Permitting delays Labrador Iron’s DSO operation

Vancouver – While still progressing towards a direct-shipping iron ore operation out of Labrador, some complications have crept up for Labrador Iron Mines Holdings (LIM-T).

The company is working to commission a multi-stage open-pit operation at its Schefferville project just over the border from Schefferville, Quebec. In March the company expected to start construction in April and to be shipping ore by August, but the company has yet to start major mine construction.

Labrador Iron has completed construction of a 4.5-km railway spur line that will be used to move the main components of the mine facilities. The majority of the processing and camp components had arrived when construction of the spur started, but the company was waiting for construction and operating permits to install them.

In late July the company finally received certificates of approval for the construction of its mine facilities, much later than it anticipated. Labrador Iron still, however, awaits operating permits for the mine and the railway spur line.

Another hurdle for the company is reaching an impact benefit agreement with the Innu community of Matimekush-Lac John (Schefferville). In early 2008 the company reached a memorandum of understanding with the community that, among other things, had Labrador Iron agreeing to use its best efforts to employ or contract with individuals and businesses of Matimekush.

This past April the two entered into negotiations with the help of a negotiator and legal advisor funded by the Federal Government to reach a final benefit agreement. The company proposed a package of jobs, contracts, social benefits, infrastructure grants and revenue sharing but the community rejected it and the Chief refused to negotiate further.

Then, the Innu Strategic Alliance, representing 12,000 Innu in five northeastern Quebec communities, set up a barrier blocking normal access from Schefferville, Quebec to the nearby mining properties in Labrador. The Alliance objects to mining development taking place without their consent and have expressed opposition to Labrador Iron Mines’ project because it believes its ancestral rights are not being recognized.

Labrador Iron has respected the barrier as it awaits permitting and continues to try and negotiate with the communities of Matimekush-Lac John and Uashat Mak Mani-Utenam (Sept-Iles). New Millennium Capital (NML-V), another direct shipping iron ore company, is also affected by the barrier.

Finally, Labrador Iron has yet to reach agreements for access to the 580-km of rail between the project and the deep-water port of Sept-Iles. Access is needed to the Tshiuetin railway, owned by three First Nations; the Quebec North Shore & Labrador Railway, owned by a subsidiary of Rio Tinto (RTP-N, RIO-L); and the Arnaud Railway, owned by a subsidiary of Cliffs Natural Resources (CLF-N).

Once negotiations and permits are in place, however, the company expects rather straightforward open-pit mining with room for expansion.

The company recently released a new resource estimate for the Houston deposit, one of three it plans to mine in the first phase of operations. Houston now hosts an estimate 14.68 million measured and indicated tonnes grading 59.3% Fe and a further 1.5 million inferred tonnes grading 57% Fe.

The total resource for the three deposits included in stage 1 now stands at 25.71 million measured and indicated tonnes grading 58.5% Fe. The company controls a further 17 iron ore deposits with direct shipping potential in the area, ranging from 2 to 65 km away from Schefferville.

The company still hopes to achieve some production before the seasonal shutdown in November and is targeting full-scale commercial production next April.

In late March the company closed a $35-million offering, including $30 million in common shares at $5.55 and $5 million in flow-through shares at $6.65 each. The company currently has 43.5 million shares outstanding.

Labrador Iron’s share price was as low as $1.36 last September before hitting a high of $7.65 In April. The company recently closed at $5 even, while Haywood Securities analyst Geordie Mark has put a price target of $10.20 on the company.