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K&S


Overview

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

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

Safety

The LTIFR is a measure of the number of lost-time injuries per one million hours worked. The K&S Mine reported a satisfactory safety performance for 2016 with one injury recorded during the year and the LTIFR was 0.68. In order to reduce possibility of the reoccurrence of similar accidents in the future, the Company took proactive steps in examining the implementation of the industrial safety management system, and will improve the system where necessary.

K&S Flowsheet

FY 2016 Updates

During 2016, K&S has entered into the final stages of the commissioning process and successfully produced its maiden iron ore products, which marked the beginning of K&S’ trial production period. The first shipment of products to customers in China was also one of the significant milestones for K&S. While certain issues encountered during the final stages of commissioning programme have been resolved, some ramping-up issues remain, nonetheless with well experienced site team, IRC expects issues to be resolved for full ramp-up and commercial production in the second half of 2017.

Mining

The Kimkan operation covers nearly 50 km2 and comprises two key ore zones – Central and West. Open pit mining commenced at the Central area, with ore being stockpiled for processing. In order to support a continuous production of K&S, a continuous supply of required feedstock has to be provided. During the fourth quarter of 2016, the mining contractor has re-commenced the mining process; firstly with drilling and blasting operations to prepare ore volumes in the open pit, and later with excavation and hauling operations to replenish ore stockpile that will be used for plant feeding. The drilling, blasting, excavation and hauling works have recommenced since December 2016 with approximately 75,000m3 of rock mass blasted.

Processing

The Processing Plant is well situated between the two deposits. The plant design for Phase I is to process 10 million RoM tonnes to produce 3.2 million tonnes of iron ore concentrate with a superior 65.8% Fe grade. There is an option for a Phase 2 expansion for the Processing Plant, with the addition of ore feed from the Sutara Pit, doubling the throughput capacity to produce 6.3 million tonnes of iron ore concentrate with a 65% Fe grade.

Cash Cost Targets

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

Infrastructure and Logistics

K&S is enjoying tremendous geographical advantage because the operation is directly situated next to Trans- Siberian Railway, where IRC’s product can be transported directly to its customers in North East China. The distance from K&S operation to the Chinese border (Suifenhe) is approximately 1,500 kilometres, which translated into 10 to 14 days of transportation, much faster and consistent than other international peers. The Amur River Bridge, which is a Sino-Russian infrastructure project can further shorten the time & distance of transport of K&S and halve K&S' transport cost.

Chemical Compositions of Kimkan Iron Ore Concentrates

Component Mass Fraction % Component Mass Fraction %
Fe total 65.8 Na2O 0.10
Fe2O3 64.2 K2O 0.09
FeO 26.9 Cr2O3 0.05
SiO2 5.96 S 0.036
AI2O3 0.67 V2O5 0.028
MgO 0.67 Cu <0.010
CaO 0.50 Zn <0.010
MnO 0.41 Pb <0.010
TiO2 0.29 Ni <0.010
P2O5 0.10 Cd <0.005
1 <0.10 Co <0.005

It is anticipated that this superior product could earn a premium due to its quality and the logistical advantages of supplying customers in the North East of China from the Far East of Russia.


K&S Mineral Resources & Ore Reserves Summary

Tonnage
Mt
Fe Grade
%
Fe Mt
Resources
Kimkan & Sutara
     Measured 21.0 31.4% 6.6
     Indicated 380.6 32.7% 124.4
     Inferred 281.6 32.0% 90.1
     Total 683.2 32.4% 221.1
Kostenginskoye
     Measured
     Indicated
     Inferred 179.4 27.6% 49.5
     Total 179.4 27.6% 49.5
Total Measured 21.0 31.4% 6.6
Total Indicated 380.6 32.7% 124.4
Total Inferred 461.0 30.3% 139.6
Total 862.6 31.4% 270.6
Reserves
Kimkan & Sutara
Total Proven 21.6 31.9% 6.9
Total Probable 346.7 31.0% 107.4
Total 368.3 31.0% 114.3
Assumed average cut-off grades: Kimkan & Sutara Pit Fe cut-off grade 17% and Kostenginskoye Pit Fe cut-off grade 18%