INDEPENDENCE GROUP NL ANNUAL REPORT 2017

Directors' report 30 June 2017 (continued) Operating and financial review (continued) Operations (continued) Long Operation The Long Operation continued to supply ore to BHPB Nickel West under its ore tolling agreement, whereby the Group is paid for the nickel metal contained in the ore mined, less applicable ore toll charges and payability discounts. Total revenue increased by 10% during FY17, due to 4% higher realised AUD nickel prices combined with favourable quotation period adjustments. Production continued around the lower volumes following a restructure implemented in FY16 which discontinued a number of mining methods, however this had a positive impact on cash costs. Nickel metal production year on year was unchanged with higher grades offsetting lower tonnes mined. During the year a total of 205,372t of ore was mined, sourced from Moran (72%), Long Lower (22%) and McLeay (6%), with the majority of ore continuing to be mined from long hole stoping. Payable cash costs including royalties (net of copper credits) were lower at $3.28/lb (2016: $3.67/lb). Based on current Ore Reserves, the mine will cease mining operations within the next 12 months. The table below highlights the key results and operational statistics during the current and prior year. Long Operation 2017 2016 Total revenue $'000 70,475 63,926 Segment operating (loss) profit before tax $'000 716 (3,532) Total segment assets $'000 38,693 65,738 Total segment liabilities $'000 40,402 35,200 Ore mined tonnes 205,372 215,337 Nickel grade head % 4.11 3.94 Copper grade head % 0.29 0.28 Tonnes milled tonnes 205,372 215,337 Nickel delivered tonnes 8,433 8,493 Copper delivered tonnes 592 610 Metal payable (IGO share) - Nickel tonnes 5,098 5,125 - Copper tonnes 240 247 Ni cash costs and royalties* A$ per pound of payable metal 3.28 3.67 * Cash costs include credits for copper. Jaguar Operation The Jaguar Operation continued to ship copper and zinc concentrates out of the Geraldton port throughout the year. The Company recently completed an internal value enhancement study that included a series of metallurgical test programs, combined with engineering design, costing and financial evaluations, to assess the feasibility of producing a new precious metal concentrate. The study work demonstrated that the process plant improvements are technically and financially feasible and would deliver significant value for the business with the additional extensions to mine life through the development of Triumph and/or Bentayga. The project would involve the upgrade of the Jaguar process plant from a two-product flotation circuit to a four-phase, three product flotation circuit that would produce higher-grade copper and zinc concentrates through higher metallurgical recoveries from all Bentley ores. Additionally, a new third concentrate would be produced consisting of lead, gold and silver, referred to as a High Precious Metals (HPM) concentrate. Revenue for FY17 increased by $4.5 million as a result of higher AUD dollar zinc metal prices and lower treatment and refining costs following a renewed purchase contract during the year. Segment operating profit before tax increased by $16.2 million over the prior year, due to $9.2 million lower depreciation and amortisation expense and $4.5 million higher segment revenue, while production costs were in line with the previous financial year. The Bentley underground mine underperformed during the year, with lower than planned underground production which was a result of ventilation issues delaying access to continuous ore supply from higher grade stopes as well as reducing the amount of development ore mined. As a result, ore was supplied from lower grade remnant areas within the upper levels of the mine. Ore mined was 444,700 tonnes, at a zinc grade of 8.3% and copper grade of 1.3%. Independence Group NL 8 IGO ANNUAL REPORT 2017— 39 DIRECTORS’ REPORT 30 JUNE 2017 (continued)