Mining and Heavy Industries

Fortescue continues aggressive cost cutting, insources Solomon power

Two fortescue locos - Photo FMG

Pilbara miner Fortescue cut cash production costs to just US$12.16 per wet metric tonne in in the June quarter, a 15% improvement year-on-year.

FMG went to market on July 27 with its July quarter results.

The miner reported 53.5 million tonnes of ore mined, up 12% year-on-year, and 44.7 million tonnes of ore shipped, up 3%.

The C1 cost cutting was a particular focus of the announcement, with guidance for FY18 targeting a further reduction of C1 costs below $12 per wet metric tonne.

Fortescue boss Nev Power said the results demonstrated the company’s “excellent performance” in safety, production, and operating cost improvements.

“In FY17, we delivered on our targets by shipping 170.4mt of iron ore, improving our C1 cost by 17% to US$12.82/wmt and generating strong cash margins during a period of volatility in the iron ore price,” Power said.

“Leading into FY18, we are well positioned to continue our focus on productivity and efficiency initiatives to improve costs, to invest in the long term sustainability of our core iron ore business and maintain production levels.

“Capital management, further strengthening the balance sheet and generating shareholder returns remain our key priorities.”

Fortescue also said on August 1 a new power station built by Canada’s TransAlta corporation at South Hedland had “not yet satisfied the requisite performance criteria under Fortescue’s contract”.

As a result, Fortescue will buy back the Solomon Power Station, which it sold to TransAlta in 2012. Solomon is a gas fired power station providing Fortescue’s Solomon Mining Hub operation.

Fortescue will send $348 million in cash to TransAlta in November.

“The insourcing of the Solomon Power Station maintains Fortescue’s focus on its key objectives of improving productivity and efficiency to reduce operating costs, repaying debt and maximising shareholder returns,” Power said.

“It also provides opportunities for Fortescue to improve operational synergies at Solomon and across Fortescue’s other mining operations.”

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