IRC Limited — Interim / Quarterly Report 2016

Aug 31, 2016

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IRC Limited 鐵江現貨有限公司

HONG KONG STOCK CODE 股份代號： 1029

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Interim Report 中期報告 2016

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KURANAKH

RUSSIA

BAM Railway Trans Siberian Railway Amur River Bridge (under construction) China Railway

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Blagovesch en sk
Heihe Birobidzhan S ovga van
Manzhouli K&S k
SRP
Harbin Shuanyashan
CHINA
Suifenhe
Vladivosto k
Nak hodka
Beijing
Tianji n
Se ou l To kyo
Qingdao
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ABOUT US

We are a vertically integrated producer of industrial commodities, operating in the Russian Far East and North-Eastern China. We are characterised by our low cost growth profile.

WHY IRC

IRC is unique in the iron ore market due to a series of competitive advantages, namely superior geology and direct access using established world-class infrastructure to China, the world’s largest iron ore market.

2016 AND BEYOND

In 2016, we will complete the commissioning of our K&S mine and start producing 3.2 million tonnes of premium iron ore per annum at full capacity at some of the lowest industry costs level. In the future, we will also have the optionalities of a further production capacity expansion at K&S and the development of other projects. In a challenging environment, we are well placed with a low-risk profile.

CONTENTS

2 4 10 10 12 14 15 16 16 18 45 50 53 54	Chairman & CEO Report Results of Operations Project Review - Kuranakh - K&S - Garinskoye - Other Projects Financial Review - Report on Review of Condensed Consolidated Financial Statements - Financial Statements Corporate Governance and Other Information Glossary Corporate Information Track Record

CHAIRMAN & CEO REPORT

Dear Stakeholders and Shareholders,

EXCITING TIMES AS IRC TAKES THE STEP UP TO BEING A MAJOR IRON ORE PRODUCER WITH A WORLD CLASS ASSET

As we write this note we are making plans for regular shipments of product at K&S. This is an incredibly exciting moment for IRC and has been a long time in coming. Construction at K&S is all but completed and our first trainload of high grade iron ore concentrate is sitting in the wagons awaiting the short trip to its customer. We are expecting to commence regular shipments to customers shortly.

However the commodity and financial markets remain both volatile and challenging for companies like us. We have good relationships with customers in North East China who remain keen on taking delivery of the high quality K&S product but sadly for us the price of the product, set on the international markets, remains weak mainly due to oversupply from Australia. We have maintained a positive and constructive dialogue with our lenders at ICBC and will work with them to try to make sure both their interests and ours are aligned as much as possible.

We are delighted to report that our net loss has reduced by 95% and look forward to improving this result further as K&S comes online.

We thank our team and wish them the best of luck as we take this exciting step forward in the evolution of IRC.

IRC remains focussed on generating values for its shareholders under these challenging market conditions. At the beginning of 2016, the commodities market remained weak, with benchmark iron ore price dipping below US$40 per tonne, however we have seen a correction with the iron ore price recovering to nearly US$70 per tonne in April. Consequently, in the first half of 2016, IRC is in a more favourable position as our new 3.2 million tonne per annum K&S mine will be starting commercial production soon.

In the past few months, we have announced numerous commissioning milestones for K&S. These have included the successful completion and testing of the final phase of crushing and screening plant and K&S’s first 1,000 tonnes of iron ore production. In addition, we have also announced several important commissioning tests recently, such as the 60% loading test, the 72-hour test, as well as the testing of railway scales, reclaimer unit and loading unit. All these hot tests signify that we are very close to the commencement of commercial production, which is expected in the third quarter of 2016 where we will generate a regular and substantial cashflow stream.

With K&S nearing commissioning completion, our goal of delivering value to shareholders will be realised soon. When operating in full capacity, our forecast shows that K&S will produce at a cash cost per tonne of approximately US$34, putting us in a satisfying position at the lower quartile of the industry cost curve. Furthermore, when the Amur River Bridge is in place — a Sino-Russian railway bridge project which aims to encourage more economic activities between Chinese Heilongjiang Province and Russian Far East region, it is expected to further halve our transport cost for K&S, allowing us to deliver additional bonus values to our shareholders with cash costs well below US$30 per tonne.

2 IRC Interim Report 2016

CHAIRMAN & CEO REPORT (CONTINUED...)

Be Lean and Even Leaner

Although iron ore performed better than market had anticipated, it remains a testing one, so we are also prudent in reserving our resources and ensuring that capital is allocated where the greatest return can be achieved. At IRC, we continue our stringent efforts in cost optimisation and are lucky to be aided by Russian Rouble devaluation.

At the end of 2015, we decided to move Kuranakh to care and maintenance. During the first half of 2016, Kuranakh’s operation decreased to a minimal-cost level and the last sales from the operation were completed during the second quarter of 2016. We believe this decision is in the best interests of the Company, our shareholders and other stakeholders as we focus on the commissioning of K&S which is expected to generate a higher profit margin.

During the first half of 2016, we announced some changes in our corporate structure — personnel changes, to align with current situation of IRC. Compared to the same period last year, we shrunk administrative expenses by approximately 10%, including a further 10% reduction in salaries for all directors and senior managers. We will continue this relentless focus on managing the business on an optimal cost basis.

In terms of our financials, as the iron ore market in the first half of the year has stabilised somewhat compared to the same period last year, which has meant that together with our aggressive efforts in cost reduction and benefits from Rouble depreciation, no material impairment provision is required in 2016. We are pleased to report that the net loss for 2016 has reduced by 95% to US$9.9 million.

Maintain a Healthy Balance Sheet

As previously disclosed, we proposed to our Chinese lender, ICBC to adjust some of the original terms of the project loan agreement, with the aim to obtain waivers of maintaining certain cash deposits with ICBC, and the obligations of IRC and its guarantor Petropavlovsk PLC to comply with certain financial covenants. We are pleased to report that in June 2016, we have fulfilled the conditions precedent set by ICBC and successfully obtained the relevant waivers. In addition to the support from ICBC, we have also agreed with our lead contractor for K&S, CNEEC, to delay the outstanding construction payment, which will alleviate some strain on our cash flow in near terms. As of 30 June 2016, the total debt outstanding was US$255 million entirely made up of the ICBC credit facility for K&S, and the working capital facility for the Kuranakh project was all paid out. Our cash balance remains at a healthy level of approximately US$27 million.

Blessed with Government Support from both Russia and China — a true model for international co-operation and success

K&S has been a project blessed with strong governmental support. Apart from the tax concessions granted by the government in last year, as K&S is coming closer to full commissioning completion, we had senior government officials of Russia and China paying visits to K&S, including Mr. Yury Trutnev, the Deputy Prime Minister of Russia and Presidential Envoy to the Far Eastern Federal District, visited K&S in February 2016. Additionally, the Deputy Plenipotentiary Representative of the President of Russia in the Far Eastern Federal District and the Consul General of the People’s Republic of China (PRC) in Khabarovsk also paid their visits to K&S in July 2016. These supports and visits signify how much the government recognises us as a pioneer and important business partner in the Far East region.

With China’s “One Belt One Road” initiatives, plus the Sino-Russian Amur River Bridge project in construction, we are expecting increasing Sino-Russian bilateral trade and investment, which may benefit IRC in the future. In the Far East of Russia, where K&S lies, we are well-situated to enjoy this geographical advantage.

The second half of 2016 will mark the transformation of IRC as K&S completes its full commissioning. K&S will be our game changer — together with our shareholders, we look forward to the positive impact it will bring to our financial and operational landscapes. Lastly, we would like to thank our team for their hard work in the past years, and we wish to extend our gratitude to our shareholders, for your patience and ongoing support in IRC.

George Jay Hambro Chairman

Yury Makarov Chief Executive Officer

Interim Report 2016 IRC 3

RESULTS OF OPERATIONS

The following table summarises the consolidated results of the Group for the six months ended 30 June 2016 and 2015:

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For the six months ended 30 June
US$’000 US$’000
2016 2015 Variance
Key Operating Data
Iron Ore Concentrate
— Sales volume (tonnes) 219,352 535,048 (59.0%)
— Average price (US$/tonne) 39 54 (27.8%)
Ilmenite
— Sales volume (tonnes) 60,044 110,568 (45.7%)
— Average price (US$/tonne) 117 120 (2.5%)
Consolidated Income Statement (US$’000)
Revenue
Iron Ore Concentrate 8,637 28,699 (69.9%)
Ilmenite 6,943 13,304 (47.8%)
Engineering Services 567 1,044 (45.7%)
Total Revenue 16,147 43,047 (62.5%)
Site operating expenses and service costs (21,212) (45,105) (53.0%)
Central administration expenses (4,693) (5,198) (9.7%)
Impairment charges (147) (189,526) (99.9%)
Share of results of a joint venture 147 430 (65.8%)
Net operating loss (9,758) (196,352) (95.0%)
Other gains and losses and other expenses (1,107) (2,820) (60.7%)
Financial (expenses) income, net (359) 88 n/a
Loss before taxation (11,224) (199,084) (94.4%)
Income tax credit 1,002 90 >100%
Loss after taxation (10,222) (198,994) (94.9%)
Non-controlling interests 277 424 (34.7%)
Loss attributable to owners of the Company (9,945) (198,570) (95.0%)
Underlying Results (US$’000)
Loss attributable to owners of the Company,
excluding impairment charges (9,798) (9,044) 8.3%
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4 IRC Interim Report 2016

RESULTS OF OPERATIONS (CONTINUED...)

REVENUE

Iron Ore Concentrate

IRC’s operating results are mainly derived from the mining operation of Kuranakh. Since Kuranakh has been moved to care and maintenance during the first half of 2016, IRC has halted the production of iron ore concentrate. Consequently, the sales volume of its iron ore decreased by 59.0% compared to same period last year. Despite the short-lived spike of the iron ore price market in April, the market fundamentals remain unchanged; supply still exceeds demand and commensurate fall in iron ore prices especially in the first quarter of 2016 when most of the Kurankah’s sales were recorded. This resulted in a 27.8% decrease in selling price from US$54 per tonne to US$39 per tonne. As a result, sales revenue of iron ore decreased by 69.9% from US$28.7 million to US$8.6 million.

Ilmenite

As mentioned previously, as Kurankah has been moved to care and maintenance, the production of ilmenite has been suspended. During the first half of 2016, 60,044 tonnes of ilmenite were sold, a 45.7% decrease compared to the same period last year. The selling price of ilmenite also decreased slightly from US$120 per tonne to US$117 per tonne. As a result, revenue from ilmenite sales decreased by 47.8% from US$13.3 million to US$6.9 million.

Engineering Services

Revenue from Giproruda, the small engineering services division of the Group, reduced by US$0.5 million to US$0.6 million, due to decreased billing for its consulting services and the impact of the Rouble depreciation.

SITE OPERATING EXPENSES AND SERVICE COSTS

Site Operating Expenses and Service Costs mainly represent the mining and operating expenses incurred by the Group’s sole mine in production, the Kuranakh mine. In light of Kuranakh being moved to care and maintenance, the decrease in sales volumes of iron ore and ilmenite has subsequently resulted in a significant decrease in site operating expenses by 53% from US$45.1 million to US$21.2 million and a breakdown of the expenses is set out in note 5a to the condensed consolidated financial statements on page 29.

In accordance with the general market practice and for presentation and analysis purposes, the table below classifies ilmenite sales as a by-product credit by treating the sales revenue as an offsetting item in the production cash cost of iron ore. The details of the key cash cost components are as follows:

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For the six months ended 30 June
2016 2015
Cash cost Cash cost
Total cash cost per tonne per tonne
US$ million US$/t US$/t
Mining 1.0 5.4 11.4
Processing 2.3 12.3 11.3
Transportation to plant 0.7 3.8 5.5
Production overheads, site administration and related costs 2.7 14.4 13.2
Transportation to customers 3.9 17.8 20.7
Movements in inventories and finished goods 4.4 20.1 2.3
Contribution from sales of ilmenite and others (3.5) (18.8) (11.0)
Net cash cost 11.5 55.0 53.4
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• net of tariff and other railway charges for ilmenite

Interim Report 2016 IRC 5

RESULTS OF OPERATIONS (CONTINUED...)

The cash cost per tonne was largely in line with the same period last year as the Group continued to implement stringent cost cutting measures, with the aid of Russian Roubles devaluation. As widely reported in the press, the Russian Roubles depreciated significantly since December 2014 and the currency remained weak in 2016. While the

Group’s income is mainly US Dollars denominated and therefore unaffected by the Roubles depreciation, the Group’s operating costs, which are mostly denominated in Roubles, reduced significantly in 2016.

The chart below shows how the depreciation of Rouble helps offsetting the effect of the reduction in iron ore prices:

Benchmark Fe 62% CFR China VS. FX rates (USD:RUB)

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FE 62% (US$/T) FX (USD : RUB)
160 85.0
USD: RUB 80.0
63.9
140
75.0
Benchmark Fe 62% CFR China 70.0
120
65.0
100
60.0
55.0
80
50.0
60 45.0
40.0
USD: RUB
40
35.0
30.0
20
Fe 62% ($/t)
54.2 25.0
0 20.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2014 2015 2016
Benchmark Fe 62% CFR China USD : RMB FX rates
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• As of 30 June 2016

SEGMENT INFORMATION

Despite the Group’s effort to reduce operating costs, the decrease in selling prices of iron ore and ilmenite in 2016 had resulted in the “Mine in production” segment reporting a segmental loss before impairment of US$2.2 million (30 June 2015: loss of US$1.4 million) following a decrease in production and sales due to Kuranakh being moved to care and maintenance, as well as weak commodities price market. The “Engineering” segment also recorded a loss of US$0.2 million, a slight improvement from the same period last year (30 June 2015: US$0.4 million).

C E N T R A L A D M I N I S T R A T I O N EXPENSES

In light of the challenging market and operating environments, special attention continues to be given to controlling administrative costs. The successful implementation of the cost savings initiatives continued to provide benefits, with the Group’s central administration costs reducing 9.7% to US$4.7 million.

6 IRC Interim Report 2016

RESULTS OF OPERATIONS (CONTINUED...)

IMPAIRMENT CHARGES

The business model for K&S mine is sensitive to iron ore price. During the first half of 2015, given the low iron ore price environment, a significant impairment of US$189.5 million was made to partially write down the carrying value of the project. As the iron ore price was relatively stable during the first half of 2016, no further impairment was made against the project.

An impairment was made on the interest in a joint venture amounting to US$147,000 (30 June 2015: US$ nil) as a result of Kuranakh project being put under care and maintenance since March 2016 which led to a halt in supply of raw materials from the Kuranakh project to the joint venture for its further production of vanadium for sale.

SHARE OF RESULTS OF JOINT VENTURE

The vanadium joint venture, 46% owned by IRC, recorded a share of profit of the joint venture of US$147,000 (30 June 2015: share of profit of US$430,000) during the first half of 2016.

OTHER GAINS AND LOSSES AND OTHER EXPENSES

The Other Gains and Losses and Other Expenses of US$1.1 million (30 June 2015: US$2.8 million) mainly represents the exchange losses following the depreciation of Russian Roubles.

N E T F I N A N C I A L ( E X P E N S E S ) INCOME

Net financial expenses mainly represents the interest income from bank deposits net of the interest expenses of the working capital facilities from Asia Pacific Bank.

INCOME TAX CREDIT

LOSS ATTRIBUTABLE TO THE OWNERS OF THE COMPANY

As the iron ore price was relatively stable in the first half of 2016 compared to same period last year, there was no significant impairment made against the projects of the Company in the first half of the year (30 June 2015 impairment to K&S: US$189.5 million). As a result, the loss attributable to the Owners of the Company in the first half of 2016 amounted to US$9.9 million (30 June 2015: US$198.6 million) a significant reduction of loss compared to the same period last year.

THE UNDERLYING RESULTS OF

THE GROUP

IRC’s operating results are mainly derived from the mining operation of Kuranakh. The Group manages its operations with principal reference to the underlying operating cash flows and recurring earnings. However, as with most of IRC’s international industry peers, the Group’s income statement includes material non-cash impairment provisions. These impairments are provided mainly in light of the volatility of the global economy, such as the weakness in global bulk commodity markets, and are therefore non-operating and non-recurring in nature.

The Underlying Loss, which excludes impairment charges, in the first half of 2016 was US$9.8 million (30 June 2015: US$9.0 million). The slight augmentation of the underlying loss was attributable to the fact that Kuranakh (which was the main source of revenue of the Group) being moved to care and maintenance and provided a smaller contribution to cover the overheads of the Group.

CASH FLOW STATEMENT

The following table summaries the key cash flow items of the Group for the six months ended 30 June 2016 and 30 June 2015:

The income tax credit of US$1.0 million (30 June 2015: US$0.1 million) mainly represents the movements in deferred tax liabilities.

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For the six months ended 30 June
US$’000 2016 2015
Net cash generated from (used in) operations 12,177 (2,775)
Interest paid (5,233) (5,424)
Capital expenditure (6,080) (44,151)
(Repayment for)/proceeds from bank borrowings, net (31,800) 25,274
–
Loan guarantee fee paid (1,126)
Other payments and adjustments, net 354 784
Net movement during the period (31,708) (26,292)
Cash and bank balances (including time and restricted deposits)
— At 1 January 58,263 74,990
— At 30 June 26,555 48,698
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Interim Report 2016 IRC 7

RESULTS OF OPERATIONS (CONTINUED...)

The net cash generated from operations amounted to US$12.2 million (30 June 2015: net cash used in operation: US$2.8 million), mainly due to cash inflow from the release of Kuranakh’s working capital after the mine was moved to care and maintenance. Capital expenditure of US$6.1 million was spent mainly on the K&S mine, as the construction progress of the project is close to commissioning completion.

A net bank repayment of US$31.8 million mainly represents the repayment of ICBC project finance facility and the working capital facilities of Kuranakh. The ICBC facility was to finance the construction of the K&S project.

approximately US$170 million into the Company, while the completion of the subscription by Minmetals is subject to further agreement between the parties. The Company is in discussions with General Nice and Minmetals about a further deferred completion and other available options.

The Company completed an open offer in August 2015 and received a net proceeds of approximately US$49.4 million. According to the intended use of proceeds, not less than 80% would be used to finance the K&S project and the remaining would be used for general working capital purposes of the Group. The proceeds had been used in accordance with the intention mentioned above.

L I Q U I D I T Y , F I N A N C I A L A N D CAPITAL RESOURCES Share Capital

On 17 January 2013, the Company entered into a conditional subscription agreement with each of General Nice Development Limited (“General Nice”) and Minmetals for an investment by General Nice and Minmetals in new shares of the Company for up to approximately HK$1,845 million (equivalent to approximately US$238 million) in aggregate. The share placements not only provided the Group with strong strategic Chinese investment partners, but also solidified the Group’s financial strength by 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. As at 30 June 2016, General Nice has completed more than 80% of its commitment by investing

Cash Position and Capital Expenditure

As at 30 June 2016, the carrying amount of the Group’s cash and bank balances was approximately US$26.6 million (31 December 2015: US$58.3 million) of which US$2.0 million (31 December 2015: US$2.1 million) was under restricted cash deposit. The balance represents a decrease of US$31.7 million, mainly to fund the repayment of bank loans and the Group’s administrative costs.

Exploration, Development and Mining Production Activities

For the six months ended 30 June 2016, US$26.5 million (30 June 2015: US$87.9 million) was incurred on development and mining production activities. No exploration activity was carried out for the first half of 2016 and 2015. The following table details the capital and operating expenditures in the first half of 2016 and 2015:

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For the six months ended 30 June 2016 For the six months ended 30 June 2015
Operating Capital Operating Capital
US$’m expenses expenditure Total expenses expenditure Total
Kuranakh 17.8 0.0 17.8 43.4 0.1 43.5
K&S development 2.6 6.0 8.6 0.3 43.9 44.2
Exploration projects and others — 0.1 0.1 — 0.2 0.2
20.4 6.1 26.5 43.7 44.2 87.9
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8 IRC Interim Report 2016

RESULTS OF OPERATIONS (CONTINUED...)

The table below sets out the details of material new contracts and commitments entered into during 2016 on a by-project basis. The amount was relatively small, reflecting the fact that the K&S mine is close to completion.

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For the six months ended 30 June
US$’m Nature 2016 2015
Kuranakh Mining 0.0 0.2
K&S Purchase of property, plant and equipment 0.5 0.5
0.5 0.7
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Borrowings and Charges

As at 30 June 2016, the Group had gross borrowings of US$255.0 million (31 December 2015: US$286.9 million). All of the Group’s borrowings were denominated in US dollars and represented the long term borrowing drawn from the US$340 million ICBC loan facility which is guaranteed by Petropavlovsk. The working capital facility for the Kuranakh project was fully repaid at the end of the first half of 2016 (31 December 2015: US$10.6 million). The Group has been keeping its borrowing costs at market level, with its weighted average interest rate at approximately 6.1% (30 June 2015: 5.9%) per annum. As of 30 June 2016, gearing, expressed as the percentage of net borrowings to the total of net borrowings and net assets, was 64.9% (31 December 2015: 63.4%).

During the first half of 2016, the Group has successfully obtained loans waivers from ICBC, as all conditions precedent have been fulfilled. The waivers obtained include a waiver from the obligation of the Group to maintain cash deposits of approximately US$26 million with ICBC from 21 June 2016 to 30 June 2018 (both days inclusive), and a waiver from the obligations of the Group and Petropavlovsk PLC to comply with certain financial covenants from 21 June 2016 to 31 December 2017 (both days inclusive).

Risk of Exchange Rate Fluctuation

The Group undertakes certain transactions denominated in foreign currencies, principally Russian Rouble and is therefore exposed to exchange rate risk associated with fluctuations in the relative values of US Dollars. Exchange rate risks are mitigated to the extent considered necessary by the Board of Directors, primarily through holding the relevant currencies. At present, the Group does not undertake any foreign currency transaction hedging.

Employees and Emolument Policies

As at 30 June 2016, the Group employed approximately 1,262 employees (31 December 2015: 1,800 employees). The total staff costs excluding share based payments decreased to US$8.7 million for the first half of 2016 (30 June 2015: US$13.9 million) following decreases in headcount after moving Kuranakh to care and maintenance, adjustments in remuneration, and the effect of the Russian Rouble depreciation. The emolument policy of the Group is set up by the Remuneration Committee on the basis of their merit, qualifications and competence with reference to market conditions and trends.

Interim Report 2016 IRC 9

PROJECT REVIEW

Kuranakh

100% owned

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RUSSIA Neryungri Trans SiberianRailway
KURANAKH BAM Railway
China Railway
KURANAKH
Tynda
Blagove schensk
Manzhouli Heihe Mogocha
56º 41’35” (N) Magdagachi
170º 26’30” (E) Chernyshevsk
Chita
Blagoveshchensk
Nerchinsk
Heihe
Manzhouli
CHINA
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OVERVIEW

Kuranakh, 100% owned by IRC, is the Group’s first mining operation and is the first vertically integrated titano-magnetite operation in Russia, designed, built and managed by IRC. Since its inception in 2010, it has been in operation for five years and each year beating its iron ore production targets.

The Kuranakh Mine is located in the Amur Region of the Russian Far East, located near the town of Olekma, a principal stop on the BAM Railway. The operation covers 85km[2] and comprises the Kuranakh and Saikta open-pit mines, an on-site Crushing and Screening Plant and the nearby Olekma Processing Plant. The operation produces an iron ore concentrate with a 62.5% Fe quality content and an ilmenite concentrate with a 48% TiO2 quality content. The concentrates are directly loaded onto railcar wagons for transportation via the BAM and Trans Siberian Railways to customers in Russia and China and internationally via the Russian Pacific sea ports.

SAFETY

IRC complies with the ISO 140001: 2014 certification, a qualification which was achieved in 2012 and renewed in 2015. At the Kuranakh, for the first six months of 2016, the LTIFR was 5.1 (30 June 2015: 1.23). The LTIFR is a measure of the number of lost-time injuries per million hours worked, and as Kuranakh has been moved to care and maintenance, the numbers of hours worked at the mine has decreased significantly, leading to the increase of LTIFR in the first half of 2016. The actual number of injuries during the first six months of 2016 was in line with the same period last year.

KURANAKH — UNDER CARE &

MAINTENANCE

As announced in the last financial report, due to difficult operating environment, Kuranakh has been moved to care and maintenance status and involves only limited cost now and going forward in order to relief the Group’s cash flow. The Group has reduced the number of staff at Kuranakh to minimum levels for equipment maintenance and security. Certain personnel have been relocated to K&S where commercial production will soon commence. The only major non-operating cost that the site will bear is domestic property taxes however relief will be sought for these.

10 IRC Interim Report 2016

PROJECT REVIEW (CONTINUED...)

PRODUCTION

As Kuranakh has been moved to care and maintenance status, the production volume decreased considerably. During the first half of 2016, a total of c.53,000 m[3] of overburden was removed; and c.569,000 tonnes of ore was removed at Kuranakh mine. The Crushing and Screening Plant processed c.578,000 tonnes of ores, producing 290,394 tonnes of pre-concentrate at the average grade of 26.6% Fe and 7.9% TiO2. The ore stockpile after the announcement of production suspension at Kuranakh allowed a production of 188,111 tonnes of iron ore concentrate and 34,043 tonnes of ilmenite during the first half of 2016 (30 June 2015 production: 566,349 tonnes of iron ore concentrate; 95,702 tonnes of ilmenite).

FINANCIALS

As Kuranakh has been moved to care and maintenance status, the last shipments of product were completed in the second quarter of 2016. For the first half of 2016, Kuranakh recorded a small amount of sales, totalled 219,352 tonnes of iron ore concentrates and 60,044 tonnes of ilmenite (30 June 2015 sales: 535,048 tonnes of iron ore concentrates; 110,568 tonnes of ilmenite). The average selling price for Kuranakh’s iron ore concentres and ilmenite were US$39 per tonne and US$117 per tonne respectively (30 June 2015: US$54 per tonne for iron ore and US$120 per tonne for ilmenite).

Nonetheless, due to the Group’s stringent effort of cost optimisation, with the aid of Russian Rouble depreciation, the cash costs per tonne of Kuranakh remains in line with the same period last year at US$55.0 (30 June 2015: US$53.4). For breakdown of cash cost, please refer to “Site Operating Expenses And Service Costs” under the Results of Operations section on page 5.

In light of Kuranakh being moved to care and maintenance status, the decrease in production and sales volume together with a lower average selling price, the segmental revenue decreased from US$42.0 million in first half of 2015 to US$15.6 million in 2016. The negative segmental EBITDA was US$2.2 million for the first half of 2016 (30 June 2015: negative EBITDA of US$1.4 million). For more details of Kuranakh’s financials, please refer to the “Mine in production” under the Segment Information section on page 27.

Interim Report 2016 IRC 11

PROJECT REVIEW (CONTINUED...)

K&S

100% owned

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oveschensk
Heihe Birobidzhan
K&S Khabaro
Harbin Shuanyas han
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Trans Siberian Railway
China Railway
Amur River Bridge
(under construction)
Belogorsk
RUSSIA
Heihe
Blagoveshchensk
CHINA
Izvestkovaya
K&S Birobidzhan
Khabarovsk
Shuangyashan
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48º 59’04” (N)
131º 25’10” (E)
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OVERVIEW

The K&S Mine, 100% owned by IRC, is located in the Jewish Autonomous Region (EAO) of the Russian Far East. It is the second full-scale mining and processing operation that the Group has developed. K&S enjoys tremendous geographical advantage. The Trans Siberian Railway is linked directly to the mine site, allowing easy transport of products to customers in China. With the help of the Amur River Bridge, the transport cost and distance can be further reduced.

K&S is located in the Obluchenskoye District of the Jewish Autonomous Region (EAO) in the Russian Far East. The operation is 4 kilometres from the town of Izvestkovaya, through which the Trans Siberian Railway passes. It is also 130 kilometres from the federal highway connecting to the regional capital of Birobidzhan, and 300 kilometres from Khabarovsk, the principal city of the Russian Far East.

K & S — F U L L Y O P E R A T I O N A L & COMMERCIAL PRODUCTION SOON

K&S is expected to be operational for commercial production in the third quarter of 2016. Since late 2015, CNEEC, K&S’s main contractor, has commenced the hot commissioning programme for the project. To date, CNEEC completed most major parts of the hot commissioning, namely the successful hot commissioning of the First Stage and Final Stage of Crushing and Screening Plant, the Onsite Railway Infrastructure that connects to the TransSiberian Railway.

In the past few months, CNEEC has been working hard for a fully operational K&S. In July and August 2016, the Group has commenced the 60% loading test and the 72-hour test; as well as the hot testing of railway scales, the reclaimer unit and loading unit. CNEEC has also commenced the testing of the Drying Unit, which will be necessary during winter to allow K&S to operate in all seasons.

12 IRC Interim Report 2016

PROJECT REVIEW (CONTINUED...)

At the beginning of 2016, CNEEC advised the handover of an operational plant by 30 June 2016, however, while conducting various hot testing of the Processing Plant and other components, some teething issues were identified and CNEEC and IRC are working closely to resolve the issues. Subject to these technical issues being resolved, CNEEC has advised that a fully operating plant is expected to be handed over to IRC in the third quarter of 2016. After a short but efficient ramp up process, the plant is expected to operate at its full capacity, producing 3.2 million tonnes of 65.8% Fe grade iron ore concentrates per annum. Production guidance of 2016 will be provided when K&S is closer to full commissioning. As announced previously, IRC is entitled to claim certain liquidated damages from CNEEC for the delay of handover of the operational plant of K&S to the Company. However, the first priority will be working together to resolve the teething issues identified for commercial production the soonest.

It is noteworthy that during the hot testing, K&S has already successfully produced its first iron ore concentrates during the first half of 2016. As of 26 July 2016, the total amount of iron ore concentrates produced and stored at wet concentrate storage has accumulated to 11,672 tonnes.

SAFETY

IRC complies with the ISO 140001: 2014 certification, a qualification which was achieved in 2012 and renewed in 2015. The K&S Mine reported an excellent safety performance for the first half of 2016. There were no injuries recorded during the year and the LTIFR was therefore zero.

At the end of June 2016, approximately 935 people were employed for the project in addition to varying contractor numbers depending upon the activities.

MINING

The Kimkan operation covers nearly 50 km[2] and comprises two key ore zones — Central and West. Open pit mining commenced at the Central area, with ore being stockpiled for processing. During the first half of 2016, no stripping and mining activities took place as the Group has already performed stripping and mining activities in the previous years. The stockpile necessary to commence operations

has already built up and it is considered more prudent to preserve cash. When full commissioning approaches, the mining contractor will start preparations for mining works recommencement, firstly with drilling and blasting operations to prepare ore volumes in the open pit, and later with excavation and hauling operations to replenish ore stockpile that will be used for plant feeding. As at the end of first half of 2016, ore stockpiles totalled 5.0 million tonnes are ready for processing.

K&S OPTIONALITIES

The Processing Plant of K&S is well situated between the two deposits, Kimkan and Sutara. Construction began in 2010 and the commissioning process is now underway. The plant design for Phase One is to process about 10 million RoM tonnes to produce 3.2 million tonnes of iron ore concentrate at 65.8% Fe grade per annum. There is an option for a Phase Two expansion for the Processing Plant, with the addition of ore feed from the Sutara Pit, doubling the throughput capacity to about 20 million RoM tonnes, to produce 6.3 million tonnes of iron ore concentrate with a 65% Fe grade per annum. The Group is also exploring other optionalities for capacity increase and efficient use of the K&S processing capacity under current market conditions.

AMUR RIVER BRIDGE

Although the Amur River Bridge project is no longer an IRC’s project, it is noteworthy that IRC will have direct benefit from this project. The Amur River Bridge, alias Tongjiang-Nizhneleninskoye Bridge, is a railway bridge project that built across the Amur River border between Russia and China. The idea was first launched by IRC in 2006, and the project was later sold to Russian and Chinese development Funds in November 2014 to accelerate the construction progress of the bridge. K&S Mine is situated approximately 240 kilometres from the bridge site and IRC’s nearest customer within China is approximately 180 kilometres away from the bridge. Thus, IRC will benefit from the project with reduced transportation distance and time. The bridge could halve the transport costs of K&S. Currently, the media reports that the Chinese side of the Bridge has been generally completed and the Russian side of the Bridge has commenced construction.

Interim Report 2016 IRC 13

PROJECT REVIEW (CONTINUED...)

Garinskoye

99.6% owned

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Magdagachi Trans Siberian
Railway
BAM Railway
River Zeya China Railway
GARINSKOYE
Da Hinggan Ling GARINSKOYE
Blagoveschensk
Heihe
Svob od ny
52º 35’00” (N) RUSSIA
129º 65’30” (E)
Belogorsk
CHINA
Ekaterinoslavka
Blagoveshchensk
Zavitinsk
Konstantinovka
Heilongjiang River
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Garinskoye, 99.6% owned by IRC, is an advanced largescale exploration project. Located in the Amur Region of the Russian Far East, midway between the BAM and Trans Siberian Railways and near to the Zeya River which flows directly to the Chinese border, approximately 190 kilometres away.

DEVELOPMENT OPPORTUNITIES

There are two possibilities to develop Garinskoye. The original plan was for a large-scale 4.6 million tonne per annum open-pit operation with a life-of-mine of 20 plus years. Such a large-scale operation is, however, dependent on a rail connection to the Trans Siberian or BAM railways, which is dependent on government’s planning. Consequently, IRC has developed an alternate development opportunity; an intermediate DSO-style operation that does not require a rail connection and can be started up in advance of a larger conventional operation.

The DSO-style plan comprises a pit with a 20.2 mt reserve,48% Fe grade, and a strip ratio of 1.7:1 m[3] per tonne. Using conventional truck and hydraulic excavator mining methods, and a simple processing circuit using low intensity dry magnetic separation and small-scale equipment, a 55% grade iron ore fines could be produced. Total capacity would be 1.9 million tonnes a year, with a life of operation of 8 years. The final product would then be transported by purpose-built road to either the Trans Siberian or BAM railways for onward transportation to China. Alternatively, as the project is located adjacent to the Zeya River, which flows directly to China, river barges could be used in the summer months as a lower cost route- to-market. There is an option to further increase the project value at very little additional capital expenditure with the addition of a further wet magnetic separation stage to produce a high-grade “super-concentrate” with an Fe 68% content.

In 2013, IRC completed an internal Bankable Feasibility Study. In 2014, a third-party verification and a fatal flaws analysis for the DSO-style operation was carried out.

Currently, the Garinskoye project was placed on hold while the Group focuses its effort and resources on the commissioning of K&S.

14 IRC Interim Report 2016

OTHER PROJECTS

EXPLORATION PROJECTS & OTHERS

IRC’s other exploration projects comprise an extensive portfolio that is diversified by geography, commodity and development stages. It aims to add value through the discovery of new resources and increasing and confirming mineable reserves. Currently, IRC is keeping these valuable licenses for later development until market conditions improve. Apart from exploration projects, IRC is also involved in complementary business of a steel slag reprocessing plant (SRP) and a mining consultancy services agency (Giproruda). Regarding SRP project, as its feedstock is dependent on the concentrate from Kuranakh, as the latter was moved to care and maintenance, IRC is seeking alternative sources of materials as the feedstock for the project. In addition, during the first half of 2016, the exploration licenses of Orlovsko and Molybdenum projects have not been renewed after thorough consideration for their economical values, cost of development and market conditions in order to divert the Group’s resources to develop projects with higher returns. Below is a summary of the Group’s current exploration projects portfolio:

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Project Products/Service Location
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Kostenginskoye (K&S Resource Base)	Iron ore concentrate	Jewish Autonomous Region, Russian Far East
(100% owned)
Bolshoi Seym (100% owned)	Ilmenite	Amur Region, Russian Far East
SRP (46% owned)	Vanadium Pentoxide	Heilongjiang, China
Giproruda (70% owned)	Technical mining research and	St. Petersburg, Russia
	consultancyservices

Interim Report 2016 IRC 15

REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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TO THE BOARD OF DIRECTORS OF IRC LIMITED 鐵江現貨有限公司

(Incorporated in Hong Kong with limited liability)

INTRODUCTION

We have reviewed the condensed consolidated financial statements of IRC Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 16 to 44, which comprise the condensed consolidated statement of financial position as of 30 June 2016 and the related condensed consolidated statement of profit or loss, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the six-month period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 “Interim Financial Reporting” (“HKAS 34”) issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with HKAS 34. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. A review of these condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with HKAS 34.

16 IRC Interim Report 2016

REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

EMPHASIS OF MATTER

Without qualifying our review conclusion, we draw attention to note 1 to the condensed consolidated financial statements which indicates that, as at 30 June 2016, the Group incurred loss for the six-month ended 30 June 2016, and as at 30 June 2016 the Group’s current liabilities exceeded its current assets and the Group had outstanding bank borrowings and related interest due for repayment in the coming twelve months and significant capital and other commitments against the cash and cash equivalents and the credit facilities maintained by the Group. The directors have performed an assessment of the Group’s future liquidity and cash flows, which included a review of assumptions about the likelihood of success of the measures being implemented to ensure the Group’s financing needs, as well as of assumptions about market factors that are likely to have a significant impact on the Group’s future cash flows. These assumptions are described in more detail in note 1 to the condensed consolidated financial statements. Based on the assessment, the directors are satisfied that the Group will have sufficient working capital to finance its operations and to pay its financial obligations as and when they fall due for the foreseeable future. However, these conditions indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

31 August 2016

Interim Report 2016 IRC 17

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the Six Months Ended 30 June 2016

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Six months ended 30 June
2016 2015
NOTES US$’000 US$’000
(unaudited) (unaudited)
Revenue 4 16,147 43,047
Operating expenses 5 (25,905) (50,303)
Impairment charges 6 (147) (189,526)
(9,905) (196,782)
Share of results of a joint venture 147 430
(9,758) (196,352)
Other gains and losses 7 (1,107) (2,820)
Financial income 8 276 1,108
Financial expenses 9 (635) (1,020)
Loss before taxation (11,224) (199,084)
Income tax credit 10 1,002 90
Loss for the period (10,222) (198,994)
Loss for the period attributable to:
Owners of the Company (9,945) (198,570)
Non-controlling interests (277) (424)
Loss for the period (10,222) (198,994)
Loss per share (US cents) 12
Basic (0.16) (4.05)
Diluted (0.16) (4.05)
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18 IRC Interim Report 2016

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the Six Months Ended 30 June 2016

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Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Loss for the period (10,222) (198,994)
Other comprehensive income for the period
Item that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 1,255 10
Total comprehensive expenses for the period (8,967) (198,984)
Total comprehensive expenses attributable to:
Owners of the Company (8,977) (198,631)
Non-controlling interests 10 (353)
(8,967) (198,984)
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Interim Report 2016 IRC 19

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June 2016

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As at As at
30 June 31 December
2016 2015
NOTES US$’000 US$’000
(unaudited) (audited)
NON-CURRENT ASSETS
Exploration and evaluation assets 13 18,701 18,603
Property, plant and equipment 13 215,979 199,714
Other non-current assets 14 88,517 89,017
Restricted bank deposit 19 1,977 2,119
325,174 309,453
CURRENT ASSETS
Inventories 15 20,971 29,575
Trade and other receivables 16 14,661 25,463
Time deposits 17 2,800 6,960
Cash and cash equivalents 21,778 49,184
60,210 111,182
TOTAL ASSETS 385,384 420,635
CURRENT LIABILITIES
Trade and other payables 18 (18,215) (18,032)
Current income tax payable (293) (366)
Bank borrowings — due within one year 19 (42,500) (53,050)
(61,008) (71,448)
NET CURRENT (LIABILITIES) ASSETS (798) 39,734
TOTAL ASSETS LESS CURRENT LIABILITIES 324,376 349,187
NON-CURRENT LIABILITIES
Deferred tax liabilities (5,402) (6,324)
Provision for close down and restoration costs (7,696) (6,449)
Bank borrowings — due more than one year 19 (196,434) (215,238)
(209,532) (228,011)
TOTAL LIABILITIES (270,540) (299,459)
NET ASSETS 114,844 121,176
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20 IRC Interim Report 2016

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED...)

At 30 June 2016

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As at As at
30 June 31 December
2016 2015
NOTE US$’000 US$’000
(unaudited) (audited)
CAPITAL AND RESERVES
Share capital 20 1,260,665 1,260,665
Capital reserve 17,984 17,984
Reserves 5,765 1,967
Accumulated losses (1,170,860) (1,160,915)
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY 113,554 119,701
NON-CONTROLLING INTERESTS 1,290 1,475
TOTAL EQUITY 114,844 121,176
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Interim Report 2016 IRC 21

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Six Months Ended 30 June 2016

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Total attributable to owners of the Company
Share-based Non-
Share Capital Treasury Accumulated payments Translation Other controlling Total
capital reserve [(a)] shares losses reserve reserve reserves [(b)] Sub-total interests equity
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
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Balance at 1 January 2015
(audited)	1,211,231	17,984	(11,986)	(651,946)	14,698	(21,639)	18,693	577,035	2,870	579,905
Loss for the period	–	–	–	(198,570)	–	–	–	(198,570)	(424)	(198,994)
Other comprehensive expenses
for the period
Exchange differences on
translation of foreign
operations	–	–	–	–	–	(61)	–	(61)	71	10
Total comprehensive expenses
for theperiod	–	–	–	(198,570)	–	(61)	–	(198,631)	(353)	(198,984)
Share-based payments	–	–	–	–	17	–	–	17	–	17
Dividends paid to non-
controlling interests	–	–	–	–	–	–	–	–	(534)	(534)
Deemed contribution from
a shareholder	–	–	–	–	–	–	1,502	1,502	–	1,502
Balance at 30 June 2015
(unaudited)	1,211,231	17,984	(11,986)	(850,516)	14,715	(21,700)	20,195	379,923	1,983	381,906
Balance at 1 January 2016
(audited)	1,260,665	17,984	–	(1,160,915)	11,545	(23,400)	13,822	119,701	1,475	121,176
Loss for the period	–	–	–	(9,945)	–	–	–	(9,945)	(277)	(10,222)
Other comprehensive expenses
for the period
Exchange differences on
translation of foreign
operations	–	–	–	–	–	968	–	968	287	1,255
Total comprehensive expenses
for theperiod	–	–	–	(9,945)	–	968	–	(8,977)	10	(8,967)
Share-based payments	–	–	–	–	560	–	–	560	–	560
Dividends paid to non-
controlling interests	–	–	–	–	–	–	–	–	(195)	(195)
Deemed contribution from a
shareholder	–	–	–	–	–	–	2,270	2,270	–	2,270
Balance at 30 June 2016
(unaudited)	1,260,665	17,984	–	(1,170,860)	12,105	(22,432)	16,092	113,554	1,290	114,844

(a) The amounts represent deemed contribution from the then ultimate holding company of the Company (1) certain administrative expenses and tax expenses of the Group paid by the then ultimate holding company of the Company in prior years and (2) share-based payment expenses in relation to certain employees of the Group participated in the long term incentive plan of the then ultimate holding company of the Company.

(b) The amount arose from (1) acquisition of non-controlling interests and deemed contribution arising from the group restructuring for the Company’s listing on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and (2) transfer of share-based payments reserve upon vesting of share-based awards resulted from difference between the cost of the treasury shares and fair value at grant date of the awarded shares, and (3) deemed contribution from a shareholder, General Nice Development Limited (“General Nice”) for accrued interests on outstanding capital contribution (Note 20).

22 IRC Interim Report 2016

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Months Ended 30 June 2016

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Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
OPERATING ACTIVITIES
Net cash generated from (used in) operations 12,177 (2,775)
Interest expenses paid (5,233) (5,424)
–
Loan guarantee fee paid (1,126)
Income tax paid (75) (417)
NET CASH FROM (USED IN) OPERATING ACTIVITIES 5,743 (8,616)
INVESTING ACTIVITIES
Restricted bank deposit placed (26,131) (1,000)
Purchases of property, plant and equipment and exploration
and evaluation assets (6,080) (44,151)
Time deposits placed (2,990) (11,293)
–
Restricted bank deposit withdrawn 26,273
–
Time deposits withdrawn 7,150
Proceeds on disposal of property, plant and equipment 1,193 44
Interest received 276 1,109
Dividends received from joint venture – 917
NET CASH USED IN INVESTING ACTIVITIES (309) (54,374)
FINANCING ACTIVITIES
Repayment of bank borrowings (35,595) (35,920)
Dividends paid to non-controlling interests (195) (534)
Proceeds from bank borrowings 3,795 61,194
Loan commitment fees paid – (72)
NET CASH (USED IN) FROM FINANCING ACTIVITIES (31,995) 24,668
NET DECREASE IN CASH AND CASH EQUIVALENTS
FOR THE PERIOD (26,561) (38,322)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 49,184 45,040
Effect of foreign exchange rate changes (845) (263)
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 21,778 6,455
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Interim Report 2016 IRC 23

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended 30 June 2016

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 (HKAS 34) Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The financial information relating to the year ended 31 December 2015 that is included in these condensed consolidated financial statements as comparative information does not constitute the Company’s statutory annual consolidated financial statements for that year but is derived from those financial statements. Further information relating to these statutory financial statements is as follows:

The Company has delivered the financial statements for the year ended 31 December 2015 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Hong Kong Companies Ordinance.

The Company’s auditor has reported on those financial statements. The auditor’s report was modified, but did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report, and did not contain a statement under sections 406(2), 407(2) or (3) of the Companies Ordinance.

The condensed consolidated financial statements are presented in United States Dollars (“US$”), which is also the functional currency of the Company.

In preparing these condensed consolidated financial statements, the directors of the Company have given careful consideration to the going concern status of the Group in light of the Group’s loss for the period, the Group’s current liabilities exceeding its current assets by US$798,000 as at 30 June 2016, the Group’s outstanding bank borrowings and related interest due for repayment in the coming twelve months and the Group’s capital and other commitments as at 30 June 2016, against the cash and cash equivalents and the credit facilities maintained by the Group.

As part of this consideration, the directors of the Company have performed an assessment of the Group’s future liquidity and cash flows, taking into account the following relevant matters:

• (i) On 14 March 2016, the Group entered into an agreement with its construction contractor of the K&S mine project (“K&S Project”), in respect of, among others, new deferred payment terms for the Group’s remaining obligations under the EPC Contract (as defined in note 19) in three equal instalments within 30 days of 31 December 2017, 31 December 2018 and 31 December 2019 respectively;

24 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

1. BASIS OF PREPARATION (CONTINUED)

• (ii) On 19 April 2016, the Group has obtained waivers from Industrial and Commercial Bank of China (“ICBC”) in respect of the ICBC Facility Agreement (as defined in note 19), including obligations to maintain certain cash deposits with ICBC and obligations of the Group and its guarantor, Petropavlovsk PLC, to comply with certain financial covenants, subject to the fulfillment of certain conditions precedent which were satisfied on 21 June 2016. Details of these waivers are set out in notes 19 and 21;

• (iii) The Group is currently negotiating with several banks in Russia for working capital financing for K&S Project and has received terms sheets or proposals from certain banks for short-term revolving loan facilities;

• (iv) The Group is implementing active cost-saving measures to improve operating cash flows and financial position;

• (v) Based on the results of the commissioning testing, the 60% loading test and the 72-hour run test of the various plant units at the K&S Project, the Group is anticipating operation and commercial production of the K&S Project in September 2016 upon the full remediation of the identified technical issues from the testing by the construction contractor. It is expected that the project will contribute significantly positively to the Group’s cash flows from the start of its commercial operation as all material capital expenditure for mining, processing and production of the Kimkan deposit has incurred;

• (vi) The substantial volatility in the Russian Rouble/US Dollar exchange rate which may continue in the coming twelve months, given that a significant percentage of the Group’s costs are denominated in Russian Roubles, whilst a substantial portion of the Group’s sales are denominated in US Dollars; and

• (vii) The substantial volatility in the iron ore price may continue to have an impact on the Group as the Group’s financial position is materially dependent on the price at which it can sell its iron ore production.

In respect of the measures described in (iii) to (v) above, after making enquiries and based on progress to date, the directors of the Company expect that each will be concluded successfully within the designated time frame.

In respect of the assumptions referred to in (vi) and (vii) above, the directors of the Company have performed sensitivity analyses taking into account what they consider to be reasonably possible adverse fluctuations in the Russian Rouble/ US Dollar exchange rate and iron ore price in the foreseeable future.

The directors of the Company consider that after taking into account the above, the Group will have sufficient working capital to finance its operations and to pay its financial obligations as and when they fall due in the foreseeable future. Accordingly, these condensed consolidated financial statements have been prepared on a going concern basis.

However, if the Group were unable to successfully implement the measures described above or the market conditions turn out to be significantly less favourable to the Group than predicted, the Group may not have sufficient working capital to finance its operations and its financial liquidity may be adversely impacted. Should the Group experience a delay of the completion of the K&S Project beyond the Group’s expectation and/or if the conditions described above turn out to be significantly more unfavourable than forecasted by the Group, the Group would need to carry out contingency plans including expediting negotiations with its substantial shareholder, General Nice Development Limited (“General Nice”), Mr. Cai Sui Xin (a substantial shareholder of General Nice), and Minmetals Cheerglory Limited (“Minmetals”) in respect of the incomplete share subscription in the Company (see note 20 for details); and/ or entering into negotiations with banks and other investors for additional debt or equity financing; and/or calling the construction contractor’s performance bond provided by a bank.

Interim Report 2016 IRC 25

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis.

Except as described below, the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2016 are the same as those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2015.

In the current interim period, the Group has applied the following amendments to Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) which are mandatorily effective for the current interim period:

Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations Amendments to HKAS 1 Disclosure Initiative Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to HKFRSs Annual Improvements to HKFRSs 2012–2014 Cycle Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants Amendments to HKAS 27 Equity Method in Separate Financial Statements Amendments to HKFRS 10, HKFRS 12 Investment Entities: Applying the Consolidation Exception and HKAS 28

The application of the above amendments to HKFRSs in the current interim period has had no material effect on the amounts reported in these condensed consolidated financial statements and/or disclosures set out in these condensed consolidated financial statements.

The Group has not early applied any new or revised standards or amendments to standards that have been issued at the date of these condensed consolidated financial statements are authorised for issuance but are not yet effective.

26 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

3. SEGMENT INFORMATION

The following is an analysis of the Group’s revenue and results by reportable and operating segments for the period under review:

Six months ended 30 June 2016 (unaudited)

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Mine in Mines in
production development Engineering Other Total
US$’000 US$’000 US$’000 US$’000 US$’000
Revenue
External sales 15,580 — 567 — 16,147
Segment revenue 15,580 — 567 — 16,147
Site operating expenses and
service costs (17,823) (2,631) (751) (7) (21,212)
Site operating expenses and
service costs include:
Depreciation and amortisation
(see note 5(a)) — (3,891) (75) — (3,966)
Impairment charges — — — (147) (147)
Share of results of a joint venture — — — 147 147
Segment loss (2,243) (2,631) (184) (7) (5,065)
Central administrative expenses (4,668)
Central depreciation (25)
Other gains and losses (1,107)
Financial income 276
Financial expenses (635)
Loss before taxation (11,224)
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Interim Report 2016 IRC 27

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

3. SEGMENT INFORMATION (CONTINUED)

Six months ended 30 June 2015 (unaudited)

Mine in production Mines in development Engineering Other	Total
US$’000 US$’000 US$’000 US$’000	US$’000
Revenue External sales 42,003 — 1,044 —	43,047
Segment revenue 42,003 — 1,044 — Site operating expenses and service costs (43,406) (267) (1,400) (32) Site operating expenses and service costs include: Depreciation and amortisation (see note 5(a)) — (2,645) (98) — Impairment charges — (189,526) — — Share of results of ajoint venture — — — 430	43,047 (45,105) (2,743) (189,526) 430
Segment (loss)profit (1,403) (189,793) (356) 398	(191,154) (5,141) (57) (2,820) 1,108 (1,020)
Central administrative expenses Central depreciation Other gains and losses Financial income Financial expenses Loss before taxation
	(199,084)

4. REVENUE

An analysis of the Group’s revenue is as follows:

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Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Revenue
Sale of iron ore concentrate 8,637 28,699
Sale of ilmenite 6,943 13,304
Engineering services 567 1,044
16,147 43,047
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28 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

5. OPERATING EXPENSES

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----- Start of picture text -----

Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Site operating expenses and service costs [(a)] 21,212 45,105
Central administrative expenses [(b)] 4,693 5,198
25,905 50,303
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(a) Site operating expenses and service costs

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Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Staff costs 6,252 10,386
Fuel 1,392 4,209
Materials 2,714 8,981
Depreciation 3,966 2,743
Electricity 312 905
Royalties 47 540
Railway tariff 7,059 17,622
Movement in finished goods and work in progress 5,602 1,696
Inventory written down (recovery) 258 (135)
Subcontracted mining costs and engineering services 1,100 5,233
Professional fees 32 57
Bank charges 60 111
Insurance 12 21
Office rent 158 192
Business travel expenses 25 35
Office costs 178 218
Mine development costs capitalised in property, plant and equipment (8,592) (8,643)
Allowance for bad debts 201 2
Property tax 966 1,111
—
Rental income less negligible outgoings (75)
Other income, net (530) (104)
21,212 45,105
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Interim Report 2016 IRC 29

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

5. OPERATING EXPENSES (CONTINUED)

(b) Central administrative expenses

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----- Start of picture text -----

Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Staff costs 2,442 3,524
Materials — 12
Depreciation 25 57
Professional fees 797 516
Bank charges 44 25
Insurance 79 158
Office rent 211 373
Business travel expenses 201 200
Share-based payments 560 17
Office costs 187 161
Property tax — 4
Other expenses 246 193
Rental income less negligible outgoings (99) (42)
4,693 5,198
----- End of picture text -----*

• Professional fees comprise audit fees, legal fees, consulting fees, management services fees and engineering consultancy fees.

6. IMPAIRMENT CHARGES

During the six months ended 30 June 2015, management concluded that impairment charge was necessary for the K&S Project as its recoverable amount was lower that its carrying amount. Due to falling spot iron ore prices and forecast inflation, the carrying amount of the K&S Project was impaired by approximately US$189,526,000. This impairment charge was allocated against property, plant and equipment amounting to US$127,204,000 and prepayments for property, plant and equipment amounting to US$62,322,000.

For the purpose of the impairment testing for the six months ended 30 June 2016 of the K&S Project, the recoverable amount of the project has been determined based on value in use, being estimated future cash flows of the project discounted to their present value using a discount rate of 12.0% (for the six months ended 30 June 2015: 12.0%). Management concluded that no impairment charge was necessary for the K&S Project as at 30 June 2016 as its recoverable value was higher than its carrying value. The directors of the Group will continue to monitor the latest market trends and assess impairment on an ongoing basis.

The key assumptions and considerations used for the purpose of impairment tests for K&S Project take into account the recent USD/RUB exchange rate, the inflation rate over the expected life of the mine and iron ore prices over the expected life of the mine.

30 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

6. IMPAIRMENT CHARGES (CONTINUED)

Forecast inflation rates and sales prices for iron ore were based on external sources and adjustments to these were made for the expected quality of the forecast production. In addition, management has estimated the long term forecast sales prices for iron ore concentrate prices which take into account their views of the market, recent volatility and other external sources of information. Judgment has then been applied by management in determining a long-term price of iron ore concentrate for the purpose of assessing impairments.

During the period, full impairment was made on the interest in a joint venture amounting to US$147,000 (6 months ended 30 June 2015: nil) as a result of Kuranakh project being put under care and maintenance since March 2016 which led to a halt in supply of raw materials from the Kuranakh project to the joint venture for its further production of vanadium for sale. The directors of the Company consider that there is no future cash inflow to substantiate the going concern of the joint venture in the foreseeable future.

7. OTHER GAINS AND LOSSES

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Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Net foreign exchange loss (2,300) (2,614)
Gain (loss) on disposal of property, plant and equipment 1,193 (206)
(1,107) (2,820)
----- End of picture text -----

8. FINANCIAL INCOME

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----- Start of picture text -----

Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Interest income on cash and cash equivalents 78 1,027
Interest income on time deposits 198 76
Others — 5
276 1,108
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Interim Report 2016 IRC 31

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

9. FINANCIAL EXPENSES

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----- Start of picture text -----

Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Interest expenses on bank borrowings 7,742 8,171
Less: interest expenses capitalised to property, plant and equipment (7,456) (7,403)
286 768
Unwinding of discount on environmental obligation 349 252
635 1,020
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10. INCOME TAX CREDIT

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----- Start of picture text -----

Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Russia current tax expenses (14) (18)
Deferred tax credit 1,016 108
1,002 90
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Russian corporation tax is calculated at a rate of 20% of the estimated assessable profit for each of the six months ended 30 June 2016 and 2015.

Based on the approved federal and regional laws in Russia, K&S project is considered as an investment project and is eligible to income tax relief over 10 years starting from August 2015. Russian Corporation tax at the K&S project will be exempted from August 2015 to August 2020 and then will be taxed at a reduced rate of 10% in the following 5 years compared to 20% payable in ordinary course of business.

No Hong Kong profits tax, United Kingdom Corporation tax, the People’s Republic of China Enterprise Income tax and Cypriot Corporation Tax was provided for as the Group had no assessable profit arising in or derived from these jurisdictions for the six months ended 30 June 2016 and 2015.

32 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

11. DIVIDENDS

No dividends were paid, declared or proposed to the owners of the Company during both the six months ended 30 June 2016 and 2015.

12. LOSS PER SHARE

The calculation of basic and diluted loss per share attributable to owners of the Company is based on the following data:

Loss

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----- Start of picture text -----

Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Loss for the purposes of basic and diluted loss per ordinary share
being loss for the period attributable to owners of the Company (9,945) (198,570)
----- End of picture text -----

Number of shares

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----- Start of picture text -----

Six months ended 30 June
2016 2015
Number Number
‘000 ‘000
Number of ordinary shares for the purposes
of basic and diluted loss per ordinary share 6,155,886 4,904,394
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The computation of weighted average number of ordinary shares for the purposes of basic and diluted loss per ordinary share for the six months ended 30 June 2015 had been arrived at after eliminating the shares of the Company held under the Company’s Long-term Incentive Plan (32,362,875 Treasury shares) (30 June 2016: Nil).

The computation of diluted loss per share for the six months ended 30 June 2016 does not take into account the Company’s outstanding share options since their assumed exercise would result in a decrease in loss per share.

The computation of diluted loss per share for the six months ended 30 June 2015 does not take into account the Company’s outstanding shares awarded under the Company’s Long-term Incentive Plan since assuming their vesting would result in a decrease in loss per share.

Interim Report 2016 IRC 33

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

13. EXPLORATION AND EVALUATION ASSETS AND PROPERTY, PLANT

AND EQUIPMENT

During the period, the Group spent approximately US$6.1 million (for the six months ended 30 June 2015: US$44.2 million) on the mine development and acquisition of property, plant and equipment, including prepayments for property, plant and equipment as disclosed in note 14.

At 30 June 2016, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$23.2 million (31 December 2015: US$23.1 million).

14. OTHER NON-CURRENT ASSETS

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As at As at
30 June 31 December
2016 2015
US$’000 US$’000
(unaudited) (audited)
Prepayments for property, plant and equipment 88,376 88,859
Cash advances to employees 141 158
88,517 89,017
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15. INVENTORIES

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----- Start of picture text -----

As at As at
30 June 31 December
2016 2015
US$’000 US$’000
(unaudited) (audited)
Stores and spares 6,434 10,079
Work in progress 14,537 16,128
Finished goods — 3,368
20,971 29,575
----- End of picture text -----

Work in progress, finished goods and spare parts were recovered by US$1,543,000 and raw and other materials were written down by US$1,801,000 to its net realisable value during the six months ended 30 June 2016 (31 December 2015: Work in progress and finished goods were recovered by US$252,000 and spare parts were written down by US$7,400,000 to its net realisable value). No inventories had been pledged as security in both periods.

34 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

16. TRADE AND OTHER RECEIVABLES

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As at As at
30 June 31 December
2016 2015
US$’000 US$’000
(unaudited) (audited)
VAT recoverable 4,011 5,318
Advances to suppliers 98 2,485
Amounts due from customers under engineering contracts 387 476
Trade receivables 375 10,141
Other debtors 9,790 7,043
14,661 25,463
----- End of picture text -----

Amounts due from customers under engineering contracts are expected to be billed and settled within one year, and relate to the long-term contracts in progress.

The following is an analysis of the trade receivables by age, presented based on the invoice date.

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----- Start of picture text -----

As at As at
30 June 31 December
2016 2015
US$’000 US$’000
(unaudited) (audited)
Less than one month 255 5,271
One month to three months 80 4,861
Over six months 40 9
Total 375 10,141
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The Group allows credit periods ranging from 20 days to 90 days (31 December 2015: 15 days to 63 days) to individual third party customers. The directors of the Company considered that the carrying value of trade and other receivables is approximately equal to their fair value.

17. TIME DEPOSITS

Time deposits of the Group comprised short-term bank deposits with an original maturity of three to nine months. The carrying amounts of the assets approximate their fair value. As at 30 June 2016, time deposits carrying interest at fixed rate of 1.75% per annum (31 December 2015: 0.45% to 15.50% per annum).

Interim Report 2016 IRC 35

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

18. TRADE AND OTHER PAYABLES

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As at As at
30 June 31 December
2016 2015
US$’000 US$’000
(unaudited) (audited)
Trade payables 2,782 3,121
Advances from customers 91 195
Accruals and other payables 15,342 14,716
18,215 18,032
----- End of picture text -----

For related party and individual third party trade creditors, the average credit period on purchase of goods and services for the period was 33 days (2015: 19 days).

The following is an analysis of the trade payables by age, presented based on the invoice date.

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----- Start of picture text -----

As at As at
30 June 31 December
2016 2015
US$’000 US$’000
(unaudited) (audited)
Less than one month 617 1,030
One month to three months 68 37
Three months to six months 24 51
Over six months 2,073 2,003
Total 2,782 3,121
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36 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

19. BANK BORROWINGS

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----- Start of picture text -----

As at As at
30 June 31 December
2016 2015
US$’000 US$’000
(unaudited) (audited)
Secured bank loans
Asian Pacific Bank — 10,550
ICBC 238,934 257,738
Total 238,934 268,288
Carrying amount repayable
Within one year 42,500 53,050
More than one year, but not exceeding two years 39,287 39,134
More than two years, but not exceeding five years 157,147 176,104
Total 238,934 268,288
----- End of picture text -----

Bank loans from Asian Pacific Bank

In March 2015, the Group renewed the US$15,000,000 term loan facility with Asian Pacific Bank for a 13-month period with an annual interest of 9% repayable monthly and the loan principal was repayable by 21 April 2016. As at 30 June 2016, the loan amount was fully repaid (31 December 2015: US$8,350,000 was drawn down from the loan facility).

In October 2015, the Group renewed another US$10,000,000 loan facility (“US$10,000,000 Loan Facility”) with Asian Pacific Bank for a 12-month period. The loan bore an annual interest of 10.60% which was repayable monthly. As at 30 June 2016, the loan was fully repaid (31 December 2015: US$2,200,000 was drawn down from the loan facility).

For the six months ended 30 June 2016, the Group drew down US$3,795,000 from these facilities from Asian Pacific Bank in several tranches on a rolling basis and US$14,345,000 were repaid in aggregate during the period.

As at 30 June 2016, the Group maintained no (31 December 2015: US$10,550,000) loan facilities from Asian Pacific Bank.

These facilities were primarily for working capital financing the Group’s Kuranakh project. As at 31 December 2015, both loan facilities were secured against the helicopter owned by LLC GMMC (“LLC GMMC”), subsidiary of the Group and the shares of OJSC Giproruda (“OJSC Giproruda”), subsidiary of the Group.

Interim Report 2016 IRC 37

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

19. BANK BORROWINGS (CONTINUED)

Bank loan from ICBC

On 6 December 2010, LLC KS GOK, a wholly owned subsidiary of the Company, entered into the HK$3.11 billion (equivalent to US$400 million) Engineering Procurement and Construction Contract (“EPC Contract”) with the China National Electric Engineering Corporation (“CNEEC”) for CNEEC, to be the main contractor for the construction of the Group’s mining operations at K&S Project.

On 13 December 2010, the Group entered into a project finance facility agreement with ICBC (the “ICBC Facility Agreement”) pursuant to which ICBC will lend US$340,000,000 (equivalent to HK$2.64 billion) to LLC KS GOK to be used to fund the construction of the Group’s mining operations at K&S in time for the start of major construction works in early 2011. Interest under the facility was charged at 2.80% above London Interbank Offering rate (“LIBOR”) per annum. The whole facility amount is repayable semi-annually in 16 installments of US$21,250,000 each, starting from December 2014 and is fully repayable by June 2022.

The loan is carried at amortised cost with effective interest rate at 6.13% per annum (2015: 5.91%). The outstanding loan principal was US$255,000,000 as at 30 June 2016 (31 December 2015: US$276,250,000).

As at 30 June 2016 and 31 December 2015, the Group had no undrawn finance facility in relation to the ICBC Facility Agreement.

As at 31 December 2015, US$2,119,000 was deposited in a debt service reserve account (“DSRA”) with ICBC under a security deposit agreement (“DSRA Agreement”) related to the ICBC Facility Agreement and was presented as restricted deposit under non-current assets. In January 2016, the Group placed restricted bank deposits of an amount up to US$28,250,000 in order to replenish the restricted deposit level pursuant to the security deposit agreement.

In accordance with the waiver and consent letter dated 19 April 2016 which the conditions precedent were satisfied on 21 June 2016, ICBC, among others, waived the Group’s restriction on withdrawing from the DSRA for repayment of the ICBC loan installment and related interest due in June 2016 and the requirement of the Group to maintain the DSRA until 30 June 2018 (or an earlier date if the Company and Petropavlovsk PLC decide that the aforementioned waivers are no longer required). Accordingly, balance of US$1,977,000 remained in the DSRA as at 30 June 2016 without replenishment. The deposit carries interest at prevailing market rate at around 1.0% per annum for the six months ended 30 June 2016 and year ended 31 December 2015.

Details of the guarantee granted by Petropavlovsk PLC in relation to the ICBC Facility Agreement are set out in note 21.

38 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

20. SHARE CAPITAL

There were no movements in the issued share capital of the Company during the six months ended 30 June 2016 and 2015. Details of the share capital of the Company at 30 June 2016 and 31 December 2015 are as follows:

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----- Start of picture text -----

Share capital
Number of
shares US$’000
----- End of picture text -----

Authorised
At 1 January 2015, 30 June 2015, 1 January 2016	Unlimited number of ordinary shares
and 30 June 2016	with no par value.
Issued and fully paid
At 1 January 2015 and 30 June 2015	4,859,910,301	1,211,231
Issue of new ordinary shares pursuant to an open offer of shares	1,295,976,080	52,656
Transaction costs attributable to issue of new ordinaryshares	–	(3,222)
At 31 December 2015 and 30 June 2016	6,155,886,381	1,260,665

As disclosed in note 31 to the Group’s 2015 consolidated financial statements, on 17 January 2013, the Company entered into a conditional subscription agreement with each of General Nice and Minmetals Cheerglory Limited (“Minmetals”) for an investment by General Nice and Minmetals in new shares of the Company of up to approximately HK$1,845,000,000 (equivalent to approximately US$238,000,000) in aggregate.

The last subscription made by General Nice was on 30 April 2014. A cumulative total of 1,365,876,000 new shares of the Company had been allotted and issued to General Nice as at 30 April 2014. As General Nice did not complete the subscription in accordance with the agreed timeline, Minmetals’ subscription will be subject to further agreement between the parties. No subscription was made by Minmetals up to 30 June 2016.

On 17 November 2014, the Company agreed with General Nice that General Nice’s further subscription of the Company’s shares would take place on or before 18 December 2014. As part of General Nice’s commitment to the transaction and investment, in addition to the personal guarantee already received from Mr. Cai Sui Xin, the Company had also agreed with General Nice that, in the event that the full payment was not made on or before 18 December 2014 and General Nice sought, and the Company agreed to, a further deferral of the completion of General Nice’s further subscription, General Nice would pay interest on a monthly basis on the outstanding balance to the Company, calculated on the following escalating interest schedule:

• (a) 6% per annum from 19 December 2014 to 18 March 2015;

• (b) 9% per annum from 19 March 2015 to 18 June 2015; and

• (c) 12% per annum from 19 June 2015 and thereafter.

Interim Report 2016 IRC 39

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

20. SHARE CAPITAL (CONTINUED)

At 30 June 2016 and 31 December 2015, excluding the shares subscribed by General Nice in the Company’s open offer in 2015, a cumulative total of 1,365,876,000 new shares of the Company had been allotted and issued to General Nice, following the receipt of aggregate subscription monies of approximately HK$1,315.9 million (equivalent to approximately US$169.6 million).

The Company is in discussions with General Nice, Mr. Cai Sui Xin and Minmetals about a further deferred completion and other available options.

21. RELATED PARTY DISCLOSURES

Transactions between the Group and its other related parties are disclosed below. All of the transactions were reviewed by independent members of the Board.

During the six months ended 30 June 2016, the Group entered into the following transactions with related parties:

Related parties

Petropavlovsk PLC, which is a substantial shareholder of the Company, and its subsidiaries are considered to be related parties. Mr. Peter Hambro and Dr. Pavel Maslovskiy, shareholders of Petropavlovsk PLC, are close family members of the directors of the Company, Mr. George Jay Hambro and Mr. Yury Makarov, respectively.

Asian Pacific Bank is considered as a related party as Mr. Peter Hambro has interests and is able to exercise significant influence over Asian Pacific Bank.

40 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

21. RELATED PARTY DISCLOSURES (CONTINUED)

Related parties (Continued)

Related party transactions the Group entered into that related to the day-to-day operation of the business are set out below.

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Services provided [(a)] Services received [(b)]
Six months ended 30 June Six months ended 30 June
2016 2015 2016 2015
US$’000 US$’000 US$’000 US$’000
(unaudited) (unaudited) (unaudited) (unaudited)
Petropavlovsk PLC and its subsidiaries
Petropavlovsk PLC — 1 2,417 2
LLC NPGF Regis 6 7 — —
CJSC Albynsky Rudnik 188 — — —
CJSC Pokrovsky Rudnik 586 1 — —
MC Petropavlovsk 130 218 23 34
LLC Gidrometallurgia 45 51 — —
LLC Helios — — 1 9
Transaction with other related party
Asian Pacific Bank — 23 — —
----- End of picture text -----

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----- Start of picture text -----

Interest on outstanding
capital contribution [(c)]
Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Transaction with other related party
General Nice 2,270 1,502
----- End of picture text -----

(a) Amounts represent fee received/receivable from related parties for provision of administrative support.

• (b) Amounts represent fee paid/payable to related parties for receipt of financial guarantee, administrative support and helicopter services.

(c) Amount represents interest charged on outstanding capital contribution (see note 20 for details).

The related party transactions as disclosed above were conducted in accordance with terms mutually agreed with counter parties.

For the six months ended 30 June 2016 and 2015, there is a deemed contribution from a shareholder, General Nice, for accrued interests on outstanding contribution capital.

Interim Report 2016 IRC 41

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

21. RELATED PARTY DISCLOSURES (CONTINUED)

Related parties (Continued)

The outstanding balances with related parties at the end of the reporting period are set out below.

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Amounts owed Amounts owed
by related parties [(a)] to related parties [(b)]
As at As at As at As at
30 June 31 December 30 June 31 December
2016 2015 2016 2015
US$’000 US$’000 US$’000 US$’000
(unaudited) (audited) (unaudited) (audited)
Petropavlovsk PLC and its subsidiaries
Petropavlovsk PLC 111 98 1,209 9
OJSC Irgiredmet — — 2 2
LLC NPGF Regis 39 28 94 83
CJSC Pokrovsky Rudnik 691 903 — —
CJSC Albynsky Rudnik 420 157 — —
MC Petropavlovsk 167 144 1,977 1,930
LLC Gidrometallurgia 2 1 — —
LLC Helios — 1 — —
Outstanding balances with other related parties
Asian Pacific Bank 4 4 — —
General Nice 6,165 3,897 — —
7,599 5,233 3,282 2,024
----- End of picture text -----

(a) The amounts are recorded in other receivables, which are unsecured, non-interest bearing and repayable on agreed terms within twelve months from the end of the reporting period.

(b) The amounts are recorded in other payables, which are unsecured, non-interest bearing and repayable on agreed terms within twelve months from the end of the reporting period.

42 IRC Interim Report 2016

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

21. RELATED PARTY DISCLOSURE (CONTINUED)

Banking arrangements

Other than the related party transactions as disclosed in note 19, the Group has bank accounts with Asian Pacific Bank. The bank balances and time deposits at the end of the reporting period are set out below:

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----- Start of picture text -----

As at As at
30 June 31 December
2016 2015
US$’000 US$’000
(unaudited) (audited)
Asian Pacific Bank 2,749 24,829
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The Group earned interest on the balances held on accounts with the above bank details of which are set out below.

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----- Start of picture text -----

Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Interest income from cash and cash equivalents 31 407
----- End of picture text -----

Guarantee arrangements

In relation to the ICBC loan as described in note 19, Petropavlovsk PLC has guaranteed the Group’s obligations under the ICBC Facility Agreement. Petropavlovsk PLC, the Company and LLC KS GOK have entered into an agreement setting out the terms on which Petropavlovsk PLC provides the guarantee (“Recourse Agreement”). No fee will be payable by the Group in respect of the provision of the guarantee by Petropavlovsk PLC while Petropavlovsk PLC remains the parent company of the Company under relevant financial reporting standards. In the event that Petropavlovsk PLC ceases to be the parent company of the Company under the relevant financial reporting standards as agreed with Petropavlovsk PLC, a fee of no more than 1.75% on outstanding amount will be payable by the Company to Petropavlovsk PLC in respect of the guarantee. No security will be granted by the Group to Petropavlovsk PLC in respect of the guarantee. Pursuant to the Recourse Agreement, Petropavlovsk PLC will have the right to inject funds into the Group by shareholder loan (on normal commercial terms at the time) in order to enable the Group to make payments under the ICBC Facility Agreement or for other working capital purposes. The Recourse Agreement also contains reporting obligations and customary covenants from the Group which require Petropavlovsk PLC’s consent as guarantor (acting reasonably and taking into account the effect upon the Group’s ability to fulfill its obligations under the ICBC Facility Agreement) for certain actions including the issuance, acquisition or disposal of securities, and entry into joint ventures.

Interim Report 2016 IRC 43

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED...)

For the Six Months Ended 30 June 2016

21. RELATED PARTY DISCLOSURE (CONTINUED)

Guarantee arrangements (Continued)

As at 30 June 2016, Petropavlovsk PLC beneficially owns approximately 35.83% (31 December 2015: 35.83%) of the issued share capital of the Company and accordingly as agreed with the directors of Petropavlovsk PLC, its voting rights in the Company are insufficient to give it the practical ability to direct the relevant activities of the Company unilaterally and does not retain control over the Company. Against this, pursuant to the Recourse Agreement, a fee equal to 1.75% on the outstanding loan amount under the ICBC Facility Agreement has been charged for the provision of the guarantee by Petropavlovsk PLC which amounted to US$2,394,000 during the six months ended 30 June 2016 (for the six months ended 30 June 2015: Nil). Under the ICBC Facility Agreement, each of the following will constitute a covenant; and noncompliance with any covenant will constitute an event of default upon which the ICBC Facility Agreement will become immediately due and payable: (i) Petropavlovsk PLC must retain not less than 30% (“Minimal Holding”) direct or indirect interest in the Company; (ii) Petropavlovsk PLC has an obligation to maintain a minimum tangible net worth of not less than US$750,000,000, a minimum interest cover ratio of 3.5:1 and a maximum leverage ratio of 4:1 and the group entity holding K&S Project has an obligation to maintain a minimum Debt Service Cover Ratio as defined in the ICBC Facility Agreement of 1.1x (the “Financial Covenants”); and (iii) there are also certain limited restrictions on the ability of Petropavlovsk PLC to grant security over its assets, make disposals of its assets or enter into merger transactions.

According to a waiver and consent letter of 19 April 2016, ICBC has agreed to grant a waiver of the Financial Covenants until 31 December 2017 (or an earlier date of Petropavlovsk PLC and the group entity holding K&S Project manage to comply with their respective Financial Covenants), subject to the fulfillment of certain conditions precedent which were subsequently satisfied on 21 June 2016. ICBC has also agreed to amend the Minimal Holding from 30% to 15%.

Key Management Compensation

During the six months ended 30 June 2016, George Jay Hambro (from 1 January to 20 January 2016), Yury Makarov and Danila Kotlyarov (For the six months ended 30 June 2015: George Jay Hambro, Yury Makarov, Raymond Woo (from 1 January to 25 March 2015) and Danila Kotlyarov (from 1 January to 30 June 2015)) were considered the key management of the Group. The remuneration of key management personnel is set out below in aggregate.

==> picture [449 x 156] intentionally omitted <==

----- Start of picture text -----

Six months ended 30 June
2016 2015
US$’000 US$’000
(unaudited) (unaudited)
Short-term benefits 570 1,087
Post-employment benefits 44 112
Share-based payments 150 –
764 1,199
----- End of picture text -----

The remuneration of key management personnel is determined by the Remuneration Committee having regard to the performance of individuals and market trends.

44 IRC Interim Report 2016

CORPORATE GOVERNANCE AND OTHER INFORMATION

DIRECTORS’ INTERESTS

As at 30 June 2016, the interests or short positions of the Directors of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”) which were notified to the Company and The Stock Exchange of Hong Kong Limited (“Stock Exchange”) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were recorded in the register required to be kept by the Company under Section 352 of the SFO, or which were required, pursuant to the Model Code for Securities Transactions by Directors as set out in Appendix 10 of the Listing Rules and adopted by the Company (the “Model Code”), to be notified to the Company and the Stock Exchange, were as follows:

Long positions in shares of the Company

			Percentage of issued
		Number of shares	shares in the Company
Name of director	Nature of interest	in the Company	as at 30June 2016
George Jay Hambro	Interest of a controlled corporation*	445,866	0.01%
	Beneficial interest**	34,286,539	0.56%
	Contingent beneficial interest***	29,000,000	0.47%^
Yury Makarov	Beneficial interest	30,911,505	0.50%
	Contingent beneficial interest***	29,000,000	0.47%^
Raymond Kar Tung Woo	Beneficial interest	17,435,360	0.28%
Sui Xin Cai^^	Interest of a controlled corporation	1,797,500,000^^^	29.20%

• These shares are beneficially owned by a company which is wholly owned by George Jay Hambro.

• ** These shares are beneficially owned by an independent service company providing management services to IRC that is consequently classed as an affiliated company to the employee.

• *** The interest relates to the share options granted by the Company on 20 November 2015. Details of the share option scheme are set out on page 51 of the 2015 Annual Report of the Company under the heading “Share Option Scheme”.

• ^ These percentages are calculated on the basis of 6,155,886,381 Shares in issue as at 30 June 2016.

• ^^ These shares are beneficially owned by General Nice Development Limited (“GND”) and Mr. Sui Xin Cai is deemed to be interested in such shares under the SFO by virtue of the fact that General Nice Group Holdings Limited, which is wholly owned by Mr. Sui Xin Cai, holds 50% equity interest in GND. Mr. Sui Xin Cai also directly holds 5% equity interest in GND.

• ^^^ Based on the Company’s understanding, this figure (i) includes an interest in 34,064,000 new Shares under the subscription agreement dated 17 January 2013 between the Company and GND to which GND are no longer entitled to subscribe for and (ii) does not include GND’s interest in 62,298,000 Shares that GND was issued under the open offer conducted by the Company in August 2015. The Company further understands from GND that the number of Shares which are held by GND as at 30 June 2016 was 1,263,174,000 Shares (representing approximately 20.52% of the total issued shares of the Company as at 30 June 2016).

			Percentage of
		Number of shares	issued shares
		in Petropavlovsk PLC	in Petropavlovsk
Name of director	Nature of interest	(“Petropavlovsk”)	as at 30June 2016
George Jay Hambro	Beneficial interest	24,218	0.00%
Yury Makarov	Beneficial interest	75,278	0.00%

Interim Report 2016 IRC 45

CORPORATE GOVERNANCE AND OTHER INFORMATION (CONTINUED...)

Long positions in shares of an associated corporation

	Name of	Capacity and	Number of
Name of director	associated corporation	nature of interest	shares
George Jay Hambro	Petropavlovsk	Beneficial interest	24,218
Yury Makarov	Petropavlovsk	Beneficial interest	75,278

Mr George Jay Hambro is the son of Mr Peter Hambro, the Chairman of Petropavlovsk PLC.

DIRECTORS’ INTERESTS IN CONTRACTS

No Director had a material interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company or any of its subsidiaries was a party during the six months ended 30 June 2016.

SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS

So far as is known to any Director or chief executive of the Company, as at 30 June 2016, the Company’s shareholders (other than Directors or chief executives of the Company) who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company as under Section 336 of the SFO were as follows:

			Approximate % of the
			Company’s total issued
		Number of shares	share capital as at
Name of shareholder	Capacity	in the Company	30June 2016
Petropavlovsk PLC	Interest of a controlled corporation	2,205,900,000	35.83%
Cayiron Limited*	Beneficial owner	2,205,900,000	35.83%
Ming Chi Tsoi**	Interest of a controlled corporation	1,797,500,000^	29.20%
General Nice Group	Interest of a controlled corporation	1,797,500,000^	29.20%
Holdings Limited***
General Nice	Beneficial owner	1,797,500,000^	29.20%
Development Limited
Pine River Master Fund	Interest of a controlled corporation	615,153,320	9.99%
Limited (“PRMFL”)a
Pine River Capital	Investment manager	615,153,320	9.99%
Management LP
(“PRCMLP”)a & b

46 IRC Interim Report 2016

CORPORATE GOVERNANCE AND OTHER INFORMATION (CONTINUED...)

			Approximate % of the
			Company’s total issued
		Number of shares	share capital as at
Name of shareholder	Capacity	in the Company	30June 2016
Pine River Holdings L.P.	Interest of a controlled corporation	615,153,320	9.99%
(“PRHLP”)a, b & c
Pine River Performance	Interest of a controlled corporation	615,153,320	9.99%
L.P. (“PRPLP”)a & d
Pine River Capital	Interest of a controlled corporation	615,153,320	9.99%
Management LLC
(“PRCMLLC”)a, b c, d & e
Taylor Brian Curtisa, b c, d, e & f	Interest of a controlled corporation	615,153,320	9.99%

• Cayiron Limited is a wholly owned subsidiary of Petropavlovsk PLC.

• ** These shares are beneficially owned by General Nice Development Limited (“GND”) and Mr. Ming Chi Tsoi is deemed to be interested in such shares under the SFO by virtue of the fact that he holds 35% equity interest in GND.

• *** General Nice Group Holdings Limited holds 50% equity interest in GND.

• ^ Based on the Company’s understanding, this figure (i) includes an interest in 34,064,000 new Shares under the subscription agreement dated 17 January 2013 between the Company and GND to which GND are no longer entitled to subscribe for and (ii) does not include GND’s interest in 62,298,000 Shares that GND was issued under the open offer conducted by the Company in August 2015. The Company further understands from GND that the number of Shares which are held by GND as at 30 June 2016 was 1,263,174,000 Shares (representing approximately 20.52% of the total issued shares of the Company as at 30 June 2016).

• Note a: Pine River Lux Investments S.a.r.l. is wholly owned by Pine River Lux Holdings S.a.r.l. and holds 615,153,320 shares of the Company. Pine River Lux Holdings S.a.r.l. is wholly owned by PRMFL.

Note b: PRCMLP is an investment manager of PRMFL.

Note c: PRCMLP is 99.5% owned by PRHLP with remaining 0.5% owned by PRCMLLC.

Note d: Pine River Capital Management (HK) Limited is an investment manager of PRMFL. Pine River Capital Management (HK) Limited is wholly owned by PRPLP.

Note e: PRHLP is 33.59% owned by Taylor Brian Curtis and 1.0% owned by PRCMLLC. PRPLP is 33.59% owned by Taylor Brian Curtis and 1.0% owned by PRCMLLC.

Note f: PRCMLLC is 98.0% owned by Taylor Brian Curtis.

Save as disclosed above and those disclosed under “Directors’ Interests”, the Company had not been notified of other interests representing 5% or more of the issued share capital of the Company as at 30 June 2016.

Interim Report 2016 IRC 47

CORPORATE GOVERNANCE AND OTHER INFORMATION (CONTINUED...)

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the six months ended 30 June 2016, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities. As at 30 June 2016, the Company had not been notified of any short positions being held by any substantial shareholder in shares or underlying shares of the Company, which are required to be recorded in the register required to be kept under Section 336 of Part XV of the Securities and Futures Ordinance.

CORPORATE GOVERNANCE, GOING CONCERN ASSESSMENT AND OTHER INFORMATION

The Management and Board of IRC are committed to promoting good corporate governance to safeguard the interests of the shareholders and to enhance the Group’s performance. Detailed disclosure of the Company’s corporate governance policies and practices is available in the 2015 Annual Report.

During the six months ended 30 June 2016, the Company has complied with the code provisions set out in the Corporate Governance Code as stated in Appendix 14 of the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited except for: a) the Non-Executive Directors Mr. Cai Sui Xin and Mr. Liu Qingchun and the Independent Non-Executive Director Mr. Simon Murray were unable to attend the annual general meeting of the Company held on 28 June

2016 as provided for in code provision A.6.7 as they had overseas engagements; and b) pursuant to Rule 3.10A of the Listing Rules, the Independent Non-Executive Directors of a listed issuer must represent at least one-third of the board of directors. Following the appointment Mr. Danila Kotlyarov as an Executive Director of the Company with effect from 20 January 2016, the number of Independent Non-Executive Directors of the Company has fallen below the minimum number as required under Rule 3.10A. During the transitional period, the Board believes that there is still a sufficient independent element on the Board, which can effectively exercise independent judgment. On 16 March 2016, Mr. Simon Murray was re-designated from a Non-Executive Director to an Independent Non-Executive Director of the Company. Following the re-designation, the number of Independent Non-Executive Directors of the Company has fulfilled the minimum number as required under Rule 3.10A of the Listing Rules.

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Listing Rules (the “Model Code”). The Company has made specific enquiry of all the Directors regarding any non-compliance with the Model Code during the period and they have confirmed their full compliance with the required standard set out in the Model Code. The Company has also adopted the Model Code as the Code for Securities Transactions by Relevant Employees to regulate dealings in securities of the Company by certain employees of the Company, or any of its subsidiaries and the holding companies who are considered to be likely in possession of unpublished price sensitive information in relation to the Company or its securities.

48 IRC Interim Report 2016

CORPORATE GOVERNANCE AND OTHER INFORMATION (CONTINUED...)

The Directors acknowledge their responsibility for preparing the financial statements of the Group in accordance with statutory requirements and applicable accounting standards. In preparing the financial statements, the directors of the Company have assessed the going concern status of the Group after taking into account the following:

• (i) On 14 March 2016, the Group entered into an agreement with its construction contractor of the K&S mine project (“K&S Project”), in respect of, among others, new deferred payment terms for the Group’s remaining obligations under the EPC Contract in three equal instalments within 30 days of 31 December 2017, 31 December 2018 and 31 December 2019 respectively;

• (ii) On 19 April 2016, the Group has obtained waivers from Industrial and Commercial Bank of China (“ICBC”) in respect of the ICBC Facility Agreement, including obligations to maintain certain cash deposits with ICBC and obligations of the Group and its guarantor, Petropavlovsk PLC, to comply with certain financial covenants, subject to the fulfillment of certain conditions precedent which were satisfied on 21 June 2016;

• (iii) The Group is currently negotiating with several banks in Russia for working capital financing for K&S Project and has received terms sheets or proposals from certain banks for short-term revolving loan facilities;

• (iv) The Group is implementing active cost-saving measures to improve operating cash flows and financial position;

• (vi) The substantial volatility in the Russian Rouble/ US Dollar exchange rate which may continue in the coming twelve months, given that a significant percentage of the Group’s costs are denominated in Russian Roubles, whilst a substantial portion of the Group’s sales are denominated in US Dollars; and

• (vii) The substantial volatility in the iron ore price may continue to have an impact on the Group as the Group’s financial position is materially dependent on the price at which it can sell its iron ore production.

As the sufficiency of working capital is dependent on the Group’s ability to successfully implement the above measures, these conditions indicate the existence of a material uncertainty that may cast significant doubt about the Group ability to continue as a going concern. The directors of the Company consider that after taking into account the above, the Group will have sufficient working capital to finance its operations and to pay its financial obligations as and when they fall due. Please refer to the unqualified review conclusion on the Report on Review of Condensed Consolidated Financial Statements and the Emphasis of Matter paragraph on page 17, indicating that the condensed consolidated financial statements of the Group for the six months ended 30 June 2016 have been prepared on a going concern basis.

Petropavlovsk and General Nice are connected parties of the Group and transactions with these entities during the six months ended 30 June 2016 are set out in note 21 to the condensed consolidated financial statements.

The 2016 interim results have been reviewed by the Audit Committee of the Company and by the external auditors.

• (v) Based on the results of the commissioning testing, the 60% loading test and the 72-hour run test of the various plant units at the K&S Project, the Group is anticipating operation and commercial production of the K&S Project in September 2016 upon the full remediation of the identified technical issues from the testing by the construction contractor. It is expected that the project will contribute significantly positively to the Group’s cash flows from the start of its commercial operation as all material capital expenditure for mining, processing and production of the Kimkan deposit has incurred;

Interim Report 2016 IRC 49

GLOSSARY

This glossary contains definitions of certain terms used in this report in connection with the Group and its business. Some of these may not correspond to standard industry definitions.

GLOSSARY

ASP	Average selling price
Board	The Board of Directors
Cayiron	Cayiron Limited, a wholly owned subsidiary of Petropavlovsk and the immediate controlling
	shareholder of the Company
CFR	INCOTERM Cost and Freight
CIM	The Canadian Institute of Mining, Metallurgy and Petroleum
CNEEC	China National Electric Engineering Company Limited, the principle EPC contractor at the K&S
	Project
Concentrate	The clean product recovered from a treatment plant
DAP	INCOTERM Delivery at Place
Deposit	Mineral deposit or ore deposit is used to designate a natural occurrence of a useful mineral, or an
	ore, in sufficient extent and degree of concentration
Directors	The directors of the Company
DSO	Direct shipping ores. Ores that are economic due to their high grades and therefore limited
	requirement for upgrading and processing before sale to end users. Raw material for iron ore
	concentrate, isometric mineral, Fe
EAO	Jewish Autonomous Region, an oblast of the Russian Federation
EBITDA	Earnings before interest, tax, depreciation and amortisation
EPC	Engineering, Procurement and Construction contract
Exploration	Method by which ore deposits are evaluated
Fe	The chemical symbol for iron
Feasibility study	An extensive technical and financial study to assess the commercial viability of a project
Flotation	A mineral process used to separate mineral particles in a slurry, by causing them to selectively
	adhere to a froth and float to the surface
FOB	INCOTERM Free on Board
GDP	Gross domestic product
General Nice	General Nice Development Limited is a Hong Kong incorporated holding company which trades
	and produces steel raw material commodities in China and globally
Geophysical	Prospecting techniques which measure the physical properties (magnetism, conductivity, density,
	etc.) of rocks and define anomalies for further testing
Geotechnical	Referring to the use of scientific methods and engineering principles to acquire, interpret, and
	apply knowledge of earth materials for solving engineering problems
Grade	Relative quantity or the percentage of ore mineral or metal content in an ore body
HK$	Hong Kong dollars, the lawful currency of Hong Kong
HKEx	Hong Kong Exchanges and Clearing Limited
Hong Kong	The Hong Kong Special Administrative Region of the PRC
ICBC	Industrial and Commercial Bank of China Limited, a company listed on the Stock Exchange (Stock
	code: 1398)
Ilmenite	Iron titanium oxide; a trigonal mineral, chemical formula FeTiO3
JORC code	The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves
	(2004 edition), as published by the Joint Ore Reserves Committee, as amended from time to time
K&S	A magnetite development project in the Company’s portfolio consisting of the Kimkan deposit and
	the Sutara deposit
LTIFR	Lost time injury frequency rate, the number of lost time injuries per million man hours worked
Magnetite	Fe3O4; major mineral in banded iron formations, generally low grade (1.5-40% iron)

50 IRC Interim Report 2016

GLOSSARY (CONTINUED...)

Metallurgical	Describing the science concerned with the production, purification and properties of metals and
	their applications
Micon	Micon International Limited has provided consulting services to the international mining
	industry since 1988, with particular focus upon mineral resource estimations, metallurgical
	services, mine design and production scheduling, preparation of pre-feasibility and feasibility
	studies, independent reviews of mining and mineral properties, project monitoring, independent
	engineer roles, financial analysis and litigation support. Micon’s resource estimate complies with
	the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) standards and definitions, as
	required by Canadian National Instrument 43-101 (NI 43-101)
Mill	Equipment used to grind crushed rocks to the desired size for mineral extraction
Mineralisation	Process of formation and concentration of elements and their chemical compounds within a mass
	or body of rock
Minmetals Cheerglory	Minmetals Cheerglory Limited, the Hong Kong incorporated, wholly owned subsidiary of China
	Minmetals Corporation
NI 43-101	Also referred to as National Instrument 43-101, the (Canadian) Standards of Disclosure for Mineral
	Projects, including Companion Policy 43-101 as amended from time to time
Open-pit	A large scale hard rock surface mine; mine working or excavation open to the surface
Optimisation	Co-ordination of various mining and processing factors, controls and specifications to provide
	optimum conditions for technical/economic operation
Ore	Material from which a mineral or minerals of economic value can be extracted profitably or to
	satisfy social or political objectives
Ore-field	A zone of concentration of mineral occurrences
Ore body	Mining term to define a solid mass of mineralised rock which can be mined profitably under
	current or immediately foreseeable economic conditions
Ore Reserves	The parts of a Mineral Resource that can at present be economically mined
Petropavlovsk	Petropavlovsk PLC, the London Stock Exchange quoted, Russian gold mining company
Precious metal	Gold, silver and platinum group minerals
Primary	Characteristic of or existing in a rock at the time of its formation; pertains to minerals, textures etc.;
	original
Processing	Methods employed to clean, process and prepare materials or ore into the final marketable product
Recovery	Proportion of valuable material obtained in the processing of an ore, stated as a percentage of the
	material recovered compared with the total material present
Resources	The concentration of material of economic interest in or on the earth’s crust
ROM	Run-of-mine. This is recovered ore, as mined with dilution, before any pre-concentration or other
	form of processing
Russian Far East	Refers to the Far Eastern Federal district of the Russian Federation, which covers the area of Russia
	between Lake Baikal in Siberia and the Pacific Ocean
Shareholder(s)	Holder of the Share(s)
SRP	Steel/Slag Reprocessing Project
Stock Exchange	The Stock Exchange of Hong Kong Limited
Tailings	Material that remains after all metals/minerals considered economic have been removed from the
	ore
TiO2	Titanium dioxide. A fine white powder. Used in paints, plastics or paper, it provides for maximum
	whiteness and opacity
Titanomagnetite	Concentrate which is a variation of a magnetite concentrate typically with a high vanadium and
	titanium content
Treatment plant	A plant where ore undergoes physical or chemical treatment to extract the valuable metals/
	minerals
Tonne/t	1 metric tonne (1,000 kg)
US Dollar or US$	United States Dollar

Interim Report 2016 IRC 51

GLOSSARY (CONTINUED...)

LIST OF ABBREVIATIONS

°C	degrees Celsius, a thermal unit equivalent to Kelvin+273.15
CaO	chemical symbol for calcium oxide or quicklime
Fe	chemical symbol for iron
Femagn	total iron in the ore originating from magnetite
Fe(total)	total amount of iron content
kg	kilogramme, the SI unit of mass
km	kilometres, a unit of length equivalent to 1,000 m
km2	square kilometres, a unit of area equivalent to 1,000,000 m2
Kt	thousand tonnes
Ktpa	thousand tonnes per annum
kV	kilovolts, one thousand volts, a unit of electromotive force
Kwh	kilowatt hour, a unit of energy
m	metres, the SI unit of length
m3	cubic meter, a unit of volume
mm	millimetres, unit of length equivalent to 0.001 m
Mt	million tonnes
Mtpa	million tonnes per annum
mWt	megawatt, one million watts, a unit of power
nm	not measured
sq.m.	square metre, a unit of area
t	a metric tonne, a unit of mass equivalent to 1,000 kg
tpa	tonnes per annum
TiO2	chemical symbol for titanium dioxide
V2O5	chemical symbol for vanadium pentoxide

All dollars refer to United States Dollars unless otherwise stated.

All maps and diagrams in this report are for illustration purposes only and are not to scale.

52 IRC Interim Report 2016

CORPORATE INFORMATION

IRC LIMITED — 鐵江現貨有限公司

Stock Exchange of Hong Kong: 1029

CORPORATE INFORMATION

Headquarters, registered address and principal place of business in Hong Kong:

6H, 9 Queen’s Road Central, Central District Hong Kong Special Administrative Region of the People’s Republic of China

Telephone: +852 2772 0007 Facsimile: +852 2772 0329 Corporate Website: www.ircgroup.com.hk

Hong Kong Business Registration number: 52399423 Hong Kong Company Registration number: 1464973

EMERITUS DIRECTOR

Dr P.A. Maslovskiy

COMMITTEES OF THE BOARD Audit Committee

C.F. Li (Chairman) J.E. Martin Smith D.R. Bradshaw

Remuneration Committee

J.E. Martin Smith (Chairman) D.R. Bradshaw C.F. Li

Health, Safety and Environmental Committee

PRINCIPAL PLACE OF BUSINESS IN RUSSIA

Bulvar Entuziastov, Building 2 7/F, Business Center “Golden Gate” Moscow 109544 Russia

D.R. Bradshaw (Chairman) C.F. Li J.E. Martin Smith

Nomination Committee

G.J. Hambro (Chairman) D.R. Bradshaw J.E. Martin Smith

CHAIRMAN

G.J. Hambro

EXECUTIVE DIRECTORS

Chief Executive Officer: Y.V. Makarov Chief Financial Officer: D. Kotlyarov

AUTHORISED REPRESENTATIVES FOR THE PURPOSES OF THE STOCK EXCHANGE OF HONG KONG LIMITED

D. Kotlyarov J. Yuen

NON-EXECUTIVE DIRECTORS

G.J. Hambro R.K.T. Woo S.X. Cai

COMPANY SECRETARY

J. Yuen

INDEPENDENT NON-EXECUTIVE DIRECTORS

D.R. Bradshaw, Senior Independent Non-Executive Director

C.F. Li J.E. Martin Smith S. Murray, CBE, Chevalier de la Légion d’Honneur

Interim Report 2016 IRC 53

	IRC MILESTONES	IRC MILESTONES
	Our Future	K&S	Commercial production (Phase I)
			Doubling production (Phase II)
		Garinskoye	Production
	2016	K&S	First iron ore concentrate production
			Hot commissioning and testing completion
	2015	IRC	Completed fully underwritten Open Offer
		K&S	Ongoing commissioning and testing
	2014	K&S	Commissioning Programme commenced
	2013	IRC	General Nice + Minmetals Cheerglory
			Strategic Alliance
		K&S	Ongoing construction
	2012	Kuranakh	Ilmenite production full capacity
		Garinskoye	DSO operation announced
		Exploration	Ilmenite & Molybdenum
			Exploration acquisitions
	2011	IRC	Group reserves increase threefold
		Kuranakh	Full year production targets exceeded
		K&S	First drawdown ICBC facility
			Optimisation Study to double K&S production
	2010	IRC	HKEx listing
		Kuranakh	Commissioned
			Iron ore production full capacity
		K&S	US$340m ICBC facility
			US$400m CNEEC EPC contract
		SRP	First production
54	IRCAnnual Report 2015

==> picture [67 x 40] intentionally omitted <==

IRC Limited 鐵江現貨有限公司

6H, 9 Queen’s Road Central Hong Kong 香港中環皇后大道中9號6樓H室 office@ircgroup.com.hk www.ircgroup.com.hk Tel 電話 : (852) 2772 0007 Fax 傳真 : (852) 2772 0329