South32 Ltd. · ASX:S32
South32 — H1 FY23 Earnings Presentation
53 slides from South32's earnings presentation, Feb 16, 2023
Slide 1: 2023 Half Year Financial Results Presentation
16 FEBRUARY 2023 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 2023 HALF YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) will
Slide 2: 2023 Half Year Financial Results
2023 HALF YEAR FINANCIAL RESULTS 16 February 2023
Slide 3: Important Notices
IMPORTANT NOTICES • This presentation should be read in conjunction with the “Financial Results and Outlook – half year ended 31 December 2022” announcement released on 16 February 2023, which is available on South32’s website (www.south32.net). Figures in italics indicate that an adjustment has bee
Slide 4: Important Notices - Earnings Reconciliation
IMPORTANT NOTICES • EARNINGS RECONCILIATION • The Group’s statutory profit after tax decreased by US$347M to US$685M in H1 FY23, while Underlying earnings decreased by US$444M to US$560M reflecting the impact of one-off adjustments in statutory earnings. Consistent with our accounting policies, vari
Slide 5: 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 6: Working Safely
WORKING SAFELY The most important commitment we make at South32 is that everyone goes home safe and well Fatalities2,(a) 2 1 1 • In November 2022, we were devastated by the loss of two of our colleagues, Mr Cristovão Alberto Tonela and Mr Alfredo Francisco Domingos João, who FY21 FY22 H1 FY23 were f
Slide 7: Our Portfolio
OUR PORTFOLIO We have an attractive commodity mix and a growth pipeline in metals critical to a low-carbon future Portfolio improvements have Our next phase of growth We are investing to discover increased our volumes of metals is expected to come from our our next generation of mines with critical
Slide 8: H1 FY23 Financial Scorecard
H1 FY23 FINANCIAL SCORECARD Our financial performance remains strong, underpinned by our stable operating performance, portfolio improvements and continued capital discipline Profit after tax Returned to shareholders during H1 FY23(a) US$685M US$927M Underlying earnings US$560M Fully-franked ordinar
Slide 9: Performance Summary and Outlook
PERFORMANCE SUMMARY AND OUTLOOK We are in a strong position to continue our returns to shareholders and unlock value in our growth pipeline in metals critical for a low-carbon future FY23 operating unit cost guidance reduced or FY23 production guidance unchanged held in line at the majority of our o
Slide 10: Our Inclusion and Diversity Progress
OUR INCLUSION AND DIVERSITY PROGRESS We are targeting >40% by FY29(a) for all gender representation metrics by implementing our inclusion and diversity action plan Total employees who are women6 • Women on our Board • Women on our Lead Team 44.4% 37.5% 37.5% 37.5% 37.5% 37.5% 18.4% 19.2% 19.8% FY21
Slide 11: Addressing Climate Change
ADDRESSING CLIMATE CHANGE We are delivering milestones to support our target to reduce operational GHG emissions by 50% by 2035(a) ahead of our goal of achieving net zero GHG emissions across all scopes by 2050(b),10 H1 FY23 highlights • Our Climate Change Action Plan received Reshaping Decarbonisin
Slide 12: Financial Results
FINANCIAL RESULTS
Slide 13: H1 FY23 Performance Analysis
H1 FY23 PERFORMANCE ANALYSIS Group operating margins remained above historical levels as we delivered another strong production result and benefitted from our recent portfolio improvements H1 FY23 Underlying EBITDA contribution by commodity(a)(b)(c) Aluminium & alumina Copper Zinc-lead-silver operat
Slide 14: Earnings Analysis
EARNINGS ANALYSIS Our margin accretive portfolio of investments added to our strong EBIT result, partially offsetting lower commodity prices and uncontrollable cost inflation (US$M) Improvement in profitability from portfolio changes 107 15 (4) (50) Sierra Gorda Mozal Aluminium Other¹² Brazil Alumin
Slide 15: Commodity Price and Foreign Exchange Analysis
COMMODITY PRICE AND FOREIGN EXCHANGE ANALYSIS China’s re-opening and global supply disruptions have underpinned a commodity price rebound to start H2 FY23 EBIT sensitivity(a) +/- 10% South32 commodity basket reference prices15 Commodity US$M H1 FY23 vs. H1 FY22 average prices Spot (10 February 2023)
Slide 16: Cost Analysis
COST ANALYSIS Raw material input price inflation in our aluminium value chain and additional costs associated with our margin accretive portfolio improvements increased our cost base in the half Increase in market traded consumables Cost base increase from portfolio improvements Combined Underlying
Slide 17: Market Traded Consumables and Price-Linked Costs
MARKET TRADED CONSUMABLES AND PRICE-LINKED COSTS Inflation was most acute in our prices for energy, smelter raw materials and caustic soda HoH increase of US$234M in market traded consumables and price-linked costs19 H1 FY23 total expenditure19,20 (US$M) Increase in smelter raw materials Caustic sod
Slide 18: Smelter Raw Material Basket Cost Inflation
SMELTER RAW MATERIAL BASKET COST INFLATION Aluminium sector margins were compressed in H1 FY23 with smelter raw material costs moderating to start H2 FY23 Smelter raw material basket cost inflation Smelter costs(a) as a % of LME aluminium21 H1 FY22 H2 FY22 H1 FY23 Alumina as a Smelter costs as a % o
Slide 19: Capital Expenditure Analysis
CAPITAL EXPENDITURE ANALYSIS We are investing in projects to unlock efficiencies, reduce risk, and deliver volume growth in the metals critical to a low-carbon future H1 FY23 Safe and reliable H1 FY23 Improvement and life extension H1 FY23 Growth capital expenditure capital expenditure capital expen
Slide 20: Cash Flow Analysis
CASH FLOW ANALYSIS Cash generation reflected one-off tax and working capital impacts while we returned a record US$927M to shareholders in the half Free cash flow from operations, including EAI distributions, reflected: • A build in working capital (US$152M) due to a one-off increase related to the
Slide 21: Balance Sheet
BALANCE SHEET We continue to prioritise a strong balance sheet and investment grade credit rating through the cycle December 2022 net cash/(debt) (US$M) 1,560 (1,858) • Our liquidity position remains strong, with US$1.6B cash on hand22 and an undrawn sustainability-linked revolving credit facility w
Slide 22: Capital Management Framework
CAPITAL MANAGEMENT FRAMEWORK Our framework is designed to Our capital management We have a balanced approach reward shareholders as our framework is unchanged to capital allocation financial performance improves Capital management framework Capital allocation since FY16 Shareholder returns(a) (US$M)
Slide 23: Shareholder Returns
SHAREHOLDER RETURNS Our program has returned US$2.1B to Our on-market share buy-back Our flexible capital management date and has been expanded by a has reduced shares on issue by program has been active since FY17 further US$50M, leaving US$158M 14% since inception to be returned by September 2023
Slide 24: Business Outlook
BUSINESS OUTLOOK
Slide 25: Production Guidance
PRODUCTION GUIDANCE FY23 production guidance is unchanged and we remain on-track to deliver 6% growth in H2 FY23(a) Aluminium (kt) Nickel (kt) 597 23.1 568 20.4 Continued ramp-up of the low-carbon27 OSMOC project expected to support Brazil Aluminium smelter higher volumes from H2 FY23 H1 FY23 H2 FY2
Slide 26: Operating Unit Costs Performance and Guidance
OPERATING UNIT COSTS PERFORMANCE AND GUIDANCE FY23 operating unit cost guidance has been reduced or held in-line at the majority of our operations, with 6% production growth in H2 FY23 to support sequentially lower operating unit costs Worsley Alumina (US$/t)30,31 Brazil Alumina (non-operated) (US$/
Slide 27: Operating Unit Costs Performance and Guidance
OPERATING UNIT COSTS PERFORMANCE AND GUIDANCE Sierra Gorda (non-operated) (US$/t)30,31,32 Australia Manganese ore (US$/dmtu)30,31,33 16.6 2.08 14.6 14.8 15.5 Guidance increased by 5% 1.94 1.97 Guidance lowered by 5% 1.79 1.76 H1 FY23: 12% above prior guidance H1 FY23: 15% below prior guidance with h
Slide 28: Capital Expenditure Guidance (Including EAI)
CAPITAL EXPENDITURE GUIDANCE (INCLUDING EAI) We have reduced FY23 guidance by US$105M, as we continue to allocate capital that prioritises safe and reliable operations and invest to unlock value through our improvement, life extension and growth options Capital expenditure(a) (US$M) Includes intangi
Slide 29: Cerro Matoso
CERRO MATOSO We have allocated capital at Cerro Matoso to unlock value and create options for potential supply into new nickel markets Cerro Matoso’s recent high-returning investments … and sets a strong platform to unlock further value have helped to re-position the operation ... following its mini
Slide 30: Hermosa Project
HERMOSA PROJECT Unlocking multiple sources of value to deliver future supply of metals critical to a low-carbon future Taylor zinc-lead-silver Clark battery-grade manganese- Regional resource development option zinc-silver development option growth potential Targeting a sustainable, Confirmed the op
Slide 31: Hermosa Project – Taylor
HERMOSA PROJECT – TAYLOR Orebody dewatering, studies and early site works progressing in-line with our Taylor PFS capital estimate WTP2 and dewatering well construction FY23e Growth capital expenditure (US$M) INITIAL MINING INFRASTRUCTURE US$80M DEWATERING Engineering and initial construction ahead
Slide 32: Hermosa Project – Clark
HERMOSA PROJECT – CLARK Ideally positioned to provide secure, localised supply of battery-grade manganese into rapidly expanding North American supply chain Battery chemistry for a standard lithium, nickel, cobalt and manganese battery (NCM-622)… Battery-grade manganese is a critical metal for EV su
Slide 33: Creating Value Through Exploration
CREATING VALUE THROUGH EXPLORATION Investing in our portfolio of exploration options to discover our next generation of mines ALASKA NORTHERN AUSTRALIA Ambler Metals Jupiter Adventus Mining Corporation Roosevelt Maguire (multiple projects) Encounter Resources Iffley EMX Royalty Corp (Jessica & Carra
Slide 34: Markets Outlook
=I, — — ~ — SOUTH32 MARKETS OUTLOOK
Slide 35: Aluminium Market
ALUMINIUM MARKET Low inventories and China supply Long-term outlook underpinned European smelter shuts are disruptions due to power shortages by global energy transition and keeping global supply tight are providing near-term price support Chinese capacity cap Aluminium production in Europe Aluminiu
Slide 36: Alumina Market
ALUMINA MARKET Future builds are expected to come from Cost curve has steepened due to elevated Less efficient refineries remain at risk, outside of China due to declining prices for caustic soda and energy, with ~30% of global supply loss-making Chinese bauxite self sufficiency coupled with tighter
Slide 37: Copper Market
COPPER MARKET China's demand remained robust Global supply continues to be impacted by Long term demand outlook supported across CY22 with inventories multiple disruptions, including in Peru by renewables deployment and now near multi-year lows which accounts for ~8% of global supply rising electric
Slide 38: 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 39: Manganese Market
MANGANESE MARKET Supply disruptions and improving Chinese Long term price expected to be set by Rising EV penetration and adoption demand have supported an increase in marginal South African supply of Mn-rich battery chemistries prices, particularly for high grade ore transitioning underground over
Slide 40: Metallurgical Coal Market
METALLURGICAL COAL MARKET Recent price increases driven by In the long term, the ability of new Further supply risks and steel sector weather-related supply concerns in supply to meet rising Asian demand will recovery expected to support prices Queensland and the lifting of China’s be constrained by
Slide 41: Performance Summary
PERFORMANCE SUMMARY We remain focused on delivering safe and stable operational performance, continuing to reward shareholders and unlocking value from our high-quality growth options H1 FY23 Underlying earnings H1 FY23 Underlying EBITDA US$560M US$1,364M Capital management program expanded by US$50
Slide 42: Supplementary Information
SUPPLEMENTARY INFORMATION
Slide 43: Earnings Sensitivities
EARNINGS SENSITIVITIES EBIT sensitivities +/- 10% Annualised estimated impact on FY23e Underlying EBIT of a 10% change in commodity prices or currency(a) US$M Aluminium(b) 303 Alumina(b) 185 Metallurgical coal(c) 168 Manganese ore 91 Nickel 73 Copper 70 Silver 25 Lead 21 Zinc 15 Australian dollar 20
Slide 44: Operating Unit Costs
OPERATING UNIT COSTS H1 FY23 actual vs. H1 FY23 FY23 prior FY23 prior guidance Commentary to guidance Operating unit costs H1 FY22 H2 FY22 H1 FY23 adjusted34 guidance30 or H2 FY22 (20%) (10%) 0% 10% 20% Weaker Australian dollar and lower caustic Worsley Alumina 256 274 288 288 296 soda costs, more t
Slide 45: Operating Unit Costs Guidance
OPERATING UNIT COSTS GUIDANCE FY23 new guidance vs. H1 FY23 FY23 prior FY23 adjusted FY23 new FY23 prior guidance Operating unit costs Commentary actual guidance prior guidance34 guidance31 (10%) 0% 10% Worsley Alumina Lower planned caustic soda consumption and 288 296 290 287 prices, partly offset
Slide 46: Aluminium Smelter Cost Breakdown
ALUMINIUM SMELTER COST BREAKDOWN Hillside Aluminium and Mozal Aluminium continued to test nameplate capacity, recording sequentially lower Operating unit costs in H1 FY23 • Hillside Aluminium – Operating unit costs (US$/t) • Mozal Aluminium – Operating unit costs (US$/t) • H2 FY22 • H1 FY23 • H2 FY2
Slide 47: Closure & Rehabilitation Provisions
CLOSURE & REHABILITATION PROVISIONS • South32 Group Closure and rehabilitation H1 FY23 FY22 provisions by operation (South32 share) US$M US$M Profit and loss impact Balance sheet37 (+US$39M) (-US$36M) Worsley Alumina 842 822 Brazil Alumina (non-operated) 27 28 42 1 4 36 Americas Americas Brazil Alum
Slide 48: Underlying Income Tax Expense
UNDERLYING INCOME TAX EXPENSE H1 FY23 H1 FY22 Underlying income tax expense reconciliation and Underlying effective tax rate US$M US$M Underlying EBIT 922 1,514 Include: Underlying net finance costs (88) (62) Remove: Share of (profit)/loss of EAI (7) - Underlying profit before tax 827 1,452 Income t
Slide 49: Underlying Net Finance Costs
UNDERLYING NET FINANCE COSTS H1 FY23 H1 FY22 Underlying net finance income/(costs) reconciliation US$M US$M Unwind of discount applied to closure and rehabilitation provisions (51) (39) Interest on lease liabilities (28) (26) Interest on senior unsecured notes (15) - Other 6 3 Underlying net finance
Slide 50: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE H1 FY23 FY23e Capital expenditure excluding exploration and intangibles (South32 share) US$M US$M Worsley Alumina 24 45 Brazil Alumina 29 50 Brazil Aluminium 6 10 Hillside Aluminium 9 30 Mozal Aluminium 9 17 Cannington 32 60 Cerro Matoso 17 40 Illawarra Metallurgical Coa
Slide 51: Footnotes
FOOTNOTES 1. Refer to market release “Dendrobium Next Domain Update” dated 23 August 2022 (market release). The information in the market release that refers to the Production Target and forecast financial information for the Appin mine at Illawarra Metallurgical Coal is based on Proved (14%) and Pr
Slide 52: Footnotes
FOOTNOTES 30. FY23 prior Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various assumptions for FY23, including: an alumina price of US$364/t; an average blended coal price of US$265/t for Illawarra Metallurgical Coal; a manganes
Slide 53: South32
SOUTH32