03. Fortescue v10 - iln.worleyparsons.comiln.worleyparsons.com/icms_docs/230088_Operating_Models.pdfconjunction with Fortescue’s Ore Reserves and Mineral Resources statement ...

Operating modelsIndustry Leadership Forum, November 2015Jim Herring

Important NoticeThe 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 InformationThis presentation should be read in conjunction with the Annual Financial Report at 30 June 2015 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 statement for its Hematite and Magnetite projects at 30 June 2015 as released to the Australian Securities Exchange on 21 August 2015. 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. Tables contained within this presentation may contain immaterial rounding differences.

Disclaimer

Forward Looking Statements

2

Introduction

Purpose

1. Discuss the operating models that we use at the Fortescue mining operations

2. Outline how the original strategy was developed

3. Demonstrate how changing external and internal factors can allow you to reevaluate your operating model.

Our operations

4

Building a world class company

Core supplier to China’s growth

Foundedin 2003

Shipped over

580mt

First orein 2008

Unique culture

165mtProduction rate

Low costproducer

5

Three mines and operating models

Our mining operations

Cloudbreak Christmas Creek Solomon Hub

Shipped (million tonnes per annum) 36mtpa 55mtpa 70mtpa

Processing Fortescue Fortescue Fortescue

Mining Fortescue Downer EDI Fortescue / Thiess

Operating model Owner operator Contract mining Hybrid

Operating models

Why three mines and three operating models?

The operating model that we chose was dependant on three key factors.

• Market conditions

• in-house capability vs Contractor

• Ramp up vs steady state operations

Market Conditions

0

20

40

60

80

100

120

140

160

180

IO p

rice

US

$

62% Fe

Fortescuefounded

Cloudbreak

Christmas Creek

Solomon

• Fortescue needed to take advantage of a rapidly expanding market

• Develop the mines as quickly as possible.

• Minimise Capital expenditure

In-house vs contractors

• Early on Fortescue was focused on ramping up production, developing infrastructure

• Contractors had an experienced workforce readily available in a tough recruiting environment

• Contractors could supply capital in the form of investment in infrastructure or fleet

• High capital intensity early on

• New infrastructure coming online

• Infrastructure and mines not yet running at full capacity

• Steady State from FY15

Ramp up vs Steady state operations

0

35

70

105

140

175

0.0

1.5

3.0

4.5

6.0

7.5

FY10 FY11 FY12 FY13 FY14 FY15 FY16(guidance)

mt shippedUS$bn

Three mines, three operating models

Our operations – then and now

Cloudbreak Christmas Creek Solomon Hub

2012 2015 2012 2015 2012 2015

Processing Fortescue FortescueCSI (Crushing

ServicesInternational)

Fortescue Leightons Fortescue

Mining Fortescue Fortescue

Downer EDIMacmahons

Global SurfaceMining

Downer EDI Leightons Fortescue Thiess

Operating model

Owneroperator

Owner operator Contract mining Contract

miningContract mining Hybrid

What changed?

• Fortescue shifted focus to steady state operations

• Safety performance and culture of contractors did not meet our targets or expectations

• Market volatility resulted in decreasing iron ore price

Revised strategy

• Took over management of ore processing at Christmas Creek and Solomon

• Consolidated mining services contracts to deliver further efficiency at Christmas Creek

• Working towards hybrid model at Solomon (Fortescue - mining operations, Thiess - maintenance activities)

Revised strategy

Safety and cost improvements

Realised benefits

C1 US$/wmt Total Recordable Injury Frequency Rate (TRIFR)

50 39 33 34 30 24

18

18

18 20 16

13 8

7

9

9 6 6

2

2 2

8

6 7

5

4 4

4

-

30

60

90

1HY13 2HY13 1HY14 2HY14 1HY15 2H15 FY16Guidance

C1 costs Other operating costs Sustaining capex Interest

China's Iron Ore Supply CFR Costs (including royalties & ocean freight)

Moving down the global cost curve

Source: Metalytics

Safety improvements

• Aligned safety culture (one team approach)

• Strong field leadership

• Driving safety performance with same passion as cost or production

Cost reduction drivers

• Removal of margin and duplicated overheads

• Better alignment of business drivers

• Improved performance of mining fleet in particular Surface Miners

• Improved OPF performance in both:

– Productivity, and

– Ore beneficiation

Other benefits

• Flexibility to innovate

• Developing in-house capability

• Build on our strong and united culture

• Better alignment with values

Conclusion

• Difficult to have ‘one-size fits all’ operating model

• Dependent on multiple internal and external factors

• Focus on a model which continually delivers safety, productivity

and cost improvements

• Be flexible and adapt your operating model to changing conditions

Conclusion

Questions?

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