Labrador Iron Mines halts operations on weak ore prices, high costs

Labrador Iron Mines halts operations on weak ore prices, high costs

Falling global iron ore prices and the need to cut costs have forced Labrador Iron Mines Holdings Ltd. (TSX:LIM) to halt operations at its mines for the year.

Reporting its results for the fiscal year ended March 31, the company said 2014 will have to be a "development year," with major efforts focus on its flagship Houston Mine, located near Schefferville in the western central part of the iron-rich Labrador Trough, one of the most prolific iron ore producing regions in the world.

The project, expected to start production in April 2015, is still subject to completion of financing and the negotiation of major contracts.

Desjardins Securities analyst Jackie Przybylowski said in a research note that the firm could start work on the Houston Mine this summer but it would have to raise $20-million to do so.

“We see a low probability that the company will raise the required funds in the next few years,” Przybylowski wrote.

Labrador Iron Mines halts operations on weak ore prices, high costs

Houston Mine location.

Labrador Iron said it is also looking to lower costs by renegotiating with major contractors and suppliers, and has already put in place savings initiatives in various areas including mining equipment rates, rail car leasing rates and corporate and administration costs.

Savings initiatives have already been put in place in several areas, including mining equipment rates, fuel procurement, aviation services, hydroelectric power, rail car leasing rates and corporate and administrative costs.

Even directors’ fees have been waived.

Hard sell

Iron ore mining in the Labrador Trough region of Canada has been a hard sell recently, but the Quebec government's commitment of up to $19.2 million ($Cdn 20 million) for a feasibility study on a new rail link that would connect mines in the area to ports, may be about to change that.

While the 1000-kilometre-long area —home to one of the world’s largest high-quality iron-ore deposits— seems attractive to miners, investors are understandably wary of the region right now.

There still are uncertainties in the market, such as current prices sinking close to two-year lows and the fact some miners have been either shelving projects in the region or having difficulties selling them.

Cliffs Natural Resources (NYSE:CLF) said mid-February that it was postponing an expansion of its Bloom Lake mine in the region, while Rio Tinto (LON:RIO) failed to find a buyer for its 59% stake in Iron Ore Company of Canada, or IOC.

Shares in Labrador Iron Mines were down almost 10% to 0.0950 at 12:05 pm ET.