South32 Ltd. · ASX:S32
South32 — FY2022 Earnings Presentation
56 slides from South32's earnings presentation, Aug 24, 2022
Slide 1: 2022 Full Year Financial Results Presentation
25 AUGUST 2022 South32 Limited (Incorporated in Australia under the Corporations Act 2001 (Cth)) (ACN 093 732 597) ASX / LSE / JSE Share Code: S32 ADR: SOUHY ISIN: AU000000S320 south32.net 2022 FULL YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) will h
Slide 2: 2022 Full Year Financial Results
2022 FULL YEAR FINANCIAL RESULTS 25 August 2022
Slide 3: Important Notices
IMPORTANT NOTICES • This presentation should be read in conjunction with the “Financial Results and Outlook – year ended 30 June 2022” announcement released on 25 August 2022, which is available on South32’s website (www.south32.net). Figures in italics indicate that an adjustment has been made sinc
Slide 4: Important Notices - Earnings Reconciliation
IMPORTANT NOTICES • EARNINGS RECONCILIATION • The Group’s statutory profit after tax increased by US$2,864M from a loss of US$195M to a record US$2,669M in FY22. • Consistent with our accounting policies, various items are excluded from the Group’s statutory profit/(loss) to derive Underlying earnin
Slide 5: FY22 Overview
FY22 OVERVIEW Our favourable commodity mix and recent portfolio improvements, supported record earnings and shareholder returns in FY22 • Record earnings, free cash flow from operations4 and ROIC • Record shareholder returns of US$1.3B(a), equal to ~10% of our market capitalisation(b) • Balance shee
Slide 6: Financial Scorecard
FINANCIAL SCORECARD 3.0 Ordinary H1 Net profit after tax ↑US$2.9B to FY22 Total dividends ↑272% to 8.7 US$2.7B 25.7 US cps Ordinary H2 Special H2 14.0 Underlying earnings ↑US$2.1B to US$2.6B FY22 Shareholder returns(a) US$1.3B Dividends On-market share buy-back US$1.2B US$128M Underlying EPS ↑444% t
Slide 7: Working Safely
WORKING SAFELY The most important commitment we make at South32 is that everyone goes home safe and well 8,9 TRIF 5.9 6.0 5.3 4.2 4.3 • We tragically lost one of our colleagues, Mr Desmin Mienies, a contractor who was fatally injured while undertaking electrical work at our Wessels Mine at South Afr
Slide 8: Our FY22 Sustainability Performance Highlights
OUR FY22 SUSTAINABILITY PERFORMANCE HIGHLIGHTS • Set new water efficiency targets for operations in • Commenced our Safety Improvement Program to baseline water stress achieve a step-change in our safety performance • Continued implementation of the Global Industry • Finalised our Inclusion and Dive
Slide 9: Our FY22 Inclusion and Diversity Progress
OUR FY22 INCLUSION AND DIVERSITY PROGRESS We are improving our performance across the majority of our objectives, and have updated our medium term targets for all of our gender metrics to >40% by 2030(a) • Total employees who are women • Women on our Board • Women on our Lead Team 44.0% 44.4% 37.5%
Slide 10: Our FY22 Progress in Addressing Climate Change
OUR FY22 PROGRESS IN ADDRESSING CLIMATE CHANGE We progressed decarbonisation activities designed to address our largest exposures • Completed a PFS for the mud-washing project at Worsley Alumina targeting a 295kt (or ~7%)(a) reduction in operational GHG emissions, while continuing to evaluate option
Slide 11: Financial Results
FINANCIAL RESULTS
Slide 12: FY22 Performance Analysis
FY22 PERFORMANCE ANALYSIS Our operations delivered to revised plans, enabling the Group to capitalise on significant price tailwinds and deliver a record 47% operating margin FY22 Underlying EBITDA contribution by commodity(a)(b)(c) Aluminium & alumina Copper Zinc-lead-silver operating margin operat
Slide 13: Earnings Analysis
EARNINGS ANALYSIS Our record Underlying EBIT was supported by our favourable commodity mix and further portfolio improvements Improvement in profitability from portfolio changes (US$M) 160 75 16 (40) South Africa Sierra Gorda Other¹⁵ Brazil Aluminium Energy Coal acquisition smelter restart divestmen
Slide 14: Cost Analysis
COST ANALYSIS We realised the benefit of exiting lower margin businesses and limited the increase in our controllable costs to less than 2% of the Group’s total cost base (US$M) Increase in costs due to inflation Cost base reduction from portfolio changes 109 127 29 40 40 (61) (912) Smelter Other So
Slide 15: Market Traded Consumables and Price-Linked Costs
MARKET TRADED CONSUMABLES AND PRICE-LINKED COSTS Inflation has been most acute in our smelter raw material inputs, freight and caustic soda, while higher commodity prices translated into increased royalty payments YoY increase of US$728M in market traded consumables and price-linked costs20 FY22 tot
Slide 16: Cash Flow Analysis
(US$M) FY21 net cash 406 Free cash flow from continuing operations excluding capital expenditure 2,799 Net distributions from manganese and 321 Sierra Gorda EAIs CASH FLOW ANALYSIS Capital expenditure²⁴ 559 Acquisition of a 45% interest in Sierra Gorda 1,420 Acquisition of a 16.6% 114 interest in Mo
Slide 17: Our Balance Sheet
OUR BALANCE SHEET Our balance sheet returned to a net cash position following transformational portfolio activity, before our commitment to return a further US$1B to shareholders June 2021 net cash/(debt) June 2022 net cash/(debt) (US$M) (US$M) US$1,037M remaining to be returned US$538M US$406M (US$
Slide 18: Capital Management Framework
CAPITAL MANAGEMENT FRAMEWORK Our framework is designed to Our capital management A strong balance sheet is at reward shareholders as our framework is unchanged the core of our strategy financial performance improves Capital management framework Net cash/(debt) prior to dividend commitments Sharehold
Slide 19: Our Shareholder Returns
OUR SHAREHOLDER RETURNS US$0.5B returned in special dividends(a) Program expanded by a further Our flexible capital management and US$1.5B via our on-market share US$156M to US$2.3B, leaving program has been active since FY17 buy-back, reducing shares on issue by 13% US$250M to be returned 3/01/2017
Slide 20: Outlook
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Slide 21: Our Growing Production Profile
OUR GROWING PRODUCTION PROFILE We expect our recent investments and the execution of improvement projects to lift Group copper equivalent production by 14% from our FY22 baseline6 Illustrative Group production profile6 Growth profile by source Copper equivalent (CuEq) production (kt) (%) 30% 30% +14
Slide 22: Production Guidance
PRODUCTION GUIDANCE Aluminium (kt) Nickel (kt) 1,190 1,269 43.5 43.5 Cerro Matoso’s plant availability 982 992 20% growth in FY23 with 41.7 34.1 expected to return to normalised levels, higher share of Mozal Aluminium and while the OSMOC project restart of Brazil Aluminium smelter mitigates natural
Slide 23: Operating Unit Costs Performance and Guidance
OPERATING UNIT COSTS PERFORMANCE AND GUIDANCE Worsley Alumina (US$/t)33 Brazil Alumina (non-operated) (US$/t) +8% FY23 guidance +8% from H2 FY22 312 Guidance not provided 296 274 Significantly higher caustic soda 262 Lower volumes and costs to recover 256 prices and an increase in planned from the u
Slide 24: Operating Unit Costs Performance and Guidance
OPERATING UNIT COSTS PERFORMANCE AND GUIDANCE Sierra Gorda (non-operated) (US$/t)33,34 Australia Manganese ore (US$/dmtu)33,35 14.6 +1% 14.8 FY23 guidance +1% from H2 FY22 +7% FY23 guidance +7% from H2 FY22 2.08 Efficiencies from the plant 1.94 Higher labour and contractor de-bottlenecking project,
Slide 25: Capital Expenditure Guidance (Including EAI)
CAPITAL EXPENDITURE GUIDANCE (INCLUDING EAI) We are increasing our investment to support productivity, portfolio changes and future growth in attractive end markets FY23e Safe and reliable(a) FY23e Improvement and life extension(a) FY23e Growth (US$M) (US$M) (US$M) US$785M US$170M US$290M Aluminium
Slide 26: Capital Projects Pipeline
CAPITAL PROJECTS PIPELINE We have a pipeline of projects phased from pre-feasibility through to execution Operation Project FY23 FY24 FY25 Commentary Safe and reliable capital Illawarra Metallurgical Coal Transition to Appin single longwall Appin single longwall to deliver efficiencies from FY25 Imp
Slide 27: Illawarra Metallurgical Coal
ILLAWARRA METALLURGICAL COAL Dendrobium proposed mine plan Illawarra Metallurgical Coal complex Previously mined Development consent • FY23 saleable production expected to be 7.4Mt with Operating unit costs of US$116/t Coal Reserves Measured Coal Resources • Between FY24 and FY28(a)(b) we expect the
Slide 28: Our Commodity Demand in a Low-Carbon World
OUR COMMODITY DEMAND IN A LOW-CARBON WORLD Demand across our commodities will be well supported by a rapid transition to a low-carbon future 2050e average commodity demand 1.5°C scenario anchored on rising electric vehicle (EV) penetration (from 4% to 100%) in 1.5°C scenario versus base case37 and p
Slide 29: Aluminium Market
ALUMINIUM MARKET Rising demand underpinned by energy Low inventories and higher Rising energy and raw material costs have transition and cap to Chinese capacity is energy prices expected to provide lifted and steepened the cost curve expected to provide further tailwinds, near-term price support par
Slide 30: Alumina Market
ALUMINA MARKET Significant increases to caustic soda and energy prices are Increased Chinese demand expected to more than offset capacity challenging margins at less efficient refineries additions and ex-China smelter curtailments in the near term with ~35% of global supply currently loss-making Alu
Slide 31: Copper Market
COPPER MARKET While new supply is coming online and Long term demand outlook supported by near-term surpluses are expected, 2040e supply and demand gap equivalent renewable energy additions and low visible inventories are to ~1Mt of new supply each year rising electric vehicle penetration providing
Slide 32: Zinc Market
ZINC MARKET Rapid renewables deployment and the We expect China’s supply to have peaked 2030e supply and demand gap equivalent requirement to protect wind and solar with environmental regulations and falling to more than three new Hermosa Taylor(a) infrastructure could see zinc demand grades limitin
Slide 33: Manganese Market
MANGANESE MARKET Current preference for high-grade ores Rising electric vehicle penetration and Long term price expected to be set by and a widening premium being driven adoption of manganese-rich chemistries marginal South African supply by higher Chinese energy prices expected to add to overall de
Slide 34: Metallurgical Coal Market
METALLURGICAL COAL MARKET Ability of supply to meet rising Asian Recent price decline driven by weak Improvement in Indian spot demand and demand in the long term is constrained pig iron output (particularly in Europe) Chinese steel sector recovery by challenges with infrastructure, combined with ea
Slide 35: Strategy and Portfolio
STRATEGY AND PORTFOLIO
Slide 36: Our Strategy
OUR STRATEGY U N LO C K OPTIMISE IDENTIFY the full value of our business our business by working through our people, and pursue opportunities to safely, minimising our impact, innovation, projects and sustainably reshape our consistently delivering stable technology. business for the future, and and
Slide 37: Our Portfolio
OUR PORTFOLIO We have an attractive commodity mix and a growth pipeline in metals critical to a low-carbon future Our next phase of growth is expected to We are investing to discover our We expect 14% volume growth in FY23 come from our world class base metals next generation of mines with developme
Slide 38: Delivering on Our Strategy
DELIVERING ON OUR STRATEGY Continued our strong operating performance in FY22: • Group copper equivalent production6 99% of revised guidance • Worsley Alumina continued to operate above nameplate capacity, achieving record production • Hillside and Mozal Aluminium continued to test their maximum tec
Slide 39: Our Future Growth Through Development & Discovery
OUR FUTURE GROWTH THROUGH DEVELOPMENT & DISCOVERY We are increasing our exploration commitment to discover our next generation of base metals mines in targeted regions ALASKA NORTHERN AUSTRALIA Ambler Metals Jupiter Adventus Mining Corporation Roosevelt project Maguire (multiple projects) Encounter
Slide 40: Hermosa Project
HERMOSA PROJECT Potential to be a globally significant producer of metals critical to a low-carbon future Hermosa land package Patented • PFS demonstrated potential for a sustainable, low cost Area acquired operation with 20+ year initial resource life(a) in the Unpatented in FY22 Taylor Deposit fir
Slide 41: Hermosa Project
HERMOSA PROJECT Study work and critical path infrastructure development progressing to plan WTP2 and dewatering well construction Development studies • Taylor feasibility study on-track for completion mid CY23 • Clark PFS selection study on-track for completion end CY22 Water • State permits receive
Slide 42: Hermosa Project – Taylor Capital Expenditure
HERMOSA PROJECT – TAYLOR CAPITAL EXPENDITURE Our FY23 investment in orebody dewatering, studies and early site works was included in our Taylor PFS capital estimate PFS pre-production capital expenditure(a) FY23e Growth capital expenditure (US$M) (US$M) FY23e US$55M Work across the broader Hermosa p
Slide 43: Hermosa Exploration Potential
HERMOSA EXPLORATION POTENTIAL A highly prospective regional land package with the potential for future discoveries Hermosa high priority corridor Taylor near-mine exploration Regional exploration • 138Mt Mineral Resource with a • Land tenure increased by 119% since zinc equivalent grade of 8.61%(a)
Slide 44: Summary
SUMMARY Our world class development Our consistent execution is We expect to deliver 14% We produce metals critical options have the potential underpinned by our copper equivalent production6 to a low-carbon future to increase volumes into disciplined capital allocation growth in FY23 structurally a
Slide 45: Supplementary Information
SUPPLEMENTARY INFORMATION
Slide 46: Earnings Sensitivities
EARNINGS SENSITIVITIES EBIT sensitivities +/- 10% Annualised estimated impact on FY23e Underlying EBIT of a 10% change in commodity prices or currency(a) US$M Aluminium(b) 375 Metallurgical coal(c) 245 Alumina(b) 214 Manganese ore 102 Nickel 86 Copper 82 Silver 26 Lead 23 Zinc 22 Australian dollar 2
Slide 47: Operating Unit Costs
OPERATING UNIT COSTS FY22 actual vs. FY22 FY22 guidance Operating unit costs FY21 H1 FY22 H2 FY22 FY22 Commentary to guidance or FY21 guidance41 (5%) 0% 5% Worsley Alumina Higher caustic soda prices offset by a 214 256 274 265 265 weaker Australian dollar (US$/t) Lower volumes and costs to recover f
Slide 48: Operating Unit Costs Guidance
OPERATING UNIT COSTS GUIDANCE FY23 guidance vs. H2 FY22 FY23 FY22 actual Operating unit costs FY22 Commentary actual Guidance33 (10%) 0% 10% 20% Significantly higher caustic soda prices and Worsley Alumina 274 265 296 consumption, and increased freight costs, (US$/t) partially offset by a weaker Aus
Slide 49: Aluminium Smelter Cost Breakdown
ALUMINIUM SMELTER COST BREAKDOWN • Hillside Aluminium • Mozal Aluminium • H1 FY22 cost breakdown • H2 FY22 cost breakdown • H1 FY22 cost breakdown • H2 FY22 cost breakdown Electricity Electricity Raw materials Raw materials Pot relining 5% 12% Pot relining 18% 17% 22% 21% Labour 2% 23% Labour 24% 29
Slide 50: Closure & Rehabilitation Provisions
CLOSURE & REHABILITATION PROVISIONS • South32 Group Closure and rehabilitation FY22 FY21 provisions by operation (South32 share) US$M US$M Profit and loss impact Balance (+US$41M) sheet45 Worsley Alumina 822 825 (+US$35M) Brazil Alumina (non-operated) 28 40 35 67 5 19 2 Brazil Aluminium (non-operate
Slide 51: Underlying Income Tax Expense
UNDERLYING INCOME TAX EXPENSE FY22 FY213 1,2 Underlying income tax expense reconciliation and Underlying effective tax rate US$M US$M Underlying EBIT profit/(loss) 3,967 1,039 Include: Underlying net finance revenue/(costs) (155) (170) Remove: Share of (profit)/loss of immaterial equity accounted in
Slide 52: Underlying Net Finance Costs
UNDERLYING NET FINANCE COSTS FY22 FY213 1,2 Underlying net finance costs reconciliation US$M US$M Unwind of discount applied to closure and rehabilitation provisions (83) (72) Change in discount rate on closure and rehabilitation provisions 3 7 Interest on lease liabilities (54) (55) Other (21) (7)
Slide 53: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE FY22 FY23e Capital expenditure excluding exploration and intangibles (South32 share) US$M US$M Worsley Alumina 47 45 Brazil Alumina 51 50 Brazil Aluminium 1 10 Hillside Aluminium 20 30 Mozal Aluminium 10 17 Cannington 43 60 Cerro Matoso 18 40 Illawarra Metallurgical Coal
Slide 54: Footnotes
FOOTNOTES 1. South Africa Manganese ore has been reported as a 54.6% interest (previously 60%) reflecting our Metalloys manganese alloy smelter (60% interest) having been placed on care and maintenance, and aligning with our interest in Hotazel Manganese Mines (HMM). South32 has a 44.4% ownership in
Slide 55: Footnotes
FOOTNOTES 31. Sierra Gorda’s copper equivalent production (kt) was calculated by aggregating revenues from copper, molybdenum, gold and silver, and dividing the total Revenue by the price of copper. FY22 realised prices for copper (US$3.50/lb), molybdenum (US$18.48/lb), gold (US$1,934/oz) and silver
Slide 56: South32
SOUTH32