Labrador Iron Ore Royalty Corporation - Results for the first quarter ended March 31, 2014

TORONTO, May 6, 2014 /CNW/ - Royalty income for the first quarter of 2014 amounted to $26.9 million as compared to $26.1 million for the first quarter of 2013. The shareholders' adjusted cash flow (see below for definition) for the first quarter was $27.7 million or $0.43 per share as compared to $14.4 million or $0.22 per share for the same period in 2013. The higher cash flow for the quarter reflected an IOC dividend of which our share was $12.6 million or $0.20 per share. Net income was $27.1 million or $0.42 per share compared to $21.7 million or $0.34 per share for the same period in 2013. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $12.6 million or $0.20 per share as compared to $9.4 million or $0.15 per share in 2013.

IOC production in the first quarter is normally reduced due to the problems associated with winter weather conditions and production is usually 15-20% of annual production. The 2014 first quarter was subjected to disruptively cold weather associated with a "polar vortex" weather pattern, which caused an external power outage and unplanned equipment downtime. As a result, saleable production was 12% below last year's first quarter. Sales for the quarter, which were slightly below last year's quarter, were restricted by the availability of product and IOC had to declare a temporary force majeure. Despite the weather challenges, IOC established new records for February ex-pit mine production and Ore Delivery System crushed ore. Average U.S. dollar index prices for concentrate in the quarter were about 11% below 2013 fourth quarter and the average for the year. The lower price was largely offset by higher pellet premiums and the weakness of the Canadian dollar against its U.S counterpart.

Results for the three months ended March 31 are summarized below:

(in millions except per share information)		2014		2013
		(Unaudited)
Revenue		$27.2		$26.4
Adjusted cash flow		$27.7		$14.4
Adjusted cash flow per share		$0.43		$0.22
Net income		$27.1		$21.7
Net income per share		$0.42		$0.34

"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 Mar. 31, 2014		3 Months Ended Mar. 31, 2013		Year Ended Dec. 31, 2013
Pellets					1.88		1.72		8.60
Concentrates^(1)					0.63		0.90		6.20
Total					2.51		2.62		14.80

^(1)

^Excludes third party ore sales

Outlook

The IOC expansion program should be completed during the second quarter of the year. On the assumption that production for the balance of the year gradually approaches the nominal annual capacity of 23.3 million tonnes, 2014 concentrate production could exceed 18 million tonnes, if weather and other factors do not intervene. Prices are currently lower than the 2013 average prices, but this is partially offset by the weaker Canadian dollar. IOC expects to be able to sell all the concentrate and pellets it can produce during the year. Increased production and sales should result in increased royalty revenue for Labrador Iron Ore Royalty Corporation and increased cash flow for IOC.

Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,
Bruce C. Bone
President and Chief Executive Officer
May 6, 2014

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") 2013 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 Corporation's 2013 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 first quarter of 2014 amounted to $26.9 million as compared to $26.1 million for the first quarter of 2013. The shareholders' adjusted cash flow (see below for definition and calculation) for the first quarter was $27.7 million or $0.43 per share as compared to $14.4 million or $0.22 per share for the same period in 2013. The higher cash flow for the quarter reflected an IOC dividend of which our share was $12.6 million or $0.20 per share. Net income was $27.1 million or $0.42 per share compared to $21.7 million or $0.34 per share for the same period in 2013. Equity earnings from IOC amounted to $12.6 million or $0.20 per share as compared to $9.4 million or $0.15 per share in 2013.

IOC production in the first quarter is normally reduced due to the problems associated with winter weather conditions and production is usually 15-20% of annual production. The 2014 first quarter was subjected to disruptively cold weather associated with a "polar vortex" weather pattern, which caused an external power outage and unplanned equipment downtime. As a result, saleable production was 12% below last year's first quarter. Sales for the quarter, which were slightly below last year's quarter, were restricted by the availability of product and IOC had to declare a temporary force majeure. Despite the weather challenges, IOC established new records for February ex-pit mine production and Ore Delivery System crushed ore. Average U.S. dollar index prices for concentrate in the quarter were about 11% below 2013 fourth quarter and the average for the year. The lower price was largely offset by higher pellet premiums and the weakness of the Canadian dollar against its U.S counterpart.

The following table sets out quarterly revenue, net income and cash flow data for 2014, 2013 and 2012.

			Revenue	Net Income	Net Income per Share/Unit	Adjusted Cash Flow^(1)	Adjusted Cash Flow per Share/Unit^(1)	Distributions Declared per Share/Unit
			(in millions except per Share/Unit information)
2014
First Quarter			$27.2	$27.1	$0.42	$27.7^(2)	$0.43	$0.400
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^(3)	$0.90	$0. 750
2012
First Quarter^(4)			$22.4	$23.0	$0.36	$14.4	$0.23	$0.375
Second Quarter^(4)			$36.4	$36.8	$0.57	$22.3	$0.35	$0.375
Third Quarter ^(4)			$32.6	$29.7	$0.47	$18.5	$0.28	$0.375
Fourth Quarter			$32.8	$33.0	$0.51	$19.9	$0.31	$0.375

	Notes:	^(1)	"Adjusted cash flow" (see below)
		^(2)	Includes a $12.6 million IOC dividend
		^(3)	Includes a $40.0 million IOC dividend
		^(4)	Prior to the fourth quarter of 2012, net income, adjusted cash flow, distributions and per unit figures referred to in this table use the totals according to the consolidated financial statements plus (where applicable) the $7,488,000 ($0.117 per unit) interest on the subordinated notes

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 $0.40 for the quarter (2013 - $0.22). Cumulative standardized cash flow from inception of the Corporation is $19.24 per share and total cash distributions since inception are $18.69 per share, for a payout ratio of 97%.

"Adjusted cash flow" is defined as cash flow from operating activities as shown on the attached financial statements adjusted for changes in amounts receivable, accounts payable and income taxes payable.  It is not a recognized measure under IFRS.  The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for dividends to shareholders.

The following reconciles cash flow from operating activities to adjusted cash flow.

		3 Months Ended Mar. 31, 2014			3 Months Ended Mar. 31, 2013
Standardized cash flow from operating activities		$25,848,565			$14,106,869
Excluding: changes in amounts receivable, accounts payable and income taxes payable		1,834,869			243,144
Adjusted cash flow		$27,683,434			$14,350,013
Adjusted cash flow per share		$0.43			$0.22

Liquidity and Capital Resources

The Corporation has $30.5 million in cash as at March 31, 2014 with total current assets of $57.7 million and working capital of $26.7 million. During the quarter, the Corporation earned operating cash flows of $25.8 million with the cash balance declining $22.1 million as a result of dividends paid.

Cash balances consist of deposits in Canadian dollars with Canadian chartered banks. Accounts receivable primarily consist of royalty payments from IOC. Royalty payments are received in U.S. dollars and converted 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, 2016 with provision for annual one-year extensions.  No amount is currently drawn under this facility (2013 - nil) leaving $50.0 million available to provide for any capital required by IOC or requirements of the Corporation.

Outlook

The IOC expansion program should be completed during the second quarter of the year. On the assumption that production for the balance of the year gradually approaches the nominal annual capacity of 23.3 million tonnes, 2014 concentrate production could exceed 18 million tonnes, if weather and other factors do not intervene. Prices are currently lower than the 2013 average prices, but this is partially offset by the weaker Canadian dollar. IOC expects to be able to sell all the concentrate and pellets it can produce during the year. Increased production and sales should result in increased royalty revenue for LIORC and increased cash flow for IOC.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
May 6, 2014

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 financial statements.

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
			As at
			March 31,			December 31,
Canadian $			2014			2013
			(Unaudited)
Assets
Current Assets
	Cash		$	30,462,489		$	52,613,924
	Amounts receivable			25,492,111			35,818,924
	Income taxes recoverable			1,714,447			-
Total Current Assets				57,669,047			88,432,848
Non-Current Assets
Iron Ore Company of Canada ("IOC"),
	royalty and commission interests			278,794,443			279,576,792
Investment in IOC				407,064,512			407,622,445
Total Non-Current Assets				685,858,955			687,199,237
Total Assets			$	743,528,002		$	775,632,085
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable		$	5,378,722		$	7,508,145
	Dividend payable			25,600,000			48,000,000
	Income taxes payable			-			8,317,812
Total Current Liabilities				30,978,722			63,825,957
Non-Current Liabilities
	Deferred income taxes			128,180,000			128,478,000
Total Liabilities				159,158,722			192,303,957
Shareholders' Equity
	Share capital			317,708,147			317,708,147
	Retained earnings			274,745,133			273,225,981
	Accumulated other comprehensive loss			(8,084,000)			(7,606,000)
				584,369,280			583,328,128
Total Liabilities and Shareholders' Equity			$	743,528,002		$	775,632,085

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
			For the three months ended
			March 31,
Canadian $			2014			2013
			(Unaudited)
Revenue
	IOC royalties		$	26,852,444		$	26,101,205
	IOC commissions			242,090			257,651
	Interest and other income			98,642			58,369
				27,193,176			26,417,225
Expenses
	Newfoundland royalty taxes			5,370,489			5,216,405
	Amortization of royalty and commission interests			782,349			949,367
	Administrative expenses			431,754			865,053
	Interest expense:
	Credit facility			101,835			92,466
				6,686,427			7,123,291
Income before equity earnings and income taxes				20,506,749			19,293,934
Equity earnings in IOC				12,567,402			9,364,275
Income before income taxes				33,074,151			28,658,209
Provision for income taxes
	Current			6,171,999			5,893,288
	Deferred			(217,000)			1,091,000
				5,954,999			6,984,288
Net income for the period				27,119,152			21,673,921
Other comprehensive loss
	Share of other comprehensive loss of IOC that will not be
	reclassified subsequently to profit or loss (net of taxes)			(478,000)			(537,000)
Comprehensive income for the period			$	26,641,152		$	21,136,921
Net income per share			$	0.42		$	0.34

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
				For the three months ended
				March 31,
Canadian $				2014			2013
				(Unaudited)
Net inflow (outflow) of cash related
	to the following activities
Operating
	Net income for the period			$	27,119,152		$	21,673,921
	Items not affecting cash:
		Equity earnings in IOC			(12,567,402)			(9,364,275)
		Current income taxes			6,171,999			5,893,288
		Deferred income taxes			(217,000)			1,091,000
		Amortization of royalty and commission interests			782,349			949,367
		Interest expense			101,835			92,466
	Common share dividend from IOC				12,566,335			-
	Change in amounts receivable and accounts payable				8,197,390			(136,432)
	Interest paid				(101,835)			(92,466)
	Income taxes paid				(16,204,258)			(6,000,000)
	Cash flow from operating activities				25,848,565			14,106,869
Financing
	Dividends paid to shareholders				(48,000,000)			(24,000,000)
	Cash flow used in financing activities				(48,000,000)			(24,000,000)
Decrease in cash, during the period					(22,151,435)			(9,893,131)
Cash, beginning of period					52,613,924			26,923,421
Cash, end of period				$	30,462,489		$	17,030,290

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Canadian $		Share capital			Retained earnings			Accumulated other comprehensive loss			Total
		(Unaudited)
Balance as at December 31, 2012		$	317,708,147		$	244,395,841		$	(17,598,000)		$	544,505,988
Net income for the period			-			21,673,921						21,673,921
Dividends declared to shareholders			-			(24,000,000)						(24,000,000)
Share of other comprehensive loss from investment in IOC (net of taxes)			-			-			(537,000)			(537,000)
Balance as at March 31, 2013		$	317,708,147		$	242,069,762		$	(18,135,000)		$	541,642,909
Balance as at December 31, 2013			317,708,147			273,225,981			(7,606,000)			583,328,128
Net income for the period			-			27,119,152			-			27,119,152
Dividends declared to shareholders			-			(25,600,000)			-			(25,600,000)
Share of other comprehensive loss from investment in IOC (net of taxes)			-			-			(478,000)			(478,000)
Balance as at March 31, 2014		$	317,708,147		$	274,745,133	$		(8,084,000)		$	584,369,280

The complete consolidated financial statements for the first quarter ended March 31, 2014, including the notes thereto, are posted on sedar.com and labradorironore.com.

 

SOURCE: Labrador Iron Ore Royalty Corporation

Bruce C. Bone
President & Chief Executive Officer
[phone]