Labrador Iron Ore Royalty Corporation - Results for the Second Quarter Ended June 30, 2015

 

 

TORONTO, Aug. 6, 2015 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC", TSX: LIF) announced today its operation and cash flow results for the second quarter ended June 30, 2015.

Royalty income for the second quarter of 2015 amounted to $23.5 million as compared to $33.3 million for the second quarter of 2014. The shareholders' adjusted cash flow (see below for definition) for the second quarter was $13.1 million or $0.21 per share as compared to $33.7 million or $0.53 per share for the same period in 2014. The higher cash flow in the second quarter of 2014 reflected an IOC dividend of which Labrador Iron Ore Royalty Corporation's share was $14.8 million or $0.23 per share. Net income was $15.4 million or $0.24 per share compared to $35.9 million or $0.56 per share for the same period in 2014. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $3.8 million or $0.06 per share as compared to $18.2 million or $0.28 per share in 2014. The increased sales for the quarter were a reflection of the increased production, but this along with the lower Canadian dollar against its US counterpart only partially offset the lower prices received as compared to last year. As a result, royalty revenue for the quarter was substantially lower than last year.

Second quarter of 2015 concentrate for sale (CFS) production improved by 55% from the previous quarter and was 10% better than the second quarter of 2014. This was mainly driven by better asset availability and utilization resulting from IOC's ongoing business transformation programs together with favorable weight yield.  Second quarter of 2015 pellet production was 5% and 11% higher than the first quarter of 2015 and the second quarter of 2014 respectively driven by the restart of a 6th induration machine which was idled in 2009.

Second quarter of 2015 concentrate sales in tonnes were 166% higher than the previous quarter and similar to the corresponding quarter in 2014. Good operational performance translated into better sales performance in the second quarter of 2015. Second quarter of 2015 pellet sales in tonnes were 8% lower than the previous quarter due to vessel timing and 19% higher than the second quarter of 2014 driven by higher production.

Results for the three months and six months ended June 30 are summarized below:

 

(in millions except per share information)


3 Months

Ended

June 30,

2015

3 Months

Ended

June 30,

2014

6 Months

Ended

June 30,

2015


6 Months

Ended

June 30,

2014






(Unaudited)










Revenue


$24.0

$33.8

$47.7


$61.0


Adjusted cash flow


$13.1

$33.7

$26.2


$61.4


Adjusted cash flow per share


$0.21

$0.53

$0.41


$0.96


Net income


$15.4

$35.9

$25.4


$63.0


Net income per share


$0.24

$0.56

$0.40


$0.98









 

"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
June 30, 
2015

3 Months
Ended
June 30,  
2014

6 Months
Ended
June 30,
2015

6 Months
Ended
June 30,  
2014

Year
Ended 
Dec. 31,
2014








Pellets


2.29

1.93

4.79

3.81

8.33

Concentrates(1)


1.89

1.91

2.60

2.54

5.99








Total


4.18

3.84

7.39

6.35

14.32

(1)       Excludes third party ore sales

 

 

 

Outlook

The restart of the 6th induration machine which restored pellet capacity to 12.5 million tonnes per annum was completed during the quarter. The increased concentrate production realized represents the partial attainment of the results expected from the expansion program which was completed last year. Concentrate and pellet production is expected to continue to increase going forward. The Canadian dollar has continued to weaken against its US counterpart, which partially offsets the lower iron ore price which is currently about 50% below last year's level. Because of the quality of the IOC ore, it remains in demand and commands a premium to posted prices. The premium for pellets remains relatively strong. 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 even at current iron ore price levels. The steps being taken to increase production are positive for the royalty we receive from IOC and will partially offset the lower prices currently being received.

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

Bruce C. Bone
President and Chief Executive Officer 
August 6, 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 second quarter of 2015 amounted to $23.5 million as compared to $33.3 million for the second quarter of 2014. The shareholders' adjusted cash flow (see below for definition) for the second quarter was $13.1 million or $0.21 per share as compared to $33.7 million or $0.53 per share for the same period in 2014. The higher cash flow in the second quarter of 2014 reflected an IOC dividend of which LIORC's share was $14.8 million or $0.23 per share. Net income was $15.4 million or $0.24 per share compared to $35.9 million or $0.56 per share for the same period in 2014. Equity earnings from IOC amounted to $3.8 million or $0.06 per share as compared to $18.2 million or $0.28 per share in 2014.  The increased sales for the quarter were a reflection of the increased production, but this along with the lower Canadian dollar against its US counterpart only partially offset the lower prices received as compared to last year. As a result, royalty revenue for the quarter was substantially lower than last year.

Second quarter of 2015 concentrate for sale (CFS) production improved by 55% from the previous quarter and was 10% better than the second quarter of 2014. This was mainly driven by better asset availability and utilization resulting from IOC's ongoing business transformation programs together with favorable weight yield.  Second quarter of 2015 pellet production was 5% and 11% higher than the first quarter of 2015 and the second quarter of 2014 respectively driven by the restart of a 6th induration machine which was idled in 2009.

Second quarter of 2015 concentrate sales in tonnes were 166% higher than the previous quarter and similar to the corresponding quarter in 2014. Good operational performance translated into better sales performance in the second quarter of 2015. Second quarter of 2015 pellet sales in tonnes were 8% lower than the previous quarter due to vessel timing and 19% higher than the second quarter of 2014 driven by higher production.

Results for the six 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 first half of 2015 but did pay in 2014, of which LIORC's share was $27.4 million or $0.42 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










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 $0.20 for the quarter (2014 - $0.46). Cumulative standardized cash flow from inception of the Corporation is $21.05 per share and total cash distributions since inception is $20.44 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
June 30, 2015

3 Months Ended
June 30, 2014

6 Months Ended
June 30, 2015

6 Months Ended
June 30, 2014


Standardized cash flow from operating activities

$12,492,921

$29,229,157

$27,725,984

$55,077,722


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

 

614,378

 

4,439,911

 

(1,505,150)

 

6,274,780


Adjusted cash flow

$13,107,299

$33,669,068

$26,220,834

$61,352,502


Adjusted cash flow per share

$0.21

$0.53

$0.41

$0.96


 

 

 

Liquidity and Capital Resources

The Corporation has $24.3 million in cash as at June 30, 2015 with total current assets of $47.6 million and working capital of $26.8 million. During the quarter, the Corporation earned operating cash flows of $12.5 million with the cash balance declining $3.5 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 in to 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, 2017 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

The restart of the 6th induration machine which restored pellet capacity to 12.5 million tonnes per annum was completed during the quarter. The increased concentrate production realized represents the partial attainment of the results expected from the expansion program which was completed last year. Concentrate and pellet production is expected to continue to increase going forward. The Canadian dollar has continued to weaken against its US counterpart, which partially offsets the lower iron ore price which is currently about 50% below last year's level. Because of the quality of the IOC ore, it remains in demand and commands a premium to posted prices. The premium for pellets remains relatively strong. 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 even at current iron ore price levels. The steps being taken to increase production are positive for the royalty we receive from IOC and will partially offset the lower prices currently being received.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
August 6, 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



June 30, 


December 31,



2015


2014



(Unaudited)

Assets






Current Assets







Cash

$

24,281,617


$

34,955,633


Amounts receivable 


23,281,244



24,861,203


Income taxes recoverable


67,821



472,626

Total Current Assets


47,630,682



60,289,462








Non-Current Assets






Iron Ore Company of Canada ("IOC"),







royalty and commission interests 


273,135,160



275,432,981

Investment in IOC 


395,309,889



395,271,413

Total Non-Current Assets


668,445,049



670,704,394








Total Assets

$

716,075,731


$

730,993,856















Liabilities and Shareholders' Equity






Current Liabilities







Accounts payable

$

4,831,863


$

5,311,477


Dividend payable 


16,000,000



22,400,000

Total Current Liabilities


20,831,863



27,711,477








Non-Current Liabilities







Deferred income taxes 


124,950,000



125,563,000

Total Liabilities


145,781,863



153,274,477








Shareholders' Equity







Share capital 


317,708,147



317,708,147


Retained earnings 


265,189,721



271,757,232


Accumulated other comprehensive loss 


(12,604,000)



(11,746,000)




570,293,868



577,719,379








Total Liabilities and Shareholders' Equity

$

716,075,731


$

730,993,856

 

 

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS 

OF COMPREHENSIVE INCOME















For the Three Months Ended



June 30,

Canadian $

2015


2014



(Unaudited)

Revenue







IOC royalties

$

23,477,310


$

33,305,033


IOC commissions


411,701



395,190


Interest and other income 


64,505



81,796




23,953,516



33,782,019

Expenses







Newfoundland royalty taxes


4,695,462



6,661,006


Amortization of royalty and commission interests


1,197,257



977,496


Administrative expenses 


741,718



646,478




6,634,437



8,284,980








Income before equity earnings and income taxes


17,319,079



25,497,039

Equity earnings in IOC


3,778,944



18,242,559

Income before income taxes 


21,098,023



43,739,598








Provision for income taxes 







Current 


5,409,037



7,615,927


Deferred


222,000



231,000




5,631,037



7,846,927








Net income for the period


15,466,986



35,892,671








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)



(479,000)








Comprehensive income for the period

$

15,037,986


$

35,413,671








Net income per share 

$

0.24


$

0.56

 

 

LABRADOR IRON ORE ROYALTY CORPORATION






INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
























For the Six Months Ended



June 30,



2015


2014



(Unaudited)

Revenue







IOC royalties

$

46,823,445


$

60,157,477


IOC commissions


727,694



637,280


Interest and other income 


144,317



180,438




47,695,456



60,975,195

Expenses







Newfoundland royalty taxes


9,364,689



12,031,495


Amortization of royalty and commission interests


2,297,821



1,759,845


Administrative expenses 


1,428,084



1,180,067




13,090,594



14,971,407








Income before equity earnings and income taxes


34,604,862



46,003,788

Equity earnings in IOC 


1,041,476



30,809,961

Income before income taxes 


35,646,338



76,813,749








Provision for income taxes







Current 


10,681,849



13,787,926


Deferred


(468,000)



14,000




10,213,849



13,801,926








Net income for the period


25,432,489



63,011,823








Other comprehensive loss







Share of other comprehensive loss of IOC that will not be 







reclassified subsequently to profit or loss (net of taxes) 


(858,000)



(957,000)








Comprehensive income for the period

$

24,574,489


$

62,054,823








Net income per share 

$

0.40


$

0.98

 

 

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Six Months Ended


June 30,


2015


2014


(Unaudited)

Net inflow (outflow) of cash related







to the following activities












Operating







Net income for the period

$

25,432,489


$

63,011,823


Items not affecting cash:








Equity earnings in IOC


(1,041,476)



(30,809,961)



Current income taxes


10,681,849



13,787,926



Deferred income taxes


(468,000)



14,000



Amortization of royalty and commission interests


2,297,821



1,759,845


Common share dividend from IOC


-



27,376,795


Change in amounts receivable and accounts payable


1,100,345



4,069,162


Income taxes paid


(10,277,044)



(24,131,868)


Cash flow from operating activities


27,725,984



55,077,722







Financing







Dividends paid to shareholders


(38,400,000)



(73,600,000)


Cash flow used in financing activities


(38,400,000)



(73,600,000)







Decrease in cash, during the period


(10,674,016)



(18,522,278)







Cash, beginning of period


34,955,633



52,613,924







Cash, end of period

$

24,281,617


$

34,091,646

 

 

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


Share
capital

Retained
earnings

Accumulated
other
comprehensive
loss

Total


(Unaudited)










Balance as at December 31, 2013

$

317,708,147

$

273,225,981

$

(7,606,000)

$

583,328,128

Net income for the period


-


63,011,823


-


63,011,823

Dividends declared to shareholders 


-


(51,200,000)


-


(51,200,000)

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


-


-


(957,000)


(957,000)

Balance as at June 30, 2014

$

317,708,147

$

285,037,804

$

(8,563,000)

$

594,182,951










Balance as at December 31, 2014


317,708,147


271,757,232


(11,746,000)


577,719,379

Net income for the period


-


25,432,489


-


25,432,489

Dividends declared to shareholders 


-


(32,000,000)


-


(32,000,000)

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


-


-


(858,000)


(858,000)

Balance as at June 30, 2015

$

317,708,147

$

265,189,721

$

(12,604,000)

$

570,293,868

 

 

The complete consolidated financial statements for the second quarter ended June 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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