Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended March 31, 2012

May 4, 2012

TORONTO, May 3, 2012 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF.UN) announced today its operation and cash flow results for the first quarter ended March 31, 2012.

Royalty income for the first quarter of 2012 amounted to $22.0 million as compared to $30.3 million for the first quarter of 2011. The unitholders' 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 $14.4 million or $0.23 per unit as compared to $48.0 million or $0.75 per unit for the same period in 2011.  Net income was $23.0 million or $0.36 per unit compared to $38.9 million or $0.61 per unit for the same period in 2011. Equity earnings from IOC amounted to $11.2 million or $0.18 per unit as compared to $19.2 million or $0.30 per unit in 2010. Cash flow for the quarter was lower than last year as a result of lower royalty revenue but mainly because IOC did not pay a dividend this year (2011 first quarter $29 million). IOC deferred the payment of a dividend due to ongoing labour negotiations and substantial capital expenditures. This will be reviewed during the third quarter. IOC has now reached agreement with its unionized employees on a new six year labour agreement.

All net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per stapled unit) interest on the subordinated notes.

Production during the quarter was adversely affected by winter weather conditions and somewhat by the start-up of the new ore delivery system and the additional grinding mill. The integration of the new system and mill has commenced, and ongoing commissioning continues with operational handover and full production planned for mid-year which should result in increased production and sales for the balance of the year. Sales for the quarter were affected by the lower production and the timing of shipments. Royalty income for the quarter was lower than last year's first quarter due to the lower sales volume and pricing that was lower than last year's first quarter (although higher than the last quarter). It was also adversely affected by a reduction of $1.5 million due to the new pricing mechanism which is based on the current quarter rather than the previous quarter. This pricing system invoices sales at an estimated price and then adjusts prices to actual in the next quarter. The strength of the Canadian dollar against its U.S. counterpart continued to negatively impact royalty revenue and IOC earnings.

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

 2012 2011
 (Unaudited)
    
Revenue (in millions)$22.4 $30.7
Adjusted cash flow (in millions)$14.4 $48.0
Adjusted cash flow per unit$0.23 $0.75
Net income (in millions)$23.0 $38.9
Net income per unit$0.36 $0.61
    

"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 IFRS.  The Directors 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:

 3 Months
Ended
Mar. 31,
2012
 3 Months
Ended
Mar. 31,
2011
 Year
Ended
Dec. 31,
2011
      
Pellets1.85 2.27 8.71
Concentrates(1)0.50 0.28 4.85
Total2.35 2.55      13.56

(1) Excludes third party ore sales

Proposed Tax Changes

On July 20, 2011, the Ministry of Finance announced proposed amendments to the Income Tax Act concerning stapled securities. Under the proposal, when debt and equity are stapled together and trade as a unit, the interest on the debt portion of the stapled security would not be deductible in computing income for tax purposes. The announcement has an effective date of July 20, 2012.  Management is studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.

Outlook

With a new six year labour agreement in place and the completion of the commissioning of phase 1 of the expansion project expected shortly IOC expects to have substantially increased production going forward. Markets remain firm and pricing has recovered somewhat from the weakness that took place late last year and the consensus appears to be that pricing should remain firm for the balance of the year. We expect that royalty revenue should increase for the balance of the year.

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 Corporation's 2011 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 2011 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 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.  For 2012, because of the coming on stream of the phase one expansion, we expect first quarter sales to be less than 15% of sales for the year. 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 2012 amounted to $22.0 million as compared to $30.3 million for the first quarter of 2011. The unitholders' 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 $14.4 million or $0.23 per unit as compared to $48.0 million or $0.75 per unit for the same period in 2011.  Net income was $23.0 million or $0.36 per unit compared to $38.9 million or $0.61 per unit for the same period in 2011. Equity earnings from IOC amounted to $11.2 million or $0.18 per unit as compared to $19.2 million or $0.30 per unit in 2010. Cash flow for the quarter was lower than last year as a result of lower royalty revenue but mainly because IOC did not pay a dividend this year (2011 first quarter $29 million). IOC deferred the payment of a dividend due to ongoing labour negotiations and substantial capital expenditures. This will be reviewed during the third quarter. IOC has now reached agreement with its unionized employees on a new six year labour agreement.

All net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per stapled unit) interest on the subordinated notes.

The first quarter sales of IOC are traditionally adversely affected by the closing of the St. Lawrence Seaway and general winter shipping conditions and are not indicative of the full year's sales.

Production during the quarter was adversely affected by winter weather conditions and somewhat by the start-up of the new ore delivery system and the additional grind mill. The integration of the new system and mill has commenced, and ongoing commissioning continues with operational handover and full production planned for mid-year, which should result in increased production and sales for the balance of the year. Sales for the quarter were affected by the lower production and the timing of shipments. Royalty income for the quarter was lower than last year's first quarter due to the lower sales volume and pricing that was lower than last year's first quarter (although higher than the last quarter). It was also adversely affected by a reduction of $1.5 million due to the new pricing mechanism which is based on the current quarter rather than the previous quarter. This pricing system invoices sales at an estimated price and then adjusts prices to actual in the next quarter. The strength of the Canadian dollar against its U.S. counterpart continued to negatively impact royalty revenue and IOC earnings.

The following table sets out quarterly revenue, net income and cash flow data for 2012, 2011 and 2010.

 RevenueNet
Income
Net
Income
per Unit
Adjusted Cash
Flow(1)
Adjusted
Cash Flow
per Unit(1)
Distributions
Declared
per Unit
       
 (in millions except per Unit information)          
2012       
First Quarter(2)$22.4$23.0$0.36$14.4 $0.23$0.375
2011       
First Quarter(2)$30.7$38.9$0.61$48.0(3)$0.75$0.75
Second Quarter(2)$38.1$48.2$0.75$23.0 $0.36$0.375
Third Quarter (2)$54.9$76.3$1.19$63.7(4)$0.99$0.75
Fourth Quarter(2)$38.8$45.9$0.72$23.4 $0.37$0.375
2010       
First Quarter$16.7$15.7$0.25$22.3(5)$0.35$0.375
Second Quarter$52.5$69.1$1.08$30.5 $0.48$0.375
Third Quarter(2)$40.9$64.4$1.02$85.9(6)$1.34$0.50
Fourth Quarter(2)$54.3$62.8$0.99$31.9 $0.50$1.00

Notes:(1)"Adjusted cash flow" (see below)         
 (2)Commencing with third quarter 2010, net income, adjusted cash flow, distributions and per unit figures referred to in this table use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per unit) interest on the subordinated notes    
 (3)Includes a $29.0 million IOC dividend        
 (4)Includes a $31.2 million IOC dividend        
 (5)Includes a $11.5 million IOC dividend        
 (6)Includes a $62.2 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 unit was $0.26(1) for the quarter (2010 - $0.23(1)). Cumulative standardized cash flow from inception of the Corporation is $16.39 per unit and total cash distributions since inception are $15.52 per unit, for a payout ratio of 95%.

"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 distributions to unitholders.

The following reconciles cash flow from operating activities to adjusted cash flow.

 3 Months Ended
Mar. 31, 2012
 3 Months Ended
Mar. 31, 2011
Standardized cash flow from operating activities$16,827,813 $14,721,526
Excluding: changes in amounts receivable, accounts payable and income taxes payable           (9,896,919) 25,811,810
Adjusted cash flow(1)$6,930,894  $40,533,336 
Adjusted cash flow per unit(1)$0.11 $0.63

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

Liquidity

The Corporation has a $50 million revolving credit facility to September 18, 2013 with provision for annual one-year extensions.  No amounts are currently drawn under this facility (2011 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.

Proposed Tax Changes

On July 20, 2011, the Ministry of Finance announced proposed amendments to the Income Tax Act concerning stapled securities. Under the proposal, when debt and equity are stapled together and trade as a unit, the interest on the debt portion of the stapled security would not be deductible in computing income for tax purposes. The announcement has an effective date of July 20, 2012.  Management is studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.

Outlook

With a new six year labour agreement in place and the completion of the commissioning of phase 1 of the expansion project expected shortly IOC expects to have substantially increased production going forward. Markets remain firm and pricing has recovered somewhat from the weakness that took place late last year and the consensus appears to be that pricing should remain firm for the balance of the year. We expect that royalty revenue should increase for the balance of the year.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
May 3, 2012

LABRADOR IRON ORE ROYALTY CORPORATION     
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS   
        
        
     
  As at 
   March 31,   December 31, 
Canadian $  2012  2011 
   (Unaudited)     
Assets      
Current Assets      
 Cash $41,813,997   41,498,184 
 Amounts receivable 22,581,600  40,669,780 
 Income taxes recoverable 5,027,347  392,173 
Total Current Assets 69,422,944  82,560,137 
        
Non-Current Assets      
Iron Ore Company of Canada ("IOC"),      
 royalty and commission interests  285,789,872  287,131,292 
Investment in IOC 310,013,926  299,280,483 
Total Non-Current Assets 595,803,798  586,411,775 
        
Total Assets $665,226,742 $668,971,912 
        
        
Liabilities and Shareholders' Equity      
Current Liabilities      
 Accounts payable $4,863,302   8,419,389 
 Interest payable on subordinated notes  7,488,000  7,488,000 
 Distributions payable to shareholders  16,512,000  16,512,000 
Total Current Liabilities 28,863,302  32,419,389 
        
Non-Current Liabilities      
Deferred income taxes 116,020,000  114,830,000 
Subordinated notes 248,000,000  248,000,000 
Total Non-Current Liabilities 364,020,000  362,830,000 
        
Total Liabilities 392,883,302  395,249,389 
        
Equity       
 Share capital  69,708,147  69,708,147 
 Retained earnings  218,024,293  219,001,376 
 Accumulated other comprehensive loss  (15,389,000)  (14,987,000) 
   272,343,440  273,722,523 
        
Total Equity and Liabilities $665,226,742    668,971,912 
        
        
Approved by the Directors,      
        
        
(signed) Bruce C. Bone  (signed) Alan R. Thomas 
Director    Director      

 

LABRADOR IRON ORE ROYALTY CORPORATION   
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
    For the Three Months Ended
    March 31, 
Canadian $  2012  2011
    (Unaudited)   
Revenue     
 IOC royalties $22,010,073 $  30,280,217
 IOC commissions 231,003  250,969
 Interest and other income  122,212  132,789
    22,363,288  30,663,975
Expenses     
 Newfoundland royalty taxes 4,402,015  6,056,043
 Amortization of royalty and commission interests 1,341,420  1,058,368
 Administrative expenses  584,060  400,152
 Interest expense:     
  Credit facility 93,493  92,465
  Subordinated notes  7,488,000  7,488,000
    13,908,988  15,095,028
        
Income before equity earnings and income taxes 8,454,300  15,568,947
Equity earnings in IOC  11,205,443  19,251,468
        
Income before income taxes  19,659,743  34,820,415
        
Provision for income taxes      
 Current  2,864,826  5,088,794
 Deferred 1,260,000  (1,696,000)
    4,124,826  3,392,794
        
Net income for the period 15,534,917  31,427,621
        
Other comprehensive income (loss)     
 Share of other comprehensive (loss) of IOC, net of taxes  (402,000)  (372,000)
        
Comprehensive income for the period $15,132,917 $  31,055,621
        
Net income per common share $0.24  $  0.49

 

LABRADOR IRON ORE ROYALTY CORPORATION     
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
       
      
     
      
  For the Three Months Ended
  March 31,
Canadian $    2012 2011
         (Unaudited)  
Net inflow (outflow) of cash related to the following activities     
      
      
Operating       
 Net income for the period $15,534,917 $  31,427,621
 Items not affecting cash:     
  Equity earnings in IOC (11,205,443)  (19,251,468)
  Current income taxes 2,864,826  5,088,794
  Deferred income taxes 1,260,000  (1,696,000)
  Amortization of royalty and commission interests 1,341,420  1,058,368
  Interest expense 7,581,493  7,580,465
 Common share dividend from IOC -  28,994,815
 Change in amounts receivable and accounts payable 14,532,093  (12,209,092)
 Interest paid  (7,581,493)  (7,580,465)
 Income taxes paid  (7,500,000)  (18,691,512)
 Cash flow from operating activities 16,827,813  14,721,526
            
Financing       
 Distributions paid to unitholders (16,512,000)  (56,512,000)
 Cash flow used in financing activities (16,512,000)  (56,512,000)
      
Increase (decrease) in cash, during the period 315,813  (41,790,474)
      
Cash and cash equivalents, beginning of period 41,498,184  73,611,888
          
Cash, end of period $41,813,997 $ $ 31,821,414

 

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
         
 
 
 
Canadian $ 



 
 
Capital
stock






 
 
Retained
earnings






Accumulated
other 
comprehensive 
income (loss)






 


Total
  (Unaudited)    
            
Balance as at December 31, 2010$  69,708,147 $  147,934,994 $  (4,271,000) $  213,372,141
Net income for the period -  31,427,621  -  31,427,621
Dividends declared to shareholders -  (40,512,000)  -  (40,512,000)
Share of other comprehensive loss from investment in IOC -  -  (372,000)  (372,000)
Balance as at March 31, 2011 69,708,147  138,850,615  (4,643,000)  203,915,762
            
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

 

The complete consolidated financial statements for the first quarter ended March 31, 2012, including the notes thereto, are posted on sedar.com and labradorironore.com.

 

Bruce C. Bone
President & Chief Executive Officer
(416) 863-7133


© 2021
All rights reserved.
Privacy Policy Website Terms of Use