TORONTO, March 11, 2022 /CNW/ - Labrador Iron Ore Royalty
Corporation ("LIORC") (TSX: LIF) announced the results of its
operations for the year ended December 31,
2021.
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, 2021.
84 Years in Labrador West
Labrador Iron Ore Royalty Corporation has been involved in
Labrador West for 84 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.
Financial Performance
In 2021, LIORC's financial results benefited from higher iron
ore prices and pellet premiums, partially offset by lower volumes
of concentrate for sale ("CFS") sales. Net income per share for the
year ended December 31, 2021 was
$5.93 per share, which was a 67%
increase over 2020. The adjusted cash flow per share for 2021 was
$5.98 per share, which was 94% higher
than in 2020 due to higher royalty revenues and increased dividends
from IOC. IOC dividends increased as a result of higher earnings at
IOC and a reversal of IOC's decision in 2020 to pay lower
shareholder dividends 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 2021, IOC paid dividends to its shareholders
of US$1,200 and had a year-end net
working capital balance of $16.9
million, compared to dividends of US$450 and a year-end net working capital balance
of $229.7 million in 2020.
LIORC's strong financial results are mainly due to the high iron
ore price environment in the first half of the year.
In 2021 global steel production rebounded as the global economy
recovered from the COVID-19 lock-downs of 2020. This resulted in
increased demand from China and
the rest of the world for seaborne iron ore. However, iron ore
prices were also volatile throughout the year. The Platts index for
65% Fe, CFR China (the "65% Fe index") which started the year
at US$181 per tonne on January 4, 2021, increased to a high of
US$264 per tonne on May 12, 2021. In the second half of the year iron
ore prices decreased rapidly as China, which accounts for over 70% of seaborne
iron ore demand, curbed steel production in order to reduce
emissions and lower input prices, including iron ore prices. As a
result, the 65% Fe index decreased to a low of US$102 per tonne on November 18, 2021, before recovering to end the
year at US$140 per tonne on
December 31, 2021.
IOC sells CFS based on the 65% Fe index. In 2021, the average
price for the 65% Fe index was US$185
per tonne, an increase of 52% year over year. The rebound in the
global economy during 2021 also increased the demand for pellets in
China and various markets across
Europe and North America. The monthly Atlantic Blast
Furnace 65% Fe pellet premium index as quoted by Platts (the
"pellet premium") averaged US$60 per
tonne in 2021, an increase of 108% from 2020.
Overall, the average price realized by IOC for CFS and pellets,
FOB Sept-Îles was approximately C$246
per tonne in 2021, an increase of 58% 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. Throughout 2021, most measures were maintained
or adjusted in accordance with public health agencies, including a
mandatory vaccination requirement for employees and contractors
accessing the Sept-Îles port facilities and the railway
operations.
Main actions taken by IOC included limiting the on-site presence
of personnel to essential operational activities (remote work for
administration and supports) and the reduction of contractors
on-site (favouring local rather than out-of-province when
possible). In parallel, several protocols were put in place
including, (i) strict approval processes for all travel between
sites and use of out-of-province contractors, (ii) mandatory
on-line health questionnaires linked to gate access, and (iii)
COVID-19 screening for all out-of-province contractors and
employees. Additionally, the use of masks, more strict hygiene
practices, additional janitorial resources and physical distancing
measures were maintained.
Total concentrate production in 2021 was 17.9 million tonnes.
This was 4% lower than 2020 due mainly to labour and equipment
availability issues during the year which impacted feed
availability. In particular, IOC experienced lower feed rates from
the mine at various times throughout the year, as there were issues
with higher cycle times, haul truck availability and the
availability of operators, in part due to COVID-19. There were also
certain reliability issues in the concentrator, including AG Mill
conveyor and feed chute issues and a service overrun of the annual
maintenance shutdown in September.
The IOC saleable production (CFS plus pellets) of 16.6 million
tonnes in 2021 was 6% lower than 2020, and below the lower end of
Rio Tinto's original guidance of 17.9 to 20.4 million tonnes. In
2021, CFS production of 6.6 million tonnes was 19% lower than the
same quarter last year, mainly due to lower concentrate production
referred to above, as well as the decision by IOC to produce fewer
pellets and more CFS in 2020. Pellet production in 2021 of 10.0
million tonnes was 4% higher than 2020 due to IOC's decision to
reduce the focus on the production of pellets in 2020.
Third party haulage by the Québec North Shore and Labrador
Railway Company, Inc. ("QNS&L") of 12.8 million tonnes in 2021
was 9% higher than in 2020, predominantly due to increased
shipments of iron ore from Champion Iron and Tata Steel.
Sales as Reported for the LIORC Royalty
Total iron ore
sales tonnage by IOC (CFS plus pellets) of 16.8 million tonnes in
2021 was 8% lower than the total sales tonnage in 2020 mainly as a
result of the lower production volumes referred to above. Sales
volumes in 2021 were also adversely affected by a fire at the
Sept-Îles port facility on Reclaimer No. 2 in March. While
force majeure was declared, mobile tele-stackers were used during
the year on a temporary basis to meet sales commitments as best as
possible. Pellet sales were favoured during the year when possible.
The Reclaimer No. 2 returned to service in December with the
tele-stackers remaining as backup.
Capital Expenditures
IOC has more recently anticipated
higher than historical levels of capital expenditures in order to
maintain and upgrade existing infrastructure. Capital expenditures
for IOC of $498 million in 2021 were
73% higher than in 2020 and 8% higher than IOC had forecasted for
2021, mainly because of the decision by IOC in 2020 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, and
because of the difficulty in getting contractors to site due to
COVID-19 restrictions and protocols. Capital expenditures in 2021
also included the repair of Reclaimer No. 2 that incurred fire
damage.
Outlook
Rio Tinto's 2022 guidance for IOC's saleable production tonnage
(CFS plus pellets) is 17.0 million to 18.7 million tonnes. This
compares to 16.6 million tonnes of saleable production in 2021.
Given current pellet premiums, it is expected that IOC will
continue to focus on maximizing pellet production in 2022.
Mike McCann was appointed as
IOC's new President and Chief Executive Officer, effective
September 20, 2021. Mike and his
management are committed to improving operations at IOC, which
includes improved capital asset management. The capital
expenditures for 2022 at IOC are forecasted by IOC to be
approximately $606 million. The 2022
forecast includes approximately $174
million of growth and development projects. Significant
development capital expenditure projects scheduled for 2022 include
the redesign of the tailings system to increase the life of use and
reduce electricity and water usage, and the replacement of the
dumper cages and refurbishment of the dumper auxiliary system at
Sept-Îles. 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.
In October 2021 Rio Tinto unveiled
a longer term decarbonisation strategy that set a new target for
its subsidiaries, including IOC, to reduce its Scope 1 and 2 carbon
emissions by 50% by 2030, more than tripling its previous target,
and is bringing forward its target of 15% reduction in emissions to
2025 (previously 2030). Reduction targets are calculated using 2018
as a baseline. Rio Tinto is also focused on developing technologies
such as hydrogen or plasma torches which can use renewable
energy to potentially replace fossil fuels for heat and steam. Four
plasma torches were ordered in 2021 for a trial at IOC's pellet
plant.
Despite the significant volatility in the iron ore market in the
second half of 2021, the price outlook for seaborne iron ore
remains attractive. Steel production in China is expected to increase from levels in
the second half of 2021, when government authorities in
China implemented production
constraints, as China's fiscal and
monetary policy stances shift to stabilizing economic growth in
2022. Iron ore prices have rebounded from the lows in November 2021 and thus far in 2022 (January and
February), the average price of the 65% Fe index has been
US$164, which is 12% lower than the
average of the 65% Fe index in 2021 and 34% higher than the average
in 2020. In addition, thus far in 2022 (January and February) the
average pellet premium has averaged US$67 compared to an average of US$60 in 2021 and an average of US$29 in 2020. More recently, the Russia-Ukraine conflict could adversely affect the
supply of seaborne iron ore pellets in 2022, as Ferrexpo, the
third-largest exporter of pellets, was forced to declare force
majeure on some contracts as Ukraine's logistics networks continue to
experience disruption.
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 11, 2022
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.
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 2021 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 23 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 2021 sales totaled 17.0 million tonnes, comprised of 10.0
million tonnes of iron ore pellets and 7.0 million tonnes of iron
ore concentrate. Production in 2021 was 10.0 million tonnes of
pellets and 6.6 million tonnes of CFS. IOC generated ore sales
revenues (excluding third party ore sales) of $3,922 million in 2021 (2020 - $2,915 million).
Selected IOC Financial Information
|
2021
|
2020
|
2019
|
2018
|
2017
|
($ in
millions)
|
Operating
Revenues(1)
|
4,147
|
3,099
|
2,719
|
1,930
|
2,315
|
Cash Flow from
Operating
Activities
|
1,955
|
837
|
1,302
|
578
|
923
|
Net Income
|
1,551
|
842
|
749
|
383
|
499
|
Capital Expenditures
(2)
|
498
|
288
|
294
|
205
|
265
|
|
|
(1)
|
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 2021,
the average royalty net of the 20% tax had been $123.8 million per year and in 2021 the net
royalty was $222.2 million (2020 -
$160.1 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 2021,
Hollinger-Hanna received a total of $1.7
million in commissions from IOC (2020 - $1.8 million).
Quarterly Dividends
Dividends of $6.00 per share were
declared in 2021 (2020 – dividends of $3.05 per share including special dividends of
$0.50). These dividends were
allocated as follows:
Period Ended
|
Record Date
|
Payment Date
|
Dividend Income per Share
|
Total Dividend
($
Million)
|
|
|
|
|
|
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
|
|
|
|
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
|
$195.2
|
The quarterly dividends are payable to all shareholders of
record on the last day of each calendar quarter and are paid on or
after the 26th day of the following month.
Management's Discussion and Analysis
The following is a discussion of the consolidated financial
condition and results of operations of the Corporation for the
years ended December 31, 2021 and
2020. This discussion should be read in conjunction with the
consolidated financial statements of the Corporation and notes
thereto for the years ended December 31,
2021 and 2020. This information is prepared in accordance
with International Financial Reporting Standards ("IFRS") as issued
by the International Accounting Standards Board ("IASB") and all
amounts are shown in Canadian dollars unless otherwise
indicated.
Overview of the Business
The Corporation is a Canadian corporation resulting from the
conversion of the Fund into a corporation under a plan of
arrangement completed on July 1,
2010. LIORC is also the successor by amalgamation of a
predecessor of LIORC with Labrador Mining Company Limited, formerly
a wholly-owned subsidiary of the Fund, that occurred pursuant to
the plan of arrangement.
The Corporation is dependent on the operations of IOC. IOC's
earnings and cash flows are affected by the volume and mix of iron
ore products produced and sold, costs of production and the prices
received. Iron ore demand and prices fluctuate and are affected by
numerous factors which include demand for steel and steel products,
the relative exchange rate of the US dollar, global and regional
demand and production, political and economic conditions and
production costs in major producing areas.
Financial Highlights
Financial and
Operating Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
|
|
December
31,
|
|
2021
|
2020
|
|
2021
|
2020
|
|
($ in
millions except per share information)
|
|
|
|
|
|
|
Revenue
|
60.1
|
54.4
|
|
279.7
|
202.3
|
Equity earnings from
IOC
|
45.9
|
37.8
|
|
229.6
|
126.0
|
Net
income
|
78.2
|
73.9
|
|
379.8
|
227.2
|
Net income per
share
|
$
|
1.22
|
$
|
1.16
|
|
$
|
5.93
|
$
|
3.55
|
Dividend(s) from
IOC
|
48.5
|
86.6
|
|
227.8
|
86.6
|
Cash flow from
operations
|
106.6
|
116.0
|
|
402.4
|
175.4
|
Cash flow from
operations per share(1)
|
$
|
1.67
|
$
|
1.81
|
|
$
|
6.29
|
$
|
2.74
|
Adjusted cash
flow(1)
|
81.6
|
116.4
|
|
382.6
|
198.0
|
Adjusted cash flow
per share(1)
|
$
|
1.27
|
$
|
1.82
|
|
$
|
5.98
|
$
|
3.09
|
Dividends declared
per share
|
$
|
1.15
|
$
|
1.80
|
|
$
|
6.00
|
$
|
3.05
|
|
|
(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 higher revenue, net income and equity earnings achieved in
2021 as compared to 2020 were mainly due to (i) higher iron ore
concentrate prices and pellet premiums as global steel production
rebounded as the global economy recovered from the COVID-19
lock-downs of 2020, (ii) partially offset by lower sales of CFS.
Sales were lower in 2021 than in 2020 mainly as a result of the
lower production volumes due to labour and equipment availability
issues during the year which impacted feed availability, as well as
a fire at the Sept-Îles port facility on Reclaimer No. 2 in
March.
Capital expenditures for IOC in 2021 were $498 million in total as compared to $288 million in 2020. At the beginning of 2021
IOC forecasted that capital expenditures for 2021 would be
approximately $460 million. Capital
expenditures in 2021 were higher than 2020, mainly because of the
decision by IOC in 2020 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, and because of the difficulty in
getting contractors to site due to COVID-19 restrictions and
protocols. Capital expenditures in 2021 also included the repair of
Reclaimer No. 2 that incurred fire damage.
Fourth quarter 2021 sales (pellets and CFS) were higher
year-over-year by 2% despite lower saleable production due to
timing differences in the sales process. Royalty income was
$59.5 million for the quarter as
compared to $53.9 million for the
same period in 2020. Fourth quarter 2021 cash flow from operations
was $106.6 million or $1.67 per share compared to 2020 of $116.0 million or $1.81 per share. LIORC received an IOC dividend
in the fourth quarter of 2021 in the amount of $48.5 million or $0.76 per share (2020 - $86.6 million or $1.35 per share). Equity earnings from IOC
amounted to $45.9 million or
$0.72 per share in the fourth quarter
of 2021 compared to $37.8 million or
$0.59 per share for the same period
in 2020.
Operating Highlights
|
|
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
|
|
December
31,
|
IOC
Operations
|
2021
|
2020
|
|
2021
|
2020
|
|
(in millions
of tonnes)
|
Sales(1)
|
|
|
|
|
|
Pellets
|
2.89
|
2.56
|
|
9.97
|
10.17
|
Concentrate for sale
("CFS")(2)
|
1.55
|
1.81
|
|
6.87
|
8.16
|
Total(3)
|
4.44
|
4.37
|
|
16.84
|
18.33
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
Concentrate
produced
|
4.77
|
4.88
|
|
17.89
|
18.66
|
|
|
|
|
|
|
Saleable
production
|
|
|
|
|
|
Pellets
|
2.54
|
2.46
|
|
9.99
|
9.58
|
CFS
|
1.72
|
2.21
|
|
6.58
|
8.14
|
Total(3)
|
4.25
|
4.67
|
|
16.57
|
17.72
|
|
|
|
|
|
|
Average index prices
per tonne (US$)
|
|
|
|
|
|
65% Fe
index(4)
|
$
|
129
|
$
|
146
|
|
$
|
185
|
$
|
122
|
62% Fe
index(5)
|
$
|
110
|
$
|
134
|
|
$
|
159
|
$
|
109
|
Pellet
premium(6)
|
$
|
56
|
$
|
28
|
|
$
|
60
|
$
|
29
|
|
|
(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 52% to US$185 per tonne in 2021 compared to the average
price in 2020 of US$122 per tonne. In
2021 global steel production rebounded as the global economy
recovered from the Covid-19 lock-downs of 2020. This resulted in
increased demand from China and
the rest of the world for seaborne iron ore. IOC also benefited
from the fact that the premium for the 65% Fe index compared to the
62% Fe index, increased to US$26 per
tonne in 2021 as compared to US$13
per tonne in 2020. The 62% Fe index averaged US$159 per tonne in 2021 compared to US$109 per tonne in 2020. The rebound in the
global economy during 2021 also increased the demand for pellets in
China and various markets across
Europe and North America. The pellet premium averaged
US$60 per tonne in 2021, an increase
of 108% from 2020.
The average price realized by IOC for CFS and pellets, FOB
Sept-Îles, was approximately C$246
per tonne in 2021 compared to C$155
per tonne in 2020. The increase in the average realized price FOB
Sept-Îles in 2021 was a result of higher CFS prices, and higher
pellet premiums.
Liquidity and Capital Resources
The Corporation had $82.9 million
(2020 - $106.1 million) in cash as at
December 31, 2021 with total current
assets of $132.6 million (2020 -
$164.4 million). The Corporation had
working capital of $29.7 million
(2020 - $31.0 million). The
Corporation's operating cash flow was $402.4
million (2020 - $175.4
million) and dividends paid during the year were
$425.6 million, resulting in cash
balances decreasing by $23.2 million
during 2021.
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, 2024 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, 2021, 2020 and 2019.
|
Years Ended December
31
|
Description
|
2021
|
2020
|
2019
|
|
|
|
|
|
(in millions
except per share information)
|
|
|
Revenue
|
$
|
279.7
|
$
|
202.3
|
$
|
178.3
|
|
|
|
|
|
|
|
Net Income
|
$
|
379.8
|
$
|
227.2
|
$
|
205.3
|
|
|
|
|
|
|
|
Net Income per
Share
|
$
|
5.93
|
$
|
3.55
|
$
|
3.21
|
|
|
|
|
|
|
|
Cash Flow from
Operations
|
$
|
402.4(1)
|
$
|
175.4(2)
|
$
|
224.6(3)
|
|
|
|
|
|
|
|
Cash Flow from
Operations per Share
|
$
|
6.29(1)
|
$
|
2.74(2)
|
$
|
3.51(3)
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
789.3
|
$
|
823.2
|
$
|
743.0
|
|
|
|
|
|
|
|
Dividends Declared
per Share
|
$
|
6.00
|
$
|
3.05
|
$
|
4.00
|
|
|
|
|
|
|
|
Number of Common
Shares outstanding
|
|
64.0
|
|
64.0
|
64.0
|
|
|
|
(1)
|
Includes IOC
dividends totaling $227.8 million or 3.56 per Share.
|
|
|
(2)
|
Includes IOC
dividends totaling $86.6 million or 1.35 per Share.
|
|
|
(3)
|
Includes IOC
dividends totaling $110.1 million or $1.72 per Share.
|
The following table sets out quarterly revenue, net income, cash
flow and dividend data for 2021 and 2020. 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)
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
$
|
65.7
|
$
|
86.6
|
$
|
1.35
|
$
|
42.7(2)
|
$
|
0.67(2)
|
$
|
0.87(2)
|
$
|
1.00
|
|
|
|
|
|
|
|
|
Second
Quarter
|
$
|
79.2
|
$
|
110.2
|
$
|
1.72
|
$
|
115.9(3)
|
$
|
1.81(3)
|
$
|
1.85(3)
|
$
|
1.75
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$
|
74.7
|
$
|
104.8
|
$
|
1.64
|
$
|
137.3(4)
|
$
|
2.15(4)
|
$
|
1.99(4)
|
$
|
2.10
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$
|
60.1
|
$
|
78.2
|
$
|
1.22
|
$
|
106.6(5)
|
$
|
1.67(5)
|
$
|
1.27(5)
|
$
|
1.15
|
|
|
|
|
|
|
|
|
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
|
$
|
04.5
|
|
|
|
|
|
|
|
|
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(6)
|
$
|
1.81(6)
|
$
|
1.82(6)
|
$
|
1.80
|
|
|
(1)
|
"Adjusted cash
flow" (see below)
|
(2)
|
Includes $19.0
million IOC dividend.
|
(3)
|
Includes $74.4
million IOC dividend.
|
(4)
|
Includes $85.8
million IOC dividend.
|
(5)
|
Includes $48.5
million IOC dividend.
|
(6)
|
Includes $86.6
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 $6.29 for
2021 (2020 - $2.74).
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).
|
2021
|
|
2020
|
Standardized cash
flow from operating activities
|
$
|
402,422
|
|
$
|
175,432
|
Changes in amounts
receivable, accounts and interest
payable and income taxes recoverable and payable
|
(19,842)
|
|
22,605
|
Adjusted cash
flow
|
$
|
382,580
|
|
$
|
198,037
|
Adjusted cash flow
per share
|
$
|
5.98
|
|
$
|
3.09
|
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, 2021.
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, 2021.
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, 2021.
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
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 licences 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 11, 2022 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 11, 2022
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
As
at
|
|
|
December
31,
|
(in thousands of
Canadian dollars)
|
2021
|
|
2020
|
|
|
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
|
Cash and short-term
investments
|
$
|
82,913
|
|
$
|
106,091
|
|
Amounts
receivable
|
49,681
|
|
58,336
|
Total Current
Assets
|
132,594
|
|
164,427
|
|
|
|
|
|
Non-Current
Assets
|
|
|
|
|
Iron Ore Company of
Canada ("IOC")
|
|
|
|
|
royalty and commission
interests
|
235,341
|
|
241,511
|
|
Investment in
IOC
|
421,376
|
|
417,284
|
Total Non-Current
Assets
|
656,717
|
|
658,795
|
|
|
|
|
|
Total
Assets
|
$
|
789,311
|
|
$
|
823,222
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts
payable
|
$
|
10,786
|
|
$
|
12,533
|
|
Dividend
payable
|
73,600
|
|
115,200
|
|
Taxes
payable
|
18,625
|
|
5,691
|
Total Current
Liabilities
|
103,011
|
|
133,424
|
|
|
|
|
|
Non-Current
Liabilities
|
|
|
|
|
Deferred income
taxes
|
122,240
|
|
123,430
|
Total
Liabilities
|
225,251
|
|
256,854
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
Share
capital
|
317,708
|
|
317,708
|
|
Retained
earnings
|
257,772
|
|
262,000
|
|
Accumulated other
comprehensive loss
|
(11,420)
|
|
(13,340)
|
|
|
564,060
|
|
566,368
|
|
|
|
|
|
Total Liabilities and
Shareholders' Equity
|
$
|
789,311
|
|
$
|
823,222
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
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)
|
2021
|
|
2020
|
|
|
|
Revenue
|
|
|
|
|
IOC
royalties
|
$
|
277,809
|
|
$
|
200,125
|
|
IOC
commissions
|
1,657
|
|
1,804
|
|
Interest and other
income
|
259
|
|
365
|
|
|
279,725
|
|
202,294
|
Expenses
|
|
|
|
|
Newfoundland royalty
taxes
|
55,562
|
|
40,025
|
|
Amortization of
royalty and commission interests
|
6,170
|
|
6,190
|
|
Administrative
expenses
|
3,002
|
|
3,126
|
|
|
64,734
|
|
49,341
|
|
|
|
|
|
Income before
equity earnings and income taxes
|
214,991
|
|
152,953
|
Equity earnings in
IOC
|
229,590
|
|
126,024
|
|
|
|
|
|
Income before
income taxes
|
444,581
|
|
278,977
|
|
|
|
|
|
Provision for
income taxes
|
|
|
|
|
Current
|
66,338
|
|
47,669
|
|
Deferred
|
(1,529)
|
|
4,113
|
|
|
64,809
|
|
51,782
|
|
|
|
|
|
Net income for the
year
|
379,772
|
|
227,195
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
Share of other
comprehensive income (loss) of IOC that will not
be
|
|
|
|
reclassified
subsequently to profit or loss (net of income taxes
(recovery)
|
|
|
|
of 2021 - $339; 2020
- ($523))
|
1,920
|
|
(2,964)
|
|
|
|
|
|
Comprehensive
income for the year
|
$
|
381,692
|
|
$
|
224,231
|
|
|
|
|
|
Net income per
share
|
$
|
5.93
|
|
$
|
3.55
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
Ended
|
|
|
|
|
December
31,
|
(in thousands of
Canadian dollars)
|
2021
|
|
2020
|
|
|
|
|
|
Net inflow
(outflow) of cash related
|
|
|
|
to the following
activities
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
Net income for the
year
|
$
|
379,772
|
|
$
|
227,195
|
Items not affecting
cash:
|
|
|
|
Equity earnings in
IOC
|
(229,590)
|
|
(126,024)
|
Current income
taxes
|
66,338
|
|
47,669
|
Deferred income
taxes
|
(1,529)
|
|
4,113
|
Amortization of
royalty and commission interests
|
6,170
|
|
6,190
|
Common share dividend
from IOC
|
227,757
|
|
86,563
|
Change in amounts
receivable
|
8,655
|
|
(22,180)
|
Change in accounts
payable
|
(1,747)
|
|
4,594
|
Income taxes
paid
|
(53,404)
|
|
(52,688)
|
Cash flow from
operating activities
|
402,422
|
|
175,432
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
Dividend paid to
shareholders
|
(425,600)
|
|
(147,200)
|
Cash flow used in
financing activities
|
(425,600)
|
|
(147,200)
|
|
|
|
|
|
|
|
(Decrease)
increase in cash, during the year
|
(23,178)
|
|
28,232
|
|
|
|
|
|
|
|
Cash, beginning of
year
|
106,091
|
|
77,859
|
|
|
|
|
|
|
|
Cash, end of
year
|
$
|
82,913
|
|
$
|
106,091
|
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, 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
|
|
|
|
|
|
Balance as at
December 31, 2020
|
$
|
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
|
$
|
317,708
|
$
|
257,772
|
$
|
(11,420)
|
$
|
564,060
|
The complete consolidated financial statements for the year
ended December 31, 2021, including
the notes thereto, are posted on sedar.com and
labradorironore.com.
SOURCE Labrador Iron Ore Royalty Corporation