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Fortescue Metals Group Quarterly Report

Fortescue Metals Group Quarterly Report

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Published by: leithvanonselen on Jan 24, 2013
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02/18/2014

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PAGE 2
 
Operations
Production and shipments for the quarter on a wet metric tonne (wmt) basis are set out in the table below.Please note that Fortescue ships with approximately 9% of free moisture which needs to be taken intoaccount when converting a wmt to a dmt equivalent.
(million tonnes)December 2012QuarterTonnes
(1)
 September 2012QuarterTonnes
(1)
 Variance%December 2011Quarter TonnesVariance%Ore Mined
16.7 18.3 -9% 16.0 4%
OverburdenRemoved
78.3 92.7 -16% 67.5 16%
Ore Processed
17.8 15.9 13% 13.9 30%
Total Ore Shipped
(2)
 
19.6 16.1 22% 14.8 32%
Fortescue OreShipped
19.1 15.4 24% 14.4 32%
(1) Includes Solomon pre-production tonnes(2) Inclusive of 3
rd
party tonnes
Safety
Safety performance continued to improve during the quarter with an improvement in the Total RecordableInjury Frequency Rate (TRIFR) of 8%.
Aboriginal engagement
Fortescue is committed to provide training, employment and business development opportunities toAboriginal people. At the end of December, Aboriginal employees made up 11.1% (404 employees) ofFortescue’s workforce with an additional 350 employed by its contracting partners, which is lower than theprevious quarter, reflecting the completion of construction work by a number of contractors. Contractstotalling $586m have been awarded by the end of the December 2012 quarter with Fortescue maintaining itstarget of $1bn to be awarded to Aboriginal contractors.
Mining, processing and shipping
 For the month of December 2012, Fortescue achieved an annualised shipping run rate of more than100mtpa. Total tonnes shipped for the quarter were 19.6wmt, up 32% on the previous corresponding period,comprising 19.1wmt of Fortescue equity tonnes and 0.5wmt of third party tonnes.Increased shipments were driven by the ramp up of the second ore processing facility (OPF) at ChristmasCreek, a drawdown of ore stocks and the continuation of early ore mining at Solomon’s Firetail deposit. Theramp up of operations and associated mine preparation and development increased the total materialhandled and cost of inventory sold. Once steady state production is reached at Christmas Creek, strip ratiosare expected to stabilise to a life of mine average of 4.5x. In-pit crushing activity continued at the low cost,low strip ratio Firetail deposit, with stocks of direct ship ore established in readiness for the first train whichdeparted the Solomon stockyards on 1 December 2012. Mining and processing at Cloudbreak continues toprogress in line with expectations.Fortescue’s rail and port operations continued to perform strongly delivering 19.7wmt of ore to the portduring the December 2012 quarter, an increase of 22% compared to the prior quarter. The third train
 
 
PAGE 3
 
unloader was commissioned during the quarter providing inload flexibility and capacity to handle the ramp upof Firetail to 20mtpa by March 2013 and Kings to 40mtpa by December 2013. Loading capacity at the port iscurrently 115mtpa and will increase to 155mtpa as the fourth berth (AP4) is completed as part of the Kingsdevelopment.
Forecast production
Solomon’s Firetail mine remains on schedule to deliver a 20mtpa run rate by the end of the March 2013quarter, this will increase Fortescue’s production capacity to 115mtpa. Fortescue’s production guidanceremains between 82wmt and 84wmt for FY13.After careful consideration of market conditions, completion of non-core asset sales and restructuringactivities, the Board approved the restart of Kings in January 2013. The timing of this decision has allowedfor the smooth transition of the construction workforce from the Firetail deposit, minimising costs whilemaintaining the highly skilled workforce currently on site. The 40mtpa Kings development has been stagedto allow for deferral of capital expenditure in the event of volatile market conditions. The current developmentprogram is expected to see the project completed in the December 2013 quarter, lifting Fortescue’sannualised production to 155mtpa.
Production costs
Quarterly production costs on a wet tonne basis are split between operating costs inclusive of mine, rail andport charges and operating lease charges for equipment employed in the production and handling of ironore.
Cash costs per tonne (C1)Dec quarter2012 US$Sep quarter2012 US$Operating cost of sales
48.84 47.27
Operating leases
1.64 2.17
Total direct costs
50.48 49.44Cost saving initiatives identified in September 2012 were realised in the quarter. This represents a 4.4%decrease in total operating and administrative cash costs, after restructuring costs, compared to the priorquarter. These cost saving initiatives are expected to deliver in excess of US$300 million of savings in FY13.C1 costs were US$50.48/wmt (US$49.44/wmt in September 2012 quarter) as production ramped up andhigher cost inventory flowed through from prior periods. The US dollar to Australian dollar exchange rateremained at US$1.04 : A$1.00 placing continued pressure on costs.During the December 2012 quarter, strip ratios across the Chichester operations decreased to 4.9x from5.1x in the September 2012 quarter. As steady state production is achieved across the Chichester Hub it isexpected that the strip ratio will trend towards the life of mine ratio of 4.5x although this rate will fluctuatedepending on the stage of mining and development of new pits.Fortescue’s C1 cost is expected to range between US$45 and US$50/wmt for the remainder of FY13. Oncethe Solomon Firetail and Kings mines are fully operational, C1 costs are expected to be in the range ofUS$25 to US$30/wmt at the Solomon mines, putting both deposits in the bottom quartile of the global costcurve. The scale benefits of adding these low cost tonnes is expected to significantly reduce Fortescue’soverall cost of production.

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