The Fortescue Metals Group Limited (ASX: FMG) share price is on course to make four days of gains in a row.
In early trade the iron ore producer's shares are up over 2% to $5.41.
Why are its shares higher again?
As well as receiving a lift from yet another rise in the iron ore price overnight, this morning Fortescue released a positive fourth-quarter production update.
According to the release, Fortescue shipped 44.7 million tonnes of iron ore during the quarter.
This was a 3% increase on the prior corresponding period and a 13% increase quarter-on-quarter, bringing total shipments in FY 2017 to 170.4 million tonnes.
Perhaps most impressively, though, was the reduction in its production costs. Cash production costs were reduced to a record US$12.16 per wet metric tonne (wmt) during the quarter, down 15% from the same period last year.
This led to its full-year cash production costs falling 17% to US$12.82 per wmt.
Incredibly, management expects this to be reduced even further in FY 2018 and has provided cash production cost guidance of between US$11 and US$12 per wmt.
These low costs and improvements in iron ore prices meant the miner finished the quarter with a cash balance of $1.8 billion and gross debt of $4.5 billion.
Should you invest?
If you are confident that Chinese demand will result in iron ore prices remaining in or around the current level for the next 12 months, then I would suggest you snap up shares in Fortescue ahead of industry peers Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP), and Atlas Iron Limited (ASX: AGO).
After all, thanks to its costs continuing to reduce, if prices remain favourable Fortescue will continue to generate increasingly higher levels of free cash flow. This should put it in a great position to reward shareholders with a generous dividend in the future.
