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TABLE OF CONTENTS Aug 11 - 17, 2014 Volume 100 Number 26 - 0 comments

LIM remains in limbo

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Not much has happened at Labrador Iron Mines (TSX: LIM; US-OTC: LBRMF) since the company announced in June that it would suspend operations at its direct-shipping iron ore Schefferville projects in the Labrador Trough region, partly due to dipping iron-ore prices.

The Schefferville projects sit in the Menihek area in the provinces of Newfoundland and Labrador and Quebec, near the town of Schefferville, Que. The projects include the James mine and adjacent stage-one deposits and Silver Yards processing plant, the stage-two Houston property and the stage-three Howse property. The latter is a joint venture with Tata Steel Minerals Canada (TSMC), a subsidiary of Tata Steel Ltd.

LIM started commercial production at the James mine in June 2011 and wrapped up its third year of mining last November. Over that period, it sold 3.6 million dry tonnes of iron ore into the Chinese spot market.

The company’s operations are seasonal, running from April to  November, and remain closed from December to March each year.  

In late June, LIM revealed in its fiscal year results ended in March that it did not restart mining operations in April 2014, and had no immediate plans to do so given the weak iron-ore prices, among other factors. The spot price declined below US$90 per tonne that month — a 30% drop from a US$131-per-tonne average during the 2013 operating season.

Given the costs to extract the remaining resources at the James mine and other stage-one deposits were high, LIM plans to rein in costs and finish developing its Houston project.

The problem remains financing.

LIM ended March with negative $8.7 million in working capital. The deficit grew to $13 million by the end of June, where it reported a net loss of $4 million, or 3¢ per share.

In its latest management’s discussion and analysis, LIM noted it would need $42 million to finance development at Houston and cover its working capital deficit, and other corporate costs.

Depending on financing, LIM expects to complete construction of the Houston haulage road, site preparation and mine pre-stripping in 2014, with initial production targeted for April 2015.

Desjardins analyst Jackie Przybylowski cautions that this year’s construction season is halfway done, giving LIM little time to meet its production target at Houston.

The company is negotiating terms of its major contracts, and is on the hook to deliver 1.8 million tonnes this year under an offtake agreement with RBRG Trading. It is working to defer this until 2015.

The miner notes that its only ongoing capital project is the Silver Yards rail-siding expansion, funded by Tata Steel. The project will extend the rail line from Silver Yards to TSMC’s Timmins Area plant.

On the exploration front, LIM has resumed drilling on its jointly held Howse deposit, where it plans to complete 3,500 metres.

LIM is trading at 8¢ per share, with a $10.1-million market capitalization. It has a 52-week trading range of 6¢ to 58¢.

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