TORONTO, Nov. 5, 2020 /CNW/ - Labrador Iron Ore Royalty
Corporation ("LIORC"), (TSX: LIF) announced today its operation and
cash flow results for the third quarter ended September 30, 2020.
Royalty revenue for the third quarter of 2020 amounted to
$52.4 million compared to
$45.5 million for the third quarter
of 2019. Net income was $57.7 million
or $0.90 per share for the third
quarter of 2020 compared to $57.5
million or $0.90 per share for
the same period in 2019. Equity earnings from Iron Ore Company of
Canada ("IOC") amounted to
$34.9 million or $0.55 per share in the third quarter of 2020
compared to $28.7 million or
$0.45 per share in the second quarter
of 2020 and $32.0 million or
$0.50 per share in the third quarter
of 2019. Cash flow from operations for the third quarter was
$11.1 million or $0.17 per share compared to $72.6 million or $1.13 per share for the same period in
2019. The third quarter of 2019 included a dividend of
$40.1 million or $0.63 per share from IOC.
Royalty revenue for the third quarter of 2020 was 15% higher
than the third quarter of 2019, predominantly as a result of higher
realized iron ore prices and marginally higher sales tonnage.
While prices for concentrate were higher in the third quarter of
2020 compared to the third quarter of 2019, pellet premiums were
lower. The average price for the Platts index for 62% Fe Iron Ore, CFR China ("62% Fe index")
increased 16% to US$118 per tonne in
the third quarter of 2020, compared to the average price of
US$102 per tonne in the third quarter
of 2019. The Atlantic Basin blast furnace pellet premium, as
reported by Platts, averaged US$29
per tonne in the third quarter of 2020, a 49% decrease over the
third quarter of 2019. Despite the impacts on the operations of IOC
from the COVID-19 pandemic, the total IOC's sales for calculating
the royalty to LIORC (concentrate for sale ("CFS") plus pellets) of
4.7 million tonnes were 3% higher in the third quarter of 2020
compared to the same period in 2019. However, while pellet sales in
the third quarter of 2020 of 2.3 million tonnes were 15% higher
than in the third quarter of 2019, CFS sales of 2.3 million tonnes
were 6% lower than in the same period in 2019. Cash flow from
operations in the third quarter of 2020 was lower than in the third
quarter of 2019 largely because IOC elected not to pay a
shareholder dividend in the third quarter of 2020 in order to
retain a substantially higher cash balance due to concerns that the
COVID-19 pandemic may adversely affect IOC's operations and demand
for its iron ore products. Equity earnings from IOC in the third
quarter of 2020 were higher than in the third quarter of 2019,
mainly due to higher realized iron ore prices.
LIORC's results for the three months and nine months ended
September 30 are summarized
below:
|
(in millions
except per share information)
|
|
3 Months
Ended
Sept. 30,
2020
|
3 Months
Ended
Sept. 30,
2019
|
9 Months
Ended
Sept. 30,
2020
|
9 Months
Ended
Sept. 30,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Revenue
|
|
$52.9
|
$46.2
|
$147.9
|
$138.7
|
|
Cash flow from
operations
|
|
$11.1
|
$72.6
|
$59.4
|
$145.4
|
|
Operating cash flow
per share
|
|
$0.17
|
$1.13
|
$0.93
|
$2.27
|
|
Net income
|
|
$57.7
|
$57.5
|
$153.2
|
$157.9
|
|
Net income per
share
|
|
$0.90
|
$0.90
|
$2.39
|
$2.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iron Ore Company of Canada Operations
Production
Total concentrate production in the third quarter of 2020 was 4.2
million tonnes. This was 21% lower than the third quarter of 2019
and 12% lower than the second quarter of 2020 due mainly to
unplanned mechanical issues and power outages affecting the
processing plant and a longer annual maintenance shutdown in
September.
During the third quarter of 2020, total saleable production (CFS
plus pellets) of 4.0 million tonnes was 21% lower than the third
quarter of 2019, mainly as a result of lower concentrate production
referred to above. CFS production in the third quarter of
2020 of 1.8 million tonnes was 26% lower than in the third quarter
of 2019 and 32% lower than the second quarter of 2020. Pellet
production in the third quarter of 2020 of 2.2 million tonnes was
17% lower than the third quarter of 2019, and 5% higher than the
second quarter of 2020. Pellet production in the third quarter of
2020 was reduced due to IOC's decision to continue to align the
product mix with customer demand by having one pellet line retired
from operations during the quarter because of low demand from
Europe. In the third quarter of
2019 all six pellet lines were in operation and in the second
quarter of 2020 two pellet lines were retired from operations
because of low European pellet demand. Pellet production in
the third quarter of 2020 was also adversely impacted by the lack
of pellet feed due to the concentrator issues noted above and a
rescheduled two-month outage to rebuild one of the pellet lines
from March to September due to COVID-19.
Total concentrate production for the nine months of 2020
was 13.8 million tonnes. This was 4% lower compared to the
same period in the prior year, mainly as a result of the unplanned
mechanical issues and power outages affecting the processing
plant in the third quarter of 2020. Pellet production for the
nine months of 2020 of 7.1 million tonnes was 7% lower compared to
the same period in the prior year, mainly as a result of the
decision to temporarily retire pellet lines from operations to
align the product mix with customer demand. CFS production for the
nine months of 2020 of 5.9 million tonnes was the same as the same
period in the prior year.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.7
million tonnes in the third quarter of 2020 was 3% higher compared
to the same period in 2019. In the third quarter of 2020 CFS
tonnage sold by IOC was 6% lower than in the same period in 2019
due to lower CFS production. Pellet sales tonnage was 15% higher
than in the third quarter of 2019 mainly due to availability issues
with ship-loaders in the third quarter of 2019, and 4% higher than
the second quarter of 2020 due to an increase in pellet production
as one of the two pellet lines retired in the first quarter of 2020
was brought back online in July as the demand for pellets in
Europe improved.
Total iron ore sales tonnage by IOC (CFS plus pellets) for the
nine months of 2020 was 14.0 million tonnes. This was 11% higher
compared to the same period in 2019. CFS tonnage sold by IOC for
the nine months of 2020 of 6.3 million tonnes was 17% higher
compared to the same period in the prior year, mainly due to
breakdowns on reclaiming and ship-loading equipment in the third
quarter of 2019. Pellet tonnage sold by IOC for the nine months of
2020 of 7.6 million tonnes was 6% higher compared to the same
period in the prior year, mainly due to breakdowns on reclaiming
and ship-loading equipment in the third quarter of 2019, offset by
lower pellet production in the second and third quarter of 2020 due
to the decision to temporarily retire pellet lines from operations
to align the product mix with customer demand.
IOC sells CFS based on the Platts index for 65% Fe Iron Ore, CFR China ("65% Fe index"). In the
third quarter of 2020 the average price for the 65% Fe index was
US$129 per tonne, a 18% increase from
the average price in the third quarter of 2019 and a 19% increase
from the second quarter of 2020. Prices for iron ore
concentrate increased in the third quarter of 2020, due to
continuing strong demand from China and tighter supply conditions. In the
third quarter the 65% Fe index traded at an average premium of 9%
to the 62% Fe index. This was higher than the 7% average
premium in the third quarter of 2019 but was lower than the average
premium of 16% in the second quarter of 2020, as higher prices
caused some steel producers to switch to lower grade iron ore.
Despite an increase in pellet demand in Europe, overall low global steel demand and
margins outside of China, and high
iron ore base prices, pushed pellet premiums lower in the
third quarter of 2020 to multi-year lows. The Atlantic Basin
blast furnace pellet premium, as reported by Platts, averaged
US$29 per tonne in the third quarter
of 2020, a 49% decrease over the third quarter of 2019 and a 5%
decrease over the second quarter of 2020.
Higher prices for CFS, partially offset by lower pellet premiums
resulted in royalty revenue for LIORC in the third quarter of 2020
increasing 15% compared to the royalty revenue in the third 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 Sept.
30, 2020
|
|
3 Months
Ended Sept.
30, 2019
|
|
|
9 Months
Ended Sept.
30, 2020
|
9 Months
Ended Sept.
30, 2019
|
Year
Ended
Dec. 31,
2019
|
|
|
|
|
|
|
|
|
|
Pellets
|
2.35
|
|
2.04
|
|
|
7.61
|
7.17
|
9.62
|
Concentrates(1)
|
2.31
|
|
2.46
|
|
|
6.35
|
5.43
|
7.51
|
|
|
|
|
|
|
|
|
|
Total(2)
|
4.65
|
|
4.51
|
|
|
13.96
|
12.60
|
17.14
|
(1)
|
Excludes third
party ore sales.
|
(2)
|
Totals may not
add up due to rounding.
|
Outlook
IOC production and sales volumes remain on target despite the
additional challenges presented by COVID-19. In its third quarter
operational report, Rio Tinto recently reaffirmed its 2020 guidance
for IOC's saleable production of CFS and pellets at between 17.9
and 20.4 million tonnes.
IOC continues to optimise its product mix to match market
demand. Following signs of some recovery in pellet demand
from Europe, IOC increased pellet
production in the third quarter by operating five out of six lines
in the pellet plant, and plans to bring back the sixth line before
the end of 2020.
Iron ore prices currently remain at multi-year highs. Since
September 30, 2020 the average price
for the 65% Fe index has remained above the average during the
third quarter of 2020. Global economic activity is generally
strong, and iron ore demand in China is at record levels as a result of
commodity-intensive stimulus measures. However, steel production
outside of China remains down
significantly year over year, and earlier constraints on seaborne
iron ore as a result of supply disruptions due to COVID-19 are
easing and the major producers are expected to deliver strong
volumes in the fourth quarter of 2020 which could result in lower
iron ore prices. Also, there remain concerns of renewed lockdowns
as a result of the ongoing COVID-19 pandemic that could threaten
IOC operations and the global economic recovery.
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 nine months of 2020,
LIORC paid a total of $1.25 per share
in dividends to shareholders from cash received from its IOC
royalty. In addition, LIORC's share of equity earnings in IOC
was $88.3 million. However, despite
the positive earnings at IOC, IOC decided not to declare a
shareholder dividend in the nine months of 2020, in order to retain
a higher cash balance because of the global economic uncertainty
created by the COVID-19 pandemic. As a result, should IOC
continue to be able to successfully operate throughout the duration
of the COVID-19 pandemic, LIORC would expect that this substantial
cash balance at IOC will ultimately benefit LIORC in the form of
higher future IOC dividends. LIORC continues to maintain a
strong balance sheet with no debt and positive working capital
(current assets minus current liabilities) of $29.8 million as at September 30, 2020.
Respectfully submitted on behalf of the Directors of Labrador
Iron Ore Royalty Corporation,
John F. Tuer
President and Chief Executive Officer
November 5, 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 September 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 third quarter of 2020 amounted to
$52.4 million compared to
$45.5 million for the third quarter
of 2019. Net income was $57.7 million
or $0.90 per share for the third
quarter of 2020 compared to $57.5
million or $0.90 per share for
the same period in 2019. Equity earnings from IOC amounted to
$34.9 million or $0.55 per share in the third quarter of 2020
compared to $28.7 million or
$0.45 per share in the second quarter
of 2020 and $32.0 million or
$0.50 per share in the third quarter
of 2019. Cash flow from operations for the third quarter was
$11.1 million or $0.17 per share compared to $72.6 million or $1.13 per share for the same period in
2019. The third quarter of 2019 included a dividend of
$40.1 million or $0.63 per share from IOC.
Royalty revenue for the third quarter of 2020 was 15% higher
than the third quarter of 2019, predominantly as a result of higher
realized iron ore prices and marginally higher sales tonnage.
While prices for concentrate were higher in the third quarter of
2020 compared to the third quarter of 2019, pellet premiums were
lower. The average price for the 62% Fe index increased 16% to
US$118 per tonne in the third quarter
of 2020, compared to the average price of US$102 per tonne in the third quarter of 2019.
The Atlantic Basin blast furnace pellet premium, as reported by
Platts, averaged US$29 per tonne in
the third quarter of 2020, a 49% decrease over the third quarter of
2019. Despite the impacts on the operations of IOC from the
COVID-19 pandemic, the total IOC's sales for calculating the
royalty to LIORC (CFS plus pellets) of 4.7 million tonnes were 3%
higher in the third quarter of 2020 compared to the same period in
2019. However, while pellet sales in the third quarter of 2020 of
2.3 million tonnes were 15% higher than in the third quarter of
2019, CFS sales of 2.3 million tonnes were 6% lower than in the
same period in 2019. Cash flow from operations in the third quarter
of 2020 was lower than in the third quarter of 2019 largely because
IOC elected not to pay a shareholder dividend in the third quarter
of 2020 in order to retain a substantially higher cash balance due
to concerns that the COVID-19 pandemic may adversely affect IOC's
operations and demand for its iron ore products. Equity earnings
from IOC in the third quarter of 2020 were higher than in the third
quarter of 2019, mainly due to higher realized iron ore
prices.
Total concentrate production in the third quarter of 2020 was
4.2 million tonnes. This was 21% lower than the third quarter of
2019 and 12% lower than the second quarter of 2020 due mainly to
unplanned mechanical issues and power outages affecting the
processing plant and a longer annual maintenance shutdown in
September.
During the third quarter of 2020, total saleable production (CFS
plus pellets) of 4.0 million tonnes was 21% lower than the third
quarter of 2019, mainly as a result of lower concentrate production
referred to above. CFS production in the third quarter of
2020 of 1.8 million tonnes was 26% lower than in the third quarter
of 2019 and 32% lower than the second quarter of 2020. Pellet
production in the third quarter of 2020 of 2.2 million tonnes was
17% lower than the third quarter of 2019, and 5% higher than the
second quarter of 2020. Pellet production in the third quarter of
2020 was reduced due to IOC's decision to continue to align the
product mix with customer demand by having one pellet line retired
from operations during the quarter because of low demand from
Europe. In the third quarter of
2019 all six pellet lines were in operation and in the second
quarter of 2020 two pellet lines were retired from operations
because of low European pellet demand. Pellet production in
the third quarter of 2020 was also adversely impacted by the lack
of pellet feed due to the concentrator issues noted above and a
rescheduled two-month outage to rebuild one of the pellet lines
from March to September due to COVID-19.
Total concentrate production for the nine months of 2020 was
13.8 million tonnes. This was 4% lower compared to the same
period in the prior year, mainly as a result of the unplanned
mechanical issues and power outages affecting the processing
plant in the third quarter of 2020. Pellet production for the
nine months of 2020 of 7.1 million tonnes was 7% lower compared to
the same period in the prior year, mainly as a result of the
decision to temporarily retire pellet lines from operations to
align the product mix with customer demand. CFS production for the
nine months of 2020 of 5.9 million tonnes was the same as the same
period in the prior year.
Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.7
million tonnes in the third quarter of 2020 was 3% higher compared
to the same period in 2019. In the third quarter of 2020 CFS
tonnage sold by IOC was 6% lower than in the same period in 2019
due to lower CFS production. Pellet sales tonnage was 15% higher
than in the third quarter of 2019 mainly due to availability issues
with ship-loaders in the third quarter of 2019, and 4% higher than
the second quarter of 2020 due to an increase in pellet production
as one of the two pellet lines retired in the first quarter of 2020
was brought back online in July as the demand for pellets in
Europe improved.
Total iron ore sales tonnage by IOC (CFS plus pellets) for the
nine months of 2020 was 14.0 million tonnes. This was 11%
higher compared to the same period in 2019. CFS tonnage sold by IOC
for the nine months of 2020 of 6.3 million tonnes was 17% higher
compared to the same period in the prior year, mainly due to
breakdowns on reclaiming and ship-loading equipment in the third
quarter of 2019. Pellet tonnage sold by IOC for the nine months of
2020 of 7.6 million tonnes was 6% higher compared to the same
period in the prior year, mainly due to breakdowns on reclaiming
and ship-loading equipment in the third quarter of 2019, offset by
lower pellet production in the second and third quarter of 2020 due
to the decision to temporarily retire pellet lines from operations
to align the product mix with customer demand.
IOC sells CFS based on the 65% Fe index. In the third
quarter of 2020 the average price for the 65% Fe index was
US$129 per tonne, a 18% increase from
the average price in the third quarter of 2019 and a 19% increase
from the second quarter of 2020. Prices for iron ore
concentrate increased in the third quarter of 2020, due to
continuing strong demand from China and tighter supply conditions. In the
third quarter the 65% Fe index traded at an average premium of 9%
to the 62% Fe index. This was higher than the 7% average
premium in the third quarter of 2019 but was lower than the average
premium of 16% in the second quarter of 2020, as higher prices
caused some steel producers to switch to lower grade iron ore.
Despite an increase in pellet demand in Europe, overall low global steel demand and
margins outside of China, and high
iron ore base prices, pushed pellet premiums lower in the third
quarter of 2020 to multi-year lows. The Atlantic Basin blast
furnace pellet premium, as reported by Platts, averaged
US$29 per tonne in the third quarter
of 2020, a 49% decrease over the third quarter of 2019 and a 5%
decrease over the second quarter of 2020.
Higher prices for CFS, partially offset by lower pellet premiums
resulted in royalty revenue for LIORC in the third quarter of 2020
increasing 15% compared to the royalty revenue in the third quarter
of 2019.
Results for the nine months were affected by the same factors as
affected the three month period.
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
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$52.9
|
$57.7
|
$0.90
|
$11.1
|
$0.17
|
$0.46
|
$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 $0.17 for the quarter (2019 - $1.13). Cumulative standardized cash flow from
inception of the Corporation is $31.90 per share and total cash distributions
since inception is $31.59 per share,
for a payout ratio of 99%.
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
Sept. 30,
2020
|
3 Months
Ended
Sept. 30,
2019
|
9 Months
Ended
Sept. 30,
2020
|
9 Months
Ended
Sept. 30,
2019
|
Standardized cash
flow from operating activities
|
$11,084
|
$72,646
|
$59,351
|
$145,446
|
Changes in amounts
receivable, accounts payable and income taxes payable
|
18,070
|
(7,049)
|
22,268
|
(3,557)
|
Adjusted cash
flow
|
$29,154
|
$65,597
|
$81,619
|
$141,889
|
Adjusted cash flow
per share
|
$0.46
|
$1.02
|
$1.28
|
$2.22
|
Liquidity and Capital Resources
The Corporation had $18.8 million
in cash as at September 30, 2020
(December 31, 2019 - $77.9 million) with total current assets of
$73.3 million (December 31, 2019 - $114.0
million). The Corporation had working capital of
$29.8 million as at September 30, 2020 (December 31, 2019 - $28.2
million). The Corporation's operating cash flow for the
quarter of $11.1 million was
negatively impacted by the payment of previously delayed income tax
instalments and the higher royalty receivable. The dividend paid
during the quarter was $28.8 million,
resulting in cash balances decreasing by $17.7 million during the third 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 production and sales volumes remain on target despite the
additional challenges presented by COVID-19. In its third quarter
operational report, Rio Tinto recently reaffirmed its 2020 guidance
for IOC's saleable production of CFS and pellets at between 17.9
and 20.4 million tonnes.
IOC continues to optimise its product mix to match market
demand. Following signs of some recovery in pellet demand
from Europe, IOC increased pellet
production in the third quarter by operating five out of six lines
in the pellet plant and plans to bring back the sixth line before
the end of 2020.
Iron ore prices currently remain at multi-year highs. Since
September 30, 2020 the average price
for the 65% Fe index has remained above the average during the
third quarter of 2020. Global economic activity is generally
strong, and iron ore demand in China is at record levels as a result of
commodity-intensive stimulus measures. However, steel production
outside of China remains down
significantly year over year, and earlier constraints on seaborne
iron ore as a result of supply disruptions due to COVID-19 are
easing and the major producers are expected to deliver strong
volumes in the fourth quarter of 2020 which could result in lower
iron ore prices. Also, there remain concerns of renewed lockdowns
as a result of the ongoing COVID-19 pandemic that could threaten
IOC operations and the global economic recovery.
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 nine months of 2020,
LIORC paid a total of $1.25 per share
in dividends to shareholders from cash received from its IOC
royalty. In addition, LIORC's share of equity earnings in IOC
was $88.3 million. However, despite
the positive earnings at IOC, IOC decided not to declare a
shareholder dividend in the nine months of 2020, in order to retain
a higher cash balance because of the global economic uncertainty
created by the COVID-19 pandemic. As a result, should IOC
continue to be able to successfully operate throughout the duration
of the COVID-19 pandemic, LIORC would expect that this substantial
cash balance at IOC will ultimately benefit LIORC in the form of
higher future IOC dividends. LIORC continues to maintain a
strong balance sheet with no debt and positive working capital
(current assets minus current liabilities) of $29.8 million as at September 30, 2020.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
November 5, 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
|
|
|
September
30,
|
|
December
31,
|
|
(in thousands of
Canadian dollars)
|
2020
|
|
2019
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash and short-term
investments
|
$
18,810
|
|
$
77,859
|
|
|
Amounts
receivable
|
54,521
|
|
36,156
|
|
Total Current
Assets
|
73,331
|
|
114,015
|
|
|
|
|
|
|
|
Non-Current
Assets
|
|
|
|
|
|
Iron Ore Company of
Canada ("IOC")
|
|
|
|
|
|
royalty
and commission interests
|
242,893
|
|
247,701
|
|
|
Investment in
IOC
|
466,106
|
|
381,310
|
|
Total Non-Current
Assets
|
708,999
|
|
629,011
|
|
|
|
|
|
|
|
Total
Assets
|
$
782,330
|
|
$
743,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable
|
$
11,410
|
|
$
7,939
|
|
|
Dividend
payable
|
28,800
|
|
67,200
|
|
|
Taxes
payable
|
3,336
|
|
10,710
|
|
Total Current
Liabilities
|
43,546
|
|
85,849
|
|
|
|
|
|
|
|
Non-Current
Liabilities
|
|
|
|
|
|
Deferred income
taxes
|
131,150
|
|
119,840
|
|
Total
Liabilities
|
174,696
|
|
205,689
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
Share
capital
|
317,708
|
|
317,708
|
|
|
Retained
earnings
|
303,241
|
|
230,005
|
|
|
Accumulated other
comprehensive loss
|
(13,315)
|
|
(10,376)
|
|
|
|
607,634
|
|
537,337
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders' Equity
|
$
782,330
|
|
$
743,026
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
Approved by the
Directors,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F.
Tuer
|
Patricia M.
Volker
|
|
|
|
Director
|
Director
|
|
|
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
|
|
September
30,
|
(in thousands of
Canadian dollars except for per share information)
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Revenue
|
|
|
|
|
IOC
royalties
|
$
|
52,354
|
|
$
|
45,484
|
|
IOC
commissions
|
458
|
|
443
|
|
Interest and other
income
|
48
|
|
259
|
|
|
52,860
|
|
46,186
|
Expenses
|
|
|
|
|
Newfoundland royalty
taxes
|
10,470
|
|
9,097
|
|
Amortization of
royalty and commission interests
|
1,541
|
|
1,663
|
|
Administrative
expenses
|
828
|
|
787
|
|
|
12,839
|
|
11,547
|
|
|
|
|
|
Income before
equity earnings and income taxes
|
40,021
|
|
34,639
|
Equity earnings in
IOC
|
34,894
|
|
32,002
|
|
|
|
|
|
Income before
income taxes
|
74,915
|
|
66,641
|
|
|
|
|
|
Provision for
income taxes
|
|
|
|
|
Current
|
12,408
|
|
10,874
|
|
Deferred
|
4,779
|
|
(1,704)
|
|
|
17,187
|
|
9,170
|
|
|
|
|
|
Net income for the
period
|
57,728
|
|
57,471
|
|
|
|
|
|
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 - $439; 2019
- $36)
|
(2,487)
|
|
(206)
|
|
|
|
|
|
Comprehensive
income for the period
|
$
|
55,241
|
|
$
|
57,265
|
|
|
|
|
|
Net income per
share
|
$
|
0.90
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
Months Ended
|
|
|
September
30,
|
(in thousands of
Canadian dollars except for per share information)
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Revenue
|
|
|
|
|
IOC
royalties
|
$
|
146,182
|
|
$
|
136,590
|
|
IOC
commissions
|
1,374
|
|
1,240
|
|
Interest and other
income
|
315
|
|
870
|
|
|
147,871
|
|
138,700
|
Expenses
|
|
|
|
|
Newfoundland royalty
taxes
|
29,236
|
|
27,318
|
|
Amortization of
royalty and commission interests
|
4,808
|
|
4,596
|
|
Administrative
expenses
|
2,201
|
|
2,346
|
|
|
36,245
|
|
34,260
|
|
|
|
|
|
Income before
equity earnings and income taxes
|
111,626
|
|
104,440
|
Equity earnings in
IOC
|
88,254
|
|
88,346
|
|
|
|
|
|
Income before
income taxes
|
199,880
|
|
192,786
|
|
|
|
|
|
Provision for
income taxes
|
|
|
|
|
Current
|
34,815
|
|
32,712
|
|
Deferred
|
11,829
|
|
2,156
|
|
|
46,644
|
|
34,868
|
|
|
|
|
|
Net income for the
period
|
153,236
|
|
157,918
|
|
|
|
|
|
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 - $519; 2019
- $220)
|
(2,939)
|
|
(1,248)
|
|
|
|
|
|
Comprehensive
income for the period
|
$
|
150,297
|
|
$
|
156,670
|
|
|
|
|
|
Net income per
share
|
$
|
2.39
|
|
$
|
2.47
|
|
|
|
|
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
Months Ended
|
|
|
|
|
September
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
|
$
|
153,236
|
|
$
|
157,918
|
|
Items not affecting
cash:
|
|
|
|
|
|
Equity earnings in
IOC
|
(88,254)
|
|
(88,346)
|
|
|
Current income
taxes
|
34,815
|
|
32,712
|
|
|
Deferred income
taxes
|
11,829
|
|
2,156
|
|
|
Amortization of
royalty and commission interests
|
4,808
|
|
4,596
|
|
Common share dividend
from IOC
|
-
|
|
65,565
|
|
Change in amounts
receivable
|
(18,365)
|
|
(3,656)
|
|
Change in accounts
payable
|
3,471
|
|
603
|
|
Income taxes
paid
|
(42,189)
|
|
(26,102)
|
|
Cash flow from
operating activities
|
59,351
|
|
145,446
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
Dividend paid to
shareholders
|
(118,400)
|
|
(163,200)
|
|
Cash flow used in
financing activities
|
(118,400)
|
|
(163,200)
|
|
|
|
|
|
|
|
Decrease in cash,
during the period
|
(59,049)
|
|
(17,754)
|
|
|
|
|
|
|
|
Cash, beginning of
period
|
77,859
|
|
80,495
|
|
|
|
|
|
|
|
Cash, end of
period
|
$
|
18,810
|
|
$
|
62,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
other
|
|
|
Share
|
Retained
|
comprehensive
|
|
(in thousands of
Canadian dollars)
|
capital
|
earnings
|
loss
|
Total
|
|
(Unaudited)
|
|
|
|
|
|
Balance as at
December 31, 2018
|
$
|
317,708
|
$
|
280,759
|
$
|
(7,616)
|
$
|
590,851
|
Adjustment on initial
application of IFRS 16
|
|
(93)
|
|
(93)
|
Net income for the
period
|
-
|
157,918
|
-
|
157,918
|
Dividends declared to
shareholders
|
-
|
(188,800)
|
-
|
(188,800)
|
Share of other
comprehensive loss from investment in IOC (net of taxes)
|
-
|
-
|
(1,248)
|
(1,248)
|
Balance as at
September 30, 2019
|
$
|
317,708
|
$
|
249,784
|
$
|
(8,864)
|
$
|
558,628
|
|
|
|
|
|
Balance as at
December 31, 2019
|
$
|
317,708
|
$
|
230,005
|
$
|
(10,376)
|
$
|
537,337
|
Net income for the
period
|
-
|
153,236
|
-
|
153,236
|
Dividends declared to
shareholders
|
-
|
(80,000)
|
-
|
(80,000)
|
Share of other
comprehensive loss from investment in IOC (net of taxes)
|
-
|
-
|
(2,939)
|
(2,939)
|
Balance as at
September 30, 2020
|
$
|
317,708
|
$
|
303,241
|
$
|
(13,315)
|
$
|
607,634
|
|
|
|
|
|
The complete consolidated financial statements for the third
quarter ended September 30, 2020,
including the notes thereto, are posted on sedar.com and
labradorironore.com.
SOURCE Labrador Iron Ore Royalty Corporation