TORONTO (miningweekly.com) – Under pressure from spiralling iron-ore prices and a global supply glut, seasonal miner Labrador Iron Mines (LIM) on Thursday obtained an initial order from the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (CCAA) that would protect the firm from its creditors.

A reduced appetite for the steelmaking ingredient in China, combined with excess supply from the large Australian producers such as BP Billiton and Rio Tinto as they fought to maintain market share, brought on slumping iron-ore prices that had made life grim for small-scale producers.

In 2014, the price of iron-ore declined by nearly half to about $66/t by late December. The iron-ore price continued to slide this year, dropping to about $50/t by the end of March.

The iron-ore price collapse had also seen other Canadian producers throw in the towel, with Cliffs Natural Resources’ Canadian arm filing for creditor protection earlier this year after shuttering its Bloom Lake iron-ore mine, in Quebec.

LIM, which owns a portfolio of 20 direct shipping deposits located in the prolific iron-ore-rich Labrador Trough of Eastern Canada, said it sought a Court-supervised restructuring process to complete a financial restructuring in order to continue as a going concern and preserve the long-term value of its assets.

The company did not resume mining operations in the 2014 or 2015 operating seasons, owing to the deteriorating iron-ore market and as a result of its previous high operating costs.

LIM said it had a “very significant” working capital deficit and had not met certain financial obligations.

The CCAA proceedings were expected to provide the company with the time and stability to restructure its business, negotiate a restructuring plan with stakeholders, compromise creditor claims, restructure key operating contracts, secure new financing, and otherwise consider restructuring and refinancing options.

“LIM is confident that if its current debts and key operating contracts can be restructured, the company will be able to preserve its key assets, including the flagship Houston project, pending a recovery in the price of iron ore, and secure the necessary development financing to resume operations in a profitable and responsible fashion for the benefit of all stakeholders and local communities,” the company said.

It added that it continued to negotiate a potential support arrangement with RBRG Gerald Metals, an existing creditor and offtake customer, that, if successful, was expected to provide working capital financing on a debtor-in-possession basis to fund LIM's ongoing corporate and standby activities and, as a separate component, potential future project development financing.

In parallel, LIM also on Thursday announced that joint-venture partner Tata Steel Minerals Canada (TSMC) had acquired its remaining interest in the Howse project for $5-million. The sale proceeds would be used to fund ongoing operating and stand-by costs, care-and-maintenance expenses, and to finance the restructuring.