BUSINESS

Labrador Iron Mines says it remains viable if higher ore prices are sustained

11/15/2012 08:23 EST | Updated 01/15/2013 05:12 EST
Labrador Iron Mines Holdings Ltd. said it can be a viable and profitable company if higher iron ore prices are sustained next year due to stronger demand from Chinese steelmakers.

The Toronto-based company endured a dramatic loss in the second quarter of its fiscal year after ore prices plummeted 33 per cent per cent amid slowing global economy and lower demand.

"The events of August and early September did take us by surprise and we were not budgeting to be experiencing an iron ore price of less than $90 (per tonne)," chairman and CEO John Kearney said Thursday during a conference call.

Labrador Iron Mines (TSX:LIM) lost $31.7 million or 47 cents per share in the quarter, more than triple the previous quarter's loss.

The company recognized $33 million of revenue during the July-September quarter, down from $38 million in the previous quarter.

Excluding $14.4 million in amortization, the loss was $17.4 million.

The weak results caused the company's share price to hit an all-time low, losing 15 cents or 19 per cent, to 64 cents in Thursday trading on the Toronto Stock Exchange.

The company responded by cutting spending, trimming production, delaying capital spending and obtaining an infusion of cash from a $30-million equity financing.

Iron ore prices rebounded in September to surpass the US$110 per tonne threshold it needs to restart operations next April. Analysts surveyed by the company expect prices will remain around US$120 per tonne reached by mid-November.

"At those numbers then this company is certainly viable and anything above $120 it's very, very profitable," Kearney told a concerned investor on the call.

"This company is very leveraged to the iron ore price and just as it hurt us on the way down, the opportunity is there that we will benefit from it significantly if the iron ore price returns to a medium level."

The company's share price increased 20-fold from March 2009 to January 2011 as iron ore prices increased from US$59 to US$192 per tonne over that period.

Labrador Iron's year-earlier results are less relevant since its James mine was still ramping up in the comparable period last year and had no revenue then.

LIM posted a $10.5 million loss from May-June this year, or 16 cents per share, and a $7 million loss or 13 cents per share in the July-September period in 2011.

It expects to make one last shipment for the 2012 operating season — the 10th — before shutting down for the winter by the end of November.

Kearney said the quarter has been one of stark contrasts with operational accomplishments and building its base for the future and the impact of the unexpected drop in ore prices.

The coming quarters are promising because Chinese iron ore imports in September exceeded 65 million tonnes, the highest month since February 2010.

Global steel demand is expected to increase by 4.5 per cent next year, in part due to massive Chinese infrastructure spending and the movement of millions of Chinese to the middle-class.

Meanwhile, LIM president and chief operating officer Rod Cooper said CN's (TSX:CNR) feasibility study on a new multi-user rail line to Labrador and rail terminal at the Port of Sept-Iles is proceeding as planned. He said the railway expects to have a final route selection completed in the next month and to submit environmental impact statement in February.