Labrador Iron Ore Royalty Corporation - Results for the Third Quarter Ended September 30, 2021

TORONTO, Nov. 4, 2021 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC") (TSX: LIF) announced today its operation and cash flow results for the quarter ended September 30, 2021.

Financial Performance

In the third quarter of 2021, LIORC's financial results benefited from higher iron ore prices and pellet premiums, partially offset by lower volumes of concentrate for sale ("CFS") sales. Royalty revenue for the third quarter of 2021 amounted to $74.2 million compared to $52.4 million for the third quarter of 2020. Equity earnings from Iron Ore Company of Canada ("IOC") were $60.5 million in the third quarter of 2021 compared to $34.9 million in the third quarter of 2020. Net income per share for the third quarter of 2021 was $1.64 per share, which was an 82% increase over the same period in 2020. The adjusted cash flow per share for the third quarter of 2021 was $1.99 per share, which was 333% higher than in the same period in 2020, as a result of higher royalty revenues and the decision by IOC to pay a dividend. In the third quarter of 2021, LIORC received a dividend in the amount of $85.8 million from IOC.

In the third quarter of 2021, iron ore prices dropped from the record levels experienced in the second quarter of 2021, as China, which accounts for a majority of the world's steel production and over 70% of all seaborne iron ore demand, placed restrictions on its steel production in an effort to curb year-over-year production growth. According to the World Steel Association, global crude steel production in China in the third quarter of 2021 was 14% lower than the same quarter of 2020 and 16% lower than the second quarter of 2021. In addition, in the quarter ending September 30, iron ore production by the three largest seaborne iron ore producers, Vale, Rio Tinto and BHP, while consistent with the same quarter of 2020, was 9% higher than the prior quarter.

IOC sells CFS based on the Platts index for 65% Fe, CFR China ("65% Fe index"). All references to tonnes and per tonne prices in this report refer to wet metric tonnes, other than references to Platts quoted pricing, which refer to dry metric tonnes. Historically, IOC's wet ore contains approximately 3% less ore per equivalent volume than dry ore. In the third quarter of 2021, the 65% Fe index averaged US$190 per tonne, a 47% increase over the average of US$129 per tonne in the third quarter of 2020, and an 18% decrease over the average of US$233 in the second quarter of 2021. The monthly Atlantic Blast Furnace 65% Fe pellet premium index as quoted by Platts (the "pellet premium") averaged US$77 per tonne in the third quarter of 2021, up substantially from an average of US$29 in the same quarter of 2020, which had been negatively impacted by a reduction in demand from European steel producers due to COVID-19.

Based on sales as reported for the LIORC Royalty, the overall average price realized by IOC for CFS and pellets, FOB Sept-Îles, was approximately C$247 per tonne in the third quarter of 2021, compared to approximately C$162 per tonne in the third quarter of 2020 and C$275 per tonne in the second quarter of 2021.

Iron Ore Company of Canada Operations

Operations

IOC continues to follow COVID-19 procedures and protocols to prevent COVID-19 outbreaks within IOC's operations, which has allowed IOC to effectively operate throughout 2021.  Total concentrate production in the third quarter of 2021 was 3.9 million tonnes. This was 8% lower than the third quarter of 2020 and 18% lower than the second quarter of 2021 due mainly to labour and equipment availability issues during the quarter which impacted feed availability. As well, the annual maintenance shutdown, which was completed in September, took longer than expected.

The IOC saleable production (CFS plus pellets) of 3.7 million tonnes in the third quarter of 2021 was 8% lower than the same period in 2020 and 20% lower than the second quarter of 2021, mainly as a result of lower concentrate production referred to above. 

In the third quarter of 2021, CFS production of 1.4 million tonnes was 20% lower than the same quarter last year, mainly due to lower concentrate production, as well as the decision by IOC to produce less pellets and more CFS in 2020. CFS production in the third quarter of 2021 was 28% lower than the second quarter of 2021, due to lower concentrate production. Pellet production in the third quarter of 2021 of 2.3 million tonnes was 3% higher than the corresponding quarter in 2020 due to IOC's decision to reduce the focus on the production of pellets in 2020, and 15% lower than the second quarter of 2021, due to issues related to lack of feed from the concentrator. 

Sales as Reported for the LIORC Royalty

Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.2 million tonnes in the third quarter of 2021 was 10% lower than the total sales tonnage for the same period in 2020 mainly as a result of lower product availability.  Total iron ore sales tonnage in the third quarter of 2021 was 2% higher than the second quarter of 2021, as sales tonnage in the second quarter of 2021 was negatively impacted by the lack of availability of reclaimers during the quarter. Pellet sales in the third quarter of 2021 of 2.4 million tonnes was 1% higher than the total sales tonnage for the same quarter last year and 5% higher than the second quarter of 2021. CFS sales tonnage was 22% lower than the same quarter last year and 2% lower than the second quarter of 2021.

Outlook

Rio Tinto has lowered the 2021 guidance for IOC's saleable production (CFS plus pellets) from 17.9 to 20.4 million tonnes to 16.2 to 17.9 million tonnes. This compares to 17.7 million tonnes of saleable production in 2020 and 12.3 million tonnes in the first nine months of 2021.

Despite lower than expected sales in the first nine months, IOC is in an excellent financial position, having benefitted in 2021 from a very strong iron ore pricing environment.  In the first nine months of 2021, IOC generated net after tax cash from operating activities of US$1,259 million, had capital expenditures of US$170 million, and paid shareholder dividends of US$950 million. As at September 30, 2021, IOC had no debt, total current assets of US$665 million, and total current liabilities of US$517 million.

IOC experienced decreasing iron ore prices throughout the third quarter.  The monthly average price of the 65% Fe index dropped from an average of US$244 in July to an average of US$143 in September. Since the end of the third quarter (October 1, 2021 to October 26, 2021), the average price of the 65% Fe index has been US$146 per tonne. To put this in perspective, this is 28% lower than the average of US$204 for the first nine months of 2021, but 20% higher than the annual average of US$122 for 2020. The pellet premium has also declined. In October, 2021, the pellet premium of US$56 was 10% lower than the average of first nine months of 2021, but 92% higher than the annual average of 2020. 

Future government action regarding steel production output in China and its resulting impact on iron ore prices remains somewhat uncertain. That said, in the current pricing environment LIORC remains well positioned to profit from its royalty and commission interests in IOC and to receive future IOC dividends, albeit at lower levels than in the first three quarters of 2021.

LIORC has no debt and at September 30, 2021 had positive net working capital (current assets less current liabilities) of $21.6 million.  After the end of the third quarter LIORC paid a dividend on October 26, 2021 of $2.10 per share or $134.4 million. The net royalty from IOC was received by LIORC on the same date, maintaining the Corporation's strong cash balance.

Respectfully submitted on behalf of the Directors of the Corporation,

John F. Tuer
President and Chief Executive Officer
November 4, 2021

Management's Discussion and Analysis

The following discussion and analysis should be read in conjunction with the Management's Discussion and Analysis section of Labrador Iron Ore Royalty Corporation's ("LIORC" or the "Corporation") 2020 Annual Report, and the financial statements and notes contained therein and the September 30, 2021 interim condensed consolidated financial statements.

Overview of the Business

The Corporation's revenues are entirely dependent on the operations of 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 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.

Financial Highlights 

Financial and Operating Highlights
	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2021	2020		2021	2020
	(unaudited)
	($ in millions except per share information)
Revenue	74.7	52.9		219.7	147.9
Equity earnings from IOC	60.5	34.9		183.7	88.3
Net income	104.8	57.7		301.6	153.2
Net income per share	$ 1.64	$ 0.90		$ 4.71	$ 2.39
Dividend(s) from IOC	85.8	-		179.3	-
Cash flow from operations	137.3	11.1		295.9	59.4
Cash flow from operations per share	$ 2.15	$ 0.17		$ 4.62	$ 0.93
Adjusted cash flow^1	127.3	29.2		301.0	81.6
Adjusted cash flow per share	$ 1.99	$ 0.46		$ 4.70	$ 1.28
Dividends declared per share	$ 2.10	$ 0.45		$ 4.85	$ 1.25

¹ This is a non-IFRS financial measure and does not have a standard meaning under IFRS. 

Please refer to Standardized Cash Flow and Adjusted Cash Flow section in the MD&A.

 The higher revenue, net income and equity earnings achieved in the third quarter of 2021 as compared to 2020 were mainly due to higher iron ore prices, partly offset by lower sales of CFS. The third quarter of 2021 sales tonnage (pellets and CFS) were lower by 10% mainly due to lower CFS production. CFS sales tonnage was 22% lower and pellet sales tonnage was consistent with the same quarter last year.  However, the lower sales tonnage was more than offset by an increase in the realized sales price of pellets and CFS, resulting in royalty income of $74.2 million for the quarter as compared to $52.4 million for the same period in 2020. Third quarter 2021 cash flow from operations was $137.3 million or $2.15 per share compared to $11.1 million or $0.17 per share for the same period in 2020. LIORC received an IOC dividend in the third quarter of 2021 in the amount of $85.8 million or $1.34 per share. Equity earnings from IOC amounted to $60.5 million or $0.95 per share in the third quarter of 2021 compared to $34.9 million or $0.55 per share for the same period in 2020.

Operating Highlights

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
IOC Operations	2021	2020		2021	2020
	(in millions of tonnes)
Sales^1
Pellets	2.37	2.35		7.08	7.61
Concentrate for sale ("CFS")^2	1.80	2.31		5.32	6.35
Total^3	4.18	4.65		12.40	13.96
Production
Concentrate produced	3.92	4.25		13.12	13.78
Saleable production
Pellets	2.27	2.22		7.45	7.12
CFS	1.41	1.77		4.86	5.93
Total	3.68	3.99		12.31	13.05
Average index prices per tonne (US$)
65% Fe index^4	$ 190	$ 129		$ 205	$ 114
62% Fe index^5	$ 163	$ 118		$ 177	$ 100
Pellet premium^6	$ 77	$ 29		$ 62	$ 29

^(1)For calculating the royalty to LIORC.
^(2)Excludes third party ore sales.
^(3)Totals may not add up due to rounding.
^(4)The Platts index for 65% Fe, CFR China.
^(5)The Platts index for 62% Fe, CFR China.
^(6)The Platts Atlantic Blast Furnace 65% Fe pellet premium index.

IOC sells CFS based on the 65% Fe index.  In the third quarter of 2021, the 65% Fe index averaged US$190 per tonne, a 47% increase over the average of US$129 per tonne in the third quarter of 2020, and an 18% decrease over the average of US$233 in the second quarter of 2021. Iron ore prices decreased from the prior quarter, as the demand for seaborne iron ore from China weakened as a result of government efforts to curb steel production growth in China. The monthly pellet premium averaged US$77 per tonne in the third quarter of 2021, up substantially from an average of US$29 in the same quarter of 2020, which had been negatively impacted by a reduction in demand from European steel producers due to COVID-19.

Based on sales as reported for the LIORC Royalty, the overall average price realized by IOC for CFS and pellets, FOB Sept-Îles, was approximately C$247 per tonne in the third quarter of 2021, compared to approximately C$162 per tonne in the third quarter of 2020 and C$275 per tonne in the second quarter of 2021. The increase in the average realized price FOB Sept-Îles in 2021 was a result of higher CFS prices and higher pellet premiums.

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 dividends.  Standardized cash flow per share was $2.15 for the quarter (2020 - $0.17).

The Corporation also reports "Adjusted cash flow" which is defined as cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes recoverable and payable.  It is not a recognized measure under International Financial Reporting Standards ("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 standardized cash flow from operating activities to adjusted cash flow.

	3 Months Ended Sept. 30, 2021	3 Months Ended Sept. 30, 2020	9 Months Ended Sept. 30, 2021	9 Months Ended Sept. 30, 2020
	(in thousands except for per share information)
Standardized cash flow from operating activities	$137,298	$11,084	$295,850	$59,351
Changes in amounts receivable, accounts payable and income taxes payable	(9,963)	18,070	5,163	22,268
Adjusted cash flow	$127,335	$29,154	$301,013	$81,619
Adjusted cash flow per share	$1.99	$0.46	$4.70	$1.28

Liquidity and Capital Resources

The Corporation had $110.7 million in cash as at September 30, 2021 (December 31, 2020 - $106.1 million) with total current assets of $188.6 million (December 31, 2020 - $164.4 million). The Corporation had working capital of $21.6 million as at September 30, 2021 (December 31, 2020 - $31.0 million). The Corporation's operating cash flow was $137.3 million and the dividend paid during the quarter was $112 million, resulting in cash balances increasing by $25.3 million during the third quarter of 2021. In September, the Directors of the Corporation declared the third quarter dividend of $134.4 million that was paid on October 26, 2021.

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 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 normally pays cash dividends from its net income to the maximum extent possible, subject to the maintenance of appropriate levels of working capital.

The Corporation has a $30 million revolving credit facility with a term ending September 18, 2024 with provision for annual one-year extensions.  No amount is currently drawn under this facility (2020 – nil) leaving $30.0 million available to provide for any capital required by IOC or requirements of the Corporation.

John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
November 4, 2021

Forward-Looking Statements
This report may contain "forward-looking" statements that involve risks, uncertainties and other factors that may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Words such as "may", "will", "expect", "believe", "plan", "intend", "should", "would", "anticipate" and other similar terminology are intended to identify forward-looking statements. These statements reflect current assumptions and expectations regarding future events and operating performance as of the date of this report. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly, including iron ore price and volume volatility, exchange rates, the performance of IOC, market conditions in the steel industry, mining risks and insurance, relationships with indigenous groups, natural disasters, severe weather conditions and public health crises, changes affecting IOC's customers, competition from other iron ore producers, estimates of reserves and resources, government regulation and taxation and cybersecurity.  A discussion of these factors is contained in LIORC's annual information form dated March 4, 2021 under the heading, "Risk Factors". Although the forward-looking statements contained in this report are based upon what management of LIORC believes are reasonable assumptions, LIORC cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this report and LIORC assumes no obligation, except as required by law, to update any forward-looking statements to reflect new events or circumstances. This report should be viewed in conjunction with LIORC's other publicly available filings, copies of which can be obtained electronically on SEDAR at www.sedar.com.

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 STATEMENTS OF FINANCIAL POSITION
		As at
		September 30,		December 31,
(in thousands of Canadian dollars)		2021		2020
		(Unaudited)
Assets
Current Assets
	Cash and short-term investments	$                          110,741		$                         106,091
	Amounts receivable	77,852		58,336
Total Current Assets		188,593		164,427
Non-Current Assets
	Iron Ore Company of Canada ("IOC")
	royalty and commission interests	236,975		241,511
	Investment in IOC	425,429		417,284
Total Non-Current Assets		662,404		658,795
Total Assets		$                          850,997		$                         823,222
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable	$                            16,170		$                           12,533
	Dividend payable	134,400		115,200
	Taxes payable	16,407		5,691
Total Current Liabilities		166,977		133,424
Non-Current Liabilities
	Deferred income taxes	123,320		123,430
Total Liabilities		290,297		256,854
Shareholders' Equity
	Share capital	317,708		317,708
	Retained earnings	253,176		262,000
	Accumulated other comprehensive loss	(10,184)		(13,340)
		560,700		566,368
Total Liabilities and Shareholders' Equity		$                          850,997		$                         823,222

Approved by the Directors,
John F. Tuer		Patricia M. Volker
Director		Director

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
		For the Three Months Ended
		September 30,
(in thousands of Canadian dollars except for per share information)		2021		2020
Revenue
	IOC royalties	$                  74,224		$                          52,354
	IOC commissions	411		458
	Interest and other income	70		48
		74,705		52,860
Expenses
	Newfoundland royalty taxes	14,845		10,470
	Amortization of royalty and commission interests	1,479		1,541
	Administrative expenses	607		828
		16,931		12,839
Income before equity earnings and income taxes		57,774		40,021
Equity earnings in IOC		60,522		34,894
Income before income taxes		118,296		74,915
Provision for income taxes
	Current	17,763		12,408
	Deferred	(4,230)		4,779
		13,533		17,187
Net income for the period		104,763		57,728
Other comprehensive loss
	Share of other comprehensive income of IOC that will not be
	reclassified subsequently to profit or loss (net of income taxes
	of 2020 - $439)	-		(2,487)
Comprehensive income for the period		$                104,763		$                          55,241
Net income per share		$                       1.64		$                               0.90

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
		For the Nine Months Ended
		September 30,
(in thousands of Canadian dollars except for per share information)		2021		2020
		(Unaudited)
Revenue
	IOC royalties	$                218,265		$                        146,182
	IOC commissions	1,219		1,374
	Interest and other income	170		315
		219,654		147,871
Expenses
	Newfoundland royalty taxes	43,653		29,236
	Amortization of royalty and commission interests	4,536		4,808
	Administrative expenses	2,149		2,201
		50,338		36,245
Income before equity earnings and income taxes		169,316		111,626
Equity earnings in IOC		183,714		88,254
Income before income taxes		353,030		199,880
Provision for income taxes
	Current	52,121		34,815
	Deferred	(667)		11,829
		51,454		46,644
Net income for the period		301,576		153,236
Other comprehensive income (loss)
	Share of other comprehensive income (loss) of IOC that will not be
	reclassified subsequently to profit or loss (net of income taxes
	of 2021 - $557; 2020 - $519)	3,156		(2,939)
Comprehensive income for the period		$                304,732		$                        150,297
Net income per share		$                       4.71		$                               2.39

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
				For the Nine Months Ended
				September 30,
(in thousands of Canadian dollars)				2021		2020
				(Unaudited)
Net inflow (outflow) of cash related
	to the following activities
Operating
	Net income for the year			$             301,576		$         153,236
	Items not affecting cash:
		Equity earnings in IOC		(183,714)		(88,254)
		Current income taxes		52,121		34,815
		Deferred income taxes		(667)		11,829
		Amortization of royalty and commission interests		4,536		4,808
	Common share dividend from IOC			179,282		-
	Change in amounts receivable			(19,516)		(18,365)
	Change in accounts payable			3,637		3,471
	Income taxes paid			(41,405)		(42,189)
	Cash flow from operating activities			295,850		59,351
Financing
	Dividend paid to shareholders			(291,200)		(118,400)
	Cash flow used in financing activities			(291,200)		(118,400)
Increase (decrease) in cash, during the period				4,650		(59,049)
Cash, beginning of period				106,091		77,859
Cash, end of period				$             110,741		$           18,810

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
			Accumulated
			other
	Share	Retained	comprehensive
(in thousands of Canadian dollars)	capital	earnings	loss	Total
	(Unaudited)
Balance as at December 31, 2019	$              317,708	$              230,005	$              (10,376)	$                     537,337
Net income for the period	-	153,236	-	153,236
Dividends declared to shareholders	-	(80,000)	-	(80,000)
Share of other comprehensive loss from investment in IOC (net of taxes)	-	-	(2,939)	(2,939)
Balance as at September 30, 2020	$              317,708	$              303,241	$              (13,315)	$                     607,634
Balance as at December 31, 2020	$              317,708	$              262,000	$              (13,340)	$                     566,368
Net income for the period	-	301,576	-	301,576
Dividends declared to shareholders	-	(310,400)	-	(310,400)
Share of other comprehensive income from investment in IOC (net of taxes)	-	-	3,156	3,156
Balance as at September 30, 2021	$              317,708	$              253,176	$              (10,184)	$                     560,700

The complete consolidated financial statements for the third quarter ended September 30, 2021, including the notes thereto, are posted on sedar.com and labradorironore.com

SOURCE Labrador Iron Ore Royalty Corporation

John F. Tuer, President & Chief Executive Officer, [phone]