South32 Ltd. · ASX:S32
South32 — Merger or Acquisition (October 2021)
40 slides from South32's merger presentation, Oct 14, 2021
Slide 1: Investor Presentation: South32 to acquire a 45% interest in the Sierra Gorda copper mine
14 October 2021 South32 Limited (Incorporated in Australia under the Corporations Act 2001 (Cth)) For personal use only (ACN 093 732 597) ASX / LSE / JSE Share Code: S32 ADR: SOUHY ISIN: AU000000S320 south32.net INVESTOR PRESENTATION: SOUTH32 TO ACQUIRE A 45% INTEREST IN THE SIERRA GORDA COPPER MINE
Slide 2: South32 to acquire a 45% interest in the Sierra Gorda copper mine
For personal use only SOUTH32 TO ACQUIRE A 45% INTEREST IN THE SIERRA GORDA COPPER MINE • 14 October 2021
Slide 3: Important Notices
IMPORTANT NOTICES • This presentation should be read in conjunction with the announcement “South32 to acquire a 45% interest in the Sierra Gorda copper mine” released on 14 October 2021, which is available on South32’s website (www.south32.net). For personal use only Figures in italics indicate that
Slide 4: Important Notices: Mineral Resources and Mineral Reserves
IMPORTANT NOTICES MINERAL RESOURCES AND MINERAL RESERVES For personal use only • • The information in this Presentation that relates to the mineral resource and mineral reserve estimates for the Sierra Gorda Cu-Mo-Au deposit was declared by KGHM Polska Miedz (KGHM) on their website on 25 June 2015 i
Slide 5: Transaction Overview
For personal use only TRANSACTION OVERVIEW
Slide 6: Transaction Highlights
TRANSACTION HIGHLIGHTS For personal use only Long-life, open pit copper mine Supported by excellent Consistent with our strategy that benefits from significant infrastructure including to reshape our portfolio historical investment access to renewable power for a low carbon future Opportunities to u
Slide 7: Transaction Summary
TRANSACTION SUMMARY For personal use only Value accretive acquisition that further positions our portfolio for a low carbon future • South32 will acquire a 45% interest in Sierra Gorda from Sumitomo Metal Mining • Pro-forma ownership structure (31.5%) and Sumitomo Corporation (13.5%) (collectively S
Slide 8: Delivering on Our Strategy
DELIVERING ON OUR STRATEGY Consistent with our strategy to reshape our Substantial increase in our earnings For personal use only portfolio for a low carbon future leveraged to the green energy transition FY21 Underlying EBITDA by commodity(a)(b)(c) South32 Group South32 + Sierra Gorda Base & precio
Slide 9: Value Accretive Acquisition
VALUE ACCRETIVE ACQUISITION For personal use only Upfront purchase consideration benchmarks favourably to historical investment, valuation and production multiples Upfront EV(a) and Sierra Gorda historical investment Upfront EV/FY21 trailing EBITDA Upfront EV/CuEq(b) payable production US$B, 45% sha
Slide 10: Increasing Capital Intensity of New Builds
INCREASING CAPITAL INTENSITY OF NEW BUILDS Acquisition consideration benchmarks Large investments required in future For personal use only Capital intensity of new copper builds favourably to builds with comparable projects to offset industry grade and has been increasing over time modern plant and
Slide 11: Key Terms and Transaction Timetable
KEY TERMS AND TRANSACTION TIMETABLE For personal use only US$1.55B upfront, plus a contingent price-linked consideration to acquire a 45% indirect interest in Sierra Gorda • US$1.55B for a 45% indirect interest in Sierra Gorda through the acquisition of Sumitomo’s interest in SGSCM • To be adjusted
Slide 12: Transaction Highlights
For personal use only TRANSACTION HIGHLIGHTS
Slide 13: Established Copper Producing Asset
ESTABLISHED COPPER PRODUCING ASSET Operation has recently ramped-up De-bottlenecking project underway Operating unit costs of and is on-track to produce copper For personal use only expected to increase plant throughput ~US$1.30-1.50/lb CuEq7 equivalent production of 214kt in by 6% to ~50Mtpa expect
Slide 14: Large, Long-Life Reserve at the Catabela Pit
LARGE, LONG-LIFE RESERVE AT THE CATABELA PIT We are well advanced with our work to >20 year reserve life(b) with >1Bt copper-molybdenum-gold publish Mineral Resource and Ore Reserve extension potential from For personal use only sulphide mineral reserve(a) estimates in accordance with the significan
Slide 15: Operation Achieving Record Performance
OPERATION ACHIEVING RECORD PERFORMANCE Record production and plant throughput Capital efficient de-bottlenecking For personal use only Significant investment in high quality, in CY20, with operation on-track to project is lifting ore milled modern processing infrastructure repeat in CY21 despite COV
Slide 16: Expected to Benefit Our EBITDA Margin
EXPECTED TO BENEFIT OUR EBITDA MARGIN For personal use only Brings immediate value and expands our EBITDA margin, further improving our portfolio and balance sheet resilience FY21 EBITDA margin(a)(b) % 6,000 64% 57% 55% 5,000 40% 60% 32% 36% 27% 29% 24% 25% 23% 12% 4,000 10% 3,000 FY21 Underlying EB
Slide 17: Builds on Our Established Presence in the Americas
BUILDS ON OUR ESTABLISHED PRESENCE IN THE AMERICAS For personal use only Cornerstone project in Chile, Expands our existing operating and a prolific copper producing region development presence in the Americas AMBLER METALS Copper, Zinc, Lead, Silver & Gold FY21 Underlying EBITDA by region12,13 Our
Slide 18: Further Reshapes Our Portfolio for the Future
FURTHER RESHAPES OUR PORTFOLIO FOR THE FUTURE Increases our exposure Copper expected to benefit Sierra Gorda’s emissions intensity well For personal use only to the metals important from uptake of low carbon renewable below our Group average, benefitting to a low carbon future energy and electric ve
Slide 19: Exposure to Attractive Copper Markets
EXPOSURE TO ATTRACTIVE COPPER MARKETS Market expected to move Base case production then 1Mt of additional mine Copper to play a key role in For personal use only into minor surplus near forecast to diminish at production required global decarbonisation term following addition 3.8% p.a. from CY27e du
Slide 20: Transaction Funding
For personal use only TRANSACTION FUNDING
Slide 21: Funding Structure
FUNDING STRUCTURE For personal use only Acquisition consideration and funding has been structured to preserve our balance sheet’s strength and flexibility Pro-forma metrics15 Standalone Pro-forma • Consideration to be funded by a minimum of US$550M from cash on hand and an (US$M) Transaction South32
Slide 22: Balance Sheet
BALANCE SHEET For personal use only Our strong balance sheet remains at the core of our strategy South32 pro-forma debt and cash(a) US$M Primarily cash we hold on behalf of our Manganese JV We retain access to significant liquidity with the business generating strong free cash flow and our US$1.45B
Slide 23: Sierra Gorda Overview
For personal use only SIERRA GORDA OVERVIEW
Slide 24: Joint Venture Overview
JOINT VENTURE OVERVIEW For personal use only Partnering with a experienced operator, with joint control and governance rights South32 influence and control • Pro-forma ownership structure Equal representation with KGHM on Owners Council(a) and subcommittees (health and safety, technical, finance,
Slide 25: Asset Overview
ASSET OVERVIEW For personal use only Large scale, open-pit operation with >4.5Mt(a) copper metal in reserves and a 20+ year reserve life Asset overview (100% basis) Sierra Gorda site map A conventional open pit mine and processing operation, producing copper CATABELA PIT Overview and molybdenum conc
Slide 26: Location and Infrastructure
LOCATION AND INFRASTRUCTURE For personal use only Located in a prolific copper producing region supported by dedicated, high quality infrastructure Location map Overview Patillos N Low altitude (1,700m above sea level) Patillos The mine is located 5km from a main national highway, which provides Loc
Slide 27: History of Plant Improvement
HISTORY OF PLANT IMPROVEMENT For personal use only A track record of delivering improvements to plant throughput and availability Processing flowsheet Ore milled Mt ROM Primary Secondary Tertiary ~ 50 ✓ crushing 45 47 ore crushing crushing 37 40 42 ✓ Bulk flotation ✓ Grinding CY17 CY18 CY19 CY20 CY2
Slide 28: De-bottlenecking Project
DE-BOTTLENECKING PROJECT For personal use only Implementing a capital efficient, low technical risk project that is transforming Porphyry throughput Copper Ore Reserve and copper recovery Benchmarks Overview of de-bottlenecking initiatives Project Summary • Low technical risk and capital efficient F
Slide 29: Operating Performance
OPERATING PERFORMANCE For personal use only De-bottlenecking is expected to further improve already strong operating performance Ore milled (bars) and copper head grade (line) Copper (bars) and molybdenum (line) recoveries Payable production1 Mt, 100% basis; % % kt CuEq, 100% basis 80 350 Increase i
Slide 30: Operating Performance: Unit Costs and Capital Expenditure
OPERATING PERFORMANCE For personal use only Stable performance and focussed de-bottlenecking initiatives are benefitting financial performance Operating unit costs7 Capital expenditure: total (bars) and per CuEq production (line) US$/lb CuEq US$M, 100% basis; US$/lb CuEq 800 2.00 8% 6% Mining 29% 70
Slide 31: Brownfield Oxide Project Potential
BROWNFIELD OXIDE PROJECT POTENTIAL For personal use only Opportunity to increase production further through processing Porphyry Copper Ore of stockpiled Reserve material9 Benchmarks Oxide project location and layout Project Summary • Feasibility study is underway • Low-cost heap leach and convention
Slide 32: Pampa Lina and Exploration Potential
PAMPA LINA AND EXPLORATION POTENTIAL For personal use only Potential for regional upside within a large land package that Porphyry has Ore Copper a number of identified targets Reserve Benchmarks Property Claim Map N Pampa Lina Project Summary • Located 3km north-east of current operations between t
Slide 33: Summary
SUMMARY For personal use only Long-life, open pit copper mine Supported by excellent Consistent with our strategy that benefits from significant infrastructure including to reshape our portfolio historical investment access to renewable power for a low carbon future Opportunities to unlock upside Ou
Slide 34: Appendix
For personal use only APPENDIX
Slide 35: Joint Venture Capital Structure
JOINT VENTURE CAPITAL STRUCTURE SGSCM’s existing capital structure primarily comprises ~US$3B in common equity and ~US$5B in sponsor loans, For personal use only supported by a US$700M revolving credit facility (RCF) from an external lender • KGHM and Sumitomo initially provided common equity and sp
Slide 36: Statutory Accounting Treatment
STATUTORY ACCOUNTING TREATMENT Interest income, revaluation of the receivable and For personal use only On completion, the acquisition will be recorded as a contingent consideration, and associated income tax credit-impaired receivable on South32’s balance sheet expense, recognised in the statutory
Slide 37: Underlying Accounting Treatment
UNDERLYING ACCOUNTING TREATMENT We intend to begin including our existing manganese Sierra Gorda will be reported as an individual segment and business in our Underlying EBITDA, EBIT and earnings For personal use only included in our Underlying EBITDA, EBIT and earnings on a proportionally consolida
Slide 38: Tax
TAX We have secured a capped tax indemnity from Sumitomo that includes For personal use only potential changes in the Chilean mining tax regime as it pertains to Sierra Gorda • Tax stability agreement protects SGSCM from any changes in Chilean tax law until 31 December 2028 • Sumitomo has agreed to
Slide 39: Footnotes
FOOTNOTES 1. Recovered metal in CuEq terms is calculated using the total revenue divided by the Cu price. Average metallurgical recovery assumptions are 83% for copper, 57% for molybdenum and 53% for gold. The prices used are Sierra Gorda CY20 realised prices which exclude the impact of TCRCs. For p
Slide 40: For personal use only
For personal use only