BHP's iron ore output is at a record high as it cuts the cost of producing a tonne to $20

Port Hedland

BHP has cut the cost of producing a tonne of iron ore to $US20 and lifted its iron ore production by 16% to a record 188 million tonnes for the first nine months of the financial year.

The world’s biggest miner says its full year iron ore output is now expected to be 250 million tonnes, another 62 million tonnes over three months.

Smaller miners such as pure iron ore player Fortescue Metals have accused bigger players such as BHP and Rio Tinto of flooding the market with ore, dragging down prices further at a time when China is cutting steel production.

Iron ore prices have fallen 25% in two months, and 60% over the last year, wiping out $74 billion from the market value of iron ore mining stocks since January 2014.

The cost per tonne is a key metric. Already, smaller miner Atlas Iron has mothballed its operations because the cost of digging up a tonne of ore was less than global prices.

Fortescue Metals says its break even price is $39 a tonne. Global prices are currently at $50.

At BHP, CEO Andrew Mackenzie says productivity improvements and lower costs are helping mitigate lower prices.

“In iron ore, our focus remains on producing at the lowest possible cost with Western Australia Iron Ore unit costs now below $US20 per tonne,” he said in BHP’s quarterly production report.

Mackenzie’s view of the market: iron ore is still delivering attractive margins and returns despite other big suppliers in the market.

Iron ore production for the 2015 financial year is now expected to be 230 million tonnes, 2% higher than previous guidance.

Overall production across BHP’s different mining operations increased by 9% for the nine months ended March with records for 10 operations and five commodities.

The company says it’s on track to deliver production growth of 16% over the two years to the end of the 2015 financial year.

BHP shares were trading down almost 2% today at $29.99.

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