LABRADOR IRON ORE ROYALTY CORPORATION - INVESTOR PRESENTATION January 27, 2021 - Labrador Iron Ore Royalty ...
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LABRADOR IRON ORE ROYALTY CORPORATION
INVESTOR PRESENTATION
January 27, 2021
NOTICE TO READER
All dollar figures are stated in Canadian (“CDN”) dollars unless noted otherwise.
The information contained in this presentation is derived from publicly available sources, such as annual and quarterly
financial reports and the annual information form filed by Labrador Iron Ore Royalty Corporation (“LIORC”) in
accordance with applicable securities laws, Rio Tinto reports and releases, news reports and analysts’ reports. Certain
market and pricing data contained in this presentation has been obtained from S&P Global Platts.
This presentation 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 presentation. 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, exchange rates, the performance of IOC, market conditions in
the steel industry, mining risks and insurance, relationships with indigenous groups, natural disasters, severe weather
conditions and public health epidemics, changes affecting IOC's customers, competition from other iron ore producers,
estimates of reserves and resources and government regulation and taxation. A discussion of these factors is contained
in LIORC's annual information form dated March 5, 2020 under the heading, "Risk Factors". Although the forward-
looking statements contained in this presentation are based upon what management of LIORC believes are reasonable
assumptions, LIORC cannot assure investors that actual results will be consistent with these forward-looking
statements. These forward-looking statements are made as of the date of this presentation and LIORC assumes no
obligation, except as required by law, to update any forward-looking statements to reflect new events or circumstances.
This presentation should be viewed in conjunction with LIORC's other publicly available filings, copies of which can be
obtained electronically on SEDAR at www.sedar.com.
2AGENDA
v IOC Production and Sales
v Iron Ore Pricing
v LIORC Historical Cash Flow
v LIORC Dividend and Yield Performance
v LIORC Comparable Trading Value
v LIORC Investment Rationale
3IOC PRODUCTION
• Despite operational adjustments
as a result of COVID-19, IOC’s
saleable production for 2020 was
generally in line with 2019
saleable production
3 Months Ended Year Ended
• Production of pellets and CFS at December 31 December 31
IOC was 1% lower than 2019 (in millions of wmt) 2020 2019 2020 2019
due to unplanned maintenance
at the processing facilities in the
Saleable Production
third and fourth quarters
Pellets 2.46 2.42 9.58 10.06
• IOC continued to optimize its CFS 2.21 1.95 8.14 7.88
product mix to match market Total 4.67 4.37 17.72 17.94
demand, returning to higher
pellet production with all six lines
in operation, following signs of
recovery in demand from
Europe
• Rio Tinto guidance for IOC 2021
production (pellets and CFS) is
17.9 to 20.4 million tonnes.
4IOC HISTORICAL SALES TONNAGES
• Total IOC sales tonnages for
IOC TTM Sales Tonnages
2020 were 18.6 million wmt
25.0
• Comprised of pellet
sales of 10.2 million
20.0
wmt and CFS sales of
(millions of tonnes)
8.4 million wmt
15.0
• Generally in line with sales
over the last 5 years (other
than 2018, which 10.0
experienced a work
stoppage) 5.0
• Below name plate capacity
for concentrate production -
of 23 million wmt and pellet
2 3
4 4
2 4
4 5
2 5
4 6
2 6
4 7
2 7
4 8
2 8
4 9
2 9
4 0
20
Q 01
Q 01
Q 01
Q 01
Q 01
Q 01
Q 01
Q 01
Q 01
Q 01
Q 01
Q 01
Q 01
Q 02
20
production of 12.5 million
2
2
2
2
2
2
2
2
2
2
2
2
2
2
4
Q
wmt
TTM Pellet Sales Tonnage TTM CFS Sales Tonnage
5GLOBAL STEEL MARKETS
2020 Change in Steel Production
(% change) Jan-Nov, 2020 vs. Jan-Nov, 2019
• In 2020, demand
China
from China offset
weaker U.S. and India
European steel
production Japan
EU-27
• China’s stimulus for
infrastructure Unite d States
spending and
property construction ROW
is expected to
support continued Global
strong steel -20% -15% -10% -5% 0% 5% 10%
production
Source: World Steel Association
6IRON ORE PRICES
• Strong demand from China and
ongoing supply concerns drove Platts Iron Ore Quarterly Average Prices
2020 iron ore prices 180
160
• In 2020 the Platts 62% Index
averaged US$109 and the Platts 140
65% Index averaged US$122
120
• Prices rose throughout the year
US$ per dmt
and in Q4 the Platts 62% Index 100
averaged US$134 and the Platts
80
65% Index averaged US$146
60
• Demand from China and
returning steel production from 40
ROW is expected to support 20
continued strong CFS pricing in
2021 0
Q 013
Q 013
Q 014
Q 014
Q 015
Q 015
Q 016
Q 016
Q 017
Q 017
Q 018
Q 018
Q 019
Q 019
Q 020
20
20
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
• From Jan 1-15, 2021 the Platts
Q
62% Index has averaged Platts 65% Fe CFR North China Platts 62% Fe CFR North China
US$170 and the Platts 65%
Index has averaged US$190
7PELLET PREMIUMS
• Pellet premiums continued
to decline in second half of Platts BF Atlantic Pellet Premium
2020 despite some 80
increased pellet demand
from Europe later in the 70
year
60
• Expectation is for 50
US$ per dmt
improved pellet demand in
2021 as European blast 40
furnace activity ramps
back up 30
• The Jan, 2021 Platts 20
Atlantic monthly contract
BF pellet premium is 10
US$41/dmt, compared to
an average of US$29/dmt 0
in 2020
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
Q3 2020
JAN 2021
8IOC REALIZED PRICES
IOC Realized Blended Price vs. Platts 65% CFR
• Realized FOB price per tonne Index
reflects a number of factors, 200
including: 180
160
• Price of CFS
• Negotiated pellet premia 140
• Pellet/CFS mix
120
C$ per Tonne
• Shipping dates
• Customer locations 100
• Applicable shipping rates 80
60
• Historically, IOC’s realized blended
FOB price (wmt) per tonne has 40
mirrored the Platts 65% CFR 20
North China Index
- 13
Q 13
Q 14
Q 14
Q 15
Q 15
Q 16
Q 16
Q 17
Q 17
Q 18
Q 18
Q 19
Q 19
Q 20
20
• On average IOC has realized a
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
Q
Q
1% premium over the Platts 65%
Realized FOB Price per wmt (C$)
CFR North China Index and a 13% Platts 65% CFR North China (C$)
premium over the Platts 62% CFR
North China Index Note: For purposes of the chart, IOC realized blended FOB price per tonne is
calculated as IOC iron ore sales (represented by LIORC royalty revenue divided 7%)
divided by IOC sales tonnages as reported for the LIORC royalty
9LIORC HISTORICAL CASH FLOW
• Royalty and commissions have
historically provided stable and
growing after-tax cash flow per
share TTM Adjusted Cash Flow per Share
$4.00
• Average of $1.18 per share
• High of $1.64 per share and low of $3.50
$0.84 per share
$3.00
• IOC equity has provided significant $2.50
additional upside in years where
iron ore prices have been strong $2.00
• Average of $0.83 per LIORC share $1.50
• High of $1.72 per LIORC share
$1.00
and low of $0.00 per LIORC share
$0.50
• IOC recently declared a dividend
payable in December, 2020 of $0.00
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
approximately $1.38 per LIORC
share TTM Adjusted CFPS From Royalty TTM Adjusted CFPS from IOC Dividends
• Average of $1.41 per LIORC
share over prior three years
10LIORC HISTORICAL DIVIDEND PERFORMANCE
LIORC DIVIDEND HISTORY
$4.50 20%
$4.00
• In 2020, LIORC declared total
$3.50
dividends of $3.05 per share 15%
• This compares to an average $3.00
Total Annual Dividends Declared
of $2.80 per share over the
prior 3 years
Dividend Yield
$2.50
10%
$2.00
• In 2020, LIORC’s average
dividend yield was 12.8% $1.50
• This compares to an average 5%
yield of 11.6% over the prior $1.00
3 years
$0.50
$0.00 0%
2013 2014 2015 2016 2017 2018 2019 2020
Annual Dividends Dividend Yield (1)
(1) Dividend yield is calculated each quarter as the total annual
declared dividend per share divided by the average trading price
per share during the quarter
11NEW TRADING COMPARABLE – DETERRA ROYALTIES
SIDE BY SIDE COMPARISON
LIORC DETERRA ROYALTIES
• Deterra Royalties Market Cap (1)
Trading Exchange
C$2,092 million
TSX
A$2,553 million
ASX
was spun out from
Key Asset 7% royalty on IOC 1.232% royalty on Mining Area C
Iluka Resources on Payment Quarterly Quarterly
October 23, 2020 Commodity Iron Ore Iron Ore
Products Pellets and Concentrate Lump and Fines
Jurisdiction Labrador, Canada Western Australia
Life of Mine (2) >25 years >30 year
• Represents the best Operator Rio Tinto BHP
publicly traded Other Assets (3) 15% Equity interest in IOC Five other royalties of nominal value
comparison to C$0.10 commission per tonne
LIORC G&A Costs (4) C$3.0 million A$6.9 million
Net Cash (Debt) (5) C$29.8 million A$(14.2 million)
• Deterra’s size, key Dividends (6) 100% 100%
asset and corporate
structure are very Notes:
similar to LIORC (1) As of market close, January 15, 2020.
(2) For LIORC, based on reserves only. For Deterra, asset life with potential to extend.
(3) Both Macquarie and Credit Suisse research do not attribute value for any of Deterra's other royalties streams.
(4) TTM for LIORC, and based on 2020 pro forma accounts for Deterra.
(5) LIORC net cash is net working capital as at September 30, 2020. Deterra net debt is pro forma as at June 30, 2020.
(6) Current target, subject to discretion of the Board and may change over time.
Source: Information for Deterra Royalties is from its Demerger Briefing document dated September 10, 2020.
12DETERRA – LONG TERM TRADING YIELD
Deterra
(in miilions, other than per share) Trading Value
Share Price (1) A$4.45
• A$685 million of total Number of Shares 574
trading value in first Market Capitalization A$2,553
60 days of trading Net Debt (2) A$14
Enterprise Value A$2,567
• Average closing price Target Tonnes per Year (3) 139
Iron Ore 62% Fe (CFR) (4) US$65
of A$4.56
Deterra Estimated EBIT (5) A$142
Income Tax (6) 30%
• Current trading price
of A$4.45 After Tax Cash Flow A$99
• Valued at an average L-T Average Yield 3.9%
long-term yield of
3.9% (1) As of market close, January 15, 2020.
(2) Pro forma as at June 30, 2020 (page 36 Demerger Briefing).
(3) Stated production capacity post full ramp-up beginning 2023 (page 17 Demerger Briefing).
(4) As stated by Deterra, based on Wood Mackenzie long term real price forecast (page 24 Demerger Briefing).
(5) As stated by Deterra. Assumes freight charges of US$7.8/dmt and lump sales representing
35% of Sales and commanding a 22% premium (page 24 Demerger Briefing).
(6) Consistent with income tax rate set out in Pro Forma Income Statement (page 13 Demerger Briefing).
Source: Deterra Royalties Demerger Briefing document ("Demerger Briefing) dated September 10, 2020.
13LIORC COMPARABLE TRADING VALUE
LIORC
• Based on similar Comparative
assumptions and assuming (in miilions, other than per share) Trading Value
the same 3.9% yield by Assumed IOC Tonnes per Year (1) 20
which the market values Iron Ore 62% Fe (CFR) (2) US$65
Deterra Royalties, the IOC Historical Premium to Platts 62% Index 13%
Assumed Realized FOB Price US$73
Royalty has a value of Total IOC Iron Ore Revenue US$1,469
C$29.57 per share Net Royalty Rate 5.6%
LIORC Revenue US$82
Assumed USD/CAD Exchange Rate 0.75
• This does not include LIORC Revenue (C$) C$110
Assumed Corp Costs + Tax at 30% (C$36)
LIORC’s 15.1% equity After Tax Cash Flow C$73
investment in IOC which
L-T Average Yield 3.9%
provides significant (3)
additional upside value Indicative Value of IOC Royalty C$1,893
Number of LIORC Shares 64
• The 15.1% equity Indicative Royalty Value per LIORC Share C$29.57
investment has historically
generated 41% of LIORC’s (1) Ignores ability to reach production capacity.
after-tax cashflow and over (2) As stated by Deterra (page 24 Demerger Briefing).
the last 4 years has (3) Comparative L-T average yield to Deterra. Ignores differences in Australian
franking system and the Canadian dividend tax credit.
generated on average $1.40
per share per year
14LIORC INVESTMENT RATIONALE
IOC Strengths LIORC Strengths
• Leading producer of high quality, • Attractive 7% top line royalty and 10¢
low impurity iron ore concentrate per tonne commission on all IOC sales
and pellets
• Royalty limits operational and capex risk,
– More efficient and environmentally while benefiting from any production
friendly for steel producers growth
• Long mine life (>25 years based on • 15.1% equity investment in IOC
reserves only) provides additional upside to iron ore
markets
• Stable jurisdiction
• IOC cash flows typically paid out as
• World class operator - Rio Tinto dividends - Approx. C$88 million in 2020
(C$1.38/share)
• Competitive operating costs (over
50 years without a shut down due to • Attractive yield and relative trading
market conditions) valuation
• Significant wholly owned • Debt-free balance sheet
infrastructure in place
• LIORC’s net working capital position was
• Concentrator, pellet plant, 418 km $29.8 million as at September 30, 2020
railway and port facilities
15QUESTIONS
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