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Press release from CNW Group

Labrador Iron Ore Royalty Corporation - Results for the Second Quarter Ended June 30, 2012

Wednesday, August 08, 2012

Labrador Iron Ore Royalty Corporation - Results for the Second Quarter Ended June 30, 201218:35 EDT Wednesday, August 08, 2012TORONTO, Aug. 8, 2012 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF.UN) announced today its operation and cash flow results for the second quarter ended June 30, 2012.Royalty income for the second quarter of 2012 amounted to $36.0 million as compared to $37.8 million for the second quarter of 2011. The unitholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the quarter was $22.3 million or $0.35 per unit compared to last year's $23.0 million or $0.36 per unit.  Net income was $36.8 million or $0.57 per unit compared to $48.2 million or $0.75 per unit for the same period in 2011. Equity earnings from Iron Ore Company of Canada (IOC) amounted to $18.2 million or $0.28 per unit as compared to $30.4 million or $0.48 per unit in 2011.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 $14,976,000 ($0.234 per stapled unit) interest on the subordinated notes for the three months and six months periods, respectively.IOC production and sales volumes for the quarter were above last year's second quarter but were still somewhat affected by the commissioning of the new ore delivery system and the additional grinding mill. We reported last quarter that the commissioning, which started at the beginning of the year, was expected to be completed by mid-year. This has now occurred and we expect to see the resultant increased production in the third quarter. The lower revenue and cash flow for the quarter in spite of the increased sales volumes resulted from lower prices for iron ore in the quarter. Equity earnings from IOC were substantially lower in the quarter mainly due to the lower iron ore prices.Results for the three months and six months ended June 30 are summarized below: 3 Months EndedJune 30,20123 Months EndedJune 30,20116 Months EndedJune 30,2012 6 Months EndedJune 30,2011                                                  (Unaudited)        Revenue (in millions)$36.4$38.1$58.8 $68.8Adjusted cash flow (in millions)$22.3$23.0$36.7 $71.0Adjusted cash flow per unit$0.35$ 0.36$0.57 $  1.11Net income (in millions)$ 36.8$ 48.2$ 59.8 $ 87.1Net income per unit$  0.57$  0.75$  0.93 $  1.36    "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 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 Months EndedJune 30,20123 Months EndedJune 30,2011 6 Months EndedJune 30,20126 Months EndedJune 30,2011 YearEndedDec. 31, 2011        Pellets2.741.90 4.594.17 8.71Concentrates0.701.05 1.201.33 4.85        Total3.442.95 5.795.50 13.56        Proposed Tax ChangesOn July 25, 2012 the Department of Finance released the proposed legislative amendments to the Income Tax Act concerning stapled securities originally announced on July 20, 2011. It appears that the effect of the legislative changes on the Corporation is to deny the deduction of interest on the $248 million subordinated notes after July 20, 2012. The Board of Directors has been considering the alternatives available to the Corporation and expects to call a meeting of the unitholders in the near future to consider a response to the legislative changes.OutlookWith the commissioning of the new ore delivery system and the additional grinding mill completing the first phase of the IOC's expansion and phase two expected to be completed early next year, the increased production capacity bodes well for increased royalty revenue. Currently offsetting the gains expected from increased volumes is weakness in the pricing of iron ore. The general market consensus seems to be that prices will recover later in the year.Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,Bruce C. BonePresident and Chief Executive OfficerAugust 8, 2012Management'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 2011 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 2011 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.  For 2012, because of the coming on stream of the phase one expansion, we expect the first two quarters' sales to total less than 40% of sales for the year. 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 second quarter of 2012 amounted to $36.0 million as compared to $37.8 million for the second quarter of 2011. The unitholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the quarter was $22.3 million or $0.35 per unit compared to last year's $23.0 million or $0.36 per unit.  Net income was $36.8 million or $0.57 per unit compared to $48.2 million or $0.75 per unit for the same period in 2011. Equity earnings from IOC amounted to $18.2 million or $0.28 per unit as compared to $30.4 million or $0.48 per unit in 2011.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 $14,976,000 ($0.234 per stapled unit) interest on the subordinated notes for the three months and six months periods, respectively.IOC production and sales volumes for the quarter were above last year's second quarter but were still somewhat affected by the commissioning of the new ore delivery system and the additional grinding mill. We reported last quarter that the commissioning, which started at the beginning of the year, was expected to be completed by mid-year. This has now occurred and we expect to see the resultant increased production in the third quarter. The lower revenue and cash flow for the quarter in spite of the increased sales volumes resulted from lower prices for iron ore in the quarter. Equity earnings from IOC were substantially lower in the quarter mainly due to the lower iron ore prices.The six months results were affected by the same factors as the second quarter and, in addition, the adjusted cash flow was substantially lower because IOC did not pay a dividend in the first quarter of 2012 (2011 - $29 million).The following table sets out quarterly revenue, net income and cash flow data for 2012, 2011 and 2010. RevenueNetIncomeNet Incomeper UnitAdjusted CashFlow(1)Adjusted Cash Flowper Unit(1)Distributions Declaredper Unit (in millions except per Unit information) 2012      First Quarter(2)$22.4$23.0$0.36$14.4$0.23$0.375Second Quarter(2)$36.4$36.8$0.57$22.3$0.35$0.3752011      First Quarter(2)$30.7$38.9$0.61$48.0 (3)$0.75$0.75Second Quarter(2)$38.1$48.2$0.75$23.0$0.36$0.375Third Quarter (2)$54.9$76.3$1.19$63.7 (4)$0.99$0.75Fourth Quarter(2)$38.8$45.9$0.72$23.4$0.37$0.3752010      First Quarter$16.7$15.7$0.25$22.3 (5)$0.35$0.375Second Quarter$52.5$69.1$1.08$30.5$0.48$0.375Third Quarter(2)$40.9$64.4$1.02$85.9 (6)$1.34$0.50Fourth Quarter(2)$54.3$62.8$0.99$31.9$0.50$1.00Notes:(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 ($0.117 per unit) interest on the subordinated notes   (3)Includes a $29.0 million IOC dividend  (4)Includes a $31.2 million IOC dividend  (5)Includes a $11.5 million IOC dividend  (6)Includes a $62.2 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 $0.04(1) for the quarter (2011 - $0.67(1)). Cumulative standardized cash flow from inception of the Corporation is $16.43 per unit and total cash distributions since inception are $15.90 per unit, for a payout ratio of 97%."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 and interest payable and income taxes payable.  It is not a recognized measure under 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 EndedJune 30, 20123 Months EndedJune 30, 20116 Months EndedJune 30, 20126 Months EndedJune 30, 2011Standardized cash flow from operating activities$2,343,296$42,731,031$19,171,109$57,452,557Excluding: changes in amounts receivable, accounts payable and income taxes payable12,477,896(27,229,486)2,557,205(1,417,676)Adjusted cash flow(1)$14,821,192 $15,501,545 $21,728,314 $56,034,881 Adjusted cash flow per unit(1)$0.23$0.24$0.34$0.88(1) Excludes note interest on subordinated notes paid directly to unitholders of $7,488,000 ($0.117 per stapled unit) and $14,976,000 ($0.234 per stapled unit) for the three months and six months periods, 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 (2011 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.Proposed Tax ChangesOn July 25, 2012 the Department of Finance released the proposed legislative amendments to the Income Tax Act concerning stapled securities originally announced on July 20, 2011. It appears that the effect of the legislative changes on the Corporation is to deny the deduction of interest on the $248 million subordinated notes after July 20, 2012. This would increase LIORC's taxes payable for 2012 by approximately $4.0 million and $8.7 million annually thereafter. The Board of Directors has been considering the alternatives available to the Corporation and expects to call a meeting of the unitholders in the near future to consider a response to the legislative changes.OutlookWith the commissioning of the new ore delivery system and the additional grinding mill completing the first phase of the IOC's expansion and phase two expected to be completed early next year, the increased production capacity bodes well for increased royalty revenue. Currently offsetting the gains expected from increased volumes is weakness in the pricing of iron ore. The general market consensus seems to be that prices will recover later in the year.Bruce C. BonePresident and Chief Executive OfficerToronto, OntarioAugust 8, 2012LABRADOR IRON ORE ROYALTY CORPORATION   INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS                  As at  June 30,  December 31, Canadian $ 2012 2011    (Unaudited)    Assets    Current Assets     Cash $27,645,293  $41,498,184  Amounts receivable (note 4) 36,541,047  40,669,780  Income taxes recoverable 6,173,958  392,173 Total Current Assets 70,360,298  82,560,137         Non-Current Assets      Iron Ore Company of Canada ("IOC"),       royalty and commission interests  284,364,064  287,131,292 Investment in IOC (note 5) 327,683,177  299,280,483 Total Non-Current Assets 612,047,241  586,411,775         Total Assets $682,407,539  $  668,971,912                 Liabilities and Shareholders' Equity      Current Liabilities       Accounts payable $7,515,236  $8,419,389  Interest payable on subordinated notes  7,488,000  7,488,000  Dividend payable 16,512,000  16,512,000 Total Current Liabilities 31,515,236  32,419,389         Non-Current Liabilities      Deferred income taxes (note 6) 118,200,000  114,830,000 Subordinated notes 248,000,000  248,000,000 Total Non-Current Liabilities 366,200,000  362,830,000         Total Liabilities 397,715,236  395,249,389         Equity        Share capital  69,708,147  69,708,147  Retained earnings  230,806,156  219,001,376  Accumulated other comprehensive loss  (15,822,000)  (14,987,000)    284,692,303  273,722,523         Total Equity and Liabilities $682,407,539  $  668,971,912                   Approved by the Directors,                (signed) Bruce C. Bone(signed) Alan R. Thomas DirectorDirector    LABRADOR IRON ORE ROYALTY CORPORATION   INTERIM CONDENSED CONSOLIDATED STATEMENTS   OF COMPREHENSIVE INCOME                 For the Three Months   Ended June 30,Canadian $ 2012 2011  (Unaudited)Revenue    IOC royalties $35,996,161  $37,754,213 IOC commissions 337,774  290,334 Interest and other income  93,949  104,172   36,427,884  38,148,719Expenses      Newfoundland royalty taxes 7,199,232  7,550,843 Amortization of royalty and commission interests 1,425,808  1,112,870 Administrative expenses  495,322  705,404 Interest expense:        Credit facility 94,521  93,494   Subordinated notes  7,488,000  7,488,000   16,702,883  16,950,611       Income before equity earnings and income taxes 19,725,001  21,198,108Equity earnings in IOC  18,174,251  30,431,486       Income before income taxes  37,899,252  51,629,594       Provision for income taxes       Current  6,329,617  6,809,433 Deferred 2,275,772  4,102,000   8,605,389  10,911,433       Net income for the period 29,293,863  40,718,161       Other comprehensive loss      Share of other comprehensive loss of IOC, net of tax (433,000)  (371,000)       Comprehensive income for the period $28,860,863  $40,347,161       Net income per common share $0.46  $0.64        LABRADOR IRON ORE ROYALTY CORPORATION   INTERIM CONDENSED CONSOLIDATED STATEMENTS   OF COMPREHENSIVE INCOME                   For the Six Months Ended  June 30, Canadian $ 2012 2011    (Unaudited)  Revenue    IOC royalties $58,006,234  $68,034,430 IOC commissions 568,777  541,303 Interest and other income  216,161  236,961   58,791,172  68,812,694Expenses      Newfoundland royalty taxes 11,601,247  13,606,886 Amortization of royalty and commission interests 2,767,228  2,171,238 Administrative expenses  1,079,382  1,105,556 Interest expense:        Credit facility 188,014  185,959   Subordinated notes  14,976,000  14,976,000   30,611,871  32,045,639       Income before equity earnings and income taxes 28,179,301  36,767,055Equity earnings in IOC (note 5) 29,379,694  49,682,954       Income before income taxes  57,558,995  86,450,009       Provision for income taxes (note 6)      Current  9,218,215  11,898,227 Deferred 3,512,000  2,406,000   12,730,215  14,304,227       Net income for the period 44,828,780  72,145,782       Other comprehensive loss      Share of other comprehensive loss of IOC, net of tax (835,000)  (743,000)       Comprehensive income for the period $43,993,780  $71,402,782     Net income per common share $0.70  $1.13       LABRADOR IRON ORE ROYALTY CORPORATION   INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                            For the Six Months Ended    June 30,Canadian $  2012 2011      (Unaudited)  Net inflow (outflow) of cash related    to the following activities          Operating     Net income for the period $ 44,828,780  $ 72,145,782 Items not affecting cash:     Equity earnings in IOC(29,379,694) (49,682,954)  Current income taxes9,218,215 11,898,227  Deferred income taxes3,512,000 2,406,000  Amortization of royalty and commission interests2,767,228 2,171,238  Interest expense15,164,014 15,161,959 Common share dividend from IOC- 28,994,815 Change in amounts receivable and accounts payable3,224,580 10,261,996 Interest paid (15,164,014) (15,161,959) Income taxes paid (15,000,000) (20,742,547) Cash flow from operating activities19,171,109 57,452,557       Financing     Dividends paid to shareholders(33,024,000) (97,024,000) Cash flow used in financing activities(33,024,000) (97,024,000)       Decrease in cash, during the period(13,852,891) (39,571,443)       Cash, beginning of period41,498,184 73,611,888       Cash, end of period $ 27,645,293  $ 34,040,445     LABRADOR IRON ORE ROYALTY CORPORATION    INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY        Accumulated    other   CapitalRetainedcomprehensive  Canadian $ stockearningsincome (loss)Total  (Unaudited)       Balance as at December 31, 2010 $69,708,147 $147,934,994 $(4,271,000) $213,372,141Net income for the period - 72,145,782 - 72,145,782Dividends declared to shareholders - (57,024,000) - (57,024,000)Share of other comprehensive loss from investment in IOC - - (743,000) (743,000)Balance as at June 30, 2011 69,708,147 163,056,776 (5,014,000) 227,750,923         Balance as at December 31, 2011 69,708,147 219,001,376 (14,987,000) 273,722,523Net income for the period - 44,828,780 - 44,828,780Dividends declared to shareholders  - (33,024,000) - (33,024,000)Share of other comprehensive loss from investment in IOC - - (835,000) (835,000)Balance as at June 30, 2012 $69,708,147 $230,806,156 $(15,822,000) $284,692,303 The complete consolidated financial statements for the second quarter ended June 30, 2012, including notes thereto, are posted on sedar.com and labradorironore.com.  SOURCE: Labrador Iron Ore Royalty CorporationFor further information: Bruce C. Bone President & Chief Executive Officer (416) 863-7133 E-mail: investor.relations@labradorironore.com