Fortescue cuts costs to new record low as ore shipments hold steady

Fortescue has cut cash costs to a new low, cementing its position as a rival to Rio Tinto.

An excavator loads ore into an autonomous dump truck at Fortescue Metals Group Ltd.'s Solomon Hub mining operations in the Pilbara. (Brendon Thorne/Bloomberg)

Andrew Forrest’s Fortescue Metals Group has again defied expectations and continued to reduce its production costs, reporting a twelfth consecutive quarter of lower costs today.

The Pilbara miner shipped 42.2 million tonnes of iron ore in the three months to December 31, similar to the 42.1 million tonnes volumes a year earlier, and a 4 per cent decline on the September quarter. The output keeps the company well on track to meet its target of 165 million to 170 million tonnes of iron ore shipments this financial year.

Its cash costs of $US12.54 per wet metric tonne represented a fresh record low for the company, further entrenching its position as the main rival to Rio Tinto as the lowest-cost iron ore producer in the world. The cost figure represented a 21 per cent improvement on a year earlier and was 7 per cent lower than the preceding quarter.

Fortescue chief executive Nev Power said he expected the company to maintain its downward momentum on costs over the rest of the year, despite stronger fuel prices and exchange rates working against it.

“We have experienced some upwards cost pressure as fuel prices have increased, but we’ve been able to offset these in our cost reduction and productivity focus,” Mr Power told reporters this morning.

“We continue to focus on productivity and efficiency initiatives to ensure that all the cost reductions we are delivering are sustainable in the long term.”

Fortescue’s ability to generate vast amounts of cash was underscored by the fact its cash balance grew from $US1 billion to $US1.2bn during the quarter, despite it outlaying during the period a $US1bn debt repayment, a $US250 million tax bill and $US280m in dividends.

RBC analyst Paul Hissey said Fortescue had once again beaten expectations on its production costs.

“While FMG appears fair value using our input assumptions, the company has clearly limited the downside in the event iron ore prices recede,” he said.

Fortescue shares were up 14c to $6.62 this in midafternoon trade, putting it within a whisker of a fresh five-year high.