REG - South32 Limited - Quarterly Report December 2022
23/01/2023 07:00
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RNS Number : 4887N South32 Limited 23 January 2023
QUARTERLY REPORT
December 2022
· Group copper equivalent production(1) increased by 12% in H1 FY23, as our
recent investments in copper
and low-carbon aluminium capacity(2) delivered strong growth
· H1 FY23 Operating unit costs expected to be in-line or below FY23 guidance at
the majority of our operations
· We are well positioned to capture the benefit of improved market conditions,
with further expected production growth in H2 FY23 and our ongoing focus on
cost management to mitigate inflationary pressures
· Worsley Alumina and Brazil Alumina operated above nameplate capacity in the
December 2022 quarter, delivering an 8% increase in quarterly alumina volumes
· Aluminium production increased by 15% in the December 2022 half year, with a
50% uplift in low-carbon aluminium, following our acquisition of an additional
shareholding in Mozal Aluminium and restart of the Brazil Aluminium smelter
· Sierra Gorda realised sequentially higher copper grades, delivering 45kt of
payable copper equivalent production(3) in the December 2022 half year
· Cerro Matoso commissioned the Ore Sorting and Mechanical Ore Concentration
project in the December 2022 quarter, underpinning a 15 year extension to the
mining contract, and supporting higher expected nickel production in H2 FY23
· Australia Manganese achieved record half year production, supporting a 7%
increase in total manganese production
· Illawarra Metallurgical Coal delivered a 17% increase in quarterly
metallurgical coal production, with improved volumes and labour productivity
as we finalised a new industrial agreement at Appin
· FY23 production guidance at Cannington revised lower by 11% due to lower mill
throughput and labour availability impacting mining rates, and at Brazil
Aluminium by 25kt (or 25%) due to a slower ramp-up to nameplate capacity
· Work completed on Hermosa's Clark selection phase pre-feasibility study
confirmed the opportunity to produce high-purity manganese sulphate
monohydrate for the growing North American electric vehicle supply chain
South32 Chief Executive Officer, Graham Kerr: "In November 2022, we were
devastated by the loss of two of our colleagues who were fatally injured in an
incident at Mozal Aluminium. Our thoughts and deepest sympathies remain with
their families, and we provided them with our support following the incident.
We are committed to improving our safety performance. Through our Safety
Improvement Program, we are undertaking a significant amount of work to
achieve the necessary step-change.
"Group copper equivalent production increased by 12 per cent in the December
half year, as we benefitted from transactions that have repositioned our
portfolio toward metals critical for a low-carbon future. Australia Manganese
also achieved record half year production, while Cerro Matoso successfully
commissioned the Ore Sorting and Mechanical Ore Concentration project,
underpinning a 15 year extension to the mining contract.
"Despite industry wide inflationary pressures, we expect Operating unit costs
for the first half to be in-line with or below guidance for the 2023
financial year at the majority of our operations. We remain focused on
delivering safe and stable operational performance, and efficiencies to
mitigate cost pressures and capture higher margins as markets improve.
"We returned US$927 million to shareholders during the period, paying record
fully-franked dividends in respect of the
June 2022 half year and continuing our on-market share buy-back. We have
returned US$2.2 billion under our capital management program since inception,
with US$108 million remaining to be returned to shareholders ahead of its
extension or expiry in September 2023.
"Looking forward, our capital management framework and disciplined approach to
capital allocation is designed to reward shareholders as we grow our
production and realise the benefits of improving market conditions.
At the same time, we continue to reshape our portfolio toward metals critical
for a low-carbon future, advancing construction work, studies and exploration
at our high-quality development options."
Production summary
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 QoQ
Alumina production (kt) 2,610 2,613 0% 1,332 1,257 1,356 8%
Aluminium production (kt) 494 568 15% 246 279 289 4%
Payable copper production (kt) - - 37.9 N/A - - 19.0 18.9 (1%)
Payable silver production (koz) 6,710 5,812 (13%) 3,217 2,748 3,064 11%
Payable lead production (kt) 60.2 52.4 (13%) 28.3 24.6 27.8 13%
Payable zinc production (kt) 32.7 30.4 (7%) 17.3 14.0 16.4 17%
Payable nickel production (kt) 20.3 20.4 0% 10.7 9.6 10.8 13%
Metallurgical coal production (kt) 2,767 2,753 (1%) 1,192 1,270 1,483 17%
Manganese ore production (kwmt) 2,757 2,937 7% 1,252 1,460 1,477 1%
Unless otherwise noted: percentage variance relates to performance during the
half year ended December 2022 compared with the half year ended December 2021
(HoH), or the December 2022 quarter compared with the September 2022 quarter
(QoQ); production and sales volumes are reported on an attributable basis.
Corporate Update
· On 7 November 2022, two of our colleagues, Mr Cristovão Alberto Tonela and Mr
Alfredo Francisco Domingos João, were fatally injured in an incident at Mozal
Aluminium. Our deepest sympathies are with the families and colleagues of the
deceased to whom we have provided our support and counselling. The incident
occurred during maintenance work on a raising girder. Production operations
were temporarily suspended while an investigation was completed. Key learnings
from the incident are being shared across our organisation and with industry.
As an immediate step, additional controls were put in place for all raising
girders at Mozal Aluminium and Hillside Aluminium.
· A non-binding advisory resolution in relation to our Climate Change Action
Plan (CCAP) was passed by shareholders at our Annual General Meeting on 27
October 2022, with 89.6% of the votes received in favour of the resolution.
Our CCAP included a new goal(4) of net zero Scope 3 greenhouse gas emissions
by 2050 and a commitment not to develop or invest in greenfield metallurgical
coal projects.
· Consistent with our focus on securing low-carbon energy, Sierra Gorda's
electricity supply will transition to cost efficient, fully renewable sources
from January 2023 under an agreement to December 2039. Electricity supplied to
the operation will be from solar, wind and hydroelectric power sources,
sustainably reducing Sierra Gorda's greenhouse gas emissions and energy costs.
· During the December 2022 quarter, we satisfied the conditions to extend the
mining contract at Cerro Matoso by 15 years from 2029 to 2044. As part of this
extension, we received third-party certification of the expanded processing
capacity(5) delivered by the Ore Sorting and Mechanical Ore Concentration
(OSMOC) project and paid US$43M to the National Mining Agency in the December
2022 quarter.
· We made a final investment decision to install additional ventilation capacity
at Illawarra Metallurgical Coal's Appin mine to enable mining in the current
Area 7 until at least 2039(6). This ~US$260M investment is expected to be
completed by H1 FY26, with our guidance for FY23 and FY24 safe and reliable
capital expenditure already reflecting this activity.
· We expect to record a build in working capital of approximately US$100M in the
December 2022 half year, primarily related to an increase in inventories. This
impact is most acute in our aluminium value chain in Southern Africa due to
ongoing shipping delays.
· During the December 2022 quarter, we returned a record US$784M in
fully-franked ordinary and special dividends in respect of the June 2022 half
year.
· We also returned US$143M via our on-market share buy-back during the December
2022 half year, purchasing a further 56M shares at an average price of A$3.86.
To 31 December 2022, our US$2.3B capital management program was 95% complete
with US$108M remaining to be returned ahead of its extension or expiry on 1
September 2023(7).
· We received net distributions(8) of US$60M (South32 share) from our manganese
equity accounted investments (EAI) in the December 2022 half year, 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 in the December 2022 half year.
· We made tax payments of US$347M in the December 2022 half year, which included
US$111M in relation to our acquisition of Sierra Gorda. Of this amount,
~€92M (~US$94M at the payment date) relates to pre-closing tax liabilities
which we intend to seek to recover from the vendors.
· Our Group Underlying effective tax rate (ETR) for the December 2022 half year
is expected to be approximately 35%, reflecting the corporate tax rates of the
jurisdictions in which we operate(9) and our geographical earnings mix,
including our manganese and Sierra Gorda EAIs which are proportionally
consolidated in our Underlying results. Separately, the Underlying ETR of our
manganese business is expected to be in a range of approximately 55 to 60%,
including the royalty related tax for Australia Manganese(10) and the
derecognition of certain deferred tax assets.
· We extended our undrawn sustainability-linked revolving credit facility during
the December 2022 quarter, retaining available capacity of US$1.4B to December
2026 and US$1.2B to December 2027.
· 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.
Development and Exploration Update
Hermosa project
· We invested US$96M at Hermosa in the December 2022 half year as we continued
critical path dewatering activity and study work for the Taylor
zinc-lead-silver deposit and the Clark battery-grade manganese-zinc-silver
deposit.
· We completed drilling of the first two dewatering wells during the December
2022 half year, with a total of six dewatering wells expected to be completed
during FY23. The second water treatment plant remains on-track to be
commissioned in the June 2023 quarter.
· We progressed the Taylor feasibility study which remains on-track to support a
planned final investment decision in mid CY23.
· We completed work on the selection phase of the Clark pre-feasibility study
during the December 2022 quarter. While this study remains subject to
independent review, work to date has confirmed the opportunity to produce
high-purity manganese sulphate monohydrate for the growing North American
electric vehicle supply chain.
· In parallel, we progressed metallurgical test work and continued our drilling
program at Clark to collect bulk samples that will support initial pilot plant
production from mid CY23.
· We directed US$6M to capitalised exploration in the December 2022 half year,
as we continued our planned exploration programs including at the
copper-lead-zinc-silver Peake prospect(11). We expect to commence exploration
drilling at the Flux prospect(12) during CY23, following the receipt of
approvals.
Ambler Metals project
· At our Ambler Metals joint venture, the CY22 summer exploration program was
completed and the joint venture progressed work on the pre-feasibility study
for the Arctic deposit. Our share of capitalised exploration was US$8M in the
December 2022 half year.
· Activity in CY23 is expected to focus on consolidating our geological
knowledge and advancing engineering studies, while we monitor progress on
approvals for the Ambler Access Project.
Greenfield exploration
· We invested US$19M during the December 2022 half year in our greenfield
exploration opportunities, with multiple programs targeting base metals
underway in Australia, USA, Canada, Argentina, Peru and Ireland.
Other exploration
· We invested US$30M (US$20M capitalised) in exploration programs at our
existing operations and development options in the December 2022 half year,
including US$6M at the Hermosa project (noted above, all capitalised), US$8M
at Ambler Metals (noted above, all capitalised), US$2M for our manganese EAI
(US$1M capitalised) and US$3M for our Sierra Gorda EAI (US$1M capitalised).
Production Summary
Production guidance FY22 1H23 FY23e((a)) Guidance comments
(South32 share)
Worsley Alumina
Alumina production (kt) 3,991 1,922 4,000
Brazil Alumina (non-operated)
Alumina production (kt) 1,297 691 1,395
Brazil Aluminium (non-operated)
Aluminium production (kt) 0.3 23.7 ↓ 75 Guidance reduced by 25kt (from 100kt) due to a slower than expected ramp-up to
nameplate capacity
Hillside Aluminium(13)
Aluminium production (kt) 714 362 720
Mozal Aluminium(13)(,14)
Aluminium production (kt) 278 182 370
Sierra Gorda (non-operated)
Payable copper equivalent production(3) (kt) 30.6 44.9 89.0
Payable copper production (kt) 25.3 37.9 71.8
Payable molybdenum production (kt) 0.4 0.4 1.5
Payable gold production (koz) 9.6 15.3 29.9
Payable silver production (koz) 253 338 582
Cannington
Payable zinc equivalent production(15) (kt) 224.2 98.8 ↓ 209.4 Guidance reduced by 11% (from 236.1kt payable zinc equivalent) with lower
H1 FY23 mill throughput and labour availability impacting mining rates
Payable silver production (koz) 12,946 5,474 ↓ 12,000
Payable lead production (kt) 120.6 52.4 ↓ 108.5
Payable zinc production (kt) 64.5 30.4 ↓ 63.5
Cerro Matoso
Payable nickel production (kt) 41.7 20.4 43.5 OSMOC project expected to support higher volumes in
H2 FY23
Illawarra Metallurgical Coal
Total coal production (kt) 6,509 3,331 7,000 Improved labour productivity expected
in H2 FY23
Metallurgical coal production (kt) 5,712 2,753 6,000
Energy coal production (kt) 797 578 1,000
Australia Manganese
Manganese ore production (kwmt) 3,363 1,844 3,400 Production tracking ahead of guidance, prior to the wet season
South Africa Manganese
Manganese ore production (kwmt) 2,069 1,093 2,000 Subject to demand and our continued use of higher cost trucking
a. The denotation (e) refers to an estimate or forecast year.
All guidance is subject to further potential impacts from COVID-19.
marketing Update
Commodity prices were broadly lower in the December 2022 half year as we saw a
moderation in demand and sentiment following record conditions for many
markets in the prior period.
The average realised prices achieved for our commodities are summarised below.
Outstanding concentrate sales were revalued at 31 December 2022 with the final
price of these to be determined in the June 2023 half year.
Realised prices(16) 1H22 2H22 1H23 1H23 1H23
vs
vs
1H22
2H22
Worsley Alumina
Alumina (US$/t) 389 428 354 (9%) (17%)
Brazil Alumina (non-operated)((a))
Alumina (US$/t) 387 419 364 (6%) (13%)
Brazil Aluminium (non-operated)((a))
Aluminium (US$/t) - - 2,423 N/A N/A
Hillside Aluminium
Aluminium (US$/t) 2,952 3,347 2,555 (13%) (24%)
Mozal Aluminium
Aluminium (US$/t) 3,041 3,591 2,723 (10%) (24%)
Sierra Gorda (non-operated)(17(a)(b))
Payable copper (US$/lb) - 3.50 3.41 N/A (3%)
Payable molybdenum (US$/lb) - 18.48 20.78 N/A 12%
Payable gold (US$/oz) - 1,934 1,688 N/A (13%)
Payable silver (US$/oz) - 23.5 17.4 N/A (26%)
Cannington(18)
Payable silver (US$/oz) 21.0 21.0 20.1 (4%) (4%)
Payable lead (US$/t) 2,180 1,902 2,008 (8%) 6%
Payable zinc (US$/t) 2,988 3,473 2,436 (18%) (30%)
Cerro Matoso(19)
Payable nickel (US$/lb) 8.39 11.64 9.05 8% (22%)
Illawarra Metallurgical Coal
Metallurgical coal (US$/t) 303 457 268 (12%) (41%)
Energy coal (US$/t) 108 200 164 52% (18%)
Australia Manganese(20)
Manganese ore (US$/dmtu, FOB) 4.59 6.05 4.57 0% (24%)
South Africa Manganese(20)
Manganese ore (US$/dmtu, FOB) 3.47 4.39 3.57 3% (19%)
a. While Brazil Alumina and Brazil Aluminium are non-operated, South32 owns the
marketing rights for our share of production. While Sierra Gorda is also
non-operated, the Joint Venture is responsible for marketing our share of
production.
b. Published 2H22 realised sales prices and Operating unit costs reflect the
period 1 March 2022 to 30 June 2022. Whereas production and sales numbers, and
all Income Statement items reflect the period from first ownership (22
February 2022).
OPERATING UNIT COST UPDATE
We expect to report H1 FY23 Operating unit costs in-line or below current FY23
guidance at the majority of our operations, with a combination of cost
efficiencies and weaker producer currencies partially offsetting industry-wide
cost inflation. Looking forward, we remain focused on delivering safe and
stable operational performance and further efficiencies to mitigate cost
pressures. Further, Operating unit costs in H2 FY23 are expected to benefit
from higher production volumes as we realise the benefit of prior investments,
embedded improvement projects and maintenance completed in H1 FY23.
The below commentary reflects our current expectations for H1 FY23 Operating
unit costs. We will report H1 FY23 Operating unit costs and provide updated
FY23 guidance with our financial results announcement for the December 2022
half year.
Operating unit cost((a))
Guidance H1 FY23 Operating unit costs commentary
FY23e((b)(c))
Worsley Alumina
(US$/t) 296 Expected to be ~2.5% below current FY23 guidance, with a weaker Australian
dollar and lower caustic soda costs to more than offset higher energy prices
Brazil Alumina (non-operated)
Not Expected to be ~17.5% above H2 FY22 Operating unit costs (US$312/t), as raw
material input and energy prices remain elevated, and we incurred higher
provided contractor costs
Brazil Aluminium (non-operated)
Not Gross operating costs of ~US$120M expected as we invest to support the
smelter's ramp-up to nameplate capacity
provided
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Mozal Aluminium
Sierra Gorda (non-operated)
(US$/t)((d)) 14.8 Expect to be ~12.5% above current FY23 guidance, with higher coal price-linked
energy costs and lower ore processed
Cannington
(US$/t)((d)) 129 Expect to be ~5% above current FY23 guidance, with a weaker Australian dollar
and lower price-linked royalties, to be more than offset by lower ore
processed
Cerro Matoso
(US$/lb) 4.97 Expected to be in-line with current FY23 guidance, with a weaker Colombian
peso and lower price-linked royalties, expected to offset lower volumes
Illawarra Metallurgical Coal
(US$/t) 116 Expected to be ~7.5% above current FY23 guidance, with a weaker Australian
dollar and lower price-linked royalties, to be more than offset by lower
volumes
Australia Manganese (FOB)
(US$/dmtu) 2.08 Expected to be ~15% below current FY23 guidance, benefitting from higher
volumes, together with a weaker Australian dollar and lower
price-linked royalties
South Africa Manganese (FOB)
(US$/dmtu) 2.66 Expected to be in-line with current guidance, with a weaker South African rand
partially offset by the use of higher cost trucking
a. 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.
b. FY23e Operating unit cost guidance includes royalties (where appropriate) and
commodity price and foreign exchange rate forward curves or our internal
expectations (refer to footnote 21).
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.
Worsley Alumina (86% share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Alumina production (kt) 1,979 1,922 (3%) 973 920 1,002 3% 9%
Alumina sales (kt) 1,946 1,861 (4%) 1,022 885 976 (5%) 10%
Worsley Alumina saleable production decreased by 3% (or 57kt) to 1,922kt in
the December 2022 half year, while saleable production improved by 9% (or
82kt) in the December 2022 quarter following the completion of planned
calciner maintenance in the September 2022 quarter. FY23 production guidance
remains unchanged at 4,000kt with the expectation that nameplate production
rates (4.6Mtpa, 100% basis) are achieved following planned calciner
maintenance in the March 2023 quarter.
During the December 2022 quarter, we imported approximately 58kt of
low-calorific coal to supplement our domestic coal supply. While we have no
current plans to import further coal, we will continue to monitor the
performance of our domestic third-party coal suppliers and respond
accordingly.
Brazil Alumina (36% share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Alumina production (kt) 631 691 10% 359 337 354 (1%) 5%
Alumina sales (kt) 626 678 8% 379 313 365 (4%) 17%
Brazil Alumina saleable production increased by 10% (or 60kt) to 691kt in the
December 2022 half year, 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.
( )
Brazil AluminIUM (40% share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Aluminium production (kt) - 23.7 N/A - 8.3 15.4 N/A 86%
Aluminium sales (kt) - 19.4 N/A - 3.3 16.1 N/A 388%
Brazil Aluminium saleable production was 23.7kt in the December 2022 half
year, following the successful restart of the smelter in the June 2022
quarter. Production increased by 86% (or 7.1kt) in the December 2022 quarter
as potlines one and two continued to ramp-up towards capacity and potline
three was restarted in November 2022.
During the December 2022 quarter, the smelter experienced temporary challenges
with its alumina feeding systems and higher than expected pot failure rates.
As a result, fewer pots are in operation than planned, and the ramp-up to
nameplate capacity (179ktpa, 40% basis) is delayed to the September 2023
quarter. Accordingly, we have reduced FY23 production by 25kt (or 25%) to 75kt
and FY24 production guidance by 31kt (or 17%) to 148kt.
Hillside Aluminium (100% SHARE)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Aluminium production (kt) 358 362 1% 178 179 183 3% 2%
Aluminium sales (kt) 336 337 0% 176 162 175 (1%) 8%
Hillside Aluminium saleable production increased by 1% (or 4kt) to 362kt in
the December 2022 half year as the smelter continued to test its maximum
technical capacity despite the impact of elevated load-shedding. FY23
production guidance remains unchanged at 720kt(13).
While sales increased by 8% in the December 2022 quarter, inventory remained
above target levels as two shipments were delayed to January 2023 due to
shipping delays at Richards Bay.
Mozal Aluminium (63.7%(14) share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Aluminium production (kt) 136 182 34% 68 92 90 32% (2%)
Aluminium sales (kt) 122 177 45% 67 87 90 34% 3%
Mozal Aluminium saleable production increased by 34% (or 46kt) to 182kt in the
December 2022 half year, reflecting our increased ownership of the
smelter(14). Production decreased by 2% (or 2kt) in the December 2022 quarter
as operations in Potroom A were temporarily suspended as we responded to the
fatal incident on 7 November 2022. FY23 production guidance remains unchanged
at 370kt(13), with the smelter having subsequently returned to full production
and continued to test its maximum technical capacity despite the impact of
elevated load-shedding.
SIERRA GORDA (45% share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Payable copper equivalent production(3) (kt) - 44.9 N/A - 22.6 22.3 N/A (1%)
Payable copper production (kt) - 37.9 N/A - 19.0 18.9 N/A (1%)
Payable copper sales (kt) - 38.4 N/A - 19.2 19.2 N/A 0%
Sierra Gorda payable copper equivalent production(3) was 44.9kt in the
December 2022 half year, as the operation realised sequentially higher average
copper grades (H1 FY23: 0.45%, H2 FY22: 0.42%) and delivered plant throughput
at an annualised rate of ~48Mt (100% basis). FY23 payable copper equivalent
production(3) guidance of 89.0kt remains unchanged (copper 71.8kt, molybdenum
1.5kt, gold 29.9koz and silver 582koz).
Sierra Gorda progressed work on the plant de-bottlenecking project during the
December 2022 quarter, completing planned conveyor upgrades, while
commissioning of the third tailings thickener is delayed to the March 2023
quarter. Based on recent performance of the grinding circuit, we now expect
annual plant throughput to be in a range of 48 to 49Mtpa (100% basis)
following the completion of de-bottlenecking work. In parallel, feasibility
study work continues on a potential fourth grinding line, designed to
sustainably lift plant throughput above 50Mtpa (100% basis). The feasibility
study is expected to be completed in H1 FY24.
We will provide FY24 production guidance with our financial results
announcement for the December 2022 half year.
Cannington (100% share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Payable zinc equivalent production(15) (kt) 114.0 98.8 (13%) 55.9 46.1 52.7 (6%) 14%
Payable silver production (koz) 6,710 5,474 (18%) 3,217 2,568 2,906 (10%) 13%
Payable silver sales (koz) 6,718 5,083 (24%) 4,000 1,704 3,379 (16%) 98%
Payable lead production (kt) 60.2 52.4 (13%) 28.3 24.6 27.8 (2%) 13%
Payable lead sales (kt) 63.3 51.3 (19%) 38.0 18.7 32.6 (14%) 74%
Payable zinc production (kt) 32.7 30.4 (7%) 17.3 14.0 16.4 (5%) 17%
Payable zinc sales (kt) 32.8 27.5 (16%) 18.5 14.9 12.6 (32%) (15%)
Cannington payable zinc equivalent production(15) decreased by 13% (or 15.2kt)
to 98.8kt in the December 2022 half year with mill throughput below plan
due to lower than expected performance of temporary mobile crushers deployed
to support the transition to truck haulage. Ore mined volumes also declined
with lower operator availability due to skilled labour shortages and further
COVID-19 absenteeism.
While the transition to truck haulage was completed at the end of the December
2022 quarter and is expected to bring forward higher-grade material in the
mine plan, the ability to recover production volumes in H2 FY23 is expected to
be constrained with near-term labour availability challenges expected to
impact mining rates. Accordingly, we have reduced FY23 production guidance by
11% to 209.4kt payable zinc equivalent(15) (ore processed 2,450kdmt, silver
12,000koz, lead 108.5kt and zinc 63.5kt).
Sales volumes in the December 2022 quarter reflected the timing of shipments,
including carry-over shipments of silver and lead from the prior quarter. Our
realised zinc price of US$2,436/t in the December 2022 half year is net of
treatment and refining charges that have widened in the current market.
Cerro Matoso (99.9% share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Payable nickel production (kt) 20.3 20.4 0% 10.7 9.6 10.8 1% 13%
Payable nickel sales (kt) 20.1 19.8 (1%) 9.7 9.0 10.8 11% 20%
Cerro Matoso payable nickel production was largely unchanged at 20.4kt in the
December 2022 half year. Production improved by 13% (or 1.2kt) in the December
2022 quarter as mill throughput returned to normalised rates following the
completion of a planned shut, while the OSMOC project was commissioned. FY23
production guidance remains unchanged at 43.5kt, with the OSMOC project
expected to support higher production volumes in H2 FY23.
Sales increased by 20% in the December 2022 quarter, which reflected improved
product availability. Our ferronickel product typically attracts a discount to
the LME Nickel price index on a volume weighted M or M+1 basis, with this
discount further widening to 16% in the December 2022 half year (H2 FY22: 8%).
Following a change in tax legislation, we expect Cerro Matoso's effective tax
rate to increase in future periods, with the Colombian dividend withholding
tax increasing from 10% to 20% and income tax deductions no longer available
for royalty payments(22) from January 2023.
Illawarra Metallurgical Coal (100% sHARE)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Total coal production (kt) 3,145 3,331 6% 1,257 1,595 1,736 38% 9%
Total coal sales(23) (kt) 3,255 3,185 (2%) 1,547 1,390 1,795 16% 29%
Metallurgical coal production (kt) 2,767 2,753 (1%) 1,192 1,270 1,483 24% 17%
Metallurgical coal sales (kt) 2,877 2,678 (7%) 1,387 1,193 1,485 7% 24%
Energy coal production (kt) 378 578 53% 65 325 253 289% (22%)
Energy coal sales (kt) 378 507 34% 160 197 310 94% 57%
Illawarra Metallurgical Coal saleable production increased by 6% (or 186kt) to
3,331kt in the December 2022 half year. Metallurgical coal production
increased by 17% (or 213kt) in the December 2022 quarter, with improved labour
productivity at the Appin mine following the successful negotiation in October
2022 of a new Enterprise Agreement, which has a four year term to 2026. The
benefit to production of improved labour productivity following the conclusion
of protected industrial action was partially offset by a temporary outage in
the December 2022 quarter. Energy coal production decreased by 22% (or 72kt)
during the December 2022 quarter, due to maintenance and water management
activity at the Dendrobium mine.
FY23 production guidance remains unchanged at 7.0Mt (metallurgical coal 6.0Mt
and energy coal 1.0Mt) with the complex expected to deliver higher volumes
over the remainder of FY23, benefitting from an expected improvement in labour
productivity.
Australia Manganese (60% share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Manganese ore production (kwmt) 1,704 1,844 8% 807 898 946 17% 5%
Manganese ore sales (kwmt) 1,737 1,652 (5%) 831 779 873 5% 12%
Australia Manganese saleable production increased by 8% (or 140kwmt) to a
record of 1,844kwmt in the December 2022 half year 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 plan prior
to the commencement of the wet season.
South Africa Manganese (ore 54.6% share)
South32 share 1H22 1H23 HoH 2Q22 1Q23 2Q23 2Q23 2Q23
vs
vs
2Q22
1Q23
Manganese ore production (kwmt) 1,053 1,093 4% 445 562 531 19% (6%)
Manganese ore sales (kwmt) 1,094 1,032 (6%) 579 473 559 (3%) 18%
South Africa Manganese saleable production increased by 4% (or 40kwmt) to
1,093kwmt in the December 2022 half year, as improved mining performance was
partially offset by planned maintenance in the December 2022 quarter. FY23
production guidance remains unchanged at 2,000kwmt, subject to market
conditions and our continued use of higher cost trucking.
Sales increased by 18% in the December 2022 quarter as third-party rail and
port availability progressively improved after Transnet's industrial action
was resolved in October 2022. Notwithstanding this strong quarterly
performance, we did see a build in working capital during the December 2022
half year as a result of this disruption.
Notes
1. 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).
2. Refers to aluminium produced using renewable power.
3. 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 and FY23e.
4. Goal is defined as an ambition to seek an outcome for which there is no
current pathway(s), but for which efforts will be pursued towards addressing
that challenge, 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.
5. The information in this report that relates to the production target is based
on Proved (75%) and Probable (25%) Ore Reserves for Cerro Matoso. Mineral
Resources and Ore Reserve estimates for Cerro Matoso was declared as part of
South32's Annual Resource and Reserve declaration in the Annual Report 2022
(www.south32.net) issued on 9 September 2022 and prepared by I Espitia
(MAusIMM) and N Monterroza (MAusIMM) in accordance with the requirements of
the JORC Code. South32 confirms that it is not aware of any new information or
data that materially affects the information included in the original
announcement. All material assumptions and technical parameters underpinning
the estimates in the relevant market announcement continue to apply and have
not materially changed. South32 confirms that the form and context in which
the Competent Person's findings are presented have not been materially
modified from the original market announcement. Payable nickel is calculated
using long-term consensus metal prices and relative metallurgical recoveries.
6. 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.
7. 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.
8. Net distributions from our material equity accounted investments (manganese
and Sierra Gorda) 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.
9. 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.
10. Australia Manganese is subject to a royalty related tax equal to 20% of
adjusted EBIT which is included in tax expense.
11. 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.
12. 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.
13. Production guidance for Hillside Aluminium and Mozal Aluminium does not assume
any load-shedding impact on production.
14. Refer to market release "South32 completes acquisition of additional
shareholding in Mozal Aluminium" dated 31 May 2022. Historical production and
sales figures have not been restated for our increased ownership (presented on
a 47.1% basis to 31 May 2022).
15. 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 and FY23e.
16. 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.
17. Realised prices for Sierra Gorda are net of treatment and refining charges.
18. Realised prices for Cannington are net of treatment and refining charges.
19. Realised nickel sales prices are inclusive of by-products.
20. Realised ore prices are calculated as external sales Revenue less freight and
marketing costs, divided by external sales volume.
21. FY23 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$22.11/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$1,860/troy oz; an AUD:USD exchange rate of 0.69;
a USD:ZAR exchange rate of 16.62; a USD:COP exchange rate of 3,851; USD:CLP
exchange rate of 814; and a reference price for caustic soda; which reflect
forward markets as at June 2022 or our internal expectations.
22. Cerro Matoso is subject to a royalty related tax equal to 13.5% of mine gate
value which is included in operating cost.
23. Illawarra Metallurgical Coal sales are adjusted for moisture and will not
reconcile directly to Illawarra Metallurgical Coal production.
The following abbreviations have been used throughout this report: US$ million
(US$M); US$ billion (US$B); € (Euro); 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 1H22 1H23 2Q22 3Q22 4Q22 1Q23 2Q23
Worsley Alumina (86% share)
Alumina hydrate production (kt) 1,994 1,955 997 972 1,014 957 998
Alumina production (kt) 1,979 1,922 973 982 1,030 920 1,002
Alumina sales (kt) 1,946 1,861 1,022 910 1,118 885 976
Brazil Alumina (36% share)
Alumina production (kt) 631 691 359 335 331 337 354
Alumina sales (kt) 626 678 379 306 367 313 365
Brazil Aluminium (40% share)
Aluminium production (kt) - 23.7 - - 0.3 8.3 15.4
Aluminium sales (kt) - 19.4 - - - 3.3 16.1
Hillside Aluminium (100% share)
Aluminium production (kt) 358 362 178 177 179 179 183
Aluminium sales (kt) 336 337 176 179 198 162 175
Mozal Aluminium (63.7%(14) share)
Aluminium production (kt) 136 182 68 66 76 92 90
Aluminium sales (kt) 122 177 67 66 88 87 90
Sierra Gorda (45% share)
Ore mined (Mt) - 15.4 - 4.7 9.0 8.8 6.6
Ore processed (Mt) - 10.7 - 2.3 5.2 5.4 5.3
Copper ore grade processed (%, Cu) - 0.45 - 0.45 0.40 0.45 0.44
Payable copper equivalent production(3) (kt) - 44.9 - 10.3 20.3 22.6 22.3
Payable copper production (kt) - 37.9 - 8.4 16.9 19.0 18.9
Payable copper sales (kt) - 38.4 - 11.1 16.6 19.2 19.2
Payable molybdenum production (kt) - 0.4 - 0.2 0.2 0.2 0.2
Payable molybdenum sales (kt) - 0.8 - 0.1 0.5 0.3 0.5
Payable gold production (koz) - 15.3 - 2.3 7.3 7.8 7.5
Payable gold sales (koz) - 15.4 - 3.0 6.9 7.7 7.7
Payable silver production (koz) - 338 - 85 168 180 158
Payable silver sales (koz) - 345 - 111 171 179 166
Cannington (100%)
Ore mined (kwmt) 1,475 1,123 725 637 641 639 484
Ore processed (kdmt) 1,385 1,142 698 681 552 518 624
Silver ore grade processed (g/t, Ag) 177 175 169 188 177 179 171
Lead ore grade processed (%, Pb) 5.2 5.5 4.9 5.9 5.5 5.6 5.4
Zinc ore grade processed (%, Zn) 3.4 3.6 3.6 3.4 3.8 3.7 3.6
Payable zinc equivalent production(15) (kt) 114.0 98.8 55.9 61.3 48.9 46.1 52.7
Payable silver production (koz) 6,710 5,474 3,217 3,568 2,668 2,568 2,906
Payable silver sales (koz) 6,718 5,083 4,000 2,818 3,362 1,704 3,379
Payable lead production (kt) 60.2 52.4 28.3 34.6 25.8 24.6 27.8
Payable lead sales (kt) 63.3 51.3 38.0 27.9 31.0 18.7 32.6
Payable zinc production (kt) 32.7 30.4 17.3 16.4 15.4 14.0 16.4
Payable zinc sales (kt) 32.8 27.5 18.5 17.3 16.1 14.9 12.6
Cerro Matoso (99.9% share)
Ore mined (kwmt) 2,416 2,752 1,358 1,310 1,141 1,332 1,420
Ore processed (kdmt) 1,335 1,392 715 690 678 666 726
Ore grade processed (%, Ni) 1.73 1.64 1.71 1.73 1.71 1.63 1.65
Payable nickel production (kt) 20.3 20.4 10.7 10.6 10.8 9.6 10.8
Payable nickel sales (kt) 20.1 19.8 9.7 9.8 11.9 9.0 10.8
Illawarra Metallurgical Coal (100%)
Total coal production (kt) 3,145 3,331 1,257 1,781 1,583 1,595 1,736
Total coal sales(23) (kt) 3,255 3,185 1,547 1,465 1,886 1,390 1,795
Metallurgical coal production (kt) 2,767 2,753 1,192 1,565 1,380 1,270 1,483
Metallurgical coal sales (kt) 2,877 2,678 1,387 1,358 1,588 1,193 1,485
Energy coal production (kt) 378 578 65 216 203 325 253
Energy coal sales (kt) 378 507 160 107 298 197 310
Australia Manganese (60% share)
Manganese ore production (kwmt) 1,704 1,844 807 815 844 898 946
Manganese ore sales (kwmt) 1,737 1,652 831 775 860 779 873
Ore grade sold (%, Mn) 44.2 44.2 44.2 44.1 44.2 44.3 44.1
South Africa Manganese (54.6% share)
Manganese ore production (kwmt) 1,053 1,093 445 391 625 562 531
Manganese ore sales (kwmt) 1,094 1,032 579 495 581 473 559
Ore grade sold (%, Mn) 39.5 39.2 38.7 40.5 39.4 38.5 39.8
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
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.Godrey@south32.net
Approved for release to the market by Graham Kerr, Chief Executive Officer
JSE Sponsor: The Standard Bank of South Africa Limited
23 January 2023
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
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