Labrador Iron Ore Royalty Corporation - Results for the Third Quarter Ended September 30, 2011

November, 03, 2011

TORONTO, Nov. 3, 2011 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC") (TSX: LIF.UN) announced the results of its operations for the third quarter ended September 30, 2011.

On July 1, 2011 the 2-for-1 split of the stapled units approved by the unitholders on May 30, 2011, became effective. The stapled units started trading on a split basis on the Toronto Stock Exchange on June 28, 2011. Accordingly, all per unit figures in this report are based on 64 million units outstanding, with all prior per unit figures being restated.

Royalty income for the third quarter of 2011 amounted to $54.4 million as compared to $40.6 million for the third quarter of 2010. The unitholder's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the third quarter was $63.7 million or $0.99 per unit as compared to $85.9 million or $1.34 per unit for the same period in 2010. Net income was $76.3 million or $1.19 per unit compared to $65.4 million or $1.02 per unit for the same period in 2010. Equity earnings from IOC amounted to $47.0 million or $0.73 per unit as compared to $39.2 million or $0.61 per unit in 2010. The lower cash flow for the quarter reflected an IOC dividend of which LIORC's share was $31.2 million or $0.49 per unit as compared to $62.2 million or $0.97 per unit in 2010.

Prior to the July 1, 2010 conversion of Labrador Iron Ore Royalty Corporation ("LIORC") from an income trust, the net income of the unitholders was the same as the trust's net income. Since the unitholders now own the $248 million LIORC subordinated notes directly, the net income of the unitholders consists of the net income of LIORC plus the interest paid on the LIORC subordinated notes. Thus all net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.117 per stapled unit) and $22,464,000 ($0.351 per stapled unit) interest on the subordinated notes for the three months and nine months period ended September 30, 2011, respectively.

The increased royalty revenue for the third quarter, as compared to the 2010 quarter, is mainly due to the increased production in the quarter that resulted in IOC having more product available for sale. The 2010 quarter was negatively affected by the timing of shipments, which were deferred until the fourth quarter.

Results for the three months and nine months ended September 30 are summarized below:

	3 Months Ended Sept. 30, 2011	3 Months Ended Sept. 30, 2010	9 Months Ended Sept. 30, 2011	9 Months Ended Sept. 30, 2010
	(Unaudited)
Revenue (in millions)	$ 54.9	$ 40.9	$ 123.7	$ 110.1
Adjusted cash flow (in millions)	$ 63.7	$ 85.9	$ 134.7	$ 138.7
Adjusted cash flow per unit	$ 0.99	$ 1.34	$ 2.10	$ 2.17
Net income (in millions)	$ 76.3	$ 65.4	$ 163.4	$ 150.4
Net income per unit	$ 1.19	$ 1.02	$ 2.55	$ 2.35

"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 Canadian GAAP or IFRS. The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for distributions to unitholders.

Iron Ore Company of Canada

Third quarter production was substantially improved from the first two quarters of the year as further progress was made in the stabilization and improvement of production capability. Production was 4% higher than the corresponding 2010 quarter and 61% and 24% higher than the first and second quarters of 2011, respectively. The problems that existed during the first part of the year have largely been remedied and, with Phase 1 of the expansion project nearing completion, production going forward should be substantially increased. The increased production will enable IOC to take advantage of the current market demand for iron ore.

The Concentrator Expansion Project remains on schedule with Phase 1 expected to be completed by year-end, raising the concentrator capacity by 4Mt/a. Phase 2 completion, which would further raise capacity by 1.3Mt/a, is expected by the end of 2012.

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

	3 Months Ended Sept. 30, 2011	3 Months Ended Sept. 30, 2010	9 Months Ended Sept. 30, 2011	9 Months Ended Sept. 30, 2010	Year Ended Dec. 31, 2010
Pellets	2.24	2.41	6.41	8.08	12.05
Concentrates	1.94	0.80⁽¹⁾	3.27	2.19⁽¹⁾	3.02⁽¹⁾
Total	4.18	3.21	9.68	10.27	15.07

(1) Excludes third party ore sales

Proposed Tax Changes

On July 20, 2011, the Ministry of Finance announced proposed amendments to the Income Tax Act concerning stapled securities. Under the proposal, when debt and equity are stapled together and trade as a unit, the interest on the debt portion of the stapled security would not be deductible in computing income for tax purposes. The announcement has an effective date of July 20, 2012 with a deferral to July 20, 2016 under some circumstances. The directors are studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.

Outlook

Although iron ore prices have retreated from their recent highs, the general market consensus seems to be that barring a major meltdown in Europe, the price should recover and remain closer to 2011 average levels going forward. The completion of the first phase of the Concentrator Expansion Project will have a positive effect on LIORC's future royalty revenue. The strength of the Canadian dollar against its U.S. counterpart has at least temporarily abated, which is positive for LIORC's results. We expect the final quarter of 2011 and next year to be positive for LIORC.

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


Bruce C. Bone President and Chief Executive Officer November 3, 2011

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 Corporation's 2010 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 2010 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 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.

On July 1, 2011 the 2-for-1 split of the stapled units approved by the unitholders on May 30, 2011, became effective. The stapled units started trading on a split basis on the Toronto Stock Exchange on June 28, 2011. Accordingly, all per unit figures in this report (except distributions declared) are based on 64 million units outstanding, with all prior per unit figures being restated.

The nine month results while improved from 2010 were negatively affected by the lower production in the first half of the year, which resulted in IOC shipping less product in 2011 year to date. . This was more than offset by the higher prices in effect in 2011.

The following table sets out quarterly revenue, net income and cash flow data for 2011, 2010 and 2009.

	Revenue	Net Income	Net Income per unit⁽¹⁾	Adjusted Cash Flow⁽²⁾	Adjusted Cash Flow per unit⁽¹⁾⁽²⁾	Distributions Declared per unit⁽¹⁾
	(in millions except per Unit information)
2011
First Quarter⁽³⁾	$ 30.7	$ 38.9	$ 0.61	$ 48.0⁽⁶⁾	$ 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⁽⁷⁾	$ 0.99	$ 0.75

2010⁽⁴⁾
First Quarter⁽⁵⁾	$ 16.7	$ 15.7	$ 0.25	$ 22.3⁽⁸⁾	$ 0.35	$ 0.375
Second Quarter⁽⁵⁾	$ 52.5	$ 69.3	$ 1.08	$ 30.5	$ 0.48	$ 0.375
Third Quarter^{(3) (5)}	$ 40.9	$ 65.4	$ 1.02	$ 85.9⁽⁹⁾	$ 1.34	$ 0.50
Fourth Quarter⁽³⁾	$ 54.3	$ 62.8	$ 0.98	$ 31.9	$ 0.50	$ 1.00
2009
First Quarter	$ 16.6	$ 16.5	$ 0.26	$ 11.1	$ 0.17	$ 0.25
Second Quarter	$ 19.7	$ 17.8	$ 0.28	$ 12.6	$ 0.20	$ 0.25
Third Quarter	$ 15.8	$ 13.6	$ 0.21	$ 18.8⁽¹⁰⁾	$ 0.29	$ 0.25
Fourth Quarter	$ 24.9	$ 27.2	$ 0.43	$ 15.8	$ 0.25	$ 0.25

(1)	Per unit 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)	Commencing with third quarter 2010, net income, adjusted cash flow, distributions and per unit figures referred to in this table use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.117 per unit) interest on the subordinated notes
(4)	Except as noted, the figures have not been restated to conform with IFRS
(5)	Restated to conform with IFRS
(6)	Includes a $29.0 million IOC dividend
(7)	Includes a $31.2 million IOC dividend
(8)	Includes a $11.5 million IOC dividend
(9)	Includes a $62.2 million IOC dividend
(10)	Includes a $8.2 million IOC dividend

Iron Ore Company of Canada

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 unit was $0.81⁽¹⁾ for the quarter (2010 - $0.46). Cumulative standardized cash flow from inception of the Corporation is $15.93 per unit and total cash distributions since inception are $15.01⁽¹⁾ per unit, for a payout ratio of 94%.

(1) Excludes interest on subordinated notes paid directly to unitholders of $0.117 and $0.585 respectively.

"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 Canadian GAAP or IFRS. The Directors 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 Sept. 30, 2011	3 Months Ended Sept. 30, 2010	9 Months Ended Sept. 30, 2011	9 Months Ended Sept. 30, 2010
Standardized cash flow from operating activities	$ 51,667,679	$ 29,759,422	$ 109,120,236	$ 67,661,394
Excluding: changes in amounts receivable, accounts payable and income taxes payable	4,520,122	48,612,888	3,102,446	63,523,464
Adjusted cash flow⁽¹⁾	$ 56,187,801	$ 78,372,310	$ 112,222,682	$ 131,184,858
Adjusted cash flow per unit⁽¹⁾	$ 0.88	$ 1.22	$ 1.75	$ 2.05

(1)

Three months and nine months ended September 30, 2011 exclude interest on subordinated notes paid directly to unitholders of $7,488,000 ($0.117 per unit) and $22,464,000 ($0.351 per unit) respectively.

Liquidity

The Corporation has a $50 million revolving credit facility to September 18, 2014 with provision for annual one-year extensions. No amounts are currently drawn under this facility (2010 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.

International Financial Reporting Standards ("IFRS")

The Corporation adopted IFRS effective January 1, 2010 and has prepared the current interim financial statements using IFRS Accounting Policies. Prior to the adoption of IFRS, the financial statements were prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). The Corporation's financial statements for the year ending December 31, 2011 will be the first annual financial statements that comply with IFRS.

IFRS are premised on a conceptual framework similar to Canadian GAAP. However, significant differences exist in certain matters of recognition, measurement and disclosure. The adoption had a small impact on the consolidated balance sheets and statements of comprehensive income. The overall impact was to reduce the carrying value of the Corporation's investment in IOC and its retained earnings and accumulated other comprehensive income by $11.8 million at January 1, 2010 and $13.7 million at December 31, 2010. For the three and nine month periods ended September 30, 2011, the Corporation's share of net income and comprehensive income from IOC is $0.1 million lower than would have been reported under Canadian GAAP. The change to IFRS has no impact on the Corporation's royalty and commission income and no impact on cash flows for the quarter.

Proposed Tax Changes

Outlook

Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
November 3, 2011

LABRADOR IRON ORE ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEETS



		As at
		September 30,		December 31,
Canadian $		2011		2010
		(Unaudited)
Assets
Current
	Cash	$	69,196,124	$	73,611,888
	Amounts receivable	55,532,950		51,420,285
		124,729,074		125,032,173

Iron Ore Company of Canada ("IOC"),
	royalty and commission interests	288,400,632		291,885,160

Investment in IOC		283,121,441		247,925,657

		$	696,251,147	$	664,842,990


Liabilities and Shareholders' Equity
Current
	Accounts payable	$	11,328,677	$	10,482,603
	Income taxes payable	14,679,391		14,515,246
	Interest payable on subordinated notes	7,488,000		7,488,000
	Distributions payable to shareholders	40,512,000		56,512,000
		74,008,068		88,997,849

Subordinated notes		248,000,000		248,000,000

Deferred income taxes		112,830,000		108,690,000
		434,838,068		445,687,849

Equity
	Share capital	69,708,147		69,708,147
	Retained earnings	197,097,932		153,724,994
	Accumulated other comprehensive loss	(5,393,000)		(4,278,000)
		261,413,079		219,155,141
		$	696,251,147	$	664,842,990

LABRADOR IRON ORE ROYALTY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



				For the Nine Months
				Ended September 30,
Canadian $				2011		2010
				(Unaudited)
Revenue
	IOC royalties		$	122,456,324	$	109,069,404
	IOC commissions			952,746		1,009,820
	Interest and other income			344,851		73,297
				123,753,921		110,152,521
Expenses
	Newfoundland royalty taxes			24,491,265		21,851,956
	Amortization of royalty and commission interests			3,484,528		4,221,168
	Administrative expenses			1,631,063		2,622,164
	Interest expense:
		Credit facility		280,480		280,479
		Subordinated notes		22,464,000		7,488,000
				52,351,336		36,463,767

Income before equity earnings and income taxes				71,402,585		73,688,754
Equity earnings in IOC				96,667,045		90,672,626

Income before income taxes				168,069,630		164,361,380

Provision for income taxes
	Current			22,831,692		20,387,750
	Deferred			4,329,000		1,078,000
				27,160,692		21,465,750

Net income for the period				140,908,938		142,895,630

Other comprehensive loss
	Share of other comprehensive loss of IOC			(1,115,000)		(789,000)

Comprehensive income for the period			$	139,793,938	$	142,106,630

Net income per common share/unit ⁽¹⁾			$	2.20	$	2.23

⁽¹⁾		Per share/unit amounts have been retroactively adjusted to reflect the two-for-one share subdivision completed on July 1, 2011.

LABRADOR IRON ORE ROYALTY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



				For the Three Months
				Ended September 30,
Canadian $				2011		2010
				(Unaudited)
Revenue
	IOC royalties		$	54,421,894	$	40,591,042
	IOC commissions			411,443		314,834
	Interest and other income			107,890		24,162
				54,941,227		40,930,038
Expenses
	Newfoundland royalty taxes			10,884,379		8,118,208
	Amortization of royalty and commission interests			1,313,290		1,425,809
	Administrative expenses			525,507		1,181,534
	Interest expense:
		Credit facility		94,521		94,521
		Subordinated notes		7,488,000		7,488,000
				20,305,697		18,308,072

Income before equity earnings and income taxes				34,635,530		22,621,966
Equity earnings in IOC				46,984,091		39,186,091

Income before income taxes				81,619,621		61,808,057

Provision for (recovery of) income taxes
	Current			10,933,465		7,833,099
	Deferred			1,923,000		(3,896,000)
				12,856,465		3,937,099

Net income for the period				68,763,156		57,870,958

Other comprehensive loss
	Share of other comprehensive loss of IOC			(372,000)		(263,000)

Comprehensive income for the period			$	68,391,156	$	57,607,958

Net income per common share/unit ⁽¹⁾			$	1.07	$	0.90

⁽¹⁾	Per share/unit amounts have been retroactively adjusted to reflect the two-for-one share subdivision completed on July 1, 2011.

LABRADOR IRON ORE ROYALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS




				For the Nine Months
				Ended September 30,
Canadian $				2011		2010
				(Unaudited)
Net inflow (outflow) of cash related to the following activities

Operating
	Net income for the period		$	140,908,938	$	142,895,630
	Items not affecting cash:
		Equity earnings in IOC		(96,667,045)		(90,672,626)
		Deferred income taxes		4,329,000		1,078,000
		Amortization of royalty and commission interests		3,484,528		4,221,168
	Common share dividend from IOC			60,167,261		73,662,686
	Change in amounts receivable, accounts and income taxes payable and interest payable on subordinated notes			(3,102,446)		(63,523,464)
	Cash flow from operating activities			109,120,236		67,661,394

Financing
	Distributions paid to unitholders/shareholders			(113,536,000)		(64,000,000)
	Cash flow used in financing activities			(113,536,000)		(64,000,000)

Increase/(decrease) in cash and cash equivalents during the period				(4,415,764)		3,661,394

Cash and cash equivalents, beginning of period				73,611,888		6,203,013

Cash and cash equivalents, end of period			$	69,196,124	$	9,864,407

Cash and cash equivalents are comprised of:
	Cash in bank		$	69,196,124	$	864,708
	Term deposits			-		8,999,699
			$	69,196,124	$	9,864,407


Cash income taxes paid			$	22,667,547	$	15,382,745

Cash interest paid			$	22,744,480	$	280,480

LABRADOR IRON ORE ROYALTY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

			Capital		Trust		Retained		Accumulated		Total
			stock		units		earnings		other
									comprehensive
Canadian $									loss
	(Unaudited)

Balance as at January 1, 2010		$	-	$	317,708,147	$	83,634,152	$	-	$	401,342,299

Subordinated notes distributed to trust unitholders pursuant
to the Arrangement on July 1, 2010					(248,000,000)						(248,000,000)
Exchange of trust units for common shares on July 1, 2010			69,708,147		(69,708,147)						-
Net income for the period			-		-		142,895,630		-		142,895,630
Distributions/dividends to unitholders/shareholders			-		-		(72,512,000)		-		(72,512,000)
Other comprehensive loss			-		-		-		(789,000)		(789,000)
Balance as at September 30, 2010		$	69,708,147	$	-	$	154,017,782	$	(789,000)	$	222,936,929



Balance as at December 31, 2010		$	69,708,147	$	-	$	153,724,994	$	(4,278,000)	$	219,155,141

Net income for the period			-		-		140,908,938				140,908,938
Dividends to shareholders			-		-		(97,536,000)				(97,536,000)
Other comprehensive loss			-		-				(1,115,000)		(1,115,000)
Balance as at September 30, 2011		$	69,708,147	$	-	$	197,097,932	$	(5,393,000)	$	261,413,079



	©2006 - Labrador Iron Ore Royalty Corporation

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Labrador Iron Ore Royalty Corporation - Results for the Third Quarter Ended September 30, 2011