TORONTO, March 12,
2024 /CNW/ - Labrador Iron Ore Royalty Corporation
(TSX: LIF) announced the results of its operations for the year
ended December 31, 2023.
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, 2023.
86 Years in Labrador West
Labrador Iron Ore Royalty Corporation has been involved in
Labrador West for 86 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 2023, LIORC's financial results were negatively impacted by
lower iron ore prices and lower pellet premiums, as well as a less
advantageous product mix (lower volumes of pellet sales and higher
volumes of concentrate for sale ("CFS") sales). Net income per
share for the year ended December 31,
2023 was $2.91 per share,
which was a 30% decrease over 2022. The cash flow from operations
per share for 2023 was $2.38 per
share, which was 17% lower than in 2022 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 2023, IOC paid dividends to its
shareholders totalling US$250 million
and had a year-end net working capital balance of US$345.8 million, compared to dividends of
US$345 million and a year-end net
working capital balance of US$274.7
million in 2022.
In December 2023 steel production
in China, which had seen 1.5%
growth year-to-date, dropped 15% relative to December 2022. As a result, global steel
production ended the year flat relative to 2022, and 5% lower than
2021, when the market experienced record prices for iron ore. On
the supply side, three producers, Rio Tinto, BHP and Vale, account
for over half the world's volume of seaborne iron ore. The
combined production of iron ore in calendar 2023 by these producers
was 907 million tonnes, an increase of 2.4% over calendar 2022.
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 2023, the average price
for the 65% Fe index was US$132 per
tonne, a decrease of 5% year over year. The 65% Fe
index continued to be quite volatile throughout the year,
starting the year at US$131 per tonne
and trading as low as US$110 per
tonne in May, before ending the year at US$151 per tonne.
In addition to the reduction in iron ore prices, pellet premiums
dropped as steel producers, faced with tightening profit margins,
substituted high quality pellets with cheaper, lower quality iron
feed.
The monthly Atlantic Blast Furnace 65% Fe pellet premium index
as quoted by Platts (the "pellet premium") averaged US$45 per tonne in 2023, a decrease of 38% from
2022.
Rio Tinto disclosed that IOC achieved an average realised price
for pellets, FOB Sept-Îles of approximately US$155 per tonne, a decrease of 18% 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$130 per tonne in
2023, a decrease of 15% year over year. The decrease in the average
realized price FOB Sept-Îles in 2023 was a result of lower CFS and
pellet prices.
Iron Ore Company of Canada Operations
Operations
Total concentrate production in 2023 was 17.7 million tonnes.
This was 7% lower than 2022. While concentrate production was 5%
higher in the fourth quarter of 2023 compared to the fourth quarter
of 2022, this was not enough to offset the lower concentrate
production in the third quarter due to unexpected equipment
failures with the thickener rake drive and the overland delivery
system conveyor belt and the lower concentrate production in the
second quarter due to the impact of the forest fires.
The IOC saleable production (CFS plus pellets) of 16.5 million
tonnes in 2023 was 6% lower than 2022 and was 8% lower than the low
end of the range of Rio Tinto's original annual guidance of 17.9 to
19.6 million tonnes, due to extended plant downtime in the second
and third quarters as a result of the equipment failures and forest
fires referred to above. Saleable production in the fourth quarter
of 4.6 million tonnes was 7% higher than the fourth quarter of
2022. In 2023, CFS production of 8.2 million tonnes was 3%
higher than 2022, mainly due to less concentrate being diverted to
make pellets. Pellet production in 2023 of 8.3 million tonnes was
14% lower than 2022, partly as a result of lack of feed, as well as
an increase in the duration of the induration machine 3
rebuild.
Despite the forest fires that limited rail service in the second
quarter of 2023, third party iron ore haulage by the Québec North
Shore and Labrador Railway Company, Inc. ("QNS&L") of 17.7
million tonnes in 2023 was 21% higher than in 2022 and 38% higher
than in 2021, predominantly due to increased shipments of iron ore
from Champion Iron Limited.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 16.3
million tonnes in 2023 was 1% lower than the total sales tonnage in
2022, predominantly due to inventory availability in both 2023 and
2022.
Capital Expenditures
Capital expenditures for IOC were US$362
million in 2023, or 2% lower than 2022. Capital
expenditures in 2023 were 11% lower than the US$407 million that IOC had originally
forecasted, mainly due to the decision by IOC to defer certain
capital projects, including the rebuild of shovel 101 at the mine
and culvert replacements along the QNS&L line, and delays in
the development of the mine wireless network, the execution of the
Mill 11 fine circuit redesign project to increase recovery yield,
and the replacement of existing heavy fuel oil steam capacity with
an electric boiler to reduce carbon emissions.
Outlook
Rio Tinto's 2024 guidance for IOC's saleable production tonnage
(CFS plus pellets) is 16.7 million to 19.6 million tonnes. This
compares to 16.5 million tonnes of saleable production in 2023.
Despite ongoing lower pellet premiums, it is expected that IOC
will continue to focus on maximizing pellet production in 2023.
The capital expenditures for 2024 at IOC are forecasted by IOC
to be approximately US$431 million.
The 2024 forecast includes approximately US$80 million of growth and development
projects. Significant development capital expenditure
projects include the redesign of Mill 11 Fine Circuit and the
replacement of existing heavy fuel oil steam capacity with an
electric boiler, which projects were previously scheduled for 2023
but delayed. Significant sustaining capital expenditure projects
include the track replacement program at QNS&L to ensure the
safe and efficient operation of the increased rail traffic.
In September, IOC announced a major donation of $4 million over two years to the Cégep de
Sept-Îles in Quebec, Canada for
the construction of its new pavilion for training, research and
innovation in the railway, industrial maintenance and energy
intelligence industries. The new partnership will strengthen
Sept-Îles' position as a centre of excellence for specialised
training in railway operations and provide local Indigenous
communities with additional training and employment
opportunities.
IOC's operator, Rio Tinto, continues to be committed to reaching
net zero emissions by 2050 and is targeting a 15% reduction in
Scope 1 & 2 emissions by 2025 and a 50% reduction by 2030
(1) (from a 2018 equity baseline). Approximately 70% of
IOC's current total greenhouse gas ("GHG") emissions come from
pelletizing. In 2023, IOC began its pilot project to test the use
of four new plasma torches in the pellet plant, which could
potentially replace the use of bunker 'C' fuel oil in the
induration process. More immediately, IOC has initiated a project
(expected to be completed in the first half of 2025) to install an
electric boiler to displace emissions from the usage of the heavy
fuel oil boilers, as well as instrumentation and fuel-efficient
burners to further reduce heavy fuel oil consumption in the
induration process. Through the Low Carbon Economy Fund, the
Government of Canada has awarded
$18.1 million (or approximately 25%
of the expected total cost of the project) to IOC to support the
project, which is expected to eliminate approximately 9% of IOC's
GHG emissions, or a cumulative reduction of about 2.2 million
tonnes of GHG emissions over the lifetime of the project.
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. Steel production currently
accounts for approximately 9% of GHG emissions. Strategies to
reduce steel production GHG emissions include optimizing the use of
traditional blast furnaces through the use of higher-grade iron ore
(such as that produced by IOC), and more importantly processing
high-grade direct reduction iron ore pellets (such as those
produced by IOC) for use as direct feed in electric arc furnaces.
In regard to this second process, Rio Tinto has stated that
it is studying the feasibility of building a hydrogen-based hot
briquetted iron plant at IOC. The proposed plant would have
access to high-grade Direct Reduction pellets from IOC, and
renewable electricity, with the prospect of producing green
hydrogen.
Despite ongoing concerns regarding the global economy and the
property sector in China in
particular, the outlook for steel demand and for iron ore prices
remains quite robust. Currently, the World Steel Association is
forecasting a 1.9% increase in global steel production for 2024.
Thus far in 2024 (January and February), the average price of the
65% Fe index has been US$142 per
tonne, up from an average of US$132
per tonne in 2023. However, the demand for pellets has remained
weaker and thus far in 2024 (January and February) the average
pellet premium has averaged US$40 per
tonne compared to an annual average of US$45 per tonne in 2023 and 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 support and my fellow Directors for their
guidance.
(1) Source: Rio
Tinto Climate Change Report 2023.
|
Respectfully submitted on behalf of the Directors of the
Corporation,
John F. Tuer
President and Chief Executive Officer
March 12, 2024
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 on all iron ore product produced,
sold and shipped by IOC and a 10 cent
per tonne commission on all iron ore products produced and sold 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 and Governance and Human Resources 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 2023 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 21 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 2023 sales tonnages totaled 16.3 million tonnes, comprised
of 8.4 million tonnes of iron ore pellets and 7.9 million tonnes of
iron ore concentrate. Saleable production in 2023 was
8.3 million tonnes of pellets and 8.2 million tonnes of CFS. IOC
generated ore sales revenues (excluding third party ore sales) of
$2,830 million in 2023 (2022 -
$3,184 million).
Selected IOC Financial Information
|
2023
|
2022
|
2021
|
2020
|
2019
|
($ in
millions)
|
Operating
Revenues(1)
|
3,122
|
3,426
|
4,147
|
3,099
|
2,719
|
|
Cash Flow from
Operating Activities
|
788
|
1,021
|
1,955
|
837
|
1,302
|
|
Net Income
|
568
|
1,028
|
1,551
|
842
|
749
|
|
Capital Expenditures
(2)
|
494
|
460
|
498
|
288
|
294
|
|
(1)
|
2023, 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 2023,
the average royalty net of the 20% tax had been $162.1 million per year and in 2023 the net
royalty was $158.8 million (2022 -
$184.6 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 2023,
Hollinger-Hanna received a total of $1.6
million in commissions from IOC (2022 - $1.6 million).
Quarterly Dividends
Dividends of $2.55 per share were
declared in 2023 (2022 – dividends of $3.10 per share). These dividends were allocated
as follows:
Period
|
Record
|
Payment
|
Dividend
Income
|
Total
Dividend
|
Ended
|
Date
|
Date
|
per
Share
|
($
Million)
|
|
|
|
|
|
Mar. 31,
2023
|
Mar. 31,
2023
|
Apr. 26,
2023
|
$0.50
|
$32.0
|
Jun. 30,
2023
|
Jun. 30,
2023
|
Jul. 26,
2023
|
0.65
|
41.6
|
Sep. 30,
2023
|
Sep. 29,
2023
|
Oct. 26,
2023
|
0.95
|
60.8
|
Dec. 31,
2023
|
Dec. 29,
2023
|
Jan. 26,
2024
|
0.45
|
28.8
|
|
|
|
|
|
Dividend to
Shareholders – 2023
|
$2.55
|
$163.2
|
|
|
|
|
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
|
The 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.
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, 2023 and
2022. This discussion should be read in conjunction with the
consolidated financial statements of the Corporation and notes
thereto for the years ended December 31,
2023 and 2022 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
|
|
Twelve Months
Ended
|
|
December
31,
|
|
December
31,
|
|
2023
|
2022
|
|
2023
|
2022
|
|
(in millions
except per share information)
|
|
|
|
|
|
|
Revenue
|
$ 54.9
|
$ 48.3
|
|
$ 201.3
|
$ 232.9
|
Equity earnings from
IOC
|
$ 26.2
|
$ 19.7
|
|
$ 84.7
|
$ 154.1
|
Net
income
|
$ 51.4
|
$ 44.6
|
|
$ 186.3
|
$ 265.4
|
Net income per
share
|
$ 0.80
|
$ 0.70
|
|
$ 2.91
|
$ 4.15
|
Dividend from
IOC
|
-
|
$ 15.4
|
|
$ 50.4
|
$ 69.1
|
Cash flow from
operations
|
$ 26.4
|
$ 60.5
|
|
$ 152.5
|
$ 184.2
|
Cash flow from
operations per share(1)
|
$ 0.41
|
$ 0.95
|
|
$ 2.38
|
$ 2.88
|
Adjusted cash
flow(1)
|
$ 30.2
|
$ 41.9
|
|
$ 161.5
|
$ 197.8
|
Adjusted cash flow per
share(1)
|
$ 0.47
|
$ 0.65
|
|
$ 2.52
|
$ 3.09
|
Dividends declared per
share
|
$ 0.45
|
$ 0.70
|
|
$ 2.55
|
$ 3.10
|
(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
2023 as compared to 2022 were mainly due to lower iron ore prices
and lower pellet premiums, as well as a less advantageous product
mix (lower volumes of pellet sales and higher volumes of CFS
sales). Iron ore prices and pellet premiums were lower as a
result of flat demand for steel and low margins causing steel
producers to favour cheaper, low quality iron ore over high quality
iron ore products. Total sales tonnage (pellets and CFS) at IOC
were 1% lower in 2023 than 2022, predominantly due to operational
issues (thickener, overland conveyor, rebuild of induration machine
#3, and forest fires, as referenced above) leading to inventory
availability issues.
Fourth quarter 2023 sales tonnage (pellets and CFS) was higher
year-over-year by 9% due to higher saleable production and improved
inventory availability. Royalty revenue was $54.1 million for the quarter as compared to
$47.6 million for the same period in
2022. Fourth quarter 2023 cash flow from operations was
$26.4 million or $0.41 per share compared to fourth quarter 2022
cash flow from operations of $60.5
million or $0.95 per share.
LIORC received no IOC dividend in the fourth quarter of 2023 (2022
- $15.4 million or $0.24 per share). Equity earnings from IOC
amounted to $26.2 million or
$0.41 per share in the fourth quarter
of 2023 compared to $19.7 million or
$0.31 per share for the same period
in 2022.
Operating Highlights
IOC
Operations
|
2023
|
2022
|
|
2023
|
2022
|
|
(in millions
of tonnes)
|
Sales(1)
|
|
|
|
|
|
Pellets
|
2.29
|
1.94
|
|
8.37
|
9.17
|
Concentrate for sale
("CFS")(2)
|
2.04
|
2.02
|
|
7.92
|
7.21
|
Total(3)
|
4.33
|
3.96
|
|
16.29
|
16.38
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
Concentrate
produced
|
5.01
|
4.76
|
|
17.73
|
19.09
|
|
|
|
|
|
|
Saleable
production
|
|
|
|
|
|
Pellets
|
2.39
|
2.29
|
|
8.31
|
9.61
|
CFS
|
2.21
|
2.02
|
|
8.17
|
7.95
|
Total(3)
|
4.60
|
4.31
|
|
16.48
|
17.56
|
|
|
|
|
|
|
Average index prices
per tonne (US$)
|
|
|
|
|
|
65% Fe
index(4)
|
$ 139
|
$ 111
|
|
$ 132
|
$ 139
|
62% Fe
index(5)
|
$ 128
|
$ 99
|
|
$ 120
|
$ 120
|
Pellet
premium(6)
|
$ 37
|
$ 61
|
|
$ 45
|
$ 72
|
(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 2023 of 17.7 million
tonnes, was 7% lower than 2022. While concentrate production was 5%
higher in the fourth quarter of 2023 compared to the fourth quarter
of 2022, this was not enough to offset the lower concentrate
production in the third quarter due to unexpected equipment
failures with the thickener rake drive and the overland delivery
system conveyor belt and the lower concentrate production in the
second quarter due to the impact of the forest fires. IOC's
total saleable production (CFS plus pellets) of 16.5 million tonnes
in 2023 was 6% lower than 2022, due to extended plant downtime in
the second and third quarters as a result of the equipment failures
and forest fires referred to above. In 2023, CFS production of 8.2
million tonnes was 3% higher than 2022, mainly due to less
concentrate being diverted to make pellets. Pellet production in
2023 of 8.3 million tonnes was 14% lower than 2022, partly as a
result of lack of feed, as well as an increase in the duration of
the induration machine 3 rebuild.
IOC sells CFS based on the 65% Fe index. In 2023, the average
price for the 65% Fe index was US$132
per tonne, a decrease of 5% year over year, mainly due to an
increase in iron ore supply not being met by an increase in global
steel production. In addition to the reduction in iron ore prices,
pellet premiums dropped as steel producers, faced with tightening
profit margins, substituted high quality pellets with cheaper,
lower quality iron feed. The monthly pellet premium averaged
US$45 per tonne in 2023, a decrease
of 38% from 2022. 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$130
per tonne in 2023, a decrease of 15% year over year. The decrease
in the average realized price FOB Sept-Îles in 2023 was a result of
lower CFS and pellet prices.
Capital expenditures for IOC were US$362
million in 2023, or 2% lower than 2022. Capital
expenditures in 2023 were 11% lower than the US$407 million that IOC had originally
forecasted, mainly due to the decision by IOC to defer certain
capital projects, including the rebuild of shovel 101 at the mine,
and culvert replacements along the QNS&L line, and delays in
the development of the mine wireless network, the execution of the
Mill 11 fine circuit redesign project to increase recovery yield,
and the replacement of existing heavy fuel oil steam capacity with
an electric boiler to reduce carbon emissions.
Liquidity and Capital Resources
The Corporation had $13.2 million
(2022 - $39.9 million) in cash as at
December 31, 2023 with total current
assets of $67.5 million (2022 -
$83.0 million). The Corporation had
working capital of $27.2 million
(2022 - $29.0 million). The
Corporation's operating cash flow was $152.5
million (2022 - $184.2
million) and dividends paid during the year were
$179.2 million, resulting in cash
balances decreasing by $26.7 million
during 2023.
Cash balances consist of deposits in Canadian dollars and US
dollars with a Canadian chartered bank. 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 18, 2026 with provision for annual
one-year extensions. No amount is currently drawn under this
facility (2022—nil) 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, 2023, 2022 and 2021.
|
Years Ended December
31
|
Description
|
2023
|
2022
|
2021
|
|
(in millions except
per share information)
|
Revenue
|
$201.3
|
$232.9
|
$279.7
|
Net Income
|
$186.3
|
$265.4
|
$379.8
|
Net Income per
Share
|
$2.91
|
$4.15
|
$5.93
|
Cash Flow from
Operations
|
$152.5(1)
|
$184.2(2)
|
$402.4(3)
|
Cash Flow from
Operations per Share
|
$2.38(1)
|
$2.88(2)
|
$6.29(3)
|
Total Assets
|
$837.0
|
$825.8
|
$789.3
|
Dividends Declared per
Share
|
$2.55
|
$3.10
|
$6.00
|
Number of Common Shares
outstanding
|
64.0
|
64.0
|
64.0
|
(1)
Includes IOC dividends totaling $50.4 million or $0.79 per
Share.
|
(2) Includes IOC dividends totaling $69.1
million or $1.08 per Share.
|
(3) Includes IOC dividends totaling
$227.8 million or $3.56 per Share.
|
The following table sets out quarterly revenue, net income, cash
flow and dividend data for 2023 and 2022. 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)
|
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
$47.2
|
$43.6
|
$0.68
|
$19.5
|
$0.30
|
$0.41
|
$0.50
|
Second
Quarter
|
$51.5
|
$41.9
|
$0.65
|
$40.9(2)
|
$0.64(2)
|
$0.75(2)
|
$0.65
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$47.7
|
$49.4
|
$0.77
|
$65.7(3)
|
$1.03(3)
|
$0.89(3)
|
$0.95
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$54.9
|
$51.4
|
$0.80
|
$26.4
|
$0.41
|
$0.47
|
$0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(4)
|
$0.64(4)
|
$0.88(4)
|
$0.90
|
|
|
|
|
|
|
|
|
Third
Quarter
|
$64.1
|
$79.2
|
$1.24
|
$78.5(5)
|
$1.23(5)
|
$1.09(5)
|
$1.00
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
$48.3
|
$44.6
|
$0.70
|
$60.5(6)
|
$0.95(6)
|
$0.65(6)
|
$0.70
|
(1)
|
"Adjusted cash flow"
(see below).
|
(2)
|
Includes $19.9
million IOC dividend.
|
(3)
|
Includes $30.5
million IOC dividend.
|
(4)
|
Includes $19.6
million IOC dividend.
|
(5)
|
Includes $34.2
million IOC dividend.
|
(6)
|
Includes $15.4
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 $2.38 for
2023 (2022 - $2.88).
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.
|
2023
|
|
2022
|
|
|
(in million except
for per share information)
|
|
Cash flow from
operating activities
|
$152.5
|
|
$184.2
|
|
Changes in amounts
receivable, accounts payable and income taxes
recoverable
|
9.0
|
|
13.6
|
|
Adjusted cash
flow
|
$161.5
|
|
$197.8
|
Adjusted cash flow per
share
|
$2.52
|
|
$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 related to the disclosure of
quarterly and annual financial statements and the declaration of
dividends. 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, 2023.
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,
2023.
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, 2023.
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 12,
2024 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.sedarplus.ca.
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
|
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
December
31,
|
(in thousands of
Canadian dollars)
|
2023
|
|
2022
|
|
|
(Audited)
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
|
Cash
|
$
13,192
|
|
$
39,904
|
|
Amounts
receivable
|
53,872
|
|
42,758
|
|
Income taxes
recoverable
|
465
|
|
357
|
Total Current
Assets
|
67,529
|
|
83,019
|
|
|
|
|
|
Non-Current
Assets
|
|
|
|
|
Iron Ore Company of
Canada ("IOC")
|
|
|
|
|
royalty
and commission interests
|
222,901
|
|
228,918
|
|
Investment in
IOC
|
546,614
|
|
513,828
|
Total Non-Current
Assets
|
769,515
|
|
742,746
|
|
|
|
|
|
Total Assets
|
$
837,044
|
|
$
825,765
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
11,542
|
|
$
9,286
|
|
Dividend
payable
|
28,800
|
|
44,800
|
Total Current
Liabilities
|
40,342
|
|
54,086
|
|
|
|
|
|
Non-Current
Liabilities
|
|
|
|
|
Deferred income
taxes
|
137,370
|
|
134,220
|
Total
Liabilities
|
177,712
|
|
188,306
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
Share
capital
|
317,708
|
|
317,708
|
|
Retained
earnings
|
347,927
|
|
324,821
|
|
Accumulated other
comprehensive loss
|
(6,303)
|
|
(5,070)
|
|
|
659,332
|
|
637,459
|
|
|
|
|
|
Total Liabilities and
Shareholders' Equity
|
$
837,044
|
|
$
825,765
|
|
|
|
|
|
|
|
|
|
|
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)
|
2023
|
|
2022
|
|
|
(Audited)
|
Revenue
|
|
|
|
|
IOC
royalties
|
$
198,562
|
|
$
230,709
|
|
IOC
commissions
|
1,604
|
|
1,613
|
|
Interest and other
income
|
1,131
|
|
539
|
|
|
201,297
|
|
232,861
|
Expenses
|
|
|
|
|
Newfoundland royalty
taxes
|
39,712
|
|
46,142
|
|
Amortization of royalty
and commission interests
|
6,017
|
|
6,423
|
|
Administrative
expenses
|
3,054
|
|
3,093
|
|
|
48,783
|
|
55,658
|
|
|
|
|
|
Income before equity
earnings and income taxes
|
152,514
|
|
177,203
|
Equity earnings in
IOC
|
84,684
|
|
154,103
|
|
|
|
|
|
Income before income
taxes
|
237,198
|
|
331,306
|
|
|
|
|
|
Provision for income
taxes
|
|
|
|
|
Current
|
47,524
|
|
54,998
|
|
Deferred
|
3,368
|
|
10,859
|
|
|
50,892
|
|
65,857
|
|
|
|
|
|
Net income for the
year
|
186,306
|
|
265,449
|
|
|
|
|
|
Other comprehensive
(loss) income
|
|
|
|
|
Share of other
comprehensive (loss) income of IOC that will not
be
|
|
|
|
|
reclassified
subsequently to profit or loss (net of income
|
|
|
|
|
taxes of 2023 - $218;
2022 - $1,121)
|
(1,233)
|
|
6,350
|
|
|
|
|
|
Comprehensive income
for the year
|
$
185,073
|
|
$
271,799
|
|
|
|
|
|
Basic and diluted
income per share
|
$
2.91
|
|
$
4.15
|
LABRADOR IRON ORE
ROYALTY CORPORATION
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
Ended
|
|
|
|
|
December
31,
|
(in thousands of
Canadian dollars)
|
2023
|
|
2022
|
|
|
|
|
(Audited)
|
Net inflow (outflow)
of cash related
|
|
|
|
|
to the following
activities
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Net income for the
period
|
$
186,306
|
|
$ 265,449
|
|
Items not affecting
cash:
|
|
|
|
|
|
Equity earnings in
IOC
|
(84,684)
|
|
(154,103)
|
|
|
Current income
taxes
|
47,524
|
|
54,998
|
|
|
Deferred income
taxes
|
3,368
|
|
10,859
|
|
|
Amortization of royalty
and commission interests
|
6,017
|
|
6,423
|
|
Common share dividends
from IOC
|
50,447
|
|
69,122
|
|
Change in amounts
receivable
|
(11,114)
|
|
6,923
|
|
Change in accounts
payable
|
2,256
|
|
(1,500)
|
|
Income taxes
paid
|
(47,632)
|
|
(73,980)
|
|
Cash flow from
operating activities
|
152,488
|
|
184,191
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
Dividends paid to
shareholders
|
(179,200)
|
|
(227,200)
|
|
Cash flow used in
financing activities
|
(179,200)
|
|
(227,200)
|
|
|
|
|
|
|
|
Decrease in cash,
during the year
|
(26,712)
|
|
(43,009)
|
|
|
|
|
|
|
|
Cash, beginning of
year
|
39,904
|
|
82,913
|
|
|
|
|
|
|
|
Cash, end of
year
|
$
13,192
|
|
$
39,904
|
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
|
|
(Audited)
|
|
|
|
|
|
|
Balance as at December
31, 2021
|
64,000,000
|
$
317,708
|
$
257,772
|
$
(11,420)
|
$
564,060
|
Net income for the
period
|
-
|
-
|
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
|
|
|
|
|
|
|
Balance as at December
31, 2022
|
64,000,000
|
$
317,708
|
$
324,821
|
$
(5,070)
|
$
637,459
|
Net income for the
period
|
-
|
-
|
186,306
|
-
|
186,306
|
Dividends declared to
shareholders
|
-
|
-
|
(163,200)
|
-
|
(163,200)
|
Share of other
comprehensive loss from investment in IOC (net of taxes)
|
-
|
-
|
-
|
(1,233)
|
(1,233)
|
Balance as at December
31, 2023
|
64,000,000
|
$
317,708
|
$
347,927
|
$
(6,303)
|
$
659,332
|
The complete consolidated financial statements for the year
ended December 31, 2023, including
the notes thereto, are posted on http://www.sedarplus.ca and
labradorironore.com.
SOURCE Labrador Iron Ore Royalty Corporation