Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended March 31, 2013

TORONTO, May 2, 2013 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF) announced today its operation and cash flow results for the first quarter ended March 31, 2013.

Royalty income for the first quarter of 2013 amounted to $26.1 million as compared to $22.0 million for the first quarter of 2012. The shareholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $14.3 million or $0.22 per share as compared to $14.4 million or $0.23 per unit for the same period in 2012.  Net income was $21.7 million or $0.34 per share compared to $23.0 million or $0.36 per unit for the same period in 2012. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $9.4 million or $0.15 per share as compared to $11.2 million or $0.18 per unit in 2012. Although royalty revenue for the quarter was higher than the same period last year, cash flow was slightly lower due to higher income taxes, a result of the elimination of interest expense on the subordinated notes that were cancelled last September (see the reorganization referred to below).

IOC production in the quarter, while higher than the same period last year, was negatively affected by winter weather conditions and the continued integration of the expansion into the operations. By the end of the quarter, production was approaching an annual rate in excess of 20 million tonnes, reflecting the successful integration of the first phase of the expansion program. Sales for the quarter were negatively affected by the availability of product and by the timing of shipments.

At a special meeting held on September 28, 2012, the holders of stapled units approved an exchange of their subordinated notes for common shares of Labrador Iron Ore Royalty Corporation ("LIORC") and a consolidation of common shares. The $248 million subordinated notes were cancelled and each holder of common shares  ended up holding the same number of common shares as before the transactions, and LIORC continued to have 64 million common shares outstanding. Interest on the subordinated notes ceased to accrue after September 30, 2012. For the purposes of this report, all references to shareholders and per share figures may refer to holders of stapled units and per stapled units, respectively, as applicable. Prior to the transactions, the net income attributed to the holders of stapled units consisted of the net income of LIORC plus the interest paid on the subordinated notes. Thus 2012 net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus the $7,488,000 ($0.117 per stapled unit) interest on the subordinated notes accrued in the quarter.

Results for the three months ended March 31 are summarized below:

				2013		2012
				(Unaudited)
Revenue (in millions)				$26.4		$22.4
Adjusted cash flow (in millions)				$14.3		$14.4
Adjusted cash flow per share/unit				$0.22		$0.23
Net income (in millions)				$21.7		$23.0
Net income per share/unit				$0.34		$0.36

"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) is not a recognized measure under IFRS.  The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for dividends to shareholders.

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

				3 Months Ended Mar. 31, 2013			3 Months Ended Mar. 31, 2012			Year Ended Dec. 31, 2012
Pellets				1.72			1.85			9.90
Concentrates^(1)				0.90			0.50			4.22
Total				2.62			2.35			14.12

^{(1)     Excludes third party ore sales}

Potential Sale by Rio Tinto

On April 18, 2013, a letter was sent to shareholders about Rio Tinto's potential sale of its interest in IOC and the Board's consideration of strategic alternatives available to the Corporation. At this time, there are no new developments to report.

Outlook

The integration of the first phase of the expansion program at IOC is now complete and production results to date in the second quarter are encouraging with record levels occurring. IOC is expecting production at an annual rate in excess of 20 million tonnes for the balance of the year. Prices appear to have stabilized at levels well above the lows of last fall and the Canadian dollar has weakened against its U.S. counterpart. These are positive for future royalty revenues. As IOC expects to sell all it can produce, 2013 should be a satisfactory year for the Corporation.

Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,

Bruce C. Bone
President and Chief Executive Officer
May 2, 2013

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 Labrador Iron Ore Royalty Corporation's ("LIORC" or the "Corporation") 2012 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 Corporation's 2012 Annual Report.

The Corporation'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 Corporation's royalty revenue is affected by the price of iron ore and the Canadian - U.S. dollar exchange rate.

The first quarter sales of IOC are traditionally adversely affected by the closing of the St. Lawrence Seaway and general winter operating conditions and are usually 15% - 20% of the annual volume, 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 first quarter of 2013 amounted to $26.1 million as compared to $22.0 million for the first quarter of 2012. The shareholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $14.3 million or $0.22 per share as compared to $14.4 million or $0.23 per unit for the same period in 2012.  Net income was $21.7 million or $0.34 per share compared to $23.0 million or $0.36 per unit for the same period in 2012. Equity earnings from IOC amounted to $9.4 million or $0.15 per share as compared to $11.2 million or $0.18 per unit in 2012. Although royalty revenue for the quarter was higher than the same period last year, cash flow was slightly lower due to higher income taxes, a result of the elimination of interest expense on the subordinated notes that were cancelled last September (see the reorganization referred to below).

IOC production in the quarter, while higher than the same period last year, was negatively affected by winter weather conditions and the continued integration of the expansion into the operations. By the end of the quarter, production was approaching an annual rate in excess of 20 million tonnes, reflecting the successful integration of the first phase of the expansion program. Sales for the quarter were negatively affected by the availability of product and by the timing of shipments.

At a special meeting held on September 28, 2012, the holders of stapled units approved an exchange of their subordinated notes for common shares of LIORC and a consolidation of common shares. The $248 million subordinated notes were cancelled and each holder of common shares  ended up holding the same number of common shares as before the transactions, and LIORC continued to have 64 million common shares outstanding. Interest on the subordinated notes ceased to accrue after September 30, 2012. For the purposes of this report, all references to shareholders and per share figures may refer to holders of stapled units and per stapled units, respectively, as applicable. Prior to the transactions, the net income attributed to the holders of stapled units consisted of the net income of LIORC plus the interest paid on the subordinated notes. Thus 2012 net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus the $7,488,000 ($0.117 per stapled unit) interest on the subordinated notes accrued in the quarter.

The following table sets out quarterly revenue, net income and cash flow data for 2013, 2012 and 2011.

			Revenue	Net Income	Net Income per Share/Unit^(1)	Adjusted Cash Flow^(2)	Adjusted Cash Flow per Share/Unit^(1) (2)	Distributions Declared per Share/Unit^(1)
			(in millions except per Share/Unit information)
2013
First Quarter			$26.4	$21.7	$0.34	$14.3	$0.22	$0.375
2012 First Quarter^(3)			$22.4	$23.0	$0.36	$14.4	$0.23	$0.375
Second Quarter^(3)			$36.4	$36.8	$0.57	$22.3	$0.35	$0.375
Third Quarter ^(3)			$32.6	$29.7	$0.47	$18.5	$0.28	$0.375
Fourth Quarter			$32.8	$32.3	$0.50	$19.9	$0.31	$0.375
2011
First Quarter^(3)			$30.7	$38.9	$0.61	$48.0 ^(4)	$0.75	$0.75
Second Quarter^(3)			$38.1	$48.2	$0.75	$23.0	$0.36	$0.375
Third Quarter ^(3)			$54.9	$76.3	$1.19	$63.7 ^(5)	$0.99	$0.75
Fourth Quarter^(3)			$38.8	$45.9	$0.72	$23.4	$0.37	$0.375
Notes:	^(1)	Per share amounts have been retroactively adjusted to reflect the two-for-one share subdivision completed on July 1, 2011
	^(2)	"Adjusted cash flow" (see below)
	^(3)	Prior to the fourth quarter of 2012, net income, adjusted cash flow, distributions and per unit figures referred to in this table use the totals according to the consolidated financial statements plus (where applicable) the $7,488,000 ($0.117 per unit) interest on the subordinated notes
	^(4)	Includes a $29.0 million IOC dividend
	^(5)	Includes a $31.2 million IOC dividend

Standardized Cash Flow and Adjusted Cash Flow

For the Corporation, standardized cash flow is the same as cash flow from operating activities as recorded in the Corporation's cash flow statements as the Corporation does not incur capital expenditures or have any restrictions on distributions.  Standardized cash flow per share was $0.22 for the quarter (2012 - $0.26⁽¹⁾). Cumulative standardized cash flow from inception of the Corporation is $17.16 per share and total cash distributions since inception are $16.79 per share, for a payout ratio of 98%.

"Adjusted cash flow" is defined as cash flow from operating activities as shown on the attached financial statements adjusted for changes in amounts receivable, accounts and interest payable and income taxes payable.  It is not a recognized measure under IFRS.  The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for dividends to shareholders.

The following reconciles cash flow from operating activities to adjusted cash flow.

				3 Months Ended Mar. 31, 2013			3 Months Ended Mar. 31, 2012
Standardized cash flow from operating activities				$14,106,869			$16,827,813
Excluding: changes in amounts receivable, accounts payable and income taxes payable				243,144			(9,896,919)
Adjusted cash flow				$14,350,013			$6,930,894	^(1)
Adjusted cash flow per share				$0.22			$0.11	^(1)

^{(1) Excludes note interest on subordinated notes paid directly to shareholders of $7,488,000 or $0.117 per unit.}

Liquidity

The Corporation has a $50 million revolving credit facility to September 18, 2015 with provision for annual one-year extensions.  No amounts are currently drawn under this facility (2012 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.

Potential Sale by Rio Tinto

On April 18, 2013, a letter was sent to shareholders about Rio Tinto's potential sale of its interest in IOC and the Board's consideration of strategic alternatives available to the Corporation. At this time, there are no new developments to report.

Outlook

The integration of the first phase of the expansion program at IOC is now complete and production results to date in the second quarter are encouraging with record levels occurring. IOC is expecting production at an annual rate in excess of 20 million tonnes for the balance of the year. Prices appear to have stabilized at levels well above the lows of last fall and the Canadian dollar has weakened against its U.S. counterpart. These are positive for future royalty revenues. As IOC expects to sell all it can produce, 2013 should be a satisfactory year for the Corporation.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
May 2, 2013

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
		As at
		March 31,			December 31,
Canadian $		2013			2012
		(Unaudited)
Assets
Current Assets
	Cash	$	17,030,290		$	26,923,421
	Amounts receivable		29,887,007			29,308,484
	Income taxes recoverable		3,236,842			3,130,130
Total Current Assets			50,154,139			59,362,035
Iron Ore Company of Canada ("IOC"),
	royalty and commission interests		282,314,133			283,263,500
Investment in IOC			360,506,866			351,770,591
Total Non-Current Assets			642,820,999			635,034,091
Total Assets		$	692,975,138		$	694,396,126
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable	$	6,609,229		$	6,167,138
	Dividends payable		24,000,000			24,000,000
Total Current Liabilities			30,609,229			30,167,138
Non-Current Liabilities
	Deferred income taxes		122,360,000			121,360,000
Total Liabilities			152,969,229			151,527,138
Shareholders' Equity
	Share capital		317,708,147			317,708,147
	Retained earnings		242,432,762			244,758,841
	Accumulated other comprehensive loss		(20,135,000)			(19,598,000)
			540,005,909			542,868,988
Total Liabilities and Shareholders' Equity		$	692,975,138		$	694,396,126

 

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		For the three months ended
		March 31,
Canadian $		2013			2012
		(Unaudited)
Revenue
	IOC royalties	$	26,101,205		$	22,010,073
	IOC commissions		257,651			231,003
	Interest and other income		58,369			122,212
			26,417,225			22,363,288
Expenses
	Newfoundland royalty taxes		5,216,405			4,402,015
	Amortization of royalty and commission interests		949,367			1,341,420
	Administrative expenses		865,053			584,060
	Interest expense:
	Credit facility		92,466			93,493
	Subordinated notes		-			7,488,000
			7,123,291			13,908,988
Income before equity earnings and income taxes			19,293,934			8,454,300
Equity earnings in IOC			9,364,275			11,205,443
Income before income taxes			28,658,209			19,659,743
Provision for income taxes
	Current		5,893,288			2,864,826
	Deferred		1,091,000			1,260,000
			6,984,288			4,124,826
Net income for the period			21,673,921			15,534,917
Other comprehensive loss
	Share of other comprehensive loss of IOC that will not be
	reclassified subsequently to profit or loss (net of taxes)		(537,000)			(402,000)
Comprehensive income for the period			21,136,921		$	15,132,917
Net income per share		$	0.34		$	0.24

 

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
			For the three months ended
			March 31,
Canadian $			2013			2012
			(Unaudited)
Net inflow (outflow) of cash related
	to the following activities
Operating
	Net income for the period		$	21,673,921		$	15,534,917
	Items not affecting cash:
		Equity earnings in IOC		(9,364,275)			(11,205,443)
		Current income taxes		5,893,288			2,864,826
		Deferred income taxes		1,091,000			1,260,000
		Amortization of royalty and commission interests		949,367			1,341,420
		Interest expense		92,466			7,581,493
	Change in amounts receivable and accounts payable			(136,432)			14,532,093
	Interest paid			(92,466)			(7,581,493)
	Income taxes paid			(6,000,000)			(7,500,000)
	Cash flow from operating activities			14,106,869			16,827,813
Financing
	Dividends paid to shareholders			(24,000,000)			(16,512,000)
	Cash flow used in financing activities			(24,000,000)			(16,512,000)
(Decrease)/increase  in cash during the period				(9,893,131)			315,813
Cash, beginning of period				26,923,421			41,498,184
Cash, end of period			$	17,030,290		$	41,813,997

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
								Accumulated
								other
		Capital			Retained			comprehensive
Canadian $		stock			earnings			loss			Total
	(Unaudited)
Balance as at December 31, 2011		$	69,708,147		$	219,001,376		$	(14,987,000)		$	273,722,523
Net income for the period			-			15,534,917			-			15,534,917
Dividends declared to shareholders			-			(16,512,000)			-			(16,512,000)
Share of other comprehensive loss from investment in IOC			-			-			(402,000)			(402,000)
Balance as at March 31, 2012			69,708,147			218,024,293			(15,389,000)			272,343,440
Balance as at December 31, 2012			317,708,147			244,758,841			(19,598,000)			542,868,988
Net income for the period			-			21,673,921			-			21,673,921
Dividends declared to shareholders			-			(24,000,000)			-			(24,000,000)
Share of other comprehensive loss from investment in IOC			-			-			(537,000)			(537,000)
Balance as at March 31, 2013		$	317,708,147		$	242,432,762		$	(20,135,000)		$	540,005,909

  

The complete consolidated financial statements for the first quarter ended March 31, 2013, including the notes thereto, are posted on sedar.com and labradorironore.com.

 

 

SOURCE: Labrador Iron Ore Royalty Corporation

Bruce C. Bone
President & Chief Executive Officer
[phone]