Operational Review For The Quarter Ended 30.9.2015

Operational Review for the Quarter Ended 30 September 2015

South32 Limited

(Incorporated in Australia under the Corporations Act 2001)

(ACN 093 732 597)

ASX, LSE, JSE Share Code: S32

ISIN: AU000000S320

"Our business is performing well and we are making excellent progress as we seek to optimise our operations, reduce costs and sustainably de-capitalise the business.

"We continue to take decisive action to maximise financial performance, rather than volume. The actions we have initiated at South Africa Manganese and South Africa Aluminium reflect this philosophy and will further strengthen the cash generating capacity of the Group.

"Our high quality and low-cost assets, motivated workforce and strong balance sheet remain a key point of differentiation. Group net debt declined by US$206 million in the September quarter to US$196 million."

Graham Kerr, South32 CEO

CORPORATE UPDATE

WORSLEY ALUMINA

(86% share)

Worsley Alumina saleable production increased by 11% (or 102kt) to 1.03Mt in the September 2015 quarter as the refinery processed stockpiled alumina hydrate following the completion of planned calciner maintenance in the prior period. Conversely, the reduction in sales volumes simply reflected the scheduling of shipments during the quarter.

Calciner maintenance is planned for both the December 2015 and June 2016 quarters, consistent with the annual maintenance cycle. As noted in prior guidance, saleable production is expected to increase by 3% to 3.95Mt.

SOUTH AFRICA ALUMINIUM

(100%)

South Africa Aluminium saleable production increased by 2% (or 3kt) to 178kt in the September 2015 quarter due to a reduction in the number of load-shedding events compared to the previous quarter.

In response to the recent deterioration in market conditions, 22 pots (equivalent to 3% of the total) were temporarily suspended during September 2015. This decision will deliver an incremental improvement in cash flow as planned pot relining activity is deferred. A production loss of 18kt is anticipated should the 22 pots remain offline for the remainder of FY16. In this context, production at South Africa Aluminium is now expected to decline marginally in FY16 should the current market conditions prevail. Electricity supply and the frequency of load-shedding events remains an ever present risk, notwithstanding the fact that load-shedding has remained within the permissible limits defined by our electricity supply agreements.

MOZAL ALUMINIUm

(47.1% share)

Mozal Aluminium saleable production increased by 2% (or 1kt) to 66kt in the September 2015 quarter due to a reduction in the number of load-shedding events compared to the previous quarter. Conversely, the 24% decline in aluminium sales reflected the scheduling of shipments during the quarter.

Aluminium production is expected to remain broadly unchanged in FY16. Electricity supply and the frequency of
load-shedding events remains an ever present risk, notwithstanding the fact that load-shedding has remained within the permissible limits defined by our electricity supply agreements.

Brazil Aluminium

(Refinery 36% share, Smelter 40% share)

Brazil Aluminium saleable alumina production was largely unchanged in the September 2015 quarter. FY16 alumina production guidance of 1.32Mt remains unchanged.

All three potlines at the smelter remain temporarily suspended and subject to ongoing review. Excess power supplied by Eletronorte under long-term contract continues to be sold into the grid. These unhedged power sales are expected to generate Underlying EBIT of approximately BRL255M in FY16 (versus BRL300M FY15).

South Africa Energy Coal

(100%)

South Africa Energy Coal saleable production declined by 3% (or 216kt) to 8.29Mt in the September 2015 quarter, reflecting the impact of planned maintenance and the sequencing of activity at the Wolvekrans Middelburg Complex. Coal production in FY16 is expected to decline by 7% to 31.95Mt (16.65Mt exports, 15.30Mt domestic), as planned.

illawarra metallurgical coal

(100%)

Illawarra Metallurgical Coal saleable production increased by 4% (or 96kt) to a record 2.49Mt in the September 2015 quarter as a broad-based improvement in productivity more than offset the impact of industrial action at Dendrobium, which has since been resolved. FY16 production guidance of 8.90Mt (metallurgical coal 7.20Mt, energy coal 1.70Mt) remains unchanged. Three longwall moves are scheduled for the remainder of FY16, including one in the December 2015 quarter and two in the second half of FY16.

The Appin Area 9 project is 90% complete and ahead of schedule with commissioning now expected to start in the third quarter of FY16. The project, which sustains Illawarra Metallurgical Coal production capacity, is more than 20% below the original budget of US$845 million.

australia manganese

(60% share)

Australia Manganese saleable ore production increased by 13% (or 96kt) to a record 857kt in the September 2015 quarter as plant availability and feed rates improved at GEMCO. Manganese ore production guidance for FY16 of 3.05Mt remains unchanged as a higher strip ratio, planned maintenance and seasonal factors are expected to impact performance. While manganese ore inventory increased during the period, volumes are expected to normalise as planned maintenance is undertaken and productivity is affected by the wet season in Northern Australia. Manganese alloy production increased by 2% (or 1kt) to 44kt.

As announced on 22 September, the United States Department of Commerce issued notice of a preliminary
anti-dumping determination, setting an 11.93% rate for imports of silicomanganese of Australian origin into the United States. This is not expected to have a material impact on South32.

The Premium Concentrate Ore (PC02) project increases GEMCO production capacity by 0.5Mt to 5.3Mtpa
(100% basis). The project is on budget and scheduled to deliver first production in the June 2016 quarter.

SOUTH AFRICA manganese

(60% share)

South Africa Manganese saleable ore production increased by 18% (or 88kt) to 580kt in the September 2015 quarter. Production in the prior period was affected by industrial action and planned maintenance.

The review of South Africa Manganese, announced on 24 August, is expected to be completed before the end of December 2015. As part of this process, Samancor Manganese will determine the optimal configuration and production profile for the South Africa Manganese mines to improve their competitiveness and sustainability through the cycle. We are consulting with employees and external stakeholders as the review progresses.

South Africa Manganese saleable alloy production declined by 45% (or 17kt) to 21kt as three out of the four high-carbon ferromanganese furnaces at Metalloys remained suspended. The suspension of these three furnaces will continue indefinitely and a decision on the future of the fourth furnace will be made on conclusion of the South Africa Manganese review.

cerro matoso

(99.9% share)

Cerro Matoso payable nickel production was largely unchanged in the September 2015 quarter as the average ore grade declined, consistent with the mine plan. The operation was affected by a 17 day illegal strike in the prior period. Production guidance for FY16 of 36.5kt remains unchanged.

The higher grade La Esmeralda deposit has the potential to deliver an uplift in the average ore grade between 2018 and 2022. The application process for a new social and environmental licence to allow access to the ore body is ongoing.

cannington

(100%)

Cannington payable silver production increased by 20% (or 1.04Moz) to 6.28Moz in the September 2015 quarter as the average ore grade temporarily increased to 272g/t. Payable zinc sales increased by 19% following unplanned port maintenance in the June 2015 quarter. FY16 production guidance remains unchanged (payable silver 21.65Moz, payable lead 175kt, payable zinc 80kt) as the grade profile will deliver an increase in the ratio of zinc:lead concentrate over the remainder of the year.

Notes:

1.     These cash proceeds will have no impact on the Group's Underlying ETR.

2.     Unaudited net debt balance as at 30 September 2015.

3.     10% of South Africa Energy Coal is owned by an Employee Share Ownership Plan (ESOP) and a broad-based black economic empowerment
(B-BBEE) consortium. The interests owned by the ESOP and B-BBEE consortium were acquired using vendor finance, with the loans repayable to South32 via distributions attributable to these parties, pro rata to their share in South Africa Energy Coal. Until these loans are repaid, South32's interest in South Africa Energy Coal is accounted at 100%.

4.     Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales have been reported at 60%. The Group's financial statement will continue to reflect a 54.6% interest in South Africa Manganese ore.

5.     Underlying EBIT is earnings before net finance costs, taxation and any earnings adjustments. Underlying EBIT is reported net of South32's share of net finance costs and taxation of equity accounted investments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation.

6.     Figures in italics indicate that this figure has been adjusted since it was previously reported.

7.     The following abbreviations have been used throughout this report: grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); thousand ounces (koz); million ounces (Moz); thousand wet metric tonnes (kwmt); thousand dry metric tonnes (kdmt); megawatt (MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock Exchange (JSE). 

operating performance

Further information

22 October 2015
JSE Sponsor: UBS South Africa (Pty) Ltd