Fortescue Metals : Macquarie Presentation

Macquarie

West Australian Forum

4 December 2019

Global force

Thriving communities

Forward looking statement

Disclaimer

Important Notice

The purpose of this presentation is to provide general information about Fortescue Metals Group Limited ("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.

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 Limited, unless otherwise stated. Tables contained within this
presentation may contain immaterial rounding differences.	2

A world
class
company
>1.3 billion		~170mtpa
			Shipped
Wholly owned,
fully integrated
Core supplier		Low cost
supply chain
			to China		producer

3

FY19: a record year

Underpinned by record safety performance

167.7million tonnes

Shipped

US$3.2billion

Net profit after tax (NPAT)

US$2.1billion

Net debt

US$6.0billion

Underlying EBITDA

US$13.11/wmt

C1 cost

A $1.14per share

Total FY19 paid dividend

4

Increasing shareholder returns

A$0.24 per share	A$1.14 per share
Fully franked final dividend paid		Total FY19 dividends paid
in October
78% of FY19 NPAT		Share buy-backs
	A$139m completed, extended to
Dividend pay-out ratio		October 2019

5

A strong start to FY20

First quarter of FY20 builds on record results in FY19

Safety 2.7		42.2mt
Total Recordable Injury Frequency Rate		Shipments for the quarter
US$12.95/wmt	US$85/dmt
C1 costs		Average revenue received
US$0.5 billion		US$3.4 billion
Net debt		Cash on hand

6

Investment in growth

Unparalleled track record and capability in safely developing and operating major iron ore projects in the Pilbara

7

Building strong relationships with China

WA companies have forged strong connections with China

Major supplier		Investment and financing
of iron ore to China		relationships

Over US$1billion in	Academic, policy and
procurement from China	community engagement

8

Crude steel production

Strong growth in China's crude steel production

7.4% increase in steel production YTD Oct 2019

Million tonnes

China Monthly Crude Steel Output

95

90

85

80

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

9

Strong demand for Fortescue products

China's iron ore port

stockpiles drawn down to

128mt (31 October 2019)

Peak stockpiles of 163mt

(March 2018)

China Q3 iron ore imports increased by 12.4Mt YoY

Mt

Total Chinese port stocks

170

150

130

110

90

70

50

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Australia

Brazil

Other

Source: Mysteel	10

Enhanced product mix

Average realised price increased 48% in FY19

Introduction of West Pilbara

Fines

Production of Fortescue Lump Reduced Super Special Fines Strong customer engagement

Product mix optimisation delivers value:

Tonnes shipped millions (wmt)	FY19	Product	FY18	Product
mix %	mix %
West Pilbara Fines	9.0	5%	-	-
Kings Fines	14.2	9%	15.0	9%
Fortescue Blend	72.4	43%	75.0	44%
Fortescue Lump	8.6	5%	-	-
Super Special Fines	61.7	37%	80.0	47%
Manganese Iron Ore	1.8	1%	-	-
Total	167.7	100%	170.0	100%

11

Iron ore price

Key drivers contributing to Fortescue's average price received increase with 89% contractual price realisation in Sept Q

Optimising product mix

Steel mill margins

Strength in Chinese steel production

Global supply disruptions

USD/dmt

140
120
100
80
60
40
20
0
Jan-16May-16Sep-16	Jan-17May-17Sep-17	Jan-18May-18Sep-18	Jan-19May-19Sep-19
SSF (portside)	FB (portside)	Platts 62% IODEX	Platts 65% IODEX

Pricing at 29 November 2019

12

Financial results

13

Sustainable low cost producer

Industry leading cost position

C1 US$/wmt

60

Structural improvements

Solomon + blending + processing

50

48

4044

Productivity and efficiency

Utilisation, recoveries, maintenance

Innovation and technology

Autonomy, conveyor, ore carriers, data analysis

30			34
				27
20
					15				12.95
10					13	12	13
-
FY12	FY13	FY14	FY15	FY16	FY17	FY18	FY19	Q1 FY20

14

Price and margins

Cost leadership and efficient operations underpin resilience in earnings through all market cycles

US$/dmt 90

80

70

60

50

40

30

20

10

17	21	30	20	39
-
FY15		FY16	FY17		FY18	FY19
	Underlying EBITDA per dmt		Platts 62% CFR Index	Average Underlying EBITDA per dmt		Fortescue realised price	Average Fortescue realised price

15

Capital expenditure

Disciplined allocation to core business, innovation and growth

FY19 Capital expenditure - US$1,040m		FY20 Capital expenditure guidance - US$2,400m
Sustaining		612	Sustaining		700
Development*	206		Development		360
Exploration	105		Exploration		140
Eliwana	102		Eliwana		700
Iron Bridge	15		Iron Bridge		500

* Includes ore carrier and towage expenditure of US$80 million

16

Capital allocation

Disciplined allocation to capital investment and shareholder returns

Capital allocation of debt and dividends	Cumulative allocation of NPAT: FY05-19
US$m	US$m
4,000				15,000
Capital Allocation
3,000				11,000
			7,000
2,000
			3,000
1,000
-				-1,000

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Debt Repayment

Dividends

NPAT

Dividend

Share Buy Back

Debt Repayment

17

Credit metrics

Investment grade metrics support financial strength Earliest debt maturity in 2022

Gearing %

56%

49%

45%

38%

31%		29%		27%
		24%
	21%

16%

FY15		FY16	FY17		FY18	FY19
		Gross gearing (%)			Net gearing (%)

Debt to EBITDA (x)

3.8x

2.9x
	2.1x
	1.6x
			1.2x
		0.9x	1.0x	0.7x	0.3x
		0.6x
FY15	FY16	FY17	FY18		FY19

Debt maturity profile

	1,000
(US$m)	750
500
Volume							750	500	750		600					600
	250
	0
	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028
						Senior Unsecured Notes						Term Loan	18

Gross debt to underlying EBITDA (x)		Net debt to underlying EBITDA (x)

Iron ore growth projects

Eliwana and Iron Bridge

19

Eliwana project

US$1.275 billion capital investment

Progressing on schedule and budget

Infrastructure		Latest technology
143km rail; 30mtpa dry OPF		Driving low cost operation
First ore on train		West Pilbara Fines
December 2020		Increasing production and mine life

20

Iron Bridge

Magnetite Project

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

22 mpta		67% Fe
First ore scheduled mid-2022		Low impurity premium product
Low capital		Energy efficient
intensity and operating cost		Industry leading, proven design

21

Achieving our strategy to deliver majority of product over 60% Fe

Aligned with customer requirements

Competitively positioned across all key segments

Flexibility to optimise product mix to meet customer requirements

Highest grade Australian product

with global scale in magnetite

22

Growth and development

23

World class exploration

Opportunities that will be driven by market demand

Pilbara

Largest tenement holder

Australia

NSW ~3,000km2 tenure

SA ~15,000km2 tenure

South America

Ecuador, Argentina

Colombia

24

Automated mining

Innovation delivering safety and productivity improvements

AHS operation		Autonomous drills
>37 million km safely travelled		8 drills in operation
AHS conversion		Relocatable conveyor
147 trucks in operation		Operating at full capacity

25

Chichester Solar

Gas Hybrid

100 per cent of daytime stationary energy requirements at Fortescue's Chichester Hub will be powered by renewable energy

60MW solar PV		60-kilometre
generation facility		transmission line

Displace around 100		Pilbara Energy Connect
million litres of diesel

26

Ambition for hydrogen

Hydrogen is part of a broader energy strategy

Technology

Research, study and commercialise

Domestic industry

Develop, partner or participate in hydrogen related projects

Our operations

Reduce carbon footprint and cost of energy

Global supply chain

Supporting export of green hydrogen

27

FY20 Guidance

170-175mt		US$13.25-13.75
Shipments		C1 cost / wmt
US $2.4 billion	50-80%FY NPAT
Capital investment		Dividend policy

28

Key strategic focus

Balance sheet		Long term
strength		sustainability
Growth and		Returns to
development		shareholders

29

30