TORONTO (miningweekly.com) – Canadian iron-ore producer Labrador Iron Mines (LIM) on Tuesday announced a new two-year sales agreement with mining giant Rio Tinto’s Iron Ore Company of Canada (IOC) for the ore it produces in Western Labrador.

LIM also entered into an offtake financing agreement with trading house RB Metalloyd (RBM), under which LIM would receive an advance payment of $35-million to be credited against future sales of a minimum of 3.5-million tonnes of iron-ore during this year and 2014.

LIM is now in its third year of ore production from its Schefferville operations and is targeting 2013 production of 1.75-million to 2-million tonnes of sinter fines and lump. The first Cape-size shipment of the year was scheduled for loading by the end of May.

Over the past two years, LIM had sold 13 Cape-size shipments of iron-ore to IOC, for a total of about two-million tonnes, all of which was resold to China, with the price calculated based on the daily China spot price, subject to varying selling discounts, and where the sale of LIM's iron-ore experienced unpredictable variations based on prevailing market conditions.

Under LIM's new sales agreement, IOC would pay for the iron-ore progressively, as the ore is resold, with the price calculation based on the monthly average of the market index, which should decrease LIM's exposure to market volatility experienced in the past two years.

IOC payments would later be reconciled based on IOC's net actual aggregate resale price, adjusted for any product quality specification premiums or penalties, after ocean freight and IOC's price participation.

Under the terms of the financing agreement with RBM, the trading house had advanced a prepayment of $35-million to LIM, which would be repaid over a period of two years, credited against the proceeds of LIM's sales of iron-ore shipments between July and December 2014.

RBM has entered into an iron-ore offtake agreement with IOC under which RBM has agreed to buy the LIM iron-ore on an free-on-board Sept-Îles basis.

"This advance payment financing of $35-million from RBM provides LIM with important working capital and increased liquidity and will enable us to ramp up our 2013 production of iron-ore and complete our planned capital investment and improvements on our Silver Yards processing plants," CEO John Kearney said.

LIM’s Toronto-listed stock rose by 6.90% on Tuesday to close at C$0.62 apiece.