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

21 September 2021

South32 Limited

Quarterly Report September 2021

"Our operations continue to perform well, achieving record production at South Africa Manganese and maintaining production above nameplate capacity at Worsley Alumina. Production at Mozal Aluminium was higher, with the smelter benefitting from our investment in the AP3XLE energy efficiency technology.

"Our teams continue to achieve strong operating results, despite the ongoing challenges of COVID-19 across the globe.

"Our operating performance has further strengthened our financial position, supporting the continuation of our on-market share buy-back, and subsequent to the end of the period, payment of our US$256M fully franked ordinary and special dividends in respect of the June 2021 half year.

"We continue to actively reshape our portfolio for a low carbon future, and last week entered into binding conditional agreements to acquire a 45 per cent interest in Sierra Gorda, a long life, open pit copper mine in Chile. We have also recently exercised our pre-emptive rights to acquire an additional interest inMozal Aluminium. These initiatives, and our ongoing work with Alcoa in Brazil to investigate the Alumar smelter's potential restart using renewable power, will see us increase our leverage to the metals critical to the green energy transition."

Graham Kerr, South32 CEO

Corporate Update

Development and Exploration Update

Production Summary

a.         The denotation (e) refers to an estimate or forecast year. All guidance is subject to further potential impacts from COVID-19.

Worsley Alumina (86% share)

Worsley Alumina saleable production decreased by 7% (or 72kt) to 1,006kt in the September 2021 quarter. Following the prior period's drawdown of hydrate inventory, the refinery continued to operate above nameplate capacity with calcination rates now normalised. FY22 production guidance remains unchanged at 3,965kt with the refinery continuing to benefit from improvement initiatives. Notwithstanding the continued strong operating performance, elevated caustic soda prices are expected to further impact the refinery's Operating unit cost guidance for FY22 of US$241/t.

Sales decreased by 15% during the September 2021 quarter as our shipping schedule was impacted by adverse weather and COVID-19 quarantine requirements.

We realised a circa 15% premium to the Platts Alumina Index¹⁰ on a volume weighted M-1 basis for alumina sales in the September 2021 quarter, with our realised prices benefitting from a legacy supply contract with Mozal Aluminium, and elevated global freight rates which are also reflected in Operating unit costs.

Brazil Alumina (36% share)

Brazil Alumina saleable production decreased by 22% (or 77kt) to 272kt in the September 2021 quarter following an incident in July that damaged one of the two bauxite unloaders at the refinery. The operation took immediate action to mitigate the disruption through the installation of temporary loading infrastructure and returned to full capacity in October. With the ramp-up of the refinery meeting prior expectations, FY22 production guidance remains unchanged at 1,300kt.

Separately, we are working with our partner Alcoa to investigate a potential restart of the Alumar aluminium smelter in H2 FY22 using 100% renewable energy from 2024. We expect to make a decision on the potential restart by the end of the calendar year.

Hillside Aluminium (100%)

Hillside Aluminium saleable production remained at 180kt in the September 2021 quarter as the smelter continued to test its maximum technical capacity, despite the impact of further load-shedding. FY22 production guidance⁷ remains unchanged at 720kt.

Sales decreased by 5% in the September 2021 quarter as port congestion impacted the timing of shipments.

In August we finalised a new agreement with Eskom which secures the smelter's energy supply until 2031. The new tariff is South African rand based, with a rate of escalation linked to the South Africa Producer Price Index.

Mozal Aluminium (47.1% share)

Mozal Aluminium saleable production increased by 3% (or 2kt) to 68kt in the September 2021 quarter as the smelter's productivity benefitted from our investment in the AP3XLE energy efficiency project. Notwithstanding the further impact of load-shedding, the smelter continues to test its maximum technical capacity, and FY22 production guidance⁷ of 273kt remains unchanged.

Sales decreased by 19% in the September 2021 quarter as port congestion impacted the timing of shipments.

The smelter sources alumina from our Worsley Alumina refinery with approximately 50% priced as a percentage of the LME aluminium index under a legacy contract and the remainder linked to the Platts alumina index on an M-1 basis, with caps and floors embedded within specific contracts. As a result of these contracts the smelter paid a premium to the Platts index on an M-1 basis for alumina sourced during the September 2021 quarter.

Illawarra Metallurgical Coal (100%)

Illawarra Metallurgical Coal saleable production increased by 9% (or 163kt) to 1,888kt in the September 2021 quarter with longwall productivity improving, following challenging strata conditions and a longwall move in the prior period. Notwithstanding, energy coal production declined as no sales of low-margin coal wash material were made in the quarter, with elevated freight rates making them uneconomic.

While the lower total volumes are expected to adversely impact Operating unit costs, realised prices will benefit due to fewer sales of the lower priced product and the current strong metallurgical coal market. FY22 production guidance remains unchanged at 7.3Mt, with an extended longwall move scheduled at the Dendrobium mine in the December 2021 quarter. Further longwall moves are planned for the March 2022 and June 2022 quarters.

Australia Manganese       (60% share)

Australia Manganese saleable production increased by 4% (or 31kwmt) to 897kwmt in the September 2021 quarter with the PC02 circuit continuing to operate above nameplate capacity, supported by an improvement in product yield. FY22 production guidance remains unchanged at 3,500kwmt.

We disclosed our updated Mineral Resource estimate in September to incorporate results from the initial phase of our ongoing Southern Areas exploration program, adding a further 17Mt to GEMCO's Total Mineral Resource of 157Mt¹².

South Africa Manganese (60% share)

South Africa Manganese saleable production increased by 12% (or 70kwmt) to a record 668kwmt in the September 2021 quarter, due to higher volumes of premium material from our Mamatwan mine. While starting the year well ahead on an annualised basis, FY22 production guidance remains unchanged at 2,200kwmt as we monitor market conditions and our continued use of higher cost trucking.

Ore sales decreased by 11% during the September 2021 quarter as we established additional finished goods inventory ahead of a planned shut. Notwithstanding the lower volumes, we achieved a premium to the medium grade 37% manganese lump ore index¹³ on a volume weighted M-1 basis as we optimised our sales mix.

Cerro Matoso (99.9% share)

Cerro Matoso payable nickel production decreased by 12% (or 1.3kt) to 9.6kt in the September 2021 quarter as plant availability was impacted by an unplanned transformer outage. FY22 production guidance remains unchanged at 43.8kt with the operation implementing mitigating actions to recover volumes across the remainder of the year.

Our ferronickel product sells with reference to the LME Nickel index price on a M or M+1 basis. While product discounts averaged 9% during the September 2021 quarter, these have reduced for recently completed sales.  

Cannington (100% share)

Cannington payable zinc equivalent production decreased by 19% (or 18.9kt) to 78.2kt in the September 2021 quarter as planned surface maintenance lowered plant throughput, and average grades declined following the prior period's extraction of a higher grade mining sequence. Ore mined increased by 8% as continued strong underground performance supported the establishment of additional run of mine inventory during the surface outage.

The operation remains on-track to transition to 100% truck haulage from the June 2022 quarter, with FY22 production guidance remaining unchanged (silver 11,647koz, lead 112.6kt and zinc 63.9kt).

Notes

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); 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

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

21 October 2021
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd