IRC Limited — Interim / Quarterly Report 2013

Oct 16, 2013

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. The information set out below in this announcement is provided for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for shares in the Company.

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(Incorporated in Hong Kong with limited liability) (Stock code: 1029)

IRC: THIRD QUARTER TO 30TH SEPTEMBER 2013 TRADING UPDATE

Wednesday 16th October 2013. IRC Limited (Stock Code 1029) (‘‘IRC’’ or the ‘‘Company’’, together with its subsidiaries, the ‘‘Group’’) today announces its Trading Update for the Third Quarter of 2013, to 30th September 2013.

SUMMARY

IRC is pleased to announce that the third quarter production numbers are on track to meet the increased full-year guidance; construction activities at K&S continue to progress and the balance sheet will be further strengthened with additional funding from strategic Chinese investors.

At the Kuranakh Mine, IRC achieved a good quarter with 248,529 tonnes of iron ore and 33,626 tonnes of ilmenite produced. At the end of the third quarter, 78% of the recently increased annual iron ore production target of 980,000 tonnes and 70% of the 160,000 tonne annual ilmenite production target have been achieved.

Construction activities at K&S continue to progress. The level of rainfall and consequent flooding across the Russian Far East highlighted in the second quarter continued into the third quarter. The flooding has resulted in IRC’s lead contractor at K&S reporting delays in transporting equipment and construction materials to site, and consequently, the target for first commercial production from K&S is extended to the second half of 2014.

Conclusion of the second stage of the transaction with new strategic investors General Nice and Minmetals Cheerglory was confirmed on 4 October 2013, with proceeds of HK$1.044 billion (approximately US$134.7 million) anticipated on 18 November 2013. With the HK$800.5 million (approximately US$103.3 million) Stage 1 proceeds already received in April 2013, a total HK$1.845 billion (approximately US$238.0 million) has been raised, resulting in a strong balance sheet.

GROUP HIGHLIGHTS

• . Increased year-to-date production and sales at Kuranakh compared to same period last year.

• . 2013 full-year production targets recently increased and re-affirmed.

• . General Nice and Minmetals Cheerglory transaction Stage 2 for US$134.7 million completion confirmed. Stage 1 completed for US$103.3 million; and

• . Construction and mine development at K&S ongoing with weather-related delay expected to plant construction.

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Commenting on the performance in the Third Quarter, Jay Hambro, Executive Chairman of IRC, said: ‘‘I am pleased to report that IRC has delivered another quarter of excellent progress and is on track to achieve annual production targets. The next 12 months will see IRC quadruple iron ore production capacity and so work programmes are accelerating. Operations at Kuranakh are on schedule to deliver another record year. Positive gains in production efficiencies enabled us to confidently increase our 2013 annual production target for iron ore by 9% to 980,000 tonnes. This will be the third year in a row that we have beaten the nameplate capacity at Kuranakh; testament to the hard work of our operations team there. Pit development has continued at Kuranakh and as we enter into 2014, production flexibility should improve with two pits operating at full complementary capacity. Efficient stockpiling will once again allow us to suspend mining operations for a period during December and January to reduce mining costs. Meanwhile, the beneficiation plant will continue to process the stockpiled ensuring a consistent flow of final product.

General Nice and Minmetals recently confirmed the second and final stage of their investment totalling US$238 million into IRC. Next month IRC will receive an additional US$134.7 million, in addition to the US$103.3 million already received in April 2013. These funds will secure completion for the K&S Stage 1 and facilitate our financial capacity for an expansion to 6.3 million tonnes. I believe that our Chinese partners’ decision to invest in IRC is a strong endorsement for our strategy and growth plans.

On growth plans, development activities at K&S have continued to progress well despite the challenges that arose due to unseasonably high rainfall across the Russian Far East and North-Eastern China. Whilst our contractors and IRC teams have put considerable extra effort in to completing the project on time, an unavoidable delay of approximately three months on the project now looks likely. This delay is a consequence of delays in transporting construction and equipment to site due to the rain and flooding that temporarily closed access routes and ports between Russia and China. Whilst this delay is regrettable, it is important to understand it is not a reflection of any delays on site, and I would like to thank our employees and contractor for the effort and commitment that they have shown under considerable pressure.

The recent and significant rise in seaborne freight costs highlights one of IRC’s competitive advantages and should remind people of the substantial value in our large portfolio of assets. Curiously, the delay at K&S has reminded me of the advantages of operating in the Far East of Russia. With supplies and equipment being delivered from China, we have been able in some instances to find new routes using alternative border points and variations of road, rail and river access, and are not dependent on one single route to site. Furthermore, the quality of the Russian infrastructure has ensured that after the flooding, things soon returned to normal without any significant rebuilding. Importantly, we have managed to supply without interruption to our customers in China, who were also suffering from the rainfall. Even during these challenging times, IRC’s infrastructure and logistics advantages are becoming apparent again, especially as we have been successful in lowering our transport costs whilst much of our industry is enduring significant increases in seaborne freight rates just now.

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RESULTS SUMMARY

During the first nine months of 2013 production of iron ore and ilmenite increased by 11% and 27% respectively at the Kuranakh Mine compared to the same period last year. Annual targets of 980,000 tonnes of iron ore concentrate and 160,000 tonnes of ilmenite concentrate are reaffirmed.

					Sept 30	Sept 30
					2012	2013
	Products	Q3 2012	Q3 2013	Change	YTD	YTD	Change
Production (tonnes)	Iron Ore (62.5% Fe)	261,204	248,529	–5%	693,514	767,428	+11%
	Ilmenite (48% TiO2)	33,267	33,626	+1%	88,712	112,714	+27%
Sales (tonnes)	Iron Ore (62.5% Fe)	260,033	233,102	–10%	684,054	781,952	+14%
	Ilmenite (48% TiO2)	24,344	35,224	+45%	77,310	113,560	+47%

CONFERENCE CALL

There will be a conference call today at 10h30 Hong Kong time to discuss the third quarter trading update. The number is +852 2112 1700 and the passcode is 9929016#. Presentation slides to accompany the call are available at ircgroup.com.hk. A replay call will be available from 17 October 2013 at www.ircgroup.com.hk.

MARKETING

Chinese demand for iron ore during the quarter was strong as Chinese steel production continues to hit new records. Iron ore stockpiles at Chinese ports remain at near historic lows, and despite a near-term increase in supply from Australian expansion projects, industry commentators suggest tight supply conditions during the fourth quarter when the seasonal restocking of iron ore takes place ahead of the winter and Chinese New Year.

Seaborne freight rates increased significantly during the quarter, exacerbated by ongoing port delays and some weather related interruptions. The logistical advantages that IRC benefits from transporting iron ore by rail instead of sea are becoming apparent again. IRC recently achieved lower rail freight costs and because the border delivery point is closer to its customers, they too benefit from shorter travel distances and therefore costs, enabling them to better manage inventories through just-in-time style deliveries and therefore working-capital.

Shipments of ilmenite concentrate are ongoing to an expanding and diverse customer base by geography and end-use. The marketing team report good demand despite a softening of the global price. The Kuranakh product quality is highly regarded because of its consistency and low impurity levels and because the product is sold in user-friendly two-tonne bags, it is more available to smaller customers.

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Sales Volumes

Sales volumes for first nine months of 2013 set new records at 781,952 tonnes for iron ore and 113,560 tonnes for ilmenite, up 14% and 47% respectively compared to the same period last year.

Prices

Iron ore prices for delivery to China gained over the quarter due to a strong underlying domestic steel market and an improvement in economic sentiment. The benchmark Tianjin CFR price (62% Fe iron ore fines) opened the quarter at US$117 per tonne, the lowest point for the quarter, increasing to over US$140 per tonne in mid-August, before softening to a still respectable US$131 per tonne at the end of the quarter, some 12% higher than the quarter start. The iron ore price averaged US$131 per tonne for the quarter compared to US$126 per tonne in the previous quarter. In reality, steel demand proved more robust than some pessimistic analyst forecasts and with iron ore inventories at near-historic lows, demand for iron ore continues to grow, even in the usually weaker Chinese summer months.

Sales for IRC iron ore concentrate from the Kuranakh Mine are secured under a long-term offtake agreement and prices are calculated on the INCOTERM ‘‘DAP’’ (Delivered at Place) basis. During the quarter, the average achieved selling price for iron ore was US$110 per tonne, an 8% decrease compared to US$119 per tonne in the previous quarter. The price formula is based on averages for preceding periods and therefore lags the spot price.

The price for ilmenite concentrate (a titanium dioxide product) continued to be weak following the sharp fall in the second quarter. The average achieved selling price was US$189 per tonne, a 19% decrease compared to the previous quarter. The majority of IRC ilmenite sales are to Chinese customers and whilst prices have been soft, the sales and marketing team continue to report good demand for IRC ilmenite products due to the superior product quality and characteristics.

Average Monthly Tianjin Iron Ore Spot Price, October 2012 to September 2013 (US$/t)

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Source: Bloomberg. Note: that this is a generic market price for iron ore and not the actual price achieved by IRC.

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IRC together with General Nice and Minmetals Cheerglory have entered into a conditional 15-year offtake arrangement covering production from K&S, Garinskoye and future projects. IRC has full discretion to sell by either a dry-port or a seaborne arrangement. Dry-Port Arrangement will incur a 5% marketing fee on sales revenue payable to the Chinese strategic investors and subject to a 65% cap on total, i.e. sending 100% of material to the dry-port incurs a 3.25% fee. Alternatively, IRC may choose to sell its products via the seaborne market with a guaranteed take-or-pay off-take thereby providing flexibility and a guaranteed revenue stream if it is considered preferable to sell its concentrates via the seaborne market. Using this option, concentrate would be sold at the then prevailing Platts CFR China price subject to a 7% discount.

During the quarter the Rouble opened at 33.0 and closed stronger at 32.4 to the dollar. The Rouble was largely stable through the quarter, with some volatility returning in late September, though due to US dollar related issues.

Russian Rouble — US Dollar Rates October 2012 to September 2013

Source: Bloomberg

Outlook

Positive conjecture around Chinese urbanisation and infrastructure development suggests ongoing demand growth in steel and therefore iron ore. This will be at a slower pace, though it is important to recognise that it is off a larger base. This is the long-term positive trend. Ongoing supply constraints due to geological, production, infrastructure and financing challenges will continue to hinder overly optimistic supply growth forecasts. Short-term capital concerns, the woes of the domestic Chinese steel industry, low iron ore inventories in the supply chain and the seasonal restock and weather related disruptions in supply could give rise to short-term price volatility.

With these factors in mind, the iron ore market remains robust, and could provide support for prices into the fourth quarter of 2013 and the first quarter of 2014.

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OPERATIONS

Kuranakh (100% owned)

Mining

The Kuranakh operation comprises both the original Saikta open pit and the more recently established Kuranakh open pit.

During the third quarter, mining production and development activities progressed well. Mining works were conducted in accordance with revised mining plan, designed to compensate the low grades experienced during the second quarter. Almost 60% of mining volumes are now concentrated on the Kuranakh pit with lower stripping ratios and higher grades.

Production for the quarter was 1,115,865 tonnes of ore removed, 20% more than the previous quarter. As advised in the previous quarter, the grade was temporarily lower, although due to the corrective measures implemented an approximate 10% higher average grade and near 10% improvement in final product yield was achieved. This is in line with the longer-term mine plan and there has been no impact to full-year production targets, indeed, production target for iron ore has actually been increased by 9% for 2013.

Processing

For the quarter, the Kuranakh Crushing and Screening Plant processed 1,020,207 tonnes of iron ore with a grade of 26.7% Fe and 8.1% Ti02, producing 549,657 tonnes of pre-concentrate. Stockpiles totalled 348,552 tonnes, an increase of 38% compared to the period start. This is equivalent to 33-days feed for the crushing and screening plant. Stockpile will continue to increase during the fourth quarter in preparation for the planned temporary suspension over the Russian Christmas and New Year holidays.

Operations improved further at the Olekma Processing Plant during the quarter. A total 485,184 tonnes of pre-concentrate was processed, resulting in production of 248,529 tonnes of iron ore, and 33,626 tonnes of ilmenite concentrate.

Production

With good progress at Kuranakh already achieved, in September 2013, the annual production target for iron ore was increased by 9% to 980,000 tonnes. For the third quarter 2013, 248,529 tonnes of iron ore concentrate was produced, a decrease of 5% compared to the same quarter last year. Production for the first three quarters totalled 767,428 tonnes, 78% of the revised annual target. The increase in production capacity of ilmenite from 125,000 tonnes to 160,000 tonnes is progressing well with production totaling 33,626 tonnes in concentrate for the quarter and 112,714 tonnes for the first three quarters, 70% of the annual target. It is anticipated that the additional separators installed in October will result in higher production for the final quarter and the ability to realise 48,000 tonnes of ilmenite and therefore the annual target of 160,000 tonnes.

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Costs

Russian inflation continues to run high in the third quarter of 2013. Cost-saving initiatives in both production and administrative expenses introduced over the last 12 months have resulted in some positive gains, notably as production rates have increased.

A notable improvement was realised with transportation costs to the Chinese border. Loading optimisation of wagons has resulted in an approximate US$4 per tonne saving and efforts are ongoing to secure better wagon lease rates and lower tariffs.

Quarterly Production and Sales for 2012 and 9 Months YTD 2013

			2012		2013
		Q3	Q4	Q1	Q2	Q3
IRON ORE
Concentrate Produced	t	261,204	275,921	280,837	238,062	248,529
Concentrate Sold	t	260,033	296,489	273,002	275,848	233,102
Average Price (Fe 62.5%)	US$/t	110	100	128	119	110
ILMENITE
Concentrate Produced	t	33,267	36,383	40,933	38,155	33,626
Concentrate Sold	t	24,344	43,928	32,248	46,088	35,224
Average Price (TiO2 48%)	US$/t	284	263	274	233	189

K&S (100% owned)

Construction activities at K&S continue to progress. The Far East of Russia and North East of China experienced excessive rainfall during the summer of 2013 and this has affected the border-crossings. Levels of rainfall broke 120-year records leading to unique logistical problems as river levels rose by as much as 10 metres. Whilst the sites of the Group’s mining assets have not themselves been materially affected by the flooding, the Group’s EPC contractor CNEEC has notified the Group of delays in procuring certain construction materials and equipment for the K&S site due to closures of cross-border ports on the Amur River. CNEEC has informed the Group that the rainfall and flooding will lead to a delay of approximately three months in the construction of the K&S project. The Group therefore expects that commercial production may be delayed from the original target of mid-2014 to the second half of 2014. IRC updates the market in January of annual production targets. Capacity for 2014 will be affected by this delay, however, it is expected that K&S will reach full production capacity before the end of 2014. Whilst this delay is regrettable, it is important to understand it is not a reflection of any delays from IRC and work at site has continued as evidenced in construction, stripping and infrastructure work.

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Mining

The overburden stripping intensified in the third quarter. A total 774,700m[3] of material was removed resulting in a total of 8.9 million m[3] of material moved to date of required 14.5 million m[3] of overburden required ahead of the operation start-up at the end of December 2013, and comfortably inline mine plan at this stage. Stripping rates will continue to intensify through the fourth quarter and into 2014 as the project nears full commissioning. In August, a local group was appointed as the mining contractor. The contract covers both mine development and preparation of stockpiles ahead of commercial production, and full-scale ore production thereafter. The contractor’s mining fleet has been delivered and assembled on site in September and has started mining works in early October.

Processing Plant

Despite the high rainfall, contractors have made good progress over the quarter at site. Considerable amounts of heavy equipment has been delivered on site in preparation for installation during the fourth quarter, notably: ball mills, jaw crushers, bridge cranes for the main processing building, feeders, thickener, vacuum filters and separators. Remaining equipment will be delivered in accordance with installation schedules in the final quarter of 2013 and early 2014.

• . The plant construction work progress is estimated internally to be approximately 42% complete, with the Chinese contractor’s efforts concentrated on the main technological buildings, namely:

• Main Processing building being 58% completed with 80% of steel construction erected and external panels installation having started in early October to allow the equipment assembling work to continue in winter period

• Primary Crushing building 41% completed with 90% of concrete works and foundations completed

• Ore sorting building being 35% completed with 70% of steel construction erected and 100% foundations and concrete works completed

• Secondary and fine crushing ore building being 29% complete with 70% of concrete works and foundations completed

• Dry magnetic separation building 44% complete with 100% foundations completed and 75% of steel construction erected

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Work on auxiliary buildings, namely galleries, silos and the pump station is progressing. During the quarter, 8,900 tonnes of steel constructions, 78,000 m[3] of concrete, more than 9,000 tonnes of reinforced bars being installed and 415,000 m[3] of land works were completed. In preparation for the fourth quarter activities, more than 21,000 tonnes of steel structures, shapes, supports, rolled metal, sheets, beam channel, anchor bolts, and fastening elements were delivered on site during the Quarter.

Rail Connection to Beneficiation Plant

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Beneficiation Plant Exterior Panel Fitting

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Infrastructure

Good progress was made in the rail connection, station and signaling. The tailing facilities advanced to plan with good progress on earthworks and pipe installation.

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K&S Project Timeline

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Garinskoye (99.6% Owned)

Development on the Garinskoye Project continues to make good progress and our business development team remains on track to complete the full Bankable Feasibility Study for the revised DSO-style operation by the end of the year. Discussions with potential funding partners continue and a broad range of institutions is showing considerable interest.

The Garinskoye Project is located in the Amur Region of the Russian Far East, midway between the BAM and Trans Siberian Railways. The original conceptual design for Garinskoye was a large-scale open-pit operation with pre-concentrate to be railed to K&S for beneficiation; however, whilst an attractive opportunity, this requires a significant capital commitment and construction of a railway connection is only scheduled to be constructed before 2019. Consequently, over the last 2 years, IRC has developed an intermediate DSO style opportunity to selectively-mine high-grade ore zones, thereby minimising start-up capital and maximising returns. This work is currently being verified by independent third parties and the results so far are highly encouraging.

Corporate Update

In January 2013, IRC announced a two-stage transaction for a US$238 million subscription for new shares by strategic Chinese investors General Nice and Minmetals Cheerglory.

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Stage 1, which completed in April 2013 involved the subscription by General Nice of 851,600,000 new shares (including the deferred issue of 34,064,000 new shares), for US$103.3 million.

Stage 2, confirmation for which was concluded in early October 2013, is for the subscription by General Nice and Minmetals Cheerglory, for an additional 1,110,900,000 new shares, for a consideration of US$134.7 million.

The proceeds from the subscription are being used for the continuing development of the K&S Project and for the consideration of the Board to advance with the development of the Garinskoye Project, thereby unlocking the value in IRC’s extensive portfolio of development projects. The transaction also includes off-take and marketing arrangements, providing IRC with both sales volume and cash-flow security.

Following completion of the first stage of the transaction the Board announced the appointment of Mr Cai Sui Xin, Chairman of General Nice and Mr Liu Qingchun, Managing Director of Minmetals Cheerglory Limited as non-executive Directors of the Company.

Corporate Diary

IRC will report the trading update for the 3 months ended 31 December 2013 on 15 January 2014 and Annual Results, with the issuance of the Annual Report at the end of February 2014. An advisory conference call details to discuss these Results will be issued two weeks before.

RISK FACTORS

The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results. From the Board, to executive and operational management and every employee, the Group seeks to undertake a pro-active approach that anticipates risk, seeking to identify them, measure their impact and thereby avoid, reduce, transfer or control such risks. The Group’s view of the principal risks that could impact it for the remainder of the current financial year are substantially unchanged from those of the previous years. 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.

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• . 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.

By Order of the Board G. JAY HAMBRO Executive Chairman

Hong Kong, People’s Republic of China

Wednesday, 16 October 2013

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 Mr Simon Murray, CBE, Chevalier de la Légion d’Honneur, Mr Cai Sui Xin and Mr Liu Qingchun. The Independent Non-Executive Directors are Mr Daniel Bradshaw, Mr Jonathan Martin Smith and Mr Chuang-Fei Li.

For further information, please contact:

Nicholas Bias

Head of Communications Telephone: +852 2772 0007 Mobile: +852 9088 1029 Email: nb@ircgroup.com.hk

Shirly Chan (中文查詢) Investor Relations Co-Ordinator Telephone: +852 2772 0007 Mobile: +852 6623 3450 Email: sc@ircgroup.com.hk

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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