IRC Limited — Interim / Quarterly Report 2013

Jul 10, 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: SECOND QUARTER TO 30TH JUNE 2013 TRADING UPDATE

Wednesday 10th July 2013. IRC Limited (‘‘IRC’’ or the ‘‘Company’’, together with its subsidiaries, the ‘‘Group’’) today announces its Trading Update for the Second Quarter of 2013, to 30th June 2013.

SUMMARY

IRC is pleased to announce that the second quarter production numbers are on track to meet full-year guidance, and that construction and development continue to progress well.

At the Kuranakh Mine, IRC achieved a good quarter with production of iron ore at 238,062 tonnes and ilmenite production at 38,155 tonnes, respectively 17% and 33% higher than the same period last year. For the first half of 2013, Kuranakh produced 518,899 tonnes of iron ore, 58% of the 900,000 annual target; and 79,088 tonnes of ilmenite, 49% of the 160,000 annual target.

Construction activities at K&S continue and remain on track for commissioning in the first half of 2014. Our processing plant contractor, CNEEC, is intensifying its efforts through the summer with a full programme of commercial scale works.

During the quarter, the first stage of the transaction with new strategic investors General Nice and Minmetals Cheerglory concluded. The second stage remains on track for completion before the end of September 2013.

GROUP HIGHLIGHTS

• . Increased quarterly and first half production and sales at Kuranakh compared to same periods last year.

• . Ongoing implementation of cost-saving measures at Kuranakh and across the Group.

• . General Nice and Minmetals Cheerglory transaction Stage 1 completed for US$103.3 million; Stage 2 for US$134.7 million expected to complete before the end of September 2013.

• . 2013 full-year production targets re-affirmed.

• . K&S on track for commissioning in 1H 2014.

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Commenting on the performance in the Second Quarter, Jay Hambro, Executive Chairman of IRC, said: ‘‘I am delighted to report production growth for IRC for the second quarter and first half 2013. At the end of June this year, we had a record quarter for mining and were marginally ahead of our iron ore production targets and on track to meet our ilmenite production targets. Whilst prices for iron ore fell from the highs realised in the first quarter, some ground was recovered in June, defying the market pessimism of some analysts.

I recently visited K&S and it was pleasing to see considerable development progress has been made. With efforts focussed on the Beneficiation Plant construction, the scale of what we are building is becoming apparent. The next step is to start installation and testing of the plant equipment. The IRC team has carried out an impressive amount of work on the tailings dam and mine facilities. The work will be completed soon and this will give us the necessary time to store water for the processing plant over the next 9 months. Within a year from now, we aim to be in commercial production, and whilst there is still much to do, we remain confident that we are on track.

I would also like to note the news that during the first half of 2013 we welcomed General Nice to our share register and I look forward to welcoming Minmetals Cheerglory soon. In a volatile environment where many strategic transactions have floundered, it is pleasing that ours is moving ahead. At nearly a quarter of a billion US Dollars in total, I believe this investment is the creation of a strategic partnership that marks a new chapter in IRC’s evolution as China-Russian trade grows and positions us as the leading China-Russia producer of high quality-steel raw materials.’’

RESULTS SUMMARY

During the first half of 2013 production increased at the Kuranakh Mine compared to the same period last year. Annual targets of 900,000 tonnes of iron ore concentrate and 160,000 tonnes of ilmenite concentrate are reaffirmed.

	Products	Q2 2013	Q2 2012	Change	1H 2013	1H 2012	Change
Production (tonnes)	Iron Ore	238,062	203,481	+17%	518,899	432,310	+20%
	Ilmenite	38,155	28,694	+33%	79,088	55,445	+43%
Sales (tonnes)	Iron Ore	275,848	206,332	+34%	548,850	424,021	+29%
	Ilmenite	46,088	26,996	+71%	78,336	52,966	+48%

CONFERENCE CALL

A conference call will be held today at 09h00 Hong Kong time to discuss the second quarter trading update. The number is +852 3027 5500 and the passcode is 370508#. Presentation slides to accompany the call are available at ircgroup.com.hk. A replay call will be available from 11 July 2013 at +852 3027 5520 with the passcode 169040#.

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MARKETING

Increased iron ore concentrate shipments continued to our customer base throughout East Asia. With port and rail capacity constraints weighing on the sector, despite some record low inventory levels, our customers continue to recognise the advantages of purchasing concentrates from IRC. Rail freight from our operations enables us to make more frequent deliveries in lower-volumes of a consistent product, meaning transportation times and costs to customers are shorter and at a lower cost. This means that IRC can help its customers to better manage inventories, costs and working capital requirements.

Shipments of ilmenite concentrate are ongoing to an expanding and diverse customer base by geography and end use. During 2013 IRC expects to increase production by 28% to 160,000 tonnes, and it is encouraging to note that the marketing team is reporting strong offtake and firm demand from IRC’s growing customer base.

Sales Volumes

Sales volumes for the second quarter 2013 were good at 275,848 tonnes for iron ore. Ilmenite sales at 46,088 tonnes.

Prices

Iron ore prices for delivery to China weakened over the quarter following the seasonally higher first quarter and heightened uncertainty surrounding the Chinese and global macro environment. The benchmark Tianjin CFR price (62% Fe iron ore fines) opened the quarter at US$137 per tonne, falling to US$111 per tonne in early June before recovering to US$115 per tonne at the end of the quarter and higher into July 2013. Iron ore averaged US$126 per tonne for the quarter compared to US$147 per tonne in the previous quarter. Whilst a 14% fall period-on-period, this is far short of some of the more pessimistic forecasts of sub-US$100 per tonne. In reality, steel demand proved more robust than 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$119 per tonne, a 7% decrease compared to the previous quarter. The price formula is based on averages for preceding periods and therefore lags the spot price.

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The price for ilmenite concentrate (a titanium dioxide product) deteriorated sharply at the end of the first quarter and into the second quarter, before recovering slightly. The average achieved selling price was US$233 per tonne, a 15% decline compared to the previous quarter. The majority of IRC ilmenite sales are to Chinese customers. The prices realised for ilmenite in China typically lag the global average. This meant that, in the first quarter, whilst global prices deteriorated, the price realised by IRC was a little higher than the global average for that period. Subsequently, as global prices for ilmenite recovered from the lows of May 2013, the prices achieved by IRC have taken longer to recover. This explains why the short-term fall in the IRC ASP is greater than the fall in average global prices, though over the longer-term, there is little if any difference.

Average Monthly Tianjin Iron Ore Spot Price, July 2012 to June 2013 (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.

IRC together with General Nice with 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 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.

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During the quarter the Rouble opened at 31.1 and closed weaker at 32.7 to the dollar. Volatility returned to the Rouble following volatility in the oil price, concerns over the US dollar and some Russian Central Bank interventions.

Russian Rouble — US Dollar Rates July 2012 to June 2013

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Source: Bloomberg

Outlook

Positive conjecture around Chinese urbanisation and infrastructure development suggests ongoing growth in demand for 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 and the iron ore stocking cycles may give rise to short-term price volatility.

With these factors in mind, the iron ore market remains robust, and even as we enter the typically quiet summer period, near historic low inventories should provide some support to prices before the traditional restocking ahead of winter comes around.

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 second quarter, mining activities progressed well in terms of production and development. At the newer Kuranakh pit, efforts focussed on mining through lower-grade ore in order to increase face availability of higher-grade ore for the future, when production from this pit will increasingly complement production from the more established Saikta pit.

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Consequently, in line with this mine plan, production for the quarter, although a record 929,611 tonnes of ore removed, which is 40% more than the previous quarter, was temporarily at an overall lower grade. This will continue into the third quarter, though it is important to note that it is in line with the longer-term mine plan and there is no impact on full-year production targets.

Processing

For the quarter the Kuranakh Crushing and Screening Plant processed 938,323 tonnes of iron ore with a grade of 24.3% Fe and 7.4% Ti02, producing 447,933 tonnes of pre-concentrate. Stockpiles totalled 252,894 tonnes, a decrease of 3% compared to the period start. This is equivalent to 25-days feed for the crushing and screening plant.

Operations improved further at the Olekma Processing Plant during the quarter. A total 458,436 tonnes of pre-concentrate was processed, resulting in production of 238,062 tonnes of iron ore, and 38,155 tonnes of ilmenite concentrate.

Production

With good progress at Kuranakh already achieved during the first and second quarter, it is encouraging to report that mine production is comfortably on track to achieve annual production targets. For the second quarter 2013, 238,062 tonnes of iron ore concentrate was produced, 26% of our annual target. Production for the first half totalled 518,899 tonnes, 58% of the annual target. The increase in production capacity of ilmenite from 125,000 tonnes to 160,000 is progressing well with production totaling 38,155 tonnes in concentrate for the quarter, 24% of our annual target and for the first half of 79,088 tonnes, equal to 49% of the annual target.

Costs

Russian inflation continues to run high, recording 3.5% in the first half of 2013. Stubbornly high inflation is weighing on costs, particularly labour costs and locally procured consumables. Cost-saving initiatives introduced over the last three quarters are providing some relief as productivity continues to improve, however, these have not been enough to offset inflation.

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.

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IRC continues to attack costs with a view to reducing them in all areas.

Quarterly Production and Sales for 2012 and 1H 2013

			2012			2013
		Q1	Q2	Q3	Q4	Q1	Q2
IRON ORE
Concentrate Produced	t	228,830	203,481	261,204	275,921	280,837	238,062
Concentrate Sold	t	217,689	206,332	260,033	296,489	273,002	275,848
Average Price (Fe 62.5%)	$/t	117	127	110	100	128	119
ILMENITE
Concentrate Produced	t	26,751	28,694	33,267	36,383	40,933	38,155
Concentrate Sold	t	25,970	26,996	24,344	43,928	32,248	46,088
Average Price (TiO2 48%)	$/t	293	280	284	263	274	233

K&S (100% owned)

Development operations at K&S are proceeding to plan and the contractors assure a delivery of the plant on schedule. Labour and material deliveries to the site have increased significantly during the quarter, resulting in a step up in building work. Heavy rains in June are to be overcome with extra shifts ensuring that the work programme continued relatively uninterrupted, for example adjustments to the mining recovery plan and tailings construction required additional machinery and shift work to keep production rates on track.

Tailings Dam Construction

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All the external beneficiation plant housing is targeting completion during October, thereby allowing full internal operation of the buildings during the winter. Railway works have been a little slower during the quarter due to the wet weather, though activities have picked up with the better weather in July.

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K&S Project Timeline

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Garinskoye (99.6% Owned)

Work continues on both the feasibility study for Garinskoye and various funding options. Work to date on the study supports all the material assumptions made previously. With uncertainty in the global financial markets, the project finance market is more challenging now than when K&S was funded. Nevertheless, Garinskoye’s enviable position on the capital and operating cost curves supports an aggressive debt-equity ratio thereby enhancing interest.

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.

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, which is expected to complete before the end of September 2013, is for the subscription by General Nice and Minmetals Cheerglory, exercisable at the option of General Nice, of up to an additional 1,110,900,000 new shares, for a consideration of US$134.7 million.

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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 financial results for the 6 months ended 30 June 2013 and the accompanying Interim Report for 2013 in August 2013. IRC will provide an advisory with details of a conference call to discuss the 2013 Interim Results 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. 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.

• . 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

Wednesday, 10 July 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.

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TELECONFERENCE CALL

IRC management will hold a teleconference call today (10 July 2013) at 09h00 Hong Kong time to discuss the trading update. The dial-in number for the call is +852 3027 5500. The passcode for the call is 370508#. A presentation to accompany the call is available at www.ircgroup.com.hk.

For further information, please contact:

Nicholas Bias

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

Media: Artemis Associates Vanita Sehgal Telephone: +852 2861 3227 Mobile: +852 6373 6676 Email: vanita.sehgal@artemisassociates.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

Jonathan Yang Telephone: +852 2861 3234 Mobile: +852 6373 6676 Email: jonathan.yang@artemisassociates.com

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