The expansion will take production at Christmas Creek to around a 15 million tonnes per annum by next year, and lift production from FMG’s Chichester hub to levels of around 55Mtpa by the end of the June quarter next year.

FMG mined 41.3Mt last financial year, up 33% from 31 Mt in 2008-09, and the company is on track to produce about 9.5 Mt this quarter, according to Pearce.

The company’s record $US581 million ($656 million) annual profit was based on increased production, as well as a 17% increase in ore prices, according to FMG.

Despite some talk in the market that demand for iron ore may be softening due to overproduction in global steel, Pearce said FMG was not seeing any sign of that, with demand from existing and potential customers still strong.

“We’re certainly seeing very good demand numbers at this point,” he said.

FMG said today its margin was “currently exceeding $60 per tonne”, with cash operating costs for the June quarter coming in at around $27.20 and rail and port costs of $5.05.

In July, FMG said it was looking at an average cost and freight shipping price of around $130 per dry metric tonne for the final quarter of 2010, and Pearce said today the company has seen no sign of deteriorating margins since the close of the last financial year.

“Since that announcement at the end of July prices have risen slightly or remained at those levels, so we’ve certainly not seen any deterioration of those margins,” he said.

While the company’s production lift to 55Mtpa is still on track there is still some uncertainty as to how the company will fund the expansion of the Chichester hub to 90Mtpa by 2014 and its Solomon Phase 1 project.

Feasibility reports for the Chichester and Solomon project will be reviewed by the FMG board in the next few months, according to the company.

While Pearce would pre-empt the decision of the board, given the ongoing uncertainty about the federal government’s proposed minerals resource rent tax, the company is still looking at its funding options.

"We're still working through the choices that we have both within existing debt structures and beyond that, and I'll be looking to make recommendations to the board later in the year," he said.

The company’s debt position blew out at the end of the financial year, after increasing prices and production forced the company to factor in increasing royalties payable on the $100 million loan note the company took with New York-based Leucadia National in 2006.

The repayment terms of that note will result in FMG paying a 4% royalty on sales from its Christmas Creek and Cloudbreak operations until 2019.

Falling sales and iron ore prices had dropped the carrying value of that note to $381.6 million at the end of the 2008-09 financial year, but recovery in the iron ore market saw the company lift that carrying value to around $826.2 million in the figures released today.

FMG was carrying $3.76 billion in liabilities at the end of the financial year, including $2.98 billion in borrowings and $772 million in trade and other payables.

FMG shares closed today up 3.7% to $4.50, having reached an intraday high of $4.58.