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) 26 Share-based payments (continued) LTI - Performance Rights Under the LTI scheme, participants are granted performance rights which will only vest if certain performance conditions are met and the employees are still employed by the Group at the end of the vesting period. Participation in the LTI scheme is at the Board’s discretion and no individual has a contractual right to participate in the scheme or to receive any guaranteed benefits. Equity settled awards outstanding Set out below are summaries of performance rights granted under the LTI scheme: 2020 2019 Number of share rights Weighted average fair value at grant date Number of share rights Weighted average fair value at grant date Outstanding at the beginning of the year 2,369,141 2.54 2,042,619 2.14 Rights issued during the year 819,577 4.62 953,229 2.67 Rights vested during the year - - (281,388) 1.34 Rights lapsed during the year (495,826) 2.39 (326,175) 1.51 Rights cancelled during the year (2,026) 2.29 (19,144) 2.28 Outstanding at the end of the year 2,690,866 3.20 2,369,141 2.54 The share-based payments expense relating to performance rights included in profit or loss for the year totalled $2,695,027 (2019: $1,883,700). Fair value of performance rights granted The fair value of the share rights granted during the year ended 30 June 2020 are determined using a trinomial tree which has been adopted by the Boyle and Law (1994) node alignment algorithm to improve accuracy, with the following inputs: Fair value inputs CEO Senior management Other employees Grant date 20 November 2019 23 September 2019 23 September 2019 Vesting date 1 July 2022 1 July 2022 1 July 2022 Share price at grant date 6.05 6.44 6.44 Fair value estimate at grant date 4.45 4.65 4.65 Expected share price volatility (%) 38 39 39 Expected dividend yield (%) 1.16 1.09 1.09 Expected risk-free rate (%) 0.71 0.74 0.74 Vesting conditions of performance rights granted Vesting of the performance rights granted to executive directors, executives and other employees during the year is based on four equally weighted performance hurdles as follows: • Relative total shareholder return (TSR); • Absolute TSR; • Reserve growth per share; and • EBITDA average margin. Relative TSR The relative TSR scorecard for the three year measurement period will be determined based on a percentile ranking of the Company's TSR results relative to the TSR of each of the companies in the comparator group over the same three year measurement period. The comparator group is a peer group comprised of members of the S&P ASX 300 Metals and Mining Index, as well as several mining companies listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). The Board has discretion to adjust the peer group from time to time in its absolute discretion. Notes to the consolidated financial statements 30 June 2020 (continued) 26 Share-based payments (continued) Vesting conditions of performance rights granted (continued) The vesting schedule for the 25% of the performance rights subject to relative TSR testing is as follows: Relative TSR performance Level of vesting Less than 50th percentile Zero Between 50th and 75th percentile 50% plus pro-rata straight line percentage between 50% and 100% 75th percentile or better 100% Absolute TSR The absolute TSR scorecard for the three year measurement period will be determined based on an increase in absolute TSR of the Company over the three year measurement period. The vesting schedule for the 25% of the performance rights subject to absolute TSR testing is as follows: Absolute TSR performance Level of vesting 10% per annum return 33% Above 10% per annum and below 20% per annum return Straight line pro-rata between 33% and 100% Above 20% per annum return 100% Reserve growth per share The reserve growth per share performance condition will be determined as managed ore reserve growth in excess of depletion over the three-year measurement period. Baseline Ore Reserves means the Group's managed nickel equivalent ore reserve at the start of the performance period as determined by the Board. The vesting schedule for the 25% of the performance rights subject to Reserve growth per share testing is as follows: Reserve growth per share Level of vesting <90% of Baseline Ore Reserves 0% 90% of Baseline Ore Reserves 33% Above 90% of Baseline Ore Reserves and below 100% Straight line pro-rata between 33% and 66% 100% of Baseline Ore Reserves 66% Above 100% of Baseline Ore Reserves and below 120% Straight line pro-rata between 66% and 100% 120% and above of Baseline Ore Reserves 100% EBITDA average margin The EBITDA average margin will be measured over the three-year measurement period. The vesting schedule for the 25% of the performance rights subject to EBITDA average margin testing is as follows: Group EBITDA margin Level of vesting <20% 0% ≥ 20% 33% ≥ 30% 66% ≥ 40% 100% Service rights - LTI scheme Under the Group's STI scheme, Executives and selected employees receive 50% of the annual STI achieved in cash and 50% in the form of rights to deferred shares in IGO Limited (referred to as service rights and classified as an LTI). The service rights are granted following the determination of the STI for the performance year and vest in two equal tranches. The first tranche of 50% vests on the 12 month anniversary of the STI award date, and the second tranche of 50% vests on the 24 month anniversary of the STI award date. The service rights automatically convert into one ordinary share each on vesting at an exercise price of nil. The Executives and employees do not receive any dividends and are not entitled to vote in relation to the service rights during the vesting period. If an Executive or employee ceases to be employed by the Group within the vesting period, the service rights will be forfeited, except in circumstances that are approved by the Board on a case-by-case basis. 118 — IGO ANNUAL REPORT 2020 IGO ANNUAL REPORT 2020— 119