benefits are provided to
employees under the Fortescue’s Performance Rights
Plan, as set out in note 18.
The fair value of rights is measured at grant date
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 at grant date is determined using
trinomial option pricing model that takes into account
the exercise price, the term of the right, the impact
of dilution, the share price at grant date and expected
price volatility of the underlying share, the effect of
additional market conditions, the expected dividend
yield and the risk free interest rate for the term of
the right.
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.
96
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
Summary of significant accounting policies (continued)
(t) Dividends
(x) New accounting standards and interpretations
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.
(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 2016:
• AASB 2014-3 Amendments to Australian
Accounting Standards - Accounting for Acquisitions
of Interests in Joint Operations
• AASB 2014-4 Amendments to Australian
Accounting Standards - Clarification of Acceptable
Methods of Depreciation and Amortisation
• AASB 2015-1 Amendments to Australian
Accounting Standards - Annual improvements to
Australian Accounting Standards 2012 - 2014 cycle
• AASB 2015-2 Amendments to Australian
Accounting Standards - Disclosure initiative:
Amendments to AASB 101.
The adoption of these amendments did not have
any impact on the current period or any prior period
and is not likely to affect future periods. There are no
other standards that are not yet effective and that
would be expected to have a material impact on the
entity in the current or future reporting periods and
on foreseeable future transactions.
(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 I 2017 ANNUAL REPORT
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Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
23
Summary of significant accounting policies (continued)
(x) New accounting standards and interpretations
(continued)
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.
As at 30 June 2017, Fortescue has non-cancellable
operating leases in relation to office rentals, vehicles
and vessels. Management is continuing to determine
the extent that these operating leases will be
recognised as assets and liabilities on the Company’s
statement of financial position, the impact on profit
and classification of the related cash flows. Some of
the operating leases in existence at the reporting date
will be exempt on the basis of being short-term or low
value, some relate to arrangements that will not qualify
as leases under the new standard and some will be
subject to renewal prior to the implementation.
(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 2017 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.
The new standard also introduces expanded disclosure
requirements and changes in presentation. These
are expected to change the nature and extent of the
Group’s disclosures about its financial instruments
particularly in the year of the adoption of the new
standard.
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 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.
Fortescue sells a significant proportion of its
products on CFR terms which requires the Group to
be responsible for providing shipping services after
the date at which control of the goods passes to the
customer at the port of loading. AASB 15 requires the
individual components of revenue to be recognised
separately and freight revenue is likely to be deferred
until the product is delivered rather than when the
product is shipped. No other areas are expected to be
significantly impacted.
98
FORTESCUE METALS GROUP LIMITED I FINANCIAL REPORT
Notes to the consolidated financial statements I Other information
For the year ended 30 June 2017
24
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.
(a) Iron ore reserve estimates
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 profit and loss.
(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’ in
note 24(a)), 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 I 2017 ANNUAL REPORT
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Fortescue’s Values
Safety
Look out for our mates
and ourselves
Empowerment
Take action and
encourage your team
Family
Care for your
work mates
Frugality
Use your brain not
your cheque book
Stretch targets
Deliver against
challenging targets
Integrity
Enthusiasm
Courage and
determination
Do what you say
you’re going to do
Be positive, energetic
Never, ever give up
Generating ideas
Always be on the
lookout for better ways
Humility
Show vulnerability
in leadership
Fortescue’s Vision
The safest, lowest cost,
most profitable iron ore producer
Realising this Vision is at the heart of everything the Company does.
Supporting this Vision are unique Values which drive the Company’s
performance in a way that sets Fortescue apart.
100
FORTESCUE METALS GROUP LIMITED
REMUNERATION
REPORT
The year in review
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 101
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 101
Remuneration and Nomination Committee Chair
Sharon Warburton
On behalf of the Directors of Fortescue Metals Group
Limited I am pleased to present the Remuneration and
Nomination Report for the year ended 30 June 2017.
Improved
Safety
Consistent
Production
Reduced
Cost
17 %
1%
33%
2.9 Total Recordable
12.82 /wmt
170.4 mt
Culture 92% participation in Safety Excellence and Culture Survey
Injury Frequency Rate
US$
During FY17, the Company has achieved outstanding
results. Shareholders continued to benefit from the excellent
and world leading performance being delivered by our
Executives and all of their teams in safety, production and
operating cost improvement.
Now recognised as the lowest cost provider of seaborne iron
ore to China, the outcomes delivered by Fortescue across
all key measures underpin the US$2,093 million net profit
achieved, an 112 per cent increase over FY16.
Culture driving remuneration strategy
Fortescue’s remuneration strategy is underpinned by its
strong performance culture of setting stretch targets, striving
to achieve them and rewarding success. Short and long-term
incentive targets are set at challenging levels designed to
drive innovation, continual value creation and long-term
business sustainability and growth. The Board exercises its
discretion to recognise outstanding levels of achievement,
including where Fortescue’s challenging stretch targets may
have been missed by a very small margin, yet are market
leading against global peers.
The Company’s values-driven culture continues to deliver
high levels of engagement demonstrated by the annual safety
and culture survey with substantial improvement across all
key survey metrics. Diversity is recognised as a fundamental
driver of business success.
The Fortescue culture is unique, powerful and drives success.
FY17 Performance
The share price increased 49 per cent from the FY16 closing
price of A$3.50 to A$5.22 at the end of FY17.
During FY17, Fortescue achieved exceptional results against
all of its stretch targets, specifically:
• Outstanding financial performance including:
• 92 per cent increase in Return on Equity
• 112 per cent increase in Net Profit from US$985m
to US$2,093m
• 48 per cent increase in EBITDA from US$3,195m
to US$4,744m
• 20 per cent increase in revenue from iron ore
operations from US$6,947m to US$8,335m
• Consistent production from the Company’s world
class assets, with 170.4mt of iron ore shipped
• Substantial cost reductions including a 17 per cent
reduction in C1 costs and a June 2017 monthly cost
of production of less than US$10/wmt with
Fortescue now the lowest cost provider of seaborne
iron ore to China.
• Significant improvement in safety performance
across all sites, a 33 per cent reduction in TRIFR.
• Mine life maintained at target production rate
and quality.
102
FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT
Remuneration and Nomination Committee Chair
Reference: Metalytics
Resource Sector Economics
analysis, March 2017
FY17 Remuneration Outcomes
The Board is committed to a Remuneration Framework
that drives superior performance, attracts and appropriately
rewards and retains high performing Executives, delivers
shareholder value and encourages decision-making focused
on the longer term.
For FY17:
• Fixed Remuneration levels were maintained and there was
no annual salary increase in FY17
• FY17 Short Term Incentive stretch targets were all rewarded
with Board discretion used only on the cost target. While the
team’s cost reductions were world class, they fell just short of
the defined aggressive C1 stretch target set 12 months ago
• The Board has made the decision to award the C1 cost
component for the Executive and Senior Staff Incentive
Plan (ESSIP) on the basis of a 17 per cent annual reduction
in C1 costs. This is an outstanding achievement. The Board
also acknowledged the milestone recognition of Fortescue
becoming the lowest cost provider of seaborne iron ore
to China in November 2016, a position that has been
maintained for the balance of FY17. A cost of production for
the month of June 2017 of 15%
Production
• Tonnes Shipped
≥ 170 million wmt
C1 Cost
• C1 cost
≤ US$12.16/wmt
10
10
23
22.5
12.5
170.4
22.5
12.5
12.82
Continued focus on cost reduction, innovation, technology and
process efficiency have had a positive impact on profitability and
return on equity with an 92% increase to AROE compared to FY16.
Full year production target marginally exceeded with 170.4 million
wmt iron ore shipped in FY17 notwithstanding very challenging
weather conditions during Q3.
Although the C1 cost stretch target was not met the outcome
represents a 17% reduction in C1 costs over the FY17
performance year contributing to an overall 73% reduction in
C1 costs since 2012.
In light of the substantial cost savings delivered in FY17 and
overall company performance, the Board has determined that
this performance measure has been met.
Company growth performance
Safety (1)
• TRIFR
< 3.9
Physical
• Target tonnes and
quality achieved whilst
maintaining mine life
Culture
• Safety Survey participation
rate ≥75%
• Voluntary Turnover Rate
≤10%
Personal objectives
Personal Objectives
• 4 to 5 Personal Objectives
set at Stretch Levels of
performance against the FY17
Business Plan
25
10
10
15
2.9
10
Met
Keeping people safe is Fortescue’s highest priority and in FY17
Fortescue achieved outstanding results achieving a 33%
reduction in TRIFR from 4.3 to 2.9.
FY17 target production rate of 170mtpa, design strip ratio and
production specifications have been achieved whilst maintaining
the mine life for each site.
Included
in
personal
KPIs
92
7
Safety survey participation rate of 92% exceeded target which
is an exceptional result for a global miner.
Positive impact on employee retention which saw a reduction
in voluntary turnover to 7%.
1 In the event of a fatality no award is made for the Safety KPI.
n/a
40
Partially
met
Personal objectives are assessed by the CEO and recommended
outcomes approved by the Board.
In FY17, the Board also introduced the FY17 ESSIP Additional Stretch Objective, designed to drive outperformance against the FY17
budgeted cost of production stretch target.
Cost of production stretch opportunity
• COP of 30 per cent would be at least the 80th
percentile of the ASX 100 Resources index in any of the past
five years.
120
FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT
Remuneration Report
5
Incentive plan operation and performance (continued)
5.7.4 FY16 and FY17 LTIP operation (continued)
The AROE vesting schedule is as follows:
FY16 and FY17 LTIP AROE target and vesting schedule
Performance
Below threshold
Threshold
Target
Stretch
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.
Relative Total Shareholder Return (RTSR)
RTSR 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 Index 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. 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:
FY16 and FY17 LTIP TSR target and vesting schedule
Performance
Below Threshold
Threshold
Target
Stretch
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 windfall
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.
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 value. 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.
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Incentive plan operation and performance (continued)
5.7.4 FY16 and FY17 LTIP operation (continued)
FY16 and FY17 LTIP annual strategic measures and objectives are as follows:
Safety
Objective (KPI) • Improve Fortescue’s
relative position against the global
safety culture benchmark
Link to strategy
• Safety leadership
Growth
Objective (KPI)
• Diversify customer base
• Strategic options for growth
in iron ore and other commodities
Link to strategy
• Growth and diversity of income
Resource
Management
Objective (KPI) • Increase long term
resources quantity and value
• No net decrease in mine life
• Quantity, quality and
diversity of tenements
Link to strategy
• Long term sustainability
FY16 LTIP
and FY17 LTIP
Strategic measures
and objectives
Performance
Objective (KPI) • 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
Link to strategy • Competitive position,
cash flow and efficient use of capital
Balance sheet
management
Objective (KPI) • Reduce gearing
(debt/debt + equity) to target levels
• Overall cost of financing
• Maintain cash on hand at Board
approved levels
• Balance sheet flexibility
Link to strategy
• Capital efficiency,
cash flow and
long term
sustainability
Strategic measures and their performance targets for each
strategic objective are set and assessed annually for each
financial year of the relevant three year performance period.
Whether a strategic objective has been achieved is measured
at the end of the relevant financial year on an outcome basis
as follows:
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.
Outcome
Did not meet
Threshold
Target
Exceeded
Score
0
1
2
3
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FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT
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5
Incentive plan operation and performance (continued)
5.7.4 FY16 and FY17 LTIP operation (continued)
FY17 annual strategic measures and objectives are as follows:
FY16 and FY17 LTIP Strategic measure target and vesting schedule
Performance
Below Threshold
Threshold
Target
Stretch
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 and the FY17 LTIP is from 1 July 2016
to 30 June 2019. 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.
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.
5.8 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.
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.
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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 nominal value of the ESSIP and
LTIP at the applicable participating percentage. There
was no increase to total fixed remuneration in FY17.
Refer to section 7 for further information
• Actual remuneration paid – represents the nominal
value to the individual and includes fixed remuneration,
any cash incentives paid and the nominal value of equity
at the time share rights vest
- 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 FY17 ESSIP
share component plus one year each of the FY15, FY16
and FY17 LTIP. In FY17, total statutory remuneration is
higher than the prior year due to a negative accounting
expense for share based payments in FY16. Refer to
section 6.2 for further information.
6.1 Actual remuneration paid in FY17
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 nominal value of actual pay realised by executives is reflective of the following:
FY17 ESSIP is generally awarded partly as vested rights (minimum 50 up to 100 per cent determined on election) with the
balance (0-50 per cent) awarded in cash:
• FY17 ESSIP share rights granted at the beginning of the performance period at a face value share price of A$3.759
• FY17 ESSIP vested rights awarded have a nominal value based on A$5.2591 being the five day VWAP at the beginning
of FY18. 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
• FY17 ESSIP additional stretch objective was awarded in cash
• FY15 LTIP did not vest.
The following table shows the nominal remuneration value realised by the individual and includes fixed remuneration, any
cash incentives paid and the nominal value of equity at the time the share rights vest or shares are awarded. The following
key points should be read in conjunction with the table below:
• Mr Pearce did not participate in the FY17 ESSIP
• Mr Cernotta’s FY17 ESSIP award represents his pro-rata accrued entitlements paid as a cash payment
• Mr Cernotta’s other payment relates to an ex-gratia payment of A$947,596 (inclusive of notice).
FY17 ESSIP
cash paid
(including the
FY17 ESSIP
additional
stretch
objective)
FY17
A$
Fixed(1)
remuneration
Nominal value
of
FY17 ESSIP
vested rights
FY15 LTIP
shares
awarded
Nominal
total
remuneration
earned in FY17
Other
payment
N Power
E Gaines(2)
G Lilleyman(4)
S Pearce(6)
N Cernotta(8)
2,000,000
2,125,000
1,573,954
459,375(3)
500,000(5)
551,250(7)
554,167(9)
551,250
500,000
-
448,702
-(10)
482,680
-
-
(1) Fixed remuneration includes cash salary, paid leave and superannuation.
(2) Ms Gaines commenced as CFO and Executive Director on 6 February 2017.
(3) Pro-rata entitlement.
(4) Mr Lilleyman commenced employment on 1 January 2017.
(5) Pro-rata entitlement.
(6) Mr Pearce ceased employment on 31 December 2016.
(7) Pro-rata entitlement.
-
-
-
-
-
-
-
-
-
5,698,954
1,010,625
1,482,680
551,250
947,596
1,950,465
(8) Mr Cernotta ceased employment on 31 January 2017.
(9) Pro-rata entitlement.
(10) Ms Gaines is eligible to participate in the FY17 ESSIP
on a pro-rata basis and has elected to receive a 100
per cent of the FY17 ESSIP in vested rights subject to
shareholder approval as detailed in Section 6.3.
The non IFRS information included in the table above has not been subject to audit.
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How executive remuneration is reported (continued)
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 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 simulation. 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.
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 FY17 refer to
section 6.1.
Statutory remuneration disclosures for year ending 30 June 2017
• Mr Pearce’s ESSIP and LTIP share rights were forfeited on resignation
• Mr Pearce’s other payment relates to accrued annual leave and long service leave entitlements paid out on resignation
• Mr Cernotta’s ESSIP and LTIP share rights were forfeited on resignation
• Mr Cernotta’s FY17 ESSIP award represents pro-rata accrued entitlements paid as a cash payment
• Mr Cernotta’s other payment relates to an ex-gratia payment of A$947,596 (inclusive of notice) and accrued annual leave
entitlements paid out on resignation.
Short-term employee benefits
Post
employ-
ment
benefits
End of
service
Share-based payments
Total
statutory
remuneration
ESSIP
cash value
for 2017
plan year
(including
the FY17
ESSIP
additional
stretch
objective)
FY17
A$
Cash salary
and
fees
Executive Directors
Non-
monetary
benefits
Superan-
nuation
Other
payments
ESSIP
share
value
LTIP share
value
Total
N Power
1,963,000
2,125,000
403,514
422,973
551,250
-
E Gaines1
S Pearce2
Executives
8,528
631
9,883
30,000
12,304
13,900
-
-
1,424,582
1,918,947
7,470,057
337,6445
-
1,305,343
283,813
-
(447,741)
282,828
G Lilleyman3
481,269
500,000
N Cernotta4
483,590
448,702
-
-
15,000
19,904
-
559,838
-
972,123
-
(385,809)
1,556,107
1,538,510
1 Ms Gaines commenced as CFO and Executive Director on 6 February 2017.
2 Mr Pearce ceased employment on 31 December 2016.
3 Mr Lilleyman commenced employment on 1 January 2017.
4 Mr Cernotta ceased employment on 31 January 2017.
5 Ms Gaines ESSIP share value is the cash value of share rights that may vest subject to shareholder approval as detailed in Section 6.3.
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How executive remuneration is reported (continued)
6.2 Statutory remuneration disclosures for executives (continued)
Statutory remuneration disclosures for year ending 30 June 2016
• ESSIP cash value payable in respect to FY16 was 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 three 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 three 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
FY14
LTIP
cash
value
Cash
salary
and
fees
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 Meurs1
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
Executives
N Cernotta 920,000
351,975
-
-
-
30,000
- 1,118,626 (1,109,672)
- 5,324,139
170,193
-
(1,316,302)
-
187,763
-
-
411,095
(446,444)
- 2,017,371
349,981
220,640
- 1,872,596
1 Mr Meurs retired 18 April 2016.
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 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
Maximum share right grant FY16 to FY18
Share rights granted FY16 to FY18
3,671,425
4,895,232
8,566,657
924,213
2,464,567
3,388,780
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Remuneration Report
6
How executive remuneration is reported (continued)
6.3 Details of performance grants to executive directors
Shareholder approval for Ms Gaines
Ms Gaines is eligible to participate in the FY17 ESSIP on a pro-rata basis. Generally, the ESSIP is delivered as a minimum of
50 per cent in vested rights (with the ability to elect up to 100 per cent). Under ASX Listing Rule 10.14, the Company requires
shareholder approval to issue equity securities to a Director of the Company under an employee incentive plan. Ms Gaines has
elected to receive 100 per cent of the FY17 ESSIP in vested rights, subject to shareholder approval.
Accordingly, the Company will seek shareholder approval at the 2017 AGM to issue equity securities under the performance
rights plan to Ms Gaines as follows:
• 89,823 share rights in respect of financial year ended 30 June 2017 in accordance with the ESSIP
• 366,865 share rights in respect of the financial year ending 30 June 2018 in accordance with the ESSIP and LTIP.
No share rights have been granted and no share rights will be granted to Ms Gaines under the Peformance Rights Plan unless
shareholder approval is obtained at the 2017 Annual General Meeting.
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.
6.4 Details of share based payments relating to LTIP
The following table provides details of the number of share rights granted under the LTIP during the financial years ended
30 June 2015 to 30 June 2017. The value of the rights has been determined using the amount of the grant date fair value.
• The estimated fair value of the long term performance rights was determined using a combination of analytical approaches,
binomial tree and Monte-Carlo simulation. 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
• Mr Pearce’s share rights were forfeited upon cessation of employment on 31 December 2016. Mr Pearce was not granted any
share rights under the FY17 LTIP
• Mr Cernotta’s share rights were forfeited upon cessation of employment on 31 January 2017
• Ms Gaines and Mr Lilleyman commenced during the LTIP performance period and were not granted share rights under
the FY17 LTIP.
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
Forfeited
/lapsed
N Power
S Pearce
N Cernotta
FY15
9/12/2014
FY16
14/12/2015
FY17
20/09/2016
FY15
9/12/2014
FY16
14/12/2015
FY15
9/12/2014
FY16
14/12/2015
FY17
20/09/2016
1/7/14 to
30/6/17
1/7/15 to
30/6/18
1/7/16 to
30/6/19
1/7/14 to
30/6/17
1/7/15 to
30/6/18
1/7/14 to
30/6/17
1/7/15 to
30/6/18
1/7/16 to
30/6/19
660,837
$2.37
$1,566,184
Nil
Nil
660,837
1,666,482
$1.72
$2,866,349
Determined in 2018
798,085
$4.61
$3,679,172
Determined in 2019
242,858
$2.37
$575,573
612,432
$1.72
$1,053,383
209,265
$2.37
$495,958
527,720
$1.72
$907,678
252,727
$4.61
$1,165,071
n/a
n/a
n/a
n/a
n/a
n/a
n/a
242,858
612,432
n/a
209,265
n/a
527,720
n/a
242,727
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Remuneration Report
7 Executive contract terms
Total Remuneration Package and other terms of employment for Executives are formalised
in a service agreement.
The CEO and Executives are employed on a rolling basis with no specified fixed term. The CEO and Executives are remunerated
on a total fixed remuneration (TFR) basis inclusive of superannuation and allowances. There was no remuneration increase or
changes in terms in FY17.
The major terms of the agreements relating to remuneration are set out in the table below:
Maximum
ESSIP opportunity
Maximum
LTIP opportunity
Position
Executive
TFR* (A$)
% of TFR
A$
% of TFR
A$
Nominal
value of total
remuneration
package at
maximum
opportunity
A$
Chief Executive Officer
N Power
2,000,000
112.5
2,250,000
Chief Financial Officer
E Gaines
1,102,500
Director Operations
G Lilleyman
1,000,000
75
75
826,875
750,000
150
100
100
3,000,000
1,102,500
7,250,000
3,031,875
1,000,000
2,750,000
* Total Fixed Remuneration as of 30 June 2017. Reviewed annually by the RNC
The FY17 ESSIP additional stretch objective was introduced by the Board for FY17 only and, therefore, does not form part of the
maximum ESSIP opportunity on an ongoing basis.
Executives are required to provide written notice of three or six months (as specified in their individual service agreement)
to terminate their employment. Should executives not provide sufficient notice they will forfeit the monetary equivalent
(calculated based on TFR) of any shortfall in the notice period.
Termination benefits for KMP comply with the limits set by the Corporations Act 2001 that do not require shareholder approval.
128
FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT
Remuneration Report
8 Non-Executive Director (NED) remuneration
8.1 NED remuneration policy
Fortescue’s policy on NED remuneration requires that NED 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 NED remuneration of comparable companies.
8.2 NED fee pool
NEDs 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 NEDs who serve on a Committee.
The maximum aggregate remuneration payable to NEDs is A$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 reviewed the fees payable to NEDs having regard to commentary, market position and benchmark data
provided by Egan Associates. The consideration of NED fees took into account a general increase of 10 per cent,
together with the alignment of the relativities in ARMC and RNC fees. The increase in fees does not exceed the shareholder
approved total fee cap of A$2.0 million.
NED fees (inclusive of superannuation) effective from 1 July 2016 are outlined in the table below:
Position
Board Chairman*
Vice Chair
Lead Independent Director
Non-Executive Director
Audit & Risk Management Committee Chair
Audit & Risk Management Committee Member
Remuneration & Nomination Committee Chair
Remuneration & Nomination Committee Member
China Advisory Group Board of Representatives
Finance Sub-Committee Member
Fee A$
0
187,000
187,000
154,000
44,000
16,500
44,000
16,500
66,000
6,600
* The Chairman of the Board has elected to forego Directors fees for FY17 and received no form of remuneration in FY17.
Non-Executive Directors do not receive retirement benefits, nor do they participate in any incentive programs
of the Company.
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FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
129
Remuneration Report
8 Non-Executive Director (NED) remuneration (continued)
8.2 NED fee pool (continued)
The remuneration of Non-Executive Directors for the year ended 30 June 2017 and 30 June 2016 is detailed below:
FY17
$A
A Forrest
O Hegarty1
M Barnaba
E Gaines2
C Huiquan
G Raby3
S Warburton
J Baderschneider
J Morris4
P Bingham-Hall5
Base fees
Committee fees
Other benefits
Superannuation
Total
-
72,831
169,231
83,371
154,000
81,596
139,367
154,000
87,025
87,025
-
6,426
58,591
12,505
-
28,404
51,551
-
10,666
7,466
-
-
-
-
-
-
-
-
-
-
-
22,493
23,921
9,817
-
-
20,046
-
10,257
9,921
-
101,750
251,743
105,693
154,000
110,000
210,964
154,000
107,948
104,412
1 O Hegarty retired 5 December 2016.
² E Gaines commenced as CFO and Executive Director on 6 February 2017.
³ G Raby retired 5 December 2016.
4 J Morris appointed 16 November 2016.
5 P Bingham-Hall appointed 16 November 2016.
FY16
$A
A Forrest
O Hegarty
M Barnaba
E Gaines
C Huiquan
G Raby
S Warburton
J Baderschneider
Base fees
Committee fees
Other benefits
Superannuation
Total
-
153,846
153,846
126,697
140,000
140,000
126,697
140,000
-
6,787
48,416
19,005
-
60,000
27,150
-
-
-
-
-
-
-
-
-
-
16,866
21,237
15,299
-
-
16,154
-
-
177,499
223,499
161,001
140,000
200,000
170,001
140,000
NEDs 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 NEDs who serve on a Committee.
130
FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT
Remuneration Report
9 Equity instrument disclosures relating to key management personnel
9.1 Share rights
The movement during the reporting period in the number of share rights over ordinary shares in the Company
held directly, indirectly or beneficially, by each of the KMP, including their related parties is as follows:
FY17
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
E Gaines3
O Hegarty2
C Huiquan
G Raby4
M Barnaba
S Warburton
J Baderschneider
J Morris5
P Bingham-Hall6
-
-
-
-
-
3,805,250
1,097,367
(838,181)
(639,750)
3,424,686
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(312,593)
(1,104,082)
-
-
-
-
-
-
-
-
-
-
S Pearce7
1,416,675
Other key management personnel of Fortescue
G Lilleyman8
N Cernotta9
-
99,761
-
-
99,761
934,880
347,500
(195,250)
(1,087,130)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,424,686
3,424,686
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
99,761
99,761
-
-
1 Performance rights were granted in accordance with the short term and long
term performance rights plans, as disclosed in note 18 of the financial report.
6 P Bingham-Hall appointed 16 November 2016.
7 S Pearce ceased employment 31 December 2016.
2 O Hegarty retired 5 December 2016.
3 E Gaines commenced as CFO and Executive Director on 6 February 2017.
8 G Lilleyman commenced employment on 1 January 2017.
9 N Cernotta ceased employment 31 January 2017.
4 G Raby retired 5 December 2016.
5 J Morris appointed 16 November 2016.
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
E Gaines
O Hegarty
C Huiquan
G Raby
M Barnaba
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
934,800
934,800
1 Performance Rights were granted in accordance with the short term and long
term performance rights plans, as disclosed in note 18 of the financial report.
2 P Meurs retired on 18 April 2016.
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FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
131
Remuneration Report
9 Equity instrument disclosures relating to key management personnel (continued)
9.2 Share holdings (Ordinary Shares)
The numbers of shares in the Company held during the financial year by each Director of Fortescue and other key
management personnel of the Group, including their related parties, are set out below:
FY17
Held
at
1 July 2016
Received on
conversion
of rights
Directors of Fortescue
Issued Purchases
Sales
Transfers
Other1
1,037,479,247
-
- 1,320,753
-
2,526,307
838,181
A Forrest
N Power
O Hegarty2
C Huiquan
G Raby4
M Barnaba
E Gaines3
S Warburton
40,000
-
8,000
20,000
50,000
50,750
J Baderschneider
138,000
J Morris5
P Bingham-Hall6
-
-
S Pearce7
227,305
312,593
Other key management personnel of Fortescue
G Lilleyman8
N Cernotta9
-
-
50,000
195,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,000
104
-
-
(413,250)
-
-
-
-
-
-
-
-
-
-
-
-
Held
at
30 June 2017
-
-
1,038,800,000
2,951,238
(40,000)
-
(8,000)
-
-
-
-
-
-
(540,002)
-
(245,250)
-
-
-
20,000
50,000
50,750
138,000
-
35,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 Negative amounts reflect the result of leaving the Company
5 J Morris appointed 16 November 2016.
during the year.
2 O Hegarty retired 5 December 2016.
3 E Gaines commenced as CFO and Executive Director on
6 February 2017.
4 G Raby retired 5 December 2016.
6 P Bingham-Hall appointed 16 November 2016.
7 S Pearce ceased employment 31 December 2016.
8 G Lilleyman commenced employment on 1 January 2017.
9 N Cernotta ceased employment 31 January 2017.
Held
at
1 July 2015
Received
on
conversion
of rights
FY16
Directors of Fortescue
Issued Purchases
Sales
Transfers
Other1
1,037,479,247
-
1,811,571
714,736
A Forrest
N Power
O Hegarty
C Huiquan
G Raby
M Barnaba
E Gaines
S Warburton
40,000
-
8,000
20,000
50,000
50,750
J Baderschneider
138,000
P Meurs2
S Pearce
26,199,152
107,557
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 2 P Meurs retired on 18 April 2016.
Company during the year.
132
FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT
CORPORATE
DIRECTORY
Contact information
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 133
FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 133
Shareholder information
As at 31 July 2017
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
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Valin Investments (Singapore) Pte Ltd
Citicorp Nominees Pty Limited
Valin Resources Investments (Singapore) Pte Ltd
Emichrome Pty Ltd
AMNL Financing Pty Ltd
BNP Paribas Noms Pty Ltd
The Trust Company Limited
National Nominees Limited
AMNL Financing Pty Ltd
BNP Paribas Nominees Pty Ltd
Citicorp Nominees Pty Limited
The Minderoo Foundation Pty Ltd
Valin Mining Investments (Singapore) Pte Ltd
HSBC Custody Nominees (Australia) Limited-Gsco Eca
Mr William Graeme Rowley
National Nominees Limited
Ms Judith Mary Street
Substantial shareholders
Name
Minderoo Group Pty Ltd and John Andrew Forrest
Hunan Valin Iron and Steel Group Company
Capital Research Global Investors
Units
918,806,548
493,664,539
352,009,749
228,007,497
170,399,449
130,776,216
93,045,000
71,365,581
68,485,736
64,968,641
34,280,167
30,365,261
27,279,102
15,078,443
11,310,500
11,161,764
10,464,882
8,244,951
8,119,997
6,826,348
% of issued capital
29.51
15.85
11.30
7.32
5.47
4.20
2.99
2.29
2.20
2.09
1.10
0.98
0.88
0.48
0.36
0.36
0.34
0.26
0.26
0.22
2,754,660,371
88.47
Total shares
1,038,800,000
434,914,118
153,284,038
% of issued capital
33.36
13.97
4.41
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
22,412
19,669
4,838
3,640
307
50,866
Units
10,512,774
49,774,106
36,825,549
92,105,631
2,924,580,091
3,113,798,151
% of issued capital
0.34
1.60
1.18
2.96
93.92
100.00
Unmarketable parcels
There were 2,164 members holding less than a marketable parcel of shares in the Company.
134
FORTESCUE METALS GROUP LIMITED I CORPORATE DIRECTORY
Glossary
Aboriginal owned businesses
Contractors, joint ventures,
sub-contractors or other legal entities
owned by Aboriginal people.
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.
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.
AMMA
Australian Mines and Metals Association.
CID
Channel Iron Deposit.
ASX
Australian Securities Exchange.
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.
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.
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.
Direct employees
Total number of employees including
permanent, fixed term and part-time.
Does not include contractors.
dmt
Dry metric tonnes.
dmtu
Dry metric tonne unit.
EPA
Environmental Protection Authority.
Fe
The chemical symbol for iron.
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.
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 per cent
and 63 per cent 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.
Indigenous Land Use Agreements
(ILUA)
Statutory agreement between a native
title group and others about the use of
land and waters.
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FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
135
Glossary
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.
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.
IUCN
International Union for Conservation
of Nature.
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.
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 per cent 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 palletised for
direct use as a high-grade raw material
for steel production.
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FORTESCUE METALS GROUP LIMITED I CORPORATE DIRECTORY
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.
Glossary
Probable Ore 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 Ore 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. Ore
reserves are sub-divided in order of
increasing confidence into Probable
Ore Reserves and Proved Ore 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
Mineral Resources.
Rocket Fines
A product containing approximately
59 per cent Fe upon shipment and
produced by Fortescue from the
Chichester Hub.
Senior Executive
Leadership position title of Director or
Group 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 per cent 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.
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FY17 awards
The 2017 financial year was a record breaking year for Fortescue.
“ These awards represent hard work and commitment and belong to the whole
Fortescue family. I am in the fortunate position to be able to accept awards
on behalf of everyone at Fortescue.”
CEO, Nev Power
FY17 Awards
2017 Western Australian of the Year
and Business Award winner
• Andrew Forrest AO
Officer in the Order of Australia
• Andrew Forrest AO
AMMA Industry Awards
Indigenous Employment and
Retention Award
Diggers and Dealers
Digger of the Year Award
WA Industry and Export Awards
AIM WA West Business Pinnacle Award
Australian Financial Review 2016
Business Leaders Building,
Pioneers and Stirrers Award
• Nev Power
Australian Financial Review
• Nev Power, Business Person of the Year
BusinessNews Western Australia
• Nev Power, Person of the Year
Mining Magazine 2016 Editors Award
• Fortescue Metals Group as the
2017 Australian of the Year Awards
• Andrew Forrest AO
FY17 Award Finalist
joint recipient, recognised for the
Autonomous Haulage System
Mining Journal
• CEO of the Year
S&P Global Platts Metals Awards
• Metals Company of the Year
for All Round Excellence
• Industry Leadership Award
– Raw Materials and Mining
APAC Insider 2017
• Nev Power, CEO of the Year
• Leading Consultants Award
– Ones to Watch in Mining
Australasian Reporting Awards
• Annual Reporting Award
– Silver Award
Marine Money
• East Leasing Deal of the Year Award
China Development Bank and
Fortescue Metals Group
Platts Global Metals Awards
• Nev Power, CEO of the Year
Australia-China Business Award
• Business Excellence Award
for Cross-Border Investment
Shared Value Project
• Corporate Category
– Highly Commended Award
– Billion Opportunities
Thomson Reuters Foundation
• Stop Slavery Award
Australian Export Awards
• Minerals, Energy and Related
Services Award
2016 Telstra Western Australian
Business Women’s Awards
• Jane Macey, Manager
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FORTESCUE METALS GROUP LIMITED I CORPORATE DIRECTORY
FY17 key announcements
Timeline
September 2016
• Fortescue announces US$700 million
repayment of 2019 Term Loan
November 2016
• Fortescue completes financing agreement for
Fortescue Ore Carriers
• Fortescue Annual General Meeting highlights
Company performance and commitment to diversity
• Fortescue celebrates its first Fortescue Ore Carrier
with official naming ceremony in China
December 2016
• Debt reduction to continue as Fortescue
is recognised as lowest cost seaborne
supplier of iron ore into China
• Fortescue announces a further
US$1.0 billion repayment of 2019 Term Loan
• Fortescue celebrates arrival of FMG Nicola
in Port Hedland
February 2017
• Fortescue reports net profit after tax
of US$1.22 billion
March 2017
• Fortescue celebrates arrival of FMG Grace
in Port Hedland
• Fortescue announces US$1.0 billion
repayment of 2019 Term Loan
• Fortescue and Universities announce China-Australia
collaboration on mining sector innovation
May 2017
• Successful completion of Unsecured Notes Offering
• Improved payment terms to support Pilbara small
businesses
• Fortescue celebrates arrival of FMG Sophia
in Port Hedland
June 2017
• Fortescue celebrates arrival of FMG Sydney
in Port Hedland
• Fortescue VTEC’s first all-female class graduates
• Fortescue announces FY18 innovation projects
• Fortescue announces A$100 million in new work
with four Aboriginal businesses and joint ventures
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FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT
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Corporate Directory
Contact information
Fortescue registered office
Australia
Level 2, 87 Adelaide Terrace
East Perth, WA 6004
T: +61 8 6218 8888
F: +61 8 6218 8880
E: fmgl@fmgl.com.au
www.fmgl.com.au
Fortescue Shipping office
Shanghai, China
33/F East Building, Ellon Business Plaza
555 Pudong Ave, Pudong, Shanghai, P.R China
Singapore
FMG International, The Central
8 Eu Tong Sen St, 24-91 Singapore O59818
Fortescue VTEC and
Community office
1B/2 Byass St
South Hedland, WA 6722
T: +61 8 9158 5800
F: +61 8 6218 8880
E: hedlandcommunity@fmgl.com.au
www.fmgl.com.au
T: +61 8 6218 8888
F: +61 8 6218 8880
E: fmgl@fmgl.com.au
www.fmgl.com.au
Stock Exchange listings
Australian Business Number
ABN 57 002 594 872
Auditor
PricewaterhouseCoopers
Level 15, 125 St Georges Terrace
Perth, WA 6000
www.pwc.com.au
Securities Exchange listings
Fortescue Metals Group Limited shares are listed
on the Australian Securities Exchange (ASX)
ASX Code: FMG
Stay in touch
Fortescue Share Registry
Link Market Services Limited
Level 12 QV1 Building
250 St Georges Terrace
Perth, WA 6000
Locked Bag A14
Sydney South, NSW 1235
T: 1300 733 136 (within Australia)
T: +61 2 8280 7603 (International)
F: +61 2 9287 0309
www.linkmarketservices.com.au
Latest news, reports and presentations via 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
Twitter
@FortescueNews
au.linkedin.com/company/fortescue-metals-group
www.youtube.com/user/FortescueMetalsGroup
Event calendar 2017
Key dates for Fortescue shareholders in 2017. Please note dates are subject to review.
Full year results announcement
21 August 2017
Annual General Meeting
8 November 2017
September Quarterly Production Report
26 October 2017
140
FORTESCUE METALS GROUP LIMITED I CORPORATE DIRECTORY
Together we are Fortescue
THE DREAM
BEGINS 2003
2004
S&P/ASX 200 index
2005
Cloudbreak identified
2006
Port Hedland groundbreaking
FIRST ORE
ON SHIP
2008
2009
27mtpa shipped
Christmas Creek expanded
2010
2011
Solomon construction begins
57.5mtpa shipped
2012
155MTPA SUSTAINABLE
PRODUCTION
2013
Kings Valley project
opened at Solomon
2014
FIRETAIL OPENED
AT SOLOMON
80.9mtpa shipped
• US$2.9 billion debt repaid in FY16
• 169.4mt shipped in FY16
• Fortescue celebrates arrival of first ore carrier,
FMG Nicola into Port Hedland
• Fortescue recognised as lowest cost
iron ore supplier into China
2015
2016
2017
• Anderson Point Berth 5 completion
• Fortescue River Gas Pipeline completion
• 500 millionth tonne of ore shipped
• 165mtpa shipped sustainable production
• Achieved lowest ever TRIFR of 2.9
• 170.4mt shipped in FY17
THE JOURNEY
CONTINUES
Together we are Fortescue
www.fmgl.com.au @FortescueNews