IRC Limited — Interim / Quarterly Report 2011

Oct 12, 2011

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)

Wednesday, 12 October 2011

IRC: THIRD QUARTER TO 30TH SEPTEMBER 2011 TRADING UPDATE

DELIVERING STRONG QUARTERLY PRODUCTION AND ADVANCING GROWTH PROJECTS

IRC Limited (‘‘IRC’’ or the ‘‘Company’’, together with its subsidiaries, the ‘‘Group’’; stock code 1029) announced today its Trading Update for the Third Quarter of 2011, to 30th September 2011.

SUMMARY

Considerable progress has been made during the quarter developing IRC’s key assets, reflected in the passing of some key milestones. Following the announcement of a maiden profit for the first half, production has continued to ramp-up at the Kuranakh Mine, with full production capacity of iron ore now being achieved on a sustainable basis. Production increases have been timely, as IRC has delivered increased tonnes into record prices.

Construction and development at our second operation, the K&S Project has continued with great success to date. During the quarter, considerable progress has been made with mining, and logistics and support infrastructure. The quarter closed on a high note, with a ceremony to mark the laying of the first brick of the processing plant. This is a significant milestone for the operation, further de-risking the project and confirming confidence in our ability to deliver K&S.

Group highlights

• . Record production and record prices for our commodities.

• . Full production capacity levels of iron ore now achieved at Kuranakh Mine.

• . Significant progress with mining and infrastructure development at the K&S Project.

• . Strong cash balances and no significant external funding requirements forecasted.

• . Drawdown of ICBC loan to fund K&S development commencing in near-term.

Commenting on the performance in the third quarter, Jay Hambro, Executive Chairman of IRC said: ‘‘I am delighted to report that our operations have delivered a solid performance for the third quarter.

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Kuranakh is our first mine and it’s pleasing to report that by taking the iron ore output capacity to 100%, the team has proven their ability to develop an iron ore project. Emboldened by this success we are confident in achieving our full year production estimates. Ilmenite production is now being sold to a variety of customers as we ramp-up production. As we advised at the end of the first half, the ilmenite separators are not yet yielding as much as we had hoped, so we are revising the flowsheet, which should give us production capacity in early 2012.

As development work continues around the clock, it is exciting to see the K&S Project taking shape, infrastructure work is marginally ahead of schedule with railway connection to be completed by the end of the year. We are finalising the work programme for the construction of the beneficiation plant with our partners at CNEEC and this will determine the final timeline for commissioning. In this time of financial uncertainty in global markets, it’s pleasing to be able to reaffirm that we’re confident in the entirety of our funding requirements to deliver K&S.

I recognise that global markets remain challenging. That said, the fundamentals that drive our business and the reality that we see on the ground remain supportive. I have long purported a ‘‘stronger for longer’’ outlook for the iron ore market, and the supply, demand, logistic and financing activities that we see continue to support this view. The outlook for the remainder of the year is positive and I am confident that IRC will continue to demonstrate good production into a strong market for our commodities.’’

HEALTH AND SAFETY

Once again, the group reported an excellent safety performance for the quarter. At all operations, the number of lost time injuries remained low compared to the previous quarter, with no significant events recorded.

Employee numbers have remained relatively stable whilst the production ramp-up at Kuranakh has been greater, as have development activities at K&S.

Figure 1: Employee Numbers at the end of periods

EMPLOYEES Kuranakh K&S Other Total		2011	Q1 1,124 468 401 1,993	2010
	Q3 1,177 622 428 2,227	Q2 1,104 541 416 2,061		Year End 1,015 431 402
				1,848

MARKETING

Shipments of iron ore concentrate continued to our principal customer, one of the largest and most established steel producers in the Heilongjiang Province in north-eastern China. Kuranakh enjoys a strategically advantageous location due to its proximity to China. Excellent rail infrastructure means that iron ore concentrate is delivered to the Chinese border efficiently, taking on average only 10 days, thereby comparing favourably to shipments from elsewhere which must be railed, transferred through ports and shipped. This provides IRC with a clear advantage meeting end-consumer inventory and working-capital needs, whilst minimising our own working capital requirements.

Shipments of ilmenite concentrate are ongoing to a diverse customer base by geography and end use. During 2011 concentrate was sold to Russian, German, Japanese and Chinese counterparties.

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Marketing discussions continue with regard to offtake for K&S. There are a number of interesting opportunities to use this offtake and, its high quality, to generate an attractive price and geographical premium.

Sales Volumes

Iron ore and ilmenite concentrate sales increased during the third quarter. Iron ore sales increased 5% to 209,800 tonnes and ilmenite sales nearly tripled quarter on quarter to 24,195 tonnes. September 2011 marked the first anniversary since Kuranakh started selling concentrate. During this period a total 716,919 tonnes of iron ore and 42,664 tonnes of ilmenite have been produced. As the operation continues to ramp-up to maximum capacity it is anticipated that cash costs will fall.

Prices

Our average achieved prices remained strong for the quarter, at $150 per tonne for iron ore concentrate. Prices for iron ore concentrate are secured under a long-term offtake agreement and are calculated on a ‘‘Delivered at Place’’ basis (DAP). Due to some titanium content in the Kuranakh iron ore concentrate sold to our Chinese customer a small discount is deducted from the full iron ore spot price.

Encouragingly, however during the quarter, the price for ilmenite concentrate (which is a titanium dioxide product) jumped 63% to an average $221 per tonne.

Figure 2: Tianjin Iron Ore Spot Price, September 2010 to September 2011

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$/tonne
200
180
160
140
120
100
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60
40
20
0
Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11
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Source: Bloomberg Note: This is an indicative market price for iron ore and not the actual price achieved by IRC.

During the quarter the the rouble averaged 29.2 to the dollar, though it weakened 16% against the dollar over the quarter to close at 32.4.

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Figure 3: Dollar Rouble Exchange Rate, September 2010 to September 2011

USD: RUB

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35
30
25
20
15
10
5
0
Sep-10 Dec-10 Mar-11 Jun-11 Sep-11
Source: Bloomberg
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Outlook

Demand outlook for iron ore for the remainder of 2011 is robust. As Chinese steel consumption continues to grow, an associated increase in demand for imported iron ore is required, estimated at 5% per annum through to 2015. With ongoing constraints in the short and long-term delivery of iron ore projects, the supply deficit looks set to continue, especially in the northeastern provinces where IRC is the closest producer geographically, feeding an estimated 20 million tonne per annum iron ore deficit.

OPERATIONS

Kuranakh (100% IRC)

Operations

Mining activities continued to plan during the quarter, delivering good tonnages and grades to the crushing and screening plant. Improvements in recoveries resulted in firm increases in concentrate production of 26% to 217,100 tonnes for iron ore and 22% to 17,948 tonnes for ilmenite.

Figure 4: Kuranakh Production for 30 September 2011

IRON ORE Concentrate Produced t Concentrate Sold t Average Price (Fe 62.5%) $/t ILMENITE Concentrate Produced t Concentrate Sold t Average Price (TiO2 48%) $/t	Quarter 2011 Q3 2011 Q2 217,100 171,591 209,800 199,886 150 149 17,948 14,707 24,195 8,275 221 136	% Change
		Q3 11 vs Q2 11 26% 5% 1% 22% 192% 63%

Outlook

Efficiencies and production improved at Kuranakh during the third quarter. During the final quarter of the year, it is expected that iron ore concentrate production will increase further due to full capacity of iron ore production. This is a key milestone for IRC and one that places confidence in the full year 750,000 tonnes target.

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K&S (100% IRC) Mining

The mining of overburden continued during the quarter with the removal of 698,800m[3] of material in total.

Processing Plant

Progress continues per expectations at this time. The list of major equipment has been agreed with the plant construction contractor, China National Electric Engineering Company (CNEEC) and has now been forwarded to Uralmechanobr for detailed design confirmation.

The initial infrastructure works within the EPC site are on schedule. CNEEC has built 16 accommodation blocks for their workers and the administration building. The canteen is currently under construction and due for completion by the end of 2011. At the end of the quarter, there were 70 CNEEC workers on site and this will increase over the winter.

Recently, the official ceremony laying the first foundation brick for the Kimkan Processing Plant took place. Guest speakers included the President Medvedev’s Representative in the Russian Far East, the Governor of the EAO, and IRC Board Members Dr Pavel Maslovskiy and Mr Yuri Makarov.

Infrastructure

Construction of the 220kV central substation is ongoing. The two main 63kVA transformers have been delivered and installed. Connection of the substation to the power line and commissioning is planned for Q1 2012.

All of the pillars of the railway overpass are in place. The overpass is expected to be completed by the end of the year.

Outlook

With much of the mining and associated infrastructure development well advanced, attention will now shift towards the on time construction of the processing plant.

An updated selection of photos showing the progress at the K&S Project at the end of the quarter is available at: http://www.ircgroup.com.hk/en/Media/photographs/index.html

Garinskoye (99.58% IRC)

Exploration activities at Garinskoye advanced well during the quarter. 28 boreholes totalling 7,359 metres of core drilling were completed. In addition to earlier boreholes taken, a total 3,486 samples have been sent to the laboratory to date for quantitative chemical analysis.

For the year to date all of the planned confirmation drilling works have been completed at the Garinskoye Deposit and Flanks. Furthermore, prospecting and evaluation survey and confirmation of existing magnetic anomalies have been completed at the OrlovskoSokhatinskoye deposit.

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During the final quarter of 2011, the data obtained during the exploration works will be analysed and geological models prepared.

Based on the results of geological modelling the concept of a two-stage development of the Garinskoye Deposit could be considered. This could imply mining the higher grade ore first.

It should be noted that the external control of the exploration work is performed by independent consultants from Wardell Armstrong International (WAI) who visited the Garinskoye site in May 2011 and provided recommendations on the planned volumes of exploration works. WAI has also indicated the high level of work organisation and quality of exploration works that were conducted are in accordance with best practice methods.

Corporate Diary

IRC will report a trading update for the fourth quarter to 31st December 2011, on Thursday 12th January 2012.

2011 full year results are expected to be reported on Wednesday 22nd February 2012. The full year Results will be accompanied with a conference call. Details will be provided in due course.

Risk Factors

The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results. The Group’s view of the principal risks that could impact it for the remainder of the current financial year are substantially unchanged from the ones set out in the 2010 Annual Report. A summary of these key risks is set out below:

• . Operational risks such as delay in supply of/or failure of equipment/services and adverse weather conditions.

• . Financial risks such as commodity prices, exchange rate fluctuations, funding and liquidity and capital programme controls.

• . Health, safety and environmental risks such as health and safety issues, legal and regulatory risks, licences and permits, restatement of reserves and resources, and noncompliance with applicable legislation.

• . Legal and Regulatory risks such as country-specific risks.

• . Human Resources risks such as the ability to attract key senior management and potential lack of skilled labour.

This should not be regarded as a complete or comprehensive list of all potential risks that the Group may experience. In addition, there may be additional risks currently unknown to the Group and other risks, currently believed to be immaterial, which could turn out to be material and significantly affect the Group’s business and financial results.

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As at the date of this announcement, the Executive Directors of the Company are Mr G. Jay Hambro, Mr Yury Makarov, and Mr Raymond Kar Tung Woo. The Non-Executive Directors are Dr Pavel Maslovskiy and Mr Simon Murray, CBE, Chevalier de la Le´ gion d’Honneur. The Independent Non-Executive Directors are Mr Daniel Bradshaw, Mr Jonathan Martin Smith and Mr Chuang-Fei Li.

By Order of the Board

G. JAY HAMRBO

Executive Chairman

Hong Kong, People’s Republic of China Wednesday, 12th October 2011

Teleconference Call

IRC management will hold a teleconference call today at 15h00 Hong Kong time, 08h00 UK time to discuss the results. The dial-in number for the call is 852 3002 7801 in Hong Kong and 44 (0)208 817 9301 in the UK. The passcode for the call is 5838519. A presentation will be available on the website to accompany the call.

For further information, please contact:

Investors Nicholas Bias, Head of Communications Office: +852 2772 0007 Mobile: +852 9088 1029 Email: nb@ircgroup.com.hk

Media (Racepoint Limited) Tony Turner Office: +852 3111 9988 Mobile: +852 3111 9928 Email: tturner@racepointgroup.com Monika Yeung Office: +852 3111 9988 Mobile: +852 3111 9964 Email: myeung@racepointgroup.com

Registered Office

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

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