QUARTERLY REPORT
December 2023

South32 Chief Executive Officer, Graham Kerr: "In the December 2023 quarter, our production results were mixed.  Highlights for the quarter included a 20 per cent increase in zinc and nickel and a 7 per cent increase in silver. We also delivered record aluminium production for the half, as Hillside Aluminium maintained its strong performance and Brazil Aluminium continued to ramp up. However, production from Brazil Alumina, Mozal Aluminium and molybdenum output from Sierra Gorda was below plan, with flow on impacts to annual production guidance.   

"With some of our commodities facing headwinds in the half, we continued to focus on delivering cost efficiencies and expect first half Operating unit costs to be below or in line with guidance for the majority of our operations.  

"As we enter the second half, strengthening market conditions for many of our commodities, our planned 7 per cent production growth and ongoing cost management focus, position us well to capture higher margins.

"We continued to invest to increase our exposure to commodities critical to a low-carbon future. At our Hermosa project, we progressed critical path infrastructure and remain on track to make a final investment decision for the Taylor zinc-lead-silver deposit in the March 2024 quarter. Sierra Gorda also continued work on the fourth grinding line expansion project, which has the potential to sustainably increase copper production."

Corporate Update

Development and Exploration Update

Hermosa project

Greenfield exploration

Other exploration

Production Summary

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

marketing Update

Commodity prices were broadly lower in the December 2023 half year reflecting a moderation in demand and sentiment.

The average realised prices achieved for our commodities are summarised below. Outstanding concentrate sales were revalued at 31 December 2023 with the final price of these to be determined in the June 2024 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.

OPERATING UNIT COST UPDATE

We expect to report H1 FY24 Operating unit costs in line or below current FY24 guidance for the majority of our operations, with the benefit of cost efficiencies and lower raw material input prices. Looking forward, we remain focused on driving operating performance and further efficiencies to mitigate cost pressures. Further, Operating unit costs in H2 FY24 are expected to benefit from a planned 7% increase in Group production volumes².

The below commentary reflects our current expectations for H1 FY24 Operating unit costs. We will report H1 FY24 Operating unit costs and provide updated FY24 guidance with our H1 FY24 financial results announcement. 

a.         Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volumes.

b.         FY24e Operating unit cost guidance includes royalties (where appropriate) and commodity price and foreign exchange rate forward curves or our

internal expectations (refer to footnote 19).

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

d.         US dollar per tonne of ore processed. Periodic movements in finished product inventory may impact Operating unit costs.

Worsley Alumina (86% share)

Worsley Alumina saleable production increased by 1% (or 12kt) to 1,934kt in the December 2023 half year. FY24 production guidance remains unchanged at 4,000kt with the refinery expected to deliver at nameplate production rates (4.6Mt, 100% basis) following planned calciner maintenance in the March 2024 quarter.

Brazil Alumina (36% share, NON-OPERATED)

Brazil Alumina saleable production decreased by 7% (or 51kt) to 640kt in the December 2023 half year. Following the recovery from the prior period's port infrastructure outages, the refinery was impacted by third-party power outages and unplanned maintenance. Due to these impacts and additional required maintenance, we have reduced FY24 production guidance by 7% to 1,300kt and FY25 production guidance by 5% to 1,350kt.      

Sales increased by 38% in the December 2023 quarter with a carry-over shipment from the prior quarter supporting a drawdown in inventory.

Brazil AluminIUM (40% share, NON-OPERATED)

Brazil Aluminium saleable production increased by 26kt to 50kt in the December 2023 half year as the smelter continued to ramp up all three potlines. FY24 production guidance remains unchanged at 100kt.  

Sales increased by 24kt to 32kt in the December 2023 quarter as we completed our first export shipment of low-carbon aluminium from the smelter, supporting a significant drawdown in inventory at the end of the period.   

Hillside Aluminium (100% SHARE)

Hillside Aluminium saleable production decreased by 1% (or 3kt) to 359kt in the December 2023 half year as the smelter continued to test its maximum technical capacity, despite the impact of elevated load-shedding. FY24 production guidance remains unchanged at 720kt¹⁴.

Sales decreased by 8% in the December 2023 quarter as three shipments totalling approximately 40kt were delayed to January 2024 due to port congestion at Richards Bay. We expect to drawdown inventory to normalised levels during the March 2024 quarter.  

Mozal Aluminium (63.7% share)

Mozal Aluminium saleable production decreased by 9% (or 16kt) to 166kt in the December 2023 half year, as the smelter continued to implement its recovery plan following the fatal safety incident in the prior period, while managing the impact of elevated load-shedding.

The smelter progressed upgrades to the girder infrastructure during the December 2023 quarter, which resulted in an unplanned reduction in crane availability. We took the decision to reduce the number of pots in operation to enable the recovery plan to be safely executed and complete work designed to deliver a sustained improvement in process stability. As a result, approximately 73 pots (~13% of the total) were out of operation at the end of quarter, with these pots expected to be progressively returned to operation during the 2024 calendar year. FY24 production guidance has been reduced by 12% to 320kt¹⁴ to reflect the lower number of pots in operation. FY25 production guidance is currently unchanged at 372kt¹⁴.        

During the December 2023 quarter, approximately 60% of production was below specification material, which attracts product discounts compared to our other LME-linked aluminium sales. Metal quality is expected to progressively improve to LME-grade quality during the June 2024 half year.

SIERRA GORDA (45% share)

Sierra Gorda payable copper production decreased by 17% (or 6.3kt) to 31.6kt in the December 2023 half year as higher throughput delivered by the plant de-bottlenecking project, was more than offset by lower planned grades.

Payable molybdenum production decreased by 0.3kt to 0.1kt in the December 2023 quarter due to an unplanned outage of the molybdenum plant and low recoveries. The operation has commenced work to restore production, with higher output expected in the June 2024 quarter. As a result, FY24 molybdenum production guidance has been reduced to 0.8kt (from 2.5kt).  

Sierra Gorda progressed the feasibility study for the fourth grinding line expansion during the December 2023 quarter.  The feasibility study remains on track to support a planned final investment decision in the June 2024 half year.

Cannington (100% share)

Cannington payable zinc equivalent production³ increased by 13% (or 16.4kt) to 147.2kt in the December 2023 half year as the mine plan moved through a sequence of higher-grade stopes in the quarter. FY24 production guidance remains unchanged at 287.2kt payable zinc equivalent production (silver 12,500koz, lead 115.0kt and zinc 62.0kt).     

Cerro Matoso (99.9% share)

Cerro Matoso payable nickel production decreased by 10% (or 2.1kt) to 18.3kt in the December 2023 half year. Production improved by 20% (or 1.7kt) in the December 2023 quarter following the completion of planned maintenance and a temporary reduction in third-party gas supply in the prior quarter. FY24 production guidance remains unchanged at 40.5kt, with higher nickel grades expected in the June 2024 half year.

Price realisations for our ferronickel product reflected a discount of ~29% to the LME Nickel Index¹⁹, as structural changes in the nickel market continued to place pressure on both nickel prices and discounts for our ferronickel product. Along with the Group-wide cost review, we have commenced a strategic review of Cerro Matoso to evaluate options to enhance the operation's competitive position.     

Illawarra Metallurgical Coal (100% sHARE)

Illawarra Metallurgical Coal saleable production decreased by 39% (or 1,286kt) to 2,045kt in the December 2023 half year as the operation completed two planned longwall moves, including a planned extended outage at the Dendrobium mine. A new four year industrial agreement covering deputies at the Appin mine was finalised in the December 2023 quarter.

FY24 production guidance remains unchanged at 5.0Mt with volumes remaining weighted to the June 2024 half year, reflecting the shorter duration of the two remaining longwall moves to be completed during the June 2024 quarter.

Australia Manganese       (60% share)

Australia Manganese saleable production decreased by 9% (or 165kwmt) to 1,679kwmt in the December 2023 half year, as PC02 output declined due to lower yields, contributing 7% of total production (H1 FY23: 10%). FY24 production guidance remains unchanged at 3,400kwmt with the operation expected to continue to achieve strong primary output and return the PC02 circuit to nameplate production rates during the June 2024 quarter.  

Sales increased by 13% in the December 2023 half year as improved road haulage capacity and alternative shipping solutions supported a planned drawdown in inventory. Our average realised price for manganese ore sales was a discount of approximately 5% to the high grade 44% manganese lump ore index²² on a M-1 basis (FY23: 6% discount), reflecting lower planned ore grades, as well as price realisations for our PC02 product.

South Africa Manganese (ore 54.6% share)

South Africa Manganese saleable production increased by 2% (or 18kwmt) to 1,111kwmt in the December 2023 half year, while production decreased by 23% (or 145kwmt) in the December 2023 quarter as we completed a planned maintenance shut at our Mamatwan mine. FY24 production guidance remains unchanged at 2,000kwmt.

Sales increased by 9% in the December 2023 quarter with a carry-over shipment from the prior quarter. Our realised price for manganese ore sales was a premium of approximately 5% to the medium grade 37% manganese lump ore index²³ on a M-1 basis (FY23: 6% premium) as we continued to optimise our sales mix.

Notes

1.         Group payable copper equivalent production based on revised FY24 production guidance, calculated by applying FY23 realised prices for all operations.

2.         Group payable copper equivalent production in H2 FY24e, compared to H1 FY24, calculated by applying FY23 realised prices for all operations.

3.         Payable zinc equivalent production (kt) was calculated by aggregating revenues from payable silver, lead and zinc, and dividing the total Revenue by the price of zinc. FY23 realised prices for zinc (US$2,151/t), lead (US$1,919/t) and silver (US$21.1/oz) have been used for FY23, H1 FY24 and FY24e.

4.         Payable copper equivalent production (kt) was calculated by aggregating revenues from copper, molybdenum, gold and silver, and dividing the total Revenue by the price of copper. FY23 realised prices for copper (US$3.51/lb), molybdenum (US$21.28/lb), gold (US$1,821/oz) and silver (US$21.9/oz) have been used for FY23, H1 FY24 and FY24e.

5.         Net distributions from our material equity accounted investments (EAI) (manganese and Sierra Gorda) includes dividends and net repayments/drawdowns of shareholder loans, which are unaudited and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.

6.         Group safe and reliable capital expenditure and improvement and life extension capital expenditure (excluding EAIs). FY24 guidance is US$690M.

7.         The information in this announcement that relates to the Production Target for Appin (up to 2039) of Illawarra Metallurgical Coal is based on 21% Proved and 79% Probable Coal Reserves from Bulli (Appin). Production Target cautionary statement - The Coal Reserves estimates underpinning the Production Target have been prepared by Competent Persons and reported in accordance with the JORC Code. The Coal Resources and Coal Reserves estimates are available to view in South32's FY23 Annual Report (http://www.south32.net) published on 8 September 2023. The stated Production Target is based on South32's current expectations of future results or events and should not be solely relied upon by investors when making investment decisions. Further evaluation work and appropriate studies are required to establish sufficient confidence that this target will be met.

8.         Since inception, US$1.7B has been allocated to the on-market share buy-back (795M shares at an average price of A$3.05 per share) and US$525M returned in the form of special dividends.

9.         The corporate tax rates of the geographies where the Group operates include: Australia 30%, South Africa 27%, Colombia 35%, Mozambique 0%, Brazil 34%, and Chile 27%. The Mozambique operations are subject to a royalty on revenues instead of income tax.

10.      Australia Manganese is subject to a royalty related tax equal to 20% of adjusted EBIT which is included in Underlying tax expense.

11.      Sierra Gorda is subject to a royalty related tax based on the amount of copper sold and the mining operating margin, the rate is between 5% and 14% for annual sales over 50kt of refined copper. This royalty is included in Underlying tax expense. 

12.      Refer to market release "Hermosa Project Update" dated 8 May 2023. In May 2023, our Hermosa project was confirmed by the US Federal Permitting Improvement Steering Council, an independent federal agency, as the first mining project added to the FAST-41 process.

13.      Flux Exploration Target: The information in this announcement that relates to the Exploration Target for Flux is extracted from the announcement entitled (South32 Strategy and Business Update) published on 18 May 2021 and is available to view on www.south32.net. The information was prepared by D Bertuch, Competent Person in accordance with the requirements of the JORC Code. South32 confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement. South32 confirms that the form and context in which the Competent Person's findings are presented have not been materially changed from the original market announcement.

14.      Production guidance for Hillside Aluminium and Mozal Aluminium does not assume any load-shedding impact on production.

15.      Realised prices are unaudited. Volumes and prices do not include any third party trading that may be undertaken independently of equity production. Realised sales price is calculated as sales Revenue divided by sales volume unless otherwise stated.

16.      Realised prices for Sierra Gorda and Cannington are net of treatment and refining charges.

17.      Realised nickel sales prices are inclusive of by-products.

18.      Realised ore prices are calculated as external sales Revenue less freight and marketing costs, divided by external sales volume.

19.      FY24 Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various assumptions for FY24, including: an alumina price of US$349/t; an average blended coal price of US$210/t for Illawarra Metallurgical Coal; a manganese ore price of US$4.85/dmtu for 44% manganese product; a nickel price of US$8.90/lb; a silver price of US$24.5/troy oz; a lead price of US$2,131/t (gross of treatment and refining charges); a zinc price of US$2,446/t (gross of treatment and refining charges); a copper price of US$3.87/lb (gross of treatment and refining charges); a molybdenum price of US$22.5/lb (gross of treatment and refining charges); a gold price of US$1,984/troy oz; an AUD:USD exchange rate of 0.65; a USD:ZAR exchange rate of 18.98; a USD:COP exchange rate of 4,033; USD:CLP exchange rate of 876; and a reference price for caustic soda; which reflect forward markets as at July 2023 or our internal expectations.

20.      Our realised price for nickel sales during the December 2023 half year was US$6.00/lb, which represented a ~29% discount to the average LME Nickel index price of US$8.49/lb.

21.      Illawarra Metallurgical Coal sales are adjusted for moisture and will not reconcile directly to Illawarra Metallurgical Coal production.

22.      The sales volume weighted average of the Metal Bulletin 44% manganese lump ore index (CIF Tianjin, China) on the basis of a one-month lag to published pricing (Month minus one or "M-1") was US$4.40/dmtu in the December 2023 half year.

23.      The sales volume weighted average of the Metal Bulletin 37% manganese lump ore index (FOB Port Elizabeth, South Africa) on the basis of a M-1 basis was US$2.89/dmtu in the December 2023 half year.

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

22 January 2024

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