REG - South32 Limited - Financial Results & Outlook Half Year 31 Dec 2019
13/02/2020 07:00
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RNS Number : 8841C South32 Limited 13 February 2020
APPENDIX 4D
SOUTH32 LIMITED
(ABN 84 093 732 597)
RESULTS FOR ANNOUNCEMENT TO THE MARKET
This page and the accompanying 54 pages comprise the half year end financial
information given to the Australian Securities Exchange (ASX) under Listing
Rule 4.2A. This statement includes the consolidated results of the South32
Group for the half year ended 31 December 2019 (H1 FY20) compared with the
half year ended 31 December 2018 (H1 FY19) on a statutory basis.
The half year report should be read in conjunction with the Financial Report
for the year ended 30 June 2019.
US$M H1 FY20 H1 FY19 %
Revenue 3,216 3,811 down 16%
Profit/(loss) after tax 99 635 down 84%
Underlying earnings 131 642 down 80%
Net tangible assets per share
Net tangible assets per ordinary share were US$1.98 as at 31 December 2019
(US$1.98 as at 30 June 2019).
Dividends
The Board has resolved to pay an interim dividend of US 1.1 cents per share
(fully franked) for the half year ended
31 December 2019 and a special dividend of US 1.1 cents per share (fully
franked).
The record date for determining entitlements to dividends is 6 March 2020;
payment date is 2 April 2020.
13 February 2020
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
South32 Limited
Financial Results and Outlook Half Year ended 31 December 2019
South32 maintains strong operating performance and continues returns to
shareholders
"Against a challenging backdrop for our key commodities we delivered another
strong operating result with production for the majority of our operations
tracking on or ahead of schedule. Our operating costs trended down in the half
and we have lowered our cost guidance across most of our operations.
"We delivered record production at Brazil Alumina and maintained higher output
rates at Worsley Alumina. We responded to lower manganese prices at South
Africa Manganese, cutting higher cost trucking.
"Investing in exploration to create shareholder value is integral to our
Group's strategy as we work to reshape and improve our portfolio. We have
continued to embed high quality development options including the Ambler
Metals Joint Venture in Alaska while investing in our portfolio of more than
20 exploration projects targeting base metals in prospective jurisdictions.
"We also entered into a binding conditional agreement for the sale of our
South Africa Energy Coal business and progressed the review of our manganese
alloy smelters.
"We advanced our pre-feasibility study at Hermosa and increased exploration
across the broader land package.
"Demonstrating our strong financial position, track record of returning excess
capital to shareholders and positive outlook for our business, today we
announced a fully franked interim dividend of US$54 million and a US$180
million increase to our capital management program, including US$54 million
which will be returned via a fully franked special dividend."
Graham Kerr, South32 CEO
Financial highlights
US$M H1 FY20 H1 FY19 % Change
Revenue((1)) 3,216 3,811 (16%)
Profit/(loss) before tax and finance cost 251 908 (72%)
Profit/(loss) after tax and finance cost 99 635 (84%)
Basic earnings per share (US cents)((2)) 2.0 12.5 (84%)
Ordinary dividends per share (US cents)((3)) 1.1 5.1 (78%)
Special dividends per share (US cents)((4)) 1.1 1.7 (35%)
Other financial measures
Underlying EBITDA((5)) 678 1,305 (48%)
Underlying EBITDA margin((6)) 24.0% 38.3% (14.3%)
Underlying EBIT((5)) 293 925 (68%)
Underlying EBIT margin((7)) 10.6% 26.9% (16.3%)
Underlying earnings((5)) 131 642 (80%)
Basic Underlying earnings per share (US cents)((2)) 2.7 12.6 (79%)
ROIC((8)) 1.7% 13.9% (12.2%)
Ordinary shares on issue (million) 4,900 5,051 (3%)
Safety
The most important commitment we make at South32 is to ensure everyone goes
home safe and well. Built on a strong culture of care and accountability we
are creating an inclusive workplace where all work is well-designed and we
continuously improve and learn. Our internal safety standards and risk
management system provide clear global expectations as to how our operations
can proactively identify and manage safety risk. Our Total Recordable Injury
Frequency (TRIF)(9)(10) improved by 13% to 3.9 per million hours worked in H1
FY20 from 4.5 in FY19.
Performance summary
The Group's statutory profit after tax decreased by 84% to US$99M and
Underlying earnings by 80% to US$131M in H1 FY20 as volatile macro-economic
conditions impacted the prices of our key commodities and a temporary increase
in our Underlying effective tax rate, more than offset weaker producer
currencies and initiatives that have delivered lower Operating unit costs for
the majority of our operations. We remain focussed on identifying and
embedding further opportunities to improve our operating and cost performance
in a sustainable way, to maximise margins. Following our strong start to the
year in this regard and our outlook for currency markets, we have lowered our
FY20 Operating unit cost guidance for the majority of our operations.
Separately we have lowered our Sustaining capital expenditure guidance,
including EAI, by US$25M to US$580M as we defer activity to open up new mining
areas at South Africa Energy Coal in response to market conditions.
Specific highlights for H1 FY20 included:
● Strong production at Worsley Alumina as we embed improvement initiatives that
are expected to support a sustainable increase in production to nameplate
capacity of 4.6Mt (100% basis) ahead of future de-bottlenecking activities and
record production at Brazil Alumina;
● Our response to lower manganese prices at South Africa Manganese, reducing the
use of higher cost trucking and opportunistically completing an extended
maintenance shut at our Wessels mine;
● The commencement of exploration drilling to infill areas of known
mineralisation and test regional targets in the Southern Areas at GEMCO,
following the receipt of final regulatory approval;
● The advancement of study work for our development options, with the Hermosa
pre-feasibility study due for completion in H2 FY20 and a final investment
decision expected for Eagle Downs Metallurgical Coal during H1 FY21;
● The progression of our manganese alloy smelter review including options for
their potential divestment, closure or suspension;
● The sale of a legacy shareholding owned by our manganese joint venture for
US$93M (South32 share); and
● The signing of a binding conditional agreement for the sale of our
shareholding in South Africa Energy Coal with Seriti Resources Holdings
Proprietary Limited (Seriti Resources) that, subject to a number of material
conditions(11) being satisfied, is expected to close in H1 FY21.
We finished the period with a net cash balance of US$277M, having generated
free cash flow from operations, including distributions from our manganese
EAI, of US$284M. Notwithstanding the volatile external environment, our strong
financial position and disciplined approach to capital management supported
the return of US$300M to shareholders in respect of the period including:
● A US$54M fully franked interim dividend, which we have resolved to pay in
April in accordance with our dividend policy which seeks to return a minimum
40% of Underlying earnings in each six month period;
● A US$54M fully franked special dividend, which we have also resolved to pay in
April; and
● The continuation of our on-market share buy-back program whereby we purchased
106M shares at an average price of A$2.66 per share for a cash consideration
of US$192M.
Having established a strong track record of returning excess capital to
shareholders in a timely and efficient manner and demonstrating our confidence
in the outlook for our business, the Board has also expanded our capital
management program by US$180M to US$1.43B, leaving US$198M expected to be
returned by 4 September 2020, following payment of the special dividend.
Subsequent to the end of the period, we also formed a 50:50 Joint Venture (JV)
with Trilogy Metals Inc. (TMX:TMQ) for the Upper Kobuk Mineral Projects
(Ambler Metals JV). The project is located in northwest Alaska and we have
subscribed for our interest with a payment of US$145M to the JV in February
2020. Trilogy contributed all of its assets associated with the Upper Kobuk
Mineral Projects and the JV will loan US$57.5M of the subscription payment
back to South32 with the balance retained to fund its activities and
exploration programs. Formation of the Ambler Metals JV comes following a
three year exploration partnership, with our share of the JV's assets,
liabilities, income and expenses to be recognised on a proportionally
consolidated basis, commencing with the FY20 South32 Group accounts.
Earnings
The Group's statutory profit after tax declined by US$536M (or 84%) to US$99M
in H1 FY20. Consistent with our accounting policies, various items are
excluded from the Group's statutory profit to derive Underlying earnings
including: exchange rate losses on restatement of monetary items (US$3M
pre-tax); losses on fair value movements of non-trading derivative instruments
and other investments (US$39M pre-tax); exchange rate gains associated with
the Group's non US dollar denominated net debt (US$5M pre-tax), and the tax
expense benefit for all pre-tax earnings adjustments and exchange rate
variations on tax balances (US$5M). Further information on these earnings
adjustments is included in note 4.
The Group's Underlying EBITDA declined by US$627M (or 48%) to US$678M, for an
operating margin of 24%. Lower realised prices for our key commodities
contributed to a US$595M reduction in Revenue. The Group's Operating unit
costs remained well controlled with the on-going realisation of benefits
associated with initiatives across our labour, energy and materials usage,
combining with lower raw material prices and weaker producer currencies to
offset general inflation. However, total costs rose with an increase in sales
volumes being the main driver of higher controllable costs. Depreciation and
amortisation increased by a modest US$5M to US$385M, meaning that Underlying
EBIT decreased by US$632M (or 68%) to US$293M. Underlying earnings declined by
US$511M (or 80%) to US$131M as the derecognition of tax assets at South Africa
Energy Coal, associated with its potential divestment, led to a temporary
increase in our Underlying effective tax rate (ETR)(12) to 75.0%.
Profit/(loss) to Underlying EBITDA reconciliation
US$M H1 FY20 H1 FY19
Profit/(loss) 251 908
Earnings adjustments to derive Underlying EBIT 42 17
Underlying EBIT 293 925
Depreciation and amortisation 385 380
Underlying EBITDA 678 1,305
Profit/(loss) after tax to Underlying earnings reconciliation
US$M H1 FY20 H1 FY19
Profit/(loss) after tax 99 635
Earnings adjustments to derive Underlying EBIT 42 17
Earnings adjustments to derive Underlying net finance cost (5) (21)
Earnings adjustments to derive Underlying income tax expense (5) 11
Underlying earnings 131 642
Earnings analysis
The following key factors influenced Underlying EBIT in H1 FY20, relative to
H1 FY19.
(The reconciliation of movements in Underlying EBIT graph can be found within
the National Storage Mechanism version of the release)
Earnings analysis US$M Commentary
H1 FY19 Underlying EBIT 925
Change in sales price (812) Lower average realised prices for our commodities, including:
Alumina (-US$262M)
Manganese ore (-US$230M)
Metallurgical coal (-US$151M)
Aluminium (-US$137M)
Energy coal (-US$100M)
Offset by higher average realised prices for:
Nickel (+US$72M)
Net impact of price-linked costs 85 Lower caustic soda prices at Worsley Alumina (+US$27M) and Brazil Alumina
(+US$12M)
Lower smelter raw material costs (+US$35M), including pitch and coke
Lower royalties (+US$15M), primarily at South Africa Manganese and Illawarra
Metallurgical Coal
Lower LME-linked electricity costs at Hillside Aluminium (+US$9M)
Higher third party bauxite costs at Brazil Alumina (-US$13M)
Change in exchange rates 94 Australian dollar (+US$51M)
South African rand (+US$26M)
Colombian peso (+US$12M)
Change in inflation (63) Southern Africa (-US$39M)
Australia (-US$19M)
Change in sales volume 120 Illawarra Metallurgical Coal (+US$62M)
Brazil Alumina (+US$30M)
Cannington (+US$26M)
Controllable costs (167) South Africa Energy Coal (-US$106M; primarily higher Klipspruit volumes and
the cost of selling unutilised rail capacity)
Illawarra Metallurgical Coal (-US$59M; primarily inventory movements)
Cannington (-US$19M; primarily inventory movements)
Hillside Aluminium (+US$21M; reduced pot relining activity and the benefit of
a major workforce restructure completed in June 2019)
Other 25 Includes:
Klipspruit dragline insurance proceeds at South Africa Energy Coal
Revenue from the sale of unutilised rail capacity at South Africa Energy Coal
Offset by:
Lower EBIT on third party product
Interest & tax (EAI) 86 Lower profitability from a weaker price environment for our jointly controlled
manganese operations
H1 FY20 Underlying EBIT 293
Net finance cost
The Group's Underlying net finance cost, excluding EAI, was US$69M in H1 FY20,
and largely reflects the unwinding of the discount applied to our closure and
rehabilitation provisions (US$54M) and interest on lease liabilities (US$26M),
primarily at Worsley Alumina.
Underlying net finance cost reconciliation
US$M H1 FY20 H1 FY19
Unwind of discount applied to closure and rehabilitation provisions (54) (52)
Finance lease interest - (25)
Interest on lease liabilities (26) -
Other 11 18
Underlying net finance cost (69) (59)
Add back earnings adjustment for exchange rate variations on net debt 5 21
Net finance cost (64) (38)
Tax expense
The Group's Underlying income tax expense, which excludes tax associated with
EAI, was US$93M for an Underlying ETR of 75.0% in H1 FY20. The elevated ETR
during the half year was mostly driven by the loss made at South Africa Energy
Coal, following the de-recognition of tax assets associated with its potential
divestment. Following its divestment we expect our ETR to more closely reflect
the corporate tax rates applicable to the Group(16).
The Underlying income tax expense for our manganese EAI was US$90M, including
royalty related taxation of US$31M at GEMCO (Australia Manganese), for an
Underlying ETR of 46.0% (H1 FY19: 38.8%). The elevated ETR during the half
year was mostly driven by the higher proportion of profit in our Australian
business during H1 FY20 and associated royalty expenses.
Underlying income tax expense reconciliation and Underlying ETR
US$M H1 FY20 H1 FY19
Underlying EBIT 293 925
Include: Underlying net finance cost (69) (59)
Remove: Share of profit/(loss) of EAI (100) (265)
Underlying profit/(loss) before tax 124 601
Income tax expense 88 235
Tax effect of earnings adjustments to Underlying EBIT 11 5
Tax effect of earnings adjustments to net finance cost (1) (7)
Exchange rate variations on tax balances (5) (9)
Underlying income tax expense 93 224
Underlying effective tax rate 75.0% 37.3%
Cash flow
The Group generated free cash flow from operations of US$124M despite a 21%
reduction in the average realised prices for our commodities. We also received
(net) distributions totalling US$160M from our manganese EAI, comprising
dividends of US$195M and a net drawdown in shareholder loans (-US$35M). Net
distributions from our manganese EAI include US$69M returned from the sale of
a legacy shareholding in an unlisted entity during Q2 FY20 for US$93M (South32
share).
Total capital expenditure(17), excluding EAI, increased by US$116M to US$422M
with Major capital, excluding EAI, rising US$65M to US$155M as we advanced the
Klipspruit Life Extension (KPSX) project(18) at South Africa Energy Coal
(+US$18M to US$73M) and ramped-up activity at Hermosa (+US$37M to US$70M).
Sustaining capital expenditure, excluding EAI, increased by US$32M to US$238M
with spend at Illawarra Metallurgical Coal rising to support an increase in
development rates and complete work that was previously deferred during the
Appin mine's extended outage in FY18.
Increased spend on Intangibles and capitalisation of exploration expenditure
reflects a greater investment in technology to support our operations and
US$18M on exploration, including US$12M at Hermosa. Total capital expenditure
associated with our EAI was largely unchanged at US$54M as we continued our
investment in additional tailings storage capacity at Australia Manganese.
Capital expenditure
US$M H1 FY20 H1 FY19
Sustaining capital comprising Stay-in-business, Minor discretionary and (238) (206)
Deferred stripping (including underground development)
Major project capital expenditure (155) (90)
Intangibles and the capitalisation of exploration expenditure (29) (10)
Total capital expenditure (excluding EAI) (422) (306)
EAI capital expenditure (including intangibles and capitalised exploration) (54) (53)
Total capital expenditure (including EAI) (476) (359)
Working capital decreased by US$216M as lower realised prices, receipt of the
initial insurance award for the Klipspruit dragline outage and the collection
of receipts from elevated sales in June 2019 contributed to a US$290M decline
in trade and other receivables. Our debtor days remained broadly unchanged at
22 (FY19: 24 days). Provisions and trade and other payables partially offset
the benefit of lower receivables, declining by US$41M and US$53M respectively
as raw material input prices fell for supplies purchased by our aluminium
smelters and we continued our investment in progressive rehabilitation at
South Africa Energy Coal.
Working capital movement reconciliation
US$M Movement
Trade and other receivables 290
Inventories 20
Trade and other payables (53)
Provisions and other liabilities (41)
Working capital movement 216
Free cash flow from operations, excluding EAI
US$M H1 FY20 H1 FY19
Profit/(loss) 251 908
Non-cash items 432 429
(Profit)/loss from EAI (100) (276)
Change in working capital 216 (93)
Cash generated 799 968
Total capital expenditure, excluding EAI, including intangibles and (422) (306)
capitalised exploration
Operating cash flows before financing activities and tax, and after capital 377 662
expenditure
Interest (paid)/received (10) 1
Income tax (paid)/received (243) (207)
Free cash flow from operations 124 456
Balance sheet, dividends and capital management
The Group's FY19 net cash position reduced by US$140M to US$364M on 1 July
2019 following the adoption of AASB 16 Leases. While the Group generated free
cash flow from operations, including distributions from our manganese EAI, of
US$284M during
H1 FY20, our net cash balance decreased to US$277M as we returned US$331M to
shareholders in the period, comprising our US$139M FY19 final ordinary
dividend and US$192M directed to our on-market share buy-back program.
Net cash/(debt)
US$M H1 FY20 FY19
Cash and cash equivalents 1,389 1,408
Finance leases - (543)
Lease liabilities (676) -
Other interest bearing liabilities (436) (361)
Net cash/(debt) 277 504
Reflecting our strong financial position and demonstrating the disciplined and
flexible approach we are taking to our capital management program, our Board
has resolved to pay a fully franked interim dividend of US$54M, representing
41% of Underlying earnings in H1 FY20 and a fully franked special dividend of
US$54M.
Our capital management framework remains unchanged and having established a
strong track record of returning excess capital to shareholders in a timely
and efficient manner, and reflecting its confidence in the outlook for the
business, the Board has also increased our capital management program by
US$180M to US$1.43B. This leaves US$198M to be returned by 4 September 2020
following payment of the US$54M special dividend.
Consistent with our commitment to maintain an investment grade credit rating,
Standard and Poor's and Moody's reaffirmed their respective BBB+ and Baa1
credit ratings for the Group.
Dividends announced
Period Dividend per share US$M Franking Pay-out ratio
(US cents)
H1 FY19 5.1 258 100% 40%
February 2019 special dividend 1.7 86 100% N/A
H2 FY19 2.8 140 100% 40%
H1 FY20 1.1 54 100% 41%
February 2020 special dividend 1.1 54 100% N/A
South32 shareholders registered on the South African branch register will not
be able to dematerialise or rematerialise their shareholdings between 4 and 6
March 2020 (both dates inclusive), nor will transfers to/from the South
African branch register be permitted between 27 February and 6 March 2020
(both dates inclusive).
Details of the currency exchange rates applicable for the dividend will be
announced to the relevant stock exchanges. Further dividend information is
available on our website (www.south32.net).
South32 American Depositary Receipts (ADRs) each represent five fully paid
ordinary shares in South32 and ADR holders will receive dividends accordingly,
subject to the terms of the Depositary Agreement.
Dividend timetable Date
Announce currency conversion into rand 28 February 2020
Last day to trade cum dividend on the Johannesburg Stock Exchange (JSE) 3 March 2020
Ex-dividend date on the JSE 4 March 2020
Ex-dividend date on the ASX and London Stock Exchange (LSE) 5 March 2020
Record date (including currency election date for ASX) 6 March 2020
Payment date 2 April 2020
Outlook
Production
The Group's production guidance remains unchanged with the exception of South
Africa Energy Coal which has been adjusted to the bottom end of its prior
range and remains subject to market conditions.
Production guidance (South32's share)((15))
FY19 H1 FY20 FY20e FY21e FY20 key guidance assumptions
Worsley Alumina FY20 guidance unchanged
Alumina production (kt) 3,795 1,933 3,965 3,965 Improvement in calciner availability and a drawdown of excess hydrate,
notwithstanding calciner maintenance scheduled for Q3 FY20
Brazil Alumina (non-operated) FY20 guidance unchanged
Alumina production (kt) 1,255 702 1,330 1,370 Continued realisation of De-bottlenecking Phase One project benefits and
maintenance scheduled for Q4 FY20
Hillside Aluminium FY20 guidance unchanged (subject to load-shedding)
Aluminium production (kt) 715 362 720 720 Smelter to test its technical capacity despite the impact to production from
load-shedding
Mozal Aluminium FY20 guidance unchanged (subject to load-shedding)
Aluminium production (kt) 267 134 273 273 Smelter to test its technical capacity despite the impact to production from
load-shedding
Illawarra Metallurgical Coal FY20 guidance unchanged
Total coal production (kt) 6,647 3,695 7,000 8,000 Continued improvement in longwall performance and a longwall move scheduled at
Dendrobium for Q3 FY20
Metallurgical coal production (kt) 5,350 2,859 5,800 6,800
Energy coal production (kt) 1,297 836 1,200 1,200
Australia Manganese FY20 guidance unchanged (subject to market demand)
Manganese ore production (kwmt) 3,349 1,775 3,560 Subject to demand Continue to operate the Premium Concentrate Ore (PC02) circuit above nameplate
capacity
Wet season expected to impact production across H2 FY20
South Africa Manganese FY20 guidance unchanged (subject to market demand)
Manganese ore production (kwmt) 2,187 1,038 2,100 Subject to demand Higher cost trucking has been reduced and we continue to monitor market
conditions
Cerro Matoso FY20 guidance unchanged
Ore to kiln (kt) 2,738 1,389 2,500 2,750 Planned furnace outage in Q4 FY20
Payable nickel production (kt) 41.1 20.6 35.6 37.4
Cannington FY20 guidance unchanged
Ore processed (kdmt) 2,495 1,394 2,700 2,600 Inventory drawn down to normalised levels in H1 FY20 following FY19 floods,
enabling higher mill throughput ahead of lower expected lead and silver grades
in H2 FY20
Payable zinc equivalent production (kt)((19)) 218.2 120.1 221.0 213.7
Payable silver production (koz) 12,201 6,164 11,200 10,550
Payable lead production (kt) 101.4 55.3 104.0 103.0
Payable zinc production (kt) 51.6 32.5 59.0 57.0
FY19 H1 FY20 FY20e FY20 key guidance assumptions
South Africa Energy Coal FY20 guidance adjusted to the bottom end of prior range and remains subject to
market demand
FY21 guidance not provided subject to divestment
Total coal production (kt) 24,979 11,785 ↓26,000 Continue to adjust volumes to maximise margins
Domestic coal production (kt) 14,978 6,763 ↓15,300
Export coal production (kt) 10,001 5,022 ↓10,700
Costs and capital expenditure
Operating unit cost performance
Broad appreciation of the US dollar and a strong operating performance
resulted in Operating unit costs declining sequentially at the majority of our
operations in H1 FY20. Further to our strong start to the year, we remain
on-track to deliver US$50M in annual savings from lower functional support
costs, following the simplification of the Group's support structures, and
realise the benefits from our labour, energy and materials usage that were
embedded in our original FY20 Operating unit cost guidance.
Operating unit cost((15)(20))
H1 FY19 H2 FY19 H1 FY20 H1 FY20 adjusted((a)) FY20 prior guidance((b)) Commentary to guidance
Worsley Alumina
(US$/t) 233 242 225 232 230 Lower caustic prices and consumption rates, combined with a weaker Australian
dollar
Brazil Alumina (non-operated) Guidance not provided
(US$/t) 291 250 257 N/A Not provided Higher volumes combined with lower caustic prices and consumption rates,
partially offset by an increase in the use of more expensive
third party bauxite
Hillside Aluminium Guidance not provided
(US$/t) 2,161 1,925 1,657 N/A Not provided Lower raw material and energy prices combined with the benefits from the
workforce restructure concluded in June 2019
Mozal Aluminium Guidance not provided
(US$/t) 1,938 2,108 1,904 N/A Not provided Lagged benefit of lower index prices for alumina supplied by Worsley Alumina
to be realised in H2 FY20
Illawarra Metallurgical Coal
(US$/t) 87 102 91 95 97 Continued strong longwall performance and a weaker Australian dollar
Australia Manganese ore (FOB)
(US$/dmtu) 1.51 1.68 1.62 1.67 1.60 Lower primary circuit throughput partially offset by the low cost PC02 circuit
operating above design capacity
South Africa Manganese ore (FOB)
(US$/dmtu) 2.63 2.75 2.60 2.58 2.44 Stronger South African rand and increased use of higher cost trucking in Q1
FY20, partially offset by lower price-linked royalties
Cerro Matoso
(US$/t)((c)) 136 129 123 124 128 Realisation of benefits from our energy procurement and usage optimisation,
and a weaker Colombian peso
(US$/lb) 4.05 3.92 3.80 3.81 4.00
Cannington
(US$/t)((d)) 120 125 121 122 119 Mill throughput tracking ahead of plan and a weaker Australian dollar more
than offset by movements in inventory
South Africa Energy Coal
(US$/t) 38 41 43 42 37 - 40 Lower volumes combined with an increase in activity to support the Klipspruit
dragline's ramp-up towards full utilisation and contractor demobilisation
costs
(a) H1 FY20 adjusted is restated to reflect price and foreign
exchange rate assumptions used for FY20 prior guidance (refer to footnote 21).
(b) FY20 prior guidance includes commodity price and foreign
exchange rate forward curves or our internal expectations (refer to footnote
21).
(c) US dollar per tonne of ore to kiln.
(d) US dollar per tonne of ore processed. Periodic movements in
finished product inventory may impact Operating unit costs as related
marketing costs may change.
Operating unit cost guidance
Updated FY20 Operating unit cost guidance primarily reflects revised currency
and price assumptions as production guidance has been maintained for the
majority of our operations. That being said, we expect to continue to realise
the benefits from our initiatives in labour, energy and materials usage across
H2 FY20, further supporting lower FY20 Operating unit cost guidance for the
majority of our operations. While operating unit cost guidance is not provided
for our aluminium smelters or our non-operated Brazil Alumina refinery, lower
raw material prices are expected to benefit their costs in H2 FY20.
Operating unit cost guidance by upstream operation((15)(20))
FY20 prior guidance((a)) FY20 adjusted guidance((b)) FY20 new guidance((c)) Commentary
Worsley Alumina
(US$/t) 230 220 219 Lower caustic prices and a weaker Australian dollar
Illawarra Metallurgical Coal
(US$/t) 97 94 93 Continued strong longwall performance, a weaker Australian dollar and lower
price-linked royalties
Longwall move scheduled for Q3 FY20
Australia Manganese ore (FOB) Subject to market demand
(US$/dmtu) 1.60 1.54 1.55 An improvement in equipment productivity from H1 FY20 and a weaker Australian
dollar
H2 FY20 expected to be impacted by the wet season
South Africa Manganese ore (FOB) Subject to market demand
(US$/dmtu) 2.44 2.45 2.40 Stronger South African rand offset by reduced trucking and lower price-linked
royalties
Cerro Matoso
(US$/t)((d)) 128 125 125 Weaker Colombian peso partially offset by higher
price-linked royalties
Strong production start to the year, expected to be impacted by furnace
refurbishment in Q4 FY20
(US$/lb) 4.00 3.93 3.88
Cannington
(US$/t)((e)) 119 117 115 Strong operating performance in H1 FY20 and a weaker Australian dollar
South Africa Energy Coal Subject to market demand
(US$/t) 37 - 40 41 41 Stronger South African rand and lower planned volumes partially offset by the
lagged realisation of benefits from contractor demobilisation
(a) FY20 prior guidance includes commodity price and foreign
exchange rate forward curves or our internal expectations (refer to footnote
21).
(b) FY20 adjusted guidance is FY20 prior guidance, restated to
reflect price and foreign exchange rate assumptions used for FY20 new guidance
(refer to footnote 22).
(c) FY20 new guidance includes commodity price and foreign
exchange rate forward curves or our internal expectations for the remainder of
FY20, as at January 2020 (refer to footnote 22).
(d) US dollar per tonne of ore to kiln.
(e) US dollar per tonne of ore processed. Periodic movements in
finished product inventory may impact Operating unit costs as related
marketing costs may change.
Other expenditure guidance
Group and unallocated costs, excluding greenfield exploration, of US$30M are
now expected in FY20. Our rate of expenditure on corporate costs, including
additional functional support for our development options remains unchanged,
with H1 FY20 Group and unallocated costs (+US$14M) impacted by the timing of
cost recoveries from joint venture partners and inventory related
consolidation elimination entries. We also expect to capitalise approximately
US$30M of expenditure on information technology systems in FY20 (H1 FY20:
US$11M), reflecting an increased rate of expenditure in H2 FY20.
Exploration guidance
FY20 guidance for greenfield exploration expenditure is unchanged at US$30M
(H1 FY20: US$10M) with a higher rate of spend expected across our exploration
partnerships, including the Ambler Metals JV, in H2 FY20. In addition, US$43M
of exploration expenditure, excluding EAI, is expected to be capitalised in
FY20 (H1 FY20: US$18M) including US$25M at Hermosa
(H1 FY20: US$12M) to further increase our knowledge of the Taylor deposit and
greater land package.
Depreciation and amortisation, and tax expense
FY20 guidance for depreciation and amortisation (excluding EAI) has been
increased by US$15M to US$750M (H1 FY20: US$385M) to reflect the adoption of
updated assumptions at South Africa Energy Coal and Group volumes tracking
ahead of plan. Depreciation and amortisation for our manganese EAI is
unchanged at US$95M (H1 FY20: US$48M).
Our geographical earnings mix will have a significant bearing on our ETR given
differing country tax rates, while the impact of intragroup agreements,
exploration expenditure in foreign entities and other permanent differences
will continue to be magnified when margins are compressed or losses are
incurred in specific jurisdictions. Until it is sold, South Africa Energy Coal
is expected to have an ETR of 0%, with all tax assets de-recognised from 30
June 2019 and no benefit to be recorded for losses made prior to sale. Whilst
it is therefore difficult to predict our ETR (excluding EAI), we do expect it
to decline in H2 FY20. Following South Africa Energy Coal's divestment we
expect our ETR to more closely reflect the primary corporate tax rates
applicable to the Group(16).
Capital expenditure guidance
FY20 guidance for Sustaining capital expenditure, including EAI, has been
reduced by US$25M to US$580M, reflecting a deferral of development activity to
open up new mining areas at South Africa Energy Coal in response to market
conditions.
FY20 guidance for Major project capital expenditure is unchanged at US$256M
with the rate of spend at Hermosa expected to slow in H2 FY20 following
completion of the voluntary remediation program. The program included the
establishment of the initial tailings storage facility that is able to support
the commencement of future production when production permits are received.
South Africa Energy Coal's KPSX project is 92% complete and remains on
schedule and budget for completion in FY21.
Capital expenditure (South32's share)((15)(17))
US$M FY20e prior guidance FY20e new guidance Commentary
Worsley Alumina 60 60
Brazil Alumina 35 35
Hillside Aluminium 23 23
Mozal Aluminium 12 12
Illawarra Metallurgical Coal 185 185
Australia Manganese 64 64
South Africa Manganese 26 26
Cerro Matoso 55 55
Cannington 55 55
South Africa Energy Coal 90 65 Deferral of activity in response to market conditions
Sustaining capital expenditure (including EAI) 605 580
Equity accounted adjustment((a)) (90) (90)
Sustaining capital expenditure (excluding EAI) 515 490
Hermosa 109 109
Illawarra Metallurgical Coal - Dendrobium Next Domain 21 21
Eagle Downs Metallurgical Coal 11 11
South Africa Energy Coal 115 115
Major capital expenditure 256 256
Total capital expenditure (including EAI) 861 836
(a) The equity accounting adjustment reconciles the proportional
consolidation of the South32 manganese operations to the treatment of the
manganese operations on an equity accounted basis.
Operations analysis
A summary of the underlying performance of the Group's operations is presented
below and more detailed analysis is presented in the following pages. Unless
otherwise stated: all metrics reflect South32's share; Operating unit cost is
Revenue less Underlying EBITDA excluding third party sales divided by sales
volumes; Operating cost is Revenue less Underlying EBITDA excluding third
party sales; and Realised sales price is calculated as sales Revenue excluding
third party sales divided by sales volume.
Operations table (South32 share)((15))
Revenue Underlying EBIT
US$M H1 FY20 H1 FY19 H1 FY20 H1 FY19
Worsley Alumina 608 864 98 344
Brazil Alumina 204 312 (7) 97
Hillside Aluminium 651 772 38 (39)
Mozal Aluminium 262 280 (14) 13
South Africa Energy Coal 424 517 (105) 14
Illawarra Metallurgical Coal 473 574 50 195
Australia Manganese 407 581 178 352
South Africa Manganese 195 275 25 100
Cerro Matoso 305 244 92 10
Cannington 256 223 53 47
Hermosa - - (3) -
Third party products and services((23)) 337 487 (13) 28
Inter-segment / Group and unallocated (304) (455) 4 (47)
Total 3,818 4,674 396 1,114
Equity accounting adjustment((a)) (602) (863) (103) (189)
South32 Group 3,216 3,811 293 925
(a) The equity accounting adjustment reconciles the proportional
consolidation of the South32 manganese operations to the treatment of the
manganese operations on an equity accounted basis (including third party
product).
Worsley Alumina (86% share)
Volumes
Worsley Alumina saleable production increased by 1% (or 27kt) to 1,933kt in H1
FY20, despite an extended calciner shut, as the refinery continued to benefit
from improved calciner availability and we opportunistically sold stockpiled
hydrate. FY20 production guidance remains unchanged at 3,965kt with further
calciner maintenance scheduled for Q3 FY20.
Operating costs
Operating unit costs decreased by 3% in H1 FY20 to US$225/t as lower caustic
soda prices (H1 FY20: US$391/t, H1 FY19: US$535/t) and consumption rates (H1
FY20: 97kg/t, H1 FY19: 101kg/t), and the benefits of lower renegotiated energy
prices, more than offset the impact of additional calciner maintenance.
We have lowered FY20 Operating unit cost guidance by US$11/t to US$219/t to
reflect lower exchange rate and raw material price assumptions. Calciner
maintenance activity to support a sustainable increase in production to
nameplate capacity is scheduled to continue in H2 FY20. Exchange rate and
price assumptions for FY20 Operating unit cost guidance are detailed in
footnote 22.
Financial performance
Underlying EBIT decreased by 72% (or US$246M) in H1 FY20 to US$98M as a 30%
decrease in the average realised price of alumina (-US$257M) and spend on
initiatives to increase calciner availability (-US$25M), more than offset
lower caustic soda costs (price and consumption, +US$34M) and reduced energy
prices (+US$13M).
The average realised price for alumina sales in H1 FY20 was a premium of
approximately 8% to the Platts Alumina Index((24)) on a volume weighted M-1
basis. This mostly reflected the structure of specific legacy supply contracts
with our Mozal Aluminium smelter that are linked to the Platts Alumina Index
on an M-1 basis, with caps and floors embedded within specific contracts that
reset every calendar year. All other alumina sales were at market based
prices.
Capital expenditure
Sustaining capital expenditure decreased by US$2M in H1 FY20 to US$23M with
spend weighted to H2 FY20 as we continue to invest in additional bauxite
residue disposal capacity. Sustaining capital expenditure of US$60M is
anticipated in FY20.
H1 FY20 H1 FY19
South32 share
Alumina production (kt) 1,933 1,906
Alumina sales (kt) 1,891 1,885
Realised alumina sales price (US$/t) 322 458
Operating unit cost (US$/t) 225 233
South32 share (US$M) H1 FY20 H1 FY19
Revenue 608 864
Underlying EBITDA 182 425
Underlying EBIT 98 344
Net operating assets((a)) 2,847 2,831
Sustaining capital expenditure 23 25
Exploration expenditure - 1
Exploration expensed - 1
South32 share (US$M) H1 FY20 H1 FY19
(a) H1 FY19 reflects balance as at 30 June 2019.
Brazil Alumina (Alumina 36% share, Aluminium 40% share)
Volumes
Brazil Alumina saleable production increased by 10% (or 66kt) to a record
702kt in H1 FY20 as the refinery benefitted from improved steam generation
following the installation of package boilers in Q4 FY19, enabling the
benefits of the De-bottlenecking Phase One project to be realised. FY20
production guidance remains unchanged at 1,330kt with maintenance scheduled
for Q4 FY20.
Operating costs
Operating unit costs decreased by 12% in H1 FY20 to US$257/t as higher
production volumes and lower caustic soda prices (H1 FY20: US$358/t, H1 FY19:
US$573/t) and consumption rates, were partially offset as the price of bauxite
supplied from Mineração Rio do Norte S.A (MRN) increased and we sourced
additional higher cost third party material.
While Operating unit cost guidance is not provided as we are not the operator
of the refinery, we do expect to benefit from a reduction in bauxite and
caustic soda prices in H2 FY20.
Financial performance
Alumina Underlying EBIT decreased by US$105M in H1 FY20 to a loss of US$1M as
a 40% decrease in the average realised price of alumina (-US$138M), higher
bauxite (-US$15M) and boiler maintenance (-US$5M) costs were partially offset
by higher sales volumes (+US$30M) and a reduction in the price of caustic soda
(+US$12M).
Aluminium Underlying EBIT increased by US$1M in H1 FY20 to a loss of US$6M as
we recognised a provision related to our electricity contract with Eletronorte
that was terminated in December 2015.
Capital expenditure
Sustaining capital expenditure increased by US$6M in H1 FY20 to US$22M as we
continue to invest in additional bauxite residue disposal capacity. Sustaining
capital expenditure of US$35M is anticipated in FY20.
H1 FY20 H1 FY19
South32 share
Alumina production (kt) 702 636
Alumina sales (kt) 678 619
Realised alumina sales price (US$/t) 301 504
Alumina operating unit cost (US$/t) 257 291
South32 share (US$M) H1 FY20 H1 FY19
Revenue 204 312
Alumina 204 312
Aluminium - -
Underlying EBITDA 24 125
Alumina 30 132
Aluminium (6) (7)
Underlying EBIT (7) 97
Alumina (1) 104
Aluminium (6) (7)
Net operating assets/(liabilities)((a)) 599 687
Alumina 611 696
Aluminium (12) (9)
Sustaining capital expenditure 22 16
(a) H1 FY19 reflects balance as at 30 June 2019.
Hillside Aluminium (100%)
Volumes
Hillside Aluminium saleable production increased by 1% (or 2kt) to 362kt in H1
FY20 as the smelter continued to test its maximum technical capacity, despite
the impact to production from load-shedding and the completion of a major
workforce restructure in June 2019. Sales decreased by 3% in H1 FY20 as a
shipment slipped into January 2020. FY20 production guidance is unchanged at
720kt, but remains subject to load-shedding.
Operating costs
Operating unit costs decreased by 23% in H1 FY20 to US$1,657/t as the smelter
benefitted from lower raw material input prices, lower aluminium price-linked
power costs and a major workforce restructure that was concluded in June 2019.
Alumina, coke, pitch and aluminium tri-fluoride accounted for 54% of the
smelter's cost base in H1 FY20 (H1 FY19: 60%). 32 pots were also relined at a
cost of US$246k per pot (H1 FY19: 108 pots at US$233k per pot), while 76 pots
are scheduled to be relined across FY20 (prior FY20 guidance 79 pots).
The smelter sources alumina from our Worsley Alumina refinery with prices
linked to the Platts alumina index on an M-1 basis, while its power is sourced
from Eskom under long-term contracts. The price of electricity supplied to
potlines 1 and 2 is linked to the LME aluminium price and the South African
rand/US dollar exchange rate. The price of electricity supplied to potline 3
is South African rand based. We have been engaging with Eskom on a new pricing
arrangement for Hillside that would cover the entire power supply to the
smelter. We have made good progress with Eskom on this, which will be subject
to the usual approval by Department of Public Enterprises, National Treasury
and National Energy Regulator of South Africa in order to finalise a new power
supply agreement.
While Operating unit cost guidance is not provided, the cost profile of the
smelter is expected to benefit in H2 FY20 from lower raw material costs and
the recently concluded workforce restructure.
Financial performance
Underlying EBIT increased by US$77M in H1 FY20 to US$38M as lower raw material
input costs (+US$142M), a reduction in pot relining activity (+US$19M) and
lower labour costs (+US$10M) more than offset a 13% decrease in the average
realised price of aluminium (-US$100M).
Capital expenditure
Sustaining capital expenditure decreased by US$5M in H1 FY20 to US$7M.
Activity at the smelter is weighted to H2 FY20 with FY20 Sustaining capital
expenditure guidance unchanged at US$23M.
H1 FY20 H1 FY19
South32 share
Aluminium production (kt) 362 360
Aluminium sales (kt) 350 360
Realised sales price (US$/t) 1,859 2,144
Operating unit cost (US$/t) 1,657 2,161
H1 FY20 H1 FY19
South32 share (US$M)
Revenue 651 772
Underlying EBITDA 71 (6)
Underlying EBIT 38 (39)
Net operating assets((a)) 950 1,027
Sustaining capital expenditure 7 12
(a) H1 FY19 reflects balance as at 30 June 2019.
Mozal Aluminium (47.1% share)
Volumes
Mozal Aluminium saleable production decreased by 1% (or 1kt) to 134kt in H1
FY20 as the smelter's operating performance continued to be impacted by
load-shedding events. Despite an increase in the frequency of disruptions,
FY20 production guidance is unchanged at 273kt, but remains subject to
load-shedding.
Operating costs
Operating unit costs decreased by 2% in H1 FY20 to US$1,904/t as the smelter
benefited from lower raw material input prices which more than offset a
movement in inventory. Alumina, coke and pitch accounted for 47% of the
smelter's cost base in H1 FY20 (H1 FY19: 53%). The smelter sources all of its
alumina from our Worsley Alumina refinery with approximately 50% priced as a
percentage of the LME aluminium index under a legacy contract and the
remainder linked to the Platts alumina index on an M-1 basis, with caps and
floors embedded within specific contracts that reset every calendar year. As a
result of the latter agreement, the smelter's cost of alumina was a
significant premium to the index in H1 FY20, reducing the benefit to Mozal
Aluminium of lower index prices in the period. 63((25)) pots were also
relined across H1 FY20 at a cost of US$272k per pot (H1 FY19: 40((25)) pots at
US$219k per pot), with 123((25)) pots scheduled to be relined across FY20.
While Operating unit cost guidance is not provided, the cost profile of the
smelter is expected to benefit from lower alumina costs in H2 FY20 as the
premium paid to the index in the first half subsides with the reset mechanism
at the start of the calendar year. Electricity requirements are largely met by
hydroelectric power that is generated by Hidroeléctrica de Cahora Bassa
(HCB). HCB delivers power into Eskom's South African grid and Mozal Aluminium
sources electricity via the Mozambique Transmission Company (Motraco) under a
long-term contract. The price of electricity is South African rand based with
the rate of escalation linked to a South Africa domestic producer price index
plus a margin.
Financial performance
Underlying EBIT decreased by US$27M in H1 FY20 to a loss of US$14M as a 12%
decrease in the average realised price of aluminium (-US$36M), a drawdown in
finished goods (-US$14M) and higher pot relining costs (-US$4M) more than
offset additional sales volumes (+US$18M) and lower raw material input prices
(+US$18M).
Capital expenditure
Sustaining capital expenditure decreased by US$2M in H1 FY20 to US$6M as the
smelter continued the roll out of the AP3XLE energy efficiency technology in
its pot relining program. The project is 27% complete and expected to deliver
a circa 5% (or 10kt pa) increase in annual production with no associated
increase in power consumption, improving the smelter's global competitiveness.
First incremental production from relined pots is anticipated in H2 FY20, with
the full benefit to be realised by FY24. Sustaining capital expenditure of
US$12M is anticipated in FY20.
H1 FY20 H1 FY19
South32 share
Aluminium production (kt) 134 135
Aluminium sales (kt) 136 129
Realised sales price (US$/t) 1,914 2,171
Operating unit cost (US$/t) 1,904 1,938
South32 share (US$M) H1 FY20 H1 FY19
Revenue 262 280
Underlying EBITDA 3 30
Underlying EBIT (14) 13
Net operating assets((a)) 499 534
Sustaining capital expenditure 6 8
(a) H1 FY19 reflects balance as at 30 June 2019.
South Africa Energy Coal (92% share((15)))
Volumes
South Africa Energy Coal saleable production decreased by 3% (or 386kt) to
11.8Mt in H1 FY20 as the operation demobilised contractors in response to
market conditions, more than offsetting a 15% increase in export sales volumes
following improved dragline availability at Klipspruit.
FY20 production guidance has been lowered to the bottom end of our guidance
range (26.0Mt) and remains subject to market demand.
Operating costs
Operating unit costs increased by 13% in H1 FY20 to US$43/t as the impact of
lower sales volumes, demobilisation costs and increased activity to support
the Klipspruit dragline's ramp-up towards full utilisation, more than offset
our receipt of the final insurance payment awarded for the volume and cost
impact of its FY19 outage.
In accordance with our revised production guidance we now expect FY20
Operating unit costs to be US$41/t (previously between US$37/t and US$40/t)
with the impact of a stronger South African rand and lower planned volumes,
partially offset by the realisation of benefits from demobilising contractors
and further improvement in dragline utilisation during H2 FY20. Exchange rate
and price assumptions for FY20 Operating unit cost guidance are detailed in
footnote 22.
Financial performance
Underlying EBIT decreased by US$119M in H1 FY20 to a loss of US$105M as lower
average realised prices (-US$88M), costs to support the ramp-up of activity at
Klipspruit (-US$46M), general inflation (-US$21M) and an unfavourable movement
in inventory (-US$17M) were partially offset by our receipt of the final
insurance payment awarded for the volume and cost impact of the dragline's
outage (+US$48M).
Capital expenditure
Sustaining capital expenditure decreased by US$19M in H1 FY20 to US$29M
following the prior period's elevated spend to mitigate the impact of the
Klipspruit dragline incident and the deferral of new mining area development
at the Wolvekrans-Middelburg Complex in response to market conditions. FY20
Sustaining capital expenditure guidance has been reduced by US$25M to US$65M
reflecting the lower rate of activity.
We also invested US$73M in Major project capital expenditure in H1 FY20 as we
progressed the KPSX project, which was approved by the Board in November 2017.
The 8Mt per annum brownfield project extends the life of the colliery by more
than 20 years((27)). The project is approximately 92% complete and remains on
schedule and budget. Major capital expenditure of US$115M is expected in FY20.
H1 FY20 H1 FY19
100 per cent terms((15))
Energy coal production (kt) 11,785 12,171
Domestic sales (kt) 6,688 7,749
Export sales (kt) 4,854 4,206
Realised domestic sales price (US$/t) 23 22
Realised export sales price (US$/t) 55 83
Operating unit cost (US$/t) 43 38
100 per cent terms((15)) (US$M) H1 FY20 H1 FY19
Revenue((26)) 424 517
Underlying EBITDA (75) 58
Underlying EBIT (105) 14
Net operating liabilities((a)) (388) (373)
Capital expenditure 102 103
Major 73 55
Sustaining 29 48
(a) H1 FY19 reflects balance as at 30 June 2019.
Illawarra Metallurgical Coal (100% share)
Volumes
Illawarra Metallurgical Coal saleable production decreased by 4% (or 145kt) to
3.7Mt in H1 FY20 following the completion of a longwall move at the Appin mine
during Q2 FY20. FY20 production guidance remains unchanged at 7.0Mt with both
the Dendrobium and Appin longwalls continuing to perform strongly and a
longwall move scheduled at the Dendrobium mine during Q3 FY20.
Operating costs
Operating unit costs increased by 5% in H1 FY20 to US$91/t as additional
planned maintenance and development activity was undertaken, and run of mine
inventory was drawn down in support of a longwall move, more than offsetting
the impact of a weaker Australian dollar.
We have lowered FY20 Operating unit cost guidance by US$4/t to US$93/t to
reflect the benefit of continued strong longwall performance, a weaker
Australian dollar and lower price-linked royalties. Exchange rate and price
assumptions for FY20 Operating unit cost guidance are detailed in footnote 22.
Financial performance
Underlying EBIT decreased by 74% (or US$145M) in H1 FY20 to US$50M as lower
average realised prices (-US$163M), a drawdown in run of mine inventory
(-US$10M) and increased maintenance costs (-US$8M) were partially offset by a
weaker Australian dollar (+US$14M), lower price-linked royalties (+US$7M) and
the diversion of coal wash to beneficial uses (+US$7M).
Capital expenditure
Sustaining capital expenditure increased by US$49M in H1 FY20 to US$105M as we
continue to invest in infrastructure improvements and increase underground
development rates at Appin to support a planned return to a three longwall
configuration. Notwithstanding an expected increase in underground development
to US$100M in FY20 (previous guidance US$85M) to reflect the higher rate of
spend in H1 FY20 (US$51M), FY20 Sustaining capital expenditure guidance is
unchanged at US$185M.
We also invested US$7M in H1 FY20 to progress studies for the Dendrobium Next
Domain project. While still subject to necessary regulatory approvals, the
project has the potential to extend the mine life of Dendrobium to
approximately FY36, with a final investment decision anticipated in H2 FY21.
Major capital expenditure of US$21M is expected in FY20 as we progress study
and permitting work and invest in critical path activities.
H1 FY20 H1 FY19
South32 share
Metallurgical coal production (kt) 2,859 3,082
Energy coal production (kt) 836 758
Metallurgical coal sales (kt) 2,800 2,527
Energy coal sales (kt) 819 732
Realised metallurgical coal sales price (US$/t) 154 207
Realised energy coal sales price (US$/t) 53 68
Operating unit cost (US$/t) 91 87
South32 share (US$M) H1 FY20 H1 FY19
Revenue((28)) 473 574
Underlying EBITDA 142 292
Underlying EBIT 50 195
Net operating assets((a)) 1,394 1,410
Capital expenditure 112 56
Major 7 -
Sustaining 105 56
Exploration expenditure 6 4
Exploration expensed 1 3
(a) H1 FY19 reflects balance as at 30 June 2019.
Australia Manganese (60% share)
Volumes
Australia Manganese saleable ore production decreased by 2% (or 36kwmt) to
1,775kwmt in H1 FY20 as heavy rainfall in late FY19 slowed primary circuit
throughput at the start of the period. Separately, with demand for our low
cost PC02 product remaining favourable, we continued to operate the circuit
above its design capacity, contributing 11% of total production (H1 FY19: 9%).
While we continue to monitor market conditions and the potential impact from
the wet season across the remainder of the financial year, FY20 production
guidance remains unchanged at 3,560kwmt.
Manganese alloy saleable production decreased by 25% (or 19kt) to 57kt in H1
FY20 as one of the four furnaces was taken offline.
Operating costs
FOB manganese ore Operating unit costs increased by 7% in H1 FY20 to
US$1.62/dmtu as the strip ratio increased (H1 FY20: 5.3, H1 FY19: 4.1), and
lower primary circuit throughput was partially offset by additional PC02
volumes and a weaker Australian dollar.
We have lowered FY20 Operating unit cost guidance by US$0.05/dmtu to
US$1.55/dmtu, reflecting an improvement in equipment productivity during FY20
and the benefit of revised exchange rate and price assumptions. The strip
ratio is expected to decline to 5.1 in H2 FY20 in accordance with the mine
plan. Exchange rate and price assumptions for FY20 Operating unit cost
guidance are detailed in footnote 22.
Manganese alloy Operating unit costs decreased by 7% to US$914/t as lower raw
material input prices were partially offset by reduced volumes at our TEMCO
smelter. We continue to review options for our manganese alloy smelters
including their potential divestment, closure or suspension.
Financial performance
Underlying EBIT decreased by 49% (or US$174M) in H1 FY20 to US$178M as lower
realised ore prices (-US$150M), lower alloy volumes (-US$21M) and a drawdown
in run of mine inventory (-US$8M) were partially offset by a weaker Australian
dollar (+US$7M) and lower price-linked royalties (+US$4M).
Capital expenditure
Sustaining capital expenditure increased by US$1M in H1 FY20 to US$37M
(including US$2M for alloys) with FY20 guidance unchanged at US$64M (including
US$4M for alloys) as we continue to invest in additional tailings storage
capacity.
H1 FY20 H1 FY19
South32 share
Manganese ore production (kwmt) 1,775 1,811
Manganese alloy production (kt) 57 76
Manganese ore sales (kwmt) 1,737 1,740
External customers 1,683 1,569
TEMCO 54 171
Manganese alloy sales (kt) 58 76
Realised external manganese ore sales price (US$/dmtu, FOB)((29)(30)) 4.49 6.59
Realised manganese alloy sales price (US$/t)((29)) 1,013 1,408
Ore operating unit cost (US$/dmtu)((30)(31)) 1.62 1.51
Alloy operating unit cost (US$/t)((31)) 914 987
South32 share (US$M) H1 FY20 H1 FY19
Revenue((32)) 407 581
Manganese ore 354 490
Manganese alloy 59 107
Intra-segment elimination (6) (16)
Underlying EBITDA 212 382
Manganese ore 206 350
Manganese alloy 6 32
Underlying EBIT 178 352
Manganese ore 174 322
Manganese alloy 4 30
Net operating assets((a)) 286 316
Manganese ore 286 303
Manganese alloy - 13
Sustaining capital expenditure 37 36
Exploration expenditure 2 1
Exploration expensed 1 -
(a) H1 FY19 reflects balance as at 30 June 2019.
South Africa Manganese (Ore 44.4% share, Alloy 60% share)
Volumes
South Africa Manganese saleable ore production decreased by 3% (or 37kwmt) to
1,038kwmt in H1 FY20 as we responded to market conditions in Q2 FY20, reducing
our use of higher cost trucking and undertaking an extended maintenance shut
at our Wessels underground mine. FY20 production guidance remains unchanged at
2,100kwmt, however will be adjusted in response to market demand.
Manganese alloy saleable production increased by 3% (or 1kt) to 34kt in H1
FY20.
Operating costs
FOB manganese ore Operating unit costs decreased by 1% in H1 FY20 to
US$2.60/dmtu as lower price-linked royalties were partially offset by costs
associated with the increased use of higher cost trucking in Q1 FY20 to take
advantage of favourable market conditions.
We have lowered FY20 Operating unit cost guidance by US$0.04/dmtu to
US$2.40/dmtu reflecting a stronger South African rand offset by lower
price-linked royalties and reduced trucking activity in response to market
conditions. Exchange rate and price assumptions for FY20 Operating unit cost
guidance are detailed in footnote 22.
Manganese alloy Operating Unit costs increased by 1% to US$1,179/t as higher
power costs offset a weaker South African rand. We continue to review options
for our manganese alloy smelters including their potential divestment, closure
or suspension.
Financial performance
Underlying EBIT decreased by 75% (or US$75M) in H1 FY20 to US$25M as lower
realised ore prices (-US$80M) and an increase in trucking activity (-US$6M)
that was curtailed in Q2 FY20 were partially offset by a favourable movement
in alloy inventory (+US$10M) and lower price-linked royalties (+US$8M).
Capital expenditure
Sustaining capital expenditure was largely unchanged at US$17M (including
US$2M for alloys) in H1 FY20 and is expected to increase to US$26M (including
US$4M for alloys) in FY20.
H1 FY20 H1 FY19
South32 share
Manganese ore production (kwmt) 1,038 1,075
Manganese alloy production (kt) 34 33
Manganese ore sales (kwmt) 1,073 1,010
External customers 1,011 951
Metalloys 62 59
Manganese alloy sales (kt) 28 35
Realised external manganese ore sales price (US$/dmtu, FOB)((33)(34)) 3.81 5.85
Realised manganese alloy sales price (US$/t)((33)) 935 1,086
Ore operating unit cost (US$/dmtu)((34)(35)) 2.60 2.63
Alloy operating unit cost (US$/t)((35)) 1,179 1,171
South32 share (US$M) H1 FY20 H1 FY19
Revenue((36)) 195 275
Manganese ore((37)) 176 243
Manganese alloy 26 38
Intra-segment elimination (7) (6)
Underlying EBITDA 39 114
Manganese ore((37)) 46 117
Manganese alloy (7) (3)
Underlying EBIT 25 100
Manganese ore((37)) 37 107
Manganese alloy (12) (7)
Net operating assets((a)) 300 312
Manganese ore((37)) 239 253
Manganese alloy 61 59
Sustaining capital expenditure 17 17
Exploration expenditure - -
Exploration expensed - -
(a) H1 FY19 reflects balance as at 30 June 2019.
Cerro Matoso (99.9% share)
Volumes
Cerro Matoso payable nickel production decreased by 2% (or 0.5kt) to 20.6kt in
H1 FY20 following a planned increase in the contribution of lower grade
stockpiled ore feed. FY20 production guidance remains unchanged at 35.6kt with
the operation scheduled to undertake a major furnace refurbishment in Q4 FY20.
Operating costs
Operating unit costs decreased by 6% in H1 FY20 to US$3.80/lb as a result of a
weaker Colombian peso and the realisation of benefits from of our energy
procurement and usage optimisation approach.
We have lowered FY20 Operating unit cost guidance by US$0.12/lb to US$3.88/lb
with the strong production start to the year and a weaker Colombian peso more
than offsetting an increase in price-linked royalties from a higher nickel
price. Exchange rate and price assumptions for FY20 Operating unit cost
guidance are detailed in footnote 22.
Our ferronickel product sells with reference to the LME Nickel index price on
a M+1 or M+2 basis and attracts product discounts that have widened in the
current market.
Financial performance
Underlying EBIT increased by US$82M in H1 FY20 to US$92M as a 30% rise in the
average realised nickel price (+US$72M), a weaker Colombian peso (+US$12M) and
lower energy costs (+US$8M) were partially offset by lower sales volumes
(-US$11M).
Capital expenditure
Sustaining capital expenditure increased by US$11M in H1 FY20 to US$24M with
activity weighted to H2 FY20 as we commence a major furnace refurbishment in
Q4 FY20. Sustaining capital expenditure of US$55M is expected in FY20.
H1 FY20 H1 FY19
South32 share
Ore mined (kwmt) 1,400 1,209
Ore processed (kdmt) 1,389 1,401
Ore grade processed (%, Ni) 1.66 1.68
Payable nickel production (kt) 20.6 21.1
Payable nickel sales (kt) 20.4 21.3
Realised nickel sales price (US$/lb)((38)) 6.77 5.20
Operating unit cost (US$/lb) 3.80 4.05
Operating unit cost (US$/t)((39)()) 123 136
South32 share (US$M) H1 FY20 H1 FY19
Revenue 305 244
Underlying EBITDA 134 54
Underlying EBIT 92 10
Net operating assets((a)) 470 479
Sustaining capital expenditure 24 13
Exploration expenditure 3 4
Exploration expensed 2 3
(a) H1 FY19 reflects balance as at 30 June 2019.
Cannington (100% share)
Volumes
Cannington payable zinc equivalent production((19)) increased by 12% (or
12.7kt) to 120.1kt in H1 FY20 as the operation drew down run of mine stocks to
a normalised level and recorded a higher average zinc grade in Q1 FY20, that
more than offset lower silver grades across the period.
Processed silver, lead and zinc grades met our expectations in H1 FY20 and
FY20 production guidance remains unchanged (silver 11,200koz, lead 104.0kt and
zinc 59.0kt) with sequentially lower lead and silver grades expected in H2
FY20. Higher payable zinc sales in H1 FY20 reflect timing differences
following significant floods in North Queensland in Q3 FY19 that caused an
extended outage of a third party rail line connecting Cannington to the
Townsville port.
Operating costs
Operating unit costs increased by 1% to US$121/t in H1 FY20 as the benefit of
a weaker Australian dollar and increased mill throughput were more than offset
by a movement in inventory.
We have lowered FY20 Operating unit cost guidance by US$4/t to US$115/t to
reflect the strong operating performance in H1 FY20, and the benefit of
revised exchange rate assumptions. Exchange rate and price assumptions for
FY20 Operating unit cost guidance are detailed in footnote 22.
Financial performance
Underlying EBIT increased by 13% (or US$6M) in H1 FY20 to US$53M as an
increase in sales volumes (+US$26M) and a weaker Australian dollar (+US$8M)
were partially offset by inventory movements (-US$14M) and higher depreciation
resulting from increased mill throughput (-US$7M).
Capital expenditure
Sustaining capital expenditure decreased by US$6M in H1 FY20 to US$22M.
Guidance is unchanged at US$55M in FY20 with expenditure weighted to H2 FY20
as we invest in underground development and additional tailings storage
capacity.
South32 share H1 FY20 H1 FY19
Ore mined (kwmt) 1,360 1,306
Ore processed (kdmt) 1,394 1,244
Ore grade processed (g/t, Ag) 165 183
Ore grade processed (%, Pb) 4.8 4.8
Ore grade processed (%, Zn) 3.3 2.9
Zinc equivalent production (kt)((19)) 120.1 107.4
Payable silver production (koz) 6,164 6,067
Payable lead production (kt) 55.3 48.3
Payable zinc production (kt) 32.5 26.3
Payable silver sales (koz) 5,912 6,340
Payable lead sales (kt) 51.8 47.1
Payable zinc sales (kt) 35.3 24.7
Realised silver sales price (US$/oz) 17.5 14.7
Realised lead sales price (US$/t) 1,869 1,656( )
Realised zinc sales price (US$/t) 1,591 2,146
Operating unit cost 121 120
(US$/t ore processed)((40))
South32 share (US$M) H1 FY20 H1 FY19
Revenue 256 223
Underlying EBITDA 87 74
Underlying EBIT 53 47
Net operating assets((a)) 184 243
Sustaining capital expenditure 22 28
Exploration expenditure 3 3
Exploration expensed 3 2
(a) H1 FY19 reflects balance as at 30 June 2019.
Notes
(1) Revenue includes revenue from third party products and services.
(2) H1 FY20 basic earnings per share is calculated as Profit/(loss)
after tax divided by the weighted average number of shares for H1 FY20 (4,941
million).
H1 FY20 basic Underlying earnings per share is calculated as Underlying
earnings divided by the weighted average number of shares for H1 FY20
H1 FY19 basic earnings per share is calculated as Profit/(loss) after tax
divided by the weighted average number of shares for H1 FY19 (5,079 million).
H1 FY19 basic Underlying earnings per share is calculated as Underlying
earnings divided by the weighted average number of shares for H1 FY19.
(3) H1 FY20 ordinary dividends per share is calculated as H1 FY20
ordinary dividend announced (US$54M) divided by the number of shares on issue
at 31 December 2019 (4,900 million).
(4) H1 FY20 special dividends per share is calculated as H1 FY20 special
dividend announced (US$54M) divided by the number of shares on issue at 31
December 2019 (4,900 million). Paragraph 16.26(i) of the Johannesburg Stock
Exchange (JSE) listing rules states that the requisite exchange control
authority from the Financial Surveillance Department of the South African
Reserve Bank (SARB) is required to be provided to the JSE before the JSE can
approve payment of special dividends to South African shareholders.
(5) Underlying EBIT is profit before net finance costs, tax and any
earnings adjustment items, including impairments. Underlying EBIT is reported
inclusive of South32's share of net finance costs and tax of EAI. Underlying
EBITDA is Underlying EBIT, before depreciation and amortisation. Underlying
earnings is Profit/(loss) after tax 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 (gains)/losses on disposal and consolidation of
interests in businesses;
· Fair value (gains)/losses on non-trading derivative
instruments and other investments;
· Major corporate restructures; and
· Earnings adjustments included in profit/(loss) of EAI.
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. Also referred to as
operating margin.
(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, the impairment of South Africa
Energy Coal and unproductive capital associated on Major projects) and
inventories. Manganese is included in the calculation on a proportional
consolidation basis.
(9) To ensure that incident classification definitions are applied
uniformly across our workforce, we have adopted the Occupational Safety and
Health Administration of the United States Department of Labor (OSHA)
guidelines for the recording and reporting of occupational injuries and
illnesses.
(10) Total Recordable Injury Frequency (TRIF): The sum of (fatalities +
lost-time cases + restricted work cases + medical treatment cases) x 1,000,000
÷ actual hours worked, for employees and contractors. Stated in units of per
million hours worked.
(11) Refer to the market announcement "Agreement to Divest South Africa
Energy Coal" dated 6 November 2019.
(12) Underlying ETR is Underlying income tax expense, excluding royalty
related tax, divided by Underlying profit before tax; both the numerator and
denominator exclude EAI.
(13) 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.
(14) Underlying net finance cost and Underlying income tax expense are
actual H1 FY20 results, not half-on-half variances.
(15) South32's ownership share of operations are presented as follows:
Worsley Alumina (86% share), Hillside Aluminium (100%), Mozal Aluminium (47.1%
share), Brazil Alumina (Alumina 36% share, Aluminium 40% share), South Africa
Energy Coal (100% share until Broad-Based Black Economic Empowerment (B-BBEE)
vendor loans are repaid), Illawarra Metallurgical Coal (100%), Australia
Manganese (60% share), South Africa Manganese (60% share), Cerro Matoso (99.9%
share), Cannington (100%), Hermosa (100%) and Eagle Downs Metallurgical Coal
(50% share).
(16) The primary corporate tax rates applicable to the Group for H1 FY20
include: Australia 30%, South Africa 28%, Colombia 33%, Mozambique 0% and
Brazil 34%. The Colombian corporate tax rate is 32% in CY20 and will decrease
on an annual basis by a percent each year, stabilising at 30% from 1 January
2022. The Mozambique operations are subject to a royalty on revenues instead
of income tax.
(17) 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.
(18) Refer to the market announcement "South32 approves Klipspruit Life
Extension Project" dated 27 November 2017.
(19) Payable zinc equivalent (kt) was calculated by aggregating revenues
from payable silver, lead and zinc, and dividing the total Revenue by the
price of zinc. FY19 realised prices for zinc (US$2,122/t), lead (US$1,754/t)
and silver (US$14.4/oz) have been used for H1 FY19, FY19, H1 FY20, FY20e and
FY21e.
(20) Operating unit cost is Revenue less Underlying EBITDA, excluding
third party sales, divided by sales volumes. Operating cost is Revenue less
Underlying EBITDA excluding third party sales. Additional manganese
disclosures are included in footnotes 30 and 34.
(21) FY20 prior Operating unit cost guidance includes royalties (where
appropriate) and the influence of exchange rates, and includes various
assumptions for FY20, including: an alumina price of US$348/t; an average
blended coal price of US$158/t for Illawarra Metallurgical Coal; a manganese
ore price of US$5.64/dmtu for 44% manganese product; a nickel price of
US$5.54/lb; a thermal coal price of US$69/t (API4) for South Africa Energy
Coal; a silver price of US$15.82/troy oz; a lead price of US$1,921/t (gross of
treatment and refining charges); a zinc price of US$2,483/t (gross of
treatment and refining charges); an AUD:USD exchange rate of 0.70; a USD:ZAR
exchange rate of 15.06; a USD:COP exchange rate of 3,112; and a reference
price for caustic soda; all of which reflected forward markets as at June 2019
or our internal expectations.
(22) FY20 new Operating unit cost guidance includes royalties (where
appropriate) and the influence of exchange rates, and includes various
assumptions for FY20, including: an alumina price of US$283/t; an average
blended coal price of US$137/t for Illawarra Metallurgical Coal; a manganese
ore price of US$4.58/dmtu for 44% manganese product; a nickel price of
US$6.65/lb; a thermal coal price of US$78/t (API4) for South Africa Energy
Coal; a silver price of US$17.60/troy oz; a lead price of US$2,004/t (gross of
treatment and refining charges); a zinc price of US$2,319/t (gross of
treatment and refining charges); an AUD:USD exchange rate of 0.69; a USD:ZAR
exchange rate of 14.58; a USD:COP exchange rate of 3,364; and a reference
price for caustic soda; all of which reflected forward markets as at January
2020 or our internal expectations.
(23) H1 FY20 Third party products and services sold comprise US$19M for
aluminium, US$12M for alumina, US$162M for coal, US$100M for freight services,
US$44M for aluminium raw materials and nil for manganese. H1 FY20 Underlying
EBIT on third party products and services comprise US$2M for aluminium, -US$2M
for alumina, -US$14M for coal, nil for freight services, US$1M for aluminium
raw materials and nil for manganese. H1 FY19 Third party products and services
sold comprise US$33M for aluminium, US$16M for alumina, US$241M for coal,
US$129M for freight services, US$61M for aluminium raw materials and US$7M for
manganese. H1 FY19 Underlying EBIT on third party products and services
comprise nil for aluminium, US$3M for alumina, US$27M for coal, -US$3M for
freight services, US$1M for aluminium raw materials and nil for manganese.
(24) The quarterly 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") was US$299/t in H1 FY20.
(25) Presented on a 100% basis.
(26) South Africa Energy Coal Revenue includes domestic and export sales
Revenue.
(27) The information in this report that relates to Coal Reserve estimates
for Klipspruit was declared as part of South32's Annual Resource and Reserve
declaration in the Annual Report 2019 (www.south32.net) issued on 5 September
2019 and prepared by P Mulder in accordance with the requirements of the JORC
Code. South32 confirms that it is not aware of any new information or data
that materially affects the information included in the original announcement.
All material assumptions and technical parameters underpinning the estimates
in the relevant market announcement continue to apply and have not materially
changed. South32 confirms that the form and context in which the Competent
Person's findings are presented have not been materially modified from the
original market announcement.
(28) Illawarra Metallurgical Coal Revenue includes metallurgical coal and
energy coal sales Revenue.
(29) Realised ore prices are calculated as external sales Revenue less
freight and marketing costs, divided by external 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.
(30) Manganese Australia H1 FY20 average manganese content of external ore
sales was 45.0% on a dry basis (H1 FY19: 45.8%). 96% of H1 FY20 external
manganese ore sales (H1 FY19: 95%) were completed on a CIF basis. H1 FY20
realised FOB ore prices and Operating unit costs have been adjusted for
freight and marketing costs of US$28M (H1 FY19: US$25M), consistent with our
FOB cost guidance.
(31) FOB ore operating unit cost is Revenue less Underlying EBITDA,
freight and marketing costs, divided by ore sales volume. Alloy operating unit
cost is Revenue less Underlying EBITDA divided by alloy sales volumes and
includes costs associated with sinter sold externally.
(32) Revenues associated with sales from GEMCO to TEMCO are eliminated as
part of the consolidation.
(33) Realised ore prices are calculated as external sales Revenue less
freight and marketing costs, divided by external sales volume. Realised alloy
prices are calculated as sales Revenue, divided by alloy sales volumes. 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.
(34) Manganese South Africa H1 FY20 average manganese content of external
ore sales was 40.0% on a dry basis (H1 FY19: 40.3%). 71% of H1 FY20 external
manganese ore sales (H1 FY19: 71%) were completed on a CIF basis. H1 FY20
realised FOB ore prices and Operating unit costs have been adjusted for
freight and marketing costs of US$20M (H1 FY19: US$20M), consistent with our
FOB cost guidance.
(35) FOB ore operating unit cost is Revenue less Underlying EBITDA,
freight and marketing costs, divided by ore sales volume. Alloy operating unit
cost is Revenue less Underlying EBITDA divided by alloy sales volumes.
(36) Revenues associated with sales from Hotazel Manganese Mines (HMM) to
Metalloys are eliminated as part of the consolidation.
(37) Consistent with the presentation of South32's segment information,
South Africa Manganese ore production and sales have been reported at 60%.
South32 has a 44.4% ownership interest in HMM. 26% of HMM is owned by a B-BBEE
consortium comprising Ntsimbintle Mining (9%), NCAB Resources (7%), Iziko
Mining (5%) and HMM Education Trust (5%). The interest owned by NCAB
Resources, Iziko Mining and HMM Education Trust were acquired using vendor
finance with the loans repayable via distributions attributable to these
parties, pro rata to their share in HMM. Until these loans are repaid,
South32's interest in HMM is accounted at 54.6%.
(38) Cerro Matoso realised nickel sales price is inclusive of by-products.
Realised sales price is calculated as sales Revenue divided by sales volume.
(39) Cerro Matoso Operating unit cost per tonne is Revenue less Underlying
EBITDA divided by ore processed. Periodic movements in finished product
inventory may impact operating unit costs as related marketing costs may
change.
(40) Cannington Operating unit cost is Revenue less Underlying EBITDA
divided by ore processed. Periodic movements in finished product inventory may
impact operating unit costs as related marketing costs may change.
Figures in Italics indicate that an adjustment has been made since the figures
were previously reported. The denotation (e) refers to an estimate or forecast
year.
The following abbreviations may be used throughout this report: US$ million
(US$M); US$ billion (US$B); December half year (H1 FY20); calendar year (CY);
grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per
annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); ounces
(oz); thousand ounces (koz); million ounces (Moz); thousand wet metric tonnes
(kwmt); million wet metric tonnes (Mwmt); million wet metric tonnes per annum
(Mwmt pa); thousand dry metric tonnes (kdmt); dry metric tonne unit (dmtu);
pound (lb); megawatt (MW); and equity accounted investments (EAI).
South32 Financial Information
For the half year ended 31 December 2019
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2019
US$M Note H1 FY20 H1 FY19
Revenue:
Group production 4 2,879 3,331
Third party products and services 4 337 480
3,216 3,811
Other income 157 126
Expenses excluding net finance cost (3,222) (3,305)
Share of profit/(loss) of equity accounted investments 100 276
Profit/(loss) 251 908
Comprising:
Group production 264 880
Third party products and services (13) 28
Profit/(loss) 251 908
Finance expenses (90) (72)
Finance income 26 34
Net finance cost 7 (64) (38)
Profit/(loss) before tax 187 870
Income tax (expense)/benefit (88) (235)
Profit/(loss) after tax 99 635
Attributable to:
Equity holders of South32 Limited 99 635
Profit/(loss) for the period attributable to the equity holders of South32
Limited:
Basic earnings per share (cents) 6 2.0 12.5
Diluted earnings per share (cents) 6 2.0 12.4
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 December 2019
US$M H1 FY20 H1 FY19
Profit/(loss) for the period 99 635
Other Comprehensive Income
Items that may be reclassified to the Consolidated Income Statement:
Cash Flow hedges:
Transfer of net (gains)/losses recognised in equity - (5)
Total items that may be reclassified to the Consolidated Income Statement - (5)
Items not to be reclassified to the Consolidated Income Statement:
Investments in equity instruments designated as fair value through Other
Comprehensive Income (FVOCI):
Net fair value gains/(losses)
(11) (28)
Tax benefit/(expense) 3 10
Equity accounted investments - share of Other Comprehensive Income/(loss), net 20 (1)
of tax
Gains/(losses) on pension and medical schemes - 2
Tax benefit/(expense) recognised within Other Comprehensive Income - (1)
Total items not to be reclassified to the Consolidated Income Statement 12 (18)
Total Other Comprehensive Income/(loss) 12 (23)
Total Comprehensive Income/(loss) 111 612
Attributable to:
Equity holders of South32 Limited 111 612
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED BALANCE SHEET
as at 31 December 2019
US$M H1 FY20 FY19
ASSETS
Current assets
Cash and cash equivalents 1,389 1,408
Trade and other receivables 605 888
Other financial assets 80 108
Inventories 929 952
Current tax assets 16 7
Other 33 38
Total current assets 3,052 3,401
Non-current assets
Trade and other receivables 339 290
Other financial assets 256 272
Inventories 71 68
Property, plant and equipment 9,764 9,596
Intangible assets 234 233
Equity accounted investments 613 688
Deferred tax assets 156 155
Other 13 12
Total non-current assets 11,446 11,314
Total assets 14,498 14,715
LIABILITIES
Current liabilities
Trade and other payables 769 880
Interest bearing liabilities 423 313
Current tax payables 22 179
Provisions 288 312
Deferred income 4 4
Total current liabilities 1,506 1,688
Non-current liabilities
Trade and other payables 2 1
Interest bearing liabilities 689 591
Deferred tax liabilities 339 334
Provisions 2,018 1,925
Deferred income 2 8
Total non-current liabilities 3,050 2,859
Total liabilities 4,556 4,547
Net assets 9,942 10,168
EQUITY
Share capital 14,020 14,212
Treasury shares (43) (105)
Reserves (3,537) (3,490)
Retained earnings/(accumulated losses) (497) (448)
Total equity attributable to equity holders of South32 Limited 9,943 10,169
Non-controlling interests (1) (1)
Total equity 9,942 10,168
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED CASH FLOW STATEMENT
for the half year ended 31 December 2019
US$M H1 FY20 H1 FY19
Operating activities
Profit/(loss) before tax 187 870
Adjustments for:
Depreciation and amortisation expense 385 380
Employee share awards expense 5 23
Net finance cost 64 38
Share of (profit)/loss of equity accounted investments (100) (276)
Fair value (gains)/losses on derivative instruments and other investments 42 26
Changes in assets and liabilities:
Trade and other receivables 290 82
Inventories 20 (108)
Trade and other payables (53) 50
Provisions and other liabilities (41) (117)
Cash generated from operations 799 968
Interest received 26 38
Interest paid (36) (37)
Income tax (paid)/received (243) (207)
Dividends received 1 -
Dividends received from equity accounted investments 195 280
Net cash flows from operating activities 742 1,042
Investing activities
Purchases of property, plant and equipment (393) (296)
Exploration expenditure (34) (26)
Exploration expenditure expensed and included in operating cash flows 16 16
Purchase of intangibles (11) -
Investment in financial assets (157) (208)
Acquisition of subsidiaries and jointly controlled entities, net of their cash - (1,507)
Cash outflows from investing activities (579) (2,021)
Proceeds from financial assets 106 166
Distribution from equity accounted investments - 6
Net cash flows from investing activities (473) (1,849)
Financing activities
Proceeds from interest bearing liabilities 80 2
Repayment of interest bearing liabilities (23) (60)
Purchase of shares by South32 Limited Employee Incentive Plans Trusts (ESOP (17) (53)
Trusts)
Share buy-back (192) (167)
Dividends paid (139) (316)
Net cash flows from financing activities (291) (594)
Net increase/(decrease) in cash and cash equivalents (22) (1,401)
Cash and cash equivalents, net of overdrafts, at the beginning of the period 1,406 2,970
Foreign currency exchange rate changes on cash and cash equivalents 5 (4)
Cash and cash equivalents, net of overdrafts, at the end of the period 1,389 1,565
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year ended 31 December 2019
Attributable to equity holders of South32 Limited
US$M Share capital Treasury shares Financial assets reserve((1)) Employee share awards reserve((2)) Other reserves((3)) Retained earnings/ (accumulated losses) Total Non-controlling interests Total equity
Balance as at 1 July 2019 14,212 (105) (9) 109 (3,590) (448) 10,169 (1) 10,168
Profit/(loss) for the period - - - - - 99 99 - 99
Other Comprehensive Income/(loss) - - (8) - - 20 12 - 12
Total Comprehensive Income/(loss) - - (8) - - 119 111 - 111
Transactions with owners:
Dividends - - - - - (139) (139) - (139)
Shares bought back and cancelled((4)) (192) - - - - - (192) - (192)
Accrued employee entitlements for unvested awards, net of tax - - - 10 - - 10 - 10
Employee share awards forfeited, net of tax - - - (10) - - (10) - (10)
Purchase of shares by ESOP Trusts - (17) - - - - (17) - (17)
Employee share awards vested and waived - 79 - (39) - (42) (2) - (2)
Tax recognised for employee share awards vested - - - - - 13 13 - 13
Balance as at 31 December 2019 14,020 (43) (17) 70 (3,590) (497) 9,943 (1) 9,942
Balance as at 1 July 2018 14,493 (83) 164 88 (3,585) (367) 10,710 (1) 10,709
Adjustments for transition to new accounting standards - - (12) - - 10 (2) - (2)
Restated balance as at 1 July 2018 14,493 (83) 152 88 (3,585) (357) 10,708 (1) 10,707
Profit/(loss) for the period - - - - - 635 635 - 635
Other Comprehensive Income/(loss) - - (18) - (5) - (23) - (23)
Total Comprehensive Income/(loss) - - (18) - (5) 635 612 - 612
Transactions with owners:
Dividends - - - - - (316) (316) - (316)
Shares bought back and cancelled((4)) (167) - - - - - (167) - (167)
Accrued employee entitlements for unvested awards, net of tax - - - 30 - - 30 - 30
Purchase of shares by ESOP Trusts - (53) - - - - (53) - (53)
Employee share awards vested - 76 - (27) - (49) - - -
Tax recognised for employee share awards vested - - - - - 10 10 - 10
Transfer of cumulative fair value gain on equity instruments designated as - - (145) - - 145 - - -
FVOCI
Balance as at 31 December 2018 14,326 (60) (11) 91 (3,590) 68 10,824 (1) 10,823
(1) Represents the fair value movement in financial assets designated as
FVOCI.
(2) Represents the accrued employee entitlements to share awards that have
not yet vested.
(3) Primarily consists of the common control transaction reserve of
US$3,569 million, which reflects the difference between consideration paid and
the carrying value of assets and liabilities acquired, as well as the
gains/losses on disposal of entities as part of the demerger of the Group in
2015.
(4) Represents 105,772,439 (31 December 2018: 68,444,442) shares
permanently cancelled through the on-market share buy-back during the period.
The accompanying notes form part of the half year consolidated financial
statements.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS - BASIS OF PREPARATION
1. Reporting entity
2. Basis of preparation
3. New standards and interpretations
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
4. Segment information
5. Dividends
6. Earnings per share
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
7. Net finance cost
8. Financial assets and financial liabilities
NOTES TO FINANCIAL STATEMENTS - OTHER NOTES
10. Subsequent events
DIRECTORS' DECLARATION
DIRECTORS' REPORT
LEAD AUDITOR'S INDEPENDENCE DECLARATION
INDEPENDENT AUDITOR'S REVIEW REPORT
NOTES TO FINANCIAL STATEMENTS - BASIS OF PREPARATION
The consolidated financial statements of South32 Limited (referred to as the
Company) and its subsidiaries and joint arrangements (collectively, the Group)
for the half year ended 31 December 2019 were authorised for issue in
accordance with a resolution of the Directors on 13 February 2020.
1. Reporting entity
South32 Limited is a for-profit company limited by shares incorporated in
Australia with a primary listing on the Australian Securities Exchange (ASX),
a standard listing on the London Stock Exchange (LSE) and a secondary listing
on the Johannesburg Stock Exchange (JSE).
The nature of the operations and principal activities of the Group are
described in note 4 Segment information.
2. Basis of preparation
The half year consolidated financial statements are a general purpose
condensed financial report which:
● Have been prepared in accordance with AASB 134 Interim Financial Reporting,
IAS 34 Interim Financial Reporting and the Corporations Act;
● Have been prepared on a historical cost basis, except for derivative financial
instruments and certain other financial assets and liabilities which are
required to be measured at fair value;
● Are presented in US dollars, which is the functional currency of the majority
of the Group's operations, and all values are rounded to the nearest million
dollars (US$M or US$ million) unless otherwise stated, in accordance with ASIC
Corporations Instrument 2016/191;
● Present reclassified comparative information where required for consistency
with the current period's presentation; and
● Have been prepared on the basis of accounting policies and methods of
computation consistent with those applied in the 30 June 2019 annual
consolidated financial statements, except for the change in accounting
standards set out in note 3 New standards and interpretations which became
effective on 1 July 2019 without restatement of prior years.
In preparing the half year consolidated financial statements, management has
made judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates. The significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were the same as those that applied
to the consolidated financial statements as at and for the year ended 30 June
2019.
For a full understanding of the financial performance and financial position
of the Group it is recommended that the half year consolidated financial
statements be read in conjunction with the annual consolidated financial
statements for the year ended 30 June 2019. Consideration should also be given
to any public announcements made by the Company in accordance with the
continuous disclosure obligations of the ASX Listing Rules.
3. New standards and interpretations
New accounting standards and interpretations effective from 1 July 2019
The Group has changed some of its accounting policies as a result of new or
revised accounting standards which became effective for the annual reporting
period commencing on 1 July 2019. New policies and standards are:
AASB 16 Leases
The Group adopted AASB 16 from 1 July 2019 using the modified retrospective
approach without restating comparative information. The Group applied the
following practical expedients on transition:
· 'Grandfathering' previous lease assessments of existing contracts
and applying the AASB 16 lease definition to contracts commencing or modified
after 1 July 2019;
· Applying a single discount rate to a portfolio of leases with
reasonably similar characteristics; and
· Accounting for leases as short-term where the lease term ends
within 12 months of the date of initial application.
AASB 16 sets out the principles for the recognition, measurement, presentation
and disclosure of leases and generally results in leases being recognised on
the Consolidated Balance Sheet, as the distinction between operating and
finance leases is removed.
On transition, lease liabilities of previously recognised operating leases
(excluding short-term and low-value leases) were measured at the present value
of the remaining lease payments, discounted at the lessee's incremental
borrowing rate as at 1 July 2019. The weighted average rate applied was 8.2%.
The right-of-use (ROU) assets were measured at an amount equal to the lease
liabilities net of lease incentives received. For leases that were classified
as finance leases under the previous standard (AASB 117 Leases), there were no
changes to the carrying amounts of ROU assets and lease liabilities.
Under AASB 16, optional renewable periods are included in the lease term if it
is reasonably certain that an extension will occur. In addition, variable
lease payments linked to a rate or an index, such as CPI, are now required to
be recognised within the lease liability and ROU asset when effective.
The Group recognises the interest expense on lease liabilities and
depreciation expense on ROU assets in the Consolidated Income Statement. Lease
liability repayments are recognised as a combination of principal and interest
payments.
On transition, the Group recognised an additional US$135 million of ROU assets
and US$140 million of lease liabilities. This included US$52 million of
variable lease payments based on a rate or an index. The reconciliation of
total operating lease commitments at 30 June 2019 to the lease liabilities
recognised at 1 July 2019 is as follows:
US$M
Operating lease commitment (30 June 2019) 123
Less: AASB 16 recognition exemption for short-term and low-value leases((1)) (14)
Restated total operating lease commitments (30 June 2019) 109
Less: effect of discounting operating lease commitments using the incremental (21)
borrowing rate (30 June 2019)
Add: recognition of variable lease payments based on a rate or an index((1)) 52
Add: finance lease liabilities (30 June 2019) 543
Total lease liabilities recognised (1 July 2019) 683
(1) Refer to Leases policy applicable from 1 July 2019 below.
Leases policy applicable from 1 July 2019
At inception of a contract, the Group assesses whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in
exchange for consideration.
The Group recognises a ROU asset and a lease liability at the lease
commencement date. The ROU asset is included in property, plant and equipment
and initially measured at cost, which comprises the initial amount of the
lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and estimated future
cost of closure or rehabilitation, less any lease incentives received. The ROU
asset is subsequently measured at cost less accumulated depreciation,
impairment charges and any adjustments for remeasurements of the lease
liability.
The corresponding lease liability is included within interest bearing
liabilities. The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be
readily determined, the lessee's incremental borrowing rate. The lessee's
incremental borrowing rate is the rate of interest that a lessee would have to
pay to borrow over a similar term, and with similar security, the funds
necessary to obtain an asset of a similar value to the ROU asset in a similar
economic environment.
Lease payments included in the measurement of the lease liability comprise of
the following:
· Fixed payments, including in-substance fixed payments;
· Variable lease payments that depend on a rate or an index,
initially measured using the rate or index as at the commencement date;
· Amounts expected to be payable under residual value guarantee;
and
· The exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments in an optional renewal period
if the Group is reasonably certain to exercise an extension option and
penalties for early termination of a lease if the Group is reasonably certain
to terminate early.
The lease liability is subsequently measured at amortised cost using the
effective interest method. It is remeasured when there is a change in future
lease payments arising from a change in a rate or an index, if there is a
change in the Group's estimate of the amount expected to be payable under a
residual guarantee, or if the Group changes its assessment of whether it will
exercise a purchase, extension or termination option. When the lease liability
is remeasured, a corresponding adjustment is made to the carrying amount of
the ROU asset, or is recorded in the Consolidated Income Statement if the
carrying amount of the ROU asset has been reduced to nil.
The nature of the Group's leases predominantly relate to real estate in the
form of office buildings, as well as mining equipment and assets supporting
operations in line with the Group's principal activities.
The following amounts were recorded in the consolidated financial statements
for the six months ended 31 December 2019:
Primary statement Financial statement caption US$M
Consolidated Income Statement
Depreciation and amortisation Expenses excluding net finance costs 33
Consolidated Cash Flow Statement
Lease principal payments Cash flows from financing activities 21
Lease interest paid Interest paid 26
Consolidated Balance Sheet
ROU assets - Carrying value Property, plant and equipment 721
Lease liabilities - Current Interest bearing liabilities 46
Lease liabilities - Non-current Interest bearing liabilities 630
Short-term, low-value and variable leases
The Group has elected not to recognise ROU assets and lease liabilities for
short-term and low-value leases. Short-term leases are leases with a lease
term of 12 months or less, whilst low-value leases are leases where the
underlying asset is considered low value. Variable leases are leases with
leases payments which are variable but do not depend on a rate or an index. If
variable leases have a fixed component, these would be recognised on the
Consolidated Balance Sheet. The Group recognises the lease payments associated
with these leases as an expense in the Consolidated Income Statement on a
straight-line basis over the lease term.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
4. Segment information
(a) Description of segments
The operating segments (also referred to as operations) are organised and
managed separately according to the nature of products produced.
Certain members of the Lead Team (the chief operating decision makers) and the
Board of Directors monitor the segment results regularly for the purpose of
making decisions about resource allocation and performance assessment. The
segment information for the manganese operations are presented on a
proportional consolidation basis, which is the measure used by the Group's
management to assess their performance.
The principal activities of each operating segment as the Group is currently
structured are summarised as follows:
Operating segment Principal activities
Worsley Alumina Integrated bauxite mine and alumina refinery in Western Australia, Australia
Hillside Aluminium Aluminium smelter in South Africa
Mozal Aluminium Aluminium smelter in Mozambique
Brazil Alumina Alumina refinery in Brazil
South Africa Energy Coal Open-cut and underground energy coal mines and processing operations in South
Africa
Illawarra Metallurgical Coal Underground metallurgical coal mines in New South Wales, Australia
Eagle Downs Metallurgical Coal Exploration and development of metallurgical coal deposit in Queensland,
Australia
Australia Manganese Integrated producer of manganese ore in the Northern Territory and alloy in
Tasmania, Australia
South Africa Manganese Integrated producer of manganese ore and alloy in South Africa
Cerro Matoso Integrated laterite ferronickel mining and smelting complex in Colombia
Cannington Silver, lead and zinc mine in Queensland, Australia
Hermosa Exploration and development option for zinc, lead and silver sulphide deposit
in Tucson, United States
All operations are operated or jointly operated by the Group except Brazil
Alumina, which is operated by Alcoa.
(b) Segment results
Segment performance is measured by Underlying EBIT and Underlying EBITDA.
Underlying EBIT is profit before net finance cost, tax and other earnings
adjustment items including impairments. Underlying EBITDA is Underlying EBIT,
before depreciation and amortisation. A reconciliation of Underlying EBIT,
Underlying EBITDA and the Group's consolidated profit after tax is set out on
the following pages. Segment revenue is measured on the same basis as in the
Consolidated Income Statement.
The Group separately discloses sales of group production from sales of third
party products and services because of the significant difference in profit
margin earned on these sales.
It is the Group's policy that inter-segment transactions are made on a
commercial basis.
Group and unallocated items/eliminations represent group centre functions and
consolidation adjustments. Group financing (including finance expense and
finance income) and income taxes are managed on a Group basis and are not
allocated to operating segments.
Total assets and liabilities for each operating segment represent operating
assets and liabilities which predominantly exclude the carrying amount of
equity accounted investments, cash, interest bearing liabilities, tax balances
and certain other financial assets. The carrying amount of investments
accounted for using the equity method represents the balance of the Group's
investment in equity accounted investments, with no adjustment for cash,
interest bearing liabilities and tax balances of the equity accounted
investment.
31 December 2019
US$M Worsley Alumina Hillside Aluminium Mozal Aluminium Brazil Alumina South Africa Energy Coal Illawarra Metallurgical Coal Eagle Downs Metallurgical Coal Australia Manganese((1)) South Africa Manganese((1)) Cerro Matoso Cannington Group and unallocated items/ elimination Statutory adjustment((1)) Group
Hermosa
Revenue from customers 608 651 263 204 427 482 - 426 197 299 261 - 34 (623) 3,229
Other((2)) - - (1) - (3) (9) - (19) (2) 6 (5) - (1) 21 (13)
Total revenue 608 651 262 204 424 473 - 407 195 305 256 - 33 (602) 3,216
Group production 304 651 262 204 424 473 - 407 195 305 256 - - (602) 2,879
Third party products and services((3))( ) - - - - - - - - - - - - 337 - 337
Inter-segment revenue 304 - - - - - - - - - - - (304) - -
Total revenue 608 651 262 204 424 473 - 407 195 305 256 - 33 (602) 3,216
Underlying EBITDA 182 71 3 24 (75) 142 - 212 39 134 87 (3) 13 (151) 678
Depreciation and amortisation (84) (33) (17) (31) (30) (92) - (34) (14) (42) (34) - (22) 48 (385)
Underlying EBIT 98 38 (14) (7) (105) 50 - 178 25 92 53 (3) (9) (103) 293
Comprising:
Group production excluding exploration expensed 98 38 (14) (7) (105) 51 - 179 25 94 56 (3) 14 (204) 222
Exploration expensed - - - - - (1) - (1) - (2) (3) - (10) 1 (16)
Third party products and services((3)) - - - - - - - - - - - - (13) - (13)
Share of profit/(loss) of equity accounted investments((4)) - - - - - - - - - - - - - 100 100
Underlying EBIT 98 38 (14) (7) (105) 50 - 178 25 92 53 (3) (9) (103) 293
Net finance cost (69)
Income tax (expense)/benefit (93)
Underlying earnings 131
Earnings adjustments((5)) (32)
Profit/(loss) after tax 99
Exploration expenditure - - - - - 6 - 2 - 3 3 12 10 (2) 34
Capital expenditure((6)) 23 7 6 22 102 112 5 37 17 24 22 70 - (54) 393
Equity accounted investments( ) - - - - 14 2 - - - - - - - 597 613
Total assets((7)) 3,434 1,226 600 699 769 1,670 177 666 530 695 433 1,842 2,580 (823) 14,498
Total liabilities((7)) 587 276 101 100 1,157 276 9 380 230 225 249 23 1,719 (776) 4,556
(1) The segment information reflects the Group's interest in the manganese
operations and is presented on a proportional consolidation basis, which is
the measure used by the Group's management to assess their performance. The
manganese operations are equity accounted in the half year consolidated
financial statements. The statutory adjustment column reconciles the
proportional consolidation to the equity accounting position.
(2) Other revenue predominately relates to fair value movements on
provisionally priced contracts.
(3) Third party products and services sold comprise US$19 million for
aluminium, US$12 million for alumina, US$162 million for coal, US$100 million
for freight services and US$44 million for aluminium raw materials. Underlying
EBIT on third party products and services comprise US$2 million for aluminium,
(US$2) million for alumina, (US$14) million for coal, nil for freight services
and US$1 million for aluminium raw materials.
(4) Share of profit/(loss) of equity accounted investments includes the
impact of earnings adjustments to Underlying EBIT.
(5) Refer to note 4(b)(i) Earnings adjustments.
(6) Capital expenditure excludes the purchase of intangibles and
capitalised exploration expenditure.
(7) Total assets and liabilities for each operating segment represent
operating assets and liabilities which predominantly exclude the carrying
amount of equity accounted investments, cash, interest bearing liabilities,
tax balances and certain other financial assets.
31 December 2018
US$M Worsley Alumina Hillside Aluminium Mozal Aluminium Brazil Alumina South Africa Energy Coal Illawarra Metallurgical Coal Eagle Downs Metallurgical Coal Australia Manganese((1)) South Africa Manganese((1)) Cerro Matoso Cannington Group and unallocated items/ elimination Statutory adjustment((1)) Group
Hermosa
Revenue from customers 864 774 282 312 517 571 - 574 275 260 233 - 32 (856) 3,838
Other((2)) - (2) (2) - - 3 - 7 - (16) (10) - - (7) (27)
Total revenue 864 772 280 312 517 574 - 581 275 244 223 - 32 (863) 3,811
Group production 409 772 280 312 517 574 - 581 266 244 223 - - (847) 3,331
Third party products and services((3))( ) - - - - - - - - - - - - 487 (7) 480
Inter-segment revenue 455 - - - - - - - 9 - - - (455) (9) -
Total revenue 864 772 280 312 517 574 - 581 275 244 223 - 32 (863) 3,811
Underlying EBITDA 425 (6) 30 125 58 292 - 382 114 54 74 - (10) (233) 1,305
Depreciation and amortisation (81) (33) (17) (28) (44) (97) - (30) (14) (44) (27) - (9) 44 (380)
Underlying EBIT 344 (39) 13 97 14 195 - 352 100 10 47 - (19) (189) 925
Comprising:
Group production excluding exploration expensed 345 (39) 13 97 13 197 - 352 100 13 49 - (40) (452) 648
Exploration expensed (1) - - - - (3) - - - (3) (2) - (7) - (16)
Third party products and services((3)) - - - - - - - - - - - - 28 - 28
Share of profit/(loss) of equity accounted investments((4)) - - - - 1 1 - - - - - - - 263 265
Underlying EBIT 344 (39) 13 97 14 195 - 352 100 10 47 - (19) (189) 925
Net finance cost (59)
Income tax (expense)/benefit (224)
Underlying earnings 642
Earnings adjustments((5)) (7)
Profit/(loss) after tax 635
Exploration expenditure 1 - - - - 4 - 1 - 4 3 7 7 (1) 26
Capital expenditure((6)) 25 12 8 16 103 56 2 36 17 13 28 33 - (53) 296
Equity accounted investments((7))( ) - - - - 14 3 - - - - - - - 671 688
Total assets((7)) 3,468 1,304 644 795 736 1,710 172 679 524 697 493 1,777 2,498 (782) 14,715
Total liabilities((7)) 637 277 110 108 1,109 300 9 363 212 218 250 39 1,656 (741) 4,547
(1) The segment information reflects the Group's interest in the manganese
operations and is presented on a proportional consolidation basis, which is
the measure used by the Group's management to assess their performance. The
manganese operations are equity accounted in the half year consolidated
financial statements. The statutory adjustment column reconciles the
proportional consolidation to the equity accounting position.
(2) Other revenue predominately relates to fair value movements on
provisionally priced contracts.
(3) Third party products and services sold comprise US$33 million for
aluminium, US$16 million for alumina, US$241 million for coal, US$129 million
for freight services and US$61 million for aluminium raw materials. Underlying
EBIT on third party products and services comprise nil for aluminium, US$3
million for alumina, US$27 million for coal, (US$3) million for freight
services and US$1 million for aluminium raw materials.
(4) Share of profit/(loss) of equity accounted investments includes the
impact of earnings adjustments to Underlying EBIT.
(5) Refer to note 4(b)(i) Earnings adjustments.
(6) Capital expenditure excludes the purchase of intangibles and
capitalised exploration expenditure.
(7) Equity accounted investments and total assets and liabilities for each
operating segment are as at 30 June 2019. Total assets and liabilities
represent operating assets and liabilities which predominantly exclude the
carrying amount of equity accounted investments, cash, interest bearing
liabilities, tax balances and certain other financial assets.
(i) Earnings adjustments
The following table shows earnings adjustments in determining Underlying
earnings:
US$M H1 FY20 H1 FY19
Adjustments to Underlying EBIT
Exchange rate (gains)/losses on restatement of monetary items((1)) 3 -
Fair value (gains)/losses on non-trading derivative instruments and other 39 28
investments((1)(2))
Earnings adjustments included in (profit)/loss of equity accounted - (11)
investments((3))
Total adjustments to Underlying EBIT 42 17
Adjustments to net finance cost
Exchange rate variations on net debt (5) (21)
Total adjustments to net finance cost (5) (21)
Adjustments to income tax expense
Tax effect of earnings adjustments to Underlying EBIT (11) (5)
Tax effect of earnings adjustments to net finance cost 1 7
Exchange rate variations on tax balances 5 9
Total adjustments to income tax expense (5) 11
Total earnings adjustments 32 7
(1) Recognised in expenses excluding net finance cost in the Consolidated
Income Statement.
(2) Primarily relates to US$35 million (H1 FY19: US$14 million) included
in the Hillside Aluminium segment and US$3 million (H1 FY19: US$12 million)
included in the South Africa Energy Coal segment.
(3) Recognised in share of profit/(loss) of equity accounted investments
in the Consolidated Income Statement.
(ii) Significant items
Significant items are those items, not separately identified in note 4(b)(i)
Earnings adjustments, where their nature and amount is considered material to
the consolidated financial statements. There were no such items included
within the Group's (income)/expense for the half year ended 31 December 2019
(H1 FY19: nil).
5. Dividends
US$M H1 FY20 H1 FY19
Prior year final dividend((1)) 139 316
Total dividends declared and paid during the period 139 316
(1) On 22 August 2019, the Directors resolved to pay a fully franked final
dividend of US 2.8 cents per share (US$140 million) in respect of the 2019
financial year. The dividends were paid on 10 October 2019. In addition to the
ESOP Trusts receiving dividends from South32 Limited, a total of 23,601,881
shares were bought back between the declaration and ex-dividend dates,
therefore reducing the dividends paid externally to US$139 million.
6. Earnings per share
Basic earnings per share (EPS) amounts are calculated based on profit
attributable to equity holders of South32 Limited and the weighted average
number of shares outstanding during the period.
Dilutive EPS amounts are calculated based on profit attributable to equity
holders of South32 Limited and the weighted average number of shares
outstanding after adjustment for the effects of all dilutive potential shares.
The following reflects the profit/(loss) and share data used in the basic and
diluted EPS computations:
Profit/(loss) for the period attributable to equity holders
US$M H1 FY20 H1 FY19
Profit/(loss) attributable to equity holders of South32 Limited (basic) 99 635
Profit/(loss) attributable to equity holders of South32 Limited (diluted) 99 635
Weighted average number of shares
Million H1 FY20 H1 FY19
Basic earnings per share denominator((1)) 4,941 5,079
Shares contingently issuable under employee share ownership plans((2)) 25 61
Diluted earnings per share denominator 4,966 5,140
(1) The basic EPS denominator is the aggregate of the weighted average
number of shares after deduction of the weighted average number of Treasury
shares outstanding and shares permanently cancelled through the on-market
share buy-back.
(2) Included in the calculation of diluted EPS are shares contingently
issuable under employee share ownership plans.
Earnings per share
US cents H1 FY20 H1 FY19
Basic earnings per share 2.0 12.5
Diluted earnings per share 2.0 12.4
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
7. Net finance cost
US$M H1 FY20 H1 FY19
Finance expenses
Interest on borrowings 10 12
Finance lease interest((1)) - 25
Interest on lease liabilities((1)) 26 -
Discounting on provisions and other liabilities 54 52
Net interest expense on post-retirement employee benefits 5 4
Exchange rate variations on net debt (5) (21)
90 72
Finance income
Interest income 26 34
Net finance cost 64 38
(1) Refer to note 3 New standards and interpretations.
8. Financial assets and financial liabilities
The following table presents the Group's financial assets and liabilities by
class at their carrying amounts which approximates their fair value.
31 December 2019 Held at FVTPL Designated as FVOCI Amortised cost
US$M Total
Financial assets
Cash and cash equivalents - - 1,389 1,389
Trade and other receivables((1)) 65 - 453 518
Loans to equity accounted investments((2)) - - 32 32
Other financial assets:
Derivative contracts 80 - - 80
Total current financial assets 145 - 1,874 2,019
Trade and other receivables((1)(3)) - - 6 6
Loans to equity accounted investments((2)) - - 180 180
Interest bearing loans receivable((2)) - - 32 32
Other financial assets:
Investments in equity instruments - designated as FVOCI - 113 - 113
Other investments - held at fair value through profit or loss (FVTPL) 143 - - 143
Total non-current financial assets 143 113 218 474
Total 288 113 2,092 2,493
Financial liabilities
Trade and other payables((4)) 5 - 755 760
Lease liabilities((5)(6)) - - 46 46
Unsecured other((6)) - - 377 377
Total current financial liabilities 5 - 1,178 1,183
Trade and other payables - - 2 2
Lease liabilities((5)(6)) - - 630 630
Unsecured other((6)) - - 59 59
Total non-current financial liabilities - - 691 691
Total 5 - 1,869 1,874
(1) Excludes current input taxes of US$55 million and non-current input
taxes of US$33 million included in other receivables.
(2) Included in total trade and other receivables.
(3) Excludes a reimbursable right asset in relation to the closure and
rehabilitation provision at South Africa Energy Coal of US$88 million included
in other receivables.
(4) Excludes input taxes of US$9 million included in other payables.
(5) Refer to note 3 New standards and interpretations.
(6) Included in total interest bearing liabilities.
30 June 2019 Held at FVTPL Designated as FVOCI Amortised cost
US$M Total
Financial assets
Cash and cash equivalents - - 1,408 1,408
Trade and other receivables((1)) 103 - 595 698
Loans to equity accounted investments((2)) - - 36 36
Other financial assets:
Derivative contracts 108 - - 108
Total current financial assets 211 - 2,039 2,250
Trade and other receivables((1)(3)) - - 5 5
Loans to equity accounted investments((2)) - - 136 136
Interest bearing loans receivable((2)) - - 33 33
Other financial assets:
Derivative contracts 7 - - 7
Investments in equity instruments - designated as FVOCI - 124 - 124
Other investments - held at FVTPL 141 - - 141
Total non-current financial assets 148 124 174 446
Total 359 124 2,213 2,696
Financial liabilities
Trade and other payables((4)) 1 - 870 871
Finance leases((5)) - - 12 12
Unsecured other((5)) - - 301 301
Total current financial liabilities 1 - 1,183 1,184
Trade and other payables - - 1 1
Finance leases((5)) - - 531 531
Unsecured other((5)) - - 60 60
Total non-current financial liabilities - - 592 592
Total 1 - 1,775 1,776
(1) Excludes current input taxes of US$154 million and non-current input
taxes of US$33 million included in other receivables.
(2) Included in total trade and other receivables.
(3) Excludes a reimbursable right asset in relation to the closure and
rehabilitation provision at South Africa Energy Coal of US$83 million included
in other receivables.
(4) Excludes input taxes of US$9 million included in other payables.
(5) Included in total interest bearing liabilities.
Measurement of fair value
The following table shows the Group's financial assets and liabilities carried
at fair value with reference to the nature of valuation inputs used:
Level 1 Valuation is based on unadjusted quoted prices in active markets
for identical financial assets and liabilities.
Level 2 Valuation is based on inputs (other than quoted prices included in
Level 1) that are observable for the financial asset or liability, either
directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).
Level 3 Valuation includes inputs that are not based on observable market
data.
31 December 2019
US$M Level 1 Level 2 Level 3 Total
Financial assets and liabilities
Trade and other receivables - 65 - 65
Trade and other payables - (5) - (5)
Derivative contracts - 1 79 80
Investments in equity instruments - designated as FVOCI 43 - 70 113
Other investments - held at FVTPL - 143 - 143
Total 43 204 149 396
30 June 2019
US$M Level 1 Level 2 Level 3 Total
Financial assets and liabilities
Trade and other receivables - 103 - 103
Trade and other payables - (1) - (1)
Derivative contracts - 2 113 115
Investments in equity instruments - designated as FVOCI 48 - 76 124
Other investments - held at FVTPL - 141 - 141
Total 48 245 189 482
Level 3 financial assets and liabilities
The following table shows the movements in the Group's Level 3 financial
assets and liabilities:
US$M H1 FY20 H1 FY19
At the beginning of the period 189 272
Disposals - (2)
Realised gains/(losses) recognised in the Consolidated Income Statement((1)) (52) (31)
Unrealised gains/(losses) recognised in the Consolidated Income Statement((1)) 18 17
Unrealised gains/(losses) recognised in the Consolidated Statement of (6) (31)
Comprehensive Income((2))
At the end of the period 149 225
(1) Recognised in expenses excluding net finance cost in the Consolidated
Income Statement.
(2) Recognised in the financial assets reserve in the Consolidated
Statement of Comprehensive Income.
Sensitivity analysis
The carrying amount of financial assets and liabilities that are valued using
inputs other than observable market data are calculated using appropriate
valuation models, including discounted cash flow modelling, with inputs such
as commodity prices, foreign exchange rates and inflation. The potential
effect of using reasonably possible alternative assumptions in these models,
based on changes in the most significant inputs by 10 per cent while holding
all other variables constant, is shown in the following table:
31 December 2019 Profit after tax Other Comprehensive Income, net of tax
Carrying amount Significant inputs 10% increase in input 10% decrease in input 10% increase in input 10% decrease in input
US$M
Financial assets and liabilities
Derivative contracts((1)) 79 Aluminium price((2)) (27) 26 - -
Foreign exchange rate((2))
Electricity price((3))
Investments in equity instruments - designated as FVOCI((1)) 70 Alumina price((2)) - - 32 (50)
Aluminium price((2)) Foreign exchange rate((2))
Total 149 (27) 26 32 (50)
(1) Sensitivity analysis is performed assuming all inputs are
directionally moving unfavourably and favourably.
(2) Aluminium and alumina prices are comparable to market consensus
forecasts and foreign exchange rates are aligned with forward market rates.
(3) Electricity prices are determined as a market equivalent price.
30 June 2019 Profit after tax Other Comprehensive Income, net of tax
Carrying amount Significant inputs 10% increase in input 10% decrease in input 10% increase in input 10% decrease in input
US$M
Financial assets and liabilities
Derivative contracts((1)) 113 Aluminium price((2)) (49) 46 - -
Foreign exchange rate((2))
Electricity price((3))
Investments in equity instruments - designated as FVOCI((1)) 76 Alumina price((2)) - - 52 (78)
Aluminium price((2)) Foreign exchange rate((2))
Total 189 (49) 46 52 (78)
(1) Sensitivity analysis is performed assuming all inputs are
directionally moving unfavourably and favourably.
(2) Aluminium and alumina prices are comparable to market consensus
forecasts and foreign exchange rates are aligned with forward market rates.
(3) Electricity prices are determined as a market equivalent price.
NOTES TO FINANCIAL STATEMENTS - OTHER NOTES
9. Subsequent events
On 13 February 2020, the Directors resolved to pay a fully franked interim
dividend of US 1.1 cents per share (US$54 million) in respect of the 2020 half
year and a fully franked special dividend of US 1.1 cents per share (US$54
million). The dividends will be paid on 2 April 2020. The dividends have not
been provided for in the half year consolidated financial statements and will
be recognised in the 2020 financial year.
On 13 February 2020, the Group also announced an increase to the existing
capital management program, announced on 27 March 2017, of US$180 million to a
total of US$1.43 billion. This leaves US$198 million expected to be returned
by 4 September 2020, following payment of the US$54 million special dividend.
On 20 December 2019, the Group exercised its option to acquire a 50% interest
in Ambler Metals Joint Venture (Ambler Metals JV) that will own the Upper
Kobuk Mineral Projects (UKMP) located in northwest Alaska. Following the
establishment of the Ambler Metals JV in February 2020, Trilogy Metals Inc.
(TSX, NYSE American: TMQ) contributed all of its assets associated with the
UKMP and the Group contributed US$145 million to the Ambler Metals JV for an
equal share of its assets, liabilities, income and expenses. The Ambler Metals
JV will loan US$57.5 million of the subscription payment to the Group with the
balance retained to fund its activities and exploration programs. The
acquisition will be treated as an acquisition of assets as it primarily
involves the acquisition of exploration licenses.
No other matters or circumstances have arisen since the end of the half year
that have significantly affected, or may significantly affect, the operations,
results of operations or state of affairs of the Group in subsequent
accounting periods.
DIRECTORS' DECLARATION
In accordance with a resolution of the Directors of the Company, we state
that:
In the opinion of the Directors:
(a) The consolidated financial statements and notes for the half year
ended 31 December 2019 are in accordance with the Corporations Act, including:
(i) Giving a true and fair view of the Group's financial position as
at 31 December 2019 and of its performance for the half year ended on that
date; and
(ii) Complying with Australian Accounting Standard AASB 134 Interim
Financial Reporting and Corporations Regulations 2001.
(b) There are reasonable grounds to believe that the Company will be able
to pay its debts as and when they become due and payable.
Signed in accordance with a resolution of the Board of Directors.
Karen Wood
Chair
Graham Kerr
Chief Executive Officer and Managing Director
Date: 13 February 2020
DIRECTORS' REPORT
The Directors of the Company present the Consolidated Financial Report for the
half year ended 31 December 2019 and the auditor's review report thereon.
Directors
The Directors of the Company during or since the end of the half year are:
Karen Wood
Graham Kerr
Frank Cooper AO
Guy Lansdown (Appointed 2 December 2019)
Dr Xiaoling Liu
Dr Xolani Mkhwanazi (Deceased 4 January 2020)
Dr Ntombifuthi (Futhi) Mtoba
Wayne Osborn
Keith Rumble
The company secretaries of the Company during or since the end of the half
year are:
Nicole Duncan
Melanie Williams
Review and results of operations
A review of the operations of the consolidated entity during the period and of
the results of those operations can be found on pages 3 to 26 of the National
Storage Mechanism version of the release.
Strategic risks and uncertainties
Due to the international scope of the Group's operations and the industries in
which it is engaged, there are a number of risk factors and uncertainties
which could have an effect on the Group's results and operations over the next
six months.
The following information outlines the most significant strategic, external
and operational risks identified across the Group. The list is not exhaustive,
nor listed in any particular order:
· Ensuring that our people go home safe and well
· Actions by governments, political events or tax authorities
· Portfolio composition
· Global economic uncertainty and liquidity
· Unexpected operational or natural catastrophes
· Key talent identification, attraction and retention
· Changing societal expectations and acceptance
· Evolving culture of the organisation
· Predictable operational performance
· Maintain competitiveness through innovation and technology
· Security of supply of logistics chain and critical services
· Maintain, realise or enhance the value of our resources and
reserves
· Climate change resilience
Further information on these risks and how they are managed can be found on
pages 18 to 21 of the Annual Report for the year ended 30 June 2019, a copy of
which is available on the Group's website at www.south32.net
(http://www.south32.net) .
DIRECTORS' REPORT
Events subsequent to the balance date
On 13 February 2020, the Directors resolved to pay a fully franked interim
dividend of US 1.1 cents per share (US$54 million) in respect of the 2020 half
year and a fully franked special dividend of US 1.1 cents per share (US$54
million). The dividends will be paid on 2 April 2020. The dividends have not
been provided for in the half year consolidated financial statements and will
be recognised in the 2020 financial year.
On 13 February 2020, the Group also announced an increase to the existing
capital management program, announced on 27 March 2017, of US$180 million to a
total of US$1.43 billion. This leaves US$198 million expected to be returned
by 4 September 2020, following payment of the US$54 million special dividend.
On 20 December 2019, the Group exercised its option to acquire a 50% interest
in Ambler Metals Joint Venture (Ambler Metals JV) that will own the Upper
Kobuk Mineral Projects (UKMP) located in northwest Alaska. Following the
establishment of the Ambler Metals JV in February 2020, Trilogy Metals Inc.
(TSX, NYSE American: TMQ) contributed all of its assets associated with the
UKMP and the Group contributed US$145 million to the Ambler Metals JV for an
equal share of its assets, liabilities, income and expenses. The Ambler Metals
JV will loan US$57.5 million of the subscription payment to the Group with the
balance retained to fund its activities and exploration programs. The
acquisition will be treated as an acquisition of assets as it primarily
involves the acquisition of exploration licenses.
No other matters or circumstances have arisen since the end of the half year
that have significantly affected, or may significantly affect, the operations,
results of operations or state of affairs of the Group in subsequent
accounting periods.
UK responsibility statements
The Directors state that to the best of their knowledge the Financial Results
and Outlook is compliant with DTR 4.2.7R and DTR 4.2.8R of the Disclosure
Guidance and Transparency Rules in the United Kingdom, namely:
· Includes a fair review of important events during the first six
months of the current financial year and their impact on the half year
consolidated financial statements, and a description of the principal risks
and uncertainties for the remaining six months of the year; and
· Disclosure has been made for related party transactions that have
taken place in the first six months of the current financial year and that
have materially affected the financial position or performance of the Group
during that period, and any changes in the related party transactions
described in the last annual report that could have such a material effect.
Lead auditor's independence declaration
A copy of the lead auditor's independence declaration as required under
Section 307C of the Corporations Act is set out on the following page.
Rounding of amounts
The Australian Securities and Investments Commission (ASIC) Corporations
(Rounding in Financial/Directors' Reports) Instrument 2016/191 applies to the
Group and amounts in the half year consolidated financial statements and this
Directors' Report have been rounded in accordance with this instrument to the
nearest million US dollars, unless stated otherwise.
This Directors' Report is made in accordance with a resolution of the Board.
Karen Wood
Chair
Graham Kerr
Chief Executive Officer and Managing Director
Date: 13 February 2020
Lead Auditor's Independence
Declaration under Section 307C of the Corporations Act 2001
To the Directors of South32 Limited
I declare that, to the best of my knowledge and belief, in relation to the
review of South32 Limited for the half year ended 31 December 2019 there have
been:
(i) no contraventions of the auditor independence requirements
as set out in the Corporations Act 2001 in relation to the review; and
(ii) no contraventions of any applicable code of professional
conduct in relation to the review.
KPMG
Graham Hogg
Partner
Perth
13 February 2020
Independent Auditor's Review Report
To the shareholders of South32 Limited
We have reviewed the accompanying Half year Financial Statements of South32 The Half year Financial Statements comprise:
Limited.
· Consolidated balance sheet as at 31 December 2019
Based on our review, which is not an audit, we have not become aware of any
matter that makes us believe that the Half year Financial Statements of · Consolidated income statement, Consolidated statement of comprehensive
South32 Limited are not in accordance with the Corporations Act 2001, income, Consolidated statement of changes in equity and Consolidated cash flow
including: statement for the half year ended on that date
· giving a true and fair view of the Group's financial position as at 31 · Notes 1 to 9 comprising a summary of significant accounting policies
December 2019 and of its performance for the half year ended on that date; and and other explanatory information
· complying with Australian Accounting Standard AASB 134 Interim · The Directors' Declaration.
Financial Reporting and the Corporations Regulations 2001.
The Group comprises South32 Limited (the Company) and the entities it
controlled at the half year's end or from time to time during the half year.
The Directors of the Company are responsible for:
· the preparation of the Half year Financial Statements that give a
true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001
· such internal control as the Directors determine is necessary to
enable the preparation of the Half year Financial Statements that are free
from material misstatement, whether due to fraud or error.
Our responsibility is to express a conclusion on the Half year Financial
Statements based on our review. We conducted our review in accordance with
Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report
Performed by the Independent Auditor of the Entity, in order to state whether,
on the basis of the procedures described, we have become aware of any matter
that makes us believe that the Half year Financial Statements are not in
accordance with the Corporations Act 2001 including: giving a true and fair
view of the Group's financial position as at 31 December 2019 and its
performance for the half year ended on that date; and complying with
Australian Accounting Standard AASB 134 Interim Financial Reporting and the
Corporations Regulations 2001. As auditor of South32 Limited, ASRE 2410
requires that we comply with the ethical requirements relevant to the audit of
the annual Financial Report.
A review of Half year Financial Statements consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with Australian Auditing
Standards and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
In conducting our review, we have complied with the independence requirements
of the Corporations Act 2001.
KPMG
Graham Hogg
Partner
Perth
13 February 2020
Disclaimer
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.
NON-IFRS FINANCIAL INFORMATION
This release includes certain non-IFRS financial measures, including
Underlying earnings, Underlying EBIT and Underlying EBITDA, Basic Underlying
earnings per share, Underlying effective tax rate, Underlying EBIT margin,
Underlying EBITDA margin, Underlying return on capital, Free cash flow, net
debt, net operating assets and ROIC. These measures are used internally by
management to assess the performance of our business, make decisions on the
allocation of our resources and assess operational management. Non-IFRS
measures have not been subject to audit or review and should not be considered
as an indication of or alternative to an IFRS measure of profitability,
financial performance or liquidity.
NO OFFER OF SECURITIES
Nothing in this release should be read or understood as an offer or
recommendation to buy or sell South32 securities, or be treated or relied upon
as a recommendation or advice by South32.
NO FINANCIAL OR INVESTMENT ADVICE - SOUTH AFRICA
South32 does not provide any financial or investment 'advice' as that term is
defined in the South African Financial Advisory and Intermediary Services Act,
37 of 2002, and we strongly recommend that you seek professional advice.
Further Information
Investor Relations Media Relations
Alex Volante Rebecca Keenan Jenny White
T +61 8 9324 9029 T +61 8 9324 9364 T +44 20 7798 1773
M +61 403 328 408 M +61 402 087 055 M +44 7900 046 758
E Alex.Volante@south32.net E Rebecca.Keenan@south32.net E Jenny.White@south32.net
Further information on South32 can be found at www.south32.net
(http://www.south32.net) .
South32 Limited (ABN 84 093 732 597)
Registered in Australia
(Incorporated in Australia under the Corporations Act 2001)
Registered Office: Level 35, 108 St Georges Terrace
Perth Western Australia 6000 Australia
ISIN: AU000000S320
JSE Sponsor: UBS South Africa (Pty) Ltd
13 February 2020
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
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