Quarterly Operational Report March 2016

21 APRIL 2016

South32 Limited

QUARTERLY OPERATIONAL REPORT MARCH 2016

·      Our strong balance sheet remains a key point of difference. At 31 March 2016 our estimated net cash¹ position was US$18M.

·      We are well positioned to achieve FY16 production guidance for all our operations and remain on track to reduce controllable costs² by US$300M.

·      Strong operating performance at Worsley Alumina supported a 5% increase in production in the March 2016 quarter.

·      The recommencement of longwall mining at Dendrobium and completion of the Appin Area 9 project resulted in a 35% increase in metallurgical coal production in the March 2016 quarter.

·      A reduction in mill availability, associated with an outage in January, resulted in lower sequential production at Cannington in the March 2016 quarter.

·      We successfully reconfigured South Africa Manganese to operate with greater flexibility to respond to market demand, having ramped-up ore production to an optimised 2.9Mtpa (100% basis).

·      The Appin Area 9 project was completed 33% below budget and ahead of schedule. The Premium Concentrate Ore Project (PC02) at GEMCO is 98% complete and will be commissioned in the June 2016 quarter.

Graham Kerr, South32 CEO said:

"We continue to strengthen our balance sheet by focussing on value, not volume.

 "We are making great progress on our cost-out program across all operations and have continued to generate cash despite volatile commodity markets.

"We have successfully completed the Appin Area 9 project at Illawarra Metallurgical Coal and are close to completing the PC02 project at GEMCO. Both will be delivered below budget."

CORPORATE UPDATE

WORSLEY ALUMINA

(86% share)

Worsley Alumina saleable production increased by 4% (or 111kt) to 3.0Mt in the nine months ended March 2016 as high calciner availability contributed to a 5% increase in production in the March 2016 quarter. This outstanding result was underpinned by another strong quarter of hydrate production as the input circuit exceeded expanded capacity of 4.6Mtpa (100% basis).

FY16 saleable alumina production guidance remains unchanged at 3.95Mt. The next major calciner outage is scheduled for the December 2016 quarter.

SOUTH AFRICA ALUMINIUM

(100%)

South Africa Aluminium saleable production was largely unchanged in both the nine months (525Kt) and quarter (173Kt) ended March 2016. Consistent with our commitment to focus on value over volume, we suspended production in 22 pots in September 2015 in order to achieve an incremental improvement in cash flow by deferring planned pot relining activity. Despite this decision, metal production is now expected to remain largely unchanged in FY16 as the number of
load-shedding events in the March 2016 quarter was lower than expected.

MOZAL ALUMINIUm

(47.1% share)

Mozal Aluminium saleable production was unchanged in the nine months (200Kt) and quarter (67Kt) ended March 2016. The decline in sales reflects the scheduling of shipments between periods. Aluminium production is expected to remain largely unchanged in FY16.

Brazil Alumina

(Refinery 36% share, Smelter 40% share)

Brazil Alumina saleable alumina production of 999kt was largely unchanged in the nine months ended March 2016 and FY16 alumina production is expected to be in line with previous guidance of 1.32Mt. The 6% increase in quarterly sales reflects a timing difference as one shipment slipped into the March 2016 quarter.

Aluminium production was first curtailed at Brazil Alumina in July 2013 and the suspension of all smelting activity was announced in March 2015. As previously announced, we have forward sold power until the end of CY17 and have terminated the contract with Eletronorte. A minor provision will be booked in our June 2016 financial year statements to reflect the anticipated cash outflow associated with this contract across the remaining 18 month period. Unhedged power sales, inclusive of this provision, are expected to contribute approximately BRL235M to Underlying EBIT in FY16 and will be skewed to the first half (BRL188M in H1 FY16).

South Africa Energy Coal

(100%)

South Africa Energy Coal saleable production declined by 7% (or 1.7Mt) to 24.1Mt in the nine months ended March 2016. Lower production resulted from the planned closure of the opencast mine at Khutala, and a reduction in contractor activity at the Wolvekrans Middelburg Complex, consistent with our focus on value over volume. Underground development at Khutala contributed to a 5% reduction in production for the quarter. FY16 saleable production guidance remains unchanged at 31.95Mt (16.65Mt domestic, 15.30Mt export).

illawarra metallurgical coal

(100%)

Illawarra Metallurgical Coal total saleable production decreased by 11% (or 701kt) to 5.8Mt in the nine months ended March 2016 as challenging geological conditions were encountered in the first half of FY16 at the Appin and Dendrobium mines and three planned longwall moves were completed during the period. A 35% increase in metallurgical coal production in the March 2016 quarter was underpinned by the recommencement of longwall mining at Dendrobium and the ramp-up of the new Appin Area 9 longwall following project completion ahead of schedule and below budget. The final cost of the Appin Area 9 project is expected to be US$565M, representing a 33% saving on the original budget. The West Cliff colliery has now been closed. As previously revised, FY16 coal production is expected to be 8.25Mt (metallurgical coal 6.9Mt, energy coal 1.35Mt).
 

australia manganese

(60% share)

Australia Manganese saleable ore production increased by 7% (or 151kt) to 2.33Mt in the nine months ended March 2016 as the operation continued to optimise concentrator performance and benefited from drier weather conditions. Record ore sales were achieved in the March 2016 quarter as an improvement in market conditions enabled a managed reduction of inventory to normalised levels. FY16 ore production guidance remains unchanged at 3.05Mt as a higher strip ratio and planned maintenance are expected to impact performance in the June 2016 quarter.

Saleable manganese alloy production decreased by 10% (or 13kt) to 111kt in the nine months ended March 2016. The 37% decline in production in the March 2016 quarter reflects the temporary suspension of two of four furnaces in response to power shortages in Tasmania. The first of the furnaces was suspended in December 2015 and the second suspension followed in March 2016. The two remaining furnaces are currently operating at a reduced electricity load. All four furnaces are expected to return to full production at the end of June 2016.

The Premium Concentrate Ore (PC02) project which increases GEMCO production capacity by 500ktpa to 5.3Mtpa (100% basis) is 98% complete and will be commissioned in the June 2016 quarter. The US$139M (100% basis) project is expected to be completed under budget.

SOUTH AFRICA manganese

(60% share)

South Africa Manganese saleable ore production decreased by 32% (or 563kt) to 1.22Mt in the nine months ended March 2016 following the extended suspension of operations at Wessels and Mamatwan in November 2015 in response to challenging market conditions. Sales of manganese ore declined by a lesser 25% as supply chain inventory was largely drawn down.

Following the completion of a strategic review, mining activity at South Africa Manganese recommenced in the March 2016 quarter. The reconfigured operation will have greater flexibility to respond to market demand, having ramped-up production to an optimised 2.9Mtpa (100% basis). The US$30M (100% basis) Wessels Central Block project will enable mining to relocate closer to critical infrastructure and lower production costs in the underground mine, with first ore now anticipated in October 2016.

South Africa Manganese saleable alloy production decreased by 67% (or 140kt) to 68kt in the nine months ended March 2016, following the suspension of three of the four high-carbon ferromanganese furnaces at Metalloys in May 2015. Metalloys will continue to operate one of four furnaces until market conditions improve.

cerro matoso

(99.9% share)

Cerro Matoso payable nickel production decreased by 14% (or 4.6kt) to 27.2kt in the nine months ended March 2016 as the average ore grade declined, consistent with the mine plan. Contained nickel production increased in the recent quarter as processing rates and recoveries rebounded following the completion of maintenance in the December 2015 quarter. FY16 production guidance of 36.5kt remains unchanged.

cannington

(100%)

A significant increase in the average zinc ore grade and recoveries at Cannington underpinned a 13% increase in zinc production to 60.3kt in the nine months ended March 2016, consistent with the mine plan. Payable silver production decreased by 6% (or 1.01Moz) to 16.36Moz in the same period. A reduction in mill availability, associated with an outage in January, resulted in lower sequential production at Cannington in the March 2016 quarter. Planned mill outages are scheduled to occur in May and August 2016.

FY16 production guidance remains unchanged (payable silver 21.65Moz, payable lead 175kt, payable zinc 80kt).

 Notes:

1.     Provisional unaudited net cash balance as at 31 March 2016.

2.     Controllable costs are measured on a cash basis (including equity accounted investments) and exclude significant items, inter-segment sales, foreign exchange rate movements, country specific inflation, price-linked costs and discontinued/suspended operations. Any controllable cost movement is defined in absolute terms compared to FY15.

3.     Excludes equity accounted investments.

4.     Includes equity accounted investments capital expenditure, but excludes expenditure related to the purchase of intangibles and capitalised exploration expenditure.

5.     Redundancy payments of US$18M and a further US$5M of payments relating to employee entitlements (previously provided for in the ordinary course of business) were made during the March 2016 quarter and related to restructuring at Worsley Alumina and Cerro Matoso.

6.     Moody's Investor Service has confirmed the Baa1/P-2 credit rating and P-2 short term commercial paper rating of South32 Limited, however their outlook for all ratings is negative.

7.     The ETR calculation excludes equity accounted investments as they are recorded on an after tax basis.

8.     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%.

9.     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.

10.    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.

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

12.   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); Australian Securities Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock Exchange (JSE).

Operating Performance

Further information

21 April 2016
JSE Sponsor: UBS South Africa (Pty) Ltd