Fortescue Metals Group Ltd , the world's No. 4 iron ore miner, said cost cutting and a weak Australian dollar have helped it combat a 50 percent slide in iron ore prices that has been partly fuelled by its own expansion.
Fortescue's shares rose as much as 10 percent, taking it further away from Tuesday's six-year low, after it said it is still making a margin of up $10 per tonne of ore and expects to cut costs further in the next six months.
"It's all about margin. That's the key for them," said Mathew Hodge, an analyst with Morningstar in Sydney.
Australia's third biggest iron ore miner after Rio Tinto and BHP Billiton boosted shipments by 47 percent in the December quarter, keeping cash flowing in to service its $8.8 billion debt load.
The world's biggest miners have been increasing output despite the price decline, aiming to win market share from smaller rivals, including domestic producers in China.
Fortescue flagged more savings, saying it expects to cut its mining costs by more than 10 percent in the second half thanks to a weaker Australian dollar and lower oil prices. Its all-in cost to China would fall to $45 to $46 a dry metric tonne.
On the revenue side, its product is achieving roughly an 85 percent discount to the benchmark iron ore price .IO62-CNI=SI, which means on the latest price of $62.70 it would fetch about $53.30, which the company said translated into a margin of $8 to $10 a tonne.
"We've got strong positive margins even in today's price environment," Chief Executive Nev Power told reporters on a conference call.
UBS analysts were more conservative, estimating Fortescue's breakeven price is $59, assuming the Australian dollar stays at $0.79 and based on the miner's latest cost guidance.
Power said Fortescue was under no pressure to sell assets to shore itself up, even if iron ore prices fell further.
"I can't foresee a price that would put us in that position," he said.
Fortescue sold 41.1 million tonnes in the December quarter, beating its own forecast while its average selling price fell to $63 a dry metric tonne.
The company has halved its planned capital spending this year to $650 million, saying it makes sense to delay spending on projects that would add supply to a glutted market.
It still expects to ship 155 million to 160 million tonnes of iron ore in the year to June 2015, unlike smaller, higher cost producers who have cut output.
While several smaller miners, including CITIC Ltd and Arrium Ltd, have flagged big writedowns, Fortescue said it was comfortable with the asset valuations on its books.
Source: Reuters