Labrador Iron Ore Royalty Corporation - Results for the second quarter ended June 30, 2013 ,
TORONTO, Aug. 7, 2013 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF) announced today its operation and cash flow results for the second quarter ended June 30, 2013.
Royalty income for the second quarter of 2013 amounted to $41.7 million as compared to $36.0 million for the second 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 quarter was $23.4 million or $0.37 per share compared to last year's $22.3 million or $0.35 per unit. Equity earnings from Iron Ore Company of Canada (IOC) amounted to $19.3 million or $0.30 per share as compared to $18.2 million or $0.28 per unit in 2012. Net income was $39.2 million or $0.61 per share compared to $36.8 million or $0.57 per unit for the same period in 2012. Earnings and cash flow for the quarter, although higher than last year were reduced 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).
Increased IOC production for the quarter as compared to last year reflected the successful completion and integration of the first phase of the expansion program into the operations with April and May production achieving annual rates of 19 and 20 million tonnes respectively. The annual maintenance shutdown was scheduled for early June and went well but upon resumption of operations some ore quality issues were encountered, which were further aggravated by the wildfires in the area. Although all assets including the expansion facilities operated well, a number of factors caused June production to be below expected levels. The fires in the area did not directly affect IOC Labrador operations, but required the town of Wabush to be evacuated which impacted employee availability. Additionally, the resulting air quality in the area had an effect on productivity requiring stoppages in the mine and an evacuation of the processing plants for periods of time during June and July. There were also storms that resulted in power outages which impacted operations in the same period. IOC reports that the ore quality issues are being managed and that the fires are now behind them and they expect August production to return to May levels. The June production restrictions did not negatively affect sales in the second quarter but the lower production over recent months will reduce product available for shipment in the third quarter.
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 share figures referred to in this report use the totals according to the financial statements plus 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.
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, 2013 2012 2013 2012
(Unaudited)
| Revenue (in millions) | $42.2 | $36.4 | $68.6 | $58.8 |
| Adjusted cash flow (in millions) | $23.4 | $22.3 | $37.8 | $36.7 |
| Adjusted cash flow per share/unit | $0.37 | $0.35 | $0.59 | $0.57 |
| Net income (in millions) | $39.2 | $36.8 | $60.9 | $59.8 |
| Net income per share/unit | $0.61 | $0.57 | $0.95 | $0.93 |
"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 shareholders.
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 | |
|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | Dec. 31, 2012 | |
| Pellets | 2.58 | 2.74 | 4.30 | 4.59 | 9.90 |
| Concentrates | 2.28 | 0.70 | 3.18 | 1.20 | 4.22 |
| Total | 4.86 | 3.44 | 7.48 | 5.79 | 14.12 |
IOC Expansion
Phase two of IOC's concentrate expansion program (CEP2), which was temporarily suspended in February 2013, was approved for completion by IOC on August
5. CEP2 will increase concentrate production capacity from 22.0 to 23.3 million tonnes per annum. At the time of suspension, project completion was above 80%, and available capacity was 22.7 mtpa. It is expected that the project will be completed in the first quarter of 2014 with the full 23.3 million tonne capacity becoming available in the second quarter. To date $393 million has been spent with a further $86 million expenditure required to complete the project.
Potential Sale by Rio Tinto
On April 18, 2013, a letter was sent to shareholders advising 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 we understand from press reports that several expressions of interest have been received by Rio Tinto, which they are in the process of evaluating.
Outlook
With the successful integration of phase 1 of the expansion program and with the price of iron ore seeming to have stabilized from lower levels and IOC expecting to sell all the iron ore it can produce, the balance of the year should see satisfactory results.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,
Bruce C. Bone President and Chief Executive Officer August 7, 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 Corporation's 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 second quarter of 2013 amounted to $41.7 million as compared to $36.0 million for the second 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 quarter was $23.4 million or $0.37 per share compared to last year's $22.3 million or $0.35 per unit. Equity earnings from IOC amounted to $19.3 million or $0.30 per share as compared to $18.2 million or $0.28 per unit in 2012. Net income was $39.2 million or $0.61 per share compared to $36.8 million or $0.57 per unit for the same period in 2012. Earnings and cash flow for the quarter, although higher than last year were reduced 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). Comprehensive income was positively affected by our share of a $70 million reduction in IOC's unfunded pension liability due to an actuarial revaluation of the liability using current long term interest rates.
Increased IOC production for the quarter as compared to last year reflected the successful completion and integration of the first phase of the expansion program into the operations with April and May production achieving annual rates of 19 and 20 million tonnes respectively. The annual maintenance shutdown was scheduled for early June and went well but upon resumption of operations some ore quality issues were encountered, which were further aggravated by the wildfires in the area. Although all assets including the expansion facilities operated well, a number of factors caused June production to be below expected levels. The fires in the area did not directly affect IOC Labrador operations, but required the town of Wabush to be evacuated which impacted employee availability. Additionally, the resulting air quality in the area had an effect on productivity requiring stoppages in the mine and an evacuation of the processing plants for periods of time during June and July. There were also storms that resulted in power outages which impacted operations in the same period. IOC reports that the ore quality issues are being managed and that the fires are now behind them and they expect August production to return to May levels. The June production restrictions did not negatively affect sales in the second quarter but the lower production over recent months will reduce product available for shipment in the third quarter.
The six months results were affected by the operating factors that affected the second quarter and the usual winter operating problems in the first quarter. Administrative expenses were higher mainly due to financial and legal expenses incurred to examine the implications of Rio Tinto's proposed sale of its IOC holdings, and to advise Labrador Iron Ore Royalty Corporation ("LIORC") on possible action going forward, should a sale result. Amortization expense is lower this year, because of the increase in ore reserves resulting from last year's resource assessment program at IOC. The increase in income taxes this year is the result of the interest on the previously outstanding $248 million notes no longer being payable.
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 share figures referred to in this report use the totals according to the financial statements plus 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.
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 $14.4 $0.22 $0.375 Second Quarter $42.2 $39.2 $0.61 $23.4 $0.37 $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 (3)
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 $0.24(1) for the quarter (2012 - $0.04(1)). Cumulative standardized cash flow from inception of the Corporation is $17.86 per share and total cash distributions since inception are $17.91 per share, for a payout ratio of 100%.
"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 shareholders.
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, 2013 June 30, 2012 June 30, 2013 June 30, 2012 Standardized cash flow from operating activities $15,133,753 $2,343,296 $29,240,622 $19,171,109 Excluding: changes in amounts receivable, accounts payable and income taxes
| payable | 8,313,167 | 12,477,896 | 8,534,915 | 2,557,205 |
| Adjusted cash flow | $23,446,920 | $14,821,192(1) | $37,775,537 $21,728,314(1) | |
| Adjusted cash flow per share | $0.37 | $0.23(1) | $0.59 | $0.34(1) |
(1) Excludes note interest on subordinated notes paid directly to shareholders of $7,488,000 ($0.117 per unit) and $14,976,000 ($0.234 per unit) for the three months and six months periods, respectively.
Liquidity
The Corporation has a $50 million revolving credit facility to September 18, 2016 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.
IOC Expansion
Phase two of IOC's concentrate expansion program (CEP2), which was temporarily suspended in February 2013, was approved for completion by IOC on August
5. CEP2 will increase concentrate production capacity from 22.0 to 23.3 million tonnes per annum. At the time of suspension, project completion was above 80%, and available capacity was 22.7 mtpa. It is expected that the project will be completed in the first quarter of 2014 with the full 23.3 million tonne capacity becoming available in the second quarter. To date $393 million has been spent with a further $86 million expenditure required to complete the project.
Outlook
With the successful integration of phase 1 of the expansion program and with the price of iron ore seeming to have stabilized from lower levels and IOC expecting to sell all the iron ore it can produce, the balance of the year should see satisfactory results.
Bruce C. Bone President and Chief Executive Officer Toronto, Ontario August 7, 2013
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 financial statements.
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
As at June 30, December 31,
Canadian $ 2013 2012 (Unaudited)
Assets
Current Assets Cash $ 8,164,043 $ 26,923,421 Amounts receivable 44,032,900 29,308,484 Income taxes recoverable - 3,130,130 Total Current Assets 52,196,943 59,362,035
Non-Current Assets
Iron Ore Company of Canada ("IOC"), royalty and commission interests 281,273,346 283,263,500 Investment in IOC 388,070,875 351,770,591 Total Non-Current Assets 669,344,221 635,034,091
Total Assets $ 721,541,164 $ 694,396,126
Liabilities and Shareholders' Equity
Current Liabilities Accounts payable $ 9,046,514 $ 6,167,138 Dividend payable 24,000,000 24,000,000 Taxes Payable 179,995 - Total Current Liabilities 33,226,509 30,167,138
Non-Current Liabilities Deferred income taxes 126,080,000 121,360,000 Total Liabilities 159,306,509 151,527,138
Shareholders' Equity Share capital 317,708,147 317,708,147 Retained earnings 257,629,508 244,758,841 Accumulated other comprehensive loss (13,103,000) (19,598,000)
562,234,655 542,868,988
Total Liabilities and Shareholders' Equity $ 721,541,164 $ 694,396,126
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended June 30, Canadian $ 2013 2012 (Unaudited)
Revenue
IOC royalties $ 41,696,680 $ 35,996,161 IOC commissions 478,318 337,774 Interest and other income 36,565 93,949 42,211,563 36,427,884
Expenses
Newfoundland royalty taxes 8,339,336 7,199,232 Amortization of royalty and commission interests 1,040,787 1,425,808 Administrative expenses 841,241 495,322 Interest expense:
Credit facility 93,493 94,521 Subordinated notes - 7,488,000 10,314,857 16,702,883
Income before equity earnings and income taxes 31,896,706 19,725,001 Equity earnings in IOC 19,339,009 18,174,251
Income before income taxes 51,235,715 37,899,252
Provision for income taxes
Current 9,511,969 6,329,617 Deferred 2,527,000 2,275,772 12,038,969 8,605,389
Net income for the period 39,196,746 29,293,863
Other comprehensive gain/(loss)
Share of other comprehensive income/(loss) of IOC that will not be reclassified subsequently to profit or loss (net of taxes) 7,032,000 (433,000)
Comprehensive income for the period $ 46,228,746 $ 28,860,863
Net income per share $ 0.61 $ 0.46
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended June 30, Canadian $ 2013 2012 (Unaudited)
Revenue
IOC royalties $ 67,797,885 $ 58,006,234 IOC commissions 735,969 568,777 Interest and other income 94,934 216,161 68,628,788 58,791,172
Expenses
Newfoundland royalty taxes 13,555,741 11,601,247 Amortization of royalty and commission interests 1,990,154 2,767,228 Administrative expenses 1,706,294 1,079,382 Interest expense:
Credit facility 185,959 188,014 Subordinated notes - 14,976,000 17,438,148 30,611,871
Income before equity earnings and income taxes 51,190,640 28,179,301 Equity earnings in IOC 28,703,284 29,379,694
Income before income taxes 79,893,924 57,558,995
Provision for income taxes
Current 15,405,257 9,218,215 Deferred 3,618,000 3,512,000 19,023,257 12,730,215
Net income for the period 60,870,667 44,828,780
Other comprehensive gain/(loss)
Share of other comprehensive income/(loss) of IOC that will not be reclassified subsequently to profit or loss (net of taxes) 6,495,000 (835,000)
Comprehensive income for the period $ 67,365,667 $ 43,993,780
Net income per share $ 0.95 $ 0.70
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
Canadian $ 2013 2012 (Unaudited)
Net inflow (outflow) of cash related to the following activities
Operating Net income for the period $ 60,870,667 $ 44,828,780 Items not affecting cash:
Equity earnings in IOC (28,703,284) (29,379,694)
| Current income taxes | 15,405,257 | 9,218,215 |
| Deferred income taxes | 3,618,000 | 3,512,000 |
| Amortization of royalty and commission interests | 1,990,154 | 2,767,228 |
Interest expense 185,959 15,164,014 Change in amounts receivable and accounts payable (11,845,040) 3,224,580 Interest paid (185,959) (15,164,014)
Income taxes paid (12,095,132) (15,000,000)
Cash flow from operating activities 29,240,622 19,171,109
Financing Dividends paid to shareholders (48,000,000) (33,024,000)
Cash flow used in financing activities (48,000,000) (33,024,000)
Decrease in cash, during the period (18,759,378) (13,852,891)
Cash, beginning of period 26,923,421 41,498,184
Cash, end of period $ 8,164,043 $ 27,645,293
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, 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 (net of taxes) | - - | (835,000) (835,000) |
Balance as at June 30, 2012 69,708,147 230,806,156 (15,822,000) 284,692,303
Balance as at December 31, 2012 317,708,147 244,758,841 (19,598,000) 542,868,988
| Net income for the period | - 60,870,667 | - 60,870,667 |
| Dividends declared to shareholders | - (48,000,000) | - (48,000,000) |
| Share of other comprehensive income from investment in IOC (net of taxes) | - - | 6,495,000 6,495,000 |
Balance as at June 30, 2013 $ 69,708,147 $ 257,629,508 $ (13,103,000) $ 562,234,655
The complete consolidated financial statements for the second quarter ended June 30, 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 18:26e 07-AUG-13