South32 : Quarterly Report June 2022

QUARTERLY REPORT

June 2022

• Group FY22 copper equivalent production1 was 99% of current guidance, as the majority of our operations delivered to revised plans, despite impacts from weather and labour availability caused by the COVID-19 pandemic
• We expect to report FY22 Operating unit costs in-line with our previously updated guidance at the majority of our operations, with lower than anticipated producer currencies providing a benefit in the June 2022 quarter
• Our stable operating performance allowed us to capitalise on record conditions for a number of our commodities, with strong sales in the June 2022 quarter capturing the benefit of high prices
• Worsley Alumina achieved record annual production in FY22, exceeding guidance and operating above nameplate capacity, as we realised the benefit of embedded improvement initiatives
• Cannington beat our previously upgraded FY22 zinc equivalent production2 guidance by 2%, successfully transitioning to a 100% truck haulage operation in the June 2022 quarter
• Cerro Matoso achieved a 22% increase in payable nickel production, despite unplanned maintenance and weather-related disruptions impacting the operation during H2 FY22
• Illawarra Metallurgical Coal successfully completed three longwall moves across Appin and Dendrobium during the year, with strong price realisations for our premium quality hard coking coal supporting record pricing
• South Africa Manganese delivered record production in the June 2022 quarter as we increased our Manganese production by 22%, supporting higher sales with customer demand for our premium products delivering strong price realisations
• We grew our share of aluminium production by 5% in the June 2022 quarter as we closed the acquisition of an additional shareholding in the hydro-powered Mozal Aluminium smelter3 and achieved first production from the restart of our 100% renewable powered smelter in Brazil4
• We successfully completed the acquisition of Sierra Gorda5 in H2 FY22, receiving our first US$68M in distributions from the joint venture in June 2022

South32 Chief Executive Officer, Graham Kerr: "Our teams delivered another strong operating performance in the June quarter, despite challenges that included extreme weather, supply chain disruptions and reduced labour availability caused by the COVID-19 pandemic. Record annual production at Worsley Alumina, along with record quarterly production at South Africa Manganese and a strong sales result in June, capturing the benefit of high prices, capped another year of substantial progress for South32.

"We achieved further significant milestones as we reshape our portfolio towards the metals critical for a low carbon future. In May, we completed the acquisition of an additional shareholding in the hydro-powered Mozal Aluminium smelter. We also completed our acquisition of an additional interest in the MRN bauxite mine and delivered first production from the restart of our Brazil Aluminium smelter, powered by 100 per cent cost efficient renewable power.

"Our strong financial position and capital management framework, which is designed to reward our shareholders as our financial performance improves, supported further returns across the year via our on-market share buy-back, bringing total returns under our capital management program to US$1.9 billion since its inception."

Production summary
South32 share	FY21	FY22	YoY	4Q21	3Q22	4Q22	QoQ
Alumina production (kt)	5,361	5,288	(1%)	1,427	1,317	1,361	3%
Aluminium production (kt)	982	992	1%	246	243	255	5%
Payable copper production (kt)	-	25.3	N/A	-	8.4	16.9	101%
Payable silver production (koz)	13,655	13,199	(3%)	4,178	3,653	2,836	(22%)
Payable lead production (kt)	131.8	120.6	(8%)	41.2	34.6	25.8	(25%)
Payable zinc production (kt)	67.7	64.5	(5%)	19.5	16.4	15.4	(6%)
Payable nickel production (kt)	34.1	41.7	22%	10.9	10.6	10.8	2%
Metallurgical coal production (kt)	6,170	5,712	(7%)	1,340	1,565	1,380	(12%)
Manganese ore production (kwmt)	5,589	5,432	(3%)	1,410	1,206	1,469	22%

Unless otherwise noted: percentage variance relates to performance during the financial year ended June 2022 compared with the financial year ended June 2021 (YoY), or the June 2022 quarter compared with the March 2022 quarter (QoQ); production and sales volumes are reported on an attributable basis.

CORPORATE UPDATE

• We expect to report FY22 Group Underlying depreciation and amortisation of US$790M, including US$110M for our manganese business and US$60M for Sierra Gorda.
• We expect to report FY22 Group Underlying net finance costs of ~US$155M, which includes costs applicable to our ownership of a 45% interest in Sierra Gorda and one-off costs associated with financing its acquisition.
• We received net distributions6 of US$321M (South32 share) from our manganese and Sierra Gorda equity accounted investments (EAI) in FY22. In the June 2022 quarter we received US$115M from our manganese business and our first distribution of US$68M from Sierra Gorda.
• We spent US$128M purchasing a further 46M shares at an average price of A$3.89 per share via our on-market share buy-back during FY22. As at 30 June 2022 our currently approved capital management program was 89% complete with US$233M remaining to be returned to shareholders ahead of its extension or expiry on 2 September 20227. We have now returned US$1.9B since the inception of our flexible capital management program, including US$1.5B via our on-market share buy-back at an average price of A$2.93 per share, reducing total shares on issue by 13%.
• Our FY22 Group Underlying effective tax rate (ETR) is expected to be approximately 32%, reflecting the corporate tax rates of the jurisdictions in which we operate8, including our manganese and Sierra Gorda EAIs which are proportionally consolidated in our Underlying results. The FY22 Underlying ETR for our manganese business is expected to be in a range of approximately 45 to 48%, including the royalty related tax for Australia Manganese9 and the derecognition of certain deferred tax assets.
• Further to the update provided in our March 2022 Quarterly Report on future tax payments following completion of

the Sierra Gorda acquisition, we now expect to make payments totalling ~US$150M in FY2310. Of this amount, ~US$130M is expected to be paid to the Dutch tax authorities to settle pre-closing tax liabilities ahead of potential recovery from the vendors, with allocation of liability for such pre-closing tax liabilities being disputed.

• On 31 May 2022, we completed our acquisition of an additional 16.6% shareholding in Mozal Aluminium for a total cash consideration of US$200M, increasing our ownership of the hydro-powered smelter to 63.7%3.
• On 29 April 2022, we completed our acquisition of an additional 18.2% interest in the Mineração Rio do Norte (MRN) bauxite mine, increasing our ownership to 33%11, and further aligning our bauxite supply requirements within our aluminium value chain in Brazil.
• Following the end of the period, we completed the sale of four non-core base metals royalties to Anglo Pacific Group Plc (Anglo Pacific) for a sale price of up to US$200M, including US$103M in cash payments12, US$82M of Anglo Pacific shares and contingent payments of up to US$15M13. We now hold a 16.9% interest in Anglo Pacific. We expect to recognise a gain on sale of ~US$193M (~US$135M post-tax) within Other income in FY23, which will be excluded from Underlying earnings as an earnings adjustment. We also expect to make tax payments associated with the transaction of ~US$58M across FY23.
• While no acceptable offers have been received to date, we continue to seek potential divestment opportunities for our interest in the Eagle Downs Metallurgical Coal development option (Eagle Downs). Eagle Downs remains on care and maintenance, and we will assess its carrying value as part of the annual impairment cycle for our FY22 financial results.
• We successfully concluded our release from a guarantee originally provided to support Seriti Resources Holdings Proprietary Limited's14 acquisition of South Africa Energy Coal during the quarter. Following the derecognition of this commitment we expect to recognise a ~US$12M benefit in Other income within our FY22 financial results.

South32 Quarterly Report June 2022

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DEVELOPMENT AND EXPLORATION UPDATE

Exploration plays a critical role within our simple strategy to identify and pursue opportunities to sustainably reshape our business for the future, and create enduring social, environmental and economic value. We have established options to discover our next generation of mines, with more than 25 exploration programs across our partnerships and own properties. Our expenditure has continued to increase in this area as we have added further options and advance multiple, maturing exploration programs. In FY22 we spent US$56M across our portfolio of greenfield and development options, an amount we expect to increase further to ~US$90M in FY23 as we continue to execute on our strategy.

Hermosa project

• We continued to progress our feasibility study for the zinc-lead-silver Taylor Deposit at our Hermosa project in Arizona during the quarter, ahead of a planned final investment decision in mid CY23. Following the decision by the United States Government to invoke the Defense Production Act, supporting the production of critical minerals including manganese, we are looking at different options to potentially accelerate the pre-feasibility study for the Clark Deposit.
• Construction of infrastructure to support our critical path dewatering of the Taylor orebody continued to plan during the quarter. Our FY23 Growth capital expenditure guidance at Hermosa is US$290M as we continue our early works at Taylor ahead of a final investment decision, and progress study work at Clark.
• We directed US$19M to our exploration programs at Hermosa during FY22, advancing the work to assess targets across a highly prospective corridor including new exploration drilling at the Peake prospect15 during the quarter.

Ambler Metals project

• During the quarter the right-of-way permits previously issued to the Alaska Industrial Development and Export Authority for the Ambler Access Road were temporarily suspended to allow for additional work to be undertaken by United States government departments on the Final Environmental Impact Statement. Together with our Ambler Metals Joint Venture partner, we continue to assess the impact of this delay on our own study work for the Arctic Deposit.
• Separately we have commenced exploration activities at Ambler for the CY22 summer field season, including additional infill drilling of the Arctic Deposit and drill testing of regional exploration targets in the Ambler Belt. The budget for the year is US$13M (South32 50% share) with the program expected to support ongoing development study work being completed by the Joint Venture partners.

Greenfield exploration

• Consistent with our strategy of targeting prospective base metals regions, we entered into new farm-in agreements with Encounter Resources Limited covering two copper and zinc exploration projects in the Northern Territory. We will be the operator and fully fund initial exploration across both projects.
• We invested US$26M in greenfield exploration programs across our partnerships and own properties during FY22, with multiple drilling and field programs targeting base metals currently underway in Australia, USA, Canada, Argentina, Peru and Ireland.
• Following the end of the period, we entered into a subscription agreement with Aldebaran Resources Inc. (Aldebaran Resources) (TSX-V: ALDE) to acquire a 9.9% equity interest in the company for up to C$11.1M. Aldebaran Resources is an exploration company whose key asset is an option to acquire a controlling interest in the Altar copper project in San Juan, Argentina.

Brownfield exploration

• We directed US$48M (US$35M capitalised) towards exploration programs at our existing operations and development options during FY22, including US$19M at the Hermosa project (noted above, all capitalised), US$11M at Ambler Metals (all capitalised), US$2M for our manganese EAI (US$1M capitalised) and US$2M for our Sierra Gorda EAI (US$1M capitalised).

South32 Quarterly Report June 2022

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PRODUCTION SUMMARY

	Production guidance		FY21		FY22		FY22e(a)		%(b)			Comments
	(South32 share)
	Worsley Alumina
	Alumina production (kt)	3,963	3,991	3,965	101%
	Brazil Alumina (non-operated)
	Alumina production (kt)	1,398	1,297	1,300	100%
	Brazil Aluminium (non-operated)
												Slower than expected ramp-up
												of restart activities. An update
	Aluminium production (kt)		-	0.3	5.0	6%		to our FY23 guidance is
												expected to be provided with
												our FY22 results announcement
	Hillside Aluminium16
	Aluminium production (kt)	717	714	720	99%		Achieved despite significant
		load-shedding in FY22
	Mozal Aluminium16
												Achieved despite significant
												load-shedding in FY22
	Aluminium production (kt)	265	278	281	99%		Reflects the impact of our
												increased ownership (63.7%)
												from 1 June 20223
	Sierra Gorda (non-operated)
	Payable copper equivalent production17 (kt)		-	29.5	31.0	95%		FY23 guidance of copper 71.8kt,
	Payable copper production (kt)		-	25.3	27.0	94%
											molybdenum 1.5kt, gold 29.9koz
	Payable molybdenum production (kt)		-	0.4	0.4	100%
		and silver 582koz provided for
	Payable gold production (koz)		-	9.6	10.0	96%
			the first time
	Payable silver production (koz)		-	253	225	112%
	Cannington
	Payable zinc equivalent production2 (kt)	319.0	299.3	292.2	102%
	Payable silver production (koz)	13,655	12,946	12,283	105%
	Payable lead production (kt)	131.8	120.6	117.9	102%
	Payable zinc production (kt)	67.7	64.5	66.7	97%
	Cerro Matoso
												Adverse wet weather causing
	Payable nickel production (kt)	34.1	41.7	43.8	95%		moisture in ore during the
												June 2022 quarter
	Illawarra Metallurgical Coal
	Total coal production (kt)	7,645	6,509	6,800	96%	Adverse wet weather and
	Metallurgical coal production (kt)	6,170	5,712	5,900	97%	COVID-19 related labour
	Energy coal production (kt)	1,475	797	900	89%	availability impacts
	Australia Manganese
												Favourable weather conditions
	Manganese ore production (kwmt)	3,529	3,363	3,200	105%		during the June 2022 quarter
		and further strong performance
												from our PC02 circuit
	South Africa Manganese
	Manganese ore production18 (kwmt)	2,060	2,069	2,000	103%		FY23 guidance of 2,000kwmt
		provided for the first time

1. The denotation (e) refers to an estimate or forecast year.
2. Reflects percentage of achieved production for FY22 compared to current FY22e.

South32 Quarterly Report June 2022

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MARKETING UPDATE

Our FY22 realised prices reflect the strong performance of our exchange traded commodities and notable positive realisations against indices for our premium manganese and hard coking coal products. With heightened market volatility and supply chain disruptions prevalent across our industry in H2 FY22, our stable operating performance enabled us to deliver production volumes largely to plan despite COVID-19 labour and adverse weather-related disruptions in many of the geographies where we operate.

Innovative logistic solutions were established across multiple operations to mitigate the impact of ongoing port congestion, tight freight markets and the broader disruption of global supply chains, contributing to our strong sales performance in the June 2022 quarter. This enabled the Group to capitalise on strong markets lowering our inventory position by the end of the financial year with the working capital benefit of this work expected to be realised in the first quarter of FY23.

The average realised prices achieved for our commodities are summarised below. Outstanding concentrate sales were revalued at 30 June 2022 with the final price of these to be determined in the December 2022 half year.

					FY22	2H22
Realised prices19	FY21	1H22	2H22	FY22	vs	vs
					FY21	1H22
Worsley Alumina
Alumina (US$/t)	293	389	428	409	40%	10%
Brazil Alumina (non-operated)(a)
Alumina (US$/t)	288	387	419	403	40%	8%
Hillside Aluminium
Aluminium (US$/t)	2,137	2,952	3,347	3,161	48%	13%
Mozal Aluminium
Aluminium (US$/t)	2,206	3,041	3,591	3,348	52%	18%
Sierra Gorda (non-operated)(a)(b)
Payable copper (US$/lb)20	-	-	3.50	3.50	N/A	N/A
Payable molybdenum (US$/lb)20	-	-	18.48	18.48	N/A	N/A
Payable gold (US$/oz)20	-	-	1,934	1,934	N/A	N/A
Payable silver (US$/oz)20	-	-	23.5	23.5	N/A	N/A
Cannington21
Payable silver (US$/oz)	25.4	21.0	21.0	21.0	(17%)	0%
Payable lead (US$/t)	1,862	2,180	1,902	2,046	10%	(13%)
Payable zinc (US$/t)	2,357	2,988	3,473	3,248	38%	16%
Cerro Matoso22
Payable nickel (US$/lb)	6.68	8.39	11.64	10.08	51%	39%
Illawarra Metallurgical Coal
Metallurgical coal (US$/t)	115	303	457	381	231%	51%
Energy coal (US$/t)	40	108	200	156	290%	85%
Australia Manganese23
Manganese ore (US$/dmtu, FOB)	4.13	4.59	6.05	5.29	28%	32%
South Africa Manganese24
Manganese ore (US$/dmtu, FOB)	3.53	3.47	4.39	3.92	11%	27%

1. While Brazil Alumina is non-operated, South32 owns the marketing rights for our share of production. While Sierra Gorda is also non-operated, the Joint Venture is responsible for marketing our share of production.
2. Published realised sales prices and Operating unit costs reflect the period 1 March 2022 to 30 June 2022 whereas quarterly production and sales numbers reflect the period from first ownership (22 February 2022). Revenue, Underlying EBITDA and Underlying EBIT to be published with the Group Segment note released with our FY22 results announcement, as well as Operating unit costs and realised prices (copper of US$3.18/lb, molybdenum US$18.73/lb, gold US$1,776/oz and silver US$20.65/oz), will reflect the period from first ownership (22 February 2022).

South32 Quarterly Report June 2022

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