April 29 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third-largest iron ore exporter, said third-quarter earnings slumped 66 percent as prices dropped and wet weather slowed production.

Earnings before interest and tax fell to $63 million in the three months ended March 31, from $183 million in the previous quarter, Perth-based Fortescue said today in a presentation to the Australian stock exchange. The company also cut its full- year sales forecast by 15 percent because of slower mining rates and lower-than-anticipated ore grades.

Fortescue, which started production last year, joins the world’s biggest producer Cia. Vale do Rio Doce in cutting prices as demand from steelmakers slumps because of the global recession. Heavy rain in the Pilbara region of Australia, where Fortescue’s operation is based, forced Rio Tinto Group, the second-largest producer, to say it may miss deliveries.

“The adverse operating conditions over the March quarter will impact on the full-year results as Fortescue will not be able to catch up lost production,” the company said in its quarterly report. “Fortescue has been working with its customers to accommodate the fluctuating trading conditions and price adjustments have been made at prices less than the benchmark.”

The stock fell 4.1 percent to A$2.32 at the 4:10 p.m. Sydney time close on the exchange.

Previous Quarter

Sales are expected to be 26 million metric tons in the year ending June 30, Fortescue said. Shipments fell to 6.17 million metric tons in the three months ended March 31, from 6.28 million tons in the previous quarter, it said.

Fortescue sold ore to customers on long-term contracts at discounted rates because of a decline in the Chinese steel industry, the company said in the report. It was sold at between $60 and $70 a ton in the quarter, it said, compared with the benchmark price of about $92 a ton.

BHP Billiton Ltd., the world’s largest mining company, this month said it sold 28 percent of its iron ore output at cheaper spot rates after customers deferred deliveries ahead of a forecast decline in contract prices.

Chinese steelmakers including Maanshan Iron & Steel Co. are pushing for the first contract price cut in seven years and are delaying purchases. Prices may drop 40 percent, according to Goldman Sachs JBWere Pty.

Fortescue is cutting costs by A$400 million ($286 million) this year, Chief Financial Officer Michael Minosora told reporters on a conference call. It had $242 million in cash and security deposits at March 31, down 32 percent from the end of December, the company said in the presentation. The company is “fully” compliant with its debt obligations, he said.

Fortescue completed the sale of 260 million shares to China’s Hunan Valin Iron & Steel Group for A$645 million, the company said in a separate statement.

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

Last Updated: April 29, 2009 02:56 EDT