IRC Limited ($1029)

Good morning, and good afternoon, everyone. Welcome to the IRC conference call. And our Chairperson today is Johnny. Johnny, please begin the call, and I'll be standing by for the question-and-answer session.

All right. Thank you, Frank. Good afternoon, everyone. I am 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 Annual Results Announcement of the company. Apart from me, with us today are our CEO, Mr. Denis Vitalievich Cherednichenko; and our CFO, Danila Kotlyarov. [Operator Instructions] As a reminder, this conference is being recorded. Announcement and 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 over to our CEO, Denis. You may begin, please.

Good afternoon. Good morning, dear shareholders, dear investors. So let's start our 2025 annual results announcement. So I will start with our presentation, you have it in presence, I hope so. And we will start with the Page #5 with the key 2025 highlights, and we start with the financials. Revenue rose to $285.1 (sic) [ $258.1 ] million in comparison with the previous year, rise by 16.7% and mainly due to 25% increase in sales volume despite 6.4% decrease in Platts 65 index price. Cash cost per ton decreased to 77.7 mainly due to improved quality of iron ore and lower stripping ratio at Sutara, and improved iron ore recovery following technology improvement made by K&S team. So group adjusted EBITDA, excluding nonrecurring items and foreign exchange, of $17.2 million, so in comparison with 2024, it was $9.3 million, sorry. So -- and adjusted underlying loss of $3.4 million. In comparison with 2024, it was $15.4 million. And asset impairment charge on K&S of 152.9 million, driven by ruble appreciation and stronger ruble outlook, which inflates projected future cost. And by this, loss attributable to shareholders of $131.5 million. Cash and deposit decreased to $41.6 million, mainly due to a voluntary repayment of MIC loan and CapEx incurred on K&S mining fleet and Sutara development and also some production and results that's already partially announced. Production volume increased by 23% to 2,925,000 tonnes, mainly due to improved quality of ore from Sutara and better iron ore recovery. And by this, sales volume increased by 25% to 2,928,000 tonnes, in line with the production increase. K&S mining fleet commenced operation, reduced reliance on external mining contractors and successfully quick ramping of mining work at Sutara. So -- and by this, so please go to the financials, and I pass the word to Danila.

Good afternoon, ladies and gentlemen. So again, I would like to give you a quick update on our results of the last year. If you look at the Slide 9, we have the overview of our results of the last year, which Denis basically already give you the highlights about. I can make a few notes about a number of points. So yes, as Denis already mentioned, the main driver of our results of the last year was the increase in the volume of the production and the volume of sales, which was achieved on the back of our success with the development of Sutara mine at the end of the previous year. And with improved quality and the characteristics of the ore, which we were mining at the Sutara mine, we were able to significantly improve our situation in terms of the production and in terms of the cost, which is reflected in the volume of sales and also in the amount of the cash cost. And so as you can see here, we have the reduction in the cash cost. And we need also to note here that it was done on the back of quite significant depreciation of the ruble year-on-year. And so it means that in terms of the ruble, we achieved even larger like decrease in the cost of operation. So all of this, the increase in the volume and decrease in the cost of the production, it kind of allowed us to overcome the negative -- the adverse effect of the change in the macro environment, like namely the decrease in the Platts price and the appreciation of the ruble, and it allowed us to achieve the increase of the [ EBITDA ] of the group. So on this slide, I can also note increase in the generation of the cash. So there was a significant increase in the cash that we were able to generate out of the operations. So there are two inputs in here. So number one is that was the increase of the underlying [ EBITDA ]. But also at the end of the year, we were able to significantly improve the turnover of receivables of the company. So the collection of the cash that we get out of our customers, so the situation was significantly improved. And so that -- so this allows us to improve the cash balance at the end of the year. In terms of the CapEx, there was quite significant increase year-on-year, but mainly that the input of this was the procurement of our own fleet of mining equipment and I guess partially the remaining capital expenditures in relation with the crushing screen plant on Sutara mine. So if you look at the next slide, so basically, I just mentioned all the points already. I can only make a point in the -- is about the decrease of the G&A expenses. And as I mentioned already, so that was achieved on the back of the depreciation of the ruble. So it means that we are putting more efforts in terms of decrease of the cost of the company, which includes the costs of the -- in relation with the general and administrative expenses of the group. On the next slide, there is information about the balance sheet of the company at the end of the year. So as Denis mentioned already, in terms of the decrease in [ PP&E ] in the fixed intangible assets, this is a reflection of the impairment of K&S. I can underline again that this is a noncash impairment, which were required to do in accordance with the accounting standards. And the main driver of the K&S impairment was the appreciation of the exchange rate of the ruble and also the also change in the outlook of the ruble. So it's not only that year-on-year, there was significant, so RUB 10 a dollar, appreciation, but the outlook in the long run, it was also changed with the depreciation of the ruble in the amount of roughly [indiscernible] rubles to dollar. And because all our costs basically are denominated in rubles. It means -- it automatically means that our cost basis in the life of mine model of devaluation of the K&S. So the costs increased. And so this was reflected in this impairment. So although as I mentioned, is just -- it's an accounting entry. So in terms of the working capital movement, I mentioned already, so the most notably is the decrease in accounts receivables. And so these are the main items. On the next slide, there is information about the cash flow, which basically I touched upon already. So yes, the slide worth talking about is the next one with the analysis of the cash cost. As I mentioned already, so you can see here, there was a significant reduction in the cost of the production and the cost of the delivery, so the [ EAP ] cost. So mainly, it was achieved on the back of decrease in the cost of the mining operations in the cash cost of the product. So as I mentioned, that is because of the improvement in the quality of the ore. It means that improvement in the yield in the recovery rate, means that we need to mine less in order to produce a tonne of the product. And also, the big input of our stripping ratio, which is currently is much lower at Sutara mine in opposite of what was last year when we were working -- we were still mining the Kimkan mine. Yes, on the next slide, so we have a diagram which gives you a very good visual of what was -- of what changed between the previous year and this year. And as we mentioned already, so the biggest adverse factors which affected our results last year was the appreciation of the ruble and the decrease in the plus price, decrease in iron ore price. I can mention and explain the negative difference in the amount of $7.5 million in relation with salaries. So this is the result of the increase -- increase of headcount at K&S with the commissioning -- with the closing of the commissioning of the crushing and screening plant at Sutara mine, which requires additional people to work there. And obviously, the -- it's also the procurement of our mine equipment, which also requires additional people. But the procurement of the fleet, we are basically replacing the cost of the services which we are paying right now in terms of the mining operations with our own cost. And so it was expected, we will get the increase in salaries. And yes, it's also the reflection of the high inflation in terms of the payrolls in Russia. So together with inflation and the lack of the labor and the workforce, which is able to kind of operate on the equipment, so we are feeling the pressure in terms of the increase in salaries of K&S. And so this is a reflection of this. In terms of other costs, as I mentioned already, we were able to significantly reduce the costs due to the improvement of the recoveries of the yields, also optimization of the process of K&S. And so that allow us to significantly offset the impact of the adverse macro environment, which is decreasing the price of iron ore. So yes, on the next slide, we have our usual update about the amount of the liquidity and the indebtedness, and we can update. So as of today, as was mentioned in the prospectus in relation to the rights issue, we repaid the loan. And while at the end of the year, there was a loan outstanding of $28 million, as of today, it's none. I think with this, there is all we wanted to give you update about our results. And so I hand over to Denis to talk about the corporate update.

Thank you very much, Danila. So -- and I want to continue with a few words about our corporate events. So about rights issue that was successfully completed in February 2026 and started -- has been started so in 2025. On 24th of October 2025, the company proposed to raise up approximately $41.8 million before expenses by way of a rights issue to issue a maximum of a little bit more than 638 million rights shares at a subscription price of HKD 0.51 per right share on the basis of one rights share for every two existing shares. The rights issue was completed on 6th of February 2026, for which all of these shares have been issued and the company has raised $41.8 million before expenses. And by this money we received, our company has strength financial position, enhancing our liquidity and providing us with a greater flexibility and resilience. After the completion of the rights issue in February 2026, the MIC loan was fully repaid in March 2026. Thank you very much. This is all about the corporate activity, and thank you very much. I pass the word to Johnny.

Yes. Thanks a lot, Denis. Operator, please, can we go to the Q&A session, please?

[Operator Instructions] And our first question is coming from Keith.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] So this is Keith, our shareholder. So Keith has basically four questions. So I'll just go through them one by one and then you can answer. Okay. The first question is about the fact that now we are operating at around 93% capacity and Keith also noted that our sales have increased by 25%. So with these good numbers, we are still reporting a loss of around -- more than USD 100 million. So he wants to seek your view about how you -- how we see the future of our company. So let's just go one by one. So please, can you answer this question first and then we will go for the rest?

Yes, I can address the question. So Mr. Keith is quite right, and this is a good point, which he raises, is that even with quite significant improvement in terms of the production efficiency with the increase in production volumes, increase in yields and moreover, with the low level of the cost of mining, as I mentioned, yes, we enjoyed the stripping ratio last year, which was quite -- which was significantly lower. So the distance of hauling was significantly lower. And it's normal when you begin to mine in new ore body, at the beginning of the life of mine, you enjoy the low level of the stripping ratio and also the haulage distance. So with the time, this inevitably will increase. So yes, in terms of our operational efficiency, we were in the -- so not ideal situation, but in a situation, which was very good last year. So -- and unfortunately, even with all this, due to macro environment, we are ending up with a negative result in terms of the net loss. Unfortunately, this is the reality we are living in. So with the slowdown in the Chinese economy, the demand on iron ore and the price of iron ore and coal are decreasing. So we are not enjoying the high iron ore prices as we've seen like even a year ago or 2 years ago, not talking about what was a few years ago. And another negative effect was obviously the increase in the exchange rate of ruble. So which -- while the exchange rate of ruble was quite -- improvement in the exchange rate of ruble was quite surprising on the back of all the issues in terms of the of geopolitics. But yes, it affects us negatively. And so what -- so answering the question, what is our outlook on the future, we cannot do anything about the macro environment. So we are living in the environment which is given, although we can only improve our cost basis. And so everything which is management is focused on, improvement of the cost with all our initiatives, and our results of last year basically are good evidence of the efforts and the good results of these efforts, which we are putting into improving our cost basis. And so this year, we are planning to keep on working on the improvement of the production efficiency. We are planning to work on increase in the volume of the mine operations, which we are doing on our own, which should assist us in increasing the cost. So we are hoping that in terms of the macro environment, there will be improvement, at least maybe with the exchange rate.

Yes. Yes, I think that's all good point. So may I also add the fact that all right, this $131 million loss is, let's say, a bit scary. But I think we also have to look into account of the fact that we have this impairment as well as some other nonrecurring items, i.e., the gain on disposal of the joint venture as well as the write-back of this payable to our EPC contractor. All right. So if we take out all these nonrecurring items, let's just look at our underlying results, which is we make a loss of USD 3.4 million. I mean it's still a red number, it's still a lack of number, but still it's a much less scary number than the face of the P&L. So we always want our investors and readers to look into our underlying results, which is a more true picture of what we did last year. [Foreign Language] Next question is about the capacity. So now that we are at 93% capacity, so are we looking at 100% capacity in 2026 and thereafter? Because obviously, in the past, we have never been able to achieve 100%. But now we are very close to 100%. So Keith would like to know, all right, we have any bottlenecks or anything which you foresee, which prevent us from achieving 100% capacity? How do we see that? So that's the three questions.

Yes, I can answer that. So yes, I think last year, so I don't recollect whether it was the largest volume of the production. I think maybe there was 1 year when we had also quite large amount of the capacity when the Kimkan ore quality was good. But we are proud not only that we've been able to achieve a high level of the capacity, but we've been able to achieve this with the grade of the ore, which were -- which are lower of what we had at the beginning of the production 10 years ago. So it means it's not only we are enjoying a slight improvement in the quality of Sutara ore, but we also significantly advanced in terms of our ability to process the poor-quality ore and to squeeze the maximum in terms of the recovery and yields. And obviously, we are looking at the possibility of increasing the capacity of K&S. And these plans are based not only on our expectations of mine a better ore. So the quality of the ore, which we are mining is quite stable, but it's mostly based on our plans to improve the processing. And as you mentioned, so he asked whether we see any bottlenecks. Yes, there are, of course. So we have some bottlenecks in terms of the production process, and we are gradually like resolving them. So this is -- it's more of a technical discussion, which I'm not going into on this call. But yes, answering his question, we are working on this, but we cannot give any guidelines at the moment. But I can only mention that this is a primary focus of the management of resolving the production bottlenecks, improve the efficiency, improve the capacity, increase the production because with the increase of the production, we are decreasing the cash cost per tonne, which give us the additional focus.

[Foreign Language] Question about brand issues. So Keith is aware of the fact that we have done two right issues in a relatively short period of time. So -- and he's also realized that obviously, our largest shareholders have also injected quite a lot of money into the company. So he would like to know whether we have any more fundraising plan. So -- yes. Yes, I think we can just say that -- feel free to answer.

Denis, would you like to answer this or I shall?

So yes, so I will answer. Okay. So our largest shareholder, first of all, was ready to invest and invested 2x, so -- due to the rights issue. But first of all, it was the rights issue for all shareholders and any of the shareholder could invest. So definitely, so this rights issue was due to the situation of the market first because of the price, because of the ruble depreciation and all other problems. But first of all, the company needed to do two things. First of all, to increase -- to decrease the cost and increase margin. And the only way on the -- was to do it, first of all, to decrease cost for the contractors. And by this, replace the contractors with our own forces. And the second one is to decrease the money we spend for the interest rate -- to interest we pay to our -- to the MIC, so to whom we owe the significant part of that. And by this, so shareholders consider that it could be so the good investment. And due to the fact that company increased its capacity first, increase margin nevertheless of the effect of the better circumstances, better prices, that situation with the ruble. And the shareholders still believe that company can return and the shares will -- and capitalization will increase. So -- and also, we're still going on with our investment program. And I hope that we also find a solution how to finance this investment program. So just because the replacing of the contractors has not been finished in full. I hope I answered the question.

Yes...

Danila, do you want to add?

Yes. I would like to make a small like note here. So just to add to what like Denis mentioned already is that the situation, the macro environment, as I mentioned already, is quite changing. Unfortunately, it's not like changing to the good. So the dynamics that we've seen in the past years in terms of the steady decrease in the iron prices, so it keep on going. So -- and unfortunately, the overall outlook on the iron ore market is not -- yes, it is not good. So on the base of all our discussions with the steel mills and an overall view and sentiment on the market with the commissioning of the new mines in Africa, so with additional like supply of the high-grade iron ore in the market, with decrease in the pace of the urbanization in China; so general outlook is that iron prices will be declining. So we are not expecting and we are not planning that we will be enjoying the rebound in the price of iron ore. So unfortunately, in order to be afloat, if I may use this expression, we need to keep on running. And keep on running means that, yes, in order to keep like positive results to be able to get the positive results. In terms of our operations, we need to constantly improving -- attempt to decrease the cost. And decreasing the cost, unfortunately, it means that we need to invest in the mine equipment, as we mentioned already. So currently, the program -- investment program that which we completed at the end of last year, it covers only part of the mining operations, which we are doing. So we have the way to go. And in order to do this, we need more capital to -- so in previous years, that was investment in Sutara mine. And as we were explaining, without this investment, so the company will not be operational at this moment. So we were required to raise money to invest in Sutara. So now we are reaping the fruits of this investment. Last year, we will keep investing in Sutara, but we were required to begin investing in the additional equipment to improve the efficiency to invest in mining operations. So this year, we're analyzing what additional investments we need in the mining fleet, in the blasting operations, and all this require money. And so yes, unfortunately, this is where we are. So we are hoping to the improvement of macro environment, but in this situation when we are realistically not expecting this, we still will need to invest money in order to keep the company afloat and keep on working with the positive results. So I hope that together with Denis' replies, it addresses your question.

[Foreign Language] So the fourth question is about -- the last question from Keith about sales receivables. So obviously, in the past, we mentioned about the fact that we have been having some issues about recovering money from our trade debtors, from our customers. So Keith wanted to know whether this has been resolved and we are getting the money that we need to get.

Yes. Yes, it's a good question. And yes, we can answer. So previously, yes, we were experiencing the delays of the repayments of our accounts receivables from our main customer, which is located in the Northeast of China. We had -- so I think that was due to -- so it was partly due to problems with the sanctions regime in relation with the banks, with the problems with the opening of the letter of credit, but it was partially also the reflection of the difficult situation in the [ metallurgy ] industry in China. We were extensively negotiating this almost on a weekly basis with our customer last year. And so at the beginning of the year, our average turnover was on the level of the 2 months. At the end of the year, we were able to decrease it by 2 weeks. So in average, we our view that normalized level should be about a month of the sales volume, which is roughly in line what -- with the time which is required to process documents and get the money. Yes. So we hopefully -- so we can make that situation has significantly improved. So at this moment of time, this is like it's normal, is in line with what we expect of the turnover of the proceed of sales to be. But this is a constant work with the customers, and this is the most important because it's our liquidity and the management pays a lot of attention. [Foreign Language]

Operator, please see if there's any other questions.

Sorry, Johnny, we don't have questions at this point of time.

I see. All right. That sounds good. All right. So I guess we can call it a day, and thanks a lot for joining this call. So if there's any questions, just feel free to let us know. You can contact us at any time. Our contact details can be found at our website at www.ircgroup.com.hk. With that, thanks a lot, and have a good day. [Foreign Language] Okay. So operator, I guess we can cal it a day, and thanks, everyone, for joining us today.

Thank you. Thank you, everyone. The conference call has been concluded. Thank you for your participation.