Wabush Mines is laying off about 125 workers at its iron ore facility in western Labrador on Monday. (CBC)

A mining town in western Labrador will be hit hard when anticipated layoffs take effect Monday, a union leader says.

About 125 workers with Wabush Mines will be laid off Monday, as the company follows through with job cuts announced in December, amid a steep slump in demand for steel. Wabush Mines will continue production with about 240 workers.

Wabush, one of two towns in the region that depend on iron ore mining, has been bracing for the layoffs for two months, but they will still sting, said Jason Penney, president of the United Steelworkers local in the town.

"It's going to be very devastating to the area," Penney told CBC News.

"The cost of living here has inflated probably 200 or 300 per cent in the last couple years due to the demand for steel and the good markets we've had."

Wabush's neighbour, Labrador City, is home to the significantly larger Iron Ore Company of Canada mine. In recent years, the boom in demand for steel has largely meant problems of prosperity for the towns, with new workers hired at high wages chasing a dearth of available properties.

"The price of a house has gone from, probably, [an] average of $50,000 to $80,000 upwards of $250,000, so people are going to be stuck with some pretty high bills," Penney said.

Wabush Mines has not indicated how long the layoffs may last.

The company had extended a retirement offer to unionized workers, to mitigate job losses.

IOC, meanwhile, is also retrenching. The company is shutting down production this summer, and has shelved an $800-million expansion until the market for iron ore improves.

The uncertain economic climate has helped prompt the councils in Wabush and Labrador City to explore talks on amalgamating the towns.