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

May, 06, 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, (416) 863-7133