IRC Limited (1029) Earnings Call Transcript
August 27, 2025
Earnings Call Speaker Segments
Good afternoon, ladies and gentlemen. Welcome to the conference call. Our Chairperson today is Johnny. Johnny, please go ahead, and I'll be standing by for the Q&A. Thank you.
That's great. Thanks. Good afternoon, everyone. I'm Johnny Yuen, and I'm the Finance Director and Company Secretary of IRC. I would like to welcome all of you to IRC Limited Conference Call for the 2025 Interim Results Announcement of the Company. Apart from me, with us today are our CEO, Mr. Denis Cherednichenko; and our CFO, Danila Kotlyarov. [Operator Instructions] A brief Q&A session, which you can ask in English, Mandarin or Cantonese, will follow the formal presentation. Now as a reminder, this conference is being recorded. Announcement and the PowerPoint slides for use in this call has been uploaded, and you can download them from our website at www.ircgroup.com.hk. [Foreign Language] It's our pleasure to turn the call to our CEO, Denis Cherednichenko. Denis, please begin.
Thank you so much. Good morning, good afternoon, my dear investors, dear shareholders. Let me start. I will start with our presentation. Please go to the Slide #5, and I will announce first half of 2025 highlights, the key financial highlights. Revenue rose to $123 million, mainly due to 77% increase in sales volume despite 14% decrease in Platts index price. Cash cost per tonne decreased to $77.4, mainly due to improved quality of ore and lower stripping ratio at Sutara and improved iron ore recovery following technology improvements made by K&S team. Adjusted EBITDA, excluding nonrecurring items and foreign exchange is $6.7 million, adjusted underlying loss of $3 million. Asset impairment [share] charge on K&S of $120.2 million, driven by ruble appreciation and stronger ruble outlook, which inflates project future costs. And while this loss attributable to shareholders is $102 million and cash and cash deposits decreased to $30 million, mainly due to voluntary prepayment of the MIC loan and CapEx incurred of Sutara development. And some key operational highlights. Production volume increased by 25.7% to 1,423,000 tonnes, mainly due to improved quality of ore from Sutara and improved iron ore recovery. And sales volume increased to 27% to 1,419,000 tonnes, in line with the production increase. And I want to say that I mentioned that we successfully continue with Sutara development, successful and quick ramping up of mining works at Sutara. This half-year period has been both transformative and challenging. While we have made significant operation improvement, external market conditions have tested our resilience. The successful mining operation at the Sutara mine is a game changer to IOCs and marks a watershed moment. This mine site drives substantially better quality iron ore, which allow our team to increase production volumes. And right now, so I want to pass the word to our CFO, Danila Kotlyarov, to tell about financial more in details. Danila, please go ahead.
Yes, Denis. Good afternoon, ladies and gentlemen. Let me give you a quick update about our semi-annual results. Can you move to the next slide, 7. So here, we have the key information, the key data about our results. So as Denis mentioned already, in terms of the production, this period was quite successful. So as you can see against the results of the first 6 months of the last year, we have very significant increase in the production and corresponding increase of sales. So this only became possible with the successful beginning of the -- and commissioning of the mining work at Sutara mine, which is a primary source of the ore at the moment. So without the development of Sutara, we wouldn't be able to achieve these results, and we are very happy about this. So unfortunately, in terms of the revenue, we are following, like the market and as you're all aware, with some slowing down in the Chinese economy, we are not immune, and the price of iron ore are weaker than it was a year ago. That's why we have a corresponding increase in the average selling price and also in the revenues. In terms of the cash cost, we have significant decrease in the cash cost. So what happened despite the appreciation of the ruble, and I will explain this in detail later, which again reflects the improvement -- yes, improvement of our operations with the commission of Sutara mine. So as a result, the bottom line, the EBITDA of the company over the first 6 months of this year, it's positive, although it's -- as I mentioned, it's negatively affected with the micro parameters, which is both appreciation of the ruble and also a decrease in the price of iron ore. In terms of the bottom line, we have a negative result, but it's due to the -- it resulted with the significant impairment of the K&S mine, but this is dictated with IFRS rules. We are required, each reporting period, to reevaluate the prospect and recalculate the NPV of our project and with significant appreciation of the ruble and corresponding change in the outlook on the ruble exchange rate, we have -- we were required to do this impairment. I can underline again, this is noncash impairment, and we are guided by the rules. And so this primarily happened because of the prospects of the ruble appreciation. And because the majority -- the vast majority of our costs are denominated in ruble, we have a corresponding increase in the cost of operations. So if -- I don't know, if at the end of the year, the outlook of the ruble exchange rate will be different, then we will have a corresponding -- we will have also a change in the assessment of the K&S value. So in terms of the cash usage, the majority of the $12 million of the capital expenditures in the first half of this year, it relates to the Sutara development. We're expecting more CapEx in relation with our second big project, the commission of our own mining equipment in the -- so closer to the end of the year. So let's move to the next slide. Here, there is main information about the about P&L of the company, although I mentioned already, the key information. I can add here, so you can know significant decrease in the finance cost of the company, which reflects the repayment of the voluntary repayment of the loan at the beginning of the year. We have used the money raised with the rights issue. We repaid the expensive tranche. We have 2 tranches and one of them, it was a balloon tranche with the repayment at the end of the term, and it has the high interest rate. We repaid this loan at the beginning of the year. That's why we have this significant decrease in the amount of the interest payment. If you look also at information about 20 -- so $29.8 million of the write-back of the payables. This relates -- this is a result of the settlement agreement that we entered to in the beginning of the year in relation with our dispute with the company building -- it was building K&S mine. And as a result of this, we had a one-off gain in relation with the payables, which were due in accordance with the EPC contract terms. So let's move to the next slide with the balance sheet information, but it's basically the reflection of what I mentioned already. So the decrease -- the major difference here is a decrease in the amount of the fixed intangible assets, which is the result of the impairment decrease in payables, is the write-back of our liability in accordance with the EPC contract. And decrease in borrowings is both the amount of the regular repayments we did to -- with in relation with our loan with MIC and also the regular payments. On the next slide with the cash flow, yes, I can only -- I can only repeat the reflection of the previous what I told before. So the major like movements were the repayment of the borrowings and the capital expenditures, yes, with the movements in the working capital operational cash flow over the first 6 months of this year was basically. I would like to say a few more words about the cost of the K&S. So on Slide 11, there is the information about the cash cost of the company of this year against the previous year. So despite the appreciation of the ruble, as you can see, we have significant decrease in the running cost of the company. So primarily it relates to the decrease in the mining -- in the cost of mining. So 2 factors here are impacting the decrease -- result in this decrease is the improvement of the ore quality in Sutara mine and corresponding improvement in the yield of the production of the recovery and also the decrease in the stripping ratio. And I'll give you a little bit more information on the next slide with bridge. As you can see here in terms of processing, costs were almost in line with the last year despite appreciation of the ruble and increase in salary cost. And worth also noting is that we have an increase in the mineral extraction tax, which is a result of the decrease in the rate. So beginning of this year, we have increase in the rate of the tax on iron ore. And it's almost 50% of the increase in the base rate. And also over the past 8 years, we've been using the tax subsidies as a regional investment project. And there is a gradual decrease of the subsidy in relation with the mineral tax. And so we are now enjoying the last 2 years of this subsidy. And the coefficient of the decrease in the taxes we are [applying] in order to calculate the tax, it decreased over the last year. That's why we have this increase, which resulted almost like double of the tax we are paying. Although, there was also a positive factor because last year, we -- we have temporary export duties, which were quite big, and which were canceled at the beginning of this year. So we have a saving here. The increase in the cost of transport is all primarily the effect of the ruble appreciation. On the next slide here, you have like a bridge between the results of the last year and the level of the EBITDA generated over the 6 months of this year. It's basically a reflection of what I mentioned. Yes, we have significant improvement in terms of the production of the volumes, so recovery rates, yield of the ore. So unfortunately, it's almost entirely wiped out with the decrease in the price of iron ore and also in the ruble -- in also in the rate of ruble. Here also, you can see there's a positive effect of the movements in stockpiles and goods in transit, which is basically a reflection of the stripping ratio and also of the movement in the ore stockpiles. So I can explain this. In the first half of the last year with the depletion of the K&S mine, we were required to mine ore with a high stripping ratio and also utilize the stockpiles of the ore with low quality in the first half of this year. So the stripping ratio of Sutara mine are significantly lower, and the ore quality is better. And instead of utilizing the stockpiles, we were accumulating the stockpiles. So we have this positive effect on the operational results. In terms of other changes, yes, mining -- increase in the mining and holding cost, it's a reflection of the inflationary pressure, which we experienced, and we were required to increase a little bit -- to increase the rates on which we are buying services of mining of the ore. And this is one of the reasons why we are investing in our fleet in order to be more in control of our costs. And the increase in salaries is also the reflection of the inflationary pressure, especially in the labor market because in this region and Russia in general, there is -- so we have a shortage of the working labor. And in order to keep up with the market, we are required to adjust and increase the salaries from K&S. That's basically -- basically, all the next slide is information about the outstanding -- about the outstanding debt. As we mentioned already, we repaid the majority of the loan, and we left only $28 million outstanding, which is due to be completely repaid at the end of the year. So the gearing of the company is quite low, which is positive. Yes, I guess that's all about the results, and I would like to pass the word to Johnny to talk about corporate measures.
Right. Thanks, Danila. So very quickly on Slide 15, just to remind the audience that we did a share consolidation, a 10:1 share consolidation in June. At that time, we suggested to do -- to reduce the number of issued shares by using a 10:1 share consolidation, and we increased the lot size from 2,000 shares per lot to 4,000 shares per lot. So we did that at the end of June, and it was approved in the AGM in June. So the numbers that you are seeing are the numbers which is after the share consolidation. The whole purpose of share consolidation is just to make sure that each lot is more valuable such that trading of the shares becomes more efficient, and you have less handling fees and commissions and things like that. So that has been all done, which is very successful. Again, shareholders at top-bottom corner remains unchanged. Axioma remains our largest shareholder, and [we have] free float of 35%. I guess that summarizes our presentation from the management, and we are happy to move on to the Q&A session, please. Operator, can you please help us, put us through to the Q&A session?
[Operator Instructions] We have a question from [James Hong]. Hi, James, please go ahead. Thank you.
Can you hear me?
Yes, James. Yes, please go ahead.
Hello?
Yes, all good.
Okay. Okay. You can hear me. That's good. I have a couple of questions. The first question is on Page 8, financial income statement. I just want to check something. So you -- so IRC had a revenue of $122.8 million, right? If I divide that by 1.4 million megatonnes, hat will give me an average sales price of around, let's say, $85 to $88, $87 or something like that. And then I compared the average selling price to the average 65% iron ore, average over the first half of 2025 of about $112. That implies a discount over the average iron ore price of almost 25%. Is that what is really the discount of the selling price to the customers because of the -- essentially the power that the customer have over IRC.
Yes, I can reply to the question. If you look at the slide at the previous one, so you can see actually the whole information is here. You can see that there is -- we are publishing achieved selling price, and you don't need to divide anything. It's very clear here. Then if you look at the price on a wet metric ton is about $86 as you calculated, but there is also the price on a dry metric ton because we are selling the product with the moisture. And you can see that the price on the DMT is $93 a tonne, while average high-grade index was $112. And [blasting] is obviously in a dry metric ton. So the difference between these 2 numbers which is approximately $20, is basically the reflection of the discount. So everything is very transparent. And indeed, this is the discount which we have on the market which we are trading. As we were always mentioning, we are working on a captive market, which is the northeast of China, where there is -- so the pricing is basically is kind of determined with the sort of oligopolistic market on the buyers side, who are dictating the price and so like steel mills who are supplying to this market. It's not only us. We are not like -- we're one of the key suppliers, but we are not the only one. So the market is determined by the pricing which we are taking. We are trying to develop different geography. And when the price allows, we will also supply using the field. And the pricing on CFR basis is much closer to the Platts. And we have no problem achieving, yes, the level of the price, and -- which is close to be at par with the Platts or with a much lower -- with a slight discount, which also like, I don't know, the big producers from Australia are supplying. But the problem is in our case is that we are so close to the border. So our logistical advantage is only -- it only can be unlocked if we're supplying -- we're supplying by railway. At this moment of time, we're primarily using like the bridge. It means that our transport lack to the border with China is just a couple of hundred kilometers with the turnover of the wagon just a few days. And so this is how we optimize our logistics costs. Should we want to supply via sea route, then we, yes, obviously need to rail this to the ports and forest of Russia. We need to incur the port handling costs, and then we need to incur the freight costs. And all this together are significantly more -- kind of more -- is more than the discount that we are experiencing with the customer. So while we are putting a lot of efforts to increase diversification of our client base, this is the discount which we have on the market. And so we are hoping to improve it. But right now, yes, this is what we are selling at.
I see. Onto the Page 8, on the income statement. I just want to check something. So when you calculated your cash cost of $77 for wet metric tonne, are you including the general admin expenses before depreciation? So are you including that $5.586 million? Or are you only including the $110.3 million -- $110.4 million? So I guess my question is like the 77 million tonne -- $77 per wet metric tonne, does that include the general admin expenses or not?
It's not including general and admin expenses. It doesn't include depreciation. This is the cost of -- yes, this is the cash cost, only the cash cost of the mine.
Okay. Then onto your capital expenditure. So this half, the increase in capital expenditure is from $9 million to $12 million. So going forward, what do you think to maintain a production of, say, 2.8 million tonnes a year, how much maintenance CapEx do you think you need just to keep that production stable?
Yes, I got your question. The capital expenditures relating to the last year and this year and what we are planning to incur by the end of the year, we are upgrading of the fleet of the mine equipment. This obviously are development projects. These are not -- this is not a sustaining capital expenditures. The plant, although it's been built like 10 years ago, until now, it's been -- you can call it a bit like new because we did a lot of upgrade initially. But yes, rough estimation, I guess, yes, there is -- usually the rule of thumb that the level of sustaining capital expenditures, yes, it might vary between $5 million to $10 million of the cost of the equipment. In our case, the initial cost of the processing equipment -- of the equipment only, not the cost of the building, was about $100 million. Together with the mining equipment, we can access that. It's very rough estimate, but it might be between $6 million to $10 million a year. What would be -- so this will be a normal level to keep operational -- in order to keep operations running and also keep the necessary upgrades in order to keep it running in kind of longer term.
And when you talk about $6 million to $10 million, are you referring to -- like a production level of 2.8 million tonnes? Like how much tonnage are you -- you think is sustainable?
Yes. This is -- we are currently operating close in the first half of this year, especially closer to June, we were operating almost at the full level of the capacity, which is achievable at this moment of time. So it's roughly 3 million tonnes a year, which is quite close to the design -- so quite close to design capacity. In order to significantly increase, we actually are quite actively looking at the different options of the development. Yes, originally, we had the plans to double the production. So that was in the original design of the project. So we are looking at the different options, which increase also -- like 50% increase in capacity, but this will require an additional -- it will require additional capital expenditures. We actually -- we are in the process of assessing this at the moment. I cannot give you the exact -- I cannot give you the exact numbers, but what you asked me was the sustaining capital to keep on with the current production level, and we are basically -- we are working at a closer to maximum level of the capacity. If we want to increase it, we need more capital expenditures to expand -- to expand the current plant.
Okay. And $4.5 million that you received after June 30 for selling your vanadium project shares, is that going towards paying back your debt?
We didn't get this money yet. So we signed an agreement. We didn't receive this money yet, but we are planning to invest this money into our capital needs, in particular, also to our current working capital needs because actually, with the decrease in price and with the significant depreciation of the ruble, we are generating like less cash that we were -- we could generate if the price of iron ore and especially the exchange rate would be at the level that -- which we've seen at the end of last year when we made the projections. And so we need this capital in order to keep on with our investment program, in particularly, the mining equipment program.
Just to add a quick point on this. We haven't received the $4.5 million yet, but the money is in escrow account because of the fact that the transfer of equity needs all sorts of registration in the local PLC authorities. And we are doing that. It's all normal process. And so that's why we have $4.5 million is not in our bank account yet, but in the escrow account. And once all these registrations are done, according to the agreements, we will get $4.5 million. So there's no issue of bad debt or whatever for the time being. It's just a matter of process, just at this point.
Okay. And then I guess my last question is, I just want to make sure that, I think in the financials, you were -- sorry, in the half-year report, there's a separate project, which is the Garinskoye project -- Garinskoye project. Are you still looking to further develop that project? And if so, is that going to be near term or more like a longer-term thing? Because -- but the reason why I ask is this project itself is in a pretty tight situation. So putting any more capital expenditure onto a new project is going to be additional cash cost on that. So are you planning anything to move that project ahead?
I can answer that. Yes, you are quite right. This project has been in the portfolio of the company over the last -- like, maybe 18 years. It's actually -- this is -- so while the deposit is quite good in terms of the ore quality, much better than K&S ore, it has a lot of magnetic ore with a high grade. The problem and the reserves are quite big, but the problem with this project is that it's located in the remote location of the Amur region, and it lacks infrastructure, in particular, the railway access. So the development of this project was always like subject to the construction of the -- construction on the railway, which originally were in the plans of the government. So the plant was -- it was in the program of development of the Russian railways. And over many years, we've been expecting -- we've been kind of waiting until these [lines] -- will be built. So without this project is most likely uneconomical. Although we are still working on trying to keep our plants open. In terms of the future development of this project, if the railway with the access to deposits will be built. So we are in active discussion with the local government and federal -- and also federal agencies [who] are looking at this project. We are not losing our hope in terms of the future development of the project, although until we have the confirmation of the infrastructure development, then we will not be able to go ahead. And so at this point of time, we are not like spending any cash, and we have no near-term plans of investing in this. And if -- I don't know, if an infrastructure -- if the railway -- if there will be the concrete plans for building the railway, then we will adjust our plans, and it will be a separate project to -- kind of look at its potential in terms of the economy and also -- as also source of funding of this project. So definitely, it cannot be the cash flow of K&S. If your question is whether we are planning to, like, drain the cash flow of K&S to immediately invest in the project, then no, we have no such plans.
Okay. So if I can just squeeze in one more. The cash cost, $77, do you think that's the best that you can do given the production volume has ramped up to already near the maximum capacity? Or do you think there's further potential to decrease the cost, assuming that you don't expand the mining -- assuming you don't expand the mining volume? Do you think the $77 is like...
Yes. Good question. I can -- let me reply. Yes, I would like to be cautiously optimistic about this. But in terms of our -- in terms of the economy of scale, yes, I believe there is no big potential of decreasing the cost and especially the cost of mining. So the reason why is that with the -- kind of as you go deeper in mining, the open pit, it's always results in an increase of the cost because of the haulage distance. So the haulage distance always increases is just the rule. And it means that your cost of mining will only be increasing. But so 2 factors which are giving cautious optimism is that, number one, we are switching to our own mine equipment because that we can see right now, they are fully on the outsourced basis. So once we switch to our own equipment with a larger capacity, we are planning to use much larger capacity of the haulage trucks and also the shovels, which should give us a quite sensible decrease in OpEx. And also, yes, of course, the depreciation of the ruble. So what we have seen since the end of last year is almost 20% appreciation of the ruble, which is basically equivalent with a similar increase in the dollar cost. So with the ruble depreciation, then you'll see the depreciation of the cost as well. Of course, the inflationary pressure will be there, but -- so we -- so if the ruble depreciates, we are clearly getting the gain. So these 2 reasons might give us a decrease in the OpEx.
[Operator Instructions] Excuse me, Johnny, there's no further questions at this point in time.
All right. Thanks a lot. Thank you for all the good questions. All right. So that concludes this conference call. If you have any more further questions, please feel free to contact us any time. The contact details can be found at our corporate website at www.ircgroup.com.hk. With that, thank you, and have a great day. [Foreign Language] Thank you. We can call it off. Thank you, operator.
Thank you for joining the conference. You may now disconnect. Goodbye.
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