Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended March 31, 2013

May 2, 2013

TORONTO, May 2, 2013 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF) announced today its operation and cash flow results for the first quarter ended March 31, 2013.

Royalty income for the first quarter of 2013 amounted to $26.1 million as compared to $22.0 million for the first quarter of 2012. The shareholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $14.3 million or $0.22 per share as compared to $14.4 million or $0.23 per unit for the same period in 2012.  Net income was $21.7 million or $0.34 per share compared to $23.0 million or $0.36 per unit for the same period in 2012. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $9.4 million or $0.15 per share as compared to $11.2 million or $0.18 per unit in 2012. Although royalty revenue for the quarter was higher than the same period last year, cash flow was slightly lower due to higher income taxes, a result of the elimination of interest expense on the subordinated notes that were cancelled last September (see the reorganization referred to below).

IOC production in the quarter, while higher than the same period last year, was negatively affected by winter weather conditions and the continued integration of the expansion into the operations. By the end of the quarter, production was approaching an annual rate in excess of 20 million tonnes, reflecting the successful integration of the first phase of the expansion program. Sales for the quarter were negatively affected by the availability of product and by the timing of shipments.

At a special meeting held on September 28, 2012, the holders of stapled units approved an exchange of their subordinated notes for common shares of Labrador Iron Ore Royalty Corporation ("LIORC") and a consolidation of common shares. The $248 million subordinated notes were cancelled and each holder of common shares  ended up holding the same number of common shares as before the transactions, and LIORC continued to have 64 million common shares outstanding. Interest on the subordinated notes ceased to accrue after September 30, 2012. For the purposes of this report, all references to shareholders and per share figures may refer to holders of stapled units and per stapled units, respectively, as applicable. Prior to the transactions, the net income attributed to the holders of stapled units consisted of the net income of LIORC plus the interest paid on the subordinated notes. Thus 2012 net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus the $7,488,000 ($0.117 per stapled unit) interest on the subordinated notes accrued in the quarter.

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

       
    2013 2012
    (Unaudited)
       
Revenue (in millions)   $26.4 $22.4
Adjusted cash flow (in millions)   $14.3 $14.4
Adjusted cash flow per share/unit   $0.22 $0.23
Net income (in millions)   $21.7 $23.0
Net income per share/unit   $0.34 $0.36
       
   

"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,
2013
  3 Months
Ended
Mar. 31,
2012
  Year
Ended
Dec. 31,
2012
           
Pellets   1.72  1.85  9.90
Concentrates(1)   0.90  0.50  4.22
           
Total   2.62  2.35  14.12

(1)     Excludes third party ore sales

Potential Sale by Rio Tinto

On April 18, 2013, a letter was sent to shareholders about Rio Tinto's potential sale of its interest in IOC and the Board's consideration of strategic alternatives available to the Corporation. At this time, there are no new developments to report.

Outlook

The integration of the first phase of the expansion program at IOC is now complete and production results to date in the second quarter are encouraging with record levels occurring. IOC is expecting production at an annual rate in excess of 20 million tonnes for the balance of the year. Prices appear to have stabilized at levels well above the lows of last fall and the Canadian dollar has weakened against its U.S. counterpart. These are positive for future royalty revenues. As IOC expects to sell all it can produce, 2013 should be a satisfactory year for the Corporation.

Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,

Bruce C. Bone
President and Chief Executive Officer
May 2, 2013

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") 2012 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 2012 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 2013 amounted to $26.1 million as compared to $22.0 million for the first quarter of 2012. The shareholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $14.3 million or $0.22 per share as compared to $14.4 million or $0.23 per unit for the same period in 2012.  Net income was $21.7 million or $0.34 per share compared to $23.0 million or $0.36 per unit for the same period in 2012. Equity earnings from IOC amounted to $9.4 million or $0.15 per share as compared to $11.2 million or $0.18 per unit in 2012. Although royalty revenue for the quarter was higher than the same period last year, cash flow was slightly lower due to higher income taxes, a result of the elimination of interest expense on the subordinated notes that were cancelled last September (see the reorganization referred to below).

IOC production in the quarter, while higher than the same period last year, was negatively affected by winter weather conditions and the continued integration of the expansion into the operations. By the end of the quarter, production was approaching an annual rate in excess of 20 million tonnes, reflecting the successful integration of the first phase of the expansion program. Sales for the quarter were negatively affected by the availability of product and by the timing of shipments.

At a special meeting held on September 28, 2012, the holders of stapled units approved an exchange of their subordinated notes for common shares of LIORC and a consolidation of common shares. The $248 million subordinated notes were cancelled and each holder of common shares  ended up holding the same number of common shares as before the transactions, and LIORC continued to have 64 million common shares outstanding. Interest on the subordinated notes ceased to accrue after September 30, 2012. For the purposes of this report, all references to shareholders and per share figures may refer to holders of stapled units and per stapled units, respectively, as applicable. Prior to the transactions, the net income attributed to the holders of stapled units consisted of the net income of LIORC plus the interest paid on the subordinated notes. Thus 2012 net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus the $7,488,000 ($0.117 per stapled unit) interest on the subordinated notes accrued in the quarter.

The following table sets out quarterly revenue, net income and cash flow data for 2013, 2012 and 2011.

       
 RevenueNet
Income
Net
Income
per
Share/Unit(1)
Adjusted Cash
Flow(2)
Adjusted Cash Flow
per Share/Unit(1) (2)
Distributions
Declared
per Share/Unit (1)
  
 (in millions except per Share/Unit information)       
2013      
First Quarter$26.4$21.7$0.34$14.3$0.22$0.375
2012
First Quarter(3)
$22.4$23.0$0.36$14.4$0.23$0.375
Second Quarter(3)$36.4$36.8$0.57$22.3$0.35$0.375
Third Quarter (3)$32.6$29.7$0.47$18.5$0.28$0.375
Fourth Quarter$32.8$32.3$0.50$19.9$0.31$0.375
2011      
First Quarter(3)$30.7$38.9$0.61$48.0 (4)$0.75$0.75
Second Quarter(3)$38.1$48.2$0.75$23.0   $0.36$0.375
Third Quarter (3)$54.9$76.3$1.19$63.7 (5)$0.99$0.75
Fourth Quarter(3)$38.8$45.9$0.72$23.4  $0.37$0.375
   
Notes:(1)Per share amounts have been retroactively adjusted to reflect the two-for-one share subdivision completed on July 1, 2011         
 (2)"Adjusted cash flow" (see below)         
 (3)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        
 (4)Includes a $29.0 million IOC dividend        
 (5)Includes a $31.2 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 $0.22 for the quarter (2012 - $0.26(1)). Cumulative standardized cash flow from inception of the Corporation is $17.16 per share and total cash distributions since inception are $16.79 per share, for a payout ratio of 98%.

"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 and interest 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, 2013
  3 Months Ended
Mar. 31, 2012
 
Standardized cash flow from operating activities   $14,106,869  $16,827,813 
Excluding: changes in amounts receivable, accounts payable and income taxes payable   243,144  (9,896,919) 
Adjusted cash flow   $14,350,013  $6,930,894 (1)
Adjusted cash flow per share   $0.22  $0.11(1)
         

(1) Excludes note interest on subordinated notes paid directly to shareholders of $7,488,000 or $0.117 per unit.

Liquidity

The Corporation has a $50 million revolving credit facility to September 18, 2015 with provision for annual one-year extensions.  No amounts are currently drawn under this facility (2012 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.

Potential Sale by Rio Tinto

On April 18, 2013, a letter was sent to shareholders about Rio Tinto's potential sale of its interest in IOC and the Board's consideration of strategic alternatives available to the Corporation. At this time, there are no new developments to report.

Outlook

The integration of the first phase of the expansion program at IOC is now complete and production results to date in the second quarter are encouraging with record levels occurring. IOC is expecting production at an annual rate in excess of 20 million tonnes for the balance of the year. Prices appear to have stabilized at levels well above the lows of last fall and the Canadian dollar has weakened against its U.S. counterpart. These are positive for future royalty revenues. As IOC expects to sell all it can produce, 2013 should be a satisfactory year for the Corporation.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
May 2, 2013

    
LABRADOR IRON ORE ROYALTY CORPORATION   
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS   
      
  As at 
  March 31, December 31, 
Canadian $ 2013 2012 
  (Unaudited) 
Assets      
Current Assets      
 Cash $17,030,290 $26,923,421 
 Amounts receivable 29,887,007  29,308,484 
 Income taxes recoverable 3,236,842  3,130,130 
Total Current Assets 50,154,139  59,362,035 
        
        
Iron Ore Company of Canada ("IOC"),      
 royalty and commission interests 282,314,133  283,263,500 
Investment in IOC 360,506,866  351,770,591 
Total Non-Current Assets 642,820,999  635,034,091 
        
Total Assets$692,975,138 $694,396,126 
        
        
Liabilities and Shareholders' Equity      
Current Liabilities      
 Accounts payable$6,609,229 $6,167,138 
 Dividends payable 24,000,000  24,000,000 
Total Current Liabilities 30,609,229  30,167,138 
        
Non-Current Liabilities      
 Deferred income taxes 122,360,000  121,360,000 
Total Liabilities 152,969,229  151,527,138 
        
Shareholders' Equity       
 Share capital 317,708,147  317,708,147 
 Retained earnings  242,432,762  244,758,841 
 Accumulated other comprehensive loss  (20,135,000)  (19,598,000) 
   540,005,909  542,868,988 
        
Total Liabilities and Shareholders' Equity$692,975,138 $694,396,126
      

 

       
LABRADOR IRON ORE ROYALTY CORPORATION     
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
       
  For the three months ended
  March 31,
Canadian $ 2013 2012
  (Unaudited)
Revenue     
 IOC royalties$26,101,205 $22,010,073
 IOC commissions 257,651  231,003
 Interest and other income  58,369  122,212
   26,417,225  22,363,288
Expenses     
 Newfoundland royalty taxes 5,216,405  4,402,015
 Amortization of royalty and commission interests 949,367  1,341,420
 Administrative expenses  865,053  584,060
 Interest expense:     
   Credit facility 92,466  93,493
   Subordinated notes  -  7,488,000
   7,123,291  13,908,988
       
Income before equity earnings and income taxes 19,293,934  8,454,300
Equity earnings in IOC  9,364,275  11,205,443
       
Income before income taxes  28,658,209  19,659,743
       
Provision for income taxes      
 Current  5,893,288  2,864,826
 Deferred 1,091,000  1,260,000
   6,984,288  4,124,826
       
Net income for the period 21,673,921  15,534,917
       
Other comprehensive loss     
 Share of other comprehensive loss of IOC that will not be      
   reclassified subsequently to profit or loss (net of taxes)  (537,000)  (402,000)
       
Comprehensive income for the period 21,136,921 $15,132,917
       
Net income per share $0.34 $0.24
     

 

   
LABRADOR IRON ORE ROYALTY CORPORATION  
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
      
   For the three months ended
   March 31,
Canadian $ 2013 2012
   (Unaudited)
Net inflow (outflow) of cash related     
 to the following activities     
        
Operating     
 Net income for the period$21,673,921 $15,534,917
 Items not affecting cash:     
  Equity earnings in IOC (9,364,275)  (11,205,443)
  Current income taxes 5,893,288  2,864,826
  Deferred income taxes 1,091,000  1,260,000
  Amortization of royalty and commission interests 949,367  1,341,420
  Interest expense 92,466  7,581,493
 Change in amounts receivable and accounts payable (136,432)  14,532,093
 Interest paid  (92,466)  (7,581,493)
 Income taxes paid  (6,000,000)  (7,500,000)
 Cash flow from operating activities 14,106,869  16,827,813
        
Financing     
 Dividends paid to shareholders (24,000,000)  (16,512,000)
 Cash flow used in financing activities (24,000,000)  (16,512,000)
        
(Decrease)/increase  in cash during the period (9,893,131)  315,813
        
Cash, beginning of period 26,923,421  41,498,184
        
Cash, end of period$17,030,290 $41,813,997
      

         
LABRADOR IRON ORE ROYALTY CORPORATION        
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY      
       Accumulated   
       other    
  Capital Retained comprehensive  
Canadian $  stock earnings loss Total
 (Unaudited)
             
Balance as at December 31, 2011 $69,708,147 $219,001,376 $(14,987,000) $273,722,523
Net income for the period  -  15,534,917  -  15,534,917
Dividends declared to shareholders   -  (16,512,000)  -  (16,512,000)
Share of other comprehensive loss from investment in IOC  -  -  (402,000)  (402,000)
Balance as at March 31, 2012  69,708,147  218,024,293  (15,389,000)  272,343,440
             
Balance as at December 31, 2012  317,708,147  244,758,841  (19,598,000)  542,868,988
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  -  -  (537,000)  (537,000)
Balance as at March 31, 2013 $317,708,147 $242,432,762 $(20,135,000) $540,005,909
             

  

The complete consolidated financial statements for the first quarter ended March 31, 2013, 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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