TORONTO (miningweekly.com) – Canadian miner Labrador Iron Mines (LIM) on Friday said it is encouraged by a rebound in iron-ore prices as it is preparing to restart operations from its James mine, in Quebec.

The company believes a number of factors were working in the company’s favour in the short term, with a surge in demand from China auguring well for the company’s exports.

“In planning for our 2013 operating season, we are encouraged by the recent strong recovery in iron-ore prices to above $150/t,” CEO John Kearney said in a statement.

Iron-ore spot prices suffered a sharp decline in August 2012, dropping 33% from June 30, 2012, to below $90/t in early September, on a 62% iron-content cost-and-freight (CFR) China basis, as a result of a number of factors that included historically high port inventories, destocking of plant inventories by Chinese steel mills and traders withdrawing from the spot market.

However, iron-ore spot prices have rebounded since September, especially in December, and reached a high of about $159/t early in January. The current spot price for iron-ore is above $150/t on a 62% iron CFR China basis and had risen by more than 70% since the September market low.

LIM said the strong recovery in Chinese iron-ore spot prices was mainly driven by China's harshest winter in nearly three decades, which had significantly reduced iron-ore production in China, resulting in a significant increase in Chinese demand for seaborne iron-ore.

China, which is the world's biggest iron-ore importer, imported a record 70.94-million tons in December, nearly two-million tons above the previous record, according to Administration of Customs of the People's Republic of China.

LIM also said many of the new iron-ore projects and production expansions previously planned by major companies were experiencing increased costs and delays, and many have been deferred, which was expected to reduce the long-term growth of iron-ore supply.

LIM had previously stated that resumption of mining operations in April for the 2013 operating season would depend on a number of inter-related factors, including the company being reasonably confident that the forecast world iron-ore prices would continue at levels of $110 or higher on a CFR China basis at least for the April to November operating season.

The company said it would focus on LIM's Stage 1 deposits when operations resumed, which include the James mine and five smaller satellite deposits and some historical stockpiles located within a 15 km radius of the James mine and the Silver Yards processing plants.

LIM is targeting about 1.7-million to 2-million wet tons of saleable iron-ore at cash operating costs of about $65/t to $70/t of product sold, unloaded at the Port of Sept-Îles.

2012 RESULTS

During the quarter, LIM sold three shipments of iron-ore totalling 425 500 dry tons and reported revenue of $24.7-million free on board (FOB) Port of Sept-Îles. On the ten ships sold during the 2012 operating season FOB Port of Sept-Îles, LIM reported revenue of $95.8-million.

LIM mined 423 000 t of ore and waste at an average strip ratio of 1.1:1 before the end of the operating season in November, representing a 34% reduction in strip ratio when compared with previous quarters. This brought the year-to-date ore and waste mined to approximately five-million tons.

For the 2012 operating season, LIM met its sales target of 1.7-million wet tons of iron-ore, representing four times as much in sales over the 2011 operating season.

During the quarter cash operating costs, including mining, processing, rail and transportation and site administration expenses, were approximately $77/t of product sold.

"In successfully completing our first full season of production in 2012, we achieved many operational objectives, highlighted by strong operational performance, the installation of a new dry process system at Silver Yards, increased rail volumes to the port and the sale of ten shipments of LIM's iron-ore.

“Over the winter months, we have been hard at work in anticipation of resuming operations in the spring. We plan to leverage the operational experience gained over the past two seasons, combined with strengthened working relationships with key stakeholders, to achieve greater efficiencies and opportunities in the upcoming operating season,” COO Rod Cooper said.

In resuming its operations in the spring, LIM said it would incur regular operating, mining and transportation expenses for the months of April and May, before receiving payment from its first sale of iron-ore. As a result, LIM would require working capital of about $40-million to fund various operating and restart expenses ($30-million) and certain planned capital expenditures ($10-million), including the commissioning of Silver Yards Phase 3 and its connection to grid power.

EXPLORATION

LIM said it had completed its largest exploration programme during December, with more than 14 000 m of diamond and reverse circulation drilling completed.

This year, the company is on track to complete updated National Instrument (NI) 43-101 mineral resource estimates for two of its significant deposits by March 31. These comprise the James deposit, including the James South extension and the Houston deposits.

LIM is also on track to complete initial NI 43-101 mineral resource estimates on the Malcolm deposit (near Houston) and the historic crushed stockpiles in both Québec and Labrador by March 31. A first inferred mineral resource estimate on the Elizabeth Lake taconite is also expected later in the spring.

The company's TSX-listed stock closed down 5% at 76 Canadian cents apiece.