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4 Independence Group NL
On behalf of the Board of Directors, we
are pleased to present you with the
Company’s 2016 Annual Report.
FY16 year has been an exciting but
challenging year. We completed the
acquisition of the Nova Project and fully
integrated Nova into the IGO Group;
we progressed the construction and
development of Nova, on time and
on budget, with first production of
concentrate expected in December
2016; we invested at Tropicana to
expand capacity and to unlock additional
resource potential to extend mine life;
we managed our 100% owned activities
at Jaguar and Long to generate positive
cash flow during a period of significant
commodity price volatility; and we
continued to strengthen the Company’s
management team and systems and
processes to meet the needs of an
expanding business.
Commodity prices are cyclical and gold
and base metals prices can fluctuate to
different or inversely related cycles. We
experienced this in FY16 with weakness
in copper, zinc and nickel prices but
benefited from strong gold and silver
prices. The commodity price volatility
experienced in FY16 demonstrates
the benefit of IGO’s strategy to be
a diversified gold and base metals
producer.
Looking forward, there are indications
that base metal prices are recovering
from cyclical lows and this potentially
coincides with commencement
of production at the Nova Project
in December 2016. Nova not only
significantly grows the size of our
business, but increases our exposure to
base metals and positions IGO to reap the
rewards of strengthening base metals
prices.
It is important to note that there are
very few mining developments that
are delivered on time and on budget.
Delivering this at Nova will be a result
of the calibre and outstanding efforts of
our employees and of the contractors
engaged on the Project.
In other parts of the business, we
had good production results from our
30% interest in the AngloGold Ashanti
operated Tropicana Gold Mine, and IGO’s
Long and Jaguar Operations.
At Tropicana, gold production and cash
costs in the first half of FY16 benefited
from the continuation of our grade
streaming strategy. The grade streaming
strategy was developed in the Tropicana
feasibility study to maximise early returns
from the mine. The strategy was based
on mining more ore than required for the
processing plant thereby allowing higher
grade ore to be preferentially processed
and low grade ore to be stockpiled.
Whilst this was a sound strategy,
this arrangement could not be
sustained indefinitely. Consequently,
we discontinued the grade streaming
strategy in December 2015 and since
then have only mined enough ore, at
the average reserve grade of 2g/t, to
meet the requirements of the processing
plant. As a result, gold production in the
second half of FY16 was lower and, with
a relatively fixed cost structure for the
mine, cash costs per ounce were higher.
We have also made significant
investments in Tropicana in FY16. Firstly,
we invested to expand processing
capacity from the name plate 5.8Mtpa
to 7.5Mtpa. At year end, this work was
nearing completion and is expected to
be completed by September 2016. The
second area of investment was in near
mine exploration and drilling to unlock
additional potential resources close to
the four existing pits which extend over
a strike length of 5km. The first phase of
this drilling is complete and we expect
updated resource and reserve estimates
in FY17.
CHAIRMAN AND CEO’s MESSAGE