QUARTERLY REPORT
June 2023

South32 Chief Executive Officer, Graham Kerr: "We had a strong finish to the year, with Group copper equivalent production growing 9% in the quarter. Our strong operating results included record annual production at Hillside Aluminium, Australia Manganese and South Africa Manganese. Aluminium production increased by 14% and base metals production by 17% in FY23, supported by our recent investments in commodities critical to a low-carbon future.

"We maintained our disciplined track record of capital allocation, returning a record US$1.2B to shareholders in FY23 while continuing to invest in our high-quality growth options.

"Significant milestones were achieved at our Hermosa project, as we advanced our Taylor and Clark development options and returned exciting copper exploration results from our Peake prospect. Hermosa was also confirmed as the first mining project in the United States to be covered by the FAST-41 process, underlining its potential to strengthen the domestic supply of critical minerals.

"We progressed our greenfield exploration programs, exercising our earn-in right to acquire a 50.1% interest in the Chita Valley copper exploration project, located in Argentina's highly prospective San Juan mineral belt.

"Looking forward, we are well placed to continue to capitalise on the global energy transition. We expect to deliver further production growth in aluminium and base metals in FY24, and our high-quality development options have the potential to further strengthen our long-term supply of critical minerals."

Corporate Update

Sustainability

Income statement items

Cash flow and balance sheet items

Tax

Development and Exploration Update

We continue to actively reshape our portfolio, progressing our development and greenfield exploration options to further enhance our exposure to commodities critical to a low-carbon future.

We invested US$256M of growth capital expenditure at our Hermosa project in FY23, achieving significant milestones. We progressed the feasibility study for the Taylor zinc-lead-silver deposit, confirmed the potential to produce battery-grade manganese from our Clark deposit, and installed critical path dewatering infrastructure.

During the June 2023 quarter, Hermosa was confirmed by the US Federal Permitting Improvement Steering Council as the first mining project to be covered by the FAST-41 process, reflecting its status as currently the only advanced project in the United States with the potential to supply two federally designated critical minerals, zinc and manganese. 

Greenfield exploration continues to play a critical role in our approach to embedding growth options in base metals, with more than 25 options across our partnerships and own properties. We consolidated our position in the highly prospective San Juan mineral belt in Argentina during FY23, exercising our earn-in right to acquire a 50.1% interest and operatorship in the Chita Valley copper exploration project¹⁶ and acquiring a 9.9% interest in Aldebaran Resources Inc.¹⁷.     

Hermosa project - Taylor deposit

Table A: Mineral Resources for the Taylor deposit as at 30 June 2023⁵  

Million dry metric tonnes^(b), % Zn - percent zinc, % Pb - percent lead, g/t Ag - grams per tonne of silver.

Notes:

a)         Cut-off grade: NSR of US$80/dmt for UG Sulphide. Input parameters for the NSR calculation are based on South32's long-term forecasts for zinc, lead and silver pricing; haulage, treatment, shipping, handling and refining charges. Total metallurgical recovery assumptions differ between geological domains and vary from 85% to 92% for zinc, 89% to 92% for lead, 76% to 83% for silver.

b)        All masses are reported as dry metric tonnes (dmt). All tonnes and grade information have been rounded to reflect relative uncertainty of the estimate, hence small differences may be present in the totals.

Hermosa project - Clark deposit

Hermosa project - Exploration

Table B: Selected Peake drilling results⁶ 

Cross-section through the Taylor, Clark and Peake mineralisation domains showing the previously reported and new exploration holes, simplified geology and Taylor Thrust - looking east 2000m wide

Greenfield exploration

Other exploration

Production Summary

a.         The denotation (e) refers to an estimate or forecast year.

b.         Reflects percentage of achieved production for FY23 compared to current FY23e.

marketing Update

Commodity prices were broadly lower in FY23 as we saw a moderation in demand and sentiment following record conditions for many markets in the prior period.

We delivered strong sales performance in the June 2023 quarter, supporting a drawdown in inventory prior to the end of the period. We expect to record an unwind in working capital in H2 FY23, offsetting the working capital build experienced in H1 FY23 (H1 FY23: US$152M build).

The average realised prices achieved for our commodities are summarised below. Outstanding concentrate sales were revalued at 30 June 2023 with the final price of these to be determined in the December 2023 half year.

a.         While Brazil Alumina and Brazil Aluminium are non-operated, South32 owns the marketing rights for our share of production. While Sierra Gorda is also non-operated, the Joint Venture is responsible for marketing our share of production.

b.         Published FY22 realised sales prices and Operating unit costs reflect the period 1 March 2022 to 30 June 2022. Whereas production and sales numbers, and all Income Statement items reflect the period from first ownership (22 February 2022).

Worsley Alumina (86% share)

Worsley Alumina saleable production decreased by 4% (or 152kt), from record levels in FY22, to 3,839kt in FY23.

Saleable production increased by 12% (or 107kt) to 1,012kt in the June 2023 quarter as improved calciner availability supported above nameplate production rates (4.6Mtpa, 100% basis), partially offset by a temporary bauxite conveyor outage. FY24 production guidance is unchanged at 4,000kt. 

Sales increased by 31% in the June 2023 quarter with a carry-over shipment from the prior quarter supporting a drawdown in inventory.

Brazil Alumina (36% share, NON-OPERATED)

Brazil Alumina saleable production decreased by 3% (or 35kt) to 1,262kt in FY23. The refinery reduced output in the June 2023 quarter to manage bauxite inventories, following a temporary failure of a belt system from the port, and unplanned maintenance was completed for one of the two bauxite ship unloaders.   

The refinery has returned to nameplate production rates and FY24 guidance is unchanged at 1,400kt.

FY23 Operating unit costs are expected to be ~US$365/t, reflecting the impact of lower volumes in H2 FY23.

Brazil AluminIUM (40% share, NON-OPERATED)

Brazil Aluminium saleable production was 68.9kt in FY23 following the restart of all three potlines at the smelter. Production increased by 9% (or 2.0kt) to 23.6kt in the June 2023 quarter, which was below plan, as lower overhead crane availability impacted pot restart activities and metal production. As a result, fewer pots are in operation than planned, and we expect a delayed ramp-up to nameplate capacity. We have reduced guidance for our share of FY24 production to 100kt (from 148kt) and expect to provide a revised timeline for achieving nameplate capacity (179ktpa, our 40% share) with our FY23 financial results announcement.        

We expect to report sequentially lower Operating unit costs in H2 FY23 (H1 FY23: US$5,876/t) with FY23 Operating unit costs expected to be ~US$4,350/t, ahead of the smelter's ramp-up to nameplate capacity.

Hillside Aluminium (100% SHARE)

Hillside Aluminium saleable production increased by 1% (or 5kt) to a record 719kt in FY23 as the smelter continued to test its maximum technical capacity despite the impact of elevated load-shedding. FY24 production guidance is unchanged at 720kt²⁰. 

Mozal Aluminium (63.7%²¹ share)

Mozal Aluminium saleable production increased by 24% (or 67kt) to 345kt in FY23, reflecting our increased ownership share²¹. The smelter continued to implement its recovery plan, delivering production of 82kt in the June 2023 quarter, exceeding revised production guidance. Nameplate production rates are expected to be achieved in the December 2023 quarter, with FY24 production guidance revised to 365kt²⁰.

Sales volumes increased by 165% (or 71kt) to 114kt in the June 2023 quarter as production returned to 100% LME-grade quality by the end of the period and we sold all below specification material produced in the prior quarter, at a modest discount to our other LME-linked aluminium sales.

SIERRA GORDA (45% share)

Sierra Gorda payable copper equivalent production²² was 86.2kt in FY23, or 97% of FY23 guidance, with molybdenum output below plan. The operation delivered a strong finish to the year, increasing payable copper equivalent production by 17% to 22.3kt in the June 2023 quarter with improved plant availability. 

The operation's plant de-bottlenecking project is on-track to support an increase in plant throughput to ~48 to 49Mtpa (100% basis), as reflected in our unchanged FY24 guidance of 87.5kt payable copper equivalent production. Feasibility study work for the fourth grinding line is ongoing, with the expansion supporting a potential further uplift in plant throughput to 57 to 58Mtpa (100% basis).

Cannington (100% share)

Cannington payable zinc equivalent production²³ was 195.6kt in FY23, in-line with revised guidance. The operation successfully recovered from severe wet weather impacts in the March 2023 quarter, increasing payable zinc equivalent production by 36% (or 14.8kt) to 55.8kt in the June 2023 quarter. FY24 guidance is unchanged at 215.3kt payable zinc equivalent production (silver 12,500koz, lead 115.0kt and zinc 62.0kt).     

Payable zinc sales increased by 148% in the June 2023 quarter, as logistics recovered from widespread flooding in the March 2023 quarter, supporting a drawdown in inventory.  

Cerro Matoso (99.9% share)

Cerro Matoso payable nickel production was 40.8kt in FY23, in-line with revised guidance, as truck haulage from the higher-grade Q&P pit resumed in the June 2023 quarter.

Looking forward, we expect nickel production guidance in FY24 to be largely unchanged at 40.5kt, with the benefits of the Ore Sorting and Mechanical Ore Concentration project partially offset by additional plant maintenance.   

Sales decreased by 2% in the June 2023 quarter. Price realisations for our ferronickel product remain dislocated from the LME Nickel Index due to market dynamics, as reflected in our realised price for nickel sales of US$7.76/lb in FY23.

Illawarra Metallurgical Coal (100% sHARE)

Illawarra Metallurgical Coal saleable production was 6.5Mt in FY23, in-line with revised guidance. Saleable production increased by 22% (or 317kt) to 1.75Mt in the June 2023 quarter, as the operation delivered improved longwall performance at Appin, and completed a planned longwall move at Dendrobium.

FY24 production guidance is currently unchanged at 5.3Mt, with two longwall moves planned at both Appin and Dendrobium during the year. Commencement of the next longwall at Dendrobium, scheduled in Q1 FY24, remains subject to regulatory approvals. If the necessary approvals are delayed, this would impact production volumes from Dendrobium in FY24. We will provide an update with our FY23 financial results announcement.    

Metallurgical coal sales increased by 28% in the June 2023 quarter, as we optimised our sales mix and achieved improved product availability.

Australia Manganese       (60% share)

Australia Manganese saleable production increased by 5% (or 182kwmt) to a record of 3,545kwmt in FY23, as improved yields supported higher primary concentrator output. Separately, our low-cost PC02 circuit continued to operate above its design capacity, delivering ~11% of production (FY22: 11%).

Sales increased by 17% in the June 2023 quarter as we benefitted from improved road haulage capacity and implemented alternative shipping solutions. This is expected to support a further drawdown in inventory in the September 2023 quarter. 

The operation's strong performance is expected to result in FY23 Operating unit costs being ~5% below FY23 guidance of US$1.97/dmtu. Looking forward, FY24 Operating unit costs are expected to be in a range of ~US$2.20/dmtu to ~US$2.25/dmtu, reflecting a higher planned strip ratio and increased haul lengths.   

South Africa Manganese (ore 54.6% share)

South Africa Manganese saleable production increased by 2% (or 39kwmt) to a record of 2,108kwmt in FY23, exceeding guidance by 5%. The operation delivered a strong finish to the year, increasing saleable production by 37% (or 157kwmt) to 586kwmt in the June 2023 quarter, including higher volumes of premium material from the Mamatwan mine.

Sales increased by 10% in the June 2023 quarter with improved third-party truck and rail availability, partially offset by loading delays at port due to wet weather.

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.

Further information

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

24 July 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