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
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 3 Months Year
| Ended | Ended | Ended | |
|---|---|---|---|
| Mar. 31, | Mar. 31, | Dec. 31, | |
| 2013 | 2012 | 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.
Net Income Distributions Net per Adjusted Cash Adjusted Cash Flow Declared Revenue Income Share/Unit(1) Flow(2) per Share/Unit(1) (2) 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 3 Months Ended Mar. 31, 2013 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
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
%SEDAR: 00030172E
For further information:
Bruce C. Bone President & Chief Executive Officer (416) 863-7133
CO: Labrador Iron Ore Royalty Corporation
CNW 18:53e 02-MAY-13