Fortescue Metals Group

Transcription

1 AUSTRALIA FMG AU Price (at 08:49, 24 Jun 20 GMT) Outperform A$3.27 Valuation A$ - DCF (WACC 9.6%, beta 1.4, ERP 5.0%, RFR 3.3%) month target A$ month TSR % +.9 Volatility Index Very High GICS sector Materials Market cap A$m 10, day avg turnover A$m 52.7 Number shares on issue m 3,114 Investment fundamentals Year end 30 Jun 20A 20E 2017E 2018E Revenue m 8, , , ,544.0 EBIT m 1, , , ,469.5 Reported profit m , Adjusted profit m , Gross cashflow m 1, , , ,069.9 CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % PER adj x PER rel x Total DPS Total div yield % Franking % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x FMG AU vs ASX 100, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, June 20 (all figures in USD unless noted, TP in AUD) 24 June 20 Macquarie Securities (Australia) Limited 170mt looks achievable in FY Event Our latest port data suggests FMG is on track to beat its FY shipment guidance and we have upgraded our forecast from 7mt to 170mt to bring our forecasts more in line with the latest port data estimates. An additional US$500m debt repayment has resulted in Moody s upgrading FMG s credit rating outlook to stable. Impact Port data suggests FMG on track to beat guidance: Our latest gross port shipment data suggests FMG is on track to beat its 5mt shipment guidance by 4-5mt. We had previously assumed shipment guidance would be beaten, but increase our forecast further from 7mt to 170mt to reflect the strong performance implied from the port statistics. Price discounts have widened: Benchmark iron-ore prices have remained stable around the US$50/t mark, however we note that the 58% index has underperformed the 62% index in recent weeks, suggesting that pricing discounts for lower grade ore have widened. Debt repayments approach US$3bn: FMG has repaid a further US$500m in debt, reducing its 2019 Senior Secured Term Loan to US$3,676m. Total debt repayments made in FY now total US$2.9bn, which has reduced FMG s interest costs by US$186m, lowering FMG s breakeven price by over US$1/t. We note that Moody s has upgraded its outlook for FMG s credit rating to stable at Ba3 on the back of the accelerated debt repayments. Earnings and target price revision We are upgrading our earnings forecasts for FMG to reflect the increases to our shipment forecast assumptions and factoring lower interest costs following the additional debt repayment. We lift our FY forecast by 1% and FY17 and FY18 earnings estimates by 8% and 5% respectively. Our price target rises 3% to $3.60 on the back of the improved earnings outlook. Price catalyst 12-month price target: A$3.60 based on a DCF methodology. Catalyst: FMG is set to report its 4QFY production report on 28 July 20 and its FY earnings result on 22 August 20. Action and recommendation Maintain Outperform: FMG s operational performance continues to impress with the company now on track to beat its 5mt shipment guidance for FY. The guidance beat should enable the company to achieve its cost target of exiting FY at a C1 cash cost run rate of US$13/t, which implies a breakeven benchmark index price below US$30/t. FMG s stronger than expected operational performance and buoyant iron-ore prices should see the company s gearing fall below 30% by the end of December Please refer to page 8 for important disclosures and analyst certification, or on our website

2 Upgrading FY shipment target on strong port data Our latest port data suggests FMG is on track to beat its FY shipment guidance of 5mt. Shipments for the first nine months of FY totalled 126mt, leaving FMG needing to only ship 39mt in the 4QFY to hit is 5mt guidance target. Fig 1 FMG shipment guidance leaves the company well placed to beat guidance 600 Weekly shipping rate (ktpd) Qty avg (ktpd) Avg needed for guidance (ktpd) Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: Port Statistics, Macquarie Research, June 20 Our latest port data suggests FMG has been running well ahead of its target rate and we believe that delivering 170mt shipment result for FY is now achievable. We have upgraded our FY shipment forecast from 7mt to 170mt and lift our FY17 and beyond base rate from 5mtpa to 7mtpa given the stable mining and shipping rates achieved by FMG over the past 12 months. Price discounts for lower grade have widened Over past eighteen months, the difference between the benchmark 62% Fe index price and the benchmark 58% Fe price was broadly unchanged, with only a modest discount factored in over and above the iron grade adjustment. However in recent weeks the discount between the two index prices has widened and is currently trading at around 10%. Fig 2 Discounts for lower quality ore have widened Jan Feb Spot Iron ore price (62% Fe - US$/t) Quality discount Mar Apr May Jun Jul Aug Sep Oct Nov Spot Iron ore price (58% Fe - US$/t) Dec Jan Feb Mar Apr May Jun 4% 2% 0% (2%) (4%) (6%) (8%) (10%) (12%) (14%) (%) (18%) Source: TSI, Bloomberg, Platts, Macquarie Research, June June 20 2

3 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar Jun Sep Dec Mar Jun Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar Jun Sep Dec Mar Jun Macquarie Wealth Management FMG prices the bulk of its sales off the 62% Fe benchmark price, negotiating discounts for iron grade and impurities with individual buyers. However we note that over the past five years, the company s average realised price has closely tracked the 58% benchmark index. The chart below shows the relationship between FMG s realised price, the 58% Fe benchmark index and the grade adjusted 62% Fe index price. Fig 3 FMG realised price closely reflects the spot 58% Fe Index Spot Iron ore price (58% Fe - US$/t) FMG realised price (US$/t) Iron grade adjusted price (58% Fe - US$/t) Source: TSI, Bloomberg, Platts, Macquarie Research, June 20 Over the past six years, the quality discount implied between the 62% Fe benchmark price and the 58% Fe benchmark price has averaged 4% (the adjustment required in addition to iron ore grade between the benchmark prices). FMG s realised price discount compared to the 62% Fe discount after factoring in iron-ore grade adjustments has been 6%. However over the past few months the discount has widened to ~10%, above our long-term quality discount assumption of 5%. We have widened our discount by 1% for FY17 and FY18 to reflect the slight increase in the pricing discounts but leave our long-term assumption of 5% unchanged. Fig 4 Discount now below our long-term assumption 10% Quality discount FMG Discount 5% 0% (5%) (10%) (%) (20%) Source: TSI, Bloomberg, Platts, Macquarie Research, June June 20 3

4 Debt repayments approaching US$3bn this year FMG has announced a further US$500m repayment of its 2019 Senior Secured Term Loan, reducing the value of the loan to US$3,676m. A total of US$2.9bn of debt repayments have been made this year, reducing gross debt to US$6,314m (excluding finance leases). After making the additional repayment, we expect FMG s cash position would have fallen to US$1.3bn. We believe FMG s minimum cash balance needs to remain around US$1bn, hence further debt repayments in the short-term a probably unlikely. Fig 5 FMG gross debt reduced to US$6.3bn Debt facilities US$m 2019 Senior Secured Credit Facility 3, Senior Secured Notes 2, Senior Unsecured Notes 478 Total Debt 6,314 Source: FMG, Macquarie Research, June 20 Moody s upgrades outlook to stable Moody s has announced it has upgraded the outlook for FMG s corporate family rating to stable and reaffirmed the rating at Ba3. The outlook upgrade was attributable to the reduction in gross debt and reducing interest costs, which has lowered the company s breakeven point. FMG has noted the US$2.9bn of debt repayments made in FY have reduced annual interest costs by US$186mpa. Fig 6 FMG gross debt/ebitda ratio - Macquarie Fig 7 FMG gross debt/ebitda ratio Spot prices Adjusted Gross Debt (US$m) Debt/Ebitda (x) Adjusted Gross Debt (US$m) Debt/Ebitda (x) 7, , ,0 Ba 4.0 7,0 Ba 4.0 7,100 Baa 3.0 7,100 Baa 3.0 7,050 A Aa ,050 A Aa ,000 Aaa 7,000 Aaa Source: FMG, Macquarie Research, June 20 Source: FMG, Macquarie Research, June 20 Modest upgrades to earnings and valuation We are upgrading our earnings forecasts for FMG to reflect the increases to our shipment forecast assumptions and factoring lower interest costs following the additional debt repayment. We lift our FY forecast by 1% and FY17 and FY18 earnings estimates by 8% and 5% respectively. Our price target rises 3% to $3.60 on the back of the improved earnings outlook. Fig 8 Upgrading earnings on reduced interest payments and production upgrades Y/E June (A$m) FYe FY17e FY18e FY19e FY20e FY21e NPV Net profit - old 794 1, Net profit - new 803 1, , Change 1% 8% 5% 7% 3% 3% 3% Source: FMG, Macquarie Research, June June 20 4

5 Sep Dec Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19 Dec 19 Mar 20 Jun 20 Sep 20 Dec 20 Mar 21 Jun 21 Sep 21 Dec 21 Mar 22 Jun 22 Sep 22 Dec 22 Sep Mar Sep Mar 17 Sep 17 Mar 18 Sep 18 Mar 19 Sep 19 Mar 20 Sep 20 Mar 21 Sep 21 Mar 22 Sep 22 Mar 23 Sep 23 Mar 24 Sep 24 Mar 25 Sep 25 FY09 FY10 FY11 FY12 FY13 FY14 FY FYe FY17e FY18e FY19e FY20e FY21e FY22e FY23e FY24e FY25e FY26e FY27e FY28e FY29e FY30e Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar Jun Sep Dec Mar Jun Sep Dec Macquarie Wealth Management Fig 9 FMG group production Fig 10 FMG quarterly cash costs 18 Shipments (mt) (LHS) All in cash costs (US$/wmt) (RHS) C1 Cash costs (US$/wmt) All in cash costs (US$wmt) Source: FMG, Macquarie Research, June 20 Source: FMG, Macquarie Research, June 20 Fig 11 FMG reserves by project Fig 12 FMG resources by project Cloudbreak 9% Firetail 6% Kings and Queens 27% Christmas Creek 41% Cloudbreak 22% Eliwana and Flying Fish 6% Nyidinghu 21% Greater Solomon 23% Kings and Queens % Christmas Creek 19% Firetail 3% Source: FMG, Macquarie Research, June 20 Source: FMG, Macquarie Research, June 20 Greater Chichester 3% Fig 13 FMG debt repayment schedule Fig 14 FMG cumulative cash flow 4,000 3,500 3,000 2,500 2,000 1,500 1, Senior unsecured note (US$m) Senior secured credit facility/ secured notes (US$m) Net cash (debt) (US$m) Market Cap (US$m) 12,000 10,000 8,000 6,000 4,000 2,000 0 (2,000) (4,000) (6,000) (8,000) (10,000) Source: FMG, Macquarie Research, June 20 Source: FMG, Macquarie Research, June June 20 5

6 Fig FMG summary financials Fortescue Metals ASX: FMG Price: (A$ps) 3.27 Year end: Jun Rating: Outperform Up/dn TSR Mkt cap: (A$m) 10,219 Diluted shares (m) 3,125 Target: % % Mkt cap: (US$m) 7,554 ASSUMPTIONS FY13 FY14 FY FYe FY17e FY18e FY19e ATTRIBUTABLE MINE OUTPUT FY13 FY14 FY FYe FY17e FY18e FY19e Exchange Rate A$/US$ Iron-ore shipped (kt) Spot iron-ore (62% CIF) US$/t Cloudbreak (mt) mt Spot iron-ore (62% CIF) A$/t Christmas Creek (mt) mt RATIO ANALYSIS FY13 FY14 FY FYe FY17e FY18e FY19e Firetail (mt) mt Diluted share capital m 3,1 3,119 3,125 3,125 3,125 3,125 3,125 Kings Valley (mt) mt EPS (diluted and pre sig. items) A FMG Shipped (mt) mt P/E x 5.8x 3.4x 27.0x 9.2x 6.1x 8.6x 10.8x Nullagine JV (mt) - 100% mt CFPS A Iron Bridge (mt) mt P/CF x 5.0x 1.7x 5.9x 3.5x 3.4x 4.0x 3.9x Total shipments (100%) mt DPS A C1 Cash costs US$/wmt Dividend yield % 3.1% 6.1% 1.5% 3.7% 4.6% 3.1% 2.4% All in cash costs US$/wmt Franking Level % 100% 100% 100% 100% 100% 100% 100% CFR 62% Fe Equ costs US$/dmt Book value per share A$ps OPERATIONAL OUTLOOK P/Book value x 2.0x 1.2x 1.1x 0.9x 0.7x 0.7x 0.7x R.O.E. (pre sig items) % 34% 36% 4% 10% 12% 8% 6% Cloudbreak (mt) Christmas Creek (mt) Firetail (mt) R.O.A. (pre sig items) % % 21% 5% 9% 10% 8% 8% 18 Kings Valley (mt) Nullagine JV (mt) - 100% Iron Bridge (mt) Interest Cover x 5.6x 6.5x 1.7x 3.1x 5.2x 4.1x 3.7x EBITDA per share A$ps EV/EBITDA x 5.9x 2.9x 6.4x 4.2x 3.4x 3.7x 3.6x 14 FCF Yield % -54% 53% 9% 24% 19% % 19% EARNINGS FY13 FY14 FY FYe FY17e FY18e FY19e Sales Revenue US$m 8,120 11,753 8,574 7,002 6,965 6,544 6,521 8 Other Revenue US$m Total Revenue US$m 8,411 11,879 8,651 7,023 6,965 6,544 6,521 4 Operating Costs US$m (4,703) (6,131) (6,051) (3,778) (3,581) (3,706) (3,921) 2 Operational EBITDA US$m 3,708 5,748 2,600 3,245 3,384 2,838 2,600 Exploration Expense/Write-offs US$m (45) () (52) (1) (20) (21) (21) FY09 FY10 FY11 FY12 FY13 FY14 FY FYeFY17eFY18eFY19eFY20eFY21eFY22eFY23eFY24eFY25e Corporate & Other Costs US$m (110) (112) (94) (73) (73) (75) (77) EBITDA US$m 3,553 5,620 2,454 3,056 3,290 2,742 2,501 RESERVES AND RESOURCES (ATTRIBUTABLE) D&A US$m (463) (965) (1,405) (1,280) (1,272) (1,272) (1,272) Iron-ore reserves EBIT US$m 3,090 4,655 1,049 1,777 2,018 1,469 1,229 Project Mt Fe CaFe SiO2 Al2O3 P LOI Net Interest US$m (553) (720) (629) (576) (389) (360) (335) Cloudbreak % 62.4% 5.1% 2.8% 5% 8.3% Profit Before Tax US$m 2,537 3, ,201 1,629 1, Christmas Creek 1, % 62.8% 5.2% 2.7% 5% 8.0% Tax Expense US$m (720) (1,173) (104) (399) (489) (333) (268) Firetail % 62.7% 6.3% 2.6% 0.11% 6.5% Minorities US$m 0 (10) Kings and Queens % 61.8% 7.1% 2.7% 6% 8.9% Adjusted NPAT US$m 1,817 2, , Total Reserves 2, % 62.4% 5.8% 2.8% 6% 8.2% Significant Items (post tax) US$m (71) (22) Iron-ore resources Reported NPAT US$m 1,746 2, , Project Mt Fe CaFe SiO2 Al2O3 P LOI Cloudbreak 1, % 61.8% 6.1% 3.4% 5% 8.3% Christmas Creek 2, % 61.2% 6.3% 3.4% 5% 7.9% CASHFLOW FY13 FY14 FY FYe FY17e FY18e FY19e Firetail % 62.4% 6.4% 3.0% 0.11% 6.7% Net Profit US$m 1,746 2, , Kings and Queens 1, % 60.8% 7.8% 3.3% 7% 8.7% Interest/Tax/D&A US$m 181 1,876 1,019 1,751 1,363 1,117 1,208 Fortescue Mines 5,4 56.3% 61.2% 6.7% 3.3% 6% 8.2% Working Capital/other US$m (657) (467) (220) (83) Greater Chichester % 61.5% 5.9% 3.3% 7% 7.1% Net Operating Cashflow US$m 2,111 5,395 1,447 2,089 2,037 1,673 1,750 Greater Solomon 2, % 61.3% 6.9% 3.7% 8% 7.3% Capex US$m (6,355) (1,995) (849) (250) (625) (553) (350) Eliwana and Flying Fish % 63.2% 5.2% 2.9% 9% 6.5% Investments US$m Nyidinghu 2, % 62.9% 4.9% 3.3% 0.% 8.7% Sale of PPE and Other US$m Total Resources 11, % 61.7% 6.3% 3.4% 9% 8.0% Free cash flow US$m (4,055) 4, ,839 1,411 1,120 1,401 Magnetite Reserves Mt Mass Recovery (Fe) (SiO2) (Al2O3) Dividends Paid US$m (131) (581) (343) (111) (350) (285) (142) North Star % 67.2% 5.5% 0.3% Debt US$m 4,033 (3,174) (257) (2,691) (20) (20) (3,696) Magnetite Resources Equity Issuance US$m (20) (17) (30) (21) Project Mt Mass Recovery Fe SiO2 Al2O3 Other US$m North Star 2, % 30.9% 40.6% 2.4% Net Financing Cashflow US$m 3,882 (3,772) (630) (2,823) (370) (305) (3,838) Glacier Valley 2, % 32.3% 39.2% 1.8% Net change in cash US$m (173) (985) 1,041 8 (2,437) West Star % 28.3% 43.4% 3.4% Total 5, % 31.4% 40.1% 2.1% VALUATION BALANCE SHEET FY13 FY14 FY FYe FY17e FY18e FY19e Projects A$m A$ps Cash US$m 2,8 2,398 2,381 1,383 2,424 3, Fortescue Operations 19, PP&E & Mine Development US$m 17,9 18,068 17,729,670,023,304 14,381 Undeveloped Resources Exploration US$m Other resources Total Assets US$m 20,867 22,694 21,360 18,990 19,322 19,349,030 Unpaid capital 0 0 Debt US$m 12,691 9,557 9,569 6,711 6,691 6,671 2,975 Prepayments (1,282) (0.41) Total Liabilities US$m,578,111 13,823 10,563 10,106 9,640 5,838 Corporate (665) (0.21) Total Net Assets / Equity US$m 5,289 7,583 7,537 8,426 9,2 9,708 10,192 Cash 1, Net Debt / (Cash) US$m 10,533 7,9 7,188 5,328 4,267 3,431 2,173 Debt (9,301) (2.98) Gearing (net debt/(nd + equity)) % 67% 49% 49% 39% 32% 26% 18% Net Equity Value (@ 9.6% WACC) 11, Gearing (net debt/equity) % 199% 94% 95% 63% 46% 35% 21% Price Target (1x NPV) 3.60 Source: FMG, Macquarie Research, June June 20 6

7 Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a reasonably positive view on Fortescue Metals Group. The strongest style exposure is Earnings Momentum, indicating this stock has received earnings upgrades and is well liked by sell side analysts. The weakest style exposure is Growth, indicating this stock has weak historic and/or forecast growth. Growth metrics focus on both top and bottom line items. 2/1058 Global rank in Materials % of BUY recommendations 25% (4/) Number of Price Target downgrades 1 Number of Price Target upgrades 4 Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Materials) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. 0.9 Rio Tinto 0.3 Rio Tinto BHP Billiton BHP Billiton Mount Gibson Iron Kumba Iron Ore Mount Gibson Iron Kumba Iron Ore % -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. 0.7 Rio Tinto 0.2 Rio Tinto BHP Billiton 0.1 BHP Billiton Mount Gibson Iron 0.5 Mount Gibson Iron Kumba Iron Ore 0.6 Kumba Iron Ore % -50% 0% 50% 100% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Price to Cash NTM Volatility 250 Day 250d Volatility PEG Ratio Inverted Turnover(USD) 125 Day Earnings Stability Turnover (USD) 250 Day Merton Score -20% -21% Negatives Positives -14% -14% % 25% 25% 29% -30% -20% -10% 0% 10% 20% 30% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/1058) Percentile relative to market(/398) Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 24 June 20 7

8 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 March 20 AU/NZ Asia RSA USA CA EUR Outperform 50.34% 59.09% 46.67% 44.76% 60.66% 46.12% (for global coverage by Macquarie, 3.72% of stocks followed are investment banking clients) Neutral 34.14% 25.66% 32.00% 49.90% 30.33% 35.10% (for global coverage by Macquarie, 4.79% of stocks followed are investment banking clients) Underperform.52%.26% 21.33% 5.33% 9.02% 18.78% (for global coverage by Macquarie, 2.31% of stocks followed are investment banking clients) FMG AU vs ASX 100, & rec history (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, June month target price methodology FMG AU: A$3.60 based on a DCF methodology Company-specific disclosures: FMG AU: Mark Barnaba, Chairman of Macquarie Group, WA is a non executive director of Ltd. Dr Geoff Raby, Vice Chairman, Macquarie Group China, is an Independent Director on the board of Fortescue Mining Group Ltd. MACQUARIE SECURITIES (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Ltd in the past 12 months, for which it received compensation. Macquarie Securities Australia Limited acted as Broker for a Dividend Neutralisation for Limited. Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 19-May-20 FMG AU Outperform A$ May-20 FMG AU Outperform A$ Apr-20 FMG AU Outperform A$ Apr-20 FMG AU Outperform A$ Mar-20 FMG AU Outperform A$ Feb-20 FMG AU Outperform A$ Jan-20 FMG AU Outperform A$ Dec-20 FMG AU Outperform A$ Dec-20 FMG AU Outperform A$ Nov-20 FMG AU Outperform A$ Oct-20 FMG AU Outperform A$2.90 -Oct-20 FMG AU Outperform A$ Sep-20 FMG AU Outperform A$2. 14-Aug-20 FMG AU Outperform A$ May-20 FMG AU Neutral A$ Apr-20 FMG AU Neutral A$ Mar-20 FMG AU Neutral A$ Feb-20 FMG AU Neutral A$2.60 -Jan-20 FMG AU Neutral A$ Sep-2014 FMG AU Neutral A$ Aug-2014 FMG AU Neutral A$ June 20 8

9 17-Jul-2014 FMG AU Neutral A$ Jun-2014 FMG AU Outperform A$4.85 -May-2014 FMG AU Outperform A$ Feb-2014 FMG AU Outperform A$ Nov-2013 FMG AU Outperform A$6. Target price risk disclosures: FMG AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. A$ strength vs the US$ is a key risk as costs and capital expenditure are denominated in A$, while product prices are denominated in US$. The company has senior unsecured debt of US$7bn; this potentially leaves interest service risk should markets turn down unexpectedly or operations be hampered unexpectedly. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN , AFSL , a Participant of the ASX and Chi-X Australia Pty Limited. 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