QUARTERLY REPORT
December 2022

South32 Chief Executive Officer, Graham Kerr: "In November 2022, we were devastated by the loss of two of our colleagues who were fatally injured in an incident at Mozal Aluminium. Our thoughts and deepest sympathies remain with their families, and we provided them with our support following the incident. We are committed to improving our safety performance. Through our Safety Improvement Program, we are undertaking a significant amount of work to achieve the necessary step-change.

"Group copper equivalent production increased by 12 per cent in the December half year, as we benefitted from transactions that have repositioned our portfolio toward metals critical for a low-carbon future. Australia Manganese also achieved record half year production, while Cerro Matoso successfully commissioned the Ore Sorting and Mechanical Ore Concentration project, underpinning a 15 year extension to the mining contract.

"Despite industry wide inflationary pressures, we expect Operating unit costs for the first half to be in-line with or below  guidance for the 2023 financial year at the majority of our operations. We remain focused on delivering safe and stable operational performance, and efficiencies to mitigate cost pressures and capture higher margins as markets improve.

"We returned US$927 million to shareholders during the period, paying record fully-franked dividends in respect of the
June 2022 half year and continuing our on-market share buy-back. We have returned US$2.2 billion under our capital management program since inception, with US$108 million remaining to be returned to shareholders ahead of its extension or expiry in September 2023.

"Looking forward, our capital management framework and disciplined approach to capital allocation is designed to reward shareholders as we grow our production and realise the benefits of improving market conditions.  
At the same time, we continue to reshape our portfolio toward metals critical for a low-carbon future, advancing construction work, studies and exploration at our high-quality development options."  

Corporate Update

Development and Exploration Update

Hermosa project

Ambler Metals project

Greenfield exploration

Other exploration

Production Summary

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

marketing Update

Commodity prices were broadly lower in the December 2022 half year as we saw a moderation in demand and sentiment following record conditions for many markets in the prior period.

The average realised prices achieved for our commodities are summarised below. Outstanding concentrate sales were revalued at 31 December 2022 with the final price of these to be determined in the June 2023 half year.

OPERATING UNIT COST UPDATE

We expect to report H1 FY23 Operating unit costs in-line or below current FY23 guidance at the majority of our operations, with a combination of cost efficiencies and weaker producer currencies partially offsetting industry-wide cost inflation. Looking forward, we remain focused on delivering safe and stable operational performance and further efficiencies to mitigate cost pressures. Further, Operating unit costs in H2 FY23 are expected to benefit from higher production volumes as we realise the benefit of prior investments, embedded improvement projects and maintenance completed in H1 FY23.   

The below commentary reflects our current expectations for H1 FY23 Operating unit costs. We will report H1 FY23 Operating unit costs and provide updated FY23 guidance with our financial results announcement for the December 2022 half year.

Worsley Alumina (86% share)

Worsley Alumina saleable production decreased by 3% (or 57kt) to 1,922kt in the December 2022 half year, while saleable production improved by 9% (or 82kt) in the December 2022 quarter following the completion of planned calciner maintenance in the September 2022 quarter. FY23 production guidance remains unchanged at 4,000kt with the expectation that nameplate production rates (4.6Mtpa, 100% basis) are achieved following planned calciner maintenance in the March 2023 quarter.  

During the December 2022 quarter, we imported approximately 58kt of low-calorific coal to supplement our domestic coal supply. While we have no current plans to import further coal, we will continue to monitor the performance of our domestic third-party coal suppliers and respond accordingly. 

Brazil Alumina (36% share)

Brazil Alumina saleable production increased by 10% (or 60kt) to 691kt in the December 2022 half year, as the refinery operated at nameplate capacity (3.86Mtpa, 100% basis), following the bauxite ship unloader outage in the prior period. FY23 production guidance remains unchanged at 1,395kt.

Brazil AluminIUM (40% share)

Brazil Aluminium saleable production was 23.7kt in the December 2022 half year, following the successful restart of the smelter in the June 2022 quarter. Production increased by 86% (or 7.1kt) in the December 2022 quarter as potlines one and two continued to ramp-up towards capacity and potline three was restarted in November 2022.

During the December 2022 quarter, the smelter experienced temporary challenges with its alumina feeding systems and higher than expected pot failure rates. As a result, fewer pots are in operation than planned, and the ramp-up to nameplate capacity (179ktpa, 40% basis) is delayed to the September 2023 quarter. Accordingly, we have reduced FY23 production by 25kt (or 25%) to 75kt and FY24 production guidance by 31kt (or 17%) to 148kt.

Hillside Aluminium (100% SHARE)

Hillside Aluminium saleable production increased by 1% (or 4kt) to 362kt in the December 2022 half year as the smelter continued to test its maximum technical capacity despite the impact of elevated load-shedding. FY23 production guidance remains unchanged at 720kt¹³.

While sales increased by 8% in the December 2022 quarter, inventory remained above target levels as two shipments were delayed to January 2023 due to shipping delays at Richards Bay.

Mozal Aluminium (63.7%¹⁴ share)

Mozal Aluminium saleable production increased by 34% (or 46kt) to 182kt in the December 2022 half year, reflecting our increased ownership of the smelter¹⁴. Production decreased by 2% (or 2kt) in the December 2022 quarter as operations in Potroom A were temporarily suspended as we responded to the fatal incident on 7 November 2022. FY23 production guidance remains unchanged at 370kt¹³, with the smelter having subsequently returned to full production and continued to test its maximum technical capacity despite the impact of elevated load-shedding.  

SIERRA GORDA (45% share)

Sierra Gorda payable copper equivalent production³ was 44.9kt in the December 2022 half year, as the operation realised sequentially higher average copper grades (H1 FY23: 0.45%, H2 FY22: 0.42%) and delivered plant throughput at an annualised rate of ~48Mt (100% basis). FY23 payable copper equivalent production³ guidance of 89.0kt remains unchanged (copper 71.8kt, molybdenum 1.5kt, gold 29.9koz and silver 582koz).   

Sierra Gorda progressed work on the plant de-bottlenecking project during the December 2022 quarter, completing planned conveyor upgrades, while commissioning of the third tailings thickener is delayed to the March 2023 quarter. Based on recent performance of the grinding circuit, we now expect annual plant throughput to be in a range of 48 to 49Mtpa (100% basis) following the completion of de-bottlenecking work. In parallel, feasibility study work continues on a potential fourth grinding line, designed to sustainably lift plant throughput above 50Mtpa (100% basis). The feasibility study is expected to be completed in H1 FY24.

We will provide FY24 production guidance with our financial results announcement for the December 2022 half year.   

Cannington (100% share)

Cannington payable zinc equivalent production¹⁵ decreased by 13% (or 15.2kt) to 98.8kt in the December 2022 half year   with mill throughput below plan due to lower than expected performance of temporary mobile crushers deployed to support the transition to truck haulage. Ore mined volumes also declined with lower operator availability due to skilled labour shortages and further COVID-19 absenteeism.      

While the transition to truck haulage was completed at the end of the December 2022 quarter and is expected to bring forward higher-grade material in the mine plan, the ability to recover production volumes in H2 FY23 is expected to be constrained with near-term labour availability challenges expected to impact mining rates. Accordingly, we have reduced FY23 production guidance by 11% to 209.4kt payable zinc equivalent¹⁵ (ore processed 2,450kdmt, silver 12,000koz, lead 108.5kt and zinc 63.5kt).

Sales volumes in the December 2022 quarter reflected the timing of shipments, including carry-over shipments of silver and lead from the prior quarter. Our realised zinc price of US$2,436/t in the December 2022 half year is net of treatment and refining charges that have widened in the current market.

Cerro Matoso (99.9% share)

Cerro Matoso payable nickel production was largely unchanged at 20.4kt in the December 2022 half year. Production improved by 13% (or 1.2kt) in the December 2022 quarter as mill throughput returned to normalised rates following the completion of a planned shut, while the OSMOC project was commissioned. FY23 production guidance remains unchanged at 43.5kt, with the OSMOC project expected to support higher production volumes in H2 FY23.

Sales increased by 20% in the December 2022 quarter, which reflected improved product availability. Our ferronickel product typically attracts a discount to the LME Nickel price index on a volume weighted M or M+1 basis, with this discount further widening to 16% in the December 2022 half year (H2 FY22: 8%).

Following a change in tax legislation, we expect Cerro Matoso's effective tax rate to increase in future periods, with the Colombian dividend withholding tax increasing from 10% to 20% and income tax deductions no longer available for royalty payments²² from January 2023.     

Illawarra Metallurgical Coal (100% sHARE)

Illawarra Metallurgical Coal saleable production increased by 6% (or 186kt) to 3,331kt in the December 2022 half year. Metallurgical coal production increased by 17% (or 213kt) in the December 2022 quarter, with improved labour productivity at the Appin mine following the successful negotiation in October 2022 of a new Enterprise Agreement, which has a four year term to 2026. The benefit to production of improved labour productivity following the conclusion of protected industrial action was partially offset by a temporary outage in the December 2022 quarter. Energy coal production decreased by 22% (or 72kt) during the December 2022 quarter, due to maintenance and water management activity at the Dendrobium mine. 

FY23 production guidance remains unchanged at 7.0Mt (metallurgical coal 6.0Mt and energy coal 1.0Mt) with the complex expected to deliver higher volumes over the remainder of FY23, benefitting from an expected improvement in labour productivity.

Australia Manganese       (60% share)

Australia Manganese saleable production increased by 8% (or 140kwmt) to a record of 1,844kwmt in the December 2022 half year as improved yields supported higher primary concentrator output. Separately, our low-cost PC02 circuit continued to operate above its design capacity, delivering approximately 10% of production (FY22: 11%). FY23 production guidance remains unchanged at 3,400kwmt, with production volumes tracking ahead of plan prior to the commencement of the wet season.

South Africa Manganese (ore 54.6% share)

South Africa Manganese saleable production increased by 4% (or 40kwmt) to 1,093kwmt in the December 2022 half year, as improved mining performance was partially offset by planned maintenance in the December 2022 quarter. FY23 production guidance remains unchanged at 2,000kwmt, subject to market conditions and our continued use of higher cost trucking.  

Sales increased by 18% in the December 2022 quarter as third-party rail and port availability progressively improved after Transnet's industrial action was resolved in October 2022. Notwithstanding this strong quarterly performance, we did see a build in working capital during the December 2022 half year as a result of this disruption.   

Notes

The following abbreviations have been used throughout this report: US$ million (US$M); US$ billion (US$B); € (Euro); grams per tonne (g/t); tonnes (t);
thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); ounces (oz); thousand ounces (koz);
million ounces (Moz); thousand wet metric tonnes (kwmt); million wet metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); dry metric tonne unit (dmtu); thousand dry metric tonnes (kdmt).

Figures in Italics indicate that an adjustment has been made since the figures were previously reported. The denotation (e) refers to an estimate or forecast year.

Operating Performance

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

23 January 2023

South32 Limited

(Incorporated in Australia under the Corporations Act 2001 (Cth))

(ACN 093 732 597)

ASX / LSE / JSE Share Code: S32; ADR: SOUHY

ISIN: AU000000S320