REG - South32 Limited - Final Results <Origin Href="QuoteRef">S32.AX</Origin> - Part 2
25/08/2016 07:08
- Part 2: For the preceding part double click ID:nRSY0873Ia
Aluminium 51 118
Underlying EBIT 78 181
Alumina 36 83
Aluminium 42 98
Net operating assets 707 928
Alumina 737 744
Aluminium (30) 184
Capital expenditure 12 8
Major projects (>US$100M) - -
All other capital expenditure 12 8
Exploration expenditure - -
Exploration expensed - -
(a) Other income in FY16 includes revenue of US$172M from the sale of surplus electricity.
South Africa Energy Coal
(92% SHARE)
Volumes
South Africa Energy Coal saleable production decreased by 2.6Mt (or 8%) to 31.7Mt in FY16. Lower production resulted from
the planned closure of the opencast mine at Khutala and a reduction in contractor activity at the Wolvekrans Middelburg
Complex, consistent with our focus on value over volume.
Total coal production guidance for FY17 is maintained at approximately 30.9Mt, with a higher proportion of domestic sales.
In FY18, a small decrease in production is expected to 29.8Mt.
The Klipspruit Life Extension project proceeded into the feasibility study stage in FY16, where the viability of a lower
capital cost development option is being assessed. In addition, we continue to work with Eskom under the existing (cost
plus) Coal Sales Agreement to progress a lower capital cost option to extend the life of the Khutala underground mine.
Costs
Operating unit costs decreased by 13% to US$26/t in FY16 due to a stronger US dollar and a significant improvement in
labour productivity. In this context, the insourcing of activity underpinned a 38% reduction in contractor numbers when
compared with the average headcount in FY15, while employee numbers were also reduced by 14%.
Operating unit costs, including Sustaining capital expenditure, are expected to decline only marginally to US$26/t in FY17
(FY16: US$27/t) despite the assumed weakening of the South African Rand given the relatively high proportion of fixed costs
and lower production. In this context, Sustaining capital expenditure of US$72M is planned. Exchange rate and price
assumptions for our FY17 unit cost targets are detailed on page 27, footnote 16.
Financial performance
Underlying EBIT remained largely unchanged in FY16 at US$95M. A reduction in contractor and labour costs increased
Underlying EBIT by US$66M while a stronger US dollar delivered a further US$112M net benefit. Non-cash charges declined by
US$95M as depreciation and amortisation was rebased following the recognition of impairments in FY15 and the December 2015
half year. In contrast, lower realised prices reduced Underlying EBIT by US$117M, net of price-linked costs.
Capital expenditure decreased by 36% to US$63M in FY16 following the purchase of mobile equipment in the prior period.
Pre-tax restructuring costs, including redundancies, of approximately US$15M were incurred in FY16 and have been excluded
from the Group's Underlying earnings measures.
100 per cent terms(a) FY16 FY15
Energy coal production (kt) 31,681 34,273
Domestic sales (kt)(b) 17,169 18,416
Export sales (kt)(b) 15,157 16,390
Realised domestic sales price (US$/t)(b) 18 21
Realised export sales price (US$/t)(b) 46 56
Operating unit cost (US$/t)(c) 26 30
(a) South32's interest in South Africa Energy Coal is accounted at 100% until B-BBEE vendor loans are repaid.
(b) 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.
(c) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
100 per cent terms(a) (US$M) FY16 FY15
Sales revenue(b) 1,009 1,315
Underlying EBITDA 182 276
Underlying EBIT 95 94
Net operating assets/(liabilities) (99) 395
Capital expenditure 63 98
Major projects (>US$100M) 2 -
All other capital expenditure 61 98
Exploration expenditure - -
Exploration expensed - -
(a) South32's interest in South Africa Energy Coal is accounted at 100% until B-BBEE vendor loans are repaid.
(b) Includes domestic and export sales revenue.
Illawarra Metallurgical Coal
(100%)
Volumes
Illawarra Metallurgical Coal saleable production decreased by 560kt (or 6%) to 8.4Mt in FY16 as challenging geological
conditions were encountered at the Appin and Dendrobium mines in the first six months of the reporting period. Three
planned longwall moves were also completed during the year.
The Appin Area 9 project was completed in January 2016, ahead of schedule and below budget, significantly increasing
longwall utilisation and cutting rates. Saleable coal production guidance is unchanged at 9.5Mt for FY17 and this rate of
production is expected to be maintained in FY18. Two longwall moves and one step around are planned for FY17, with the step
around scheduled for the September 2016 quarter and the two longwall moves for the March 2017 quarter.
Costs
Operating unit costs decreased by 18% to US$61/t in FY16 as the US dollar strengthened and we reorganised the operation
into two teams, surface processing and logistics, and underground mining, thereby removing layers of management and
functional support while creating greater focus. Employee and contractor numbers declined by 17%.
Previously announced restructuring initiatives have been completed and we expect operating unit costs, including Sustaining
capital expenditure, to decline to US$71/t in FY17 (FY16: US$80/t). This reflects planned Sustaining capital expenditure of
US$117M, including underground development of approximately US$66M. Revised exchange rate and price assumptions for our
FY17 unit cost targets are detailed on page 27, footnote 16.
Financial performance
Underlying EBIT decreased by US$31M in FY16 to a loss of US$61M. Lower realised coal prices (-US$128M, net of
price-linked costs) and a decline in sales volumes
(-US$36M) were partially offset by a US$67M reduction in controllable costs and the benefit of a stronger US dollar
(+US$71M).
Capital expenditure decreased by 40% to US$185M in FY16 with the completion of the Appin Area 9 project. Underground
development of US$106M included US$64M for Appin Area 9.
Pre-tax restructuring costs, including redundancies, of approximately US$12M were incurred in FY16 and have been excluded
from the Group's Underlying earnings measures.
South32 share FY16 FY15
Metallurgical coal production (kt) 7,059 7,455
Energy coal production (kt) 1,307 1,471
Metallurgical coal sales (kt) 6,984 7,324
Energy coal sales (kt) 1,333 1,378
Realised metallurgical coal sales price (US$/t)(a) 84 101
Realised energy coal sales price (US$/t)(a) 43 54
Operating unit cost (US$/t)(b) 61 74
(a) Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
South32 share (US$M) FY16 FY15
Sales revenue(a) 642 814
Underlying EBITDA 132 167
Underlying EBIT (61) (30)
Net operating assets 1,516 1,518
Capital expenditure 185 308
Major projects (>US$100M) 30 51
All other capital expenditure(b) 155 257
Exploration expenditure 4 5
Exploration expensed 4 5
(a) Includes metallurgical coal and energy coal sales revenue.
(b) Includes capitalised underground development expenditure and Appin Area 9 project underground development
expenditure in
FY16 of US$106M (FY15: US$119M).
Australia Manganese
(60% SHARE)
Volumes
Australia Manganese saleable ore production increased by 129kwmt (or 4%) to a record 3.1Mwmt in FY16 as concentrator
performance improved and the Premium Concentrate Ore (PCO2) project was completed. The project, which increased GEMCO's
production capacity by 500kwmt, was completed 17% under budget and ahead of schedule in the June 2016 quarter.
Consistent with prior guidance and in response to challenging market conditions, Australia Manganese is expected to operate
below recently expanded capacity of 5.3Mwmt (100% basis), with ore production of 3.1Mwmt projected for each of FY17 and
FY18.
We obtained consent from the Anindilyakwa Land Council to access the Eastern Leases and the Southern Areas at GEMCO in June
2016. The Eastern Leases will enable us to mine new areas within our existing operating footprint. Access to the Southern
Areas, adjacent to the existing operations, will substantially increase our exploration footprint at this highly
prospective manganese operation.
Saleable manganese alloy production decreased by 34kt
(or 20%) to 133kt in FY16 as power shortages led to the suspension of two of four furnaces. The operation returned to full
production in July 2016.
Costs
FOB manganese ore operating unit costs decreased by 16% to US$1.41/dmtu in FY16 as the US dollar strengthened and we
reduced GEMCO employee and contractor numbers by 4%. Associated costs savings more than offset an increase in the strip
ratio from 3.0 to 3.3.
Previously announced restructuring initiatives have been completed and we expect FOB operating unit costs, including
Sustaining capital expenditure, to decline to US$1.66/dmtu in FY17 (FY16: US$1.88/dmtu FOB), despite an expected increase
in the strip ratio to 3.7. This reflects planned Sustaining capital expenditure of US$31M. Revised exchange rate and price
assumptions for our FY17 unit cost targets are detailed on page 27, footnote 16.
Financial performance
Underlying EBIT decreased by US$58M in FY16 to US$65M. Lower manganese ore and alloy prices reduced Underlying EBIT by
US$163M, net of price-linked costs, although this was partially offset by a stronger US dollar, which increased Underlying
EBIT by US$33M.
Capital expenditure decreased by US$30M to US$68M in FY16 and included a US$28M investment to complete the PC02 project.
Due to natural attrition and the decision not to recruit roles associated with the PC02 project, the reduction in employee
and contractor numbers resulted in no redundancy costs at GEMCO in FY16.
South32 share FY16 FY15
Manganese ore production (kwmt) 3,071 2,942
Manganese alloy production (kt) 133 167
Manganese ore sales (kwmt)(a) 3,084 2,788
External customers 2,771 2,483
TEMCO 313 305
Manganese alloy sales (kt)(a) 150 139
Realised manganese ore sales price (FOB, US$/dmtu)(a)(b) 2.48 3.48
Realised manganese alloy sales price (US$/t)(a) 860 1,079
Ore operating unit cost 1.41 1.68
(FOB, US$/dmtu)(b)(c)
Alloy operating unit cost (US$/t)(c) 833 971
(a) Volumes and realised prices do not include any third party trading that may be undertaken independently of equity
production. Realised ore prices are calculated as sales revenue less freight and marketing costs, divided by sales volume.
Realised alloy prices are calculated as sales revenue, including sinter revenue, divided by alloy sales volume. Ore
converted to sinter and alloy, and sold externally is eliminated as an intracompany transaction. External ore sales in
italics have been restated.
(b) FY16 average manganese content of ore sales was 47.3% on a dry basis (FY15: 47.7%). 94% of FY16 manganese ore sales
(FY15: 90%) were completed on a CIF basis. FY16 realised FOB ore prices and operating unit costs have been adjusted for
freight and marketing costs of US$24M (FY15: US$37M), consistent with our FOB cost guidance.
(c) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales
volume. Alloy operating unit costs is Revenue less Underlying EBITDA divided by alloy sales volumes and includes costs
associated with sinter sold externally.
South32 share (US$M) FY16 FY15
Sales revenue(a) 476 595
Manganese ore 372 479
Manganese alloy 129 150
Intra-segment elimination (25) (34)
Underlying EBITDA 154 243
Manganese ore 150 228
Manganese alloy 4 15
Underlying EBIT 65 123
Manganese ore 67 116
Manganese alloy (2) 7
Net operating assets 341 1,384
Manganese ore 322 1,365
Manganese alloy 19 19
Capital expenditure 68 98
Major projects (>US$100M) - -
All other capital expenditure 68 98
Exploration expenditure 1 2
Exploration expensed - 2
(a) Revenues referring to sales from GEMCO to TEMCO are eliminated as part of the consolidation.
South Africa Manganese
(ORE 44.4% SHARE, ALLOY 60% SHARE)
Volumes
South Africa Manganese saleable ore production decreased by 563kwmt (or 25%) to 1.7Mwmt in FY16 following the decision to
initially suspend mining activity in November 2015 and then restructure the operation in response to challenging market
conditions. Mining recommenced at both Wessels and Mamatwan in the March 2016 quarter, ramping-up to an optimised 2.9Mwmt
pa (100% basis) production rate.
The second phase of the Central Block development project will enable underground mining activity to relocate closer to
critical infrastructure, thereby reducing cycle times. As a result of the fatality at the Wessels underground mine in June
2016 and the subsequent reprioritisation of activities, commissioning is now expected in the March 2017 quarter.
Saleable manganese alloy production decreased by 155kt
(or 63%) to 91kt in FY16 following the decision to suspend three of the four high-carbon ferromanganese furnaces at
Metalloys in May 2015. Metalloys will continue to operate one of four furnaces until market conditions improve.
Costs
FOB manganese ore operating unit costs decreased by 3% to US$1.91/dmtu in FY16 as the US dollar strengthened, production
volumes were rebased and employee and contractor numbers were reduced by 41%.
Previously announced restructuring initiatives have been completed and we expect FOB operating unit costs, including
Sustaining capital expenditure, to decline to US$1.71/dmtu in the June 2017 half year (FY16: US$2.01/dmtu FOB). This
reflects planned Sustaining capital expenditure of US$7M.
The expected six month delay in achieving our cost target reflects the reprioritisation of activities at the Wessels
underground mine following the fatality that occurred in June 2016. Revised exchange rate and price assumptions for our
FY17 unit cost targets are detailed on page 27, footnote 16.
Financial performance
Underlying EBIT decreased by US$27M in FY16 to a loss of US$47M as lower realised manganese ore and alloy prices reduced
Underlying EBIT by US$69M, net of price-linked costs. Lower sales volumes reduced Underlying EBIT by a further US$112M,
although this impact was more than offset by a reduction in costs associated with the temporary suspension of operations
(+US$111M) and a stronger US dollar (+US$44M).
Capital expenditure decreased significantly to US$11M in FY16.
Pre-tax restructuring costs, including redundancies, of approximately US$8M were incurred in FY16 and have been excluded
from the Group's Underlying earnings measures.
South32 share FY16 FY15
Manganese ore production (kwmt) 1,711 2,274
Manganese alloy production (kt) 91 246
Manganese ore sales (kwmt)(a) 1,834 2,210
External customers 1,736 1,685
Metalloys 98 525
Manganese alloy sales (kt)(a) 110 251
Realised manganese ore sales price (US$/dmtu)(a)(b) 2.06 2.53
Realised manganese alloy sales price (US$/t)(a) 682 876
Ore operating unit cost (US$/dmtu)(b)(c) 1.91 1.97
Alloy operating unit cost (US$/t)(b)(c) 882 948
(a) Volumes and prices do not include any third party trading that may be undertaken independently of equity production.
Realised ore prices are calculated as sales revenue less freight and marketing costs, divided by sales volume. Realised
alloy prices are calculated as sales revenue, divided by alloy sales volume. Ore converted to sinter and alloy, and sold
externally is eliminated as an intracompany transaction. Manganese ore sales are grossed-up to reflect a 60% accounting
effective interest.
(b) FY16 average manganese content of ore sales was 39.9% on a dry basis (FY15: 41.4%). 57% of FY16 manganese ore sales
(FY15: 36%) were completed on a CIF basis. FY16 realised FOB ore prices and operating costs have been adjusted for freight
and marketing costs of US$17M (FY15: US$20M), consistent with our FOB cost guidance.
(c) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales
volume. Alloy operating unit costs is Revenue less Underlying EBITDA divided by alloy sales volumes.
South32 share (US$M) FY16 FY15
Revenue(a) 234 420
Manganese ore(b) 166 249
Manganese alloy 75 220
Intra-segment elimination (7) (49)
Underlying EBITDA (11) 32
Manganese ore(b) 11 50
Manganese alloy (22) (18)
Underlying EBIT (47) (20)
Manganese ore(b) (13) 12
Manganese alloy (34) (32)
Net operating assets 342 530
Manganese ore(b) 258 384
Manganese alloy 84 146
Capital expenditure 11 41
Major projects (>US$100M) - -
All other capital expenditure 11 41
Exploration expenditure - -
Exploration expensed - -
(a) Revenues referring to sales from Hotazel mines to Metalloys are eliminated as part of the consolidation.
(b) 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 statement will continue to reflect a 54.6% interest in South Africa
Manganese ore.
Cerro Matoso
(99.9% SHARE)
Volumes
Cerro Matoso payable nickel production decreased by 3.6kt (or 9%) to 36.8kt in FY16. Lower production resulted from a
decline in the average ore grade, consistent with the mine plan.
Payable nickel production guidance remains unchanged at approximately 36.0kt for FY17. A small decrease in production is
expected in FY18, however access to the higher grade La Esmeralda Mineral Resource(10) is expected to be facilitated by the
development of a low cost river crossing which should see payable nickel production rise temporarily to more than 40kt in
FY19 and FY20.
Costs
Operating unit costs decreased by 21% to US$4.08/lb in FY16. This largely reflected the benefit of a stronger US dollar, an
18% reduction in employee and contractor numbers, and a decrease in energy usage and rates.
Previously announced restructuring initiatives have been completed and we expect operating unit costs, including Sustaining
capital expenditure, to decline to US$3.87/lb in FY17 (FY16: US$4.30/lb). This reflects planned Sustaining capital
expenditure of US$15M and a new collective labour agreement which provides certainty for the next three years. Revised
exchange rate and price assumptions for our FY17 unit cost targets are detailed on page 27, footnote 16.
Financial performance
Underlying EBIT decreased by US$146M in FY16 to a loss of US$88M due to weaker realised prices (-US$192M, net of
price-linked costs) and a decline in sales volumes
(-US$57M). These impacts were partially offset by a reduction in controllable costs (+US$36M) and a stronger US dollar
(+US$84M).
Capital expenditure of US$18M was 50% lower than the prior period.
Pre-tax restructuring costs, including redundancies, of approximately US$4M were incurred in FY16 and have been excluded
from the Group's Underlying earnings measures.
South32 share FY16 FY15
Ore mined (kwmt) 6,009 6,321
Ore processed (kdmt) 2,699 2,629
Ore grade processed (%, Ni) 1.54 1.67
Payable nickel production (kt) 36.8 40.4
Payable nickel sales (kt) 36.8 40.6
Realised nickel sales price (US$/lb)(a) 4.10 6.63
Operating unit cost (US$/lb)(b) 4.08 5.14
(a) Inclusive of by-products. Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by Payable nickel sales volume.
South32 share (US$M) FY16 FY15
Sales revenue 333 593
Underlying EBITDA 2 133
Underlying EBIT (88) 58
Net operating assets 683 763
Capital expenditure 18 36
Major projects (>US$100M) - -
All other capital expenditure 18 36
Exploration expenditure 5 9
Exploration expensed 2 1
Cannington
(100% SHARE)
Volumes
Payable silver and lead production decreased by 5%, to 21.39Moz and 173.2kt respectively, in FY16 due to a temporary
reduction in mill throughput. Conversely, an increase in the average zinc ore grade and recoveries resulted in record
annual zinc production of 79.0kt (+9%).
Following the completion of our first annual planning cycle, we have optimised the longer term mine plan at Cannington,
with silver and lead production guidance for FY17 reduced by 2% and 3%, respectively, and zinc production guidance
increased by 3%. This plan, which seeks to increase total silver, lead and zinc extraction across the remaining years of
the underground operation and reduce geotechnical risk by resequencing stope design, results in a further 10-13% reduction
in payable metal production in FY18 (to 16.55Moz for silver, 147kt for lead and 72kt for zinc).
We have also concluded that an investment decision to potentially extend the life of the Cannington mine will not be
required before the end of this decade.
Costs
Operating unit costs declined by 15% to US$145/t of ore processed in FY16 as the US dollar strengthened, employee and
contractor numbers were reduced by 17% and procurement savings, including lower contractor rates, were embedded.
We expect operating unit costs, including Sustaining capital expenditure, to decline to US$138/t of ore processed in FY17
(FY16: US$153/t). This reflects planned Sustaining capital expenditure of US$45M. Exchange rate and price assumptions for
our FY17 unit cost targets are detailed on page 27, footnote 16.
Financial performance
Underlying EBIT decreased by US$13M in FY16 to US$274M. Lower average realised prices reduced Underlying EBIT by US$89M,
net of price-linked costs, although this impact was offset by a US$47M reduction in controllable costs and a US$41M benefit
associated with the stronger US dollar.
Finalisation adjustments and the provisional pricing of Cannington concentrates reduced Underlying EBIT by US$11M in FY16
(-US$19M in the December 2015 half year;
-US$43M in FY15). Outstanding concentrate sales (containing 3.1Moz of silver, 30.9kt of lead and 6.4kt of zinc) were
revalued at 30 June 2016. The final price of these sales will be determined in the first half of FY17.
Capital expenditure of US$27M was 31% lower than the prior period.
South32 share FY16 FY15
Ore mined (kt) 3,289 3,418
Ore processed (kt) 3,149 3,289
Ore grade processed (g/t, Ag) 255 257
Ore grade processed (%, Pb) 6.6 6.7
Ore grade processed (%, Zn) 3.8 3.4
Payable silver production (koz) 21,393 22,601
Payable lead production (kt) 173.2 183.0
Payable zinc production (kt) 79.0 72.3
Payable silver sales (koz) 20,852 23,831
Payable lead sales (kt) 169.7 188.9
Payable zinc sales (kt) 82.6 66.8
Realised silver sales price (US$/oz)(a) 16.2 16.8
Realised lead sales price (US$/t)(a) 1,780 1,890
Realised zinc sales price (US$/t)(a) 1,780 2,171
Operating unit cost (US$/t ore processed)(b) 145 170
(a) Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished
product inventory may impact operating unit costs as related marketing costs and treatment and refining charges may
change.
South32 share (US$M) FY16 FY15
Revenue 786 902
Underlying EBITDA 330 342
Underlying EBIT 274 287
Net operating assets 242 280
Capital expenditure 27 39
Major project (>US$100M) - -
All other capital expenditure 27 39
Exploration expenditure 3 5
Exploration expensed 3 5
NOTES
(1) The pro forma and statutory financial information reflects continuing operations and therefore excludes the
contribution of the New Mexico Coal asset.
(2) Percentage change has not been disclosed for statutory results on the basis that the variances between FY16 and FY15
are substantially different due to the impact of the Internal Restructure prior to demerger.
(3) Revenue includes revenue from third party products.
(4) FY16 basic earnings per share is calculated as Profit/(loss) after taxation from continuing operations divided by
the weighted average number of shares for FY16 (5,324 million). FY16 basic Underlying earnings per share is calculated as
Underlying earnings divided by the weighted average number of shares for FY16. Pro forma FY15 basic earnings per share is
calculated as pro forma Profit/(loss) after taxation from continuing operations divided by the number of shares on issue at
30 June 2015 (5,324 million). Pro forma FY15 basic Underlying earnings per share is calculated as pro forma Underlying
earnings divided by the number of shares on issue at 30 June 2015.
(5) Underlying EBIT is profit from continuing operations before net finance costs, taxation and any earnings adjustment
items, including impairments. Underlying EBIT is reported inclusive of South32's share of net finance costs and taxation of
equity accounted investments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation. Underlying
earnings is Profit/(loss) after taxation and earnings adjustment items. Underlying earnings is the key measure that South32
uses to assess the performance of the South32 Group, make decisions on the allocation of resources and assess senior
management's performance. In addition, the performance of each of the South32 operations and operational management are
assessed based on Underlying EBIT. In order to calculate Underlying earnings, Underlying EBIT and Underlying EBITDA, the
following items are adjusted as applicable each period, irrespective of materiality:
· Exchange rate gains/losses on restatement of monetary items;
· Impairment losses/reversals;
· Net gain/loss on disposal and consolidation of interests in businesses;
· Fair value gain/loss on derivative instruments;
· Major corporate restructures; and
· The income tax impact of the above items.
In addition, items that do not reflect the underlying operations of South32, and are individually significant to the
financial statements, are excluded to determine Underlying earnings. Significant items are detailed in the Financial
Information.
(6) Comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product
revenue.
(7) Comprises Underlying EBIT excluding third party product EBIT, divided by revenue excluding third party product
revenue.
(8) Return on invested capital (ROIC) is a key measure that South32 uses to assess performance. ROIC is calculated as
Underlying EBIT less the discount on rehabilitation provisions included in net finance cost, tax effected by the Group's
Underlying effective tax rate (ETR), divided by the sum of fixed assets (excluding any rehabilitation asset and
impairments) and inventories. Manganese is included in the calculation on a proportional consolidation basis.
(9) Controllable costs are measured on a cash basis (including equity accounted investments) and exclude significant
items, inter-segment sales, foreign exchange rate movements, country specific inflation, price-linked costs and
discontinued/suspended operations. Any controllable cost movement is defined in absolute terms compared to FY15 and is not
a measure of unit cost performance.
(10) La Esmeralda comprises 9.4Mt of Mineral Resources of the total reported Mineral Resources for FY16 which is provided
in this report. This is made up of 74% Measured Mineral Resources and 26% Indicated Mineral Resources at an average grade
of 1.59% Ni. The project is based on a completed Feasibility Study demonstrating the project is economically viable. La
Esmeralda has recently been granted regulatory environmental approvals. The information that relates to the FY16 Cerro
Matoso Ore Reserves and Mineral Resources (inclusive of Ore Reserves) is reported in accordance with the 'Australasian Code
for Reporting of Exploration Results, Mineral Resources and Ore Reserves' ('The JORC Code, 2012 Edition') in this report.
The information related to Mineral Resources and Ore Reserves is based on information compiled by Ivan Espitia (MAusIMM)
and Nelson Monterroza (MAusIMM) respectively. The above-mentioned persons are full-time employees of South32 Limited and
have the required qualifications and experience to qualify as Competent Persons for Mineral Resources and Ore Reserves as
defined in the 2012 Edition of the JORC Code. The Competent Persons verify that this report is based on and fairly reflects
the Mineral Resources and Ore Reserves information in the report and consent to the inclusion in this report of the matters
based on the information in the form and context in which it appears. The Mineral Resources and Ore Reserves breakdown by
classification are contained on page 49 for Cerro Matoso. All tonnes and grade information has been rounded, hence small
differences may be present in the totals. Tonnages are reported on a dry basis in millions of tonnes (Mt).
(11) Total capital expenditure comprises Capital expenditure, the purchase of intangibles and capitalised exploration
expenditure. Capital expenditure comprises Sustaining capital expenditure and Major projects capital expenditure.
Sustaining capital expenditure comprises Stay-in-business (SIB), Minor discretionary and Deferred stripping (including
underground development) capital expenditure.
(12) South32's ownership share of operations are as follows: Worsley Alumina (86%), South Africa Aluminium (100%), Mozal
Aluminium (47.1% share), Brazil Alumina (Alumina 36% share, Aluminium 40% share), South Africa Energy Coal (92% share),
Illawarra Metallurgical Coal (100%), Australia Manganese (60% share), South Africa Manganese (60% share), Cerro Matoso
(99.9% share), and Cannington (100%).
(13) South32's interest in South Africa Energy Coal is accounted at 100% until employee share ownership plan (ESOP) and
broad-based black economic empowerment (B-BBEE) vendor loans are repaid.
(14) Operating unit cost, including Sustaining capital expenditure is operating cost plus Sustaining capital expenditure
divided by sales. Operating cost is Revenue less Underlying EBITDA. Additional manganese disclosures are included on pages
23 and 24.
(15) Prior projected Operating unit cost guidance, including Sustaining capital expenditure, and prior Sustaining capital
expenditure guidance, include royalties (where appropriate) and the influence of exchange rate assumptions, and are
predicated on: an alumina price of US$255/t; an average blended coal price of US$65/t for Illawarra Metallurgical Coal; a
manganese ore price of US$2.00/dmtu for 44% manganese product; a nickel price of US$3.75/lb; an AUD:USD exchange rate of
0.68; a USD:ZAR exchange rate of 14.12; and a USD:COP exchange rate of 3,170; all of which reflected forward markets at the
end of H1 FY16 or our internal expectations.
(16) New projected Operating unit cost targets, including Sustaining capital expenditure, and Sustaining capital
expenditure guidance, include royalties (where appropriate) and the influence of exchange rate assumptions, and are
predicated on: an alumina price of US$259/t; an average blended coal price of US$83/t for Illawarra Metallurgical Coal; a
manganese ore price of US$3.23/dmtu for 44% manganese product; a nickel price of US$3.95/lb; a thermal coal price of
US$54/t (API4) for South Africa Energy Coal; a silver price of US$17.50/troy oz; a lead price of US$1,723/t; a zinc price
of US$1,907/t; an AUD:USD exchange rate of 0.72; a USD:ZAR exchange rate of 16.57; and a USD:COP exchange rate of 3,025;
all of which reflect forward markets as at May 2016 or our internal expectations.
(17) FY17 Capital expenditure guidance is predicated on: an AUD:USD exchange rate of 0.72; a USD:ZAR exchange rate of
16.57; and a USD:COP exchange rate of 3,025; all of which reflect forward markets as at May 2016 or our internal
expectations.
(18) Underlying effective tax rate (ETR) is Underlying income tax expense (pro forma Underlying income tax expense for
FY15) excluding royalty related taxation divided by Underlying profit before tax (pro forma Underlying profit before tax
for FY15); both the numerator and denominator exclude equity accounted investments.
(19) Sales price variance reflects the revenue impact of changes in commodity prices, based on the current period's sales
volume. Price-linked costs variance reflects the change in royalties together with the change in input costs driven by
changes in commodity prices or market traded consumables. Foreign exchange reflects the impact of exchange rate movements
on local currency denominated costs and sales. Volume variance reflects the revenue impact of sales volume changes, based
on the comparative period's sales prices. Controllable costs variance represents the impact from changes in the Group's
controllable local currency cost base, including the variable cost impact of production volume changes on expenditure, and
period on period movements in inventories. The controllable cost variance excludes earnings adjustments including
significant items.
(20) Underlying net finance cost and Underlying taxation expense are actual FY16 results, not year-on-year variances.
(21) Third party product sold comprises US$264 million for aluminium (pro forma FY15: US$394 million), US$59 million for
alumina (pro forma FY15: US$147 million), US$72 million for coal (pro forma FY15: US$88 million), US$90 million for freight
services (pro forma FY15: US$40 million) and US$100 million for aluminium raw materials (pro forma FY15: US$126 million).
Underlying EBIT on third party products comprise US$3 million for aluminium (pro forma FY15: US$1 million), (US$3) million
for alumina (pro forma FY15: US$22 million), US$5 million for coal (pro forma FY15: US$1 million), US$1 million for freight
services (pro forma FY15: US$ nil) and US$ nil for aluminium raw materials (pro forma FY15: US$4 million).
(22) The South32 Group acquired each of the following operations on the respective dates in parentheses: Worsley Alumina
(8 May 2015), South Africa Aluminium (2 February 2015), Mozal Aluminium (27 March 2015), Brazil Alumina (3 July 2014),
South Africa Energy Coal (2 February 2015), Australia Manganese (8 May 2015), South Africa Manganese (3 February 2015),
Cerro Matoso (2 February 2015), and Cannington (31 January 2015).
The following abbreviations may be used throughout this report: US$ million (US$M); US$ billion (US$B); financial year is
abbreviated to FY16; financial year (FY), grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per
annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); thousand troy ounces (koz); million troy ounces (Moz);
thousand wet metric tonnes (kwmt); thousand dry metric tonnes (kdmt) dry metric tonne unit (dmtu); pound (lb); megawatt
(MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock Exchange (JSE).
SOUTH32 FINANCIAL INFORMATION
For the year ended 30 June 2016
BASIS OF PREPARATION
The financial information included in this document for the year ended 30 June 2016 is unaudited. The financial information
does not constitute the South32 Group's full financial statements for the year ended 30 June 2016, which will be approved
by the Board, reported on by the auditors, and filed with the Australian Securities and Investments Commission. The South32
Group's full financial statements will be prepared in accordance with the requirements of the Corporations Act 2001,
Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. Unless
otherwise stated, the comparative figures for the financial year ended 30 June 2015 are from the accounts of South32
Limited.
Effective 15 May 2015, BHP Billiton shares ceased trading with an entitlement to South32 shares. Economic separation and
distribution of South32 shares to shareholders became effective from 25 May 2015. Prior to the demerger, the South32 Group
and the BHP Billiton Group were required to undertake a number of internal share and asset transfers in connection with the
corporate restructure (Internal Restructure)(22). As required, and unless otherwise stated, comparative statutory financial
information for the South32 Group has been presented for the 2015 financial year (FY15). The South32 Group's comparative
statutory financial information only includes the results of the current South32 Group operations (also referred to as
"operations") from their date of acquisition during the financial year as part of the Internal Restructure. The exception
is Illawarra Metallurgical Coal, which was part of the South32 Group at 1 July 2014 and the results of New Mexico Coal for
the period 1 July 2014 to 27 October 2014, being the date that it ceased to be part of the South32 Group as a result of the
Internal Restructure. Accordingly, as a result of the Internal Restructure, the comparative statutory financial information
for FY15 does not reflect the performance of the South32 Group as it is currently structured.
All amounts are expressed in US dollars unless otherwise stated. The South32 Group's presentation currency and the
functional currency of the majority of its operations is US dollars as this is the principal currency of the economic
environment in which it operates.
Comparative figures have been prepared on the same basis as the current period figures. Amounts in this financial
information have, unless otherwise indicated, been rounded to the nearest million dollars (US$M).
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2016
US$M FY16 FY15
Continuing operations
Revenue
Group production 5,227 3,480
Third party products 585 363
5,812 3,843
Other income 324 1,143
Expenses excluding net finance cost (7,247) (5,247)
Share of profit/(loss) of equity accounted investments (330) (70)
Profit/(loss) from continuing operations (1,441) (331)
Comprising:
Group production (1,447) (338)
Third party products 6 7
Profit/(loss) from continuing operations (1,441) (331)
Finance expenses (132) (89)
Finance income 28 22
Net finance cost (104) (67)
Profit/(loss) before taxation (1,545) (398)
Income tax (expense)/benefit (70) (432)
Royalty-related taxation (net of income tax) - (96)
Total tax (expense)/benefit (70) (528)
Profit/(loss) after taxation from continuing operations (1,615) (926)
Discontinued operations
Profit/(loss) from discontinued operations, net of taxation - 7
Profit/(loss) for the year (1,615) (919)
Attributable to:
Ordinary equity holders of South32 Limited (1,615) (919)
Profit/(loss) from continuing operations attributable to the ordinary equity holders of South32 Limited
Basic earnings per ordinary share (cents) (30.3) (26.9)
Diluted earnings per ordinary share (cents) (30.3) (26.9)
Profit/(loss) for the year attributable to the ordinary equity holders of South32 Limited
Basic earnings per ordinary share (cents) (30.3) (26.7)
Diluted earnings per ordinary share (cents) (30.3) (26.7)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2016
US$M FY16 FY15
Profit/(loss) for the year (1,615) (919)
Other comprehensive income
Items that may be reclassified subsequently to the income statement:
Equity accounted investments - share of other comprehensive income/(loss) - -
Available for sale investments:
Net gain/(loss) taken to equity (54) 65
Net (gain)/loss transferred to the income statement 23 -
Taxation benefit/(expense) recognised within other comprehensive income 9 (33)
Total items that may be reclassified subsequently to the income statement (22) 32
Items not to be reclassified to the income statement:
Equity accounted investments - share of other comprehensive income/(loss) 1 -
Actuarial gain/(loss) on pension and medical schemes 3 3
Taxation benefit/(expense) recognised within other comprehensive income (1) (1)
Total items not to be reclassified to the income statement 3 2
Total other comprehensive income/(loss) (19) 34
Total comprehensive income/(loss) (1,634) (885)
Attributable to:
Ordinary equity holders of South32 Limited (1,634) (885)
CONSOLIDATED BALANCE SHEET
as at 30 June 2016
US$M FY16 FY15
ASSETS
Current assets
Cash and cash equivalents 1,225 644
Trade and other receivables 618 1,162
Other financial assets 32 14
Inventories 747 953
Current tax assets 61 77
Other 18 18
Total current assets 2,701 2,868
Non-current assets
Trade and other receivables 445 185
Other financial assets 260 417
Inventories 55 60
Property, plant and equipment 8,651 9,550
Intangible assets 288 306
Equity accounted investments 570 1,707
Deferred tax assets 382 376
Other 22 20
Total non-current assets 10,673 12,621
Total assets 13,374 15,489
LIABILITIES
Current liabilities
Trade and other payables 676 921
Interest bearing liabilities 282 364
Other financial liabilities 1 4
Current tax payable 6 11
Provisions 408 398
Deferred income 4 6
Total current liabilities 1,377 1,704
Non-current liabilities
Trade and other payables 5 30
Interest bearing liabilities 631 682
Other financial liabilities 16 -
Deferred tax liabilities 501 554
Provisions 1,410 1,479
Deferred income 12 5
Total non-current liabilities 2,575 2,750
Total liabilities 3,952 4,454
Net assets 9,422 11,035
EQUITY
Share capital 14,958 14,958
Treasury shares (3) -
Reserves (3,555) (3,557)
Retained earnings/(accumulated losses) (1,977) (365)
Total equity attributable to ordinary equity holders of South32 Limited 9,423 11,036
Non-controlling interests (1) (1)
Total equity 9,422 11,035
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2016
US$M FY16 FY15
Operating activities
Profit/(loss) before taxation from continuing operations (1,545) (398)
Adjustments for:
Non-cash significant items (27) (921)
Depreciation and amortisation expense 775 477
Impairments of property, plant and equipment, financial assets, intangibles and equity accounted investments 1,386 1,389
Employee share awards expense 23 1
Net finance cost 95 67
Share of (profit)/loss of equity accounted investments 330 70
Other non-cash or non-operating items 42 90
Changes in assets and liabilities:
Trade and other receivables 163 (327)
Inventories 191 85
Trade and other payables (244) 161
Provisions and other liabilities (121) (29)
Cash generated from continuing operations 1,068 665
Interest received 27 23
Interest paid (46) (42)
Income tax (paid)/received (52) 1
Dividends received 14 -
Dividends received from equity accounted investments 19 -
Net cash flows from continuing operating activities 1,030 647
Net cash flows from discontinued operating activities - 23
Net cash flows from operating activities 1,030 670
Investing activities
Purchases of property, plant and equipment (383) (454)
Exploration expenditure (13) (10)
Exploration expenditure expensed and included in operating cash flows 9 7
Purchase of intangibles (13) (9)
Investment in financial assets (53) (400)
Investment in subsidiaries, operations and joint operations, net of their cash as part of the BHP Billiton demerger - (12,734)
Investment in equity accounted investments (1) (1,565)
Cash outflows from investing activities (454) (15,165)
Proceeds from sale of property, plant and equipment, financial assets and intangibles 112 8
Proceeds from divestment of subsidiaries, operations and joint operations, net of their cash as part of the BHP Billiton demerger - 171
Net cash flows from continuing investing activities (342) (14,986)
Net cash flows from discontinued investing activities - (9)
Net cash flows from investing activities (342) (14,995)
Financing activities
Proceeds from interest bearing liabilities 31 72
Repayment of interest bearing liabilities (127) (6)
Proceeds from amounts received from BHP Billiton - 1,224
Repayment of amounts owing to BHP Billiton - (831)
Purchase of shares by Employee Share Ownership Plan (ESOP) trusts (3) -
Proceeds from ordinary shares - 14,397
Net cash flows from continuing financing activities (99) 14,856
Net cash flows from financing activities (99) 14,856
Net increase/(decrease) in cash and cash equivalents 589 531
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