Through recent quarters there has been an awful lot of sceptical...

Through recent quarters there has been an awful lot of sceptical focus on Fortescue's claimed cost reduction and whether or not they are sustainable over the longer haul. That incredulity is sustained by the very obvious fact that Fortescue is spending an awful lot less revealing its ore iron than it has in the past.
To illustrate, through the June quarter Fortescue removed 41.4 million tonnes of over burden while it mined 42.1 million tonnes or iron ore. The iron ore mined was up 19 per cent on the previous quarter but the overburden removed was down by 38 per cent.

Through recent quarters there has been an awful lot of sceptical focus on Fortescue's claimed cost reduction and whether or not they are sustainable over the longer haul. That incredulity is sustained by the very obvious fact that Fortescue is spending an awful lot less revealing its ore iron than it has in the past.
To illustrate, through the June quarter Fortescue removed 41.4 million tonnes of over burden while it mined 42.1 million tonnes or iron ore. The iron ore mined was up 19 per cent on the previous quarter but the overburden removed was down by 38 per cent.

Further, just a year ago Fortescue removed 106.7 million tonnes of over burden while delivering 43.8 million tonnes of iron ore to its system. Year-on-year then, Fortescue's over burden task has dropped by 61 per cent while its total ore production rose by 33 per cent.  A year ago its over-burden to ore ratio stood at 2.41-to-1. It finished this financial year at 0.97-1.
Moving over burden is an unproductive and costly necessity of the mining business. Traditionally, one of the first indicators of a mine being high graded – which means being run with short term financial outcomes as the focus rather than long-term sustainability – has been a sudden drop in the overburden effort in concert with steady or growing ore output.
The least of the risks exposed by the Fortescue trend was that management was simply delaying a cost in the name of driving cash flows through this extend dip in iron ore's price cycle. Those backing this view began anticipating some level of cash flow crisis for Fortescue within say 18 months as the over burden effort ramped up again.
The worst case here, it was imagined, was that the numbers indicated a change of mine plans that could result in long term reserve and resource numbers being permanently recast, because richer or lower cost levels of deposits were being tapped ahead of schedule to confect a lower cost base.
This criticism obviously sat front of chief executive Nev Power's mind as he watched over drafts of this latest production report, because Power has worked to present a cogent defence of the sustainability of Fortescue's cost base.
The main point here appears to be that we have all underestimated the potential of Fortescue's fleet of five ore processing facilities to redraft the cost base of the business. The miner reports their effect has been transformations by allowing "ore to be blended and beneficiated, increasing the upgrade and allowing the progressive reduction in mining cut-off grades".
What this really means is that stuff Fortescue once could not mine is now a valuable resource. It can be added to the system without eroding average ore and its effect is to lower average production costs because it reduces the overburden commitment.

http://www.copyright link/business/...s-output-growth--and-its-rage-20150724-giis63