TORONTO, March 4, 2021 /CNW/ - Labrador Iron Ore Royalty
Corporation ("LIORC") (TSX: LIF) announced the results of its
operations for the year ended December 31,
2020.
To the Holders of Common Shares of Labrador Iron Ore Royalty
Corporation
The Directors of Labrador Iron Ore Royalty Corporation ("LIORC"
or the "Corporation") present the Annual Report for the year ended
December 31, 2020.
83 Years in Labrador West
Labrador Iron Ore Royalty Corporation has been involved in
Labrador West for 83 years. Under a Statutory Agreement with
Newfoundland made in 1938, a
predecessor company, Labrador Mining and Exploration Limited, was
granted extensive exploration and mining rights in Labrador West.
LM&E found the iron ore bodies that now constitute the mine
operated by Iron Ore Company of Canada. LM&E received grants of leases and
licences under the Statutory Agreement. It also received a grant of
surface rights to establish the town site that became Labrador City. LM&E sublet the leases to
IOC and IOC, with major steel companies as original shareholders,
built the infrastructure, mine, railway and port. Under the
sublease, LIORC receives a 7% gross overriding royalty on iron ore
products produced and sold by IOC.
In April 2020, the Government of
Newfoundland and Labrador granted renewals of all 12 of LIORC's
mining leases in accordance with their terms for an additional 30
years.
Financial Performance
The COVID-19 global pandemic impacted IOC operations, as well as
the global demand and supply of iron ore products. Despite the
pandemic, from a financial perspective 2020 was a very good year
for LIORC. Net income per share for the year ended
December 31, 2020 was $3.55 per share, which was an 11% increase over
2019. The adjusted cash flow per share for 2020 was $3.09 per share, which was 5% lower than in 2019
as a result of IOC's decision to pay lower shareholder dividends in
2020 in order to retain a higher cash balance due in part to
concerns that the COVID-19 pandemic may adversely affect IOC's
operations. In 2020, IOC paid dividends to its shareholders of
US$450 and had a year-end net working
capital balance of US$184.6 million,
compared to dividends of US$550 and a
year-end net working capital balance of US$52.0 million in 2019. The financial results
for LIORC in 2020 benefited from higher iron ore prices and
increased sales tonnages.
The demand for iron ore by steel producers outside of
China was reduced in 2020 because
of the COVID-19 global pandemic. For example, the World Steel
Association has reported that steel production in the European
Union, Japan and the United States was lower in 2020 year over
year by 12%, 16% and 17%, respectively. However seaborne iron ore
prices increased throughout the year, as steel production in
China was unexpectedly 5% higher
in 2020 year over year. IOC sells concentrate for sale ("CFS")
based on the Platts index for 65% Fe, CFR China ("65% Fe index").
In 2020, the 65% Fe index increased throughout the year from an
average US$106 per tonne in January
to an average of US$168 per tonne in
December. The average price for 2020 was US$122 per tonne, an increase of 16% year over
year. The monthly Atlantic Blast Furnace 65% Fe pellet premium
index as quoted by Platts (the "pellet premium"), on average was
49% lower in 2020 year over year, predominantly as a result of the
weaker demand from European and other steel producers outside of
China, who have been the
traditional purchasers of pellets. As a result, IOC took advantage
of stronger market conditions in Asia in the first half of the year and
switched its product mix, prioritising CFS over pellets, and then
returned to higher pellet production as European demand recovered.
Overall, the average price realized by IOC for CFS and pellets, FOB
Sept-Îles, net of selling costs was approximately C$155 per tonne in 2020, an increase of 5% year
over year.
Iron Ore Company of Canada Operations
Operations
In order to protect IOC's people and to
prevent COVID-19 outbreaks within IOC's operations which could
affect IOC's capacity to operate, IOC took measures early in
March 2020 to limit the exposure risk
at different levels. Main actions taken by IOC included limiting
on-site presence of personnel to essential operational activities
(remote work for administration and supports) and reduction of
contractors on-site (favouring local rather than out-of-province
when possible). In parallel, several protocols were put in place
including strict approval processes for all travel between sites
and out-of-province contractors, mandatory on-line health
questionnaires linked to gate access, COVID-19 screening for all
out-of-province contractors and employees and daily temperature
checks at all site access points. As a result of these and other
procedures and protocols, IOC was able to continue operations
throughout 2020. The IOC saleable production (CFS plus
pellets) of 17.7 million tonnes in 2020 was 1% lower than 2019, and
slightly below the lower end of Rio Tinto's guidance of 17.9 to
20.4 million tonnes, predominantly because of the impact of
COVID-19 and unplanned maintenance at the processing facilities in
the third and fourth quarters.
The total cost of goods sold, excluding depreciation, was higher
in 2020 than in 2019 by 7%, predominantly due to higher sales. The
unit cost of goods sold, excluding depreciation, in 2020 was
comparable to 2019.
Revenue from third party haulage by the Québec North Shore and
Labrador Railway Company, Inc. ("QNS&L") in 2020 was 15% higher
than in 2019, predominantly from increased shipments of iron ore
concentrate from the Scully Mine, owned by Tacora Resources.
Sales as Reported for the LIORC Royalty
Total iron ore
sales tonnage by IOC (CFS plus pellets) of 18.3 million tonnes in
2020 was 7% higher than the total sales tonnage in 2019 as a result
of timing differences and breakdowns in reclaiming and ship loading
equipment at the terminal that negatively affected sales and
increased inventory levels in 2019. In 2020, IOC also started
selling limited quantities of CFS to Rio Tinto's port side trading
operations in China. These sales
are made on arm's length commercial terms and provide IOC with
additional demand for its product.
Capital Expenditures
Capital expenditures for IOC of
$288 million in 2020 were 2% lower
than in 2019 and 18% lower than IOC had forecasted for 2020, mainly
because of the decision by IOC at the early stages of COVID-19 to
defer some projects to 2021 and 2022 because the impact of COVID-19
on the market for high grade iron ore was unknown at that time.
Capital expenditures were also lower due to the difficulty in
getting contractors to site because of COVID-19 restrictions and
protocols.
Outlook
Rio Tinto's 2021 guidance for IOC's saleable production tonnage
(CFS plus pellets) is 17.9 million to 20.4 million tonnes. This
compares to 17.7 million tonnes of saleable production in 2020.
Pellet production of 9.6 million tonnes in 2020 was 5% lower than
2019 mainly because of IOC's strategic decision to change its
product mix in response to lower pellet demand. In response
to strengthening demand for pellets IOC reverted to maximizing
pellet production in the fourth quarter of 2020.
IOC and its shareholders are committed to improving operations,
which includes increased investment in IOC's capital assets. The
capital expenditures for 2021 at IOC are forecasted to be
approximately $460 million, as
compared to $288 million in 2020. The
2021 forecast includes approximately $165
million of growth and development projects, as compared to
$51 million of growth and development
projects in 2020. Significant capital expenditure projects
scheduled for 2021 include implementation of the Mill 11 circuit
redesign to increase weight yield, redesign of the tailings system
to increase the life of use and reduce electricity and water usage,
replacement of the dumper cages and refurbishment of the dumper
auxiliary system at Sept-Îles, and replacement of a
number of locomotives on the mainline between Labrador City and Sept-Îles and on the
Automatic Train Operation which delivers ore from the mine to the
primary crushers located near the concentrator.
In December 2020, IOC signed a
Reconciliation and Collaboration Agreement with the Innu
communities of Uashat mak Mani-utenam and Matimekush-Lac John
laying the groundwork for a mutually beneficial relationship based
on dialogue, collaboration and trust between IOC and the two
communities over the coming decades, and ending the legal action
initiated by the two communities against IOC.
The price outlook for seaborne iron ore remains robust.
Global steel production outside of China is expected to revert to pre-COVID-19
levels, and as governments look to re-establish their domestic
economies, new infrastructure spending is expected to drive
additional demand for steel. Thus far in 2021 (January 1, 2021 to February 23, 2021), the average price of the 65%
Fe index has been US$189, which is
55% higher than the average of the 65% Fe index for
2020. In addition, thus far in 2021 the average pellet
premium has averaged US$42 compared
to an average of US$29 for
2020. Given current iron ore prices and pellet premiums, as
well as the positive outlook for steel production in 2021, LIORC is
well positioned to benefit from increased revenues and cashflow
generated by IOC.
On February 18, 2021, IOC declared
a dividend payable to shareholders on March
25, 2021. The Corporation's portion is US$15.1 million or about CDN$0.30 per share.
I would like to take this opportunity to thank our Shareholders
for their interest and loyalty and my fellow Directors for their
wisdom and support.
Respectfully submitted on behalf of the Directors of the
Corporation,
John F. Tuer
President and Chief Executive Officer
March 4, 2021
Corporate Structure
LIORC is a Canadian corporation formed to give effect to the
conversion of the Labrador Iron Ore Royalty Income Fund (the
"Fund") into a corporation under a plan of arrangement completed on
July 1, 2010. LIORC is also the
successor by amalgamation of a predecessor of LIORC with Labrador
Mining Company Limited, formerly a wholly-owned subsidiary of the
Fund, that occurred pursuant to the plan of arrangement.
LIORC, directly and through its wholly-owned subsidiary
Hollinger-Hanna, holds a 15.10% equity interest in IOC and receives
a 7% gross overriding royalty and a 10
cent per tonne commission on all iron ore products produced,
sold and shipped by IOC. Generally, LIORC pays cash dividends
from its net income to the maximum extent possible, subject to the
maintenance of appropriate levels of working capital. The common
shareholders receive quarterly dividends on the common shares on
the 25th day of the month following the end of each quarter.
Eight Directors are responsible for the governance of the
Corporation and also serve as directors of Hollinger-Hanna. The
Directors, in addition to managing the affairs of the Corporation
and Hollinger-Hanna, oversee the Corporation's interests in IOC.
The Audit, Compensation and Nominating Committees are composed of
five independent Directors.
Taxation
The Corporation is a taxable corporation. Dividend income
received from IOC and Hollinger-Hanna is received tax free while
royalty income is subject to income tax and Newfoundland royalty tax. Expenses of the
Corporation include administrative expenses. Hollinger-Hanna is a
taxable corporation.
Income Taxes
Dividends to a shareholder that are paid within a particular
year are to be included in the calculation of the shareholder's
taxable income for that year. All dividends paid in 2020 were
"eligible dividends" under the Income Tax Act.
Review of Operations
Iron Ore Company of Canada
The income of the Corporation is entirely dependent on IOC as
the only assets of the Corporation and its subsidiary are related
to IOC and its operations. IOC is one of Canada's largest iron ore producers, operating
a mine, concentrator and pellet plant at Labrador City, Newfoundland and Labrador, and is among the top five producers
of seaborne iron ore pellets in the world. It has been
producing and processing iron ore concentrate and pellets since
1954. IOC is strategically situated to serve markets
throughout the world from its year-round port facilities at
Sept-Îles, Québec.
IOC has ore reserves sufficient for approximately 24 years at
current production rates with additional resources of a greater
magnitude. It currently has the nominal capacity to extract
around 55 million tonnes of crude ore annually. The crude ore is
processed into iron ore concentrate and then either sold or
converted into many different qualities of iron ore pellets to meet
its customers' needs. The iron ore concentrate and pellets are
transported to IOC's port facilities at Sept-Îles, Québec via its
wholly-owned QNS&L, a 418 kilometer rail line which links the
mine and the port. From there, the products are shipped to
markets throughout North America,
Europe, the Middle East and the Asia-Pacific region.
IOC's 2020 sales totaled 18.6 million tonnes, comprised of 10.2
million tonnes of iron ore pellets and 8.4 million tonnes of iron
ore concentrate. Production in 2020 was 9.6 million
tonnes of pellets and 8.1 million tonnes of CFS. IOC generated ore
sales revenues (excluding third party ore sales) of $2,915 million in 2020 (2019 - $2,558 million).
Selected IOC Financial Information
|
2020
|
2019
|
2018
|
2017
|
2016
|
|
($ in
millions)
|
|
Operating
Revenues
|
3,099
|
2,719
|
1,930
|
2,315
|
1,676
|
|
Cash Flow from
Operating
Activities
|
837
|
1,302
|
578
|
923
|
456
|
|
Net Income
|
842
|
749
|
383
|
499
|
170
|
|
Capital Expenditures
(1)
|
288
|
294
|
205
|
265
|
99
|
|
|
|
|
|
|
|
|
(1
)Reported on an incurred basis
|
IOC Royalty
The Corporation holds certain leases and licenses covering
approximately 18,200 hectares of land near Labrador City. IOC has subleased certain
portions of these lands from which it currently mines iron ore. In
return, IOC pays the Corporation a 7% gross overriding royalty on
all sales of iron ore products produced from these lands. A 20% tax
on the royalty is payable to the Government of Newfoundland and Labrador. For the five years prior to 2020,
the average royalty net of the 20% tax had been $107.7 million per year and in 2020 the net
royalty was $160.1 million (2019 -
$140.4 million).
Because the royalty is "off-the-top", it is not dependent on the
profitability of IOC. However, it is affected by changes in sales
volumes, iron ore prices and, because iron ore prices are
denominated in US dollars, the United
States - Canadian dollar exchange rate.
IOC Equity
In addition to the royalty interest, the Corporation directly
and through its wholly owned subsidiary, Hollinger-Hanna, owns a
15.10% equity interest in IOC. The other shareholders of IOC
are Rio Tinto Limited with 58.72% and Mitsubishi Corporation with
26.18%.
IOC Commissions
Hollinger-Hanna has the right to receive a payment of
10 cents per tonne on the products
produced and sold by IOC. Pursuant to an agreement, IOC is
obligated to make the payment to Hollinger-Hanna so long as
Hollinger-Hanna is in existence and solvent. In 2020,
Hollinger-Hanna received a total of $1.8
million in commissions from IOC (2019 - $1.7 million).
Quarterly Dividends
Dividends of $3.05 per share
including special dividends of $0.50
per share were declared in 2020 (2019 – dividends of 4.00 per share
including special dividends of $3.00). These dividends were allocated as
follows:
|
|
|
|
|
Period
|
Record
|
Payment
|
Dividend
Income
|
Total
Dividend
|
Ended
|
Date
|
Date
|
per
Share
|
($
Million)
|
|
|
|
|
|
Mar. 31,
2020
|
Mar. 31,
2020
|
Apr. 25,
2020
|
$0.25
|
$16.0
|
Special
Dividend
|
Mar. 31,
2020
|
Apr. 25,
2020
|
0.10
|
6.4
|
Jun. 30,
2020
|
Jun. 30,
2020
|
Jul. 25,
2020
|
0.25
|
16.0
|
Special
Dividend
|
Jun. 30,
2020
|
Jul. 25,
2020
|
0.20
|
12.8
|
Sep. 30,
2020
|
Sep. 30,
2020
|
Oct. 25,
2020
|
0.25
|
16.0
|
Special
Dividend
|
Sep. 30,
2020
|
Oct. 25,
2020
|
0.20
|
12.8
|
Dec. 31,
2020
|
Dec. 31,
2020
|
Jan. 26,
2021
|
1.80
|
115.2
|
|
|
|
|
|
Dividend to
Shareholders – 2020
|
|
$3.05
|
$195.2
|
Mar. 31,
2019
|
Mar. 31,
2019
|
Apr. 25,
2019
|
$0.25
|
$16.0
|
Special
Dividend
|
Mar. 31,
2019
|
Apr. 25,
2019
|
0.80
|
51.2
|
Jun. 30,
2019
|
Jun. 30,
2019
|
Jul. 25,
2019
|
0.25
|
16.0
|
Jun. 30,
2019
|
Jun. 30,
2019
|
Jul. 25,
2019
|
0.65
|
41.6
|
Sep. 30,
2019
|
Sep. 30,
2019
|
Oct. 25,
2019
|
0.25
|
16.0
|
Special
Dividend
|
Sep. 30,
2019
|
Oct. 25,
2019
|
0.75
|
48.0
|
Dec. 31,
2019
|
Dec. 31,
2019
|
Jan. 25,
2020
|
0.25
|
16.0
|
Special
Dividend
|
Dec. 31,
2019
|
Jan. 25,
2020
|
0.80
|
51.2
|
|
|
|
|
Dividend to
Shareholders – 2019
|
|
$4.00
|
$256.0
|
The quarterly dividends are payable to all shareholders of
record on the last day of each calendar quarter and are paid on or
after the 26th day of the following month.
Management's Discussion and Analysis
The following is a discussion of the consolidated financial
condition and results of operations of the Corporation for the
years ended December 31, 2020 and
2019. This discussion should be read in conjunction with the
consolidated financial statements of the Corporation and notes
thereto for the years ended December 31,
2020 and 2019. This information is prepared in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board
("IASB") and all amounts are shown in Canadian dollars unless
otherwise indicated.
Overview of the Business
The Corporation is a Canadian corporation resulting from the
conversion of the Fund into a corporation under a plan of
arrangement completed on July 1,
2010. LIORC is also the successor by amalgamation of a
predecessor of LIORC with Labrador Mining Company Limited, formerly
a wholly-owned subsidiary of the Fund, that occurred pursuant to
the plan of arrangement.
The Corporation is dependent on the operations of IOC. IOC's
earnings and cash flows are affected by the volume and mix of iron
ore products produced and sold, costs of production and the prices
received. Iron ore demand and prices fluctuate and are affected by
numerous factors which include demand for steel and steel products,
the relative exchange rate of the US dollar, global and regional
demand and production, political and economic conditions and
production costs in major producing areas.
Financial Highlights
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
|
|
December
31,
|
($ in millions
except per share information)
|
2020
|
2019
|
|
2020
|
2019
|
Revenue
|
54.4
|
39.6
|
|
202.3
|
178.3
|
Equity earnings from
IOC
|
37.8
|
23.7
|
|
126.0
|
112.1
|
Net income
|
73.9
|
47.4
|
|
227.2
|
205.3
|
Net income per
share
|
$ 1.16
|
$ 0.74
|
|
$ 3.55
|
$ 3.21
|
Dividend(s) from
IOC
|
86.6
|
44.6
|
|
86.6
|
110.1
|
Cash flow from
operations
|
116.0
|
79.1
|
|
175.4
|
224.6
|
Cash flow from
operations per share
|
$ 1.81
|
$ 1.24
|
|
$ 2.74
|
$ 3.51
|
Adjusted cash
flow1
|
116.4
|
66.2
|
|
198.0
|
208.1
|
Adjusted cash flow
per share
|
$ 1.82
|
$ 1.03
|
|
$ 3.09
|
$ 3.25
|
Dividends declared
per share
|
$ 1.80
|
$ 1.05
|
|
$ 3.05
|
$ 4.00
|
|
|
|
|
|
|
1This
is a non-IFRS financial measure and does not have a standard
meaning under IFRS
|
Please refer to
Standardized Cash Flow and Adjusted Cash Flow section in the
MD&A.
|
The higher revenue, net income and equity earnings achieved in
2020 as compared to 2019 were mainly due to (i) higher iron ore
prices as a result of continued demand from China, and (ii) higher sales of pellets and
CFS. While saleable production in 2020 was 1% lower than in 2019
due to unplanned maintenance at the processing facilities in the
third and fourth quarters, sales were 7% higher as IOC took
advantage of higher inventory levels that had accumulated in
2019.
Capital expenditures for IOC in 2020 were $288 million in total as compared to $294 million in 2019. At the beginning of
2020 IOC forecasted that capital expenditures for 2020 would be
approximately $350 million. Capital
expenditures were lower than forecasted mainly because of the
decision by IOC at the early stages of COVID-19 to defer some
projects to 2021 and 2022 because the impact of COVID-19 on the
market for high grade iron ore was unknown at that time. Capital
expenditures were also lower due to the difficulty in getting
contractors to site because of COVID-19 restrictions and
protocols.
Fourth quarter 2020 sales (pellets and CFS) were lower
year-over-year by 4% despite higher saleable production due to
timing differences in the sales process. However, this was offset
by an increase in the realized sales price of pellets and CFS,
resulting in royalty income of $53.9
million for the quarter as compared to $38.9 million for the same period in 2019. Fourth
quarter 2020 cash flow from operations was $116.0 million or $1.81 per share compared to 2019 of $79.1 million or $1.24 per share. LIORC received an IOC dividend
in the fourth quarter of 2020 in the amount of $86.6 million or $1.35 per share (2019 - $44.5 million or $0.70 per share). Equity earnings from IOC
amounted to $37.8 million or
$0.59 per share in the fourth quarter
2020 compared to $23.7 million or
$0.37 per share for the same period
in 2019.
Operating Highlights
|
Three Months
Ended
|
|
Year
Ended
|
IOC
Operations
|
December
31,
|
|
December
31,
|
(in millions of
tonnes)
|
2020
|
2019
|
|
2020
|
2019
|
|
|
|
|
|
|
Sales1
|
|
|
|
|
|
Pellets
|
2.56
|
2.46
|
|
10.17
|
9.62
|
Concentrate for sale
("CFS")2
|
1.81
|
2.08
|
|
8.16
|
7.51
|
Total3
|
4.37
|
4.54
|
|
18.33
|
17.14
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
Concentrate
produced
|
4.88
|
4.66
|
|
18.66
|
18.96
|
|
|
|
|
|
|
Saleable
production
|
|
|
|
|
|
Pellets
|
2.46
|
2.41
|
|
9.58
|
10.06
|
CFS
|
2.21
|
1.95
|
|
8.14
|
7.88
|
Total
|
4.67
|
4.36
|
|
17.72
|
17.94
|
|
|
|
|
|
|
Average index prices
per tonne
|
|
|
|
|
|
65% Fe
index4
|
$ 146
|
$ 98
|
|
$ 122
|
$ 104
|
62% Fe
index5
|
$ 134
|
$ 89
|
|
$ 109
|
$ 93
|
Pellet
premium6
|
$ 28
|
$ 37
|
|
$ 29
|
$ 57
|
|
|
|
|
|
|
(1)
For calculating the royalty to LIORC.
|
(2) Excludes third party
ore sales.
|
(3)
Totals may not add up due to rounding.
|
(4) The Platts index for
65% Fe, CFR China.
|
(5) The Platts index for
62% Fe, CFR China.
|
(6) The Platts Atlantic
Blast Furnace 65% Fe pellet premium index.
|
IOC sells CFS based on the 65% Fe index. The average price for
the 65% Fe index increased 16% to US$122 per tonne in 2020 compared to the average
price in 2019 of US$104 per tonne.
Despite the COVID-19 global pandemic and the resultant reduced
demand for iron ore by steel producers outside of China, seaborne iron ore prices increased
throughout the year as a result of strong demand from China. In 2020, the 65% Fe index started the
year at US$105 per tonne and ended at
US$174 per tonne. The premium
for the 65% Fe index compared to the Platts index for 62% Fe, CFR
China ("62% Fe index"), which had been expanding over the last few
years, remained at 12% in 2020 as compared to 2019. The 62% Fe
index averaged US$109 per tonne in
2020 compared to US$93 per tonne in
2019. The pellet premium, as quoted by Platts, averaged
US$29 per tonne in 2020, compared to
an average in 2019 of US$57. Pellet
premiums were lower in 2020 predominantly as a result of weaker
demand from European and other steel producers outside of
China, who have been the
traditional purchasers of pellets.
The average price realized by IOC for CFS and pellets, FOB
Sept-Îles, net of selling costs was approximately C$155 per tonne in 2020 compared to C$148 per tonne in 2019. The increase in the
average realized price FOB Sept-Îles in 2020 was a result of higher
CFS prices, partially offset by lower pellet premiums.
Liquidity and Capital Resources
The Corporation had $106.1 million
(2019 - $77.9 million) in cash as at
December 31, 2020 with total current
assets of $164.4 million (2019 -
$114.0 million). The Corporation had
working capital of $31.0 million
(2019 - $28.2 million). The
Corporation's operating cash flow was $175.4
million (2019 - $224.6
million) and dividends paid during the year were
$147.2 million, resulting in cash
balances increasing by $28.2 million
during 2020.
Cash balances consist of deposits in Canadian dollars and US
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 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 leaving $30
million available to provide for any capital required by IOC
or requirements of the Corporation.
Selected Consolidated Financial Information
The following table sets out financial data from a Shareholder's
perspective for the three years ended December 31, 2020, 2019 and 2018.
|
Years Ended December
31
|
Description
|
2020
|
|
2019
|
|
2018
|
|
(in millions
except per share information)
|
Revenue
|
$202.3
|
|
$178.3
|
|
$130.9
|
Net Income
|
$227.2
|
|
$205.3
|
|
$128.5
|
Net Income per
Share
|
$3.55
|
|
$3.21
|
|
$2.01
|
Cash Flow from
Operations
|
$175.4(1)
|
|
$224.6(2)
|
|
$149.0(3)
|
Cash Flow from
Operations per Share
|
$2.74(1)
|
|
$3.51(2)
|
|
$2.32(3)
|
Total
Assets
|
$823.2
|
|
$743.0
|
|
$763.6
|
Dividends Declared
per Share
|
$3.05
|
|
$4.00
|
|
$1.75
|
Number of Common
Shares outstanding
|
64.0
|
|
64.0
|
|
64.0
|
|
|
|
|
|
|
(1) Includes
IOC dividends totaling $86.6 million or 1.35 per
Share.
|
|
(2) Includes
IOC dividends totaling $110.1 million or $1.72 per
Share.
|
|
(3)
Includes IOC dividend totaling $83.9 million or $1.31 per
Share.
|
The following table sets out quarterly revenue, net
income, cash flow and dividend data for 2020 and 2019. Due to
seasonal weather patterns the first and fourth quarters generally
have lower production and sales. Royalty revenues and equity
earnings in IOC track iron ore spot prices, which can be very
volatile. Dividends, included in cash flow, are declared and paid
by IOC irregularly according to the availability of cash.
|
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
|
$045
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$52.9
|
$57.7
|
$0.90
|
$11.1
|
$0.17
|
$0.46
|
$0.45
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$54.4
|
$73.9
|
$1.16
|
$116.0(2)
|
$1.81(2)
|
$1.82(2)
|
$1.80
|
|
|
|
|
|
|
|
|
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(3)
|
$0.75(3)
|
$0.86(3)
|
$0.90
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$46.2
|
$57.5
|
$0.90
|
$72.6(4)
|
$1.13(4)
|
$1.02(4)
|
$1.00
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$39.6
|
$47.4
|
$0.74
|
$79.1(5)
|
$1.24(5)
|
$1.03(5)
|
$1.05
|
|
|
(1)
|
"Adjusted cash
flow" (see below).
|
(2)
|
Includes $86.6
million IOC dividend.
|
(3)
|
Includes $25.4
million IOC dividend.
|
(4)
|
Includes $40.1
million IOC dividend.
|
(5)
|
Includes $44.6
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 $2.74 for
2020 (2019 - $3.51). Cumulative
standardized cash flow from inception of the Corporation is
$33.72 per share and total cash
distributions since inception are $33.39 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
IFRS. The Directors believe that adjusted cash flow is a
useful analytical measure as it better reflects cash available for
distributions to Shareholders.
The following reconciles standardized cash flow from operating
activities to adjusted cash flow (in '000's).
|
2020
|
|
2019
|
Standardized cash
flow from operating activities
|
$175,432
|
|
$224,564
|
Changes in amounts
receivable, accounts and interest payable and
income taxes recoverable and payable
|
22,605
|
|
(16,459)
|
Adjusted cash
flow
|
$198,037
|
|
$208,105
|
Adjusted cash flow
per share
|
$3.09
|
|
$3.25
|
Disclosure Controls and Internal Control over Financial
Reporting
The President and CEO and the CFO are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the
Corporation. Two directors serve as directors of IOC and IOC
provides monthly reports on its operations to them. The
Corporation also relies on financial information provided by IOC,
including its audited financial statements, and other material
information provided to the President and CEO and the CFO by
officers of IOC. IOC is a private corporation, and its
financial statements are not publicly available.
The Directors are informed of all material information relating
to the Corporation and its subsidiary by the officers of the
Corporation on a timely basis and approve all core disclosure
documents including the Management Information Circular, the annual
and interim financial statements and related Management's
Discussion and Analyses, the Annual Information Form, any
prospectuses and all press releases. An evaluation of the
design and operating effectiveness of the Corporation's disclosure
controls and procedures was conducted under the supervision of the
CEO and CFO. Based on their evaluation, they concluded that
the Corporation's disclosure controls and procedures were effective
in ensuring that all material information relating to the
Corporation was accumulated and communicated for the year ended
December 31, 2020.
The President and CEO and the CFO have designed internal control
over financial reporting to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
IFRS. An evaluation of the design and operating effectiveness
of the Corporation's internal control over financial reporting was
conducted under the supervision of the CEO and CFO. Based on
their evaluation, they concluded that the Corporation's internal
control over financial reporting was effective and that there were
no material weaknesses therein for the year ended December 31, 2020.
The preparation of financial statements requires the
Corporation's management to make estimates and assumptions that
affect the reported amounts of the assets, liabilities, revenue and
expenses reported each period. Each of these estimates varies with
respect to the level of judgment involved and the potential impact
on the Corporation's reported financial results. Estimates are
deemed critical when the Corporation's financial condition, change
in financial condition or results of operations would be materially
impacted by a different estimate or a change in estimate from
period to period. By their nature, these estimates are subject to
measurement uncertainty, and changes in these estimates may affect
the consolidated financial statements of future periods.
No material change in the Corporation's internal control over
financial reporting occurred during the year ended December 31, 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 crises,
changes affecting IOC's customers, competition from other iron ore
producers, estimates of reserves and resources, government
regulation and taxation and cybersecurity. A discussion of
these factors is contained in LIORC's annual information form dated
March 4, 2021 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.
Additional information
Additional information relating to the Corporation, including
the Annual Information Form, is on SEDAR at www.sedar.com.
Additional information is also available on the Corporation's
website at www.labradorironore.com.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
March 4, 2021
LABRADOR IRON ORE
ROYALTY CORPORATION
|
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
As
at
|
|
|
December
31,
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
2020
|
|
2019
|
|
|
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
|
Cash and short-term
investments
|
$
|
106,091
|
|
$
|
77,859
|
|
Amounts
receivable
|
58,336
|
|
36,156
|
Total Current
Assets
|
164,427
|
|
114,015
|
|
|
|
|
|
Non-Current
Assets
|
|
|
|
|
Iron Ore Company of
Canada ("IOC")
|
|
|
|
royalty and commission
interests
|
241,511
|
|
247,701
|
|
Investment in
IOC
|
417,284
|
|
381,310
|
Total Non-Current
Assets
|
658,795
|
|
629,011
|
|
|
|
|
|
Total
Assets
|
$
|
823,222
|
|
$
|
743,026
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts
payable
|
$
|
12,533
|
|
$
|
7,939
|
|
Dividend
payable
|
115,200
|
|
67,200
|
|
Taxes
payable
|
5,691
|
|
10,710
|
Total Current
Liabilities
|
133,424
|
|
85,849
|
|
|
|
|
|
Non-Current
Liabilities
|
|
|
|
|
Deferred income
taxes
|
123,430
|
|
119,840
|
Total
Liabilities
|
256,854
|
|
205,689
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
Share
capital
|
317,708
|
|
317,708
|
|
Retained
earnings
|
262,000
|
|
230,005
|
|
Accumulated other
comprehensive loss
|
(13,340)
|
|
(10,376)
|
|
|
566,368
|
|
537,337
|
|
|
|
|
|
Total Liabilities and
Shareholders' Equity
|
$
|
823,222
|
|
$
|
743,026
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
Ended
|
|
|
December
31,
|
(in thousands of
Canadian dollars except for per share information)
|
2020
|
|
2019
|
|
|
|
Revenue
|
|
|
|
|
IOC
royalties
|
$
|
200,125
|
|
$
|
175,450
|
|
IOC
commissions
|
1,804
|
|
1,687
|
|
Interest and other
income
|
365
|
|
1,126
|
|
|
202,294
|
|
178,263
|
Expenses
|
|
|
|
|
Newfoundland royalty
taxes
|
40,025
|
|
35,090
|
|
Amortization of
royalty and commission interests
|
6,190
|
|
6,145
|
|
Administrative
expenses
|
3,126
|
|
3,182
|
|
|
49,341
|
|
44,417
|
|
|
|
|
|
Income before
equity earnings and income taxes
|
152,953
|
|
133,846
|
Equity earnings in
IOC
|
126,024
|
|
112,076
|
|
|
|
|
|
Income before
income taxes
|
278,977
|
|
245,922
|
|
|
|
|
|
Provision for
income taxes
|
|
|
|
|
Current
|
47,669
|
|
42,000
|
|
Deferred
|
4,113
|
|
(1,417)
|
|
|
51,782
|
|
40,583
|
|
|
|
|
|
Net income for the
year
|
227,195
|
|
205,339
|
|
|
|
|
|
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 - $523; 2019
- $487)
|
(2,964)
|
|
(2,760)
|
|
|
|
|
|
Comprehensive
income for the year
|
$
|
224,231
|
|
$
|
202,579
|
|
|
|
|
|
Net income per
share
|
$
|
3.55
|
|
$
|
3.21
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
Ended
|
|
|
|
|
December
31,
|
(in thousands of
Canadian dollars)
|
2020
|
|
2019
|
|
|
|
|
|
Net inflow
(outflow) of cash related
|
|
|
|
to the following
activities
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
Net income for the
year
|
$
|
227,195
|
|
$
|
205,339
|
Items not affecting
cash:
|
|
|
|
Equity earnings in
IOC
|
(126,024)
|
|
(112,076)
|
Current income
taxes
|
47,669
|
|
42,000
|
Deferred income
taxes
|
4,113
|
|
(1,417)
|
Amortization of
royalty and commission interests
|
6,190
|
|
6,145
|
Common share dividend
from IOC
|
86,563
|
|
110,114
|
Change in amounts
receivable
|
(22,180)
|
|
10,392
|
Change in accounts
payable
|
4,594
|
|
(2,030)
|
Income taxes
paid
|
(52,688)
|
|
(33,903)
|
Cash flow from
operating activities
|
175,432
|
|
224,564
|
|
|
|
|
|
|
|
Financing
|
|
|
|
Dividend paid to
shareholders
|
(147,200)
|
|
(227,200)
|
Cash flow used in
financing activities
|
(147,200)
|
|
(227,200)
|
|
|
|
|
|
|
|
Increase
(decrease) in cash, during the year
|
28,232
|
|
(2,636)
|
|
|
|
|
|
|
|
Cash, beginning of
year
|
77,859
|
|
80,495
|
|
|
|
|
|
|
|
Cash, end of
year
|
$
|
106,091
|
|
$
|
77,859
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
other
|
|
|
Share
|
Retained
|
comprehensive
|
|
(in thousands of
Canadian dollars)
|
capital
|
earnings
|
loss
|
Total
|
|
|
|
|
|
|
|
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
year
|
-
|
205,339
|
-
|
205,339
|
Dividends declared to
shareholders
|
-
|
(256,000)
|
-
|
(256,000)
|
Share of other
comprehensive loss from investment in IOC (net of taxes)
|
-
|
-
|
(2,760)
|
(2,760)
|
Balance as at
December 31, 2019
|
$
|
317,708
|
$
|
230,005
|
$
|
(10,376)
|
$
|
537,337
|
|
|
|
|
|
Balance as at
December 31, 2019
|
$
|
317,708
|
$
|
230,005
|
$
|
(10,376)
|
$
|
537,337
|
Net income for the
year
|
-
|
227,195
|
-
|
227,195
|
Dividends declared to
shareholders
|
-
|
(195,200)
|
-
|
(195,200)
|
Share of other
comprehensive loss from investment in IOC (net of taxes)
|
-
|
-
|
(2,964)
|
(2,964)
|
Balance as at
December 31, 2020
|
$
|
317,708
|
$
|
262,000
|
$
|
(13,340)
|
$
|
566,368
|
The complete consolidated financial statements for the year
ended December 31, 2020, including
the notes thereto, are posted on sedar.com and
labradorironore.com.
SOURCE Labrador Iron Ore Royalty Corporation