LABRADOR IRON ORE ROYALTY CORPORATION - 2023 RESULTS OF OPERATIONS
To the Holders of Common Shares of Labrador Iron Ore Royalty Corporation
The Directors of
86 Years in Labrador West
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
In
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
Rio Tinto disclosed that
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
Despite the forest fires that limited rail service in the second quarter of 2023, third party iron ore haulage by the Québec
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by
Capital Expenditures
Capital expenditures for
Outlook
Rio Tinto's 2024 guidance for
Despite ongoing lower pellet premiums, it is expected that
The capital expenditures for 2024 at
In September,
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
Despite ongoing concerns regarding the global economy and the property sector in
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,
President and Chief Executive Officer
Corporate Structure
LIORC is a Canadian corporation formed to give effect to the conversion of the
LIORC, directly and through its wholly-owned subsidiary Hollinger-Hanna, holds a 15.10% equity interest in
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
Taxation
The Corporation is a taxable corporation. Dividend income received from
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
The income of the Corporation is entirely dependent on
processing iron ore concentrate and pellets since 1954.
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
Because the royalty is "off-the-top", it is not dependent on the profitability of
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 Commissions
Hollinger-Hanna has the right to receive a payment of
as Hollinger-Hanna is in existence and solvent. In 2023, Hollinger-Hanna received a total of
Quarterly Dividends
Dividends of
Period |
Record |
Payment |
Dividend Income |
Total Dividend |
Ended |
Date |
Date |
per Share |
($ Million) |
|
|
|
|
|
|
|
|
|
|
|
|
|
0.65 |
41.6 |
|
|
|
0.95 |
60.8 |
|
|
|
0.45 |
28.8 |
|
|
|
|
|
Dividend to Shareholders – 2023 |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
0.90 |
57.6 |
|
|
|
1.00 |
64.0 |
|
|
|
0.70 |
44.8 |
|
|
|
|
|
Dividend to Shareholders – 2022 |
|
|
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
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
The Corporation is economically dependent on the operations of
Financial Highlights
|
Three Months Ended |
|
Twelve Months Ended |
||
|
|
|
|
||
|
2023 |
2022 |
|
2023 |
2022 |
|
(in millions except per share information) |
||||
|
|
|
|
|
|
Revenue |
|
|
|
|
|
Equity earnings from IOC |
|
|
|
|
|
Net income |
|
|
|
|
|
Net income per share |
|
|
|
|
|
Dividend from |
- |
|
|
|
|
Cash flow from operations |
|
|
|
|
|
Cash flow from operations per share(1) |
|
|
|
|
|
Adjusted cash flow(1) |
|
|
|
|
|
Adjusted cash flow per share(1) |
|
|
|
|
|
Dividends declared per share |
|
|
|
|
|
(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
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
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) |
|
|
|
|
|
62% Fe index(5) |
|
|
|
|
|
Pellet premium(6) |
|
|
|
|
|
(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. |
Capital expenditures for
Liquidity and Capital Resources
The Corporation had
Cash balances consist of deposits in Canadian dollars and US dollars with a Canadian chartered bank. Accounts receivable primarily consist of royalty payments from
Operating cash flow of the Corporation is sourced entirely from
The Corporation has a
Selected Consolidated Financial I nformation
The following table sets out financial data from a Shareholder's perspective for the three years ended
|
Years Ended |
||
Description |
2023 |
2022 |
2021 |
|
(in millions except per share information) |
||
Revenue |
|
|
|
Net Income |
|
|
|
Net Income per Share |
|
|
|
Cash Flow from Operations |
|
|
|
Cash Flow from Operations per Share |
|
|
|
Total Assets |
|
|
|
Dividends Declared per Share |
|
|
|
Number of Common Shares outstanding |
64.0 |
64.0 |
64.0 |
(1) Includes |
(2) Includes IOC dividends totaling |
(3) Includes IOC dividends totaling |
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
|
Revenue |
Net |
Net |
Cash Flow |
Cash Flow |
Adjusted |
Dividends |
|
|||||||
(in millions except per share information) |
|||||||
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
|
|
|
|
|
(1) |
"Adjusted cash flow" (see below). |
(2) |
Includes |
(3) |
Includes |
(4) |
Includes |
(5) |
Includes |
(6) |
Includes |
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
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 |
|
|
|
|
Changes in amounts receivable, accounts payable and income taxes recoverable |
9.0 |
|
13.6 |
|
Adjusted cash flow |
|
|
|
|
Adjusted cash flow per share |
|
|
|
|
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
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
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
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
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
|
|
|
|
|
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
As at |
||
|
|
|
||
(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 |
|
|
|
|
|
|
|
|
|
|
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, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
Director |
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
||||
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
||
|
|
|
||
(in thousands of Canadian dollars except for per share information) |
2023 |
|
2022 |
|
|
|
(Audited) |
||
Revenue |
|
|
|
|
|
|
$ 198,562 |
|
$ 230,709 |
|
|
1,604 |
|
1,613 |
|
Interest and other income |
1,131 |
|
539 |
|
|
201,297 |
|
232,861 |
Expenses |
|
|
|
|
|
|
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 |
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 |
|
|
|
|
reclassified subsequently to profit or loss (net of income |
|
|
|
|
taxes of 2023 - |
(1,233) |
|
6,350 |
|
|
|
|
|
Comprehensive income for the year |
$ 185,073 |
|
$ 271,799 |
|
|
|
|
|
|
Basic and diluted income per share |
$ 2.91 |
|
$ 4.15 |
|
|
|
|
|||
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
||
|
|
|
|
|
||
(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 |
(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 |
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 |
|
|
|
|
|
|
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 |
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 |
- |
- |
- |
6,350 |
6,350 |
Balance as at |
64,000,000 |
$ 317,708 |
$ 324,821 |
$ (5,070) |
$ 637,459 |
|
|
|
|
|
|
Balance as at |
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 |
- |
- |
- |
(1,233) |
(1,233) |
Balance as at |
64,000,000 |
$ 317,708 |
$ 347,927 |
$ (6,303) |
$ 659,332 |
The complete consolidated financial statements for the year ended
SOURCE