Labrador Iron Ore Royalty Corporation (“LIORC”, TSX: LIF) announced today its operation and cash flow results for
LABRADOR IRON ORE ROYALTY CORPORATION
PRESS RELEASE
Toronto, August 14, 2019
RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2019
Labrador Iron Ore Royalty Corporation (“LIORC”, TSX: LIF) announced today its operation and cash flow results for
the second quarter ended June 30, 2019.
Royalty revenue for the second quarter of 2019 amounted to $ 52.6 million as compared to $ 5.1 million for the second
quarter of 2018. Equity earnings from IOC amounted to $33.9 million or $0.53 per share in the second quarter of 2019
as compared to a loss of $6.1 million or $0.09 per share in the second quarter of 2018. Net income was $61.1 million or
$0.95 per share for the second quarter of 2019 compared to a net loss of $3. 2 million or $0.05 per share for the same
period in 2018. Cash flow from operation s for the second quarter was $47.8 million or $0.75 per share as compared to
$15.5 million or $0. 24 per share for the same period in 2018. LIORC received a dividend from Iron Ore Company of
Canada (“IOC”) in the second quarter of 2019 in the amount of $25.4 million or $0.40 per share, whereas LIORC received
no dividend in the second quarter of 2018 . The 2018 production w as negatively impacted by a nine -week work
stoppage.
The cash flow from operations, equity earnings and net income for the second quarter of 2019 were higher than the
second quarter of 2018, as a result of higher prices for concentrate and pellets, and higher production.
The average price for the Platts index for 62% Fe Iron Ore, CFR China (“62% Fe index”) increased 53% to US$ 100 per
tonne in the second quarter of 2019 compared to the average price in the second quarter of 2018 of US$ 65 per tonne.
IOC’s total sales for calculating the royalty to LIORC - concentrate for sale (“CFS”) plus pellets - was 4.6 million tonnes in
the second quarter of 2019 compare d to 0.5 million tonnes in the same period in 2018 , largely because 2018 CFS
tonnages and pellet sales tonnages were negatively impacted by the work stoppage.
LIORC’s results for the three months and six months ended June 30 are summarized below:
(in millions except per share information)
3 Months
Ended
Jun. 30,
2019
3 Months
Ended
Jun. 30,
2018
6 Months
Ended
Jun. 30,
2019
6 Months
Ended
Jun. 30,
2018
(Unaudited)
Revenue $53.3 $5.2 $92.5 $39.5
Cash flow from operations $47.8 $15.5 $72.8 $35.8
Operating cash flow per share $0.75 $0.24 $1.14 $0.56
Net income $61.1 $(3.2) $100.4 $27.1
Net income per share $0.95 $(0.05) $1.57 $0.42
Iron Ore Company of Canada Operations
Production
Total concentrate production in the second quarter of 20 19 of 4. 5 million tonnes was 201% higher than the second
quarter of 2018, which was negatively impacted by the work stoppage, and 1% higher than the first quarter of 2019,
which was negatively impacted by frozen material and blocked feeders in the or e barn. Total concentrate production in
the second quarter of 2019 was negatively impacted by a delay in the restart after the planned annual outage in June as
a result of a flooding issue.
CFS production in the second quarter of 2019 of 2.0 million tonnes was 109% higher than in the second quarter of 2018
and 34% higher than the previous quarter. Pellet production in the second quarter of 2019 of 2.3 million tonnes was
347% higher than the second quarter of 2018 and 1 6% lower than the previous quarter. Th e pellet plant production in
the second quarter of 2019 was negatively impacted by lack of feed as a result of lower concentrate production than
planned, as well as lower indurating machine availability during the quarter.
Sales as Reported for the LIORC Royalty
Total iron ore tonnage sold by IOC (CFS plus pellets) was 4.6 million tonnes in the second quarter of 2019 compared to
0.5 million tonnes in the same period in 2018, largely as a result of the lower production in 2018 due to the work
stoppage. Second quarter 2019 sales tonnage of CFS was 2.1 million tonnes and pellet sales tonnage was 2.4 million
tonnes, compared to second quarter 2018 sales tonnage of 0.05 million tonnes of CFS and 0.5 million tonnes of pellets.
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 was US$115 per tonne in the second quarter of 20 19, a 3 4% increase over the average price in the second
quarter of 2018 of US$ 86 per tonne, and 2 0% higher than the average price in the first quarter of 201 9 of US$ 95 per
tonne. The seaborne iron ore prices continued to be positively affected by a reduction of iron ore supply as a result of
mine closures in B razil and lower production in Australia. The premium for the 65% Fe index compared to the 62% Fe
index, which had bee n expanding over the last few years as the Chinese govern ments enacted and enforced measures
to reduce pollution, remained lower in the second quarter of 2019 at 15%, as compared to 31% in the second quarter of
2018 and 15% in the first quarter of 20 19, as steel producers continued to react to lower profit margins by substituting
higher quality iron ore with cheaper lower quality iron ore. The quarterly Atlantic Basin blast furnace pellet premium, as
reported by Platts, averaged US$68 per tonne in the second quarter of 2019, a 17% increase over the second quarter of
2018 and 1% higher than the first quarter of 2019.
A summary of IOC’s sales for calculating the royalty to LIORC in millions of tonnes is as follows:
3 Months
Ended
Jun. 30,
2019
3 Months
Ended
Jun. 30,
2018
6 Months
Ended
Jun. 30,
2019
6 Months
Ended
Jun. 30,
2018
Year
Ended
Dec. 31,
2018
Pellets 2.42 0.48 5.13 3.02 8.41
Concentrates(1) 2.14 0.05 2.97 1.40 6.70
Total(2) 4.57 0.53 8.10 4.43 15.10
(1) Excludes third party ore sales
(2) Totals may not add up due to rounding
Outlook
As a result of lowe r than anticipated first half production , Rio Tinto lowered the 2019 guidance for IOC’s saleable
production of CFS an d pellets on a 100% basis to between 18.2 and 19.2 million tonnes from between 19.2 and 20. 9
million tonnes.
Benchmark prices for concentrate and pellet premiums remain attractive relative to historical levels despite recent price
declines due to softer demand and uncertainty over trade tensions. On August 7, 2019 the 62% Fe index was US$93 per
tonne as compared to an average of US$120 per tonne in July. Supply continues to be constrained, predominantly as a
result of mine clos ures in Brazil. Vale reaffirmed its 2019 iron ore sales guidance of 307 to 332 million tonnes, stating
that expected sales volume will move towa rds the midpoint of the range with the restart of the Brucutu mine in June
and the partial resumption of dry pro cessing operations at Vargem Grande. This compares to Vale’s 201 8 iron ore
production of 385 million tonnes.
China crude steel production was u p 9.9% in the first half of 2019 as compared to the same period in 2018, and the
immediate outlook for China ste el production continues to be positive despite higher iron ore pr ices and weaker steel
producer margins. Weaker steel producer margins are expec ted to continue to have some effect on iron ore demand
outside of China. Despite the pullback, higher China impo rt fines prices have made iron ore pellet premiums under
existing formulas unaffordable for some producers given prevailing steel and raw materials prices. As a result, some
steel producers in Europe have reduced output or replaced high cost pellets where possible with lower quality grades.
Longer term, we would expect an increase in the global seaborne iron ore supply and for iron ore prices to begin to
revert to levels more in line with historical averages.
The LIORC cash balance at June 30, 2019 st ood at $47.7 million before LIORC div idends payable on July 25, 2019 of
$0.90 per share or $57.6 million. T he net royal ty from IOC was paid on t he same date, maintaining the Corporation’s
strong cash balance.
On August 7, 2019 the Board of IOC declared a dividend of US$200 million, payable to shareholders of IOC on August 22,
2019.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,
John F. Tuer
President and Chief Executive Officer
August 14, 2019
Management’s Discussion and Analysis
The following discussion and analysis should be read in conjunction with the Management’s Dis cussion and Ana lysis
section of the Corporation’s 2018 Annual Report, and the financial st atements and notes c ontained therein and the
June 30, 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 a nd 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 second quarter of 2019 amounted to $52.6 million as compared to $ 5.1 million for the second
quarter of 2018. Equity earnings from IOC amounted to $33.9 million or $0.53 per share in the second quarter of 2019
as compared to a loss of $6.1 million or $0.09 per share in the second quarter of 2018. Net income was $61.1 million or
$0.95 per share for the second quarter of 2019 compared to a net loss of $3. 2 million or $0.05 per share for the same
period in 2018. Cash flow from operations for the second quarter was $47.8 million or $0.75 per share as compared to
$15.5 million or $0.24 per share for the same period in 2018. LIORC received a dividend from IOC in the second quarter
of 2019 in the amount of $25.4 million or $0.40 per share, whereas LIORC received no dividend in the second quarter of
2018. The 2018 production was negatively impacted by a nine-week work stoppage.
The cash flow from operations, equity earnings and net incom e for the second quarter of 2019 were higher than the
second quarter of 2018, as a result of higher prices for concentrate and pellets, and higher production.
The average price for 62% Fe index increased 53% to US$100 per tonne in the second quarter of 2019 compared to the
average price in the second quarter of 201 8 of US$65 per tonne. IOC’s total sales for calculating the royalty to LIORC -
CFS plus pellets - was 4.6 million tonnes in the seco nd quarter of 2019 compared to 0.5 million tonnes in the same
period in 2018 , largely because 2018 CFS tonnages a nd pellet sales tonnages were negatively impacted by the work
stoppage.
Total concentrate produc tion in the second quarter of 2019 of 4. 5 million tonnes was 201% higher than the second
quarter of 2 018, which was negatively impacted by the wor k stoppage, an d 1% higher than the first quarter of 2019,
which was negatively impacted by frozen material and blocked feeders in the ore barn. Total concentrate production in
the second quarter of 2019 was negatively impacted by a delay in the restart after the planned annual outage in June as
a result of a flooding issue.
CFS production in the second quarter of 2019 of 2.0 million tonnes was 109% higher than in the second quarter of 2018
and 34% higher than th e previous quarter. Pellet production in the second quarter of 2019 of 2.3 million tonnes was
347% higher than the se cond quarter of 2018 and 16% lower tha n the previous quarter. The pellet plant production in
the second quarter of 2019 was negatively impacted by lack of feed as a result of lower con centrate production than
planned, as well as lower indurating machine availability during the quarter.
Total iron ore tonnage sold by IOC (CFS plus pellets) was 4.6 million tonnes in the second quarter of 2019 compared to
0.5 million tonnes in the same period in 2018, largely as a result of the lower produ ction in 2018 due to the work
stoppage. Second quarter 2019 sales tonnage of CFS was 2. 1 million tonnes and pellet sales tonnage was 2.4 million
tonnes, compared to second quarter 2018 sales tonnage of 0.05 million tonnes of CFS and 0.5 million tonnes of pellets.
IOC sells CFS based on the 65% Fe index. The average price for the 65% Fe index was US$115 per tonne in the second
quarter of 2019 , a 3 4% increase over the average price in the second quarter of 20 18 of US$ 86 per tonne, and 2 0%
higher than the average price in the first quarter of 2019 of US$95 per tonne. The seaborne iron ore prices continued to
be positively affected by a reduction of iron ore supply as a result of mine closures in B razil and lower production in
Australia. The premium for the 65% Fe index compared to the 62% Fe index, which had bee n expanding over the last
few years as the Chinese governments enacted and enforced measures to re duce pollution, remained lower in the
second quarter of 2019 at 15%, as compared to 31% in the second quarter of 2018 and 15% in the first quarter of 2019,
as steel producers continued to react to lower profit margins by substituting higher quality iron ore with cheaper lower
quality iron ore . The quarterly Atlant ic Basin blast furnace pellet premium, as reported by Platts, ave raged US$68 per
tonne in the second quarter of 2019, a 1 7% increase ove r the second quarter of 2018 and 1% higher than the f irst
quarter of 2019.
Results for the six months were affec ted by the same factors as affected the three month period. Royalty and
commission interests amortization expense increased by $1.1 million for the six months compared to the same period in
2018 due to the increase in production. The 2018 production was negatively impacted by a nine-week work stoppage.
The following table sets out quarterly revenue, net income, cash flow and dividend 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
Second Quarter $53.3 $61.1 $0.95 $47.8(2) $0.75(2) $0.86(2) $0.90
2018
First Quarter $34.3 $30.3 $0.47 $20.3 $0.32 $0.29 $0.35
Second Quarter $5.2 $(3.2) $(0.05) $15.5 $0.24 $0.04 $0.25
Third Quarter $44.6 $58.1 $0.91 $59.7(3) $0.93(3) $1.30(3) $0.55
Fourth Quarter $46.8 $43.4 $0.68 $53.3(4) $0.83(4) $0.79(4) $0.60
2017
First Quarter $43.4 $42.9 $0.67 $28.2(5) $0.44(5) $0.53(5) $0.50
Second Quarter $34.2 $32.3 $0.50 $45.6(6) $0.71(6) $0.53(6) $0.60
Third Quarter $40.4 $43.8 $0.69 $53.6(7) $0.84(7) $0.85(7) $1.00
Fourth Quarter $40.6 $38.3 $0.60 $39.6(8) $0.62(8) $0.65(8) $0.55
(1) “Adjusted cash flow” (see below)
(2) Includes $25.4 million IOC dividend.
(3) Includes $58.6 million IOC dividend.
(4) Includes $25.3 million IOC dividend.
(5) Includes $10.0 million IOC dividend.
(6) Includes $15.2 million IOC dividend.
(7) Includes $32.2 million IOC dividend.
(8) Includes $19.3 million IOC dividend.
Standardized Cash Flow and Adjusted Cash Flow
For the Corporation, s tandardized cash flow is the same as cash flow from operating activit ies as recorde d in the
Corporation’s cash flow statements as the Corporation does not incur capital expenditures or have a ny restrictions on
dividends. Standardized cash flow per share w as $0.75 for the quarter (2018 - $0.24). Cumulative standardized cash
flow from inc eption of the Corporation is $28.61 per share and total cash distributions since inception is $ 28.29 per
share, for a payout ratio of 99%.
The Corporation also reports “Ad justed 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 Reportin g Standard s ( “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
Jun. 30,
2019
3 Months
Ended
Jun. 30,
2018
6 Months
Ended
Jun. 30,
2019
6 Months
Ended
Jun. 30,
2018
Standardized cash flow from operating activities $47,837 $15,496 $72,800 $35,773
Changes in amounts receivable, accounts payable and income taxes
payable
6,943
(13,210)
3,492
(14,801)
Adjusted cash flow $54,780 $2,286 $76,292 $20,972
Adjusted cash flow per share $0.86 $0.04 $1.19 $0.33
Liquidity and Capital Resources
The Corporation had $ 47.7 million in cash as at June 30, 2019 (December 31, 2018 - $80.5 million) with total curre nt
assets of $102.8 million (December 31, 2018 - $127.0 million). The Corporation had working capital of $27.6 million as at
June 30, 2019 (December 31, 2018 - $76.3 million). The Corporation’s operating cash flow for the quarter was $ 47.8
million and the dividend paid during the qua rter was $ 67.2 million, resultin g in cash balances decreasing by $ 19.4
million during the second quarter of 2019.
Cash balances consist of depo sits i n Ca nadian dollars with Canadian chartered banks. Amounts receivable primarily
consist of royalty payment s from IOC. Royalty payments are received in U.S. dollars and converted to Can adian dollars
on receipt, usually 25 days after the quarter end. Th e Corporation does not normally attempt to hedge this short -term
foreign currency exposure.
Operating cash flo w of the Corporation is sourced entirely from IOC through the Corporation’s 7% royalty, 10 ce nts
commission per tonne and dividends from its 15.1 0% equ ity interest in IOC. The Corporation normally pays cash
dividends from its ne t income to the maximum extent possible, subject to the main tenance of appropriate levels of
working capital.
The Corporation has a $50 million revolving credit facility with a t erm 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
As a result of lower than anticipated first half productio n, Rio Tinto l owered the 2019 guidance for IOC’s saleable
production of CF S and pellets on a 100% basis to between 18.2 and 19.3 millio n tonnes from between 19.2 and 20.9
million tonnes.
Benchmark prices for concentrate and pellet premiums remain attractive relative to historical levels despite recent price
declines due to softer demand and uncertainty over trade tensions. On August 7, 2019 the 62% Fe index was US$93 per
tonne as compared to an average of US$120 per tonne in July. Supply continues to be constrained, predominantly as a
result of mine closures in Brazil. Vale reaffirmed its 2019 iron ore sales guidance of 307 to 332 million tonnes, stating
that expected sales volume will move towards the midpoint of the range with the restart of the Brucutu mine in June
and the partial resumption of dry processing operations at Vargem Grande. This compares to Vale’s 2018 iron ore
production of 385 million tonnes.
China crude steel production was up 9.9% in the first half of 2019 as compared to the same period in 2018, and the
immediate outlook for China steel production continue s to be positive despite higher iron or e prices and weaker steel
producer margins. Weaker steel producer margins are expected to continue to have some effect on iron ore demand
outside of China. Despite the pullback, higher China import fines prices have m ade iron ore pellet premiums under
existing formulas unaffordable for some producers given prevailing steel and raw materials prices. As a result, some
steel producers in Europe have reduced output or replaced high cost pel lets where possible with lower q uality grades.
Longer term, we would ex pect an increase in the global seaborne iron ore supply and for iron ore prices to begin to
revert to levels more in line with historical averages.
The LIORC cash balance at June 3 0, 2019 stood at $47.7 million b efore LIORC dividends pa yable on July 25 , 2019 of
$0.90 per sha re or $57.6 million. The net royalty from IOC was pa id on the same date, maintaining the Corporation’s
strong cash balance.
On August 7, 2019 the Board of IOC declared a dividend of US$200 million, payable to shareholders of IOC on August 22,
2019.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
August 14, 2019
Forward-Looking Statements
This report may contain “forward -looking” statements that involve risks, uncertainties and other fa ctors that may cause the actual results,
performance or ac hievements to be ma terially differ ent from any future results, performance or achievements expressed or implied by such
forward-looking statements. Words such as “may”, “w ill”, “expect”, “believe”, “plan”, “intend”, “should”, “would”, “anticipa te” 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 gu arantees of future performance or results, and will not necessarily be accurate i ndications of whether or not suc h results will be
achieved. A number of factors could cause actual resul ts to vary significantly, including iron ore pr ice and volume volatilit y, 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 custo mers, competition from other iron ore producer s, estimates of
reserves and resour ces and government regulation an d taxation. A discussion of these factors is contained in LIORC’s annua l information form
dated March 7, 2019 under the heading, “Risk Factors ”. Although the forward- looking statements con tained in this report are based upo n what
management of LIORC belie ves are reasonable assump tions, LIORC cannot assure investors that actua l results wil l be consisten t wit h these
forward-looking statements. These forward-looking statements are made as of t he date of this report and LIORC as sumes no obligation, except as
required by law, to update any forward-looking statements to reflect new e vents 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.