2021 Annual Report

Notes to the consolidated financial statements 30 June 2021 (continued) 22 Financial risk management (continued) By holding these financial instruments, the Group exposes itself to risk. The Board reviews and agrees the Group's policies for managing each of these risks, which are summarised below: (a) Market risk (i) Foreign currency risk As the Group’s sales revenues for base and precious metals are denominated in United States dollars (USD), and the majority of operating costs are denominated in Australian dollars (AUD), the Group’s cash flow is exposed to movements in the AUD:USD exchange rate. The Group may mitigate this risk through the use of derivative instruments, including, but not limited to, forward contracts denominated in AUD. Financial instruments, including derivative instruments, denominated in USD and then converted into the functional currency (i.e. AUD) were as follows: 2021 $'000 2020 $'000 Financial assets Cash and cash equivalents 114,826 48,512 Trade receivables 78,513 46,595 Net financial assets 193,339 95,107 The cash balance above only represents the cash held in the USD bank accounts at the reporting date as converted into AUD at the 30 June 2021 AUD:USD exchange rate of 0.7518 (2020: 0.6863). The remainder of the cash balance of $413,688,000 (2020: $461,800,000) was held in AUD bank accounts and therefore not exposed to foreign currency risk. The trade receivables amounts represent the USD denominated trade debtors. All other receivables were denominated in AUD at the reporting date. The following table summarises the Group’s sensitivity of financial instruments held at 30 June 2021 to movements in the AUD:USD exchange rate, with all other variables held constant. Impact on post-tax profit Sensitivity of financial instruments to foreign currency movements 2021 $'000 2020 $'000 Increase/decrease in foreign exchange rate Increase 5.0% (6,192) (4,377) Decrease 5.0% 6,844 4,838 (ii) Commodity price risk The Group’s sales revenues are generated from the sale of nickel, copper and cobalt. Accordingly, the Group’s revenues, derivatives and trade receivables are exposed to commodity price risk fluctuations, primarily nickel, copper and cobalt. The markets for base and precious metals are freely traded and can be volatile. As a relatively small producer, the Group has no ability to influence commodity prices. The Group mitigates this risk through derivative instruments, including, but not limited to, quotational period hedging, forward contracts and collar arrangements. Nickel Nickel concentrate sales have an average price finalisation period of two to three months until the sale is finalised with the customer. It is the Board’s policy to hedge between 0% and 50% of total nickel production tonnes. Copper Copper concentrate sales during the year had an average price finalisation period of up to three months from shipment date. It is the Board’s policy to hedge between 0% and 50% of total copper production tonnes. IGO Limited 43 Notes to The Consolidated Financial Statements 30 June 2021 112 — IGO ANNUAL REPORT 2021