South32 : Quarterly Report June 2023

QUARTERLY REPORT

June 2023

• We achieved strong year-on-year growth in aluminium, copper and manganese, setting three annual production records and realising the benefit of our investments in commodities for a low-carbon future.
• Group copper equivalent production1 increased by 9% in the June 2023 quarter, underpinned by a return to stable operations following adverse weather and other temporary impacts in the prior quarter.
• FY23 Operating unit costs are expected to be in-line with our previously updated guidance.
• Aluminium production increased by 14% in FY23, as Hillside Aluminium achieved record production and we benefited from our investments in low-carbon aluminium2 capacity at Mozal Aluminium and Brazil Aluminium.
• Alumina production declined by 4% in FY23 due to temporary outages in the June 2023 quarter. Both refineries have returned to nameplate production rates and FY24 guidance is unchanged.

•	Base metals production increased by	17%3 in FY23 as we embedded the	Sierra	Gorda copper	operation4
	in our portfolio, while our Cannington zinc-lead-silver and Cerro Matoso nickel operations achieved revised guidance.
•	Australia Manganese and South	Africa Manganese achieved	annual	production	records,
	delivering a 4% increase in manganese production in FY23.

• Illawarra Metallurgical Coal achieved revised FY23 production guidance, with improved longwall performance delivering a 21% increase in metallurgical coal production in the June 2023 quarter.
• We advanced study work for our Taylor zinc-lead-silver and Clark battery-grade manganese development options at our Hermosa project, the first mining project in the United States to be covered by the FAST-41 process.
• Today, we announced an upgrade to the Mineral Resource estimate for the Taylor deposit5, and our best exploration drill results to date from our Peake copper exploration prospect6.
• We will record a non-cash impairment expense for our Taylor deposit in our FY23 financial results7, reflecting delays from the impact of COVID-19, significant dewatering requirements and current inflationary market conditions.

South32 Chief Executive Officer, Graham Kerr: "We had a strong finish to the year, with Group copper equivalent production growing 9% in the quarter. Our strong operating results included record annual production at Hillside Aluminium, Australia Manganese and South Africa Manganese. Aluminium production increased by 14% and base metals production by 17% in FY23, supported by our recent investments in commodities critical to a low-carbon future.

"We maintained our disciplined track record of capital allocation, returning a record US$1.2B to shareholders in FY23 while continuing to invest in our high-quality growth options.

"Significant milestones were achieved at our Hermosa project, as we advanced our Taylor and Clark development options and returned exciting copper exploration results from our Peake prospect. Hermosa was also confirmed as the first mining project in the United States to be covered by the FAST-41 process, underlining its potential to strengthen the domestic supply of critical minerals.

"We progressed our greenfield exploration programs, exercising our earn-in right to acquire a 50.1% interest in the Chita Valley copper exploration project, located in Argentina's highly prospective San Juan mineral belt.

"Looking forward, we are well placed to continue to capitalise on the global energy transition. We expect to deliver further production growth in aluminium and base metals in FY24, and our high-quality development options have the potential to further strengthen our long-term supply of critical minerals."

Production summary
South32 share	FY22	FY23	YoY	4Q22	3Q23	4Q23	QoQ
Alumina production (kt)	5,288	5,101	(4%)	1,361	1,239	1,249	1%
Aluminium production (kt)	992	1,133	14%	255	279	286	3%
Payable copper production (kt)	25.3	70.7	179%	16.9	15.5	17.3	12%
Payable silver production (koz)	13,199	11,813	(11%)	2,836	2,479	3,522	42%
Payable lead production (kt)	120.6	101.7	(16%)	25.8	21.0	28.3	35%
Payable zinc production (kt)	64.5	59.2	(8%)	15.4	12.6	16.2	29%
Payable nickel production (kt)	41.7	40.8	(2%)	10.8	10.2	10.2	0%
Metallurgical coal production (kt)	5,712	5,497	(4%)	1,380	1,240	1,504	21%
Manganese ore production (kwmt)	5,432	5,653	4%	1,469	1,261	1,455	15%

Unless otherwise noted: percentage variance relates to performance during the financial year ended June 2023 compared with the financial year ended June 2022 (YoY), or the June 2023 quarter compared with the March 2023 quarter (QoQ); production and sales volumes are reported on an attributable basis.

CORPORATE UPDATE

Sustainability

• We continue to implement a multi-year Safety Improvement Program that was launched in FY22. The program aims to shift mindsets through leadership, empower our people, reduce risks with effective controls, and improve systems and metrics. Our investment in safety leadership includes our 'Lead Safely Every Day' program, which commenced in FY23 and will continue in FY24.
• We continue to advance decarbonisation programs to support our target8 to halve our operational greenhouse gas (GHG) emissions by 2035. Worsley Alumina is on-track to convert its first coal fired boiler to natural gas in the September 2023 quarter, improving energy security and supporting the refinery's transition to lower carbon energy. The boiler conversion is expected to reduce the refinery's operational GHG emissions by up to ~205,000 tonnes per annum or ~6% from FY22 levels.

Income statement items

• We expect to report FY23 Operating unit costs in-line with our previously updated guidance.
• As announced today7, we will record a non-cash impairment expense of ~U$1,300M for the Taylor deposit in our FY23 financial results, resulting in a carrying value of ~US$1,001M for our Hermosa project as at 30 June 2023. The carrying value of the Clark deposit and our regional exploration land package is unchanged. The impairment expense will be excluded from FY23 Underlying earnings.
  The impairment of the Taylor deposit reflects the impact of delays due to COVID-19, significant dewatering requirements, and current inflationary pressures. There remains substantial opportunity to unlock additional value across Taylor, Clark and our highly prospective regional exploration package and that optionality is not included in the impairment assessment.
• FY23 Group Underlying depreciation and amortisation is expected to be ~US$920M, including ~US$125M for our manganese business and ~US$140M for Sierra Gorda.
• FY23 Group Underlying net finance costs are expected to be ~US$190M.

Cash flow and balance sheet items

• We received net distributions9 of US$173M (South32 share) from our manganese equity accounted investments (EAI) in FY23. This included net distributions of US$79M in the June 2023 quarter, as both Australia Manganese and South Africa Manganese increased quarterly sales volumes.
• Our Sierra Gorda EAI invested in plant de-bottlenecking and study work for the operation's fourth grinding line expansion. We received net distributions of US$14M from our Sierra Gorda EAI in FY23.
• We received up-front cash proceeds of US$48M and deferred cash instalments of US$27M from our sale of

	non-core base metal	royalties to	Ecora	Resources PLC	(Ecora Resources) for	up	to	US$200M10.
	We made tax payments of US$32M in relation to the sale during FY23 and expect to pay US$16M in H1 FY24.
•	FY23	Group	safe	and reliable	and	improvement	and	life	extension	capital	expenditure
	(excluding EAIs) is expected to be ~US$545M.	Our share of safe and reliable and improvement and life extension
	capital expenditure for our EAIs is expected to be ~US$280M.
•	We	paid a	record	US$1,007M	in fully-franked ordinary	and	special dividends	during FY2311.
	We also returned US$218M to shareholders via our on-market share buy-back, purchasing a further 83M shares at

an average price of A$3.97 per share in FY23. Our US$2.3B capital management program is 96% complete with US$83M remaining to be returned ahead of its extension or expiry on 1 September 202312.

Tax

• The Group made tax payments of US$818M in FY23, including US$115M in relation to our Sierra Gorda acquisition. Of this amount, ~€92M (~US$94M at the payment date) relates to pre-closing tax liabilities for Sierra Gorda which we are seeking to recover from the vendors13. No further acquisition related tax payments are required.
• Our FY23 Group Underlying effective tax rate (ETR) is expected to be ~36%, reflecting our geographical earnings mix and the corporate tax rates of the jurisdictions in which we operate14, including recent changes in Colombian tax legislation15. The Colombian tax changes, which were effective from January 2023, are expected to increase the Group's Underlying ETR in future periods.

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DEVELOPMENT AND EXPLORATION UPDATE

We continue to actively reshape our portfolio, progressing our development and greenfield exploration options to further enhance our exposure to commodities critical to a low-carbon future.

We invested US$256M of growth capital expenditure at our Hermosa project in FY23, achieving significant milestones. We progressed the feasibility study for the Taylor zinc-lead-silver deposit, confirmed the potential to produce battery-grade manganese from our Clark deposit, and installed critical path dewatering infrastructure.

During the June 2023 quarter, Hermosa was confirmed by the US Federal Permitting Improvement Steering Council as the first mining project to be covered by the FAST-41 process, reflecting its status as currently the only advanced project in the United States with the potential to supply two federally designated critical minerals, zinc and manganese.

Greenfield exploration continues to play a critical role in our approach to embedding growth options in base metals, with more than 25 options across our partnerships and own properties. We consolidated our position in the highly prospective San Juan mineral belt in Argentina during FY23, exercising our earn-in right to acquire a 50.1% interest and operatorship in the Chita Valley copper exploration project16 and acquiring a 9.9% interest in Aldebaran Resources Inc.17.

Hermosa project - Taylor deposit

• The feasibility study for the Taylor deposit is on-track for H1 FY24, as we align the mine development schedule for a federal permitting process under FAST-41 and incorporate current market cost estimates. Feasibility study work to date has validated the potential for a highly productive zinc-lead-silver underground mine and conventional processing plant with a nameplate processing rate of up to 4.3 million tonnes per annum.
• Today, we released an updated Mineral Resource estimate for the Taylor deposit5 that supports the ongoing feasibility study work. The Mineral Resource estimate (Table A) has been upgraded to 153Mt, averaging 3.53% zinc, 3.83% lead and 77g/t silver. The upgrade includes a 41% increase in the Measured Mineral Resource, providing a compelling base to underpin future production. The deposit remains open in several directions, offering the potential for further growth.

Table A: Mineral Resources for the Taylor deposit as at 30 June 20235

	Ore Type			Measured				Indicated				Inferred				Total
			Mineral Resources				Mineral Resources				Mineral Resources				Mineral Resources
			Mt(b)	%	%	g/t		Mt(b)	%	%	g/t		Mt(b)	%	%	g/t		Mt(b)	%	%	g/t
			Zn	Pb	Ag		Zn	Pb	Ag		Zn	Pb	Ag		Zn	Pb	Ag
	UG Sulphide(a)	41	4.22	4.25	67	83	3.38	3.91	76	28	2.96	2.97	93	153	3.53	3.83	77

Million dry metric tonnes(b), % Zn - percent zinc, % Pb - percent lead, g/t Ag - grams per tonne of silver.

Notes:

1. Cut-offgrade: NSR of US$80/dmt for UG Sulphide. Input parameters for the NSR calculation are based on South32's long-term forecasts for zinc, lead and silver pricing; haulage, treatment, shipping, handling and refining charges. Total metallurgical recovery assumptions differ between geological domains and vary from 85% to 92% for zinc, 89% to 92% for lead, 76% to 83% for silver.
2. All masses are reported as dry metric tonnes (dmt). All tonnes and grade information have been rounded to reflect relative uncertainty of the estimate, hence small differences may be present in the totals.

Hermosa project - Clark deposit

• We are progressing our Clark battery-grade manganese deposit through three strategic pathways to de-risk the path to potential production:
  o Progressing a single option to produce up to 185ktpa18 of high-purity manganese sulphate monohydrate (HPMSM) for the North American market through pre-feasibility and feasibility stages, with initial production from a demonstration plant, prior to a final investment decision;
  o We have commenced pilot scale production to generate HPMSM for product feedback from customers and inform demonstration plant design. We have approved construction of a decline to provide access to ore to facilitate demonstration scale production, with construction of the decline expected to be completed by the end of CY25; and
  o Engaging with potential customers, including the execution of multiple non-binding,non-exclusive memorandums of understanding, to assist in our market development, product quality and qualification requirements.

South32 Quarterly Report June 2023

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Hermosa project - Exploration

• We directed US$20M to capitalised exploration during FY23, completing multiple exploration programs across Hermosa's highly prospective land package.
• Today, we released results from the four most recently completed exploration drill holes at our Peake copper-lead-zinc-silver prospect6, a lateral zone prospective for copper mineralisation, located south of the Taylor deposit.
• The results include our best intercept at Peake to date, with diamond drill hole HDS-813 returning a downhole intersection of 139m @ 1.88% copper, 0.51% lead, 0.34% zinc and 52g/t silver at 2.49% CuEq19 including 58.2m @ 3.1% copper, 0.6% lead, 0.24% zinc, 74g/t silver and 0.015% molybdenum at 3.84% CuEq19. Further detail is shown in Table B below.
• We consider the results to be supportive of future exploration potential, with the Peake prospect remaining open in several directions. Further exploration drilling at Peake is planned in H1 FY24.

Table B: Selected Peake drilling results6

				From			To						Width			Zinc			Lead			Silver			Copper			Molybdenum			CuEq19
	Hole ID							Cut Off
			(m)			(m)					(m)			(%)			(%)			(ppm)			(%)			(%)			(%)
	HDS-810															No Significant Intersection
			1302.7		1441.7			0.2% Cu	139		0.34		0.51			52		1.88		-		2.49
																			Including
	HDS-813	1315.1		1424			0.2% Cu	109		0.32		0.52			60		2.27		-		2.93
																			Including
			1333.8		1392			0.2% Cu	58.2		0.24		0.6			74		3.1		0.015		3.84
			1192.7		1545.6			0.2% Cu	353		0.1		0.2			12.1		0.28		-		0.45
	HDS-814																	Including
	1242.4		1268			0.2% Cu	25.6		0		0			14.3		0.7		-		0.8
			1442.3		1476.8			0.2% Cu	34.4		0.5		0.5			17.3		0.35		-		0.78
	HDS-815															No Significant Intersection

Cross-section through the Taylor, Clark and Peake mineralisation domains showing the previously reported and new exploration holes, simplified geology and Taylor Thrust - looking east 2000m wide

South32 Quarterly Report June 2023

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Greenfield exploration

• We invested US$42M in our greenfield exploration opportunities during FY23, as we progressed multiple programs targeting base metals in Australia, USA, Canada, Argentina, Peru and Ireland.
• Following the end of the period, we commenced an inaugural exploration drilling campaign at our 100% owned Roosevelt project in Alaska, targeting potential copper and zinc mineralisation. The exploration program is scheduled to be completed in H1 FY24.

Other exploration

• We invested US$65M (US$43M capitalised) in exploration programs at our existing operations and development options during FY23, including US$20M at the Hermosa project (noted above, all capitalised), US$9M at Ambler Metals (all capitalised), US$2M for our manganese EAI (US$1M capitalised) and US$7M for our Sierra Gorda EAI (US$3M capitalised).

South32 Quarterly Report June 2023

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