2021 Results of Operations
LABRADOR IRON ORE ROYALTY CORPORATION
P R E S S R E L E A S E
Toronto, March 11, 2022
2021 RESULTS OF OPERATIONS
Labrador Iron Ore Royalty Corporation (“LIORC”) (TSX: LIF) announced the results of its operations for
the year ended December 31, 2021.
To the Holders of Common Shares of Labrador Iron Ore Royalty Corporation
The Directors of Labrador Iron Ore Royalty Corporation ("LIORC" or the "Corporation") present the
Annual Report for the year ended December 31, 2021.
84 Years in Labrador West
Labrador I ron Ore Royalty Corporation has been involved in Labrador West for 84 years. Under a
Statutory Agreement with Newfoundland made in 1938, a predecessor company, Labrador Mining and
Exploration Limited, was granted extensive exploration and mi ning rights in Labrador West. LM&E found
the iron ore bodies that now constitute the mine operated by Iron Ore Company of Canada. LM&E
received grants of leases and licences under the Statutory Agreement. It also received a grant of surface
rights to establish the town site that became Labrador City. LM&E sublet the leases to IOC and IOC, with
major steel companies as original shareholders, built the infrastructure, mine, railway and port. Under
the sublease, LIORC receives a 7% gross overriding royalty on iron ore products produced and sold by
IOC.
Financial Performance
In 2021, LIORC’s financial results benefited from higher iron ore prices and pellet premiums, partially
offset by lower volumes of concentrate for sale (“CFS”) sales . Net income per share f or the year end ed
December 31, 2021 was $5.93 per share, which was a 67% increase over 2020. The adjusted cash flow
per share for 2021 was $5.98 per share, which was 94% higher than in 2020 due to higher royalty
revenues and increased dividends from IOC. IOC dividends increased as a result of higher earnings at IOC
and a reversal of IOC’s decision in 2020 to pay lower shareholder dividends in order to retain a higher
cash balance due in part to concerns that the COVID-19 pandemic may adversely affect IOC’s operations.
In 2021, IOC paid dividends to its shareholders of US$ 1,200 and had a year -end net working capital
balance of $16.9 million, compared to dividends of US$ 450 and a year -end net working capital balance
of $229.7 million in 2020. LIORC’s strong financial results are mainly due to the high iron ore price
environment in the first half of the year.
In 2021 g lobal steel production rebounded as the global economy recovered from the COVID-19 lock-
downs of 2020 . This resulted in increased demand from C hina and the rest of the world for seaborne
iron ore. However, iron ore prices were also volatile througho ut the year. The Platts index for 65% Fe,
CFR China ( the “65% Fe index”) which started the year at US$181 per tonne on January 4, 2021,
increased to a high of US$264 per tonne on May 12, 2021. In the second half of the year iron ore prices
decreased rapidly as China, which accounts for over 70% of seaborne iron ore demand, curbed steel
production in order to reduce emissions and lower input prices, inc luding iron ore prices. As a result, the
65% Fe index decreased to a low of US$102 per tonne on November 18, 2021, before recovering to end
the year at US$140 per tonne on December 31, 2021.
IOC sells CFS based on the 65% Fe index. In 2021, the average price for the 65% Fe index was US$185 per
tonne, an increase of 52% year over year. The rebound in the global economy during 2021 also
increased the demand for pellets in China and various markets across Europe and North America. The
monthly Atlantic Blast Furn ace 65% Fe pellet premium index as quoted by Platts (the “pellet premium”)
averaged US$60 per tonne in 2021, an increase of 108% from 2020.
Overall, the average price realized by IOC for CFS and pellets, FOB Sept -Îles was approximately C$246
per tonne in 2021, an increase of 58% year over year.
Iron Ore Company of Canada Operations
Operations
In order to protect IOC’s people and to prevent COVID-19 outbreaks within IOC’s operations which could
affect IOC’s capacity to operate, IOC took measures earl y in March 2020 to l imit the exposure risk at
different levels. Throughout 2021, most measures were maintained or adjusted in accordance with
public health agencies, including a mandatory vaccination requirement for employees and contractors
accessing the Sept-Îles port facilities and the railway operations.
Main actions taken by IOC included limiting the on-site presence of personnel to essential operational
activities (remote work for administration and supports) and the reduction of contractors on -site
(favouring local rather than out-of-province when possible). In parallel, several protoco ls were put in
place including, (i) strict approval processes for all travel between sites and use of out -of-province
contractors, (ii) mandatory on -line health questionnaires linked to gate acce ss, and (iii) COVID -19
screening for all out -of-province contractors and employees. Additionally, the use of masks, more strict
hygiene practices, additional janitorial resources and physical distancing measures were maintained.
Total concentrate production in 2021 was 17.9 million tonnes. This was 4% lower than 2020 due mainly
to labour and equipment availability issues during the year which impacted feed availability. In
particular, IOC experienced lower feed rates from the mine at var ious tim es throughou t the year, as
there were issues with higher cycle times , haul truck availability and the availability of operators, in part
due to COVID -19. There were also certain reliability issues in the concentrator, including AG Mill
conveyor an d feed c hute issues and a service overrun of the annual maintenance shutdown in
September.
The IOC s aleable production (CFS plus pellets) of 16.6 million tonnes in 2021 was 6% lower than 2020,
and below the lower end of Rio Tinto’s original guidance of 17 .9 to 20 .4 million t onnes. In 2021, CFS
production of 6.6 million tonnes was 19% lower than the same quarter last year, mainly due to lower
concentrate production referred to above , as well as the decision by IOC to produce fewer pellets and
more CFS in 2020. Pellet production in 2021 of 10.0 million tonnes was 4% higher than 2020 due to IOC’s
decision to reduce the focus on the production of pellets in 2020.
Third party haulage by the Québec North Shore and Labrador Railway Company, Inc. (“QNS&L”) of 12.8
million tonnes in 2021 was 9% higher than in 2020, predominantly due to increased shipments of iron
ore from Champion Iron and Tata Steel.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 16.8 million tonnes in 2021 was 8% lower than
the total sales tonnage in 2020 mainly as a result of the lower production volumes referred to above.
Sales volumes in 2021 were also adversely affected by a fire at the Sept-Îles port facility on Reclaimer
No. 2 in March. Whi le force majeure was declared, mobile tele-stackers were used during the year on a
temporary basis to meet sales commitments as best as possible. Pellet sales were favoured during the
year when possible. The Reclaimer No. 2 returned to service in December with the tele-stackers
remaining as backup.
Capital Expenditures
IOC has more recently anticipated higher than historical levels of capital expenditures in order to
maintain and upgrade existing infrastructure. Capital expenditures for IOC of $ 498 million in 2021 were
73% higher than in 2020 and 8% higher than IOC had forecasted for 2021, mainly because of the
decision by IOC in 2020 to defer some projects to 2021 and 2022 because the impact of COVID-19 on the
market for high grade iron ore was unknown at th at time, and because of the difficulty in getting
contractors to site due to COVID-19 restrictions and protocols. Capital expenditures in 2021 also
included the repair of Reclaimer No. 2 that incurred fire damage.
Outlook
Rio Tinto’s 2022 guidance for IOC’s saleable production tonnage (CFS plus pellets) is 17. 0 million to 18.7
million tonnes. This compares to 16.6 million tonnes of saleable production in 2021. Given current pellet
premiums, it is expected that IOC will continue to focus on maximizing pellet production in 2022.
Mike McCann was appointed as IOC’s new President and Chief Executive Officer, effective September
20, 2021. Mike and his management are committed to improving operations at IOC , which includes
improved capital asset management. The capital expenditures for 2022 at IOC are forecasted by IOC to
be approximately $606 million. The 2022 forecast includes approximately $174 million of growth and
development projects. Significant development capital expenditure projects scheduled for 2022 include
the redesign of the tailings system to increase the life of use and reduce electricity and water usage , and
the replacement of the dumper cages and refurbishment of the dumper auxiliary system at Sept -Îles.
Significant sustaining capital expenditure projects i nclude the rebuild of induration machine #3 at the
pellet plant and the track replacement program on the QNS&L.
In October 2021 Rio Tinto unveiled a longer term decarbonisation strategy that set a new target for its
subsidiaries, including IOC, to reduce its Scope 1 and 2 carbon emissions by 50% by 2030, more than
tripling its previous target, and is bringing forward its target of 15% reduction in emissions to 2025
(previously 2030). Reduction targets are calculated using 2018 as a baseline. Rio Tinto is also focused on
developing technologies such as hydrogen or plasma torches which can use renewable energy to
potentially replace fossil fuels for heat and steam. Four plasma torches were ordered in 2021 for a trial
at IOC’s pellet plant.
Despite the significant volatility in the iron ore market in the second half of 2021, the price outlook for
seaborne iron ore remains attractive. Steel production in China is expected to increase from levels in
the second half of 2021, when government authorities in China implemented production constraints, as
China's fiscal and monetary policy stances shift to stabilizing economic growth in 2022 . Iron ore prices
have rebounded from the lows in November 2021 and thus far in 2022 (January and February), the
average price of the 65% Fe index has been US$164, which is 12% lower than the average of the 65% Fe
index in 2021 and 34% higher than the average in 2020 . In addition, thus far in 2022 (January and
February) the average pellet premium has averaged US$ 67 compared to an average of US $60 in 2021
and an average of US$29 in 20 20. More recently, the Russia -Ukraine conflict could adversely affect the
supply of seaborne iron ore pellets in 2022, as Ferrexpo , the third-largest exporter of pellets, was forced
to declare force majeure on some contracts as Ukraine’s logistics networks continue to experience
disruption.
I would like to take this opportunity to thank our Shareholders for their interest and loyalty and my
fellow Directors for their wisdom and support.
Respectfully submitted on behalf of the Directors of the Corporation,
John F. Tuer
President and Chief Executive Officer
March 11, 2022
Corporate Structure
LIORC is a Canadian corporation formed to give effect to the conversion of the Labrador Iro n Ore Royalty
Income Fund (the “Fund”) into a corporation under a plan of arrangement completed on July 1, 2010.
LIORC is also the successor by amalgamation of a predecessor of LIORC with Labrador Mining Company
Limited, formerly a wholly -owned subsidiary of the Fund, that o ccurred pursuant to the plan of
arrangement.
LIORC, directly and through its wholly -owned subsidiary Hollinger-Hanna, holds a 15.10% equity interest
in IOC and receives a 7% gross overriding royalty and a 10 cent per tonne commission on all iron ore
products produced, sold and shipped by IOC. General ly, LIORC pays cash dividends from its net income
to the maximum extent possible, subject to the maintenance of appropriate levels of working capital.
The common shareholders receive quarter ly dividends on the common shares on the 25th day of the
month following the end of each quarter.
Seven Directors are responsible for the governance of the Corporation and also serve as directors of
Hollinger-Hanna. The Directors, in addition to managing the affairs of the Corporation and Hollinger -
Hanna, oversee the Co rporation’s interests in IOC. The Audit, Compensation and Nominating
Committees are composed of four independent Directors.
Taxation
The Corporation is a taxable corporation. Dividend inc ome received from I OC and Hollinger -Hanna is
received tax free while royalty income is subject to income tax and Newfoundland and Labrador royalty
tax. Expenses of the Corporation include administrative expenses. Hollinger -Hanna is a taxable
corporation.
Income Taxes
Dividends to a shareholder that are paid within a particular year are to be included in the calculation of
the shareholder’s taxable income for that year. All dividends paid in 2021 were “eligible dividends”
under the Income Tax Act.
Review of Operations
Iron Ore Company of Canada
The income of the Corporation is entirely dependent on IOC as the only assets of the Corporation and its
subsidiary are related to IOC and its operations. IOC is one of Canada’s largest iron ore producers,
operating a mine, concent rator and pellet plant at Labrador City, Newfoundland and Labrador, and is
among the top five producers of seaborne iron ore pellets in the world. It has been producing and
processing iron ore concentrate and pellets since 1954. IOC is strategically situ ated to serve markets
throughout the world from its year-round port facilities at Sept-Îles, Québec.
IOC has ore reserves sufficient for approximately 23 years at current production rates with additional
resources of a greater magnitude . It currently has the nominal capacity to extract around 55 million
tonnes of crude ore annually. The crude ore is processed into iron ore concentrate and then either sold
or converted into many diffe rent qualities of iron ore pellets to meet its custome rs’ needs. The iron ore
concentrate and pellets are transported to IOC’s port facilities at Sept -Îles, Québec via its wholly -owned
QNS&L, a 418 kilometer rail line which links the mine and the port. Fr om there, the products are
shipped to markets throughout North America, Europe, the Middle East and the Asia-Pacific region.
IOC’s 2021 sales totaled 17.0 million tonnes, comprised of 10.0 million tonnes of iron ore pellets and 7.0
million tonnes of iron ore concentrate. Production in 2021 was 10.0 million tonnes of pellets and 6.6
million tonnes of CFS. IOC generated ore sales revenues (excluding third party ore sales) of $ 3,922
million in 2021 (2020 - $2,915 million).
Selected IOC Financial Information
2021 2020 2019 2018 2017
($ in millions)
Operating Revenues(1) 4,147 3,099 2,719 1,930 2,315
Cash Flow from Operating
Activities
1,955
837
1,302
578
923
Net Income 1,551 842 749 383 499
Capital Expenditures (2) 498 288
294 205 265
(1) 2021 Ore sales revenue is presented on a net basis (net of related freight costs) to align with IFRS financial statements presentation.
(2) Reported on an incurred basis
IOC Royalty
The Corporation holds certain leases and licenses covering approximately 18,200 hectares of land near
Labrador City. IOC has s ubleased certain portions of these lands from which it currently mines iron ore.
In re turn, IOC pays the Corporati on a 7% gross overri ding royalty on all sales of iron ore products
produced from these lands. A 20% tax on the royalty is payable to the Gover nment of Newfoundland
and Labrador. For the five years prior to 2021, the average roya lty net of the 20% tax had b een $123.8
million per year and in 2021 the net royalty was $222.2 million (2020 - $160.1 million).
Because the royalty is “off -the-top”, it is not dependent on the profitability of IOC. However, it is
affected by changes in sales volumes, iron ore prices and, because iron ore prices are denominated in US
dollars, the United States - Canadian dollar exchange rate.
IOC Equity
In addition to the royalty interest, the Corporation directly and through its wholly owned subsidiary,
Hollinger-Hanna, owns a 15.10 % equity interest in IOC. The other shareholders of IOC are Rio Tinto
Limited with 58.72% and Mitsubishi Corporation with 26.18%.
IOC Commissions
Hollinger-Hanna has the right to receive a payment of 10 cents per tonne on the products produced and
sold by IOC. Pursuant to an agreement, IOC is obligated to make the payment to Hollinger-Hanna so long
as Hollinger-Hanna is in existence and solvent. In 2021, Hollinger-Hanna received a total of $1.7 million
in commissions from IOC (2020 - $1.8 million).
Quarterly Dividends
Dividends of $ 6.00 per share were declared in 2021 (2020 – dividends of $3.05 per share including
special dividends of $0.50). These dividends were allocated as follows:
Period
Record
Payment
Dividend
Income
Total
Dividend
Ended Date Date per Share ($ Million)
Mar. 31, 2021 Mar. 31, 2021 Apr. 26, 2021 $1.00 $64.0
Jun. 30, 2021 Jun. 30, 2021 Jul. 26, 2021 1.75 112.0
Sep. 30, 2021 Sep. 30, 2021 Oct. 26, 2021 2.10 134.4
Dec. 31, 2021 Dec. 31, 2021 Jan. 26, 2022 1.15 73.6
Dividend to Shareholders – 2021 $6.00 $384.0
Mar. 31, 2020 Mar. 31, 2020 Apr. 25, 2020 $0.25 $16.0
Special Dividend Mar. 31, 2020 Apr. 25, 2020 0.10 6.4
Jun. 30, 2020 Jun. 30, 2020 Jul. 25, 2020 0.25 16.0
Special Dividend Jun. 30, 2020 Jul. 25, 2020 0.20 12.8
Sep. 30, 2020 Sep. 30, 2020 Oct. 25, 2020 0.25 16.0
Special Dividend Sep. 30, 2020 Oct. 25, 2020 0.20 12.8
Dec. 31, 2020 Dec. 31, 2020 Jan. 26, 2021 1.80 115.2
Dividend to Shareholders – 2020 $3.05 $195.2
The quarterly dividends are payable to all shareholders of record on the last day of each calendar
quarter and are paid on or after the 26th day of the following month.
Management’s Discussion and Analysis
The following is a discussion of the co nsolidated financial condition and results of operations of
the Corporation for the years ended December 31, 2021 and 2020. This discussion sho uld be
read in conjunctio n with the consolidated financial statements of the Corporation and notes
thereto for th e years ended December 31, 2021 and 2020. This information is prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”) and all amounts are shown in Canadian
dollars unless otherwise indicated.
Overview of the Business
The Corporation is a Canadian corporation resulting from the conversion of the Fund into a
corporation under a plan of arrangement completed on July 1, 2010. LIORC is also the successor
by amalgamation of a predecessor of LIORC wi th Labrador Mining Company Limited, formerly a
wholly-owned subsidiary of the Fund, that occurred pursuant to the plan of arrangement.
The Corporation is dependent on the operations of IOC. IOC’s earnings and cash f lows are
affected by the volume and mix of iron ore products produced and sold, costs of production and
the prices received. Iron ore demand and prices flu ctuate and are affected b y numerous factors
which include demand for steel and steel products, the re lative exchange rate of the US dollar,
global and regional demand and production, political and economic conditions and production
costs in major producing areas.
Financial Highlights
Financial and Operating Highlights
2021 2020 2021 2020
Revenue 60.1 54.4 279.7 202.3
Equity earnings from IOC 45.9 37.8 229.6 126.0
Net income 78.2 73.9 379.8 227.2
Net income per share $ 1.22 $ 1.16 $ 5.93 $ 3.55
Dividend(s) from IOC 48.5 86.6 227.8 86.6
Cash flow from operations 106.6 116.0 402.4 175.4
Cash flow from operations per share (1) $ 1.67 $ 1.81 $ 6.29 $ 2.74
Adjusted cash flow (1) 81.6 116.4 382.6 198.0
Adjusted cash flow per share (1) $ 1.27 $ 1.82 $ 5.98 $ 3.09
Dividends declared per share $ 1.15 $ 1.80 $ 6.00 $ 3.05
(1) This is a non-IFRS financial measure and does not have a standard meaning under IFRS.
Please refer to Standardized Cash Flow and Adjusted Cash Flow section in the MD&A.
($ in millions except per share information)
Year Ended
December 31,
Three Months Ended
December 31,
The higher revenue, net income and equity earnings achieved in 2021 as compared to 2020
were mainly due to (i) higher iron ore concentrate prices and pellet premiums as global steel
production rebounded as the global econom y r ecovered from the COVID-19 lock -downs of
2020, (ii) partially offset by lower sales of CFS. Sales were lower in 2021 than in 2020 mainly as a
result of the lower production volumes due to labour and equipment availability issues during
the year which im pacted feed availability , as well as a fire at the Sept-Îles port facility on
Reclaimer No. 2 in March.
Capital expenditures for IOC in 2021 were $498 million in total as compared to $ 288 million in
2020. At the beginning of 2021 IOC forecasted that capit al expenditures for 2021 would be
approximately $ 460 million. Capital expenditures in 2021 were higher than 2020, mainly
because of the decisi on by IOC in 2020 to defer some projects to 2021 and 2022 because the
impact of COVID -19 on the market for high gr ade iron ore was unknown at that time, and
because of the difficulty in getting contractors to site due to COVID-19 restrictions and
protocols. Capital expenditures in 2021 also included the repair of Reclaimer No. 2 that incurred
fire damage.
Fourth qua rter 2021 sales (pellets and CFS) were higher year-over-year by 2% despite lower
saleable production due to timing differences in the sales pr ocess. Royalty income was $59.5
million for the quarter as compared to $ 53.9 million for the same period in 2020. Fourth quarter
2021 cash flow from operations was $ 106.6 million or $ 1.67 per share compared to 2020 of
$116.0 million or $1.81 per share. LIORC received an IOC dividend in the fourth quarter of 2021
in the amount of $ 48.5 million or $ 0.76 per share ( 2020 - $86.6 million or $ 1.35 per share).
Equity earnings from IOC amounted to $ 45.9 million or $0.72 per share in the fourth quarter of
2021 compared to $37.8 million or $0.59 per share for the same period in 2020.