Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended
Labrador Iron Ore Royalty Corporation -
Results for the First Quarter Ended March 31,
2020
TORONTO
,
May 7, 2020
/CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC", TSX: LIF)
announced today its operation and cash flow results for the first quarter ended
March 31, 2020
.
Royalty revenue for the first quarter of 2020 amounted to
$47.6 million
as compared to
$38.5 million
for the first quarter of 2019. Equity earnings from Iron Ore Company of
Canada
("IOC") amounted
to
$24.7 million
or
$0.39
per share in the first quarter of 2020 as compared
$22.4 million
or
$0.35
per share in the first quarter of 2019. Net income was
$46.7 million
or
$0.73
per share for the first
quarter of 2020 compared to
$39.3 million
or
$0.61
per share for the same period in 2019. Cash
flow from operations for the first quarter was
$10.7 million
or
$0.17
per share as compared to
$25.0
million
or
$0.39
per share for the same period in 2019.
The equity earnings from IOC and net income for the first quarter of 2020 were higher than the first
quarter of 2019, as a result of higher sales of concentrate for sale ("CFS") and pellets. Total IOC's
sales for calculating the royalty to LIORC (CFS plus pellets) of 4.7 million tonnes were 33% higher in
the first quarter of 2020 compared to the same period in 2019. CFS sales of 1.7 million tonnes were
103% higher than in the same period in 2019 and pellet sales in the first quarter of 2020 of 3.0
million tonnes were 12% higher than in the first quarter of 2019. Iron ore prices in the first quarter
were mixed. The average price for the Platts index for 62%
Fe Iron Ore
, CFR China ("62% Fe
index") increased 8% to
US$89
per tonne in the first quarter of 2020 compared to the average price
in the first quarter of 2019 of
US$83
per tonne. However, the quarterly Atlantic Basin blast furnace
pellet premium, as reported by Platts, averaged
US$29
per tonne in the first quarter of 2020, a 57%
decrease over the first quarter of 2019.
LIORC's results for the three months ended
March 31
are summarized below:
(in millions except per share information)
3 Months
Ended
Mar. 31,
2020
3 Months
Ended
Mar. 31,
2019
(Unaudited)
Revenue
$48.3
$39.2
Cash flow from operations
$10.7
$25.0
Operating cash flow per share
$0.17
$0.39
Net income
$46.7
$39.3
Net income per share
$0.73
$0.61
Iron Ore Company of Canada Operations
Production
Total concentrate production in the first quarter of 2020 of 4.7 million tonnes was 7% higher than the
first quarter of 2019 and 1% higher than the fourth quarter of 2019. The mine set January and
February records for total material moved. However, the total material moved in March was lower
than budgeted.
IOC continued to maximize pellet production during the first quarter of 2020. CFS production in the
first quarter of 2020 of 1.6 million tonnes was 4% higher than in the first quarter of 2019 and 19%
lower than the fourth quarter of 2019. Pellet production in the first quarter of 2020 of 2.8 million
tonnes was 3% higher than the first quarter of 2019 and 15% higher than the fourth quarter of 2019.
The pellet plant production in the first quarter of 2020 was higher than budgeted due to better than
expected reliability of induration machine #1.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.7 million tonnes in the first quarter of
2020 was 33% higher compared to the same period in 2019, mainly as a result of higher production
of CFS and pellets in the first quarter of 2020. In the first quarter of 2020 CFS tonnage sold by IOC
was 103% higher than in the same period in 2019 and pellet sales tonnage was 12% higher than in
the first quarter of 2019.
IOC sells CFS based on the Platts index for 65%
Fe Iron Ore
, CFR China ("65% Fe index"). The
average price for the 65% Fe Index increased 9% to
US$104
per tonne in the first quarter of 2020
compared to the average price in the first quarter of 2019 of
US$95
per tonne. Demand for the high-
quality iron ores that IOC produces remained strong in the first quarter of 2020, mainly driven by a
combination of seaborne iron ore supply disruptions and solid demand from
China's
steel mills
despite COVID-19 impacts. The premium for the 65% Fe index compared to the 62% Fe index,
which had contracted over the last two quarters, increased in the first quarter of 2020 to 16%, as
compared to 11% in the prior quarter.
The COVID-19 pandemic situation caused a slowdown in demand for pellets in various markets and
industries across
Europe
and North America. The quarterly Atlantic Basin blast furnace pellet
premium, as reported by Platts, averaged
US$29
per tonne in the first quarter of 2020, a 57%
decrease over the first quarter of 2019 and 21% lower than the fourth quarter of 2019.
Despite lower pellet premiums, higher CFS prices together with higher concentrate and pellet
tonnages, resulted in royalty revenue for LIORC in the first quarter of 2020 increasing 24% as
compared to the royalty revenue in the first quarter of 2019.
A summary of IOC's sales for calculating the royalty to LIORC in millions of tonnes is as follows:
3 Months
Ended
Mar. 31,
2020
3 Months
Ended
Mar. 31,
2019
Year
Ended
Dec. 31,
2019
Pellets
3.02
2.70
9.62
Concentrates
(1)
1.68
0.83
7.51
Total
(2)
4.70
3.53
17.14
(1)
Excludes third party ore sales.
(2)
Totals may not add up due to rounding.
Outlook
The COVID-19 pandemic increases the uncertainty regarding the immediate outlook for LIORC. At
present, IOC's mining, processing, rail and shipping operations continue to operate safely within the
COVID-19 guidelines of both the
Quebec
and
Newfoundland
and
Labrador
governments. Rio Tinto's
2020 guidance for IOC's saleable production of CFS and pellets remains unchanged at between
17.9 and 20.4 million tonnes on a 100% basis. Additionally, despite a global economic slowdown due
to the global response to COVID-19, benchmark prices for iron ore concentrate remain attractive.
To date iron ore prices have benefited from continued demand from
China
and reduced supply,
particularly from
Brazil
where heavy rains have reduced output. However, there are no assurances
that future impacts from COVID-19 will not affect IOC's operation levels or seaborne iron ore prices.
Longer term LIORC is well positioned to benefit from its royalty and equity investments in IOC. The
Canadian dollar ended the first quarter of 2020 at
US$0.705
, down 8.5% from the start of the year.
A decrease in the Canadian dollar increases IOC's profitability because seaborne iron ore is priced
in US dollars and IOC's costs are predominantly incurred in Canadian dollars. Additionally, IOC's
decision at the end of the first quarter of 2020 to temporarily halt production of two pellet machines
in order to focus on meeting the demand for CFS highlights IOC's ability to adjust its output of
product to align with changing market conditions. Finally, the recent renewal of all 12 of LIORC's
mining leases for an additional 30 years by the Ministry of Natural Resources of the Government of
Newfoundland
and
Labrador
, highlights the long life nature of LIORC's unique royalty asset.
The LIORC cash balance at
March 31, 2020
stood at
$21.3 million
before LIORC dividends payable
on
April 25, 2020
of
$0.35
per share or
$22.4 million
. The net royalty from IOC was received by
LIORC on the same date, maintaining the Corporation's strong cash balance.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,
John F. Tuer
President and Chief Executive Officer
May 7, 2020
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 2019 Annual Report, and the financial
statements and notes contained therein and the
March 31, 2020
interim condensed consolidated
financial statements. 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 2020 amounted to
$47.6 million
as compared to
$38.5 million
for the first quarter of 2019. Equity earnings from IOC amounted to
$24.7 million
or
$0.39
per share
in the first quarter of 2020 as compared
$22.4 million
or
$0.35
per share in the first quarter of 2019.
Net income was
$46.7 million
or
$0.73
per share for the first quarter of 2020 compared to
$39.3
million
or
$0.61
per share for the same period in 2019. Cash flow from operations for the first
quarter was
$10.7 million
or
$0.17
per share as compared to
$25.0 million
or
$0.39
per share for
the same period in 2019.
The equity earnings from IOC and net income for the first quarter of 2020 were higher than the first
quarter of 2019, as a result of higher sales of CFS and pellets. Total IOC's sales for calculating the
royalty to LIORC (CFS plus pellets) of 4.7 million tonnes were 33% higher in the first quarter of
2020 compared to the same period in 2019. CFS sales of 1.7 million tonnes were 103% higher than
in the same period in 2019 and pellet sales in the first quarter of 2020 of 3.0 million tonnes were
12% higher than in the first quarter of 2019. Iron ore prices in the first quarter were mixed. The
average price for the Platts index for 62% Fe index increased 8% to
US$89
per tonne in the first
quarter of 2020 compared to the average price in the first quarter of 2019 of
US$83
per tonne.
However, the quarterly Atlantic Basin blast furnace pellet premium, as reported by Platts, averaged
US$29
per tonne in the first quarter of 2020, a 57% decrease over the first quarter of 2019.
Total concentrate production in the first quarter of 2020 of 4.7 million tonnes was 7% higher than the
first quarter of 2019 and 1% higher than the fourth quarter of 2019. The mine set January and
February records for total material moved. However, the total material moved in March was lower
than budgeted.
IOC continued to maximize pellet production during the first quarter of 2020. CFS production in the
first quarter of 2020 of 1.6 million tonnes was 4% higher than in the first quarter of 2019 and 19%
lower than the fourth quarter of 2019. Pellet production in the first quarter of 2020 of 2.8 million
tonnes was 3% higher than the first quarter of 2019 and 15% higher than the fourth quarter of 2019.
The pellet plant production in the first quarter of 2020 was higher than budgeted due to better than
expected reliability of induration machine #1.
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.7 million tonnes in the first quarter of
2020 was 33% higher compared to the same period in 2019, mainly as a result of higher production
of CFS and pellets in the first quarter of 2020. In the first quarter of 2020 CFS tonnage sold by IOC
was 103% higher than in the same period in 2019 and pellet sales tonnage was 12% higher than in
the first quarter of 2019.
IOC sells CFS based on the Platts index for 65% Fe index. The average price for the 65% Fe Index
increased 9% to
US$104
per tonne in the first quarter of 2020 compared to the average price in the
first quarter of 2019 of
US$95
per tonne. Demand for the high-quality iron ores that IOC produces
remained strong in the first quarter of 2020, mainly driven by a combination of seaborne iron ore
supply disruptions and solid demand from
China's
steel mills despite COVID-19 impacts. The
premium for the 65% Fe index compared to the 62% Fe index, which had contracted over the last
two quarters, increased in the first quarter of 2020 to 16%, as compared to 11% in the prior
quarter.
The COVID-19 pandemic situation caused a slowdown in demand for pellets in various markets and
industries across
Europe
and North America. The quarterly Atlantic Basin blast furnace pellet
premium, as reported by Platts, averaged
US$29
per tonne in the first quarter of 2020, a 57%
decrease over the first quarter of 2019 and 21% lower than the fourth quarter of 2019.
Despite lower pellet premiums, higher CFS prices together with higher concentrate and pellet
tonnages, resulted in royalty revenue for LIORC in the first quarter of 2020 increasing 24% as
compared to the royalty revenue in the first quarter of 2019.
The following table sets out quarterly revenue, net income and cash flow data for 2020, 2019 and
2018.
Revenue
Net
Income
Net Income
per Share
Cash
Flow
Cash Flow
from
Operations
per Share
Adjusted
Cash Flow
per Share
(1)
Dividends
Declared per
Share
(in millions except per share information)
2020
First Quarter
$48.3
$46.7
$0.73
$10.7
$0.17
$0.42
$0.35
2019
First Quarter
$39.2
$39.3
$0.61
$25.0
$0.39
$0.34
$1.05
Second Quarter
$53.3
$61.1
$0.95
$47.8
(2)
$0.75
(2)
$0.86
(2)
$0.90
Third Quarter
$46.2
$57.5
$0.90
$72.6
(3)
$1.13
(3)
$1.02
(3)
$1.00
Fourth Quarter
$39.6
$47.4
$0.74
$79.1
(4)
$1.24
(4)
$1.03
(4)
$1.05
2018
First Quarter
$34.3
$30.3
$0.47
$20.3
$0.32
$0.29
$0.35
Second Quarter
$5.2
$(3.3)
$(0.05)
$15.5
$0.24
$0.04
$0.25
Third Quarter
$44.6
$58.1
$0.91
$59.7
(5)
$0.93
(5)
$1.30
(5)
$0.55
Fourth Quarter
$46.8
$43.4
$0.68
$53.3
(6)
$0.83
(6)
$0.79
(6)
$0.60
(1)
"Adjusted cash flow" (see below).
(2)
Includes $25.4 million IOC dividend.
(3)
Includes $40.1 million IOC dividend.
(4)
Includes $44.6 million IOC dividend.
(5)
Includes $58.6 million IOC dividend.
(6)
Includes $25.3 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
$0.17
for
the quarter (2019 -
$0.39
). Cumulative standardized cash flow from inception of the Corporation is
$31.15
per share and total cash distributions since inception is
$30.69
per share, for a payout ratio
of 99%.
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 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 standardized cash flow from operating activities to adjusted cash flow (in
'000's).
3 Months Ended
Mar. 31, 2020
3 Months Ended
Mar. 31, 2019
Standardized cash flow from operating activities
$10,653
$24,963
Changes in amounts receivable, accounts payable and income taxes payable
16,173
(3,451)
Adjusted cash flow
$26,826
$21,512
Adjusted cash flow per share
$0.42
$0.34
Liquidity and Capital Resources
The Corporation had
$21.3 million
in cash as at
March 31, 2020
(
December 31, 2019
-
$77.9 million
)
with total current assets of
$69.4 million
(
December 31, 2019
-
$114.0 million
). The Corporation had
working capital of
$32.6 million
as at
March 31, 2020
(
December 31, 2019
-
$28.2 million
). The
Corporation's operating cash flow for the quarter was
$10.7 million
and the dividend paid during the
quarter was
$67.2 million
, resulting in cash balances decreasing by
$56.5 million
during the first
quarter of 2020.
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 normally pays cash dividends from its net income to the maximum extent possible,
subject to the maintenance of appropriate levels of working capital.
The Corporation has a
$30 million
revolving credit facility with a term ending
September 18, 2022
with provision for annual one-year extensions. No amount is currently drawn under this facility (2019
– nil) leaving
$30.0 million
available to provide for any capital required by IOC or requirements of the
Corporation.
Outlook
The COVID-19 pandemic increases the uncertainty regarding the immediate outlook for LIORC. At
present, IOC's mining, processing, rail and shipping operations continue to operate safely within the
COVID-19 guidelines of both the
Quebec
and
Newfoundland
and
Labrador
governments. Rio Tinto's
2020 guidance for IOC's saleable production of CFS and pellets remains unchanged at between
17.9 and 20.4 million tonnes on a 100% basis. Additionally, despite a global economic slowdown due
to the global response to COVID-19, benchmark prices for iron ore concentrate remain attractive.
To date iron ore prices have benefited from continued demand from
China
and reduced supply,
particularly from
Brazil
where heavy rains have reduced output. However, there are no assurances
that future impacts from COVID-19 will not affect IOC's operation levels or seaborne iron ore prices.
Longer term LIORC is well positioned to benefit from its royalty and equity investments in IOC. The
Canadian dollar ended the first quarter of 2020 at
US$0.705
, down 8.5% from the start of the year.
A decrease in the Canadian dollar increases IOC's profitability because seaborne iron ore is priced
in US dollars and IOC's costs are predominantly incurred in Canadian dollars. Additionally, IOC's
decision at the end of the first quarter of 2020 to temporarily halt production of two pellet machines
in order to focus on meeting the demand for CFS highlights IOC's ability to adjust its output of
product to align with changing market conditions. Finally, the recent renewal of all 12 of LIORC's
mining leases for an additional 30 years by the Ministry of Natural Resources of the Government of
Newfoundland
and
Labrador
, highlights the long life nature of LIORC's unique royalty asset.
The LIORC cash balance at
March 31, 2020
stood at
$21.3 million
before LIORC dividends payable
on
April 25, 2020
of
$0.35
per share or
$22.4 million
. The net royalty from IOC was received by
LIORC on the same date, maintaining the Corporation's strong cash balance.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
May 7, 2020
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 indigenous groups, natural disasters, severe weather conditions and
public health epidemics, 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 5, 2020
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 STATEMENTS OF FINANCIAL POSITION
As at
March 31,
December 31,
(in thousands of Canadian dollars)
2020
2019
(Unaudited)
Assets
Current Assets
Cash and short-term investments
$
21,312
$
77,859
Amounts receivable
48,062
36,156
Total Current Assets
69,374
114,015
Non-Current Assets
Iron Ore Company of Canada ("IOC")
royalty and commission interests
246,076
247,701
Investment in IOC
405,713
381,310
Total Non-Current Assets
651,789
629,011
Total Assets
$
721,163
$
743,026
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable
$
9,995
$
7,939
Dividend payable
22,400
67,200
Taxes payable
4,387
10,710
Total Current Liabilities
36,782
85,849
Non-Current Liabilities
Deferred income taxes
123,020
119,840
Total Liabilities
159,802
205,689
Shareholders' Equity
Share capital
317,708
317,708
Retained earnings
254,255
230,005
Accumulated other comprehensive loss
(10,602)
(10,376)
561,361
537,337
Total Liabilities and Shareholders' Equity
$
721,163
$
743,026
Approved by the Directors,
John F. Tuer
Patricia M. Volker
Director
Director
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months Ended
March 31,
(in thousands of Canadian dollars except for per share information)
2020
2019
(Unaudited)
Revenue
IOC royalties
$
47,615
$
38,496
IOC commissions
462
348
Interest and other income
222
366
48,299
39,210
Expenses
Newfoundland royalty taxes
9,523
7,699
Amortization of royalty and commission interests
1,625
1,607
Administrative expenses
557
770
11,705
10,076
Income before equity earnings and income taxes
36,594
29,134
Equity earnings in IOC
24,669
22,408
Income before income taxes
61,263
51,542
Provision for income taxes
Current
11,393
9,229
Deferred
3,220
2,964
14,613
12,193
Net income for the period
46,650
39,349
Other comprehensive (loss) income
Share of other comprehensive (loss) income of IOC that will not be
reclassified subsequently to profit or loss (net of income taxes
of 2020 - $40; 2019 - $202)
(226)
1,145
Comprehensive income for the period
$
46,424
$
40,494
Net income per share
$
0.73
$
0.61
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
(in thousands of Canadian dollars)
2020
2019
(Unaudited)
Net inflow (outflow) of cash related
to the following activities
Operating
Net income for the period
$
46,650
$
39,349
Items not affecting cash:
Equity earnings in IOC
(24,669)
(22,408)
Current income taxes
11,393
9,229
Deferred income taxes
3,220
2,964
Amortization of royalty and commission interests
1,625
1,607
Change in amounts receivable
(11,906)
6,200
Change in accounts payable
2,056
(1,528)
Income taxes paid
(17,716)
(10,450)
Cash flow from operating activities
10,653
24,963
Financing
Dividend paid to shareholders
(67,200)
(38,400)
Cash flow used in financing activities
(67,200)
(38,400)
Decrease in cash, during the period
(56,547)
(13,437)
Cash, beginning of period
77,859
80,495
Cash, end of period
$
21,312
$
67,058
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated
other
Share
Retained
comprehensive
(in thousands of Canadian dollars)
capital
earnings
loss
Total
(Unaudited)