Labrador Iron Ore Royalty Corporation - Results for the Third Quarter Ended September 30, 2015

TORONTO, Nov. 5, 2015 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC", TSX: LIF) announced today its operation and cash flow results for the third quarter ended September 30, 2015.

Royalty income for the third quarter of 2015 amounted to $31.4 million as compared to $30.3 million for the third quarter of 2014. The adjusted cash flow (see below for definition) for the third quarter was $17.9 million or $0.28 per share as compared to $37.8 million or $0.59 per share for the same period in 2014. The higher cash flow in the third quarter of 2014 reflected an IOC dividend of which Labrador Iron Ore Royalty Corporation's share was $20.7 million or $0.32 per share. Net income was $19.0 million or $0.30 per share compared to $29.0 million or $0.46 per share for the same period in 2014. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $2.5 million or $0.04 per share as compared to $11.1 million or $0.17 per share in 2014. The increased tonnes sold in the quarter was a reflection of the increased production and this, along with the lower Canadian dollar against its US counterpart, offset the lower prices received as compared to last year. As a result, royalty revenue for the quarter was slightly higher than last year.

The progress to reduce costs and increase production that was seen in the last quarter continued during the third quarter with sharply improved haul truck and shovel productivity and record setting performance of the ore delivery system, crushed tonnes and concentrate production. Concentrate production in the quarter was 5.2 million tonnes, which was 5% above the previous quarter and 29% above the first quarter of 2015. Pellet production in the third quarter was 16% above the previous quarter and the 2014 third quarter. Due to the increase in concentrate used in pellet production, concentrate for sale production in the quarter was slightly below the previous quarter but was 28% above the third quarter of 2014.

Third quarter concentrate sales in tonnes were 66% higher than the previous quarter and 38% higher than the corresponding 2014 quarter. Pellet sales in tonnes were 15% higher than the previous quarter and 32% higher than the third quarter of 2014. The increased sales in tonnes were the result of increased product availability due to higher production and shipment timing.

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

(in millions except per share information)


3 Months
Ended

Sept. 30,
2015

3 Months
Ended

Sept. 30,
2014

9 Months
Ended

Sept. 30,
2015


9 Months
Ended

Sept 30,
2014





(Unaudited)








Revenue


$32.0

$30.8

$79.7


$91.8

Adjusted cash flow


$17.9

$37.8

$44.1


$99.2

Adjusted cash flow per share


$0.28

$0.59

$0.69


$1.55

Net income


$19.0

$29.0

$44.4


$92.0

Net income per share


$0.30

$0.46

$0.69


$1.44

 

"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
Sept. 30,
 2015

3 Months
Ended
Sept. 30,
 2014

9 Months
Ended
Sept. 30,
2015

9 Months
Ended
Sept. 30,
 2014

Year
Ended 
Dec. 31,
2014








Pellets


2.64

2.00

7.43

5.80

8.33

Concentrates(1)


3.15

2.28

5.75

4.83

5.99








Total


5.79

4.28

13.18

10.63

14.32

(1)

Excludes third party ore sales

Outlook

With improved operating efficiencies resulting in reduced costs and increased production being attained, IOC is making good progress in reducing its unit cash cost of concentrate production with a target of US$30 per tonne. Concentrate production for the first three quarters was 14.1 million tonnes and should exceed 19 million tonnes for the year or about 3 million more than each of the previous two years. We expect that if the present operating improvements continue, production could approach 21 million tonnes in 2016. Because of the quality of the IOC ore, it remains in demand and commands a premium to posted prices. The increased sales expected as a result of increased production and the lower Canadian dollar against its US counterpart will help offset the lower price being received for iron ore. Although pellet sales have been firm in the first nine months of 2015, the pellet premium has recently weakened as steel prices have fallen and steel producers are watching their inventories closely. IOC has the ability to adjust pellet production should demand be such that the pellet premium makes the sale of pellets less attractive, leaving more concentrate for sale available. The price of iron ore is beyond the control of IOC but all possible steps are being taken to reduce costs and increase production so that IOC remains profitable.

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

Bruce C. Bone
President and Chief Executive Officer 
November 5, 2015

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") 2014 Annual Report and the interim financial statements and notes contained therein.  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 2014 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 third quarter of 2015 amounted to $31.4 million as compared to $30.3 million for the third quarter of 2014. The adjusted cash flow (see below for definition) for the third quarter was $17.9 million or $0.28 per share as compared to $37.8 million or $0.59 per share for the same period in 2014. The higher cash flow in the third quarter of 2014 reflected an IOC dividend of which Labrador Iron Ore Royalty Corporation's share was $20.7 million or $0.32 per share. Net income was $19.0 million or $0.30 per share compared to $29.0 million or $0.46 per share for the same period in 2014. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $2.5 million or $0.04 per share as compared to $11.1 million or $0.17 per share in 2014. The increased tonnes sold in the quarter was a reflection of the increased production and this, along with the lower Canadian dollar against its US counterpart, offset the lower prices received as compared to last year. As a result, royalty revenue for the quarter was slightly higher than last year.

The progress to reduce costs and increase production that was seen in the last quarter continued during the third quarter with sharply improved haul truck and shovel productivity and record setting performance of the ore delivery system, crushed tonnes and concentrate production. Concentrate production in the quarter was 5.2 million tonnes, which was 5% above the previous quarter and 29% above the first quarter of 2015. Pellet production in the third quarter was 16% above the previous quarter and the 2014 third quarter. Due to the increase in concentrate used in pellet production, concentrate for sale production in the quarter was slightly below the previous quarter but was 28% above the third quarter of 2014.

Third quarter concentrate sales in tonnes were 66% higher than the previous quarter and 38% higher than the corresponding 2014 quarter. Pellet sales in tonnes were 15% higher than the previous quarter and 32% higher than the third quarter of 2014. The increased sales in tonnes were the result of increased product availability due to higher production and shipment timing.

Results for the nine months were affected by the same factors as the three month period including lower iron ore prices. Administrative expenses were higher in 2015 due to the legal fees incurred in 2015 in connection with amendments to the Corporation's articles. Also higher directors fees due to the increased size of the board from eight to ten, which has subsequently been reduced to nine. IOC did not pay a dividend in the nine months of 2015 but did pay in 2014, of which LIORC's share was $48.1 million or $0.75 per share.

The following table sets out quarterly revenue, net income and cash flow data for 2015, 2014 and 2013.




Revenue


Net
Income

Net
Income
per Share


Adjusted Cash
Flow(1)


Adjusted Cash Flow
per Share (1)

Distributions
Declared
per Share 



(in millions except per Share information)






2015








First Quarter

$23.7

$10.0

$0.16

$13.1

$0.20

$0.250


Second Quarter

$24.0

$15.4

$0.24

$13.1

$0.21

$0.250


Third Quarter

$32.0

$19.0

$0.30

$17.9

$0.28

$0.250










2014








First Quarter

$27.2

$27.1

$0.42

$27.7(2)

$0.43

$0.400


Second Quarter

$33.8

$35.9

$0.56

$33.7(3)

$0.53

$0.400


Third Quarter

$30.8

$29.0

$0.46

$37.8(4)

$0.59

$0.500


Fourth Quarter

$25.7

$12.1

$0.19

$14.4

$0.22

$0.350










2013








First Quarter

$26.4

$21.7

$0.34

$14.4

$0.22

$0.375


Second Quarter

$42.2

$39.2

$0.61

$23.4

$0.37

$0.375


Third Quarter

$36.1

$41.2

$0.65

$20.0

$0.31

$0.375


Fourth Quarter

$34.6

$46.7

$0.73

   $57.6(5)

$0.90

$0.750









Notes:

(1)

 "Adjusted cash flow" (see below) 






(2)

 Includes a $12.6 million IOC dividend






(3)

 Includes a $14.8 million IOC dividend






(4)

 Includes a $20.7 million IOC dividend






(5)

 Includes a $40.0 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 $0.19 for the quarter (2014 - $0.63). Cumulative standardized cash flow from inception of the Corporation is $21.24 per share and total cash distribution since inception is $20.69 per share, 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.  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
Sept. 30, 2015

3 Months Ended
Sept. 30, 2014

9 Months Ended
Sept. 30, 2015

9 Months Ended
Sept. 30, 2014

Standardized cash flow from operating activities

$12,204,510

$40,539,684

$39,930,494

$95,617,406

Excluding: changes in amounts receivable, accounts payable and
income taxes payable

 

5,693,543

 

(2,711,132)

4,188,393

 

3,563,648






Adjusted cash flow

$17,898,053

$37,828,552

$44,118,887

$99,181,054






Adjusted cash flow per share

$0.28

$0.59

$0.69

$1.55

 

Liquidity and Capital Resources

The Corporation has $20.5 million in cash as at September 30, 2015 with total current assets of $51.7 million and working capital of $28.7 million. During the quarter, the Corporation generated operating cash flow of $12.2 million with the cash balance declining $3.8 million as a result of dividends paid.

Cash balances consist of deposits in Canadian dollars with Canadian chartered banks. Amounts receivable primarily consist of royalty payments from IOC. Royalty payments are received in U.S. dollars and converted into Canadian dollars on receipt, usually 25 days after the quarter end. The Corporation does not normally attempt to hedge this short-term foreign currency exposure.

Operating cash flow of the Corporation is sourced entirely from IOC through the Corporation's 7% royalty, 10 cents commission per tonne and dividends from its 15.10% equity interest in IOC. The Corporation intends to pay cash dividends of the net income derived from IOC to the maximum extent possible, subject to the maintenance of appropriate levels of working capital and debt.

The Corporation has a $50 million revolving credit facility with a term ending September 18, 2018 with provision for annual one-year extensions.  No amount is currently drawn under this facility (2014 – nil) leaving $50.0 million available to provide for any capital required by IOC or requirements of the Corporation.

Outlook

With improved operating efficiencies resulting in reduced costs and increased production being attained, IOC is making good progress in reducing its unit cash cost of concentrate production with a target of US$30 per tonne. Concentrate production for the first three quarters was 14.1 million tonnes and should exceed 19 million tonnes for the year or about 3 million more than each of the previous two years. We expect that if the present operating improvements continue, production could approach 21 million tonnes in 2016. Because of the quality of the IOC ore, it remains in demand and commands a premium to posted prices. The increased sales expected as a result of increased production and the lower Canadian dollar against its US counterpart will help offset the lower price being received for iron ore. Although pellet sales have been firm in the first nine months of 2015, the pellet premium has recently weakened as steel prices have fallen and steel producers are watching their inventories closely. IOC has the ability to adjust pellet production should demand be such that the pellet premium makes the sale of pellets less attractive, leaving more concentrate for sale available. The price of iron ore is beyond the control of IOC but all possible steps are being taken to reduce costs and increase production so that IOC remains profitable.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
November 5, 2015

Notice:
The following unaudited interim condensed consolidated financial statements of the Corporation have been prepared by and are the responsibility of the Corporation's management. The Corporation's independent auditor has not reviewed these interim financial statements.

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS










As at



September 30, 


December 31,

Canadian $

2015


2014



(Unaudited)

Assets




Current Assets





Cash

$

20,486,127


$

34,955,633


Amounts receivable

31,255,855


24,861,203


Income taxes recoverable

-


472,626

Total Current Assets

51,741,982


60,289,462






Non-Current Assets




Iron Ore Company of Canada ("IOC"),





royalty and commission interests 

271,714,626


275,432,981

Investment in IOC 

397,308,131


395,271,413

Total Non-Current Assets

669,022,757


670,704,394






Total Assets

$

720,764,739


$

730,993,856











Liabilities and Shareholders' Equity




Current Liabilities





Accounts payable

$

6,489,950


$

5,311,477


Dividend payable 

16,000,000


22,400,000


Taxes Payable

555,160


-

Total Current Liabilities

23,045,110


27,711,477






Non-Current Liabilities





Deferred income taxes 

124,850,000


125,563,000

Total Liabilities

147,895,110


153,274,477






Shareholders' Equity





Share capital 

317,708,147


317,708,147


Retained earnings 

268,194,482


271,757,232


Accumulated other comprehensive loss 

(13,033,000)


(11,746,000)



572,869,629


577,719,379






Total Liabilities and Shareholders' Equity

$

720,764,739


$

730,993,856

 

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS 

OF COMPREHENSIVE INCOME













For the Three Months Ended



September 30,

Canadian $

2015


2014



(Unaudited)

Revenue





IOC royalties

$

31,409,072


$

30,255,072


IOC commissions

570,286


408,479


Interest and other income 

53,846


97,860



32,033,204


30,761,411

Expenses





Newfoundland royalty taxes

6,281,814


6,051,015


Amortization of royalty and commission interests

1,420,534


903,657


Administrative expenses 

630,356


677,072



8,332,704


7,631,744






Income before equity earnings and income taxes

23,700,500


23,129,667

Equity earnings in IOC

2,500,242


11,128,721






Income before income taxes 

26,200,742


34,258,388






Provision for income taxes 





Current 

7,222,981


6,893,781


Deferred

(27,000)


(1,619,000)



7,195,981


5,274,781






Net income for the period

19,004,761


28,983,607






Other comprehensive loss





Share of other comprehensive loss of IOC that will not be 





reclassified subsequently to profit or loss (net of taxes)

(429,000)


(478,000)






Comprehensive income for the period

$

18,575,761


$

28,505,607






Net income per share 

$

0.30


$

0.46

 

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME













For the Nine Months Ended



September 30,

Canadian $

2015


2014



(Unaudited)

Revenue





IOC royalties

$

78,232,517


$

90,412,549


IOC commissions

1,297,980


1,045,759


Interest and other income 

198,163


278,298



79,728,660


91,736,606

Expenses





Newfoundland royalty taxes

15,646,503


18,082,510


Amortization of royalty and commission interests

3,718,355


2,663,502


Administrative expenses 

2,058,440


1,857,139



21,423,298


22,603,151






Income before equity earnings and income taxes

58,305,362


69,133,455

Equity earnings in IOC 

3,541,718


41,938,682

Income before income taxes 

61,847,080


111,072,137






Provision for income taxes 





Current 

17,904,830


20,681,707


Deferred

(495,000)


(1,605,000)



17,409,830


19,076,707






Net income for the period

44,437,250


91,995,430






Other comprehensive loss





Share of other comprehensive loss of IOC that will not be 





reclassified subsequently to profit or loss (net of taxes) 

(1,287,000)


(1,435,000)






Comprehensive income for the period

$

43,150,250


$

90,560,430






Net income per share 

$

0.69


$

1.44

 

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS










For the Nine Months Ended


September 30,

Canadian $

2015


2014


(Unaudited)

Net inflow (outflow) of cash related





to the following activities








Operating





Net income for the period

$

44,437,250


$

91,995,430


Items not affecting cash:






Equity earnings in IOC

(3,541,718)


(41,938,682)



Current income taxes

17,904,830


20,681,707



Deferred income taxes

(495,000)


(1,605,000)



Amortization of royalty and commission interests

3,718,355


2,663,502


Common share dividend from IOC

-


48,065,804


Change in amounts receivable

(6,394,652)


8,217,037


Change in accounts payable

1,178,473


(1,716,524)


Income taxes paid

(16,877,044)


(30,745,868)


Cash flow from operating activities

39,930,494


95,617,406





Financing





Dividends paid to shareholders

(54,400,000)


(99,200,000)


Cash flow used in financing activities

(54,400,000)


(99,200,000)





Decrease in cash, during the period

(14,469,506)


(3,582,594)





Cash, beginning of period

34,955,633


52,613,924





Cash, end of period

$

20,486,127


$

49,031,330

 

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY




Accumulated





other 



Share

Retained

comprehensive 



capital

earnings

loss

Total

Canadian $

(Unaudited)






Balance as at December 31, 2013

$

317,708,147

$

273,225,981

$

(7,606,000)

$

583,328,128

Net income for the period

-

91,995,430

-

91,995,430

Dividends declared to shareholders 

-

(83,200,000)

-

(83,200,000)

Share of other comprehensive loss from investment in IOC (net of taxes)

-

-

(1,435,000)

(1,435,000)

Balance as at September 30, 2014

$

317,708,147

$

282,021,411

$

(9,041,000)

$

590,688,558






Balance as at December 31, 2014

$

317,708,147

$

271,757,232

$

(11,746,000)

$

577,719,379

Net income for the period

-

44,437,250

-

44,437,250

Dividends declared to shareholders 

-

(48,000,000)

-

(48,000,000)

Share of other comprehensive loss from investment in IOC (net of taxes)

-

-

(1,287,000)

(1,287,000)

Balance as at September 30, 2015

$

317,708,147

$

268,194,482

$

(13,033,000)

$

572,869,629

 

The complete consolidated financial statements for the third quarter ended September 30, 2015, 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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