TORONTO, March 7,
2023 /CNW/ - Labrador Iron Ore Royalty
Corporation ("LIORC") (TSX: LIF) announced the results of its
operations for the year ended December 31,
2022.
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, 2022.
85 Years in Labrador West
Labrador Iron Ore Royalty Corporation has been involved in
Labrador West for 85 years. Under a Statutory Agreement with
Newfoundland made in 1938, a
predecessor company, Labrador Mining and Exploration Limited
("LM&E"), 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 sublets 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.
Financial Performance
In 2022, LIORC's financial results were negatively impacted by
lower iron ore prices and lower volumes of pellet sales, partly
offset by higher pellet premiums and higher volumes of concentrate
for sale ("CFS") sales. Net income per share for the year ended
December 31, 2022 was $4.15 per share, which was a 30% decrease over
2021. The cash flow from operations per share for 2022 was
$2.88 per share, which was 54% lower
than in 2021 due to lower royalty revenues and decreased dividends
from IOC. IOC dividends decreased as a result of lower earnings at
IOC and a decision by IOC to pay lower shareholder dividends in
order to retain a higher cash balance due in part to expectations
of higher capital expenditure needs going forward. In 2022,
IOC paid dividends to its shareholders of US$345 million and had a year-end net working
capital balance of US$274.7 million,
compared to dividends of US$1,200
million and a year-end net working capital balance of
US$16.9 million in 2021.
In 2022 global steel production dropped by 5%, as higher
inflation and global recessionary concerns reduced the demand for
steel. Steel production was also negatively impacted by
China's zero COVID-19 policy of
strict lockdowns and concerns about China's property construction sector. This
resulted in decreased demand from China and the rest of the world for seaborne
iron ore, and hence iron ore prices declined from the record prices
experienced in 2021. IOC sells CFS based on the the Platts index
for 65% Fe, CFR China (the "65% Fe index"). All references to
tonnes and per tonne prices in this report refer to wet metric
tonnes, other than references to Platts quoted pricing, which refer
to dry metric tonnes. Historically, IOC's wet ore contains
approximately 3% less ore per equivalent volume than dry ore. In
2022, the average price for the 65% Fe index was US$139 per tonne, a decrease of 25% year over
year. The 65% Fe index continued to be quite volatile
throughout the year, starting the year at US$140 per
tonne and trading as high as US$192 per tonne in March and as low as
US$91 per tonne in October, before
ending the year at US$131 per
tonne.
Despite the reduction in steel production, the demand for
pellets held firm and as a result the decline in the price for
pellets was mitigated by an increase in the pellet premium. The
monthly Atlantic Blast Furnace 65% Fe pellet premium index as
quoted by Platts (the "pellet premium") averaged US$72 per tonne in 2022, an increase of 20% from
2021.
Rio Tinto disclosed that IOC achieved an average realised price
for pellets, FOB Sept-Îles of approximately US$190 per tonne, a decrease of 11% year over
year. Based on sales as reported for the LIORC Royalty, the overall
average price realized by IOC for CFS and pellets, FOB Sept-Îles
was approximately US$153 per tonne in
2022, a decrease of 19% year over year. The decrease in the average
realized price FOB Sept-Îles in 2022 was a result of lower CFS and
pellet prices.
Iron Ore Company of Canada Operations
Operations
Total concentrate production in 2022 was 19.1 million tonnes.
This was 7% higher than 2021, in part as a result of a lower strip
ratio in 2022. IOC also successfully deployed the Rio Tinto
Safe Production System (SPS) at the concentrator in the year, which
helped IOC achieve monthly records for concentrate production and
total material moved in the second quarter. Despite the successes,
there continued to be a number of operational issues that limited
IOC from achieving concentrate production closer to name plate
capacity, including intermittent periods of a lack of feed at the
concentrator due to the mine and ore delivery system in the first
quarter and equipment availability at the loadout during the fourth
quarter.
The IOC saleable production (CFS plus pellets) of 17.6 million
tonnes in 2022 was 6% higher than 2021, and was within the range of
Rio Tinto's original annual guidance of 17.0 to 18.7 million
tonnes. In 2022, CFS production of 7.95 million tonnes was 21%
higher than 2021, mainly due to higher concentrate production
referred to above. Pellet production in 2022 of 9.6 million tonnes
was 4% lower than 2021 mainly due to equipment reliability
challenges, a negative stockpile survey adjustment and lower pellet
recovery rates experienced during the year.
Third party iron ore haulage by the Québec North Shore and
Labrador Railway Company, Inc. ("QNS&L") of 14.6 million tonnes
in 2022 was 14% higher than in 2021, predominantly due to increased
shipments of iron ore from Champion Iron.
Sales as Reported for the LIORC Royalty
Total iron ore
sales tonnage by IOC (CFS plus pellets) of 16.4 million tonnes in
2022 was 3% lower than the total sales tonnage in 2021,
predominantly due to inventory availability, and a significant
weather event in December that affected the timing of sales in the
fourth quarter.
Capital Expenditures
Capital expenditures for IOC were
$460 million in 2022. This was 8%
lower than 2021, but substantially higher than 2020. Capital
expenditures in 2022 were 24% lower than the $606 million that IOC had originally forecasted,
mainly due to the decision by IOC to defer certain capital
projects, including the redesign of the tailings system, the
rebuild of induration machine #3 at the pellet plant, and the
construction of a parallel outgo rail track to improve the dumping
speed and operational efficiency at Sept-Îles.
Outlook
Rio Tinto's 2023 guidance for IOC's saleable production tonnage
(CFS plus pellets) is 17.9 million to 19.6 million tonnes. This
compares to 17.6 million tonnes of saleable production in 2022.
Despite the lower current pellet premiums, it is expected that IOC
will continue to focus on maximizing pellet production in 2023.
The capital expenditures for 2023 at IOC are forecasted by IOC
to be approximately $534 million. The
2023 forecast includes approximately $134
million of growth and development projects.
Significant development capital expenditure projects scheduled for
2023 include the redesign of Mill 11 Fine Circuit, the new outgo
track at Sept-Îles referred to above, and the replacement of
existing heavy fuel oil steam capacity with an electric boiler to
reduce carbon emissions. Significant sustaining capital expenditure
projects include the rebuild of induration machine #3 at the pellet
plant and the track replacement program on the QNS&L.
IOC's operator, Rio Tinto, is committed to reaching net zero
emissions by 2050 and is targeting a 15% reduction in Scope 1 &
2 emissions by 2025 (from a 2018 baseline) and a 50% reduction by
2030. Approximately 75% of IOC's current GHG emissions come from
pelletizing. In the shorter term, IOC is looking at ways to
electrify its sources of heat to reduce emissions. This includes
the introduction of the new electric boiler referred to above and
the commencement of the pilot project to test the use of four new
plasma torches in the pellet plant.
Rio Tinto's approach to addressing Scope 3 emissions is to
engage with its customers on climate change and work with them to
develop the technologies to decarbonize. Optimizing the use of
traditional blast furnaces involves the use of higher-grade iron
ore, such as that produced by IOC. Additionally, the
direct reduction of high-grade iron ore pellets (such as those
produced by IOC) is already an available technology today using
natural gas as a reductant to produce a low-carbon iron product
that can be directly processed in an electric arc furnace.
Switching from natural gas to green hydrogen would make this
a net zero process route. Rio Tinto states that in 2023 it
will further evaluate opportunities in North America and the Middle East to produce hot briquetted iron
(HBI) with hydro-based green hydrogen and high-grade iron ore from
IOC.
On January 31, 2023, IOC and The
Naskapi Nation of Kawawachikamach
signed an agreement to establish a mutually beneficial relationship
based on dialogue, collaboration and trust between the company and
the community over the coming decades. The socio-economic agreement
aims to create opportunities for greater participation by Naskapi
people in IOC's activities through training and development,
employment, collaboration on environmental projects, and
procurement. It will also protect and encourage the practice of
traditional activities and provide long-term financial benefits to
the Naskapi Nation.
Despite the significant decrease in iron ore markets in the
second half of 2022, prices have recently improved as China has eased its zero COVID-19 policy of
strict lockdowns and there are some indications that there will be
support for China's property
sector. Currently, the World Steel Association is forecasting a
2.2% increase in global steel production for 2023, suggesting
further support for iron ore prices. Thus far in 2023 (January and
February), the average price of the 65% Fe index has been
US$139 per tonne, which is equal to
the annual average of the 65% Fe index in 2022 and up from an
average of US$111 per tonne in the
fourth quarter of 2022. However, the demand for pellets has
remained weaker and thus far in 2023 (January and February) the
average pellet premium has averaged US$46 per tonne compared to an annual average of
US$72 per tonne in 2022.
I would like to take this opportunity to thank our Shareholders
for their interest and loyalty and my fellow Directors for their
guidance and support.
Respectfully submitted on behalf of the Directors of the
Corporation,
John F. Tuer
President and Chief Executive Officer
March 7, 2023
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 the free cash flow generated from IOC to the maximum extent
possible, subject to the maintenance of appropriate levels of
working capital. Quarterly dividends are payable to all
shareholders of record on the last business day of each calendar
quarter and are paid on or after the 26th day of the following
month.
Seven 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
four 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 and Labrador 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 2022 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 2022 sales tonnages totaled 16.3 million tonnes, comprised
of 9.2 million tonnes of iron ore pellets and 7.1 million tonnes of
iron ore concentrate. Saleable production in 2022 was
9.6 million tonnes of pellets and 7.9 million tonnes of CFS. IOC
generated ore sales revenues (excluding third party ore sales) of
$3,184 million in 2022 (2021 -
$3,922 million).
Selected IOC Financial Information
|
2022
|
2021
|
2020
|
2019
|
2018
|
($ in
millions)
|
Operating
Revenues(1)
|
3,426
|
4,147
|
3,099
|
2,719
|
1,930
|
|
Cash Flow from
Operating Activities
|
1,021
|
1,955
|
837
|
1,302
|
578
|
|
Net Income
|
1,028
|
1,551
|
842
|
749
|
383
|
|
Capital Expenditures
(2)
|
460
|
498
|
288
|
294
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
2022 and 2021 Ore sales revenue is presented on a net basis (net
of related freight costs) to align with IFRS financial statements
presentation.
|
(2)
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 2022,
the average royalty net of the 20% tax had been $150.2 million per year and in 2022 the net
royalty was $184.6 million (2021 -
$222.2 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 2022,
Hollinger-Hanna received a total of $1.6
million in commissions from IOC (2021 - $1.7 million).
Quarterly Dividends
Dividends of $3.10 per share were
declared in 2022 (2021 – dividends of $6.00 per share). These dividends were allocated
as follows:
Period
|
Record
|
Payment
|
Dividend
Income
|
Total
Dividend
|
|
|
|
Ended
|
Date
|
Date
|
per
Share
|
($
Million)
|
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
2022
|
Mar. 31,
2022
|
Apr. 26,
2022
|
$0.50
|
$32.0
|
|
|
|
Jun. 30,
2022
|
Jun. 30,
2022
|
Jul. 26,
2022
|
0.90
|
57.6
|
|
|
|
Sep. 30,
2022
|
Sep. 29,
2022
|
Oct. 26,
2022
|
1.00
|
64.0
|
|
|
|
Dec. 31,
2022
|
Dec. 30,
2022
|
Jan. 26,
2023
|
0.70
|
44.8
|
|
|
|
|
|
|
|
|
|
|
|
Dividend to
Shareholders – 2022
|
|
$3.10
$198.4
|
|
|
|
Mar. 31,
2021
|
Mar. 31,
2021
|
Apr. 26,
2021
|
$1.00
|
$64.0
|
|
Jun. 30,
2021
|
Jun. 30,
2021
|
Jul. 26,
2021
|
1.75
|
112.0
|
|
Sep. 30,
2021
|
Sep. 30,
2021
|
Oct. 26,
2021
|
2.10
|
134.4
|
|
Dec. 31,
2021
|
Dec. 31,
2021
|
Jan. 26,
2022
|
1.15
|
73.6
|
|
Dividend to
Shareholders – 2021
|
|
$6.00 $384.0
|
The quarterly dividends are payable to all shareholders of record
on or before the last day of each calendar quarter and are paid on
or after the 26th day of the following month.
Management's Discussion and Analysis
The following is a discussion of the consolidated financial
condition and results of operations of the Corporation for the
years ended December 31, 2022 and
2021. This discussion should be read in conjunction with the
consolidated financial statements of the Corporation and notes
thereto for the years ended December 31,
2022 and 2021 which are prepared in accordance with
International Financial Reporting Standards ("IFRS") as issued by
the International Accounting Standards Board ("IASB") and all
amounts are shown in Canadian dollars unless otherwise
indicated.
Overview of the Business
The Corporation is a Canadian corporation resulting from the
conversion of the Fund into a corporation under a plan of
arrangement completed on July 1,
2010. LIORC is also the successor by amalgamation of a
predecessor of LIORC with Labrador Mining Company Limited, formerly
a wholly-owned subsidiary of the Fund, that occurred pursuant to
the plan of arrangement.
The Corporation is economically dependent on the operations of
IOC. IOC's earnings and cash flows are affected by the volume and
mix of iron ore products produced and sold, costs of production and
the prices received. Iron ore demand and prices fluctuate and are
affected by numerous factors which include demand for steel and
steel products, the relative exchange rate of the US dollar, global
and regional demand and production, political and economic
conditions and production costs in major producing areas.
Financial Highlights
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
|
|
December
31,
|
|
2022
|
2021
|
|
2022
|
2021
|
|
($ in millions
except per share information)
|
|
|
|
|
|
|
Revenue
|
48.3
|
60.1
|
|
232.9
|
279.7
|
Equity earnings from
IOC
|
19.7
|
45.9
|
|
154.1
|
229.6
|
Net
income
|
44.6
|
78.2
|
|
265.4
|
379.8
|
Net income per
share
|
$ 0.70
|
$ 1.22
|
|
$ 4.15
|
$ 5.93
|
Dividend from
IOC
|
15.4
|
48.5
|
|
69.1
|
227.8
|
Cash flow from
operations
|
60.5
|
106.6
|
|
184.2
|
402.4
|
Cash flow from
operations per share(1)
|
$ 0.95
|
$ 1.67
|
|
$ 2.88
|
$ 6.29
|
Adjusted cash
flow(1)
|
41.9
|
81.6
|
|
197.8
|
382.6
|
Adjusted cash flow per
share(1)
|
$ 0.65
|
$ 1.27
|
|
$ 3.09
|
$ 5.98
|
Dividends declared per
share
|
$ 0.70
|
$ 1.15
|
|
$ 3.10
|
$ 6.00
|
(1) This
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 lower revenue, net income and equity earnings achieved in 2022
as compared to 2021 were mainly due to lower realized iron ore
concentrate and pellet prices and lower sales tonnages. Iron prices
were lower in 2022 than 2021 as higher inflation and global
recessionary concerns and China's
zero COVID-19 policy of strict lockdowns and concerns about
China's property construction
industry reduced the global demand for steel. Despite higher
saleable production, total sales tonnages (pellets and CFS) at IOC
were 3% lower in 2022 than 2021 predominantly due to inventory
availability, and a significant weather event in December that
affected the timing of sales in the fourth quarter.
Fourth quarter 2022 sales tonnages (pellets and CFS) were lower
year-over-year by 11% despite higher saleable production, due to
inventory availability and a significant weather event in December
that affected the timing of sales. Royalty revenue was $47.6 million for the quarter as compared to
$59.5 million for the same period in
2021. Fourth quarter 2022 cash flow from operations was
$60.5 million or $0.95 per share compared to fourth quarter 2021
cash flow from operations of $106.6
million or $1.67 per share.
LIORC received an IOC dividend in the fourth quarter of 2022 in the
amount of $15.4 million or
$0.24 per share (2021 - $48.5 million or $0.76 per share). Equity earnings from IOC
amounted to $19.7 million or
$0.31 per share in the fourth quarter
of 2022 compared to $45.9 million or
$0.72 per share for the same period
in 2021.
Operating Highlights
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
|
|
December
31,
|
IOC
Operations
|
2022
|
2021
|
|
2022
|
2021
|
|
(in millions
of tonnes)
|
Sales(1)
|
|
|
|
|
|
Pellets
|
1.94
|
2.89
|
|
9.17
|
9.97
|
Concentrate for sale
("CFS")(2)
|
2.02
|
1.55
|
|
7.21
|
6.87
|
Total(3)
|
3.96
|
4.44
|
|
16.38
|
16.84
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
Concentrate
produced
|
4.76
|
4.77
|
|
19.09
|
17.89
|
|
|
|
|
|
|
Saleable
production
|
|
|
|
|
|
Pellets
|
2.29
|
2.54
|
|
9.61
|
9.99
|
CFS
|
2.02
|
1.72
|
|
7.95
|
6.58
|
Total(3)
|
4.31
|
4.25
|
|
17.56
|
16.57
|
|
|
|
|
|
|
Average index prices
per tonne (US$)
|
|
|
|
|
|
65% Fe
index(4)
|
$ 111
|
$ 129
|
|
$ 139
|
$ 185
|
62% Fe
index(5)
|
$ 99
|
$ 110
|
|
$ 120
|
$ 159
|
Pellet
premium(6)
|
$ 61
|
$ 56
|
|
$ 72
|
$ 60
|
(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's total concentrate production in 2022 was 19.1 million tonnes.
This was 7% higher than 2021, in part as a result of a lower strip
ratio in 2022. IOC's total saleable production (CFS plus
pellets) of 17.6 million tonnes in 2022 was 6% higher than 2021. In
2022, CFS production of 7.95 million tonnes was 21% higher than
2021, mainly due to higher concentrate production referred to
above. Pellet production in 2022 of 9.6 million tonnes was 4% lower
than 2021 mainly due to equipment reliability challenges, a
negative stockpile survey adjustment and lower pellet recovery
rates experienced during the year.
IOC sells CFS based on the 65% Fe index. In 2022, the average
price for the 65% Fe index was US$139
per tonne, a decrease of 25% year over year, mainly due to a 5%
decrease in global steel production. Despite the reduction in
steel production, the demand for pellets held firm and as a result
the decline in the price for pellets was mitigated by an increase
in the pellet premium. The monthly pellet premium averaged
US$72 per tonne in 2022, an increase
of 20% from 2021. Based on sales as reported for the LIORC Royalty,
the overall average price realized by IOC for CFS and pellets, FOB
Sept-Îles was approximately US$153
per tonne in 2022, a decrease of 19% year over year. The decrease
in the average realized price FOB Sept-Îles in 2022 was a result of
lower CFS and pellet prices.
Capital expenditures for IOC were $460
million in 2022. This was 8% lower than in 2021, but
substantially higher than 2020. Capital expenditures in 2022
were 24% lower than the $606 million
that IOC had originally forecasted for 2022, mainly because of the
decision by IOC to defer certain capital projects, including the
redesign of the tailings system, the rebuild of induration machine
#3 at the pellet plant, and the construction of a parallel outgo
rail track in Sept-Îles to improve the dumping speed and
operational efficiency.
Liquidity and Capital Resources
The Corporation had $39.9 million
(2021 - $82.9 million) in cash as at
December 31, 2022 with total current
assets of $83.0 million (2021 -
$132.6 million). The Corporation had
working capital of $29.0 million
(2021 - $29.7 million). The
Corporation's operating cash flow was $184.2
million (2021 - $402.4
million) and dividends paid during the year were
$227.2 million, resulting in cash
balances decreasing by $43.0 million
during 2022.
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 the free cash flow generated from IOC 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 19, 2025 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, 2022, 2021 and 2020.
|
Years Ended December
31
|
Description
|
2022
|
2021
|
2020
|
|
(in millions except
per share information)
|
Revenue
|
$232.9
|
$279.7
|
$202.3
|
Net Income
|
$265.4
|
$379.8
|
$227.2
|
Net Income per
Share
|
$4.15
|
$5.93
|
$3.55
|
Cash Flow from
Operations
|
$184.2(1)
|
$402.4(2)
|
$175.4(3)
|
Cash Flow from
Operations per Share
|
$2.88(1)
|
$6.29(2)
|
$2.74(3)
|
Total Assets
|
$825.8
|
$789.3
|
$823.2
|
Dividends Declared per
Share
|
$3.10
|
$6.00
|
$3.05
|
Number of Common Shares
outstanding
|
64.0
|
64.0
|
64.0
|
|
|
|
|
(1) Includes IOC
dividends totaling $69.1 million or $1.08 per Share.
|
(2) Includes IOC
dividends totaling $227.8 million or $3.56 per
Share.
|
(3) Includes
IOC dividends totaling $86.6 million or $1.35 per
Share.
|
The following table sets out quarterly revenue, net income, cash
flow and dividend data for 2022 and 2021. 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
from Operations
|
Cash Flow
from
Operations
per Share
|
Adjusted
Cash
Flow per
Share (1)
|
Dividends
Declared
per Share
|
|
(in millions except
per share information)
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
$54.2
|
$63.2
|
$0.99
|
$4.1
|
$0.06
|
$0.47
|
$0.50
|
Second
Quarter
|
$66.3
|
$78.4
|
$1.22
|
$41.1(2)
|
$0.64(2)
|
$0.88(2)
|
$0.90
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$64.1
|
$79.2
|
$1.24
|
$78.5(3)
|
$1.23(3)
|
$1.09(3)
|
$1.00
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$48.3
|
$44.6
|
$0.70
|
$60.5(4)
|
$0.95(4)
|
$0.65(4)
|
$0.70
|
|
|
|
|
|
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
$65.7
|
$86.6
|
$1.35
|
$42.7(5)
|
$0.67(5)
|
$0.87(5)
|
$1.00
|
Second
Quarter
|
$79.2
|
$110.2
|
$1.72
|
$115.9(6)
|
$1.81(6)
|
$1.85(6)
|
$1.75
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$74.7
|
$104.8
|
$1.64
|
$137.3(7)
|
$2.15(7)
|
$1.99(7)
|
$2.10
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$60.1
|
$78.2
|
$1.22
|
$106.6(8)
|
$1.67(8)
|
$1.27(8)
|
$1.15
|
|
(1) "Adjusted
cash flow" (see below)
|
(2) Includes
$19.6 million IOC dividend.
|
(3) Includes
$34.2 million IOC dividend.
|
(4) Includes
$15.4 million IOC dividend.
|
(5) Includes
$19.0 million IOC dividend.
|
(6) Includes
$74.4 million IOC dividend.
|
(7) Includes
$85.8 million IOC dividend.
|
(8) Includes
$48.5 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 $2.88 for
2022 (2021 - $6.29).
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.
|
2022
|
|
2021
|
|
|
(in thousands except
for per share information)
|
|
Cash flow from
operating activities
|
$184,191
|
|
$402,422
|
|
Changes in amounts
receivable, accounts payable and income taxes recoverable and
payable
|
13,559
|
|
(19,842)
|
|
Adjusted cash
flow
|
$197,750
|
|
$382,580
|
Adjusted cash flow per
share
|
$3.09
|
|
$5.98
|
|
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
President and 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, 2022.
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 President and 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,
2022.
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, 2022.
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; the performance of
IOC; market conditions in the steel industry; fluctuations in the
value of the Canadian and U.S. dollar; mining risks that cause a
disruption in operations and availability of insurance; disruption
in IOC's operations caused by natural disasters, severe weather
conditions and public health crises, including the COVID-19
outbreak; failure of information systems or damage from cyber
security attacks; adverse changes in domestic and global economic
and political conditions; changes in government regulation and
taxation; national, provincial and international laws, regulations
and policies regarding climate change that further limit the
emissions of greenhouse gases or increase the costs of operations
for IOC or its customers; changes affecting IOC's customers;
competition from other iron ore producers; renewal of mining
licenses and leases; relationships with indigenous groups;
litigation; and uncertainty in the estimates of reserves and
resources. A discussion of these factors is contained in LIORC's
annual information form dated March 7,
2023 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[1]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 http://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 7, 2023
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
|
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
December
31,
|
|
December
31,
|
(in thousands of
Canadian dollars)
|
2022
|
|
2021
|
|
|
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
|
Cash
|
$
39,904
|
|
$
82,913
|
|
Amounts
receivable
|
42,758
|
|
49,681
|
|
Income taxes
recoverable
|
357
|
|
-
|
Total Current
Assets
|
83,019
|
|
132,594
|
|
|
|
|
|
Non-Current
Assets
|
|
|
|
|
Iron Ore Company of
Canada ("IOC")
|
|
|
|
|
royalty
and commission interests
|
228,918
|
|
235,341
|
|
Investment in
IOC
|
513,828
|
|
421,376
|
Total Non-Current
Assets
|
742,746
|
|
656,717
|
|
|
|
|
|
Total Assets
|
$
825,765
|
|
$
789,311
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
9,286
|
|
$
10,786
|
|
Dividend
payable
|
44,800
|
|
73,600
|
|
Taxes
payable
|
-
|
|
18,625
|
Total Current
Liabilities
|
54,086
|
|
103,011
|
|
|
|
|
|
Non-Current
Liabilities
|
|
|
|
|
Deferred income
taxes
|
134,220
|
|
122,240
|
Total
Liabilities
|
188,306
|
|
225,251
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
Share
capital
|
317,708
|
|
317,708
|
|
Retained
earnings
|
324,821
|
|
257,772
|
|
Accumulated other
comprehensive loss
|
(5,070)
|
|
(11,420)
|
|
|
637,459
|
|
564,060
|
|
|
|
|
|
Total Liabilities and
Shareholders' Equity
|
$
825,765
|
|
$
789,311
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Approved by the
Directors,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Tuer
|
Patricia M.
Volker
|
|
|
Director
|
Director
|
|
|
LABRADOR IRON ORE ROYALTY
CORPORATION
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31,
|
(in thousands of
Canadian dollars except for per share information)
|
2022
|
|
2021
|
|
|
|
Revenue
|
|
|
|
|
IOC
royalties
|
$
230,709
|
|
$
277,809
|
|
IOC
commissions
|
1,613
|
|
1,657
|
|
Interest and other
income
|
539
|
|
259
|
|
|
232,861
|
|
279,725
|
Expenses
|
|
|
|
|
Newfoundland royalty
taxes
|
46,142
|
|
55,562
|
|
Amortization of royalty
and commission interests
|
6,423
|
|
6,170
|
|
Administrative
expenses
|
3,093
|
|
3,002
|
|
|
55,658
|
|
64,734
|
|
|
|
|
|
Income before equity earnings and income
taxes
|
177,203
|
|
214,991
|
Equity earnings in IOC
|
154,103
|
|
229,590
|
|
|
|
|
|
Income before income
taxes
|
331,306
|
|
444,581
|
|
|
|
|
|
Provision for income
taxes
|
|
|
|
|
Current
|
54,998
|
|
66,338
|
|
Deferred
|
10,859
|
|
(1,529)
|
|
|
65,857
|
|
64,809
|
|
|
|
|
|
Net income for the year
|
265,449
|
|
379,772
|
|
|
|
|
|
Other comprehensive
income
|
|
|
|
|
Share of other
comprehensive income of IOC that will not be
|
|
|
|
|
reclassified
subsequently to profit or loss (net of income taxes
|
|
|
|
|
of 2022 - $1,121; 2021
- $339)
|
6,350
|
|
1,920
|
|
|
|
|
|
Comprehensive income for the
year
|
$
271,799
|
|
$
381,692
|
|
|
|
|
|
Basic and diluted income per
share
|
$
4.15
|
|
$
5.93
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
Ended
|
|
|
|
|
December
31,
|
(in thousands of
Canadian dollars)
|
2022
|
|
2021
|
|
|
|
|
|
Net inflow (outflow)
of cash related
|
|
|
|
|
to the following
activities
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Net income for the
year
|
$
265,449
|
|
$ 379,772
|
|
Items not affecting
cash:
|
|
|
|
|
|
Equity earnings in
IOC
|
(154,103)
|
|
(229,590)
|
|
|
Current income
taxes
|
54,998
|
|
66,338
|
|
|
Deferred income
taxes
|
10,859
|
|
(1,529)
|
|
|
Amortization of royalty
and commission interests
|
6,423
|
|
6,170
|
|
Common share dividends
from IOC
|
69,122
|
|
227,757
|
|
Change in amounts
receivable
|
6,923
|
|
8,655
|
|
Change in accounts
payable
|
(1,500)
|
|
(1,747)
|
|
Income taxes
paid
|
(73,980)
|
|
(53,404)
|
|
Cash flow from
operating activities
|
184,191
|
|
402,422
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
Dividends paid to
shareholders
|
(227,200)
|
|
(425,600)
|
|
Cash flow used in
financing activities
|
(227,200)
|
|
(425,600)
|
|
|
|
|
|
|
|
Decrease in cash,
during the year
|
(43,009)
|
|
(23,178)
|
|
|
|
|
|
|
|
Cash, beginning of
year
|
82,913
|
|
106,091
|
|
|
|
|
|
|
|
Cash, end of
year
|
$
39,904
|
|
$
82,913
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
other
|
|
|
Common
|
Share
|
Retained
|
comprehensive
|
|
(in thousands of
Canadian dollars except share amounts)
|
shares
|
capital
|
earnings
|
loss
|
Total
|
|
|
|
|
|
|
|
|
Balance as at December
31, 2020
|
64,000,000
|
$
317,708
|
$
262,000
|
$
(13,340)
|
$
566,368
|
Net income for the
year
|
-
|
-
|
379,772
|
-
|
379,772
|
Dividends declared to
shareholders
|
-
|
-
|
(384,000)
|
-
|
(384,000)
|
Share of other
comprehensive income from investment in IOC (net of
taxes)
|
-
|
-
|
-
|
1,920
|
1,920
|
Balance as at December
31, 2021
|
64,000,000
|
$
317,708
|
$
257,772
|
$
(11,420)
|
$
564,060
|
|
|
|
|
|
|
Balance as at December
31, 2021
|
64,000,000
|
$
317,708
|
$
257,772
|
$
(11,420)
|
$
564,060
|
Net income for the
year
|
-
|
-
|
265,449
|
-
|
265,449
|
Dividends declared to
shareholders
|
-
|
-
|
(198,400)
|
-
|
(198,400)
|
Share of other
comprehensive income from investment in IOC (net of
taxes)
|
-
|
-
|
-
|
6,350
|
6,350
|
Balance as at December
31, 2022
|
64,000,000
|
$
317,708
|
$
324,821
|
$
(5,070)
|
$
637,459
|
The complete consolidated financial statements for the year ended
December 31, 2022, including the
notes thereto, are posted on sedar.com and
labradorironore.com.
SOURCE Labrador Iron Ore Royalty Corporation