UPDATE 1-Fortescue iron ore shipments surge in Sept qtr

* Fortescue beats production quidance in Sept qtr

* Keeps its word to sell discounted ore to China steel mills

* Releases output data early, amid finance talks (Adds funding context, details and background)

SYDNEY, Oct 12 - Fortescue Metals Group Ltd <FMG.AX>, Australia's third-largest iron ore miner, reported a near-20 percent jump in ore shipped in the September quarter as it looked to secure up to $6 billion in development finance.

Fortescue is looking for the funds to more than triple annual output to around 95 million tonnes. It has an in-principle agreement to borrow $5.5-$6 billion from Chinese investors but it missed a Sept 30 deadline to finalise the funding deal.

The firm said in its quarterly production report on Monday it was still honouring its commitment, under the proposed funding deal, to sell ore to Chinese steel-mills at a 3 percent discount to rival miners, Rio Tinto <RIO.AX> and BHP Billiton <BHP.AX>.

"During the quarter, Fortescue's sales to steel mills were at a price no less than the 'China Price' arrangement...," it said.

Fortescue brought forward the release of its quarterly report amid talk that the proposed Chinese funding might not eventuate, which would force it to turn to institutional investors to raise the money its needs to enter iron ore's big league.

Fortescue shipped 9.53 million tonnes of ore in the September quarter, up 19 percent from the June quarter. Production rose 16 percent between the two quarters to 10.3 million tonnes, ahead of its guidance, said the firm, which sells all its ore to China.

Fortescue also said it would spend A$360 million ($326 million) to fast-track development of its Christmas Creek mine and that it had cash on hand of US$704 million. (Reporting by Mark Bendeich; editing by Jonathan Standing and James Regan)