"We have brought forward completion of the expansion by three months and now expect Fortescue to be at the 155Mtpa production run rate by the end of March 2014,” Commonwealth said in a research report.
The mine development at the King deposit is well and truly on track, with the Solomon hub now expected to be in full production by the end of December 2013. Commonwealth has long been of the view that the 40Mtpa from Kings were the most valuable tonnes within the expansion program as they bring significant low cost production with relatively low capex.
When the miner reaches full production from the combined Kings and Firetail deposits, costs should be around $US25-30 per ton compared to current costs of around $US45-50 per ton.
The broker notes that the iron ore prices remains surprisingly high, currently around the $US155/t level versus Commonwealth's first-quarter forecasts of $US116/t. If it remains around these elevated levels then Commonwealth is likely to have to upgrade their estimates further.
"It is surprising to us that the Fortescue share price is not stronger with the iron ore price at current levels. Post the refinancing in calendar 2012 and with the expansion to 155Mt on track, we believe the miner is in a far stronger position today than earlier in calendar 2012, when the share price was $6.00”, Commonwealth noted.
In the above chart of Fortescue, we can see that the price has just broken out through the green resistance level. The red uptrend line indicates momentum remains firmly to the upside and given this, the next logical target level would be towards previous resistance around the $6.00 level.