Fortescue Metals Group Limited share price rises on quarterly update: Time to buy?

The Fortescue Metals Group Limited (ASX:FMG) share price is heading higher for a fourth day in a row. Is it time to buy?

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The Fortescue Metals Group Limited (ASX: FMG) share price is on course to make four days of gains in a row.

In early trade the iron ore producer's shares are up over 2% to $5.41.

Why are its shares higher again?

As well as receiving a lift from yet another rise in the iron ore price overnight, this morning Fortescue released a positive fourth-quarter production update.

According to the release, Fortescue shipped 44.7 million tonnes of iron ore during the quarter.

This was a 3% increase on the prior corresponding period and a 13% increase quarter-on-quarter, bringing total shipments in FY 2017 to 170.4 million tonnes.

Perhaps most impressively, though, was the reduction in its production costs. Cash production costs were reduced to a record US$12.16 per wet metric tonne (wmt) during the quarter, down 15% from the same period last year.

This led to its full-year cash production costs falling 17% to US$12.82 per wmt.

Incredibly, management expects this to be reduced even further in FY 2018 and has provided cash production cost guidance of between US$11 and US$12 per wmt.

These low costs and improvements in iron ore prices meant the miner finished the quarter with a cash balance of $1.8 billion and gross debt of $4.5 billion.

Should you invest?

If you are confident that Chinese demand will result in iron ore prices remaining in or around the current level for the next 12 months, then I would suggest you snap up shares in Fortescue ahead of industry peers Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP), and Atlas Iron Limited (ASX: AGO).

After all, thanks to its costs continuing to reduce, if prices remain favourable Fortescue will continue to generate increasingly higher levels of free cash flow. This should put it in a great position to reward shareholders with a generous dividend in the future.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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