Fortescue Metals : Investor and Analyst Call Transcript (September 2020 Quarterly Production Report)

Quarterly Production Report

September 2020

Investor and Analyst Call transcript

provided by Open Briefing

29 October 2020

Company:	Fortescue Metals Group Ltd
Title:	Fortescue Metals Group: September 2020 Production Report Analyst Call
Date:	29 October 2020
Time:	13:00 AEST

Start of Transcript

Operator: Thank you for standing by and welcome to the Fortescue Metals Group September 2020 Quarterly Production Report Analyst Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms Elizabeth Gaines, CEO. Please, go ahead.

Elizabeth Gaines: Thank you Rachel. Good morning or afternoon everybody and welcome to Fortescue's September 2020 Quarterly Production Report. Joining me today in Perth is Ian Wells, Chief Financial Officer and Greg Lilleyman, Chief Operating Officer, and I'm very pleased to welcome Jade Wilson, who joins us as CEO for a day.

An Oomiday woman born and raised in Port Hedland, Jade joined Fortescue in 2012 as a civil operator and in 2015, Jade joined Fortescue's Trade Up Program, which provides a pathway to an apprenticeship for Aboriginal employees. Jade has now completed her Fixed Plant Mechanical Fitter apprenticeship and has secured a full-time role at Fortescue's Port Operations where she's very keen to pass on her learnings and mentor new apprentices onsite.

I first met Jade at the Trade Up graduation last December and I am delighted she could join us today. It's great to have you with us, Jade.

Jade Wilson: Thank you for having me.

Elizabeth Gaines: Before I discuss our results, I would like to make a few comments about safety, which is a core value and Fortescue's highest priority. We're proud of the critical role the mining industry has played in response to COVID-19 and our risk management strategy and key measures introduced remain in place to safeguard our teams and ensure business continuity.

We continue to generate a strong economic contribution to the West Australian and national economy and we're providing ongoing support to our east coast team members who have been impacted by the West Australian border closure and we do greatly appreciate their ongoing commitment.

It is pleasing to see the progress in Victoria this week and the subsequent plan for easing of restrictions and we're looking forward to seeing our borders open when it is safe to do so.

So that brings me to our Q1 results and as you can see from today's report, Fortescue has delivered a strong start to FY21 across all key measures of safety, production and cost and that's underpinned by the hard work and dedication of the entire Fortescue team.

A key highlight was our safety result with a TRIFR of 2.1 at 30 September and that's a 13% improvement from 2.4 at 30 June and the injury severity rate continuing its downward trend.

We had strong engagement across our teams in implementing an updated job hazard analysis program this quarter and the JHA is our primary planning tool and we all know that a well-planned task is a safe one.

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In terms of our operating performance, it was another quarter of records. Fortescue's outstanding operating performance was sustained with record first quarter iron ore shipments of 44.3 million tonnes and that's a 5% increase on Q1 FY20.

Ore processing and rail also achieved record Q1 performance and C1 costs for the September quarter were US$12.74 a wet metric tonne and that's 2% lower than the same quarter last year and it also includes costs associated with managing COVID-19.

We achieved average revenue of US$106 per dry metric tonne in Q1 and that's a realisation of 89% of the average Platts 62% CFR index.

Other recent operational highlights include receiving approval to increase the license throughput of the Herb Elliott port facility at Port Hedland from 175 million to 210 tonnes per annum on a staged basis. We also announced the consolidation of the management of the Cloudbreak and Christmas Creek mines into an integrated Chichester Hub and Greg will expand on this important development.

Ian will talk to the balance sheet but I did want to highlight that cash on hand was US$5.1 billion at 30 September and our strong free cashflow generation in the quarter contributed to a net cash position of US$1 billion at 30 September compared to net debt of US$300 million at 30 June 2020.

On our major projects, the Eliwana mine and rail and Iron Bridge magnetite projects remain on schedule with key milestones that delivered for both projects in Q1 and Greg will provide a more detailed update.

On our energy projects, comprising the Chichester Solar Gas Hybrid Project and the US$700 million Pilbara Energy Connect project, both of those are also progressing and are a key component of our decarbonisation pathway as we work to achieve our ambitious target of net zero operational emissions by 2040.

On the market, we continue to see robust demand for Fortescue's products and Chinese crude steel production reached

781.6 million tonnes to the nine months to 30 September and that's a 4.5% increase compared to the same period in

2019. At this rate, crude steel production in China is on-track to achieve over a billion tonnes in 2020.

We have successfully diversified in growing our distribution channels with FMG Trading Shanghai selling 2.8 million tonnes from regional ports in China in Q1 and since inception in June 2019, portside sales have now exceeded 10 million tonnes.

On exploration, total exploration, and studies capital expenditure for Q1 was US$31 million, which included resource definition drilling at Eliwana, exploration programs in the Western and Solomon Hubs and early stage exploration activities in the Paterson, Rudall and Goldfields regions of Western Australia.

Our exploration and field activities in Ecuador and Argentina remain suspended due to COVID-19 and there is ongoing assessment of previous drilling results and various geological studies are continuing. But pleasingly and subject to COVID- 19 restrictions, we do expect seasonal drilling activities in the San Juan region of Argentina will commence this quarter.

On that, I'm going to hand over to Greg for an update on operations and major projects. Greg.

Greg Lilleyman: Thanks, Elizabeth. Good morning or afternoon everyone. Well I'm really pleased to say that our operations and major projects continue to run extremely well and most importantly, of course, our safety performance continues to improve.

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Our updated job hazard analysis program was fully implemented in September right across our business to reduce injurie and we've had very positive feedback from both our operations teams and also across our major projects with our contracting partners.

So, as you've heard, Fortescue's Total Recordable Injury Frequency Rate reduced to 2.1 at the end of the quarter and we're working very hard to achieve our goal of zero harm. With peak construction on Eliwana and the ramping up of construction activity at Iron Bridge, we're managing construction risk across multiple sites with multiple construction contractors very successfully.

So, on the operations, well it's always good to report record performance and we've achieved that again in the first quarter with the shipments as Elizabeth mentioned, of 44.3 million tonnes. That's 5% higher than the same period last year, although it's 6% lower than the very strong finish to FY20 in Q4, reflecting the planned seasonal maintenance with elevated shut activity during Q1.

Each of our processing facilities continue to perform really well. Ore processed was 46 million tonnes, which was also a record for a first quarter and similarly, ore railed was a Q1 record as well and the overall results really demonstrate the ongoing improvement and focus on reliability across our value chain.

We continue to identify opportunities to capture operational synergies and improved productivity and with that objective in mind, we've now started the consolidation of the management of the Cloudbreak and Christmas Creek mines into a single integrated Chichester Hub operation. We've got plans in mind with things like a single shut team across the sites, reducing support and admin costs and also optimum allocation of assets and resources and people across the Hub.

As we recently announced, we've now completed the Company's Chichester Hub Autonomous Haulage Project and that project, which represents one of the largest fleet conversions to autonomous haulage in the industry, has now expanded the Fortescue autonomous haulage fleet to a total of 183 autonomous trucks operating across our Solomon and Chichester Hubs.

Ian will share some detail on the cost performance but as Elizabeth mentioned, our C1 costs of US$12.74 per tonne means that we are well placed to deliver on the full year guidance of US$13 to US$13.50 per tonne.

On the iron ore market, demand for Fortescue's products is exceptionally strong and it's probably best demonstrated in the 31% quarter on quarter increase in our average revenue realised price at US$106 per tonne which again outpaced the 27% increase in the Platts 62% index over the same period.

It's also a reflection of the ongoing successful execution of our integrated operations and marketing strategy. The team achieved a milestone this month as cumulative portside sales in China exceeded 10 million tonnes. Portside sales further grows our distribution channels and plays an important role in price discovery, of course.

Iron ore stocks at China's ports have risen recently in line with seasonal trends and reflects some recovery of exports from South America. However, I note that stocks of fines material remains low and we've seen strong demand continue for Fortescue's products into October, underpinning a strong start to Q2. I also note that activity is picking up across - with steal making across Japan and Korea recently as well.

So, some comments on our major projects. So Eliwana first. It's in its final stages of construction. Key milestones in the quarter are the completion of the structural and mechanical equipment installation at the ore processing facility. So, we've got power on and the lights are on and process equipment is being progressively powered up.

We've started pre-strip, including the first ore stockpiling on the ROM pad, ready for the plant commissioning in early December. The Eliwana railway remains on the critical path and I'm pleased to report solid progress in both bridge

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