IRC Limited — Interim / Quarterly Report 2018

Apr 24, 2018

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 2018 PRODUCTION INCREASES 51% OVER THE SAME PERIOD LAST YEAR

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 1888 and the passcode is 4322024#. Presentation slides to accompany the call are available at www.ircgroup.com.hk. A replay call will be available from 25 April 2018 at www.ircgroup.com.hk/html/ir_call.php.

Tuesday, 24 April 2018: 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 2018.

HIGHLIGHTS

K&S

• Production and sales volumes in 1Q 2018 increased by 51% and 53% respectively comparing with the same period last year

• Average production capacity in 1Q 2018 of c.61%; currently at c.74%

• Achieved historical monthly records on sales and production volumes

• Produced more than 2,000,000 tonnes of iron ore concentrate in aggregate since inception; production ramps up continues

• Good price premium on 65% Fe; Roubles remain weak.

Kuranakh

• Care and maintenance process satisfactory

Corporate

• Amur River Bridge expected to be completed later this year

FIRST QUARTER TRADING UPDATE

For the three months ended 31 March 2018

Iron ore concentrate – Production – Sales	1Q 2018 tonnes 478,816 490,972	1Q2017 tonnes % change 316,770 +51% 321,886 +53%	Q4 2017
			tonnes % change 395,698 +21% 386,913 +27%

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In the first quarter of 2018, K&S produced and sold 478,816 tonnes and 490,972 tonnes of iron ore concentrate respectively, representing an increase of 51% and 53% respectively over the same period last year. Comparing with the previous quarter, production and sales increased by 21% and 27% respectively. In the month of March 2018, K&S produced and sold about 187,000 tonnes and 185,000 tonnes of iron ore concentrate respectively, which were monthly records for IRC. The tremendous increases in production and sales are mainly due to the successful ramping up of K&S’ capacity. As reported previously, the issues with the railway transportation and the Drying Unit had been affecting the ramping up programme of K&S. With these issues being gradually resolved during the quarter, K&S was able to step up its production capacity and increase the sales volume. Currently, the mine is operating at about 74% of its capacity and is on track to increase to full capacity later this year.

Kuranakh continues to be in care and maintenance with no production or sales from the mine during the first quarter of 2018.

Commenting on the performance of the first quarter, Yury Makarov, Chief Executive Officer of IRC said, “Having achieved a solid set of operating results in the first quarter of 2018, I am glad to see that K&S is bringing IRC to a new era. Recently, in two consecutive 12-hour shifts, K&S managed to produce and ship at 95% and 107% of its designed capacity respectively, demonstrating that the mine is capable to operate at almost full capacity. On the other hand, the recent depreciation of Russian Roubles is helping our production costs as our costs are mostly denominated in Roubles.

The potential trade wars and the political unrest send ripples around the globe, but we are fortunate that their impacts to K&S are not felt. K&S operates in a niche market and continues making sales to its Chinese and Russian customers as usual. I look forward to seeing K&S reaching another summit when it ramps up to full capacity and with the opening of the Amur River Bridge in the near future.”

MARKETING, SALES AND PRICES

Iron Ore

During the first quarter of 2018, K&S sold 490,972 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 of IRC is not published for commercial reasons.

Overall, the iron ore price market remains stable during the first quarter of 2018. The benchmark 65% Fe Platts spot price index averaged US$90 per tonne. The spot price closed at c.US$82 per tonne at the end of the quarter and hovered around this price level during the first half of April 2018. Market analysts believe that, due to pollution control measures in China, steel manufacturers are switching to higher-grade iron ore. This is beneficial to K&S as the mine produces the high-grade 65% Fe. Although there could be some price volatility in the future as some analysts are concerned with the fundamentals of more supply to market in the long run, the 65% Fe iron ore products continue to be more resilient in terms of pricing and market demand.

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The upside trend of the price premium of 65% Fe over the benchmark 62% Fe remains, as the premium products continue to be more preferred by the market. During the first quarter, the average price of 65% Fe has a price premium of c.20% (or c.US$16 per tonne), 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.

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

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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.

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Foreign Exchange

The Rouble remained weak against the US dollar in the first quarter of 2018. Similar to the last quarter, it averaged at 57 against the dollar (4Q2017: US dollar vs RUB averaged 58). Roubles depreciated to above 60 in the first half of April 2018. 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 Roubles and revenues mainly in US Dollars.

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

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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 first quarter of 2018, K&S’ ramp-up programme was affected by the issues with the railway transportation and the Drying Unit and K&S’ production capacity was capped. Towards the end of the quarter, with the winter weather subsided, the need of the Drying Unit was gradually reduced. And with the Russian railway authority gradually resolving the congestion issues, K&S was able to increase its production capacity. K&S achieved an average production capacity of c.61% in the first quarter. The ramping up continues in 2Q2018 and currently, the mine is operating at c.74% capacity in April. K&S continues to bring positive cashflow to IRC.

Mining

During the first quarter, a total of 56,628 metres were drilled, 1,377,150 cubic metres were blasted and 1,737,100 tonnes of ore were mined. 1,529,400 tonnes of ore were fed to primary processing and 1,091,665 tonnes of preconcentrate were produced. Finally, 478,816 tonnes of iron ore concentrate were produced and 490,972 tonnes were sold, representing an increase of 51% and 53% respectively over the same period last year.

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Production and Marketing

K&S Production (tonnes) Sales (tonnes)	Q1 2018 478,816 490,972	Q1 2017 316,770 321,886	Changes
			+51% +53%

Since the start of K&S’ trial production and up to the end of March 2018, K&S has cumulatively produced and sold over 2 million tonnes of iron ore concentrate.

Update of 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 1Q2018 has not yet reached an optimal level and therefore the figure may not truly represent the level of the operating cost at the time when the mine has fully ramped up. The relevant figure will be analysed and disclosed in the coming 2018 Interim Results announcement.

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.

CORPORATE UPDATE

Loan with ICBC and Group’s Cashflow Position

The unaudited cash and deposit balance at the period ended 31 March 2018 was c.US$11 million. The total debt outstanding was c.US$237 million, which mainly represents the loan due to ICBC. In light of the need to repay the ICBC loan instalment and the interest in June 2018, the Group has initiated the process of refinancing and obtaining an amendment and extension of its credit facilities. The amendment includes changes to the financial covenants and the repayment terms. IRC continues to monitor its going concern status and is seeking to implement measures to improve its cashflow position, including negotiating with banks or other investors for additional debt or equity financing 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 construction of the Russian side of the bridge is in progress while the Chinese side of the bridge is almost complete. According to the Russian media, despite some delays, the bridge is expected to be operational in 2018.

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K&S 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 bridge 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 third largest shareholder, General Nice has invested approximately US$170 million under the subscription agreement. This represents more than 70% 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 2018.

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. The terms “tonnes” and “dollars” in this announcement refer to “wet metric tonnes” and “United States Dollars” respectively, unless otherwise stated.

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

Hong Kong, People’s Republic of China Tuesday, 24 April 2018

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 Benjamin Tze For Ng, and Mr Chi Kin Cheng. The Independent Non-Executive Directors are Mr Daniel Bradshaw, Mr Chuang-Fei Li, Mr Simon Murray, CBE, Chevalier de la Légion d’Honneur, Mr Jonathan Martin Smith and Mr Raymond Kar Tung Woo.

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:

Kent Lo

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

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