BAL­ANCE OF POWER

Pre­par­ing to step down after six and a half event­ful years at the FMG helm, Nev Power is leav­ing be­hind some mighty boots to fill.

The Australian Mining Review - - FRONT PAGE - ELIZ­A­BETH FABRI

REWIND the clock four or five years and it’s hard to be­lieve FMG is the same com­pany that stands here to­day.

In 2012/13, the miner was star­ing death in the face, drown­ing in a $US13 bil­lion pool of debt just as the iron ore price was con­tin­u­ing its slow de­cline to late-2015 lows of $US38/t.

Many out­siders feared the worst, but even dur­ing the com­pany’s dark­est hour FMG chief executive Nev Power re­mained as­sured of a re­cov­ery.

“It’s been an absolute priv­i­lege and an hon­our to [serve] FMG for the whole time,” Mr Power told The Australian Min­ing Re­view.

“We’ve had some chal­lenges, but I think the most re­ward­ing and the most defin­ing mo­ments have been see­ing how well the Fortes­cue team ral­lied be­hind the chal­lenges that we have had.

“Though there was no short­age of times when we knew we would need to dig deep to make sure that we achieved what we wanted to, I was al­ways con­fi­dent that we would be able to meet those chal­lenges.

“While it wasn’t al­ways ob­vi­ous pub­li­cally, in many cases – cer­tainly around the bal­ance sheet and debt re­struc­ture – we al­ways had a num­ber of op­tions.”

Mr Power joined FMG in Fe­bru­ary 2011 as chief op­er­at­ing of­fi­cer be­fore be­ing pro­moted to chief executive as An­drew For­rest’s suc­ces­sor in July the same year.

His ro­bust and col­lab­o­ra­tive lead­er­ship style, some qual­ity de­ci­sion mak­ing, and a dash of luck (brought on by the iron ore price re­cov­ery in 2016), were the key cat­a­lysts that helped nav­i­gate the com­pany out of the dan­ger zone and to­wards pros­per­ity.

To­day, FMG is the world’s fourth largest iron ore pro­ducer (and proud holder of a num­ber of pres­ti­gious in­dus­try ac­co­lades) after qua­dru­pling an­nual pro­duc­tion to 170 mil­lion tonnes (mt), and re­duc­ing costs by more than two-thirds to be­come the low­est cost seaborne sup­plier of iron ore into China.

FMG has also been in a po­si­tion to make early re­pay­ments to sig­nif­i­cantly re­duce the amount of in­ter­est in­curred on its debt.

Many hard de­ci­sions were made over his ten­ure; Mr Power said what was ul­ti­mately put in place “was the best of those op­tions”.

“We made de­ci­sions in a very col­lab­o­ra­tive way,” he said.

“The whole or­gan­i­sa­tion [was] in­volved in de­cid­ing what we needed to do; ev­ery­thing from our marketing strat­egy right through to our finance strat­egy.

“All of those have been very suc­cess­fully im­ple­mented.

“Some of the key [de­ci­sions] has been the fo­cus on pro­duc­tiv­ity and ef­fi­ciency across the business to re­duce our C1 costs, and to achieve the cost re­sult where we are now the low­est cost iron ore pro­ducer in the world.

“I think that has been an out­stand­ing re­sult.”

Nam­ing a suc­ces­sor

In Septem­ber, chair­man An­drew For­rest an­nounced Mr Power would step down from the role in Fe­bru­ary next year for some “well de­served” time off.

“Nev has ex­e­cuted his du­ties to the high­est de­gree and met or ex­ceeded the of­ten un­rea­son­able stan­dards set by his Board,” Mr For­rest said.

“We could not be more pleased with his stew­ard­ship and re­spect his de­ci­sion that it is time for the next chap­ter of Fortes­cue to be­gin.

“This is con­sis­tent with our long term suc­ces­sion plan and we both share great con­fi­dence in the qual­ity of in­ter­nal and ex­ter­nal can­di­dates to con­tinue Fortes­cue’s legacy.”

The in­dus­try echoed Mr For­rest’s view, award­ing Mr Power the 2017 Mines and Money Leg­end in Min­ing award at the In­ter­na­tional Min­ing and Re­sources Con­fer­ence (IMARC) in Novem­ber.

It is clear that Mr Power’s re­place­ment will have some big shoes to fill.

While the ver­dict is still out on the board’s de­ci­sion, all eyes are on FMG’s newly ap­pointed director op­er­a­tions Greg Lil­ley­man as the pre­sumed suc­ces­sor.

Mr Lil­ley­man joined FMG in Jan­uary after spend­ing 25 years at Rio Tinto, most re­cently as head of in­no­va­tion and tech­nol­ogy.

Speak­ing on the side lines of the Com­mit­tee for Eco­nomic De­vel­op­ment of Aus­tralia ( CEDA) WA An­nual Re­sources Over­view lunch in Perth late Oc­to­ber, Mr Lil­ley­man said this was ul­ti­mately a de­ci­sion for the board.

An­other pos­si­ble in­ter­nal op­tion is FMG’s chief fi­nan­cial of­fi­cer Eliz­a­beth Gaines, who joined the FMG executive team in Fe­bru­ary, after serv­ing on the board since 2013.

Mr Power said the board would make an an­nounce­ment “as soon as they are able”.

Me­dia spec­u­la­tion is that a de­ci­sion will be made be­fore the Christ­mas pe­riod to al­low for suf­fi­cient han­dover time be­fore Mr Power’s last day on 16 Fe­bru­ary 2018.

The next phase

At the com­pany’s An­nual Gen­eral Meet­ing (AGM) on 8 Novem­ber, FMG an­nounced it had cho­sen its $US1.5 bil­lion Eli­wana pro­ject, 90km from Tom Price, as the im­me­di­ate re­place­ment for its de­plet­ing Fire­tail mine.

The FMG board was faced with two op­tions; ex­tend­ing the rail line from its Solomon Hub pro­ject 130km west to the Eli­wana de­posit, or de­velop a new op­er­a­tion at Nyid­inghu about 40km south of its Chich­ester Hub to the east.

Mr Power said the 30mtpa Eli­wana pro­ject of­fered more prod­uct op­tions, bet­ter cap­i­tal and op­er­at­ing costs and quicker time­line to mar­ket.

“There’s 2.1 bil­lion tonnes of resource al­ready iden­ti­fied there [Eli­wana], it’s highly prospec­tive and has great grades,” Mr Power said at the AGM.

“Of course, Nyiduingu re­mains a very sig­nif­i­cant ore body for fu­ture de­vel­op­ment and this just means that, in tim­ing, the Eli­wana West­ern Hub pro­ject will come be­fore Nyid­inghu.”

Ap­proval pro­cesses, in­clud­ing mine and rail in­fra­struc­ture for the Eli­wana pro­ject have now be­gun, and tim­ing on the com­mence­ment of op­er­a­tions will be made at the com­ple­tion of a fea­si­bil­ity study, ex­pected late FY18.

Over the course of the year, fea­si­bil­ity stud­ies and de­vel­op­ment op­tions for the Iron Bridge Mag­netite pro­ject will also con­tinue to be eval­u­ated, with a de­ci­sion ex­pected to be made with FMG’s joint ven­ture part­ners soon.

FMG will also be adding more au­ton­o­mous trucks to its fleet in FY18 as part of its strat­egy to im­prove pro­duc­tiv­ity.

The in­no­va­tion push in­cluded con­vert­ing up to 12 793F trucks to au­ton­o­mous haulage tech­nol­ogy ( AHS) at Solomon Hub, the roll­out of AHS across the Chich­ester Hub pro­ject, a re­lo­cat­able overland con­veyor trial at Cloud­break mine, and IT net­work up­grades at Cloud­break and Christ­mas Creek.

Di­ver­si­fi­ca­tion

Be­yond its iron ore de­vel­op­ments, FMG was also dip­ping its toes in a num­ber of early-stage ex­plo­ration op­tions in the hunt for other com­modi­ties such as gold, lithium and cop­per.

Mr Power said the com­pany was not specif­i­cally chas­ing one com­mod­ity over an­other, but rather in­ter­ested in see­ing how they could ap­ply the skills and ca­pa­bil­i­ties de­vel­oped in its iron ore business to new ar­eas.

“Our di­ver­si­fi­ca­tion strat­egy is driven by value cre­ation so we’re not di­ver­si­fi­ca­tion for the sake of di­ver­si­fi­ca­tion or growth, but rather on where we can cre­ate value,” Mr Power said.

“We have been op­por­tunis­tic in se­cur­ing re­spec­tive ten­e­ments in dif­fer­ent com­modi­ties; some in the Pil­bara, some out­side the Pil­bara, and we’re do­ing grass­roots ex­plo­ration or early stage farm-ins to see what we can find on those prop­er­ties.”

The ten­e­ments in­cluded early stage ex­plo­ration ar­eas in the Pil­bara, South Aus­tralia and NSW, and highly prospec­tive ar­eas of Ecuador where FMG holds 32 ex­plo­ration ten­e­ments.

There was re­cent spec­u­la­tion the miner was look­ing in­crease its foot­print in the Fraser Range, WA.

Mr Lil­ley­man said the com­pany was “start­ing to take small bets” into ex­plo­ration to see what op­por­tu­ni­ties were out there.

“I wouldn’t be sit­ting here say­ing we are push­ing very hard in those ar­eas, we’re cer­tainly start­ing to make small in­vest­ments to start to cre­ate some small op­por­tu­ni­ties,” he said.

“I think nat­u­rally for us, in the iron ore sec­tor de­mand has been grow­ing so strongly on the back of China’s de­vel­op­ment that there’s nat­u­rally a bit of plateau­ing in iron ore de­mand.

“If we want to grow our com­pany the op­tions within iron ore are quite lim­ited other than hold­ing our own or im­prov­ing our own per­for­mance to gen­er­ate more value.

“Look­ing out­side of iron ore is ob­vi­ously the sen­si­ble step for us.”

Mar­ket out­look

Mr Power said one of the biggest issues fac­ing its iron ore ship­ments at present was Bei­jing’s win­ter cur­tail­ment pol­icy.

“It is al­ready hav­ing very sig­nif­i­cant im­pact,” Mr Power said.

“I think its caught all the mar­ket by sur­prise as to how quickly those re­stric­tions were put in place and it makes it a lit­tle bit hard to pre­dict go­ing for­ward, but at this stage there are a num­ber of things hap­pen­ing.

“There’s a lot of steel pro­duc­tion that will be in­creased out­side of that area to com­pen­sate and steel mills within that area are do­ing a lot of work to re­duce their emis­sions, so in the fu­ture they won’t need to re­strict pro­duc­tion to re­duce air­borne emis­sions over­all.”

As a re­sult of the pol­icy, the Chi­nese steel in­dus­try was pay­ing pre­mi­ums for higher qual­ity ore as part of gov­ern­ment mea­sures to re­duce emis­sions; which has had an im­pact on FMG’s earn­ings for its lower grade ore.

FMG said it has had to lower its iron ore price re­al­i­sa­tion guid­ance to be­tween 70 and 75 per cent of the bench­mark high-grade iron ore in­dex due to wide price dis­counts be­tween high-grade and low-grade ore.

“The ques­tion re­mains go­ing for­ward is to how deep those pro­duc­tion re­stric­tions are go­ing to bite,” Mr Power said.

“This could be largely de­pen­dent on weather con­di­tions as well, so it’s very hard to pre­dict so it’s a mat­ter of wait­ing and see­ing.

“Hav­ing said that, the im­por­tant thing from our per­spec­tive is fo­cussing on the things that we can con­trol.

“Our business is gen­er­at­ing very strong cash re­turns, even where this mar­ket is to­day, so there is a lot of up­side po­ten­tial for us once th­ese re­stric­tions are lifted.”

As the wide price dis­counts con­tinue, FMG said it was look­ing to ex­pand into new mar­kets in Europe and Asia to gen­er­ate value, for ex­am­ple the UK, Ger­many, South­east Asia and In­dia.

“In­vest­ing in the long-term sus­tain­abil­ity of our core iron ore business, main­tain­ing pro­duc­tion, fur­ther strength­en­ing the bal­ance sheet and gen­er­at­ing share­holder re­turns re­main our key pri­or­i­ties,” Mr Power said.

“Look­ing out­side of iron ore is ob­vi­ously the sen­si­ble step for us.”

“While it wasn’t al­ways ob­vi­ous pub­li­cally, in many cases – cer­tainly around the bal­ance sheet and debt re­struc­ture – we al­ways had a num­ber of op­tions.”

Image: FMG.

All im­ages FMG.

FMG director op­er­a­tions Greg Lil­ley­man.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.