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Fortescue to keep lid on costs amid sales

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SYDNEY, Jan 24 AAP

January 24 2013, 6:01PM

Fortescue Metals Group believes it can keep a lid on costs as it continues to offload assets and ramp up its expansion plans.

Despite a recent recovery in the iron ore price, the heavily indebted iron ore miner's margins have come under pressure at current production rates.

But Fortescue maintains it's on target to produce 155 million tonnes of iron ore by the end of 2013, despite work on a fifth shipping berth commencing at the end of the year.

It also revived hopes of producing up to 355 million tonnes by 2017 and said it is considering selling a stake in its rail and port infrastructure assets to billionaire Gina Rinehart's Roy Hill Holdings.

"Fundamentally we are very much focused on 155 (million tonnes) and with the balance sheet and the funding that we have that will remain our core focus until we bring those assets into production and that will enable us to generate the cash flows and income to start paying down debt," Fortescue chief executive Nev Power told reporters on Thursday.

The debt retirement program would continue until the company's gearing ratio reaches about 30 to 40 per cent.

"In parallel to that we're looking at the partial sale of core assets and non-core assets and that will allow us to pay down debt quicker," he said.

"That would then allow us to bring forward our resource portfolio."

Mr Power also announced plans to shortlist potential buyers of a stake in its infrastructure assets, The Pilbara Infrastructure, within four to five weeks.

It comes after the company sold a stake in its Nullagine joint venture to BC Iron.

"Whether it's Roy Hill or the other companies we are more than happy to talk to them about opportunities for us to provide them a rail haulage and potentially a port service," Mr Power said.

Billionaire Gina Rinehart's company Hancock Prospecting owns about 70 per cent of Roy Hill Holdings.

The company lifted its shipments in the second quarter of the financial year and said its break even point at current production levels was about $US85 to $US90 per tonne, including cash costs shipping and taxes.

Fortescue said the average iron ore price for the 2013 financial year to date was just above $US100 per tonne.

Fortescue posted a 22 per cent quarterly increase in iron ore shipments in the December quarter due to increased production from its processing facility at Christmas Creek and early mining activity at the Firetail deposit in its Solomon project.

Costs rose to $US50.48 in the second quarter of the financial year, up from $US49.44 in the first quarter.

Morningstar Morningstar Resource Mathew Hodge said the company made a lot of money when the iron ore price was between $US120-$130 per tonne, but it struggled when prices were below $US100 per tonne.

"The key for them will be bringing on this new production and getting their overall costs down," Mr Hodge said.

"The long-term outlook is for the iron ore price to come down from the level that it's at."

Morningstar's long-term outlook for the iron ore price is $US90 per tonne amid weaker steel growth in China and growing supply, while Fortescue's medium-term view is for a price of $US120 per tonne.

Fortescue shares closed three cents lower at $4.63.

By Kim Christian