If the Offer becomes unconditional, Panoramic Shareholders who accept the Offer will become IGO shareholders, and IGO will acquire an interest in Panoramic. In that event, Panoramic Shareholders will continue to be indirectly exposed to the risks associated with having an interest in Panoramic’s assets and general economic, share market and industry risks. There are also additional risks relating to the Offer and the Merged Group, to which Panoramic Shareholders will be exposed through their holding of IGO Shares.
The value of IGO Shares is influenced by a range of factors, many of which are beyond the control of the Merged Group. These risk factors are divided into:
You should carefully consider the following risk factors, as well as the other information provided by IGO, and consult your financial and legal advisers before making a decision as to whether to accept the Offer.
The risk factors presented in this section are not an exhaustive list of all risks and risk factors related to IGO, the Merged Group or the Offer. There may be additional risks and uncertainties that IGO is aware of, or that it currently considers to be immaterial, or that are not currently known to IGO, that may become important factors that adversely affect IGO’s operating and financial performance.
This section does not take into account the investment objectives, financial situation, position or particular needs of Panoramic Shareholders.
Panoramic Shareholders are being offered consideration under the Offer that consists of a specified number of IGO Shares, rather than a number of IGO Shares with a specified market value. As a result, the value of the consideration will fluctuate depending upon the market value of the IGO Shares.
Furthermore, under the Offer, IGO will issue a significant number of IGO Shares. Some Panoramic Shareholders may not intend to continue to hold their IGO Shares and may wish to sell them on ASX. There is a risk that if a significant number of Panoramic Shareholders seek to sell their IGO Shares, this may adversely impact the price of IGO Shares.
There are risks that any integration between the businesses of IGO and the Panoramic Group may take longer than expected and that anticipated efficiencies and benefits of that integration may be less than estimated. These risks include possible differences in the management culture of the two groups, inability to achieve synergy benefits and cost savings, and the potential loss of key personnel, suppliers or other contractual arrangements.
IGO will be required to perform a fair value assessment of all Panoramic’s assets and liabilities if the Offer is successful. This assessment may result in increased non-cash depreciation and amortisation charges. There is a risk that these charges may be substantially greater than those that would exist in IGO and Panoramic as separate businesses. This may reduce the future earnings of the Merged Group.
IGO’s cash returns to shareholders policy targets the return of 15% to 25% of free cash flow to shareholders. However, the payment of dividends (if any) by IGO is determined by the IGO Board from time to time at its discretion, and is dependent upon factors including the profitability and cash flow of IGO’s business at the relevant time. Any dividends paid by IGO in the future will be subject to similar considerations.
The Merged Group will operate in a cyclical sector, in which financial characteristics (such as commodity prices, foreign exchange rates and energy costs) vary and as a result will have an impact on profit and cash flow generation. This may result in variations in the capability of the Merged Group to make dividend payments to shareholders through varying business cycles.
Further information about IGO’s shareholder returns policy is set out in section 3.3 of this Bidder’s Statement.
The Merged Group will rely on a contracted customer base to generate its revenue. Whilst the Merged Group will seek to have a reasonably broad customer base, there are risks associated with customer concentration. For example, Nova revenues are currently being derived from BHP Billiton Nickel West Pty Ltd, Trafigura Pte Ltd and Glencore International Ag (Glencore until December 2019 only). Savannah’s sole customer is the Sino Nickel joint venture between Jinchuan Group Co. Ltd and Sino Mining International Limited. Revenue from the sale of gold produced at the Tropicana mine is derived from the Perth Mint, National Australia Bank Ltd, Commonwealth Bank of Australia Ltd and Australia and New Zealand Banking Group Ltd. If key customers default or cease dealing with the Merged Group in the future, the ability of the Merged Group to generate revenue from its produced commodities may be adversely impacted.
IGO endeavours to ensure that sales of products are made to customers with an appropriate credit history. IGO has further sought to manage the risk of customer concentration by generating a diversified customer base and making contractual arrangements to guarantee the receipt of a majority percentage of expected payments.
IGO’s customers may change over time depending on market conditions and market pricing opportunities.
IGO regularly identifies and assesses potential opportunities for acquisitions and growth initiatives where it considers the opportunities may create shareholder value. The Merged Group will continue to identify and assess such opportunities. While the Merged Group intends to undertake appropriate due diligence to properly assess any such opportunities, these transactions involve inherent risks. These risks could cause the Merged Group not to realise the benefits anticipated to result from such transactions (or the benefits may take longer than expected to be realised), which may have a material adverse effect on the Merged Group’s ability to grow and on its financial position and financial performance. In addition, acquisitions may be funded by the issue of additional IGO Shares, which may dilute IGO shareholders, or by debt, which will affect will affect the Merged Group’s balance sheet accordingly.
The Merged Group’s capital requirements will depend on a number of factors. While IGO expects the Merged Group to have sufficient funding in relation to its existing operations (based on existing estimates of funding requirements), funding requirements may change in the future depending on multiple factors including (without limitation) further acquisitions, divestments and commodity prices.
The Merged Group may be required to seek additional financing (either in the form of debt or equity) and there is no guarantee that the Merged Group will be able to secure the required level of funding. Any debt financing, if available, may involve restrictions on the Merged Group’s financing and operating activities, or its business strategy and additional equity financing may dilute shareholders and may be undertaken at lower prices than the current market price. No assurances can be made that appropriate capital or funding, if and when needed, will be available on terms favourable to the Merged Group or at all. If the Merged Group is unable to obtain additional financing as needed, it may be required to reduce, delay or suspend its operations and this could have a material adverse effect on IGO’s operations and financial position.
In the ordinary course of operations and development, IGO will be required to issue financial assurances, particularly assurances and bond/bank guarantee instruments, to secure statutory and environmental performance undertakings and commercial arrangements. IGO’s ability to provide such assurances is subject to external financial and credit market assessments, and its own financial position.
Information relating to Panoramic that has been presented in, or omitted from, this Bidder's Statement, including all Panoramic financial information, has been based on publicly available information. IGO has not yet had the opportunity to carry out any non-public due diligence in respect of Panoramic. Any inaccuracy or omission in such publicly available information may adversely affect the results of operations of the Merged Group.
In addition, Panoramic may be a party to contracts that grant the counterparty certain rights (including review or termination) on a change of control of Panoramic. An exercise of these rights by a counterparty may adversely affect Panoramic or the Merged Group.
There are some risks associated with the Offer for Panoramic Shareholders who do not accept the Offer and remain Panoramic Shareholders. If, in connection with or following the Offer, IGO acquires between 90% and 100% of the Panoramic Shares, IGO may be entitled to compulsorily acquire the remaining shares of the Panoramic Shareholders.
If, in connection with the Offer, IGO acquires more than 50.1% but less than 90% of the Panoramic Shares, IGO will hold a controlling interest in Panoramic. The remaining Panoramic Shareholders will be in a minority position in a company with a large controlling shareholder whose objectives for the company may differ from their own. They could also encounter a lower level of liquidity in Panoramic Shares than exists today, which could result in a lower price for those Panoramic Shares should they wish to sell them in future.
If, following the Offer, IGO does not acquire a relevant interest of at least 50.1% of the Panoramic Shares, it may choose to waive the 50.1% condition of its Offer resulting in IGO holding a non-controlling interest in Panoramic. If this occurred, it is possible that IGO and another person or persons could each hold large minority interests in Panoramic. In such a situation, any commercial misalignment between large minority shareholders could impact on the efficient and effective governance of Panoramic and could adversely affect its ongoing performance.
Panoramic Shareholders who accept the Offer and receive IGO Shares may, in some circumstances (particularly where IGO does not obtain 80% or more of the Panoramic Shares under the Offer) have a CGT liability but will not be able to claim CGT scrip for scrip rollover relief in respect of the IGO Shares received in exchange for the Panoramic Shares. The Australian taxation implications of accepting the Offer are discussed in greater detail in section 10.
IGO’s revenues and cash flows are largely derived from the sale of a variety of commodities, including nickel, copper, cobalt and gold. The prices that the Merged Group obtains for its products will be determined by, or linked to, prices in world commodity markets, which have historically been subject to substantial volatility. Commodity prices are affected by underlying global economic and geopolitical factors, industry demand and supply balances, trade wars, product substitution and national tariffs.
Changes in commodity prices may have a positive or negative effect on the Merged Group’s production plans and activities, together with the ability to fund those plans and activities.
IGO has adopted a Group Financial Control Standard: Financial Risk Management policy that provides IGO with a mechanism to hedge part of its Australian dollar and US dollar denominated value of expected sales of nickel, copper and gold production in order to manage its exposure to potential variability in the prices of these commodities. However, the Merged Group will still be exposed to spot prices for the remainder of its anticipated future production of these and other commodities. IGO cannot provide any assurance as to the prices that the Merged Group will achieve for its commodities in the future.
The Merged Group’s assets and mining operations, as any others, will be subject to uncertainty with respect to (among other things): ore tonnes, mine grade, ground conditions, metallurgical recovery or unanticipated metallurgical issues (which may affect extraction costs), in fill resource drilling, mill performance, the level of experience of the workforce, operational environment, funding for development, regulatory changes, accidents and other unforeseen circumstances such as unplanned mechanical failure of plant or equipment, storms, floods, bushfires or other natural disasters.
The occurrence of any of these circumstances could result in the Merged Group not realising its operational or development plans, or plans costing more than expected or taking longer to realise than expected. Any of these outcomes could have an adverse effect on IGO’s financial and operational performance.
IGO has provided production guidance for its Nova and Tropicana operations for FY20. While IGO considers that this guidance is reasonable, actual future production may vary from the guidance for various reasons, many of which cannot be foreseen and are beyond the control of IGO. These factors may cause the production guidance not to be achieved or to be achieved later than expected, or to be achieved at a higher cost than anticipated.
Exploration activities are speculative by nature and therefore are often unsuccessful. Such activities also require substantial expenditure and can take several years before it is known whether they will result in additional mines being developed. Accordingly, if the exploration activities undertaken by the Merged Group do not result in additional reserves or identified resources cannot be converted into reserves, there may be an adverse effect on the Merged Group’s financial performance.
The success of the Merged Group will depend on successful exploration and acquisition of reserves, design and construction of efficient processing facilities, competent operation and management, proficient financial management, access to required development capital, movement in the price of commodities, securing and maintaining title to IGO’s pre-existing exploration and mining tenements and obtaining all consents and approvals necessary for the conduct of its exploration activities. Failure in any of these areas may adversely impact the profitability and financial position of the Merged Group.
In addition, the exploitation of successful discoveries would involve obtaining the necessary licences or clearances from relevant authorities that may require conditions to be satisfied and the exercise of discretions by such authorities. It may or may not be possible for such conditions to be satisfied. Further, the decision to proceed to further exploitation may require participation of other companies whose interests and objectives may not be the same as the Merged Group’s interests and objectives.
In the course of its operations IGO conducts exploration and feasibility studies relating to potential developments. The commercial viability of any such endeavours is based upon estimates of the potential size and grade of Mineral Resources or Ore Reserves, proximity to infrastructure and other required resources (such as energy and water), potential production rates, the feasibility of recovery of metals, capital and operating costs, and metal demand and prices. Some projects also remain subject to the completion of favourable environment assessments, further feasibility studies, the grant and maintenance of necessary permits and authorisations, and receipt of adequate financing.
It is possible that certain projects may be delayed, cancelled or otherwise adjusted due to a lack of commercial viability associated with such factors.
Despite careful evaluation that includes the factors set out above, it is possible that development projects do not realise their predicted value or revenue due to circumstances beyond the control of the Merged Group.
The Mineral Resources and Ore Reserves for IGO’s and Panoramic’s assets are estimates only and no assurance can be given that any particular recovery level of metals will in fact be realised. These estimates are prepared in accordance with the JORC Code (see further sections 11.4 and 11.5 of this Bidder’s Statement), but they are expressions of judgement based on knowledge, experience and industry practice, and may require revision based on actual production experience which could in turn affect the Merged Group’s mining plans and ultimately its financial performance and value.
Estimates that are valid when made may change significantly when new information becomes available. In addition, commodity price fluctuations, as well as increased production costs or reduced throughput and/or recovery rates, may render reserves and resources uneconomic and so may materially affect the estimates.
The Merged Group will be an Australian business that reports in Australian dollars. IGO’s base metals revenue is derived from the sale of commodities that are typically priced in US dollars, and the majority of its costs are usually denominated in Australian dollars. Therefore, the Merged Group will be exposed to movements in foreign exchange rates (in particular, the US dollar-to-Australian dollar exchange rate), the impact of which cannot be predicted reliably.
IGO manages its foreign exchange risk via the adoption and implementation of the Group Financial Control Standard: Financial Risk Management policy. The foreign exchange risk management approach is aimed at reducing the impact of foreign exchange fluctuations on the reported annual earnings and operating cash flows. Strategic metal hedging aims to have associated foreign exchange hedging. The Merged Group will still be exposed to foreign exchange risk in relation to currency that has not been hedged.
The Merged Group may hold assets or developments or undertake projects through incorporated and unincorporated joint ventures with third parties. There is a risk of financial failure or default by a participant in any joint venture to which the Merged Group is or may become a party. Disagreements between co-venturers or a failure of a co-venturer to adequately manage a project poses a further risk of financial loss or legal or other disputes with the other participants in such a joint venture.
Projects held and run through joint ventures impose a number of restrictions on the Merged Group’s ability to sell its interest in any assets held through such a structure and may require prior approval of the other joint venture partner or may be subject to pre-emptive rights.
The Merged Group’s operations will be subject to various Federal, State and local laws and plans, including those relating to mining, prospecting, development permit and licence requirements, industrial relations, environment, land use, royalties, water, native title and cultural heritage, mine safety and occupational health. No assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could limit or curtail exploration, production or development.
Approvals, licences and permits required to comply with such rules and regulations are subject to the discretion of the applicable government officials. No assurance can be given that IGO will be successful in obtaining any or all of the various approvals, licences and permits or maintaining such authorisations in full force and effect without modification or revocation. To the extent such approvals are required and not retained or obtained in a timely manner or at all, the Merged Group may be limited or curtailed from continuing or proceeding with exploration, production or development.
IGO cannot guarantee that all or any licences or permits in which the Merged Group has interests will be renewed. Such renewals are at the discretion of relevant government bodies and ministries in the jurisdiction, and often depends on the Merged Group being successful in obtaining other required statutory approvals for its proposed activities. There is no assurance that such renewals will be granted, nor that they will be granted without different or further conditions attached.
Mineral exploration, development and mining generally require consultation and agreement with landholders or other third parties in relation to access arrangements regarding underlying land. The Merged Group may be subject to restrictions associated with such land access arrangements, and may be required to pay compensation or adhere to other attached conditions. There is the further risk that landholders or other third parties may refuse access to the relevant land, which may negatively impact the Merged Group’s capacity to further explore or develop any projects the subject of such land.
The operations of IGO and Panoramic may both be affected by various factors outside of IGO’s control, including natural disasters and operational and technical catastrophes. These include flooding or adverse weather conditions, fires, explosions, rock falls, water ingress and seismic activity that affect the exploration, development or mining operations of the business.
The Native Title Act 1993 (Cth) recognises and protects the rights and interest in Australia of Aboriginal and Torres Strait Islander people in land and waters according to their traditional laws and customs. Native title may impact the Merged Group’s operations and future plans. Native title is not generally extinguished by the grant of exploration and mining tenements, as they are not generally considered to be a grant of exclusive possession. However, a valid exploration or mining tenement prevails over native title to the extent of any inconsistency for the duration of the title.
There may be areas in relation to tenements which the Merged Group has an existing interest in, or will acquire an interest in the future, over which common law Native Title rights exist, or may be found to exist, which may preclude or delay exploration, development or production activities.
The Merged Group will also need to comply with Aboriginal heritage legislation requirements which require heritage survey work to be undertaken ahead of the commencement of mining and exploration operations.
The operations and activities of the Merged Group will be subject to the environmental laws and regulations of Australia and the other jurisdictions in which the Merged Group may conduct business. As with most exploration projects and mining operations, the Merged Group’s operations and activities are expected to have an impact on the environment, particularly if advanced exploration or mine development proceeds. IGO attempts to conduct its operations and activities to the highest standard of environmental obligation, including compliance with all environmental laws and regulations.
IGO is unable to predict the effect of additional environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would materially increase the Merged Group’s cost of doing business or affect its operations in any area. However, there can be no assurances that new environmental laws, regulations or stricter enforcement policies, once implemented, will not oblige the Merged Group to incur significant expenses and undertake significant investments which could have material adverse effect on the Merged Group’s business, financial condition and performance.
The potentially hazardous nature of exploration and mining mean that health and safety regulations impact the activities of the Merged Group. Any injuries or accidents that occur on a site of operations of the Merged Group could result in legal claims, potential delays or stoppages and other actions that could adversely affect the Merged Group.
As announced by IGO, the Department of Mines, Industry Regulation and Safety investigation into the fatality that occurred following an incident involving an employee of IGO’s haulage contractor at Nova in September 2019 is ongoing.
Fluctuations in the price and availability of resources required for the operations of the Merged Group, including materials required for operations, water and energy resources such as diesel, gas and other fossil fuels may materially impact the operations and financial position of the Merged Group.
The Merged Group requires specific consumables, spare parts, plant and equipment and construction materials for its exploration, development and mining activities. Any delay, lack of supply or increase in price in relation to such equipment and material could adversely impact the financial position of the Merged Group.
The commodities expected to be produced by the Merged Group will be required to be transported to customers domestically and internationally. Each stage of the transportation process poses risks, including the initial remoteness of the Merged Group’s projects. Fuel costs, unexpected delays and accidents could materially impact upon the Merged Group’s financial position.
Further, there are risks associated with the availability of adequate trucking, rail and port facilities and the process for obtaining approvals to access these facilities (including the timing and conditions on which access may be granted). If the Merged Group is not able to access the required infrastructure within a certain time period or at a reasonable cost, this could adversely affect the Merged Group’s operations and financial performance.
The price of sea freight, smelting and refining charges are market driven and can vary throughout the life of each project. These will also impact on the overall profitability of the Merged Group.
A number of key personnel are important to attaining the business goals of IGO and the Merged Group. One or more of these key employees could leave their employment, and this may adversely affect the ability of IGO and the Merged Group to conduct their business and, accordingly, affect the financial performance of IGO and the price of IGO Shares.
Recruiting and retaining qualified personnel are important to the success of the Merged Group. The number of persons skilled in the exploration and development of mining properties is limited and competition for such persons can be strong, depending on market conditions.
Any disputes with employees (through personal injuries, industrial matters or otherwise), change in labour regulations, or other developments in the area may cause labour disputes, work stoppages or other disruptions in production that could adversely impact the Merged Group.
The Merged Group may use external contractors or service providers for many of its activities, and as such the failure of any current or proposed contractors, subcontractors or other service providers to perform their contractual obligations may negatively impact the business of the Merged Group. IGO cannot guarantee that such parties will fulfil their contractual obligations and there is no guarantee that IGO would be successful in enforcing any of its contractual rights through legal action. Further, the insolvency or managerial failure by any such contractors or other service providers may pose a significant risk to IGO’s operating and financial performance and financial position.
The import and export policies of any jurisdiction in which the Merged Group operates or sells product to may change in the future. As the revenues of the Merged Group depend upon the process of exporting commodities, the profitability and financial position of IGO may be adversely affected by any such adverse import and export regulations.
There are risks associated with any investment in securities. Publicly listed securities and, in particular, securities of mining and exploration companies, have experienced extreme price and volume fluctuations that have often been unrelated to the operating performances of such companies.
The price at which IGO Shares are quoted on the ASX may increase or decrease due to a number of factors. These factors may cause the IGO Shares to trade at prices below the price at the date of the Offer. There is no assurance that the price of the IGO Shares will increase following the Offer, even if IGO’s earnings increase.
Some of the factors which may affect the price of IGO Shares include economic conditions in both Australia and internationally, investor sentiment and local and international share market conditions, changes in interest rates and the rate of inflation, variations in commodity prices, the global security situation and the possibility of terrorist disturbances, changes to government regulation, policy or legislation, changes which may occur to the taxation of companies as a result of changes in Australian and foreign taxation laws, changes to the system of dividend imputation in Australia, and changes in exchange rates.
IGO may elect to issue IGO Shares or other securities in IGO in the future. While IGO will be subject to the constraints of the Listing Rules regarding the percentage of capital that it is able to issue within a 12 month period (other than where exceptions apply), the increase in the number of securities issued and the possible sale of these securities may have the effect of depressing the price of IGO securities already on issue. In addition, IGO shareholders at the time may be diluted as a result of the issue of such securities.
The operating and financial performance of the Merged Group will be influenced by a variety of general economic and business conditions, including levels of consumer spending, oil prices, inflation, interest rates and exchange rates, supply and demand, industrial disruption, access to debt and capital markets and government fiscal, monetary and regulatory policies.
Changes in general economic conditions may result from many factors including government policy, international economic conditions, significant acts of terrorism, hostilities or war or natural disasters. A prolonged deterioration in general economic conditions, including an increase in interest rates or a decrease in consumer and business demand, could be expected to have an adverse impact on IGO’s operating and financial performance and financial position.
Changes in tax law (including value added or indirect taxes and stamp duties), or changes in the way tax laws are interpreted, may impact the Merged Group’s tax liabilities or the tax treatment of an IGO shareholder’s investment. In particular, both the level and basis of taxation may change. In addition, an investment in IGO Shares involves tax considerations which may differ for each IGO shareholder. Each Panoramic Shareholder is encouraged to seek professional tax advice in connection with the Offer and how they may be discretely impacted.
Events may occur within or outside Australia that could impact upon the Australian economy, the Merged Group’s operations and the price of IGO Shares. These events include but are not limited to acts of terrorism, an outbreak of international hostilities, fires, floods, earthquakes, labour strikes, civil wars, natural disasters, outbreaks of disease, uranium concentrate risk or other natural or man-made events or occurrences that can have an adverse effect on the demand for the Merged Group’s products and its ability to operate its assets.
IGO has only a limited ability to insure against some of these risks.
As at the date of this Bidder’s Statement, IGO is not aware of any material disputes or litigation being undertaken . However, it is possible that the Merged Group may be involved in disputes and litigation in the course of its future operations. There is a risk that any material or costly dispute or litigation and compensation or damages could adversely impact the financial position or performance of the Merged Group.