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Press release from CNW Group

Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended March 31, 2013

Thursday, May 02, 2013

Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended March 31, 2013

18:53 EDT Thursday, May 02, 2013

TORONTO, May 2, 2013 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF) announced today its operation and cash flow results for the first quarter ended March 31, 2013.

Royalty income for the first quarter of 2013 amounted to $26.1 million as compared to $22.0 million for the first quarter of 2012. The shareholders' 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 $14.3 million or $0.22 per share as compared to $14.4 million or $0.23 per unit for the same period in 2012.  Net income was $21.7 million or $0.34 per share compared to $23.0 million or $0.36 per unit for the same period in 2012. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $9.4 million or $0.15 per share as compared to $11.2 million or $0.18 per unit in 2012. Although royalty revenue for the quarter was higher than the same period last year, cash flow was slightly lower due to higher income taxes, a result of the elimination of interest expense on the subordinated notes that were cancelled last September (see the reorganization referred to below).

IOC production in the quarter, while higher than the same period last year, was negatively affected by winter weather conditions and the continued integration of the expansion into the operations. By the end of the quarter, production was approaching an annual rate in excess of 20 million tonnes, reflecting the successful integration of the first phase of the expansion program. Sales for the quarter were negatively affected by the availability of product and by the timing of shipments.

At a special meeting held on September 28, 2012, the holders of stapled units approved an exchange of their subordinated notes for common shares of Labrador Iron Ore Royalty Corporation ("LIORC") and a consolidation of common shares. The $248 million subordinated notes were cancelled and each holder of common shares  ended up holding the same number of common shares as before the transactions, and LIORC continued to have 64 million common shares outstanding. Interest on the subordinated notes ceased to accrue after September 30, 2012. For the purposes of this report, all references to shareholders and per share figures may refer to holders of stapled units and per stapled units, respectively, as applicable. Prior to the transactions, the net income attributed to the holders of stapled units consisted of the net income of LIORC plus the interest paid on the subordinated notes. Thus 2012 net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus the $7,488,000 ($0.117 per stapled unit) interest on the subordinated notes accrued in the quarter.

Results for the three months ended March 31 are summarized below:

             
        2013   2012
        (Unaudited)
             
Revenue (in millions)       $26.4   $22.4
Adjusted cash flow (in millions)       $14.3   $14.4
Adjusted cash flow per share/unit       $0.22   $0.23
Net income (in millions)       $21.7   $23.0
Net income per share/unit       $0.34   $0.36
             
     

"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 dividends to shareholders.

A summary of IOC's sales in millions of tonnes is as follows:

                     
        3 Months
Ended
Mar. 31,
2013
    3 Months
Ended
Mar. 31,
2012
    Year
Ended
Dec. 31,
2012
                     
Pellets       1.72     1.85     9.90
Concentrates(1)       0.90     0.50     4.22
                     
Total       2.62     2.35     14.12

(1)     Excludes third party ore sales

Potential Sale by Rio Tinto

On April 18, 2013, a letter was sent to shareholders about Rio Tinto's potential sale of its interest in IOC and the Board's consideration of strategic alternatives available to the Corporation. At this time, there are no new developments to report.

Outlook

The integration of the first phase of the expansion program at IOC is now complete and production results to date in the second quarter are encouraging with record levels occurring. IOC is expecting production at an annual rate in excess of 20 million tonnes for the balance of the year. Prices appear to have stabilized at levels well above the lows of last fall and the Canadian dollar has weakened against its U.S. counterpart. These are positive for future royalty revenues. As IOC expects to sell all it can produce, 2013 should be a satisfactory year for the Corporation.

Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,

Bruce C. Bone
President and Chief Executive Officer
May 2, 2013

Management's Discussion and Analysis

The following discussion and analysis should be read in conjunction with the Management's Discussion and Analysis section of the Labrador Iron Ore Royalty Corporation's ("LIORC" or the "Corporation") 2012 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 2012 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 first quarter sales of IOC are traditionally adversely affected by the closing of the St. Lawrence Seaway and general winter operating conditions and are usually 15% - 20% of the annual volume, 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 2013 amounted to $26.1 million as compared to $22.0 million for the first quarter of 2012. The shareholders' 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 $14.3 million or $0.22 per share as compared to $14.4 million or $0.23 per unit for the same period in 2012.  Net income was $21.7 million or $0.34 per share compared to $23.0 million or $0.36 per unit for the same period in 2012. Equity earnings from IOC amounted to $9.4 million or $0.15 per share as compared to $11.2 million or $0.18 per unit in 2012. Although royalty revenue for the quarter was higher than the same period last year, cash flow was slightly lower due to higher income taxes, a result of the elimination of interest expense on the subordinated notes that were cancelled last September (see the reorganization referred to below).

IOC production in the quarter, while higher than the same period last year, was negatively affected by winter weather conditions and the continued integration of the expansion into the operations. By the end of the quarter, production was approaching an annual rate in excess of 20 million tonnes, reflecting the successful integration of the first phase of the expansion program. Sales for the quarter were negatively affected by the availability of product and by the timing of shipments.

At a special meeting held on September 28, 2012, the holders of stapled units approved an exchange of their subordinated notes for common shares of LIORC and a consolidation of common shares. The $248 million subordinated notes were cancelled and each holder of common shares  ended up holding the same number of common shares as before the transactions, and LIORC continued to have 64 million common shares outstanding. Interest on the subordinated notes ceased to accrue after September 30, 2012. For the purposes of this report, all references to shareholders and per share figures may refer to holders of stapled units and per stapled units, respectively, as applicable. Prior to the transactions, the net income attributed to the holders of stapled units consisted of the net income of LIORC plus the interest paid on the subordinated notes. Thus 2012 net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus the $7,488,000 ($0.117 per stapled unit) interest on the subordinated notes accrued in the quarter.

The following table sets out quarterly revenue, net income and cash flow data for 2013, 2012 and 2011.

             
  Revenue Net
Income
Net
Income
per
Share/Unit (1)
Adjusted Cash
Flow (2)
Adjusted Cash Flow
per Share/Unit (1) (2)
Distributions
Declared
per Share/Unit (1)
   
  (in millions except per Share/Unit information)       
2013            
First Quarter $26.4 $21.7 $0.34 $14.3 $0.22 $0.375
2012
First Quarter(3)
$22.4 $23.0 $0.36 $14.4 $0.23 $0.375
Second Quarter(3) $36.4 $36.8 $0.57 $22.3 $0.35 $0.375
Third Quarter (3) $32.6 $29.7 $0.47 $18.5 $0.28 $0.375
Fourth Quarter $32.8 $32.3 $0.50 $19.9 $0.31 $0.375
2011            
First Quarter(3) $30.7 $38.9 $0.61 $48.0 (4) $0.75 $0.75
Second Quarter(3) $38.1 $48.2 $0.75 $23.0    $0.36 $0.375
Third Quarter (3) $54.9 $76.3 $1.19 $63.7 (5) $0.99 $0.75
Fourth Quarter(3) $38.8 $45.9 $0.72 $23.4   $0.37 $0.375
     
Notes: (1) Per share 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) Prior to the fourth quarter of 2012, net income, adjusted cash flow, distributions and per unit figures referred to in this table use the totals according to the consolidated financial statements plus (where applicable) the $7,488,000 ($0.117 per unit) interest on the subordinated notes        
  (4) Includes a $29.0 million IOC dividend        
  (5) Includes a $31.2 million IOC dividend        
   

Standardized Cash Flow and Adjusted Cash Flow

For 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 share was $0.22 for the quarter (2012 - $0.26(1)). Cumulative standardized cash flow from inception of the Corporation is $17.16 per share and total cash distributions since inception are $16.79 per share, 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 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 dividends to shareholders.

The following reconciles cash flow from operating activities to adjusted cash flow.

                 
        3 Months Ended
Mar. 31, 2013
    3 Months Ended
Mar. 31, 2012
 
Standardized cash flow from operating activities       $14,106,869     $16,827,813  
Excluding: changes in amounts receivable, accounts payable and income taxes payable       243,144     (9,896,919)  
Adjusted cash flow       $14,350,013     $6,930,894  (1)
Adjusted cash flow per share       $0.22     $0.11 (1)
                 

(1) Excludes note interest on subordinated notes paid directly to shareholders of $7,488,000 or $0.117 per unit.

Liquidity

The Corporation has a $50 million revolving credit facility to September 18, 2015 with provision for annual one-year extensions.  No amounts are currently drawn under this facility (2012 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.

Potential Sale by Rio Tinto

On April 18, 2013, a letter was sent to shareholders about Rio Tinto's potential sale of its interest in IOC and the Board's consideration of strategic alternatives available to the Corporation. At this time, there are no new developments to report.

Outlook

The integration of the first phase of the expansion program at IOC is now complete and production results to date in the second quarter are encouraging with record levels occurring. IOC is expecting production at an annual rate in excess of 20 million tonnes for the balance of the year. Prices appear to have stabilized at levels well above the lows of last fall and the Canadian dollar has weakened against its U.S. counterpart. These are positive for future royalty revenues. As IOC expects to sell all it can produce, 2013 should be a satisfactory year for the Corporation.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
May 2, 2013

       
LABRADOR IRON ORE ROYALTY CORPORATION      
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS      
           
    As at  
    March 31,   December 31,  
Canadian $  2013   2012  
    (Unaudited)  
Assets            
Current Assets            
  Cash  $ 17,030,290   $ 26,923,421  
  Amounts receivable   29,887,007     29,308,484  
  Income taxes recoverable   3,236,842     3,130,130  
Total Current Assets   50,154,139     59,362,035  
               
               
Iron Ore Company of Canada ("IOC"),            
  royalty and commission interests   282,314,133     283,263,500  
Investment in IOC   360,506,866     351,770,591  
Total Non-Current Assets   642,820,999     635,034,091  
               
Total Assets $ 692,975,138   $ 694,396,126  
               
               
Liabilities and Shareholders' Equity            
Current Liabilities            
  Accounts payable $ 6,609,229   $ 6,167,138  
  Dividends payable   24,000,000     24,000,000  
Total Current Liabilities   30,609,229     30,167,138  
               
Non-Current Liabilities            
  Deferred income taxes   122,360,000     121,360,000  
Total Liabilities   152,969,229     151,527,138  
               
Shareholders' Equity             
  Share capital   317,708,147     317,708,147  
  Retained earnings    242,432,762     244,758,841  
  Accumulated other comprehensive loss    (20,135,000)     (19,598,000)  
      540,005,909     542,868,988  
               
Total Liabilities and Shareholders' Equity $ 692,975,138   $ 694,396,126
           

 

             
LABRADOR IRON ORE ROYALTY CORPORATION          
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
             
    For the three months ended
    March 31,
Canadian $  2013   2012
    (Unaudited)
Revenue          
  IOC royalties $ 26,101,205   $ 22,010,073
  IOC commissions   257,651     231,003
  Interest and other income    58,369     122,212
      26,417,225     22,363,288
Expenses          
  Newfoundland royalty taxes   5,216,405     4,402,015
  Amortization of royalty and commission interests   949,367     1,341,420
  Administrative expenses    865,053     584,060
  Interest expense:          
    Credit facility   92,466     93,493
    Subordinated notes    -     7,488,000
      7,123,291     13,908,988
             
Income before equity earnings and income taxes   19,293,934     8,454,300
Equity earnings in IOC    9,364,275     11,205,443
             
Income before income taxes    28,658,209     19,659,743
             
Provision for income taxes           
  Current    5,893,288     2,864,826
  Deferred   1,091,000     1,260,000
      6,984,288     4,124,826
             
Net income for the period   21,673,921     15,534,917
             
Other comprehensive loss          
  Share of other comprehensive loss of IOC that will not be           
    reclassified subsequently to profit or loss (net of taxes)    (537,000)     (402,000)
             
Comprehensive income for the period   21,136,921   $ 15,132,917
             
Net income per share  $ 0.34   $ 0.24
         

 

     
LABRADOR IRON ORE ROYALTY CORPORATION    
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
           
      For the three months ended
      March 31,
Canadian $  2013   2012
      (Unaudited)
Net inflow (outflow) of cash related          
  to the following activities          
               
Operating          
  Net income for the period $ 21,673,921   $ 15,534,917
  Items not affecting cash:          
    Equity earnings in IOC   (9,364,275)     (11,205,443)
    Current income taxes   5,893,288     2,864,826
    Deferred income taxes   1,091,000     1,260,000
    Amortization of royalty and commission interests   949,367     1,341,420
    Interest expense   92,466     7,581,493
  Change in amounts receivable and accounts payable   (136,432)     14,532,093
  Interest paid    (92,466)     (7,581,493)
  Income taxes paid    (6,000,000)     (7,500,000)
  Cash flow from operating activities   14,106,869     16,827,813
               
Financing          
  Dividends paid to shareholders   (24,000,000)     (16,512,000)
  Cash flow used in financing activities   (24,000,000)     (16,512,000)
               
(Decrease)/increase  in cash during the period   (9,893,131)     315,813
               
Cash, beginning of period   26,923,421     41,498,184
               
Cash, end of period $ 17,030,290   $ 41,813,997
           

                 
LABRADOR IRON ORE ROYALTY CORPORATION                
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY            
              Accumulated      
              other       
    Capital   Retained   comprehensive    
Canadian $    stock   earnings   loss   Total
  (Unaudited)
                         
Balance as at December 31, 2011   $ 69,708,147   $ 219,001,376   $ (14,987,000)   $ 273,722,523
Net income for the period     -     15,534,917     -     15,534,917
Dividends declared to shareholders      -     (16,512,000)     -     (16,512,000)
Share of other comprehensive loss from investment in IOC     -     -     (402,000)     (402,000)
Balance as at March 31, 2012     69,708,147     218,024,293     (15,389,000)     272,343,440
                         
Balance as at December 31, 2012     317,708,147     244,758,841     (19,598,000)     542,868,988
Net income for the period     -     21,673,921     -     21,673,921
Dividends declared to shareholders      -     (24,000,000)     -     (24,000,000)
Share of other comprehensive loss from investment in IOC     -     -     (537,000)     (537,000)
Balance as at March 31, 2013   $ 317,708,147   $ 242,432,762   $ (20,135,000)   $ 540,005,909
                         

  

The complete consolidated financial statements for the first quarter ended March 31, 2013, including the notes thereto, are posted on sedar.com and labradorironore.com.

 

 

SOURCE: Labrador Iron Ore Royalty Corporation

For further information:

Bruce C. Bone
President & Chief Executive Officer
(416) 863-7133

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