Permitting delays Labrador Iron’s DSO mine

VANCOUVER — While moving towards a direct-shipping iron ore (DSO) operation in Labrador, a few problems have surfaced for Labrador Iron Mines Holdings (LIM-T).

The company is working to commission a multi-stage open-pit mine at its Schefferville iron ore project, near Schefferville, Que. In March, the company expected to start building in April and to be shipping ore by August, but it has yet to start major mine construction.

Labrador Iron has completed building a 4.5-km railway spur line that will be used to move the main components of the mine facilities. Although, the majority of the processing and camp components have arrived, the company needs building and operating permits to install them.

In late July, it received certificates of approval for building 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, it 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.

In 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 access from Schefferville, to the nearby mining properties in Labrador. The group objects to mining development taking place without its consent and have expressed opposition to Labrador Iron Mines’ Schefferville project because it believes its ancestral rights are not being recognized.

Labrador Iron has respected the barrier as it awaits permits and continues to try and negotiate with the communities of Matimekush-Lac John and Uashat Mak Mani-Utenam (Sept-Îles, Que.). New Millennium Capital (NML-V), another DSO 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-Îles. 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.

It 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 of 59.3% iron and a further 1.5 million inferred tonnes of 57% iron.

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

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

In late March, Labrador Iron 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. It 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. It recently closed at $5 even, while Haywood Securities analyst Geordie Mark has a price target on the company of $10.20.