Notes to the consolidated financial statements 30 June 2022 (continued) 22 Financial risk management (continued) (b) Credit risk (continued) The maximum exposure to credit risk at the reporting date was as follows: 2022 $M 2021 $M Financial assets Cash and cash equivalents 367.1 528.5 Trade receivables 95.1 78.5 Hedge receivables 14.8 - Other receivables 3.3 0.9 Derivative financial instruments 49.0 2.8 Other assets 0.8 - 530.1 610.7 (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 has been identified. 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. 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 the 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. Notes to the consolidated financial statements 30 June 2022 (continued) 22 Financial risk management (continued) (b) Credit risk (continued) Other receivables and financial assets (continued) Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired, or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. In respect of cash and cash equivalents, financial assets at fair value through profit or loss and derivative financial instruments, the Group's exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group does not hold any credit derivatives to offset its credit exposure. Derivative counterparties and cash transactions are restricted to high credit quality financial institutions. (ii) Significant estimates and judgements Impairment of financial assets The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting year. (c) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial liabilities as they fall due. The Group’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Management and the Board monitors liquidity levels on an ongoing basis. Maturities of financial liabilities The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables are based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. Contractual maturities of financial liabilities Less than 6 months 6 - 12 months Between 1 and 5 years Over 5 years Total contractual cash flows Carrying amount $M $M $M $M $M $M At 30 June 2022 Trade and other payables 149.2 - - - 149.2 149.2 Lease liabilities 10.7 11.3 39.3 - 61.3 57.4 Bank loans 105.3 103.7 757.3 - 966.3 900.0 265.2 115.0 796.6 - 1,176.8 1,106.6 At 30 June 2021 Trade and other payables 47.3 - - - 47.3 47.3 Lease liabilities 2.6 2.7 21.5 0.8 27.6 25.0 49.9 2.7 21.5 0.8 74.9 72.3 Notes to the consolidated financial statements 30 June 2022 Notes to the consolidated financial statements 30 June 2022 132 — IGO ANNUAL REPORT 2022 IGO ANNUAL REPORT 2022 — 133
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