Labrador Iron Ore Royalty Corporation - Results for the Second Quarter Ended
Labrador Iron Ore Royalty Corporation -
Results for the Second Quarter Ended June 30,
2021
TORONTO
,
Aug. 5, 2021
/CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC") (TSX: LIF)
announced today its operation and cash flow results for the quarter ended
June 30, 2021
.
Financial Performance
In the second quarter of 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. Royalty
revenue for the second quarter of 2021 amounted to
$78.8 million
compared to
$46.2 million
for the
second quarter of 2020. Equity earnings from Iron Ore Company of
Canada
("IOC") were
$66.2
million
in the second quarter of 2021 compared to
$28.7 million
in the second quarter of 2020. Net
income per share for the second quarter of 2021 was
$1.72
per share, which was a 126% increase
over the same period in 2020. The adjusted cash flow per share for the second quarter of 2021 was
$1.85
per share, which was 363% higher than in the same period in 2020, as a result of higher
royalty revenues and the decision by IOC to pay a dividend. In the second quarter of 2021, LIORC
received a dividend in the amount of
$74.4 million
from IOC.
In the second quarter of 2021, iron ore prices reached record levels as global steel production
increased and seaborne iron ore supply growth was limited. According to the World Steel
Association, global crude steel production in the first half of 2021 increased 14% over the first half of
2020. Strong increases in crude steel production were seen in
China
, which accounts for over 70%
of all seaborne iron ore demand, as well as all other regions and major steel producing countries, as
these nations continued to recover from the global downturn in 2020. While, in aggregate, the
supply of seaborne iron ore from the major producers was generally in line with the prior annual
production guidance, it wasn't enough to lessen the tight supply dynamics in the market.
IOC sells CFS based on the Platts index for 65% Fe, CFR China ("65% Fe index"). All references to
tonnes and per tonne prices in this report refer to wet metric tonnes, other than references to Platts
quoted pricing, which refer to dry metric tonnes. Historically, IOC's wet ore contains approximately
3% less ore per equivalent volume than dry ore. In the second quarter of 2021, the 65% Fe index
averaged
US$233
per tonne, a 115% increase over the average of
US$108
per tonne in the second
quarter of 2020, and a 22% increase over the average of
US$191
in the first quarter of 2021. The
monthly Atlantic Blast Furnace 65% Fe pellet premium index as quoted by Platts (the "pellet
premium") averaged
US$65
per tonne in the second quarter of 2021, up substantially from an
average of
US$30
in the same quarter of 2020, which had been negatively impacted by a reduction
in demand from European steel producers due to COVID-19.
Rio Tinto has disclosed that the average realised price achieved for IOC pellets, FOB Sept-Îles, in
the second quarter of 2021 was
US$247
per tonne, compared to
US$118
per tonne in the same
quarter of 2020. Based on sales as reported for the LIORC Royalty, the overall average price
realized by IOC for CFS and pellets, FOB Sept-Îles, was approximately
C$275
per tonne in the
second quarter of 2021, compared to approximately
C$143
per tonne in the second quarter of 2020
and
C$226
per tonne in the first quarter of 2021.
Iron Ore Company of Canada Operations
Operations
IOC continues to take measures 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. As a result, IOC
has been able to continue to safely operate throughout 2021. The IOC saleable production (CFS
plus pellets) of 4.6 million tonnes in the second quarter of 2021 was 2% lower than the same period
in 2020, due to labour and equipment availability which reduced the feed rate from the mine. The
IOC saleable production in the second quarter of 2021 was 16% higher than the first quarter of
2021, predominantly due to the impacts of weather, loading unit availability on mine feed and
reduced concentrator mill availability in the first quarter.
In the second quarter of 2021, CFS production of 2.0 million tonnes was 24% lower than the same
quarter last year due to an increased focus on the production of pellets since the end of 2020,
resulting in a corresponding reduction in CFS. CFS production in the second quarter of 2021 was
32% higher than the first quarter of 2021, due to lower concentrate production in the first quarter.
Pellet production in the second quarter of 2021 of 2.7 million tonnes was 26% higher than the
corresponding quarter in 2020 due to the increased focus on the production of pellets, and 6%
higher than the first quarter of 2021, as issues related to regrinding reliability and lack of feed from
the concentrator were greater in the first quarter.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.1 million tonnes in the second quarter of
2021 was 11% lower than the total sales tonnage for the same period in 2020 and consistent with
the first quarter of 2021. Sales tonnage in the second quarter of 2021 was negatively impacted by
the lack of availability of reclaimers during the quarter, as reclaimer #1 was unavailable for part of
April due to unplanned maintenance and reclaimer #2 was the subject of a fire in late March and is
not expected to be operational until mid-December. Sales tonnage in the first quarter of 2021 was
negatively impacted by lower product availability. Pellet sales tonnage in the second quarter of 2021
was consistent with the same quarter last year and 8% lower than the first quarter of 2021. CFS
sales tonnage was 23% lower than the same quarter last year and 9% higher than the first quarter
of 2021.
Outlook
Rio Tinto's 2021 guidance for IOC's saleable production (CFS plus pellets) remains at 17.9 million to
20.4 million tonnes. This compares to 17.7 million tonnes of saleable production in 2020 and 8.6
million tonnes in the first half of 2021. The force majeure declared in April following the fire at the
port facility in Sept-Îles has been lifted. Reclaimer #2 is scheduled to return to operation in mid-
December with mobile tele-stackers being used in the interim to mitigate future impacts. As a result,
the sales tonnage shortfalls experienced in the second quarter of 2021 are expected to be made up
over the remainder of the year.
IOC is in an excellent financial position. In the first half of 2021, IOC generated net after tax cash
from operating activities of
US$659 million
, had capital expenditures of
US$123 million
, and paid
shareholder dividends of
US$500 million
. As at
June 30, 2021
, IOC had no debt, total current
assets of
US$831 million
, and total current liabilities of
US$493 million
The price outlook for seaborne iron ore remains robust. Despite China's recently stated aims to
curb steel production, iron ore prices have remained firm. Since the end of the second quarter (
July
1, 2021
to
July 26, 2021
), the average price of the 65% Fe index has been
US$248
per tonne, or
7% higher than the average of the 65% Fe index for the second quarter of 2021. As well, the outlook
for pellet premiums remains positive, as the rest of the world continues to recover from the 2020
economic downturn. The pellet premium for July was
US$78
per tonne compared to the average of
US$65
per tonne in the second quarter of 2021.
The current record pricing environment continues to generate strong cash flows for LIORC.
However, it is unlikely that these iron ore prices will persist in the long run. That said, LIORC is well
positioned to profit throughout the pricing cycle given its unique assets. LIORC's equity interest in
IOC generates substantial dividends, particularly during strong iron ore pricing environments.
Whereas LIORC's royalty provides more consistency and downside protection as it has historically
produced cash flow under all iron ore pricing environments.
LIORC has no debt and at
June 30, 2021
had positive net working capital (current assets less
current liabilities) of
$28.7 million
. After the end of the second quarter LIORC paid a dividend on
July 26, 2021
of
$1.75
per share or
$112.0 million
. The net royalty from IOC was received by
LIORC on the same date, maintaining the Corporation's strong cash balance.
Respectfully submitted on behalf of the Directors of the Corporation,
John F. Tuer
President and Chief Executive Officer
August 5, 2021
Management's Discussion and Analysis
The following discussion and analysis should be read in conjunction with the Management's
Discussion and Analysis section of Labrador Iron Ore Royalty Corporation's ("LIORC" or the
"Corporation") 2020 Annual Report, and the financial statements and notes contained therein and the
June 30, 2021
interim condensed consolidated financial statements.
Overview of the Business
The Corporation's revenues are entirely dependent on the operations of IOC as its principal assets
relate to the operations of IOC and its principal source of revenue is the 7% royalty it receives on all
sales of iron ore products by IOC. In addition to the volume of iron ore sold, the Corporation's
royalty revenue is affected by the price of iron ore and the Canadian – U.S. dollar exchange rate.
The first quarter sales of IOC are traditionally adversely affected by the general winter operating
conditions and are usually 15% – 20% of the annual volume, with the balance spread fairly evenly
throughout the other three quarters. Because of the size of individual shipments, some quarters may
be affected by the timing of the loading of ships that can be delayed from one quarter to the next.
Financial Highlights
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
(unaudited)
($ in millions except per share information)
Revenue
79.2
46.7
144.9
95.0
Equity earnings from IOC
66.2
28.7
123.2
53.4
Net income
110.2
48.9
196.8
95.5
Net income per share
$ 1.72
$ 0.76
$ 3.08
$ 1.49
Dividend(s) from IOC
74.4
-
93.4
-
Cash flow from operations
115.9
37.6
158.6
48.3
Cash flow from operations per share
$ 1.81
$ 0.58
$ 2.48
$ 0.75
Adjusted cash flow
1
118.3
25.6
173.7
52.5
Adjusted cash flow per share
$ 1.85
$ 0.40
$ 2.71
$ 0.82
Dividends declared per share
$ 1.75
$ 0.45
$ 2.75
$ 0.80
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.
The higher revenue, net income and equity earnings achieved in the second quarter of 2021 as
compared to 2020 were mainly due to higher iron ore prices, partly offset by lower sales of CFS.
The second quarter of 2021 sales tonnage (pellets and CFS) were lower by 11% predominantly due
to the lack of availability of reclaimers during the quarter, which limited the loading rate at the port
facility in Sept-Îles. CFS sales tonnage was 23% lower and pellet sales tonnage was consistent
with the same quarter last year. CFS sales tonnage was lower mainly due to lower CFS production
as a result of IOC's refocus on pellet production this year, and despite a 26% increase in pellet
production, pellet sales tonnage was constrained due to the loading restrictions caused by the lack
of reclaimer availability at the port.
However, the lower sales tonnage was more than offset by an increase in the realized sales price of
pellets and CFS, resulting in royalty income of
$78.8 million
for the quarter as compared to
$46.2
million
for the same period in 2020. Second quarter 2021 cash flow from operations was
$115.9
million
or
$1.81
per share compared to
$37.6 million
or
$0.58
per share for the same period in 2020.
LIORC received an IOC dividend in the second quarter of 2021 in the amount of
$74.4 million
or
$1.16
per share. Equity earnings from IOC amounted to
$66.2 million
or
$1.03
per share in the
second quarter of 2021 compared to
$28.7 million
or
$0.45
per share for the same period in 2020.
Operating Highlights
Three Months Ended
Six Months Ended
June 30,
June 30,
IOC Operations
2021
2020
2021
2020
(in millions of tonnes)
Sales
1
Pellets
2.26
2.25
4.70
5.27
Concentrate for sale ("CFS")
2
1.83
2.36
3.51
4.04
Total
3
4.09
4.61
8.21
9.31
Production
Concentrate produced
4.79
4.84
9.20
9.53
Saleable production
Pellets
2.67
2.11
5.18
4.90
CFS
1.97
2.59
3.45
4.16
Total
4.63
4.70
8.63
9.06
Average index prices per tonne (US$)
65% Fe index
4
$ 233
$ 108
$ 212
$ 106
62% Fe index
5
$ 200
$ 93
$ 184
$ 91
Pellet premium
6
$ 65
$ 30
$ 54
$ 30
(1)
For calculating the royalty to LIORC.
(2)
Excludes third party ore sales.
(3)
Totals may not add up due to rounding.
(4)
The Platts index for 65% Fe, CFR China.
(5)
The Platts index for 62% Fe, CFR China.
(6)
The Platts Atlantic Blast Furnace 65% Fe pellet premium index.
IOC sells CFS based on the 65% Fe index. In the second quarter of 2021, the 65% Fe index
averaged
US$233
per tonne, a 115% increase over the average of
US$108
per tonne in the second
quarter of 2020. Iron ore prices increased, as iron ore supply growth failed to match the record
growth in global steel production as part of the economic recovery from the downturn in 2020. The
monthly pellet premium averaged
US$65
per tonne in the second quarter of 2021, up substantially
from an average of
US$30
in the same quarter of 2020, which had been negatively impacted by a
reduction in demand from European steel producers due to COVID-19.
Based on sales as reported for the LIORC Royalty, the overall average price realized by IOC for
CFS and pellets, FOB Sept-Îles, was approximately
C$275
per tonne in the second quarter of 2021,
compared to approximately
C$143
per tonne in the second quarter of 2020 and
C$226
per tonne in
the first quarter of 2021. The increase in the average realized price FOB Sept-Îles in 2021 was a
result of higher CFS prices and higher pellet premiums.
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
$1.81
for
the quarter (2020 -
$0.58
).
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
millions).
3 Months Ended
Jun. 30, 2021
3 Months Ended
Jun. 30, 2020
6 Months Ended
Jun. 30, 2021
6 Months Ended
Jun. 30, 2020
Standardized cash flow from operating activities
$115,866
$37,614
$158,552
$48,267
Changes in amounts receivable, accounts
payable and income taxes payable
2,402
(11,975)
15,126
4,198
Adjusted cash flow
$118,268
$25,639
$173,678
$52,465
Adjusted cash flow per share
$1.85
$0.40
$2.71
$0.82
Liquidity and Capital Resources
The Corporation had
$85.4 million
in cash as at
June 30, 2021
(
December 31, 2020
-
$106.1 million
)
with total current assets of
$168.4 million
(
December 31, 2020
-
$164.4 million
). The Corporation
had working capital of
$28.7 million
as at
June 30, 2021
(
December 31, 2020
-
$31.0 million
). The
Corporation's operating cash flow was
$115.9 million
and the dividend paid during the quarter was
$64 million
, resulting in cash balances increasing by
$51.9 million
during the second quarter of 2021.
In June the Directors of the Corporation declared the second quarter dividend of
$112 million
that
was paid on
July 26, 2021
.
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 (2020
– nil) leaving
$30.0 million
available to provide for any capital required by IOC or requirements of the
Corporation.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
August 5, 2021
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 crises, changes affecting IOC's customers, competition from other iron ore producers,
estimates of reserves and resources, government regulation and taxation and cybersecurity. A
discussion of these factors is contained in LIORC's annual information form dated
March 4, 2021
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
June 30,
December 31,
(in thousands of Canadian dollars)
2021
2020
(Unaudited)
Assets
Current Assets
Cash and short-term investments
$
85,443
$
106,091
Amounts receivable
82,963
58,336
Total Current Assets
168,406
164,427
Non-Current Assets
Iron Ore Company of Canada ("IOC")
royalty and commission interests
238,454
241,511
Investment in IOC
450,750
417,284
Total Non-Current Assets
689,204
658,795
Total Assets
$
857,610
$
823,222
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable
$
17,119
$
12,533
Dividend payable
112,000
115,200
Taxes payable
10,606
5,691
Total Current Liabilities
139,725
133,424
Non-Current Liabilities
Deferred income taxes
127,550
123,430
Total Liabilities
267,275
256,854
Shareholders' Equity
Share capital
317,708
317,708
Retained earnings
282,811
262,000
Accumulated other comprehensive loss
(10,184)
(13,340)
590,335
566,368
Total Liabilities and Shareholders' Equity
$
857,610
$
823,222
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
June 30,
(in thousands of Canadian dollars except for per share information)
2021
2020
Revenue
IOC royalties
$
78,793
$
46,213
IOC commissions
402
454
Interest and other income
35
45
79,230
46,712
Expenses
Newfoundland royalty taxes
15,758
9,243
Amortization of royalty and commission interests
1,591
1,642
Administrative expenses
773
816
18,122
11,701
Income before equity earnings and income taxes
61,108
35,011
Equity earnings in IOC
66,215
28,691
Income before income taxes
127,323
63,702
Provision for income taxes
Current
18,857
11,014
Deferred
(1,697)
3,830
17,160
14,844
Net income for the period
110,163
48,858
Other comprehensive income (loss)
Share of other comprehensive income (loss) of IOC that will not be
reclassified subsequently to profit or loss (net of income taxes
of 2021 - $557; 2020 - $40)
3,156
(226)
Comprehensive income for the period
$
113,319
$
48,632
Net income per share
$
1.72
$
0.76
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Six Months Ended
June 30,
(in thousands of Canadian dollars except for per share information)
2021
2020
(Unaudited)
Revenue
IOC royalties
$
144,041
$
93,828
IOC commissions
808
916
Interest and other income
100
267
144,949
95,011
Expenses
Newfoundland royalty taxes
28,808
18,766
Amortization of royalty and commission interests
3,057
3,267
Administrative expenses
1,544
1,373
33,409
23,406
Income before equity earnings and income taxes
111,540
71,605
Equity earnings in IOC
123,192
53,360
Income before income taxes
234,732
124,965
Provision for income taxes
Current
34,358
22,407
Deferred
3,563
7,050
37,921
29,457
Net income for the period
196,811
95,508
Other comprehensive income (loss)
Share of other comprehensive income (loss) of IOC that will not be
reclassified subsequently to profit or loss (net of income taxes
of 2021 - $557; 2020 - $80)
3,156
(452)
Comprehensive income for the period
$
199,967
$
95,056
Net income per share
$
3.08
$
1.49
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
(in thousands of Canadian dollars)
2021
2020
(Unaudited)
Net inflow (outflow) of cash related
to the following activities
Operating
Net income for the year
$
196,811
$
95,508
Items not affecting cash:
Equity earnings in IOC
(123,192)
(53,360)
Current income taxes
34,358
22,407
Deferred income taxes
3,563
7,050
Amortization of royalty and commission interests
3,057
3,267
Common share dividend from IOC
93,439
-
Change in amounts receivable
(24,627)
(10,982)
Change in accounts payable
4,586
2,093
Income taxes paid
(29,443)
(17,716)
Cash flow from operating activities
158,552
48,267
Financing
Dividend paid to shareholders
(179,200)
(89,600)
Cash flow used in financing activities
(179,200)
(89,600)
Decrease in cash, during the period
(20,648)
(41,333)
Cash, beginning of period
106,091
77,859