IRC Limited — Interim / Quarterly Report 2017

Apr 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 Hong Kong with limited liability)

(Stock code: 1029)

FIRST QUARTER TRADING UPDATE FOR THE THREE MONTHS ENDED 31 MARCH 2017 FIRST CASH FLOW POSITIVE QUARTERLY PRODUCTION FROM K&S

CONFERENCE CALL

A conference call will be held today at 14h00 Hong Kong time to discuss the first quarter trading update. The number is +852 2112 1700 and the passcode is 3738025#. Presentation slides to accompany the call are available at www.ircgroup.com.hk. A replay call will be available from 26 April 2017 at www.ircgroup.com.hk/html/ir_call.php.

Tuesday, 25 April 2017: The Board of Directors of IRC Limited (“IRC” or the “Company”, together with its subsidiaries, the “Group”) is pleased to provide the First Quarter Trading Update for the three months ended 31 March 2017.

HIGHLIGHTS

Operations

K&S

• Record quarterly production and sales:

• Produced 316,770 tonnes of iron ore concentrate (Up 120% compared to Q4 2016)

• Sold 321,886 tonnes of iron ore concentrate (Up 168% compared to Q4 2016)

• Cash flow positive operations from K&S for the first full quarter

• Operated at peak of c. 75% plant capacity in March, after repair of ball mill, with steady over 50% capacity achieved

• Full processing operations estimated to reach full capacity in 2H 2017

Kuranakh

• Care and maintenance process satisfactory

Corporate

• Cash accumulation ongoing following ICBC agreeing to restructure 2017-2020 debt repayments, which include a full holiday from principal repayments in 2017.

FIRST QUARTER TRADING UPDATE

FOR THE THREE MONTHS ENDED 31 MARCH 2017

During the first quarter, K&S achieved satisfactory results of production testing and the ramping up continued as scheduled. The total production and sales of iron ore concentrate amounted to 316,770 tonnes and 321,886 tonnes respectively during the quarter.

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

Commenting on the quarter, Yury Makarov, Chief Executive Officer of IRC said , “I am delighted to report that K&S is now a positive cash flow contributor for IRC. K&S is making good progress in ramping up its capacity during this quarter. While production was affected by general teething issues at the ball mill, our skilled engineers were quick to detect the problem and remedied it. In addition, we are also pleased about the satisfactory sales results during the quarter. The iron ore concentrate produced at K&S, which is of 65% Fe content, is well-received among customers in North-Eastern China. Taking advantage of the strong iron ore price market and the premium spread between 62% Fe and 65% Fe iron ore price index, we have been receiving good regular cash flow from our customers.

The new estimated timeline of K&S reaching full capacity operation will be in 2H 2017, which reflects the skilled site team’s ability to address all the teething issues that one can expect during commissioning phase. Importantly K&S is now cash-cost positive even under current market and generating positive cash inflow every day.”

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MARKETING, SALES AND PRICES

Iron Ore

At K&S, the Group sold 321,886 tonnes of iron ore concentrate to customers in China during the first quarter. 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 being published for commercial reasons.

The upside trend of iron ore market at the end of 2016 extended to the first quarter of 2017, with the benchmark 62% Fe iron ore price rising up to US$95 per tonne in February and ended the quarter closer to US$80 per tonne. The surge was mainly due to strong restocking from China as well as the Chinese government’s stringent effort in clamping down on pollution, together with some speculative movements during the quarter. The premium iron ore of 65% Fe, which is similar to what K&S has been producing, has a price premium of more than US$10 per tonne over the benchmark 62% Fe iron ore in the market. Nevertheless, 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.

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

Ilmenite

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

Foreign Exchange

The Rouble remained at a weak level with slight appreciation against the US dollar in the first quarter of 2017 and averaged at 58.6 against the dollar during the quarter. The weakness in Rouble continues to have a positive impact on the Group’s operating margins as the Group’s operating costs are mainly denominated in Roubles and revenues mainly in US Dollars.

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Benchmark Fe 62% CFR China VS. FX rates (USD:RUB)
Fe 62% (US$/t) FX (USD: RUB)
160 85.0
80.0
140
Benchmark Fe 62% CFR China (LHS) USD: RUB 56.24 75.0
70.0
120
65.0
100 60.0
55.0
80
50.0
60 45.0
USD: RUB (RHS)
40.0
40 Fe 62% ($/t) 79.2
35.0
30.0
20
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 Jul Aug Sep Oct Nov Dec Jan Feb Mar
2014 2015 2016 2017
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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. The remedial work at the ball mill was concluded with success and the plant successfully operated at close to 75% plant capacity after the test. Despite operating with only three out of four ball mills for some time in the past months, K&S still managed to ramp up to produce over 120,000 tonnes of iron ore concentrate in March 2017.

Revised Commissioning Schedule

Although the commissioning process is going well and K&S’ Processing Plant is now starting to operate in a stable and continuous manner, the ramping up of K&S to full capacity may not be achieved until the second half of 2017 due to a delay in the scaling up of the mining operations. The delay has mainly resulted from K&S’ mining contractor moving the full set of mining equipment on site later than expected, which hindered the progress of stripping works scheduled to be done. All necessary equipments are being arranged for delivery, and after assembly of the equipment, the contractor would be able to address the previous mining volumes lag and catch up with the planned mining volume.

One of the implications of this delay is that the K&S Processing Plant is currently working on the runof-mine ore from the open pit which is a slightly lower grade ore and also harder to process, instead of a blend of ore that better suits the production. This results in limiting the plant capacity and overall production yield. The K&S team is continuing to carry out drilling and testing to further refine the mining plan and achieve the optimal blend of ore that best suits the Processing Plant design.

Also, while the overall production process functions well as disclosed previously, some fixing of defects and fine tuning of the technological process require more time than expected. This is partly due to CNEEC’s delay in sending to K&S the technical team responsible for achieving designed capacity in accordance with the EPC contract. This failure to achieve the completion of the performance tests on time is subject to further penalties under the EPC contract. Nevertheless, the K&S team continues to progress with the fine-tuning work using previous experience of mine commissioning at Kuranakh.

Mining

To prepare for K&S’ commercial production, the mining contractor has re-commenced the mining process. During the quarter, 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 will be used for plant feeding. During the quarter, a total of 901,900 tonnes of run-of-mine ore were removed.

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Trial Production and Marketing

K&S	Q4 2016	Q1 2017	Changes
Production (tonnes)	143,996	316,770	+120%
Sales (tonnes)	120,059	321,886	+168%

Since the start of K&S’ trial production and up to the end of March 2017, K&S has produced and sold over 500,000 tonnes of iron ore concentrate.

During the first quarter, 1,107,500 tonnes of ore was fed to primary processing and 726,563 tonnes of pre-concentrate was produced. Ultimately, 316,770 tonnes of iron ore concentrate were produced and 321,886 tonnes were sold, representing an increase of 120% and 168% respectively over the previous quarter.

Update of Estimated Unit Cash Cost

In mid 2015, IRC announced that K&S’ cash cost is estimated to be US$34 per tonne when producing at full capacity of 3.2 million tonnes per annum, after adjusting the cost to reflect the benchmark 62% Fe grade products. However, as K&S has not yet reached full production capacity and in light of the recent Rouble appreciation plus the effect of ordinary inflation in Russia in the past two years, the near-term cost base is likely to be affected. However, taking into account potential Rouble depreciation to previous lows and the opening of the Amur River Bridge in 2018, which would reduce transportation cost, it is currently anticipated that K&S’ cash cost is expected to remain below US$40 per tonne when producing at full capacity.

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 and keeps 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.

CORPORATE UPDATE

Loan with ICBC and Group’s Cashflow Position

As set out in the announcement on 27 February 2017 and 21 March 2017, 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. As previously announced, ICBC agreed to restructure the repayments under the US$340 million project finance facility dated 13 December 2010 between K&S and ICBC as follows: (i) two repayment instalments, originally due for payment on 20 June 2017 and 20 December 2017 and in an aggregate amount of US$42,500,000 have been waived; and (ii) in respect of the five

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subsequent repayment instalments under the Project Finance Facility, each repayment instalment has been increased by US$8,500,000 to US$29,750,000, with the aggregate amount of the increase being equal to US$42,500,000. The aforesaid loan restructuring helps strengthen IRC’s cashflow while K&S works towards producing at full capacity.

IRC’s cashflow position remains stable. The unaudited cash balance at the period ended 31 March 2017 was c.US$18.3 million. The total debt outstanding of the Group was c.US$235.2 million as at 31 March 2017. The Company constantly monitors its going concern status and continues to implement measures to improve its cashflow position.

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, and later 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 will 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 recent Russian Jewish Autonomous Region (EAO) official reports, the Russian side is being urged to speed up the construction and Mr Alexander Levintal the Governor of the EAO region has started strategic planning and development for the regions near the Bridge to attract more investment and economic activities across the regions. The report further quoted a statement from Mr Alexander Levintal, that the Bridge is expected to be operational by June 2018, and the full capacity of the Bridge will be 20 million tonnes, 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 31 March 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.

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

Hong Kong, People’s Republic of China Tuesday, 25 April 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 (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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