Shares of Fortescue Metals Group Limited (ASX: FMG) fell more than 3% to just $1.69 this morning after the miner released its June quarterly production report.
Fortescue, which is Australia's third-largest iron ore miner and the fourth largest in the world, said that it shipped 42.4 million tonnes (of which Fortescue's share was 41.3 million tonnes) of the commodity during the final quarter, a gain of 10% on the previous corresponding period, taking its total shipments for the year to 165.4 million tonnes.
That represents a lift of 33% compared to the 2014 financial year, whilst it also beat the group's previous estimate of 160 to 165 million tonnes. Over the coming year, Fortescue will continue to focus on cost improvements in an attempt to offset the impact of a crumbling iron ore price which is being caused by a slowdown in Chinese economic activity, together with a tidal wave of fresh supplies from the world's largest miners.
It said it expects to cut another US$1.4 billion of annual costs this year (after achieving US$1.6 billion in savings over the last two financial years). Total 'delivered' costs during the latest quarter were US$31 per wet metric tonne (wmt) while that improved to just US$28 per wmt in the month of June.
Meanwhile, it expects to 'breakeven' on its operations at a price of US$39 per dry metric tonne, assuming the Australian dollar remains at around US77 cents during the year.
Although rivals BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Brazil's Vale are all working towards increasing their production rates, Fortescue has confirmed it will target 165 million tonnes during 2015/16.
It said: "As previously flagged, Fortescue has completed all expansion capacity and has acted to maximise value by maintaining shipments at 165mtpa (million tonnes per annum) which has been the annualised run rate for the last 12 months."
Despite its ability to continue cutting costs; investors should continue to avoid Fortescue Metals Group's shares. Indeed, the miner has a mountain of long-term debt it could struggle to repay if iron ore prices continue to deteriorate – a scenario seen as likely.
Investors would be wise to focus their attention on other areas of the market where there are still plenty of bargain opportunities on offer.
