Fortescue Metals : September Quarterly Report 2014

QUARTERLY REPORT

For the period ending 30 September 2014

Fortescue achieved its eighth consecutive shipping record delivering 41.5 million tonnes (mt) for the September quarter, an annualised rate of 166mt. This is the second consecutive quarter where operations have exceeded the targeted 155mt per annum run rate, delivering efficiencies and a reduction in C1 cost to US$32 per wet metric tonne (wmt).

These outstanding operational results position Fortescue to withstand market volatility whilst maintaining a strong focus on capital management and repayment of debt.

HIGHLIGHTS

Tonnage references are based on wet metric tonnes (wmt). Fortescue ships with approximately 7 - 9 per cent free moisture.

• Record shipments of 41.5mt achieved during the September 2014 quarter, an annualised rate of 166 million tonnes per annum (mtpa)

• C1 costs continued to decrease to US$32.08/wmt in the September 2014 quarter, a six per cent improvement from the prior quarter

• Delivered cost to customers was US$45/wmt for the September 2014 quarter inclusive of C1, shipping, royalties and administration

• CFR prices realised in the September 2014 quarter were US$71/dry metric tonne (dmt) based on an average

62% Platts CFR index of US$90/dmt

• Cash on hand increased to US$2.6 billion at 30 September 2014 reflecting the continued strength of operational cashflows, reduced capital expenditure and lower finance costs

• Net debt was US$6.9 billion, with an additional voluntary repayment of US$0.5 billion scheduled for payment on 17th October 2014

Quarterly Report for the period ending 30 September 2014 I Fortescue Metals Group Ltd I 1

OPERATIONS

Safety

Fortescue's safety excellence project has continued to deliver improvement through the September 2014 quarter. Through more effective safety leadership, Fortescue has made tangible progress on the control of major hazards and strengthened contractor alignment to the Fortescue safety vision and culture.
The total recordable injury frequency rate per million hours worked was 5.8 at the end of the September 2014 quarter,
a three per cent improvement over the previous quarter and 28 per cent lower than the prior comparable period.

Aboriginal Engagement

The Vocational Training and Employment Centres (VTECs) in Port Hedland and Roebourne continue to train and facilitate employment for Aboriginal people. Fortescue and its contractors employ 1,171 Aboriginal people, or approximately 12 per cent of its total workforce.
Aboriginal-owned businesses and joint ventures were awarded contracts valued at A$115 million in the September quarter, taking the total value of the 166 contracts and
sub-contracts awarded as part of the Billion Opportunities program to A$1.67 billion. This included the award of a management contract at Solomon's Dally camp to a joint venture between Native Title group Martu Idja Banjima and Action Industrial Catering and a rail corridor maintenance contract to Guma ICRG JV Pty Ltd.
These contracts are collectively worth more than
A$50 million and will provide significant employment and business development outcomes for Fortescue's traditional owners and the broader Aboriginal community. To date Fortescue has paid in excess of A$1.0 billion under this program.

2 I Fortescue Metals Group Ltd I Quarterly Report for the period ending 30 September 2014

Mining, Processing and Shipping

The September 2014 quarter delivered an eighth consecutive shipping record with 41.5mt of ore shipped,
a seven per cent increase over the previous quarter and a 60 per cent increase over the prior comparable period. Shipments included 40.9 million Fortescue equity tonnes and 0.6 million third party tonnes.

(million tonnes)

September

2014

Quarter

June

2014

Quarter

Variance

%

September

2013

Quarter

Variance

%

Shipments - Fortescue equity ore 40.9 37.6 9% 24.7 66%

During the September 2014 quarter, Fortescue mined
42.9mt of ore, two per cent lower than the previous quarter. Reduction in the mining rate was a strategic decision to reduce working capital, lowering iron ore stocks by a further five per cent in the September 2014 quarter. Working
capital reductions are expected to continue throughout
FY15. Ore mined in the September 2014 quarter was
23 per cent higher than the prior comparable period.
Strip ratios at the Chichester Hub averaged 3.0 for the September 2014 quarter, slightly below the five year mine plan of 3.5 due to the nature of the mining areas. The strip ratio across the Solomon Hub was 1.2 during
the September 2014 quarter as mining at the Kings Valley project was fully ramped up. All of Fortescue's mines are now operating at a steady state.
The operation of all Ore Processing Facilities (OPFs), particularly the exceptional performance of the Christmas Creek and Cloudbreak wet plants, through the September
2014 quarter maintained production capacity beyond
155mtpa. Fortescue's total output from all processing facilities delivered 38.9mt in the September 2014 quarter, five per cent less than the prior quarter, largely due to
the focus on product quality improvement following the cessation of ancillary crushing feed. During the September
2014 quarter the Kings Valley OPF mainly processed
Kings CID ore.
Port achieved record outload performance with an annualised run rate of 166mtpa, while Rail operated at an annualised run rate of 164mtpa during the September 2014 quarter. Further optimisation work continues to deliver increased productivity and efficiency for both of these
world class infrastructure assets.

Production Costs

C1 costs for the September 2014 quarter were US$32.08/wmt, a six per cent improvement over the prior quarter. The improvement reflects achievement of steady state mining operations, efficiencies delivered across all sites and improved production from the OPFs.
Fortescue continues to focus on efficiencies and cost improvements to lower delivered costs to customers. In the September 2014 quarter, total delivered costs to customers was US$45/wmt inclusive of C1 cost and shipping, royalty and administration costs, eight per cent lower than
the prior quarter and 12 per cent lower than the prior comparable period.
The US to Australian dollar exchange rate averaged 0.93 for the September 2014 quarter (0.93 in the June 2014 quarter). Fortescue remains sensitive to movements in exchange
rates with C1 costs impacted by US$0.25/t to US$0.30/t for every one cent movement in the US to Australian dollar exchange rate.

Forecast Production and Costs

Fortescue maintains its FY15 production and shipping guidance of between 155mt to 160mt at a C1 operating cost of US$31-32/wmt based on a US to Australian dollar exchange rate of 0.90.

Quarterly Report for the period ending 30 September 2014 I Fortescue Metals Group Ltd I 3

MARKETING

The significant increase in new seaborne iron ore supply, tighter credit conditions in China and relatively high Chinese port stocks saw spreads between the 58% and 62% indices widen in the June 2014 quarter. As the market has absorbed additional seaborne supply, spreads between these indices narrowed during the September 2014 quarter as illustrated below.
Fortescue's pricing basis reflects the closing of spreads between these indices as illustrated in the graph above, and currently reflects our guidance of 85-90 per cent of the Platts
62% index. A number of sales contracts remained open at the end of the quarter which are subject to provisional pricing.
In the falling iron ore price environment this impacted revenue recognition which was US$71/dmt or 79 per cent of the average 62% Platts CFR index in the September 2014 quarter. As these open contracts close, post quarter end, pricing will finalise and in an increasing price environment will likely result in higher realisation rates during the December 2014 quarter.
Chinese steel production remains strong with the decline in construction activity in China being offset by an increase in steel exports, which are on target to reach 75-80mt in 2014.
Fortescue continues to see strong demand for its ores, reflecting the value of its high quality low impurity products. During the September 2014 quarter Fortescue successfully launched its new product, Kings Fines, to add to our low phosphorous, high value-in-use ores that have been well accepted by steel mills including those with large capacity blast furnaces.

4 I Fortescue Metals Group Ltd I Quarterly Report for the period ending 30 September 2014

CORPORATE

Balance Sheet

Fortescue's net debt position at 30 September 2014 was US$6.9 billion, including finance leases of US$0.3 billion and cash on hand of US$2.6 billion.
During the quarter Fortescue announced the voluntary early redemption of US$500 million of the 2018 senior unsecured notes which will be paid on 17 October 2014. This brings total debt repayments since November 2013 to US$3.6 billion, delivering an interest saving of approximately US$330 million per annum.
Fortescue's flexible debt profile allows for voluntary repayments, refinancing of debt prior to maturity and facilitates the debt repayment strategy to achieve the initial targeted gearing level of 40 per cent.
As illustrated in the debt maturity profile below, Fortescue's earliest debt maturity is in 2017. A total of US$5.8 billion, or in excess of 60 per cent, of the Company's long term debt is available for voluntary repayment or refinance prior to final maturity dates and at Fortescue's sole option.

Capital Expenditure

Fortescue maintains its capital expenditure guidance of US$1.3 billion for FY15, excluding any project spend associated with the Iron Bridge Joint Venture, which is fully funded by the Formosa Group.
Fortescue estimates its depreciation expense to be US$8.50/wmt shipped.

Quarterly Report for the period ending 30 September 2014 I Fortescue Metals Group Ltd I 5

DEVELOPMENT

Fortescue River Gas Pipeline

Fortescue is executing a plan to lower energy costs and reduce its carbon footprint by transitioning its Pilbara operations from diesel to natural gas. As a first step, the Fortescue River Gas Pipeline will deliver gas from the Dampier to Perth Pipeline to the Solomon Power Station, with completion scheduled in the March 2015 quarter.
All line pipe has been delivered and field construction is progressing at several locations along the route.
As an interim step, Fortescue will operate the Solomon
Power Station on compressed natural gas from October
2014 until completion of the natural gas pipeline.

AP5 Project

The project to build the fifth berth at Anderson Point, AP5, remains on schedule and on budget for completion in the March 2015 quarter. Dredging was completed in the June
2014 quarter and installation of wharf piles has progressed to plan with installation of pile caps under way. Major
deck modules are due to arrive during the December 2014 quarter for installation by heavy lift vessel. All land based works are on schedule and preliminary tie-in works are being progressively integrated into planned maintenance shutdowns. All major contracts have been awarded.

Solomon Detrital Processing Plant

The contract for the 5mtpa detrital iron deposit core processing facility has been awarded and engineering is
40 per cent complete and on schedule. First production is expected in the September 2015 quarter.

Iron Bridge Project

Iron Bridge Joint Venture construction activities continue to achieve planned milestones. Concrete works at the North Star OPF are complete; structural, mechanical and piping works are well advanced; electrical and instrumentation works have commenced; and the commissioning team
has started planning and documenting the start-up of the plant. First production from the 1.5mtpa OPF is expected in the March 2015 quarter.

Ship construction

In July 2014 Fortescue entered into an agreement for the construction of its second tranche of four highly efficient very large ore carriers (VLOCs) for a total investment value of US$280 million. A total of eight VLOCs have now been committed to, at a total cost of US$555 million.
These VLOCs are scheduled for delivery from August 2016 through to April 2018 with the majority of payments due
on delivery.

6 I Fortescue Metals Group Ltd I Quarterly Report for the period ending 30 September 2014

"This has been a quarter of outstanding production and fiscal discipline that has delivered our eighth consecutive record quarterly shipping performance, with delivered costs to Asia of US$45/wmt reinforcing our position as a world class,

low cost producer."

Nev Power, Fortescue CEO

EXPLORATION AND FUTURE STUDIES

The 2014 exploration drilling program continued throughout the September 2014 quarter. The Chichester up-dip (Cloudbreak and Christmas Creek) brownfield drilling programs were completed with a resource estimation planned for release in the December 2014 quarter.
Work continues on identifying and defining new targets for bedded mineralisation in and around the Solomon Hub with a drill program completed at Frederick. Further exploration drilling continues through the
Western Hub.

Fortescue's presence in the Pilbara

Please refer to the Reserve and Resource Statement contained in the FY14 Annual Report for further information on

Fortescue's Reserves and Resources.

Quarterly Report for the period ending 30 September 2014 I Fortescue Metals Group Ltd I 7

COMPETENT PERSONS STATEMENT

The information in the report to which this statement is attached that relates to Exploration Results is based on information compiled by Mr Stuart Robinson and Mr Nicholas Nitschke who are both full time employees of Fortescue Metals Group Ltd and provided geological interpretations and compiled the exploration results. Mr Robinson, who is a Fellow of The Australasian Institute of Mining and Metallurgy and Mr Nitschke, who is a Member of the Australasian Institute of Mining and Metallurgy have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is 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 and Mr Nitschke consent to the inclusion in this report of the matters based on this information in the form and context in which it appears.

CORPORATE PROFILE

Fortescue Metals Group Ltd ACN 002 594 872

Directors

Andrew Forrest Non-Executive Chairman
Herb Elliott Non-Executive Deputy Chairman
Nev Power Chief Executive Officer/Executive Director
Graeme Rowley Non-Executive Director Herbert Scruggs Non-Executive Director Mark Barnaba Non-Executive Director Owen Hegarty Non-Executive Director Geoff Raby Non-Executive Director Cao Huiquan Non-Executive Director Peter Meurs Executive Director Elizabeth Gaines Non-Executive Director Sharon Warburton Non-Executive Director

Company Secretary

Mark Thomas

Registered Office

and Principal Place of Business

Level 2, 87 Adelaide Terrace
East Perth, Western Australia 6004
TEL: +61 8 6218 8888
FAX: +61 8 6218 8880
WEB: www.fmgl.com.au

Share Registry

Link Market Services Limited
Level 4, Central Park
152 St Georges Terrace
Perth, Western Australia 6000
Locked Bag A14
Sydney South, New South Wales 1235
TEL: 1300 733 136 / +61 2 8280 7603
FAX: +61 2 9287 0309
WEB: www.linkmarketservices.com.au

Share Details

As at 30 September 2014, there were 3,113,798,151 ordinary shares on issue.

Unlisted Employee Options

Option expiring May 2015 ex A$5.00 7,500,000
FY13 Performance Rights 3,170,657
FY14 Performance Rights 5,660,559

Substantial Shareholders as at

30 September 2014:

Minderoo Group Pty Ltd 33.19 per cent
Hunan Valin Iron and Steel Group 14.72 per cent

Reporting Calendar

AGM: 12 November 2014
December Quarterly Report: 29 January 2015
Half year results: 18 February 2015

Online

www.fmgl.com.au

Twitter

twitter.com/FortescueNews

Youtube

www.youtube.com/user/FortescueMetalsGroup

8 I Fortescue Metals Group Ltd I Quarterly Report for the period ending 30 September 2014

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