Labrador Iron Ore Royalty Corporation - Results for the Third Quarter Ended
Labrador Iron Ore Royalty Corporation -
Results for the Third Quarter Ended
September 30, 2021
TORONTO
,
Nov. 4, 2021
/CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC") (TSX: LIF)
announced today its operation and cash flow results for the quarter ended
September 30, 2021
.
Financial Performance
In the third 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 third quarter of 2021 amounted to
$74.2 million
compared to
$52.4 million
for the third
quarter of 2020. Equity earnings from Iron Ore Company of
Canada
("IOC") were
$60.5 million
in
the third quarter of 2021 compared to
$34.9 million
in the third quarter of 2020. Net income per
share for the third quarter of 2021 was
$1.64
per share, which was an 82% increase over the same
period in 2020. The adjusted cash flow per share for the third quarter of 2021 was
$1.99
per share,
which was 333% 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 third quarter of 2021, LIORC received a dividend in the
amount of
$85.8 million
from IOC.
In the third quarter of 2021, iron ore prices dropped from the record levels experienced in the
second quarter of 2021, as
China
, which accounts for a majority of the world's steel production and
over 70% of all seaborne iron ore demand, placed restrictions on its steel production in an effort to
curb year-over-year production growth. According to the World Steel Association, global crude steel
production in
China
in the third quarter of 2021 was 14% lower than the same quarter of 2020 and
16% lower than the second quarter of 2021. In addition, in the quarter ending
September 30
, iron
ore production by the three largest seaborne iron ore producers, Vale, Rio Tinto and BHP, while
consistent with the same quarter of 2020, was 9% higher than the prior quarter.
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 third quarter of 2021, the 65% Fe index
averaged
US$190
per tonne, a 47% increase over the average of
US$129
per tonne in the third
quarter of 2020, and an 18% decrease over the average of
US$233
in the second quarter of 2021.
The monthly Atlantic Blast Furnace 65% Fe pellet premium index as quoted by Platts (the "pellet
premium") averaged
US$77
per tonne in the third quarter of 2021, up substantially from an average
of
US$29
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$247
per tonne in the third quarter of 2021,
compared to approximately
C$162
per tonne in the third quarter of 2020 and
C$275
per tonne in the
second quarter of 2021.
Iron Ore Company of Canada Operations
Operations
IOC continues to follow COVID-19 procedures and protocols to prevent COVID-19 outbreaks within
IOC's operations, which has allowed IOC to effectively operate throughout 2021. Total concentrate
production in the third quarter of 2021 was 3.9 million tonnes. This was 8% lower than the third
quarter of 2020 and 18% lower than the second quarter of 2021 due mainly to labour and equipment
availability issues during the quarter which impacted feed availability. As well, the annual
maintenance shutdown, which was completed in September, took longer than expected.
The IOC saleable production (CFS plus pellets) of 3.7 million tonnes in the third quarter of 2021 was
8% lower than the same period in 2020 and 20% lower than the second quarter of 2021, mainly as a
result of lower concentrate production referred to above.
In the third quarter of 2021, CFS production of 1.4 million tonnes was 20% lower than the same
quarter last year, mainly due to lower concentrate production, as well as the decision by IOC to
produce less pellets and more CFS in 2020. CFS production in the third quarter of 2021 was 28%
lower than the second quarter of 2021, due to lower concentrate production. Pellet production in the
third quarter of 2021 of 2.3 million tonnes was 3% higher than the corresponding quarter in 2020 due
to IOC's decision to reduce the focus on the production of pellets in 2020, and 15% lower than the
second quarter of 2021, due to issues related to lack of feed from the concentrator.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.2 million tonnes in the third quarter of
2021 was 10% lower than the total sales tonnage for the same period in 2020 mainly as a result of
lower product availability. Total iron ore sales tonnage in the third quarter of 2021 was 2% higher
than the second quarter of 2021, as sales tonnage in the second quarter of 2021 was negatively
impacted by the lack of availability of reclaimers during the quarter. Pellet sales in the third quarter
of 2021 of 2.4 million tonnes was 1% higher than the total sales tonnage for the same quarter last
year and 5% higher than the second quarter of 2021. CFS sales tonnage was 22% lower than the
same quarter last year and 2% lower than the second quarter of 2021.
Outlook
Rio Tinto has lowered the 2021 guidance for IOC's saleable production (CFS plus pellets) from 17.9
to 20.4 million tonnes to 16.2 to 17.9 million tonnes. This compares to 17.7 million tonnes of saleable
production in 2020 and 12.3 million tonnes in the first nine months of 2021.
Despite lower than expected sales in the first nine months, IOC is in an excellent financial position,
having benefitted in 2021 from a very strong iron ore pricing environment. In the first nine months of
2021, IOC generated net after tax cash from operating activities of
US$1,259 million
, had capital
expenditures of
US$170 million
, and paid shareholder dividends of
US$950 million
. As at
September
30, 2021
, IOC had no debt, total current assets of
US$665 million
, and total current liabilities of
US$517 million
.
IOC experienced decreasing iron ore prices throughout the third quarter. The monthly average price
of the 65% Fe index dropped from an average of
US$244
in July to an average of
US$143
in
September. Since the end of the third quarter (
October 1, 2021
to
October 26, 2021
), the average
price of the 65% Fe index has been
US$146
per tonne. To put this in perspective, this is 28% lower
than the average of
US$204
for the first nine months of 2021, but 20% higher than the annual
average of
US$122
for 2020. The pellet premium has also declined. In October, 2021, the pellet
premium of
US$56
was 10% lower than the average of first nine months of 2021, but 92% higher
than the annual average of 2020.
Future government action regarding steel production output in
China
and its resulting impact on iron
ore prices remains somewhat uncertain. That said, in the current pricing environment LIORC remains
well positioned to profit from its royalty and commission interests in IOC and to receive future IOC
dividends, albeit at lower levels than in the first three quarters of 2021.
LIORC has no debt and at
September 30, 2021
had positive net working capital (current assets less
current liabilities) of
$21.6 million
. After the end of the third quarter LIORC paid a dividend on
October 26, 2021
of
$2.10
per share or
$134.4 million
. The net royalty from IOC was received by
LIORC on the same date, maintaining the Corporation's strong cash balance.
Respectfully submitted on behalf of the Directors of the Corporation,
John F. Tuer
President and Chief Executive Officer
November 4, 2021
Management's Discussion and Analysis
The following discussion and analysis should be read in conjunction with the Management's
Discussion and Analysis section of Labrador Iron Ore Royalty Corporation's ("LIORC" or the
"Corporation") 2020 Annual Report, and the financial statements and notes contained therein and the
September 30, 2021
interim condensed consolidated financial statements.
Overview of the Business
The Corporation's revenues are entirely dependent on the operations of IOC as its principal assets
relate to the operations of IOC and its principal source of revenue is the 7% royalty it receives on all
sales of iron ore products by IOC. In addition to the volume of iron ore sold, the Corporation's
royalty revenue is affected by the price of iron ore and the Canadian – U.S. dollar exchange rate.
The first quarter sales of IOC are traditionally adversely affected by the general winter operating
conditions and are usually 15% – 20% of the annual volume, with the balance spread fairly evenly
throughout the other three quarters. Because of the size of individual shipments, some quarters may
be affected by the timing of the loading of ships that can be delayed from one quarter to the next.
Financial Highlights
Financial and Operating Highlights
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
(unaudited)
($ in millions except per share information)
Revenue
74.7
52.9
219.7
147.9
Equity earnings from IOC
60.5
34.9
183.7
88.3
Net income
104.8
57.7
301.6
153.2
Net income per share
$ 1.64
$ 0.90
$ 4.71
$ 2.39
Dividend(s) from IOC
85.8
-
179.3
-
Cash flow from operations
137.3
11.1
295.9
59.4
Cash flow from operations per share
$ 2.15
$ 0.17
$ 4.62
$ 0.93
Adjusted cash flow
1
127.3
29.2
301.0
81.6
Adjusted cash flow per share
$ 1.99
$ 0.46
$ 4.70
$ 1.28
Dividends declared per share
$ 2.10
$ 0.45
$ 4.85
$ 1.25
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 third quarter of 2021 as
compared to 2020 were mainly due to higher iron ore prices, partly offset by lower sales of CFS.
The third quarter of 2021 sales tonnage (pellets and CFS) were lower by 10% mainly due to lower
CFS production. CFS sales tonnage was 22% lower and pellet sales tonnage was consistent with
the same quarter last year. 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
$74.2 million
for the
quarter as compared to
$52.4 million
for the same period in 2020. Third quarter 2021 cash flow from
operations was
$137.3 million
or
$2.15
per share compared to
$11.1 million
or
$0.17
per share for
the same period in 2020. LIORC received an IOC dividend in the third quarter of 2021 in the amount
of
$85.8 million
or
$1.34
per share. Equity earnings from IOC amounted to
$60.5 million
or
$0.95
per share in the third quarter of 2021 compared to
$34.9 million
or
$0.55
per share for the same
period in 2020.
Operating Highlights
Three Months Ended
Nine Months Ended
September 30,
September 30,
IOC Operations
2021
2020
2021
2020
(in millions of tonnes)
Sales
1
Pellets
2.37
2.35
7.08
7.61
Concentrate for sale ("CFS")
2
1.80
2.31
5.32
6.35
Total
3
4.18
4.65
12.40
13.96
Production
Concentrate produced
3.92
4.25
13.12
13.78
Saleable production
Pellets
2.27
2.22
7.45
7.12
CFS
1.41
1.77
4.86
5.93
Total
3.68
3.99
12.31
13.05
Average index prices per tonne (US$)
65% Fe index
4
$ 190
$ 129
$ 205
$ 114
62% Fe index
5
$ 163
$ 118
$ 177
$ 100
Pellet premium
6
$ 77
$ 29
$ 62
$ 29
(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 third quarter of 2021, the 65% Fe index averaged
US$190
per tonne, a 47% increase over the average of
US$129
per tonne in the third quarter of
2020, and an 18% decrease over the average of
US$233
in the second quarter of 2021. Iron ore
prices decreased from the prior quarter, as the demand for seaborne iron ore from
China
weakened
as a result of government efforts to curb steel production growth in
China
. The monthly pellet
premium averaged
US$77
per tonne in the third quarter of 2021, up substantially from an average of
US$29
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$247
per tonne in the third quarter of 2021,
compared to approximately
C$162
per tonne in the third quarter of 2020 and
C$275
per tonne in the
second 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
$2.15
for
the quarter (2020 -
$0.17
).
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.
3 Months Ended
Sept. 30, 2021
3 Months Ended
Sept. 30, 2020
9 Months Ended
Sept. 30, 2021
9 Months Ended
Sept. 30, 2020
(in thousands except for per share information)
Standardized cash flow from operating activities
$137,298
$11,084
$295,850
$59,351
Changes in amounts receivable, accounts payable and income taxes payable
(9,963)
18,070
5,163
22,268
Adjusted cash flow
$127,335
$29,154
$301,013
$81,619
Adjusted cash flow per share
$1.99
$0.46
$4.70
$1.28
Liquidity and Capital Resources
The Corporation had
$110.7 million
in cash as at
September 30, 2021
(
December 31, 2020
-
$106.1
million
) with total current assets of
$188.6 million
(
December 31, 2020
-
$164.4 million
). The
Corporation had working capital of
$21.6 million
as at
September 30, 2021
(
December 31, 2020
-
$31.0 million
). The Corporation's operating cash flow was
$137.3 million
and the dividend paid during
the quarter was
$112 million
, resulting in cash balances increasing by
$25.3 million
during the third
quarter of 2021. In September, the Directors of the Corporation declared the third quarter dividend
of
$134.4 million
that was paid on
October 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, 2024
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
November 4, 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
September 30,
December 31,
(in thousands of Canadian dollars)
2021
2020
(Unaudited)
Assets
Current Assets
Cash and short-term investments
$ 110,741
$ 106,091
Amounts receivable
77,852
58,336
Total Current Assets
188,593
164,427
Non-Current Assets
Iron Ore Company of Canada ("IOC")
royalty and commission interests
236,975
241,511
Investment in IOC
425,429
417,284
Total Non-Current Assets
662,404
658,795
Total Assets
$ 850,997
$ 823,222
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable
$ 16,170
$ 12,533
Dividend payable
134,400
115,200
Taxes payable
16,407
5,691
Total Current Liabilities
166,977
133,424
Non-Current Liabilities
Deferred income taxes
123,320
123,430
Total Liabilities
290,297
256,854
Shareholders' Equity
Share capital
317,708
317,708
Retained earnings
253,176
262,000
Accumulated other comprehensive loss
(10,184)
(13,340)
560,700
566,368
Total Liabilities and Shareholders' Equity
$ 850,997
$ 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
September 30,
(in thousands of Canadian dollars except for per share information)
2021
2020
Revenue
IOC royalties
$ 74,224
$ 52,354
IOC commissions
411
458
Interest and other income
70
48
74,705
52,860
Expenses
Newfoundland royalty taxes
14,845
10,470
Amortization of royalty and commission interests
1,479
1,541
Administrative expenses
607
828
16,931
12,839
Income before equity earnings and income taxes
57,774
40,021
Equity earnings in IOC
60,522
34,894
Income before income taxes
118,296
74,915
Provision for income taxes
Current
17,763
12,408
Deferred
(4,230)
4,779
13,533
17,187
Net income for the period
104,763
57,728
Other comprehensive loss
Share of other comprehensive income of IOC that will not be
reclassified subsequently to profit or loss (net of income taxes
of 2020 - $439)
-
(2,487)
Comprehensive income for the period
$ 104,763
$ 55,241
Net income per share
$ 1.64
$ 0.90
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Nine Months Ended
September 30,
(in thousands of Canadian dollars except for per share information)
2021
2020
(Unaudited)
Revenue
IOC royalties
$ 218,265
$ 146,182
IOC commissions
1,219
1,374
Interest and other income
170
315
219,654
147,871
Expenses
Newfoundland royalty taxes
43,653
29,236
Amortization of royalty and commission interests
4,536
4,808
Administrative expenses
2,149
2,201
50,338
36,245
Income before equity earnings and income taxes
169,316
111,626
Equity earnings in IOC
183,714
88,254
Income before income taxes
353,030
199,880
Provision for income taxes
Current
52,121
34,815
Deferred
(667)
11,829
51,454
46,644
Net income for the period
301,576
153,236
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 - $519)
3,156
(2,939)
Comprehensive income for the period
$ 304,732
$ 150,297
Net income per share
$ 4.71
$ 2.39
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 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
$ 301,576
$ 153,236
Items not affecting cash:
Equity earnings in IOC
(183,714)
(88,254)
Current income taxes
52,121
34,815
Deferred income taxes
(667)
11,829
Amortization of royalty and commission interests
4,536
4,808
Common share dividend from IOC
179,282
-
Change in amounts receivable
(19,516)
(18,365)
Change in accounts payable
3,637
3,471
Income taxes paid
(41,405)
(42,189)
Cash flow from operating activities
295,850
59,351
Financing
Dividend paid to shareholders
(291,200)
(118,400)
Cash flow used in financing activities
(291,200)
(118,400)
Increase (decrease) in cash, during the period
4,650
(59,049)
Cash, beginning of period
106,091
77,859
Cash, end of period
$ 110,741
$ 18,810
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)
Balance as at December 31, 2019
$ 317,708
$ 230,005
$ (10,376)
$ 537,337
Net income for the period
-
153,236
-
153,236
Dividends declared to shareholders
-
(80,000)
-
(80,000)
Share of other comprehensive loss from investment in IOC (net of taxes)
-
-
(2,939)
(2,939)
Balance as at September 30, 2020
$ 317,708
$ 303,241
$ (13,315)
$ 607,634
Balance as at December 31, 2020
$ 317,708
$ 262,000
$ (13,340)
$ 566,368
Net income for the period
-
301,576
-
301,576