Shares of Fortescue Metals Group Limited (ASX: FMG) soared as much as 9% in early trade today on the back of the release of its March quarterly production statistics.
For the period ended 31 March 2015, Fortescue revealed its total ore shipped to customers jumped 28% year-over-year, to 40.4 million tonnes, while its total delivered costs averaged just $US34 per tonne.
That compares favourably with the expectations of many analysts who forecast significantly higher production costs.
Fortescue said its C1 cash costs fell 9% to $US25.9 per tonne, but forecast just $US18 per tonne for financial year 2016.
With a realised price of $US48 per tonne (Fortescue receives less than the benchmark 62% Platts index because its ore is lower grade) it was able to generate positive cash margins and increase cash on hand to $US1.8 billion at reporting date.
The iron ore price averaged $US55 per tonne during the period but yesterday it closed at $US50.33 per tonne. However analysts at Goldman Sachs are forecasting prices of $US44 and $US40 per tonne in 2016 and 2017, respectively.
![Fortescue Quarterly 2015 Breakeven]](https://f.foolcdn.com.au/files/2015/04/Fortescue-Quarterly-2015-Breakeven.png)
Source: Fortescue Metals Group March Quarter Production Release.
Fortescue CEO, Nev Power, said, "Fortescue has achieved another strong operational result underpinned by outstanding performance on costs with C1 guidance for FY16 now at US$18/wmt."
"Our relentless pursuit of sustainable cost reductions has ensured continued positive cash margins with closing cash increasing to US$1.8 billion, despite a volatile market impacted heavily by the threat of oversupply," Mr Power added.
The miner's debt however, remains a concern for investors. At 31 March 2015, it was in a net debt position of $US7.4 billion.
Should you buy Fortescue shares today?
Fortescue's result is impressive, given the market's low expectations. However the economic reality is that oversupply threatens the profit margins of all iron ore miners. The fall of Altas Iron Limited (ASX: AGO) should be fresh in the memory of investors.
Indeed iron ore giants, BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), already have lower costs than Fortescue and they are – along with Brazil's Vale – adding many more tonnes of ore into an already oversupplied market.
