FMG cuts production costs, posts record shipping rate

Fortescue Metals Group slashed its iron ore production costs by 11 per cent in the December quarter while shipping 47 per cent more of the commodity.

Figures released by the Pilbara miner today show a strong performance, with 41.1 million tonnes of iron ore shipped, a 47 per cent increase on the prior comparable period.

During the quarter, Fortescue mined 43.6mt of ore, two per cent higher than the previous quarter and 36 per cent higher than the prior comparable period.

Impressively, FMG has managed to slash its operating costs to rival that of the major producers, booking an 11 per cent saving to US$28.48 per wet metric tonne (wmt).

During the quarter, the average price received for its ore slid to $US63 per dry metric tonne. 

The figures come on the same week the iron ore price fell to fresh five-year lows of  $US62.70 a tonne,  leading to a sell-off of FMG shares.

The positive December result led to an early jump in FMG stocks this afternoon, which are up 5.8 per cent to $2.16.

While other iron ore miners have flagged non-cash impairments, FMG said it did not expect to writedown the value of any of its assets when it released its half-year financial statement in the coming weeks.

Despite the lower iron price, the company said it continued to see strong demand for its products, averaging 72 shipments per month for the December 2014 quarter delivered to customers in China, Korea, Japan and India.

While much has been made of an oversupply in the seaborne iron ore market, with analysts blaming this for the fall in iron ore prices, FMG said it had seen evidence that this overhang was being absorbed in China.

According to the miner, port inventories in China have declined from peak highs of 110mt down to 97mt and steel mill iron ore inventories have dropped to 22 days, well below historic averages

“This implies ongoing displacement of higher cost suppliers in China and other countries,” FMG said.

The company reiterated plans to cut capital expenditure in 2015 from $US1.3 billion to $US650 million and said this will be achieved through re-engineering and the deferral of operational and expansion capital projects.

As at December 31, Fortescue had $US1.6 billion cash on hand.

FMG said the total recordable injury frequency rate per million hours worked was 5.6 at the end of the December 2014 quarter, a three per cent improvement over the previous quarter and 21 per cent lower than the prior comparable period.

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