Quarterly Report June 2021

Production Summary

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

b.         Percentage difference to latest production guidance. FY21 guidance as at FY20 results: Illawarra Metallurgical Coal (energy coal 1,300kt),
South Africa Manganese (manganese ore 2,000kwmt), Cerro Matoso (nickel 33.5kt) and Cannington (silver 11,800koz, lead 113.9kt, zinc 60.7kt).

Marketing Update

Worsley Alumina (86% share)

Worsley Alumina saleable production increased by 2% (or 77kt) to a record of 3,963kt in FY21, with the refinery finishing the year strongly, setting a quarterly record and operating above nameplate capacity of 4.6Mtpa (100% basis). The refinery's record performance in FY21 was enabled by improvement initiatives in the calcination circuit and record alumina hydrate production. Notwithstanding the refinery's strong operating performance, H2 FY21 Operating unit cost guidance of US$217/t was premised on planned higher consumables and raw material input costs. These impacts, combined with local labour cost pressure, are expected to further increase unit costs in FY22.

We realised a modest premium to the Platts Alumina Index¹⁷ (PAX) on a volume weighted M-1 basis for alumina sales in FY21 due to the structure of legacy supply contracts with our Mozal Aluminium smelter. Contracts with the smelter are linked to the LME aluminium price and alumina indices on an M-1 basis, with caps and floors embedded within specific contracts that reset every calendar year. All other alumina sales were at market based prices.

Brazil Alumina (36% share)

Brazil Alumina saleable production increased by 1% (or 15kt) to a record 1,398kt in FY21 as the refinery continued to benefit from strong plant availability, realising the benefits of the De-bottlenecking Phase One project. Sales decreased by 13% in the June 2021 quarter due to the timing of shipments.

Subsequent to the end of the period, one of the two bauxite unloaders at the refinery sustained damage and is currently undergoing assessments for repair. As a result, the refinery is expected to reduce production rates in the September 2021 quarter, until repair work is complete and full bauxite loading capacity is restored. We expect to provide an update on the impact to our FY22 production guidance with our FY21 financial results.

Hillside Aluminium (100%)

Hillside Aluminium saleable production decreased by 1kt to 717kt in FY21 as the smelter continued to test its maximum technical capacity, despite the impact to production from increased load-shedding. Sales decreased by 12% in the June 2021 quarter as ongoing congestion in the global freight market led to a slipped shipment at the end of the period.

H2 FY21 Operating unit costs are expected to increase half-on-half (H1 FY21: US$1,536/t) for the smelter reflecting a stronger South African rand, and higher raw material input and freight costs.

Mozal Aluminium (47.1% share)

Mozal Aluminium saleable production decreased by 1% (or 3kt) to 265kt in FY21, with the smelter performing strongly in the June 2021 quarter, despite the impact of increased load-shedding. This followed COVID-19 workforce restrictions that impacted operations during the prior quarter.

H2 FY21 Operating unit costs are expected to increase half-on-half (H1 FY21: US$1,585/t) for the smelter reflecting a stronger South African rand, and higher raw material input and freight costs.

South Africa Energy Coal (100%)

South Africa Energy Coal saleable production decreased by 20% (or 4.6Mt) to 18.1Mt in FY21 as we completed our divestment of the operation on 1 June 2021 and booked an unaudited loss on sale of ~US$160M, which will be excluded from our Underlying earnings.

While it will be presented as a discontinued operation, we also expect to report an Underlying EBIT loss of ~US$150M (including third party products and services) with our FY21 results. Separately, we invested US$23M in Sustaining capital expenditure and US$53M in Major project capital expenditure at the operation during FY21, prior to its divestment.

Illawarra Metallurgical Coal (100%)

Illawarra Metallurgical Coal saleable production increased by 9% (or 639kt) to 7.6Mt in FY21 as the return to a three longwall configuration delivered greater efficiencies through the operation of alternate dual longwalls at the Appin mine and we monetised further low-margin coal wash material. While this product attracts considerable grade and product-type discounts to the API5 (5,500Kcal) index¹⁹ for our energy coal sales, the incremental volume benefits our Operating unit costs by eliminating coal waste emplacement. Notwithstanding, FY21 Operating unit costs are expected to be moderately higher than guidance of US$83/t as a result of lower than planned total coal volumes.

Metallurgical coal production decreased by 15% during the June 2021 quarter as we encountered challenging strata conditions and completed a planned longwall move at our Appin mine during the period. Three longwall moves are scheduled across FY22, including in the December 2021 quarter, March 2022 quarter and June 2022 quarter.

Australia Manganese       (60% share)

Australia Manganese saleable ore production increased by 2% (or 59kwmt) to a record 3,529kwmt in FY21 despite the impact of higher than average rainfall during the wet season. The primary concentrator continued to achieve strong output as we drew down previously established run of mine stocks, while output from the PC02 circuit remained above nameplate capacity, contributing 10% of total production (FY20: 12%).

We did not produce any manganese alloy in the June 2021 half year following our divestment of the TEMCO manganese alloy smelter. The effective completion date of the sale for accounting purposes was 31 December 2020.

South Africa Manganese (60% share)

South Africa Manganese saleable ore production increased by 21% (or 386kwmt) to 2,264kwmt in FY21 as the operation recovered from an extended shutdown in response to COVID-19 restrictions and market conditions in the prior year. Strong production in the June 2021 quarter supported higher sales, with an increase in our use of opportunistic, higher cost trucking lifting sales volumes by 28%.

We did not produce any manganese alloy in FY21 as our Metalloys smelter remained on care and maintenance.

Cerro Matoso (99.9% share)

Cerro Matoso payable nickel production decreased by 16% (or 6.5kt) to 34.1kt in FY21 following the major refurbishment of one of the furnaces in the December 2020 and March 2021 quarters.

Payable nickel production increased by 54% during the June 2021 quarter as processed ore grade increased 10% following the receipt of first ore from the higher-grade Q&P project. While our ferronickel product sells with reference to the LME Nickel index price on a M or M+1 basis it continues to attract product discounts of approximately 10%.

Cannington (100% share)

Cannington payable zinc equivalent production increased by 14% (or 47.6kt) to 380.2kt in FY21. Strong underground mine performance supported the acceleration of a higher-grade mining sequence, which was extracted in the June 2021 quarter.

We expect to provide pre-feasibility study outcomes for the transition of the underground mine to a truck haulage operation, and an update in relation to our FY22 production guidance, with our FY21 results announcement.

Silver, lead and zinc sales increased by 51%, 48% and 34% respectively in the June 2021 quarter, as rail logistics recovered from weather related disruptions in the prior period.

Notes

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); 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, particularly in light of the current economic climate and the significant volatility, uncertainty and disruption arising in connection with COVID-19.

Further information

21 July 2021
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd