Hundreds of jobs are expected to be slashed at Mount Gibson's Koolan Island operations as the company mothballs its flooded mine and cuts production targets.
The majority of the company's 360 Koolan Island workforce, in the remote Kimberley region of Western Australia, will be made redundant as management weighs up the future of operations amid weak iron ore prices.
A sea wall at the mine gave way last week, leading to sea water filling up the open pit mine.
The company has also slashed its sales guidance for the 2014/15 financial year to between 4.4 million and 4.8 million tonnes, down from 6.4 million tonnes.
Mount Gibson shares halved in value following the update on Friday, to 20.5 cents.
The decision to mothball Koolan Island follows sharp falls in the iron ore price, which is down 50 per cent for the year to around $US70 per tonne.
And it comes a day after Pilbara iron ore miner Atlas Iron announced it will cut 80 jobs, or 11 per cent of its workforce, as the fellow junior West Australian iron ore miner trims costs.
Mount Gibson anticipates redundancy costs of $11 million and said the Koolan Island operation would be placed on care and maintenance until a definitive decision on the mine's future could be made.
A decision to move towards recommencing production at the Koolan Island mine would be made in the first half of 2015, the company said.
"A decision to move towards recommencing production from the Koolan Island mine will only be made if Mount Gibson believes it is viable to do so," it added.
Mount Gibson now anticipates a substantial non-cash impairment in addition to the previously flagged non-cash write-off of $46 million.
The miner is one of the highest cost junior iron ore producers in Australia, with break-even costs estimated to be above $US70 per tonne.
Mount Gibson acquired the Koolan Island operations in 2007, 13 years after BHP Billiton stopped mining the area.
The majority of Mount Gibson shares are Chinese owned and the miner has other operating iron ore mines at Tallering Peak and Extension Hill in the state's mid-west.
Atlas Iron on Friday said its job cuts would include 50 Perth staff and 30 Pilbara staff, at a cost of between $3 million and $3.5 million.
Meanwhile, staff at Fortescue Metals Group are bracing for job cuts amid predictions the iron ore price could fall further.
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