Labrador Iron ORE Royalty Corporation - Results FOR the Second Quarter Ended June 30, 2023
P R E S S R E L E A S E
Toronto, August 2, 2023
LABRADOR IRON ORE ROYALTY CORPORATION - RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2023
Labrador Iron Ore Royalty Corporation (“LIORC”, TSX: LIF) announced today its operation and cash flow results for the
first quarter ended June 30, 2023.
To the Holders of Common Shares of Labrador Iron Ore Royalty Corporation
The Directors of Labrador Iron Ore Royalty Corporation ("LIORC" or the "Corporation") present the second quarter
report for the period ended June 30, 2023.
Financial Performance
In the second quarter of 2023, LIORC’s financial results were negatively affected by lower iron ore prices and a change
in product sales mix (lower sales volumes of pellets and higher sales volumes of concentrate for sale (“C FS”)). Royalty
revenue for the second quarter of 2023 amounted to $50.9 million compared to $65.9 million for the second quarter of
2022. Equity earnings from Iron Ore Company of Canada (“IOC”) were $ 13.5 million in the second quarter of 2023
compared to $47.2 million in the second quarter of 2022, as a result of lower revenue and higher operating costs at IOC.
Net income per share for the second quarter of 2023 was $0.65 per share, which was a 47% decrease over the same
period in 2022. LIORC received a div idend from IOC in the amount of $ 19.9 million in the second quarter of 2023,
compared to a dividend from IOC in the amount of $19.6 million in the second quarter of 2022. The adjusted cash flow
per share for the second quarter of 2023 was $0.75 per share, which was 15% lower than in the same period in 2022, as
a result of lower royalty revenues. While adjusted cash flow is not a recognized measure under International Financial
Reporting Standards (“IFRS”), the Directors believe that it is a useful analytica l measure as it better reflects cash
available for dividends to shareholders.
In the second quarter of 2023, iron ore prices declined from the levels experienced in 2022 and in the first quarter of
2023, predominantly as a result of lower global steel production, and continuing concerns over China’s economy and its
property sector, in particular. According to the World Steel Association, global crude steel production decreased 2.6% in
the second quarter of 2023 over the second quarter of 2022. In China, which accounts for over 70% of all seaborne iron
ore demand, crude steel production decreased 2.9% in the second quarter of 2023 over the second quarter of 2022.
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 2023, the 65% Fe index averaged US$124 per tonne, a 23% decrease over the average of US$160 per tonne in
the second quarter of 2022, and an 11% decrease over the average of US$ 140 in the first quarter of 2023. In addition,
low steel production margins in China caused steel mills to prefer medium-grade fines over high-grade fines. As a result,
the spread of the 65% Fe index over the Platts index for 62% Fe, CFR China (“62% Fe Index”) narrowed in the second
quarter of 2023 to $13 per tonne from $22 per tonne in the second quarter of 2022. The monthly Atlantic Blast Furnace
65% Fe pellet premium index as quoted by Platts (the “pellet premium”) averaged US$ 47 per tonne in the seco nd
quarter of 2023, down 42% from an average of US$81 per tonne in the same quarter of 2022.
Rio Tinto has disclosed that the average realised price achieved for IOC pellets, FOB Sept Îles, in the second quarter of
2023 was US$151 per tonne, compared to US$2 06 per tonne in the same quarter of 202 2. Based on sal es as reported
for the LIORC Royalty, the overall average price realized by IOC for CFS and pellets, FOB Sept -Îles, was approximately
US$125 per tonne in the second quarter of 2023, compared to approximately US$168 per tonne in the second quarter
of 2022 and US$136 per tonne in the first quarter of 2023.
Iron Ore Company of Canada Operations
Operations
IOC concentrate production of 3.8 million tonnes in the second quarter of 2023 was 24% lower than the same quarter of
2022 and 17% lower than in the fir st quarter of 2023, mainly due to the impact of the forest fires and resulting issues
related to stockpile management in June, as well as issues with weather and ore car reliability earlier in the quarter.
The IOC saleable production (CFS plus pellets) of 3.5 million tonnes in the second quarter of 2023 was 21% lower than
the same period in 2022, due to the lack of concentrate feed as a re sult of the factors referred to above . The IOC
saleable production in the second quarter of 2023 was 18% lower than the first quarter of 2023.
Pellet production in the second quarter of 2023 of 1.6 million tonnes was 29% lower than the corresponding quarter in
2022 and 27% lower than the first quarter of 2023. Pellet production in the second quarter of 2023 was negatively
impacted by the forest fires in June , as well as an increase in the duration of the induration machine 3 rebuild. In the
second quarter of 2023, CFS production of 1.9 million tonnes was 13% lower than the same quarter last year and 10%
lower than the fi rst quarter of 2023, due to the reduction of concentrate produc tion in June as a result of the forest
fires and the overrun of the annual maintenance shutdown.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.4 million tonnes in the second quarter of 2023 was 2% higher
than the total sales tonnage for the same period in 2022 and 21% higher than the first quarter of 2023, as IOC drew
down inventory, despite the negative impact of the forest fire s and the annual maintenance shutdown in June. Pellet
sales tonnage in the second quarter of 2023 was 6% lower than the same period in 2022 and 18% higher than the first
quarter of 2023. CFS sales tonnage was 14% higher than the same quarter last year and 24% highe r than the first
quarter of 2023.
Outlook
Rio Tinto’s 202 3 guidance for IOC’s saleable production (CFS plus pellets) has been lowered to 17.0 million to 18.7
million tonnes (previously 17.9 million to 19.6 million tonnes) as a result of lost production i n June due to wildfires
in Northern Quebec, together with a slightly extended annual maintenance shutdown. This revised guidance compares
to 1 7.6 million tonnes of saleable production in 202 2. As reported in the 202 2 Annual Report, IOC has set a capital
expenditure budget of $534 million for 2023, as it looks to continue renewing the asset infrastructure and to improve
the production results at IOC. Year-to-date, IOC is on track with regards to its capital expenditure s, and its budget
remains unchanged.
There continues to be a number of adverse issues affecting the outlook for the seaborne iron ore market. In China,
extreme weather and unfavorable steel producer margins, are predicted to negatively impact the demand outlook for
steel production. Tempering t his negative sentiment, is the expectation that the Chinese government will announce
measures to support the troubled property market which consumes about one -third of China's steel output. This could
include lending rate cuts and potentially additional st imulus moving forward. More recently, i n July 2023 the average
price of the 65% Fe index was US$126 per tonne, roughly equivalent to the average of the 65% Fe index for the second
quarter of 2023. The pellet premiums have also improved modestly. The pellet premium for July was US$49 per tonne
compared to the average of US$47 per tonne in the second quarter of 2023.
LIORC has no debt and at June 30, 2023 had positive net working capital (current assets less current liabilities) of $ 29.8
million, which incl uded the second quarter net royalty payment received from IOC on July 25, 2023 and the LIORC
dividend in the amount of $0.65 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
August 2, 2023
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”) 2022 Annual Report, and the financial
statements and notes contained therein and the June 30, 2023 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 Corporat ion’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 fai rly 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
2023 2022 2023 2022
Revenue 51.5 66.4 98.8 120.5
Equity earnings from IOC 13.5 47.2 35.4 87.6
Net income 41.9 78.4 85.4 141.7
Net income per share $ 0.65 $ 1.23 $ 1.33 $ 2.21
Dividend from IOC 19.9 19.6 19.9 19.6
Cash flow from operations 40.9 41.1 60.4 45.2
Cash flow from operations per share (1) $ 0.64 $ 0.64 $ 0.94 $ 0.71
Adjusted cash flow (1) 48.3 56.4 74.4 86.2
Adjusted cash flow per share (1) $ 0.75 $ 0.88 $ 1.16 $ 1.35
Dividends declared per share $ 0.65 $ 0.90 $ 1.15 $ 1.40
(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.
($ in millions except per share information)
Six Months Ended
June 30,
Three Months Ended
June 30,
The lower revenue, net income and equity earnings achieved in the second quarter of 2023 as compared to 2022 were
mainly due to lower iron ore prices, and a change in product sales mix (lower sales volumes of pellets and higher sales
volumes of CFS). The second quarter of 2023 sales tonnage (pellets and CFS) were higher by 2% than the second quarter
of 2022 predominantly due to IOC drawing down inventory at the port facility in Sept -Îles, despite the negative impact
of the forest fire s and the annual maintenance shutdown in June. CFS sales tonnage was 14% higher than the same
quarter last year and pellet sales tonnage was 6% lower than the same period in 2022.
However, the slightly higher sales tonnage was more than offset by a decrease in the realized sales price of pellets and
CFS, resulting in royalty income of $ 50.9 million for the quarter as compared to $ 65.9 million for the same period in
2022. Second quarter 2023 cash flow from operations was $40.9 million or $0.64 per share compared to $41.1 million
or $0.64 per share for the same period in 2022. LIORC received an IOC dividend in the second quarter of 2023 in the
amount of $19.9 million or $0.31 per share compared to $19.6 million for the same period in 2022. Equity earnings from
IOC amounted to $13.5 million or $0.21 per share in the second quarter of 2023 compared to $47.2 million or $0.74 per
share for the same period in 2022.
Operating Highlights
IOC Operations 2023 2022 2023 2022
Sales(1)
Pellets 2.30 2.46 4.26 4.89
Concentrate for sale ("CFS") (2) 2.09 1.84 3.79 2.99
Total(3) 4.40 4.30 8.05 7.88
Production
Concentrate produced 3.83 5.03 8.46 9.41
Saleable production
Pellets 1.61 2.25 3.79 4.71
CFS 1.91 2.18 4.02 3.82
Total(3) 3.51 4.43 7.81 8.53
Average index prices per tonne (US$)
65% Fe index(4) $ 124 $ 160 $ 132 $ 165
62% Fe index(5) $ 111 $ 138 $ 118 $ 140
Pellet premium(6) $ 47 $ 81 $ 46 $ 74
(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)
Six Months Ended
June 30,June 30,
Three Months Ended
IOC sells CFS based on the 65% Fe index. In the second quarter of 2023, the 65% Fe index averaged US$124 per tonne, a
23% decrease over the average of US$ 160 per tonne in the second quarter of 20 22. Iron ore prices decreased,
predominantly as a result of lower global steel production, and continuing concerns over China’s economy and its
property sector, in particular. The monthly pellet premium averaged US$ 47 per tonne in the second q uarter of 20 23,
down 42% from an average of US$81 per tonne in the same 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$125 per tonne in the second quarter of 2023, compared to approximately US$168 per tonne
in the second quarter of 2022 and US$136 per tonne in the first quarter of 2023. The decrease in the average realized
price FOB Sept-Îles in 2023 was a result of lower CFS prices and lower pellet prices (comprised of lower iron ore index
pricing and lower pellet premiums).
Standardized Cash Flow and Adjusted Cash Flow
For the Corpor ation, 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 $0.64 for the quarter (2022 - $0.64).
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 a nd 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 dividends to shareholders.
The following reconciles standardized cash flow from operating activities to adjusted cash flow.
3 Months Ended
Jun. 30, 2023
3 Months Ended
Jun. 30, 2022
6 Months Ended
Jun. 30, 2023
6 Months Ended
Jun. 30, 2022
(in millions except for per share information)
Standardized cash flow from operating
activities
$40.9 $41.1 $60.4 $45.2
Changes in amounts receivable, accounts
payable and income taxes payable
7.4
15.3
14.0
41.0
Adjusted cash flow $48.3 $56.4 $74.4 $86.2
Adjusted cash flow per share $0.75 $0.88 $1.16 $1.35
Liquidity and Capital Resources
The Corporation had $ 23.5 million in cash as at June 30, 2023 (December 31, 2022 - $39.9 million) with total current
assets of $82.6 million (December 31, 2022 - $83.0 million). The Corporation had working capital of $29.8 million as at
June 30, 2023 (December 31, 2022 - $28.9 million). The Corporation’s operating cash flow was $ 40.9 million and the
dividend paid during the quarter was $32 million, resulting in cash balances increasing by $8.9 million during the second
quarter of 2023. In June the Directors of the Corporation declared the second quarter dividend of $41.6 million that was
paid on July 26, 2023.
Cash balances consist of deposits in Canadian dollars with a Canadian chartered bank. Amounts re ceivable 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% royal ty, 10 cents
commission per tonne and dividends from its 15.10% equity interest in IOC. The Corporation normally pays cash
dividends from the free cash flow generated from IOC 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, 2025 with provision for
annual one-year extensions. No amount is currently drawn under this facility ( 2022 – 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 2, 2023
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 expresse d or implied by such
forward-looking statements. Words such as “may”, “will”, “expect”, “believe”, “plan”, “intend”, “should”, “would”, “anticipate” and o ther 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 uncertain ties, 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 performance of
IOC; market conditi ons in the steel industry; fluctuations in the value of the Canadian and U.S. dollar; mining risks that cause a disruption in
operations and availability of insurance; disruption in IOC ’s operations caused by natural disasters, severe weather conditions an d public health
crises, including the COVID -19 outbreak; failure of information systems or damage from cyber security attacks; adverse changes in domestic and
global economic and politi cal 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 operation s for IOC o r its
customers; changes affecting IOC’s customers; competition from ot her iron ore producers; renewal of mining licenses 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 information form dated March 7, 2023 under the heading, “Risk Factors”. Although the forward-looking statements contained in this report
are based upon what management of LIORC believes are reasonable assump tions, 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
June 30, December 31,
(in thousands of Canadian dollars) 2023 2022
Assets
Current Assets
Cash 23,520$ 39,904$
Amounts receivable 54,686 42,758
Income taxes recoverable 4,404 357
Total Current Assets 82,610 83,019
Non-Current Assets
Iron Ore Company of Canada ("IOC")
royalty and commission interests 225,872 228,918
Investment in IOC 528,927 513,828
Total Non-Current Assets 754,799 742,746
Total Assets 837,409$ 825,765$
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities 11,246$ 9,286$
Dividend payable 41,600 44,800
Total Current Liabilities 52,846 54,086
Non-Current Liabilities
Deferred income taxes 135,590 134,220
Total Liabilities 188,436 188,306
Shareholders' Equity
Share capital 317,708 317,708
Retained earnings 336,650 324,821
Accumulated other comprehensive loss (5,385) (5,070)
648,973 637,459
Total Liabilities and Shareholders' Equity 837,409$ 825,765$
-
Approved by the Directors,
John F. Tuer Patricia M. Volker
Director Director
As at
(Unaudited)
LABRADOR IRON ORE ROYALTY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands of Canadian dollars except for per share information) 2023 2022
Revenue
IOC royalties 50,941$ 65,907$
IOC commissions 433 423
Interest and other income 163 38
51,537 66,368
Expenses
Newfoundland royalty taxes 10,188 13,181
Amortization of royalty and commission interests 1,464 2,017
Administrative expenses 774 641
12,426 15,839
Income before equity earnings and income taxes 39,111 50,529
Equity earnings in IOC 13,543 47,195
Income before income taxes 52,654 97,724
Provision for income taxes
Current 12,174 15,744
Deferred (1,384) 3,551
10,790 19,295
Net income for the period 41,864 78,429
Other comprehensive (loss) income
Share of other comprehensive (loss) income of IOC that will not be
reclassified subsequently to profit or loss (net of income taxes
of 2023 - $56; 2022 - $989) (315) 5,602
Comprehensive income for the period 41,549$ 84,031$
Net income per share 0.65$ 1.23$
For the Three Months Ended
June 30,