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Analyst Actions: Labrador Iron Mines Estimates Revised At Credit Suisse

Credit Suisse says: "$25mn equity deal helps, but much more needed; Revising Estimates."

It said: "Labrador Iron Mines has announced an equity raise targeting $25mn, the proceeds of which are intended for resuming operations in JunQ 2013. LIM.TO's last equity raise was for $30mn in October. Our calculations suggest that on an 'all-in' basis, LIM.TO needs $125-130/t iron ore (62% IODEX basis) in order to be cash flow break even, and $145-150/t in order to generate a reasonable return on capital investment."

"In late 2012 LIM.TO put all projects on hold due to insufficient funds and prevailing market conditions. We understand that the capital requirements to complete its expansion to 4mtpa and finish the upgrades required to the existing project would cost in the order of $200mn. On $120/t iron ore price scenario LIM.TO would be burning cash operationally, and need around $274mn in order to finish its expansion to 4mtpa. At $140/t iron ore, the requirement for new capital is estimated at around $187mn."

"Prolonging the inevitable? This deal might buy LIM.TO some time, but it is not sufficient to have a material impact on the cost structure and therefore profitability of the operation. We have updated some of our earlier analysis on 'all-in' costs, demonstrating how we bridge the gap between reported cash costs of around $65/t and the prevailing iron ore price. This report also includes a global margin curve chart, putting the business into context. Neither the Credit Suisse ($120/t in CY13) nor the consensus ($124/t) price deck is sufficient to make LIM.TO a profitable business. We continue to set our $1.00/sh target price using a 'salvage value' method. We are revising our FY13/14/15 EPS estimates to (C$0.75)/(C$0.63)/(C$1.15) from (C$0.77)/(C$0.68)/C$0.01 respectively."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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