Mineral Resources and Ore Reserves update

22 SEPTEMBER 2015

South32 Limited

(Incorporated in Australia under the Corporations Act 2001)

(ACN 093 732 597)

ASX / LSE / JSE Share Code: S32
ISIN: AU000000S320

south32.net

South32 Limited

Mineral Resources and Ore Reserves update

South32 Limited (ASX, LSE, JSE: S32) (South32) is pleased to announce changes to its estimates of Mineral/Coal Resources and Ore/Coal Reserves for three of its key operations: Cannington, Groote Eylandt Mining Company (GEMCO) and Illawarra Metallurgical Coal. The company reports:

·          Cannington- a 21% increase in total Mineral Resources;

·       GEMCO- Ore Reserves for the sand tailings (Sands) associated with the Premium Concentrate Project (PC02) for the first time, and the upgrading of in situ (ROM) Mineral Resources from Indicated to Measured and the downgrading of ROM Ore Reserves from Proved to Probable; and

·           Illawarra Metallurgical Coal- upgrades to Coal Resources (following additional drilling) and Coal Reserves (as a result of obtaining extraction approvals for future longwall panels) for Illawarra Metallurgical Coal.

The estimates of Mineral Resources and Ore Reserves (including Coal Resources and Coal Reserves) are reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, 2012 (JORC Code) and the ASX Listing Rules.  This report summarises the information contained in each of the JORC Code Table 1 appendices prepared in connection with this report which are attached, have been submitted to UK Listing Authority (UKLA) national storage mechanism and are available for inspection at http://www.morningstar.co.uk/uk/NSM or are otherwise available on South32's website at http://www.south32.net.

Increase in estimated Mineral Resources at Cannington

South32 confirms a 21% increase in estimated Mineral Resources at Cannington compared to the previous 30 June 2014 estimate (Table 2 and Table 3).  The increase is due to changes in foreign exchange rates and commodity prices as well as the inclusion of Mineral Resources previously excluded in areas identified to transition from open cut to underground and along the perimeter of the potential open cut pit shell offset by depletion. The updated Mineral Resource estimates do not materially affect the Ore Reserve estimates.

Cannington,100% owned by South32, is located in northwest Queensland, 200 km south east of Mount Isa, near the township of Mckinlay in Australia.

Estimate of Mineral Resources

Geology and geological interpretation

Cannington is a Broken Hill Type (BHT) silver-lead-zinc massive sulphide deposit hosted by Proterozoic age high-grade metamorphic lithologies of the Soldiers Cap Group, located in the Eastern Succession of the Mount Isa Block.

Mineralisation is stratiform bound along the limbs of a tight isoclinal recumbent synform with an easterly dip and a southerly plunge. The core of the synform is composed of amphibolites with encompassing silver-lead-zinc sulphide mineralisation. The mineralisation has been divided into nine types based on textural, mineralogical and geochemical characteristics which assist in defining metallurgical performance.

Drilling techniques

Out of a total of 6,470 drill holes considered for this resource update, 6,396 are diamond core and 74 are reverse circulation drill holes. 86% of the diamond core holes were drilled from underground using a fan drilling pattern.

Sampling and sub-sampling techniques

All diamond core samples were halved and samples were collected on one metre (m) intervals through the mineralised zone, including a visually identifiable buffer of at least six metres into the non-mineralised core. The samples were submitted for preparation and analysis at the Cannington on-site laboratory. The mineralised intersections are verified by mine geologists throughout each drilling programme and field duplicates are within an acceptable range for resource modelling. 

Sample analysis method

Samples are crushed to a nominal 2mm with 25% representing the sample and the remaining 75% rejected. A sub-sample of 300g is pulverized to 90% passing 75 microns, subjected to a three acid digest and analysed by Inductively Coupled Plasma - Optical Emission Spectrometry (ICP-OES). Coarse crushed duplicates and laboratory pulp duplicates were undertaken at a submission rate of one in ten samples and one in 100 samples were sent to an external laboratory for analysis.

Laboratory quality assurance and quality control measures at the Cannington laboratory include eight geological standards made of homogenized Cannington ore representing the range of Mineral Resource grades. 

Cut-off grade

Cannington is a polymetallic deposit and utilises an equivalent dollar value for a grade descriptor.  A cut-off dollar value equivalent representing the minimum required for potential economic extraction has been determined as follows:

·              underground Mineral Resource cut-off of A$90/t (Dry Metric Tonnes); and

·              open cut Mineral Resource cut-off of A$45/t.

Mining and metallurgical methods and parameters

Cannington has been operating as an underground long hole open stope mine for 18 years and uses periodically updated performance data to establish its modifying factors.  This includes geological interpretations with defined mineralisation and waste lithology as well as metallurgical recovery assumptions which are reconciled annually.    

Estimation methodology

Resource estimation is performed by Ordinary Kriging (OK) interpolation for silver, lead, zinc and iron which uses search criteria consistent with geostatistical models separately developed for all the elements according to the appropriate geological controls. Inverse Distance weighting is used to interpolate grades of minor elements: arsenic, bismuth and magnesium oxide. Validation includes swath plots, visual inspection and alternate estimation method.

Specific gravity measurements from drill cores are used as the basis for estimating dry bulk density in tonnage calculations for both mineralised and non-mineralised material.

Mineral Resource classification

Mineral Resources are classified based on drill spacing considering data density, data quality, geological continuity and/or complexity and estimation quality (Table 1).

Table 1: Mineral Resources classification criteria for Cannington (Drillhole Spacing)

*Underground                      **Open Cut

Competent Person's Statement

The information in this report that relates to Mineral Resources for Cannington is presented on a 100% basis and is based on information compiled by Tracy Fouet. Ms Fouet, a full time employee of South32, is a member of the Australasian Institute of Mining and Metallurgy and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activities being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Ms. Fouet consents to the inclusion in the report of the matters based on her information in the form and context in which it appears.

Additional information is contained in Appendix 1.

Table 2: Mineral Resources for Cannington as at 30 June 2015 in 100% terms

*Million Metric Tonnes, g/t Ag- Grams per tonne of Silver, % Pb- Percent Lead, %Zn- Percent Zinc.

Notes:

1.      Cut-off grade: All metals used in the net value calculation for Mineral Resources and Ore Reserves were recovered into concentrate and sold.

-        UG Sulphide: Net value cut-off incorporating material revenue and cost factors and includes metallurgical recovery. Mineralisation at A$90/t averages 39g/t Ag, 1.36% Pb and 1.67% Zn.

-        OC Sulphide: Net value cut-off incorporating material revenue and cost factors and includes metallurgical recovery. Mineralisation at A$45/t averages 21g/t Ag, 0.69% Pb and 0.77% Zn.

2.      Mineral Resource information is inclusive of Mineral Resources that have been modified to produce Ore Reserves.

3.      All volumes are reported as dry metric tonnes.

4.      All tonnes and grade information have been rounded to reflect relative uncertainty of the estimate, hence small differences may be present in the totals.

Table 3: Mineral Resources for Cannington as at 30 June 2014 in 100% terms

*Million Metric Tonnes, g/t Ag- Grams per tonne of Silver, % Pb- Percent Lead, %Zn- Percent Zinc

Notes:

1.      As reported by South32 to the ASX, LSE and JSE in the South32 Information Memorandum, available at www.asx.com.au.

2.      South32 acquired the 100% interest in Cannington from BHP Billiton as a result of South32's demerger from BHP Billiton.  On 30 June 2014, that interest was held by BHP Billiton. Further information in relation to the asset restructuring steps is available in South32's financial results and outlook for the year ended 30^th June 2015 (dated 24^th August 2015).

3.      Cut-off Grades: All metals used in the net value calculation for Mineral Resources and Ore Reserves were recovered into concentrate and sold.

-        UG Sulphide: Net value cut-off incorporating material revenue and cost factors and includes metallurgical recovery. Mineralisation at A$90/t averages 48g/t Ag, 1.66% Pb and 2.15% Zn.

-        OC Sulphide: Net value cut-off incorporating material revenue and cost factors and includes metallurgical recovery. Mineralisation at A$45/t averages 27g/t Ag, 0.85% Pb and 0.90% Zn.

4.      Mineral Resource information is inclusive of Mineral Resources that have been modified to produce Ore Reserves.

5.      All volumes are reported as dry metric tonnes.

6.      All tonnes and grade information have been rounded to reflect relative uncertainty of the estimate, hence small differences may be present in the totals.

Update on estimates of Mineral Resources and Ore Reserves at GEMCO

South32 confirms the first time reporting of Ore Reserves for Sands following approval of the PC02.  This update also includes upgrading of ROM Mineral Resources from Indicated to Measured and downgrading of Ore Reserves from Proved to Probable. The upgrading of Mineral Resources is a result of additional drilling in areas previously classified as Indicated Resources. Some of the Measured Resources were converted to Probable Ore Reserves to reflect uncertainty in areas where there was a difference of more than 10% between the "grade control model" ore volumes and "Mineral Resource model" ore volumes. The Mineral Resources and Ore Reserves as at 30 June 2015 are presented in Table 5 and Table 7 and a comparison to the previous estimates (as at 30 June 2014) is presented in

Table 6 and Table 8.

GEMCO is owned by South32 (60%) and Anglo American (40%).  GEMCO is located on Groote Eylandt, Northern Territory, Australia, approximately 16 kilometres (km) from the town of Alyangula.

Estimate of Mineral Resources

Geology and geological interpretation

Groote Eylandt is predominantly composed of a basement of Proterozoic sandstones and quartzites overlain on the western margin by a blanket of Cretaceous sediments which host the manganese deposits. The orebodies comprise of pisolitic and oolitic manganiferous oxides thought to have been chemically precipitated during sea level transgression and regression. Periods of subsequent tropical weathering and preservation have facilitated a supergene enrichment process which has upgraded the manganiferous oxides to what they represent today. The enrichment zone is stratiform in character, relatively contiguous laterally, and ranges up to 11 metres in thickness.

Sands are produced as a by-product during the beneficiation of the GEMCO manganese ore from the gangue constituents.  These stockpiles and dams are a mixture of sand-sized particles and slimes composed of manganese (pyrolusite and cryptomelane) and silica sands, with kaolinite and goethite as the gangue minerals. 

Stratigraphic modelling technique is deemed the most appropriate for modelling due to the thin tabular nature of the mineralised horizon, sampling methodology, mining and processing method.

Drilling techniques

Since 1967, multiple exploration programs have been conducted at GEMCO comprising over 10,000 drillholes (totalling approximately 230,000 metres). For the ROM, 71% of the drilling is reverse circulation technique (RC) and the remaining 29% is percussion and tri-cone drilling. For GEMCO Sands, 124 push probe holes have been drilled. 

Sampling and sub-sampling techniques

For the ROM, drill chip samples are collected and bagged from RC drillholes (whole sample) at 0.5 metre intervals downhole, with only the mineralised samples submitted for laboratory analysis. Field reference samples are used at a rate of one in 60 and field duplicates collected at a rate of one in 30.  

For Sands, samples were collected in one metre runs for geological logging and split in a single tier riffle splitter. Half of the splits were combined into a single composite sample per drillhole for submission to the external laboratory, while the other portion of the split was reserved for further test work.  

Sample analysis method

All GEMCO samples are analysed using X-ray Fluorescence spectroscopy (XRF) with a glass bead which is deemed appropriate for the style of mineralisation. 

The samples from GEMCO ROM were analysed in the GEMCO laboratory until 2012, and have since been prepared and analysed at Bureau Veritas (a NATA certified laboratory).  Laboratory quality assurance and quality control measures include regular standard calibrations using a certified reference material, use of internal field and pulp duplicates and "round robin" assaying with external laboratories.

All the samples generated from GEMCO Sands are also analysed at Bureau Veritas.

Cut-off grade

40% manganese washed product cut-off grade is used to define the ROM Mineral Resources. The mineralised envelope includes some sub 40% inter-burden material that reports to tailings during processing. Cut-off grade was determined based on a study completed in 2013. NPV analysis has been used to confirm the appropriateness of this cut-off grade, which has been used to define the ROM Mineral Resource for at least 10 years. For GEMCO Sands, no cut-off grade has been used given all the material from the stockpile will be reclaimed and processed.

Mining and metallurgical methods and parameters

No assumptions on mining factors have been included in the resource estimation for the ROM as it is part of the existing operation. A yield is calculated from the ROM samples and used in the Mineral Resource estimate. 

Bulk mining is considered suitable for reclaiming the Sands.

Estimation methodology

Resource estimation is performed by Ordinary Kriging (OK) interpolation for all major and minor grade elements (Mn, Fe, SiO₂, Al₂O₃, P, BaO, K₂O, MgO, Na₂O, CaO, SrO and TiO₂) using search criteria consistent with geostatistical models separately developed for all the elements according to the appropriate geological controls.

Bulk density is assigned based on planimetric and stratigraphic domains for the ROM. A global bulk density of 1.8 g/cm³ has been assigned for the Sands based on pilot test work.

Mineral Resource classification

Mineral Resources are classified by the Competent Person based on drill spacing considering data density, data quality, geological continuity and/or complexity and estimation quality (Table 4). Additionally, for the ROM, a minimum ore thickness of one metre and Mn product grade cut-off of 40% is used.

Table 4: Mineral Resources classification criteria for GEMCO

*mE- Metres East, **mN- Metres North

Table 5: Mineral Resources for GEMCO as at 30 June 2015 in 100% terms

*Million Metric Tonnes, % Mn- Percent Manganese

Notes:

1.     Cut-off grade for Mineral Resources: >40% Mn washed product and ≥ 1m ore thickness for ROM, > 0% Mn in situ for Sands.

2.     Mineral Resource ROM tonnes are stated as in situ, manganese grades are given as per washed ore sample and should be read together with their respective tonnage yields.

3.     Mineral Resource Sands tonnes and manganese grades are reported as in situ.

4.     Mineral Resource information is inclusive of Mineral Resources that have been modified to produce Ore Reserves.

5.     All volumes are reported as dry metric tonnes.

6.     All tonnes and grade information have been rounded to reflect relative uncertainty of the estimate, hence small differences may be present in the totals.

Table 6: Mineral Resources for GEMCO as at 30 June 2014 in 100% terms

*Million Metric Tonnes, % Mn- Percent Manganese

Notes:

1.     As reported by South32 to the ASX, LSE and JSE in the South32 Information Memorandum, available at www.asx.com.au .

2.     South32 acquired the 60% interest in GEMCO from BHP Billiton as a result of South32's demerger from BHP Billiton.  On 30 June 2014, that interest was held by BHP Billiton. Further information in relation to the asset restructuring steps is available in South32's financial results and outlook for the year ended 30^th June 2015 (dated 24^th August 2015).

3.     Cut-off grade for Mineral Resources: >40% Mn washed product and ≥ 1m ore thickness for ROM, > 0% Mn in situ for Sands.

4.     Mineral Resource ROM tonnes are stated as in situ, manganese grades are given as per washed ore sample and should be read together with their respective tonnage yields.

5.     Mineral Resource Sands tonnes and manganese grades are reported as in situ.

6.     Mineral Resource information is inclusive of Mineral Resources that have been modified to produce Ore Reserves.

7.     All volumes are reported as dry metric tonnes.

8.     All tonnes and grade information have been rounded to reflect relative uncertainty of the estimate, hence small differences may be present in the totals.

Estimate of Ore Reserves

The declared Ore Reserves are based on the Mineral Resource estimate as at 30 June 2015.

Material and economic assumptions

GEMCO is an operating mine which commenced production in the 1960s using strip mining. The depth of ore below the surface ranges from one metre to 40 metres with ore horizon thicknesses ranging from 0.5 metres to six metres. The ROM ore is beneficiated on site before being transported by road train to the ship loading area.

The PC02 is designed to feed a combination of reclaimed Sands tailings stockpiles and direct feed from the concentrator sand tailings stream. A feasibility study was undertaken to review the viability and the project was approved for execution in August 2014. The trial PC02 plant product was used to test market, plant performance and to generate the value-in-use assumptions for the blended product.

Criteria used for classification

For the ROM, the Proved Ore Reserves are sourced exclusively from the Measured Mineral Resources. The Probable Ore Reserves contain both Measured and Indicated Mineral Resources. Some of the Measured Resources are converted to Probable Reserves to reflect the uncertainty in areas where there was a difference of more than 10% between the grade control model ore volumes and Mineral Resource model ore volumes. 6.6 million tonnes of Measured Resources are converted to Probable Reserves. For Sands, all reserves are classified into Probable Ore Reserves. The Ore Reserves as at 30 June 2015 are provided in Table 7 and reflect the Competent Person's view of the deposit.

Mining method and assumptions

Mining is entirely by open-cut strip. A 95% mining recovery is assumed with no mining dilution. The in situ and run-of-mine moisture is assumed to be 10%. For Sands, a detailed design of PC02 was completed during the feasibility study. The reclamation of the sand stockpiles is planned using excavator loading into articulated trucks. The PC02 plant is designed to produce 0.5Mtpa (dry) product. No mining dilution or mining loss has been considered. All planning for PC02 has been on a dry basis.

Processing method and assumptions

The beneficiation process comprises size separation followed by dense media separation. It is appropriate to the style of mineralization, and has been well tested for the operation.

An on-site pilot plant was installed as part of the pre-feasibility study. The pilot plant results are used in the calculation of yield and the product was used for market acceptance testing. The pilot plant and the feed used are considered representative of the Sands feed.

Cut-off grade

For the ROM, 40% manganese washed product cut-off grade for the overall horizon was used. There is some sub-40% product grade within the mining horizons where there is higher grade below. NPV analysis has been used to confirm the appropriateness of this cut-off grade, which has been used to define the ROM Mineral Resource for at least 10 years. A thickness cut-off of 0.5 metres within the orebody and one metre around the edge of the orebody has been considered.

As reclaiming Sands is a stockpile recovery method, no grade cut-off is applied to the PC02 feed.

Estimation methodology

GEMCO uses BHP Billiton's proprietary Blasor software for optimizing pit and strip sequencing. The Ore Reserve estimate is based on the current Life of Asset Plan which sets the long term direction of the operation and has been evaluated in financial models to ensure economic viability.

Material modifying factors

The mining areas are located on existing mining leases with appropriate environmental approvals in place. The GEMCO mine has the necessary legal agreements and marketing arrangements to support the annual production rate that underpins the Ore Reserves. As an existing operation, sufficient infrastructure is available for the ROM.

For Sands, the infrastructure capital costs were derived during the feasibility study and the project is currently in execution.

Table 7: Ore Reserves for GEMCO as at 30 June 2015 in 100% terms

*Million Metric Tonnes, % Mn- Percent Manganese

Notes:

1.     Cut-off grade for Ore Reserves: >40% Mn washed product and ≥ 1m ore thickness for ROM, > 0% Mn in situ for Sands.

2.     Ore Reserves tonnes are stated as ROM, manganese grades are reported as expected product and should be read together with their respective tonnage yields.

3.     Approximate drillhole spacings used to classify reserves were:

Proved Ore Reserves 60m x 120m and 60m x 60m

Probable Ore Reserves 120m x 120m

4.     All volumes are reported as dry metric tonnes.

5.     All tonnes and grade information have been rounded to reflect relative uncertainty of the estimate, hence small differences may be present in the totals.

6.     Ore delivered to Process Plant.

Table 8: Ore Reserves for GEMCO as at 30 June 2014 in 100% terms

*Million Metric Tonnes, % Mn- Percent Manganese

Notes:

1.      As reported by South32 to the ASX, LSE and JSE in the South32 Information Memorandum, available at www.asx.com.au .

2.      South32 acquired the 60% interest in GEMCO from BHP Billiton as a result of South32's demerger from BHP Billiton.  On 30 June 2014, that interest was held by BHP Billiton. Further information in relation to the asset restructuring steps is available in South32's financial results and outlook for the year ended 30^th June 2015 (dated 24^th August 2015).

3.      Cut-off grade for Ore Reserves: >40% Mn washed product and ≥ 1m ore thickness for ROM, > 0% Mn in situ for Sands.

4.      Ore Reserves tonnes are stated as ROM, manganese grades are reported as expected product and should be read together with their respective tonnage yields.

5.      Approximate drillhole spacings used to classify reserves were:

Proved Ore Reserves 60m x 120m and 60m x 60m

Probable Ore Reserves 120m x 120m

6.      All volumes are reported as dry metric tonnes.

7.      All tonnes and grade information have been rounded to reflect relative uncertainty of the estimate, hence small differences may be present in the totals.

8.      Ore delivered to Process Plant.

Competent Persons' Statements

The information in this report that relates to Mineral Resources for GEMCO is presented on a 100% basis, represents an estimate as at 30 June 2015, and is based on information compiled by David Hope.

The information in this report that relates to Ore Reserves for GEMCO is presented on a 100% basis, represents an estimate as at 30 June 2015, and is based on information compiled by Mark Bryant.

Mr. Hope is a full time employee of South32 and Mr. Bryant is employed by Bryant Mining Pty. Ltd. Both the named Competent Persons are members of The Australasian Institute of Mining and Metallurgy and have sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activities they are undertaking to qualify as Competent Persons as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Each Competent Person consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Additional information is contained in Appendices 2 and 3.

Update on estimated Coal Resources and Coal Reserves at Illawarra Metallurgical Coal

South32 confirms upgrades of estimated Coal Resources and Coal Reserves at Illawarra Metallurgical Coal (as presented in Table 11 and Table 12). The increase in Coal Resources is due to additional drilling for the past two years and the upgrading of Coal Reserves due to obtaining the extraction approval granted for longwall panels 901-904. The previous estimate of Coal Resources and Coal Reserves (as at 30 June 2014) is presented in Table 13 and Table 14 .

Illawarra Metallurgical Coal,100% owned by South32, is located in the Illawarra region of New South Wales, Australia (near the city of Wollongong and approximately 75km - 90km south west of Sydney). 

Coal is hauled by road to the Port Kembla Coal Terminal for export to customers globally. Coal is also sold domestically and, in case of BlueScope Steel, coal is delivered from the Dendrobium CPP by conveyor or truck to the blending yard at BlueScope Steel's Port Kembla steelworks. 

Estimate of Coal Resources

Geology and geological interpretation

The Coal Resources are contained within the Late Permian Illawarra Coal Measures in the Southern Coalfield, which is located in the southern portion of the Permo-Triassic Sydney Basin. The Coal Measures contain up to nine individual coal seams.  However, Coal Resources are only declared for two of these coal seams, the Bulli and Wongawilli seams.

Drilling techniques

The geological database contains a total of 2,878 drillholes (of which 1,398 occur inside the mining leases). All drilling completed to date to cover the coal seams is diamond core.     

Sampling and sub-sampling techniques

Two sample types are collected, surface drill core samples and underground strip/channel samples. The entire core is sampled over the chosen intervals and split by the laboratory to allow material to be kept to ensure repeat analysis can be undertaken, if required. Quality control on the sub-samples is managed in the laboratory by the reconciliation of all mass losses/gains at all stages of analysis.  Duplicate strip samples are collected from time to time to ensure representivity. Twinned holes are generally not drilled as it is considered prohibitively expensive and it is not a routine practice within the coal industry.

Sample analysis method

Coal cores are analysed at SGS's Newcastle laboratory, which is NATA registered. The analysis is designed to assess the metallurgical and thermal properties of coal as is common practice in the coal industry.

Cut-off grade

Cut-offs used in the preparation of the resource estimates are minimal. No seam thickness cut-off has been applied to the Coal Resource estimation. Depth of cover has not been used to limit or classify resources.

Mining and metallurgical methods and parameters

The principal assumption made to assess the reasonable prospects of eventual economic extraction has been that the principal method of extraction is via long-wall which has been used at the operation for the last 30 years.  While there is wash product data for each seam available, this was not a criterion when defining the coal seam resource limits.

Estimation methodology

Finite Element Modelling is used for estimation of both structural and coal quality models and the grid specifications for all area models were geostatistically derived. All models are 2D grid models with a grid cell size of 100 metres x 100 metres.

Illawarra Metallurgical Coal uses the Preston/Sanders method for changing from air dried basis to in situ basis for density determinations. 

Coal Resource Classification

Coal Resources are classified by the Competent Person considering various criteria; drillhole spacing, quality of drillhole data (reliability) and the coverage of seismic data used to identify structures which are critical to the economic viability. The equivalent drillhole spacing and seismic coverage used to classify resources is provided in Table 9.

Table 9: Coal Resources classification criteria for Illawarra Metallurgical Coal

Estimate of Coal Reserves

The declared Coal Reserves are based on the Coal Resource estimates as at 30 June 2015.

Material and economic assumptions

Illawarra Metallurgical Coal has three operating underground mines, Appin, West Cliff and Dendrobium with the raw product processed to produce a combination of a premium low-volatile coking coal (greater than 80% of total product) for export and domestic markets and an export thermal coal. 

The principle applied in estimation is to deliver a conservative outcome in terms of Proved Coal Reserves, but a realistic view of Total Coal Reserves.

Criteria used for classification

The coal classification incorporates the approval criteria laid out by the New South Wales(NSW) Government, in addition to confidence in the stated Coal Resource and all modifying factors. The criteria used are provided in Table 10 below.

Table 10: Coal Reserves Classification Criteria for Illawarra Metallurgical Coal

The Coal Reserves as at 30 June 2015 are provided in Table 12 and reflect the view of the Competent Person.  

Mining method and assumptions

Mining at Illawarra Metallurgical Coal is entirely by longwall mining method which has been successfully practised in the region for over 50 years.  Average dilution across Illawarra Metallurgical Coal operations is 10%. Typical coal loss is around 1.5%. Moisture is added during both the mining and processing operations. In situ moisture is determined from exploration data and is the base point for all moisture adjustments.

Processing method and assumptions

All coal produced is washed to yield a final product at Illawarra Metallurgical Coal's two processing plants. The major factor in processing is the removal of diluting material for Bulli Seam and coking coal recovered for Wongawilli Seam.

Cut-off grade

A cut-off minimum seam thickness of 1.8 metres is used due to the capabilities of current equipment and processes.

Estimation methodology

Data grids are generated in MineScape software. The grids hold the data required for the estimation of Coal Reserves within the Xpac data base and scheduling models. 

Material modifying factors

The mines have the necessary legal agreements and marketing arrangements to support the annual production rate that underpins the Coal Reserve. The NSW Government's Development Consent process is the overarching environmental approval system governing Illawarra Metallurgical Coal's mining and processing activities. Illawarra Metallurgical Coal is a mature asset with all major infrastructures available for ongoing operations at planned production levels. Commodity price assumptions have been based on detailed global supply and demand modelling and are benchmarked against commercially available consensus price forecasts. Operating costs are based on historical performance and updated for current economic conditions.

Competent Persons' Statements

The information in this report that relates to Coal Resources for Illawarra Metallurgical Coal is presented on a 100% basis, represents an estimate as at 30 June 2015, and is based on information compiled by Hugo Kaag.

The information in this report that relates to Coal Reserves for Illawarra Metallurgical Coal is presented on a 100% basis, represents an estimate as at 30 June 2015, and is based on information compiled by Matthew Rose. Both Mr. Kaag and Mr. Rose are full time employees of South32 and are members of The Australasian Institute of Mining and Metallurgy and have sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activities they are undertaking to qualify as Competent Persons as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Each Competent Person consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Additional information is contained in Appendix 4.

Table 11: Coal Resources for Illawarra Metallurgical Coal as at 30 June 2015 in 100% terms

Table 12: Coal Reserves for Illawarra Metallurgical Coal as at 30 June 2015 in 100% terms

Mt- Million Metric Tonnes, VM- Volatile Matter, S- Total Sulphur, Met/Th- Metallurgical/Thermal, UG- Underground

Notes:

1.     Tonnages are in situ moisture basis and quality is on an air-dried basis.

2.     No seam thickness cut-off applied because the minimum thickness is economic.

3.     Only geophysically logged, fully analysed cored holes with greater than 95% recovery were used to classify the reserves. Drillhole spacing was determined by geostatistical analyses. The range of maximum spacing was:

Proved Coal Reserves:  <700m

Probable Coal Reserves: <1500m

4.     Process recoveries for the operations: Appin 84%; West Cliff 67%; Dendrobium 75%.

5.     Total Coal Reserves are at the moisture content when mined (6% Appin and West Cliff, 7% Dendrobium). Total Marketable Coal Reserves are the tonnes of coal available, at moisture content (9% Appin and West cliff, 15.5% Dendrobium Met, 7% Dendrobium Th) and air-dried qualities, for sale after the beneficiation of the Total Coal Reserves.

6.     Coal delivered to wash plant.

7.     The cut-off criteria applied for Coal Reserves was ≥ 1.8m seam thickness.

Table 13: Coal Resources for Illawarra Metallurgical Coal as at 30 June 2014 in 100% terms

Table 14: Coal Reserves for Illawarra Metallurgical Coal as at 30 June 2014 in 100% terms

Mt- Million Metric Tonnes, VM- Volatile Matter, S- Total Sulphur, Met/Th- Metallurgical/Thermal, UG- Underground

Notes:

1.     As reported by South32 to the ASX, LSE and JSE in the South32 Information Memorandum, available at www.asx.com.au.

2.     South32 acquired the 100% interest in Illawarra Metallurgical Coal from BHP Billiton as a result of South32's demerger from BHP Billiton.  On 30 June 2014, that interest was held by BHP Billiton. . Further information in relation to the asset restructuring steps is available in South32's financial results and outlook for the year ended 30^th June 2015 (dated 24^th August 2015).

3.     Tonnages are in situ moisture basis and quality is on an air-dried basis.

4.     No seam thickness cut-off applied because the minimum thickness is economic.

5.     Only geophysically logged, fully analysed cored holes with greater than 95% recovery were used to classify the reserves. Drillhole spacing was determined by geostatistical analyses. The range of maximum spacing was:

Proved Coal Reserves:  <700m; Probable Coal Reserves: <1500m

6.     Process recoveries for the operations: Appin 84%; West Cliff 71%; Dendrobium 67%.

7.     Total Coal Reserves are at the moisture content when mined (6% Appin and West Cliff, 7% Dendrobium) . Total Marketable Coal Reserves are the tonnes of coal available, at moisture content (9% Appin and West cliff, 13.5% Dendrobium Met, 7% Dendrobium Th) and air-dried qualities, for sale after the beneficiation of the Total Coal Reserves.

8.     Coal delivered to wash plant.

9.     The cut-off criteria applied for Coal Reserves was ≥ 1.8m seam thickness.

 

¹ National Association of Testing Authorities (NATA) is the authority that provides independent assurance of technical competence through a proven network of best practice industry experts for customers who require confidence in the delivery of their products and services. NATA provides assessment, accreditation and training services to laboratories and technical facilities throughout Australia and internationally.

2 Million Metric tonnes per annum.

Further information on South32 can be found at: www.South32.net.

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22 September 2015