The Directors of Labrador Iron Ore Royalty Corporation present the second quarter report for the period ended June 30, 2025.

Financial Performance

In the second quarter of 2025, LIORC’s financial results were negatively affected by lower iron ore prices and lower pellet premiums, partly offset by higher concentrate for sale sales tonnages. Royalty revenue for the second quarter of 2025 of $46.2 million was 12% lower than the second quarter of 2024 and 30% higher than the first quarter of 2025. Equity earnings from Iron Ore Company of Canada were $2.3 million in the second quarter of 2025 compared to $18.5 million in the second quarter of 2024 and $3.3 million in the first quarter of 2025. Net income per share for the second quarter of 2025 was $0.42 per share, which was a 46% decrease over the same period in 2024 and a 27% increase over the first quarter of 2025. The adjusted cash flow per share for the second quarter of 2025 was $0.40 per share, which was 64% lower than in the same period in 2024 and 30% higher than the first quarter of 2025. LIORC received no dividend from IOC in the second quarter of 2025, compared to a dividend from IOC in the amount of $41.5 million in the second quarter of 2024. While adjusted cash flow is not a recognized measure under IFRS Accounting Standards, the Directors believe that it is a useful analytical measure as it better reflects cash available for dividends to shareholders.

Iron ore prices decreased during the second quarter of 2025 as a result of lower steel demand, particularly from within China due to continuing issues with China’s property sector. At the same time, the supply of global seaborne iron ore remained robust. According to the World Steel Association, global crude steel production was down 1% in the second quarter of 2025 compared to the prior quarter and was down 3% in the second quarter of 2025 compared to the second quarter of 2024, with most of that decline coming from China which was down 5%. On the supply side, shipments in the quarter ended June 30, 2025 for the world’s three largest iron ore producers (Rio Tinto, Vale and BHP) were relatively consistent year over year (-1%, -3% and +2%, respectively) and increased over the last quarter by 15%, 17% and 15%, respectively.

IOC sells CFS based on the Platts index for 65% Fe, CFR China (“65% Fe index”). 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% less ore per equivalent volume than dry ore. In the second quarter of 2025, the 65% Fe index averaged US$108 per tonne, a 7% decrease over the prior quarter and a 14% decrease over the average of US$126 per tonne in the second quarter of 2024. The monthly Atlantic Blast Furnace 65% Fe pellet premium index as quoted by Platts (the “pellet premium”) averaged US$35 per tonne in the second quarter of 2025, down 18% from an average of US$43 per tonne in the same quarter of 2024, as lower steel margins continued to cause steel producers to substitute higher quality pellets with less expensive lower quality iron ore.

Rio Tinto has disclosed that the average realised price achieved for IOC pellets, FOB Sept Îles, in the second quarter of 2025 was US$127 per tonne, compared to US$148 per tonne in the same quarter of 2024. Based on sales as reported for the LIORC royalty, the overall average price realized by IOC for CFS and pellets, FOB Sept-Îles, net of freight charges was approximately US$107 per tonne in the second quarter of 2025, compared to approximately US$127 per tonne in the second quarter of 2024.

Iron Ore Company of Canada Operations 

Operations

IOC concentrate production in the second quarter of 2025 of 4.5 million tonnes was 16% higher than the same quarter of 2024, and 5% higher than the first quarter of 2025. In the second quarter of 2025 IOC continued to focus on improving the pit health of the mining operations. Total mine material moved increased by 24% over the same quarter last year, as a result of increased truck payloads and higher contractor movement of material. However, the higher material movement was partially offset by a higher strip ratio as a result of limited ore availability, resulting in a 13% increase over the same quarter of 2024 in ore delivered to the concentrator. While concentrate production in the second quarter of 2025 continued to be negatively impacted by a lower weight yield due to a lower spiral plant performance, there was a slight improvement relative to recent prior quarters.

IOC saleable production (CFS plus pellets) of 4.2 million tonnes in the second quarter of 2025 was 14% higher than the same quarter of 2024. Pellet production of 2.2 million tonnes was 4% higher than the corresponding quarter in 2024, predominantly as a result of equipment reliability issues and a site wide power outage that negatively impacted operations in the second quarter of 2024. CFS production of 2.0 million tonnes was 27% higher than the same quarter of 2024 mainly due to the higher production of concentrate referred to above.

Sales as Reported for the LIORC Royalty 

Total iron ore sales tonnage by IOC (CFS plus pellets) of 4.6 million tonnes in the second quarter of 2025 was 10% higher than the total sales tonnage for the same period in 2024 and 43% higher than the first quarter of 2025.  The increase in IOC sales tonnage was largely a result of increased availability of inventory and timing of vessels. Pellet sales tonnages were 2% lower than the same quarter of 2024 and 15% higher than the first quarter of 2025. CFS sales tonnages were 28% higher than the same quarter of 2024 and 98% higher than the first quarter of 2025.

Outlook

In its second quarter production report, Rio Tinto disclosed that the 2025 guidance for IOC’s saleable production (CFS plus pellets) remains at 16.5 million to 19.4 million tonnes. This compares to 16.1 million tonnes of saleable production in 2024 and 8.2 million tonnes of saleable production in the first half of 2025. IOC has updated its outlook for capital expenditures in 2025. IOC is now forecasting that its 2025 capital expenditure will be US$299 million, down from the originally budgeted US$342 million. To date, IOC’s capital expenditures are on track with the updated forecast.

Since the end of the second quarter, iron ore prices have remained relatively stable, while pellet premiums have continued to decline.  In July 2025, the 65% Fe index averaged US$112 per tonne and the July pellet premium was US$27 per tonne. Longer term the outlook for iron ore prices remains challenging. According to S&P Global Commodity Insights prices for the Platts index for 62% Fe, CFR China (“62% Fe index”) are projected to average $97 per tonne in 2025 gradually declining to $80 per tonne by 2029, as a result of a combination of increasing global supply and softening steel demand, especially from China, before recovering to $95 per tonne by 2035 as trade balances tighten. The expected surplus in seaborne iron ore is largely driven by the launch of the Simandou greenfield project in Guinea and increasing exports from Brazil.  The demand for steel in China is expected to remain muted as a result of the protracted slowdown in the domestic property sector, and the rising trade tensions from US-China tariffs. The recent anti-dumping measures imposed by India and Southeast Asian nations are anticipated to restrict China’s steel exports.  On a more optimistic note, S&P Global Commodity Insights expects the premium for high-grade iron ore (65% Fe Index over the 62% Fe Index) to increase in the long run as the steel industry increases the use of high-grade iron ore as a means to lower carbon emissions.

LIORC has no debt and at June 30, 2025 had positive net working capital (current assets less current liabilities) of $29 million, which included the second quarter net royalty payment received from IOC on July 25, 2025 and the LIORC dividend in the amount of $0.30 per share paid to shareholders on the next day.

Management’s Discussion and Analysis

The following discussion and analysis should be read in conjunction with the Management’s Discussion and Analysis section of Labrador Iron Ore Royalty Corporation’s 2024 Annual Report, and the financial statements and notes contained therein and the June 30, 2025 interim condensed consolidated financial statements.

Overview of the Business

The Corporation’s revenues are entirely dependent on the operations of IOC as its principal assets relate to the operations of IOC and its principal source of revenue is the 7% royalty it receives on all sales of iron ore products by IOC. In addition to the volume of iron ore sold, the Corporation’s royalty revenue is affected by the price of iron ore and the Canadian – U.S. dollar exchange rate. The first quarter sales of IOC are traditionally adversely affected by the general winter operating conditions and are usually 15% – 20% of the annual volume, with the balance spread fairly evenly throughout the other three quarters. Because of the size of individual shipments, some quarters may be affected by the timing of the loading of ships that can be delayed from one quarter to the next.

Financial Highlights

The lower revenue, net income and equity earnings from IOC achieved in the second quarter of 2025 as compared to 2024 were mainly due to lower iron ore prices and lower pellet premiums, partly offset by higher sales tonnages. The second quarter of 2025 sales tonnages (CFS plus pellets) were higher by 10%, predominantly due to an increase in the availability of inventory as a result of increased production levels. While CFS sales tonnages were 28% higher than the same quarter in 2024, pellet sales tonnages were 2% lower.

The lower iron ore prices and pellet premiums, partly offset by higher sales tonnages, resulted in royalty revenue of $46.2 million for the quarter as compared to $52.3 million for the same period in 2024. Second quarter 2025 cash flow from operations was $17.7 million or $0.28 per share compared to $82.1 million or $1.28 per share for the same period in 2024. LIORC received no IOC dividend in the second quarter of 2025 compared to $41.5 million or $0.65 per share for the same period in 2024. Equity earnings from IOC amounted to $2.3 million or $0.04 per share in the second quarter of 2025 compared to $18.5 million or $0.29 per share for the same period in 2024.

Operating Highlights

IOC sells CFS based on the 65% Fe index.  In the second quarter of 2025, the 65% Fe index averaged US$108 per tonne, a 14% decrease over the average of US$126 per tonne in the second quarter of 2024, as a result of lower steel demand, particularly from within China due to continuing issues with China’s property sector.  At the same time, the supply of global seaborne iron ore remained robust. The monthly pellet premium averaged US$35 per tonne in the second quarter of 2025, down 18% from an average of US$43 per tonne in the same quarter of 2024, as lower steel margins continued to cause steel producers to substitute higher quality pellets with less expensive lower quality iron ore.

Based on sales as reported for the LIORC royalty, the overall average price realized by IOC for CFS and pellets, FOB Sept-Îles, net of freight charges was approximately US$107 per tonne in the second quarter of 2025 compared to approximately US$127 per tonne in the second quarter of 2024. The decrease in the average realized price FOB Sept-Îles in 2025 was a result of lower CFS prices and lower pellet premiums, as well as a lower percentage of pellet sales.

The following table sets out quarterly revenue, net income, cash flow and dividend data for 2025, 2024 and 2023. Due to seasonal weather patterns the first and fourth quarters generally have lower production and sales. Royalty revenues and equity earnings in IOC track iron ore spot prices, which can be very volatile. Dividends, included in cash flow, are declared and paid by IOC irregularly according to the availability of cash.

Standardized Cash Flow and Adjusted Cash Flow

For the Corporation, standardized cash flow is the same as cash flow from operating activities as recorded in the Corporation’s cash flow statements as the Corporation does not incur capital expenditures or have any restrictions on dividends.  Standardized cash flow per share was $0.28 for the quarter (2024 – $1.28).

The Corporation also reports “Adjusted cash flow” which is defined as cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes recoverable and payable.  It is not a recognized measure under IFRS. The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects the cash available for dividends to shareholders.

The following reconciles standardized cash flow from operating activities to adjusted cash flow.

Liquidity and Capital Resources

The Corporation had $4.8 million in cash as at June 30, 2025 (December 31, 2024 – $42.3 million) with total current assets of $57.5 million (December 31, 2024 – $95.1 million). The Corporation had working capital of $28.5 million as at June 30, 2025 (December 31, 2024 – $34.1 million). The Corporation’s operating cash flow was $17.7 million and the dividend paid during the quarter was $32.0 million, resulting in cash balances decreasing by $14.3 million during the second quarter of 2025.

Cash balances consist of deposits in Canadian dollars with a Canadian chartered bank. Amounts receivable primarily consist of royalty payments from IOC. Royalty payments are received in U.S. dollars and converted to Canadian dollars on receipt, usually 25 days after the quarter end. The Corporation does not normally attempt to hedge this short-term foreign currency exposure.

Operating cash flow of the Corporation is sourced entirely from IOC through the Corporation’s 7% royalty, 10 cents commission per tonne and dividends from its 15.10% equity interest in IOC. The Corporation normally pays cash dividends from its free cash flow generated from IOC to the maximum extent possible, subject to the maintenance of appropriate levels of working capital.

The Corporation has a $30 million revolving credit facility with a term ending September 18, 2026 with provision for annual one-year extensions.  No amount is currently drawn under this facility (2024 – nil) leaving $30.0 million available to provide for any capital required by IOC or requirements of the Corporation.

Disclosure Controls and Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate disclosure controls and procedures and internal control over financial reporting as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings. Internal control, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and due to its inherent limitations, may not prevent or detect all misrepresentations.

There have been no changes in the Corporation’s internal controls over financial reporting during the three-month period ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting. For the quarter ended June 30, 2025, the Chief Executive Officer and the Chief Financial Officer concluded that Labrador Iron Ore Royalty Corporation’s disclosure controls and procedures, and internal control over financial reporting are designed to provide reasonable assurance regarding the reliability of information disclosed in its filings, including its interim financial statements prepared in accordance with IFRS.

Notice:

The following unaudited interim condensed consolidated financial statements of the Corporation have been prepared by and are the responsibility of the Corporation’s management. The Corporation’s independent auditor has not reviewed these interim financial statements.

The complete consolidated financial statements for the second quarter ended June 30, 2025, including the notes thereto, are posted on http://www.sedarplus.ca and labradorironore.com.