Oct. 12 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third-biggest iron ore producer, approved a A$360 million ($326 million) expansion of its Christmas Creek mine to increase total output to 55 million metric tons a year.

The expansion involves building a 50-kilometer (31-mile) railroad from the Cloudbreak mine and an ore processing plant at the site, the Perth-based company said today in a statement to the Australian stock exchange. The project will be “internally funded,” Fortescue said, without giving details.

Fortescue last month missed a $6 billion funding deadline with Chinese lenders as it sought financing for a larger expansion to more than double exports by 2012. The company is seeking to boost production to take advantage of increased demand and analyst forecasts for a rebound in prices for the steelmaking material from 2010.

The expansion of Christmas Creek returns Fortescue to an earlier plan to have the two mines operating concurrently. It should enable output to reach “an ultimate production level of 55 million tons to 60 million tons per annum,” Fortescue said.

Fortescue shares rose 2.4 percent to A$3.86 at 10:28 a.m. Sydney time on the exchange. Production in the September quarter rose 19 percent from the June quarter, operating at an annualized rate of 38 million metric tons, exceeding the company’s target by 9 percent.

Goldman Sachs JBWere Pty last week raised its forecast for a gain in annual contract prices for iron ore fines next year to $72 a metric ton, up from an earlier forecast of $66 a ton. Contract prices this year were set at about $61 a ton.

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net; Jesse Riseborough in Canberra at jriseborough@bloomberg.net

Last Updated: October 11, 2009 19:50 EDT