Fortescue Metals Group Limited ABN 57 002 594 872 ACN 002 594 872 ADDRESS Level 2, 87 Adelaide Terrace, East Perth, Western Australia 6004TEL +61 8 6218 8888 FAX +61 8 6218 8880 EMAIL fmgl@fmgl.com.au

 

29 May 2014

The Companies Officer Australian Stock Exchange Exchange Plaza 2 The Esplanade Perth WA 6000 Dear Sir AUSTRALIA MUST MAXIMISE ITS NATURAL GAS ADVANTAGE Fortescue Metals Group Ltd (ASX: FMG) has called 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. In launching a report by Deloitte Access Economics for Fortescue, Western Australia Gas Sector Analysis, Fortescue Chief Executive Officer Nev Power said WA’s significant natural gas advantage should translate into both a world leading LNG export industry and competitive and secure domestic gas supplies to drive jobs and economic growth.   “Australia faces strong, global competition and this report is part of our focus as a company on being as cost competitive as possible,” Mr Power said. “Fortescue’s vision is to be the safest, lowest cost iron ore producer. By getting the policy settings right, we could make a long term switch from imported diesel to reliable, competitively priced Australian natural gas.”  Fortescue is the world’s fourth largest producer of iron ore and a significant energy user. At its current production capacity of 155 million tonnes a year, Fortescue has forecast energy costs of more than US$800 million in FY15.   Fortescue’s strategy of switching from diesel to gas across its Pilbara operations is under way with the construction of the Fortescue River Gas Pipeline, the longest to be built in WA in a decade. The pipeline will deliver gas to the Solomon Hub from early 2015 for use in the existing power station. This single initiative will save Fortescue approximately $20 million a year as well as reducing carbon emissions.  The Deloitte study makes the following key findings:

There is tightness in the domestic market currently and uncertainty about future security of supply

There are plentiful reserves of gas in Western Australia to meet both projected domestic and LNG export demand for the foreseeable future

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The imposition of the domestic gas reservation policy has the unintended consequence of linking the LNG export and domestic gas industries together.

Deloitte Access Economics modelling suggests some gas reserves held under Retention Leases are commercially viable now to develop for standalone domestic gas projects

Deloitte Access Economics found the strict implementation of the retention lease policy guidelines should lead to a drop in the long term domestic gas price of A$3.20/Gigajoule by 2020 and A$5.74 by 2025.

WA could transition away from the domestic gas reservation policy if a transparent and rigorous “use it, or lose it” approach was applied to Retention Leases

“In a competitive market, where users had long term security of supply, we would expect domestic gas prices to reflect the cost of development, rather than LNG netback prices,” Mr Power said.   Deloitte Access Economics Partner Chris Richardson said delinking the LNG and domestic gas markets would have net benefit for the WA economy. “The impact on the WA economy would be significant with competitive and secure long term gas available generating 2100 extra jobs and an annual estimated increase in GSP of around A$2.5 billion in 2020, increasing to 2600 jobs and A$4.8 billion additional GSP by 2030,” Mr Richardson said.  

 Yours sincerely Fortescue Metals Group Mark Thomas Company Secretary Media contact: Yvonne Ball Mobile: +61 (0) 417 937 904 Email: yball@fmgl.com.au 

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Unlocking Western Australia’s

Energy Advantage

CEO Nev Power – 29 May 2014

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Important Notice

The purpose of this presentation is to provide general information about Fortescue Metals Group Limited ("Fortescue"). It is not recommended that

any person makes any investment decision in relation to Fortescue based on this presentation.

This presentation contains certain statements which may constitute "forward-looking statements". Such statements are only predictions and are

subject to inherent risks and uncertainties which could cause actual values, results, performance or achievements to differ materially from those

expressed, implied or projected in any forward-looking statements.

No representation or warranty, express or implied, is made by Fortescue that the material contained in this presentation will be achieved or prove to

be correct. Except for statutory liability which cannot be excluded, each of Fortescue, its officers, employees and advisers expressly disclaims any

responsibility for the accuracy or completeness of the material contained in this presentation and excludes all liability whatsoever (including in

negligence) for any loss or damage which may be suffered by any person as a consequence of any information in this presentation or any error or

omission therefrom. Fortescue accepts no responsibility to update any person regarding any inaccuracy, omission or change in information in this

presentation or any other information made available to a person nor any obligation to furnish the person with any further information.

Additional Information

This presentation should be read in conjunction with the 2013 Annual Report for the year ended 30 June 2013, the half year financial report at 31

December 2013 together with any announcements made by Fortescue in accordance with its continuous disclosure obligations arising under the

Corporations Act 2001.

Any references to reserve and resource estimations should be read in conjunction with Fortescue’s 2013 Annual Report which is available on the

Fortescue website. Fortescue confirms that it is not aware of any new information or data that materially affects the mineral resources and ore

reserves statement included in the 2013 Annual Report.

All amounts within this presentation are stated in United States Dollars consistent with the Functional Currency of Fortescue Metals Group Limited.

Tables contained within this presentation may contain immaterial rounding differences.

Disclaimer

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We are a large energy user

Western Australia has a natural gas advantage

Long term gas supply uncertainty

WA Gas Sector Analysis Why Fortescue is focussed on natural gas policy

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• Founded 2003

• First ore 2008

• Over 334mt shipped to date

• Achieved 155mtpa production rate

• Large and growing resource

base

• Unique culture drives success

Building a World Class Company

Mature, reliable and competitive supplier

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Sustainably delivering 155mtpa

Costs

March

2014 155mtpa

Infrastructure complete

Ramped up across mines

and processing facilities

100mt shipped in CY2013

$US3.1bn debt reduction

World’s fourth largest seaborne exporter

5

efficiency

focus

CY2013 30%

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0

5

10

15

20

25

30

35

40

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

46.43

52.56

46.04

49.44 50.48

43.61

36.01

33.17 32.99

34.88

30.00

35.00

40.00

45.00

50.00

55.00

Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

0

5

10

15

20

25

30

35

40

Q30

8

Q40

8

Q10

9

Q20

9

Q30

9

Q40

9

Q11

0

Q21

0

Q31

0

Q41

0

Q11

1

Q21

1

Q31

1

Q41

1

Q11

2

Q21

2

Q31

2

Q41

2

Q11

3

Q21

3

Q31

3

Q41

3

Q11

4

Q21

4

Q31

4

0

5

10

15

20

25

30

35

40

Q30

8

Q40

8

Q10

9

Q20

9

Q30

9

Q40

9

Q11

0

Q21

0

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0

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0

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3

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4

Vision to be the safest, lowest cost iron ore producer

Increased production at lower cost

Ore mined (wmt) Ore processed (wmt)

Millio

n t

on

nes

Millio

n t

on

nes

M

illio

n t

on

nes

C1 (US$/wmt) Ore shipped (wmt)

Millio

n t

on

nes

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Targeting bottom quartile

Moving down the global cost curve

Source: Metalytics

Cumulative Mt (wet, as delivered)

US

$/d

ry t

on

ne

200

150

100

50

0

0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200

Domestic Chinese Ore

Australia

Brazil

India

South Africa

Other

Fo

rtescu

e

China Iron Ore Supply CFR Costs – May 2014 (including royalties & freight)

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Significant reliance on diesel fuel

Total energy spend >US$800 million

Driven by remote power and mobile fleet consumption

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Diesel (Electricity)

Diesel (Mine Fleet)

Diesel (Ancillary)

Diesel (Rail)

Gas (Port)

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Natural Gas for Power Generation

Fortescue River gas pipeline to Solomon –

sized for expansion

Gas for mining equipment

Potential for gas to be utilised as an alternative

fuel source by Fortescue’s heavy vehicle fleet

Renewable Energy

Small off-grid Power Generation opportunities

Strategies for lower energy costs

Alternatives to Diesel

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Fortescue River gas pipeline

Stage 1 – to Solomon Hub

• 270km gas pipeline

• 16 inch pipe

• Built, owned,

operated by

DBP/TransAlta

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• “Use it, or lose it” enforced, transparent Retention Leases

• Potential to unlock $3-$4/GJ reduction in gas prices

• Create 2,100 extra jobs in WA by 2020

• Additional WA Gross State Product $2.5 billion in 2020

Unlocking Australia’s energy advantage

Security of Natural Gas Supply

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• Securing long term supply

certainty

• Competitively priced energy for our economy

• Reducing carbon emissions

• Reliable energy supply to offset imports

Utilising lower cost energy

Competitive energy powering the future

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