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UPDATE 2-Australia iron ore miner Fortescue drives down costs, says to keep jobs
October 15, 2015 / 6:23 AM / 2 years ago

UPDATE 2-Australia iron ore miner Fortescue drives down costs, says to keep jobs

* Iron ore miners have been hard hit by China slowdown

* Fortescue says iron ore cash costs to average 15/T by yr-end

* CEO rules out widespread job cuts

* Shares jump over 6 pct in afternoon trade (Adds CEO, analyst comment)

By James Regan

SYDNEY, Oct 15 (Reuters) - Australia’s Fortescue Metals Group is cutting mining costs more deeply than targetted, as the world’s fourth-biggest iron ore exporter grapples with plunging prices for the steelmaking ingredient.

But Fortescue ruled out widespread job cuts that have plagued Australian miners as slowing industrial growth in China hits demand for commodities.

Chief Executive Nev Power said on Thursday the company’s production cost should average around $15 per wet tonne of iron ore by year-end, compared to an $18 goal set in July.

Fortescue said in a report earlier in the day that costs averaged $16.90 in July-September, nearly half their level a year ago.

“It’s been their saviour,” said David Lennox, a mining analyst at Fat Prophets in Sydney.

“Had they been at the much higher costs they were running just a year ago, they would not be here.”

Fortescue shares closed up 6 percent at A$2.29, outpacing a gain of less than 1 percent in the broader Australian market .

Iron ore prices .IO62-CNI=SI plunged some 75 percent in the last four years as growth in China’s steel industry slowed, forcing miners to slash costs to survive.

Sector majors Rio Tinto and BHP Billiton have been on a drive to lower their iron ore production costs to close to $10 a tonne, while smaller Australian miner BC Iron has curbed its costs to $47 per tonne from $69.

Iron ore prices, standing around $54 per tonne on Thursday, will average $50 in 2016 and 2017, according to a median forecast of 17 analysts polled by Reuters late last month.

SAFE JOBS?

More than 25,000 jobs have been lost in Australian iron ore mines since 2012 as the country’s mining boom turned to bust, including about 100 cut by Fortescue this April.

Power said Fortescue would not be cutting more jobs.

“There are no major changes anticipated (in job numbers),” he said.

Power also repeated that he was open to partial asset sales, but gave no indication of an impending deal.

Fortescue’s debt of $6.6 billion remains a concern for investors amid rumours it was close to selling some assets or taking on new equity partners.

The company has been buying back its own debt below face value - $384 million worth at 80 cents on the dollar since July 1, according to Power

“If the market is going to price our debt at those levels, then we’re going to buy it,” he said.

Fortescue sold its ore at an average of $50 a tonne over the last quarter, or 91 percent of the 62-percent iron benchmark price, reflecting its lower grade.

Iron ore shipments were virtually flat at 41.9 million tonnes in the last quarter.

Reporting by James Regan in Sydney; Additional reporting by Sonali Paul in Melbourne; Editing by Joseph Radford

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