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SOUTH32 LIMITED - Quarterly Report March 2020

Release Date: 20/04/2020 07:08
Code(s): S32     PDF:  
 
Wrap Text
Quarterly Report March 2020

South32 Limited
Incorporated in Australia under the Corporations Act 2001 (Cth))
(ACN 093 732 597)
ASX, LSE, JSE Share Code: S32 ADR: SOUHY
ISIN: AU000000S320

Quarterly Report March 2020


 -    Responded to market conditions to maintain the financial strength of our               “We have responded to the COVID-19
      business by suspending the remaining US$121M of our current                             pandemic by introducing a number of
      on-market share buy-back program and lowering FY20 sustaining capital                   measures aligned to our priorities of
      expenditure guidance, including equity accounted investments,                           keeping our people safe and well,
      to US$500M.                                                                             maintaining reliable operations and  
                                                                                              supporting our communities.
                                                                                                          
 -    Initiated a Group wide review that is expected to deliver a reduction in               "We have acted to protect our strong
      controllable costs across our operations from FY21.                                     financial position, reducing capital
                                                                                              and exploration expenditure,
 -    Net cash declined by US$127M to US$150M during the quarter as we                        suspending our on-market share
      funded our interim ordinary and special dividends (US$107M), made our                   buy-back and commencing a group
      subscription payment for our 50% interest in the Ambler Metals Joint                    wide review aimed at delivering a
      Venture (net, US$73M) and bought back a further 53M shares through our                  reduction in controllable costs.
      on-market share buy-back program (US$77M).
                                                                                             "At our operations, we have
 -    Removed guidance for our operations in South Africa and Colombia and                    delivered a strong operating result in
      lowered FY20 production guidance at Australia Manganese by 5%,                          the year to date, highlighted by
      in response to restrictions aimed at containing the spread of COVID-19.                 record production at Brazil Alumina                     
                                                                                              and Hillside Aluminium.
 -    Received government approval to undertake limited activity at our South                             
      African manganese ore and export coal operations during the national                   "Despite   market    volatility,   we
      lockdown, remobilising at a reduced rate in April.                                      continue our work to reshape and
                                                                                              improve our portfolio, forming the
 -    Maintained FY20 guidance for all other operations, where to date                        Ambler Metals Joint Venture,
      production and sales have been unaffected by our response to COVID-19.                  progressing the sale of South Africa
                                                                                              Energy Coal and maintaining
 -    Increased Alumina production by 4% achieving record year to date                        momentum at Hermosa."
      production at Brazil Alumina and maintaining higher rates of calciner                                                          
      availability at Worsley Alumina as we deliver initiatives to sustainably                Graham Kerr, South32 CEO
      increase to nameplate capacity.                           
                                                                        
 -    Delivered record year to date production at Hillside Aluminium, where the                           
      smelter has a government exemption to maintain production during the                                
      lockdown.  
                                                                                         
 -    On-track to return to a three longwall configuration in the June 2020                               
      quarter at Illawarra Metallurgical Coal, where study work to further
      optimise production, sustaining capital and operating costs to maximise                                                                                        
      long term value has been advanced following strong longwall
      performance.
      

 Production summary
 South32 share                               9M YTD19      9M YTD20       YoY       3Q19      2Q20     3Q20    QoQ

 Alumina production (kt)                        3,743         3,911        4%      1,201     1,327    1,276    (4%)
 Aluminium production (kt)                        737           741        1%        242       248      245    (1%)
 Energy coal production (kt)                   19,239        18,472       (4%)     6,310     5,898    5,851    (1%)
 Metallurgical coal production (kt)             4,072         4,026       (1%)       990     1,208    1,167    (3%)
 Manganese ore production (kwmt)                4,246         4,120       (3%)     1,360     1,398    1,307    (7%)
 Manganese alloy production (kt)                  161           129      (20%)        52        47       38    (19%)
 Payable nickel production (kt)                  30.5          30.9        1%        9.4      10.0     10.3     3%
 Payable silver production (koz)                8,948         8,597       (4%)     2,881     3,192    2,433    (24%)
 Payable lead production (kt)                    73.1          80.3        10%      24.8      28.8     25.0    (13%)
 Payable zinc production (kt)                    37.0          49.8        35%      10.7      14.1     17.3     23%
 
Unless otherwise noted: percentage variance relates to performance during the nine months ended March 2020 compared with the nine 
months ended March 2019 (YoY) or the March 2020 quarter compared with the December 2019 quarter (QoQ); production and sales 
volumes are reported on an attributable basis.




                                                                                                                                1
Corporate Update
-   Net cash(Note 1) decreased by US$127M to US$150M during the March 2020 quarter with our interim and special fully
    franked dividend payments (US$107M) funded during the quarter, ahead of distribution to shareholders on 2 April. Our balance
    sheet remains strong with cash and cash equivalents of US$1.2B, no term debt and an undrawn US$1.5B revolving credit
    facility.
-   Our manganese equity accounted investments (EAI) did not make net distributions(Note 2) to the Group in the March 2020
    quarter and we have seen additional cash build in our joint venture, despite paying royalties of US$76M (100% share) in
    respect of the prior six month period. Excess cash in the joint venture is expected to be distributed to partners in the June 2020
    quarter.
-   On 27 March, consistent with the prudent management of our strong balance sheet, we suspended our on-market share
    buy-back program. Following the allocation of a further US$77M to share purchases in the March 2020 quarter (53M shares at
    an average price of A$2.21 per share) and payment of a US$53M fully franked special dividend on 2 April, our US$1.43B
    capital management program was 92% complete with US$121M  of our now suspended on-market share buy-back program remaining 
    ahead of its extension or expiry on 4 September 2020(Note 3).
-   On 11 February, we formed a 50:50 Joint Venture with Trilogy Metals Inc. for the Upper Kobuk Mineral Projects in northwest
    Alaska (Ambler Metals JV). We subscribed for our 50% interest with a payment of US$145M to the Ambler Metals JV, of which
    US$57.5M has been loaned back to South32(Note 4).
-   We progressed the sale of our shareholding in South Africa Energy Coal to Seriti Resources Holdings Proprietary Limited
    (Seriti Resources), submitting our filings for required regulatory and third party approvals. Subject to a number of material
    conditions(Note 5) being satisfied, the transaction remains on track to be completed in the December 2020 half year.
-   While we progressed the review of options for our manganese alloy smelters, the timeline to complete the review has been
    impacted by government restrictions in response to COVID-19. On 27 March we placed our South African Manganese manganese alloy 
    smelter, Metalloys, on temporary care and maintenance in response to the national lockdown.
-   As previously reported, we have initiated a Group wide review that is expected to deliver a reduction in controllable costs
    across our operations from FY21. Sustaining capital expenditure, including EAI, is now expected to decline to approximately
    US$500M in FY20, as we embed savings from reduced activity in response to market conditions and reflect updated
    assumptions for our average exchange rates to an AUD:USD of 0.67, USD:ZAR of 15.76 and USD:COP of 3,544.
-   Our geographical earnings mix will have a significant bearing on our ETR given differing country tax rates(Note 6), while the
    impact of intragroup agreements, exploration expenditure in foreign entities and other permanent differences will continue to
    be magnified when margins are compressed or losses are incurred in specific jurisdictions. Until it is sold, South Africa Energy
    Coal is expected to have an ETR of 0%, with all tax assets de-recognised from 30 June 2019 and no benefit to be recorded for
    losses made prior to sale. Whilst it is therefore difficult to predict our ETR (excluding EAI), we do expect it to remain elevated 
    in H2 FY20 (H1 FY20: 75.0%).


Development and Exploration Update
-   We progressed our pre-feasibility study for the Taylor deposit at the Hermosa project which we now expect to be completed in
    the September 2020 quarter. We also directed US$5M (all capitalised) to exploration programs at newly identified regional
    targets and resource definition drilling at the project. A Mineral Resource estimate for the Clark deposit in accordance with
    JORC Code guidelines is expected to be released in the June 2020 quarter(Note 7).
-   Subsequent to the end of the quarter we completed the remaining resource quality drilling at Eagle Downs Metallurgical Coal,
    with the interpretation of those results to support on-going feasibility study work. On 27 March, we reported that given current
    market uncertainty, we are prioritising work with our joint venture partner to preserve the value of our investment beyond the
    final investment decision scheduled for the end of this calendar year.
-   Following the formation of the Ambler Metals JV in the March 2020 quarter, we released Mineral Resource estimates for the
    Arctic and Bornite deposits for the first time in accordance with JORC Code guidelines. During the June 2020 quarter, the joint
    venture partners will review the impact of COVID-19 restrictions on planned activities for the remainder of the calendar year.
    We anticipate a reduction in the approved exploration and study budget of US$22.8M due to reduced exploration activity.
-   Consistent with our strategy to partner with companies to fund early stage greenfield exploration opportunities, we invested
    US$3M during the March 2020 quarter (US$13M in the nine months ended March 2020). Greenfield exploration activity has
    been impacted by COVID-19 restrictions on the movement of people and equipment which limited the ability for some of our
    partners to access exploration areas in certain jurisdictions. Accordingly, FY20 greenfield exploration guidance has been
    reduced by US$10M to US$20M with these restrictions expected to continue for the remainder of the calendar year.
-   We directed US$12M towards exploration programs at our existing operations (US$10M capitalised), including US$5M at
    Hermosa as noted above (all capitalised).




                                                                                                                            2
Production Summary

Production guidance                                                      9M
                                                              FY19     YTD20     FY20e  Comments
(South32 share)                                                       
Worsley Alumina
                                                                                        Assumes existing or additional COVID-
Alumina production (kt)                                       3,795    2,869    3,965   19 restrictions or measures have no
                                                                                        impact
Brazil Alumina
                                                                                        Assumes existing or additional COVID-
Alumina production (kt)                                       1,255    1,042    1,330   19 restrictions or measures have no
                                                                                        impact
Hillside Aluminium
Aluminium production (kt)                                      715      540       n/a   Production guidance withdrawn
Mozal Aluminium(Note 8)
                                                                                        Assumes existing or additional COVID-
Aluminium production (kt)                                      267      201      273    19 restrictions or measures have no
                                                                                        impact
South Africa Energy Coal(Note 9)
Energy coal production (kt)                                  24,979   17,444      n/a
Domestic coal production (kt)                                14,978    9,510      n/a   Production guidance withdrawn
Export coal production (kt)                                  10,001    7,934      n/a
Illawarra Metallurgical Coal
Total coal production (kt)                                    6,647    5,054    7,000   Assumes existing or additional COVID-
Metallurgical coal production (kt)                            5,350    4,026    5,800   19 restrictions or measures have no
Energy coal production (kt)                                   1,297    1,028    1,200   impact
Australia Manganese
                                                                                        Production guidance lowered 5%,
                                                                                        reflecting lower year to date throughput
                                                                                        and reduced productivity expectations
Manganese ore production (kwmt)                               3,349    2,616    (down)  following temporary roster changes
                                                                                3,375   made to respond to COVID-19. Remains
                                                                                        subject to market demand
                                                                                        
South Africa Manganese
Manganese ore production(Note 10) (kwmt)                      2,187    1,504      n/a   Production guidance withdrawn
Cerro Matoso
Payable nickel production (kt)                                 41.1     30.9      n/a   Production guidance withdrawn
Cannington
Payable zinc equivalent production(Note 11)(kt)               218.2    174.5    221.0
Payable silver production (koz)                              12,201    8,597   11,200   Assumes existing or additional COVID-
                                                                                        19 restrictions or measures have no
Payable lead production (kt)                                  101.4     80.3    104.0   impact
Payable zinc production (kt)                                   51.6     49.8     59.0
The denotation (e) refers to an estimate or forecast year.




                                                                                                                                   3
Worsley Alumina
(86% share)


                                                                                                                         
                                                                                                                    3Q20      3Q20
South32 share                                       9M         9M        YoY        3Q19       2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                                 3Q19      2Q20

Alumina production (kt)                           2,799      2,869       3%          893        981       936        5%      (5%)

Alumina sales (kt)                                2,821      2,751      (2%)         936        973       860       (8%)     (12%)


Worsley Alumina saleable production increased by 3% (or 70kt) to 2,869kt in the nine months ended March 2020 as the refinery
benefitted from improvement initiatives expected to support a sustainable increase in production to nameplate capacity of 4.6Mt
(100% basis).

Sales declined by 12% during the March 2020 quarter as scheduled calciner maintenance impacted production, and a shipment
slipped to the June 2020 quarter as a result of COVID-19 quarantine delays at port. Subject to existing or additional COVID-19
restrictions or measures having no impact during the remainder of the financial year, FY20 production is expected to approach
guidance of 3,965kt with no further material calciner maintenance scheduled.

Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure has been reduced by US$13M (or 22%) to US$47M.


Brazil Alumina
(36% share)


                                                                                                                    3Q20      3Q20
South32 share                                       9M         9M        YoY        3Q19       2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                                 3Q19      2Q20

Alumina production (kt)                             944      1,042      10%          308        346       340       10%       (2%)

Alumina sales (kt)                                  866      1,014      17%          247        374       336       36%      (10%)


Brazil Alumina saleable production increased by 10% (or 98kt) to a record 1,042kt in the nine months ended March 2020 as the
refinery benefitted from improved steam generation, enabling the benefits of the De-bottlenecking Phase One project to be
realised. Subject to existing or additional COVID-19 restrictions or measures having no impact during the remainder of the financial
year, FY20 production guidance remains unchanged at 1,330kt with additional maintenance scheduled for the June 2020 quarter.

Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure is unchanged at US$35M.


Hillside Aluminium
(100%)


                                                                                                                    3Q20      3Q20
South32 share                                       9M         9M        YoY        3Q19       2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                                 3Q19      2Q20

Aluminium production (kt)                           536        540       1%          176        181       178        1%      (2%)

Aluminium sales (kt)                                516        524       2%          156        176       174      12%       (1%)


Hillside Aluminium saleable production increased by 1% (or 4kt) to a record 540kt in the nine months ended March 2020 as the
smelter continued to test its maximum technical capacity, despite the impact to production from load-shedding.

Hillside Aluminium is considered an essential business in South Africa for the maintenance of power generation, given the role it
plays in the sustainability of Eskom’s generation network. As a result, the smelter continues to operate despite the nationwide
lockdown that is currently scheduled to expire on 30 April, having commenced at midnight on 26 March.

As previously reported, FY20 production guidance has been withdrawn due to the uncertain impact of measures or restrictions that
may be required to contain the spread of COVID-19.

Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure has been reduced by US$11M (or 48%) to US$12M.



                                                                                                                                    4
Mozal Aluminium
(47.1% share)

                                                                                                               3Q20      3Q20
South32 share                                       9M        9M        YoY        3Q19     2Q20      3Q20      vs        vs
                                                  YTD19      YTD20                                             3Q19      2Q20

Aluminium production (kt)                           201       201        0%         66        67       67       2%        0%

Aluminium sales (kt)                                198       201        2%         69        72       65      (6%)     (10%)

Mozal Aluminium saleable production was unchanged at 201kt in the nine months ended March 2020 as the smelter continued to
test its maximum technical capacity, despite the impact to production from load-shedding. Subject to no impact from existing or                                                                                                                     
additional COVID-19 restrictions or measures during the remainder of the financial year, FY20 production guidance(Note 8) remains
unchanged at 273kt.

The smelter sources all of its alumina from our Worsley Alumina refinery with approximately 50% priced as a percentage of the
LME aluminium index under a legacy contract and the remainder linked to the Platts alumina index on an M-1 basis, with caps and
floors embedded within specific contracts that reset every calendar year. As a result the smelter’s cost of alumina was a premium
to the index in the nine months ended March 2020.

Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure has been reduced by US$1M (or 8%) to US$11M.


South Africa Energy Coal
(100%)


                                                                                                                3Q20      3Q20
South32 share                                       9M         9M       YoY        3Q19     2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                             3Q19      2Q20

Energy coal production (kt)                       18,269    17,444      (5%)      6,098     5,493     5,659      (7%)       3%

Domestic sales (kt)                               11,699     9,632     (18%)      3,950     2,962     2,944     (25%)      (1%)

Export sales (kt)                                 6,753      7,535      12%       2,547     2,877     2,681       5%       (7%)

South African Energy Coal saleable production decreased by 5% (or 825kt) to 17.4Mt in the nine months ended March 2020 as the
demobilisation of contractors in response to market conditions and heavy rainfall experienced in the March 2020 quarter, more than
offset a 12% increase in export sales volumes. Higher export sales volumes were achieved as a result of improved dragline
availability at Klipspruit and the diversion of lower calorific value coal to the export market to take advantage of favourable market
conditions.

The diversion of lower calorific value coal has an impact on the average price received for our export sales and accordingly we
realised a discount of approximately 20% to the API4 index(Note 12) in the nine months ended March 2020. Notwithstanding the
increased tonnages in the nine months ended March 2020, export sales declined 7% during the quarter, as the temporary closure
of the Richards Bay Coal Terminal, caused by the national lockdown resulted in the deferral of shipments.
Our average realised price for domestic coal in the nine months ended March 2020 was US$24/t. In the June 2019 quarter, we
invoked a hardship clause in our contract to supply coal from the Wolvekrans-Middelburg Complex to the Duvha power station with
a view to securing a long term pricing tariff that supports the sustainability of the business. During the March 2020 quarter an
interim pricing arrangement has been agreed to ensure continuous supply while Eskom undertakes their review of the hardship
claim.

As previously reported, FY20 production guidance has been withdrawn following the nationwide lockdown in South Africa that is
currently scheduled to expire on 30 April, having commenced at midnight on 26 March. While our domestic operations are
considered essential in South Africa for the maintenance of power generation and are exempt from the lockdown, domestic
demand is expected to be impacted by lower total power generation during the June 2020 quarter. Our export operations were
placed on temporary care and maintenance at commencement of the lockdown. We subsequently requested and received
government approval to undertake limited activity during the lockdown period and have partially remobilised at a reduced rate.
Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure has been reduced by US$21M (or 32%) to US$44M.




                                                                                                                                5
Illawarra Metallurgical Coal
(100%)


                                                                                                                    3Q20      3Q20
South32 share                                       9M         9M        YoY        3Q19       2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                                 3Q19      2Q20

Total coal production (kt)                         5,042      5,054       0%         1,202     1,613     1,359       13%      (16%)

Total coal sales(Note 13) (kt)                     4,790      5,213       9%         1,531     1,771     1,594        4%      (10%)

Metallurgical coal production (kt)                 4,072      4,026      (1%)          990     1,208     1,167       18%       (3%)

Metallurgical coal sales (kt)                      3,783      4,198      11%         1,256     1,318     1,398       11%         6%

Energy coal production (kt)                          970      1,028       6%           212       405       192       (9%)     (53%)

Energy coal sales (kt)                             1,007      1,015       1%           275       453       196      (29%)     (57%)

Illawarra Metallurgical Coal saleable production increased by 12kt to 5.1Mt in the nine months ended March 2020 as we completed
a longwall move at Dendrobium during the March 2020 quarter. Notwithstanding both longwalls encountering challenging strata
conditions to commence the June 2020 quarter, FY20 guidance remains unchanged at 7.0Mt, subject to no impact from existing or
additional COVID-19 restrictions or measures during the remainder of the financial year.

The operation remains on track to return to a three longwall configuration in the June 2020 quarter. With continued strong longwall
performance at both Dendrobium and Appin with a two longwall configuration, we have commenced a review to optimise
production, sustaining capital and operating costs at Illawarra Metallurgical Coal, to maximise long term value.

Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure has been reduced by US$2M (or 1%) to US$183M.



Australia Manganese
(60% share)


                                                                                                                    3Q20      3Q20
South32 share                                       9M         9M        YoY        3Q19       2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                                 3Q19      2Q20

Manganese ore production (kwmt)                    2,631      2,616      (1%)         820       907       841        3%        (7%)

Manganese ore sales (kwmt)                         2,522      2,512      (0%)         782       885       775       (1%)      (12%)

Manganese alloy production (kt)                      114         81     (29%)         38        29         24      (37%)      (17%)

Manganese alloy sales (kt)                           105         89     (15%)         29        26         31        7%        19%


Australia Manganese saleable ore production decreased by 1% (or 15kwmt) to 2,616kwmt in the nine months ended March 2020
as lower primary circuit throughput, following heavy rain in late FY19, was partially offset by an increase in demand for our low cost
Premium Concentrate Ore (PC02) product. We continued to operate the PC02 circuit above its design capacity, contributing 11% of
total production in the nine months ended March 2020 (10% in the prior corresponding period). Manganese ore sales declined 12%
during the March 2020 quarter due to lower production and a shipment that slipped to the June 2020 quarter as a result of
quarantine delays at port.

FY20 production guidance has been lowered by 5% to 3,375kwmt, reflecting lower year to date throughput and reduced
productivity expectations to finish the year following temporary roster changes made to respond to COVID-19. Guidance is subject
to no further impact from COVID-19 restrictions or measures during the remainder of the financial year. We also continue to
monitor the potential impact of the wet season and market conditions on our adjusted FY20 production guidance.
Manganese alloy saleable production decreased by 29% (or 33kt) to 81kt in the nine months ended March 2020 as one of the four
furnaces remained offline.

Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure has been reduced by US$1M (or 2%) to US$63M.




                                                                                                                               6
South Africa Manganese
(60% share)


                                                                                                                    3Q20      3Q20
South32 share                                       9M         9M        YoY        3Q19       2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                                 3Q19      2Q20

Manganese ore production(Note 10) (kwmt)          1,615      1,504      (7%)         540        491       466     (14%)       (5%)

Manganese ore sales(Note 10) (kwmt)               1,540      1,549       1%          530        529       476     (10%)      (10%)

Manganese alloy production (kt)                       47        48       2%            14        18        14        0%      (22%)

Manganese alloy sales (kt)                            51        48      (6%)           16        15        20      25%        33%


South Africa Manganese saleable ore production decreased by 7% (or 111kwmt) to 1,504kwmt in the nine months ended March
2020 as we reduced our use of higher cost trucking and undertook an extended maintenance shut at our Wessels mine in the
December quarter, in response to market conditions.

As previously reported, FY20 production guidance has been withdrawn following the nationwide lockdown in South Africa that is
currently scheduled to expire on 30 April, having commenced at midnight on 26 March. Our manganese ore and alloy operations
were placed on temporary care and maintenance at commencement of the lockdown. We subsequently requested and received
government approval to undertake limited activity during the lockdown period and have partially remobilised our manganese ore
operations to resume production activities at a reduced rate across the June 2020 quarter.

Manganese alloy saleable production increased by 2% (or 1kt) to 48kt in the nine months ended March 2020. Our Metalloys
smelter remains on temporary care and maintenance.

Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure has been reduced by US$5M (or 19%) to US$21M.


Cerro Matoso
(99.9% share)


                                                                                                                    3Q20      3Q20
South32 share                                       9M         9M        YoY        3Q19       2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                                 3Q19      2Q20

Payable nickel production (kt)                      30.5      30.9       1%          9.4       10.0      10.3       10%         3%

Payable nickel sales (kt)                           30.4      30.6       1%          9.1       10.4      10.2       12%       (2%)


Cerro Matoso payable nickel production increased by 1% (or 0.4kt) to 30.9kt in the nine months ended March 2020 as we achieved
a higher rate of plant utilisation.

As previously reported, FY20 production guidance has been withdrawn following the nationwide lockdown in Colombia that is
currently scheduled to expire on 27 April, having commenced at midnight on 24 March. Despite the lockdown, Cerro Matoso
continues to operate with government approval, at a reduced rate, with FY20 production expected to benefit from the deferral of the
major furnace refurbishment previously scheduled for the June 2020 quarter.

Sales declined 2% during the March 2020 quarter. Our ferronickel product sells with reference to the LME Nickel index price on a
M or M+1 basis and attracts product discounts that have widened in the current market.

Following a review of activity in response to market conditions, deferral of the furnace refurbishment to the September 2020 quarter
and an update to our assumptions for foreign exchange rates over the remainder of FY20, guidance for sustaining capital
expenditure has been reduced by US$21M (or 38%) to US$34M.




                                                                                                                               7
Cannington
(100% share)

                                                                                                                  3Q20      3Q20
South32 share                                       9M         9M        YoY      3Q19       2Q20      3Q20        vs        vs
                                                  YTD19       YTD20                                               3Q19      2Q20

Payable zinc equivalent production(Note 11) (kt)  158.1       174.5      10%      50.7       59.6      54.4        7%       (9%)

Payable silver production (koz)                   8,948       8,597      (4%)    2,881      3,192     2,433      (16%)     (24%)

Payable silver sales (koz)                        8,160       8,538       5%     1,820      3,549     2,626       44%      (26%)

Payable lead production (kt)                       73.1        80.3      10%      24.8       28.8      25.0        1%      (13%)

Payable lead sales (kt)                            59.8        74.6      25%      12.7       31.2      22.8       80%      (27%)

Payable zinc production (kt)                       37.0        49.8      35%      10.7       14.1      17.3       62%       23%

Payable zinc sales (kt)                            31.9        49.7      56%       7.2       16.4      14.4      100%      (12%)


Cannington payable zinc equivalent production increased by 10% (or 16.4kt) to 174.5kt in the nine months ended March 2020 as
the operation drew down run of mine stocks to a normalised level and recorded a higher average zinc grade, that more than offset
lower silver and lead grades across the period.

Subject to no impact from existing or additional COVID-19 restrictions or measures during the remainder of the financial year, FY20
production guidance remains unchanged at 221.0kt payable zinc equivalent with a lower average zinc grade expected in the June
2020 quarter. Reduced sales in the March 2020 quarter reflect lower silver and lead production and a return to normalised
inventory levels following elevated sales in the prior quarter. Our lead and zinc sells with reference to the LME market on a M+2 or 
M+3 basis and our realised prices are disclosed net of treatment and refining charges that have widened in the current market.

Following a review of activity in response to market conditions and an update to our assumptions for foreign exchange rates over
the remainder of FY20, guidance for sustaining capital expenditure has been reduced by US$5M (or 9%) to US$50M.


Notes:

1.    Net Cash number is unaudited and should not be considered as an indication of or alternative to an IFRS measure of 
      profitability, financial performance or liquidity.
2.    Net distributions from equity accounted investments includes net debt movements and dividends, which are unaudited and 
      should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance 
      or liquidity.
3.    Since inception, US$1.0B has been allocated to the on-market share buy-back (477M shares at an average price of A$2.94 
      per share).
4.    South32 subscription payment of US$145M to form the Ambler Metals JV. The JV has retained US$87.5M of the subscription 
      payment to fund its activities,exploration and a pre-feasibility study for the Arctic deposit, and loaned US$57.5M back 
      to South32. On a proportionally consolidated basis the net effect on South32’s net cash is US$(72.5)M.
5.    Refer to the market announcement “Agreement to Divest South Africa Energy Coal” dated 6 November 2019.
6.    The primary corporate tax rates applicable to the Group for FY20 include: Australia 30%, South Africa 28%, 
      Colombia 33%, Mozambique 0% and Brazil 34%. The Colombian corporate tax rate is 32% in CY20 and will decrease on an 
      annual basis by a percent each year, stabilising at 30% from 1 January 2022. The Mozambique operations are subject 
      to a royalty on revenues instead of income tax.
7.    Information that relates to estimates of Mineral Resources for the Clark Deposit (formally the Central Deposit) of 
      the Hermosa project are foreign estimates under ASX Listing Rules and are not reported in accordance with the JORC 
      Code. Reference should be made to the clarifying statement on Mineral Resources in the market announcement “South32 
      to acquire Arizona Mining in agreed all cash offer” dated 18 June 2018, in accordance with ASX Listing Rule 5.12. 
      South32 is not in possession of any new information or data relating to the foreign estimate that materially impacts 
      on the reliability of the estimate or has the ability to verify the foreign estimate as a Mineral Resource in 
      accordance with the JORC Code. South32 confirms that the supporting information contained in the clarifying statement 
      in the 18 June 2018 market announcement continues to apply and has not materially changed. Competent 
      Persons have not done sufficient work to classify the foreign estimates as Mineral Resources in accordance with JORC Code. 
      It is uncertain that following evaluation and further exploration that the foreign estimates will be able to be reported 
      as Mineral Resources or Ore Reserves in accordance with the JORC Code. During FY20 we have undertaken a work program 
      aimed at increasing confidence in the resource to ensure that resources are reported in accordance with the JORC Code.
8.    Production guidance for Mozal Aluminium does not assume any load-shedding impact on production.
9.    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%.
10.   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 statements will continue to reflect a 54.6% interest in South Africa 
      Manganese ore.
11.   Payable zinc equivalent (kt) was calculated by aggregating Revenue from payable silver, lead and zinc, and dividing the 
      total Revenue by the price of zinc. FY19 realised prices for zinc (US$2,122/t), lead (US$1,754/t) and silver (US$14.4/oz) 
      have been used for FY19, YTD FY20 and FY20e.
12.   The sales volume weighted average of the API4 index on the basis of a one month lag to published pricing 
      (Month minus one or “M-1”)was US$72/t in the nine months ended March quarter 2020.
13.   Illawarra Metallurgical Coal sales are adjusted for moisture and will not reconcile directly to Illawarra 
      Metallurgical Coal production.

The following abbreviations have been used throughout this report: US$ million (US$M); US$ billion (US$B); grams per 
tonne (g/t); tonnes (t); thousand tonnes (kt);thousand tonnes per annum (ktpa); million tonnes (Mt); million 
tonnes per annum (Mtpa); ounces (oz); 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).

Figures in Italics indicate that an adjustment has been made since the figures were previously reported. 
The denotation (e) refers to an estimate or forecast year.




                                                                                                                       8
Operating Performance
                                                     
South32 share                                9M       9M     3Q19    4Q19    1Q20    2Q20    3Q20
                                           YTD19    YTD20

Worsley Alumina (86% share)

Alumina hydrate production (kt)             2,868    2,873    921     934     967     943     963

Alumina production (kt)                     2,799    2,869    893     996     952     981     936

Alumina sales (kt)                          2,821    2,751    936    1,036    918     973     860

Brazil Alumina (36% share)

Alumina production (kt)                      944     1,042    308     311     356     346     340

Alumina sales (kt)                           866     1,014    247     374     304     374     336

Hillside Aluminium (100%)

Aluminium production (kt)                    536      540     176     179     181     181     178

Aluminium sales (kt)                         516      524     156     191     174     176     174

Mozal Aluminium (47.1% share)

Aluminium production (kt)                    201      201      66      66      67      67      67

Aluminium sales (kt)                         198      201      69      70      64      72      65

South Africa Energy Coal (100%)

Energy coal production (kt)                18,269   17,444   6,098   6,710   6,292   5,493   5,659

Domestic sales (kt)                        11,699    9,632   3,950   3,336   3,726   2,962   2,944

Export sales (kt)                           6,753    7,535   2,547   3,122   1,977   2,877   2,681

Illawarra Metallurgical Coal (100%)

Total coal production (kt)                  5,042    5,054   1,202   1,605   2,082   1,613   1,359

Total coal sales(Note 13) (kt)              4,790    5,213   1,531   1,516   1,848   1,771   1,594

Metallurgical coal production (kt)          4,072    4,026    990    1,278   1,651   1,208   1,167

Metallurgical coal sales (kt)               3,783    4,198   1,256   1,261   1,482   1,318   1,398

Energy coal production (kt)                  970     1,028    212     327     431     405     192

Energy coal sales (kt)                      1,007    1,015    275     255     366     453     196

Australia Manganese (60% share)

Manganese ore production (kwmt)             2,631    2,616    820     718     868     907     841

Manganese ore sales (kwmt)                  2,522    2,512    782     916     852     885     775

Ore grade sold (%, Mn)                       45.9     44.8    45.8    46.0    45.6    44.4    44.4

Manganese alloy production (kt)              114       81      38      40      28      29      24

Manganese alloy sales (kt)                   105       89      29      46      32      26      31

South Africa Manganese (60% share)

Manganese ore production(Note 10) (kwmt)    1,615    1,504    540     572     547     491     466

Manganese ore sales(Note 10) (kwmt)         1,540    1,549    530     573     544     529     476

Ore grade sold (%, Mn)                       40.1     39.9    39.7    41.7    40.4    39.6    39.8

Manganese alloy production (kt)               47       48      14      22      16      18      14

Manganese alloy sales (kt)                    51       48      16      22      13      15      20


                                                                                                     9

South32 share                                        9M       9M     3Q19    4Q19    1Q20    2Q20    3Q20
                                                   YTD19    YTD20
Cerro Matoso (99.9% share)

Ore mined (kwmt)                                   1,854    2,041      645    424     668     732    641

Ore processed (kdmt)                               2,035    2,082      634    703     712     677    693

Ore grade processed (%, Ni)                         1.67     1.66     1.63   1.65     1.65    1.67   1.67

Payable nickel production (kt)                      30.5     30.9      9.4   10.6     10.6    10.0   10.3

Payable nickel sales (kt)                           30.4     30.6      9.1   10.8     10.0    10.4   10.2

Cannington (100%)

Ore mined (kwmt)                                   1,954    2,066      648    771      694     666   706

Ore processed (kdmt)                               1,791    2,095      547    704      656     738   701

Silver ore grade processed (g/t, Ag)                 188      155      202    172      168     162   134

Lead ore grade processed (%, Pb)                     5.0      4.7      5.6    4.8      4.9     4.8    4.5

Zinc ore grade processed (%, Zn)                     3.0      3.4      3.0    3.0      3.8     2.8    3.6

Payable Zinc equivalent production(Note 11) (kt)   158.1    174.5     50.7    60.1     60.5    59.6   54.4

Payable silver production (koz)                    8,948    8,597    2,881   3,253    2,972    3,192  2,433

Payable silver sales (koz)                         8,160    8,538    1,820   4,874    2,363    3,549  2,626

Payable lead production (kt)                        73.1     80.3     24.8    28.3     26.5    28.8   25.0

Payable lead sales (kt)                             59.8     74.6     12.7    41.7     20.6    31.2   22.8

Payable zinc production (kt)                        37.0     49.8     10.7    14.6     18.4    14.1   17.3

Payable zinc sales (kt)                             31.9     49.7      7.2    15.7     18.9    16.4   14.4

Forward-looking statements
This release contains forward-looking statements, including statements about trends in commodity prices and currency 
exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; capital 
costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; and provisions 
and contingent liabilities. 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, the South32 Group 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                                Media Relations
Alex Volante                                      Rebecca Keenan                                  Jenny White
T +61 8 9324 9029                                 T +61 8 9324 9364                               T +44 20 7798 1773
M +61 403 328 408                                 M +61 402 087 055                               M +44 7900 046 758
E Alex.Volante@south32.net                        E Rebecca.Keenan@south32.net                    E Jenny.White@south32.net


20 April 2020
JSE Sponsor: UBS South Africa (Pty) Ltd




                                                                                                                                                                         10

Date: 20-04-2020 07:08:00
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