IRC Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this circular or as to the action you should take, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your Shares in IRC Limited , you should at once hand this circular together with the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of the Company.

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(a company incorporated in Hong Kong with limited liability)

(Stock code: 1029)

(1) CONNECTED TRANSACTION – RECEIPT OF TEMPORARY BRIDGE LOAN

(2) EXTENSION OF THE GENERAL MANDATE TO ISSUE SHARES (3) REFRESHMENT OF 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME AND

(4) NOTICE OF EGM

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Trinity Corporate Finance Limited

Capitalised terms used in this cover page shall have the same meanings as those defined in the section headed “Definitions” in this circular.

A letter from the Board is set out on pages 6 to 19 of this circular. A letter from the Independent Board Committee is set out on page 20 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 21 to 39 of this circular.

A notice convening the EGM to be held at Admiralty Conference Centre, 1804, 18/F, Tower 1, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong on 9 August 2018 at 2:30 p.m. is set out on pages 43 to 45 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Hong Kong share registrar of the Company, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, no later than 48 hours before the time fixed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not prevent you from attending, and voting at, the EGM or any adjournment thereof if you so wish.

23 July 2018

CONTENTS

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . .	20
LETTER FROM	THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . .	21
APPENDIX –	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
NOTICE OF THE EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		43

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings:

“AGM”
means the Annual General Meeting of the Company held on 25 June 2018
“AGM Results” means the AGM results announcement published by the Company on 26 June 2018 in relation to the poll voting results of the AGM
“Announcement” means the announcement published by the Company on 13 June 2018 in relation to, among other things, the Bridge Loan and the Security Agreements
“Ariti”
means Ariti HK Limited, a company incorporated and validly existing in Hong Kong, registered under number 1210715, whose registered office is at 6H, 9 Queens Road Central, Central, Hong Kong, and a wholly-owned subsidiary of the Company
“Assignment of Contracts”
means an assignment by way of security between Ariti and the Lender in respect of rights under any present and future contract entered into by Ariti for the international sale and purchase of iron ore concentrate
“associates”
has the meaning ascribed to it in the Listing Rules
“Board”
means the board of directors of the Company
“Business Day”
means any day (excluding a Saturday or Sunday) on which banks are generally open for business in Hong Kong
“Commodity Trading means the iron ore sales contracts held by Ariti with Contracts” third parties
“Company”
means IRC Limited, a company incorporated in Hong Kong whose Shares are listed on the main board of the Stock Exchange
“connected person(s)”
has the meaning ascribed to it in the Listing Rules

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DEFINITIONS

“Dardanius”
“Directors”
“EGM”
“Facility Amount”
“Group”
“Hong Kong”
“ICBC”
“ICBC Facility”
“Independent Board Committee”

means Dardanius Limited, a company incorporated and validly existing in Cyprus, registered under number HE 185611, whose registered office is at Souliou, Aglantzia, P.C. 2102, Nicosia, Cyprus, and a wholly-owned subsidiary of the Company

means the director(s) of the Company
means the extraordinary general meeting of the Company to be convened for the purpose of considering, and if thought fit, approving the ordinary resolutions in respect of the Security Agreements and the transactions contemplated in connection therewith and the other business described herein
means a total principal amount in RuR being the equivalent of the amount not exceeding USD 29,750,000 (twenty nine million seven hundred and fifty thousand), as determined based on the exchange rate of the Central Bank of the Russian Federation applicable on the date of the disbursement
means the Company and its subsidiaries from time to time
means the Hong Kong Special Administrative Region of the People’s Republic of China
means the Industrial and Commercial Bank of China Ltd.
means the US$340 million project finance facility dated 13 December 2010 between ICBC and K&S
means the independent committee of the Board comprising all the independent non-executive Directors established for the purpose of advising the Independent Shareholders on, among other matters, the fairness and reasonableness of the Security Agreements

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DEFINITIONS

“Independent Financial Adviser”
“Independent Shareholder Approval”
“Independent Shareholders”
“JSC Giproruda”
“JSC “Pokrovskiy mine”” or “Lender”
“June Instalment”
“K&S”
“Latest Practicable Date”
means Trinity Corporate Finance Limited, a licensed corporation under the SFO permitted to conduct type 6 (advising on corporate finance) regulated activities for the purposes of the SFO, being the independent financial adviser appointed by the Company for the purpose of advising the Independent Board Committee and the Independent Shareholders on, among other matters, the fairness and reasonableness of the Security Agreements
means the passing at the EGM of the resolution with respect to the Security Agreements and the transactions contemplated in connection therewith proposed thereat by Independent Shareholders
means the Shareholders other than the Substantial Shareholder and its associates
means Joint Stock Company “Institute for Engineering of Ore Mining Enterprises Giproruda”, a joint stock company incorporated in Russia under registration number 1027804848224, and having its registered office at Lenisky prospect 151, 196247, Saint Petersburg, Russia
means JSC “Pokrovskiy mine”, a joint stock company incorporated and existing in accordance with the laws of the Russian Federation, OGRN 1022800928754, INN 2801023444, with registered office at: 676150, Amur Region, Magdagachinskiy District, Tygda village, Sovetskaya Str., 17
means the repayment of the principal amount of US$29,750,000 under the ICBC Facility on 20 June 2018
means Kimkano-Sutarsky Mining and Beneficiation Plant LLC, a limited liability company established under the laws of the Russian Federation, OGRN 1047796563077, with its registered address at Russian Federation, 679000, Jewish Autonomous Region, Birobidjan, Prospekt 60-letija of the USSR, 22b
means 20 July 2018, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein

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DEFINITIONS

“Listing Rules”
“Maturity Date”
“normal commercial terms or better”
“Petropavlovsk”
“Power of Attorney”
“RuR”
“Scheme Mandate Limit”
“Security Agreements”
“SFO”
“Share(s)”
“Shareholder(s)”
“Share Issue Mandate”
“Share Option Scheme”
means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

means the 20 October 2018

has the meaning ascribed to it in the Listing Rules
means Petropavlovsk PLC, a public company incorporated in England and Wales with registered number 04343841 and listed on the Main Market of the London Stock Exchange
means a power of attorney granted by Ariti in favour of the Lender
means the lawful currency for the time being of the Russian Federation
means the maximum number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme which, when aggregated with any other share option scheme(s) of the Company, shall not exceed 10% of the Shares in issue as at the date of approval of the Share Option Scheme or of the renewal of such limit
means the following security documents: (1) the Assignment of Contracts; (2) the Share Pledge Agreement; and (3) the Power of Attorney
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
means the ordinary share(s) of the Company
means shareholder(s) of the Company
means the general mandate to allot, issue and otherwise deal with additional Shares up to a limit equal to 20% of the number of Shares of the Company in issue as at the date of the passing of the resolution, as approved by the Shareholders at the AGM
means the share option scheme adopted by the Company on 20 November 2015

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DEFINITIONS

“Share Pledge Agreement”
“Share Repurchase Mandate”
“Substantial Shareholder”
“Stock Exchange”
“USD” or “US$”
%
means a share pledge agreement between Dardanius and the Lender with respect to the pledge of 70.28% shares in JSC Giproruda in favor of the Lender
means the general mandate to repurchase Shares on the Stock Exchange of up to 10% of the number of Shares of the Company in issue as at the date of the passing of the resolution, as approved by the Shareholders at the AGM
means Cayiron Limited, a company incorporated and validly existing in the Cayman Islands, registered under number 240761 whose registered office is at Clifton House, 75 Fort Street, PO Box 1350, Grand Cayman KY1-1108, Cayman Islands

means The Stock Exchange of Hong Kong Limited

means the lawful currency for the time being of the United States of America

means per cent.

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LETTER FROM THE BOARD

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(a company incorporated in Hong Kong with limited liability) (Stock code: 1029)

Board of Directors: Executive Directors Mr Yury Makarov Mr Danila Kotlyarov

Registered Office:

6H, 9 Queen’s Road Central Hong Kong

Non-Executive Directors Mr George Jay Hambro Mr Chi Kin Cheng

Independent Non-executive Directors Mr Daniel Bradshaw Mr Chuang-Fei Li Mr Simon Murray, CBE, Chevalier de la Legion d’honneur Mr Jonathan Martin Smith Mr Raymond Kar Tung Woo

Company Secretary:

Mr Johnny Yuen

23 July 2018

Dear Shareholder,

(1) CONNECTED TRANSACTION: RECEIPT OF TEMPORARY BRIDGE LOAN

(2) EXTENSION OF THE GENERAL MANDATE TO ISSUE SHARES

(3) REFRESHMENT OF 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME AND

(4) NOTICE OF EGM

INTRODUCTION

Reference is made to the Announcement and AGM Results. As disclosed in the Announcement, the Board announced that after close of business on 13 June 2018, the Company entered into a bridge loan facility agreement to receive financial assistance from the Lender, a connected person, on normal commercial terms or better (the “ Bridge Loan ”). Further to the announcement made by the Company on 24 May 2018, no

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LETTER FROM THE BOARD

agreement had been reached with ICBC in relation to amending the loan repayment schedule and accordingly, the temporary Bridge Loan was necessary to enable K&S’ repayment of the June Instalment and otherwise prevent a default under the ICBC Facility for K&S as the borrower and Petropavlovsk as a guarantor. The Bridge Loan is a temporary solution until the refinancing of the ICBC Facility can be completed. As a condition subsequent to the Bridge Loan, the Company has agreed to use reasonable endeavours to procure that Independent Shareholders’ approval is obtained in order for certain subsidiaries in the Group to enter into the Security Agreements.

K&S is a wholly-owned subsidiary of the Company and the borrower under the ICBC Facility, which is a project finance facility used to fund the construction of stage one of the Group’s mining operations at K&S. Interest under the ICBC Facility is charged at 2.80% above LIBOR per annum and is repayable over a period of 11 years. In 2017, K&S was granted a number of waivers under the ICBC Facility which meant that no principal repayment instalments were made during 2017 and some of the remaining principal repayment instalments starting again on 20 June 2018 were adjusted to take account of this. Following the repayment of the June Instalment, the principal amount outstanding under the ICBC Facility is US$204,000,000 for which there are repayment dates in December and June of each year until the final repayment date in June 2022.

As per the Company’s announcement on 6 December 2010, K&S entered into a HK$3.11 billion (equivalent to US$400 million) Engineering Procurement and Construction Contract (the “ EPC Contract ”) with China National Electric Engineering Corporation for the construction of stage one of the Group’s mining operations at K&S. The EPC Contract was conditional upon the entry into the ICBC Facility and the facility becoming available for drawdown by the Group.

As set out in the Company’s announcements of 20 June 2018 and 21 June 2018, whilst no agreement was reached with ICBC in relation to the loan repayment schedule, ICBC has granted certain other waivers to the Group in respect of the ICBC Facility. The waivers obtained relate to the obligations to maintain the debt service reserve account with ICBC and the obligations of K&S and its guarantor, Petropavlovsk to comply with certain financial covenants. These waivers are effective from 20 June 2018 until the earlier of, the date on which the security under the ICBC Facility is released, and 31 December 2018 (both days inclusive).

As disclosed in the AGM Results the resolutions extending the Share Issue Mandate and refreshing the Scheme Mandate Limit were not passed as ordinary resolutions of the Company. The Company will be seeking shareholder approval on these proposals again at the EGM. The ordinary resolutions were not passed at the Company’s AGM because Petropavlovsk, through its subsidiary Cayiron Limited, for reasons that are not known to the Board, voted against the resolutions. However it was announced on 29 June 2018, following the Petropavlovsk annual general meeting, that the board of directors of Petropavlovsk was to be substantially changed. The Board has discussed with the new board of directors of Petropavlovsk, that these resolutions will be proposed again at the EGM and they have now indicated their willingness to vote in favour of the resolutions extending the Share Issue Mandate and refreshing the Scheme Mandate Limit. If the resolutions are not approved at the EGM then the Company does not intend to the propose them again until its next annual general meeting.

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, (i) details of the Bridge Loan and the Security Agreements; (ii) the recommendation of the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from Trinity Corporate Finance Limited, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders; (iv) the requisite information with respect to a resolution extending the Share Issue Mandate; (v) the requisite information with respect to a resolution refreshing the Scheme Mandate Limit; and (vi) the notice of EGM.

CONNECTED PERSONS

The Lender is a connected person for the purposes of Listing Rules 14A.07(4) and 14A.13(1) as it is a subsidiary of Petropavlovsk, the holding company of Cayiron Limited. Cayiron Limited is a substantial shareholder in the Company holding 31.10% of its Shares. Petropavlovsk is listed on the London Stock Exchange.

BRIDGE LOAN

Date: 13 June 2018 Parties: (1) the Lender, as the lender; and (2) the Company, as borrower.

Subject Matter

The Lender and the Company entered into the Bridge Loan pursuant to which the Lender has agreed to advance the Facility Amount to the Company at an interest rate of 12% per annum (which is adjustable as set out below).

Purpose and transfer obligations

Pursuant to the Bridge Loan, the Company has indirectly applied the Facility Amount to fulfil the obligation of K&S to repay the June Instalment to ICBC.

K&S paid the June Instalment to ICBC on 20 June 2018.

Repayment and Prepayment

The Company shall repay the Facility Amount to the Lender, together with the applicable interest, in one instalment on the Maturity Date. Additionally, the Company may prepay the Facility Amount in whole or part prior to the Maturity Date.

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LETTER FROM THE BOARD

exceeding one month and the primary goal is not fund raising or borrowing) or (iii) the issuance of any bonds, notes or other debt securities or any other financing arrangement (except pursuant to transactions between members of the Group). If this obligation to prepay the Bridge Loan would constitute a breach of the ICBC Facility the Company shall use reasonable efforts to repay in a manner that would not constitute a breach of the ICBC Facility.

Based the Company’s current working capital forecast, it is unlikely that the Company will have sufficient working capital to repay the Bridge Loan by the Maturity Date. The Company has reached an advanced stage in its negotiations with a finance provider and is making reasonable progress on these negotiations in respect of refinancing arrangements.

The Company does not currently anticipate repaying the Facility Amount prior to the Maturity Date, unless the refinancing arrangement is successful.

The Company does not currently plan to conduct any equity fund raising activities in the next 12 months. However, as noted below, the Company continues to pursue opportunities to enter into discussions with potential third party investors for the purposes of raising funds by way of a share issue. Currently, none of these discussions are advanced nor at this stage have a reasonable prospect of being executed.

Conditions

As condition precedents of the Bridge Loan, signed versions of the Security Agreements must be provided but these do not come into effect unless and until Independent Shareholder Approval is obtained. Additionally, irrevocable instructions are to be provided by each party stating that their signatures to the Security Agreements shall be automatically released immediately upon receipt of Independent Shareholder Approval.

As a condition subsequent under the Bridge Loan, the Company shall use reasonable endeavors to procure that the Security Agreements receive Independent Shareholder Approval and come into effect as soon as reasonably practical, but in any event not later than by 15 August 2018. The Company shall also procure that any other steps necessary to perfect the Security Agreements are taken in accordance with applicable law.

Interest

Unsecured interest shall accrue (in addition to Interest) on the outstanding principal amount of the Facility Amount at 4% per annum from the date on which the Facility Amount was drawn down until the date on which the Facility Amount is repaid or prepaid in full and shall only be payable if Independent Shareholder Approval is not obtained or the other conditions subsequent are not satisfied (the “ Unsecured Interest ”). Accordingly, if Independent Shareholder Approval is not obtained and the Security Agreements do not come into effect, the total interest rate under the Bridge Loan shall be 16% per annum.

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LETTER FROM THE BOARD

Events of Default and Default Interest

The Bridge Loan contains customary events of default (which are further described below). If an event of default has occurred, default interest shall accrue on the outstanding principal amount of the Facility Amount, accrued Interest and accrued Unsecured Interest at 4% per annum. For the avoidance of doubt, if Independent Shareholder Approval is not obtained by the Company and the Security Agreements are not entered into it shall not constitute an event of default.

The Bridge Loan contains the following events of default:

(i) Failure to pay: The Company, Ariti or Dardanius fails to pay any principal amount or interest due under the Bridge Loan, the Security Agreements or any other document designated as a finance document by the Company and the Lender (the “ Finance Documents ”).
(ii) Misrepresentation: Any representation, warranty or statement given or deemed to have been made by the Company, Ariti or Dardanius in the Finance Documents or other connected document proves to be incorrect or misleading in an material respect (and such non-performance/non-compliance is not remedied within 15 days of the Lender giving notice to the Company and the Company becoming aware of the misrepresentation).
(iii) Performance of obligations: The Company, Ariti or Dardanius fails to perform or comply with any obligation or undertaking under the Finance Documents (and such non-performance/non-compliance is not remedied within 15 days of the Lender giving notice to the Company and the Company becoming aware of the misrepresentation).
(iv) Default on debt: Any debt of the Company or a material Group company is not paid when due/any debt of the Company or a material Group company is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default/any holder of debt after a default under such debt provides a notification of the intended sale or disposition of any assets of the Company/any creditor of the Company or a material Group company becomes entitled to declare any of their debt due and payable.
(v) Adverse government action: Any agency or court takes any action that would reasonably be expected to have a material adverse effect.
(vi) Insolvency: Insolvency of the Company or a material Group company.
(vii) Composition and dissolution: Bankruptcy, winding-up, dissolution, administration or reorganisation of the Company or a material Group company.
(viii) Attachment: Any attachment, sequestrian, distress or execution levied over any material asset of the Company or a material Group company (and not fully discharged within 21 days of the commencement of such process).

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LETTER FROM THE BOARD

(ix) Litigation: Litigation, arbitration, administrative, governmental, regulatory or other investigation or disputes commenced or threatened in relation to the Finance Documents against a member of the Group.
(x) Judgment: The aggregate amount of unsatisfied final judgments, decrees or orders of courts against the Company or a material Group company exceeds US$5 million.
(xi) Analogous proceedings: Any event occurs which has a similar or analogous effect to events mentioned in items (vi) to (x) above.
(xii) Immunity: Any material Group company claims or threatens to claim immunity from process, execution, attachment or other legal process by the Lender.
(xiii) Repudiation: Any party to a Finance Document (other than the Lender or its affiliates) disaffirms, disclaims, repudiates or rejects or challenges the validity of the Finance Documents.
(xiv) Illegality: It becomes unlawful for the Company or Ariti to perform or comply with its obligations under the Finance Document it is party to, or such obligations cease to be legal, valid or binding.
(xv) Material adverse effect: Any event which has or is reasonable likely to have a material adverse effect.
(xvi) Conditions subsequent: Any conditions subsequent not being satisfied in full.
(xvii) On-loan documents: The Company fails to perform any obligations under or comply with any obligations set out in the purpose of the loan clause.

Director nomination right

The Company shall use reasonable endeavours to procure that, as soon as practicable but in any event not later than by 2 July 2018 (subject to acceptable nominations being received by the Company in sufficient time, and subject to review of such candidates’ credentials and their subsequent confirmation by the Company’s nomination committee, which the Company shall use reasonable endeavours to procure shall act reasonably), two candidates nominated by the Lender are appointed to the Board.

The Lender’s right to nominate up to two proposed directors continues for so long as the Facility Amount is outstanding and these nominations are subject to the approval procedures as set out in the Company’s articles of association and the approval of the nomination committee of the Board having reviewed the nomination’s credentials. The Company has agreed to act reasonably when reviewing and approving the Lender’s nominations. This right has been granted by the Company to the Lender in its capacity as a lender. This nomination right was required contractually by the Lender before advancing the Bridge Loan and the Board considered the granting of such a right to be fair and in the best interests of the Company and Shareholders as a whole, because it helped

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LETTER FROM THE BOARD

ensure that the June Instalment was repaid. The appointments of the Lender’s directors on the Board of the Company will automatically terminate once the Facility Amount has been paid or repaid.

Pursuant to the Lender’s nomination right the Company has received one nomination from the Lender which as at the Latest Practicable Date is in process of being reviewed by the Board. If the nomination is acceptable and appointed the Company will publish an announcement setting out all the information required in accordance with Listing Rule 13.51(2).

Board’s assessment of the Bridge Loan

The Board notes that, based on the Independent Financial Adviser’s analysis on market comparable transactions of bridge loans or subordinate short term loans, the Interest (on a secured basis) and Unsecured Interest are more favourable as compared to normal commercial terms on the market. This is consistent with the Board’s recent experience in its discussions with third parties with regard to both short term and long term financing. The Company was in active discussions as regards a number of financing options to obtain the financing required to repay the June Instalment. The Bridge Loan represented the best available financing to the Company at the time and therefore the Board considers that the terms of the Bridge Loan are fair and reasonable.

The Company has been pursuing a number of options as regards financing by way of equity or debt as an alternative to the Bridge Loan. In particular, as described above, the Company has reached advanced stages of discussions with a third party lender for the entire refinancing of the ICBC Facility. It has not been possible to complete this in the time available before the repayment of the June Instalment was due. The Company has also been in discussions with other short term debt providers and with potential investors in equity. However, as at the Latest Practicable Date the Company had not received any firm offers from any potential investors willing to participate in a debt financing or share issue.

SECURITY AGREEMENTS

Assignment of Contracts

Date: To be dated the date on which Independent Shareholder Approval is obtained.

Parties: (1) Ariti, as the assignor; and (2) the Lender, as the lender.

Purpose

Under existing Group arrangements, Ariti purchases, as principal, iron ore from K&S and sells the iron ore it purchases pursuant to the Commodity Trading Contracts. Under the Assignment of Contracts, Ariti agrees to assign its rights, title, interest and benefit in, receivables under the Commodity Trading Contracts including documents of title.

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LETTER FROM THE BOARD

The Assignment of Contracts secures all present and future liabilities and obligations of the Company and Ariti to the Lender under or in relation to the Bridge Loan and will end on the date upon which these amounts have been unconditionally and irrevocably paid and discharged in full.

Covenant to Pay

Ariti shall, as primary obligor and not only as surety, promptly, on demand of the Lender, pay to the Lender and discharge all amounts due but unpaid under the terms of the Bridge Loan.

Enforcement of Security

The security shall become immediately enforceable if an event of default occurs under the Bridge Loan, which is continuing, unremedied or unwaived.

Power of Attorney

Date: To be dated the date on which Independent Shareholder Approval is obtained.

Party: (1) Ariti, as the principal

Purpose

Under the terms of the Power of Attorney, Ariti appoints the Lender as its attorney to consider, settle, approve, sign, execute, deliver and/or issue any agreement, document, certificate, instrument, notice or any other ancillary document (whether as a deed or not) which the Lender in its absolute discretion considers necessary or desirable in connection with the operation, maintenance and administration of Ariti’s bank account, including without limitation to implement and to the transfer of any amounts standing to the credit of Ariti’s bank account to the Lender’s own account in order to discharge any unpaid amounts due under the Bridge Loan.

Share Pledge Agreement

Date: To be dated the date on which Independent Shareholder Approval is obtained.

Parties: (1) Dardanius, as the pledgor; and (2) the Lender, as the pledgee.

Purpose

Under the terms of the Share Pledge Agreement, Dardanius is granting security in favor of the Lender over its 70.28% shareholding in JSC Giproruda.

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LETTER FROM THE BOARD

Enforcement of Security

This security can be enforced if the Company commits a non-performance or improper performance of its obligations under the Bridge Loan, which will include for example an event of default occurring under the Bridge Loan.

Board’s assessment of the Security Agreements

The Board considers that, based on the Independent Financial Adviser’s analysis on market comparable transactions of bridge loans or subordinate short term loans and security obtained by the respective lenders, the terms of the Security Agreements are fair and reasonable. The Company also obtained legal advice on the terms of the Security Agreements and concluded that they were in line with market standard security documents of this nature.

REASONS FOR AND BENEFITS OF THE BRIDGE LOAN AND THE SECURITY AGREEMENTS

The Independent Board Committee has been formed to consider, and to advise the Independent Shareholders on the terms of the Security Agreements and the transactions contemplated in connection therewith. The Independent Financial Adviser has been appointed to make recommendations to the Independent Board Committee and the Independent Shareholders on the terms of the Security Agreements and the transactions contemplated in connection therewith.

Given that the Bridge Loan and Security Agreements are on normal commercial terms or better and the grant of the Bridge Loan prevented K&S from missing the repayment of the June Instalment which would have resulted in a default under the ICBC Facility (which would have entitled ICBC to accelerate the ICBC Facility and demand repayment in full), the Independent Board Committee (and the Directors as whole), are of the view that the Bridge Loan and Security Agreements have or will be entered into in the ordinary and usual course of business of the Group, and the terms of the Bridge Loan and Security Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The ability of K&S to repay the amounts outstanding under the ICBC Facility is dependent upon the cashflow generated by K&S. As noted in announcements issued by the Company in the second half of 2017 and first half of 2018, the ramping up progress of K&S’ mining facility has encountered a number of problems, the most noticeable of which have been the railway congestion and the issues with the drying unit. These problems significantly affected the production capacity of K&S’ mining facility, and in turn, caused a reduction in the revenue and cashflow of K&S. As a result, K&S was unable to repay the June Instalment of the ICBC Facility without the funds provided in accordance with the Bridge Loan.

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LETTER FROM THE BOARD

The Bridge Loan does have the disadvantages of being at higher interest rate than the ICBC Facility and the Company has been required to grant a nomination right to the Lender (in its capacity as a lender), these disadvantages however are inherent with the nature of bridge financing, where the Independent Board Committee (and the Directors as a whole) expect a lender to charge a higher interest rate and be given the ability to closely monitor the activities of the Company through either information rights or board appointments. In light of the Company’s inability to find alternative sources of financing (as described above) the Independent Board Committee are of the opinion that the disadvantages were far outweighed by the consequences of failing to repay the June Instalment.

In the event that the Independent Shareholder Approval is not obtained and the Bridge Loan has to continue on an unsecured basis at the Unsecured Interest rate, based on the Independent Financial Adviser’s analysis the Independent Board Committee are still of the view that the terms of the Bridge Loan are on normal commercial terms or better and are fair and reasonable.

However, given that entry into the Security Agreements will mean that the Company obtains a better interest rate under the Bridge Loan, benefitting the Group as a whole, and having considered the opinion of an Independent Financial Adviser, the Independent Board Committee recommends that Independent Shareholders vote to approve the Security Agreements and the transactions contemplated in connection therewith at the EGM.

IMPLICATIONS UNDER THE LISTING RULES

As the applicable percentage ratios in respect of the Bridge Loan exceed 5%, if the Bridge Loan is secured by the assets of the Group pursuant to the Security Agreements, it would be subject to the reporting, announcement and independent shareholder approval requirements under Chapter 14A of the Listing Rules.

If the Independent Shareholder Approval is not obtained the Security Agreements will not be entered into, the Bridge Loan will continue as an unsecured loan and on normal commercial terms or better, and in accordance with Rule 14A.90, it is fully exempt from the requirements of Chapter 14A of the Listing Rules. If the Bridge Loan continues on an unsecured basis, the interest rate payable thereunder is increased by 4% per annum to reflect the increased risk assumed by the Lender.

None of the Directors have a material interest in the Bridge Loan, the Security Agreements and the transactions contemplated in connection therewith and thus no Director has abstained from voting on the relevant board resolution(s) approving the Bridge Loan, the Security Agreements and the transactions contemplated in connection therewith.

GENERAL INFORMATION ABOUT THE PARTIES

The Company is headquartered in Hong Kong and listed on the Stock Exchange. It is an established explorer, developer and producer of iron ore and other industrial commodities products in the Russian Far East, taking advantage of superior road infrastructure to deliver its projects and products quickly and at lower cost to its customer base, predominantly in China.

– 15 –

LETTER FROM THE BOARD

JSC “Pokrovskiy mine” is engaged in gold exploration and production. The ultimate beneficial owner of over 99% of shares of JSC “Pokrovskiy mine” is Petropavlovsk.

EXTENSION OF THE SHARE ISSUE MANDATE

At the AGM, ordinary resolutions were passed granting authority to the Directors with respect to the Share Issue Mandate and the Share Repurchase Mandate, however, the ordinary resolution extending the number of Shares that can be issued by the Directors under the Share Issue Mandate by the number of Shares that are repurchased or otherwise acquired by the Company under the Share Repurchase Mandate was not passed by ordinary resolution.

No Shares have been repurchased pursuant to the Share Repurchase Mandate approved by Shareholders at the AGM. With reference to the Share Issue Mandate, other than Shares which may fall to be allotted and issued upon the exercise of any share options that are outstanding and exercisable by the option holders, the Board has no present intention to exercise the general mandates to issue additional Shares or repurchase Shares under the ordinary resolutions passed at the AGM and under the ordinary resolution to extend the Share Issue Mandate sought at the EGM to be held on 9 August 2018. As at the Latest Practicable Date, the issued share capital of the Company comprised 7,093,386,381 Shares.

The Board considers that it would be in the interests of the Company if this extension to the Share Issue Mandate was granted. Accordingly, a resolution will be proposed at the EGM.

REFRESHMENT OF THE SCHEME MANDATE LIMIT

At the AGM, the resolution refreshing the Scheme Mandate Limit was not passed by ordinary resolution of the Company.

Under the Share Option Scheme and the applicable Listing Rules, the Board has the right to grant to the eligible participants options to subscribe for up to a maximum of 10% of the Shares in issue as at the date of adoption of the Share Option Scheme.

Pursuant to the terms of the Share Option Scheme and in compliance with the Listing Rules, the maximum number of Shares that may be issued upon exercise of all the share options which may be granted under the Share Option Scheme shall not exceed 615,588,638 Shares, being 10% of the Shares in issue as at the date of approval and adoption of the Share Option Scheme.

Subject to the approval of the Shareholders in a general meeting and/or such other requirements prescribed under the Listing Rules, the Scheme Mandate Limit may be refreshed to the extent not exceeding 10% of the Shares in issue as at the date of passing of such resolution(s).

As at the Latest Practicable Date, share options carrying the rights to subscribe for up to a total of 538,728,035 outstanding Shares, representing 7.59% of the total issued share capital of 7,093,386,381 Shares, have been granted under the Share Option Scheme and of these share options, 52,787,838 have since been forfeited or written off and 485,940,197 are valid and will remain so following the refreshment of the Scheme Mandate

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LETTER FROM THE BOARD

Limit. Unless the Scheme Mandate Limit is refreshed, only up to 76,860,603 Shares may be issued pursuant to the grant of further options under the Share Option Scheme, although the Company does not currently intend to grant more share options.

As at the Latest Practicable Date, the issued share capital of the Company comprised 7,093,386,381 Shares and no share options have been exercised. Accordingly it is expected that, upon the approval of the refreshment of the Scheme Mandate Limit at the EGM, and on the assumption that no further Shares will be issued or repurchased by the Company from the Latest Practicable Date to the EGM, the number of Shares in issue as at the date of passing of the resolution granting the refreshment of the Scheme Mandate Limit will be 7,093,386,381 and therefore, the refreshed Scheme Mandate Limit under the EGM would be 709,338,638 Shares, representing 10% of the number of shares in issue at the time of passing the resolution. Pursuant to the terms of the Share Option Scheme and in accordance with the Listing Rules, the Shares which may be issued upon exercise of all outstanding share options granted and yet to be exercised under the Share Option Scheme and any other share option scheme(s) of the Company shall not exceed 30% of the Shares in issue from time to time. No share options shall be granted under any scheme(s) of the Company if this will result in the 30% limit being exceeded.

In order to provide the Company with greater flexibility in granting share options to eligible participants under the Share Option Scheme as incentives or rewards for their contributions to the Group, a resolution as set out in the notice of EGM will be proposed to seek Shareholders’ approval at the EGM to refresh the Scheme Mandate Limit of the Share Option Scheme to 10% of the Shares in issue as at the date of passing of the resolution.

Whilst the Company does not currently intend to grant more share options, the Directors consider that it is in the best interests of the Company to refresh the Scheme Mandate Limit to permit the grant of further share options under the Share Option Scheme if required, so as to provide incentives to, and recognise the contributions of, the Group’s employees and other selected and eligible grantees. Accordingly, a resolution will be proposed at the EGM.

The adoption of the refreshment of the Scheme Mandate Limit is conditional upon:

(1) the Shareholders passing an ordinary resolution to approve the refreshment of the Scheme Mandate Limit at the EGM; and
(2) the Listing Committee of the Stock Exchange granting the approval of the listing of, and permission to deal in, the Shares to be issued pursuant to the exercise of any options that may be granted pursuant to the Share Option Scheme under the Scheme Mandate Limit as refreshed.

Application will be made to the Stock Exchange for the listing of, and permission to deal in, the Shares which may be issued pursuant to the exercise of the share options that may be granted under the Share Option Scheme under the Scheme Mandate Limit as refreshed.

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LETTER FROM THE BOARD

THE EGM

A notice convening the EGM is set out on pages 43 to 45, at which:

(1) the ordinary resolution number 1 with respect to the Security Agreements will be proposed to the Independent Shareholders to consider and, if thought fit, to approve the Security Agreements and the transactions contemplated in connection therewith (the “ Security Agreement Resolution ”); and
(2) the ordinary resolutions numbers 2 and 3 with respect the extension of the Share Issue Mandate and refreshing the Scheme Mandate Limit (respectively) will be proposed to the Shareholders to consider and, if thought fit, to approve the ordinary resolutions (the “ General Resolutions ”),

(the Security Agreement Resolution and the General Resolutions together, the “ Resolutions ”). The voting in respect of the approval of the Resolutions will be conducted by way of a poll.

At the EGM, the Substantial Shareholder and its associates are required to abstain from voting on the Security Agreement Resolution to approve the Security Agreements and the transactions contemplated in connection therewith. The Directors confirm that, after due and reasonable enquiries, except the Substantial Shareholder and its associates who have a material interest in the Security Agreements and the transactions contemplated in connection therewith and are therefore required to abstain from voting on the Security Agreement Resolution proposed to be approved by the Independent Shareholders at the EGM, no other Shareholders are known to the Directors to have a material interest in the Security Agreements and the transactions contemplated in connection therewith and are required to abstain from voting at the EGM.

The Directors further confirm that, for the avoidance of doubt, after due and reasonable enquiries no Shareholders are known to the Directors to have material interests in the transactions contemplated under the General Resolutions and are required to abstain from voting at the EGM.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you intend to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting (or any adjournment thereof). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM (or any adjourned meeting thereof) should you wish to do so.

An announcement will be made by the Company following the conclusion of the EGM to inform you of the results of the EGM.

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LETTER FROM THE BOARD

RECOMMENDATIONS

The Directors (including the independent non-executive Directors whose recommendation is set out in the letter from the Independent Board Committee) consider that the Security Agreements and the transactions contemplated in connection therewith are on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the Security Agreement Resolution to be proposed at the EGM to approve the Security Agreements and the transactions contemplated in connection therewith.

Additionally, the Directors believe that the extension of the Share Issue Mandate and the refreshment of the Scheme Mandate Limit to be proposed at the EGM are in the best interests of the Company and its Shareholders. Accordingly, the Directors recommend the Shareholders to vote in favour of the General Resolutions to be proposed at the EGM.

With respect to the Security Agreement Resolution, your attention is drawn to (i) the letter from the Independent Board Committee as set out on page 20 of this circular which contains its recommendation to the Independent Shareholders in relation to the terms of the Security Agreements and the transactions contemplated in connection therewith after taking into account the advice from the Independent Financial Adviser; and (ii) the letter from the Independent Financial Adviser as set out on pages 21 to 39 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders regarding the terms of the Security Agreements and the transactions contemplated in connection therewith.

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

– 19 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(a company incorporated in Hong Kong with limited liability)

(Stock code: 1029)

23 July 2018

Dear Shareholder,

(1) CONNECTED TRANSACTION: RECEIPT OF TEMPORARY BRIDGE LOAN

(2) EXTENSION OF THE GENERAL MANDATE TO ISSUE SHARES (3) REFRESHMENT OF 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME AND (4) NOTICE OF EGM

We refer to the circular of the Company dated 23 July 2018 (the “ Circular ”) of which this letter forms part. Capitalised terms used herein have the same meanings as those defined in the Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to advise you (i) as to whether, in our opinion, the Security Agreements are on normal commercial terms and in the ordinary and usual course of business of the Group, the terms of the Security Agreements are fair and reasonable so far as the Independent Shareholders are concerned, and the Security Agreements are in the interests of the Company and the Shareholders as a whole; and (ii) as to the voting in respect of the Security Agreement Resolution to be proposed at the EGM to approve the Security Agreements and the transactions contemplated in connection therewith. Trinity Corporate Finance Limited has been appointed as the Independent Financial Adviser to advise us and you in this regard. Details of their advice, together with the principal factors and reasons they have taken into account, are contained in their letter set out on pages 21 to 39 of the Circular. Your attention is also drawn to the letter from the Board and the additional information set out in the appendix to the Circular.

Having considered the terms of the Security Agreements and the advice and recommendation of the Independent Financial Adviser, the Security Agreements and the transactions contemplated in connection therewith are in the ordinary and usual course of business of the Group and on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the Security Agreement Resolution to be proposed at the EGM to approve the Security Agreements and the transactions contemplated in connection therewith.

Independent Board Committee of IRC Limited Mr Daniel Bradshaw, Mr Chuang-Fei Li, Mr Simon Murray, CBE, Chevalier de la Legion d’honneur , Mr Jonathan Martin Smith, Mr Raymond Kar Tung Woo Independent non-executive Directors

– 20 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from Trinity Corporate Finance Limited, the Independent Financial Adviser for the purpose of inclusion in this circular, to the Independent Board Committee and the Independent Shareholders regarding the Security Agreements.

Trinity Corporate Finance Limited Suite 7B, 7th Floor, Two Chinachem Plaza, 68 Connaught Road Central, Hong Kong

23 July 2018

To the Independent Board Committee and the Independent Shareholders of IRC Limited

Dear Sirs,

CONNECTED TRANSACTION RECEIPT OF TEMPORARY BRIDGE LOAN

INTRODUCTION

We, Trinity Corporate Finance Limited, refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of, among other matters, the fairness and reasonableness of the Security Agreements (the “ Connected Transaction ”), details of which are set out in the Letter from the Board (the “ Letter from the Board ”) in the Company’s circular dated 23 July 2018 (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

On 13 June 2018, the Company entered into the Bridge Loan to receive financial assistance from the Lender, a connected person of the Company, on normal commercial terms or better. The Lender is a subsidiary of Petropavlovsk PLC (“ Petropavlovsk ”), the holding company of Cayiron Limited, which is a substantial shareholder of the Company holding a 31.10% equity interest.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Further to the announcement made by the Company on 24 May 2018, no agreement had been reached with ICBC in relation to amending the loan repayment schedule and accordingly, the temporary Bridge Loan was necessary to enable K&S’ repayment of the June Instalment and otherwise prevent a default under the ICBC Facility for K&S as the borrower and Petropavlovsk as a guarantor. The Bridge Loan is a temporary solution until the refinancing of the ICBC Facility can be completed. As a condition subsequent to the Bridge Loan, the Company has agreed to use reasonable endeavours to procure that the independent shareholders’ approval (“ Independent Shareholder Approval ”) is obtained in order for certain subsidiaries in the Group to enter into the Security Agreements. Also, further to the announcement made by the Company on 20 June 2018, ICBC has granted the Company a waiver from the obligation to maintain the debt service reserve account until the earlier of (i) the date on which the security under the ICBC Facility is released and (ii) 31 December 2018 (both dates inclusive), subject to the fulfilment of certain conditions precedent, all of which have been fulfilled as announced by the Company on 21 June 2018. Accordingly, the waiver from the obligations of K&S and Petropavlovsk to comply with certain financial covenants became effective immediately upon fulfilment of the conditions precedent and until the earlier of (i) the date on which the security under the ICBC Facility is released; and (ii) 31 December 2018 (both dates inclusive). The payment of approximately US$35 million to ICBC was made on 20 June 2018, within the required time frame, which was funded by the Bridge Loan and internal cash resources of the Group.

Interest shall accrue on the outstanding principal amount of the Facility Amount at 12% per annum (the “ Interest ”) from the date on which the Facility Amount is drawn down until the date on which the Facility Amount is repaid or prepaid in full. Unsecured interest shall accrue (in addition to Interest) on the outstanding principal amount of the Facility Amount at 4% per annum if the Independent Shareholder Approval is not obtained or the other conditions subsequent are not satisfied (the “ Unsecured Interest ”) from the date on which the Facility Amount is drawn down until the date on which the Facility Amount is repaid or prepaid in full. Accordingly, if the Independent Shareholder Approval is not obtained and the Security Agreements do not come into effect, the total interest rate under the Bridge Loan shall be 16% per annum.

As the applicable percentage ratios in respect of the Bridge Loan exceed 5%, if the Bridge Loan is secured by the assets of the Group pursuant to the Security Agreements, it would be subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

If the Independent Shareholder Approval is not obtained the Security Agreements will not be entered into, the Bridge Loan will continue as an unsecured loan and on normal commercial terms or better and, in accordance with Rule 14A.90, it is fully exempt from the requirements of Chapter 14A of the Listing Rules. If the Bridge Loan continues on an unsecured basis, the interest rate payable thereunder is increased by 4% per annum to reflect the increased risk assumed by the Lender.

An Independent Board Committee comprising the independent non-executive Directors (namely, 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) has been appointed to consider the terms of the Security Agreements and to advise the Independent Shareholders in connection with the Security Agreements as to whether its terms and the transactions contemplated thereunder are fair and reasonable and whether entering into the Security Agreements is in the interests of the Company and the Shareholders as a whole. We have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, the Directors and the management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true as at the Latest Practicable Date and should there be any material changes to our opinion after the despatch of the Circular and up to the date of the EGM, Shareholders would be notified as soon as practicable.

All Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries that, to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that we have been provided with, and we have reviewed sufficient information to reach an informed view, to justify relying on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have no reason to doubt that any relevant material facts have been withheld or omitted from the information provided and referred to in the Circular or the reasonableness of the opinions and representations provided to us by the Company. We have not, however, conducted any independent verification of the information provided, nor have we carried out any independent investigation into the business, financial conditions and affairs of the Group or any parties involved in the Connected Transaction or their future prospects.

Based on the foregoing, we confirm that we have taken all reasonable steps, which are applicable to the Connected Transaction, as referred to in Rule 13.80 of the Listing Rules (including the notes thereof) in formulating our opinion and recommendation. We have reviewed the loan facility agreement of the Bridge Loan and the Security Agreements and the financial position of the Company, which details are set out in sections B, C and D below. We have conducted research on the historical stock price performance of the Company and analysis of comparable loans under reasonable selection criteria, which details are set out in sections F and G below. We have also considered the fact that Lender of Bridge Loan is a public company listed on the London Stock Exchange and the financial cost under the Bridge Loan will be reduced by entering into the Security Agreements.

As at the Latest Practicable Date, Trinity Corporate Finance Limited does not have any relationships or interests with the Company that could reasonably be regarded as relevant to the independence of Trinity Corporate Finance Limited. Apart from normal professional fees paid or payable to us in connection with this appointment as the independent financial adviser, no arrangement exists whereby we will receive any fees or benefits from the Company.

This letter is issued to the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Connected Transaction and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes other than our role as the Independent Financial Adviser, without our prior written consent.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion regarding the Connected Transaction, we have taken into account the following principal factors and reasons:

A. Background of the Company

The Company is an established explorer, developer and producer of iron ore and other industrial commodities products in the Russian Far East, taking advantage of superior road infrastructure to deliver its projects and products quickly and at lower cost to its customer base, predominantly in China.

B. Financial Performance of the Company

The following table is a summary of the consolidated income statement of the Group for the three years ended 31 December 2015, 2016 and 2017 respectively.

	For the	For the	For the
	year ended	year ended	year ended
	31 December	31 December	31 December
	2015	2016	2017
	(audited)	(audited)	(audited)
	US$’000	US$’000	US$’000
Revenue	81,910	16,467	109,265
Profit (Loss) before tax for
the financial year	(508,998)	(18,812)	112,625
Profit (Loss) for the financial
year	(509,245)	(19,127)	113,215
Profit (Loss) for the financial
year attributable to owners of
the Company	(508,969)	(18,226)	113,254
Underlying loss (excluding
impairment (reversal) charges
recognised) for the financial
year attributable to equity
holders of the Company	(28,919)	(18,179)	(16,360)

Source: Extracted from respective annual reports of the Company

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

During the financial year ended 31 December 2015 and 31 December 2016, the Group recorded a net loss attributable to equity holders of the Company of approximately US$509 million and US$18 million respectively. The underlying loss, which excludes impairment charges, for the year ended 31 December 2016 reduced from US$28.9 million in the preceding year by 37.1% to US$18.2 million. The significant reduction in underlying loss was mainly due to the decision to move the Kuranakh project to care and maintenance and suspend its operation in early 2016, when the iron ore market was weak and Kuranakh was making negative contribution to the Group.

During the first quarter of 2018, K&S achieved the milestone of producing more than 2 million tonnes of iron ore concentrate since inception of the mine. With a strengthening iron ore price for the 65% Fe grading products, K&S has been bringing positive cash flow to the Company since commencing commercial production. Apart from a significant EBITDA contribution from K&S, the Group recorded an impairment loss reversal, resulting in a positive turnaround of profit attributable to owners of the Company of US$113.3 million for the year ended 31 December 2017. The partial impairment loss reversal, amounting to US$129.6 million, resulted from the increase in fair value assessment of the K&S project following the improved iron ore price in 2017. Due to the positive operating results of K&S, the Group’s underlying loss for the year ended 31 December 2017, excluding impairment (reversal) charges recognised, reduced by 10.0% to US$16.4 million.

Hence, for the year ended 31 December 2017, despite the profit attributable to owners of the Company amounting to US$113.3 million, the Company still incurred an underlying loss of US$16.4 million, after exclusion of the effects of the impairment reversal, which is a non-cash item.

The following table is a summary of the key cash flow items of the Group for the three years ended 31 December 2015, 2016 and 2017 respectively.

	For the	For the	For the
	year ended	year ended	year ended
	31 December	31 December	31 December
	2015	2016	2017
	(audited)	(audited)	(audited)
	US$’000	US$’000	US$’000
Net cash generated from
operations	(799)	1,006	21,718
Interest paid during the year	(11,022)	(10,150)	(10,244)
Net cash movement during
the year	(16,727)	(24,944)	(22,345)
Cash and bank balances
(including time and restricted
deposits)	58,263	33,319	10,974

Source: Extracted from respective annual reports of the Company

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

During the financial year ended 31 December 2017, the net cash generated from operations amounted to US$21.7 million, compared with US$1.0 million in the year of 2016. As at 31 December 2017, the carrying amount of the Group’s cash, deposits and bank balances was approximately US$11.0 million, comparing with US$33.3 million in the year of 2016.

As at 31 December 2017, the Group had gross borrowings of US$235.2 million (compared with US$257.0 million in the year of 2016), of which US$1.5 million represented the Group’s working capital loan and the rest represented the long-term borrowing drawn from the ICBC Facility guaranteed by Petropavlovsk. As of 31 December 2017, gearing, expressed as the percentage of net borrowings to the total of net borrowings and net assets, was 45.8%, compared with 61.1% as of 31 December 2016.

C. Principal Terms of the Bridge Loan

Subject Matter

The Lender as the lender and the Company as the borrower entered into the Bridge Loan on 13 June 2018 pursuant to which the Lender has agreed to advance the Facility Amount to the Company at an interest rate of 12% per annum (which is adjustable as set out below).

The Lender is a connected person as it is a subsidiary of Petropavlovsk, the holding company of Cayiron Limited. Cayiron Limited is a substantial shareholder of the Company holding a 31.10% equity interest. Petropavlovsk is listed on the London Stock Exchange.

Facility Amount

A total principal amount in RUR being the equivalent of the amount not exceeding US$29,750,000, as determined based on the exchange rate of the Central Bank of the Russian Federation applicable on the date of the disbursement.

Maturity Date

20 October 2018

Interest

Interest shall accrue on the outstanding principal amount of the Facility Amount at 12% per annum from the date on which the Facility Amount is drawn down until the date on which the Facility Amount is repaid or prepaid in full.

Unsecured Interest shall accrue (in addition to Interest) on the outstanding principal amount of the Facility Amount at 4% per annum from

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the date on which the Facility Amount was drawn down until the date on which the Facility Amount is repaid or prepaid in full and shall only be payable if the Independent Shareholder Approval is not obtained or the other conditions subsequent are not satisfied. Accordingly, if the Independent Shareholder Approval is not obtained and the Security Agreements do not come into effect, the total interest rate under the Bridge Loan shall be 16% per annum.

Purpose and Transfer Obligations

Pursuant to the Bridge Loan, the Company has procured that the Facility Amount be indirectly applied to fulfil the obligation of K&S to repay the June Instalment to ICBC by procuring that the Facility Amount has been transferred to K&S on or before 17 June 2018 and that K&S has converted the Facility Amount from RUR to USD and repaid the June Instalment to ICBC on or before 20 June 2018.

Repayment and Prepayment

The Company is additionally under an obligation to immediately prepay the Facility Amount and all other amounts outstanding under the Bridge Loan if the Borrower or the Group raise any funds through (i) a subscription of shares or other securities; (ii) entering into a credit facility or iron ore prepay agreements (except any Commodity Trading Contracts (as defined below), future Commodity Trading Contracts or any iron ore contract entered into in the ordinary course of business where the advance prepayment is for a period not exceeding one month and the primary goal is not fund raising or borrowing); or (iii) the issuance of any bonds, notes or other debt securities or any other financing arrangement (except pursuant to transactions between members of the Group). If this obligation to prepay the Bridge Loan would constitute a breach of the ICBC Facility, the Company shall use reasonable efforts to repay in a manner that would not constitute a breach of the ICBC Facility. Given that the Bridge Loan is temporary in nature in order to enable K&S’ repayment of the June Instalment, which would otherwise have resulted in a default under the ICBC Facility and entitled ICBC to accelerate the facility and demand repayment in full, we consider such repayment and prepayment obligation is fair and reasonable.

Based on the Company’s current working capital forecast, it is unlikely that the Company will have sufficient working capital to repay the Bridge Loan by the Maturity Date. The Company has reached an advanced stage in its negotiations with a finance provider and is making reasonable progress on these negotiations in respect of refinancing arrangements.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company does not currently anticipate repaying the Facility Amount prior to the Maturity Date, unless the refinancing arrangement is successful.

Conditions

As condition precedents of the Bridge Loan, signed versions of the Security Agreements were required to be provided but these do not come into effect unless and until the Independent Shareholder Approval is obtained. Additionally, irrevocable instructions were required to be provided by each party stating that their signatures to the Security Agreements shall be automatically released immediately upon receipt of the Independent Shareholder Approval.

As a condition subsequent under the Bridge Loan, the Company shall use reasonable endeavors to procure that the Security Agreements receive the Independent Shareholder Approval and come into effect as soon as reasonably practical, but in any event not later than by 15 August 2018. The Company shall also procure that any other steps necessary to perfect the Security Agreements are taken in accordance with applicable law.

Events of Default and Default Interest

The Bridge Loan contains the following events of default:

(i) Failure to pay: The Company, Ariti or Dardanius fails to pay any principal amount or interest due under the Bridge Loan, the Security Agreements or any other document designated as a finance document by the Company and the Lender (the “ Finance Documents ”).
(ii) Misrepresentation: Any representation, warranty or statement given or deemed to have been made by the Company, Ariti or

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Dardanius in the Finance Documents or other connected document proves to be incorrect or misleading in an material respect (and such non-performance/non-compliance is not remedied within 15 days of the Lender giving notice to the Company and the Company becoming aware of the misrepresentation).

(iii) Performance of obligations: The Company, Ariti or Dardanius fails to perform or comply with any obligation or undertaking under the Finance Documents (and such non-performance/ non-compliance is not remedied within 15 days of the Lender giving notice to the Company and the Company becoming aware of the misrepresentation).
(iv) Default on debt: Any debt of the Company or a material Group company is not paid when due/any debt of the Company or a material Group company is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default/any holder of debt after a default under such debt provides a notification of the intended sale or disposition of any assets of the Company/any creditor of the Company or a material Group company becomes entitled to declare any of their debt due and payable.
(v) Adverse government action: Any agency or court takes any action that would reasonably be expected to have a material adverse effect.
(vi) Insolvency: Insolvency of the Company or a material Group company.
(vii) Composition and dissolution: Bankruptcy, winding-up, dissolution, administration or reorganisation of the Company or a material Group company.
(viii) Attachment: Any attachment, sequestrian, distress or execution levied over any material asset of the Company or a material Group company (and not fully discharged within 21 days of the commencement of such process).
(ix) Litigation: Litigation, arbitration, administrative, governmental, regulatory or other investigation or disputes commenced or threatened in relation to the Finance Documents against a member of the Group.
(x) Judgment: The aggregate amount of unsatisfied final judgments, decrees or orders of courts against the Company or a material Group company exceeds US$5 million.

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(xi) Analogous proceedings: Any event occurs which has a similar or analogous effect to events mentioned in items (vi) to (x) above.
(xii) Immunity: Any material Group company claims or threatens to claim immunity from process, execution, attachment or other legal process by the Lender.
(xiii) Repudiation: Any party to a Finance Document (other than the Lender or its affiliates) disaffirms, disclaims, repudiates or rejects or challenges the validity of the Finance Documents.
(xiv) Illegality: It becomes unlawful for the Company or Ariti to perform or comply with its obligations under the Finance Document it is party to, or such obligations cease to be legal, valid or binding.
(xv) Material adverse effect: Any event which has or is reasonable likely to have a material adverse effect.
(xvi) Conditions subsequent: Any conditions subsequent not being satisfied in full.
(xvii) On-loan documents: The Company fails to perform any obligations under or comply with any obligations set out in the purpose of the loan clause.

Director Nomination Right

The Lender’s right to nominate up to two proposed directors continues for so long as the Facility Amount is outstanding and these nominations are subject to the approval procedures as set out in the Company’s articles of association and the approval of the nomination committee of the Board having reviewed the nomination’s credentials. The Company has agreed to act reasonably when reviewing and approving the Lender’s nominations. This right has been granted by the Company to the Lender in its capacity as a lender. The appointments of the Lender’s directors on the Board of the Company will automatically terminate once the Facility Amount has been paid or repaid.

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to the Lender’s nomination right, the Company has received one nomination from the Lender which as at the Latest Practicable Date is in process of being reviewed by the Board. If the nomination is acceptable and appointed, the Company will publish an announcement setting out all the information required in accordance with LR13.51(2).

D. Principal Terms of the Security Agreements

(i) Assignment of Contracts

Date: To be dated the date on which Independent Shareholder Approval is obtained. Parties: (1) Ariti, as the assignor; and (2) the Lender, as the lender.

Purpose

Ariti purchases, as principal, iron ore from K&S and sells the iron ore it purchases pursuant to sales contracts with third parties (the “ Commodity Trading Contracts ”). Under the Assignment of Contracts, Ariti agrees to assign its rights, title, interest and benefit in, receivables under the Commodity Trading Contracts including documents of title.

Covenant to Pay

Ariti shall, as primary obligor and not only as surety, promptly, on demand of the Lender, pay to the Lender and discharge all amounts due but unpaid under the terms of the Bridge Loan.

Enforcement of Security

The security shall become immediately enforceable if an event of default occurs under the Bridge Loan, which is continuing, unremedied or unwaived.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Power of Attorney

Date: To be dated the date on which Independent Shareholder Approval is obtained.

Parties: (1) Ariti, as the principal

Purpose

(iii) Share Pledge Agreement

Date: To be dated the date on which Independent Shareholder Approval is obtained. Parties: (1) Dardanius, as the pledgor; and (2) the Lender, as the pledgee.

Purpose

Under the terms of the Share Pledge Agreement, Dardanius, a wholly-owned subsidiary of the Company, is granting security in favor of the Lender over its 70.28% shareholding in JSC Giproruda, a joint stock company incorporated in Russia.

Enforcement of Security

E. Reasons for and Benefits of the Bridge Loan and the Security Agreements

We have reviewed the loan facility agreement of the Bridge Loan and the Security Agreements as provided by the Company. According to the Letter from the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Board, the grant of the Bridge Loan prevented K&S from missing the repayment of the June Instalment which would otherwise have resulted in a default under the ICBC Facility (which would have entitled ICBC to accelerate the ICBC Facility and demand repayment in full) and entering into the Security Agreements will allow the Company to obtain a better interest rate under the Bridge Loan which is beneficial to the Group as a whole.

The Bridge Loan does have the disadvantages of being at higher interest rate than the ICBC Facility and the Company has been required to grant a nomination right to the Lender (in its capacity as a lender), these disadvantages however are inherent with the nature of bridge financing, where the Company expects a lender to charge a higher interest rate and be given the ability to closely monitor the activities of the Company through either information rights or board appointments. In light of the Company’s inability to find alternative sources of financing (as described above), the Independent Board Committee considers that the disadvantages were far outweighed by the consequences of failing to repay the June Instalment.

In addition, we note that if the Independent Shareholder Approval is not obtained, the Security Agreements will not be entered into, accordingly, the Bridge Loan will continue as an unsecured loan and the interest rate payable thereunder will be increased by 4% per annum to reflect the increased risk assumed by the Lender, i.e. the total interest rate under the Bridge Loan shall be 16% per annum from the date on which the Facility Amount was drawn down until the date on which the Facility Amount is repaid or prepaid. If the Independent Shareholder Approval is obtained, the Security Agreements will come into effect and the Interest shall accrue at 12% per annum only, therefore we agree with the Board that entry into the Bridge Loan and the Security Agreements would be in the interests of the Company and the Shareholders as a whole by reducing the financial cost of the Company and thereby improving its cash flow position.

F. Share Price Performance and Previous Equity Issuance of the Company

We have reviewed the closing prices of the Company’s shares during the 12-month period from 14 June 2017 up to 13 June 2018, being the date on which the Company entered into the Bridge Loan (the “ Review Period ”), and note that the closing prices of the Company’s shares ranged from HK$0.131 to HK$0.370 per share with the peak of HK$0.370 on 7 August 2017 and 9 August 2017 respectively, and had gradually diminished over the few months before 13 June 2018. The average closing price of the Company’s shares during the Review Period was approximately HK$0.235 per share.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Prior to the Review Period, we also note that the Company entered into a subscription agreement on 30 December 2016 pursuant to which a total of 937,500,000 new shares were allotted and issued at a subscription price of HK$0.210 per new share, representing approximately 13.22% of the then issued share capital of the Company.

In view of the fact that (i) the historical share price performance of the Company during the Review Period demonstrated a diminishing trend after the peak in August 2017 up to the date of the Company entering into the Bridge Loan; (ii) the consecutive underlying losses recorded by the Group (excluding the impairment (reversal) charges recognised) for the 3 years ended 31 December 2017; and (iii) the timing of the repayment of the June Instalment, we consider that the Bridge Loan is a better interim temporary option than equity issuance for the Company to identify other financing alternatives.

G. Market Comparable Transactions Analysis

In order to assess the fairness and reasonableness of the terms of the Security Agreements (including the Interest and the Unsecured Interest), we have reviewed bridge loans or subordinate short-term loans (the “ Comparable Loans ”) of other companies listed on the Main Board of the Stock Exchange (the “ Comparable Transactions ”) announced during the Review Period, and have identified, to the best of our knowledge and as far as we are aware of, 3 Comparable Loans based on the key comparable criteria of (i) the size of loan ranging from HK$100 million to HK$300 million; (ii) the term to maturity of not more than one year; and (iii) loan without any convertible equity in feature. Table A below is an exhaustive list of samples selected under the relevant selection criteria. We consider the Review Period of 12 months is a reasonable time frame to analyse Comparable Transactions representing recent market terms of bridge loans or subordinate short-term loans under the latest market conditions. We also consider the Comparable Loans represent the normal market practice of bridge loans and subordinate short-term loans and can form a meaningful view on assessing the terms of the Security Agreements (including the Interest and Unsecured Interest) as the size, term to maturity and nature of the Comparable Loans are similar to the terms of the Bridge Loan and Security Agreements. Nevertheless, the business, operations and prospects of the Company are not the same as that of the companies of the Comparable Transactions and we have not conducted any in-depth investigation into their respective businesses, operations and prospects.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			Security	The debenture dated 28 November	2017 as a continuing security in	relation to a first floating charge	created by Wanjia Group Holdings	Limited in favour of the lender	over the undertaking, property,	assets and rights of Wanjia Group	Holdings Limited.		The share charge over the entire	issued share capital of Fully World	(indirect wholly-owned	subsidiary) to be executed by	Firmwill (wholly-owned	subsidiary) in favour of the	First legal charge (or equivalent) to	be given by the borrower in favour	of the lender on the entire	unencumbered issued share capital	of the chargor, which holds certain
			Maturity	3 months, or	subject to	renewal, 6	months						6 months and	could be	further	extended for	another 6	months	1 year
			Interest charged	3.9% per month for the first month;	1.8% per month for the second	month; 1.25% per month for the	third month; 1.25% per month for	the fourth month to the sixth	month. (Note: Based on the above	schedule, the total interest rate if	the loan was extended for 12	months would be 18.2%)	10.0% per annum						18.0% per annum					18.2% per annum	10.0% per annum	15.4% per annum
			Loan size	HK$100 million									HK$180 million						HK$250 million					Highest:	Lowest:	Average:
		Announcement	date	28 November	2017								24 November	2017					19 October	2017
Market	Capitalisation	Stock as at the Latest	code Company Name Lender Practicable Date	401 Wanjia Group Grand Harbour Finance HK$91 million	Holdings Limited	Limited							332 Yuan Heng Gas Capital Strategic Partners HK$4,690 million	Holdings Limited (a wholly-owned	Limited subsidiary of Hanbo	Enterprises Holdings	Limited (stock code: 1367))		577 The 13 Holdings Get Nice Finance Company HK$780 million	Limited Limited (a wholly-owned	subsidiary of Get Nice	Holdings Limited (stock	code: 64))				Source: The Stock Exchange’s website (www.hkex.com.hk)

– 36 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in Table A above, all the Comparable Loans have security and the interest rates of the Comparable Loans ranged from 10.0% to 18.2% per annum with an average interest rate of approximately 15.4% per annum.

As shown in the above table, the security for the loan received by Wanjia Group Holdings Limited included a first floating charge over the undertaking, property, assets and rights of the company, the security for the loan received by Yuan Heng Gas Holdings Limited included the share charge of a subsidiary and floating charge of the property and/or assets to be created by such subsidiary and the security for the bridge loan received by The 13 Holdings Limited included the share charge of a subsidiary, which held certain tenant improvement works within the premises of the borrower. The Security Agreements herein consist of assignment of contracts and share pledge of a subsidiary of the Company. Based on the above information, we consider that it is normal market practice that lenders will request security over the assets or shares of the subsidiary(ies) of the borrowers and therefore we consider the assignment of contracts and share pledge of a subsidiary under the Security Agreements are on normal commercial terms or better, are fair and reasonable so far as the Independent Shareholders are concerned, and are in the ordinary and usual course of business of the Group, and entering into the Security Agreements is in the interests of the Company and the Independent Shareholders as a whole.

Furthermore, as shown in the table above, the interest rate of the loan granted by Grand Harbour Finance Limited to Wanjia Group Holdings Limited would be 18.2% per annum based on the assumption that the loan is extended for a 12-month period. Such interest rate is approximately 52% higher than the Interest at 12% per annum if the Security Agreements are to be entered into. Similarly, the interest rate of the bridge loan provided by a wholly-owned subsidiary of Get Nice Holdings Limited to The 13 Holdings Limited was 18% per annum which is 50% higher than the Interest. In both cases, the respective interest rates are also higher than the Interest plus Unsecured Interest of 16% per annum if the Security Agreements will not be entered into.

We consider the interest rate of the loan received by Yuan Heng Gas Holdings Limited of 10% per annum slightly more favourable than the Interest of 12% per annum, yet this may be partly due to the specific circumstance of that company with a relatively higher market capitalization of over HK$4.5 billion as compared to the loan size of HK$180 million.

In conclusion, the average and the majority of the interest rates of the Comparable Transactions demonstrated respectively that the Interest (on a secured loan basis) and the Unsecured Interest are still more favourable as compared to normal commercial terms on the market. In the event that the Independent Shareholder Approval is not obtained and the Bridge Loan has to continue on an unsecured basis at the Unsecured Interest rate, based on our analysis above, the terms of the Bridge Loan are still considered to be on normal commercial terms or better and are fair and reasonable so far as the Independent Shareholders are concerned.

– 37 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Given that the Interest is within the range of and less than the average of the interest rates of the Comparable Transactions as shown in Table A, we are of the view that the Bridge Loan and Security Agreements are on normal commercial terms or better, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. We also consider that, since the Company will only need to pay Interest at the rate of 12% per annum if the Security Agreements are to be entered into, it will therefore be beneficial to the Group as a whole by reducing its financial cost and thereby improving the cash flow position of the Group.

RECOMMENDATION

Having considered the principal factors and reasons referred to above, in particular:

(1) the principal terms of the Bridge Loan (including and not limited to, the Interest and the Unsecured Interest) and Security Agreements;
(2) the Lender of the Bridge Loan is a subsidiary of Petropavlovsk, which is a public company incorporated in England and Wales and listed on the Main Market of the London Stock Exchange;
(3) for the year ended 31 December 2017, despite the profit attributable to owners of the Company amounting to US$113.3 million, the Company still incurred an underlying loss of US$16.4 million, after exclusion of the effects of the impairment loss reversal, which is a non-cash item;
(4) during the financial year ended 31 December 2017, the net cash generated from operations amounted to US$21.7 million only;
(5) as of 31 December 2017, gearing, expressed as the percentage of net borrowings to the total of net borrowings and net assets, was 45.8%;
(6) the Facility Amount is approximately US$30 million;
(7) the Bridge Loan was necessary to enable K&S’ repayment of the June Instalment and otherwise prevent a default under the ICBC Facility;
(8) the Bridge Loan is a temporary solution until the refinancing of the ICBC Facility can be completed;
(9) the ICBC Facility is a US$340 million project finance facility dated 13 December 2010 between ICBC and K&S;
(10) the consequence of missing the repayment of the June Instalment which would have resulted in a default under the ICBC Facility (which would have entitled ICBC to accelerate the ICBC Facility and demand repayment in full);
(11) the historical share price performance of the Company during the Review Period;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(12) the analysis of the Comparable Loans in terms of interest rates and security obtained by the respective lenders; and
(13) the fact that entering into the Security Agreements will allow the Company to benefit from a more favourable interest rate under the Bridge Loan, i.e. a reduction of 4% per annum, and thereby reduce the financial cost and improve the cash flow position of the Group as a whole,

we are of the opinion that the terms of the Bridge Loan and the Security Agreements, are on normal commercial terms or better, are fair and reasonable so far as the Independent Shareholders are concerned, and are in the ordinary and usual course of business of the Group, and entering into the Security Agreements would be in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we would advise the Independent Shareholders and advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolution to approve the Security Agreements and the transactions contemplated thereunder at the EGM.

Yours faithfully, For and on behalf of Trinity Corporate Finance Limited Keith Jacobsen Joanne Pong Responsible Officer Responsible Officer

Mr. Keith Jacobsen and Ms. Joanne Pong are licensed persons registered with the Securities and Futures Commission and responsible officers of Trinity Corporate Finance Limited, which is licensed under the SFO to carry out Type 6 (advising on corporate finance) regulated activities. Mr. Keith Jacobsen and Ms. Joanne Pong have over 25 years and 17 years of experience in the corporate finance industry respectively.

– 39 –

APPENDIX

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice contained in this circular:

Name Qualification Trinity Corporate Finance Limited a licensed corporation under the SFO permitted to conduct type 6 (advising on corporate finance) regulated activities for the purposes of the SFO

Trinity Corporate Finance Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which it appears.

As at the Latest Practicable Date, Trinity Corporate Finance Limited did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

3. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, save as previously announced, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2017, being the date to which the latest audited financial statements of the Group were made up.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, no Director had a service contract with any member of the Group which is not determinable within one year without payment of compensation other than statutory compensation.

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APPENDIX

GENERAL INFORMATION

5. DIRECTORS’ INTEREST IN ASSETS

None of the Directors had any direct or indirect interest in any asset which had been, since 31 December 2017 (being the date to which the latest published audited financial statements of the Group were made up) and up to the Latest Practicable Date, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

6. DIRECTORS’ INTEREST IN CONTRACTS

There was no contract of significance in relation to the Group’s business to which the Company, its subsidiaries, its fellow subsidiaries or its holding company was a party and in which a Director had a material interest, whether directly or indirectly, subsisting as at the Latest Practicable Date.

7. DIRECTORS’ INTERESTS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ITS ASSOCIATED CORPORATIONS

As at the Latest Practicable Date, the interests or short positions of the Directors or chief executives of the Company in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required:

a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including any interests and short positions which he/she was taken or deemed to have under such provisions of the SFO); or
b) pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein; or
c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained the Listing Rules, to be notified to the Company and the Stock Exchange,

were as follows:

			Percentage
		Number of	of issued
Name of Director	Nature of interest	Shares	Shares
George Jay Hambro	Interest of a controlled	445,866	0.01%
	corporation*
	Beneficial interest**	34,286,539	0.48%
	Contingent beneficial	62,885,354	0.89%^
	interest***
Yury Makarov	Beneficial interest	30,911,505	0.44%
	Contingent beneficial	62,885,354	0.89%^
	interest***
Raymond Kar Tung Woo	Beneficial interest	7,435,360	0.10%
Danila Kotlyarov	Contingent beneficial	62,885,354	0.89%^
	interest***

– 41 –

APPENDIX

GENERAL INFORMATION

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 the Company that is consequently classed as an affiliated company to the director.
*** The interest relates to the share options granted by the Company on 20 November 2015 and on 29 September 2017. Details of the share option scheme are set out in the 2017 Annual Report of the Company.
^ These percentages are calculated on the basis of 7,093,386,381 Shares in issue as at 31 December 2017.

Additionally, as at the Latest Practicable Date, Yury Makarov, Executive Director, beneficially holds 75,278 shares of Petropavlovsk. Petropavlovsk, through its wholly-owned subsidiary Cayiron Limited, is a substantial shareholder of the Company, and accordingly an associated corporation of the Company.

As of the Latest Practicable Date, none of the Directors was a director or employee of a company which had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

8. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors and their respective close associates had any interests in any business which competes or was likely to compete, either directly or indirectly, with the Group’s business.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:30 a.m. to 5:30 p.m. on any weekdays (except public holidays) at the head office and principal place of business of the Company at 6H, 9 Queen’s Road Central from the date of this Circular up to the date of EGM:

(i) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 20 of this Circular;
(ii) the letter of advice from Trinity Corporate Finance Limited to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 21 to 39 of this Circular;
(iii) the Bridge Loan;
(iv) the Assignment of Contracts;
(v) the Share Pledge;
(vi) the Power of Attorney; and
(vii) this circular.

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NOTICE OF THE EGM

==> picture [154 x 79] intentionally omitted <==

(a company incorporated in Hong Kong with limited liability)

(Stock code: 1029)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (“ EGM ”) of shareholders of IRC Limited (the “ Company ”) will be held at Admiralty Conference Centre, 1804, 18/F, Tower 1, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong on 9 August 2018 at 2:30 p.m. for the purpose of considering and, if thought fit, passing, with or without amendments, the following resolutions as an ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT :
(i) the assignment of contracts (the “ Assignment of Contracts ”) between Ariti HK Limited (“ Ariti ”) and JSC “Pokrovskiy mine” (“ Lender ”) and the transactions contemplated thereunder be and are hereby ratified, confirmed and approved;
(ii) the share pledge (the “ Share Pledge ”) between Dardanius Limited and the Lender and the transactions contemplated thereunder be and are hereby ratified, confirmed and approved;
(iii) the power of attorney (the “ Power of Attorney ”) to be granted by Ariti in favour of the Lender and the transactions contemplated thereunder be and are hereby ratified, confirmed and approved;
(iv) the directors of the Company (the “ Directors ”) be and are hereby authorised to execute such all other documents, do all other acts and things and take such action as may in the opinion of the Directors be necessary, desirable or expedient to implement and give effect to the Assignment of Contracts, the Share Pledge and the Power of Attorney and any other transactions contemplated thereunder and to agree to such variation, amendment or waiver as, in the opinion of the Directors, in the interest of the Company and its shareholders as a whole; and
(v) the reduction of the interest rate under the bridge loan between the Company and the Lender (the “ Bridge Loan ”) from 16% per annum to 12% per annum be and is hereby ratified, confirmed and approved.

– 43 –

NOTICE OF THE EGM

2. “ THAT :

the total number of Shares of the Company which are repurchased or otherwise acquired by the Company pursuant to the general mandate to repurchase Shares approved at the annual general meeting of the Company on 25 June 2018 (the “ AGM ”), shall be added to the total number of Shares of the Company which may be issued by the Directors pursuant to the general mandate to issue Shares approved at the AGM.”

3. “ THAT :

subject to and conditional upon the Listing Committee of the Stock Exchange granting approval of the listing of, and permission to deal in, the Shares to be issued pursuant to the exercise of share options which may be granted under the Refreshed Scheme Mandate Limit (as defined below), the existing limit on the grant of share options under the Share Option Scheme be refreshed provided that the total number of Shares which may be allotted and issued upon exercise of any options to be granted under the Share Option Scheme and any other schemes of the Company (excluding share options previously granted, outstanding, cancelled, lapsed or exercised in accordance with the Share Option Scheme or such other scheme(s) of the Company), shall not exceed 10% of the aggregate nominal amount of the share capital of the Company in issue as at the date of the passing of this resolution (the “ Refreshed Scheme Mandate Limit ”) and the Directors be and are hereby authorised to do such acts and things and execute such documents, including under seal where applicable, as they consider necessary or expedient to give effect to the Refreshed Scheme Mandate Limit and to grant share options up to the Refreshed Scheme Mandate Limit and to exercise all powers of the Company to allot, issue and deal with shares of the Company pursuant to the exercise of such share options.”

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

Hong Kong, 23 July 2018

This document is available for reference at the Company’s website, www.ircgroup.com.hk and at the website of the Stock Exchange of Hong Kong at www.hkexnews.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: [email protected]

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

– 44 –

NOTICE OF THE EGM

Notes:

(1) Pursuant to the Rule 13.39(4) of the Listing Rules, any vote of shareholders at a general meeting must be taken by poll. The Chairman of the forthcoming EGM will therefore put the resolutions to be proposed at the EGM to be voted by way of poll pursuant to the Company’s Articles of Association.
(2) The register of shareholders will be closed from Tuesday, 7 August 2018 to Thursday, 9 August 2018, both days inclusive. In order to qualify for attending and voting at the EGM, all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s Registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Monday, 6 August 2018.
(3) A shareholder of the Company entitled to attend and vote at the above EGM is entitled to appoint one or more proxies to attend and on a poll, to vote instead of him. A proxy need not be a member. Forms of proxy must be lodged with the Company’s Registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, no later than 48 hours before the time fixed for holding the EGM. Completion and lodging of a form of proxy will not preclude a member from attending and voting at the EGM (or any adjournment thereof) should the member so wish.
(4) If Typhoon Signal No. 8 or above is expected to be hoisted or a Black Rainstorm Warning Signal is expected to be in force at any time between 1:00 p.m. and 5:00 p.m. on the date of the EGM, then the EGM will be postponed and the shareholders will be informed of the date, time and venue of the postponed meeting by a supplementary notice, posted on the Company’s website (www.ircgroup.com.hk) and the website of Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk). If Typhoon Signal No.8 or above or a Black Rainstorm Warning Signal is cancelled at or before 1:00 p.m. on the date of the EGM, and where conditions permit, the EGM will be held as scheduled. The EGM will be held as scheduled when an Amber or Red Rainstorm Warning Signal is in force. Shareholders should decide on their own whether they would attend the EGM under bad weather condition bearing in mind their own situations and, if they do so, they are advised to exercise care and caution.
(5) 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 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.
(6) All references to dates and times refer to dates and times in Hong Kong.

– 45 –

AI assistant

IRC Limited — Proxy Solicitation & Information Statement 2018

49636_rns_2018-07-23_8724ba1c-0056-46a3-8e5d-166b631cdb79.pdf

(1) CONNECTED TRANSACTION – RECEIPT OF TEMPORARY BRIDGE LOAN

(2) EXTENSION OF THE GENERAL MANDATE TO ISSUE SHARES (3) REFRESHMENT OF 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME AND

(4) NOTICE OF EGM

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Trinity Corporate Finance Limited

DEFINITIONS

DEFINITIONS

Registered Office:

(1) CONNECTED TRANSACTION: RECEIPT OF TEMPORARY BRIDGE LOAN

(2) EXTENSION OF THE GENERAL MANDATE TO ISSUE SHARES

(3) REFRESHMENT OF 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME AND

(4) NOTICE OF EGM

INTRODUCTION

CONNECTED PERSONS

BRIDGE LOAN

Subject Matter

Purpose and transfer obligations

Repayment and Prepayment

Conditions

Interest

Events of Default and Default Interest

Director nomination right

Board’s assessment of the Bridge Loan

SECURITY AGREEMENTS

Assignment of Contracts

Purpose

Covenant to Pay

Enforcement of Security

Power of Attorney

Purpose

Share Pledge Agreement

Purpose

Enforcement of Security

Board’s assessment of the Security Agreements

REASONS FOR AND BENEFITS OF THE BRIDGE LOAN AND THE SECURITY AGREEMENTS

IMPLICATIONS UNDER THE LISTING RULES

GENERAL INFORMATION ABOUT THE PARTIES

EXTENSION OF THE SHARE ISSUE MANDATE

REFRESHMENT OF THE SCHEME MANDATE LIMIT

THE EGM

RECOMMENDATIONS

(1) CONNECTED TRANSACTION: RECEIPT OF TEMPORARY BRIDGE LOAN

(2) EXTENSION OF THE GENERAL MANDATE TO ISSUE SHARES (3) REFRESHMENT OF 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME AND (4) NOTICE OF EGM

23 July 2018

CONNECTED TRANSACTION RECEIPT OF TEMPORARY BRIDGE LOAN

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

A. Background of the Company

B. Financial Performance of the Company

C. Principal Terms of the Bridge Loan

Subject Matter

Facility Amount

Maturity Date

Interest

Purpose and Transfer Obligations

Repayment and Prepayment

Conditions

Events of Default and Default Interest

Director Nomination Right

D. Principal Terms of the Security Agreements

(i) Assignment of Contracts

Purpose

Covenant to Pay

Enforcement of Security

(ii) Power of Attorney

(iii) Share Pledge Agreement

Enforcement of Security

E. Reasons for and Benefits of the Bridge Loan and the Security Agreements

F. Share Price Performance and Previous Equity Issuance of the Company

G. Market Comparable Transactions Analysis

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. EXPERT AND CONSENT

3. MATERIAL ADVERSE CHANGE

4. DIRECTORS’ SERVICE CONTRACTS

5. DIRECTORS’ INTEREST IN ASSETS

IRC Limited Proxy Solicitation & Information Statement 2018