April 13, 2016 / 1:02 AM / 2 years ago

UPDATE 1-Australia's Fortescue says could exceed iron ore output target

* Fortescue sees flat Q3 iron ore shipments

* Says weather to determine final FY16 output

* Costs drop by 6 percent (Adds CEO comment, detail)

By James Regan

SYDNEY, April 13 (Reuters) - Australia’s Fortescue Metals Group shipped a flat 42 million tonnes of iron ore in the March quarter, putting it on track to exceed its annual production target, while lowering cash costs by 6 percent from the previous quarter.

Chief Executive Nev Power said that marked the ninth consecutive quarterly fall in costs for the world’s No.4 producer of the steelmaking raw ingredient, reducing average cash costs between Jan. 1 and March 31 to $14.79 per tonne.

“Our team has continued to innovate and deliver sustainable cost improvements generating strong cash margins,” Power said in a statement on Wednesday.

Large-scale producers such as Fortescue have been battling to curb costs amid volatility in indexed prices, which have left some smaller miners operating at a loss.

Spot iron ore .IO62-CNI=SI. stood at $58.50 a tonne on Wednesday after starting the year at $43.10 a tonne. But it is still way below prices nearing $200 a tonne seen a few years ago, as a slowdown in China’s economy saps growth in steel demand.

“Cash balances have increased by $200 million during the quarter, lowering net debt to $5.9 billion and positioning us for further debt repayment,” Power said.

Fortescue said shipments were running ahead of its annual 165 million-tonne target due to unseasonally mild weather at its mines in west Australia.

But any upside to full-year guidance remains subject to the impact of weather during the current quarter, the company said.

Fortescue maintained guidance for a fiscal 2016 average cash cost of $15 a tonne, largely in line with bigger Australian producers Rio Tinto and BHP Billiton .

Rio Tinto and BHP are also expected to show strong quarterly production when details are released later this month, owing to the mild weather.

Fortescue sold its ore for an average $45.94 a tonne over the March quarter, representing 95 percent of the Platts benchmark price after adjustments, according to the company.

Fortescue stock was up 4 percent at 1221 GMT, similar to Rio and BHP.

Reporting by James Regan; Editing by Joseph Radford

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