IGO Interactive Annual Report 2019

DIRECTORS’ REPORT 30 JUNE 2019 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 over the FY19 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. These contracts expire during FY20 and the outcome of contract negotiations may result in the negotiation of different terms that will also impact on the Group’s profitability. 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, ENVIRONMENTAL 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. 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 In May 2019, the Company divested the Long Operation to Mincor Resources NL. This was after 12 months of the Long Operation being in care and maintenance following the ceasing of operations in June 2018. There have been no other significant changes in the state of affairs of the Group during the year. 42 — IGO ANNUAL REPORT 2019