Fortescue Metals Group has signalled stronger dividend payouts as a rebound in iron ore prices helps it reduce debt to a manageable level.
The world's fourth-biggest iron ore exporter prioritised debt reduction over the past few years, as a slump in iron ore prices put it in a precarious financial position.
Prices have recently rebounded more than 80 per cent following improved steel demand in China, which has allowed the miner to align its cost structure with larger rivals and use extra cashflow to reduce its massive debt burden.
In the last 18 months, Fortescue has slashed gross debt to less than half of the 2013 peak of $US13 billion, and brought down gross gearing to 36 per cent.
After reporting another strong quarter of shipments and cost cuts on Tuesday, chief executive Nev Power said shareholders could be in line for better returns.
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"We need to continue diverting most of our cash flow to repaying debt. But we will progressively look to increase returns to shareholders," he told reporters.
The company declared a 12 cents per share final dividend in August, exceeding analyst expectations. It will declare its next interim dividend on February 22.
Fortescue shipped 42.2 million tonnes of iron ore in the three months to December 31, almost identical to the same period a year earlier, and putting it on track to achieve its full year guidance.
It also trimmed cash production costs to $US12.54 per wet metric tonne - its 12th straight quarter of cost cuts - and repaid a further $US1 billion ($A1.3 billion) in debt.
"It's been a very strong operating performance for the quarter. We are enjoying the high prices and generating cash flow," Mr Power said.
Iron ore prices currently trade at nearly $US84 a tonne, up from a decade low of $US38 a tonne in late 2015.
The company said it held $US1.2 billion in cash at the end of December, while net debt stood at $US4 billion.
RBC Capital Markets analyst Paul Hissey said the miner's cost reductions had clearly beaten expectations.
"Price realisation above the upper end of guidance was also pleasing and no doubt contributed to better cash flow which has facilitated further debt repayments," he said in a note.
Fortescue shares gained 18 cents, or 2.8 per cent, to $6.66 in a weaker share market.
