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) (a) Market risk (continued) (ii) Commodity price risk (continued) Impact on other components of equity Sensitivity of financial instruments to Singapore gasoil price movements 2020 $'000 2019 $'000 Increase/decrease in Singapore gasoil price Increase 2,206 1,713 Decrease (2,206) (1,713) (iii) Equity price risk sensitivity analysis The following sensitivity analysis has been determined based on the exposure to equity price risks at the reporting date. Each equity instrument is assessed on its individual price movements with the sensitivity rate based on a reasonably possible change of 20% (2019: 20%). At reporting date, if the equity prices had been higher or lower, net profit for the year would have increased or decreased by $15,086,000 (2019: $3,854,000). (iv) Cash flow and fair value interest rate risk The Group’s exposure to interest rate risk is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates. At the reporting date, the Group had the following exposure to interest rate risk on financial instruments: 30 June 2020 30 June 2019 Weighted average interest rate % Balance $'000 Weighted average interest rate % Balance $'000 Financial assets Cash and cash equivalents 1.3% 510,312 1.9% 348,208 1.3% 510,312 1.9% 348,208 Financial liabilities Bank loans 2.6% 57,145 3.7% 85,716 2.6% 57,145 3.7% 85,716 The sensitivity analysis below has been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. Impact on post-tax profit Sensitivity of interest revenue and expense to interest rate movements 2020 $'000 2019 $'000 Interest revenue Increase 1.0% (2019: 1.0%) 3,520 2,425 Decrease 1.0% (2019: 1.0%) (3,520) (2,425) Interest expense Increase 1.0% (2019: 1.0%) (400) (600) Decrease 1.0% (2019: 1.0%) 400 600 (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including only transacting with high quality financial institutions and customers with an appropriate credit history. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. The Group does not hold any collateral. IGO Limited 43 Notes to the consolidated financial statements 30 June 2020 (continued) 22 Financial risk management (continued) (b) Credit risk (continued) 2020 $'000 2019 $'000 Financial assets Cash and cash equivalents 510,312 348,208 Trade receivables 46,595 24,568 Other receivables 19,315 36,017 Financial assets at fair value through profit or loss 107,759 27,531 Derivative financial instruments 348 484 684,329 436,808 (i) Impairment of financial assets The Group has two types of financial assets that are subject to the expected credit loss model: • trade receivables, and • other receivables and financial assets. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, no impairment loss was identified, despite the impact of the COVID-19 pandemic. Trade receivables The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates, the impact of the COVID-19 pandemic and forward-looking information that is available. The allowance for expected credit losses is calculated based on the information available at the time of preparation. The actual credit losses in future years may be higher or lower. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. Gold bullion sales Credit risk arising from the sale of gold bullion to the Company's customer is low as the payment by the customer (being The Perth Mint Australia) is guaranteed under statute by the Western Australian State Government. In addition, sales are made to high credit quality financial institutions, hence credit risk arising from these transactions is considered to be low. Nickel, copper and cobalt concentrate sales Credit risk arising from sales to customers is managed by contracts that stipulate a provisional payment of between 90% and 100% of the estimated value of each sale. Provisional payments are predominantly made via an unconditional and irrevocable letter of credit, governed by the laws of Western Australia, or alternatively via direct payment from the customer, and are expected to be received within a few business days of the sale. Final payment is dependent on the quotation period of the respective purchase contract, and is also made via an irrevocable letter of credit or direct payment from the customer. Due to the large size of concentrate shipments, there are a relatively small number of transactions each month and therefore each transaction and receivable balance is actively managed on an ongoing basis, with attention to timing of customer payments and imposed credit limits. The resulting exposure to impairment losses is not considered significant, despite the impact of the COVID-19 pandemic. Other receivables and financial assets The Group recognises a loss allowance for expected credit losses on other financial assets which are either measured at amortised cost, fair value through profit or loss or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. 110 — IGO ANNUAL REPORT 2020 IGO ANNUAL REPORT 2020— 111