Fortescue Metals : JP Morgan Conference Presentation

JP Morgan

Global High Yield &

Leverage Finance

Conference

February 2020

Global force

Thriving communities

Forward

Looking

Statements

Disclaimer

Important Notice

The purpose of this presentation is to provide general information about Fortescue Metals Group Ltd ("Fortescue"). It is not recommended that any person makes any investment decision in relation to Fortescue based on this presentation. This presentation contains certain statements which may constitute "forward-looking statements". Such statements are only predictions and are subject to inherent risks and uncertainties which could cause actual values, results, performance or achievements to differ materially from those expressed, implied or projected in any forward- looking statements.

No representation or warranty, express or implied, is made by Fortescue that the material contained in this presentation will be achieved or prove to be correct. Except for statutory liability which cannot be excluded, each of Fortescue, its officers, employees and advisers expressly disclaims any responsibility for the accuracy or completeness of the material contained in this presentation and excludes all liability whatsoever (including in negligence) for any loss or damage which may be suffered by any person as a consequence of any information in this presentation or any error or omission therefrom.

Fortescue accepts no responsibility to update any person regarding any inaccuracy, omission or change in information in this presentation or any other information made available to a person nor any obligation to furnish the person with any further information.

Additional Information

This presentation should be read in conjunction with the Annual Report at 30 June 2019 together with any announcements made by Fortescue in accordance with its continuous disclosure obligations arising under the Corporations Act 2001 and ASX Listing Rules.

Any references to reserve and resources estimations should be read in conjunction with Fortescue's Ore Reserves and Mineral Resources statements released to the Australian Securities Exchange on 2 April 2019 for its Magnetite projects and on 23 August 2019 for its Haematite projects. Fortescue confirms in the subsequent public report that it is not aware of any new information or data that materially affects the information included in the relevant market announcement and, in the case of estimates of mineral resources or ore reserves, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed.

All amounts within this presentation are stated in United States Dollars consistent with the functional currency of Fortescue Metals Group Ltd, unless otherwise stated. Tables contained within this presentation may contain immaterial rounding differences.

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Integrated mine to market infrastructure

Delivering sustained operational efficiencies

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1H20 Highlights

88.6million tonnes

Shipped

US$4.2 billion

Underlying EBITDA

A$0.76 per share

Fully franked interim dividend

US$80/dmt

Realised price

US$2.5billion

Net profit after tax (NPAT)

US$0.7billion

Net debt at 31 December 2019

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Financial results

6

1H20 Highlights

Generating strong earnings 65% EBITDA margin

Revenue (US$m)	Underlying EBITDA (US$m)	NPAT (US$m)
	4,414
	4,228
• Delivering strong results
6,425	6,485	2,543	2,453

3,540

1,633

644

1H19	2H19	1H20	1H19	2H19	1H20		1H19	2H19	1H20	7

Price and margins

Strong underlying EBITDA margins through all market cycles

US$/dmt

100

80

60

40

20
17	24	33	27	24	17	21	57	53
0
1H16		2H16	1H17		2H17	1H18	2H18		1H19	2H19	1H20
			Underlying EBITDA margin			Avg Underlying EBITDA			62 Platts CFR Index	8
			Fortescue realised price			Avg Fortescue realised price

Cashflow

Strong free cash flow and investment in growth

Net cash from operations	Capital expenditure	Free cash flows
(US$m)	(US$m)		(US$m)
			852
3,426
	3,114		2,909
	531		2,262
	517

948

417

1H19	2H19	1H20	1H19	2H19	1H20	1H19	2H19	1H20
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Credit metrics

Target investment and credit metrics

Gearing %				Target 30 - 40 % (Gross debt)	Debt maturities profile (US$m)
			(excluding leases)
69%
		71%
			56%
62%	49%			56%		45%	31%	29%	750	750
38%
			21%		24%
						16%	5%
											600	600
	FY12	FY15	FY16	FY17	FY18	FY19	1H20
				Net gearing				Gross gearing				500
	Debt to EBITDA (x)				Target 1-2x (Gross debt)

			1.7	3.8												-
					2.1	0.9	0.1
2.9	1.6		0.6	1.0	0.3				CY20		CY21	CY22	CY23		CY24	CY25	CY26	CY27
FY15	FY16	FY17		FY18	FY19	1H20					Syndicated Term Loan		Senior Unsecured Notes	10
			Net debt to EBITDA		Gross debt to EBITDA

Capital allocation

To date, Fortescue has generated NPAT of US$17bn and

allocated US$9bn of capital to debt repayment and US$6bn to dividends

Capital allocation to debt and dividends

Cumulative Allocation of NPAT: FY05-HY20

US$m 4000

3000

2000

1000

0

US$m

18,000

13,000

8,000

3,000

FY14

FY15

FY16

FY17

FY18

FY19

HY20

(2,000)

Net debt repayment

Dividends

Share buy back

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Net debt repayments		Dividends	NPAT

Integrated operations and marketing

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Fully integrated supply chain

Supported by a culture of innovation

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Marketing

Responsive to changing markets

Direct customer engagement driving deep market insights

A product mix that meets customers' needs

Aligning delivery with

customers' needs

Ongoing operation and marketing collaboration

Co-location of key decision makers

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Crude steel production

China Monthly Crude Steel Output

Strong growth in China's crude steel production

996 million tonnes in 2019

8.3% increase compared to

2018

	95
	90
tonnes	85
80
Million	75
70
	65
	60
	55
	50

Jan Feb Mar Apr May	Jun	Jul Aug Sep Oct Nov Dec
		2017		2018		2019
Source: China's National Bureau of Statistics		15

Enhanced product mix

Average realised price of US$80/dmt for 1H20

West Pilbara Fines well

established

Fortescue Lump production

aligned with market demand

Super Special Fines

reduced

Product mix optimisation delivers value:

Tonnes shipped	1H20	Product Mix	1H19	Product Mix
millions (wmt)		%		%
West Pilbara Fines	9.0	10	0.4	0
Kings Fines	7.6	9	6.7	8
Fortescue Blend	38.0	43	39.2	47
Fortescue Lump	5.3	6	3.1	4
Super Special Fines	28.7	32	32.9	40
Manganese Iron Ore	0.0	0	0.4	0
Total	88.6	100	82.7	100	16

Sustainability

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Setting high standards

Safety, diversity and integrity

TRIFR 2.5		Social Change
Improved by 38% from 1H19		Building strong communities
19%		UN Framework
Female employment		Convention on Climate Change

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Growth and development

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Eliwana project

US$1.275 billion capital investment

Progressing on schedule and budget

Infrastructure		Efficient design
143km rail; 30mtpa dry OPF		Significantly smaller footprint
		compared to Firetail OPF

Rail license granted

Enabling construction and operation of the Eliwana railway

Rail fleet

126 ore cars and four locomotives commissioned and in operation

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Iron Bridge

Magnetite Project

$2.6 billion investment delivering enhanced returns to shareholders and JV partners

22 mpta		67% Fe
First ore on ship mid-2022		Low impurity premium concentrate
		product
Design and procurement		Bulk earthworks
advanced		commenced

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Investing in growth

Eliwana Mine and Rail (US$m)

700 - 800
Disciplined allocation to
	350 - 450
FY20	FY21	FY22

Iron Bridge Magnetite (US$m)

	1,200 - 1,300
		400 - 500
300 - 400
FY20	FY21	FY22

Pilbara Energy Connect (US$m)

and	350 - 400
		250 - 300
50
FY20	FY21	FY22

US$1.275 billion total investment 30mtpa processing and 143km rail Underpins 60.1% Fe West Pilbara Fines

US$2.6 billion total investment	US$700 million total investment
Fortescue's share US$2.1 billion	Solar-gas hybrid energy and
67% Fe concentrate product	transmission infrastructure	22
	Low cost energy to Iron Bridge

World class exploration

Opportunities will be driven by market demand across iron ore and other commodities

Pilbara

Extensive tenement footprint

Australia

NSW 3,000km2 tenure

SA 15,000km2 tenure

South America

Ecuador, Argentina,

Colombia

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FY20 Guidance

170-175mt

Shipments expected to be at the upper end of range

US$12.75-$13.25

C1 cost / wmt

US$2.4 billion

Capital investment

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Key strategic

focus
	Balance sheet		Long term
		strength		sustainability
		Growth and		Enhanced returns
		development		to shareholders

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Glossary

C1 - Operating costs of mining, processing, rail and port on a per tonne basis, including allocation of direct administration charges and production overheads. Reconciled on page 32 of Fortescue's FY19 Annual Report.

CFR - Cost and freight rate

Dmt - Dry metric tonnes

Free cash flow - Net cash inflow from operations less capital expenditure

FY - Full year

Gross gearing - (Gross debt) / (Gross debt + Equity)

mtpa - Million tonnes per annum

Net debt - Total borrowings and finance lease liabilities less cash and cash equivalents

Net gearing ratio - (Net debt) / (Net debt + Equity)

NPAT - Net profit after tax

SIFR - Significant Incident Frequency Rate per million hours

TRIFR - Total Recordable Injury Frequency Rate per million man hours worked

TSF - Tailings storage facility

wmt - Wet metric tonnes

Underlying EBITDA - Earnings before interest, tax, depreciation and amortisation, exploration, development and other expenses.

Underlying NPAT - Net profit after tax adjusted for the after tax impact of one-off refinancing and early debt repayment costs.

The reconciliation of underlying EBITDA and underlying NPAT to the financial metrics disclosed in the financial statements prepared under the Australian Accounting Standards is presented below:

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