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  SteelHome >>Raw Material>>Market Info>>Special Studies
 
Update-SteelHome's Visit to Fortescue Metals Group

https://en.steelhome.com [SteelHome] 2016-11-15 10:43:59

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Update on November 15 after it is published on November 09: add preface.

SteelHome is impressed by FMG during Media Tour on Nov.2-3. Fortescue only uses eight years to become the fourth largest iron ore miner in the world. It adheres to safety, productivity and efficiency and ongoing improvements so it can reach established target at the fastest pace. Cost-cutting, debt repayment, close interaction with China, and strategic delivery are the hot topics during the time.

SteelHome is invited to join FMG Media Tour 2016 during November 02-03.

On November 02, in corporate head office, CEO Neville Power, Director of Operations Nick Cernotta, GM of Christmas Creek Project Tony Swiericzuk, Director of Sales and Marketing David Liu, and Group Manager Finance & Investor Relations Stuart Gale made respective introduction of company strategy, mining efficiency and automation, interaction with Chinese market and strong financial performance. Medias later visited Operation Centre in the office which makes accurate real-time monitoring of mining, loading, railway shipment, blending and portal activities that are 2,000 miles away in Pilbara and at Port Hedland. In the afternoon, medias visited Christmas Creek and processing plant in Pilbara.

On November 03, medias visited FMG’s exclusive railway lines and loading facilities at Port Hedland. GM Port Mr. Fernando Pereira and GM Rail Mrs. Ron Dagostino gave detailed introduction in the field.

During the visit, delegates had Interactive communication with FMG and learnt more about the company. The following is a special account of hot points during the visit.

1. FMG Aims to be Lowest-Cost Miner

Productivity and efficiency are the words repeated in introductions by the management. Over the last 11 quarters, FMG’s C1 cost has been falling continuously from US$48/wmt in FY2012 to US$13.55/wmt in Q3 2016 and is expected to fall to US$12-13/wmt in FY17. Apart from contributions from AUD/USD exchange rate and lower oil prices, a close eye on productivity and efficiency is what makes cost reduction sustainable. Major steps to cut costs include:

  • Innovation and Technology Strategy & Mining Automation. Solomon hub has already adopted autonomous haulage and drilling. AHS (Autonomous Haul System) trucks are 20 percent more productive than regular fleet of trucks of the same type and have so far moved 240 million tons of iron ore. Cloudbreak uses dewatering telemetry. Christmas Creek is equipped with OPF optimization and Integrated Operations Center. The adoption of the above mentioned technologies has saved about 3.5 billion dollars of operation costs and is expected to further cut expenditures when they become more sophisticated and expand into each others.

  • Lower Strip Ratios. FMG reduces cut-off grades through blending and beneficiation, widens new pit limits and increases utilization of resource value. The average strip ratio was 1.1 in Q3 2016 and is expected to rise to 1.4 in FY17-21, with cost only increasing ~US$1/WMT on current assumptions. FMG’s blending strategy is 58% fe iron ore product. The iron percentage is not very high but can fully meet feed requirements. In the interest of metallurgical requirements and mineral features, FMG positions itself as a high-value-in-use product supplier.

  • Portal Loading/Unloading Speed. FMG current has 3 reclaimers, 3 shiploaders and 5 berths load vessels at a combined rate of 36,000 tons per hour. The configuration makes Herb Elliot Port Australia’s most efficient bulk port, as shiploaders can continue work if fully-loaded vessels fail to leave the port when the tide comes.

  • Railway Reshaping. Fortescue is the first miner that uses 160 ton car trains. Each train contains 250 ore cars, carries 36,000 tons of iron ore and can move faster against the speed of 80km/hour. Each train is 3-km long and its cycle time averages 22 hours. The railway network, connecting four mine sites, is 620 km long. The mine farthest from the port is 300 km.

  • VLOC. 8 VLOCs are being constructed at two Chinese shipyards. Each one of them has 261,000 deadweight tonne and can ship 21 million tons of iron ore a year, or 12% of the total volume. First vessel will be delivered to FMG at the end of November.

2. Debt Cutting

In Q3 2016, FMG’s net debt has been reduced to US$4.2 billion, with net gearing1 of 33 percent. With all-in breakeven price at US$28.3/t, FMG is very well positioned in creating cash flow. FMG priorities cash for debt repayment and is flexible to continue early repayments without any penalties. The first maturity in June 2019 has been downsized from 5 billion dollars to 2.976 billion dollars.

3. Sourcing from China

China, which is of crucial importance to FMG, has more than 50 steel mill clients. From China, FMG purchases a large quantity of products such as truck tyres, ore cars and components and rail track, and has so far signed over $1 billion in Chinese contracts. Being the first to use certain Chinese products, FMG actually creates a win-win situation, as other miners follow in and become consumers of the same product.

4. Strategic Delivery

Fortescue’s strategic targets include: a) production rate to be consistent at 165-170 million tons per year, b) C1 cost lower to US$12-13/wmt, c) resource value to be maximized, d) free cash prioritized to debt repayment, and d) ongoing improvements.

Fortescue has significant resources to be developed. It currently holds 11.6 billion tons of hematite iron ore and 6.7 billion tons of magnetite iron ore. To be specific, Western Hub (in the replacement of Firetail mine) has 740 million tons of resources, Nyidinghu 2.46 billion tons, Chichester 3.65 billion tons and Solomon has 4.76 billion tons.

Fortescue only uses eight years to become the fourth largest iron ore miner in the world. It adheres to safety, productivity and efficiency and ongoing improvements so it can reach established target at the fastest pace.

Neville Power,CEO FMG Culture and Strategy

Nick Cernotta, Director of Operations

Tony Swiericzuk, GM of Christmas Creek

David Liu, Director of Sales and Marketing

Stuart Gale, Group Manager Finance & Investor Relations

Christmas Creek Integrated Operations Center

Cloudbreak Mine Control

Railway Operation Monitoring

Christmas Creek

Christmas Creek Beneficiation Plant

Ore Trains at Port

Capesize Vessel at berth

Shiploading

From left to right: Neville Power, CEO with FMG, Chen Yan, Iron Ore Analyst with SteelHome

Wen Hu, Editor with SteelHome, and David Liu, Director of Sales and Marketing with FMG


(To contact the reporter on this story: Jane.hu@steelhome.cn or 86-21-50585733)
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