"At a time of uncertainty in investment markets regarding the outlook for iron ore, this decision will be seen as a defining point in the history of the mining industry in Quebec," said Champion Iron chairman Michael O'Keeffe.
Iron ore prices have slumped to two-year lows, prompting miners to delay projects.
Analyst Jackie Przybylowski of Desjardins Capital Markets doesn't believe there is as much demand for a multi-user rail line as the industry thought in the past couple of years.
"Although a feasibility study is a good start, it certainly doesn't guarantee that a rail line is going to get built," she said.
The Quebec government committed in Wednesday's budget up to $20 million towards a feasibility study on the construction of a railway line connecting the iron ore deposits with the Port of Sept-Iles.
Funding for the study will be conducted with private partners.
The new government said developing the mining potential of the region is a "cornerstone" of its relaunched Northern Quebec economic development plan.
The study will estimate costs and determine the best railway option, including increasing capacity on existing lines and the building a new one.
Canadian National Railway (TSX:CNR) put its own feasibility study on ice more than a year ago due to delays in mining projects because of low iron ore prices.
The country's largest railway had been working with several mining companies and the Caisse de depot pension fund on a study into a transportation line and terminal handling facility, which analysts had estimated could cost $5 billion.
Spokesman Mark Hallman said that while CN's project remains on hold, it is "available to co-operate" with the government.
The Labrador Trough is among the world's largest iron ore deposits, with annual production of some 50 million tonnes.
Global miners including Arcelor Mittal and Rio Tinto have assets in the region.
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