Quarterly Operational Report June 2016

21 July 2016

South32 Limited

QUARTERLY OPERATIONAL REPORT JUNE 2016

Graham Kerr, South32 CEO said:

"We have built a strong foundation in our first full year of operation, despite the challenging market.

We prioritised value over volume and took decisive action to restructure our operations, reduce controllable costs and improve efficiencies, whilst delivering two major projects on or ahead of schedule, and under budget.

We continue to unlock our resource potential, having reached a landmark agreement with the Anindilyakwa Land Council to mine the Eastern Leases and explore the highly prospective Southern Areas at GEMCO. An option agreement at the Huckleberry property in Canada also marks our first investment in base and precious metals greenfields exploration, and aligns with our strategy to identify opportunities beyond our current portfolio."

·     Strong and predictable production, meeting or exceeding FY16 guidance for the majority of operations.

·   Record annual production at Australia Manganese, Worsley Alumina, Brazil Alumina, Mozal Aluminium and Cannington (payable zinc).

·    Significant increase in longwall utilisation and cutting rates at Illawarra Metallurgical Coal supported record annualised coal production of 10.1Mt in the June 2016 quarter.

·     Completed previously announced restructuring initiatives, positioning us well to achieve FY17 unit cost guidance.

·    Delivered Appin Area 9 (Illawarra Metallurgical Coal) and Premium Concentrate Ore (Australia Manganese) projects on or ahead of schedule, and below budget.

·    Reached mining and exploration agreements with the Anindilyakwa Land Council of Groote Eylandt, providing access to first quartile resource potential at GEMCO, one of the world's largest and lowest cost manganese mines.

·     Entered into an option agreement with Northern Shield Resources for Huckleberry, a property prospective for Copper-Nickel-PGE mineralisation, in the Labrador Trough, Canada.

CORPORATE UPDATE

WORSLEY ALUMINA

(86% share)

Worsley Alumina saleable production increased by 4% (or 142kt) to 4.0Mt in the 2016 financial year as an uplift in calciner availability underpinned record performance. This represents the first time that the refinery has operated at its expanded capacity of 4.6Mtpa (100% basis)⁶ across a full year and was achieved despite a power outage and associated process instability that was caused by water ingress during a severe storm in April 2016.

SOUTH AFRICA ALUMINIUM

(100%)

South Africa Aluminium saleable production was largely unchanged for both the 2016 financial year (697kt) and the June 2016 quarter (172kt). The impact of load-shedding was lower than expected and this benefit offset the previously announced suspension of production in 22 pots in September 2015. The 14% increase in quarterly sales resulted from a progressive reduction in inventory in the June quarter, following a change in monthly vessel scheduling.

MOZAL ALUMINIUm

(47.1% share)

Mozal Aluminium achieved record annual production of 266kt in the 2016 financial year as a reduction in load-shedding complemented an increase in potline current efficiency. The increase in quarterly sales reflects the scheduling of shipments between periods.

Brazil Alumina

(Refinery 36% share, Smelter 40% share)

Brazil Alumina saleable alumina production increased 1% (or 7kt) to a record 1,335kt in the 2016 financial year. The 6% decrease in quarterly sales reflects a timing difference as one additional shipment occurred in 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.

South Africa Energy Coal

(100%)

South Africa Energy Coal saleable production decreased by 8% (or 2.6Mt) to 31.7Mt in the 2016 financial year. 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.

illawarra metallurgical coal

(100%)

Illawarra Metallurgical Coal total saleable production decreased by 6% (or 560kt) to 8.4Mt in the 2016 financial year as challenging geological conditions were encountered at the Appin and Dendrobium mines in the first six months of the reporting period. Three planned longwall moves were also completed during the year.

The Appin Area 9 project was completed in January ahead of schedule and below budget, significantly increasing longwall utilisation and cutting rates at the operation. This improvement in longwall performance, and the absence of longwall moves at Appin or Dendrobium, underpinned a 29% increase in metallurgical coal production in the June quarter to a record 2.1Mt.

australia manganese

(60% share)

Australia Manganese saleable ore production increased by 4% (or 129kt) to a record 3.1Mt in the 2016 financial year as concentrator performance improved and the US$139M Premium Concentrate Ore (PC02) project was completed. This project, which increases GEMCO's production capacity by 500ktpa to 5.3Mtpa (100% basis), was completed 17% under budget in the June 2016 quarter. As previously disclosed, the ramp-up of this project has been adjusted to match market demand. Sales of manganese ore increased by 12% in the 2016 financial year as supply chain inventory was drawn down to normalised levels.

Saleable manganese alloy production decreased by 20% (or 34kt) to 133kt in the 2016 financial year as power shortages in Tasmania led to the suspension of two of four furnaces. These furnaces are currently being brought back online, with return to full production expected in July 2016.

SOUTH AFRICA manganese

(60% share)

South Africa Manganese saleable ore production decreased by 25% (or 563kt) to 1.7Mt in the 2016 financial year following the decision to initially suspend (November 2015) and then restructure operations at Wessels and Mamatwan in response to challenging market conditions. Mining recommenced at both operations in the March 2016 quarter, ramping-up to an optimised 2.9Mtpa (100% basis) production rate. Sales of manganese ore declined by a lesser 17% as supply chain inventory was drawn down below normalised levels.

Saleable manganese alloy production decreased by 63% (or 155kt) to 91kt in the 2016 financial year, following the decision to suspend 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, consistent with our focus on value over volume.

cerro matoso

(99.9% share)

Cerro Matoso payable nickel production decreased by 9% (or 3.6kt) to 36.8kt in the 2016 financial year. Lower production resulted from a decline in the average ore grade, consistent with the mine plan.

The previously announced headcount reduction and the restructure of labour activities to improve productivity were completed in the June 2016 quarter. Combined with a new three-year Collective Labour Agreement, successfully negotiated with trade unions, these efforts position Cerro Matoso to pursue further optimisation initiatives that will improve cash generation.

cannington

(100%)

Payable silver and lead production decreased by 5%, to 21.4Moz and 173.2kt respectively, in the 2016 financial year due to a temporary reduction in mill throughput. Conversely, an increase in the average zinc ore grade and recoveries resulted in record annual zinc production of 79.0kt (+9% YoY).

Finalisation adjustments and the provisional pricing of Cannington concentrates will reduce Underlying EBIT by US$11M in the 2016 financial year (-US$19M December 2015 half year; -US$43M 2015 financial year). Outstanding concentrate sales (containing 3.1Moz of silver, 30.9kt of lead and 6.4kt of zinc) were revalued at 30 June 2016. The final price of these sales will be determined in the first half of the 2017 financial year.

Notes:

1.     Unit cost guidance as provided in the 2016 Half Year Financial Results and Outlook management presentation and media release (South32 to reset its cost base in Australia and Colombia), 25 February 2016. Projected all-in costs for FY17 include royalties (where appropriate) and the influence of exchange rate assumptions, and were predicated on: an average AUD:USD exchange rate of 0.68; USD:ZAR exchange rate of 14.12; USD:COP exchange rate of 3,170; a manganese ore price of US$2.00/dmtu for 44% manganese product; an alumina price of US$255/t; a blended coal price of US$65/t; and a nickel price of US$3.75/lb.

2.     For further information, please visit http://www.northern-shield.com

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

4.     8% of South Africa Energy Coal is owned by a Broad-Based Black Economic Empowerment (B-BBEE) consortium. The interests owned by the
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%.

5.     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.

6.     The Efficiency and Growth Project took nameplate capacity from 3.5Mtpa to 4.6Mtpa at Worsley Alumina.

7.     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.

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

9.     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 July 2016
JSE Sponsor: UBS South Africa (Pty) Ltd