IGO Interactive Annual Report 2020

DIRECTORS’ REPORT 30 JUNE 2020 DIRECTORS’ REPORT 30 JUNE 2020 Cash flows from operating activities for the Group were $397.5 million, compared to the FY19 year of $372.3 million. This was predominantly a result of higher realised nickel and gold prices at Nova and Tropicana respectively. The Nova Operation generated $334.6 million cash flows from operating activities, which was a result of 22,260 tonnes of payable nickel sold (FY19: 22,434 tonnes), 13,115 tonnes of payable copper (FY19: 12,208 tonnes) and 390 tonnes of payable cobalt (FY19: 372 tonnes) sold during the year. Tropicana Operation generated cash from operating activities of $153.4 million following the sale of 141,169 ounces of gold refined and sold. Cash flow from operating activities also included $70.6 million cash outflow for exploration and evaluation expenditure and $19.9 million cash outflow for corporate, net borrowing and other costs. Cash outflows from investing activities increased to $115.3 million for the year, up from $82.8 million for the FY19. The Group spent $67.5 million on development expenditure, with the majority being waste stripping and underground development at the Tropicana Operation ($61.2 million). Payments for financial assets include a $27.0M share placement in New Century Resources Limited. During the year, IGO received deferred consideration totalling $16.1 million in respect of the divestment of the Jaguar Operation in FY18. Cash flows from financing activities during the financial year included one semi-annual repayment of borrowings totalling $28.6 million. In response to the COVID-19 outbreak and as a precautionary measure, management proactively sought to defer payment of the March 2020 scheduled debt repayment of A$28.6M to September 2020. Finally, the Company paid dividends totalling $82.7 million during the year. At the end of the financial year, the Group had cash and cash equivalents of $510.3 million and marketable securities of $107.8 million (FY19: $348.2 million and $27.5 million respectively). The Company’s outstanding debt was $57.1 million, with expected repayment by September 2020, resulting in a net cash position for the Group of $453.2 million (FY19: $262.5 million). The Group’s future prospects are dependent on a number of external factors that are summarised towards the end of this report. Nova Operation Nova continued its strong operational performance in FY20, exceeding production guidance for all metals. In FY20, a total of 1,546kt of ore was mined at an average grade of 2.33% nickel and 0.98% copper. The Nova process plant milled 1,514kt of ore at an average nickel and copper grade of 2.31% and 0.98% respectively for the year, to produce 30,436t of nickel and 13,772t of copper. Nickel metallurgical recoveries in the processing plant generally performed in line with modelled recoveries at 86.8%, while copper recoveries were 87.7% for the year. Nova revenue for the period was $593.3 million, compared to $501.9 million for the prior year. This was generated through concentrate sales during the period sold to Glencore International AG (Glencore), Trafigura Pte Ltd (Trafigura) and BHP Billiton Nickel West Pty Ltd (BHPB Nickel West), with sales amounting to 22,260 tonnes of payable nickel, 13,115 tonnes of payable copper and 390 tonnes of payable cobalt. Nickel cash costs per payable pound, which comprises the costs of producing nickel at the mine site and includes credit adjustments for copper and cobalt sales, were $2.41 per payable pound for the year. Below is a summary of the key physical and financial information relating to the Nova Operation. NOVA OPERATION 2020 2019 Total revenue $'000 593,274 501,891 Segment operating profit before tax $'000 182,173 95,365 Total segment assets $'000 1,181,867 1,193,096 Total segment liabilities $'000 92,862 66,996 Ore mined tonnes 1,546,308 1,509,875 Nickel grade % 2.31 2.22 Copper grade % 0.98 0.94 Cobalt grade % 0.09 0.08 Ore milled tonnes 1,514,268 1,580,706 Metal in concentrate - Nickel tonnes 30,436 30,708 - Copper tonnes 13,772 13,693 - Cobalt tonnes 1,142 1,090 Metal payable - in concentrate produced - Nickel tonnes 22,049 21,500 - Copper tonnes 12,606 12,481 - Cobalt tonnes 389 354 Nickel cash costs and royalties* A$/lb total Ni metal payable 2.41 2.07 Nickel All-in Sustaining Costs** A$/lb total Ni metal payable 2.74 2.79 * Includes credits for copper and cobalt ** Includes cash costs, royalties and sustaining capex Tropicana Operation During the year, total material mined was 34.7M bank cubic metres, which comprised of 10.6 million tonnes of ore (>0.6 grams per tonne Au) and 81.7 million tonnes of waste material. The average grade mined for full grade ore (>0.6 grams per tonne Au) was 1.59 grams per tonne Au for the year. Ore milled was 8.7 million tonnes, which was up 6% on the prior year with FY20 being the first whole year of operation of the second ball mill, introduced in December 2018. Mill feed grade and recovery were 1.84 grams per tonne and 90.1% for the year, respectively. The development of the Boston Shaker Underground Mine commenced in May 2019 and remains on track with first gold production expected in the September 2020 quarter. Revenue from the Tropicana Operation for the period was $290.1 million, up 4% on the previous year as a result of higher production due to higher throughput and milled grade and a higher realised gold price. The Company’s share of gold refined and sold was 141,169 ounces, down 9% on the prior year. Cash costs per ounce produced, which comprises the costs of producing gold at the mine site and includes credit adjustments for waste stripping costs and inventory build and draw costs, were $806 per ounce, while All-in Sustaining Costs (AISC) per ounce sold were $1,171 per ounce. AISC comprises cash costs and capitalised sustaining deferred waste stripping costs, sustaining exploration costs, sustaining capital and non-cash rehabilitation accretion costs. AISC excludes improvement capital expenditure and greenfields exploration expenditure. The table below outlines the key results and operational statistics during the current and prior year. TROPICANA OPERATION 2020 2019 Total revenue $'000 290,078 278,480 Segment operating profit before tax $'000 101,371 97,627 Total segment assets $'000 357,643 314,990 Total segment liabilities $'000 57,785 41,491 Gold ore mined (>0.6g/t Au) '000 tonnes 10,640 14,747 Gold ore mined (>0.4 and 0.6g/t Au) '000 tonnes 1,898 2,464 Waste mined '000 tonnes 79,796 73,406 Gold grade mined (>0.6g/t) g/t 1.59 1.65 Ore milled '000 tonnes 8,684 8,177 Gold grade milled g/t 1.84 2.20 Metallurgical recovery % 90.1 89.4 Gold recovered ounces 463,717 518,011 Gold produced ounces 463,118 518,172 Gold refined and sold (IGO share) ounces 141,169 154,402 Cash Costs $ per ounce produced 806 680 All-in Sustaining Costs (AISC)* $ per ounce sold 1,171 951 * All-in Sustaining Costs is a measure derived by the World Gold Council. On 27 June 2013, the Council released a publication outlining definitions of both Cash Costs and All-in Sustaining Costs. 46 — IGO ANNUAL REPORT 2020 IGO ANNUAL REPORT 2020— 47