Labrador Iron Mines: Canada’s newest iron-ore producer

Toronto-based Labrador Iron Mines (LIM-T) is first out of the gate to cash-in on Canada’s reinvigorated iron-ore hotspot in the Labrador Trough district. Labrador Iron is one of a handful of Canadian developers looking to market iron ore deposits in the region, and benefit from a US$220-million, deepwater-port upgrade the federal government has committed to build at the Port of Sept-Îles, Que.

Labrador Iron’s James iron ore mine kick-started its maiden season of full production in early April, as the company reported shipping 170,000 wet tonnes of direct shipping ore (DSO) grading 64% iron from the Port of Sept-Îles in mid-May. James holds indicated resources totalling 8.1 million tonnes grading 57.7% iron. The company reported a further stockpile of 230,000 wet tonnes of DSO grading 63% iron that remains at the port following the first shipment.

Labrador Iron entered into an agreement with the Iron Ore Company of Canada (IOCC) late last year that would allow it to ship and sell all of its 2012 production on the Chinese spot markets through IOCC infrastructure and sales contacts.

The IOCC is 58.7% owned by mining-giant Rio Tinto (RIO-N), with Japanese mega-company Mitsubishi Corporation holding 26.2% and Labrador Iron Ore Royalty (LIF.UN-T) claiming the remainder.

Preliminary production at James has been focused on waste removal from the mine’s historic pit to establish the ore release needed for ramp-up. James is operating at a 17,000-tonne-per-day throughput rate, with eventual full-scale production expected at 28,000 tonnes per day.

“On the operations front, mining at James is progressing well and is now complemented with the start-up of the Silver Yards plant,” comments president and chief operating officer Rod Cooper. “As railway operations are critical to our success, we are very encouraged by the improvements evident in railway efficiency.”

Labrador Iron had four train sets totalling 120 cars each in mid-May, nearly one month ahead of schedule.

The Silver Yards processing plant started-up production on May 17 with an initial throughput target of 8,000 tonnes per day.

The company’s phase-three expansion plans would see that number rise to 12,000 tonnes per day as new washing and screening plants. Upgraded magnetic-separation facilities are being brought online to streamline operations.

James is slated to produce 3 million tonnes of iron ore during 2012, with two shipments anticipated per month during the operational year. According to chairman and CEO John Kearney, the company is set to meet its guidance estimates.

“This has been an extremely positive start to 2012,” he comments. “We have executed on key milestones that will ensure a successful operating season. With the first shipment, we’re off to a great start to meet our production target.”

Labrador Iron holds 20 iron-ore deposits that belonged to the IOCC through the early 1980s, and surround Schefferville, Que., on the 1,000-km Labrador Trough. The company’s regional measured and indicated resource totals 39.6 million tonnes at 56.95% iron, not including a historic resource totalling 125 million tonnes at 56.8% iron.

Though the operation at James marks a major achievement for the company, Labrador Iron’s real gem will be developing its flagship Houston iron-ore project 16 km southeast of Schefferville.

Houston’s three orebodies hold indicated resources totalling 22 million tonnes grading 57% iron. Houston’s deposits carry a mine life that exceed 15 years, and have the potential to increase yearly production to 5 million tonnes by 2015.

Labrador Iron received environmental approval and project release for Houston’s first and second phases in late March. Approval is pending on its remaining permits. The company is targeting a construction start-up before September, including a haulage road and railway siding with pre-stripping scheduled to begin in the next six months.

Labrador Iron is being viewed as a trailblazer of sorts, as a number of other Canadian outfits aim to develop similar iron-ore projects around the Quebec-Labrador border.

New Millennium Iron (NML-T), along with Indian joint-venture partner Tata Steel, is aiming for first production at its Menihek DSO project by year-end, while Alderon Iron Ore (ADV-T, AXX-X) recently signed a joint-venture agreement with major Chinese steel player Hebei Iron & Steel in a bid to develop its regional Kami iron-ore discovery.

Labrador Iron is jumping into the market without a major international joint-venture partner, though British base-metal outfit Anglesey Mining owns a 26% stake in the company. Chairman and CEO John Kearney also holds chairman duties at Angelsey.

Labrador Iron has strong institutional backing with 40% share ownership held by major financial groups, and a US$70-million equity financing completed in late March that included 11.5 million shares at $5.30 apiece.

The company is debt free and has a fully diluted cash position of 69.9 million shares, with a presstime market capitalization of $187 million.

Share prices have taken a tumble to start the year, with valuations falling 31%, or $1.57 per share since the beginning of January. Labrador Iron is also well off its 52-week high of $13.36 per share with a presstime close of $3.49, though the company maintains a strong balance sheet.