Fortescue faces load of production costs

IRON ore miner Fortescue Metals Group will struggle to achieve production costs below $US10 per wet metric tonne after hitting that ambitious target for one month last year, chief executive Elizabeth Gaines says.

Production costs averaged $US12.17/wmt in the June quarter and are forecast to reach as high as $US13/wmt next financial year.

“There are external factors, currency and fuel, and we are seeing some inflation in the Pilbara as well, so I think it’s challenging to get to single digits,” Ms Gaines said at the Diggers and Dealers mining conference in Kalgoorlie. “But we stay very focused on being the lowest cost producer.”

Labour and materials costs in the Pilbara are expected to rise even further in coming years as new iron ore mines including Rio Tinto’s Koodaideri project and BHP’s South Flank development are being built.

Ms Gaines was tight-lipped when quizzed about Fortescue reducing its interest in Atlas Iron from 19.9 per cent to 11.37 per cent on Monday.

A bidding war for Atlas erupted in June, with Fortescue and Gina Rinehart’s Hancock Prospecting scuppering a bid from Mineral Resources.

But Hancock took majority control last week after its $390 million offer won the target’s support.

Fortescue said in a statement it decided to keep a substantial stake in the lossmaking miner “for strategic reasons” and Ms Gaines barely elaborated at the mining forum, saying the interest was a “meaningful position”.