Labrador Iron ORE Royalty Corporation - Results FOR the Third Quarter Ended September 30, 2023
P R E S S R E L E A S E
Toronto, November 2, 2023
LABRADOR IRON ORE ROYALTY CORPORATION - RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30,
2023
Labrador Iron Ore Royalty Corporation (“LIORC”, TSX: LIF) announced today its operation and cash flow results for th e
third quarter ended September 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 third quarter report
for the period ended September 30, 2023.
Financial Performance
In the third quarter of 2023, LIORC’s financial results were negatively affected by lower pellet prices and l ower sales
volumes of pellets and concentrate for sale (“CFS”) . Royalty revenue for the third quarter of 2023 amounted to $ 47.0
million compared to $63.5 million for the third quarter of 2022. Equity earnings from Iron Ore Company of Canada
(“IOC”) were $ 23.1 million in the third quarter of 2023 compared to $46.8 million in the third quarter of 2022, as a
result of lower revenue and higher unit operating costs at IOC . Net income per share for the third quarter of 2023 was
$0.77 per share, which was a 38% decrease over the same period in 2022. LIORC received a dividend from IOC in the
amount of $30.6 million in the third quarter of 2023, compared to a dividend from IOC in the amount of $34.2 million in
the third quarter of 2022. The adjusted cash flow per share for the third quarter of 2023 was $0.89 per share, which was
18% 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
analytical measure as it better reflects cash available for dividends to shareholders.
In the third quarter of 2023, iron ore prices for concentrate and fines were generally consistent with the prior quarter
and higher than the levels experienced in the third quarter of 202 2, predominantly as a result of marginally higher
global steel production and increasing expectations that government stimulus will lessen concerns over China’s
economy and its property sector . According to The World Steel Association, global crude steel production increased
2.4% in the third quarter of 2023 over the third quarter of 2022. In China, which accounts for over 70% of all seaborne
iron ore demand, crude steel production increased 2.9% in the third quarter of 2023 over the third quarter of 2022.
Overall, in the first nine months of 2023 global crude steel production has been flat compared to the first nine months
of 2022. Conversely, pellet prices, while consistent with the prior quarter were substantially lower than the levels
experienced in the second quarter of 202 2, as global economic pressures on European steel producers continued to
negatively impact the demand for iron ore pellets.
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 2023, the 65% Fe index averaged US$125 per tonne, an 8% increase over the average of US$115 per tonne in
the third quarter of 2022, and a 1% increase over the average of US$ 124 in the second quarter of 2023. However, low
steel production margins in China caused steel mills to continue 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 further
in the third quarter of 2023 to $1 1 per tonne from $ 12 per tonne in the third quarter of 2022. The monthly Atlantic
Blast Furnace 65% Fe pellet premium index as quoted by Platts (the “pellet premium”) averaged US$49 per tonne in the
third quarter of 2023, down 39% from an average of US$80 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$127 per tonne in the third quarter of 2023, compared to approximately US$146 per tonne in
the third quarter of 2022 and US$125 per tonne in the second quarter of 2023. The decrease in the average realized
price FOB Sept-Îles in 2023 was a result of lower pellet prices and to a lesser extent a change in product mix, as pellets
represented 46% of sales in the third qua rter of 2023, compared to 5 2% of sales in the same quarter of 2022 and the
second quarter of 2023.
Iron Ore Company of Canada Operations
Operations
IOC concentrate production of 4.3 million tonnes in the third quarter of 2023 was 13% lower than the same quarter of
2022, mainly due to (i) an unexpected equipment failure with the thickener rake drive which is used in the dewatering
process in the concentrator, and (ii) conveyor belt failures on the overland delivery system between the mine and the
concentrator. Concentrate production in the quarter was 11% higher than in the second quarter of 202 3, as the second
quarter was negatively impacted by the forest fires affecting the rail line.
The IOC saleable production (CFS plus pellets) of 4.1 million tonnes in the third quarter of 2023 was 14% lower than the
same period in 2022, as operations were impacted by extended plant downtime resulting from the equipment and
conveyor belt failures, referred to above. The IOC saleable production in the third quarter of 2023 was 16% higher than
the second quarter of 2023, as a result of the wildfires in the second quarter.
Pellet production in the third quarter of 2023 of 2.1 million tonnes was 19% lower than the corresponding quarter in
2022 and 32% higher than the second quarter of 2023. Pellet production in the third quarter of 2023 was negatively
impacted by an increase in the machine 3 rebuild duration and plant reliability issues. In the third quarter of 2023, CFS
production of 1.9 million tonnes was 8% lower than the same quarter last year and consistent with the second quarter
of 2023, due to the reduction of concentrate production for the reasons referred to above.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 3.9 million tonnes in the third quarter of 2023 was 14% lower
than the total sales tonnage for the same period in 2022 and 11% lower than the second quarter of 2023, mainly due to
inventory availability and shipment timing. Pellet sales tonnage in the third quarter of 2023 was 22% lower than the
same period in 2022 and 21% lower than the second quarter of 2023. CFS sales tonnage was 5% lower than the same
quarter last year and consistent with the second quarter of 2023.
Outlook
Given the third quarter production performance, Rio Tinto’s full year 2023 guidance for IOC’s saleable production (CFS
plus pellets) has been lowered to 15.8 million to 16.7 million tonnes (previous guidance was 17.0 million to 18.7 million
tonnes). This revised guidance compares to 17.6 million tonnes of saleable production in 202 2, and 16.6 million tonnes
of saleable production in 2021.
Inflation and the resulting monetary tightening around the world have slowed global investment and consumption. This
in turn has put pressur e on steel demand and production. Additionally, China’s property sector , and the potential
effects from the financial difficulties that major real estate developers are experiencing, continues to create significant
concerns for China’s economy. That being said, The World Steel Association is forecasting that China’s property market
will stabilise in the latter part of the year and that Ch ina’s steel demand will record slight positive growth thanks to
government measures. Globally, it is forecasting that steel demand will grow by 1.8% in 2023 and 1.9% in 2024 (after
falling 3.3% in 2022).
In the near term, d espite the global economic challenges, iron ore prices have so far remained relatively consistent. In
October 2023 the average price o f the 65% Fe inde x was US$128 per tonne, roughly equivalent to the average of the
65% Fe index for the second and third quarter of 202 3. However, t he pellet premiums have come under further
pressure as steel producers in Europe (significant consumers of pellets) continue to face pressure. The pellet premium
for October was US$38 per tonne compared to the average of US$49 per tonne in the third quarter of 2023.
Longer term, IOC remains well positioned to benefit from the movement to produce low emission green steel. The
production of steel, a key material for infrastructure and net -zero energy transition, currently contributes around 7-9%
of global carbon emissions. IOC’s high-quality products, including direct reduction pellets, are part of the solution to
reducing GHG emissions in the steel making process , as demonstrated by IOC’s recent multi-year agreement to supply
high grade direct reduction pellets to H2 Green Steel (“H2GS”). H2GS will process IOC’s direct reduction pellets into
low-carbon hot briquetted iron and then make steel through electric arc furnaces using green hydrogen at its flagship
plant in Boden, Sweden . The Boden facility, which will hold one of the world’s largest electrolysis plants for the
production of green hydrogen, will be one of the worl d’s first large-scale producers of low carbon iron and steel. By
using green hydrogen in electric arc furnaces instead of coal in traditional steelmaking with a blast furnace, CO2
emissions can be reduced by up to 95 percent.
LIORC has no debt and at September 30, 2023 had positive net working capital (current assets less current liabilities) of
$25.8 million, which included the third quarter net royalty payment received from IOC on October 25, 2023 and the
LIORC dividend in the amount of $0.95 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 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 September 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 Corporation’s royalty revenue is affected b y 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
2023 2022 2023 2022
Revenue 47.7 64.1 146.4 184.6
Equity earnings from IOC 23.1 46.8 58.5 134.4
Net income 49.4 79.2 134.9 220.9
Net income per share $ 0.77 $ 1.24 $ 2.11 $ 3.45
Dividend from IOC 30.6 34.2 50.4 53.7
Cash flow from operations 65.7 78.5 126.1 123.7
Cash flow from operations per share (1) $ 1.03 $ 1.23 $ 1.97 $ 1.93
Adjusted cash flow (1) 56.8 69.7 131.3 155.9
Adjusted cash flow per share (1) $ 0.89 $ 1.09 $ 2.05 $ 2.44
Dividends declared per share $ 0.95 $ 1.00 $ 2.10 $ 2.40
(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)
Nine Months Ended
September 30,
Three Months Ended
September 30,
The lower revenue, net income and equity earnings achieved in the third quarter of 2023 as compared to 2022 were
mainly due to lower pellet prices and lower sales volumes of pellets and concentrate for sale (“CFS”). The third quarter
of 2023 sales tonnage (pellets and CFS) was lower by 14% than the third quarter of 2022 mainly due to inventory
availability and shipment timing. CFS sales tonnage was 5% lower than the same quarter last year and pellet sales
tonnage was 22% lower than the same period in 2022.
The lower sales tonnage, together with a decrease in the realized sales price of pellets, result ed in royalty income of
$47.0 million for the quarter as compared to $ 63.5 million for the same period in 2022. Third quarter 2023 cash flow
from operations was $65.7 million or $1.03 per share compared to $78.5 million or $1.23 per share for the same period
in 2022. LIORC received an IOC dividend in the second quarter of 2023 in the amount of $30.6 million or $0.49 per share
compared to $34.2 million or $0.53 per share for the same period in 2022. Equity earnings from IOC amounted to $23.1
million or $0.36 per share in the third quarter of 2023 compared to $46.8 million or $0.73 per share for the same period
in 2022.
Operating Highlights
IOC Operations 2023 2022 2023 2022
Sales(1)
Pellets 1.82 2.35 6.08 7.23
Concentrate for sale ("CFS") (2) 2.10 2.20 5.89 5.19
Total(3) 3.92 4.55 11.96 12.42
Production
Concentrate produced 4.27 4.92 12.72 14.33
Saleable production
Pellets 2.12 2.62 5.92 7.33
CFS 1.94 2.11 5.96 5.93
Total(3) 4.06 4.73 11.88 13.26
Average index prices per tonne (US$)
65% Fe index(4) $ 125 $ 115 $ 130 $ 148
62% Fe index(5) $ 114 $ 103 $ 117 $ 128
Pellet premium(6) $ 49 $ 80 $ 47 $ 76
(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
IOC sells CFS based on the 65% Fe index. In the third quarter of 2023, the 65% Fe index averaged US$ 125 per tonne, an
8% increase over the average of US$ 115 per tonne in the third quarter of 2022. Iron ore prices, which were consistent
with the prior quarter, increased over the third quarter of 2022 predominantly as a result of marginally higher global
steel production and i ncreasing expectations that government stimulus will lessen concerns over Ch ina’s economy and
its property sector . The monthly pellet premium averaged US$ 49 per tonne in the third quarter of 20 23, down 39%
from an average of US$ 80 per tonne in the same qua rter of 20 22, as g lobal economic pressures on steel production
outside of China continued to negatively impact the demand for iron ore pellets.
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$127 per tonne in the third quarter of 2023, compared to approximately US$146 per tonne in
the third quarter of 2022 and US$125 per tonne in the second quarter of 2023. The decrease in the average realized
price FOB Sept-Îles in 2023 was a result of lower pellet prices and to a lesser extent a change in product mix, as pellets
represented 46% of sales in the third quarter of 202 3, compared to 52% of sales in the same quarter of 202 2 and the
second quarter of 2023.
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 $1.03 for the quarter (2022 - $1.23).
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 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, 2023
3 Months Ended
Sept. 30, 2022
9 Months Ended
Sept. 30, 2023
9 Months Ended
Sept. 30, 2022
(in millions except for per share information)
Standardized cash flow from operating
activities
$65.7 $78.5 $126.1 $123.7
Changes in amounts receivable, accounts
payable and income taxes payable
(8.9)
(8.8)
5.1
32.1
Adjusted cash flow $56.8 $69.7 $131.2 $155.8
Adjusted cash flow per share $0.89 $1.09 $2.05 $2.44
Liquidity and Capital Resources
The Corporation had $ 47.6 million in cash as at September 30, 2023 (December 31, 2022 - $39.9 million) with total
current assets of $ 95.7 million (December 31, 2022 - $83.0 million). The Corporation had working capital of $ 25.8
million as at September 30, 2023 (December 31, 2022 - $28.9 million). The Corporation’s operating cash flow was $65.7
million and the dividend paid during the quarter was $41.6 million, resulting in cash balances increasing by $24.1 million
during the third quarter of 2023. In September the Directors of the Corpor ation declared the third quarter dividend of
$60.8 million that was paid on October 26, 2023.
Cash balances consist of deposits in Canadian dollars with a Canadian chartered bank. 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 Cor poration is sourced entirely from IOC through the Corporation’s 7% royalty, 10 cents
commission per ton ne 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
November 2, 2023
Forward-Looking Statements
This report may contain “forward -looking” statements that involve risks, uncertainties a nd 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 b e
achieved. A number of factors could cause actual results to vary significantly, including iron ore price and volum e volatility; the performance of
IOC; market conditions in the steel industry; fluctuations in the value of the Canadian and U.S. dollar; mi ning risks that cause a disruption in
operations and availability of insurance; disruption in IOC’s operations cause d 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 economic and political conditions; cha nges in government regulation and taxation; national, provincial and international laws, regulations
and policies regarding climate change t hat 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 licenses and leases; relationsh ips
with indigenous groups; litigation; and uncertainty in the estimates of reserves and resources. A discussion of these factors i s 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 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.sedarplus.ca.
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
September 30, December 31,
(in thousands of Canadian dollars) 2023 2022
Assets
Current Assets
Cash 47,644 $ 39,904 $
Amounts receivable 43,706 42,758
Income taxes recoverable 4,381 357
Total Current Assets 95,731 83,019
Non-Current Assets
Iron Ore Company of Canada ("IOC")
royalty and commission interests 224,350 228,918
Investment in IOC 521,488 513,828
Total Non-Current Assets 745,838 742,746
Total Assets 841,569 $ 825,765 $
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities 9,141 $ 9,286 $
Dividend payable 60,800 44,800
Total Current Liabilities 69,941 54,086
Non-Current Liabilities
Deferred income taxes 134,030 134,220
Total Liabilities 203,971 188,306
Shareholders' Equity
Share capital 317,708 317,708
Retained earnings 325,275 324,821
Accumulated other comprehensive loss (5,385) (5,070)
637,598 637,459
Total Liabilities and Shareholders' Equity 841,569 $ 825,765 $
-
Approved by the Directors,
John F. Tuer Patricia M. Volker
Director Director
As at
(Unaudited)