Labrador Iron Ore Royalty Corporation - Results for the Second Quarter Ended June 30, 2016
TORONTO, Aug. 4, 2016 /CNW/ - Labrador Iron Ore Royalty Corp. ("LIORC", TSX: LIF) announced today its operation and cash flow results for the second quarter ended June 30, 2016.
Royalty income for the second quarter of 2016 amounted to $25.3 million as compared to $23.5 million for the second quarter of 2015. The shareholders' adjusted cash flow (see below for definition) for the second quarter was $13.9 million or $0.22 per share as compared to $13.1 million or $0.21 per share for the same period in 2015. Net income was $8.3 million or $0.13 per share compared to $15.4 million or $0.24 per share for the same period in 2015. Equity (losses)/earnings from Iron Ore Company of Canada ("IOC") amounted to ($0.5) million or ($0.01) per share as compared to $3.8 million or $0.06 per share in 2015.
Concentrate production for the quarter was 4.7 million tonnes as compared to 4.3 million tonnes in the first quarter and 4.9 million tonnes in the second quarter of 2015. While continuing the improvements from last year and the first quarter, production for the quarter was lower than expected due to lower weight yield. IOC management continues to focus on improving the weight yield. After production of 2.3 million tonnes of pellets, 2.1 million tonnes of concentrate for sale were produced. Pellet production for the quarter at 2.3 million tonnes was higher than the first quarter and in line with the 2015 second quarter. Sales of pellets and concentrate during the quarter were about 10% greater than the first quarter of 2016 and last year's second quarter. Net income was lower due to the 1% increase in Newfoundland and Labrador corporate income tax rate. This mainly affected deferred taxes, lowering LIORC's net income per share for the second quarter of 2016 by about $0.07 directly and equity earnings from IOC in excess of $0.02 per share. Without this change (which does not materially affect cash flow) earnings would have been approximately the same as last year's second quarter.
Results for the three months and six months ended June 30 are summarized below:
| (in millions except per share information) | 3 Months Ended June 30, 2016 | 3 Months Ended June 30, 2015 | 6 Months Ended June 30, 2016 | 6 Months Ended June 30, 2015 | ||
| (Unaudited) | ||||||
| Revenue | $25.8 | $24.0 | $48.1 | $47.7 | ||
| Adjusted cash flow | $13.9 | $13.1 | $26.1 | $26.2 | ||
| Adjusted cash flow per share | $0.22 | $0.21 | $0.41 | $0.41 | ||
| Net income | $8.3 | $15.4 | $19.3 | $25.4 | ||
| Net income per share | $0.13 | $0.24 | $0.30 | $0.40 | ||
| "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 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. |
A summary of IOC's sales in millions of tonnes is as follows:
| 3 Months Ended Jun. 30, 2016 | 3 Months Ended Jun. 30, 2015 | 6 Months Ended Jun. 30, 2016 | 6 Months Ended Jun. 30, 2015 | Year Ended Dec. 31, 2015 | |||
| Pellets | 2.43 | 2.29 | 4.54 | 4.79 | 9.47 | ||
| Concentrates(1) | 2.15 | 1.89 | 4.20 | 2.60 | 8.41 | ||
| Total | 4.58 | 4.18 | 8.74 | 7.39 | 17.88 |
| (1) Excludes third party ore sales |
Outlook
The outlook for the balance of the year looks promising as IOC still expects to produce close to 21 million tonnes of concentrate using 11 million tonnes to produce 10 million tonnes of pellets leaving approximately 10 million tonnes of concentrate for sale. IOC expects to be able to sell all the pellets and concentrate it can produce. Pricing of iron ore and especially the premium for pellets is currently quite firm following the lows reached at the end of last year. While there are mixed predictions of the direction prices will follow the sentiment in the market seems to have improved. With expected increased production of concentrate and if prices remain at current levels and the Canadian dollar does not materially strengthen against its US counterpart, the results for the balance of the year should be positive.
Respectfully submitted on behalf of the Directors of Labrador Iron Ore Royalty Corp.,
Bruce C. Bone
President and Chief Executive Officer
August 4, 2016
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 Corp.'s ("LIORC" or the "Corporation") 2015 Annual Report and the financial statements and notes contained therein. 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 2015 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 second quarter of 2016 amounted to $25.3 million as compared to $23.5 million for the second quarter of 2015. The shareholders' adjusted cash flow (see below for definition) for the second quarter was $13.9 million or $0.22 per share as compared to $13.1 million or $0.21 per share for the same period in 2015. Net income was $8.3 million or $0.13 per share compared to $15.4 million or $0.24 per share for the same period in 2015. Equity (losses)/earnings from Iron Ore Company of Canada ("IOC") amounted to ($0.5) million or ($0.01) per share as compared to $3.8 million or $0.06 per share in 2015.
Concentrate production for the quarter was 4.7 million tonnes as compared to 4.3 million tonnes in the first quarter and 4.9 million tonnes in the second quarter of 2015. While continuing the improvements from last year and the first quarter, production for the quarter was lower than expected due to lower weight yield. IOC management continues to focus on improving the weight yield. After production of 2.3 million tonnes of pellets, 2.1 million tonnes of concentrate for sale were produced. Pellet production for the quarter at 2.3 million tonnes was higher than the first quarter and in line with the 2015 second quarter. Sales of pellets and concentrate during the quarter were about 10% greater than the first quarter of 2016 and last year's second quarter. Net income was lower due to the 1% increase in Newfoundland and Labrador corporate income tax rate. This mainly affected deferred taxes, lowering LIORC's net income per share for the second quarter of 2016 by about $0.07 directly and equity earnings from IOC in excess of $0.02 per share. Without this change (which does not materially affect cash flow) earnings would have been approximately the same as last year's second quarter.
Results for the six months were affected by the same factors as affected the three month period particularly the 1% increase in Newfoundland and Labrador corporate income tax rate.
The following table sets out quarterly revenue, net income and cash flow data for 2016, 2015 and 2014.
|
|
| Net |
|
| Distributions | ||||||||
| (in millions except per Share information) | |||||||||||||
| 2016 | |||||||||||||
| First Quarter | $22.3 | $11.0 | $0.17 | $12.3 | $0.19 | $0.250 | |||||||
| Second Quarter | $25.8 | $8.3 | $0.13 | $13.9 | $0.22 | $0.250 | |||||||
| 2015 | |||||||||||||
| First Quarter | $23.7 | $10.0 | $0.16 | $13.1 | $0.20 | $0.250 | |||||||
| Second Quarter | $24.0 | $15.4 | $0.24 | $13.1 | $0.21 | $0.250 | |||||||
| Third Quarter | $32.0 | $19.0 | $0.30 | $17.9 | $0.28 | $0.250 | |||||||
| Fourth Quarter | $22.0 | $10.3 | $0.15 | $12.1 | $0.19 | $0.250 | |||||||
|
2014 First Quarter |
$27.2 |
$27.1 |
$0.42 |
$27.7(2) |
$0.43 |
$0.400 | |||||||
| Second Quarter | $33.8 | $35.9 | $0.56 | $33.7(3) | $0.53 | $0.400 | |||||||
| Third Quarter | $30.8 | $29.0 | $0.46 | $37.8(4) | $0.59 | $0.500 | |||||||
| Fourth Quarter | $25.7 | $12.1 | $0.19 | $14.4 | $0.22 | $0.350 | |||||||
| Notes: | (1) | "Adjusted cash flow" (see below) | |||||||||||
| (2) | Includes a $12.6 million IOC dividend | ||||||||||||
| (3) | Includes a $14.8 million IOC dividend | ||||||||||||
| (4) | Includes a $20.7 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 distributions. Standardized cash flow per share was $0.12 for the quarter (2015 - $0.20). Cumulative standardized cash flow from inception of the Corporation is $21.87 per share and total cash distributions since inception is $21.44 per share, for a payout ratio of 98%.
"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 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 cash flow from operating activities to adjusted cash flow.
| 3 Months Ended June 30, 2016 | 3 Months Ended June 30, 2015 | 6 Months Ended June 30, 2016 | 6 Months Ended June 30, 2015 | |
| Standardized cash flow from operating activities | $7,562,372 | $12,492,921 | $20,051,837 | $27,725,984 |
| Excluding: changes in amounts receivable, accounts payable and income taxes payable |
6,328,106 |
614,378 |
6,100,603 |
(1,505,150) |
| Adjusted cash flow | $13,890,478 | $13,107,299 | $26,152,440 | $26,220,834 |
| Adjusted cash flow per share | $0.22 | $0.21 | $0.41 | $0.41 |
Liquidity and Capital Resources
The Corporation has $12.5 million in cash as at June 30, 2016 (December 31, 2015 - $24.5 million) with total current assets of $41.6 million (December 31, 2015 - $45.2 million). The Corporation has working capital of $19.0 million as at June 30, 2016 (December 31, 2015 - $24.8 million). The Corporation's operating cash flow for the quarter was $7.6 million and the dividend paid during the quarter was $16.0 million, resulting in cash balances declining $8.4 million during the second quarter of 2016.
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 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.
The Corporation has a $50 million revolving credit facility with a term ending September 18, 2018 with provision for annual one-year extensions. No amount is currently drawn under this facility (2015 – nil) leaving $50.0 million available to provide for any capital required by IOC or requirements of the Corporation.
Outlook
The outlook for the balance of the year looks promising as IOC still expects to produce close to 21 million tonnes of concentrate using 11 million tonnes to produce 10 million tonnes of pellets leaving approximately 10 million tonnes of concentrate for sale. IOC expects to be able to sell all the pellets and concentrate it can produce. Pricing of iron ore and especially the premium for pellets is currently quite firm following the lows reached at the end of last year. While there are mixed predictions of the direction prices will follow the sentiment in the market seems to have improved. With expected increased production of concentrate and if prices remain at current levels and the Canadian dollar does not materially strengthen against its US counterpart, the results for the balance of the year should be positive.
Bruce C. Bone
President and Chief Executive Officer
Toronto, Ontario
August 4, 2016
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 BALANCE SHEETS | ||||||
| As at | ||||||
| June 30 | December 31, | |||||
| Canadian $ | 2016 | 2015 | ||||
| (Unaudited) | ||||||
| Assets | ||||||
| Current Assets | ||||||
| Cash | $ | 12,515,349 | $ | 24,463,512 | ||
| Amounts receivable | 29,046,992 | 20,508,756 | ||||
| Income taxes recoverable | - | 240,299 | ||||
| Total Current Assets | 41,562,341 | 45,212,567 | ||||
| Non-Current Assets | ||||||
| Iron Ore Company of Canada ("IOC"), | ||||||
| royalty and commission interests | 268,108,788 | 270,517,368 | ||||
| Investment in IOC | 396,771,286 | 398,327,969 | ||||
| Total Non-Current Assets | 664,880,074 | 668,845,337 | ||||
| Total Assets | $ | 706,442,415 | $ | 714,057,904 | ||
| Liabilities and Shareholders' Equity | ||||||
| Current Liabilities | ||||||
| Accounts payable | $ | 5,969,229 | $ | 4,414,212 | ||
| Dividend payable | 16,000,000 | 16,000,000 | ||||
| Taxes Payable | 642,317 | - | ||||
| Total Current Liabilities | 22,611,546 | 20,414,212 | ||||
| Non-Current Liabilities | ||||||
| Deferred income taxes | 128,030,000 | 124,670,000 | ||||
| Total Liabilities | 150,641,546 | 145,084,212 | ||||
| Shareholders' Equity | ||||||
| Share capital | 317,708,147 | 317,708,147 | ||||
| Retained earnings | 249,670,722 | 262,415,545 | ||||
| Accumulated other comprehensive loss | (11,578,000) | (11,150,000) | ||||
| 555,800,869 | 568,973,692 | |||||
| Total Liabilities and Shareholders' Equity | $ | 706,442,415 | $ | 714,057,904 | ||
| LABRADOR IRON ORE ROYALTY CORPORATION | ||||||
| INTERIM CONDENSED CONSOLIDATED STATEMENTS | ||||||
| OF COMPREHENSIVE INCOME | ||||||
| For the Three Months Ended | ||||||
| June 30, | ||||||
| Canadian $ | 2016 | 2015 | ||||
| (Unaudited) | ||||||
| Revenue | ||||||
| IOC royalties | $ | 25,291,758 | $ | 23,477,310 | ||
| IOC commissions | 449,905 | 411,701 | ||||
| Interest and other income | 32,670 | 64,505 | ||||
| 25,774,333 | 23,953,516 | |||||
| Expenses | ||||||
| Newfoundland royalty taxes | 5,058,351 | 4,695,462 | ||||
| Amortization of royalty and commission interests | 1,220,113 | 1,197,257 | ||||
| Administrative expenses | 660,255 | 741,718 | ||||
| 6,938,719 | 6,634,437 | |||||
| Income before equity earnings and income taxes | 18,835,614 | 17,319,079 | ||||
| Equity (losses) earnings in IOC | (513,086) | 3,778,944 | ||||
| Income before income taxes | 18,322,528 | 21,098,023 | ||||
| Provision for income taxes | ||||||
| Current | 6,165,249 | 5,409,037 | ||||
| Deferred | 3,900,000 | 222,000 | ||||
| 10,065,249 | 5,631,037 | |||||
| Net income for the period | 8,257,279 | 15,466,986 | ||||
| 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 2016 - $120,000; 2015 - $72,000) | (240,000) | (429,000) | ||||
| Comprehensive income for the period | $ | 8,017,279 | $ | 15,037,986 | ||
| Net income per share | $ | 0.13 | $ | 0.24 | ||
| LABRADOR IRON ORE ROYALTY CORPORATION | ||||||
| INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||
| For the Six Months Ended | ||||||
| June 30 | ||||||
| Canadian $ | 2016 | 2015 | ||||
| (Unaudited) | ||||||
| Revenue | ||||||
| IOC royalties | $ | 47,127,636 | $ | 46,823,445 | ||
| IOC commissions | 860,218 | 727,694 | ||||
| Interest and other income | 80,316 | 144,317 | ||||
| 48,068,170 | 47,695,456 | |||||
| Expenses | ||||||
| Newfoundland royalty taxes | 9,425,527 | 9,364,689 | ||||
| Amortization of royalty and commission interests | 2,408,580 | 2,297,821 | ||||
| Administrative expenses | 1,336,331 | 1,428,084 | ||||
| 13,170,438 | 13,090,594 | |||||
| Income before equity earnings and income taxes | 34,897,732 | 34,604,862 | ||||
| Equity (losses) earnings in IOC | (976,683) | 1,041,476 | ||||
| Income before income taxes | 33,921,049 | 35,646,338 | ||||
| Provision for income taxes | ||||||
| Current | 11,153,872 | 10,681,849 | ||||
| Deferred | 3,512,000 | (468,000) | ||||
| 14,665,872 | 10,213,849 | |||||
| Net income for the period | 19,255,177 | 25,432,489 | ||||
| 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 2016 - $152,000; 2015 - $145,000) | (428,000) | (858,000) | ||||
| Comprehensive income for the period | $ | 18,827,177 | $ | 24,574,489 | ||
| Net income per share | $ | 0.30 | $ | 0.40 | ||
| LABRADOR IRON ORE ROYALTY CORPORATION | |||||||||
| INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
| For the Six Months Ended | |||||||||
| June 30 | |||||||||
| Canadian $ | 2016 | 2015 | |||||||
| (Unaudited) | |||||||||
| Net inflow (outflow) of cash related | |||||||||
| to the following activities | |||||||||
| Operating | |||||||||
| Net income for the period | $ | 19,255,177 | $ | 25,432,489 | |||||
| Items not affecting cash: | |||||||||
| Equity losses (earnings) in IOC | 976,683 | (1,041,476) | |||||||
| Current income taxes | 11,153,872 | 10,681,849 | |||||||
| Deferred income taxes | 3,512,000 | (468,000) | |||||||
| Amortization of royalty and commission interests | 2,408,580 | 2,297,821 | |||||||
| Change in amounts receivable | (8,538,236) | 1,579,959 | |||||||
| Change in accounts payable | 1,555,017 | (479,614) | |||||||
| Income taxes paid | (10,271,256) | (10,277,044) | |||||||
| Cash flow from operating activities | 20,051,837 | 27,725,984 | |||||||
| Financing | |||||||||
| Dividends paid to shareholders | (32,000,000) | (38,400,000) | |||||||
| Cash flow used in financing activities | (32,000,000) | (38,400,000) | |||||||
| Decrease in cash, during the period | (11,948,163) | (10,674,016) | |||||||
| Cash, beginning of period | 24,463,512 | 34,955,633 | |||||||
| Cash, end of period | $ | 12,515,349 | $ | 24,281,617 | |||||
| LABRADOR IRON ORE ROYALTY CORPORATION | ||||||||
| INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||
| Accumulated | ||||||||
| other | ||||||||
| Share | Retained | comprehensive | ||||||
| Canadian $ | capital | earnings | loss | Total | ||||
| Balance as at December 31, 2014 | $ | 317,708,147 | $ | 271,757,232 | $ | (11,746,000) | $ | 577,719,379 |
| Net income for the period | - | 25,432,489 | - | 25,432,489 | ||||
| Dividends declared to shareholders | - | (32,000,000) | - | (32,000,000) | ||||
| Share of other comprehensive loss from investment in IOC (net of taxes) | - | - | (858,000) | (858,000) | ||||
| Balance as at June 30, 2015 | $ | 317,708,147 | $ | 265,189,721 | $ | (12,604,000) | $ | 570,293,868 |
| Balance as at December 31, 2015 | $ | 317,708,147 | $ | 262,415,545 | $ | (11,150,000) | $ | 568,973,692 |
| Net income for the period | - | 19,255,177 | - | 19,255,177 | ||||
| Dividends declared to shareholders | - | (32,000,000) | - | (32,000,000) | ||||
| Share of other comprehensive loss from investment in IOC (net of taxes) | - | - | (428,000) | (428,000) | ||||
| Balance as at June 30, 2016 | $ | 317,708,147 | $ | 249,670,722 | $ | (11,578,000) | $ | 555,800,869 |
The complete consolidated financial statements for the second quarter ended June 30, 2016, including the notes thereto, are posted on sedar.com and labradorironore.com.
Contact
Bruce C. Bone, President & Chief Executive Officer, (416) 863-7133