IRC Limited — Capital/Financing Update 2015

Apr 29, 2015

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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(Incorporated in Hong Kong with limited liability) (Stock Exchange of Hong Kong Code: 1029)

K&S OPERATING COSTS OPTIMISATION AHEAD OF PRODUCTION

29 April, 2015: IRC Limited (‘‘IRC’’ or the ‘‘Company’’, together with its subsidiaries, the ‘‘Group’’; Stock Code 1029) is pleased to announce that in reaction to the current depressed pricing environment for iron ore, and following successful material cost reductions at the Kuranakh Mine, the Company has completed a cost optimisation study for the new larger K&S Mine.

KEY HIGHLIGHTS

• . K&S Mine currently in commissioning stage, targeting production 1.0-1.2 million tonnes in 2015, thereafter 3.2 million tonnes a year

• . Premium 65.8% iron ore concentrate with superior logistics due to proximity to China

• . Further 28% reduction in cash cost estimates to US$35.4/t (delivered to border)

• . Offtake requests for 100% of production from Chinese customers received

IRC’s study shows that costs at the K&S can be reduced by 28%. Recent published quarterly results showed IRC’s recent programme has reduced costs at Kuranakh by c. 50%. Previously, operating costs at K&S were estimated to be below US$50/t delivered to the Chinese border. Following a study implementing similar cost reductions successfully achieved at Kuranakh and potential revisions to the K&S mine plan, it is now estimated that at full capacity the operation can produce and deliver premium 65.8% iron ore concentrate to the Chinese border for US$35.4/t. Furthermore, the new Amur River bridge, which is under advanced construction, could further reduce the costs by an additional c. US$5.50/t to US$29.9/t. This cost can be restated as US$28.0/t if using the global benchmark of 62% material. This confirms K&S as one of the lowest cost iron ore operations in the world and that even in the low iron ore price environment, still has the potential to generate positive returns.

Commenting on the news, Jay Hambro, Executive Chairman of IRC said, ‘‘As a result of this study, K&S remains an attractive iron ore mine in today’s harsh pricing environment. The reality of the low iron ore price forced us to rethink our entire cost base to ensure that the attractive returns investors expect from our new K&S Mine can be preserved. First we have almost halved our corporate costs recently. Second, following the lessons we learnt at our smaller Kuranakh Mine where we have almost halved costs over the last year, we have applied this to K&S and particularly optimised the mining plan at K&S. Our work suggests that we can now produce premium grade iron ore, delivered to the Chinese border, for US$35.4/t.

I believe that this affirms IRC’s K&S mine as one of the lowest cost operations in the world, a solid position as we prepare to produce our first iron ore in the coming months.’’

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Background

The K&S optimisation is an option to reduce cash costs by 28% to US$35.4/t delivered to the Chinese border. When the Amur River Bridge is operational (anticipated mid-2016), the cost would fall a further 15% to US$29.9/t due to the shorter distance to the Chinese market.

IRC has a recent positive track record in cost reduction, recently reducing costs at Kuranakh by c. 50% in twelve months. This process has seen a focus on selective mining and optimising the production, processing and transport flowsheet. The Kuranakh cost reduction can be broken down as: 13% production efficiencies; 11% selective mining; 3% overheads scaled; and 27% macro-economic and rouble impact.

K&S will produce a superior 65.8% iron ore concentrate, which will earn a higher price than the industry standard 62%. The equivalent K&S adjusted cash cost for 62% material is US$34.0/t. Also, because the iron ore concentrate can be delivered to the border within 5 days (3 days with the bridge), it warrants a logistics premium.

Consequently, with above average prices for the product, and the opportunity to lower costs, K&S will generate good margins, even in the current low commodity price environment.

The optimisation plan provides for a reduction in mining to focus on the more readily accessible reserves. This reduces mining waste and stripping, whilst preserving production rates. However, it would result in a reduction of the mine life if implemented. The following table details the revised mine plan benefits:

		Average per annum over 2016–2018 Previous	Average per annum over 2016–2018 Optimised*	Variance	Notes
Operations
Material moved	Km3	22,179	12,966	–42%	}Reduction due to focus on ore.
Waste	Km3	19,011	12,966	–32%
Stripping ratio	m3:t	1.79	1.12	–37%	Strip ratio = ratio of waste to ore.
Ore mined	Kt	10,644	11,584	9%	} Ore mined, grades and annual production of concentrate are not impacted by the optimised mining plan
Average ore grade	%	33%	33%	0%
Concentrate production	Kt	3,219	3,311	3%
Average concentrate grade	%	65.8%	65.8%	0%
Life of mine	years	30	20	–33%	Focus on ore makes part of previous reserves uneconomic so mine life decreases
Costs
Mining costs	US$/t	21.5	11.1	–48%	Unit mining cost reduced with lower material movement
Processing costs	US$/t	10.8	9.2	–15%	Processing costs optimised with mining
Production overheads	US$/t	2.8	1.9	–32%	Overheads reduced with scale
Site administrative and other costs	US$/t	2.3	1.9	–19%	Site admins reduced with scale
Tariffs and other railway charges	US$/t	11.6	7.2	–38%	Tariff reduced with bridge
Total Cash Cost	US$/t	49.0	31.2	–36%

• Data assumes: Operations and mine plan per internal studies and independent contractor input, USD/RUB exchange rate of 60; cashflow funds all sustaining capital expenditure and that required to move operations from Kimkan to Sutara , estimated at US$60 million over a period of 4 years.

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The commissioning process at K&S continues to progress well and IRC will provide further updates ahead of production in the coming months. Currently there are approximately 829 workers on site and work is progressing at the highest rate of progress since commencement. We are reassured of commissioning in mid-2015.

These cost savings build on our corporate cost saving programme that last year generated a US$2.4 million saving and is expected to reduce further US$6-7 million during 2015 to below US$10 million. This will represent a saving of close to 50% over a two-year period.

By Order of the Board G. JAY HAMBRO Executive Chairman

Hong Kong, People’s Republic of China 29 April 2015

As at the date of this announcement, the Executive Directors of the Company are Mr G. Jay Hambro and Mr Yury Makarov. The Non-Executive Directors are Mr Cai Sui Xin, Mr Liu Qingchun, Mr Simon Murray, CBE, Chevalier de la Légion d’Honneur and Mr Raymond Kar Tung Woo. The Independent Non-Executive Directors are Mr Daniel Bradshaw, Mr Chuang-Fei Li and Mr Jonathan Martin Smith.

IRC Limited 6H, 9 Queen’s Road Central Hong Kong Tel: +852 2772 0007 Fax: +852 2772 0329 Email: ir@ircgroup.com.hk Website: www.ircgroup.com.hk

For further information please visit www. ircgroup.com.hk or contact:

Shirly Chan Assistant Manager — Communications IRC Limited Telephone: +852 2772 0007 Email: sc@ircgroup.com.hk

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