Image Resources NL : Annual Financial Report to shareholders

For personal use only

ANNUAL FINANCIAL REPORT

2021

Image Resources NL

ABN: 57 063 977 579

For personal use only

Contents

Corporate Directory	2
Review of Operations	3
Directors' Report	8
Remuneration Report	13
Auditor's Independence Declaration	20
Corporate Governance Statement	21
Consolidated Statement of Profit or Loss and Other Comprehensive Income	22
Consolidated Statement of Financial Position	23
Consolidated Statement of Changes in Equity	24
Consolidated Statement of Cash Flows	25
Notes to and forming part of the Consolidated Financial Statements	26
Directors' Declaration	51
Independent Auditor's Report	52

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For personal use only

Corporate Directory

DIRECTORS
Mr Robert Besley	Non-Executive Chairman
Mr Patrick Mutz	Managing Director
Mr Chaodian Chen	Non-Executive Director
Mr Huancheng Li	Non-Executive Director
Mr Aaron Chong Veoy Soo	Non-Executive Director
Mr Peter Thomas	Non-Executive Director

COMPANY SECRETARY

Mr Dennis Wilkins (DW Corporate)

PRINCIPAL PLACE OF BUSINESS & REGISTERED OFFICE

Level 2

7 Ventnor Avenue

West Perth WA 6005

CONTACT DETAILS

1. [phone]

1. [e-mail]

1. www.imageres.com.au

AUSTRALIAN BUSINESS NUMBER

ABN: 57 063 977 579

SHARE REGISTRY
Automic Pty Ltd	AUDITORS
Level 5
126 Phillip Street	Elderton Audit Pty Ltd
Sydney NSW 2000	Level 2
T:	1300 288 664 (within Australia)	267 St Georges Terrace
T:	[phone] (International)	Perth WA 6000
E:	[e-mail]	T:	[phone]
W:	www.automicgroup.com.au
		STOCK EXCHANGE

Australian Securities Exchange (ASX)

ASX Code - IMA (Fully paid shares)

ISSUED CAPITAL

1,010,935,677 fully paid ordinary shares

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For personal use only

Review of Operations

Image Resources NL ("Image" or "the Company") successfully completed its third full year (CY2021) of operations at the Company's 100%-owned,high-grade,zircon-rich Boonanarring Mineral Sands Project (Boonanarring) in the North Perth Basin, located 80 Kilometres north of Perth. During the year the Company either met or was reasonably close to achieving market guidance in all areas, despite the heavy rainfall impacts on mining and HMC production encountered at Boonanarring during Q3 2021 and the challenges posed by COVID-19, including the variety of related restrictive measures implemented by State and Commonwealth governments

2021 in Review

Operations

CY2021 was another successful year for the Company, having completed its third full year as a profitable Australian mining company.

The March 2021 quarter was marked by two major milestones for the Company. In February 2021 the Company announced the early repayment of its debt, and on 17 March 2021 the Company announced an intention to pay an inaugural dividend of $0.02 per share, on the back of a CY2020 net profit after tax of $24.8 million, with the dividend being unfranked and subsequently paid on 27 April 2021.

The March quarter ended with the Company having a $51 million cash balance, pre dividend payment, on strong sales despite lower heavy mineral concentrate (HMC) realised prices from lower zircon content and higher Australian dollar. The March quarter marked record high HMC production of 85.2kt.

In the June 2021 quarter, the Company achieved record high Quarterly HMC production of 102.3kt. Record production was supported by Quarterly record high ore grade of 12.1% HM. Despite higher production and a small increase in average realised price per tonne HMC sold, margins per tonne of HMC sold fell slightly from A$190/t in Q1 to A$147/t in Q2 2021 due to lower sales volumes and lower zircon content in HMC sold.

In August 2021 the Company announced an after-tax profit of A$2.9 million for the half year ended 30 June 2021 (2020: A$14.2 million) with the fall in profit compared to the prior year due to lower zircon content in HMC and less favourable FX, combined with higher shipping costs.

In the September 2021 quarter, the zircon benchmark price increased 8.3% and the ilmenite benchmark price was up 7.3% quarter on quarter. As a result of rising commodity prices, higher zircon content in the HMC and lower Australian dollar, the quarterly average realised HMC price increased 26% to A$631/t and the final shipment in the quarter achieved a record high price to date of A$794/t.

C1 cash costs per tonne sold fell 13% in the September quarter, mainly due to higher sales volumes, and which combined with higher commodity prices, higher zircon and lower Australian dollar, increased margins from A$147/t in Q2 to $321/t in Q3.

The December quarter was highlighted by the average HMC realised price increasing a further $273/t to A$904/t, as a result of further increases in commodity prices, zircon content of the HMC and lower Australian dollar. In addition, due to substantially higher zircon spot pricing in China, Image negotiated higher than standard market-based benchmark pricing via the elimination of the standard grade zircon penalty and a further 5% premium to benchmark pricing as prescribed in the HMC offtake agreements. As a result, cash margins per tonne increased from A$321/t in Q3 2021 to A$500/t in Q4, a further 56% increase and representing a 117% increase from Q4 2020 at A$230/t.

Full Year Results

Consistent HMC sales to the Company's off-take partners resulted in total HMC sales of 293kt for CY2021 (compared to 306kt in CY2020) on HMC production of 296kt. Total HMC stocks increased only marginally from the end of CY2020 to the end of CY2021 and remain near minimal working levels of approximately 50kt (including HMC storage pad bases).

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Review of Operations (cont.)

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The average HMC realised price for the full year was A$611 per tonne (CY2019: A$566/t) reflecting higher average zircon and ilmenite market benchmark prices compared to CY2020.The Boonanarring project generated EBITDA of approximately A$75 million in CY2021 (CY2020: A$86 million).

Lower guidance for CY2022 of 200-230kt HMC production and 220-250kt HMC sales, reflects the anticipated progression of mining to the southern end of Block C at Boonanarring and into the lower HM grade and lower zircon grades in Block D as we approach the end of Ore Reserves at Boonanarring before relocating mining and ore processing operations to Image's 100%-owned Atlas deposit which is currently under development planning and final permitting.

Mineral Sands Commodity Prices and FX

Boonanarring HMC pricing is based on the underlying content of zircon (as % of ZrO2+HfO2) and titanium dioxide (as

• of TiO2) in the HMC and benchmark market prices for the various products (zircon, rutile, and ilmenite) at appropriate quality specifications, with the majority of the value of Boonanarring HMC derived from the zircon content.

Benchmark prices for zircon started to increase in Q2 2021 and continued to strengthen on a Quarterly basis for the remainder of the year and into 2022 (Figure 1), rising 26% from start to the end of CY2021, and then rising a further 12% on 1 Jan 2022. Benchmark prices for ilmenite rose steadily in Q1 and Q2 2021 and levelled off in Q3 (Figure 2), rising 54% from start to the end of CY2021.

CY2021 saw significant variability in the zircon content of the ore mined, and therefore in the HMC sold. The content of zircon (as % of ZrO2+HfO2) averaged roughly 18% in the HMC for Q1 and Q2, declined to roughly 17% in Q3 and then rebounded sharply to over 21% in Q4 with the return of mining ore from Block 'C' at Boonanarring.

Higher benchmark prices for contained zircon and titanium in HMC sold, coupled with higher zircon content in the HMC in Q4 were the main reasons for a significant increase in average HMC realised prices in 2021. However, due to significantly higher zircon spot market prices in China, Image secured certain pricing concessions from its offtakers which pushed HMC realised prices higher than benchmark market pricing in Q4 2021. Concessions included elimination of the standard grade zircon penalty and a further 5% premium to benchmark pricing as a result of competitive demand for Image's HMC. In addition, the AUD: USD FX rate declined during CY2021 to more favourable levels in 2H 2021.

The net result of these positive changes saw HMC realised prices increase from an average A$463 per tonne in Q1 2021 to an average A$904 per tonne in Q4, for an overall average A$611 per tonne for CY2021 (compared to A$566for CY2020).

With the further increase in the benchmark market price for zircon, effective 1 January 2022, and continuing high demand for mineral sands commodities in general, strong HMC realised prices are expected in 1H 2022, although zircon grades in the ore and HMC are forecast to decline in 2H 2022.

For

Zircon Benchmark Price (US$/tonne)
2,000
1,850
1,700
1,550
1,400
Jan-21	Apr-21	Jul-21	Oct-21	Jan-22

Ilmenite Benchmark Price (US$/tonne)
360
320
280
240
Jan-21	Apr-21	Jul-21	Oct-21	Jan-22

Corporate

Sales revenue for the year was A$179 million (2020: A$176 million) with project operating and selling costs of A$97 million

(2020: A$91 million) and with full-year CY2021 project EBITDA of A$75 million (2020: A$86 million). During CY2021 the

Company generated a Net Profit After Tax (NPAT) of A$19.4 million (2020: A$24.8 million) for a total NPAT of over A$65 million for the first 3 full years of operations.

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