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THE PATHWAY FROM CONSTRUCTION TO PRODUCTION 2003 The dream begins 2004 Cloudbreak identified 2005 S&P/ASX 200 index 2006 Port Hedland groundbreaking 2009 27 million tonnes shipped 2010 Christmas Creek expanded 2011 Solomon construction begins 2012 57.5mt shipped 2013 Firetail opened at Solomon 2013 80.9mt shipped 2014 155mtpa sustainable production Fortescue Metals Group Limited I 2014 Annual Report 2008 First ore on ship 2014 Kings Valley mine opened at Solomon 2014 ANNUAL REPORT ABN: 57 002 594 872 www.fmgl.com.au @FortescueNews CORPORATE DIRECTORY Australian Business Number Stock Exchange Listings Awards ABN 57 002 594 872 Fortescue Metals Group Limited shares are listed on the Australian Securities Exchange (ASX) ASX Code: FMG 2014 Platts Global Metals Awards - Metal Company of the Year Directors Andrew Forrest - Non-Executive Chairman Herb Elliott - Non-Executive Deputy Chairman Nev Power - Executive Director Graeme Rowley - Non-Executive Director Owen Hegarty - Non-Executive Director Cao Huiquan - Non-Executive Director Mark Barnaba - Non-Executive Director Geoff Raby - Non-Executive Director Herbert Scruggs - Non-Executive Director Elizabeth Gaines - Non-Executive Director Peter Meurs - Executive Director Sharon Warburton - Non-Executive Director Company Secretary Fortescue Share Registry Link Market Services Limited Level 4 Central Park 152 St Georges Terrace Perth WA 6000 Locked Bag A14 Sydney South NSW 1235 Phone: 1300 733 136 (Australia) +61 2 8280 7603 (International) Fax: (02) 9287 0309 Web: www.linkmarketservices.com.au For any change in personal details, please contact Link Market Services. 2014 Mines and Money Asian Mining Awards - Project Development of the Year 2014 Mines and Money Asian Mining Awards - Deal of the Year 2014 Gartner Asia Pacific Business Process - Management Excellence Awards 2014 Australian Business Awards - Community Contribution 2013 Financial Review CFO Awards - Syndicated Loan of the Year Worksafe Plan Gold Certificate (TPI) Mark Thomas Principal Registered Office in Australia 2014 Platts Global Metals Awards - Rising Star Award Annual General Meeting 2013 Australasian Institute of Marine Surveyors - Excellence in the Application of Gears, Motors or \u0007 Drives with Metso Mining and Construction 2013 SAP Award of Excellence - \u0007 est Run Development and Testing Technology B Platform AustCham Westpac Australia China Business Awards - Andrew Forrest 2014 Women in Industry - Excellence in Mining Award - Julie Shuttleworth WAITTA CIO of the Year - Vito Forte 2013 SkilledDMC Chairman's Award - Damien Ardagh 2013 CCI Apprenticeship Solutions - \u0007 mployer Excellence Awards Outstanding Employer E of Mature Age Apprentices and Trainees (large) 12 November 2014 Level 2, 87 Adelaide Terrace East Perth WESTERN AUSTRALIA 6004 Tel: +61 8 6218 8888 Fax: +61 8 6218 8880 Website: www.fmgl.com.au Email: fmgl@fmgl.com.au Auditor PricewaterhouseCoopers Level 15, 125 St Georges Terrace Perth WESTERN AUSTRALIA 6000 Internal Auditor KPMG 235 St Georges Terrace Perth WESTERN AUSTRALIA 6000 Fortescue Metals Group Limited I Annual Report 2014 Prefer email? There is a better way to access your information and help the environment Every year we are required to communicate information to securityholders, including annual reports, notices of meetings and other advices. We believe everyone benefits from electronic security holder communication - securityholders receive prompt information and have the convenience and security of electronic delivery, there are significant cost savings, and our communications are environmentally friendly. Please alter your communication preferences by logging in via the Registry website: www.linkmarketservices.com.au. Finalist Awards 2014 West Australian of the Year Award Business - Nev Power 2013 Chartered Institute of Purchasing and Supply - Procurement Professional Awards 2014 CMEWA Safety and Health Innovation Awards - Finalist Best Example of Socially Responsible Procurement - Finalist 2013 Procurement Leaders Awards - Excellence Award 2014 Australasian Reporting Awards - Bronze Medal 2014 International Tetra Awards - Best Use of Tetra for Transport Fortescue Metals Group Limited I Annual Report 2014 OUR VISION Our vision is to be the safest, lowest cost iron ore producer OUR VALUES 1 Safety Family Empowerment Enthusiasm Determination Frugality Integrity Generating ideas Set yourself stretch targets Fortescue Metals Group Limited I Annual Report 2014 FY14 OPERATION HIGHLIGHTS August 2013 October 2013 Official opening of the fourth berth at Herb Elliott Port Surge bin increases outload capacity Port March 2014 February 2014 December 2013 Fifth berth commenced construction 2,000th ship berthed at Port 300 millionth tonne shipped September 2013 November 2013 Robotic ore car maintenance facility opened 13th rake fully operational Rail 2 December 2013 March 2014 March 2014 Hamersley Line train control completed 10,000th train 2013 Improved train load out performance less than 2.2 hours per train Integrated train control system commissioned September 2013 Benefits realised from enhanced processing capabilities including the reduction of strip ratios Chichester Hub June 2014 Strip ratios at Cloudbreak and Christmas Creek averaged 3.2 for the June 2014 quarter, slightly below the five-year mine plan of 3.5 November 2013 Power station fully operational November 2013 Kings Valley OPF first ore March 2014 Official opening of Kings Valley project Solomon Hub July 2014 First Kings Valley channel iron deposit (CID) mined Fortescue Metals Group Limited I Annual Report 2014 June 2014 16 autonomous trucks in operation CONTENTS 3 101 Corporate directory About Fortescue 4 Where we operate 5 Chairman's report 6 Chief Executive Officer's report 10 Operations report 14 Reserves and resources report 18 Corporate social responsibility 25 Corporate governance 54 Financial report 73 Directors' report 74 Remuneration report 98 Auditor's independence declaration 120 Independent auditor's report to the members 121 Directors' declaration 123 Financial statements 124 Shareholder information 170 Tenement report 171 Fortescue Metals Group Limited I Annual Report 2014 ABOUT FORTESCUE Fortescue Metals Group is the world's fourth largest producer of iron ore, having started as a vision just over a decade ago. It operates the fastest and heaviest haul rail network in the world, where every day 14 trains, each 2.7 kilometres long, transport about 33,000 tonnes of ore per train from mine to port. Fortescue's efficient port operations shipped 124.2 million tonnes in Financial Year 2014 and the company is targeting 155 to 160 million tonnes in FY15. Fortescue discovered world-class deposits in the Pilbara's Chichester Range and Hamersley Range, and set about redefining the iron ore industry. Construction began at its first mine, Cloudbreak, in 2006 while work also started on a 256 kilometre railway from Cloudbreak to Port Hedland and on worldclass facilities at Herb Elliott Port. Two years later, and only five years after the company was formed, Fortescue shipped its first cargo of iron ore bound for China. Fortescue is now focused on maximising throughput, bringing down costs, paying back debt and increasing shareholder value with the aim of being the safest, lowest cost, most profitable iron ore producer in the world. t In 2014, Fortescue completed a US$9.2 billion expansion ahead of schedule increasing its capacity to 155 million tonnes per annum. The company has now built four mines across its two operating hubs - Chichester and Solomon. FY14 HIGHLIGHTS 4 Ore shipped 54% EBITDA1 US$bn 58% 124mt 58mt 40mt FY11 2.7 41mt FY10 81mt 3.0 FY11 FY12 3.6 1.1 FY12 Revenue US$bn FY13 FY14 45% FY10 FY13 3.2 FY10 6.7 FY12 8.1 FY13 Net debt2 US$bn 1.6 FY14 FY10 32% FY11 1.7 FY10 1 FY12 C13 US$/wmt 44 7.2 1.7 1.0 10.5 6.2 57% 2.7 0.6 FY11 FY14 Net profit after tax US$bn 11.8 5.4 5.6 FY13 FY14 23% 48 44 34 31 2.2 FY11 FY12 FY13 FY14 E \u0007 BITDA = profit before income tax adjusted for depreciation and amortisation, asset writeoffs, exploration, development and other write-offs, net finance costs and gain or loss on refinancing (refer page 89 reconciliation). Fortescue Metals Group Limited I Annual Report 2014 FY10 FY11 FY12 FY13 FY14 Net debt = debt + cash and cash equivalents 3 C \u0007 1 = costs of mining, processing, rail and port per wet metric tonne (refer page 85 reconciliation). 2 WHERE WE OPERATE 5 Fortescue is the world's fourth largest iron ore producer 2013 Firetail Mine 2013 Kings Valley Project in construction Fortescue Metals Group Limited I Annual Report 2014 CHAIRMAN'S REPORT 6 Chairman Andrew Forrest and CEO Nev Power at the official opening of the Kings Valley project at the Solomon Hub I am delighted to introduce Fortescue's 2014 annual report. The past year marked a significant milestone in Fortescue's evolution by cementing our hard earned status as the new force in iron ore and placing us on track to becoming the force in the global iron ore industry. These achievements stand as testament to the hard work, determination and faith of the Fortescue family in the shared ambition of building our company into one of the world's leading mining groups. It is an achievement of which the Board of directors, on behalf of all stakeholders, are very proud. Our team has proved their courage to defy the odds, to prove their detractors wrong, time and time again. Your company, dear fellow shareholder, has earned its reputation of translating vision into reality. There is no better example of their ability to execute on our long term strategy than the completion of our US$9.2 billion expansion that nearly tripled our capacity to 155 million tonnes per annum (mtpa). I remember very clearly a high profile analyst saying it was a 2018 story at the earliest. On 28 March 2014, the Fortescue Family demonstrated our resolve. As we arrived at the Kings Valley project at the Solomon Hub to celebrate Fortescue Metals Group Limited I Annual Report 2014 the completion of the expansion, our gaze was drawn to an enormous banner draped against the ore processing facility. Four words encapsulated a journey that began around my kitchen table 11 years ago: Turning Vision into Reality. And there at Kings Valley we took a moment to revel in what we had achieved and pay tribute to those who believed in our vision: our wonderful employees, our contracting partners, our local communities, our customers and our shareholders. Together, we had the courage to pursue what many people mocked and for that, I thank you. Thank you for the one thing that makes the Fortescue Family so unique. Our determination to never, ever give up. Our courage and belief has transformed Fortescue into a world leader, one of the biggest suppliers of iron ore to customers throughout Asia. With multiple shipments daily of this vital steel making ingredient, we are playing a vital CHAIRMAN'S REPORT 7 Kings Valley project at the Solomon Hub officially opened by His Excellency Malcom McCusker, Governor of Western Australia role in lifting the economy of other nations out of poverty. Our iron ore is used in the construction of homes, hospitals, schools and transportation systems, and for that we can all be very proud. We are a reliable supplier of the building blocks of industrialisation and urbanisation, two very powerful forces combining to produce higher living standards and better futures for millions of people in the region fast becoming the epicentre of the global economy. We are unashamed believers in Asia's future, a commitment underscored by our significant investments in new capacity. My leadership team can also be proud of the thousands of jobs Fortescue has created. It is our dedicated staff that puts the family into the Fortescue Family. They make a significant contribution to the Australian economy and broader community through the billions of dollars we pay to state and federal governments in taxes and royalties. It is these contributions that allow Fortescue's success to be shared across the cities and towns that make up this great nation of 23 million people. Fortescue plays significant roles in supporting local communities, who have taken our friendship to their hearts and welcomed us onto their land. More than just a mining company, we are a totally involved member of the communities in which we operate. In 11 short years, we have built a major business that is changing lives at home and abroad. Fortescue's role as a partner in Asia's development was highlighted by the many customers who travelled thousands of kilometres to join us at the awe inspiring Solomon Hub. I was delighted to see more than 100 people from China, Korea, Taiwan and Japan in attendance, with many of them visiting our Pilbara operations for the first time. Iron ore prices may fluctuate but our relationship with our customers is as strong as ever. They appreciate our consistent delivery of high quality iron ore and we continue to sell every tonne that we produce. It is Fortescue's unrelenting commitment to invest in assets and relationships that will underpin our long term ability to generate the returns that you, our shareholders, the true owners of our business, demand of us. Our ability to deliver for our shareholders is best told by letting the numbers speak for themselves. Our rapid expansion to 155mtpa led to a massive increase in shipments from the Chichester and Solomon hubs in FY14. We exported a record 124.2 million tonnes, 54 per cent above FY13, and at a C1 cost of only US$34 per tonne. This is an exceptional performance but we will maintain a laser like focus on driving our production costs further down the global cost curve. We also delivered another strong financial performance. Net profit after tax in for FY14 rose to a record US$2.7 billion on the back of revenue of US$11.8 billion. Fortescue Metals Group Limited I Annual Report 2014 CHAIRMAN'S REPORT 8 2014 Board visit to Solomon At 30 June 2014, our cash on hand was US$2.4 billion, which reflects the strength of operational cashflows, reduced capital expenditure as our expansion neared completion, and lower finance costs as we began to deleverage our balance sheet. Our robust financial position enabled the Board to reward shareholders with a A$0.10 fully franked final dividend, taking the full year dividend to A$0.20. Our ability to imagine the opportunities presented by Asia's rise, prudently manage risk, and execute on large scale projects is paying rewards. The momentum of success is gathering pace. the prestigious Boao Forum for Asia on Hainan Island as a Diamond Sponsor for the sixth consecutive year. I'm delighted Fortescue has maintained its close association with the Boao Forum. It is one of the world's most significant platforms for dialogue among political, industry and economic leaders and this year's theme was particularly pertinent with discussions centred on the noble challenge we all face as leaders - finding new drivers for growth to continue unlocking the potential of the global economy. At year end, our net debt stood at US$7.2 billion. Since November 2013, we have repaid or committed to repay a total of US$3.6 billion and we will continue this journey in FY15. Our ability to repay debt demonstrates our strategy of expanding rapidly to meet China's insatiable demand for iron ore and deliver significant value for our shareholders. Under our Chief Financial Officer, Stephen Pearce, we've built significant flexibility into our balance sheet. Our earliest debt repayment isn't due until 2017, while 60 per cent of our long term debt is available for voluntary repayment in advance of maturity at our option. The Forum provided another opportunity to meet with Chinese Premier Li Keqiang. Together with President Xi Jinping, Premier Li is seeking to reform the Chinese economy, and in turn, transition it away from a historical reliance on exports and fixed asset investment and towards a greater role for consumption as a driver of growth. We at Fortescue will closely watch Premier Li's progress in shaping the next phase of growth in Australia's largest trading partner. I was also honoured to welcome Australian Prime Minister Tony Abbott who travelled to Boao as part of his first visit to China as Prime Minister, where he underscored the importance of the economic relationship between the two countries. One of our most important relationships, and one that we work hard to maintain, is our relationship with China, our largest customer and Australia's largest trading partner. Two weeks after hosting our customers, we returned to During the Forum, I also had the privilege of co-hosting the third China-Australia Senior Business Leaders' Forum (SBLF). The SBLF, which was held for the first time during the Forum in 2013, is providing an important platform for Fortescue Metals Group Limited I Annual Report 2014 CHAIRMAN'S REPORT 9 Chairman Andrew Forrest meets with Chinese Premier Li Keqiang during the Boao Forum for Asia 2014 business-to-business dialogue between Australia and China and facilitating discussions on challenges and opportunities in economic, trade, investment, cultural, philanthropic and political relations between the two countries. This year has also been gratifying for me personally. I was a very proud and humble recipient of the AustCham Westpac Australia China Individual Award which recognises those who play a leading role in driving the Australia China Bilateral Relationship. This award was due in part to the success of SBLF, and I thank everyone involved in this important dialogue. On behalf of all the Indigenous people working at Fortescue and all those that helped shape the success and privilege that Fortescue has had working with Aboriginal communities, I was honoured to deliver the Creating Parity Review to Prime Minister Tony Abbott in August 2014. It is a cohesive and interlinked strategy to end the disparity between first Australians and other Australians. This is a subject close to my heart. The Review followed six months of consultations around the country and recommends a strategy that delivers a complete end-to-end solution, without the baggage attached to current government policies and arrangements. Implemented in full, it will finally create parity and comprehensively build our society. The Review would not have been possible without the support of Fortescue, which is passionate about supporting Aboriginal communities through training, local employment and business opportunities. At Fortescue we talk the talk and walk the walk when it comes to our commitment to improve the lives of Indigenous Australians. Fortescue established its first Vocational Training and Employment in Centre in 2006 and opened a second centre in Roebourne in 2010. Their \"welfare-to-work\" model, catering for people with little or no work history, has been an enormous success, so much so the Federal Government has adopted our employment model around the country. We have challenged the Commonwealth to issue $1.3 billion worth of contracts to Indigenous companies knowing that Fortescue has led the way having already issued $1.6 billion worth of contracts to Indigenous companies and joint ventures. As we look ahead to the next phase of Fortescue's growth, I would like to thank the Fortescue Family and my fellow directors for their leadership and support. We have built a proud Australian company - the New Force in Iron Ore. Our first 11 years has been an amazing journey. I look forward to sharing even greater achievements with you in the years ahead. The best is yet to come. Mr Andrew Forrest Chairman Fortescue Metals Group Limited I Annual Report 2014 CHIEF EXECUTIVE OFFICER'S REPORT Chairman Andrew Forrest with CEO Nev Power at the opening of the Kings Valley project at the Solomon Hub 10 DEAR SHAREHOLDERS Financial Year 2014 was a year of outstanding delivery for Fortescue. Our company delivered record results with a total of 124.2 million tonnes (mt) shipped, a 54 per cent increase on the previous year. C1 costs were down 23 per cent on the previous year to $34 per wet metric tonne (wmt) and total delivered cost to customers was US$52/wmt. We delivered our expansion to 155 million tonnes ahead of schedule and we passed peak debt, repaying US$3.1 billion during the year. Fortescue's record of delivery reflects the company's vision of being the safest, lowest-cost, most profitable iron ore producer. the Christmas Creek mine to 50mtpa; and major extensions of Fortescue's world-class rail and port facilities, including the opening of the fourth berth at Herb Elliott Port. In March, Fortescue marked the completion of our US$9.2 billion expansion to 155 million tonnes. The expansion of mine, port and rail operations had originally been scheduled for completion at the end of June 2014, but, through the commitment and innovation of everyone working on the project, it was completed ahead of schedule at an industry-leading capital cost of US$92 per tonne of installed capacity. The expansion touched almost every part of our operations and included the construction of the greenfields Solomon Hub in the Hamersley Ranges, one of the world's largest iron ore developments comprising the 40 million tonnes per annum (mtpa) Kings Valley project and the 20mtpa Firetail mine; an expansion of Safety Fortescue Metals Group Limited I Annual Report 2014 Safety is the highest priority for everyone working at Fortescue. We were deeply saddened by the tragic deaths this year of two of our Fortescue family, Kurt Williams and Allen Zuvela. These incidents serve as a reminder that everyone in our industry must remain forever vigilant about our safety and the safety of our mates. The entire Fortescue family continues to offer their thoughts and condolences to the families and friends of both men. The Total Recordable Injury Frequency rate per million hours worked was 21 per cent lower, down to 6.0 in June 2014 from 7.6 in June 2013. More importantly there CHIEF EXECUTIVE OFFICER'S REPORT has been a step change in safety leadership. This year Fortescue engaged a leading global consultant to conduct an extensive safety review engaging approximately 6,000 people representing every part of the business. As a result, numerous improvements were made across operations, including extensive leadership site visits and a comprehensive study of systems, processes and procedures. Fortescue is already recognised as a world leader in our industry across so many areas of our business and we are committed to becoming a global leader in safety through the same culture of empowerment. Financial results Fortescue delivered record financial results in FY14 with revenue up 45 per cent to US$11.8 billion and net profit up 57 per cent to US$2.7 billion. Earnings before interest, taxes, depreciation and amortisation were up 58 per cent at US$5.6 billion. These record results were delivered on the back of increased volumes from our successful expansion and strong marketing of our quality products for an average realised price of US$106 per dry metric tonne. Cash on hand was US$2.4 billion at 30 June 2014, reflecting the continued operational cashflow strength from increased production, reduced C1 costs and lower capital expenditure. The increase in operating cashflows allowed Fortescue to commence its debt repayment strategy in November 2013 and since then we have repaid US$3.1 billion and committed an additional US$0.5 billion repayment in October 2014. This is an important step as Fortescue funded its 155mtpa expansion by accessing US debt markets which provided the cheapest most flexible source of capital. It has always been Fortescue's intention to rapidly repay this debt to achieve an initial gearing target of 40 per cent and our flexible debt maturity profile facilitates this commitment. The record financial results, driven by our rapid increase in capacity, have allowed Fortescue to increase returns to shareholders and declare total FY14 dividends of A$0.20 per share fully franked. We continue to progress towards a 30 to 40 per cent profit payout ratio dividend policy once the targeted gearing level is achieved. Operational performance Fortescue has delivered the fastest ever ramp up in the history of our industry which has delivered a production rate of 155mtpa in the June 2014 quarter and 160mtpa in the month of June. Total ore mined for the year was 104.4mt, up 48 per cent on the previous year. Construction of the fifth berth at Herb Elliott Port is expected to be completed by early 2015 and once fully operational will provide an additional 15 to 20mtpa of outload capacity. The design and construction of a five million tonne per annum detrital iron ore (DID) plant at Solomon will provide a low-cost, efficient processing solution to supplement our Fortescue Blend. Our expertise in ore processing and beneficiation is strengthened by consolidating operational management at Christmas Creek and Solomon ore processing facilities (OPF) with Cloudbreak. This allows us to share knowledge across the company, driving productivity and efficiencies to optimise our operations. The exploration team continued to deliver in FY14, with work at the Solomon Hub leading to an additional 1.16 billion tonnes being added to the Greater Solomon Mineral Resource. Our vast tenement footprint in the Pilbara remains an incredibly valuable core asset and as exploration continues we look to identify additional, highly prospective opportunities to further enhance our resource base. While our strategic focus remains delivery, de-gearing and dividends, we will also work diligently to continue to evaluate strategic low-cost options in long-term, high value opportunities. Bringing down costs Fortescue has successfully reduced its C1 operating costs by 23 per cent to US$34/wmt in FY14 with a total delivered cost of US$56 per dry metric tonnes (dmt). Lowering of our cost base reflects the establishment of the low cost Solomon operations, introduction of the Fortescue Blend product, enhanced processing capacity and a continual focus on efficiency. While significant cost achievements have been delivered, we recognise that it is critical to focus on controllable factors and to continue to manage our operations as efficiently as possible to continue to drive Fortescue lower on the global iron ore cost curve. I believe most Australians understand that the world does not owe us a living, and at Fortescue everyone embraces the challenge of thinking every day about how we can do our jobs more productively and efficiently while staying focused on safety. The signing of a long-term Gas Transportation Agreement for the construction of the longest natural gas pipeline to be built in Western Australia in a decade will deliver natural gas to the Solomon power station. Converting the Solomon power station from diesel to gas is expected to save approximately US$20 million per year and is expected to be operational in early 2015. This important piece of infrastructure lays the foundations for the future gasification of the Pilbara and if competitive supplies of natural gas are available for long term offtake, could offer the potential for further savings through Fortescue Metals Group Limited I Annual Report 2014 11 CHIEF EXECUTIVE OFFICER'S REPORT 12 CEO Nev Power and Chairman Andrew Forrest during a board meeting at Fortescue's Perth office extension of the pipeline to the Chichester Hub. In July, the company signed a 25 year agreement to participate in a Public Private Partnership with the Government of Western Australia, Horizon Power and Transalta, which will build and operate a combined cycle gas power station in South Hedland by 2017 that will supply energy to our port and rail operations. A reliable supply of competitive gas will reduce operating costs and play a significant role in cutting emissions. That is why Fortescue has taken a leadership position on the critical issue of gas sector reform by calling for the enforcement of Retention Lease \"use it or lose it\" policies to encourage the rational and market-based development of Western Australia's abundant gas reserves. Despite abundant low-cost natural gas being discovered offshore WA, the state is heading for a supply shortage over the next few years because resources are being warehoused rather than developed. We have also signed contracts to construct eight very large ore carriers valued at around US$550 million. These vessels are being designed for operational conditions at Port Hedland and will allow us to maximise shipping volumes and increase efficiencies, which will have a further positive impact on costs. The eight vessels are expected to be delivered from late 2016 through to early 2018 and will carry about 12 per cent of Fortescue's ore output. Fortescue Metals Group Limited I Annual Report 2014 Market conditions Much has been written about the iron ore price and Chinese demand, particularly as the fourth quarter of FY14 saw the market digesting the large increase in seaborne iron ore supply. Fortescue continues to receive strong support from its customer base and is seen as an alternative, reliable and competitive supplier of seaborne iron ore. China's demand for iron ore remains strong with the government committed to continued economic growth and urbanisation. Chinese steel production has hit record levels as the country transitions another 200 million people to urban living by 2020. Social responsibility Throughout the year we have achieved good progress on the Corporate Social Responsibility targets we have set ourselves. Our main challenges for the coming year are safety, reducing energy consumption and continuing our support of local communities through our business. In April 2013, we first signed up to the principles of the United Nations Global Compact and to this date we continue to show our support through our actions and initiatives. You can read more about our key actions and achievements in our Corporate Social Responsibility section of this report. CHIEF EXECUTIVE OFFICER'S REPORT 13 CEO Nev Power and Chairman Andrew Forrest with Elders from the Yindjibarndi and Eastern Guruma People at the opening of the Kings Valley project at the Solomon Hub Fortescue continues to work toward ending Aboriginal disparity in the Pilbara and now employs more than 1100 Aboriginal people. Our pioneering Fortescue Vocational Training and Employment Centres (VTEC) continue to provide guaranteed jobs for Aboriginal people and the training and support to succeed in those jobs. This model has become a template for the Australian Government and GenerationOne to roll out nationally. Training for a guaranteed job has broken the cycle of endless training for training's sake. The Billion Opportunities program, which was launched in late 2011, this year reached $1.6 billion in contracts and sub-contracts awarded to Aboriginal businesses and joint ventures. Through this program Fortescue is supporting a generation of Aboriginal entrepreneurs who will create true empowerment and economic self-determination. Fortescue continues its sponsorship of the national men's hockey team, the Kookaburras, who were crowned world and Commonwealth Games champions this year, while on a local level the company's sponsorship of the South Hedland Swans enters its fourth year. The Fortescue team continued volunteering and raising funds within the communities where we live and operate; the annual Roebourne working bee was a great success and Fortescue raised significant money for a variety of good causes, particularly Perth's new Ronald McDonald House and the Royal Flying Doctor Service. I would like to thank all of our employees, contracting partners, traditional owners and joint venture partners for their great support. Through their commitment Fortescue has delivered its ambition of developing mines and infrastructure to produce 155mt of iron ore per year in record time and at industry leading capital productivity. These foundations position your company to be the safest and lowest cost iron ore producer. We are very excited about the future because we are building a unique Australian company that will continue to deliver exceptional results for you and all our shareholders. Mr Nev Power Chief Executive Officer Fortescue Metals Group Limited I Annual Report 2014 OPERATIONS REPORT 14 Operations Report In March 2014, Fortescue celebrated one of the most significant milestones in its 11-year history, the successful completion of the US$9.2 billion expansion of its port, rail and mining operations in the Pilbara region of Western Australia to achieve a production capacity of 155 million tonnes per annum (mtpa). The completion of the project has taken Fortescue a significant step closer to its vision of becoming the safest, lowest cost, most profitable producer of iron ore. Fortescue committed to the expansion in November 2010 and set itself the ambitious target of completing it by June 2014. Thanks to the hard work and dedication of thousands of people, Fortescue completed construction more than six months ahead of schedule. The expansion included the development of the 60mtpa Solomon Hub in the Hamersley Ranges comprising the Kings Valley and nearby Firetail projects; an expansion of the Christmas Creek mine to 50mtpa; a wet processing plant at Cloudbreak and major extensions of Fortescue's world-class port and rail facilities. Fortescue Metals Group Limited I Annual Report 2014 Fortescue's iron ore operations now include the 90mtpa Chichester Hub, comprising the Cloudbreak and Christmas Creek mines, the Solomon Hub, more than 600km of rail and port facilities comprising four berths and three shiploaders at Herb Elliott Port in Port Hedland, with construction of a fifth berth under way. OPERATIONS REPORT Highlights Fortescue achieved a number of key milestones in FY14 as it completed the expansion to 155mtpa, including: procedures. Fortescue is recognised as a world leader across many areas of its business and is committed to becoming a global leader in safety through its culture of empowerment and determination. \t\u0007 The opening of the fourth berth - the Nick Sexton berth - at Herb Elliott Port in August 2013, marking the completion of the US$2.4 billion port expansion In FY14, Fortescue recorded a Total Recordable Injury Frequency Rate (TRIFR) of 6.0 per million hours worked, a 21 per cent improvement over the previous year. \t\u0007 The significant reduction of strip ratios at the Chichester Hub as benefits were realised from blending Firetail and Chichester ore and enhanced processing capabilities following the commissioning of the Christmas Creek jigs plant and Cloudbreak wet processing plant in the September quarter 2013 \t\u0007 Completion of the expanded railway and the commissioning of the rail integrated train control system on the mainline in the December 2013 quarter \t\u0007 Completion of the Kings Valley ore processing facility (OPF) in October 2013 and first ore through the plant in November 2013 \t\u0007 Completion of all expansion projects at a total cost of US$9.2 billion or US$92 per annual production tonne in the June 2014 quarter \t\u0007 Delivery of the targeted 155 million tonne annualised run rate in the June 2014 quarter and a record 160mtpa annualised run rate for the month of June Safety Fortescue's greatest asset is its people and safety is one of the company's core values. Tragically, in FY14 there were two fatal accidents at Christmas Creek, in the Ore Processing Facility and in the Heavy Vehicle Workshop, which took the lives of Kurt Williams on 14 August 2013 and Allen Zuvela on 29 December 2014. Fortescue has taken decisive action to reinforce safety as its highest priority and engaged an independent auditor to undertake a comprehensive whole-of-business review of its safety standards, systems and processes to examine safety performance and management across every area of its operations. Numerous improvements have been made across operations, including extensive leadership site visits and a comprehensive study of systems, processes and Production Fortescue finished FY14 on an outstanding note, shipping a record 124.2 million tonnes over the 12 month period. Shipments were 54 per cent higher than the previous year and within two per cent of the company's full year guidance of 127mt. In the June 2014 quarter, Fortescue achieved a seventh consecutive shipping record of 38.7mt, a 23 per cent increase over the previous quarter and a 55 per cent increase over the prior comparable period. Total shipments in FY14 included 4.3 million third party tonnes. Fortescue achieved its targeted 155mtpa annualised run rate in the June 2014 quarter and a record 160 million tonne annualised shipping rate for the month of June following the successful ramp up of the Kings Valley OPF. Total output from all processing facilities increased to a record 41.1mt in the June quarter, 31 per cent higher than the prior quarter as Fortescue moved to steady state operations. Fortescue has provided guidance for shipping volumes for FY15 of 155 to 160mt, which reflects a full year of operations from the Kings Valley project. During the year, Fortescue assumed full ownership and operational responsibility for the two OPFs at Christmas Creek and during the June 2014 quarter, Fortescue and Leighton Contractors completed a successful transition of full operational responsibility for the two Solomon Hub OPFs and the train load out facility. These strategic business decisions have given Fortescue operational responsibility over all five of its OPFs, which will enable shared learnings, synergies, economies of scale and efficiency increases across the business. Costs Fortescue's relentless focus on costs led to a 23 per cent improvement in FY14 with C1 costs falling to US$34/wmt. The sharp reduction reflects the lower cost Solomon operations, improved processing capacity and lower strip ratios at the Chichester Hub, operational efficiencies and a lower Australian dollar. Fortescue Metals Group Limited I Annual Report 2014 15 OPERATIONS REPORT In the June 2014 quarter, Fortescue's total delivered costs to customers were US$49/wmt inclusive of C1 costs and shipping, royalty and administration costs, eight per cent lower than the prior quarter, while total delivered costs to customers for the full year were US$52/wmt. Fortescue is determined to reduce costs even further in FY15 and is targeting a C1 operating cost of US$31-32/wmt based on an average US to Australian dollar exchange rate of 0.90. Marketing Fortescue's suite of products is sold with reference to the 62% Platts index with a market price comparable to other products which have similar value-in-use properties for steel production. 16 A significant increase in new seaborne iron ore supply, tighter credit conditions in China and relatively high Chinese port stocks led to a lower price environment in the second half of FY14. Fortescue achieved an average price realisation of 86 per cent compared to the average 62% Platts index in FY14. Fortescue expects supply to re-balance as Chinese port inventories are drawn down, steel mills re-stock and higher cost iron ore production leaves the market. As this occurs and Fortescue transitions to a product suite dominated by the high quality Fortescue Blend and Kings channel iron deposit (CID) products, realised prices are expected to range between 85 and 90 per cent of the 62% Platts price index. Chichester Hub Fortescue's mining operations in the Chichester Range comprise Cloudbreak, 150km north of Newman, and Christmas Creek, 50km to the east of Cloudbreak. Several major projects were undertaken at the Chichester Hub as part of the expansion to 155mtpa. These included a second OPF and jigs plant at Christmas Creek, which lifted the production capacity to 50mtpa, and the addition of a wet front end to the processing plant at Cloudbreak. The benefits of enhanced processing capabilities following commissioning of the jigs plant and wet front end, along with Fortescue's product strategy of blending Chichester ore with Firetail ore, played a significant role in reducing the strip ratios at the Chichester Hub in FY14. Strip ratios averaged 3.5 for FY14, in line with the five-year mine plan of 3.5. Fortescue Metals Group Limited I Annual Report 2014 Solomon Hub The 60mtpa Solomon Hub is in the Hamersley Ranges, 60km north of Tom Price and 120km to the west of the Chichester Hub and includes the 20mtpa Firetail project and 40mtpa Kings Valley project. The Solomon Hub represents a valuable source of new production from long life, low cost mining operations. Its low strip ratios have played a major role in reducing Fortescue's overall operating costs while the new operations have expanded Fortescue's product mix. Firetail ore blended with Chichester ore has created an enhanced product known as the Fortescue Blend, while CID ore from Kings Valley represents a new stand-alone product. Fortescue opened Firetail in May 2013 and completed construction of the Kings Valley OPF in October 2013. Construction was completed in record time, taking only 179 days from the assembly of first steel. The successful ramp-up of Kings Valley allowed Fortescue to achieve its targeted 155 million tonne annualised run rate in the June quarter 2014 and a record 160 mtpa annualised run rate for the month of June. Port and Rail The expansion of Fortescue's port and rail operations have led to consistent operations at and above the annualised run rate of 155mtpa. Further optimisation work will continue to deliver increased productivity and efficiency. In August 2013, Fortescue celebrated the completion of the US$2.4 billion expansion of Fortescue's port facilities, a core component of Fortescue's US$9.2 billion expansion, to lift the Port's export capacity to 155mtpa. The expansion of Fortescue's rail line - the heaviest haul line in the world with a 40 tonne axle load capacity - means 14 train journeys per day now operate from Cloudbreak, Christmas Creek and Solomon, with each hauling about 33,000 tonnes of ore to Herb Elliott Port. In the December 2013 quarter, Fortescue opened a state-of-theart ore car maintenance facility incorporating some of the world's most advanced engineering and automated technology in heavy haul maintenance. The automated facility will maintain the company's 3,000 plus ore cars and ancillary fleet. An Integrated Train Control System (ITCS) was also introduced where trains are tracked by GPS and operating instructions are delivered from Fortescue's Train Control Centre in Perth to the locomotives via digital communications. The state of the art ITCS provides greater utilisation efficiency and improved safety. OPERATIONS REPORT 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 Bunbury Pipeline to the Solomon Power Station with completion scheduled in the March 2015 quarter. This single initiative will save Fortescue approximately US$20 million a year as well as reducing carbon emissions. Compressed Natural Gas (CNG) As an interim step in advance of completion of the natural gas pipeline, Fortescue will truck compressed natural gas (CNG) from facilities in Port Hedland to gas receiving facilities installed at the Solomon Power Station. Deliveries are scheduled to commence in October 2014 and will run until the Fortescue River pipeline is fully commissioned. AP5 Project Fortescue is building a fifth wharf at Anderson Point, AP5, which is scheduled for completion in the March 2015 quarter. The fifth berth will provide additional flexibility and efficiency at the port. 17 Solomon Power Station Detrital Processing Plant In May 2014, Fortescue approved the construction of a 5mtpa detrital iron deposit (DID) processing plant at Solomon. The facility will allow DID ore to be processed, eliminating the need for a wet plant addition to the Firetail OPF and freeing the Kings Valley OPF to process Kings CID ore. The project is expected to take just over a year and cost approximately US$105 million. Iron Bridge Project Fortescue is progressing the Iron Bridge magnetite project, 100 kilometres south of Port Hedland. The project, incorporating the North Star and Glacier Valley ore bodies, is being developed in conjunction with Taiwan's Formosa Group and China's Baosteel Group. By the end of FY14 the main construction camp was complete, access roads and earthworks at the North Star OPF were nearing completion and pre-strip activities were progressing. First production from the 1.5mtpa Stage 1 is expected in the March 2015 quarter. AP5 construction Exploration Fortescue's FY14 drilling program focused on identifying and defining new targets for bedded mineralisation in and around the existing Chichester and Solomon hubs. Iron Bridge Project construction Fortescue Metals Group Limited I Annual Report 2014 ORE RESERVES AND RESOURCES REPORT Ore Reserves and Mineral Resources Reporting is grouped by operating and development properties and includes both hematite and magnetite deposits. required basis as an outcome of risk assessment. Tonnage and quality information contained in the following tables has been rounded and as a result the figures may not add up to the totals quoted. Hematite Ore Reserves total 2.4 billion tonnes (bt) at an average iron (Fe) grade of 57.3 per cent. Combined hematite Mineral Resources total 11.6bt at an average Fe of 56.9 per cent. Magnetite Mineral Resources total 4.7bt at an average mass recovery of 24.2 per cent. Operating property Ore Reserves and Mineral Resources have all been reported to the Joint Ore Reserves Committee (JORC) 2012 standard. Accordingly, the information in these sections should be read in conjunction with the respective explanatory Resource and Reserve information (Fortescue ASX release dated 20 August 2014). 18 Ore Reserves Operating Properties - Hematite The Ore Reserve is quoted as at June 30, 2014 and is inclusive of ore stockpiles. Ore Reserves are quoted on a dry product basis while Mineral Resources are quoted on a dry in-situ basis. Development property Mineral Resources are a combination of JORC 2012 and JORC 2004 estimates. Those development property resources reported to JORC 2012 standard are identified in the Fortescue ASX release of 20 May 2014 that includes the supporting technical data. The remaining JORC 2004 resource estimates will be progressively updated to the JORC 2012 standard as development priorities dictate. Magnetite resources have been updated and reported to the JORC 2012 standards. The resources quoted in this report should be read in conjunction with the supporting technical data contained in the corresponding ASX release dated 20 August 2014. Audit of the estimation of Mineral Resources and Ore Reserves is addressed as a sub-set of the annual internal audit plan approved by the Board Audit and Risk Management committee (ARMC). Specific audit of the Ore Reserve process was performed in 2011 and 2013. These audits were managed by Fortescue's internal audit service provider with external technical subject experts. In addition to routine internal audit, the ARMC monitors the Ore Reserve and Mineral Resource status and approves the final outcome. The annual Ore Reserves and Mineral Resource update is a prescribed activity within the annual Corporate Planning Calendar that includes a schedule of regular Executive engagement meetings to approve assumptions and guide the overall process. The Mineral Resource and Ore Reserve estimation processes followed internally are well established and are subject to systematic internal peer review, including calibration against operational outcomes. Independent technical reviews and audits are undertaken on an as- Fortescue Metals Group Limited I Annual Report 2014 The 2014 combined Chichester and Solomon hematite Ore Reserve is a total of 2,374 million dry tonnes (mt) at an average iron (Fe) grade of 57.3 per cent. Company production and sales reporting is based on wet tonnes. The typical free moisture content of shipped products is nine per cent. The proportion of higher confidence Proved Ore Reserve has been slightly improved as a result of ongoing in-fill drilling at both the Solomon and the Chichester deposits. The Chichester Hub (Cloudbreak and Christmas Creek deposits) contains 1,470mt at an average Fe grade of 57.4 per cent, with 30 per cent of the tonnage in the Proved Ore Reserve category. While the Cloudbreak and Christmas Creek deposits are quoted separately for historical reasons, they effectively represent a single deposit with ore generally directed to the most proximal of the three available ore processing facilities (OPFs). The Ore Reserve estimate for the Solomon Hub is 903mt at an average Fe of 57.2 per cent, with 16 per cent of the tonnage in the Proved Ore Reserve category. The 2014 hematite Ore Reserve estimates were subject to comprehensive review and update addressing: \t\u0007 Revisions to the Kings (Solomon CID) resource model and to grade control models in all near-term mining areas. \t\u0007 revised processing strategy including accelerated a \"dry processing\" (rather than beneficiation) of the Firetail bedded iron deposit (BID) at Solomon. ore depletion as a result of sales. \t\u0007 exclusion of low margin mineralisation to enhance financial outcomes, and \t\u0007 revised life of mine (LOM) plan that addresses the a listed items and incorporates the latest information on long term product strategy and mining and processing reconciliation trends. ORE RESERVES AND RESOURCES REPORT Hematite Ore Reserves - as at 30 June 2014 Category Product Tonnes (Mt) Iron Silica Alumina Phos Fe% SiO2% Al2O3% P% Loss On Ignition LOI% Hematite Ore Reserves - as at 30 June 2013 Product Tonnes (Mt) Iron Silica Alumina Phos Fe% SiO2% Al2O3% P% Loss On Ignition LOI% 58.2 4.18 1.99 0.051 8.5 Cloudbreak Proved 132 57.7 4.20 2.35 0.048 8.7 136 Probable 368 57.5 4.55 2.33 0.052 8.1 368 57.9 4.38 2.24 0.053 8.1 Total 500 57.6 4.46 2.33 0.051 8.3 504 57.9 4.33 2.17 0.052 8.2 Proved 312 57.3 5.72 2.45 0.043 57.4 5.37 2.39 0.042 7.9 Christmas Creek 7.9 312 Probable 659 57.3 4.91 2.62 0.044 7.9 701 57.5 4.93 2.60 0.045 7.9 Total 970 57.3 5.17 2.57 0.044 7.9 1,013 57.4 5.06 2.53 0.044 7.9 57.6 5.01 2.27 0.045 8.1 Sub-Total Chichester Hub Proved 444 57.4 5.27 2.42 0.045 8.2 449 Probable 1,026 57.4 4.78 2.52 0.047 7.9 1,069 57.6 4.74 2.47 0.048 7.9 Total 1,470 57.4 4.93 2.49 0.046 8.0 1,517 57.6 4.82 2.41 0.047 8.0 Firetail Proved 39 59.2 5.66 2.66 0.133 6.4 29 60.5 4.63 2.21 0.135 6.1 Probable 136 58.5 6.84 2.63 0.106 6.2 133 59.8 5.88 2.22 0.104 5.9 Total 174 58.7 6.58 2.64 0.112 6.3 162 59.9 5.66 2.22 0.109 5.9 Kings and Queens Proved 105 57.6 6.14 2.22 0.061 8.5 69 57.7 5.30 1.61 0.051 9.9 Probable 624 56.7 6.57 2.67 0.064 8.9 596 57.3 6.75 2.66 0.058 8.9 Total 729 56.9 6.50 2.61 0.064 8.8 665 57.3 6.60 2.55 0.057 9.0 Proved 143 58.0 6.01 2.34 58.5 5.10 1.79 0.076 8.8 Sub-Total Solomon Hub 0.081 7.9 98 Probable 760 57.1 6.61 2.66 0.072 8.4 729 57.7 6.59 2.58 0.066 8.3 Total 903 57.2 6.52 2.61 0.073 8.3 827 57.8 6.42 2.48 0.068 8.4 Combined Hematite Ore Reserves Proved 587 57.6 5.45 2.40 0.053 8.1 547 57.8 5.02 2.18 0.050 8.2 Probable 1,786 57.3 5.56 2.58 0.057 8.1 1,797 57.7 5.49 2.52 0.055 8.1 Total 2,374 57.3 5.53 2.54 0.056 8.1 2,344 57.7 5.38 2.44 0.054 8.1 a)\t\u0007 The diluted mining models used to report the 2014 Ore Reserves are based on Chichester Mineral Resource models reported in 2012 and revised Solomon Mineral Resource models completed this year. Diluted mining models are validated by reconciliation against historical production. b) Proved Reserves are inclusive of ore stockpiles at the mines and port totalling approximately 30.9mt of dry product. c)\t\u0007\u0007\u0007 The Chichester Ore Reserve is inclusive of the Cloudbreak and Christmas Creek BID deposits. Selected Christmas \u0007 Creek Ore Reserve will be directed to the Cloudbreak OPF to optimise upgrade performance and balance Cloudbreak and Christmas Creek OPF lives. d)\t\u0007 The June 2013 Solomon Reserve was reported on a hub basis. It is restated here including deposit detail to allow direct comparison with the 2014 statement. e) Reserve in-situ Fe cut-off grades are approximately 53 per cent for BID deposits and 51 per cent for CID deposits. Fortescue Metals Group Limited I Annual Report 2014 19 ORE RESERVES AND RESOURCES REPORT C1 costs were 23% for the financial year 20 Mineral Resources Operating Properties - Hematite Mineral Resources for the operating properties including the Chichester and Solomon hubs are stated on a dry in-situ basis. The Mineral Resources are inclusive of that portion converted to Ore Reserves, including stockpiles. As of 30 June 2014, the total Mineral Resource for the Chichester and Solomon hubs was 5,441mt at an average Fe grade of 56.5 per cent, a slight increase over that stated in the prior year. This was accompanied by a slight decrease in the proportion of higher confidence Measured and Indicated Mineral Resource mineralisation from 66 per cent to 63 per cent as a result of mining depletion. The Chichester Hub Mineral Resource totalled 3,222mt at an average Fe grade of 56.7 per cent, with 70 per cent of the tonnage in the Measured and Indicated Mineral Resource categories. The total Solomon Hub Mineral Resource increased by 11 per cent, totalling 2,219mt at an average Fe grade of 56.1 per cent, with 51 per cent of the tonnage in the Measured and Indicated Mineral Resource categories. Fortescue Metals Group Limited I Annual Report 2014 ORE RESERVES AND RESOURCES REPORT Hematite Mineral Resources - as at 30 June 2014 Category Hematite Mineral Resources - as at 30 June 2013 In-situ Tonnes (Mt) In-situ Tonnes (Mt) Iron Silica Alumina Phos Fe% SiO2% Al2O3% Loss On Ignition LOI% P% Iron Silica Alumina Phos Fe% SiO2% Al2O3% P% Loss On Ignition LOI% Cloudbreak Measured 274 57.5 4.86 3.06 0.054 8.7 211 57.0 5.43 3.02 0.056 8.7 Indicted 420 56.7 5.69 3.37 0.059 8.3 473 56.6 5.75 3.38 0.057 8.2 Inferred 469 56.3 6.07 3.38 0.057 8.3 494 56.3 6.09 3.38 0.057 8.3 1,163 56.7 5.65 3.30 0.057 8.4 1,178 56.6 5.84 3.31 0.057 8.4 Total Christmas Creek Measured 516 57.3 5.93 2.97 0.047 8.0 457 56.5 6.39 3.13 0.045 8.0 Indicted 1,064 56.6 5.94 3.38 0.049 7.9 1,097 56.6 5.97 3.37 0.048 7.8 Inferred Total 479 56.4 6.54 3.21 0.059 7.2 491 56.4 6.55 3.21 0.059 7.2 2,059 56.7 6.08 3.24 0.050 7.7 2,045 56.6 6.20 3.28 0.050 7.7 Sub-Total Chichester Hub Measured 790 57.4 5.56 3.00 0.049 8.2 668 56.7 6.08 3.09 0.048 8.2 Indicted 1,484 56.6 5.87 3.37 0.051 8.0 1,569 56.6 5.90 3.37 0.051 8.0 Inferred 947 56.3 6.31 3.30 0.058 7.8 985 56.3 6.32 3.29 0.058 7.8 3,222 56.7 5.92 3.26 0.053 8.0 3,222 56.6 6.07 3.29 0.053 8.0 Total Firetail Measured 45 58.0 5.80 3.35 0.141 7.3 41 59.7 4.84 2.56 0.141 6.6 Indicted 155 58.9 6.11 2.64 0.107 6.4 181 59.0 6.13 2.66 0.107 6.2 Inferred 170 57.6 6.85 3.25 0.110 6.9 141 57.6 6.55 3.36 0.105 7.1 Total 371 58.2 6.41 3.00 0.112 6.7 364 58.5 6.15 2.92 0.110 6.6 Kings and Queens Measured 121 56.4 7.43 2.87 0.068 8.5 92 56.9 6.23 1.93 0.060 10.0 Indicted 818 55.7 7.75 3.22 0.065 8.8 871 55.6 7.86 3.25 0.066 8.8 Inferred Total 909 55.6 7.86 3.41 0.076 8.6 676 55.2 8.07 3.42 0.068 8.9 1,848 55.7 7.78 3.29 0.071 8.7 1,640 55.5 7.85 3.25 0.067 8.9 Sub-Total Solomon Hub Measured 167 56.8 6.99 3.00 0.088 8.2 133 57.8 5.80 2.13 0.085 9.0 Indicted 973 56.2 7.49 3.12 0.072 8.4 1,053 56.2 7.56 3.15 0.073 8.3 Inferred 1,079 55.9 7.70 3.38 0.082 8.3 818 55.6 7.80 3.41 0.075 8.6 Total 2,219 56.1 7.55 3.24 0.078 8.3 2,003 56.1 7.54 3.19 0.074 8.5 Measured 957 57.3 5.81 3.00 0.056 8.2 801 56.9 6.04 2.93 0.054 8.4 Indicated 2,457 56.5 6.51 3.28 0.060 8.2 2,622 56.4 6.57 3.28 0.060 8.1 Inferred 2,027 56.1 7.05 3.34 0.071 8.1 1,802 56.0 6.99 3.35 0.065 8.1 Total 5,441 56.5 6.59 3.25 0.063 8.1 5,226 56.4 6.63 3.25 0.061 8.2 Total Operating Property Hematite Mineral Resource a)\t\u0007 Chichester Hub Mineral Resources are quoted at a cut-off grade of 54 per cent Fe while Solomon Hub Mineral Resources are quoted at a cut-off grade of 51 per cent Fe. b) The Measured Mineral Resource estimate includes mine and port ore stockpiles totalling 34.3mt. c)\t\u0007 The June 2013 Solomon Mineral Resource has been re-stated on a deposit basis to allow comparison. Fortescue Metals Group Limited I Annual Report 2014 21 ORE RESERVES AND RESOURCES REPORT Mineral Resources Development Properties - Hematite The Company announced a 1.16 billion tonne (bt) addition to the Greater Solomon Mineral Resource base in May, 2014 as a result of a program of exploration drilling. Major increases were in the Sheila Valley and Serenity deposits including additional bedded, channel iron and detrital mineralisation. Updates to the Eliwana-Flying Fish Mineral Resources were also announced. At the same time, the Mt Nicholas estimate was removed from the Greater Chichester inventory pending review and re-modelling. Hematite Mineral Resources - as at 30 June 2014 Hematite Mineral Resources - as at 30 June 2013 In-situ Tonnes (Mt) Iron Silica Alumina Phos Fe% SiO2% Al2O3% P% In-situ Tonnes (Mt) Measured - - - - - - Indicated - - - - - Inferred 303 57.1 5.90 3.25 Total 303 57.1 5.90 3.25 Category Loss On Ignition LOI% Iron Silica Alumina Phos Fe% SiO2% Al2O3% P% Loss On Ignition LOI% - - - - - - - 222 50.0 10.89 6.83 0.060 8.0 0.067 7.1 473 54.1 7.58 4.86 0.066 7.5 0.067 7.1 695 52.8 8.64 5.49 0.064 7.7 - - - - - - - Greater Chichester Greater Solomon Measured Indicated 22 - - - - - - - 254 56.6 6.70 3.45 0.083 8.3 - - - - Inferred 2,404 56.8 6.93 3.71 0.081 7.2 1,501 56.8 7.00 3.71 0.080 7.3 Total 2,658 56.8 6.91 3.69 0.082 7.3 1,501 56.8 7.00 3.71 0.080 7.3 Eliwana and Flying Fish Measured - - - - - - - - - - - - Indicated - - - - - - - - - - - - Inferred 740 59.1 5.21 2.88 0.091 6.5 624 58.7 5.44 3.06 0.091 6.6 Total 740 59.1 5.21 2.88 0.091 6.5 624 58.7 5.44 3.06 0.091 6.6 Nyidinghu Measured 23 59.6 3.56 2.21 0.139 8.0 23 59.6 3.56 2.21 0.139 8.0 Indicated 580 58.1 4.52 2.95 0.148 8.6 580 58.1 4.52 2.95 0.148 8.6 Inferred 1,860 57.2 5.00 3.36 0.147 8.8 1,860 57.2 5.00 3.36 0.147 8.8 Total 2,463 57.4 4.87 3.25 0.147 8.8 2,463 57.4 4.87 3.25 0.147 8.8 Total Development Property Hematite Mineral Resources Measured 23 59.6 3.56 2.21 0.139 8.0 23 59.6 3.56 2.21 0.139 8.0 Indicated 834 57.6 5.18 3.10 0.128 8.5 802 55.8 6.28 4.02 0.124 8.4 Inferred 5,307 57.3 5.95 3.45 0.105 7.7 4,458 56.9 6.01 3.60 0.108 7.9 Total 6,165 57.3 5.85 3.40 0.108 7.8 5,283 56.8 6.04 3.65 0.110 7.9 a)\t\u0007 Greater Chichester Mineral Resource includes the Investigator, White Knight and Mt Lewin deposits. Overall, the quality The has increased and tonnage reduced as a result of removal of the Mount Nicholas inventory pending a model review. b)\t\u0007 Greater Solomon Mineral Resource includes the Serenity, Sheila Valley, Mount MacLeod, Queens Extension, Cerberus, The Stingray and Raven deposits. The Indicated Mineral Resource is located at the Serenity deposit. The majority of additional Inferred Mineral Resource is from extensions at Sheila Valley with smaller contributions from Serenity and Mount MacLeod. All estimates making up Greater Solomon are reported to JORC 2012 standards (ASX release 20 May 2014). c)\t\u0007 The Greater Chichester and Nyidinghu Mineral Resource is reported to JORC 2004 standards and will be updated to meet JORC 2012 reporting standards according to development priorities. d)\t\u0007 Mineral Resources are quoted on an in-situ basis after applying an appropriate cut-off for each deposit. Details All relating to the cut-offs were provided when the Mineral Resource was first announced. Fortescue Metals Group Limited I Annual Report 2014 ORE RESERVES AND RESOURCES REPORT Mineral Resources Development Properties - Magnetite Mineral Resource updates for the North Star and Glacier Valley deposits (60.72 per cent Fortescue) were completed in 2014, incorporating additional drilling, including the results of an in-fill reverse circulation drilling campaign across the North Star Stage 1 project area. This drilling has confirmed the tonnage of higher confidence Measured and Indicated Mineral Resource, which can potentially be converted to an Ore Reserve at an improved mass recovery. Peripheral Inferred mineralisation contained in the prior estimate has been re-assessed based on the improved understanding of the mineralisation controls and continuity. As a result, the tonnage of low mass recovery, Inferred mineralisation in the hangingwall and footwall has been reduced with a corresponding significant increase in Mass Recovery. The Glacier Valley estimate was also updated using the available data, including the improved understanding of mineralisation continuity and controls. The 2014 Glacier Valley estimate remains wholly Inferred, with the tonnage increased by 24 per cent, at a better Mass Recovery (2013 Mass Recovery based on MagSus correlation). Magnetite Mineral Resources - as at 30 June 2014 Magnetite Mineral Resources - as at 30 June 2013 Category In-situ Tonnes (Mt) Mass Recovery % Iron Silica Alumina Fe% SiO2% Al2O3% In-situ Tonnes (Mt) Mass Recovery % Iron Silica Alumina Fe% SiO2% Al2O3% - - - - - North Star (60.72% Fortescue) Measured Indicated 44 27.2 32.2 39.8 2.0 679 28.0 32.2 39.6 1.9 721 25.1 31.9 40.0 2.0 Inferred 1,926 23.4 30.6 40.9 2.5 2,847 19.1 29.1 41.8 2.9 Total 2,648 24.6 31.0 40.6 2.3 3,568 20.3 29.6 41.5 2.7 Measured - - - - - - - - - - Indicated - - - - - - - - - - Inferred 2,028 23.5 32.8 38.7 1.6 1,637 - 32.2 38.9 1.7 Total 2,028 23.5 32.8 38.7 1.6 1,637 - 32.2 38.9 1.7 44 27.2 32.2 - - - - - Glacier Valley (60.72% Fortescue) Total Magnetite Mineral Resource Measured Indicated 39.8 2.0 679 28.0 32.2 39.6 1.9 721 25.1 31.9 40.0 2.0 Inferred 3,953 23.5 31.7 39.8 2.1 4,484 - 30.2 40.8 2.5 Total 4,676 24.2 31.8 39.8 2.0 5,205 - 30.5 40.7 2.4 a)\t\u0007 Magnetite Mineral Resources including the North Star and Glacier Valley deposits are reported according to JORC 2012 standards (ASX release 20 August 2014). b) All reporting is based on mass recovery expressed as a 9 per cent Davis Tube Recovery (DTR) cut-off. c) Average concentrate quality based on DTR test results at a 53 micron grind size is 66 per cent Fe and six per cent silica. Fortescue Metals Group Limited I Annual Report 2014 23 ORE RESERVES AND RESOURCES REPORT Kings Valley ore processing facility 24 Competent Persons Statement The detail in this report that relates to Mineral Resources is based on information compiled by Mr Stuart Robinson, Mr Clayton Simpson, Mr Nicholas Nitschke, Mr David Frost-Barnes and Mr Lynn Widenbar. Messrs Robinson, Simpson, Nitschke and Frost-Barnes are all full-time employees of Fortescue while Mr Widenbar is an independent consultant. Each provided technical input for Mineral Resources estimations and compilations of exploration results. Mr Robinson is a Fellow of, and Messrs Simpson, Nitschke, Oliver and Widenbar are Members of, the Australasian Institute of Mining and Metallurgy. Mr Frost-Barnes is a member of the Institute of Materials, Minerals and Mining. Messrs Robinson, Simpson, Nitschke, Oliver, Frost-Barnes and Widenbar have sufficient experience relevant to the type of mineralisation and type of deposit under consideration to each be qualified as a Competent Person as defined in the JORC Code. Estimated Ore Reserves for the Chichester and Solomon Hubs for fiscal year 2014 were compiled by Mr Ross Oliver, a full-time employee of Fortescue. Messrs Robinson, Simpson, Nitschke, Frost-Barnes, Widenbar and Oliver have each consented to the inclusion in this report of the matters based on their information in the form and context in which it appears. Fortescue Metals Group Limited I Annual Report 2014 CORPORATE SOCIAL RESPONSIBILITY 25 Fortescue aspires to be a corporate citizen of choice that is welcomed by the communities that host its activities. What Corporate Social Responsibility means to Fortescue We believe in generating long term value for all of our stakeholders. We do this by empowering communities, providing economic opportunity, behaving with respect and care for people and the environment, taking responsibility for our presence and doing what we say we will do. To achieve our Vision, we must operate in a way that integrates Corporate Social Responsibility (CSR) principles into everything we do. Our approach Our governance framework and management systems are designed to ensure that we make good decisions, identify and manage our risks and continuously improve our performance. These also stem from our Vision of being the safest, lowest cost, most profitable iron ore producer and align with our Values of: Safety, Integrity, Family, Enthusiasm, Empowerment, Determination, Generating Ideas, Frugality, and Stretch Targets. This approach helps us to manage both our financial and non-financial risks and to take advantage of the