Wrap Text
Quarterly Report September 2015
South32 Limited
(Incorporated in Australia under the Corporations Act 2001)
(ACN 093 732 597)
ASX, LSE, JSE Share Code: S32
ISIN: AU000000S320
• Quarterly production records achieved at GEMCO (Australia “Our business is performing
Manganese) and Illawarra Metallurgical Coal, and strong well and we are making excellent
performance recorded across the Group: progress as we seek to optimise
- a temporary increase in the average ore grade at Cannington our operations, reduce costs
delivered a 20% increase in silver production; and sustainably de-capitalise the
- an improvement in plant availability and feed rates led to a business.
13% increase in Australia Manganese ore production; and
- the completion of planned calciner maintenance in the prior We continue to take decisive
quarter delivered an 11% increase in Worsley Alumina action to maximise financial
production as the operation processed stockpiled hydrate. performance, rather than
volume. The actions we have
• FY16 production guidance remains unchanged for all upstream initiated at South Africa
operations, with the exception of South Africa Manganese which is Manganese and South Africa
under review. Aluminium reflect this
philosophy and will further
• The review of South Africa Manganese, announced on 24 August, is strengthen the cash generating
expected to be completed before the end of December 2015. The capacity of the Group.
previously announced delay in the restart of three high-carbon
ferromanganese furnaces at Metalloys will continue indefinitely and “Our high quality and low-cost
a decision on the future of the fourth furnace will be made on assets, motivated workforce and
conclusion of this review. As part of this process, Samancor strong balance sheet remain a
Manganese will also determine the optimal configuration and key point of differentiation.
production profile for the South Africa Manganese mines to improve Group net debt declined by
their competitiveness and sustainability through the cycle. US$206 million in the September
quarter to US$196 million."
• Consistent with our commitment to reduce controllable costs by
at least US$350M by the end of FY18, we expect to deliver a 25%
reduction in Group and Unallocated costs in FY16. Graham Kerr, South32 CEO
• Net debt declined by US$206M to US$196M during the September
2015 quarter.
Production summary
YTD YTD
South32’s share YoY 1Q15 4Q15 1Q16 QoQ
FY15 FY16
Alumina production (kt) 1,235 1,364 10% 1,235 1,266 1,364 8%
Aluminium production (kt) 261 244 (7%) 261 242 244 1%
Energy coal production (kt) 8,523 8,698 2% 8,523 8,914 8,698 (2%)
Metallurgical coal production (kt) 1,840 2,079 13% 1,840 1,983 2,079 5%
Manganese ore production (kt) 1,355 1,437 6% 1,355 1,253 1,437 15%
Manganese alloy production (kt) 102 65 (36%) 102 81 65 (20%)
Payable nickel production (kt) 10.7 8.7 (19%) 10.7 8.6 8.7 1%
Silver production (koz) 6,701 6,278 (6%) 6,701 5,236 6,278 20%
Lead production (kt) 49 49 0% 49 44 49 11%
Zinc production (kt) 20 20 0% 20 19 20 5%
Unless otherwise noted: percentage variance relates to the relative performance during the 2016 financial year to date compared with the 2015
financial year to date (YoY) or the September 2015 quarter compared with the June 2015 quarter (QoQ); production and sales volumes are reported
on an attributable basis; and project budgets and capacities are reported on a 100% basis. All variance analysis relates to QoQ performance, as
defined above.
SOUTH32 QUARTERLY REPORT SEPTEMBER 2015 1
CORPORATE UPDATE
• During the September 2015 quarter, South32 invested US$3 million on exploration of which US$1 million was
capitalised. Our exploration activities focused on metallurgical coal and silver in Australia, and nickel in Colombia.
• Cash proceeds of US$37M were received in the September 2015 quarter as South32 resolved two legacy tax
disputes [1] outside of Australia. An additional US$9M relating to these claims will be received in the December
2015 quarter.
• Net debt declined by US$206M to US$196M [2] during the September 2015 quarter. This included a US$52M
reduction in the Group’s finance leases (US$575M) as the Australian dollar and Rand depreciated against the US
dollar. Recognising the Group’s strong balance sheet, Standard and Poor’s and Moody’s reaffirmed their
respective BBB+ and Baa1 credit ratings following recent annual reviews.
• Consistent with our commitment to embed a lean corporate centre and reduce controllable costs by at least
US$350M by the end of FY18, we are finalising an in-depth review of all functional support which is expected to
deliver a 25% reduction (on a constant currency basis) in FY16 Group and Unallocated costs relative to prior
guidance of US$130M.
• South32's Underlying effective tax rate (ETR) will reflect the geographic distribution of the Group’s profit. The
corporate tax rates applicable to South32 include: Australia 30%; South Africa 28%; Colombia 39%; and Brazil
34%. Should current conditions prevail, the Group’s Underlying ETR will exceed 30%.
• South32 capital expenditure was previously forecast to decline by 9% to US$700M in FY16, predicated on
several assumptions including an average AUD:USD exchange rate of 0.78 and average USD:ZAR exchange
rate of 12.42. The rate of expenditure expressed in US dollars may decline further should recent weakness in
those exchange rates persist.
Upstream production guidance (South32’s share) FY15 FY16e
Worsley Alumina
Alumina production (kt) 3,819 3,950
Brazil Aluminium
Alumina production (kt) 1,328 1,320
South Africa Energy Coal [3]
Domestic coal production (kt) 18,123 16,650
Export coal production (kt) 16,150 15,300
Illawarra Metallurgical Coal
Metallurgical coal production (kt) 7,455 7,200
Energy coal production (kt) 1,471 1,700
Australia Manganese
Manganese ore production[4] (kt) 2,942 3,050
South Africa Manganese
Manganese ore production (kt) 2,273 Under review
Cerro Matoso
Payable nickel production (kt) 40.4 36.5
Cannington
Payable silver production (koz) 22,601 21,650
Payable lead production (kt) 183 175
Payable zinc production (kt) 72 80
SOUTH32 QUARTERLY REPORT SEPTEMBER 2015
2
WORSLEY ALUMINA
(86% share)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Alumina production (kt) 893 1,031 15% 893 929 1,031 15% 11%
Alumina sales (kt) 875 930 6% 875 1,048 930 6% (11%)
Worsley Alumina saleable production increased by 11% (or 102kt) to 1.03Mt in the September 2015 quarter as the
refinery processed stockpiled alumina hydrate following the completion of planned calciner maintenance in the prior
period. Conversely, the reduction in sales volumes simply reflected the scheduling of shipments during the quarter.
Calciner maintenance is planned for both the December 2015 and June 2016 quarters, consistent with the annual
maintenance cycle. As noted in prior guidance, saleable production is expected to increase by 3% to 3.95Mt.
SOUTH AFRICA ALUMINIUM
(100%)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Aluminium production (kt) 180 178 (1%) 180 175 178 (1%) 2%
Aluminium sales (kt) 174 185 6% 174 177 185 6% 5%
South Africa Aluminium saleable production increased by 2% (or 3kt) to 178kt in the September 2015 quarter due to a
reduction in the number of load-shedding events compared to the previous quarter.
In response to the recent deterioration in market conditions, 22 pots (equivalent to 3% of the total) were temporarily
suspended during September 2015. This decision will deliver an incremental improvement in cash flow as planned pot
relining activity is deferred. A production loss of 18kt is anticipated should the 22 pots remain offline for the remainder of
FY16. In this context, production at South Africa Aluminium is now expected to decline marginally in FY16 should the
current market conditions prevail. Electricity supply and the frequency of load-shedding events remains an ever present
risk, notwithstanding the fact that load-shedding has remained within the permissible limits defined by our electricity
supply agreements.
MOZAL ALUMINIUM
(47.1% share)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Aluminium production (kt) 68 66 (3%) 68 65 66 (3%) 2%
Aluminium sales (kt) 64 53 (17%) 64 70 53 (17%) (24%)
Mozal Aluminium saleable production increased by 2% (or 1kt) to 66kt in the September 2015 quarter due to a reduction
in the number of load-shedding events compared to the previous quarter. Conversely, the 24% decline in aluminium
sales reflected the scheduling of shipments during the quarter.
Aluminium production is expected to remain broadly unchanged in FY16. Electricity supply and the frequency of
load-shedding events remains an ever present risk, notwithstanding the fact that load-shedding has remained within the
permissible limits defined by our electricity supply agreements.
SOUTH32 QUARTERLY REPORT SEPTEMBER 2015
3
BRAZIL ALUMINIUM
(Refinery 36% share, Smelter 40% share)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Alumina production (kt) 342 333 (3%) 342 337 333 (3%) (1%)
Alumina sales (kt) 323 320 (1%) 323 330 320 (1%) (3%)
Aluminium production (kt) 13 0 (100%) 13 2 0 (100%) (100%)
Aluminium sales (kt) 12 0 (100%) 12 3 0 (100%) (100%)
Brazil Aluminium saleable alumina production was largely unchanged in the September 2015 quarter. FY16 alumina
production guidance of 1.32Mt remains unchanged.
All three potlines at the smelter remain temporarily suspended and subject to ongoing review. Excess power supplied by
Eletronorte under long-term contract continues to be sold into the grid. These unhedged power sales are expected to
generate Underlying EBIT of approximately BRL255M in FY16 (versus BRL300M FY15).
SOUTH AFRICA ENERGY COAL
(100%)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Energy coal production (kt) 8,026 8,292 3% 8,026 8,508 8,292 3% (3%)
Domestic sales (kt) 4,403 4,246 (4%) 4,403 4,358 4,246 (4%) (3%)
Export sales (kt) 3,739 4,132 11% 3,739 4,123 4,132 11% 0%
South Africa Energy Coal saleable production declined by 3% (or 216kt) to 8.29Mt in the September 2015 quarter,
reflecting the impact of planned maintenance and the sequencing of activity at the Wolvekrans Middelburg Complex.
Coal production in FY16 is expected to decline by 7% to 31.95Mt (16.65Mt exports, 15.30Mt domestic), as planned.
ILLAWARRA METALLURGICAL COAL
(100%)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Metallurgical coal production (kt) 1,840 2,079 13% 1,840 1,983 2,079 13% 5%
Metallurgical coal sales (kt) 1,617 1,999 24% 1,617 2,067 1,999 24% (3%)
Energy coal production (kt) 497 406 (18%) 497 406 406 (18%) 0%
Energy coal sales (kt) 373 391 5% 373 307 391 5% 27%
Illawarra Metallurgical Coal saleable production increased by 4% (or 96kt) to a record 2.49Mt in the September 2015
quarter as a broad-based improvement in productivity more than offset the impact of industrial action at Dendrobium,
which has since been resolved. FY16 production guidance of 8.90Mt (metallurgical coal 7.20Mt, energy coal 1.70Mt)
remains unchanged. Three longwall moves are scheduled for the remainder of FY16, including one in the December
2015 quarter and two in the second half of FY16.
The Appin Area 9 project is 90% complete and ahead of schedule with commissioning now expected to start in the third
quarter of FY16. The project, which sustains Illawarra Metallurgical Coal production capacity, is more than 20% below
the original budget of US$845 million.
SOUTH32 QUARTERLY REPORT SEPTEMBER 2015
4
AUSTRALIA MANGANESE
(60% share)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Manganese ore production (kt) 726 857 18% 726 761 857 18% 13%
Manganese ore sales (kt) 734 749 2% 734 700 749 2% 7%
Manganese alloy production (kt) 35 44 26% 35 43 44 26% 2%
Manganese alloy sales (kt) 34 38 12% 34 36 38 12% 6%
Australia Manganese saleable ore production increased by 13% (or 96kt) to a record 857kt in the September 2015
quarter as plant availability and feed rates improved at GEMCO. Manganese ore production guidance for FY16 of 3.05Mt
remains unchanged as a higher strip ratio, planned maintenance and seasonal factors are expected to impact
performance. While manganese ore inventory increased during the period, volumes are expected to normalise as
planned maintenance is undertaken and productivity is affected by the wet season in Northern Australia. Manganese
alloy production increased by 2% (or 1kt) to 44kt.
As announced on 22 September, the United States Department of Commerce issued notice of a preliminary
anti-dumping determination, setting an 11.93% rate for imports of silicomanganese of Australian origin into the United
States. This is not expected to have a material impact on South32.
The Premium Concentrate Ore (PC02) project increases GEMCO production capacity by 0.5Mt to 5.3Mtpa
(100% basis). The project is on budget and scheduled to deliver first production in the June 2016 quarter.
SOUTH AFRICA MANGANESE
(60% share)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Manganese ore production (kt) 629 580 (8%) 629 492 580 (8%) 18%
Manganese ore sales (kt) 599 518 (14%) 599 407 518 (14%) 27%
Manganese alloy production (kt) 67 21 (69%) 67 38 21 (69%) (45%)
Manganese alloy sales (kt) 69 25 (64%) 69 47 25 (64%) (47%)
South Africa Manganese saleable ore production increased by 18% (or 88kt) to 580kt in the September 2015 quarter.
Production in the prior period was affected by industrial action and planned maintenance.
The review of South Africa Manganese, announced on 24 August, is expected to be completed before the end of
December 2015. As part of this process, Samancor Manganese will determine the optimal configuration and production
profile for the South Africa Manganese mines to improve their competitiveness and sustainability through the cycle. We
are consulting with employees and external stakeholders as the review progresses.
South Africa Manganese saleable alloy production declined by 45% (or 17kt) to 21kt as three out of the four high-carbon
ferromanganese furnaces at Metalloys remained suspended. The suspension of these three furnaces will continue
indefinitely and a decision on the future of the fourth furnace will be made on conclusion of the South Africa Manganese
review.
SOUTH32 QUARTERLY REPORT SEPTEMBER 2015 5
CERRO MATOSO
(99.9% share)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Payable nickel production (kt) 10.7 8.7 (19%) 10.7 8.6 8.7 (19%) 1%
Payable nickel sales (kt) 10.5 8.7 (17%) 10.5 9.0 8.7 (17%) (3%)
Cerro Matoso payable nickel production was largely unchanged in the September 2015 quarter as the average ore grade
declined, consistent with the mine plan. The operation was affected by a 17 day illegal strike in the prior period.
Production guidance for FY16 of 36.5kt remains unchanged.
The higher grade La Esmeralda deposit has the potential to deliver an uplift in the average ore grade between 2018 and
2022. The application process for a new social and environmental licence to allow access to the ore body is ongoing.
CANNINGTON
(100%)
1Q15 4Q15
YTD YTD
South32's share YoY 1Q15 4Q15 1Q16 vs vs
FY15 FY16
1Q16 1Q16
Payable silver production (koz) 6,701 6,278 (6%) 6,701 5,236 6,278 (6%) 20%
Payable silver sales (koz) 7,084 6,203 (12%) 7,084 6,144 6,203 (12%) 1%
Payable lead production (kt) 49 49 0% 49 44 49 0% 11%
Payable lead sales (kt) 51 49 (4%) 51 49 49 (4%) 0%
Payable zinc production (kt) 20 20 0% 20 19 20 0% 5%
Payable zinc sales (kt) 15 19 27% 15 16 19 27% 19%
Cannington payable silver production increased by 20% (or 1.04Moz) to 6.28Moz in the September 2015 quarter as the
average ore grade temporarily increased to 272g/t. Payable zinc sales increased by 19% following unplanned port
maintenance in the June 2015 quarter. FY16 production guidance remains unchanged (payable silver 21.65Moz,
payable lead 175kt, payable zinc 80kt) as the grade profile will deliver an increase in the ratio of zinc:lead concentrate
over the remainder of the year.
Notes:
1. These cash proceeds will have no impact on the Group’s Underlying ETR.
2. Unaudited net debt balance as at 30 September 2015.
3. 10% of South Africa Energy Coal is owned by an Employee Share Ownership Plan (ESOP) and a broad-based black economic empowerment
(B-BBEE) consortium. The interests owned by the ESOP and B-BBEE 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%.
4. Consistent with the presentation of South32’s segment information, South Africa Manganese ore production and sales have been reported at 60%.
The Group’s financial statement will continue to reflect a 54.6% interest in South Africa Manganese ore.
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. Figures in italics indicate that this figure has been adjusted since it was previously reported.
7. 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 SEPTEMBER 2015 6
OPERATING PERFORMANCE
YTD YTD
South32’s share 1Q15 2Q15 3Q15 4Q15 1Q16
FY15 FY16
Worsley Alumina
(86% share)
Alumina hydrate production (kt) 980 1,514 980 976 931 987 1,514
Alumina production (kt) 893 1,031 893 1,060 937 929 1,031
Alumina sales (kt) 875 930 875 1,068 866 1,048 930
South Africa Aluminium
(100%)
Aluminium production (kt) 180 178 180 176 168 175 178
Aluminium sales (kt) 174 185 174 178 166 177 185
Mozal Aluminium
(47.1% share)
Aluminium production (kt) 68 66 68 67 65 65 66
Aluminium sales (kt) 64 53 64 73 66 70 53
Brazil Aluminium
(alumina 36% share, aluminium 40% share)
Alumina production (kt) 342 333 342 338 311 337 333
Alumina sales (kt) 323 320 323 371 285 330 320
Aluminium production (kt) 13 0 13 13 12 2 0
Aluminium sales (kt) 12 0 12 13 13 3 0
South Africa Energy Coal
(100%)
Energy coal production (kt) 8,026 8,292 8,026 8,499 9,240 8,508 8,292
Domestic sales (kt) 4,403 4,246 4,403 4,734 4,921 4,358 4,246
Export sales (kt) 3,739 4,132 3,739 4,174 4,354 4,123 4,132
Illawarra Metallurgical Coal
(100%)
Metallurgical coal production (kt) 1,840 2,079 1,840 2,018 1,614 1,983 2,079
Metallurgical coal sales (kt) 1,617 1,999 1,617 1,830 1,810 2,067 1,999
Energy coal production (kt) 497 406 497 383 185 406 406
Energy coal sales (kt) 373 391 373 426 272 307 391
Australia Manganese
(60% share)
Manganese ore production (kt) 726 857 726 773 682 761 857
Manganese ore sales (kt) 734 749 734 725 686 700 749
Manganese alloy production (kt) 35 44 35 48 41 43 44
Manganese alloy sales (kt) 34 38 34 43 26 36 38
South Africa Manganese
(60% share)
Manganese ore production (kt) 629 580 629 604 548 492 580
Manganese ore sales (kt) 599 518 599 590 614 407 518
Manganese alloy production (kt) 67 21 67 73 68 38 21
Manganese alloy sales (kt) 69 25 69 65 70 47 25
SOUTH32 QUARTERLY REPORT SEPTEMBER 2015 7
YTD YTD
South32’s share 1Q15 2Q15 3Q15 4Q15 1Q16
FY15 FY16
Cerro Matoso
(99.9% share)
Ore mined (kwmt) 1,512 1,531 1,512 1,827 1,826 1,156 1,531
Ore processed (kdmt) 657 639 657 678 698 596 639
Ore grade processed (%, Ni) 1.76 1.55 1.76 1.69 1.63 1.59 1.55
Payable nickel production (kt) 10.7 8.7 10.7 10.5 10.6 8.6 8.7
Payable nickel sales (kt) 10.5 8.7 10.5 10.1 11.0 9.0 8.7
Cannington
(100%)
Ore mined (kt) 823 910 823 925 813 857 910
Ore processed (kt) 819 838 819 850 791 829 838
Payable silver ore grade processed (g/t, Ag) 301 272 301 246 247 235 272
Payable lead ore grade processed (%, Pb) 7.1 6.9 7.1 7.0 6.3 6.4 6.9
Payable zinc ore grade processed (%, Zn) 3.8 3.4 3.8 3.2 3.2 3.5 3.4
Payable silver production (koz) 6,701 6,278 6,701 5,534 5,130 5,236 6,278
Payable silver sales (koz) 7,084 6,203 7,084 5,631 4,972 6,144 6,203
Payable lead production (kt) 49 49 49 50 40 44 49
Payable lead sales (kt) 51 49 51 49 40 49 49
Payable zinc production (kt) 20 20 20 17 16 19 20
Payable zinc sales (kt) 15 19 15 18 17 16 19
FURTHER INFORMATION
INVESTOR RELATIONS MEDIA RELATIONS
Leng Lau Jill Thomas
T +61 8 9324 9008 T +61 8 9324 9191
M +61 (0) 408 202 698 M +61 (0) 423 259 190
E Leng.Lau@south32.net E Jill.Thomas@south32.net
Susie Bath
T +61 8 9324 9647
M +61 (0) 418 933 792
E Susie.Bath@south32.net
Paul Formosa
T +61 8 9324 9376
M +61 (0) 431 152 742
E Paul.Formosa@south32.net
22 October 2015
JSE Sponsor: UBS South Africa (Pty) Ltd
8
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