Labrador Iron Ore Royalty Income Fund - Results for the first quarter ended March 31, 2006
April 28, 2006
TORONTO, April 28 /CNW/ - Labrador Iron Ore Royalty Income Fund
(TSX: LIF.UN) announced its results for the first quarter ended March 31,
2006.
Royalty income for the first quarter of 2006 amounted to $14.05 million
as compared to $14.63 million for the first quarter of 2005, a decrease of 4%
over the same period last year. The Fund's cash flow from operations after
adjustments for changes in amounts receivable, accounts payable and income
taxes payable/recoverable (adjusted cash flow) for the first quarter was
$9.41 million or $0.29 per unit as compared to $9.96 million or $0.31 per unit
for the same period in 2005. Net income was $11.92 million or $0.37 per unit
compared to $15.51 million or $0.48 per unit for the same period in 2005.
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 slightly below the corresponding
quarter last year due to slightly lower sales and the increased value of the
Canadian dollar against its U.S. counterpart. Equity earnings from IOC were
$3.8 million, which was $3.7 million or $0.12 per unit below last year. This
was due to extreme winter conditions which caused some loss of production,
decreased railway revenue due to lower rail traffic, increased fuel and supply
costs and the strength of the Canadian dollar against its U.S. counterpart. On
April 5, 2006 IOC declared a dividend payable on May 31, 2006. The Fund's
share of this dividend was US$11.3 million equating to CDN$12.8 million or
$0.40 per unit at current exchange rates. This dividend will appear in the
second quarter cash flow statement. Prices for concentrate and pellets for
2006 have not yet been settled. When settled, they will be retroactive to
January 1 for most of IOC's sales.
Results for the three months ended March 31 are summarized below:
<<
2006 2005
---------------------
(Unaudited)
Revenue (in millions) $ 14.36 $ 14.88
--------- ---------
Adjusted cash flow (in millions) $ 9.41 $ 9.96
--------- ---------
Adjusted cash flow per unit $ 0.29 $ 0.31
--------- ---------
Net income (in millions) $ 11.92 $ 15.51
--------- ---------
Net income per unit $ 0.37 $ 0.48
--------- ---------
"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 follows:
3 Months 3 Months Year
Ended Ended Ended
Mar. 31, Mar. 31, Dec. 31,
2006 2005 2005
-------- -------- --------
Pellets 2.16 2.35 12.87
Concentrates 0.31 0.20 2.12
-------- -------- --------
Total 2.47 2.55 14.99
-------- -------- --------
Respectfully submitted on behalf of the Trustees of Labrador Iron Ore
Royalty Income Fund,
Bruce C. Bone
Chairman and Chief Executive Officer
April 28, 2006
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 2005 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 2005 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.
The prices for iron ore are negotiated annually and for most contracts
are effective for the calendar year. Prices for concentrate and pellets for
2006 have not yet been settled. When settled, they will be retroactive to
January 1 for most of IOC's sales.
Net income for the first quarter was $11.92 million or $0.37 per unit as
compared to $15.51 million or $0.48 per unit in 2005. The decrease mainly
resulted from lower equity earnings in IOC of $3.8 million. These were
$3.7 million or $0.12 per unit below last year due to extreme winter
conditions which caused some loss of production, decreased railway revenue due
to lower rail traffic, increased fuel and supply costs and the strength of the
Canadian dollar against its U.S counterpart.
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 $9.41 million or $0.29 per unit as
compared to $9.96 million or $0.31 per unit for the same period in 2005.
The following table sets out quarterly revenue, net income and cash flow
data for 2006, 2005 and 2004.
Adjusted
Net Adjusted Cash Flow
Net Income Cash per
Revenue Income per Unit Flow(1) Unit(1)
------- ------ -------- ------- -------
($ million except per Unit information)
2006
----
First Quarter 14.4 11.9 0.37 9.4 $0.29
2005
----
First Quarter 14.9 15.5 0.48 10.0 $0.31
Second Quarter 21.3 21.3 0.67 13.5 $0.42
Third Quarter 17.2 17.9 0.56 11.0 $0.34
Fourth Quarter 26.2 31.4 0.98 40.1(2) $1.26
2004
----
First Quarter 8.3 4.5 0.15 6.2 $0.21
Second Quarter 13.7 8.3 0.26 11.2 $0.36
Third Quarter 6.9 3.9 0.12 6.1 $0.19
Fourth Quarter 8.8 3.2 0.11 7.1 $0.22
Notes: (1) "Adjusted cash flow" (see below)
(2) 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 Ended 3 Months Ended
Mar. 31, 2006 Mar. 31, 2005
--------------- ---------------
Cash flow from operating activities $5,935,229 $6,670,668
Excluding: changes in amounts
receivable, accounts payable and
income taxes payable/recoverable 3,472,020 3,287,958
--------------- ---------------
Adjusted cash flow $9,407,249 $9,958,626
--------------- ---------------
Adjusted cash flow per unit $0.29 $0.31
--------------- ---------------
Liquidity
---------
The Fund has a $75 million revolving credit facility reducing by
$25 million in each of 2007 and 2008 with the balance due in 2009. The amount
drawn under this facility is currently $10.5 million ($8.2 million at
March 31, 2006) leaving $64.5 million available to provide for any capital
required by IOC or other Fund requirements.
Outlook
-------
Steel markets remain firm and IOC expects to be able to sell all the
concentrates and pellets it can produce in 2006. Prices for 2006 have not yet
been settled. When settled, they will be retroactive to January 1 for most of
IOC's contracts. It is currently expected that an increase in ore price levels
will occur which should help offset the negative effect of the increased value
of the Canadian dollar against its U.S. counterpart. Although first quarter
production was below last year's level, production is expected to improve
going forward assisted by better weather conditions. IOC expects full year
production to exceed 2005 production. IOC continues to make progress on its
cost cutting programs but is faced with increases in the cost of fuel and
supplies that are beyond its control. IOC reinstated its policy of paying
dividends at the end of last year and has followed up on this by declaring a
dividend on April 5, 2006 payable on May 31, 2006. The Fund's share amounts to
US$11.3 million or approximately CDN$12.8 ($0.40 per unit) at the current
exchange rate. Barring unforeseen circumstances, 2006 should be a satisfactory
year for the Fund.
LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
As at
-------------------------------
March 31, December 31,
2006 2005
-------------------------------
Assets
Current
Cash and cash equivalents $ 360,766 $ 23,600,474
Amounts receivable 14,713,134 25,616,617
Income taxes recoverable 1,144,856 -
--------------- ---------------
16,218,756 49,217,091
Deferred charges 437,482 468,733
Iron Ore Company of Canada ("IOC"),
royalty and commission interests 315,893,598 316,702,318
Investment in IOC 155,224,919 151,382,144
--------------- ---------------
$ 487,774,755 $ 517,770,286
--------------- ---------------
--------------- ---------------
Liabilities and Unitholders' Equity
Current
Accounts payable 3,849,641 5,623,809
Income taxes payable - 11,456,479
Distributions payable to unitholders 11,200,000 38,400,000
--------------- ---------------
15,049,641 55,480,288
Long-term debt 9,225,063 -
Future income tax liability 126,160,000 125,670,000
--------------- ---------------
150,434,704 181,150,288
Unitholders' equity
Trust units 317,708,147 317,708,147
Undistributed income 19,631,904 18,911,851
--------------- ---------------
$ 487,774,755 $ 517,770,286
--------------- ---------------
--------------- ---------------
LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------
For the Three Months
Ended March 31,
2006 2005
-------------------------------
Revenue
IOC royalties $ 14,048,080 $ 14,628,783
IOC commissions 242,850 251,018
Interest and other income 68,109 1,152
--------------- ---------------
14,359,039 14,880,953
--------------- ---------------
Expenses
Newfoundland royalty taxes 2,809,616 2,925,757
Amortization of royalty and
commission interests 808,720 826,301
Administrative expenses 641,375 247,434
Interest expense 199,373 257,138
--------------- ---------------
4,459,084 4,256,630
--------------- ---------------
Income before equity earnings
and income taxes 9,899,955 10,624,323
Equity earnings in IOC 3,842,775 7,558,579
--------------- ---------------
Income before income taxes 13,742,730 18,182,902
Provision for income taxes 1,822,677 2,673,315
--------------- ---------------
Net income for the period 11,920,053 15,509,587
Undistributed income, beginning of period 18,911,851 1,665,464
Distributions to unitholders (11,200,000) (8,000,000)
--------------- ---------------
Undistributed income, end of period $ 19,631,904 $ 9,175,051
--------------- ---------------
--------------- ---------------
Net income per unit $ 0.37 $ 0.48
--------------- ---------------
--------------- ---------------
LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
For the Three Months
Ended March 31,
2006 2005
-------------------------------
Net inflow (outflow) of cash related
to the following activities
Operating
Net income for the period $ 11,920,053 $ 15,509,587
Items not affecting cash:
Equity earnings in IOC (3,842,775) (7,558,579)
Future income taxes 490,000 1,150,066
Amortization of royalty and
commission interests 808,720 826,301
Amortization of deferred charges 31,251 31,251
Change in amounts receivable, accounts
and income taxes payable/recoverable (3,472,020) (3,287,958)
--------------- ---------------
Cash flow from operating activities 5,935,229 6,670,668
--------------- ---------------
Financing
Distributions paid to unitholders (38,400,000) (8,000,000)
Proceeds from debt 9,225,063 1,487,970
--------------- ---------------
(29,174,937) (6,512,030)
--------------- ---------------
Increase (decrease) in cash and cash
equivalents during the period (23,239,708) 158,638
Cash and cash equivalents, beginning
of period 23,600,474 150,293
--------------- ---------------
Cash and cash equivalents, end of period $ 360,766 $ 308,931
--------------- ---------------
--------------- ---------------
Cash income taxes paid $ 2,837,760 $ -
--------------- ---------------
--------------- ---------------
Cash interest paid $ 124,714 $ 296,676
--------------- ---------------
--------------- ---------------
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, 2005.
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, 2005.
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. Subsequent Events
On April 5, 2006, IOC declared a dividend on its common shares
payable on May 31, 2006. The Fund's share of this dividend is
US$11.3 million.
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