Iron-ore company receives strategic investment
Canadian iron-ore company Labrador Iron Mines announced a $4-million strategic investment by NYSE-listed, integrated merchant banking company Scully Royalty.
The strategic investment consists of a $3-million equity component alongside a $1-million convertible credit facility. Scully Royalty has agreed to subscribe for 13 043 478 common shares of Labrador Iron Mines at a price of $0.23 a share, for gross proceeds of $3-million, thereby becoming a strategic shareholder holding about 7.4% of the company’s shares on closing.
In addition, through a subsidiary, Scully Royalty will provide an unsecured, convertible, $1-million credit line to Labrador Iron Mines, with a five-year term, at an interest rate of 6.8%, and convertible at $0.31 a share, among other standard terms and conditions.
Labrador Iron Mines, the operating subsidiary of the company, will establish Labrador Iron Mines Limited Partnership (LIMLP), which will hold and develop the Houston project. Labrador Iron Mines will be the general partner and project operator while a subsidiary of Scully Royalty will be the limited partner of LIMLP. Scully will have the first right to propose project debt financing for the development of the Houston project.
The Houston project refers to Labrador Iron Mines’ Stage 2 Houston deposits, which are located in Labrador, about 15 km from the James mine and Silver Yards processing plants.
The Houston project is planned to form the core of Labrador Iron Mines’ activities for the next decade. Along with the Malcolm deposit, considered to be its north-west extension, the Houston deposits are estimated to contain a National Instrument 43-101 resource of 40.6-million tonnes grading 57.6% iron. When in full production, the Houston-Malcolm deposits are expected to produce consistent saleable product of about 2.3-million tons a year, with an initial mine-life of eight to ten years.
In connection with the strategic investment, Scully Royalty will be granted certain rights, including the nomination of one director to the board, participation rights in any future financing to enable Scully Royalty to maintain its ownership interest, and various other reporting rights and covenants.
“We are delighted to welcome Scully as a strategic investor,” commented Labrador Iron Mines Chairman and CEO John F. Kearney.
“Scully’s strategic investment and partnership represent a significant milestone for Labrador Iron Mines and a strong endorsement of the company. Leveraging Scully’s extensive iron-ore mining experience and relationships in the Labrador Trough will be invaluable to our advancement of Houston.”
“We’re thrilled to partner with the team at Labrador Iron Mines and believe that this investment will enable significant progress towards bringing the Houston project to production,” adds Scully Royalty CEO Samuel Morrow.
The proceeds of the strategic investment will be used as working capital to advance the Houston project through a number of initiatives, expected to culminate in a preliminary feasibility study (PFS) next year.
These initiatives include negotiating an offtake agreement, with construction financing and product sale components; conducting metallurgical test work to refine product characterisation and specifications for marketing purposes; and advancing commercial negotiations with construction contractors, equipment vendors, and rail, port and logistics counterparties.
Completion of a PFS is considered an important step in arranging project financing for the Houston project.
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