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By Julie Gordon

TORONTO (Reuters) - "Strike while the iron is hot," the old saying goes, and a legion of iron ore miners setting up in Canada's remote Labrador Trough want to do just that. But, for now, they have to wait.

Iron ore, the main component of steel, has turned ice cold in recent months, with the benchmark price <.IO62-CNI=SI> plunging to $86.70 a tonne in September from $149.40 in April. It has since recovered to about $116 a tonne.

The downward spiral has jeopardized the viability of the sub-Arctic region's vast iron ore deposits just as the first new mines in decades were opening. Some projects are being put on hold.

As a consequence, shares of junior miners such as Alderon Iron Ore Corp (Toronto:ADV.TO - News), Champion Iron Mines Ltd (Toronto:CHM.TO - News) and Century Iron Mines Corp (Toronto:FER.TO - News), have tumbled as projects that looked rich at $150 a tonne suddenly lost their luster.

Still, analysts say the region's potential remains compelling. They caution, though, that investors must look closely at the contenders to judge which are best placed to ride out the bad times and prosper over the long term.

"There's opportunity for the region, but there are challenges and uncertainty," said RBC Capital Markets mining analyst Robin Kozar. "Many companies will not succeed, but at the same time, some companies will be successful."

CHINA COMETH

The Labrador Trough, which straddles the border between Quebec and the province of Newfoundland and Labrador, has attracted a wave of foreign interest in recent years, as Chinese and Indian steelmakers have scrambled to stake a claim in the world's next big iron mining district.

The region currently produces just 3 percent of the global seaborne supply, about 40 million tonnes a year. But that will grow rapidly if even just a fraction of the dozens of planned projects get off the ground.

For now, a sluggish steel market is weighing against that potential. On Thursday, Chinese steel futures slipped to their lowest level in more than two months, reflecting slower demand in the world's top steel consumer.

The broader global outlook hasn't helped as the European debt crisis and the looming U.S. "fiscal cliff" raise the specter of another world recession.

With steel prices falling and many mills operating well below capacity, steel consumers don't have any incentive to build up inventories, said Kevin Stevick, chief executive at Optima Specialty Steel Inc, a maker of steel products.

"Everyone is keeping their inventories at an absolutely minimum right now," Stevick said.

"They can get it from the mills in relatively short order because the order books are off compared to where they were last year," he said. "So that certainly weighs down on the market."

In the Labrador Trough miners are already retrenching.

Labrador Iron Mines Holdings Ltd (Toronto:LIM.TO - News), a new producer in the region, slashed capital spending and deferred projects to 2013. The junior said it won't restart operations in the spring unless it feels prices will stay above $110 next year.

Cliffs Natural Resources Inc (NYSE:CLF - News), a larger producer that has struggled with higher-than-expected costs, has delayed an expansion at its Bloom Lake project and cut its sales volume targets for 2013.

STEELMAKERS TAKE CONTROL

The Labrador Trough has been pumping out iron since the 1950s, though many projects were shuttered during the 1980s and 1990s as demand slowed. As urbanization in China and India started to drive demand earlier this century, major players such as Rio Tinto Plc (LSE:RIO.L - News) and ArcelorMittal (Amsterdam:MT.AS - News), the world's top steelmaker, moved in.

For steelmakers, long dependant on iron from Vale SA (Sao Paolo:VALE5.SA - News), BHP Billiton Ltd (ASX:BHP.AX - News) and Rio Tinto, new projects in Canada will help diversify supply.

China's Heibei Iron and Steel Group has signed a deal with Alderon, while Wuhan Iron and Steel Co Ltd has agreements with Century and Adriana Resources Inc (TSXV:ADI.V - News). New Millennium Iron Corp (Toronto:NML.TO - News) and India's Tata Steel started up their first joint project in September.

But to bring more tonnes online in the region, and keep operating costs manageable, new infrastructure is needed.

To that point, Canadian National Railway (Toronto:CNR.TO - News) and Caisse de Depot, the Quebec pension fund manager, are studying the feasibility of building an 800-kilometer (500-mile) railway to service new and existing mines in the region.

As well, a new multi-user port is already under construction at Sept-Iles, Quebec. The government-backed project is expected to be completed in March 2014.

"You've got a multi-user railway and multi-user port being planned, studied or developed, all with the support of the local government and other stakeholders," said Colin Healey, a mining analyst at Haywood Securities.

"All those things support the potential for production from several of the deposits being developed in the Trough."

That means while the volatile iron price is a challenge, the region is not just going to roll over and die, say experts. In fact, with many juniors trading at two-year lows, there are even buying opportunities, Kozar said.

His top pick is Alderon Iron Ore, which has four "strong buy" ratings, 12 "buy" ratings and one "hold", according to Thomson Reuters I/B/E/S. Another popular choice is Champion, which has five "strong buys", seven "buys" and one "hold".

Labrador Iron Mines and New Millennium, two new producers, are also expected to do well over the longer term, though both have more "holds" as they work out early hiccups.

For RBC's Kozar, picking the right company comes down to three factors: the quality of its assets and products, easy access to infrastructure and the financing to make the project a reality.

"You could have infrastructure in place, you could have a great asset," he said. "But you don't have any money to build it - game over."

(Editing by Frank McGurty; and Peter Galloway)