Labrador Iron Ore Royalty Corp., a former income trust that holds a 15-per-cent stake in Iron Ore Co. of Canada, has hired advisers to help it consider strategic alternatives after another partner in the country’s largest iron ore producer put its majority stake up for sale.
Labrador Iron Ore Royalty (LIORC) is under pressure from activist shareholder Waratah Advisors to separate its stake in IOC from a 7-per-cent royalty interest in the company, so the latter is not obscured by rough seas assailing the mining industry, abandoned by many shareholders in an environment of booming costs and asset writedowns.
LIORC said in a statement late Friday that alternatives included a “potential sale of the company or all or part of its assets, the separation of LIORC’s 7-per-cent royalty interest in IOC from its other assets, and the maintenance of the status quo.”
Global commodities markets are teetering as demand wavers, pulled lower amid sustained economic woes in major markets from the United States to Europe, and as China, which powered a decade-long high-price cycle, eases up on a sustained infrastructure drive.
“So, we’re encouraged to see that the company is evaluating opportunities in front of them, including specifically the separation of equity from royalty,” said Blair Levinsky, the president of Waratah Capital Advisors Ltd. “The royalty would stand alone and get its fair value in the market, as opposed to being obscured by the equity.”
Mr. Levinsky said Waratah has been lobbying for change at LIORC for months, a period when royalty companies have enjoyed massive upswings in valuations even as stock in mining companies wallowed.
He noted on Monday that that agitation was “not an iron ore trade.” He said it predated and was unrelated to news that No. 3 global miner Rio Tinto PLC has put a “for sale” sign out on its 58-per-cent stake in IOC, seen as having some of the world’s best quality iron ore, with easy shipping access routes to global markets.
“In fact some would argue that 15 per cent of IOC is much more marketable and perhaps of higher value than 58 per cent of IOC,” said Mr. Levinsky, pointing to global steel mills which have been buying stakes in miners to hedge input costs without having to operate the assets.
In January, a consortium including South Korea’s biggest steel maker Posco and Taiwan’s China Steel Corp. took a 15-per-cent stake in Montreal-based ArcelorMittal Mines Canada Inc., for example.
Citing analysts’ reports, Waratah said in February the LIORC stake in IOC could be worth between $1-billion and $1.5-billion.
“The equity asset has been a chronic underperformer which is weighing on the share price of LIORC,” Waratah said in the February report, noting production at IOC has averaged 14.4 million tonnes over the past five years, compared with pro forma capacity of 23.3 million tonnes.