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Labrador Iron Mines Reports Second Quarter Results

Labrador Iron Mines Reports Second Quarter Results 
Notice: Conference Call and Webcast held today at 11:00 am ET.
Dial-in: +1-416-641-6104 or +1-866-696-5894. 
TORONTO, ONTARIO -- (Marketwire) -- 11/15/12 -- Labrador Iron Mines
Holdings Limited ("LIM" or the "Company") (TSX:LIM) today reported
its operating and financial results for the quarter ended September
30, 2012.  
Highlights  


 
--  LIM demonstrated its mine-to-port operational ability to produce, rail
    and sell up to 250,000 tonnes of iron ore product per month from its
    James mine since commencing the 2012 operating season. 
--  LIM mined approximately 962,000 tonnes of ore at a grade of 60.8% iron
    ("Fe") for the three months ended September 30, 2012, which represents a
    40% increase quarter-over-quarter. 
--  LIM railed approximately 706,000 tonnes of ore to the Port of Sept-Iles
    during the quarter. In October, LIM surpassed a major milestone, having
    railed over two million tonnes to the Port of Sept-Iles since commencing
    mining operations in June 2011. 
--  LIM sold four shipments of iron ore totalling 648,000 dry tonnes
    (approx. 700,000 wet tonnes) and reported revenue of $33.0 million (free
    on board ("FOB") Port of Sept-Iles) during the quarter. 
--  LIM responded quickly to challenging market conditions and the sharp
    decline in iron ore spot prices in August 2012, focusing on cost
    reduction and cash conservation measures. 
--  LIM enhanced long-term rail and port access for its iron ore, securing 5
    million tonnes of ship loading capacity at the new multi-user dock at
    the Port of Sept-Iles and participating with CN Rail on a feasibility
    study for the potential development of a new multi-user rail line and
    terminal handling facility at the Port of Sept-Iles to serve iron ore
    companies in the Labrador Trough. 
--  LIM completed most of the fieldwork of a successful 2012 exploration
    season with approximately 13,500 metres ("m") of diamond and reverse
    circulation (RC) drilling forecast to be completed, a 35% increase over
    the planned 10,000 m. 

 
Rod Cooper, President and COO of Labrador Iron Mines, stated: "LIM's
operations generated strong results quarter-over-quarter, as
performance in the mine, processing facility and rai
l all ramped up
towards the height of the 2012 operating season. Complementing this
has been LIM's mine-to-port solution, with the demonstrated ability
to produce, rail, ship and sell our iron ore product. However,
operational achievements in the period were overshadowed by
challenging market conditions and, in particular, a precipitous
decline in spot iron ore prices in August. Our operating team has
demonstrated professional discipline and done a commendable job in
responding to these conditions, which necessitated rapid execution of
revised strategies and action plans to reduce costs, conserve cash
and optimize production for the remainder of the 2012 season." 
Responding to Challenging Market Conditions and Outlook for 2012 
Iron ore spot prices and transaction volumes suffered a sharp decline
in August 2012, with spot prices dropping 33% during the quarter to
below US$90 per tonne on a 62% Fe CFR China basis. As previously
announced, LIM undertook a critical review of its operating and
capital spending for the balance of 2012 and implemented the
following immediate and decisive measures: 


 
--  A focus on cost reduction and cash management to prudently manage the
    Company's cash resources; 
--  Utilization of the new dry classifying system to produce sinter and lump
    ore only; 
--  All non-committed capital expenditures, mainly relating to the Silver
    Yards wet processing plant and development of the Houston deposits, were
    deferred into 2013; 
--  The 2012 exploration program was reduced to $5.3 million. 
--  Subsequent to quarter end, a $30 million equity financing was
    successfully completed in November. 

 
"Challenging global economic conditions and, specifically, a reduced
demand by Chinese steel producers were the main backdrop during a
quarter overshadowed by a sharp and unexpected drop in iron ore
prices," commented John Kearney, LIM's Chairman and CEO. "In ensuring
we 'stay the course', we made prudent decisions to defer capital
expenditures and scale back production to complete the season in a
sustainable position."  
"Despite these challenging market conditions, we successfully
completed the sale of nine shipments thus far in 2012 and anticipate
one more shipment of lump ore before the end of November. By the end
of the 2012 operating season, LIM will have sold ten shipments
totalling 1.7 million wet tonnes (1.6 million dry tonnes) of iron
ore, quadrupling the total tonnes sold in all of 2011."  
"As we wrap up our 2012 operating season, we have demonstrated that
we can mine, transport and sell our iron ore. Furthermore, with the
rebound in spot iron ore prices since mid-September, we remain
confident that prices will be sustainable above US$110 per tonne (62%
Fe) on a CFR China basis in the short to medium term and we remain
optimistic about the fundamentals for long-term iron ore demand in
China." 
Results of Operations 
James Mine  
During the quarter ended September 30, 2012, approximately 962,000
tonnes of ore at a grade of 60.8% Fe were mined, representing over a
40% increase in tonnes mined quarter-over-quarter. For the six months
ended September 30, 2012, approximately 1.6 million tonnes of ore at
a grade of 61.5% Fe were mined. In the months of June through August,
the James mine consistently achieved its planned operating rate of
28,000 tonnes per day (ore and waste), prior to the
previously-announced scale-back in planned production for the
remainder of the season. 
Silver Yards  
The ore in the James deposits continues to be soft high grade and
lends itself to simple processing. To enhance productivity and reduce
costs, beginning in late August and continuing for the remainder of
2012, LIM is utilizing its newly-added dry classifying system
exclusively to produce lump and sinter products.  
The Phase 3 wet plant expansion was largely complete at the end of
August, with the remaining items being the installation of electrical
equipment and instrumentation work. Completion and commissioning is
now planned for the 2013 operating season. The expansion is intended
to increase plant throughput to 12,000 tonnes per day and improve
weight recovery to above 75%. 
Rail and Port  
For the three months ended September 30, approximately 706,000 tonnes
of iron ore were railed to the Port of Sept-Iles, bringing the total
for the six months ended September 30 to over 1.2 million tonnes.
Monthly rail volumes have increased almost threefold from the
beginning of the operating season.  
During the quarter, LIM announced its participation in the
development of the new multi-user deep water dock at the Port of
Sept-Iles, which will be dedicated exclusively to iron ore shipments.
Under the terms of the agreement with the Port Authority, LIM has
secured an annual capacity of 5 million tonnes of iron ore with a
right to secure additional residual capacity. The Port expects that
construction of the new berth will to be completed by March 31, 2014. 
Also during the quarter, LIM announced its collaboration with CN on a
feasibility study to develop a new, continuous multi-user rail line
to serve iron ore companies in the Labrador Trough. The CN
feasibility study is also evaluating the development of a new
terminal handling facility located 
at the Port of Sept-Iles, which
would complement the planned development of the new multi-user dock
at the Port. 
Sales  
During the second quarter, LIM completed the sale of four cape-size
shipments (two shipments of direct rail ore (DRO) and two shipments
of sinter) totalling 648,000 dry tonnes, which were sold at a
weighted average actual realized price (i.e. CFR China spot price
less value-in-use discounts) of approximately US$96 per tonne on a
CFR China basis. For these four shipments, LIM recognized net
proceeds of $33.0 million on a FOB Sept-Iles basis after netting
shipping costs and IOC's participation, which includes product
handling, ship loading and sales costs from the CFR China actual
realized price.  
As a result of the steep decline in iron ore prices in August 2012,
LIM's three cargo shipments sold during that month were at net prices
(FOB Port of Sept-Iles) below the Company's cash operating costs per
tonne of product sold.  
Subsequent to the end of the quarter, LIM completed the sale of two
additional cape-size shipments of sinter ore for a total of nine
shipments so far in 2012. LIM anticipates its tenth shipment,
scheduled for arrival at the port on November 18, to be a cape-size
vessel of approximately 100,000 tonnes of lump ore. LIM will continue
to report proceeds from its aggregate sales of iron ore on a
quarterly basis. 
Value-in-use adjustments 
The actual realized price for a shipment of LIM's iron ore is based
on the prevailing spot price in China at the time the cargo is
priced, adjusted for 'value-in-use' adjustments based on the cargo's
specifications. The typical market referenced in connection with
sales of LIM's iron ore products is the Platts 62% Fe CFR China
Index, which tracks daily pricing for cargos on a CFR China price per
dry tonne basis, of granular product based on a standard size and
content of iron, moisture, manganese, silica, alumina, phosphorus and
sulphur. To the extent a shipment's cargo deviates from these
specifications, a value-in-use adjustment to the prevailing
normalized spot price may apply.  
So far in 2012, the Company has experienced value-in-use adjustments
(i.e. discounts) for its DRO cargos related mainly to the mixed-size
nature of this product, which requires further crushing and screening
by the purchaser before being used in the steelmaking process.
Subsequent to the two DRO shipments sold in the second quarter, LIM
discontinued the sale of its DRO product.  
The value-in-use adjustments for LIM's sinter ore shipments were
related to the silica content of the cargos, which was slightly
higher than the standard specification of 4.5% silica. LIM expects
the silica level to be lower in the future when Phase 3 of the wet
processing plant is fully commissioned.  
Production and Cash Operating Costs  
During the quarter ended September 30, 2012, cash operating costs,
including mining, processing, rail and transportation and site
administration expenses, were approximately $70 per tonne of product
sold (unloaded at the Port). Included in this amount was a charge
equal to approximately $7 per tonne of product sold during the
quarter, representing the full season's wet processing plant
commissioning costs being charged to the second quarter. This charge
was taken because the Company winterized its wet processing plant in
August 2012 and is utilizing its dry screening process for the
remainder of the 2012 operating season. Excluding the above charge,
cash operating costs during the second quarter were approximately $63
per tonne.  
Cash operating costs per tonne of product sold for the 2012 season is
expected to be $70 per tonne, unloaded at the port, including
non-recurring charges. LIM's operating results for the three and six
months ended September 30, are outlined in the following table:  


 
----------------------------------------------------------------------------
     Production for the Quarter and Six Months ended September 30, 2012     
----------------------------------------------------------------------------
(all tonnes are Dry Metric       Quarter ended          Six Months ended    
 Tonnes)                       September 30, 2012      September 30, 2012   
----------------------------------------------------------------------------
                               Tonnes    Grade % Fe    Tonnes    Grade % Fe 
----------------------------------------------------------------------------
Total Ore Mined                961,737      60.8      1,629,930     61.5    
----------------------------------------------------------------------------
  Direct Rail Ore portion      569,789      62.4      1,053,233     62.5    
----------------------------------------------------------------------------
Waste Mined                   1,533,211       -       2,902,609       -     
----------------------------------------------------------------------------
Ore Processed                  643,715      58.2       771,178      57.8    
----------------------------------------------------------------------------
  Lump Ore Produced            62,884       60.5       80,612       60.4    
----------------------------------------------------------------------------
  Sinter Fines Produced        508,773      61.1       543,484      61.4    
----------------------------------------------------------------------------
Total Product Railed           706,495      62.2      1,238,824     62.4    
----------------------------------------------------------------------------
Tonnes Product Sold            647,643      62.3      1,134,149     62.7    
----------------------------------------------------------------------------
Port Product ending                                                         
 inventory                     282,344      62.1       282,344      62.1    
----------------------------------------------------------------------------
Site Product ending                                                         
 inventory                     89,917       60.2       89,917       60.2    
----------------------------------------------------------------------------
ROM Ore ending inventory       432,143      56.2       432,143      56.2    
----------------------------------------------------------------------------

 
Houston Development  
Ongoing drill programs and hydrological and metallurgical testing of
the Houston deposits continued in 2012 in order to generate the
technical information required for detailed mine planning. As
previously announced, all major capital expenditure programs relating
to the development of Houston have been deferred. LIM is continuing
to process applications for permits and regulatory approvals required
for the construction of mine infrastructure and related facilities to
enable the development and construction at the Houston deposits.  
Commencement of full construction activities for the first, dry
process phase of the Houston Project is now planned for 2013, subject
to market conditions, the availability of financing and the receipt
of the remaining permits, with initial production of Houston ore
targeted for 2014. Infrastructure costs for the first phase of the
Houston project are estimated to be approximately $37 million, with
an additional approximately $20 million of mine development costs now
planned for 2014. Planning is well advanced for the second,
 wet
process phase of the project. LIM plans to evaluate various potential
credit facilities and/or strategic partnerships or off-take
arrangements to fund these Houston development expenditures. 
2012 Exploration Program  
As of the end of September 2012, approximately 9,400 m of RC and core
diamond drilling had been completed in the 2012 exploration program.
The 2012 exploration budget was reduced to $5.3 million from the $8.6
million originally budgeted. Although exploration spending has been
reduced, the overall 2012 exploration program is expected to achieve
approximately 13,500 m of drilling (from the planned 10,000 m) as a
result of cost efficiencies and improved productivity.  
The drill programs have focused on Houston, Malcolm, James North, the
James South extension and historic stockpiles near Silver Yards. As
at the end of September, 5,600 m of RC drilling had been completed at
Houston, Malcolm and the historic stockpiles and 3,300 m of diamond
drilling had been completed at Houston and the James South extension.
The main purpose of this drilling is to generate further technical
information for more detailed mine planning of these deposits. The
Company had also completed 500 m of diamond drilling at the James
North deposit for geotechnical purposes.  
In addition to this drilling, a bulk sampling program of some of the
historic stockpiles has been initiated with a view to providing
supplemental plant feed to the Silver Yards processing plant. The
final drilling program being carried out this season involves
approximately 1,500 m of diamond drilling on the Elizabeth Lake
taconite target intended to evaluate the potential of this type of
iron-bearing formation. 
Iron Ore Market Conditions  
Iron ore spot prices suffered a sharp decline in August 2012,
dropping 33% from June 30, 2012 to below US$90 per tonne on a 62% Fe
CFR China basis in early September. The sharp decline below US$110,
which lasted from August 15 to September 18, was unexpected and was
variously reported as being due to a number of factors that included
de-stocking of plant inventories by Chinese steel mills, partly due
to tighter credit conditions, and traders withdrawing from the spot
market, coupled with historically high port inventories. The Platts
Index averaged US$113 for the quarter ended September 30, 2012.  
Despite recent volatility, LIM believes the underlying fundamentals
of the iron ore market have not changed. The most important use of
iron ore is as a primary input in steel production. Global steel
production in the first nine months of calendar 2012 remained strong
and in line with the same period in 2011. Global crude steel demand
is expected to increase by 4.5% in 2013 according to the World Steel
Association. The Company believes that the plant destocking by
Chinese steel producers cannot continue indefinitely as Chinese steel
prices stabilize and buyers return to the market.  
Recent announcements by the Chinese Government of stimulus spending
will support continued growth in demand for steel and iron ore in
China. China's National Development and Reform Commission is reported
to have approved new infrastructure projects, including highways,
subways and airports and other public works, totalling between 800
billion and one trillion Yuan over the next several years.  
The Company's expectation, which is consistent with consensus
research opinions, is that a recovery in iron ore prices is likely
due to the re-stocking by Chinese steel mills, traders moving back
into the iron ore spot market as well as economic stimulus programs
from China, Europe and the U.S. Towards the end of September 2012,
spot prices had recovered to approximately US$110 per tonne on a 62%
Fe CFR China basis, as market sentiment shifted in the Chinese market
in response to announced stimulus programs and to ongoing depletion
in inventories at the steel makers' facilities. Subsequent to
September 2012, spot prices have continued to improve, and by early
November have reached approximately US$120 per tonne on a 62% Fe CFR
China basis. 
Company Outlook  
LIM undertook decisive action in September 2012 in response to the
drop in spot iron ore prices. LIM believes that the cost reductions
in current operations, combined with the scale-back in production,
the deferral of capital expenditures and the completion of a $30
million equity financing in November 2012 will ensure the Company
completes the 2012 season in a sustainable position to resume
operations in 2013.  
By the end of November, LIM will have completed its mining
operations, winding down its processing and rail operations. The
Company expects to complete its shipping season with a tenth shipment
in November.  
Resumption of mining operations in April 2013 for the 2013 operating
season will depend on a number of inter-related factors, including
the Company being reasonably confident that the forecast iron ore
spot price will continue at levels of US$110 per tonne (62% Fe) or
higher on a CFR China basis at least for the 2013 operating season.
LIM is currently targeting approximately 2 million tonnes of iron ore
production in 2013.  
Second Quarter Financial Review 
During the fiscal second quarter ended September 30, 2012, LIM sold
four shipments totalling 648,000 dry tonnes of iron ore and
recognized revenue of $33.0 million (FOB Port of Sept-Iles) from the
sale of these shipments. Revenue for the second quarter was
negatively impacted by a decline of 33% in the spot price of iron ore
(on a CFR China basis, before value-in-use adjustments and before
ocean freight and IOC allocation) during the quarter due to a number
of factors in the seaborne iron ore market that included de-stocking
of plant inventories by Chinese steel mills, traders withdrawing from
the spot market and historically high port inventories in China.  
For the quarter ended September 30, 2012, the Company reported a loss
of $31.7 million, or $0.47 per share, which included a depletion and
depreciation charge of $14.4 million or $0.21 per share. The
depreciation and depletion figure represents a period charge,
primarily on a units-of-production basis, of the cost of the James
mine (including capitalized stripping and dewatering), Silver Yards
processing plant, transportation equipment, and infrastructure and
site administration properties associated with the operations of the
James mine operations.  
During the quarter, LIM invested approximately $5.8 million in
property, plant and equipment, compared to approximately $25.7
million invested during the same quarter of the previous year. The
$5.8 million invested during the second quarter consisted mainly of
investments in Phase 3 of the Silver Yards processing plant, grid
connection infrastructure and expansion of the mine accommodation
camp.  
During the second quarter, LIM advanced approximately $15.4 million
in various payments for its rail and port facilities outlined as
follows: $2.5 million to the Tshiuetin (TSH) Railway as a
non-repayable contribution to its capital upgrade program; $5 million
to the Quebec North Shore and Labrador (QNS&L) Railway as an
installment towards its advance payments required to secure
locomotive and infrastructure capacity; a preliminary installment of
$6.4 million to the Port of Sept-Iles to secure ship loading capacity
of 5 million tonnes per year in the new multi-user deep water dock;
and, $1.5 million to CN to participate in a feasibility study
evaluating the development of a new, continuous multi-user railway in
the Labrador Trough and a new terminal handling facility located at
the Port of Sept-Iles.  
At September 30, 2012, LIM had current assets of $58.2 million,
including inventories with a carrying value of $21.4 million and
accounts receivable and prepaid expenses of $34.5 million. At
September 30, 2012, the Company had a total of $915,000 in
unrestricted cash and cash equivalents. Current liabilities,
consisting of accounts payable and accrued liabilities, the premium
liability recognized on the issuance of f
low-through shares and the
current portion of finance lease obligations and rehabilitation
provision, were in aggregate $60.9 million at September 30, 2012. The
Company had a working capital deficiency of $2.6 million as at
September 30, 2012. Subsequent to quarter end, LIM completed an
equity financing for gross proceeds of $30 million. 
This press release should be read in conjunction with LIM's
Management's Discussion and Analysis (MD&A) and unaudited financial
statements for the second quarter ended September 30, 2012, available
on the company's website at www.labradorironmines.ca, under the
"Financials" section, or on SEDAR (www.sedar.com).  
Beginning with the first quarter of fiscal 2013 (April 1, 2012),
proceeds from LIM's iron ore sales have been recognized as revenue in
the Company's Statement of Operations and Comprehensive Income.  
All references to 'years' in this press release are 'calendar years',
unless otherwise indicated. All dollar amounts are stated in Canadian
dollars, unless otherwise noted.  
Conference Call and Webcast: Second Quarter Results  
Members of the senior management team will host a conference call and
webcast today at 11:00 am (ET). You may participate in our conference
call by calling 416-641-6104 (local and international) or
1-866-696-5894 (Canada and US toll-free). To ensure your
participation, please call five minutes prior to the scheduled start
of the call. 
A live audio webcast will be available on LIM's homepage at
www.labradorironmines.ca and archived for 180 days.  
For those who are unable to participate in the live conference call,
a replay will be available until the end of day on November 29, 2012
by calling 905-694-9451 (local and international) or 1-800-408-3053
(Canada and US toll-free) and entering the passcode 757 52 11#. 
About Labrador Iron Mines Holdings Limited (LIM)  
Labrador Iron Mines (LIM) is Canada's newest iron ore producer with a
portfolio of direct shipping (DSO) iron ore operations and projects
located in the prolific Labrador Trough. Initial production commenced
at the James Mine in June 2011, with the sale of 386,000 dry tonnes
of iron ore recorded in the first start-up year. The first full
production season commenced in April 2012, with nine cape-size
shipments totalling approximately 1,456,000 dry tonnes of iron ore
sold in the seven months ended October 31, 2012.  
The James Mine is connected by a direct rail link to the Port of
Sept-Iles, Quebec. The project also benefits from established
infrastructure including the town, airport hydro power and railway
service. Starting with the James Mine and leading to the development
of the expanding Houston flagship project, our objective is to
provide shareholders with long-term value with a plan to increase
production towards 5 million tonnes per year from a portfolio of 20
iron ore deposits in Labrador and Quebec, all within 50 kilometres of
the town of Schefferville.  
LIM is currently the only independently-owned Canadian iron ore
producer listed on the Toronto Stock Exchange and trades under the
symbol LIM.  
Cautionary Statements: 
Some of the statements contained herein may be forward-looking
statements which involve known and unknown risks and uncertainties.
Without limitation, statements regarding potential mineralization and
resources, exploration results, and future plans and objectives of
the Company are forward looking statements that involve various
degrees of risk. The following are important factors that could cause
the Company's actual results to differ materially from those
expressed or implied by such forward looking statements: changes in
the world wide price of iron ore and steel, general market
conditions, the uncertainty of future profitability and access to
additional capital, risks inherent in mineral exploration and risks
associated with development, construction and mining operations,
delays in obtaining or failures to reach agreements with any
potentially impacted aboriginal groups or to obtain required
governmental, environmental or other project approvals. There can be
no assurance that the Company will be successful in reaching any
agreement with any First Nations groups who may assert aboriginal
rights or may have a claim which affects the Company's properties or
may be impacted by the Schefferville Area project. Caution should be
exercised on placing undue reliance on forward looking information.
Contacts:
Labrador Iron Mines Holdings Limited
Keren Yun, Vice President
Investor Relations & Communications
(647) 725-0795
www.labradorironmines.ca
 
 
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