Ann: Consolidation of Mining Services Contracts, page-9

Great news for FMG, not so good for McMahon.

- US$15.0m a month saving
- US$270.0m saving overall to Sept 2016
- US$3.30/mt saving
- Cash costs will be about US $30.60/mt

I work out the cost saving per tonne is based on 59.0mt mined at the mines that the contract relates to as follows:

$15.00m a month @ 12 = $180.00
Production 59.0/mt.
59.0mt/$180.00m = $3.28/mt saving

The above savings noted in the article are in USD, however the release stated AUD$650.00m contract overall

It is not clear if the cost savings in the article are based on current USD/AUD exchange rate, therefore as USD appreciates the cost savings will be more as payments are in AUD??

Am I correct???

Either way a saving if US$3.30/mt on 59.0/mt is a positive.

It seems that management as the announcement notes "concerted action to further reduce costs" is really on.

I think we all agree management has always responded well and delivered results.

All matters that are in their direct control
are being looked at.

I expect like all other miners that all existing costs in particular contractors, suppliers etc.. are being reviewed to the downside, taking full advantage of the declining IO market and mining industry overall

Expect more announcements like this to come soon.

Break-even IO price getting lower and lower, I think they are narrowing the cost difference with BHP/Roy Hill at a much faster pace than what BHP and the market had factored in,

All we need is IO price to stay in the middle $60.0/mt range and FMG will have more room to move, especially as costs are reducing as per this current announcement.

EXTRACT

"The consolidated contract runs until September 2016."

"Fortescue expects to save as much as $US15 million ($19 million) a month, or up to $US270 million over the remaining life of the contract."

"Fortescue can expect to cut about $US3.30 a tonne from production costs"

"Analysts put combined cash production costs at Fortescue's Chichester hub, which includes Christmas Creek and the nearby Cloudbreak mine, at about $US30.60/t"