* Expects to reach 155 mln tonnes a year by mid-2013
* Cost hikes due to need for more workers, design changes
* June quarter shipments beat company forecast
* Expects to produce 89 mln tonnes in 2012/13 (Adds details)
By Sonali Paul
MELBOURNE, July 17 (Reuters) - Fortescue Metals Group Ltd said on Tuesday costs to nearly triple its iron ore production capacity have climbed by 7 percent to $9 billion, but the Australian miner remains on track to reach its target rate by mid-2013.
The cost overruns are the latest to hit an Australian resource development, with A$260 billion ($266 billion) worth of advanced mining and energy projects all competing for workers, equipment and funding.
"Fortescue is maintaining its target to be at a run rate of 155 million tonnes per annum by July 2013 with an absolute focus to ensure the ramp up of the Solomon infrastructure is completed successfully," the company said in its quarterly production report, referring to its one of its key expansion projects in Western Australia's Pilbara.
The cost hikes stem from cyclone recovery expenses, design and scope changes on parts of the project and the need for more workers and housing as it looked to speed up its development.
Fortescue said it was in talks to line up additional funding to cover the $600 million increase.
Australia's no.3 iron ore producer behind Rio Tinto and BHP Billiton reported a 42 percent rise in June quarter iron ore shipments to 17.1 million tonnes from the previous quarter, to achieve annual shipments of 55.8 million tonnes, just beating its own forecast.
Rio Tinto reports its June production data later on Tuesday, while BHP is due to post on Wednesday.
Fortescue said it expects to produce 89 million tonnes, on a 100 percent basis, in the year to June 2013.
Production in the June quarter rose 41 percent to 19.2 million tonnes, but it said it expected output in the September quarter to be lower due to maintenance work in July.
Total direct costs fell to $46.04 per tonne in the June quarter from $52.56 tonne in the March quarter due to a higher rate of production, but that was above its own forecast for costs to drop to between $45-50 per tonne.
Iron ore producers have been hit by a slowdown in Chinese demand growth, which has sent iron ore prices about 25 percent lower from a year ago and rattled investors, knocking Fortescue's shares down 28 percent over that time.
Spot iron ore prices .IO62-CNI=SI, at $130 a tonne currently, are hovering around the level that the major producers see as a floor price in line with the cost of production at Chinese mines.
Fortescue's shares initially rose after it released its production report but gave up gains to dip 0.2 percent to A$4.63, lagging a 0.5 percent rise in the broader market .
($1 = 0.9770 Australian dollars)