IRC Limited — Interim / Quarterly Report 2012

Oct 18, 2012

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)

IRC: THIRD QUARTER TRADING UPDATE TO 30TH SEPTEMBER 2012

Thursday 18th October 2012. IRC Limited (‘‘IRC’’ or the ‘‘Company’’, together with its subsidiaries, the ‘‘Group’’) announced today its Trading Update for the third quarter of 2012 to 30th September 2012.

SUMMARY

IRC is pleased to announce record production numbers that have exceeded expectations and are on track to meet full-year guidance. Furthermore, at the company’s growth assets, construction and exploration activities have continued to progress well.

At the Kuranakh Mine, production of iron ore for the quarter was 20% higher and ilmenite production was 85% higher compared to the third quarter 2011. The new ilmenite separators have been installed and are now operating at expanded annual capacity of 160,000 tonnes.

With the end of the summer, construction activities at K&S advanced, ahead of the planned winter slowdown. Notable developments during the quarter included the establishment of foundation work and the commencement of steel works.

However, the poor macro environment and lower iron ore prices are putting considerable pressure on the Group’s operational income, leading to continued expectations of a Group operating loss.

GROUP HIGHLIGHTS

• . Record production at Kuranakh with 2012 full-year production targets reaffirmed

• . New ilmenite circuits installed and operating at full capacity

• . K&S Project construction on track; Processing Plant foundations advanced and steelworks commenced

• . Completion of the Bolshoi Seym ilmenite and Molybdenum Exploration Project transactions during the quarter

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Commenting on the performance, Jay Hambro, Executive Chairman of IRC said: ‘‘With three quarters of 2012 behind us, I am pleased once again to report excellent progress on an operational front. We are continuing to deliver on our production targets and growth promises, achievements that are testament to the hard work of the whole IRC team and our contractors.

The third quarter is marked by the completion of the ilmenite technology upgrade at Kuranakh. Our team there has implemented a more than 150% increase in production capacity to 160,000 tonnes through the installation of new and additional technology in a short-time and for a minimal cost. I am confident that this achievement must be one of the lowest cost expansions in the world of ilmenite, demonstrating our resourceful approach to adding value.

It is sad that at a time when IRC is delivering ahead of expectations on an operational front, the market price for our core product is at such lows, extending our loss during the first half. I hope the recent increase in ilmenite production will counter this somewhat and I continue to believe the fundamentals remain positive for iron ore.’’

RESULTS SUMMARY

Production increased at the Kuranakh Mine. Annual targets of 820,000 tonnes of iron ore concentrate and 125,000 tonnes of ilmenite concentrate are reaffirmed. The programme to expand ilmenite capacity has been completed, and the target of 125,000 tonnes production and year-end capacity of 160,000 tonnes remains intact.

	Products	Quality	Q3 2012	Q3 2011	Change
Production (tonnes)	Iron Ore	62.5% Fe	261,204	217,147	20%
	Ilmenite	48% TiO2	33,267	17,948	85%
Sales (tonnes)	Iron Ore	62.5% Fe	260,033	210,293	24%
	Ilmenite	48% TiO2	24,312	22,035	10%

CONFERENCE CALL

A conference call will be held today at 11h00 Hong Kong time to discuss the third quarter trading update. The number is +852 3005 2050 and the passcode is 728235#. Presentation slides to accompany the call are available at ircgroup.com.hk. A replay call will be available from 19th October 2012 at +852 3005 2020 with the passcode 162844#.

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MARKETING

Iron ore concentrate shipments continued to IRC’s expanded customer base throughout East Asia. Despite the volatility in prices and supplies, customers appear to recognise the advantages of purchasing concentrates from IRC. Rail freight from the Chinese border to our customer operations is at a lower cost than from the seaports and with fewer bottlenecks. This allows for more frequent deliveries in lower volumes, thereby reducing transportation times and costs for customers. In turn, this means that IRC is helping its customers to better manage their inventories, costs and working capital requirements.

Shipments of ilmenite concentrate are ongoing to an expanding and diverse customer base. Due to the high quality of IRC’s ilmenite concentrate, the expansion of production has been welcomed in the market, both by certain existing customers looking to increase their purchases from IRC, but also by new customers that have been waiting patiently for IRC to increase production. The marketing team is encouraged by the demand and continues to report a positive outlook for both prices and offtake in the near and long-term.

Marketing discussions have continued with regard to offtake for K&S. There are a number of potential opportunities to use this high-quality product to generate an attractive price and geographical premium. Even in a period of volatile and deteriorating prices, management is encouraged by the interest from third parties to participate in offtake supply. IRC continues to review opportunities to use this offtake for the funding of corporate development opportunities.

Sales Volumes

Iron ore sales were above expectations at 260,033 tonnes for the quarter and 684,054 tonnes for the three quarters to the end of September 2012. Ilmenite sales are also ahead of expectations at 24,312 tonnes for the quarter and 77,278 tonnes for the three quarters to the end of September 2012. Sales volumes typically lag production volumes by approximately one month. Consequently, the increased ilmenite production volumes will not be reflected in ilmenite sales volumes until the fourth quarter.

Prices

Iron ore prices for delivery to China further softened in the third quarter 2012 compared to the previous quarter. On the spot market due to market concerns of an economic slowdown in China and the European debt crisis, the benchmark Tianjin CFR price (62% Fe iron ore fines) dipped below US$90 per tonne, before recovering at the end of September to US$110 per tonne, and higher still into October.

The average achieved selling price (ASP) for IRC was US$110 per tonne compared to US$127 per tonne in the previous quarter. Prices for iron ore concentrate are secured under a long-term offtake agreement and are calculated on the INCOTERM ‘‘DAP’’ (Delivered at Place) basis.

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During the quarter, the price for ilmenite concentrate (a titanium dioxide product) sustained recent gains. The average price was US$284 per tonne, compared to US$280 per tonne in the second quarter of 2012.

Figure 1: Tianjin Iron Ore Monthly Average Spot Price, July 2011 to September 2012 (US$/t)

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Source: Bloomberg Note: This is an indicative and generic market price for iron ore and not the actual price achieved by IRC.

Foreign Exchange

The rouble opened the quarter at 32.5 to the US Dollar and despite considerable volatility, ended the quarter to close at 31.2. Declining oil prices, inflation risks, the possibility of increased interest rates in the fourth quarter and concerns over economic growth are weighing on the currency. However, during the third quarter, the rouble was resilient, demonstrated by its performance as one of the strongest global currencies.

Figure 2: Dollar Rouble Exchange Rate, July 2011 to September 2012

Source: Bloomberg

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Outlook

Iron ore prices weakened over the quarter, yet despite this IRC experienced a record sales quarter in terms of volumes, in part due to a focus on customers based in the north-eastern China. IRC remains encouraged by the ongoing themes of urbanisation and industrialisation, and continues to believe that supply side constraints, exacerbated in a lower margin environment, will continue to result in a supply deficit in the medium term.

Customer interest for our iron ore remains strong, and IRC remains committed with its efforts to ensure ongoing sales at fair prices.

Demand for ilmenite concentrate remains strong. Following the expansion in volumes made available in late September, IRC continues to see strong interest for our products from both old and new customers. Current customers are pleased with the product quality and their demand exceeds our production capacity. IRC is seeing great interest from new potential customers — Several trading houses from Japan have shown a keen interest and potential deliveries for 2013 are being discussed. Thus, due to high demand for our ilmenite concentrate, IRC remains confident with our sales outlook.

OPERATIONS

Kuranakh (100% owned)

Mining

Mining activities at Kuranakh were ahead of plan. The operation comprises two pits, namely Kuranakh and Saikta. Both are now operating at their full complementary capacities, resulting in improved mining flexibility. Improved stripping ratios and marginally higher recoveries provided increased tonnage volumes and improved quality.

A total 782,529 tonnes of ore was removed during the quarter, an increase of 35% compared to the third quarter 2011. This is a quarterly record and demonstrates management’s ability to enhance internal resources and increase capacity. These operating levels approximately represent full-capacity and as stated before, will vary marginally on a quarterly basis. It is anticipated that similar capacity levels are sustainable for the remainder of the year, notwithstanding any unforeseen factors, placing the mine firmly on track to achieve the 2012 production targets.

Crushing, Screening and Processing

During the quarter the Kuranakh Crushing and Screening Plant processed 704,376 tonnes of ore with a grade of 24% Fe and 7.3% TiO2.

Stockpiles at the end of the quarter totalled an estimated 349,473 tonnes, equivalent to 40 days feed for the Processing Plant. This is a level that management considers prudent as the winter season approaches.

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Operations continued to improve at the Olekma Processing Plant. During the quarter a total 506,058 tonnes of pre-concentrate was processed, resulting in production of 261,204 tonnes of titanomagnetite with a grade of 62.5% Fe and 33,267 tonnes of ilmenite concentrate with a grade of 48%. Both represent strong increases compared to previous quarters: for iron ore due to improved operating efficiency and for ilmenite, due to the installation of the two new tilted-plate electrostatic separators.

Figure 3: Photo Updates from K&S Project, Q3, 2012

Kuranakh’s Olekma Processing Plant

Upgraded Ilmenite Circuits at Kuranakh

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Production

With good progress at Kuranakh continuing into the fourth quarter, it is encouraging to report that mine production is comfortably on track to achieve annual production targets. During the third quarter of 2012, 261,204 tonnes of iron ore concentrate were produced, resulting in a total of 693,515 tonnes for the three quarters to September 2012, equal to 85% of the annual target of 820,000 tonnes.

Following the completed ilmenite capacity upgrade the Processing Plant is now operating at 160,000 tonnes capacity on an annual basis. Consequently, the 2012 ilmenite production target at Kuranakh is confirmed at 125,000 tonnes, a combination of eight months at the lower original production capacity and four months at the new higher production capacity. During the third quarter 2012, 33,267 tonnes of ilmenite concentrate were produced, resulting in a total of 88,712 tonnes for the three quarters to September 2012, equal to 71% of the annual target of 125,000 of ilmenite. At the enhanced production rate of 160,000 tonnes a year, equal to 40,000 tonnes per quarter, the remaining 29% or 36,288 tonnes require to meet the 2012 ilmenite production target of 125,000 tonnes is on track to be achieved.

Production in 2013 is targeted once again at 820,000 tonnes of iron ore and 160,000 tonnes for ilmenite.

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Costs

Production costs at Kuranakh were in line with internal forecasts. The rouble has stabilised at around 31 to the US Dollar. The Producer Price Index for the quarter has shown some seasonal increase at the quarter-end but within management expectations. Salary rates have also increased, though without the need to increase the labour complement relative to production increases they are manageable. Input costs, such as fuel, were stable during the quarter, however, due to the usual cold weather and supply limitations during the fourth quarter, it is expected that diesel prices will show some increases before the year-end.

Rail Cost Optimisation remains a Key Target for the Group. Rail tariffs and related transportation charges, such as wagon leasing rates, have been stable so far with some minor decreases due to the overall economic downturn and increased competition in the railway transportation market after the privatisation of the largest wagon owner at the end of 2011. The Group is operating a significant number of leased wagons and management is heavily focussed on optimising wagon usage in view of the current transportation costs and the heavy winter season traffic on the Russian railway network.

As highlighted in the previous quarter, in line with on-mine inflation across the global mining sector, cost pressures remain. IRC is working hard to optimise costs, notably mining costs which represent 45% of total production costs. Economies of scale due to increasing production volumes, notably from ilmenite, will help to decrease unit costs. Many operating costs are semi-fixed, and consequently subcontractors are being introduced to undertake certain production processes, such as site transportation, to save on maintenance and production overheads.

Figure 4: Kuranakh Production and Sales

		2011		2012
		Q3	Q1	Q2	Q3	YTD
IRON ORE
Concentrate Produced	t	217,147	228,830	203,481	261,204	693,515
Concentrate Sold	t	210,293	217,689	206,332	260,033	684,054
Average Price (Fe 62.5%)	US$/t	150	117	127	110	117
ILMENITE
Concentrate Produced	t	17,948	26,751	28,694	33,267	88,712
Concentrate Sold	t	22,035	25,970	26,996	24,312	77,278
Average Price (TiO2 48%)	US$/t	212	293	280	284	282

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K&S (100% owned)

Mining

Overburden stripping continued to intensify into the third quarter. A total 798,000 m[3] of material was removed in the third quarter, resulting in total material moved to date of 6.3 million m[3] . This is more than a half of total required 12.2 million m[3] of overburden required, comfortably in line with the mine schedule at this stage.

In line with plan, minimal ore was mined as the work programme is to fully expose the ore bodies first by removal of overburden. Efforts in 2013 will be specifically aimed at the mining of the now exposed ore bodies and the 3 million tonnes required ahead of the operation start-up.

Infrastructure

The three concrete batching plants have been well utilised during 2012, allowing CNEEC to complete the initial site foundation works, including the main process factory and peripheral buildings.

The 22kv transformer site is now complete and is ready to be connected to the main cross country overhead power supply, before switching over to full national grid power as scheduled.

At the end of the third quarter, approximately 90% of all site foundation works are complete and the erection of some of the initial steel structures has commenced.

Figure 5: K&S Project Timeline

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Processing Plant

The steel stanchions for the factory have started to arrive on site with approximately 50% being available at the end of September 2012. Steel construction products, such as columns and reinforcing bars continue to be imported ensuring adequate supplies for construction activities and a conservative stockpile.

All licensing and testing certificates for both the continuation of works and all site materials as per requirements, have been completed and logged.

The ongoing design drawings and finalisation of detailed design aspects are progressing, ensuring that the project will keep moving forward to plan.

IRC is working closely with its contractors to enhance the implementation of the design procedures.

Figure 6: Photo Updates from K&S Project, Q3, 2012

Processing Plant and Office Building Foundations and Steel Structures

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Outlook

CNEEC continue to provide comfort to IRC in their ability to deliver works to schedule.

At the end of the third quarter construction remains on track with no evident delays. IRC and CNEEC are working on site and at their respective offices in Birobidzhan and Beijing to ensure the continuous progress of the works. This includes working together on large and small items: from the selection and importation of materials and equipment; transportation; licensing and testing certification; and immigration and customs practicalities. The cooperative working relationship between IRC and CNEEC has been strengthened further during the quarter and this is reflected in the excellent progress that has been achieved on site.

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EXPLORATION

Garinskoye (99.6% owned) and Garinskoye Flanks (100% owned)

Earlier in 2012 IRC announced the results of a positive scoping study for the production of low-cost direct shipment ore (DSO) from its large Garinskoye Deposit. The study, based on JORC reserves and resources, proposes a DSO style opportunity. IRC considers this to be an attractive option as it has a low start-up cost and short build period using existing technologies and innovative transportation suggests an attractive capital intensity rate. The study suggests production potential of 2.4 million tonnes of ore per annum, beneficiated to 2.1 million tonnes of 60% Fe iron ore fines concentrate. The simple production facilities would provide low operating costs and the proximity to the Chinese border would suggest low transportation costs.

Since announcing the DSO opportunity progress has continued over the summer season. IRC is continuing discussions with a range of potential financial providers for the construction of the Garinskoye DSO project. The project’s position at one of the lowest points on both the operational and capital cost curves has provided for financing interest and the provision of indicative termsheets from a variety of sources even in the current capital constrained equity and debt markets.

Full details of the scoping study are available at ircgroup.com.hk

Bolshoi Seym (100% owned)

In the second quarter 2012, IRC announced the signing of an agreement to acquire the remaining 51% ownership of the high-grade ilmenite Bolshoi Seym Deposit resulting in 100% ownership. During the third quarter, the transaction was completed and the pursuant to which a total 74,681,360 new ordinary shares were successfully allotted and issued.

Bolshoi Seym has attractive geology with approximately 331.5 million tonnes of reserves and resources; demonstrating the potential for an annual production capacity of approximately 200,000 tonnes of ilmenite concentrate. Furthermore, it is located adjacent to IRC’s established Kuranakh Mine, suggesting economies of scale and synergies from an enlarged operation using IRC’s proven track record in the area.

Full details of the acquisition are available at ircgroup.com.hk

Molybdenum Exploration (50.1%)

Also during the second quarter 2012 quarter, IRC announced the signing of an agreement to acquire a controlling 50% plus one share stake and an option over all remaining shares in a molybdenum exploration project situated in the Amur Region of the Far East of Russia. This transaction was also concluded during the third quarter pursuant to which a total 57,352,941 new ordinary shares were successfully allotted and issued.

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The acquisition will provide IRC with an attractive industrial commodity development opportunity whilst enhancing commodity and regional diversification.

This is a low cost entry into a new project with significant exploration upside. It offers some complementary commodity diversification which is attractive to IRC’s customer base. An early stage exploration identified metalised zones hosting high-grade pockets and are well located close to rail, energy and water infrastructure.

Following both the Molybdenum and the Bolshoi Seym acquisitions, the enlarged new number of ordinary shares in IRC is 3,494,034,301.

SRP (46% owned)

The Steel Slag Reprocessing Plant in North-Eastern China continued to make recoveries and production improvements during the third quarter, ramping up to near full capacity. Stable production output has resulted in an improvement in production efficiencies and production costs per tonne of the final product. Final product is currently being stockpiled.

CORPORATE DIARY

IRC will announce a Fourth Quarter Trading Update on Wednesday, 16th January 2013. A conference call to discuss the results will be announced two weeks in advance.

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 2011 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/contractors 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 non-compliance 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.

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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.

By Order of the Board G. JAY HAMBRO Executive Chairman

Hong Kong, People’s Republic of China

Thursday, 18th October 2012

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

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)

Monika Yeung/Winnie Lam Office: +852 3111 9988 Email: myeung@racepointgroup.com/wlam@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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