SYDNEY, June 15 (Reuters) - Australia’s Arrium Ltd on Monday forecast a sharp drop in future iron ore production as it fights to cut costs amid low prices and said it will take a further A$320 million ($247 million) impairment charge this year.
Like most small-sized iron ore miners, Arrium is reviewing its business in the low price environment, despite a modest recovery which analysts are warning could be short-lived.
In January, the company warned it would book A$1.3 billion in write-downs associated with shutting its higher-cost Southern Iron mining division.
Arrium tumbled 4.7 percent in early trading, outpacing more modest losses in the wider market.
Debt reduction continues to be a key priority for Arrium, which also manufactures steel, with the deterioration in iron ore prices adversely impacting cash flows and debt levels, according to Arrium Managing Director Andrew Roberts.
“We have made significant progress across the company to reduce costs, including work in mining to reduce our targeted fiscal year 2016 cash break-even iron ore price to $50 a tonne for the export business, with ongoing flexibility,” Andrews said.
Other small Australian miners, including Atlas Iron , BC Iron have already slashed costs and cut production, getting some relief from a weaker Australian dollar, which boost the price in local currency terms.
The larger Fortescue Metals Group in April refinanced $2.3 billion of its $9 billion in gross debt on a third attempt, but was forced to pay a higher yield amid investor concerns about the state of the iron ore market.
Arrium plans to slash capital spending by A$140 million over the next three years, resulting in lower sales of between 6-8 million tonnes between fiscal 2017 and 2019 versus 9-10 million in fiscal 2016, according to a company statement.
Arrium in April said its total cash cost per tonne of iron ore for the March quarter was $66.90, but the group’s average realised sales price was just $58 a tonne.
Since then iron ore prices have rebounded by 40 percent to just over $65 a tonne .IO62-CNI=SI.
A fall in stockpiles at China’s ports has fuelled the recovery from a low of $46.70 in April.
However, Goldman Sachs expects prices to slip again below $50 a tonne, favouring lower cost miners such as sector majors Vale, Rio Tinto and BHP Billiton .
$1 = 1.2958 Australian dollars Reporting by James Regan; Editing by Michael Perry