IGO Interactive Annual Report 2020

DIRECTORS’ REPORT 30 JUNE 2020 DIRECTORS’ REPORT 30 JUNE 2020 EXTERNAL FACTORS AND RISKS AFFECTING THE GROUP’S RESULTS The Group operates in an uncertain economic environment and its performance is dependent upon the result of inexact and incomplete information. As a consequence, the Group’s Board and management monitor these uncertainties and, where possible, mitigate the associated risk of adverse outcomes. The following external factors are all capable of having a material adverse effect on the business and will affect the prospects of the Group for future financial years. COVID-19 The COVID-19 pandemic continues to pose a global socio-political, economic and health risk. The potential for the pandemic to have both lasting and unforeseen impacts is high. As a Group, we changed the way we work to protect the wellbeing of our people, safeguard the communities in which we operate and ensure business continuity. We continue to maintain a heightened state of response readiness commensurate with the risk and in accordance with Government recommendations and health advice. Commodity Prices The Group’s operating revenues are sourced from the sale of base metals and precious metals that are priced by external markets and, as the Group is not a price maker with respect to the metals it sells, it is, and will remain, susceptible to adverse price movements. The Group mitigates its exposure to commodity prices through a financial risk management policy in which a percentage of anticipated usage can be hedged. To this end, gold hedging in FY21 represents approximately 45% of the Group’s share of forecast annual gold production. The Company has also initiated diesel hedging in order to protect against increases in oil prices and as at year end, the Company had hedged approximately 66% of anticipated usage for FY21. Exchange Rates The Group is exposed to exchange rate risk on sales denominated in United States dollars (USD) whilst its Australian dollar (AUD) functional currency is the currency of payment to the majority of its suppliers and employees. The daily average AUD/USD currency pair’s weakened slightly over the FY20 year. A weaker AUD implies a higher AUD receipt of sales denominated in USD. The Group’s policy is to mitigate adverse foreign exchange risk by transacting commodity hedges in AUD equivalent terms where possible. Downstream Processing Markets The price of sea freight, smelting and refining charges are market driven and vary throughout the year. These also impact on the Group’s overall profitability. The price paid for the sale of the Company’s metal contained in concentrates is subject to payability factors under contractual offtake agreements. The Company actively tendered its Nova concentrate in the market in FY20 and, driven by the strong demand for Nova’s concentrate, was able to enter into new offtake agreements with materially improved commercial terms compared to the previous contracts they replace. Interest Rates Interest rate movements affect both returns on funds on deposit as well as the cost of borrowings. Furthermore, AUD and USD interest rate differentials are intimately related to movements in the AUD/USD exchange rate. Native Title With regard to tenements in which the Group has an existing interest in, or will acquire an interest in the future, it is the case that there are areas over which Native Title rights exist, or may be found to exist, which may preclude or delay exploration, development or production activities. The comparable, albeit lesser risk, arises from the potential presence of archaeological and ethnographic sites. The Company engages suitably qualified personnel to assist with the management of its exposure to native title and heritage risks, including appropriate legal and community relations experts. These risks are discussed in more detail in the Company’s Sustainability Report which can be found on the Company’s website. Exposure to Economic, Environment and Social Sustainability Risks The Group has material exposure to economic, environmental and social sustainability risks, including changes in community expectations, and environmental, social and governance legislation (including, for example, those matters related to climate change). The Group employs suitably qualified personnel to assist with the management of its exposure to these risks. These risks are discussed in more detail in the Company’s Sustainability Report which can be found on the Company’s website. Climate Change The Group recognises the importance of providing timely and business-specific information on our approach to managing climate change related risks and opportunities to stakeholders and investors. In FY20, we completed a workplan to align with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). This included a detailed assessment of climate-related risks and opportunities over relevant time-horizons, and scenario analysis to test the resilience of our existing business strategies and financial planning. The full disclosure can be found in our 2020 Sustainability Report, to be released in September 2020. Other External Factors and Risks • Operational performance including uncertain mine grades, seismicity, geotechnical conditions, grade control, in fill resource drilling, mill performance and experience of the workforce – Contained metal (tonnes and grades) are estimated annually and published in resource and reserve statements, however actual production in terms of tonnes and grade often vary as the orebody can be complex and inconsistent – Active underground mining operations can be subjected to varying degrees of seismicity. This natural occurrence can represent significant safety, operational and financial risk. To mitigate this risk substantial amounts of resources and technology are used in an attempt to monitor seismicity, and predict and control changing geotechnical conditions. • Exploration success or otherwise – Due to the nature of an ever-depleting reserve/resource base, the ability to find or replace reserves/resources presents a significant operational risk. • Operating costs including labour markets and productivity – Labour is one of the main cost drivers in the business and as such can materially impact the profitability of an operation. • Changes in market supply and demand of products – Any change in supply or demand impacts on the ability to generate revenues and hence the profitability of an operation. • Changes in the technological advancement of the energy storage market, and the discovery and adoption of alternate product streams • Changes in government taxation legislation; and • Assumption of estimates that impact on reported asset and liability values. Significant Changes in the State of Affairs Following shareholder approval at the Company’s 2019 Annual General Meeting (AGM) held on 20 November 2019, the change of company name (from Independence Group NL to IGO Limited), company type (from a no liability company to a company limited by shares) and company constitution (lodged with the ASX on 20 January 2020) became effective from 17 January 2020. There have been no other significant changes in the state of affairs of the Group during the year. Events Since the End of the Financial Year The impact of the Coronavirus (COVID-19) pandemic is ongoing and, while it has had limited impact on the Group up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation continues to develop and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. On 27 August 2020, the Company announced that a final dividend for the year ended 30 June 2020 would be paid on 25 September 2020. The dividend is 5.0 cents per share and will be unfranked. Other than the above, there has been no other transaction or event of a material and unusual nature likely, in the opinion of the Directors, to significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. Company Secretary Ms. Joanne McDonald was appointed to the position of Company Secretary on 5 October 2015. Ms. McDonald is a qualified Chartered Secretary with over 16 years’ experience working for listed companies in Australia and the UK. Prior to joining IGO, Ms. McDonald held positions with Paladin Energy Ltd, Summit Resources Ltd and Unilever plc. Ms. McDonald is currently a WA State Councillor for the Governance Institute of Australia. Ms. McDonald is a Fellow of the Governance Institute Australia and a Graduate of the Australian Institute of Company Directors. 48 — IGO ANNUAL REPORT 2020 IGO ANNUAL REPORT 2020— 49