Wrap Text
Quarterly report March 2016
South32 Limited
(Incorporated in Australia under the Corporations Act 2001)
(ACN 093 732 597)
ASX, LSE, JSE Share Code: S32
ISIN: AU000000S320
“We continue to strengthen our balance sheet by focussing on value, not volume.
“We are making great progress on our cost-out program across all operations and have continued to generate cash
despite volatile commodity markets.
“We have successfully completed the Appin Area 9 project at Illawarra Metallurgical Coal and are close to completing the
PC02 project at GEMCO. Both will be delivered below budget.”
Graham Kerr, South32 CEO
- Our strong balance sheet remains a key point of difference. At
31 March 2016 our estimated net cash[1] position was US$18M.
- We are well positioned to achieve FY16 production guidance for all our operations and remain on track
to reduce controllable costs [2] by US$300M.
- Strong operating performance at Worsley Alumina supported a 5% increase in production in the March
2016 quarter.
- The recommencement of longwall mining at Dendrobium and completion of the Appin Area 9 project
resulted in a 35% increase in metallurgical coal production in the March 2016 quarter.
- A reduction in mill availability, associated with an outage in January, resulted in lower sequential
production at Cannington in the March 2016 quarter.
- We successfully reconfigured South Africa Manganese to operate with greater flexibility to respond to
market demand, having ramped-up ore production to an optimised 2.9Mtpa (100% basis).
- The Appin Area 9 project was completed 33% below budget and ahead of schedule. The Premium
Concentrate Ore Project (PC02) at GEMCO is 98% complete and will be commissioned in the June 2016
quarter.
Production summary
South32’s share 9M 9M
YTD15 YTD16 YoY 3Q15 2Q16 3Q16 QoQ
Alumina production (kt) 3,881 4,000 3% 1,248 1,302 1,334 2%
Aluminium production (kt) 762 725 (5%) 245 241 240 (0%)
Energy coal production (kt) 26,830 24,967 (7%) 9,425 8,339 7,930 (5%)
Metallurgical coal production (kt) 5,472 4,940 (10%) 1,614 1,219 1,642 35%
Manganese ore production (kt) 3,963 3,551 (10%) 1,230 909 1,205 33%
Manganese alloy production (kt) 332 179 (46%) 109 66 48 (27%)
Payable nickel production (kt) 31.8 27.2 (14%) 10.6 8.8 9.7 10%
Silver production (koz) 17,365 16,356 (6%) 5,130 5,600 4,478 (20%)
Lead production (kt) 138.7 134.4 (3%) 40.1 48.4 36.9 (24%)
Zinc production (kt) 53.4 60.3 13% 16.4 22.2 18.5 (17%)
Unless otherwise noted: percentage variance relates to performance during the nine months ended March 2016 (or year to date (YTD)) compared with
the nine months ended March 2015 (YoY) or the March 2016 quarter compared with the December 2015 quarter (QoQ); production and sales volumes
are reported on an attributable basis.
CORPORATE UPDATE
- We are on track to reduce controllable costs by US$300M in FY16. Restructuring at Worsley Alumina, South Africa Manganese
and the Australia Manganese mining operation is largely complete. Restructuring at Cerro Matoso and Illawarra Metallurgical
Coal is expected to be completed in the June 2016 quarter.
- Guidance for depreciation and amortisation [3] (US$760M) and capital expenditure [4] (US$550M) for FY16
remains unchanged, while Underlying net finance costs are expected to be marginally higher than the annualised
H1 FY16 run-rate (US$71M in H1 FY16).
- The US$134M reduction in net debt recorded in the quarter was achieved despite a US$30M foreign exchange
rate related increase in finance lease liabilities, which rose to US$621M (US$595M as at 31 December 2015),
and one-off redundancy and restructuring payments [5] of approximately US$23M.
- Our strong balance sheet remains a key point of difference and we are firmly committed to an investment grade
credit rating. In the period Moody’s [6] confirmed our credit rating at Baa1 and S&P confirmed that no rating
actions were warranted (S&P rating is stable at BBB+).
- Our Underlying effective tax rate (ETR) [7] largely reflects 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%. Permanent differences have a disproportionate effect on the Group’s tax rate when the Group’s profit
margins are compressed.
- Our exploration expenditure for the nine months ended March 2016 totalled US$9M, of which US$3M will be
capitalised. Exploration activities were conducted at our existing operations and were focussed on metallurgical
coal and silver in Australia, and nickel in Colombia.
- The U.S. International Trade Commission determined on 11 March 2016 that the U.S. silicomanganese industry
is not materially injured or threatened with material injury by imports from Australia. As a result, no anti-dumping
duties will be imposed on TEMCO.
Upstream production and FY16 guidance
9M
(South32’s share) FY15 YTD16 FY16e
Worsley Alumina
Alumina production (kt) 3,819 3,001 3,950
Brazil Alumina
Alumina production (kt) 1,328 999 1,320
South Africa Energy Coal [8]
Domestic coal production (kt) 18,123 12,886 16,650
Export coal production (kt) 16,150 11,185 15,300
Illawarra Metallurgical Coal
Metallurgical coal production (kt) 7,455 4,940 6,900
Energy coal production (kt) 1,471 896 1,350
Australia Manganese
Manganese ore production (kt) 2,942 2,332 3,050
South Africa Manganese
Subject to
Manganese ore production [9] (kt) 2,273 1,219 demand
Cerro Matoso
Payable nickel production (kt) 40.4 27.2 36.5
Cannington
Payable silver production (koz) 22,601 16,356 21,650
Payable lead production (kt) 183 134 175
Payable zinc production (kt) 72 60 80
WORSLEY ALUMINA
(86% share)
South32's share 9M 9M YoY 3Q15 2Q16 3Q16 3Q15 2Q16
YTD15 YTD16 vs vs
3Q16 3Q16
Alumina production (kt) 2,890 3,001 4% 937 962 1,008 8% 5%
Alumina sales (kt) 2,809 2,915 4% 866 968 1,017 17% 5%
Worsley Alumina saleable production increased by 4% (or 111kt) to 3.0Mt in the nine months ended March 2016 as high
calciner availability contributed to a 5% increase in production in the March 2016 quarter. This outstanding result was
underpinned by another strong quarter of hydrate production as the input circuit exceeded expanded capacity of 4.6Mtpa
(100% basis).
FY16 saleable alumina production guidance remains unchanged at 3.95Mt. The next major calciner outage is scheduled
for the December 2016 quarter.
SOUTH AFRICA ALUMINIUM
(100%)
South32's share 9M 9M YoY 3Q15 2Q16 3Q16 3Q15 2Q16
YTD15 YTD16 vs vs
3Q16 3Q16
Aluminium production (kt) 524 525 0% 168 174 173 3% (1%)
Aluminium sales (kt) 518 525 1% 166 178 162 (2%) (9%)
South Africa Aluminium saleable production was largely unchanged in both the nine months (525kt) and quarter (173kt)
ended March 2016. Consistent with our commitment to focus on value over volume, we suspended production in 22 pots
in September 2015 in order to achieve an incremental improvement in cash flow by deferring planned pot relining activity.
Despite this decision, metal production is now expected to remain largely unchanged in FY16 as the number of
load-shedding events in the March 2016 quarter was lower than expected.
MOZAL ALUMINIUM
(47.1% share)
3Q15 2Q16
9M 9M
South32's share YoY 3Q15 2Q16 3Q16 vs vs
YTD15 YTD16
3Q16 3Q16
Aluminium production (kt) 200 200 0% 65 67 67 3% 0%
Aluminium sales (kt) 203 185 (9%) 66 68 64 (3%) (6%)
Mozal Aluminium saleable production was unchanged in the nine months (200kt) and quarter (67kt) ended March 2016.
The decline in sales reflects the scheduling of shipments between periods. Aluminium production is expected to remain
largely unchanged in FY16.
BRAZIL ALUMINA
(Refinery 36% share, Smelter 40% share)
3Q15 2Q16
9M 9M
South32's share YoY 3Q15 2Q16 3Q16 vs vs
YTD15 YTD16
3Q16 3Q16
Alumina production (kt) 991 999 1% 311 340 326 5% (4%)
Alumina sales (kt) 979 1,021 4% 285 341 360 26% 6%
Aluminium production (kt) 38 0 N/A 12 0 0 N/A N/A
Aluminium sales (kt) 38 0 N/A 13 0 0 N/A N/A
Brazil Alumina saleable alumina production of 999kt was largely unchanged in the nine months ended March 2016 and
FY16 alumina production is expected to be in line with previous guidance of 1.32Mt. The 6% increase in quarterly sales
reflects a timing difference as one shipment slipped into the March 2016 quarter.
Aluminium production was first curtailed at Brazil Alumina in July 2013 and the suspension of all smelting activity was
announced in March 2015. As previously announced, we have forward sold power until the end of CY17 and have
terminated the contract with Eletronorte. A minor provision will be booked in our June 2016 financial year statements to
reflect the anticipated cash outflow associated with this contract across the remaining 18 month period. Unhedged power
sales, inclusive of this provision, are expected to contribute approximately BRL235M to Underlying EBIT in FY16 and will
be skewed to the first half (BRL188M in H1 FY16).
SOUTH AFRICA ENERGY COAL
(100%)
3Q15 2Q16
9M 9M
South32's share YoY 3Q15 2Q16 3Q16 vs vs
YTD15 YTD16
3Q16 3Q16
Energy coal production (kt) 25,765 24,071 (7%) 9,240 8,087 7,692 (17%) (5%)
Domestic sales (kt) 14,058 13,080 (7%) 4,921 4,834 4,000 (19%) (17%)
Export sales (kt) 12,267 11,596 (5%) 4,354 3,889 3,575 (18%) (8%)
South Africa Energy Coal saleable production declined by 7% (or 1.7Mt) to 24.1Mt in the nine months ended March
2016. Lower production resulted from the planned closure of the opencast mine at Khutala, and a reduction in contractor
activity at the Wolvekrans Middelburg Complex, consistent with our focus on value over volume. Underground
development at Khutala contributed to a 5% reduction in production for the quarter. FY16 saleable production guidance
remains unchanged at 31.95Mt (16.65Mt domestic, 15.30Mt export).
ILLAWARRA METALLURGICAL COAL
(100%)
3Q15 2Q16
9M 9M
South32's share YoY 3Q15 2Q16 3Q16 vs vs
YTD15 YTD16
3Q16 3Q16
Metallurgical coal production (kt) 5,472 4,940 (10%) 1,614 1,219 1,642 2% 35%
Metallurgical coal sales (kt) 5,257 4,747 (10%) 1,810 1,148 1,600 (12%) 39%
Energy coal production (kt) 1,065 896 (16%) 185 252 238 29% (6%)
Energy coal sales (kt) 1,071 973 (9%) 272 218 364 34% 67%
Illawarra Metallurgical Coal total saleable production decreased by 11% (or 701kt) to 5.8Mt in the nine months ended
March 2016 as challenging geological conditions were encountered in the first half of FY16 at the Appin and Dendrobium
mines and three planned longwall moves were completed during the period. A 35% increase in metallurgical coal
production in the March 2016 quarter was underpinned by the recommencement of longwall mining at Dendrobium and
the ramp-up of the new Appin Area 9 longwall following project completion ahead of schedule and below budget. The
final cost of the Appin Area 9 project is expected to be US$565M, representing a 33% saving on the original budget. The
West Cliff colliery has now been closed.
As previously revised, FY16 coal production is expected to be 8.25Mt (metallurgical coal 6.9Mt, energy coal 1.35Mt).
AUSTRALIA MANGANESE
(60% share)
3Q15 2Q16
9M 9M
South32's share YoY 3Q15 2Q16 3Q16 vs vs
YTD15 YTD16
3Q16 3Q16
Manganese ore production (kt) 2,181 2,332 7% 682 732 743 9% 2%
Manganese ore sales (kt) 2,145 2,375 11% 686 750 876 28% 17%
Manganese alloy production (kt) 124 111 (10%) 41 41 26 (37%) (37%)
Manganese alloy sales (kt) 103 120 17% 26 38 44 69% 16%
Australia Manganese saleable ore production increased by 7% (or 151kt) to 2.33Mt in the nine months ended March
2016 as the operation continued to optimise concentrator performance and benefited from drier weather conditions.
Record ore sales were achieved in the March 2016 quarter as an improvement in market conditions enabled a managed
reduction of inventory to normalised levels. FY16 ore production guidance remains unchanged at 3.05Mt as a higher strip
ratio and planned maintenance are expected to impact performance in the June 2016 quarter.
Saleable manganese alloy production decreased by 10% (or 13kt) to 111kt in the nine months ended March 2016. The
37% decline in production in the March 2016 quarter reflects the temporary suspension of two of four furnaces in
response to power shortages in Tasmania. The first of the furnaces was suspended in December 2015 and the second
suspension followed in March 2016. The two remaining furnaces are currently operating at a reduced electricity load. All
four furnaces are expected to return to full production at the end of June 2016.
The Premium Concentrate Ore (PC02) project which increases GEMCO production capacity by 500ktpa to 5.3Mtpa
(100% basis) is 98% complete and will be commissioned in the June 2016 quarter. The US$139M (100% basis) project
is expected to be completed under budget.
SOUTH AFRICA MANGANESE
(60% share)
3Q15 2Q16
9M 9M
South32's share YoY 3Q15 2Q16 3Q16 vs vs
YTD15 YTD16
3Q16 3Q16
Manganese ore production (kt) 1,782 1,219 (32%) 548 177 462 (16%) 161%
Manganese ore sales (kt) 1,803 1,345 (25%) 614 361 466 (24%) 29%
Manganese alloy production (kt) 208 68 (67%) 68 25 22 (68%) (12%)
Manganese alloy sales (kt) 204 70 (66%) 70 25 20 (71%) (20%)
South Africa Manganese saleable ore production decreased by 32% (or 563kt) to 1.22Mt in the nine months ended
March 2016 following the extended suspension of operations at Wessels and Mamatwan in November 2015 in response
to challenging market conditions. Sales of manganese ore declined by a lesser 25% as supply chain inventory was
largely drawn down.
Following the completion of a strategic review, mining activity at South Africa Manganese recommenced in the March
2016 quarter. The reconfigured operation will have greater flexibility to respond to market demand, having ramped-up
production to an optimised 2.9Mtpa (100% basis). The US$30M (100% basis) Wessels Central Block project will enable
mining to relocate closer to critical infrastructure and lower production costs in the underground mine, with first ore now
anticipated in October 2016.
South Africa Manganese saleable alloy production decreased by 67% (or 140kt) to 68kt in the nine months ended March
2016, following the suspension of three of the four high-carbon ferromanganese furnaces at Metalloys in May 2015.
Metalloys will continue to operate one of four furnaces until market conditions improve.
CERRO MATOSO
(99.9% share)
3Q15 2Q16
9M 9M
South32's share YoY 3Q15 2Q16 3Q16 vs vs
YTD15 YTD16
3Q16 3Q16
Payable nickel production (kt) 31.8 27.2 (14%) 10.6 8.8 9.7 (8%) 10%
Payable nickel sales (kt) 31.6 26.8 (15%) 11.0 8.8 9.3 (15%) 6%
Cerro Matoso payable nickel production decreased by 14% (or 4.6kt) to 27.2kt in the nine months ended March 2016 as
the average ore grade declined, consistent with the mine plan. Contained nickel production increased in the recent
quarter as processing rates and recoveries rebounded following the completion of maintenance in the December 2015
quarter. FY16 production guidance of 36.5kt remains unchanged.
CANNINGTON
(100%)
3Q15 2Q16
9M 9M
South32's share YoY 3Q15 2Q16 3Q16 vs vs
YTD15 YTD16
3Q16 3Q16
Silver production (koz) 17,365 16,356 (6%) 5,130 5,600 4,478 (13%) (20%)
Silver sales (koz) 17,687 16,262 (8%) 4,972 5,695 4,364 (12%) (23%)
Lead production (kt) 138.7 134.4 (3%) 40.1 48.4 36.9 (8%) (24%)
Lead sales (kt) 140.0 132.5 (5%) 40.3 46.8 37.0 (8%) (21%)
Zinc production (kt) 53.4 60.3 13% 16.4 22.2 18.5 13% (17%)
Zinc sales (kt) 50.6 59.8 18% 17.1 22.2 18.6 9% (16%)
A significant increase in the average zinc ore grade and recoveries at Cannington underpinned a 13% increase in zinc
production to 60.3kt in the nine months ended March 2016, consistent with the mine plan. Payable silver production
decreased by 6% (or 1.01Moz) to 16.36Moz in the same period. A reduction in mill availability, associated with an outage
in January, resulted in lower sequential production at Cannington in the March 2016 quarter. Planned mill outages are
scheduled to occur in May and August 2016.
FY16 production guidance remains unchanged (payable silver 21.65Moz, payable lead 175kt, payable zinc 80kt).
Notes:
1. Provisional unaudited net cash balance as at 31 March 2016.
2. Controllable costs are measured on a cash basis (including equity accounted investments) and exclude significant items, inter-segment sales,
foreign exchange rate movements, country specific inflation, price-linked costs and discontinued/suspended operations. Any controllable cost
movement is defined in absolute terms compared to FY15.
3. Excludes equity accounted investments.
4. Includes equity accounted investments capital expenditure, but excludes expenditure related to the purchase of intangibles and capitalised
exploration expenditure.
5. Redundancy payments of US$18M and a further US$5M of payments relating to employee entitlements (previously provided for in the ordinary
course of business) were made during the March 2016 quarter and related to restructuring at Worsley Alumina and Cerro Matoso.
6. Moody’s Investor Service has confirmed the Baa1/P-2 credit rating and P-2 short term commercial paper rating of South32 Limited, however their
outlook for all ratings is negative.
7. The ETR calculation excludes equity accounted investments as they are recorded on an after tax basis.
8. 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%.
9. 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.
10. 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.
11. Figures in italics indicate that this figure has been adjusted since it was previously reported.
12. 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); Australian Securities Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock
Exchange (JSE).
OPERATING PERFORMANCE
9M 9M
South32’s share 3Q15 4Q15 1Q16 2Q16 3Q16
YTD15 YTD16
Worsley Alumina
(86% share)
Alumina hydrate production (kt) 2,887 2,959 931 987 990 980 989
Alumina production (kt) 2,890 3,001 937 929 1,031 962 1,008
Alumina sales (kt) 2,809 2,915 866 1,048 930 968 1,017
South Africa Aluminium
(100%)
Aluminium production (kt) 524 525 168 175 178 174 173
Aluminium sales (kt) 518 525 166 177 185 178 162
Mozal Aluminium
(47.1% share)
Aluminium production (kt) 200 200 65 65 66 67 67
Aluminium sales (kt) 203 185 66 70 53 68 64
Brazil Alumina
(alumina 36% share, aluminium 40% share)
Alumina production (kt) 991 999 311 337 333 340 326
Alumina sales (kt) 979 1,021 285 330 320 341 360
Aluminium production (kt) 38 0 12 2 0 0 0
Aluminium sales (kt) 38 0 13 3 0 0 0
South Africa Energy Coal
(100%)
Energy coal production (kt) 25,765 24,071 9,240 8,508 8,292 8,087 7,692
Domestic sales (kt) 14,058 13,080 4,921 4,358 4,246 4,834 4,000
Export sales (kt) 12,267 11,596 4,354 4,123 4,132 3,889 3,575
Illawarra Metallurgical Coal
(100%)
Metallurgical coal production (kt) 5,472 4,940 1,614 1,983 2,079 1,219 1,642
Metallurgical coal sales (kt) 5,257 4,747 1,810 2,067 1,999 1,148 1,600
Energy coal production (kt) 1,065 896 185 406 406 252 238
Energy coal sales (kt) 1,071 973 272 307 391 218 364
Australia Manganese
(60% share)
Manganese ore production (kt) 2,181 2,332 682 761 857 732 743
Manganese ore sales (kt) 2,145 2,375 686 700 749 750 876
Ore grade sold (%, Mn) 47.8 47.9 47.8 47.9 48.1 47.6 47.8
Manganese alloy production (kt) 124 111 41 43 44 41 26
Manganese alloy sales (kt) 103 120 26 36 38 38 44
South Africa Manganese
(60% share)
Manganese ore production (kt) 1,782 1,219 548 492 580 177 462
Manganese ore sales (kt) 1,803 1,345 614 407 518 361 466
Ore grade sold (%, Mn) 41.4 40.2 41.7 41.0 40.2 39.9 40.4
Manganese alloy production (kt) 208 68 68 38 21 25 22
Manganese alloy sales (kt) 204 70 70 47 25 25 20
9M 9M
South32’s share 3Q15 4Q15 1Q16 2Q16 3Q16
YTD15 YTD16
Cerro Matoso
(99.9% share)
Ore mined (kwmt) 5,165 4,529 1,826 1,156 1,531 1,486 1,512
Ore processed (kdmt) 2,033 2,016 698 596 639 673 704
Ore grade processed (%, Ni) 1.69 1.53 1.63 1.59 1.55 1.52 1.53
Payable nickel production (kt) 31.8 27.2 10.6 8.6 8.7 8.8 9.7
Payable nickel sales (kt) 31.6 26.8 11.0 9.0 8.7 8.8 9.3
Cannington
(100%)
Ore mined (kt) 2,561 2,470 813 857 910 833 727
Ore processed (kt) 2,460 2,330 791 829 838 819 673
Silver ore grade processed (g/t, Ag) 264 264 247 235 272 260 258
Lead ore grade processed (%, Pb) 6.8 6.9 6.3 6.4 6.9 7.1 6.7
Zinc ore grade processed (%, Zn) 3.4 3.8 3.2 3.5 3.4 4.0 4.1
Silver production (koz) 17,365 16,356 5,130 5,236 6,278 5,600 4,478
Silver sales (koz) 17,687 16,262 4,972 6,144 6,203 5,695 4,364
Lead production (kt) 138.7 134.4 40.1 44.3 49.1 48.4 36.9
Lead sales (kt) 140.0 132.5 40.3 48.8 48.7 46.8 37.0
Zinc production (kt) 53.4 60.3 16.4 18.9 19.6 22.2 18.5
Zinc sales (kt) 50.6 59.8 17.1 16.2 19.0 22.2 18.6
FURTHER INFORMATION
INVESTOR RELATIONS
Alex Volante Rob Ward
T +61 8 9324 9029 T +61 8 9324 9340
M +61 403 328 408 M +61 431 596 831
E Alex.Volante@south32.net E Robert.Ward@south32.net
MEDIA RELATIONS
Jill Thomas Tony Johnson
T +61 8 9324 9191 T +61 8 9324 9190
M +61 423 259 190 M +61 439 500 799
E Jill.Thomas@south32.net E Tony.Johnson@south32.net
21 April 2016
JSE Sponsor: UBS South Africa (Pty) Ltd
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