By Sonali Paul
MELBOURNE (Reuters) - Fortescue Metals Group Ltd
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 metric tons (1 ton = 1.1023 metric tons) 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
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 metric tons, on a 100 percent basis, in the year to June 2013.
Production in the June quarter rose 41 percent to 19.2 million metric tons, 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 metric tons in the June quarter from $52.56 metric tons 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 metric tons.
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 metric tons 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 <.AXJO>.
(Reporting by Sonali Paul; Editing by Ed Davies)