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

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.

capital expenditure and OPERATING UNIT COST 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.         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)

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 Index¹⁸ 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)

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 Index¹⁸ 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)

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 quarter³.

Hillside Aluminium (100%)

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)

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)

Following the completion of our acquisition of a 45% interest in the joint venture on 22 February 2022, our share of payable copper equivalent production⁴ was 9.7kt to the end of the March 2022 quarter. Our FY22 copper equivalent production guidance of 31kt² 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 50Mtpa¹⁹ 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)

Cannington payable zinc equivalent production⁵ 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)

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%)

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)

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)

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 index²¹ 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

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

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

Approved for release to the market by Graham Kerr, Chief Executive Officer
JSE Sponsor: The Standard Bank of South Africa Limited

26 April 2022