TORONTO, Aug. 8, 2012 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF.UN) ("LIORC") announced today that its Board of Directors proposes to call a special meeting of holders of its stapled units to consider an exchange of their note receipts representing subordinated notes for common shares of LIORC.

Assuming that all requisite approvals are obtained, the proposed capital restructuring transaction will be implemented by way of a Court approved plan of arrangement under the Canada Business Corporations Act. Each subordinated note receipt will be exchanged for a number of common shares having a fair market value equal to $3.875, which is the principal amount of the subordinated notes underlying each note receipt. After the exchange, all of the common shares will be consolidated, with the result that each unitholder will end up holding the same number of common shares as the unitholder held before the exchange and LIORC will have 64 million common shares outstanding.

The exchange is in response to changes in the Income Tax Act (Canada) first proposed by the Minister of Finance on July 20, 2011 and embodied in amendments released on July 25, 2012. The Board of Directors and management have considered the effect of the legislative changes and the alternatives available to the Corporation at several meetings over the past year and have consulted with tax and financial advisors.

The effect of the legislative changes is that the Corporation will be denied a deduction for income tax purposes on interest paid on the notes after July 20, 2012. Interest will be paid from after tax dollars, similar to dividends, but without the preferred treatment of dividends in the hands of taxable unitholders.

The exchange will not affect the amount of income available for distribution to holders of stapled units. Instead of receiving a quarterly payment of interest and dividends, they will receive the same total amount as dividends. Taxable unitholders will pay less income tax due to the lower tax rate applicable to dividends. It is the intention of the Board of Directors to pay dividends to the maximum extent possible, subject to the maintenance of appropriate levels of working capital.

The Board of Directors believes that, after the legislative changes, common shares will be more attractive to investors than the stapled units. The Articles continue to provide that no additional shares can be issued without the approval of the shareholders.

These details of the proposed capital restructuring transaction will be set out more fully in a management information circular to be sent to holders of stapled units in the next few weeks.  The transaction will be subject to approval by holders of stapled units at a special meeting to be held on September 28, 2012.  The transaction also remains subject to approval by the Toronto Stock Exchange.

Forward-Looking Statements

This news release contains forward-looking statements. These statements are based on current expectations, estimates about the markets in which LIORC operates and management's beliefs and assumptions regarding these markets. These statements are subject to risks and uncertainties, as a result of which the statements may prove to be inaccurate. Actual results may differ materially from current expectations and those expressed or implied by LIORC.  The reader is cautioned against undue reliance on these forward-looking statements.  Except as required by applicable law, the management of LIORC and the Directors undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

About LIORC

LIORC is a Canada corporation resulting from the conversion of Labrador Iron Ore Royalty Income Fund under an Arrangement effective July 1, 2010. It holds a 15.10% equity interest in Iron Ore Company of Canada ("IOC") directly and through its wholly-owned subsidiary, Hollinger-Hanna Limited, and receives a 7% gross overriding royalty and a 10 cent per tonne commission on all iron ore products produced, sold and shipped by IOC.

SOURCE: Labrador Iron Ore Royalty Corporation