South32 Ltd. · ASX:S32
South32 — H1 FY22 Earnings Presentation
58 slides from South32's earnings presentation, Feb 17, 2022
Slide 1: 2022 Half Year Financial Results
2022 HALF YEAR FINANCIAL RESULTS 17 February 2022
Slide 2: Important Notices
IMPORTANT NOTICES • This presentation should be read in conjunction with the “Financial Results and Outlook – half year ended 31 December 2021” announcement released on 17 February 2022, which is available on South32’s website (www.south32.net). Figures in italics indicate that an adjustment has bee
Slide 3: Overview
OVERVIEW We have taken significant steps to reshape our portfolio for a low carbon future Agreed to increase our share of Adding copper exposure with Sierra Gorda1 green aluminium production at Mozal Aluminium2 and Brazil Aluminium3 Completed the Taylor Deposit PFS, confirming its potential to be a
Slide 4: H1 FY22 Financial Scorecard
H1 FY22 FINANCIAL SCORECARD Portfolio improvements and strong commodity prices have translated into record earnings and higher shareholder returns Net Profit after Tax ↑US$979M to H1 FY22 Ordinary Dividends ↑521% to US$1,032M 8.7 US cents per share Underlying Earnings ↑US$868M to US$1,004M H1 FY22 S
Slide 5: Safety Performance
SAFETY PERFORMANCE The most important commitment we make at South32 is that everyone goes home safe and well 5,(a) Fatalities 1 1 • In November 2021 we tragically lost one of our colleagues, FY21 H1 FY22 Mr Desmin Mienies, a contractor with Elektra Mining, who was 5,6,(b) TRIF fatally injured while
Slide 6: Our Response to COVID-19
OUR RESPONSE TO COVID-19 We remain committed to three key areas that have guided our response since the beginning of the pandemic KEEPING OUR PEOPLE MAINTAINING SAFE AND SUPPORTING OUR SAFE AND WELL RELIABLE OPERATIONS COMMUNITIES SLIDE 6
Slide 7: Sustainability Performance
SUSTAINABILITY PERFORMANCE Sustainable development is at the heart of our purpose Our approach to sustainability focuses on five interconnected pillars H1 FY22 milestones with areas that are material to our business and our stakeholders, and which support the United Nations Sustainable Development G
Slide 8: Inclusion and Diversity Progress
INCLUSION AND DIVERSITY PROGRESS Building on work completed in H2 FY21, our inclusion and diversity action plan focuses on embedding our values and inclusive behaviours to drive a step change in our people’s experience of our culture • Percentage of total employees • Women on our Board • Women on ou
Slide 9: Our H1 FY22 Progress Addressing Climate Change
OUR H1 FY22 PROGRESS ADDRESSING CLIMATE CHANGE We have incorporated linkages in our long term remuneration to support delivery of our climate change goals We advanced decarbonisation activities designed to address our largest exposures • Completed a PFS for the conversion of the first coal-fired boi
Slide 10: Financial Results
FINANCIAL RESULTS
Slide 11: Production Results
PRODUCTION RESULTS We remain focused on production stability and optimising our operations Alumina (Mt) Aluminium (kt) Zinc equivalent11 (kt) 2.7 179 2.6 2.6 2.6 495 496 496 494 2.6 487 490 486 153 2.5 2.5 143 141 133 138 130 H1 H2 H1 H2 H1 H2 H1 H1 H2 H1 H2 H1 H2 H1 H1 H2 H1 H2 H1 H2 H1 FY19 FY19 F
Slide 12: H1 FY22 Performance Analysis
H1 FY22 PERFORMANCE ANALYSIS A broad recovery in commodity prices and our high operating leverage translated into a record 44% operating margin H1 FY22 Underlying EBITDA contribution by commodity(a)(b) Alumina Aluminium Zinc-lead-silver operating margin(b) operating margin operating margin 18% 57% 5
Slide 13: Earnings Analysis
(US$M) H1 FY21 390 Underlying EBIT Sales price 1,508 Market traded consumables 277 and price-linked costs 44 Foreign exchange EARNINGS ANALYSIS Uncontrollable (+US$1,137M) 50 Inflation 62 Sales volume 66 Controllable costs Ceased & sold operations¹³ 115 H1 FY22 1,514 Underlying EBIT Underlying 62 ne
Slide 14: Cost Analysis
(US$M) H1 FY21 cost base 2,775 H1 FY21 third party 247 product cost¹⁵ H1 FY21 adjusted cost base 2,528 COST ANALYSIS Market traded consumables and 277 price-linked costs Foreign exchange 44 on costs Uncontrollable (+US$371M) 50 Inflation 66 Controllable costs Ceased and sold 573 operations¹³ We have
Slide 15: Market Traded Consumables and Price-Linked Costs
MARKET TRADED CONSUMABLES AND PRICE-LINKED COSTS Inflation has been most acute in freight and smelter raw material markets, while higher prices increased royalty payments HoH increase of US$277M in market traded consumables and price-linked costs18 H1 FY22 total expenditure19 (US$M) 83 5% 15% 63 15%
Slide 16: Commodity Price and Foreign Exchange Analysis
COMMODITY PRICE AND FOREIGN EXCHANGE ANALYSIS Tight supply and disruption to energy markets, coupled with strong customer demand continues to support prices across our portfolio EBIT sensitivity(a) +/- 10% South32 commodity basket reference prices20 Commodity US$M H1 FY22 vs. H1 FY21 average prices
Slide 17: Cash Flow Analysis
CASH FLOW ANALYSIS Strong cash flow generation delivered a increase in net cash of US$569M following further investment in our business and returns to shareholders (US$M) Free cash flow from continuing operations, including capital expenditure and net distributions from EAI, of US$942M reflects: • B
Slide 18: Balance Sheet
BALANCE SHEET Our strong balance sheet ensures we are well placed to fund the continuing transformation of our portfolio and increase shareholder returns Sierra Gorda transaction pro-forma metrics • Our capital management framework is unchanged, and we will continue to prioritise maintaining safe an
Slide 19: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE We are executing our safe and reliable capital activity to plan while investing in improvement and growth programs focused on base metals Safe and reliable capital expenditure(a) • Our divestment of South Africa Energy Coal has reduced the capital intensity of our (US$M)
Slide 20: Returns to Shareholders
RETURNS TO SHAREHOLDERS As our financial performance improves, our flexible dividend policy and the cumulative benefit of our on-market share buy-back is rewarding shareholders with a record dividend per share Total dividend pay-out ratio(a) (%) 100% 80% 60% Minimum ordinary 40% dividend policy 20%
Slide 21: Returns to Shareholders
RETURNS TO SHAREHOLDERS Our capital management program that Returned US$0.4B in special dividends and Increased the program by has been active since FY18, is flexible, US$1.4B via our on-market share buy-back, a further US$110M, leaving and returns excess capital efficiently reducing shares on issue
Slide 22: Markets Outlook
=I SOUTH32 MARKETS OUTLOOK
Slide 23: Commodity Demand in a 1.5°C Scenario
COMMODITY DEMAND IN A 1.5°C SCENARIO Our portfolio is well positioned for a rapid Demand for most of our commodities would grow global transition to a low carbon economy significantly with the uptake of low carbon technologies 2029-2050 average commodity demand Illustrative Group Revenue(a),24,25,26
Slide 24: Aluminium Market
ALUMINIUM MARKET Strong demand and the energy-led Supply to remain constrained with Long term price supported by higher curtailment of European capacity China’s capacity limit and the industry inducement cost projects ex-China, has underpinned a rise in prices transitioning towards green energy powe
Slide 25: Alumina Market
ALUMINA MARKET Long term outlook supported by Cost curve has shifted upwards Strong global aluminium demand Chinese domestic bauxite depletion due to higher freight, energy to support alumina prices and environmental policy, together and caustic soda prices with higher raw material costs Alumina pri
Slide 26: Copper Market
COPPER MARKET Market expected to move Base case production forecast 1Mt of additional mine Copper to play a key role in into minor surplus near to diminish at 3.8% p.a. from production required global decarbonisation term following addition CY27e due to grade and each year from CY24e and energy tran
Slide 27: Zinc Market
ZINC MARKET Strong demand in transport, Supply expected to fall 3.5% pa to Rapid deployment of wind and solar consumer and industrial sectors, CY2030, requiring investment in new infrastructure to create new demand with rising intensity of use mine supply and inducement pricing Zinc primary demand (
Slide 28: Manganese Market
MANGANESE MARKET We continue to expect the long term Chinese energy costs have supported Alloys for steel continue to draw price to be set by marginal a preference for higher grade ores strong near term ore demand South African supply transitioning and an expansion of the price premium underground o
Slide 29: Metallurgical Coal Market
METALLURGICAL COAL MARKET Strong ex-China demand and Long term outlook underpinned by Seasonal restocking to provide tight Australian supply have strong demand from India and other near term price support underpinned recent prices emerging Asian markets Metallurgical coal price and arbitrage Seaborn
Slide 30: Operations Analysis
OPERATIONS ANALYSIS
Slide 31: Worsley Alumina
WORSLEY ALUMINA (86% SHARE) Production performance to guidance (%) 50% FY22e: 3,965kt FY23e: 4,000kt • Refinery on-track to achieve nameplate production in FY22 as we realise the benefit of improvement initiatives H1 FY22 H2 FY22e • Targeting production creep to 4Mt (South32 share) in FY23 • FY22 Op
Slide 32: Brazil Alumina
BRAZIL ALUMINA (36% SHARE) Production performance to guidance (%) 49% FY22e: 1,300kt FY23e: 1,395kt • Refinery successfully returned to normalised rates following the bauxite unloader outage in Q1 FY22 H1 FY22 H2 FY22e • 7% increase in production volumes expected in FY23 with the refinery operating
Slide 33: Hillside Aluminium
HILLSIDE ALUMINIUM (100% SHARE) Production performance to guidance (%) 50% FY22e: 720kt FY23e: 720kt • Smelter continues to test maximum technical capacity despite higher load-shedding H1 FY22 H2 FY22e • Record operating margin of 34% as we benefitted from record realised prices Operating unit cost
Slide 34: Mozal Aluminium
MOZAL ALUMINIUM (47.1% SHARE) Production performance to guidance (%) 50% FY22e: 273kt FY23e: 273kt • Production volume benefits of the AP3XLE energy efficiency project offset higher load-shedding in H1 FY22 H1 FY22 H2 FY22e • Record operating margin of 34% as we benefitted from record realised price
Slide 35: Illawarra Metallurgical Coal
ILLAWARRA METALLURGICAL COAL (100% SHARE) Production performance to guidance • We are working toward the completion of an alternative mine plan for (%) the DND project and submission of an environmental impact statement 46% FY22e: 6.8Mt in Q3 FY22 FY23e: • FY22 Operating unit cost guidance revised t
Slide 36: Australia Manganese Ore
AUSTRALIA MANGANESE ORE (60% SHARE) Production performance to guidance (%) 53% FY22e: 3,200kwmt FY23e: 3,400kwmt • FY22 production guidance revised lower by 9% to 3,200kt with weather disruptions and additional COVID-19 workforce H1 FY22 H2 FY22e restrictions preventing the re-build of stockpiles ah
Slide 37: South Africa Manganese Ore
SOUTH AFRICA MANGANESE ORE (54.6% SHARE10) Production performance to guidance10 (%) 53% FY22e: 2,000kwmt FY23e: Subject to demand • Production increased by 7% in H1 FY22 as we delivered higher volumes of premium material from our Mamatwan mine and H1 FY22 H2 FY22e planned maintenance was completed •
Slide 38: Cerro Matoso
CERRO MATOSO (99.9% SHARE) Production performance to guidance (%) 46% FY22e: 43.8kt FY23e: 43.5kt • FY22 production guidance unchanged with increased throughput and grade expected from additional higher-grade Q&P ore in H2 FY22 H1 FY22 H2 FY22e • FY22 Operating unit cost guidance revised to US$4.17/
Slide 39: Cannington
CANNINGTON (100% SHARE) Production performance to guidance11 (%) FY22e: 52% 292.2kt ZnEq FY23e: • FY22 production guidance revised 5% higher, supported by 313.9kt ZnEq continued strong underground performance and higher average grades H1 FY22 H2 FY22e • A further 7% increase in production expected i
Slide 40: Strategy and Portfolio
STRATEGY AND PORTFOLIO
Slide 41: 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 42: Delivering on Our Strategy
DELIVERING ON OUR STRATEGY We have made significant progress in growing our exposure to the metals critical to a low carbon future H1 FY22 Revenue by commodity24,25 Agreed acquisition of an additional share of Mozal Aluminium and restart of the South32 Group Illustrative Group(a),26 renewable powere
Slide 43: Sierra Gorda Copper Mine
SIERRA GORDA COPPER MINE Our acquisition of a 45% interest in the Sierra Gorda copper mine expected to complete in February 20221 Located in the prolific Antofagasta copper mining region of Chile Sierra Gorda Patillos Collahuasi N • Large, conventional open pit mine and processing operation that ben
Slide 44: Growing Our Green Aluminium Exposure
GROWING OUR GREEN ALUMINIUM EXPOSURE ~100% green aluminium growth by FY23 with the restart of our Brazil smelter and increased shareholding in Mozal Aluminium production Brazil Aluminium restart (40% South32 share) (kt) • First production expected in Q4 FY22 with full capacity of 447ktpa (100%) in Q
Slide 45: Hermosa Project
HERMOSA PROJECT Potential to be a globally significant producer of metals critical to a low carbon future Hermosa land package Patented • PFS demonstrates potential for a sustainable, low cost operation with 20+ year initial resource life(a) in the first quartile Unpatented Taylor Deposit of the ind
Slide 46: Greenfield Exploration
GREENFIELD EXPLORATION A dedicated strategy to discover our next base metals development option Strategy to identify, advance Has generated prospective base metals 25+ active exploration programs across and cycle options options, focused in the Americas our partnerships and own properties Greenfield
Slide 47: Summary
SUMMARY H1 FY22 Underlying earnings H1 FY22 Underlying EBITDA US$1.0B US$1.9B Capital management program expanded by US$110M, leaving H1 FY22 Operating margin Interim ordinary dividend US$302M to be returned 44% US 8.7 cents per share (US$405M) Our Balance Sheet remains strong Growing our exposure t
Slide 48: Supplementary Information
SUPPLEMENTARY INFORMATION
Slide 49: Operating Unit Costs
OPERATING UNIT COSTS H1 FY22 actual vs. H1 FY22 FY22 prior FY22 prior guidance Operating unit costs H1 FY21 H2 FY21 H1 FY22 Commentary to guidance or H1 FY21 adjusted35 guidance36 (5%) 5% 15% 25% Worsley Alumina Higher caustic soda and freight costs, 204 224 256 239 241 partially offset by a weaker
Slide 50: Operating Unit Cost Guidance
OPERATING UNIT COST GUIDANCE FY22 new guidance vs. H1 FY22 FY22 prior FY22 adjusted FY22 new FY22 prior guidance Operating unit costs Commentary actual guidance prior guidance35 guidance40 (10%) 0% 10% 20% Worsley Alumina Higher caustic prices partially offset by a 256 241 257 257 weaker Australian
Slide 51: Closure & Rehabilitation Provisions
CLOSURE & REHABILITATION PROVISIONS Closure and rehabilitation H1 FY22 FY21 • South32 Group provisions by operation Balance Profit and loss impact (South32 share) US$M US$M (+US$8M) sheet43 (-US$31M) Worsley Alumina 833 825 31 15 8 31 Cannington 227 232 Americas Americas Illawarra Metallurgical Coal
Slide 52: Underlying Adjustments
UNDERLYING ADJUSTMENTS H1 FY22 H1 FY2110,(a) Underlying adjustments44 US$M US$M Adjustments to Underlying EBIT Significant items 77 - Manganese joint venture adjustments (79) (115) Exchange rate gains/(losses) on restatement of monetary items 32 (71) Net impairment losses(b) (37) (36) Gains/(losses)
Slide 53: Underlying Income Tax Expense
UNDERLYING INCOME TAX EXPENSE H1 FY22 H1 FY21 Underlying income tax expense reconciliation and Underlying effective tax rate44 US$M US$M Underlying EBIT 1,514 390 Include: Underlying net finance costs (62) (70) Remove: Share of profit/(loss) of immaterial equity accounted investments - 8 Underlying
Slide 54: Underlying Net Finance Costs
UNDERLYING NET FINANCE COSTS H1 FY22 H1 FY21 Underlying net finance costs reconciliation US$M US$M Unwind of discount applied to closure and rehabilitation provisions (39) (33) Interest on lease liabilities (26) (27) Other 3 3 Discontinued operation - (13) Underlying net finance costs (62) (70) Add
Slide 55: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE H1 FY22 FY22e Capital expenditure excluding exploration and intangibles (South32 share) US$M US$M Worsley Alumina 20 43 Brazil Alumina 31 54 Hillside Aluminium 10 27 Mozal Aluminium 5 10 Illawarra Metallurgical Coal 82 200 Cerro Matoso 6 23 Cannington 17 43 Safe and reli
Slide 56: Footnotes
FOOTNOTES 1. Refer to market release “South32 to acquire a 45% interest in the Sierra Gorda copper mine” dated 14 October 2021. The estimates indicated in the original announcement are qualifying foreign estimates and are not reported in accordance with the JORC Code. A Competent Person has not done
Slide 57: Footnotes
FOOTNOTES 28. Production Target Cautionary Statement: The information in this announcement that refers to the Production Target and forecast financial information for MRN is based on Measured (63%), Indicated (9%) and Inferred (28%) Mineral Resources. The Mineral Resources underpinning the Productio
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