REG - South32 Limited - Financial Results & Outlook Half Year 31 Dec 2021
17/02/2022 07:00
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RNS Number : 9827B South32 Limited 17 February 2022
17 February 2022
South32 Limited
(Incorporated in Australia under the Corporations Act 2001 (Cth))
(ACN 093 732 597)
ASX, LSE, JSE Share Code: S32 ADR: SOUHY
ISIN: AU000000S320
South32 accelerates portfolio transformation and delivers increased returns to
shareholders
"We achieved a record operating margin of 44% and a significant improvement in
our Underlying earnings to US$1.0B in the half, following a broad recovery
in commodity prices, while also making substantial progress reshaping our
portfolio.
"A number of our operations delivered strong production results during the
half. We achieved record quarterly production at Brazil Alumina and South
Africa Manganese during the period, while Worsley Alumina continued to operate
above nameplate capacity.
"Production guidance at Cannington has been revised higher by five per cent as
the operation prepares to transition to 100 percent truck haulage in the June
2022 quarter, which is expected to bring forward access to higher grade
material.
"This performance, together with our strong financial position is enabling us
to invest in our business, grow base metals production and substantially
increase our returns to shareholders, with the Board resolving to pay
a record US$405 million fully franked ordinary dividend in respect of the
period. The Board has also resolved to expand our capital management
program by US$110M to US$2.1B, leaving US$302M to be returned.
"Our business is in excellent financial health and we have continued to
reshape our portfolio, with the planned acquisition of a 45 per cent stake in
the Sierra Gorda copper mine, and further investment in green aluminium.
"In January we also published a pre-feasibility study for the zinc-lead-silver
Taylor Deposit, confirming its potential to be a sustainable and highly
productive underground mine in the industry's first cost quartile. We are
excited to progress Taylor as the first development option at our Hermosa
project, while continuing our work at other opportunities across our
landholding, including exploration targeting copper, and studies to confirm
the potential for the Clark Deposit to develop a battery-grade manganese
product.
"Looking ahead, we are well positioned to capitalise on current market
conditions as countries continue their economic recovery from COVID-19, and
into the future as they invest in new infrastructure that is expected to see
continued growth in demand for the metals critical for a low carbon future."
Graham Kerr, South32 CEO
Financial Highlights((2)(4))
US$M H1 FY22 H1 FY21((5)) % Change
Profit/(loss) before tax and net finance costs 1,502 170 784%
Profit/(loss) after tax 1,032 53 1,847%
Basic earnings per share (US cents)((6)) 22.2 1.1 1,918%
Ordinary dividends per share (US cents)((7)) 8.7 1.4 521%
Special dividends per share (US cents) - - -
Other financial measures
Underlying revenue((8)) 4,602 3,486 32%
Underlying EBITDA((9)) 1,871 786 138%
Underlying EBITDA margin((10)) 44.0% 24.3% 19.7%
Underlying EBIT((9)) 1,514 390 288%
Underlying EBIT margin((11)) 35.5% 12.0% 23.5%
Underlying earnings((9)) 1,004 136 638%
Basic Underlying earnings per share (US cents)((6)) 21.6 2.8 671%
ROIC((12)) 24.8% 3.5% 21.3%
Ordinary shares on issue (million) 4,650 4,781 (3%)
SAFETY
On 30 November 2021 we tragically lost one of our colleagues, Mr Desmin
Mienies, a contractor with Elektra Mining, who was fatally injured while
undertaking electrical work at our Wessels mine at South Africa Manganese. Our
deepest sympathies are with Mr Mienies' family and colleagues to whom we have
provided our support and counselling. An investigation into the incident has
been completed and key learnings from the event are being shared across our
organisation.
Our Total Recordable Injury Frequency (TRIF)((13)(14)) decreased by 18% to 4.9
per million hours worked in H1 FY22 from our adjusted FY21 baseline((15)) of
6.0. The improvement in TRIF was largely driven by Illawarra Metallurgical
Coal where we are undertaking a targeted program to eliminate injuries. Lower
TRIF rates were also observed at Australia Manganese and Cerro Matoso.
In H1 FY22 we initiated the Safety System of Work, a multi-year global program
designed to achieve a step-change in our safety performance. In the first
phase of the program, we partnered with a leading safety consultant to
undertake diagnostic work across the business and identify areas for
improvement.
OUR RESPONSE TO COVID-19
The COVID-19 pandemic continues to impact our operations and supply chains
across our global portfolio. During H1 FY22, we have seen periods of elevated
case numbers and workforce restrictions in most of the jurisdictions in which
we operate. Our focus remains on keeping our people well, maintaining safe and
reliable operations, and supporting our communities, as we continue to tailor
our controls to help protect the health of our employees and contractors.
PERFORMANCE SUMMARY
The Group's statutory profit after tax increased by US$979M to US$1,032M in H1
FY22 as we benefited from portfolio changes completed in FY21, and a broad
recovery in commodity prices. Strong production results across a number of
operations and our high operating leverage translated into an improved
operating margin of 44% (H1 FY21: 24%), as we maintained our cost focus,
holding increases in controllable costs to less than 3% of the Group's cost
base((16)), despite significant external pressure. Underlying earnings
increased by US$868M to US$1,004M.
Specific highlights for H1 FY22 included:
• Worsley Alumina continuing to operate above nameplate capacity and Brazil
Alumina achieving record production in Q2 FY22;
• Cannington continuing to perform strongly with FY22e production guidance
revised higher by 5% as the operation prepares to transition to 100% truck
haulage in Q4 FY22;
• Cerro Matoso achieving a 26% uplift in payable nickel production, with plant
availability benefitting from completion of the furnace refurbishment in FY21
and higher grades being processed from the Q&P project;
• South Africa Manganese achieving a production record in Q1 FY22 as we
delivered more premium material to market; and
• Our corporate and marketing functions delivering a further reduction in costs,
as we realise the benefits of simplifying the Group's functional structures
and footprint.
We generated a substantial improvement in free cash flow from operations,
including distributions from our manganese EAI, of US$942M. This was achieved
despite a US$333M build in working capital caused by logistics congestion, and
rising commodity prices, predominantly in our aluminium value chain. We
finished the period with net cash of US$975M.
This strong improvement in financial performance and the disciplined
application of our capital management framework has allowed us to invest in
our business, increase our exposure to the metals critical for a low carbon
future and substantially increase returns to shareholders.
We will return US$465M to our shareholders in respect of H1 FY22 comprised of:
• A US$405M fully franked interim dividend, which we have resolved to pay in
April, representing 40% of H1 FY22 Underlying earnings; and
• US$60M as part of our on-market share buy-back program, purchasing a further
25M shares at an average price of A$3.36 per share.
We have successfully established a strong track record of returning excess
cash to shareholders in a timely and efficient manner, buying back 13% of our
shares on issue since commencing our capital management program in April 2017.
Reflecting our confidence in the outlook for our business, the Board has today
further expanded our capital management program by US$110M to US$2.1B, leaving
US$302M to be returned by 2 September 2022.
Following the completion of our South Africa Energy Coal divestment in late
FY21, we have taken significant steps forward to increase our portfolio's
exposure to the metals critical for a low carbon future. Milestones announced
since the start of FY22 include:
• Adding exposure to copper through the acquisition of a 45% interest in the
Sierra Gorda Joint Venture, which is expected to close in February 2022((1));
• Growing our green aluminium capacity through the agreed acquisition of an
additional shareholding in Mozal Aluminium((17)) and restart of the Brazil
Aluminium smelter((18));
• Reaching an agreement to increase our interest in the Mineração Rio do Norte
S.A (MRN) bauxite mine, which is expected to complete in H2 FY22 subject to
the satisfaction of conditions;
• Entering into an agreement to divest the Metalloys manganese alloy smelter,
which remains subject to the satisfaction of conditions;
• Finalising a pre-feasibility study for the zinc-lead-silver Taylor Deposit,
confirming its potential to be the first development option at our Hermosa
project((19)); and
• Successfully completing a summer exploration season at our Ambler Metals Joint
Venture and progressing activity across our pipeline of greenfield exploration
programs.
BASIS OF UNDERLYING FINANCIAL RESULTS
The basis of the Group's underlying financial results has been updated from H1
FY22. Our material EAI are now included in our Underlying financial results on
a proportionally consolidated basis, consistent with how their performance is
assessed by the Group's Board and management, and reflecting their increased
contribution to the Group's financial results with the planned acquisition of
a 45% interest in Sierra Gorda((1)). In addition, South Africa Manganese ore
has been reported as a 54.6% interest (previously 60%) reflecting the proposed
divestment of our 60% interest in the Metalloys manganese alloy smelter and
aligning with our interest in Hotazel Manganese Mines((2)). H1 FY21
comparative information has been updated to reflect these changes, which
included restating information for Underlying revenue, Underlying EBITDA and
Underlying EBIT. There is no change to the Group's statutory reporting.
EARNINGS
The Group's statutory profit after tax increased by US$979M to US$1,032M in H1
FY22. Consistent with our accounting policies, various items are excluded from
the Group's statutory profit to derive Underlying earnings including:
recognition of indirect tax assets associated with our decision to restart the
smelter at Brazil Aluminium (US$77M pre-tax); manganese joint venture
adjustments to Underlying EBIT (US$79M pre-tax); exchange rate gains on the
restatement of monetary items (US$32M pre-tax); a net non-cash impairment
charge (US$37M pre-tax) in relation to Eagle Downs Metallurgical Coal
partially offset by an impairment reversal at Brazil Aluminium; losses on
non-trading derivative instruments and other investments measured at fair
value through profit/(loss) (US$5M pre-tax); manganese joint venture
adjustments to Underlying net finance costs (US$11M pre-tax); exchange rate
gains associated with the Group's non-US dollar denominated net debt (US$11M
pre-tax); and the tax benefit for all pre-tax earnings adjustments, manganese
joint venture adjustments and exchange rate variations on tax balances
(US$18M). Further information on these earnings adjustments is included in
Note 3 (b) (i).
The Group's Underlying EBITDA increased by US$1,085M (or 138%) to US$1,871M in
H1 FY22. Higher prices for the majority of our commodities gave rise to a 32%
increase in Underlying revenue. Our Group operating margin increased to 44%
and we delivered a very strong Return on invested capital (ROIC)((12)) of 25%,
as we minimise the increase to our cost base((16)) from controllable costs to
3%. Our total cost base((16)) reduced by US$117M (or 5%) in H1 FY22, primarily
related to the divestment of South Africa Energy Coal on 1 June 2021. The
divestment of lower returning businesses, South Africa Energy Coal, TEMCO and
Metalloys is expected to sustainably lift the Group's operating margin into
the future.
Underlying EBIT increased by US$1,124M (or 288%) to US$1,514M, further
benefitting from a reduction in Underlying depreciation and amortisation of
US$39M to US$357M following the recognition of a non-cash impairment charge
for Illawarra Metallurgical Coal in FY21. Underlying earnings increased by
US$868M (or 638%) to US$1,004M and our Underlying effective tax rate
(ETR)((20)) normalised (31%) following our divestment of South Africa Energy
Coal.
Profit/(loss) to Underlying EBITDA reconciliation((2)(4))
$USM H1 FY22 H1 FY21((5))
Profit/(loss) before tax and net finance costs 1,502 170
Total adjustments to derive Underlying EBIT 12 220
Underlying EBIT 1,514 390
Underlying depreciation and amortisation 357 396
Underlying EBITDA 1,871 786
Profit/(loss) to Underlying earnings reconciliation((2)(4))
$USM H1 FY22 H1 FY21((5))
Profit/(loss) after tax 1,032 53
Total adjustments to derive Underlying EBIT 12 220
Total adjustments to derive Underlying net finance costs (22) 56
Total adjustments to derive Underlying income tax expense (18) (193)
Underlying earnings 1,004 136
EARNINGS ANALYSIS
Reconciliation of movements in Underlying EBIT (US$M)((2)(4)(5)(9)(21)(22)(23)
The following key factors influenced Underlying EBIT in H1 FY22, relative to
H1 FY21.
(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 FY21 Underlying EBIT 390
Change in sales price 1,508 Higher average realised prices for our commodities, including:
Metallurgical coal (+US$562M)
Aluminium (+US$494M)
Alumina (+US$180M)
Manganese ore (+US$126M)
Nickel (+US$94M)
Energy coal (+US$29M)
Lead (+US$27M)
Zinc (+US$25M)
Partially offset by a lower average realised prices for silver (-US$29M)
Net impact of price-linked costs (277) Higher freight and distribution costs (-US$83M) which are partially reflected
in Revenue
Higher aluminium smelter raw material costs (-US$62M), including pitch and
coke
Higher price-linked royalties (-US$51M)
Higher caustic soda prices at Worsley Alumina (-US$37M)
Higher fuel and oil prices (-US$18M), mostly at Brazil Alumina and Australia
Manganese
Change in exchange rates (44) Stronger South African rand (-US$36M)
Stronger Australian dollar (-US$11M)
Weaker Colombian peso (+US$6M)
Change in inflation (50) Southern Africa (-US$29M)
Australia (-US$15M)
Change in sales volume (62) Lower volumes at:
Illawarra Metallurgical Coal (-US$44M)
Australia Manganese (-US$25M)
Hillside Aluminium (-US$21M)
Worsley Alumina (-US$18M)
Mozal Aluminium (-US$17M)
Partially offset by higher volumes at:
Cerro Matoso (+US$49M)
South Africa Manganese (+US$14M)
Controllable costs (66) Higher contractor and maintenance activity (-US$61M), including at
Illawarra Metallurgical Coal (-US$35M) for longwall changeouts and planned
infrastructure upgrades
Higher demurrage costs (-US$12M) at Hillside Aluminium, Mozal Aluminium and
Brazil Alumina caused by port congestion and tight global freight conditions
Higher caustic consumption (-US$11M), mostly at Worsley Alumina
Lower corporate costs (+US$15M), as we realise the benefits of simplifying the
Group's functional structures and footprint
Ceased and sold operations 115 Improvement in profitability, following removal of loss-making ceased and sold
operations (South Africa Energy Coal, TEMCO and Metalloys manganese alloy
smelters)
H1 FY22 Underlying EBIT 1,514
Net finance costs
The Group's Underlying net finance costs, including discontinued operations,
reduced by US$8M (or 11%) to US$62M in H1 FY22. The successful divestment of
South Africa Energy Coal in late FY21 is expected to support a lower unwind of
the discount applied to our closure and rehabilitation provisions going
forward (H1 FY22: US$39M, H1 FY21 US$63M, including discontinued operations).
Interest on our lease liabilities (US$26M), relates primarily to our
multi-fuel co-generation facility at Worsley Alumina.
Underlying net finance costs reconciliation((2)(4))
US$M H1 FY22 H1 FY21((5))
Unwind of discount applied to closure and rehabilitation provisions (39) (33)
Interest on lease liabilities (26) (27)
Other 3 3
Discontinued operations - (13)
Underlying net finance costs (62) (70)
Add back earnings adjustment for exchange rate variations on net debt 11 (66)
Manganese joint venture adjustments((24)) 11 10
Net finance costs (40) (126)
Tax expense
The Group's H1 FY22 Underlying income tax expense was US$448M for an
Underlying ETR((20)) of 30.9%, following the prior period's elevated rate (H1
FY21: 56.1%) caused by the de-recognition of tax assets associated with the
divestment of South Africa Energy Coal. The H1 FY22 Underlying ETR reflects
the corporate tax rates of the jurisdictions in which we operate((25)), as
well as the inclusion of the manganese business in Underlying earnings on a
proportionally consolidated basis (including a royalty related tax for
Australia Manganese). The Underlying ETR for our manganese business was 42.9%
in H1 FY22, including the royalty related tax((26)).
Underlying income tax expense reconciliation and Underlying ETR((2)(4))
US$M H1 FY22 H1 FY21((5))
Underlying EBIT 1,514 390
Include: Underlying net finance costs (62) (70)
Remove: Share of profit/(loss) of immaterial equity accounted investments - 8
Underlying profit/(loss) before taxation 1,452 328
Income tax expense/(benefit) 430 (9)
Tax effect of earnings adjustments to Underlying EBIT 2 31
Tax effect of earnings adjustments to Underlying net finance costs (3) 9
Exchange rate variations on tax balances (32) 55
Tax effect of significant items (26) -
Manganese joint venture adjustments relating to income tax expense/(benefit) 51 71
Manganese joint venture adjustments relating to royalty related tax 26 27
expense/(benefit)
Underlying income tax expense/(benefit) 448 184
Underlying effective tax rate (ETR) including royalty related tax 30.9% 56.1%
CASH FLOW
The Group delivered a US$704M increase in free cash flow from operations,
excluding EAI, to US$840M, as a broad recovery in commodity prices and our
portfolio's operating leverage combined to more than offset a US$333M build in
working capital, primarily caused by higher prices for our products and
temporary supply chain impacts, most notably at our aluminium smelters in
Southern Africa. Increasing profitability also gave rise to a significant
increase in income tax payments during the period (+US$206M to US$234M),
excluding tax paid within equity accounted investments.
In addition to free cashflow from operations, the Group also received (net)
distributions of US$102M from our manganese EAI((27)) (H1 FY21: US$52M) as our
operations in Australia and South Africa continued to generate strong
cashflow.
Free cash flow from operations, excluding equity accounted investments
US$M H1 FY22 H1 FY21
Profit/(loss) from continuing and discontinued operations 1,502 170
Non-cash items 289 395
(Profit)/loss from equity accounted investments (104) (52)
Change in working capital (333) (37)
Cash generated 1,354 476
Total capital expenditure, excluding EAI, including intangibles and (254) (290)
capitalised exploration
Operating cash flows before financing activities and tax, and after capital 1,100 186
expenditure
Interest (paid)/received (26) (22)
Income tax (paid)/received (234) (28)
Free cash flow from operations 840 136
Within working capital, inventory rose by US$153M, most notably at our
aluminium smelters in Southern Africa, as port congestion and tight global
freight conditions temporarily slowed our ability to move finished goods.
While the build in aluminium inventory is expected to persist in the near
term, we have and continue to establish alternative shipping solutions and
points of dispatch to minimise the impact. Although we expect this inventory
build to unwind once we realise the full benefit of our initiatives, and port
congestion and general freight tightness is alleviated, our restart of the
Brazil Aluminium smelter is expected to require the establishment of working
capital.
Trade and other receivables increased by US$145M as a result of higher prices
and the timing of receipts at period end, with debtor days at the end of the
half unchanged at 21 days (FY21: 21 days). Provisions also reduced by US$88M
with a weakening Australian dollar, further contributing to the build in
working capital. These movements were partially offset by a modest increase in
trade and other payables of US$53M, relating to the timing of payments.
Working capital movement reconciliation
US$M Movement
Trade and other receivables (145)
Inventories (153)
Trade and other payables 53
Provisions and other liabilities (88)
Working capital movement (333)
The Group's Total capital expenditure, excluding EAI, decreased by US$36M to
US$254M in H1 FY22, following the divestment of South Africa Energy Coal (H1
FY21: US$45M) in June 2021. Excluding the impact of divested operations and
EAI, Total capital expenditure((28)) increased by US$9M (or 4%) to US$254M
with:
• Safe and reliable capital expenditure increasing by US$2M (or 1%) to US$171M
as we invested to upgrade coal clearance and ventilation infrastructure at
Illawarra Metallurgical Coal and tailings storage capacity at Worsley Alumina
and Brazil Alumina;
• Improvement and life extension capital expenditure decreasing by US$9M (or
27%) to US$24M as we scaled back activity on the Dendrobium Next Domain (DND)
project at Illawarra Metallurgical Coal while we work towards the completion
of an alternative mine plan and submission of an environmental impact
statement in Q3 FY22;
• Growth capital expenditure increasing by US$13M (or 45%) to US$42M as we
invested in water infrastructure and completed a pre-feasibility study for the
Taylor Deposit at our Hermosa project; and
• Our spend on intangibles and the capitalisation of exploration expenditure
increasing by US$3M (or 21%) to US$17M as we continued exploration programs at
Hermosa and Ambler Metals.
Total capital expenditure associated with our manganese EAI, excluding
divested operations, increased by US$7M (or 18%) to US$45M as we continued our
investment in additional tailings storage facility capacity at Australia
Manganese.
Capital expenditure (South32 share)((23)(28))
US$M H1 FY22 H1 FY21
Safe and reliable capital expenditure (171) (169)
Improvement and life extension capital expenditure (24) (33)
Growth capital expenditure (42) (29)
Intangibles and the capitalisation of exploration expenditure (17) (14)
Divested operation - South Africa Energy Coal 0 (45)
Total capital expenditure (excluding EAI) (254) (290)
EAI Capital expenditure (45) (38)
EAI - Divested Operation - Australia Manganese Alloys - (1)
Total Capital Expenditure (including EAI) (299) (329)
BALANCE SHEET, DIVIDENDS AND CAPITAL MANAGEMENT
The Group's net cash balance increased by US$569M to finish the period at
US$975M after US$316M was returned to shareholders by way of ordinary
dividends (US$163M) and our ongoing capital management program. As at 31
December 2021, we had completed US$1.8B of our approved US$2.0B capital
management program having paid a US$93M special dividend in October 2021 and
bought back a further 25M shares, spending US$60M across H1 FY22.
Net cash/(debt)
US$M H1 FY22 FY21
Cash and cash equivalents 2,119 1,613
Lease liabilities (657) (687)
Other interest bearing liabilities (487) (520)
Net cash/(debt) 975 406
Our strong net cash position ensures we are well placed to:
• Invest in our existing portfolio, including the restart of the Brazil
Aluminium smelter;
• Fund the US$166M payment to increase our shareholding in Mozal Aluminium to
63.7%; and
• Make the initial US$1.55B payment to complete the acquisition of an interest
in the Sierra Gorda Joint Venture((1)).
Payment for the Sierra Gorda acquisition is expected to be via a combination
of cash on hand and an underwritten US$1B acquisition debt facility that
maintains our balance sheet strength and flexibility. We retain access to
significant additional liquidity, having refinanced our multicurrency
revolving credit facility, securing US$1.4B of commitments for a five-year
term to 2026, with options to extend for up to a further two years by mutual
agreement. The facility has been established as a sustainability-linked loan
with measures linked to our ongoing commitment to emissions reduction and
improving energy and water use efficiency.
Consistent with our unchanged capital management framework and commitment to
maintain an investment grade credit rating, both Standard and Poor's and
Moody's reaffirmed their respective BBB+ and Baa1 credit ratings for the Group
during the period.
As well as promoting competition for capital and investment in high returning
options, our capital management framework is designed to reward shareholders
as financial performance improves. Consistent with our dividend policy, the
Board has resolved to pay a fully franked ordinary dividend of US 8.7 cents
per share (US$405M), representing 40% of Underlying earnings in respect of H1
FY22.
Having established a strong track record of returning excess cash to
shareholders in a timely and efficient manner, and reflecting our confidence
in the outlook for the business, the Board has today further expanded our
capital management program by US$110M to US$2.1B, leaving US$302M to be
returned by 2 September 2022.
Dividends announced
Period Dividend per share US$M Franking Pay-out ratio
(US cents)
H1 FY20 1.1 54 100% 41%
February 2020 special dividend 1.1 54 100% NA
H2 FY20 1.0 48 100% 77%
H1 FY21 1.4 67 100% 49%
H2 FY21 3.5 164 100% 46%
August 2021 special dividend 2.0 93 100% NA
H1 FY22 8.7 405 100% 40%
South32 shareholders registered on the South African branch register will not
be able to dematerialise or rematerialise their shareholdings between 9 and 11
March 2022 (both dates inclusive), nor will transfers to/from the South
African branch register be permitted between 3 and 11 March 2022 (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 (http://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 4 March 2022
Last day to trade cum dividend on the Johannesburg Stock Exchange (JSE) 8 March 2022
Ex-dividend date on the JSE 9 March 2022
Ex-dividend date on the ASX and London Stock Exchange (LSE) 10 March 2022
Record date (including currency election date for ASX) 11 March 2022
Payment date 7 April 2022
outlook
PRODUCTION
We achieved a number of strong production results across our portfolio in H1
FY22, despite higher COVID-19 case numbers and workforce restrictions in many
of the jurisdictions in which we operate. We have, however, revised FY22
guidance lower for Australia Manganese and Illawarra Metallurgical Coal, which
reflects ongoing COVID-19 impacts. Separately, FY22 guidance for Cannington
has been increased in anticipation of further strong underground mine
performance and higher average grades.
New guidance is provided for Brazil Aluminium, following our decision to
participate in the restart of the smelter. We expect to update production
guidance for Mozal Aluminium following completion of our agreed acquisition of
an additional shareholding.
Production guidance (South32 share)((23))
FY21 H1 FY22 FY22e((a)) FY23e((a)) Key guidance assumptions
Worsley Alumina Guidance unchanged
Alumina production (kt) 3,963 1,979 3,965 4,000 Nameplate capacity in FY22, including calciner maintenance planned for Q3
FY22, ahead of targeted creep in FY23
Brazil Alumina (non-operated) Guidance unchanged
Alumina production (kt) 1,398 631 1,300 1,395 Successfully returned to normalised rates following the bauxite unloader
outage in Q1 FY22
Brazil Aluminium (non-operated) Guidance provided for the first time
Aluminium production (kt) - - 5 140 Assumes Q4 FY22 restart with nameplate capacity (179kt, our 40% share) reached
in Q3 FY23
Hillside Aluminium Guidance unchanged (subject to load-shedding)
Aluminium production (kt) 717 358 720 720 Smelter continues to test its maximum technical capacity despite higher
load-shedding
Mozal Aluminium Guidance unchanged (subject to load-shedding)
Aluminium production (kt) 265 136 273 273 Volume benefits of the AP3XLE energy efficiency project, offsetting higher
load-shedding
Illawarra Metallurgical Coal FY22 and FY23 guidance revised down by 7%
and 1% respectively
Extended longwall move in Q2 FY22 and additional COVID-19 restrictions
Total coal production (kt) 7,645 3,145 ↓6,800 ↓7,400
Metallurgical coal production (kt) 6,170 2,767 ↓5,900 ↓6,500
Energy coal production (kt) 1,475 378 ↓900 900
Australia Manganese FY22 guidance revised down by 9%
Manganese ore production (kwmt) 3,529 1,704 ↓3,200 3,400 Weather disruptions and additional COVID-19 workforce restrictions prevented
the re-build of stockpiles ahead of the wet season
South Africa Manganese FY22 Guidance restated
Subject to demand Restated to reflect a 54.6% interest((2)).
Manganese ore production (kwmt) 2,060 1,053 2,000 We continue to monitor market conditions and our use of higher cost trucking
Cerro Matoso Guidance unchanged
Ore to kiln (kdmt) 2,385 1,335 2,850 2,850 Planned increase in throughput and grade from additional higher-grade Q&P
ore in H2 FY22
Payable nickel production (kt) 34.1 20.3 43.8 43.5
Cannington FY22 guidance revised up by 5%
Ore processed (kdmt) 2,746 1,385 2,750 2,850 Continued strong underground mine performance and higher average grades
On-track to transition to 100% truck haulage
from Q4 FY22
Payable zinc equivalent production (kt)((29)) 319.0 152.5 ↑292.2 313.9
Payable silver production (koz) 13,655 6,710 ↑12,283 13,500
Payable lead production (kt) 131.8 60.2 ↑117.9 122.0
Payable zinc production (kt) 67.7 32.7 ↑66.7 72.0
(a) The denotation (e) refers to an estimate or forecast year. All
guidance is subject to further potential impacts from COVID-19.
COSTS AND CAPITAL EXPENDITURE
Operating unit costs performance and guidance
Industry wide raw material input cost inflation, most notably in our aluminium
value chain, and a broad based recovery in commodity prices, leading to higher
royalties at Illawarra Metallurgical Coal and Cerro Matoso, were the primary
drivers of an increase in our H1 FY22 Operating unit costs across the majority
of our operations.
While FY22 guidance has been revised higher at the majority of our operations,
H2 FY22 Operating unit costs are primarily expected to remain flat or decline.
This reflects both the benefit of higher planned volumes and our revised
currency and price assumptions. The cost profile of our Southern African
aluminium smelters will continue to be heavily influenced by the South African
rand, and the price of raw materials and energy.
Operating unit cost((30))
H2 FY21 H1 FY22 FY22 prior guidance((a)) FY22 new guidance((b)) H1 FY22 commentary to H2 FY21
H2 FY22e((C)) commentary to H1 FY22
Worsley Alumina
(US$/t) 224 256 241 257 H1 FY22: higher freight costs, and caustic soda prices and consumption,
partially offset by a weaker Australian dollar
H2 FY22e: costs expected to be largely unchanged with elevated caustic soda
prices, offsetting a weaker Australian dollar
Brazil Alumina (non-operated)
(US$/t) 201 262 n/a n/a H1 FY22: higher raw material input costs and energy costs, combined with lower
volumes and the cost to recover from the bauxite unloader damage
H2 FY22e: will be influenced by the price of raw materials and an expected
improvement in volumes
Hillside Aluminium
(US$/t) 1,722 1,935 n/a n/a H1 FY22: higher raw material input costs and a stronger South African rand
H2 FY22e: will continue to be influenced by the South African rand, and the
price of raw materials and energy
Mozal Aluminium
(US$/t) 1,818 2,008 n/a n/a H1 FY22: higher raw material input costs and a stronger South African rand
H2 FY22e: will continue to be influenced by the South African rand, and the
price of raw materials and energy
Illawarra Metallurgical Coal
(US$/t) 98 123 101 115 H1 FY22: higher price-linked royalties and lower volumes, partially offset by
a weaker Australian dollar
H2 FY22e: costs expected to decline with higher volumes and a weaker
Australian dollar
Australia Manganese (FOB)
(US$/dmtu) 1.66 1.79 1.68 1.81 H1 FY22: lower volumes, partially offset by a weaker Australian dollar
H2 FY22e: costs expected to be largely unchanged with a planned reduction in
volumes, offset by a weaker Australian dollar
South Africa Manganese (FOB)
(US$/dmtu) 2.66 2.63 2.57 2.51 H1 FY22: increased volumes of premium material, partially offset by higher
transport costs and price-linked royalties
H2 FY22e: costs expected to decline with a weaker South African rand
Cerro Matoso
(US$/t)((d)) 128 136 141 145 H1 FY22: increased volumes and a weaker Colombian peso partially offset by
higher price-linked royalties
H2 FY22e: costs expected to increase with higher contractor rates associated
with planned activity to deliver additional, higher-grade Q&P ore, more
than offsetting a weaker Colombian peso
(US$/lb) 4.22 4.11 4.12 4.17
Cannington
(US$/t)((e)) 124 128 121 120 H1 FY22: higher price-linked royalties and inventory movements, partially
offset by a weaker Australian dollar
H2 FY22e: costs expected to decline with continued strong underground
performance and a weaker Australian dollar
(a) FY22 prior guidance includes commodity price and foreign
exchange rate forward curves or our internal expectations (refer to footnote
31).
(b) FY22 new guidance includes commodity price and foreign
exchange rate forward curves or our internal expectations for the remainder of
FY22, as at January 2022 (refer to footnote 32).
(c) The denotation (e) refers to an estimate or forecast year. All
guidance is subject to further potential impacts from COVID-19.
(d) US dollar per tonne of ore to kiln. Periodic movements in
finished product inventory may impact Operating unit costs.
(e) US dollar per tonne of ore processed. Periodic movements in
finished product inventory may impact Operating unit costs.
Other expenditure guidance
Group and unallocated cost guidance has been revised upwards to US$125M,
following the recognition of one-off charges in H1 FY22. Notwithstanding, we
remain on-track to deliver US$50M in annualised savings across the Group from
FY22 (compared to FY20), as we realise the benefits of simplifying the Group's
functional structures and footprint.
Other expenditure items (excluding capitalised exploration) have been updated
to include our manganese business on a proportionally consolidated basis.
Other expenditure
H1 FY22 FY22 prior guidance FY22 new guidance((a)) Commentary
Group and unallocated EBIT (excluding greenfield exploration)
(US$M) 75 100 125 Recognition of one-off charges in H1 FY22
Underlying depreciation and amortisation
(US$M) 357 630 738 Guidance updated to include our manganese business (US$108M)
Underlying net finance costs
(US$M) 62 110 135 Guidance updated to include our manganese business (US$20M)
Underlying ETR
(%) 31% n/a n/a Expected to reflect the corporate tax rates of the jurisdictions in which we
operate, including the
Australia Manganese royalty related tax
Greenfield exploration
(US$M) 13 26 26 Unchanged guidance includes expenditure on greenfield exploration programs
targeting base metals in Australia, the Americas and Europe
Capitalised exploration
(US$M) 17 44 42 Updated guidance includes US$20M at Hermosa and US$15M at our Ambler Metals
Joint Venture
(a) All guidance is subject to further potential impacts from
COVID-19.
Capital expenditure guidance (excluding exploration and intangibles)
Guidance for our FY22 safe and reliable capital expenditure (excluding EAI)
has been revised down by US$10M to US$400M with lower spend at Illawarra
Metallurgical Coal as COVID-19 restrictions slow the completion of work. Safe
and reliable capital expenditure guidance for our EAI has been revised to
US$71M (from US$63M) with additional investment in non-processing
infrastructure at Australia Manganese.
Improvement and life extension capital expenditure (excluding EAI) has been
revised down by US$2M to US$68M as we scale back activity on the DND project
at Illawarra Metallurgical Coal and invest to restart the Brazil Aluminium
smelter. Guidance for our EAI has been revised to US$19M (from US$28M) with
investment in new mining areas at South Africa Manganese now expected to be
completed in FY23.
Guidance for growth capital expenditure has been increased to US$115M (from
US$45M) with the first time inclusion of H2 FY22 expenditure at our Hermosa
project, following the completion of the Taylor Deposit PFS. This includes
approximately US$50M for critical path items including construction and
installation of infrastructure to support orebody dewatering in H2 FY22.
Capital expenditure excluding exploration and intangibles (South32
share)((23)(28))
US$M FY22e prior guidance FY22e new guidance
Worsley Alumina 43 43
Brazil Alumina 54 54
Hillside Aluminium 22 27
Mozal Aluminium 10 10
Illawarra Metallurgical Coal 215 200
Cerro Matoso 23 23
Cannington 43 43
Safe and reliable capital expenditure (excluding EAI) 410 400
Worsley Alumina 18 18
Brazil Aluminium - smelter restart - 3
Illawarra Metallurgical Coal - Dendrobium Next Domain 15 10
Cerro Matoso 20 20
Other operations 17 17
Improvement and life extension capital expenditure (excluding EAI) 70 68
Hermosa 45 115
Growth capital expenditure 45 115
Total capital expenditure (excluding EAI) 525 583
Total capital expenditure (including EAI) 616 673
Capital expenditure for EAI excluding exploration and intangibles (South32
share)((23)(28))
US$M FY22e prior guidance FY22e new guidance
Australia Manganese 47 55
South Africa Manganese((2)) 16 16
Safe and reliable capital expenditure (EAI) 63 71
Australia Manganese 10 10
South Africa Manganese((2)) 18 9
Improvement and life extension capital expenditure (EAI) 28 19
Total capital expenditure (EAI) 91 90
operations analysis
A summary of the underlying performance of the Group's operations is presented
below and more detailed analysis is presented in the following pages. Unless
otherwise stated: all metrics reflect South32's share; Operating unit cost is
Revenue less Underlying EBITDA excluding third party sales divided by sales
volumes; Operating cost is Revenue less Underlying EBITDA excluding third
party sales; and Realised sales price is calculated as sales Revenue excluding
third party sales divided by sales volume.
Operations table (South32 share)((23))
Underlying Revenue Underlying EBIT
US$M H1 FY22 H1 FY21 H1 FY22 H1 FY21
Worsley Alumina 757 578 168 70
Brazil Alumina 242 187 49 25
Brazil Aluminium - - (1) (1)
Hillside Aluminium 992 653 311 87
Mozal Aluminium 371 254 110 31
Illawarra Metallurgical Coal 912 365 458 (41)
Australia Manganese 385 368 162 147
South Africa Manganese 191 162 19 28
Cerro Matoso 372 229 158 50
Cannington 378 342 162 154
Third party products and services((33)) 375 183 13 2
Inter-segment / Group and unallocated((a)) (373) (293) (95) (61)
South32 Group (excluding South Africa Energy Coal) 4,602 3,028 1,514 491
South Africa Energy Coal - 458 - (101)
South32 Group Underlying 4,602 3,486 1,514 390
(a) Group and unallocated Underlying EBIT includes Hermosa -US$7M
(H1 FY21 -US$4M).
Worsley alumina
(86% share)
Volumes
Worsley Alumina saleable production decreased by 2% (or 31kt) to 1,979kt in H1
FY22. We remain on-track to achieve production guidance at the refinery's
nameplate capacity of 3,965kt in FY22 with calciner maintenance scheduled for
Q3 FY22. FY23 production guidance is unchanged with creep beyond nameplate to
4,000kt expected as we continue to implement improvement initiatives across
the operation.
Operating costs
Operating unit costs increased by 25% (or US$52/t) to US$256/t with higher
caustic soda prices (H1 FY22: US$474/t, H1 FY21: US$308/t) and price-linked
freight rates adding to increases in caustic consumption (H1 FY22: 112 kg/t,
H1 FY21: 97 kg/t).
Our operating margin increased to 34% (H1 FY21: 27%) as a 40% increase in the
average realised price of alumina more than offset higher costs. Our average
realised alumina price of US$389/t was a circa 8% premium to the Platts
Alumina Index((34)) (PAX) on a volume weighted M-1 basis, reflecting the
impact of higher price-linked freight rates in our prices and the structure of
legacy supply contracts to our Mozal Aluminium smelter.
We have revised our FY22 Operating unit cost guidance to US$257/t (previously
US$241/t) with H2 FY22 costs expected to be largely unchanged (from H1 FY22).
Elevated caustic soda prices and price-linked freight rates are expected to
persist, more than offsetting the benefit of a weaker Australian dollar.
Exchange rate and price assumptions for FY22 Operating unit cost guidance are
detailed in footnote 32.
Financial performance
Underlying EBIT increased by 140% (or US$98M) to US$168M as higher realised
alumina prices (+US$216M) more than offset higher caustic prices and
consumption (-US$45M), higher price-linked freight rates (-US$25M) and lower
sales volumes (-US$37M).
Capital expenditure
Safe and reliable capital expenditure decreased by US$7M to US$20M in H1 FY22.
FY22 guidance of US$43M is unchanged as we continue our investment in
additional bauxite residue disposal capacity.
Improvement and life extension capital expenditure increased by US$3M to US$4M
in H1 FY22. FY22 guidance of US$18M is unchanged as we progress refinery
decarbonisation projects and commence work to access new bauxite mining
areas.
South32 share H1 FY22 H1 FY21
Alumina production (kt) 1,979 2,010
Alumina sales (kt) 1,946 2,078
Realised alumina sales price (US$/t) 389 278
Operating unit cost (US$/t) 256 204
South32 share (US$M) H1 FY22 H1 FY21
Revenue 757 578
Underlying EBITDA 259 155
Underlying EBIT 168 70
Net operating assets((a)) 2,634 2,667
Capital expenditure 24 28
Safe and reliable 20 27
Improvement and life extension 4 1
(a) H1 FY21 reflects balance as at 30 June 2021.
BRAZIL ALUMINA
(36% SHARE)
Volumes
Brazil Alumina saleable production decreased by 11% (or 75kt) to 631kt in H1
FY22, following damage to one of the two bauxite unloaders at the operation in
July 2021. Production was restored to nameplate capacity in October 2021 and
the refinery achieved record quarterly production in Q2 FY22. Production
guidance of 1,300kt for FY22 and 1,395kt for FY23 is unchanged.
Operating costs
Operating unit costs increased by 27% to US$262/t due to higher raw material
input and energy prices, lower volumes and one-off costs to recover from the
bauxite unloader damage.
Our operating margin increased to 32% (H1 FY21: 26%) as a 40% increase in the
average realised price for alumina more than offset higher costs.
While guidance is not provided for this non-operated facility, Operating unit
costs will be influenced by the price of raw materials and an expected
improvement in volumes in H2 FY22.
Financial performance
Underlying EBIT increased by 96% (or US$24M) to US$49M as higher realised
alumina prices (+US$69M) more than offset higher raw material, energy and
freight costs (-US$17M), lower sales volumes (-US$13M) and one-off maintenance
and demurrage costs related to the bauxite unloader outage (-US$8M).
Capital expenditure
Safe and reliable capital expenditure increased by US$16M to US$31M in H1
FY22. FY22 guidance of US$54M is unchanged as we continue our investment in
additional bauxite residue disposal capacity.
During the period, we agreed to acquire an additional 18.2% interest in the
MRN bauxite mine, which would take our ownership to 33%. The acquisition is
expected to close in H2 FY22, subject to the satisfaction of conditions.
Our increased ownership of MRN will secure and align our Brazilian bauxite
supply requirements and is an important step as we work with our partners to
complete a pre-feasibility study for the MRN life extension project. The
project has the potential to extend the life of the mine by more than 20 years
at a relatively low capital cost(()(35)). The pre-feasibility study is
expected to be completed in mid CY22.
South32 share H1 FY22 H1 FY21
Alumina production (kt) 631 706
Alumina sales (kt) 626 674
Realised alumina sales price (US$/t) 387 277
Alumina operating unit cost (US$/t) 262 206
South32 share (US$M) H1 FY22 H1 FY21
Revenue 242 187
Underlying EBITDA 78 48
Underlying EBIT 49 25
Net operating assets((a)) 603 570
Capital expenditure 31 15
Safe and reliable 31 15
Improvement and life extension - -
(a) H1 FY21 reflects balance as at 30 June 2021.
BRAZIL ALUMINIUM
(40% SHARE)
Volumes
Following the end of the period, we announced our participation in the restart
of the Alumar aluminium smelter (40% South32 share), together with our joint
venture partner Alcoa(()(18)).
First production is expected in Q4 FY22, with full capacity of 447ktpa (100%
basis) (179ktpa, 40% basis) in Q3 FY23.
We have secured cost efficient renewable power for our share of production,
while our alumina supply will be sourced from the co-located Brazil Alumina
refinery.
Financial performance
Underlying EBIT was a loss of US$1M in H1 FY22 as we incurred costs to
maintain the smelter, ahead of its planned restart.
Restart expenditure
We expect to spend approximately US$70M across FY22 and FY23 to support the
smelter's restart, including approximately US$10M in capital expenditure.
South32 share H1 FY22 H1 FY21
Aluminium production (kt) - -
Aluminium sales (kt) - -
Realised aluminium sales price (US$/t) - -
Aluminium operating unit cost (US$/t) - -
South32 share (US$M) H1 FY22 H1 FY21
Revenue - -
Underlying EBITDA (1) (1)
Underlying EBIT (1) (1)
Net operating assets((a)) 119 1
Capital expenditure - -
Safe and reliable - -
Improvement and life extension - -
(a) H1 FY21 reflects balance as at 30 June 2021.
hillside aluminium
(100% SHARE)
Volumes
Hillside Aluminium saleable production decreased by 1% (or 3kt) to 358kt in H1
FY22, as the smelter continued to test its maximum technical capacity, despite
the impact from higher load-shedding. Production guidance of 720kt for FY22
and FY23 is unchanged, subject to load-shedding.
Operating costs
Operating unit costs increased by 26% to US$1,935/t reflecting the impact of
higher raw material input prices, a stronger South African rand and higher
power costs.
Our operating margin increased to 34% (H1 FY21: 18%) as a 57% increase in the
average realised price of aluminium more than offset higher costs.
While Operating unit cost guidance is not provided, the cost profile of the
smelter will continue to be heavily influenced by raw material input prices,
including the price of alumina supplied by our Worsley Alumina refinery (with
prices linked to the PAX on an M-1 basis), and other external factors
including the South African rand and South Africa Producer Price Index (which
impacts power costs).
During the period, we made a final investment decision for the AP3XLE energy
efficiency project. We expect to roll the technology out as part of the
smelter's pot relining program starting in FY23, bringing both volume and
efficiency benefits, while reducing carbon intensity. We expect to spend
approximately US$18M over 5 years to install AP3XLE at Hillside Aluminium in
addition to our normal pot relining activity.
Financial performance
Underlying EBIT increased by 257% (or US$224M) to US$311M as higher aluminium
prices (+US$360M) more than offset higher raw material input prices (-US$95M),
power costs (-US$19M) and a stronger South African rand (-US$24M).
The cost of pot relining at the smelter increased by US$6M in H1 FY22, with 70
pots relined at a cost of US$259k per pot (H1 FY21: 50 pots at US$238k per
pot). Pot relining activity is expected to increase in H2 FY22, with 181 pots
scheduled to be relined across FY22.
Capital expenditure
Capital expenditure increased by US$4M to US$10M in H1 FY22. FY22 guidance has
been revised to US$31M (from US$29M) as we replace our trucking fleet for the
transport of liquid hot metal and commence activity on the AP3XLE project.
South32 share H1 FY22 H1 FY21
Aluminium production (kt) 358 361
Aluminium sales (kt) 336 347
Realised sales price (US$/t) 2,952 1,882
Operating unit cost (US$/t) 1,935 1,536
South32 share (US$M) H1 FY22 H1 FY21
Revenue 992 653
Underlying EBITDA 342 120
Underlying EBIT 311 87
Net operating assets((a)) 857 733
Capital expenditure 10 6
Safe and reliable 10 6
Improvement and life extension - -
(a) H1 FY21 reflects balance as at 30 June 2021.
Mozal aluminium
(47.1% SHARE)
Volumes
Mozal Aluminium saleable production increased by 1% (or 1kt) to 136kt in H1
FY22 as the volume benefit of our AP3XLE energy efficiency project more than
offset the impact from higher load-shedding. Production guidance remains
unchanged at 273kt for FY22 and FY23, subject to load-shedding.
We expect to update our production guidance following the completion of our
acquisition of an additional shareholding in Mozal Aluminium((17)) that is
expected to complete in Q3 FY22. At completion our shareholding will increase
by a minimum of 16.6% to 63.7%.
Operating costs
Operating unit costs increased by 27% to US$2,008/t, reflecting the impact of
higher raw material input prices and a stronger South African rand.
Our operating margin increased to 34% (H1 FY21: 19%) as a 57% increase in the
average realised price of aluminium more than offset higher costs.
While Operating unit cost guidance is not provided, the cost profile of the
smelter will continue to be heavily influenced by raw material input prices,
including the price of alumina supplied by our Worsley Alumina refinery, and
other external factors including the South African rand.
Approximately 50% of the alumina supplied to the smelter is priced as a
percentage of the LME aluminium index under a legacy contract and the
remainder linked to the PAX on an M-1 basis, with caps and floors embedded
within specific contracts that reset each calendar year.
Financial performance
Underlying EBIT increased by 255% (or US$79M) to US$110M as higher aluminium
prices (+US$135M) more than offset higher raw material input prices (-US$53M)
and a stronger South African rand (-US$4M).
The cost of pot relining at the smelter increased by US$1M in H1 FY22, with
75((36)) pots relined at a cost of US$245k per pot (H1 FY21: 61((36)) pots at
US$258k per pot). Pot relining activity is expected to reduce in H2 FY22, with
121((36)) pots scheduled to be relined across FY22.
Capital expenditure
Capital expenditure of US$6M in H1 FY22 was unchanged. FY22 guidance of US$11M
is unchanged with the smelter continuing to roll out the AP3XLE energy
efficiency technology. The project is expected to deliver incremental
production from FY22, before realising a circa 5% increase in annual
production by FY24 with no associated increase in power consumption.
South32 share H1 FY22 H1 FY21
Aluminium production (kt) 136 135
Aluminium sales (kt) 122 130
Realised sales price (US$/t) 3,041 1,943
Operating unit cost (US$/t) 2,008 1,585
South32 share (US$M) H1 FY22 H1 FY21
Revenue 371 254
Underlying EBITDA 126 48
Underlying EBIT 110 31
Net operating assets((a)) 507 456
Capital expenditure 6 6
Safe and reliable 5 5
Improvement and life extension 1 1
(a) H1 FY21 reflects balance as at 30 June 2021.
illawaRRa metallurgical coal
(100% SHARe)
Volumes
Illawarra Metallurgical Coal saleable production decreased by 23% (or 951kt)
to 3.1Mt in H1 FY22 as we completed an extended longwall move at the
Dendrobium mine in Q2 FY22. Metallurgical coal production declined 15% to
2.8Mt, while energy coal declined by 55% to 0.4Mt.
FY22 production guidance has been revised lower by 7% to 6.8Mt due to the
extended longwall move and the impact of additional COVID-19 restrictions.
FY23 production is expected to increase by 9% despite being revised lower by
0.1Mt (or 1%) to 7.4Mt. FY24 production is expected to be ~5.5Mt as the mine
plan moves into a new mining area at Dendrobium((37)). Production is expected
to increase in FY25, consistent with the plan to transition to a single
longwall operation at Appin.
Operating costs
Operating unit costs increased by 60% to US$123/t due to the lower volumes,
increased contractor and maintenance activity, and higher price-linked
royalties. The average realised prices for metallurgical coal and energy coal
increased 183% to US$303/t, and 248% to US$108/t, respectively.
Our operating margin increased to 56% (H1 FY21: 15%) as the significant
increase in our average realised prices more than offset higher costs.
We have revised our FY22 Operating unit cost guidance to US$115/t (previously
US$101/t) with H2 FY22 costs expected to decline from H1 FY22 as we increase
volumes and assume a weaker Australian dollar. Exchange rate and price
assumptions for FY22 Operating unit cost guidance are detailed in footnote 32.
Financial performance
Underlying EBIT increased by US$499M to US$458M, as the operation benefitted
from higher realised prices (+US$591M), partially offset by lower sales
volumes (-US$44M), higher price-linked royalties (-US$33M) and a drawdown of
inventory (-US$35M). Contractor and maintenance costs also increased by US$35M
as planned work on longwall changeouts and infrastructure upgrades was
undertaken, while depreciation decreased by US$41M to US$54M following a
non-cash impairment of the operation's carrying value in H2 FY21.
Capital expenditure
Safe and reliable capital expenditure increased by US$7M in H1 FY22 to US$82M
as we lifted our rate of underground development. FY22 guidance has been
lowered by US$15M to US$200M with COVID-19 restrictions slowing the completion
of work. A range of US$300M-US$360M is expected in FY23, as we maintain higher
rates of development and progress upgrades to coal clearance and ventilation
infrastructure ahead of Appin's transition to a single longwall. The
transition to longer panels is expected to bring capital and operating cost
efficiencies beyond FY25.
Improvement and life extension capital expenditure decreased by US$17M to
US$6M as we scaled back activity on the DND project. FY22 guidance has been
revised to US$10M as we work toward the completion of an alternative mine plan
and the submission of an environmental impact statement in Q3 FY22.
South32 share H1 FY22 H1 FY21
Metallurgical coal production (kt) 2,767 3,262
Energy coal production (kt) 378 834
Metallurgical coal sales (kt) 2,877 3,165
Energy coal sales (kt) 378 862
Realised metallurgical coal sales price (US$/t) 303 107
Realised energy coal sales price (US$/t) 108 31
Operating unit cost (US$/t) 123 77
South32 share (US$M) H1 FY22 H1 FY21
Revenue((38)) 912 365
Underlying EBITDA 512 54
Underlying EBIT 458 (41)
Net operating assets((a)) 649 612
Capital expenditure 88 98
Safe and reliable 82 75
Improvement and life extension 6 23
Exploration expenditure 5 8
Exploration expensed 5 2
(a) H1 FY21 reflects balance as at 30 June 2021.
australia manganese
(ORE 60% SHARE, ALLOY 60% SHARE DIVESTED)
Volumes
Australia Manganese saleable ore production decreased by 7% (or 130kwmt) to
1,704kwmt in H1 FY22 with lower planned yield at the primary concentrator.
Separately the PC02 circuit continued to operate above its nameplate capacity,
contributing 13% of total production
(H1 FY21: 10%).
FY22 production guidance has been revised lower by 9% to 3,200kwmt with wet
weather disruptions and additional COVID-19 workforce restrictions in the
Northern Territory preventing the re-build of stockpiles ahead of the wet
season, resulting in sequentially lower production during H2 FY22. FY23
production guidance is unchanged and is expected to increase by 6% to
3,400kwmt with the re-establishment of stockpiles.
The TEMCO manganese alloy smelter was divested during FY21 with an effective
completion date of 31 December 2020.
Operating costs
Operating unit costs increased by 29% to US$1.79/dmtu as disruptions from wet
weather and COVID-19 added to our expectation for rising costs in FY22 from a
planned decline in yield.
Our operating margin increased to 54% (H1 FY21: 50%) benefitting from a 17%
increase in the average realised price of manganese ore and the divestment of
TEMCO. Our average realised price of US$4.59/dmtu, FOB was in-line with the
high grade 44% manganese lump ore index(()(39)() )despite the higher
contribution to sales from our low-cost PC02 product that has seen a narrowing
gap in discounts to the index.
We have revised our FY22 Operating unit cost guidance to US$1.81/dmtu
(previously US$1.68/dmtu), with H2 FY22 costs expected to be largely unchanged
(from H1 FY22) despite a planned reduction in volumes, as we benefit from a
weaker Australian dollar. Exchange rate and price assumptions for FY22
Operating unit cost guidance are detailed in footnote 32.
Financial performance
Manganese ore Underlying EBIT increased by 7% (or US$11M) to US$162M as higher
realised prices (+US$99M) were partially offset by lower sales volumes
(-US$25M), higher freight rates (-US$22M) and diesel prices (-US$5M),
inventory movements (-US$8M) and costs directly attributable to our COVID-19
response
(-US$4M).
Capital expenditure
Safe and reliable capital expenditure increased by US$3M to US$32M in H1 FY22
as we invested in tailings storage facility capacity. FY22 guidance has been
revised to US$55M (from US$47M) to reflect additional investment in
non-processing infrastructure. Improvement and life extension capital
expenditure increased by US$2M in H1 FY22. FY22 guidance of US$10M is
unchanged as we progress a feasibility study for the Eastern Leases mine life
extension project.
South32 share H1 FY22 H1 FY21
Manganese ore production (kwmt) 1,704 1,834
Manganese alloy production (kt) - 51
Manganese ore sales (kwmt) 1,737 1,865
External customers 1,737 1,750
TEMCO - 115
Manganese alloy sales (kt) - 59
Realised external manganese ore sales price (US$/dmtu, FOB)((40)(41)) 4.59 3.93
Ore operating unit cost (US$/dmtu)((41)(42)) 1.79 1.39
South32 share (US$M) H1 FY22 H1 FY21
Revenue 385 368
Manganese ore 385 323
Manganese alloy - 57
Intra-segment elimination - (12)
Underlying EBITDA 206 184
Manganese ore 206 188
Manganese alloy - (4)
Underlying EBIT 162 147
Manganese ore 162 151
Manganese alloy - (4)
Net operating assets((a)) 254 243
Manganese ore 254 243
Manganese alloy - -
Capital expenditure 34 29
Safe and reliable 32 29
Improvement and life extension 2 -
Exploration expenditure 1 2
Exploration expensed - 1
(a) H1 FY21 reflects balance as at 30 June 2021.
south africa manganese
(ORE 54.6% SHARE((2),) ALLOY 60% SHARE)
Volumes
South Africa Manganese saleable ore production increased by 7% (or 65kwmt) to
1,053kwmt in H1 FY22 as we delivered higher volumes of premium material from
our Mamatwan mine and planned maintenance was completed.
FY22 production guidance has been restated at 2,000kwmt to reflect a 54.6%
interest((2)). While we continue to monitor market conditions and our use of
higher cost trucking, our expectation for total output (100% share) from the
operation is unchanged.
Our Metalloys manganese alloy smelter remained on care and maintenance during
H1 FY22. On 29 November 2021 we entered into a binding agreement to sell the
smelter, which is subject to the satisfaction of conditions.
Operating costs
Operating unit costs increased by 15% to US$2.63/dmtu as we increased our use
of higher cost trucking to lift sales volumes of premium product, and the
South African rand strengthened.
Our operating margin declined to 15% (H1 FY21: 22%) as the benefit of our
strategy to target additional volumes of premium product was more than offset
by a stronger South African rand. Notwithstanding, our average realised price
was a premium of 11% to the medium grade 37% manganese lump ore index((43)),
as we maximised our revenue by optimising our sales mix.
We have revised our FY22 Operating unit cost guidance to US$2.51/dmtu
(previously US$2.57/dmtu) with H2 FY22 costs expected to decline (from H1
FY22) with the benefit of a weaker South African rand. Exchange rate and price
assumptions for FY22 Operating unit cost guidance are detailed in footnote 32.
Financial performance
Manganese ore Underlying EBIT decreased by 37% (or US$14M) to US$24M as the
benefit of increased trucking activity to deliver higher sales volumes of
premium material (+US$9M) was more than offset by volume related distribution
and inventory costs (-US$8M) and a stronger South African rand (-US$8M).
Manganese alloy Underlying EBIT was a loss of US$5M while the Metalloys
smelter remained on care and maintenance.
Capital expenditure
Safe and reliable capital expenditure decreased by US$1M to US$8M in H1 FY22
as we extracted the boundary pillar at our Mamatwan mine, accessing previously
sterilised ore. FY22 guidance is restated at US$16M, reflecting a 54.6%
interest((2)).
Improvement and life extension capital expenditure was US$2M in H1 FY22. FY22
guidance has been revised lower to US$9M (from US$18M) with investment in new
mining areas now expected to be completed in FY23.
South32 share((2)) H1 FY22 H1 FY21
Manganese ore production (kwmt) 1,053 988
Manganese alloy production (kt) - -
Manganese ore sales (kwmt) 1,094 1,004
External customers 1,094 1,004
Metalloys - -
Manganese alloy sales (kt) - 11
Realised external manganese ore sales price (US$/dmtu, FOB)((44)(45)) 3.47 3.49
Ore operating unit cost (US$/dmtu)((42)(45)) 2.63 2.28
South32 share (US$M)((2)) H1 FY22 H1 FY21
Revenue 191 162
Manganese ore 191 155
Manganese alloy - 7
Underlying EBITDA 29 36
Manganese ore 34 45
Manganese alloy (5) (9)
Underlying EBIT 19 28
Manganese ore 24 38
Manganese alloy (5) (10)
Net operating assets/(liabilities)((a)) 154 152
Manganese ore 216 212
Manganese alloy (62) (60)
Capital expenditure 10 9
Safe and reliable 8 9
Improvement and life extension 2 -
Exploration expenditure 1 -
Exploration expensed 1 -
(a) H1 FY21 reflects balance as at 30 June 2021.
cerro matoso
(99.9% SHARE)
Volumes
Cerro Matoso payable nickel production increased by 26% (or 4.2kt) to 20.3kt
in H1 FY22 following the completion of a major plant refurbishment in FY21.
Average processed nickel grades improved to 1.73% (H1 FY21: 1.57%) with the
inclusion of higher-grade material from the Q&P project.
Production guidance remains unchanged at 43.8kt for FY22 and 43.5kt for FY23
with additional higher-grade volumes expected from the Q&P project.
Operating costs
Operating unit costs increased by 8% to US$4.11/lb as higher nickel prices
resulted in higher price-linked royalties. Excluding the impact of royalties,
costs were largely unchanged.
Our operating margin increased to 51% (H1 FY21: 40%) as a 33% increase in the
average realised price of nickel and higher volumes more than offset our
additional costs. Product discounts for our ferronickel sales narrowed to 5%
of the LME Nickel index (FY21: 9%) in H1 FY22, reflecting tighter market
conditions.
We have revised FY22 Operating unit cost guidance to US$4.17/lb (previously
US$4.12/lb) as higher contractor rates in support of planned Q&P volumes
more than offset the benefit of a weaker Colombian peso. Exchange rate and
price assumptions for FY22 Operating unit cost guidance are detailed in
footnote 32.
Financial performance
Underlying EBIT increased by 216% (or US$108M) to US$158M as higher realised
nickel prices (+US$93M) and sales volumes (+US$50M) more than offset higher
price-linked royalties (-US$16M), energy costs (-US$12M) associated with the
increase in plant availability and the cost of contractors (-US$9M) to support
the Q&P project.
Capital expenditure
Safe and reliable capital expenditure decreased by US$7M to US$6M in H1 FY22
following the prior period's major plant refurbishment. FY22 guidance of
US$23M is unchanged as we complete planned upgrades to our mobile mining
fleet.
Improvement and life extension capital expenditure increased by US$6M to US$8M
in H1 FY22. FY22 guidance of US$20M is unchanged as we commence the Ore
Sorting and Mechanical Ore Concentration (OSMOC) project. The OSMOC project is
expected to maintain payable nickel production by offsetting natural grade
decline beyond FY23. This will be achieved through expanded processing
capacity and improvements to the upgrading circuit that will lift average ore
grades((46)). Mechanical completion of the OSMOC project is expected in Q4
FY22.
South32 share H1 FY22 H1 FY21
Ore mined (kwmt) 2,416 1,470
Ore processed (kdmt) 1,335 1,155
Ore grade processed (%, Ni) 1.73 1.57
Payable nickel production (kt) 20.3 16.1
Payable nickel sales (kt) 20.1 16.5
Realised nickel sales price (US$/lb)((47)) 8.39 6.29
Operating unit cost (US$/lb) 4.11 3.79
Operating unit cost (US$/t)((48)()) 136 119
South32 share (US$M) H1 FY22 H1 FY21
Revenue 372 229
Underlying EBITDA 190 91
Underlying EBIT 158 50
Net operating assets((a)) 376 405
Capital expenditure 14 15
Safe and reliable 6 13
Improvement and life extension 8 2
Exploration expenditure - -
Exploration expensed - -
(a) H1 FY21 reflects balance as at 30 June 2021.
cannington
(100% SHARE)
Volumes
Cannington payable zinc equivalent production increased by 9% (or 12kt) to
152.5kt in H1 FY22 as higher grades and continued strong underground
performance lifted metal output.
Reflecting the strong start to the year, FY22 production guidance has been
revised higher by 5% (silver 12,283koz, lead 117.9kt and zinc 66.7kt, for
292.2kt of payable zinc equivalent production) with the operation on-track to
transition to 100% truck haulage from Q4 FY22.
FY23 guidance is unchanged with payable zinc equivalent production expected to
increase a further 7% to 313.9kt (silver 13,500koz, lead 122.0kt and zinc
72.0kt).
Operating costs
Operating unit costs increased by 3% to US$128/t as the benefit of higher
throughput was more than offset by an increase in the cost of freight and
higher price-linked royalties.
Our operating margin was unchanged at 53%.
We have revised FY22 Operating unit cost guidance to US$120/t (previously
US$121/t) with the operation expected to benefit from continued strong
underground mine performance and a weaker Australian dollar. Exchange rate and
price assumptions for FY22 Operating unit cost guidance are detailed in
footnote 32.
Financial performance
Underlying EBIT increased by 5% (or US$8M) to US$162M as higher average
realised prices (+US$23M) and sales volumes (+US$13M) more than offset an
increase in freight rates (-US$6M) and higher price-linked royalties (-US$3M).
Depreciation increased by US$13M in H1 FY22 to US$39M with accelerated
depreciation of the hoist infrastructure, ahead of the operation's transition
to 100% truck haulage.
Capital expenditure
Safe and reliable capital expenditure decreased by US$11M to US$17M in H1 FY22
with lower planned rates of underground development. FY22 guidance of US$43M
is unchanged with an increase in activity to execute the transition to 100%
truck haulage.
South32 share H1 FY22 H1 FY21
Ore mined (kwmt) 1,475 1,409
Ore processed (kdmt) 1,385 1,302
Ore grade processed (g/t, Ag) 177 174
Ore grade processed (%, Pb) 5.2 5.1
Ore grade processed (%, Zn) 3.4 3.3
Payable zinc equivalent production (kt)((29)) 152.5 140.5
Payable silver production (koz) 6,710 5,993
Payable lead production (kt) 60.2 57.6
Payable zinc production (kt) 32.7 30.4
Payable silver sales (koz) 6,718 6,326
Payable lead sales (kt) 63.3 61.4
Payable zinc sales (kt) 32.8 31.8
Realised silver sales price (US$/oz) 21.0 26.0
Realised lead sales price (US$/t) 2,180 1,744
Realised zinc sales price (US$/t) 2,988 2,228
Operating unit cost 128 124
(US$/t ore processed)((49))
South32 share (US$M) H1 FY22 H1 FY21
Revenue 378 342
Underlying EBITDA 201 180
Underlying EBIT 162 154
Net operating assets((a)) 170 195
Capital expenditure 17 29
Safe and reliable 17 28
Improvement and life extension - 1
Exploration expenditure 2 1
Exploration expensed 1 1
(a) H1 FY21 reflects balance as at 30 June 2021.
notes
(1) Refer to market release "South32 to acquire a 45% interest in
the Sierra Gorda copper mine" dated 14 October 2021. The acquisition is
expected to close in
February 2022. The estimates indicated in the original announcement are
qualifying foreign estimates and are not reported in accordance with the JORC
Code. A Competent Person has not done sufficient work to classify foreign
estimates as Mineral Resources or Ore Reserves in accordance with the JORC
Code. It is uncertain that following evaluation and/or further work that the
foreign estimates will be reported as Mineral Resources or Ore Reserves in
accordance with the JORC Code.
(2) South Africa Manganese ore has been reported as a 54.6%
interest (previously 60%) reflecting the proposed divestment of our 60%
interest in the Metalloys manganese alloy smelter and aligning with our
interest in Hotazel Manganese Mines (HMM). 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 interests 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%.
(3) Net tangible assets as at 31 December 2021 includes all
right-of-use assets and lease liabilities, in accordance with AASB 16 Leases.
(4) During the current financial reporting period the internal
reporting of the Group's consolidated financial results was changed. The
underlying information reflects the Group's interest in material equity
accounted joint ventures and is presented on a proportional consolidation
basis, which is the measure used by the Group's Board and management to assess
their performance. H1 FY21 comparative information has been restated to
reflect this change.
(5) H1 FY21 includes TEMCO and discontinued operation South Africa
Energy Coal.
(6) H1 FY22 basic earnings per share is calculated as
Profit/(loss) after tax divided by the weighted average number of shares for
H1 FY22 (4,657 million).
H1 FY22 basic Underlying earnings per share is calculated as Underlying
earnings divided by the weighted average number of shares for H1 FY22.
H1 FY21 basic earnings per share is calculated as Profit/(loss) after tax
divided by the weighted average number of shares for H1 FY21 (4,815 million).
H1 FY21 basic Underlying earnings per share is calculated as Underlying
earnings divided by the weighted average number of shares for H1 FY21.
(7) H1 FY22 ordinary dividends per share is calculated as H1 FY22
ordinary dividend announced (US$405M) divided by the number of shares on issue
at
31 December 2021 (4,650 million).
(8) Underlying revenue includes revenue from third party products
and services.
(9) The underlying information reflects the Group's interest in
material equity accounted joint ventures and is presented on a proportional
consolidation basis. Underlying EBIT is profit before net finance costs, tax
and any earnings adjustments, including impairments. Underlying EBITDA is
Underlying EBIT before underlying 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 is 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;
· (Gains)/losses on non-trading derivative instruments and
other investments measured at fair value through profit or loss;
· Major corporate restructures;
· Manganese joint venture adjustments;
· Exchange rate variations on net debt; and the
· Tax effect of earnings adjustments.
In addition, items that do not reflect the underlying operations of South32,
and are individually, or in combination with other related earnings
adjustments, significant to the financial statements, are excluded to
determine Underlying earnings. When applicable, significant items are detailed
in the Financial Information.
(10) Comprises Underlying EBITDA excluding third party product EBITDA,
divided by Underlying revenue excluding third party product revenue. Also
referred to as operating margin.
(11) Comprises Underlying EBIT excluding third party product EBIT,
divided by Underlying revenue excluding third party product revenue.
(12) 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 costs, tax
effected by the Group's Underlying effective tax rate (ETR) including our
manganese EAI on a proportional consolidated basis, divided by the sum of
fixed assets (excluding any rehabilitation asset, the impairment of Eagle
Downs Metallurgical Coal and Illawarra Metallurgical Coal, the impairment
reversal of Brazil Aluminium, and unproductive capital associated with Growth
and Life Extension projects) and inventories. Our manganese EAI are included
in the calculation on a proportional consolidation basis.
(13) 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.
(14) Total Recordable Injury Frequency (TRIF): (The sum of recordable
injuries) x 1,000,000 ÷ exposure hours. This is stated in units of per
million hours worked for employees and contractors.
(15) Our FY21 TRIF baseline has been adjusted to remove divested
operations South Africa Energy Coal and TEMCO.
(16) Cost base excluding third party product cost and ceased and sold
operations.
(17) Refer to market release "South32 to acquire up to an additional 25%
of Mozal Aluminium" dated 30 September 2021.
(18) Refer to market release "Restart of Brazil Aluminium using
renewable power" dated 6 January 2022.
(19) Refer to market release "Hermosa project update" dated 17 January
2022.
(20) Underlying ETR is Underlying income tax expense, including royalty
related tax, divided by Underlying profit before tax.
(21) 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.
(22) Underlying net finance costs and Underlying income tax expense are
actual H1 FY22 results, not half-on-half variances.
(23) South32's ownership shares of operations are presented as follows:
Worsley Alumina (86% share), Hillside Aluminium (100%), Mozal Aluminium (47.1%
share), Brazil Alumina (36% share), Brazil Aluminium (40% share), Illawarra
Metallurgical Coal (100%), Australia Manganese (60% share), South Africa
Manganese ore (54.6% share), South Africa Manganese alloy (60% share), Cerro
Matoso (99.9% share), Cannington (100%), Hermosa (100%) and Eagle Downs
Metallurgical Coal (50% share).
(24) The underlying information reflects the Group's interest in
material equity accounted joint ventures and is presented on a proportional
consolidation basis, which is the measure used by the Group's management to
assess their performance. The joint venture adjustments reconcile the
underlying proportional consolidation to the equity accounting position
included in the Group's half year consolidated financial statements.
(25) The corporate tax rates of the geographies where the Group operates
include: Australia 30%, South Africa 28%, Colombia 31%, Mozambique 0% and
Brazil 34%. The Colombian corporate tax rate increased to 35% from 1 January
2022. The Mozambique operations are subject to a royalty on revenues instead
of income tax.
(26) Australia Manganese is subject to a royalty related tax equal to
20% of adjusted EBIT which is included in Underlying tax expense.
(27) H1 FY22 net distributions from our manganese EAI comprise dividends
and capital returns (US$79M) and a net repayment of shareholder loans
(US$23M).
(28) Total capital expenditure comprises Capital expenditure, evaluation
expenditure, the purchase of intangibles and capitalised exploration
expenditure. Capital expenditure comprises Safe and reliable capital
expenditure (Deferred stripping, Regulatory compliance, Risk reduction and
Sustained performance), Improvement (Decarbonisation) and Life extension
capital expenditure, and Growth (development of our current and future
greenfield growth) capital expenditure.
(29) 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. FY21 realised prices for zinc (US$2,357/t), lead (US$1,862/t)
and silver (US$25.4/oz) have been used for FY21, H1 FY22, FY22e and FY23e.
(30) 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 41 and 45.
(31) FY22 prior Operating unit cost guidance includes royalties (where
appropriate) and the influence of exchange rates, and includes various
assumptions for FY22, including: an alumina price of US$289/t; an average
blended coal price of US$140/t for Illawarra Metallurgical Coal; a manganese
ore price of US$4.79/dmtu for 44% manganese product; a nickel price of
US$7.93/lb; a silver price of US$25.84/troy oz; a lead price of US$2,165/t
(gross of treatment and refining charges); a zinc price of US$2,846/t (gross
of treatment and refining charges); an AUD:USD exchange rate of 0.75; a
USD:ZAR exchange rate of 15.00; a USD:COP exchange rate of 3,650; and a
reference price for caustic soda; all of which reflected forward markets as at
June 2021 or our internal expectations.
(32) FY22 new Operating unit cost guidance includes royalties (where
appropriate) and the influence of exchange rates, and includes various
assumptions for FY22, including: an alumina price of US$378/t; an average
blended coal price of US$244/t for Illawarra Metallurgical Coal; a manganese
ore price of US$5.42/dmtu for 44% manganese product; a nickel price of
US$8.83/lb; a silver price of US$24.57/troy oz; a lead price of US$2,329/t
(gross of treatment and refining charges); a zinc price of US$3,179/t (gross
of treatment and refining charges); an AUD:USD exchange rate of 0.72; a
USD:ZAR exchange rate of 15.47; a USD:COP exchange rate of 3,930; and a
reference price for caustic soda; all of which reflected forward markets as at
January 2022 or our internal expectations.
(33) H1 FY22 Third party products and services sold comprise US$64M for
aluminium, US$22M for alumina, US$30M for coal, US$20M for manganese, US$167M
for freight services and US$72M for raw materials. Underlying EBIT on third
party products and services comprise US$6M for aluminium, US$2M for alumina,
US$1M for manganese and US$4M for freight services. H1 FY21 Third party
products and services sold comprise US$18M for aluminium, US$15M for alumina,
US$14M for coal, US$18M for manganese, US$83M for freight services and US$35M
for raw materials. Underlying EBIT on third party products and services
comprise US$2M for aluminium, (US$1M) for alumina, US$1M for coal, nil for
manganese, nil for freight services and raw materials.
(34) 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") for Worsley Alumina was US$360/t in H1 FY22.
(35) Production Target Cautionary Statement: The information in this
announcement that refers to the Production Target and forecast financial
information for MRN is based on Measured (63%), Indicated (9%) and Inferred
(28%) Mineral Resources. The Mineral Resources underpinning the Production
Target have been prepared by a Competent Person in accordance with the JORC
Code and is available to view in South32's FY21 annual report
(www.south32.net) published on 3 September 2021. There is low level of
geological confidence associated with the Inferred Mineral Resources and there
is no certainty that further exploration work will result in the determination
of Indicated Mineral Resources or that the Production Target will be realised.
The stated Production Target is based on South32's current expectations of
future results or events and should not be solely relied upon by investors
when making investment decisions. Further evaluation work and appropriate
studies are required to establish sufficient confidence that this target will
be met. South32 confirms that inclusion of 28% Inferred Mineral Resource
tonnage is not the determining factor of the project viability and the project
forecasts a positive financial performance when using 72% tonnage (63%
Measured and 9% Indicated Mineral Resources). South32 is satisfied, therefore,
that the use of Inferred Mineral Resources in the Production Target and
forecast financial information reporting is reasonable.
(36) Presented on a 100% basis.
(37) Production Target Cautionary Statement: The information in this
announcement that refers to the Production Target and forecast financial
information for
Illawarra Metallurgical Coal is based on Proved (4%) and Probable (93%) Coal
Reserves, and Inferred (3%) Coal Resources. The Coal Reserves and Coal
Resources underpinning the Production Target have been prepared by a Competent
Person in accordance with the JORC Code and is available to view in South32's
FY21 annual report (www.south32.net
(https://south32.sharepoint.com/sites/InvestorRelations/Shared%20Documents/H1%20FY22%20Results/www.south32.net)
) published on 3 September 2021. There is low level of geological confidence
associated with the Inferred Coal Resources and there is no certainty that
further exploration work will result in the determination of Indicated Coal
Resources or that the Production Target will be realised. The stated
Production Target is based on South32's current expectations of future results
or events and should not be solely relied upon by investors when making
investment decisions. Further evaluation work and appropriate studies are
required to establish sufficient confidence that this target will be met.
South32 confirms that inclusion of 3% Inferred Coal Resource tonnage is not
the determining factor of the project viability and the project forecasts a
positive financial performance when using 97% tonnage (4% Proved and 93%
Probable Coal Reserves). South32 is satisfied, therefore, that the use of
Inferred Coal Resources in the Production Target and forecast financial
information reporting is reasonable.
(38) Illawarra Metallurgical Coal Revenue includes metallurgical coal
and energy coal sales Revenue.
(39) The quarterly sales volume weighted average of the Metal Bulletin
44.4% manganese lump ore index (CIF Tianjin, China) on the basis of a one
month lag to published pricing (Month minus one or "M-1") was US$5.33/dmtu in
H1 FY22.
(40) Realised ore prices are calculated as external sales Revenue less
freight and marketing costs, divided by external sales volume. Ore converted
to sinter and alloy, and sold externally, is eliminated as an intracompany
transaction.
(41) Manganese Australia H1 FY22 average manganese content of external
ore sales was 44.2% on a dry basis (H1 FY21: 44.4%). 96% of H1 FY22 external
manganese ore sales (H1 FY21: 96%) were completed on a CIF basis. H1 FY22
realised FOB ore prices and Operating unit costs have been adjusted for
freight and marketing costs of US$49M (H1 FY21: US$25M), consistent with our
FOB cost guidance.
(42) FOB ore operating unit cost is Revenue less Underlying EBITDA,
freight and marketing costs, divided by ore sales volume.
(43) The quarterly sales volume weighted average of the Metal Bulletin
37% manganese lump ore index (FOB Port Elizabeth, South Africa) on the basis
of a one month lag to published pricing (Month minus one or "M-1") was
US$3.12/dmtu in H1 FY22.
(44) Volumes and prices do not include any third party trading that may
be undertaken independently of equity production. Realised ore prices are
calculated as external sales Revenue less freight and marketing costs, divided
by external sales volume.
(45) Manganese South Africa H1 FY22 average manganese content of
external ore sales was 39.4% on a dry basis (H1 FY21: 39.9%). 78% of H1 FY22
external manganese ore sales (H1 FY21: 74%) were completed on a CIF basis. H1
FY22 realised FOB ore prices and Operating unit costs have been adjusted for
freight and marketing costs of US$49M (H1 FY21: US$20M), consistent with our
FOB cost guidance.
(46) The information in this report that relates to the production
target is based on Proved and Probable Ore Reserves (87%), Measured (12%) and
Indicated (1%) Mineral Resources for Cerro Matoso. Mineral Resources and Ore
Reserve estimates for Cerro Matoso was declared as part of South32's Annual
Resource and Reserve declaration in the Annual Report 2021 (www.south32.net)
issued on 3 September 2021 and prepared by I Espitia (MAusIMM) and N
Monterroza (MAusIMM) in accordance with the requirements of the JORC Code.
South32 confirms that it is not aware of any new information or data that
materially affects the information included in the original announcement. All
material assumptions and technical parameters underpinning the estimates in
the relevant market announcement continue to apply and have not materially
changed. South32 confirms that the form and context in which the Competent
Person's findings are presented have not been materially modified from the
original market announcement. Payable nickel is calculated using long term
consensus metal prices and relative metallurgical recoveries.
(47) Cerro Matoso realised nickel sales price is inclusive of
by-products. Realised sales price is calculated as sales Revenue divided by
sales volume.
(48) Cerro Matoso Operating unit cost per tonne is Revenue less
Underlying EBITDA divided by ore processed. Periodic movements in finished
product inventory may impact operating unit costs as related marketing costs
may change.
(49) Cannington Operating unit cost is Revenue less Underlying EBITDA
divided by ore processed. Periodic movements in finished product inventory may
impact operating unit costs as related marketing costs may change.
Figures in Italics indicate that an adjustment has been made since the figures
were previously reported. The denotation (e) refers to an estimate or forecast
year.
The following abbreviations may be used throughout this report: US$ million
(US$M); US$ billion (US$B); December half year (H1 FY22); financial year
(FY22); calendar year (CY); copper equivalent (CuEq); grams per tonne (g/t);
tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million
tonnes (Mt); million tonnes per annum (Mtpa); ounces (oz); thousand ounces
(koz); million ounces (Moz); thousand wet metric tonnes (kwmt); million wet
metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); thousand
dry metric tonnes (kdmt); dry metric tonne unit (dmtu); pound (lb); megawatt
(MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE);
Johannesburg Stock Exchange (JSE); equity accounted investments (EAI); and
American Depositary Receipts (ADR).
south32 financial information
For the half year ended 31 December 2021
consolidated income statement
for the half year ended 31 December 2021
US$M Note H1 FY22 H1 FY21
Restated((1))
Continuing operations
Revenue:
Group production 3,651 2,320
Third party products and services 355 165
3 4,006 2,485
Other income 113 54
Expenses excluding net finance costs (2,721) (2,328)
Share of profit/(loss) of equity accounted investments 104 58
Profit/(loss) from continuing operations 1,502 269
Comprising:
Group production 1,490 267
Third party products and services 12 2
Profit/(loss) from continuing operations 1,502 269
Finance expenses (56) (123)
Finance income 16 9
Net finance costs 6 (40) (114)
Profit/(loss) before tax from continuing operations 1,462 155
Income tax (expense)/benefit (430) 5
Profit/(loss) after tax from continuing operations 1,032 160
Discontinued operation
Profit/(loss) after tax from a discontinued operation 8 - (107)
Profit/(loss) for the period 1,032 53
Attributable to:
Equity holders of South32 Limited 1,032 53
Profit/(loss) from continuing operations for the period attributable to equity
holders of South32 Limited:
Basic earnings per share (cents) 5 22.2 3.3
Diluted earnings per share (cents) 5 22.0 3.3
Profit/(loss) for the period attributable to equity holders of South32
Limited:
Basic earnings per share (cents) 5 22.2 1.1
Diluted earnings per share (cents) 5 22.0 1.1
(1) Refer to note 8 Discontinued operation.
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 December 2021
US$M H1 FY22 H1 FY21
Profit/(loss) for the period 1,032 53
Other comprehensive income
Items not to be reclassified to the Consolidated Income Statement:
Investments in equity instruments designated as fair value through other
comprehensive income (FVOCI):
Net fair value gains/(losses) (59) (26)
Income tax (expense)/benefit 18 9
Gains/(losses) on pension and medical schemes 4 (2)
Income tax (expense)/benefit recognised within other comprehensive income (1) 1
Total items not to be reclassified to the Consolidated Income Statement (38) (18)
Total other comprehensive income/(loss) (38) (18)
Total comprehensive income/(loss) 994 35
Attributable to:
Equity holders of South32 Limited 994 35
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED BALANCE SHEET
as at 31 December 2021
US$M Note H1 FY22 FY21
ASSETS
Current assets
Cash and cash equivalents 2,119 1,613
Trade and other receivables 703 527
Other financial assets 7 5 15
Inventories 871 716
Current tax assets 4 13
Other 18 38
Total current assets 3,720 2,922
Non-current assets
Trade and other receivables 328 259
Other financial assets 7 62 121
Inventories 73 74
Property, plant and equipment 8,835 8,938
Intangible assets 187 189
Equity accounted investments 405 380
Deferred tax assets 354 348
Other 14 11
Total non-current assets 10,258 10,320
Total assets 13,978 13,242
LIABILITIES
Current liabilities
Trade and other payables 781 777
Interest bearing liabilities 397 408
Other financial liabilities 7 5 11
Current tax payables 144 27
Provisions 189 239
Total current liabilities 1,516 1,462
Non-current liabilities
Trade and other payables 25 2
Interest bearing liabilities 747 799
Deferred tax liabilities 326 265
Provisions 1,725 1,759
Deferred income 1 1
Total non-current liabilities 2,824 2,826
Total liabilities 4,340 4,288
Net assets 9,638 8,954
EQUITY
Share capital 13,537 13,597
Treasury shares (12) (22)
Reserves (3,622) (3,567)
Retained earnings/(accumulated losses) (264) (1,053)
Total equity attributable to equity holders of South32 Limited 9,639 8,955
Non-controlling interests (1) (1)
Total equity 9,638 8,954
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED CASH FLOW STATEMENT
for the half year ended 31 December 2021
US$M H1 FY22 H1 FY21
Restated((1))
Operating activities
Profit/(loss) before tax from continuing operations 1,462 155
Profit/(loss) before tax from a discontinued operation - (111)
Adjustments for:
Non-cash significant items (77) -
Depreciation and amortisation expense 303 351
Net impairment losses 37 43
Employee share awards expense 12 19
Net finance costs 40 126
Share of (profit)/loss of equity accounted investments (104) (52)
(Gains)/losses on derivative instruments and other investments measured 14 (16)
at fair value through profit or loss (FVTPL)
Other non-cash or non-operating items - (2)
Changes in assets and liabilities:
Trade and other receivables (145) (66)
Inventories (153) (96)
Trade and other payables 53 62
Provisions and other liabilities (88) 63
Cash generated from operations 1,354 476
Interest received 12 13
Interest paid (38) (35)
Income tax paid (234) (28)
Dividends received - 1
Dividends received from equity accounted investments 79 92
Net cash flows from operating activities 1,173 519
Investing activities
Purchases of property, plant and equipment (237) (276)
Exploration expenditure (35) (25)
Exploration expenditure expensed and included in operating cash flows 19 11
Purchase of intangibles (1) -
Investment in financial assets (129) (96)
Cash outflows from investing activities (383) (386)
Proceeds from financial assets 104 56
Net cash flows from investing activities (279) (330)
Financing activities
Proceeds from interest bearing liabilities 14 59
Repayment of interest bearing liabilities (80) (23)
Purchase of shares by South32 Limited Employee Incentive Plan Trusts (ESOP (1) (1)
Trusts)
Share buy-back (60) (112)
Dividends paid (256) (48)
Net cash flows from financing activities (383) (125)
Net increase in cash and cash equivalents 511 64
Cash and cash equivalents, net of overdrafts, at the beginning of the period 1,613 1,315
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 2,119 1,383
(1) Refer to note 8 Discontinued operation.
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 2021
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 2021 13,597 (22) (22) 48 (3,593) (1,053) 8,955 (1) 8,954
Profit/(loss) for the period - - - - - 1,032 1,032 - 1,032
Total other comprehensive income/(loss) - - (41) - - 3 (38) - (38)
Total comprehensive income/(loss) - - (41) - - 1,035 994 - 994
Transactions with owners:
Dividends - - - - - (256) (256) - (256)
Shares bought back and cancelled((4)) (60) - - - - - (60) - (60)
Employee share entitlements for unvested awards, net of tax - - - 15 - - 15 - 15
Purchase of shares by ESOP Trusts - (1) - - - - (1) - (1)
Employee share awards vested and lapsed, net of tax - 11 - (29) - 10 (8) - (8)
Balance as at 31 December 2021 13,537 (12) (63) 34 (3,593) (264) 9,639 (1) 9,638
Balance as at 1 July 2020 13,943 (49) (54) 81 (3,593) (765) 9,563 (1) 9,562
Profit/(loss) for the period - - - - - 53 53 - 53
Total other comprehensive income/(loss) - - (17) - - (1) (18) - (18)
Total comprehensive income/(loss) - - (17) - - 52 35 - 35
Transactions with owners:
Dividends - - - - - (48) (48) - (48)
Shares bought back and cancelled((4)) (112) - - - - - (112) - (112)
Employee share entitlements for unvested awards, net of tax - - - 24 - - 24 - 24
Purchase of shares by ESOP Trusts - (1) - - - - (1) - (1)
Employee share awards vested and lapsed, net of tax - 21 - (53) - 21 (11) - (11)
Balance as at 31 December 2020 13,831 (29) (71) 52 (3,593) (740) 9,450 (1) 9,449
(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 24,607,260 (H1 FY21: 65,508,132) shares permanently
cancelled through the on-market share buy-back program 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
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
3. Segment information
4. Dividends
5. Earnings per share
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
6. Net finance costs
7. Financial assets and financial liabilities
NOTES TO FINANCIAL STATEMENTS - OTHER NOTES
8. Discontinued operation
9. Subsequent events
DIRECTORS' DECLARATION
DIRECTORS' REPORT
LEAD AUDITOR'S INDEPENDENCE DECLARATION
INDEPENDENT AUDITOR'S REVIEW REPORT
NOTES TO FINANCIAL STATEMENTS - BASIS OF PREPARATION
The Group continues to respond to COVID-19, adjusting to the different phases
of the pandemic across the jurisdictions where it operates, focussing on
keeping its people well, maintaining safe and reliable operations and
supporting its communities.
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 2021 were authorised for issue in
accordance with a resolution of the Directors on 17 February 2022.
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 3 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 2001;
• 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 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, including changes in the presentation
of the segment note as outlined in note 3 Segment information; and
• Have been prepared on the basis of accounting policies and methods of
computation consistent with those applied in the consolidated financial
statements for the year ended 30 June 2021.
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 expenses. 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 for the year ended 30 June 2021.
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 consolidated financial statements
for the year ended 30 June 2021. 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. 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. During
the current financial reporting period the internal reporting of the Group's
consolidated financial results and performance to the chief operating decision
makers was changed. Consolidated financial results of the Group are reported
on a proportionally consolidated basis, including material equity accounted
joint ventures, consistent with the reporting of the Group's operating
segments. Due to the change in reporting and presentation of the Group's
consolidated results, the prior half year comparative disclosures, together
with required reconciliations, have been restated.
The principal activities of each operating segment are summarised as follows:
Operating segment((1)) Principal activities
Worsley Alumina Integrated bauxite mine and alumina refinery in Australia
Brazil Alumina Alumina refinery in Brazil
Brazil Aluminium((2)) Aluminium smelter in Brazil
Hillside Aluminium Aluminium smelter in South Africa
Mozal Aluminium Aluminium smelter in Mozambique
Illawarra Metallurgical Coal Underground metallurgical coal mines in Australia
Australia Manganese Integrated producer of manganese ore and alloy((3)) in Australia
South Africa Manganese Integrated producer of manganese ore and alloy((4)) in South Africa
Cerro Matoso Integrated laterite ferronickel mining and smelting complex in Colombia
Cannington Silver, lead and zinc mine in Australia
Hermosa Base metals exploration and development option in the United States
South Africa Energy Coal (SAEC)((5)) Open-cut and underground energy coal mines and processing operations in South
Africa
(1) The Eagle Downs metallurgical coal exploration and development
option is no longer considered a material operating segment and has been
reclassified to be included as part of Group and unallocated
items/eliminations.
(2) On 6 January 2022, the Group announced its decision to
participate in a restart of the Alumar aluminium smelter (Brazil Aluminium),
together with our joint venture partner Alcoa Corporation (Alcoa). First
production is expected in the June 2022 quarter and Brazil Aluminium is
considered a material operating segment.
(3) On 4 January 2021, Groote Eylandt Mining Company Pty Ltd
(GEMCO) legally completed the sale of its shareholding in Tasmanian Electro
Metallurgical Company Pty Ltd (TEMCO) to an entity within GFG Alliance (GFG).
The effective completion of the sale for accounting purposes was 31 December
2020.
(4) The Metalloys manganese smelter has not recommenced production
since the Group's decision with its joint venture partner to place it on care
and maintenance during the year ended 30 June 2020. The Group has entered into
an agreement to divest the Metalloys manganese smelter which remains subject
to the satisfaction of conditions.
(5) On 1 June 2021, the Group completed the sale of its
shareholding in SAEC to a wholly-owned subsidiary of Seriti Resources Holdings
Pty Ltd (Seriti) and two trusts for the benefit of employees and communities.
Refer to note 8 Discontinued operation.
All operations are operated by the Group except Brazil Alumina and Brazil
Aluminium, which are operated by Alcoa.
(b) Segment results
Segment performance is measured by Underlying EBIT and Underlying EBITDA.
Underlying EBIT is profit before net finance costs, tax and other earnings
adjustment items including impairments. Underlying EBITDA is Underlying EBIT,
before Underlying depreciation and amortisation. A reconciliation of
Underlying EBIT, Underlying EBITDA and the Group's consolidated profit/(loss)
after tax is set out on the following pages.
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 expenses and
finance income) and income taxes are managed on a Group basis and are not
allocated to continuing operating segments.
Total assets and liabilities for each continuing 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 and liabilities.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
31 December 2021 Continuing operations
US$M Worsley Alumina Brazil Brazil Aluminium Hillside Aluminium Mozal Aluminium Illawarra Metallurgical Coal Australia Manganese((1)) South Africa Manganese((1)) Cerro Matoso Cannington Group and unallocated items/ eliminations Group underlying results((1))
Alumina
Hermosa
Revenue from customers 751 241 - 992 373 894 379 191 364 392 - 4 4,581
Other((2)) 6 1 - - (2) 18 6 - 8 (14) - (2) 21
Total revenue 757 242 - 992 371 912 385 191 372 378 - 2 4,602
Group production 384 242 - 992 371 912 385 191 372 378 - - 4,227
Third party products and services((3))( ) - - - - - - - - - - - 375 375
Inter-segment revenue 373 - - - - - - - - - - (373) -
Total revenue 757 242 - 992 371 912 385 191 372 378 - 2 4,602
Underlying EBITDA 259 78 (1) 342 126 512 206 29 190 201 (6) (65) 1,871
Depreciation and amortisation (91) (29) - (31) (16) (54) (44) (10) (32) (39) (1) (10) (357)
Underlying EBIT 168 49 (1) 311 110 458 162 19 158 162 (7) (75) 1,514
Comprising:
Group production excluding exploration expensed 168 49 (1) 311 110 463 162 20 158 163 (7) (75) 1,521
Exploration expensed - - - - - (5) - (1) - (1) - (13) (20)
Third party products and services((3)) - - - - - - - - - - - 13 13
Underlying EBIT 168 49 (1) 311 110 458 162 19 158 162 (7) (75) 1,514
Underlying net finance costs (62)
Underlying income tax (expense)/benefit (422)
Underlying royalty related tax (expense)/benefit (26)
Underlying earnings after tax 1,004
Total adjustments to profit/(loss)((4)) 28
Profit/(loss) for the period 1,032
Exploration expenditure - - - - - 5 1 1 - 2 8 20 37
Capital expenditure((5)) 24 31 - 10 6 88 34 10 14 17 42 5 281
Total assets((6)) 3,654 701 127 1,227 600 1,075 597 332 595 473 2,021 2,987 14,389
Total liabilities((6)) 1,020 98 8 370 93 426 343 178 219 303 48 1,645 4,751
(1) The segment information reflects the Group's interest in material
equity accounted joint ventures and is presented on a proportional
consolidation basis, which is the measure used by the Group's management to
assess their performance. Refer to note 3(b)(i) Underlying results
reconciliation for the joint venture adjustments that reconcile the underlying
proportional consolidation to the equity accounting positions included in the
Group's half year consolidated financial statements.
(2) Other revenue predominantly relates to fair value movements on
provisionally priced contracts.
(3) Revenue on third party products and services sold comprised of US$64
million for aluminium, US$22 million for alumina, US$30 million for coal,
US$20 million for manganese, US$167 million for freight services and US$72
million for raw materials. Underlying EBIT on third party products and
services sold comprised of US$6 million for aluminium, US$2 million for
alumina, US$1 million for manganese and US$4 million for freight services.
(4) Refer to note 3(b)(i) Underlying results reconciliation for further
details.
(5) Capital expenditure excludes the purchase of intangibles and
capitalised exploration expenditure.
(6) Total assets and liabilities for each operating segment represent
operating assets and liabilities which predominantly exclude the carrying
amount of equity accounted investments, cash, interest bearing liabilities,
tax balances and certain other financial assets and liabilities.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
31 December 2020 Restated((1)(2)(3)(4)(5)) Continuing operations Discontinued
operation
US$M Worsley Alumina Brazil Alumina Brazil Aluminium Hillside Aluminium Mozal Aluminium Illawarra Metallurgical Coal Australia Manganese((2)) South Africa Manganese((2)) Cerro Cannington Group and unallocated items/ eliminations Group underlying results from continuing operations South Africa Group underlying results((2))
Matoso
Energy Coal
Hermosa
Revenue from customers 578 187 - 653 252 369 369 162 219 323 - (108) 3,004 457 3,461
Other((6)) - - - - 2 (4) (1) - 10 19 - (2) 24 1 25
Total revenue 578 187 - 653 254 365 368 162 229 342 - (110) 3,028 458 3,486
Group production 290 187 - 653 254 365 368 157 229 342 - - 2,845 386 3,231
Third party products and services((7))( ) - - - - - - - - - - - 183 183 72 255
Inter-segment revenue 288 - - - - - - 5 - - - (293) - - -
Total revenue 578 187 - 653 254 365 368 162 229 342 - (110) 3,028 458 3,486
Underlying EBITDA 155 48 (1) 120 48 54 184 36 91 180 (3) (39) 873 (87) 786
Depreciation and amortisation (85) (23) - (33) (17) (95) (37) (8) (41) (26) (1) (16) (382) (14) (396)
Underlying EBIT 70 25 (1) 87 31 (41) 147 28 50 154 (4) (55) 491 (101) 390
Comprising:
Group production excluding exploration expensed((8)) 70 25 (1) 87 31 (39) 148 28 50 155 (4) (49) 501 (101) 400
Exploration expensed - - - - - (2) (1) - - (1) - (8) (12) - (12)
Third party products and services((7)) - - - - - - - - - - - 2 2 - 2
Underlying EBIT 70 25 (1) 87 31 (41) 147 28 50 154 (4) (55) 491 (101) 390
Underlying net finance costs (57) (13) (70)
Underlying income tax (expense)/benefit (157) - (157)
Underlying royalty related tax (expense)/benefit (27) - (27)
Underlying earnings after tax 250 (114) 136
Total adjustments to profit/(loss)((9)) (90) 7 (83)
Profit/(loss) for the period 160 (107) 53
Exploration expenditure - - - - - 8 2 - - 1 7 9 27 - 27
Capital expenditure((10)) 28 15 - 6 6 98 29 9 15 29 29 5 269 45 314
Total assets((11)) 3,674 639 8 1,156 579 997 604 337 629 510 1,972 2,549 13,654 - 13,654
Total liabilities((11)) 1,007 69 7 423 123 385 361 185 224 315 47 1,554 4,700 - 4,700
(1) The Brazil Alumina operating segment has been reclassified to
separate Brazil Aluminium for consistency with the current period's
presentation.
(2) The segment information reflects the Group's interest in material
equity accounted joint ventures and is presented on a proportional
consolidation basis, which is the measure used by the Group's management to
assess their performance. Refer to note 3(b)(i) Underlying results
reconciliation for the joint venture adjustments that reconcile the underlying
proportional consolidation to the equity accounting positions included in the
Group's half year consolidated financial statements.
(3) The Eagle Downs operating segment has been reclassified to be
included as part of Group and unallocated items/eliminations for consistency
with the current period's presentation.
(4) The SAEC operating segment has been reclassified as a discontinued
operation. Refer to note 8 Discontinued operation.
(5) Underlying income tax (expense)/benefit has been reclassified to
separate underlying royalty related tax (expense)/benefit for consistency with
the current period's presentation.
(6) Other revenue predominantly relates to fair value movements on
provisionally priced contracts.
(7) Revenue on third party products and services sold from continuing
operations comprised of US$18 million for aluminium, US$15 million for
alumina, US$14 million for coal, US$18 million for manganese, US$83 million
for freight services and US$35 million for raw materials. Underlying EBIT on
third party products and services sold from continuing operations comprised of
US$2 million for aluminium, (US$1) million for alumina and US$1 million for
coal.
(8) Includes share of profit/(loss) of equity accounted investments of
(US$8) million.
(9) Refer to note 3(b)(i) Underlying results reconciliation for further
details.
(10) Capital expenditure excludes the purchase of intangibles and
capitalised exploration expenditure.
(11) Total assets and total liabilities for each operating segment are as at
30 June 2021. Total assets and liabilities for each operating segment
represent operating assets and liabilities, which predominantly exclude the
carrying amount of equity accounted investments, cash, interest bearing
liabilities, tax balances and certain other financial assets and liabilities.
(i) Underlying results reconciliation
The following tables reconcile the Underlying segment information to the
statutory information included in the Group's half year consolidated financial
statements:
31 December 2021
US$M Continuing operations
Underlying EBIT 1,514
Significant items((1)) 77
Manganese joint venture adjustments((2)(3)) (79)
Exchange rate gains/(losses) on restatement of monetary items((4)) 32
Net impairment losses((4)(5)) (37)
Gains/(losses) on non-trading derivative instruments and other investments (5)
measured at FVTPL((4))
Profit/(loss) from operations 1,502
Underlying net finance costs (62)
Manganese joint venture adjustments((2)) 11
Exchange rate variations on net debt 11
Net finance costs (40)
Underlying income tax (expense)/benefit (422)
Underlying royalty related tax (expense)/benefit (26)
Tax effect of significant items((1)) (26)
Manganese joint venture adjustments relating to income tax 51
(expense)/benefit((2))
Manganese joint venture adjustments relating to royalty related tax 26
(expense)/benefit((2))
Tax effect of other adjustments to Underlying EBIT 2
Tax effect of other adjustments to Underlying net finance costs (3)
Exchange rate variations on tax balances (32)
Income tax (expense)/benefit (430)
(1) Refer to note 3(b)(ii) Significant items.
(2) The segment information reflects the Group's interest in material
equity accounted joint ventures and is presented on a proportional
consolidation basis, which is the measure used by the Group's management to
assess their performance. Joint venture adjustments reconcile the proportional
consolidation to the equity accounting positions included in the Group's half
year consolidated financial statements.
(3) Includes earnings adjustments of US$2 million included in the
Australia Manganese segment and US$7 million included in the South Africa
Manganese segment. Recognised in share of profit/(loss) of equity accounted
investments in the Consolidated Income Statement.
(4) Recognised in expenses excluding net finance costs in the
Consolidated Income Statement.
(5) Refer to note 3(b)(iii) Impairment of non-financial assets.
31 December 2020
US$M Continuing operations Discontinued operation((1)) Total
Underlying EBIT 491 (101) 390
Manganese joint venture adjustments((2)(3)) (115) - (115)
Exchange rate gains/(losses) on restatement of monetary items((4)) (46) (25) (71)
Net impairment losses((4)(5)) (36) - (36)
Gains/(losses) on non-trading derivative instruments and other investments (8) 27 19
measured at FVTPL((4)(6))
Major corporate restructures((4)(7)) (17) - (17)
Profit/(loss) from operations 269 (99) 170
Underlying net finance costs (57) (13) (70)
Manganese joint venture adjustments((2)) 10 - 10
Exchange rate variations on net debt (67) 1 (66)
Net finance costs (114) (12) (126)
Underlying income tax (expense)/benefit (157) - (157)
Underlying royalty related tax (expense)/benefit (27) - (27)
Manganese joint venture adjustments relating to income tax 71 - 71
(expense)/benefit((2))
Manganese joint venture adjustments relating to royalty related tax 27 - 27
(expense)/benefit((2))
Tax effect of other earnings adjustments to Underlying EBIT 31 - 31
Tax effect of other earnings adjustments to Underlying net finance costs 9 - 9
Exchange rate variations on tax balances 51 4 55
Income tax (expense)/benefit 5 4 9
(1) The SAEC operating segment has been reclassified as a discontinued
operation. Refer to note 8 Discontinued operation.
(2) The segment information reflects the Group's interest in material
equity accounted joint ventures and is presented on a proportional
consolidation basis, which is the measure used by the Group's management to
assess their performance. Joint venture adjustments reconcile the proportional
consolidation to the equity accounting positions included in the Group's half
year consolidated financial statements.
(3) Includes earnings adjustments of (US$5) million included in the
Australia Manganese segment and (US$2) million included in the South Africa
Manganese segment. Recognised in share of profit/(loss) of equity accounted
investments in the Consolidated Income Statement.
(4) Recognised in expenses excluding net finance costs in the
Consolidated Income Statement.
(5) Refer to note 3(b)(iii) Impairment of non-financial assets.
(6) Relates to (US$8) million included in the Hillside Aluminium
segment.
(7) The major corporate restructure costs primarily relate to the
simplification of the Group's functional structures and office footprint of
which US$15 million was included in Group and unallocated items. Includes
impairment losses of US$7 million relating to right-of-use assets.
31 December 2021
US$M Group underlying results from continuing operations Manganese joint venture adjustments((1)) Group statutory results from continuing operations
Total revenue 4,602 (596) 4,006
Depreciation and amortisation 357 (54) 303
Exploration expenditure 37 (2) 35
Capital expenditure 281 (44) 237
Total assets 14,389 (411) 13,978
Total liabilities 4,751 (411) 4,340
(1) The segment information reflects the Group's interest in material
equity accounted joint ventures and is presented on a proportional
consolidation basis, which is the measure used by the Group's management to
assess their performance. Joint venture adjustments reconcile the proportional
consolidation to the equity accounting positions included in the Group's half
year consolidated financial statements.
31 December 2020
US$M Group underlying results from continuing operations Manganese joint venture adjustments((1)) Group statutory results from continuing operations
Total revenue 3,028 (543) 2,485
Depreciation and amortisation 382 (45) 337
Exploration expenditure 27 (2) 25
Capital expenditure 269 (38) 231
Total assets((2)) 13,654 (412) 13,242
Total liabilities((2)) 4,700 (412) 4,288
(1) The segment information reflects the Group's interest in material
equity accounted joint ventures and is presented on a proportional
consolidation basis, which is the measure used by the Group's management to
assess their performance. Joint venture adjustments reconcile the proportional
consolidation to the equity accounting positions included in the Group's half
year consolidated financial statements.
(2) Total assets and total liabilities are as at 30 June 2021.
(ii) Significant items
Significant items are those items, not separately identified in note 3(b)(i)
Underlying results reconciliation, where their nature and amount are
considered material to the consolidated financial statements. There were no
such items included within the Group's profit/(loss) for the period ended 31
December 2020.
31 December 2021
US$M Gross Tax Net
Recognition of indirect tax assets 77 (26) 51
Total significant items 77 (26) 51
Recognition of indirect tax assets
Following the Group's decision to participate with our joint venture partner
Alcoa in a restart of the Alumar aluminium smelter, the Group recognised
indirect tax assets of US$77 million that were expensed subsequent to the
smelter being placed on care and maintenance in 2015. The recognition of the
indirect tax assets has resulted in a significant one-off amount recorded as
other income of US$77 million (US$51 million post tax) in the Consolidated
Income Statement and was included in the Brazil Aluminium segment.
(iii) Impairment of non-financial assets
The Group recognised the following impairments and impairment reversals in the
half year ended 31 December 2021:
US$M H1 FY22 H1 FY21
Impairment
Property, plant and equipment((1)) (79) -
Intangible assets((2)) - (36)
Right-of-use lease assets((3)) - (7)
Impairment reversal
Property, plant and equipment((4)) 42 -
Net impairment (37) (43)
(1) Relates to a US$79 million impairment included in Group and
unallocated items/eliminations in respect of Eagle Downs.
(2) Relates to a US$36 million impairment included in Group and
unallocated items/eliminations.
(3) Included in the major corporate restructures earnings adjustment.
Refer to note 3(b)(i) Underlying results reconciliation.
(4) Relates to a US$42 million impairment reversal included in the
Brazil Aluminium segment.
Eagle Downs
As part of the negotiation for sale, in December 2021, the Group received
offers from external parties for the Eagle Downs Metallurgical Coal
development option which, in combination with its long-term market outlook for
metallurgical coal demand and prices, informed the Group's assessment of the
recoverable amount for Eagle Downs as a cash generating unit (CGU).
The recoverable amount of the Eagle Downs CGU was determined at US$80 million
based on its fair value less cost of disposal (FVLCD) which included an
assessment of the external offers received. The long-run metallurgical coal
prices and exchange rates used as part of the Group's FVLCD determinations are
within the following ranges as published by market commentators:
Assumptions used in FVLCD
Metallurgical coal (US$/t) 112 to 160
Foreign exchange rates (AU$ to US$) 0.75 to 0.77
The impairment of US$79 million includes US$1 million recognised in land and
buildings, US$6 million recognised in plant and equipment, US$56 million
recognised in other mineral assets, US$15 million recognised in assets under
construction, and US$1 million recognised in exploration and evaluation within
property, plant and equipment of Eagle Downs.
Brazil Aluminium
On 6 January 2022, the Group announced its decision to participate in a
restart of the Alumar aluminium smelter, together with our joint venture
partner Alcoa. The Group has assessed the implications of the restart decision
and reviewed the impact on the carrying value of the Brazil Aluminium CGU as
at 31 December 2021.
The Group reversed the full impairment that was recognised when the smelter
was placed on care and maintenance in 2015, limited to the carrying amount
that would have been determined (net of amortisation and depreciation) had no
impairment loss been recognised at such time. The recoverable amount remains
significantly higher than the carrying amount recorded.
The recoverable amount was based on the smelter's FVLCD and was informed by
the Group's production profile and cost profile which are consistent with the
Group's commitments to long-term power agreements. The key assumptions used
for commodity prices are comparable to market consensus forecasts, and foreign
exchange rates are aligned with forward market rates.
The impairment reversal of US$42 million includes US$18 million recognised in
land and buildings and US$24 million recognised in plant and equipment, both
within property, plant and equipment.
In addition, the Group recognised indirect tax assets of US$77 million that
had been expensed since the smelter was placed on care and maintenance in
2015. Refer to note 3(b)(ii) Significant items.
Basis of fair value measurements
The above fair value measurements are categorised as Level 3 fair values based
on the inputs in the discounted cashflow valuation models in combination with
the use of the market approach for Eagle Downs. In determining the FVLCD, a
real post tax discount rate range of between 6 and 8 per cent, and a country
risk premium of up to 2 per cent were applied to the post tax forecast cash
flows expressed in real terms.
4. DIVIDENDS
US$M H1 FY22 H1 FY21
Prior year final dividend((1)) 163 48
Prior year special dividend((1)) 93 -
Total dividends declared and paid during the period 256 48
(1) On 19 August 2021, the Directors resolved to pay a fully franked
final dividend of US 3.5 cents per share (US$164 million) and a fully franked
special dividend of US 2.0 cents (US$93 million) per share in respect of the
2021 financial year. The dividends were paid on 7 October 2021. In addition to
the ESOP Trusts receiving dividends from South32 Limited, a total of 9,736,166
shares were bought back between the declaration and the ex-dividend dates,
therefore reducing the dividend paid externally to US$256 million.
5. EARNINGS PER SHARE
Basic earnings per share (EPS) amounts are calculated based on profit or loss
attributable to equity holders of South32 Limited and the weighted average
number of shares outstanding during the period.
Dilutive EPS amounts are calculated based on profit or loss attributable to
equity holders of South32 Limited and the weighted average number of shares
outstanding after adjustment for the effects of all dilutive potential shares.
The following reflects the profit/(loss) and share data used in the basic and
diluted EPS computations:
Profit/(loss) for the period attributable to equity holders
US$M H1 FY22 H1 FY21 Restated((1))
Continuing operations 1,032 160
Discontinued operation((1)) - (107)
Profit/(loss) attributable to equity holders of South32 Limited (basic) 1,032 53
Profit/(loss) attributable to equity holders of South32 Limited (diluted) 1,032 53
(1) Refer to note 8 Discontinued operation.
Weighted average number of shares
Million H1 FY22 H1 FY21
Basic EPS denominator((1)) 4,657 4,815
Shares contingently issuable under employee share ownership plans 24 12
Diluted EPS denominator 4,681 4,827
(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 program.
Earnings per share
US cents H1 FY22 H1 FY21 Restated((1))
Continuing operations
Basic EPS 22.2 3.3
Diluted EPS 22.0 3.3
Attributable to ordinary equity holders of South32 Limited
Basic EPS 22.2 1.1
Diluted EPS 22.0 1.1
(1) Refer to note 8 Discontinued operation.
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
6. NET FINANCE COSTS
US$M H1 FY22 H1 FY21
Restated((1))
Finance expenses
Interest on borrowings 11 8
Interest on lease liabilities 26 27
Discounting on provisions and other liabilities 28 26
Change in discount rate on closure and rehabilitation provisions - (6)
Net interest expense on post-retirement employee benefits 2 1
Exchange rate variations on net debt (11) 67
56 123
Finance income
Interest income 16 9
Net finance costs 40 114
(1) Refer to note 8 Discontinued operation.
7. FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The following table presents the financial assets and liabilities by class at
their carrying amounts which approximates their fair value.
31 December 2021 Held at FVTPL Designated as FVOCI Amortised cost Financial guarantee contracts
US$M Total
Financial assets
Cash and cash equivalents - - 2,119 - 2,119
Trade and other receivables((1)) 120 - 511 - 631
Loans to equity accounted investments((2)) - - 9 - 9
Other financial assets:
Other investments - held at FVTPL((3)) 5 - - - 5
Total current financial assets 125 - 2,639 - 2,764
Trade and other receivables((1)) 35 - 10 - 45
Loans to equity accounted investments((2)) - - 158 - 158
Other financial assets:
Investments in equity instruments - designated as FVOCI - 62 - - 62
Total non-current financial assets 35 62 168 - 265
Total financial assets 160 62 2,807 - 3,029
Financial liabilities
Trade and other payables((4)) 2 - 752 13 767
Lease liabilities((5)) - - 34 - 34
Unsecured other((5)) - - 363 - 363
Other financial liabilities:
Derivative contracts 5 - - - 5
Total current financial liabilities 7 - 1,149 13 1,169
Trade and other payables - - 25 - 25
Lease liabilities((5)) - - 623 - 623
Unsecured other((5)) - - 124 - 124
Total non-current financial liabilities - - 772 - 772
Total financial liabilities 7 - 1,921 13 1,941
(1) Excludes current input taxes of US$63 million and non-current input
and other taxes of US$125 million included in trade and other receivables.
(2) Included in trade and other receivables on the Consolidated Balance
Sheet.
(3) Other investments - held at FVTPL include US$5 million which are
restricted by legal or contractual arrangements.
(4) Excludes current input taxes of US$14 million included in trade and
other payables.
(5) Included in interest bearing liabilities on the Consolidated Balance
Sheet.
30 June 2021 Held at FVTPL Designated as FVOCI Amortised cost Financial guarantee contracts
US$M Total
Financial assets
Cash and cash equivalents - - 1,613 - 1,613
Trade and other receivables((1)) 120 - 365 - 485
Loans to equity accounted investments((2)) - - 10 - 10
Other financial assets:
Derivative contracts 9 - - - 9
Other investments - held at FVTPL((3)) 6 - - - 6
Total current financial assets 135 - 1,988 - 2,123
Trade and other receivables((1)) - - 10 - 10
Loans to equity accounted investments((2)) - - 187 - 187
Other financial assets:
Investments in equity instruments - designated as FVOCI - 121 - - 121
Total non-current financial assets - 121 197 - 318
Total financial assets 135 121 2,185 - 2,441
Financial liabilities
Trade and other payables((4)) 18 - 734 15 767
Lease liabilities((5)) - - 37 - 37
Unsecured other((5)) - - 371 - 371
Other financial liabilities:
Derivative contracts 11 - - - 11
Total current financial liabilities 29 - 1,142 15 1,186
Trade and other payables - - 2 - 2
Lease liabilities((5)) - - 650 - 650
Unsecured other((5)) - - 149 - 149
Total non-current financial liabilities - - 801 - 801
Total financial liabilities 29 - 1,943 15 1,987
(1) Excludes current input taxes of US$32 million and non-current input
and other taxes of US$62 million included in trade and other receivables.
(2) Included in trade and other receivables on the Consolidated Balance
Sheet.
(3) Other investments - held at FVTPL include US$6 million which are
restricted by legal or contractual arrangements.
(4) Excludes current input taxes of US$10 million included in trade and
other payables.
(5) Included in interest bearing liabilities on the Consolidated Balance
Sheet.
Measurement of fair value
The following table shows the Group's financial assets and liabilities carried
at fair value with reference to the nature of valuation inputs used:
Level 1 Valuation is based on unadjusted quoted prices in active
markets for identical financial assets and liabilities.
Level 2 Valuation is based on inputs (other than quoted prices included
in Level 1) that are observable for the financial asset or liability, either
directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).
Level 3 Valuation includes inputs that are not based on observable
market data.
31 December 2021
US$M Level 1 Level 2 Level 3 Total
Financial assets and liabilities
Trade and other receivables - 120 35 155
Trade and other payables - (2) - (2)
Derivative contract liabilities (5) - - (5)
Investments in equity instruments - designated as FVOCI 44 - 18 62
Other investments - held at FVTPL - 5 - 5
Total 39 123 53 215
30 June 2021
US$M Level 1 Level 2 Level 3 Total
Financial assets and liabilities
Trade and other receivables - 120 - 120
Trade and other payables - (4) (14) (18)
Derivative contract assets 9 - - 9
Derivative contract liabilities (11) - - (11)
Investments in equity instruments - designated as FVOCI 55 - 66 121
Other investments - held at FVTPL - 6 - 6
Total 53 122 52 227
Level 3 financial assets and liabilities
The following table shows the movements in the Group's Level 3 financial
assets and liabilities:
US$M H1 FY22 H1 FY21
At the beginning of the period 52 35
Addition of financial assets 34 -
Derecognition of financial liabilities 14 -
Realised gains/(losses) recognised in the Consolidated Income Statement((1)) - (8)
Unrealised gains/(losses) recognised in the Consolidated Income Statement((1)) 1 -
Unrealised gains/(losses) recognised in the Consolidated Statement of (48) (27)
Comprehensive Income((2))
At the end of the period 53 -
(1) Recognised in expenses excluding net finance costs 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 2021 Profit/(loss) 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$M
Financial assets and liabilities
Investments in equity instruments - designated as FVOCI((1)) 18 Alumina price((2)) - - 34 (42)
Aluminium price((2))
Foreign exchange rate((2))
Trade and other receivables((1)) 35 Coal price((3)) 11 (7) - -
Export volumes((3))
Total 53 11 (7) 34 (42)
(1) Sensitivity analysis is performed assuming all inputs are either
directionally moving favourably or unfavourably.
(2) Aluminium and alumina prices are comparable to market consensus
forecasts and foreign exchange rates are aligned with forward market rates.
(3) Coal prices are comparable to market consensus forecasts and export
volumes are based on future production estimates.
30 June 2021 Profit/(loss) after tax Other comprehensive income, net of tax
Carrying amount Significant inputs 10% increase in input 10% decrease in input 10% increase in input 10% decrease in input
US$M
Financial assets and liabilities
Investments in equity instruments - designated as FVOCI((1)) 66 Alumina price((2)) - - 35 (39)
Aluminium price((2))
Foreign exchange rate((2))
Trade and other payables((1)) (14) Coal price((3)) 12 (8) - -
Export volumes((3))
Total 52 12 (8) 35 (39)
(1) Sensitivity analysis is performed assuming all inputs are either
directionally moving favourably or unfavourably.
(2) Aluminium and alumina prices are comparable to market consensus
forecasts and foreign exchange rates are aligned with forward market rates.
(3) Coal prices are comparable to market consensus forecasts and export
volumes are based on future production estimates.
Standby arrangements and credit facilities
The entities in the Group are funded by a combination of cash generated by the
Group's operations, working capital facilities and intercompany loans provided
by the Group. Intercompany loans may be funded by a combination of cash, short
and long-term debt and equity market raisings. Details of the Group's major
standby arrangement and credit facilities are as follows:
31 December 2021 Available Used Unused
US$M
Revolving credit facility(1) 1,400 - 1,400
Acquisition debt facility((2)) 1,000 - 1,000
(1) The Group has an undrawn revolving credit facility which is a
standby arrangement to the US commercial paper program. This facility was
extended in December 2021 by three years and ten months to December 2026, with
options to extend for up to a further two years by mutual agreement. The size
of the facility was reduced by US$50 million to US$1,400 million.
(2) On 14 October 2021, the Group executed a US$1,000 million
acquisition debt facility, exclusively for the purpose of funding the
acquisition of a 45 per cent interest in Sierra Gorda. The facility remains
undrawn at 31 December 2021 subject to completion of the transaction. This
facility is available for an initial period of 12 months, with two six-month
extension options that can be exercised at the sole discretion of the Group.
NOTES TO FINANCIAL STATEMENTS - OTHER NOTES
7. DISCONTINUED OPERATION
A discontinued operation is a component of the Group's business that
represents a separate major line of business or geographical area of
operations that has been disposed of or is held for sale. Classification as a
discontinued operation occurs upon disposal or when the operation meets the
criteria to be classified as held for sale, if earlier. When an operation is
classified as discontinued, the comparative income statement is restated as if
the operation had been discontinued from the start of the comparative period.
South Africa Energy Coal
During the 2018 financial year, the Group established SAEC as a standalone
business and managed it separately from the rest of the Group with tailored
functional support, systems and governance processes. On 6 November 2019, the
Group announced a binding conditional agreement for the sale of its
shareholding in SAEC to a wholly-owned subsidiary of Seriti and two trusts
which will acquire and hold equity on behalf of employees and communities.
The transaction was subject to a number of material conditions which precluded
the classification of SAEC as held for sale until the conditions were
satisfied on 15 May 2021. On 1 June 2021, the Group completed the sale of its
shareholding in SAEC to Seriti and two trusts for the benefit of employees and
communities.
The discontinued operation represents the entire SAEC operating segment which
consists of the Khutala colliery, the Klipspruit colliery, the Wolvekrans
Middelburg Complex and other SAEC corporate assets.
(a) Results of the discontinued operation
US$M H1 FY21
Revenue
Group production 386
Third party products and services 72
458
Other income 25
Expenses excluding net finance costs (576)
Share of profit/(loss) of equity accounted investments (6)
Profit/(loss) from the discontinued operation (99)
Finance expenses (16)
Finance income 4
Net finance costs (12)
Profit/(loss) before tax from the discontinued operation (111)
Income tax (expense)/benefit 4
Profit/(loss) after tax from the discontinued operation (107)
Other comprehensive income:
Total other comprehensive income/(loss) -
Total comprehensive income/(loss) from the discontinued operation attributable (107)
to the equity holders of South32 Limited
Basic EPS (cents) (2.2)
Diluted EPS (cents) (2.2)
(b) Cash flows from the discontinued operation
US$M H1 FY21
Net cash flows from operating activities (116)
Net cash flows from investment activities (49)
Net cash flows from financing activities (1)
Net decrease in cash and cash equivalents (166)
8. SUBSEQUENT EVENTS
On 17 February 2022, the Directors resolved to pay a fully franked interim
dividend of US 8.7 cents per share(US$405 million) in respect of the 2022
financial half year. The dividend will be paid on 7 April 2022. The dividend
has not been provided for in the half year consolidated financial statements
and will be recognised in the second half of the 2022 financial year.
On 17 February 2022, the Group also announced an increase to the existing
capital management program, announced on 27 March 2017, of US$110 million to a
total of US$2.1 billion. This leaves US$302 million expected to be returned by
2 September 2022.
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 2021 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 2021 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: 17 February 2022
DIRECTORS' REPORT
The Directors of the Group present the consolidated financial statements for
the half year ended 31 December 2021 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
Dr Xiaoling Liu
Dr Ntombifuthi (Futhi) Mtoba
Wayne Osborn
Keith Rumble
The company secretaries of the Company during or since the end of the half
year are:
Kelly O'Rourke (Appointed 1 July 2021, resigned 29 October 2021)
Claire Tolcon
Nicole Duncan (Resigned 1 July 2021)
Review and results of operations
A review of the operations of the consolidated entity during the period and of
the results of those operations is contained on pages 3 to 29 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 exposures
identified across the Group. The risks are not listed in any particular order:
• Ensuring that our people go home safe and well
• Climate change
• Actions by governments, tax authorities and political risks
• Portfolio reshaping
• Global economic uncertainty and liquidity
• Major events or natural catastrophes
• Predictable operational performance
• Shaping our culture and managing diverse talent
• Maintain competitiveness through innovation and technology
• Security of supply of logistics chains, and critical goods and services
• Maintain, realise or enhance the value of our Mineral Resources and Ore
Reserves
• Evolving societal expectations
• Delivering our project portfolio
Further information on these risks and how they are managed can be found on
pages 24 to 33 of the Annual Report for the year ended 30 June 2021, a copy of
which is available on the Group's website at www.south32.net
(http://www.south32.net) . "Delivering our project portfolio" was previously
incorporated within "Portfolio reshaping" and was not separately reported in
the Annual Report for the year ended 30 June 2021. It has since been listed
separately given the growing strategic importance of our project portfolio.
DIRECTORS' REPORT
Events subsequent to the balance sheet date
On 17 February 2022, the Directors resolved to pay a fully franked interim
dividend of US 8.7 cents per share (US$405 million) in respect of the 2022
financial half year. The dividend will be paid on 7 April 2022. The dividend
has not been provided for in the half year consolidated financial statements
and will be recognised in the second half of the 2022 financial year.
On 17 February 2022, the Group also announced an increase to the existing
capital management program, announced on 27 March 2017, of US$110 million to a
total of US$2.1 billion. This leaves US$302 million expected to be returned by
2 September 2022.
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 an indication of important events that have occurred during the first
six months of the financial year, and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial 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 enterprise during that
period, and any changes in the related party transactions described in the
last annual report that could have a material effect on the financial position
or performance of the enterprise in the first six months of the current
financial year.
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.
DIRECTORS' REPORT
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: 17 February 2022
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 2021 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
17 February 2022
KPMG, an Australian partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent
member firms of the KPMG global organisation. Liability limited by a scheme
approved under Professional Standards Legislation.
Independent Auditor's Review Report
To the shareholders of South32 Limited
Conclusion
We have reviewed the accompanying Half Year Consolidated Financial Statements The Half Year Consolidated Financial Statements comprise:
of South32 Limited.
· Consolidated balance sheet as at 31 December 2021
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 Consolidated Financial · Consolidated income statement, Consolidated statement of comprehensive
Statements of South32 Limited does not comply 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 2021 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.
Basis for conclusion
We conducted our review in accordance with ASRE 2410 Review of a Financial
Report Performed by the Independent Auditor of the Entity. Our
responsibilities are further described in the Auditor's Responsibilities for
the Review of the Financial Report section of our report.
We are independent of the Group in accordance with the auditor independence
requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics
for Professional Accountants (including Independence Standards) (the Code)
that are relevant to our audit of the annual financial report in Australia.
We have also fulfilled our other ethical responsibilities in accordance with
the Code.
Responsibilities of the Directors for the Half Year Consolidated Financial
Statements
The Directors of the Company are responsible for:
· the preparation of the Half Year Consolidated 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 Consolidated Financial Statements that
gives a true and fair view and is free from material misstatement, whether due
to fraud or error.
Auditor's Responsibilities for the Review of the Half Year Consolidated
Financial Statements
Our responsibility is to express a conclusion on the Half Year Consolidated
Financial Statements based on our review. ASRE 2410 requires us to conclude
whether we have become aware of any matter that makes us believe that the Half
Year Consolidated Financial Statements do not comply with the Corporations Act
2001 including giving a true and fair view of the Group's financial position
as at 31 December 2021 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.
A review of Half Year Consolidated 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.
KPMG Graham Hogg
Partner
Perth
17 February 2022
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements, including statements about
trends in commodity prices and currency exchange rates; demand for
commodities; production forecasts; plans, strategies and objectives of
management; capital costs and scheduling; operating costs; anticipated
productive lives of projects, mines and facilities; and provisions and
contingent liabilities. These forward-looking statements reflect expectations
at the date of this release, however they are not guarantees or predictions of
future performance. They involve known and unknown risks, uncertainties and
other factors, many of which are beyond our control, and which may cause
actual results to differ materially from those expressed in the statements
contained in this release. Readers are cautioned not to put undue reliance on
forward-looking statements. Except as required by applicable laws or
regulations, the South32 Group does not undertake to publicly update or review
any forward-looking statements, whether as a result of new information or
future events. Past performance cannot be relied on as a guide to future
performance. South32 cautions against reliance on any forward looking
statements or guidance, particularly in light of the current economic climate
and the significant volatility, uncertainty and disruption arising in
connection with COVID-19.
NON-IFRS FINANCIAL INFORMATION
This release includes certain non-IFRS financial measures, including
Underlying earnings, Underlying EBIT and Underlying EBITDA, Underlying
revenue, Underlying net finance costs, Underlying depreciation and
amortisation, Underlying operating costs, Underlying income tax expense,
Underlying royalty related tax expense, 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 Media Relations
Tom Gallop Miles Godfrey Jenny White
T +61 8 9324 9030 M +61 415 325 906 T +44 20 7798 1773
M +61 439 353 948 E Miles.Godfrey@south32.net M +44 7900 046 758
E Tom.Gallop@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
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd
17 February 2022
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