IGO Interactive Annual Report 2020

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2020 Notes to the consolidated financial statements 30 June 2020 (continued) 22 Financial risk management (continued) By holding these financial instruments, the Group exposes itself to risk. The Board reviews and agrees the Group's policies for managing each of these risks, which are summarised below: (a) Market risk (i) Foreign currency risk As the Group’s sales revenues for base and precious metals are denominated in United States dollars (USD), and the majority of operating costs are denominated in Australian dollars (AUD), the Group’s cash flow is exposed to movements in the AUD:USD exchange rate. The Group may mitigate this risk through the use of derivative instruments, including, but not limited to, forward contracts denominated in AUD. Financial instruments, including derivative instruments, denominated in USD and then converted into the functional currency (i.e. AUD) were as follows: 2020 $'000 2019 $'000 Financial assets Cash and cash equivalents 48,512 1,891 Trade receivables 46,595 24,568 Net financial assets 95,107 26,459 The cash balance above only represents the cash held in the USD bank accounts at the reporting date as converted into AUD at the 30 June 2020 AUD:USD exchange rate of 0.6863 (2019: 0.7013). The remainder of the cash balance of $461,800,000 (2019: $346,317,000) was held in AUD bank accounts and therefore not exposed to foreign currency risk. The trade receivables amounts represent the USD denominated trade debtors. All other receivables were denominated in AUD at the reporting date. The following table summarises the Group’s sensitivity of financial instruments held at 30 June 2020 to movements in the AUD:USD exchange rate, with all other variables held constant. Impact on post-tax profit Sensitivity of financial instruments to foreign currency movements 2020 $'000 2019 $'000 Increase/decrease in foreign exchange rate Increase 5.0% (4,377) (702) Decrease 5.0% 4,838 961 (ii) Commodity price risk The Group’s sales revenues are generated from the sale of nickel, copper, cobalt, gold and silver. Accordingly, the Group’s revenues, derivatives and trade receivables are exposed to commodity price risk fluctuations, primarily nickel, copper, cobalt, gold and silver. The markets for base and precious metals are freely traded and can be volatile. As a relatively small producer, the Group has no ability to influence commodity prices. The Group mitigates this risk through derivative instruments, including, but not limited to, quotational period hedging, forward contracts and collar arrangements. Nickel Nickel concentrate sales have an average price finalisation period of two to three months until the sale is finalised with the customer. It is the Board’s policy to hedge between 0% and 50% of total nickel production tonnes. Copper Copper concentrate sales during the year had an average price finalisation period of up to three months from shipment date. It is the Board’s policy to hedge between 0% and 50% of total copper production tonnes. IGO Limited 35 Notes to the consolidated financial statements 30 June 2020 (continued) 22 Financial risk management (continued) (a) Market risk (continued) (ii) Commodity price risk (continued) Gold It is the Board’s policy to hedge between 0% and 50% of forecast gold production from the Company’s 30% interest in the Tropicana Gold Mine. Diesel fuel It is the Board's policy to hedge up to 75% of forecast diesel fuel usage. Diesel fuel price comprises a number of components, including Singapore gasoil and various other costs such as shipping and insurance. The total of all costs represents the wholesale or Terminal Gate Price (TGP) of diesel. The Group only hedges the Singapore gasoil component of the diesel TGP, which represents approximately 40% of the total diesel price. At the reporting date, the carrying value of the financial instruments exposed to commodity price movements were as follows: Financial instruments exposed to commodity price movements 2020 $'000 2019 $'000 Financial assets Trade receivables 38,089 26,501 Derivative financial instruments - diesel hedging contracts 348 484 Net exposure 38,437 26,985 The following table summarises the sensitivity of financial instruments held at 30 June 2020 to movements in the nickel price, with all other variables held constant. Trade receivables valuation uses a sensitivity analysis of 5.0% (2019: 5.0%). Impact on post-tax profit Sensitivity of financial instruments to nickel price movements 2020 $'000 2019 $'000 Increase/decrease in nickel price Increase 3,840 2,924 Decrease (3,840) (2,924) The following table summarises the sensitivity of financial instruments held at 30 June 2020 to movements in the copper price, with all other variables held constant. Trade receivables valuation uses a sensitivity analysis of 5.0% (2019: 5.0%). Impact on post-tax profit Sensitivity of financial instruments to copper price movements 2020 $'000 2019 $'000 Increase/decrease in copper price Increase 805 949 Decrease (805) (949) The following table summarises the sensitivity of financial instruments held at 30 June 2020 to a 20% (2019: 20%) movement in the price of Singapore gasoil 10ppm, with all other variables held constant. IGO Limited 42 108 — IGO ANNUAL REPORT 2020 IGO ANNUAL REPORT 2020— 109