Fortescue may exceed FY production target

Fortescue Metals is on track to exceed its full-year production guidance after unseasonably mild weather in Western Australia helped boost shipments in the March quarter.

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The world’s fourth biggest iron ore producer shipped 42 million tonnes during the three-month period, up four per cent from a year ago, while continuing to lower costs.

“Our production is running a few per cent higher than the target, because there hasn’t been any weather impact,” chief executive Nev Power told reporters.

“Our guidance still remains at 165 million tonnes but we are not going to adjust our production on a daily basis.”

Fortescue, which has raced to cut costs amid a prolonged downturn in commodity prices, said it stripped cash costs further as part of an ongoing program.

C1 cash costs were down to $US14.79 per wet metric tonne from $US15.80 in the previous quarter, and 43 per cent lower than a year earlier.

“While we are continuing to look for every opportunity, ongoing cost cuts will be more challenging because of the recent increase in the Australian dollar and higher fuel prices,” Mr Power said.

The miner, however, has maintained its target of reducing cash costs to $US13 per wet metric tonne, and will look for more productivity gains to offset the impact.

Iron ore prices, which plunged to a decade low of $US38 a tonne in late 2015, have since recovered slightly but are still down more than 70 per cent over the past four years.

Spot prices jumped to $US58.50 a tonne on Wednesday, boosting sentiment in sector stocks.

Fortescue shares were trading nearly seven per cent higher at $3.17 each, at 1340 AEST, while larger rivals BHP Billiton and Rio Tinto were also up by a similar level.

Mr Power said, while Fortescue has benefited from the strong run in recent months, he expects iron ore prices to remain very volatile.

The higher prices helped boost the company’s cash balance by $US200 million, and chief financial officer Stephen Pearce said he is looking at various options to trim a $US5.9 billion debt pile.

Fortescue surprised the market last month after announcing talks with Brazilian iron ore giant Vale to blend their iron ore, in a deal that would help the two companies boost their combined market share in China.

Work on developing the right blend is continuing, Mr Power said, with the first volumes expected to hit the market in the second half of 2016.