LIF.TO · 2017-03-31 12:00:00

Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended

Financials

Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended March 31, 2017

TORONTO

May 2, 2017

/CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC", TSX: LIF) announced today its operation and cash flow results for the first

quarter ended

March 31, 2017

Royalty revenue for the first quarter of 2017 amounted to

$42.8 million

as compared to

$21.8 million

for the first quarter of 2016. The shareholders' cash flow from

operations for the first quarter was

$28.2 million

$0.44

per share as compared to

$12.5 million

$0.19

per share for the same period in 2016. Net income was

$42.9 million

$0.67

per share compared to

$11.0 million

$0.17

per share for the same period in 2016. Equity earnings (losses) from Iron Ore Company of

Canada

("IOC") amounted to

$22.2 million

as compared to

($0.5) million

in 2016. LIORC received an IOC dividend in the first quarter of 2017 in the amount of

$10.0

million

$0.16

per share.

The cash flow from operations, equity earnings and net income for the first quarter of 2017 were higher than the first quarter of 2016, mainly due to improved prices

for concentrate, and improved production and sales tonnages. As reported by Bloomberg, the benchmark iron ore price of 62% Fe, CFR China averaged

US$86

per tonne in the first quarter of 2017 and reached a high of

US$95

in February. The comparable average price in the first quarter of 2016 was

US$49

per tonne.

Total sales tonnage of concentrate for sale ("CFS") plus pellets improved by 10% in the first quarter of 2017 compared to the same period in 2016.

LIORC's results for the three months ended

March 31

are summarized below:

(in millions except per share information)

2017

2016

(Unaudited)

Revenue

$43.4

$22.3

Cash flow from operations

$28.2

$12.5

Operating cash flow per share

$0.44

$0.19

Net income

$42.9

$11.0

Net income per share

$0.67

$0.17

Iron Ore Company of Canada Operations

Production

In terms of production tonnages, IOC recorded a good start to 2017. Total concentrate production in the first quarter of 2017 of 4.8 million tonnes was 12% higher

than the first quarter of 2016 and was the best first quarter production on record.

Pellet production in the first quarter of 2017 was 25% higher than the first quarter of 2016. In the first quarter of 2017 all six pellet lines operated and pellet

production was as planned, whereas in the first quarter of 2016 there were availability issues in the pellet plant. CFS production was 11% lower than in the first

quarter of 2016 as more concentrate was consumed as pellet feed to support higher pellet production. Strong pellet demand in the quarter supported maximizing

pellet production.

Sales

First quarter 2017 sales tonnage by IOC slightly exceeded production. In the first quarter of 2017, pellet sales tonnage was 21% higher and CFS sales tonnage

was 1% lower than the corresponding quarter in 2016.

The benchmark price for 62% Fe CFR China was 77% higher in the first quarter of 2017 as compared to the first quarter of 2016 and pellet premiums were also

much improved. The Canadian dollar was 4% stronger in the first quarter of 2017 as compared to the first quarter of 2016. As a result of the stronger CFR prices

and pellet premiums, despite the stronger Canadian dollar, the royalty revenue for LIORC in the first quarter of 2017 was almost double the revenue in last year's

first quarter.

A summary of IOC's sales for calculating the royalty to LIORC in millions of tonnes is as follows:

3 Months

Ended

Mar. 31,

2017

3 Months

Ended

Mar. 31,

2016

Year

Ended

Dec. 31,

2016

Pellets

2.48

2.11

10.06

Concentrates

(1)

2.19

2.05

8.17

Total

4.67

4.16

18.23

(1)

Excludes third party ore sales

Outlook

As is usual for LIORC, the results for the balance of 2017 will be largely determined by the iron ore price. The benchmark prices for iron ore have fallen

precipitously in the last few weeks, reportedly driven by concerns on a number of factors, including:

Increasing supply of seaborne iron ore and increasing Chinese domestic supply.

High inventory of iron ore product at Chinese ports.

Lower Chinese steel consumption in 2017 with reduced margins for steelmakers which is resulting in low-grade ores being favoured.

None-the-less looking forward, there are favourable factors to consider, including:

The expected improvement in production at IOC and the expected reduction in unit operating costs.

The strong pellet premiums being achieved.

Potentially a weaker Canadian dollar.

Production and costs are the main variables that can be controlled by IOC. The IOC employees and management have been making concerted efforts to increase

production and reduce unit operating costs. We are encouraged by their progress and the good start to 2017. With the strong first quarter production performance,

IOC expects to meet the 2017 plan of 22 million tonnes of concentrate produced.

The LIORC directors decided to use the recent IOC dividends and the strong royalty performances in the fourth quarter of 2016 and the first quarter of 2017 to

replenish the Corporation's cash balance and to pay the regular dividend and a special dividend. The LIORC cash balance at

March 31, 2017

stood at

$36.1

million

. The regular and special dividend of

$32 million

, declared on

March 2, 2017

and paid on

April 25, 2017

, was more than offset by the IOC royalty payment

received on the same date. With a strong cash balance, iron ore prices above

US$60

per tonne, the exchange rate at present, and the expected increased

production, LIORC is in a good position to maintain the regular dividend.

Respectfully submitted on behalf of the Directors of the Corporation,

William H. McNeil

President and Chief Executive Officer

May 2, 2017

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 2016 Annual

Report and the financial statements and notes contained therein. The Corporation's revenues are entirely dependent on the operations of 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 revenue for the first quarter of 2017 amounted to

$42.8 million

as compared to

$21.8 million

for the first quarter of 2016. The shareholders' cash flow from

operations for the first quarter was

$28.2 million

$0.44

per share as compared to

$12.5 million

$0.19

per share for the same period in 2016. Net income was

$42.9 million

$0.67

per share compared to

$11.0 million

$0.17

per share for the same period in 2016. Equity earnings (losses) from IOC amounted to

$22.2

million

as compared to

($0.5) million

in 2016. LIORC received an IOC dividend in the first quarter of 2017 in the amount of

$10.0 million

$0.16

per share.

The cash flow from operations, equity earnings and net income for the first quarter of 2017 were higher than the first quarter of 2016, mainly due to improved prices

for concentrate, and improved production and sales tonnages. As reported by Bloomberg, the benchmark iron ore price of 62% Fe, CFR China averaged

US$86

per tonne in the first quarter of 2017 and reached a high of

US$95

in February. The comparable average price in the first quarter of 2016 was

US$49

per tonne.

Total sales tonnage of CFS plus pellets improved by 10% in the first quarter of 2017 compared to the same period in 2016.

Administrative expenses for the quarter include a foreign exchange loss of

$0.3 million

on the conversion of the dividend received from IOC in

December 2016

Royalty and commission interests amortization expense increased

$0.4 million

for the quarter due to an increased amortization rate reflecting lower estimated

total mineral resources over the prior year.

In terms of production and sales tonnages, IOC recorded a good start to 2017. Total concentrate production in the first quarter of 2017 of 4.8 million tonnes was

12% higher than the first quarter of 2016 and was the best first quarter production on record.

Pellet production in the first quarter of 2017 was 25% higher than the first quarter of 2016. In the first quarter of 2017 all six pellet lines operated and pellet

production was as planned, whereas in the first quarter of 2016 there were availability issues in the pellet plant. CFS production was 11% lower than in the first

quarter of 2016 as more concentrate was consumed as pellet feed to support higher pellet production. Strong pellet demand in the quarter supported maximizing

pellet production.

First quarter 2017 sales tonnage by IOC slightly exceeded production. In the first quarter of 2017, pellet sales tonnage was 21% higher and CFS sales tonnage

was 1% lower than the corresponding quarter in 2016.

The benchmark price for 62% Fe CFR China was 77% higher in the first quarter of 2017 as compared to the first quarter of 2016 and pellet premiums were also

much improved. The Canadian dollar was 4% stronger in the first quarter of 2017 as compared to the first quarter of 2016. As a result of the stronger CFR prices

and pellet premiums, despite the stronger Canadian dollar, the royalty revenue for LIORC in the first quarter of 2017 was almost double the revenue in last year's

first quarter.

The following table sets out quarterly revenue, net income and cash flow data for 2017, 2016 and 2015.

Revenue

Net Income

Net

Income

per Share

Cash Flow

from

Operations

per Share

Adjusted

Cash Flow

per Share

(1)

Dividends

Declared per

(in millions except per Share information)

2017

First Quarter

$43.4

$42.9

$0.67

$28.2

(2)

$0.44

(2)

$0.53

(2)

$0.50

2016

First Quarter

$22.3

$11.0

$0.17

$12.5

$0.19

$0.25

Second Quarter

$25.8

$8.3

$0.13

$7.5

$0.12

$0.22

$0.25

Third Quarter

$28.4

$21.2

$0.33

$15.2

$0.24

$0.25

Fourth Quarter

$38.6

$37.7

$0.59

$28.3

(3)

$0.44

(3)

$0.57

(3)

$0.25

2015

First Quarter

$23.7

$10.0

$0.16

$15.2

$0.24

$0.20

$0.25

Second Quarter

$24.0

$15.4

$0.24

$12.5

$0.20

$0.21

$0.25

Third Quarter

$32.0

$19.0

$0.30

$12.2

$0.19

$0.28

$0.25

Fourth Quarter

$22.0

$10.3

$0.15

$20.0

$0.31

$0.19

$0.25

(1)

"Adjusted cash flow" (see below)

(2)

Includes $10.0 million IOC dividend.

(3)

Includes $15.1 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 dividends. Standardized cash flow per share was

$0.44

for the quarter (2016 -

$0.19

Cumulative standardized cash flow from inception of the Corporation is

$22.98

per share and total cash distributions since inception is

$22.44

per share, for a

payout ratio of 98%.

The Corporation also reports "Adjusted cash flow" which is defined as cash flow from operating activities after adjustments for changes in amounts receivable,

accounts payable and income taxes recoverable and 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 standardized cash flow from operating activities to adjusted cash flow.

3 Months Ended

Mar. 31, 2017

3 Months Ended

Mar. 31, 2016

Standardized cash flow from operating activities

$28,182,002

$12,489,465

Excluding: changes in amounts receivable, accounts payable and

income taxes recoverable and payable

5,441,488

(227,503)

Adjusted cash flow

$33,623,490

$12,261,962

Adjusted cash flow per share

$0.53

$0.19

Liquidity and Capital Resources

The Corporation had

$36.1 million

in cash as at

March 31, 2017

(

December 31, 2016

$23.9 million

) with total current assets of

$84.4 million

(

December 31, 2016

$62.9 million

). The Corporation had working capital of

$40.5 million

(

December 31, 2016

$38.8 million

). The Corporation's cash flow from operations was

$28.2

million

and the dividend paid during the quarter was

$16.0 million

, resulting in cash balances increasing

$12.2 million

during the first quarter of 2017.

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, 2019

with provision for annual one-year extensions. No amount is

currently drawn under this facility (2016 – nil) leaving

$50.0 million

available to provide for any capital required by IOC or requirements of the Corporation.

Outlook

As is usual for LIORC, the results for the balance of 2017 will be largely determined by the iron ore price. The benchmark prices for iron ore have fallen

precipitously in the last few weeks, reportedly driven by concerns on a number of factors, including:

Increasing supply of seaborne iron ore and increasing Chinese domestic supply.

High inventory of iron ore product at Chinese ports.

Lower Chinese steel consumption in 2017 with reduced margins for steelmakers which is resulting in low-grade ores being favoured.

None-the-less looking forward, there are favourable factors to consider, including:

The expected improvement in production at IOC and the expected reduction in unit operating costs.

The strong pellet premiums being achieved.

Potentially a weaker Canadian dollar.

Production and costs are the main variables that can be controlled by IOC. The IOC employees and management have been making concerted efforts to increase

production and reduce unit operating costs. We are encouraged by their progress and the good start to 2017. With the strong first quarter production performance,

IOC expects to meet the 2017 plan of 22 million tonnes of concentrate produced.

The LIORC directors decided to use the recent IOC dividends and the strong royalty performances in the fourth quarter of 2016 and in the first quarter of 2017 to

replenish the Corporation's cash balance and to pay the regular dividends and a special dividend. The LIORC cash balance at

March 31, 2017

stood at

$36.1

million

. The regular and special dividend of

$32 million

, declared on

March 2, 2017

and paid on

April 25, 2017

, was more than offset by the IOC royalty payment

received on the same date. With a strong cash balance, iron ore prices above

US$60

per tonne, the exchange rate at present, and the expected increased

production, LIORC is in a good position to maintain the regular dividend.

William H. McNeil

President and Chief Executive Officer

Toronto, Ontario

May 2, 2017

Forward-Looking Statements

This report may contain "forward-looking" statements that involve risks, uncertainties and other factors that may cause the actual results, performance or

achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Words

such as "may", "will", "expect", "believe", "plan", "intend", "should", "would", "anticipate" and other similar terminology are intended to identify forward-looking

statements. These statements reflect current assumptions and expectations regarding future events and operating performance as of the date of this report.

Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily

be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly, including iron ore price

and volume volatility, exchange rates, the performance of IOC, market conditions in the steel industry, mining risks and insurance, relationships with aboriginal

groups, changes affecting IOC's customers, competition from other iron ore producers, estimates of reserves and resources and government regulation and

taxation. A discussion of these factors is contained in LIORC's annual information form dated

March 2, 2017

under the heading, "Risk Factors". Although the

forward-looking statements contained in this report are based upon what management of LIORC believes are reasonable assumptions, LIORC cannot assure

investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this report and

LIORC assumes no obligation, except as required by law, to update any forward-looking statements to reflect new events or circumstances. This report should be

viewed in conjunction with LIORC's other publicly available filings, copies of which can be obtained electronically on SEDAR at

www.sedar.com

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

March 31,

December 31,

Canadian $

2017

2016

(Unaudited)

Assets

Current Assets

Cash

36,118,990

23,936,988

Amounts receivable

48,276,254

38,487,316

Income taxes recoverable

490,345

Total Current Assets

84,395,244

62,914,649

Non-Current Assets

Iron Ore Company of Canada ("IOC"),

royalty and commission interests

263,840,153

265,383,753

Investment in IOC

420,787,357

408,679,560

Total Non-Current Assets

684,627,510

674,063,313

Total Assets

769,022,754

736,977,962

Liabilities and Shareholders' Equity

Current Liabilities

Accounts payable

9,813,386

8,072,608

Dividend payable

32,000,000

16,000,000

Taxes Payable

2,116,327

Total Current Liabilities

43,929,713

24,072,608

Non-Current Liabilities

Deferred income taxes

130,430,000

129,060,000

Total Liabilities

174,359,713

153,132,608

Shareholders' Equity

Share capital

317,708,147

Retained earnings

287,501,894

276,588,207

Accumulated other comprehensive loss

(10,547,000)

(10,451,000)

594,663,041

583,845,354

Total Liabilities and Shareholders' Equity

769,022,754

736,977,962

Approved by the Directors,

William H. McNeil

Patricia M. Volker

Director

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months Ended

March 31,

Canadian $

2017

2016

(Unaudited)

Revenue

IOC royalties

42,836,753

21,835,878

IOC commissions

460,115

410,313

Interest and other income

58,842

47,646

43,355,710

22,293,837

Expenses

Newfoundland royalty taxes

8,567,350

4,367,176

Amortization of royalty and commission interests

1,543,600

1,188,467

Administrative expenses

1,049,245

676,076

11,160,195

6,231,719

Income before equity earnings and income taxes

32,195,515

16,062,118

Equity earnings (losses) in IOC

22,236,844

(463,597)

Income before income taxes

54,432,359

15,598,521

Provision for income taxes

Current

10,131,672

4,988,623

Deferred

1,387,000

(388,000)

11,518,672

4,600,623

Net income for the period

42,913,687

10,997,898

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 2017 - $17,000; 2016 - $32,000)

(96,000)

(188,000)

Comprehensive income for the period

42,817,687

10,809,898

Net income per share

0.67

0.17

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

March 31,

Canadian $

2017

2016

(Unaudited)

Net inflow (outflow) of cash related

to the following activities

Operating

Net income for the period

42,913,687

10,997,898

Items not affecting cash:

Equity (earnings) losses in IOC

(22,236,844)

463,597

Current income taxes

10,131,672

4,988,623

Deferred income taxes

1,387,000

(388,000)

Amortization of royalty and commission interests

1,543,600

1,188,467

Common share dividend from IOC

10,016,047

Change in amounts receivable

(9,788,938)

936,916

Change in accounts payable

1,740,778

(296,115)

Income taxes paid

(7,525,000)

(5,401,921)

Cash flow from operating activities

28,182,002

12,489,465

Financing

Dividends paid to shareholders

(16,000,000)

Cash flow used in financing activities

(16,000,000)

Increase (decrease) in cash, during the period

12,182,002

(3,510,535)

Cash, beginning of period

23,936,988

24,463,512

Cash, end of period

36,118,990

20,952,977

LABRADOR IRON ORE ROYALTY CORPORATION

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Accumulated

other

Retained

comprehensive

Canadian $

capital

earnings

loss

Total

Balance as at December 31, 2015

317,708,147

262,415,545

(11,150,000)

568,973,692

Net income for the period

10,997,898

Dividends declared to shareholders

(16,000,000)

Share of other comprehensive loss from investment in IOC (net of taxes)

(188,000)

Balance as at March 31, 2016

317,708,147

257,413,443

(11,338,000)

563,783,590

Balance as at December 31, 2016

317,708,147

276,588,207

(10,451,000)

583,845,354

Net income for the period

42,913,687

Dividends declared to shareholders

(32,000,000)

Share of other comprehensive loss from investment in IOC (net of taxes)

(96,000)

Balance as at March 31, 2017

317,708,147

287,501,894

(10,547,000)

594,663,041

The complete consolidated financial statements for the first quarter ended

March 31, 2017

, including the notes thereto, are posted on

sedar.com

and

labradorironore.com

SOURCE

Labrador Iron Ore Royalty Corporation

View original content: http://www.newswire.ca/en/releases/archive/May2017/02/c3474.html

%SEDAR: 00030172E

For further information:

please contact: William H. McNeilm, President & Chief Executive Officer, (416) 863-7133

CO: Labrador Iron Ore Royalty Corporation

CNW 19:11e 02-MAY-17

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