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FORTESCUE Metals Group's efforts to rein in its $US12.1 billion ($13.06bn) debt position have received a boost, with the falling Australian dollar, cooling mining services costs and the fruits of its latest expansion helping to improve the miner's performance.
The strengthened financial position detailed in Fortescue's latest quarterly report enhances the ability of chief executive Nev Power to stick to his pledge to sell a minority stake in the company's Pilbara rail and port infrastructure only if "full value" can be realised for the asset.
But the company has been urged to stay the course on the sale, with Fortescue's high gearing levels continuing to deter some from investing in the stock.
The Andrew Forrest-led Fortescue announced yesterday that it had shipped 25 million tonnes of iron ore during the three months to June 30, a 24 per cent improvement on the March quarter.
Production costs for the period also improved, dropping 17 per cent to $US36.01 a tonne due to increased output and lower strip ratios from its new mines, the recent pullback in the dollar and what Fortescue described as "cost savings initiatives".
While the June quarter output and costs were in line with guidance, Fortescue trimmed its forecast production costs for the new financial year to $US36-$US38 per tonne, down from its previous guidance of $US38-$US40 a tonne.
The quarter saw Fortescue boost its cash position by $US700 million to $US2.2bn.
Mr Power said the improving operational performance had not changed the company's attitude towards the proposed sale of a minority interest in its port and rail subsidiary, The Pilbara Infrastructure.
Fortescue, which recently extended the sales process to the end of September, has long maintained that it will only go ahead with a sale if it can realise full value for the stake.
Mr Power said the company did not need to sell a stake in TPI.
"We've seen strong demand (for iron ore), we're achieving our expansion projects on schedule and on cost, and that's been reflected now in the increasing cashflows and reducing net debt," he said.
"We're in a very strong position, and we're in a position where we can look at (the proposed sale) from a perspective of de-gearing more rapidly and bringing that forward."
Citi analyst Clarke Wilkins told The Australian that the current iron ore price and improving operational performance had reduced the chance of a short-term liquidity squeeze forcing Fortescue into a sale.
But he said sales -- of either TPI or non-core assets such as villages, airports and power stations -- were needed to bring down the gearing level to more palatable levels in the near term.
"There's still a certain number of investors that won't buy Fortescue because of the gearing, and the only way to change that is to reduce the gearing," Mr Wilkins said. "That's the critical thing."
Separately, Mr Power took a veiled swipe at Brockman Mining, the iron ore junior trying to use state legislation to find its way on to Fortescue's rail network.
Mr Power said the company was continuing to talk to a number of companies interested in accessing Fortescue's infrastructure, but warned that those parties would need to "pay their way".
Mr Power said he expected iron ore to continue trading between $US110 and $US130 a tonne, with increased output from Fortescue, BHP Billiton and Rio Tinto likely to knock out higher-priced Chinese iron ore production.
Shares in Fortescue Metals closed down 6c to $3.62 yesterday.
This article first appeared on www.theaustralian.com.au