* Fortescue sees opportunites as debt goes down
* Better-than-expected attack on costs
* Sees debt to equity at 40 percent in 18 months
* Forecasts cash cost of $13/t by end June (Recasts, adds CFO quotes)
By James Regan and Sharon Klyne
SYDNEY, Feb 24 (Reuters) - Australia's Fortescue Metals Group reported a four percent fall in half-year profit as steep cost cuts largely offset a slump in iron ore prices, and flagged it will be on the lookout for acquisitions at a later date.
Fortescue, Australia's third-biggest producer behind Rio Tinto and BHP Billiton said on Wednesday its debt repayment schedule will allow it to look for distressed assets in about 18 months.
"As we generate cash flow from the business we will repay debt. That will put us in a position with a very strong balance sheet to take advantage of further opportunities in iron ore and across the broader sector," Chief Executive Nev Power said.
A severe downturn in commodities has already put BHP and Rio Tinto on watch for bargain acquisitions in a bid to take advantage of a severe slump in the commodities cycle.
Power said the company was not yet looking to make purchases. Anglo American is planning to raise $3 to $4 billion from disposals in 2016, which could include its Minas Rios and Kumba iron ore mines in Brazil and South Africa.
Fortescue posted a half-year net profit of $319 million, down from $331 million a year ago, but well ahead of losses reported by fellow Australian miners Atlas Iron and BC Iron.
Power said the company had cut its production costs by 47 percent from the prior year and forecast it would drop to $13 a tonne by the end of 2016.
The performance provided "a solid foundation for continued debt repayment and a modest increase in our dividend," Power said.
Fortescue's chief financial officer, Stephen Pearce, said the company "could easily continue to pay down debt" as it looked to reach a 40 percent debt-to-equity target from 44 percent now.
"It's probably an 18-month journey before we get there. Our strategy has been to earn the cash, accumulate it and then paydown the debt," Pearce said.
Fortescue has forecast a breakeven production cost of $28.80 a tonne, narrowing the gap to within a few dollars of its larger and lower cost rivals Rio Tinto and BHP.
Spot iron ore has jumped more than 17 percent so far in 2016 to around $50 a tonne .IO62-CNI=SI.
During the half, Fortescue said it repaid $1.1 billion of debt, reducing it to $6.1 billion. Fortescue's $2.3 billion high-yield bond due 2022 is yielding around 11.6 percent, reflecting its non-investment grade rating.
Iron ore markets have been hit hard by a rapid increase in supply from major producers at a time when growth has slowed in top consumer China.
Fortescue amassed some $9 billion in debt as it sought to build the company from a mid-sized iron ore miner to one competing with Rio Tinto and BHP.
Reporting by James Regan and Sharon Klyne of Basis Point; Editing by Richard Pullin