TORONTO, Aug. 6, 2020 /CNW/ - Labrador Iron Ore Royalty
Corporation ("LIORC") (TSX: LIF) announced today its operation and
cash flow results for the second quarter ended June 30, 2020.
Royalty revenue for the second quarter of 2020 amounted to
$46.2 million compared to
$52.6 million for the second quarter
of 2019. Net income was $48.9 million
or $0.76 per share for the second
quarter of 2020 compared to $61.1
million or $0.95 per share for
the same period in 2019. Cash flow from operations for the second
quarter was $37.6 million or
$0.58 per share compared to
$47.8 million or $0.75 per share for the same period in 2019. The
Corporation received no dividend from IOC in the second quarter of
2020 compared to $25.4 million or
$0.40 per share for the same period
in 2019. Equity earnings from Iron Ore Company of
Canada ("IOC") amounted to
$28.7 million or $0.45 per share in the second quarter of 2020
compared to $24.7 million or
$0.39 per share in the first quarter
of 2020 and $33.9 million or
$0.53 per share in the second quarter
of 2019.
Royalty revenue and net income for the second quarter of 2020
were lower than the second quarter of 2019, predominantly as a
result of lower iron ore prices and a change in IOC's product mix
which was beneficial to IOC's earnings, but lowered IOC's revenue
from which the LIORC royalty is calculated. While prices for
concentrate remained strong in the second quarter, both concentrate
and pellet prices were lower in the second quarter of 2020 compared
to the second quarter of 2019. The average price for the Platts
index for 62% Fe Iron Ore, CFR China
("62% Fe index") decreased 7% to US$93 per tonne in the second quarter of 2020,
compared to the average price of US$100 per tonne in the second quarter of 2019.
The Atlantic Basin blast furnace pellet premium, as reported by
Platts, averaged US$30 per tonne in
the second quarter of 2020, a 55% decrease over the second quarter
of 2019. Total IOC's sales for calculating the royalty to
LIORC (concentrate for sale ("CFS") plus pellets) of 4.6 million
tonnes were 1% higher in the second quarter of 2020 compared to the
same period in 2019. However, while CFS sales of 2.4 million tonnes
were 10% higher than in the same period in 2019, pellet sales in
the second quarter of 2020 of 2.2 million tonnes were 7% lower than
in the second quarter of 2019. Cash flow from operations in
the second quarter of 2020 was lower than in the second quarter of
2019 largely because IOC elected not to pay a shareholder dividend
in the second quarter of 2020 due to the global economic
uncertainty created by the COVID-19 pandemic. While equity earnings
from IOC in the second quarter of 2020 were lower than in the
second quarter of 2019, mainly due to lower iron ore prices, equity
earnings from IOC were higher than in the first quarter of 2020,
due to higher iron ore prices and lower operating costs.
IOC's operating costs were lower in the second quarter of 2020
because of the reduction in pellet production and as a result of
operational changes made to deal with COVID-19 that limited the
number of contractors on site and reduced overtime costs. IOC
also benefitted from lower fuel costs in April and May.
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,
2020
|
3 Months
Ended
Jun. 30,
2019
|
6 Months
Ended
Jun. 30,
2020
|
6 Months
Ended
Jun. 30,
2019
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Revenue
|
|
$46.7
|
$53.3
|
$95.0
|
$92.5
|
Cash flow from
operations
|
|
$37.6
|
$47.8
|
$48.3
|
$72.8
|
Operating cash flow
per share
|
|
$0.58
|
$0.75
|
$0.75
|
$1.14
|
Net income
|
|
$48.9
|
$61.1
|
$95.5
|
$100.4
|
Net income per
share
|
|
$0.76
|
$0.95
|
$1.49
|
$1.57
|
Iron Ore Company of Canada Operations
Production
During the second quarter, IOC's mining, processing, rail and
shipping operations continued to operate safely within the COVID-19
guidelines of both the Quebec and
Newfoundland and Labrador governments. Despite the
inclusion of social distancing protocols and limitations placed on
certain employee and contractor movements, total concentrate
production in the second quarter of 2020 of 4.8 million tonnes was
7% higher than the second quarter of 2019 and 3% higher than the
first quarter of 2020. The total material moved was lower in
the second quarter of 2020 than the second quarter of 2019, mainly
driven by the absence of development contractors impacting waste
movement and a lack of haul truck operators. However, this
was more than offset by a lower strip ratio. Concentrate production
in the second quarter of 2019, was also adversely affected by a
flooding incident.
During the second quarter of 2020, total saleable production
(CFS plus pellets) of 4.7 million tonnes was 9% higher than the
second quarter of 2019. During the second quarter of 2020,
IOC optimised its product mix to match market demand, by
temporarily suspending two pellet machines from operation in order
to increase production of CFS. As a result, CFS production in
the second quarter of 2020 of 2.6 million tonnes was 28% higher
than in the second quarter of 2019 and 65% higher than the first
quarter of 2020. Pellet production in the second quarter of 2020 of
2.1 million tonnes was 7% lower than the second quarter of 2019 and
24% lower than the first quarter of 2020.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.6
million tonnes in the second quarter of 2020 was 1% higher compared
to the same period in 2019. In the second quarter of 2020 CFS
tonnage sold by IOC was 10% higher than in the same period in 2019
and pellet sales tonnage was 7% lower than in the second quarter of
2019, mainly as a result of the strategic change in product mix by
IOC.
IOC sells CFS based on the Platts index for 65% Fe Iron Ore, CFR China ("65% Fe index").
In the second quarter of 2020 the average price for the 65% Fe
index was US$108 per tonne, a 6%
decrease from the average price in the second quarter of 2019 and a
5% increase from the first quarter of 2020. Overall, prices
for iron ore concentrate remained historically strong in the second
quarter of 2020, due to continuing demand from China, the largest importer of iron ore,
offsetting weaker demand outside of China. In the first half of 2020, China imported 547 million tonnes of iron ore,
up 9.6% over the same period in 2019. In addition, during the
second quarter iron ore prices benefited from ongoing supply
concerns regarding future Brazilian production as a result of
COVID-19 disruptions. In the second quarter the 65% Fe index traded
at an average premium of 16% to the 62% Fe index. This was
the same average premium as in the first quarter of 2020 and
similar to the 15% average premium in the second quarter of
2019.
The COVID-19 pandemic continued to negatively affect the demand
for iron ore outside of China. As
a result, in the second quarter of 2020 there was reduced demand
for pellets in various markets across Europe and North
America. The Atlantic Basin blast furnace pellet
premium, as reported by Platts, averaged US$30 per tonne in the second quarter of 2020, a
55% decrease over the second quarter of 2019 and 3% higher than the
first quarter of 2020. The average pellet price realized by IOC in
the first half of 2020 was US$117 per
tonne, a 17% decrease from the average realized price of
US$141 per tonne in the first half of
2019.
A change in product mix and lower iron ore prices, and in
particular lower pellet premiums, resulted in royalty revenue for
LIORC in the second quarter of 2020 decreasing 12% compared to the
royalty revenue in the second 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,
2020
|
3 Months
Ended Jun.
30, 2019
|
6 Months
Ended Jun.
30, 2020
|
6 Months
Ended Jun.
30, 2019
|
Year
Ended
Dec. 31,
2019
|
|
|
|
|
|
|
Pellets
|
2.25
|
2.42
|
5.27
|
5.13
|
9.62
|
Concentrates(1)
|
2.36
|
2.14
|
4.04
|
2.97
|
7.51
|
|
|
|
|
|
|
Total(2)
|
4.61
|
4.57
|
9.31
|
8.10
|
17.14
|
|
|
(1)
|
Excludes third party
ore sales.
|
(2)
|
Totals may not add up
due to rounding.
|
Outlook
IOC continues to effectively operate its mining, processing,
rail and shipping operations safely during the COVID-19
pandemic. IOC production and sales volumes remain strong
despite the additional challenges presented by COVID-19, and Rio
Tinto has recently reaffirmed its 2020 guidance for IOC's saleable
production of CFS and pellets at between 17.9 and 20.4 million
tonnes.
Capital expenditures at IOC for 2020 which were originally
forecasted to be approximately $350
million, are now projected to be approximately $270 million. The $80 million reduction in the capital expenditure
forecast is due to the deferral of certain development projects,
mainly related to COVID-19 protocol restrictions on bringing
contractors and consultants on-site during the second quarter, as
well as a delay in the finalization of the third-party service
contract that is a prerequisite to increasing the haulage capacity
of Québec North Shore and Labrador Railway.
Since June 30, the 65% Fe index
has consistently been above its average price during the second
quarter of 2020. However, it is anticipated that the economic
impact from the COVID-19 pandemic will continue to cause both
demand and supply disruptions to the seaborne iron ore
market. While the outlook for China steel production in the second half of
2020 remains positive, it is unclear whether iron ore demand
strength from China will be enough
to offset the expected continued weakness of steel producers in
Europe and North America. In
addition, while steel prices benefited in the second quarter from
fears that there would be supply constraints from Brazil, those fears were never fully realized,
and recently Brazilian miner Vale reconfirmed its original
production guidance, albeit at the lower end of its 310 to 330
million tonne range.
In such an uncertain economic environment, IOC's ability to
optimize its production mix to meet changing market demands is a
clear advantage. At the end of the first quarter of 2020, IOC
halted production of two pellet machines in order to focus on
meeting the demand for CFS. Recently, the Atlantic pellet market
has shown some improvement in demand and, as a result, IOC brought
back on-line one of the two idled pellet lines.
IOC remains well positioned to benefit from its royalty and
equity investments in IOC given strong iron ore market conditions
and current production levels. In the first half of 2020,
LIORC paid a total of $0.75 per share
in dividends to shareholders from cash received from its IOC
royalty. In addition, while IOC decided not to declare a
shareholder dividend in the first half of 2020, LIORC's share of
equity earnings in IOC was $53.4
million. LIORC continues to maintain a strong balance sheet
with no debt and positive working capital (current assets minus
current liabilities) of $29.4 million
as at June 30, 2020.
Respectfully submitted on behalf of the Directors of Labrador
Iron Ore Royalty Corporation,
John F. Tuer
President and Chief Executive Officer
August 6, 2020
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 2019 Annual Report, and the financial
statements and notes contained therein and the June 30, 2020 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 second quarter of 2020 amounted to
$46.2 million compared to
$52.6 million for the second quarter
of 2019. Net income was $48.9 million
or $0.76 per share for the second
quarter of 2020 compared to $61.1
million or $0.95 per share for
the same period in 2019. Cash flow from operations for the second
quarter was $37.6 million or
$0.58 per share compared to
$47.8 million or $0.75 per share for the same period in 2019. The
Corporation received no dividend from IOC in the second quarter of
2020 compared to $25.4 million or
$0.40 per share for the same period
in 2019. Equity earnings from IOC amounted to $28.7 million or $0.45 per share in the second quarter of 2020
compared to $24.7 million or
$0.39 per share in the first quarter
of 2020 and $33.9 million or
$0.53 per share in the second quarter
of 2019.
Royalty revenue and net income for the second quarter of 2020
were lower than the second quarter of 2019, predominantly as a
result of lower iron ore prices and a change in IOC's product mix
which was beneficial to IOC's earnings, but lowered IOC's revenue
from which the LIORC royalty is calculated. While prices for
concentrate remained strong in the second quarter, both concentrate
and pellet prices were lower in the second quarter of 2020 compared
to the second quarter of 2019. The average price for the 62% Fe
index decreased 7% to US$93 per tonne
in the second quarter of 2020, compared to the average price of
US$100 per tonne in the second
quarter of 2019. The Atlantic Basin blast furnace pellet premium,
as reported by Platts, averaged US$30
per tonne in the second quarter of 2020, a 55% decrease over the
second quarter of 2019. Total IOC's sales for calculating the
royalty to LIORC (CFS plus pellets) of 4.6 million tonnes were 1%
higher in the second quarter of 2020 compared to the same period in
2019. However, while CFS sales of 2.4 million tonnes were 10%
higher than in the same period in 2019, pellet sales in the second
quarter of 2020 of 2.2 million tonnes were 7% lower than in the
second quarter of 2019. Cash flow from operations in the
second quarter of 2020 was lower than in the second quarter of 2019
largely because IOC elected not to pay a shareholder dividend in
the second quarter of 2020 due to the global economic uncertainty
created by the COVID-19 pandemic. While equity earnings from IOC in
the second quarter of 2020 were lower than in the second quarter of
2019, mainly due to lower iron ore prices, equity earnings from IOC
were higher than in the first quarter of 2020, due to higher iron
ore prices and lower operating costs. IOC's operating costs
were lower in the second quarter of 2020 because of the reduction
in pellet production and as a result of operational changes made to
deal with COVID-19 that limited the number of contractors on site
and reduced overtime costs. IOC also benefitted from lower
fuel costs in April and May.
During the second quarter, IOC's mining, processing, rail and
shipping operations continued to operate safely within the COVID-19
guidelines of both the Quebec and
Newfoundland and Labrador governments. Despite the
inclusion of social distancing protocols and limitations placed on
certain employee and contractor movements, total concentrate
production in the second quarter of 2020 of 4.8 million tonnes was
7% higher than the second quarter of 2019 and 3% higher than the
first quarter of 2020. The total material moved was lower in
the second quarter of 2020 than the second quarter of 2019, mainly
driven by the absence of development contractors impacting waste
movement and a lack of haul truck operators. However, this
was more than offset by a lower strip ratio. Concentrate production
in the second quarter of 2019, was also adversely affected by a
flooding incident.
During the second quarter of 2020, total saleable production
(CFS plus pellets) of 4.7 million tonnes was 9% higher than the
second quarter of 2019. During the second quarter of 2020,
IOC optimised its product mix to match market demand, by
temporarily suspending two pellet machines from operation in order
to increase production of CFS. As a result, CFS production in
the second quarter of 2020 of 2.6 million tonnes was 28% higher
than in the second quarter of 2019 and 65% higher than the first
quarter of 2020. Pellet production in the second quarter of 2020 of
2.1 million tonnes was 7% lower than the second quarter of 2019 and
24% lower than the first quarter of 2020.
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.6
million tonnes in the second quarter of 2020 was 1% higher compared
to the same period in 2019. In the second quarter of 2020 CFS
tonnage sold by IOC was 10% higher than in the same period in 2019
and pellet sales tonnage was 7% lower than in the second quarter of
2019, mainly as a result of the strategic change in product mix by
IOC.
IOC sells CFS based on the 65% Fe index. In the second
quarter of 2020 the average price for the 65% Fe index was
US$108 per tonne, a 6% decrease from
the average price in the second quarter of 2019 and a 5% increase
from the first quarter of 2020. Overall, prices for iron ore
concentrate remained historically strong in the second quarter of
2020, due to continuing demand from China, the largest importer of iron ore,
offsetting weaker demand outside of China. In the first half of 2020, China imported 547 million tonnes of iron ore,
up 9.6% over the same period in 2019. In addition, during the
second quarter iron ore prices benefited from ongoing supply
concerns regarding future Brazilian production as a result of
possible COVID-19 disruptions. In the second quarter the 65% Fe
index traded at an average premium of 16% to the 62% Fe
index. This was the same average premium as in the first
quarter of 2020 and similar to the 15% average premium in the
second quarter of 2019.
The COVID-19 pandemic continued to negatively affect the demand
for iron ore outside of China. As
a result, in the second quarter of 2020 there was reduced demand
for pellets in various markets across Europe and North
America. The quarterly Atlantic Basin blast furnace
pellet premium, as reported by Platts, averaged US$30 per tonne in the second quarter of 2020, a
55% decrease over the second quarter of 2019 and 3% higher than the
first quarter of 2020. The average pellet price realized by IOC in
the first half of 2020 was US$117 per
tonne, a 17% decrease from the average realized price of
US$141 per tonne in the first half of
2019.
A change in product mix and lower iron ore prices, and in
particular lower pellet premiums, resulted in royalty revenue for
LIORC in the second quarter of 2020 decreasing 12% compared to the
royalty revenue in the second quarter of 2019.
Results for the six months were affected by the same factors as
affected the three month period. Royalty and commission interests
amortization expense increased by $0.3
million for the six months compared to the same period in
2019 due to the increase in production.
The following table sets out quarterly revenue, net income and
cash flow data for 2020, 2019 and 2018.
|
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)
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
$48.3
|
$46.7
|
$0.73
|
$10.7
|
$0.17
|
$0.42
|
$0.35
|
|
|
|
|
|
|
|
|
Second
Quarter
|
$46.7
|
$48.9
|
$0.76
|
$37.6
|
$0.58
|
$0.40
|
$0.45
|
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
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$46.2
|
$57.5
|
$0.90
|
$72.6(3)
|
$1.13(3)
|
$1.02(3)
|
$1.00
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$39.6
|
$47.4
|
$0.74
|
$79.1(4)
|
$1.24(4)
|
$1.03(4)
|
$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(5)
|
$0.93(5)
|
$1.30(5)
|
$0.55
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$46.8
|
$43.4
|
$0.68
|
$53.3(6)
|
$0.83(6)
|
$0.79(6)
|
$0.60
|
|
|
|
|
|
|
|
|
(1)
"Adjusted cash flow" (see below).
|
(2)
Includes $25.4 million IOC dividend.
|
(3)
Includes $40.1 million IOC dividend.
|
(4)
Includes $44.6 million IOC dividend.
|
(5)
Includes $58.6 million IOC dividend.
|
(6)
Includes $25.3 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 $0.58 for the quarter (2019 - $0.75). Cumulative standardized cash flow from
inception of the Corporation is $31.73 per share and total cash distributions
since inception is $31.14 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
Jun. 30,
2020
|
3 Months
Ended
Jun. 30,
2019
|
6 Months
Ended
Jun. 30,
2020
|
6 Months
Ended
Jun. 30,
2019
|
Standardized cash
flow from operating activities
|
$37,614
|
$47,837
|
$48,267
|
$72,800
|
Changes in amounts
receivable, accounts payable and income taxes payable
|
(11,975)
|
6,943
|
4,198
|
3,492
|
Adjusted cash
flow
|
$25,639
|
$54,780
|
$52,465
|
$76,292
|
Adjusted cash flow
per share
|
$0.40
|
$0.86
|
$0.82
|
$1.19
|
Liquidity and Capital Resources
The Corporation had $36.5 million
in cash as at June 30, 2020
(December 31, 2019 - $77.9 million) with total current assets of
$83.7 million (December 31, 2019 - $114.0
million). The Corporation had working capital of
$29.4 million as at June 30, 2020 (December
31, 2019 - $28.2 million). The
Corporation's operating cash flow for the quarter was $37.6 million and the dividend paid during the
quarter was $22.4 million, resulting
in cash balances increasing by $15.2
million during the second quarter of 2020.
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 has a $30 million
revolving credit facility with a term ending September 18, 2022 with provision for annual
one-year extensions. No amount is currently drawn under this
facility (2019 – nil) leaving $30.0
million available to provide for any capital required by IOC
or requirements of the Corporation.
Outlook
IOC continues to effectively operate its mining, processing,
rail and shipping operations safely during the COVID-19
pandemic. IOC production and sales volumes remain strong
despite the additional challenges presented by COVID-19, and Rio
Tinto has recently reaffirmed its 2020 guidance for IOC's saleable
production of CFS and pellets at between 17.9 and 20.4 million
tonnes.
Capital expenditures at IOC for 2020 which were originally
forecasted to be approximately $350
million, are now projected to be approximately $270 million. The $80 million reduction in the capital expenditure
forecast is due to the deferral of certain development projects,
mainly related to COVID-19 protocol restrictions on bringing
contractors and consultants on-site during the second quarter, as
well as a delay in the finalization of the third-party service
contract that is a prerequisite to increasing the haulage capacity
of Québec North Shore and Labrador Railway.
Since June 30, the 65% Fe index
has consistently been above its average price during the second
quarter of 2020. However, it is anticipated that the economic
impact from the COVID-19 pandemic will continue to cause both
demand and supply disruptions to the seaborne iron ore
market. While the outlook for China steel production in the second half of
2020 remains positive, it is unclear whether iron ore demand
strength from China will be enough
to offset the expected continued weakness of steel producers in
Europe and North America. In
addition, while steel prices benefited in the second quarter from
fears that there would be supply constraints from Brazil, those fears were never fully realized,
and recently Brazilian miner Vale reconfirmed its original
production guidance, albeit at the lower end of its 310 to 330
million tonne range.
In such an uncertain economic environment, IOC's ability to
optimize its production mix to meet changing market demands is a
clear advantage. At the end of the first quarter of 2020, IOC
halted production of two pellet machines in order to focus on
meeting the demand for CFS. Recently, the Atlantic pellet market
has shown some improvement in demand and, as a result, IOC brought
back on-line one of the two idled pellet lines.
IOC remains well positioned to benefit from its royalty and
equity investments in IOC given strong iron ore market conditions
and current production levels. In the first half of 2020,
LIORC paid a total of $0.75 per share
in dividends to shareholders from cash received from its IOC
royalty. In addition, while IOC decided not to declare a
shareholder dividend in the first half of 2020, LIORC's share of
equity earnings in IOC was $53.4
million. LIORC continues to maintain a strong balance sheet
with no debt and positive working capital (current assets minus
current liabilities) of $29.4 million
as at June 30, 2020.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
August 6, 2020
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, relationships with indigenous groups, natural
disasters, severe weather conditions and public health epidemics,
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 5, 2020 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
|
|
|
June
30,
|
|
|
December
31,
|
(in thousands of
Canadian dollars)
|
|
2020
|
|
|
2019
|
|
(Unaudited)
|
Assets
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash and short-term
investments
|
$
|
36,526
|
|
$
|
77,859
|
Amounts
receivable
|
|
47,138
|
|
|
36,156
|
Total Current
Assets
|
|
83,664
|
|
|
114,015
|
|
|
|
|
|
|
Non-Current
Assets
|
|
|
|
|
|
Iron Ore Company of
Canada ("IOC")
|
|
|
|
|
|
royalty and commission
interests
|
|
244,434
|
|
|
247,701
|
Investment in
IOC
|
|
434,138
|
|
|
381,310
|
Total Non-Current
Assets
|
|
678,572
|
|
|
629,011
|
|
|
|
|
|
|
Total
Assets
|
$
|
762,236
|
|
$
|
743,026
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable
|
$
|
10,032
|
|
$
|
7,939
|
Dividend
payable
|
|
28,800
|
|
|
67,200
|
Taxes
payable
|
|
15,401
|
|
|
10,710
|
Total Current
Liabilities
|
|
54,233
|
|
|
85,849
|
|
|
|
|
|
|
Non-Current
Liabilities
|
|
|
|
|
|
Deferred income
taxes
|
|
126,810
|
|
|
119,840
|
Total
Liabilities
|
|
181,043
|
|
|
205,689
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
Share
capital
|
|
317,708
|
|
|
317,708
|
Retained
earnings
|
|
274,313
|
|
|
230,005
|
Accumulated other
comprehensive loss
|
|
(10,828)
|
|
|
(10,376)
|
|
|
581,193
|
|
|
537,337
|
|
|
|
|
|
|
Total Liabilities and
Shareholders' Equity
|
$
|
762,236
|
|
$
|
743,026
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by the
Directors,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F.
Tuer
|
Patricia M.
Volker
|
|
|
|
Director
|
Director
|
|
|
|
LABRADOR IRON ORE ROYALTY
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
|
|
|
For the Three
Months Ended
|
|
June
30,
|
(in thousands of
Canadian dollars except for per share information)
|
2020
|
|
2019
|
|
(Unaudited)
|
Revenue
|
|
|
|
|
|
IOC
royalties
|
$
|
46,213
|
|
$
|
52,610
|
IOC
commissions
|
|
454
|
|
|
449
|
Interest and other
income
|
|
45
|
|
|
245
|
|
|
46,712
|
|
|
53,304
|
Expenses
|
|
|
|
|
|
Newfoundland royalty
taxes
|
|
9,243
|
|
|
10,522
|
Amortization of
royalty and commission interests
|
|
1,642
|
|
|
1,325
|
Administrative
expenses
|
|
816
|
|
|
787
|
|
|
11,701
|
|
|
12,634
|
|
|
|
|
|
|
Income before
equity earnings and income taxes
|
|
35,011
|
|
|
40,670
|
Equity earnings in
IOC
|
|
28,691
|
|
|
33,935
|
|
|
|
|
|
|
Income before
income taxes
|
|
63,702
|
|
|
74,605
|
|
|
|
|
|
|
Provision for
income taxes
|
|
|
|
|
|
Current
|
|
11,014
|
|
|
12,609
|
Deferred
|
|
3,830
|
|
|
896
|
|
|
14,844
|
|
|
13,505
|
|
|
|
|
|
|
Net income for the
period
|
|
48,858
|
|
|
61,100
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
Share of other
comprehensive loss of IOC that will not be
|
|
|
|
|
|
reclassified
subsequently to profit or loss (net of income
taxes
|
|
|
|
|
|
of 2020 - $40; 2019 -
$386)
|
|
(226)
|
|
|
(2,187)
|
|
|
|
|
|
|
Comprehensive
income for the period
|
$
|
48,632
|
|
$
|
58,913
|
|
|
|
|
|
|
Net income per
share
|
$
|
0.76
|
|
$
|
0.95
|
LABRADOR IRON ORE ROYALTY
CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
For the Six Months
Ended
|
|
June
30,
|
(in thousands of
Canadian dollars except for per share information)
|
2020
|
|
2019
|
|
(Unaudited)
|
Revenue
|
|
|
|
|
|
IOC
royalties
|
$
|
93,828
|
|
$
|
91,106
|
IOC
commissions
|
|
916
|
|
|
797
|
Interest and other
income
|
|
267
|
|
|
611
|
|
|
95,011
|
|
|
92,514
|
Expenses
|
|
|
|
|
|
Newfoundland royalty
taxes
|
|
18,766
|
|
|
18,221
|
Amortization of
royalty and commission interests
|
|
3,267
|
|
|
2,933
|
Administrative
expenses
|
|
1,373
|
|
|
1,559
|
|
|
23,406
|
|
|
22,713
|
|
|
|
|
|
|
Income before
equity earnings and income taxes
|
|
71,605
|
|
|
69,801
|
Equity earnings in
IOC
|
|
53,360
|
|
|
56,344
|
|
|
|
|
|
|
Income before
income taxes
|
|
124,965
|
|
|
126,145
|
|
|
|
|
|
|
Provision for
income taxes
|
|
|
|
|
|
Current
|
|
22,407
|
|
|
21,838
|
Deferred
|
|
7,050
|
|
|
3,860
|
|
|
29,457
|
|
|
25,698
|
|
|
|
|
|
|
Net income for the
period
|
|
95,508
|
|
|
100,447
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
Share of other
comprehensive loss of IOC that will not be
|
|
|
|
|
|
reclassified
subsequently to profit or loss (net of income taxes
|
|
|
|
|
|
of 2020 - $80; 2019 -
$184)
|
|
(452)
|
|
|
(1,042)
|
|
|
|
|
|
|
Comprehensive
income for the period
|
$
|
95,056
|
|
$
|
99,405
|
|
|
|
|
|
|
Net income per
share
|
$
|
1.49
|
|
$
|
1.57
|
LABRADOR IRON ORE ROYALTY
CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
For the Six Months
Ended
|
|
June
30,
|
(in thousands of
Canadian dollars)
|
2020
|
|
2019
|
|
(Unaudited)
|
Net inflow
(outflow) of cash related
|
|
|
|
|
|
to the following
activities
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Net income for the
period
|
$
|
95,508
|
|
$
|
100,447
|
Items not affecting
cash:
|
|
|
|
|
|
Equity earnings in
IOC
|
|
(53,360)
|
|
|
(56,344)
|
Current income
taxes
|
|
22,407
|
|
|
21,838
|
Deferred income
taxes
|
|
7,050
|
|
|
3,860
|
Amortization of
royalty and commission interests
|
|
3,267
|
|
|
2,933
|
Common share dividend
from IOC
|
|
-
|
|
|
25,440
|
Change in amounts
receivable
|
|
(10,982)
|
|
|
(8,532)
|
Change in accounts
payable
|
|
2,093
|
|
|
1,408
|
Income taxes
paid
|
|
(17,716)
|
|
|
(18,250)
|
Cash flow from
operating activities
|
|
48,267
|
|
|
72,800
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
Dividend paid to
shareholders
|
|
(89,600)
|
|
|
(105,600)
|
Cash flow used in
financing activities
|
|
(89,600)
|
|
|
(105,600)
|
|
|
|
|
|
|
Decrease in cash,
during the period
|
|
(41,333)
|
|
|
(32,800)
|
|
|
|
|
|
|
Cash, beginning of
period
|
|
77,859
|
|
|
80,495
|
|
|
|
|
|
|
Cash, end of
period
|
$
|
36,526
|
|
$
|
47,695
|
The complete consolidated financial statements for the second
quarter ended June 30, 2020,
including the notes thereto, are posted on sedar.com and
labradorironore.com.
SOURCE Labrador Iron Ore Royalty Corporation