Despite a nine-week work stoppage at the iron ore mine in Labrador West and relatively soft global iron ore prices, the Labrador Iron Ore Royalty Corporation (IORC), which owns 15 per cent of the mine, recently announced a strong dividend to shareholders.
“The Directors of Labrador Iron Ore Royalty Corporation (the "Corporation") declared Sept. 24 a regular quarterly cash dividend of $0.25 per Common Share,” a press release dated Sept. 14 stated. “The Directors also declared a special dividend of $0.30 per Common Share for total dividends of $0.55 per Common Share.”
The news, both of a new five-year collective agreement at the Labrador West mine and the dividend payout, had investment analysts speculating it is a good time to get in on IORC stock.
“Those amounts combined saw Labrador Iron Ore pay investors a total quarterly dividend of $0.55, giving it an impressive annualized yield of just over five per cent,” wrote Matt Smith on the investment site The Motley Fool. “This will grow significantly should the company elect to pay another special dividend for the fourth quarter 2018, which is highly likely if earnings expand as expected.”
Sandra Rosch, IORC executive vice president and director, told The Aurora the company does not speculate nor make predictions about earnings.
“The price of iron ore is pretty volatile,” she said. “It all depends on what happens in China.”
For much of the past two years, a potential trade war between China and the United States — combined with strong Chinese domestic iron ore production —has fuelled a big drop in and significant fluctuations in the price of iron ore.
Smith and many other analysts think this is going to stabilize with China making a big effort to curb air pollution in part by restricting production of steel.
“When combined with the move away from domestically-mined iron ore because of the Chinese government’s focus on winding down uneconomic state-supported enterprises, this should drive an increase in demand from China,” he wrote. “Any increase in demand from China, especially for higher quality iron ore such as that produced by the Iron Ore Company of Canada (IOC), will help to boost prices.”
If that is true, it could either alleviate or exacerbate rumours that Rio Tinto, the major owner of IOC with 59 per cent, is trying to sell the Labrador West mine. In August, Reuters reported that banking and industry sources said the company is exploring a public listing.
Ron Thomas, president of USW local 5795, which represents the majority of IOC workers in Labrador West, said while he is watching for any further developments, he is not overly concerned about it one way or the other.
“At the end of the day for us, we’ve just come off a nine-week strike, so there’s talk of improving the relationship,” he said. “Sometimes the devil you know is better than the devil you don’t know, but then you look at the other side of it and maybe it is time for a change. At the end of day, I don’t really know what to say on that, until it actually happens.”
Since a commodity price crash in 2015, Rio Tinto has been divesting mining assets, mostly in the coal sector, that it deems to be not part of its core business.
Most recently on Sept. 19, the company announced a $3.2 billion USD share buyback to stockholders from its sale of coal assets in Australia.
Reuters also reported in 2012 that Rio Tinto tried to sell the Labrador West mine, but could not get the $3.5 to $4 billion it was looking for at the time.
The Aurora did not receive a response from Rio Tinto by press time, although the company has consistently offered no comment on prospective deals of this nature.