Labrador Iron Ore Royalty Income Fund - Results for the second quarter ended June 30, 2007



    TORONTO, Aug. 9 /CNW/ - Labrador Iron Ore Royalty Income Fund
(TSX: LIF.UN) announced its results for the second quarter ended June 30,
2007.
    Royalty income for the second quarter of 2007 amounted to $15.30 million
as compared to $18.78 million for the second quarter of 2006, a decrease of
19% over the same period last year. The Fund's cash flow from operating
activities after adjustments for changes in amounts receivable, accounts
payable and income taxes payable/recoverable (adjusted cash flow) for the
second quarter was $9.46 million or $0.30 per unit as compared to
$25.28 million or $0.79 per unit for the same period in 2006. Net income was
$15.16 million or $0.47 per unit compared to $33.45 million or $1.05 per unit
for the same period in 2006.
    Both production and sales at the Iron Ore Company of Canada (IOC) were
negatively affected by the labour strike which closed down its production
facilities from March 9 to April 27, 2007. A new five year collective
agreement is now in place and a ramp up to full production was achieved in
early May. 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. Sales for the period were restricted by the availability of
product. The rise in the value of the Canadian dollar against its U.S.
counterpart negatively affected earnings and tended to offset the price
increases of 5.8% for pellets and 10.4% for concentrates. Equity earnings from
IOC, which were affected by the work stoppage, amounted to $5.7 million
($0.18 per unit) as compared to $10.6 million ($0.33 per unit) in 2006. For
the same reasons revenue for the six months was $28.8 million or 14% lower
than the first six months of last year. During the quarter the Federal
Government enacted legislation which will result in a 0.5% reduction in the
corporate income tax rate in 2011. This change resulted in a reduction of $1.7
million to the provision for future income taxes in the quarter. The 2006
quarter included a $10.6 million reduction relating to the reduction in future
income taxes enacted during that quarter. These changes resulted in increased
earnings during the quarter of $0.05 per unit in 2007 and $0.33 per unit in
2006.
    Results for the three months and six months ended June 30 are summarized
below:

    

                                   3 Months   3 Months   6 Months   6 Months
                                      Ended      Ended      Ended      Ended
                                    June 30    June 30    June 30    June 30
                                       2007       2006       2007       2006
                                   ------------------------------------------
                                                   (Unaudited)
                                                   -----------
    Revenue (in millions)           $ 15.68    $ 19.17    $ 28.83    $ 33.53
                                   ---------  ---------  ---------  ---------
    Adjusted cash flow (in
     millions)                      $  9.46    $ 25.28    $ 18.17    $ 34.69
                                   ---------  ---------  ---------  ---------
    Adjusted cash flow per unit     $  0.30    $  0.79    $  0.57    $  1.08
                                   ---------  ---------  ---------  ---------
    Net income (in millions)        $ 15.16    $ 33.45    $ 25.90    $ 45.37
                                   ---------  ---------  ---------  ---------
    Net income per unit             $  0.47    $  1.05    $  0.81    $  1.42
                                   ---------  ---------  ---------  ---------
    

    "Adjusted cash flow" (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) 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:

    
                                              6 Months   6 Months       Year
                                                 Ended      Ended      Ended
                                               June 30,   June 30,   Dec. 31,
                                                  2007       2006       2006
                                              ---------  ---------  ---------
    Pellets                                       4.52       5.43      12.94
    Concentrates                                  0.73       0.87       2.91
                                              ---------  ---------  ---------
    Total                                         5.25       6.30      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 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.

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

    Bruce C. Bone
    Chairman and Chief Executive Officer
    August 9, 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.
    Both production and sales at IOC were negatively affected by the labour
strike which closed down its production facilities from March 9 to April 25,
2007. A new five year collective agreement is now in place and a ramp up to
full production was achieved in early May. 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. Sales for the period
were restricted by the availability of product. The rise in the value of the
Canadian dollar against its U.S. counterpart negatively affected earnings and
tended to offset the price increases of 5.8% for pellets and 10.4% for
concentrates. Equity earnings from IOC, which were affected by the work
stoppage, amounted to $5.7 million ($0.18 per unit) as compared to
$10.6 million ($0.33 per unit) in 2006.
    The lower earnings for the quarter were principally accounted for by
decreased net royalty revenue of $2.8 million ($0.09 per unit) due to shortage
of inventory for sale, reduction in IOC earnings of $4.9 million ($0.15 per
unit) and the difference in future income tax provision reductions relating to
enacted decreases in future taxes recorded in 2007 as compared to 2006 of
$8.9 million ($0.28 per unit). In June 2007 the Canadian Government enacted,
through Bill C-52 "Budget Implementation Act 2007", legislation which will
result in a 0.5% reduction in the corporate income tax rate in 2011. This
change resulted in a reduction of $1.7 million to the provision for future
income taxes in the quarter. The 2006 quarter included a $10.6 million
reduction relating to the reduction in future income taxes enacted during that
quarter. These changes resulted in increased earnings during the quarter of
$0.05 per unit in 2007 and $0.33 per unit in 2006. Revenue for the six months
was $28.8 million or 14% lower than the first six months of last year. Net
earnings for the year to date totaled $25.9 million, including a $1.7 million
reduction in the future income tax provision, compared to $45.4 million in the
prior year, which included a $10.6 million reduction in the future income tax
provision.
    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.
    Cash flow from operating activities after adjustments for changes in
amounts receivable, accounts payable and income taxes payable/recoverable
(adjusted cash flow) for the quarter was $9.46 million or $0.30 per unit as
compared to $25.28 million or $0.79 per unit for the same period in 2006. The
reduction in cash flow was mainly the result of the reduced net royalty
revenue of $2.8 million ($0.09 per unit) and the inclusion in the 2006 quarter
of a $12.5 million ($0.39 per unit) dividend from IOC.
    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

    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(2) $  0.79  $  0.65
    Third Quarter       $  20.2  $  20.3  $  0.63  $20.6(3) $  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(4) $  1.26  $  1.20

    Notes: (1) "Adjusted cash flow" (see below)
           (2) Includes a $12.5 million IOC dividend
           (3) Includes a $8.5 million IOC dividend
           (4) 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     6 Months     6 Months
                                Ended        Ended        Ended        Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
                          ---------------------------------------------------
    Cash flow from
     operating activities $ 5,951,679  $20,489,288  $24,725,022  $26,424,517
    Excluding: changes in
     amounts receivable,
     accounts payable and
     income taxes
     payable/recoverable    3,506,218    4,795,337   (6,559,657)   8,267,357
                          ---------------------------------------------------
    Adjusted cash flow    $ 9,457,897  $25,284,625  $18,165,365  $34,691,874
                          ---------------------------------------------------
    Adjusted cash flow
     per unit             $      0.30  $      0.79  $      0.57  $      1.08
                          ---------------------------------------------------
    

    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 $10.9 million ($10.3 million at June 30, 2007) leaving
$39.1 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 of 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 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 will be
a negative but that should be more than offset by increased production and
firm pricing.


    Bruce C. Bone
    Chairman and Chief Executive Officer
    Toronto, Ontario
    August 9, 2007



    
    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED BALANCE SHEETS

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

                                                           As at
                                               ------------------------------
                                                   June 30       December 31
                                                    2007             2006
                                               ------------------------------
                                                 (Unaudited)
    Assets
    Current
      Cash                                     $     238,650   $     141,937
      Amounts receivable                          16,114,254      28,995,350
      Income taxes recoverable                     3,064,665               -
                                               --------------  --------------
                                                  19,417,569      29,137,287

    Deferred charges                                 281,227         343,729

    Iron Ore Company of Canada ("IOC"),
     royalty and commission interests            309,880,940     311,577,494

    Investment in IOC                            177,868,850     169,050,037
                                               --------------  --------------
                                               $ 507,448,586   $ 510,108,547
                                               --------------  --------------
                                               --------------  --------------

    Liabilities and Unitholders' Equity
    Current
      Accounts payable                         $   4,340,217   $   6,269,559
      Income taxes payable                                 -       1,327,432
      Distributions payable to unitholders        11,200,000      17,600,000
                                               --------------  --------------
                                                  15,540,217      25,196,991

    Long-term debt                                10,294,779       6,123,088

    Future income tax liability                  115,880,000     116,550,000
                                               --------------  --------------
                                                 141,714,996     147,870,079

    Unitholders' equity
      Trust units                                317,708,147     317,708,147
      Undistributed income                        48,025,443      44,530,321
                                               --------------  --------------
                                               $ 507,448,586   $ 510,108,547
                                               --------------  --------------
                                               --------------  --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF INCOME

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

                                                    For the Three Months
                                                        Ended June 30,
                                                     2007           2006
                                               ------------------------------
                                                         (Unaudited)
    Revenue
      IOC royalties                            $  15,297,488   $  18,778,718
      IOC commissions                                297,689         377,285
      Interest and other income                       81,588          11,535
                                               --------------  --------------
                                                  15,676,765      19,167,538
                                               --------------  --------------
    Expenses
      Newfoundland royalty taxes                   3,059,497       3,755,744
      Amortization of royalty and commission
       interests                                     975,738       1,230,661
      Administrative expenses (note 2)             1,224,742        (277,871)
      Interest expense                               254,151         276,445
                                               --------------  --------------
                                                   5,514,128       4,984,979
                                               --------------  --------------

    Income before equity earnings and income
     taxes                                        10,162,637      14,182,559
    Equity earnings in IOC                         5,688,732      10,627,658
                                               --------------  --------------
    Income before income taxes                    15,851,369      24,810,217
                                               --------------  --------------
    Provision for (recovery of) income taxes
     (note 3)
      Current                                      1,711,729       2,620,821
      Future                                      (1,020,000)    (11,260,000)
                                               --------------  --------------
                                                     691,729      (8,639,179)
                                               --------------  --------------

    Net income for the period                     15,159,640      33,449,396

    Undistributed income, beginning of period     44,065,803      19,631,904

    Distributions to unitholders                 (11,200,000)    (20,800,000)
                                               --------------  --------------

    Undistributed income, end of period        $  48,025,443   $  32,281,300
                                               --------------  --------------
                                               --------------  --------------

    Net income per unit                        $        0.47   $        1.05
                                               --------------  --------------
                                               --------------  --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF INCOME

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

                                                      For the Six Months
                                                        Ended June 30
                                                     2007           2006
                                               ------------------------------
                                                         (Unaudited)
    Revenue
      IOC royalties                            $  28,225,802   $  32,826,798
      IOC commissions                                516,740         620,135
      Interest and other income                       85,501          79,644
                                               --------------  --------------
                                                  28,828,043      33,526,577
                                               --------------  --------------
    Expenses
      Newfoundland royalty taxes                   5,645,160       6,565,360
      Amortization of royalty and commission
       interests                                   1,696,554       2,039,381
      Administrative expenses (note 2)             1,825,124         363,504
      Interest expense                               512,574         475,818
                                               --------------  --------------
                                                   9,679,412       9,444,063
                                               --------------  --------------

    Income before equity earnings and
     income taxes                                 19,148,631      24,082,514
    Equity earnings in IOC                         8,818,813      14,470,433
                                               --------------  --------------
    Income before income taxes                    27,967,444      38,552,947
                                               --------------  --------------
    Provision for (recovery of) income taxes
     (note 3)
      Current                                      2,742,322       3,953,498
      Future                                        (670,000)    (10,770,000)
                                               --------------  --------------
                                                   2,072,322      (6,816,502)
                                               --------------  --------------

    Net income for the period                     25,895,122      45,369,449

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

    Distributions to unitholders                 (22,400,000)    (32,000,000)
                                               --------------  --------------

    Undistributed income, end of period        $  48,025,443   $  32,281,300
                                               --------------  --------------
                                               --------------  --------------

    Net income per unit                        $        0.81   $        1.42
                                               --------------  --------------
                                               --------------  --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

    Operating
      Net income for the period                $  15,159,640   $  33,449,396
      Items not affecting cash:
        Equity earnings in IOC                    (5,688,732)    (10,627,658)
        Future income taxes                       (1,020,000)    (11,260,000)
        Amortization of royalty and commission
         interests                                   975,738       1,230,661
        Amortization of deferred charges              31,251          31,251
      Common share dividend received from IOC              -      12,460,975
      Change in amounts receivable, accounts
       and income taxes payable/recoverable       (3,506,218)     (4,795,337)
                                               --------------  --------------
      Cash flow from operating activities          5,951,679      20,489,288
                                               --------------  --------------
    Financing
      Distributions paid to unitholders          (11,200,000)    (11,200,000)
      Proceeds from (repayment of) long-term
       debt                                        5,404,215      (9,225,063)
                                               --------------  --------------
                                                  (5,795,785)    (20,425,063)
                                               --------------  --------------

    Increase in cash during the period               155,894          64,225
    Cash, beginning of period                         82,756         360,766
                                               --------------  --------------
                                               --------------  --------------

    Cash, end of period                        $     238,650   $     424,991
                                               --------------  --------------
                                               --------------  --------------

    Cash income taxes paid                     $   3,150,432   $  13,934,012
                                               --------------  --------------
                                               --------------  --------------

    Cash interest paid                         $     190,949   $     283,478
                                               --------------  --------------
                                               --------------  --------------



    LABRADOR IRON ORE ROYALTY INCOME FUND
    CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

    Operating
      Net income for the period                $  25,895,122   $  45,369,449
      Items not affecting cash:
        Equity earnings in IOC                    (8,818,813)    (14,470,433)
        Future income taxes                         (670,000)    (10,770,000)
        Amortization of royalty and commission
         interests                                 1,696,554       2,039,381
        Amortization of deferred charges              62,502          62,502
      Common share dividend received from IOC              -      12,460,975
      Change in amounts receivable, accounts
       payable and income taxes
       payable/recoverable                         6,559,657      (8,267,357)
                                               --------------  --------------
      Cash flow from operating activities         24,725,022      26,424,517
                                               --------------  --------------
    Financing
      Distributions paid to unitholders          (28,800,000)    (49,600,000)
      Proceeds from long-term debt                 4,171,691               -
                                               --------------  --------------
                                                 (24,628,309)    (49,600,000)
                                               --------------  --------------

    Increase (decrease) in cash and cash
     equivalents during the period                    96,713     (23,175,483)
    Cash and cash equivalents, beginning
     of period                                        141,937     23,600,474
                                               --------------  --------------
                                               --------------  --------------

    Cash, end of period                        $     238,650   $     424,991
                                               --------------  --------------
                                               --------------  --------------

    Cash income taxes paid                     $   7,134,419   $  16,771,772
                                               --------------  --------------
                                               --------------  --------------

    Cash interest paid                         $     400,358   $     408,192
                                               --------------  --------------
                                               --------------  --------------



    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,
        150,000 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/(recovery) of $444,000
        (2006 - ($600,000)) for the three months and $735,000 (2006 -
        ($202,000)) for the six months ended June 30, 2007 have been accrued
        in connection with the unit appreciation rights.

        In June 2007, the Trustees exercised unit appreciation rights in
        respect of 36,750 units in total at a weighted average market value
        of $35.02 resulting in a total payment of $441,773 (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. This change resulted in a
        reduction of $1.7 million to the provision for future income taxes
        for the three and six months ended June 30, 2007.
    

    %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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