South32 Ltd. · ASX:S32
South32 — H1 FY20 Earnings Presentation
42 slides from South32's earnings presentation, Feb 13, 2020
Slide 1: 2020 Half Year Financial Results Presentation
13 February 2020 South32 Limited For personal use only (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 2020 HALF YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR:
Slide 2: 2020 Half Year Financial Results
For personal use only 2020 Half Year Financial Results 13 February 2020
Slide 3: Important notices
Important notices • This presentation should be read in conjunction with the “Financial Results and Outlook – half year ended 31 December 2019” announcement released on 13 February 2020, which is available on South32’s website (www.south32.net). For personal use only Figures in italics indicate that
Slide 4: H1 FY20 overview
For personal use only H1 FY20 overview Underlying EBITDA Free cash flow(a) US$300M returned US$678M US$284M to shareholders(b) Underlying earnings Net cash balance Fully franked interim dividend US$54M Fully franked special dividend US$54M US$131M US$277M On-market share buy-back US$192M Capital man
Slide 5: Safety performance
For personal use only Safety performance Fatalities1,3 1 0 0 FY18 FY19 H1 FY20² 5.1 4.5 3.9 1,3 TRIF FY18 FY19 H1 FY20² 2.8 Employee 2.0 1.6 Occupational Illness1,3 FY18 FY19 H1 FY20² SLIDE 4
Slide 6: Workforce inclusion and diversity
Workforce inclusion and diversity Black People4 in our Women in our For personal use only South African management team workforce 18% 19% 57% 17% 49% 45% Continuing Continuing improvement improvement FY18 FY19 H1 FY20² FY20 Target FY18 FY19 H1 FY20² FY20 Target Women in leadership Board South32 Lead
Slide 7: Sustainability performance and reporting
Sustainability performance and reporting We are on-track to meet our short term emissions reduction target 22.8 23.5 For personal use only 11.9 Reporting framework and commitments Key milestones GHG emissions3,7 (Mt CO2-e) 2015 2016 • Joined International Council on Mining & Metals • Set FY21 carbon
Slide 8: Performance and Guidance
For personal use only Performance and Guidance
Slide 9: H1 FY20 performance update
H1 FY20 performance update Lower prices for our key commodities more than offset weaker producer currencies and the benefit of our strong operating result For personal use only H1 FY20 Underlying EBITDA contribution by commodity(a)(b) Metallurgical coal operating margin(b) 51% Priorities 45% Alumini
Slide 10: Earnings analysis
Earnings analysis Sales price by commodity Sales volume by operation Increase in controllable costs largely attributable to higher sales volumes, partially offset by initiatives for energy and materials usage Nickel 72 For personal use only Illawarra Metallurgical Coal 62 12 16 16 Lead, zinc & silve
Slide 11: Costs analysis
Costs analysis Lower foreign exchange on costs Price-linked costs HoH impact H1 FY20 Contribution For personal use only 13 (4) 1 (12) 13% (1) 25% (9) 10% (32) (39) (35) 16% (51) 26% Australian South African Colombian Other Caustic LME linked Smelter raw Bauxite Power and Other11 10% dollar rand peso
Slide 12: Production performance and guidance
Production performance and guidance Production tracking on or ahead of plan for the majority of our operations For personal use only FY20e production (South32’s share) Operation Unit Guidance Key FY20 guidance assumptions Worsley Alumina FY20e FY21e Guidance unchanged 1,933 2,032 kt 3,965 3,965 Impr
Slide 13: Production performance and guidance
Production performance and guidance FY20e production (South32’s share) For personal use only Operation Unit Guidance Key FY20 guidance assumptions Illawarra Metallurgical Coal FY20e FY21e Metallurgical coal 2,859 2,941 kt 5,800 6,800 • Guidance unchanged • Continued improvement in longwall performan
Slide 14: Operating unit costs performance and guidance
Operating unit costs performance and guidance Broad appreciation of the US dollar and a strong operating performance has supported sequentially lower costs and reduced guidance For personal use only Worsley Alumina (US$/t) Brazil Alumina (non-operated) (US$/t) 242 -7% 291 233 230 -5% Higher volumes
Slide 15: Operating unit costs performance and guidance
For personal use only Operating unit costs performance and guidance Cerro Matoso (US$/lb) Cannington (US$/t) 4.05 125 -3% 4.00 -3% Strong operating 3.92 -3% 120 121 Mill throughput tracking performance, realisation 119 -3% 3.88 ahead of plan in of benefits from our 3.80 115 H1 FY20 combined with ene
Slide 16: Cash flow analysis
Cash flow analysis Our committed shareholder returns and investment in the Ambler Metals JV will be funded from cash on hand For personal use only Capital expenditure Shareholder returns Commitments (US$M) (US$393M) (US$331M) Ambler Metals JV(a) 73 Interim ordinary dividend 54 160 238 Special divide
Slide 17: Capital allocation
For personal use only Capital allocation Its application has been We have balanced returns to shareholders Our framework remains unchanged disciplined and consistent with investment in our business Capital management framework Shareholder returns (paid and committed) Capital allocation (US$M) (Capit
Slide 18: Capital expenditure analysis
Capital expenditure analysis Successful divestment of South Africa Energy Coal will meaningfully reduce the Group’s capital intensity For personal use only Sustaining capital expenditure Major capital expenditure South Africa Energy Coal capital expenditure (excluding South Africa Energy Coal) (excl
Slide 19: Capital management program
Capital management program Program expanded by Average buy-back price Shares on issue reduced by For personal use only US$180M to US$1.43B Flexible program to A$3.03 per share return excess capital efficiently 8% since commencement US$198M remaining after payment and in a timely manner in April 2017
Slide 20: Portfolio and Market Outlook
For personal use only Portfolio and Market Outlook
Slide 21: Our portfolio
Our portfolio Large producer of manganese ore Base metals development and For personal use only and alumina exploration options Ambler Metals Conditional agreement to divest South African Energy Coal US$76M allocated to exploration across our portfolio in FY2019 Manganese alloy smelters under review
Slide 22: Our priorities
For personal use only Our priorities Sustainably improve our Respond decisively to Exit low returning operating performance market conditions businesses Continue to embed high quality Maintain capital discipline and Return excess cash options with a bias to base metals invest in high returning proje
Slide 23: Our development options
Our development options Ambler Metals JV (50%) For personal use only Alaska, USA Embedding high quality Favourable commodities in Arctic Copper, zinc, lead, silver, gold growth options lower risk jurisdictions Arctic Deposit pre-feasibility study (PFS) to commence in Q3 FY20 Bornite Deposit offers r
Slide 24: Eagle Downs Metallurgical Coal project
For personal use only Eagle Downs Metallurgical Coal project Eagle Downs location map 50% interest and operating control in a fully Development studies underway permitted, partially developed mine FY20 capital expenditure guidance Final investment decision of US$11M expected in H1 FY21 (South32 shar
Slide 25: Hermosa project
Hermosa project Initial JORC Resource for the Taylor Deposit Mineral Resource (100% basis)(a) For personal use only Taylor Deposit has de-risked Deposit remains open Net Smelter Return (NSR) cut-off US$90/t and increased our at depth and laterally Total Mineral Resources confidence in the project Or
Slide 26: Hermosa project
Hermosa project Hermosa land package Capital expenditure For personal use only Taylor Deposit, Clark Deposit and regional landholdings Voluntary remediation directed to establishing program completed surface infrastructure Regional landholdings increased by 30% since acquisition Hermosa Tailings Sto
Slide 27: Ambler Metals JV
Ambler Metals JV Regional scale in an Arctic, a high grade VMS Bornite, a large carbonate hosted Identified prospects and For personal use only • attractive mining jurisdiction development option copper deposit VMS clusters Ambler Metals JV location map High grade development option in northwest Ala
Slide 28: Ambler Metals JV
Ambler Metals JV Initial JORC Resource estimates Further resource definition drilling at For personal use only Bornite open at depth and laterally declared by South32 Arctic to support development studies Arctic Deposit Mineral Resource Estimate (100% basis)(a)(b) Bornite Deposit Mineral Resource Es
Slide 29: Our exploration footprint
For personal use only Our exploration footprint Pipeline of greenfield base metal Strategy to identify, advance and options established cycle options New partnerships established in Greenfield exploration guidance Argentina and Ireland in past 6 months US$30M Arctic advanced to a development US$10M
Slide 30: Manganese market
Manganese market Long term price to be set Environmental restrictions and Weaker steel and alloy demand Higher cost producers responded by marginal South African supply For personal use only • grade decline have underpinned a during H2 CY19 by exiting the market transitioning to more expensive rise
Slide 31: Alumina market
Alumina market Deteriorating Chinese bauxite supply Market rebalanced post Alunorte Chinese supply to drive market balance with For personal use only and increasing delivered costs of and Al Taweelah ramp-up imported alumina remaining cost competitive imports to steepen cost curve Alumina price Chin
Slide 32: Metallurgical coal market
Metallurgical coal market Demand growth driven mainly by Spreads are widening again due to Chinese For personal use only Long run growth driven by India increase in Chinese steel output preference for imported premium HCC and other emerging Asian economies (+76Mt or 8.3% YoY in CY19) and weak ex-Chi
Slide 33: H1 FY20 summary
For personal use only H1 FY20 summary Underlying EBITDA Free cash flow(a) US$300M returned US$678M US$284M to shareholders(b) Underlying earnings Net cash balance Fully franked interim dividend US$54M Fully franked special dividend US$54M US$131M US$277M On-market share buy-back US$192M Capital mana
Slide 34: Supplementary Information
For personal use only Supplementary Information
Slide 35: Operating unit costs
Operating unit costs H1 FY20 actual vs. H1 FY20 FY20 prior Performance to guidance Operating unit costs H1 FY19 H2 FY19 H1 FY20 FY20 prior guidance adjusted20 guidance21 commentary For personal use only (10%) (5%) 0% 5% 10% Worsley Alumina Lower caustic prices and consumption rates, combined with 23
Slide 36: Operating unit cost guidance
Operating unit cost guidance FY20 FY20 new guidance vs. H1 FY20 FY20 prior FY20 new Operating unit costs adjusted FY20 prior guidance Commentary actual guidance21 guidance24 guidance20 (10%) (5%) 0% 5% 10% For personal use only Worsley Alumina 225 230 220 219 Lower caustic prices and a weaker Austra
Slide 37: Closure provisions
For personal use only Closure provisions Closure and rehabilitation H1 FY20 FY19 Profit and loss impact Balance provisions by operation (+US$59M) sheet26 (South32 share) US$M US$M (+US$33M) 54 1 4 33 South Africa Energy Coal 824 756 Americas Americas Worsley Alumina 413 408 Hillside Aluminium 211 20
Slide 38: Earning sensitivities
For personal use only Earning sensitivities EBIT impact +/- 10% Estimated impact on FY20e Underlying EBIT of a 10% change in commodity prices or currency(a) US$M Aluminium(b) 174 Alumina(b) 166 Manganese ore(c) 85 Metallurgical coal 84 Energy coal 65 Nickel 46 Manganese alloy(c) 19 Silver 19 Lead 19
Slide 39: Mineral Resources for the Arctic Deposit
Mineral Resources for the Arctic Deposit Arctic Deposit Mineral Resource Estimate as at 31 January 2020 (100% basis) For personal use only Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources Mt % Cu % Zn % Pb g/t Ag g/t Au Mt % Cu % Zn % Pb g/t Ag g/t Au Mt % Cu % Zn % Pb
Slide 40: Mineral Resources for the Bornite Deposit
Mineral Resources for the Bornite Deposit Bornite Deposit Mineral Resources at 31 January 2020 (100% basis) For personal use only Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources Mt % Cu Mt % Cu Mt % Cu Open pit 40 1.06 38 1.03 78 1.04 Underground - - 70 2.29 70 2.29 No
Slide 41: Footnotes
Footnotes 1. Fatalities, Total Recordable Injury Frequency (TRIF) per million hours worked and Employee Occupational Illness (EOI) per million hours worked, are all calculated in accordance with the United States Government Occupational Safety and Health Assessment (OSHA) guidelines for the recordin
Slide 42: For personal use only
For personal use only