Labrador Iron Ore Royalty Income Fund - 2006 Results of Operations



    TORONTO, March 16 /CNW/ - Labrador Iron Ore Royalty Income Fund announced
the results of its operations for the year ended December 31, 2006. Following
are some of the financial highlights of the Fund's 2006 results with
comparison to the 2005 results:

    
    -------------------------------------------------------------------------
    Years Ended December 31                             2006            2005
    ($ in millions except per unit information)

    Revenue                                             83.2            79.6

    Expenses (including royalty taxes)                  23.9            23.2

    Net Income                                          94.4            86.1

    Adjusted Cash Flow(1)(2)                            72.9            74.6

    Net Income per Unit                               $ 2.95          $ 2.69

    Adjusted Cash Flow per Unit(1)(2)                 $ 2.28          $ 2.33

    Cash Distributions per Unit                       $ 2.15        $ 2.15(3)

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

    (1) See Management's Discussion & Analysis for definition
    (2) Includes IOC dividends totaling $20.9 million or $0.65 per Unit
    (2005 - $24.1 million or $0.75 per Unit)
    (3) $0.85 is considered 2006 taxable income to unitholders

    Financial Performance

    The Fund's adjusted cash flow (see Management's Discussion & Analysis for
definition and calculation) for the year ended December 31, 2006 was
$72.9 million or $2.28 per unit as compared to $74.6 million or $2.33 per unit
for 2005. Iron ore sales of Iron Ore Company of Canada (IOC) amounted to
15.8 million tonnes compared to 15 million tonnes in 2005. Prices received
were approximately neutral with decreases in pellet prices offsetting
increases in concentrate pricing. Somewhat offsetting the increased sales
volume was the continued strengthening of the Canadian dollar against its U.S.
counterpart, averaging $1.13 for the year as compared to 2005's average of
$1.21. The Fund's adjusted cash flow was increased by $20.9 million in
dividends received from IOC (2005 - $24.1 million).
    The Fund's consolidated net income for the year ended December 31, 2006
was $94.4 million or $2.95 per unit compared to $86.1 million or $2.69 per
unit in 2005. The Fund's share of IOC's earnings amounted to $38.6 million
compared to $42.3 million in 2005. The increase in net income was mainly due
to the $10.5 million reduction in future income tax liabilities as a result of
the 3% reduction in the federal corporate tax rate by 2010 and the elimination
of surtax by January 1, 2008.

    IOC Developments

    On August 31, 2006 agreement was reached with IOC to simplify the
Labrador Sublease dated February 25, 1953 between Labrador Mining Company
Limited ("Labmin") and IOC, as amended, with Labmin granting IOC rights to
mine 100% of the ore for a 7% royalty. The previously excluded Wabush 3
property is now included in the Labrador Sublease in consideration of a 7%
royalty on sales of iron ore products derived from that property. Parts of the
Knight deposit previously held exclusively by IOC are also now included in the
Labrador Sublease and subject to the 7% royalty.
    IOC is proceeding with a drilling program on the Wabush 3 deposit to
evaluate it for inclusion in IOC's ore reserves. In 2006, IOC completed
3,583 meters of drilling on the Wabush 3 deposit and results of sample
analysis are currently being evaluated for inclusion in IOC's geological
models.
    This is an important step in IOC's planning to increase production. An
increase in production and sales of iron ore products from properties covered
by the Labrador Sublease would increase the 7% royalty receivable by the Fund.
    IOC continued to make progress on its cost reduction program, although
price increases are offsetting some of the savings. Efforts to increase
production are being realized and several production records were achieved
during the year. The project to increase annual concentrate production to
17.5 million tonnes was largely completed during the year, with plans for
further expansion currently under consideration.
    The collective agreement with the United Steelworkers of America expired
on February 28, 2007. On March 9, 2007, the employees at Labrador City
rejected the most recent contract offer and voted to commence a legal strike.

    Outlook

    With expected price increases of around 5% for pellets and 9% for
concentrates (based on settlement achieved to date by IOC's competitors) and
potential further production and sales increases and with the strength of the
Canadian dollar against its U.S. counterpart somewhat abated, barring a
lengthy strike, 2007 is expected to be a positive year for the Fund.
    I would like to take this opportunity to thank our unitholders for their
interest and loyalty and my fellow Trustees for their wisdom and support.

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

    Bruce C. Bone
    Chairman and Chief Executive Officer
    March 13, 2007


    
    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED BALANCE SHEETS

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

    As at December 31                                   2006            2005
                                              --------------- ---------------

    Assets
    Current
      Cash and cash equivalents                $     141,937   $  23,600,474
      Amounts receivable                          28,995,350      25,616,617
                                              --------------- ---------------
                                                  29,137,287      49,217,091

    Deferred charges, net of accumulated
     amortization of $656,271
     (2005 - $531,267)                               343,729         468,733

    Iron Ore Company of Canada ("IOC"),
     royalty and commission interests            311,577,494     316,702,318

    Investment in IOC                            169,050,037     151,382,144
                                              --------------- ---------------
                                               $ 510,108,547   $ 517,770,286
                                              --------------- ---------------
                                              --------------- ---------------

    Liabilities and Unitholders' Equity
    Current
      Accounts payable                         $   6,269,559   $   5,623,809
      Income taxes payable                         1,327,432      11,456,479
      Distributions payable to unitholders        17,600,000      38,400,000
                                              --------------- ---------------
                                                  25,196,991      55,480,288

    Long-term debt                                 6,123,088               -

    Future income tax liability                  116,550,000     125,670,000
                                              --------------- ---------------
                                                 147,870,079     181,150,288

    Unitholders' equity
      Trust units                                317,708,147     317,708,147
      Undistributed income                        44,530,321      18,911,851
                                              --------------- ---------------
                                               $ 510,108,547   $ 517,770,286
                                              --------------- ---------------
                                              --------------- ---------------


    CONSOLIDATED STATEMENTS OF INCOME
    AND UNDISTRIBUTED INCOME

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

    For the years ended December 31                     2006            2005
                                              --------------- ---------------

    Revenue
      IOC royalties                            $  81,583,339   $  77,988,487
      IOC commissions                              1,559,731       1,474,933
      Interest and other income                       86,173         133,710
                                              --------------- ---------------
                                                  83,229,243      79,597,130
                                              --------------- ---------------

    Expenses
      Newfoundland royalty taxes                  16,316,668      15,597,697
      Amortization of royalty and
       commission interests                        5,124,824       4,859,354
      Administrative expenses                      1,526,433       1,884,313
      Interest expense                               958,133         844,056
                                              --------------- ---------------
                                                  23,926,058      23,185,420
                                              --------------- ---------------

    Income before equity earnings and
     income taxes                                 59,303,185      56,411,710
    Equity earnings in IOC                        38,585,689      42,334,777
                                              --------------- ---------------

    Income before income taxes                    97,888,874      98,746,487
                                              --------------- ---------------

    Provision for (recovery of) income taxes
      Current                                     12,590,404      10,860,000
      Future                                      (9,120,000)      1,840,100
                                              --------------- ---------------
                                                   3,470,404      12,700,100
                                              --------------- ---------------

    Net income for the year                       94,418,470      86,046,387

    Undistributed income, beginning of year       18,911,851       1,665,464

    Distributions to unitholders                 (68,800,000)    (68,800,000)
                                              --------------- ---------------

    Undistributed income, end of year          $  44,530,321   $  18,911,851
                                              --------------- ---------------
                                              --------------- ---------------

    Net income per unit                        $        2.95   $        2.69
                                              --------------- ---------------
                                              --------------- ---------------


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

    For the years ended December 31                     2006            2005
                                              --------------- ---------------

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

    Operating
      Net income for the year                  $  94,418,470   $  86,046,387
      Items not affecting cash:
        Equity earnings in IOC                   (38,585,689)    (42,334,777)
        Future income taxes                       (9,120,000)      1,840,100
        Amortization of royalty and
         commission interests                      5,124,824       4,859,354
        Amortization of deferred charges             125,004         125,004
      Common share dividend received from IOC     20,917,796      24,077,022
      Change in amounts receivable, accounts
       and income taxes payable                  (12,862,030)     (1,906,201)
                                              --------------- ---------------
      Cash flow from operating activities         60,018,375      72,706,889
                                              --------------- ---------------

    Financing
      Distributions paid to unitholders          (89,600,000)    (38,400,000)
      Proceeds from (repayment of)
       long-term debt                              6,123,088     (10,856,708)
                                              --------------- ---------------
                                                 (83,476,912)    (49,256,708)
                                              --------------- ---------------

    Increase (decrease) in cash and cash
     equivalents during the year                 (23,458,537)     23,450,181
    Cash and cash equivalents, beginning
     of year                                      23,600,474         150,293
                                              --------------- ---------------

    Cash and cash equivalents, end of year     $     141,937   $  23,600,474
                                              --------------- ---------------
                                              --------------- ---------------

    Cash and cash equivalents are comprised
     of the following:
    Cash in bank                               $     141,937   $      73,300
    Term deposits                                          -      23,527,174
                                              --------------- ---------------
                                               $     141,937   $  23,600,474
                                              --------------- ---------------
                                              --------------- ---------------

    Cash income taxes paid                     $  22,719,451   $     564,447
                                              --------------- ---------------
                                              --------------- ---------------

    Cash interest paid                         $     778,565   $     847,787
                                              --------------- ---------------
                                              --------------- ---------------
    


    LABRADOR IRON ORE ROYALTY INCOME FUND
    Management's Discussion and Analysis ("MD&A")

    The following is a discussion of the consolidated financial condition and
results of operations of the Fund for the years ended December 31, 2006 and
2005. This discussion should be read in conjunction with the audited
consolidated financial statements of the Fund and notes thereto for the years
ended December 31, 2006 and 2005. The consolidated financial statements are
prepared in accordance with Canadian Generally Accepted Accounting Principles
("GAAP"). All amounts contained in the MD&A are shown in Canadian dollars
unless otherwise indicated.
    The consolidated balance sheets as at December 31, 2006 and 2005, the
consolidated statements of income and undistributed income and the
consolidated statements of cash flows reflect the results of the Fund's
operations for the years ended December 31, 2006 and 2005 and its financial
position at the respective year ends.

    General

    The Fund is dependent on the operations of IOC. IOC's earnings and cash
flows are affected by the volume of iron ore products sold and the prices
received. Iron ore demand and prices fluctuate and are affected by numerous
factors which include demand for steel and steel products, the relative
exchange rate of the US dollar, global and regional demand and production,
political and economic conditions and production costs in major producing
areas.

    Liquidity and Capital Resources

    Operating cash flow of the Fund is sourced entirely from IOC through the
Fund's 7% royalty, 10 cents commission per tonne and its 15.10% equity
interest in IOC. The Fund intends to make cash distributions of the net income
derived from IOC to the maximum extent possible, subject to the maintenance of
appropriate levels of working capital and debt.
    At December 31, 2006, the Fund had borrowed $6.1 million under its
$75 million term line of credit, $4.1 million was repaid in January 2007.

    Operating Results

    The following table summarizes the Fund's 2006 operating results as
compared to 2005 results.

    
    Revenue                                          2006            2005
                                               ------------------------------
    IOC royalties (net of 20% Newfoundland
     royalty tax)                              $  65,266,671   $  62,390,790
    IOC commissions                                1,559,731       1,474,933
    Other                                             86,173         133,710
                                               ------------------------------
                                                  66,912,575      63,999,433
                                               ------------------------------
    Expenses
    Administrative expenses                        1,526,433       1,884,313
    Interest expense (net of amortization
     of $125,004; 2005-$125,004)                     833,129         719,052
    Income taxes expense - current                12,590,404      10,860,000
                                               ------------------------------
                                                  14,949,966      13,463,365
                                               ------------------------------
                                                  51,962,609      50,536,068
                                               ------------------------------
    Non cash revenue (expense)
    Equity earnings in IOC                        38,585,689      42,334,777
    Future income taxes                            9,120,000      (1,840,100)
    Amortization                                  (5,249,828)     (4,984,358)
                                               ------------------------------
                                                  42,455,861      35,510,319

                                               ------------------------------
    Net income                                 $  94,418,470   $  86,046,387
                                               ------------------------------
    

    The Fund's 2006 net royalty income was $2.9 million higher than 2005 as a
result of higher volume somewhat offset by the appreciation of the Canadian
dollar. Prices received were approximately neutral with decreases in pellet
prices offsetting increases in concentrate pricing. The Fund's share of IOC's
earnings amounted to $38.6 million compared to $42.3 million in 2005. The
increase in net income was mainly due to the $10.5 million reduction in future
income tax liabilities as a result of the 2% reduction in the federal
corporate tax rate by 2010 and the elimination of surtax by January 1, 2008.
Current income taxes represent federal and provincial income taxes payable by
Labmin on IOC royalties, net of interest, royalty taxes and administrative
expenses.
    The operating cash flow of the Fund is dependent on the royalty,
commission and dividend payments from IOC. Royalty payments to the Fund vary
considerably from quarter to quarter. This is because sales revenue of IOC is
not constant throughout the year, being lower during the winter months when
the St. Lawrence Seaway is closed.
    It had been IOC's policy to declare an annual dividend each December, the
amount of which varies according to the estimated profits and cash flows for
the year. As a result of its decision to expand production, IOC suspended its
common share dividend beginning in 1998. With substantially improved cash
flow, IOC reinstated its dividend in 2005. The Fund's share of IOC's dividend
amounted to $20.9 or $0.65 per unit in 2006 as compared to $24.1 million or
$0.75 per unit in 2005.
    Although the 2006 fourth quarter results were below the 2005 fourth
quarter as shown in the results by quarter table, this was entirely due to
increased provision for future taxes. Royalty revenue for the quarter was
$28.9 million compared to $25.6 million in 2005 and equity earnings from IOC
were $15.0 million compared to $14.6 million in 2005. Adjusted cash flow for
the period was $17.6 million ($0.56 per unit) compared to $40.1 million ($1.26
per unit) in 2005. The 2005 quarter included IOC's dividend of $24.1 million
($0.75 per unit) whereas IOC's 2006 dividend was received in prior quarters.

    Selected Consolidated Financial Information

    The following table sets out financial data for the three years ended
December 31, 2006, 2005 and 2004.

    
                                                   Years Ended December 31

    Description                                 2006        2005        2004
    -----------                                 ----        ----        ----
                                               (in millions except per Unit
                                                       information)

    Revenue                                  $ 83.22     $ 79.60     $ 37.70
    Net Income                               $ 94.41     $ 86.10     $ 19.90
    Net Income per Unit                      $  2.95     $  2.69     $  0.64
    Adjusted Cash Flow(1)                    $ 72.90     $ 74.60     $ 30.60
    Adjusted Cash Flow per Unit(1)           $  2.28     $  2.33     $  0.98
    Total Assets                             $510.11     $517.80     $464.50
    Total Long-Term Debt                     $  6.12           -     $ 10.90
    Cash Distribution per Unit               $  2.15     $  2.15(2)  $  1.00
    Number of  Units outstanding (millions)    32.00       32.00       32.00

    Notes:  (1) "Adjusted cash flow" ( see below)
            (2) $0.85 is considered 2006 taxable income to unitholders

    The following table sets out quarterly revenue, net income and cash flow
data for 2006 and 2005.

                                                           Adjusted  Distri-
                                            Net   Adjusted   Cash    butions
                                   Net    Income    Cash   Flow per Declared
                       Revenue   Income  per Unit  Flow(1)  Unit(1) per Unit
                       -------- -------- -------- -------- -------- --------
                             (in millions except per Unit information)
    2006
    ----
    First Quarter        $14.4    $11.9    $0.37    $ 9.4    $0.29    $0.35
    Second Quarter       $19.2    $33.5    $1.05    $25.3(2) $0.79    $0.65
    Third Quarter        $20.2    $20.3    $0.63    $20.6(3) $0.64    $0.60
    Fourth Quarter       $29.4    $28.7    $0.90    $17.6    $0.56    $0.55

    2005
    ----
    First Quarter        $14.9    $15.5    $0.48    $10.0    $0.31    $0.25
    Second Quarter       $21.3    $21.3    $0.67    $13.5    $0.42    $0.35
    Third Quarter        $17.2    $17.9    $0.56    $11.0    $0.34    $0.35
    Fourth Quarter       $26.2    $31.4    $0.98    $40.1(4) $1.26    $1.20

    Notes:  (1) "Adjusted cash flow" (see below)
            (2) Includes a $12.5 million IOC dividend
            (3) Includes a $8.5 million IOC dividend
            (4) Includes a $24.1 million IOC dividend
    

    Adjusted Cash Flow

    "Adjusted cash flow" is defined as cash flow from operating activities
after adjustments for changes in amounts receivable, accounts payable and
income taxes payable. 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.

    
                                                     2006            2005
                                               ------------------------------
    Cash flow from operating activities        $  60,018,375   $  72,706,889
    Excluding : changes in amounts receivable,
     accounts payable and income taxes payable    12,862,030       1,906,201
                                               ------------------------------
    Adjusted cash flow                         $  72,880,405   $  74,613,090
    Adjusted cash flow per unit                $        2.28   $        2.33
                                               ------------------------------
    

    Disclosure Controls and Internal Control Over Financial Reporting

    The Chairman and CEO and the Secretary-Treasurer are responsible for
establishing and maintaining disclosure controls and procedures and internal
control over financial reporting for the Fund. The two officers serve as
directors of IOC and IOC provides monthly reports on its operations to them.
The Fund also relies on financial information provided by IOC, including its
audited financial statements, and other material information provided to the
Chairman and CEO and to the Secretary-Treasurer by officers of IOC. IOC is a
private corporation, and its financial statements are not publicly available.
    The Trustees are informed of all material information relating to the
Fund and its subsidiaries by the officers of the Fund on a timely basis and
approve all core disclosure documents including the Management Information
Circular, the annual and interim financial statements and related Management's
Discussion and Analysis, the Annual Information Form, any prospectuses and all
press releases.
    The Chairman and CEO and the Secretary-Treasurer have designed internal
control over financial reporting to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Canadian GAAP.
    The Chairman and CEO and the Secretary-Treasurer have concluded that the
Fund's disclosure controls and procedures were effective in ensuring that
material information relating to the Fund was accumulated and communicated in
the annual filings for the year ended December 31, 2006.
    No change in the Fund's internal control over financial reporting
occurred during the Fund's most recent interim period.

    Outlook

    The market for iron ore remains firm, especially in Asia, and IOC expects
to be able to sell all the pellets and concentrate it can produce. Prices for
2007, which for most IOC contracts are effective January 1, have yet to be
settled but are expected to increase approximately 5% for pellets and 9% for
concentrates which is in line with prices settled with other iron ore
suppliers.
    The project to increase annual concentrate production to 17.5 million
tonnes was largely completed during 2006, with plans for further expansion
currently under consideration. Under current market conditions we expect that,
subject to capital requirements, IOC will be able to continue its previous
policy of paying dividends annually. The strengthening of the Canadian dollar
against its US counterpart appears to have abated and it is currently below
its 2006 average. The collective agreement with the United Steelworkers of
America expired on February 28, 2007.
    On March 9, 2007, the employees at Labrador City rejected the most recent
contract offer and voted to commence a legal strike. Barring a lengthy strike,
2007 promises to be a satisfactory year for IOC and for the Fund.

    Additional information

    Additional information relating to the Fund, including the Annual
Information Form, is on SEDAR at www.sedar.com.

    Bruce C. Bone
    Chairman and Chief Executive Officer
    Toronto, Ontario
    March 13, 2007

    %SEDAR: 00002722E




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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