Labrador Iron Ore Royalty Income Fund - 2007 results of operations



    TORONTO, March 6 /CNW/ - Labrador Iron Ore Royalty Income Fund announced
the results of its operations for the year ended December 31, 2007. Following
are some of the financial highlights of the Fund's 2007 results with
comparison to the 2006 results:

    
    -------------------------------------------------------------------------
    Years Ended December 31                               2007          2006
    ($ in millions except per unit information)

    Revenue                                               67.6          83.2

    Expenses (including royalty taxes)                    22.6          23.9

    Net Income                                            80.9          94.4

    Adjusted Cash Flow(1)(2)                              60.5          72.9

    Net Income per Unit                            $      2.53   $      2.95

    Adjusted Cash Flow per Unit(1)(2)              $      1.89   $      2.28

    Cash Distributions per Unit                    $      1.95   $      2.15
    -------------------------------------------------------------------------

    (1) See Management's Discussion & Analysis for definition
    (2) Includes IOC dividends totaling $18.8 million or $0.59 per Unit
        (2006 - $20.9 million or $0.65 per Unit)
    

    Financial Performance

    The Fund's adjusted cash flow (see Management's Discussion & Analysis for
definition and calculation) for the year ended December 31, 2007 was
$60.5 million or $1.89 per unit as compared to $72.9 million or $2.28 per unit
for 2006.
    Iron ore sales of the Iron Ore Company of Canada ("IOC") amounted to
13.4 million tonnes compared to 15.8 million tonnes in 2006. The lower sales
volume was a result of a shortage of product for sale due to lost production
due to a strike of IOC's unionized work force which shut down all of the
production facilities from March 9, 2007 to April 27, 2007. Iron ore markets
remained strong with U.S dollar benchmark prices increasing 5.8% and 10.4% for
pellets and concentrates, respectively. These increases were unfortunately
offset by the continued strength of the Canadian dollar against its
U.S. counterpart, averaging $1.07 for the year as compared to 2006's average
of $1.13. The Fund's adjusted cash flow includes a dividend from IOC of
$18.8 million (2006 - $20.9 million).
    The Fund's consolidated net income for the year ended December 31, 2007
was $80.9 million or $2.53 per unit compared to $94.4 million or $2.95 per
unit in 2006. The Fund's share of IOC's earnings amounted to $30.7 million
compared to $38.6 million in 2006. The net income and equity earnings from IOC
were substantially reduced because of the strike.

    IOC Developments

    On August 1, 2007, IOC announced a $60 million program to increase total
concentrate production to 18.4 million tonnes by mid 2008 and to conduct a
feasibility study to increase concentrate production further to 22 million
tonnes annually. A decision on the further increase is expected in March 2008.
The settlement which followed the strike in April 2007 was for a five year
period to February 28, 2012 which will provide labour stability for IOC's
operations. As a result of assessment work and re-examination of pit designs
during the year, IOC has increased its Ore Reserves by 34% to 1,293 million
tonnes and Mineral Resources by 12% to 3,529 million tonnes. The net increase
during the year of reserves and resources included the transfer of some
resources to reserves and the inclusion of 600 million tonnes of resources in
the Wabush 3 deposit which was subleased from Labmin in 2006.

    Outlook

    The iron ore market remains strong and prices for some concentrate
contracts have been settled with resulting $U.S. price increases of 65 to
71 percent over 2007. Prices for pellet contracts have not yet been settled
and IOC has not yet settled any concentrate contracts with its customers. When
IOC's contracts are settled the increases are expected to be of similar
magnitude and the prices will be retroactive to January 1 for most of IOC's
contracts. Barring any unforeseen circumstances the Fund expects IOC's 2008
production to exceed 17 million tonnes. With IOC expecting to be able to sell
all of its production, the Fund expects to receive substantially increased
royalty payments in 2008 and the Fund's share of IOC's earnings should be
greater than in 2007.


    
    CONSOLIDATED BALANCE SHEETS

    As at December 31                                 2007          2006
                                                  ------------- -------------

    Assets
      Current
      Cash and cash equivalents                   $    151,256  $    141,937
      Amounts receivable (note 2)                   18,838,481    28,995,350
      Income taxes recoverable                       1,389,717             -
                                                  ------------- -------------
                                                    20,379,454    29,137,287

    Deferred charges, net of accumulated
     amortization of $781,275
     (2006 - $656,271)                                 218,725       343,729

    Iron Ore Company of Canada ("IOC"),
     royalty and commission interests (note 3)     307,252,600   311,577,494

    Investment in IOC (note 4)                     180,887,115   169,050,037
                                                  ------------- -------------
                                                  $508,737,894  $510,108,547
                                                  ------------- -------------
                                                  ------------- -------------

    Liabilities and Unitholders' Equity
      Current
      Accounts payable                            $  5,542,158  $  6,269,559
      Income taxes payable                                   -     1,327,432
      Distributions payable to unitholders
       (note 5)                                     17,600,000    17,600,000
                                                  ------------- -------------
                                                    23,142,158    25,196,991

    Long-term debt (note 6)                          1,334,150     6,123,088

    Future income tax liability (note 7)           103,500,000   116,550,000
                                                  ------------- -------------
                                                   127,976,308   147,870,079
    Unitholders' equity
      Trust units (note 8)                         317,708,147   317,708,147
      Undistributed income                          63,053,439    44,530,321
                                                  ------------- -------------
                                                  $508,737,894  $510,108,547
                                                  ------------- -------------
                                                  ------------- -------------



    CONSOLIDATED STATEMENTS OF INCOME,
    COMPREHENSIVE INCOME AND UNDISTRIBUTED INCOME


    For the years ended December 31                   2007          2006
                                                  ------------- -------------
    Revenue
      IOC royalties                               $ 66,118,040  $ 81,583,339
      IOC commissions                                1,318,723     1,559,731
      Interest and other income                        182,745        86,173
                                                  ------------- -------------
                                                    67,619,508    83,229,243
                                                  ------------- -------------

    Expenses
      Newfoundland royalty taxes                    13,223,608    16,316,668
      Amortization of royalty and commission
       interests                                     4,324,894     5,124,824
      Administrative expenses (note 9)               3,986,122     1,526,433
      Interest expense                               1,092,224       958,133
                                                  ------------- -------------
                                                    22,626,848    23,926,058
                                                  ------------- -------------

    Income before equity earnings and
     income taxes                                   44,992,660    59,303,185
    Equity earnings in IOC (note 4)                 30,680,688    38,585,689
                                                  ------------- -------------

    Income before income taxes                      75,673,348    97,888,874
                                                  ------------- -------------

    Provision for (recovery of) income taxes
     (note 7)
      Current                                        7,800,230    12,590,404
      Future                                       (13,050,000)   (9,120,000)
                                                  ------------- -------------
                                                    (5,249,770)    3,470,404
                                                  ------------- -------------

    Net income and comprehensive income for the
     year                                           80,923,118    94,418,470

    Undistributed income, beginning of year         44,530,321    18,911,851

    Distributions to unitholders (note 5)          (62,400,000)  (68,800,000)
                                                  ------------- -------------

    Undistributed income, end of year             $ 63,053,439  $ 44,530,321
                                                  ------------- -------------
                                                  ------------- -------------

    Net income per unit (note 8)                  $       2.53  $       2.95
                                                  ------------- -------------
                                                  ------------- -------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    For the years ended December 31                   2007          2006
                                                  ------------- -------------

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

    Operating
      Net income and comprehensive income for
       the year                                   $ 80,923,118  $ 94,418,470
        Items not affecting cash:
        Equity earnings in IOC                     (30,680,688)  (38,585,689)
        Future income taxes                        (13,050,000)   (9,120,000)
        Amortization of royalty and commission
         interests                                   4,324,894     5,124,824
        Amortization of deferred charges               125,004       125,004
      Common share dividend received from IOC       18,843,610    20,917,796
      Change in amounts receivable, accounts
       payable and income taxes
       payable/recoverable                           6,712,319   (12,862,030)
                                                  ------------- -------------
      Cash flow from operating activities           67,198,257    60,018,375
                                                  ------------- -------------

    Financing
      Distributions paid to unitholders            (62,400,000)  (89,600,000)
      Proceeds from (repayment of) long-term
       debt                                         (4,788,938)    6,123,088
                                                  ------------- -------------
                                                   (67,188,938)  (83,476,912)
                                                  ------------- -------------

    Increase (decrease) in cash and cash
     equivalents during the year                         9,319   (23,458,537)
    Cash and cash equivalents, beginning of year  $    141,937  $ 23,600,474
                                                  ------------- -------------
    Cash and cash equivalents, end of year        $    151,256  $    141,937
                                                  ------------- -------------
                                                  ------------- -------------
    Cash and cash equivalents are comprised of:
      Cash in bank                                $    151,256  $    141,937
                                                  ------------- -------------
                                                  ------------- -------------

    Cash income taxes paid                        $ 10,517,379  $ 22,719,451
                                                  ------------- -------------
                                                  ------------- -------------

    Cash interest paid                            $  1,056,105  $    778,565
                                                  ------------- -------------
                                                  ------------- -------------
    

    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, 2007 and
2006. This discussion should be read in conjunction with the Consolidated
Financial Statements of the Fund and notes thereto for the years ended
December 31, 2007 and 2006. This information is prepared in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP") and all amounts are
shown in Canadian dollars unless otherwise indicated.
    The consolidated balance sheets as at December 31, 2007 and 2006, the
consolidated statements of income, comprehensive 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, 2007 and 2006 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, 2007, the Fund had borrowed $1.3 million under its
$50 million term line of credit and borrowed a further $2.5 million in January
2008.

    Operating Results

    The following table summarizes the Fund's 2007 operating results as
    compared to 2006 results.

    
    Revenue                                             2007         2006
                                                 ----------------------------
    IOC royalties (net of 20% Newfoundland
     royalty tax)                                 $ 52,894,432  $ 65,266,671
    IOC commissions                                  1,318,723     1,559,731
    Other                                              182,745        86,173
                                                 ----------------------------
                                                    54,395,900    66,912,575
                                                 ----------------------------

    Expenses
    Administrative expenses                          3,986,122     1,526,433
    Interest expense (net of amortization
     of $125,004; 2006 - $125,004)                     967,220       833,129
    Income taxes expense - current                   7,800,230    12,590,404
                                                 ----------------------------
                                                    12,753,572    14,949,966
                                                 ----------------------------
                                                    41,642,328    51,962,609
                                                 ----------------------------

    Non cash revenue (expense)
    Equity earnings in IOC                          30,680,688    38,585,689
    Reduction in future income taxes                13,050,000     9,120,000
    Amortization                                    (4,449,898)   (5,249,828)
                                                 ----------------------------
                                                    39,280,790    42,455,861

                                                 ----------------------------
    Net income and comprehensive income            $80,923,118   $94,418,470
                                                 ----------------------------
    

    The Fund's 2007 net royalty income was $12.4 million lower than 2006
primarily because of the strike by IOC's unionized work force which closed
down all production facilities from March 9, 2007 to April 27, 2007. Price
increases for pellets and concentrate of approximately of 5.8% and 10.4%
respectively were offset by the strength of the Canadian dollar against its
U.S. counterpart which averaged $1.07 in 2007 compared to the 2006 average of
$1.13. Administrative expenses were $2.5 million higher than 2006 primarily as
a result of accrued amounts in connection with unexercised unit appreciation
rights and payments made in respect of unit appreciation rights exercised
during the year. Current income taxes represent federal and provincial income
taxes payable by Labmin on IOC royalties, net of interest, royalty taxes and
administrative expenses. The Fund's share of IOC's earnings amounted to
$30.7 million as compared to $38.6 million in 2006. The future income tax
provision was reduced by $13.1 million as a result of tax legislation enacted
in December 2007 reducing the corporate income tax rates in 2008 through 2011.
The prior year included a $10.5 million reduction relating to the reduction in
corporate tax rates enacted during 2006.
    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 and can vary because of the timing of ship
loadings.
    It had been IOC's policy to declare an annual dividend, the amount of
which varied 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 $18.8 million ($0.59 per unit) in 2007 as compared to $20.9 million
($0.65 per unit) in 2006.
    The fourth quarter results for 2007 were substantially below the
2006 fourth quarter mainly because of a lack of product available for sale due
to the strike earlier in the year and also to a lesser extent, the timing of
shipments. Royalty revenue for the quarter was $18.3 million compared to
$28.9 in 2006 and equity earnings from IOC were $11.1 million compared to
$15.0 million in 2006. The adjusted cash flow for the quarter decreased from
$17.6 million in 2006 to $11.5 million in 2007.
    Commencing January 1, 2007, the Fund adopted Section 3855, "Financial
Instruments - Recognition and Measurement" of the CICA Handbook. This new
standard requires all financial assets and liabilities to be carried at fair
value with the exception of certain financial instruments that do not have
quoted market values in an active market. The adoption of this standard does
not have an impact on the Fund's financial statements.

    Selected Consolidated Financial Information

    The following table sets out financial data for the three years ended
    December 31, 2007, 2006 and 2005.

    
                                                   Years Ended December 31
    Description                                    2007      2006      2005
    -----------                                 --------- --------- ---------
                                    (in millions except per Unit information)

    Revenue                                        $67.6     $83.2     $79.6

    Net Income                                     $80.9     $94.4     $86.1

    Net Income per Unit                            $2.53     $2.95     $2.69

    Adjusted Cash Flow(1)                          $60.5     $72.9     $74.6

    Adjusted Cash Flow per Unit(1)                 $1.89     $2.28     $2.33

    Total Assets                                  $508.7    $510.1    $517.8

    Total Long-Term Debt                            $1.3      $6.1         -

    Cash Distribution per Unit                     $1.95     $2.15   $2.15(2)

    Number of Units outstanding (millions)          32.0      32.0      32.0

    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 2007 and 2006.

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

    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(2) $  0.96  $  0.70

    Fourth Quarter      $  18.7  $  32.0  $  1.00  $  11.5  $  0.36  $  0.55

    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(3) $  0.79  $  0.65

    Third Quarter       $  20.2  $  20.3  $  0.63  $20.6(4) $  0.64  $  0.60

    Fourth Quarter      $  29.4  $  28.7  $  0.90  $  17.6  $  0.56  $  0.55

    Notes: (1) "Adjusted cash flow" (see below)

           (2) Includes a $18.8 million IOC dividend

           (3) Includes a $12.5 million IOC dividend

           (4) Includes a $8.5 million IOC dividend
    

    Standardized Cash Flow and Adjusted Cash Flow

    On July 6, 2007, the Canadian Securities Administrators (CSA) published
revised National Policy Statement 41-201 for Income Trusts, recommending that
all income trusts report distributable cash flow on a standardized basis. For
the Fund, this newly defined 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 $2.10 for 2007 (2006 -
$1.88). Cumulative standardized cash flow from inception of the trust is
$16.42 per unit and total cash distributions since inception are $16.28 per
unit, for a payout ratio of 99%.
    "Adjusted cash flow" is defined as cash flow from operating activities
after adjustments 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 standardized cash flow from operating
activities to adjusted cash flow.

    
                                                       2007          2006
                                                 ----------------------------
    Standardized cash flow from
     operating activities                         $ 67,198,257  $ 60,018,375
    Excluding: changes in amounts receivable,
     accounts payable and income taxes
     payable/recoverable                            (6,712,319)   12,862,030
                                                 ----------------------------
    Adjusted cash flow                            $ 60,485,938  $ 72,880,405
    Adjusted cash flow per unit                   $       1.89  $       2.28
                                                 ----------------------------
    

    Disclosure Controls and Internal Control Over Financial Reporting

    The Chairman and CEO and the CFO are responsible for establishing and
maintaining disclosure controls and procedures and internal control over
financial reporting for the Fund. 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,
the Secretary and the CFO 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 CFO 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 CFO 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, 2007.
    No change in the Fund's internal control over financial reporting
occurred during the year.

    Outlook

    The iron ore market remains strong and prices for some concentrate
contracts have been settled with resulting $U.S. price increases of 65 to
71 percent over 2007. Prices for pellet contracts have not yet been settled
and IOC has not yet settled any concentrate contracts with its customers. When
IOC's contracts are settled the increases are expected to be of similar
magnitude and the prices will be retroactive to January 1 for most of IOC's
contracts. Barring any unforeseen circumstances the Fund expects IOC's 2008
production to exceed 17 million tonnes. With IOC expecting to be able to sell
all of its production, the Fund expects to receive substantially increased
royalty payments in 2008 and the Fund's share of IOC's earnings should be
greater than in 2007.

    %SEDAR: 00002722E




For further information:

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

Organization Profile

LABRADOR IRON ORE ROYALTY INCOME FUND

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