INDEPENDENCE GROUP NL ANNUAL REPORT 2017

Notes to the consolidated financial statements 30 June 2017 (continued) 15 Exploration and evaluation (continued) (a) Impairment (continued) An amount of $24,399,000 related to the Stockman Project, which is an exploration asset reported within the New Business and Regional Exploration Activities segment. The circumstances and events that led to the recognition of the impairment loss emerged following an assessment for the existence of impairment triggers as at 30 June 2017 in accordance with AASB6 Exploration for and Evaluation of Mineral Resources. The recognised impairment charge has been determined with reference to the recoverable amount of the asset being assessed based on its fair value less costs of disposal. The recoverable amount has been determined in accordance with the announcement to the ASX on 14 June 2017 titled “Agreement to Divest Stockman Project”, with reference to an executed sale agreement between Independence Stockman Project Pty Ltd, a wholly owned subsidiary of the Company, and CopperChem Limited, a wholly owned subsidiary of Washington H Soul Pattinson and Company Limited. Terms of the sale agreement include a deferred cash consideration component of $31,600,000, and a net smelter return royalty for which the Company has determined a value. Key assumptions include a pre-tax real discount rate of 10.5%, and five year average commodity prices as follows: Copper: USD5,808 per tonne, Zinc: USD2,520 per tonne, Silver: USD17.86 per ounce and foreign exchange: USD:AUD 0.74. As the fair value of the Stockman Project was determined in reference to the sales contract and use of observable inputs, this is a level 2 measurement of the fair value hierarchy. Refer to note 21(d) for the policy relating to fair value hierarchy. In the previous financial year, an impairment of $32,533,000 related to the Stockman Project. The recognised impairment charge was determined with reference to the recoverable amount of the asset being assessed based on its fair value less costs of disposal. The Company adopted a discounted cash flow fair value model to arrive at the recoverable amount. Key assumptions include a post-tax real discount rate of 10.2%, and five year average commodity prices as follows: Copper: USD5,380 per tonne, Zinc: USD2,076 per tonne, Silver: USD16.50 per ounce and foreign exchange: USD:AUD 0.72. (b) Recognition and measurement Exploration for and evaluation of mineral resources is the search for mineral resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. Exploration and evaluation expenditure is expensed to the profit or loss as incurred except in the following circumstances in which case the expenditure may be capitalised: • The existence of a commercially viable mineral deposit has been established and it is anticipated that future economic benefits are more likely than not to be generated as a result of the expenditure; and • The exploration and evaluation activity is within an area of interest which was acquired as an asset acquisition or in a business combination and measured at fair value on acquisition. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. An impairment exists when the carrying value of expenditure exceeds its estimated recoverable amount. The area of interest is then written down to its recoverable amount and the impairment losses are recognised in profit or loss. Upon approval for the commercial development of an area of interest, exploration and evaluation assets are tested for impairment and transferred to 'Mine properties in development'. No amortisation is charged during the exploration and evaluation phase. (c) Key estimates and judgements The recoverability of the carrying amount of the exploration and evaluation assets is dependent on the successful development and commercial exploitation, or alternatively, sale of the respective area of interest. The Group reviews the carrying value of exploration and evaluation expenditure on a regular basis to determine whether economic quantities of reserves have been found or whether further exploration and evaluation work is underway or planned to support continued carry forward of capitalised costs. This assessment requires judgement as to the status of the individual projects and their estimated recoverable amount. Independence Group NL 60 90 — IGO ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017