REG - South32 Limited - Quarterly Report June 2022
25/07/2022 07:00
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RNS Number : 5758T South32 Limited 25 July 2022
QUARTERLY REPORT
June 2022
• Group FY22 copper equivalent production(1) was 99% of current guidance, as the
majority of our operations delivered to revised plans, despite impacts from
weather and labour availability caused by the COVID-19 pandemic
• We expect to report FY22 Operating unit costs in-line with our previously
updated guidance at the majority of our operations, with lower than
anticipated producer currencies providing a benefit in the June 2022 quarter
• Our stable operating performance allowed us to capitalise on record conditions
for a number of our commodities, with strong sales in the June 2022 quarter
capturing the benefit of high prices
• Worsley Alumina achieved record annual production in FY22, exceeding guidance
and operating above nameplate capacity, as we realised the benefit of embedded
improvement initiatives
• Cannington beat our previously upgraded FY22 zinc equivalent production(2)
guidance by 2%, successfully transitioning to a 100% truck haulage operation
in the June 2022 quarter
• Cerro Matoso achieved a 22% increase in payable nickel production, despite
unplanned maintenance and weather-related disruptions impacting the operation
during H2 FY22
• Illawarra Metallurgical Coal successfully completed three longwall moves
across Appin and Dendrobium during the year, with strong price realisations
for our premium quality hard coking coal supporting record pricing
• South Africa Manganese delivered record production in the June 2022 quarter as
we increased our Manganese production by 22%, supporting higher sales with
customer demand for our premium products delivering strong price
realisations
• We grew our share of aluminium production by 5% in the June 2022 quarter as we
closed the acquisition of an additional shareholding in the hydro-powered
Mozal Aluminium smelter(3) and achieved first production from the restart of
our 100% renewable powered smelter in Brazil(4)
• We successfully completed the acquisition of Sierra Gorda(5) in H2 FY22,
receiving our first US$68M in distributions from the joint venture in June
2022
South32 Chief Executive Officer, Graham Kerr: "Our teams delivered another
strong operating performance in the June quarter, despite challenges that
included extreme weather, supply chain disruptions and reduced labour
availability caused by the COVID-19 pandemic. Record annual production at
Worsley Alumina, along with record quarterly production at South Africa
Manganese and a strong sales result in June, capturing the benefit of high
prices, capped another year of substantial progress for South32.
"We achieved further significant milestones as we reshape our portfolio
towards the metals critical for a low carbon future. In May, we completed the
acquisition of an additional shareholding in the hydro-powered Mozal Aluminium
smelter. We also completed our acquisition of an additional interest in the
MRN bauxite mine and delivered first production from the restart of our Brazil
Aluminium smelter, powered by 100 per cent cost efficient renewable power.
"Our strong financial position and capital management framework, which is
designed to reward our shareholders as our financial performance improves,
supported further returns across the year via our on-market share buy-back,
bringing total returns under our capital management program to US$1.9 billion
since its inception."
Production summary
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 QoQ
Alumina production (kt) 5,361 5,288 (1%) 1,427 1,317 1,361 3%
Aluminium production (kt) 982 992 1% 246 243 255 5%
Payable copper production (kt) - 25.3 N/A - 8.4 16.9 101%
Payable silver production (koz) 13,655 13,199 (3%) 4,178 3,653 2,836 (22%)
Payable lead production (kt) 131.8 120.6 (8%) 41.2 34.6 25.8 (25%)
Payable zinc production (kt) 67.7 64.5 (5%) 19.5 16.4 15.4 (6%)
Payable nickel production (kt) 34.1 41.7 22% 10.9 10.6 10.8 2%
Metallurgical coal production (kt) 6,170 5,712 (7%) 1,340 1,565 1,380 (12%)
Manganese ore production (kwmt) 5,589 5,432 (3%) 1,410 1,206 1,469 22%
Unless otherwise noted: percentage variance relates to performance during the
financial year ended June 2022 compared with the financial year ended June
2021 (YoY), or the June 2022 quarter compared with the March 2022 quarter
(QoQ); production and sales volumes are reported on an attributable basis.
Corporate Update
• We expect to report FY22 Group Underlying depreciation and amortisation of
US$790M, including US$110M for our manganese business and US$60M for Sierra
Gorda.
• We expect to report FY22 Group Underlying net finance costs of ~US$155M, which
includes costs applicable to our ownership of a 45% interest in Sierra Gorda
and one-off costs associated with financing its acquisition.
• We received net distributions(6) of US$321M (South32 share) from our manganese
and Sierra Gorda equity accounted investments (EAI) in FY22. In the June 2022
quarter we received US$115M from our manganese business and our first
distribution of US$68M from Sierra Gorda.
• We spent US$128M purchasing a further 46M shares at an average price of A$3.89
per share via our on-market share buy-back during FY22. As at 30 June 2022 our
currently approved capital management program was 89% complete with US$233M
remaining to be returned to shareholders ahead of its extension or expiry on 2
September 2022(7). We have now returned US$1.9B since the inception of our
flexible capital management program, including US$1.5B via our on-market share
buy-back at an average price of A$2.93 per share, reducing total shares on
issue by 13%.
• Our FY22 Group Underlying effective tax rate (ETR) is expected to be
approximately 32%, reflecting the corporate tax rates of the jurisdictions in
which we operate(8), including our manganese and Sierra Gorda EAIs which are
proportionally consolidated in our Underlying results. The FY22 Underlying ETR
for our manganese business is expected to be in a range of approximately 45 to
48%, including the royalty related tax for Australia Manganese(9) and the
derecognition of certain deferred tax assets.
• Further to the update provided in our March 2022 Quarterly Report on future
tax payments following completion of the Sierra Gorda acquisition, we now
expect to make payments totalling ~US$150M in FY23(10). Of this amount,
~US$130M is expected to be paid to the Dutch tax authorities to settle
pre-closing tax liabilities ahead of potential recovery from the vendors, with
allocation of liability for such pre-closing tax liabilities being disputed.
• On 31 May 2022, we completed our acquisition of an additional 16.6%
shareholding in Mozal Aluminium for a total cash consideration of US$200M,
increasing our ownership of the hydro-powered smelter to 63.7%(3).
• On 29 April 2022, we completed our acquisition of an additional 18.2% interest
in the Mineração Rio do Norte (MRN) bauxite mine, increasing our ownership
to 33%(11), and further aligning our bauxite supply requirements within our
aluminium value chain in Brazil.
• Following the end of the period, we completed the sale of four non-core base
metals royalties to Anglo Pacific Group Plc (Anglo Pacific) for a sale price
of up to US$200M, including US$103M in cash payments(12), US$82M of Anglo
Pacific shares and contingent payments of up to US$15M(13). We now hold a
16.9% interest in Anglo Pacific. We expect to recognise a gain on sale of
~US$193M (~US$135M post-tax) within Other income in FY23, which will be
excluded from Underlying earnings as an earnings adjustment. We also expect to
make tax payments associated with the transaction of ~US$58M across FY23.
• While no acceptable offers have been received to date, we continue to seek
potential divestment opportunities for our interest in the Eagle Downs
Metallurgical Coal development option (Eagle Downs). Eagle Downs remains on
care and maintenance, and we will assess its carrying value as part of the
annual impairment cycle for our FY22 financial results.
• We successfully concluded our release from a guarantee originally provided to
support Seriti Resources Holdings Proprietary Limited's(14) acquisition of
South Africa Energy Coal during the quarter. Following the derecognition of
this commitment we expect to recognise a ~US$12M benefit in Other income
within our FY22 financial results.
Development and Exploration Update
Exploration plays a critical role within our simple strategy to identify and
pursue opportunities to sustainably reshape our business for the future, and
create enduring social, environmental and economic value. We have established
options to discover our next generation of mines, with more than 25
exploration programs across our partnerships and own properties. Our
expenditure has continued to increase in this area as we have added further
options and advance multiple, maturing exploration programs. In FY22 we spent
US$56M across our portfolio of greenfield and development options, an amount
we expect to increase further to ~US$90M in FY23 as we continue to execute on
our strategy.
Hermosa project
• We continued to progress our feasibility study for the zinc-lead-silver Taylor
Deposit at our Hermosa project in Arizona during the quarter, ahead of a
planned final investment decision in mid CY23. Following the decision by the
United States Government to invoke the Defense Production Act, supporting the
production of critical minerals including manganese, we are looking at
different options to potentially accelerate the pre-feasibility study for the
Clark Deposit.
• Construction of infrastructure to support our critical path dewatering of the
Taylor orebody continued to plan during the quarter. Our FY23 Growth capital
expenditure guidance at Hermosa is US$290M as we continue our early works at
Taylor ahead of a final investment decision, and progress study work at Clark.
• We directed US$19M to our exploration programs at Hermosa during FY22,
advancing the work to assess targets across a highly prospective corridor
including new exploration drilling at the Peake prospect(15) during the
quarter.
Ambler Metals project
• During the quarter the right-of-way permits previously issued to the Alaska
Industrial Development and Export Authority for the Ambler Access Road were
temporarily suspended to allow for additional work to be undertaken by United
States government departments on the Final Environmental Impact Statement.
Together with our Ambler Metals Joint Venture partner, we continue to assess
the impact of this delay on our own study work for the Arctic Deposit.
• Separately we have commenced exploration activities at Ambler for the CY22
summer field season, including additional infill drilling of the Arctic
Deposit and drill testing of regional exploration targets in the Ambler Belt.
The budget for the year is US$13M (South32 50% share) with the program
expected to support ongoing development study work being completed by the
Joint Venture partners.
Greenfield exploration
• Consistent with our strategy of targeting prospective base metals regions, we
entered into new farm-in agreements with Encounter Resources Limited covering
two copper and zinc exploration projects in the Northern Territory. We will be
the operator and fully fund initial exploration across both projects.
• We invested US$26M in greenfield exploration programs across our partnerships
and own properties during FY22, with multiple drilling and field programs
targeting base metals currently underway in Australia, USA, Canada, Argentina,
Peru and Ireland.
• Following the end of the period, we entered into a subscription agreement with
Aldebaran Resources Inc. (Aldebaran Resources) (TSX-V: ALDE) to acquire a 9.9%
equity interest in the company for up to C$11.1M. Aldebaran Resources is an
exploration company whose key asset is an option to acquire a controlling
interest in the Altar copper project in San Juan, Argentina.
Brownfield exploration
• We directed US$48M (US$35M capitalised) towards exploration programs at our
existing operations and development options during FY22, including US$19M at
the Hermosa project (noted above, all capitalised), US$11M at Ambler Metals
(all capitalised), US$2M for our manganese EAI (US$1M capitalised) and US$2M
for our Sierra Gorda EAI (US$1M capitalised).
Production Summary
Production guidance FY21 FY22 FY22e((a)) %((b)) Comments
(South32 share)
Worsley Alumina
Alumina production (kt) 3,963 3,991 3,965 101%
Brazil Alumina (non-operated)
Alumina production (kt) 1,398 1,297 1,300 100%
Brazil Aluminium (non-operated)
Aluminium production (kt) - 0.3 5.0 6% Slower than expected ramp-up of restart activities. An update to our FY23
guidance is expected to be provided with our FY22 results announcement
Hillside Aluminium(16)
Aluminium production (kt) 717 714 720 99% Achieved despite significant load-shedding in FY22
Mozal Aluminium(16)
Aluminium production (kt) 265 278 281 99% Achieved despite significant load-shedding in FY22
Reflects the impact of our increased ownership (63.7%) from 1 June 2022(3)
Sierra Gorda (non-operated)
Payable copper equivalent production(17) (kt) - 29.5 31.0 95% FY23 guidance of copper 71.8kt, molybdenum 1.5kt, gold 29.9koz and silver
582koz provided for the first time
Payable copper production (kt) - 25.3 27.0 94%
Payable molybdenum production (kt) - 0.4 0.4 100%
Payable gold production (koz) - 9.6 10.0 96%
Payable silver production (koz) - 253 225 112%
Cannington
Payable zinc equivalent production(2) (kt) 319.0 299.3 292.2 102%
Payable silver production (koz) 13,655 12,946 12,283 105%
Payable lead production (kt) 131.8 120.6 117.9 102%
Payable zinc production (kt) 67.7 64.5 66.7 97%
Cerro Matoso
Payable nickel production (kt) 34.1 41.7 43.8 95% Adverse wet weather causing moisture in ore during the
June 2022 quarter
Illawarra Metallurgical Coal
Total coal production (kt) 7,645 6,509 6,800 96% Adverse wet weather and COVID-19 related labour availability impacts
Metallurgical coal production (kt) 6,170 5,712 5,900 97%
Energy coal production (kt) 1,475 797 900 89%
Australia Manganese
Manganese ore production (kwmt) 3,529 3,363 3,200 105% Favourable weather conditions during the June 2022 quarter and further strong
performance from our PC02 circuit
South Africa Manganese
Manganese ore production(18) (kwmt) 2,060 2,069 2,000 103% FY23 guidance of 2,000kwmt provided for the first time
a. The denotation (e) refers to an estimate or forecast year.
b. Reflects percentage of achieved production for FY22
compared to current FY22e.
marketing Update
Our FY22 realised prices reflect the strong performance of our exchange traded
commodities and notable positive realisations against indices for our premium
manganese and hard coking coal products. With heightened market volatility and
supply chain disruptions prevalent across our industry in H2 FY22, our stable
operating performance enabled us to deliver production volumes largely to plan
despite COVID-19 labour and adverse weather-related disruptions in many of the
geographies where we operate.
Innovative logistic solutions were established across multiple operations to
mitigate the impact of ongoing port congestion, tight freight markets and the
broader disruption of global supply chains, contributing to our strong sales
performance in the June 2022 quarter. This enabled the Group to capitalise on
strong markets lowering our inventory position by the end of the financial
year with the working capital benefit of this work expected to be realised in
the first quarter of FY23.
The average realised prices achieved for our commodities are summarised below.
Outstanding concentrate sales were revalued at 30 June 2022 with the final
price of these to be determined in the December 2022 half year.
Realised prices(19) FY21 1H22 2H22 FY22 FY22 2H22
vs
vs
FY21
1H22
Worsley Alumina
Alumina (US$/t) 293 389 428 409 40% 10%
Brazil Alumina (non-operated)((a))
Alumina (US$/t) 288 387 419 403 40% 8%
Hillside Aluminium
Aluminium (US$/t) 2,137 2,952 3,347 3,161 48% 13%
Mozal Aluminium
Aluminium (US$/t) 2,206 3,041 3,591 3,348 52% 18%
Sierra Gorda (non-operated)((a)(b))
Payable copper (US$/lb)(20) - - 3.50 3.50 N/A N/A
Payable molybdenum (US$/lb)(20) - - 18.48 18.48 N/A N/A
Payable gold (US$/oz)(20) - - 1,934 1,934 N/A N/A
Payable silver (US$/oz)(20) - - 23.5 23.5 N/A N/A
Cannington(21)
Payable silver (US$/oz) 25.4 21.0 21.0 21.0 (17%) 0%
Payable lead (US$/t) 1,862 2,180 1,902 2,046 10% (13%)
Payable zinc (US$/t) 2,357 2,988 3,473 3,248 38% 16%
Cerro Matoso(22)
Payable nickel (US$/lb) 6.68 8.39 11.64 10.08 51% 39%
Illawarra Metallurgical Coal
Metallurgical coal (US$/t) 115 303 457 381 231% 51%
Energy coal (US$/t) 40 108 200 156 290% 85%
Australia Manganese(23)
Manganese ore (US$/dmtu, FOB) 4.13 4.59 6.05 5.29 28% 32%
South Africa Manganese(24)
Manganese ore (US$/dmtu, FOB) 3.53 3.47 4.39 3.92 11% 27%
a. While Brazil Alumina is 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 realised sales prices and Operating unit costs reflect
the period 1 March 2022 to 30 June 2022 whereas quarterly production and sales
numbers reflect the period from first ownership (22 February 2022). Revenue,
Underlying EBITDA and Underlying EBIT to be published with the Group Segment
note released with our FY22 results announcement, as well as Operating unit
costs and realised prices (copper of US$3.18/lb, molybdenum US$18.73/lb, gold
US$1,776/oz and silver US$20.65/oz), will reflect the period from first
ownership (22 February 2022).
OPERATING UNIT COST UPDATE
We expect to report FY22 Operating unit costs in-line with our previously
updated guidance at the majority of operations with lower than anticipated
producer currencies benefiting costs in the June 2022 quarter. Looking
forward, higher volumes at some of our operations and the tailwind of lower
producer currencies are expected to provide partial relief from the ongoing
effect of industry wide labour, raw material and energy cost inflation that
impacted our cost base in H2 FY22.
The cost profile of our Southern African aluminium smelters will continue to
be heavily influenced by the South African rand, and the price of raw
materials and energy. H2 FY22 Operating unit costs are expected to be 15-20%
higher than H1 FY22 (previously 10-15%), as both smelters remained profitable
by maintaining their strong operating performance which saw them continue to
test their maximum technical capacity, despite increased load-shedding.
The future direction of raw material and energy costs will also influence our
non-operated Brazil Alumina refinery, where Operating unit costs in H2 FY22
are expected to be ~15% higher than the first half of the financial year
(US$262/t). The below commentary reflects our expectations for FY22 Operating
unit costs for all other operations. We will provide FY23 guidance with our
financial results announcement for the 30 June 2022 year end.
Operating unit cost((a)) .
Actuals Guidance Guidance commentary
H1 FY22 H2 FY22e((b)) FY22e(25)
Worsley Alumina
(US$/t) 256 274 265 FY22: Expected to be in-line with current guidance
Sierra Gorda (non-operated)
(US$/lb CuEq)((c)) - 1.63 1.63 FY22: Expected to be ~5% above current guidance due to lower than planned
volumes
Cannington
(US$/t)((d)) 128 134 131 FY22: Expected to be in-line with current guidance
Cerro Matoso
(US$/t)((e)) 136 148 142 FY22: Expected to be in-line with current US$/lb guidance
(US$/lb) 4.11 4.87 4.49
Illawarra Metallurgical Coal
(US$/t) 123 129 126 FY22: Expected to be in-line with current guidance
Australia Manganese (FOB)
(US$/dmtu) 1.79 1.97 1.88 FY22: Expected to be in-line with current guidance
South Africa Manganese (FOB)
(US$/dmtu) 2.63 2.95 2.79 FY22: Expected to be in-line with current guidance
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. H2 FY22e Operating unit cost guidance reflects a simple average
calculation by taking into consideration FY22 Operating unit cost guidance and
H1 FY22 Operating unit cost.
c. US dollar per pound of copper equivalent production. FY21 index
prices for copper (US$4.23/lb), molybdenum (US$15.7/lb), gold (US$1,796/oz)
and
silver (US$25.2/oz) have been used for FY22e Operating unit costs. Published
realised sales prices and Operating unit costs reflect the period
1 March 2022 to 30 June 2022 whereas quarterly production and sales numbers
reflect the period from first ownership (22 February 2022). Revenue,
Underlying EBITDA and Underlying EBIT to be published with the Group Segment
note released with our FY22 results announcement, as well as Operating unit
costs and realised prices (copper of US$3.18/lb, molybdenum US$18.73/lb, gold
US$1,776/oz and silver US$20.65/oz), will reflect the period from first
ownership (22 February 2022).
d. US dollar per tonne of ore processed. Periodic movements in
finished product inventory may impact Operating unit costs.
e. US dollar per tonne of ore to kiln. Periodic movements in finished
product inventory may impact Operating unit costs.
Worsley Alumina (86% share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Alumina production (kt) 3,963 3,991 1% 1,078 982 1,030 (4%) 5%
Alumina sales (kt) 4,004 3,974 (1%) 1,086 910 1,118 3% 23%
Worsley Alumina saleable production increased by 1% (or 28kt) to a record of
3,991kt in FY22 as the refinery delivered above its nameplate capacity
(4.6Mtpa, 100% basis), realising the benefit of embedded improvement
initiatives and surpassing guidance expectations.
Sales increased by 23% in the June 2022 quarter with a carry-over shipment
from the prior quarter supporting the refinery to draw inventory levels down
towards the end of the financial year. We realised an ~8% premium to the
Platts Alumina Index(26) on a volume weighted M-1 basis for alumina sales in
FY22 as we continued to capture the impact of elevated global freight rates in
our realised prices (which are also reflected in our Operating unit costs).
Brazil Alumina (36% share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Alumina production (kt) 1,398 1,297 (7%) 349 335 331 (5%) (1%)
Alumina sales (kt) 1,391 1,299 (7%) 333 306 367 10% 20%
Brazil Alumina saleable production decreased by 7% (or 101kt) to 1,297kt in
FY22 as the refinery returned to nameplate capacity (3.86Mtpa, 100% basis)
from October 2021, following an incident in July 2021 that damaged one of the
two bauxite ship unloaders at the operation. Despite the impact of local
weather-related disruptions across H2 FY22, the refinery achieved 100% of FY22
production guidance.
Sales increased by 20% in the June 2022 quarter with a carry-over shipment
from the prior quarter supporting the refinery to draw inventory levels down
towards the end of the financial year. We realised a ~5% premium to the Platts
Alumina Index(26) on a volume weighted M-1 basis for alumina sales in FY22 as
we continued to capture the impact of elevated global freight rates in our
realised prices (which are also reflected in our Operating unit costs).
The refinery's De-bottlenecking Phase Two project was approved for execution
in the June 2022 quarter. The project is expected to increase nameplate
production rates by approximately 4% to 1.45Mt from H1 FY26, with anticipated
capital expenditure of ~US$40M (South32 share) between FY23 and FY25.
Brazil AluminIUM (40% share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Aluminium production (kt) - 0.3 N/A - - 0.3 N/A N/A
Aluminium sales (kt) - - N/A - - - N/A N/A
Brazil Aluminium saleable production was 0.3kt in FY22 with first production
achieved in the June 2022 quarter following the successful restart of the
smelter. First sales to domestic customers were made in July 2022. With a
slower than anticipated ramp-up associated with the need to stabilise the
electrolytic bath, we expect to provide updated FY23 production guidance with
our FY22 results announcement, including revised timing to achieve nameplate
production (179ktpa, our 40% share).
Hillside Aluminium (100% SHARE)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Aluminium production (kt) 717 714 (0%) 180 177 179 (1%) 1%
Aluminium sales (kt) 707 713 1% 169 179 198 17% 11%
Hillside Aluminium saleable production was largely unchanged at 714kt in FY22
as the smelter achieved 99% of guidance, despite the impact of increased
load-shedding. Our first pots utilising the AP3XLE energy efficiency
technology were relined during the June 2022 quarter, with the project
expected to deliver both volume and energy efficiency benefits, reducing the
smelter's carbon intensity.
Sales increased by 11% in the June 2022 quarter with inventory returning to
normalised levels as we realised the benefit of initiatives undertaken to
establish alternative discharge and cargo shipping options, mitigating poor
third-party port performance and ongoing shipping congestion.
Mozal Aluminium (63.7%(3) share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Aluminium production (kt) 265 278 5% 66 66 76 15% 15%
Aluminium sales (kt) 262 276 5% 68 66 88 29% 33%
Mozal Aluminium saleable production increased by 5% (or 13kt) to 278kt in FY22
with the smelter benefitting from our roll-out of the AP3XLE energy efficiency
technology, which partially offset the impact of increased load-shedding to
achieve 99% of guidance. Our equity share of production reflects 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 production
and sales numbers have not been restated for this change in ownership
(presented on a 47.1% basis).
Aluminium sales increased by 33% in the June 2022 quarter supported by the
improvement in quarterly production volumes and the realisation of benefits
from initiatives undertaken to optimise our shipping and logistics operations
at the smelter.
SIERRA GORDA (45% share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Payable copper equivalent production(17) (kt) - 29.5 N/A - 9.7 19.8 N/A 104%
Payable copper production (kt) - 25.3 N/A - 8.4 16.9 N/A 101%
Payable copper sales (kt) - 27.7 N/A - 11.1 16.6 N/A 50%
Sierra Gorda payable copper equivalent production(17) was 29.5kt in FY22,
following the completion of our acquisition on 22 February 2022, achieving 95%
of guidance due to lower than planned copper grades in the June 2022 quarter.
Looking forward, the plant de-bottlenecking project remains on-track to
sustainably lift throughput by 6% to ~50Mtpa (100% basis) by the December 2022
quarter. Accordingly, our FY23 production guidance (South32 share) of copper
71.8kt, molybdenum 1.5kt, gold 29.9koz and silver 582koz reflects the benefit
of the higher expected plant throughput.
Cannington (100% share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Payable zinc equivalent production(2) (kt) 319.0 299.3 (6%) 97.1 82.3 64.5 (34%) (22%)
Payable silver production (koz) 13,655 12,946 (5%) 4,178 3,568 2,668 (36%) (25%)
Payable silver sales (koz) 13,736 12,898 (6%) 4,460 2,818 3,362 (25%) 19%
Payable lead production (kt) 131.8 120.6 (8%) 41.2 34.6 25.8 (37%) (25%)
Payable lead sales (kt) 131.7 122.2 (7%) 41.9 27.9 31.0 (26%) 11%
Payable zinc production (kt) 67.7 64.5 (5%) 19.5 16.4 15.4 (21%) (6%)
Payable zinc sales (kt) 69.0 66.2 (4%) 21.3 17.3 16.1 (24%) (7%)
Cannington payable zinc equivalent production(2) decreased by 6% (or 19.7kt)
to 299.3kt as we completed planned maintenance and built run of mine stocks in
the June 2022 quarter to support the operation's transition to 100% truck
haulage. Notwithstanding our prioritisation of activities to support the
transition to trucking and the ongoing impact of COVID-19 on workforce
availability, the operation exceeded our previously upgraded zinc equivalent
production guidance by 2% and our original FY22 guidance by 8%.
Payable silver and lead sales increased by 19% and 11% respectively in the
June 2022 quarter as we drew inventory down to normalised levels by the end of
the financial year, capturing the benefit of strong pricing.
The operation transitioned to 100% truck haulage in the June 2022 quarter.
While the new configuration is expected to bring higher-grade material forward
in the mine plan at current throughput rates, FY23 volumes are expected to be
skewed towards H2 FY23 as crushing operations relocate from underground to
surface.
Cerro Matoso (99.9% share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Payable nickel production (kt) 34.1 41.7 22% 10.9 10.6 10.8 (1%) 2%
Payable nickel sales (kt) 33.5 41.8 25% 10.3 9.8 11.9 16% 21%
Cerro Matoso payable nickel production increased by 22% (or 7.6kt) to 41.7kt
in FY22 following a major furnace refurbishment completed in FY21 and the
addition of higher-grade ore from the Q&P pit, increasing average nickel
grades by 6% (FY22: 1.73%; FY21: 1.63%). While the operation only achieved 95%
of our FY22 guidance as a result of unplanned maintenance and weather-related
disruptions during H2 FY22, we expect plant availability and performance to
return to normalised levels in FY23 as these temporary impacts ease.
Our payable nickel sales increased by 21% in the June 2022 quarter with
inventories returning to normalised levels as shipping performance improved
and the ferronickel market recovered from the disruption that was caused by a
temporary spike in LME Nickel prices to previously unseen levels. Our
ferronickel product typically attracts a discount to the LME Nickel price
index on a volume weighted M or M+1 basis, widening to approximately 15% in
the June 2022 quarter (FY22: 7%; FY21: 10%). Looking forward, we expect
discounts to remain elevated due to weakening global steel demand, and the
current relationship between ferronickel and nickel pig-iron pricing
conditions.
Illawarra Metallurgical Coal (100% sHARE)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Total coal production (kt) 7,645 6,509 (15%) 1,725 1,781 1,583 (8%) (11%)
Total coal sales(27) (kt) 7,616 6,606 (13%) 1,766 1,465 1,886 7% 29%
Metallurgical coal production (kt) 6,170 5,712 (7%) 1,340 1,565 1,380 3% (12%)
Metallurgical coal sales (kt) 6,074 5,823 (4%) 1,367 1,358 1,588 16% 17%
Energy coal production (kt) 1,475 797 (46%) 385 216 203 (47%) (6%)
Energy coal sales (kt) 1,542 783 (49%) 399 107 298 (25%) 179%
Illawarra Metallurgical Coal saleable production decreased by 15% (or 1,136kt)
to 6,509kt in FY22 as we completed
three longwall moves across Appin and Dendrobium during the year. We also
stopped our opportunistic energy coal sales of low-margin coal wash material.
Production volumes declined by 11% in the June 2022 quarter following adverse
weather and COVID-19 related labour restrictions that also impacted the
operation's ability to maintain budgeted development rates. Notwithstanding
these disruptions and the volatility witnessed across seaborne coal markets,
our geographically diverse customer base supported a 29% increase in sales
volumes in the quarter as we drew down inventory, capturing the benefit of
very strong index prices.
Australia Manganese (60% share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Manganese ore production (kwmt) 3,529 3,363 (5%) 866 815 844 (3%) 4%
Manganese ore sales (kwmt) 3,621 3,372 (7%) 891 775 860 (3%) 11%
Australia Manganese saleable production decreased by 5% (or 166kwmt) to
3,363kwmt in FY22 as weather disruptions and COVID-19 workplace restrictions
prevented the re-build of stockpiles ahead of the wet season, and contributed
to adverse ore handling characteristics that resulted in a lower yield at the
primary concentrator during the year.
Notwithstanding these challenges in H1 FY22, saleable production increased by
4% in the June 2022 quarter and we exceeded our revised FY22 guidance by 5% as
the operation benefitted from improved weather conditions.
Our FY22 price realisations improved year-on-year as we took advantage of
favourable market conditions, achieving the high grade 44% manganese lump ore
index(28) on a volume weighted M-1 basis, despite our low-cost PC02 circuit
operating above its design capacity, contributing 11% of total production
(FY21: 10%).
South Africa Manganese (ore 54.6%(18) share)
South32 share FY21 FY22 YoY 4Q21 3Q22 4Q22 4Q22 4Q22
vs
vs
4Q21
3Q22
Manganese ore production(18) (kwmt) 2,060 2,069 0% 544 391 625 15% 60%
Manganese ore sales(18) (kwmt) 2,035 2,170 7% 579 495 581 0% 17%
South Africa Manganese saleable production was largely unchanged at 2,069kwmt
in FY22 as we produced higher volumes of premium material from our Mamatwan
mine during the year, more than offsetting the impact of scheduled maintenance
in the March 2022 quarter. The operation delivered a strong finish to the
year, with saleable production increasing by 60% to a record 625kwmt in the
June 2022 quarter following the prior period's maintenance shut, beating our
FY22 guidance by 3%.
Record production was matched by a 17% increase in sales for the June 2022
quarter following the partial improvement in third party rail and port
performance from the prior quarter. We continue to optimise our product mix to
take advantage of favourable market conditions, realising a premium of ~18% to
the medium grade 37% manganese lump ore index(29) on a volume weighted M-1
basis across FY22.
Notes
1. Group FY22 and current FY22e payable copper equivalent
production for all operations. Payable copper equivalent production was
calculated using FY22 realised prices for all operations except for Brazil
Aluminium which is based on FY22 average index price for aluminium.
2. 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, FY22 and FY22e.
3. Refer to market release "South32 completes acquisition of
additional shareholding in Mozal Aluminium" dated 31 May 2022.
4. Refer to market release "Restart of Brazil Aluminium using
renewable power" dated 6 January 2022.
5. Refer to market release "South32 completes acquisition of
45% interest in Sierra Gorda copper mine" dated 22 February 2022.
6. Net distributions from our material equity accounted joint
ventures (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.
7. Since inception, US$1.5B has been allocated to the on-market
share buy-back (695M shares at an average price of A$2.93 per share) and
US$386M returned in the form of special dividends.
8. The corporate tax rates of the geographies where the Group
operates include: Australia 30%, South Africa 28%, Colombia 35%, Mozambique
0%, Brazil 34% and Chile 27%. The Colombian corporate tax rate increased to
35% from 1 January 2022. The South African corporate tax rate reduced 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 mining 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.
9. Australia Manganese is subject to a royalty related tax equal to
20% of adjusted EBIT which is included in Underlying tax expense.
10. Approximately US$123M and US$28M is expected to be paid in H1 FY23
and H2 FY23 respectively. We expect to recognise this amount as a tax
liability in our FY22 financial results. There is no impact on the Income
Statement.
11. 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).
12. Refer to market release "South32 unlocks up to US$200M in value from
non-core royalty sale" dated 12 July 2022. The cash payment comprises US$48M
payable on completion, and US$55M payable in six equal quarterly instalments
over the next 18 months.
13. The contingent payment is triggered if the West Musgrave project
achieves commercial production, and throughput and commodity price-related
conditions are met prior to an agreed expiry date.
14. Refer to the market announcement "South Africa Energy Coal
divestment update" dated 1 April 2021. Purchaser includes Thabong Coal
Proprietary Limited, a wholly-owned subsidiary of Seriti and two trusts for
the benefit of employees and communities.
15. 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 a
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 modified from the original market
announcement.
16. Production guidance for Hillside Aluminium and Mozal Aluminium
does not assume any load-shedding impact on production.
17. FY22 and FY22e payable copper equivalent production (kt) was
calculated by aggregating revenues from copper, molybdenum, gold and silver,
and dividing the total Revenue by the price of copper. FY21 index prices for
copper (US$4.23/lb), molybdenum (US$15.7/lb), gold (US$1,796/oz) and silver
(US$25.2/oz) have been used for FY22 and FY22e.
18. South Africa Manganese ore has been reported as a 54.6% interest
(previously 60%) to reflect our 60% interest in the Metalloys manganese alloy
smelter which is currently on care and maintenance and aligning with our
interest in Hotazel Manganese Mines (HMM). South32 has a 44.4% ownership
interest in HMM. 26% of HMM is owned by a B-BBEE consortium comprising
Ntsimbintle Mining (9%), NCAB Resources (7%), Iziko Mining (5%) and HMM
Education Trust (5%). The interests owned by NCAB Resources, Iziko Mining and
HMM Education Trust were acquired using vendor finance with the loans
repayable via distributions attributable to these parties, pro rata to their
share in HMM. Until these loans are repaid, South32's interest in HMM is
accounted at 54.6%.
19. 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.
20. Realised prices for Sierra Gorda are unaudited and net of
treatment and refining charges.
21. Realised prices for Cannington are unaudited and net of
treatment and refining charges.
22. Realised nickel sales prices are unaudited and inclusive of
by-products.
23. Realised ore prices are unaudited and calculated as external
sales Revenue less freight and marketing costs, divided by external sales
volume.
24. 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 54.6% accounting effective
interest.
25. FY22 Operating unit cost guidance includes royalties (where
appropriate) and the influence of exchange rates, and includes various
assumptions for FY22, including: an alumina price of US$399/t; an average
blended coal price of US$382/t for Illawarra Metallurgical Coal; a manganese
ore price of US$6.07/dmtu for 44% manganese product; a nickel price of
US$10.60/lb; a silver price of US$24.22/troy oz; a lead price of US$2,308/t
(gross of treatment and refining charges); a zinc price of US$3,461/t (gross
of treatment and refining charges); an AUD:USD exchange rate of 0.73; a
USD:ZAR exchange rate of 15.06; a USD:COP exchange rate of 3,843; and a
reference price for caustic soda; all of which reflected forward markets as at
March 2022 or our internal expectations.
26. 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$379/t and Brazil Alumina was US$384/t
in FY22.
27. Illawarra Metallurgical Coal sales are adjusted for moisture and
will not reconcile directly to Illawarra Metallurgical Coal production.
28. The sales volume weighted average of the Metal Bulletin 44%
manganese lump ore index (CIF Tianjin, China) on the basis of M-1 was
US$6.00/dmtu in FY22.
29. 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$3.33/dmtu in FY22.
The following abbreviations have been used throughout this report: US$ 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); Mineração Rio do Norte (MRN).
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 FY21 FY22 4Q21 1Q22 2Q22 3Q22 4Q22
Worsley Alumina (86% share)
Alumina hydrate production (kt) 3,981 3,980 992 997 997 972 1,014
Alumina production (kt) 3,963 3,991 1,078 1,006 973 982 1,030
Alumina sales (kt) 4,004 3,974 1,086 924 1,022 910 1,118
Brazil Alumina (36% share)
Alumina production (kt) 1,398 1,297 349 272 359 335 331
Alumina sales (kt) 1,391 1,299 333 247 379 306 367
Brazil Aluminium (40% share)
Aluminium production (kt) - 0.3 - - - - 0.3
Aluminium sales (kt) - - - - - - -
Hillside Aluminium (100% share)
Aluminium production (kt) 717 714 180 180 178 177 179
Aluminium sales (kt) 707 713 169 160 176 179 198
Mozal Aluminium (63.7%(3) share)
Aluminium production (kt) 265 278 66 68 68 66 76
Aluminium sales (kt) 262 276 68 55 67 66 88
Sierra Gorda (45% share)
Ore mined (Mt) - 13.7 - - - 4.7 9.0
Ore processed (Mt) - 7.5 - - - 2.3 5.2
Copper ore grade processed (%, Cu) - 0.42 - - - 0.45 0.40
Payable copper equivalent production(17) (kt) - 29.5 - - - 9.7 19.8
Payable copper production (kt) - 25.3 - - - 8.4 16.9
Payable copper sales (kt) - 27.7 - - - 11.1 16.6
Payable molybdenum production (kt) - 0.4 - - - 0.2 0.2
Payable molybdenum sales (kt) - 0.6 - - - 0.1 0.5
Payable gold production (koz) - 9.6 - - - 2.3 7.3
Payable gold sales (koz) - 9.9 - - - 3.0 6.9
Payable silver production (koz) - 253 - - - 85 168
Payable silver sales (koz) - 282 - - - 111 171
Cannington (100%)
Ore mined (kwmt) 2,819 2,753 696 750 725 637 641
Ore processed (kdmt) 2,746 2,618 720 687 698 681 552
Silver ore grade processed (g/t, Ag) 185 180 213 185 169 188 177
Lead ore grade processed (%, Pb) 5.7 5.4 6.6 5.5 4.9 5.9 5.5
Zinc ore grade processed (%, Zn) 3.5 3.5 3.9 3.2 3.6 3.4 3.8
Payable zinc equivalent production(2) (kt) 319.0 299.3 97.1 78.2 74.3 82.3 64.5
Payable silver production (koz) 13,655 12,946 4,178 3,493 3,217 3,568 2,668
Payable silver sales (koz) 13,736 12,898 4,460 2,718 4,000 2,818 3,362
Payable lead production (kt) 131.8 120.6 41.2 31.9 28.3 34.6 25.8
Payable lead sales (kt) 131.7 122.2 41.9 25.3 38.0 27.9 31.0
Payable zinc production (kt) 67.7 64.5 19.5 15.4 17.3 16.4 15.4
Payable zinc sales (kt) 69.0 66.2 21.3 14.3 18.5 17.3 16.1
Cerro Matoso (99.9% share)
Ore mined (kwmt) 3,238 4,867 1,174 1,058 1,358 1,310 1,141
Ore processed (kdmt) 2,385 2,703 702 620 715 690 678
Ore grade processed (%, Ni) 1.63 1.73 1.76 1.76 1.71 1.73 1.71
Payable nickel production (kt) 34.1 41.7 10.9 9.6 10.7 10.6 10.8
Payable nickel sales (kt) 33.5 41.8 10.3 10.4 9.7 9.8 11.9
Illawarra Metallurgical Coal (100%)
Total coal production (kt) 7,645 6,509 1,725 1,888 1,257 1,781 1,583
Total coal sales(27) (kt) 7,616 6,606 1,766 1,708 1,547 1,465 1,886
Metallurgical coal production (kt) 6,170 5,712 1,340 1,575 1,192 1,565 1,380
Metallurgical coal sales (kt) 6,074 5,823 1,367 1,490 1,387 1,358 1,588
Energy coal production (kt) 1,475 797 385 313 65 216 203
Energy coal sales (kt) 1,542 783 399 218 160 107 298
Australia Manganese (60% share)
Manganese ore production (kwmt) 3,529 3,363 866 897 807 815 844
Manganese ore sales (kwmt) 3,621 3,372 891 906 831 775 860
Ore grade sold (%, Mn) 44.4 44.2 44.5 44.2 44.2 44.1 44.2
South Africa Manganese (54.6%(18) share)
Manganese ore production(18) (kwmt) 2,060 2,069 544 608 445 391 625
Manganese ore sales(18) (kwmt) 2,035 2,170 579 515 579 495 581
Ore grade sold (%, Mn) 39.9 39.7 39.5 40.3 38.7 40.5 39.4
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
25 July 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
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