Labrador Iron Ore Royalty Corporation - Results for the first quarter ended March 31, 2014
TORONTO, May 6, 2014 /CNW/ - Royalty income for the first quarter of 2014 amounted to $26.9 million as compared to $26.1 million for the first quarter of 2013. The shareholders' adjusted cash flow (see below for definition) for the first quarter was $27.7 million or $0.43 per share as compared to $14.4 million or $0.22 per share for the same period in 2013. The higher cash flow for the quarter reflected an IOC dividend of which our share was $12.6 million or $0.20 per share. Net income was $27.1 million or $0.42 per share compared to $21.7 million or $0.34 per share for the same period in 2013. Equity earnings from Iron Ore Company of Canada ("IOC") amounted to $12.6 million or $0.20 per share as compared to $9.4 million or $0.15 per share in 2013.
IOC production in the first quarter is normally reduced due to the problems associated with winter weather conditions and production is usually 15-20% of annual production. The 2014 first quarter was subjected to disruptively cold weather associated with a "polar vortex" weather pattern, which caused an external power outage and unplanned equipment downtime. As a result, saleable production was 12% below last year's first quarter. Sales for the quarter, which were slightly below last year's quarter, were restricted by the availability of product and IOC had to declare a temporary force majeure. Despite the weather challenges, IOC established new records for February ex-pit mine production and Ore Delivery System crushed ore. Average U.S. dollar index prices for concentrate in the quarter were about 11% below 2013 fourth quarter and the average for the year. The lower price was largely offset by higher pellet premiums and the weakness of the Canadian dollar against its U.S counterpart.
Results for the three months ended March 31 are summarized below:
| (in millions except per share information) | 2014 | 2013 | ||
| (Unaudited) | ||||
| Revenue | $27.2 | $26.4 | ||
| Adjusted cash flow | $27.7 | $14.4 | ||
| Adjusted cash flow per share | $0.43 | $0.22 | ||
| Net income | $27.1 | $21.7 | ||
| Net income per share | $0.42 | $0.34 | ||
"Adjusted cash flow" (defined as cash flow from operating activities as shown on the attached financial statements adjusted for changes in amounts receivable, accounts payable and income taxes payable) 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.
A summary of IOC's sales in millions of tonnes is as follows:
| 3 Months Ended Mar. 31, 2014 | 3 Months Ended Mar. 31, 2013 | Year Ended Dec. 31, 2013 | |||||||
| Pellets | 1.88 | 1.72 | 8.60 | ||||||
| Concentrates(1) | 0.63 | 0.90 | 6.20 | ||||||
| Total | 2.51 | 2.62 | 14.80 |
| (1) | Excludes third party ore sales |
Outlook
The IOC expansion program should be completed during the second quarter of the year. On the assumption that production for the balance of the year gradually approaches the nominal annual capacity of 23.3 million tonnes, 2014 concentrate production could exceed 18 million tonnes, if weather and other factors do not intervene. Prices are currently lower than the 2013 average prices, but this is partially offset by the weaker Canadian dollar. IOC expects to be able to sell all the concentrate and pellets it can produce during the year. Increased production and sales should result in increased royalty revenue for Labrador Iron Ore Royalty Corp. and increased cash flow for IOC.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corporation,
Bruce C. Bone
President and Chief Executive Officer
May 6, 2014
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 Labrador Iron Ore Royalty Corporation's ("LIORC" or the "Corporation") 2013 Annual Report and the interim financial statements and notes contained in this report. Although management believes that expectations reflected in forward-looking statements are reasonable, such statements involve risk and uncertainties including the factors discussed in the Corporation's 2013 Annual Report.
The Corporation's revenues are entirely dependent on the operations of Iron Ore Company of Canada ("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 income for the first quarter of 2014 amounted to $26.9 million as compared to $26.1 million for the first quarter of 2013. The shareholders' adjusted cash flow (see below for definition and calculation) for the first quarter was $27.7 million or $0.43 per share as compared to $14.4 million or $0.22 per share for the same period in 2013. The higher cash flow for the quarter reflected an IOC dividend of which our share was $12.6 million or $0.20 per share. Net income was $27.1 million or $0.42 per share compared to $21.7 million or $0.34 per share for the same period in 2013. Equity earnings from IOC amounted to $12.6 million or $0.20 per share as compared to $9.4 million or $0.15 per share in 2013.
IOC production in the first quarter is normally reduced due to the problems associated with winter weather conditions and production is usually 15-20% of annual production. The 2014 first quarter was subjected to disruptively cold weather associated with a "polar vortex" weather pattern, which caused an external power outage and unplanned equipment downtime. As a result, saleable production was 12% below last year's first quarter. Sales for the quarter, which were slightly below last year's quarter, were restricted by the availability of product and IOC had to declare a temporary force majeure. Despite the weather challenges, IOC established new records for February ex-pit mine production and Ore Delivery System crushed ore. Average U.S. dollar index prices for concentrate in the quarter were about 11% below 2013 fourth quarter and the average for the year. The lower price was largely offset by higher pellet premiums and the weakness of the Canadian dollar against its U.S counterpart.
The following table sets out quarterly revenue, net income and cash flow data for 2014, 2013 and 2012.
| Revenue | Net Income | Net Income per Share/Unit | Adjusted Cash Flow(1) | Adjusted Cash Flow per Share/Unit (1) | Distributions Declared per Share/Unit | |||
| (in millions except per Share/Unit information) | ||||||||
| 2014 | ||||||||
| First Quarter | $27.2 | $27.1 | $0.42 | $27.7(2) | $0.43 | $0.400 | ||
| 2013 | ||||||||
| First Quarter | $26.4 | $21.7 | $0.34 | $14.4 | $0.22 | $0.375 | ||
| Second Quarter | $42.2 | $39.2 | $0.61 | $23.4 | $0.37 | $0.375 | ||
| Third Quarter | $36.1 | $41.2 | $0.65 | $20.0 | $0.31 | $0.375 | ||
| Fourth Quarter | $34.6 | $46.7 | $0.73 | $57.6(3) | $0.90 | $0. 750 | ||
| 2012 | ||||||||
| First Quarter(4) | $22.4 | $23.0 | $0.36 | $14.4 | $0.23 | $0.375 | ||
| Second Quarter(4) | $36.4 | $36.8 | $0.57 | $22.3 | $0.35 | $0.375 | ||
| Third Quarter (4) | $32.6 | $29.7 | $0.47 | $18.5 | $0.28 | $0.375 | ||
| Fourth Quarter | $32.8 | $33.0 | $0.51 | $19.9 | $0.31 | $0.375 | ||
| Notes: | (1) | "Adjusted cash flow" (see below) | ||||||
| (2) | Includes a $12.6 million IOC dividend | |||||||
| (3) | Includes a $40.0 million IOC dividend | |||||||
| (4) | Prior to the fourth quarter of 2012, net income, adjusted cash flow, distributions and per unit figures referred to in this table use the totals according to the consolidated financial statements plus (where applicable) the $7,488,000 ($0.117 per unit) interest on the subordinated notes | |||||||
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 distributions. Standardized cash flow per share was $0.40 for the quarter (2013 - $0.22). Cumulative standardized cash flow from inception of the Corporation is $19.24 per share and total cash distributions since inception are $18.69 per share, for a payout ratio of 97%.
"Adjusted cash flow" is defined as cash flow from operating activities as shown on the attached financial statements adjusted for changes in amounts receivable, accounts payable and income taxes 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 cash flow from operating activities to adjusted cash flow.
| 3 Months Ended Mar. 31, 2014 | 3 Months Ended Mar. 31, 2013 | ||||
| Standardized cash flow from operating activities | $25,848,565 | $14,106,869 | |||
| Excluding: changes in amounts receivable, accounts payable and income taxes payable | 1,834,869 | 243,144 | |||
| Adjusted cash flow | $27,683,434 | $14,350,013 | |||
| Adjusted cash flow per share | $0.43 | $0.22 |
Liquidity and Capital Resources
The Corporation has $30.5 million in cash as at March 31, 2014 with total current assets of $57.7 million and working capital of $26.7 million. During the quarter, the Corporation earned operating cash flows of $25.8 million with the cash balance declining $22.1 million as a result of dividends paid.
Cash balances consist of deposits in Canadian dollars with Canadian chartered banks. Accounts 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 intends to pay cash dividends of the net income derived from IOC to the maximum extent possible, subject to the maintenance of appropriate levels of working capital and debt.
The Corporation has a $50 million revolving credit facility with a term ending September 18, 2016 with provision for annual one-year extensions. No amount is currently drawn under this facility (2013 - nil) leaving $50.0 million available to provide for any capital required by IOC or requirements of the Corporation.
Outlook
The IOC expansion program should be completed during the second quarter of the year. On the assumption that production for the balance of the year gradually approaches the nominal annual capacity of 23.3 million tonnes, 2014 concentrate production could exceed 18 million tonnes, if weather and other factors do not intervene. Prices are currently lower than the 2013 average prices, but this is partially offset by the weaker Canadian dollar. IOC expects to be able to sell all the concentrate and pellets it can produce during the year. Increased production and sales should result in increased royalty revenue for LIORC and increased cash flow for IOC.
Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
May 6, 2014
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 financial statements.
| LABRADOR IRON ORE ROYALTY CORPORATION | |||||||
| INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
| As at | |||||||
| March 31, | December 31, | ||||||
| Canadian $ | 2014 | 2013 | |||||
| (Unaudited) | |||||||
| Assets | |||||||
| Current Assets | |||||||
| Cash | $ | 30,462,489 | $ | 52,613,924 | |||
| Amounts receivable | 25,492,111 | 35,818,924 | |||||
| Income taxes recoverable | 1,714,447 | - | |||||
| Total Current Assets | 57,669,047 | 88,432,848 | |||||
| Non-Current Assets | |||||||
| Iron Ore Company of Canada ("IOC"), | |||||||
| royalty and commission interests | 278,794,443 | 279,576,792 | |||||
| Investment in IOC | 407,064,512 | 407,622,445 | |||||
| Total Non-Current Assets | 685,858,955 | 687,199,237 | |||||
| Total Assets | $ | 743,528,002 | $ | 775,632,085 | |||
| Liabilities and Shareholders' Equity | |||||||
| Current Liabilities | |||||||
| Accounts payable | $ | 5,378,722 | $ | 7,508,145 | |||
| Dividend payable | 25,600,000 | 48,000,000 | |||||
| Income taxes payable | - | 8,317,812 | |||||
| Total Current Liabilities | 30,978,722 | 63,825,957 | |||||
| Non-Current Liabilities | |||||||
| Deferred income taxes | 128,180,000 | 128,478,000 | |||||
| Total Liabilities | 159,158,722 | 192,303,957 | |||||
| Shareholders' Equity | |||||||
| Share capital | 317,708,147 | 317,708,147 | |||||
| Retained earnings | 274,745,133 | 273,225,981 | |||||
| Accumulated other comprehensive loss | (8,084,000) | (7,606,000) | |||||
| 584,369,280 | 583,328,128 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 743,528,002 | $ | 775,632,085 | |||
| LABRADOR IRON ORE ROYALTY CORPORATION | |||||||
| INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||
| For the three months ended | |||||||
| March 31, | |||||||
| Canadian $ | 2014 | 2013 | |||||
| (Unaudited) | |||||||
| Revenue | |||||||
| IOC royalties | $ | 26,852,444 | $ | 26,101,205 | |||
| IOC commissions | 242,090 | 257,651 | |||||
| Interest and other income | 98,642 | 58,369 | |||||
| 27,193,176 | 26,417,225 | ||||||
| Expenses | |||||||
| Newfoundland royalty taxes | 5,370,489 | 5,216,405 | |||||
| Amortization of royalty and commission interests | 782,349 | 949,367 | |||||
| Administrative expenses | 431,754 | 865,053 | |||||
| Interest expense: | |||||||
| Credit facility | 101,835 | 92,466 | |||||
| 6,686,427 | 7,123,291 | ||||||
| Income before equity earnings and income taxes | 20,506,749 | 19,293,934 | |||||
| Equity earnings in IOC | 12,567,402 | 9,364,275 | |||||
| Income before income taxes | 33,074,151 | 28,658,209 | |||||
| Provision for income taxes | |||||||
| Current | 6,171,999 | 5,893,288 | |||||
| Deferred | (217,000) | 1,091,000 | |||||
| 5,954,999 | 6,984,288 | ||||||
| Net income for the period | 27,119,152 | 21,673,921 | |||||
| Other comprehensive loss | |||||||
| Share of other comprehensive loss of IOC that will not be | |||||||
| reclassified subsequently to profit or loss (net of taxes) | (478,000) | (537,000) | |||||
| Comprehensive income for the period | $ | 26,641,152 | $ | 21,136,921 | |||
| Net income per share | $ | 0.42 | $ | 0.34 | |||
| LABRADOR IRON ORE ROYALTY CORPORATION | ||||||||
| INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| For the three months ended | ||||||||
| March 31, | ||||||||
| Canadian $ | 2014 | 2013 | ||||||
| (Unaudited) | ||||||||
| Net inflow (outflow) of cash related | ||||||||
| to the following activities | ||||||||
| Operating | ||||||||
| Net income for the period | $ | 27,119,152 | $ | 21,673,921 | ||||
| Items not affecting cash: | ||||||||
| Equity earnings in IOC | (12,567,402) | (9,364,275) | ||||||
| Current income taxes | 6,171,999 | 5,893,288 | ||||||
| Deferred income taxes | (217,000) | 1,091,000 | ||||||
| Amortization of royalty and commission interests | 782,349 | 949,367 | ||||||
| Interest expense | 101,835 | 92,466 | ||||||
| Common share dividend from IOC | 12,566,335 | - | ||||||
| Change in amounts receivable and accounts payable | 8,197,390 | (136,432) | ||||||
| Interest paid | (101,835) | (92,466) | ||||||
| Income taxes paid | (16,204,258) | (6,000,000) | ||||||
| Cash flow from operating activities | 25,848,565 | 14,106,869 | ||||||
| Financing | ||||||||
| Dividends paid to shareholders | (48,000,000) | (24,000,000) | ||||||
| Cash flow used in financing activities | (48,000,000) | (24,000,000) | ||||||
| Decrease in cash, during the period | (22,151,435) | (9,893,131) | ||||||
| Cash, beginning of period | 52,613,924 | 26,923,421 | ||||||
| Cash, end of period | $ | 30,462,489 | $ | 17,030,290 | ||||
| LABRADOR IRON ORE ROYALTY CORPORATION | ||||||||||||
| INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||
| Canadian $ | Share capital | Retained earnings | Accumulated other comprehensive loss | Total | ||||||||
| (Unaudited) | ||||||||||||
| Balance as at December 31, 2012 | $ | 317,708,147 | $ | 244,395,841 | $ | (17,598,000) | $ | 544,505,988 | ||||
| Net income for the period | - | 21,673,921 | 21,673,921 | |||||||||
| Dividends declared to shareholders | - | (24,000,000) | (24,000,000) | |||||||||
| Share of other comprehensive loss from investment in IOC (net of taxes) | - | - | (537,000) | (537,000) | ||||||||
| Balance as at March 31, 2013 | $ | 317,708,147 | $ | 242,069,762 | $ | (18,135,000) | $ | 541,642,909 | ||||
| Balance as at December 31, 2013 | 317,708,147 | 273,225,981 | (7,606,000) | 583,328,128 | ||||||||
| Net income for the period | - | 27,119,152 | - | 27,119,152 | ||||||||
| Dividends declared to shareholders | - | (25,600,000) | - | (25,600,000) | ||||||||
| Share of other comprehensive loss from investment in IOC (net of taxes) | - | - | (478,000) | (478,000) | ||||||||
| Balance as at March 31, 2014 | $ | 317,708,147 | $ | 274,745,133 | $ | (8,084,000) | $ | 584,369,280 | ||||
The complete consolidated financial statements for the first quarter ended March 31, 2014, including the notes thereto, are posted on sedar.com and labradorironore.com.
Contact
Bruce C. Bone
President & Chief Executive Officer
(416) 863-7133
