Labrador Iron Ore Royalty Income Fund - Results for the third quarter ended
September 30, 2009

TORONTO, Oct. 29 /CNW/ - Labrador Iron Ore Royalty Income Fund (TSX: LIF.UN) announced its results for the third quarter ended September 30, 2009.

Royalty income for the third quarter of 2009 amounted to $15.51 million as compared to $43.20 million for the third quarter of 2008. The Fund's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable/recoverable (adjusted cash flow) for the third quarter was $18.81 million or $0.59 per unit as compared to $104.10 million or $3.25 per unit for the same period in 2008. Net income was $13.63 million or $0.43 per unit compared to $65.64 million or $2.05 per unit for the same period in 2008.

Royalty income for the quarter was substantially below the 2008 quarter due to the 2009 benchmark price reduction for pellets of 48.3% and concentrates of 29.75% as compared to 2008 benchmark prices, and the lower volume of sales. Cash flow from operations was affected by the reduced royalty revenue and the reduction in the dividend from Iron Ore Company of Canada (IOC) which was $8.2 million compared to the $77.9 million received in the 2008 third quarter. Net income was affected by these factors as well as substantially lower equity earnings from IOC. The retroactive effect of the price settlements which occurred during the quarter (retroactive to January 1) had been provided for in previous quarters.

The world recession which started last year continued to cause the demand for iron ore, especially pellets, to be reduced from the previous year. As a result IOC, which had previously idled some pellet machines, shut down its Carol Lake operations in Labrador City from July 7 to August 10, 2009 in order to balance inventories with demand. Shipment from IOC's terminal in Sept-Iles continued during this period. With the revival of pellet demand in traditional markets, IOC resumed full pellet production subsequent to the summer shut down.

Equity earnings from IOC amounted to $3.26 million ($0.10 per unit) as compared to $34.19 million ($1.07 per unit) in 2008. IOC earnings were negatively affected by reduced sales volume and lower prices for concentrates and pellets as compare to 2008.

On September 30, 2009 the Fund received a dividend from IOC totaling US$7.5 million equating to CDN$8.2 million or $0.26 per unit.

Results for the three months and nine months ended September 30, 2009 are summarized below:

    
                                   3 Months   3 Months   9 Months   9 Months
                                      Ended      Ended      Ended      Ended
                                   Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
                                       2009       2008       2009       2008
                                   ------------------------------------------
                                                   (Unaudited)

    Revenue (in millions)           $ 15.84    $ 43.72    $ 52.10    $118.42
                                   ---------  ---------  ---------  ---------
    Adjusted cash flow (in
     millions)                      $ 18.81    $104.10    $ 42.50    $147.40
                                   ---------  ---------  ---------  ---------
    Adjusted cash flow per unit     $  0.59    $  3.25    $  1.33    $  4.60
                                   ---------  ---------  ---------  ---------
    Net income (in millions)        $ 13.63    $ 65.64    $ 47.94    $150.34
                                   ---------  ---------  ---------  ---------
    Net income per unit             $  0.43    $  2.05    $  1.50    $  4.70
                                   ---------  ---------  ---------  ---------
    

"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/recoverable) is not a recognized measure under Canadian GAAP. The Trustees 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   3 Months   9 Months   9 Months       Year
                           Ended      Ended      Ended      Ended      Ended
                        Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,   Dec. 31,
                            2009       2008       2009       2008       2008
                        -----------------------------------------------------
    Pellets                 2.08       3.29       5.70       9.86      12.30
    Concentrates            1.17       1.15       3.92       1.97       2.76
                        -----------------------------------------------------
    Total                   3.25       4.44       9.62      11.83      15.06
                        -----------------------------------------------------
    

Outlook

-------

During the quarter iron ore markets for concentrates and pellets continued to firm with the result that IOC, which is now back to operating at full capacity, expects to be able to sell all its production for the balance of the year. The prices on the spot market have firmed and are now comparable to benchmark prices. 2009 will be disappointing when compared to last year but the outlook for 2010 appears more promising.

Respectfully submitted on behalf of the Trustees of Labrador Iron Ore Royalty Income Fund,

    
    Bruce C. Bone
    Chairman and Chief Executive Officer
    October 29, 2009
    

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 Fund's 2008 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 Fund's 2008 Annual Report.

The Fund'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 Fund'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. The current state of the market may cause 2009 sales to deviate from this pattern. 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 third quarter of 2009 amounted to $15.51 million as compared to $43.20 million for the third quarter of 2008. The Fund's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable/recoverable (adjusted cash flow) for the third quarter was $18.81 million or $0.59 per unit as compared to $104.10 million or $3.25 per unit for the same period in 2008. Net income was $13.63 million or $0.43 per unit compared to $65.64 million or $2.05 per unit for the same period in 2008.

Royalty income for the quarter was substantially below the 2008 quarter due to the 2009 benchmark price reduction for pellets of 48.3% and concentrates of 29.75% as compared to 2008 benchmark prices, and the lower volume of sales. Cash flow from operations was affected by the reduced royalty revenue and the reduction in the dividend from Iron Ore Company of Canada (IOC) which was $8.2 million compared to the $77.9 million received in the 2008 third quarter. Net income was affected by these factors as well as substantially lower equity earnings from IOC. The retroactive effect of the price settlements which occurred during the quarter (retroactive to January 1) had been provided for in previous quarters.

The world recession which started last year caused the demand for iron ore, especially pellets, to be reduced from the previous year. As a result IOC, which had previously idled some pellet machines, shut down its Carol Lake operations in Labrador City from July 7 to August 10, 2009 in order to balance inventories with demand. Shipment from IOC's terminal in Sept-Iles continued during this period.

Equity earnings from IOC amounted to $3.26 million ($0.10 per unit) as compared to $34.19 million ($1.07 per unit) in 2008. IOC earnings were negatively affected by reduced sales volume and lower prices for concentrates and pellets as compared to 2008. The nine months results were affected by the same factors as the quarter and reflect the lower volume and lower pricing. Because of particularly weak pellet demand, IOC idled a portion of its pellet plant during the first half of the year in order to have more concentrate available for sale in spot markets. With the revival of the pellet market, IOC resumed full pellet production subsequent to the summer shut down.

The following table sets out quarterly revenue, net income and cash flow data for 2009, 2008 and 2007.

    
                                                            Adjusted Distrib-
                                            Net   Adjusted   Cash    utions
                                    Net    Income    Cash   Flow per Declared
                         Revenue  Income  per Unit  Flow(1)  Unit(1) per Unit
                        -------- -------- -------- -------- -------- --------
                                (in millions except per Unit information)

    2009
    ----
    First Quarter       $  16.6  $  16.5  $  0.52 $   11.1  $  0.35  $  0.50
    Second Quarter      $  19.7  $  17.8  $  0.55 $   12.6  $  0.39  $  0.50
    Third Quarter       $  15.8  $  13.6  $  0.43 $ 18.8(2) $  0.59  $  0.50

    2008
    ----
    First Quarter       $  16.6  $  10.8  $  0.34 $   10.4  $  0.32  $  0.35
    Second Quarter      $  58.1  $  73.9  $  2.31 $   32.9  $  1.03  $  1.00
    Third Quarter       $  43.7  $  65.6  $  2.05 $104.1(3) $  3.25  $  3.00
    Fourth Quarter      $  45.0  $  26.2  $  0.82 $   27.5  $  0.86  $  0.50

    2007
    ----
    First Quarter       $  13.1  $  10.7  $  0.34 $    8.7  $  0.27  $  0.35
    Second Quarter      $  15.7  $  15.2  $  0.47 $    9.5  $  0.30  $  0.35
    Third Quarter       $  20.1  $  23.0  $  0.72 $ 30.8(4) $  0.96  $  0.70
    Fourth Quarter      $  18.7  $  32.0  $  1.00 $   11.5  $  0.36  $  0.55

    Notes:    (1)   "Adjusted cash flow" (see below)
              (2)   Includes an $8.2  million IOC dividend
              (3)   Includes a $77.9  million IOC dividend
              (4)   Includes an $18.8 million IOC dividend
    

Standardized Cash Flow and Adjusted Cash Flow

For the Fund, standardized cash flow is the same as cash flow from operating activities as recorded in the Fund's cash flow statements as the Fund does not incur capital expenditures or have any restrictions on distributions. Standardized cash flow per unit was $0.56 for the quarter (2008 - $3.82). Cumulative standardized cash flow from inception of the trust is $23.21 per unit and total cash distributions since inception are $22.43 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 payable and income taxes payable/ recoverable. It is not a recognized measure under Canadian GAAP. The Trustees 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      3 Months     9 Months      9 Months
                              Ended         Ended        Ended         Ended
                           Sept. 30,     Sept. 30,    Sept. 30,     Sept. 30,
                               2009          2008         2009          2008
                        -----------------------------------------------------
    Standardized cash
     flow from
     operating
     activities         $17,849,913  $122,172,571  $31,053,382  $146,858,827
    Excluding: changes
     in amounts
     receivable,
     accounts payable
     and income taxes
     payable/
     (recoverable)          961,659   (18,075,891)  11,448,989       542,625
                        -----------------------------------------------------
    Adjusted cash flow  $18,811,572  $104,096,680  $42,502,371  $147,401,452
                        -----------------------------------------------------
    Adjusted cash flow
     per unit                 $0.59         $3.25        $1.33         $4.61
                        -----------------------------------------------------
    

Liquidity

---------

The Fund has a $50 million revolving credit facility with a term ending September 18, 2012 with provision for annual one-year extensions. No amounts are currently drawn under this facility leaving $50 million available to provide for any capital required by IOC or other Fund requirements. IOC has suspended its previously announced expansion plans and intends to fund capital expenditures from internally generated funds.

Transition to International Financial Reporting Standards ("IFRS")

------------------------------------------------------------------

As indicated in the 2008 annual report, the Canadian Accounting Standards Board will require all Canadian publically accountable enterprises, including the Fund, to adopt International Financial Reporting Standards (IFRS) for the years beginning January 1, 2011. Management has developed a project plan for the conversion to IFRS for the Fund. The project is progressing as planned, and to date there are no changes to the disclosure outlined in the December 31, 2008 MD&A in the 2008 annual report.

Outlook

-------

During the quarter iron ore markets for concentrates and pellets continued to firm with the result that IOC, which is now back to operating at full capacity, expects to be able to sell all its production for the balance of the year. The prices on the spot market have firmed and are now comparable to benchmark prices. 2009 will be disappointing when compared to last year but the outlook for 2010 appears more promising.

    
    Bruce C. Bone
    Chairman and Chief Executive Officer
    Toronto, Ontario
    October 29, 2009



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED BALANCE SHEETS

    -------------------------------------------------------------------------

                                                            As at
                                                -----------------------------
                                                 September 30    December 31
                                                     2009           2008
                                                -----------------------------
                                                 (Unaudited)

    Assets
    Current
      Cash and cash equivalents                 $  10,848,952  $  27,795,570
      Amounts receivable                           17,120,621     36,476,337
      Income taxes recoverable                      1,335,358              -
                                                -------------- --------------
                                                   29,304,931     64,271,907

    Deferred charges                                  330,666        392,666

    Iron Ore Company of Canada ("IOC"),
      royalty and commission interests            298,824,331    302,198,099

    Investment in IOC                             196,557,418    187,452,133
                                                -------------- --------------
                                                $ 525,017,346  $ 554,314,805
                                                -------------- --------------
                                                -------------- --------------

    Liabilities and Unitholders' Equity
    Current
      Accounts payable                          $   3,657,159  $   7,484,614
      Income taxes payable                                  -     25,641,892
      Distributions payable to unitholders         16,000,000     16,000,000
                                                -------------- --------------
                                                   19,657,159     49,126,506

    Future income tax liability                   103,340,000    103,110,000
                                                -------------- --------------
                                                  122,997,159    152,236,506
    Unitholders' equity
      Trust units                                 317,708,147    317,708,147
      Undistributed income                         84,312,040     84,370,152
                                                -------------- --------------
                                                $ 525,017,346  $ 554,314,805
                                                -------------- --------------
                                                -------------- --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF INCOME AND
    COMPREHENSIVE INCOME AND UNDISTRIBUTED INCOME
    -------------------------------------------------------------------------

                                                    For the Three Months
                                                     Ended September 30,
                                                     2009           2008
                                                -----------------------------
                                                         (Unaudited)

    Revenue
      IOC royalties                             $  15,514,566  $  43,200,281
      IOC commissions                                 320,284        437,089
      Interest and other income                         4,363         84,604
                                                -------------- --------------
                                                   15,839,213     43,721,974
                                                -------------- --------------

    Expenses
      Newfoundland royalty taxes                    3,102,913      8,640,056
      Amortization of royalty and commission
       interests                                    1,332,629      1,424,051
      Administrative expenses (note 2)                447,476       (267,623)
      Interest expense                                115,187        144,614
                                                -------------- --------------
                                                    4,998,205      9,941,098
                                                -------------- --------------

    Income before equity earnings and income taxes 10,841,008     33,780,876
    Equity earnings in IOC                          3,261,695     34,190,307
                                                -------------- --------------
    Income before income taxes                     14,102,703     67,971,183
                                                -------------- --------------
    Provision for (recovery of) income taxes
      Current                                       1,582,827      9,063,062
      Future                                       (1,110,000)    (6,730,000)
                                                -------------- --------------
                                                      472,827      2,333,062
                                                -------------- --------------

    Net income and comprehensive
     income for the period                         13,629,876     65,638,121

    Undistributed income, beginning of period      86,682,164    104,550,599

    Distributions to unitholders                  (16,000,000)   (96,000,000)
                                                -------------- --------------

    Undistributed income, end of period         $  84,312,040  $  74,188,720
                                                -------------- --------------
                                                -------------- --------------

    Net income per unit                         $        0.43  $        2.05
                                                -------------- --------------
                                                -------------- --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF INCOME AND
    COMPREHENSIVE INCOME AND UNDISTRIBUTED INCOME
    -------------------------------------------------------------------------

                                                    For the Nine Months
                                                     Ended September 30,
                                                     2009           2008
                                                -----------------------------
                                                         (Unaudited)
    Revenue
      IOC royalties                             $  51,016,686  $ 117,170,887
      IOC commissions                                 947,045      1,164,218
      Interest and other income                       134,831         88,942
                                                -------------- --------------
                                                   52,098,562    118,424,047
                                                -------------- --------------

    Expenses
      Newfoundland royalty taxes                   10,203,337     23,434,177
      Amortization of royalty and commission
       interests                                    3,373,768      3,815,050
      Administrative expenses (note 2)              1,346,269      1,266,865
      Interest expense                                342,479        497,175
                                                -------------- --------------
                                                   15,265,853     29,013,267
                                                -------------- --------------

    Income before equity earnings and income taxes 36,832,709     89,410,780
    Equity earnings in IOC                         17,305,381     84,726,196
                                                -------------- --------------
    Income before income taxes                     54,138,090    174,136,976
                                                -------------- --------------

    Provision for (recovery of) income taxes
      Current                                       5,966,202     23,841,695
      Future                                          230,000        (40,000)
                                                -------------- --------------
                                                    6,196,202     23,801,695
                                                -------------- --------------
    Net income and comprehensive
     income for the period                         47,941,888    150,335,281

    Undistributed income, beginning of period      84,370,152     63,053,439

    Distributions to unitholders                  (48,000,000)  (139,200,000)
                                                -------------- --------------
    Undistributed income, end of period         $  84,312,040  $  74,188,720
                                                -------------- --------------
                                                -------------- --------------
    Net income per unit                         $        1.50  $        4.70
                                                -------------- --------------
                                                -------------- --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    -------------------------------------------------------------------------

                                                    For the Three Months
                                                     Ended September 30,
                                                     2009           2008
                                                -----------------------------
                                                         (Unaudited)

    Net inflow (outflow) of cash related
     to the following activities

    Operating
      Net income for the period                 $  13,629,876  $  65,638,121
      Items not affecting cash:
        Equity earnings in IOC                     (3,261,695)   (34,190,307)
        Future income taxes                        (1,110,000)    (6,730,000)
        Amortization of royalty and commission
         interests                                  1,332,629      1,424,051
        Amortization of deferred charges               20,666         31,251
      Common share dividend received from IOC       8,200,096     77,923,564
      Change in amounts receivable, accounts and
       income taxes payable/recoverable              (961,659)    18,075,891
                                                -------------- --------------
      Cash flow from operating activities          17,849,913    122,172,571
                                                -------------- --------------

    Financing
      Distributions paid to unitholders           (16,000,000)   (32,000,000)
      Repayment of long-term debt                           -     (5,405,519)
                                                -------------- --------------
                                                  (16,000,000)   (37,405,519)
                                                -------------- --------------

    Increase in cash and cash equivalents
     during the period                              1,849,913     84,767,052
    Cash and cash equivalents, beginning of period  8,999,039        108,881
                                                -------------- --------------

    Cash and cash equivalents, end of period    $  10,848,952  $  84,875,933
                                                -------------- --------------
                                                -------------- --------------

    Cash income taxes paid                      $   4,849,155  $   1,896,000
                                                -------------- --------------
                                                -------------- --------------

    Cash interest paid                          $      93,493  $      64,480
                                                -------------- --------------
                                                -------------- --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    -------------------------------------------------------------------------

                                                    For the Nine Months
                                                     Ended September 30,
                                                     2009           2008
                                                -----------------------------
                                                         (Unaudited)

    Net inflow (outflow) of cash related
     to the following activities

    Operating
      Net income for the period                 $  47,941,888  $ 150,335,281
      Items not affecting cash:
        Equity earnings in IOC                    (17,305,381)   (84,726,196)
        Future income taxes                           230,000        (40,000)
        Amortization of royalty and commission
         interests                                  3,373,768      3,815,050
        Amortization of deferred charges               62,000         93,753
      Common share dividend received from IOC       8,200,096     77,923,564
      Change in amounts receivable, accounts
       payable and income taxes
       payable/recoverable                        (11,448,989)      (542,625)
                                                -------------- --------------
      Cash flow from operating activities          31,053,382    146,858,827
                                                -------------- --------------

    Financing
      Distributions paid to unitholders           (48,000,000)   (60,800,000)
      Repayment of long-term debt                           -     (1,334,150)
                                                -------------- --------------
                                                  (48,000,000)   (62,134,150)
                                                -------------- --------------
    Increase (decrease) in cash and cash
     equivalents during the period                (16,946,618)    84,724,677
    Cash and cash equivalents, beginning
     of period                                     27,795,570        151,256
                                                -------------- --------------

    Cash and cash equivalents, end of period    $  10,848,952  $  84,875,933
                                                -------------- --------------
                                                -------------- --------------

    Cash income taxes paid                      $  32,943,452  $   4,056,000
                                                -------------- --------------
                                                -------------- --------------

    Cash interest paid                          $     280,480  $     317,062
                                                -------------- --------------
                                                -------------- --------------
    

%SEDAR: 00002722E

SOURCE LABRADOR IRON ORE ROYALTY INCOME FUND

For further information: For further information: Bruce C. Bone, Chairman & Chief Executive Officer, (416) 863-7133

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LABRADOR IRON ORE ROYALTY INCOME FUND

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