REG - South32 Limited - H1 FY23 Results Announcement
16/02/2023 07:00
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RNS Number : 0776Q South32 Limited 16 February 2023
FINANCIAL RESULTS AND OUTLOOK
HALF YEAR ENDED 31 DECEMBER 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
16 February 2023
South32 in a strong position for further growth and returns
"In November 2022, we were devastated by the loss of two of our colleagues, Mr
Cristovão Alberto Tonela and Mr Alfredo Francisco Domingos João, in a fatal
accident at Mozal Aluminium. We continue to provide support and counselling to
the families and friends of the deceased. We have completed an investigation
and key learnings are being shared across the Group, and with industry
participants. We continue to implement our Group-wide Safety Improvement
Program to fundamentally shift our safety performance.
"We delivered another period of strong production results, and while commodity
prices retreated from record levels, we recorded one of our largest profit
results to date with Underlying EBITDA of US$1.36 billion.
"Our strong financial result was underpinned by production growth of 12%, our
recent portfolio improvements, which increased our exposure to the metals
critical to a low-carbon future, and continued focus on cost efficiencies.
This has enabled us to resolve to pay a fully-franked ordinary dividend of
US$224 million (US 4.9 cents per share) in respect of the December 2022 half
year.
"This is in addition to our record US$784M fully-franked ordinary and special
dividends, returned in October 2022, and US$143 million returned via our
on-market share buy-back in the December 2022 half year.
"Looking forward and reflecting our strong financial position and confidence
in the business outlook, we have increased our flexible capital management
program by US$50 million to US$2.3 billion, leaving US$158 million to be
returned by 1 September 2023.
"Commodity markets have strengthened, leaving us well placed to capitalise on
planned production growth and lower Operating unit costs expected across the
majority of our operations in the second half of the 2023 financial year.
"At our Hermosa project in Arizona, we are on-track to make a final investment
decision on the Taylor deposit in the middle of this calendar year. We have
also confirmed the opportunity for Hermosa's Clark deposit to supply
battery-grade manganese into the growing North American electric vehicle
supply chain.
"The long-term outlook for our business is positive as a result of our
portfolio investments and high-quality development options in the metals
critical for a low-carbon future."
Graham Kerr, South32 CEO
Financial highlights
US$M H1 FY23 H1 FY22 % Change
Revenue 3,696 4,006 (8%)
Profit before tax and net finance income/(costs) 871 1,502 (42%)
Profit after tax 685 1,032 (34%)
Basic earnings per share (US cents)((2)) 14.9 22.2 (33%)
Ordinary dividends per share (US cents)((3)) 4.9 8.7 44%
Other financial measures
Underlying revenue((4)(5)) 4,524 4,505 0.4%
Underlying EBITDA((5)) 1,364 1,871 (27%)
Underlying EBITDA margin((6)) 31.5% 44.0% (12.5%)
Underlying EBIT((5)) 922 1,514 (39%)
Underlying EBIT margin((7)) 21.3% 35.5% (14.2%)
Underlying earnings((5)) 560 1,004 (44%)
Basic Underlying earnings per share (US cents)((2)) 12.2 21.6 (44%)
ROIC((8)) 12.1% 27.5% (15.4%)
Ordinary shares on issue (million) 4,572 4,650 (2%)
SAFETY
In November 2022, we were devastated by the loss of two of our colleagues, Mr
Cristovão Alberto Tonela and Mr Alfredo Francisco Domingos João, who were
fatally injured in an incident while undertaking maintenance work on a raising
girder at Mozal Aluminium. Our deepest sympathies remain with the families and
colleagues of the deceased to whom we have provided our support and
counselling. An investigation into the incident has been completed and key
learnings are being shared across our organisation, and with industry
participants.
We are committed to improving our safety performance and we are undertaking a
significant amount of work to achieve this. We continue to implement our
multi-year Safety Improvement Program, designed to fundamentally shift our
safety performance and deliver the culture transformation required for
sustained improvement. Earlier this year, we completed a review of our Safety
Improvement Program, with input from a leading external safety expert. This
review confirmed that our focus is right and we are continuing to embed safe
and sustainable business practices, shift mindsets through leadership, and
empower our people.
Contractors make up a significant proportion of our workforce. We continued to
deploy our Contractor Management System of Work and embed supporting systems
across the business during H1 FY23, maintaining our focus on supporting
contractors to undertake work safely.
Our Total Recordable Injury Frequency (TRIF)((9)(10)) increased to 6.0 per
million hours worked in H1 FY23 (FY22 TRIF 5.3) with Worsley Alumina,
Illawarra Metallurgical Coal and Australia Manganese largely accounting for
the increase, while Cannington, Cerro Matoso and South Africa Manganese saw an
overall reduction.
OUR RESPONSE TO COVID-19
COVID-19 continued to affect our people, operations, projects and offices, and
we experienced periods of elevated case numbers and restrictions. We support
the use of regulatory approved vaccines and actively encourage vaccination for
all our employees and contractors. Where possible we have worked with local
authorities for our employees and contractors, their families and our
communities to access vaccines.
PERFORMANCE SUMMARY
The Group's statutory profit after tax decreased by US$347M to US$685M in H1
FY23 as the combination of a decline in commodity prices from record levels in
many markets, and higher inflation and uncontrollable costs, more than offset
the benefit of our strong operational performance. Underlying earnings
decreased by US$444M to US$560M in H1 FY23. A reconciliation of statutory
profit to Underlying earnings is set out below.
Group copper equivalent production((11)) increased by 12% in H1 FY23 as we
delivered strong production results and realised the benefit of our
investments in Sierra Gorda and our expanded low-carbon((12)) aluminium
capacity. We expect to increase production by a further 6%((13)) in H2 FY23
supported by embedded improvement projects and the ramp-up of the Brazil
Aluminium smelter to nameplate capacity.
Underlying EBITDA decreased by US$507M to US$1,364M, for a Group operating
margin of 32% due to the aforementioned commodity price and uncontrollable
cost impacts. Our investments in Sierra Gorda and increased ownership in Mozal
Aluminium contributed Underlying EBITDA of US$201M at an operating margin of
42%. Free cash flow from operations (including manganese equity accounted
investment (EAI) distributions) was US$127M, reflecting one-off working
capital and cash tax impacts. Looking forward, an expected reduction in
inventory positions in our aluminium value chain in H2 FY23 and the
normalisation of tax payments is expected to add to the Group's cash
generation.
We returned a record US$927M to shareholders in H1 FY23, paying US$784M in
fully-franked ordinary and special dividends in respect of H2 FY22 and
returning US$143M via our on-market share buy-back. We have today announced a
fully-franked interim ordinary dividend of US$224M (US 4.9 cents per share),
reflective of our continued strong operating performance and disciplined
approach to capital management. The Board has also expanded our capital
management program by US$50M, leaving US$158M to be returned by 1 September
2023((14)).
The balance sheet remains in a strong position with modest net debt of US$298M
at the end of the period. Our disciplined approach to capital management and
strong balance sheet provides us with the flexibility to continue to return
capital to shareholders in the most efficient and value accretive manner,
while investing in our high-quality growth and improvement options to create
shareholder value and underpin our future supply of metals critical to a
low-carbon future.
Specific highlights in H1 FY23 included:
• Increased production by 12%, supported by our recent investments in copper and
low-carbon aluminium;
• Delivered strong production results, including record half-year production at
Australia Manganese;
• Commissioned the Ore Sorting and Mechanical Ore Concentration (OSMOC) project
at Cerro Matoso, unlocking value by underpinning a 15-year extension to the
mining contract, and supporting higher future nickel production;
• FY23 production guidance is unchanged and we expect to deliver a further 6%
increase in production volumes in H2 FY23;
• FY23 Operating unit cost guidance has been lowered or held largely unchanged
for the majority of our operations;
• Invested US$96M at Hermosa on critical path dewatering infrastructure and
study work, ahead of a final investment decision for the Taylor
zinc-lead-silver deposit expected in mid CY23;
• Completed work on Hermosa's Clark selection phase pre-feasibility study which
confirmed the opportunity to produce battery-grade manganese for the growing
North American electric vehicle supply chain;
• Completed the sale of four non-core royalties for up to US$200M, unlocking
further latent value in our portfolio((15)), receiving US$55M of the cash
consideration in H1 FY23;
• Expanded our climate change goals((16)) to include net zero Scope 3 greenhouse
gas (GHG) emissions by 2050;
• Advanced near-term decarbonisation programs to support our target((16)) to
halve operational GHG emissions by 2035, with Worsley Alumina expected to
complete its first onsite boiler conversion in mid CY23; and
Sierra Gorda secured an agreement for cost efficient, 100% renewable
electricity supply from January 2023.
EARNINGS RECONCILIATION
The Group's statutory profit after tax decreased by US$347M to US$685M in H1
FY23, while Underlying earnings decreased by US$444M to US$560M reflecting
one-off adjustments in statutory earnings.
Consistent with our accounting policies, various items are excluded from the
Group's statutory profit to derive Underlying earnings. Total adjustments to
derive Underlying EBIT (US$51M), shown in the table below, include:
• Significant items (-US$138M): gain on disposal on the sale of four non-core
base metal royalties to Ecora Resources PLC (formerly known as Anglo Pacific
Group PLC) (-US$189M pre-tax) partially offset by a non-cash asset write-off
following our decision not to proceed with the Dendrobium Next Domain (DND)
project at Illawarra Metallurgical Coal((17)) (US$51M pre-tax);
• Sierra Gorda joint venture adjustments (-US$57M): adjustments to reconcile the
statutory equity accounting position to a proportional consolidation basis;
• Manganese joint venture adjustments (US$101M): adjustments to reconcile the
statutory equity accounting position to a proportional consolidation basis;
and
• Net impairment loss of financial assets (US$214M): periodic revaluation of the
shareholder loan receivable from Sierra Gorda reflecting copper price and
other macroeconomic assumptions as at Q2 FY23. An offsetting amount is
recorded in the Sierra Gorda joint venture adjustments noted above.
Further information on these earnings adjustments is included in Note 3 (b)
(i).
The Group's Underlying EBITDA decreased by US$507M (or 27%) to US$1,364M in H1
FY23, as a decline in commodity prices from record levels (-US$299M) and
higher inflation and raw material input prices (-US$361M), most acute in our
aluminium value chain, were partly offset by the benefit of weaker producer
currencies (+US$185M). Our recent portfolio investments in Sierra Gorda and
additional interest in Mozal Aluminium added US$201M to Group Underlying
EBITDA with a combined operating margin of 42%. This was partly offset by
Brazil Aluminium (-US$66M) as the smelter continued to ramp-up to nameplate
capacity.
The Group's Underlying EBIT decreased by US$592M (or 39%) to US$922M, with
Underlying depreciation and amortisation increasing by US$85M (or 24%) to
US$442M following the acquisition of Sierra Gorda.
Profit to Underlying EBITDA reconciliation
$USM H1 FY23 H1 FY22
Profit before tax and net finance income/(costs) 871 1,502
Adjustments to derive Underlying EBIT:
Significant items (138) (77)
Sierra Gorda joint venture adjustments (57) -
Manganese joint venture adjustments 101 79
Exchange rate (gains)/losses on the restatement of monetary items (48) (32)
Net impairment loss/(reversal) of financial assets 214 -
Net impairment loss/(reversal) of non-financial assets (4) 37
(Gains)/losses on non-trading derivative instruments, contingent consideration (17) 5
and other investments measured at fair value through profit and loss
Total adjustments to derive Underlying EBIT 51 12
Underlying EBIT 922 1,514
Underlying depreciation and amortisation 442 357
Underlying EBITDA 1,364 1,871
Profit to Underlying earnings reconciliation
US$M H1 FY23 H1 FY22
Profit after tax 685 1,032
Total adjustments to derive Underlying EBIT 51 12
Total adjustments to derive Underlying net finance costs (102) (22)
Total adjustments to derive Underlying income and royalty related tax expense (74) (18)
Underlying earnings 560 1,004
EARNINGS ANALYIS
The following key factors influenced Underlying EBIT in H1 FY23, relative to
H1 FY22.
Reconciliation of movements in Underlying EBIT (US$M)((5)(18)(19)(20))
Earnings analysis US$M Commentary
H1 FY22 Underlying EBIT 1,514
Change in sales price (299) Lower average realised prices for our commodities, including:
Aluminium (-US$177M)
Metallurgical coal (-US$90M)
Alumina (-US$44M)
Zinc (-US$17M), lead (-US$9M) and silver (-US$3M)
Manganese (-US$17M)
Partially offset by higher average realised prices for nickel (+US$30M) and
energy coal (+US$28M)
Net impact of price-linked costs (234) Higher caustic soda prices at Worsley Alumina (-US$50M) and Brazil Alumina
(-US$27M)
Higher aluminium smelter raw material input prices (-US$81M), including pitch
and coke
Higher coal, fuel oil and diesel prices (-US$61M)
Higher electricity prices (-US$23M) at Cerro Matoso and Illawarra
Metallurgical Coal
Change in foreign exchange rates 185 Weaker Australian dollar (+US$89M), South African rand (+US$75M) and Colombian
peso (+US$23M)
Change in inflation (127) Inflation-linked indexation of our Southern African aluminium smelter
electricity prices
(-US$36M)
General inflation across Australia (-US$57M), Southern Africa (-US$17M) and
Colombia
(-US$12M)
Change in sales volume (184) Lower volumes, mostly at Cannington (-US$77M) and Worsley Alumina (-US$54M)
Partially offset by higher volumes at Mozal Aluminium (+US$29M) and Hillside
Aluminium (+US$3M)
Controllable costs (10) Inventory and volume related movements (+US$60M) including a planned build in
stocks at Australia Manganese ahead of the wet season
Higher contractor, maintenance and labour costs (-US$48M), including at
Worsley Alumina and Cerro Matoso to support maintenance activity and at
Australia Manganese to support higher production
Project costs (-US$11M) relating to the deployment of our Safety Improvement
Program, decarbonisation partnerships and community programs
Portfolio changes 68 Improved profitability following the acquisition of our Sierra Gorda interest
and additional shareholding in Mozal Aluminium (+US$124M), partially offset by
Brazil Aluminium (-US$69M) as the smelter ramped-up toward nameplate capacity
Other 9 Profit from our equity interest in Mineração Rio do Norte (MRN), partially
offset by higher depreciation and amortisation at Illawarra Metallurgical Coal
H1 FY23 Underlying EBIT 922
Net finance costs
The Group's Underlying net finance costs of US$88M in H1 FY23 primarily
comprise the unwinding of the discount applied to our closure and
rehabilitation provisions (US$51M) and interest on lease liabilities (US$28M)
largely for our multi-fuel co-generation facility at Worsley Alumina. We also
paid interest on our Senior Unsecured Notes (Notes) (US$15M) following our
inaugural US$700M Notes offering in April 2022 (due 2032, 4.35% per annum) to
partly fund the Sierra Gorda acquisition.
Underlying net finance income/(costs) reconciliation
US$M H1 FY23 H1 FY22
Unwind of discount applied to closure and rehabilitation provisions (51) (39)
Interest on lease liabilities (28) (26)
Interest on Senior Unsecured Notes (15) -
Other 6 3
Underlying net finance costs (88) (62)
Add back earnings adjustment for exchange rate variations on net debt 4 11
Sierra Gorda joint venture adjustments((21)) 85 -
Manganese joint venture adjustments((21)) 13 11
Total adjustments to derive net finance income/(costs) 102 22
Net finance income/(costs) 14 (40)
Tax expense
The Group's Underlying income tax expense decreased by US$174M to US$274M in
H1 FY23, in-line with lower profitability, for an Underlying effective tax
rate (ETR)((22)) of 33.1%. Our Underlying ETR reflects the corporate tax rates
of the jurisdictions in which we operate((23)), as well as the inclusion of
the manganese business and Sierra Gorda in Underlying earnings on a
proportional consolidation basis (including royalty related taxes for
Australia Manganese and Sierra Gorda). The Underlying ETR for our manganese
business was 55.2% in H1 FY23, including royalty related tax((24)) and the
derecognition of certain deferred tax assets.
Underlying income tax expense reconciliation and Underlying ETR
US$M H1 FY23 H1 FY22
Underlying EBIT 922 1,514
Include: Underlying net finance costs (88) (62)
Remove: Share of (profit)/loss of EAI (7) -
Underlying profit before tax 827 1,452
Income tax expense 200 430
Tax effect of earnings adjustments to Underlying EBIT 1 2
Tax effect of earnings adjustments to Underlying net finance costs (1) (3)
Exchange rate variations on tax balances (5) (32)
Significant items (23) (26)
Sierra Gorda joint venture adjustment relating to income tax((21)) 6 -
Sierra Gorda joint venture adjustment relating to royalty related tax((21)) 4 -
Manganese joint venture adjustment relating to income tax((21)) 56 51
Manganese joint venture adjustment relating to royalty related tax((21)) 36 26
Total adjustments to derive Underlying income tax expense 74 18
Underlying income tax expense 274 448
Underlying ETR 33.1% 30.9%
CASH FLOW
The Group generated free cash flow from operations of US$67M (H1 FY22:
US$840M), which reflected higher capital expenditure on productivity,
improvement and growth projects (-US$162M), a build in working capital in the
period (-US$152M) and higher tax paid (-US$113M). The increase in tax payments
reflects the lagged impact of the prior period's record profitability and
one-off payments related to the acquisition of Sierra Gorda (US$111M). The
Sierra Gorda payments included ~€92M (~US$94M at the payment date) related
to pre-closing tax liabilities which we are seeking to recover from the
vendors.
We received a further US$60M in (net) distributions((25)) from our manganese
EAI in H1 FY23 (H1 FY22: US$102M), following the payment of income tax
(US$94M, 100% basis), and royalties at Australia Manganese (US$82M, 100%
basis). We did not receive a distribution from our Sierra Gorda EAI as the
operation invested in higher deferred stripping, tailings infrastructure and
the plant de-bottlenecking project to unlock future volumes.
The increase in working capital reflects a permanent increase related to the
restart of Brazil Aluminium, as well as higher inventory positions in our
aluminium value chain due to temporary shipping delays. We expect aluminium
value chain inventory positions to normalise over H2 FY23 as our teams
continue to implement logistics solutions focused on mitigating port
congestion.
Free cash flow from operations, excluding EAI
US$M H1 FY23 H1 FY22
Profit from operations 871 1,502
Non-cash or non-operating items 377 289
(Profit)/loss from EAI (241) (104)
Change in working capital (152) (333)
Cash generated from operations 855 1,354
Total capital expenditure, excluding EAI, including intangibles and (416) (254)
capitalised exploration
Cash generated from operations after capital expenditure 439 1,100
Net interest paid (25) (26)
Income tax paid (347) (234)
Free cash flow from operations 67 840
Working capital movement
US$M H1 FY23 Commentary
Trade and other receivables 88 Lower commodity prices, partly offset by a temporary increase in debtor days
(23 days, FY22: 21 days) and inclusive of an adjustment for the hedged foreign
currency loss associated with the H2 FY22 dividend payment (-US$49M) (nil
earnings and cash impact to the Group)
Inventories (134) Restart of Brazil Aluminium and temporary shipping delays in our aluminium
value chain
Trade and other payables (81) Timing of payments
Provisions and other liabilities (25) Revaluation of non-US dollar provisions
Total working capital movement (152)
Capital expenditure
The Group's capital expenditure((26)), excluding EAI, increased by US$162M to
US$416M in H1 FY23 as we increased our investment in productivity, improvement
and growth activities across our portfolio:
• Safe and reliable capital expenditure increased by US$61M to US$232M as we
invested in Illawarra Metallurgical Coal's transition to a more efficient
single longwall configuration at the Appin mine from FY25((17));
• Improvement and life extension capital expenditure was unchanged at US$24M as
we progressed productivity and decarbonisation projects across our portfolio;
• We directed US$96M to growth capital at Hermosa as we invested in critical
path dewatering infrastructure and advanced studies for both Taylor and Clark;
and
• Intangibles and capitalised exploration increased by US$47M to US$64M, with a
US$43M payment to the National Mining Agency of Colombia as part of the
15-year extension of Cerro Matoso's mining contract to 2044
Our share of capital expenditure for our EAIs increased by US$86M to US$131M
in H1 FY23:
• Capital expenditure for our manganese EAI was unchanged at US$43M as we
invested in additional tailings storage capacity and progressed study work for
the Eastern Leases mine life extension project at Australia Manganese; and
• Capital expenditure for our Sierra Gorda EAI was US$86M during the first full
half year of our ownership, with the operation investing in deferred
stripping, additional tailings storage infrastructure and the plant
de-bottlenecking project to unlock future volumes.
Capital expenditure (South32 share)((20)(26))
US$M H1 FY23 H1 FY22
Safe and reliable capital expenditure (232) (171)
Improvement and life extension capital expenditure (24) (24)
Growth capital expenditure (96) (42)
Intangibles and the capitalisation of exploration expenditure (64) (17)
Total capital expenditure (excluding EAI) (416) (254)
EAI capital expenditure (131) (45)
Total capital expenditure (including EAI) (547) (299)
BALANCE SHEET, DIVIDENDS AND CAPITAL MANAGEMENT
The Group finished the period with net debt of US$298M following the payment
of our record fully-franked ordinary and special dividends of US$784M in
respect of H2 FY22, and a further US$143M returned via our on-market share
buy-back during H1 FY23.
Our unchanged capital management framework supports investment in our business
and rewards shareholders as our financial performance improves. Consistent
with our dividend policy, the Board has resolved to pay a fully-franked
interim ordinary dividend of US 4.9 cents per share (US$224M) in respect of H1
FY23, representing 40% of Underlying earnings.
Reflecting the Group's modest net debt position, our confidence in the
business outlook and our approved capital return commitments, the Board has
today further expanded our capital management program by US$50M, leaving
US$158M to be returned by 1 September 2023.
Net cash/(debt)
US$M H1 FY23 FY22
Cash and cash equivalents 1,560 2,365
Lease liabilities (671) (650)
Other interest bearing liabilities (1,187) (1,177)
Net cash/(debt) (298) 538
Reflecting our strong balance sheet and continued disciplined approach to
capital allocation, our current BBB+/Baa1 credit ratings were re-affirmed by
S&P Global Ratings and Moody's, respectively. We also retain access to
significant liquidity, having successfully extended our undrawn
sustainability-linked revolving credit facility, with available capacity of
US$1.4B to December 2026 and US$1.2B to December 2027.
Dividends announced
Period Dividend per share US$M Franking Pay-out ratio
(US cents)
H1 FY21 1.4 67 100% 49%
H2 FY21 3.5 164 100% 46%
August 2021 special dividend 2.0 93 100% N/A
H1 FY22 8.7 405 100% 40%
H2 FY22 14.0 648 100% 41%
August 2022 special dividend 3.0 139 100% N/A
H1 FY23 4.9 224 100% 40%
South32 shareholders registered on the South African branch register will not
be able to dematerialise or rematerialise their shareholdings between 8 and 10
March 2023 (both dates inclusive), nor will transfers to/from the South
African branch register be permitted between 2 and 10 March 2023 (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 South African rand 3 March 2023
Last day to trade cum dividend on the Johannesburg Stock Exchange (JSE) 7 March 2023
Ex-dividend date on the JSE 8 March 2023
Ex-dividend date on the ASX and London Stock Exchange (LSE) 9 March 2023
Record date (including currency election date for ASX) 10 March 2023
Payment date 6 April 2023
outlook
PRODUCTION
We delivered a 12% increase in Group copper equivalent production in H1 FY23,
as we achieved strong production results including record half year output at
Australia Manganese and realised the benefit of recently completed
transactions that have further positioned our portfolio toward metals critical
for a low-carbon future.
We expect to deliver an additional 6% increase in Group copper equivalent
production in H2 FY23 following the completion of improvement projects in H1
FY23 and the continued ramp-up of the Brazil Aluminium smelter.
FY23 production guidance is unchanged and we have provided FY24 production
guidance for Sierra Gorda for the first time.
Production guidance (South32 share)((20))
FY22 H1 FY23 FY23e((a)) FY24e((a)) Key guidance assumptions
Worsley Alumina Guidance unchanged
Alumina production (kt) 3,991 1,922 4,000 4,000 Planned calciner maintenance completed in
Q1 FY23 and scheduled for Q3 FY23
Brazil Alumina (non-operated) Guidance unchanged
Alumina production (kt) 1,297 691 1,395 1,400 On-track to return to nameplate capacity and increase production by 8% in FY23
Brazil Aluminium (non-operated) Guidance unchanged
Aluminium production (kt) 0.3 23.7 75 148 Expected to complete ramp-up to nameplate capacity (179ktpa, 40% basis) in Q1
FY24
Hillside Aluminium((27)) Guidance unchanged (subject to load-shedding)
Aluminium production (kt) 714 362 720 720 Expected to test its maximum technical capacity
Mozal Aluminium((27)(28)) Guidance unchanged (subject to load-shedding)
Aluminium production (kt) 278 182 370 370 Expected to test its maximum technical capacity
Sierra Gorda (non-operated) FY23 copper equivalent guidance unchanged
Higher metal grades expected to offset lower planned throughput
FY24 guidance provided for the first time
Higher throughput expected to be offset by lower planned copper grades
Ore processed (Mt) 7.5 10.7 ↓ 21.4 21.8
Payable copper equivalent production (kt)((29)) 30.6 44.9 89.0 87.5
Payable copper production (kt) 25.3 37.9 71.8 67.0
Payable molybdenum production (kt) 0.4 0.4 1.5 2.5
Payable gold production (koz) 9.6 15.3 29.9 22.5
Payable silver production (koz) 253 338 582 550
Cannington Guidance unchanged
Ore processed (kdmt) 2,618 1,142 2,450 2,700 Labour availability constraints reflected in FY23 guidance
Payable zinc equivalent production (kt)((30)) 224.2 98.8 209.4 233.4
Payable silver production (koz) 12,946 5,474 12,000 13,500
Payable lead production (kt) 120.6 52.4 108.5 124.0
Payable zinc production (kt) 64.5 30.4 63.5 68.0
Cerro Matoso Guidance unchanged
Ore to kiln (kdmt) 2,703 1,392 2,850 2,850 Recently completed OSMOC project to support higher volumes
Payable nickel production (kt) 41.7 20.4 43.5 43.5
Illawarra Metallurgical Coal Guidance unchanged
Total coal production (kt) 6,509 3,331 7,000 5,300 Higher volumes expected in H2 FY23, following finalisation of a new industrial
agreement at Appin in Q2 FY23
Longwall move at Dendrobium scheduled to commence in Q3 FY23
Metallurgical coal production (kt) 5,712 2,753 6,000 4,600
Energy coal production (kt) 797 578 1,000 700
Australia Manganese Guidance unchanged
Manganese ore production (kwmt) 3,363 1,844 3,400 3,400 Tracking ahead of guidance, prior to wet season
South Africa Manganese Guidance unchanged (subject to demand)
Subject to demand
Manganese ore production (kwmt) 2,069 1,093 2,000 Continued use of higher cost trucking in response to market conditions
(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
H1 FY23 Operating unit costs were in-line with or below guidance for the
majority of our operations, as our focus on delivering stable operating
performance and cost efficiencies, combined with weaker producer currencies,
provided partial relief from industry-wide cost pressures. Hillside Aluminium
and Mozal Aluminium continued to test their technical capacity and recorded
sequentially lower costs in H1 FY23 despite global smelter raw material input
prices remaining elevated.
FY23 Operating unit cost guidance has been lowered or held largely unchanged
for the majority of our operations, reflecting our planned production growth,
as well as updated price and foreign exchange assumptions.
While Operating unit cost guidance is not provided for our aluminium smelters,
their cost profile will continue to be influenced by producer currencies, and
the price of raw material inputs and energy.
Operating unit cost((31))
H2 FY22 H1 FY23 FY23 prior guidance((a)) FY23 new guidance((b)) H1 FY23 to FY23 prior guidance commentary
FY23e((c)) new guidance to FY23 prior guidance commentary
Worsley Alumina
(US$/t) 274 288 296 287 H1 FY23: 3% below prior guidance as a weaker Australian dollar and lower
caustic soda costs, more than offset higher energy prices
FY23e new guidance: lowered by 3% with lower planned caustic soda consumption
and prices,
partly offset by higher energy prices
Brazil Alumina (non-operated)
(US$/t) 312 364 Not Not H1 FY23 to H2 FY22: increased by 17% with higher prices for caustic soda,
energy and bauxite, together with increased contractor costs
provided provided
H2 FY23e: cost profile will continue to be heavily influenced by the price of
raw material inputs and energy
Brazil Aluminium (non-operated)
(US$/t) - 5,876 Not Not H2 FY23e: cost profile will be heavily influenced by the ramp-up of all
three potlines, as well as the price of raw material inputs and energy
provided provided
Hillside Aluminium
(US$/t) 2,318 2,276 Not Not H1 FY23 to H2 FY22: decreased by 2% as a weaker South African rand more than
offset elevated prices for smelter raw material inputs and inflation-linked
provided provided indexation of energy costs
H2 FY23e: cost profile will continue to be heavily influenced by the South
African rand, and the price of raw material inputs
Mozal Aluminium
(US$/t) 2,429 2,237 Not Not H1 FY23 to H2 FY22: decreased by 8% as a weaker South African rand more than
offset elevated smelter raw material input prices
provided provided
H2 FY23e: cost profile will continue to be heavily influenced by the South
African rand, and the price of raw material inputs and energy
Sierra Gorda (non-operated)
(US$/t)((d)) 14.6 16.6 14.8 15.5 H1 FY23: 12% above prior guidance with higher coal price-linked energy costs
and lower ore processed
FY23e new guidance: increased by 5% with lower ore processed and higher energy
prices in H1 FY23, ahead of the transition to 100% renewable electricity
Cannington
(US$/t)((d)) 139 136 129 141 H1 FY23: 5% above prior guidance with a weaker Australian dollar and lower
price-linked royalties, more than offset by lower ore processed
FY23e new guidance: increased by 9% due to lower
ore processed
Cerro Matoso
(US$/lb) 4.56 4.93 4.97 4.99 H1 FY23: 1% below prior guidance as a weaker Colombian peso and lower
price-linked royalties, marginally offset lower volumes in H1 FY23
FY23e new guidance: largely unchanged with higher
price-linked royalties and consumable costs, mostly offset by a weaker
Colombian peso
Illawarra Metallurgical Coal
(US$/t) 129 124 116 119 H1 FY23: 7% above prior guidance as a weaker Australian dollar and lower
price-linked royalties, were more than offset by lower volumes
FY23e new guidance: increased by 3% reflecting the impact of lower volumes in
H1 FY23
Australia Manganese (FOB)
(US$/dmtu) 1.94 1.76 2.08 1.97 H1 FY23: 15% below prior guidance with higher volumes, a weaker Australian
dollar and lower
price-linked royalties
FY23e new guidance: lowered by 5% with lower price-linked royalties, partially
offset by higher contractor costs
South Africa Manganese (FOB)
(US$/dmtu) 2.83 2.67 2.66 2.62 H1 FY23: in-line with prior guidance as a weaker South African rand was
partially offset by our continued use of higher cost trucking
FY23e new guidance: lowered by 2% with a weaker South African rand and lower
price-linked royalties
(a) FY23 prior guidance included commodity price and foreign
exchange rate forward curves or our internal expectations (refer to footnote
32).
(b) FY23 new guidance includes commodity price and foreign
exchange rate forward curves or our internal expectations as at 2 February
2023 (refer to footnote 33).
(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 processed. Periodic movements in
finished product inventory may impact Operating unit costs.
Capital expenditure guidance
Group capital expenditure (including EAIs) has been revised down by US$105M
(or 8%) to US$1,140M in FY23, reflecting expected activity and timing of
vendor payments in H2 FY23 as we deliver our investments to support safe and
reliable operations, productivity and future growth in metals critical for a
low-carbon future.
FY23 guidance for growth capital expenditure at our Hermosa project has been
reduced by US$40M to US$250M as we successfully renegotiated commercial supply
agreements for long lead items. We expect to invest US$154M in H2 FY23 as we
continue to construct infrastructure to support critical path orebody
dewatering and advance study work for the Taylor and Clark deposits. At Clark,
we remain on-track for initial pilot plant production in mid CY23 to deliver
first qualification samples of battery-grade manganese to potential customers.
Regional exploration activity is also expected to increase as we continue
exploration programs at our Peake copper-lead-zinc-silver prospect((34)) and
commence drilling at our Flux prospect((35)), following the receipt of
approvals.
Group capitalised exploration (including EAIs) has been revised down to US$48M
(from US$63M) in FY23, reflecting expected activity in H2 FY23 focused on base
metals exploration programs at Hermosa, Sierra Gorda and our broader
portfolio.
Capital expenditure excluding exploration and intangibles (South32
share)((20))
US$M H1 FY23 FY23e((a))
Worsley Alumina 24 45
Brazil Alumina 29 50
Brazil Aluminium 6 10
Hillside Aluminium 9 30
Mozal Aluminium 9 17
Cannington 32 60
Cerro Matoso 17 40
Illawarra Metallurgical Coal 106 248
Safe and reliable capital expenditure (excluding EAI) 232 500
Worsley Alumina 10 44
Brazil Alumina 6 19
Cerro Matoso 3 4
Illawarra Metallurgical Coal 2 3
Other operations 3 15
Improvement and life extension capital expenditure (excluding EAI) 24 85
Hermosa 96 250
Growth capital expenditure 96 250
Total capital expenditure (excluding EAI) 352 835
Total capital expenditure (including EAI) 481 1,140
Capital expenditure for EAI excluding exploration and intangibles (South32
share)((20))
US$M H1 FY23 FY23e((a))
Sierra Gorda 65 165
Australia Manganese 25 50
South Africa Manganese 7 15
Safe and reliable capital expenditure (EAI) 97 230
Sierra Gorda 21 43
Australia Manganese 7 14
South Africa Manganese 4 18
Improvement and life extension capital expenditure (EAI) 32 75
Total capital expenditure (EAI) 129 305
Capitalised exploration (South32 share)((20))
US$M H1 FY23 FY23e((a))
Capitalised exploration (excluding EAI) 18 40
EAI capitalised exploration 2 8
Capitalised exploration (including EAI) 20 48
(a) The denotation (e) refers to an estimate or forecast year. All
guidance is subject to further potential impacts from COVID-19.
Other expenditure guidance
Our Group Underlying ETR is expected to reflect the corporate tax rates of the
jurisdictions in which we operate and our geographical earnings mix, including
our manganese and Sierra Gorda EAIs which are proportionally consolidated in
our Underlying results. All other expenditure guidance is provided in the
table below. All other expenditure items are presented on a proportional
consolidation basis including our manganese and Sierra Gorda EAIs.
Other expenditure guidance
H1 FY23 FY23e((a)) Commentary
Group and unallocated Underlying EBIT Guidance revised to US$40M (from US$100M)
(excluding greenfield exploration and third party product and services EBIT)
(US$M) (10) ↓ 40 H1 FY23 reflected the impact of inter-group inventory adjustments in our
aluminium value chain
Normalised run-rate expected in H2 FY23
Underlying depreciation and amortisation Guidance revised to US$900M (from US$935M)
(US$M) 442 ↓ 900 Reflects asset balances and useful life assumptions, including the Cerro
Matoso mining contract extension
Underlying net finance costs Guidance revised to US$150M (from US$135M)
(US$M) 88 ↑ 150 Reflects balance sheet position as at H1 FY23
Greenfield exploration Guidance revised to US$40M (from US$44M)
(US$M) 19 ↓ 40 Greenfield exploration activity targeting base metals in the Americas,
Australia and Europe in H2 FY23
(A) The denotation (e) refers to an
estimate or forecast year. All guidance is subject to further potential
impacts from COVID-19.
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
Underlying revenue less Underlying EBITDA excluding third party sales divided
by sales volumes; Operating cost is Underlying revenue less Underlying EBITDA
excluding third party sales; and Realised sales price is calculated as
Underlying revenue excluding third party sales divided by sales volume.
Operations table (South32 share)((20))
Underlying revenue Underlying EBIT
US$M H1 FY23 H1 FY22 H1 FY23 H1 FY22
Worsley Alumina 659 757 33 168
Brazil Alumina 247 242 (19) 49
Brazil Aluminium 47 - (70) (1)
Hillside Aluminium 861 992 62 311
Mozal Aluminium 482 371 65 110
Sierra Gorda 357 - 107 -
Cannington 272 378 82 162
Hermosa - - (9) (7)
Cerro Matoso 395 372 154 158
Illawarra Metallurgical Coal 801 912 340 458
Australia Manganese 355 385 149 162
South Africa Manganese 175 191 25 19
Third party products and services((36)) 249 278 12 13
Inter-segment / Group and unallocated (376) (373) (9) (88)
South32 Group 4,524 4,505 922 1,514
Worsley alumina
(86% share)
Volumes
Worsley Alumina saleable production decreased by 3% (or 57kt) to 1,922kt in H1
FY23, with planned calciner maintenance completed in Q1 FY23. The refinery
operated above nameplate capacity (4.6Mtpa,100% basis) in Q2 FY23 with the
operation successfully mitigating short-term energy supply challenges. FY23
production guidance remains unchanged at 4,000kt, with the refinery expected
to operate at nameplate capacity following scheduled calciner maintenance in
Q3 FY23.
Operating costs
Operating unit costs increased by 13%, to US$288/t, 3% below prior FY23
guidance, as the benefit of a weaker Australian dollar was more than offset by
higher prices for caustic soda (H1 FY23: US$714/t, H1 FY22: US$474/t) and
energy.
We have revised our FY23 Operating unit cost guidance to US$287/t (previously
US$296/t) reflecting lower planned caustic soda consumption (101kg/t,
previously 106kg/t) and prices (US$709/t, previously US$742/t), partly offset
by higher energy prices. Exchange rate and price assumptions for FY23
Operating unit cost guidance are detailed in footnote 33.
Financial performance
Underlying EBIT decreased by 80% (or US$135M) to US$33M in H1 FY23, as a 9%
decrease in the average realised price of alumina (-US$65M), higher prices for
caustic soda (-US$50M) and coal (-US$9M), together with lower sales volumes
(-US$33M) as a shipment was delayed to Q3 FY23, more than offset the benefit
of a weaker Australian dollar (+US$29M).
Capital expenditure
Safe and reliable capital expenditure increased by US$4M to US$24M in H1 FY23
and is expected to be US$45M in FY23 as we continue our investment in
additional bauxite residue disposal capacity.
Improvement and life extension capital expenditure was US$10M in H1 FY23. We
expect to spend US$44M in FY23 as we advance decarbonisation projects at the
refinery and work to access new bauxite mining areas.
We expect to convert the first onsite boiler from coal to natural gas in mid
CY23, at an estimated capital cost of ~US$10M, in-line with the refinery's
planned energy transition.
South32 share H1 FY23 H1 FY22
Alumina production (kt) 1,922 1,979
Alumina sales (kt) 1,861 1,946
Realised sales price (US$/t) 354 389
Operating unit cost (US$/t) 288 256
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue 659 757
Underlying EBITDA 123 259
Underlying EBIT 33 168
Net operating assets((a)) 2,495 2,571
Capital expenditure 34 24
Safe and reliable 24 20
Improvement and life extension 10 4
(a) H1 FY22 reflects the balance as at 30 June 2022.
BRAZIL ALUMINA
(36% SHARE)
Volumes
Brazil Alumina saleable production increased by 10% (or 60kt) to 691kt in H1
FY23, as the refinery operated at nameplate capacity (3.86Mtpa, 100% basis),
following the bauxite ship unloader outage in the prior period. FY23
production guidance remains unchanged at 1,395kt.
Operating costs
Operating unit costs increased by 39%, to US$364/t in H1 FY23, due to a
significant rise in uncontrollable costs with caustic soda prices in North
American markets (H1 FY23: US$728/t, H1 FY22: US$307/t), coal-linked energy
prices and bauxite costs linked to alumina and aluminium prices on a trailing
basis.
While Operating unit cost guidance is not provided for this non-operated
facility, the refinery will continue to be influenced by energy and raw
material input prices, including caustic soda and bauxite.
Financial performance
Underlying EBIT decreased by US$68M to a loss of US$19M in H1 FY23, as higher
sales volumes (+US$19M) were more than offset by a 6% reduction in the average
realised price of alumina (-US$14M) and higher prices for caustic soda
(-US$27M), energy (-US$24M) and bauxite (-US$12M).
Capital expenditure
Safe and reliable capital expenditure decreased by US$2M to US$29M in H1 FY23.
We expect to spend US$50M in FY23 as we continue our investment in additional
bauxite residue disposal capacity.
Improvement and life extension capital expenditure was US$6M in H1 FY23 and is
expected to be US$19M in FY23 as we progress work on the refinery's
De-bottlenecking Phase Two project. The project is expected to increase
nameplate production capacity by approximately 4% to ~4.0Mt (100% basis) from
H1 FY26, with anticipated capital expenditure of ~US$40M (South32 share)
between FY23 and FY25.
South32 share H1 FY23((a)) H1 FY22
Alumina production (kt) 691 631
Alumina sales (kt) 678 626
Realised sales price (US$/t) 364 387
Operating unit cost (US$/t)((b)) 364 262
South32 share (US$M) H1 FY23((a)) H1 FY22
Underlying revenue 247 242
Underlying EBITDA 7 78
Underlying EBIT (19) 49
Net operating assets((c)) 702 696
Capital expenditure 35 31
Safe and reliable 29 31
Improvement and life extension 6 -
(a) The increase in ownership in MRN has triggered a change in
accounting treatment with the investment accounted for using the equity method
(formerly classified as an investment in an equity instrument designated as
fair value through other comprehensive income).
(b) Excludes the profit from our equity interest in MRN.
(c) H1 FY22 reflects the balance as at 30 June 2022.
BRAZIL ALUMINIUM
(40% SHARE)
Volumes
Brazil Aluminium saleable production was 23.7kt in H1 FY23, following the
successful restart of the smelter in late FY22. Production increased by 86%
(or 7.1kt) in Q2 FY23 as potlines one and two continued to ramp-up and potline
three was restarted in November 2022.
The smelter is expected to reach nameplate capacity (179ktpa, 40% basis) in Q1
FY24, with guidance for FY23 and FY24 set at 75kt and 148kt, respectively.
Operating costs
Brazil Aluminium recorded gross operating costs of US$114M in H1 FY23 as the
smelter continued to ramp-up to nameplate capacity.
While Operating unit cost guidance is not provided for this non-operated
facility, the cost profile of the smelter will be influenced by the ramp-up
profile for all three potlines and the price of future raw material inputs
which remain elevated across the industry.
Once at nameplate capacity we expect the smelter to be in the second quartile
of the global aluminium cost curve, with our share of energy requirements
secured under long-term, cost efficient, 100% renewable power contracts. Our
alumina supply is sourced from the co-located Brazil Alumina refinery with
prices linked to the Platts index on a M-1 basis.
Financial performance
Underlying EBIT was a loss of US$70M in H1 FY23, as first sales revenue
(+US$47M) was more than offset by costs to support the smelter's restart and
the ramp-up of all three potlines (-US$114M).
Capital expenditure
Capital expenditure was US$6M in H1 FY23 and is expected to be US$10M in FY23.
South32 share H1 FY23 H1 FY22
Aluminium production (kt) 23.7 -
Aluminium sales (kt) 19.4 -
Realised sales price (US$/t) 2,423 -
Operating unit cost (US$/t) 5,876 -
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue 47 -
Underlying EBITDA (67) (1)
Underlying EBIT (70) (1)
Net operating assets((a)) 65 46
Capital expenditure 6 -
Safe and reliable 6 -
Improvement and life extension - -
(a) H1 FY22 reflects the balance as at 30 June 2022.
hillside aluminium
(100% SHARE)
Volumes
Hillside Aluminium saleable production increased by 1% (or 4kt) to 362kt in H1
FY23 as the smelter continued to test its maximum technical capacity despite
the impact of elevated load-shedding. FY23 production guidance is unchanged at
720kt((27)).
Operating costs
H1 FY23 Operating unit costs of US$2,276/t represented an increase of 18%
compared to H1 FY22, but were sequentially lower than H2 FY22 (US$2,318/t) as
the benefit of a weaker South African rand more than offset elevated raw
material input prices and inflation-linked indexation of energy costs.
While Operating unit cost guidance is not provided, the cost profile of the
smelter will continue to be heavily influenced by the price of raw material
inputs, including alumina supplied by our Worsley Alumina refinery with prices
linked to the PAX on a M-1 basis, and other external factors including the
South African rand and inflation-linked energy costs.
Financial performance
Underlying EBIT decreased by 80% (or US$249M) to US$62M in H1 FY23, as a 13%
reduction in the average realised price of aluminium (-US$134M), the lagged
impact of consuming higher priced alumina inventory (-US$26M), higher prices
for other smelter raw material inputs (-US$58M) and energy (-US$30M), more
than offset the benefit of a weaker South African rand (+US$48M).
64 pots were relined utilising the AP3XLE energy efficiency technology in H1
FY23 at a cost of US$266k per pot (H1 FY22: 70 pots at US$259k per pot), with
a total of 94 pots scheduled to be relined during FY23.
Capital expenditure
Capital expenditure was unchanged at US$10M in H1 FY23. We expect to spend
US$30M in FY23 with planned investment in a replacement trucking fleet for the
transportation of liquid hot metal and the continued roll-out of the AP3XLE
technology to improve energy efficiency.
South32 share H1 FY23 H1 FY22
Aluminium production (kt) 362 358
Aluminium sales (kt) 337 336
Realised sales price (US$/t) 2,555 2,952
Operating unit cost (US$/t) 2,276 1,935
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue 861 992
Underlying EBITDA 94 342
Underlying EBIT 62 311
Net operating assets((a)) 919 927
Capital expenditure 10 10
Safe and reliable 9 10
Improvement and life extension 1 -
(a) H1 FY22 reflects the balance as at 30 June 2022.
Mozal aluminium
(63.7% SHARE)((28))
Volumes
Mozal Aluminium saleable production increased by 34% (or 46kt) to 182kt in H1
FY23, reflecting our increased ownership of the smelter.
FY23 production guidance remains unchanged at 370kt((27)), with the smelter
having restored full production following a temporary suspension after the
fatal incident in November 2022.
Operating costs
H1 FY23 Operating unit costs of US$2,237/t represented an increase of 11%
compared to H1 FY22, but were sequentially lower than H2 FY22 (US$2,429/t) as
the benefit of a weaker South African rand offset elevated raw material input
prices.
While Operating unit cost guidance is not provided, the cost profile of the
smelter will continue to be heavily influenced by the price of raw material
inputs, including the price of alumina supplied by our Worsley Alumina
refinery, and other external factors including the South African rand and
inflation-linked energy costs.
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 a M-1 basis, with caps and floors embedded
within specific contracts that reset each calendar year.
Financial performance
Underlying EBIT decreased by 41% (or US$45M) in H1 FY23 to US$65M, as a 10%
decrease in the average realised price for aluminium (-US$44M) and higher raw
material input prices (-US$23M), more than offset the benefit of our increased
ownership of the smelter (+US$17M).
32((37)) pots were relined utilising the AP3XLE energy efficiency technology
in H1 FY23, which was below plan due to the temporary suspension of operations
following the fatal incident in November 2022 (cost of US$288k per pot, H1
FY22: US$245k per pot). Notwithstanding, we expect to complete the scheduled
pot relining activity (106((37)) pots) during FY23.
Capital expenditure
Capital expenditure increased by US$3M to US$9M in H1 FY23 and is expected to
be US$19M in FY23 as we invest in plant refurbishment and continue the
roll-out of the AP3XLE technology, which is on-track to be completed in FY24.
South32 share H1 FY23((a)) H1 FY22
Aluminium production (kt) 182 136
Aluminium sales (kt) 177 122
Realised sales price (US$/t) 2,723 3,041
Operating unit cost (US$/t) 2,237 2,008
South32 share (US$M) H1 FY23((a)) H1 FY22
Underlying revenue 482 371
Underlying EBITDA 86 126
Underlying EBIT 65 110
Net operating assets((b)) 598 615
Capital expenditure 9 6
Safe and reliable 9 5
Improvement and life extension - 1
(a) Our underlying results reflect the completion of our acquisition
of an additional 16.6% shareholding in the smelter on 31 May 2022, taking our
ownership to 63.7%. Prior period numbers have not been restated for this
change in ownership (presented on a 47.1% basis).
(b) H1 FY22 reflects the balance as at 30 June 2022.
SIERRA GORDA
(45% SHARE)
Volumes
Sierra Gorda payable copper equivalent production((29)) was 44.9kt in H1
FY23. FY23 guidance of 89.0kt payable copper equivalent production((29))
(copper 71.8kt, molybdenum 1.5kt, gold 29.9koz and silver 582koz) reflects
expected plant throughput of 21.4Mt (45% basis), an average copper grade of
~0.42% (H1 FY23: 0.45%) and higher molybdenum output in H2 FY23.
FY24 guidance of 87.5kt payable copper equivalent production((29)) (copper
67.0kt, molybdenum 2.5kt, gold 22.5koz and silver 550koz) reflects an expected
increase in plant throughput to 21.8Mt (45% basis), offset by a planned
reduction in copper grade to ~0.38% in accordance with the mine plan.
Operating costs
Operating unit costs were US$16.6/t ore processed in H1 FY23, 12% above prior
FY23 guidance, due to higher coal price-linked energy costs and lower mill
throughput reflecting our previously revised expectations for the plant
de-bottlenecking project.
We have revised our FY23 Operating unit cost guidance to US$15.5/t (previously
US$14.8/t) reflecting sequentially lower Operating unit costs in H2 FY23,
benefitting from the transition to cost efficient, 100% renewable electricity
from January 2023. Exchange rate and price assumptions for FY23 Operating unit
cost guidance are detailed in footnote 33.
Financial performance
Underlying EBIT was US$107M (for an Underlying EBIT margin of 30%) in H1 FY23,
as we recorded Underlying revenue of US$357M at an average realised copper
price of US$3.41/lb.
Capital expenditure
Safe and reliable capital expenditure was US$65M in H1 FY23. FY23 guidance has
been lowered by US$40M to US$165M to reflect expected deferred stripping
activity and the timing of investment in additional tailings storage capacity.
Improvement and life extension capital expenditure was US$21M in H1 FY23 as
work progressed on the plant de-bottlenecking project. We expect to spend
US$43M in FY23 as planned de-bottlenecking work is completed.
Separately, feasibility study work continued on a potential fourth grinding
line, designed to sustainably lift plant throughput above 50Mtpa (100% basis).
The feasibility study is now expected to be completed in H1 FY24.
South32 share H1 FY23 H1 FY22
Ore mined (Mt) 15.4 -
Ore processed (Mt) 10.7 -
Ore grade processed (%, Cu) 0.45 -
Payable copper equivalent production (kt)((29)) 44.9 -
Payable copper production (kt) 37.9 -
Payable molybdenum production (kt) 0.4 -
Payable gold production (koz) 15.3 -
Payable silver production (koz) 338 -
Payable copper sales (kt) 38.4 -
Payable molybdenum sales (kt) 0.8 -
Payable gold sales (koz) 15.4 -
Payable silver sales (koz) 345 -
Realised copper sales price (US$/lb) 3.41 -
Realised molybdenum sales price (US$/lb) 20.78 -
Realised gold sales price (US$/oz) 1,688 -
Realised silver sales price (US$/oz) 17.4 -
Operating unit cost 16.6 -
(US$/t ore processed)((38))
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue 357 -
Underlying EBITDA 179 -
Underlying EBIT 107 -
Net operating assets((a)) 1,517 1,402
Capital expenditure 86 -
Safe and reliable 65 -
Improvement and life extension 21 -
Exploration expenditure 3 -
Exploration expensed 2 -
(a) H1 FY22 reflects the balance as at 30 June 2022.
CANNINGTON
(100% SHARE)
Volumes
Cannington payable zinc equivalent production((30)) decreased by 13% (or
15.2kt) to 98.8kt in H1 FY23 as mill throughput was below plan due to lower
than expected performance of temporary mobile crushers deployed to support the
operation's transition to 100% truck haulage. Ore mined volumes also declined
with lower mining rates due to skilled labour shortages and COVID-19
absenteeism.
Labour availability challenges are expected to impact mining rates over the
remainder of FY23, and are reflected in our production guidance of 209.4kt
payable zinc equivalent((30)) (ore processed 2,450kdmt, silver 12,000koz,
lead 108.5kt and zinc 63.5kt).
Operating costs
Operating unit costs increased by 6%, to US$136/t in H1 FY23, 5% above prior
FY23 guidance, as a weaker Australian dollar and lower price-linked royalties
were more than offset by the impact of fixed costs on the mill's reduced
throughput.
We have revised our FY23 Operating unit cost guidance to US$141/t (previously
US$129/t) reflecting the volume impact of reduced mill throughput over the
year. Exchange rate and price assumptions for FY23 Operating unit cost
guidance are detailed in footnote 33.
Financial performance
Underlying EBIT decreased by 49% (or US$80M) to US$82M in H1 FY23, as lower
prices for zinc, lead and silver (-US$29M) and a decline in sales volumes as a
result of reduced throughput (-US$77M), more than offset the benefit of a
weaker Australian dollar (+US$12M) and lower price-linked royalties (+US$6M).
Capital expenditure
Capital expenditure increased by US$16M to US$33M in H1 FY23 and is expected
to be US$62M in FY23 as we complete planned upgrades to water and ventilation
infrastructure and install additional tailings storage capacity.
South32 share H1 FY23 H1 FY22
Ore mined (kwmt) 1,123 1,475
Ore processed (kdmt) 1,142 1,385
Ore grade processed (g/t, Ag) 175 177
Ore grade processed (%, Pb) 5.5 5.2
Ore grade processed (%, Zn) 3.6 3.4
Payable zinc equivalent production (kt)((30)) 98.8 114.0
Payable silver production (koz) 5,474 6,710
Payable lead production (kt) 52.4 60.2
Payable zinc production (kt) 30.4 32.7
Payable silver sales (koz) 5,083 6,718
Payable lead sales (kt) 51.3 63.3
Payable zinc sales (kt) 27.5 32.8
Realised silver sales price (US$/oz) 20.1 21.0
Realised lead sales price (US$/t) 2,008 2,180
Realised zinc sales price (US$/t) 2,436 2,988
Operating unit cost 136 128
(US$/t ore processed)((38))
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue 272 378
Underlying EBITDA 117 201
Underlying EBIT 82 162
Net operating assets((a)) 188 141
Capital expenditure 33 17
Safe and reliable 32 17
Improvement and life extension 1 -
Exploration expenditure 3 2
Exploration expensed 3 1
(a) H1 FY22 reflects the balance as at 30 June 2022.
cerro matoso
(99.9% SHARE)
Volumes
Cerro Matoso payable nickel production was largely unchanged at 20.4kt in H1
FY23. Production improved by 13% (or 1.2kt) in Q2 FY23 as mill throughput
returned to normalised rates following the completion of a planned shut, while
the OSMOC project was also successfully commissioned.
FY23 production guidance remains unchanged at 43.5kt, with the OSMOC project
expected to support higher production volumes in H2 FY23.
Operating costs
Operating unit costs increased by 20%, to US$4.93/lb in H1 FY23, in-line with
prior FY23 guidance, as the benefit of a weaker Colombian peso was more than
offset by higher price-linked royalties and energy prices.
FY23 Operating unit cost guidance is largely unchanged at US$4.99/t
(previously US$4.97/lb) reflecting higher price-linked royalties and
consumable costs, partially offset by the benefit of a weaker Colombian peso.
Exchange rate and price assumptions for FY23 Operating unit cost guidance
are detailedin footnote 33.
Financial performance
Underlying EBIT was largely unchanged at US$154M despite the planned shut in
H1 FY23 (-US$5M), as an 8% increase in average realised nickel prices
(+US$30M) and a weaker Colombian peso (+US$23M), was partially offset by
higher price-linked royalties (-US$14M), energy prices (-US$7M) and local
inflationary pressures (-US$12M).
Capital expenditure
Safe and reliable capital expenditure increased by US$11M to US$17M in H1 FY23
as we progressed planned furnace upgrades. We expect to spend US$40M in FY23
as we complete this work and invest in a new mobile fleet.
Improvement and life extension capital expenditure was lower, at US$3M in H1
FY23, as we successfully commissioned the OSMOC project which underpinned a
15-year extension to the mining contract to 2044.
South32 share H1 FY23 H1 FY22
Ore mined (kwmt) 2,752 2,416
Ore processed (kdmt) 1,392 1,335
Ore grade processed (%, Ni) 1.64 1.73
Payable nickel production (kt) 20.4 20.3
Payable nickel sales (kt) 19.8 20.1
Realised sales price (US$/lb)((39)) 9.05 8.39
Operating unit cost (US$/lb) 4.93 4.11
Operating unit cost (US$/t)((40)) 154 136
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue 395 372
Underlying EBITDA 180 190
Underlying EBIT 154 158
Net operating assets((a)) 432 349
Capital expenditure 20 14
Safe and reliable 17 6
Improvement and life extension 3 8
(a) H1 FY22 reflects the balance as at 30 June 2022.
ILLAWARRA METALLURGICAL COAL
(100% SHARE)
Volumes
Illawarra Metallurgical Coal saleable production increased by 6% (or 186kt) to
3,331kt in H1 FY23. Metallurgical coal production increased by 17% in Q2 FY23,
benefitting from improved labour productivity following the conclusion of a
new, four-year, industrial employment agreement at our Appin mine.
Volumes are expected to increase further in H2 FY23 and FY23 production
guidance remains unchanged at 7.0Mt, with a longwall move at our Dendrobium
mine scheduled to commence Q3 FY23.
Operating costs
Operating unit costs increased by 1%, to US$124/t in H1 FY23, 7% above prior
FY23 guidance, as the benefit of a weaker Australian dollar and largely
unchanged volume was more than offset by higher local energy costs.
We have revised our FY23 Operating unit cost guidance to US$119/t (previously
US$116/t), reflecting sequentially lower Operating unit costs in H2 FY23,
benefitting from higher planned production volumes. Exchange rate and price
assumptions for FY23 Operating unit cost guidance are detailedin footnote 33.
Financial performance
Underlying EBIT decreased by 26% (or US$118M) to US$340M in H1 FY23, as a 12%
decrease in the average realised price of metallurgical coal (-US$90M) and
lower sales volumes (-US$49M) due to the temporary impact of protected
industrial action, more than offset higher average realised prices for energy
coal (+US$28M) and a weaker Australian dollar (+US$27M).
Capital expenditure
Safe and reliable capital expenditure increased by US$24M to US$106M in H1
FY23. We expect to invest US$248M in FY23 as we continue activity to support
the transition to a more efficient single longwall configuration at Appin from
FY25, and begin installing additional ventilation capacity to enable mining in
the current Area 7 until at least 2039((17)).
Improvement and life extension capital expenditure decreased by US$4M to US$2M
in H1 FY23 as we ceased work on the DND project, electing to focus on
optimising Dendrobium within approved domains.
South32 share H1 FY23 H1 FY22
Metallurgical coal production (kt) 2,753 2,767
Energy coal production (kt) 578 378
Metallurgical coal sales (kt)((41)) 2,678 2,877
Energy coal sales (kt)((41)) 507 378
Realised metallurgical coal sales price (US$/t) 268 303
Realised energy coal sales price (US$/t) 164 108
Operating unit cost (US$/t) 124 123
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue((42)) 801 912
Underlying EBITDA 407 512
Underlying EBIT 340 458
Net operating assets((a)) 722 786
Capital expenditure 108 88
Safe and reliable 106 82
Improvement and life extension 2 6
Exploration expenditure 8 5
Exploration expensed 4 5
(a) H1 FY22 reflects the balance as at 30 June 2022.
AUSTRALIA MANGANESE
(60% SHARE)
Volumes
Australia Manganese saleable production increased by 8% (or 140kwmt) to a
record of 1,844kwmt in H1 FY23 as improved yields supported higher primary
concentrator output. Separately, our low-cost PC02 circuit continued to
operate above its design capacity, delivering approximately 10% of production
(FY22: 11%).
FY23 production guidance remains unchanged at 3,400kwmt, with production
volumes tracking ahead of guidance prior to the commencement of the wet
season.
Operating costs
Operating unit costs decreased by 2%, to US$1.76/dmtu in H1 FY23, 15% below
prior FY23 guidance, as the operation built mining stocks ahead of the wet
season and the benefit of a weaker Australian dollar, more than offset higher
diesel prices and contractor costs.
We have revised our FY23 Operating unit cost guidance to US$1.97/t (previously
US$2.08/dmtu) with lower price-linked royalties, partially offset by higher
contractor costs. Exchange rate and price assumptions for FY23 Operating unit
cost guidance are detailedin footnote 33.
Financial performance
Underlying EBIT decreased by 8% (or US$13M) to US$149M in H1 FY23, as lower
average realised manganese prices and sales volumes (-US$30M), combined with
higher diesel prices (-US$12M), more than offset the benefit of a weaker
Australian dollar (+US$12M) and lower freight rates (+US$12M) as global
shipping markets normalised.
Capital expenditure
Safe and reliable capital expenditure decreased by US$7M to US$25M in H1 FY23.
We expect to spend US$50M in FY23 as we invest in road infrastructure and
additional tailings storage capacity.
Improvement and life extension capital expenditure increased by US$5M to US$7M
in H1 FY23 and is expected to be US$14M in FY23 as we complete final
feasibility study work for the Eastern Leases mine life extension project. A
final investment decision for the project is now expected in H2 FY23.
South32 share H1 FY23 H1 FY22
Manganese ore production (kwmt) 1,844 1,704
Manganese ore sales (kwmt) 1,652 1,737
Realised external manganese ore sales price (US$/dmtu, FOB)((43)(44)) 4.57 4.59
Ore operating unit cost (US$/dmtu, FOB)((44)(45)) 1.76 1.79
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue 355 385
Underlying EBITDA 197 206
Underlying EBIT 149 162
Net operating assets((a)) 258 258
Capital expenditure 32 34
Safe and reliable 25 32
Improvement and life extension 7 2
Exploration expenditure 1 1
Exploration expensed - -
(a) H1 FY22 reflects the balance as at 30 June 2022.
south africa manganese
(ORE 54.6% SHARE, ALLOY 60% SHARE)
Volumes
South Africa Manganese saleable production increased by 4% (or 40kwmt) to
1,093kwmt in H1 FY23, as improved mining performance was partially offset by
planned maintenance completed in Q2 FY23.
FY23 production guidance remains unchanged at 2,000kwmt, subject to our
continued use of higher cost trucking in responses to market conditions.
Operating costs
Operating unit costs were largely unchanged at US$2.67/dmtu in H1 FY23,
in-line with prior FY23 guidance, as a weaker South African rand was more than
offset by lower sales volumes due to a temporary reduction in third-party rail
and port availability.
We have revised our FY23 Operating unit cost guidance to US$2.62/dmtu
(previously US$2.66/dmtu) with the benefit of a weaker South African rand and
lower price-linked royalties. Exchange rate and price assumptions for FY23
Operating unit cost guidance are detailed in footnote 33.
Financial performance
Underlying EBIT increased by 32% (or US$6M) to US$25M in H1 FY23, as a weaker
South African rand (+US$15M) and lower freight rates (+US$11M), more than
offset the impact of reduced sales volumes (-US$10M) and local inflationary
impacts (-US$6M).
Capital expenditure
Safe and reliable capital expenditure decreased by US$1M to US$7M in H1 FY23
and is expected to be US$15M in FY23 as we replace mobile fleet and equipment.
Improvement and life extension capital expenditure was US$4M in H1 FY23. We
expect to invest US$18M in FY23 as we unlock value by accessing new mining
areas and upgrading our rail infrastructure to maximise flexibility in our
logistics.
South32 share H1 FY23 H1 FY22
Manganese ore production (kwmt) 1,093 1,053
Manganese ore sales (kwmt) 1,032 1,094
Realised external manganese ore sales price (US$/dmtu, FOB)((43)(46)) 3.57 3.47
Ore operating unit cost (US$/dmtu, FOB) ((45)(46)) 2.67 2.63
South32 share (US$M) H1 FY23 H1 FY22
Underlying revenue 175 191
Manganese ore 175 191
Manganese alloy - -
Underlying EBITDA 35 29
Manganese ore 36 34
Manganese alloy (1) (5)
Underlying EBIT 25 19
Manganese ore 26 24
Manganese alloy (1) (5)
Net operating assets/(liabilities)((a)) 124 135
Manganese ore 197 211
Manganese alloy (73) (76)
Capital expenditure 11 10
Safe and reliable 7 8
Improvement and life extension 4 2
Exploration expenditure 1 1
Exploration expensed 1 1
(a) H1 FY22 reflects the balance as at 30 June 2022.
notes
(1) Net tangible assets as at 31 December 2022 includes all
right-of-use assets and lease liabilities, in accordance with AASB 16 Leases.
(2) H1 FY23 basic earnings per share is calculated as
Profit/(loss) after tax divided by the weighted average number of shares for
H1 FY23 (4,596 million). H1 FY23 basic Underlying earnings per share is
calculated as Underlying earnings divided by the weighted average number of
shares for H1 FY23. 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.
(3) H1 FY23 ordinary dividends per share is calculated as H1 FY23
ordinary dividend announced (US$224M) divided by the number of shares on issue
at 31 December 2022 (4,572 million).
(4) Underlying revenue includes revenue from third party products
and services. To align with the current period's presentation, H1 FY22
Underlying revenue has been reclassified to reflect an elimination of revenue
(-US$97M) and corresponding expenses (+US$97M) on proportional consolidation,
relating to freight services provided by the Group to our joint ventures. The
reclassification results in a net nil impact to Underlying EBITDA, Underlying
EBIT and Underlying earnings.
(5) 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
(income)/costs, tax and any earnings adjustments, including impairments.
Underlying EBITDA is Underlying EBIT before underlying depreciation and
amortisation. Underlying earnings is Profit 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,
contingent consideration and other investments measured at fair value through
profit or loss;
· Major corporate restructures;
· Joint venture adjustments;
· Exchange rate variations on net debt;
· Tax effect of earnings adjustments; and
· Exchange rate variations on tax balances
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.
(6) Comprises Underlying EBITDA excluding third party product
EBITDA, divided by Underlying revenue excluding third party product revenue.
Also referred to as operating margin.
(7) Comprises Underlying EBIT excluding third party product EBIT,
divided by Underlying revenue excluding third party product revenue.
(8) Return on invested capital (ROIC) is a key measure that
South32 uses to assess performance. ROIC is calculated as Underlying EBIT less
the discount on rehabilitation provisions included in net finance costs, tax
effected by the Group's Underlying effective tax rate (ETR) including our
material equity accounted investments on a proportional consolidation basis,
divided by the sum of fixed assets (excluding any rehabilitation assets, the
impairment reversal of Brazil Aluminium, and unproductive capital associated
with Growth and Life Extension projects) and inventories.
(9) To ensure that incident classification definitions are applied
uniformly across our workforce, we have adopted the United States Government
Occupational Safety and Health Administration (OSHA) and the International
Council on Mining and Metals (ICMM) guidelines for the recording and reporting
of occupational injuries and illnesses.
(10) 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.
(11) Group payable copper equivalent production calculated by applying
H1 FY23 production volumes and FY22 realised prices for all operations (except
for Brazil Aluminium which is based on FY22 average index prices for
aluminium). The 12% increase in H1 FY23 Group payable copper equivalent
production is calculated relative to H1 FY22 production volumes and FY22
realised prices for all operations (except for Brazil Aluminium which is based
on FY22 average index prices for aluminium).
(12) Refers to aluminium produced using renewable power.
(13) Group payable copper equivalent production calculated by applying
H2 FY23e production volumes and FY22 realised prices for all operations
(except for Brazil Aluminium which is based on FY22 average index prices for
aluminium). The 6% increase in H2 FY23e Group payable copper equivalent
production is calculated relative to H1 FY23 production volumes and FY22
realised prices for all operations (except for Brazil Aluminium which is based
on FY22 average index prices for aluminium).
(14) Since inception, US$1.6B has been allocated to the on-market share
buy-back (752M shares at an average price of A$3.00 per share) and US$525M
returned in the form of special dividends.
(15) Refer to market release "South32 unlocks up to US$200M in value
from non-core royalty sale" dated 12 July 2022.
(16) Goal is defined as an aspiration to deliver an outcome for which we
have not identified a pathway for delivery, but for which efforts will be
pursued towards achieving that outcome, subject to certain assumptions or
conditions. Target is defined as an intended outcome in relation to which we
have identified one or more pathways for delivery of that outcome, subject to
certain assumptions or conditions.
(17) Refer to market release "Dendrobium Next Domain Update" dated 23
August 2022 (market release). The information in the market release that
refers to the Production Target and forecast financial information for the
Appin mine at Illawarra Metallurgical Coal is based on Proved (14%) and
Probable (86%) Coal Reserves from Bulli. The Coal Reserves estimates
underpinning the Production Target have been prepared by M Rose (Competent
Person) and reported in accordance with the JORC Code. The Coal Reserves
estimates are available to view in South32's FY22 Annual Report
(http://www.south32.net) published on 9 September 2022. 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.
(18) 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.
(19) Underlying net finance costs and Underlying income tax expense are
actual H1 FY23 results, not half-on-half variances.
(20) South32's ownership shares of operations are presented as follows:
Worsley Alumina (86% share), Brazil Alumina (36% share), Brazil Aluminium (40%
share), Hillside Aluminium (100%), Mozal Aluminium (63.7% share), Sierra Gorda
(45% share), Cannington (100%), Hermosa (100%), Cerro Matoso (99.9% share),
Illawarra Metallurgical Coal (100%), Australia Manganese (60% share), South
Africa Manganese ore (54.6% share) and South Africa Manganese alloy (60%
share).
(21) 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
proportional consolidation to the equity accounting position included in the
Group's consolidated financial statements.
(22) Underlying ETR is Underlying income tax expense, including royalty
related tax, divided by Underlying profit subject to tax.
(23) The corporate tax rates of the geographies where the Group operates
include: Australia 30%, South Africa 27%, Colombia 35%, Mozambique 0%, Brazil
34% and Chile 27%. The South African corporate tax rate reduced from 28% to
27% from 1 July 2022. The Mozambique operations are subject to a royalty on
revenues instead of income tax. Sierra Gorda is subject to a royalty related
tax based on the amount of copper sold and the mining operating margin, the
rate is between 5% and 14% for annual sales over 50kt of refined copper. This
royalty is included in tax expense.
(24) Australia Manganese is subject to a royalty related tax equal to
20% of adjusted EBIT which is included in tax expense.
(25) H1 FY23 net distributions from our material equity accounted joint
ventures comprise dividends and capital returns (US$108M), partly offset by a
net drawdown of shareholder loans (-US$48M) from our manganese EAI. No
distributions were received from our Sierra Gorda EAI.
(26) Total capital expenditure comprises Capital expenditure, evaluation
expenditure, the purchase of intangibles and capitalised exploration
expenditure. Capital expenditure comprises Safe and reliable capital
expenditure, Improvement and life extension capital expenditure, and Growth
capital expenditure.
(27) Production guidance for Hillside Aluminium and Mozal Aluminium does
not assume any load-shedding impact on production.
(28) Refer to market release "South32 completes acquisition of
additional shareholding in Mozal Aluminium" dated 31 May 2022. Historical
income statement, production and sales figures have not been restated for our
increased ownership of 63.7% (presented on a 47.1% basis to 31 May 2022).
(29) Payable copper equivalent production (kt) was calculated by
aggregating revenues from payable copper, molybdenum, gold and silver, and
dividing the total Revenue by the price of copper. FY22 realised prices for
copper (US$3.50/lb), molybdenum (US$18.48/lb), gold (US$1,934/oz) and silver
(US$23.5/oz) have been used for FY22, H1 FY23, FY23e and FY24e.
(30) Payable zinc equivalent production (kt) was calculated by
aggregating revenues from payable silver, lead and zinc, and dividing the
total Revenue by the price of zinc. FY22 realised prices for zinc
(US$3,248/t), lead (US$2,046/t) and silver (US$21.0/oz) have been used for
FY22, H1 FY23, FY23e and FY24e.
(31) 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 44 and 46.
(32) FY23 prior Operating unit cost guidance includes royalties (where
appropriate) and the influence of exchange rates, and includes various
assumptions for FY23, including: an alumina price of US$364/t; an average
blended coal price of US$265/t for Illawarra Metallurgical Coal; a manganese
ore price of US$6.40/dmtu for 44% manganese product; a nickel price of
US$9.94/lb; a silver price of US$22.1/troy oz; a lead price of US$2,059/t
(gross of treatment and refining charges); a zinc price of US$3,480/t (gross
of treatment and refining charges); a copper price of US$4.07/lb (gross of
treatment and refining charges); a molybdenum price of US$16.95/lb (gross of
treatment and refining charges); a gold price of US$1,860/troy oz; an AUD:USD
exchange rate of 0.69; a USD:ZAR exchange rate of 16.62; a USD:COP exchange
rate of 3,851; USD:CLP exchange rate of 814; and a reference price for caustic
soda; which reflect forward markets as at June 2022 or our internal
expectations.
(33) FY23 new Operating unit cost guidance includes royalties (where
appropriate) and the influence of exchange rates, and includes various
assumptions for FY23, including: an alumina price of US$336/t; an average
blended coal price of US$265/t for Illawarra Metallurgical Coal; a manganese
ore price of US$5.20/dmtu for 44% manganese product; a nickel price of
US$12.07/lb; a silver price of US$22.2/troy oz; a lead price of US$2,091/t
(gross of treatment and refining charges); a zinc price of US$3,255/t (gross
of treatment and refining charges); a copper price of US$3.84/lb (gross of
treatment and refining charges); a molybdenum price of US$20.44/lb (gross of
treatment and refining charges); a gold price of US$1,681/troy oz; an AUD:USD
exchange rate of 0.69; a USD:ZAR exchange rate of 17.19; a USD:COP exchange
rate of 4,601; USD:CLP exchange rate of 854; and a reference price for caustic
soda; all of which reflected forward markets as at 2 February 2023 or our
internal expectations.
(34) Peake Prospect Exploration Target: The information in this
announcement that relates to the Exploration Target for Peake Prospect is
extracted from "Hermosa Project Update" published on 17 January 2022 and is
available to view on www.south32.net. The information was prepared by D
Bertuch (Competent Person) 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 market
announcement. South32 confirms that the form and context in which the
Competent Person's findings are presented have not been materially changed
from the original market announcement.
(35) Flux Exploration Target: The information in this announcement that
relates to the Exploration Target for Flux is extracted from "South32 Strategy
and Business Update" published on 18 May 2021 and is available to view on
www.south32.net. The information was prepared by D Bertuch (Competent Person)
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 market announcement. South32 confirms
that the form and context in which the Competent Person's findings are
presented have not been materially changed from the original market
announcement.
(36) H1 FY23 Third party products and services sold comprise US$30M for
aluminium, US$2M for alumina, US$60M for coal, US$63M for freight services,
US$78M for raw materials and US$16M for manganese. Underlying EBIT on third
party products and services comprise (US$1M) for aluminium, US$8M for alumina,
US$6M for coal, (US$1M) for freight services, nil for raw materials and nil
for manganese. 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$70M 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.
(37) Presented on a 100% basis.
(38) Sierra Gorda and Cannington Operating unit cost is Underlying
revenue less Underlying EBITDA divided by ore processed. Periodic movements in
finished product inventory may impact Operating unit costs.
(39) Cerro Matoso realised nickel sales price is inclusive of
by-products.
(40) Cerro Matoso Operating unit cost per tonne is Underlying revenue
less Underlying EBITDA divided by ore processed. Periodic movements in
finished product inventory may impact Operating unit costs.
(41) Illawarra Metallurgical Coal sales are adjusted for moisture and
will not reconcile directly to Illawarra Metallurgical Coal production.
(42) Illawarra Metallurgical Coal revenue includes metallurgical coal
and energy coal sales revenue.
(43) 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 Underlying revenue less freight and marketing
costs, divided by external sales volume.
(44) Manganese Australia H1 FY23 average manganese content of external
ore sales was 44.2% on a dry basis (H1 FY22: 44.2%). 95% of H1 FY23 external
manganese ore sales (H1 FY22: 96%) were completed on a CIF basis. H1 FY23
realised FOB ore prices and Operating unit costs have been adjusted for
freight and marketing costs of US$36M (H1 FY22: US$49M), consistent with our
FOB cost guidance.
(45) FOB Ore operating unit cost is Underlying revenue less Underlying
EBITDA, freight and marketing costs, divided by ore sales volume.
(46) Manganese South Africa H1 FY23 average manganese content of
external ore sales was 39.2% on a dry basis (H1 FY22: 39.4%). 86% of H1 FY23
external manganese ore sales (H1 FY22: 75%) were completed on a CIF basis. H1
FY23 realised FOB ore prices and Operating unit costs have been adjusted for
freight and marketing costs of US$32M (H1 FY22: US$45M), consistent with our
FOB cost guidance.
Figures in Italics indicate that an adjustment has been made since the figures
were previously reported. The denotation (e) refers to an estimate or forecast
year.
The following abbreviations may be used throughout this report: US$ million
(US$M); US$ billion (US$B); December half year (H1 FY23); financial year
2023 (FY23); financial year (FY); calendar year (CY); copper equivalent
(CuEq); grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand
tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa);
ounces (oz); thousand ounces (koz); million ounces (Moz); thousand wet metric
tonnes (kwmt); million wet metric tonnes (Mwmt); thousand dry metric tonnes
(kdmt); dry metric tonne unit (dmtu); pound (lb); megawatt (MW); Australian
Securities Exchange (ASX); London Stock Exchange (LSE); Johannesburg Stock
Exchange (JSE); equity accounted investments (EAI); and American Depositary
Receipts (ADR).
south32 financial information
For the half year ended 31 December 2022
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2022
US$M Note H1 FY23 H1 FY22
Revenue:
Group production 3,388 3,651
Third party products and services 308 355
3 3,696 4,006
Other income 242 113
Expenses excluding net finance income/(costs) (3,308) (2,721)
Share of profit/(loss) of equity accounted investments 8 241 104
Profit from operations 871 1,502
Comprising:
Group production 859 1,490
Third party products and services 12 12
Profit from operations 871 1,502
Finance income 111 16
Finance expenses (97) (56)
Net finance income/(costs) 6 14 (40)
Profit before tax 885 1,462
Income tax expense (200) (430)
Profit for the period 685 1,032
Attributable to:
Equity holders of South32 Limited 685 1,032
Profit for the period attributable to equity holders of South32 Limited:
Basic earnings per share (cents) 5 14.9 22.2
Diluted earnings per share (cents) 5 14.8 22.0
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 December 2022
US$M H1 FY23 H1 FY22
Profit for the period 685 1,032
Other comprehensive income
Items not to be reclassified to the Consolidated Income Statement:
Investments in equity instruments designated as fair value through other
comprehensive income (FVOCI):
Net fair value gains/(losses) (3) (59)
Income tax (expense)/benefit 1 18
Equity accounted investments - share of other comprehensive income/(loss), net 1 -
of tax
Gains/(losses) on pension and medical schemes 2 4
Income tax (expense)/benefit recognised within other comprehensive income (1) (1)
Total items not to be reclassified to the Consolidated Income Statement - (38)
Total other comprehensive income/(loss) - (38)
Total comprehensive income/(loss) 685 994
Attributable to:
Equity holders of South32 Limited 685 994
The accompanying notes form part of the half year consolidated financial
statements.
CoNSOLIDATED BALANCE SHEET
as at 31 December 2022
US$M Note H1 FY23 FY22
ASSETS
Current assets
Cash and cash equivalents 1,560 2,365
Trade and other receivables 794 844
Other financial assets 7 1 1
Inventories 1,119 982
Current tax assets 2 4
Other 29 44
Total current assets 3,505 4,240
Non-current assets
Trade and other receivables 1,782 1,903
Other financial assets 7 158 64
Inventories 73 76
Property, plant and equipment 9,032 8,988
Intangible assets 232 186
Equity accounted investments 604 470
Deferred tax assets 377 394
Other 15 15
Total non-current assets 12,273 12,096
Total assets 15,778 16,336
LIABILITIES
Current liabilities
Trade and other payables 905 989
Interest bearing liabilities 442 402
Other financial liabilities 7 - 6
Current tax payables 179 308
Provisions 167 186
Deferred income 7 6
Total current liabilities 1,700 1,897
Non-current liabilities
Trade and other payables 1 8
Interest bearing liabilities 1,416 1,425
Other financial liabilities 7 16 84
Deferred tax liabilities 272 307
Provisions 1,839 1,835
Deferred income 1 1
Total non-current liabilities 3,545 3,660
Total liabilities 5,245 5,557
Net assets 10,533 10,779
EQUITY
Share capital 13,326 13,469
Treasury shares (32) (32)
Reserves (3,567) (3,558)
Retained earnings 807 901
Total equity attributable to equity holders of South32 Limited 10,534 10,780
Non-controlling interests (1) (1)
Total equity 10,533 10,779
The accompanying notes form part of the half year consolidated financial
statements.
CONSOLIDATED CASH FLOW STATEMENT
for the half year ended 31 December 2022
US$M Note H1 FY23 H1 FY22
Operating activities
Profit before tax 885 1,462
Adjustments for:
Non-cash or non-operating significant items (138) (77)
Depreciation and amortisation expense 312 303
Net impairment loss/(reversal) of financial assets 214 -
Net impairment loss/(reversal) of non-financial assets (4) 37
Employee share awards expense 13 12
Net finance (income)/costs (14) 40
Share of (profit)/loss of equity accounted investments (241) (104)
(Gains)/losses on derivative instruments, contingent consideration and (19) 14
other investments measured at fair value through profit or loss (FVTPL)
Other non-cash or non-operating items (1) -
Changes in assets and liabilities:
Trade and other receivables 88 (145)
Inventories (134) (153)
Trade and other payables (81) 53
Provisions and other liabilities (25) (88)
Cash generated from operations 855 1,354
Interest received 29 12
Interest paid (54) (38)
Income tax paid (347) (234)
Dividends received 1 -
Dividends received from equity accounted investments 108 79
Net cash flows from operating activities 592 1,173
Investing activities
Purchases of property, plant and equipment (352) (237)
Exploration expenditure (44) (35)
Exploration expenditure expensed and included in operating cash flows 26 19
Purchase of intangibles (46) (1)
Investment in financial assets (116) (129)
Payment of deferred consideration related to the acquisition of a joint (25) -
operation
Proceeds from sale of intangibles 55 -
Proceeds from financial assets 61 104
Net cash flows from investing activities (441) (279)
Financing activities
Proceeds from interest bearing liabilities 28 14
Repayment of interest bearing liabilities (42) (80)
Purchase of shares by South32 Limited Employee Share Ownership Plan (ESOP) (13) (1)
Trusts
Share buy-back (143) (60)
Dividends paid 4 (784) (256)
Net cash flows from financing activities (954) (383)
Net (decrease)/increase in cash and cash equivalents (803) 511
Cash and cash equivalents, net of overdrafts, at the beginning of the period 2,365 1,613
Foreign currency exchange rate changes on cash and cash equivalents (2) (5)
Cash and cash equivalents, net of overdrafts, at the end of the period 1,560 2,119
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 2022
Attributable to equity holders of South32 Limited
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
US$M
Balance as at 1 July 2022 13,469 (32) (6) 45 (3,597) 901 10,780 (1) 10,779
Profit for the period - - - - - 685 685 - 685
Total other comprehensive income/(loss) - - (2) - - 2 - - -
Total comprehensive income/(loss) - - (2) - - 687 685 - 685
Transactions with owners:
Dividends - - - - - (784) (784) - (784)
Shares bought back and cancelled((4)) (143) - - - - - (143) - (143)
Employee share entitlements for unvested awards, net of tax - - - 14 - - 14 - 14
Employee share awards vested and lapsed, net of tax - 13 - (21) - 3 (5) - (5)
Purchase of shares by ESOP Trusts - (13) - - - - (13) - (13)
Balance as at 31 December 2022 13,326 (32) (8) 38 (3,597) 807 10,534 (1) 10,533
Balance as at 1 July 2021 13,597 (22) (22) 48 (3,593) (1,053) 8,955 (1) 8,954
Profit 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
Employee share awards vested and lapsed, net of tax - 11 - (29) - 10 (8) - (8)
Purchase of shares by ESOP Trusts - (1) - - - - (1) - (1)
Balance as at 31 December 2021 13,537 (12) (63) 34 (3,593) (264) 9,639 (1) 9,638
(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 the disposal of entities as part of the demerger of the
Group in 2015.
(4) Represents 56,348,933 (H1 FY22: 24,607,260) 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
1. Reporting entity
2. Basis of preparation
3. Segment Information
4. Dividends
5. Earnings per share
6. Net finance income/(costs)
7. Financial assets and financial liabilities
8. Equity accounted investments
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 half year 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 2022 were authorised for issue
in accordance with a resolution of the Directors on 16 February 2023.
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:
• Has been prepared in accordance with AASB 134 Interim Financial Reporting, IAS
34 Interim Financial Reporting and the Corporations Act 2001;
• Has been prepared on a historical cost basis, except for post-retirement
assets and obligations, derivative financial instruments and certain other
financial assets and liabilities which are required to be measured at fair
value;
• Is presented in US dollars, which is the functional currency of the majority
of the Group's operations, and all values are rounded to the nearest million
dollars (US$M or US$ million) unless otherwise stated, in accordance with ASIC
Corporations Instrument 2016/191;
• Presents 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
• Has 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 2022.
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 2022.
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 2022. 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.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
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.
Consolidated financial results of the Group are reported on a proportional
consolidation basis, including material equity accounted joint ventures,
consistent with the reporting of the Group's operating segments and includes
non-IFRS measures.
The principal activities of each operating segment are summarised as follows:
Operating segment Principal activities
Worsley Alumina Integrated bauxite mine and alumina refinery in Australia
Brazil Alumina Integrated bauxite mine and alumina refinery in Brazil
Brazil Aluminium Aluminium smelter in Brazil
Hillside Aluminium Aluminium smelter in South Africa
Mozal Aluminium Aluminium smelter in Mozambique
Sierra Gorda Copper mine in Chile
Cannington Silver, lead and zinc mine in Australia
Hermosa Base metals exploration and development option in the United States of America
Cerro Matoso Integrated laterite ferronickel mining and smelting complex in Colombia
Illawarra Metallurgical Coal Metallurgical coal mines in Australia
Australia Manganese Manganese ore mine in Australia
South Africa Manganese Manganese ore mines South Africa
All operations are operated by the Group except Brazil Alumina, Brazil
Aluminium and Sierra Gorda.
(b) Segment results
Segment performance is measured by Underlying EBIT and Underlying EBITDA.
Underlying EBIT is profit before net finance income/(costs), tax and other
earnings adjustment items including impairments. Underlying EBITDA is
Underlying EBIT, before depreciation and amortisation. A reconciliation of
Underlying EBIT, Underlying EBITDA and the Group's consolidated profit after
tax is set out on the following pages.
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 primarily managed on a Group basis and
are not allocated to operating segments.
Total assets and liabilities for each operating segment represent operating
assets and liabilities which predominantly exclude the carrying amount of
equity accounted investments, cash, interest bearing liabilities, tax balances
and certain other financial assets and liabilities.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
3. SEGMENT INFORMATION (CONTINUED)
(b) Segment results (continued)
H1 FY23
US$M Worsley Alumina Brazil Brazil Aluminium Hillside Aluminium Mozal Aluminium Sierra Cannington Hermosa Cerro Matoso Illawarra Metallurgical Coal South Africa Manganese((1)) Group and unallocated items/ eliminations Group underlying results((1))
Alumina
Gorda((1))
Australia Manganese((1))
Revenue from customers 661 247 47 859 485 349 271 - 356 803 383 190 (127) 4,524
Other((2)) (2) - - 2 (3) 8 1 - 39 (2) (28) (15) - -
Total underlying revenue 659 247 47 861 482 357 272 - 395 801 355 175 (127) 4,524
Comprising:
Group production 302 228 47 861 482 357 272 - 395 801 355 175 - 4,275
Third party products and services((3)) - - - - - - - - - - - - 249 249
Inter-segment revenue 357 19 - - - - - - - - - - (376) -
Total underlying revenue 659 247 47 861 482 357 272 - 395 801 355 175 (127) 4,524
Underlying EBITDA 123 7 (67) 94 86 179 117 (7) 180 407 197 35 13 1,364
Underlying depreciation and amortisation (90) (26) (3) (32) (21) (72) (35) (2) (26) (67) (48) (10) (10) (442)
Underlying EBIT 33 (19) (70) 62 65 107 82 (9) 154 340 149 25 3 922
Comprising:
Group production 33 (26) (70) 62 65 109 85 (9) 154 344 149 26 10 932
Exploration expensed - - - - - (2) (3) - - (4) - (1) (19) (29)
Third party products and services((3)) - - - - - - - - - - - - 12 12
Share of profit/(loss) of equity accounted investments - 7 - - - - - - - - - - - 7
Underlying EBIT 33 (19) (70) 62 65 107 82 (9) 154 340 149 25 3 922
Underlying net finance costs (88)
Underlying income tax expense (234)
Underlying royalty related tax expense (40)
Underlying earnings 560
Total adjustments to profit((4)) 125
Profit for the period 685
Underlying exploration expenditure - - - - - 3 3 6 - 8 1 1 27 49
Underlying capital expenditure((5)) 34 35 6 10 9 86 33 96 20 108 32 11 1 481
Underlying equity accounted investments - 47 - - - - - - - 2 - - - 49
Total underlying assets((6)) 3,543 836 104 1,240 752 1,747 577 2,216 609 1,175 663 314 2,934 16,710
Total underlying liabilities((6)) 1,048 134 39 321 154 230 389 84 177 453 405 190 2,553 6,177
(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. This includes the proportional elimination of
revenue and corresponding expenses relating to freight services provided by
the Group to these joint ventures of US$75 million and third party product
revenue of US$16 million included in Group and unallocated items/eliminations.
Refer to note 3(b)(i) Underlying results reconciliation for the joint venture
adjustments that reconcile the underlying proportional consolidation to the
statutory equity accounting positions included in the Group's half year
consolidated financial statements.
(2) Underlying other revenue predominantly relates to fair value
movements on provisionally priced contracts.
(3) Underlying revenue on third party products and services sold
comprises US$30 million for aluminium, US$2 million for alumina, US$60 million
for coal, US$16 million for manganese, US$63 million for freight services and
US$78 million for raw materials. Underlying EBIT on third party products and
services sold comprises US$(1) million for aluminium, US$8 million for
alumina, US$6 million for coal and US$(1) million for freight services.
(4) Refer to note 3(b)(i) Underlying results reconciliation for further
details.
(5) Underlying capital expenditure excludes the purchase of intangibles
and capitalised exploration expenditure.
(6) Total underlying assets and liabilities for each operating segment
represent 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
3. SEGMENT INFORMATION (CONTINUED)
(b) Segment results (continued)
H1 FY22
US$M Worsley Alumina Brazil Brazil Aluminium Hillside Aluminium Mozal Aluminium Sierra Cannington Cerro Matoso Illawarra Metallurgical Coal Australia Manganese((1)) South Africa Manganese((1)) Group and unallocated items/ eliminations Group
Alumina
Gorda((1)) underlying results((1))
Hermosa
Revenue from customers 751 241 - 992 373 - 392 - 364 894 379 191 (93) 4,484
Other((2)) 6 1 - - (2) - (14) - 8 18 6 - (2) 21
Total underlying revenue((1)) 757 242 - 992 371 - 378 - 372 912 385 191 (95) 4,505
Comprising:
Group production 384 242 - 992 371 - 378 - 372 912 385 191 - 4,227
Third party products and services((3)) - - - - - - - - - - - - 278 278
Inter-segment revenue 373 - - - - - - - - - - - (373) -
Total underlying revenue((1)) 757 242 - 992 371 - 378 - 372 912 385 191 (95) 4,505
Underlying EBITDA 259 78 (1) 342 126 - 201 (6) 190 512 206 29 (65) 1,871
Underlying depreciation and amortisation (91) (29) - (31) (16) - (39) (1) (32) (54) (44) (10) (10) (357)
Underlying EBIT 168 49 (1) 311 110 - 162 (7) 158 458 162 19 (75) 1,514
Comprising:
Group production 168 49 (1) 311 110 - 163 (7) 158 463 162 20 (75) 1,521
Exploration expensed - - - - - - (1) - - (5) - (1) (13) (20)
Third party products and services((3)) - - - - - - - - - - - - 13 13
Underlying EBIT 168 49 (1) 311 110 - 162 (7) 158 458 162 19 (75) 1,514
Underlying net finance costs (62)
Underlying income tax expense (422)
Underlying royalty related tax expense (26)
Underlying earnings 1,004
Total adjustments to profit((4)) 28
Profit for the period 1,032
Underlying exploration expenditure - - - - - - 2 8 - 5 1 1 20 37
Underlying capital expenditure((5)) 24 31 - 10 6 - 17 42 14 88 34 10 5 281
Underlying equity accounted investments((6)) - 40 - - - - - - - 2 - - - 42
Total underlying assets((6)) 3,571 805 67 1,284 764 1,614 555 2,098 592 1,277 645 331 3,666 17,269
Total underlying liabilities((6)) 1,000 109 21 357 149 212 414 67 243 491 387 196 2,844 6,490
(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. This includes the proportional elimination of
revenue and corresponding expenses relating to freight services provided by
the Group to these joint ventures of US$97 million, which resulted in the
reclassification of underlying revenue and expenses for the half year ended 31
December 2021 for consistency with the current period's presentation, and
third party product revenue of US$20 million included in Group and unallocated
items/eliminations. Refer to note 3(b)(i) Underlying results reconciliation
for the joint venture adjustments that reconcile the underlying proportional
consolidation to the statutory equity accounting positions included in the
Group's half year consolidated financial statements.
(2) Underlying other revenue predominantly relates to fair value
movements on provisionally priced contracts.
(3) Underlying revenue on third party products and services sold
comprises US$64 million for aluminium, US$22 million for alumina, US$30
million for coal, US$20 million for manganese, US$70 million for freight
services and US$72 million for raw materials. Underlying EBIT on third party
products and services sold comprises US$6 million for aluminium, US$2 million
for alumina, US$1 million for manganese and US$4 million for freight services.
(4) Refer to note 3(b)(i) Underlying results reconciliation for further
details.
(5) Underlying capital expenditure excludes the purchase of intangibles
and capitalised exploration expenditure.
(6) Underlying equity accounted investments, total assets and total
liabilities for each operating segment are as at 30 June 2022. Total
underlying assets and liabilities represent operating assets and liabilities
which predominantly exclude the carrying amount of equity accounted
investments, cash, interest bearing liabilities, tax balances and certain
other financial assets and liabilities.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
3. SEGMENT INFORMATION (CONTINUED)
(b) Segment results (continued)
(i) Underlying results reconciliation
The following tables reconcile the underlying segment information to the
statutory information included in the Group's half year consolidated financial
statements:
US$M H1 FY23 H1 FY22
Underlying EBIT 922 1,514
Significant items((1)) 138 77
Sierra Gorda joint venture adjustments((2)(3)) 57 -
Manganese joint venture adjustments((2)(4)) (101) (79)
Exchange rate gains/(losses) on restatement of monetary items((5)) 48 32
Net impairment (loss)/reversal of financial assets((5)(6)) (214) -
Net impairment (loss)/reversal of non-financial assets((5)) 4 (37)
Gains/(losses) on non-trading derivative instruments, contingent consideration 17 (5)
and other investments measured at FVTPL((5))
Profit from operations 871 1,502
Underlying net finance costs (88) (62)
Sierra Gorda joint venture adjustments((2)) 85 -
Manganese joint venture adjustments((2)) 13 11
Exchange rate variations on net debt 4 11
Net finance income/(costs) 14 (40)
Underlying income tax expense (234) (422)
Underlying royalty related tax expense (40) (26)
Significant items((1)) (23) (26)
Sierra Gorda joint venture adjustments relating to income tax expense ((2)) 6 -
Sierra Gorda joint venture adjustments relating to royalty related tax expense 4 -
((2))
Manganese joint venture adjustments relating to income tax expense ((2)) 56 51
Manganese joint venture adjustments relating to royalty related tax expense 36 26
(2))
Tax effect of other adjustments to Underlying EBIT 1 2
Tax effect of other adjustments to Underlying net finance costs (1) (3)
Exchange rate variations on tax balances (5) (32)
Income tax expense (200) (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 statutory equity accounting positions, recognised in
share of profit/(loss) of equity accounted investments in the Consolidated
Income Statement.
(3) The Group's investment in Sierra Gorda is represented by the
carrying value of an equity accounted investment of US$191 million (FY22:
US$30 million) and the carrying value of a purchased credit-impaired
receivable of US$1,511 million (FY22: US$1,648 million) classified as a loan
to an equity accounted investment within trade and other receivables on the
Consolidated Balance Sheet. The earnings adjustments include a revaluation
gain of US$214 million (US$156 million post-tax) (H1 FY22: nil) relating to
the shareholder loan payable that was eliminated from the Group's Underlying
EBIT upon proportional consolidation.
(4) Includes earnings adjustments of nil (H1 FY22: US$2 million)
included in the Australia Manganese segment and US$4 million (H1 FY22: US$7
million) included in the South Africa Manganese segment.
(5) Recognised in expenses excluding net finance income/(costs) in
the Consolidated Income Statement.
(6) Refer to note 3(b)(iii) Impairment of financial assets.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
3. SEGMENT INFORMATION (CONTINUED)
(b) Segment results (continued)
(i) Underlying results reconciliation (continued)
H1 FY23
Group underlying results Sierra Gorda joint venture adjustments((1)) Manganese joint venture adjustments((1)) Group statutory results
US$M
Total revenue 4,524 (357) (471) 3,696
Depreciation and amortisation 442 (72) (58) 312
Share of profit/(loss) of equity accounted investments 7 161 73 241
Exploration expenditure 49 (3) (2) 44
Capital expenditure 481 (86) (43) 352
Equity accounted investments 49 191 364 604
Total assets 16,710 (466) (466) 15,778
Total liabilities 6,177 (466) (466) 5,245
(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 statutory equity accounting positions included in the
Group's half year consolidated financial statements.
H1 FY22
Group underlying results Sierra Gorda joint venture adjustments((1)) Manganese joint venture adjustments((1)) Group statutory results
US$M
Total revenue((1)) 4,505 - (499) 4,006
Depreciation and amortisation 357 - (54) 303
Share of profit/(loss) of equity accounted investments - - 104 104
Exploration expenditure 37 - (2) 35
Capital expenditure 281 - (44) 237
Equity accounted investments((2)) 42 30 398 470
Total assets((2)) 17,269 (452) (481) 16,336
Total liabilities((2)) 6,490 (452) (481) 5,557
(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. This includes the proportional elimination of
revenue and corresponding expenses relating to freight services provided by
the Group to these joint ventures of US$97 million, which resulted in the
reclassification of underlying revenue and expenses for the half year ended 31
December 2021 for consistency with the current period's presentation. Joint
venture adjustments reconcile the proportional consolidation to the statutory
equity accounting positions included in the Group's half year consolidated
financial statements.
(2) Equity accounted investments, total assets and total
liabilities are as at 30 June 2022.
(ii) Significant items
Significant items are those items, not separately identified in note 3(b)(i)
Underlying results reconciliation, where their nature and amount are
considered material to the half year consolidated financial statements.
H1 FY23
US$M Gross Tax Net
Disposal of royalties 189 (56) 133
Assets write-off (51) 16 (35)
Tax adjustments relating to the Sierra Gorda acquisition - 17 17
Total significant items 138 (23) 115
Disposal of royalties
On 19 July 2022, the Group divested four royalties to Ecora Resources PLC
(formerly known as Anglo Pacific Group PLC) in exchange for consideration
comprising an upfront cash payment of US$48 million, deferred cash
consideration of US$55 million, US$78 million in equity and a variable
consideration receivable valued at US$10 million. The equity in Ecora
Resources PLC has been recognised as an investment in equity instruments
designated at FVOCI. The variable consideration is payable if certain
production and price-linked conditions are met prior to 2032, up to a maximum
of US$15 million.
The royalties were recognised as intangible assets with a nominal carrying
value. On completion the Group recognised other income, net of transaction
costs, of US$189 million (US$133 million post-tax) in the Consolidated Income
Statement.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
3. SEGMENT INFORMATION (CONTINUED)
(b) Segment results (continued)
(ii) Significant items (continued)
Assets write-off
On 23 August 2022, the Group announced that it would not proceed with an
investment in the Dendrobium Next Domain project at Illawarra Metallurgical
Coal following its consideration of recently completed study work and
extensive analysis of alternatives considered for the complex. As a result of
the decision in August 2022, the Group wrote off US$51 million (US$35 million
post-tax) of costs previously capitalised in relation to the project,
recognised within expenses excluding net finance income/(costs) in the
Consolidated Income Statement. The write-off related to capitalised
exploration and evaluation assets previously included in property, plant and
equipment on the Consolidated Balance Sheet.
Tax adjustments relating to the Sierra Gorda acquisition
During the period, the Group recognised an income tax benefit of US$31 million
relating to tax liabilities recognised on the acquisition of Sierra Gorda
during FY22. The US$31 million benefit comprises a reassessment of US$17
million and a foreign exchange gain of US$14 million which is separately
reported as part of exchange variations of tax balances. The tax adjustments
relating to the Sierra Gorda acquisition have been excluded from the Group's
Underlying income tax expense on the basis that they do not relate to
assessable income earned during its ownership.
H1 FY22
US$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 in the restart of Brazil
Aluminium, the Group recognised indirect tax assets of US$77 million that were
previously expensed since the smelter was placed on care and maintenance in
2015. The recognition of the indirect tax assets has resulted in a significant
one-off amount of US$77 million (US$51 million post-tax) being recorded as
other income in the Consolidated Income Statement.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
3. SEGMENT INFORMATION (CONTINUED)
(b) Segment results (continued)
(iii) Impairment of financial assets
The Group recognised the following impairment of financial assets:
US$M H1 FY23 H1 FY22
Trade and other receivables((1)) 214 -
Net impairment of financial assets 214 -
(1) Relates to the shareholder loan receivable from Sierra Gorda.
Shareholder loan receivable from Sierra Gorda
The loan has a contractual interest rate of 8 per cent and the repayment by
Sierra Gorda is dependent on its financial performance. At 31 December 2022,
the Group updated its estimated timing of loan repayments from Sierra Gorda
and as a result recognised an impairment of US$214 million which is included
in expenses excluding net finance income/(costs) in the Consolidated Income
Statement. The net present value of the expected future loan repayments was
determined as US$1,511 million, using a measurement methodology consistent
with a Level 3 fair value based on the inputs in the valuation technique.
The future loan repayments were informed by a production profile based on
mineral resources and mineral reserves that are qualifying foreign estimates
under the ASX Listing Rules and costs based on the most recent Sierra Gorda
budget. An effective interest rate of 9 per cent, as determined on the date of
acquisition, was applied to discount the future loan repayments.
For further information on the qualifying foreign estimates and production
profile, refer to the market release "South32 to acquire a 45 per cent
interest in the Sierra Gorda copper mine" dated 14 October 2021 (Market
Announcement). The Group is not in possession of any new information or data
relating to the foreign estimate that materially impacts on the reliability of
the estimates or our ability to verify the foreign estimates as Mineral
Resources or Ore Reserves in accordance with the JORC Code. The Group confirms
that the information contained in our 14 October 2021 market announcement in
relation to these foreign estimates continues to apply and has not materially
changed. Competent Persons have not done sufficient work to classify the
foreign estimates as Mineral Resources or Ore Reserves in accordance with JORC
Code and it is uncertain that following evaluation and further exploration,
the foreign estimates will be able to be reported as Mineral Resources or Ore
Reserves in accordance with the JORC Code.
The table below shows key assumptions used in the net present value
determinations:
H1 FY23 Assumptions used
Copper (US$/lb) 2.70 to 4.08
Foreign exchange rates (US$ to CLP) 659 to 808
The key assumptions for copper prices are comparable to market consensus
forecasts and foreign exchange rates are aligned with forward market rates in
the short-run and thereafter are within the range published by market
commentators. The potential effect of using reasonably possible alternative
assumptions in determining the net present value of the loan, based on
directionally changing all the significant inputs either favourably or
unfavourably by 10 per cent while holding all other variables constant, is
shown in the following table:
H1 FY23 Impact on profit after tax
US$M
Face value Carrying value Favourable Unfavourable
Trade and other receivables
Loans to equity accounted investments 2,136 1,511 154 (235)
4. DIVIDENDS
US$M H1 FY23 H1 FY22
Prior year final dividend 646 163
Prior year special dividend 138 93
Total dividends declared and paid during the period((1)) 784 256
(1) On 25 August 2022, the Directors resolved to pay a fully
franked final dividend of US 14.0 cents per share and a fully franked special
dividend of US 3.0 cents per share in respect of the 2022 financial year. The
dividends were paid on 13 October 2022. In addition to the ESOP Trusts
receiving dividends from South32 Limited, a total of 9,665,568 shares were
bought back between the declaration and the ex-dividend dates, therefore
reducing the dividend paid externally to US$784 million.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
5. EARNINGS PER SHARE
Basic earnings per share amounts are calculated based on profit attributable
to equity holders of South32 Limited and the weighted average number of shares
outstanding during the period.
Dilutive earnings per share amounts are calculated based on profit
attributable to equity holders of South32 Limited and the weighted average
number of shares outstanding after adjustment for the effects of all dilutive
potential shares.
The following reflects the profit and share data used in the basic and diluted
earnings per share computations:
Profit for the period attributable to equity holders
US$M H1 FY23 H1 FY22
Profit attributable to equity holders of South32 Limited (basic) 685 1,032
Profit attributable to equity holders of South32 Limited (diluted) 685 1,032
Weighted average number of shares
Million H1 FY23 H1 FY22
Basic earnings per share denominator((1)) 4,596 4,657
Shares contingently issuable under employee share ownership plans 30 24
Diluted earnings per share denominator 4,626 4,681
(1) The basic earnings per share 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 FY23 H1 FY22
Basic earnings per share 14.9 22.2
Diluted earnings per share 14.8 22.0
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
6. NET FINANCE INCOME/(COSTS)
US$M H1 FY23 H1 FY22
Finance income
Interest on loans to equity accounted investments 83 3
Other interest income 28 13
111 16
Finance expenses
Interest on borrowings (31) (11)
Interest on lease liabilities (26) (26)
Discounting on provisions and other liabilities (42) (28)
Net interest expense on post-retirement employee benefits (2) (2)
Exchange rate variations on net debt 4 11
(97) (56)
Net finance income/(costs) 14 (40)
7. FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The following table presents the financial assets and liabilities by class at
their carrying amounts.
H1 FY23 Held at FVTPL Designated as FVOCI Amortised cost
US$M Total
Financial assets
Cash and cash equivalents - - 1,560 1,560
Trade and other receivables((1)) 135 - 474 609
Loans to equity accounted investments((2)) - - 50 50
Other financial assets:
Derivative contracts 1 - - 1
Total current financial assets 136 - 2,084 2,220
Trade and other receivables((1)) - - 19 19
Loans to equity accounted investments((2)) - - 1,656 1,656
Other financial assets:
Investments in equity instruments designated as FVOCI - 109 - 109
Vendor loan facility 39 - - 39
Contingent consideration receivable 10 - - 10
Total non-current financial assets 49 109 1,675 1,833
Total financial assets 185 109 3,759 4,053
Financial liabilities
Trade and other payables((3)) 1 - 885 886
Lease liabilities((4)) - - 47 47
Unsecured other((4)) - - 395 395
Total current financial liabilities 1 - 1,327 1,328
Trade and other payables - - 1 1
Senior unsecured notes((4)) - - 690 690
Lease liabilities((4)) - - 624 624
Unsecured other((4)) - - 102 102
Other financial liabilities:
Contingent consideration payable 16 - - 16
Total non-current financial liabilities 16 - 1,417 1,433
Total financial liabilities 17 - 2,744 2,761
(1) Excludes current input taxes of US$135 million and non-current input
and other taxes of US$107 million included in other receivables.
(2) Included in trade and other receivables on the Consolidated Balance
Sheet.
(3) Excludes current input taxes of US$19 million included in other
creditors.
(4) Included in interest bearing liabilities on the Consolidated Balance
Sheet.
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
7. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
FY22 Held at FVTPL Designated as FVOCI Amortised cost
US$M Total
Financial assets
Cash and cash equivalents - - 2,365 2,365
Trade and other receivables((1)) 143 - 554 697
Loans to equity accounted investments((2)) - - 7 7
Other financial assets:
Derivative contracts 1 - - 1
Total current financial assets 144 - 2,926 3,070
Trade and other receivables((1)) - - 13 13
Loans to equity accounted investments((2)) - - 1,793 1,793
Other financial assets:
Investments in equity instruments designated as FVOCI - 25 - 25
Vendor loan facility 39 - - 39
Total non-current financial assets 39 25 1,806 1,870
Total financial assets 183 25 4,732 4,940
Financial liabilities
Trade and other payables((3)) 20 - 929 949
Lease liabilities((4)) - - 40 40
Unsecured other((4)) - - 362 362
Other financial liabilities:
Derivative contracts 6 - - 6
Total current financial liabilities 26 - 1,331 1,357
Trade and other payables((3)) - - 7 7
Senior unsecured notes((4)) - - 689 689
Lease liabilities((4)) - - 610 610
Unsecured other((4)) - - 126 126
Other financial liabilities:
Contingent consideration payable 84 - - 84
Total non-current financial liabilities 84 - 1,432 1,516
Total financial liabilities 110 - 2,763 2,873
(1) Excludes current input taxes of US$140 million and non-current input
and other taxes of US$97 million included in other receivables.
(2) Included in trade and other receivables on the Consolidated Balance
Sheet.
(3) Excludes current input taxes of US$40 million and non-current input
and other taxes of US$1 million included in other creditors.
(4) Included in interest bearing liabilities on the Consolidated Balance
Sheet.
(i) Measurement of fair value
The carrying values of the Group's financial assets and liabilities measured
at amortised cost are equal to or approximate their respective fair values,
except for senior unsecured notes, which have a fair value of US$629 million
(FY22: US$650 million), and lease liabilities, for which a fair value has not
been determined. The fair value of the Group's senior unsecured notes is
estimated based on quoted market prices at the reporting date and is
classified as Level 1 on the fair value hierarchy.
The following table shows the Group's financial assets and liabilities carried
at fair value with reference to the nature of valuation inputs used:
Level 1 Valuation is based on unadjusted quoted prices in active
markets for identical financial assets and liabilities.
Level 2 Valuation is based on inputs (other than quoted prices included
in Level 1) that are observable for the financial asset or liability, either
directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).
Level 3 Valuation includes inputs that are not based on observable
market data.
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
7. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(i) Measurement of fair value (continued)
H1 FY23
US$M Level 1 Level 2 Level 3 Total
Financial assets and liabilities
Trade and other receivables - 135 - 135
Trade and other payables - (1) - (1)
Derivative contract assets 1 - - 1
Investments in equity instruments designated as FVOCI 109 - - 109
Vendor loan facility - 39 - 39
Contingent consideration receivable - - 10 10
Contingent consideration payable - - (16) (16)
Total 110 173 (6) 277
FY22
US$M Level 1 Level 2 Level 3 Total
Financial assets and liabilities
Trade and other receivables - 143 - 143
Trade and other payables - (20) - (20)
Derivative contract assets 1 - - 1
Derivative contract liabilities (6) - - (6)
Investments in equity instruments designated as FVOCI 25 - - 25
Vendor loan facility - - 39 39
Contingent consideration payable - - (84) (84)
Total 20 123 (45) 98
(ii) Level 3 financial assets and liabilities
The following table shows the movements in the Group's Level 3 financial
assets and liabilities:
US$M H1 FY23 H1 FY22
At the beginning of the period (45) 52
Addition of financial assets 10 34
Reclassification of financial asset from level 3 to level 2((1)) (39) -
Derecognition of financial liabilities - 14
Unrealised gains/(losses) recognised in the Consolidated Income Statement((2)) 68 1
Unrealised gains/(losses) recognised in the Consolidated Statement of - (48)
Comprehensive Income((3))
At the end of the period((4)) (6) 53
(1) The valuation of the vendor loan facility provided to a subsidiary
of Seriti Resources Holdings Pty Ltd as part of the Group's divestment of
South Africa Energy Coal no longer includes inputs that are based on
unobservable market data.
(2) Recognised in expenses excluding net finance income/(costs) in the
Consolidated Income Statement.
(3) Recognised in the financial assets reserve in the Consolidated
Statement of Comprehensive Income.
(4) The carrying amount is valued using inputs other than observable
market data and is calculated using appropriate valuation models, including
discounted cash flow modelling. The potential effect of using reasonably
possible alternative assumptions in these models, based on directionally
changing all the significant inputs either favourably or unfavourably by 10
per cent while holding all other variables constant, will result in an
increase of US$1 million or a decrease of US$5 million respectively in the
Group's profit after tax in the Consolidated Income Statement.
(iii) Standby arrangements and credit facilities
The entities in the Group are funded by a combination of cash generated by the
Group's operations, working capital facilities and intercompany loans provided
by the Group. Intercompany loans may be funded by a combination of cash,
short-term and long-term debt. Details of the Group's major standby
arrangement are as follows:
H1 FY23
US$M Available Used Unused
Revolving credit facility((1)) 1,400 - 1,400
(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 2022 by one year to December 2027 with the size of the
facility in the final year reduced to US$1,200 million.
NOTES TO FINANCIAL STATEMENTS - OTHER NOTES
8. EQUITY ACCOUNTED INVESTMENTS
The Group's interest in equity accounted investments with the most significant
contribution to the Group's net profit or net assets, are as follows:
Significant joint ventures Country of incorporation Principal activity Reporting date Acquisition date Ownership interest %
H1 FY23 FY22
Australia Manganese((1)) Australia Manganese ore mine 30 June 2022 8 May 2015 60 60
South Africa Manganese((2)) South Africa Manganese ore mines 30 June 2022 3 February 2015 60 60
Sierra Gorda((3)) Chile Copper mine 31 December 2022((3)) 22 February 2022 45 45
(1) Australia Manganese consists of an investment in Groote Eylandt
Mining Company Pty Ltd (GEMCO).
(2) The Group holds a 60 per cent interest in Samancor Holdings (Pty)
Ltd (Samancor). Samancor indirectly owns 74 per cent of Hotazel Manganese
Mines (Pty) Ltd (HMM), which gives the Group its indirect ownership interest
of 44.4 per cent. The remaining 26 per cent of HMM is owned by B-BBEE
entities, of which 17 per cent of the interests were acquired using vendor
finance with the loans repayable via distributions attributable to these
parties, pro rata to their share in HMM. Until these loans are repaid, the
Group's interest in HMM is accounted for at 54.6 per cent.
(3) Sierra Gorda consists of an investment in Sierra Gorda Sociedad
Contractual Minera. The reporting date differs to that of the Group and is
consistent with common practice in its country of incorporation.
The Group's share of profit/(loss) of equity accounted investments, are as
follows:
US$M H1 FY23 H1 FY22
Australia Manganese 52 85
South Africa Manganese 16 18
Sierra Gorda 161 -
Individually immaterial((1)) 12 1
Total 241 104
(1) Individually immaterial consists of investments in Samancor
Marketing Pte Ltd (60 per cent), Mineração Rio do Norte S.A. (33 per cent)
and Port Kembla Coal Terminal Ltd (16.7 per cent) in H1 FY23 and Samancor
Marketing Pte Ltd (60 per cent) and Port Kembla Coal Terminal Ltd (16.7 per
cent) in H1 FY22.
9. SUBSEQUENT EVENTS
Capital management
On 16 February 2023, the Directors resolved to pay a fully-franked interim
ordinary dividend of US 4.9 cents per share (US$224 million) in respect of the
2023 financial half year. The dividend will be paid on 6 April 2023. The
dividend has not been provided for in the half year consolidated financial
statements and will be recognised in the second half of the 2023 financial
year.
On 16 February 2023, the Group also announced an increase to the existing
capital management program, announced on 27 March 2017, of US$50 million to a
total of US$2.3 billion. This leaves US$158 million expected to be returned by
1 September 2023.
No other matters or circumstances have arisen since the end of the period 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 2022 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 2022 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: 16 February 2023
DIRECTORS' REPORT
The Directors of the Group present the consolidated financial statements for
the half year ended 31 December 2022 and the auditor's review report thereon.
Directors
The Directors of the Company, both during and since the end of the period,
are:
Karen Wood
Graham Kerr
Frank Cooper AO
Guy Lansdown
Dr Xiaoling Liu
Dr Ntombifuthi (Futhi) Mtoba
Wayne Osborn
Keith Rumble
The company secretary of the Company, both during and since the end of the
period, is Claire Tolcon.
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 30 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:
· Keeping our people safe and well
· Portfolio reshaping
· Climate change and environment
· Maintaining, realising or enhancing the value of our Mineral
Resources and Ore Reserves
· Major external events or natural catastrophes
· Maintaining competitiveness through innovation and technology
· Predictable operational performance
· Delivering our project portfolio
· Security of supply of logistics chains, and critical goods and
services
· Shaping our culture and managing diverse talent
· Evolving societal expectations
· Political risks, actions by government and/or authorities
· Global economic uncertainty and liquidity
Further information on these risks and how they are managed can be found on
pages 26 to 35 of the Annual Report for the year ended 30 June 2022, a copy of
which is available on the Group's website at www.south32.net
(http://www.south32.net) .
DIRECTORS' REPORT
Events subsequent to the balance sheet date
Capital management
On 16 February 2023, the Directors resolved to pay a fully-franked interim
ordinary dividend of US 4.9 cents per share (US$224 million) in respect of the
2023 financial half year. The dividend will be paid on 6 April 2023. The
dividend has not been provided for in the half year consolidated financial
statements and will be recognised in the second half of the 2023 financial
year.
On 16 February 2023, the Group also announced an increase to the existing
capital management program, announced on 27 March 2017, of US$50 million to a
total of US$2.3 billion. This leaves US$158 million expected to be returned by
1 September 2023.
No other matters or circumstances have arisen since the end of the period 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.
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: 16 February 2023
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 2022 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
16 February 2023
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 comprises:
of South32 Limited.
· Consolidated balance sheet as at 31 December 2022;
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 2022 and of its performance for the half year ended on that date; and and other explanatory information; and
· 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 Company 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
these requirements.
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 gives 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 are 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 2022 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 a 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
16 February 2023
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 operations; 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
Ben Baker Jamie Macdonald Miles Godfrey
M +61 403 763 086
M +61 408 925 140
M +61 415 325 906
E Ben.Baker@south32.net E Jamie.Macdonald@south32.net E Miles.Godfrey@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: The Standard Bank of South Africa Limited
16 February 2023
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