Exploration and evaluation expenditure was 5% higher than FY21 due to increased business development expenditure in relation to merger and acquisition activities, consistent with IGO’s strategy to be a globally relevant supplier of products that are critical to clean energy. Corporate expenditure also increased slightly compared to FY21, with higher technical services costs, higher IT systems costs, higher insurance charges and higher company secretarial costs, all reflective of a growing business. Net profit after tax (NPAT) for the year was $330.9 million, compared to $548.7 million in the previous financial year. The prior year result included $47.1 million after tax earnings from Tropicana, along with the gain on the sale of Tropicana after income tax of $384.8 million ($556.8 million before tax). The year-on-year variance in NPAT is detailed in the chart on page 21. Depreciation and amortisation expense from continuing operations of $175.6 million was consistent with the prior year (FY21: $175.6 million). Acquisition costs incurred in FY22 of $71.1 million primarily relate to the acquisition of Western Areas and includes accrued stamp duty costs, which are expected to be payable in the second half of FY23. From a cash flow perspective, cash flows from operating activities for the Group were $357.1 million, compared to the FY21 year of $446.1 million, predominantly due to the payment of tax in FY22 on the sale of Tropicana in FY21, partially offset by stronger base metal prices positively impacting product revenue. The Nova Operation generated $588.5 million cash flows from operating activities, which was a result of 21,377t of payable nickel (FY21: 22,051t), 10,383t of payable copper (FY21: 10,752t) and 420t of payable cobalt (FY21: 454t) sold during the year. Significant cash flows from operating activities include the receipt in June 2022 of an inaugural fully franked dividend of $70.7 million from TLEA, $64.5 million exploration and evaluation expenditure and $27.4 million corporate expenditure, net of borrowing costs. The Company also paid income taxes of $199.0 million during the year, primarily relating to the gain on the sale of its share of the Tropicana in FY21. FY22 cash outflows from investing activities increased to $1,281.0 million, up from $1,065.0 million in the prior period. Total payments of $1,262.5 million related to the acquisition of Western Areas completed on 20 June 2022, offset by cash acquired of $94.0 million. Cash outflows for capitalised exploration and evaluation expenditure totalled $50.7 million, and this primarily related to the acquisition of the Silver Knight nickel-copper-cobalt sulphide deposit from entities owned and controlled by the Creasy Group, and the formation of a joint venture with the Creasy Group over a portfolio of exploration tenements related to Silver Knight. Cash outflows included a single contribution to TLEA in the September 2021 quarter of $15.7 million which was matched on a pro-rata basis by IGO’s joint venture partner, Tianqi. Cash flows from financing activities during the financial year included proceeds from borrowings, totalling $900.0 million, relating to a senior-secured debt facility which was fully drawn to partially fund the Western Areas acquisition. Furthermore, cash outflows from financing activities included transaction costs of $10.1 million relating to the establishment of the new financing facility during the year. Finally, the Company paid dividends totalling $113.6 million for FY22. At the end of the financial year, the Group had cash and cash equivalents of $367.1 million, debt of $900.0 million and marketable securities of $208.4 million (FY21: $528.5 million and $110.9 million respectively). 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. Commodity Prices The prices that the Group obtains for its products are a key driver of business performance, and fluctuations in these markets affects its results, including cash flows and shareholder returns. The Group’s FY22 operating cash flows were sourced from the sale of base metals at Nova and lithium sales via TLEA, including Greenbushes and the Kwinana Refinery. Each of these commodities are priced by external markets and, as the Group is not a price maker with respect to the metals it sells, it is 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 may be hedged. Commodity prices were generally higher in FY22 compared with the prior year and IGO undertook a number of strategic nickel hedge swaps to reduce the Group’s exposure to adverse movements in the nickel price. The Group also had limited diesel hedging in place to protect against increases in oil prices during FY22. This hedging was for up to approximately 50% of anticipated diesel usage at the Nova Operation. These contracts expired on 30 June 2022. In FY23, dividends received from TLEA will be impacted by variable lithium prices, reflected in chemical and technical grade spodumene prices and lithium hydroxide prices for Greenbushes and the Kwinana Refinery, respectively. Furthermore, the production of nickel, copper and cobalt at the Nova Operation and nickel from the newly acquired Forrestania Operation will remain exposed to commodity price fluctuations. The Group will continue to manage this risk in accordance with its financial risk management policy in FY23 and beyond. 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. Currency 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. To protect against adverse movements in the foreign exchange rate, the Group enters into commodity price hedges, denominated in AUD in accordance with its Financial Risk Management Policy. The Group did not enter into any currency exchange hedging during FY22. 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 2022 Sustainability Report which can be found on the Company’s website. 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. The Group may hedge interest rate risk in accordance with its Financial Risk Management Policy in certain circumstances. The Group did not enter into any interest rate hedging during FY22. DownstreamProcessingMarkets 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. Some of the Group’s offtake agreements are due to expire in FY23 and will be re‑tendered. The outcome of this tendering has the potential to materially affect the Group’s results and profitability. Further risks are discussed in the Managing Risk Effectively section in this Annual Report on page 51. 22 —IGO ANNUAL REPORT 2022 IGO ANNUAL REPORT 2022— 23
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