Fortescue looks to keep rein on costs

Fortescue Metals has forecast it will continue to cut operating costs as it ramps up output. It will also try to get customers to prepay for iron ore, helping to alleviate cash pressures. In the June quarter, cash costs fell to $US36.01 a tonne, down 17 per cent and coming in at the bottom end of market expectations of a range between $US36 and $US38 a tonne.

Fortescue Metals has forecast it will continue to cut operating costs as it ramps up output. It will also try to get customers to prepay for iron ore, helping to alleviate cash pressures. In the June quarter, cash costs fell to $US36.01 a tonne, down 17 per cent and coming in at the bottom end of market expectations of a range between $US36 and $US38 a tonne.

The decline was booked against a rise in June quarter shipments of iron ore to 25 million tonnes, which lifted fiscal 2013 volumes by 41 per cent to 80.9 million tonnes, it said.

In the month of June, the "shipping run rate" reached an annualised 120 million tonnes, which was 5 million tonnes ahead of expectations.

"We'd like to think we will do better than that," Fortescue chief executive Nev Power said of the cost performance.

During the quarter, production from its Firetail deposit was stepped up, with the focus shifting to tapping the Kings deposit, which may lift costs for a time before the benefits flow from the higher output. The addition of processing facilities would allow a further reduction in operating costs, Mr Power said.

Fortescue was critical of the pressure from smaller operators such as Brockman Resources, which has been seeking access to its railway network.

"We welcome third parties on our network," Mr Power said, pointing out that it had already shipped more than 11 million tonnes of ore for other miners. But at the same time, there was a need to allow the railway network to handle these shipments.

"Therefore any third party must pay their way," he said. "We're not proposing to subsidise uneconomic projects to get them up and provide a solution for them."

Fortescue maintained its optimism over the outlook for iron ore prices, which it expects to range between $US110 and $US130 a tonne. No minerals resource rent tax was payable during the June quarter, the company said.

"We're not seeing any MRRT in our future ... we haven't even booked the tax benefit that's available to us," a company official said.

Fortescue continued to hose down speculation of any imminent sale of equity in its port and transport assets, saying that it has "nothing further to add".

At the same time, it is continuing to seek prepayments from customers, which is helping to increase its cash stockpile, which stood at $2.2 billion at the end of June.

"A particular take-out was the fact that the cash cost at $US36.01 a tonne was lower than guidance," one institutional analyst said of the June quarter production report.

"Clearly, the lower Australian dollar-US dollar exchange rate at 95ยข versus parity helped, but it has also pulled out more costs than anticipated."

Another development for Fortescue was its success in blending output from its Chichester and Solomons deposits to produce a marketable product, the analyst said.

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