Canada-based Labrador Iron Ore Royalty Corporation announced today its operation and cash flow results for the third quarter ended September 30, 2018.
Royalty revenue for the third quarter of 2018 amounted to $44.0 million as compared to $39.8 million for the third quarter of 2017. Net income was $58.1 million compared to $43.8 million for the same period in 2017. The shareholders' cash flow from operations for the third quarter was $59.7 million compared to $53.6 million for the same period in 2017.
The cash flow from operations, equity earnings and net income for the third quarter of 2018 were higher than the third quarter of 2017, due to an overall 9 percent improvement in sales tonnages for concentrate for sale (CFS) and pellets, and improved pellet premiums, offset by slightly lower prices for CFS.
Total concentrate production in the third quarter of 2018 of 5.0 million tons was 11 percent lower than the third quarter of 2017 and was 243 percent higher than the second quarter of 2018. CFS production was 22 percent lower in the third quarter of 2018 as compared to the third quarter of 2017. However, pellet production in the third quarter of 2018 was 2 percent higher than the third quarter of 2017, reflecting the preference for pellets due to the high premiums offered.
Third quarter 2018 total iron ore tonnage sold by IOC (pellets plus CFS) of 5.43 million tons was 9 percent above the total sales tonnage in the third quarter 2017. The pellet sales tonnage was maintained quarter over quarter reflecting maintenance improvements made over the past year by IOC personnel. All six pellet lines operated during the third quarter, but the No. 4 pellet line is scheduled for refurbishment in the fourth quarter of 2018. The CFS sales tonnage in the third quarter 2018 was an 18 percent improvement over the comparable 2017 quarter, which was affected by the required maintenance of the rail car dumper.
The royalty revenue for LIORC in the third quarter of 2018 was 10 percent higher than the revenue in last year's third quarter driven by the strong pellet premiums and the higher sales volumes.
As for an outlook, IOC is expecting good production and sales tonnages in the fourth quarter of 2018, with anticipated benefits from the spiral improvement project noted above. IOC has also initiated trials with a reflux classifier to improve the weight yield in the concentrator. The Wabush 3 Pit was officially opened on September 25, 2018, and renamed the Moss Pit in recognition of the geologic and exploration contribution to IOC by Dr. A.E. Moss. The availability of the Moss Pit is expected to enhance the overall mine production, reduce overall mining costs due to a lower waste stripping ratio, improve IOC's ability to blend ores to meet client specifications, and extend the mine life. The dewatering of the Luce Pit has progressed well, and this initiative is also expected to result in improved performance at IOC.
The company said there is strong demand by steelmakers for IOC's high quality, low impurity (low phosphorus and alumina content) iron ore which helps to improve efficiency, reduce emissions and produce higher quality steel. The strong demand by Chinese steelmakers for high quality seaborne iron ore products is supported by strong steel margins, and the expected application of winter output cuts in China. The Chinese demand for pellets has caused the pellet premium CFR China to rapidly increase to average US$89 per tonne in September 2018 compared to US$46 per tonne in September 2017. While this premium has reduced somewhat to US$74 per tonne, at the time of writing, IOC expects the pellet premiums in 2019 will be strong given the likely restart of Samarco being delayed into 2020 according to Vale officials.