South32 Ltd. · ASX:S32
South32 — H1 FY24 Earnings Presentation
63 slides from South32's earnings presentation, Feb 15, 2024
Slide 1: 2024 Half Year Financial Results Presentation
15 FEBRUARY 2024 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 2024 HALF YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) will
Slide 2: 2024 Half Year Financial Results
For personal use only 2024 HALF YEAR FINANCIAL RESULTS 15 February 2024
Slide 3: Important Notices
IMPORTANT NOTICES This presentation should be read in conjunction with the “Financial Results and Outlook – half year ended 31 December 2023” announcement released on 15 February 2024, which is available on South32’s website (www.south32.net). FORWARD-LOOKING STATEMENTS This presentation contains fo
Slide 4: Important Notices
IMPORTANT NOTICES The Group’s statutory profit after tax decreased by US$632M to US$53M in H1 FY24, as record Group aluminium production and lower raw material input prices, were more than offset by lower commodity prices and metallurgical coal volumes as we completed two planned longwall moves at I
Slide 5: Working Safely
WORKING SAFELY We are working to improve our safety performance through our ‘safety guarantee’(a) For personal use only H1 FY24: 0 1,2 Fatalities FY23: 2 FY22: 1 • We continue to implement our Safety Improvement Program, a multi-year global program, which was launched in FY22 H1 FY24: 2.0 Lost time
Slide 6: H1 FY24 Overview
H1 FY24 OVERVIEW For personal use only Profit after tax Underlying EBITDA US$53M US$708M Operating unit costs in line with or below prior guidance for Underlying earnings Operating margin5 the majority of our operations US$40M 19.0% US$180M returned Free cash flow6 to shareholders(a) Hermosa's Taylo
Slide 7: Performance Summary and Outlook
PERFORMANCE SUMMARY AND OUTLOOK We are in a strong position to capture higher margins and unlock value in our growth pipeline For personal use only 7% production uplift FY24 Operating unit cost guidance(a) lowered or expected in H2 FY248 maintained across the majority of our operations We continue t
Slide 8: Strategy & Portfolio
For personal use only STRATEGY & PORTFOLIO
Slide 9: 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 10: Our Portfolio
OUR PORTFOLIO An attractive commodity mix and growth pipeline in commodities critical for a low-carbon future For personal use only Investing to discover our next Embedded near term growth Unlocking value from our high-quality generation of base metal mines in copper and low-carbon aluminium9 develo
Slide 11: Our Growth Pipeline
OUR GROWTH PIPELINE We are unlocking significant value from our growth pipeline in commodities critical for a low-carbon future For personal use only Copper equivalent production10 Projects in further study phases and exploration (a) ~10% Hermosa Hermosa Sierra Gorda Cerro Matoso Ambler Metals Chita
Slide 12: Delivering on Our Strategy
DELIVERING ON OUR STRATEGY Final investment approval for Taylor is the next step in our portfolio transformation towards critical commodities For personal use only Underlying revenue by commodity(a) South32 at demerger11 Illustrative Group12 Divested low returning, capital intensive businesses 11% D
Slide 13: Taylor Investment Highlights
TAYLOR INVESTMENT HIGHLIGHTS Taylor is expected to strengthen our portfolio, deliver attractive returns and underpin additional growth at Hermosa For personal use only Increased exposure to With global zinc demand growth expected to outpace production by ~3Mt to 2031, we expect higher 1 attractive z
Slide 14: Increased Exposure to Attractive Zinc Markets
1 INCREASED EXPOSURE TO ATTRACTIVE ZINC MARKETS Zinc is a critical metal needed to support the global energy transition For personal use only Zinc primary demand(a) (kt Zn) Strong demand in transport, consumer and industrial sectors with rising intensity of use +35% Zinc coatings are critical in pro
Slide 15: Increased Exposure to Attractive Zinc Markets
1 INCREASED EXPOSURE TO ATTRACTIVE ZINC MARKETS Zinc supply is declining due to falling ore grades, a lack of new discoveries and lower Chinese supply For personal use only Production grades have almost halved since the early 2000s and China's supply is constrained by rising Taylor has been the only
Slide 16: Increased Exposure to Attractive Zinc Markets
1 INCREASED EXPOSURE TO ATTRACTIVE ZINC MARKETS Global demand growth expected to outpace production by ~3Mt to 2031, an industry challenge similar in magnitude to copper For personal use only Total mine production capability versus zinc demand(a) (kt Zn) The equivalent of three Taylor-sized projects
Slide 17: A Long-Life Operation Producing Critical Metals
2 A LONG-LIFE OPERATION PRODUCING CRITICAL METALS Taylor is expected to be one of the world's largest, lowest cost zinc producers For personal use only Payable annual average ZnEq production ktpa ~290kt ZnEq Highly efficient underground mine and conventional ~253kt ZnEq process plant with nameplate
Slide 18: A Low-Cost Operation in the Industry's First Quartile
3 A LOW-COST OPERATION IN THE INDUSTRY'S FIRST QUARTILE Taylor is expected to sustainably increase Group margins due to its first quartile cost position For personal use only Zinc total cash and sustaining costs curve CY30 (USc/lb, real 1 January 2024, net of credits) A low-cost operation in the ind
Slide 19: Expected to Deliver Attractive Returns for Decades to Come
4 EXPECTED TO DELIVER ATTRACTIVE RETURNS FOR DECADES TO COME Taylor's feasibility study has confirmed the potential for attractive returns from Hermosa's first development stage For personal use only Feasibility study highlights Annual average production ~290kt ZnEq in the steady state years Initial
Slide 20: Unlocks Hermosa's Regional Scale Potential
5 UNLOCKS HERMOSA'S REGIONAL SCALE POTENTIAL Infrastructure established at Taylor will unlock value for potential development stages at Hermosa For personal use only Hermosa land package Taylor zinc-lead-silver deposit Development approved with first production expected H2 FY27(a) Clark battery-grad
Slide 21: Financial Results
For personal use only FINANCIAL RESULTS
Slide 22: Performance Analysis
PERFORMANCE ANALYSIS Commodity price headwinds in H1 FY24 translated to lower margins, while controllable costs were well managed despite inflationary pressures For personal use only H1 FY24 Underlying EBITDA contribution by commodity(a)(b)(c) Aluminium & alumina Copper Zinc-lead-silver operating ma
Slide 23: Earnings Analysis
EARNINGS ANALYSIS Lower commodity prices, and a reduction in metallurgical coal volumes due to planned longwall moves, more than offset the benefit of our disciplined cost management and lower raw material input prices For personal use only Sales price by commodity (US$M) Sales volume by operation (
Slide 24: Cost Analysis
COST ANALYSIS We held controllable cost increases to ~4% of the Group's cost base26 despite broad inflationary pressures, while raw material input prices declined from elevated levels in the prior period For personal use only Decrease in market traded consumables and price-linked costs (US$M) H1 FY2
Slide 25: Cash Flow Analysis
CASH FLOW ANALYSIS Cash generation reflected temporary working capital impacts and our investments to unlock future volumes, while we returned US$180M to shareholders in the period For personal use only Free cash flow from operations, including EAI distributions, reflected: • A build in working capi
Slide 26: Balance Sheet
BALANCE SHEET We continue to prioritise a strong balance sheet and investment grade credit rating through all cycles For personal use only December 2023 net cash/(debt) • Finished the period with net debt of US$1.1B following our investment in projects to (US$M) grow future volumes, a temporary buil
Slide 27: Capital Management Framework
CAPITAL MANAGEMENT FRAMEWORK Our unchanged capital management framework supports investment in our business and is designed to reward shareholders as our financial performance improves For personal use only Capital management framework Capital allocation since FY16(a) Shareholder returns(b) (US$M) (
Slide 28: Our Shareholder Returns
OUR SHAREHOLDER RETURNS We will continue to assess the most Our flexible capital management Our on-market share buy-back has efficient and value accretive manner to program has been active since FY17 reduced shares on issue by 15% return excess capital to shareholders For personal use only Cumulativ
Slide 29: Outlook
For personal use only OUTLOOK
Slide 30: Production Guidance
PRODUCTION GUIDANCE Our expected 7% production uplift in H2 FY248 and focus on driving operating performance places us in a strong position to capture higher margins as market conditions improve For personal use only Alumina (kt) Nickel (kt) Worsley Alumina expected to deliver at nameplate capacity
Slide 31: Operating Unit Costs Performance and Guidance
OPERATING UNIT COSTS PERFORMANCE AND GUIDANCE FY24 Operating unit cost guidance has been lowered or maintained across the majority of our operations(a) For personal use only Worsley Alumina (US$/t)39,40 Brazil Alumina (non-operated) (US$/t) 288 294 290 270 364 372 258 FY24e guidance lowered by 7%, 3
Slide 32: Operating Unit Costs Performance and Guidance
OPERATING UNIT COSTS PERFORMANCE AND GUIDANCE FY24 Operating unit cost guidance has been lowered or maintained across the majority of our operations(a) For personal use only Sierra Gorda (non-operated) (US$/t)39,40,41 Cannington (US$/t)39,40,41 18.8 172 16.6 16.0 17.0 150 155 155 14.1 FY24e guidance
Slide 33: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE FY24 Group safe and reliable and improvement and life extension capital expenditure guidance(a) revised down by US$60M (or 6%), through capital efficiencies and deferral of certain non-critical projects For personal use only Capital expenditure(a) (US$M) Growth capital (
Slide 34: Aluminium Market
ALUMINIUM MARKET With China’s smelting capacity expected Improving global demand combined Attractive long-term price outlook to be capped at 45Mt, the rest of the with low inventories expected to supported by global energy transition and world is required to invest in new support prices in CY24 high
Slide 35: Alumina Market
ALUMINA MARKET Chinese bauxite supply challenges Further refinery curtailments could Future builds are expected from outside of and ex-China refinery curtailments add to the market deficit in H2 CY24, with China due to declining Chinese bauxite have tightened the market ~25% of global supply loss-ma
Slide 36: Copper Market
COPPER MARKET Global mine supply disruptions Strong long-term demand supported Projected demand and supply gap by (~4% of the concentrate market) and by renewable energy additions and 2040e equivalent to requiring an additional low inventories to support price rising electric vehicle penetration ~1M
Slide 37: Manganese Ore Market
MANGANESE ORE MARKET Price-led mine supply response and Long-term price expected to be set by Rising electric vehicle penetration and drawdown of port stocks, expected to marginal South African supply adoption of Mn-rich battery chemistries support the market in the near-term transitioning undergrou
Slide 38: Metallurgical Coal Market
METALLURGICAL COAL MARKET Steel output growth in India and South-east Ability of supply to meet rising Asian Recent price increase driven by tight Asia, and potential Australian supply demand for premium HCC will continue to be Australian supply, Chinese domestic supply disruptions due to logistics
Slide 39: Summary
For personal use only SUMMARY
Slide 40: Summary
SUMMARY We continue to execute our strategy and our portfolio is well positioned to capitalise on the increasing demand for commodities required for the global energy transition For personal use only We remain focused on driving operating performance and cost efficiencies across our business Product
Slide 41: Hermosa Project
For personal use only HERMOSA PROJECT
Slide 42: Taylor Feasibility Study Summary
TAYLOR FEASIBILITY STUDY SUMMARY Taylor's feasibility study has confirmed the potential for a large scale, long-life, low-cost operation For personal use only Operating assumptions Taylor site map Mining method Longhole open stoping with paste backfill Process design Coventional sulphide ore flotati
Slide 43: Taylor Resource & Reserve
TAYLOR RESOURCE & RESERVE A large mineralised system that is expected to support high productivity and throughput For personal use only Taylor Deposit geology and mineralisation (looking south west) Taylor Deposit Highlights • Ore Reserve underpins first ~19 years of the mine plan(a) • Large orebody
Slide 44: Taylor Feasibility Study Mine Design
TAYLOR FEASIBILITY STUDY MINE DESIGN Mine design employs conventional methods, delivering high productivity from multiple faces For personal use only Taylor FS underground mine design Dual shaft underground mine employing proven longhole open stoping 0 Ventilation shaft Main shaft Multiple concurren
Slide 45: Taylor Process Design
TAYLOR PROCESS DESIGN Conventional sulphide ore flotation Flowsheet adheres to conventional Jameson cell technology has circuit that produces separate zinc and principles in mining, processing, been selected to enhance recoveries lead concentrates with silver credits thickening and filtration and de
Slide 46: Taylor Feasibility Study Production
TAYLOR FEASIBILITY STUDY PRODUCTION Highly productive mine and conventional processing plant, producing zinc and lead concentrates with silver credits For personal use only Ore processed (LHS) and payable ZnEq production13 (RHS) (kt) 5,000 400 First production targeted in H2 FY27(a) 4,000 300 We exp
Slide 47: Near Mine Exploration Potential
NEAR MINE EXPLORATION POTENTIAL Exploration results support the potential for further resource growth at the Peake copper prospect For personal use only Peake prospect (looking east) Peake Highlights(a) • Exploration results indicate the potential for a continuous structural and lithology-controlled
Slide 48: Critical Path Infrastructure
CRITICAL PATH INFRASTRUCTURE Critical path infrastructure development progressing to plan For personal use only Pre-sink construction of main access and ventilation shafts Critical path infrastructure highlights • Commissioned the second water treatment plant to support orebody dewatering, enabling
Slide 49: Taylor Feasibility Study Costs
TAYLOR FEASIBILITY STUDY COSTS Pre-production capital expenditure of Operating unit costs in the industry's first quartile15 ~US$2.16B(a) to deliver first production For personal use only Operating unit costs Pre-production capital expenditure • Increased by 6% to ~US$86/t ore processed, with the be
Slide 50: Taylor Timeline and Approvals
TAYLOR TIMELINE AND APPROVALS First production expected in H2 FY27 and nameplate production expected in FY30 For personal use only Taylor FS development path Commence construction Commence construction FAST-41 Commission main shaft Process plant of main access and of process plant Record of Decision
Slide 51: Hermosa Project – Clark Deposit
HERMOSA PROJECT – CLARK DEPOSIT Positioned to provide local supply of battery-grade manganese as North American electric vehicle supply chains mature For personal use only Only advanced project in the US with a clear pathway to produce De-risking the path to potential production battery-grade mangan
Slide 52: Hermosa Project – Regional Exploration Potential
HERMOSA PROJECT – REGIONAL EXPLORATION POTENTIAL Unlocking value from our highly prospective regional land package For personal use only Hermosa land package Hermosa high priority corridor Exploration highlights Prospective corridor identified using a strategic approach to data analysis, geophysics,
Slide 53: Hermosa Project – Regional Exploration Potential
HERMOSA PROJECT – REGIONAL EXPLORATION POTENTIAL Flux is located immediately downdip of a historic mining area with the potential to host Taylor-like mineralisation For personal use only Flux proximity to Taylor and Clark Flux Project Area Flux highlights Flux prospect identified as a priority prosp
Slide 54: Supplementary Information
For personal use only SUPPLEMENTARY INFORMATION
Slide 55: Earnings Sensitivities
EARNINGS SENSITIVITIES EBIT sensitivities +/- 10% Annualised estimated impact on FY24e Underlying EBIT of a 10% change in commodity prices or currency(a) US$M Aluminium(b) For personal use only 274 Alumina(b) 179 Metallurgical coal(c) 121 Manganese ore 77 Copper(d) 62 Nickel 46 Silver 28 Lead 22 Zin
Slide 56: Aluminium Smelter Cost Breakdown
ALUMINIUM SMELTER COST BREAKDOWN Smelter raw material input prices were sequentially lower For personal use only Hillside Aluminium - Operating unit costs (US$/t) Mozal Aluminium - Operating unit costs (US$/t) H2 FY23 H1 FY24 H2 FY23 H1 FY24 14% 16% 4% 22% 23% 22% 26% 4% 26% 26% 1% 3% 3% US$2,092/t
Slide 57: Closure & Rehabilitation Provisions
CLOSURE & REHABILITATION PROVISIONS Closure and rehabilitation H1 FY24 FY23 South32 Group provisions by operation (South32 share, excluding EAIs) US$M US$M Balance sheet45 For personal use only Profit and loss impact (+US$68M) (+US$86M) Worsley Alumina 985 924 86 Brazil Alumina (non-operated) 85 75
Slide 58: Underlying Income Tax Expense
UNDERLYING INCOME TAX EXPENSE H1 FY24 H1 FY23 Underlying income tax expense reconciliation and Underlying ETR US$M US$M Underlying EBIT 236 922 For personal use only Include: Underlying net finance costs (118) (88) Remove: Share of (profit)/loss of EAIs 11 (7) Underlying profit before tax 129 827 In
Slide 59: Underlying Net Finance Costs
UNDERLYING NET FINANCE COSTS H1 FY24 H1 FY23 Underlying net finance costs reconciliation US$M US$M Unwind of discount applied to closure and rehabilitation provisions (76) (51) For personal use only Interest on lease liabilities (28) (28) Interest on senior unsecured notes (16) (15) Other 2 6 Underl
Slide 60: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE H1 FY24 FY24e Capital expenditure excluding exploration and intangibles (South32 share) US$M US$M Worsley Alumina 34 70 Brazil Alumina 38 60 For personal use only Brazil Aluminium 4 10 Hillside Aluminium 24 40 Mozal Aluminium 11 20 Cannington 23 40 Cerro Matoso 21 35 Ill
Slide 61: Footnotes
FOOTNOTES 1. Metrics describing health, safety, environment, people and community related performance in this presentation apply to ‘operated operations’ which include our controlled entities and South32-operated joint arrangements. Incidents are included where South32 controls the work location or
Slide 62: Footnotes
FOOTNOTES 29. Other primarily relates to increases in rehabilitation provisions. 30. Cost base includes material EAIs and excludes Other income. H1 FY24 includes a US$56M adjustment for Other income and other accounting related adjustments to reconcile to Underlying revenue minus Underlying EBITDA (
Slide 63: South32
For personal use only SOUTH32