Thu, 17 Oct 02:25:00 GMT
(Corrects day in second paragraph)
SYDNEY, Oct 17 (Reuters) - Fortescue Metals Group , the world's fourth largest iron ore producer, posted a sharp rise in shipments in the September quarter as a $9 billion mine expansion programme nears completion and ore prices strengthened.
The company also said on Thursday it has used its strong cash flow to start paying off debt amassed to build the project, with net debt currently at $9.3 billion.
Fortescue has been the big winner from the recent unexpected strength in iron ore prices, with its share price almost doubling from a June low as its bold expansion plans drive down average production costs.
"Operationally they're doing very, very well," said Ric Ronge, a portfolio manager at Pengana Capital. "A confluence of things have worked in their favour and they've delivered (on their projects) and been able to perform well."
Despite persistent forecasts for a price fall due to greater supply and slower Chinese demand growth, benchmark 62-percent iron ore <.IO62-CNI=SI> sold for at least $130 a tonne for much of the September quarter.
Fortescue said its September quarter shipments of iron ore rose 61 percent to 25.9 million tonnes versus the year-ago period and 4 percent over the previous quarter.
It sold its iron ore for an average $121 per dry metric tonne, up from $113 in the June quarter.
Fortescue typically sells ore at a 12 percent discount to the benchmark due to its lower iron content.
Analysts had been forecasting a big drop in prices in the September quarter based on predictions China's steel producers would reduce purchases in order to draw down inventories.
UBS still sees iron ore falling as low as $70 a tonne before the end of the year but even so believes the drop will be short-lived, with a recovery in place before the start of 2014.
Fortescue said it issued a voluntary notice of redemption in late September to holders of $128 million redeemable preference shares.
"The redemption of the 9 percent Preference Shares removes Fortescue's most expensive piece of debt and represents the first step in the company's strategy to reduce debt," it said.
Shares in Fortescue, which rose sharply in recent days to touch an 17-month high, fell 3.3 percent to A$5.22.
(Reporting by Lincoln Feast and James Regan; Additional reporting by Sonali Paul; Editing by Richard Pullin)