* Fortescue says knocks iron ore costs down to $39/t
* Shares jump 9 percent
* To hold at least $1.5 billion in cash this quarter (Adds quotes, details,)
By James Regan
SYDNEY, April 16 (Reuters) - Australia's Fortescue Metals Group Ltd signalled it is still operating in the black despite a plunge in iron ore prices after driving down costs, potentially easing pressure on the miner to quickly refinance its debt pile.
The attack on costs, which tooks its break-even cost for mining iron ore to $39 a tonne, sent the miner's stock up as much as 9 percent, although the shares have still halved over the past seven months.
Releasing its third-quarter production report, Fortescue also said the lower operating costs should allow it to keep its cash at or above $1.5 billion this quarter, reassuring investors who had feared the company was burning through its cash at current ore prices.
Iron ore for delivery to China - Fortescue's main market - currently stands at $49.70 a tonne, down about 60 percent from a year ago. .IO62-CNI=SI, sending shivers through a sector were many miners are increasingly operating at a loss.
Fortescue's cost-cutting was better than expected and would likely to force out short-sellers who have been targetting the stock as iron prices have slumped, two fund managers told Reuters.
But with Fortescue cutting costs as fast as bigger rivals Rio Tinto and BHP Billiton , the industry cost curve was being driven lower and flatter, which did not bode well for producers in an oversupplied market.
"This probably generates a short-covering rally in Fortescue, but it tells you where the industry's headed," said Paul Phillips, a partner at Perennial Investment Partners.
Fortescue said it had cut its average delivered cost - including shipping, royalty and administration expenditures - to $34 per wet metric tonne in the three months to end-March, down 17 percent on the prior quarter.
"Production costs continue to reduce through initiatives including ongoing mining efficiencies, productivity and consolidation of mining contractors," it said.
Fortescue, which is carrying $9 billion in debt, is facing tough choices to deal with the prolonged slump in iron ore prices.
Two iron ore companies have shut down mines in the past week due to low prices and analysts are predicting more will follow.
Citi this week forecast iron ore will average just $37 a tonne over the second half of calendar 2015, rising only to about $40 until 2019.
It blames a rising supply glut in the sea-traded market for ore brought on by over-production in Australia and overestimates of steel production growth in China. (Additional reporting by Sonali Paul and Swati Pandey; Editing by Richard Pullin)