Labrador Iron Ore Royalty Income Fund - Results for the third quarter ended September 30, 2007



    TORONTO, Oct. 30 /CNW/ - Labrador Iron Ore Royalty Income Fund (TSX:
LIF.UN) announced its results for the third quarter ended September 30, 2007.
    Royalty income for the third quarter of 2007 amounted to $19.61 million
as compared to $19.86 million for the third quarter of 2006, a decrease of 1%
from the same period last year. Royalties received in U.S. dollars were 15%
higher than in the 2006 period due to the 5.8% and 10.4% price increases for
pellets and concentrates, respectively, and slightly higher sales volume. The
rise in the value of the Canadian dollar against its U.S. counterpart
negatively affected revenues and earnings and offset the price increases for
pellets and for concentrates. It is customary that the weakness of the U.S.
dollar will be a factor in settling prices for 2008. Equity earnings from IOC
in the third quarter amounted to $10.71 million ($0.33 per unit) as compared
to $9.10 million ($0.28 per unit) in 2006. Revenue for the nine months was
$48.90 million ($1.53 per unit) compared to $53.77 million ($1.68 per unit)
for the first nine months of last year. IOC is making every effort to maximize
production for the remainder of the year and several new production records
for pellets have been achieved since the strike which occurred earlier in the
year. Sales for the period continued to be restricted by the availability of
product.
    The Fund's cash flow from operating activities adjusted for changes in
amounts receivable, accounts payable and income taxes payable/recoverable
(adjusted cash flow) for the third quarter was $30.76 million or $0.96 per
unit as compared to $20.58 million or $0.64 per unit for the same period in
2006. Net income was $22.98 million or $0.72 per unit compared to
$20.31 million or $0.63 per unit for the same period in 2006. The increase in
net income was the result of increased earnings from IOC and a reduction in
income taxes.
    On August 30, 2007, IOC declared a dividend payable in two installments
on September 30, 2007 and November 30, 2007. The Fund's share of the dividend
was US$18.88 million equating to CDN$18.84 million or $0.59 per unit.
    Results for the three months and nine months ended September 30 are
summarized below:

    
                                   3 Months   3 Months   9 Months   9 Months
                                      Ended      Ended      Ended      Ended
                                   Sept. 30   Sept. 30   Sept. 30   Sept. 30
                                       2007       2006       2007       2006
                                    -----------------------------------------
                                                   (Unaudited)
                                                   -----------
    Revenue (in millions)            $20.07     $20.25     $48.90     $53.77
                                    --------   --------   --------   --------
    Adjusted cash flow
     (in millions)                   $30.76     $20.58     $48.92     $55.27
                                    --------   --------   --------   --------
    Adjusted cash flow per unit      $ 0.96     $ 0.64     $ 1.53     $ 1.73
                                    --------   --------   --------   --------
    Net income (in millions)         $22.98     $20.31     $48.87     $65.68
                                    --------   --------   --------   --------
    Net income per unit              $ 0.72     $ 0.63     $ 1.53     $ 2.05
                                    --------   --------   --------   --------
    

    "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:

    
                                              9 Months   9 Months       Year
                                                 Ended      Ended      Ended
                                              Sept. 30,  Sept. 30,   Dec. 31,
                                                  2007       2006       2006
                                               --------   --------   --------
    Pellets                                       7.84       8.63      12.94
    Concentrates                                  1.55       1.52       2.91
                                               --------   --------   --------
    Total                                         9.39      10.15      15.85
                                               --------   --------   --------
    

    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 21 million
tonnes annually. This will enable IOC to increase sales resulting in increased
royalty revenue for the Fund. Going forward, the future looks positive for IOC
and thus for the Fund. The continued strength of the Canadian dollar against
its U.S. counterpart continues to be a negative but should be offset by
increased production and strong pricing.

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

    Bruce C. Bone
    Chairman and Chief Executive Officer
    October 30, 2007


    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 2006 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 2006 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, which is
usually set in US dollar terms, and thus 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. 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 2007 amounted to $19.61 million
as compared to $19.86 million for the third quarter of 2006, a decrease of 1%
from the same period last year. Royalties received in U.S. dollars were 15%
higher than in the 2006 period due to the 5.8% and 10.4% price increases for
pellets and concentrates, respectively, and slightly higher sales volume. The
rise in the value of the Canadian dollar against its U.S. counterpart
negatively affected earnings and offset the price increases for pellets and
for concentrates. As is customary, the weakness of the U.S. dollar will be a
factor in settling prices for 2008. Equity earnings from IOC in the third
quarter amounted to $10.71 million ($0.33 per unit) as compared to
$9.10 million ($0.28 per unit) in 2006. Revenue for the nine months was
$48.90 million ($1.53 per unit) compared to $53.77 million ($1.68 per unit)
for the first nine months of last year. IOC is making every effort to maximize
production for the remainder of the year and several new production records
for pellets have been achieved since the strike which occurred earlier in the
year. Sales for the period continued to be restricted by the availability of
product.
    Bill C-52 will impose a tax on certain distributions from specified
publicly traded income flow-through trusts beginning in 2011. Other than the
0.5% corporate tax rate reduction effective in 2011, these measures have no
impact on the Trust's future income tax liability as all timing differences
had already been recorded.
    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 $0.66 for the third quarter
and $1.43 for the first nine months of 2007 compared to $0.39 per unit and
$1.22 per unit for the comparable periods in 2006. Cumulative standardized
cash flow from inception of the trust is $15.75 per unit and total cash
distributions since inception are $15.58 per unit, for a payout ratio of 99%.
The Fund's cash flow from operating activities adjusted for changes in amounts
receivable, accounts payable and income taxes payable/recoverable (adjusted
cash flow) for the third quarter was $30.76 million or $0.96 per unit as
compared to $20.58 million or $0.64 per unit for the same period in 2006. On
August 30, 2007 IOC declared a dividend payable in two installments on
September 30, 2007 and November 30, 2007. The Fund's share of the dividend was
US$18.88 million equating to CDN$18.84 million or $0.59 per unit. Net income
was $22.98 million or $0.72 per unit compared to $20.31 million or $0.63 per
unit for the same period in 2006. The increase in net income was the result of
increased earnings from IOC and a reduction in income taxes.
    The following table sets out quarterly revenue, net income and cash flow
data for 2007, 2006 and 2005.

    
                                                            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

    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

    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(5) $  1.26  $  1.20

    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
           (5) Includes a $24.1 million IOC dividend
    

    Adjusted Cash Flow
    ------------------
    "Adjusted cash flow" is defined as cash flow from operating activities as
shown on the attached financial statements less 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,
                                 2007         2006         2007         2006
                          ---------------------------------------------------
    Cash flow from
     operating activities $21,112,818  $12,502,172  $45,837,840  $38,926,689
    Excluding: changes in
     amounts receivable,
     accounts payable
     and income taxes
     payable/recoverable    9,644,215    8,076,874    3,084,558   16,344,231
                          ---------------------------------------------------
    Adjusted cash flow    $30,757,033  $20,579,046  $48,922,398  $55,270,920
                          ---------------------------------------------------
    Adjusted cash flow
     per unit             $      0.96  $      0.64  $      1.53  $      1.73
                          ---------------------------------------------------
    

    Liquidity
    ---------
    The Fund has a $50 million revolving credit facility reducing by
$25 million in 2008 with the balance due in 2009. The amount drawn under this
facility is currently $11.7 million ($11.7 million at September 30, 2007)
leaving $38.3 million available to provide for any capital required by IOC or
other Fund requirements.

    Outlook
    -------
    Steel markets remain strong especially in Asia and IOC expects to be able
to sell all the concentrate and pellets it can produce. Prices for 2007
increased by 5.8% for pellets and 10.4% for concentrates retroactive to
January 1 for most contracts and a new five year labour agreement is in place.
The strike, which closed down production facilities for 7 weeks from March 9
to April 27, 2007, will result in a loss of about 14% of annual production
which, based on last year's production, would amount to approximately
2.3 million tonnes. Reduced sales due to this lost production occurred in the
first half of the year and sales for the balance of the year will also be
slightly lower than normal due to inventory replenishment. 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 21 million tonnes annually. This
will enable IOC to increase sales resulting in increased royalty revenue for
the Fund. Going forward, the future looks positive for IOC and thus for the
Fund. The continued strength of the Canadian dollar against its U.S.
counterpart continues to be a negative but should be offset by increased
production and strong pricing.

    Bruce C. Bone
    Chairman and Chief Executive Officer
    Toronto, Ontario
    October 30, 2007


    
    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED BALANCE SHEETS

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

                                                           As at
                                               ------------------------------
                                                September 30    December 31
                                                    2007            2006
                                               ------------------------------
                                                 (Unaudited)

    Assets
    Current
      Cash                                     $  11,597,830   $     141,937
      Amounts receivable                          27,803,815      28,995,350
      Income taxes recoverable                     2,522,995               -
                                               --------------  --------------
                                                  41,924,640      29,137,287

    Deferred charges                                 249,976         343,729

    Iron Ore Company of Canada ("IOC"),
     royalty and commission interests            308,544,794     311,577,494

    Investment in IOC                            169,744,547     169,050,037
                                               --------------  --------------
                                               $ 520,463,957   $ 510,108,547
                                               --------------  --------------
                                               --------------  --------------

    Liabilities and Unitholders' Equity
    Current
      Accounts payable                         $   5,843,893   $   6,269,559
      Income taxes payable                                 -       1,327,432
      Distributions payable to unitholders        22,400,000      17,600,000
                                               --------------  --------------
                                                  28,243,893      25,196,991

    Long-term debt                                11,741,141       6,123,088

    Future income tax liability                  114,170,000     116,550,000
                                               --------------  --------------
                                                 154,155,034     147,870,079

    Unitholders' equity
      Trust units                                317,708,147     317,708,147
      Undistributed income                        48,600,776      44,530,321
                                               --------------  --------------
                                               $ 520,463,957   $ 510,108,547
                                               --------------  --------------
                                               --------------  --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF INCOME

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

                                                     For the Three Months
                                                      Ended September 30,
                                                     2007            2006
                                               ------------------------------
                                                          (Unaudited)
    Revenue
      IOC royalties                            $  19,606,122   $  19,863,703
      IOC commissions                                407,953         378,883
      Interest and other income                       58,885           4,100
                                               --------------  --------------
                                                  20,072,960      20,246,686
                                               --------------  --------------
    Expenses
      Newfoundland royalty taxes                   3,921,224       3,972,741
      Amortization of royalty and commission
       interests                                   1,336,146       1,265,823
      Administrative expenses (note 2)             1,048,861         907,041
      Interest expense                               344,706         246,097
                                               --------------  --------------
                                                   6,650,937       6,391,702
                                               --------------  --------------
    Income before equity earnings and
     income taxes                                 13,422,023      13,854,984
    Equity earnings in IOC                        10,717,796       9,104,823
                                               --------------  --------------
    Income before income taxes                    24,139,819      22,959,807
                                               --------------  --------------
    Provision for (recovery of) income
     taxes (note 3)
      Current                                      2,874,486       3,029,833
      Future                                      (1,710,000)       (380,000)
                                               --------------  --------------
                                                   1,164,486       2,649,833
                                               --------------  --------------

    Net income for the period                     22,975,333      20,309,974

    Undistributed income, beginning of period     48,025,443      32,281,300

    Distributions to unitholders                 (22,400,000)    (19,200,000)
                                               --------------  --------------

    Undistributed income, end of period        $  48,600,776   $  33,391,274
                                               --------------  --------------
                                               --------------  --------------

    Net income per unit                        $        0.72   $        0.63
                                               --------------  --------------
                                               --------------  --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF INCOME

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

                                                     For the Nine Months
                                                      Ended September 30,
                                                     2007            2006
                                               ------------------------------
                                                          (Unaudited)

    Revenue
      IOC royalties                            $  47,831,924   $  52,690,502
      IOC commissions                                924,694         999,018
      Interest and other income                      144,386          83,743
                                               --------------  --------------
                                                  48,901,004      53,773,263
                                               --------------  --------------
    Expenses
      Newfoundland royalty taxes                   9,566,385      10,538,100
      Amortization of royalty and commission
       interests                                   3,032,700       3,305,204
      Administrative expenses (note 2)             2,873,985       1,270,545
      Interest expense                               857,280         721,916
                                               --------------  --------------
                                                  16,330,350      15,835,765
                                               --------------  --------------
    Income before equity earnings and
     income taxes                                 32,570,654      37,937,498
    Equity earnings in IOC                        19,536,609      23,575,256
                                               --------------  --------------
    Income before income taxes                    52,107,263      61,512,754
                                               --------------  --------------
    Provision for (recovery of) income
     taxes (note 3)
      Current                                      5,616,808       6,983,331
      Future                                      (2,380,000)    (11,150,000)
                                               --------------  --------------
                                                   3,236,808      (4,166,669)
                                               --------------  --------------

    Net income for the period                     48,870,455      65,679,423

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

    Distributions to unitholders                 (44,800,000)    (51,200,000)
                                               --------------  --------------

    Undistributed income, end of period        $  48,600,776   $  33,391,274
                                               --------------  --------------
                                               --------------  --------------

    Net income per unit                        $        1.53   $        2.05
                                               --------------  --------------
                                               --------------  --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF CASH FLOWS

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

                                                     For the Three Months
                                                      Ended September 30,
                                                     2007            2006
                                               ------------------------------
                                                          (Unaudited)
    Net inflow (outflow) of cash related
     to the following activities

    Operating
      Net income for the period                $  22,975,333   $  20,309,974
      Items not affecting cash:
        Equity earnings in IOC                   (10,717,796)     (9,104,823)
        Future income taxes                       (1,710,000)       (380,000)
        Amortization of royalty and
         commission interests                      1,336,146       1,265,823
        Amortization of deferred charges              31,251          31,251
      Common share dividend received from IOC     18,842,099       8,456,821
      Change in amounts receivable, accounts
       and income taxes payable/recoverable       (9,644,215)     (8,076,874)
                                               --------------  --------------
      Cash flow from operating activities         21,112,818      12,502,172
                                               --------------  --------------
    Financing
      Distributions paid to unitholders          (11,200,000)    (20,800,000)
      Proceeds from long-term debt                 1,446,362       8,146,984
                                               --------------  --------------
                                                  (9,753,638)    (12,653,016)
                                               --------------  --------------

    Increase/(decrease) in cash and cash
     equivalents during the period                11,359,180        (150,844)
    Cash, beginning of period                        238,650         424,991
                                               --------------  --------------

    Cash and cash equivalents, end of period   $  11,597,830   $     274,147
                                               --------------  --------------
                                               --------------  --------------

    Cash income taxes paid                     $   2,332,816   $   3,109,679
                                               --------------  --------------
                                               --------------  --------------

    Cash interest paid                         $     281,409   $     127,334
                                               --------------  --------------
                                               --------------  --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF CASH FLOWS

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

                                                     For the Nine Months
                                                      Ended September 30,
                                                     2007            2006
                                               ------------------------------
                                                          (Unaudited)
    Net inflow (outflow) of cash related
     to the following activities

    Operating
      Net income for the period                $  48,870,455   $  65,679,423
      Items not affecting cash:
        Equity earnings in IOC                   (19,536,609)    (23,575,256)
        Future income taxes                       (2,380,000)    (11,150,000)
        Amortization of royalty and
         commission interests                      3,032,700       3,305,204
        Amortization of deferred charges              93,753          93,753
      Common share dividend received from IOC     18,842,099      20,917,796
      Change in amounts receivable, accounts
       payable and income taxes
       payable/recoverable                        (3,084,558)    (16,344,231)
                                               --------------  --------------
      Cash flow from operating activities         45,837,840      38,926,689
                                               --------------  --------------
    Financing
      Distributions paid to unitholders          (40,000,000)    (70,400,000)
      Proceeds from long-term debt                 5,618,053       8,146,984
                                               --------------  --------------
                                                 (34,381,947)    (62,253,016)
                                               --------------  --------------

    Increase/(decrease) in cash and cash
     equivalents during the period                11,455,893     (23,326,327)
    Cash and cash equivalents, beginning
     of period                                       141,937      23,600,474
                                               --------------  --------------

    Cash and cash equivalents, end of period   $  11,597,830   $     274,147
                                               --------------  --------------
                                               --------------  --------------

    Cash income taxes paid                     $   9,467,235   $  19,881,451
                                               --------------  --------------
                                               --------------  --------------

    Cash interest paid                         $     681,767   $     535,526
                                               --------------  --------------
                                               --------------  --------------



    Notes to Consolidated Financial Statements

    1.  Basis of Presentation

        The financial statements have not been reviewed in accordance with
        section 7050 of the CICA Handbook, Auditor Review of the Interim
        Financial Statements, by the Fund's Auditor.

        Not all disclosures required by Canadian generally accepted
        accounting principles for annual financial statements have been
        presented and, accordingly, these interim financial statements should
        be read in conjunction with the most recently prepared annual
        financial statements for the year ended December 31, 2006.

        These interim financial statements follow the same accounting
        policies and method of application as the most recent annual
        financial statements for the year ended December 31, 2006. On
        January 1, 2007, the Fund adopted the Canadian Institute of Chartered
        Accountants new accounting standards: Section 3855 "Financial
        Instruments - Recognition and Measurement", Section 3861 "Financial
        Instruments - Disclosure and Presentation" and Section 1530
        "Comprehensive Income". Section 3855 establishes standards for
        recognizing and measuring financial instruments. All financial
        instruments are required to be measured at fair value on the initial
        recognition with the exception of certain financial instruments that
        do not have quoted market values in an active market. Financial
        instruments that will be realized within the normal operating cycle
        are measured at their carrying amount as this approximates fair
        value. These standards have been applied prospectively without
        restatement of prior periods. The adoption of these standards did not
        have an impact on the Fund's financial statements. The Fund does not
        have any other comprehensive income components and as such,
        comprehensive income is equal to net income. Accordingly, a Statement
        of Comprehensive Income is not presented.

        Seasonality

        The results of operations and operating cash flows of the Fund vary
        considerably from quarter to quarter. The operations of the Fund are
        dependent on the royalty and commission revenues from IOC, whose
        production and revenues are not constant throughout the year, being
        lower during the winter months when the St. Lawrence Seaway is
        closed.

    2.  Unit appreciation rights

        In 2005, the Fund adopted a unit appreciation rights plan which
        granted 50,000 units to each if its six trustees, all as more fully
        described in the annual financial statements. Since the grant date,
        193,000 unit appreciation rights have been exercised.

        Compensation expense is not recognized when rights are issued, but is
        accrued as an expense over the period that the rights vest. The unit
        appreciation rights are marked to market each quarter to the extent
        the units exceed $23.00. Compensation expense of $569,000 (2006 -
        $521,000) for the three months and $1,304,000 (2006 - $319,000) for
        the nine months ended September 30, 2007 have been accrued in
        connection with the unit appreciation rights.

        In September 2007, a Trustee exercised unit appreciation rights in
        respect of 6,250 units at a market value of $39.67 resulting in a
        total payment of $104,188 (2006 - Nil).

    3.  Income taxes

        In the second quarter of 2007, the Federal Government enacted
        legislation which will result in a 0.5% reduction in the federal
        corporate income tax rate in 2011.
    

    %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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