Labrador Iron Ore: Stock & Dividend Analysis

Your author generally isn’t a fan of commodities — as an investment, anyway.

The problem is you can’t predict the price. I have a pretty good idea what a Hershey chocolate bar will cost next year. I know that the rent charged by a REIT will rise at about the rate of inflation over time. And I can guess with some certainty how much a utility will be able to raise prices.

But oil? Damned if I know. With the stroke of a pen and the political might, the price of oil (which is right around $100 per barrel as I write this) could easily fall by 20%. It could also rise by an additional 20% if these politicians make other choices.

That’s a tough way to invest, at least in this humble analyst’s opinion.

Despite this, I own some oil in my portfolio. I view it as a hedge on my consumption. I drive a certain amount, and recently bought a new vehicle that isn’t quite as gas friendly as the last one. I also fly a few times a year. Besides, most of the products I buy at the grocery store are impacted, at least a little bit, by the price of fuel. So I think it makes a certain amount of sense to hedge.

Here are some more thoughts on how I invest in oil.

But when it comes to other commodities, I’m not sure the same logic applies. If the price of copper, or nickel, or even gold moons, why should I care? I rarely consume these commodities. Sure, something like a smartphone or a computer might use certain minerals which would affect the price in a small way, but these are occasional expenses. If I pay $10 extra for a smartphone every five years because a critical mineral costs a lot more, who cares? It’s a rounding error.

And then there’s the dividend situation. When gold was red hot in the latter part of last year, I went looking for a gold stock with a decent payout. I found a couple that had a history of dividends, but for the most part the exercise was a waste of time.

Commodity producers have little incentive to give cash back to shareholders. Folks aren’t in those stocks to hold over the long-term. They’re in them to speculate on the underlying price of the commodity. Therefore, it makes sense for management to plow all earnings back into the company in order to create even more exposure.

So I limit myself to a very specific type of commodity investment. Royalty companies are really financials that are masquerading as commodity plays. The royalty company makes an investment in a mine — which helps get the project off the ground in the first place — and in exchange gets the right to collect a fee on a certain percentage of the mine’s output.

It creates a situation where a reasonable profit is made when the commodity is struggling. The equation gets much more attractive when the commodity is doing well. This gives us a best of both worlds scenario.

Today I’m going to talk about one of those royalty companies. This one has the advantage of being ridiculously simple, with exposure to a great asset, and that puts a big emphasis on dividends. But there are also some short-term issues.

Let’s dive deeper into Labrador Iron Ore Royalty Corp (TSX:LIF).

Labrador Iron Ore (LIORC) is a ridiculously simple company. Unlike most other royalty companies out there — which are usually heavily diversified — LIORC owns a royalty stream off one mine.

As you may have already guessed, that mine is located in Labrador. More specifically, it is located just outside of Labrador City, which is pretty much the only settlement of any size in this sparsely populated part of the country. It’s located in the region known as the Labrador Trough, a mineral basin that has some of the world’s largest and highest quality iron reserves. The mine has expanded over the years to include five pits, which have the capacity to produce 23M tonnes of iron ore concentrate and 12.5M tonnes of pellets each year.

(Iron ore concentrate is the raw form of iron ore — a purified powder — that gets shipped to processors who then process it into pellets. The pellets are then fed into furnaces to make steel. IOC produces both; but it only has the ability to process a certain amount of concentrate into pellets onsite)

IOC also owns a 400+km railway line that takes its products to a port in Sept-Iles, in Quebec, which it also owns. The product is then shipped to awaiting steel producers in Canada, the United States, Europe, and other parts of the world.

There are a few reasons why the mine is so good. The first is the quantity of supply. IOC was founded in 1949 and begun extracting iron from its first pit in 1954. Operations shifted south in 1962 when it opened the Labrador City mine — which is still in operation today. IOC isn’t about to run out of product, either. The current mine has close to a billion tonnes of reserves left, which represents about 20 years of production at current rates. There’s also 1.5B tonnes of measured, indicated, and inferred resources nearby.

Put it all together, and production should continue until about 2100 — give or take a decade.

The quality of iron ore coming from IOC is also excellent. Its product comes out of the ground at around 40% purity, and is then upgraded from there into a product between 65-67% pure. High purity is ideal because electric furnaces need it. Coal-fired furnaces are slowly being phased out as steel producers are more aware of their environmental footprint.

All iron producers upgrade their iron to a 60-65% grade before it gets shipped out to customers. The difference in IOC’s quality is the ease of how it can do this. IOC’s upgrading process costs less than most other competing mines because nature did a lot of the work before the iron ever came out of the ground, and the resulting product is lower in the “bad” impurities — like phospherous or aluminum.

There are a few other mines that produce high quality iron — the Carajas Project in Brazil is the biggest — but not very many. This puts IOC’s product in the top 5-10% of product in the market. It is then purchased by steel makers who need efficient operations, or to offset the inefficiency of buying lower grade ore.

The mine is owned by three different owners. Rio Tinto, the operator of the mine, is the majority shareholder. It owns 58.7% of the mine. Up next is Mitsubishi Corporation, which owns 26.2%. It uses production in its various steelmaking assets. And finally, Labrador Iron Ore Royalty Co owns just over 15% of the mine.

So, in short, LIORC owns:

That’s the entire business. It’s ridiculously simple.

Unfortunately, the mine is experiencing a few short-term issues. Production in 2025 was 15.9M tonnes, versus 16.1M tonnes in 2024. Production peaked in 2017 at 19M tonnes, and the mine has a capacity of 35.5M tonnes, which includes 23M tonnes of powder and 12.5M tonnes of pellets.

Guidance for 2026 is for production to be between 15M and 18M tonnes, with the most likely result in the bottom end of that range.

So, what gives? Why are we running so much below capacity?

The issue lately has been “structural frame failures.” To put that in non-mining speak, it means that those massive mining hauling trucks are breaking down — quite literally, too. The frame issues are from the actual truck frames getting damaged. When you have a shortage of trucks, everything breaks down.

IOC is dealing with this, including telling investors that it recently acquired six new trucks. But problems are expected to persist for at least a few months longer, and perhaps even into 2027.

There are also issues with the mine pit health. These are slowly being fixed, but they could also impact production for a year or two, possibly longer.

These issues came to a head in Q1, with the mine producing a total of 3.4M tonnes of total product. That’s a 13% decrease compared to the same quarter of last year. It’s a disappointing result, and I’m not sure it gets a whole lot better as the year goes on, either.

The worldwide steel market has also been soft, which has persisted since 2022. China has decreased steel production as its real estate market has softened and its demand for skyscrapers has moderated. The rest of the world chugs along, but China has been doing the heavy lifting.

Finally, the premium for high-quality steel has been much less than usual. In 2022, the price of 65% pure iron ore was about US$110 per tonne. But LIORC was getting a premium of about US$75 per tonne. These days the price is about the same, but the premium has sunk to below US$50 per tonne.

So, put it all together, and we get:

No wonder the stock is flirting with a five-year low.

I view the situation more positively. The underlying asset is still an excellent one. Mine production should recover, as should prices. Cash flow is still robust even if prices are a little weaker. Any improvements would flow straight down to the bottom line. In short, both the mine and iron ore should recover eventually. And when it does, there’s some upside potential. Just look at 2021/22 as an example.

Plus, LIORC pays a generous dividend while you wait. The problem is the dividend isn’t consistent — which might be a dealbreaker for some of you.

LIORC has no need to keep any excess cash around. It doesn’t have any capex expenses to pay for, nor does it wish to expand. It has no debt to repay, either.

Therefore, all cash flows go directly to shareholders in the form of generous dividends. Since the price of iron ore and the mine’s production fluctuates, these dividends will go up and down over time.

Remember, LIORC doesn’t just own the royalty. It also owns 15% of the mine. When the mine is profitable it is entitled to dividends. Most years the mine is comfortably profitable and dividends are paid, which helps boost LIORC’s dividend. 2025 was a notable exception; Rio Tinto invested in the mine pit health and didn’t declare a dividend.

Last year LIF issued $1.55 per share in dividends. That was the lowest payout since 2015/16, when it paid $1 per share in annual dividends in both years.

We can see there are massive differences in dividends here. They’re as low as $1 per share and as high as $6 per share. I first bought my LIORC position in 2020 for just over $18 per share — I’ve bought more since — so I was pleasantly surprised when the 2021 and 2022 dividends were so generous.

In fact, I’ve pretty much gotten all my capital back in dividends. I’m playing with house money here.

Here’s what I did to try and anticipate what the dividend would be. I simply averaged out the last decade’s worth of payouts and assume I’m going to get that going forward. That works out to $2.865 per share, which is a hair over a 10% yield.

I could easily be wrong here. In fact, I probably will be. I’m certainly not an iron ore expert. What I do know is the company has struggled with various issues over time and it’s always seemed to work out. The bad years and the good years tend to even themselves out.

As 2025 showed, even a bad year still offers a 5%+ dividend.

This is not your typical dividend growth investment. It’s not even your typical high yield stock investment. I go into this one knowing full well the dividend income isn’t going to be consistent.

But I’m still a fan. LIORC has a royalty stream on one of the world’s finest iron ore mines. That’s a nice asset to own. It’ll continue to deliver generous dividends in years where the iron ore price is pretty good, with the occassional year of massive dividends as iron ore goes crazy. At that point you have the choice to sell into the strength, or just hold the stock.

And remember — unlike a lot of other high yield choices in the market today, LIORC actually pays dividends. This means the payout is taxed at an attractive rate, making this one a potential choice for the taxable part of your brokerage.

Your author owns shares in Labrador Iron Ore Royalty Corp. Nothing written above is investment advice. It is for research and educational purposes only. Consult a qualified financial advisor before making any investment decisions.