Fortescue Cuts Costs More Than Expected to Stay in the Black

Reuters reported that Fortescue Metals Group (ASX:FMG) has managed to stay afloat in a sinking iron ore market by cutting its costs, aiming for a break-even price of $39 per tonne. The company’s cost cutting initiative reflected positively on its share price, which saw a boost Thursday.

As quoted in the market news:

The attack on costs sent the miner’s stock up as much as 9 percent on Thursday, although the shares have still halved in value over the past seven months in line with plummeting prices for the steelmaking raw material.

Two small iron ore companies have shut mines in the past week, while Goldman Sachs says half the world’s so-called “tier two” miners – which includes Fortescue – are at risk of closure as mega miners boost supply.

Fortescue, the world’s fourth-largest iron ore producer but saddled with $9 billion in debt, has been under scrutiny since it pulled a $2.5 billion refinancing last month due to the high yield being sought.

In its third-quarter production report, the miner said it had improved its total delivered cost by 17 percent on the prior quarter, and was now targetting a breakeven price of $39 a tonne. This compares with a current price for delivery to China – Fortescue’s main market – of $49.70 a tonne, down about 60 percent from a year ago.

Fortescue also said its lower operating costs should allow it to keep its cash at or above $1.5 billion this quarter, reassuring investors who had feared the company was burning through its cash pile at current ore prices.

Nev Power, CEO of Fortescue Metals Group, commented:

The current state of the industry has been a disaster for everyone. It’s ripped the heart out of the industry. Absolutely there’s a Plan B, C, and D, and whatever the market price is, we’ll respond to that and make sure that we can maintain a positive cash margin.

Click here to read the full Reuters report.