Labrador Iron Ore Royalty Corporation - Results for the Second Quarter Ended June 30, 2016 ,
TORONTO, Aug. 4, 2016 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC", TSX: LIF) announced today its operation and cash flow results for the second quarter ended June 30, 2016.
Royalty income for the second quarter of 2016 amounted to $25.3 million as compared to $23.5 million for the second quarter of 2015. The shareholders' adjusted cash flow (see below for definition) for the second quarter was $13.9 million or $0.22 per share as compared to $13.1 million or $0.21 per share for the same period in 2015. Net income was $8.3 million or $0.13 per share compared to $15.4 million or $0.24 per share for the same period in 2015. Equity (losses)/earnings from Iron Ore Company of Canada ("IOC") amounted to ($0.5) million or ($0.01) per share as compared to $3.8 million or $0.06 per share in 2015.
Concentrate production for the quarter was 4.7 million tonnes as compared to 4.3 million tonnes in the first quarter and 4.9 million tonnes in the second quarter of 2015. While continuing the improvements from last year and the first quarter, production for the quarter was lower than expected due to lower weight yield. IOC management continues to focus on improving the weight yield. After production of 2.3 million tonnes of pellets, 2.1 million tonnes of concentrate for sale were produced. Pellet production for the quarter at 2.3 million tonnes was higher than the first quarter and in line with the 2015 second quarter. Sales of pellets and concentrate during the quarter were about 10% greater than the first quarter of 2016 and last year's second quarter. Net income was lower due to the 1% increase in Newfoundland and Labrador corporate income tax rate. This mainly affected deferred taxes, lowering LIORC's net income per share for the second quarter of 2016 by about $0.07 directly and equity earnings from IOC in excess of $0.02 per share. Without this change (which does not materially affect cash flow) earnings would have been approximately the same as last year's second quarter.
Results for the three months and six months ended June 30 are summarized below:
3 Months 3 Months 6 Months 6 Months Ended Ended Ended Ended (in millions except per share information)
June 30, June 30, June 30, June 30, 2016 2015 2016 2015 (Unaudited)
| Revenue | $25.8 | $24.0 | $48.1 | $47.7 |
| Adjusted cash flow | $13.9 | $13.1 | $26.1 | $26.2 |
| Adjusted cash flow per share | $0.22 | $0.21 | $0.41 | $0.41 |
| Net income | $8.3 | $15.4 | $19.3 | $25.4 |
| Net income per share | $0.13 | $0.24 | $0.30 | $0.40 |
"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 International Financial Reporting Standards ("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 6 Months 6 Months Year Ended Ended Ended Ended Ended Jun. 30, Jun. 30, Jun. 30, Jun. 30, Dec. 31,
| 2016 | 2015 | 2016 | 2015 | 2015 | |
| Pellets | 2.43 | 2.29 | 4.54 | 4.79 | 9.47 |
| Concentrates(1) 2.15 | 1.89 | 4.20 | 2.60 | 8.41 | |
| Total | 4.58 | 4.18 | 8.74 | 7.39 | 17.88 |
(1) Excludes third party ore sales
Outlook
The outlook for the balance of the year looks promising as IOC still expects to produce close to 21 million tonnes of concentrate using 11 million tonnes to produce 10 million tonnes of pellets leaving approximately 10 million tonnes of concentrate for sale. IOC expects to be able to sell all the pellets and concentrate it can produce. Pricing of iron ore and especially the premium for pellets is currently quite firm following the lows reached at the end of last year. While there are mixed predictions of the direction prices will follow the sentiment in the market seems to have improved. With expected increased production of concentrate and if prices remain at current levels and the Canadian dollar does not materially strengthen against its US counterpart, the results for the balance of the year should be positive.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,
Bruce C. Bone President and Chief Executive Officer August 4, 2016
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") 2015 Annual Report and the 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 2015 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 second quarter of 2016 amounted to $25.3 million as compared to $23.5 million for the second quarter of 2015. The shareholders' adjusted cash flow (see below for definition) for the second quarter was $13.9 million or $0.22 per share as compared to $13.1 million or $0.21 per share for the same period in 2015. Net income was $8.3 million or $0.13 per share compared to $15.4 million or $0.24 per share for the same period in 2015. Equity (losses)/earnings from Iron Ore Company of Canada ("IOC") amounted to ($0.5) million or ($0.01) per share as compared to $3.8 million or $0.06 per share in 2015.
Concentrate production for the quarter was 4.7 million tonnes as compared to 4.3 million tonnes in the first quarter and 4.9 million tonnes in the second quarter of 2015. While continuing the improvements from last year and the first quarter, production for the quarter was lower than expected due to lower weight yield. IOC management continues to focus on improving the weight yield. After production of 2.3 million tonnes of pellets, 2.1 million tonnes of concentrate for sale were produced. Pellet production for the quarter at 2.3 million tonnes was higher than the first quarter and in line with the 2015 second quarter. Sales of pellets and concentrate during the quarter were about 10% greater than the first quarter of 2016 and last year's second quarter. Net income was lower due to the 1% increase in Newfoundland and Labrador corporate income tax rate. This mainly affected deferred taxes, lowering LIORC's net income per share for the second quarter of 2016 by about $0.07 directly and equity earnings from IOC in excess of $0.02 per share. Without this change (which does not materially affect cash flow) earnings would have been approximately the same as last year's second quarter.
Results for the six months were affected by the same factors as affected the three month period particularly the 1% increase in Newfoundland and Labrador corporate income tax rate.
The following table sets out quarterly revenue, net income and cash flow data for 2016, 2015 and 2014.
Net Distributions Adjusted Cash Adjusted Cash Flow Net Income Declared Revenue Income per Share Flow(1) per Share (1) per Share (in millions except per Share information)
2016
First Quarter $22.3 $11.0 $0.17 $12.3 $0.19 $0.250 Second Quarter $25.8 $8.3 $0.13 $13.9 $0.22 $0.250
2015
| First Quarter | $23.7 $10.0 | $0.16 | $13.1 | $0.20 | $0.250 |
| Second Quarter | $24.0 $15.4 | $0.24 | $13.1 | $0.21 | $0.250 |
| Third Quarter | $32.0 $19.0 | $0.30 | $17.9 | $0.28 | $0.250 |
| Fourth Quarter | $22.0 $10.3 | $0.15 | $12.1 | $0.19 | $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 |
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
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 $0.12 for the quarter (2015 - $0.20). Cumulative standardized cash flow from inception of the Corporation is $21.87 per share and total cash distributions since inception is $21.44 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 payable and income taxes payable. It is not a recognized measure under International Financial Reporting Standards ("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 3 Months 6 Months 6 Months Ended Ended Ended Ended June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2015 Standardized cash flow from operating activities $7,562,372 $12,492,921 $20,051,837 $27,725,984
Excluding: changes in amounts receivable, accounts payable and income taxes payable 6,328,106 614,378 6,100,603 (1,505,150)
Adjusted cash flow $13,890,478 $13,107,299 $26,152,440 $26,220,834 Adjusted cash flow per share $0.22 $0.21 $0.41 $0.41
Liquidity and Capital Resources
The Corporation has $12.5 million in cash as at June 30, 2016 (December 31, 2015 - $24.5 million) with total current assets of $41.6 million (December 31, 2015 - $45.2 million). The Corporation has working capital of $19.0 million as at June 30, 2016 (December 31, 2015 - $24.8 million). The Corporation's operating cash flow for the quarter was $7.6 million and the dividend paid during the quarter was $16.0 million, resulting in cash balances declining $8.4 million during the second quarter of 2016.
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 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.
The Corporation has a $50 million revolving credit facility with a term ending September 18, 2018 with provision for annual one-year extensions. No amount is currently drawn under this facility (2015 – nil) leaving $50.0 million available to provide for any capital required by IOC or requirements of the Corporation.
Outlook
The outlook for the balance of the year looks promising as IOC still expects to produce close to 21 million tonnes of concentrate using 11 million tonnes to produce 10 million tonnes of pellets leaving approximately 10 million tonnes of concentrate for sale. IOC expects to be able to sell all the pellets and concentrate it can produce. Pricing of iron ore and especially the premium for pellets is currently quite firm following the lows reached at the end of last year. While there are mixed predictions of the direction prices will follow the sentiment in the market seems to have improved. With expected increased production of concentrate and if prices remain at current levels and the Canadian dollar does not materially strengthen against its US counterpart, the results for the balance of the year should be positive.
Bruce C. Bone President and Chief Executive Officer Toronto, Ontario August 4, 2016
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 June 30 December 31,
Canadian $ 2016 2015 (Unaudited)
Assets
Current Assets Cash $ 12,515,349 $ 24,463,512
| Amounts receivable | 29,046,992 | 20,508,756 |
| Income taxes recoverable | - 240,299 | |
| Total Current Assets | 41,562,341 | 45,212,567 |
Non-Current Assets Iron Ore Company of Canada ("IOC"),
| royalty and commission interests | 268,108,788 | 270,517,368 |
| Investment in IOC | 396,771,286 | 398,327,969 |
| Total Non-Current Assets | 664,880,074 | 668,845,337 |
$ 706,442,415 $ 714,057,904 Total Assets
Liabilities and Shareholders' Equity
Current Liabilities
| Accounts payable | $ 5,969,229 $ | 4,414,212 |
| Dividend payable | 16,000,000 | 16,000,000 |
| Taxes Payable | 642,317 | - |
| Total Current Liabilities | 22,611,546 | 20,414,212 |
Non-Current Liabilities Deferred income taxes 128,030,000 124,670,000 Total Liabilities 150,641,546 145,084,212
Shareholders' Equity
| Share capital | 317,708,147 | 317,708,147 |
| Retained earnings | 249,670,722 | 262,415,545 |
| Accumulated other comprehensive loss | (11,578,000) | (11,150,000) |
555,800,869 568,973,692
$ 706,442,415 $ 714,057,904 Total Liabilities and Shareholders' Equity
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended June 30,
Canadian $ 2016 2015
(Unaudited)
Revenue
IOC royalties $ 25,291,758 $ 23,477,310 IOC commissions 449,905 411,701 Interest and other income 32,670 64,505 25,774,333 23,953,516
Expenses
| Newfoundland royalty taxes | 5,058,351 | 4,695,462 |
| Amortization of royalty and commission interests | 1,220,113 | 1,197,257 |
| Administrative expenses | 660,255 | 741,718 |
6,938,719 6,634,437
| Income before equity earnings and income taxes | 18,835,614 | 17,319,079 |
| Equity (losses) earnings in IOC | (513,086) | 3,778,944 |
| Income before income taxes | 18,322,528 | 21,098,023 |
Provision for income taxes
Current 6,165,249 5,409,037 Deferred 3,900,000 222,000 10,065,249 5,631,037
Net income for the period 8,257,279 15,466,986
Other comprehensive loss
Share of other comprehensive loss of IOC that will not be reclassified subsequently to profit or loss
| (net of income taxes of 2016 - $120,000; 2015 - $72,000) | (240,000) (429,000) | |
| Comprehensive income for the period | $ | 8,017,279 $ 15,037,986 |
| Net income per share | $ | 0.13 $ 0.24 |
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended June 30
Canadian $ 2016 2015 (Unaudited)
Revenue
IOC royalties $ 47,127,636 $ 46,823,445 IOC commissions 860,218 727,694 Interest and other income 80,316 144,317 48,068,170 47,695,456
Expenses
| Newfoundland royalty taxes | 9,425,527 | 9,364,689 |
| Amortization of royalty and commission interests | 2,408,580 | 2,297,821 |
| Administrative expenses | 1,336,331 | 1,428,084 |
13,170,438 13,090,594
| Income before equity earnings and income taxes | 34,897,732 | 34,604,862 |
| Equity (losses) earnings in IOC | (976,683) | 1,041,476 |
| Income before income taxes | 33,921,049 | 35,646,338 |
Provision for income taxes
Current 11,153,872 10,681,849 Deferred 3,512,000 (468,000) 14,665,872 10,213,849
Net income for the period 19,255,177 25,432,489
Other comprehensive loss
Share of other comprehensive loss of IOC that will not be reclassified subsequently to profit or loss (net of income taxes of 2016 - $152,000; 2015 - $145,000) (428,000) (858,000)
Comprehensive income for the period $ 18,827,177 $ 24,574,489
$ 0.30 $ 0.40
Net income per share
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30
Canadian $ 2016 2015 (Unaudited)
Net inflow (outflow) of cash related to the following activities
Operating
Net income for the period $ 19,255,177 $ 25,432,489 Items not affecting cash:
| Equity losses (earnings) in IOC | 976,683 | (1,041,476) |
| Current income taxes | 11,153,872 | 10,681,849 |
| Deferred income taxes | 3,512,000 | (468,000) |
| Amortization of royalty and commission interests | 2,408,580 | 2,297,821 |
| Change in amounts receivable | (8,538,236) | 1,579,959 |
| Change in accounts payable | 1,555,017 | (479,614) |
Income taxes paid (10,271,256) (10,277,044)
Cash flow from operating activities 20,051,837 27,725,984
Financing
Dividends paid to shareholders (32,000,000) (38,400,000)
Cash flow used in financing activities (32,000,000) (38,400,000)
Decrease in cash, during the period (11,948,163) (10,674,016)
Cash, beginning of period 24,463,512 34,955,633
Cash, end of period $ 12,515,349 $ 24,281,617
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated other Share Retained comprehensive
| Canadian $ | capital | earnings | loss | Total | |
|---|---|---|---|---|---|
| Balance as at December 31, 2014 | $ 317,708,147 $ 271,757,232 $ | (11,746,000) $ 577,719,379 | |||
| Net income for the period | - 25,432,489 | - | 25,432,489 | ||
| Dividends declared to shareholders | - (32,000,000) | - (32,000,000) | |||
| Share of other comprehensive loss from investment in IOC (net of taxes) | - | - (858,000) | (858,000) | ||
| Balance as at June 30, 2015 | $ 317,708,147 $ 265,189,721 $ | (12,604,000) $ 570,293,868 | |||
| Balance as at December 31, 2015 | $ 317,708,147 $ 262,415,545 $ | (11,150,000) $ 568,973,692 | |||
| Net income for the period | - 19,255,177 | - | 19,255,177 | ||
| Dividends declared to shareholders | - (32,000,000) | - (32,000,000) | |||
| Share of other comprehensive loss from investment in IOC (net of taxes) | - | - (428,000) | (428,000) | ||
| Balance as at June 30, 2016 | $ 317,708,147 $ 249,670,722 $ | (11,578,000) $ 555,800,869 |
The complete consolidated financial statements for the second quarter ended June 30, 2016, 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 20:04e 04-AUG-16