IRC Limited — Interim / Quarterly Report 2017

Jul 25, 2017

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. The information set out below in this announcement is provided for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for shares in the Company.

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

SECOND QUARTER TRADING UPDATE FOR THE THREE MONTHS ENDED 30 JUNE 2017 QUARTERLY TRADING RECORD IN THE HISTORY OF IRC

CONFERENCE CALL

A conference call will be held today at 11h00 Hong Kong time to discuss the second quarter trading update. The number is +852 2112 1700 and the passcode is 3418525#. Presentation slides to accompany the call are available at www.ircgroup.com.hk. A replay call will be available from 26 July 2017 at www.ircgroup.com.hk/html/ir_call.php.

Tuesday, 25 July 2017: The Board of Directors of IRC Limited (“IRC” or the “Company”, together with its subsidiaries, the “Group”) is pleased to provide the Second Quarter Trading Update for the three months ended 30 June 2017.

HIGHLIGHTS

Operations

K&S

• Quarterly trading record in the history of IRC – production and sales of iron ore concentrate amounted to 380,661 tonnes and 376,821 tonnes respectively, up 20% and 17% respectively over the first quarter of 2017

• K&S project continues to generate positive cash flow

• Successfully operated at over 80% capacity in a loading test; currently operating at over 50% capacity on a continuous basis; estimate to reach close to full capacity by the end of 2017

• c.700,000 tonnes of iron ore concentrate sold in 1H 2017, 219% up compared to the Group’s sales in 1H 2016

• Successful diversification of customer base with solid market demand

Kuranakh

• Care and maintenance process satisfactory

SECOND QUARTER TRADING UPDATE

FOR THE THREE MONTHS ENDED 30 JUNE 2017

Group Q2 2017 Q1 2017 Changes Production (tonnes) 380,661 316,770 20% Sales (tonnes) 376,821 321,886 17%	1H 2017 1H 2016 Changes 697,431 188,111 271% 698,707 219,352 219%

K&S achieved satisfactory operating results during the second quarter of 2017. The total production and sales of iron ore concentrate amounted to 380,661 tonnes and 376,821 tonnes respectively, representing a quarter-to-quarter increase of 20% and 17% respectively. In addition, comparing to the same period last year, the Group has more than tripled its production and sales, illustrating the positive impact from K&S to the Group as the mine continues to ramp up its production capacity.

Kuranakh continues to be in care and maintenance with no production or sales from the mine during the second quarter of 2017.

Commenting on the quarter, Yury Makarov, Chief Executive Officer of IRC said, “I am delighted to report that K&S has sold c.700,000 tonnes of iron ore concentrate in the first half of 2017 and continues to contribute positive cash flow to IRC. K&S is making good progress in ramping up its capacity during this quarter and is currently operating at a steady production capacity of over 50%. After solving some teething issues, K&S achieved its daily production record by operating at over 80% of its production capacity, marking another milestone in the ramping up programme.

Apart from increasing the production volume, we are also pleased to report that K&S has successfully diversified its customer base. Our premium 65% Fe content products are well-received by our customers in China and Russia. Taking advantage of the relatively strong iron ore price market and the premium spread between 62% Fe and 65% Fe iron ore price index, IRC has been receiving good regular cash inflow. The ramping up process continues albeit some teething issues to be resolved, including the need to co-ordinate with the mining contractor to optimise the production schedule. We continue to successfully resolve the problems identified while we increase production to its designed capacity and we aim at operating K&S at close to full capacity on or about the end of 2017.

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MARKETING, SALES AND PRICES

Iron Ore

During the second quarter, K&S has sold 376,821 tonnes of iron ore concentrate to its customers in China and Russia. The price of the product was determined with reference to the international Platts spot price of 65% Fe iron ore concentrate. The achieved selling price is not published for commercial reasons.

The upside trend of the premium spread of 65% Fe iron ore price market over the benchmark 62% Fe iron ore continues to widen as the premium products continue to be more preferred by the market. The 65% Fe carries a price premium of about 20% (or c.US$13 per tonne during the second quarter), giving K&S an added advantage. There were also solid demands for K&S’ products from the market. With a diversified customer base, all products that K&S produced were effectively sold immediately.

Overall, the general iron ore price market has seen corrections during the second quarter. However, by the end of the quarter, the price has regained momentum to close at US$63 per tonne for the benchmark 62% Fe Platts index and US$79 per tonne for 65% Fe Platts index. Although there could be some price volatility in the future as some analysts are concerned with the fundamentals where supply seems to outpace demand in the long run, the 65% Fe iron ore products continue to be more resilient in terms of pricing and market demand.

There were no sales of iron ore concentrate from Kuranakh since the mine has been moved to care and maintenance.

Platts 62%Fe & 65%Fe iron ore price index

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$110.00 Iron ore Platts 65%
$105.00 Iron ore Platts 62%
$100.00
$95.00
$90.00
$85.00
$80.00
$75.00
$70.00
$65.00
$60.00
$55.00
$50.00
$45.00
$40.00
$35.00
$30.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2016 2017
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Ilmenite

As Kuranakh has been moved to care and maintenance, there were no sales of ilmenite product during the quarter.

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Foreign Exchange

The Rouble remained weak against the US dollar in the second quarter of 2017 with very slight appreciations and averaged at 57 against the dollar during the quarter (1Q: US dollar vs RUB averaged 58.6). Rouble depreciated to 59 against the dollar at the end of the quarter. The weakness in the Rouble has a positive impact on the Group’s operating margins as the Group’s operating costs are mainly denominated in Rouble and revenues mainly in US Dollar.

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

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Fe 62% (US$/t) FX (USD: RUB)
160 85.0
USD: RUB 80.0
59
140
75.0
70.0
120 USD: RUB (RHS)
65.0
100 60.0
55.0
80
50.0
60 45.0
40.0
40 Benchmark Fe 62% CFR China (LHS)
35.0
30.0
20 Fe 62% ($/t)
63 25.0
0 20.0
2014 2015 2016 2017
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 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
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OPERATIONS

K&S (100% owned)

The K&S Mine is located in the Jewish Autonomous Region (EAO) of the Russian Far East. The operation is 4 kilometres from the town of Izvestkovaya, through which the Trans-Siberian Railway passes. It is also near to 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 Ramp-Up Progress

During the quarter, K&S’ ramp up progress was satisfactory. Continuous improvement in remedial work paid off with the plant managed to produce at more than 80% capacity during a loading test. Although some additional issues were revealed, K&S team is planning to resolve them quickly. Despite more ramping-up tests needing to be conducted, K&S’ Processing Plant is currently starting to operate in a stable and continuous manner at a steady production capacity of above 50%. K&S aims at operating the plant at close to full capacity by the end of 2017.

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Mining

The mining contractor has re-commenced the mining works in the first quarter. During the second quarter, the mining scale has increased and the contractor is ramping up for full scale operation to catch up with the previous mining volumes lag. The process of drilling and blasting operations in the open pit, and then excavation and hauling operations have begun to replenish the ore stockpile that has been used for plant feeding. During the quarter, a total of 1,213,700 tonnes of ore were mined.

Production and Marketing

K&S	Q2 2017	Q1 2017	Changes
Production (tonnes)	380,661	316,770	20%
Sales (tonnes)	376,821	321,886	17%

Since the start of K&S’ trial production and up to the end of June 2017, K&S has cumulatively produced and sold over 870,000 tonnes of iron ore concentrate. During the second quarter, 1,296,690 tonnes of ore was fed for primary processing and 892,699 tonnes of pre-concentrate was produced. Finally, 380,661 tonnes of iron ore concentrate was produced and 376,821 tonnes was sold, representing an increase of 20% and 17% respectively over the previous quarter.

Estimated Unit Cash Cost

In view of the fact that K&S has not yet reached full production capacity, the cash cost per tonne in the first half of 2017 has not yet reached an optimal level. Taking into account the potential Rouble depreciation to previous lows and the opening of the Amur River Bridge in 2018 which would reduce transportation costs, the Group considers that K&S’ cash cost is expected to remain below US$40 per tonne on a 62% Fe basis when full scale operation at K&S is achieved.

Kuranakh (100% owned)

Kuranakh is located in the north-east Tynda District of the Amur Region of the Russian Far East and comprises both the original Saikta open pit and the later established Kuranakh open pit processing facilities and an onsite railway spur connecting to the BAM and Trans-Siberian Railways.

Continued to be in care and maintenance

As previously announced Kuranakh is under a care and maintenance programme which involves limited costs to keep the mine and plant available for re-opening if the markets permit the investment decision. The Company has reduced the number of staff at Kuranakh to minimum levels for equipment maintenance and security. The only major non-operating cost that the site will bear is domestic property taxes, although relief will be sought for these. During the quarter, there was no production or sales.

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CORPORATE UPDATE

Loan with ICBC and Group’s Cashflow Position

The unaudited cash balance at the period ended 30 June 2017 was c.US$15.6 million. The total debt outstanding was c.US$235.4 million as at 30 June 2017. As previously announced, ICBC has agreed to restructure the principal repayment schedule of K&S’ project finance facility which fully relieves K&S from principal repayments in 2017. With the need to make principal repayments and to replenish the Debt Service Reserve Account in 2018, the going concern of the Group is dependent on the present commodities environment and the ramping-up progress of K&S. IRC’s present cashflow position remains stable and the Company continues to monitor its going concern status and implement measures to improve its cashflow position, including potential fund raising exercises if considered appropriate.

Amur/Heilongjiang River Bridge

The project to build a railway bridge across the Amur River border between Russia and China was first launched by IRC in 2006. The project was sold to Russian and Chinese development funds in November 2014. In early June 2016, the regional government of the Jewish Autonomous Region announced that the Russian part of the Amur River Bridge would commence construction. A contractor agreement has been signed which stipulates the terms and timing of the construction of the Russian part of the Amur River Bridge.

The Russian side of the construction has started while the Chinese side of the bridge is almost completed. According to a recent report, the bridge is expected to be operational in 2018, with June being the earliest time of completion. The operating capacity of the Bridge is 20 million tonnes per annum, which will comfortably cover K&S’ full capacity of 3.2 million tonnes of iron ore concentrate per annum.

IRC’s 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 shipment time. The bridge could halve the transport costs of K&S and further confirm IRC’s success as a Sino-Russian iron ore producer.

General Nice and Minmetal Cheerglory Strategic Investment

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

To date, our strategic partner and second largest shareholder, General Nice has invested approximately US$170 million under the subscription agreement. This represents more than 80% of their total subscription obligation under the strategic investment agreement entered into in 2013. Although full completion of the investment from General Nice and Minmetals has not to date occurred, General Nice has agreed to commence paying interest on the outstanding investment amount of US$38 million from December 2014 onwards, although no interest payments have been made by General Nice to IRC as at 30 June 2017.

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IRC continues to be in discussions with General Nice, Mr Cai Sui Xin (Chairman of General Nice) and Minmetals Cheerglory about completion of General Nice’s subscription obligations and the settlement of the interest due to date and other potential alternative options.

• Figures in this announcement may not add up due to rounding. All tonnes of the Group unless specify refer to wet metric tonnes. All dollars refer to United States Dollar unless otherwise stated.

Cash cost per tonne represents direct and indirect costs of mining, processing, site administration and transportation of the product to customers (which is the costs for delivery to the border) for one tonne of iron ore concentrate. The figure excludes non-cash items (such as depreciation, amortisation and inventory write-downs), corporate expenses (such as head office costs) and any debt service costs.

By Order of the Board IRC Limited Yury Makarov Chief Executive Officer

Hong Kong, People’s Republic of China Tuesday, 25 July 2017

As at the date of this announcement, the Executive Directors of the Company are Mr Yury Makarov and Mr Danila Kotlyarov. The Non-Executive Directors are Mr George Jay Hambro, Mr Cai Sui Xin (Mr Benjamin Ng as his alternate), Mr Raymond Kar Tung Woo and Mr Cheng Chi Kin. The Independent Non-Executive Directors are Mr Daniel Bradshaw, Mr Simon Murray, CBE, Chevalier de la Légion d’Honneur, Mr Chuang-Fei Li and Mr Jonathan Martin Smith.

IRC Limited

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

For further information please visit www.ircgroup.com.hk or contact:

Shirly Chan

Manager – Communications & Investor Relations Telephone: +852 2772 0007 Mobile: +852 9688 8293 Email: sc@ircgroup.com.hk

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