Wrap Text
South 32 Quarterly Report
South32 Limited
(Incorporated in Australia under the Corporations Act 2001)
(ACN 093 732 597)
ASX, LSE, JSE Share Code: S32
ISIN: AU000000S320
- Four annual production records including saleable alumina at Brazil “This was an historic period for
Aluminium, coal at Illawarra Metallurgical Coal, alloy at Australia our company as shareholders
Manganese and ore at South Africa Manganese. approved the demerger and we
- Substantial increase in annual exports from South Africa Energy listed on the ASX, LSE and JSE.
Coal. “We are fast-tracking the
- Aluminium production at Hillside and Mozal broadly unchanged as implementation of our regional
efficiency gains offset a significant increase in load-shedding operating model and have
events during the year. established a strong foundation
- Strong milling rates at Cannington mitigated the impact of declining for our agile and entrepreneurial
silver grades. culture. The curtailment of
aluminium production at Alumar
- Record quarterly alumina hydrate production at Worsley as the and manganese alloy
input circuit operated at expanded capacity. production at Metalloys
- Responded to challenging market conditions by temporarily demonstrates our commitment
suspending capacity at Metalloys and prioritising higher value to maximise financial
manganese ore production. performance per share, rather
- Cerro Matoso returned to nameplate processing capacity following a than volume.
17 day strike during the quarter. “Our high-quality assets, cash
- Appin Area 9 metallurgical coal project expected to be completed generating capacity and strong
ahead of schedule and approximately 20% below budget. balance sheet underpins our
confidence in the outlook for
- Notified by BHP Billiton that non-cash, pre-tax impairments of
South32 assets totalling US$1.9 billion were recognised effective our business.”
6 May 2015. Largely offsets prior fair value uplift of US$2.1 billion Graham Kerr, South32 CEO
recognised for Australia Manganese and South Africa Manganese.
- Increase in depreciation previously expected to accompany the
uplift in fair value of the manganese assets will be reduced as a
result of the aforementioned impairments.
Production summary
South32’s share FY14 FY15 YoY 4Q14 3Q15 4Q15 QoQ
Alumina production (kt) 5,178 5,147 -1% 1,325 1,248 1,266 1%
Aluminium production (kt) 1,174 1,004 -14% 276 245 242 -1%
Energy coal production (kt) 31,923 35,748 12% 8,506 9,425 8,918 -5%
Metallurgical coal production (kt) 5,974 7,455 25% 1,654 1,614 1,983 23%
Manganese ore production (kt) 4,432 4,624 4% 1,207 1,087 1,125 3%
Manganese alloy production (kt) 387 413 7% 109 109 81 -26%
Nickel production (kt) 44.3 40.4 -9% 10.2 10.6 8.6 -19%
Silver production (koz) 25,161 22,601 -10% 6,029 5,130 5,236 2%
Lead production (kt) 187 183 -2% 46 40 44 10%
Zinc production (kt) 58 72 24% 16 16 19 19%
Unless otherwise noted: variance relates to the relative performance during the 2015 financial year compared with the 2014 financial year (YoY) or the
June 2015 quarter compared with the March 2015 quarter (QoQ); production and sales volumes are reported on an attributable basis; and project
budgets and capacities are reported on a 100% basis.
SOUTH32 QUARTERLY REPORT JUNE 2015 1
CORPORATE UPDATE
- South32 was demerged from BHP Billiton on 25 May 2015 with a strong “We have the right balance
balance sheet that included net cash of US$54 million, excluding finance sheet for the times and intend
leases and pre-funded set-up costs. to distribute a minimum 40% of
- Consistent with our commitment to maintain an investment grade credit underlying earnings to our
rating, Standard and Poor’s and Moody’s assigned BBB+ and Baa1 credit shareholders from next year.”
ratings, respectively. Graham Kerr, South32 CEO
- The implementation of our regional operating model is being fast-tracked.
In due course, we expect the associated cost savings to outweigh the
additional US$60 million [1] per annum of costs that will be incurred by the
corporate office.
- We have been notified by BHP Billiton that non-cash, pre-tax impairments
of South32 assets of US$1.9 billion [2] were recognised effective 6 May
2015, including: US$445 million at Australia Manganese; US$882 million
at South Africa Manganese; and US$539 million at the Wolvekrans
Middelburg complex (WMC) within South Africa Energy Coal.
- The cumulative non-cash impairment of our manganese assets of
US$1.3 billion largely offsets the previous fair value uplift of US$2.1 billion
described in the South32 listing documents dated 16 March 2015. The
associated reduction in book value will result in a lower depreciation
charge for the manganese assets than previously indicated.
- As part of our year-end process we are assessing the fair value of our
assets at 30 June 2015 and will keep the market informed should there
be a material difference to those figures provided by BHP Billiton.
- We invested US$4 million in exploration in the months of May and June
2015 of which US$2 million was capitalised. This reflected activity in
metallurgical coal and silver in Australia, and nickel in Colombia.
- South32's underlying effective tax rate (ETR) will reflect the relative
contribution of each geography to the company's profitability. The
corporate tax rates applicable to South32 include: Australia 30%; South
Africa 28%; Colombia 39%; and Brazil 34% [3].
WORSLEY ALUMINA
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Alumina production (kt) 3,916 3,819 -2% 1,010 937 929 -8% -1%
Alumina sales (kt) 3,864 3,857 0% 1,020 866 1,048 3% 21%
Worsley Alumina saleable production declined by 2% (or 97 kt) to 3.8 Mt in the 2015 financial year as planned
maintenance reduced calciner availability. Record quarterly alumina hydrate production was, however, achieved in the
June 2015 quarter as the input circuit operated at expanded capacity of 4.6 Mtpa (100% basis). As a result, alumina
hydrate stockpiles increased by 56 kt during the quarter.
SOUTH32 QUARTERLY REPORT JUNE 2015 2
SOUTH AFRICA ALUMINIUM
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Aluminium production (kt) 804 699 -13% 194 168 175 -10% 4%
Aluminium sales (kt) 804 695 -14% 192 166 177 -8% 7%
South Africa Aluminium saleable production declined by 13% (or 105 kt) to 699 kt in the 2015 financial year. The closure
of the higher-cost Bayside smelter in June 2014 accounted for the majority (89 kt) of the YoY decline. In contrast,
efficiency gains underpinned largely unchanged annual production at Hillside (-2%) despite a 104% increase in
load-shedding events and an increase in pot relining activity (136 pots in FY15 versus 58 in FY14). A higher level of pot
relining activity is expected in the 2016 financial year as part of the relining cycle.
South Africa Aluminium retains a strong working relationship with Eskom and load-shedding has remained within the
allowable limits defined in our electricity supply contracts. Hillside sources power from Eskom under long-term contracts.
The price of electricity supplied to potlines 1 and 2 is linked to the LME aluminium price and the South African rand/US
dollar exchange rate. The price of electricity supplied to potline 3 is South African rand based and linked to South African
and United States producer price indices. A separate and fully utilised 75 MW power supply arrangement not covered by
a long-term contract is priced at the same tariff as other South African industrial power users.
The official transfer of ownership of the Bayside aluminium cast house to Isizinda Aluminium occurred on 30 June 2015.
This transaction supports the economic transformation of Richards Bay and the development of South Africa’s
downstream aluminium industry.
MOZAL ALUMINIUM
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Aluminium production (kt) 266 265 0% 67 65 65 -3% 0%
Aluminium sales (kt) 276 273 -1% 62 66 70 13% 6%
Mozal Aluminium saleable production was effectively unchanged at 265 kt in the 2015 financial year, despite a 50%
increase in load-shedding events reported during the period. This included a strong finish to the year (June 2015
quarterly production unchanged at 65 kt) even though load-shedding was skewed to the fourth quarter. Mozal Aluminium
retains a strong working relationship with Eskom and load-shedding has remained within the allowable limits defined in
its electricity supply contracts.
Mozal Aluminium utilises hydroelectric power under long-term contract that is generated by Hidroeléctric Cahora Bassa
(HCB). HCB delivers power into the South African grid to Eskom and Mozal Aluminium sources the power via the
Mozambique Transmission Company (Motraco).
SOUTH32 QUARTERLY REPORT JUNE 2015 3
BRAZIL ALUMINIUM
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Alumina production (kt) 1,262 1,328 5% 315 311 337 7% 8%
Alumina sales (kt) 1,248 1,309 5% 388 285 330 -15% 16%
Aluminium production (kt) 104 40 -62% 15 12 2 -87% -83%
Aluminium sales (kt) 104 41 -61% 17 13 3 -82% -77%
Brazil Aluminium saleable alumina production increased by 5% (or 66 kt) to a record 1.3 Mt in the 2015 financial year as
the refinery exceeded nameplate capacity. Conversely, saleable aluminium production declined by 62% (or 64 kt) to
40 kt following the decision to suspend production in the last of three potlines from April 2015.
All three potlines will continue to be subject to ongoing review, having regard to market conditions and our commitment
to maximise financial performance per share, rather than volume. Excess power supplied by Eletronorte under long-term
contract continues to be sold into the grid.
SOUTH AFRICA ENERGY COAL
4Q14 3Q15
South32's share[4] FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Energy coal production (kt) 30,384 34,277 13% 8,013 9,240 8,512 6% -8%
Domestic sales (kt) 16,330 18,416 13% 4,498 4,921 4,358 -3% -11%
Export sales (kt) 13,298 16,390 23% 3,528 4,354 4,123 17% -5%
South Africa Energy Coal saleable production increased by 13% (or 3.9 Mt) to 34.3 Mt in the 2015 financial year. The
continued optimisation of equipment availability and mine planning also underpinned a 23% and 13% increase in export
and domestic sales, respectively. Saleable coal production in the June 2015 quarter declined by 8% (or 728 kt) following
the curtailment of mining activity at the Khutala open cut mine. The Khutala open cut mine contributed 1.4 Mt of domestic
coal production in the 2015 financial year.
ILLAWARRA METALLURGICAL COAL
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Metallurgical coal production (kt) 5,974 7,455 25% 1,654 1,614 1,983 20% 23%
Metallurgical coal sales (kt) 5,921 7,324 24% 1,761 1,810 2,067 17% 14%
Energy coal production (kt) 1,539 1,471 -4% 493 185 406 -18% 119%
Energy coal sales (kt) 1,623 1,378 -15% 486 272 307 -37% 13%
Illawarra Metallurgical Coal saleable production increased by 19% (or 1.4 Mt) to a record 8.9 Mt in the 2015 financial
year. An improvement in longwall availability and utilisation, and a 22% increase in washed tonnes from the West Cliff
coal processing plant, underpinned record metallurgical coal production. The 33% increase in June 2015 quarter coal
production reflected an absence of longwall moves during the period. Three longwall moves are planned for the 2016
financial year (compared to two in the 2015 financial year), including one in the December 2015 half year.
The Appin Area 9 project is 86% complete and is now expected to be commissioned ahead of schedule in the second
half of the 2016 financial year. The project, which sustains Illawarra Metallurgical Coal production capacity, is also
expected to be approximately 20% below the original budget of US$845 million.
SOUTH32 QUARTERLY REPORT JUNE 2015 4
AUSTRALIA MANGANESE
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Manganese ore production (kt) 2,866 2,942 3% 791 682 761 -4% 12%
Manganese ore sales (kt) 3,038 2,845 -6% 773 686 700 -9% 2%
Manganese alloy production (kt) 161 167 4% 45 41 43 -4% 5%
Manganese alloy sales (kt) 166 139 -16% 44 26 36 -18% 38%
Australia Manganese saleable ore production increased by 3% (or 76 kt) to 2.9 Mt in the 2015 financial year as plant
throughput and concentrator yields improved. Near record production at GEMCO was supported by an increase in total
material movement as the waste-to-ore strip ratio increased to 3.0:1 (2.6:1 FY14). An increase in ore inventories was
recorded over the course of the year as stockpiles returned to normalised levels. Record annual alloy production was
achieved at TEMCO.
The Premium Concentrate Ore (PC02) project increases GEMCO production capacity by 0.5 Mt to 5.3 Mtpa
(100% basis). The project is 48% complete and remains on schedule for completion in the second half of the
2016 financial year. The original budget of US$139 million (100% basis) remains unchanged.
SOUTH AFRICA MANGANESE
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Manganese ore production (kt) 1,566 1,682 7% 416 405 364 -13% -10%
Manganese ore sales (kt) 1,545 1,636 6% 413 455 301 -27% -34%
Manganese alloy production (kt) 226 246 9% 64 68 38 -41% -44%
Manganese alloy sales (kt) 240 251 5% 67 70 47 -30% -33%
South Africa Manganese saleable ore production increased by 7% (or 116 kt) to a record of 1.7 Mt in the 2015 financial
year as equipment availability and recoveries continued to improve. Manganese ore production was affected by planned
maintenance and industrial action at Hotazel in the June 2015 quarter. Inventories were rebuilt to normalised levels
following this illegal strike.
South Africa Manganese alloy production increased by 9% (or 20 kt) to 246 kt in the 2015 financial year. Metalloys
production declined substantially in the June 2015 quarter as a fatality led to the initial suspension of operations, before a
decision was taken to restart only one of the four furnaces in response to challenging market conditions. We continue to
engage with Transnet to secure additional rail capacity and will adjust higher value ore production to meet market
demand.
The second phase of the Central Block project increases ROM production capacity at Wessels to 1.5 Mtpa (100% basis).
The US$31 million (100% basis) project is 44% complete and remains on schedule and budget with first production
expected in the first quarter of the 2017 financial year.
SOUTH32 QUARTERLY REPORT JUNE 2015 5
CERRO MATOSO
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Payable nickel production (kt) 44.3 40.4 -9% 10.2 10.6 8.6 -16% -19%
Payable nickel sales (kt) 45.1 40.6 -10% 10.2 11.0 9.0 -12% -18%
Cerro Matoso payable nickel production declined by 9% (or 3.9 kt) to 40 kt in the 2015 financial year as a result of an
11% reduction in the average ore grade and a 17 day strike in May 2015. While Cerro Matoso was operating at
nameplate capacity at the end of the period, production is expected to decline by a similar amount in the 2016 financial
year before stabilising the following year. If developed, the higher grade La Esmeralda deposit has the potential to
deliver an uplift in ore grades during the 2018 to 2022 financial years. The application process for a new Social and
Environmental licence to allow access to La Esmeralda has commenced.
CANNINGTON
4Q14 3Q15
South32's share FY14 FY15 YoY 4Q14 3Q15 4Q15 vs vs
4Q15 4Q15
Silver production (koz) 25,161 22,601 -10% 6,029 5,130 5,236 -13% 2%
Silver sales (koz) 26,160 23,831 -9% 5,641 4,972 6,144 9% 24%
Lead production (kt) 187 183 -2% 46 40 44 -4% 10%
Lead sales (kt) 189 189 0% 42 40 49 17% 23%
Zinc production (kt) 58 72 24% 16 16 19 19% 19%
Zinc sales (kt) 62 66 6% 16 17 16 0% -6%
Cannington contained silver production declined by 10% (or 2.6 Moz) to 22.6 Moz in the 2015 financial year as strong
milling rates mitigated the impact of a 13% decline in the average silver ore grade. A modest reduction in the silver ore
grade is expected in each of the next two years. With declining ore grades the paste plant will play a critical role in
increasing mining rates. Annual paste fill production increased by 3% during the period.
Cannington’s mineralogy and associated geochemistry dictates that the vast majority of silver production reports to the
lead concentrate. In this regard, contained lead production declined, albeit by a lesser 2% (or 4 kt) in the 2015 financial
year. Conversely, a significant increase in the average zinc ore grade and processing recoveries led to a 24% (or 14 kt)
increase in contained zinc production.
Finalisation adjustments and the provisional pricing of Cannington concentrates will reduce Underlying EBIT5 by
US$43 million in the 2015 financial year (+US$29 million 2014 financial year; -US$40 million December 2014 half year).
The outstanding concentrate sales (containing 8.6 Moz of silver, 7.0 kt of lead and 1.5 kt of zinc) were revalued at
30 June 2015. The final price of these sales will be determined in the 2016 financial year.
Notes:
1. Additional costs to operate South32’s corporate centre are estimated to be US$60 million (pre-tax) per annum, as described in Section 11.2 of the
listing documents (page 136). In accordance with UKLA prospectus rules, these costs were not included in the pro-forma financial statements.
2. The statutory results of the South32 Group for the 2015 financial year will not include all fair value adjustments and impairments due to the timing
of the internal restructuring steps associated with the demerger.
3. A 5% dividend withholding tax applies in South Africa. The ETR in Colombia is comprised of: corporate income tax of 25%; CREE (income tax for
equality) of 9%; and a CREE surcharge of 5%. The ETR in Brazil in comprised of: corporate income tax of 15%; a corporate income tax surcharge
of 10%; and the CSLL (social contribution tax) of 9%.
4. 10% of South Africa Energy Coal is owned by an Employee Share Ownership Plan (ESOP) and a broad based black economic empowerment
(BBBEE) consortium led by Pembani Group (Pty) Limited. The interests owned by the ESOP and BBBEE consortium were acquired using vendor
finance, with the loans repayable to South32 via distributions attributable to these parties, pro rata to their share in South Africa Energy Coal. Until
these loans are repaid, South32’s interest in South Africa Energy Coal is accounted at 100%.
5. Underlying EBIT is earnings before net finance costs, taxation and any earnings adjustments. Underlying EBIT is reported net of South32’s share
of net finance costs and taxation of equity accounted investments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation.
6. The following abbreviations have been used throughout this report: grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per
annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); thousand ounces (koz); million ounces (Moz); thousand wet metric tonnes
(kwmt); thousand dry metric tonnes (kdmt); megawatt (MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE); and
Johannesburg Stock Exchange (JSE).
SOUTH32 QUARTERLY REPORT JUNE 2015 6
OPERATING PERFORMANCE
South32’s share FY14 FY15 4Q14 1Q15 2Q15 3Q15 4Q15
Worsley Alumina:
Alumina hydrate production (kt) 3,886 3,875 982 980 976 931 987
Alumina production (kt) 3,916 3,819 1,010 893 1,060 937 929
Alumina sales (kt) 3,864 3,857 1,020 875 1,068 866 1,048
South Africa Aluminium:
Aluminium production (kt) 804 699 194 180 176 168 175
Aluminium sales (kt) 804 695 192 174 178 166 177
Mozal Aluminium:
Aluminium production (kt) 266 265 67 68 67 65 65
Aluminium sales (kt) 276 273 62 64 73 66 70
Brazil Aluminium:
Alumina production (kt) 1,262 1,328 315 342 338 311 337
Alumina sales (kt) 1,248 1,309 388 323 371 285 330
Aluminium production (kt) 104 40 15 13 13 12 2
Aluminium sales (kt) 104 41 17 12 13 13 3
South Africa Energy Coal:
Energy coal production (kt) 30,384 34,277 8,013 8,026 8,499 9,240 8,512
Domestic sales (kt) 16,330 18,416 4,498 4,403 4,734 4,921 4,358
Export sales (kt) 13,298 16,390 3,528 3,739 4,174 4,354 4,123
Illawarra Metallurgical Coal:
Metallurgical coal production (kt) 5,974 7,455 1,654 1,840 2,018 1,614 1,983
Metallurgical coal sales (kt) 5,921 7,324 1,761 1,617 1,830 1,810 2,067
Energy coal production (kt) 1,539 1,471 493 497 383 185 406
Energy coal sales (kt) 1,623 1,378 486 373 426 272 307
Australia Manganese:
Manganese ore production (kt) 2,866 2,942 791 726 773 682 761
Manganese ore sales (kt) 3,038 2,845 773 734 725 686 700
Manganese alloy production (kt) 161 167 45 35 48 41 43
Manganese alloy sales (kt) 166 139 44 34 43 26 36
South Africa Manganese:
Manganese ore production (kt) 1,566 1,682 416 466 447 405 364
Manganese ore sales (kt) 1,545 1,636 413 444 436 455 301
Manganese alloy production (kt) 226 246 64 67 73 68 38
Manganese alloy sales (kt) 240 251 67 69 65 70 47
SOUTH32 QUARTERLY REPORT JUNE 2015 7
South32’s share FY14 FY15 4Q14 1Q15 2Q15 3Q15 4Q15
Cerro Matoso:
Ore mined (kwmt) 8,490 6,321 2,051 1,512 1,827 1,826 1,156
Ore processed (kdmt) 2,493 2,629 590 657 678 698 596
Ore grade processed (%, Ni) 1.9% 1.7% 1.9% 1.8% 1.7% 1.6% 1.6%
Nickel production (kt) 44.3 40.4 10.2 10.7 10.5 10.6 8.6
Nickel sales (kt) 45.1 40.6 10.2 10.5 10.1 11.0 9.0
Cannington:
Ore mined (kt) 3,446 3,418 806 823 925 813 857
Ore processed (kt) 3,202 3,289 821 819 850 791 829
Silver ore grade processed (g/t, Ag) 296 257 286 301 246 247 235
Lead ore grade processed (%, Pb) 7.1% 6.7% 6.9% 7.1% 7.0% 6.3% 6.4%
Zinc ore grade processed (%, Zn) 3.0% 3.4% 3.1% 3.8% 3.2% 3.2% 3.5%
Silver production (koz) 25,161 22,601 6,029 6,701 5,534 5,130 5,236
Silver sales (koz) 26,160 23,831 5,641 7,084 5,631 4,972 6,144
Lead production (kt) 187 183 46 49 50 40 44
Lead sales (kt) 189 189 42 51 49 40 49
Zinc production (kt) 58 72 16 20 17 16 19
Zinc sales (kt) 62 66 16 15 18 17 16
FURTHER INFORMATION
INVESTOR RELATIONS MEDIA RELATIONS
Peter Harris Jill Thomas
T +61 8 9324 9046 T +61 8 9324 9181
M +61 (0) 476 559 190 M +61 (0) 423 259 190
E Peter.Harris@south32.net E Jill.Thomas@south32.net
Paul Formosa
T +61 8 9324 9376
M +61 (0) 431 152 742
E Paul.Formosa@south32.net
22 July 2015
JSE sponsor: UBS South Africa (Pty) Ltd 8
Date: 22/07/2015 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
