Labrador Iron Ore Royalty Corporation - Results for the first quarter ended March 31, 2014 ,
TORONTO, May 6, 2014 /CNW/ - Royalty income for the first quarter of 2014 amounted to $26.9 million as compared to $26.1 million for the first quarter of 2013. The shareholders' adjusted cash flow (see below for definition) for the first quarter was $27.7 million or $0.43 per share as compared to $14.4 million or $0.22 per share for the same period in 2013. The higher cash flow for the quarter reflected an IOC dividend of which our share was $12.6 million or $0.20 per share. Net income was $27.1 million or $0.42 per share compared to $21.7 million or $0.34 per share for the same period in 2013. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $12.6 million or $0.20 per share as compared to $9.4 million or $0.15 per share in 2013.
IOC production in the first quarter is normally reduced due to the problems associated with winter weather conditions and production is usually 15-20% of annual production. The 2014 first quarter was subjected to disruptively cold weather associated with a "polar vortex" weather pattern, which caused an external power outage and unplanned equipment downtime. As a result, saleable production was 12% below last year's first quarter. Sales for the quarter, which were slightly below last year's quarter, were restricted by the availability of product and IOC had to declare a temporary force majeure. Despite the weather challenges, IOC established new records for February ex-pit mine production and Ore Delivery System crushed ore. Average U.S. dollar index prices for concentrate in the quarter were about 11% below 2013 fourth quarter and the average for the year. The lower price was largely offset by higher pellet premiums and the weakness of the Canadian dollar against its U.S counterpart.
Results for the three months ended March 31 are summarized below:
(in millions except per share information) 2014 2013 (Unaudited)
Revenue $27.2 $26.4 Adjusted cash flow $27.7 $14.4 Adjusted cash flow per share $0.43 $0.22 Net income $27.1 $21.7 Net income per share $0.42 $0.34
"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 dividends to shareholders.
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,
| 2014 | 2013 | 2013 |
| Pellets 1.88 | 1.72 | 8.60 |
| 0.63 | 0.90 | 6.20 |
Concentrates(1)
Total 2.51 2.62 14.80
(1) Excludes third party ore sales
Outlook
The IOC expansion program should be completed during the second quarter of the year. On the assumption that production for the balance of the year gradually approaches the nominal annual capacity of 23.3 million tonnes, 2014 concentrate production could exceed 18 million tonnes, if weather and other factors do not intervene. Prices are currently lower than the 2013 average prices, but this is partially offset by the weaker Canadian dollar. IOC expects to be able to sell all the concentrate and pellets it can produce during the year. Increased production and sales should result in increased royalty revenue for Labrador Iron Ore Royalty Corporation and increased cash flow for IOC.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation, Bruce C. Bone President and Chief Executive Officer May 6, 2014
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 Labrador Iron Ore Royalty Corporation's ("LIORC" or the "Corporation") 2013 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 2013 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 first quarter of 2014 amounted to $26.9 million as compared to $26.1 million for the first quarter of 2013. The shareholders' adjusted cash flow (see below for definition and calculation) for the first quarter was $27.7 million or $0.43 per share as compared to $14.4 million or $0.22 per share for the same period in 2013. The higher cash flow for the quarter reflected an IOC dividend of which our share was $12.6 million or $0.20 per share. Net income was $27.1 million or $0.42 per share compared to $21.7 million or $0.34 per share for the same period in 2013. Equity earnings from IOC amounted to $12.6 million or $0.20 per share as compared to $9.4 million or $0.15 per share in 2013.
IOC production in the first quarter is normally reduced due to the problems associated with winter weather conditions and production is usually 15-20% of annual production. The 2014 first quarter was subjected to disruptively cold weather associated with a "polar vortex" weather pattern, which caused an external power outage and unplanned equipment downtime. As a result, saleable production was 12% below last year's first quarter. Sales for the quarter, which were slightly below last year's quarter, were restricted by the availability of product and IOC had to declare a temporary force majeure. Despite the weather challenges, IOC established new records for February ex-pit mine production and Ore Delivery System crushed ore. Average U.S. dollar index prices for concentrate in the quarter were about 11% below 2013 fourth quarter and the average for the year. The lower price was largely offset by higher pellet premiums and the weakness of the Canadian dollar against its U.S counterpart.
The following table sets out quarterly revenue, net income and cash flow data for 2014, 2013 and 2012.
Net Distributions Net Income Adjusted Cash Adjusted Cash Flow Declared Revenue Income per Share/Unit Flow(1) per Share/Unit (1) per Share/Unit (in millions except per Share/Unit information)
2014
First Quarter $27.2 $27.1 $0.42 $27.7(2) $0.43 $0.400
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 |
| Third Quarter | $36.1 $41.2 | $0.65 | $20.0 | $0.31 | $0.375 |
| Fourth Quarter | $34.6 $46.7 | $0.73 | $57.6(3) | $0.90 | $0. 750 |
2012
| First Quarter(4) | $22.4 $23.0 | $0.36 | $14.4 | $0.23 | $0.375 |
| Second Quarter(4) $36.4 $36.8 | $0.57 | $22.3 | $0.35 | $0.375 | |
| Third Quarter(4) | $32.6 $29.7 | $0.47 | $18.5 | $0.28 | $0.375 |
| Fourth Quarter | $32.8 $33.0 | $0.51 | $19.9 | $0.31 | $0.375 |
Notes: (1) "Adjusted cash flow" (see below)
(2) Includes a $12.6 million IOC dividend
(3) Includes a $40.0 million IOC dividend
(4) 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
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 $0.40 for the quarter (2013 - $0.22). Cumulative standardized cash flow from inception of the Corporation is $19.24 per share and total cash distributions since inception are $18.69 per share, for a payout ratio of 97%.
"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 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 dividends to shareholders.
The following reconciles cash flow from operating activities to adjusted cash flow.
3 Months Ended 3 Months Ended Mar. 31, 2014 Mar. 31, 2013 Standardized cash flow from operating activities $25,848,565 $14,106,869 Excluding: changes in amounts receivable, accounts payable and
| income taxes payable | 1,834,869 | 243,144 |
| Adjusted cash flow | $27,683,434 | $14,350,013 |
| Adjusted cash flow per share | $0.43 | $0.22 |
Liquidity and Capital Resources
The Corporation has $30.5 million in cash as at March 31, 2014 with total current assets of $57.7 million and working capital of $26.7 million. During the quarter, the Corporation earned operating cash flows of $25.8 million with the cash balance declining $22.1 million as a result of dividends paid.
Cash balances consist of deposits in Canadian dollars with Canadian chartered banks. Accounts 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 and debt.
The Corporation has a $50 million revolving credit facility with a term ending September 18, 2016 with provision for annual one-year extensions. No amount is currently drawn under this facility (2013 - nil) leaving $50.0 million available to provide for any capital required by IOC or requirements of the Corporation.
Outlook
The IOC expansion program should be completed during the second quarter of the year. On the assumption that production for the balance of the year gradually approaches the nominal annual capacity of 23.3 million tonnes, 2014 concentrate production could exceed 18 million tonnes, if weather and other factors do not intervene. Prices are currently lower than the 2013 average prices, but this is partially offset by the weaker Canadian dollar. IOC expects to be able to sell all the concentrate and pellets it can produce during the year. Increased production and sales should result in increased royalty revenue for LIORC and increased cash flow for IOC.
Bruce C. Bone
President and Chief Executive Officer Toronto, Ontario May 6, 2014
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 March 31, December 31,
Canadian $ 2014 2013 (Unaudited)
Assets
Current Assets Cash $ 30,462,489 $ 52,613,924 Amounts receivable 25,492,111 35,818,924 Income taxes recoverable 1,714,447 - Total Current Assets 57,669,047 88,432,848
Non-Current Assets Iron Ore Company of Canada ("IOC"), royalty and commission interests 278,794,443 279,576,792 Investment in IOC 407,064,512 407,622,445 Total Non-Current Assets 685,858,955 687,199,237
Total Assets $ 743,528,002 $ 775,632,085
Liabilities and Shareholders' Equity
Current Liabilities Accounts payable $ 5,378,722 $ 7,508,145 Dividend payable 25,600,000 48,000,000 Income taxes payable - 8,317,812 Total Current Liabilities 30,978,722 63,825,957
Non-Current Liabilities Deferred income taxes 128,180,000 128,478,000 Total Liabilities 159,158,722 192,303,957
Shareholders' Equity Share capital 317,708,147 317,708,147 Retained earnings 274,745,133 273,225,981 Accumulated other comprehensive loss (8,084,000) (7,606,000)
584,369,280 583,328,128
Total Liabilities and Shareholders' Equity $ 743,528,002 $ 775,632,085
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31,
Canadian $ 2014 2013 (Unaudited)
Revenue
IOC royalties $ 26,852,444 $ 26,101,205 IOC commissions 242,090 257,651 Interest and other income 98,642 58,369 27,193,176 26,417,225
Expenses
| Newfoundland royalty taxes | 5,370,489 | 5,216,405 |
| Amortization of royalty and commission interests | 782,349 | 949,367 |
| Administrative expenses | 431,754 | 865,053 |
Interest expense:
Credit facility 101,835 92,466 6,686,427 7,123,291
Income before equity earnings and income taxes 20,506,749 19,293,934 Equity earnings in IOC 12,567,402 9,364,275
Income before income taxes 33,074,151 28,658,209
Provision for income taxes
Current 6,171,999 5,893,288 Deferred (217,000) 1,091,000 5,954,999 6,984,288
Net income for the period 27,119,152 21,673,921
Other comprehensive loss
Share of other comprehensive loss of IOC that will not be reclassified subsequently to profit or loss (net of taxes) (478,000) (537,000)
Comprehensive income for the period $ 26,641,152 $ 21,136,921
Net income per share $ 0.42 $ 0.34
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
Canadian $ 2014 2013 (Unaudited)
Net inflow (outflow) of cash related to the following activities
Operating
Net income for the period $ 27,119,152 $ 21,673,921 Items not affecting cash:
Equity earnings in IOC (12,567,402) (9,364,275)
Current income taxes 6,171,999 5,893,288 Deferred income taxes (217,000) 1,091,000
| Amortization of royalty and commission interests | 782,349 | 949,367 |
| Interest expense | 101,835 | 92,466 |
| Common share dividend from IOC | 12,566,335 | - |
Change in amounts receivable and accounts payable 8,197,390 (136,432)
Interest paid (101,835) (92,466)
Income taxes paid (16,204,258) (6,000,000)
Cash flow from operating activities 25,848,565 14,106,869
Financing
Dividends paid to shareholders (48,000,000) (24,000,000)
Cash flow used in financing activities (48,000,000) (24,000,000)
Decrease in cash, during the period (22,151,435) (9,893,131)
Cash, beginning of period 52,613,924 26,923,421
Cash, end of period $ 30,462,489 $ 17,030,290
LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated other Share Retained comprehensive
Canadian $ capital earnings loss Total (Unaudited)
Balance as at December 31, 2012 $ 317,708,147 $ 244,395,841 $ (17,598,000) $ 544,505,988
| Net income for the period | - 21,673,921 | 21,673,921 |
| Dividends declared to shareholders | - (24,000,000) | (24,000,000) |
| Share of other comprehensive loss from investment in IOC (net of taxes) | - - | (537,000) (537,000) |
Balance as at March 31, 2013 $ 317,708,147 $ 242,069,762 $ (18,135,000) $ 541,642,909
| Balance as at December 31, 2013 | 317,708,147 273,225,981 | (7,606,000) 583,328,128 | |
|---|---|---|---|
| Net income for the period | - 27,119,152 | - 27,119,152 | |
| Dividends declared to shareholders | - (25,600,000) | - (25,600,000) | |
| Share of other comprehensive loss from investment in IOC (net of taxes) | - | - (478,000) (478,000) |
(8,084,000) $ 584,369,280 Balance as at March 31, 2014 $ 317,708,147 $ 274,745,133 $
The complete consolidated financial statements for the first quarter ended March 31, 2014, 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 18:04e 06-MAY-14