South32 Ltd. · ASX:S32
South32 — FY2016 Earnings Presentation
36 slides from South32's earnings presentation, Aug 25, 2016
Slide 1: FY16 Financial Results & Outlook Presentation
25 August 2016 South32 Limited (Incorporated in Australia under the Corporations Act 2001 (Cth)) (ACN 093 732 597) ASX / LSE / JSE Share Code: S32 ISIN: AU000000S320 south32.net FY16 FINANCIAL RESULTS & OUTLOOK PRESENTATION South32 Limited Chief Executive Officer, Graham Kerr and Chief Financial Off
Slide 2: 2016 Financial Results
2016 FINANCIAL RESULTS • 25 AUGUST 2016
Slide 3: Important Notices
• IMPORTANT NOTICES • THIS PRESENTATION SHOULD BE READ IN CONJUNCTION WITH THE “FINANCIAL RESULTS AND OUTLOOK – YEAR ENDED 30 JUNE 2016” ANNOUNCEMENT RELEASED ON 25 AUGUST 2016, WHICH IS AVAILABLE ON SOUTH32’S WEBSITE (WWW.SOUTH32.NET). • FINANCIAL INFORMATION • To assist shareholders in their under
Slide 4: FY16 Highlights
• FY16 HIGHLIGHTS Implemented regional model Met or exceeded Costs and capex production guidance US$692M Restructured operations Free cash flow Net cash Announced dividend US$597M US$312M US 1 cent per share 25 AUGUST 2016 SOUTH32 FY16 FINANCIAL RESULTS SLIDE 3
Slide 5: Sustainability Performance
• SUSTAINABILITY PERFORMANCE Our plan for a step change in safety performance 4 fatalities INCLUSIVE CULTURE TRIF1 7.7 (FY15: 5.8) Tools and Employee occupational illness frequency2 Workplace Equipment Processes People 1.3 (FY15: 5.5) WELL DESIGNED WORK GHG emissions3 23.5 Mt CO2-e CONTINUOUS (FY15:
Slide 6: 2016 Financial Results
2016 FINANCIAL RESULTS • BRENDAN HARRIS • CFO
Slide 7: Earnings Analysis
EARNINGS ANALYSIS (US$M) Uncontrollable (US$979M) Net finance cost and taxation expense3 1,001 1,649 356 125 64 142 93 623 141 386 138 258 188 Other² Inflation Underlying EBIT Sales price accounted investments) Price-linked costs¹ Underlying EBIT Underlying net Controllable costs Foreign exchange Un
Slide 8: Cost Analysis
• COST ANALYSIS (US$M) Uncontrollable (US$754M) 6,900 707 132 141 386 56 188 17 5,555 Royalties Other ² cost base¹ Price-linked costs FX on costs Inflation Controllable product cost cost base¹ Third party FY15 FY16 costs Notes: 1. Cost base includes Equity Accounted Investments and adjustments for O
Slide 9: Controllable Costs Analysis
CONTROLLABLE COSTS ANALYSIS FY16 Controllable Cost savings by region1 (US$M) Australia (US$158M) Africa (US$192M) 152 59 36 386 192 99 238 12 68 158 Volume Volume Cost initiatives Controllable cost Cost initiatives Controllable cost cost savings Corporate and controllable Inventory Inventory FY16 ot
Slide 10: Capital Expenditure and Cash Flow
• CAPITAL EXPENDITURE AND CASH FLOW Capital expenditure1,2 Cash flow3 (US$M) (US$M) 630 139 -40% 419 79 50 629 211 383 400 FY15 FY16 FY17e H1 FY16 H2 FY16 FY16 Group Equity Accounted Investments Group Dividends from Investments Notes: 1. Capital expenditure excludes the purchase of intangibles and c
Slide 11: Balance Sheet and Capital Management
BALANCE SHEET AND CAPITAL MANAGEMENT Net cash / (debt)1 (US$M) ROIC 312 Competition for excess capital Maximise cash flow Cash flow priorities (116) Distribute a minimum 40% of Underlying earnings as ordinary dividends (402) Maintain safe and reliable operations and an investment grade credit rating
Slide 12: Outlook
OUTLOOK • GRAHAM KERR • CEO
Slide 13: Our Strategy
• OUR STRATEGY OUR STRATEGY To invest in high quality metals and mining operations where our distinctive capabilities and regional model enable us to stretch performance in a sustainable way. By maintaining financial discipline and continually optimising our portfolio we will deliver sector leading
Slide 14: Outlook
OUTLOOK FY16 Underlying EBITDA by geography and operation Indicative production profile2 (Normalised: index 1 = FY16) Other¹ 1.00 South America 11% Brazil Alumina South Africa Manganese SA Energy Coal Cerro Matoso Southern Africa 0.80 27% Brazil Alumina SA Aluminium Mozal Aluminium Illawarra Met Coa
Slide 15: Cost Guidance
COST GUIDANCE New target Operating unit cost of production, including Sustaining capital expenditure Prior guidance New target, based on previously disclosed commodity price and foreign exchange rate assumptions3 FY17e FY17e Unit FY15 FY16 prior new guidance1 target2 % change FY17e guidance to FY16
Slide 16: Cannington
• CANNINGTON Employee and contractor headcount1 Aerial view of Cannington operation 990 820 770 FY15 FY16 FY17e Operating cost of production, including Sustaining capital expenditure2 182 Operating unit cost, including Sustaining 153 138 capital expenditure (US$/t)3 599 483 460 Operating cost, inclu
Slide 17: Cannington
CANNINGTON Payable metal production1 25,000 350 21,393 300 20,000 19,050 16,550 16,700 250 15,300 15,000 200 173 163 147 153 146 150 10,000 79 80 80 100 72 65 5,000 50 0 0 FY16 FY17e FY18e FY19e FY20e Mill throughput (Mt)2 3.1 3.3 3.4 3.3 3.3 Lead ore grade (%, Pb) 6.6 5.9 5.3 5.6 5.4 Silver ore gra
Slide 18: Cannington
CANNINGTON Visualisation of the optimised mine plan1 and conceptual open pit2 Completed our first annual planning cycle New optimised mine plan increases total metal recovered3 This plan also reduces geotechnical risk while preserving the value of future development options No investment decision ne
Slide 19: South Africa Energy Coal
SOUTH AFRICA ENERGY COAL Klipspruit production (Mt) Middelburg 7.3 7.2 7.8 eMalahleni WMC production 15.5 15.1 13.4 FY16 FY17e FY18e (Mt) Klipspruit Life Extension project - Now in Feasibility study phase FY16 FY17e FY18e - Low capital expenditure Contract type development option Klipspruit - Duvha:
Slide 20: South Africa Energy Coal
• SOUTH AFRICA ENERGY COAL Saleable coal production1 Operating cost of production, including Sustaining (Mt) capital expenditure2 (US$M) 31.7 30.9 33 29.8 27 Operating unit cost, 26 including Sustaining 1,137 capital expenditure Export production (US$/t) 888 813 Operating cost, including Sustaining
Slide 21: GEMCO: Eastern Leases and Southern Areas
GEMCO: EASTERN LEASES AND SOUTHERN AREAS Approved mining area • One of the largest and lowest cost manganese ore producers in the world Port • Eastern Leases enable us to access new areas within existing mine New exploration agreements • Southern Areas substantially increase exploration footprint in
Slide 22: Cerro Matoso: La Esmeralda
CERRO MATOSO: LA ESMERALDA Aerial view of proposed La Esmeralda development Aerial view of Cerro Matoso operation Main Pit River Crossing Payable nickel production La Esmeralda (kt) Temporary rise to +40ktpa in FY19 and FY20 36.8 36.0 35.0 La Esmeralda development • Leverages existing process infras
Slide 23: Summary
SUMMARY CANNINGTON, AUSTRALIA Costs and capex Free cash flow Net cash US$692M US$597M US$312M Maintained production Significantly reduced On track to meet guidance for majority capital intensity of future cost targets of operations development options 25 AUGUST 2016 SOUTH32 FY16 FINANCIAL RESULTS
Slide 24: Supplementary Information
SUPPLEMENTARY INFORMATION
Slide 25: FY16 Financial Performance
FY16 FINANCIAL PERFORMANCE HILLSIDE, SOUTH AFRICA Statutory loss of US$1.6B Revenue Underlying earnings US$5.8B (includes non-cash US$138M impairments of US$1.7B) Underlying EBIT Operating margin ROIC US$356M 21.5% 1.7% 25 AUGUST 2016 SOUTH32 FY16 FINANCIAL RESULTS SLIDE 24
Slide 26: Earnings Adjustments
• EARNINGS ADJUSTMENTS FY16 Earnings adjustments1 US$M Adjustments to Underlying EBIT Significant items 24 Exchange rate (gains)/losses on restatement of monetary items (43) Impairment losses 1,386 Fair value (gains)/losses on derivative instruments 60 Major corporate restructures 63 Impairment loss
Slide 27: Earnings Sensitivities
• EARNINGS SENSITIVITIES EBIT impact +/- 10% Estimated impact on FY16 Underlying EBIT of a 10% change in commodity or currency US$M Aluminium 151 Alumina 133 Metallurgical coal 55 Energy coal 75 Manganese ore1 48 Manganese alloy1 19 Nickel 29 Silver 32 Lead 29 Zinc 14 Australian Dollar 146 South Afr
Slide 28: Closure Provisions
• CLOSURE PROVISIONS Closure and rehabilitation Profit and Loss impact (-US$19M) Balance FY15 FY16 provisions by operation Sheet1 US$M US$M (South32 share) (-US$31M) 96 9 56 68 South Africa Energy Coal 746 616 31 South South Africa Aluminium 237 164 America South America Worsley Alumina 168 278 Aust
Slide 29: Capital Expenditure Guidance
• CAPITAL EXPENDITURE GUIDANCE FY17e Capital expenditure (South32 share) FY15 FY16 (Guidance) US$M US$M US$M1 Major projects2 51 32 35 All other capital expenditure (including Deferred stripping) 578 351 365 Capital expenditure (excluding equity accounted investments) 629 383 400 Equity accounted in
Slide 30: Worsley Alumina and Illawarra Metallurgical Coal
• WORSLEY ALUMINA AND ILLAWARRA METALLURGICAL COAL Worsley Alumina: production and costs Illawarra Met Coal: production and costs Production1 Production1 3.8 4.0 4.0 (Mt) 8.9 8.4 9.5 (Mt) 266 221 104 204 80 Operating unit cost, 71 Operating unit cost, including Sustaining including Sustaining capita
Slide 31: South Africa and Australia Manganese
• SOUTH AFRICA AND AUSTRALIA MANGANESE South Africa Manganese Ore: production and costs GEMCO: production and costs (US$/dmtu) Production1 Production1 2.3 1.7 N/A (Mt) 2.9 3.1 3.1 (Mt) 2.40 2.23 2.01 1.88 1.71 1.66 Operating unit cost, Operating unit cost, including Sustaining including Sustaining c
Slide 32: Cerro Matoso
• CERRO MATOSO Cerro Matoso: production and costs (US$/lb) Production1 40.4 36.8 36.0 (kt) 5.54 4.30 3.87 Operating unit cost, including Sustaining capital expenditure2 (US$/lb) FY15 FY16 FY17e Cerro Matoso: employee and contractor headcount3 1,940 1,600 1,550 FY15 FY16 FY17e Notes: 1. South32 share
Slide 33: African Aluminium Smelters
• AFRICAN ALUMINIUM SMELTERS South Africa Aluminium: production and costs1 Mozal Aluminium: production and costs1 Production1 Production1 699 697 (kt) 265 266 (kt) 1,761 1,762 1,430 1,559 Operating unit cost Operating unit cost (US$/t) (US$/t) FY15 FY16 FY15 FY16 South Africa Aluminium: employee and
Slide 34: Cannington Resource and Reserve Statement
• CANNINGTON RESOURCE AND RESERVE STATEMENT Silver, Lead, Zinc Mineral Resources As at 30 June 2016 As at 30 June 2015 South32 Measured Resources Indicated Resources Inferred Resources Total Resources Interest Total Resources g/t % % g/t % % g/t % % % % % Deposit Ore Type Mt Ag Pb Zn Mt Ag Pb Zn Mt
Slide 35: Cerro Matoso Resource and Reserve Statement
• CERRO MATOSO RESOURCE AND RESERVE STATEMENT Nickel Mineral Resources As at 30 June 2016 As at 30 June 2015 Measured Indicated Inferred Total South32 Total Resources Resources Resources Resources Interest Resources Deposit Ore Type Mt % Ni Mt % Ni Mt % Ni Mt % Ni % Mt % Ni Cerro Matoso (1) Laterite
Slide 36: South32
SOUTH32