REG - South32 Limited - Quarterly Report - December 2021
24/01/2022 07:05
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RNS Number : 3509Z South32 Limited 24 January 2022
South32 Limited
(Incorporated in Australia under the Corporations Act 2001 (Cth))
(ACN 093 732 597)
ASX, LSE, JSE Share Code: S32 ADR: SOUHY
ISIN: AU000000S320
24 January 2022
South32 Limited
Quarterly Report December 2021
"We achieved a number of strong production results across our portfolio and
realised significantly higher commodity prices in the December 2021 half year,
lifting operating margins across the Group.
"We delivered higher base metals production and our integrated aluminium
supply chain benefitted from additional alumina volumes and record aluminium
prices.
"We took further steps to reshape our portfolio for a low carbon future,
increasing our exposure to critical metals with our planned acquisition of a
45% interest in the Sierra Gorda copper mine in Chile and further investment
in green aluminium.
"We expect to grow our total share of aluminium production by approximately
24% to 1.2Mt in FY23, through our proposed acquisition of an additional
interest in the hydro powered Mozal Aluminium smelter and the restart of the
Brazil Aluminium smelter using 100 per cent renewable power.
"We returned US$316M to shareholders during the period through our on-market
share buy-back and the payment of ordinary and special dividends. Looking
forward our shareholders are well positioned to benefit from stronger markets
and production growth, with our capital management framework designed to
reward owners as our financial performance improves."
Graham Kerr, South32 CEO
• Achieved a 4% uplift in quarterly alumina production with Worsley Alumina
continuing to operate above nameplate capacity, and record production at
Brazil Alumina as it returned to normalised rates following the prior
quarter's bauxite unloader outage
• Revised Cannington FY22 production guidance higher by 5% with the operation
on-track to transition to 100% truck haulage in the June 2022 quarter
• Increased payable nickel production at Cerro Matoso by 26% with plant
availability benefitting from completion of the furnace refurbishment in
FY21
• Revised Australia Manganese FY22 production guidance lower by 9% as COVID-19
and weather impacted production, preventing the re-build of stockpiles ahead
of the wet season
• Increased South Africa Manganese production by 7% in the December 2021 half
year with higher output of premium material
• Completed an extended longwall move at Illawarra Metallurgical Coal in the
quarter, resulting in lower production for the December 2021 half year
• Realised record aluminium pricing in the December 2021 half year, while
managing the impact of third-party port and freight congestion for our
Southern African smelters
• Committed to grow our green aluminium capacity through our agreed acquisition
of an additional shareholding in Mozal Aluminium(1) and restart of the Brazil
Aluminium smelter(2)
• Added copper exposure to our portfolio, announcing the acquisition of a 45%
interest in the Sierra Gorda joint venture, which is expected to complete in
the March 2022 quarter(3)
• Finalised the zinc-lead-silver Taylor Deposit's pre-feasibility study
following the end of the period, confirming its potential to be the first
development option at our Hermosa project(4)
Production summary
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 QoQ
Alumina production (kt) 2,716 2,610 (4%) 1,401 1,278 1,332 4%
Aluminium production (kt) 496 494 (0%) 248 248 246 (1%)
Metallurgical coal production (kt) 3,262 2,767 (15%) 1,399 1,575 1,192 (24%)
Manganese ore production (kwmt) 2,920 2,861 (2%) 1,459 1,565 1,296 (17%)
Payable nickel production (kt) 16.1 20.3 26% 6.1 9.6 10.7 11%
Payable silver production (koz) 5,993 6,710 12% 3,130 3,493 3,217 (8%)
Payable lead production (kt) 57.6 60.2 5% 31.2 31.9 28.3 (11%)
Payable zinc production (kt) 30.4 32.7 8% 18.0 15.4 17.3 12%
Unless otherwise noted: percentage variance relates to performance during the
half year ended December 2021 compared with the half year ended December 2020
(HoH), or the December 2021 quarter compared with the September 2021 quarter
(QoQ); production and sales volumes are reported on an attributable basis.
Corporate Update
• The COVID-19 pandemic continues to impact our operations and supply chains in
different ways, across our global portfolio. We have seen an increase in case
numbers and workforce restrictions in many of the jurisdictions in which we
operate, impacting labour availability.
• Port congestion and tight global freight conditions continue to impact our
supply chains, slowing the movement of inventory, most notably for our
aluminium smelters in Southern Africa. While the resultant build in aluminium
inventory during the December 2021 half year is expected to persist in the
near term, we have and continue to establish alternative shipping solutions
and points of dispatch to minimise the impact. We expect the working capital
build to unwind once we realise the full benefit of our initiatives and port
congestion and general freight tightness is alleviated.
• We received net distributions(5) of US$102M (South32 share) from our manganese
equity accounted investments (Manganese EAI) in the December 2021 half year.
• We spent US$60M purchasing a further 25M shares at an average price of A$3.36
via our on-market share buy-back during the December 2021 half year. To 31
December 2021 our US$2B capital management program was 90% complete with
US$192M remaining to be returned to shareholders ahead of its extension or
expiry on 2 September 2022(6).
• We refinanced our multicurrency revolving credit facility, securing US$1.4B of
commitments for a five-year term to 2026, with options to extend for up to a
further two years by mutual agreement. The facility has been established as a
sustainability-linked loan with measures linked to our ongoing commitment to
emissions reduction and improving energy and water use efficiency.
• Reflecting our strong balance sheet and continued disciplined approach to
capital allocation, our current BBB+/Baa1 credit ratings were re-affirmed by
S&P and Moody's respectively.
• Our Group Underlying effective tax rate (ETR) for the December 2021 half year
is expected to be approximately 30%, reflecting the corporate tax rates of the
jurisdictions in which we operate(7), as well as a change in accounting
treatment with our manganese business (including a royalty related tax for
Australia Manganese) now included in Underlying earnings on a proportionally
consolidated basis(8). The ETR for our manganese business in the December 2021
half year is expected to be in a range of approximately 40-45%, including the
royalty related tax(9).
• We entered into binding conditional agreements with Sumitomo Metal Mining and
Sumitomo Corporation (collectively Sumitomo) on 14 October 2021 to acquire a
45% interest in the Sierra Gorda copper mine in Chile for upfront cash
consideration of US$1.55B and contingent price-linked consideration of up to
US$500M(3). The acquisition is expected to be completed in the March 2022
quarter, subject to the satisfaction of the remaining conditions.
• Our acquisition of an additional shareholding in Mozal Aluminium from MCA
Metals (Mitsubishi)(1), remains on-track to complete in the March 2022
quarter. Our shareholding is expected to increase by a minimum of 16.6% to
63.7% for a headline purchase price of US$166M.
• Following the end of the period, we announced our decision to participate in
the restart of the Alumar aluminium smelter (Brazil Aluminium, 40% South32
share), together with our joint venture partner Alcoa Corporation (Alcoa)(2).
First production is expected in the June 2022 quarter, with full capacity of
447ktpa (100%) in the March 2023 quarter. We have secured cost efficient
renewable power for our share of production, while our alumina supply will be
sourced from the co-located Brazil Alumina refinery (36% South32
share).
• Separately, to secure and align our Brazilian bauxite supply requirements, we
have entered into a conditional agreement for the acquisition of an additional
18.2% interest in the MRN bauxite mine from subsidiaries of Alcoa, which would
take our ownership of the mine to 33%. Completion is expected in the June 2022
half year, subject to the satisfaction of conditions.
• Samancor Manganese entered into a binding conditional agreement on 29 November
2021 to divest the Metalloys manganese alloy smelter, subject to the
satisfaction of conditions.
• Illawarra Metallurgical Coal's Dendrobium Next Domain life extension project
was declared as State Significant Infrastructure by the New South Wales
Government on 4 December 2021. We are working towards the completion of an
alternate mine plan and the submission of an environmental impact statement
for the project in the March 2022 quarter.
Development and Exploration Update
Hermosa project
• Following the end of the period, we reported the results of a pre-feasibility
study (PFS) for the Taylor Deposit(4),
the first development option at our Hermosa project. The PFS results support
Taylor's potential to be the first stage of a multi-decade operation,
establishing Hermosa as a globally significant producer of metals critical to
a low carbon future. An initial development case demonstrates a sustainable,
highly productive zinc-lead-silver underground mine and conventional process
plant, in the first quartile of the industry cost curve. Completion of the
feasibility study and a final investment decision to construct Taylor are
expected in mid CY23.
• In parallel, we are advancing a PFS for the Clark Deposit, following the
completion of a scoping study which confirmed the potential for a separate,
integrated underground mining operation producing battery-grade manganese, as
well as zinc and silver(4). Our study work will also consider the opportunity
to integrate its development with Taylor, potentially unlocking further
operating and capital efficiencies.
• We directed US$8M to exploration programs at Hermosa in the December 2021 half
year, including work to identify targets across the broader land package. As
part of this work, we have identified a highly prospective corridor which
contains Taylor and Clark as well as the Peake and Flux exploration
targets(4). Exploration drilling at both prospects is planned during CY22,
with the Flux program subject to the receipt of required permits.
Other development and exploration options
• At our Ambler Metals joint venture, infill drilling was completed at the
Arctic Deposit during the summer exploration season. Further resource drilling
at the Arctic Deposit and drill testing of regional exploration targets in the
Ambler Belt is planned for the CY22 summer exploration season. An update on
the forward work program from our joint venture partner can be accessed at
www.trilogymetals.com.
• We invested US$13M during the December 2021 half year in our early stage
greenfield exploration opportunities with multiple programs targeting base
metals underway in Australia, USA, Canada, Argentina, Peru and Ireland.
• We directed US$24M toward exploration programs at our existing operations and
development options in the December 2021 half year (US$17M capitalised),
including US$2M for our Manganese EAI (US$1M capitalised), US$8M at the
Hermosa project as noted above (all capitalised) and US$7M at Ambler Metals
(all capitalised).
Production Summary
Production guidance FY21 1H22 FY22e((a)) Guidance comments
(South32 share)
Worsley Alumina
Alumina production (kt) 3,963 1,979 3,965
Brazil Alumina
Alumina production (kt) 1,398 631 1,300
Brazil Aluminium
Aluminium production (kt) - - 5 Smelter expected to restart in the June 2022 quarter, reaching full capacity
(179kt, 40% South32 share) in the March 2023 quarter
Hillside Aluminium(10)
Aluminium production (kt) 717 358 720
Mozal Aluminium(10)
Aluminium production (kt) 265 136 273 No change to guidance pending the completion of our acquisition of an
additional shareholding(1)
Illawarra Metallurgical Coal
Total coal production (kt) 7,645 3,145 7,300 Subject to further COVID-19 related impacts on labour availability. An update
to our FY22 and FY23 guidance is expected to be provided with our H1 FY22
results announcement
Metallurgical coal production (kt) 6,170 2,767 6,300
Energy coal production (kt) 1,475 378 1,000
Australia Manganese
Manganese ore production (kwmt) 3,529 1,704 ↓3,200 Revised to reflect COVID-19 and weather disrupted production, preventing the
re-build of stockpiles ahead of the wet season
South Africa Manganese
Manganese ore production(11) (kwmt) 2,264 1,157 2,200
Cerro Matoso
Payable nickel production (kt) 34.1 20.3 43.8
Cannington
Payable zinc equivalent production(12) (kt) 319.0 152.5 ↑292.2 Revised to reflect continued strong underground mine performance and higher
average grades
Payable silver production (koz) 13,655 6,710 ↑12,283
Payable lead production (kt) 131.8 60.2 ↑117.9
Payable zinc production (kt) 67.7 32.7 ↑66.7
a. The denotation (e) refers to an estimate or forecast year.
All guidance is subject to further potential impacts from COVID-19.
Marketing Summary
Market conditions remained strong in the December 2021 half year. Robust
demand, congested freight markets and supply disruptions, including energy
curtailments, resulted in significant price increases across many of our
commodities.
Realised prices(13) 1H21 2H21 1H22 1H22 1H22
vs vs
1H21 2H21
Worsley Alumina
Alumina (US$/t) 278 309 389 40% 26%
Brazil Alumina
Alumina (US$/t) 277 297 387 40% 30%
Hillside Aluminium
Aluminium (US$/t) 1,882 2,386 2,952 57% 24%
Mozal Aluminium
Aluminium (US$/t) 1,943 2,457 3,041 57% 24%
Illawarra Metallurgical Coal
Metallurgical coal (US$/t) 107 123 303 183% 146%
Energy coal (US$/t) 31 51 108 248% 112%
Australia Manganese(14)
Manganese ore (US$/dmtu, FOB) 3.93 4.34 4.59 17% 6%
South Africa Manganese(15)
Manganese ore (US$/dmtu, FOB) 3.49 3.56 3.47 (1%) (3%)
Cerro Matoso(16)
Payable nickel (US$/lb) 6.29 7.06 8.39 33% 19%
Cannington(17)
Payable silver (US$/oz) 26.0 24.9 21.0 (19%) (16%)
Payable lead (US$/t) 1,744 1,965 2,180 25% 11%
Payable zinc (US$/t) 2,228 2,468 2,988 34% 21%
Worsley Alumina (86% share)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Alumina production (kt) 2,010 1,979 (2%) 1,047 1,006 973 (7%) (3%)
Alumina sales (kt) 2,078 1,946 (6%) 1,077 924 1,022 (5%) 11%
Worsley Alumina saleable production decreased by 2% (or 31kt) to 1,979kt in
the December 2021 half year. FY22 production guidance remains unchanged at
3,965kt with our ongoing focus on improvement initiatives at the refinery
expected to maintain production above nameplate capacity of 4.6Mt (100%
basis).
We realised a circa 8% premium to the Platts Alumina Index(18) on a volume
weighted M-1 basis for alumina sales from Worsley Alumina in the December 2021
half year, with our realised prices benefitting from the impact of elevated
global freight rates which are also reflected in Operating unit costs.
Notwithstanding the refinery's continued strong performance that has enabled
us to capture the benefit of market conditions, elevated caustic soda prices
and freight rates are expected to result in Operating unit costs for the
December 2021 half year being approximately 5% above our FY22 guidance
(US$241/t). We expect higher caustic soda prices to persist in the June 2022
half year further impacting the refinery's Operating unit costs. Updated FY22
Operating unit cost guidance will be provided in our financial results
announcement for the December 2021 half year.
Brazil Alumina (36% share)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Alumina production (kt) 706 631 (11%) 354 272 359 1% 32%
Alumina sales (kt) 674 626 (7%) 334 247 379 13% 53%
Saleable production decreased by 11% (or 75kt) to 631kt in the December 2021
half year. Production improved by 32% (or 87kt) to a record 359kt in the
December quarter as the refinery returned to nameplate capacity in October
2021, following an incident in July 2021 that damaged one of the two bauxite
unloaders at the operation. FY22 production guidance remains unchanged at
1,300kt.
Sales increased by 53% in the December 2021 quarter with the prior quarter's
shipment schedule impacted by the bauxite unloader outage and vessel
availability. We realised a circa 4% premium to the Platts Alumina Index(18)
on a volume weighted M-1 basis for alumina sales from Brazil Alumina in the
December 2021 half year, with our realised prices benefitting from the impact
of elevated global freight rates which are also reflected in Operating unit
costs.
Notwithstanding the improvement in production volumes from the refinery
returning to nameplate capacity, the impact of elevated raw material input
prices, in combination with the already realised volume impact of the bauxite
unloader outage, is expected to result in Operating unit costs for the
December 2021 half year being approximately 30% higher than the June 2021 half
year (US$201/t).
Hillside Aluminium (100%)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Aluminium production (kt) 361 358 (1%) 181 180 178 (2%) (1%)
Aluminium sales (kt) 347 336 (3%) 172 160 176 2% 10%
Hillside Aluminium saleable production decreased by 1% (or 3kt) to 358kt in
the December 2021 half year as the smelter continued to test its maximum
technical capacity, despite the impact from higher load-shedding in the
period. FY22 production guidance, which does not assume any load-shedding
impact, remains unchanged at 720kt(10).
During the half year, we completed a feasibility study for the AP3XLE energy
efficiency project, approving its execution. We expect to roll the technology
out as part of the smelter's pot relining program starting in FY23, bringing
both volume and efficiency benefits, while reducing carbon intensity.
Third party port performance at Richards Bay and ongoing congestion in global
shipping conditions, impacted the smelter's capacity to sustainably unwind
working capital that was built in the September 2021 quarter. In response we
have and continue to establish alternative discharge and cargo shipping
options to mitigate these challenges, while maintaining sales volumes into
strong market conditions. The smelter realised record prices of US$2,952/t in
the December 2021 half year. We expect the current working capital build to
unwind once we realise the full benefit of our initiatives, and port
congestion and general freight tightness is alleviated.
While the smelter has benefitted from the continuation of strong underlying
realised prices, that are anticipated to further improve operating margins,
elevated raw material input costs and the smelter's energy price linkage to
the South Africa Producer Price Index are expected to result in an increase in
Operating unit costs in the December 2021 half year (June 2021 half year:
US$1,722/t) of approximately 10%.
Mozal Aluminium (47.1% share)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Aluminium production (kt) 135 136 1% 67 68 68 1% 0%
Aluminium sales (kt) 130 122 (6%) 66 55 67 2% 22%
Mozal Aluminium saleable production increased by 1% (or 1kt) to 136kt in the
December 2021 half year as the benefit of our investment in the AP3XLE energy
efficiency project more than offset the impact of further load-shedding. FY22
production guidance, which does not assume any load-shedding impact, remains
unchanged at 273kt(10). Updated production guidance will be provided following
the completion of our acquisition of an additional shareholding in Mozal
Aluminium that remains on-track to complete in the March 2022 quarter(1).
Challenging port and global shipping conditions impacted sales volumes from
Mozal Aluminium in the December 2021 half year. Conditions improved in the
December 2021 quarter with sales increasing by 22%. The smelter realised
record prices of US$3,041/t in the December 2021 half year.
While the smelter has benefitted from the continuation of strong underlying
realised prices, that are anticipated to further improve operating margins,
elevated raw material input costs are expected to result in an increase in
Operating unit costs in the December 2021 half year (June 2021 half year:
US$1,818/t) of approximately 10%.
Illawarra Metallurgical Coal (100%)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Total coal production (kt) 4,096 3,145 (23%) 1,725 1,888 1,257 (27%) (33%)
Total coal sales(19) (kt) 4,027 3,255 (19%) 2,087 1,708 1,547 (26%) (9%)
Metallurgical coal production (kt) 3,262 2,767 (15%) 1,399 1,575 1,192 (15%) (24%)
Metallurgical coal sales (kt) 3,165 2,877 (9%) 1,697 1,490 1,387 (18%) (7%)
Energy coal production (kt) 834 378 (55%) 326 313 65 (80%) (79%)
Energy coal sales (kt) 862 378 (56%) 390 218 160 (59%) (27%)
Illawarra Metallurgical Coal saleable production decreased by 23% (or 951kt)
to 3,145kt in the December 2021 half year as we completed an extended longwall
move at the Dendrobium mine in the current quarter. We made no energy coal
sales of low-margin coal wash, with elevated freight rates making them
uneconomic in the period.
The implementation of additional COVID-19 workforce restrictions in New South
Wales has the potential to further impact labour availability across the June
2022 half year. We expect to provide updated production guidance for FY22 and
FY23 at our financial results announcement for the December 2021 half year, as
we continue to monitor the impact of COVID-19 and progress design of an
alternate mine plan for the Dendrobium Next Domain life extension project.
Lower December 2021 half year production and sales volumes, and higher
price-linked royalties arising from the significant increase in prices year to
date, are expected to result in our Operating unit costs for the December 2021
half year being approximately 20% above our FY22 guidance (US$101/t). Updated
FY22 Operating unit cost guidance will be provided in our financial results
announcement for the December 2021 half year.
Australia Manganese (60% share)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Manganese ore production (kwmt) 1,834 1,704 (7%) 954 897 807 (15%) (10%)
Manganese ore sales (kwmt) 1,865 1,737 (7%) 871 906 831 (5%) (8%)
Australia Manganese saleable production decreased by 7% (or 130kwmt) to
1,704kwmt in the December 2021 half year with lower yield at the primary
concentrator, while the PC02 circuit continued to deliver production above
nameplate capacity (13% of total production, 1H21: 10%).
FY22 production guidance has been revised lower by 9% to 3,200kwmt with wet
weather disruptions and additional COVID-19 workforce restrictions in the
Northern Territory preventing the re-build of stockpiles ahead of the wet
season.
Lower December 2021 half year production and sales volumes are expected to
result in our Operating unit costs for the period being approximately 5% above
our FY22 guidance (US$1.68/dmtu). Updated FY22 Operating unit cost guidance
will be provided in our financial results announcement for the December 2021
half year.
South Africa Manganese (60% share)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Manganese ore production(11) (kwmt) 1,086 1,157 7% 505 668 489 (3%) (27%)
Manganese ore sales(11) (kwmt) 1,103 1,202 9% 586 566 636 9% 12%
South Africa Manganese saleable production increased by 7% (or 71kwmt) to
1,157kwmt in the December 2021 half year as planned maintenance completed in
the December 2021 quarter was more than offset by higher volumes of premium
material from our Mamatwan mine as we optimised our product mix.
Ore sales increased by 12% during the December 2021 quarter and 9% across the
half year as we continued to truck additional volume, drawing down inventory
and optimising our sales mix for market conditions. As a result, our sales
achieved a premium of approximately 11% to the medium grade 37% manganese lump
ore index(20) on a volume weighted M-1 basis.
FY22 production guidance remains unchanged at 2,200kwmt as we continue to
monitor market conditions and our use of higher cost trucking.
Cerro Matoso (99.9% share)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Payable nickel production (kt) 16.1 20.3 26% 6.1 9.6 10.7 75% 11%
Payable nickel sales (kt) 16.5 20.1 22% 6.1 10.4 9.7 59% (7%)
Cerro Matoso payable nickel production increased by 26% (or 4.2kt) to 20.3kt
in the December 2021 half year as plant availability returned to normal
following the major plant refurbishment completed in FY21. Separately, average
ore processed nickel grades improved to 1.73% (1H21: 1.57%) with the
processing of higher-grade material from the Q&P project.
Notwithstanding a shipment slipping at the end of the period due to congestion
at a destination port, nickel sales increased by 22% in the December 2021 half
year as production levels normalised. While our ferronickel product continues
to sell at a discount to the LME Nickel index price on a M or M+1 basis, this
discount narrowed during the December 2021 half year, averaging approximately
5% (FY21: 9%).
FY22 production guidance remains unchanged at 43.8kt with the operation
expected to benefit from a further improvement in plant availability and
additional volumes from the higher-grade Q&P project in the June 2022 half
year.
Cannington (100% share)
South32 share 1H21 1H22 HoH 2Q21 1Q22 2Q22 2Q22 2Q22
vs
vs
2Q21
1Q22
Payable zinc equivalent production(12) (kt) 140.5 152.5 9% 76.4 78.2 74.3 (3%) (5%)
Payable silver production (koz) 5,993 6,710 12% 3,130 3,493 3,217 3% (8%)
Payable silver sales (koz) 6,326 6,718 6% 3,359 2,718 4,000 19% 47%
Payable lead production (kt) 57.6 60.2 5% 31.2 31.9 28.3 (9%) (11%)
Payable lead sales (kt) 61.4 63.3 3% 31.9 25.3 38.0 19% 50%
Payable zinc production (kt) 30.4 32.7 8% 18.0 15.4 17.3 (4%) 12%
Payable zinc sales (kt) 31.8 32.8 3% 20.0 14.3 18.5 (8%) 29%
Cannington payable zinc equivalent production increased by 9% (or 12kt) to
152.5kt in the December 2021 half year as higher grades across all products
and strong underground performance supported metal production. FY22 production
guidance has been revised higher by 5% (silver 12,283koz, lead 117.9kt and
zinc 66.7kt, for 292.2kt of payable zinc equivalent production(12)) with the
operation remaining on-track to transition to 100% truck haulage from the June
2022 quarter.
Payable zinc sales increased by 29% during the December 2021 quarter as we
drew down inventory, while payable lead and silver sales increased by 50% and
47% respectively due to the timing of shipments, following adverse weather in
the September 2021 quarter.
A trial of light battery electric vehicles is expected to commence during the
June 2022 half year, testing their potential use in our vehicle fleet.
Notes
1. Refer to market release "South32 to acquire up to an additional 25% of Mozal
Aluminium" dated 30 September 2021.
2. Refer to market release "Restart of Brazil Aluminium using renewable power"
dated 6 January 2022.
3. Refer to market release "South32 to acquire a 45% interest in the Sierra Gorda
copper mine" dated 14 October 2021. Upfront consideration subject to customary
working capital and net debt adjustments. Contingent price-linked
consideration payable at threshold copper production rates and prices in the
years 2022-25. The estimates indicated in the original announcement are
qualifying foreign estimate and are not reported in accordance with the JORC
Code. A Competent Person has not done sufficient work to classify foreign
estimates as Mineral Resources or Ore Reserves in accordance with the JORC
Code. It is uncertain that following evaluation and/or further work that the
foreign estimates will be reported as Mineral Resources or Ore Reserves in
accordance with the JORC Code.
4. Refer to market release "Hermosa project update" dated 17 January 2022.
5. Net distributions from equity accounted investments includes net debt
movements and dividends, which are unaudited and should not be considered as
an indication of or alternative to an IFRS measure of profitability, financial
performance or liquidity.
6. Since inception, US$1.4B has been allocated to the on-market share buy-back
(674M shares at an average price of A$2.88 per share) and US$386M returned in
the form of special dividends.
7. The corporate tax rates of the geographies where the Group operates include:
Australia 30%, South Africa 28%, Colombia 31%, Mozambique 0% and Brazil 34%.
The Colombian corporate tax rate increased to 35% from 1 January 2022. The
Mozambique operations are subject to a royalty on revenues instead of income
tax.
8. Our manganese business is included in our Underlying EBITDA, EBIT and earnings
on a proportionally consolidated basis from 1 July 2021, aligning our approach
for material equity accounted investments including the proposed acquisition
of Sierra Gorda.
9. Australia Manganese is subject to a royalty related tax equal to 20% of
adjusted EBIT which is included in tax expense.
10. Production guidance for Hillside Aluminium and Mozal Aluminium does not assume
any load-shedding impact on production.
11. Consistent with the presentation of South32's segment information, South
Africa Manganese ore production and sales have been reported at 60%. The
Group's financial statements will continue to reflect a 54.6% interest in
South Africa Manganese ore.
12. Payable zinc equivalent production (kt) was calculated by aggregating revenues
from payable silver, lead and zinc, and dividing the total Revenue by the
price of zinc. FY21 realised prices for zinc (US$2,357/t), lead (US$1,862/t)
and silver (US$25.4/oz) have been used for FY21, H1 FY22 and FY22e.
13. Realised prices are unaudited. Volumes and prices do not include any third
party trading that may be undertaken independently of equity production.
Realised sales price is calculated as sales Revenue divided by sales volume
unless otherwise stated.
14. Realised ore prices are unaudited and calculated as external sales Revenue
less freight and marketing costs, divided by external sales volume. Ore
converted to sinter and alloy, and sold externally, is eliminated as an
intracompany transaction.
15. Realised ore prices are unaudited and calculated as external sales Revenue
less freight and marketing costs, divided by external sales volume.
Manganese ore sales are grossed-up to reflect a 60% accounting effective
interest.
16. Realised nickel sales prices are unaudited and inclusive of by-products.
17. Realised prices for Cannington are unaudited and net of treatment and refining
charges.
18. The sales volume weighted average of the Platts Alumina Index (FOB Australia)
on the basis of a one month lag to published pricing (Month minus one or
"M-1") for Worsley Alumina was US$360/t and Brazil Alumina was US$371/t in the
December 2021 half year.
19. Illawarra Metallurgical Coal sales are adjusted for moisture and will not
reconcile directly to Illawarra Metallurgical Coal production.
20. The sales volume weighted average of the Metal Bulletin 37% manganese lump ore
index (FOB Port Elizabeth, South Africa) on the basis of M-1 was US$3.12/dmtu
in the December 2021 half year.
The following abbreviations have been used throughout this report: US$ million
(US$M); US$ billion (US$B); grams per tonne (g/t); tonnes (t); thousand tonnes
(kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes
per annum (Mtpa); ounces (oz); thousand ounces (koz); million ounces (Moz);
thousand wet metric tonnes (kwmt); million wet metric tonnes (Mwmt); million
wet metric tonnes per annum (Mwmt pa); dry metric tonne unit (dmtu); thousand
dry metric tonnes (kdmt).
Figures in Italics indicate that an adjustment has been made since the figures
were previously reported. The denotation (e) refers to an estimate or forecast
year.
Operating Performance
South32 share 1H21 1H22 2Q21 3Q21 4Q21 1Q22 2Q22
Worsley Alumina (86% share)
Alumina hydrate production (kt) 2,012 1,994 1,002 977 992 997 997
Alumina production (kt) 2,010 1,979 1,047 875 1,078 1,006 973
Alumina sales (kt) 2,078 1,946 1,077 840 1,086 924 1,022
Brazil Alumina (36% share)
Alumina production (kt) 706 631 354 343 349 272 359
Alumina sales (kt) 674 626 334 384 333 247 379
Hillside Aluminium (100%)
Aluminium production (kt) 361 358 181 176 180 180 178
Aluminium sales (kt) 347 336 172 191 169 160 176
Mozal Aluminium (47.1% share)
Aluminium production (kt) 135 136 67 64 66 68 68
Aluminium sales (kt) 130 122 66 64 68 55 67
Illawarra Metallurgical Coal (100%)
Total coal production (kt) 4,096 3,145 1,725 1,824 1,725 1,888 1,257
Total coal sales(19) (kt) 4,027 3,255 2,087 1,823 1,766 1,708 1,547
Metallurgical coal production (kt) 3,262 2,767 1,399 1,568 1,340 1,575 1,192
Metallurgical coal sales (kt) 3,165 2,877 1,697 1,542 1,367 1,490 1,387
Energy coal production (kt) 834 378 326 256 385 313 65
Energy coal sales (kt) 862 378 390 281 399 218 160
Australia Manganese (60% share)
Manganese ore production (kwmt) 1,834 1,704 954 829 866 897 807
Manganese ore sales (kwmt) 1,865 1,737 871 865 891 906 831
Ore grade sold (%, Mn) 44.4 44.2 44.5 44.4 44.5 44.2 44.2
South Africa Manganese (60% share)
Manganese ore production(11) (kwmt) 1,086 1,157 505 580 598 668 489
Manganese ore sales(11) (kwmt) 1,103 1,202 586 497 636 566 636
Ore grade sold (%, Mn) 39.9 39.5 40.0 40.6 39.5 40.3 38.7
Cerro Matoso (99.9% share)
Ore mined (kwmt) 1,470 2,416 825 594 1,174 1,058 1,358
Ore processed (kdmt) 1,155 1,335 457 528 702 620 715
Ore grade processed (%, Ni) 1.57 1.73 1.55 1.60 1.76 1.76 1.71
Payable nickel production (kt) 16.1 20.3 6.1 7.1 10.9 9.6 10.7
Payable nickel sales (kt) 16.5 20.1 6.1 6.7 10.3 10.4 9.7
Cannington (100%)
Ore mined (kwmt) 1,409 1,475 709 714 696 750 725
Ore processed (kdmt) 1,302 1,385 672 724 720 687 698
Silver ore grade processed (g/t, Ag) 174 177 179 177 213 185 169
Lead ore grade processed (%, Pb) 5.1 5.2 5.2 5.8 6.6 5.5 4.9
Zinc ore grade processed (%, Zn) 3.3 3.4 3.7 3.5 3.9 3.2 3.6
Payable Zinc equivalent production(12) (kt) 140.5 152.5 76.4 81.4 97.1 78.2 74.3
Payable silver production (koz) 5,993 6,710 3,130 3,484 4,178 3,493 3,217
Payable silver sales (koz) 6,326 6,718 3,359 2,950 4,460 2,718 4,000
Payable lead production (kt) 57.6 60.2 31.2 33.0 41.2 31.9 28.3
Payable lead sales (kt) 61.4 63.3 31.9 28.4 41.9 25.3 38.0
Payable zinc production (kt) 30.4 32.7 18.0 17.8 19.5 15.4 17.3
Payable zinc sales (kt) 31.8 32.8 20.0 15.9 21.3 14.3 18.5
Forward-looking statements
This release contains forward-looking statements, including statements about
trends in commodity prices and currency exchange rates; demand for
commodities; production forecasts; plans, strategies and objectives of
management; capital costs and scheduling; operating costs; anticipated
productive lives of projects, mines and facilities; and provisions and
contingent liabilities. These forward-looking statements reflect expectations
at the date of this release, however they are not guarantees or predictions of
future performance. They involve known and unknown risks, uncertainties and
other factors, many of which are beyond our control, and which may cause
actual results to differ materially from those expressed in the statements
contained in this release. Readers are cautioned not to put undue reliance on
forward-looking statements. Except as required by applicable laws or
regulations, the South32 Group does not undertake to publicly update or review
any forward-looking statements, whether as a result of new information or
future events. Past performance cannot be relied on as a guide to future
performance. South32 cautions against reliance on any forward looking
statements or guidance, particularly in light of the current economic climate
and the significant volatility, uncertainty and disruption arising in
connection with COVID-19.
Further information
INVESTOR RELATIONS MEDIA RELATIONS
Tom Gallop Miles Godfrey Jenny White
M +61 439 353 948
M +61 415 325 906
M +44 7900 046 758
E Tom.Gallop@south32.net E Miles.Godrey@south32.net E Jenny.White@south32.net
24 January 2022
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd
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