Labrador Iron Ore Royalty Corporation – 2023 Results of Operations

by ahnationtalk on March 13, 202421 Views

TORONTO , March 12, 2024 – 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.

NT4