REG - South32 Limited - Quarterly Report March 2022
26/04/2022 07:16
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RNS Number : 3371J South32 Limited 26 April 2022
QUARTERLY REPORT
MARCH 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
"We achieved a number of significant milestones in the quarter, making further
progress to reshape our portfolio for a low carbon future.
"We reported copper production for the first time, having completed our
acquisition of a 45 per cent interest in the Sierra Gorda copper mine.
"We moved a step closer to doubling our share of green aluminium production,
delivering first metal from our Brazil Aluminium smelter following the end of
the period.
"We also reported the pre-feasibility results for our Taylor Deposit,
underlining its potential to add further growth in the metals critical to a
low carbon future.
"We achieved another excellent operating result, delivering to plan,
capitalising on historically strong end markets for many of our commodities.
"Our strong financial position allowed us to close the acquisition of Sierra
Gorda and return our balance sheet to a net cash position by the end of the
March quarter.
"In April we paid our fully franked, interim dividend, returning a record
US$404 million to shareholders off the back of a significantly improved
financial performance in the December 2021 half."
Graham Kerr, South32 CEO
• Our FY22 production guidance remains unchanged with our operations continuing
to deliver to plan, capitalising on strong prices
• Our FY22 Operating unit cost guidance has been updated to reflect stronger
producer currencies, higher raw material costs and the increase in commodity
prices, that in many cases result in higher price-linked royalties at our
operations
• We finished the period with net cash(1) of US$52M after completing the
acquisition of a 45% interest in the Sierra Gorda copper mine(2) for US$1.4B
during the quarter
• Worsley Alumina remains on-track to creep production beyond nameplate capacity
in FY22, with the refinery benefitting from historical investment and ongoing
improvement initiatives
• Brazil Aluminium(3) delivered first metal from the restart of the
renewable-powered Alumar smelter following the end of the period
• Hillside Aluminium and Mozal Aluminium continued to test their maximum
technical capacity, taking advantage of record aluminium prices
• Sierra Gorda recorded 9.7kt of copper equivalent production(4) for the period
following the completion of our acquisition on 22 February 2022
• Cannington delivered a 6% increase in year to date zinc equivalent
production(5), benefitting from higher planned silver grades and a drawdown in
run of mine inventory
• Cerro Matoso achieved a 33% increase in year to date nickel production, due to
higher grades from the Q&P pit and the prior period's successful furnace
refurbishment
• Illawarra Metallurgical Coal realised a 42% increase in quarterly production,
despite the ongoing impact of wet weather and disruptions to labour
availability caused by COVID-19
• Manganese production declined by 4% in the quarter with a 1% improvement at
Australia Manganese, more than offset by the impact of planned maintenance at
both of our South African mines
• We completed a pre-feasibility study for the zinc-lead-silver Taylor Deposit
at the Hermosa project during the quarter, underlining its potential to be a
globally significant and sustainable producer of base and precious metals in
the industry's first cost quartile(6)
Production summary
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 QoQ
Alumina production (kt) 3,934 3,927 (0%) 1,218 1,332 1,317 (1%)
Aluminium production (kt) 736 737 0% 240 246 243 (1%)
Payable copper production (kt) - 8.4 N/A - - 8.4 N/A
Payable silver production (koz) 9,477 10,363 9% 3,484 3,217 3,653 14%
Payable lead production (kt) 90.6 94.8 5% 33.0 28.3 34.6 22%
Payable zinc production (kt) 48.2 49.1 2% 17.8 17.3 16.4 (5%)
Payable nickel production (kt) 23.2 30.9 33% 7.1 10.7 10.6 (1%)
Metallurgical coal production (kt) 4,830 4,332 (10%) 1,568 1,192 1,565 31%
Manganese ore production (kwmt) 4,179 3,963 (5%) 1,357 1,252 1,206 (4%)
Unless otherwise noted: percentage variance relates to performance during the
nine months ended March 2022 compared with the nine months ended March 2021
(YoY), or the March 2022 quarter compared with the December 2021 quarter
(QoQ); production and sales volumes are reported on an attributable basis.
Corporate Update
• In response to the situation in Ukraine, we made the values based decision to
cease commodity sales to Russian entities, and continue to work through the
commercial implications. Our broader commodities sales exposure to Russia has
historically been limited and, until the current circumstances change, we will
not enter into any new transactions or business relationships with Russian
entities.
• The COVID-19 pandemic continues to impact our operations and supply chains
across our global portfolio, with FY22 production guidance remaining subject
to further potential impacts from COVID-19.
• Working capital remains elevated across the business, due to higher prices and
the ongoing impact of logistics congestion on our supply chains, slowing the
movement of inventory at a number of operations. In our aluminium value
chain, where this is most acute, we have responded by establishing alternative
shipping solutions and points of dispatch to move inventory closer to our
customers. While we expect the build in working capital to partially unwind
once port congestion and freight market tightness alleviates, and we realise
the full benefit of initiatives implemented across our business, we continue
to observe volatility in supply chains.
• We finished the quarter with a net cash(1) balance of US$52M following
completion of the acquisition of a 45% interest in the Sierra Gorda copper
mine on 22 February 2022(2). The US$1.4B upfront cash payment for Sierra Gorda
was funded by a combination of cash on hand (US$600M) and a short-term
acquisition bridge facility (US$800M). Further payments to finalise the tax
liabilities associated with the acquisition are expected to be made over the
next 15 months in accordance with their statutory due dates(7).
• Following the end of the period, we repaid the short-term acquisition bridge
facility with cash on hand and the proceeds of our inaugural US dollar bond
issuance. We issued US$700M in Senior Unsecured Notes (Notes) due 2032 that
will pay interest at a rate of 4.35% per annum(8). Reflecting our strong
financial position and commitment to disciplined capital allocation, Standard
and Poor's and Moody's assigned BBB+ and Baa1 credit ratings respectively, to
the Notes.
• We received net distributions(9) of US$36M (South32 share) during the quarter
from our Manganese equity accounted investments (EAI) (US$138M in the nine
months ended March 2022). This follows a temporary build in finished goods
inventory at Australia Manganese which is expected to unwind in the June 2022
quarter.
• We spent US$16M during the quarter purchasing a further 5M shares at an
average price of A$4.64 per share via our on-market share buy-back. To 31
March 2022 our capital management program was 86% complete with US$285M
remaining to be returned to shareholders ahead of its extension or expiry on 2
September 2022(10), bringing total returns under our capital management
program to US$1.8B since inception.
• Following the end of the period, we paid a fully franked interim dividend of
US$404M in respect of the December 2021 half year.
• We expect our agreed acquisition of an additional shareholding and related
rights in Mozal Aluminium to complete in mid CY22(11), subject to the
remaining conditions, including approval from the Mozambique Competition
Regulatory Authority, being satisfied.
• Following the end of the period, we submitted an Environmental Impact
Statement for the Dendrobium Next Domain (DND) life extension project. This
follows DND being declared State Significant Infrastructure in the December
2021 quarter. The New South Wales Minister for Planning, Industry and
Environment is responsible for the state approval outcome for the project,
which is expected to be determined following a public review period.
• Demonstrating our commitment to using innovative technologies to reduce
emissions, in line with our goal to halve operational carbon emissions by 2035
as part of our pathway to achieve net zero operational carbon emissions by
2050, we were awarded a A$15M grant from the New South Wales Government in
April 2022 to construct a commercial pilot Ventilation Air Methane abatement
facility at Illawarra Metallurgical Coal. The new facility, featuring
cutting-edge technology to tackle fugitive methane emissions will be
established with the support of CSIRO and our own co-funding of A$4.5M.
• On 7 March 2022, we announced that the sale of the Metalloys manganese alloy
smelter would not proceed following a failure to satisfy certain commercial
conditions to the agreement(12). Metalloys remains on care and maintenance as
we assess future options for the smelter.
• Following the end of the period, we received clearance from the Brazilian
Competition Authority for our acquisition of an additional 18.2% interest in
the Mineração Rio do Norte (MRN) bauxite mine. The additional interest in
MRN will increase our ownership to 33% and further aligns our bauxite supply
requirements within our aluminium value chain in Brazil. Completion of the
acquisition is expected in the June 2022 quarter.
Development and Exploration Update
• We completed the pre-feasibility study (PFS) for the zinc-lead-silver Taylor
Deposit at our Hermosa project in January 2022. The PFS results highlight
Taylor's potential to be the first development of a multi-decade operation,
establishing Hermosa as a globally significant producer of metals critical to
a low carbon future in the industry's first cost quartile. Taylor has now
moved into feasibility stage, while we continue to advance the PFS for the
Clark Deposit, which has the potential to produce battery-grade manganese as
well as zinc and silver.
• We commenced the construction of water infrastructure to support critical path
orebody dewatering for the Taylor Deposit during the quarter. Subsequent to
the end of the period, our Board approved US$278M of pre-commitment capital
expenditure to advance the orebody dewatering program and early works at
Taylor ahead of a final investment decision in mid CY23. This pre-commitment
is included in the previously announced ~US$1.7B upfront capital estimate for
Taylor(6). Our FY22 Growth capital expenditure guidance has been revised down
by US$25M to US$90M, predominantly reflecting the impact of slower than
expected contractor mobilisation.
• We directed US$13M to our exploration programs at Hermosa in the nine months
ended March 2022. As part of our work to assess targets across a highly
prospective corridor we commenced further exploration drilling at the Peake
prospect(13) during the period.
• The United States Department of Interior (DOI) filed a motion to suspend the
right-of-way permits issued to the Alaska Industrial Development and Export
Authority for the Ambler Access Road in February 2022. This suspension would
allow for additional work to be undertaken by the DOI on the Final
Environmental Impact Statement for the Ambler Access Road, which if developed
would unlock the Ambler region. Together with our Ambler Metals Joint Venture
partner, we are assessing the impact of the motion on the development timeline
for the Arctic Deposit's PFS, and our continuing preparations for the CY22
summer exploration season.
• We invested US$20M in the nine months ended March 2022 in our early stage
greenfield exploration opportunities with multiple programs targeting base
metals currently underway in Australia, USA, Canada, Argentina, Peru and
Ireland.
• We directed US$32M towards exploration programs at our existing operations and
development options in the nine months ended March 2022 (US$24M capitalised),
including US$2M for our Manganese EAI (US$1M capitalised), US$13M at the
Hermosa project (noted above, all capitalised) and US$8M at Ambler Metals (all
capitalised).
Production Summary
Production guidance FY21 9M YTD22 FY22e((a)) Guidance comments
(South32 share)
Worsley Alumina
Alumina production (kt) 3,963 2,961 3,965
Brazil Alumina
Alumina production (kt) 1,398 966 1,300
Brazil Aluminium
Aluminium production (kt) - - 5 Nameplate capacity (179ktpa, our 40% share) expected to be reached in the
March 2023 quarter(3)
Hillside Aluminium(14)
Aluminium production (kt) 717 535 720
Mozal Aluminium(14)
Aluminium production (kt) 265 202 273
Sierra Gorda
Payable copper equivalent production(4) (kt) - 9.7 31 Reflects our 45% ownership since 22 February 2022
Payable copper production (kt) - 8.4 27
Payable molybdenum production (kt) - 0.2 0.4
Payable gold production (koz) - 2.3 10
Payable silver production (koz) - 85 225
Cannington
Payable zinc equivalent production(5)( )(kt) 319.0 234.8 292.2
Payable silver production (koz) 13,655 10,278 12,283
Payable lead production (kt) 131.8 94.8 117.9
Payable zinc production (kt) 67.7 49.1 66.7
Cerro Matoso
Payable nickel production (kt) 34.1 30.9 43.8
Illawarra Metallurgical Coal
Total coal production (kt) 7,645 4,926 6,800
Metallurgical coal production (kt) 6,170 4,332 5,900
Energy coal production (kt) 1,475 594 900
Australia Manganese
Manganese ore production (kwmt) 3,529 2,519 3,200
South Africa Manganese
Manganese ore production(15) (kwmt) 2,060 1,444 2,000
a. The denotation (e) refers to an estimate or forecast year.
All guidance is subject to further potential impacts from COVID-19.
capital expenditure and OPERATING UNIT COST GUIDANCE
• Our FY22 total capital expenditure guidance has been revised down by US$36M to
US$702M (including Manganese and Sierra Gorda EAI). The change primarily
reflects our deferral of spend at Worsley Alumina into FY23 (reducing our FY22
Improvement and life extension capital expenditure estimate by US$11M to
US$91M) and slower than expected contractor mobilisation at our Hermosa
project (reducing our FY22 Growth capital expenditure estimate by US$25M to
US$90M). Our FY22 Safe and reliable capital expenditure guidance remains
unchanged at US$521M (including Manganese and Sierra Gorda EAI) and is subject
to potential labour availability and supply chain constraints that may impact
our ability to execute scheduled work.
• We have revised our FY22 Operating unit cost guidance at the majority of our
operations to reflect the impact of stronger producer currencies, higher
prices for raw material inputs and an increase in price-linked royalties as we
continue to benefit from strong prices across our portfolio.
Operating unit cost((a))
FY22 prior guidance(16(b)) FY22 new guidance(17) FY22 new guidance vs. FY22 prior guidance
Worsley Alumina
(US$/t) 257 265 Stronger Australian dollar (AUD:USD 0.73) and higher prices for caustic soda
and freight
Brazil Alumina (non-operated)
(US$/t) We continue to expect H2 FY22 to be ~5% higher than H1 FY22 (US$262/t) due to
higher caustic soda and energy prices
Hillside Aluminium
(US$/t) We continue to expect H2 FY22 to be ~10-15% higher than H1 FY22 (US$1,935/t)
due to the stronger South African rand (USD:ZAR 15.06) and higher raw material
input prices
Mozal Aluminium
(US$/t) We continue to expect H2 FY22 to be ~10-15% higher than H1 FY22 (US$2,008/t)
due to the stronger South African rand (USD:ZAR 15.06) and higher raw material
input prices
Sierra Gorda
(US$/lb CuEq)((c)) 1.63 1.63 No change to guidance
Cannington
(US$/t)((d)) 120 131 Stronger Australian dollar (AUD:USD 0.73), inventory movements and higher
price-linked royalties
Cerro Matoso
(US$/t)((e)) 145 142 Stronger Colombian peso (USD:COP 3,843) and higher price-linked royalties
(US$/lb) 4.17 4.49
Illawarra Metallurgical Coal
(US$/t) 115 126 Stronger Australian dollar (AUD:USD 0.73) and higher price-linked royalties
Australia Manganese (FOB)
(US$/dmtu) 1.81 1.88 Stronger Australian dollar (AUD:USD 0.73) and higher fuel prices
South Africa Manganese (FOB)
(US$/dmtu) 2.51 2.79 Stronger South African rand (USD:ZAR 15.06), higher price-linked royalties and
transport costs
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. FY22 prior guidance as at H1 FY22 was based on commodity
price and foreign exchange rate forward curves or our internal expectations
for the remainder of FY22, as at January 2022. Refer to footnote 16.
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.
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 expected to lower FY22e Operating unit cost.
Worsley Alumina (86% share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Alumina production (kt) 2,885 2,961 3% 875 973 982 12% 1%
Alumina sales (kt) 2,918 2,856 (2%) 840 1,022 910 8% (11%)
Worsley Alumina saleable production increased by 3% (or 76kt) to 2,961kt in
the nine months ended March 2022 as the refinery benefited from historical and
ongoing improvement initiatives. Volumes in the March 2022 quarter increased
by 1% as two scheduled hydrate shipments, more than offset the impact of
planned calciner maintenance.
Sales decreased by 11% in the March 2022 quarter as a vessel's late arrival
led to a shipment slipping into April 2022. We realised a circa 10% premium to
the Platts Alumina Index(18) on a volume weighted M-1 basis for alumina sales
in the nine months ended March 2022, with our realised prices capturing the
impact of elevated global freight rates which are also reflected in our
Operating unit costs.
FY22 production guidance remains unchanged at 3,965kt with our ongoing focus
on improvement initiatives at the refinery expected to creep production above
nameplate capacity of 4.6Mt (100% basis).
Brazil Alumina (36% share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Alumina production (kt) 1,049 966 (8%) 343 359 335 (2%) (7%)
Alumina sales (kt) 1,058 932 (12%) 384 379 306 (20%) (19%)
Brazil Alumina saleable production decreased by 8% (or 83kt) to 966kt in the
nine months ended March 2022 following an incident in July 2021 that damaged
one of the two bauxite ship unloaders at the refinery. Although the refinery
returned to nameplate capacity in October 2021, production declined by 7% in
the March 2022 quarter with wet weather causing temporary outages to third
party power supply.
The 19% decline in sales for the March 2022 quarter reflects the scheduling of
additional shipments in the prior period. We realised a circa 5% premium to
the Platts Alumina Index(18) on a volume weighted M-1 basis for alumina sales
in the nine months ended March 2022, with our realised prices capturing the
impact of elevated global freight rates which are also reflected in our
Operating unit costs.
FY22 production guidance remains unchanged at 1,300kt.
Brazil AluminIUM (40% share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Aluminium production (kt) - - N/A - - - N/A N/A
Aluminium sales (kt) - - N/A - - - N/A N/A
During the quarter we announced our participation in the restart of the Alumar
aluminium smelter, together with our joint venture partner Alcoa Corporation.
We have secured cost efficient renewable power for our share of production
from the smelter, while our alumina supply will be sourced from the co-located
Brazil Alumina refinery.
First production was achieved following the end of the period. While the
smelter has achieved a slower than expected ramp-up, our FY22 production
guidance remains unchanged at 5kt. We still expect to achieve nameplate
capacity of 179ktpa (our 40% share) in the March 2023 quarter(3).
Hillside Aluminium (100%)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Aluminium production (kt) 537 535 (0%) 176 178 177 1% (1%)
Aluminium sales (kt) 538 515 (4%) 191 176 179 (6%) 2%
Hillside Aluminium saleable production was largely unchanged at 535kt in the
nine months ended March 2022 as the smelter continued to test its maximum
technical capacity, despite the impact of increased load-shedding. FY22
production guidance, which does not assume any load-shedding impact, remains
unchanged at 720kt.
We commenced execution of the AP3XLE energy efficiency project during the
period with the first pots expected to be relined in the June 2022 quarter.
The project is expected to bring both volume and efficiency benefits, while
reducing the smelter's carbon intensity.
Mozal Aluminium (47.1% share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Aluminium production (kt) 199 202 2% 64 68 66 3% (3%)
Aluminium sales (kt) 194 188 (3%) 64 67 66 3% (1%)
Mozal Aluminium saleable production increased by 2% (or 3kt) to 202kt in the
nine months ended March 2022 as the volume benefit of our investment in the
AP3XLE energy efficiency project more than offset the impact of increased
load-shedding.
FY22 production guidance, which does not assume any load-shedding impact,
remains unchanged at 273kt.
SIERRA GORDA (45% share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Payable copper equivalent production(4) (kt) - 9.7 N/A - - 9.7 N/A N/A
Payable copper production (kt) - 8.4 N/A - - 8.4 N/A N/A
Payable copper sales (kt) - 11.1 N/A - - 11.1 N/A N/A
Following the completion of our acquisition of a 45% interest in the joint
venture on 22 February 2022, our share of payable copper equivalent
production(4) was 9.7kt to the end of the March 2022 quarter. Our FY22 copper
equivalent production guidance of 31kt(2) remains unchanged (copper 27kt,
molybdenum 0.4kt, gold 10koz and silver 225koz).
Our transition to ownership has progressed to plan and we are working with our
joint venture partner and the experienced in-country team to ensure
continuation of the operation's strong recent performance. The capital
efficient de-bottlenecking project, which is targeted to lift plant throughput
by a further 6% to approximately 50Mtpa(19) remains on-track. The project is
expected to achieve the targeted incremental throughput on a sustainable basis
in the December 2022 quarter.
Cannington (100% share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Payable zinc equivalent production(5) (kt) 221.9 234.8 6% 81.4 74.3 82.3 1% 11%
Payable silver production (koz) 9,477 10,278 8% 3,484 3,217 3,568 2% 11%
Payable silver sales (koz) 9,276 9,536 3% 2,950 4,000 2,818 (4%) (30%)
Payable lead production (kt) 90.6 94.8 5% 33.0 28.3 34.6 5% 22%
Payable lead sales (kt) 89.8 91.2 2% 28.4 38.0 27.9 (2%) (27%)
Payable zinc production (kt) 48.2 49.1 2% 17.8 17.3 16.4 (8%) (5%)
Payable zinc sales (kt) 47.7 50.1 5% 15.9 18.5 17.3 9% (6%)
Cannington payable zinc equivalent production(5) increased by 6% (or 12.9kt)
to 234.8kt in the nine months ended March 2022 as the operation benefitted
from a planned increase in average silver grades and drew down run of mine
stocks. Ore mined decreased by 12% during the March 2022 quarter with
underground performance impacted by COVID-19 workforce restrictions.
Payable silver and lead sales decreased by 30% and 27% respectively during the
March 2022 quarter following additional shipments in the prior period as the
operation recovered from adverse weather in the September 2021 quarter.
The operation's transition to 100% truck haulage from the June 2022 quarter
remains on-track, with FY22 production guidance remaining unchanged (silver
12,283koz, lead 117.9kt and zinc 66.7kt). The change in configuration is a low
cost capital option that has the potential to bring forward higher-grade
material from FY23 at current operating costs and throughput rates.
Cerro Matoso (99.9% share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Payable nickel production (kt) 23.2 30.9 33% 7.1 10.7 10.6 49% (1%)
Payable nickel sales (kt) 23.2 29.9 29% 6.7 9.7 9.8 46% 1%
Cerro Matoso payable nickel production increased by 33% (or 7.7kt) to 30.9kt
in the nine months ended March 2022, despite unplanned maintenance in the
quarter. Production at the operation continues to benefit from the completion
of a major furnace refurbishment in FY21 and a ~9% improvement in average
nickel grade (9M YTD22: 1.73%; 9M YTD21: 1.58%) due to the addition of ore
from the higher grade Q&P pit.
Our ferronickel product typically attracts a discount to the LME Nickel index
price on a M or M+1 basis. Payable nickel sales remained largely unchanged in
the March 2022 quarter with the temporary disruption of the traded nickel
market in March slowing the drawdown of finished goods. Looking forward, the
current discount to the LME nickel price is expected to widen over historical
levels due to market dynamics between ferronickel and Nickel Pig-Iron pricing.
FY22 production guidance remains unchanged at 43.8kt.
Illawarra Metallurgical Coal (100%)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Total coal production (kt) 5,920 4,926 (17%) 1,824 1,257 1,781 (2%) 42%
Total coal sales(20) (kt) 5,850 4,720 (19%) 1,823 1,547 1,465 (20%) (5%)
Metallurgical coal production (kt) 4,830 4,332 (10%) 1,568 1,192 1,565 (0%) 31%
Metallurgical coal sales (kt) 4,707 4,235 (10%) 1,542 1,387 1,358 (12%) (2%)
Energy coal production (kt) 1,090 594 (46%) 256 65 216 (16%) 232%
Energy coal sales (kt) 1,143 485 (58%) 281 160 107 (62%) (33%)
Illawarra Metallurgical Coal saleable production decreased by 17% (or 994kt)
to 4,926kt in the nine months ended March 2022 as we completed an extended
longwall move at the Dendrobium mine in the December 2021 quarter and COVID-19
workforce restrictions impacted labour availability. Lower production included
a 496kt (or 46%) decline in energy coal volumes as we made the decision to
stop sales of low-margin coal wash material, with elevated freight rates
making them uneconomic.
Despite the impact of adverse weather, saleable production improved by 42% in
the March 2022 quarter as the operation returned to normalised rates following
the completion of an extended longwall move in the prior quarter and improved
labour availability. The operation's next longwall move is planned for the
Appin mine in the June 2022 quarter.
Poor weather contributed to a 5% reduction in coal sales during the March 2022
quarter with multiple shipments slipping into April 2022 due to the
prioritisation of the health and wellbeing of seafarers slowing loading
conditions. Notwithstanding the ongoing risk of further adverse weather, FY22
production guidance is currently unchanged at 6.8Mt.
Australia Manganese (60% share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Manganese ore production (kwmt) 2,663 2,519 (5%) 829 807 815 (2%) 1%
Manganese ore sales (kwmt) 2,730 2,512 (8%) 865 831 775 (10%) (7%)
Australia Manganese saleable production decreased by 5% (or 144kwmt) to
2,519kwmt in the nine months ended March 2022 as ore handling characteristics
resulted in lower yield at the primary concentrator. The PC02 circuit
continued to operate above its design capacity, as we took advantage of
favourable market conditions and realised the benefit of establishing market
depth for our low-cost PC02 fines product. The product contributed 12% of
total production (9M YTD21: 10%), further benefiting margins at the operation.
Notwithstanding the improved production performance in the March 2022 quarter,
FY22 production guidance is currently unchanged at 3,200kwmt while we continue
to monitor the potential for further impacts from the wet season.
South Africa Manganese (ore 54.6%(15) share)
South32 share 9M YTD21 9M YTD22 YoY 3Q21 2Q22 3Q22 3Q22 3Q22
vs
vs
3Q21
2Q22
Manganese ore production(15) (kwmt) 1,516 1,444 (5%) 528 445 391 (26%) (12%)
Manganese ore sales(15) (kwmt) 1,456 1,589 9% 452 579 495 10% (15%)
South Africa Manganese saleable production decreased by 5% (or 72kwmt) to
1,444kwmt in the nine months ended March 2022, as scheduled maintenance was
completed in the quarter at both the Wessels and Mamatwan mines.
Although ore sales reduced by 15% in the March quarter due to the lower
production volumes and third party port performance, we maintained the
significant drawdown in stocks that we have prioritised in FY22, returning
finished goods to their optimal operating window. Notwithstanding fewer sales
in the quarter, we achieved a premium of circa 15% to the medium grade 37%
manganese lump ore index(21) on a volume weighted M-1 basis as we continue to
optimise our product mix.
FY22 production guidance remains unchanged at 2,000kwmt as we continue to
monitor market conditions and optimise our use of higher cost trucking that
incurs additional costs, but maximises cash flow at the operation.
Notes
1 Net cash number is unaudited and should not be considered as an indication of
or alternative to an IFRS measure of profitability, financial performance or
liquidity.
2 Refer to market release "South32 completes acquisition of 45% interest in
Sierra Gorda copper mine" dated 22 February 2022.
3 Refer to market release "Restart of Brazil Aluminium using renewable power"
dated 6 January 2022.
4 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. Average metallurgical recoveries are 83% for
copper, 57% for molybdenum and 53% for gold. 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 9M YTD22 and FY22e.
5 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, 9M YTD22 and FY22e.
6 Refer to market release "Hermosa project update" dated 17 January 2022.
7 June 2022, December 2022 and June 2023.
8 Refer to market release "South32 closes US$700M of Senior Notes offering"
dated 14 April 2022.
9 Net distributions from our Manganese equity accounted investments includes net
debt movements and dividends, which are unaudited and should not be considered
as an indication of or alternative to an IFRS measure of profitability,
financial performance or liquidity.
10 Since inception, US$1.4B has been allocated to the on-market share buy-back
(679M shares at an average price of A$2.90 per share) and US$386M returned in
the form of special dividends.
11 Refer to market release "Update on acquisition of additional shareholding in
Mozal Aluminium" dated 30 March 2022.
12 Refer to market release "Sale of Metalloys manganese alloy smelter will not
proceed" dated 7 March 2022.
13 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.
14 Production guidance for Hillside Aluminium and Mozal Aluminium does not assume
any load-shedding impact on production.
15 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%.
16 FY22 prior Operating unit cost guidance includes royalties (where appropriate)
and the influence of exchange rates, and includes various assumptions for
FY22, including: an alumina price of US$378/t; an average blended coal price
of US$244/t for Illawarra Metallurgical Coal; a manganese ore price of
US$5.42/dmtu for 44% manganese product; a nickel price of US$8.83/lb; a silver
price of US$24.57/troy oz; a lead price of US$2,329/t (gross of treatment and
refining charges); a zinc price of US$3,179/t (gross of treatment and refining
charges); an AUD:USD exchange rate of 0.72; a USD:ZAR exchange rate of 15.47;
a USD:COP exchange rate of 3,930; and a reference price for caustic soda; all
of which reflected forward markets as at January 2022 or our internal
expectations.
17 FY22 new Operating unit cost guidance includes royalties (where appropriate)
and the influence of exchange rates, and includes various assumptions for
FY22, including: an alumina price of US$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.
18 The sales volume weighted average of the Platts Alumina Index (FOB Australia)
on the basis of a one month lag to published pricing (Month minus one or
"M-1") for Worsley Alumina was US$363/t and Brazil Alumina was US$370/t in the
nine months ended March 2022.
19 The information in this document that refers to Production Target for the
medium term (CY22 to CY26) is based on the original announcement "SOUTH32 TO
ACQUIRE A 45% INTEREST IN THE SIERRA GORDA COPPER MINE" released on 14 October
2021 and is available to view at www.south32.net (http://www.south32.net) .
The production target is based on based 100% on proven and probable mineral
reserve of the foreign estimate. All Material assumptions for the production
target and forecast financial information for the medium term (CY22 to CY26)
are included in the original announcement. The mineral reserve estimates are
"qualifying foreign estimates" under the ASX Listing Rules and stated by KGHM
as being classified in accordance with National Instrument 43-101 and CIM
Standard for Disclosure (43-101). Competent persons have not done sufficient
work to classify the foreign estimates as Mineral Resources and Ore Reserves
in accordance with the JORC Code. It is uncertain that following evaluation
and further exploration that the foreign estimates will be able to be reported
as Mineral Resources or Ore Reserves in accordance with the JORC Code.
Reference should be made to the clarifying statement on mineral resources and
mineral reserves in the original market announcement, in accordance with ASX
Listing Rule 5.12. South32 is not in possession of any new information or data
relating to the foreign estimate that materially impacts on the reliability of
the estimates. South32 confirms that the information contained in the
clarifying statement in the Market Announcement continues to apply and has not
materially changed.
20 Illawarra Metallurgical Coal sales are adjusted for moisture and will not
reconcile directly to Illawarra Metallurgical Coal production.
21 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$3.18/dmtu
in the nine months ended March 2022.
The following abbreviations have been used throughout this report: US$ million
(US$M); US$ billion (US$B); grams per tonne (g/t); tonnes (t); thousand tonnes
(kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes
per annum (Mtpa); ounces (oz); thousand ounces (koz); million ounces (Moz);
thousand wet metric tonnes (kwmt); million wet metric tonnes (Mwmt); million
wet metric tonnes per annum (Mwmt pa); dry metric tonne unit (dmtu); thousand
dry metric tonnes (kdmt).
Figures in Italics indicate that an adjustment has been made since the figures
were previously reported. The denotation (e) refers to an estimate or forecast
year.
Operating Performance
South32 share 9M YTD21 9M YTD22 3Q21 4Q21 1Q22 2Q22 3Q22
Worsley Alumina (86% share)
Alumina hydrate production (kt) 2,989 2,966 977 992 997 997 972
Alumina production (kt) 2,885 2,961 875 1,078 1,006 973 982
Alumina sales (kt) 2,918 2,856 840 1,086 924 1,022 910
Brazil Alumina (36% share)
Alumina production (kt) 1,049 966 343 349 272 359 335
Alumina sales (kt) 1,058 932 384 333 247 379 306
Brazil Aluminium (40% share)
Aluminium production (kt) - - - - - - -
Aluminium sales (kt) - - - - - - -
Hillside Aluminium (100%)
Aluminium production (kt) 537 535 176 180 180 178 177
Aluminium sales (kt) 538 515 191 169 160 176 179
Mozal Aluminium (47.1% share)
Aluminium production (kt) 199 202 64 66 68 68 66
Aluminium sales (kt) 194 188 64 68 55 67 66
Sierra Gorda (45% share)
Ore processed (Mt) - 2.3 - - - - 2.3
Copper ore grade processed (%, Cu) - 0.45 - - - - 0.45
Payable copper equivalent production(4) (kt) - 9.7 - - - - 9.7
Payable copper production (kt) - 8.4 - - - - 8.4
Payable copper sales (kt) - 11.1 - - - - 11.1
Payable molybdenum production (kt) - 0.2 - - - - 0.2
Payable molybdenum sales (kt) - 0.1 - - - - 0.1
Payable gold production (koz) - 2.3 - - - - 2.3
Payable gold sales (koz) - 3.0 - - - - 3.0
Payable silver production (koz) - 85 - - - - 85
Payable silver sales (koz) - 111 - - - - 111
Cannington (100%)
Ore mined (kwmt) 2,123 2,112 714 696 750 725 637
Ore processed (kdmt) 2,026 2,066 724 720 687 698 681
Silver ore grade processed (g/t, Ag) 175 180 177 213 185 169 188
Lead ore grade processed (%, Pb) 5.4 5.4 5.8 6.6 5.5 4.9 5.9
Zinc ore grade processed (%, Zn) 3.4 3.4 3.5 3.9 3.2 3.6 3.4
Payable zinc equivalent production(5) (kt) 221.9 234.8 81.4 97.1 78.2 74.3 82.3
Payable silver production (koz) 9,477 10,278 3,484 4,178 3,493 3,217 3,568
Payable silver sales (koz) 9,276 9,536 2,950 4,460 2,718 4,000 2,818
Payable lead production (kt) 90.6 94.8 33.0 41.2 31.9 28.3 34.6
Payable lead sales (kt) 89.8 91.2 28.4 41.9 25.3 38.0 27.9
Payable zinc production (kt) 48.2 49.1 17.8 19.5 15.4 17.3 16.4
Payable zinc sales (kt) 47.7 50.1 15.9 21.3 14.3 18.5 17.3
Cerro Matoso (99.9% share)
Ore mined (kwmt) 2,064 3,726 594 1,174 1,058 1,358 1,310
Ore processed (kdmt) 1,683 2,025 528 702 620 715 690
Ore grade processed (%, Ni) 1.58 1.73 1.60 1.76 1.76 1.71 1.73
Payable nickel production (kt) 23.2 30.9 7.1 10.9 9.6 10.7 10.6
Payable nickel sales (kt) 23.2 29.9 6.7 10.3 10.4 9.7 9.8
Illawarra Metallurgical Coal (100%)
Total coal production (kt) 5,920 4,926 1,824 1,725 1,888 1,257 1,781
Total coal sales(20) (kt) 5,850 4,720 1,823 1,766 1,708 1,547 1,465
Metallurgical coal production (kt) 4,830 4,332 1,568 1,340 1,575 1,192 1,565
Metallurgical coal sales (kt) 4,707 4,235 1,542 1,367 1,490 1,387 1,358
Energy coal production (kt) 1,090 594 256 385 313 65 216
Energy coal sales (kt) 1,143 485 281 399 218 160 107
Australia Manganese (60% share)
Manganese ore production (kwmt) 2,663 2,519 829 866 897 807 815
Manganese ore sales (kwmt) 2,730 2,512 865 891 906 831 775
Ore grade sold (%, Mn) 44.4 44.2 44.4 44.5 44.2 44.2 44.1
South Africa Manganese (54.6% share)
Manganese ore production(15) (kwmt) 1,516 1,444 528 544 608 445 391
Manganese ore sales(15) (kwmt) 1,456 1,589 452 579 515 579 495
Ore grade sold (%, Mn) 40.1 39.8 40.6 39.5 40.3 38.7 40.5
Forward-looking statements
This release contains forward-looking statements, including statements about
trends in commodity prices and currency exchange rates; demand for
commodities; production forecasts; plans, strategies and objectives of
management; capital costs and scheduling; operating costs; anticipated
productive lives of projects, mines and facilities; and provisions and
contingent liabilities. These forward-looking statements reflect expectations
at the date of this release, however they are not guarantees or predictions of
future performance. They involve known and unknown risks, uncertainties and
other factors, many of which are beyond our control, and which may cause
actual results to differ materially from those expressed in the statements
contained in this release. Readers are cautioned not to put undue reliance on
forward-looking statements. Except as required by applicable laws or
regulations, the South32 Group does not undertake to publicly update or review
any forward-looking statements, whether as a result of new information or
future events. Past performance cannot be relied on as a guide to future
performance. South32 cautions against reliance on any forward looking
statements or guidance, particularly in light of the current economic climate
and the significant volatility, uncertainty and disruption arising in
connection with COVID-19.
Further information
INVESTOR RELATIONS MEDIA RELATIONS
Tom Gallop Jamie Macdonald Miles Godfrey
M +61 439 353 948
M +61 408 925 140
M +61 415 325 906
E Tom.Gallop@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
26 April 2022
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