Labrador Iron Ore Royalty Income Fund - Results for the fourth quarter ended December 31, 2009
TORONTO, Mar. 3, 2010 (Canada NewsWire Group) -- /CNW/ -- Labrador Iron Ore Royalty Income Fund (TSX: LIF.UN) announced its results for the fourth quarter ended December 31, 2009.
Financial Performance
The Fund's adjusted cash flow (see Management's Discussion & Analysis for definition and calculation) for the year ended December 31, 2009 was $58.3 million or $1.82 per unit as compared to $174.9 million or $5.46 per unit for 2008.
Iron ore sales of the IOC amounted to 14.2 million tonnes compared to 15.1 million tonnes in 2008. Iron ore markets which had deteriorated suddenly in the last two months of 2008 continued to be very weak in the first half of 2009, not recovering to more normal levels until late in the third quarter of the year. The weak market conditions resulted in sales being below last year's levels which had also been adversely affected by the slowdown in the final quarter of the year. The market weakness also resulted in benchmark price reductions for the year of 48.3% for pellets and 29.75% for concentrates as compared to 2008 benchmark prices. The lower volume and change in product mix combined with lower prices resulted in royalties for 2009 being 53% below the 2008 level. While quite disappointing, this was 14% above the 2007 level and 25% higher than the average royalties received in the 5 years prior to 2008. The Canadian dollar which had declined against its U.S. counterpart last year, reversed course and was again approaching parity with the U.S. dollar at year end. This negatively affected results for the year. The Fund's adjusted cash flow includes a dividend from IOC of $8.2 million (2008 - $77.9 million).
The Fund's consolidated net income for the year ended December 31, 2009 was $75.1 million or $2.35 per unit compared to $176.5 million or $5.52 per unit in 2008. The Fund's share of IOC's earnings amounted to $31.7 million compared to $84.5 million in 2008. The 2008 earnings were reduced by an after tax charge of $26 million ($0.81 per unit) in the fourth quarter relating to IOC's decision to write down the value of the partly refurbished pellet plant at Sept-Îles.
IOC Developments
In December 2008 due to the adverse market conditions, IOC suspended its $800 million expansion program and idled some of its pellet production. With markets, except in China, very weak during the first half of the year, IOC continued with idling of pellet machines and shut down all its Carol Lake operations from July 7 until August 10, 2009 in order to align production with sales. The partial shut down of pellet production during 2009 enabled IOC to increase the amount of concentrate available for sale. This allowed IOC to take advantage of the demand for concentrate in Asia which partially offset reduced demand for pellets from its regular customers. With markets improving in the third quarter, production returned to full capacity shortly after the end of the summer shutdown, with some production records being established in the fourth quarter.
The continuing re-evaluation of reserves during the year (after mining 36 million tonnes) resulted in a decrease of 24 million tonnes to 1,369 million tonnes at year-end. Resources totalled 2,540 million tonnes after transfers to reserves and some reduction in inferred resources.
Outlook
The steel and iron ore markets have recovered substantially from the depressed levels of early 2009 and are approaching a more normal level and pricing in the spot market has firmed. IOC expects that, if current market conditions continue, it will be able to sell all the pellets and concentrate it can produce in 2010. Market analysts are predicting that benchmark prices will be substantially higher than last year when they are settled for 2010. On this basis, and providing the Canadian dollar does not strengthen further against its US counterpart, 2010 should be a satisfactory year for the Fund.
I would like to take this opportunity to thank our unitholders for their interest and loyalty and my fellow Trustees for their wisdom and support.
Respectfully submitted on behalf of the
Trustees of Labrador Iron Ore Royalty Income Fund,
Bruce C. Bone
Chairman and Chief Executive Officer
March 3, 2010
Fund Structure
The Fund is an unincorporated limited purpose trust whose sole investment is all of the issued and outstanding common shares and $247.8 million notes of Labrador Mining Company Limited ("Labmin"). Labmin directly holds a 7% gross overriding royalty on IOC's sales revenue, a 9.56% equity interest in IOC and 100% of Hollinger-Hanna Limited. Hollinger-Hanna holds a 5.54% equity interest in IOC. It also receives a commission of 10 cents per tonne on all iron ore products sold by IOC. Net income earned from these investments is used by Labmin to service interest payments on the $247.8 million of notes held by the Fund, with any excess after expenses and working capital requirements being distributed in the form of dividends.
Six Trustees are responsible for the governance of the Fund and also serve as directors of Labmin and Hollinger-Hanna. The Trustees, in addition to managing the affairs of the Fund, Labmin and Hollinger-Hanna, oversee Labmin's interests in IOC. Two of the six Trustees sit on the board of IOC and the three independent Trustees serve as members of the Audit and Compensation Committees. In 2010, the unitholders will be asked to approve a resolution expanding the board to seven Trustees. Scotia Capital Inc. pursuant to an administration agreement acts as the administrator of the Fund, Labmin and Hollinger-Hanna.
Taxation
The Fund is a taxable trust under the Income Tax Act. By electing to have income earned from its investments taxed in the unitholders' hands, it reduces its taxable income to nil. Labmin is a taxable corporation. Dividend income received from IOC and Hollinger-Hanna is received tax free while royalty income, less the expenses of Labmin, is subject to income tax and Newfoundland royalty tax. Expenses of Labmin include $30.0 million a year in interest payments relating to the $247.8 million notes held by the Fund plus interest on any bank loans. Hollinger-Hanna is a taxable corporation.
On June 22, 2007, the federal government enacted tax legislation that taxes certain publicly traded trusts on the "non-portfolio earnings" distributed to its unitholders at a rate similar to the combined federal and provincial corporate tax rates. Generally, there is a four year transition period for a publicly traded fund, such as the Fund, such that the Fund will not be subject to this tax until 2011. In 2010, the unitholders will be asked to approve a conversion of the Fund into a corporation in a manner designed to preserve the value of the units.
Income Taxes
Distributions to a unitholder that are paid or payable within a particular year are to be included in the calculation of the unitholder's taxable income for that year. Quarterly distributions are normally comprised of both an interest and a dividend component. The dividend component will be eligible for the dividend tax credit and, accordingly, will be subject to a lower effective tax rate than that applicable to the interest component. The dividends paid in 2009 were "eligible dividends" under the Income Tax Act.
Quarterly Distributions
Distributions of $2.00 per unit to unitholders were declared by the Trustees of the Fund in 2009 (2008 - $4.85 including special distributions of $3.00 per unit). These distributions were allocated as follows:
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Dividend Interest Total
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Distri- Distri-
Period Payment Income Income bution bution
Ended Date per Unit Per Unit Per Unit ($ Million)
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Mar. 31, 2009 Apr. 24, 2009 $ 0.250 $ 0.250 $ 0.500 $ 16.0
Jun. 30, 2009 Jul. 25, 2009 0.250 0.250 0.500 16.0
Sep. 30, 2009 Oct. 25, 2009 0.250 0.250 0.500 16.0
Dec. 31, 2009 Jan. 25, 2010 0.348 0.152 0.500 16.0
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Distribution to Unitholders
- 2009 $ 1.098 $ 0.902 $ 2.00 $ 64.0
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Mar. 31, 2008 Apr. 25, 2008 $ 0.100 $ 0.250 $ 0.350 $ 11.2
Jun. 30, 2008 Jul. 25, 2008 0.250 0.250 0.500 16.0
Special
distribution Jul. 25, 2008 0.500 - 0.500 16.0
Sep. 30, 2008 Oct. 24, 2008 0.250 0.250 0.500 16.0
Special
distribution Oct. 24, 2008 2.500 - 2.500 80.0
Dec. 31, 2008 Jan. 26, 2009 0.357 0.143 0.500 16.0
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Distribution to Unitholders
- 2008 $ 3.957 $ 0.893 $ 4.850 $ 155.2
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The quarterly distributions are payable to all unitholders of record on the last day of each calendar quarter and are paid on the 25th day of the following month. Unitholders of record on December 31, 2009 will be required to include the fourth quarter distribution of $0.50 as income in the 2009 taxation year.
Review of Operations
The income of the Fund is entirely dependent on IOC as the only assets of the Fund and its subsidiaries are related to IOC and its operations. IOC is Canada's largest iron ore producer, operating a mine, concentrator and pellet plant at Labrador City, Newfoundland, and is among the top five producers of iron ore pellets in the world. It has been producing and processing iron ore concentrate and pellets since 1954. IOC is strategically situated to serve the markets of the Great Lakes and the balance of the world from its year-round port facilities at Sept-Îles, Quebec.
IOC has ore reserves sufficient for at least 30 years at current production rates with additional resources of a greater magnitude. It currently has the nominal capacity to extract around 43 million tonnes of crude ore annually. The crude ore is processed into iron ore concentrate and then either sold or converted into many different qualities of iron ore pellets to meet its customers' needs. The iron ore concentrate and pellets are transported to IOC's port facilities at Sept-Îles, Quebec via its wholly-owned Quebec North Shore and Labrador Railway, a 418 kilometer rail line which links the mine and the port. From there, the products are shipped to markets throughout North America, Europe, the Middle East and the Asia-Pacific region.
IOC's 2009 sales totaled 14.2 million tonnes comprised of 5.2 million tonnes of iron ore concentrate and 9.0 million tonnes of iron ore pellets. Production in 2009 was reduced due to idling of pellet machines and a shut down of all of IOC's Carol Lake operations from July 7 to August 10 because of the recession. IOC generated revenues of $1,144 million in 2009 (2008 - $2,200 million). IOC sales traditionally are approximately 35% in North America, 40% in Europe and 25% in the Asia-Pacific region. The partial shut down of pellet production during 2009 enabled IOC to increase the amount of concentrate available for sale. This allowed IOC to take advantage of the demand for concentrate in Asia which partially offset reduced demand for pellets from its regular customers. Under optimum market and production conditions, IOC would produce 13 million tonnes of pellets leaving about 4 million tonnes of concentrate for sale.
Selected IOC Financial Information
2009 2008 2007 2006 2005
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($ in thousands)
Revenue 1,144,204(1) 2,199,908 1,014,843 1,197,378 1,157,250
Cash flow
from
operating
activities 42,450 1,195,472 218,315 274,690 439,212
Net
income(2) 215,254 567,122(2) 206,267(2)(3) 261,115(2) 285,899(2)
Capital
expendi-
tures 190,467 262,861 175,874 169,252 118,774
(1) Revenue in 2009 was reduced by idling of pellet machines and a shut
down of Carol Lake operations from July 7 to August 10.
(2) Net income includes unrealized foreign exchange gains(losses) before
tax on U.S. debt translation of $11,494 in 2009, $8,643 in 2008,
$31,639 in 2007, $473 in 2006 and ($227) in 2005.
(3) Revenue in 2007 was negatively affected by the strike by IOC's
unionized work force which closed down all production facilities from
March 9 until April 27.
IOC Royalty
The Fund, through its subsidiary Labmin, holds certain leases and licenses covering approximately 18,200 hectares of land near Labrador City. IOC has leased certain portions of these lands from which it currently mines iron ore. In return, IOC pays Labmin a 7% gross overriding royalty on all sales of iron ore products produced from these lands. A 20% tax on the royalty is payable to the Government of Newfoundland and Labrador. For the five years prior to 2009, the average royalty (net of the 20% tax) had been approximately $67.8 million per year and in 2009 the net royalty was $60.4 million (2008 - $129.1 million).
Because the royalty is "off-the-top", it is not dependent on the profitability of IOC. However, it is affected by changes in sales volumes, iron ore prices and, because iron ore prices are denominated in US dollars, the United States - Canadian dollar exchange rate.
IOC Equity
In addition to the royalty interest, the Fund through its wholly owned subsidiaries, Labmin and Hollinger-Hanna, owns a 15.10% equity interest in IOC. The other shareholders of IOC are Rio Tinto Limited with 58.72% and Mitsubishi Corporation with 26.18%.
IOC Commissions
Hollinger-Hanna has the right to receive a payment of 10 cents per tonne on the products sold by IOC. Pursuant to an agreement, IOC is obligated to make the payment to Hollinger-Hanna so long as Hollinger-Hanna is in existence and solvent. In 2009, Hollinger-Hanna received a total of $1.4 million in commissions from IOC (2008 - $1.5 million).
Management's Discussion and Analysis
The following is a discussion of the consolidated financial condition and results of operations of the Fund for the years ended December 31, 2009 and 2008. This discussion should be read in conjunction with the Consolidated Financial Statements of the Fund and notes thereto for the years ended December 31, 2009 and 2008. This information is prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and all amounts are shown in Canadian dollars unless otherwise indicated.
The consolidated balance sheets as at December 31, 2009 and 2008, the consolidated statements of income, comprehensive income and retained earnings and the consolidated statements of cash flows reflect the results of the Fund's operations for the years ended December 31, 2009 and 2008 and its financial position at the respective year ends.
General
The Fund is dependent on the operations of IOC. IOC's earnings and cash flows are affected by the volume and mix of iron ore products sold and the prices received. Iron ore demand and prices fluctuate and are affected by numerous factors which include demand for steel and steel products, the relative exchange rate of the US dollar, global and regional demand and production, political and economic conditions and production costs in major producing areas. As markets firmed in the third quarter, IOC returned operations to full production.
Liquidity and Capital Resources
Operating cash flow of the Fund is sourced entirely from IOC through the Fund's 7% royalty, 10 cents commission per tonne and its 15.10% equity interest in IOC. The Fund intends to make cash distributions 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 Fund has a $50 million revolving credit facility with a term ending September 18, 2012 with provision for annual one-year extensions. No amount is currently drawn under this facility leaving $50.0 million available to provide for any capital required by IOC or other Fund requirements.
Operating Results
The following table summarizes the Fund's 2009 operating results as compared to 2008 results.
2009 2008
------------------------------
Revenue
IOC royalties (net of 20% Newfoundland
royalty tax) $60,391,033 $129,122,510
IOC commissions 1,401,277 1,481,981
Other 138,857 496,103
------------------------------
61,931,167 131,100,594
------------------------------
Expenses
Administrative expenses 1,813,279 686,583
Interest expense (net of amortization
of $82,666; 2008 - $239,391) 374,998 498,379
Income taxes expense - current 9,641,122 32,983,609
------------------------------
11,829,399 34,168,571
------------------------------
50,101,768 96,932,023
------------------------------
Non cash revenue (expense)
Equity earnings in IOC 31,698,054 84,488,582
Future income taxes (1,940,000) 390,000
Amortization (4,790,822) (5,293,892)
------------------------------
24,967,232 79,584,690
------------------------------
Net income and comprehensive income $75,069,000 $176,516,713
------------------------------
Iron ore markets which had deteriorated suddenly in the last two months of 2008 continued to be very weak in the first half of 2009, not recovering to more normal levels until late in the third quarter of the year. The weak market conditions resulted in sales being below last year's levels which had also been adversely affected by the slowdown in the final quarter of the year. The market weakness also resulted in benchmark price reductions for the year of 48.3% for pellets and 29.75% for concentrates as compared to 2008 benchmark prices. The lower volume and change in product mix combined with lower prices resulted in royalties for 2009 being 53% below the 2008 level. While quite disappointing, this was 14% above the 2007 level and 25% higher than the average royalties received in the 5 years prior to 2008. The Canadian dollar which had declined against its U.S. counterpart last year, reversed course and was again approaching parity with the U.S. dollar at year end. This negatively affected results for the year.
The increase in administrative expenses of $1.1 million was primarily a result of the change in the expense relating to unit appreciation rights. 2009 expenses included a provision of $0.5 million while 2008 included a recovery of $0.8 million of amounts previously provided for. Current income taxes represent federal and provincial income taxes payable by Labmin on IOC royalties, net of interest, royalty taxes and administrative expenses. The Fund's share of IOC's earnings amounted to $31.7 million as compared to $84.5 million in 2008. IOC's 2009 earnings while substantially lower than 2008 due to the weak markets which resulted in lower sales and prices were still satisfactory.
The operating cash flow of the Fund is dependent on the royalty, commission and dividend payments from IOC. Royalty payments to the Fund vary considerably from quarter to quarter. This is because sales revenue of IOC is not constant throughout the year, being lower during the winter months when the St. Lawrence Seaway is closed, and can vary because of the timing of ship loadings and market conditions.
It is IOC's policy to declare an annual dividend, the amount of which varies according to the estimated profits and cash flows for the year. The Fund's share of IOC's dividend amounted to $8.2 million ($0.26 per unit) in 2009 as compared to $77.9 million ($2.43 per unit) in 2008.
The fourth quarter saw sales return to more normal levels and sales volume was 4.6 million tonnes compared to 3.2 million tonnes in 2008 which was negatively affected by the market slow down which started in November. Unfortunately the increased sales volume was not able to offset the effect of the 2009 price decline and the much stronger Canadian dollar resulting in royalty revenue being substantially below the 2008 fourth quarter figure. Royalty income for the quarter was $24.5 million (2008 - $44.2 million) and adjusted cash flow from operations was $15.8 million ($0.49 per unit) compared to 2008 of $27.5 million ($0.86 per unit). Net income for the 2008 quarter was reduced by $26 million ($0.81 per unit), being the Fund's share of an after tax charge incurred by IOC relating to IOC's decision to write down the value of its partly refurbished pellet plant at Sept-Îles.
In December 2008 due to the adverse market conditions, IOC suspended its $800 million expansion program and idled some of its pellet production. With markets, except in China, very weak during the first half of the year, IOC continued with idling of pellet machines and shut down all its Carol Lake operations from July 7 until August 10, 2009 in order to align production with sales. The partial shut down of pellet production during 2009 enabled IOC to increase the amount of concentrate available for sale. This allowed IOC to take advantage of the demand for concentrate in Asia which partially offset reduced demand for pellets from its regular customers. With markets improving in the third quarter, production returned to full capacity shortly after the end of the summer shut down, with some production records being established in the fourth quarter.
Selected Consolidated Financial Information
The following table sets out financial data for the three years ended December 31, 2009, 2008 and 2007.
Years Ended December 31
Description 2009 2008 2007
----------- ---- ---- ----
(in millions except per Unit information)
Revenue $77.0 $163.4 $67.6
Net Income $75.1 $176.5 $80.9
Net Income per Unit $2.35 $5.52 $2.53
Adjusted Cash Flow(1) $58.3 $174.9 $60.5
Adjusted Cash Flow per Unit(1) $1.82 $5.46 $1.89
Total Assets $539.9 $554.3 $508.7
Total Long-Term Debt - - $1.3
Cash Distribution per Unit $2.00 $4.85 $1.95
Number of Units outstanding (millions) 32.0 32.0 32.0
Notes: (1) "Adjusted cash flow" (see below)
The following table sets out quarterly revenue, net income and cash flow data for 2009, 2008 and 2007.
Distri-
Net Adjusted Adjusted butions
Net Income Cash Cash Flow Declared
Revenue Income per Unit Flow(1) per Unit(1) per Unit
------- ------ -------- -------- ---------- --------
(in millions except per Unit information)
2009
----
First Quarter $16.6 $16.5 $0.52 $11.1 $0.35 $0.50
Second Quarter $19.7 $17.8 $0.55 $12.6 $0.39 $0.50
Third Quarter $15.8 $13.6 $0.43 $18.8(2) $0.59 $0.50
Fourth Quarter $24.9 $27.2 $0.85 $15.8 $0.49 $0.50
2008
----
First Quarter $16.6 $10.8 $0.34 $10.4 $0.32 $0.35
Second Quarter $58.1 $73.9 $2.31 $32.9 $1.03 $1.00
Third Quarter $43.7 $65.6 $2.05 $104.1(3) $3.25 $3.00
Fourth Quarter $45.0 $26.2 $0.82 $27.5 $0.86 $0.50
Notes: (1) "Adjusted cash flow" (see below)
(2) Includes a $8.2 million IOC dividend
(3) Includes a $77.9 million IOC dividend
Standardized Cash Flow and Adjusted Cash Flow
For the Fund, standardized cash flow is the same as cash flow from operating activities as recorded in the Fund's cash flow statements as the Fund does not incur capital expenditures or have any restrictions on distributions. Standardized cash flow per unit was $1.33 for 2009 (2008 - $5.82). Cumulative standardized cash flow from inception of the trust is $23.57 per unit and total cash distributions since inception are $22.93 per unit, for a payout ratio of 97%.
"Adjusted cash flow" is defined as cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable/recoverable. It is not a recognized measure under Canadian GAAP. The Trustees believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for distributions to Unitholders.
The following reconciles standardized cash flow from operating activities to adjusted cash flow.
2009 2008
------------------------------
Standardized cash flow from operating
activities $42,407,443 $186,191,796
Excluding : changes in amounts receivable,
accounts payable and income taxes payable 15,894,421 (11,336,209)
------------------------------
Adjusted cash flow $58,301,864 $174,855,587
------------------------------
Adjusted cash flow per unit $1.82 $5.46
------------------------------
Disclosure Controls and Internal Control Over Financial Reporting
The Chairman and CEO and the CFO are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for the Fund. Two officers serve as directors of IOC and IOC provides monthly reports on its operations to them. The Fund also relies on financial information provided by IOC, including its audited financial statements, and other material information provided to the Chairman and CEO, the Vice Chairman and Secretary and the CFO by officers of IOC. IOC is a private corporation, and its financial statements are not publicly available.
The Trustees are informed of all material information relating to the Fund and its subsidiaries by the officers of the Fund on a timely basis and approve all core disclosure documents including the Management Information Circular, the annual and interim financial statements and related Management's Discussion and Analysis, the Annual Information Form, any prospectuses and all press releases. An evaluation of the design and operating effectiveness of the Fund's disclosure controls and procedures was conducted under the supervision of the CEO and CFO. Based on their evaluation, they concluded that the Fund's disclosure controls and procedures were effective in ensuring that material information relating to the Fund was accumulated and communicated for the year ended December 31, 2009.
The Chairman and CEO and the CFO have designed internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. An evaluation of the design and operating effectiveness of the Fund's internal control over financial reporting was conducted under the supervision of the CEO and CFO. Based on their evaluation, they concluded that the Fund's internal control over financial reporting was effective and that there were no material weaknesses therein for the year ended December 31, 2009.
No material change in the Fund's internal control over financial reporting occurred during the year ended December 31, 2009.
Transition to International financial reporting standards ("IFRS")
The CICA Accounting Standards Board requires all Canadian publically accountable enterprises to adopt International Financial Reporting Standards for the years beginning on or after January 1, 2011. The objective of the change is to move towards the use of a single set of world-wide accounting standards, thereby facilitating and improving global cash flows, as well as improving financial reporting and transparency. The Fund will adopt IFRS starting January 1, 2011.
The following highlights the status of certain elements of the Fund's IFRS transition plan.
IOC, a private company incorporated under the laws of the United States prepares it's financial statements under United States Generally Accepted Accounting Principles. The United States has not yet committed to adopting International Accounting Standards. The Fund, in conjunction with IOC management and its advisors, has preliminarily identified certain accounting principles currently followed by IOC that differ from IFRS standards in the following significant areas:
- Property, plant and equipment
- Deferred stripping costs
- Impairment of assets
- Asset retirement obligations
- Employee benefits
In co-ordination with IOC, an analysis of these and other possible differences is in process and decisions, where choices of accounting policies are available, are expected to be finalized in the second quarter of 2010. Until final decisions are made in co-ordination with IOC, the Fund can not reliably quantify the impact on the Fund's share of IOC's earnings.
Under IFRS, the Fund will continue to carry it's royalty and commission interests at amortized cost, and it's investment in shares of IOC under the equity method of accounting. The adoption of IFRS will not have an impact on reported cash flow and adjusted cash flow from operations.
Finally, we re-affirm that our current business processes, information technology and internal controls over financial reporting will not be significantly impacted on the adoption of IFRS.
Further updates on implementation progress and any changes to reporting impacts from the adoption of IFRS will be provided during the implementation period leading up to January 1, 2011.
Outlook
The steel and iron ore markets have recovered substantially from the depressed levels of early 2009 and are approaching a more normal level and pricing in the spot market has firmed. IOC expects that, if current market conditions continue, it will be able to sell all the pellets and concentrate it can produce in 2010. Market analysts are predicting that benchmark prices will be substantially higher than last year when they are settled for 2010. On this basis, and providing the Canadian dollar does not strengthen further against its US counterpart, 2010 should be a satisfactory year for the Fund.
Additional information
Additional information relating to the Fund, including the Annual Information Form, is on SEDAR at www.sedar.com. Additional information is also available on the Fund's website at www.labradorironore.com.
Bruce C. Bone
Chairman and Chief Executive Officer
Toronto, Ontario
March 3, 2010
LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED BALANCE SHEETS
As at December 31 2009 2008
-------------- --------------
Assets
Current
Cash and cash equivalents $ 6,203,013 $ 27,795,570
Amounts receivable 24,987,043 36,476,337
-------------- --------------
31,190,056 64,271,907
Deferred charges, net of accumulated
amortization of $103,332 (2008 - $20,666) 310,000 392,666
Iron Ore Company of Canada ("IOC"),
royalty and commission interests 297,489,943 302,198,099
Investment in IOC 210,950,091 187,452,133
-------------- --------------
$ 539,940,090 $ 554,314,805
-------------- --------------
-------------- --------------
Liabilities and Unitholders' Equity
Current
Accounts payable $ 5,233,229 $ 7,484,614
Income taxes payable 509,562 25,641,892
Distributions payable to unitholders 16,000,000 16,000,000
-------------- --------------
21,742,791 49,126,506
Future income tax liability 105,050,000 103,110,000
-------------- --------------
126,792,791 152,236,506
-------------- --------------
Unitholders' equity
Trust units 317,708,147 317,708,147
Retained earnings 95,439,152 84,370,152
-------------- --------------
413,147,299 402,078,299
-------------- --------------
$ 539,940,090 $ 554,314,805
-------------- --------------
-------------- --------------
LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF INCOME,
COMPREHENSIVE INCOME AND RETAINED EARNINGS
For the years ended December 31 2009 2008
------------------------------
Revenue
IOC royalties $ 75,488,791 $ 161,403,138
IOC commissions 1,401,277 1,481,981
Interest and other income 138,857 496,103
-------------- --------------
77,028,925 163,381,222
-------------- --------------
Expenses
Newfoundland royalty taxes 15,097,758 32,280,628
Amortization of royalty and commission
interests 4,708,156 5,054,501
Administrative expenses 1,813,279 686,583
Interest expense 457,664 737,770
-------------- --------------
22,076,857 38,759,482
-------------- --------------
Income before equity earnings and income
taxes 54,952,068 124,621,740
Equity earnings in IOC 31,698,054 84,488,582
-------------- --------------
Income before income taxes 86,650,122 209,110,322
-------------- --------------
Provision for income taxes
Current 9,641,122 32,983,609
Future 1,940,000 (390,000)
-------------- --------------
11,581,122 32,593,609
-------------- --------------
Net income and comprehensive income for
the year 75,069,000 176,516,713
Retained earnings, beginning of year 84,370,152 63,053,439
Distributions to unitholders (64,000,000) (155,200,000)
-------------- --------------
Retained earnings, end of year $ 95,439,152 84,370,152
-------------- --------------
-------------- --------------
Net income per unit $ 2.35 $ 5.52
-------------- --------------
-------------- --------------
LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 2009 2008
------------------------------
Net inflow (outflow) of cash related
to the following activities
Operating
Net income for the year $ 75,069,000 $ 176,516,713
Items not affecting cash:
Equity earnings in IOC (31,698,054) (84,488,582)
Future income taxes 1,940,000 (390,000)
Amortization of royalty and
commission interests 4,708,156 5,054,501
Amortization of deferred charges 82,666 239,391
Common share dividend received from IOC 8,200,096 77,923,564
Change in amounts receivable, accounts
payable and income taxes payable (15,894,421) 11,336,209
-------------- --------------
Cash flow from operating activities 42,407,443 186,191,796
-------------- --------------
Financing
Distributions paid to unitholders (64,000,000) (156,800,000)
Repayment of long-term debt - (1,334,150)
Financing cost - (413,332)
-------------- --------------
(64,000,000) (158,547,482)
-------------- --------------
Increase (decrease) in cash and cash
equivalents during the year (21,592,557) 27,644,314
Cash, beginning of year 27,795,570 151,256
-------------- --------------
Cash and cash equivalents, end of year $ 6,203,013 $ 27,795,570
-------------- --------------
-------------- --------------
Cash and cash equivalents are comprised of:
Cash in bank $ 4,364,062 $ 114,949
Term deposits 1,838,951 27,680,621
-------------- --------------
$ 6,203,013 $ 27,795,570
-------------- --------------
-------------- --------------
Cash income taxes paid $ 34,773,452 $ 5,952,000
-------------- --------------
-------------- --------------
Cash interest paid $ 375,000 $ 494,248
-------------- --------------
-------------- --------------
%SEDAR: 00002722E