QUARTERLY REPORT
March 2023

South32 Chief Executive Officer, Graham Kerr: "Group-wide copper equivalent production increased by seven per cent, following investments last year which added copper to our portfolio and increased our share of low-carbon aluminium.

"Manganese ore production has increased by six per cent year-on-year, with Australia Manganese achieving record production. The Eastern Leases project at Australia Manganese has been approved, extending the life of the operation and unlocking significant value.

"Several operations faced challenging conditions during the quarter, with production guidance revised down as a result. At Mozal Aluminium, we reduced output as the team continued to work through their recovery plan following the devastating loss of two of our colleagues in November, with efforts hampered by severe flooding in the local area. We also temporarily suspended mining activity at Cannington during the quarter to enable the safe return to operations following heavy rainfall.

"Our strong financial position enabled us to return US$31 million to shareholders via our on-market share buy-back in the quarter, with a further US$128 million still to be returned. Separately, we paid a fully-franked interim dividend of US$223 million following the end of the period.

"We remain well positioned to capitalise on improved market conditions, with higher production volumes expected to finish the 2023 financial year and Operating unit cost and capital expenditure guidance held largely unchanged.

"We continue to reshape our portfolio towards commodities critical to a low-carbon future, progressing construction and development studies at Hermosa and adding the prospective Chita Valley copper project to our portfolio of greenfield 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.

Worsley Alumina (86% share)

Worsley Alumina saleable production decreased by 5% (or 134kt) to 2,827kt in the nine months ended March 2023 with planned calciner maintenance in the September 2022 and March 2023 quarters. FY23 production guidance remains unchanged at 4,000kt, with the refinery expected to achieve nameplate production rates in the June 2023 quarter.   

Brazil Alumina (36% share)

Brazil Alumina saleable production increased by 6% (or 59kt) to 1,025kt in the nine months ended March 2023, following the bauxite ship unloader outage in the prior period.

In late March 2023, the belt system that conveys raw materials from the port failed and the refinery reduced production to manage bauxite inventories. The belt system was repaired in April 2023 and the refinery has since returned to normal production levels. Due to this temporary outage, FY23 production guidance has been reduced by 4% to 1,340kt.

Notwithstanding lower planned volumes, FY23 Operating unit costs are expected to be approximately 5% below H1 FY23 (US$364/t) as raw material and energy prices continue to moderate.    

Brazil AluminIUM (40% share)

Brazil Aluminium saleable production was 45.3kt in the nine months ended March 2023, following the successful restart of the smelter in the June 2022 quarter. Production improved by 40% (or 6.2kt) in the March 2023 quarter as all three potlines ramped-up toward nameplate capacity as planned. FY23 and FY24 production guidance remains unchanged at 75kt and 148kt respectively.

Hillside Aluminium (100% SHARE)

Hillside Aluminium saleable production increased by 1% (or 4kt) to 539kt in the nine months ended March 2023 as the smelter continued to test its maximum technical capacity despite the impact of elevated load-shedding. FY23 production guidance remains unchanged at 720kt¹⁰.

Sales increased by 13% in the March 2023 quarter with two carry-over shipments from the prior quarter supporting a drawdown in inventory.

While the cost profile of Hillside Aluminium will continue to be heavily influenced by the South African rand and the price of raw materials, we expect FY23 Operating unit costs to be largely in-line with H1 FY23 (US$2,276/t).

Mozal Aluminium (63.7%¹¹ share)

Mozal Aluminium saleable production increased by 30% (or 61kt) to 263kt in the nine months ended March 2023, reflecting our increased ownership of the smelter¹¹. During the March 2023 quarter, we made the decision to temporarily reduce amperage at the smelter to support the safe recovery of operations following the fatal incident in November 2022. The recovery plan was impacted by resourcing constraints during the quarter as significant floods restricted the movement of people and equipment to the smelter. FY23 production guidance has been reduced by 8% to 340kt¹⁰, with the smelter expected to return to nameplate capacity during the September 2023 quarter. FY24 production guidance is unchanged at 370kt¹⁰.  

The execution of the recovery plan also resulted in a temporary reduction in metal quality. During the quarter, approximately 35% of production was below specification and sales volumes decreased by 52% (or 47kt) as we assessed commercial alternatives for this material. We have now commenced shipments of this material, achieving realised prices that reflect a modest discount to our other LME-linked aluminium sales. Sales volumes are expected to increase to approximately 100kt in the June 2023 quarter as inventory is drawn down and product quality improves in-line with the recovery plan. 

The temporary reduction in sales volumes is expected to have a modest impact on FY23 Operating unit costs, with FY23 Operating unit costs expected to be approximately 5% above H1 FY23 (US$2,237/t) subject to the price of raw materials.

SIERRA GORDA (45% share)

Sierra Gorda payable copper equivalent production¹² was 63.9kt in the nine months ended March 2023. Payable copper equivalent production decreased by 15% to 19.0kt in the March 2023 quarter, reflecting a lower average copper grade in accordance with the mine plan, and lower plant throughput as wet weather caused a temporary sub-station outage. FY23 payable copper equivalent production guidance of 89.0kt remains unchanged, with mill throughput expected to improve in the June 2023 quarter.

Work continued on the plant de-bottlenecking project, with construction of the third tailings thickener completed in the quarter. The de-bottlenecking project is targeting an increase in plant throughput of 48 to 49Mtpa (100% basis), while feasibility study work continues on the potential fourth grinding line expansion.

Cannington (100% share)

Cannington payable zinc equivalent production¹³ decreased by 20% (or 35.5kt) to 139.8kt in the nine months ended March 2023, due to lower mill throughput and labour constraints in the first half of the 2023 financial year and severe wet weather in the March 2023 quarter. During the quarter, we temporarily suspended mining activity to ensure safety of the underground operation following the heavy rainfall, while the movement of people and critical supplies to site was also disrupted by widespread flooding. As a result, payable zinc equivalent production decreased by 22% (or 11.7kt) in the quarter and the operation was unable to rebuild run of mine stocks.

FY23 production guidance has been reduced by 6% to 195.9kt payable zinc equivalent (silver 11,000koz, lead 102.0kt and zinc 60.5kt). The revised guidance reflects an expected 10% reduction in ore processed (to 2,200kdmt), partly offset by higher zinc, lead and silver grades, with the transition to 100% truck haulage providing access to higher grade material. We expect run of mine stock availability and more complex underground mining conditions to constrain output in FY24, with production guidance reduced by 8% to 215.3kt payable zinc equivalent (ore processed 2,400kdmt, silver 12,500koz, lead 115.0kt and zinc 62.0kt).              

Due to the lower planned volumes, we have revised FY23 Operating unit cost guidance to US$152/t ore processed (from US$141/t).

Cerro Matoso (99.9% share)

Cerro Matoso payable nickel production was largely unchanged at 30.6kt in the nine months ended March 2023. Production decreased by 6% (or 0.6kt) to 10.2kt in the March 2023 quarter due to lower ore availability from the higher grade Q&P pit, as road access was temporarily restricted due to an environmental order. This order was lifted by the end of the quarter and truck haulage of Q&P material has resumed. Due to lower volumes of this higher grade ore, FY23 production guidance has been reduced by 7% to 40.5kt.       

FY23 Operating unit cost guidance is held unchanged at US$4.99/lb with the benefit of a weaker Colombian peso (USD:COP exchange rate of 4,688) and lower price-linked royalties, expected to offset lower planned volumes.

Sales declined 2% in the March 2023 quarter. Price realisations for our ferronickel product remain dislocated from the LME Nickel index due to market dynamics. Our realised price for nickel sales for the nine months ended March 2023 was US$8.31/lb.   

Illawarra Metallurgical Coal (100% sHARE)

Illawarra Metallurgical Coal saleable production decreased by 3% (or 159kt) to 4.8Mt in the nine months ended March 2023, with production decreasing by 17% (or 300kt) in the March 2023 quarter as challenging strata conditions were encountered at the Appin mine.    

Improved longwall performance and production is expected at Appin in the June 2023 quarter, while a longwall move is scheduled at Dendrobium. FY23 production guidance has been reduced by 7% to 6.5Mt (metallurgical coal 5.5Mt and energy coal 1.0Mt) to reflect lower year to date volumes. FY24 production guidance is unchanged at 5.3Mt.   

Due to the lower planned volumes, we have revised FY23 Operating unit cost guidance to US$127/t (from US$119/t).

Sales decreased by 18% in the March 2023 quarter due to lower product availability. Notwithstanding, we achieved strong price realisations for our premium quality hard coking coal product, with our realised prices representing a premium of circa 4% to the low-volatile hard coking coal index¹⁵ on a M-1 basis.

Australia Manganese (60% share)

Australia Manganese saleable production increased by 6% (or 157kwmt) to a record of 2,676kwmt in the nine months ended March 2023, as improved yields supported higher primary concentrator output and the operation drew down stockpiles in the quarter, as planned, to manage wet season mining constraints. FY23 production guidance has been increased by 3% to 3,500kwmt, reflecting the operation's strong year to date performance.

We recorded improved price realisations in the March 2023 quarter, achieving the high grade 44% manganese lump ore index¹⁶ on a M-1 basis, despite our low-cost PC02 circuit continuing to operate above its design capacity, contributing approximately 10% of production (9M YTD22: 12%).

Due to in-land logistics constraints and timing of sales, we expect to hold elevated inventory positions at 30 June 2023. Inventories are expected to be drawn down in the September 2023 quarter.

South Africa Manganese (ore 54.6% share)

South Africa Manganese saleable production increased by 5% (or 78kwmt) to 1,522kwmt in the nine months ended March 2023, as improved mining performance more than offset the impact of wet weather disruptions in the quarter. FY23 production guidance remains unchanged at 2,000kwmt, subject to market conditions and our continued use of higher cost trucking.  

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, including any 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

24 April 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