* Fortescue to pay record dividend
* Signals higher FY18 payout
* Selling more iron ore outside China (Adds SYDNEY dateline, analyst quote, updates shares)
By James Regan
SYDNEY, Aug 21 (Reuters) - World number 4 iron ore miner Fortescue Metals Group said on Monday it will pay a record-high final dividend after more than doubling its annual profit, and plans to give more of its profits to shareholders in the future.
The Australian mining company also signaled it was diversifying outside its core Chinese market to sell iron ore to buyers in emerging Asian countries and Europe.
Shareholders welcomed the moves, pushing its shares up as much 6.7 percent to $5.87, not far off recent four-month highs.
“The dividend outlook is now for a big upgrade,” said Shaw and Partners analyst Peter O’Connor.
Iron ore has recovered on demand from China and is proving a cash cow for miners such as Fortescue with low enough production costs to ride out the commodity’s price volatility.
Fortescue said the higher prices and lower operating costs boosted net profit to $2.1 billion in the year to June 30 from $985 million the previous year, in line with a Thomson Reuters I/B/E/S forecast.
It declared a A$0.25 per share final dividend, taking its annual dividend to A$0.45 per share, a 52 per cent pay-out of net profit after tax, well above the company’s previous payout ratio of 30-40 percent.
For next year, the company said it would pay out between 50 and 80 percent of net profit in dividends, subject to market conditions.
Fortescue and other miners are under pressure to pay bigger dividends as their cash reserves rise amid improvements in prices of iron ore and other industrial commodities.
Larger rival Rio Tinto recently paid a record interim dividend after its underlying half-year profit more than doubled.
Fortescue has also been driving down costs to help offset steeper price discounts for its ore because of a lower iron content.
The discount on Fortescue’s ore against the 62 percent-grade benchmark widened to 23 percent in fiscal 2017 from 10-15 percent a year earlier. Power has estimated the discount will range between 20 to 25 per cent in the 2018 financial year.
The miner is targeting further cost cuts but plans to keep its iron ore shipments steady at around 170 million tonnes in 2017/18 to avoid flooding the market.
The cost structure puts Fortescue near or below the average costs of its bigger rivals Rio, Brazil’s Vale and BHP Billiton .
China is the number one market for seaborne-traded iron ore, importing around 1 billion tonnes a year, mainly from Australia and Brazil. Iron ore .IO62-CNO=MB was last quoted at $77.94 a tonne.
Reporting by James Regan; Additional reporting by Anusha Ravindranath in Bengaluru; Editing Richard Pullin