Quarterly Report - December 2021

RNS Number : 3509Z

South32 Limited

24 January 2022

 

South32 Limited

(Incorporated in Australia under the Corporations Act 2001 (Cth))

(ACN 093 732 597)

ASX, LSE, JSE Share Code: S32 ADR: SOUHY

ISIN: AU000000S320

24 January 2022

South32 Limited

Quarterly Report December 2021

"We achieved a number of strong production results across our portfolio and realised significantly higher commodity prices in the December 2021 half year, lifting operating margins across the Group. 

"We delivered higher base metals production and our integrated aluminium supply chain benefitted from additional alumina volumes and record aluminium prices.  

"We took further steps to reshape our portfolio for a low carbon future, increasing our exposure to critical metals with our planned acquisition of a 45% interest in the Sierra Gorda copper mine in Chile and further investment in green aluminium. 

"We expect to grow our total share of aluminium production by approximately 24% to 1.2Mt in FY23, through our proposed acquisition of an additional interest in the hydro powered Mozal Aluminium smelter and the restart of the Brazil Aluminium smelter using 100 per cent renewable power.

"We returned US$316M to shareholders during the period through our on-market share buy-back and the payment of ordinary and special dividends. Looking forward our shareholders are well positioned to benefit from stronger markets and production growth, with our capital management framework designed to reward owners as our financial performance improves."

Graham Kerr, South32 CEO

•	Achieved a 4% uplift in quarterly alumina production with Worsley Alumina continuing to operate above nameplate capacity, and record production at Brazil Alumina as it returned to normalised rates following the prior quarter's bauxite unloader outage
•	Revised Cannington FY22 production guidance higher by 5% with the operation on-track to transition to 100% truck haulage in the June 2022 quarter
•	Increased payable nickel production at Cerro Matoso by 26% with plant availability benefitting from completion of the furnace refurbishment in FY21
•	Revised Australia Manganese FY22 production guidance lower by 9% as COVID-19 and weather impacted production, preventing the re-build of stockpiles ahead of the wet season
•	Increased South Africa Manganese production by 7% in the December 2021 half year with higher output of premium material
•	Completed an extended longwall move at Illawarra Metallurgical Coal in the quarter, resulting in lower production for the December 2021 half year
•	Realised record aluminium pricing in the December 2021 half year, while managing the impact of third-party port and freight congestion for our Southern African smelters
•	Committed to grow our green aluminium capacity through our agreed acquisition of an additional shareholding in Mozal Aluminium1 and restart of the Brazil Aluminium smelter2
•	Added copper exposure to our portfolio, announcing the acquisition of a 45% interest in the Sierra Gorda joint venture, which is expected to complete in the March 2022 quarter3
•	Finalised the zinc-lead-silver Taylor Deposit's pre-feasibility study following the end of the period, confirming its potential to be the first development option at our Hermosa project4

Production summary
South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	QoQ
Alumina production (kt)	2,716	2,610	(4%)		1,401	1,278	1,332	4%
Aluminium production (kt)	496	494	(0%)		248	248	246	(1%)
Metallurgical coal production (kt)	3,262	2,767	(15%)		1,399	1,575	1,192	(24%)
Manganese ore production (kwmt)	2,920	2,861	(2%)		1,459	1,565	1,296	(17%)
Payable nickel production (kt)	16.1	20.3	26%		6.1	9.6	10.7	11%
Payable silver production (koz)	5,993	6,710	12%		3,130	3,493	3,217	(8%)
Payable lead production (kt)	57.6	60.2	5%		31.2	31.9	28.3	(11%)
Payable zinc production (kt)	30.4	32.7	8%		18.0	15.4	17.3	12%
Unless otherwise noted: percentage variance relates to performance during the half year ended December 2021 compared with the half year ended December 2020 (HoH), or the December 2021 quarter compared with the September 2021 quarter (QoQ); production and sales volumes are reported on an attributable basis.

Corporate Update

•	The COVID-19 pandemic continues to impact our operations and supply chains in different ways, across our global portfolio. We have seen an increase in case numbers and workforce restrictions in many of the jurisdictions in which we operate, impacting labour availability.
•	Port congestion and tight global freight conditions continue to impact our supply chains, slowing the movement of inventory, most notably for our aluminium smelters in Southern Africa. While the resultant build in aluminium inventory during the December 2021 half year is expected to persist in the near term, we have and continue to establish alternative shipping solutions and points of dispatch to minimise the impact. We expect the working capital build to unwind once we realise the full benefit of our initiatives and port congestion and general freight tightness is alleviated.
•	We received net distributions5 of US$102M (South32 share) from our manganese equity accounted investments (Manganese EAI) in the December 2021 half year.
•	We spent US$60M purchasing a further 25M shares at an average price of A$3.36 via our on-market share buy-back during the December 2021 half year. To 31 December 2021 our US$2B capital management program was 90% complete with US$192M remaining to be returned to shareholders ahead of its extension or expiry on 2 September 20226.
•	We refinanced our multicurrency revolving credit facility, securing US$1.4B of commitments for a five-year term to 2026, with options to extend for up to a further two years by mutual agreement. The facility has been established as a sustainability-linked loan with measures linked to our ongoing commitment to emissions reduction and improving energy and water use efficiency.
•	Reflecting our strong balance sheet and continued disciplined approach to capital allocation, our current BBB+/Baa1 credit ratings were re-affirmed by S&P and Moody's respectively.
•	Our Group Underlying effective tax rate (ETR) for the December 2021 half year is expected to be approximately 30%, reflecting the corporate tax rates of the jurisdictions in which we operate7, as well as a change in accounting treatment with our manganese business (including a royalty related tax for Australia Manganese) now included in Underlying earnings on a proportionally consolidated basis8. The ETR for our manganese business in the December 2021 half year is expected to be in a range of approximately 40-45%, including the royalty related tax9.
•	We entered into binding conditional agreements with Sumitomo Metal Mining and Sumitomo Corporation (collectively Sumitomo) on 14 October 2021 to acquire a 45% interest in the Sierra Gorda copper mine in Chile for upfront cash consideration of US$1.55B and contingent price-linked consideration of up to US$500M3. The acquisition is expected to be completed in the March 2022 quarter, subject to the satisfaction of the remaining conditions.
•	Our acquisition of an additional shareholding in Mozal Aluminium from MCA Metals (Mitsubishi)1, remains on-track to complete in the March 2022 quarter. Our shareholding is expected to increase by a minimum of 16.6% to 63.7% for a headline purchase price of US$166M.
•	Following the end of the period, we announced our decision to participate in the restart of the Alumar aluminium smelter (Brazil Aluminium, 40% South32 share), together with our joint venture partner Alcoa Corporation (Alcoa)2. First production is expected in the June 2022 quarter, with full capacity of 447ktpa (100%) in the March 2023 quarter. We have secured cost efficient renewable power for our share of production, while our alumina supply will be sourced from the co-located Brazil Alumina refinery (36% South32 share).
•	Separately, to secure and align our Brazilian bauxite supply requirements, we have entered into a conditional agreement for the acquisition of an additional 18.2% interest in the MRN bauxite mine from subsidiaries of Alcoa, which would take our ownership of the mine to 33%. Completion is expected in the June 2022 half year, subject to the satisfaction of conditions.
•	Samancor Manganese entered into a binding conditional agreement on 29 November 2021 to divest the Metalloys manganese alloy smelter, subject to the satisfaction of conditions.
•	Illawarra Metallurgical Coal's Dendrobium Next Domain life extension project was declared as State Significant Infrastructure by the New South Wales Government on 4 December 2021. We are working towards the completion of an alternate mine plan and the submission of an environmental impact statement for the project in the March 2022 quarter.

Development and Exploration Update

Hermosa project

•	Following the end of the period, we reported the results of a pre-feasibility study (PFS) for the Taylor Deposit4, the first development option at our Hermosa project. The PFS results support Taylor's potential to be the first stage of a multi-decade operation, establishing Hermosa as a globally significant producer of metals critical to a low carbon future. An initial development case demonstrates a sustainable, highly productive zinc-lead-silver underground mine and conventional process plant, in the first quartile of the industry cost curve. Comple tion of the feasibility study and a final investment decision to construct Taylor are expected in mid CY23.
•	In parallel, we are advancing a PFS for the Clark Deposit, following the completion of a scoping study which confirmed the potential for a separate, integrated underground mining operation producing battery-grade manganese, as well as zinc and silver4. Our study work will also consider the opportunity to integrate its development with Taylor, potentially unlocking further operating and capital efficiencies.
•	We directed US$8M to exploration programs at Hermosa in the December 2021 half year, including work to identify targets across the broader land package. As part of this work, we have identified a highly prospective corridor which contains Taylor and Clark as well as the Peake and Flux exploration targets4. Exploration drilling at both prospects is planned during CY22, with the Flux program subject to the receipt of required permits.

Other development and exploration options

•	At our Ambler Metals joint venture, infill drilling was completed at the Arctic Deposit during the summer exploration season. Further resource drilling at the Arctic Deposit and drill testing of regional exploration targets in the Ambler Belt is planned for the CY22 summer exploration season. An update on the forward work program from our joint venture partner can be accessed at www.trilogymetals.com.
•	We invested US$13M during the December 2021 half year in our early stage greenfield exploration opportunities with multiple programs targeting base metals underway in Australia, USA, Canada, Argentina, Peru and Ireland.
•	We directed US$24M toward exploration programs at our existing operations and development options in the December 2021 half year (US$17M capitalised), including US$2M for our Manganese EAI (US$1M capitalised), US$8M at the Hermosa project as noted above (all capitalised) and US$7M at Ambler Metals (all capitalised).

Production Summary

Production guidance (South32 share)	FY21	1H22	FY22e(a)	Guidance comments
Worsley Alumina
Alumina production (kt)	3,963	1,979	3,965
Brazil Alumina
Alumina production (kt)	1,398	631	1,300
Brazil Aluminium
Aluminium production (kt)	-	-	5	Smelter expected to restart in the June 2022 quarter, reaching full capacity (179kt, 40% South32 share) in the March 2023 quarter
Hillside Aluminium10
Aluminium production (kt)	717	358	720
Mozal Aluminium10
Aluminium production (kt)	265	136	273	No change to guidance pending the completion of our acquisition of an additional shareholding1
Illawarra Metallurgical Coal
Total coal production (kt)	7,645	3,145	7,300	Subject to further COVID-19 related impacts on labour availability. An update to our FY22 and FY23 guidance is expected to be provided with our H1 FY22 results announcement
Metallurgical coal production (kt)	6,170	2,767	6,300
Energy coal production (kt)	1,475	378	1,000
Australia Manganese
Manganese ore production (kwmt)	3,529	1,704	↓ 3, 200	Revised to reflect COVI D-19 and weather disrupted production, preventing the re-build of stockpiles ahead of the wet season
South Africa Manganese
Manganese ore production11 (kwmt)	2,264	1,157	2,200
Cerro Matoso
Payable nickel production (kt)	34.1	20.3	43.8
Cannington
Payable zinc equivalent production12 (kt)	319.0	152.5	↑292.2	Revised to reflect continued strong underground mine performance and higher average grades
Payable silver production (koz)	13,655	6,710	↑12,283
Payable lead production (kt)	131.8	60.2	↑117.9
Payable zinc production (kt)	67.7	32.7	↑66.7

a.  The denotation (e) refers to an estimate or forecast year. All guidance is subject to further potential impacts from COVID-19.

Marketing Summary

Market conditions remained strong in the December 2021 half year. Robust demand, congested freight markets and supply disruptions, including energy curtailments, resulted in significant price increases across many of our commodities.

Realised prices13	1H21	2H21	1H22	1H22 vs 1H21	1H22 vs 2H21
Worsley Alumina
Alumina (US$/t)	278	309	389	40%	26%
Brazil Alumina
Alumina (US$/t)	277	297	387	40%	30%
Hillside Aluminium
Aluminium (US$/t)	1,882	2,386	2,952	57%	24%
Mozal Aluminium
Aluminium (US$/t)	1,943	2,457	3,041	57%	24%
Illawarra Metallurgical Coal
Metallurgical coal (US$/t)	107	123	303	183%	146%
Energy coal (US$/t)	31	51	108	248%	112%
Australia Manganese14
Manganese ore (US$/dmtu, FOB)	3.93	4.34	4.59	17%	6%
South Africa Manganese15
Manganese ore (US$/dmtu, FOB)	3.49	3.56	3.47	(1%)	(3%)
Cerro Matoso16
Payable nickel (US$/lb)	6.29	7.06	8.39	33%	19%
Cannington17
Payable silver (US$/oz)	26.0	24.9	21.0	(19%)	(16%)
Payable lead (US$/t)	1,744	1,965	2,180	25%	11%
Payable zinc (US$/t)	2,228	2,468	2,988	34%	21%

Worsley Alumina (86% share)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Alumina production (kt)	2,010	1,979	(2%)		1,047	1,006	973	(7%)	(3%)
Alumina sales (kt)	2,078	1,946	(6%)		1,077	924	1,022	(5%)	11%

Worsley Alumina saleable production decreased by 2% (or 31kt) to 1,979kt in the December 2021 half year. FY22 production guidance remains unchanged at 3,965kt with our ongoing focus on improvement initiatives at the refinery expected to maintain production above nameplate capacity of 4.6Mt (100% basis).

We realised a circa 8% premium to the Platts Alumina Index¹⁸ on a volume weighted M-1 basis for alumina sales from Worsley Alumina in the December 2021 half year, with our realised prices benefitting from the impact of elevated global freight rates which are also reflected in Operating unit costs.

Notwithstanding the refinery's continued strong performance that has enabled us to capture the benefit of market conditions, elevated caustic soda prices and freight rates are expected to result in Operating unit costs for the December 2021 half year being approximately 5% above our FY22 guidance (US$241/t). We expect higher caustic soda prices to persist in the June 2022 half year further impacting the refinery's Operating unit costs. Updated FY22 Operating unit cost guidance will be provided in our financial results announcement for the December 2021 half year.  

Brazil Alumina (36% share)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Alumina production (kt)	706	631	(11%)		354	272	359	1%	32%
Alumina sales (kt)	674	626	(7%)		334	247	379	13%	53%

Saleable production decreased by 11% (or 75kt) to 631kt in the December 2021 half year. Production improved by 32% (or 87kt) to a record 359kt in the December quarter as the refinery returned to nameplate capacity in October 2021, following an incident in July 2021 that damaged one of the two bauxite unloaders at the operation. FY22 production guidance remains unchanged at 1,300kt.  

Sales increased by 53% in the December 2021 quarter with the prior quarter's shipment schedule impacted by the bauxite unloader outage and vessel availability. We realised a circa 4% premium to the Platts Alumina Index¹⁸ on a volume weighted M-1 basis for alumina sales from Brazil Alumina in the December 2021 half year, with our realised prices benefitting from the impact of elevated global freight rates which are also reflected in Operating unit costs.

Notwithstanding the improvement in production volumes from the refinery returning to nameplate capacity, the impact of elevated raw material input prices, in combination with the already realised volume impact of the bauxite unloader outage, is expected to result in Operating unit costs for the December 2021 half year being approximately 30% higher than the June 2021 half year (US$201/t).  

Hillside Aluminium (100%)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Aluminium production (kt)	361	358	(1%)		181	180	178	(2%)	(1%)
Aluminium sales (kt)	347	336	(3%)		172	160	176	2%	10%

Hillside Aluminium saleable production decreased by 1% (or 3kt) to 358kt in the December 2021 half year as the smelter continued to test its maximum technical capacity, despite the impact from higher load-shedding in the period. FY22 production guidance, which does not assume any load-shedding impact, remains unchanged at 720kt¹⁰.

During the half year, we completed a feasibility study for the AP3XLE energy efficiency project, approving its execution. We expect to roll the technology out as part of the smelter's pot relining program starting in FY23, bringing both volume and efficiency benefits, while reducing carbon intensity.

Third party port performance at Richards Bay and ongoing congestion in global shipping conditions, impacted the smelter's capacity to sustainably unwind working capital that was built in the September 2021 quarter. In response we have and continue to establish alternative discharge and cargo shipping options to mitigate these challenges, while maintaining sales volumes into strong market conditions. The smelter realised record prices of US$2,952/t in the December 2021 half year. We expect the current working capital build to unwind once we realise the full benefit of our initiatives, and port congestion and general freight tightness is alleviated.

While the smelter has benefitted from the continuation of strong underlying realised prices, that are anticipated to further improve operating margins, elevated raw material input costs and the smelter's energy price linkage to the South Africa Producer Price Index are expected to result in an increase in Operating unit costs in the December 2021 half year (June 2021 half year: US$1,722/t) of approximately 10%.  

Mozal Aluminium (47.1% share)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Aluminium production (kt)	135	136	1%		67	68	68	1%	0%
Aluminium sales (kt)	130	122	(6%)		66	55	67	2%	22%

Mozal Aluminium saleable production increased by 1% (or 1kt) to 136kt in the December 2021 half year as the benefit of our investment in the AP3XLE energy efficiency project more than offset the impact of further load-shedding. FY22 production guidance, which does not assume any load-shedding impact, remains unchanged at 273kt¹⁰. Updated production guidance will be provided following the completion of our acquisition of an additional shareholding in Mozal Aluminium that remains on-track to complete in the March 2022 quarter ¹ .  

Challenging port and global shipping conditions impacted sales volumes from Mozal Aluminium in the December 2021 half year. Conditions improved in the December 2021 quarter with sales increasing by 22%. The smelter realised record prices of US$3,041/t in the December 2021 half year.

While the smelter has benefitted from the continuation of strong underlying realised prices, that are anticipated to further improve operating margins, elevated raw material input costs are expected to result in an increase in Operating unit costs in the December 2021 half year (June 2021 half year: US$1,818/t) of approximately 10%. 

Illawarra Metallurgical Coal (100%)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Total coal production (kt)	4,096	3,145	(23%)		1,725	1,888	1,257	(27%)	(33%)
Total coal sales19 (kt)	4,027	3,255	(19%)		2,087	1,708	1,547	(26%)	(9%)
Metallurgical coal production (kt)	3,262	2,767	(15%)		1,399	1,575	1,192	(15%)	(24%)
Metallurgical coal sales (kt)	3,165	2,877	(9%)		1,697	1,490	1,387	(18%)	(7%)
Energy coal production (kt)	834	378	(55%)		326	313	65	(80%)	(79%)
Energy coal sales (kt)	862	378	(56%)		390	218	160	(59%)	(27%)

Illawarra Metallurgical Coal saleable production decreased by 23% (or 951kt) to 3,145kt in the December 2021 half year as we completed an extended longwall move at the Dendrobium mine in the current quarter. We made no energy coal sales of low-margin coal wash, with elevated freight rates making them uneconomic in the period.

The implementation of additional COVID-19 workforce restrictions in New South Wales has the potential to further impact labour availability across the June 2022 half year. We expect to provide updated production guidance for FY22 and FY23 at our financial results announcement for the December 2021 half year, as we continue to monitor the impact of COVID-19 and progress design of an alternate mine plan for the Dendrobium Next Domain life extension project. 

Lower December 2021 half year production and sales volumes, and higher price-linked royalties arising from the significant increase in prices year to date, are expected to result in our Operating unit costs for the December 2021 half year being approximately 20% above our FY22 guidance (US$101/t). Updated FY22 Operating unit cost guidance will be provided in our financial results announcement for the December 2021 half year.  

Australia Manganese  (60% share)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Manganese ore production (kwmt)	1,834	1,704	(7%)		954	897	807	(15%)	(10%)
Manganese ore sales (kwmt)	1,865	1,737	(7%)		871	906	831	(5%)	(8%)

Australia Manganese saleable production decreased by 7% (or 130kwmt) to 1,704kwmt in the December 2021 half year with lower yield at the primary concentrator, while the PC02 circuit continued to deliver production above nameplate capacity (13% of total production, 1H21: 10%).

FY22 production guidance has been revised lower by 9% to 3,200kwmt with wet weather disruptions and additional COVID-19 workforce restrictions in the Northern Territory preventing the re-build of stockpiles ahead of the wet season.

Lower December 2021 half year production and sales volumes are expected to result in our Operating unit costs for the period being approximately 5% above our FY22 guidance (US$1.68/dmtu). Updated FY22 Operating unit cost guidance will be provided in our financial results announcement for the December 2021 half year.  

South Africa Manganese (60% share)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Manganese ore production11 (kwmt)	1,086	1,157	7%		505	668	489	(3%)	(27%)
Manganese ore sales11 (kwmt)	1,103	1,202	9%		586	566	636	9%	12%

South Africa Manganese saleable production increased by 7% (or 71kwmt) to 1,157kwmt in the December 2021 half year as planned maintenance completed in the December 2021 quarter was more than offset by higher volumes of premium material from our Mamatwan mine as we optimised our product mix. 

Ore sales increased by 12% during the December 2021 quarter and 9% across the half year as we continued to truck additional volume, drawing down inventory and optimising our sales mix for market conditions. As a result, our sales achieved a premium of approximately 11% to the medium grade 37% manganese lump ore index²⁰ on a volume weighted M-1 basis.   

FY22 production guidance remains unchanged at 2,200kwmt as we continue to monitor market conditions and our use of higher cost trucking.   

Cerro Matoso (99.9% share)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Payable nickel production (kt)	16.1	20.3	26%		6.1	9.6	10.7	75%	11%
Payable nickel sales (kt)	16.5	20.1	22%		6.1	10.4	9.7	59%	(7%)

Cerro Matoso payable nickel production increased by 26% (or 4.2kt) to 20.3kt in the December 2021 half year as plant availability returned to normal following the major plant refurbishment completed in FY21. Separately, average ore processed nickel grades improved to 1.73% (1H21: 1.57%) with the processing of higher-grade material from the Q&P project.

Notwithstanding a shipment slipping at the end of the period due to congestion at a destination port, nickel sales increased by 22% in the December 2021 half year as production levels normalised. While our ferronickel product continues to sell at a discount to the LME Nickel index price on a M or M+1 basis, this discount narrowed during the December 2021 half year, averaging approximately 5% (FY21: 9%).

FY22 production guidance remains unchanged at 43.8kt with the operation expected to benefit from a further improvement in plant availability and additional volumes from the higher-grade Q&P project in the June 2022 half year.  

Cannington (100% share)

South32 share	1H21	1H22	HoH		2Q21	1Q22	2Q22	2Q22 vs 2Q21	2Q22 vs 1Q22
Payable zinc equivalent production12 (kt)	140.5	152.5	9%		76.4	78.2	74.3	(3%)	(5%)
Payable silver production (koz)	5,993	6,710	12%		3,130	3,493	3,217	3%	(8%)
Payable silver sales (koz)	6,326	6,718	6%		3,359	2,718	4,000	19%	47%
Payable lead production (kt)	57.6	60.2	5%		31.2	31.9	28.3	(9%)	(11%)
Payable lead sales (kt)	61.4	63.3	3%		31.9	25.3	38.0	19%	50%
Payable zinc production (kt)	30.4	32.7	8%		18.0	15.4	17.3	(4%)	12%
Payable zinc sales (kt)	31.8	32.8	3%		20.0	14.3	18.5	(8%)	29%

Cannington payable zinc equivalent production increased by 9% (or 12kt) to 152.5kt in the December 2021 half year as higher grades across all products and strong underground performance supported metal production. FY22 production guidance has been revised higher by 5% (silver 12,283koz, lead 117.9kt and zinc 66.7kt, for 292.2kt of payable zinc equivalent production¹²) with the operation remaining on-track to transition to 100% truck haulage from the June 2022 quarter.

Payable zinc sales increased by 29% during the December 2021 quarter as we drew down inventory, while payable lead and silver sales increased by 50% and 47% respectively due to the timing of shipments, following adverse weather in the September 2021 quarter.

A trial of light battery electric vehicles is expected to commence during the June 2022 half year, testing their potential use in our vehicle fleet.

Notes

1.	Refer to market release "South32 to acquire up to an additional 25% of Mozal Aluminium" dated 30 September 2021.
2.	Refer to market release "Restart of Brazil Aluminium using renewable power" dated 6 January 2022.
3.	Refer to market release "South32 to acquire a 45% interest in the Sierra Gorda copper mine" dated 14 October 2021. Upfront consideration subject to customary working capital and net debt adjustments. Contingent price-linked consideration payable at threshold copper production rates and prices in the years 2022-25. The estimates indicated in the original announcement are qualifying foreign estimate and are not reported in accordance with the JORC Code. A Competent Person has not done sufficient work to classify foreign estimates as Mineral Resources or Ore Reserves in accordance with the JORC Code. It is uncertain that following evaluation and/or further work that the foreign estimates will be reported as Mineral Resources or Ore Reserves in accordance with the JORC Code.
4.	Refer to market release "Hermosa project update" dated 17 January 2022.
5.	Net distributions from equity accounted investments includes net debt movements and dividends, which are unaudited and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.
6.	Since inception, US$1.4B has been allocated to the on-market share buy-back (674M shares at an average price of A$2.88 per share) and US$386M returned in the form of special dividends.
7.	The corporate tax rates of the geographies where the Group operates include: Australia 30%, South Africa 28%, Colombia 31%, Mozambique 0% and Brazil 34%. The Colombian corporate tax rate increased to 35% from 1 January 2022. The Mozambique operations are subject to a royalty on revenues instead of income tax.
8.	Our manganese business is included in our Underlying EBITDA, EBIT and earnings on a proportionally consolidated basis from 1 July 2021, aligning our approach for material equity accounted investments including the proposed acquisition of Sierra Gorda.
9.	Australia Manganese is subject to a royalty related tax equal to 20% of adjusted EBIT which is included in tax expense.
10.	Production guidance for Hillside Aluminium and Mozal Aluminium does not assume any load-shedding impact on production.
11.	Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales have been reported at 60%. The Group's financial statements will continue to reflect a 54.6% interest in South Africa Manganese ore.
12.	Payable zinc equivalent production (kt) was calculated by aggregating revenues from payable silver, lead and zinc, and dividing the total Revenue by the price of zinc. FY21 realised prices for zinc (US$2,357/t), lead (US$1,862/t) and silver (US$25.4/oz) have been used for FY21, H1 FY22 and FY22e.
13.	Realised prices are unaudited. Volumes and prices do not include any third party trading that may be undertaken independently of equity production. Realised sales price is calculated as sales Revenue divided by sales volume unless otherwise stated.
14.	Realised ore prices are unaudited and calculated as external sales Revenue less freight and marketing costs, divided by external sales volume. Ore converted to sinter and alloy, and sold externally, is eliminated as an intracompany transaction.
15.	Realised ore prices are unaudited and calculated as external sales Revenue less freight and marketing costs, divided by external sales volume.  Manganese ore sales are grossed-up to reflect a 60% accounting effective interest.
16.	Realised nickel sales prices are unaudited and inclusive of by-products.
17.	Realised prices for Cannington are unaudited and net of treatment and refining charges.
18.	The sales volume weighted average of the Platts Alumina Index (FOB Australia) on the basis of a one month lag to published pricing (Month minus one or "M-1") for Worsley Alumina was US$360/t and Brazil Alumina was US$371/t in the December 2021 half year.
19.	Illawarra Metallurgical Coal sales are adjusted for moisture and will not reconcile directly to Illawarra Metallurgical Coal production.
20.	The sales volume weighted average of the Metal Bulletin 37% manganese lump ore index (FOB Port Elizabeth, South Africa) on the basis of M-1 was US$3.12/dmtu in the December 2021 half year.

The following abbreviations have been used throughout this report: US$ million (US$M); US$ billion (US$B); grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); ounces (oz); thousand ounces (koz); million ounces (Moz); thousand wet metric tonnes (kwmt); million wet metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); dry metric tonne unit (dmtu); thousand dry metric tonnes (kdmt).

Figures in Italics indicate that an adjustment has been made since the figures were previously reported. The denotation (e) refers to an estimate or forecast year.

Operating Performance

South32 share		1H21		1H22		2Q21	3Q21	4Q21	1Q22	2Q22
Worsley Alumina (86% share)
Alumina hydrate production (kt)		2,012		1,994		1,002	977	992	997	997
Alumina production (kt)		2,010		1,979		1,047	875	1,078	1,006	973
Alumina sales (kt)		2,078		1,946		1,077	840	1,086	924	1,022
Brazil Alumina (36% share)
Alumina production (kt)		706		631		354	343	349	272	359
Alumina sales (kt)		674		626		334	384	333	247	379
Hillside Aluminium (100%)
Aluminium production (kt)		361		358		181	176	180	180	178
Aluminium sales (kt)		347		336		172	191	169	160	176
Mozal Aluminium (47.1% share)
Aluminium production (kt)		135		136		67	64	66	68	68
Aluminium sales (kt)		130		122		66	64	68	55	67
Illawarra Metallurgical Coal (100%)
Total coal production (kt)		4,096		3,145		1,725	1,824	1,725	1,888	1,257
Total coal sales19 (kt)		4,027		3,255		2,087	1,823	1,766	1,708	1,547
Metallurgical coal production (kt)		3,262		2,767		1,399	1,568	1,340	1,575	1,192
Metallurgical coal sales (kt)		3,165		2,877		1,697	1,542	1,367	1,490	1,387
Energy coal production (kt)		834		378		326	256	385	313	65
Energy coal sales (kt)		862		378		390	281	399	218	160
Australia Manganese (60% share)
Manganese ore production (kwmt)		1,834		1,704		954	829	866	897	807
Manganese ore sales (kwmt)		1,865		1,737		871	865	891	906	831
Ore grade sold (%, Mn)		44.4		44.2		44.5	44.4	44.5	44.2	44.2
South Africa Manganese (60% share)
Manganese ore production11 (kwmt)		1,086		1,157		505	580	598	668	489
Manganese ore sales11 (kwmt)		1,103		1,202		586	497	636	566	636
Ore grade sold (%, Mn)		39.9		39.5		40.0	40.6	39.5	40.3	38.7
Cerro Matoso (99.9% share)
Ore mined (kwmt)		1,470		2,416		825	594	1,174	1,058	1,358
Ore processed (kdmt)		1,155		1,335		457	528	702	620	715
Ore grade processed (%, Ni)		1.57		1.73		1.55	1.60	1.76	1.76	1.71
Payable nickel production (kt)		16.1		20.3		6.1	7.1	10.9	9.6	10.7
Payable nickel sales (kt)		16.5		20.1		6.1	6.7	10.3	10.4	9.7
Cannington (100%)
Ore mined (kwmt)		1,409		1,475		709	714	696	750	725
Ore processed (kdmt)		1,302		1,385		672	724	720	687	698
Silver ore grade processed (g/t, Ag)		174		177		179	177	213	185	169
Lead ore grade processed (%, Pb)		5.1		5.2		5.2	5.8	6.6	5.5	4.9
Zinc ore grade processed (%, Zn)		3.3		3.4		3.7	3.5	3.9	3.2	3.6
Payable Zinc equivalent production12 (kt)		140.5		152.5		76.4	81.4	97.1	78.2	74.3
Payable silver production (koz)		5,993		6,710		3,130	3,484	4,178	3,493	3,217
Payable silver sales (koz)		6,326		6,718		3,359	2,950	4,460	2,718	4,000
Payable lead production (kt)		57.6		60.2		31.2	33.0	41.2	31.9	28.3
Payable lead sales (kt)		61.4		63.3		31.9	28.4	41.9	25.3	38.0
Payable zinc production (kt)		30.4		32.7		18.0	17.8	19.5	15.4	17.3
Payable zinc sales (kt)		31.8		32.8		20.0	15.9	21.3	14.3	18.5

Forward-looking statements

This release contains forward-looking statements, including statements about trends in commodity prices and currency exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; capital costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; and provisions and contingent liabilities. These forward-looking statements reflect expectations at the date of this release, however they are not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this release. Readers are cautioned not to put undue reliance on forward-looking statements. Except as required by applicable laws or regulations, the South32 Group does not undertake to publicly update or review any forward-looking statements, whether as a result of new information or future events. Past performance cannot be relied on as a guide to future performance. South32 cautions against reliance on any forward looking statements or guidance, particularly in light of the current economic climate and the significant volatility, uncertainty and disruption arising in connection with COVID-19.

Further information

INVESTOR RELATIONS Tom Gallop M  [phone] E  [e-mail]

MEDIA RELATIONS Miles Godfrey M  [phone] E  [e-mail]

Jenny White M  [phone] E  [e-mail]

24 January 2022
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd

 

END

 

 

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