Labrador Iron Ore Royalty Income Fund - Results for the second quarter ended June 30, 2007

August 9, 2007

TORONTO, Aug. 9 /CNW/ - Labrador Iron Ore Royalty Income Fund (TSX: LIF.UN) announced its results for the second quarter ended June 30, 2007.

Royalty income for the second quarter of 2007 amounted to $15.30 million as compared to $18.78 million for the second quarter of 2006, a decrease of 19% 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 second quarter was $9.46 million or $0.30 per unit as compared to $25.28 million or $0.79 per unit for the same period in 2006. Net income was $15.16 million or $0.47 per unit compared to $33.45 million or $1.05 per unit for the same period in 2006.

Both production and sales at the Iron Ore Company of Canada (IOC) were negatively affected by the labour strike which closed down its production facilities from March 9 to April 27, 2007. A new five year collective agreement is now in place and a ramp up to full production was achieved in early May. IOC is making every effort to maximize production for the remainder of the year and several new production records for pellets have been achieved since the strike. Sales for the period were restricted by the availability of product. The rise in the value of the Canadian dollar against its U.S. counterpart negatively affected earnings and tended to offset the price increases of 5.8% for pellets and 10.4% for concentrates. Equity earnings from IOC, which were affected by the work stoppage, amounted to $5.7 million ($0.18 per unit) as compared to $10.6 million ($0.33 per unit) in 2006. For the same reasons revenue for the six months was $28.8 million or 14% lower than the first six months of last year. During the quarter the Federal Government enacted legislation which will result in a 0.5% reduction in the corporate income tax rate in 2011. This change resulted in a reduction of $1.7 million to the provision for future income taxes in the quarter. The 2006 quarter included a $10.6 million reduction relating to the reduction in future income taxes enacted during that quarter. These changes resulted in increased earnings during the quarter of $0.05 per unit in 2007 and $0.33 per unit in 2006.

Results for the three months and six months ended June 30 are summarized below:


                               3 Months   3 Months   6 Months   6 Months
                                  Ended      Ended      Ended      Ended
                                June 30    June 30    June 30    June 30
                                   2007       2006       2007       2006
                               ------------------------------------------
                                               (Unaudited)
                                               -----------
Revenue (in millions)           $ 15.68    $ 19.17    $ 28.83    $ 33.53
                               ---------  ---------  ---------  ---------
Adjusted cash flow (in
 millions)                      $  9.46    $ 25.28    $ 18.17    $ 34.69
                               ---------  ---------  ---------  ---------
Adjusted cash flow per unit     $  0.30    $  0.79    $  0.57    $  1.08
                               ---------  ---------  ---------  ---------
Net income (in millions)        $ 15.16    $ 33.45    $ 25.90    $ 45.37
                               ---------  ---------  ---------  ---------
Net income per unit             $  0.47    $  1.05    $  0.81    $  1.42
                               ---------  ---------  ---------  ---------

"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:

                                          6 Months   6 Months       Year
                                             Ended      Ended      Ended
                                           June 30,   June 30,   Dec. 31,
                                              2007       2006       2006
                                          ---------  ---------  ---------
Pellets                                       4.52       5.43      12.94
Concentrates                                  0.73       0.87       2.91
                                          ---------  ---------  ---------
Total                                         5.25       6.30      15.85
                                          ---------  ---------  ---------

On August 1, 2007, IOC announced a $60 million program to increase total concentrate production to 18.4 million tonnes by mid 2008, and a feasibility study to increase concentrate production further to 21 million tonnes annually. This will enable IOC to increase sales resulting in increased royalty revenue for the Fund.

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

Bruce C. Bone

Chairman and Chief Executive Officer

August 9, 2007

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 2006 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 2006 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.

Both production and sales at IOC were negatively affected by the labour strike which closed down its production facilities from March 9 to April 25, 2007. A new five year collective agreement is now in place and a ramp up to full production was achieved in early May. IOC is making every effort to maximize production for the remainder of the year and several new production records for pellets have been achieved since the strike. Sales for the period were restricted by the availability of product. The rise in the value of the Canadian dollar against its U.S. counterpart negatively affected earnings and tended to offset the price increases of 5.8% for pellets and 10.4% for concentrates. Equity earnings from IOC, which were affected by the work stoppage, amounted to $5.7 million ($0.18 per unit) as compared to $10.6 million ($0.33 per unit) in 2006.

The lower earnings for the quarter were principally accounted for by decreased net royalty revenue of $2.8 million ($0.09 per unit) due to shortage of inventory for sale, reduction in IOC earnings of $4.9 million ($0.15 per unit) and the difference in future income tax provision reductions relating to enacted decreases in future taxes recorded in 2007 as compared to 2006 of $8.9 million ($0.28 per unit). In June 2007 the Canadian Government enacted, through Bill C-52 "Budget Implementation Act 2007", legislation which will result in a 0.5% reduction in the corporate income tax rate in 2011. This change resulted in a reduction of $1.7 million to the provision for future income taxes in the quarter. The 2006 quarter included a $10.6 million reduction relating to the reduction in future income taxes enacted during that quarter. These changes resulted in increased earnings during the quarter of $0.05 per unit in 2007 and $0.33 per unit in 2006. Revenue for the six months was $28.8 million or 14% lower than the first six months of last year. Net earnings for the year to date totaled $25.9 million, including a $1.7 million reduction in the future income tax provision, compared to $45.4 million in the prior year, which included a $10.6 million reduction in the future income tax provision.

Bill C-52 will impose a tax on certain distributions from specified publicly traded income flow-through trusts beginning in 2011. Other than the 0.5% corporate tax rate reduction effective in 2011, these measures have no impact on the Trust's future income tax liability as all timing differences had already been recorded.

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 $9.46 million or $0.30 per unit as compared to $25.28 million or $0.79 per unit for the same period in 2006. The reduction in cash flow was mainly the result of the reduced net royalty revenue of $2.8 million ($0.09 per unit) and the inclusion in the 2006 quarter of a $12.5 million ($0.39 per unit) dividend from IOC.

The following table sets out quarterly revenue, net income and cash flow data for 2007, 2006 and 2005.

                                                        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)

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

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(2) $  0.79  $  0.65
Third Quarter       $  20.2  $  20.3  $  0.63  $20.6(3) $  0.64  $  0.60
Fourth Quarter      $  29.4  $  28.7  $  0.90  $  17.6  $  0.56  $  0.55

2005
----
First Quarter          14.9     15.5     0.48     10.0  $  0.31  $  0.25
Second Quarter         21.3     21.3     0.67     13.5  $  0.42  $  0.35
Third Quarter          17.2     17.9     0.56     11.0  $  0.34  $  0.35
Fourth Quarter         26.2     31.4     0.98   40.1(4) $  1.26  $  1.20

Notes: (1) "Adjusted cash flow" (see below)
       (2) Includes a $12.5 million IOC dividend
       (3) Includes a $8.5 million IOC dividend
       (4) Includes a $24.1 million IOC dividend

Adjusted Cash Flow

------------------

"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     6 Months     6 Months
                            Ended        Ended        Ended        Ended
                          June 30,     June 30,     June 30,     June 30,
                             2007         2006         2007         2006
                      ---------------------------------------------------
Cash flow from
 operating activities $ 5,951,679  $20,489,288  $24,725,022  $26,424,517
Excluding: changes in
 amounts receivable,
 accounts payable and
 income taxes
 payable/recoverable    3,506,218    4,795,337   (6,559,657)   8,267,357
                      ---------------------------------------------------
Adjusted cash flow    $ 9,457,897  $25,284,625  $18,165,365  $34,691,874
                      ---------------------------------------------------
Adjusted cash flow
 per unit             $      0.30  $      0.79  $      0.57  $      1.08
                      ---------------------------------------------------

Liquidity

---------

The Fund has a $50 million revolving credit facility reducing by $25 million in 2008 with the balance due in 2009. The amount drawn under this facility is currently $10.9 million ($10.3 million at June 30, 2007) leaving $39.1 million available to provide for any capital required by IOC or other Fund requirements.

Outlook

-------

Steel markets remain strong especially in Asia and IOC expects to be able to sell all the concentrate and pellets it can produce. Prices for 2007 increased by of 5.8% for pellets and 10.4% for concentrates retroactive to January 1 for most contracts and a new five year labour agreement is in place. The strike, which closed down production facilities for 7 weeks from March 9 to April 27, 2007, will result in a loss of about 14% of annual production which, based on last year's production, would amount to approximately 2.3 million tonnes. Reduced sales due to this lost production occurred in the first half of the year and sales for the balance of the year will also be slightly lower than normal due to inventory replenishment. On August 1, 2007, IOC announced a $60 million program to increase total concentrate production to 18.4 million tonnes by mid 2008, and a feasibility study to increase concentrate production further to 21 million tonnes annually. This will enable IOC to increase sales resulting in increased royalty revenue for the Fund. Going forward, the future looks positive for IOC and thus for the Fund. The continued strength of the Canadian dollar against its U.S. counterpart will be a negative but that should be more than offset by increased production and firm pricing.

Bruce C. Bone

Chairman and Chief Executive Officer

Toronto, Ontario

August 9, 2007

LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED BALANCE SHEETS

-------------------------------------------------------------------------

                                                       As at
                                           ------------------------------
                                               June 30       December 31
                                                2007             2006
                                           ------------------------------
                                             (Unaudited)
Assets
Current
  Cash                                     $     238,650   $     141,937
  Amounts receivable                          16,114,254      28,995,350
  Income taxes recoverable                     3,064,665               -
                                           --------------  --------------
                                              19,417,569      29,137,287

Deferred charges                                 281,227         343,729

Iron Ore Company of Canada ("IOC"),
 royalty and commission interests            309,880,940     311,577,494

Investment in IOC                            177,868,850     169,050,037
                                           --------------  --------------
                                           $ 507,448,586   $ 510,108,547
                                           --------------  --------------
                                           --------------  --------------

Liabilities and Unitholders' Equity
Current
  Accounts payable                         $   4,340,217   $   6,269,559
  Income taxes payable                                 -       1,327,432
  Distributions payable to unitholders        11,200,000      17,600,000
                                           --------------  --------------
                                              15,540,217      25,196,991

Long-term debt                                10,294,779       6,123,088

Future income tax liability                  115,880,000     116,550,000
                                           --------------  --------------
                                             141,714,996     147,870,079

Unitholders' equity
  Trust units                                317,708,147     317,708,147
  Undistributed income                        48,025,443      44,530,321
                                           --------------  --------------
                                           $ 507,448,586   $ 510,108,547
                                           --------------  --------------
                                           --------------  --------------



LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF INCOME

-------------------------------------------------------------------------

                                                For the Three Months
                                                    Ended June 30,
                                                 2007           2006
                                           ------------------------------
                                                     (Unaudited)
Revenue
  IOC royalties                            $  15,297,488   $  18,778,718
  IOC commissions                                297,689         377,285
  Interest and other income                       81,588          11,535
                                           --------------  --------------
                                              15,676,765      19,167,538
                                           --------------  --------------
Expenses
  Newfoundland royalty taxes                   3,059,497       3,755,744
  Amortization of royalty and commission
   interests                                     975,738       1,230,661
  Administrative expenses (note 2)             1,224,742        (277,871)
  Interest expense                               254,151         276,445
                                           --------------  --------------
                                               5,514,128       4,984,979
                                           --------------  --------------

Income before equity earnings and income
 taxes                                        10,162,637      14,182,559
Equity earnings in IOC                         5,688,732      10,627,658
                                           --------------  --------------
Income before income taxes                    15,851,369      24,810,217
                                           --------------  --------------
Provision for (recovery of) income taxes
 (note 3)
  Current                                      1,711,729       2,620,821
  Future                                      (1,020,000)    (11,260,000)
                                           --------------  --------------
                                                 691,729      (8,639,179)
                                           --------------  --------------

Net income for the period                     15,159,640      33,449,396

Undistributed income, beginning of period     44,065,803      19,631,904

Distributions to unitholders                 (11,200,000)    (20,800,000)
                                           --------------  --------------

Undistributed income, end of period        $  48,025,443   $  32,281,300
                                           --------------  --------------
                                           --------------  --------------

Net income per unit                        $        0.47   $        1.05
                                           --------------  --------------
                                           --------------  --------------



LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF INCOME

-------------------------------------------------------------------------

                                                  For the Six Months
                                                    Ended June 30
                                                 2007           2006
                                           ------------------------------
                                                     (Unaudited)
Revenue
  IOC royalties                            $  28,225,802   $  32,826,798
  IOC commissions                                516,740         620,135
  Interest and other income                       85,501          79,644
                                           --------------  --------------
                                              28,828,043      33,526,577
                                           --------------  --------------
Expenses
  Newfoundland royalty taxes                   5,645,160       6,565,360
  Amortization of royalty and commission
   interests                                   1,696,554       2,039,381
  Administrative expenses (note 2)             1,825,124         363,504
  Interest expense                               512,574         475,818
                                           --------------  --------------
                                               9,679,412       9,444,063
                                           --------------  --------------

Income before equity earnings and
 income taxes                                 19,148,631      24,082,514
Equity earnings in IOC                         8,818,813      14,470,433
                                           --------------  --------------
Income before income taxes                    27,967,444      38,552,947
                                           --------------  --------------
Provision for (recovery of) income taxes
 (note 3)
  Current                                      2,742,322       3,953,498
  Future                                        (670,000)    (10,770,000)
                                           --------------  --------------
                                               2,072,322      (6,816,502)
                                           --------------  --------------

Net income for the period                     25,895,122      45,369,449

Undistributed income, beginning of period     44,530,321      18,911,851

Distributions to unitholders                 (22,400,000)    (32,000,000)
                                           --------------  --------------

Undistributed income, end of period        $  48,025,443   $  32,281,300
                                           --------------  --------------
                                           --------------  --------------

Net income per unit                        $        0.81   $        1.42
                                           --------------  --------------
                                           --------------  --------------



LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS

-------------------------------------------------------------------------

                                                For the Three Months
                                                    Ended June 30,
                                                 2007           2006
                                           ------------------------------
                                                     (Unaudited)
Net inflow (outflow) of cash related
 to the following activities

Operating
  Net income for the period                $  15,159,640   $  33,449,396
  Items not affecting cash:
    Equity earnings in IOC                    (5,688,732)    (10,627,658)
    Future income taxes                       (1,020,000)    (11,260,000)
    Amortization of royalty and commission
     interests                                   975,738       1,230,661
    Amortization of deferred charges              31,251          31,251
  Common share dividend received from IOC              -      12,460,975
  Change in amounts receivable, accounts
   and income taxes payable/recoverable       (3,506,218)     (4,795,337)
                                           --------------  --------------
  Cash flow from operating activities          5,951,679      20,489,288
                                           --------------  --------------
Financing
  Distributions paid to unitholders          (11,200,000)    (11,200,000)
  Proceeds from (repayment of) long-term
   debt                                        5,404,215      (9,225,063)
                                           --------------  --------------
                                              (5,795,785)    (20,425,063)
                                           --------------  --------------

Increase in cash during the period               155,894          64,225
Cash, beginning of period                         82,756         360,766
                                           --------------  --------------
                                           --------------  --------------

Cash, end of period                        $     238,650   $     424,991
                                           --------------  --------------
                                           --------------  --------------

Cash income taxes paid                     $   3,150,432   $  13,934,012
                                           --------------  --------------
                                           --------------  --------------

Cash interest paid                         $     190,949   $     283,478
                                           --------------  --------------
                                           --------------  --------------



LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS

-------------------------------------------------------------------------

                                                  For the Six Months
                                                    Ended June 30,
                                                 2007           2006
                                           ------------------------------
                                                     (Unaudited)
Net inflow (outflow) of cash related
 to the following activities

Operating
  Net income for the period                $  25,895,122   $  45,369,449
  Items not affecting cash:
    Equity earnings in IOC                    (8,818,813)    (14,470,433)
    Future income taxes                         (670,000)    (10,770,000)
    Amortization of royalty and commission
     interests                                 1,696,554       2,039,381
    Amortization of deferred charges              62,502          62,502
  Common share dividend received from IOC              -      12,460,975
  Change in amounts receivable, accounts
   payable and income taxes
   payable/recoverable                         6,559,657      (8,267,357)
                                           --------------  --------------
  Cash flow from operating activities         24,725,022      26,424,517
                                           --------------  --------------
Financing
  Distributions paid to unitholders          (28,800,000)    (49,600,000)
  Proceeds from long-term debt                 4,171,691               -
                                           --------------  --------------
                                             (24,628,309)    (49,600,000)
                                           --------------  --------------

Increase (decrease) in cash and cash
 equivalents during the period                    96,713     (23,175,483)
Cash and cash equivalents, beginning
 of period                                        141,937     23,600,474
                                           --------------  --------------
                                           --------------  --------------

Cash, end of period                        $     238,650   $     424,991
                                           --------------  --------------
                                           --------------  --------------

Cash income taxes paid                     $   7,134,419   $  16,771,772
                                           --------------  --------------
                                           --------------  --------------

Cash interest paid                         $     400,358   $     408,192
                                           --------------  --------------
                                           --------------  --------------



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 the 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, 2006.

    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, 2006. On
    January 1, 2007, the Fund adopted the Canadian Institute of Chartered
    Accountants new accounting standards: Section 3855 "Financial
    Instruments - Recognition and Measurement", Section 3861 "Financial
    Instruments - Disclosure and Presentation" and Section 1530
    "Comprehensive Income". Section 3855 establishes standards for
    recognizing and measuring financial instruments. All financial
    instruments are required to be measured at fair value on the initial
    recognition with the exception of certain financial instruments that
    do not have quoted market values in an active market. Financial
    instruments that will be realized within the normal operating cycle
    are measured at their carrying amount as this approximates fair
    value. These standards have been applied prospectively without
    restatement of prior periods. The adoption of these standards did not
    have an impact on the Fund's financial statements. The Fund does not
    have any other comprehensive income components and as such,
    comprehensive income is equal to net income. Accordingly, a Statement
    of Comprehensive Income is not presented.

    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,
    150,000 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 $444,000
    (2006 - ($600,000)) for the three months and $735,000 (2006 -
    ($202,000)) for the six months ended June 30, 2007 have been accrued
    in connection with the unit appreciation rights.

    In June 2007, the Trustees exercised unit appreciation rights in
    respect of 36,750 units in total at a weighted average market value
    of $35.02 resulting in a total payment of $441,773 (2006 - Nil).

3.  Income taxes

    In the second quarter of 2007, the Federal Government enacted
    legislation which will result in a 0.5% reduction in the federal
    corporate income tax rate in 2011. This change resulted in a
    reduction of $1.7 million to the provision for future income taxes
    for the three and six months ended June 30, 2007.

%SEDAR: 00002722E


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