Labrador Iron ORE Royalty Corporation - Results FOR the Third Quarter Ended
PRESS RELEASE
Toronto, November 3, 2022
LABRADOR IRON ORE ROYALTY CORPORATION - RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30,
2022
Labrador Iron Ore Royalty Corporation (“LIORC”, TSX: LIF) announced today its operation and cash flow results for the
third quarter ended September 30, 2022.
Financial Performance
In the third quarter of 2022, LIORC’s financial results were negatively affected by lower iron ore prices, partially offset by
higher pellet premiums and higher volumes of concentrate for sale (“CFS”) sales. Royalty revenue for the third quarter of
2022 amounted to $63.5 million compared to $74.2 million for the third quarter of 2021. Equity earnings from Iron Ore
Company of Canada (“IOC”) were $46.8 million in the third quarter of 2022 compared to $60.5 million in the third quarter
of 2021. Net income per share for the third quarter of 2022 was $1.24 per share, which was a 24% decrease over the
same period in 2021. The adjusted cash flow per share for the third quarter of 2022 was $1.09 per share, which was 45%
lower than in the same period in 2021, as a result of lower royalty revenues and because LIORC received a dividend from
IOC in the amount of $34.2 million from IOC in the third quarter of 2022, compared to a dividend from IOC in the amount
of $85.8 million in the third quarter of 2021.
In the third quarter of 2022, iron ore prices further declined from the record levels experienced in 202 1, predominantly
as a result of lower global steel production. According to the World Steel Association, global crude steel production
decreased 4% in the first 9 months of 2022 over the first 9 months of 2021, as higher inflation and global recessionary
concerns reduced the demand for steel. I n China, which accounts for over 70% of all seaborne iron ore demand, crude
steel production was 3% lower in the first 9 months of 2022, compared to the first 9 months of 2021, due to China’s strict
policy of COVID -19 lockdowns and ongoing concerns about China’s property construction sector . Elsewhere, lower
demand and higher energy costs put pressure on steel producer margins and led to a number of steel facilities being idled
across Europe.
Partially mitigating the decline in demand, total seaborne iron ore supply contracted 4.5% up to the end of August versus
the same period of 2021. According to Rio Tinto, while the major iron ore producers shipped the same aggregate volume
during the first three quarters of 2022 as they did over the same period of 2021, supply from other producers was 17%
lower year to date due to, among other factors, the war in Ukraine and export taxes in India.
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 2022, the 65% Fe index averaged US$115 per tonne, a 39% decrease over the average of US$190 per tonne in
the third quarter of 2021, and a 28% decrease over the average of US$160 per tonne in the second quarter of 2022. The
monthly Atlantic Blast Furnace 65% Fe pellet premium index as quoted by Platts (the “pellet premium”) averaged US$ 80
per tonne in the third quarter of 2022, up 5% from an average of US$77 per tonne in the same quarter of 2021, and down
1% from an average of US$81 per tonne in the second quarter of 2022.
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 US$146 per tonne in the third quarter of 2022, compared to approximately US$196 per tonne in
the third quarter of 2021 and US$168 per tonne in the second quarter of 2022. The decrease in the average realized price
FOB Sept-Îles in 2022 was a result of lower CFS and pellet prices, and to a lesser extent a change in product mix, as pellets
represented 52% of sales in the third quarter of 2022, compared to 57% of sales in the same quarter of 2021 and the
second quarter of 2022.
Iron Ore Company of Canada Operations
Operations
IOC concentrate production of 4.9 million tonnes in the third quarter of 2022 was 26% higher than the same quarter of
2021, due a lower strip ratio, as well as a timing difference of the planned 7-day annual maintenance shutdown, which
was completed in June 2022 vs. September 2021. IOC’s concentrate production was 2% lower than in the second
quarter of 2022, as a result of a higher weight yield in the second quarter due to pit sequencing, offset by the timing
difference of the annual shutdown referred to above.
The IOC saleable production (CFS plus pellets) of 4.7 million tonnes in the third quarter of 2022 was 28% higher than the
same period in 2021, predominantly due to the higher concentrate production discussed above. The IOC saleable
production in the third quarter of 2022 was 7% higher than the second quarter of 2022, despite the lower concentrate
level in the third quarter, due to a negative stockpile survey adjustment in the second quarter and lower pellet recovery
rates experienced during the second quarter.
Pellet production in the third quarter of 2022 of 2.6 million tonnes was 15% higher than the corresponding quarter in
2021 and 17% higher than the second quarter of 2022 due to the planned 7-day annual maintenance shutdown in
September 2021 and June 2022 . Pellet production in the second quarter of 2022 was also negatively impacted by the
negative stockpile survey adjustment referred to above. In the third quarter of 2022, CFS production of 2.1 million tonnes
was 49% higher than the same quarter last year and 3% lower than the second quarter of 2022, due to lower concentrate
production in the third quarter of 2021.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.5 million tonnes in the third quarter of 2022 was 9% higher than
the total sales tonnage for the same period in 2021 and 6% higher than the second quarter of 2022 . Differences in the
quarterly sales tonnages were largely as a result of higher inventory levels driven by increased CFS production and timing
differences. Pellet sales tonnage in the third quarter of 2022 was 1% lower than the same period in 2021 and 5% lower
than the second quarter of 2022. CFS sales tonnage was 22% higher than the same quarter last year and 20% higher than
the second quarter of 2022.
Outlook
Rio Tinto’s 2022 guidance for IOC’s saleable production (CFS plus pellets) remains at 17.0 million to 18.7 million tonnes.
This compares to 16.6 million tonnes of saleable production in 2021. Through the first three quarters of 2022, IOC’s total
saleable production was 13.3 million tonnes, or 74% of the mid-point of Rio Tinto’s annual guidance.
Post the end of the third quarter, the negative outlook for steel production has continued to put d ownward pressure on
seaborne iron ore prices. In October 2022, the average price of the 65% Fe index fell further to US$105 per tonne, or 10%
lower than the average of the 65% Fe index for the third quarter of 2022. The pellet premium for October was also lower,
falling to US$62 per tonne compared to the average of US$80 per tonne in the third quarter of 2022. And, according to
the World Steel Association, which recently revised down its short range outlook for steel production for the remainder
of 2022 and 2023, the balance of risks is largely skewed to the downside due to increased global economic uncertainty as
a result of the effect of monetary tightening, continuation of inflation, the direction of the Chinese economy and its COVID
policy, the potentia l crisis of gas supply in Europe, and the aggravation of the Russian -Ukraine war with unexpected
consequences.
However, despite the negative sentiment regarding the outlook for the global economy, recent iron ore prices have, to
date, remained fairly attractive from a historical perspective , as the supply and demand for iron ore products has
remained relatively balanced . LIORC continues to be able to generate cash flow in the current iron ore pricing
environment, and benefits from LIORC’s top -line royalty structure which effectively dampens some of the recent
commodity price volatility.
LIORC has no debt and at September 30, 2022 had positive net working capital (current assets less current liabilities) of
$32 million, which included the third quarter net royalty payment received from IOC on October 25, 2022 and the LIORC
dividend in the amount of $1.00 per share paid to shareholders on the next day.
Respectfully submitted on behalf of the Directors of the Corporation,
John F. Tuer
President and Chief Executive Officer
November 3, 2022
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”) 2021 Annual Report, and the financial
statements and notes c ontained therein and the September 30, 202 2 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 l oading
of ships that can be delayed from one quarter to the next.
Financial Highlights
2022 2021 2022 2021
Revenue 64.1 74.7 184.6 219.7
Equity earnings from IOC 46.8 60.5 134.4 183.7
Net income 79.2 104.8 220.9 301.6
Net income per share $ 1.24 $ 1.64 $ 3.45 $ 4.71
Dividend from IOC 34.2 85.8 53.7 179.3
Cash flow from operations 78.5 137.3 123.7 295.9
Cash flow from operations per share (1) $ 1.23 $ 2.15 $ 1.93 $ 4.62
Adjusted cash flow (1) 69.7 127.3 155.9 301.0
Adjusted cash flow per share (1) $ 1.09 $ 1.99 $ 2.44 $ 4.70
Dividends declared per share $ 1.00 $ 2.10 $ 2.40 $ 4.85
(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.
(Unaudited)
($ in millions except per share information)
Nine Months Ended
September 30,
Three Months Ended
September 30,
The lower revenue, net income and equity earnings achieved in the third quarter of 2022 as compared to 2021 were
mainly due to lower iron ore prices, partly offset by higher pellet premiums and sales of CFS. The third quarter of 2022
sales tonnage (pellets and CFS) were higher by 9% than the third quarter of 2021 predominantly due to higher inventories
driven by an increase in CFS production. P ellet sales tonnage in the third quarter of 2022 was 1.2% lower than the same
period in 2021 and 5% lower than the second quarter of 2022. CFS sales tonnage was 22% higher than the same quarter
last year and 20% higher than the second quarter of 2022.
However, the higher sales tonnage was more than offset by a decrease in the realized sales price of pellets and CFS,
resulting in royalty income of $ 63.5 million for the quarter as compared to $ 74.2 million for the same period in 202 1.
Third quarter 2022 cash flow from operations was $78.5 million or $1.23 per share compared to $137.3 million or $2.15
per share for the same period in 2021. LIORC received an IOC dividend in the third quarter of 2022 in the amount of $34.2
million or $0.53 per share compared to $85.8 million or $1.34 per share for the same period in 2021. Equity earnings from
IOC amounted to $ 46.8 million or $ 0.73 per share in the third quarter of 2022 compared to $ 60.5 million or $ 0.95 per
share for the same period in 2021.
Operating Highlights
IOC sells CFS based on the 65% Fe index. In the third quarter of 2022, the 65% Fe index averaged US$ 115 per tonne, a
39% decrease over the average of US$ 190 per tonne in the third quarter of 2021 . Iron ore prices decreased, as lower
global steel production reduced the demand for seaborne iron ore. The monthly pellet premium averaged US$ 80 per
tonne in the third quarter of 2022, up 5% from an average of US$77 per tonne in the same quarter of 2021.
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 US$146 per tonne in the third quarter of 2022, compared to approximately US$196 per tonne in
the third quarter of 2021 and US$168 per tonne in the second quarter of 2022. The decrease in the average realized price
FOB Sept-Îles in 2022 was a result of lower CFS and pellet prices, and to a lesser extent a change in product mix, as pellets
IOC Operations 2022 2021 2022 2021
Sales(1)
Pellets 2.35 2.37 7.23 7.08
Concentrate for sale ("CFS") (2) 2.20 1.80 5.19 5.32
Total(3) 4.55 4.18 12.42 12.40
Production
Concentrate produced 4.92 3.92 14.33 13.12
Saleable production
Pellets 2.62 2.27 7.33 7.45
CFS 2.11 1.41 5.93 4.86
Total(3) 4.73 3.68 13.26 12.31
Average index prices per tonne (US$)
65% Fe index(4) $ 115 $ 190 $ 148 $ 205
62% Fe index(5) $ 103 $ 163 $ 128 $ 177
Pellet premium(6) $ 80 $ 77 $ 76 $ 62
(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.
(in millions of tonnes)
Nine Months Ended
September 30,September 30,
Three Months Ended
represented 52% of sales in the third quarter of 2022, compared to 57% of sales in the same quarter of 2021 and the
second quarter of 2022.
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 $1.23 for the quarter (2021 - $2.15).
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, 2022
3 Months Ended
Sept. 30, 2021
9 Months Ended
Sept. 30, 2022
9 Months Ended
Sept. 30, 2021
(in thousands except for per share information)
Cash flow from operating activities $78,487 $137,298 $123,700 $295,850
Changes in amounts receivable, accounts
payable and income taxes payable
(8,828)
(9,963)
32,154
5,163
Adjusted cash flow $69,659 $198,037 $155,854 $301,013
Adjusted cash flow per share $ 1.09 $ 1.99 $ 2.44 $ 4.70
Liquidity and Capital Resources
The Corporation had $43.4 million in cash as at September 30, 2022 (December 31, 2021 - $82.9 million) with total current
assets of $107.9 million (December 31, 2021 - $132.6 million). The Corporation had working capital of $31.8 million as at
September 30, 2022 (December 31, 2021 - $29.6 million). The Corporation’s operating cash flow was $78.5 million and
the dividend paid during the quarter was $ 57.6 million, resulting in cash balances increasing by $ 20.9 million during the
third quarter of 2022. In September the Directors of the Corporation declared the third quarter dividend of $ 64 million
that was paid on October 26, 2022.
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 facilit y with a term ending September 18, 202 4 with provision for
annual one-year extensions. No amount is currently drawn under this facility (20 21 – nil) leaving $30.0 million available
to provide for any capital required by IOC or requirements of the Corporation.
Disclosure Controls and Internal Control over Financial Reporting
The President and CEO and the CFO are responsible for establishing and maintaining disclosure controls and procedures
and internal control over financial reporting for the Corporation. Two directors serve as directors of IOC and IOC provides
monthly reports on its operations to them. The Corporation also relies on financial information provided by IOC, including
its audited financial statements, and other material information provided to the President and CEO and the CFO by officers
of IOC. IOC is a private corporation, and its financial statements are not publicly available.
The Directors are informed of all material information relating to the Corporation and its subsidiary by the officers of the
Corporation on a timely basis and approve all core disclosure documents including the Management Information Circular,
the annual and interim financial statements and related Management’s Discussion and Analys is, the Annual Information
Form, any prospectuses and all press releases. An evaluation of the design and operating effectiveness of the
Corporation’s disclosure controls and procedures was conducted under the supervision of the CEO and CFO. Based on
their evaluation, they concluded that the Corporation’s disclosure controls and procedures were effective in ensuring that
all material information relating to the Corporation was accumulated and communicated for the three month period
ended September 30, 2022.
The President and CEO and the CFO have designed internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with IFRS. An evaluation of the design and operating effectiveness of the Corporation’s internal control
over financial reporting was conducted under the supervision of the CEO and CFO. Based on their evaluation, they
concluded that the Corporation’s internal control over financial reporting was effective and that there were no material
weaknesses therein for the three month period ended September 30, 2022.
The preparation of financial statements requires the Corporation’s management to make estimates and assumptions that
affect the reported amounts of the assets, liabilities, revenue and expenses reported each period. Each of these estimates
varies with respect to the level of judgment involved and the potential impact on the Corporation’s reported financial
results. Estimates are deemed critical when the Corporation’s financial condition, change in financial condition or results
of operations would be materially impacted by a different estimate or a change in estimate from period to period. By
their nature, these estimates are subject to measurement uncertainty, and changes in these estimates may affect the
consolidated financial statements of future periods.
No material changes in the Corporation’s internal control over financial reporting occurred during the three month
period ended September 30, 2022.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
November 3, 2022
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; the perfo rmance of IOC; market
conditions in the steel industry; fluctuations in the value of the Canadian and U.S. d ollar; mining risks that cause a disruption in operations and
availability of insurance; disruption in IOC’s operations caused by natural disasters, severe weather conditions and public health crises, including the
COVID-19 outbreak; failure of information systems or damage from cyber security attacks; adverse changes in domestic and global eco nomic and
political conditions; changes in government regulation and taxation; national , provincial and international laws, regulations and policies regarding
climate change that further limit the emissions of greenhouse gases or increase the costs of operations for IOC or its customers; changes affecting
IOC’s customers; competition from other iron ore producers; renewal of mining licences and leases; relationships with indigenous groups; litigation;
and uncertainty in the estimates of reserves and resources. A discussion of these factors is contained in LIORC’s annual info rmation form dated
March 11, 2022 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.