London - London Mining 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 about 35% to a record low of 16 pence. The stock was the biggest percentage loser on the London Stock Exchange at 09:18 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 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 miner last week trimmed its full-year iron ore production forecast, deferred a $175m extension plan for its Marampa mine in Sierra Leone by two years, and put off $20m of non-essential capital expenditure because of weak prices.