Annual
Report
FY19
Global force
Thriving communities
ABN 57 002 594 872
THE JOURNEY
CONTINUES
Lowest 12 month annual TRIFR of 2.8
Billion Opportunities program reached
A$2.3bn
Fortescue celebrates tug fleet and official
opening of the Judith Street Harbour in
Port Hedland
Iron Bridge Magnetite Project
development approved
First shipment of West Pilbara Fines
2019
Anderson Point Berth 5 completion
Fortescue River Gas Pipeline completion
2015
Expansion of autonomous haulage
to Chichester Hub
Majority of women on Board of Directors
2017
2014
Kings Valley project
opened at Solomon
2016
Recognised as lowest cost iron ore
supplier into China
Fortescue celebrates arrival of first ore carrier,
FMG Nicola, into Port Hedland
2018
Fortescue celebrates milestone year
Eliwana Mine and Rail Project development approved
Eigth ore carrier, FMG Northern Spirit, arrives in
Port Hedland
The
year
THE
DREAM
at a
BEGINS
glance
2003
S&P/ASX 200 index
2005
2004
Cloudbreak identified
US$
C1 costs
Shipped
Recordable Injury
Frequency Rate
2.8 Total
167.7 mt
13.11 /wmt
3.2 billion
1.9 billion
2.8 billion
Net Profit after Tax
Cash on hand
US$
US$
A$
Total taxes, royalties, other government
payments and Native Title payments paid
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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About Fortescue
Fortescue Metals Group Ltd (Fortescue) is a global leader
in the iron ore industry, recognised for its culture, innovation
and industry-leading development of world class infrastructure
and mining assets in the Pilbara, Western Australia.
Since it was founded in 2003, Fortescue
has discovered and developed major
iron ore deposits and constructed
some of the most significant mines in
the world. The Company has grown to
be one of the largest global iron ore
producers and is focussed on its vision
of being the safest, lowest cost, most
profitable mining company.
The Company is developing the
Eliwana Mine and Rail Project and the
Iron Bridge Magnetite Project.
Together, the Iron Bridge and Eliwana
projects will increase the average iron
content of Fortescue’s ores and provide
the ability to deliver on its strategy
of the majority of products at greater
than 60% Fe.
Now consistently shipping around
170 million tonnes of iron ore per
annum (mtpa), Fortescue is the lowest
cost provider of seaborne iron ore
to China.
Fortescue owns and operates a fully
integrated infrastructure and supply
chain spanning two mine hubs, with
a third under development, in the
Pilbara, the five berth Herb Elliott Port
in Port Hedland, the Judith Street
Harbour towage infrastructure and
the fastest, heavy haul railway in the
world. Fortescue’s innovative tug fleet
and the eight purpose built Fortescue
Ore Carriers have been designed to
complement the industry best practice
efficiency of Fortescue’s port and
maximise the safety and productivity
of its operation.
Consistent with Fortescue’s track
record of introducing cutting edge
technology across the business, the
Eliwana Mine and Rail Project will build
on the Company’s development and
construction capability by utilising the
latest technology, autonomous trucks
and design efficiency.
Innovation in exploration, ore
processing and plant design is a key
component of Fortescue’s strategy
to efficiently and effectively deliver
products from mine to market.
The Company continues to assess
exploration and development
opportunities throughout Australia
and South America including Ecuador,
Colombia and Argentina.
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 seaborne iron ore to China
and expanding into markets including
Japan, South Korea and India.
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 and development 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,
contribute to the success of local
communities, protect the
environment and strengthen the
broader Australian economy.
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
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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Overview
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19OVERVIEW01 I believe this period in Fortescue’s history
marks the end of the beginning.
Over the last 16 years, Fortescue has accomplished
what was judged as impossible. This has included
the strong example we have set, which is now
being followed, in treating shareholders as owners
and returning our rewards to you. From here, we
are going to achieve even greater things.
We have also led in our exploration,
development, construction and
operational capability that will
continue to contribute to Fortescue’s
future success and deliver growth for
you, our shareholders.
Fortescue is now rapidly evolving,
drawing on the entire Fortescue family
to continue to improve on our industry
leading efficiency and world class
operations to position our Company
for dynamic future growth.
We are at the beginning of an
energy revolution and Fortescue
intends to be at the forefront of this
once in a generation opportunity.
As a proud Australian company,
we have partnered with CSIRO,
our nation’s preeminent science
and research body, to help unlock
the potential of hydrogen, the low
emission fuel of the future.
The emergence of autonomy is one
aspect in which our world is changing
rapidly, and we intend to be part of
the opportunities that it will represent
for the mining industry and the
community more broadly.
We are also pursuing opportunities
in Australia and internationally and
our footprint in South America is
expanding, with exploration underway
in Ecuador, Colombia and Argentina.
Wherever we go in the world, from
Roebourne to Colombia, we bring
with us our reputational capital,
underpinned by our people and
our deep relationships within the
communities in which we operate,
working closely with our philanthropic
partner, the Minderoo Foundation.
Fortescue is committed to protecting
and promoting human rights. In
November 2018, we commended the
momentous passing of Australia’s first
federal Modern Slavery Act, a major
step towards stamping out slavery in
Australian company supply chains.
Just as our long term engagement
with China has played a critical role
in Fortescue’s growth it will continue
to be a core part of our future.
We see China as both our friend,
and our business partner.
Your leadership team continues
to provide active support to the
business and engages with executives
operating at all levels, as we drive
product diversification and product
development. Their knowledge,
international experience and expertise
across a range of strategic, operational
and financial aspects remains critical to
the long term success of Fortescue.
We should all be incredibly proud
that our Board remains a leader in the
industry and Corporate Australia for its
diversity, with the majority of positions
on the Board held by women.
Our Core Leadership Team is leading
our Company’s new direction.
Together, Chief Executive Officer,
Elizabeth Gaines, Deputy Chief
Executive Officer, Julie Shuttleworth,
Chief Operating Officer, Greg Lilleyman
and Chief Financial Officer, Ian Wells,
are overseeing the largest expansion
program at Fortescue since the ground
breaking T155 project.
Chairman’s
message
Andrew Forrest AO
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Fortescue Founder and Chairman, Andrew Forrest AO is greeted by local children in Santa Ana, Ecuador.
Our values-based approach of
empowerment, setting and achieving
stretch targets and frugality underpins
a business model that has driven high
performance and will continue to do so.
The outstanding financial performance
of Fortescue has benefited all of our
stakeholders. As shareholders, Nicola
and I choose to use our dividends
to fund the important work of the
Minderoo Foundation. We are
proudly Australian, and one of
Asia’s largest philanthropies, with
A$1.5 billion committed to a range
of global initiatives.
Like Fortescue itself, the Minderoo
Foundation and its philanthropic
work has significant potential.
With a collaborative, evidence-based
approach we are striving to solve
major global challenges, including
ending modern slavery, eliminating
cancer and returning our oceans to
a healthy state. This work is targeted
through the Building Community,
Eliminate Cancer, Flourishing Oceans,
Generation One, Research, Thrive by
Five and Walk Free initiatives.
Minderoo’s Eliminate Cancer initiative
launched a new campaign this year to
raise the legal age for buying cigarettes
from 18 to 21 years to stop smoking
before it starts. Walk Free released
landmark research on government
action on modern slavery, we continue
to champion parity for Indigenous
Australians and form strategies to
tackle the flood of plastic pollution
entering our oceans.
Together, Fortescue and Minderoo
have empowered the livelihoods of
hundreds of thousands of people and
partnered with major government and
community groups.
Our Board, CLT and the entire
Fortescue team is building on your
Company’s success while also ensuring
growth and development for
the future.
I would like to thank the Fortescue
family for their hard work, enthusiasm
and commitment to our Company.
Our campaign featured the story of former Fortescue employee,
Jason Trewin, and his brave battle with terminal lung cancer,
candidly explaining how his illness impacted his family.
Jason’s message is powerful and heartfelt; raise the legal
age of purchasing cigarettes in Australia from 18 to 21 to
help reduce the number of young people who take up
smoking and save lives.
Jason, formerly Trades and Specialist Operation Supervisor
at Cloudbreak, was 14 when he first started smoking.
A valued friend and member of the Fortescue family,
Jason sadly passed away on 10 June, aged 52.
Statistics show that 95 per cent of smokers had their first
cigarette before turning 21, but if they can reach 21 without
smoking, their chance of starting drops dramatically.
Seeking a healthier future for our kids
Minderoo Foundation launched a hard-hitting Eliminate
Tobacco campaign during FY19 as part of our Eliminate
Cancer initiative, calling on government representatives to
raise the legal purchasing age for cigarettes to 21 years.
We will carry on our fight for legislative change through
the Eliminate Cancer initiative and continue Jason’s
powerful legacy.
Vale Jason Trewin, always in our thoughts.
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19OVERVIEW01
The Fortescue team continues to work together
to achieve our vision of being the safest, lowest
cost, most profitable mining company.
Safety and unique culture
The health, safety and wellbeing of
the Fortescue family is our number
one priority and our focus remains on
ensuring our people go home safely
after every single shift. Unquestionably,
the highlight for FY19 was achieving our
lowest annual TRIFR of 2.8.
We believe safety and culture go hand
in hand. We achieved an overwhelming
response of above 93 per cent for the annual
Safety Excellence and Culture survey, with
all key measures improving year on year.
Our unique culture and Values underpin
everything we do and were integral to
Fortescue finishing FY19 with a record
breaking 17.3 million tonnes (mt)
shipped for the month of June, bringing
total shipments for FY19 to 167.7mt.
Tailings storage
During FY19, the industry was shocked
by the tailings dam disaster at Vale’s
operations in Brazil. We express our
deepest condolences to all those
impacted by this tragic event.
Fortescue does not use the upstream
construction method, with our tailings
facilities designed to the highest
standards, and management, monitoring
and auditing processes maintained at
the most rigorous level.
Balance sheet strength
Our continued disciplined approach
to cost management, the combined
strength in mining and processing
performance, together with consistent
shipping levels delivered a full year
C1 cost of $13.11/wmt.
Cash on hand increased to US$1.9 billion
at 30 June, while net debt reduced to
US$2.1 billion, which is its lowest level
since achieving current production
capacity in FY14.
Investing in our iron ore business
In FY19, we reached a significant
milestone on our journey to become
the first iron ore operation in the world
to have a fully autonomous haulage
fleet, with AHS commencing at our
Cloudbreak mine and an autonomous
light vehicle trial underway at our
Christmas Creek mine.
Our integrated operations and marketing
team has delivered a strategy and product
mix that is closely aligned to market demand.
Our new 60.1% Fe product, West Pilbara
Fines commenced shipments in December
2018. Currently a blend of higher iron,
low alumina ore from the western pits
at Cloudbreak with ore from the Firetail
mine, when Eliwana begins production
in December 2020, production of West
Pilbara Fines will ramp up to 40mtpa.
Our investment in growth through the
Eliwana Mine and Rail development and
Iron Bridge Magnetite projects, announced
over the last 18 months, represents a total
investment of US$3.875 billion. Together, these
projects increase the average iron content of
our ores, providing Fortescue with the ability
to deliver on our strategy of the majority
of our products at greater than 60% Fe.
We are confident these projects will deliver
growth in earnings and cashflow, resulting
in enhanced returns to our shareholders
through all market cycles.
Growth and development
Fortescue believes that early stage
exploration is the key to unlocking
significant value and we are building on
our world class exploration capability
to drive future growth through product
diversification and asset development.
We are attracted to the opportunities
that will come through the inevitable
growth in electric vehicles and the
demand for battery materials. To that end,
Fortescue is exploring for copper with
drilling commenced on our concessions
in Ecuador and early stage exploration
underway in Argentina on copper targets.
Delivering returns to our
shareholders
Fortescue’s unwavering determination
to deliver shareholder returns through
dividends and investment in growth was
evident in FY19 with record dividends
distributed to shareholders.
The ability to deliver this increased return
to our shareholders is underpinned
by the successful execution of our
strategy, through balance sheet strength,
enhanced product mix, sustained cost
and efficiency focus, as well as the
strength of demand for iron ore.
Chief
Executive
Officer's
message
Elizabeth Gaines
FY19 has been
a year of record
achievements, most
importantly in our
safety performance,
with the entire
Fortescue team
delivering excellent
results across all of
our operations.
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Creating positive social change
We were founded with the vision that
by first and foremost creating a strong
business, we would create economic
opportunities and contribute to
thriving local communities.
In FY19, 41 trainees graduated
from our Vocational Training and
Employment Centre (VTEC), bringing
the total number of Aboriginal people
commenced full time employment via
VTEC to 847 since 2006. The total value
of contracts awarded to Aboriginal
and joint venture businesses since
2011 through our Billion Opportunities
program reached A$2.3 billion.
We remain committed to ensuring
as many women as possible have
an opportunity to participate and
make a strong contribution to
Australian mining. This year our female
employment rate reached 19 per cent
and 26 per cent of senior management
positions are held by women as at
30 June 2019.
In November 2018, we announced
a landmark partnership with CSIRO
to develop and commercialise
hydrogen. While more research is
needed, there is potential for hydrogen
to be a source of energy for our
mining operations to reduce our
cost base and improve our carbon
footprint, together with future
export opportunities.
Our total economic contribution
to Australia for FY19 was A$13.1 billion
which included government payments,
employee wages and incentives,
procurement spend and social investment.
Through our operational excellence
and long term sustainable investment,
we will continue to deliver substantial
economic benefits to our shareholders,
the State of WA and the nation for
many years to come.
The Fortescue team
On behalf of the Core Leadership
Team, I would like to thank the
entire Fortescue family for their
contributions this year; by having
courage and determination, we
continue to challenge the status quo
and by empowering our people and
generating ideas, we have ensured
Fortescue delivers on its strategy to
become the safest, lowest cost,
most profitable mining company.
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Elizabeth Gaines, CEO: China policy crucial to WA
Fortescue is a proud West Australian company.
When Fortescue was founded by our Chairman,
Andrew Forrest AO, we had a vision to meet the iron
ore supply gap in China.
In just over 11 years we’ve delivered more than
1.3 billion tonnes of iron ore to customers and have
been widely recognised as the world’s lowest cost
producer of seaborne iron ore to China.
An important factor in Fortescue’s journey has been
our longstanding relationships, and the strength of
our multifaceted engagement with China.
This engagement extends across Chinese investors,
financing arrangements with Chinese banks, over
US$1 billion of procurement as well as strong social,
academic and policy engagement.
relationship with China. China has been WA’s largest market
for exports since 2006 and, of course, Western Australia is
the largest source of iron ore for China.
As West Australians, we must all be strong advocates for
our State – and the message that the resources sector will
continue to drive our economy for decades to come.
We comprise just 10 per cent of Australia’s population
but our State is the power engine for Australia’s economy,
accounting for 35 per cent of Australian exports in FY18.
In WA there are now approximately $113 billion of projects
underway or in the pipeline, including our own Eliwana and
Iron Bridge projects.
At Fortescue, we don’t subscribe to the “boom/bust” theory
as that assumes that after every so-called boom there will
inevitably be a bust.
All of these relationships contribute to fostering a depth
and breadth of understanding that is crucial to our
business and our country’s success.
Rather, we believe we are at the start of another
construction phase that will sustain investments and
support ongoing operations.
Western Australia (WA) is Australia’s gateway to Asia.
We have used this position to our advantage.
Often the East Coast view dominates discussion about
Australia’s relationship with China and Asia more broadly.
This does not fairly reflect WA’s important, multidimensional
Our shared challenge is to ensure that when the cycle
moves to the next production phase we’ve invested wisely
for the future, and that communities have benefitted from
our business success.
Abridged version – full article published in The West Australian on 4 July 2019
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19OVERVIEW01 Our Vision
The safest, lowest cost,
most profitable mining company
Fortescue’s
Values
The
year
at a
glance
Family
Safety
Integrity
Enthusiasm
Empowerment
Frugality
Courage and
determination
Generating ideas
Stretch targets
Humility
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 The
Board
overview
Fortescue has
a talented and
diverse Board
committed to
enhancing and
protecting the
interests of
shareholders and
other stakeholders,
and fulfilling a
strong governance
role over the
Company’s affairs.
Andrew Forrest AO
Chairman
Mark Barnaba AM
Lead Independent Director/
Deputy Chair
Elizabeth Gaines
Chief Executive Officer/
Managing Director
Sharon Warburton
Deputy Chair
Lord Sebastian Coe CH, KBE
Non-Executive Director
Jennifer Morris OAM
Non-Executive Director
Dr Jean Baderschneider
Non-Executive Director
Penny Bingham-Hall
Non-Executive Director
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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Dr Cao Zhiqiang
Non-Executive Director
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19OVERVIEW01 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,
ethnicity, experience, gender and age.
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
People Committee. The most recent
review was undertaken in June 2019 by
EY. 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.
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, its culture and Values.
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 People Committee, the Audit
and Risk Management Committee,
the Nomination 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 four primary
Committees have established a process
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Andrew Forrest AO
Chairman
Appointed Chairman in July 2003;
Assumed role of Chief Executive Officer
in 2005; Resumed non-executive
responsibilities in July 2011.
Mr Forrest is Australia’s most active
philanthropist and one of the most
effective business leaders of his
generation.
As Fortescue’s Founder and Chairman,
he has led the Company from
inception to its Top 20 status in the
Australian economy, during which time
Fortescue invested more than US$20
billion in the resources sector.
In 2001, Mr Forrest co-founded the
Minderoo Foundation with his wife
Nicola Forrest AO, which has supported
over 280 initiatives across Australia and
internationally in pursuit of a range
of causes. In May 2017, the Forrests
announced one of Australia’s largest
private philanthropic donations of
A$400 million, and have continued
giving, with their total philanthropic
donations exceeding A$1.5 billion in
May 2019.
Mr Forrest was awarded an honorary
doctorate by The University of Western
Australia, is an Adjunct Professor of the
Central South University in China, a
lifetime Fellow of the Australian Institute
of Mining and Metallurgy and was
awarded the Global Entrepreneur of the
Year by EY for Impact.
He is Co-Chairman of the Senior
Business Leaders' Forum, the
leading formal dialogue for China
and Australia's most senior business
leaders.
In 2017, Mr Forrest was appointed
an Officer of the Order of Australia
(AO) 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 Global Patron of the Centre for
Humanitarian Dialogue, recipient of
the Australian Sports Medal and the
Australian Centenary Medal, and Vice-
Patron of the SAS Resources Fund.
He is also a Councillor of the
Global Citizen Commission, which
made a series of human rights
recommendations to update the
Universal Declaration of Human Rights
presented to the United Nations
Secretary General in April 2016.
Mr Forrest was appointed in 2013
by the Prime Minister and Cabinet
of Australia, to Chair the Review of
Indigenous Training and Employment
Programmes, to end Indigenous
disparity through employment.
He was Western Australia’s 2017
Australian of the Year for his
outstanding contribution to the
community and in 2018, Mr Forrest
was inducted into the Australian
Prospectors & Miners' Hall of Fame.
Committee memberships:
Finance Committee (Chair)
Mark Barnaba AM
Lead Independent Director/
Deputy Chair
Deputy Chair since November 2017;
Lead Independent Director since
November 2014; Non-Executive Director
since February 2010.
Mr Barnaba is a career investment
banker, having focussed predominately
in the natural resources sector.
Mr Barnaba has spent most of his
career with McKinsey & Company (both
in Australia and overseas), companies
he founded, led and then sold - GEM
Consulting and Azure Capital (both
independent corporate advisory firms
which provide financial, corporate
and strategic advice to companies,
governments and institutions in the
Asia Pacific region), and in several
senior executive roles at Macquarie
Group (one being the Chairman and
Global Head of the Natural Resources
Group). He has previously chaired the
State Theatre Company of Western
Australia, the West Coast Eagles (an
Australian Rules Football League Team)
and several large publicly listed (ASX)
companies within the mining and
infrastructure sectors.
He also is a member of the Board (and
Chairman of the Audit Committee) of
the Reserve Bank of Australia.
He also chairs the Board of the
University of Western Australia
Business School, chairs the Hospital
Benefit Fund (HBF) Investment
Committee, is a member of the Senior
Advisory Board of Appian Capital
(a London based pure-play mining
private-equity fund), and is a senior
adviser to EY (Oceania).
Mr Barnaba holds a Bachelor of
Commerce (First Class Honours and
University Medal) from the University
of Western Australia, an MBA from
Harvard Business School (Baker
Scholar) and an Honorary Doctor of
Commerce from the University of
Western Australia.
Committee memberships:
Audit and Risk Management
Committee (Chair), Nomination
Committee (Chair), Remuneration
and People Committee (Member)
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19OVERVIEW01 Elizabeth Gaines
Chief Executive Officer/
Managing Director
Chief Executive Officer since February
2018 and Executive Director since February
2017; Former Non-Executive Director
from February 2013 to February 2017.
Ms 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.
Ms Gaines is a member of the Curtin
University - Faculty of Business and
Law Advisory Council.
Former directorships in the last three
years (ASX Listed Entities): NEXTDC
Limited (Non-Executive Director); Nine
Entertainment Co. Holdings Limited
(Non-Executive Director); ImpediMed
Limited (Non-Executive Director).
Sharon Warburton
Deputy Chair
Deputy Chair since July 2017; Non-
Executive Director since November 2013.
Lord Sebastian Coe CH, KBE
Non-Executive Director
Non-Executive Director since
February 2018.
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 twelve 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 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 2015 for
The Financial Review’s Westpac 100
Women of Influence. She is a Director
of the 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 and is an Adjunct
Professor of Curtin University’s Faculty
of Business and Law.
Other current directorships (ASX listed
entities): Gold Road Resources Limited
(Non-Executive Director); NEXTDC
Limited (Non-Executive Director);
Worley Parsons Limited (Non-Executive
Director); Wesfarmers Limited (Non-
Executive Director).
Former directorships in the last
three years (ASX Listed Entities):
Wellard Limited.
Committee memberships:
Remuneration and People
Committee (Chair), Nomination
Committee (Member), Audit and Risk
Management Committee (Member),
Finance Committee (Member)
12
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Jennifer Morris OAM
Non-Executive Director
Non-Executive Director since
November 2016.
Dr Jean Baderschneider
Non-Executive Director
Non-Executive Director since
January 2015.
Penny Bingham-Hall
Non-Executive Director
Non-Executive Director since
November 2016.
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
Masters Degree from the University
of Michigan and a PhD from Cornell
University.
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 Walk Free.
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' various roles in elite sport
and the corporate world allow her
to provide significant demonstrated
experience in the areas of leadership
and high performance.
Ms Morris is a Member of the
Australian Institute of Company
Directors, a Fellow of Leadership WA
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 People 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.
Mr Wilson holds a Bachelor of Laws from the University of Western Australia and
is a Graduate of the Australian Institute of Company Directors.
Ms Bingham-Hall has over 30 years’
experience in senior executive and
non-executive roles in large ASX listed
companies. She is a Non-Executive
Director of Macquarie Specialised Asset
Management, the Port Authority of
NSW, Taronga Conservation Society
Australia and the Crescent Foundation.
Ms Bingham-Hall has worked in the
construction, infrastructure, mining and
property industries across Australia and the
Asian region. She has a particular interest
in environmental sustainability, workplace
safety and indigenous employment.
Prior to becoming a company director,
Ms Bingham-Hall was Executive
General Manager, Strategy at Leighton
Holdings (now CIMIC) - Australia’s
largest construction, mining services
and property group. As part of the
leadership team at Leighton she had
responsibilities across the group’s
Australian and Asian operations.
Ms Bingham-Hall has a Bachelor of Arts
degree in Industrial Design, is a Fellow
of the Australian Institute of Company
Directors, a Senior Fellow of the Financial
Services Institute of Australasia and a
member of Chief Executive Women and
Corporate Women Directors.
Other current directorships (ASX listed
entities): BlueScope Steel Limited (Non-
Executive Director); DEXUS Property
Group (Non-Executive Director).
Committee memberships:
Audit and Risk Management Committee
(Member), Finance Committee (Member)
Dr Cao Zhiqiang
Non-Executive Director
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.
13
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19OVERVIEW01 Core
Leadership
Team
Fortescue’s Core
Leadership Team
(CLT) was announced
in November 2017
and is focussed on
the core Values
and culture of the
Company and
empowering the
workforce to make
decisions that
drive success for
the Company.
Elizabeth Gaines
Chief Executive Officer
Julie Shuttleworth
Deputy Chief Executive Officer
Ms Gaines commenced as Chief
Executive Officer in February 2018.
Ms Shuttleworth commenced as Deputy
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.
Ms Gaines is a member of the Curtin
University - Faculty of Business and
Law Advisory Council.
Having joined Fortescue in 2013,
Ms Shuttleworth has held General
Manager roles at both Fortescue’s
Cloudbreak and Solomon mines.
Ms Shuttleworth holds a double major
in Extractive Metallurgy and Chemistry
from Murdoch University and has 25
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, and six years'
iron ore experience with Fortescue.
Ms Shuttleworth is a Fellow and
Chartered Professional of the
Australian Institute of Mining and
Metallurgy (AusIMM), is a Graduate
Member of the Australian Institute
of Company Directors, on the
International Committee of the Society
of Mining Metallurgy and Exploration,
and a Member of the Mining and
Metallurgical Society of America. She
also serves on the AusIMM Council
for Diversity and Inclusion and has
attended Harvard Business School
and INSEAD Business School, holds
Diplomas in Financial Markets and
Management, and sponsors the
Julie Shuttleworth Prize in Mineral
Processing at Murdoch University.
14
14
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Ian Wells
Chief Financial Officer
Greg Lilleyman
Chief Operating 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,
joint venture 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.
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.
Mr Wells' 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 25 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 Chief
Financial Officer 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.
Mr Wells is Chairman of The Salvation
Army Business Committee.
O
V
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R
V
I
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W
01
15
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19OVERVIEW01 Danny Goeman
Director Sales and Marketing
Peter Huston
Chief General Counsel and
Director Corporate Services
Anthony Kirke
General Manager Iron Ore Projects
Tim Langmead
Director Community, Environment
and Government
David Liu
Senior Advisor to the CEO and COO
Linda O’Farrell
Group Manager Fortescue People
Fernando Pereira
Director Pilbara Operations
Alison Terry
Group Manager Corporate Affairs
and Joint Company Secretary
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.
16 16
Rob Watson
Group Manager Health and Safety
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Danny Goeman
Director Sales and Marketing
Mr Goeman was appointed Director
Sales and Marketing in August 2018.
has worked across the full supply
chain with roles encompassing port
operations, ore processing, mining
and maintenance.
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 in 2005 and
has over 20 years’ experience in legal and
advisory roles. Prior to joining Fortescue,
Mr Huston spent 12 years as a Partner
of the law firm now known as Norton
Rose Fulbright. He then spent over
a decade in “Activism Private Equity”
as an Executive Director at Troika
Securities Limited. Mr Huston is a well-
regarded corporate lawyer in Australia.
Mr Huston is admitted as a Solicitor
and Barrister of the Supreme Court
of Western Australia, the Federal and
High Court of Australia and has a
Bachelor of Jurisprudence, Bachelor
of Laws (with Honours), Bachelor of
Commerce and a Master of Laws.
Anthony Kirke
General Manager Iron Ore Projects
Mr Kirke was appointed General
Manager Iron Ore Projects in February
2018. After joining Fortescue in 2010,
he has had a number of roles including
General Manager Solomon and Group
Manager Operations Planning.
Mr Kirke is responsible for Fortescue’s
major Iron Ore development projects
including the Eliwana Mine and Rail
and the Iron Bridge Magnetite Project.
He is also responsible for the feasibility
studies for all future iron ore projects,
ensuring the long term sustainability
of Fortescue’s iron ore operations.
Commencing with Mt Newman Mining
in 1985 in Port Hedland, Mr Kirke
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.
David Liu
Senior Advisor to the CEO and COO
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 Advisor
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 and is a Director
at the Australian Institute of
Management Western Australia and
AMMA, the Australian Resources and
Energy Group.
Fernando Pereira
Director Pilbara Operations
Mr Pereira was appointed Director
Pilbara Operations in June 2019.
He started his career at Fortescue
in 2010 and has previously led the
Company’s Port and Rail Operations
and Asset Management teams.
Mr Pereira has more than 19 years’
experience in the mining industry,
spanning various commodities and
operations in Australia and South
America. He has expertise in senior
management, mining and mineral
engineering, supply chain optimisation
and overseeing mechanical, structural
and expansion projects.
Mr Pereira holds a Bachelor in
Mining and Mineral Processing
Engineering and Specialisation in
Business Management.
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). She is a member of Chief
Executive Women and a Graduate of the
Australian Institute of Company Directors.
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.
17
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19OVERVIEW01 02
Operating
and Financial
Review
18
18
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 US$
US$
C1 costs
Shipped
Cash on hand
167.7 mt
13.11/wmt
1.9 billion
10.0 billion
4.0 billion
2.1 billion
Gross debt
Revenue
US$
US$
US$
Net debt
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
19
19
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Overview
of
operations
As one of the world’s
largest iron ore
producers, Fortescue
owns and operates
integrated operations
spanning two iron
ore mine hubs, the
five berth Herb Elliott
Port and Judith
Street Harbour
towage facility in
Port Hedland and the
fastest, heavy haul
railway in the world.
20
20
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Chichester Hub
The Chichester Hub in the Chichester
Ranges, comprising Cloudbreak and
Christmas Creek mines, has an annual
production capacity of 100 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 maximising
ore bodies and sustainably reducing
strip ratios.
The Company’s Cloudbreak mine
site is home to the five-kilometre
relocatable conveyor which includes
two semi-mobile primary crushing
stations and feeds directly into the
Cloudbreak OPF. An example of
Fortescue’s innovative operations,
the infrastructure can be positioned
approximate to pits and relocated,
extended or shortened once an area
is mined.
Solomon Hub
The Solomon Hub in the Hamersley
Ranges is located 60km 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 a
production capacity of 70 to 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.
West Pilbara Fines
Fortescue’s introduction of its
60.1% iron content product West
Pilbara Fines in December 2018
demonstrates the agility of the
Company’s processing and blending
strategy and the flexibility of its
wholly owned, integrated mining
operations and infrastructure.
West Pilbara Fines is currently
produced by blending higher iron,
low alumina ore from the western
pits at Cloudbreak with ore from the
Firetail mine. When Eliwana begins
production in December 2020,
production of West Pilbara Fines will
ramp up to 40mtpa.
Hedland Operations
Fortescue wholly owns and operates
its purpose designed rail and port
facilities, constructed to deliver iron
ore from its mines to Port Hedland
and on to its customers. Covering
620km of track, the railway is the
fastest, heavy haul line in the world.
The efficient design and layout,
optimal berthing configuration and
ongoing innovation to increase
productivity makes Fortescue’s
port the most efficient bulk port
operation in Australia. The port has
five operating berths and is capable
of safely and efficiently exporting
more than 170mtpa.
Shipping and
towage fleet
Fortescue’s eight Ore Carriers
were innovatively designed to
complement Fortescue’s port
infrastructure. The fleet delivers
approximately 14 per cent of
Fortescue’s shipping requirements,
and has improved load rates,
efficiencies and reduced
operating costs.
In FY19, Fortescue celebrated
the completion of its fleet of tugs
and towage infrastructure.
The Company’s innovative tug
fleet will provide safe and reliable
towage services that will maximise
the efficiencies of its operations and
provide additional towage capacity
for all Port Hedland users.
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
21
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 World leading automation
Fortescue was the first company in the world to deploy
CAT autonomous haulage on a commercial scale when
autonomous haulage trucks (AHS) began operating
at the Solomon Hub in 2012. Today, Fortescue’s AHS
deployment is the largest mining technology program
in the industry. The conversion of Fortescue’s fleet to
autonomy across all its mine sites in the Pilbara will see
175 trucks fitted with AHS by mid-2020.
In a global first, Fortescue retrofitted CAT Command
for hauling, part of Caterpillar’s MineStar technology, on
Komatsu 930E haul trucks at Christmas Creek.
The 930Es have been operating alongside the CAT 789Ds
since November 2018, demonstrating the Company’s
capability to manage and operate the first multi-class
truck size autonomous haulage site in the industry.
Fortescue was the first operation in Western Australia
to control a railway from outside the region when it
opened its Train Control Centre in Perth in 2009. Today,
the Integrated Operations Centre (IOC) in Perth includes
Christmas Creek’s mine planning and Cloudbreak’s
mine control. The remote operation utilises the latest
technology and ensures improved safety, reliability
and efficiency, while Cloudbreak is the first remote
mining operation in the world to use the CAT MineStar
Command system in production mode.
Fortescue’s AHS
deployment is the largest
mining technology
program in the industry
Iron Bridge
In April 2019, the development of the
US$2.6 billion Iron Bridge Magnetite
Project was approved by the Board.
The Project will deliver 22mtpa of high
grade 67% Fe magnetite concentrate
product, with first ore on ship
scheduled for mid-2022.
Iron Bridge, located 145km by
road south of Port Hedland and
incorporating the world class North
Star and Glacier Valley Magnetite ore
bodies, is an unincorporated joint
venture between Fortescue Metals
Group subsidiary FMG Iron Bridge and
Formosa Steel IB. Baosteel also has an
interest in the Project, as part owner of
FMG Iron Bridge.
The Iron Bridge Project holds
Australia’s largest Joint Ore Reserves
Committee (JORC) compliant
magnetite resource supporting a
long mine life. The innovative process
design, including the use of a dry
crushing and grinding circuit, will
deliver an industry-leading energy
efficient operation with globally
competitive capital intensity and
operating costs.
The Iron Bridge premium 67% Fe
product will further enhance the
range of products available to
Fortescue’s customers through
the Company’s flexible integrated
operations and marketing strategy.
The product from Iron Bridge, along
with hematite from the Eliwana Mine
Project, will see Fortescue’s average iron
content increase and provide the ability
to deliver the majority of products at
greater than 60% Fe.
22
22
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Karratha
Roebourne
Port Hedland
HERB ELLIOTT PORT
Marble Bar
IRON BRIDGE
SOLOMON HUB
Eliwana
Firetail
Kings
Nullagine
CHICHESTER HUB
Cloudbreak
Christmas Creek
Pilbara
Western Australia
Current operations
Under development
WESTERN HUB
Tom Price
NYIDINGHU
Eliwana Mine
and Rail Project
Fortescue’s US$1.275 billion Eliwana
Mine and Rail development includes
143km of rail and a 30mpta dry OPF.
The project underpins the introduction
of the 60.1% iron grade product,
West Pilbara Fines, and will maintain
Fortescue’s low cost status, providing
greater flexibility to capitalise on
market dynamics while maintaining
Fortescue’s overall production rate of
a minimum 170mtpa over 20 years.
The Eliwana project will build on
Fortescue’s development and
construction capability, utilising the
latest technology, autonomous trucks
and design efficiency.
Newman
Exploration
Fortescue holds the largest
tenement portfolio in the Pilbara
region of Western Australia.
The Company’s iron ore tenements
are key to maintaining mine life
and sustaining product quality in
Fortescue’s core iron ore business.
The Western Hub Resources include
significant amounts of high iron
content bedded iron ore, adding high
iron content, dry, low cost tonnes to
Fortescue’s product suite.
Recent Australian exploration activity
has been primarily focussed on early
stage target generation for
copper-gold in the North Paterson
and Rudall region in Western Australia,
with additional exploration activity
undertaken in New South Wales and
South Australia.
The Eliwana project will build
on Fortescue’s development
and construction capability
International footprint
Fortescue is building on its world-class
exploration expertise, operational
reputation and capability of its people
through early stage exploration in
highly prospective areas to deliver
future shareholder value.
The Company is assessing exploration
and development opportunities
throughout South America including
Ecuador, Colombia and Argentina.
Drilling on targets prospective for
copper commenced in April 2019 at
Fortescue’s Santa Ana concessions
in Ecuador.
In November 2018, Fortescue
acquired an exploration company in
Argentina which provided access to
a large greenfield landholding of
approximately 2,930km² in the
Argentinian Province of San Juan,
which is prospective for
copper-gold. Initial field work
commenced in January 2019 in a
project area approximately 180km
from San Juan.
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
23
23
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Fortescue builds on its strong relationships
with China
Throughout FY19, Fortescue continued to strengthen
its multifaceted relationships with China, through supply,
procurement, investment as well as academic, policy
and community engagement.
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 seabourne iron ore to China.
Fortescue’s operations and marketing
functions are closely integrated and
focussed on operational delivery and
meeting the needs of its customers,
while maximising the value that
Fortescue receives for its products.
Fortescue held a Technical Forum in
Hunan Province in June 2019, bringing
together 200 customer technical
representatives and Fortescue team
members to engage on the best use
of Fortescue’s products, as well as new
technologies and emerging trends.
A new China based sales entity was
established to support customers
through direct supply from regional
Chinese ports, providing them with an
option to purchase smaller volumes,
in Renminbi. Initial sales commenced
towards the end of FY19 with volumes
expected to represent approximately
five per cent of China sales.
During the year, Fortescue announced
the development of the Iron Bridge
Magnetite Project. As a part owner
of FMG Iron Bridge, Baosteel has an
interest in the Project. Iron Bridge is
another example of the breadth of
Fortescue’s relationship with China.
Fortescue was proud to attend the
prestigious Boao Forum for Asia (Boao)
as a Diamond partner for the eleventh
consecutive year. In addition to
an informal gathering of the
Australia-China Senior Business
Leaders Forum (SBLF), Chairman
Andrew Forrest AO, Chief Executive
Officer, Elizabeth Gaines and Chief
Operating Officer, Greg Lilleyman
were joined at Boao by Hon. Alannah
MacTiernan MLC, Western Australia’s
Minister for Regional Development,
Agriculture and Food; Ports; Minister
Assisting the Minister for State
Development, Jobs and Trade.
In July 2018, Fortescue's second
China-Australia University tour
welcomed a group of under-graduate
and post-graduate university students
from two West Australian and two
Chinese universities to its operations.
The tour provided an opportunity to
showcase Fortescue’s operations and
assets and provide the students with
first-hand insights into its innovative
mining processes. The third annual
University Tour was held in July 2019.
The tour complements Fortescue’s
sponsorship of academic scholarships
at Central South University in China
and its membership of the Lingnan
(University) College International
Advisory Board.
Fortescue is proud of its long term
relationships with stakeholders in
China and, as one of the largest
exporters of iron ore globally, is
focussed on maintaining the
mutually beneficial business and
trading relationships between China
and Australia.
24
24 24
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Value Chain
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.
01
02
03
04
05
06
07
08
09
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
Integrated operations
and marketing
Helping customers
achieve best value in use
Decommissioning
Mine closure and rehabilitation
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 and towage
Delivery to Fortescue’s international
customers’ specifications
8 Fortescue Ore Carriers
Towage fleet provides safe
and reliable towage services
25
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Key
Performance
Indicators
26
26
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 O
P
E
R
A
T
I
N
G
A
N
D
F
I
N
A
N
C
A
L
R
E
V
I
I
E
W
02
Safety
Total
Recordable Injury
Frequency Rate
2.8
167.7mt (shipped)
C1 costs13.11/wmt
Production
US$
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
27
27
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Key Performance Indicators
Safety
Fortescue has an absolute focus on safety, as the Company’s
number one Value.
Each day, everyone at Fortescue is
empowered to take control and look
out for their mates and themselves.
The Company is committed to
providing a safe working environment
for all employees and contractors as it
strives to become a global leader
in safety.
Fortescue’s rolling twelve-month
Total Recordable Injury Frequency
Rate (TRIFR) improved by 24 per cent
from 3.7 at 30 June 2018 to 2.8 at
30 June 2019.
As the Company aims to reach its
goal of zero harm, 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
• Engaging its workforce in improving
safety through programs like the
Company-wide Safety Stop
• Engagement with contracting
partners to ensure compliance with
Fortescue’s safety standards
• The continued reduction of
workplace exposures through safety
improvement opportunities.
The key objective is to ensure there are
no fatalities in our operations. In FY19,
there were no fatalities and during the
year, Fortescue committed to further
reducing the risk of fatalities and
serious injuries with an increased focus
on eliminating or engineering out
hazards. Each operating area was set
a target of reducing their fatality risk
profile by 15 per cent by the end
of the year. The combined risk
reduction achieved was 16.2 per cent
across the business.
12-month rolling TRIFR, per million hours worked
5.1
4.3
3.7
2.9
2.8
FY15
FY16
FY17
FY18
FY19
28
28
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Key Performance Indicators
Production
Optimised product mix delivering value in FY19.
Production and shipments on a wet metric tonne basis (wmt) for the year are outlined below.
12 months to 30 June
Overburden removed
Ore mined
Ore processed
Shipments
2019
million wmt
2018
million wmt
Movement
%
303.7
206.7
176.9
167.7
267.4
184.5
165.6
169.8
14%
12%
7%
-1%
In FY19, Fortescue's integrated
operations and marketing strategy
succesfully delivered margin
optimisation through enhanced
product mix and volumes. After record
shipments in the last quarter of FY18,
iron ore inventories were rebuilt at mines
and port, and new areas were prepared
for mining ahead of the introduction
of Fortescue's 60.1% West Pilbara Fines
product in December 2018.
Mining and processing activities
outperformed prior years, positioning
the Company to achieve its FY19
targets and provide flexibility to
manage product mix and capitalise
on market conditions.
Mining, processing, rail and shipping
combined to achieve shipments of
167.7mt in FY19, in line with FY18 once
adjusted for the 2.5mt of production
lost in March as a result of Tropical
Cyclone Veronica. This is on par with
the annual shipment rate of 170mt
achieved in prior years.
The first cargo of Fortescue’s
60.1% iron West Pilbara Fines product
was shipped from Port Hedland to
China in December 2018. This product
is currently a blend of higher iron, low
alumina ore from the western pits of
Cloudbreak with ore from the Firetail
mine. The introduction of West Pilbara
Fines demonstrates the flexibility of the
Company’s wholly
owned, integrated mining operations
and infrastructure and the agility of
its processing and blending strategy.
Fortescue produced and shipped 9mt
of West Pilbara Fines in FY19 and is
targeting production of between
17 to 20mtpa in FY20 and up to 40mt
per annum once the Eliwana mine is
fully operational with first ore on train
scheduled for December 2020.
Towards the end of FY19, Fortescue
established a legal entity in China
with the aim to better serve its customers
through its ability to sell product in local
currency and in smaller volumes. FY19
total shipments includes 0.2mt of product
shipped onshore to China for subsequent
sale by Fortescue in country.
Mining, million wmt
Processing, million wmt
Shipments, million wmt
198
181
185
207
164
172
168
166
177
154
165
169
170
170
168
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
FY19 Product Mix
FY18 Product Mix
West Pilbara Fines
Kings Fines
Fortescue Blend
Fortescue Lump
Super Special Fines
Other
West Pilbara Fines
Kings Fines
Fortescue Blend
Fortescue Lump
Super Special Fines
Other
29
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Key Performance Indicators
Costs
Disciplined cost control supports focus on margins.
C1 cost for the year remained steady
at US$13.11/wmt, a six per cent
increase over the prior year, and has
maintained Fortescue’s position as
the lowest cost supplier of seaborne
iron ore into China.
The chart below illustrates the success
of Fortescue’s cost reduction and
efficiency initiatives over the past five
years, reflecting sustainable, long term
management of operating costs.
During the year, Fortescue continued
to build on key initiatives to maintain
its low cost position, including:
• Continuation of the conversion to
autonomous haul fleet at Christmas
Creek during FY19 with a total of
112 trucks now converted and
in operation at 30 June 2019.
Conversion activities commenced
at Cloudbreak and upon completion,
Fortescue will become the first iron
ore operation in the world to have
a fully autonomous fleet
• Delivery of the final vessel in
Fortescue’s ore carrier fleet,
FMG Northern Spirit. All eight
ore carriers have now been
delivered and are shipping
approximately 14 per cent of
Fortescue’s annual shipping
requirements. The ore carriers
have been designed to provide
operational cost improvements
and loading efficiencies
• Ramp up to full operation of the
relocatable conveyor at Cloudbreak,
following commissioning in late FY18
• Improved performance across
ore processing facilities reflecting
the focus on and investment in
maintenance activities
• Offsetting the impacts of
increasing strip ratios and haul
distances through a rigorous cost
management approach, applied
across all mining operations
• Continuous improvement focus on
mine planning, design and review
of mining methodology, cross-site
operational collaboration, efficiency
of mining equipment and labour
productivity
• Engaging with our entire workforce
to identify opportunities to enhance
value in our operations.
Overall, in FY19 Fortescue demonstrated
its ability to consistently deliver a
sustainable cost of production through
structural improvements in blending
and processing, productivity and
efficiency initiatives, and a commitment
to innovation and technology across
its integrated operations.
27.15
C1 cost journey, US$/wmt
15.43
12.82
12.36
13.11
FY15
FY16
FY17
FY18
FY19
30
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Financial
performance
Fortescue’s financial results for the year demonstrate the
continued ability of the Company’s operations to generate
strong cash flows through the successful execution of its
integrated operations and marketing strategy resulting in
sustained low cost performance and strong operating margins.
During the year ended 30 June 2019, Fortescue delivered a record net profit after tax of US$3,187 million and earnings per share
of 103.1 US cents, due to strong customer demand and iron ore price, as well as an optimised product mix to deliver higher margins.
Key metrics
Revenue, US$ millions
Underlying EBITDA1, US$ millions
Net profit after tax, US$ millions
Earnings per share, US cents
Average realised price, US$/dmt
C1 costs, US$/wmt
Underlying EBITDA margin, US$/dmt
Key ratios
Underlying EBITDA margin, %
Return on equity, %
2019
9,965
6,047
3,187
103.1
65
13
39
61
31
2018
6,887
3,182
878
28.2
44
12
20
46
9
1 Refer to page 33 for the reconciliation of Underlying EBITDA to the financial metrics reported in the financial statements under Australian Accounting Standards.
31
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Financial performance
Revenue
Total iron ore revenue, US$ millions
Total shipping revenue2, US$ millions
Other revenue, US$ millions
Operating sales revenue, US$ millions
Shipments, million wmt
Average 62% Fe CFR Platts index, US$/dmt
Average realised price, US$/dmt
Note1
3
3
3
2019
8,786
1,177
2
9,965
168
80
65
2018
6,775
-
112
6,887
170
69
44
1 Notes to the accompanying financial statements.
2 The Group adopted AASB 15 Revenue from Contracts with Customers effective from 1 July 2018. As discussed in note 23(x) to the accompanying financial statements,
this Standard requires shipping revenue to be recognised separately from revenue from the sale of iron ore. Comparatives were not required to be restated.
Demand for Fortescue products remained strong with 167.7mt of iron ore shipped to customers in FY19.
The Platts 62% CFR index averaged US$80/dmt in FY19 which reflects an increase of 16 per cent over the prior year
(FY18: US$69/dmt) with Fortescue’s average realised price increasing by 47 per cent over the same period
(from US$44/dmt in FY18 to US$65/dmt in FY19). The factors which have influenced Fortescue’s realised price include:
• Successful integrated operations and marketing strategy increasing the volume of higher margin products shipped
including West Pilbara Fines
• Increasing demand for Fortescue’s products following moderation of steel mill margins in China
• Continued strength in Chinese steel production, growing by 9.9 per cent in the first half of calendar 2019 compared to the prior year
• Sustained strength in the benchmark iron ore price following supply disruptions in Brazil and Australia, leading to
significant drawdowns in iron ore inventories at Chinese ports.
Production costs
The reconciliation of C1 costs and total delivered costs to customers to the financial metrics reported in the financial
statements under Australian Accounting Standards is set out below.
Mining and processing costs, US$ 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
2019
1,829
190
176
2,195
168
13.11
1,082
651
95
1,828
168
11
24
26
2018
1,739
188
172
2,099
170
12.36
1,148
416
70
1,634
170
10
22
24
1 Notes to the accompanying financial statements.
2 Fortescue pays a 7.5 per cent Western Australian 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 FY19 operating cost performance are discussed on page 30.
32
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Financial performance
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$6,047 million (FY18: US$3,182 million). The reconciliation of Underlying EBITDA to the
financial metrics reported in the financial statements under Australian Accounting Standards is presented below.
Operating sales revenue
Cost of sales excluding depreciation and amortisation
Net foreign exchange gain
Administration expenses
Other income/ (expenses)
Underlying EBITDA
Finance income
Finance expenses
Depreciation and amortisation
Exploration, development and other expenses
Net profit before tax
Income tax expense
Net profit after tax
Cost of early debt repayment after tax
Underlying net profit after tax
1 Refer to notes to the accompanying financial statements.
Note1
3
5
4
6
4,6
7
7
5, 6
6
14
2019
US$m
9,965
(3,931)
110
(95)
(2)
6,047
26
(279)
(1,196)
(29)
4,569
(1,382)
3,187
-
3,187
2018
US$m
6,887
(3,665)
29
(70)
1
3,182
24
(652)
(1,277)
(32)
1,245
(367)
878
202
1,080
The Underlying EBITDA of US$6,047m for FY19 represents an Underlying EBITDA margin of US$39/dmt or 61 per cent.
As illustrated in the chart below, Fortescue has been maintaining EBITDA margins through market cycles demonstrating its
commitment to productivity, efficiency and innovation.
US$/dmt
100
80
60
40
20
17
FY15
21
FY16
30
FY17
20
FY18
39
FY19
Underlying EBITDA, US$/dmt
62% Platts CFR Index, US$/dmt
Average Underlying EBITDA, US$/dmt
Fortescue realised price, US$/dmt
Average Fortescue realised price, US$/dmt
33
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Financial performance
Underlying EBITDA (continued)
Key factors contributing to the 90 per cent increase in Underlying EBITDA from the prior period were primarily market driven,
with higher prices realised for Fortescue products averaging US$65/dmt in FY19 (FY18: US$44/dmt).
Underlying EBITDA (US$m)
3,272
52
(126)
(235)
(56)
6,047
3,182
(42)
FY18
Volume
Price/Product mix
C1 costs
Shipping costs
Royalty
Other
FY19
Non-operating events
Key non-operating matters forming part of the financial result include:
• Finance expenses of US$279 million (FY18: US$652 million) include interest on borrowings and finance lease liabilities of
US$218 million (FY18: US$340 million) which decreased by 36 per cent compared to the prior period. Prior year finance
expenses included the pre-tax impact of early debt repayments and refinancing of US$289 million
• Depreciation and amortisation expense of US$1,196 million (FY18: US$1,277 million) was 6 per cent lower than the previous year
• Income tax expense for the year of US$1,382 million at an effective income tax rate of 30.3 per cent (FY18: US$367 million,
at an effective rate of 29.5 per cent).
34
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Financial
position
Flexible capital structure for future growth;
focus on shareholder returns.
Fortescue’s gross debt remained consistent at US$3,952 million with gross gearing of 27 per cent and net gearing of
16 per cent (FY18: US$3,975 million, gross gearing of 29 per cent and net gearing of 24 per cent), inclusive of finance leases
of US$573 million (FY18: US$595 million). The US$1,025 million revolving credit facility remains undrawn at 30 June 2019.
Key metrics
Borrowings
Finance lease liabilities
Total debt
Cash and cash equivalents
Net debt
Equity
Key ratios
Gearing, %
Net gearing, %
1 Refer to notes to the accompanying financial statements.
Note1
9(a)
9(a)
9(b)
2019
US$m
3,379
573
3,952
1,874
2,078
10,601
%
27
16
2018
US$m
3,380
595
3,975
863
3,112
9,732
%
29
24
35
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Financial position
Debt and liquidity
Fortescue’s balance sheet is structured on low cost, investment grade terms with optimal gearing and liquidity levels to
support ongoing operations. The debt capital structure allows optionality and flexibility for future growth.
At 30 June 2019, Fortescue had US$2,899 million of liquidity available including US$1,874 million of cash on hand and the
US$1,025 million undrawn revolving credit facility. Total debt of US$3,952 million, inclusive of US$573 million of finance
leases, represents gross gearing of 27 per cent.
The Company’s debt maturity profile at 30 June 2019 is set out below. No financial maintenance covenants are contained
within Fortescue's debt instruments, and the Company maintains a disciplined approach to debt maturity, considering
refinancing and/or debt repayment well in advance of maturity.
Debt maturity profile (excluding finance leases), US$m
1,400
750
500
750
CY2019
CY2020
CY2021
CY2022
CY2023
CY2024
Syndicated term loan
Senior unsecured notes
Cash generated by operations
Fortescue generated strong underlying cash flows from operations during the year with cash on hand at 30 June 2019
of US$1,874 million. Pre-tax operating cash flows are 63 per cent higher compared to the prior year primarily as a result of
a 90 per cent increase in Underlying EBITDA.
Key metrics
Cash generated from operations
Cash flows from operating activities
Capital expenditure
Free cash flow
36
2019
US$m
4,979
4,373
(1,040)
3,333
2018
US$m
3,031
1,601
(890)
711
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Financial position
Dividends and shareholder returns
In FY19, Fortescue generated earnings of 103.1 US cents per share (FY18: 28.2 US cents per share), with underlying return
on equity of 31 per cent (FY18: 9 per cent).
Net profit after tax, US$ millions
Earnings per share, US cents per share
Return on equity, %
Underlying return on equity, %
Interim dividend, AUD cents per share
Interim special dividend, AUD cents per share
Accelerated final dividend, AUD cents per share
Final dividend, AUD cents per share
Total dividend, AUD cents per share
Dividend payout ratio, %
2019
3,187
103.1
31
31
19
11
60
24
114
78
2018
878
28.2
9
11
11
-
-
12
23
62
Fortescue’s total FY19 dividends declared of A$1.14 equal a dividend payout ratio of 78 per cent of full year net profit after tax
and represents a record return to shareholders following the reduction in leverage and record net profit after tax. The ability
to deliver this increased return reflects the success of the integrated operations and marketing strategy, enhanced product
mix as well as the strength of demand for iron ore, which have all combined to strengthen cash flows from operations, and
total returns to shareholders.
Dividends declared and payout ratios
A$ cents/share
120
105
90
75
60
45
30
15
7
8
10
20
15
5
Payout ratio
80%
114
60%
40%
20%
45
23
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Dividend, A$ cents/share
Payout ratio - NPAT
37
OPERATING AND FINANCIAL REVIEW02FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Financial position
Share buy-back program
During the year, Fortescue launched an on-market share buy-back program for
up to A$500 million, with A$139 million utilised to acquire 34.8 million shares at
an average price of A$3.997 per share for the year to the end of June. All shares
purchased on market are cancelled, reducing shares on issue, and as a result,
enhancing shareholder returns. This program is an extension of the Company’s
capital allocation focus which has shifted from debt reduction to shareholder
returns, following de-gearing of the balance sheet.
The current program expires in October 2019, unless otherwise extended.
Capital expenditure
Fortescue’s capital expenditure of US$1,040 million (FY18: US$890 million) included:
• Sustaining capital of US$612 million (FY18: US$507 million)
• Ore carriers and towage of US$80 million (FY18: US$201 million)
• Development capital of US$141 million (FY18: US$79 million)
• Eliwana US$102 million (FY18: US$36 million)
• Exploration expenditure of US$105 million (FY18: US$67 million)
FY19 Capital expenditure, US$m
Ore carriers and towage
Eliwana
Exploration expenditure
Development capital
Sustaining capital
38
38
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 03
Ore Reserves
and Mineral
Resources
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
39
39
ORE RESERVES AND MINERAL RESOURCES 03FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Ore Reserves and Mineral Resources
Reporting is grouped by operating and development properties
and includes both Hematite and Magnetite deposits.
Hematite Ore Reserves total
2.29 billion tonnes (bt) at an average
iron (Fe) grade of 57.5%. Combined
Hematite Mineral Resources total 14bt
at an average Fe of 56.7%.
Magnetite Ore Reserves total
716 million tonnes (mt) at an average
mass recovery of 29.4 per cent for
a 67% Fe grade product. Magnetite
Mineral Resources total 5.5bt at an
average mass recovery of 22.7 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 23 August 2019). 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
23 August 2019, 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 2 April 2019.
The Ore Reserve and Mineral Resource
estimation processes followed
internally are well established and are
subject to systematic internal peer
review, including calibration against
operational outcomes. Independent
technical reviews and audits are
undertaken on an as-required basis
as an outcome of risk assessment.
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, 2017 and 2019. These audits
were managed by Fortescue’s internal
audit service provider with external
technical subject experts. The 2015, 2016,
2017 and 2019 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 2019 combined Chichester,
Solomon and Eliwana Hematite Ore
Reserve is a total of 2,288 million dry
tonnes (mt) at an average Fe grade of
57.5%.
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 2019 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
increased to 816mt (from 746mt in
2018) as a result of ongoing in-fill
drilling at the Solomon, Chichesters
and Eliwana deposits.
The Chichester Hub (Cloudbreak
and Christmas Creek deposits)
contains 1,318mt at an average Fe
grade of 57.4%, a decrease of 58mt
due primarily to a combination of
mining depletion (-ve), additional
Grade-Control drilling (+ve), re-
optimisation of pit designs (-ve) and
reconciliation adjustments (-ve).
Proved Ore Reserve constitutes 43 per
cent of the Chichester Ore Reserve,
a slight increase from 2018. 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 768mt at an average
Fe grade of 57.2%, an increase of
108mt due to additional Grade-Control
drilling at both Firetail and Valley of
Queens deposits (+ve), offset slightly by
reconciliation adjustments and pit design
adjustments (-ve). Solomon Ore Reserve
consists of 14 per cent of the tonnage in
the Proved Ore Reserve category.
The Ore Reserve estimate for the Eliwana
deposit is 202mt at an average Fe grade
of 60.1%. The estimate is 11mt lower than
previous reporting due to pit-design
modifications (-ve) and an updated
geological model (-ve) offsetting
additional Grade-Control drilling
activity (+ve). Eliwana Ore Reserve
consists of 67 per cent of the tonnage
in the Proved Ore Reserve category, an
increase of 30 per cent compared to
previous reporting.
The 2019 Hematite Ore Reserve estimates
were subject to comprehensive review
and update addressing:
• Ore depletion as a result of sales
(decrease)
• Revisions of ore loss and dilution
factors based on 12 months of
operational history at all mines
(tonnage decrease at the Valley of
Kings and Chichesters)
40
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 • Revisions to the processing response
through all OPFs based on updated
test work and operational history
(minor)
• Re-optimisation of mine geometries
to maximise the benefit of new
additions to the resource base
• Revisions to the Cloudbreak input
Grade-Control models and pit
geometries (decrease)
• Revisions to the Christmas Creek
input Grade-Control models and pit
geometries (increase)
• Revisions to the Valley of Queens
and Firetail pit geometries and input
Grade-Control models (increase)
Hematite Ore Reserves – as at 30 June 2019
• A revised Life Of Mine (LOM) plan
that addresses the listed items and
incorporates the latest information
on long term product strategy
(including the West Pilbara Fines
60.1% Fe product).
June 2019
June 2018
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
231
255
486
Christmas Creek
Proved
Probable
Total
340
492
832
57.6
57.4
57.5
56.9
57.5
57.3
Sub-total Chichester Hub
Proved
Probable
570
748
57.2
57.5
Total
1,318
57.4
Firetail
Proved
Probable
Total
8
118
126
Kings and Queens
Proved
Probable
Total
102
539
641
59.5
59.1
59.1
56.0
56.9
56.8
Sub-total Solomon Hub
Proved
Probable
Total
Eliwana
Proved
Probable
Total
110
657
768
136
66
202
56.3
57.3
57.2
60.8
58.7
60.1
Total Hematite Ore Reserves
Proved
816
Probable
1,471
57.7
57.5
Total
2,288
57.5
Notes in reference to table
5.29
5.82
5.57
6.07
5.18
5.54
5.75
5.40
5.55
5.69
6.02
6.00
6.29
6.68
6.62
6.24
6.56
6.52
4.39
5.28
4.68
5.59
5.91
5.80
2.69
2.67
0.055
0.063
8.27
7.67
2.68
0.059
7.96
2.75
2.96
0.048
0.054
7.59
7.61
2.88
0.052
7.60
2.73
2.86
0.051
0.057
7.86
7.63
270
276
546
302
528
831
572
804
57.3
57.1
57.2
57.0
57.1
57.1
57.1
57.1
2.80
0.055
7.73
1,376
57.1
2.58
2.24
0.115
0.112
6.07
6.61
2.26
0.113
6.57
2.72
2.69
0.078
0.070
2.70
0.071
2.71
2.61
0.080
0.077
2.63
0.078
10.54
8.79
9.07
10.22
8.40
8.66
2.41
2.64
0.137
0.096
5.41
7.10
2.49
0.124
5.96
4
90
94
91
475
566
95
565
660
79
135
213
58.7
59.3
59.2
55.9
57.1
56.9
56.0
57.4
57.2
61.1
59.5
60.1
2.67
2.74
0.069
0.068
7.77
7.95
746
1,504
57.4
57.5
2.72
0.068
7.89
2,250
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
0.053
0.059
8.38
7.69
2.83
0.056
8.03
2.77
3.09
0.040
0.046
7.72
7.68
2.97
0.044
7.69
2.81
2.99
0.046
0.050
8.03
7.68
2.92
0.049
7.82
2.71
2.45
0.113
0.107
6.60
6.68
2.46
0.107
6.67
2.57
2.69
0.074
0.064
9.96
8.76
2.67
0.066
8.95
2.57
2.65
0.076
0.071
9.82
8.42
2.64
0.072
8.62
2.51
2.37
2.42
2.75
2.81
0.144
0.115
0.126
0.060
0.064
5.21
6.27
5.88
7.96
7.83
2.79
0.063
7.87
• The diluted mining models used to report the 2019 Ore Reserves are based on Christmas Creek Mineral Resource model reported in 2016, Firetail Mineral
Resource model revised in 2018, Queens Mineral resource model completed in 2019, Cloudbreak Mineral Resource model completed in 2016 and Kings Mineral
Resource model released in 2017, Kutayi Mineral Resource model released in 2014 and Eliwana Mineral Resource model completed in 2019.
• Diluted mining models are validated by reconciliation against historical production.
• Proved Ore Reserves are inclusive of ore stockpiles at the mines totalling approximately 31.3mt 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.
41
ORE RESERVES AND MINERAL RESOURCES 03FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Ore Reserves – Magnetite
The 2019 Ore Reserves for Magnetite
are from the Iron Bridge project.
Ore Reserves for the project total
716mt at an average mass recovery
of 29.4 per cent for a 67% Fe grade
product. The Ore Reserves are quoted
as at 30 June 2019, on a dry in-situ
tonnes basis prior to processing.
The Mineral Resource model for the
Iron Bridge Project was developed by
Snowden Mining Industry Consultants
in conjunction with the Fortescue
internal technical team during
February and March 2019.
The Ore Reserves estimate was developed
on the basis of the above Resource Model
(Snowdens 2019) in March 2019 by the
Iron Bridge technical team using detailed
information on mining, geotechnical and
metallurgical processing parameters and
cost assumptions, as used in the 2019
Iron Bridge Feasibility study.
The Ore Reserves have been estimated
from Indicated plus Measured Mineral
Resources from within the North Star,
Eastern Limb and Glacier Valley mining
areas. All Magnetite Ore Reserves are
classified as Probable Ore Reserves
due to the lack of full scale production
history as no sales or production
have occurred for Magnetite as at
30 June 2019.
Magnetite Ore Reserves – as at 30 June 2019
June 2019
June 2018
In-Situ
Tonnes
(mt)
DTR
mass
recovery
%
Product
Iron Fe %
Product
Silica
SiO2
%
Product
Alumina
Al2O3
%
North Star and Eastern Limb (60.72% Fortescue)
Proved
Probable
Total
-
595
595
-
29.7
29.7
Glacier Valley (60.72% Fortescue)
Proved
Probable
Total
-
122
122
-
28.2
28.2
West Star (60.72% Fortescue)
Proved
Probable
Total
-
-
-
-
-
-
Total Magnetite Ore Reserves
-
67.0
67.0
-
67.0
67.0
-
-
-
-
5.62
5.62
-
5.62
5.62
-
-
-
-
0.29
0.29
-
0.29
0.29
-
-
-
In-Situ
Tonnes
(mt)
-
705
705
-
-
-
-
-
-
DTR
mass
recovery
%
Product
Iron Fe %
Product
Silica
SiO2
%
Product
Alumina
Al2O3
%
-
27.2
27.2
-
67.2
67.2
-
5.52
5.52
-
0.25
0.25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Proved
Probable
Total
-
716
716
-
29.4
29.4
-
67.0
67.0
-
5.62
5.62
-
0.29
0.29
-
705
705
-
27.2
27.2
-
67.2
67.2
-
5.52
5.52
-
0.25
0.25
Notes in reference to table
• Magnetite Ore Reserves are derived from Measured plus Indicated Mineral Resources reported within a defined pit design.
• Magnetite Ore reserves are based on Mass Recovery expressed as a 17% Davis Tube Recovery (DTR) cut-off.
• Magnetite Ore Reserves are reported on an in-situ dry-tonnage basis.
• Tonnage information has been rounded and as a result the figures may not add up to the totals quoted.
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. The
Mineral Resources are inclusive of that
portion converted to Ore Reserves,
including stockpiles.
As at 30 June 2019, the total Mineral
Resource for the Chichester and
Solomon Hubs and Eliwana was
6,175mt at an average Fe grade of
56.3%, an increase over that stated in
the prior year. This was accompanied
by an increase in the proportion
of higher confidence Measured
and Indicated Mineral Resource
mineralisation from 66 per cent to
69 per cent.
The Chichester Hub Mineral Resource
totalled 2,951mt at an average Fe
grade of 56.3%, with 80 per cent of
the tonnage in the Measured and
Indicated Mineral Resource categories.
The Solomon Hub Mineral Resource
totalled 2, 223mt at an average Fe
grade of 55.3%, with 69 per cent of
the tonnage in the Measured and
Indicated Mineral Resource categories.
The Eliwana Mineral Resource totalled
1,001mt at an average Fe grade of
58.6%, with 35 per cent of the tonnage
in the Measured and Indicated Mineral
Resource categories.
42
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Hematite Mineral Resources (Operating Properties) – as at 30 June 2019
June 2019
June 2018
In-Situ
Tonnes
(mt)
Iron
Fe
%
Silica
SiO2
%
Alumina
Al2O3
%
Phos
P
%
Loss On
Ignition
LOI
%
In-Situ
Tonnes
(mt)
Iron
Fe
%
Silica
SiO2
%
Alumina
Al2O3
%
Phos
P
%
Loss On
Ignition
LOI
%
Cloudbreak
Measured
Indicated
Inferred
Total
460
414
123
997
Christmas Creek
Measured
Indicated
Inferred
556
935
463
56.6
56.2
56.4
56.4
56.9
56.1
55.6
Total
1,954
56.2
Sub-total Chichester Hub
Measured
1,016
Indicated
1,349
Inferred
586
56.8
56.1
55.8
Total
2,951
56.3
Firetail
Measured
Indicated
Inferred
Total
14
195
110
319
Kings and Queens
Measured
183
Indicated
1,137
Inferred
585
57.9
58.1
56.1
57.4
54.8
55.1
54.6
5.69
6.66
6.31
6.17
6.28
6.59
6.90
6.57
6.01
6.61
6.77
6.44
6.28
6.86
8.02
7.23
7.48
8.25
8.71
3.44
3.43
3.60
0.058
0.060
0.054
3.45
0.058
3.13
3.70
3.80
0.047
0.051
0.055
3.56
0.051
3.27
3.62
3.75
0.052
0.054
0.055
3.53
0.053
3.34
2.67
3.74
0.121
0.119
0.106
3.07
0.115
3.31
3.34
3.72
0.086
0.079
0.079
Total
1,905
54.9
8.32
3.44
0.080
Sub-total Solomon Hub
Measured
197
Indicated
1,331
Inferred
694
55.1
55.5
54.9
7.39
8.05
8.60
3.15
3.25
3.72
0.089
0.085
0.083
Total
2,223
55.3
8.16
3.39
0.085
Eliwana
Measured
Indicated
Inferred
229
122
650
60.0
58.4
58.1
Total
1,001
58.6
4.89
5.44
5.76
5.52
2.61
2.77
3.40
0.141
0.096
0.102
3.14
0.110
Total Hematite Operational Mineral Resources
Measured
1,442
Indicated
2,802
Inferred
1,930
57.0
55.9
56.2
Total
6,175
56.3
Notes in reference to table
6.02
7.24
7.09
6.91
3.15
3.40
3.62
0.071
0.071
0.081
3.41
0.074
8.6
8.0
7.7
8.3
7.9
7.9
7.9
7.9
8.2
7.9
7.8
8.0
6.9
6.8
7.4
7.0
10.4
9.0
8.7
9.0
10.1
8.7
8.5
8.7
5.8
7.2
7.0
6.7
8.1
8.2
7.8
8.1
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
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
2,051
55.5
229
113
668
1,010
1,383
2,634
2,105
60.0
58.5
58.4
58.8
57.1
56.0
56.5
6,122
56.4
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
7.84
4.89
5.40
5.70
5.48
5.98
7.05
6.90
6.76
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
3.34
0.082
2.61
2.81
3.21
3.03
3.14
3.47
3.45
0.141
0.098
0.107
0.114
0.071
0.066
0.083
3.39
0.073
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
• Chichester Hub Mineral Resources are quoted at a cut-off of 53.5% Fe, Solomon Hub and Eliwana Mineral Resources are quoted at a cut-off grade
of 51.5% Fe.
• Fortescue is yet to remodel BCI Mineral Resources.
• The Measured Mineral Resource estimate includes mine stockpiles totalling approximately 28mt.
• Tonnage information has been rounded and as a result the figures may not add up to the totals quoted.
43
ORE RESERVES AND MINERAL RESOURCES 03FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Mineral Resources Development Properties – Hematite
Fortescue has announced a 405mt
addition to the Greater Western
Hub Mineral Resource, and a 384mt
addition to the Pilbara Other Mineral
Resource as a result of exploration
drilling. This includes increases to
the existing Flying Fish, Cobra and
Elevation deposits and the addition of
the Fig Tree and Wonmunna deposits.
2019 that includes the supporting
technical data.
This update to the development
properties is reported in accordance
with JORC 2012 as identified in the
Fortescue ASX release of 23 August
The Queens Extension deposit
previously included in Greater
Solomon has been transferred to
the operating properties.
Hematite Mineral Resources (Development Properties) – as at 30 June 2019
June 2019
June 2018
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 Hub
-
-
7.10
7.10
-
6.70
6.96
6.93
-
-
-
-
-
-
3.77
3.77
0.058
0.058
-
3.45
3.74
-
0.083
0.081
3.71
0.082
-
-
-
-
Measured
Indicated
Inferred
Total
-
-
433
433
Greater Solomon Hub
-
-
56.4
56.4
-
56.6
56.8
-
254
2,325
2,580
56.8
Greater Western Hub
-
-
-
-
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
Nyidinghu
Measured
Indicated
2,047
2,047
57.2
57.2
5.79
5.79
2.86
2.86
0.083
0.083
23
580
59.6
58.1
57.2
3.56
4.52
5.00
2.21
2.95
3.36
0.139
0.148
0.147
Inferred
1,860
Total
2,463
57.4
4.88
3.25
0.147
Pilbara Other
Measured
Indicated
Inferred
Total
-
-
384
384
-
-
-
-
-
-
-
-
57.1
57.1
6.10
6.10
2.57
2.57
0.069
0.069
Total Development Mineral Resources
Measured
Indicated
23
834
Inferred
7,049
59.6
57.6
57.0
3.56
5.18
6.06
2.21
3.11
3.32
0.139
0.128
0.097
Total
7,907
57.1
5.97
3.30
0.100
Notes in reference to table
-
-
7.0
7.0
-
8.3
7.1
7.2
-
-
8.7
8.7
8.0
8.6
8.8
8.8
-
-
9.1
9.1
8.0
8.5
8.1
8.2
-
-
433
433
-
254
2,404
-
-
56.4
56.4
-
56.6
56.8
2,658
56.8
-
-
-
-
-
-
7.10
7.10
-
6.70
6.93
6.91
-
-
-
-
-
-
3.77
3.77
0.058
0.058
-
3.45
3.71
-
0.083
0.081
3.69
0.082
-
-
-
-
1,642
1,642
57.1
57.1
5.72
5.72
2.85
2.85
0.078
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
-
-
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
• The Greater Chichester Hub Mineral Resource includes the Investigator, White Knight and Mount Lewin deposits.
• The Greater Solomon Hub Mineral Resource includes the Serenity, Sheila Valley, Mount MacLeod, 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.
• The Pilbara Other Mineral Resource includes the Fig Tree and Wonmunna 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.
• Tonnage information has been rounded and as a result the figures may not add up to the totals quoted.
44
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Mineral Resources Operating Properties – Magnetite
A Mineral Resource update for
the North Star + Eastern Limb,
West Star and Glacier Valley deposits
(part of the Iron Bridge Project,
60.72 per cent Fortescue) was
completed by Snowden Mining
Industry Consultants in 2019.
The remodelling of the resource
has resulted in a downgrade of the
Indicated and Inferred Resources.
These changes result from the
following: a new geological
interpretation derived from mapping,
geophysics and assay data; improved
geological understanding leading
to improvements in estimation
methodology; changes to the Mineral
Resource classification which shifted
the Indicated and Inferred Mineral
Resource boundaries upwards so
that the revised classification better
constrains the Mineral Resources to
the current drilling and is consistent
with geological and geostatistical
confidence. Following external review
and re-estimation of the Iron Bridge
Mineral Resources, 2-3bt of material
(at 28–32% Fe, 39–43% SiO2 and
2–3% Al2O3, with an average mass
recovery of 20–24 per cent) has been
reclassified as an Exploration Target.
The potential quantity and grade of
the Exploration Target is conceptual in
nature and there has been insufficient
exploration to estimate a Mineral
Resource. It is uncertain if further
exploration will result in the estimation
of a Mineral Resource in this area.
Magnetite Mineral Resources – as at 30 June 2019
June 2019
June 2018
In-Situ
Tonnes
(mt)
DTR
mass
recovery
%
In-Situ
Iron Fe
%
In-Situ
Silica
SiO2
%
In-Situ
Alumina
Al2O3
%
In-Situ
Tonnes
(mt)
DTR
mass
recovery
%
North Star + Eastern Limb (60.72% Fortescue)
Measured
Indicated
Inferred
Total
109
825
2,217
3,150
25.0
24.5
24.2
24.3
Glacier Valley (60.72% Fortescue)
Measured
Indicated
Inferred
Total
-
191
1,480
1,671
-
23.7
20.3
20.6
West Star (60.72% Fortescue)
Measured
Indicated
Inferred
Total
-
-
627
627
-
-
20.6
20.6
Total Magnetite Mineral Resources
Measured
109
Indicated
Inferred
1,016
4,324
25.0
24.3
22.3
Total
5,448
22.7
Notes in reference to table
33.2
30.3
29.8
30.1
-
33.4
31.9
32.0
-
-
28.1
28.1
33.2
30.9
30.3
30.4
40.2
41.3
41.5
41.4
-
39.4
39.6
39.6
-
-
43.8
43.8
40.2
41.0
41.2
41.1
2.06
2.74
2.84
2.79
-
1.73
1.94
1.92
-
-
3.36
3.36
2.06
2.55
2.61
77
989
3,231
4,297
-
477
2,844
3,321
-
-
274
274
77
1,466
6,350
28.6
27.8
24.1
25.1
-
24.1
20.5
21.1
-
-
23.5
23.5
28.6
26.6
22.5
In-Situ
Iron Fe
%
32.4
31.1
29.6
In-Situ
Silica
SiO2
%
In-Situ
Alumina
Al2O3
%
39.44
40.48
41.80
1.91
2.28
2.88
30.0
41.46
2.73
-
32.4
30.7
30.9
-
-
-
39.33
40.69
40.50
-
-
-
1.74
2.19
2.13
-
-
28.3
28.3
43.43
43.43
3.43
3.43
32.4
31.5
30.0
39.44
40.11
41.38
1.91
2.11
2.60
2.59
7,892
23.3
30.3
41.12
2.50
• All magnetite Mineral Resources are reported above a 9 per cent Mass Recovery cut-off, based on David Tube Recovery (DTR) test work with a 53 micron grind
size.
• All Mineral Resources are reported on a dry-tonnage basis.
• Small discrepancies may occur due to rounding.
• Magnetite Mineral Resources are reported inclusive of Ore Reserves.
45
ORE RESERVES AND MINERAL RESOURCES 03FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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 Iron Bridge Magnetite Mineral
Resources and Exploration Target is
based on information compiled by
Mr John Graindorge, a full-time
employee of Snowden Mining Industry
Consultants Pty Ltd. Mr Graindorge
provided technical input for Mineral
Resource estimations.
Estimated Ore Reserves for the
Chichester and Solomon Hubs and
Eliwana deposit for fiscal year 2019
were compiled by Mr Chris Fowers,
Mr Martin Slavik and Mr Jamie Davies
(in-training); full-time employees of
Fortescue.
Estimated Magnetite Ore Reserves
for the Iron Bridge project for fiscal
year 2019 were compiled by Mr Martin
Slavik and Mr Mudit Tandon
(in-training); full-time employees
of Fortescue.
Mr Robinson is a Fellow of, and Mr
Nitschke, Ms Retz, Mr Frost-Barnes,
Mr Slavik, Mr Fowers, Mr Davies and
Mr Graindorge are Members of the
Australasian Institute of Mining and
Metallurgy. Mr Graindorge is also a
Chartered Professional (Geology).
Mr Robinson, Mr Nitschke, Ms Retz,
Mr Frost-Barnes, Mr Slavik, Mr Fowers
and Mr Graindorge each 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 Fowers
and Mr Graindorge consent to the
inclusion in this report of the matters
based on this information in the form
and context in which it appears.
46
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 04
Corporate
Social
Responsibility
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
47
47
CORPORATE SOCIAL RESPONSIBILITY 04FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 The
year
at a
glance
48
48
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Recordable Injury
Frequency Rate
2.8 Total
15.1Aboriginal employment rate across Pilbara operations
25.5
13.1billion
2.3 billion
Female employment in senior management roles
Total global economic contribution
Contracts to Aboriginal businesses and joint ventures
US$
A$
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
49
49
CORPORATE SOCIAL RESPONSIBILITY 04FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Empowerment of employees
and communities is at the heart
of Fortescue’s approach to CSR
Targets
Opportunities
and objectives
Fortescue’s
policies
Voluntary
commitments
and principles
Code of Conduct
and Integrity
Vision and Values
50
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Approach to
Corporate Social Responsibility
Fortescue is committed to playing its role as the world strives to
meet the United Nations Sustainable Development Goals.
Fortescue strives to ensure that
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, a strong focus on
corporate social responsibility (CSR)
must be integrated into all aspects of
its business.
Fortescue’s Values form the foundation
of the Company’s approach to CSR;
setting the ethical and moral compass
by which the business operates.
The Value of empowerment of
employees and communities is at the
heart of Fortescue’s approach to CSR.
Empowerment encourages people to:
• Strive to be the best
• Find innovative solutions to business
and societal challenges
• 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 Board approved 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
which leads to the development
and implementation of policies,
opportunities and objectives.
These inform the application of
specific business unit targets,
processes and plans.
United Nations Sustainable
Development Goals
On 25 September 2015, the United
Nations adopted the Sustainable
Development Goals (SDGs) setting
the 2030 global agenda for
sustainable development. The SDGs
are a call for global action through
national governments to end poverty,
protect the planet and ensure that
all people are able to enjoy peace
and prosperity.
Fortescue is committed to working
with its host governments as they
strive to meet these goals. Fortescue’s
approach to CSR aligns with the SDGs.
Fortescue's CSR Report FY19
demonstrates how the Company’s
CSR targets, set against identified
material issues, are contributing
towards the achievement of SDGs.
51
CORPORATE SOCIAL RESPONSIBILITY 04FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Material issues
The Corporate Social Responsibility Report covers the material
issues associated with Fortescue’s operations.
Material issues are those that may have a material bearing on Fortescue's ability to achieve its goals. These issues
are identified via an annual assessment process that considers risks and opportunities and internal and external
stakeholder views.
The assessment is undertaken through a cycle of research, identification, prioritisation, validation and review.
During FY19, the assessment
considered the following:
• Company CSR initiatives
• Corporate risk assessments
• Company policies, standards
and guidelines
• Outcomes of internal and external
engagement with stakeholders
• Media and investor interest
and feedback
• Government/regulator interest
and feedback
• Material issues identified by peers
Based on this assessment, the following
were determined to be Fortescue’s
most material issues:
• Employee health and safety
• Economic contribution
(including taxes)
• Creating employment
and business opportunities
for Aboriginal people
• Workforce diversity
• Business conduct
• Climate change action
and disclosure
and sustainability leaders
• Building sustainable communities
• Benchmarking and environmental,
social and governance assessments.
• Protecting biodiversity
and water resources
Priorities were informed by formal
internal and external engagement
which included focussed workshops
with Fortescue employees and a
wide range of external stakeholders.
Materiality was validated by subject
leaders and the Executive Team.
• Protecting Aboriginal heritage
• Tailings management
• Human Rights including the
eradication of modern slavery.
Fortescue’s approach to climate change is outlined on page 56 of this report
and within the FY19 Corporate Social Responsibility report available on the
Company’s website at www.fmgl.com.au
Research
Research
1
Identification
2
Prioritisation
3
Validation
4
Review
5
52
52
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
C
O
R
P
O
R
A
T
E
S
O
C
A
L
R
E
S
P
O
N
S
I
I
B
I
L
I
T
Y
04
Fortescue’s commitments, targets and
performance against each material issue are
reported against three core pillars
Setting
high
standards
Safeguarding
the
environment
Creating
positive
social change
• Employee health and safety
• Economic contribution (including taxes)
• Workforce diversity
• Protecting Aboriginal heritage
• Business conduct.
• Climate change action and disclosure
• Protecting biodiversity and water resources
• Tailings management.
• Creating employment and business
opportunities for Aboriginal people
• Building sustainable communities
• Human rights including the eradication
of modern slavery.
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
53
53
CORPORATE SOCIAL RESPONSIBILITY 04FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
05
Corporate
Governance
54
54
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 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
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 4th Edition of the ASX Corporate
Governance Council Principles and
Recommendations (Principles and
Recommendations). Unless otherwise
disclosed, Fortescue has adopted the
revised requirements of the Principles
and Recommendations.
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
employees 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 authorise the right people
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
STAKEHOLDERS
GOVERNMENT
AND
REGULATORS
BUSINESS
PARTNERS AND
INVESTORS
SHAREHOLDERS
EMPLOYEES
COMMUNITY
BOARD
MANAGEMENT RESPONSIBILITY
Audit and Risk
Management Committee
Remuneration and
People Committee
Finance Committee
Nomination 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
55
CORPORATE GOVERNANCE 05FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
06
Fortescue’s
response to
climate change
56
56
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Approach to
climate change
Fortescue strives
to create value
for its shareholders
and communities
and is committed
to contributing
to global efforts
to combat
climate change.
TCFD recommendations
Fortescue supports the
recommendations of the Task
Force on Climate-related Financial
Disclosures (TCFD), recognising that
TCFD-aligned climate risk disclosures
provide the transparency, consistency
and detail required by the Company’s
stakeholders to assess performance in
this area.
The Company’s climate related
reporting aligns with the TCFD
recommendations which focus on
the four key elements below.
Fortescue’s commitment
Fortescue is committed to contributing
to global efforts to combat climate
change. The Company 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 well below 2oC
above pre-industrial levels.
Fortescue also supports Australia's
commitment to reduce emissions by
26-28 per cent from 2005 levels by 2030
and the UN Framework Convention on
Climate Change which mandates that
individual nations take responsibility for
emissions within their own borders.
Climate change is a complex and
challenging issue and successful
mitigation will require a coordinated
approach between government,
business and the community.
Collaboration will be critical in ensuring
that policy frameworks are able to deliver
mitigation outcomes that support
the Paris Agreement objectives while
incentivising innovation and supporting
economic stability and growth.
Strategy
Governance
Metrics and targets
Risk management
Disclose the actual and
potential impacts of
climate-related risks and
opportunities on the
organisation’s business
strategy, and financial
planning where such
information is material.
Disclose the organisation’s
governance around
climate-related risks and
opportunities.
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material.
Disclose how the
organisation identifies,
assesses and manages,
climate-related risks.
57
FORTESCUE’S RESPONSE TO CLIMATE CHANGE 06FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Strategy
The Company’s climate change strategy
focuses on implementing innovative
and practical initiatives to reduce
emissions and manage climate-related
risks. The strategy comprises four
key elements:
Material climate related risks
and opportunities
Transitional risks
• Policy and regulatory changes
• Reduced product demand
• Reputational damage.
• Building resilience
• Reducing emissions
• Maximising opportunities
• Stakeholder engagement.
The implementation of this strategy is
supported by the Board and driven by
the management team with input from
all areas of the business.
Risk management
The evaluation of climate change
risks and opportunities is integrated
into Fortescue’s company-wide risk
management process. Fortescue’s
Risk Management Framework (FRMF)
ensures a consistent approach to
the recognition, measurement and
evaluation of all risks and opportunities,
including climate change.
Fortescue has a well developed process
for the identification, assessment,
and management of risk. Primary
responsibility for this process lies with
management, with oversight provided
by the ARMC and the Board. Regular
reporting is provided to the ARMC on
management’s progress.
Physical risks
• Increased severity of extreme
weather events
• Changes in precipitation patterns
• Rising sea levels.
FY19 performance
In FY19, Fortescue emitted 1.85 million
tonnes of CO2e. Since FY15, GHG
emissions intensity across operations
has reduced by 10.9 per cent and
the emissions intensity in electricity
generation has reduced by 17 per cent.
Emissions intensity in energy
consumption during FY19 was
319.6 t CO2e/mt.km, a reduction of
8.1 per cent since FY17.
Total emissions generated in FY19 are
approximately 10 per cent higher than
FY18. This increase is mainly as a result
of expanding operations, including
the commencement of early works at
the Eliwana mine development, and
additional diesel use associated with
increased haulage distances due to the
long and shallow nature of Fortescue’s
ore body at the Chichester and
Solomon Hubs.
Fortescue’s full disclosure on climate
change is provided within the
Company’s CSR report, which is
available at www.fmgl.com.au
58
58
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 07
Financial
Report
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
59
59
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Directors’ Report
At 30 June 2019
Directors
The Directors of the Company in office during the year and until the date of this
report, their qualifications, experience and directorships held in listed companies
at any time during the last three years, are set out on pages 10 to 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 2019 and the
number of meetings attended by each Director are shown in section 2.3 of the
Corporate Governance Statement1.
The relevant interests of each Director in the shares and 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
J Baderschneider
Z Cao
P Bingham-Hall
J Morris OAM
S Coe CH, KBE
Ordinary shares
Share rights
1,090,052,947
20,000
50,750
389,375
138,000
-
40,936
11,519
-
-
-
-
1,220,200
-
-
-
-
-
1 Corporate Governance Statement is available on Fortescue’s website at www.fmgl.com.au
The remuneration of Directors and Key Management Personnel are detailed in the
Remuneration Report on pages 111 to 144.
Directors'
Report
At 30 June 2019
Your Directors
present their report
on the Fortescue
consolidated group,
comprising the
Company and its
controlled entities,
for the year ended
30 June 2019.
60
60
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Directors’ Report
At 30 June 2019
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 FY19.
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 17, Operating and Financial Review on pages 18 to 38 and Corporate Governance Statement1 section 4
Risk Management.
Dividends
Profit
Net profit after tax
Declared and paid during the year:
Final ordinary dividend for the year ended 30 June 2018 – paid in October 2018
Interim ordinary dividend for the year ended 30 June 2019 – paid in March 2019
Interim special dividend for the year ended 30 June 2019 – paid in March 2019
Accelerated final dividend for the year ended 30 June 2019 – paid in June 2019
Declared since the end of the financial year:
Final ordinary dividend for the year ended 30 June 2019 – to be paid in October 2019
2019
US$m
3,187
A$ cents
12
19
11
60
102
24
Environmental regulation and compliance
Fortescue is committed to minimising the environmental impacts of its operations, with an appropriate focus placed on
continuous monitoring of environmental matters and compliance with environmental regulations.
The details of Fortescue’s environmental performance including compliance with the relevant environmental legislation are
presented in Fortescue’s Corporate Social Responsibility Report2.
Greenhouse gas emissions and energy
Fortescue complies with the Australian Government’s National Greenhouse and Energy Reporting Act 2007 (Cth) and recognises
its responsibility to actively improve energy use and minimise greenhouse gas emissions to reduce its contribution to climate
change and impact on the environment.
The details of Greenhouse Gas emissions and energy strategy, compliance and reporting are presented in Fortescue’s
Corporate Social Responsibility Report2.
Shares under option
As at the date of this report, there were no unissued ordinary shares under options, nor were there any ordinary shares issued
during the year ended 30 June 2019 as a result of the exercise of options.
Company Secretary
Cameron Wilson and Alison Terry are Company Secretaries of Fortescue. Details of their qualifications and experience are set
out on pages 13 and 17 of this report.
1 Corporate Governance Statement is available on Fortescue’s website at www.fmgl.com.au
2 Corporate Social Responsibility Report is available on Fortescue’s website at www.fmgl.com.au
61
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Directors’ Report
At 30 June 2019
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 63 and forms
part of this report.
Future developments
The Overview section set out on
pages 3 to 17 and the Operating
and Financial Review section set out
on pages 18 to 38 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 26 August 2019, the Directors
declared a final dividend of 24
Australian cents per ordinary share
payable in October 2019.
This report has been made in accordance
with a resolution of the Directors.
Andrew Forrest AO
Chairman
Dated in Perth this 26th day
of August 2019.
62
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Auditor’s independence declaration
As lead auditor for the audit of Fortescue Metals Group Ltd for the year ended 30 June 2019, 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
26 August 2019
63
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Independent
auditor’s
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 2019
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 2019
• 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.
64
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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$147 million, which represents approximately 5% of the
three year average profit before tax of the Group for the current and two previous years
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature,
timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole
• We chose Group profit before tax because, in our view, it is the benchmark against which the performance of the Group is
most commonly measured. We applied a three year average to address potential volatility in the calculation of materiality
that arises from iron ore price fluctuations between years
• We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable
thresholds.
Audit scope
• Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates
involving assumptions and inherently uncertain future events
• The primary activity of the Group is the operation of integrated iron ore mining operations and infrastructure comprising
various iron ore mines in the Chichester and Hamersley ranges, a rail network and port facilities in Port Hedland. Our audit
procedures were predominately performed in Perth where many of the Corporate and Group Operations functions are
centralised and this was supported by visits to the mining operations at Solomon, Cloudbreak and Christmas Creek, the port
and rail facilities at Port Hedland and the Iron Bridge magnetite project.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial report for the current period. The key audit matters were addressed in the context of our audit of the financial
report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further,
any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit
matters to the Audit and Risk Management Committee.
65
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Independent auditors’ report
Key audit matter
How our audit addressed the key audit matter
Revenue from provisional pricing adjustments - sale of iron ore and shipping revenue (Refer to note 3 and 24(f))
We performed the following audit procedures, amongst
others, over the provisional pricing adjustments to the sale
of iron ore and shipping revenue:
• 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 a sample of sales contracts with provisional pricing
adjustments recorded in the current year, we recalculated
the recorded provisional pricing adjustments to revenue
and final value of revenue recognised. We found them to
be consistent with relevant external price indices and cash
settlements
• Evaluated the Group’s assessment of the adoption of
AASB 9 Financial Instruments and AASB 15 Revenue from
Contracts with Customers and implementation of the new
revenue disclosures.
The Group's sales contracts, which also include shipping
services, may provide for provisional pricing of sales at
the time the product is delivered to the vessel with final
pricing determined using the relevant price indices on or
after the vessel’s arrival to the port of discharge.
For the year ended 30 June 2019 the Group recognised
revenue of US$1,087 million from provisional pricing
adjustments to iron ore revenue and US$37 million from
provisional pricing adjustments to shipping revenue.
Provisional pricing adjustments represent any difference
between the revenue recognised at the bill of lading and the
final settlement price.
This was a key audit matter as these provisional pricing
adjustments represent a significant balance within the
consolidated income statement. Also, for sales where final
settlement price is yet to be determined, the value of this
revenue is adjusted by considering tonnes subject to price
finalisation at the end of the period and applying the closing
spot rate.
The Group adopted Australian Accounting Standards
AASB 15 Revenue from Contracts with Customers and AASB
9 Financial Instruments as at 1 July 2018, as disclosed
in note 23(x). These accounting standards clarify the
recognition and disclosure requirements in relation to
provisional pricing adjustments.
Carrying value of exploration and evaluation assets (Refer to note 12 and 24(b))
At 30 June 2019 the Group recognised exploration
and evaluation (E&E) assets totalling US$539 million.
This was a key audit matter as the continued recognition
as an asset requires judgement by the Group about
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
accounting policy is that the relevant capitalised amount
will be written off as an impairment expense to the
income statement.
The majority of the Group’s capitalised E&E assets
relate to exploration costs incurred on its wholly owned
Pilbara regional exploration tenements. During the period,
the E&E asset relating to the Group's 69% interest in the
Iron Bridge Joint Venture (IBJV) has been reclassified to
assets under development as a result of approval of the
Stage 2 development.
The Group performed an impairment trigger assessment
upon reclassification of the E&E assets relating to the
IBJV Project and determined that no impairment trigger
indicators were identified.
To assess the carrying value of the Group’s E&E assets, we
performed the following procedures, amongst others:
• We assessed whether the Group had rights of tenure to
its E&E 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.
To assess the impairment triggers assessment of the IBJV
Project upon reclassification to assets under development,
we performed the following procedures, amongst others:
• We evaluated whether any indicators of impairment
existed for the IBJV Project immediately prior to
reclassification to assets under development.
• We considered whether the Group’s calculation of the
expected net present value of the IBJV project exceeded
the current carrying value of the capitalised asset.
• We considered the appropriateness of the continued
capitalisation of Stage 1 costs incurred as part of the
project evaluation.
• Subsequent to reclassification, we considered whether
the Group’s CGU impairment assessment included the IBJV
Project as required by Australian Accounting Standards.
66
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 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$706 million as at
30 June 2019.
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 rates 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.
To assess the Group’s restoration and rehabilitation
obligations, we performed the following audit procedures,
amongst others:
• 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
annual report for the year ended 30 June 2019, 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 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 on the other information that we obtained prior to the date of this auditor’s report,
we conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing
Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards
Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report.
67
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Independent auditors’ report
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 117 to 144 of the Directors’ report for the year ended 30 June 2019.
In our opinion, the remuneration report of Fortescue Metals Group Ltd for the year ended 30 June 2019 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
26 August 2019
68
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 70 to 110 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 2019 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 declaration 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 26th day of August 2019.
Directors’
declaration
Andrew Forrest AO
Chairman
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
69
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Consolidated income statement
For the year ended 30 June 2019
Operating sales revenue
Cost of sales
Gross profit
Other income
Other expenses
Profit before income tax and net finance expenses
Finance income
Finance expenses
Profit before income tax
Income tax expense
Profit for the year after income tax
Profit for the year is attributable to:
Equity holders of the Company
Non-controlling interest
Profit for the year after income tax
Earnings per share attributable to the ordinary
equity holders of the Company:
Basic earnings per share
Diluted earnings per share
Note
3
5
4
6
7
7
14
Note
8
8
2019
US$m
9,965
(5,115)
4,850
110
(138)
4,822
26
(279)
4,569
(1,382)
3,187
3,187
-
3,187
Cents
103.1
102.9
2018
US$m
6,887
(4,930)
1,957
30
(114)
1,873
24
(652)
1,245
(367)
878
879
(1)
878
Cents
28.2
28.1
Consolidated statement of comprehensive income
For the year ended 30 June 2019
Profit for the year after income tax
Other comprehensive income:
Gain on investments taken to equity
Exchange differences on translation of foreign operations
Total comprehensive income, net of tax
Total comprehensive income for the year is attributable to:
Equity holders of the Company
Non-controlling interest
Total comprehensive income, net of tax
2019
US$m
3,187
-
1
3,188
3,188
-
3,188
2018
US$m
878
2
2
882
883
(1)
882
The above consolidated income statement and consolidated statement of comprehensive income should be read in
conjunction with the accompanying notes.
70
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Consolidated statement of financial position
At 30 June 2019
Note
9(b)
10(a)
10(c)
14(c)
10(a)
12
10(b)
10(d)
9(a)
13
17(c)
14(c)
10(b)
10(d)
9(a)
13
17(c)
14(d)
9(d)
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Current tax receivable
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Deferred income
Borrowings and finance lease liabilities
Provisions
Deferred joint venture contributions
Current tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred income
Borrowings and finance lease liabilities
Provisions
Deferred joint venture contributions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
2019
US$m
2018
US$m
1,874
923
772
43
-
3,612
2
16,071
6
3
16,082
19,694
986
486
86
208
118
762
2,646
50
-
3,866
688
155
1,688
6,447
9,093
10,601
1,181
42
9,365
10,588
13
10,601
863
120
496
92
79
1,650
3
16,189
4
3
16,199
17,849
678
267
97
197
-
-
1,239
50
528
3,878
546
270
1,606
6,878
8,117
9,732
1,287
46
8,386
9,719
13
9,732
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
71
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Consolidated statement of cash flows
For the year ended 30 June 2019
Cash flows from operating activities
Cash receipts from customers
Payments to suppliers and employees
Cash generated from operations
Interest received
Interest paid
Income tax paid
Note
2019
US$m
8,853
(3,874)
4,979
24
(254)
(376)
Net cash inflow from operating activities
9(c)(i)
4,373
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
Sale / (acquisition) of investment
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 under share buy-back program
Purchase of shares by employee share trust
Net cash outflow from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effects of exchange rate changes on cash and cash equivalents
(1,040)
(8)
3
5
57
(983)
56
(85)
(14)
(2,220)
(101)
(28)
(2,392)
998
863
13
Cash and cash equivalents at the end of the year
9(b)
1,874
There were no non-cash investing and financing activities during the year (2018: Nil).
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
2018
US$m
6,718
(3,687)
3,031
24
(392)
(1,062)
1,601
(890)
(11)
4
16
(55)
(936)
2,071
(2,545)
(254)
(874)
-
(24)
(1,626)
(961)
1,838
(14)
863
72
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Consolidated statement of changes in equity
For the year ended 30 June 2019
Attributable to equity holders of the Company
Balance at 1 July 2017
Net profit after tax
Other comprehensive income
Total comprehensive income for the period,
net of tax
Transactions with owners:
Purchase of shares under employee share plans
Employee share awards vested
Equity settled share-based payment transactions
Dividends declared
Balance at 30 June 2018
Adjustment on adoption of AASB 151
Restated total equity at 1 July 2018
Net profit after tax
Other comprehensive income
Total comprehensive income for the period,
net of tax
Transactions with owners:
Purchase of shares under employee share plans
Employee share awards vested
Equity settled share-based payment transactions
Share buy-back
Dividends declared
Other
Balance at 30 June 2019
Contributed
equity
US$m
Reserves
US$m
Retained
earnings
US$m
1,289
39
8,392
Total
US$m
9,720
879
4
883
(24)
11
14
879
-
879
-
-
-
(885)
(885)
8,386
9,719
(2)
(2)
8,384
3,187
-
9,717
3,187
1
3,187
3,188
-
-
-
-
(28)
(1)
21
(101)
(2,205)
(2,205)
(1)
(3)
Non-con-
trolling
interest
US$m
14
(1)
-
(1)
-
-
-
-
13
-
13
-
-
-
-
-
-
-
-
-
Total
equity
US$m
9,734
878
4
882
(24)
11
14
(885)
9,732
(2)
9,730
3,187
1
3,188
(28)
(1)
21
(101)
(2,205)
(3)
9,365
10,588
13
10,601
-
-
-
(24)
22
-
-
1,287
-
1,287
-
-
-
(28)
23
-
(101)
-
-
1,181
-
4
4
-
(11)
14
-
46
-
46
-
1
1
-
(24)
21
-
-
(2)
42
1 See note 23(x) for details regarding the restatement as a result of the adoption of AASB 15 Revenue from Contracts with Customers.
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
73
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Basis of preparation
01 Basis of preparation
Financial performance
02 Segment information
03 Operating sales revenue
04 Other income
05 Cost of sales
06 Other expenses
07 Finance income and finance expenses
08 Earnings per share
Capital management
09 Capital management
9(a) Borrowings and finance lease liabilities
9(b) Cash and cash equivalents
9(c) Cash flow information
9(d) Contributed equity
9(e) Dividends
10 Working capital
10(a) Trade and other receivables
10(b) Trade and other payables
10(c) Inventories
10(d) Deferred income
11 Financial risk management
75
76
77
77
77
78
78
78
79
79
82
82
83
84
84
84
85
85
85
86
Key balance sheet items
12 Property, plant and equipment
13 Provisions
Taxation
14 Taxation
14(a) Income tax expense
14(b) Prima facie income tax expense
reconciliation
14(c)
Reconciliation of income tax expense
to current tax payable/ (receivable)
14(d) Deferred tax assets and liabilities
14(e) Unrecognised tax losses
Unrecognised items
15 Commitments and contingencies
16 Events occurring after the reporting period
Other
17 Related party transactions
18 Share-based payments
19 Remuneration of auditors
20 Deed of cross guarantee
21 Parent entity financial information
22 Interests in other entities
89
90
91
91
91
92
92
93
94
94
95
95
97
97
98
99
23 Summary of significant accounting policies
24 Critical accounting estimates and judgements
100
109
74
74
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Basis of preparation
01 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. The Company is a for-profit company limited by shares and
incorporated in Australia, whose shares are publicly traded on the Australian Stock Exchange.
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
• Revenue.
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.
75
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Financial performance
02 Segment information
Fortescue’s chief operating decision maker is identified as the Core Leadership Team (CLT) which comprises the Chief
Executive Officer, Deputy Chief Executive Officer, Chief Financial Officer and Chief Operating Officer. The CLT 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
2019
US$m
6,047
26
(279)
(1,196)
(29)
4,569
(1,382)
3,187
2018
US$m
3,182
24
(652)
(1,277)
(32)
1,245
(367)
878
Fortescue operates predominantly in the geographical location of Australia, and this is the location of the vast majority
of the Group’s assets. In presenting information on the basis of geographical segments, segment revenue is based on the
geographical location of customers.
Revenues from external customers
China
Other
2019
US$m
9,260
705
9,965
2018
US$m
6,211
676
6,887
(b) Major customer information
Revenue from two customers amounted to US$1,753 million and US$1,451 million respectively (2018: US$2,753 million
and US$988 million), arising from the sale of iron ore and the related shipment of product.
76
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Financial performance
03 Operating sales revenue
Iron ore revenue
Provisional pricing adjustments - iron ore
Total iron ore revenue
Shipping revenue
Provisional pricing adjustments - shipping revenue
Total shipping revenue
Other revenue
2019
US$m
7,699
1,087
8,786
1,140
37
1,177
2
9,965
2018
US$m
6,775
-
6,775
-
-
-
112
6,887
Certain sales contracts are provisionally priced at the initial revenue recognition (bill of lading) date, with the final settlement
price based on a pre-determined quotation period. Operating sales revenue from these contracts each comprise two parts:
(i)
Iron ore revenue and shipping revenue recognised at the bill of lading date at current prices; and
(ii)
Provisional pricing adjustments which represent any difference between the revenue recognised at the bill of lading
date and the final settlement price.
The change in accounting policy and the impact of adoption of AASB 15 Revenue from Contracts with Customers is disclosed
in note 23(d) and note 23(x) respectively. In accordance with the transition provisions in the standard, the Group has adopted
AASB 15 using the cumulative effect method. Under this approach, comparatives are not restated. Instead, the cumulative
effect of adopting the new standard is recognised in the opening balance of retained earnings in the current reporting period.
The new standard is only applied to contracts that remain in force as at the date of adoption.
04 Other income
Net foreign exchange gain
Other
05 Cost of sales
Mining and processing costs
Rail costs
Port costs
Shipping costs
Government royalty
Depreciation and amortisation
Other operating expenses
2019
US$m
110
-
110
2019
US$m
1,829
190
176
1,082
651
1,184
3
5,115
2018
US$m
29
1
30
2018
US$m
1,739
188
172
1,148
416
1,265
2
4,930
Total employee benefits expense included in cost of sales and administration expenses is US$673 million (2018: US$601million).
77
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Financial performance
06 Other expenses
Administration expenses
Exploration, development and other
Depreciation and amortisation
Other
07 Finance income and finance expenses
Finance income
Interest income
Finance expenses
Interest expense on borrowings and finance lease liabilities
Cost of early debt repayment
Interest on prepayment
Other
08 Earnings per share
(a) Earnings per share
Basic
Diluted
(b) Reconciliation of earnings used in calculating earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating basic and diluted earnings per share
2019
US$m
95
29
12
2
138
2019
US$m
26
26
218
-
32
29
279
2019
cents
103.1
102.9
US$m
3,187
2018
US$m
70
32
12
-
114
2018
US$m
24
24
340
289
-
23
652
2018
cents
28.2
28.1
US$m
879
(c) Weighted average number of shares used as denominator
Number
Number
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share
3,090,462,322
3,112,150,439
Adjustments for calculation of diluted earnings per share:
Potential ordinary shares
8,142,063
10,886,842
Weighted average number of ordinary and potential ordinary shares used
as the denominator in calculating diluted earnings per share
3,098,604,385
3,123,037,281
(d) Information on the classification of securities
Share rights granted to employees under the Fortescue incentive plan are considered to be potential ordinary shares
and have been included in the determination of diluted earnings per share to the extent to which they are dilutive.
Details relating to the share rights are set out in note 18.
78
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
09 Capital management
Fortescue’s capital management policy supports its strategic objectives and provides a framework to maintain
a strong capital structure to deliver consistent returns to its shareholders and sustain future developments and
expansion of the business.
Fortescue’s capital includes shareholders’ equity, reserves and net debt. Net debt is defined as a combination of cash
and cash equivalents, borrowings and finance lease liabilities.
Borrowings
Finance lease liabilities
Cash and cash equivalents
Net debt
Equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Capital management involves a continuous process of:
Note
9(a)
9(a)
9(b)
2019
US$m
3,379
573
(1,874)
2,078
10,588
13
10,601
2018
US$m
3,380
595
(863)
3,112
9,719
13
9,732
• Evaluating capital requirements against the risks arising from Fortescue’s activities and its operating environment
• Raising, refinancing and repaying debt
• Development, maintenance and implementation of the dividend policy, including the dividend reinvestment plan.
To achieve its primary capital management objective of maintaining a strong capital structure, Fortescue has developed
target ranges for a number of financial indicators. These indicators include gearing, net gearing, debt to Underlying EBITDA
and interest coverage ratio, and are monitored together with a number of other financial and non-financial indicators.
Target ranges for the financial ratios vary upon the investment and commodity cycles. During periods of intensive
investment, for example expansion programs, or a commodity downturn, the capital management policy contemplates
interim ratio levels returning to a targeted longer term level. Interim levels acknowledge and consider the requirements,
in certain circumstances, for remedial actions to be taken.
(a) Borrowings and finance lease liabilities
Senior unsecured notes
Syndicated term loan
Finance lease liabilities
Total current borrowings and finance lease liabilities
Senior unsecured notes
Syndicated term loan
Finance lease liabilities
Total non-current borrowings and finance lease liabilities
Total borrowings and finance lease liabilities
2019
US$m
16
22
48
86
1,985
1,356
525
3,866
3,952
2018
US$m
16
18
63
97
1,981
1,365
532
3,878
3,975
79
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
09 Capital management (continued)
(a) Borrowings and finance lease liabilities
(i) Senior unsecured notes
During the year ended 30 June 2019 the Company had the following senior unsecured notes on issue:
Date of issue
Date of
maturity
Non-call
period
Face value
US$m
Carrying value
US$m
Coupon rate
Currency
March 2018
March 2023
May 2017
May 2017
May 2022
May 2024
5 years
5 years
7 years
500
750
750
504
749
748
5.125%
4.750%
5.125%
USD
USD
USD
2,000
2,001
Fortescue’s listed debt instruments 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 reporting period. Refer to note 11(d).
(ii) Syndicated term loan
The US$1,400 million syndicated term loan is due to mature in April 2022 and as at 30 June 2019 had a carrying value of
US$1,378 million (30 June 2018: US$1,383 million) with a coupon rate linked to LIBOR plus a fixed margin. The facility has
principal repayment of 1% per annum with early repayment of the facility at Fortescue’s option.
(iii) Finance lease liabilities
Finance lease liabilities largely relate to contractual commitments associated with ore carriers, Fortescue River Gas Pipeline
and heavy mobile fleet. In the event of default, the assets revert to the lessor.
Within one year
US$m
Between one year
and five years
US$m
After five years
US$m
30 June 2018
Lease expenditure commitments
Effect of discounting
Finance lease liabilities
30 June 2019
Lease expenditure commitments
Effect of discounting
Finance lease liabilities
107
(44)
63
96
(48)
48
310
(149)
161
312
(165)
147
583
(212)
371
593
(215)
378
Total
US$m
1,000
(405)
595
1,001
(428)
573
80
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
09 Capital management (continued)
(a) Borrowings and finance lease liabilities
(iv) Summary of movements in borrowings and finance lease liabilities
Senior
secured notes
US$m
Senior
unsecured notes
US$m
Syndicated
term loan
US$m
Finance
leases
US$m
Balance at 1 July 2017
Initial recognition
Interest expense
Interest and finance lease repayments
Transaction costs
Foreign exchange gain
Repayment
Balance at 30 June 2018
Initial recognition
Interest expense
Interest and finance lease repayments
Foreign exchange loss
Repayment
Balance at 30 June 2019
(v) Committed but undrawn credit facilities
2,163
-
180
(241)
58
-
(2,160)
-
-
-
-
-
-
-
1,490
500
85
(73)
(5)
-
-
1,997
-
105
(101)
-
-
-
1,400
20
(14)
(23)
-
-
1,383
-
72
(63)
-
(14)
818
171
55
(120)
-
(5)
(324)
595
51
50
(116)
(7)
-
Total
US$m
4,471
2,071
340
(448)
30
(5)
(2,484)
3,975
51
227
(280)
(7)
(14)
2,001
1,378
573
3,952
Revolving credit facility
On 1 October 2018, the Company increased the size of its revolving credit facility by US$500 million to US$1,025 million and
extended the maturity date by 12 months to July 2021. The revolving credit facility remained undrawn at 30 June 2019.
Information about Fortescue’s exposure to interest rate risk and foreign exchange rate risk is disclosed in note 11.
81
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
09 Capital management (continued)
(b) Cash and cash equivalents
Cash at bank
Short term deposits
2019
US$m
1,655
219
1,874
Cash and cash equivalents do not have any restrictions by contractual or legal arrangements.
(c) Cash flow information
(i) Reconciliation of profit after income 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
Cost of early debt repayment
Rehabilitation expenditure
Depreciation in inventory
Other non-cash items
Working capital adjustments:
Increase / (decrease) in payables
(Increase) / decrease in receivables
(Increase) / decrease in inventories
(Increase) / decrease in other assets
(Decrease) in deferred income
Increase / (decrease) in provisions
Increase / (decrease) in provision for income taxes payable
Increase in deferred tax liabilities
2019
US$m
3,187
1,196
29
21
(7)
-
(38)
90
(60)
308
(802)
(276)
(9)
(309)
38
923
82
2018
US$m
702
161
863
2018
US$m
878
1,277
32
14
(2)
289
(11)
(38)
(78)
(30)
21
92
9
(113)
(24)
(764)
49
Net cash inflow from operating activities
4,373
1,601
82
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
09 Capital management (continued)
(d) Contributed equity
(i) Share capital
Issued
shares
Number
Treasury
shares
Number
Contributed
equity
Number
At 1 July 2017
3,113,798,151
(2,458,921)
3,111,339,230
Purchase of shares under
employee share plans
Employee share
awards vested
At 30 June 2018
Purchase of shares under
employee share plans
Employee share awards
vested
Purchase of shares under
share buy-back program
-
-
(5,115,446)
(5,115,446)
6,346,506
6,346,506
3,113,798,151
(1,227,861)
3,112,570,290
1,296
-
-
(9,864,138)
(9,864,138)
9,581,318
9,581,318
-
-
(34,833,233)
-
(34,833,233)
(101)
Issued
shares
US$m
1,296
-
-
Treasury
shares
Contributed
equity
US$m
(7)
(24)
22
(9)
(28)
23
-
US$m
1,289
(24)
22
1,287
(28)
23
(101)
At 30 June 2019
3,078,964,918
(1,510,681)
3,077,454,237
1,195
(14)
1,181
(ii)
Issued shares
Issued shares are fully paid and entitle the holders to one vote per share and the rights to participate in dividends. Ordinary
shares participate in the proceeds on winding up of the Company in proportion to the number of shares held.
(iii) Treasury shares
Movements in treasury shares represent acquisition of the Company’s shares on market and allocation of shares to the
Company’s employees from the vesting of awards and exercise of rights under the employee share-based payment plans.
83
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
09 Capital management (continued)
(e) Dividends
(i) Dividends paid during the year
Final fully franked dividend for the year ended 30 June 2018: A$0.12 per share
(30 June 2017: A$0.25 per share)
Interim fully franked dividend for the half-year ended 31 December 2018:
A$0.19 per share (31 December 2017: A$0.11 per share)
Special interim fully franked dividend for the half-year ended 31 December
2018: A$0.11 per share (31 December 2017: nil)
Accelerated final fully franked dividend for the year ended 30 June 2019 of
A$0.60 per share (30 June 2018: nil)
(ii) Dividends declared and not recognised as a liability
Final fully franked dividend: A$0.24 per share (2018: A$0.12 per share)
(iii) Franking credits
Franking credit account balance at the end of the financial year at 30%
(2018: 30%)
Franking credits/(debits) that will arise from the payment/(receipt) of current
tax payable/(receivable) as at the end of the year
Franking debits that will arise from the payment of the final dividend for the year
10 Working capital
(a) Trade and other receivables
Trade debtors
GST receivables
Other receivables
Total current receivables
Other receivables
Total non-current receivables
84
2019
US$m
271
416
241
1,277
2,205
2019
US$m
519
2019
A$m
930
1,077
(317)
1,690
2019
US$m
882
14
27
923
2
2
2018
US$m
614
271
-
-
885
2018
US$m
271
2018
A$m
1,757
(108)
(160)
1,489
2018
US$m
89
13
18
120
3
3
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
10 Working capital (continued)
(a) Trade and other receivables
The Group applies the expected credit loss model prescribed by AASB 9 Financial Instruments to trade and other receivables.
A provision for doubtful receivables is established based on the expected credit loss model and reviewed on an ongoing
basis. Expected credit losses on trade and other receivables are insignificant and no provision has been recognised at
30 June 2019 (2018: Nil).
The carrying value of the receivables approximates their fair value. Information about Fortescue’s exposure to foreign
currency risk, interest rate risk and price risk pertaining to the trade and other receivables balances is disclosed in note 11.
Disclosures relating to receivables from related parties are set out in note 17.
(b) Trade and other payables
Trade payables
Other payables and accruals
Total current payables
Customer deposits
Total non-current payables
(c)
Inventories
Iron ore stockpiles
Warehouse stores and materials
Total current inventories
2019
US$m
315
671
986
50
50
2019
US$m
466
306
772
2018
US$m
272
406
678
50
50
2018
US$m
215
281
496
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 2019 amounted to US$3,379 million (2018: US$3,364 million). During the year,
inventory write-offs of US$9 million (2018: US$25 million) were recognised in relation to specific items of warehouse stores
and materials that were identified as obsolete.
(d) Deferred income
Iron ore prepayments - current
Iron ore prepayments - non-current
2019
US$m
486
-
2018
US$m
267
528
85
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
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 CLT.
Periodically, the CLT 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 commodity price risk, as its iron ore sales are predominantly subject to prevailing market
prices. Fortescue has limited ability to directly influence market prices of iron ore and manages the commodity price risk
through a focus on improving its cash margins and strengthening its 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 at 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 provisional pricing adjustments to
revenue. At 30 June 2019, Fortescue had 10.4 million tonnes of iron ore sales (2018: 31 million tonnes) that remained subject
to provisional pricing, with the final price to be determined in the following financial year. A 17 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$155 million
(2018: 10 per cent movement would have an impact on the Group’s profit of US$101 million), before the impact of taxation.
This analysis assumes all other factors, including the foreign currency exchange rates, are held constant.
(ii)
Interest rate risk
The Group’s interest rate risk arises from variable rates on the finance leases relating to the ore carriers and, to a lesser extent,
changes in rates applicable to the short term deposits forming part of cash and cash equivalents.
Fortescue’s policy is to reduce interest rate risk over the cash flows on its long term debt funding through the use of fixed rate
instruments whenever appropriate.
Fortescue’s variable rate financial assets and liabilities at the end of the financial year are summarised below:
Cash and cash equivalents
Finance leases
Syndicated term loan
Note
9(b)
9(a)
9(a)
2019
US$m
1,655
(387)
(1,378)
(110)
2018
US$m
863
(356)
(1,383)
(876)
Management analyses the Group’s interest rate exposure on a regular basis by simulating various scenarios which take into
consideration refinancing, renewal of existing positions, alternative financing options and hedging.
A change of 100 basis points in interest rates in variable instruments would have an impact on the Group’s profit of
US$35 million (2018: a change of 50 basis points would impact profit by US$13 million), before the impact of taxation.
This analysis assumes that all other factors remain constant, including foreign currency rates.
86
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
11 Financial risk management (continued)
(a) Market risk
(iii) Foreign currency exchange risk
Fortescue operates in Australia with a significant portion of its operating costs and capital expenditure incurred and paid in
Australian dollars, and as such, is exposed to the movements in the Australian dollar exchange rate.
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 or structured foreign currency option arrangements
(i.e. collars) to fix a portion of the Group’s Australian dollar exposure to within a Board approved range. The Group has not
applied hedge accounting to any of these contracts during the year. At 30 June 2019, the Group had option collars in place
for a total notional amount of US$200 million and a strike range between 0.67 and 0.70 USD:AUD exchange rate. All contracts
are set for maturity within three months of year end. There were no such contracts outstanding at 30 June 2018.
The carrying amounts of the financial assets and liabilities denominated in Australian dollars (expressed in US dollars),
are set out below:
Financial assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Total financial assets
Financial liabilities
Borrowings and finance lease liabilities
Trade and other payables
Total financial liabilities
2019
US$m
2018
US$m
697
28
4
729
129
814
943
260
21
62
343
142
518
660
A change of two per cent in the Australian dollar exchange rate would have a net impact on the Group’s profit of US$4 million
(2018: a change of 10 per cent would have an impact of US$36 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.
Contracts for sales allow for pricing mechanisms in which the price can be finalised over multiple periods. On this basis
the Group does not consider in the first instance that the ageing of receivables is an indicator of risk of default, rather an
indication of the contractual terms and conditions agreed within the sales contract.
At 30 June 2019, Fortescue had US$6 million (2018: US$5 million) of trade receivables which have not been settled within
the normal terms and conditions agreed with the customer. The Group applies the AASB 9 stage 1 expected credit losses
model which recognises an expected credit loss on initial recognition of trade receivables. To measure the expected credit
losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. These past
due receivables relate to a number of customers for whom there is no recent history of default. The Group assesses expected
credit losses by considering the risk of default modified for credit enhancements such as letters of credit obtained. On this
basis the resulting expected credit loss on trade receivables is not material.
Fortescue has not recognised any bad debt expense from trading counterparties in the years ended 30 June 2019 and 30 June 2018.
The exposure to the credit risk from cash and short-term deposits held in banks is managed by the Group's treasury
department and monitored by the CFO. Fortescue minimises the credit risks by holding funds with a range of financial
institutions with credit ratings approved by the Board.
87
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Capital management
11 Financial risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due.
Fortescue manages liquidity risk by maintaining adequate cash reserves and banking facilities, by continuously
monitoring actual and forecast cash flows and by matching the maturity profiles of its assets and liabilities.
The table below analyses Fortescue’s financial liabilities into relevant maturity groupings based on the period to the
contracted maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than
6 months
US$m
6 - 12
months
US$m
1 - 2
years
US$m
2 - 5
years
US$m
Over
5 years
US$m
Total
contractual
cash flows
US$m
Carrying
amount
US$m
30 June 2018
Non-interest bearing
Fixed rate
Variable rate
678
78
51
807
30 June 2019
Non-interest bearing
1,749
Fixed rate
Variable rate
75
58
1,882
-
90
65
155
-
71
72
143
-
148
115
263
-
156
129
285
50
1,615
1,602
3,267
50
2,265
1,557
3,872
-
1,042
335
1,377
-
220
373
593
728
2,973
2,168
5,869
1,799
2,787
2,189
6,775
728
2,236
1,739
4,703
1,798
2,187
1,765
5,750
Management monitors rolling forecasts of the Group’s cash and overall liquidity position on the basis of expected cash flows.
(d) Fair values
The carrying amounts and estimated fair values of all the Group’s financial instruments recognised in the financial statements
are materially the same, with the exception of Fortescue’s listed debt instruments. The 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 unsecured notes
2019
2018
Carrying value
Fair value
Carrying value
Fair value
US$m
2,001
US$m
2,071
US$m
1,997
US$m
1,924
The Group enters into derivative financial instruments (foreign currency options) with various counterparties, principally
financial institutions with investment-grade credit ratings. It also recognises trade receivables in relation to its provisionally
priced sales contracts at fair value. All derivatives and provisionally priced trade receivables are valued using valuation
techniques which employ the use of market observable inputs, such as foreign exchange spot and forward rates, yield curves
of the respective currencies, interest rate curves and forward rate curves of the underlying commodity. Accordingly, these
derivatives are classified as Level 2.
For all fair value measurements and disclosures, the Group uses the following levels to categorise the method used:
Level 1: the fair value is calculated using quoted prices in active markets for identical assets and liabilities.
Level 2: the fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (as prices) or indirectly (derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data. The Group does not have any financial
assets or liabilities in this category.
For financial instruments that are carried at fair value on a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period. There were no transfers between levels during the year.
88
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Key balance sheet items
12 Property, plant and equipment
Plant and
equipment
US$m
Land and
buildings
US$m
Note
Exploration
and
evaluation
US$m
Assets
under
development
US$m
Development
US$m
Total
US$m
Net carrying value
At 1 July 2017
Transfers of assets
Additions
Disposals
Depreciation
Changes in restoration and
rehabilitation estimate
13(a)
Other
At 30 June 2018
Cost
Accumulated depreciation
Net carrying value
At 1 July 2018
Transfers of assets
Additions
Disposals
Depreciation
Changes in restoration and
rehabilitation estimate
13(a)
Other
At 30 June 2019
Cost
Accumulated depreciation
11,156
812
3
(5)
(969)
-
(2)
10,995
16,473
(5,478)
10,995
678
12
(8)
(980)
-
(7)
10,690
17,154
(6,464)
796
8
-
(1)
(59)
-
-
744
1,060
(316)
744
20
-
-
(114)
-
-
650
1,062
(412)
813
(17)
70
-
-
3
(12)
857
857
-
857
(391)
89
-
-
1
(17)
539
539
-
291
(832)
842
-
-
-
-
301
301
-
301
(366)
954
-
-
-
-
889
889
-
3,437
16,493
27
-
-
(2)
915
(6)
(207)
(1,235)
35
-
3,292
4,551
38
(14)
16,189
23,242
(1,259)
(7,053)
3,292
16,189
53
-
-
(189)
146
1
3,303
4,751
(6)
1,055
(8)
(1,283)
147
(23)
16,071
24,395
(1,448)
(8,324)
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$216 million (2018: US$253 million).
The details of the finance leases under which these assets are held are disclosed in note 9(a).
89
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Key balance sheet items
13 Provisions
Employee benefits
Restoration and rehabilitation
Total current provisions
Employee benefits
Restoration and rehabilitation
Total non-current provisions
2019
US$m
189
19
208
1
687
688
(a) Provision for restoration and rehabilitation
Movements in the provision for restoration and rehabilitation during the financial 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
2019
US$m
591
147
6
(38)
706
2018
US$m
150
47
197
2
544
546
2018
US$m
559
38
5
(11)
591
The provision for restoration and rehabilitation has been made in full for all disturbed areas at the reporting date based on
current cost estimates for rehabilitation and infrastructure removal, discounted to their present value based on expected
timing of future cash flows.
Payments for restoration and rehabilitation activities exclude ongoing rehabilitation performed as part of normal operations.
90
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Taxation
14 Taxation
For the year ended 30 June 2019, Fortescue continues to be a signatory to the Board of Taxation’s voluntary Tax Transparency
Code (TTC). The TTC recommends a number of additional tax disclosures to be publicly available, in two separate parts.
The Part A disclosure requirements are addressed in this note.
(a) Income tax expense
Current tax
Deferred tax
Consolidated group
2019
US$m
1,299
83
1,382
2018
US$m
320
47
367
(b) Prima facie income tax expense reconciliation
Fortescue operates in a number of jurisdictions and pays income taxes accordingly. The Company’s effective corporate
income tax rate is reflective of the statutory corporate income tax rates in each jurisdiction. The majority of the Group’s taxes
are paid in Australia consistent with the location of its mining operations. The Australian Group includes Fortescue’s
wholly-owned Australian entities.
For the year ended 30 June 2019, the Group’s global effective tax rate was 30.3 per cent. This is in line with the Australian
corporate tax rate of 30 per cent.
Consolidated
group 2019
US$m
Australian
group 2019
US$m
Consolidated
group 2018
US$m
Australian
group 2018
US$m
Profit before income tax expense
Tax at the Australian tax rate of 30 per cent
(2018: 30 per cent)
Research and development
Adjustments in respect of income tax
expense of prior periods
Foreign exchange variations and other
transactions adjustments
Tax impact of overseas jurisdiction
Share based payments
Other
Income tax expense
Effective tax rate
4,569
1,371
(2)
33
(22)
-
(2)
4
1,382
30.3%
4,508
1,353
(2)
34
(22)
7
(2)
2
1,370
30.4%
1,245
374
1,185
356
(3)
(1)
(4)
(1)
(1)
3
(3)
(6)
(4)
8
(1)
1
367
29.5%
351
29.6%
91
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Taxation
14 Taxation (continued)
(c) Reconciliation of income tax expense to current tax payable/ (receivable)
Consolidated group
Income tax expense in the consolidated income statement
Deferred tax expense
Prior year under/over provision
Current tax payable/(receivable) at 1 July
Tax payments made to tax authorities1
Impact of foreign exchange on income tax payable2
Current tax payable/(receivable) at 30 June
2019
US$m
1,382
(83)
-
1,299
(79)
(376)
(82)
762
2018
US$m
367
(47)
(1)
319
685
(1,070)
(13)
(79)
1 In Australia, Fortescue pays pay as you go (PAYG) instalments based on a set rate, as advised by the Australian Taxation Office.
2 Fortescue’s income tax payments are made in the local currency of the country where taxes are due, being predominantly Australian Dollars.
(d) Deferred tax assets and liabilities
Deferred tax assets and liabilities represent the difference between the carrying value of assets and liabilities
compared to their income tax base. Deferred tax assets and liabilities are measured at the relevant tax rates enacted
for the reporting period. Fortescue’s main operations are in Australia and therefore the main taxable income arises
in Australia. The Company’s major deferred tax assets and liabilities also arise in Australia, predominantly relating to
capital investments in the Pilbara region.
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
Consolidated group
2019
US$m
516
(2,204)
(1,688)
2018
US$m
431
(2,037)
(1,606)
92
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Taxation
14 Taxation (continued)
(d) Deferred tax assets and liabilities
Composition of and movements in deferred tax assets and liabilities during the year are set out below:
Temporary differences arising from
Exploration expenditure
Development
Property, plant and equipment
Inventories
Foreign exchange losses (gains)
Provisions
Other financial liabilities
Other items
Deferred tax assets
Deferred tax liabilities
Charged / (credited) to
the income statement
Consolidated group
Consolidated group
Consolidated group
2019
US$m
2018
US$m
2019
US$m
2018
US$m
2019
US$m
2018
US$m
-
-
-
-
4
286
191
35
516
-
-
-
-
-
223
182
26
431
(148)
(588)
(134)
(546)
(1,309)
(1,244)
(139)
(105)
-
(16)
-
(4)
-
-
-
(8)
(2,204)
(2,037)
14
42
64
34
(4)
(48)
(9)
(10)
83
11
6
24
(22)
-
(4)
32
-
47
(e) Unrecognised tax losses
At 30 June 2019, the Group had income tax losses with a tax benefit of US$34 million (2018: US$28 million) which are not
recognised as deferred tax assets. The Group recognises the benefit of tax losses only to the extent of anticipated future
taxable income or gains in relevant jurisdictions. These losses do not expire.
93
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Unrecognised items
15 Commitments and contingencies
30 June 2018
Within one year
Between one and five years
Total commitments
30 June 2019
Within one year
Between one and five years
Later than five years
Total commitments
(i) Operating lease commitments
Capital
US$m
Operating leases
US$m
Total
US$m
175
40
215
393
7
-
400
13
31
44
36
128
12
176
188
71
259
429
135
12
576
Fortescue leases various offices and other premises under non-cancellable operating leases expiring within one to four years.
The leases have varying terms, escalation clauses and renewal rights. The terms of the leases are renegotiated on renewal.
Fortescue also leases mobile equipment, plant and machinery and office equipment under non-cancellable operating leases.
The leases have varying terms.
Fortescue had no material contingent liabilities or contingent assets at 30 June 2019 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 26 August 2019, the Directors declared a final dividend of 24 Australian cents per ordinary share payable in
October 2019.
94
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
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
2019
US$'000
5,465
4,984
129
10,578
2018
US$'000
6,569
2,469
148
9,186
Detailed information about the remuneration received by each key management person is provided in the remuneration
report on pages 111 to 144.
(c) Transactions and balances with other related parties
Transactions with joint operations partners
Other revenue
Balances at 30 June
Deferred joint venture contributions - current
Deferred joint venture contributions - non-current
Other receivables - current
2019
US$'000
4,436
2018
US$'000
1,973
117,545
154,972
2,314
-
269,859
219
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 2019, Fortescue issued 1,827,145 (2018: 1,845,707) short term share rights and
4,262,313 (2018: 3,045,753) 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
2019
Number
14,370,793
6,089,458
(3,127,678)
(4,270,480)
13,062,093
2018
Number
15,795,024
4,891,460
(4,548,999)
(1,766,692)
14,370,793
95
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
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 2019 was A$4.10 per right
(2018: A$5.34) for the short term share rights and A$4.10 per right (2018: A$5.04) for the long term share rights.
The estimated fair value of the short term share rights was determined using a binomial 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 2019 were:
• share price: A$4.61 (2018: A$4.90)
• exercise price: nil (2018: nil)
• volatility: 43 per cent (2018: 49 per cent)
• effective life: 1.9 years (2018: 2.1 years)
• dividend yield: 6.6 per cent (2018: 7.1 per cent)
• risk free interest rate: 1.9 per cent (2018: 1.9 per cent).
Details of share rights outstanding at 30 June 2019 are presented in the following table:
Exercise
price
Balance at
the end of
the year
Vested and
exercisable
at the end
of the year
Remaining
contractual
life
Vesting conditions
A$
Number
Number
Years
Market
Non-market
Short term share rights 2016
Short term share rights 2017
Short term share rights 2018
Short term share rights 2019
Long term share rights 2016
Long term share rights 2017
Long term share rights 2018
Long term share rights 2019
-
-
-
-
-
-
-
-
(b) Employee expenses
411,886
545,438
581,560
1,776,211
411,886
545,438
581,560
-
1,213,053
1,213,053
2,105,815
2,431,123
3,997,007
-
-
-
13,062,093
2,751,937
11.5
12.3
13.5
14.5
11.5
12.3
13.3
14.5
-
-
-
-
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
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
2019
US$m
21
2018
US$m
14
96
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
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 auditors remuneration
20 Deed of cross guarantee
2019
US$'000
2018
US$'000
771
60
831
156
987
85
85
1,072
753
398
1,151
225
1,376
130
130
1,506
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 ASIC Corporations (Wholly-owned Companies)
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
(a)
Consolidated income statement, consolidated statement of other comprehensive income, consolidated
statement of financial position and consolidated statement of changes in equity
The consolidated income statement, consolidated statement of other comprehensive income and consolidated
statement of changes in equity for the year ended 30 June 2019 along with the consolidated statement of financial position
at 30 June 2019 for the closed group represented by the above companies are materially the same as that of the Group.
97
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
21 Parent entity financial information
(a) Summary financial information
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Retained earnings
Total equity
Profit for the year
Total comprehensive income for the year
2019
US$m
215
9,599
9,814
847
136
983
8,831
1,181
26
7,625
8,831
1,039
1,039
2018
US$m
247
10,035
10,282
86
91
177
10,105
1,287
29
8,789
10,105
1,468
1,468
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$956 million (2018: US$1,411 million).
(b) Guarantees entered into by the parent entity
The parent entity is a party to the following guarantee:
• Deed of cross guarantee, as described in note 20.
No liability was recognised by the parent entity or the Group in relation to this guarantee.
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities at 30 June 2019 or 30 June 2018.
98
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
22 Interests in other entities
(a) Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following significant subsidiaries,
in accordance with the accounting policy described in note 23(a)(i):
Equity holding
Investment
Country of
incorporation
Class
of shares
2019
%
2018
%
2019
US$
2018
US$
Controlled entities
Chichester Metals Pty Limited
Australia
Ordinary
FMG International Pte Limited
Singapore
Ordinary
FMG International Shipping Pte Ltd
Singapore
Ordinary
FMG Iron Bridge Limited
Hong Kong
Ordinary
FMG Magnetite Pty Limited
Australia
Ordinary
FMG North Pilbara Pty Limited
Australia
Ordinary
FMG Pilbara Pty Limited
Australia
Ordinary
FMG Procurement Services
Australia
Ordinary
FMG Resources (August 2006) Pty Limited
Australia
Ordinary
FMG Solomon Pty Limited
Australia
Ordinary
Karribi Developments Pty Limited
Australia
Ordinary
Pilbara Housing Services Pty Limited
Australia
Ordinary
Pilbara Power Pty Limited
Australia
Ordinary
The Pilbara Infrastructure Pty Limited
Australia
Ordinary
FMG Hong Kong Shipping Ltd
Hong Kong
Ordinary
FMG Personnel Services Pty Ltd
Australia
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
129,665,444
97,610,244
1
1
Entities not included in the list of significant subsidiaries are deemed immaterial in relation to the Group.
(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).
Joint operations
Country of
incorporation
Holding entity
Principal activities
2019
2018
Participating interest
Iron Bridge
Joint Venture
Glacier Valley
Joint Venture
Australia
FMG Magnetite Pty Ltd
Development of magnetite
assets and production of
magnetite concentrate
69%
69%
Australia
FMG North Pilbara Pty Ltd
Iron ore exploration
69%
69%
99
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
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 of the reporting date,
with the resulting gains and losses
recognised in the income statement,
except as set out below:
• For qualifying cash flow hedges, the
gains and losses arising on foreign
currency translations are deferred in
other comprehensive income
• Translation differences on
site rehabilitation provisions
are capitalised as part of the
development assets.
Gains and losses on assets and liabilities
carried at fair value are reported as part
of the fair value gain or loss.
(d)
Revenue recognition -
accounting policy applied
from 1 July 2018
The Group is principally engaged in
the business of producing iron ore
and providing related freight/shipping
services. Revenue is measured at
the amount the Group expects to be
entitled to in exchange for those goods
or services and is recognised at the
point at which control of the goods or
services is transferred to the customer.
(i) Sale of products
Revenue from the sale of products is
recognised when control has 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.
100
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
23 Summary of significant accounting policies (continued)
(d)
Revenue recognition -
accounting policy applied
from 1 July 2018 (continued)
Revenue is recorded at the invoiced
amounts however the shipping service
represents a separate performance
obligation, and is recognised
separately from the sale of iron ore
over the period during which the
shipping service has been provided,
along with any associated shipping
costs. Further information resulting
from the adoption of AASB15 Revenue
from Contracts with Customers is
disclosed in note 23(x).
Fortescue’s sales contracts, which also
include shipping services, may provide
for provisional pricing of sales at the
time the product is delivered to the
vessel with final pricing determined
using the relevant price indices on or
after the vessel’s arrival to the port of
discharge. Under AASB 9 the receivable
asset is measured at fair value through
profit and loss.
(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
performance obligations are satisfied.
Where deferred income is considered
to contain a financing component
and if the period of time between the
receipt of the upfront cash and the
satisfaction of the future performance
obligations is greater than 1 year, an
interest charge of the upfront amount
will be recognised.
(f)
Income tax
The income tax expense for the year
is the tax payable on the current
year’s taxable income based on the
applicable income tax rate for each
jurisdiction. Income tax on the profit or
loss for the period comprises current
and deferred tax.
Current income tax charge is
calculated on the basis of the taxation
laws enacted or substantively enacted
at the end of the reporting period in
the countries where the Company’s
subsidiaries operate and generate
taxable income. Current income tax
represents the expected tax payable
on the taxable income for the year
and any adjustments to tax payable in
respect to previous years.
Where the amount of tax payable or
recoverable is uncertain, a provision
is established based on the Group’s
understanding of applicable tax law at
the time. Settlement of these matters
may result in changes to current and
deferred income tax if the settlement
differs from the provision.
Deferred income tax is provided in
full, using the liability method, on
temporary differences arising between
the tax bases of assets and liabilities
and their carrying amounts.
However, the deferred income tax
is not accounted for if it arises from
the initial recognition of an asset or
liability in a transaction, other than a
business combination, that at the time
of the transaction affects neither the
accounting nor taxable profit or loss.
Deferred income tax is determined
using tax rates and laws that have been
enacted or substantially enacted by
the reporting date and are expected
to apply when the related deferred
income tax asset is realised or the
deferred income tax liability is settled.
Deferred tax assets are recognised
for future deductible temporary
differences and carry forward of
unused tax losses only if it is probable
that future taxable amounts will be
available to utilise those temporary
differences and losses. Deferred tax
assets are reviewed at each reporting
date and are reduced to the extent
that it is no longer probable that the
related tax benefit will be realised.
Deferred tax assets and liabilities are
offset when there is a legal right to offset
current tax assets and liabilities and
when the deferred tax balances relate to
the same taxation authority. Current tax
assets and tax liabilities are offset where
the Group has a legally enforceable right
to offset and intends either to settle on
a net basis, or to realise the asset and
settle the liability simultaneously.
Fortescue and its wholly-owned
Australian 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 each
corresponding tax consolidated group.
101
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
23 Summary of significant accounting policies (continued)
(g) Cash and cash equivalents
Cash and cash equivalents include
cash on hand, short term deposits
and other short-term highly liquid
investments that are subject to an
insignificant risk of changes in value,
and are readily convertible to known
amounts of cash.
When a receivable for which an
impairment allowance had been
recognised becomes uncollectable
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.
(h) Trade and other receivables
(i)
Inventories
Trade and other receivables are
recognised initially at fair value or
transaction price determined under
AASB 15 and subsequently measured
at amortised cost, less an allowance for
uncollectable amounts.
Trade receivables includes amounts
that remain subject to provisional
pricing as discussed in note 23(j)(iii).
Uncollectable amounts are determined
using the expected credit loss model.
Collectability of trade and other
receivables is reviewed on a monthly
basis. Total receivables which are
known to be uncollectable 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
receivable may not be collected.
The amount of the impairment
allowance is the difference between
the 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.
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
From 1 July 2018 Fortescue classifies
its financial assets into the following
categories: those to be measured
subsequently at fair value, being
through either other comprehensive
income or through the income
statement and those that are to be
held at amortised cost.
The classification depends on the
purpose for which the financial
assets were acquired. Management
determines the classification of its
financial assets at initial recognition.
(i) Financial assets held at amortised cost
The Group classifies its financial
assets as held at amortised cost only
if the asset is held within a business
model with the objective to collect
the contractual cash flows, and the
contractual terms give rise to cash
flows that are solely payments of
principal and interest. The classification
of financial assets held at amortised
cost applies to Fortescue’s loans and
receivables. These debt instruments
are initially measured at fair value and
subsequently carried at amortised
cost. 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. At the end of each
reporting period loans and receivables
are reviewed for impairment.
(ii)
Financial assets held at fair value
through other comprehensive
income (FVOCI)
The Group’s classification of financial
assets held at fair value through other
comprehensive income applies to
equity investments where the Group
has made the irrevocable election to
present the fair value gains or losses
on revaluation of the asset in other
comprehensive income. This election
can be made for each investment
however it is not applicable to equity
investments which are held for trading.
These assets are included in non-
current assets unless management
intends to dispose of the investment
within 12 months of the reporting
date. These instruments are recognised
at fair value, with changes in fair value
being recognised directly in other
comprehensive income.
102
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
23 Summary of significant accounting policies (continued)
(j) Financial assets (continued)
(iii) Finance lease liabilities
(iii) Financial assets held at fair value
through profit or loss (FVPL)
This category comprises trade
receivables including the quotation
period for the sale of iron ore,
derivatives (unless designated as
effective hedging instruments) and
equity investments which are held for
trading or where the FVOCI election
has not been applied. They are carried
on the balance sheet at fair value
with changes in fair value or dividend
income recognised in profit or loss
with any associated changes in fair
values recognised in the income
statement. The receivables relating to
quotation period for the sale of iron
ore are recorded as trade receivables.
Further impact of transition to
AASB 9 Financial Instruments is
discussed in note 23(x).
(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.
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.
Further impact on financial liabilities
as a result of transition to AASB 9
Financial Instruments is discussed in
note 23(x).
(l) Property, plant and equipment
(i) Recognition and measurement
Each class of property, plant and
equipment is stated at historical
cost less, where applicable, any
accumulated depreciation and
impairment loss. Historical cost
includes expenditure that is directly
attributable to the acquisition of
the assets.
The cost of self-constructed assets
includes the cost of materials and
direct labour and any other costs
directly attributable to bringing an
asset to a working condition ready
for its intended use. Assets under
construction are recognised in
assets under development. Upon
commissioning, which is the date
when the asset is in the location
and condition necessary for it to be
capable of operating in the manner
intended by management, the assets
are transferred into property, plant and
equipment or development assets,
as appropriate.
Cost may also include transfers from
equity of any gain or loss on qualifying
cash flow hedges of foreign currency
purchases of property, plant and
equipment. Borrowing costs related
to the acquisition or construction
of qualifying assets are capitalised.
Costs required for dismantling
and rehabilitation are included in
rehabilitation estimates. Further
information on rehabilitation is
in note 23(o).
When separate parts of an item
of property, plant and equipment
have different useful lives, they are
accounted for as separate items
of property, plant and equipment.
Purchased software that is integral
to the functionality of the related
equipment is capitalised as part of
the equipment.
Gains and losses arising on disposal
of property, plant and equipment are
recognised in the income statement
and determined by comparing
proceeds from the sale of the assets to
their carrying amount.
(ii) Subsequent costs
Subsequent costs are included in the
asset’s carrying amount or recognised
as a separate asset, as appropriate,
only when it is probable that future
economic benefits associated with
these subsequent costs will flow to
Fortescue and the cost of the item can
be measured reliably. Ongoing repairs
and maintenance are recognised as
an expense in the income statement
during the financial period in which
they are incurred.
(iii) Depreciation
Depreciation of assets, other than land
which is not depreciated, is calculated
using the straight-line method or
units of production method, net of
residual values, over estimated useful
lives. Depreciation commences on the
date when an asset is available for use,
that is, when it is in the location and
condition necessary for it to be capable
of operating in the manner intended by
management. Assets acquired under
finance leases are depreciated over the
shorter of the individual asset’s useful
life and the lease term.
103
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
23 Summary of significant accounting policies (continued)
(l)
Property, plant and equipment
(continued)
Straight-line method
Where the useful life is not linked to
the quantities of iron ore produced,
assets are generally depreciated on
a straight-line basis. The estimated
useful lives for the principal categories
of property, plant and equipment
depreciated on a straight-line basis are
as follows:
• buildings 20 to 40 years
• rolling stock 25 to 30 years
• plant and equipment 2 to 20 years
• rail and port infrastructure assets
40 to 50 years
The estimated useful lives, residual
values and depreciation method are
reviewed at the end of each reporting
period with the effect of any changes
in estimate accounted for on a
prospective basis.
Units of production method
Where the useful life of an asset
is directly linked to the extraction
of iron ore from a mine, the asset
is depreciated using the units of
production method. The units of
production method is an amortised
charge proportional to the depletion
of the estimated proven and probable
reserves at the mines.
(iv)
Exploration and evaluation
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.
(v) Development expenditure
Development expenditure includes
capitalised exploration and evaluation
costs, pre-production development
costs, development studies and other
expenditure pertaining to that area of
interest. Costs related to surface plant
and equipment and any associated
land and buildings are accounted for
as property, plant and equipment.
Development costs are accumulated
in respect of each separate area
of interest. Costs associated with
commissioning new assets in the
period before they are capable of
operating in the manner intended
by management, are capitalised.
Development costs incurred after
the commencement of production
are capitalised to the extent they
are expected to give rise to a future
economic benefit.
When an area of interest is abandoned
or the Directors decide that it is not
commercially or technically feasible,
any accumulated cost in respect of that
area is written off in the financial period
that the decision is made. Each area of
interest is reviewed at the end of each
accounting period and the accumulated
costs written off to the income
statement to the extent that they will
not be recoverable in the future.
Amortisation of development costs
capitalised is charged on a unit of
production basis over the life of
estimated proven and probable
reserves at the mines.
(m) Stripping costs
(i) Development stripping costs
Overburden and other mine waste
materials are often removed during the
initial development of a mine in order
to access the mineral deposit. This
activity is referred to as development
stripping and the directly attributable
costs, inclusive of an allocation of
relevant overhead expenditure, are
capitalised as development costs.
Capitalisation of development
stripping costs ceases and amortisation
of those capitalised costs commences
upon commercial extraction of ore.
104
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
23 Summary of significant accounting policies (continued)
(m) Stripping costs (continued)
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.
(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.
105
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
23 Summary of significant accounting policies (continued)
(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.
(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.
106
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
23 Summary of significant accounting policies (continued)
(s) Share-based payments
(continued)
The fair value at grant date is determined
using an option pricing model that takes
into account the exercise price, the term
of the right, the impact of dilution, the
share price at grant date and expected
price volatility of the underlying
share, the effect of additional market
conditions, the expected dividend yield
and the risk free interest rate for the term
of the right.
The fair value of the rights granted is
measured to reflect expected market
vesting conditions, but excludes the
impact of any non-market vesting
conditions (for example, profitability).
Non-market vesting conditions are
included in assumptions about the
number of rights that are expected to
become exercisable. At each reporting
date, the entity revises its estimate of
the number of rights that are expected
to become exercisable. The employee
benefit expense recognised each period
takes into account the most recent
estimate. The impact of the revision to
original estimates, if any, is recognised
in the income statement with a
corresponding adjustment to equity.
(t) Dividends
Provision is made for the amount
of any dividend declared, being
appropriately authorised and no
longer at the discretion of the
Company, on or before the end of the
reporting period but not distributed at
the end of the reporting period.
(u) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated
by dividing profit for the year after
income tax attributable to the ordinary
shareholders by the weighted average
number of ordinary shares on issue
during the financial year.
(ii) Diluted earnings per share
Diluted earnings per share is calculated
by dividing profit for the year after
income tax attributable to the ordinary
shareholders by the weighted average
number of ordinary shares on issue
during the financial year, after adjusting
for the effects of all potential dilutive
ordinary shares that were outstanding
during the financial year.
(v) Goods and Services Tax (GST)
Revenues, expenses and assets
are recognised net of the amount
of associated GST, except where
the amount of GST incurred is not
recoverable from the Australian
Taxation Office (ATO). In these
circumstances the GST is recognised
as part of the cost of acquisition of
the asset or as part of an item of the
expense. Receivables and payables in
the balance sheet are shown inclusive
of GST. The net amount of GST
recoverable from, or payable to, the
ATO is included as a current asset or
liability in the balance sheet.
Cash flows are presented in the cash
flow statement on a gross basis, except
for the GST component of investing
and financing activities, which is
disclosed as an operating cash flow.
(w) Comparatives
Where applicable, certain comparatives
have been adjusted to conform with
current year presentation.
(x)
(i)
New accounting standards
and interpretations
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 2018:
• AASB 9 Financial Instruments
• AASB 15 Revenue from Contracts
with Customers
• AASB 2016-5 Amendments to
Australian Accounting Standards -
Classification and Measurement of
Share-based Payment Transactions
• AASB 2017-1 Amendments to
Australian Accounting Standards
- Transfers to Investment Property,
Annual Improvements 2014-2016 Cycle
and Other Amendments
• Interpretation 22 Foreign Currency
Transactions and Advance Consideration.
The Group has amended its accounting
policies and made certain retrospective
adjustments following the adoption
of AASB 15 which has been disclosed
below. Accounting policy changes
related to AASB 9 Financial Instruments
have also been disclosed below. Most of
the other amendments listed above did
not have any impact on the amounts
recognised in prior periods and are
not expected to significantly affect the
current or future periods.
Adoption of AASB 15
The Group has adopted AASB 15
Revenue from Contracts with
Customers from 1 July 2018
which resulted in changes in
accounting policies and adjustments
to the amounts recognised in the
financial statements. AASB 15
supersedes AASB 118 Revenue.
Adoption of the new standard did
not have a material impact on the
measurement of revenue from the
sale and shipment of iron ore, or the
timing of its recognition. Similarly,
there was no impact on interest
income. Shipping revenue that was
previously recognised as part of the
sale of iron ore was identified as a
separate performance obligation upon
adopting the new standard and is now
recognised over the period during
which the shipping service has been
provided, along with associated costs.
In accordance with the transition
provisions in the Standard, the Group
has adopted AASB 15 using the
cumulative effect method. Under
this approach, comparatives are not
restated. Instead, the cumulative
effect of adopting the new standard
is recognised in the opening balance
of retained earnings in the current
reporting period.
107
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
23 Summary of significant accounting policies (continued)
(x)
New accounting standards
and interpretations (continued)
The new standard is only applied to
contracts that remain in force as at the
date of adoption.
The change in accounting policy
as a result of AASB 15 Revenue from
Contracts with Customers is disclosed
in note 23(d).
Transition adjustments to the
opening balance of retained earnings
Certain freight revenue was identified
at 30 June 2018 for which the related
performance obligation was partially
completed as at that date. This resulted
in a decrease to the opening balance
of retained earnings as follows:
2019
US$m
8,386
(2)
8,384
Opening retained
earnings - 1 July as
previously reported
Decrease due to
freight revenue
adjustment
Restated opening
retained earnings
Adoption of AASB 9
The Group has adopted AASB 9
Financial Instruments from 1 July
2018 which changes the classification
of complex financial instruments,
classification of impairment losses in
financial assets, and although hedge
accounting has not been applied by
the Group, AASB 9 introduces changes
to hedge accounting. For transition,
the Group has elected to apply the
limited exemption under AASB 9
related to classification, measurement
and impairment requirements for
financial instruments and as a result
has not restated comparative periods.
On transition, adjustments to the
carrying values in the balance sheet
were considered insignificant and
not material.
On this basis there were no
adjustments recognised in opening
retained earnings as a result of
adopting AASB 9.
AASB 9 introduces an expected credit
loss model for impairment of financial
assets which replaces the incurred loss
model used in AASB 139. For trade
receivables the Group has applied the
standard’s simplified approach and
has calculated expected credit losses
on lifetime expected credit losses. This
has not had a significant impact on
the Group given the adopted credit
risk management processes, and the
resulting insignificant level of credit
losses which are not considered
material to the Group.
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 indices 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
represented an embedded derivative
which was separated from the host
contract and recognised in operating
sales revenue. Under AASB 9 the
receivable asset is measured at fair value
through profit or loss which results in
a similar overall impact on the income
statement and balance sheet.
The changes in classification of the
Group’s financial assets are outlined
in note 23(j).
(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 2019 reporting periods. These
standards and interpretations have not
been early adopted.
AASB 16 Leases (effective from
1 July 2019)
AASB 16 replaces existing leases
guidance, including AASB 117 Leases and
Interpretation 4 Determining whether an
Arrangement contains a Lease. The new
standard contains a comprehensive
model for the identification of lease
arrangements and their treatment in the
financial statements of lessees. It applies
a control model for the identification of
leases, distinguishing between leases
and service contracts on the basis of
whether there is an identified asset
controlled by the lessee.
AASB 16 removes the distinction
between operating and finance
leases for lessees. Instead, all leases
other than short term and low value
asset leases are recognised on the
balance sheet as a right of use asset,
representing the lessee’s entitlement
to the benefits of the identified asset
over the lease term, and a lease liability
representing the lessee’s obligation to
make the lease payments. For leases
recognised as operating leases under
AASB 117, the lease expense will be
replaced by the amortisation of the
right of use asset and interest expense
on the lease liability.
Lessor accounting remains similar to
the current standard where lessors
continue to classify leases as finance
or operating leases.
The Group adopted AASB 16 initially
on 1 July 2019, using the modified
retrospective approach. Therefore,
the cumulative effect of adopting
AASB 16 will be recognised as an
adjustment to the opening balance
of retained earnings at 1 July 2019,
with no restatement of comparative
information. The impact of the current
lease arrangements for the lease of
buildings, mining equipment and
other assets has been evaluated and
the impact on the balance sheet on
this date was an estimated increase in
lease liabilities of US$149m and right
of use assets of US$139m.
108
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
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 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.
(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.
109
FINANCIAL REPORT 07FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Other
24 Critical accounting estimates and judgements (continued)
(f) Revenue
The transaction price at the date
control passes for sales made subject
to the provisional pricing mechanism
is estimated with reference to quoted
index prices. For sales where the
final settlement price is yet to be
determined, the value of this revenue
is adjusted by considering tonnes
subject to price finalisation at the end
of the period and applying the closing
spot rate.
110
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Notes to the consolidated financial statements
For the year ended 30 June 2019
Other information
23 Summary of significant accounting policies
08
Remuneration
Report
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
111
111
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 On behalf of the Directors of Fortescue
Metals Group Ltd, I am pleased
to present the Remuneration Report
for the year ended 30 June 2019.
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 principal 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 FY19, 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, FY19 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 financial
and non-financial 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 93 per cent
participation rate, an increase in the
number of respondents of 1,600 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,
Remuneration
and
People
Committee
Chair
Sharon Warburton
112
112
flexible work practices and support
for parents returning to work are
fundamental drivers of our success.
Strong safety performance for
the year resulted in a 24 per cent
improvement in TRIFR which reduced
to a record annual low of 2.8. This is
a very pleasing result and reflects
targeted initiatives implemented by
the management team during the
year, including the Company wide
‘Safety Stop’ in August 2018 and the
‘Take Control’ campaign reinforcing
that all of the Fortescue team members
are empowered to pause the job and
ensure that safety is the key priority.
Improved
Safety
2.8 Total
Recordable
Injury
Frequency Rate
Consistent
Production
167.7
mt
shipped
Maintained
Cost
US$
13.11/wmt
Culture
%
93
participation in the Safety
Excellence and Culture Survey
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 FY19 performance
The Fortescue team achieved excellent
results in FY19 with significant progress
made on the delivery of Fortescue’s
business strategy. Specifically:
• The financial performance was
outstanding with record results
achieved including:
- NPAT increased by 263 per cent
to US$3,187m
- Net debt reduced by 33 per cent
to US$2,078m
- Gross gearing was 27 per cent.
• Consistent production was achieved
from the Company’s world class
assets, with 167.7mt of iron ore
shipped and the achievement of
a number of operational records
including:
- OPF processing of 48.5mt for the June
quarter and 176.9mt for the year
- Rail achieved a record railing for the
June quarter unloading 45.7mt
- 17.3mt shipped in June with 46.6mt
shipped for the June 2019 quarter
• Shipments of the 60.1% Fe product West
Pilbara Fines commenced in December
2018 with 9mt shipped in FY19
• Mine life maintained at target
production rate and quality
• FY19 has also seen the Board approve
the Iron Bridge Magnetite and
Queens Valley development projects
• The towage infrastructure project
was completed in FY19 with the
official opening of the Judith Street
Harbour held on 27 June 2019
• A wholly foreign owned entity
(WFOE) was established in China to
enable Fortescue to sell direct to its
customers in China in Renmimbi, with
the first direct sale by the entity being
completed in June 2019
• The June quarter C1 cost was
US$12.78/wmt with full year C1 cost of
US$13.11/wmt, maintaining Fortescue’s
disciplined cost management and
ensuring Fortescue maintains its
position as the lowest cost producer of
seaborne iron ore to China
• The Company’s strong financial
performance enabled record returns
to shareholders with total dividends
paid during FY19 of A$1.02 per share
comprising the final dividend for
FY18 of A$0.12 per share and A$0.90
per share in interim and special
dividends for FY19. In addition,
the Board declared a final dividend
of A$0.24 per share bringing total
dividends for FY19 to a record
A$1.14 per share
• In October 2018, the Company
launched an on-market share
buyback program of up to A$500m
with the program in place for a period
of up to 12 months. A$139.2 million
of Fortescue shares were acquired
since the launch of the buy-back
program at an average price of
A$3.997 per share.
US$m
4,000
3,000
2,000
1,000
NPAT
2,093
3,187
316
FY15
985
878
FY16
FY17
FY18
FY19
Underlying EBITDA (US$m)
3,272
52
(126)
(235)
(56)
6,047
3,182
(42)
FY18
Volume
Price/Product mix
C1 costs
Shipping costs
Royalty
Other
FY19
113
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Fortescue’s remuneration strategy is underpinned
by its core Values and performance culture which
includes setting challenging stretch financial and
non-financial targets, striving to achieve them
and rewarding success.
FY19 performance (continued)
• Fortescue’s share price increased by 105 per cent over the year reflecting the increase in the average iron ore price
as well as the delivery of the enhanced product mix strategy which resulted in the average realised price for Fortescue’s
products outperforming the average benchmark iron ore price. The correlation between Fortescue’s share price and the
movement of the iron ore Platts 62% Index is shown in the graph below:
Price realisation journey
Sustainable cost improvements
US$
92/dmt
US$
71/dmt
C1
US$/wmt
44
34
27
US$
45/dmt
US$
48/dmt
Q1
Q2
Q3
Q4
15
13
12
13.11
FY13
FY14
FY15
FY16
FY17
FY18
FY19
114
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 FY19 Remuneration outcomes
Fixed remuneration for the Core
Leadership Team (CLT) was positioned
lower than prior incumbents at the
time of appointment in February 2018.
CLT remuneration was reviewed and
increased 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.
FY19 Short Term Incentive stretch
targets for safety, culture and
sustaining capital expenditure have
been met, with the growth target
partially achieved. The targets for
revenue were exceeded, particularly
due to the success of the CLT's product
mix strategy. The Board has exercised
its discretion for a partial award related
to C1 cost and production measures
reflecting the degree to which
outcomes have been delivered against
stretch targets and the overall financial
performance and shareholder value
generated over the performance year.
FY17 Long Term Incentive Plan
(LTIP) completed its performance
period on 30 June 2019. Stretch targets
for this plan have been achieved at
varying levels.
• The Total Shareholder Return
(TSR) target has been exceeded,
reflecting the outstanding share
price growth over the three year
performance period.
• The three year average AROE,
based on underlying NPAT (which
excludes exceptional items relating to
company one-off costs of refinancing
activities) has been achieved between
threshold and target.
• Achievement of strategic measures
has resulted in this measure meeting
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 (e.g.
long term mine life is preserved
notwithstanding ongoing reductions
in annual operating costs).
The capped outcome of the FY17
LTIP recognises and rewards the
outstanding performance achieved by
long term employees in a challenging
iron ore market.
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.
The outstanding result delivered by
the Fortescue team is reflected in an
increase in the ‘at risk’ award for the
FY19 short term incentive (compared
to FY18) and FY17 LTIP (for the period
from 1 July 2016 to 30 June 2019),
which aligns with shareholders returns
over these periods.
Through its ongoing focus on a
targeted short and long term
remuneration framework (which
included, during the year, a deep dive
review with support of external advisors
of its incentive framework), Fortescue
continues its growth and progression
as one of the world’s leading innovative
resources companies.
Sharon Warburton
Remuneration and People
Committee Chair
115
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Contents
01 FY19 overview and year ahead
02 Remuneration Governance
03 Executive Remuneration Strategy
04 Executive Remuneration Structure
05 Incentive Plan Operation and Performance
118
120
122
123
124
06 How executive remuneration is reported
07 Executive contract terms
08 Non-executive Director remuneration
09 Equity instrument disclosures relating
to key management personnel
137
141
141
143
116
116
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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 'Executives' and 'Core
Leadership Team' (CLT) 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 fairer reflection
of the remuneration practices of
Fortescue, as all Directors, Executives
and employees are remunerated
in Australian dollars. This report
forms part of the Directors’ Report
and, unless otherwise indicated, the
following sections have been audited
in accordance with section 308(3c)
of the Corporations Act 2001.
The KMP of the Group
for FY19 were:
Non-executive Directors
A Forrest AO
Chairman
M Barnaba AM
Deputy Vice Chair and Lead
Independent Director
S Warburton
Deputy Vice Chair
J Baderschneider
Non-Executive Director
P Bingham-Hall
Non-Executive Director
S Coe CH, KBE
Non-Executive Director
J Morris OAM
Non-Executive Director
C Zhiqiang
Non-Executive Director
Executive Directors
E Gaines
Chief Executive Officer
Other Key Management
Personnel (Executives)
G Lilleyman
Chief Operating Officer
J Shuttleworth
Deputy Chief Executive Officer
I Wells
Chief Financial Officer
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
117
117
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
01 FY19 overview and year ahead
Fortescue’s remuneration strategy seeks to build a performance
oriented culture by attracting and retaining the best possible
people that are aligned to driving shareholder value.
Fortescue’s performance culture of setting challenging stretch targets, striving to achieve them and rewarding success is
fundamental to the Company’s long term success. Fortescue’s Board and Remuneration and People Committee (RPC) 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 FY19 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
section explains how fixed and variable remuneration outcomes were driven by performance in FY19.
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 CLT is benchmarked at least
annually against companies in the ASX 100,
ASX 50 and ASX 30 Indices as well as global
resources companies
CLT TFR was positioned approximately
25 per cent lower than prior incumbents
at the time of their appointment in
February 2018
The Board has since conducted a review
of TFR benchmarked against comparable
companies in the ASX and has taken into
consideration the significant progress
made by the CLT to date towards
Fortescue’s long term objectives and,
on that basis, has increased TFR to the
following:
TFR $
KMP
CEO 1,850,000
COO
1,500,000
Deputy CEO 1,000,000
CFO 1,000,000
Increases are effective from 1 January 2019 and
remain aligned with external benchmarks
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118
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
1.1 FY19 Remuneration outcomes - linking performance and pay (continued)
Delivery
Performance measures
Outcomes
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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
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
strong correlation
with returns to
shareholders over
the course of the
same period
A balanced scorecard of performance measures
including culture, financial and non-financial
measures. Financial measures represent the key
controllable drivers of financial performance,
being underlying EBITDA and NPAT
Targets are aggressive, challenging and
are set at 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, external
influences outside of management’s
control (i.e. cyclones, floods, fire) and level
of improvement on the prior year
Company People and Culture Targets
• Safety
• Culture and engagement
Company Financial Targets
• Revenue
• Production
• Operating cost
• Cashflow
• Business diversification and growth targets
The CLT is measured solely on Company
performance
During FY19, the Company continued to deliver
strong performance against many, but not all,
of its stretch targets
Awards made in relation to the FY19 ESSIP
reflect achievement of:
• Strong safety performance
• Above target financial (revenue, profit and
cashflow) performance
• Improvements in the already high levels of
safety culture and employee engagement
Partial award for:
• Production, which fell just short (99%) of its
stretch target
• C1 cost, which fell just short (95%) of its
stretch target
• Substantial diversification and growth
strategy progress
The outcome of the FY19 ESSIP represents an
average payment of 95.2% of maximum
opportunity to the CLT compared with an
average payment of 69% of maximum
opportunity in FY18
Awards for FY19 have been calculated on a
pro-rata basis reflecting increased TFR for CLT
members from 1 January 2019 (i.e. six months
based on new TFR)
Refer to section 5 for further detail
Measured against:
FY17 LTIP
• Relative Total Shareholder Return (TSR)
(33%);
• Absolute Return on Equity (AROE) (33%);
and
• Strategic measures (34%)
Each LTIP performance measure has a
minimum performance hurdle for vesting
with increasing levels applicable to each
individual measure. There is an ability to
earn up to 150% of any individual measure
by achieving stretch performance. Each
individual measure contributes to the overall
result with vested rights awarded based on
the aggregate of the three measures
Whilst each individual performance
measure includes stretch targets, with a
relative contribution on any individual
measure of up to 150%, the overall cap for
the LTIP is 100% of the maximum number
of share rights granted
FY17 LTIP share rights were granted at a Volume
Weighted Average Price (VWAP) of shares being
$3.7590 and has increased over the performance
period to $9.1892. This increase in share price
is reflected in the nominal value of FY17 LTIP
vested rights awarded which are valued at the
end of the performance period
The FY17 LTIP has achieved all three of its
performance measures resulting in 100% of
share rights vesting under this plan
• A TSR outcome of 150% (100th percentile)
has been achieved
• An AROE outcome of 59.5% (Average AROE of
21.9%) has been achieved
• Strategic measures are set and assessed
annually. The strategic measures for each of
the performance years of the FY17 LTIP have
been achieved at 100%
FY19 vesting calculations are as follows:
Measure Weighting Outcome Vesting
TSR 33% 150% 49.5%
AROE 33% 59.5% 19.6%
Strategic Measures 34% 100% 34.0%
Total 103.1%
Capped at 100.0%
119
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
02 Remuneration Governance
Fortescue believes that robust governance is critical to
underpinning the effectiveness of the remuneration strategy.
2.1
The Remuneration and People Committee
The Remuneration and People
Committee (RPC) operates
under a Board-approved
Charter. The purpose of the RPC
is to provide assistance and
recommendations to the Board
to ensure that it is able to fulfil
its responsibilities relating to the
following:
• Remuneration strategy
• Non-Executive Director
remuneration
• Chief Executive Officer
remuneration
• Other CLT and Senior Executive
remuneration
• Short term and long term
incentive plans
• CLT recruitment
• Annual Performance Review
of the CEO and other CLT
members
• Succession planning and talent
management
• Diversity strategy, targets,
policy and practices
• Gender pay equity
• Matters relating to the
Company’s recruitment,
retention and termination
policies
• Committee member
appointments.
A copy of the RPC Charter is available
from the Corporate Governance
section of the Company’s website at
www.fmgl.com.au
The RPC in FY19 consisted solely of
Non-executive Directors. The Chief
Executive Officer 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 People 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
• 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 of
Directors
Board
Remuneration
and People
Committee
Advise the Board on:
• Remuneration strategy, policies and practices
• Non-Executive Director remuneration
• Executive remuneration
• Diversity strategy
• Gender pay equity
• Succession planning
Human
Resources
Management
• Implementation of remuneration policies and practices
• Advising the Remuneration and People Committee of
changing statutory and market conditions
• Providing relevant information to the Remuneration and
People Committee to assist with decisions
120
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
2.2
Use of remuneration
consultants
The Committee has the
necessary resources and
authority to perform its duties
and responsibilities, including
the authority to engage external
professionals on terms it
deems appropriate.
During the year ended 30 June
2019, the Committee retained
KPMG in relation to the review
of its executive remuneration
framework, policies and
practices, the provision of
general information and market
trends. This did not involve
providing the Committee
with any remuneration
recommendations as defined by
the Corporations Act 2001.
2.3 Clawback Policy
Fortescue operates a Clawback
Policy which applies to both the
ESSIP and LTIP. Clawback will be
initiated:
1) Where, in the opinion of the
Board 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 which results
in an unfair benefit being
obtained by any participant;
or
2) 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 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 is available from the
Corporate Governance section of
the Company's website 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.
A Directors' and Executives'
Minimum Shareholding Policy
was approved by the Board and
implemented in FY19. The Policy
applies to Directors and Executives
to support a long-term focus and
further strengthen alignment
with shareholders. The minimum
shareholding required is as follows:
NEDs: 100 per cent of base
annual fees
CEO: 100 per cent of TFR
Other CLT: 75 per cent of TFR; and
Other Executives: 50 per cent
of TFR.
Participants are required to
meet their respective minimum
shareholding within a reasonable
timeframe, generally within five
years from inception (2019) or
date of appointment (if later).
The Directors’ and Executives’
Minimum Shareholding Policy
is available from the Corporate
Governance section of the
Company's website at
www.fmgl.com.au.
In addition to the minimum
shareholding requirement,
over three quarters of the ‘at
risk’ component of Executive
remuneration is granted in
share rights. The number of
share rights granted is based
on the VWAP of shares 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 movements
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.
2.6
NED Salary Sacrifice Rights Plan
Non-executive Directors may
choose to sacrifice a portion or
all of their base fees (excluding
Committee fees and Company
superannuation contributions)
to be used to acquire vested
rights to Fortescue shares under
the NED Salary Sacrifice Share
Rights Plan. Shares (to the gross
value of the amount salary
sacrificed) are purchased on
market twice a year following the
announcement of Fortescue’s
half and full year results in
February and August. The VWAP
of shares purchased is used to
determine the number of vested
rights to be allocated to NEDs.
Once granted, vested rights
may be exercised at any time
(up to 15 years from date of
grant). Shares will be held by the
Trustee until the vested rights
are exercised into shares. Vested
rights and shares acquired
under this Plan are not subject
to performance conditions
because they are issued in lieu of
salary which would otherwise be
payable to the relevant NED.
121
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
03 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 innovative
resources companies through:
• Being well positioned to deliver fair
and market competitive rewards;
• Supporting a performance based
culture and acknowledging global
industry outperformance; and
• 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
industry talent. To ensure it
remains market competitive,
Fortescue also benchmarks
against comparable roles in
global peer group companies.
The Board acknowledges that
market conditions (including
material conditions and market
cycles outside the control of the
Company), share price and market
capitalisation may change the
Company’s relative comparator
group from time to time.
3.2
How remuneration practices align with our reward strategy
The Board, however, has a
long term strategy to ensure
that executive remuneration
is appropriately positioned to
attract, retain and motivate 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 achieving 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).
Remuneration strategy principle
Policy
Practice
Drive the right culture and
encourage high levels of share
ownership
Drive alignment of employee
and shareholder interests
A minimum 50% (with Executives
able to elect up to 100%) of the ESSIP
awarded as vested rights. LTIP awarded
entirely as vested rights. Minimum
shareholding policy applies
Market competitive remuneration
Attract and retain key talent
and be competitive against
relevant companies
Remuneration is benchmarked against
the ASX 100 Resources, ASX 50, ASX 30
as well as relevant global indices
Performance and
Outperformance focus
Provide fair reward in line with
individual and company
achievements
Executive remuneration mix targets
an average minimum of 64% of total
opportunity 'at risk' (CEO is 72%)
Fit for purpose
Strategic alignment
Include flexibility to reflect clear
linkage to business strategy and
cyclical nature of industry
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
LTI rewarding sustained performance
over a three year cyclical period
122
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 04 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 stretch Company performance, growth targets
and individual objectives.
The key components of the executive
remuneration structure comprise:
• Total Fixed Remuneration (TFR);
• Executive and Senior Staff Incentive
Plan (ESSIP); and
• 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 one of the
world’s most successful and innovative
resource companies 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
4.1 Remuneration mix
total remuneration for outstanding
performance against challenging
stretch targets. Remuneration is
benchmarked against companies
in the ASX 100 Resources Index,
ASX 50 and ASX 30 as well as relevant
global indices as required on at least
an annual basis.
The number of share rights granted
under both the ESSIP (which generally
accounts for a minimum of half
the incentive) and the LTIP (which
is granted solely in share rights) is
determined based on the VWAP of
shares 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) 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 VWAP of shares at the
commencement of the performance
period. 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.
The table below shows the remuneration mix for superior performance when stretch hurdles have been met for both the
CEO and other CLT:
CEO
28%
31%
Other CLT
36%
28%
41%
36%
Total at risk
72%
64%
0%
20%
40%
60%
80%
100%
TFR
ESSIP (at risk)
LTIP (at risk)
The chart below represents the actual remuneration mix for the CLT in 2019:
63%
61%
32%
31%
39%
42%
37%
39%
29%
27%
E Gaines
G Lilleyman
J Shuttleworth
I Wells
TFR
STI (at risk)
LTIP (at risk)
The non-IFRS information included in the table above has not been subject to audit.
Ms Gaines and Mr Lilleyman’s employment, as Executives of the Company, commenced after the commencement
of the FY17 LTIP performance period and accordingly, they did not participate in this plan.
123
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 05 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
CLT) for achieving annual
stretch Company and individual
performance objectives that
drive shareholder value.
In FY19, ESSIP potential
award for the CLT was linked
solely to Company objectives
ensuring alignment between
remuneration outcomes and
Company performance during
the Plan Year.
The maximum ESSIP opportunity
is established at the beginning
of the financial year for each
Executive. The ESSIP is delivered
as a minimum of 50 per cent in
ordinary shares, and a maximum
of 50 per cent in cash. The plan
allows participants to elect to
receive up to 100 per cent of the
ESSIP in shares.
ESSIP 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 VWAP of Fortescue
shares traded over the first five
trading days of the performance
period (eg. 1 July 2018 to 7 July
2018).
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 2019.
The maximum incentive
opportunity for the CLT in FY19
is shown below:
Maximum General ESSIP
opportunity
Chief Executive Officer
112.5 per cent of TFR*
1 participant
Other CLT
75 per cent of TFR*
3 participants
* 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.
Unless the Board exercises
its discretion otherwise in
accordance with the ESSIP rules,
for individuals who leave during
the year (i.e. before 30 June)
the ESSIP is pro-rated based on
service during the period, and
made at the usual payment date,
which is around September of
each year, post release of audited
and approved full year results.
Individuals who commence
during the year similarly will
have awards under the ESSIP
pro-rated based on service
during the performance period.
5.2
How ESSIP objectives and
weightings are determined
Generally, ESSIP targets and
measures are set on an annual
basis and are linked to the
annual stretch budget and
Fortescue’s strategic plan
focusing on core drivers of
shareholder value. This results in
a balance of financial and
non-financial targets. The strong
link between the ESSIP measures
and the strategic measures
within the LTIP is deliberate to
ensure alignment of short and
long term value.
Personal objectives focus on
critical objectives and are set at
stretch levels of performance
with measures and weightings
aligned to the individual’s ability
to influence outcomes.
In FY19, the CLT were measured
solely against Company
performance. The Board
continues to recognise the
importance of focussing on
both financial and non-financial
targets with culture being a key
driver of success. The following
graph shows the relationship
between the primary ESSIP
performance measures in FY19:
• Financial targets account for 67
per cent of the ESSIP with
non-financial targets
accounting for 33 per cent
• Financial includes cost,
production, growth and
profitability measures
• Non-financial includes
safety, culture and people
engagement measures.
33%
16.5%
16.5%
34%
Growth (Financial)
Safety
EBIT Drivers (Financial)
Culture
124
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
5.3
How the ESSIP works: a general example
ESSIP participant rewards are designed to reflect Company performance and provide alignment with shareholder
outcomes by linking a minimum of half the ESSIP to share price movement over the financial year.
EXAMPLE
The example below assumes that Executive A has an incentive opportunity of $100,000 and has elected to take
70 per cent of the incentive in shares.
Details of offer
Nominal Value of full award
VWAP at start of FY19 (1 to 7 July 2018)
Participant Share Weighting
Potential award
Cash (30% of opportunity)
Nominal value of share rights (70%)
Share Rights (70% of opportunity) (ie $70,000 ÷ $4.3480)
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)
$100,000
$4.3480
70%
$30,000
$70,000
16,099
80%
$24,000
12,879
The number of share rights granted in respect to the FY19 ESSIP is determined based on the VWAP at the start of the
performance period which was A$4.3480.
•
•
If the share price at the time of award is higher, Executives will receive higher value per share right
If the share price at the time of award is lower, the value to executives is decreased.
The value of share rights is therefore aligned with shareholder interests as executives receive value consistent with share
price movements. Value is not realised until the vested rights are exercised into shares and sold.
125
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Sustainable cost improvements
5.4
How Fortescue performed over the past
five years
Fortescue continues to build on its performance
over the past five years, showing strong
performance in culture and engagement, customer
focus, retention, safety, production and costs.
The charts that follow show Fortescue’s cost
reductions, a world class improvement in price
realisation, underlying EBITDA and dividends
declared.
C1
US$/wmt
44
34
27
15
13
12
13.11
The non-IFRS information included in the table above has not been subject to audit.
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Price realisation journey
Dividends declared A$ per share
US$
92/dmt
US$
71/dmt
US$
45/dmt
US$
48/dmt
Q1
Q2
Q3
Q4
1.14
0.45
0.23
0.15
0.05
FY15
FY16
FY17
FY18
FY19
The non-IFRS information included in the table above has not been subject to audit.
Underlying EBITDA (US$m)
3,272
52
(126)
(235)
(56)
6,047
3,182
(42)
FY18
Volume
Price/Product mix
C1 costs
Shipping costs
Royalty
Other
FY19
The non-IFRS information included in the table above has not been subject to audit.
In considering Fortescue’s performance and benefits for shareholder value, the Board has regard to the ASX 100
Resources Index in respect to the current financial year and the previous four years.
In FY19, Fortescue’s 30 June share price increased from the FY18 closing price of A$4.39 to A$9.02 at the end of FY19,
which represents a 105 per cent increase. By way of comparison, the ASX 100 Resources Index increased 14 per cent
over the corresponding period.
126
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
Total Tonnes Shipped (wmt)
Revenue from iron ore operations - US$million
Underlying EBITDA – US$million
Net profit/(loss) - US$million
Underlying Return on Equity %
Gearing (Book value of Debt/Debt + Equity)
Dividends declared A$ per share
Share Price A$
Change in share price A$
Change in share price %
2019
167.7
9,965
6,047
3,187
31
27
1.14
9.02
4.63
105
2018
170.1
6,775
3,182
878
11
29
0.23
4.39
(0.83)
(16)
2017
170.4
8,335
4,744
2,093
23
31
0.45
5.22
1.72
49
2016
169.4
6,947
3,195
985
12
45
0.15
3.50
1.59
83
2015
165.4
8,390
2,506
316
4
56
0.05
1.91
(2.44)
(56)
5.5 FY19 ESSIP performance outcomes
ESSIP awards are based on an
assessment of Company and
individual performance. Company
performance comprises financial
and non-financial measures,
including culture, designed to
drive both a short and long term
perspective on performance and
protect the long term interests
of shareholders. Measures are
set to deliver efficient mining
and processing of reserves
whilst ensuring that key 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 FY19, financial targets account
for 67 per cent of CLT performance
objectives with non-financial
targets accounting for the
remaining 33 per cent. The mix
of financial and non-financial
objectives for other Executives
varies depending on 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. The non-financial
component of the ESSIP is
measured with a focus on culture
and people engagement. A
majority of the non-financial
measures are quantitative.
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 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
(i.e. cyclones, floods, fire);
• Financial performance and
shareholder value generated;
• 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; and
• 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 FY19, the Board set a number of
key targets in respect of revenue,
including product and customer
mix, 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 CLT and Executives in order
to deliver long term sustainable
shareholder value.
The ESSIP performance objectives
and achievement outcomes in 2019
are shown on the following page.
127
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
5.5 FY19 ESSIP performance outcomes (continued)
FY19 Short term incentive outcomes
Weighting
(% of STI)
Objective and measurement
CLT
Result
Achievement
Iron ore operations (Financial)
Cost
• C1 Cost < US$12.53/wmt
6
US$13.11
Partially achieved.
Full year C1 cost performance was just 4.6%
short of the stretch target (achieving 95% of
stretch performance)
Overall, the Company has delivered
outstanding financial results in FY19
including a 263% increase in NPAT and 33%
reduction in net debt. In light of FY19 financial
performance, the Board has exercised its
discretion to award 80% for this measure
Cashflow
• Sustaining Capex < US$584 million
Revenue
• Increase in non-China Sales
• EBITDA / Revenue Margin >46.1%
• Shipments of West Pilbara Fines
• Decrease in Trader Sales
4
12
• 14mt
• 58.6%
• 9mt
• 28%
US$581
Achieved
The Capex target has been met
Achieved
A number of the revenue objectives are market
sensitive and therefore specific targets have
not been disclosed
Overall, the revenue measure has been
exceeded, the first shipment of West Pilbara
Fines delivered in December 2018 and other
high margin products introduced during the
year. Full year EBITDA has exceeded the stretch
target of 46.1%. FY19 product mix strategy
changes implemented by the CLT were very
successful and a key contributor to the record
profit result
The Board has exercised its discretion to award
107.5% for this measure
Partially achieved
Full year production performance was 1.3%
lower than the stretch target (achieving 99%
of stretch performance) despite environmental
impacts (such as cyclones) and revised product
mix strategy
The Board has exercised its discretion to award
90% for this measure
Achieved
The FY19 TRIFR is the lowest in the Company’s
history
Achieved
The Safety Excellence and Culture Survey
participation rate and Net Promotor Score
exceeded the Company’s target and overall,
this is an exceptional result
Partially achieved
The Company has continued to deliver
significant progress on its growth strategy
including product mix, customer mix,
innovation and major projects
The Board has determined that this measure will
be awarded at 90% based on partial achievement
Production
• Tonnes Shipped 170.0 million wmt
12
• 167.7mt
People and Culture (Non-Financial)
Safety(1)
• TRIFR < 2.8
Culture
• Participation rate ≥90%
• Positive Net Promotor Score
Growth (Financial)
• Specific growth objectives designed
to increase Fortescue’s market value
assessed at the absolute discretion of
the Board
16.5
2.8
16.5
33
>93%
+24
Partially
achieved
(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.
128
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 5.5 FY19 ESSIP performance outcomes (continued)
In FY19, the CLT were measured solely against Company performance outcomes thereby ensuring the alignment
between Company performance, shareholder value and CLT reward for the performance year.
Payment of ESSIP awards are made in September 2019 after the release of the Company’s audited full year results and
with final approval from the Board.
Further details in regard to the Company’s full year results are set out in the Director’s Report on page 60 to 62.
5.6 FY19 ESSIP awards
Share rights granted under the ESSIP at the beginning of FY19 are shown below. All share rights vest if all ESSIP
objectives are met. ESSIP share rights reflect the VWAP of shares 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 the sustainable value of shareholders' investment in
the Company.
The ESSIP has awarded on average 95.2 per cent of maximum opportunity for the CLT.
The last column in the table below details the actual number of share rights that vested based on actual performance:
CLT
E Gaines
ESSIP share
rights granted
ESSIP share
rights lapsed
ESSIP share
rights forfeited
ESSIP share
rights vested
216,695
10,401
-
206,294
G Lilleyman
232,866
11,178
-
221,688
J Shuttleworth
117,296
5,630
-
111,666
I Wells
157,400
7,555
-
149,845
Unvested share rights lapse once the total at risk outcome of the ESSIP is determined.
The table below details the maximum ESSIP cash and share awards against the actual outcomes for FY19. The share
components are based on the share weighting election of each member of the CLT.
• The actual share value to the individual is not realised until vested rights are exercised by the participant. For the purpose of
this report, the nominal ESSIP value of vested rights is shown:
- Based on the July 2018 VWAP share price at grant (A$4.3480); and
- Based on the July 2019 VWAP share price at vesting (A$9.1892),
demonstrating the alignment between Company performance, executive reward and Shareholder value.
Maximum
ESSIP
opportunity
(per cent
of TFR)
2019
TFR1
Executive directors
Weighting
in shares
(per cent)2
Maximum
ESSIP cash
opportunity
Maximum
ESSIP shares
opportunity -
value at grant
ESSIP
outcome
%
Total
ESSIP
cash
awarded
Share
price at
grant
A$4.3480
Share price
at vesting
A$9.1892
Share
price at
grant
A$4.3480
Share price
at vesting
A$9.1892
Nominal value of
ESSIP vested rights
Nominal total
ESSIP value
E Gaines
1,675,000
112.5%
50%
942,188
942,188
95.2% 896,963
896,966
1,895,677 1,793,929
2,792,640
Other CLT
G Lilleyman
1,350,000
J Shuttleworth
850,000
I Wells
912,500
75%
75%
75%
100%
-
1,012,500
95.2%
- 963,899 2,037,135
963,899 2,037,135
80%
127,500
510,000
95.2% 121,380 485,524 1,026,121
606,904 1,147,501
100%
-
684,375
95.2%
- 651,526 1,376,956
651,526 1,376,956
1 Incorporates any adjustment to TFR during the performance period calculated on a pro-rata basis.
2 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 ($4.3480).
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REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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
FY17 LTIP
FY18 LTIP
FY19 LTIP
Performance period
Performance measure
Assessment and award
1 July 2016 to 30 June 2019
1 July 2017 to 30 June 2020
1 July 2018 to 30 June 2021
TSR (33%)
AROE (33%)
Strategic Measures (34%)
September 2019
September 2020
September 2021
5.7.1 LTIP operation
The LTIPs operate under the
Performance Rights Plan Rules
as approved by Shareholders at
the Company’s Annual General
Meeting on 15 November 2018
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); and
• Key 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. 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 of the three performance
measures 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
(subject to the cap described
above) where Fortescue delivers
the market leading total
shareholder return over the
performance period.
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
5.7.1
LTIP operation (continued)
The TSR vesting schedule is as follows:
LTIP TSR Target and Vesting Schedule
Performance
Below Threshold
Threshold
Target
Stretch
Average TSR
Portion of tranche that vests
Below the 60th percentile
Nil
At the 60th percentile
25 per cent of share rights vest
At the 80th percentile
100 per cent of share rights vest
At the 100th percentile
150 per cent of share rights vest
Vesting between performance levels is calculated on a linear basis with the stretch element considered together with the
achievement of all performance measures and subject to the aggregate performance cap
The Board acknowledge that a relative
TSR hurdle can result in unintended
outcomes. The intent is to ensure no
windfall gains or undue penalty. In
the event that TSR is negative but
the relative TSR hurdle is achieved,
the Board will consider overall
performance and circumstances and
may, at its absolute discretion, reduce
the level of vesting or determine that
no award will be made in respect to
the TSR measure.
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 FY17 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 Index:
• 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 FY17 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; and
• 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:
LTIP AROE Target and Vesting Schedule
Performance
Below Threshold
Threshold
Target
Stretch
Average ROE
Portion of tranche that vests
<15%
15%
30%
>30%
Nil
25 per cent of share rights vest
100 per cent of share rights vest
150 per cent of share rights vest
Vesting between Threshold and Target performance levels is calculated on a linear basis with the stretch element
considered together with the achievement of all performance measures and subject to the aggregate performance cap.
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REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
5.7.1 LTIP operation (continued)
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 deliberate strong link between these
strategic measures and the ESSIP measures ensures 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.
Strategic measures categorised during the three years and their link to strategy are as follows:
LTIP Strategic Measures
Performance Measure
Link to strategy
Safety
Performance
Safety leadership and culture
Competitive position, cash flow and efficient use of capital
Resource Management
Long term sustainability
Iron ore and other Commodity Growth
Growth and diversity of income
Balance Sheet Management
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:
LTIP Strategic Measure Target and Vesting schedule
Performance
Below Threshold
Threshold
Target
Stretch
Score
Portion of tranche that vests
<5
5
10
15
Nil
25 per cent of share rights vest
100 per cent of share rights vest
150 per cent of share rights vest
Vesting between performance levels is calculated on a linear basis with the stretch element considered together with
the achievement of all performance measures and subject to the aggregate performance cap
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.
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
5.7.2 FY17 LTIP performance outcomes
The FY17 LTIP has achieved all three performance measures, as shown in the table below, resulting in 100 per cent of
share rights vesting under this plan.
FY17 LTIP Performance Outcomes
Measure
TSR
AROE
Strategic Measures
Weighting
Threshold
Result
Achieved
33%
33%
34%
60th percentile
100th percentile
15%
21.9%
5 out of 15
10 out of 15
150%
59.5%
100%
FY17 LTIP vesting outcome
100%
Overall outcome capped at 100%
Weighted
average
49.5%
19.6%
34%
103.1%
100%
5.7.3 FY17 LTIP TSR Performance
In the period from 1 July 2016 to 30 June 2019 Fortescue achieved a TSR of 206 per cent and a percentile ranking of 100
per cent. Based on the percentile ranking, 150 per cent of share rights granted in respect to the TSR measure will vest.
TSR Performance
TSR
Percentile Ranking
Vesting outcome
206%
100%
150%
Details of the FY17 comparator group and TSR Ranking is shown in the table below.
ASX 100 Resource Index Constituent
TSR %
1
2
3
4
5
6
7
8
Fortescue Metals Group
Rio Tinto Group
BHP Group
South32 Limited
Alumina Limited
BlueScope Steel Limited
Iluka Resources Limited
Santos Limited
9 Woodside Petroleum Ltd
10 Newcrest Mining Limited
11 Origin Energy Limited
12 Oil Search Limited
13
Caltex Australia Limited
206%
156%
139%
128%
121%
84%
66%
53%
50%
36%
29%
10%
(14%)
100%
92%
83%
75%
67%
58%
50%
42%
33%
25%
17%
8%
0%
133
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
5.7.4 FY17 LTIP AROE Performance
Fortescue’s average AROE for the three year performance period exceeded the 15 per cent minimum threshold (as
shown in the table below) and accordingly 59.5 per cent of share rights granted in respect to the AROE measure will
vest.
Year ending
30 June 2017
30 June 2018
30 June 2019
Average ROE
Vesting Outcome
AROE
23.1
11.1
31.6
21.9
59.5
5.7.5 FY17 LTIP Strategic Measures Performance
Strategic measures are set and assessed by the Board on an annual basis and the FY17 LTIP incorporates strategic
measures for the 2017, 2018 and 2019 financial years.
FY19 Annual Strategic Measures
For FY19, the Board reviewed the strategic measures in line with the strategic business plan and determined that a
scorecard focussing on iron ore growth and diversification best reflected Fortescue’s long term objectives. The strategic
measures determined for the 2019 financial year and Fortescue’s performance against these objectives are shown in
the table below:
FY19 Strategic Measures and objectives
Performance measure Objective (KPI)
Outcome
Iron ore growth
• Progress identified iron
Achieved
ore strategy
• Increase long term
product flexibility with
no net decrease in mine
life
• Progress agreed long
term sales pathway
strategy
Other growth
• Develop and execute
strategies for
exploration and drilling
programs in new
geographical locations
• Develop and execute
strategic options for
growth in non-Fe
commodities
• Identify and develop
additional growth
options (eg. hydrogen
and autonomy)
Significant progress of the identified iron ore strategy has been
made with global high grade opportunities evaluated. The Iron
Bridge project was approved by the JV Committee in April and
engineering and early works on site have commenced. Western
Hub drilling has also produced strong results
Early site works for Eliwana have commenced and the project
remains on schedule. The 20 year mine life has been maintained
The committed long term contract offtake strategy is on target
which will allow Fortescue to capitalise on prevailing market
opportunities and create supply chain agility
Achieved
Considerable progress has been made toward Fortescue’s
diversification strategy including the commencement of drilling
in Ecuador in April 2019 and reconnaissance exploration work
ongoing in Colombia. Third party opportunities continue to be
assessed. Exploration activities have defined drill targets in the
San Juan province in Argentina with drilling to commence in FY20.
Copper and lithium projects in Argentina continue to be identified
and analysed. New opportunities in Chile and Peru are
under evaluation
A partnership with CSIRO on hydrogen technology was established
in November 2018 and the Fortescue Future of Mobility Centre
was launched in March 2019 with the commencement of an
autonomous light vehicle trial at Christmas Creek and Fortescue’s
industrial autonomy development program underway
FY19 strategic measures are assessed on an overall basis at the discretion of the Board and subject to a score from 0 to 15.
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
5.7.5 FY17 LTIP Strategic Measures Performance (continued)
FY17 and FY18 Strategic Measures
The table below shows the strategic measures that were set for the 2017 and 2018 financial years and Fortescue’s
performance against these objectives. The outcomes for the FY17 and FY18 Strategic Measures were previously
reported in the FY18 Remuneration Report in relation to the FY16 LTIP. The outcomes have been updated to reflect the
relevant two annual performance periods.
FY17 and FY18 Strategic Measures and objectives
Performance measure Objective (KPI)
Outcome
Safety
• Improve Fortescue’s
relative position against
the global safety
culture benchmark
FY17 (target not achieved). Fortescue’s relative position against the safety
culture benchmark reduced from the 69th percentile to 64th percentile
FY18 (exceeded target). Fortescue’s relative position against the safety
culture benchmark improved from the 64th percentile to 77th percentile
The combination of long term safety culture as well as year on year
improvements to both the Safety Excellence and Culture Survey
results and injury frequency remain a key strategic goal
Performance
• Improve Fortescue’s
Achieved
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
C1 costs have reduced from US$15.43/wmt to US$12.36/wmt over the
two year performance period representing a 20% reduction
During the 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 was maintained
over the two year performance period
Despite market volatility in the sales price of iron ore, the reduction in
total delivered costs resulted in an average EBITDA margin of US$25/
dmt over the two year period
Target sustaining capital expenditure budgets were also achieved whilst
achieving production targets over the two year performance period
Resource Management
• Increase long term
Achieved
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
The FY18 reserves and resources statement reflected maintenance
of 20 years mine life, based on Life of Mine Plans. Year on year cost
savings were achieved without reducing long term mine life ensuring
shareholder value. The addition of 540m wmt from the Eliwana
project facilitated the sustainable production of a 60% Fe product
introduced to the market from existing operations in the second half
of FY19. The US$1.275bn Eliwana mine and rail project significantly
increased mining inventory into Fortescue’s integrated mine, rail and
port operation
Achieved
Fortescue’s non-China sales increased significantly by 113% over the
FY17 and FY18 performance years
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/
Achieved
Debt + Equity) to 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 two 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 two year period in
relation to balance sheet management
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REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
5.7.6 FY17 LTIP awards
Share rights granted under the LTIP at the beginning of FY17 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’s employment, as executives of the Company, commenced after the performance period
had commenced and accordingly, they did not participate in the FY17 LTIP.
FY17 LTIP
Executive
E Gaines
G Lilleyman
J Shuttleworth
I Wells
LTIP share
rights granted
LTIP share
rights lapsed
LTIP share
rights forfeited
LTIP share
rights vested
-
-
100,759
109,639
-
-
-
-
-
-
-
-
-
-
100,759
109,639
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 15 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.
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FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
06 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. The
value received by Executives is
subject to performance and share
price movement aligned with
shareholder value. Refer to section
6.1 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 FY19 ESSIP share
component plus one year each of the
FY17, FY18 and FY19 LTIP. Refer to
section 6.2 for further information.
6.1
Actual remuneration paid in FY19
• FY17 LTIP is awarded solely in
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 the CLT is
reflective of the following:
• FY19 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;
• FY19 ESSIP share rights
granted at the beginning of the
performance period at a VWAP
of A$4.3480;
• FY19 ESSIP vested rights
awarded have a nominal
value based on A$9.1892
being the five day VWAP at
the beginning of FY19. The
increase in share price over the
respective performance period
has resulted in an unrealised
increase in equity value to the
CLT in respect to this plan;
vested rights;
• FY17 LTIP share rights granted
at the beginning of the
performance period at a VWAP
of A$3.7590; and
• FY17 LTIP vested rights
awarded have a nominal value
based on A$9.1892 being the
five day VWAP at the beginning
of FY19. The increase in share
price over the respective
performance periods has
resulted in an unrealised
increase in equity value to the
CLT in respect to these plans.
The following table shows the
nominal remuneration value
realised by the individual and
includes fixed remuneration,
any cash incentives paid and
the nominal value of equity at
the time the share rights vest
or shares are awarded. The
following key points should be
read in conjunction with the
table below:
• Ms Gaines and Mr Lilleyman
did not participate in the
FY17 LTIP.
Name
E Gaines
G Lilleyman
J Shuttleworth
I Wells
Fixed1,2
remuneration
A$
1,675,000
1,350,000
850,000
912,500
FY19 ESSIP
cash paid
A$
896,963
-
121,380
-
Nominal value of
FY19 ESSIP
vested rights
A$
Nominal value of
FY17 LTIP
vested Rights
A$
Nominal total
remuneration
earned in FY19
A$
1,895,677
2,037,135
1,026,121
1,376,956
-
-
925,895
1,007,495
4,467,640
3,387,135
2,923,396
3,296,951
1 Fixed remuneration includes cash salary, paid leave and superannuation.
2 Calculated on a pro-rata basis (ie 6 months of previous TFR and 6 months of current TFR).
The non IFRS information included in the table above has not been subject to audit.
137
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
6.2
Statutory remuneration disclosures for the CLT
Statutory remuneration disclosures are prepared in accordance with Australian Accounting Standards and include
share based payments expensed during the financial year, calculated in accordance with AASB 2 Share based payments.
The estimated fair value was determined using an option pricing model that takes into account the exercise price,
the term of the option, the impact of dilution, the share price at grant date, expected price volatility of the underlying
share, the effect of additional market conditions, the expected dividend yield, estimated share conversion factor and
the risk free interest rate for the term of the right.
Statutory remuneration differs significantly from actual remuneration paid to executives due to the accounting
treatment of share based payments. For details of remuneration actually paid to the Chief Executive Officer and
Executives in FY19 refer to section 6.1.
Statutory Remuneration Disclosures for year ending 30 June 2019
Short-term employee benefits
ESSIP cash
value for
2019 plan
year
A$
Cash
salary and
fees
A$
Non-
monetary
benefits
A$
Post
employment
benefits
End of
service
Share-based
payments
Total
statutory
remuneration
Superann-
uation
A$
Other
payment
A$
ESSIP
share
value
A$
LTIP
share
value
A$
Total
A$
FY19
Executive Directors
E Gaines
Other CLT
1,650,000
896,963
4,272
25,000
G Lilleyman
1,325,000
-
J Shuttleworth
829,468
121,380
-
-
I Wells
891,968
-
4,272
25,000
20,532
20,532
-
-
-
-
953,262
1,474,391
5,003,888
1,030,743
848,535
3,229,278
550,676
702,478
2,224,534
686,865
722,648
2,326,285
Statutory Remuneration Disclosures for year ending 30 June 2018
• Mr Power’s FY17 and FY18 LTIP share rights were forfeited on resignation
• Mr Power’s other payment relates to an ex-gratia payment of A$1,006,850 and accrued leave entitlements paid out on resignation
• Mr Wells’ other payment is in respect to a retention plan which concluded on 30 June 2018.
FY18
Short-term employee benefits
ESSIP cash
value for
2018 plan
year
A$
Cash
salary and
fees
A$
Non-
monetary
benefits
A$
Post
employment
benefits
End of
service
Share-based
payments
Total
statutory
remuneration
Superann-
uation
A$
Other
payment
A$
ESSIP
share
value
A$
LTIP
share
value
A$
Total
A$
Executive Directors
E Gaines
N Power1
Executives
1,214,830
1,248,816
G Lilleyman
1,047,619
-
-
-
J Shuttleworth
578,782
58,253
4,223
28,582
25,000
-
860,316
416,370
2,520,739
17,512
1,641,626
886,468 (1,087,517)
2,735,487
-
-
25,000
20,049
610,003
337,670
2,020,292
234,554
334,372
1,226,010
I Wells
634,557
162,183
4,223
20,049
426,342
163,723
362,743
1,773,820
1 Mr Power ceased employment on 19 February 2018.
138
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
6.3 Details of performance grants to executive directors
At the 2018 Annual General Meeting, the Company received Shareholder approval in respect of the grant of up to
3,353,397 performance rights to Ms Gaines over a three year period under the Fortescue Metals Group Ltd Performance
Rights Plan. However, in the interests of good corporate governance, the Company will be seeking fresh approval at the
2019 Annual General Meeting from Shareholders in respect of the grant of performance rights to Ms Gaines under the
Performance Rights Plan for the financial year ending 30 June 2020 and will not rely on the previous approval granted
by Shareholders at the 2018 Annual General Meeting in respect of potential grants for the financial years ending 30
June 2020 and 30 June 2021. The Company proposes to seek approval at the 2020 Annual General Meeting for any
performance rights to be granted to Ms Gaines in respect of the financial year ending 30 June 2021.
Details of performance rights granted in FY19 in accordance with the Performance Rights Plan are shown in the table below.
Ms Gaines
ESSIP Share Rights
LTIP Share Rights
Total
Share rights granted in FY19
216,695
702,953
919,648
Included in the FY19 share right grant to Ms Gaines are:
• An additional 22,640 share rights in respect to the FY19 ESSIP and 100,621 additional share rights in respect to the
FY19 LTIP as a result of an increase to her total fixed remuneration on 1 January 2019; and
• An additional 84,852 share rights in respect to the FY18 LTIP as the incorrect number of FY18 LTIP share rights were
granted to her on 20 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.
139
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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 2017 to 30 June 2019. The value of the rights has been determined using the amount of the grant date fair value.
• The estimated fair value was determined using an option pricing model that takes into account the exercise price,
the term of the option, the impact of dilution, the share price at grant date, expected price volatility of the underlying
share, the effect of additional market conditions, the expected dividend yield, estimated share conversion factor and
the risk free interest rate for the term of the right
• Ms Gaines and Mr Lilleyman commenced during the LTIP performance period and were not granted share rights
under the FY17 LTIP.
Performance
period
No. share
rights
granted
Value per
share right
granted
Value of
rights
granted at
grant date
%
Performance
achieved
Vested
Forfeited
/ lapsed
-
-
Name
LTIP Grant date
E Gaines
FY17
20/09/2016
FY18
08/11/2017
FY18
27/12/2017
FY19
03/12/2018
FY19
10/06/2019
G Lilleyman
FY17
20/09/2016
FY18
06/09/2017
FY18
27/12/2017
FY19
03/12/2018
FY19
10/06/2019
J Shuttleworth FY17
20/09/2016
FY18
06/09/2017
FY18
27/12/2017
FY19
03/12/2018
FY19
10/06/2019
I Wells
FY17
20/09/2016
FY18
06/09/2017
FY18
27/12/2017
FY19
03/12/2018
FY19
10/06/2019
140
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/17 to
30/6/20
1/7/18 to
30/6/21
1/7/18 to
30/6/21
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/17 to
30/6/20
1/7/18 to
30/6/21
1/7/18 to
30/6/21
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/17 to
30/6/20
1/7/18 to
30/6/21
1/7/18 to
30/6/21
1/7/16 to
30/6/19
1/7/17 to
30/6/20
1/7/17 to
30/6/20
1/7/18 to
30/6/21
1/7/18 to
30/6/21
-
-
-
209,637
$4.15
$869,994
175,767
$4.17
$732,948
517,480
$3.57
$1,847,404
100,621
$7.91
$795,912
-
-
-
-
-
Determined in 2020
Determined in 2020
Determined in 2021
Determined in 2021
-
-
190,147
$4.98
$946,932
Determined in 2020
30,635
$4.17
$127,748
Determined in 2020
275,989
$3.57
$985,281
Determined in 2021
57,498
$7.91
$454,809
Determined in 2021
100,759
$4.61
$464,499
100%
100,759
-
72,019
$4.98
$358,655
Determined in 2020
50,904
$4.17
$212,270
Determined in 2020
160,994
$3.57
$574,749
Determined in 2021
57,498
$7.91
$454,809
Determined in 2021
109,639
$4.61
$505,436
100%
109,639
-
81,068
$4.98
$403,719
Determined in 2020
61,065
$4.17
$254,641
Determined in 2020
189,743
$3.57
$677,383
Determined in 2021
33,540
$7.91
$265,301
Determined in 2021
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 07 Executive contract terms
Total Remuneration Package and other terms of employment for
the CLT are formalised in a service agreement.
The CLT are employed on a rolling basis with no specified fixed term. The CLT are remunerated on a total fixed remuneration
(TFR) basis inclusive of superannuation and allowances.
The major terms of the agreements relating to remuneration are set out in the table below:
Position
Executive
TFR* (A$)
% of TFR
A$
% of TFR
A$
Maximum ESSIP
opportunity
Maximum LTIP
opportunity
Nominal
value of total
remuneration
package at
maximum
opportunity
Chief
Executive Officer
E Gaines
1,850,000
112.5
2,081,250
150
2,775,000
6,706,250
Chief
Operating Officer G Lilleyman
1,500,000
Deputy Chief
Executive Officer
Chief
Financial Officer
J Shuttleworth
1,000,000
I Wells
1,000,000
75
75
75
* Total Fixed Remuneration as of 30 June 2019. Reviewed annually by the RPC.
1,125,000
100
1,500,000
4,125,000
750,000
100
1,000,000
2,750,000
750,000
100
1,000,000
2,750,000
The CLT are required to provide written notice of six months (as specified in their individual service agreement) to terminate
their employment.
Contractual termination benefits for the CLT comply with the limits set by the Corporations Act 2001 and do not require
shareholder approval.
08 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 reviewed the fees payable to NEDs having regard to benchmark data, market position and the increasing
workload undertaken by each of these Directors. NED Board and Committee fees (inclusive of superannuation) were
increased effective from 1 January 2019. Prior to that, the last time NED base and Committee fees were increased was
in July 2016. Based on market benchmarking, the Company’s average Non-executive Director fees remain below the
market median of the ASX 100 Resources Index. The increase in fees does not exceed the shareholder approved total
fee cap of $2.5 million and are outlined in the table on the following page.
141
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
8.2 NED fee pool (continued)
Position
Board Chairman*
Vice Chair and Lead Independent Director
Vice Chair
Non-Executive Director
Audit and Risk Management Committee Chair
Audit and Risk Management Committee Member
Remuneration and People Committee Chair
Remuneration and People Committee Member
Finance Sub-Committee Member
Nomination Committee Member
Fee A$ effective
1 January 2019
0
688,350
341,770
200,200
57,200
21,450
57,200
21,450
8,580
0
* 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.
The remuneration of non-Executive Directors for the year ended 30 June 2019 and 30 June 2018 is detailed below.
2019
A Forrest AO
Base
fees
A$
-
M Barnaba AM
588,912
S Warburton
284,667
J Baderschneider
P Bingham-Hall
S Coe CH, KBE
J Morris OAM
C Zhiqiang
2018
A Forrest AO
M Barnaba AM
S Warburton
J Baderschneider
P Bingham-Hall
S Coe CH, KBE3
C Zhiqiang1
J Morris OAM
C Huiquan2
177,100
160,272
177,100
160,272
177,100
Base
fees
A$
-
394,410
217,816
154,000
139,367
54,709
69,962
139,367
84,037
1 C Zhiqiang appointed 18 January 2018.
2 C Huiquan retired 18 January 2018.
3 S Coe appointed 21 February 2018.
Committee
fees
A$
Other
benefits
A$
Superanuation
A$
-
64,589
69,833
-
24,041
-
34,344
-
-
-
-
-
-
-
-
-
-
25,000
25,000
-
19,353
-
20,435
-
Committee
fees
A$
Other
benefits
A$
Superanuation
A$
-
56,917
60,001
-
20,904
-
-
29,864
-
-
-
-
-
-
-
-
-
-
-
24,506
24,487
-
16,828
-
-
17,769
-
Total
A$
-
678,501
379,500
177,100
203,666
177,100
215,051
177,100
Total
A$
-
475,833
302,304
154,000
177,099
54,709
69,962
187,000
84,037
142
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 09 Equity instrument disclosures relating
to key management personnel
9.1 Unvested Share Rights
Non-executive Directors do not participate in Fortescue’s incentive plans and do not hold unvested share rights.
The movement during the reporting period in the number of options and share rights over ordinary shares in the
Company held directly, indirectly or beneficially, by each of the CLT, including their related parties is as follows:
Balance
at the
start of
the year
2019
Granted1
Exercised /
converted
Forfeited /
lapsed
Balance
at the end
of the
year
Executive Directors of Fortescue
Vested
Unvested
Not
exercisable
E Gaines
525,966
919,648
(164,552)
(60,862) 1,220,200
Other Key Management Personnel of Fortescue
G Lilleyman
360,488
581,142
(111,236)
(43,259)
787,135
J Shuttleworth
475,252
356,149
(225,667)
(46,264)
559,470
I Wells
454,003
410,163
(194,159)
(37,552)
632,455
-
-
-
-
1,220,200
1,220,200
787,135
559,470
632,455
787,135
559,470
632,455
1 Performance Rights were granted in accordance with the short term and long term performance rights plans, as disclosed in note 18 of the Financial Report.
Balance
at the
start of
the year
2018
Granted1
Exercised /
converted
Forfeited /
lapsed
Balance
at the end
of the
year
Vested
Unvested
Not
exercisable
Executive Directors of Fortescue
E Gaines
N Power2
-
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
G Lilleyman
99,761
360,488
(91,780)
(7,981)
360,488
J Shuttleworth
467,526
164,099
(71,942)
(84,431)
475,252
I Wells
412,285
154,899
(38,283)
(74,898)
454,003
-
-
-
-
-
525,966
525,966
2,094,312
2,094,312
360,488
475,252
454,003
360,488
475,252
454,003
1 Performance Rights were granted in accordance with the short term and long term performance rights plans, as disclosed in note 19 of the Financial Report.
2 Mr Power ceased employment on 19 February 2018.
143
REMUNERATION REPORT08FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
9.2 Share holdings (Ordinary Shares)
The numbers of shares in the Company held during the financial year by each Director and CLT, including their related
parties, are set out below:
2019
Held at
1 July 2018
Received
on
conversion
of rights
Non-executive Directors of Fortescue
A Forrest AO
1,038,800,000
M Barnaba AM
S Warburton
J Baderschneider
P Bingham-Hall
S Coe CH, KBE
J Morris OAM
C Zhiqiang
20,000
50,750
138,000
36,516
-
5,250
-
-
-
-
-
-
-
-
-
Executive Directors of Fortescue
E Gaines
224,823
164,552
Other Key Management Personnel of Fortescue
G Lilleyman
91,780
111,236
J Shuttleworth
172,200
225,667
I Wells
109,333
194,159
2018
Held at
1 July 2017
Received
on
conversion
of rights
Non-executive Directors of Fortescue
A Forrest AO
1,038,800,000
M Barnaba AM
S Warburton
J Baderschneider
P Bingham-Hall
S Coe CH, KBE
C Huiquan2
J Morris OAM
C Zhiqiang3
20,000
50,750
138,000
35,000
-
-
-
-
-
-
-
-
-
-
-
-
-
Executive Directors of Fortescue
E Gaines
N Power4
50,000
89,293
2,951,238
299,282
Other Key Management Personnel of Fortescue
G Lilleyman
J Shuttleworth
I Wells
-
100,258
71,050
91,780
71,942
38,283
Issued
Purchases
Sales
Transfers Other
- 51,252,947
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,420
-
6,269
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Held at
30 June 2019
- 1,090,052,947
-
-
-
-
-
-
-
-
-
-
-
20,000
50,750
138,000
40,936
-
11,519
-
389,375
203,016
397,867
303,492
Issued
Purchases
Sales
Transfers
Other1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,516
-
-
5,250
-
85,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(299,282)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,951,238)
-
-
-
Held at
30 June 2018
1,038,800,000
20,000
50,750
138,000
36,516
-
-
5,250
-
224,823
-
91,780
172,200
109,333
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.
144
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
09
Corporate
Directory
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
145
145
CORPORATE DIRECTORY09FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Top 20 holders of ordinary shares
at 31 July 2019
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 Pty Limited
Valin Investments (Singapore) Pte Ltd
Citicorp Nominees Pty Limited
Emichrome Pty Ltd
Valin Resources Investments (Singapore) Pte Ltd
AMNL Financing Pty Ltd
The Trust Company Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
AMNL Financing Pty Ltd
Bnp Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited-Gsco Eca
Mr William Graeme Rowley
Citicorp Nominees Pty Limited
Pacific Custodians Pty Limited
Peter & Lyndy White Foundation Pty Ltd
Pacific Custodians Pty Limited
918,806,548
545,696,178
341,477,882
228,007,497
155,267,390
93,045,000
88,426,216
71,365,581
64,968,641
51,457,493
33,026,489
30,365,261
16,662,372
16,508,037
15,155,475
8,244,951
7,233,204
6,640,385
5,788,083
5,687,989
29.84
17.72
11.09
7.41
5.04
3.02
2.87
2.32
2.11
1.67
1.07
0.99
0.54
0.54
0.49
0.27
0.23
0.22
0.19
0.18
2,703,830,672
87.82
Substantial holders
Rank Name
Shares number
% of issued capital
1
2
Minderoo Group Pty Ltd and John Andrew Forrest
Hunan Valin Iron and Steel Group Company
1,090,052,947
384,914,118
35.40
12.50
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
25,166
23,817
6,203
4,511
312
60,009
Unmarketable parcels
There were 1,883 members holding less than a marketable parcel of shares in the Company.
146
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19
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.
Chichester Hub
Fortescue’s mining hub with two
operating iron ore mines, Cloudbreak
and Christmas Creek, located in the
Pilbara, approximately 250 kilometres
south east of Fortescue’s Herb Elliott
Port in Port Hedland.
AMMA
Australian Resources and Energy
Group.
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
(4th 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.
CID
Channel Iron Deposit.
CO2e
Carbon dioxide equivalent which is the
internationally recognised measure of
greenhouse gas emissions.
Contractors
Non-Fortescue employees, working
with the Company to support specific
business activities.
Corporations Act
Corporations Act 2001 of the
Commonwealth of Australia.
DID
Detrital Iron Deposit.
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 Limited (ACN
002 594 872) and its subsidiaries.
Fortescue blend
A blend of ore from Christmas Creek
and Firetail mines, with an iron grade
of 58.2% 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 content of between 57% and
63% Fe. Hematite deposits are typically
large, close to the surface and mined
via open pits.
HSES
Health, safety, environment and
security.
ICMM
The International Council on Mining
and Metals, established in 2001 to
act as a catalyst for performance
improvement in the mining and metals
industry.
Indigenous Land Use Agreement
(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.
147
CORPORATE DIRECTORY09FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 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.
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 content
of 57.3% Fe.
kL
Kilolitre.
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, 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.
Local supplier
Suppliers based in the Pilbara region.
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.
148
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 UNGC
United Nations Global Compact,
which provides a leadership platform
for businesses 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.
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 iron ore product from the
Chichester Hub, with an iron content of
56.4% Fe.
TRIFR
Total Recordable Injury Frequency
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 (NPAT) adjusted
for the after tax impact of one-off
refinancing and early debt repayment
costs.
149
CORPORATE DIRECTORY09FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 FY19 awards
Winner
Asia Pacific Spatial Excellence Awards,
WA, 2018 Award for Spatial Enablement
Regional Winner
Fortescue Metals Group and NGIS Australia
Australian Mining Prospect Awards'
inaugural Lifetime Achievement honour
Chairman and Founder, Andrew Forrest AO
Outstanding Contribution by an
Individual to Veterans’ Employment at
Australia’s Prime Minister’s Veterans’
Employment Awards
Manager Training and Development,
Chris Mayfield OAM
WA Business News 40under40 awards
and Intrapreneur of the Year
Group Manager Strategy, John Paul Olivier
Women in Mining, 100 Inspirational
Women in Mining 2018
CEO, Elizabeth Gaines
Finalist
Australia China Business Awards
The Business Excellence Award for
Cross-Border Investment
Supply Nation, 2019 Supplier
Diversity Awards
Corporate Member of the Year
WiTWA '20 in 20' Awards
Superintendent Mine Control, Di Harley
2019 Chamber of Minerals and Energy’s
Women in Resources (CME) Awards,
Outstanding Young Woman
in Resources award
Solomon Mine Control Superintendent,
April Scott
Fortescue’s Manager Training and Development, Chris Mayfield
at the Prime Minister’s Veterans’ Employment Awards 2019.
150
150
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 Contact details
Fortescue 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 Shanghai, China
Current address:
33/F East Building
Eton International Business Plaza
555 Pudong Ave, Pudong, PC200120
Shanghai, P.R China
Address from October 2019:
Unit 3, Floor 15
No. 1366 Lujiazui Ring Road
Pudong New Area
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 Street
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
South Australia
34 Croydon Road
Keswick, SA 5035
Fortescue Argentina
Ombú 3017
Ciudad Autónoma de Buenos Aires (1425)
Buenos Aires Argentina
Fortescue Colombia
Carrera 12ª # 78 - 40, Edificio Wework
piso 10, oficina 105
Bogotá Cundinamarca
Colombia
Fortescue Ecuador
Avenida Nayon s/n y Avenida Simon
Bolivar Conjunto Corporativo EkoPark,
torre 2, piso 7, oficina 702
Quito Ecuador
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 Limited shares
are listed on the Australian Securities
Exchange (ASX)
ASX Code: FMG
Fortescue Share Registry
Link Market Services Limited
Level 12, QV1 Building
250 St Georges Terrace
Perth, WA 6000
Locked Bag A14
Sydney South, NSW 1235
T: 1300 733 136 (within Australia)
T: +61 2 8280 7603 (International)
F: +61 2 9287 0309
www.linkmarketservices.com.au
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
preferences on the Registry website:
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Twitter
@FortescueNews
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www.youtube.com/user/
FortescueMetalsGroup
151
Corporate
information
Event calendar 2019
Key dates for Fortescue
shareholders in 2019
Full year results announcement
26 August 2019
September Quarterly
Production Report
24 October 2019
Annual General Meeting
29 October 2019
CORPORATE DIRECTORY09FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 In its short history, Fortescue has accomplished what was
judged as impossible: to build a company from a start up
to a global leader in the mining industry.
THE
DREAM
BEGINS
2003
2004
S&P/ASX 200 index
2005
Hunan Valin
becomes major shareholder
Solomon construction begins
2007
2009
2011
Firetail opened
at Solomon
2013
2006
Port Hedland
groundbreaking
2008
2010
Christmas Creek
expanded
2012
Cloudbreak identified
First ore on ship
Autonomous haulage begins at Solomon
152
FORTESCUE METALS GROUP LTD ANNUAL REPORT FY19 THE JOURNEY
CONTINUES
Lowest 12 month annual TRIFR of 2.8
Billion Opportunities program reached
A$2.3bn
Fortescue celebrates tug fleet and official
opening of the Judith Street Harbour in
Port Hedland
Iron Bridge Magnetite Project
development approved
First shipment of West Pilbara Fines
2019
Anderson Point Berth 5 completion
Fortescue River Gas Pipeline completion
2015
Expansion of autonomous haulage
to Chichester Hub
Majority of women on Board of Directors
2017
2014
Kings Valley project
opened at Solomon
2016
Recognised as lowest cost iron ore
supplier into China
Fortescue celebrates arrival of first ore carrier,
FMG Nicola, into Port Hedland
2018
Fortescue celebrates milestone year
Eliwana Mine and Rail Project development approved
Eighth ore carrier, FMG Northern Spirit, arrives in
Port Hedland
The
year
THE
DREAM
at a
BEGINS
glance
2003
S&P/ASX 200 index
2005
2004
Cloudbreak identified
Annual
Report
FY19
Global force
Thriving communities
ABN 57 002 594 872