Labrador Iron Ore Royalty Income Fund - Results for the third quarter ended September 30, 2008

October 21, 2008

TORONTO, Oct. 21 /CNW/ - Labrador Iron Ore Royalty Income Fund (TSX: LIF.UN) announced its results for the third quarter ended September 30, 2008.

Royalty income for the third quarter of 2008 amounted to $43.20 million as compared to $19.61 million for the third quarter of 2007, an increase of 120% from the same period last year. Equity earnings from Iron Ore Company of Canada (IOC) in the third quarter amounted to $34.19 million ($1.07 per unit) as compared to $10.71 million ($0.33 per unit) in 2007. Royalties and equity earnings were higher than in the 2007 period due to the 86.67% and 68.75% price increases for pellets and concentrates, respectively, slightly higher sales and the lower value of the Canadian dollar versus its U.S. counterpart. The Fund's cash flow from operating activities adjusted for changes in amounts receivable, accounts payable and income taxes payable/recoverable (adjusted cash flow) for the third quarter was $104.10 million or $3.25 per unit as compared to $30.76 million or $0.96 per unit for the same period in 2007. Net income was $65.64 million or $2.05 per unit compared to $22.98 million or $0.72 per unit for the same period in 2007. The increase in net income was the result of increases in royalties and the Fund's share of IOC earnings.

On September 25, 2008 the Fund received a dividend from IOC totaling US$75.5 million equating to CDN$77.9 million or $2.43 per unit.

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

                               3 Months   3 Months   9 Months   9 Months
                                  Ended      Ended      Ended      Ended
                               Sept. 30   Sept. 30   Sept. 30   Sept. 30
                                   2008       2007       2008       2007
                                -----------------------------------------
                                               (Unaudited)
                                               -----------
Revenue (in millions)           $ 43.72    $ 20.07    $118.42    $ 48.90
                                --------   --------   --------   --------
Adjusted cash flow
 (in millions)                  $104.10    $ 30.76    $147.40    $ 48.92
                                --------   --------   --------   --------
Adjusted cash flow per unit     $  3.25    $  0.96    $  4.60    $  1.53
                                --------   --------   --------   --------
Net income (in millions)        $ 65.64    $ 22.98    $150.34    $ 48.87
                                --------   --------   --------   --------
Net income per unit             $  2.05    $  0.72    $  4.70    $  1.53
                                --------   --------   --------   --------

"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/recoverable) 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.

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

                    3 Months   3 Months   9 Months   9 Months       Year
                       Ended      Ended      Ended      Ended      Ended
                    Sept. 30   Sept. 30   Sept. 30   Sept. 30    Dec. 31
                        2008       2007       2008       2007       2007
                     ----------------------------------------------------
Pellets                 3.29       3.33       9.86       7.84      10.99
Concentrates            1.15       0.82       1.97       1.55       2.41
                     ----------------------------------------------------

Total                   4.44       4.15      11.83       9.39      13.40
                     ----------------------------------------------------

IOC completed its $60 million program to expand production to 18.4 million tonnes of concentrate and is progressing on the $500 million program to expand production to 22 million tonnes annually. During the quarter, IOC announced a further $225 million program which will increase concentrate production to 23 million tonnes and a $75 million expenditure for a feasibility study to increase production to 26 million tonnes by 2011. On completion of these programs, including projects to debottleneck pellet production, the capacity to produce pellets from the concentrate will increase from 13.5 to 14.5 million tonnes.

Respectfully submitted on behalf of the Trustees of Labrador Iron Ore
Royalty Income Fund.

Bruce C. Bone
Chairman and Chief Executive Officer
October 21, 2008

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 Fund's 2007 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 Fund's 2007 Annual Report.

The Fund'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 Fund's royalty revenue is affected by the price of iron ore, which is usually set in US dollar terms, and thus 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.

Royalty income for the third quarter of 2008 amounted to $43.20 million as compared to $19.61 million for the third quarter of 2007, an increase of 120%. Equity earnings from IOC in the third quarter amounted to $34.19 million ($1.07 per unit) as compared to $10.71 million ($0.33 per unit) in 2007. Royalties and equity earnings were higher than in the 2007 period due to the 86.67% and 68.75% price increases for pellets and concentrates, respectively, slightly higher sales and the lower value of the Canadian dollar versus its U.S. counterpart. The Fund's cash flow from operating activities adjusted for changes in amounts receivable, accounts payable and income taxes payable/recoverable (adjusted cash flow) for the third quarter was $104.10 million or $3.25 per unit as compared to $30.76 million or $0.96 per unit for the same period in 2007. Net income was $65.64 million or $2.05 per unit compared to $22.98 million or $0.72 per unit for the same period in 2007. The increase in net income was the result of increased royalties and increased equity earnings from IOC.

The nine month results were affected by the same price increases as the quarter and a 26% increase in overall sales volumes over the 2007 period. 2007 was affected by a strike which shut down production facilities from March 9, 2007 to April 27, 2007.

The following table sets out quarterly revenue, net income and cash flow data for 2008, 2007 and 2006.

                                                      Adjusted  Distrib-
                                     Net    Adjusted    Cash     utions
                            Net    Income     Cash    Flow per  Declared
               Revenue    Income  per Unit   Flow(1)   Unit(1)  per Unit
              --------  --------  --------  --------  --------  --------
                            (million except per Unit information)
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(2) $  3.25   $  3.00

2007
----
First Quarter  $  13.1   $  10.7   $  0.34   $   8.7   $  0.27   $  0.35
Second Quarter $  15.7   $  15.2   $  0.47   $   9.5   $  0.30   $  0.35
Third Quarter  $  20.1   $  23.0   $  0.72   $30.8(3)  $  0.96   $  0.70
Fourth Quarter $  18.7   $  32.0   $  1.00   $  11.5   $  0.36   $  0.55

2006
----
First Quarter  $  14.4   $  11.9   $  0.37   $   9.4   $  0.29   $  0.35
Second Quarter $  19.2   $  33.5   $  1.05   $25.3(4)  $  0.79   $  0.65
Third Quarter  $  20.2   $  20.3   $  0.63   $20.6(5)  $  0.64   $  0.60
Fourth Quarter $  29.4   $  28.7   $  0.90   $  17.6   $  0.56   $  0.55

Notes: (1) "Adjusted cash flow" (see below)
       (2) Includes a $77.9 million IOC dividend
       (3) Includes a $18.8 million IOC dividend
       (4) Includes a $12.5 million IOC dividend
       (5) Includes a $8.5 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 $3.82 for the quarter (2007 - $0.66). Cumulative standardized cash flow from inception of the trust is $21.01 per unit and total cash distributions since inception are $18.18 per unit, for a payout ratio of 87%. Inclusion of the dividend received from IOC during the quarter and not paid out until October would increase the payout ratio to 98%.

"Adjusted cash flow" is defined as cash flow from operating activities as shown on the attached financial statements less 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 cash flow from operating activities to adjusted cash flow.

                      3 Months      3 Months      9 Months      9 Months
                         Ended         Ended         Ended         Ended
                      Sept. 30      Sept. 30      Sept. 30      Sept. 30
                          2008          2007          2008          2007
                  -------------------------------------------------------
Cash flow from
 operating
 activities       $122,172,571  $ 21,112,818  $146,858,827  $ 45,837,840
Excluding:
 changes in
 amounts
 receivable,
 accounts
 payable and
 income taxes
 payable/
 recoverable       (18,075,891)    9,644,215       542,625     3,084,558
                  -------------------------------------------------------
Adjusted
 cash flow        $104,096,680  $ 30,757,033  $147,401,452  $ 48,922,398
                  -------------------------------------------------------
Adjusted cash
 flow per unit    $       3.25  $       0.96  $       4.60  $       1.53
                  -------------------------------------------------------

Liquidity
---------

The Fund renewed its $50 million revolving credit facility to September
18, 2011 with provision for annual one-year extensions. No amounts are
currently drawn under this facility ($11.7 million at September 30, 2007)
leaving $50.0 million available to provide for any capital required by IOC or
other Fund requirements.

Outlook
-------

IOC completed its $60 million program to expand production to 18.4 million tonnes of concentrate and is progressing on the $500 million program to expand production to 22 million tonnes annually. During the quarter, IOC announced a further $225 million program which will increase concentrate production to 23 million tonnes and a $75 million expenditure for a feasibility study to increase production to 26 million tonnes by 2011. On completion of these programs, including projects to debottleneck pellet production, the capacity to produce pellets from the concentrate will increase from 13.5 to 14.5 million tonnes.

IOC expects to be able to sell all its production for the balance of the year and with the current pricing and the weakening of the Canadian dollar, 2008 promises to be an excellent year for the Fund. Looking forward to 2009, IOC is expecting solid sales performance but recognizes that the current turmoil in the financial markets has caused weakness in steel production which is starting to affect the iron ore markets. If the weakness in the Canadian dollar against its U.S. counterpart continues, currently 20% below the level of a year ago, it will provide some offset to any weakness in the iron ore market.

Bruce C. Bone
Chairman and Chief Executive Officer
Toronto, Ontario
October 21, 2008


LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------

                                                       As at
                                          -------------------------------
                                            September 30     December 31
                                                2008            2007
                                          -------------------------------
                                             (Unaudited)
Assets
Current
  Cash and cash equivalents                $  84,875,933   $     151,256
  Amounts receivable                          44,046,537      18,838,481
  Income taxes recoverable                             -       1,389,717
                                          --------------- ---------------
                                             128,922,470      20,379,454

Deferred charges                                 124,972         218,725

Iron Ore Company of Canada ("IOC"),
 royalty and commission interests            303,437,550     307,252,600

Investment in IOC                            187,689,747     180,887,115
                                          --------------- ---------------
                                           $ 620,174,739   $ 508,737,894
                                          --------------- ---------------
                                          --------------- ---------------

Liabilities and Unitholders' Equity
Current
  Accounts payable                         $  10,421,894   $   5,542,158
  Income taxes payable                        18,395,978               -
  Distributions payable to unitholders        96,000,000      17,600,000
                                          --------------- ---------------
                                             124,817,872      23,142,158

Long-term debt                                         -       1,334,150

Future income tax liability                  103,460,000     103,500,000
                                          --------------- ---------------
                                             228,277,872     127,976,308

Unitholders' equity
  Trust units                                317,708,147     317,708,147
  Undistributed income                        74,188,720      63,053,439
                                          --------------- ---------------
                                           $ 620,174,739   $ 508,737,894
                                          --------------- ---------------
                                          --------------- ---------------



LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME AND UNDISTRIBUTED INCOME
-------------------------------------------------------------------------

                                                For the Three Months
                                                 Ended September 30,
                                                2008            2007
                                          -------------------------------
                                                    (Unaudited)
Revenue
  IOC royalties                            $  43,200,281   $  19,606,122
  IOC commissions                                437,089         407,953
  Interest and other income                       84,604          58,885
                                          --------------- ---------------
                                              43,721,974      20,072,960
                                          --------------- ---------------
Expenses
  Newfoundland royalty taxes                   8,640,056       3,921,224
  Amortization of royalty and commission
   interests                                   1,424,051       1,336,146
  Administrative expenses (note 2)              (267,623)      1,048,861
  Interest expense                               144,614         344,706
                                          --------------- ---------------
                                               9,941,098       6,650,937
                                          --------------- ---------------

Income before equity earnings and
 income taxes                                 33,780,876      13,422,023
Equity earnings in IOC                        34,190,307      10,717,796
                                          --------------- ---------------

Income before income taxes                    67,971,183      24,139,819
                                          --------------- ---------------

Provision for (recovery of) income taxes
  Current                                      9,063,062       2,874,486
  Future                                      (6,730,000)     (1,710,000)
                                          --------------- ---------------
                                               2,333,062       1,164,486
                                          --------------- ---------------

Net income and comprehensive
income for the period                         65,638,121      22,975,333

Undistributed income, beginning of period    104,550,599      48,025,443

Distributions to unitholders                 (96,000,000)    (22,400,000)
                                          --------------- ---------------

Undistributed income, end of period        $  74,188,720   $  48,600,776
                                          --------------- ---------------
                                          --------------- ---------------

Net income per unit                        $        2.05   $        0.72
                                          --------------- ---------------
                                          --------------- ---------------



LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME AND UNDISTRIBUTED INCOME
-------------------------------------------------------------------------

                                                For the Nine Months
                                                 Ended September 30,
                                                2008            2007
                                          -------------------------------
                                                    (Unaudited)

Revenue
  IOC royalties                            $ 117,170,887   $  47,831,924
  IOC commissions                              1,164,218         924,694
  Interest and other income                       88,942         144,386
                                          --------------- ---------------
                                             118,424,047      48,901,004
                                          --------------- ---------------

Expenses
  Newfoundland royalty taxes                  23,434,177       9,566,385
  Amortization of royalty and commission
   interests                                   3,815,050       3,032,700
  Administrative expenses (note 2)             1,266,865       2,873,985
  Interest expense                               497,175         857,280
                                          --------------- ---------------
                                              29,013,267      16,330,350
                                          --------------- ---------------

Income before equity earnings and income
 taxes                                        89,410,780      32,570,654
Equity earnings in IOC                        84,726,196      19,536,609
                                          --------------- ---------------

Income before income taxes                   174,136,976      52,107,263
                                          --------------- ---------------

Provision for (recovery of) income taxes
  Current                                     23,841,695       5,616,808
  Future                                         (40,000)     (2,380,000)
                                          --------------- ---------------
                                              23,801,695       3,236,808
                                          --------------- ---------------

Net income and comprehensive
income for the period                        150,335,281      48,870,455

Undistributed income, beginning of period     63,053,439      44,530,321

Distributions to unitholders                (139,200,000)    (44,800,000)
                                          --------------- ---------------

Undistributed income, end of period         $ 74,188,720    $ 48,600,776
                                          --------------- ---------------
                                          --------------- ---------------

Net income per unit                         $       4.70    $       1.53
                                          --------------- ---------------
                                          --------------- ---------------



LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------

                                                For the Three Months
                                                 Ended September 30,
                                                2008            2007
                                          -------------------------------
                                                    (Unaudited)

Net inflow (outflow) of cash related to
 the following activities

Operating
  Net income for the period                $  65,638,121   $  22,975,333
  Items not affecting cash:
    Equity earnings in IOC                   (34,190,307)    (10,717,796)
    Future income taxes                       (6,730,000)     (1,710,000)
    Amortization of royalty and
     commission interests                      1,424,051       1,336,146
    Amortization of deferred charges              31,251          31,251
  Common share dividend received from IOC     77,923,564      18,842,099
  Change in amounts receivable, accounts
   and income taxes payable/recoverable       18,075,891      (9,644,215)
                                          --------------- ---------------
  Cash flow from operating activities        122,172,571      21,112,818
                                          --------------- ---------------

Financing
  Distributions paid to unitholders          (32,000,000)    (11,200,000)
  Proceeds from (repayment of)
   long-term debt                             (5,405,519)      1,446,362
                                          --------------- ---------------
                                             (37,405,519)     (9,753,638)
                                          --------------- ---------------

Increase in cash and cash equivalents
 during the period                            84,767,052      11,359,180

Cash and cash equivalents, beginning
 of period                                       108,881         238,650
                                          --------------- ---------------

Cash and cash equivalents, end of period   $  84,875,933   $  11,597,830
                                          --------------- ---------------
                                          --------------- ---------------

Cash income taxes paid                     $   1,896,000   $   2,332,816
                                          --------------- ---------------
                                          --------------- ---------------

Cash interest paid                         $      64,480   $     281,409
                                          --------------- ---------------
                                          --------------- ---------------



LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------

                                                For the Nine Months
                                                 Ended September 30,
                                                2008            2007
                                          -------------------------------
                                                    (Unaudited)

Net inflow (outflow) of cash related to
 the following activities

Operating
  Net income for the period                $ 150,335,281   $  48,870,455
  Items not affecting cash:
    Equity earnings in IOC                   (84,726,196)    (19,536,609)
    Future income taxes                          (40,000)     (2,380,000)
    Amortization of royalty and commission
     interests                                 3,815,050       3,032,700
    Amortization of deferred charges              93,753          93,753
  Common share dividend received from IOC     77,923,564      18,842,099
  Change in amounts receivable, accounts
   payable and income taxes
   payable/recoverable                          (542,625)     (3,084,558)
                                          --------------- ---------------
  Cash flow from operating activities        146,858,827      45,837,840
                                          --------------- ---------------

Financing
  Distributions paid to unitholders          (60,800,000)    (40,000,000)
  Proceeds from (repayment of)
   long-term debt                             (1,334,150)      5,618,053
                                          --------------- ---------------
                                             (62,134,150)    (34,381,947)
                                          --------------- ---------------

Increase in cash and cash equivalents
 during the period                            84,724,677      11,455,893
Cash and cash equivalents, beginning
 of period                                       151,256         141,937
                                          --------------- ---------------

Cash and cash equivalents, end of period   $  84,875,933   $  11,597,830
                                          --------------- ---------------
                                          --------------- ---------------

Cash income taxes paid                     $   4,056,000   $   9,467,235
                                          --------------- ---------------
                                          --------------- ---------------

Cash interest paid                         $     317,062   $     681,767
                                          --------------- ---------------
                                          --------------- ---------------


Notes to Consolidated Financial Statements

1.  Basis of Presentation

    The financial statements have not been reviewed in accordance with
    section 7050 of the CICA Handbook, Auditor Review of Interim
    Financial Statements, by the Fund's Auditor.

    Not all disclosures required by Canadian generally accepted
    accounting principles for annual financial statements have been
    presented and, accordingly, these interim financial statements should
    be read in conjunction with the most recently prepared annual
    financial statements for the year ended December 31, 2007.

    These interim financial statements follow the same accounting
    policies and method of application as the most recent annual
    financial statements for the year ended December 31, 2007.

    Seasonality

    The results of operations and operating cash flows of the Fund vary
    considerably from quarter to quarter. The operations of the Fund are
    dependent on the royalty and commission revenues from IOC, whose
    production and revenues are not constant throughout the year, being
    lower during the winter months when the St. Lawrence Seaway is
    closed.

2.  Unit Appreciation Rights

    In 2005, the Fund adopted a unit appreciation rights plan which
    granted 50,000 units to each if its six trustees, all as more fully
    described in the annual financial statements. Since the grant date,
    242,000 unit appreciation rights have been exercised.

    Compensation expense is not recognized when rights are issued, but is
    accrued as an expense over the period that the rights vest. The unit
    appreciation rights are marked to market each quarter to the extent
    the units exceed $23.00. Compensation expense/(recovery) of
    $(621,135) (2007 - $673,188) for the three months ended September 30,
    2008 and $255,490 (2007 - $1,849,960) for the nine months ended
    September 30, 2008 has been recorded in administrative expenses in
    connection with the unit appreciation rights.

    In September 2008, one Trustee exercised unit appreciation rights in
    respect of 4,500 units at a market value of $52.97 resulting in a
    total payment of $134,865.

3.  Capital Management

    The Fund's capital consists of the unitholders' equity and the long-
    term debt facility. The Trustees are responsible for managing the
    investments and affairs of the Fund, including the receipt of
    revenues and the payment of distributions to the unitholders. The
    Fund makes cash distributions of the net income to the maximum extent
    possible, subject to the maintenance of appropriate levels of working
    capital.

4.  Financial Instruments

    The Fund derives dividends and royalty income from IOC denominated in
    US dollars. From time to time the Fund may enter into financial
    agreements with banks and other financial institutions to reduce the
    underlying risks associated with this foreign currency denominated
    income. As at September 30, 2008, there were no foreign exchange
    contracts outstanding.

%SEDAR: 00002722E


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