Labrador Iron Ore Royalty Corporation - Results for the First Quarter Ended March 31, 2012 ,
TORONTO, May 3, 2012 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF.UN) announced today its operation and cash flow results for the first quarter ended March 31, 2012.
Royalty income for the first quarter of 2012 amounted to $22.0 million as compared to $30.3 million for the first quarter of 2011. The unitholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $14.4 million or $0.23 per unit as compared to $48.0 million or $0.75 per unit for the same period in 2011. Net income was $23.0 million or $0.36 per unit compared to $38.9 million or $0.61 per unit for the same period in 2011. Equity earnings from IOC amounted to $11.2 million or $0.18 per unit as compared to $19.2 million or $0.30 per unit in 2010. Cash flow for the quarter was lower than last year as a result of lower royalty revenue but mainly because IOC did not pay a dividend this year (2011 first quarter $29 million). IOC deferred the payment of a dividend due to ongoing labour negotiations and substantial capital expenditures. This will be reviewed during the third quarter. IOC has now reached agreement with its unionized employees on a new six year labour agreement.
All net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per stapled unit) interest on the subordinated notes.
Production during the quarter was adversely affected by winter weather conditions and somewhat by the start-up of the new ore delivery system and the additional grinding mill. The integration of the new system and mill has commenced, and ongoing commissioning continues with operational handover and full production planned for mid-year which should result in increased production and sales for the balance of the year. Sales for the quarter were affected by the lower production and the timing of shipments. Royalty income for the quarter was lower than last year's first quarter due to the lower sales volume and pricing that was lower than last year's first quarter (although higher than the last quarter). It was also adversely affected by a reduction of $1.5 million due to the new pricing mechanism which is based on the current quarter rather than the previous quarter. This pricing system invoices sales at an estimated price and then adjusts prices to actual in the next quarter. The strength of the Canadian dollar against its U.S. counterpart continued to negatively impact royalty revenue and IOC earnings.
Results for the three months ended March 31 are summarized below:
2012 2011 (Unaudited)
Revenue (in millions) $22.4 $30.7 Adjusted cash flow (in millions) $14.4 $48.0 Adjusted cash flow per unit $0.23 $0.75 Net income (in millions) $23.0 $38.9 Net income per unit $0.36 $0.61
"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 IFRS. The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for distributions to unitholders.
A summary of IOC's sales in millions of tonnes is as follows:
3 Months 3 Months Year Ended Ended Ended Mar. 31, Mar. 31, Dec. 31,
| 2012 | 2011 | 2011 | |
| Pellets | 1.85 | 2.27 | 8.71 |
| Concentrates(1) | 0.50 | 0.28 | 4.85 |
| Total | 2.35 | 2.55 13.56 |
(1) Excludes third party ore sales
Proposed Tax Changes
On July 20, 2011, the Ministry of Finance announced proposed amendments to the Income Tax Act concerning stapled securities. Under the proposal, when debt and equity are stapled together and trade as a unit, the interest on the debt portion of the stapled security would not be deductible in computing income for tax purposes. The announcement has an effective date of July 20, 2012. Management is studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.
Outlook
With a new six year labour agreement in place and the completion of the commissioning of phase 1 of the expansion project expected shortly IOC expects to have substantially increased production going forward. Markets remain firm and pricing has recovered somewhat from the weakness that took place late last year and the consensus appears to be that pricing should remain firm for the balance of the year. We expect that royalty revenue should increase for the balance of the year.
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 2011 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 2011 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 sales of IOC are usually 15% - 20% of the annual volume in the first quarter, with the balance spread fairly evenly throughout the other three quarters. For 2012, because of the coming on stream of the phase one expansion, we expect first quarter sales to be less than 15% of sales for the year. 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 first quarter of 2012 amounted to $22.0 million as compared to $30.3 million for the first quarter of 2011. The unitholders' cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $14.4 million or $0.23 per unit as compared to $48.0 million or $0.75 per unit for the same period in 2011. Net income was $23.0 million or $0.36 per unit compared to $38.9 million or $0.61 per unit for the same period in 2011. Equity earnings from IOC amounted to $11.2 million or $0.18 per unit as compared to $19.2 million or $0.30 per unit in 2010. Cash flow for the quarter was lower than last year as a result of lower royalty revenue but mainly because IOC did not pay a dividend this year (2011 first quarter $29 million). IOC deferred the payment of a dividend due to ongoing labour negotiations and substantial capital expenditures. This will be reviewed during the third quarter. IOC has now reached agreement with its unionized employees on a new six year labour agreement.
All net income, adjusted cash flow and per unit figures referred to in this report use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per stapled unit) interest on the subordinated notes.
The first quarter sales of IOC are traditionally adversely affected by the closing of the St. Lawrence Seaway and general winter shipping conditions and are not indicative of the full year's sales.
Production during the quarter was adversely affected by winter weather conditions and somewhat by the start-up of the new ore delivery system and the additional grind mill. The integration of the new system and mill has commenced, and ongoing commissioning continues with operational handover and full production planned for mid-year, which should result in increased production and sales for the balance of the year. Sales for the quarter were affected by the lower production and the timing of shipments. Royalty income for the quarter was lower than last year's first quarter due to the lower sales volume and pricing that was lower than last year's first quarter (although higher than the last quarter). It was also adversely affected by a reduction of $1.5 million due to the new pricing mechanism which is based on the current quarter rather than the previous quarter. This pricing system invoices sales at an estimated price and then adjusts prices to actual in the next quarter. The strength of the Canadian dollar against its U.S. counterpart continued to negatively impact royalty revenue and IOC earnings.
The following table sets out quarterly revenue, net income and cash flow data for 2012, 2011 and 2010.
Net Adjusted Distributions Adjusted Cash Cash Flow Net Income Declared Revenue Income per Unit Flow(1) per Unit(1) per Unit
(in millions except per Unit information)
2012
First Quarter(2) $22.4 $23.0 $0.36 $14.4 $0.23 $0.375
2011
| First Quarter(2) | $30.7 $38.9 $0.61 | $48.0 (3) | $0.75 | $0.75 |
| Second Quarter(2) | $38.1 $48.2 $0.75 | $23.0 | $0.36 | $0.375 |
| Third Quarter(2) | $54.9 $76.3 $1.19 | $63.7 (4) | $0.99 | $0.75 |
| Fourth Quarter(2) | $38.8 $45.9 $0.72 | $23.4 | $0.37 | $0.375 |
2010
| First Quarter | $16.7 $15.7 $0.25 | $22.3 (5) | $0.35 | $0.375 |
| Second Quarter | $52.5 $69.1 $1.08 | $30.5 | $0.48 | $0.375 |
| Third Quarter(2) | $40.9 $64.4 $1.02 | $85.9 (6) | $1.34 | $0.50 |
| Fourth Quarter(2) | $54.3 $62.8 $0.99 | $31.9 | $0.50 | $1.00 |
Notes: (1) "Adjusted cash flow" (see below)
(2) Commencing with third quarter 2010, net income, adjusted cash flow, distributions and per unit figures referred to in this table use the totals according to the financial statements plus (where applicable) the $7,488,000 ($0.234 per unit) interest on the subordinated notes
(3) Includes a $29.0 million IOC dividend
(4) Includes a $31.2 million IOC dividend
(5) Includes a $11.5 million IOC dividend
(6) Includes a $62.2 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 unit was $0.26(1) for the quarter (2010 - $0.23(1)). Cumulative standardized cash flow from inception of the Corporation is $16.39 per unit and total cash distributions since inception are $15.52 per unit, for a payout ratio of 95%.
"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 unitholders.
The following reconciles cash flow from operating activities to adjusted cash flow.
3 Months Ended 3 Months Ended Mar. 31, 2012 Mar. 31, 2011 Standardized cash flow from operating activities $16,827,813 $14,721,526 Excluding: changes in amounts receivable, accounts payable and income taxes payable (9,896,919) 25,811,810 Adjusted cash flow(1) $6,930,894 $40,533,336 Adjusted cash flow per unit(1) $0.11 $0.63
(1) Excludes note interest on subordinated notes paid directly to unitholders of $7,488,000 or $0.117 per unit.
Liquidity
The Corporation has a $50 million revolving credit facility to September 18, 2013 with provision for annual one-year extensions. No amounts are currently drawn under this facility (2011 - nil) leaving $50 million available to provide for any capital required by IOC or other Corporation requirements.
Proposed Tax Changes
On July 20, 2011, the Ministry of Finance announced proposed amendments to the Income Tax Act concerning stapled securities. Under the proposal, when debt and equity are stapled together and trade as a unit, the interest on the debt portion of the stapled security would not be deductible in computing income for tax purposes. The announcement has an effective date of July 20, 2012. Management is studying the effect of this announcement on LIORC, while they await the details of the proposed legislation.
Outlook
With a new six year labour agreement in place and the completion of the commissioning of phase 1 of the expansion project expected shortly IOC expects to have substantially increased production going forward. Markets remain firm and pricing has recovered somewhat from the weakness that took place late last year and the consensus appears to be that pricing should remain firm for the balance of the year. We expect that royalty revenue should increase for the balance of the year.
Bruce C. Bone President and Chief Executive Officer Toronto, Ontario May 3, 2012
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
As at March 31, December 31,
Canadian $ 2012 2011 (Unaudited)
Assets
Current Assets
| Cash | $ 41,813,997 $ | 41,498,184 |
| Amounts receivable | 22,581,600 | 40,669,780 |
| Income taxes recoverable | 5,027,347 | 392,173 |
| Total Current Assets | 69,422,944 | 82,560,137 |
Non-Current Assets Iron Ore Company of Canada ("IOC"),
| royalty and commission interests | 285,789,872 | 287,131,292 |
| Investment in IOC | 310,013,926 | 299,280,483 |
| Total Non-Current Assets | 595,803,798 | 586,411,775 |
| Total Assets | $ 665,226,742 $ | 668,971,912 |
Liabilities and Shareholders' Equity
Current Liabilities
| Accounts payable | $ 4,863,302 $ | 8,419,389 |
| Interest payable on subordinated notes | 7,488,000 | 7,488,000 |
| Distributions payable to shareholders | 16,512,000 | 16,512,000 |
| Total Current Liabilities | 28,863,302 | 32,419,389 |
Non-Current Liabilities
| Deferred income taxes | 116,020,000 | 114,830,000 |
| Subordinated notes | 248,000,000 | 248,000,000 |
| Total Non-Current Liabilities | 364,020,000 | 362,830,000 |
| Total Liabilities | 392,883,302 | 395,249,389 |
Equity
| Share capital | 69,708,147 | 69,708,147 |
| Retained earnings | 218,024,293 | 219,001,376 |
| Accumulated other comprehensive loss | (15,389,000) | (14,987,000) |
272,343,440 273,722,523
Total Equity and Liabilities $ 665,226,742 $ 668,971,912
Approved by the Directors,
(signed) Bruce C. Bone (signed) Alan R. Thomas Director Director
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31,
Canadian $ 2012 2011 (Unaudited)
Revenue
IOC royalties $ 22,010,073 $ 30,280,217 IOC commissions 231,003 250,969 Interest and other income 122,212 132,789 22,363,288 30,663,975
Expenses
| Newfoundland royalty taxes | 4,402,015 | 6,056,043 |
| Amortization of royalty and commission interests | 1,341,420 | 1,058,368 |
| Administrative expenses | 584,060 | 400,152 |
Interest expense:
Credit facility 93,493 92,465 Subordinated notes 7,488,000 7,488,000 13,908,988 15,095,028
| Income before equity earnings and income taxes | 8,454,300 | 15,568,947 |
| Equity earnings in IOC | 11,205,443 | 19,251,468 |
| Income before income taxes | 19,659,743 | 34,820,415 |
Provision for income taxes
Current 2,864,826 5,088,794 Deferred 1,260,000 (1,696,000) 4,124,826 3,392,794
Net income for the period 15,534,917 31,427,621
Other comprehensive income (loss)
Share of other comprehensive (loss) of IOC, net of taxes (402,000) (372,000)
Comprehensive income for the period $ 15,132,917 $ 31,055,621
Net income per common share $ 0.24 $ 0.49
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, Canadian $ 2012 2011 (Unaudited)
Net inflow (outflow) of cash related to the following activities
Operating Net income for the period $ 15,534,917 $ 31,427,621 Items not affecting cash:
Equity earnings in IOC (11,205,443) (19,251,468)
| Current income taxes | 2,864,826 | 5,088,794 |
| Deferred income taxes | 1,260,000 | (1,696,000) |
| Amortization of royalty and commission interests | 1,341,420 | 1,058,368 |
| Interest expense | 7,581,493 | 7,580,465 |
| Common share dividend from IOC | - 28,994,815 |
Change in amounts receivable and accounts payable 14,532,093 (12,209,092) Interest paid (7,581,493) (7,580,465) Income taxes paid (7,500,000) (18,691,512)
Cash flow from operating activities 16,827,813 14,721,526
Financing Distributions paid to unitholders (16,512,000) (56,512,000)
Cash flow used in financing activities (16,512,000) (56,512,000)
Increase (decrease) in cash, during the period 315,813 (41,790,474)
Cash and cash equivalents, beginning of period 41,498,184 73,611,888
Cash, end of period $ 41,813,997 $ $ 31,821,414
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, 2010 | $ 69,708,147 $ 147,934,994 $ | (4,271,000) $ 213,372,141 | |||
|---|---|---|---|---|---|
| Net income for the period | - 31,427,621 | - | 31,427,621 | ||
| Dividends declared to shareholders | - (40,512,000) | - (40,512,000) | |||
| Share of other comprehensive loss from investment in IOC | - | - (372,000) | (372,000) | ||
| Balance as at March 31, 2011 | 69,708,147 138,850,615 | (4,643,000) 203,915,762 | |||
| Balance as at December 31, 2011 | 69,708,147 219,001,376 | (14,987,000) 273,722,523 | |||
| Net income for the period | - 15,534,917 | - | 15,534,917 | ||
| Dividends declared to shareholders | - (16,512,000) | - (16,512,000) | |||
| Share of other comprehensive loss from investment in IOC | - | - (402,000) | (402,000) | ||
| Balance as at March 31, 2012 | $ 69,708,147 $ 218,024,293 $ | (15,389,000) $ 272,343,440 |
The complete consolidated financial statements for the first quarter ended March 31, 2012, including the notes thereto, are posted on sedar.com and labradorironore.com.
%SEDAR: 00030172E
For further information:
Bruce C. Bone President & Chief Executive Officer (416) 863-7133
CO: Labrador Iron Ore Royalty Corporation
CNW 21:54e 03-MAY-12