2021 Annual Report

Directors’ Report 30 June 2021 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. 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. COMMODITY PRICES Up to the end of FY21, the Group’s operating revenues were sourced from the sale of base metals and precious metals that are priced by external markets and, as the Group is not a price maker with respect to the metals it sells, it is, and will remain, 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. The Company has also in place limited diesel hedging in order to protect against increases in oil prices, and as at year end, the Company had hedged approximately 50% of anticipated usage at the Nova operation for FY22. From the beginning of FY22, the Group remains exposed to fluctuating base metals prices from the sale of nickel and copper concentrates produced at the Nova operation. IGO also expects to benefit from its investment in the Lithium JV through dividend cash flows receivable from the JV. Dividends received from the Lithium JV will be impacted by variable lithium prices, reflected in chemical and technical grade spodumene prices paid to the Greenbushes mine JV, and Lithium Hydroxide prices paid to the Lithium JV. 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. This exposure was amplified while USD funds were held as acquisition proceeds ahead of the Lithium JV with Tianqi on 30 June 2021. To protect against adverse movements in the foreign exchange rate, the Group entered into various hedging agreements, which have all since been closed out following the transaction completion date on 30 June 2021. 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. The Company actively tendered its Nova concentrate in the market in FY20 and, driven by the strong demand for Nova’s concentrate, was able to enter into new offtake agreements with materially improved commercial terms compared to the previous contracts they replaced. 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, 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. Risk also arises from the potential presence of and disturbance to 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, heritage 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, 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 Sustainability Report which can be found on the Company’s website. 44 —IGO ANNUAL REPORT 2021