Labrador Iron Ore Royalty Corporation - Results For The First Quarter Ended March 31, 2015

TORONTO, May 6, 2015 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC", TSX: LIF) announced today its operation and cash flow results for the first quarter ended March 31, 2015.

Royalty income for the first quarter of 2015 amounted to $23.3 million as compared to $26.9 million for the first quarter of 2014. The shareholders' adjusted cash flow (see below for definition) for the first quarter was $13.1 million or $0.20 per share as compared to $27.7 million or $0.43 per share for the same period in 2014. The higher cash flow for the first quarter of 2014 reflected an Iron Ore Company of Canada ("IOC") dividend, of which our share was $12.6 million or $0.20 per share. Net income was $10.0 million or $0.16 per share compared to $27.1 million or $0.42 per share for the same period in 2014. Equity (losses) earnings from IOC amounted to ($2.7) million or ($0.04) per share as compared to $12.6 million or $0.20 per share in 2014.  

Concentrate for sales ("CFS") and pellet production in the first quarter of 2015 was 28% and 15% higher than the first quarter of 2014 due to increased asset reliability, a lower strip ratio and higher weight yield. When compared to the fourth quarter of 2014, CFS and pellet production was down by 5% and 7%, respectively, and this was due to seasonal factors which have historically penalized IOC's first quarter production by 20% to 25%. The fact that the differences were only 5% and 7% in 2015 is a reflection that this seasonal impact has been largely offset by improved performance in the first quarter.

First quarter of 2015 CFS shipments were 12% higher than the first quarter of 2014, mainly driven by the moisture reduction project which helped move more CFS during winter months than last year. However, harsh winter conditions still had a significant impact on CFS movement, resulting in more CFS frozen on the ground and a 43% reduction in CFS shipments in the first quarter of 2015 as compared to the fourth quarter of 2014. First quarter of 2015 pellet shipments were 33% and 4% higher than the first quarter and fourth quarter of 2014, respectively, mainly driven by the improvements across the operations. The increased sales volume in the quarter plus the lower value of the Canadian dollar against its U.S. counterpart offset most of the decline in the iron ore price which was about 50% lower than last year's first quarter, so that royalty income for the quarter was only 13% lower than last year.

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

(in millions except per share information)					2015		2014
					(Unaudited)
Revenue					$23.7		$27.2
Adjusted cash flow					$13.1		$27.7
Adjusted cash flow per share					$0.20		$0.43
Net income					$10.0		$27.1
Net income per share					$0.16		$0.42

"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, 2015			3 Months Ended Mar. 31, 2014			Year Ended Dec. 31, 2014
Pellets								2.50			1.88			8.33
Concentrates^(1)								0.71			0.63			5.99
Total								3.21			2.51			14.32
^(1) Excludes third party ore sales

Outlook

The IOC program to restore pellet capacity to 12.5 million tonnes per annum from its current 10 million tonnes capacity will be completed in the second quarter of this year. The completion of this program along with the increase in concentrate production which is expected if the first quarter improvements continue should result in increased sales for the balance of the year. This along with the lower value of the Canadian dollar against its US counterpart will offset a significant portion of the reduced royalty revenue resulting from the lower iron ore price, which is currently over 50% lower than it was a year ago. Fortunately, the premium for pellets has remained strong and this, plus additional premiums received by IOC because of the quality of the IOC ore, results in IOC receiving prices greater than published prices. The price of iron ore is a factor that cannot be controlled but IOC has taken significant steps to increase production closer to rated capacity while reducing unit costs that should enable it to remain profitable at current iron ore price levels.

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

Bruce C. Bone
President and Chief Executive Officer
May 6, 2015

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") 2014 Annual Report and the interim financial statements and notes contained therein.  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 2014 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 2015 amounted to $23.3 million as compared to $26.9 million for the first quarter of 2014. The shareholders' adjusted cash flow (see below for definition) for the first quarter was $13.1 million or $0.20 per share as compared to $27.7 million or $0.43 per share for the same period in 2014. The higher cash flow for the first quarter of 2014 reflected an IOC dividend, of which our share was $12.6 million or $0.20 per share. Net income was $10.0 million or $0.16 per share compared to $27.1 million or $0.42 per share for the same period in 2014. Equity (losses) earnings from IOC amounted to ($2.7) million or ($0.04) per share as compared to $12.6 million or $0.20 per share in 2014.  

Concentrate for sales ("CFS") and pellet production in the first quarter of 2015 was 28% and 15% higher than the first quarter of 2014 due to increased asset reliability, a lower strip ratio and higher weight yield. When compared to the fourth quarter of 2014, CFS and pellet production was down by 5% and 7%, respectively, and this was due to seasonal factors which have historically penalized IOC's first quarter production by 20% to 25%. The fact that the differences were only 5% and 7% in 2015 is a reflection that this seasonal impact has been largely offset by improved performance in the first quarter.

First quarter of 2015 CFS shipments were 12% higher than the first quarter of 2014, mainly driven by the moisture reduction project which helped move more CFS during winter months than last year. However, harsh winter conditions still had a significant impact on CFS movement, resulting in more CFS frozen on the ground and a 43% reduction in CFS shipments in the first quarter of 2015 as compared to the fourth quarter of 2014. First quarter of 2015 pellet shipments were 33% and 4% higher than the first quarter and fourth quarter of 2014, respectively, mainly driven by the improvements across the operations. The increased sales volume in the quarter plus the lower value of the Canadian dollar against its U.S. counterpart offset most of the decline in the iron ore price which was about 50% lower than last year's first quarter, so that royalty income for the quarter was only 13% lower than last year.

The following table sets out quarterly revenue, net income and cash flow data for 2015, 2014 and 2013.

				Revenue		Net Income		Net Income per Share		Adjusted Cash Flow^(^1^)		Adjusted Cash Flow per Share^(^1^)		Distributions Declared per Share
				(in millions except per Share information)
2015
First Quarter				$23.7		$10.0		$0.16		$13.1		$0.20		$0.250
2014
First Quarter				$27.2		$27.1		$0.42		$27.7^(2)		$0.43		$0.400
Second Quarter				$33.8		$35.9		$0.56		$33.7^(3)		$0.53		$0.400
Third Quarter				$30.8		$29.0		$0.46		$37.8^(4)		$0.59		$0.500
Fourth Quarter				$25.7		$12.1		$0.19		$14.4		$0.22		$0.350
2013
First Quarter				$26.4		$21.7		$0.34		$14.4		$0.22		$0.375
Second Quarter				$42.2		$39.2		$0.61		$23.4		$0.37		$0.375
Third Quarter				$36.1		$41.2		$0.65		$20.0		$0.31		$0.375
Fourth Quarter				$34.6		$46.7		$0.73		$57.6^(5)		$0.90		$0.750
Notes:	^(1)	"Adjusted cash flow" (see below)
	^(^2)	Includes a $12.6 million IOC dividend
	^(^3)	Includes a $14.8 million IOC dividend
	^(^4)	Includes a $20.7 million IOC dividend
	^(^5)	Includes a $40.0 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 $0.24 for the quarter (2014 - $0.40). Cumulative standardized cash flow from inception of the Corporation is $20.85 per share and total cash distributions since inception is $20.19 per share, for a payout ratio of 97%.

"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 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, 2015			3 Months Ended Mar. 31, 2014
Standardized cash flow from operating activities			$15,233,063			$25,848,565
Excluding: changes in amounts receivable, accounts payable and income taxes payable			(2,119,528)			1,834,869
Adjusted cash flow			$13,113,535			$27,683,434
Adjusted cash flow per share			$0.20			$0.43

Liquidity and Capital Resources

The Corporation has $27.8 million in cash as at March 31, 2015 with total current assets of $50.1 million and working capital of $29.7 million. During the quarter, the Corporation earned operating cash flows of $15.2 million with the cash balance declining $7.2 million as a result of dividends paid.

Cash balances consist of deposits in Canadian dollars with Canadian chartered banks. Amounts receivable primarily consist of royalty payments from IOC. Royalty payments are received in U.S. dollars and converted in to Canadian dollars on receipt, usually 25 days after the quarter end. The Corporation does not normally attempt to hedge this short-term foreign currency exposure.

Operating cash flow of the Corporation is sourced entirely from IOC through the Corporation's 7% royalty, 10 cents commission per tonne and dividends from its 15.10% equity interest in IOC. The Corporation intends to pay cash dividends of the net income derived from IOC to the maximum extent possible, subject to the maintenance of appropriate levels of working capital and debt.

The Corporation has a $50 million revolving credit facility with a term ending September 18, 2017 with provision for annual one-year extensions.  No amount is currently drawn under this facility (2014 – nil) leaving $50.0 million available to provide for any capital required by IOC or requirements of the Corporation.

Outlook

The IOC program to restore pellet capacity to 12.5 million tonnes per annum from its current 10 million tonnes capacity will be completed in the second quarter of this year. The completion of this program along with the increase in concentrate production which is expected if the first quarter improvements continue should result in increased sales for the balance of the year. This along with the lower value of the Canadian dollar against its US counterpart will offset a significant portion of the reduced royalty revenue resulting from the lower iron ore price, which is currently over 50% lower than it was a year ago. Fortunately, the premium for pellets has remained strong and this, plus additional premiums received by IOC because of the quality of the IOC ore, results in IOC receiving prices greater than published prices. The price of iron ore is a factor that cannot be controlled but IOC has taken significant steps to increase production closer to rated capacity while reducing unit costs that should enable it to remain profitable at current iron ore price levels.

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
May 6, 2015

Notice:
The following unaudited interim condensed consolidated financial statements of the Corporation have been prepared by and are the responsibility of the Corporation's management. The Corporation's independent auditor has not reviewed these interim financial statements.

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
					As at
					March 31,			December 31,
					2015			2014
					(Unaudited)
Assets
Current Assets
	Cash				$	27,788,696		$	34,955,633
	Amounts receivable				21,092,619			24,861,203
	Income taxes recoverable				1,199,814			472,626
Total Current Assets					50,081,129			60,289,462
Non-Current Assets
Iron Ore Company of Canada ("IOC"),
	royalty and commission interests				274,332,417			275,432,981
Investment in IOC					392,031,945			395,271,413
Total Non-Current Assets					666,364,362			670,704,394
Total Assets					$	716,445,491		$	730,993,856
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable				$	4,389,609		$	5,311,477
	Dividend payable				16,000,000			22,400,000
Total Current Liabilities					20,389,609			27,711,477
Non-Current Liabilities
	Deferred income taxes				124,800,000			125,563,000
Total Liabilities					145,189,609			153,274,477
Shareholders' Equity
	Share capital				317,708,147			317,708,147
	Retained earnings				265,722,735			271,757,232
	Accumulated other comprehensive loss				(12,175,000)			(11,746,000)
					571,255,882			577,719,379
Total Liabilities and Shareholders' Equity					$	716,445,491		$	730,993,856

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
					For the Three Months Ended
					March 31,
					2015			2014
					(Unaudited)
Revenue
	IOC royalties				$	23,346,134		$	26,852,444
	IOC commissions				315,994			242,090
	Interest and other income				79,812			98,642
					23,741,940			27,193,176
Expenses
	Newfoundland royalty taxes				4,669,227			5,370,489
	Amortization of royalty and commission interests				1,100,564			782,349
	Administrative expenses				686,366			533,589
					6,456,157			6,686,427
Income before equity earnings and income taxes					17,285,783			20,506,749
Equity (losses) earnings in IOC					(2,737,468)			12,567,402
Income before income taxes					14,548,315			33,074,151
Provision for income taxes
	Current				5,272,812			6,171,999
	Deferred				(690,000)			(217,000)
					4,582,812			5,954,999
Net income for the period					9,965,503			27,119,152
Other comprehensive loss
	Share of other comprehensive loss of IOC that will not be
	reclassified subsequently to profit or loss (net of taxes)				(429,000)			(478,000)
Comprehensive income for the period					$	9,536,503		$	26,641,152
Net income per share					$	0.16		$	0.42

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
			For the Three Months Ended
			March 31,
			2015			2014
			(Unaudited)
Net inflow (outflow) of cash related
	to the following activities
Operating
	Net income for the period		$	9,965,503		$	27,119,152
	Items not affecting cash:
		Equity losses (earnings) in IOC	2,737,468			(12,567,402)
		Current income taxes	5,272,812			6,171,999
		Deferred income taxes	(690,000)			(217,000)
		Amortization of royalty and commission interests	1,100,564			782,349
	Common share dividend from IOC		-			12,566,335
	Change in amounts receivable and accounts payable		2,846,716			8,197,390
	Income taxes paid		(6,000,000)			(16,204,258)
	Cash flow from operating activities		15,233,063			25,848,565
Financing
	Dividends paid to shareholders		(22,400,000)			(48,000,000)
	Cash flow used in financing activities		(22,400,000)			(48,000,000)
Decrease in cash, during the period			(7,166,937)			(22,151,435)
Cash, beginning of period			34,955,633			52,613,924
Cash, end of period			$	27,788,696		$	30,462,489

LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
						Accumulated
						other
		Share		Retained		comprehensive
		capital		earnings		loss		Total
		(Unaudited)
Balance as at December 31, 2013		$	317,708,147	$	273,225,981	$	(7,606,000)	$	583,328,128
Net income for the period		-		27,119,152		-		27,119,152
Dividends declared to shareholders		-		(25,600,000)		-		(25,600,000)
Share of other comprehensive loss from investment in IOC (net of taxes)		-		-		(478,000)		(478,000)
Balance as at March 31, 2014		$	317,708,147	$	274,745,133	$	(8,084,000)	$	584,369,280
Balance as at December 31, 2014		317,708,147		271,757,232		(11,746,000)		577,719,379
Net income for the period		-		9,965,503		-		9,965,503
Dividends declared to shareholders		-		(16,000,000)		-		(16,000,000)
Share of other comprehensive loss from investment in IOC (net of taxes)		-		-		(429,000)		(429,000)
Balance as at March 31, 2015		$	317,708,147	$	265,722,735	$	(12,175,000)	$	571,255,882

The complete consolidated financial statements for the first quarter ended March 31, 2015, 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]