Iron ore adds steel to BHP performance September quarter production report. Stronger than expected iron ore production, thanks in part to the earlier start-up of a new mine, helped lift BHP Billiton's quarterly output to a new peak, paving the way for an upgrade to the full-year forecast. Investors responded strongly to the news, pushing BHP shares ahead 85¢ or 2.5 per cent to close at $37.05. Buoying sentiment was the fact that the production gains come at a time of firm iron ore demand with prices holding above $US130 ($134) a tonne in the spot market, which is well clear of the lows of below $US90 a tonne touched in mid-2012. The lift in iron ore output came amid higher production in other key areas such as petroleum, coal and copper. In the petroleum division, higher oil output more than offset a decline in gas production. But it was iron ore that led the way, with September-quarter output surging 23 per cent year-on-year to 48.8 million tonnes, thanks to streamlining at mines in the Pilbara region of Western Australia along with initial output from the Jimblebar mine, where output is expected to reach 35 million tonnes annually within two years. and eventually 55 million tonnes. The strong September quarter output prompted BHP to raise to 212 million tonnes from 207 million tonnes its forecast for fiscal 2014 iron ore production and, longer term, it has flagged lifting output to 260-270 million tonnes a year. "BHP had a cracking quarter from its iron ore division," UBS told clients. The BHP mantra of sweating the assets is clear, particularly evident by success at Jimblebar, which came on line six months early. BHP restated it plans to cut by 25 per cent to $US16 billion its exploration and capital spending this financial year, forcing heightened internal competition for funds. "Our rate of expenditure will decline again next year," chief executive Andrew Mackenzie said on Tuesday. If our investment criteria cannot be met in any one project, product or geography, we will redirect our capital elsewhere or we will not invest. BHP's firm commitment to limiting spending will support its shares, analysts said. "Capital management is set to emerge as perhaps the most significant share price driver in an environment offering less macro support," Macquarie analyst Adrian Wood told clients. Chris Drew, an analyst in Sydney with Royal Bank of Canada, said: "You will continue to see these guys push out more iron ore. You've seen an upgrade to iron ore expectations for the year, which should support earnings. Along with moving to lift productivity at its suite of coalmines, amid the adverse effects of weak prices, the other point of interest was the petroleum division. In the US, BHP curtailed spending by cutting its rig count to 27 from 40 during the quarter, which will help to reduce outlays here from the $US1.3 billion incurred in the September quarter. Guidance for full-year US onshore drilling and development spending remains unchanged at $US3.9 billion.