LIF.TO · 2012-09-30

Labrador Iron Ore Royalty Corporation - Results for the Third Quarter Ended September 30, 2012 ,

Financials

TORONTO, Nov. 1, 2012 /CNW/ - Labrador Iron Ore Royalty Corporation (TSX: LIF) announced today its operation and cash flow results for the third quarter ended September 30, 2012.

Royalty income for the third quarter of 2012 amounted to $32.1 million as compared to $54.4 million for the third quarter of 2011. The unitholder's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the third quarter was $18.5 million or $0.28 per unit as compared to $63.7 million or $0.99 per unit for the same period in 2011. Net income was $29.7 million or $0.47 per unit compared to $76.3 million or $1.19 per unit for the same period in 2011. Equity earnings from IOC amounted to $14.2 million or $0.22 per unit as compared to $47.0 million or $0.73 per unit in 2011.

In the third quarter IOC started to see the positive results of the first phase of its expansion program. The commissioning of the new ore delivery system and in-pit crusher is basically complete and the additional grinding mill is being commissioned, resulting in increased production and thus sales as compared to the first two quarters of this year and the corresponding 2011 quarter. The full benefits of this phase of the expansion will progressively be incorporated into production output, with the most significant benefits likely in the second quarter of 2013. Unfortunately, the positive increase in sales volume was more than offset by the sharp decrease in the price of iron ore which occurred in the quarter, resulting in our royalty revenue for the quarter being substantially less than last year's third quarter. Although the price drop took iron ore to levels not seen since 2009, prices have since made a substantial recovery and are currently more than 30% higher than the low reached in the quarter, which further demonstrates the current market volatility. Phase 2 of the expansion program is expected to be commissioned in the first half of next year. As a result of its ongoing capital program and the sharp price drop which affected IOC's cash flow and earnings, in order to preserve cash to cover its capital program and in view of the market volatility, IOC did not pay a dividend during the quarter (2011 - $31.2 million) which along with the lower royalty substantially reduced our cash flow as compared to last year's third quarter.

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 ($0.117 per stapled unit) and $22,464,000 ($0.351 per stapled unit) interest on the subordinated notes for the three months and nine months periods, respectively.

Results for the three months and nine months ended September 30 are summarized below:

3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2012 2011 2012 2011 (Unaudited)

Revenue (in millions)	$32.6	$ 54.9	$91.4	$ 123.7
Adjusted cash flow (in millions)	$18.5	$ 63.7	$55.2	$ 134.7
Adjusted cash flow per unit	$0.28	$ 0.99	$0.86	$ 2.10
Net income (in millions)	$29.7	$ 76.3	$89.5	$ 163.4
Net income per unit	$0.47	$ 1.19	$1.40	$ 2.55

"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 distributions to unitholders.

A summary of IOC's sales in millions of tonnes is as follows:

3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended Year

	Sept. 30,	Sept. 30,	Sept. 30,	Sept. 30,	Ended
	2012	2011	2012	2011	Dec. 31, 2011
Pellets	2.77	2.24	7.37	6.41	8.71
Concentrates	1.72	1.94	2.92	3.27	4.85
Total	4.49	4.18	10.29	9.68	13.56

Capital Restructuring

At the special meeting of holders of stapled units held on September 28, 2012, the holders approved the exchange of subordinated notes for common shares of LIORC and the consolidation of common shares. Approximately 99.9% of the votes cast at the meeting were in favour of the exchange. The transactions were completed with effect on October 3, 2012 and each holder ended up holding the same number of common shares as before the transactions and LIORC had 64 million common shares outstanding. The common shares trade on The Toronto Stock Exchange under the symbol LIF.

Subordinated Notes

This will be the last quarter which will have interest on the subordinated notes as an expense, as under the restructuring interest ceased to accrue after September 30, 2012. Also the payment made on October 25 to unitholders of record September 30 will be the last distribution that will be comprised of dividends and interest. Future distributions will be entirely dividends.

Outlook

We should see improved results in the fourth quarter, as we expect to see further increased sales volume as a result of the expected increased production and, if the price recovery of iron ore from its summer lows can be sustained, we should see increased royalty income and IOC should have increased earnings. Going forward, we expect to see increased sales from IOC as they get the full benefit of the increased production from the completed phases 1 and 2 of the expansion program.

Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,

Bruce C. Bone President and Chief Executive Officer November 1, 2012

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 1 expansion, we expect the percentage of sales to be higher than normal in the latter part of 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.

The same factors affecting the quarter affected the nine months with the additional factors of the start-up and integration of the phase 1 expansion into the operations along with the usual winter operating conditions during the first two quarters. Cash flow was substantially reduced because IOC did not pay any dividends during the period (2011- $60.2 million).

The following table sets out quarterly revenue, net income and cash flow data for 2012, 2011 and 2010.

Net Distributions Net Income Adjusted Cash Adjusted Cash Flow 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
Second Quarter(2)	$36.4	$36.8	$0.57	$22.3	$0.35	$0.375
Third Quarter(2)	$32.6	$29.7	$0.47	$18.5	$0.28	$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

(1)

Notes: "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 ($0.117 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 $0.22⁽¹⁾ for the quarter (2011 - $0.80⁽¹⁾). Cumulative standardized cash flow from inception of the Corporation is $16.65 per unit and total cash distributions since inception are $16.27 per unit, for a payout ratio of 98%.

"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 9 Months Ended 9 Months Ended

	Sept. 30, 2012	Sept. 30, 2011	Sept. 30, 2012 Sept. 30, 2011
Standardized cash flow from operating activities	$13,860,481	$51,667,679	$33,031,588	$109,120,236
Excluding: changes in amounts receivable, accounts payable and income taxes payable	(2,892,094)	4,520,122	(334,889)	3,102,446
Adjusted cash flow(1)	$10,968,387 $56,187,801 $32,696,699			$112,222,682
Adjusted cash flow per unit(1)	$0.17 $0.88		$0.51	$1.75

(1) Excludes note interest on subordinated notes paid directly to unitholders of $7,488,000 ($0.117 per stapled unit) and $22,464,000 ($0.351 per stapled unit) for the three months and nine months periods, respectively.

Liquidity

The Corporation has a $50 million revolving credit facility to September 18, 2014 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.

Capital Restructuring

At the special meeting of holders of stapled units held on September 28, 2012, the holders approved the exchange of subordinated notes for common shares of LIORC and the consolidation of common shares. Approximately 99.9% of the votes cast at the meeting were in favour of the exchange. The transactions were completed with effect on October 1, 2012 and each holder ended up holding the same number of common shares as before the transactions and LIORC had 64 million common shares outstanding. The common shares trade on The Toronto Stock Exchange under the symbol LIF.

Subordinated Notes

Outlook

We should see improved results in the fourth quarter, as we expect to see further increased sales volume as a result of the expected increased production and if the price recovery of iron ore from its summer lows can be sustained, we should see increased royalty income and IOC should have increased earnings. Going forward, we expect to see increased sales from IOC as they get the full benefit of the increased production from the completed phases 1and 2 of the expansion program.

Bruce C. Bone President and Chief Executive Officer Toronto, Ontario November 1, 2012

LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

As at September 30, December 31,

Canadian $ 2012 2011 (Unaudited)

Assets

Current Assets

Cash	$ 24,993,772 $	41,498,184
Amounts receivable (note 4)	32,259,832	40,669,780
Income taxes recoverable	6,840,871	392,173
Total Current Assets	64,094,475	82,560,137

Non-Current Assets Iron Ore Company of Canada ("IOC"),

royalty and commission interests	283,008,577	287,131,292
Investment in IOC	341,336,012	299,280,483
Total Non-Current Assets	624,344,589	586,411,775
Total Assets	$ 688,439,064 $ 668,971,912

Liabilities and Shareholders' Equity

Current Liabilities

Accounts payable	$ 6,793,028 $	8,419,389
Interest payable on subordinated notes	7,488,000	7,488,000
Dividend payable	16,512,000	16,512,000
Total Current Liabilities	30,793,028	32,419,389

Non-Current Liabilities

Deferred income taxes (note 6)	119,690,000	114,830,000
Subordinated notes	248,000,000	248,000,000
Total Non-Current Liabilities	367,690,000	362,830,000

Total Liabilities 398,483,028 395,249,389

Equity Share capital 69,708,147 69,708,147 Retained earnings 236,499,889 219,001,376 Accumulated other comprehensive loss (16,252,000) (14,987,000)

289,956,036 273,722,523

Total Equity and Liabilities $ 688,439,064 $ 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 September 30, Canadian $ 2012 2011 (Unaudited)

Revenue

IOC royalties $ 32,117,891 $ 54,421,894 IOC commissions 442,043 411,443 Interest and other income 78,363 107,890 32,638,297 54,941,227

Expenses

Newfoundland royalty taxes 6,423,578 10,884,379 Amortization of royalty and commission interests 1,355,487 1,313,290 Administrative expenses 720,569 525,507 Interest expense:

Credit facility 93,493 94,521 Subordinated notes 7,488,000 7,488,000 16,081,127 20,305,697

Income before equity earnings and income taxes 16,557,170 34,635,530 Equity earnings in IOC 14,155,835 46,984,091

Income before income taxes 30,713,005 81,619,621

Provision for income taxes

Current 6,944,270 10,933,465 Deferred 1,563,000 1,923,000 8,507,270 12,856,465

Net income for the period 22,205,735 68,763,156

Other comprehensive loss

Share of other comprehensive loss of IOC, net of tax (430,000) (372,000)

Comprehensive income for the period $ 21,775,735 $ 68,391,156

Net income per common share $ 0.35 $ 1.07

LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Nine Months Ended September 30, Canadian $ 2012 2011 (Unaudited)

Revenue

IOC royalties $ 90,124,124 $ 122,456,324 IOC commissions 1,010,820 952,746 Interest and other income 294,522 344,851 91,429,466 123,753,921

Expenses

Newfoundland royalty taxes 18,024,825 24,491,265 Amortization of royalty and commission interests 4,122,715 3,484,528 Administrative expenses 1,799,950 1,631,063 Interest expense:

Credit facility 281,507 280,480 Subordinated notes 22,464,000 22,464,000 46,692,997 52,351,336

Income before equity earnings and income taxes 44,736,469 71,402,585 Equity earnings in IOC (note 5) 43,535,529 96,667,045

Income before income taxes 88,271,998 168,069,630

Provision for income taxes (note 6)

Current 16,162,485 22,831,692 Deferred 5,075,000 4,329,000 21,237,485 27,160,692

Net income for the period 67,034,513 140,908,938

Other comprehensive loss

Share of other comprehensive loss of IOC, net of tax (1,265,000) (1,115,000)

Comprehensive income for the period $ 65,769,513 $ 139,793,938

Net income per common share $ 1.05 $ 2.20

LABRADOR IRON ORE ROYALTY CORPORATION INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30,

Canadian $ 2012 2011 (Unaudited)

Net inflow (outflow) of cash related to the following activities

Operating Net income for the period $ 67,034,513 $ 140,908,938 Items not affecting cash:

Equity earnings in IOC (43,535,529) (96,667,045)

Current income taxes 16,162,485 22,831,692 Deferred income taxes 5,075,000 4,329,000 Amortization of royalty and commission interests 4,122,715 3,484,528 Interest expense 22,745,507 22,744,480 Common share dividend from IOC - 60,167,261 Change in amounts receivable and accounts payable 6,783,587 (3,266,591)

Interest paid (22,745,507) (22,744,480)

Income taxes paid (22,611,183) (22,667,547)

Cash flow from operating activities 33,031,588 109,120,236

Financing Dividends paid to shareholders (49,536,000) (113,536,000)

Cash flow used in financing activities (49,536,000) (113,536,000)

Decrease in cash, during the period (16,504,412) (4,415,764)

Cash, beginning of period 41,498,184 73,611,888

Cash, end of period $ 24,993,772 $ 69,196,124

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		- 140,908,938		- 140,908,938
Dividends declared to shareholders		- (97,536,000)		- (97,536,000)
Share of other comprehensive loss from investment in IOC		-	- (1,115,000) (1,115,000)
Balance as at September 30, 2011	69,708,147 191,307,932		(5,386,000) 255,630,079
Balance as at December 31, 2011	69,708,147 219,001,376		(14,987,000) 273,722,523
Net income for the period		- 67,034,513		- 67,034,513
Dividends declared to shareholders		- (49,536,000)		- (49,536,000)
Share of other comprehensive loss from investment in IOC		-	- (1,265,000) (1,265,000)
Balance as at September 30, 2012	$ 69,708,147 $ 236,499,889 $		(16,252,000) $ 289,956,036

The complete consolidated financial statements for the third quarter ended September 30, 2012, including 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 E-mail: [email protected]

CO: Labrador Iron Ore Royalty Corporation

CNW 17:55e 01-NOV-12

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