2024 RESULTS OF OPERATIONS

TORONTO, March 11, 2025 /CNW/ – Labrador Iron Ore Royalty Corporation (TSX:LIF) announced the results of its operations for the year ended December 31, 2024.

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, 2024.

87 Years in Labrador West

Labrador Iron Ore Royalty Corporation has been involved in Labrador West for 87 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 2024, LIORC’s revenue for the year ended December 31, 2024 was $209.0 million, which was a 4% increase over 2023, as an increase in sales volume and a more advantageous product mix (higher volumes of pellet sales and lower volumes of concentrate for sale (“CFS”) sales) were offset by lower iron ore prices and lower pellet premiums. Net income per share for 2024 was $2.73 per share, which was a 6% decrease over 2023, as equity earnings in IOC of $60.6 million were 28% lower than in 2023, partially as a result of a non-cash write down of prior capital expenditures associated with the replacement of the dumper car facility that did not proceed.  However, LIORC’s cash flow from operations per share for 2024 was $3.15 per share, which was 32% higher than in 2023, mainly due to IOC’s decision to reduce its cash balance and increase the amount of dividends paid to its shareholders. In 2024, IOC paid dividends to its shareholders totalling US$400 million and had a year-end net working capital balance of US$172.8 million, compared to dividends of US$250 million and a year-end net working capital balance of US$364.9 million in 2023.

Iron ore prices weakened in 2024 as global steel demand contracted and seaborne iron ore supply remained robust. According to the World Steel Association, in 2024 global production of crude steel was down 1% from 2023. Steel production in China, which accounts for 53% of global production, was down 2%, as China’s issues with its property sector persisted. Steel production in the rest of the world was flat. On the iron ore 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 2024 by these producers was 933 million tonnes, an increase of 1% over calendar 2023.

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 2024, the average price for the 65% Fe index was US$123 per tonne, a decrease of 6% year over year. In addition to the reduction in iron ore prices, pellet premiums were lower as steel producers, faced with continuing low 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$40 per tonne in 2024, a decrease of 10% from 2023.

Rio Tinto disclosed that IOC achieved an average realised price for pellets, FOB Sept-Îles of approximately US$144 per tonne, a decrease of 7% 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$125 per tonne in 2024, a decrease of 4% year over year. The decrease in the average realized price FOB Sept-Îles in 2024 was a result of lower CFS and pellet prices.

Iron Ore Company of Canada Operations

Operations

Total concentrate production in 2024 was 17.3 million tonnes. This was 2% lower than 2023. Concentrate production was negatively impacted by a number of operational challenges throughout the year, including maintenance over-runs, and lower feed from the mine (as a result of lower haul truck availability and ore delivery system reliability issues), as well as an 11-day site-wide shutdown caused by area forest fires in mid-July. In addition, IOC experienced lower weight yields in 2024, as a result of changes to the mine sequencing and lower quality iron ore being fed into the concentrator as a result of challenges with ore availability at the mine.

The IOC saleable production (CFS plus pellets) of 16.1 million tonnes in 2024 was 2% lower than 2023 and was 4% lower than the low end of the range of Rio Tinto’s original annual guidance of 16.7 to 19.6 million tonnes, due to extended plant downtime as a result of the operational issues and the 11-day site-wide shutdown referred to above. Saleable production in the fourth quarter of 4.3 million tonnes was 6% lower than the fourth quarter of 2023, as a result of lower weight yields referred to above. In 2024, CFS production of 6.8 million tonnes was 17% lower than 2023, mainly due to lower concentrate production and higher amounts of concentrate being diverted to make pellets. Pellet production in 2024 of 9.3 million tonnes was 12% higher than 2023, as a result of a deferral of the induration machine 2 rebuild to 2025 and various operational issues that lowered pellet production in 2023.

Third party iron ore haulage by the Québec North Shore and Labrador Railway Company, Inc. (“QNS&L”) of 19.4 million tonnes in 2024 was 9% higher than in 2023, driven by continued operational improvements to meet increasing third-party demand.

Sales as Reported for the LIORC Royalty

Total iron ore sales tonnage by IOC (CFS plus pellets) of 16.9 million tonnes in 2024 was 3% higher than the total sales tonnage in 2023, as a result of timing differences and IOC drawing down inventory at Labrador City.

Capital Expenditures

Capital expenditures for IOC were US$376 million in 2024, or 4% higher than in 2023.  Capital expenditures in 2024 were 13% lower than the US$431 million that IOC had originally forecasted, mainly due to the decision by IOC to defer certain capital projects, including the rebuild of induration machine #2 and the explosives plant upgrade.

Outlook

Rio Tinto’s 2025 guidance for IOC’s saleable production tonnage is 16.5 million to 19.4 million tonnes. This compares to 16.1 million tonnes of saleable production in 2024. Despite ongoing lower pellet premiums, it is expected that IOC will continue to focus on maximizing pellet production in 2025.

The capital expenditures for 2025 at IOC are forecasted by IOC to be approximately US$342 million. The 2025 forecast includes approximately US$51 million of growth and development projects.  Significant development capital expenditure projects include the replacement of the dumper cages at Sept-Îles and the installation of a pilot plant to evaluate the replacement of spirals with reflux classifiers on Mills 12-14 as a result of the successful weight yield improvement from the installation of reflux classifiers on Mill 11. Significant sustaining capital expenditure projects include the QNS&L track and culvert replacement programs and the purchase of 7 new locomotives for increased third party and IOC capacity on the QNS&L, as well as the deferred rebuild of induration machine #2 and the explosives plant upgrade referred to above.

IOC’s operator, Rio Tinto, remains 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. IOC is taking a number of initiatives to decarbonise its pellet production, including installing a 40MW electric boiler to displace emissions from the use of heavy fuel oil boilers, conducting hydro-powered plasma burner trials, and conducting research and development trials to reduce the use of coking coal, including through the use of biocarbon.

Rio Tinto is targeting a 50% reduction in Scope 3 emissions from IOC by 2035 relative to 2022.  Steel production currently accounts for approximately 9% of global GHG emissions. IOC is seeking to reduce steel production GHG emissions by optimizing the use of IOC’s higher-grade iron ore in traditional blast furnaces, and more importantly increasing the use of its high-grade direct reduction iron ore (“DRI”) pellets to make low carbon DRI and hot briquetted iron (“HBI”) for use as direct feed in electric arc furnaces.  In June 2024, the government of Canada formally recognized the importance of high-grade low impurity iron ore, such as that produced by IOC, for the green steel transition by including it in its list of critical minerals. In November 2024, IOC agreed to supply high-grade DRI pellets to GravitHy, an early-stage industrial company, which is proposing to build a hydrogen-based HBI plant that has the potential to reduce ironmaking-related CO2 emissions by more than 90%.

The outlook for iron ore pricing remains uncertain. Ongoing economic issues in China continue to negatively affect the demand for steel. In addition, threats of broad tariffs by the US and corresponding retaliatory tariffs by affected countries may cause a further decrease in economic investment and a further decrease in the global demand for steel. The negative impact on IOC may be partially mitigated to the extent that such actions cause a devaluation of the Canadian dollar, relative to the US dollar, which would effectively lower IOC’s costs in US dollar terms. Thus far in 2025 (January and February), the average price of the 65% Fe index has been US$118 per tonne, down from an average of US$123 per tonne in 2024. The demand for pellets has also remained challenging as steel producer profit margins remain low and thus far in 2025 (January and February) the average pellet premium has averaged US$36 per tonne compared to an annual average of US$40 per tonne in 2024 and an annual average of US$45 per tonne in 2023.

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 Action Plan 2025.

Respectfully submitted on behalf of the Directors of the Corporation,

John F. Tuer
President and Chief Executive Officer
March 11, 2025

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 products 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 2024 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 Proven and Probable Reserves of 966 million tonnes which, at the planned processing rates, is equivalent to approximately 20 years production. In addition, IOC has Measured and Indicated Resources of 820 million tonnes and a further 665 million tonnes of Inferred Resources. 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 2024 sales tonnages totaled 16.9 million tonnes, comprised of 9.3 million tonnes of iron ore pellets and 7.6 million tonnes of iron ore concentrate.   Saleable production in 2024 was 9.3 million tonnes of pellets and 6.8 million tonnes of CFS. IOC generated ore sales revenues (excluding third party ore sales) of $2,751 million in 2024 (2023 – $2,830 million).

Selected IOC Financial Information

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. The average royalty net of the 20% tax had been $173.2 million for the years 2019 to 2023 and in 2024 the net royalty was $164.7 million (2023 – $158.8 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 2024, Hollinger-Hanna received a total of $1.7 million in commissions from IOC (2023 – $1.6 million).

Quarterly Dividends

Dividends of $3.00 per share were declared in 2024 (2023 – dividends of $2.55 per share). These dividends were allocated as follows:

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, 2024 and 2023. This discussion should be read in conjunction with the consolidated financial statements of the Corporation and notes thereto for the years ended December 31, 2024 and 2023 which are prepared in accordance with IFRS Accounting 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

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