Mr. John Tuer reports

LABRADOR IRON ORE ROYALTY CORPORATION - RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2023

Labrador Iron Ore Royalty Corp. has released its operation and cash flow results for the second quarter ended June 30, 2023.

The directors of Labrador Iron present the second quarter report for the period ended June 30, 2023.

Financial performance

In the second quarter of 2023, LIORC's financial results were negatively affected by lower iron ore prices and a change in product sales mix (lower sales volumes of pellets and higher sales volumes of concentrate for sale (CFS)). Royalty revenue for the second quarter of 2023 amounted to $50.9-million compared with $65.9-million for the second quarter of 2022. Equity earnings from Iron Ore Company of Canada (IOC) were $13.5-million in the second quarter of 2023 compared with $47.2-million in the second quarter of 2022, as a result of lower revenue and higher operating costs at IOC. Net income per share for the second quarter of 2023 was 65 cents per share, which was a 47-per-cent decrease over the same period in 2022. LIORC received a dividend from IOC in the amount of $19.9-million in the second quarter of 2023, compared with a dividend from IOC in the amount of $19.6-million in the second quarter of 2022. The adjusted cash flow per share for the second quarter of 2023 was 75 cents per share, which was 15 per cent lower than in the same period in 2022 as a result of lower royalty revenues. While adjusted cash flow is not a recognized measure under international financial reporting standards, the directors believe that it is a useful analytical measure as it better reflects cash available for dividends to shareholders.

In the second quarter of 2023, iron ore prices declined from the levels experienced in 2022 and in the first quarter of 2023, predominantly as a result of lower global steel production and continuing concerns over China's economy and its property sector, in particular. According to the World Steel Association, global crude steel production decreased 2.6 per cent in the second quarter of 2023 over the second quarter of 2022. In China, which accounts for over 70 per cent of all seaborne iron ore demand, crude steel production decreased 2.9 per cent in the second quarter of 2023 over the second quarter of 2022.

IOC sells CFS based on the Platts index for 65 per cent iron, CFR China. 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-per-cent-less ore per equivalent volume than dry ore. In the second quarter of 2023, the 65-per-cent-iron index averaged $124 (U.S.) per tonne, a 23-per-cent decrease over the average of $160 (U.S.) per tonne in the second quarter of 2022 and an 11-per-cent decrease over the average of $140 (U.S.) in the first quarter of 2023. In addition, low steel production margins in China caused steel mills to prefer medium-grade fines over high-grade fines. As a result, the spread of the 65-per-cent-iron index over the Platts index for 62 per cent Fe, CFR China, narrowed in the second quarter of 2023 to $13 per tonne from $22 per tonne in the second quarter of 2022. The monthly Atlantic blast furnace 65-per-cent-iron pellet premium index as quoted by Platts averaged $47 (U.S.) per tonne in the second quarter of 2023, down 42 per cent from an average of $81 (U.S.) per tonne in the same quarter of 2022.

Rio Tinto has disclosed that the average realized price achieved for IOC pellets, FOB Sept Iles, in the second quarter of 2023, was $151 (U.S.) per tonne, compared with $206 (U.S.) per tonne in the same quarter of 2022. Based on sales as reported for the LIORC royalty, the overall average price realized by IOC for CFS and pellets, FOB Sept-Iles, was approximately $125 (U.S.) per tonne in the second quarter of 2023, compared with approximately $168 (U.S.) per tonne in the second quarter of 2022 and $136 (U.S.) per tonne in the first quarter of 2023.

Iron Ore Company of Canada

Operations

IOC concentrate production of 3.8 million tonnes in the second quarter of 2023 was 24 per cent lower than the same quarter of 2022 and 17 per cent lower than in the first quarter of 2023, mainly due to the impact of the forest fires and resulting issues related to stockpile management in June, as well as issues with weather and ore car reliability earlier in the quarter.

The IOC saleable production (CFS plus pellets) of 3.5 million tonnes in the second quarter of 2023 was 21 per cent lower than the same period in 2022 due to the lack of concentrate feed as a result of the factors referred to above. The IOC saleable production in the second quarter of 2023 was 18 per cent lower than the first quarter of 2023.

Pellet production in the second quarter of 2023 of 1.6 million tonnes was 29 per cent lower than the corresponding quarter in 2022 and 27 per cent lower than the first quarter of 2023. Pellet production in the second quarter of 2023 was negatively impacted by the forest fires in June, as well as an increase in the duration of the machine 3 rebuild. In the second quarter of 2023, CFS production of 1.9 million tonnes was 13 per cent lower than the same quarter last year and 10 per cent lower than the first quarter of 2023 due to the reduction of concentrate production in June as a result of the forest fires and the overrun of the annual maintenance shutdown.

Sales as reported for the LIORC royalty

Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.4 million tonnes in the second quarter of 2023 was 2 per cent higher than the total sales tonnage for the same period in 2022 and 21 per cent higher than the first quarter of 2023 as IOC drew down inventory despite the negative impact of the forest fires and the annual maintenance shutdown in June. Pellet sales tonnage in the second quarter of 2023 was 6 per cent lower than the same period in 2022 and 18 per cent higher than the first quarter of 2023. CFS sales tonnage was 14 per cent higher than the same quarter last year and 24 per cent higher than the first quarter of 2023.

Outlook

Rio Tinto's 2023 guidance for IOC's saleable production (CFS plus pellets) has been lowered to 17.0 million to 18.7 million tonnes (previously 17.9 million to 19.6 million tonnes) as a result of lost production in June due to wildfires in Northern Quebec, together with a slightly extended annual maintenance shutdown. This revised guidance compares with 17.6 million tonnes of saleable production in 2022. As reported in the 2022 annual report, IOC has set a capital expenditure budget of $534-million for 2023 as it looks to continue renewing the asset infrastructure and to improve the production results at IOC. Year to date, IOC is on track with regard to its capital expenditures, and its budget remains unchanged.

There continues to be a number of adverse issues affecting the outlook for the seaborne iron ore market. In China, extreme weather and unfavourable steel producer margins are predicted to negatively impact the demand outlook for steel production. Tempering this negative sentiment is the expectation that the Chinese government will announce measures to support the troubled property market, which consumes about one-third of China's steel output. This could include lending rate cuts and potentially additional stimulus moving forward. More recently, in July, 2023, the average price of the 65-per-cent-iron index was $126 (U.S.) per tonne, roughly equivalent to the average of the 65-per-cent-iron index for the second quarter of 2023. The pellet premiums have also improved modestly. The pellet premium for July was $49 (U.S.) per tonne compared with the average of $47 (U.S.) per tonne in the second quarter of 2023.

LIORC has no debt, and at June 30, 2023, had positive net working capital (current assets less current liabilities) of $29.8-million, which included the second quarter net royalty payment received from IOC on July 25, 2023, and the LIORC dividend in the amount of 65 cents per share paid to shareholders on the next day.

We seek Safe Harbor.