Labrador Iron Ore Royalty Income Fund - Results for the first quarter ended March 31, 2008
TORONTO, May 8 /CNW/ - Labrador Iron Ore Royalty Income Fund (TSX: LIF.UN) announced its results for the first quarter ended March 31, 2008.
To the Unitholders of Labrador Iron Ore Royalty Income Fund
Royalty income for the first quarter of 2008 amounted to $16.36 million as compared to $12.93 million for the first quarter of 2007, an increase of 27% over the same period last year. The Fund's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable/recoverable (adjusted cash flow) for the first quarter was $10.36 million or $0.32 per unit as compared to $8.71 million or $0.27 per unit for the same period in 2007. Net income was $10.78 million or $0.34 per unit compared to $10.74 million or $0.34 per unit for the same period in 2007.
The first quarter sales of Iron Ore Company of Canada (IOC) are always 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.
Royalty revenue for the quarter was substantially above the corresponding quarter last year which was negatively affected by the strike which closed down IOC's production facilities from March 9, 2007 to April 27, 2007. Equity earnings from IOC amounted to $1.3 million ($0.04 per unit) as compared to $3.1 million ($0.10 per unit) in 2007. The decrease in IOC earnings was mainly the result of foreign exchange losses on the translation of IOC's US dollar denominated debt with increased revenue offset by increased operating costs.
Prices for concentrate and pellets were settled by IOC at the end of April with pellet prices increasing by 86.67% and concentrate prices increasing by 68.75%. These changes will be retroactive to January 1 for most contracts but will be billed and recorded by IOC in the second quarter of 2008. This will result in the Fund receiving additional royalties for IOC first quarter sales in the second quarter of approximately $6.6 million or $0.20 per unit after Newfoundland royalty taxes and provincial and federal income taxes. The Fund estimates its share of the equity earnings in IOC relating to the first quarter will increase by $16 million ($0.50 per unit). The net adjustments to cash flow and earnings to be recorded in the second quarter are estimated to be $6.6 million ($0.20 per unit) and $22.6 million ($0.70 per unit), respectively.
Results for the three months ended March 31 are summarized below:
2008 2007
----------------------------
(Unaudited)
Revenue (in millions) $ 16.64 $ 13.15
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Adjusted cash flow (in millions) $ 10.36 $ 8.71
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Adjusted cash flow per unit $ 0.32 $ 0.27
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Net income (in millions) $ 10.78 $ 10.74
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Net income per unit $ 0.34 $ 0.34
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"Adjusted cash flow" (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) 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
Ended Ended Year Ended
Mar. 31, Mar. 31, Dec. 31,
2008 2007 2007
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Pellets 2.55 1.79 10.99
Concentrates 0.26 0.43 2.41
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Total 2.81 2.22 13.40
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Respectfully submitted on behalf of the Trustees of Labrador Iron Ore Royalty Income Fund,
Bruce C. Bone
Chairman and Chief Executive Officer
May 8, 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 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.
Net income for the first quarter was $10.78 million or $0.34 per unit as compared to $10.74 million or $0.34 per unit in 2007. The increase resulted from increased royalties received on ore sales offset by lower equity earnings in IOC of $1.3 million as compared to $3.1 million last year.
Royalty revenue for the quarter was substantially above the corresponding quarter last year which was negatively affected by the strike which closed down IOC's production facilities from March 9, 2007 to April 27, 2007. The decrease in IOC earnings was mainly the result of foreign exchange losses on the translation of IOC's US dollar denominated debt with increased revenue offset by increased operating costs.
Prices for concentrate and pellets were settled by IOC at the end of April with pellet prices increasing by 86.67% and concentrate prices increasing by 68.75%. These changes will be retroactive to January 1 for most contracts but will be billed and recorded by IOC in the second quarter of 2008. This will result in the Fund receiving additional royalties for IOC first quarter sales in the second quarter of approximately $6.6 million or $0.20 per unit after Newfoundland royalty taxes and provincial and federal income taxes. The Fund estimates its share of the equity earnings in IOC relating to the first quarter will increase by $16 million ($0.50 per unit). The net adjustments to cash flow and earnings to be recorded in the second quarter are estimated to be $6.6 million ($0.20 per unit) and $22.6 million ($0.70 per unit), respectively.
Cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable/recoverable (adjusted cash flow) for the quarter was $10.36 million or $0.32 per unit as compared to $8.71 million or $0.27 per unit for the same period in 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
-------- -------- -------- -------- -------- --------
(in millions except per Unit information)
2008
----
First Quarter $ 16.6 $ 10.8 $ 0.34 $ 10.4 $ 0.32 $ 0.35
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(2) $ 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(3) $ 0.79 $ 0.65
Third Quarter $ 20.2 $ 20.3 $ 0.63 $20.6(4) $ 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 $18.8 million IOC dividend
(3) Includes a $12.5 million IOC dividend
(4) Includes a $8.5 million IOC dividend
Standardized Cash Flow and Adjusted Cash Flow
For this 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 $0.46 for the quarter (2007 - $0.58). Cumulative standardized cash flow from inception of the trust is $16.88 per unit and total cash distributions since inception are $16.83 per unit, for a payout ratio of 99.7%.
"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 Ended 3 Months Ended
Mar. 31, 2008 Mar. 31, 2007
-------------- --------------
Standardized cash flow from operating
activities $ 14,787,921 $ 18,773,343
Excluding: changes in amounts receivable,
accounts payable and income taxes
payable/recoverable (4,432,449) (10,065,875)
-------------- --------------
Adjusted cash flow $ 10,355,472 $ 8,707,468
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Adjusted cash flow per unit $ 0.32 $ 0.27
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Liquidity
---------
The Fund has a $50 million revolving credit facility reducing by $25 million in June 2008 with the balance due in 2009. The amount drawn under this facility is currently $3.9 million ($4.2 million at March 31, 2008) leaving $46.1 million available to provide for any capital required by IOC or other Fund requirements.
Outlook
-------
Iron ore markets remain strong and, with price increases of 86.67% for pellets and 68.75% for concentrates, the Fund will receive substantially higher royalty revenue and its equity earnings from IOC should be very significantly higher. In addition, IOC is planning on increased production and, barring any unforeseen circumstances, production should exceed 17 million tonnes compared to 13.4 million tonnes in 2007 and 15.8 million tonnes in 2006. With IOC expecting to be able to sell all its production and with the increased prices, 2008 results should be very satisfactory.
Bruce C. Bone
Chairman and Chief Financial Officer
Toronto, Ontario
May 8, 2008
LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
As at
----------------------------
March 31 December 31
2008 2007
----------------------------
(Unaudited)
Assets
Current
Cash and cash equivalents $ 187,657 $ 151,256
Amounts receivable 16,146,128 18,838,481
Income taxes recoverable - 1,389,717
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16,333,785 20,379,454
Deferred charges 187,474 218,725
Iron Ore Company of Canada ("IOC"),
royalty and commission interests 306,347,185 307,252,600
Investment in IOC 182,214,386 180,887,115
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$505,082,830 $508,737,894
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Liabilities and Unitholders' Equity
Current
Accounts payable $ 5,676,980 $ 5,542,158
Income taxes payable 215,557 -
Distributions payable to unitholders 11,200,000 17,600,000
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17,092,537 23,142,158
Long-term debt 4,182,630 1,334,150
Future income tax liability 103,470,000 103,500,000
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124,745,167 127,976,308
Unitholders' equity
Trust units 317,708,147 317,708,147
Undistributed income 62,629,516 63,053,439
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$505,082,830 $508,737,894
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LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME AND UNDISTRIBUTED INCOME
-------------------------------------------------------------------------
For the Three Months
Ended March 31,
2008 2007
----------------------------
(Unaudited)
Revenue
IOC royalties $ 16,361,263 $ 12,928,314
IOC commissions 276,336 219,051
Interest and other income 1,767 3,913
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16,639,366 13,151,278
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Expenses
Newfoundland royalty taxes 3,272,253 2,585,663
Amortization of royalty and commission
interests 905,415 720,816
Administrative expenses (note 2) 1,005,185 600,382
Interest expense 172,433 258,423
------------- -------------
5,355,286 4,165,284
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Income before equity earnings and
income taxes 11,284,080 8,985,994
Equity earnings in IOC 1,327,271 3,130,081
------------- -------------
Income before income taxes 12,611,351 12,116,075
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Provision for (recovery of) income taxes
Current 1,865,274 1,030,593
Future (30,000) 350,000
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1,835,274 1,380,593
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Net income and comprehensive income
for the period 10,776,077 10,735,482
Undistributed income, beginning of period 63,053,439 44,530,321
Distributions to unitholders (11,200,000) (11,200,000)
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Undistributed income, end of period $ 62,629,516 $ 44,065,803
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Net income per unit $ 0.34 $ 0.34
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LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
For the Three Months
Ended March 31,
2008 2007
----------------------------
(Unaudited)
Net inflow (outflow) of cash related
to the following activities
Operating
Net income for the period $ 10,776,077 $ 10,735,482
Items not affecting cash:
Equity earnings in IOC (1,327,271) (3,130,081)
Future income taxes (30,000) 350,000
Amortization of royalty and
commission interests 905,415 720,816
Amortization of deferred charges 31,251 31,251
Change in amounts receivable, accounts
and income taxes payable/recoverable 4,432,449 10,065,875
------------- -------------
Cash flow from operating activities 14,787,921 18,773,343
------------- -------------
Financing
Distributions paid to unitholders (17,600,000) (17,600,000)
Proceeds from (repayment of) long-term debt 2,848,480 (1,232,524)
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(14,751,520) (18,832,524)
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Increase (decrease) in cash and cash
equivalents during the period 36,401 (59,181)
Cash and cash equivalents, beginning
of period 151,256 141,937
------------- -------------
Cash and cash equivalents, end of period $ 187,657 $ 82,756
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Cash income taxes paid $ 260,000 $ 3,983,987
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Cash interest paid $ 97,915 $ 209,409
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%SEDAR: 00002722E