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8
Annual
Report
FY18
Together we are Fortescue
ABN 57 002 594 872
THE DREAM
BEGINS
2003
S&P/ASX 200 index
08
FIRST ORE ON SHIP
10
Christmas Creek expanded
57.5mtpa shipped
14
155MTPA SUSTAINABLE
PRODUCTION
Kings Valley project
opened at Solomon
• US$2.9 billion debt repaid in FY16
• 169.4mt shipped in FY16
• Fortescue celebrates arrival of first ore carrier,
FMG Nicola into Port Hedland
• Fortescue recognised as lowest cost
iron ore supplier into China
18
FORTESCUE CELEBRATES:
• 1 billion tonnes of iron ore
• 10 years since first ore
shipped to China
• 15 years since the
Company’s inception
04
Cloudbreak identified
06
Port Hedland
groundbreaking
04
05
06
07
08
09
27mtpa shipped
10
11
12
13
14
15
16
17
11
Solomon
construction begins
13
Firetail opened
at Solomon
80.9mtpa shipped
15
• Anderson Point Berth 5 completion
• Fortescue River Gas Pipeline completion
• 500 millionth tonne of ore shipped
• 165mtpa shipped sustainable production
• Achieved lowest ever TRIFR of 2.9
• 170.4mt shipped in FY17
18
Core Leadership team appointed
THE JOURNEY
CONTINUES
Inside
01 Overview
02 Operating and Financial Review
03 Ore Reserves and Mineral Resources
04 Corporate Social Responsibility
05 Corporate Governance
06 Fortescue’s response to climate change
07 Financial Report
08 Remuneration Report
09 Corporate Directory
This report is printed on recycled paper.
The year at a glance
Total Recordable Injury
Frequency Rate
Production
C1 costs
3.7
170
mt
Revenue
Total taxes paid
US$
12.36/wmt
Total number of Fortescue
ore carriers delivered to
date
6.9US$
bn
A$
1. 2
bn
7
01
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.
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
mining company.
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 cutting
edge technology across the business.
Now consistently producing 170 million
tonnes of iron ore per annum (mtpa),
Fortescue has grown to be one of the
largest global iron ore producers and
has been recognised as the lowest cost
provider of seaborne 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 best practice
efficiency of Fortescue’s port.
The world-leading Eliwana mine and
rail project will build on Fortescue’s
development and construction capability,
utilising the latest technology, autonomous
trucks and design efficiency.
Innovation in exploration, process and
design is a key component of Fortescue’s
strategy to efficiently and effectively deliver
products from mine to market.
Fortescue’s longstanding relationships
with customers in China have grown from
the first commercial shipment of iron ore
in 2008, to now being a core supplier of
China’s seaborne iron ore and expanding
into markets including Japan, South Korea
and India.
The Company continues to assess
exploration and development opportunities
throughout South America including
Ecuador, Colombia and Argentina.
Fortescue is committed to its strategic goals
of ensuring balance sheet strength and
flexibility, investing in the core long term
sustainability of the business while pursuing
growth options and delivering returns to
shareholders.
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, support communities,
protect the environment and strengthen the
broader Australian economy.
Fortescue Metals Group Ltd Annual Report FY18
01
Overview
03
01 | Overview
01 | Overview
Chairman's
message
Andrew Forrest AO
In its short history, Fortescue has achieved what many people
thought was impossible: to build a company from a start up to a
global leader in the mining industry without losing its heritage,
identity and never, ever give up family culture.
A decade ago, when we shipped our first
180,000 tonnes of ore to China, I said it was
a phenomenal achievement of sheer hard
work, of guts and grind over scepticism, of
character over doubt. The same can be said
today, as we continue to set records, achieve
stretch targets and grow as a company.
From one of Australia’s most successful
explorers we have transitioned through
planning, construction and commissioning
to build truly global scale operations.
We have gone on to demonstrate our
excellent operational capability and are now
recognised as the world’s lowest cost provider
of seaborne iron ore to China based on
Metalytics Resource Sector Economic analysis.
During the year Lord Sebastian Coe returned
to Fortescue’s Board, bringing his unique
perspective through his experience in
business, marketing and politics across the
European Union, India and other markets.
We also farewelled Mr Cao Huiquan and
welcomed Dr Cao Zhiqiang, who brings
extensive experience in technology and
steel mill management along with a deep
background in international cooperation.
Directors. The appointment of two Deputy
Chairs further strengthens the overall
independence of the Board, supporting the
interests of all shareholders.
During the year Fortescue moved from
its traditional leadership focus with the
appointment of our new Core Leadership
team, with Chief Executive Officer, Ms
Elizabeth Gaines, Chief Financial Officer,
Mr Ian Wells, Chief Operating Officer, Mr
Greg Lilleyman and Deputy Chief Executive
Officer, Ms Julie Shuttleworth.
This team brings together a group of
incredible individuals who are ingrained
with Fortescue’s culture, and who all
possess the experience, talent and personal
values required to lead our company’s new
direction. Collectively, they will champion
Fortescue’s unique family values, and have
the courage and determination to set
immensely challenging stretch targets and to
deliver against them.
Fortescue is now rapidly evolving and
through product diversification and asset
development, we are exploring growth
opportunities in Australia and internationally.
Mr Mark Barnaba AM, Lead Independent
Director, joined Ms Sharon Warburton
as Joint Deputy Chair of the Board of
Our future growth will be built on our
reputational capital, underpinned by our
people and our relationships. Fortescue’s
long-term engagement with our Chinese
customers has played a critical role in the
company’s growth.
We are proud of our contribution to China’s
remarkable urban development and our role
in supporting trade relations between China
and Australia which has been vital to driving
economic growth in both nations.
It was a pleasure to once again co-host
the Australia-China Senior Business
Leaders Forum which, since inception, has
provided a unique platform to strengthen
the comprehensive strategic partnership
between our two countries.
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
lived at Fortescue every day. Perhaps there
is no greater demonstration of this innate
belief than our Vocational Training and
Employment Centre (VTEC).
When we started VTEC at Fortescue 12
years ago, I was determined it would end
the cycle of jobless training once and for
all and break down the social barriers that
prohibit so many Aboriginal people from
gaining employment.
Fortescue Metals Group Ltd Annual Report FY18
I was incredibly proud to join the team in
recognising the tenth anniversary of VTEC
graduations during FY18 and celebrating
the lives and achievements of hundreds
of Aboriginal people who have seized the
opportunities Fortescue’s VTEC has offered.
The outstanding financial performance of
Fortescue has benefited all shareholders.
As shareholders, Nicola and I choose to use
our dividends to fund the important work
of the Minderoo Foundation and to support
and contribute to programs that strengthen
communities and support disadvantaged
people in Australia and overseas.
Our seven focus areas include driving
collaboration and change in global cancer
research, ending modern slavery, creating
parity for Indigenous Australians, ensuring all
children in Australia reach their full potential,
nurturing new talents in the arts, generating
world changing research and innovation
in Western Australia and innovative
community development and environmental
conservation initiatives.
These initiatives are captured in the Eliminate
Cancer Initiative, Walk Free Foundation,
GenerationOne, Thrive by Five, Forrest
Research Foundation and arts, culture,
community and environment partnerships.
Our recently launched seventh philanthropic
pillar, Minderoo Ocean Research, aims to
harness the power of science, industry and
collaboration to ensure the longevity of our
ocean ecology.
We have also supported the Western
Force which has been rebuilt as a
wholly integrated community and high
performance rugby club.
Fortescue’s ongoing success has been built
on 15 years of stable leadership. Under the
stewardship of Mr Nev Power, the company
earned its reputation as one of the largest
and most consistent seaborne iron ore
suppliers, taking its place as the lowest cost
most efficient producer in the world. Nev, we
thank you.
I would like to thank and congratulate
everyone at Fortescue, led by our Core
Leadership team, on a transformative year.
When we founded Fortescue our vision was
to build a truly Australian entity, committed
to becoming the safest, lowest cost, most
profitable mining company. I am humbled
to see our Fortescue team delivering such
outstanding results.
An ethical focus
on promoting
positive change
Fortescue and the Minderoo Foundation
share a culture and core values of family,
integrity, enthusiasm and challenging
the status quo. Our organisations are
closely aligned through an ethical focus of
promoting positive change, as Fortescue
looks beyond its Australian borders for
growth and development opportunities.
Fortescue was established with a clear
vision that communities should benefit
from the growth of our businesses. The
shipment of Fortescue’s first tonne of ore a
decade ago wasn’t only a hugely significant
milestone for our company, but for the
whole Pilbara region.
Fortescue is committed to protecting
and promoting human rights and shares
the goals of the Minderoo Foundation:
to eradicate modern slavery, protect the
environment and enhance early childhood
development. As Fortescue enters more
countries and engages with local businesses,
we will work with them to also ensure
there is no slavery or forced labour in any
operations anywhere near ours, and will
do our best to defeat it while protecting
the environment and spreading the huge
nation building benefits of focussing on early
childhood development.
We begin our exploration activities in South
America with the same vision: to ensure that
local communities benefit from our success.
We are committed to providing training,
employment and business development
opportunities for local, Indigenous people;
just as we have in the Pilbara. Even before
our drilling program starts, we have
established community offices and have
engaged with the community to assist in our
exploration activities.
As we enter this next exciting phase in
Fortescue’s history, our promise to the
towns, communities and countries where
we seek to work is that we will collaborate
to contribute effectively to overall social
and economic wellbeing and to the
empowerment of communities.
05
01 | Overview
Chief
Executive
Officer’s
message
Elizabeth Gaines
Our team works with a strong sense of culture, values and
community. This is our pathway to achieving Fortescue’s vision -
to be the safest, lowest cost, most profitable mining company.
I am delighted to present my first
annual report as Fortescue's Chief
Executive Officer.
FY18 was a remarkable year for Fortescue. As
we celebrated everything we have achieved
over the last 15 years, we also looked ahead
to position ourselves strongly for the next
phase of growth.
Commitment to safety and
unique culture
The safety of our people is our number one
priority and our focus remains on ensuring
the team go home safely after every single
shift. Disappointingly, the Total Recordable
Injury Frequency Rate increased during the
year to 3.7 as a result of a number of low
severity injuries. We have targeted plans in
place to improve safety performance.
Our Company-wide commitment to
improving safety and our unique culture
was demonstrated by the record 94 per
cent participation rate in our annual Safety
Excellence and Culture Survey.
During the year, we held a series of Values
Forums across the business. Our Values have
been such an important part of Fortescue’s
culture since we were founded and the
Forums confirmed that they are as alive and
relevant today as they were 15 years ago.
These Values drive our behaviours, our
teams and our results, and have enabled us
to achieve a cost leadership position and
production targets that many thought were
unattainable.
Delivering on our targets
The team worked together to deliver record
shipments in the June quarter, ensuring
we achieved our target of 170mt for the
year. Importantly, this was realised while
maintaining our focus on costs, with full year
C1 cost reducing to US$12.36/wmt.
The sustainable productivity and efficiency
initiatives introduced across the business
have ensured that we remain highly
competitive and continue to generate strong
margins on every tonne of ore we produce.
With no debt repayments due until 2022, the
refinancing strategy that was implemented
over the past twelve months leaves our
remaining debt structured on investment
grade terms and conditions, providing a
flexible capital structure supporting our
ongoing operations and future growth.
World class operations
The long-term sustainability of our core iron
ore business in the Pilbara remains a key
priority for Fortescue. To that end, the largest
development since Fortescue’s ambitious
T155 project, the Eliwana mine and rail
project, was announced during the year.
Eliwana will maintain Fortescue’s low cost
status, providing us with greater flexibility
to capitalise on market dynamics while
maintaining production over 20 years.
At Fortescue, we have a proud history of
embracing technology and innovation,
which has become vital in driving sustained
productivity, cost savings and improving
safety performance across our business and
the mining sector more broadly.
Building on the pioneering success of
autonomous haulage (AHS) at Solomon,
this year we commenced the rollout of AHS
to our fleet at the Chichester Hub. Once
completed, Fortescue will become the first
iron ore operation in the world with a fully
automated haul fleet.
The new relocatable conveyor at Cloudbreak
is another example of Fortescue's innovative
culture, adapting technology frequently
used in underground mining operations
to provide greater flexibility and increased
accessibility to remote mine pits.
Fortescue Metals Group Ltd Annual Report FY18 Our customers
China remains our core focus, representing
50 per cent of world steel production, and
we have strong relationships with a diverse
customer base in China. In addition, we
have successfully increased the volume of
shipments to non-China markets during FY18.
Moving forward, the combination of growth
in our region combined with China’s Belt and
Road initiative represents an unprecedented
investment in infrastructure, driving
continued investment and demand for steel
to the advantage of Fortescue and Australia’s
mineral resources sector as a whole.
Innovation in process and design is a
fundamental part of Fortescue’s strategy to
efficiently and effectively deliver products
from mine to market. Fortescue has
consistently challenged geological thinking
to identify valuable deposits and establish
a differentiated product offering. Building
on this, during the year we announced
Fortescue will begin offering a 60 per cent
iron content product, West Pilbara Fines, in
the second half of FY19.
Building a strong business
When Fortescue was founded 15 years ago,
it was our vision that by first and foremost
creating a strong business, we could create
economic opportunities and contribute to
thriving local communities.
This vision continues with the US$1.275bn
Eliwana project, which will generate up to
1,900 jobs during construction and 500
full-time site positions once operational.
female talent and ensuring that women are
encouraged to progress to the C-Suite so that
we have equal representation in senior roles
across corporate Australia.
We are proud of our achievements and our
ongoing contribution to Western Australia
and the country’s economic strength. Since
Fortescue began, we have paid corporate
taxes of more than A$3 billion, royalties
to the State of more than A$4.5 billion
and have invested over US$22 billion in
Australia’s economy.
We continue to empower generational
change through our Vocational Training and
Employment Centres. Since the initiative
began 12 years ago, 797 Aboriginal people
have commenced employment
with Fortescue.
Our Billion Opportunities program focusses
on building capacity and capability in
Aboriginal businesses. The program
reached a significant milestone during the
year, recognising the award of A$2 billion
in contracts and subcontracts since its
commencement in 2011.
At Fortescue, diversity is broader than gender
and is embraced in all its forms. 24 per cent
of our senior management team is female
and we are proudly only one of two listed
companies in Australia with greater than 50
per cent female Board members.
At a personal level, I am focussed on
leadership development, retention of
Investing for the future
As we look to the future we are driven by
four key priorities. We will seek to maintain
our balance sheet strength and flexibility
and will continue to invest in the long term
sustainability of our core iron ore business. We
are also prioritising growth primarily through
exploration activities and remain focussed on
delivering returns to our shareholders.
Crucially, our future success will be
underpinned by Fortescue’s unique culture.
Our culture and Values were created by
our Founder and Chairman Andrew Forrest
AO, and championed by our former Chief
Executive Officer Nev Power, and it is my and
the Core Leadership team’s responsibility
and privilege to continue that legacy.
Together, the Core Leadership team is
committed to leading Fortescue through its
next phase by empowering and encouraging
our people to generate new ideas and have
the courage to implement them.
I would like to thank and congratulate
all of our employees, contractors and
suppliers for their great contributions. Their
determination, innovation and enthusiasm is
driving improvements in safety, productivity
and efficiency and delivering these strong
results across every aspect of our business.
15 years of
milestones
15 years ago, our Chairman Andrew
Forrest AO, had the remarkable vision
and entrepreneurial spirit to create
Fortescue and the determination to
build it into a global leader in the
mining industry.
Fortescue has been on an incredible journey
and it is the sheer determination of the
Fortescue family that has seen us become the
true Australian success story we are today.
In April, ten years after Fortescue first
exported its ore to Shanghai Baosteel’s
Majishan Port, the billionth tonne sailed
to China aboard Fortescue’s Ore Carrier
‘FMG Sophia’.
This year also marks 15 years since Andrew
Forrest AO was elected Chairman of the newly
named Fortescue Metals Group, marking
the start of his visionary journey to create an
Australian-owned iron ore group, comparable
in size with the global iron ore majors.
We have been proud to recognise these
remarkable achievements with customers
from around the world, suppliers and key
stakeholders, pastoralists, government,
Native Title Partners and local communities.
In true Fortescue fashion, we have celebrated
as a team, with events across the entire
business, from the Pilbara to Perth, China to
South America.
My sincere thanks to the entire Fortescue
family; our unique culture and Values have
driven us to strive to reach stretch targets, to
generate ideas and to never, ever give up.
“We achieved these milestones in true
Fortescue fashion - taking 10 years to
achieve what others took decades to do.”
07
01 | Overview
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
Do what you say
you’re going to do
Enthusiasm
Be positive, energetic
Courage and
determination
Never, ever give up
Generating ideas
Always be on the
lookout for better ways
Humility
Show vulnerability
in leadership
Fortescue's unique Values
drive the Company's
performance in a way that
sets Fortescue apart.
Fortescue Metals Group Ltd Annual Report FY18
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
EXTRACTION AND RECOVERY
Innovative use of technology suitable to
Fortescue’s deposits
MINE TO PORT
Heavy haul rail
at 42t axle load
SHIP LOADING
3 shiploaders and
5 berths maximise outload
capacity and utilisation
SHIPPING
Delivery to Fortescue’s international
customers’ specifications and
8 Fortescue Ore Carriers
EXPLORATION AND DISCOVERY
Challenging geological thinking to
identify valuable deposits
PROCESSING
Ore processing facility design
and wet processing optimise output
BLENDING AND STOCKPILING
Port design facilitates blending and
stockpiling of product suite
MARKETING
Helping customers
achieve best value in use
01
02
03
04
05
06
07
08
09
DECOMMISSIONING
Mine closure and rehabilitation
09
01 | 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
Board
Overview
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. 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.
All new Board members benefit from
a comprehensive induction process
that supports their understanding of
Fortescue’s business.
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.
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 operations
• Visits to meet with key customers that
strengthen their understanding of the
Company’s key markets
• Regular formal and informal
opportunities for the directors to meet
with management and staff.
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 and Integrity that
embodies these values.
There is a formal process and policy to
identify, disclose and manage potential
conflicts of interest, should they arise.
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 every second
year by an independent consultant
and every other year by the Company
Secretary under the direction of the Chair
of the Remuneration and Nomination
Committee. The most recent review
was undertaken in May/June 2018 by
the Company Secretary. The results and
recommendations are reported to the
full Board for further consideration and
agreement of improvement actions,
where required.
At the date of this report, the Board has
eight non-executive directors and one
executive director, being Chief Executive
Officer Elizabeth Gaines. 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 to support the business.
Fortescue Metals Group Ltd Annual Report FY18
Andrew Forrest AO
Chairman
Mark Barnaba AM
Lead Independent Director/Deputy Chair
Elizabeth Gaines
Chief Executive Officer/Managing Director
Appointed Chairman in July 2003; Assumed
role of Chief Executive Officer in 2005;
Resumed non-executive responsibilities in
July 2011.
Deputy Chair since November 2017; Lead
Independent Director since November
2014; Non-Executive Director since
February 2010.
Chief Executive Officer since February 2018
and Executive Director since February
2017; Former Non-Executive Director since
February 2013.
Mr Forrest is Fortescue’s Founder and
Chairman and has led the Company to its
status as the fourth-largest seaborne iron ore
producer. Under Mr Forrest, Fortescue has
made significant investments in the Australian
resources sector of more than US$22 billion
and become the lowest cost and most
efficient supplier of iron ore into China.
In 2001, Mr Forrest co-founded the Minderoo
Foundation with his wife Nicola, which has
supported over 250 initiatives across Australia
and internationally in pursuit of a range of
causes. Mr Forrest was appointed an Officer
of the Order of Australia (AO) in 2017 for
distinguished service to the mining sector, to
the development of employment and business
opportunities, as a supporter of sustainable
foreign investment, and to philanthropy.
He is an Adjunct Professor of the Central
South University in China, a longstanding
Fellow of the Australian Institute of Mining
and Metallurgy, and a leading global
representative of the resources sector. He is
co-Chairman of the Senior Business Leaders’
Forum, the leading formal dialogue for China
and Australia’s most senior business leaders.
In 2014, Mr Forrest was named Business
Leader of the Year at the Australian Institute
of Management Western Australia Pinnacle
Awards and was awarded an honorary
doctorate by The University of Western
Australia for his service to the country.
In 2017, he was named West Australian of the
Year for his contribution to the community
and in 2018, he was honoured with the EY
Entrepreneur Of The Year Alumni Social
Impact Award for the “lasting and exceptional
legacy” of his philanthropic work.
Committee memberships:
Finance Committee (Chair)
A member of the Board of the Reserve Bank
of Australia, Mr Barnaba previously worked
for McKinsey and Company and also held
several senior executive roles at Macquarie
Group where he served as Chairman and
Global Head of Natural Resources for
Macquarie Capital.
Mr Barnaba is Chairman of The University
of Western Australia’s Business School
Board and 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 the Chairman of Western Power,
Edge Employment Solutions, the West
Coast Eagles Football Club and Alinta
Infrastructure Holdings.
After graduating from The University
of Western Australia with a Bachelor of
Commerce, Mr Barnaba entered Harvard
Business School receiving a Master of
Business Administration. He received an
Honorary Doctor of Commerce from The
University of Western Australia in 2012 and
was granted the Honorary designation
Fellow of CPA from CPA Australia. He is
a Fellow of the Australian Institute of
Company Directors.
In 2015, Mr Barnaba was named a Member
in the General Division of the Order of
Australia (AM) for significant service to the
investment banking and financial sectors,
to business education, and to sporting and
cultural organisations.
Committee memberships: Audit and
Risk Management Committee (Chair);
Remuneration and Nomination
Committee (Member)
Elizabeth Gaines commenced as Chief
Executive Officer of Fortescue Metals Group
in February 2018.
A highly experienced business leader with
extensive international experience as a
Chief Executive Officer and group executive,
Ms Gaines has a proven track record in
financial and operational leadership across
a number of industries, including resources,
construction and infrastructure, financial
services and travel and hospitality.
After joining Fortescue as a Non-Executive
Director in February 2013, Ms Gaines was
appointed Chief Financial Officer and
Executive Director in February 2017. She is a
former Chief Executive Officer of Helloworld
Limited and Heytesbury Pty Limited and
has also held the position of Chief Financial
Officer at 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, she 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).
11
The Board
Sharon Warburton
Deputy Chair
Lord Sebastian Coe CH,KBE
Non-Executive Director
Jennifer Morris OAM
Non-Executive Director
Deputy Chair since July 2017; Non-Executive
Director since November 2013.
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 recognition of her experience, she was
awarded Western Australian Telstra Business
Woman of the Year in 2014 and was a finalist
in The Australian Financial Review’s Westpac
100 Women of Influence (2015).
She is on the board of not-for-profit
organisation Perth Children’s Hospital
Foundation and formerly the Chairman of
the Northern Australia Infrastructure Facility
and Director of Western Power.
Ms Warburton is regarded as a financial,
governance and remuneration expert and
is a Fellow of the Institute of Chartered
Accountants Australia and New Zealand
and Australian Institute of Building. She
is a Graduate of the Australian Institute
of Company Directors, a member of Chief
Executive Women and a part-time member
of the Australian Takeovers Panel.
She holds a Bachelor of Business (Accounting
and Business Law) from Curtin University.
Other current directorships (ASX listed
entities): Gold Road Resources Limited
(Non-Executive Director); NEXTDC Limited
(Non-Executive Director).
Former directorships in the last three years
(ASX Listed Entities): Wellard Limited.
Committee memberships: Remuneration
and Nomination Committee (Chair);
Audit and Risk Management Committee
(Member); Finance Committee (Member)
Non-Executive Director since February 2018.
Non-Executive Director since November 2016.
Lord Coe is currently a senior advisor with
Morgan Stanley & Co International plc and a
Non-Executive Director of the Vitality Group
of health and life insurance companies.
In 2017, he became Chancellor of
Loughborough University having previously
served as Pro Chancellor of the University.
Based in the United Kingdom, Lord Coe
is the Executive Chairman of CSM Sport
and Entertainment, within the Chime
Communications group. He was elected
President of the International Association of
Athletics Federations (IAAF) in 2015 where
he is driving significant governance reforms
through the organisation and its 214
Member Federations around the world.
Lord Coe previously served as Chairman
of the British Olympic Association and was
Chairman of the Organising Committee
for the London 2012 Olympic Games and
Paralympic Games. He was a member of the
British athletics team at the 1980 and 1984
Olympic Games where he won two gold and
two silver medals, as well as breaking eleven
world records.
In 1992, Lord Coe became a Member of
Parliament and during his political career
served as a Government Whip and then
Private Secretary to William Hague, Leader
of the Opposition and Leader of the
Conservative Party. He was appointed to The
House of Lords in 2000.
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
currently holds a senior position at the
Minderoo Foundation as Chief Executive
Officer of the Walk Free Foundation.
She has senior corporate governance
experience and is currently a Commissioner
of the Board of Australian Sports Commission.
A former Director of the Fremantle Football
Club and Western Australian Institute of Sport,
Ms Morris also served as Chairperson of the
Board of Healthway – the WA Government’s
peak health promotion body.
A former member of the Australian Women’s
Hockey Team, Ms Morris won Olympic gold
medals at the Atlanta 1996 and Sydney 2000
Olympic Games. In 1997, she was awarded a
Medal of the Order of Australia (OAM).
Ms Morris is a Member of the Australian
Institute of Company Directors, a Fellow
of Leadership WA, an affiliate member
of Chartered Accountants Australia and
New Zealand, and a member of the Vice
Chancellor’s List, Curtin University.
She holds a Bachelor of Arts (Psychology and
Journalism) received with Distinction and has
completed Finance for Executives at INSEAD.
Committee memberships: Remuneration
and Nomination Committee (Member); Audit
and Risk Management Committee (Member)
Nev Power
Former Chief Executive Officer and Managing Director
Mr Power was appointed Chief Executive Officer in July 2011 and Managing Director in
September 2011 and retired from Fortescue’s Board after resigning from his role as Chief
Executive Officer in February 2018.
With more than 30 years’ experience in the mining, steel and construction industries, Mr
Power led Fortescue’s strong, values based culture and commitment to safety excellence.
Prior to joining Fortescue, Mr Power held chief executive positions at Thiess and Smorgon
Steel Group.
Fortescue Metals Group Ltd Annual Report FY18 Dr Jean Baderschneider
Non-Executive Director
Penny Bingham-Hall
Non-Executive Director
Dr Cao Zhiqiang
Non-Executive Director
Non-Executive Director since January 2015.
A highly regarded leader in both business
and civil society, Dr Baderschneider brings 35
years of extensive international experience
in procurement, strategic sourcing and
supply chain management along with a deep
understanding of high-risk operations and
locations and complex partnerships.
Dr Baderschneider retired from ExxonMobil
in 2013 where she was Vice-President of
Global Procurement. During her 30-year
career, she was responsible for operations
all over the world, including Africa, South
America, the Middle East and Asia.
A past member of the Board of Directors
of the Institute for Supply Management
and the Executive Board of the National
Minority Supplier Development Council,
Dr Baderschneider also served on the
boards of The Center of Advanced
Purchasing Studies and the Procurement
Council of both The Conference Board and
the Corporate Executive Board. In February
2011, she was the Presidential appointee to
the US Department of Commerce’s National
Advisory Council of Minority Business
Enterprises. She holds a Master’s Degree
from the University of Michigan and a PhD
from Cornell University.
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 memberships: Finance
Committee (Member); Audit and Risk
Management Committee (Member)
Cameron Wilson
Company Secretary
Mr Wilson was appointed Company Secretary
in February 2018, bringing over 20 years mining
industry experience across the gold, nickel,
coal and mineral sands sectors. He started his
career as a lawyer in private practice with a
leading Australian law firm and subsequently
held a number of senior legal, commercial and
governance positions, including most recently
as General Counsel and Company Secretary at
Iluka Resources Limited.
Mr Wilson holds a Bachelor of Laws from
the University of Western Australia and is
a Graduate of the Australian Institute of
Company Directors.
Alison Terry
Group Manager Corporate Affairs and
Joint Company Secretary
Ms Terry joined Fortescue in 2014 as Group
Manager Corporate Affairs and serves as Joint
Company Secretary, having been appointed to
the role in February 2017.
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 a Bachelor of Economics and
Bachelor of Laws (Honours) and a Graduate
Diploma of Business (Accounting).
Non-Executive Director since January 2018
(nominated director from Hunan Valin Iron
and Steel Group Company Ltd).
Dr Cao is currently the Chairman of Hunan
Valin Iron and Steel Group Company Ltd and
brings extensive experience in technology
and steel mill management, along with a
deep background in international co-
operation.
Dr Cao joined Valin Xiangtan Steel in
1997 and has worked in a variety of
roles including Director of the Research
and Development centre, before being
appointed Chief Executive Officer.
He holds a PhD in Science and is a senior
engineer research fellow.
Cao Huiquan
Former Non-Executive Director
Mr Cao was appointed Chief Executive
Officer of Hunan Valin Iron and Steel Group
Company Ltd in 2005 and concurrently held
the position of General Manger of Lianyuan
Iron and Steel Group Co Ltd.
Mr Cao resigned from Fortescue’s Board
in January 2018. Dr Cao Zhiqiang was
appointed to Fortescue’s Board,
replacing Mr Cao in January 2018.
13
01 | Overview
Core
Leadership
team
The Core Leadership
team was announced on
30 November 2017
as part of a move from a traditional
leadership focus to a team with active
Board support, devolving authority
throughout the organisation.
Elizabeth Gaines
Chief Executive Officer
Ms Gaines commenced as Chief Executive
Officer in February 2018.
A highly experienced business leader with
extensive international experience as a
Chief Executive Officer and group executive,
Ms Gaines has a proven track record in
financial and operational leadership across
a number of industries, including resources,
construction and infrastructure, financial
services and travel and hospitality.
After joining Fortescue as a Non-Executive
Director in February 2013, Ms Gaines was
appointed Chief Financial Officer and
Executive Director in February 2017. She is a
former Chief Executive Officer of Helloworld
Limited and Heytesbury Pty Limited and
has also held the position of Chief Financial
Officer at 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.
Fortescue Metals Group Ltd Annual Report FY18
Left to right: Ian Wells, Elizabeth Gaines, Julie Shuttleworth, Greg Lilleyman
Greg Lilleyman
Chief Operating Officer
Julie Shuttleworth
Deputy Chief Executive Officer
Ian Wells
Chief Financial Officer
Mr Lilleyman commenced as Chief
Operating Officer in February 2018, after
joining Fortescue as Director Operations in
January 2017.
With nearly three decades of extensive
international experience in the mining sector,
including over 20 years in the iron ore sector,
across multiple commodities in large scope
project development and construction,
operational and business leadership, JV
management and technology deployment,
Mr Lilleyman brings significant business
credentials and iron ore market knowledge to
Fortescue’s Core Leadership team.
Mr Lilleyman holds a degree in Construction
Engineering from Curtin University and has
completed the Vincent Fairfax Fellowship
in Ethical Leadership at the University of
Melbourne as well as the prestigious Wharton
Business School’s Advanced Management
Program. He is a member of the Australian
Institute of Mining and Metallurgy, the
Australian Institute of Company Directors
and a Fellow of the Australian Institute of
Management.
Ms Shuttleworth commenced as Deputy
Chief Executive Officer in January 2018,
following four years as General Manager
Cloudbreak and later General Manager
Solomon at Fortescue. She has over 23
years’ experience in the mining industry in
Australia, China and Tanzania, including 19
years in gold/copper working for Newcrest
Mining, Sino Mining and Barrick Gold.
Ms Shuttleworth holds a double major in
Extractive Metallurgy and Chemistry from
Murdoch University. She is a Fellow and
Chartered Professional of the Australian
Institute of Mining and Metallurgy, a
Graduate Member of the Australian
Institute of Company Directors and is on
the International Committee of the Society
of Mining Metallurgy & Exploration. She
has attended INSEAD and Harvard Business
School, holds several Diplomas in Financial
Markets and Management, and sponsors
the Julie Shuttleworth Prize in Mineral
Processing at Murdoch University.
Ms Shuttleworth has received numerous
accolades including 2012 West Australian
Business Woman of the Year, she is listed in
the 2013 WIM (UK) 100 Global Inspirational
Women in Mining, and is one of the 2014
Australian Women of Influence.
Mr Wells joined Fortescue in 2010 and has
held multiple senior executive roles in the
Finance team, including funding, treasury,
planning and analysis as well as Company
Secretary. He commenced as Chief Financial
Officer in February 2018.
Prior experience includes financing
Fortescue’s US$10 billion major iron ore
project development to 155 million tonnes
per annum, and successfully undertaking
multi-billion dollar capital raising and
refinancing transactions in domestic and
international capital markets.
Most recently, he has held the position of
Group Manager Corporate Finance, leading
Fortescue's capital management strategy with
group responsibility for Treasury and Funding.
With more than 20 years’ experience as a
senior executive in leading ASX listed and
private companies in the mining, energy
infrastructure and healthcare industries, Mr
Wells’ prior positions include Chief Financial
Officer of Singapore Power subsidiary Jemena
Limited and Acting CFO of Alinta Limited.
Mr Wells holds a Bachelor of Business in
Accounting, is a Fellow of CPA Australia, a
Certified Finance and Treasury Professional
and a Graduate of the Australian Institute of
Company Directors.
15
01 | Overview
01 | Overview
Executive team
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 mining company.
Danny Goeman
Peter Huston
Tim Langmead
David Liu
Linda O’Farrell
Alison Terry
Gerhard Veldsman
Rob Watson
Fortescue Metals Group Ltd Annual Report FY18
Danny Goeman
Director Sales and Marketing
David Liu
Senior Adviser to the CEO and COO
Gerhard Veldsman
Executive GM Pilbara Operations
Mr Veldsman was appointed Executive
General Manager Pilbara Operations in
February 2018. He started his career at
Fortescue in 2011 and has led the Port and
Rail operations and Solomon Hub. Most
recently, he was GM Iron Ore Projects,
responsible for the Iron Bridge Joint Venture
Magnetite Project and feasibility studies into
the Western Hub and Nyidinghu.
With more than 15 years’ industry
experience spanning various commodities
and operations in Australia and South
Africa, Mr Veldsman’s previous experience
includes senior operations management,
asset reliability and overseeing mechanical,
structural and expansion projects.
Mr Veldsman holds a Bachelor of
Engineering (Mech), Masters of
Engineering (Mech), and is registered as a
Professional Engineer in South Africa.
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.
Mr Watson’s career in health and safety
spans over 25 years in a number of
industries and commodities. Mr Watson
holds a Masters in Occupational Health
and Safety.
Mr Liu was appointed Director Sales and
Marketing in 2011. He has almost 30 years’
experience in trade and investment projects
between Australia and China and a strong
understanding of Chinese culture and
business practices.
Mr Liu moved from Director Sales and
Marketing into the role of Senior Adviser to the
Chief Executive Officer and Chief Operating
Officer in August 2018.
Linda O’Farrell
Group Manager Fortescue People
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 deep
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.
Alison Terry
Group Manager Corporate Affairs and
Joint Company Secretary
Ms Terry joined Fortescue in 2014 as Group
Manager Corporate Affairs and serves as
Joint Company Secretary, having been
appointed to the role in February 2017.
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 a Bachelor of Economics and
Bachelor of Laws (Honours) and a Graduate
Diploma of Business (Accounting).
Mr Goeman was appointed Director Sales and
Marketing in August 2018.
Mr Goeman has more than 25 years of
experience in management, sales and
marketing, strategy development and high
level commercial negotiations, including more
than 20 years with the Rio Tinto group
of Companies.
Mr Goeman has a wealth of experience in
leading commercial transactions in different
geographies including Australia, Asia and
Europe, and has experience in a range of
commodities including diamonds, iron ore,
coal and potash.
Mr Goeman has a Masters degree in Business
Administration.
Peter Huston
Chief General Counsel and Director
Corporate Services
Mr Huston joined Fortescue as Chief General
Counsel in January 2005 and joined the
executive team in January 2009 as Director
Corporate Services.
Prior to joining Fortescue, Mr Huston spent
12 years as a partner of the law firm now
known as Norton Rose and 10 years in
private equity, mergers and acquisitions.
Mr Huston holds a Bachelor of Laws
(Honours), Commerce and Jurisprudence
and a Master of Laws.
Tim Langmead
Director Community, Environment and
Government
Mr Langmead was appointed Director External
Relations in January 2014, after joining
Fortescue as Group Manager Corporate
Affairs in January 2013 and was subsequently
appointed Director Community, Environment
and Government.
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.
17
01 | Overview
01 | Overview
Fortescue’s
Vision
To be the safest, lowest
cost, most profitable
mining company.
Values
Fortescue’s unique Values drive the
Company’s performance in a way
that sets it apart from others.
Culture
Fortescue is a values-based business
with a strong, differentiated culture.
The Company believes that by
leveraging the unique culture of
its greatest asset, its people, it will
achieve its stretch targets.
Fortescue Metals Group Ltd Annual Report FY18
19
02
Operating
and Financial
Review
Fortescue Metals Group Ltd Annual Report FY18
Operating and
financial highlights
Production
C1 costs
Cash on hand
170
mt
US$
12.36/wmt
US$
863
m
Revenue
Gross debt
Net debt
US$
6.9
bn
US$
4.0
bn
US$
3.1
bn
21
02 | Operating and Financial Review
Overview of
operations
Chichester Hub
The Chichester Hub in the Chichester
Ranges, comprising the Cloudbreak
and Christmas Creek mines, has an
annual production capacity of 95 million
tonnes per annum (mtpa) from three Ore
Processing Facilities (OPFs).
Consistent and sustained output delivered
from the OPFs has allowed Fortescue
to continue optimisation of its product
strategy through enhanced blending and
beneficiation, increasing iron upgrades
and reducing impurities. This has resulted
in lower mining cut-off grades, further
optimising ore bodies and sustainably
reducing strip ratios.
Building on the success of autonomous
haulage technology (AHS) at the Solomon
Hub, the first autonomous trucks began
operation at Christmas Creek during the
year. The conversion of approximately
100 haul trucks at the Chichester Hub
will see Fortescue become the first iron
ore operation in the world to have a fully
autonomous fleet.
Cloudbreak’s five kilometre relocatable
conveyor and semi-mobile primary crushing
station also began operation in FY18.
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 75mtpa.
Solomon represents a valuable source of
production by blending higher iron grade,
low cost Firetail ore with low phosphorous
Chichester ore to create the high quality
Fortescue blend.
Fortescue successfully first deployed CAT
AHS at the Solomon Hub in 2012. Today, the
AHS fleet consists of 70 trucks, delivering a
30 per cent improvement in productivity.
Fortescue Metals Group Ltd Annual Report FY18
Christmas Creek
Cloudbreak
Solomon
Hedland Operations
Fortescue wholly owns and operates its
purpose built and 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, layout
and optimal berthing configuration make
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. Three
Fortescue Ore Carriers made their maiden
voyage into Herb Elliot Port in FY18, with
the remaining vessel due to be delivered in
early FY19.
Construction of Fortescue’s tug haven
commenced during the year. Due to
begin operations in 2019, the tug fleet will
provide safe and reliable towage services
that will maximise efficiencies at the
Company's port operations.
Eliwana
During the year, Fortescue’s Board of
Directors approved the development of
the Eliwana mine and rail project. With an
estimated capital cost of US$1.275bn, the
development consists of 143km of rail and a
new 30mtpa dry OPF. The project underpins
the introduction of a 60 per cent iron grade
product and will maintain Fortescue’s low
cost status, providing greater flexibility, while
maintaining a minimum 170mtpa production
rate over 20 years.
The Eliwana project will build on Fortescue’s
development and construction capability,
utilising the latest technology, autonomous
trucks and design efficiency while
redeploying existing assets to this world
leading development.
Iron Bridge
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. Feasibility studies for
the high grade, magnetite project continue
to be assessed with a decision, in conjunction
with Fortescue’s joint venture partners,
expected during the 2018 calendar year.
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 35 to 42 of this
report. Exploration activity in FY18 included
the discovery of several iron ore deposits
along the southern and western margins of
the Jeerinah Anticline in the western portion
of the Hamersley Group. The Western Hub
Resources include significant amounts of
high iron content bedded iron ore hosted
in both the Brockman and Marra Mamba
Formations adding high iron content, dry,
low cost tonnes to Fortescue’s product suite
and providing optionality and flexibility
moving forward.
During the year, Fortescue continued to
undertake early stage, low cost exploration
on copper-gold prospective tenements in
South Australia and New South Wales.
South America
Fortescue continued to assess exploration
and development opportunities throughout
South America including Ecuador,
Colombia and Argentina. 32 exploration
concessions were awarded in Ecuador and
initial evaluation of potential for porphyry
copper deposits commenced. A further 64
applications were lodged in Colombia for
exploration concessions in areas which are
copper and gold prospective.
Construction of
Fortescue’s tug
haven commenced
during the year.
23
02 | Operating and Financial Review
Fortescue is proud of its longstanding
relationships with China.
This year marked a number of important
milestones in the Company’s relationship
with China as Fortescue recognised 10
years since the first shipment of iron ore,
celebrated the delivery of the one billionth
tonne and marked a decade as Diamond
Sponsor of the Boao Forum for Asia.
The success and longevity of Fortescue’s
association with China is due to the
multifaceted nature of the relationship
which is built on four pillars of engagement:
supply, procurement, investment and
community engagement.
A decade ago, Fortescue shipped its first
180,000 tonnes of iron ore aboard the Cape
size vessel Heng Shan from Herb Elliott Port
in Port Hedland. Today, Fortescue is the
lowest cost supplier of seaborne iron ore
into China.
Fortescue has spent over US$1 billion in
procurement from China, including the
US$600 million the construction of the fleet
of Fortescue Ore Carriers. The partnerships
with Chinese manufactures has had lasting
benefits, enabling the businesses to enter
the world market.
It has been 30 years since China’s first
investment in Australia’s iron ore industry,
which includes the highly successful
direct investment in Fortescue by Hunan
Valin Steel Group who remain a major
shareholder.
The engagement extends to the community
level, with Fortescue sponsoring academic
scholarships at Central South University
in China and hosting the China-Australia
university partnership in the Pilbara.
Fortescue is proud of its contribution to
China’s remarkable economic development
and its role in supporting the important
trade relationship between China and
Australia, which has been vital to driving
economic growth in both nations.
Fortescue Metals Group Ltd Annual Report FY18 Key
Performance
Indicators
Safety
3.7
Total Recordable
Injury Frequency Rate
Production
170 mt
Meeting annual
production target
C1 Costs
US$
12.36 /wmt
Four per cent reduction
from prior year
25
02 | Operating and Financial Review
Key performance indicators
Safety
Fortescue places the utmost importance on
safety, as the Company’s number one Value.
Every day, Fortescue’s people are
encouraged and empowered to look out
for their mates and themselves.
Fortescue is committed to continuing to
improve its safety performance across the
following areas:
• Strengthening safety leadership through
specific action plans to improve the
results of the Company-wide Safety
Excellence and Culture Survey
• Engagement with its contracting partners
to ensure compliance with Fortescue’s
safety standards and a safe workplace
• Enhancement of the critical control
monitoring (CCM) program to eliminate
fatalities and serious injuries. The CCM
program aligns with Fortescue’s
risk profile and any significant incident
trends
• The continued reduction of workplace
exposures through safety improvement
opportunities.
The Company is committed to providing
a safe workplace for all of its employees
and contractors as it works to become a
global leader in safety through reducing
its Total Recordable Injury Frequency Rate
(TRIFR) and Significant Incident Frequency
Rate to the lowest quartile of the resources
industry.
Fortescue’s rolling twelve-month TRIFR
increased by 28 per cent from 2.9 at 30 June
2017 to 3.7 at 30 June 2018, predominantly
due to a number of low severity injuries.
12-month rolling TRIFR, per million hours worked
6.0
5.1
4.3
2.9
3.7
FY14
FY15
FY16
FY17
FY18
Production
Consistent and predictable production.
Production and shipments on a wet metric tonne basis (wmt) for the year are outlined below:
12 months to 30 June
Shipments
Ore mined
Overburden removed
Ore processed
2018
million wmt
2017
million wmt
Movement
%
170
185
267
166
170
198
205
172
-
-7
+30
-3
An annual shipment rate of 170mtpa was maintained in FY18 including a record June quarter of 46.5mt. Mining and processing activities
continued to support Fortescue’s product strategy and shipping targets. Total processing tonnes included a three per cent increase in the
OPF output compared to the prior year.
Fortescue’s product strategy continued to focus on delivering value to its customers and maximising the value of its ore bodies and
infrastructure assets through beneficiation, as well as operating, asset utilisation and productivity efficiencies.
Strip ratio across all mining operations increased to 1.4 with the five year mine strip ratio remaining at 1.5.
Mining, million wmt
Processing, million wmt
Shipments, million wmt
198
181
185
164
140
154
126
172
168
166
165
169
170
170
124
FY14
FY15
FY16
FY17
FY18
FY14
FY15
FY16
FY17
FY18
FY14
FY15
FY16
FY17
FY18
Fortescue Metals Group Ltd Annual Report FY18
Key performance indicators
Costs
C1 costs of US$12.36/wmt, a four
per cent reduction from the prior year.
During the year, Fortescue has delivered on key strategic initiatives which position the Company for the next phase of growth while
improving productivity and remaining the lowest cost producer of seaborne iron ore to China.
In FY18, Fortescue delivered a record low C1 cost for the year of US$12.36/wmt, a four per cent improvement over the prior year
offsetting a 12 per cent increase in total material moved, a three per cent increase in foreign exchange and a 21 per cent increase in oil
price. As a result, the Company has maintained its position as the lowest cost supplier of seaborne iron ore into China based on Metalytics
Resource Sector Economic analysis.
The strategic initiatives achieved in FY18 include:
• The transition to autonomous haul
fleet at Christmas Creek with 19
trucks converted and in operation at
30 June 2018. Upon completion of the
program, with approximately 100 haul
trucks at the Chichester Hub and 70 at the
Solomon hub, Fortescue will become the
first iron ore operation in the world to have
a fully autonomous fleet
• Commissioning of the relocatable
• Continued improvement focus
conveyor at Cloudbreak. The
five kilometre conveyor includes a
semi-mobile primary crushing station
that feeds directly into the ore processing
facility. The relocatable conveyor and
semi-mobile crushing facilities can be
positioned approximate to pits and
relocated once mining is complete
across all operations including mine
planning, design and review of mining
methodology, cross-site operational
collaboration, efficiency of mining
equipment and labour productivity.
The chart below illustrates progressive cost reductions over the past five years, representing sustainable, long term improvements in
operating costs.
C1 cost journey, US$/wmt
33.84
27.15
15.43
12.82
12.36
FY14
FY15
FY16
FY17
FY18
27
02 | Operating and Financial Review
Financial
performance
The Company's focus on safety and the
productivity and efficiency of its operations
underpins the generation of strong
margins and sustainable delivery
of shareholder value.
Key metrics
Revenue, US$ millions
Underlying EBITDA1, US$ millions
Underlying net profit after tax1, US$ millions
Net profit after tax, US$ millions
Earnings per share, US cents
Realised price, US$/dmt
C1 costs, US$/wmt
Underlying EBITDA margin, US$/dmt
Key ratios
Underlying EBITDA margin, %
Return on equity, %
2018
6,887
3,182
1,080
878
28.2
44
12
20
46
9
2017
8,447
4,744
2,134
2,093
67.3
53
13
30
56
23
1 Refer to page 29 for the reconciliation of Underlying EBITDA and Underlying net profit after tax to the financial metrics reported in the financial statements under Australian
Accounting Standards.
Fortescue Metals Group Ltd Annual Report FY18 Financial performance
In FY18, Fortescue delivered net profit after tax of US$878 million and earnings per share of 28.2 cents (FY17: US$2,093 million and earnings
per share of 67.3 cents). Underlying net profit after tax, adjusted for one-off refinancing and early debt repayment costs, was US$1,080 million
(FY17: US$2,134 million).
Underlying EBITDA
Underlying EBITDA, defined as earnings before interest, tax, depreciation and amortisation, exploration, development and other expenses, is
used as a key measure of the Company’s financial performance.
During the year, Fortescue’s operations generated Underlying EBITDA of US$3,182 million (FY17: US$4,744 million).
The reconciliation of Underlying EBITDA and Underlying net profit after tax to the financial metrics reported in the financial statements
under Australian Accounting Standards is presented below:
2018
2017
Operating sales revenue
Cost of sales excluding depreciation and amortisation
Net foreign exchange gain
Administration expenses
Other income
Underlying EBITDA
Finance income
Finance expenses
Depreciation and amortisation
Exploration, development and other
Net profit before tax
Income tax expense
Net profit after tax
Cost of early debt repayment after tax
Underlying net profit after tax
1 Refer to notes to the accompanying financial statements.
Note1
3
5
4
6
4
7
7
5, 6
6
14
US$m
6,887
(3,665)
29
(70)
1
3,182
24
(652)
(1,277)
(32)
1,245
(367)
878
202
1,080
US$m
8,447
(3,661)
13
(56)
1
4,744
19
(502)
(1,243)
(51)
2,967
(874)
2,093
41
2,134
The Underlying EBITDA of US$3,182 million for FY18 represents a margin of 46 per cent or US$20/dmt. As illustrated in the chart below,
Fortescue has been maintaining strong Underlying EBITDA margins through market cycles, demonstrating the commitment to and focus on
productivity, efficiency and innovation.
US$/dmt
140
120
100
80
60
40
20
51
FY14
17
FY15
21
FY16
30
FY17
20
FY18
Underlying EBITDA, US$/dmt
62 Platts CFR Index, US$/dmt
Fortescue realised price, US$/dmt
Average Underlying EBITDA, US$/dmt
29
02 | Operating and Financial Review
Financial performance
Underlying EBITDA (continued)
Key factors contributing to the 33 per cent reduction in Underlying EBITDA from the prior year were primarily market driven, with lower
prices realised for Fortescue products averaging US$44/dmt in FY18 (FY17: US$53/dmt) and increased shipping rates with the average BCI5
index of US$7/wmt (FY17: US$6/wmt).
4,744
18
1,531
Underlying EBITDA (US$m)
77
222
129
3
3,182
FY17
Volume
Price
C1 costs
Shipping costs
Royalty
Other
FY18
Revenue
Sale of iron ore, US$ millions
Other revenue, US$ millions
Operating sales revenue, US$ millions
Shipments, million wmt
62% Fe CFR Platts index, US$/dmt
Realised price, US$/dmt
1 Notes to the accompanying financial statements.
Note1
3
3
2018
US$m
6,775
112
6,887
170
69
44
2017
US$m
8,335
112
8,447
170
70
53
Demand for Fortescue products remained strong with 170mt of iron ore sold to customers in FY18.
The Platts 62 CFR index averaged US$69/dmt in FY18, consistent with the prior year (FY17: US$70/dmt). High profit margins being realised
by Chinese steel mills, uncertainty surrounding environmental restrictions and high coal prices supported increased demand for high iron
content ores during FY18. As a result, the spread in prices between iron ore products widened during the year and Fortescue realised
US$44/dmt compared to US$53/dmt in the prior year.
Fortescue’s low cost base and continued focus on productivity and efficiency improvements has partially offset the impact of a reduction in
realised iron ore prices to deliver strong cash margins allowing the Company to withstand periods of market volatility. Fortescue continues
to explore options for further improvements in margin and has approved the Eliwana project which will support a higher Fe grade, lower
alumina product while maintaining flexibility to manage product volumes and commodity cycles.
Fortescue Metals Group Ltd Annual Report FY18
Financial performance
Production costs
The reconciliation of C1 costs and total delivered costs to customers to the financial metrics reported in the financial statements under
Australian Accounting Standards is set out below:
Mining and processing costs, US$ millions
Rail costs, US$ millions
Port costs , US$ millions
C1 costs, US$ million
Shipments, million wmt
C1 costs, US$/wmt
Shipping costs, US$ millions
Government royalty2, US$ millions
Administration expenses, US$ millions
Shipping, royalty and administration, US$ millions
Shipments, million wmt
Shipping, royalty and administration, US$/wmt
Total delivered cost, US$/wmt
Total delivered cost, US$/dmt
Note1
5
5
5
5
5
6
2018
1,739
188
172
2,099
170
12.36
1,148
416
70
1,634
170
10
22
24
2017
1,801
200
183
2,184
170
12.82
929
545
56
1,530
170
9
22
24
1 Refer to notes to the accompanying financial statements.
2 Fortescue pays 7.5 per cent state government royalty for the majority of its iron ore products, with a concession rate of five per cent applicable to beneficiated fines.
Key factors contributing to FY18 operating cost performance are discussed on page 27.
Non-operating events
Key non-operating matters forming part of the financial result include:
• In the first half of FY18, Fortescue repurchased the Solomon Power Station (FY17: US$326 million). During the second half of the year,
Fortescue fully repaid and refinanced the outstanding US$2,160 million of the 9.75% Senior Secured Notes, through a combination of
US$1,900 million refinancing and US$260 million cash payment
• Finance expenses of US$652 million include one-off costs associated with the above early repayments and refinancing of US$289 million
and an interest expense of US$340 million, a 21 per cent reduction from the prior year reflecting lower indebtedness and improved credit
terms
• Depreciation and amortisation expense of US$1,277 million (FY17: US$1,243 million)
• Income tax expense for the year of US$367 million at an effective income tax rate of 29.5 per cent (FY17: US$874 million, at an effective
rate of 29.5 per cent).
31
02 | Operating and Financial Review
Financial
Position
Fortescue’s balance sheet has been restructured on low cost, investment grade terms while maintaining flexibility to support ongoing
operations and future growth.
Fortescue’s debt decreased to US$3,975 million with a gross gearing of 29 per cent (FY17: US$4,471 million), inclusive of finance leases of
US$595 million (FY17: US$818 million). The US$525 million revolving facility remains undrawn at 30 June 2018.
Key metrics
Borrowings, US$ millions
Finance lease liabilities, US$ millions
Total debt
Cash and cash equivalents, US$ millions
Net debt, US$ millions
Equity, US$ millions
Cash generated from operations, US$ millions
Cash flows from operating activities, US$ millions
Capital expenditure, US$ millions
Free cash flow, US$ millions
Key ratios
Gearing, %
Net gearing, %
1 Refer to notes to the accompanying financial statements.
Note1
9(a)
9(a)
9(b)
2018
3,380
595
3,975
863
3,112
9,732
3,031
1,601
(890)
711
29
24
2017
3,653
818
4,471
1,838
2,633
9,734
5,024
4,256
(716)
3,540
31
21
Fortescue Metals Group Ltd Annual Report FY18
Financial position
Debt maturity profile
Fortescue successfully refinanced and repaid its high cost senior secured notes in FY18 through the establishment of a US$1.4 billion
syndicated term loan, with participation by key Chinese domestic and international relationship banks, a US$500 million senior unsecured
notes issue and a US$260 million cash payment.
This has lowered the Company’s average cost of capital, improved flexibility, strengthened the balance sheet and further developed
Fortescue's strong relationships with China. The Company’s debt maturity profile at 30 June 2018 structured on investment grade terms and
conditions is set out below:
Debt maturity profile (excluding finance leases), US$m
1,400
750
500
750
CY2018
CY2019
CY2020
CY2021
CY2022
CY2023
CY2024
Syndicated term loan
Senior unsecured notes
At 30 June 2018, Fortescue had US$1.4 billion of liquidity available including US$863 million of cash on hand and the US$525 million
undrawn revolving credit facility. The Company has no financial maintenance covenants across all instruments.
The Company has successfully reduced its debt over the past five years to a gross gearing level of 29 per cent at 30 June 2018 (net gearing
24 per cent). Total borrowings and finance lease liabilities of US$3,975 million have returned to below FY11 levels, when Fortescue was
producing at an annual rate of 50mtpa.
US$m
14,000
12,000
10,000
8,000
6,000
4,000
2,000
mt
175
150
125
100
75
50
25
FY08
FY09
FY0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Debt
Tonnes shipped - Fortescue mined ore
33
02 | Operating and Financial Review
Financial position
Finance leases
In FY18, Fortescue repaid the Solomon Power Station finance lease (FY17: $US326 million).
During the year, Fortescue continued to draw down on the finance lease facility entered into the previous year with the China Development
Bank Funding Leasing Co., Ltd in relation to the financing of eight Fortescue ore carriers. The facility of US$473 million funds 85 per cent of
the ore carriers’ costs for a minimum of 12 years on highly flexible terms, including early repayment and extension options, and has been
drawn down progressively as the ships have been delivered. At 30 June 2018, US$405 million of the facility has been utilised following
delivery of the seven ore carriers, with the remaining funds to be drawn down in FY19 on delivery of the final ore carrier.
Cash generated by operations
Fortescue continued to generate strong underlying cash flows from operations during the year with cash on hand at 30 June 2018 of
US$863 million. Key factors contributing to the 62 per cent decrease in operating cash inflows were as follows:
• 18 per cent decrease in revenue as a result of lower realised prices received in FY18
• Increased income tax payments of US$1,062 million (FY17: US$375 million), including US$670 million relating to FY17.
This has been partially offset by:
• Four per cent reduction in C1 costs to US$12.36/wmt in FY18
• Lower interest payments of US$392 million (FY17: US$412), reflecting US$3.0 billion of debt repayments since July 2016.
Capital expenditure
Fortescue’s capital expenditure of US$890 million (FY17: US$716 million) included:
• Sustaining capital of US$507 million (FY17: US$354 million)
• Ore carrier construction of US$149 million (FY17: US$260 million)
• Development capital of US$167 million (FY17: US$63 million)
• Exploration expenditure of US$67 million (FY17: US$39 million).
Dividends and shareholder returns
In FY18, Fortescue generated earnings of 28.2 US cents per share (FY17: 67.3 US cents per share), with return on equity of nine per cent
(FY17: 23 per cent).
2018
878
28.2
9
11
12
23
62
2017
2,093
67.3
23
20
25
45
52
Net profit after tax, US$ millions
Earnings per share, US cents per share
Return on equity, %
Interim dividend, AUD cents per share
Final dividend, AUD cents per share
Total dividend, AUD cents per share
Dividend payout ratio, %
Case Study
Strong
balance sheet
Fortescue’s capital structure underwent significant change
over the past ten years, from restrictive project financing which
supported the initial Cloudbreak mine development, to its most
recent refinancing, delivering flexible, low cost debt reflective of an
investment grade company.
The Term Loan represented another significant milestone in the
commercial relationship between Australia and China, bringing
together a world class financial syndicate delivering globally
competitive financing terms and aligning funding sources
with core business.
In February 2018, Fortescue announced the completion of a
US$1.4 billion Syndicated term loan co-led by Industrial and
Commercial Bank of China and Australia New Zealand Bank.
The US$1.4 billion Term Loan, together with the US$0.5 billion
Unsecured Note and US$260 million of cash transitioned
Fortescue’s balance sheet to an investment grade structure.
Fortescue continues to be disciplined in its approach to capital
management, delivering returns to its shareholders. This is achieved
through sustained productivity improvements which underpin
cashflow generation. Capital management remains a key priority
for Fortescue as the Company continues to invest in the long-term
sustainability of the business, growth options and delivery of
returns to shareholders.
Fortescue Metals Group Ltd Annual Report FY18
03
Ore Reserves
and Mineral
Resources
35
03 | Ore Reserves and Mineral Resources
Ore Reserves and Mineral
Resources
Reporting is grouped by operating and
development properties and includes both
Hematite and Magnetite deposits.
Hematite Ore Reserves total 2.25 billion
tonnes (bt) at an average iron (Fe) grade of
57.4 per cent. Combined Hematite Mineral
Resources total 13bt at an average Fe grade
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
17 August 2018). 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
17 August 2018, 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 17 August 2018.
The Ore Reserve and Mineral Resource
estimation processes followed 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.
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 Resources 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 Operating
Properties – Hematite
The 2018 combined Chichester, Solomon
and Eliwana (part of Western Hub) Hematite
Ore Reserve is a total of 2,250 million dry
tonnes (mt) at an average iron (Fe) grade of
57.4 per cent.
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
2018 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 unchanged (746mt) as a result of
ongoing in-fill drilling at both the Solomon
and the Chichester deposits, as well as
the addition of the Eliwana deposit to
Ore Reserves.
The Chichester Hub (Cloudbreak and
Christmas Creek deposits) contains 1,376mt
at an average Fe grade of 57.1 per cent,
a decrease of 141mt due primarily to a
combination of mining depletion and
reconciliation adjustments (-ve). 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 660mt at an average Fe grade of
57.2 per cent, a decrease of 14mt due to
production with replacement ore through
Grade Control activities and new pit
geometries. Solomon Ore Reserve consists
of 14 per cent of the tonnage in the Proved
Ore Reserve category.
The Ore Reserve estimate for the new
Eliwana deposit is 213mt at an average
Fe grade of 60.1 per cent. The estimate is
supported by Detailed Feasibility Study,
inclusion in the integrated Life Of Mine
plans and Financial Investment Decision
announced in May 2018. Eliwana Ore
Reserve consists of 37 per cent of the
tonnage in the Proved Ore Reserve category.
The 2018 Hematite Ore Reserve estimates
were subject to comprehensive review and
update addressing:
• Addition of Eliwana deposit to Ore
Reserves (increase)
• Revisions to the Cloudbreak pit geometry
and cut-off grade (decrease)
• Revisions to the Christmas Creek pit
geometry cut-off grade (decrease)
• Revisions of ore loss and dilution factors
based on 12 months of operational
history at all mines (tonnage decrease at
the Chichesters)
• Revisions to the processing response
through all 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 (introduction
of 60% Fe product).
Fortescue Metals Group Ltd Annual Report FY18
Hematite Ore Reserves – as at 30 June 2018
June 2018
June 2017
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
Christmas Creek
Proved
Probable
Total
270
276
546
302
528
831
Sub-total Chichester Hub
Proved
Probable
Total
Firetail
Proved
Probable
Total
Kings and Queens
Proved
Probable
Total
Sub-total Solomon Hub
Proved
Probable
Total
Eliwana
Proved
Probable
Total
572
804
1,376
4
90
94
91
475
566
95
565
660
79
135
213
Total Hematite Ore Reserves
Proved
Probable
Total
746
1,504
2,250
Notes in reference to table
57.3
57.1
57.2
57.0
57.1
57.1
57.1
57.1
57.1
58.7
59.3
59.2
55.9
57.1
56.9
56.0
57.4
57.2
61.1
59.5
60.1
57.4
57.5
57.4
5.45
6.09
5.78
5.96
5.52
5.68
5.72
5.71
5.72
6.24
5.66
5.68
7.23
6.50
6.61
7.18
6.36
6.48
4.22
5.27
4.88
5.75
5.92
5.86
2.86
2.81
2.83
2.77
3.09
2.97
2.81
2.99
2.92
2.71
2.45
2.46
2.57
2.69
2.67
2.57
2.65
2.64
2.51
2.37
2.42
2.75
2.81
2.79
0.053
0.059
0.056
0.040
0.046
0.044
0.046
0.050
0.049
0.113
0.107
0.107
0.074
0.064
0.066
0.076
0.071
0.072
0.144
0.115
0.126
0.060
0.064
0.063
8.38
7.69
8.03
7.72
7.68
7.69
8.03
7.68
7.82
6.60
6.68
6.67
9.96
8.76
8.95
9.82
8.42
8.62
5.21
6.27
5.88
7.96
7.83
7.87
304
289
593
326
597
924
631
886
1,517
13
112
125
103
446
548
116
558
674
-
-
-
57.5
57.2
57.4
57.1
57.0
57.0
57.3
57.1
57.2
59.0
59.3
59.2
56.3
56.9
56.8
56.6
57.4
57.3
-
-
-
5.21
5.97
5.58
5.86
5.96
5.93
5.54
5.96
5.79
5.57
5.75
5.73
6.60
6.36
6.40
6.48
6.23
6.28
-
-
-
2.81
2.75
2.78
2.81
3.03
2.95
2.81
2.94
2.88
2.40
2.53
2.51
2.40
2.61
2.57
2.40
2.59
2.56
-
-
-
0.052
0.058
0.055
0.043
0.047
0.046
0.047
0.051
0.049
0.114
0.107
0.107
0.073
0.064
0.065
0.078
0.072
0.073
-
-
-
8.49
8.00
8.25
7.81
7.57
7.66
8.14
7.71
7.89
7.18
6.38
6.46
9.95
9.13
9.29
9.64
8.58
8.76
-
-
-
746
1,444
2,191
57.2
57.2
57.2
5.69
6.07
5.94
2.75
2.80
2.78
0.052
0.059
0.057
8.37
8.05
8.16
• The diluted mining models used to report the 2018 Ore Reserves are based on Christmas Creek Mineral Resource model reported in 2016,
Firetail Mineral Resource model revised in 2014, Cloudbreak Mineral Resource model completed in 2016, Kings Mineral Resource model
released in 2017, Kutayi Mineral Resource model released in 2014 and Eliwana Mineral Resource model released in 2018.
• Diluted mining models are validated by reconciliation against historical production.
• Proved Ore Reserves are inclusive of ore stockpiles at the mines totalling approximately 18mt on dry product basis.
• The Chichester Ore Reserve is inclusive of the Cloudbreak, Christmas Creek and Kutayi BID 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.
• Tonnage information has been rounded and as a result the figures may not add up to the totals quoted.
37
03 | Ore Reserves and Mineral Resources
Ore Reserves – Magnetite
The 2018 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 2018. These were compiled in 2015
and have been re-reported as there have
been no updates. Ore Reserves are quoted
on a dry in-situ tonnes basis prior
to processing.
No Company sales or production have
occurred for Magnetite as at 30 June 2018.
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.
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 deposits) have not been included in
these Ore Reserves.
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 2018
June 2018
June 2017
DTR
mass
recovery
%
In-Situ
Tonnes
(mt)
Product
Iron Fe
%
Product
Silica
SiO2
%
Product
Alumina
Al2O3
%
DTR
mass
recovery
%
In-Situ
Tonnes
(mt)
Product
iron Fe
%
Product
Silica
SiO2
%
Product
Alumina
Al2O3
%
North Star (60.72% Fortescue) - Eastern Limb currently not assessed
Proved
Probable
Total
Glacier Valley (60.72% Fortescue)
Proved
Probable
Total
West Star (60.72% Fortescue)
Proved
Probable
Total
Total Magnetite Ore Reserves
Proved
Probable
Total
Notes in reference to table
-
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
• 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 and Eliwana are stated on
a dry in-situ basis. Mineral Resources from
the Eliwana deposit are reported here for
the first time, previously they were reported
with development properties as part of the
Western Hub. The Mineral Resources are
inclusive of that portion converted to Ore
Reserves, including stockpiles.
As at 30 June 2018, the total Mineral Resource
for the Chichester and Solomon Hubs and
Eliwana was 6,122mt at an average Fe grade
of 56.4 per cent, an increase over that stated
in the prior year. This was accompanied
by a decrease in the proportion of higher
confidence Measured and Indicated Mineral
Resource mineralisation from 73 per cent
to 66 per cent.
The Chichester Hub Mineral Resource
totalled 3,061mt at an average Fe grade
of 56.3 per cent, with 79 per cent of the
tonnage in the Measured and Indicated
Mineral Resource categories.
The Solomon Hub Mineral Resource
totalled 2,051mt at an average Fe grade
of 55.5 per cent, with 61 per cent of the
tonnage in the Measured and Indicated
Mineral Resource categories.
The Eliwana Mineral Resource totalled
1,010mt at an average Fe grade of 58.8
percent, with 34 percent of the tonnage
in the Measured and Indicated Mineral
Resource categories.
Fortescue Metals Group Ltd Annual Report FY18
Hematite Mineral Resources (Operating Properties) – as at 30 June 2018
June 2018
June 2017
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
%
5.55
6.69
6.42
6.13
6.28
6.58
7.05
6.62
5.93
6.61
6.92
6.45
5.91
6.79
7.36
7.01
7.96
7.98
8.00
7.99
7.86
7.79
7.89
3.48
3.43
3.56
0.057
0.059
0.053
3.47
0.058
3.09
3.72
3.75
0.047
0.051
0.054
3.57
0.051
3.28
3.64
3.71
0.052
0.053
0.054
3.53
0.053
3.43
2.81
3.35
0.123
0.113
0.107
3.06
0.111
3.02
3.40
3.47
0.087
0.072
0.082
3.39
0.077
3.04
3.31
3.45
0.088
0.078
0.086
Cloudbreak
Measured
Indicated
Inferred
Total
Christmas Creek
Measured
Indicated
Inferred
Total
479
428
134
56.7
56.1
56.4
1,041
56.4
515
1,004
501
56.9
56.1
55.6
2,020
56.2
Sub-total Chichester Hub
994
1,433
635
56.8
56.1
55.8
3,061
56.3
8
170
133
310
152
919
669
57.5
58.1
57.2
57.7
54.9
55.3
55.0
1,741
55.1
160
1,089
802
55.0
55.7
55.4
Measured
Indicated
Inferred
Total
Firetail
Measured
Indicated
Inferred
Total
Kings and Queens
Measured
Indicated
Inferred
Total
Sub-total Solomon Hub
Measured
Indicated
Inferred
Total
Eliwana
Measured
Indicated
Inferred
Total
2,051
55.5
7.84
3.34
0.082
229
113
668
60.0
58.5
58.4
1,010
58.8
4.89
5.40
5.70
5.48
2.61
2.81
3.21
0.141
0.098
0.107
3.03
0.114
Total Hematite Operational Mineral Resources
Measured
Indicated
Inferred
Total
1,383
2,634
2,105
57.1
56.0
56.5
6,122
56.4
5.98
7.05
6.90
6.76
3.14
3.47
3.45
0.071
0.066
0.083
3.39
0.073
Notes in reference to table
8.7
8.0
7.7
8.3
7.8
7.9
7.8
7.9
8.2
7.9
7.8
8.0
7.8
6.7
7.0
6.8
9.9
8.9
9.2
9.1
9.8
8.6
8.9
8.8
5.8
7.1
6.7
6.6
8.0
8.2
7.9
8.0
478
438
138
56.7
56.1
56.3
1,055
56.4
522
1,088
505
56.9
56.1
55.6
2,115
56.2
1,000
1,526
643
56.8
56.1
55.8
3,170
56.2
21
193
134
348
196
893
671
58.1
58.3
57.2
57.9
55.0
55.2
54.9
1,761
55.1
217
1,087
805
55.3
55.7
55.3
5.60
6.70
6.46
6.17
6.12
6.74
7.09
6.67
5.87
6.73
6.95
6.50
5.43
6.62
7.34
6.83
7.81
8.00
8.22
8.06
7.59
7.75
8.07
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
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
2,109
55.5
7.86
3.34
0.082
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,218
2,613
1,448
56.6
55.9
55.5
5,279
56.0
6.18
7.15
7.58
7.04
3.21
3.47
3.62
0.058
0.064
0.070
3.45
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
• Chichester Hub Mineral Resources are quoted at a cut-off of 53.5 per cent Fe, Solomon Hub and Eliwana Mineral Resources are quoted at a
cut-off grade of 51.5 per cent Fe.
• Fortescue is yet to remodel BCI Mineral Resources.
• The Measured Mineral Resource estimate includes mine stockpiles totalling approximately 20mt.
39
03 | Ore Reserves and Mineral Resources
Mineral Resources Development Properties – Hematite
Fortescue has announced a 393 million tonnes (mt) addition to the Greater Western Hub Mineral Resource as a result of exploration drilling,
including increases to the existing Lora and Boolgeeda deposits. This update to the development properties is reported to JORC 2012
standard as identified in the Fortescue ASX release of 17 August 2018 that includes the supporting technical data.
The Eliwana deposit previously included in the Greater Western Hub has been transferred to the operating properties.
Hematite Mineral Resources (Development Properties) – as at 30 June 2018
June 2018
June 2017
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
Greater Solomon
Measured
Indicated
Inferred
Total
Greater Western Hub
Measured
Indicated
Inferred
Total
Nyidinghu
Measured
Indicated
Inferred
Total
-
-
433
433
-
-
-
-
-
-
-
-
56.4
56.4
7.10
7.10
3.77
0.058
3.77
0.058
-
254
2,404
-
56.6
56.8
-
6.70
6.93
-
3.45
3.71
-
0.083
0.081
2,658
56.8
6.91
3.69
0.082
-
-
-
-
-
-
-
-
-
-
1,642
57.1
1,642
57.1
5.72
5.72
2.85
0.078
2.85
0.078
23
580
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
2,463
57.4
4.87
3.25
0.147
Total Development Mineral Resources
Measured
Indicated
Inferred
Total
23
834
6,340
59.6
57.6
57.0
3.56
5.18
6.06
2.21
3.11
3.39
0.139
0.128
0.098
7,198
57.1
5.95
3.35
0.102
Notes in reference to table
-
-
7.0
7.0
-
8.3
7.2
7.3
-
-
9.0
9.0
8.0
8.6
8.8
8.8
8.0
8.5
8.1
8.2
-
-
433
433
-
-
-
-
-
-
-
-
56.4
56.4
7.10
7.10
3.77
0.058
3.77
0.058
-
254
2,404
-
56.6
56.8
-
6.70
6.93
-
3.45
3.71
-
0.083
0.081
2,658
56.8
6.91
3.69
0.082
-
-
-
-
-
-
-
-
-
-
2,125
57.9
2,125
57.9
5.53
5.53
2.93
0.094
2.93
0.094
23
580
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
2,463
57.4
4.87
3.25
0.147
23
834
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
7,680
57.3
5.89
3.35
0.105
-
-
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
• 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 Greater Western Hub Mineral Resource includes the Flying Fish, Vivash, 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.
Fortescue Metals Group Ltd Annual Report FY18
Mineral Resources Development Properties – Magnetite
Mineral Resource estimates for the North Star, Eastern Limb, West Star and Glacier Valley deposits (60.72 per cent Fortescue) were completed
in 2017 and have been re-reported as there have been no updates. Continued internal analysis of the resource models has confirmed the
integrity of these resources, with the robust Measured plus Indicated Resources in North Star, Eastern Limb and Glacier Valley the focus of a
mining study to evaluate the future development of the project.
Magnetite Mineral Resources – as at 30 June 2018
June 2018
June 2017
DTR
mass
recovery
%
In-Situ
Tonnes
(mt)
In-Situ
Iron Fe
%
In-Situ
Silica
SiO2
%
In-Situ
Alumina
Al2O3
%
DTR
mass
recovery
%
In-Situ
Tonnes
(mt)
In-Situ
iron Fe
%
In-Situ
Silica
SiO2
%
In-Situ
Alumina
Al2O3
%
North Star + Eastern Limb (60.72% Fortescue)
Measured
Indicated
Inferred
Total
Glacier Valley (60.72% Fortescue)
Measured
Indicated
Inferred
Total
West Star (60.72% Fortescue)
Measured
Indicated
Inferred
Total
Total Magnetite Mineral Resources
Measured
Indicated
Inferred
Total
Notes in reference to table
77
28.6
32.4
39.44
1.91
77
28.6
32.4
39.44
1.91
989
27.8
31.1
40.48
2.28
989
27.8
31.1
40.48
2.28
3,231
24.1
29.6
41.80
2.88
3,231
24.1
29.6
41.80
2.88
4,297
25.1
30.0
41.46
2.73
4,297
25.1
30.0
41.46
2.73
-
-
-
-
-
-
-
-
-
-
477
24.1
32.4
39.33
1.74
477
24.1
32.4
39.33
1.74
2,844
20.5
30.7
40.69
2.19
2,844
20.5
30.7
40.69
2.19
3,321
21.1
30.9
40.50
2.13
3,321
21.1
30.9
40.50
2.13
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
274
23.5
28.3
43.43
3.43
274
23.5
28.3
43.43
3.43
274
23.5
28.3
43.43
3.43
274
23.5
28.3
43.43
3.43
77
28.6
32.4
39.44
1.91
77
28.6
32.4
39.44
1.91
1,466
26.6
31.5
40.11
2.11
1,466
26.6
31.5
40.11
2.11
6,350
22.5
30.0
41.38
2.60
6,350
22.5
30.0
41.38
2.60
7,892
23.3
30.3
41.12
2.50
7,892
23.3
30.3
41.12
2.50
• 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.
41
03 | Ore Reserves and Mineral Resources
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 and Eliwana deposit for
fiscal year 2018 were compiled by Mr Oliver
Wang, Mr Martin Slavik and Mr Chris Fowers;
full-time employees of Fortescue. Estimated
Magnetite Ore Reserves for the Iron Bridge
project for fiscal year 2018 were compiled
by Mr Glenn Turnbull, an independent
consultant for Golder Associates.
Mr Robinson is a Fellow of, and Mr Nitschke,
Ms Retz, Mr Frost-Barnes, Mr Slavik, Mr
Wang, Mr Fowers, Mr Widenbar and Mr
Turnbull are Members of the Australasian
Institute of Mining and Metallurgy.
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.
Fortescue Metals Group Ltd Annual Report FY18 04
Corporate
Social
Responsibility
43
04 | Corporate Social Responsibility
Fortescue is committed
to ensuring communities
benefit from its growth
and development.
Fortescue Metals Group Ltd Annual Report FY18
FY18 highlights
VTECs anniversary
th
10
Billion Opportunities
Program milestone
achieved
A$
2
bn
Total taxes paid in FY18
A$
1. 2 bn
Stays in the Fortescue
Family Room
Active heritage places
managed
Recycled waste
971
5,597
88%
45
04 | Corporate Social Responsibility
Empowerment
is at the heart of
Fortescue’s approach
to Corporate Social
Responsibility
Targets
Opportunities
and Objectives
Fortescue’s
Policies
Voluntary
Commitments
and Principles
Code of Conduct
Vision and Values
Fortescue Metals Group Ltd Annual Report FY18
Approach to
Corporate Social
Responsibility
Creating shared value
Corporate Social Responsibility (CSR)
is Fortescue’s commitment to behave
ethically, to create value for the Company’s
stakeholders, to protect Aboriginal heritage
and the environment and to empower and
partner with communities to build capability
and capacity.
Fortescue is committed to ensuring
communities benefit from its growth
and development and recognises that,
in order to achieve its vision of being the
safest, lowest cost, most profitable mining
company, 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 achieve practical outcomes.
It is demonstrated by Fortescue’s ability to
empower individuals within the 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.
Compliance with all relevant legislation and
obligations including those that govern
health, safety and environment is the
absolute minimum standard to which the
Company adheres.
Fortescue’s Values form the foundation of
the Company’s approach to CSR, setting
the ethical and moral compass by which
business is undertaken. Fortescue’s Code
of Conduct and Integrity establishes
the essential standards of personal and
corporate conduct and behaviour of
employees, suppliers and contractors.
This strong base supports the Company’s
commitments and principles and leads to the
development and implementation of policies,
opportunities and objectives, ultimately
informing the application of specific business
unit targets, processes and plans.
A full copy of the CSR report is available on the
Company's website at www.fmgl.com.au
47
04 | Corporate Social Responsibility
Fortescue's people
deliver shared value by
maximising their energy
and targeting their
resources.
Fortescue's FY18 CSR Report outlines the
performance of Fortescue against key
material corporate social responsibility issues
and opportunities during FY18.
Fortescue is a signatory to the United
Nations Global Compact (UNGC) and
the FY18 Corporate Social Responsibility
report represents the Company’s ongoing
commitment to report progress towards
the principles of the UNGC. The report has
been prepared in accordance with the Global
Reporting Initiative (GRI) Standards Core
option and a copy of the GRI Content Index
is provided within the report, available at
www.fmgl.com.au
Fortescue Metals Group Ltd Annual Report FY18
The report also takes into account issues
identified through Fortescue’s Risk
Management Framework and guidance
provided by key bodies including the
International Council on Mining and
Metals (ICMM).
Issues are considered material if they reflect
the Company’s key environmental, social and
economic impacts or if they influence the
assessments and decisions of stakeholders.
CSR material issues are determined via an
annual assessment process that considers
associated risks and opportunities and
internal and external stakeholder views.
The assessment is undertaken through
a cycle of identification, prioritisation,
validation and review.
Based on this assessment the following
were determined to be Fortescue’s most
material issues:
• Employee health and safety
• Creating employment and business
opportunities for Aboriginal people
• Ensuring ethical conduct
• Eradicating slavery in the supply chain
• Building local communities
• Workforce diversity
• Protecting biodiversity and water
resources
• Protecting Aboriginal culture and
heritage
• Climate change action and disclosure.
Fortescue’s performance against each material issue is
reported against three core areas:
Setting
high standards
Creating positive
social change
Safeguarding
the environment
by championing safety, preserving
Aboriginal heritage, embracing
diversity and demonstrating integrity
by building local communities,
empowering Aboriginal people and
eradicating modern slavery
in Fortescue’s supply chain
by protecting biodiversity,
managing water resources, reducing
greenhouse gas emissions and waste
49
05
Corporate
Governance
Fortescue Metals Group Ltd Annual Report FY18
Overview of
Governance
Good corporate governance is critical
to the long term, sustainable success
of Fortescue.
Good governance is
embedded throughout
Fortescue and is the collective
responsibility of the Board
of Directors and all levels of
management. Fortescue seeks
to adopt leading practice,
contemporary governance
standards and apply these in
a manner consistent with its
culture and Values.
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 otherwise disclosed. Fortescue
is also monitoring the development of
the 4th Edition of the Principles and
Recommendations and welcomes the
enhanced focus on corporate culture in
driving ethical and socially responsible
behaviour, as outlined in the Public
Consultation document, issued on
2 May 2018 by the ASX Corporate
Governance Council.
The cornerstone principles of corporate
governance at Fortescue are:
Transparency: Being clear and
unambiguous about the Company’s
structure, operations and performance, both
externally and internally, and maintaining a
genuine dialogue with, and providing insight
to stakeholders and the market generally.
Integrity: Developing and maintaining
a corporate culture committed to ethical
behaviour and compliance with the law.
Empowerment: Everyone at Fortescue is
empowered to make decisions that support
the organisation’s objectives and are in the
best interests of stakeholders. Management
and staff are encouraged to be innovative
and strategic in making decisions that
align with Fortescue’s risk appetite and are
undertaken in a manner consistent with
corporate expectations and standards.
Corporate accountability: Ensuring that
there is clarity of decision making within the
Company, with processes in place to ensure
the right people have authorised approval
to make effective and efficient decisions,
with appropriate consequences delivered
for failures to follow those processes.
Stewardship: Developing and maintaining
a Company-wide recognition that
Fortescue is managed for the benefit of
its shareholders, taking into account the
interests of other stakeholders.
A full copy of the Corporate Governance
Statement is available on the Company's
website at www.fmgl.com.au
51
05 | Corporate Governance
Governance
framework
STAKEHOLDERS
GOVERNMENT
AND
REGULATORS
BUSINESS
PARTNERS AND
INVESTORS
SHAREHOLDERS
EMPLOYEES
COMMUNITY
BOARD
MANAGEMENT RESPONSIBILITY
Audit and Risk
Management Committee
Remuneration and
Nomination Committee
Finance
Committee
S
E
R
U
D
E
C
O
R
P
D
N
A
S
E
I
C
I
L
O
P
BUSINESS PROCESS
DELEGATION OF AUTHORITY
CHIEF EXECUTIVE OFFICER
CORE LEADERSHIP TEAM
EXECUTIVE AND LINE MANAGEMENT
INTEGRATED RISK MANAGEMENT
CORPORATE CULTURE AND VALUES
I
N
D
E
P
E
N
D
E
N
T
A
S
S
U
R
A
N
C
E
A
C
T
I
V
I
T
Y
Fortescue Metals Group Ltd Annual Report FY18
06
Fortescue’s
response to
climate change
53
06 | Fortescue’s response to climate change
Since FY15, GHG emissions
intensity across Fortescue's
operations has reduced by
13.5 per cent.
Fortescue’s commitment
Climate change is one of the most
challenging and complex issues facing
the planet. Developing solutions to the
issues that arise will require a long-term,
sustainable, collaborative approach where
governments, businesses and communities
work together.
As a business which strives to create value
for its shareholders and communities,
Fortescue is committed to playing its part
and contributing to global efforts to combat
climate change.
TCFD recommendations
Fortescue accepts the scientific consensus
as assessed by the Intergovernmental Panel
on Climate Change (IPCC) and supports
the Paris Agreement goal of limiting global
temperature rise to less than 2oC above
pre-industrial levels.
The Company’s climate change strategy
focusses on mitigating the risks and
building the resilience of the business and,
where possible, creating and leveraging
opportunities. Fortescue will continue
to work proactively with its peers and
governments to ensure policy frameworks
are suitably designed to deliver positive
climate change outcomes while also
supporting economic growth.
Fortescue acknowledges the growing
stakeholder interest in business action
on climate change and this year has
commenced the process to expand
disclosure in line with the recent
recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD)
established by the G20 Financial Stability
Board. The TCFD recommendations focus on
the four key elements depicted below.
A copy of Fortescue's approach to climate
change is contained within the FY18
Corporate Social Responsibility Report
available on the Company’s website at
www.fmgl.com.au
Governance
Strategy
Risk management
Metrics and targets
Disclose the organisation’s
governance around
climate-related risks and
opportunities.
Disclose the actual and
potential impacts of climate-
related risks and opportunities
on the organisation’s
businesses, strategy, and
financial planning where such
information is material.
Disclose how the organisation
identifies, assesses, and
manages, climate-related risks.
Disclose the metrics and targets
used to assess and manage
relevant climate-related risks
and opportunities where such
information is material.
Source: Recommendations of the Task Force on Climate–related Financial Disclosures 2017.
Fortescue Metals Group Ltd Annual Report FY18
07
Financial
Report
55
07 | Financial Report
Directors'
Report
At 30 June 2018
Directors
Your Directors present their report on the Fortescue consolidated group, comprising the Company and its controlled entities,
for the year ended 30 June 2018.
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 11 to 13.
The Directors’ meetings, including meetings of the Company’s Board of Directors and of each Board committee held during the year ended 30
June 2018 and the number of meetings attended by each Director are shown in section 2.3 of the FY18 Corporate Governance Statement.1
The relevant interests of each Director in the shares and share 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 AO
M Barnaba AM
S Warburton
E Gaines
Dr J Baderschneider
Dr Z Cao
P Bingham-Hall
J Morris OAM
Lord S Coe CH,KBE
Ordinary shares
Share rights
1,038,800,000
20,000
50,750
224,823
138,000
-
36,516
5,250
-
-
-
-
525,966
-
-
-
-
-
1 Fortescue's FY18 Corporate Governance Statement is available at www.fmgl.com.au
Fortescue Metals Group Ltd Annual Report FY18
Directors' Report
At 30 June 2018
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 FY18.
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 19, Operating and
Financial Review on pages 20 to 34 and Corporate Governance Statement1 section 4 Risk Management.
Dividends
Net profit after tax
US$m
Interim dividend
A$ cents per share
Final dividend
Total dividend
A$ cents per share
A$ cents per share
2018
878
11
12
23
2017
2,093
20
25
45
The following dividend payments were made during the year:
• Final fully franked dividend for the year ended 30 June 2017 of A$0.25 per share, paid in October 2017
• Interim fully franked dividend for the year ended 30 June 2018 of A$0.11 per share, paid in April 2018.
Environmental regulation and compliance
Fortescue is committed to minimising the environmental impacts of its operations, with an appropriate focus placed on continuous monitoring
of environmental matters and compliance with environmental regulations.
The details of Fortescue’s environmental performance including compliance with the relevant environmental legislation are presented in
Fortescue’s Corporate Social Responsibility Report.2
Greenhouse gas emissions and energy
Fortescue complies with the Australian Government’s National Greenhouse and Energy Reporting Act 2007 (Cth) and recognises its
responsibility to actively improve energy use and minimise greenhouse gas emissions to reduce its contribution to climate change and
impact on the environment.
The details of greenhouse gas emissions and energy strategy, compliance and reporting are presented in Fortescue’s Corporate Social
Responsibility Report.
Unissued shares under share rights
Details of the share rights outstanding at 30 June 2018 are as follows:
Balance at
the end of
the year
Vested and
exercisable at
the end of the
year
Exercise
price
A$
Number
Short term share rights 2016
Short term share rights 2017
Short term share rights 2018
Long term share rights 2016
Long term share rights 2017
Long term share rights 2018
-
-
-
-
-
-
-
616,219
761,507
1,755,884
6,465,830
2,296,040
2,475,313
14,370,793
1,377,726
Remaining
contractual life
Vesting conditions
Years
Market
Non-market
12.5
13.3
14.3
12.5
13.3
14.3
-
-
-
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Number
616,219
761,507
-
-
-
-
In FY18, 1,766,692 of the short term share rights and no long term share rights were converted to shares.
1 Fortescue's FY18 Corporate Governance Statement is available at www.fmgl.com.au
2 Fortescue's FY18 Corporate Social Responsibility Report is available at www.fmgl.com.au
57
07 | Financial Report
Directors' Report
At 30 June 2018
Company Secretary
Cameron Wilson and Alison Terry are
Company Secretaries of Fortescue. Details
of their qualifications and experience are set
out on page 13.
Directors and Officers
indemnities and insurance
Since the end of the previous 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.
Non-audit services
The Company may decide to employ the
auditor on assignments additional to their
statutory audit duties where the auditor
has relevant expertise and experience and
where the auditor’s independence is
not compromised.
Details of the amounts paid or payable to the
auditor PricewaterhouseCoopers Australia
and related entities for audit and non-audit
services provided during the year are set out
in note 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 59
and forms part of this report.
Future developments
The Overview section set out on pages 3 to
19 and the Operating and Financial Review
section set out on pages 20 to 34 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.
Rounding of amounts
The Company is of a kind referred to in
ASIC Corporations Instrument 2016/191,
issued by the Australian Securities and
Investments Commission, relating to the
“rounding off” of amounts in the financial
report. Amounts in the financial report
have been rounded off in accordance with
that instrument to the nearest million
dollars, unless otherwise stated.
Events occurring after the
reporting period
On 20 August 2018, the Directors declared
a final dividend of 12 Australian cents per
ordinary share payable in October 2018.
Signed in accordance with a resolution of
the Directors.
Andrew Forrest AO
Chairman
Dated in Perth this 20th day of August 2018.
Fortescue Metals Group Ltd Annual Report FY18 Auditor's
independence
declaration
As lead auditor for the audit of Fortescue Metals Group Ltd for the year ended 30 June 2018, 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 Ltd and the entities it controlled during the period.
Justin Carroll
Partner
PricewaterhouseCoopers
Perth
20 August 2018
59
07 | Financial Report
Independent
auditors' report
To the members of Fortescue Metals Group Ltd
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Fortescue Metals Group Ltd (the Company) and its controlled entities (together, the Group) is in
accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended
(b) 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 2018
• 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.
Fortescue Metals Group Ltd Annual Report FY18 Independent
auditors' 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$92 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 focussed on where the Company has 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.
61
07 | Financial Report
Independent
auditors' report
Key audit matter
Revenue from iron ore sales
(Refer to note 3)
For the year ended 30 June 2018 the Group recognised revenue
of US$6,775 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 non-cash period end
adjustments that relate to the remeasurement of provisional sales.
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.
The Group initially recognises sales at the shipment date price
and as applicable 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.
Carrying value of exploration and evaluation assets
(Refer to note 12 and 24(b))
At 30 June 2018 the Group recognised exploration and evaluation
assets totalling US$857 million. 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.
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:
• 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 any provisional
sales period
• For the sample of sales contracts tested, we recalculated the
recorded provisional pricing adjustments to sales revenue and
found them to be consistent with relevant external iron ore
price indices.
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 2018 to observe the current state of this project.
We also inspected minutes of the IBJV Committee meetings
throughout the year and noted an FY19 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.
Fortescue Metals Group Ltd Annual Report FY18 Independent
auditors' report
Key audit matter
How our audit addressed the key audit matter
Restoration and rehabilitation obligations
(Refer to note 13 and 24(e))
The Group recognised provisions for restoration and rehabilitation
obligations of US$591 million as at 30 June 2018.
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.
Other information
The directors are responsible for the other information. The other information comprises the information included in the Group’s annual
report for the year ended 30 June 2018, including the Overview, Operating and Financial Review, Ore Reserves and Mineral Resources,
Corporate Social Responsibility, Corporate Governance, Fortescue's response to climate change, Directors’ Report, Remuneration and
Nomination Committee Chair message and Corporate Directory, 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 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.
63
07 | Financial Report
Independent
auditors' report
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 111 to 138 of the directors’ report for the year ended 30 June 2018.
In our opinion, the remuneration report of Fortescue Metals Group Ltd for the year ended 30 June 2018 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
Justin Carroll
Partner
Perth
20 August 2018
Fortescue Metals Group Ltd Annual Report FY18
Directors'
declaration
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 66 to 105 are in accordance with the Corporations Act 2001, including:
(i)
(ii)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements, and
giving a true and fair view of the consolidated entity’s financial position at 30 June 2018 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 20th day of August 2018.
65
07 | Financial Report
Consolidated income statement
For the year ended 30 June 2018
Operating sales revenue
Cost of sales
Gross profit
Other income
Other expenses
Net profit before income tax and net finance expenses
Finance income
Finance expenses
Net profit before tax
Income tax expense
Net profit after tax
Net profit after tax is attributable to:
Equity holders of the Company
Non-controlling interest
Net profit after tax
Note
3
5
4
6
7
7
14
2018
US$m
6,887
(4,930)
1,957
30
(114)
1,873
24
(652)
1,245
(367)
878
879
(1)
878
Earnings per share for profit attributable to the ordinary equity
holders of the Company:
Basic earnings per share
Diluted earnings per share
Note
Cents
8
8
28.2
28.1
Consolidated statement of
comprehensive income
For the year ended 30 June 2018
Net profit after tax
Other comprehensive income:
Gain on available for sale financial assets
Exchange differences on translation of foreign operations
Total comprehensive income, net of tax
Total comprehensive income is attributable to:
Equity holders of the Company
Non-controlling interest
Total comprehensive income, net of tax
2018
US$m
878
2
2
882
883
(1)
882
2017
US$m
8,447
(4,888)
3,559
14
(123)
3,450
19
(502)
2,967
(874)
2,093
2,093
-
2,093
Cents
67.3
67.0
2017
US$m
2,093
-
-
2,093
2,093
-
2,093
The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
Fortescue Metals Group Ltd Annual Report FY18
Consolidated statement of
financial position
At 30 June 2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Current tax receivable
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Deferred income
Borrowings and finance lease liabilities
Provisions
Current tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred income
Borrowings and finance lease liabilities
Provisions
Deferred joint venture contributions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Note
9(b)
10(a)
10(c)
14(a)
10(a)
12
10(b)
10(d)
9(a)
13
14(a)
10(b)
10(d)
9(a)
13
17(c)
14(b)
9(d)
2018
US$m
863
120
496
92
79
1,650
3
16,189
4
3
16,199
17,849
678
267
97
197
-
1,239
50
528
3,878
546
270
1,606
6,878
8,117
9,732
1,287
46
8,386
9,719
13
9,732
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
2017
US$m
1,838
141
588
38
-
2,605
3
16,493
7
7
16,510
19,115
708
461
121
227
685
2,202
50
447
4,350
509
266
1,557
7,179
9,381
9,734
1,289
39
8,392
9,720
14
9,734
67
07 | Financial Report
Consolidated statement
of cash flows
For the year ended 30 June 2018
Note
Cash flows from operating activities
Cash receipts from customers
Payments to suppliers and employees
Cash generated from operations
Interest received
Interest paid
Income tax paid
Net cash inflow from operating activities
9(c)(i)
Cash flows from investing activities
Payments for property, plant and equipment - Fortescue
Payments for property, plant and equipment - joint operations
Contributions from joint venture partners
Proceeds from disposal of plant and equipment
Purchase of financial assets
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings and finance leases
Repayment of borrowings and finance leases
Finance costs paid
Dividends paid
Purchase of shares by employee share trust
Net cash outflow from financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
9(b)
2018
US$m
6,718
(3,687)
3,031
24
(392)
(1,062)
1,601
(890)
(11)
4
16
(55)
(936)
2,071
(2,545)
(254)
(874)
(24)
(1,626)
(961)
1,838
(14)
863
Non-cash investing and financing activities are disclosed in note 9(c)(ii).
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
2017
US$m
8,768
(3,744)
5,024
19
(412)
(375)
4,256
(716)
(13)
12
2
-
(715)
1,734
(4,187)
(47)
(755)
(27)
(3,282)
259
1,583
(4)
1,838
Fortescue Metals Group Ltd Annual Report FY18 Consolidated statement of
changes in equity
For the year ended 30 June 2018
Attributable to equity holders of the Company
Contributed
Equity
US$m
Reserves
US$m
Balance at 1 July 2016
Net profit after tax
Total comprehensive income for the year, net of tax
Transactions with owners:
Purchase of shares under employee share plans
Employee share awards vested
Equity settled share-based payment transactions
Dividends declared
Other
Balance at 30 June 2017
Net profit after tax
Other comprehensive income
Total comprehensive income for the year, net of tax
Transactions with owners:
Purchase of shares under employee share plans
Employee share awards vested
Equity settled share-based payment transactions
Dividends declared
Balance at 30 June 2018
1,301
-
-
(27)
15
-
-
-
1,289
-
-
-
(24)
22
-
-
1,287
33
-
-
-
(7)
16
-
(3)
39
-
4
4
-
(11)
14
-
46
Retained
earnings
US$m
7,058
2,093
2,093
-
-
-
Total
8,392
2,093
2,093
(27)
8
16
(762)
(762)
3
-
8,392
9,720
879
-
879
-
-
-
879
4
883
(24)
11
14
(885)
8,386
(885)
9,719
Non-
controlling
interest
US$m
14
-
-
-
-
-
-
-
14
(1)
-
(1)
-
-
-
-
Total
equity
US$m
8,406
2,093
2,093
(27)
8
16
(762)
-
9,734
878
4
882
(24)
11
14
(885)
13
9,732
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
69
07 | Financial Report
Notes to the
consolidated financial
statements
For the year ended 30 June 2018
Key balance sheet items
12
13
Property, plant and equipment
Provisions
Taxation
14
Taxation
14(a) Income tax expense
14(b) Deferred tax assets and liabilities
14(c) Unrecognised tax losses
Unrecognised items
15
16
Commitments and contingencies
Events occurring after the reporting period
Related party transactions
Share-based payments
Remuneration of auditors
Other information
17
18
19
20 Deed of cross guarantee
21
22
23
24
Parent entity financial information
Interests in other entities
Summary of significant accounting policies
Critical accounting estimates and judgements
84
85
86
86
87
88
89
89
90
90
92
92
93
94
95
105
Basis of preparation
1
Basis of preparation
Financial performance
Segment information
2
Operating sales revenue
3
Other income
4
Cost of sales
5
Other expenses
6
Finance income and finance expenses
7
Earnings per share
8
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
Financial risk management
11
71
72
73
73
73
73
74
74
75
75
77
78
79
79
80
80
80
80
80
81
Fortescue Metals Group Ltd Annual Report FY18
Notes to the
consolidated financial
statements
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Basis of preparation
1 Basis of preparation
The financial statements cover the consolidated group comprising of Fortescue Metals Group Ltd (the Company) and its subsidiaries,
together referred to as Fortescue or the Group.
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative
pronouncements of the Australian Accounting Standards Board (AASB), including Australian Interpretations, and the Corporations Act 2001.
(a) Compliance with IFRS
The financial statements of the Group also comply with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board.
(b) Historical cost convention
The financial statements have been prepared under the historical cost convention, except for certain financial instruments, which have been
measured at fair value.
(c) Functional and presentation currency
The financial statements are presented in United States dollars, which is the Group's reporting currency and the functional currency of the
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) 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.
71
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Financial performance
2 Segment information
Fortescue’s chief operating decision maker, identified as the Chief Executive Officer, reviews the Group’s financial performance and makes
significant operating decisions having regard to all aspects of the integrated operation, with the key financial information presented
internally for management purposes on a consolidated basis. Accordingly, no reportable operating segments have been identified in
presenting the Group’s consolidated financial performance.
Fortescue uses Underlying EBITDA defined as earnings before interest, tax, depreciation and amortisation, exploration, development
and other expenses, as a key measure of its financial performance. The reconciliation of Underlying EBITDA to the net profit after tax is
presented below.
Underlying EBITDA
Finance income
Finance expenses
Depreciation and amortisation
Exploration, development and other
Net profit before tax
Income tax expense
Net profit after tax
(a) Geographical information
Note
7
7
5, 6
6
14
2018
US$m
3,182
24
(652)
(1,277)
(32)
1,245
(367)
878
2017
US$m
4,744
19
(502)
(1,243)
(51)
2,967
(874)
2,093
Fortescue operates predominantly in the geographical location of Australia, and this is the location of the vast majority of the Group’s assets.
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers.
Revenues from external customers
China
Other
(b) Major customer information
2018
US$m
6,211
676
6,887
2017
US$m
7,995
452
8,447
Revenue from two customers amounted to US$2,753 million and US$988 respectively (2017: US$3,702 million and US$527 million), arising
from the sale of iron ore and the related shipment of product.
Fortescue Metals Group Ltd Annual Report FY18
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Financial performance
3 Operating sales revenue
Sale of iron ore
Other revenue
4 Other income
Net foreign exchange gain
Other
5 Cost of sales
Mining and processing costs
Rail costs
Port costs
Shipping costs
Government royalty
Depreciation and amortisation
Other operating expenses
2018
US$m
6,775
112
6,887
2018
US$m
29
1
30
2018
US$m
1,739
188
172
1,148
416
1,265
2
4,930
2017
US$m
8,335
112
8,447
2017
US$m
13
1
14
2017
US$m
1,801
200
183
929
545
1,227
3
4,888
Total employee benefits expense included in cost of sales and administration expenses is US$601 million (2017: US$579 million).
6 Other expenses
Administration expenses
Exploration, development and other
Depreciation and amortisation
2018
US$m
70
32
12
114
2017
US$m
56
51
16
123
73
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Financial performance
7 Finance income and finance expenses
Finance income
Interest income
Finance expenses
Interest expense on borrowings and finance lease liabilities
Cost of early debt repayment
Other
8 Earnings per share
(a) Earnings per share
Basic
Diluted
(b) Reconciliation of earnings used in calculating earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating basic and diluted earnings per share
2018
US$m
24
24
340
289
23
652
2018
Cents
28.2
28.1
US$m
879
2017
US$m
19
19
430
59
13
502
2017
Cents
67.3
67.0
US$m
2,093
(c) Weighted average number of shares used as denominator
Number
Number
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Potential ordinary shares
Weighted average number of ordinary and potential ordinary shares used as
the denominator in calculating diluted earnings per share
(d) Information on the classification of securities
3,112,150,439
3,111,190,703
10,886,842
11,112,712
3,123,037,281
3,122,303,415
Share rights granted to employees under the Fortescue incentive plan are considered to be potential ordinary shares and have been
included in the determination of diluted earnings per share to the extent to which they are dilutive. Details relating to the share rights are
set out in note 18.
Fortescue Metals Group Ltd Annual Report FY18
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
9 Capital management
Fortescue’s capital management policy supports its strategic objectives and provides a framework to maintain a strong capital structure to
deliver consistent returns to its shareholders and sustain future developments and expansion of the business.
Fortescue’s capital includes shareholders’ equity, reserves and net debt. Net debt is defined as a combination of cash and cash equivalents,
borrowings and finance lease liabilities.
Borrowings
Finance lease liabilities
Cash and cash equivalents
Net debt
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Capital management involves a continuous process of:
Note
9(a)
9(a)
9(b)
2018
US$m
3,380
595
(863)
3,112
9,719
13
9,732
2017
US$m
3,653
818
(1,838)
2,633
9,720
14
9,734
• Evaluating capital requirements against the risks arising from Fortescue’s activities and its operating environment
• Raising, refinancing and repaying of debt
• Development, maintenance and implementation of the dividend policy, including the dividend reinvestment plan.
To achieve its primary capital management objective of maintaining a strong capital structure, Fortescue has developed target ranges for
a number of financial indicators. These indicators include gearing, net gearing, debt to Underlying EBITDA and interest coverage ratio, and
are monitored together with a number of other financial and non-financial indicators. Target ranges for the financial ratios vary upon the
investment and commodity cycles. During periods of intensive investment, for example expansion programs, or a commodity downturn,
the capital management policy contemplates interim ratio levels returning to a targeted longer term level. Interim levels acknowledge and
consider the requirements, in certain circumstances, for remedial actions to be taken.
Debt repayments and refinancing completed during the year ended 30 June 2018 resulted in improved credit metrics and lower interest costs.
Target gearing ratios and balance sheet flexibility have been achieved with the focus now on re-investing in the business, growth options and
shareholder returns. No financial maintenance covenants apply to any of the Company’s debt.
(a) Borrowings and finance lease liabilities
Senior unsecured notes
Syndicated term loan
Finance lease liabilities
Senior secured notes
Total current borrowings and finance lease liabilities
Senior unsecured notes
Syndicated term loan
Finance lease liabilities
Senior secured notes
Total non-current borrowings and finance lease liabilities
Total borrowings and finance lease liabilities
2018
US$m
16
18
63
-
97
1,981
1,365
532
-
3,878
3,975
2017
US$m
9
-
42
70
121
1,481
-
776
2,093
4,350
4,471
75
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
9 Capital management (continued)
(a) Borrowings and finance lease liabilities (continued)
(i) Refinancing
During the year ended 30 June 2018, Fortescue repaid the outstanding US$2,160 million of the 9.75 per cent senior secured notes due to
mature in November 2022, through a combination of a US$1,900 million refinancing and a US$260 million cash payment.
(ii) Senior unsecured notes
Fortescue’s senior unsecured notes comprise a series of the following tranches which have early repayment options:
Date of issue
Date of maturity
March 2018
May 2017
May 2017
April 2023
May 2022
May 2024
Non-call
period
5 years
5 years
7 years
Face value,
US$m
Carrying value,
US$m
500
750
750
2,000
503
747
747
1,997
Coupon rate
Currency
5.125%
4.75%
5.125%
USD
USD
USD
(iii) Syndicated term loan
The US$1,400 million syndicated term loan established during the financial year is due to mature in February 2022, has a coupon rate linked
to LIBOR plus fixed margin and is repayable at Fortescue’s option. The facility has principal repayment of one per cent per annum.
(iv) Senior secured notes
During the year ended 30 June 2018, the senior secured notes were repaid in full. The notes were due to mature in November 2022 and as at
30 June 2017 had a face value of US$2,160 million and a coupon rate of 9.75 per cent.
(v) Finance lease liabilities
Finance lease liabilities largely relate to contractual commitments associated with ore carriers, Fortescue River Gas Pipeline and heavy
mobile fleet. In the event of default, the assets revert to the lessor.
In November 2017, Fortescue repurchased the Solomon Power Station which was previously classified as a finance lease liability.
30 June 2017
Lease expenditure commitments
Effect of discounting
Finance lease liabilities
30 June 2018
Lease expenditure commitments
Effect of discounting
Finance lease liabilities
Within one year
US$m
Between one year
and five years
US$m
After five years
US$m
120
(79)
41
107
(44)
63
468
(285)
183
310
(149)
161
1,093
(499)
594
583
(212)
371
Total
US$m
1,681
(863)
818
1,000
(405)
595
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
9 Capital management (continued)
(a) Borrowings and finance lease liabilities (continued)
(vi) Summary of movements in borrowings and finance lease liabilities
Senior
unsecured
notes
US$m
Syndicated
term loan
US$m
Senior
secured
notes
US$m
Senior
secured
credit facility
US$m
Finance
leases
US$m
Balance at 1 July 2016
Initial recognition
Interest expense
Interest and finance lease repayments
Transaction costs
Foreign exchange loss
Repayment
Balance at 30 June 2017
Initial recognition
Interest expense
Interest and finance lease repayments
Transaction costs
Foreign exchange gain
Repayment
483
1,500
41
(40)
(16)
-
(478)
1,490
500
85
(73)
(5)
-
-
-
-
-
-
-
-
-
-
1,400
20
(14)
(23)
-
-
Balance at 30 June 2018
1,997
1,383
2,152
-
221
(210)
-
-
-
2,163
-
180
(241)
58
-
(2,160)
-
505
344
70
(105)
-
4
-
818
171
55
(120)
-
(5)
(324)
595
Information about Fortescue’s exposure to interest rate risk and foreign exchange rate risk is disclosed in note 11.
(b) Cash and cash equivalents
Cash at bank
Short term deposits
2018
US$m
702
161
863
Total
US$m
6,771
1,844
430
(448)
24
4
3,631
-
98
(93)
40
-
(3,676)
(4,154)
4,471
2,071
340
(448)
30
(5)
(2,484)
3,975
-
-
-
-
-
-
-
-
2017
US$m
923
915
1,838
Cash and cash equivalents do not have any restrictions by contractual or legal arrangements.
On 28 July 2017, the Company executed a US$525 million revolving credit facility that remained undrawn at 30 June 2018.
77
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
9 Capital management (continued)
(c) Cash flow information
(i) Reconciliation of net profit after tax to net cash inflow from operating activities
Net profit after tax
Depreciation and amortisation
Exploration, development and other
Share-based payment expense
Net unrealised foreign exchange (gain) loss
Accrued interest
Cost of early debt repayment
Rehabilitation expenditure
Depreciation in inventory
Other non-cash items
Working capital adjustments:
Decrease in trade and other receivables
Decrease (increase) in inventories
Decrease in other assets
(Decrease) increase in trade and other payables
(Decrease) increase in deferred income
(Decrease) increase in employee benefit provision
(Decrease) increase in current tax payable
Increase in deferred tax liabilities
Net cash inflow from operating activities
(ii) Non-cash financing and investing activities
Acquisition of property, plant and equipment by means of finance leases
2018
US$m
878
1,277
32
14
(2)
(34)
289
(11)
(38)
(44)
21
92
9
(30)
(113)
(24)
(764)
49
1,601
2018
US$m
-
2017
US$m
2,093
1,243
51
16
2
28
59
-
33
(29)
101
(34)
28
67
115
8
418
57
4,256
2017
US$m
(110)
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
9 Capital management (continued)
(d) Contributed equity
(i) Share capital
Issued
shares
Treasury
shares
Contributed
equity
Number
Number
Number
Issued
shares
US$m
At 1 July 2016
3,113,798,151
(362,674)
3,113,435,477
1,296
Purchase of shares under
employee share plans
Employee share awards vested
-
-
(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
Purchase of shares under
employee share plans
Employee share awards vested
-
-
(5,115,446)
(5,115,446)
6,346,506
6,346,506
-
-
At 30 June 2018
3,113,798,151
(1,227,861) 3,112,570,290
1,296
Treasury
shares
Contributed
equity
US$m
5
(27)
15
(7)
(24)
22
(9)
US$m
1,301
(27)
15
1,289
(24)
22
1,287
Issued shares
(ii)
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 share 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 2017: A$0.25 per share
(30 June 2016: A$0.12 per share)
Interim fully franked dividend for the half-year ended 31 December 2017:
A$0.11 per share (31 December 2016: A$0.20 per share)
Total dividends paid
(ii) Dividends declared and not recognised as a liability
Final fully franked dividend: A$0.12 per share (2017: A$0.25 per share)
2018
US$m
614
271
885
2018
US$m
271
2017
US$m
285
477
762
2017
US$m
614
(iii) Franking credits
At 30 June 2018, franking credits available were A$1,757 million (2017: A$856 million). The payment of the final dividend for the year ended
30 June 2018 will reduce the franking account balance by A$160 million.
79
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
10 Working capital
(a) Trade and other receivables
Trade debtors - iron ore
GST receivables
Other receivables
Total current receivables
Other receivables
Total non-current receivables
2018
US$m
89
13
18
120
3
3
2017
US$m
113
9
19
141
3
3
The carrying value of the receivables approximates their fair value. Information about Fortescue's exposure to foreign currency risk, interest
rate risk and price risk pertaining to the trade and other receivables balances is disclosed in note 11.
Disclosures relating to receivables from related parties are set out in note 17(c).
(b) Trade and other payables
Trade payables
Other payables and accruals
Total current payables
Customer deposits
Total non-current payables
(c)
Inventories
Iron ore stockpiles
Warehouse stores and materials
Total inventories
2018
US$m
272
406
678
50
50
2018
US$m
215
281
496
2017
US$m
234
474
708
50
50
2017
US$m
277
311
588
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 2018 amounted to US$3,364 million (2017: US$3,411 million). During the year, inventory write-offs of US$25 million
(2017: US$31 million) were recognised in relation to specific items of warehouse stores and materials that were identified as obsolete.
(d) Deferred income
Iron ore prepayments
Port access prepayment
Total current deferred income
Iron ore prepayments
Total non-current deferred income
2018
US$m
267
-
267
528
528
2017
US$m
350
111
461
447
447
Fortescue Metals Group Ltd Annual Report FY18
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
11 Financial risk management
Fortescue is exposed to a range of financial risks, including market risk, credit risk and liquidity risk. Fortescue has 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 2018, Fortescue had 31 million tonnes of iron ore sales
(2017: 27 million tonnes) that remained subject to provisional pricing, with the final price to be determined in the following year.
A 10 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$101 million (2017: 15 per cent movement would have an impact on the Group's profit of US$161million), before the impact of taxation.
This analysis assumes all other factors, including the foreign currency exchange rates, remain constant.
Interest rate risk
(ii)
The Group’s interest rate risk arises from variable rates on the syndicated term loan, finance leases relating to the ore carriers and, to a lesser
extent, changes in rates applicable to the short term deposits forming part of cash and cash equivalents.
Fortescue’s policy is to reduce interest rate risk over the cash flows on its long term debt funding through the use of fixed rate instruments
whenever appropriate.
Fortescue’s variable rate financial assets and liabilities at the end of the financial year are summarised below:
Cash and cash equivalents
Finance leases
Syndicated term loan
Note
9(b)
9(a)
9(a)
2018
US$m
863
(356)
(1,383)
(876)
2017
US$m
1,838
(213)
-
1,625
81
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
11 Financial risk management (continued)
(a) Market risk (continued)
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 50 basis points in interest rates in variable instruments would have an impact on the Group's profit of US$13 million (2017: a
change of five basis points would impact profit by US$1 million), before the impact of taxation. This analysis assumes that all other factors
remain constant, including foreign currency rates.
(iii) Foreign currency exchange risk
Fortescue operates in Australia, and is exposed to the movements in the Australian dollar exchange rate, with a significant portion of its
operating costs and capital expenditure incurred and paid in Australian dollars.
Fortescue’s risk management policy is to target specific levels at which to convert United States dollars to Australian dollars by entering
into either spot or short term forward exchange contracts. The Group does not enter into transactions that qualify as hedging for hedge
accounting purposes.
The carrying amounts of the financial assets and liabilities denominated in Australian dollars (expressed in US dollars), are set out below:
Financial assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Total financial assets
Financial liabilities
Borrowings and finance lease liabilities
Trade and other payables
Total financial liabilities
2018
US$m
260
21
62
343
142
518
660
2017
US$m
19
22
-
41
150
351
501
A change of 10 per cent in the Australian dollar exchange rate would have a net impact on the Group's profit of US$36 million
(2017: a change of five per cent would have an impact of US$23 million), 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 2018 and 30 June 2017.
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
of Directors.
At 30 June 2018, Fortescue had US$5 million (2017: US$5 million) of trade receivables which have not been settled within the normal terms
and conditions agreed with the customer. These past due receivables relate to a number of customers for whom there is no recent history of
default and are not considered impaired.
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Capital management
11 Financial risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. Fortescue manages
liquidity risk by maintaining adequate cash reserves and banking facilities, by continuously monitoring actual and forecast cash flows and by
matching the maturity profiles of its assets and liabilities.
The table below analyses Fortescue’s financial liabilities into relevant maturity groupings based on the period to the contracted maturity
date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than
6 months
US$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
708
190
11
909
678
78
51
807
-
190
11
201
-
90
65
155
-
394
22
416
-
148
115
263
50
4,026
71
4,147
50
1,615
1,602
3,267
-
1,699
193
1,892
-
1,042
335
1,377
758
6,499
308
7,565
728
2,973
2,168
5,869
758
4,258
213
5,229
728
2,236
1,739
4,703
30 June 2017
Non-interest bearing
Fixed rate
Variable rate
30 June 2018
Non-interest bearing
Fixed rate
Variable rate
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
2018
2017
Carrying value
Fair value
Carrying value
Fair value
US$m
-
1,997
US$m
-
1,924
US$m
2,163
1,490
US$m
2,460
1,507
The carrying values of other financial assets and financial liabilities approximate their fair values.
83
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Key balance sheet items
12 Property, plant and equipment
Plant and
equipment
US$m
Land and
buildings
US$m
Exploration
and evaluation
US$m
Note
Assets
under
development
US$m
Development
US$m
Total
US$m
Net carrying value
At 1 July 2016
Transfers of assets
Additions
Depreciation
Changes in restoration and
rehabilitation estimate
13(b)
Other
At 30 June 2017
Cost
Accumulated depreciation
Net carrying value
At 1 July 2017
Transfers of assets
Additions
Disposals
Depreciation
Changes in restoration and
rehabilitation estimate
13(b)
Other
At 30 June 2018
Cost
Accumulated depreciation
11,456
573
111
(984)
-
-
11,156
15,677
(4,521)
11,156
812
3
(5)
(969)
-
(2)
10,995
16,473
(5,478)
849
10
-
(62)
-
(1)
796
1,053
(257)
796
8
-
(1)
(59)
-
-
744
1,060
(316)
772
(4)
57
-
1
(13)
813
813
-
813
(17)
70
-
-
3
(12)
857
857
-
227
(602)
670
-
-
(4)
291
291
-
291
(832)
842
-
-
-
-
301
301
-
3,563
16,867
19
-
(4)
838
(218)
(1,264)
68
5
3,437
4,489
(1,052)
69
(13)
16,493
22,323
(5,830)
3,437
16,493
27
-
-
(2)
915
(6)
(207)
(1,235)
35
-
3,292
4,551
(1,259)
38
(14)
16,189
23,242
(7,053)
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$253 million (2017: US$505 million). The details of the finance
leases under which these assets are held are disclosed in note 9(a).
Fortescue Metals Group Ltd Annual Report FY18
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Key balance sheet items
13 Provisions
Employee benefits
Restoration and rehabilitation
Total current provisions
Employee benefits
Restoration and rehabilitation
Total non-current provisions
(a) Provision for employee benefits
Movements in the provision for employee benefits during the year are set out below:
At 1 July
Changes in employee benefits provision
Amounts paid
At 30 June
2018
US$m
150
47
197
2
544
546
2018
US$m
177
96
(121)
152
2017
US$m
174
53
227
3
506
509
2017
US$m
169
138
(130)
177
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$41 million (2017: US$38 million).
(b) Provision for restoration and rehabilitation
Movements in the provision for restoration and rehabilitation during the year are set out below:
At 1 July
Changes in restoration and rehabilitation estimate
Unwinding of discount
Payments for restoration and rehabilitation activities
At 30 June
2018
US$m
559
38
5
(11)
591
2017
US$m
487
69
3
-
559
The provision for restoration and rehabilitation has been made in full for all disturbed areas at the reporting date based on current cost
estimates for rehabilitation and infrastructure removal, discounted to their present value based on expected timing of future cash flows.
Payments for restoration and rehabilitation activities exclude ongoing rehabilitation performed as part of normal operations.
85
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Taxation
14 Taxation
For the year ended 30 June 2018, Fortescue continues to be a signatory to the Board of Taxation’s voluntary Tax Transparency Code
("TTC"). The TTC recommends a number of additional tax disclosures to be publicly available, in two separate parts. The Part A disclosure
requirements are addressed in this note.
(a) Income tax expense
Current tax
Deferred tax
Consolidated group
Consolidated group
2018
US$m
320
47
367
2017
US$m
817
57
874
(i) Prima facie income tax expense reconciliation
Fortescue operates in a number of jurisdictions and pays income taxes accordingly. The Company’s effective corporate income tax rate is
reflective of the statutory corporate income tax rates in each jurisdiction. The majority of the Group’s taxes are paid in Australia consistent
with the location of its mining operations. The Australian Group includes Fortescue's wholly-owned Australian entities.
For the year ended 30 June 2018, the Group’s global effective tax rate was 29.5 per cent, in line with the Australia corporate tax rate of
30 per cent.
Consolidated group
2018
US$m
Australian group
2018
US$m
Consolidated group
2017
US$m
Australian group
2017
US$m
Net profit before tax
Tax at the Australian tax rate of 30 per cent
Research and development
Adjustments in respect of income tax
expense of prior periods
Foreign exchange variations
Tax impact of overseas jurisdiction
Share-based payments
Other
Income tax expense
Effective tax rate
1,245
374
(3)
(1)
(4)
(1)
(1)
3
367
29.5%
1,185
356
(3)
(6)
(4)
8
(1)
1
351
29.6%
2,967
890
(4)
(1)
(6)
-
(5)
-
874
29.5%
2,913
874
(4)
3
(6)
7
(5)
-
869
29.8%
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Taxation
14 Taxation (continued)
(a) Income tax expense (continued)
(ii) Reconciliation of income tax expense to current tax (receivable) payable
Income tax expense in the consolidated income statement
Deferred tax expense
Adjustments in respect of income tax expense of prior periods
Tax payments made to tax authorities1
Impact of foreign exchange on income tax payable2
Current tax (receivable) payable at 30 June
Consolidated group
2018
US$m
Consolidated group
2017
US$m
367
(47)
(1)
319
(385)
(13)
(79)
874
(57)
6
823
(115)
(23)
685
1 In Australia Fortescue pays pay as you go (PAYG) instalments based on a set rate, as advised by the Australian Taxation Office.
2 Fortescue's income tax payments are made in the local currency of the country where taxes are due, being predominantly Australian Dollars.
(b) Deferred tax assets and liabilities
Deferred tax assets and liabilities represent the difference between the carrying value of assets and liabilities compared to their income tax
base. Deferred tax assets and liabilities are measured at the relevant tax rates enacted for the reporting period. Fortescue's main operations
are in Australia and therefore the main taxable income arises in Australia. The Company's major deferred tax assets and liabilities also arise in
Australia, predominantly relating to capital investments in the Pilbara region.
Deferred tax assets
Deferred tax liabilities
Consolidated group
2018
US$m
Consolidated group
2017
US$m
431
(2,037)
(1,606)
470
(2,027)
(1,557)
87
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Taxation
14 Taxation (continued)
(b) Deferred tax assets and liabilities (continued)
Composition of and movements in deferred tax assets and liabilities during the year are set out below:
Deferred tax assets
Deferred tax liabilities
Charged / (credited) to the
income statement
Consolidated group
Consolidated group
Consolidated group
2018
US$m
2017
US$m
-
-
-
-
223
182
26
431
-
-
-
-
220
225
25
470
2018
US$m
(134)
(546)
(1,244)
(105)
-
-
(8)
2017
US$m
(123)
(540)
(1,220)
(127)
(1)
(11)
(5)
(2,037)
(2,027)
2018
US$m
2017
US$m
(11)
(6)
(24)
22
4
(32)
-
(47)
(5)
(30)
(141)
(6)
24
88
13
(57)
Temporary differences arising from
Exploration expenditure
Development
Property, plant and equipment
Inventories
Provisions
Other financial liabilities
Other items
(c) Unrecognised tax losses
At 30 June 2018, the Group had income tax losses with a tax benefit of US$28 million (2017: US$23 million) which are not recognised as
deferred tax assets. The Group recognises the benefit of tax losses only to the extent of anticipated future taxable income or gains in relevant
jurisdictions. These losses do not expire.
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Unrecognised items
15 Commitments and contingencies
30 June 2017
Within one year
Between one and five years
Total commitments
30 June 2018
Within one year
Between one and five years
Total commitments
Capital
US$m
Operating leases
US$m
Total
US$m
327
16
343
175
40
215
64
24
88
13
31
44
391
40
431
188
71
259
(i) Capital commitments
At 30 June 2018, Fortescue had contractual commitments to capital expenditure not recognised as liabilities, including commitments
associated with the construction of iron ore carriers of US$43 million (2017: US$196 million) within 12 months after the end of the year.
(ii) Operating lease commitments
Fortescue leases various offices and other premises under non-cancellable operating leases expiring within one to three years. The leases
have varying terms, escalation clauses and renewal rights. The terms of the leases are renegotiated on renewal. Fortescue also leases mobile
equipment, plant and machinery and office equipment under non-cancellable operating leases. The leases have varying terms.
Fortescue had no material contingent liabilities or contingent assets at 30 June 2018 or at the date of this report. Fortescue occasionally
receives claims arising from its activities in the normal course of business. In the opinion of the Directors, all such matters are covered by
insurance or, if not covered, are without merit or are of such a kind or involve such amounts that would not have a material adverse impact
on the operating results or financial position if settled unfavourably.
16 Events occurring after the reporting period
On 20 August 2018, the Directors declared a final dividend of 12 Australian cents per ordinary share payable in October 2018.
89
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
17 Related party transactions
(a) Subsidiaries and joint operations
Interests in significant subsidiaries and joint operations are set out in note 22.
(b) Key management personnel remuneration
Short term employee benefits
Share-based payments
Post employment benefits
2018
US$'000
6,569
2,469
148
9,186
2017
US$'000
7,469
2,273
141
9,883
Detailed information about the remuneration received by each key management person is provided in the Remuneration Report on
pages 111 to 138.
(c) Transactions with other related parties
The following transactions occurred with joint operations partners
Other revenue
Balances at 30 June
Deferred joint venture contributions
Current receivables
2018
US$'000
1,973
269,859
219
2017
US$'000
2,785
265,800
274
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.
18 Share-based payments
(a) Employee share rights plans
During the year ended 30 June 2018, Fortescue issued 1,845,707 (2017: 1,874,545) short term share rights and 3,045,753 (2017: 3,666,789)
long term share 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.
Outstanding at 1 July
Share rights granted
Share rights forfeited or lapsed
Share rights converted or exercised
Outstanding at 30 June
2018
Number
15,795,024
4,891,460
(4,548,999)
(1,766,692)
14,370,793
2017
Number
18,355,858
5,541,334
(5,122,418)
(2,979,750)
15,795,024
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
18 Share-based payments (continued)
(a) Employee share rights plans (continued)
The weighted average fair value of share rights granted during the year ended 30 June 2018 was A$5.34 per right (2017: A$4.85) for the short
term share rights and A$5.04 per right (2017: A$4.61) for the long term share rights. The estimated fair value of the short term share rights
was determined using a trinomial option pricing model and the estimated fair value of the long term share 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 share rights granted during the year ended 30 June 2018 were:
• Share price: A$4.90 (2017: A$4.99)
• Exercise price: nil (2017: nil)
• Volatility: 49 per cent (2017: 68 per cent)
• Effective life: 2.1 years (2017: 2.2 years)
• Dividend yield: 7.1 per cent (2017: 3.5 per cent)
• Risk free interest rate: 1.9 per cent (2017: 2.0 per cent).
Details of share rights outstanding at 30 June 2018 are presented in the following table:
Balance at
the end of
the year
Vested and
exercisable at
the end of the
year
Exercise
price
Short term share rights 2016
Short term share rights 2017
Short term share rights 2018
Long term share rights 2016
Long term share rights 2017
Long term share rights 2018
(b) Employee expenses
-
-
-
-
-
-
-
A$
Number
616,219
761,507
1,755,884
6,465,830
2,296,040
2,475,313
14,370,793
1,377,726
Remaining
contractual life
Vesting conditions
Years
Market Non-market
12.5
13.3
14.3
12.5
13.3
14.3
-
-
-
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Number
616,219
761,507
-
-
-
-
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
2018
US$m
14
2017
US$m
16
91
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
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 assurances
Audit and review of financial statements
Total remuneration of auditors
20 Deed of cross guarantee
2018
US$'000
2017
US$'000
753
398
1,151
225
1,376
130
130
1,506
791
338
1,129
122
1,251
63
63
1,314
Fortescue Metals Group Ltd 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 Ltd
Group entities
• FMG Pilbara Pty Limited
• Pilbara Power Pty Limited
• Chichester Metals Pty Limited
• FMG JV Company Pty Limited
• FMG Resources (August 2006) Pty Limited
• FMG Ashburton Pty Limited
• International Bulk Ports Pty Limited
• Pilbara Mining Alliance Pty Limited
• The Pilbara Infrastructure Pty Limited
• Fortescue Services Pty Limited
• FMG Solomon Pty Limited
• FMG Personnel Pty Limited
• FMG Nyidinghu Pty Limited
• FMG Personnel Services Pty Limited
• FMG Procurement Services Pty Limited
• CSRP Pty Limited
• Pilbara Gas Pipeline Pty Limited
• FMG Training Pty Limited
• Pilbara Marine Pty Limited
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
20 Deed of cross guarantee (continued)
(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 2018 along with the consolidated statement of financial position at 30 June 2018 for the closed group and the
extended closed group represented by the above companies are materially the same as that of the Group.
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
Net profit after tax
Total comprehensive income for the year
2018
US$m
247
10,035
10,282
86
91
177
10,105
1,287
29
8,789
10,105
1,468
1,468
2017
US$m
158
10,161
10,319
759
43
802
9,517
1,289
22
8,206
9,517
319
319
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$1,411 million (2017: US$410 million).
(b) Guarantees entered into by the parent entity
The parent entity is a party to the following guarantees:
• Deed of cross guarantee, as described in note 20; and
• Guarantees forming part of Fortescue's senior debt arrangements associated with the senior secured notes at 30 June 2017 included
providing security to the secured debt holders with respect to the assets of the Company and certain of its subsidiaries.
No liability was recognised by the parent entity or the Group in relation to these guarantees.
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities at 30 June 2018 or 30 June 2017.
93
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
22 Interests in other entities
(a) Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following significant subsidiaries, in accordance
with the accounting policy described in note 23(a)(i):
Country of
incorporation
Class of
shares
Equity holding
2018
%
2017
%
Investment
2018
US$
2017
US$
Australia
Singapore
Singapore
Hong Kong
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Hong Kong
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
88
88
88
100
100
100
100
100
100
100
100
100
100
100
100
100
88
88
88
100
100
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
1
1
1
1
1
1
1
1
1
1
97,610,244
64,837,148
1
1
Controlled entities
Chichester Metals Pty Limited
FMG International Pte Limited
FMG International Shipping Pte Ltd
FMG Iron Bridge Limited
FMG Magnetite Pty Limited
FMG North Pilbara Pty Limited
FMG Pilbara Pty Limited
FMG Procurement Services
FMG Resources (August 2006) Pty Limited
FMG Solomon Pty Limited
Karribi Developments Pty Limited
Pilbara Housing Services Pty Limited
Pilbara Power Pty Limited
The Pilbara Infrastructure Pty Limited
FMG Hong Kong Shipping Ltd
FMG Personnel Services Pty Ltd
(b) Joint operations
The consolidated financial statements incorporate Fortescue's share in the assets, liabilities and results of the following principal joint
operations, in accordance with the accounting policy described in note 23(a)(ii).
Country of
incorporation
Holding entity
Principal activities
Australia
FMG Magnetite Pty Ltd
Development of magnetite
assets and production of
magnetite concentrate
Participating interest
2018
69%
2017
69%
Australia
FMG North Pilbara Pty Ltd
Iron ore exploration
69%
69%
Joint operations
Iron Bridge
Joint Venture
Glacier Valley
Joint Venture
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
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 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 at the reporting date, with the resulting gains and losses recognised in the
income statement, except as set out below:
• For qualifying cash flow hedges, the gains and losses arising on foreign currency translations are deferred in other comprehensive income
• Translation differences on site rehabilitation provisions are capitalised as part of the development assets.
Gains and losses on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
95
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(d) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Fortescue recognises revenue when the amount of
revenue can be reliably measured and it is probable that future economic benefits will flow to the entity and specific criteria have been met
for each of the Group's activities as described below.
(i) Sale of products
Revenue from the sale of products is recognised when significant risks and rewards of ownership have passed 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.
The above conditions are generally satisfied when title passes to the customer, typically on the bill of lading date when iron ore is delivered
to the vessel. Revenue is recorded at the invoiced amounts.
Fortescue’s sale contracts may provide for provisional pricing of sales with final pricing determined using the iron ore price indices on
or after the vessel’s arrival to the port of discharge. A provisionally priced sale contains an embedded derivative which is required to be
separated from the host contract. At each reporting date, in the absence of an iron ore futures market, the provisionally priced sales are
marked-to-market at period end prices, with adjustments (both gains and losses) recorded in operating sales revenue in the consolidated
income statement and in trade debtors or trade payables in the balance sheet.
(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 Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(f)
Income tax (continued)
Fortescue and its wholly-owned Australian controlled 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 the each
corresponding tax consolidated group.
(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.
Collectability of trade receivables is reviewed on a monthly basis. When there is objective evidence that Fortescue will not be able to
collect all amounts due according to the original terms 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, financial assets at fair value through profit or loss and available for sale
financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the
classification of its financial assets at initial recognition.
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.
97
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(j) Financial assets (continued)
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 on the balance sheet at fair value with changes in fair value
recognised in profit or loss.
(iii) Available for sale financial assets
Available for sale financial assets, comprising principally marketable equity securities, are non derivatives that are either designated in this
category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of
the investment within 12 months of the reporting date. Investments are designated as available for sale if they do not have fixed maturities
and fixed or determinable payments and management intends to hold them for the medium to long term. These instruments are recognised
at fair value, with changes in fair value being recognised directly in other comprehensive income, unless the change is considered to be a
significant or prolonged decrease below original cost, in which case the decrease is recognised in profit or loss as an impairment 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.
(iii) Finance lease liabilities
The Group has finance lease liabilities in relation to certain items of property, plant and equipment. Finance lease liabilities are initially
recognised at the fair value of the underlying assets or, if lower, the estimated present value of the minimum lease payments. Each lease
payment is allocated between the liability and finance cost and the finance cost is charged to the income statement over the lease period to
reflect a constant periodic rate of interest on the remaining balance of the liability for each period.
(l) Property, plant and equipment
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 as assets under development. Upon
commissioning, which is the date when the asset is in the location and condition necessary for it to be capable of operating in the manner
intended by management, the assets are transferred into property, plant and equipment or development assets, as appropriate.
Cost may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property,
plant and equipment. Borrowing costs related to the acquisition or construction of qualifying assets are capitalised.
When separate parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of
property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of
the equipment.
Gains and losses arising on disposal of property, plant and equipment are recognised in the income statement and determined by
comparing proceeds from the sale of the assets to their carrying amount.
(ii) Subsequent costs
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that
future economic benefits associated with these subsequent costs will flow to Fortescue and the cost of the item can be measured reliably.
Ongoing repairs and maintenance are recognised as an expense in the income statement during the financial period in which they are incurred.
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(l) Property, plant and equipment (continued)
(iii) Depreciation
Depreciation of assets, other than land which is not depreciated, is calculated using the straight-line method or units of production method,
net of residual values, over estimated useful lives. Depreciation commences on the date when an asset is available for use, that is, when it
is in the location and condition necessary for it to be capable of operating in the manner intended by management. Assets acquired under
finance leases are depreciated over the shorter of the individual asset’s useful life and the lease term.
Straight-line method
Where the useful life is not linked to the quantities of iron ore produced, assets are generally depreciated on a straight-line basis. The
estimated useful lives for the principal categories of property, plant and equipment depreciated on a straight-line basis are as follows:
• buildings
• rolling stock
• plant and equipment
• rail and port infrastructure assets
20 to 40 years
25 to 30 years
2 to 20 years
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.
(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.
99
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(l) Property, plant and equipment (continued)
Development costs are accumulated in respect of each separate area of interest. Costs associated with commissioning of 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.
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.
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(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 bi-annually, which is used as a source of information to assess for any
indications of impairment. External factors, such as changes in expected future prices, costs and other market factors are also monitored
to assess for indications of impairment. If any such indication exists, an estimate of the asset’s recoverable amount is calculated, being the
higher of fair value less direct costs to sell and the asset’s value in use. An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount.
Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between
knowledgeable and willing parties. Fair value for mineral assets is generally determined using independent market assumptions to calculate
the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion
prospects, and its eventual disposal. These cash flows are discounted using an appropriate discount rate to arrive at a net present value of
the asset.
Value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its
present form and its eventual disposal, discounted using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Value in use is determined by
applying assumptions specific to the Group’s continued use and does not take into account future development.
In testing for indications of impairment and performing impairment calculations, assets are considered as collective groups and referred to
as cash generating units. Cash generating units are the smallest identifiable groups of assets and liabilities that generate cash inflows that
are largely independent of the cash inflows from other assets or groups of assets.
Impaired assets are reviewed for possible reversal of the impairment at each reporting date.
101
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(q) Finance costs
Finance costs principally represent interest expense and are recognised as incurred except when associated with major projects involving
substantial development and construction periods. In addition, finance costs include losses arising on derecognition of finance liabilities at
above their carrying value, unwinding of the discount on provisions and bank charges.
Interest expense and other borrowing costs directly attributable to major projects are added to the cost of the project assets until such time as
the assets are substantially ready for their intended use or sale. Where funds are used to finance an asset form part of general borrowings, the
amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings during the construction period.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation.
(r) Employee benefits
(i) Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the
reporting date are recognised in other payables and accruals in respect of employee services up to the reporting date. They are measured at
the amounts expected to be paid when the liabilities are settled.
(ii) Long service leave
The liability for long service leave is recognised in provisions and measured as the present value of expected future payments to be made
in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels,
probability of employee departures and periods of service.
Expected future payments are discounted using market yields at the reporting date on Australian Government bonds with terms to maturity
and currency that match, as closely as possible, the estimated future cash outflows. The liability for long service leave for which settlement
within 12 months of the reporting date cannot be deferred is recognised in the current provision. The liability for long service leave for which
settlement can be deferred beyond 12 months from the reporting date is recognised in the non-current provision.
(s) Share-based payments
Share-based remuneration benefits are provided to employees under the Fortescue’s share 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 of the rights granted is measured to reflect expected market vesting conditions, but excludes the impact of any non-market
vesting conditions (for example, profitability). Non-market vesting conditions are included in assumptions about the number of rights that
are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of rights that are expected to
become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the
revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity.
(t) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company,
on or before the end of the reporting period but not distributed at the end of the reporting period.
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(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.
(x) New accounting standards and interpretations
(i) New and amended standards adopted by the Group
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 July 2017:
• AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses
• AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107
• AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016 Cycle.
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.
(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 2018 reporting periods.
These standards and interpretations have not been early adopted.
AASB 15 Revenue from Contracts with Customers (effective from 1 July 2018)
The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard
introduces a five-step process for applying this principle, which includes guidance in respect of identifying the performance obligations
under the contract with the customer, allocating the transaction price between the performance obligations, and recognising revenue as
the entity satisfies the performance obligations.
The Group has concluded its evaluation of the impact of AASB 15 and determined that the only relevant impact for the Group relates to
the shipping of iron ore sold to customers. The Group sells a significant proportion of its products on Cost and Freight (CFR) terms, which
means that the Group is responsible for shipping the product to a destination port specified by the customer.
103
07 | Financial Report
Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
23 Summary of significant accounting policies (continued)
(x) New accounting standards and interpretations (continued)
(ii) New accounting standards and interpretations not yet adopted (continued)
Under AASB 118 Revenue the Group recognised the total contract revenue when title to iron ore passed to the customer, typically on the
bill of lading date when ore is delivered to the ship, the related shipping costs in full at that point. Under AASB 15 the shipping service
will represent a separate performance obligation, and will be recognised separately from the sale of the ore when the shipping service
has been provided, along with the associated costs.
Fortescue’s sale contracts may provide for provisional pricing of sales at the time the product is delivered to the vessel with final pricing
determined using the iron ore price indicies on or after the vessel’s arrival to the port of discharge. As explained in more detail below
provisional pricing adjustments to revenue will be dealt with under AASB 9 rather than AASB 15, and therefore the AASB 15 rules on
variable consideration do not apply to the provisional pricing mechanism of the Group’s sales contracts. Commencing in the year
ending 30 June 2019, provisional pricing adjustments will continue to be included in operating sales revenue on the face of the income
statement with the amount of such adjustments disclosed by way of note to the financial statements.
The Group will adopt the modified transitional approach to implementation where any transitional adjustment is recognised in retained
earnings at 1 July 2018 without adjustment of comparatives and the new standard will only be applied to contracts that remain in force
at that date. The impact of this change to retained earnings at 1 July 2018 is estimated at US$2 million.
AASB 9 Financial Instruments (effective from 1 July 2018)
The Group has concluded its evaluation of the impact of AASB 9 and determined that there is no significant impact on the Group’s results
from application of the standard.
As explained above, Fortescue’s sale contracts may provide for provisional pricing of sales at the time the product is delivered to the
vessel with final pricing determined using the iron ore price indicies on or after the vessel’s arrival to the port of discharge. Under
AASB 139 Financial Instruments: Recognition and Measurement the final pricing adjustment mechanism represents an embedded
derivative which is separated from the host contract and recognised at fair value through profit or loss. Under AASB 9 the receivable asset
is measured at fair value through profit or loss which will result in a similar overall impact on the income statement and balance sheet.
AASB 9 introduces an expected credit loss model for impairment of financial assets which replaces the incurred loss model used in
AASB 139. This is not expected to have a significant impact on the Group given our credit risk management processes, and the resulting
insignificant level of credit losses.
AASB 16 Leases (effective from 1 July 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. Depreciation would be recognised on the assets and interest on the financial
liabilities over the lease term.
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, commencing with a detailed
contract review process. 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.
There are two transition provisions available for the adoption of AASB 16, being retrospective application to each prior reporting period
presented by applying AASB 108, or retrospective application with the cumulative effect of initially applying the standard recognised at
the date of initial application. Fortescue is continuing to evaluate the transition approach.
Fortescue Metals Group Ltd Annual Report FY18 Notes to the consolidated
financial statements
For the year ended 30 June 2018
Other information
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’ above), operating costs, rehabilitation costs and future capital expenditure. Changes
in circumstances may alter these projections, which may impact the recoverable amount of the assets. In such circumstances, some or all of the
carrying value of the assets may be impaired and the impairment would be charged to the income statement.
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.
(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.
105
08
Remuneration
report
Fortescue Metals Group Ltd Annual Report FY18
Remuneration
and Nomination
Committee Chair
On behalf of the Directors of
Fortescue Metals Group Ltd,
I am pleased to present the
Remuneration Report for the year
ended 30 June 2018.
Our Report aims to provide you with clear
information on our remuneration strategy
for Executives and Directors, aligned to
deliver the best outcomes to you, our
shareholder.
A governing principle of Fortescue’s
remuneration strategy is to ensure
management are held accountable for
achieving stretch targets on the critical
deliverables of safety, production and cost.
For FY18, the Board determined aggressive
targets for each and designed incentives
specifically to drive business transformation,
financial performance and to protect
shareholders.
As reported in the Operating and Financial
Review, FY18 has once again delivered
strong, consistent results against the
majority of our key targets for the year,
reflecting our strong values-based culture
and the commitment of the whole
Fortescue team.
Performance culture driving
remuneration strategy
Fortescue’s remuneration strategy is
underpinned by its core Values and
performance culture which includes setting
challenging stretch targets, striving to
achieve them and rewarding success. Key
focus areas are innovation, value creation,
long-term sustainability and growth with
the Board exercising discretion to recognise
outstanding levels of achievement
where outcomes may not accurately
reflect performance.
Once again, Fortescue’s unique culture
continues to deliver outstanding levels of
engagement as demonstrated by the annual
Safety Excellence and Culture Survey with
an exceptional 94 per cent participation rate
as well as substantial improvement across all
survey metrics.
A commitment to diversity and ensuring
an encouraging and inclusive workplace
through practical measures, including fair
and equitable pay, flexible work practices
and support for parents returning to work
are fundamental drivers of our success.
Safety performance for the year was
disappointing with TRIFR increasing over the
period from 2.9 to 3.7, primarily driven by an
increase in low severity injuries. Safety is the
team’s highest priority and targeted plans
are in place to improve this performance
going forward.
Culture
94%
Participation in Safety Excellence
and Culture Survey
Reduced costs
4%
US$
12.36/wmt
Consistent production
170 mt
Safety performance
28%
3.7
Total Recordable Injury
Frequency Rate
107
08 | Remuneration Report
Long term sustainable value
The delivery of long term, sustainable
value is our goal. Focussed cost reduction,
debt repayment and balance sheet
management has been very successful and
remain key objectives of our long term
strategy.
C1 cost reductions have been significant
and sustainable, generating shareholder
value.
Despite challenging market conditions, the team
have achieved our balance sheet goals, providing
a strong platform for growth.
The re-rating of Fortescue shares was achieved
through the execution of the disciplined Capital
Management Strategy. As at 30 June:
• Gross debt reduced to US$4.0bn
• Net debt reduced to US$3.1bn
• Gross gearing was 29 per cent
• Debt to EBITDA of 1.2 times.
C1
US$/wmt
48
44
34
27
15
13
12
FY12
FY13
FY14
FY15
FY16
FY17
FY18
12,691 10,553
9,557
9,569
7,159
7,188
6,771
5,188
4,471
2,633
3,975 3,112
FY13
FY14
FY15
FY16
FY17
FY18
Debt
Net Debt
Gross gearing (RHS)
Net gearing (RHS)
Leadership
2018 was a year of transition with a change
in leadership and the appointment of
Fortescue’s Core Leadership team (CLT),
comprising our Chief Executive Officer
Elizabeth Gaines, Deputy Chief Executive
Officer Julie Shuttleworth, Chief Operating
Officer Greg Lilleyman and Chief Financial
Officer Ian Wells. The CLT bring considerable
experience, talent and the commitment to
Fortescue’s culture and Values required to
lead the Company through its next phase of
growth and development. The collaborative
working style is core to their success.
FY18 performance
During FY18, a challenging year from a
market perspective, significant progress on
the delivery of Fortescue’s business strategy
was achieved, specifically:
• Consistent production from the
Company’s world class assets, with 170mt
of iron ore shipped and achievement of a
record 46.5mt for the June 2018 quarter
• Continued cost reduction including a four
per cent year on year or eight per cent
reduction in C1 costs when normalised
for exchange rate and fuel costs,
reflecting the sustained improvement in
productivity and efficiency together with
higher production volumes
• Substantial increase (approximately
101 per cent) in non-China Sales
• Significant progress toward Fortescue’s
growth strategy including the
identification and assessment of
opportunities locally and abroad
• Employee engagement levels maintained
at high levels, measured by an outstanding
94 per cent response rate to the annual
Safety Excellence and Culture Survey
• Mine life maintained at target production
rate and quality
• Completed the capital management
strategy reducing gross debt, the cost of
capital and increasing flexibility.
Fortescue's share price decreased by 16 per
cent over the year impacted predominantly
by iron ore price movements. The correlation
between Fortescue’s share price and the
movement of the iron ore price 62 Platts
index is shown in the graph below.
1
year
e
r
a
h
s
/
$
U
A
7
6
5
4
3
2
1
0
FMG share price
Platts 62% index
90
80
70
60
50
40
30
20
10
0
t
m
d
/
$
S
U
3/07/2017
3/10/2017 3/01/2017
3/04/2017
During FY18, the Fortescue team
successfully focussed on measures within
their control. The Board has rewarded this
3
focus.
year
Platts 62% index
FMG share price
7
160
e
r
a
h
s
/
$
U
A
6
5
4
3
2
1
0
t
m
d
/
$
S
U
140
120
100
80
60
40
20
0
6
1
0
2
/
7
0
/
1
6
1
0
2
/
0
1
/
1
6
1
0
2
/
1
0
/
1
6
1
0
2
/
4
0
/
1
7
1
0
2
/
7
0
/
1
7
1
0
2
/
0
1
/
1
7
1
0
2
/
1
0
/
1
7
1
0
2
/
4
0
/
1
8
1
0
2
/
7
0
/
1
8
1
0
2
/
0
1
/
1
8
1
0
2
/
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0
/
1
8
1
0
2
/
4
0
/
1
Fortescue Metals Group Ltd Annual Report FY18 1
year
7
6
5
4
3
2
e
r
a
h
s
/
$
U
A
FMG share price
Platts 62% index
90
80
70
60
50
40
30
20
t
m
d
/
$
S
U
1
0
Over the performance period of the FY16
LTIP, Fortescue’s share price has materially
3/07/2017
outperformed the iron ore indices as shown
in the graph below.
3/10/2017 3/01/2017
3/04/2017
0
10
3
year
e
r
a
h
s
/
$
U
A
7
6
5
4
3
2
1
0
FMG share price
Platts 62% index
t
m
d
/
$
S
U
160
140
120
100
80
60
40
20
0
6
1
0
2
/
7
0
/
1
6
1
0
2
/
0
1
/
1
6
1
0
2
/
1
0
/
1
6
1
0
2
/
4
0
/
1
7
1
0
2
/
7
0
/
1
7
1
0
2
/
0
1
/
1
7
1
0
2
/
1
0
/
1
7
1
0
2
/
4
0
/
1
8
1
0
2
/
7
0
/
1
8
1
0
2
/
0
1
/
1
8
1
0
2
/
1
0
/
1
8
1
0
2
/
4
0
/
1
The outcomes of the FY16 LTIP recognises
and rewards the outstanding performance
achieved by long term employees in a
challenging iron ore market.
Treatment of incentives and
discretionary ex-gratia payment
for Mr Power
Mr Power’s ESSIP and LTIP grants were
approved by shareholders at the 2015 AGM.
Other than Mr Power’s FY18 ESSIP and
FY16 LTIP entitlements, all of Mr Power’s
ESSIP and LTIP entitlements have lapsed.
At the time of Mr Power’s resignation, the
Board considered the potential risk of an
unintended windfall gain in respect to the
FY16 LTIP value that may have occurred
as a result of an increasing share price. In
order to ensure a responsible remuneration
outcome in the interests of shareholders, the
Board has exercised its discretion to limit Mr
Power’s potential FY18 total remuneration
through the ‘at risk’ component as follows:
• An FY18 ESSIP entitlement awarded
on a pro-rata basis up to cessation
of employment and subject to
Company performance against the
abovementioned FY18 stretch targets
• An FY16 LTIP entitlement awarded
on a pro-rata basis up to cessation
of employment, subject to Company
performance against targets and the FY16
LTIP rights being capped by reference to
an amount equal to the aggregate value
of the FY16 LTIP award using a notional
share price of $1.80 (being the share price
at the date of grant)
• An ex-gratia payment of A$1,006,850.
FY18 remuneration outcomes
Fixed remuneration for the CLT was
established at the time of each of their
appointments during the year, having
regard to comparable roles within the
ASX 100, ASX 50 and ASX 30 indices as
well as other global resource companies.
Remuneration for each of the CLT members
has been positioned lower than the
remuneration for prior incumbents in
these roles, noting that Fortescue has not
previously had a Deputy CEO.
FY18 Short Term Incentive stretch targets for
production, sustaining capital expenditure
and culture have been met, with the growth
target partially achieved. The Board has
exercised its discretion for a partial award
related to C1 cost and underlying EBITDA
margin, reflecting continued cost reductions
against an aggressive target on a normalised
basis. As noted above, the safety target
has not been achieved and is a core area of
focus for improvement. Awards for the FY18
short term incentive averaged 69 per cent of
maximum opportunity.
FY16 Long Term Incentive Plan (LTIP) is the
first of the newly designed LTIPs to complete
its performance period. Stretch targets for
this plan have been achieved at varying
levels, resulting in an overall payout ratio of
86 per cent.
• The Total Shareholder Return (TSR)
target has been exceeded, reflecting the
outstanding share price growth over the
three year performance period
• Growth in share price reflects the
investment grade debt profile and the
outstanding operating cost reduction
which was achieved through execution of
strategy over the last three years
• The three year average Average Return
on Equity (AROE), based on underlying
NPAT (which excludes exceptional items
relating to the Company's one-off costs of
refinancing activities) has been achieved
at threshold
• Strategic measures have been achieved
at target. Strategic measures are closely
aligned with short term incentive
measures to ensure long term value is
retained and not impacted by a purely
short term focus (eg long term mine life
is preserved notwithstanding ongoing
reductions in annual operating costs).
This application of board discretion resulted
in Mr Power’s total at risk remuneration
accounting for 51 per cent of his total
remuneration, a 59 per cent reduction in 'at
risk' remuneration in total from FY17.
Conclusion
Fortescue’s remuneration strategy is
designed to motivate, attract and retain
employees to deliver on the Company’s
strategic objectives. For executives
and senior staff this includes a high
proportion of ‘at risk’ remuneration which
is fundamentally aligned to shareholder
returns. At its core, the strategy drives
management accountability for the
achievement of stretch targets for the
business, through a balance of financial and
non-financial measures.
We have seen a reduction in the ‘at risk’
award for the FY18 short term incentive
(compared to FY17) and an award for
the FY16 LTIP (for the period from 1 July
2016 to 30 June 2018), which aligns with
shareholder returns over these periods.
Through its ongoing focus on a targeted
short and long term remuneration
framework, Fortescue continues to work
towards its vision to be the world’s safest,
low cost, most profitable mining company
while also positioning the Company for its
future growth and development.
Sharon Warburton
Remuneration & Nomination
Committee Chair
109
08 | Remuneration Report
Contents
Remuneration Report
1. FY18 overview and year ahead
2. Remuneration governance
3. Executive remuneration strategy
4. Executive remuneration structure
5. Incentive plan operation and performance
6. How executive remuneration is reported
7. Executive contract terms
8. Non-executive director remuneration
9. Equity Instrument disclosures relating to key
management personnel
Fortescue Metals Group Ltd Annual Report FY18
Remuneration
Report
Who this report covers
This report outlines the remuneration
arrangements for Fortescue’s Key
Management Personnel (KMP). KMP are
defined as ‘those persons having authority
and responsibility for planning, directing
and controlling the activities of the entity,
directly or indirectly, including any director
(whether executive or otherwise) of
that entity’.
Within this Remuneration Report reference to
'Executive(s)' includes Executive Directors and
Other Key Management Personnel.
There have been no changes to Key
Management Personnel after the
reporting date.
The information provided in this
Remuneration Report has been prepared
in accordance with requirements under
the Corporations Act 2001 and Accounting
Standards. Further details in regard to
Company Directors can be found in the
Corporate Governance Section of the
Annual Report.
Whilst the functional and reporting
currency of Fortescue is US dollars, it is the
Directors’ view that presentation of the
information in Australian dollars provides
a more accurate and fair reflection of the
remuneration practices of Fortescue, as all
Directors and Executives are remunerated in
Australian dollars. This report forms part of
the Directors’ Report and unless otherwise
indicated the following sections have been
audited in accordance with section 308 (3c)
of the Corporations Act 2001.
The KMP of the Group for FY18 were:
Non-executive Directors
Current
A Forrest AO
Chairman
M Barnaba AM
Deputy Chair and Lead Independent Director
S Warburton
Deputy Chair
J Baderschneider
Non-Executive Director
J Morris OAM
Non-Executive Director
P Bingham-Hall
Non-Executive Director
Z Cao
S Coe CH, KBE
Former
H Cao
Executive Directors
Current
E Gaines
Former
N Power
Non-Executive Director
(Appointed 18 January 2018)
Non-Executive Director
(Appointed 21 February 2018)
Non-Executive Director
(Retired 18 January 2018)
Chief Executive Officer (Commenced as CEO on 19 February 2018)
Chief Executive Officer (Ceased employment 19 February 2018)
Other key management personnel (Executives)
Current
J Shuttleworth
Deputy Chief Executive Officer
(Commenced as Deputy CEO on 8 January 2018)
I Wells
G Lilleyman
Chief Financial Officer
(Commenced as CFO on 19 February 2018)
Chief Operating Officer
(Commenced as COO on 19 February 2018)
111
08 | Remuneration Report
1. FY18 OVERVIEW AND YEAR AHEAD
Fortescue’s remuneration strategy seeks to build a performance orientated culture by attracting and retaining the best possible
people to align with driving increased shareholder value.
Fortescue’s Board and Remuneration and Nomination Committee (RNC) are committed to the continued review and refinement of the
remuneration strategy to ensure it meets the changing needs of the organisation, maintains market competitiveness, and aligns with
shareholder interests.
1.1 FY18 Remuneration outcomes - linking performance and pay
The Board takes into consideration both quantitative and qualitative assessments when deliberating on Executive remuneration
to ensure that reward outcomes reflect both Company and individual performance. The following explains how fixed and variable
remuneration outcomes were driven by performance in FY18.
Total Fixed Remuneration (TFR) Further details are provided on page 135
Delivery
Performance measures
Outcomes
Cash, superannuation and optional
salary sacrifice benefits
An individual’s TFR is a fixed / guaranteed
element of remuneration.
TFR for the CEO and KMP is benchmarked at least
annually against companies in the ASX 100, ASX
50 and ASX 30 indices as well as global resources
companies.
CEO and KMP TFR was benchmarked against the
above indices at the time of appointment.
Current CEO TFR is 25% lower than the previous
CEO reflecting market trends and benchmarks.
Short Term Incentive Plan Executive and Senior Staff Incentive Plan (ESSIP) Further details are provided on page 118
Delivery
Performance measures
Outcomes
Generally, a minimum of 50% of
the incentive value (up to 100% on
election) is granted in share rights
with the balance in cash
Share rights are granted based on
the share price at the beginning of
the performance period with value
realised at the time of award at the
end of the performance period
Movement in share price over
the performance period directly
affects the value received
ensuring full alignment with
returns to shareholders over the
performance period
A balanced scorecard of performance measures
including financial and non-financial measures.
Financial measures represent the key controllable
drivers of financial performance being underlying
EBITDA and NPAT
Targets set are stretch levels of performance
with each target either met (resulting in 100% of
maximum opportunity) or not met (resulting in
no payment)
The Board may exercise its discretion to vary
the level of award (positive or negative)
when considering overall shareholder value
generated over the performance period.
The Board will consider overall Company
performance including the degree of stretch in
the measures, operating environment and level
of improvement on the prior year
Company Financial Targets
• Production
• Operating Cost
• Sustaining Capital
• EBITDA margin
• Price realisation
• Business diversification and growth targets
Company Sustainability Targets
• Safety
• Culture and engagement
KMP Performance:
• Measured on Company targets plus an
additional 4-5 Personal KPIs aligned to business
plan and set at stretch levels of performance
During FY18, the Company continued to deliver
strong performance against many but not all of
its stretch targets
Awards made in relation to the FY18 ESSIP reflect
achievement of:
• On target tonnes shipped
• On target sustaining capital expenditure
• Significant measurable improvement in
employee culture and engagement
Partial award for:
• Substantial diversification and growth strategy
progress
• Strong EBITDA margin
• 8% reduction in C1 costs when normalised for
exchange rate and fuel costs
No award was made for safety. Safety
performance this year was disappointing and
whilst there has been a significant reduction in
significant incidents, the specific TRIFR target has
not been met
Price realisation was also below target and no
award was made
The outcome of the FY18 ESSIP represents
an average payment of 69% of maximum
opportunity compared with an average payment
of 96% of maximum opportunity in FY17
Refer to section 5 for further detail
Fortescue Metals Group Ltd Annual Report FY18 Long Term Incentive Plan (LTIP) Further details are provided on page 123
Performance Measures
Measured against:
• Relative TSR (33%)
• AROE (33%)
• Strategic Measures (34%)
Delivery
Share rights are granted based on
the share price at the beginning of
the performance period with value
realised at time of award at the end
of the performance period
Movement in share price over
the performance period directly
affects the value received ensuring
strong correlation with returns to
shareholders over the course of the
same period
Outcomes
FY16 LTIP
FY16 LTIP share rights were granted at a share
price of $1.80 and the share price has increased
over the performance period to $4.35. This
increase in share price is reflected in the nominal
value of FY16 LTIP vested rights awarded which
are valued at the end of the performance period
The FY16 LTIP has achieved all three of its
performance measures resulting in 86% of share
rights vesting under this plan
• A TSR outcome of 139% (93rd percentile) has
been achieved
• An AROE outcome of 15.2% has been achieved
and therefore, the 15% threshold has been met
• Strategic measures are set and assessed
annually. The strategic measures for each of the
performance years of the FY16 LTIP have been
achieved at target
Fortescue’s remuneration
strategy seeks to build a
performance orientated culture
by attracting and retaining
the best possible people to
align with driving increased
shareholder value.
113
08 | Remuneration Report
2. REMUNERATION
GOVERNANCE
Fortescue believes that robust
governance is critical to underpinning
the effectiveness of the remuneration
strategy.
2.1 The Remuneration and Nomination
Committee
The RNC operates under a Board-
approved Charter. The purpose of
the RNC is to provide assistance and
recommendations to the Board to ensure
that it is able to fulfil its responsibilities
relating to the following:
• Remuneration strategy
• Non-Executive Director remuneration
• CEO and Executive Director remuneration
• Other Core Leadership team and senior
executive remuneration
• Short term and long term incentive plans
• Core Leadership team recruitment
• Annual Performance Review of the CEO and
other Core Leadership team members
• Succession planning and talent
management
• Diversity strategy
• Gender pay equity
• Matters relating to the Company’s
recruitment, retention and
termination policies
• Nomination and review of applicants for
the Board Director position
• Committee Member appointments.
A copy of the Charter is available under
the Corporate Governance section of
the Company's website available at
www.fmgl.com.au
The RNC in FY18 consisted solely of Non-
Executive Directors. The CEO and others may
be invited to attend all or part of meetings by
the Committee Chair as required, but have
no vote on matters before the Committee.
The process and accountabilities in
determining remuneration are shown below:
REMUNERATION
CONSULTANTS
May be engaged directly
by the Board or Remuneration
and Nomination Committee
to provide advice or
information relating to
KMP that is free from
influence of management
REMUNERATION
CONSULTANTS
Will be engaged directly
by management other than in
respect of KMP to provide
advice and market data to
ensure Fortescue’s
remuneration position
remains competitive
BOARD OF DIRECTORS
• Approving the remuneration of Non-Executive Directors and CEO
• Ensuring remuneration practices are competitive and strategic and align with the attraction
and retention policies of the Company
BOARD REMUNERATION AND NOMINATION COMMITTEE
Advise the Board on:
• Remuneration strategy, policies and practices • Non-Executive Director remuneration
• Executive remuneration • Diversity strategy • Gender pay equity
HUMAN RESOURCES MANAGEMENT
• Implementation of remuneration policies and practices
• Advising the Remuneration and Nomination Committee of changing statutory and market conditions
• Provides relevant information to the Remuneration and Nomination Committee to assist with decisions
Fortescue Metals Group Ltd Annual Report FY18
2.2 Use of remuneration consultants
The Committee has the resources and
authority appropriate to perform its
duties and responsibilities, including the
authority to engage external professionals
on terms it deems appropriate.
During the year ended 30 June 2018, the
Committee retained PwC in relation to
the review of policies and practices, the
provision of general information and
market trends. This did not incorporate
providing the Committee with any
remuneration recommendations as
defined by the Corporations Act 2001.
2.3 Clawback Policy
Fortescue operates a Clawback Policy.
Clawback will be initiated where in the
opinion of the Board:
1) An Award, which would not have
otherwise vested, vests or may vest
as a result directly or indirectly of:
a) The fraud, dishonesty or breach
of obligations (including, without
limitation, a material misstatement
of financial information) of any
person; or
b) Any other action or omission
(whether intentional or
inadvertent) of any person, the
Board may make a determination
to ensure that no unfair benefit is
obtained by any Participant; or
2) An Award, which may otherwise
have vested, has not vested as
a result directly or indirectly of
any circumstance referred to in
paragraphs 1) a) or b) above, the
Board may reconsider the level
of satisfaction of the applicable
Conditions and reinstate and vest
any Award that may have lapsed to
the extent that the Board determines
appropriate in the circumstances.
2.4. Securities Trading Policy
Fortescue’s Securities Trading Policy
provides clear guidance on how
Company securities may be dealt with.
The Securities Trading Policy details
acceptable and unacceptable periods
for trading in Company Securities
including detailing potential civil
and criminal penalties for misuse of
confidential information.
Fortescue’s Securities Trading Policy
provides guidance on acceptable
transactions in dealing in the
Company’s various securities, including
shares, debt notes and options.
The policy also sets out a specific
governance approach for how the
Chairman and Directors can deal in
Company Securities. The Company’s
Securities Trading Policy can be accessed
from the Corporate Governance section
of the Company's website available at
www.fmgl.com.au
2.5 Minimum shareholding and holding
conditions
All Directors and employees are
encouraged to own Fortescue shares
and the Company enables employee
participation as a shareholder through
short and long term incentives, salary
sacrifice and dividend reinvestment
programs.
In 2018, the Board introduced a minimum
shareholding policy for Directors and
Executives as detailed below:
NEDs:
CEO:
100% of base
annual fees
100% of TFR
Other KMP:
75% of TFR
Other Executives: 50% of TFR
(as determined
by the Board).
Participants are encouraged to meet
their respective minimum shareholding
within a reasonable timeframe,
generally within five years from date
of appointment by holding shares that
vest under the long term incentive plan.
The Directors’ and Executives’ Minimum
Shareholding Policy can be accessed from
the Corporate Governance section of
the Company's website available at
www.fmgl.com.au
In addition to the minimum
shareholding requirement, a minimum
of 79 per cent of the ‘at risk’ component
of executive remuneration is granted in
share rights. The number of share rights
granted is based on the face value
share price at the commencement of
the performance period. The value
of any shares that may vest (subject
to performance) is also subject to
the same share price fluctuations
experienced by shareholders over the
performance period.
The minimum shareholding requirement
combined with the structure of
Fortescue’s incentive plans ensures
that executive remuneration is directly
aligned with shareholder returns.
3. EXECUTIVE REMUNERATION
STRATEGY
Fortescue’s reward strategy seeks to
build a performance oriented culture
that supports the achievement of the
Company’s strategic vision and to
attract, retain and motivate employees
by providing market competitive fixed
remuneration and incentives.
The reward strategy also supports
Fortescue’s growth and progression as
one of the world’s leading producers of
iron ore through:
• Being well positioned to deliver fair
and market competitive rewards
• Supporting a performance based
culture and acknowledging global
industry outperformance
• Alignment to the long term goals of
the Company.
3.1 Remuneration Policy
Fortescue is committed to providing
competitive remuneration packages to
its executives and senior employees.
Fortescue benchmarks remuneration
components against major indices
such as the ASX 30, ASX 50 and ASX
100 Resources Indices. Fortescue
seeks to attract and retain the best
global mining industry talent so also
benchmarks against comparable roles
in global peer group companies. The
Board acknowledges that market
conditions (including material
conditions outside the control of the
Company), share price and market
capitalisation may change the
Company’s relative comparator group
from time to time.
The Board, however, has a long term
strategy to ensure that executive
remuneration is appropriately
positioned to motivate, attract and
retain key executives and senior
employees through the commodity
cycles to deliver on the current and long
term strategic activities of the Company.
Rewarding executives throughout the
commodity cycle is critical to long term
shareholder value.
Information may also be sought from
independent remuneration consultants
regarding executive remuneration as
and when required as detailed
in section 2.2.
115
08 | Remuneration Report
3.2 How remuneration practices align with our reward strategy
Remuneration strategy principle
Policy
Practice
High levels of share ownership
Drive alignment of employee
and shareholder interests
A minimum 50% of the
ESSIP paid in shares with executives
able to elect up to 100% in shares.
LTIP awarded as shares
Market competitive
remuneration
Attract and retain key talent
and be competitive against
relevant companies
Remuneration is benchmarked against
the ASX 100 Resources, ASX 30, ASX 50
as well as relevant global Indices
Performance focus
Fit for purpose
Strategic alignment
Provide fair reward in
line with individual and
company achievements
Executive remuneration mix
targets a minimum of 64%
of the total opportunity ‘at risk’
Include flexibility to reflect clear
linkage to business strategy
Business strategy is prioritised;
market practice is only one input in
determining the relevant framework
Support delivery of long
term business strategy and
growth aspirations
Growth is key measure. There is a
strong link between long term strategic
initiatives and short term at risk
measures to ensure alignment
A significant portion of executive
remuneration granted as performance
rights vesting subject to short and long
term performance hurdles
Shareholder and
executive alignment
LTIP rewarding sustained performance
over a three year period
4. EXECUTIVE REMUNERATION
STRUCTURE
Executive remuneration has a fixed
component and a variable ‘at risk’
component, the payment of which
is dependent on the achievement of
Company performance and growth
targets and individual objectives.
The key components of the executive
remuneration structure comprise:
• Total Fixed Remuneration (TFR)
• Executive & Senior Staff Incentive
Plan (ESSIP)
• Long Term Incentive Plan (LTIP).
Remuneration may also include
participation in the Salary Sacrifice
Share Plan (SSSP).
Total remuneration comprising each
of these components is benchmarked
against the market taking into account
the Company’s position as the world’s
fourth largest iron ore producer and
its ranking on the Australian Securities
Exchange.
Fixed Remuneration is benchmarked
against the market median (50th
percentile) with the ability to earn third
quartile (75th percentile) or above
total remuneration for outstanding
performance against stretch targets.
Remuneration is benchmarked against
companies in the ASX 100 Resources
Index, ASX 30 and ASX 50 as well as
relevant global indices as required but
at least annually.
The number of share rights granted
under both ESSIP (which generally
account for a minimum of half the
incentive) and LTIP (which is granted
solely in share rights) are determined
based on the face value share price at
the start of the relevant performance
period. This means that the movement
in share price over the performance
period directly affects the value
received by executives and ensures full
alignment with returns to shareholders
over the course of the same period.
The remuneration mix (shown in
the section below) clearly illustrates
the significant proportion of ‘at risk’
components of executive remuneration
and reinforces the pay for performance
policy alignment adopted by the Board.
Further, a minimum 79 per cent (up
to a maximum of 100 per cent) of the
total ‘at risk’ component is offered in
the form of share rights and, subject to
share price movement, is fully aligned
with shareholders calculated based
on the face value share price at the
commencement of the performance
year. This means that over three
quarters of the value to the individual
of the combined ESSIP and LTIP is tied
directly to the share price at the time of
award, ensuring that executive reward is
aligned to shareholder value.
Fortescue Metals Group Ltd Annual Report FY18
4.1 FY18 Remuneration mix
The table below shows the remuneration mix for superior performance when stretch hurdles have been met for both the CEO and
executives. The remuneration mix for the current CEO and other CLT reflects the pro-rata ESSIP and LTIP values associated with their
change in role during FY18.
Former CEO
28%
31%
Current CEO
32%
29%
41%
39%
Total at risk
72%
68%
Other CLT
36% to 40%
26% to 27%
34% to 36%
60% to 63%
0%
20%
40%
60%
80%
100%
TFR
ESSIP (at risk)
LTIP (at risk)
The chart to the right represents the actual remuneration mix for KMP in
2018:
• The nominal value of the LTI, for all KMP except Mr Power, reflects the
share price growth from $1.80 to $4.35 over the performance period
• Ms Gaines and Mr Lilleyman did not participate in the FY16 long term
incentive due to the timing of their commencement of employment
• Mr Wells’ Other payment is for a retention plan related to his prior role,
the retention period for which concluded on 30 June 2018
• Mr Power’s remuneration mix is comprised of the following:
o An ESSIP entitlement reflecting the pro-rata accrued benefit (based
on achieving 56 per cent of maximum opportunity) up to the date he
ceased employment
o An LTIP entitlement reflecting the pro-rata accrued benefit and capped
value of Mr Power’s LTI at the grant price of $1.80 per share
o Mr Power’s Other payment relates to an ex-gratia payment of
A$1,006,850 plus accrued leave entitlements of A$634,776 paid out
on cessation of employment.
28%
37%
31%
48%
39%
12%
21%
63%
69%
15%
37%
21%
34%
14%
31%
N Power
E Gaines
G Lilleyman
J Shuttleworth
I Wells
TFR
STI (at risk)
LTIP (at risk)
Other
4.2 FY19 Remuneration mix
The table below shows the remuneration mix for superior performance when stretch hurdles have been met for both the CEO and
CLT in FY19.
28%
Total at risk
Current CEO
28%
31%
Other CLT
36%
28%
41%
36%
72%
64%
0%
20%
40%
60%
80%
100%
TFR
ESSIP (at risk)
LTIP (at risk)
117
08 | Remuneration Report
5. INCENTIVE PLAN OPERATION
AND PERFORMANCE
5.1 Executive and Senior Staff Incentive
Plan (ESSIP)
The purpose of the ESSIP is to
incentivise and reward key Fortescue
Executives (including KMP) for
achieving annual Company and
individual performance objectives that
drive shareholder value.
Historically the CEO’s ESSIP potential
award is linked solely to Company
objectives with other executives ESSIP
potential award generally linked 60
per cent to Company objectives, and
40 per cent to individual performance.
This creates alignment of CEO and
executive remuneration with Company
performance during the Plan Year.
2018 was a year of transition with the
formation of the four-member CLT
and changes to each of their roles part
way through the year. In this transition
year, their ESSIP potential award was
linked to a combination of Company
and individual based performance
objectives. Mr Power’s pro rata
award was linked solely to Company
objectives.
The maximum ESSIP opportunity is
established at the beginning of the
financial year for each executive.
Generally, the ESSIP is delivered as a
minimum of 50 per cent in ordinary
shares, and a maximum of 50 per cent
in cash. The plan allows participants to
elect to receive up to 100 per cent of the
ESSIP in shares.
Share rights are granted based on the
election made by the participant and
represent the maximum number of
shares that may be awarded subject
to performance.
The number of ESSIP share rights
are calculated based on the Volume
Weighted Average Price (VWAP) of
Fortescue shares traded over the first
five trading days of the performance
period (eg. 1 July 2017 to 7 July 2017).
In addition to those awards that are
generally granted under the ESSIP,
the Board has the ability to introduce
additional awards that are aligned
with and support the Company’s
business strategy. Additional awards
may be comprised of cash, shares or a
combination of both and are granted
at the discretion of the Board. No
additional awards were made in 2018.
Maximum General ESSIP opportunity
Role
Former Chief Executive Officer
Current Chief Executive Officer
Other CLT
Prior %
of TFR
112.5
75
56.25 or 75
New %
of TFR
112.5
112.5
75
No. of
Participants
1
1
3
The maximum incentive opportunity
for KMP in FY18 is shown below:
Note that the actual award outcomes
under the ESSIP will be determined
by the number of objectives achieved
and the value of the Fortescue shares
at time of vesting. As shown in the
table above, the Maximum General
ESSIP opportunity was increased for
the current CEO and other CLT upon
commencement of their current roles.
The maximum award for 2018 year has
been prorated (ie the higher maximum
only applies from commencement of
their new role).
Individuals who commence during the
year similarly will have awards under
the ESSIP pro-rated based on service
during the performance period.
5.2 How ESSIP objectives and weightings
are determined
Generally, ESSIP targets and measures
are set on an annual basis and
are linked to the annual stretch
budget and Fortescue’s strategic
plan focussing on core drivers of
shareholder value resulting in well
balanced financial and non-financial
targets. There is a strong link between
the ESSIP measures and the strategic
measures within the LTIP to ensure
alignment of short and long term
value.
Personal objectives are set at
stretch levels of performance with
measures and weightings aligned to
the individual’s ability to influence
outcomes and ensure focus on critical
deliverables.
The charts on the following page show the
relationship between the primary ESSIP
performance measures for the CEO and other
KMP in FY18:
• The former CEO had 40 per cent financial,
40 per cent growth and 20 per cent non-
financial targets
• The current CEO had 60 per cent financial,
20 per cent growth and 20 per cent
non-financial
• Financial and non-financial targets are
aligned specifically to the executive’s
respective roles and responsibilities and
financial targets range from 40 per cent
to 60 per cent
• Financial includes cost, production and
profitability measures
• Non-Financial includes safety, culture
and engagement measures.
Fortescue Metals Group Ltd Annual Report FY18
08 | Remuneration Report
5.3 How the ESSIP works:
ESSIP participant rewards are designed
to reflect Company performance and
provide alignment with shareholder
outcomes by generally linking a
minimum of half the ESSIP to share price
movement over the financial year.
The number of share rights granted in
respect to the FY18 ESSIP is determined
based on the VWAP at the start of the
performance period which was A$5.26.
•
•
If the share price at the time of award
is higher, executives will receive higher
value per share right
If the share price at the time of award
is lower, the value to executives is
decreased.
The value of share rights is therefore
aligned with shareholder interests as
executives receive value consistent
with share price movements. Value is
not realised until the vested rights are
exercised into shares and then sold.
5.4 How Fortescue performed over the
past five years
Fortescue continues to build on its
performance over the past five years,
showing strong performance in
safety, production and cost to deliver
shareholder value. The chart to the right
shows Fortescue's cost reductions, a
world class improvement over the past
five years.
In considering Fortescue’s performance
and benefits for shareholder value,
the Board have regard to the ASX 100
resources index in respect of the current
financial year and the previous four
financial years.
In FY18, Fortescue’s share price
decreased from the FY17 closing price
of A$5.22 to A$4.39 at the end of FY18.
This represents a 16 per cent decrease
compared with the ASX 100 Resources
index which increased 34 per cent over
the corresponding period.
The Fortescue share price movement
throughout FY18 was strongly
correlated to movement in iron ore
price. See graph on page 108.
Example:
The example below assumes that Executive A has an incentive opportunity of $100,000 and
has elected to take 70 per cent of the incentive in shares.
$100,000
$5.26
70%
$30,000
$70,000
13,310
80%
$24,000
10,648
Details of offer
Nominal Value of full award
VWAP at start of FY18 (1 to 7 July 2017)
Participant Share Weighting
Potential award
Cash (30 per cent of opportunity)
Nominal value of share rights (70 per cent)
Share Rights (70 per cent of opportunity)
(ie $70,000 ÷ $5.26)
Example outcome
Percentage of incentive opportunity achieved
(company and personal performance)
Cash paid (80% of cash component)
No. Share Rights Vested (80% of share rights convert to
vested rights)
C1
US$/wmt
48
44
34
27
15
13
12
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Total million tonnes shipped
(wmt)
Revenue from iron ore operations
- US$million
2018
2017
2016
2015
2014
170
170
169
165
124
6,775
8,335
6,947
8,390
11,611
EBITDA – US$million
Net profit/(loss) - US$million
3,182
878
4,744
2,093
3,195
2,506
985
316
5,636
2,740
Return on Equity %
Gearing (Book value of Debt/
Debt + Equity)
Dividends paid A$ per share
Share Price A$
Change in share price A$
Change in share price %
9
29
0.36
4.39
(0.83)
(16)
23
31
0.32
5.22
1.72
49
12
45
0.05
3.50
1.59
83
4
56
0.13
1.91
(2.44)
(56)
43
56
0.20
4.35
1.31
43
The non-IFRS information included in the table above has not been subject to audit.
Fortescue Metals Group Ltd Annual Report FY18
5.5 FY18 ESSIP performance outcomes
ESSIP awards are based on an
assessment of Company and individual
performance. Company performance
comprises company financial and
non-financial based measures designed
to drive both a short and long term
perspective on performance and
protect the long term interests of
shareholders by seeking to ensure
efficient processing of reserves mined
and financial objectives are met.
Performance objectives are set by the
Fortescue Board in line with the annual
business planning and budgeting
process and are established in line
with a culture of stretch targets. The
weighting for each target is reviewed
annually and may vary from year to
year to reflect its criticality, effort to
achieve and impact on the business.
In FY18, financial targets account for
80 per cent of the former and 70 per
cent for the current CEO performance
objectives with non-financial targets
accounting for the remaining 20 to 30
per cent. The mix of financial and non-
financial objectives for other executives
varies and are specific to their roles
and responsibilities.
The financial performance measures
were chosen as they represent the
key drivers of financial performance
(underlying EBITDA, NPAT) of the
Company and provide a framework for
delivering long term shareholder value,
irrespective of the iron ore price.
Objective and measurement
Company financial performance
Cost
• C1 cost < US$11.50/wmt
• Global competitiveness and level of
improvement compared to global
peers during the period
• The level of improvement across key
business drivers on the prior year
• Any other relevant under or over
performance or other criteria not
stated above.
In circumstances where performance
against stretch targets is not accurately
reflected in the level of achievement
against stretch targets (whether under
or over), the Board may exercise its
discretion to increase or decrease
the vesting level of the incentive and
therefore the value awarded.
In FY18, the Board set a number of key
targets in respect of cost reduction
across all operating and support
functions and challenging production
and growth targets. The Board
determined the relative weighting and
mix of performance objectives for the
CEO and executives in order to deliver
long term sustainable shareholder value.
The ESSIP performance objectives in
2018 are shown below:
The non-financial component of the
ESSIP is measured with reference to an
assessment against a range of measures.
A majority of the non-financial measures
are quantitative-based.
Fortescue’s Board recognises the
importance of supporting the
Company’s strong, differentiated
culture underpinned by its core Values,
which is fundamental to corporate
success. Fortescue has measured and
rewarded high levels of employee
engagement, demonstrated by the
results of the Company’s annual Safety
Excellence and Culture Survey, through
both the ESSIP and more recently
within the strategic measures of the
LTIP. The strength of Fortescue’s
values-based culture continues to
be a core contributor to its success
and accordingly to remuneration
outcomes.
A key element of Fortescue’s culture is
to set challenging stretch targets and
strive to outperform those targets.
When deliberating on performance
outcomes, the Board follows a rigorous
assessment process including:
• The degree of stretch in the measures
and targets and the context in which
the targets were set
• The level of achievement against the
stretch targets
• The operating environment over
the performance period and
management’s ability to respond to
unforeseen events
• Financial performance and
shareholder value generated
FY18 Short Term Incentive Outcomes
Weighting (% of STI)
Former
CEO
Current
CEO
Executives
Result
Achievement
5
5
5 to 10
US$11.83
• Sustaining Capex < $3.07/wmt
5
5
5 to 10
US$3.05
Partially achieved. The C1 cost of $US11.83
has been normalised for budgeted fuel
and exchange rate to ensure a like-for-
like comparison to the target. The result
remains short of the target but is a 8%
reduction to a normalised C1 cost of
US$12.82/wmt for FY17
In light of the continued year on year cost
reduction and Fortescue maintaining its
position as the lowest cost provider of
seaborne iron ore to China, the Board has
exercised its discretion to award 71.3% for
this measure based on achieving 97% of
the target
Achieved. The Capex target has been met
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08 | Remuneration Report
Objective and measurement
Company financial performance
Profitability
• EBITDA/Revenue Margin >50%
FY18 Short Term Incentive Outcomes
Weighting (% of STI)
Former
CEO
Current
CEO
Executives
Result
Achievement
10
5
55.8%
0 to 10
Partially achieved. The underlying EBITDA
margin adjusted for a C1 cost of US$11.83/
wmt based on the budgeted fuel and
exchange rate has exceeded the target
at 55.8%
In recognition of the sensitivity of this
measure to external factors, the Board has
exercised its discretion to award 71.3%
for this measure based on exceeding the
target on a normalised basis
• Contractual price realisation
Production
• Tonnes Shipped > 170.0 million wmt
Growth
• Specific Growth Objectives designed
to increase Fortescue’s market value
assessed at the absolute discretion of the
Board
10
10
40
5
10
20
65%
Not achieved. The contractual price
realisation target has not been met
10 to 20
170
Achieved
0 to 20
Partially met
Partially achieved. Significant progress has
been made toward Fortescue’s growth
strategy including the identification and
assessment of opportunities locally and
abroad and establishing a presence in
Ecuador and Argentina
The Board has determined that this
measure will be awarded at 50% based on
partial achievement
Not achieved. Keeping people safe remains
Fortescue’s highest priority. However, in
FY18 TRIFR increased to 3.7 and this target
has not been met
Achieved. The Safety Excellence and Culture
Survey participation rate and net promoter
score exceeded the Company's target and
overall this is an exceptional result
This measure has been met
Partially achieved. CEO personal objectives
are assessed by the Board and CLT personal
objectives are assessed by the CEO and
recommended outcomes approved by
the Board
Company Non-Financial Performance
Safety1
• TRIFR < 2.6
10
10
10 to15
3.7
Culture
• Participation rate ≥85%
• Positive Net Promotor Score
10
Included
in personal
KPIs
Included
in personal
KPIs
94
+10
Personal Objectives
Personal Objectives
• 4 to 5 Personal Objectives set at Stretch
Levels of performance against the FY18
Business Plan
n/a
40
40 to 45
Partially Met
1 In the event of a fatality no award is made for the Safety KPI.
The non-IFRS information included in the table above has not been subject to audit.
In FY18, Mr Power was measured solely against Company performance outcomes thereby ensuring the alignment between Company
performance, shareholder value and CEO reward for the performance year.
Due to Ms Gaines’ appointment as CEO during the FY18 performance period, Ms Gaines has been measured on both Company
performance and personal objectives related to her tenure as CFO.
Payment of ESSIP awards are made in September 2018 after the release of the Company’s audited full year results and with final
approval from the Board.
Further details in regard to the Company’s full year results are set out in the Finance Report on page 55 to 105.
Fortescue Metals Group Ltd Annual Report FY18
5.6 FY18 ESSIP awards
Share rights granted under the ESSIP at the beginning of FY18 are shown below. All share rights vest if all ESSIP objectives are met. ESSIP
share rights reflect the face value share price at the commencement of the performance year when share rights are granted.
The ultimate value of these share rights to the executives will reflect either an improvement or decline in the Company’s share price
over the performance period. The adoption of this approach is specifically to ensure that awards made to executives have a value which
reflects sustainable value of shareholders investment in the Company.
The ESSIP has awarded on average 69.2 per cent of maximum opportunity.
The last column in the table below details the actual number of share rights that vested based on actual performance:
Executive
E Gaines
N Power1
J Shuttleworth
I Wells
G Lilleyman
ESSIP Share Rights
granted
ESSIP Share Rights lapsed
ESSIP Share Rights
forfeited
ESSIP Share
Rights vested
225,414
427,830
61,537
42,246
154,495
60,862
268,106
17,230
11,406
43,259
-
-
-
-
-
164,552
159,724
44,307
30,840
111,236
Unvested share rights lapse once the total at risk outcome of the ESSIP is determined.
1 Mr Power’s ESSIP participation is on a pro-rata basis and represents his accrued entitlement up to cessation of employment.
2018
A$
TFR
Executive directors
Maximum
ESSIP
opportunity
(per cent of
TFR)
Weighting
in shares
(per cent)
Maximum
ESSIP cash
opportunity
Maximum
ESSIP Shares
opportunity
- value at
grant1
Nominal Value of ESSIP
Vested Rights
Total
ESSIP
cash
awarded
Share Price
at grant
$5.2591
Share
Price at
Vesting
$4.3480
ESSIP
outcome
E Gaines2,3
1,268,125
93.5
N Power4
2,000,000
112.5
Other executives
J Shuttleworth2,3 602,500
I Wells2,3
675,349
G Lilleyman2,3
1,083,333
67
66
75
100
100
80
50
100
-
-
1,185,469
2,250,000
80,906
323,625
222,169
222,169
-
812,500
73
56
72
73
72
-
-
865,397
715,473
840,0045
694,4805
58,253
233,013
192,645
162,183
162,188
134,090
-
585,003
483,656
1 Participant’s elected weighting in shares (minimum 50 per cent of the total award) divided by the strike price used to determine the number of share rights granted being the
VWAP of Fortescue shares traded over the first five days of the Plan year ($5.26).
2 TFR reflects the pro-rata TFR of the FY18 year.
3 Maximum ESSIP opportunity reflects the pro-rata incentive arrangements associated with the prior position calculated from the commencement of the performance year up
to the date of promotion plus pro-rata incentive arrangements associated with the new role calculated from the date of promotion to the end of the performance year.
4 Mr Power ceased employment on 19 February 2018.
5 Represents Mr Power’s accrued entitlement under the ESSIP awarded on a pro-rata basis.
5.7 Long Term Incentive Plan (LTIP)
The LTIP is granted in the form of share rights at the commencement of the three year performance period with awards vesting subject
to the achievement of the specified performance conditions. The three year performance period, performance measures and date of
assessment and award for each of the LTIPs are as follows:
Plan
FY16 LTIP
FY17 LTIP
FY18 LTIP
Performance Period
Performance Measure
Assessment and Award
1 July 2015 to 30 June 2018
1 July 2016 to 30 June 2019
1 July 2017 to 30 June 2020
Relative TSR
AROE
Strategic Measures
September 2018
September 2019
September 2020
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5.7.1 LTIP operation
The LTIP plans operate under the
performance rights plan rules as
approved by shareholders at the
Company’s Annual General Meeting
on 11 November 2015 and are granted
in the form of share rights. Each share
right entitles the holder (subject
to achievement of the specified
performance conditions) to one fully
paid ordinary share in the Company for
nil consideration.
The LTIP is assessed against multiple
performance measures weighted as
follows:
• Total Shareholder Return relative to
the ASX 100 Resources comparator
group (33 per cent)
• Absolute Return on Equity
(33 per cent)
• A basket of strategic measures
(34 per cent).
The relative weighting between
financial and strategic measures
provides the ability to assess
performance across a cyclical market.
The inclusion of strategic measures also
ensures alignment between short and
long term value creation by ensuring
long term value is not compromised.
The combination of AROE and relative
TSR ensure continued alignment with
delivering shareholder value.
Each of the performance measures
provide for a determination by the
Board that the Company has performed
at a Threshold, Target or Stretch level.
The TSR vesting schedule is as follows:
These graduated levels of performance
have been included in order to align
and reward executives through market
cycles. In the event that performance
is at the target level in respect of
the relevant performance measure,
executives will be entitled to 100 per
cent of the tranche of LTIP share rights
to which the performance measure
relates. Where performance is at the
stretch level, executives will be entitled
to 150 per cent of the tranche of LTIP
share rights to which the performance
measure relates.
Nevertheless, if the target for any
individual performance measure is
exceeded, so that up to 150 per cent of
the relevant number of LTIP share rights
may vest, the maximum number of LTIP
share rights that may vest across the
three performance measures is capped
in aggregate at 100 per cent of share
rights granted under the plan.
The Board believes that by
incorporating the stretch level of
performance into the vesting schedule,
the Company will be better able to
effectively reward and recognise
executives in years where outstanding
performance is achieved. This will
serve as further motivation and assist
in retention through more challenging
periods.
Total Shareholder Return (TSR)
TSR is a measure of the performance of
the Company’s shares over a three year
period against the ASX 100 Resources
Index (noted below). It combines share
price appreciation and dividends
paid to show the total return to the
shareholder expressed as a percentage.
Relative TSR hurdles are valuable
because the Company needs to
outperform a peer group of participants
to receive any reward and therefore, is
aligned to relative market performance.
The ASX 100 Resources 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.
Performance
Below Threshold
Threshold
Target
Stretch
LTIP TSR target and vesting schedule
Average TSR
Portion of tranche that vests
Below the 60th percentile
Nil
At the 60th percentile
25% of share rights vest
At the 80th percentile
100% of share rights vest
At the 100th percentile
150% 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
Fortescue Metals Group Ltd Annual Report FY18
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.
Absolute Return on Equity (AROE)
AROE performance is measured over the relevant three year performance period.
As part of the Board’s consideration when determining FY16 LTIP AROE targets, consideration was given to the minimum AROE threshold.
This consideration included the current market cycle at the time and most recent historical performance of the ASX 100 Resources
comparator group.
Historical Performance of the ASX 100 Resources:
• Average AROE for FY11 to FY15 was 7 per cent.
• Average AROE for FY15 was 2.6 per cent, down from 7 per cent in FY14.
In light of this assessment, the Board determined a threshold AROE of 15 per cent for the FY16 LTIP based on the following:
• 15 per cent is an aggressive target which exceeds the Company’s cost of equity
• An annual 15 per cent AROE would be at least the 70th quartile of performance of the ASX 100 Resources index in any of the past five
years
• The stretch target of >30 per cent would be at least the 80th percentile of the ASX 100 Resources index in any of the past five years.
The AROE vesting schedule is as follows:
Performance
Below Threshold
Threshold
Target
Stretch
LTIP AROE Target and Vesting Schedule
Average ROE
Portion of tranche that vests
<15%
15%
30%
>30%
Nil
25% of share rights vest
100% of share rights vest
150% 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.
Strategic Measures
Strategic Measures and associated key performance indicators are aimed at directing performance toward the achievement of the
Company’s long term objectives (strategic objectives). The strong link between these strategic measures and the ESSIP measures
ensure that long term value is not compromised by focussing on annual short term goals alone.
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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Annual Strategic measures and objectives are as follows:
Performance Measure Objective (KPI)
Link to strategy
Safety
• Improve Fortescue’s relative position against the global
Safety leadership and culture
LTIP strategic measures and objectives
Performance
Resource management
Growth
Balance sheet
management
safety culture benchmark
• Improve Fortescue’s relative position on the global cost
curve with a future target to have a C1 cost which is the
lowest in the world
• Reduce all-in cash cost
• Maximise production capacity without increasing capital
expenditure budget
• Increase long term resources quantity and value
• No net decrease in mine life
• Quantity, quality and diversity of tenements
• Diversify customer base
• Strategic options for growth in iron ore and other
commodities
• Reduce gearing (Debt/Debt + Equity) to target levels
• Overall cost of financing
• Maintain cash on hand at Board approved levels
• Balance sheet flexibility
Competitive position, cash flow and efficient
use of capital
Long term sustainability
Growth and diversity of income
Capital efficiency, cash flow and long term
sustainability
Performance targets for each strategic objective are set and assessed annually for each financial year of the relevant three year performance
period. This approach provides the Company with the flexibility to respond to economic and industry challenges as they occur to ensure
that performance targets are always relevant and drive long term shareholder value.
Whether a strategic objective has been achieved is measured at the end of the relevant financial year on an outcome basis as follows:
Outcome
Did not meet
Threshold
Target
Exceeded
Score
0
1
2
3
Annual performance outcomes are assessed and approved by the Board at the end of each financial year with approved outcomes banked
each year for inclusion in the overall LTIP assessment at the end of the three year performance period.
The strategic measure vesting schedule is as follows:
Performance
Below Threshold
Threshold
Target
Stretch
LTIP strategic measure target and vesting schedule
Score
Portion of tranche that vests
<5
5
10
15
Nil
25% of share rights vest
100% of share rights vest
150% 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
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.
Fortescue Metals Group Ltd Annual Report FY18 5.7.2 FY16 LTIP performance outcomes
The FY16 LTIP has achieved all three performance measures as shown in the table below resulting in 86.2 per cent of share rights
vesting under this plan.
Measure
Weighting
Threshold
Result
Achieved
FY16 LTIP performance outcomes
TSR
AROE
Strategic Measures
FY16 LTIP vesting outcome
33%
33%
34%
100%
5.7.3 FY16 LTIP TSR Performance
60th percentile
92.8 percentile
15%
5 out of 15
15.2%
10 out of 15
132%
26%
100%
Weighted
Average
43.6%
8.6%
34.0%
86.2%
In the period from 1 January 2015 to 30 June 2018, Fortescue achieved a TSR of 139 per cent and a percentile ranking of 92.8 per cent.
Based on the percentile ranking, 132 per cent of share rights granted in respect to the TSR measure will vest.
TSR Performance
FY16 LTIP
139%
92.8
132%
TSR
Percentile Ranking
Vesting Outcome
Details of the FY16 comparator group and TSR Ranking is shown in the table below.
Rank Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
BlueScope Steel Limited
Fortescue Metals Group Ltd
South 32 Limited
Alumina Limited
Sims Metal Management Limited
Rio Tinto Limited
WorleyParsons Limited
Newcrest Mining Limited
Iluka Resources Limited
BHP Billiton Limited
Oil Search Limited
Caltex Australia Limited
Woodside Petroleum Limited
Origin Energy Limited
Santos Limited
TSR
493%
139%
97%
95%
65%
65%
63%
61%
47%
29%
18%
7%
6%
-20%
-25%
Percentile rank
100%
92.8%
85.7%
78.5%
71.4%
64.2%
57.1%
50.0%
42.8%
35.7%
28.5%
21.4%
14.2%
7.1%
0.0%
Note: TSR is calculated over the defined performance period, being the three years up to and including 30 June 2018.
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5.7.4 FY16 LTIP AROE performance
The Board has taken the approach (which is consistent with the approach taken on TSR) to ensure that AROE performance does not
result in unintended windfall gains or undue penalty.
At the time of making the decision to refinance and repay debt, as part of the Capital Management Strategy, the Board acknowledged
the costs of redemption. The costs, which have the benefit of lowering borrowing costs and provide significant future benefit to
earnings, have been excluded from the statutory NPAT for the purposes of calculating AROE.
Fortescue’s AROE performance over the three years ending 30 June 2018 based on the underlying NPAT (which excludes one-off items
relating to the cost of company refinancing activities) over the three year performance period is 15.2 per cent. The AROE performance
threshold of 15 per cent has been met and accordingly, 26 per cent of share rights have vested in respect to this measure.
Year ending
30 June 2016
30 June 2017
30 June 2018
Average ROE
Vesting Outcome
AROE
12.4
23.1
11.1
15.2
26%
5.7.5 FY16 LTIP Strategic Measures Performance
Performance Measure
Objective (KPI)
Outcome
LTIP strategic measures and objectives
Safety
• Improve Fortescue’s relative position against the
global safety culture benchmark
Performance
• 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
Achieved target. Improved from 69th percentile to 77th
percentile over the three years
The combination of long term safety culture as well
as improvements to both the Safety Excellence and
Culture Survey results and injury frequency rate is our
strategic goal
Achieved target
C1 costs have reduced from
US$27.15/wmt in FY15 to US$12.36/wmt for FY18,
representing a 54.5% reduction
During this period, Fortescue was officially recognised
as the lowest cost supplier of seaborne iron ore into
China, based on Metalytics Resource Sector Economic
Analysis, a position which has been maintained
Despite market volatility in the sales price of iron ore,
the reduction in total delivered costs resulted in an
average EBITDA margin of US$24/dmt over the three
year period
Target sustaining capital expenditure budgets were
also achieved whilst achieving production targets over
the three years
Fortescue Metals Group Ltd Annual Report FY18 Resource management
• Increase long term resources quantity and value
• No net decrease in mine life
• Quantity, quality and diversity of tenements
Growth
• Diversify customer base
• Strategic options for growth in iron ore and other
commodities
Achieved target
FY18 reserves and resources statement indicates
maintenance of 20 years mine life, based on Life
of Mine plans. Year on year cost savings have been
achieved without reducing long term mine life
ensuring shareholder value. The addition of 540m wmt
from the Eliwana project facilitates the sustainable
production of a 60 per cent Fe product which will be
introduced to the market from existing operations
in the second half of FY19. The US$1.275bn Eliwana
mine and rail project significantly increases mining
inventory into Fortescue’s integrated mine, rail and
port operation
Achieved target
Fortescue’s non-China sales have increased significantly
by 357% between FY15 and FY18. Importantly, these
sales were into Japan and Korea together with India.
India has recently become the third largest steel
producing country and represents a significant growth
market
Considerable progress has been made in assessing
growth opportunities in other commodities including
in South America as well as expanding iron ore
operations through the development of the
Eliwana mine
Balance sheet
management
• Reduce gearing (Debt/Debt + Equity) to target
Achieved target
levels
• Overall cost of financing
• Maintain cash on hand at Board approved levels
• Balance sheet flexibility
The successful execution of Fortescue’s Capital
Management Strategy over this three year period
has reduced gross debt and lowered the Company’s
average cost of capital. The restructured debt facilities
have investment grade terms and conditions, providing
additional flexibility and the strengthened balance
sheet supports future growth. The team have
outperformed over the three year period in relation to
balance sheet management
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5.7.6 FY16 LTIP awards
Share Rights granted under the LTIP at the beginning of FY16 are shown below. The last column details the actual number of share
rights that vested based on actual performance.
• Unvested share rights lapse once the outcome of the LTIP is determined
• Ms Gaines and Mr Lilleyman commenced after the performance period had commenced and accordingly, did not participate in
the FY16 LTIP
• Mr Power’s LTIP participation is on a pro-rata basis and represents his accrued entitlement up to cessation of employment on
19 February 2018
• Mr Power’s LTIP award has been capped at the share price at grant (being $1.80) thereby reducing the number of share rights
that vested.
FY16 LTIP
Executive
E Gaines
N Power
J Shuttleworth
I Wells
G Lilleyman
LTIP Share Rights
Granted
LTIP Share Rights Lapsed
LTIP Share Rights
Forfeited
LTIP Share Rights Vested
-
1,666,482
210,394
189,465
-
-
1,137,809
29,034
26,146
-
-
-
-
-
-
-
528,673
181,360
163,319
-
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.
6. HOW EXECUTIVE REMUNERATION IS REPORTED
Executive remuneration is reported in a number of ways throughout this report, differences of which are driven by the following:
• Total remuneration package – represents the current remuneration package at stretch target comprising fixed remuneration plus
the nominal value of the ESSIP and LTIP at the applicable participating percentage
• 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 on the following page 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 FY18 ESSIP share component plus one year each of the FY16, FY17
and FY18 LTIP.
6.1 Actual remuneration paid in FY18
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:
• FY18 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; FY18 ESSIP share rights granted at the beginning of the performance period at a face value share
price of A$5.26
• FY18 ESSIP vested rights awarded have a nominal value based on A$4.35 being the five day VWAP at the beginning of FY18.
The decrease in share price over the respective performance periods has resulted in an decrease in equity value to executives in
respect to this plan
• FY16 LTIP is awarded solely in vested rights
• FY16 LTIP share rights granted at the beginning of the performance period at a face value share price of A$1.80
• The pro-rata number of share rights that would have vested to Mr Power has been reduced to reflect the FY16 award value
capped at $1.80 per share
• FY16 LTIP vested rights awarded have a nominal value based on A$4.35 being the five day VWAP at the beginning of FY18. Other
than for Mr Power 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.
Fortescue Metals Group Ltd Annual Report FY18
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:
• Ms Gaines and Mr Lilleyman were not eligible to participate in the FY16 LTIP
• Mr Power’s FY18 ESSIP and FY16 LTIP represents his pro-rata accrued entitlements with his FY16 LTIP capped at grant price
• Mr Power’s other payment relates to an ex-gratia cash payment of $1,006,850 plus annual and long service leave paid out on
cessation of employment
• Mr Wells participated in a retention plan (relating to a prior role), the retention period for which was from 1 January 2017 to 30 June
2018. Other payment relates to the retention payment made upon the conclusion of the retention period.
Fixed1
remuneration
$
1,239,830
1,266,328
Name
E Gaines
N Power2
-
-
FY 18
ESSIP
cash paid
$
Nominal Value
of FY18 ESSIP
vested rights
$
Nominal Value
of FY16 LTIP
Vested Rights
$
Other
payment
$
715,473
-
-
694,4803
2,298,6703
1,006,850
634,776
5,901,104
Leave
entitlement
on
cessation of
employment
$
Nominal total
remuneration
earned in FY18
$
1,955,303
J Shuttleworth
598,831
58,253
192,645
788,553
-
I Wells
654,606
162,183
134,090
710,711
426,342
G Lilleyman
1,072,619
-
483,656
-
-
1,638,282
2,087,932
1,556,275
1 Fixed remuneration includes cash salary, paid leave and superannuation.
2 Mr Power ceased employment on 19 February 2018.
3 Pro- rata ESSIP and LTIP entitlement. The LTIP value has been capped at $1.80 per share.
The non IFRS information included in the table above has not been subject to audit.
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 share rights was determined using a trinomial option pricing model and the estimated fair
value of the long term share 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 FY18 refer to section 6.1.
6.21 Statutory Remuneration Disclosures for year ending 30 June 2018
• Mr Power’s FY17 and FY18 LTIP share rights were forfeited on cessation of employment
• Mr Power’s other payment relates to an ex-gratia payment of A$1,006,850 and accrued leave entitlements paid out on resignation
• Mr Wells other payment is in respect to a retention plan which concluded on 30 June 2018.
131
08 | Remuneration Report
FY18
Short-term employee benefits
Post
employment
benefits
End of
service
Share-based
payments
Total
Statutory
Remuneration
ESSIP cash
value for
2018 Plan
Year
Non-
monetary
benefits
Cash salary
and fees
Superann-
uation
Other
Payment
ESSIP
Share value
$A
$A
$A
$A
$A
$A
LTIP
Share
value
$A
Total
$A
Executive Directors
E Gaines
N Power1
Executives
1,214,830
1,248,816
-
-
4,223
28,582
J Shuttleworth
578,782
58,253
-
I Wells
634,557
162,183
4,223
G Lilleyman
1,047,619
-
-
1 Mr Power ceased employment on 19 February 2018.
25,000
17,512
20,049
20,049
25,000
-
860,316
416,370
2,520,739
1,641,626
886,468 (1,087,517)
2,735,487
-
234,554
334,372
1,226,010
426,342
163,723
362,743
1,773,820
-
610,003
337,670
2,020,292
6.22 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 and long
service leave entitlements paid out on resignation.
FY17
Short-term employee benefits
Post
employment
benefits
End of
service
Share-based
payments
Total
Statutory
Remuneration
ESSIP cash
value for
2017 Plan
Year (incl.
the FY17
ESSIP
additional
Stretch
Objective)
Cash salary
and fees
Non-
monetary
benefits
Superann-
uation
Other
payment
ESSIP
Share value
LTIP
Share
value
$A
$A
$A
$A
$A
$A
$A
Executive Directors
N Power
E Gaines1
S Pearce2
Executives
G Lilleyman3
N Cernotta4
1,963,000
2,125,000
403,514
551,250
422,973
-
481,269
500,000
483,590
448,702
8,528
631
9,883
-
-
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.
30,000
12,304
-
-
1,424,582
1,918,947
337,6445
-
13,900
283,813
-
(447,741)
15,000
-
559,838
-
19,904
972,123
-
(385,809)
Total
$A
7,470,057
1,305,343
282,828
1,556,107
1,538,510
Fortescue Metals Group Ltd Annual Report FY18 6.3 Details of share right 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
Maximum Share right grant
ESSIP Share Rights
LTIP Share Rights
Total
FY16 to FY18
3,671,425
4,895,232
8,566,657
Share rights granted
in FY16, FY17 and FY18
1,352,043
3,035,007
4,387,050
At the 2017 AGM, shareholders approved the maximum number of share rights to be granted to Ms Gaines 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.
Ms Gaines
ESSIP Share Rights
LTIP Share Rights
Total
Maximum Share right grant
FY16 to FY18
Share rights granted
in FY16, FY17 and FY18
247,051
209,637
456,688
247,051
209,637
456,688
Ms Gaines was granted an additional 68,186 share rights in respect to the FY18 ESSIP and 90,915 additional share rights in respect to
the FY18 LTIP as a result of her appointment to the role of CEO on 19 February 2018. Any shares awarded in respect to the additional
share rights will be purchased on market.
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
2016 to 30 June 2018. The value of the rights has been determined using the grant date fair value.
• The estimated fair value of the long term share 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 Power’s share rights for the FY17 and FY18 LTIP were forfeited upon cessation of employment on 19 February 2018
• Mr Power’s LTIP participation is on a pro-rata basis and represents his accrued entitlement up to cessation of employment on
19 February 2018
• Mr Power’s LTIP award has been capped at the share price at grant (being $1.80) thereby reducing the number of share rights
that vested
• Ms Gaines and Mr Lilleyman commenced during the LTIP performance period and were not granted share rights under the
FY16 or FY17 LTIP.
133
08 | Remuneration Report
Name
LTIP
plan
Grant
date*
Performance
period
No. Share
rights
granted
Value
per share
right
granted
Value of
rights
granted at
grant date
%
Performance
achieved
Vested
Forfeited /
lapsed
E Gaines
FY16
14/12/2015
FY17
20/09/2016
FY18
08/11/2017
FY18
27/12/2017
N Power
FY16
14/12/2015
FY17
20/09/2016
FY18
06/09/2017
J Shuttleworth FY16
14/12/2015
FY17
20/09/2016
FY18
06/09/2017
FY18
27/12/2017
I Wells
FY16
14/12/2015
FY17
20/09/2016
FY18
06/09/2017
FY18
27/12/2017
G Lilleyman
FY16
14/12/2015
FY17
20/09/2016
FY18
06/09/2017
FY18
27/12/2017
1/7/15 to
30/6/18
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/17 to
30/6/20
1/7/15 to
30/6/18
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/15 to
30/6/18
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/17 to
30/6/20
1/7/15 to
30/6/18
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/17 to
30/6/20
1/7/15 to
30/6/18
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/17 to
30/6/20
-
-
-
-
-
-
-
-
-
-
-
-
209,637
$4.15
$869,994
Determined in 2020
90,915
$4.17
$379,116
Determined in 2020
1,666,482
$1.72
$2,866,349
86.2
528,673
1,137,809
798,085
$4.61
$3,679,172
570,440
$4.98
$2,840,791
-
-
-
-
798,085
570,440
210,394
$1.72
$361,878
86.2
181,360
29,034
100,759
$4.61
$464,499
Determined in 2019
72,019
$4.98
$358,655
Determined in 2020
30,543
$4.17
$127,364
Determined in 2020
189,465
$1.72
$325,880
86.2
163,319
26,146
109,639
$4.61
$505,436
Determined in 2019
81,068
$4.98
$403,719
Determined in 2020
31,585
$4.17
$131,709
Determined in 2020
-
-
-
-
-
-
-
-
-
-
-
-
190,147
$4.98
$946,932
Determined in 2020
15,846
$4.17
$66,078
Determined in 2020
* Grant date is determined in accordance with AASB 2 share based payments.
Fortescue Metals Group Ltd Annual Report FY18 7. EXECUTIVE CONTRACT TERMS
Total Remuneration Package and other terms of employment for executives are formalised in a service agreement.
The CEO and executives are employed on a rolling basis with no specified fixed term. The CEO and executives are remunerated on a
total fixed remuneration (TFR) basis inclusive of superannuation and allowances.
The major terms of the agreements relating to remuneration are set out in the table below:
Position
Executive
TFR (A$)
Maximum ESSIP
opportunity
Maximum LTIP
opportunity
% of
TFR
A$
% of TFR
A$
Nominal
Value of Total
Remuneration
Package at
Maximum
Opportunity
Chief Executive
Officer
Deputy Chief
Executive Officer
Chief Financial
Officer
Chief Operating
Officer
E Gaines
1,500,000
112.5
1,687,500
150
2,250,000
5,437,500
J Shuttleworth
700,000
I Wells
825,000
G Lilleyman
1,200,000
75
75
75
525,000
618,750
100
100
700,000
1,925,000
825,000
2,268,750
900,000
100
1,200,000
3,300,000
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.
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 $2.5 million, which was approved by shareholders at the Annual General
Meeting on 8 November 2017. There have been no further changes to the aggregate fee pool since November 2017. The Board will not
seek any increase to this fee pool at the 2018 AGM.
The Board reviewed and increased the fees payable to both the Deputy Chair and Lead Independent Director and the Deputy Chair.
The increases reflect the additional workload undertaken by each of these Directors. NED fees (inclusive of superannuation) effective
from 1 July 2018 are outlined in the table below:
Position
Board Chairman*
Deputy Chair and Lead Independent Director
Deputy Chair
Non-Executive Director
Audit & Risk Management Committee Chair
Audit & Risk Management Committee Member
Remuneration & Nomination Committee Chair
Remuneration & Nomination Committee Member
China Advisory Group Board of Representatives
Finance Sub-Committee Member
*The Chairman of the Board has elected to forego Directors' fees and receives no form of remuneration.
Non-Executive directors do not receive retirement benefits, nor do they participate in any incentive programs of the Company.
Fee (A$)
0
529,500
262,900
154,000
44,000
16,500
44,000
16,500
66,000
6,600
135
08 | Remuneration Report
The remuneration of non-Executive directors for the year ended 30 June 2018 and 30 June 2017 is detailed below.
2018
$A
A Forrest AO
M Barnaba AM
S Warburton
J Baderschneider
J Morris OAM
P Bingham-Hall
C Zhiqiang1
C Huiquan2
S Coe3 CH, KBE
1 C Zhiqiang appointed 18 January 2018
2 C Huiquan retired 18 January 2018
3 S Coe appointed 21 February 2018.
2017
$A
A Forrest AO
O Hegarty1
M Barnaba AM
E Gaines2
C Huiquan
G Raby3
S Warburton
J Baderschneider
J Morris OAM4
P Bingham-Hall5
Base fees
Committee fees
Other benefits
-
394,410
217,816
154,000
139,367
139,367
69,962
84,037
54,709
-
56,917
60,001
-
29,864
20,904
-
-
-
-
-
-
-
-
-
-
-
-
Superann-
uation
-
24,506
24,487
-
17,769
16,828
-
-
-
Total
-
475,833
302,304
154,000
187,000
177,099
69,962
84,037
54,709
Base fees
Committee fees
Other benefits
Superann-
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
-
-
-
-
-
-
-
-
-
-
uation
-
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 OAM appointed 9 November 2016
5 P Bingham-Hall appointed 9 November 2016.
Fortescue Metals Group Ltd Annual Report FY18 9. EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL
9.1 Unvested Share Rights
The movement during the reporting period in the number of unvested share rights over ordinary shares in the Company held directly,
indirectly or beneficially, by each of the Key Management Personnel, including their related parties is as follows:
2018
Name
Balance at
the start
of the year Granted1
Exercised /
converted
Forfeited /
lapsed
Balance at
the end of
the year
Vested
Unvested
Not
exercisable
Non-Executive Directors of Fortescue
A Forrest AO
M Barnaba AM
S Warburton
J Baderschneider
J Morris OAM
P Bingham-Hall
C Huiquan2
C Zhiqiang3
S Coe4 CH,KBE
Executive Directors of Fortescue
E Gaines
N Power5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
615,789
(89,823)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
525,966
3,424,686
998,270
(299,282)
(2,029,362)
2,094,312
Other key management personnel of Fortescue
J Shuttleworth
I Wells
G Lilleyman
467,526
412,285
99,761
164,099
154,899
360,488
(71,942)
(38,283)
(91,780)
(84,431)
(74,898)
(7,981)
475,252
454,003
360,488
1 Share rights were granted in accordance with the short term and long term share rights plans, as disclosed in note 18 of the Financial Report.
2 H Cao retired on 18 January 2018.
3 Z Cao appointed on 18 January 2018.
4 S Coe appointed 21 February 2018.
5 Mr Power ceased employment on 19 February 2018.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
525,966
525,966
2,094,312
2,094,312
475,252
454,003
360,488
475,252
454,003
360,488
2017
Name
Balance at
the start
of the year
Granted1
Exercised /
converted
Forfeited /
lapsed
Balance at
the end of
the year
Vested
Unvested
Not
exercisable
Non-Executive Directors of Fortescue
A Forrest AO
O Hegarty2
C Huiquan
G Raby4
M Barnaba AM
S Warburton
J Baderschneider
J Morris OAM5
P Bingham-Hall6
Executive Directors of Fortescue
E Gaines3
N Power
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,805,250
1,097,367
(838,181)
(639,750)
3,424,686
Other key management personnel of Fortescue
S Pearce7
G Lilleyman8
N Cernotta9
1,416,675
-
(312,593)
(1,104,082)
-
-
99,761
-
-
99,761
934,880
347,500
(195,250)
(1,087,130)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,424,686
3,424,686
-
-
99,761
99,761
-
-
1 Share rights were granted in accordance with the short term and long term
share rights plans, as disclosed in note 18 of the Financial Report.
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.
5 J Morris OAM appointed 9 November 2016.
6 P Bingham-Hall appointed 9 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.
137
08 | Remuneration Report
9.2 Share holdings (Ordinary Shares)
The numbers of shares and vested share rights 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:
2018
Name
Received
on
conversion
of rights
Held at 1 July
2017
Non-Executive Directors of Fortescue
A Forrest AO
M Barnaba AM
S Warburton
J Baderschneider
J Morris OAM
P Bingham-Hall
C Huiquan2
C Zhiqiang3
S Coe CH,KBE
1,038,800,000
20,000
50,750
138,000
-
35,000
-
-
-
-
-
-
-
-
-
-
-
-
Executive Directors of Fortescue
E Gaines
N Power4
50,000
2,951,238
89,293
299,282
Other key management personnel of Fortescue
J Shuttleworth
I Wells
G Lilleyman
100,258
71,050
-
71,942
38,283
91,780
1 Negative amounts reflect the result of leaving the Company during the year.
2 C Huiquan retired on 18 January 2018.
3 C Zhiqiang appointed on 18 January 2018.
4 Mr Power ceased employment on 19 February 2018.
2017
Issued
Purchases
Sales
Transfers
Other1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,250
1,516
-
-
-
85,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(299,282)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Held at 30
June 2018
- 1,038,800,000
-
-
-
-
-
-
-
-
-
(2,951,238)
-
-
-
20,000
50,750
138,000
5,250
36,516
-
-
-
224,823
-
172,200
109,333
91,780
Name
Directors of Fortescue
A Forrest AO
O Hegarty2
C Huiquan
G Raby4
M Barnaba AM
S Warburton
J Baderschneider
J Morris OAM5
Held at 1
July 2016
Received on
conversion
of rights
Issued
Purchases
Sales
Transfers
Other1
1,037,479,247
40,000
-
8,000
20,000
50,750
138,000
-
-
50,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,320,753
-
-
-
-
-
-
-
-
-
SINCE FIRST ORE
35,000
-
-
PRODUCED
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(40,000)
-
(8,000)
-
-
-
-
-
TONNES IRON
-
ORE SHIPPED
-
-
-
P Bingham-Hall6
ANNIVERSARY
Executive directors of Fortescue
E Gaines3
N Power
2,526,307
838,181
Other key management personnel of Fortescue
G Lilleyman8
S Pearce7
N Cernotta9
-
227,305
50,000
-
312,593
195,250
-
-
-
-
-
(413,250)
-
104
-
-
-
-
-
-
-
-
-
-
(540,002)
(245,250)
Held at 30
June 2017
-
1,038,800,000
-
-
-
20,000
50,750
138,000
-
35,000
50,000
2,951,238
-
-
-
1 Negative amounts reflect the result of leaving the Company 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.
5 J Morris OAM appointed 9 November 2016.
6 P Bingham-Hall appointed 9 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.
Fortescue Metals Group Ltd Annual Report FY18 09
Corporate
Directory
139
09 | Corporate Directory
Shareholder
information
at 20 August 2018
Top 20 holders of ordinary shares
Rank
Name
Shares number
% of issued capital
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
The Trust Company Limited
Bnp Paribas Noms Pty Ltd
National Nominees Limited
BNP Paribas Nominees Pty Ltd
AMNL Financing Pty Ltd
Valin Mining Investments (Singapore) Pte Ltd
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Mr William Graeme Rowley
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited-Gsco Eca
Pacific Custodians Pty Limited
Substantial holders
Name
1
2
Minderoo Group Pty Ltd and John Andrew Forrest
Hunan Valin Iron and Steel Group Company
918,806,548
506,202,206
270,902,886
228,007,497
163,318,041
130,776,216
93,045,000
71,365,581
64,968,641
50,559,189
34,826,304
33,596,599
30,365,261
11,161,764
9,285,673
8,613,891
8,244,951
7,812,276
7,116,225
6,437,999
29.51
16.26
8.70
7.32
5.24
4.20
2.99
2.29
2.09
1.62
1.12
1.08
0.98
0.36
0.30
0.28
0.26
0.25
0.23
0.21
2,655,412,748
85.28
Shares number
% of issued capital
1,038,800,000
434, 914,118
33.36
13.97
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
Shareholders number
Shares number
% of issued capital
26,217
27,798
8,305
6,240
377
68,937
12,747,570
73,482,822
63,997,575
152,731,076
2,810,839,108
3,113,798,151
0.41
2.36
2.06
4.90
90.27
100.00
Unmarketable parcels
There were 3,568 members holding less than a marketable parcel of shares in the Company.
Fortescue Metals Group Ltd Annual Report FY18
Glossary
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.
AMMA
Australian Mines and Metals Association.
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.
CFR
A delivery term that indicates that the
shipment price includes the cost of goods,
freight costs and marine costs associated
with a particular delivery.
Chichester Hub
Fortescue’s mining hub with two operating
iron ore mines, Cloudbreak and Christmas
Creek, located in the Pilbara, approximately
250 kilometres south east of Fortescue’s
Herb Elliott Port in Port Hedland.
CID
Channel Iron Deposit.
CO2e
Carbon dioxide equivalent which is the
internationally recognised measure of
greenhouse gas emissions.
Contractors
Non-Fortescue employees, working with
the Company to support specific business
activities.
Corporations Act
Corporations Act 2001 of the Commonwealth
of Australia.
HSES
Health, safety, environment and security.
ICMM
The International Council on Mining and
Metals, established in 2001 to act as a
catalyst for performance improvement in
the mining and metals industry.
DID
Detrital Iron Deposit.
Direct employees
Total number of employees including
permanent, fixed term and part-time. Does
not include contractors.
dmt
Dry metric tonne.
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 Ltd
(ACN 002 594 872) and its subsidiaries.
Fortescue blend
A blend of ore from Christmas Creek and Firetail
mines, with an iron grade of 58.2pct fe
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.
Indigenous Land Use Agreements (ILUA)
Statutory agreement between a native title
group and others about the use of land and
waters.
Indicated Resource
As defined in the JORC Code, that part
of a mineral resource for which tonnage,
densities, shape, physical characteristics,
grade and mineral content can be estimated
with a reasonable level of confidence. It is
based on exploration, sampling and testing
information gathered through appropriate
techniques from locations such as outcrops,
trenches, pits, workings and drill holes. The
locations are too widely or inappropriately
spaced to confirm geological and/or grade
continuity but are spaced closely enough for
continuity to be assumed.
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.
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.
141
09 | Corporate Directory
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.
Measured Resource
As defined in the JORC Code, that part
of a mineral resource for which tonnage
densities, shape, physical characteristics,
grade and mineral content can be estimated
with a high level of confidence. It is based
on detailed and reliable exploration,
sampling and testing information gathered
through appropriate techniques from
locations such as outcrops, trenches, pits,
workings and drill holes. The locations
are spaced closely enough to confirm
geological and grade continuity.
mt
Million tonnes.
mtpa
Million tonnes per annum.
Net gearing
(Debt - cash) / (debt - cash + equity).
NGER
The National Greenhouse and Energy
Reporting (NGER) Scheme was introduced
in 2007 to provide data and accounting in
relation to Greenhouse Gas emissions and
energy consumption and production. The
NGER Scheme operates under the National
Greenhouse and Energy Reporting Act 2007
(NGER Act).
NPAT
Net profit after tax.
OPF
Ore Processing Facility.
Pilbara
The Pilbara region in the north west of
Western Australia.
Probable 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.
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.
Underlying EBITDA margin
Underlying EBITDA / Operating sales
revenue.
Underlying Net Profit After Tax
Net profit after tax adjusted for the after tax
impact of one-off refinancing and early debt
repayment costs.
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 tonne.
WMYAC
Wirlu-murra Yindjibarndi Aboriginal
Corporation.
WTI
West Texas Intermediate.
Fortescue Metals Group Ltd Annual Report FY18
FY18
Awards
FY18 Awards
June 2018 - Ernst Young Entrepreneur of the Year Alumni
Special award for Societal Impact
Chairman and Founder Andrew Forrest AO
May 2018 - Supply Nation
Corporate Member of the Year award
May 2018 - Australia China Business Award
Cross Border Investment
May 2018 - Forbes Asia’s inaugural Emergent 25 List
CEO Elizabeth Gaines
November 2017 - TR Foundation
Stop Slavery award - One of 15 leading companies
November 2017 - International Mining and Resources
Conference
Legend in Mining award, Former CEO Nev Power
October 2017 - Department Mines, Industry Regulation
and Safety Resources Sector awards for excellence
Safety Representatives category
FY18 Finalist
September 2017 - CMEWA Women in Resources awards
Drill and Blast Operator Megan Lockyer
143
09 | Corporate Directory
Corporate
information
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, Eton International
Business Plaza
555 Pudong Ave, Pudong, PC200120
Shanghai, P.R China
Singapore
FMG International, The Central
8 Eu Tong Sen St, 24-91 Singapore 059818
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
E: vtec@fmgl.com.au
Orange, NSW
5 Corporation Place
Orange, NSW 2800
Stock Exchange listings
Australian Business Number
ABN 57 002 594 872
Auditor
PwC
Level 15, 125 St Georges Terrace
Perth, WA 6000
www.pwc.com.au
Securities Exchange listings
Fortescue Metals Group Ltd shares are listed
on the Australian Securities
Exchange (ASX)
ASX Code: FMG
Stay in touch
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
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F: +61 2 9287 0309
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FortescueMetalsGroup
Event calendar 2018
Key dates for Fortescue shareholders in
2018. Please note dates are subject to
review.
Full year results announcement
20 August 2018
September Quarterly Production Report
25 October 2018
Annual General Meeting
15 November 2018
Fortescue Metals Group Ltd Annual Report FY18
THE DREAM
BEGINS
2003
S&P/ASX 200 index
08
FIRST ORE ON SHIP
10
Christmas Creek expanded
57.5mtpa shipped
14
155MTPA SUSTAINABLE
PRODUCTION
Kings Valley project
opened at Solomon
• 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
18
FORTESCUE CELEBRATES:
• 1 billion tonnes of iron ore
• 10 years since first ore
shipped to China
• 15 years since the
Company’s inception
04
Cloudbreak identified
06
Port Hedland
groundbreaking
04
05
06
07
08
09
27mtpa shipped
10
11
12
13
14
15
16
17
11
Solomon
construction begins
13
Firetail opened
at Solomon
80.9mtpa shipped
15
• 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
18
Core Leadership team appointed
THE JOURNEY
CONTINUES
Inside
01 Overview
02 Operating and Financial Review
03 Ore Reserves and Mineral Resources
04 Corporate Social Responsibility
05 Corporate Governance
06 Fortescue’s response to climate change
07 Financial Report
08 Remuneration Report
09 Corporate Directory
This report is printed on recycled paper.
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Together we are Fortescue
ABN 57 002 594 872