Notes to the consolidated financial statements 30 June 2022 (continued) Risk This section of the notes includes information on the Group's exposure to various risks and shows how these could affect the Group's financial position and performance. 21 Derivatives The Group has the following derivative financial instruments in the following line items in the consolidated balance sheet: 2022 $M 2021 $M Current assets Diesel hedging contracts - cash flow hedges - 2.8 Commodity hedging contracts - cash flow hedges 11.7 - Commodity hedging contracts - held for trading 37.3 - 49.0 2.8 (a) Instruments used by the Group Derivative financial instruments may be used by the Group in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates, commodity prices and diesel prices. The derivative financial instruments are classified as held for trading and accounted for at fair value through profit or loss unless they are designated as cash flow hedges. The Group's accounting policy for its cash flow hedges is set out below. The fair value of the derivative instruments at the reporting date is reflected in current and non-current assets and liabilities in the balance sheet and is calculated by comparing the contracted rate to the market rates for derivatives with the same length of maturity. Refer to note 22 and below for details of the commodity and diesel fuel risk being mitigated by the Group’s derivative instruments as at 30 June 2022 and 30 June 2021. Nickel The Group held various commodity forward hedging contracts at 30 June 2022 to reduce the exposure to a future decrease in the market value of nickel sales. The following table details the nickel contracts outstanding at the reporting date: Tonnes of metal Weighted average price (A$/metric tonne) Fair value 2022 2021 2022 2021 2022 $M 2021 $M 0 - 6 months 3,584 - 46,667 - 49.0 - Total 3,584 - 46,667 - 49.0 - Diesel Hedges There were no diesel fuel hedging contracts outstanding at 30 June 2022. The table below details the outstanding Singapore gasoil 10ppm hedging contracts outstanding at 30 June 2021: Notes to the consolidated financial statements 30 June 2022 (continued) 21 Derivatives (continued) Diesel Hedges (continued) Litres of oil ('000) Weighted average price (AUD/litre) Fair value 2022 2021 2022 2021 2022 $M 2021 $M 0 - 6 months - 6,299 - 0.42 - 1.6 6 -12 months - 6,068 - 0.45 - 1.2 Total - 12,367 - 0.43 - 2.8 (b) Recognition and measurement Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: • hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); or • hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges). The Group documents, at the inception of the hedging transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. Movements in the hedging reserve in shareholder's equity are shown in note 19. (i) Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. (ii) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the hedging reserve in equity, limited to the cumulative change in the fair value of the hedged item on a present value basis from the inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging export sales is recognised in profit or loss within 'sales revenue'. The changes in the time value component of options that relate to hedged items are recognised with other comprehensive income in the hedging reserve within equity. The cumulative changes accumulated in the hedge reserve are reclassified to the profit or loss when the hedged item affects profit or loss. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss. (iii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss. Notes to the consolidated financial statements 30 June 2022 Notes to the consolidated financial statements 30 June 2022 126 — IGO ANNUAL REPORT 2022 IGO ANNUAL REPORT 2022 — 127
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