Slide 1: 2023 Full Year Financial Results Presentation
24 AUGUST 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 FULL YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) will h
Slide 2: 2023 Full Year Financial Results
For personal use only 2023 FULL YEAR FINANCIAL RESULTS 24 August 2023
Slide 3: Important Notices
IMPORTANT NOTICES • This presentation should be read in conjunction with the “Financial Results and Outlook – full year ended 30 June 2023” announcement released on 24 August 2023, which is available on South32’s website (www.south32.net). • FORWARD-LOOKING STATEMENTS • This presentation contains fo
Slide 4: Important Notices: Earnings Reconciliation
IMPORTANT NOTICES • EARNINGS RECONCILIATION • The Group’s statutory profit after tax decreased by US$2,842M to a loss of US$173M in FY23, including a US$1,300M non-cash impairment of Hermosa’s Taylor deposit. Underlying earnings decreased by US$1,686M to US$916M in FY23 due to lower commodity prices
Slide 5: Working Safely
WORKING SAFELY We are working to improve our safety performance through our ‘safety guarantee’(a) For personal use only 2 • Tragically, in November 2022, two of our colleagues were fatally injured Fatalities5,6 FY22: 1 while undertaking maintenance work at Mozal Aluminium FY21: 1 • An investigation
Slide 6: FY23 Overview
FY23 OVERVIEW We delivered strong production growth and continued to reshape our portfolio for a low-carbon future For personal use only Record production at three operations 15% production growth in aluminium and base metals10 Record US$1.2B returned to shareholders(a) Invested US$256M at our Hermo
Slide 7: FY23 Financial Scorecard
FY23 FINANCIAL SCORECARD Portfolio improvements in copper and low-carbon aluminium11 underpinned strong volume growth and one of our largest underlying financial results, while we invested to unlock future volumes and delivered record returns to shareholders For personal use only Profit/(loss) after
Slide 8: Our Strategy
OUR STRATEGY Our purpose is underpinned by a simple strategy For personal use only UNLOCK OPTIMISE the full value of our business IDENTIFY through our people, our business by working innovation, projects and and pursue opportunities to safely, minimising our impact, technology sustainably reshape ou
Slide 9: Our Portfolio
OUR PORTFOLIO We have an attractive commodity mix and high-quality growth options in commodities critical for a low-carbon future For personal use only Near-term production growth in Final investment decisions (FID) for our zinc 25+ greenfield exploration copper and low-carbon aluminium and copper g
Slide 10: Delivering on Our Strategy
DELIVERING ON OUR STRATEGY We are reshaping our portfolio to focus on commodities critical for a low-carbon future For personal use only Underlying revenue by commodity(a) Doubled our low-carbon aluminium capacity South32 at demerger14 FY23 18% 32% Added Sierra Gorda copper to our portfolio 33% 11%
Slide 11: Our Growth Pipeline
OUR GROWTH PIPELINE Progressing a high-quality pipeline with the potential to underpin a significant growth profile For personal use only Copper equivalent production15 Final investment decisions Projects in further study phases and exploration expected in FY24 Hermosa Sierra Gorda Hermosa Ambler Me
Slide 12: Sustainability Performance
For personal use only SUSTAINABILITY PERFORMANCE
Slide 13: FY23 Sustainability Performance
FY23 SUSTAINABILITY PERFORMANCE Our sustainability approach focuses on areas material to our business and stakeholders For personal use only Protecting and respecting • Progressed our Safety Improvement Program to enhance our safety culture and performance our people • Continued to embed our Inclusi
Slide 14: Inclusion and Diversity
INCLUSION AND DIVERSITY Building an inclusive and diverse workforce to unlock the full potential of our people For personal use only 44.4% Women on our Board FY22: 37.5% FY21: 37.5% 20.2% Total employees who are women19 FY22: 19.2% FY21: 18.4% 50.0% Women on our Lead Team FY22: 37.5% FY21: 44.4% 30.
Slide 15: Addressing Climate Change
ADDRESSING CLIMATE CHANGE Progressing initiatives in support of our target23 to reduce operational GHG emissions 50% by 2035 and our goal18 of net zero GHG emissions by 2050 For personal use only FY23 Highlights Reshaping Decarbonising • Commenced converting the first of Worsley Alumina’s coal-fired
Slide 16: Financial Results
For personal use only FINANCIAL RESULTS
Slide 17: Performance Analysis
PERFORMANCE ANALYSIS Group operating margins remained above historical levels as our recent portfolio improvements underpinned strong growth in copper and low-carbon aluminium For personal use only FY23 Underlying EBITDA contribution by commodity(a)(b)(c) Aluminium & alumina Copper Zinc-lead-silver
Slide 18: Earnings Analysis
EARNINGS ANALYSIS Our margin accretive portfolio improvements added to our result, as we navigated lower commodity prices and uncontrollable cost inflation For personal use only (US$M) Improvement in profitability from portfolio changes 142 9 1,781 (38) 3,967 Sierra Gorda Other²⁵ 25 Brazil Aluminium
Slide 19: Cost Analysis
COST ANALYSIS Raw material input inflation in our aluminium value chain, industry-wide cost pressures and our margin accretive portfolio improvements added to our cost base For personal use only Increase in market traded consumables Cost base increase from portfolio improvements Combined Underlying
Slide 20: Market Traded Consumables and Price-Linked Costs
MARKET TRADED CONSUMABLES AND PRICE-LINKED COSTS Significant raw material input and energy inflation in FY23, while aluminium value chain inputs have started to moderate For personal use only YoY increase of US$174M in market traded consumables and price-linked costs32 FY23 total expenditure32,33 (U
Slide 21: Cash Flow and Balance Sheet
CASH FLOW AND BALANCE SHEET We delivered record shareholder returns and invested to unlock future volumes For personal use only FY23 free cash flow included the impact of: • A build in inventories (US$126M) including the Brazil Aluminium restart and temporary impacts at Mozal Aluminium • Elevated ta
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 For personal use only Capital management framework Capital allocation since FY16 Shareho
Slide 23: Our Shareholder Returns
OUR SHAREHOLDER RETURNS Our program has returned US$2.2B 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$133M 15% since inception to be returned by March 2024
Slide 24: Business Outlook
For personal use only BUSINESS OUTLOOK
Slide 25: Production Guidance
PRODUCTION GUIDANCE Portfolio improvements and current productivity projects are expected to deliver further volume growth in aluminium and base metals For personal use only Alumina (kt) Nickel (kt) Worsley Alumina expected to 5,400 5,420 41.7 40.8 40.5 Ore Sorting and Mechanical Ore 5,288 5,101 del
Slide 26: Operating Unit Costs Guidance
OPERATING UNIT COSTS GUIDANCE Higher volumes across the majority of our operations to partly offset industry-wide inflation, while raw material input prices in the aluminium value chain have started to moderate For personal use only H2 FY23 FY24 FY24 guidance vs. FY23 actual Operating unit costs FY2
Slide 27: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE We continue to prioritise safe and reliable operations and invest to improve productivity and grow volumes For personal use only FY24e Safe and reliable(a) FY24e Improvement and life extension(a) H1 FY24e Growth(b) (US$M) (US$M) (US$M) US$880M US$150M US$170M Aluminium v
Slide 28: Our Future Growth Through Development and Discovery
OUR FUTURE GROWTH THROUGH DEVELOPMENT AND DISCOVERY Our next phase of growth is expected to come from We are investing to discover our next generation of base metals our high-quality development options in the Americas mines with over 25 exploration prospects in targeted regions For personal use onl
Slide 29: Sierra Gorda Copper
SIERRA GORDA COPPER The acquisition of Sierra Gorda has improved our portfolio and embedded options for future copper growth For personal use only Sierra Gorda Mineral Resource (looking south-southwest) Near-term production growth • The capital efficient plant de-bottlenecking project is on-track to
Slide 30: Hermosa Project
HERMOSA PROJECT Potential to produce commodities critical for a low-carbon future across multiple decades For personal use only Taylor zinc-lead-silver Clark battery-grade manganese Regional resource development option development option growth potential An attractive, long-life base metals A second
Slide 31: Hermosa Project – Taylor Deposit
HERMOSA PROJECT – TAYLOR DEPOSIT Progressing study and development work to support a planned final investment decision in H1 FY24 For personal use only Taylor feasibility study on-track for H1 FY24 • Optimising the mine development schedule for FAST-41 permitting • Evaluating the opportunity for an
Slide 32: Hermosa Project – Clark Deposit
HERMOSA PROJECT – CLARK DEPOSIT Ideally positioned to provide localised supply of battery-grade manganese for the rapidly forming North American electric vehicle supply chain For personal use only Only advanced project in the US with a clear pathway to produce De-risking the path to potential produc
Slide 33: Hermosa Project – Regional Exploration Potential
HERMOSA PROJECT – REGIONAL EXPLORATION POTENTIAL Continuing to drill Peake following high-grade copper results, and a first drill program planned at Flux in FY24 For personal use only We have identified 15+ exploration targets Recent Peake drilling returned our best copper results to in a high prior
Slide 34: Summary
For personal use only SUMMARY
Slide 35: Summary
SUMMARY We continue to execute our strategy and our portfolio is leveraged to the increasing commodity demand required for the global energy transition For personal use only Delivering near-term volume growth in copper and low-carbon aluminium Unlocking value from our pipeline of high-quality growth
Slide 36: Markets Outlook
For personal use only MARKETS OUTLOOK
Slide 37: Aluminium Market
ALUMINIUM MARKET European smelter shuts and Low inventories and potential Long-term outlook underpinned Chinese supply disruptions restocking expected to provide by global energy transition and have curtailed global supply near-term price support Chinese capacity cap For personal use only Aluminium
Slide 38: Alumina Market
ALUMINA MARKET Higher bauxite costs are challenging margins at less efficient Inducement cost projects expected to be built outside of China due refineries, with ~50% of global supply SLIDE currently loss-making to declining bauxite self-sufficiency and environmental policy For personal use only 37
Slide 39: Copper Market
COPPER MARKET Long-term demand outlook is supported Inventories are at multi-year lows, 2040e supply/demand gap equivalent by renewable energy additions and rising providing price support to ~1Mt of new supply each year electric vehicle penetration For personal use only China’s copper price and inve
Slide 40: Zinc Market
ZINC MARKET A critical metal needed to make China’s supply is constrained by Strong long term demand fundamentals infrastructure climate-resilient and falling grades and stronger and limited global supply options expected support rapid deployment of renewables environmental regulations to underpin h
Slide 41: Manganese Ore Market
MANGANESE ORE MARKET Near-term price movements to be Long-term price expected to be set Disruption to high grade availability driven by pace of Chinese steel by marginal South African supply supported prices at beginning of CY23 demand recovery transitioning underground over time For personal use on
Slide 42: Battery-Grade Manganese Market
BATTERY-GRADE MANGANESE MARKET Committed government policies We expect manganese-rich battery Manganese-rich cathodes provide are expected to underpin a near chemistries to capture ~30% of the substantial cost, performance and six-fold increase in North American market by 2030, and >50% by 2040 sust
Slide 43: Hard Coking Coal Market
HARD COKING COAL MARKET Seasonal India restocking and potential Easing supply constraints post La-Nina and Growing demand and tighter supply of Australian supply constraints due to rail weaker than expected recovery in Chinese premium HCC(a) to provide long term price logistics bottlenecks expected
Slide 44: Supplementary Information
For personal use only SUPPLEMENTARY INFORMATION
Slide 45: Earnings Sensitivities
EARNINGS SENSITIVITIES EBIT sensitivities +/- 10% Annualised estimated impact on FY24e Underlying EBIT of a 10% change in commodity prices or currency(a) US$M For personal use only Aluminium(b) 304 Alumina(b) 190 Metallurgical coal(c) 132 Manganese ore 96 Copper 69 Nickel 61 Silver 26 Lead 21 Zinc 1
Slide 46: Aluminium Smelter Cost Breakdown
ALUMINIUM SMELTER COST BREAKDOWN Smelter raw material input prices have started to moderate from elevated levels across the industry For personal use only • Hillside Aluminium – Operating unit costs (US$/t) • Mozal Aluminium – Operating unit costs (US$/t) • H1 FY23 • H2 FY23 • H1 FY23 • H2 FY23 17%
Slide 47: Closure & Rehabilitation Provisions
CLOSURE & REHABILITATION PROVISIONS • South32 Group Closure and rehabilitation FY23 FY22 provisions by operation For personal use only (South32 share, excluding EAIs) US$M US$M Profit and loss impact Balance sheet48 (+US$85M) (+US$60M) Worsley Alumina 924 822 9 (15) 60 91 Brazil Alumina (non-operate
Slide 48: Underlying Income Tax Expense
UNDERLYING INCOME TAX EXPENSE FY23 FY22 Underlying income tax expense reconciliation and Underlying effective tax rate US$M US$M Underlying EBIT 1,616 3,967 For personal use only Include: Underlying net finance costs (188) (155) Remove: Share of (profit)/loss of EAI (11) 2 Underlying profit before t
Slide 49: Underlying Net Finance Costs
UNDERLYING NET FINANCE COSTS FY23 FY22 Underlying net finance costs reconciliation US$M US$M Unwind of discount applied to closure and rehabilitation provisions (113) (83) For personal use only Interest on lease liabilities (56) (54) Interest on senior unsecured notes (31) (7) Change in discount rat
Slide 50: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE FY23 FY24e Capital expenditure excluding exploration and intangibles (South32 share) US$M US$M Worsley Alumina 49 85 Brazil Alumina 45 60 For personal use only Brazil Aluminium 9 10 Hillside Aluminium 16 35 Mozal Aluminium 16 20 Cannington 60 40 Cerro Matoso 33 45 Illawa
Slide 51: Footnotes
FOOTNOTES 1. Refer to market release “Hermosa Project Non-Cash Impairment” dated 24 July 2023. 2. Refer to market release “South32 unlocks up to US$200M in value from non-core royalty sale” dated 12 July 2022. The sales price included US$103M in cash payments, US$82M of Ecora Resources PLC (formerly
Slide 52: Footnotes
FOOTNOTES 29. FY22 third party product cost is US$102M for aluminium, US$17M for alumina, US$108M for coal, US$40M for manganese, US$138M for freight services and US$165M for raw materials. FY23 third party product cost is US$87M for aluminium, US$12M for alumina, US$129M for coal, US$33M for mangan
Slide 53: For personal use only
SOUTH32 AjuO asn yeuosiad Jo — A | 4
Slide 54: Annexure 1: Material Assumptions for Taylor Production Target
Annexure 1: Material assumptions to support Production Target for Taylor deposit Criteria Commentary Mineral Resource • 22% Measured, 38% Indicated, 9% Inferred Mineral Resources and 31% Exploration estimate and Target support a mine life of 29 years (Table 1 and Table 2). The Mineral Resource Explo
Slide 55: For personal use only
Criteria Commentary Metallurgical • The Taylor processing plant will consist of well-established processing techniques. factors or Primary crushing will be conducted underground, and crushed ore will be hoisted to the assumptions surface. Grinding will be conducted by an AG mill, secondary mill and
Slide 56: For personal use only
Criteria Commentary Costs • The capital cost estimate is supported by sufficient engineering scope and definition for preparation of a AACE International Class 4 estimate. • The operating cost estimate was developed in accordance with industry standards and South32 project requirements. o Mining cos
Slide 57: Competent Person Statements
Competent Person statements Mineral Resource estimate: The information in this presentation that relates to the Mineral Resource estimate for the Taylor deposit is extracted from South32’s announcement “Hermosa Project – Mineral Resource Estimate Update and Exploration Results” published on 24 July
Slide 58: Annexure 2: Material Assumptions for Clark Production Target
Annexure 2: Material Assumptions to support Production Target for Clark deposit Criteria Commentary Mineral Resource • 69% Indicated and 31% Inferred Mineral Resources support a mine life of 70 years estimate as a (Table 3). The Mineral Resource estimate was declared as part of South32’s Annual basi
Slide 59: For personal use only
Criteria Commentary Metallurgical • Metallurgical test work has been conducted using samples covering the ore factors or body vertically and horizontally. All metallurgical test work and the process assumptions design have been reviewed by independent consultants. • Manganese is found to commonly oc
Slide 60: For personal use only
Criteria Commentary Costs • The capital cost estimate is supported by sufficient engineering scope and definition for preparation of a AACE International Class 5 estimate within an accuracy range of +/- 35%. • The operating cost estimate was developed in accordance with industry standards and South3
Slide 61: Competent Person Statement
Competent Person statement Mineral Resource estimate: The information in this presentation that relates to the Mineral Resource estimate for the Clark deposit is extracted from South32's FY22 Annual Report (www.south32.net) published on 9 September 2022. The information was prepared by a Competent P