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    S32   AU000000S320

SOUTH32 LIMITED

(S32)
  Report
Delayed Australian Stock Exchange  -  11:09 2022-12-06 pm EST
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South32 : Quarterly Report June 2022

07/24/2022 | 06:44pm EST

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

Page 2 of 15

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

Page 3 of 15

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

Page 4 of 15

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

Page 5 of 15

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

South32 Ltd. published this content on 25 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 July 2022 22:43:00 UTC.


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Net income 2023 1 748 M - -
Net cash 2023 700 M - -
P/E ratio 2023 7,69x
Yield 2023 4,77%
Capitalization 13 177 M 13 177 M -
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Nbr of Employees 9 096
Free-Float 98,3%
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Graham Kerr Chief Executive Officer, Executive Director & MD
Katie Tovich Chief Financial Officer
Karen J. Wood Chairman
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