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Press release from CNW Group

LABRADOR IRON ORE ROYALTY CORPORATION - RESULTS, MD&A AND FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 31, 2011

Wednesday, May 18, 2011

LABRADOR IRON ORE ROYALTY CORPORATION - RESULTS, MD&A AND FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 31, 201118:55 EDT Wednesday, May 18, 2011TORONTO, May 18 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC") (TSX: LIF.UN) released its results including MD&A and financial statements for the first quarter ended March 31, 2011.Royalty income for the first quarter of 2011 amounted to $30.3 million as compared to $16.4 million for the first quarter of 2010. The unitholder's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $48.0 million or $1.50 per unit as compared to $22.3 million or $0.70 per unit for the same period in 2010.  Net income was $38.9 million or $1.22 per unit compared to $15.7 million or $0.49 per unit for the same period in 2010. Equity earnings from IOC amounted to $19.2 million or $0.60 per unit as compared to $4.8 million or $0.15 per unit in 2010. The higher cash flow for the quarter reflected an IOC dividend of which our share was $29.0 million or $0.91 per unit as compared to $11.5 million or $0.36 per unit in 2010. Had the price adjustments which occurred in the second quarter of 2010 and related to the first quarter been included, 2010 royalty income would have been increased by $10.4 million or $0.33 per unit and equity earning from IOC by $14.2 million or $0.44 per unit. The inclusion of these amounts would have increased 2010 first quarter net income by $0.49 per unit and adjusted cash flow by $0.18 per unit.Prior to the July 1, 2010 conversion of Labrador Iron Ore Royalty Corporation ("LIORC") from an income trust, the net income of the unitholders was the same as the trust's net income. Since the unitholders now own the $248 million LIORC subordinated notes directly, the net income of the unitholders consists of the net income of LIORC plus the interest paid on the LIORC subordinated notes. Thus all net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per stapled unit) interest on the subordinated notes for the period January 1 to March 31, 2011.The first quarter sales of Iron Ore Company of Canada ("IOC") are traditionally adversely affected by the closing of the St. Lawrence Seaway and general winter shipping conditions and are not indicative of the full year's sales.Iron ore markets remain firm and pricing which is now on a quarterly basis was slightly higher than the fourth quarter of 2010. IOC sales volumes were slightly below 2010 first quarter sales due to a particularly severe winter and timing of shipments. The severe winter also caused some reduced production as it affected truck availability resulting in ore shortages which reduced the supply of concentrate. The continuing strength of the Canadian dollar against its U.S. counterpart adversely affected 2011 results.Results for the three months ended March 31 are summarized below: 2011 2010 (Unaudited)    Revenue (in millions)$30.7 $16.7Adjusted cash flow (in millions)$48.0 $22.3Adjusted cash flow per unit$  1.50 $  0.70Net income (in millions)$ 38.9 $ 15.7Net income per unit$  1.22 $  0.49"Adjusted cash flow" (defined as cash flow from operating activities as shown on the attached financial statements adjusted for changes in amounts receivable, accounts payable and income taxes payable) is not a recognized measure under Canadian GAAP or IFRS.  The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for distributions to unitholders.A summary of IOC's sales in millions of tonnes is as follows: 3 MonthsEndedMar. 31,2011 3 MonthsEndedMar. 31,2010 YearEndedDec. 31,2010      Pellets2.27 2.67 12.05Concentrates0.28 0.31 3.02(1)      Total2.55 2.98 15.07Note:  (1) Excludes third party ore salesOutlookIron ore markets remain firm and prices for the second quarter of 2011 are expected to be over 10% higher than those in the first quarter. Production for the first quarter was disappointing due to severe winter conditions and some equipment failures. The second quarter is expected to have production approach more normal levels but the month of April still faced severe weather and the operations were shut down for almost three days as the result of an industrial accident which resulted in the death of a contractor employee. IOC has orders for all the concentrate and pellets it can produce. The continued strength of the Canadian dollar against its U.S. counterpart is a negative but is more than offset by increased prices for iron ore.Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,Bruce C. BonePresident and Chief Executive OfficerMay 18, 2011Management's Discussion and AnalysisThe following discussion and analysis should be read in conjunction with the Management's Discussion and Analysis section of the Corporation's 2010 Annual Report and the interim financial statements and notes contained in this report.  Although management believes that expectations reflected in forward-looking statements are reasonable, such statements involve risk and uncertainties including the factors discussed in the Corporation's 2010 Annual Report.The Corporation's revenues are entirely dependent on the operations of Iron Ore Company of Canada (IOC) as its principal assets relate to the operations of IOC and its principal source of revenue is the 7% royalty it receives on all sales of iron ore products by IOC.  In addition to the volume of iron ore sold, the Corporation's royalty revenue is affected by the price of iron ore and the Canadian - U.S. dollar exchange rate.The sales of IOC are usually 15% - 20% of the annual volume in the first quarter, with the balance spread fairly evenly throughout the other three quarters.  Because of the size of individual shipments some quarters may be affected by the timing of the loading of ships that can be delayed from one quarter to the next.Royalty income for the first quarter of 2011 amounted to $30.3 million as compared to $16.4 million for the first quarter of 2010. The Corporation's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $48.0 million or $1.50 per unit as compared to $22.3 million or $0.70 per unit for the same period in 2010.  Net income was $38.9 million or $1.22 per unit compared to $15.7 million or $0.49 per unit for the same period in 2010.  Equity earnings from IOC amounted to $19.2 million or $0.60 per unit as compared to $4.8 million or $0.15 per unit in 2010. The higher cash flow for the quarter reflected an IOC dividend of which our share was $29.0 million or $0.91 per unit as compared to $11.5 million or $0.36 per unit in 2010. Had the price adjustments which occurred in the second quarter of 2010 and related to the first quarter been included, 2010 royalty income would have been increased by $10.4 million or $0.33 per unit and equity earning from IOC by $14.2 million or $0.44 per unit. The inclusion of these amounts would have increased 2010 first quarter net income by $0.49 per unit and adjusted cash flow by $0.18 per unit.Prior to the July 1, 2010 conversion of Labrador Iron Ore Royalty Corporation ("LIORC") from an income trust, the net income of the unitholders was the same as the trust's net income. Since the unitholders now own the $248 million LIORC subordinated notes directly, the net income of the unitholders consists of the net income of LIORC plus the interest paid on the LIORC subordinated notes. Thus all net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per stapled unit) interest on the subordinated notes for the period January 1 to March 31, 2011.The first quarter sales of IOC are traditionally adversely affected by the closing of the St. Lawrence Seaway and general winter shipping conditions and are not indicative of the full year's sales.Iron ore markets remain firm and pricing which is now on a quarterly basis was slightly higher than the fourth quarter of 2010. IOC sales volumes were slightly below 2010 first quarter sales due to a particularly severe winter and timing of shipments. The severe winter also caused some reduced production as it affected truck availability resulting in ore shortages which reduced the supply of concentrate. The continuing strength of the Canadian dollar against its U.S. counterpart adversely affected 2011 results.The following table sets out quarterly revenue, net income and cash flow data for 2011, 2010 and 2009.  Revenue NetIncome NetIncomeper Unit Adjusted CashFlow(1) Adjusted Cash Flowper Unit(1) DistributionsDeclaredper Unit              (in millions except per Unit information)             2011            First Quarter(2) $30.7 $38.9 $1.22 $48.02(3) $1.50 $1.502010            First Quarter $16.7 $15.7 $0.49 $22.3 (4) $0.70 $0.75Second Quarter $52.5 $69.1 $2.16 $30.5 $0.95 $0.75Third Quarter (2) $40.9 $64.4 $2.01 $85.9 (5) $2.68 $1.00Fourth Quarter(2) $54.3 $62.8 $1.96 $31.9 $1.00 $2.002009            First Quarter $16.6 $16.5 $0.52 $11.1 $0.35 $0.50Second Quarter $19.7 $17.8 $0.55 $12.6 $0.39 $0.50Third Quarter $15.8 $13.6 $0.43 $18.8(6) $0.59 $0.50Fourth Quarter $24.9 $27.2 $0.85 $15.8 $0.49 $0.50Notes:(1) "Adjusted cash flow" (see below) (2)Commencing with third quarter 2010, net income, adjusted cash flow, distributions and per unit figures referred to in this table use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per unit) interest on the subordinated notes (3)Includes a $29.0 million IOC dividend (4)Includes a $11.5 million IOC dividend (5)Includes a $62.5 million IOC dividend (6)Includes a $8.2 million IOC dividend   Standardized Cash Flow and Adjusted Cash FlowFor the Corporation, standardized cash flow is the same as cash flow from operating activities as recorded in the Corporation's cash flow statements as the Corporation does not incur capital expenditures or have any restrictions on distributions.  Standardized cash flow per unit was $0.46(1) for the quarter (2010 - $0.87). Cumulative standardized cash flow from inception of the Corporation is $28.90 per unit and total cash distributions since inception are $28.23(1) per unit, for a payout ratio of 98%."Adjusted cash flow" is defined as cash flow from operating activities as shown on the attached financial statements adjusted for changes in amounts receivable, accounts payable and income taxes payable.  It is not a recognized measure under Canadian GAAP or IFRS.  The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for distributions to unitholders.(1) Excludes note interest on subordinated notes paid directly to unitholders of $0.234 and $0.702, respectively.The following reconciles cash flow from operating activities to adjusted cash flow. 3 Months EndedMar. 31, 2011   3 Months EndedMar. 31, 2010Standardized cash flow from operating activities$14,721,526   $27,859,313Excluding: changes in amounts receivable, accounts payable and income taxes payable25,811,810   (5,527,017)Adjusted cash flow(1)$40,533,336    $22,332,296 Adjusted cash flow per unit(1)$1.27   $0.70(1) March 31, 2011 excludes note interest on subordinated notes paid directly to unitholders of $7,488,000 ($0.234 per unit).LiquidityThe Corporation has a $50 million revolving credit facility to September 18, 2013 with provision for annual one-year extensions.  No amounts are currently drawn under this facility (2010 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.Transition to International Financial Reporting Standards ("IFRS")The CICA Accounting Standards Board required all Canadian publicly accountable enterprises to adopt International Financial Reporting Standards for fiscal years beginning on or after January 1, 2011. Accordingly, the financial statements of the Corporation for the three months ended March 31, 2011 have been prepared in accordance with IFRS. As this is the first report issued under these standards certain additional information, as required by these international standards, have been included in the report.The adjustments necessary to convert the Corporation's financial statements from Canadian Generally Accepted Accounting Principles ("GAAP") to IFRS are explained in more detail in Note 17 to the financial statements, and these adjustments have been recorded retroactively to January 1, 2010. The overall impact is to reduce the carrying value of the Corporation's investment in IOC and its retained earnings and accumulated other comprehensive income by $11.8 million at January 1, 2010, $13.7 million at December 31, 2010 and $13.6 at March 31, 2011. For the three months ended March 31, 2011, the Corporation's share of net income and comprehensive income from IOC is $0.1 million higher than would have been reported under Canadian GAAP. The change to IFRS has no impact on the Corporation's royalty and commission income and no impact on cash flows for the quarter.OutlookIron ore markets remain firm and prices for the second quarter of 2011 are expected to be over 10% higher than those in the first quarter. Production for the first quarter was disappointing due to severe winter conditions and some equipment failures. The second quarter is expected to have production approach more normal levels but the month of April still faced severe weather and the operations were shut down for almost three days as the result of an industrial accident which resulted in the death of a contractor employee. IOC has orders for all the concentrate and pellets it can produce. The continued strength of the Canadian dollar against its U.S. counterpart is a negative but is more than offset by increased prices for iron ore.LABRADOR IRON ORE ROYALTY CORPORATIONCONSOLIDATED BALANCE SHEETS        As at  March 31 December 31 January 1Canadian $ 2011 2010 2010  (Unaudited)Assets     Current      Cash and cash equivalents $          31,821,414  $         73,611,888  $           6,203,013 Amounts receivable              59,325,155             51,420,285             24,987,043               91,146,569           125,032,173             31,190,056       Iron Ore Company of Canada ("IOC"),      royalty and commission interests            290,826,792           291,885,160           297,489,943       Investment in IOC           237,747,310           247,925,657           197,506,091          $        619,720,671  $       664,842,990  $       526,186,090              Liabilities and Shareholders'/Unitholders' Equity     Current      Accounts payable $            6,178,381  $         10,482,603  $           5,233,229 Income taxes payable                  912,528             14,515,246                  509,562 Interest payable on subordinated notes                7,488,000               7,488,000                            -   Distributions payable to shareholders/unitholders             40,512,000             56,512,000             16,000,000               55,090,909             88,997,849             21,742,791       Subordinated notes            248,000,000           248,000,000                            -         Deferred income taxes            106,931,000           108,690,000           103,101,000             410,021,909           445,687,849           124,843,791       Equity       Share capital/Trust units              69,708,147             69,708,147           317,708,147 Retained earnings            144,640,615           153,724,994             83,634,152 Accumulated other comprehensive loss             (4,650,000)              (4,278,000)                            -               209,698,762           219,155,141           401,342,299   $        619,720,671  $       664,842,990  $       526,186,090 LABRADOR IRON ORE ROYALTY CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME   For the Three Months   Ended March 31,Canadian $ 2011 2010  (Unaudited)Revenue    IOC royalties $       30,280,217  $       16,374,491 IOC commissions               250,969                293,725 Interest and other income                132,789                    4,743            30,663,975           16,672,959Expenses    Newfoundland royalty taxes            6,056,043             3,274,898 Amortization of royalty and commission interests            1,058,368             1,297,470 Administrative expenses                400,152                722,230 Interest expense:      Credit facility                 92,465                  92,462   Subordinated notes            7,488,000                         -              15,095,028             5,387,060     Income before equity earnings and income taxes          15,568,947           11,285,899Equity earnings in IOC           19,251,468             4,806,415     Income before income taxes           34,820,415           16,092,314     Provision for income taxes     Current             5,088,794             1,756,125 Deferred           (1,696,000)           (1,348,000)              3,392,794                408,125     Net income for the period          31,427,621           15,684,189     Other comprehensive income    Share of other comprehensive loss of IOC              (372,000)              (263,000)     Comprehensive income for the period          31,055,621           15,421,189     Net income per common share/unit $                  0.98  $                  0.49 LABRADOR IRON ORE ROYALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS   For the Three MonthsEnded March 31,Canadian $  2011  2010 (Unaudited)Net inflow (outflow) of cash relatedto the following activities           Operating      Net income for the period  $   31,427,621 $15,684,189 Items not affecting cash:       Equity earnings in IOC     (19,251,468)  (4,806,415)  Deferred income taxes       (1,696,000)  (1,348,000)  Amortization of royalty and commission interests         1,058,368  1,297,470 Common share dividend from IOC       28,994,815  11,505,052 Change in amounts receivable, accounts and income taxes payableand interest payable on subordinated notes     (25,811,810)  5,527,017 Cash flow from operating activities       14,721,526  27,859,313       Financing      Distributions paid to unitholders     (56,512,000)  (16,000,000) Cash flow used in financing activities     (56,512,000)  (16,000,000)       Increase/(decrease) in cash and cash equivalents during the period     (41,790,474)  11,859,313      Cash and cash equivalents, beginning of period       73,611,888  6,203,013      Cash and cash equivalents, end of period $   31,821,414 $18,062,326      Cash and cash equivalents are comprised of:      Cash in bank  $   31,821,414 $11,948,430 Term deposits                      -   6,113,896  $   31,821,414 $18,062,326       Cash income taxes paid  $   18,629,510 $  2,714,000      Cash interest paid  $     7,582,521 $       94,521 LABRADOR IRON ORE ROYALTY CORPORATIONCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYCanadian $ CapitalstockTrustUnitsRetainedearningsAccumulatedOther compre-hensive lossTotal (Unaudited)      Balance at January 1, 2010 $                     -    $   317,708,147  $    83,634,152  $                   -    $               401,342,299       Subordinated notes distributed to trust unitholderspursuant to the Arrangement on July 1, 2010-  (248,000,000)-  -  (248,000,000)Exchange of trust units for common shares on July 1, 201069,708,147(69,708,147)-  -  -Net income for the year                         -  -  199,114,842-  199,114,842Dividends/distributions to shareholders/unitholders -  -  (129,024,000)-  (129,024,000)Other comprehensive loss-  -  -  (4,278,000)(4,278,000)Balance as at December 31, 201069,708,147 -       153,724,994       (4,278,000)219,155,141      Net income for the period                         -  -  31,427,621 31,427,621Dividends to shareholders                          -  -  (40,512,000) (40,512,000)Other comprehensive loss-  -   (372,000)(372,000)Balance as at March 31, 2011 $    69,708,147  $                    -  $ 144,640,615  $  (4,650,000) $               209,698,762 The complete consolidated financial statements for the first quarter ended March 31, 2011, including the notes thereto, are posted on sedar.com and labradorironore.com.  For further information: Bruce C. Bone President & Chief Executive Officer (416) 863-7133