(Bloomberg) — Fortescue Metals Group Ltd., the world’s fourth-largest iron ore exporter, expects to cut costs a further 19 percent this half as the largest producers race to protect margins amid the slump in prices.
Costs including shipping and royalties may drop to $35 a wet metric ton, compared with $43 a ton in the half ended Dec. 31 and $50 in the six months before that, the Perth-based company said today when reporting first-half earnings.
Fortescue joins larger rivals Rio Tinto Group and BHP Billiton Ltd. in focusing on costs after iron ore prices plunged 47 percent in the past year as production increased. Cash costs in the year may fall as low as $28 a wet metric ton, Fortescue said today.
“That’s the name of the game for resources companies at the moment,” Ric Spooner, a chief strategist at CMC Markets in Sydney said today by phone. “The rewards are going to go to the lowest cost operators.”
Rio, the second-largest iron ore supplier, has cut project spending to the lowest since 2010 and is targeting $750 million of additional savings this year, it said last week. BHP is also paring expenditure and targeting cuts to operating costs in Western Australia’s Pilbara iron ore region.
Fortescue, which has already lowered spending plans by half and reduced staff, jumped as much as 3.5 percent today in Sydney trading before trading 5 cents higher at A$2.73 at 11:28 a.m. local time.
Production Increase
The producer is seeking to raise production to as much as 160 million metric tons in the year through June even as prices trade near five-year lows. It had a realized iron ore price of $66 a dry metric ton in the six months through December, according to the statement. That compares to an average $82.63 a dry ton for cargoes delivered to Qingdao in the same period, according to Metal Bulletin Ltd.
Net income was $331 million in the six months ended Dec. 31, compared with $1.7 billion a year earlier, the company said today in a statement. That compares with a mean forecast of $329.3 million among three analyst estimates compiled by Bloomberg.
“Fortescue is delivering record operational performance and consistent, sustained cost reductions through focusing on the things we can control — safety, productivity and efficiency,” Chief Executive Officer Nev Power said in the statement.
Fortescue, which cut net debt to $7.5 billion as of Dec. 31, declared a dividend of three Australian cents per share, it said in the statement. – BLOOMBERG
