Labrador Iron Ore Royalty Corporation results
Labrador Iron Ore Royalty Corporation results
for the first quarter ended March 31, 2019
TORONTO
,
May 13, 2019
/CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC", TSX: LIF)
announced today its operation and cash flow results for the first quarter ended
March 31, 2019
.
Royalty revenue for the first quarter of 2019 amounted to
$38.5 million
as compared to
$33.8 million
for the first quarter of 2018. Equity earnings from Iron Ore Company of
Canada
("IOC") amounted
to
$22.4 million
or
$0.35
per share in the first quarter of 2019 as compared to
$14.6 million
or
$0.23
per share in the first quarter of 2018. Net income was
$39.3 million
or
$0.61
per share for the first
quarter of 2019 compared to
$30.3 million
or
$0.47
per share for the same period in 2018. Cash
flow from operations for the first quarter was
$25.0 million
or
$0.39
per share as compared to
$20.3
million
or
$0.32
per share for the same period in 2018.
The cash flow from operations, equity earnings and net income for the first quarter of 2019 were
higher than the first quarter of 2018, despite lower sales of concentrate, as a result of higher prices
for concentrate and pellets. The average price for the Platts index for 62%
Fe Iron Ore
, CFR China
("62% Fe index") increased 12% to
US$83
per tonne in the first quarter of 2019 compared to the
average price in the first quarter of 2018 of
US$74
per tonne. Total IOC's sales for calculating the
royalty to LIORC - concentrate for sale ("CFS") plus pellets of 3.5 million tonnes - was 9% lower in
the first quarter of 2019 compared to the same period in 2018, largely as a result of CFS tonnages
being 39% lower than in the same period in 2018. The pellet sales tonnages in the first quarter of
2019 were 6% higher than in the first quarter of 2018.
LIORC's results for the three months ended
March 31
are summarized below:
(in millions except per share information)
3 Months
Ended
Mar. 31,
2019
3 Months
Ended
Mar. 31,
2018
(Unaudited)
Revenue
$39.2
$34.3
Cash flow from operations
$25.0
$20.3
Operating cash flow per share
$0.39
$0.32
Net income
$39.3
$30.3
Net income per share
$0.61
$0.47
Iron Ore Company of Canada Operations
Production
Frozen material and blocked feeders in the ore barn as a result of adverse weather in January and
February caused various delays which lowered production. There were also delays associated with
starting the mine development program with a new contractor in 2019. These were partially offset by
higher production in March, mainly due to higher than plan weight yield and robust feed from the
mine. As a result, total concentrate production in the first quarter of 2019 of 4.4 million tonnes was
7% higher than the first quarter of 2018.
As is usual for the first quarter of any year, due to weather, concentrate production in the first
quarter of 2019 was 12% lower than the fourth quarter of 2018.
The lower than budgeted concentrate production in the first quarter primarily affected CFS
production since pellet production was favoured due to continued strong demand and premiums.
CFS production in the first quarter of 2019 of 1.5 million tonnes was 11% higher than in the first
quarter of 2018 and 38% lower than the previous quarter. Pellet production in the first quarter of
2019 of 2.7 million tonnes was 2% higher than the first quarter of 2018 and 13% higher than the
previous quarter. The pellet plant production in the first quarter of 2019 was negatively impacted by
unplanned maintenance to induration machine #1, while lower pellet production than budgeted in the
fourth quarter of 2018 was mainly due to the rebuild of induration machine #4, which was deferred
from the second quarter of 2018 due to the strike.
Sales as Reported for the LIORC Royalty
First quarter 2019 total iron ore tonnage sold by IOC (CFS plus pellets) of 3.5 million tonnes was
9% lower in the first quarter of 2019 compared to the same period in 2018, largely as a result of
CFS tonnage being 39% lower than in the same period in 2018. Despite higher CFS production in
the first quarter of 2019 than in the same period in 2018, sales of CFS were lower in the first quarter
of 2019 compared to the first quarter of 2018 due to timing differences. In the first quarter of 2019,
the pellet sales tonnage was 6% higher than in the first quarter of 2018.
IOC sells CFS based on the Platts index for 65%
Fe Iron Ore
, CFR China ("65% Fe index"). The
average price for the 65% Fe Index increased 6% to
US$95
per tonne in the first quarter of 2019
compared to the average price in the first quarter of 2018 of
US$90
per tonne. The seaborne iron
ore prices were affected by a reduction of iron ore supply by Vale as a result of the collapse of the
tailings dam at Vale's Córrego do Feijão mine in Brumadinho, Minas Gerais state,
Brazil
("Brumadinho") and subsequent closing of other dams. The premium for the 65% Fe index compared
to the 62% Fe index, which had been expanding over the last few years as the Chinese governments
enacted and enforced measures to reduce pollution, declined somewhat in the first quarter of 2019
to 15%, as compared to 22% in the first quarter of 2018. The quarterly Atlantic Basin blast furnace
pellet premium, as reported by Platts, averaged
US$67
per tonne in the first quarter of 2019, a 16%
increase over the first quarter of 2018 and 10% higher than the fourth quarter of 2018.
The Canadian dollar was 5% weaker in the first quarter of 2019 as compared to the first quarter of
2018. As a result of higher concentrate and pellet prices, and the effect of the weaker Canadian
dollar, somewhat offset by reduced concentrate sales tonnages, the royalty revenue for LIORC in
the first quarter of 2019 was 14% higher than the royalty revenue in last year's first quarter.
A summary of IOC's sales for calculating the royalty to LIORC in millions of tonnes is as follows:
3 Months
Ended
Mar. 31,
2019
3 Months
Ended
Mar. 31,
2018
Year
Ended
Dec. 31,
2018
Pellets
2.70
2.54
8.41
Concentrates
(1)
0.83
1.35
6.70
Total
(2)
3.53
3.89
15.10
(1)
Excludes third party ore sales
(2)
Totals may not add up due to rounding
Outlook
The outlook for LIORC remains positive. Rio Tinto's 2019 guidance for IOC's saleable production of
CFS and pellets remains unchanged at between 19.2 and 20.9 million tonnes on a 100% basis.
Benchmark amounts for concentrate and pellet premiums remain attractive. The Brumadinho dam
failure on
January 25
, 2019 and subsequent closures resulted in approximately 10% of the world's
iron ore pellet production being removed from the market. The major suppliers of pellets are
generally operating at near planned capacity with no new pellet plants or additional capacity coming
on line in the short or medium term. In addition, long-term fundamental changes, such as
China
taking action to reduce the effects of pollution and placing a greater emphasis on producing higher
quality steel products, could provide continued support for higher quality iron ore products, like those
sold by IOC. LIORC can expect strong royalty revenue and the possibility of IOC dividends, if these
market conditions continue.
The LIORC cash balance at
March 31, 2019
stood at
$67.1 million
before LIORC dividends payable
on
April 25, 2019
of
$1.05
per share or
$67.2 million
. The net royalty from IOC was paid on the
same date, maintaining the Corporation's strong cash balance. On
May 9, 2019
the Board of IOC
declared a dividend of
US$125 million
, payable to shareholders of IOC on
May 23, 2019
.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,
John F. Tuer
President and Chief Executive Officer
May 13, 2019
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 2018 Annual Report, and the financial
statements and notes contained therein and the
March 31, 2019
interim condensed consolidated
financial statements. 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 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 revenue for the first quarter of 2019 amounted to
$38.5 million
as compared to
$33.8 million
for the first quarter of 2018. Equity earnings from IOC amounted to
$22.4 million
or
$0.35
per share
in the first quarter of 2019 as compared to
$14.6 million
or
$0.23
per share in the first quarter of
2018. Net income was
$39.3 million
or
$0.61
per share for the first quarter of 2019 compared to
$30.3 million
or
$0.47
per share for the same period in 2018. Cash flow from operations for the first
quarter was
$25.0 million
or
$0.39
per share as compared to
$20.3 million
or
$0.32
per share for
the same period in 2018.
The cash flow from operations, equity earnings and net income for the first quarter of 2019 were
higher than the first quarter of 2018, despite lower sales of concentrate, as a result of higher prices
for concentrate and pellets. The average price for the 62% Fe index increased 12% to
US$83
per
tonne in the first quarter of 2019 compared to the average price in the first quarter of 2018 of
US$74
per tonne. Total IOC's sales for calculating the royalty to LIORC - CFS plus pellets of 3.5 million
tonnes - was 9% lower in the first quarter of 2019 compared to the same period in 2018, largely as
a result of CFS tonnages being 39% lower than in the same period in 2018. The pellet sales
tonnages in the first quarter of 2019 were 6% higher than in the first quarter of 2018.
Frozen material and blocked feeders in the ore barn as a result of adverse weather in January and
February caused various delays which lowered production. There were also delays associated with
starting the mine development program with a new contractor in 2019. These were partially offset by
higher production in March, mainly due to higher than plan weight yield and robust feed from the
mine. As a result, total concentrate production in the first quarter of 2019 of 4.4 million tonnes was
7% higher than the first quarter of 2018. As is usual for the first quarter of any year, due to weather,
concentrate production in the first quarter of 2019 was 12% lower than the fourth quarter of 2018.
The lower than budgeted concentrate production in the first quarter primarily affected CFS
production since pellet production was favoured due to continued strong demand and premiums.
CFS production in the first quarter of 2019 of 1.5 million tonnes was 11% higher than in the first
quarter of 2018 and 38% lower than the previous quarter. Pellet production in the first quarter of
2019 of 2.7 million tonnes was 2% higher than the first quarter of 2018 and 13% higher than the
previous quarter. The pellet plant production in the first quarter of 2019 was negatively impacted by
unplanned maintenance to induration machine #1, while lower pellet production than budgeted in the
fourth quarter of 2018 was mainly due to the rebuild of induration machine #4, which was deferred
from the second quarter of 2018 due to the strike.
First quarter 2019 total iron ore tonnage sold by IOC (CFS plus pellets) of 3.5 million tonnes was
9% lower in the first quarter of 2019 compared to the same period in 2018, largely as a result of
CFS tonnage being 39% lower than in the same period in 2018. Despite higher CFS production in
the first quarter of 2019 than in the same period in 2018, sales of CFS were lower in the first quarter
of 2019 compared to the first quarter of 2018 due to timing differences. In the first quarter of 2019,
the pellet sales tonnage was 6% higher than in the first quarter of 2018.
IOC sells CFS based on the Platts index for the 65% Fe index. The average price for the 65% Fe
Index increased 6% to
US$95
per tonne in the first quarter of 2019 compared to the average price in
the first quarter of 2018 of
US$90
per tonne. The seaborne iron ore prices were affected by a
reduction of iron ore supply by Vale as a result of the collapse of the tailings dam in Brumadinho and
subsequent closing of other dams. The premium for the 65% Fe index compared to the 62% Fe
index, which had been expanding over the last few years as the Chinese governments enacted and
enforced measures to reduce pollution, declined somewhat in the first quarter of 2019 to 15%, as
compared to 22% in the first quarter of 2018. The quarterly Atlantic Basin blast furnace pellet
premium, as reported by Platts, averaged
US$67
per tonne in the first quarter of 2019, a 16%
increase over the first quarter of 2018 and 10% higher than the fourth quarter of 2018.
The Canadian dollar was 5% weaker in the first quarter of 2019 as compared to the first quarter of
2018. As a result of higher concentrate and pellet prices, and the effect of the weaker Canadian
dollar, somewhat offset by reduced concentrate sales tonnages, the royalty revenue for LIORC in
the first quarter of 2019 was 14% higher than the royalty revenue in last year's first quarter.
The following table sets out quarterly revenue, net income and cash flow data for 2019, 2018 and
2017.
Revenue
Net
Income
Net
Income
per Share
Cash
Flow
Cash Flow
from
Operations
per Share
Adjusted
Cash Flow
per Share
(1)
Dividends
Declared per
Share
(in millions except per share information)
2019
First Quarter
$39.2
$39.3
$0.61
$25.0
$0.39
$0.34
$1.05
2018
First Quarter
$34.3
$30.3
$0.47
$20.3
$0.32
$0.29
$0.35
Second Quarter
$5.2
$(3.3)
$(0.05)
$15.5
$0.24
$0.04
$0.25
Third Quarter
$44.6
$58.1
$0.91
$59.7
(2)
$0.93
(2)
$1.30
(2)
$0.55
Fourth Quarter
$46.8
$43.4
$0.68
$53.3
(3)
$0.83
(3)
$0.79
(3)
$0.60
2017
First Quarter
$43.4
$42.9
$0.67
$28.2
(4)
$0.44
(4)
$0.53
(4)
$0.50
Second Quarter
$34.2
$32.3
$0.50
$45.6
(5)
$0.71
(5)
$0.53
(5)
$0.60
Third Quarter
$40.4
$43.8
$0.69
$53.6
(6)
$0.84
(6)
$0.85
(6)
$1.00
Fourth Quarter
$40.6
$38.3
$0.60
$39.6
(7)
$0.62
(7)
$0.65
(7)
$0.55
(1)
"Adjusted cash flow" (see below)
(2)
Includes $58.6 million IOC dividend
(3)
Includes $25.3 million IOC dividend
(4)
Includes $10.0 million IOC dividend
(5)
Includes $15.2 million IOC dividend
(6)
Includes $32.2 million IOC dividend
(7)
Includes $19.3 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 dividends. Standardized cash flow per share was
$0.39
for
the quarter (2018 -
$0.32
). Cumulative standardized cash flow from inception of the Corporation is
$27.86
per share and total cash distributions since inception is
$27.39
per share, for a payout ratio
of 98%.
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
'000's).
3 Months Ended
Mar. 31, 2019
3 Months Ended
Mar. 31, 2018
Standardized cash flow from operating activities
$24,963
$20,277
Changes in amounts receivable, accounts payable and income taxes
payable
(3,451)
(1,591)
Adjusted cash flow
$21,512
$18,686
Adjusted cash flow per share
$0.34
$0.29
Liquidity and Capital Resources
The Corporation had
$67.1 million
in cash as at
March 31, 2019
(
December 31, 2018
-
$80.5 million
)
with total current assets of
$107.4 million
(
December 31, 2018
-
$127.0 million
). The Corporation
had working capital of
$30.4 million
as at
March 31, 2019
(
December 31, 2018
-
$76.3 million
). The
Corporation's operating cash flow for the quarter was
$25.0 million
and the dividend paid during the
quarter was
$38.4 million
, resulting in cash balances decreasing by
$13.4 million
during the first
quarter of 2019.
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 had increased its cash balance based on the directors' view that it was prudent at
that particular time to have some additional financial flexibility. On
March 7, 2019
the directors
determined that the cash balance be reduced to a more typical level with excess cash distributed to
shareholders by means of a special dividend to be paid on
April 25, 2019
.
The Corporation has a
$50 million
revolving credit facility with a term ending
September 18, 2021
with provision for annual one-year extensions. No amount is currently drawn under this facility
(2018– nil) leaving
$50.0 million
available to provide for any capital required by IOC or requirements
of the Corporation.
Outlook
The outlook for LIORC remains positive. Rio Tinto's 2019 guidance for IOC's saleable production of
CFS and pellets remains unchanged at between 19.2 and 20.9 million tonnes on a 100% basis.
Benchmark amounts for concentrate and pellet premiums remain attractive. The Brumadinho dam
failure on
January 25, 2019
and subsequent closures resulted in approximately 10% of the world's
iron ore pellet production being removed from the market. The major suppliers of pellets are
generally operating at near planned capacity with no new pellet plants or additional capacity coming
on line in the short or medium term. In addition, long-term fundamental changes, such as
China
taking action to reduce the effects of pollution and placing a greater emphasis on producing higher
quality steel products, could provide continued support for higher quality iron ore products, like those
sold by IOC. LIORC can expect strong royalty revenue and the possibility of IOC dividends, if these
market conditions continue.
The LIORC cash balance at
March 31, 2019
stood at
$67.1 million
before LIORC dividends payable
on
April 25, 2019
of
$1.05
per share or
$67.2 million
. The net royalty from IOC was paid on the
same date, maintaining the Corporation's strong cash balance. On
May 9, 2019
the Board of IOC
declared a dividend of
US$125 million
, payable to shareholders of IOC on
May 23, 2019
.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
May 13, 2019
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, the renewal of the mining leases, outcomes of existing or future litigation, relationships
with aboriginal groups, changes affecting IOC's customers, competition from other iron ore
producers, estimates of reserves and resources and government regulation and taxation. A
discussion of these factors is contained in LIORC's annual information form dated
March 7, 2019
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
March 31,
December 31,
(in thousands of Canadian dollars)
2019
2018
(Unaudited)
Assets
Current Assets
Cash and short-term investments
$
67,058
$
80,495
Amounts receivable
40,348
46,548
Total Current Assets
107,406
127,043
Non-Current Assets
Iron Ore Company of Canada ("IOC")
royalty and commission interests
252,239
253,846
Investment in IOC
406,350
382,704
Total Non-Current Assets
658,589
636,550
Total Assets
$
765,995
$
763,593
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable
$
8,441
$
9,969
Dividend payable
67,200
38,400
Taxes payable
1,392
2,613
Total Current Liabilities
77,033
50,982
Non-Current Liabilities
Deferred income taxes
124,910
121,760
Total Liabilities
201,943
172,742
Shareholders' Equity
Share capital
317,708
317,708
Retained earnings
252,815
280,759
Accumulated other comprehensive loss
(6,471)
(7,616)
564,052
590,851
Total Liabilities and Shareholders' Equity
$
765,995
$
763,593
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
March 31,
(in thousands of Canadian dollars except for per share information)
2019
2018
(Unaudited)
Revenue
IOC royalties
$
38,496
$
33,811
IOC commissions
348
383
Interest and other income
366
119
39,210
34,313
Expenses
Newfoundland royalty taxes
7,699
6,762
Amortization of royalty and commission interests
1,607
1,329
Administrative expenses
770
862
10,076
8,953
Income before equity earnings and income taxes
29,134
25,360
Equity earnings in IOC
22,408
14,649
Income before income taxes
51,542
40,009
Provision for income taxes
Current
9,229
8,003
Deferred
2,964
1,755
12,193
9,758
Net income for the period
39,349
30,251
Other comprehensive income (loss)
Share of other comprehensive loss of IOC that will not be
reclassified subsequently to profit or loss (net of income taxes
of 2019 - $202; 2018 - $5)
1,145
(27)
Comprehensive income for the period
$
40,494
$
30,224
Net income per share
$
0.61
$
0.47
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
(in thousands of Canadian dollars)
2019
2018
(Unaudited)
Net inflow (outflow) of cash related
to the following activities
Operating
Net income for the period
$
39,349
$
30,251
Items not affecting cash:
Equity earnings in IOC
(22,408)
(14,649)
Current income taxes
9,229
8,003
Deferred income taxes
2,964
1,755
Amortization of royalty and commission interests
1,607
1,329
Change in amounts receivable
6,200
7,667
Change in accounts payable
(1,528)
(1,526)
Income taxes paid
(10,450)
(12,553)
Cash flow from operating activities
24,963
20,277
Financing
Dividend paid to shareholders
(38,400)
(35,200)
Cash flow used in financing activities
(38,400)
(35,200)
Decrease in cash, during the period
(13,437)
(14,923)
Cash, beginning of period
80,495
40,498
Cash, end of period
$
67,058
$
25,575
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY