Thank you, Kayleigh, and good morning, everybody, and welcome to Fortescue's FY2020 Full Year Results presentation. Joining me today in person is Ian Wells, Chief Financial Officer, and Greg Lilleyman, Chief Operating Officer. Whether you're participating via phone or webcast, thank you for joining us. For those who have joined via webcast, you will be able to follow along with the slides. For those who've dialed in separately, a copy of our complete FY2020 Results presentation is available on our website. Today's results are a testament to the hard work and dedication of the entire Fortescue team, guided by our unique culture and values, which continue to be as fresh and relevant today as they were when the company started, and which also continue to underpin everything we do.
The FY2020 year was a year of record achievements, with the Fortescue team delivering excellent results across all of our key operating and financial measures. I'll turn first to safety, and once again, Fortescue's unique culture has shone through. I am incredibly proud of our entire team, who, in true Fortescue spirit, have adapted to the significant changes we have asked of them as we responded to the global COVID-19 pandemic. It's a credit to the whole team that during these unprecedented conditions, we also achieved an overall improvement in safety performance, with our total recordable injury frequency rate reducing by 14% to 2.4 at 30 June 2020. Safety is both a Fortescue value, and it's our number one priority. Our strong safety culture has seen our TRIFR reduced by 44% over the past five years.
We've also seen efforts to reduce exposures and proactive injury management, which has resulted in our injury severity rate reducing by 41% over the past year. Before I turn to today's financial results, I wanted to again highlight our excellent production results, which we released to the market in late July. Our record full-year shipments of 178.2 million tons were 6% higher than FY2019, and we exceeded the top end of guidance, which was 177 million tons. C1 costs for FY2020 were $12.94 a wet metric tonne, and that includes $0.22 of COVID-19-related costs. Importantly, we maintained our low-cost position through our continued focus on innovation and productivity. This excellent operating performance has underpinned record financial results, including revenue of $12.8 billion, underlying EBITDA of $8.4 billion, net profit after tax of $4.7 billion. Each of these is a record in their own right. Just turn to the market.
Fortescue was privileged to continue to operate during the COVID-19 restrictions, as both the Commonwealth and state governments acknowledged the mining sector's significant contribution as a provider of essential services. We did take this responsibility seriously, and through a range of COVID-19 measures and the commitment of the entire Fortescue team, there was no impact to our shipping schedule, which demonstrates to our customers that we are a reliable and secure supplier of iron ore. Notably, the iron ore prices held up strongly through this period due to the remarkable recovery in China's economy, as well as ongoing supply constraints, particularly in South America. We remain a core supplier of iron ore to China, and we've seen strong ongoing demand for all of our products. Pleasingly, we've seen this continue through July and now into August, which underpins a strong start to FY2021.
China's crude steel production continues to grow, reaching 593 million tons in the first seven months of the calendar year. That's an increase of 2.8% year on year. China has largely absorbed the iron ore that has been diverted from weaker steel markets, and both iron ore stocks at Chinese ports and stocks held by steel mills remain at low levels. That's a reflection of this strong demand environment. Now, more than ever, we cannot lose sight of the fact that we are a trading nation, as we continue to benefit from our valuable trading relationship with China. Record revenue from iron ore exports is underpinning both WA and Australia's economy. In FY2020, according to the Australian Bureau of Statistics, the total exports of iron ore reached AUD 100 billion, with China the main market, accounting for 87% of all iron ore exported.
Strong trading relationships like these underpin the Australian mining industry as a stable and reliable provider of jobs, taxes, and royalties, which go to fund our nation's health, education, and public infrastructure. Just to give that some additional context, our state royalties of AUD 1.25 billion for FY2020 was enough to fund the opening of almost 20 new secondary schools in Western Australia. Just turning to our integrated operations and marketing strategy, which is designed to maximize value. Our product mix improved again this year with an increase in West Pilbara Fines and Fortescue Blend products. This contributed to our average revenue increasing by 21%, $79 per dry metric ton in FY2020. That outperformed the 16% increase in the average Platts 62% Index.
We will continue to enhance our product mix and deliver on our product strategy as Eliwana ramps up, and the Ironbridge magnetite project contributes a 67% premium-grade magnetite concentrate product once it's operational. The strength of our operations and our balance sheet means we can continue to reinvest in the business and, importantly, invest in growth. There is a significant pipeline of mining and resources projects in Western Australia, and Fortescue is proud to be part of this as we invest in the Eliwana, Iron Bridge, and our energy projects. Eliwana is progressing with first ore on train due in December 2020, and over 50% of the structural steel at the OPF has been installed. Just last week, the team completed the main top span of the Eliwana rail bridge, and this is one of two major bridges along the 143 km of rail.
Detailed engineering of the Ironbridge project is 70% complete, together with over 60% of the bulk earthworks, and Iron Bridge is on track for first ore-on-ship in mid-2022. In line with our commitment to have net-zero operational emissions by 2040, we're investing $800 million together with our business partners in renewable energy, battery storage, and transmission infrastructure. These world-leading projects will be delivered in the next one to two years. The 5,000 jobs they create and countless businesses they support will be critical to the economy. As government looks to the business community to drive Australia's economic recovery post-COVID-19, Fortescue is investing in growth projects, supporting job creation through investment, and delivering strong returns to our shareholders. Today, we announced a final dividend of AUD 1 per share, and this, along with our interim dividend of AUD 0.76, represents a payout ratio of 77% of full-year net profit after tax.
That's consistent with our policy to pay out a range of 50%-80% of net profit after tax, and I think clearly demonstrates our commitment of enhancing returns to our shareholders. On that note, I'll now hand over to Ian for an update on our record financial performance. Ian.
Thanks, Elizabeth. Hi, everyone, and welcome. What you will see from our FY2020 financial performance is a really clean set of numbers. They've been driven by consistent and predictable operating performance and focusing on the things that we can control, and that's, of course, safety, production, and cost. Moving to earnings and revenue of $12.8 billion, or a 29% increase year on year, was really driven by three things: strong demand for our products with total shipments of 178 million tons, up 6% on the prior year. The market price for iron ore was up 16% year on year in the third point, which is our average revenue per ton, outperforming the market increase, and that was due to our integrated operations and marketing strategy, including improvement in product mix.
Revenue flows through to EBITDA, and our disciplined cost controls and cost management is reflected in $8.4 billion EBITDA at a revenue margin of 65%. Full-year NPAT then of $4.7 billion reflects the underlying operations performance, and that NPAT translates into earnings per share of $1.54, or in Aussie dollar terms, AUD 2.29. Those Aussie dollar earnings represent a 12.7% earnings yield on a share price of AUD 18. Drilling down further on EBITDA, and if you're on the webcast, one of my favorite charts, which shows EBITDA in FY2020 of $52 per dry metric ton, and that's a $13 per ton increase year on year, or 33%. We have a clearly demonstrated ability to generate strong margins through the cycle, underpinned by a focus on total costs, not just C1, and supported by an improving product mix.
Average revenue realizations have now been around about 85% of the Platts 62% Index for six consecutive quarters and for the whole of FY2020. Moving to cash flow, and with a strong correlation with earnings, free cash flow, that's the cash flow available for dividends and debt for FY2020, was $4.4 billion. That was 94% of the $4.7 billion NPAT, and that's a free cash flow yield of about 12%. Key items on the NPAT to free cash flow reconciliation include working capital movements, which included about $500 million of prepayment amortization. As a reminder, a total of $800 million has now been amortized through the delivery of product over the last two years, and the point being that there will be no further working capital impact from these agreements going forward.
CapEx of $2 billion was higher than the P&L charges for depreciation, essentially driven by the investment in growth projects, Eliwana, Ironbridge, and Energy. We also saw a net increase in our provision for income tax, and that's due to the final tax payment for FY2020, and that top-up payment of approximately $800 million will be paid in December later this year. Moving on to the balance sheet, we reported in the quarterly production report gross debt of $5.1 billion. That's inclusive of finance leases and the drawdown of the revolving credit facility. We since repaid the revolver in July, and gross debt went back to $4.1 billion.
As a reminder, during the year, we repaid just under $200 million as part of the refinancing undertaken back in September 2019, and we added roughly the same amount in operating leases due to the implementation of the new accounting standards. As reported at the quarterly, net debt at 30 June was $258 million. EBITDA of $8.4 billion sees debt to EBITDA at 0.6x on a gross debt basis and basically zero on a net debt basis. All of our debt metrics remain well below investment grade. Our target investment grade credit metrics of 1x-2x gross debt to EBITDA and 30%-40% gearing being the book value of debt to debt plus equity. You'll recall that over the past few years, we've been progressively simplifying our debt capital structure. We have consistent terms and conditions across all of our debt facilities.
We have no financial maintenance governance, and we clearly have the capacity to fund future growth. With no debt maturities until 2022, our strategy will be to refinance that debt proactively, and the quality of our earnings is also reflected in FY2020 return on equity of 40% and return on capital employed at similar level at 37%. Onto capital allocation and the AUD 1 per share, fully franked final dividend declared by the board increases total FY2020 dividends to AUD 1.76 per share. That's a 54% increase year on year and continues the strong delivery of returns to shareholders and represents a fully franked dividend of around 10%. Looking forward, capital allocation includes our investment in growth projects, Eliwana, Iron Bridge Energy, and demonstrating that we can return dividends to shareholders at the same time as investing in growth, creating jobs, and contributing to the community.
If you're viewing the webcast, the slide on your screen shows our discipline in capital allocation and provides an overview of our track record. Since reducing gross debt to around $4 billion in FY2018, the proportion and the total dollar value of capital allocated to shareholders has consecutively increased for the last three financial years. To provide further perspective on our capital allocation, since the company's inception, Fortescue has now generated $19.4 billion in NPAT, made $9 billion in voluntary debt repayments, and total dividends that's paid and declared worth $9.5 billion, and that represents more than AUD 4 per share. In closing, the strength of our operations and balance sheet means we can continue to reinvest in the business, invest in growth, contribute to the communities in which we operate, and reward shareholders through both dividends and earnings growth.
We do this by focusing on the things we can control, and that's safety, production, and cost. With that, I'll hand back to you, Elizabeth.
Thanks, Ian. Today, we also released our FY2020 sustainability report and our modern slavery statement. For the first time, we published a standalone climate change report. FY2020 was a milestone year for our climate change and energy strategies as we announced an industry-leading emissions reduction goal to achieve net-zero operational emissions by 2040. That includes a 26% reduction in emissions from existing operations from 2020 levels by 2030. Further to our investment in energy infrastructure, we're progressing with plans to develop hydrogen technologies. In fact, just last week, we signed an MoU with Hyundai and the CSIRO to accelerate the development of renewable hydrogen technologies for domestic transport. Significantly, we also announced an AUD 32 million investment in our renewable hydrogen mobility project.
In a first for an Australian mining operation, we will deploy 10 full-size hydrogen fuel coaches to replace the existing fleet of diesel coaches at Christmas Creek from about the middle of 2021. That will be supported by the installation of a refueling station, which will harness renewable electricity from the Chichester solar gas hybrid project to generate renewable hydrogen on site. Fortescue's continued commitment to empowering thriving communities was demonstrated by our delivery of AUD 17.2 billion in total global economic contribution during the year. That includes AUD 4.3 billion in taxes and royalties. Closer to home, we're very proud to be one of Australia's largest employers of Aboriginal people, representing 14% of our Pilbara workforce and 10% of our Australian workforce. Our female employment rate reached 19%, with 26% of senior leadership roles held by women. In summary, Fortescue has achieved outstanding results for FY2020.
The successful execution of our integrated operations and marketing strategy contributed to record shipments, revenue, earnings, and operating cash flow. Delivering enhanced returns to shareholders remains a priority, and we're proud to have achieved the number one ranking in the S&P ASX 100 index for total shareholder returns over the three years to 30 June 2020 of 266%. As I mentioned earlier, we've had a strong start to FY2021, and our guidance, as we announced last month, is iron ore shipments in the range of 175 million tons-180 million tons, C1 costs in the range of $13-$13.50 a wet metric tonne, and capital expenditure in the range of $3 billion-$3.4 billion. Our clear strategic focus on product, operations, marketing, as well as growth and balance sheet management is driving strong results and delivering significant benefits for our shareholders.
As we enter this exciting phase of growth in Fortescue's history, our work is underpinned by our unique culture and values. Fortescue's success in working together during the COVID-19 pandemic is a testament to our culture and values. By keeping safety and family at the heart of every decision we've made, we are managing this situation together. On behalf of the core leadership team, I'd like to thank the entire Fortescue family for their contributions this year. Our team's commitment to meeting key safety, production, and cost targets, as well as their willingness to challenge the status quo to deliver operational excellence, will be fundamental to the achievement of our stretch targets and Fortescue's future success. Thank you, and on that note, I'll hand back to Kayleigh to facilitate Q and A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. To allow everyone an opportunity to participate, we ask that questions are limited to two per person. If you have further questions, you are welcome to re-register. Your first question comes from Rahul Anand with Morgan Stanley. Please go ahead.
Thank you, Elizabeth. I'd like to firstly ask Ian a quick question on depreciation, if I may please. Ian, we have some guidance for this year for FY2020, which sat at about $770 per ton. Do you have any guidance available for FY2021, and how should we think about it if there is no guidance provided?
Yeah, I think consistency year on year and the little bit of an uptick relative to the guidance that we provided earlier in the year. Rahul was just the implementation of the lease standards. I think everyone sort of had some challenges in terms of estimating it back then, and that's really nothing out of the ordinary, and therefore you'd expect it sort of to track production really because most of it's depreciated on a unit of production. The previous year is a good guide for future years.
Okay, perfect. Thank you. The second one was on Iron Bridge. Elizabeth, perhaps one for you. I just wanted to understand how you view the project in terms of any potential future expansions. I mean, nameplate's around that 20 million tons per annum mark, but is the project, so to speak, modular in any way whereby future expansions might be easy? If you could marry that up with the port capacity, perhaps please. Thank you.
Yeah, I guess nothing's ever easy given it's a significant investment, but it certainly is, I guess, modular in nature. It's 22 million tons on a wet basis, and each sort of train is 11 million tons. Given the size of the resource there, there would be opportunity to consider that in the future. That would come at some further infrastructure as well in terms of how we've configured the pipeline and various other aspects. It's certainly feasible. I wouldn't say any of it is easy, but we'll first and foremost focus on actually completing this stage of Ironbridge, getting to that nameplate capacity at the 22 million tons, and then consider our options from there. In terms of port capacity, clearly that's another consideration that we would need to take into account for any further expansion plans.
Okay, perfect. Could I have a quick follow-up on that, please? In terms of the infrastructure and the pipeline, is there spare capacity beyond that 22 million tons as it sits or you need to invest more?
It has been designed for that 22 million tons, and there may be, you can always, in true Fortescue style, we always like to push things as much as we can, but there is not a lot of excess capacity that has been configured in the current time.
Okay, perfect. Thank you very much for that. I'll pass it on.
Your next question comes from Hayden Bairstow with Macquarie. Please go ahead.
Morning, Elizabeth, Ian, and all. Just a couple for me. Firstly, just a quick one on the port, Elizabeth, just on that approvals process. I mean, obviously, I presume you're going to go past your limit on this calendar year to where we are with that and when we should accept some sort of announcement on getting that locked away. Then just on Iron Bridge and the project sort of blending opportunities, have you done more work on that in terms of what the product mix might look like or what the varying options might well be between removing some of your lower-grade product or just selling it on a standalone basis? Thanks.
Yeah, hi Hayden. I think in terms of that port license capacity, that is ongoing. We said we expect to have that approved by the end of this calendar year. We're very mindful of our current expectations on shipments and that time frame, but we're feeling confident that it fits within our guidance for this financial year. On the Iron Bridge blending opportunities, look, the work's ongoing. There's technical work that is currently underway. We've got time in terms of understanding the market, what the market might look like by the time we get first ore on ship, and that process of the technical assessment will take six months-12 months. We're undergoing a very comprehensive process and testing process, but that's a work in progress.
Okay, great. Thanks.
Your next question comes from Peter O'Connor with Shaw and Partners. Please go ahead.
Elizabeth and team, congratulations on a cracker result. Firstly.
Thanks, Peter.
Quality in the market at the moment, it's not being paid for by customers. Any thoughts on what that means in the near term?
I think we're finding that actually our pricing for our products is we're comfortable with where that's currently at, and we've seen our average price realization.
It's Greg here. I mean, the cycles go along with the profitability, and although the steelmakers are making reasonable profits, there's been all sorts of changes in supply. There's all sorts of changes due to COVID in terms of the way that restrictions have happened or not happened within China. There's all sorts of changes with the weather and the flooding in some places. The flat products are now doing a bit better than they were before. If you can decipher all of those complex part of the simultaneous equation we're getting, if the quality's being paid for or not, I challenge you to do so.
We're obviously focused on our products and getting the best value we can for them and focusing on the customers that value our products the most. I think that's the key that we've been able to do.
Okay, and Elizabeth, follow-up on funding for Iron Bridge. We've talked on the call about it before, being a project style of funding, given your cash flow, balance sheet, funding facilities, etc., and the need for capital returns to shareholders, which you've outlined. What's the balance? Should you be funding Iron Bridge with a project facility or cash, and why?
I think we've said at the outset that we saw this as an opportunity for standalone project financing. That view hasn't changed. We continue to assess the opportunities in the market. Obviously, price is one aspect of that. Certainty of execution is another, and we have the benefit of our strong cash flow. They're all weighed up in terms of our disciplined approach to capital allocation, but we are still intending to secure a separate facility for Ironbridge.
Peter, just to add to that, just because the market's great doesn't change our strategy or our discipline. All of the reasons that we articulated to you earlier still hold. It does provide an opportunity with additional cash flows coming in. Therefore, timing, we can maybe choose a bit more, but ultimately, strategy and discipline doesn't change through the cycle.
Thank you.
Your next question comes from Lyndon Fagan with JP Morgan. Please.
Thanks very much. Look, the first question is just on the Firetail reserve and resources that are still left. Looks like almost three years of reserve and about nine years of resource, albeit lower grade. I know Eliwana is obviously coming on soon, but can you talk about sort of what the plans are to extract maximum value from the already installed infrastructure there? Would you be looking to increase production, or is that sort of a drip feed over the years to come in getting that out? That's the first one. The next one's just on hydrogen. Really interested to see the 10 buses that are being powered on hydrogen, and just wondering whether you can talk about the future plans there. How aggressively can you roll that out into sort of mining fleet and the like, or any other sort of opportunities to sort of utilize hydrogen?
Thanks.
I might start with the hydrogen one, and then Greg might pick up on Firetail. I think, look, these 10 coaches, it's a little bit of R and D in nature. We need to actually, these coaches had to be, I mean, the manufacturer we're dealing with hadn't. Whilst there are other hydrogen passenger coaches on the roads in Europe, they weren't designed for an off-road type environment. We actually had to work pretty closely with them to specify exactly what we need. We've got to build that refueling infrastructure. The challenge for the team is getting to the position where the capital cost and the operating cost for a hydrogen coach is as competitive as a diesel coach. At the moment, that wouldn't be the case. This is part of this sort of R and D in nature.
I think assuming it is successful, and we're assuming that it will be because there are other coaches that operate on hydrogen, it does create that environment where we can assess that, the operating cost, the ongoing management, the refueling of vehicles, whether they're coaches or other forms of mining fleet. It's a little bit of an R and D for us, but we are also taking a long-term view, as you know, Lyndon, with our focus on decarbonization, that we do see hydrogen and other renewable energy sources as being important to our future decarbonization. This is us actually saying, "Let's do something really practical to try and test that." We're also working with the OEMs to try and determine what the mining fleet of the future might look like, and there's a range of different options, not necessarily all hydrogen.
We're working with them on that, but we do think this will be an important test case to see how it works in our mining environment.
Lyndon, on Firetail, I mean, of course, Firetail is depleting in terms of the ore body and the resource there. As we have noted before, it does not fall off a cliff the day that Eliwana starts up. There will be a period there, of course, where we have this overlap, if you want to call it that. As you are getting towards the end of an ore body, you do not have large, long, productive mining faces to get the best productivity, etc., so you want to limit the pure volume of that material that might be at a little bit higher cost towards the end of an ore body. There is higher risk if you are relying on the last 2 million tons in a pit, for example, if you are a little bit out in terms of the timing or the quality, etc.
We do not expect to have any major implications of the fact that we have still got a few years' worth of ore there available. We will continue to feed that in as Eliwana ramps up. Still another sort of six months away until we start seeing any appreciable quantity come out of Eliwana and ramp up there as well. The next couple of years or so, we have got a bit of overlap. We obviously manage our ore bodies across the Pilbara system of mine sites to get the best overall outcome, managing grade, managing tonnage, managing haul distance, managing rail hauls, and all the rest of it. We will have that overlap period that we will make sure we make the most of, for sure.
Quickly, Greg, does that overlap include sort of additional production? You've obviously given guidance for 2021, but thinking into 2022, where you'll have spec mine capacity, how should we think about that?
I think you've got to think of it as the system. We've got a railway, and we've got a port at the end of it as well. Remember, we're not changing the port configuration at the moment. The rail, the average distance to the port gets further away, given that Eliwana's 30 million tons contribution is 143 km further from the port than, say, Firetail is. The overall system capacity doesn't increase, even though clearly the installed OPF capacity does. Look, we'll aim always to try and peak out a little bit more if we can and if it makes sense and the market sort of warrants it, but I wouldn't be sitting here expecting we're going to be adding 30 million tons to the output in the next couple of years, that's for sure.
Your next question comes from Glen Mochart with UBS. Please go ahead.
Good morning, Elizabeth and team. Elizabeth, I just wanted to talk a little bit about Southwest Creek and perhaps what intentions Fortescue has or does not have. You might have seen Mineral Resources last week talking about additional berths, and it is unclear whether they build them standalone or integrate into Roy Hill. I would have thought you have, in the past, expressed interest in adding another berth and a shiploader. Just what are Fortescue's intentions in Southwest Creek, if any? Thanks. Can you talk to what is going on there?
I think we've read what's been reported as well, and the state government's made it clear that the berths that are in Southwest Creek at SP3 and SP4 are allocated for juniors. I guess it's a question for them to determine how that might be allocated. I think from our perspective, we continue to assess our requirements for both additional shiploader and an additional berth, and we've had constructive dialogue with the state government. We obviously have a significant interest in what further developments there are in Southwest Creek because it will require significant dredging activity, not just building at the berths at SP3 and SP4. It's the dredging that's required. It's the addition of a turning circle. That's going to require significant investment by whoever develops that infrastructure.
As I said, not just the berths themselves, but for anybody who's operating in Southwest Creek, and we currently do, there is significant requirement. It's required the further you get down the creek. That's not an insignificant undertaking in its own right. We continue to assess our own longer-term plans for port infrastructure, and we've had good engagement and dialogue with the state government over our plans. They're obviously very supportive because we are actually currently investing in Eliwana and Iron Bridge, so we've got genuine growth ahead of us, and the investment's already being made.
Elizabeth, sorry, do I take from your answer then that you are in discussions and potentially thinking about a sixth berth and a fourth shiploader then?
That's always been part of our sort of longer-term plan. The answer is that yes, we're considering all of those aspects in terms of our plans for the future, and we do take a long-term view on the infrastructure at the Port of Port Hedland.
Okay, that's great. Just a second question, if I may. Just on realized price and 85% on average the last six quarters, you've doubled the percentage of West Pilbara Fines from 5% to 10%, 20 versus 19. I guess we're not seeing that in the realized pricing, still 85%. Is that something that disappoints you, or should it start to change once we bring on Eliwana and we get more West Pilbara Fines product? Thanks.
I actually think we've sort of used an average, but I think if you go back over those quarters, it's been at 83%, and then at 84%, and then at 85%. As we've progressively increased volumes, I think that has been reflected in our overall price realization. Importantly, we saw a 21% increase in average realized price, whereas the average index was up 16%. We have outperformed the index through a combination of delivering on our product strategy, and we have seen that gradual increase. It sort of averages around that 84% or 85%, but you go back over a number of quarters, and that's been progressively increasing. I wouldn't sit here and say that I'm disappointed at all.
I think the outperformance of the average index, the delivery on the strategy, and doing what we say we're going to do, I think it's been recognized by the market.
Yeah, and I think that seeing that consistency is what we're very happy with, I think, at the end of the day.
Your next question comes from Paul McTaggart with Citi. Please go ahead.
Good morning. With the quarterly, you gave us guidance for mining strip ratios to stay around at sort of one-half level for the next five years from the collection. Beyond that, from previous time visits, we always thought it would sort of longer-term trend nearer two. Is that still the view, or do you think you can kind of keep the lower strip ratios for a longer period?
Paul, it's Greg. Look, I think I'd comment by saying when we had that slide that had that sort of longer-term trend, I think a comment I made was, "I can assure you that by the time we get anywhere near that, we will have addressed it to make sure that we do everything we can to make sure that doesn't happen." Whilst I wouldn't sit here and say, "We've done that or achieved," etc., that's still the reality. The job of the mine planners is never complete. Every day, they wake up working out how can they eke out some better value out of our ore bodies, whether that's in thinking about strip ratio, haul distance, whatever the case may be.
There's nothing, however, in the current mine plans that sort of demonstrate a similar trend to be such as it had before, which is why we've sort of altered that commentary there and looked more in the next sort of five years or so, pretty flat. We don't know what else the other ore bodies are going to show up into the future beyond that to give too much guidance on that. There's nothing at this point in time that would have me being concerned about a significant increase in strip ratio going out beyond 10 years or so.
Yeah, and I think that slide from a few years ago did not even feature Eliwana, so that was just an indication.
No. It was at a point in time.
It was at a point in time, and as other ore bodies are identified, that will influence. I think it's more that sort of three to five years' time frame where we're guiding to no significant change.
Okay, thanks. Thanks for that.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Paul Young with Goldman Sachs. Please go ahead.
Yeah, good afternoon, Elizabeth and team. First question's on sustaining CapEx and the guidance for FY2021. Looking at history, sustaining CapEx has been increasing around $100 million per annum since, I think, the lows in FY2016. Just on FY2021, it looks like you've grouped sustaining and development capital together. Can you maybe split that out? What is sustaining and what is development capital?
Yeah, if you can meet that one.
Yeah, that's fine.
Paul, I think looking at last year, it was $700 million or thereabouts for sustaining and a couple hundred million for operations development. This year is roughly the same with we also put the completion of the Queens development into that $1 billion. Therefore, effectively very consistent year on year for those three categories.
Yeah, thanks, Ian. Maybe just going forward, if that's been steady on 2021 or 2020, where are we down the major equipment replacement cycles until truck engines and truck bodies and maintenance on the plant? Is $700 million effectively steady state going forward, or could that actually move up and down depending on major replacement cycles?
Yeah, I think Greg might want to comment as well, but from a capital allocation perspective, I think that the net-net would be, as we do see the peaks and troughs, you cut your cloth accordingly. I think we've taken the benefit of the new infrastructure and the question of reinvesting back in the business to improve productivity, availability to ensure production of tonnes is a good investment. We continually ask ourselves the question, are we spending enough and are we spending on the right areas? I think the ebbs and flows, Greg, I think within those sort of numbers, with the caveat of the iron ore price drops and free cash flow is lower, the things like the discretionary operations development of a couple hundred million bucks a year would drop off fairly quickly.
I think, Young, that certainly the normal sort of cycle of replacing engines and components in process plants and haul trucks and things like that, we're in a bit of a steady state, as you say. We replace some fleet, but probably not until the second half of this decade would we see any major fleet sort of coming together at once sort of thing. In part, that's what's driving some of our work through the decarbonization strategy with OEMs to look at and help them think about what the next generation of haul truck might look like.
How could it be hydrogen powered or battery or whatever the solution may be so that when we get to the point where we're going to have some major capital on the next generation of fleet for Fortescue, we would hope that that might be a different truck than just a diesel-powered truck. The second half of this decade before we'd see any, I think, material change certainly on fleet replacement strategy or major plants or anything like that.
I think as well, we'll continue to look at, along those decarbonization lines, opportunities for additional conveyors that will then be obviously powered by our solar gas hybrid energy. Those are going to be some of the other opportunities we'll look at in our capital profile moving forward.
Yeah, that's great. You covered actually part B of my question. Can I just squeeze in one more? That's Greg or Elizabeth. On the Section 18, a lot of discussion in the market on the Section 18. I do see that you received your Section 18 on Iron Bridge on the 3rd of August, and on the 5th of August, you received Eliwana. Can you maybe just talk through, does that cover those conditions or consent with conditions? Do they cover all of the tenements across those projects? Are you now covered until you also on Queens and until you got a needy or a future project?
No, I think with those two that you've mentioned, Paul, the Eliwana one was specific to an access road, the widening of an access road. It wasn't anything really to do with the ongoing project. Some of these Section 18s are actually quite specific, and the Ironbridge one, I think, was similarly a specific area. I wouldn't read into a Section 18 that that covers the entirety of the mine. When it comes to Queens, we've publicly said that we've paused one Section 18 while we work with the Wintawari Native Title Group. It doesn't impact on our two-year mine plan, but we're just looking at a couple of areas in particular that might mean we have to redesign a waste dump, for example. We're not changing our process in terms of engagement and communication, working with native title partners.
In some areas, we actually advise them of significant sites that we find that we think might be of significance, I should say. We have a very good engagement. Those two Section 18s that you referenced are just very particular to a certain part of access road, for example. Currently, Section 18s are operating. They are continuing. The minister is still signing off on Section 18s, as you referenced. We will continue our strong engagement with the native title groups.
Okay, that's great. Thank you very much.
Your next question comes from Peter O'Connor with Shaw and Partners. Please go ahead.
Elizabeth, Simandou, you've probably got more knowledge of Simandou than most, given you've been on the other side of the table for a period. We've talked about this with other companies on calls over the last couple of weeks. How do you see the evolution of Simandou given you know what's there and you've seen other parties talk about it? How does that play out in the long-term price formation of iron ore?
I think one of the things we do know from our, I guess, review and assessment during the course of last year is that it is a significant infrastructure project in the context of rail and port infrastructure. It is not without its complexity, and reality is there will be a considerable period of time, whether that is four to five years for the fourth or first ore. There is a very good ore body there. I think every indication is that at some point now this will be developed. As I mentioned, the infrastructure and the project in its own right is a very significant one. I think we will continue on our own strategy. We will introduce a high-grade metal type concentrated product long before first ore from Simandou. The Iron Bridge product is very high grade, 67% Fe. We will establish that product in the market.
That is why we have our settings in place. Being a low-cost producer is important to us. We are looking at volume, cost, margin, staying close to our customer, and basically through all the market cycles, generating those very strong cash margins.
Thank you.
There are no further questions at this time. I'll now hand back to Ms. Gaines for closing remarks.
Thanks, Kayleigh, and thanks everybody for joining us today. I think, as you can no doubt appreciate, we are very pleased with the FY2020 results. I think importantly, we are genuinely pleased with the safety performance. We're not being complacent about COVID-19. I think it's pretty easy here in Western Australia to develop a sense of complacency, but we certainly aren't. We're working with our team members, particularly our East Coast-based team members, and those who have been impacted. It's an ongoing management process for us in the context of having the right settings in place to ensure that we remain COVID-free. I think as a community more broadly, we're all still managing through that. For any of you who are in Victoria, best wishes to you all.
Certainly, we'll stay very focused on achieving our targets around safety, cost, and production, and maintain that sort of sustained focus on safety. On that note, thank you very much. Look forward to chatting to you all at our next results call. Thank you.