London Mining Plc warned it did not have sufficient cash to operate its mines without raising more funds and said it was in detailed talks for a potential strategic investment.
Shares in the company plunged 43 percent to a record low of 14 pence. The stock, which traded above 400 pence per share in 2011, was the biggest percentage loser on the London Stock Exchange at 0730 GMT on Monday.
The iron ore miner said lenders were considering providing more finance but there was no certainty that such an arrangement could be put in place.
The talks with the potential investor for funding mine expansion will involve significant equity dilution, the company said.
The investment is expected to require a number of weeks to implement.
The announcement comes a week after London Mining said it could consider ending an iron ore supply contract with Glencore Plc after a dispute over payment.
“Further pain for London Mining, coming not long after a dispute with Glencore regarding a cash pre-payment for off-take,” analysts at Numis Securities wrote in a note.
Like other small iron ore miners, London Mining is battling record low prices for the steelmaking raw material in the face of stagnant demand from the world’s top consumer, China, and oversupply from bigger companies.
The Anglo-Australian pair of Rio Tinto Plc and BHP Billiton Plc, as well as Brazil’s Vale, have flooded the market with their low-cost iron ore and are virtually snuffing out high-cost producers.
London Mining has so far trimmed its full-year iron ore production forecast, deferred a $175 million extension plan for its Marampa mine in Sierra Leone by two years, and put off $20 million of non-essential capital expenditure because of weak prices. (Reporting by Karen Rebelo in Bangalore; Editing by Sunil Nair and Feroze Jamal)