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Press release from CNW Group

Labrador Iron Ore Royalty Corporation - Results for the Third Quarter Ended September 30, 2011

Thursday, November 03, 2011

Labrador Iron Ore Royalty Corporation - Results for the Third Quarter Ended September 30, 201119:07 EDT Thursday, November 03, 2011TORONTO, Nov. 3, 2011 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC") (TSX: LIF.UN) announced the results of its operations for the third quarter ended September 30, 2011.On July 1, 2011 the 2-for-1 split of the stapled units approved by the unitholders on May 30, 2011, became effective. The stapled units started trading on a split basis on the Toronto Stock Exchange on June 28, 2011. Accordingly, all per unit figures in this report are based on 64 million units outstanding, with all prior per unit figures being restated.Royalty income for the third quarter of 2011 amounted to $54.4 million as compared to $40.6 million for the third 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 third quarter was $63.7 million or $0.99 per unit as compared to $85.9 million or $1.34 per unit for the same period in 2010. Net income was $76.3 million or $1.19 per unit compared to $65.4 million or $1.02 per unit for the same period in 2010. Equity earnings from IOC amounted to $47.0 million or $0.73 per unit as compared to $39.2 million or $0.61 per unit in 2010. The lower cash flow for the quarter reflected an IOC dividend of which LIORC's share was $31.2 million or $0.49 per unit as compared to $62.2 million or $0.97 per unit in 2010.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 ($0.117 per stapled unit) and $22,464,000 ($0.351 per stapled unit) interest on the subordinated notes for the three months and nine months period ended September 30, 2011, respectively.The increased royalty revenue for the third quarter, as compared to the 2010 quarter, is mainly due to the increased production in the quarter that resulted in IOC having more product available for sale. The 2010 quarter was negatively affected by the timing of shipments, which were deferred until the fourth quarter.Results for the three months and nine months ended September 30 are summarized below: 3 Months EndedSept. 30, 20113 Months Ended Sept. 30, 20109 Months Ended Sept. 30, 20119 Months Ended Sept. 30, 2010  (Unaudited) Revenue (in millions)$ 54.9$ 40.9$ 123.7$ 110.1 Adjusted cash flow (in millions)$ 63.7$ 85.9$ 134.7$ 138.7 Adjusted cash flow per unit$ 0.99$ 1.34$ 2.10$ 2.17 Net income (in millions)$ 76.3$ 65.4$ 163.4$ 150.4 Net income per unit$ 1.19$ 1.02$ 2.55$ 2.35 "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.Iron Ore Company of CanadaThird quarter production was substantially improved from the first two quarters of the year as further progress was made in the stabilization and improvement of production capability. Production was 4% higher than the corresponding 2010 quarter and 61% and 24% higher than the first and second quarters of 2011, respectively. The problems that existed during the first part of the year have largely been remedied and, with Phase 1 of the expansion project nearing completion, production going forward should be substantially increased.  The increased production will enable IOC to take advantage of the current market demand for iron ore.The Concentrator Expansion Project remains on schedule with Phase 1 expected to be completed by year-end, raising the concentrator capacity by 4Mt/a. Phase 2 completion, which would further raise capacity by 1.3Mt/a, is expected by the end of 2012.A summary of IOC's sales in millions of tonnes is as follows: 3 MonthsEnded Sept. 30, 20113 Months Ended Sept. 30, 20109 Months Ended Sept. 30, 20119 Months Ended Sept. 30, 2010Year Ended Dec. 31, 2010 Pellets2.242.416.418.0812.05 Concentrates1.940.80(1)3.272.19(1)3.02(1) Total4.183.219.6810.2715.07 (1) Excludes third party ore salesProposed Tax ChangesOn July 20, 2011, the Ministry of Finance announced proposed amendments to the Income Tax Act concerning stapled securities. Under the proposal, when debt and equity are stapled together and trade as a unit, the interest on the debt portion of the stapled security would not be deductible in computing income for tax purposes. The announcement has an effective date of July 20, 2012 with a deferral to July 20, 2016 under some circumstances. The directors are studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.OutlookAlthough iron ore prices have retreated from their recent highs, the general market consensus seems to be that barring a major meltdown in Europe, the price should recover and remain closer to 2011 average levels going forward. The completion of the first phase of the Concentrator Expansion Project will have a positive effect on LIORC's future royalty revenue. The strength of the Canadian dollar against its U.S. counterpart has at least temporarily abated, which is positive for LIORC's results. We expect the final quarter of 2011 and next year to be positive for LIORC.Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,  Bruce C. BonePresident and Chief Executive OfficerNovember 3, 2011 Management'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.On July 1, 2011 the 2-for-1 split of the stapled units approved by the unitholders on May 30, 2011, became effective. The stapled units started trading on a split basis on the Toronto Stock Exchange on June 28, 2011. Accordingly, all per unit figures in this report (except distributions declared) are based on 64 million units outstanding, with all prior per unit figures being restated.Royalty income for the third quarter of 2011 amounted to $54.4 million as compared to $40.6 million for the third 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 third quarter was $63.7 million or $0.99 per unit as compared to $85.9 million or $1.34 per unit for the same period in 2010. Net income was $76.3 million or $1.19 per unit compared to $65.4 million or $1.02 per unit for the same period in 2010. Equity earnings from IOC amounted to $47.0 million or $0.73 per unit as compared to $39.2 million or $0.61 per unit in 2010. The lower cash flow for the quarter reflected an IOC dividend of which LIORC's share was $31.2 million or $0.49 per unit as compared to $62.2 million or $0.97 per unit in 2010.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 ($0.117 per stapled unit) and $22,464,000 ($0.351 per stapled unit) interest on the subordinated notes for the three months and nine months period ended September 30, 2011, respectively.The increased royalty revenue for the third quarter, as compared to the 2010 quarter, is mainly due to the increased production in the quarter that resulted in IOC having more product available for sale. The 2010 quarter was negatively affected by the timing of shipments, which were deferred until the fourth quarter.The nine month results while improved from 2010 were negatively affected by the lower production in the first half of the year, which resulted in IOC shipping less product in 2011 year to date. .  This was more than offset by the higher prices in effect in 2011.The following table sets out quarterly revenue, net income and cash flow data for 2011, 2010 and 2009. RevenueNet IncomeNetIncomeper unit(1)AdjustedCash Flow(2)Adjusted Cash Flowper unit(1)(2)Distributions Declared per unit(1) (in millions except per Unit information)2011      First Quarter(3)$ 30.7$ 38.9$ 0.61$ 48.0(6)$ 0.75                 $ 0.75Second Quarter(3)$ 38.1$ 48.2$ 0.75    $ 23.0$ 0.36$ 0.375Third Quarter(3)$ 54.9$ 76.3$ 1.19$ 63.7(7)$ 0.99                  $ 0.75       2010(4)      First Quarter(5)$ 16.7$ 15.7$ 0.25$ 22.3(8)$ 0.35$ 0.375Second Quarter(5)$ 52.5$ 69.3$ 1.08   $ 30.5$ 0.48$ 0.375Third Quarter(3) (5)$ 40.9$ 65.4$ 1.02$ 85.9(9)$ 1.34                  $ 0.50Fourth Quarter(3)$ 54.3$ 62.8$ 0.98$ 31.9$ 0.50$ 1.002009      First Quarter$ 16.6$ 16.5$ 0.26$ 11.1$ 0.17$ 0.25Second Quarter$ 19.7$ 17.8$ 0.28$ 12.6$ 0.20$ 0.25Third Quarter$ 15.8$ 13.6$ 0.21$ 18.8(10)$ 0.29$ 0.25Fourth Quarter$ 24.9$ 27.2$ 0.43$ 15.8$ 0.25$ 0.25(1) Per unit amounts have been retroactively adjusted to reflect the two-for-one share subdivision completed on July 1, 2011(2) "Adjusted cash flow" (see below)(3) 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 ($0.117 per unit) interest on the subordinated notes(4) Except as noted, the figures have not been restated to conform with IFRS(5) Restated to conform with IFRS(6) Includes a $29.0 million IOC dividend(7) Includes a $31.2 million IOC dividend(8) Includes a $11.5 million IOC dividend(9) Includes a $62.2 million IOC dividend(10) Includes a $8.2 million IOC dividendIron Ore Company of CanadaThird quarter production was substantially improved from the first two quarters of the year as further progress was made in the stabilization and improvement of production capability. Production was 4% higher than the corresponding 2010 quarter and 61% and 24% higher than the first and second quarters of 2011, respectively. The problems that existed during the first part of the year have largely been remedied and, with Phase 1 of the expansion project nearing completion, production going forward should be substantially increased.  The increased production will enable IOC to take advantage of the current market demand for iron ore.The Concentrator Expansion Project remains on schedule with Phase 1 expected to be completed by year-end, raising the concentrator capacity by 4Mt/a. Phase 2 completion, which would further raise capacity by 1.3Mt/a, is expected by the end of 2012.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 $0.81(1) for the quarter (2010 - $0.46). Cumulative standardized cash flow from inception of the Corporation is $15.93 per unit and total cash distributions since inception are $15.01(1) per unit, for a payout ratio of 94%.(1) Excludes interest on subordinated notes paid directly to unitholders of $0.117 and $0.585 respectively."Adjusted cash flow" is defined as cash flow from operating activities as shown on the attached financial statements adjusted for changes in amounts receivable, accounts payable and income taxes payable. It is not a recognized measure under Canadian GAAP or IFRS. The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for distributions to unitholders.The following reconciles cash flow from operating activities to adjusted cash flow. 3 Months Ended Sept. 30, 20113 Months EndedSept. 30, 20109 Months Ended Sept. 30, 20119 Months Ended Sept. 30, 2010 Standardized cash flow from operating activities$ 51,667,679$ 29,759,422$ 109,120,236$ 67,661,394 Excluding: changes in amounts receivable, accounts payable and income taxes payable4,520,12248,612,8883,102,44663,523,464 Adjusted cash flow(1)$ 56,187,801$ 78,372,310$ 112,222,682$ 131,184,858 Adjusted cash flow per unit(1)$ 0.88$ 1.22$ 1.75$ 2.05 (1) Three months and nine months ended September 30, 2011 exclude interest on subordinated notes paid directly to unitholders of $7,488,000 ($0.117 per unit) and $22,464,000 ($0.351 per unit) respectively.LiquidityThe Corporation has a $50 million revolving credit facility to September 18, 2014 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.International Financial Reporting Standards ("IFRS")The Corporation adopted IFRS effective January 1, 2010 and has prepared the current interim financial statements using IFRS Accounting Policies. Prior to the adoption of IFRS, the financial statements were prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). The Corporation's financial statements for the year ending December 31, 2011 will be the first annual financial statements that comply with IFRS.IFRS are premised on a conceptual framework similar to Canadian GAAP. However, significant differences exist in certain matters of recognition, measurement and disclosure. The adoption had a small impact on the consolidated balance sheets and statements of comprehensive income. The overall impact was 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 and $13.7 million at December 31, 2010. For the three and nine month periods ended September 30, 2011, the Corporation's share of net income and comprehensive income from IOC is $0.1 million lower 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.Proposed Tax ChangesOn July 20, 2011, the Ministry of Finance announced proposed amendments to the Income Tax Act concerning stapled securities. Under the proposal, when debt and equity are stapled together and trade as a unit, the interest on the debt portion of the stapled security would not be deductible in computing income for tax purposes. The announcement has an effective date of July 20, 2012 with a deferral to July 20, 2016 under some circumstances. The directors are studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.OutlookAlthough iron ore prices have retreated from their recent highs, the general market consensus seems to be that barring a major meltdown in Europe, the price should recover and remain closer to 2011 average levels going forward. The completion of the first phase of the Concentrator Expansion Project will have a positive effect on LIORC's future royalty revenue. The strength of the Canadian dollar against its U.S. counterpart has at least temporarily abated, which is positive for LIORC's results. We expect the final quarter of 2011 and next year to be positive for LIORC.Bruce C. BonePresident and Chief Executive OfficerToronto, OntarioNovember 3, 2011LABRADOR IRON ORE ROYALTY CORPORATION      CONSOLIDATED BALANCE SHEETS                             As at    September 30, December 31,  Canadian $ 2011 2010    (Unaudited)  Assets      Current       Cash $69,196,124 $73,611,888   Amounts receivable 55,532,950 51,420,285     124,729,074 125,032,173         Iron Ore Company of Canada ("IOC"),       royalty and commission interests 288,400,632 291,885,160         Investment in IOC 283,121,441 247,925,657           $696,251,147 $664,842,990                Liabilities and Shareholders' Equity      Current       Accounts payable $11,328,677 $10,482,603   Income taxes payable 14,679,391 14,515,246   Interest payable on subordinated notes 7,488,000 7,488,000   Distributions payable to shareholders 40,512,000 56,512,000    74,008,068 88,997,849         Subordinated notes 248,000,000 248,000,000         Deferred income taxes 112,830,000 108,690,000    434,838,068 445,687,849         Equity       Share capital 69,708,147 69,708,147   Retained earnings 197,097,932 153,724,994   Accumulated other comprehensive loss (5,393,000) (4,278,000)    261,413,079 219,155,141    $696,251,147 $664,842,990         LABRADOR IRON ORE ROYALTY CORPORATION       CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                  For the Nine Months    Ended September 30, Canadian $  2011  2010    (Unaudited) Revenue        IOC royalties $122,456,324 $109,069,404  IOC commissions  952,746  1,009,820  Interest and other income  344,851  73,297    123,753,921  110,152,521 Expenses        Newfoundland royalty taxes  24,491,265  21,851,956  Amortization of royalty and commission interests  3,484,528  4,221,168  Administrative expenses  1,631,063  2,622,164  Interest expense:         Credit facility  280,480  280,479   Subordinated notes  22,464,000  7,488,000    52,351,336  36,463,767         Income before equity earnings and income taxes  71,402,585  73,688,754 Equity earnings in IOC  96,667,045  90,672,626         Income before income taxes   168,069,630  164,361,380         Provision for income taxes        Current  22,831,692  20,387,750  Deferred  4,329,000  1,078,000    27,160,692  21,465,750         Net income for the period  140,908,938  142,895,630         Other comprehensive loss        Share of other comprehensive loss of IOC  (1,115,000)  (789,000)         Comprehensive income for the period $139,793,938 $142,106,630         Net income per common share/unit (1) $2.20 $2.23         (1)Per share/unit amounts have been retroactively adjusted to reflect the two-for-one share subdivision completed on July 1, 2011.                        LABRADOR IRON ORE ROYALTY CORPORATION       CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                  For the Three Months    Ended September 30, Canadian $  2011  2010    (Unaudited) Revenue        IOC royalties $54,421,894 $40,591,042  IOC commissions  411,443  314,834  Interest and other income  107,890  24,162    54,941,227  40,930,038 Expenses        Newfoundland royalty taxes  10,884,379  8,118,208  Amortization of royalty and commission interests  1,313,290  1,425,809  Administrative expenses  525,507  1,181,534  Interest expense:         Credit facility  94,521  94,521   Subordinated notes  7,488,000  7,488,000    20,305,697  18,308,072         Income before equity earnings and income taxes  34,635,530  22,621,966 Equity earnings in IOC  46,984,091  39,186,091         Income before income taxes  81,619,621  61,808,057         Provision for (recovery of) income taxes        Current  10,933,465  7,833,099  Deferred  1,923,000  (3,896,000)    12,856,465  3,937,099         Net income for the period  68,763,156  57,870,958         Other comprehensive loss        Share of other comprehensive loss of IOC  (372,000)  (263,000)         Comprehensive income for the period $68,391,156 $57,607,958         Net income per common share/unit (1) $1.07 $0.90          (1)Per share/unit amounts have been retroactively adjusted to reflect the two-for-one share subdivision completed on July 1, 2011.                                 LABRADOR IRON ORE ROYALTY CORPORATION         CONSOLIDATED STATEMENTS OF CASH FLOWS                                                      For the Nine Months      Ended September 30, Canadian $    2011  2010      (Unaudited) Net inflow (outflow) of cash related to the following activities                  Operating          Net income for the period   $140,908,938 $142,895,630  Items not affecting cash:           Equity earnings in IOC    (96,667,045)  (90,672,626)   Deferred income taxes    4,329,000  1,078,000   Amortization of royalty and commission interests    3,484,528  4,221,168  Common share dividend from IOC    60,167,261  73,662,686  Change in amounts receivable, accounts and income taxes payable and interest payable on subordinated notes    (3,102,446)  (63,523,464)  Cash flow from operating activities    109,120,236  67,661,394           Financing          Distributions paid to unitholders/shareholders    (113,536,000)  (64,000,000)  Cash flow used in financing activities    (113,536,000)  (64,000,000)           Increase/(decrease) in cash and cash equivalents during the period    (4,415,764)  3,661,394           Cash and cash equivalents, beginning of period    73,611,888  6,203,013           Cash and cash equivalents, end of period   $69,196,124 $9,864,407           Cash and cash equivalents are comprised of:          Cash in bank   $69,196,124 $864,708  Term deposits    -   8,999,699     $69,196,124 $9,864,407                     Cash income taxes paid   $22,667,547 $15,382,745           Cash interest paid   $22,744,480 $280,480                               LABRADOR IRON ORE ROYALTY CORPORATION               CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                                  Capital  Trust  Retained  Accumulated  Total   stock  units  earnings  other               comprehensive   Canadian $           loss    (Unaudited)                Balance as at January 1, 2010 $-  $317,708,147 $83,634,152 $-  $401,342,299                Subordinated notes distributed to trust unitholders pursuant               to the Arrangement on July 1, 2010     (248,000,000)        (248,000,000)Exchange of trust units for common shares on July 1, 2010  69,708,147  (69,708,147)        - Net income for the period  -   -   142,895,630  -   142,895,630Distributions/dividends to unitholders/shareholders  -   -   (72,512,000)  -   (72,512,000)Other comprehensive loss  -   -   -   (789,000)  (789,000)Balance as at September 30, 2010 $69,708,147 $-  $154,017,782 $(789,000) $222,936,929                                                Balance as at December 31, 2010 $69,708,147 $-  $153,724,994 $(4,278,000) $219,155,141                Net income for the period  -   -   140,908,938     140,908,938Dividends to shareholders  -   -   (97,536,000)     (97,536,000)Other comprehensive loss  -   -      (1,115,000)  (1,115,000)Balance as at September 30, 2011 $69,708,147 $-  $197,097,932 $(5,393,000) $261,413,079                                   For further information: Bruce C. Bone President & Chief Executive Officer (416) 863-7133 E-mail- investor.relations@labradorironore.com