Labrador Iron ORE Royalty Corporation - Results FOR the Second Quarter Ended June 30, 2022
P R E S S R E L E A S E
Toronto, August 4, 2022
LABRADOR IRON ORE ROYALTY CORPORATION - RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2022
Labrador Iron Ore Royalty Corporation (“LIORC”, TSX: LIF) announced today its operation and cash flow results for the
second quarter ended June 30, 2022.
Financial Performance
In the second 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 pellets and concentrate for sale (“CFS”) sales. Royalty revenue for the
second quarter of 202 2 amounted to $ 65.9 million compared to $78.8 million for the second quarter of 202 1. Equity
earnings from Iron Ore Company of Canada (“IOC”) were $47.2 million in the second quarter of 2022 compared to $66.2
million in the second quarter of 202 1. Net income per share for the second quarter of 2 022 was $1.23 per share, which
was a 29% decrease over the same period in 2021. The adjusted cash flow per share for the second quarter of 202 2 was
$0.88 per share, which was 52% lower than in the same period in 202 1, as a result of lower royalty revenues and
because LIORC received a dividend from IOC in the amount of $ 19.6 million from IOC in the second quarter of 2022,
compared to a dividend from IOC in the amount of $74.4 million in the second quarter of 2021.
In the second quarter of 2022, iron ore prices declined from the record levels experienced in 2021, predominantly as a
result of lower steel production. According to the World Steel Association, global crude steel production decreased 5%
in the second quarter of 2022 over the second quarter of 2021, as supply chain disruptions impacted the demand for
steel and higher energy prices negatively affected steel producer margins. In China, which accounts for over 70% of all
seaborne iron ore demand, crude steel production decreased 4% in the second quarter of 2022 over the second quarter
of 2021, due to concerns about the country’s property construction and infrastructure sectors.
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 quo ted 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 2022, the 65% Fe index averaged US$160 per tonne, a 31% decrease over the average of US$233 per tonne in
the second quarter of 2021, and a 6% decrease over the average of US$ 170 in the first quarter of 2022. The monthly
Atlantic Blast Furnace 65% Fe pellet premium index as quoted by Platts (the “pellet premium”) averaged US$ 81 per
tonne in the second quarter of 2022, up 24% from an average of US$65 in the same quarter of 2021.
Rio Tinto has disclosed that the average realised price achieved for IOC pellets, FOB Sept -Îles, in the second quarter of
2022 was US$206 per tonne, compared to US$247 per tonne in the same quarter of 202 1. Based on sales as reported
for the LIORC Royalty, the o verall average price realized by IOC for CFS and pellets, FOB Sept -Îles, was approximately
US$168 per tonne in the second quarter of 2022, compared to approximately US$222 per tonne in the second quarter
of 2021 and US$173 per tonne in the first quarter of 2022.
Iron Ore Company of Canada Operations
Operations
IOC concentrate production of 5.0 million tonnes in the second quarter of 2022 was 5% higher than the same quarter of
2021 and 15% higher than in the first quarter of 2022 , despite the negative impact of the planned 7 -day annual
maintenance shutdown which was successfully completed in June (vs September in 2021) . While crushed ore (feed to
the concentrator) in the second quarter of 2022 was comparable to the second quarter of 2021, IOC benefited from a
higher weight yield, as a greater percentage of ore came from the Moss pit.
The IOC saleable production (CFS plus pellets) of 4.4 million tonnes in the second quarter of 2022 was 4% lower than
the same period in 2021, due to a negative stockpile survey adjustment and lower pellet recovery rates during the
quarter. Saleable production in the second quarter of 2022 was also negatively impacted by the annual maintenance
shutdown in June referred to above. The IOC saleable production in the second quarter of 2022 was 8% higher than the
first quarter of 2022.
Pellet production in the second quarter of 2022 of 2.2 million tonnes was 16% lower than the corresponding quarter in
2021 and 8% lower tha n the first quarter of 2022. Pellet production in the second quarter of 2022 was neg atively
impacted by a feed system conveyor failure and lower than planned filter and balling rates due to ongoing reliability
challenges, as well as the June shutdown and negative stockpile survey adjustment referred to above . In the second
quarter of 202 2, CFS production of 2.2 million tonnes was 11% higher than the same quarter last year and 33% higher
than the first quarter of 2022, due to increased concentrate production and lower pellet production.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.3 million tonnes in the second quarter of 2022 was 5% higher
than the total sales tonnage for the same period in 2021 and 20% higher than the first quarter of 2022. Sales tonnage in
the second quarter of 2021 was negatively impacted by the lack of availability of reclaimers at the port facility in Sept-
Îles. Sales tonnage in the first quarter of 2022 was negatively impacted by equipment failures and lower product
availability. Pellet sales tonnage in the second quarter of 2022 was 9% higher than the same period in 2021 and 1%
higher than the first quarter of 2022. CFS sales tonnage was consistent with the same quarter last year and 59% higher
than the first 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. As reported in the 2021 Annual Report, IOC has
ambitious capital expenditure plans to continue renewing the asset infrastructure and to improve the production results
at IOC. These initiatives will be of benefit to LIORC as both an equity holder and a royalty holder. Certain changes in
IOC’s capital expenditures program, including the postponement of the dumper cage replacement at Sept-Îles to 2023,
has resulted in IOC revising its 2022 capital expenditure forecast from $606 million to $515 million.
There continues to be a number of adverse issues affecting the outlook for the seaborne iron ore market. High inflation
and global recession concerns have negatively impacted t he demand outlook for steel. As a result, steel production has
fallen. At the same time steel inventories have increased which could further negatively impact future steel production.
Steel producer margins have also decreased as a result of lower demand for steel and higher energy prices . This may
cause some producers to substitute higher quality iron ore with less expensive low quality iron ore, which could reduce
demand for the high quality concentrate and pellets that IOC produces.
The current economic outlook is having a significant negative impact on the price of seaborne iron. In July 2022, the
average price of the 65% Fe index was US$ 120 per tonne, or 25% lower than the average of the 65% Fe index for the
second quarter of 2022. So far the pellet premiums have remained strong. The pellet premium for July was US$87 per
tonne compared to the average of US$ 81 per tonne in the second quarter of 2022. For context, in 2019 the 65% Fe
index and the pellet premium averaged US$104 and US$57 , respectively. In 2019, IOC sold 17.1 million tonnes of
pellets and CFS and LIORC generated $3.25 of adjusted cash flow per share. As a result, we remain positive about
LIORC’s ability to continue to benefit from the current iron ore pricing environment through royalty revenues and
expected future dividends from IOC.
LIORC has no debt and at June 30, 2022 had positive net working capital (current assets less current liabilities) of $26.2
million, which included the second quarter net royalty payment received from IOC o n July 26, 2022 and the LIORC
dividend paid to shareholders on the same day.
Respectfully submitted on behalf of the Directors of the Corporation,
John F. Tuer
President and Chief Executive Officer
August 4, 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 contained therein and the June 30, 2022 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
2022 2021 2022 2021
Revenue 66.4 79.2 120.5 144.9
Equity earnings from IOC 47.2 66.2 87.6 123.2
Net income 78.4 110.2 141.7 196.8
Net income per share $ 1.23 $ 1.72 $ 2.21 $ 3.08
Dividend from IOC 19.6 74.4 19.6 93.4
Cash flow from operations 41.1 115.9 45.2 158.6
Cash flow from operations per share (1) $ 0.64 $ 1.81 $ 0.71 $ 2.48
Adjusted cash flow (1) 56.4 118.3 86.2 173.7
Adjusted cash flow per share (1) $ 0.88 $ 1.85 $ 1.35 $ 2.71
Dividends declared per share $ 0.90 $ 1.75 $ 1.40 $ 2.75
(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.
Six Months Ended
June 30,
Three Months Ended
June 30,
(Unaudited)
($ in millions except per share information)
The lower revenue, net income and equity earnings achieved in the second quarter of 2022 as compared to 2021 were
mainly due to lower iron ore prices, partly offset by higher pellet premiums and sales of pellets. The second quarter of
2022 sales tonnage (pellets and CFS) were higher by 5% than the second quarter of 2021 predominantly due to the lack
of availability of reclaimers during the second quarter of 2021, which limited the loading rate at the port facility in Sept -
Îles. CFS sales tonnage was consistent with the same quarter last year and pellet sales tonnage was 9% higher than the
same quarter last year. Pellet sales tonnage in the second quarter of 2021 was constrained due to the loading
restrictions caused by the lack of reclaimer availability at the port.
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 $ 65.9 million for the quarter as compared to $ 78.8 million for the same period in 202 1.
Second quarter 202 2 cash flow from operations was $ 41.1 million or $ 0.64 per share compared to $ 115.9 million or
$1.81 per share for the same period in 202 1. LIORC received an IOC dividend in the second quarter of 2022 in the
amount of $ 19.6 million or $ 0.31 per share. Equity earnings from IOC amounted to $47.2 million or $ 0.74 per share in
the second quarter of 2022 compared to $66.2 million or $1.03 per share for the same period in 2021.
Operating Highlights
IOC Operations 2022 2021 2022 2021
Sales(1)
Pellets 2.46 2.26 4.89 4.70
Concentrate for sale ("CFS") (2) 1.84 1.83 2.99 3.51
Total(3) 4.30 4.09 7.88 8.21
Production
Concentrate produced 5.03 4.79 9.41 9.20
Saleable production
Pellets 2.25 2.67 4.71 5.18
CFS 2.18 1.97 3.82 3.45
Total(3) 4.43 4.63 8.53 8.63
Average index prices per tonne (US$)
65% Fe index(4) $ 160 $ 233 $ 165 $ 212
62% Fe index(5) $ 138 $ 200 $ 140 $ 184
Pellet premium(6) $ 81 $ 65 $ 74 $ 54
(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 2022, the 65% Fe index averaged US$160 per tonne, a
31% decrease over the average of US$ 233 per tonne in the second quarter of 202 1. Iron ore prices decreased, as lower
global steel production reduced the demand for seaborne iron ore. The monthly pellet premium averaged US$ 81 per
tonne in the second quarter of 2022, up 24% from an average of US$65 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$168 per tonne in the second quarter of 2022, compared to approximately US$222 per tonne
in the second quarter of 2021 and US$173 per tonne in the first quarter of 2022. The decrease in the average realized
price FOB Sept -Îles in 2022 was a result of lower CFS prices and lower pellet prices (comprised of lower iron ore index
pricing partially offset by 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 ha ve any restrictions on
dividends. Standardized cash flow per share was $0.64 for the quarter (2021 - $1.81).
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
Jun. 30, 2022
3 Months Ended
Jun. 30, 2021
6 Months Ended
Jun. 30, 2022
6 Months Ended
Jun. 30, 2021
(in thousands except for per share information)
Standardized cash flow from operating
activities
$41,073 $115,866 $45,213 $158,552
Changes in amounts receivable, accounts
payable and income taxes payable
15,280
2,402
40,982
15,126
Adjusted cash flow $56,353 $118,268 $86,195 $173,678
Adjusted cash flow per share $0.88 $1.85 $1.35 $2.71
Liquidity and Capital Resources
The Corporation had $22.5 million in cash as at June 30, 2022 (December 31, 2021 - $82.9 million) with total current
assets of $98.3 million (December 31, 2021 - $132.6 million). The Corporation had working capital of $26.2 million as at
June 30, 2022 (December 31, 2021 - $29.6 million). The Corporation’s operating cash flow was $ 41.1 million and the
dividend paid during the quarter was $32 million, resulting in cash balances increasing by $9.1 million during the second
quarter of 2022. In June the Directors of the Corporation declared the second quarter dividend of $ 57.6 million that was
paid on July 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 doe s 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 interes t 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, 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.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
August 4, 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 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 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 volatilit y; 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 conditio ns 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 economic 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 ot her 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 information 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.
LABRADOR IRON ORE ROYALTY CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, December 31,
(in thousands of Canadian dollars) 2022 2021
Assets
Current Assets
Cash and short-term investments 22,526$ 82,913$
Amounts receivable 70,793 49,681
Income taxes recoverable 4,943 -
Total Current Assets 98,262 132,594
Non-Current Assets
Iron Ore Company of Canada ("IOC")
royalty and commission interests 232,019 235,341
Investment in IOC 495,990 421,376
Total Non-Current Assets 728,009 656,717
Total Assets 826,271$ 789,311$
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable 14,484$ 10,786$
Dividend payable 57,600 73,600
Taxes payable - 18,625
Total Current Liabilities 72,084 103,011
Non-Current Liabilities
Deferred income taxes 132,450 122,240
Total Liabilities 204,534 225,251
Shareholders' Equity
Share capital 317,708 317,708
Retained earnings 309,847 257,772
Accumulated other comprehensive loss (5,818) (11,420)
621,737 564,060
Total Liabilities and Shareholders' Equity 826,271$ 789,311$
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) 2022 2021
Revenue
IOC royalties 65,907$ 78,793$
IOC commissions 423 402
Interest and other income 38 35
66,368 79,230
Expenses
Newfoundland royalty taxes 13,181 15,758
Amortization of royalty and commission interests 2,017 1,591
Administrative expenses 641 773
15,839 18,122
Income before equity earnings and income taxes 50,529 61,108
Equity earnings in IOC 47,195 66,215
Income before income taxes 97,724 127,323
Provision for income taxes
Current 15,744 18,857
Deferred 3,551 (1,697)
19,295 17,160
Net income for the period 78,429 110,163
Other comprehensive income
Share of other comprehensive income of IOC that will not be
reclassified subsequently to profit or loss (net of income taxes
of 2022 - $989; 2021 - $557) 5,602 3,156
Comprehensive income for the period 84,031$ 113,319$
Net income per share 1.23$ 1.72$
For the Three Months Ended
June 30,
(Unaudited)