Labrador Iron Ore Royalty Corp. Q3-2020 Earnings, Price Target Update

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Labrador Iron Ore Royalty Corp.(LIF) earns its income entirely from their royalty and ownership interests in the Iron Ore Company of Canada. The royalty interest consists of a 7% royalty plus 10 cent per ton on all sales of iron ore products plus dividends on their 15.1% ownership interest in the IOC. IOC operates an open pit mine, concentrator and iron ore pellet-making plant at Labrador City, Nfld., as well as a 420km railway and port facilities at Sept-Iles on the Gulf of St. Lawrence. After processing at the Labrador City facilities, the pellets and concentrate are transported 418 km south via the Quebec North Shore and Labrador (QNS&L) railway to the company's shipping terminal and deep water port in Sept-Îles, Quebec. The Iron Ore Company of Canada has been Canada's main supplier of iron ore for five decades.

Labrador Iron Ore Royalty Corporation (LIF) has been involved in Labrador West for 80 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.

The world's three largest iron ore suppliers are BHP Billiton Ltd, Rio Tinto PLC and Vale S.A. Rio Tinto PLX originally owned 59% of IOC. Rio Tinto bought BHP's and Vale's share. Rio Tinto now owns 59% Mitsubishi Corp- 26% and Labrador Iron Ore Royalty Corp. (LIF) owns 15%. In addition to the volume of iron ore sold, royalty revenue is affected by iron ore prices denominated in USD. There is also some seasonality to sales with 15% – 20% of the annual volume in Q1 and the balance split equally in the other quarters. Ice conditions in the St. Lawrence River can impact winter shipping.

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