Labrador Iron Ore Royalty Corporation - Results for the Second Quarter Ended June 30, 2012 ,
TORONTO, Aug. 8, 2012 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF.UN) announced today its operation and cash flow results for the second quarter ended June 30, 2012.
Royalty income for the second quarter of 2012 amounted to $36.0 million as compared to $37.8 million for the second quarter of 2011. The unitholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the quarter was $22.3 million or $0.35 per unit compared to last year's $23.0 million or $0.36 per unit. Net income was $36.8 million or $0.57 per unit compared to $48.2 million or $0.75 per unit for the same period in 2011. Equity earnings from Iron Ore Company of Canada (IOC) amounted to $18.2 million or $0.28 per unit as compared to $30.4 million or $0.48 per unit in 2011.
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 $14,976,000 ($0.234 per stapled unit) interest on the subordinated notes for the three months and six months periods, respectively.
IOC production and sales volumes for the quarter were above last year's second quarter but were still somewhat affected by the commissioning of the new ore delivery system and the additional grinding mill. We reported last quarter that the commissioning, which started at the beginning of the year, was expected to be completed by mid-year. This has now occurred and we expect to see the resultant increased production in the third quarter. The lower revenue and cash flow for the quarter in spite of the increased sales volumes resulted from lower prices for iron ore in the quarter. Equity earnings from IOC were substantially lower in the quarter mainly due to the lower iron ore prices.
Results for the three months and six months ended June 30 are summarized below:
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended June 30, June 30, June 30, June 30, 2012 2011 2012 2011 (Unaudited)
| Revenue (in millions) | $36.4 | $38.1 | $58.8 | $68.8 |
| Adjusted cash flow (in millions) | $22.3 | $23.0 | $36.7 | $71.0 |
| Adjusted cash flow per unit | $0.35 | $ 0.36 | $0.57 | $ 1.11 |
| Net income (in millions) | $ 36.8 | $ 48.2 | $ 59.8 | $ 87.1 |
| Net income per unit | $ 0.57 | $ 0.75 | $ 0.93 | $ 1.36 |
"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 distributions to unitholders.
A summary of IOC's sales in millions of tonnes is as follows:
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended Year
| June 30, | June 30, | June 30, | June 30, | Ended | |
|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | Dec. 31, 2011 | |
| Pellets | 2.74 | 1.90 | 4.59 | 4.17 | 8.71 |
| Concentrates | 0.70 | 1.05 | 1.20 | 1.33 | 4.85 |
| Total | 3.44 | 2.95 | 5.79 | 5.50 | 13.56 |
Proposed Tax Changes
On July 25, 2012 the Department of Finance released the proposed legislative amendments to the Income Tax Act concerning stapled securities originally announced on July 20, 2011. It appears that the effect of the legislative changes on the Corporation is to deny the deduction of interest on the $248 million subordinated notes after July 20, 2012. The Board of Directors has been considering the alternatives available to the Corporation and expects to call a meeting of the unitholders in the near future to consider a response to the legislative changes.
Outlook
With the commissioning of the new ore delivery system and the additional grinding mill completing the first phase of the IOC's expansion and phase two expected to be completed early next year, the increased production capacity bodes well for increased royalty revenue. Currently offsetting the gains expected from increased volumes is weakness in the pricing of iron ore. The general market consensus seems to be that prices will recover later in the year.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,
Bruce C. Bone President and Chief Executive Officer August 8, 2012
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 2011 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 2011 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. For 2012, because of the coming on stream of the phase one expansion, we expect the first two quarters' sales to total less than 40% of sales for the year. 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 second quarter of 2012 amounted to $36.0 million as compared to $37.8 million for the second quarter of 2011. The unitholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the quarter was $22.3 million or $0.35 per unit compared to last year's $23.0 million or $0.36 per unit. Net income was $36.8 million or $0.57 per unit compared to $48.2 million or $0.75 per unit for the same period in 2011. Equity earnings from IOC amounted to $18.2 million or $0.28 per unit as compared to $30.4 million or $0.48 per unit in 2011.
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 $14,976,000 ($0.234 per stapled unit) interest on the subordinated notes for the three months and six months periods, respectively.
IOC production and sales volumes for the quarter were above last year's second quarter but were still somewhat affected by the commissioning of the new ore delivery system and the additional grinding mill. We reported last quarter that the commissioning, which started at the beginning of the year, was expected to be completed by mid-year. This has now occurred and we expect to see the resultant increased production in the third quarter. The lower revenue and cash flow for the quarter in spite of the increased sales volumes resulted from lower prices for iron ore in the quarter. Equity earnings from IOC were substantially lower in the quarter mainly due to the lower iron ore prices.
The six months results were affected by the same factors as the second quarter and, in addition, the adjusted cash flow was substantially lower because IOC did not pay a dividend in the first quarter of 2012 (2011 - $29 million).
The following table sets out quarterly revenue, net income and cash flow data for 2012, 2011 and 2010.
Distributions Net Net Income Adjusted Cash Adjusted Cash Flow Declared Revenue Income per Unit Flow(1) per Unit(1) per Unit (in millions except per Unit information)
2012
First Quarter(2) $22.4 $23.0 $0.36 $14.4 $0.23 $0.375 Second Quarter(2) $36.4 $36.8 $0.57 $22.3 $0.35 $0.375
2011
First Quarter(2) $30.7 $38.9 $0.61 $48.0 (3) $0.75 $0.75 Second Quarter(2) $38.1 $48.2 $0.75 $23.0 $0.36 $0.375 Third Quarter
(2) $54.9 $76.3 $1.19 $63.7 (4) $0.99 $0.75 Fourth Quarter(2) $38.8 $45.9 $0.72 $23.4 $0.37 $0.375
2010
First Quarter $16.7 $15.7 $0.25 $22.3 (5) $0.35 $0.375 Second Quarter $52.5 $69.1 $1.08 $30.5 $0.48 $0.375 Third Quarter(2) $40.9 $64.4 $1.02 $85.9 (6) $1.34 $0.50 Fourth Quarter(2) $54.3 $62.8 $0.99 $31.9 $0.50 $1.00 Notes: (1) "Adjusted cash flow" (see below)
(2) 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
(3) Includes a $29.0 million IOC dividend
(4) Includes a $31.2 million IOC dividend
(5) Includes a $11.5 million IOC dividend
(6) Includes a $62.2 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 unit was $0.04(1) for the quarter (2011 - $0.67(1)). Cumulative standardized cash flow from inception of the Corporation is $16.43 per unit and total cash distributions since inception are $15.90 per unit, 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 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 distributions to unitholders.
The following reconciles cash flow from operating activities to adjusted cash flow.
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
| Standardized cash flow from operating activities | $2,343,296 | $42,731,031 | $19,171,109 | $57,452,557 |
| Excluding: changes in amounts receivable, accounts payable and income taxes payable | 12,477,896 | (27,229,486) | 2,557,205 | (1,417,676) |
| Adjusted cash flow(1) | $14,821,192 | $15,501,545 | $21,728,314 | $56,034,881 |
| Adjusted cash flow per unit(1) | $0.23 | $0.24 | $0.34 | $0.88 |
(1) Excludes note interest on subordinated notes paid directly to unitholders of $7,488,000 ($0.117 per stapled unit) and $14,976,000 ($0.234 per stapled unit) for the three months and six months periods, 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 (2011 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.
Proposed Tax Changes
On July 25, 2012 the Department of Finance released the proposed legislative amendments to the Income Tax Act concerning stapled securities originally announced on July 20, 2011. It appears that the effect of the legislative changes on the Corporation is to deny the deduction of interest on the $248 million subordinated notes after July 20, 2012. This would increase LIORC's taxes payable for 2012 by approximately $4.0 million and $8.7 million annually thereafter. The Board of Directors has been considering the alternatives available to the Corporation and expects to call a meeting of the unitholders in the near future to consider a response to the legislative changes.
Outlook
With the commissioning of the new ore delivery system and the additional grinding mill completing the first phase of the IOC's expansion and phase two expected to be completed early next year, the increased production capacity bodes well for increased royalty revenue. Currently offsetting the gains expected from increased volumes is weakness in the pricing of iron ore. The general market consensus seems to be that prices will recover later in the year.
Bruce C. Bone President and Chief Executive Officer Toronto, Ontario August 8, 2012
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
As at June 30, December 31,
Canadian $ 2012 2011 (Unaudited)
Assets
Current Assets Cash $ 27,645,293 $ 41,498,184 Amounts receivable (note 4) 36,541,047 40,669,780 Income taxes recoverable 6,173,958 392,173 Total Current Assets 70,360,298 82,560,137
Non-Current Assets Iron Ore Company of Canada ("IOC"), royalty and commission interests 284,364,064 287,131,292 Investment in IOC (note 5) 327,683,177 299,280,483 Total Non-Current Assets 612,047,241 586,411,775
Total Assets $ 682,407,539 $ 668,971,912
Liabilities and Shareholders' Equity
Current Liabilities Accounts payable $ 7,515,236 $ 8,419,389 Interest payable on subordinated notes 7,488,000 7,488,000 Dividend payable 16,512,000 16,512,000 Total Current Liabilities 31,515,236 32,419,389
Non-Current Liabilities Deferred income taxes (note 6) 118,200,000 114,830,000 Subordinated notes 248,000,000 248,000,000 Total Non-Current Liabilities 366,200,000 362,830,000
Total Liabilities 397,715,236 395,249,389
Equity Share capital 69,708,147 69,708,147 Retained earnings 230,806,156 219,001,376 Accumulated other comprehensive loss (15,822,000) (14,987,000)
284,692,303 273,722,523
Total Equity and Liabilities $ 682,407,539 $ 668,971,912
Approved by the Directors,
(signed) Bruce C. Bone (signed) Alan R. Thomas Director Director
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended June 30, Canadian $ 2012 2011 (Unaudited)
Revenue
IOC royalties $ 35,996,161 $ 37,754,213 IOC commissions 337,774 290,334 Interest and other income 93,949 104,172 36,427,884 38,148,719
Expenses
Newfoundland royalty taxes 7,199,232 7,550,843 Amortization of royalty and commission interests 1,425,808 1,112,870 Administrative expenses 495,322 705,404 Interest expense:
Credit facility 94,521 93,494 Subordinated notes 7,488,000 7,488,000 16,702,883 16,950,611
Income before equity earnings and income taxes 19,725,001 21,198,108 Equity earnings in IOC 18,174,251 30,431,486
Income before income taxes 37,899,252 51,629,594
Provision for income taxes
Current 6,329,617 6,809,433 Deferred 2,275,772 4,102,000 8,605,389 10,911,433
Net income for the period 29,293,863 40,718,161
Other comprehensive loss
Share of other comprehensive loss of IOC, net of tax (433,000) (371,000)
Comprehensive income for the period $ 28,860,863 $ 40,347,161
Net income per common share $ 0.46 $ 0.64
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended June 30, Canadian $ 2012 2011 (Unaudited)
Revenue
IOC royalties $ 58,006,234 $ 68,034,430 IOC commissions 568,777 541,303 Interest and other income 216,161 236,961 58,791,172 68,812,694
Expenses
Newfoundland royalty taxes 11,601,247 13,606,886 Amortization of royalty and commission interests 2,767,228 2,171,238 Administrative expenses 1,079,382 1,105,556 Interest expense:
Credit facility 188,014 185,959 Subordinated notes 14,976,000 14,976,000 30,611,871 32,045,639
Income before equity earnings and income taxes 28,179,301 36,767,055 Equity earnings in IOC (note 5) 29,379,694 49,682,954
Income before income taxes 57,558,995 86,450,009
Provision for income taxes (note 6)
Current 9,218,215 11,898,227 Deferred 3,512,000 2,406,000 12,730,215 14,304,227
Net income for the period 44,828,780 72,145,782
Other comprehensive loss
Share of other comprehensive loss of IOC, net of tax (835,000) (743,000)
Comprehensive income for the period $ 43,993,780 $ 71,402,782
Net income per common share $ 0.70 $ 1.13
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, Canadian $ 2012 2011 (Unaudited)
Net inflow (outflow) of cash related to the following activities
Operating Net income for the period $ 44,828,780 $ 72,145,782 Items not affecting cash:
Equity earnings in IOC (29,379,694) (49,682,954) Current income taxes 9,218,215 11,898,227 Deferred income taxes 3,512,000 2,406,000 Amortization of royalty and commission interests 2,767,228 2,171,238 Interest expense 15,164,014 15,161,959 Common share dividend from IOC - 28,994,815 Change in amounts receivable and accounts payable 3,224,580 10,261,996 Interest paid (15,164,014) (15,161,959) Income taxes paid (15,000,000) (20,742,547) Cash flow from operating activities 19,171,109 57,452,557
Financing Dividends paid to shareholders (33,024,000) (97,024,000) Cash flow used in financing activities (33,024,000) (97,024,000)
Decrease in cash, during the period (13,852,891) (39,571,443)
Cash, beginning of period 41,498,184 73,611,888
Cash, end of period $ 27,645,293 $ 34,040,445
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated other Capital Retained comprehensive
Canadian $ stock earnings income (loss) Total (Unaudited)
| Balance as at December 31, 2010 | $ 69,708,147 $ 147,934,994 $ | (4,271,000) $ 213,372,141 | ||
|---|---|---|---|---|
| Net income for the period | - 72,145,782 | - 72,145,782 | ||
| Dividends declared to shareholders | - (57,024,000) | - (57,024,000) | ||
| Share of other comprehensive loss from investment in IOC | - | - (743,000) | (743,000) | |
| Balance as at June 30, 2011 | 69,708,147 163,056,776 | (5,014,000) 227,750,923 |
Balance as at December 31, 2011 69,708,147 219,001,376 (14,987,000) 273,722,523
| Net income for the period | - 44,828,780 | - 44,828,780 |
| Dividends declared to shareholders | - (33,024,000) | - (33,024,000) |
| Share of other comprehensive loss from investment in IOC | - - | (835,000) (835,000) |
Balance as at June 30, 2012 $ 69,708,147 $ 230,806,156 $ (15,822,000) $ 284,692,303
The complete consolidated financial statements for the second quarter ended June 30, 2012, including 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 E-mail: [email protected]
CO: Labrador Iron Ore Royalty Corporation
CNW 18:35e 08-AUG-12