TORONTO, Nov. 3, 2011 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC") (TSX: LIF.UN) announced the results of its operations for the third quarter ended September 30, 2011.

On July 1, 2011 the 2-for-1 split of the stapled units approved by the unitholders on May 30, 2011, became effective. The stapled units started trading on a split basis on the Toronto Stock Exchange on June 28, 2011. Accordingly, all per unit figures in this report are based on 64 million units outstanding, with all prior per unit figures being restated.

Royalty income for the third quarter of 2011 amounted to $54.4 million as compared to $40.6 million for the third quarter of 2010. The unitholder's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the third quarter was $63.7 million or $0.99 per unit as compared to $85.9 million or $1.34 per unit for the same period in 2010. Net income was $76.3 million or $1.19 per unit compared to $65.4 million or $1.02 per unit for the same period in 2010. Equity earnings from IOC amounted to $47.0 million or $0.73 per unit as compared to $39.2 million or $0.61 per unit in 2010. The lower cash flow for the quarter reflected an IOC dividend of which LIORC's share was $31.2 million or $0.49 per unit as compared to $62.2 million or $0.97 per unit in 2010.

Prior to the July 1, 2010 conversion of Labrador Iron Ore Royalty Corporation ("LIORC") from an income trust, the net income of the unitholders was the same as the trust's net income. Since the unitholders now own the $248 million LIORC subordinated notes directly, the net income of the unitholders consists of the net income of LIORC plus the interest paid on the LIORC subordinated notes. Thus 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 ($0.117 per stapled unit) and $22,464,000 ($0.351 per stapled unit) interest on the subordinated notes for the three months and nine months period ended September 30, 2011, respectively.

The increased royalty revenue for the third quarter, as compared to the 2010 quarter, is mainly due to the increased production in the quarter that resulted in IOC having more product available for sale. The 2010 quarter was negatively affected by the timing of shipments, which were deferred until the fourth quarter.

Results for the three months and nine months ended September 30 are summarized below:

"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 Canadian GAAP or IFRS. The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for distributions to unitholders.

Iron Ore Company of Canada

Third quarter production was substantially improved from the first two quarters of the year as further progress was made in the stabilization and improvement of production capability. Production was 4% higher than the corresponding 2010 quarter and 61% and 24% higher than the first and second quarters of 2011, respectively. The problems that existed during the first part of the year have largely been remedied and, with Phase 1 of the expansion project nearing completion, production going forward should be substantially increased.  The increased production will enable IOC to take advantage of the current market demand for iron ore.

The Concentrator Expansion Project remains on schedule with Phase 1 expected to be completed by year-end, raising the concentrator capacity by 4Mt/a. Phase 2 completion, which would further raise capacity by 1.3Mt/a, is expected by the end of 2012.

A summary of IOC's sales in millions of tonnes is as follows:

(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 with a deferral to July 20, 2016 under some circumstances. The directors are studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.

Outlook

Although iron ore prices have retreated from their recent highs, the general market consensus seems to be that barring a major meltdown in Europe, the price should recover and remain closer to 2011 average levels going forward. The completion of the first phase of the Concentrator Expansion Project will have a positive effect on LIORC's future royalty revenue. The strength of the Canadian dollar against its U.S. counterpart has at least temporarily abated, which is positive for LIORC's results. We expect the final quarter of 2011 and next year to be positive for LIORC.

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

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 2010 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 2010 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. 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.

On July 1, 2011 the 2-for-1 split of the stapled units approved by the unitholders on May 30, 2011, became effective. The stapled units started trading on a split basis on the Toronto Stock Exchange on June 28, 2011. Accordingly, all per unit figures in this report (except distributions declared) are based on 64 million units outstanding, with all prior per unit figures being restated.

Royalty income for the third quarter of 2011 amounted to $54.4 million as compared to $40.6 million for the third quarter of 2010. The unitholder's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the third quarter was $63.7 million or $0.99 per unit as compared to $85.9 million or $1.34 per unit for the same period in 2010. Net income was $76.3 million or $1.19 per unit compared to $65.4 million or $1.02 per unit for the same period in 2010. Equity earnings from IOC amounted to $47.0 million or $0.73 per unit as compared to $39.2 million or $0.61 per unit in 2010. The lower cash flow for the quarter reflected an IOC dividend of which LIORC's share was $31.2 million or $0.49 per unit as compared to $62.2 million or $0.97 per unit in 2010.

Prior to the July 1, 2010 conversion of Labrador Iron Ore Royalty Corporation ("LIORC") from an income trust, the net income of the unitholders was the same as the trust's net income. Since the unitholders now own the $248 million LIORC subordinated notes directly, the net income of the unitholders consists of the net income of LIORC plus the interest paid on the LIORC subordinated notes. Thus 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 ($0.117 per stapled unit) and $22,464,000 ($0.351 per stapled unit) interest on the subordinated notes for the three months and nine months period ended September 30, 2011, respectively.

The increased royalty revenue for the third quarter, as compared to the 2010 quarter, is mainly due to the increased production in the quarter that resulted in IOC having more product available for sale. The 2010 quarter was negatively affected by the timing of shipments, which were deferred until the fourth quarter.

The nine month results while improved from 2010 were negatively affected by the lower production in the first half of the year, which resulted in IOC shipping less product in 2011 year to date. .  This was more than offset by the higher prices in effect in 2011.

The following table sets out quarterly revenue, net income and cash flow data for 2011, 2010 and 2009.

Iron Ore Company of Canada

Third quarter production was substantially improved from the first two quarters of the year as further progress was made in the stabilization and improvement of production capability. Production was 4% higher than the corresponding 2010 quarter and 61% and 24% higher than the first and second quarters of 2011, respectively. The problems that existed during the first part of the year have largely been remedied and, with Phase 1 of the expansion project nearing completion, production going forward should be substantially increased.  The increased production will enable IOC to take advantage of the current market demand for iron ore.

The Concentrator Expansion Project remains on schedule with Phase 1 expected to be completed by year-end, raising the concentrator capacity by 4Mt/a. Phase 2 completion, which would further raise capacity by 1.3Mt/a, is expected by the end of 2012.

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 $0.81⁽¹⁾ for the quarter (2010 - $0.46). Cumulative standardized cash flow from inception of the Corporation is $15.93 per unit and total cash distributions since inception are $15.01⁽¹⁾ per unit, for a payout ratio of 94%.

(1) Excludes interest on subordinated notes paid directly to unitholders of $0.117 and $0.585 respectively.

"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 Canadian GAAP or 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.

Liquidity

The Corporation has a $50 million revolving credit facility to September 18, 2014 with provision for annual one-year extensions. No amounts are currently drawn under this facility (2010 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.

International Financial Reporting Standards ("IFRS")

The Corporation adopted IFRS effective January 1, 2010 and has prepared the current interim financial statements using IFRS Accounting Policies. Prior to the adoption of IFRS, the financial statements were prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). The Corporation's financial statements for the year ending December 31, 2011 will be the first annual financial statements that comply with IFRS.

IFRS are premised on a conceptual framework similar to Canadian GAAP. However, significant differences exist in certain matters of recognition, measurement and disclosure. The adoption had a small impact on the consolidated balance sheets and statements of comprehensive income. The overall impact was to reduce the carrying value of the Corporation's investment in IOC and its retained earnings and accumulated other comprehensive income by $11.8 million at January 1, 2010 and $13.7 million at December 31, 2010. For the three and nine month periods ended September 30, 2011, the Corporation's share of net income and comprehensive income from IOC is $0.1 million lower than would have been reported under Canadian GAAP. The change to IFRS has no impact on the Corporation's royalty and commission income and no impact on cash flows for the quarter.

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 with a deferral to July 20, 2016 under some circumstances. The directors are studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.

Outlook

Although iron ore prices have retreated from their recent highs, the general market consensus seems to be that barring a major meltdown in Europe, the price should recover and remain closer to 2011 average levels going forward. The completion of the first phase of the Concentrator Expansion Project will have a positive effect on LIORC's future royalty revenue. The strength of the Canadian dollar against its U.S. counterpart has at least temporarily abated, which is positive for LIORC's results. We expect the final quarter of 2011 and next year to be positive for LIORC.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
November 3, 2011