Fortescue Metals Group expects the iron ore price to stabilise at about $US120 per tonne as stimulus in China generates increased demand for steel.
The iron ore miner said its average cost including freight for the September Quarter was $US98 per dry tonne (dt), reflecting the decrease in global iron ore prices.
Fortescue said it recorded an annualised shipping rate of more than 64 million tonnes during the quarter, ahead of guidance, despite disruption from maintenance and expansion activities.
During the quarter Fortescue shipped 16.1 million tonnes, up 30 per cent on the previous corresponding period (pcp).
“It is Fortescue’s expectation that the 62 per cent iron index price will stabilise in the short term at approximately $US120 per tonne as the Chinese government prepares for its leadership transition in November and stimulus packages generate increased demand for steel and restocking at Chinese steel mills,” Fortescue said in a statement.
While the market remained volatile due to the oversupply of steel and low steel prices, most industry analysts expect the iron ore price to stabilise at approximately $US120 per tonne based on the global cost curve and the supply demand balance, Fortescue said.
The company said cost guidance for fiscal 2013 remained at $US45 to $US50 per wet tonne.
Fortescue said it remained committed to completing its Kings mine and expanding to 155 million tonnes per annum following the completion of the distribution process for the $US5.0 billion ($A4.90 billion) senior secured credit facility.
Fortescue’s response to market volatility and uncertainty over iron ore prices included the identification of improvement opportunities and cost savings of more than $US300 million ($A293.92 million) for full year 2013.
“Approximately $US200 million of these savings are expected to be sustained into the future,” the company said.
Fortescue recently shelved $US1.6 billion ($A1.57 billion) of spending and cut about 1000 jobs, downgrading expansion plans from a current 55 million tonnes to only 115 tonnes, instead of 155 million tonnes.
The company said mining and processing activities continued to perform in line with expectations at both Cloudbreak and Christmas Creek and the Chichester operations would expand to 95 million tonnes per annum by the end of the December 2012 quarter.
With deferral of completion of the Kings deposit, Fortescue’s full year production target is maintained between 82 million tonnes and 84 million tonnes.
The Kings expansion was likely to be completed before the end of calendar 2013.
Meanwhile, total expansion expenditure at the end of September, 2012 was $US6.1 billion ($A5.98 billion) for infrastructure and $US0.7 billion ($A685.80 million) for mine fleet.
Cash on hand at the end of September 2012 was $US2.4 billion ($A2.35 billion).
Fortescue added that it “remains committed to the 155 million tonne expansion and expects the total spend to be $US9.0 billion ($A8.82 billion), subject to the timing of the Kings Project”.
The company’s rail project remains on schedule.
