Wrap Text
Quarterly Report for September 2016
South32 Limited
(Incorporated in Australia under the Corporations Act 2001 (Cth))
(ACN 093 732 597)
ASX, LSE, JSE Share Code: S32
ISIN: AU000000S320
QUARTERLY REPORT SEPTEMBER 2016
“Stronger commodity prices and cost saving initiatives delivered a further US$239M increase in our net cash position
to US$551M, despite the impact of annual payments that followed year end and the typical lag in commodity pricing.
“We entered into an agreement with Alcoa to access bauxite in close proximity to our Worsley Alumina mining
infrastructure. While subject to government and regulatory approvals, this agreement has the potential to defer capital
expenditure required to develop new mining areas.
“The combination of a strong balance sheet and operating leverage ensures we are well positioned to deliver superior
performance as we optimise our operations, unlock their potential and identify opportunities beyond our current
portfolio.”
Graham Kerr, South32 CEO
- Net cash position increased by US$239M in the September 2016 quarter to US$551M.
- Production and unit cost guidance remains unchanged for the majority of operations.
- Strong domestic demand underpinned a 2% increase in South Africa Energy Coal production, while an
expected decline in ore grades and scheduled maintenance led to a 9%, 7% and 5% reduction in nickel, silver
and zinc production, respectively.
- Restarted production in 22 pots at South Africa Aluminium as power availability continued to improve and the
operation maintained leading rates of current efficiency.
- Illawarra Metallurgical Coal sales of 9.3Mt now expected in FY17 as the operation has recovered from
challenging ground conditions at Appin and inventory has been reduced by 300kt.
- Illawarra Metallurgical Coal’s unit cost guidance of US$71/t (including sustaining capital expenditure) now
expected to be achieved in the June 2017 half year, with costs to be US$4/t higher in the December 2016 half
year given the operation’s high fixed cost base.
- South Africa Manganese mines now operating at the optimised 2.9Mwmt pa rate (100% basis) following the
decision to stop work at the Wessels underground mine in June 2016.
1
Production summary
YTD YTD
South32’s share YoY 1Q16 4Q16 1Q17 QoQ
FY16 FY17
Alumina production (kt) 1,364 1,293 (5%) 1,364 1,296 1,293 (0%)
Aluminium production (kt) 244 243 (0%) 244 238 243 2%
Energy coal production (kt) 8,698 8,191 (6%) 8,698 8,021 8,191 2%
Metallurgical coal production (kt) 2,079 1,437 (31%) 2,079 2,119 1,437 (32%)
Manganese ore production (kwmt) 1,437 1,180 (18%) 1,437 1,231 1,180 (4%)
Manganese alloy production (kt) 65 59 (9%) 65 45 59 31%
Payable nickel production (kt) 8.7 8.7 0% 8.7 9.6 8.7 (9%)
Payable silver production (koz) 6,278 4,694 (25%) 6,278 5,037 4,694 (7%)
Payable lead production (kt) 49.1 38.4 (22%) 49.1 38.8 38.4 (1%)
Payable zinc production (kt) 19.6 17.7 (10%) 19.6 18.7 17.7 (5%)
Unless otherwise noted: percentage variance relates to performance during the September 2016 quarter compared with the June 2016 quarter (QoQ);
production and sales volumes are reported on an attributable basis.
CORPORATE UPDATE
- Net cash [1] increased by US$239M to US$551M in the September 2016 quarter, despite the impact of annual
payments that followed year end, the typical lag in commodity pricing and a foreign exchange related increase in
finance lease liabilities, which rose to US$615M (US$601M 30 June 2016).
- We remain on track to achieve unit cost guidance [2] for the majority of our upstream operations in FY17 should
stated exchange rate assumptions and commodity prices prevail. The temporary disruption to production at Appin
and the operation’s high fixed cost base does, however, mean that Illawarra Metallurgical Coal unit cost guidance
of US$71/t (including sustaining capital) [2] will not be achieved until the June 2017 half year, with costs to be
US$4/t higher in the December 2016 half year.
- Guidance for capital expenditure [3] of US$450M in FY17 is predicated on several assumptions including an
average AUD:USD exchange rate of 0.72 and an average USD:ZAR exchange rate of 16.57. The rate of
expenditure expressed in US dollars therefore remains contingent on directional changes in US dollar cross rates.
- We have entered into an agreement with Alcoa of Australia Ltd. (Alcoa) to access ground directly to the west of
our existing Marradong mining area at Worsley Alumina. This agreement, which is subject to government and
regulatory approvals, has the potential to unlock value by deferring capital expenditure required to develop new
mining areas. A final development decision remains subject to the delineation of a Mineral Resource with the
characteristics of the refinery’s existing feed.
- In the September 2016 quarter, we invested US$2.5M in exploration of which US$0.3M was capitalised.
Exploration drilling for Cu-Ni-PGE mineralisation commenced at Huckleberry in the Labrador Trough, Canada,
while our existing operations focussed on metallurgical coal and silver in Australia, and nickel in Colombia.
Exploration for manganese, at GEMCO’s Southern Areas, and bauxite, west of our existing Marradong mining
area at Worsley Alumina, is expected to commence in the December 2016 quarter.
- Our Underlying effective tax rate (ETR) [4] largely reflects the geographic distribution of the Group’s profit. The
corporate tax rates applicable to South32 include: Australia 30%; South Africa 28%; Colombia 40%; and Brazil
34%. Permanent differences have a disproportionate effect on the Group’s tax rate when the Group’s profit
margins are compressed.
Upstream production and FY17 guidance
FY16 3M FY17e
(South32’s share) YTD17
Worsley Alumina
Alumina production (kt) 3,961 967 3,965
Brazil Alumina
Alumina production (kt) 1,335 326 1,320
South Africa Energy Coal [5]
Domestic coal production (kt) 16,825 4,424 17,000
Export coal production (kt) 14,856 3,320 13,850
Illawarra Metallurgical Coal
2
Metallurgical coal production (kt) 7,059 1,437 Revised down 7,550
Energy coal production (kt) 1,307 447 Revised up 1,450
Australia Manganese
Manganese ore production (kwmt) 3,071 763 3,120
South Africa Manganese
Manganese ore production [6] (kwmt) 1,711 417 Subject to demand
Cerro Matoso
Payable nickel production (kt) 36.8 8.7 36.0
Cannington
Payable silver production (koz) 21,393 4,694 19,050
Payable lead production (kt) 173 38 163
Payable zinc production (kt) 79 18 80
WORSLEY ALUMINA
(86% share)
1Q16 4Q16
South32's share YTD YTD YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17 1Q17 1Q17
Alumina production (kt) 1,031 967 (6%) 1,031 960 967 (6%) 1%
Alumina sales (kt) 930 960 3% 930 959 960 3% 0%
Worsley Alumina saleable production remained steady in the September 2016 quarter at 967kt as hydrate production
remained in excess of an annualised rate of 4.5Mt (100% basis). A calciner outage is scheduled for the December 2016
quarter and excess hydrate production will be converted into saleable alumina in the subsequent period. FY17 saleable
alumina production guidance remains unchanged at 4.0Mt.
SOUTH AFRICA ALUMINIUM
(100%)
1Q16 4Q16
South32's share YTD YTD YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17 1Q17 1Q17
Aluminium production (kt) 178 175 (2%) 178 172 175 (2%) 2%
Aluminium sales (kt) 185 178 (4%) 185 184 178 (4%) (3%)
South Africa Aluminium saleable production increased by 2% (or 3kt) to 175kt in the September 2016 quarter as the
smelter continued to achieve leading rates of current efficiency and the prevalence of load-shedding events continued to
decline. Given improved power availability, we have restarted production in the 22 pots that were suspended in
September 2015 and will ramp-up to full production during the December 2016 quarter. The number of pots scheduled
for relining in FY17 is unchanged at 72 (FY16: 183 pots).
MOZAL ALUMINIUM
(47.1% share)
1Q16 4Q16
South32's share YTD YTD YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17 1Q17 1Q17
Aluminium production (kt) 66 68 3% 66 66 68 3% 3%
Aluminium sales (kt) 53 64 21% 53 69 64 21% (7%)
Mozal Aluminium saleable production increased by 3% (or 2kt) to 68kt in the September 2016 quarter as current
efficiency continued to improve and the prevalence of load-shedding events continued to decline. The timing of
shipments at the end of the quarter led to a marginal shortfall in sales volumes.
3
BRAZIL ALUMINA
(Refinery 36% share, Smelter 40% share)
1Q16 4Q16
YTD YTD
South32's share YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17
1Q17 1Q17
Alumina production (kt) 333 326 (2%) 333 336 326 (2%) (3%)
Alumina sales (kt) 320 299 (7%) 320 338 299 (7%) (12%)
Brazil Alumina saleable production decreased by 3% (or 10kt) to 326kt in the September 2016 quarter as planned
maintenance was undertaken at the refinery and port. This maintenance and timing differences led to a temporary
reduction in sales volumes that will be recovered over the remainder of the year. FY17 saleable alumina production
guidance remains unchanged at 1.3Mt.
SOUTH AFRICA ENERGY COAL
(100%)
1Q16 4Q16
YTD YTD
South32's share YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17
1Q17 1Q17
Energy coal production (kt) 8,292 7,744 (7%) 8,292 7,610 7,744 (7%) 2%
Domestic sales (kt) 4,246 4,446 5% 4,246 4,089 4,446 5% 9%
Export sales (kt) 4,132 2,904 (30%) 4,132 3,561 2,904 (30%) (18%)
South Africa Energy Coal saleable production increased by 2% (or 134kt) to 7.7Mt in the September 2016 quarter,
underpinned by a 9% increase in domestic sales. The reduction in export sales coincided with Transnet’s annual rail
maintenance cycle. FY17 saleable coal production guidance remains unchanged at 30.9Mt (domestic coal 17.0Mt, export
coal 13.9Mt).
ILLAWARRA METALLURGICAL COAL
(100%)
1Q16 4Q16
YTD YTD
South32's share YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17
1Q17 1Q17
Metallurgical coal production (kt) 2,079 1,437 (31%) 2,079 2,119 1,437 (31%) (32%)
Metallurgical coal sales (kt) 1,986 1,723 (13%) 1,986 2,257 1,723 (13%) (24%)
Energy coal production (kt) 406 447 10% 406 411 447 10% 9%
Energy coal sales (kt) 391 470 20% 391 360 470 20% 31%
Illawarra Metallurgical Coal saleable production decreased by 26% (or 646kt) to 1.9Mt in the September 2016 quarter as
challenging geological conditions were encountered at the Appin Area 9 longwall and the step around at Appin Area 7
was extended by 22 days. No longwall moves are planned for the December 2016 quarter, with two moves scheduled for
the March 2017 quarter.
Illawarra Metallurgical Coal sales of 9.3Mt are now expected in FY17 as the operation has recovered from challenging
ground conditions at Appin and finished goods inventory has been reduced by 300kt. Accordingly, FY17 production
guidance is reduced to 9.0Mt, with the operation expected to attain the previously targeted 9.5Mtpa rate across the
remainder of the year.
Illawarra Metallurgical Coal’s unit cost guidance of US$71/t (including sustaining capital expenditure) [2] is now expected
to be achieved in the June 2017 half year, with costs to be US$4/t higher in the December 2016 half year given the
operation’s high fixed cost base.
4
AUSTRALIA MANGANESE
(60% share)
1Q16 4Q16
YTD YTD
South32's share YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17
1Q17 1Q17
Manganese ore production (kwmt) 857 763 (11%) 857 739 763 (11%) 3%
Manganese ore sales (kwmt) 722 757 5% 722 775 757 5% (2%)
Manganese alloy production (kt) 44 38 (14%) 44 22 38 (14%) 73%
Manganese alloy sales (kt) 38 54 42% 38 30 54 42% 80%
Australia Manganese saleable ore production increased by 3% (or 24kwmt) to 763kwmt in the September 2016 quarter.
FY17 production guidance of 3.1Mwmt remains unchanged. Saleable manganese alloy production increased by 73% (or
16kt) to 38kt in the September 2016 quarter as power availability improved and the two suspended furnaces were
brought back online.
SOUTH AFRICA MANGANESE
(60% share)
1Q16 4Q16
YTD YTD
South32's share YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17
1Q17 1Q17
Manganese ore production (kwmt) 580 417 (28%) 580 492 417 (28%) (15%)
Manganese ore sales (kwmt) 518 417 (19%) 518 489 417 (19%) (15%)
Manganese alloy production (kt) 21 21 0% 21 23 21 0% (9%)
Manganese alloy sales (kt) 25 20 (20%) 25 40 20 (20%) (50%)
South Africa Manganese saleable ore production decreased by 15% (or 75kwmt) to 417kwmt in the September 2016
quarter. Our mines are now operating at the optimised 2.9Mwmt pa rate (100% basis) following the decision to stop work
at the Wessels underground mine following a fatality on 6 June 2016. The Wessels Central Block project remains on
track to be completed in the March 2017 quarter, consistent with the previously revised schedule.
Manganese alloy saleable production decreased by 9% (or 2kt) to 21kt in the September 2016 quarter as Metalloys
continued to operate one of its four furnaces.
5
CERRO MATOSO
(99.9% share)
1Q16 4Q16
YTD YTD
South32's share YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17
1Q17 1Q17
Payable nickel production (kt) 8.7 8.7 0% 8.7 9.6 8.7 0% (9%)
Payable nickel sales (kt) 8.7 8.2 (6%) 8.7 10.0 8.2 (6%) (18%)
Cerro Matoso payable nickel production decreased by 9% (or 0.9kt) to 8.7kt in the September 2016 quarter as ore
grades declined, consistent with the mine plan, and processing rates were temporarily affected by scheduled
maintenance. FY17 payable nickel production guidance remains unchanged at 36kt.
CANNINGTON
(100%)
1Q16 4Q16
YTD YTD
South32's share YoY 1Q16 4Q16 1Q17 vs vs
FY16 FY17
1Q17 1Q17
Payable silver production (koz) 6,278 4,694 (25%) 6,278 5,037 4,694 (25%) (7%)
Payable silver sales (koz) 6,203 5,063 (18%) 6,203 4,590 5,063 (18%) 10%
Payable lead production (kt) 49.1 38.4 (22%) 49.1 38.8 38.4 (22%) (1%)
Payable lead sales (kt) 48.7 40.1 (18%) 48.7 37.2 40.1 (18%) 8%
Payable zinc production (kt) 19.6 17.7 (10%) 19.6 18.7 17.7 (10%) (5%)
Payable zinc sales (kt) 19.0 18.5 (3%) 19.0 22.8 18.5 (3%) (19%)
Payable silver and zinc production decreased by 7% and 5%, respectively, in the September 2016 quarter as ore grades
and recoveries declined, consistent with the mine plan. A scheduled mill outage in August 2016 also affected production
in the quarter. The next outage is scheduled for December 2016 in accordance with the mill relining cycle. FY17 payable
silver, lead and zinc production guidance remains unchanged at 19.05Moz, 163kt and 80kt, respectively.
Notes:
1. Provisional unaudited net cash balance as at 30 September 2016.
2. Unit cost guidance as provided in the FY16 Financial Results and Outlook, 25 August 2016. Operating unit cost targets, including Sustaining capital
expenditure, include royalties (where appropriate) and the influence of exchange rate assumptions, and are based on: an alumina price of US$259/t;
an average blended coal price of US$83/t for Illawarra Metallurgical Coal; a manganese ore price of US$3.23/dmtu for 44% manganese product; a
nickel price of US$3.95/lb; a thermal coal price of US$54/t (API4) for South Africa Energy Coal; a silver price of US$17.50/troy oz; a lead price of
US$1,723/t; a zinc price of US$1,907/t; an AUD:USD exchange rate of 0.72; a USD:ZAR exchange rate of 16.57; and a USD:COP exchange rate of
3,025; all of which reflect forward markets as at May 2016 or our internal expectations.
3. Includes equity accounted investments capital expenditure, but excludes expenditure related to the purchase of intangibles and capitalised
exploration expenditure.
4. The ETR calculation excludes equity accounted investments as they are recorded on an after tax basis.
5. 8% of South Africa Energy Coal is owned by a Broad-Based Black Economic Empowerment (B-BBEE) consortium. The interests owned by the
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%.
6. 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.
7. Figures in italics indicate that an adjustment has been made since the figures were previously reported.
8. 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); million wet metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); thousand dry metric tonnes (kdmt); Australian Securities
Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock Exchange (JSE).
6
OPERATING PERFORMANCE
YTD YTD
South32’s share 1Q16 2Q16 3Q16 4Q16 1Q17
FY16 FY17
Worsley Alumina
(86% share)
Alumina hydrate production (kt) 990 980 990 980 989 946 980
Alumina production (kt) 1,031 967 1,031 962 1,008 960 967
Alumina sales (kt) 930 960 930 968 1,017 959 960
South Africa Aluminium
(100%)
Aluminium production (kt) 178 175 178 174 173 172 175
Aluminium sales (kt) 185 178 185 178 162 184 178
Mozal Aluminium
(47.1% share)
Aluminium production (kt) 66 68 66 67 67 66 68
Aluminium sales (kt) 53 64 53 68 64 69 64
Brazil Alumina
(alumina 36% share, aluminium 40% share)
Alumina production (kt) 333 326 333 340 326 336 326
Alumina sales (kt) 320 299 320 341 360 338 299
South Africa Energy Coal
(100%)
Energy coal production (kt) 8,292 7,744 8,292 8,087 7,692 7,610 7,744
Domestic sales (kt) 4,246 4,446 4,246 4,834 4,000 4,089 4,446
Export sales (kt) 4,132 2,904 4,132 3,889 3,575 3,561 2,904
Illawarra Metallurgical Coal
(100%)
Metallurgical coal production (kt) 2,079 1,437 2,079 1,219 1,642 2,119 1,437
Metallurgical coal sales (kt) 1,986 1,723 1,986 1,146 1,595 2,257 1,723
Energy coal production (kt) 406 447 406 252 238 411 447
Energy coal sales (kt) 391 470 391 218 364 360 470
Australia Manganese
(60% share)
Manganese ore production (kwmt) 857 763 857 732 743 739 763
Manganese ore sales (kwmt) 722 757 722 735 852 775 757
Ore grade sold (%, Mn) 47.8 46.7 47.8 47.5 47.1 47.0 46.7
Manganese alloy production (kt) 44 38 44 41 26 22 38
Manganese alloy sales (kt) 38 54 38 38 44 30 54
South Africa Manganese
(60% share)
Manganese ore production (kwmt) 580 417 580 177 462 492 417
Manganese ore sales (kwmt) 518 417 518 361 466 489 417
Ore grade sold (%, Mn) 40.2 39.7 40.2 39.9 40.4 39.2 39.7
Manganese alloy production (kt) 21 21 21 25 22 23 21
Manganese alloy sales (kt) 25 20 25 25 20 40 20
7
YTD YTD
South32’s share 1Q16 2Q16 3Q16 4Q16 1Q17
FY16 FY17
Cerro Matoso
(99.9% share)
Ore mined (kwmt) 1,531 1,238 1,531 1,486 1,512 1,480 1,238
Ore processed (kdmt) 639 645 639 673 704 683 645
Ore grade processed (%, Ni) 1.55 1.52 1.55 1.52 1.53 1.55 1.52
Payable nickel production (kt) 8.7 8.7 8.7 8.8 9.7 9.6 8.7
Payable nickel sales (kt) 8.7 8.2 8.7 8.8 9.3 10.0 8.2
Cannington
(100%)
Ore mined (kt) 910 780 910 833 727 819 780
Ore processed (kt) 838 828 838 819 673 819 828
Silver ore grade processed (g/t, Ag) 272 216 272 260 258 230 216
Lead ore grade processed (%, Pb) 6.9 5.7 6.9 7.1 6.7 5.9 5.7
Zinc ore grade processed (%, Zn) 3.4 3.2 3.4 4.0 4.1 3.6 3.2
Payable silver production (koz) 6,278 4,694 6,278 5,600 4,478 5,037 4,694
Payable silver sales (koz) 6,203 5,063 6,203 5,695 4,364 4,590 5,063
Payable lead production (kt) 49.1 38.4 49.1 48.4 36.9 38.8 38.4
Payable lead sales (kt) 48.7 40.1 48.7 46.8 37.0 37.2 40.1
Payable zinc production (kt) 19.6 17.7 19.6 22.2 18.5 18.7 17.7
Payable zinc sales (kt) 19.0 18.5 19.0 22.2 18.6 22.8 18.5
Forward-looking statements
This release contains forward-looking statements, including statements about currency exchange rates, commodity prices, production forecasts, plans,
development decisions, exploration and capital expenditure. These forward-looking statements reflect expectations at the date of this release; however,
they are not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other factors, many of which are
beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this release. Readers are
cautioned not to put undue reliance on forward-looking statements. Except as required by applicable laws or regulations, South32 Limited does not
undertake to publicly update or review any forward looking statements, whether as a result of new information or future events. Past performance cannot be
relied on as a guide to future performance.
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
Diana Wearing Smith James Clothier
T +61 8 9324 9198 T +61 8 9324 9697
M +61 436 482 290 M +61 413 319 031
E Diana.Smith@south32.net E James.Clothier@south32.net
8
20 October 2016
JSE Sponsor: UBS South Africa (Pty) Ltd
Date: 20/10/2016 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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