Forrest brings out his bargain bin

Fortescue kept the faith by selling all its iron ore at benchmark prices, and below at times.

Meanwhile, BHP and Rio sold as much as they could into the more lucrative spot market.

Spot iron ore prices left the $US63 a tonne benchmark price behind, jumping to $US80 a tonne in early July and then running to as much as $US118 a tonne by the end of December.

Fortescue said it had made a strategic decision to protect and increase its access to the Chinese iron ore market by selling all of its output at the lower benchmark price, and below.

Fortescue's average price for sales in the December half fell from $US71.65 to $US57.22 a tonne. Sales into the spot market would have allowed Fortescue to improve on that average but executive director Graeme Rowley said Fortescue had its eye on the future.

"We didn't get ourselves in spot markets sales," Mr Rowley said. "We were working very hard to continue to sustain the contracts we had. And they were an important part of us going forward.

"We made every attempt to justify our position by sticking to the long-term contracts that we had agreed."

Mr Rowley was speaking at the release in Perth of Fortescue's December-half profit. The company's declared profit was down from $US760 million to $US43 million. But Fortescue said a better indication of its earnings was the $US96 million in underlying profit.

That compares with a profit of $US162 million in the previous corresponding period. Both are after eliminating the impact of a loan note revaluation and foreign exchange movements on borrowings.

Mr Rowley said the important thing to focus on at this stage of Fortescue's growth was its production performance. Production in the half rose 41 per cent from 13.2 million tonnes to 18.6 million tonnes.

"By anybody's measure that is a fantastic achievement," Mr Rowley said.

"It is about preparing our business for the future and augurs well for our next reporting period as the [iron ore] price does an about-turn from its massive decreases during the global financial crisis to what we perceive now to be a very bright and significant price future."

Fortescue is now producing at an annual rate of 42 million tonnes. It plans to reach an annual rate of 55 million tonnes by the end of 2010 and 92 million tonnes from 2013 (previously 95 million tonnes from 2012). How the expansion to 92 million tonnes will be funded remains uncertain.