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 |
3 Months |
6 Months |
6 Months |
Year |
||
| 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.
|
|
|
Net |
|
|
Distributions |
|||||||||||
| (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 |
3 Months Ended |
6 Months Ended |
6 Months Ended |
||
| 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 |
Retained |
Accumulated |
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
Bruce C. Bone, President & Chief Executive Officer, (416) 863-7133
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