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SOUTH32 LIMITED - Quarterly Report December 2021

Release Date: 24/01/2022 07:05
Code(s): S32     PDF:  
Wrap Text
Quarterly Report December 2021

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 DECEMBER 2021


•   Achieved a 4% uplift in quarterly alumina production with Worsley Alumina continuing to operate above
    nameplate capacity, and record production at Brazil Alumina as it returned to normalised rates following
    the prior quarter’s bauxite unloader outage

•   Revised Cannington FY22 production guidance higher by 5% with the operation on-track to transition to
    100% truck haulage in the June 2022 quarter

•   Increased payable nickel production at Cerro Matoso by 26% with plant availability benefitting from
    completion of the furnace refurbishment in FY21

•   Revised Australia Manganese FY22 production guidance lower by 9% as COVID-19 and weather impacted
    production, preventing the re-build of stockpiles ahead of the wet season

•   Increased South Africa Manganese production by 7% in the December 2021 half year with higher output of
    premium material

•   Completed an extended longwall move at Illawarra Metallurgical Coal in the quarter, resulting in lower
    production for the December 2021 half year

•   Realised record aluminium pricing in the December 2021 half year, while managing the impact of third-
    party port and freight congestion for our Southern African smelters

•   Committed to grow our green aluminium capacity through our agreed acquisition of an additional
    shareholding in Mozal Aluminium(note 1) and restart of the Brazil Aluminium smelter(note 2)

•   Added copper exposure to our portfolio, announcing the acquisition of a 45% interest in the Sierra Gorda
    joint venture, which is expected to complete in the March 2022 quarter(note 3)

•   Finalised the zinc-lead-silver Taylor Deposit’s pre-feasibility study following the end of the period,
    confirming its potential to be the first development option at our Hermosa project(note 4) 
    “We achieved a number of strong production results across our portfolio and realised significantly 
    higher commodity prices in the December 2021 half year, lifting operating margins across the Group.

“We delivered higher base metals production and our integrated aluminium supply chain benefitted from
additional alumina volumes and record aluminium prices.

“We took further steps to reshape our portfolio for a low carbon future, increasing our exposure to critical metals
with our planned acquisition of a 45% interest in the Sierra Gorda copper mine in Chile and further investment in
green aluminium.

“We expect to grow our total share of aluminium production by approximately 24% to 1.2Mt in FY23, through our
proposed acquisition of an additional interest in the hydro powered Mozal Aluminium smelter and the restart of
the Brazil Aluminium smelter using 100 per cent renewable power.

“We returned US$316M to shareholders during the period through our on-market share buy-back and the
payment of ordinary and special dividends. Looking forward our shareholders are well positioned to benefit from
stronger markets and production growth, with our capital management framework designed to reward owners
as our financial performance improves.”

Graham Kerr, South32 CEO


    Production summary
    South32 share                      1H21    1H22    HoH       2Q21       1Q22     2Q22     QoQ
    Alumina production (kt)           2,716   2,610    (4%)      1,401     1,278    1,332      4%
    Aluminium production (kt)           496     494    (0%)        248       248      246     (1%)
    Metallurgical coal production     3,262   2,767    (15%)     1,399     1,575    1,192    (24%)
    (kt)
    Manganese ore production          2,920   2,861    (2%)      1,459     1,565    1,296    (17%)
    (kwmt) nickel production (kt)
    Payable                            16.1    20.3     26%        6.1       9.6     10.7      11%
    Payable silver production (koz)   5,993   6,710     12%      3,130     3,493    3,217     (8%)
    Payable lead production (kt)       57.6    60.2      5%       31.2      31.9     28.3    (11%)
    Payable zinc production (kt)       30.4    32.7      8%       18.0      15.4     17.3      12%

    Unless otherwise noted: percentage variance relates to performance during the half year ended December 2021 
    compared with the half year ended December 2020 (HoH), or the December 2021 quarter compared with the 
    September 2021 quarter (QoQ); production and sales volumes are reported on an attributable basis.

CORPORATE UPDATE
•   The COVID-19 pandemic continues to impact our operations and supply chains in different ways, across our
    global portfolio. We have seen an increase in case numbers and workforce restrictions in many of the
    jurisdictions in which we operate, impacting labour availability.
•   Port congestion and tight global freight conditions continue to impact our supply chains, slowing the
    movement of inventory, most notably for our aluminium smelters in Southern Africa. While the resultant
    build in aluminium inventory during the December 2021 half year is expected to persist in the near term,
    we have and continue to establish alternative shipping solutions and points of dispatch to minimise the
    impact. We expect the working capital build to unwind once we realise the full benefit of our initiatives and
    port congestion and general freight tightness is alleviated.
•   We received net distributions(note 5) of US$102M (South32 share) from our manganese equity accounted
    investments (Manganese EAI) in the December 2021 half year.
•   We spent US$60M purchasing a further 25M shares at an average price of A$3.36 via our on-market share
    buy-back during the December 2021 half year. To 31 December 2021 our US$2B capital management
    program was 90% complete with US$192M remaining to be returned to shareholders ahead of its
    extension or expiry on 2 September 2022(note 6).
•   We refinanced our multicurrency revolving credit facility, securing US$1.4B of commitments for a five-year
    term to 2026, with options to extend for up to a further two years by mutual agreement. The facility has
    been established as a sustainability-linked loan with measures linked to our ongoing commitment to
    emissions reduction and improving energy and water use efficiency.
•   Reflecting our strong balance sheet and continued disciplined approach to capital allocation, our current
    BBB+/Baa1 credit ratings were re-affirmed by S&P and Moody’s respectively.
•   Our Group Underlying effective tax rate (ETR) for the December 2021 half year is expected to be
    approximately 30%, reflecting the corporate tax rates of the jurisdictions in which we operate(note 7), as
    well as a change in accounting treatment with our manganese business (including a royalty related tax for
    Australia Manganese) now included in Underlying earnings on a proportionally consolidated basis(note 8).
    The ETR for our manganese business in the December 2021 half year is expected to be in a range of
    approximately 40-45%, including the royalty related tax(note 9).
•   We entered into binding conditional agreements with Sumitomo Metal Mining and Sumitomo Corporation
    (collectively Sumitomo) on 14 October 2021 to acquire a 45% interest in the Sierra Gorda copper mine in
    Chile for upfront cash consideration of US$1.55B and contingent price-linked consideration of up to
    US$500M(note 3). The acquisition is expected to be completed in the March 2022 quarter, subject to the
    satisfaction of the remaining conditions.
•   Our acquisition of an additional shareholding in Mozal Aluminium from MCA Metals (Mitsubishi)(note 1),
    remains on-track to complete in the March 2022 quarter. Our shareholding is expected to increase by a
    minimum of 16.6% to 63.7% for a headline purchase price of US$166M.
•   Following the end of the period, we announced our decision to participate in the restart of the Alumar
    aluminium smelter (Brazil Aluminium, 40% South32 share), together with our joint venture partner Alcoa
    Corporation (Alcoa)(note 2). First production is expected in the June 2022 quarter, with full capacity of
    447ktpa (100%) in the March 2023 quarter. We have secured cost efficient renewable power for our share
    of production, while our alumina supply will be sourced from the co-located Brazil Alumina refinery (36%
    South32 share).
•   Separately, to secure and align our Brazilian bauxite supply requirements, we have entered into a
    conditional agreement for the acquisition of an additional 18.2% interest in the MRN bauxite mine from
    subsidiaries of Alcoa, which would take our ownership of the mine to 33%. Completion is expected in the
    June 2022 half year, subject to the satisfaction of conditions.
•   Samancor Manganese entered into a binding conditional agreement on 29 November 2021 to divest the
    Metalloys manganese alloy smelter, subject to the satisfaction of conditions.
•   Illawarra Metallurgical Coal’s Dendrobium Next Domain life extension project was declared as State
    Significant Infrastructure by the New South Wales Government on 4 December 2021. We are working
    towards the completion of an alternate mine plan and the submission of an environmental impact
    statement for the project in the March 2022 quarter.


DEVELOPMENT AND EXPLORATION UPDATE
Hermosa project

•   Following the end of the period, we reported the results of a pre-feasibility study (PFS) for the Taylor
    Deposit(note 4), the first development option at our Hermosa project. The PFS results support Taylor’s
    potential to be the first stage of a multi-decade operation, establishing Hermosa as a globally significant
    producer of metals critical to a low carbon future. An initial development case demonstrates a sustainable,
    highly productive zinc-lead-silver underground mine and conventional process plant, in the first quartile of
    the industry cost curve. Completion of the feasibility study and a final investment decision to construct
    Taylor are expected in mid CY23.
•   In parallel, we are advancing a PFS for the Clark Deposit, following the completion of a scoping study which
    confirmed the potential for a separate, integrated underground mining operation producing battery-grade
    manganese, as well as zinc and silver(note 4). Our study work will also consider the opportunity to
    integrate its development with Taylor, potentially unlocking further operating and capital efficiencies.
•   We directed US$8M to exploration programs at Hermosa in the December 2021 half year, including work
    to identify targets across the broader land package. As part of this work, we have identified a highly
    prospective corridor which contains Taylor and Clark as well as the Peake and Flux exploration targets(note
    4). Exploration drilling at both prospects is planned during CY22, with the Flux program subject to the
    receipt of required permits.

Other development and exploration options

•   At our Ambler Metals joint venture, infill drilling was completed at the Arctic Deposit during the summer
    exploration season. Further resource drilling at the Arctic Deposit and drill testing of regional exploration
    targets in the Ambler Belt is planned for the CY22 summer exploration season. An update on the forward
    work program from our joint venture partner can be accessed at www.trilogymetals.com.
•   We invested US$13M during the December 2021 half year in our early stage greenfield exploration
    opportunities with multiple programs targeting base metals underway in Australia, USA, Canada,
    Argentina, Peru and Ireland.
•   We directed US$24M toward exploration programs at our existing operations and development options in
    the December 2021 half year (US$17M capitalised), including US$2M for our Manganese EAI (US$1M
    capitalised), US$8M at the Hermosa project as noted above (all capitalised) and US$7M at Ambler Metals
    (all capitalised).


PRODUCTION SUMMARY
     Production guidance                                                                     FY22e
                                                           FY21        1H22                              Guidance comments
     (South32 share)                                                                       (note a)
     Worsley Alumina
     Alumina production (kt)                              3,963       1,979                   3,965
     Brazil Alumina
     Alumina production (kt)                              1,398          631                  1,300
     Brazil Aluminium
                                                                                                         Smelter expected to
                                                                                                         restart in the June 2022
     Aluminium production (kt)                                  -           -                      5     quarter, reaching full
                                                                                                         capacity (179kt, 40%
                                                                                                         South32 share) in the
                                                                                                         March 2023 quarter
     Hillside Aluminium(note 10)
     Aluminium production (kt)                              717          358                    720
     Mozal Aluminium(note 10)
                                                                                                         No change to guidance
                                                                                                         pending the completion of
     Aluminium production (kt)                              265          136                    273      our acquisition of an
                                                                                                         additional
                                                                                                         shareholding(note 1)
     Illawarra Metallurgical Coal
     Total coal production (kt)                           7,645       3,145                   7,300      Subject to further COVID-
     Metallurgical coal production (kt)                   6,170       2,767                   6,300      19 related impacts on
                                                                                                         labour availability. An
                                                                                                         update to our FY22 and
                                                                                                         FY23 guidance is expected
     Energy coal production (kt)                          1,475          378                  1,000      to be provided with our H1
                                                                                                         FY22 results
                                                                                                         announcement
     Australia Manganese
                                                                                                         Revised to reflect COVID-
                                                                                                         19 and weather disrupted
     Manganese ore production (kwmt)                      3,529       1,704              Down 3,200      production, preventing the
                                                                                                         re-build of stockpiles
                                                                                                         ahead of the wet season
     South Africa Manganese
     Manganese ore production(note 11)
                                                          2,264       1,157                   2,200
     (kwmt)
     Cerro Matoso
     Payable nickel production (kt)                        34.1         20.3                   43.8
     Cannington
     Payable zinc equivalent
     production(note 12) (kt)                             319.0       152.5                Up 292.2      Revised to reflect
                                                                                                         continued strong
     Payable silver production (koz)                     13,655        6,710              Up 12,283      underground mine
                                                                                                         performance and higher
                                                                                                         average grades                                                                                                     
     Payable lead production (kt)                         131.8         60.2               Up 117.9
                                                                                                         
     Payable zinc production (kt)                          67.7         32.7                Up 66.7

a.      The denotation (e) refers to an estimate or forecast year. All guidance is subject to further potential impacts from COVID-19.


MARKETING SUMMARY
Market conditions remained strong in the December 2021 half year. Robust demand, congested freight markets
and supply disruptions, including energy curtailments, resulted in significant price increases across many of our
commodities.
                                                                                          1H22           1H22
 Realised prices(note 13)                  1H21           2H21            1H22              vs             vs
                                                                                          1H21           2H21
 Worsley Alumina
 Alumina (US$/t)                            278             309             389            40%            26%
 Brazil Alumina
 Alumina (US$/t)                            277             297             387            40%            30%
 Hillside Aluminium
 Aluminium (US$/t)                        1,882           2,386           2,952            57%            24%
 Mozal Aluminium
 Aluminium (US$/t)                        1,943           2,457           3,041            57%            24%
 Illawarra Metallurgical Coal
 Metallurgical coal (US$/t)                 107             123             303           183%           146%
 Energy coal (US$/t)                         31              51             108           248%           112%
 Australia Manganese(note 14)
 Manganese ore (US$/dmtu, FOB)              3.93           4.34            4.59            17%             6%
 South Africa Manganese(note
 15)
 Manganese ore (US$/dmtu, FOB)              3.49           3.56            3.47           (1%)            (3%)
 Cerro Matoso(note 16)
 Payable nickel (US$/lb)                    6.29           7.06            8.39            33%            19%
 Cannington(note 17)
 Payable silver (US$/oz)                   26.0            24.9            21.0          (19%)           (16%)
 Payable lead (US$/t)                     1,744           1,965           2,180            25%            11%
 Payable zinc (US$/t)                     2,228           2,468           2,988            34%            21%



WORSLEY ALUMINA (86% SHARE)

                                                                                                  2Q22        2Q22
South32 share                              1H21     1H22      HoH       2Q21     1Q22    2Q22       vs          vs
                                                                                                  2Q21        1Q22


Alumina production (kt)                    2,010    1,979     (2%)      1,047   1,006      973     (7%)        (3%)


Alumina sales (kt)                         2,078    1,946     (6%)      1,077     924    1,022     (5%)        11%


Worsley Alumina saleable production decreased by 2% (or 31kt) to 1,979kt in the December 2021 half year.
FY22 production guidance remains unchanged at 3,965kt with our ongoing focus on improvement initiatives at
the refinery expected to maintain production above nameplate capacity of 4.6Mt (100% basis).

We realised a circa 8% premium to the Platts Alumina Index(note 18) on a volume weighted M-1 basis for
alumina sales from Worsley Alumina in the December 2021 half year, with our realised prices benefitting from
the impact of elevated global freight rates which are also reflected in Operating unit costs.

Notwithstanding the refinery’s continued strong performance that has enabled us to capture the benefit of
market conditions, elevated caustic soda prices and freight rates are expected to result in Operating unit costs
for the December 2021 half year being approximately 5% above our FY22 guidance (US$241/t). We expect
higher caustic soda prices to persist in the June 2022 half year further impacting the refinery’s Operating unit
costs. Updated FY22 Operating unit cost guidance will be provided in our financial results announcement for the
December 2021 half year.



BRAZIL ALUMINA (36% SHARE)

                                                                                                   2Q22        2Q22
South32 share                               1H21     1H22     HoH       2Q21     1Q22     2Q22       vs          vs
                                                                                                   2Q21        1Q22


Alumina production (kt)                      706      631    (11%)        354      272      359       1%        32%


Alumina sales (kt)                           674      626     (7%)        334      247      379     13%         53%


Saleable production decreased by 11% (or 75kt) to 631kt in the December 2021 half year. Production improved
by 32% (or 87kt) to a record 359kt in the December quarter as the refinery returned to nameplate capacity in
October 2021, following an incident in July 2021 that damaged one of the two bauxite unloaders at the
operation. FY22 production guidance remains unchanged at 1,300kt.

Sales increased by 53% in the December 2021 quarter with the prior quarter’s shipment schedule impacted by
the bauxite unloader outage and vessel availability. We realised a circa 4% premium to the Platts Alumina
Index18 on a volume weighted M-1 basis for alumina sales from Brazil Alumina in the December 2021 half year,
with our realised prices benefitting from the impact of elevated global freight rates which are also reflected in
Operating unit costs.

Notwithstanding the improvement in production volumes from the refinery returning to nameplate capacity,
the impact of elevated raw material input prices, in combination with the already realised volume
impact of the bauxite unloader outage, is expected to result in Operating unit costs for the December 2021 half
year being approximately 30% higher than the June 2021 half year (US$201/t).



HILLSIDE ALUMINIUM (100%)

                                                                                                  2Q22      2Q22
South32 share                              1H21     1H22     HoH       2Q21     1Q22     2Q22       vs        vs
                                                                                                  2Q21      1Q22


Aluminium production (kt)                    361     358     (1%)        181      180      178     (2%)      (1%)


Aluminium sales (kt)                         347     336     (3%)        172      160      176      2%        10%


Hillside Aluminium saleable production decreased by 1% (or 3kt) to 358kt in the December 2021 half year as the
smelter continued to test its maximum technical capacity, despite the impact from higher load-shedding in the
period. FY22 production guidance, which does not assume any load-shedding impact, remains unchanged at
720kt(note 10).

During the half year, we completed a feasibility study for the AP3XLE energy efficiency project, approving its
execution. We expect to roll the technology out as part of the smelter's pot relining program starting in FY23,
bringing both volume and efficiency benefits, while reducing carbon intensity.

Third party port performance at Richards Bay and ongoing congestion in global shipping conditions, impacted
the smelter’s capacity to sustainably unwind working capital that was built in the September 2021 quarter. In
response we have and continue to establish alternative discharge and cargo shipping options to mitigate these
challenges, while maintaining sales volumes into strong market conditions. The smelter realised record prices of
US$2,952/t in the December 2021 half year. We expect the current working capital build to unwind once we
realise the full benefit of our initiatives, and port congestion and general freight tightness is alleviated.

While the smelter has benefitted from the continuation of strong underlying realised prices, that are anticipated
to further improve operating margins, elevated raw material input costs and the smelter’s energy price linkage
to the South Africa Producer Price Index are expected to result in an increase in Operating unit costs in the
December 2021 half year (June 2021 half year: US$1,722/t) of approximately 10%.



MOZAL ALUMINIUM (47.1% SHARE)

                                                                                                 2Q22       2Q22
South32 share                              1H21     1H22     HoH       2Q21     1Q22     2Q22      vs         vs
                                                                                                 2Q21       1Q22


Aluminium production (kt)                   135      136       1%        67       68       68      1%         0%


Aluminium sales (kt)                        130      122     (6%)        66       55       67      2%        22%


Mozal Aluminium saleable production increased by 1% (or 1kt) to 136kt in the December 2021 half year as the
benefit of our investment in the AP3XLE energy efficiency project more than offset the impact of further load-
shedding. FY22 production guidance, which does not assume any load-shedding impact, remains unchanged at
273kt(note 10). Updated production guidance will be provided following the completion of our acquisition of an
additional shareholding in Mozal Aluminium that remains on-track to complete in the March 2022 quarter(note
1).

Challenging port and global shipping conditions impacted sales volumes from Mozal Aluminium in the
December 2021 half year. Conditions improved in the December 2021 quarter with sales increasing by 22%. The
smelter realised record prices of US$3,041/t in the December 2021 half year.

While the smelter has benefitted from the continuation of strong underlying realised prices, that are anticipated
to further improve operating margins, elevated raw material input costs are expected to result in an increase in
Operating unit costs in the December 2021 half year (June 2021 half year: US$1,818/t) of approximately 10%.


ILLAWARRA METALLURGICAL COAL (100%)

                                                                                                2Q22     2Q22
 South32 share                            1H21     1H22     HoH       2Q21     1Q22    2Q22       vs       vs
                                                                                                2Q21     1Q22

 Total coal production (kt)               4,096   3,145    (23%)      1,725    1,888   1,257    (27%)    (33%)

 Total coal sales(note 19) (kt)           4,027   3,255    (19%)      2,087    1,708   1,547    (26%)     (9%)

 Metallurgical coal production (kt)       3,262   2,767    (15%)      1,399    1,575   1,192    (15%)    (24%)

 Metallurgical coal sales (kt)            3,165   2,877     (9%)      1,697    1,490   1,387    (18%)     (7%)

 Energy coal production (kt)                834     378    (55%)        326     313       65    (80%)    (79%)

 Energy coal sales (kt)                     862     378    (56%)        390     218      160    (59%)    (27%)


Illawarra Metallurgical Coal saleable production decreased by 23% (or 951kt) to 3,145kt in the December 2021
half year as we completed an extended longwall move at the Dendrobium mine in the current quarter. We made
no energy coal sales of low-margin coal wash, with elevated freight rates making them uneconomic in the period.

The implementation of additional COVID-19 workforce restrictions in New South Wales has the potential to
further impact labour availability across the June 2022 half year. We expect to provide updated production
guidance for FY22 and FY23 at our financial results announcement for the December 2021 half year, as we
continue to monitor the impact of COVID-19 and progress design of an alternate mine plan for the Dendrobium
Next Domain life extension project.

Lower December 2021 half year production and sales volumes, and higher price-linked royalties arising from the
significant increase in prices year to date, are expected to result in our Operating unit costs for the
December 2021 half year being approximately 20% above our FY22 guidance (US$101/t). Updated FY22 Operating
unit cost guidance will be provided in our financial results announcement for the December 2021 half year.



AUSTRALIA MANGANESE (60% SHARE)

                                                                                                2Q22      2Q22
 South32 share                             1H21    1H22     HoH        2Q21     1Q22    2Q22      vs        vs
                                                                                                2Q21      1Q22

 Manganese ore production (kwmt)          1,834   1,704     (7%)        954      897     807    (15%)     (10%)

 Manganese ore sales (kwmt)               1,865   1,737     (7%)        871      906     831     (5%)      (8%)


Australia Manganese saleable production decreased by 7% (or 130kwmt) to 1,704kwmt in the December 2021
half year with lower yield at the primary concentrator, while the PC02 circuit continued to deliver production
above nameplate capacity (13% of total production, 1H21: 10%).

FY22 production guidance has been revised lower by 9% to 3,200kwmt with wet weather disruptions and
additional COVID-19 workforce restrictions in the Northern Territory preventing the re-build of stockpiles ahead
of the wet season.

Lower December 2021 half year production and sales volumes are expected to result in our Operating unit costs
for the period being approximately 5% above our FY22 guidance (US$1.68/dmtu). Updated FY22 Operating unit
cost guidance will be provided in our financial results announcement for the December 2021 half year.


SOUTH AFRICA MANGANESE (60% SHARE)

                                                                                               2Q22       2Q22
 South32 share                            1H21    1H22      HoH       2Q21    1Q22     2Q22      vs         vs
                                                                                               2Q21       1Q22

 Manganese ore production(note 11)
                                          1,086   1,157      7%         505     668      489    (3%)      (27%)
 (kwmt)

 Manganese ore sales(note 11) (kwmt)      1,103   1,202      9%         586     566      636     9%        12%


South Africa Manganese saleable production increased by 7% (or 71kwmt) to 1,157kwmt in the December 2021
half year as planned maintenance completed in the December 2021 quarter was more than offset by higher
volumes of premium material from our Mamatwan mine as we optimised our product mix.

Ore sales increased by 12% during the December 2021 quarter and 9% across the half year as we continued to
truck additional volume, drawing down inventory and optimising our sales mix for market conditions. As a
result, our sales achieved a premium of approximately 11% to the medium grade 37% manganese lump ore
index(note 20) on a volume weighted M-1 basis.

FY22 production guidance remains unchanged at 2,200kwmt as we continue to monitor market conditions and
our use of higher cost trucking.



CERRO MATOSO (99.9% SHARE)

                                                                                               2Q22      2Q22
 South32 share                           1H21     1H22     HoH       2Q21     1Q22    2Q22       vs        vs
                                                                                               2Q21      1Q22

 Payable nickel production (kt)           16.1     20.3    26%        6.1      9.6    10.7      75%       11%

 Payable nickel sales (kt)                16.5     20.1    22%        6.1     10.4     9.7      59%       (7%)


Cerro Matoso payable nickel production increased by 26% (or 4.2kt) to 20.3kt in the December 2021 half year as
plant availability returned to normal following the major plant refurbishment completed in FY21. Separately,
average ore processed nickel grades improved to 1.73% (1H21: 1.57%) with the processing of higher-grade
material from the Q&P project.

Notwithstanding a shipment slipping at the end of the period due to congestion at a destination port, nickel
sales increased by 22% in the December 2021 half year as production levels normalised. While our ferronickel
product continues to sell at a discount to the LME Nickel index price on a M or M+1 basis, this discount
narrowed during the December 2021 half year, averaging approximately 5% (FY21: 9%).

FY22 production guidance remains unchanged at 43.8kt with the operation expected to benefit from a further
improvement in plant availability and additional volumes from the higher-grade Q&P project in the June 2022
half year.


CANNINGTON (100% SHARE)
                                                                                                   2Q22     2Q22
 South32 share                              1H21    1H22      HoH        2Q21     1Q22    2Q22       vs       vs
                                                                                                   2Q21     1Q22

 Payable zinc equivalent
                                           140.5    152.5      9%        76.4     78.2     74.3    (3%)     (5%)
 production(note 12) (kt)

 Payable silver production (koz)           5,993    6,710     12%       3,130    3,493    3,217     3%      (8%)

 Payable silver sales (koz)                6,326    6,718      6%       3,359    2,718    4,000    19%       47%
 
 Payable lead production (kt)               57.6    60.2       5%        31.2     31.9     28.3    (9%)     (11%)

 Payable lead sales (kt)                    61.4    63.3       3%        31.9     25.3     38.0     19%      50%

 Payable zinc production (kt)               30.4    32.7       8%        18.0     15.4     17.3    (4%)      12%

 Payable zinc sales (kt)                    31.8    32.8       3%        20.0     14.3     18.5    (8%)      29%


Cannington payable zinc equivalent production increased by 9% (or 12kt) to 152.5kt in the December 2021 half
year as higher grades across all products and strong underground performance supported metal production.

FY22 production guidance has been revised higher by 5% (silver 12,283koz, lead 117.9kt and zinc 66.7kt,
for 292.2kt of payable zinc equivalent production(note 12)) with the operation remaining on-track to transition
to 100% truck haulage from the June 2022 quarter.

Payable zinc sales increased by 29% during the December 2021 quarter as we drew down inventory, while
payable lead and silver sales increased by 50% and 47% respectively due to the timing of shipments, following
adverse weather in the September 2021 quarter.

A trial of light battery electric vehicles is expected to commence during the June 2022 half year, testing their
potential use in our vehicle fleet.



NOTES
1.    Refer to market release “South32 to acquire up to an additional 25% of Mozal Aluminium” dated 30 September 2021.
2.    Refer to market release “Restart of Brazil Aluminium using renewable power” dated 6 January 2022.
3.    Refer to market release “South32 to acquire a 45% interest in the Sierra Gorda copper mine” dated 14 October 2021. 
      Upfront consideration subject to customary working capital and net debt adjustments. Contingent price-linked 
      consideration payable at threshold copper production rates and prices in the years 2022-25. The estimates indicated 
      in the original announcement are qualifying foreign estimate and are not reported in accordance with the JORC Code. 
      A Competent Person has not done sufficient work to classify foreign
      estimates as Mineral Resources or Ore Reserves in accordance with the JORC Code. It is uncertain that following 
      evaluation and/or further work that the foreign estimates will be reported as  Mineral Resources or Ore Reserves in 
      accordance with the JORC Code.
4.    Refer to market release “Hermosa project update” dated 17 January 2022.
5.    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.
6.    Since inception, US$1.4B has been allocated to the on-market share buy-back (674M shares at an average price of A$2.88 
      per share) and US$386M returned in the form of special dividends.
7.    The corporate tax rates of the geographies where the Group operates include: Australia 30%, South Africa 28%, 
      Colombia 31%,Mozambique 0% and Brazil 34%. The Colombian corporate tax rate increased to 35% from 1 January 2022. 
      The Mozambique operations are subject to a royalty on revenues instead of income tax.
8.    Our manganese business is included in our Underlying EBITDA, EBIT and earnings on a proportionally consolidated 
      basis from 1 July 2021, aligning our approach for material equity accounted investments including the proposed 
      acquisition of Sierra Gorda.
9.    Australia Manganese is subject to a royalty related tax equal to 20% of adjusted EBIT which is included in tax expense.
10.   Production guidance for Hillside Aluminium and Mozal Aluminium does not assume any load-shedding impact on production.
11.   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.
12.   Payable zinc equivalent production (kt) was calculated by aggregating revenues from payable silver, lead and zinc, 
      and dividing the total Revenue by the price of zinc. FY21 realised prices for zinc (US$2,357/t), lead (US$1,862/t) 
      and silver (US$25.4/oz) have been used for FY21, H1 FY22 and FY22e.
13.   Realised prices are unaudited. Volumes and prices do not include any third party trading that may be undertaken 
      independently of equity production. Realised sales price is calculated as sales Revenue divided by sales volume 
      unless otherwise stated.
14.   Realised ore prices are unaudited and calculated as external sales Revenue less freight and marketing costs, divided 
      by external sales volume. Ore converted to sinter and alloy, and sold externally, is eliminated as an intracompany 
      transaction.
15.   Realised ore prices are unaudited and calculated as external sales Revenue less freight and marketing costs, divided 
      by external sales volume. Manganese ore sales are grossed-up to reflect a 60% accounting effective interest.
16.   Realised nickel sales prices are unaudited and inclusive of by-products.
17.   Realised prices for Cannington are unaudited and net of treatment and refining charges.
18.   The sales volume weighted average of the Platts Alumina Index (FOB Australia) on the basis of a one month lag to 
      published pricing (Month minus one or “M-1”) for Worsley Alumina was US$360/t and Brazil Alumina was US$371/t in the 
      December 2021 half year.
19.   Illawarra Metallurgical Coal sales are adjusted for moisture and will not reconcile directly to Illawarra 
      Metallurgical Coal production.
20.   The sales volume weighted average of the Metal Bulletin 37% manganese lump ore index (FOB Port Elizabeth, 
      South Africa) on the basis of M-1 was US$3.12/dmtu in the December 2021 half year.


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); th ousand ounces (koz); million ounces (Moz); thousand wet metric tonnes (kwmt); million wet 
metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); dry metric tonne unit (dmtu); 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.


OPERATING PERFORMANCE

South32 share                              1H21    1H22    2Q21    3Q21    4Q21    1Q22    2Q22


Worsley Alumina (86% share)

Alumina hydrate production (kt)            2,012   1,994   1,002    977     992     997      997

Alumina production (kt)                    2,010   1,979   1,047    875    1,078   1,006     973

Alumina sales (kt)                         2,078   1,946   1,077    840    1,086    924    1,022

Brazil Alumina (36% share)

Alumina production (kt)                     706     631     354     343     349     272      359

Alumina sales (kt)                          674     626     334     384     333     247      379

Hillside Aluminium (100%)

Aluminium production (kt)                   361     358     181     176     180     180      178

Aluminium sales (kt)                        347     336     172     191     169     160      176

Mozal Aluminium (47.1% share)

Aluminium production (kt)                   135     136      67      64      66      68       68

Aluminium sales (kt)                        130     122      66      64      68      55       67

Illawarra Metallurgical Coal (100%)

Total coal production (kt)                 4,096   3,145   1,725   1,824   1,725   1,888   1,257

Total coal sales(note 19) (kt)             4,027   3,255   2,087   1,823   1,766   1,708   1,547

Metallurgical coal production (kt)         3,262   2,767   1,399   1,568   1,340   1,575   1,192

Metallurgical coal sales (kt)              3,165   2,877   1,697   1,542   1,367   1,490   1,387

Energy coal production (kt)                 834     378     326     256     385     313       65

Energy coal sales (kt)                      862     378     390     281     399     218      160

Australia Manganese (60% share)

Manganese ore production (kwmt)            1,834   1,704    954     829     866     897      807

Manganese ore sales (kwmt)                 1,865   1,737    871     865     891     906      831

Ore grade sold (%, Mn)                      44.4    44.2    44.5    44.4    44.5    44.2    44.2

South Africa Manganese (60% share)

Manganese ore production(note 11) (kwmt)   1,086   1,157    505     580     598     668      489

Manganese ore sales(note 11) (kwmt)        1,103   1,202    586     497     636     566      636

Ore grade sold (%, Mn)                      39.9    39.5    40.0    40.6    39.5    40.3    38.7

Cerro Matoso (99.9% share)

Ore mined (kwmt)                           1,470   2,416    825     594    1,174   1,058   1,358

Ore processed (kdmt)                       1,155   1,335    457     528     702     620      715

Ore grade processed (%, Ni)                 1.57    1.73    1.55    1.60    1.76    1.76    1.71

Payable nickel production (kt)              16.1    20.3     6.1     7.1    10.9     9.6    10.7

Payable nickel sales (kt)                   16.5    20.1     6.1     6.7    10.3    10.4     9.7

Cannington (100%)
 
Ore mined (kwmt)                           1,409   1,475     709     714     696     750     725

Ore processed (kdmt)                       1,302   1,385     672     724     720     687     698

Silver ore grade processed (g/t, Ag)         174     177     179     177     213     185     169

Lead ore grade processed (%, Pb)             5.1     5.2     5.2     5.8     6.6     5.5     4.9

Zinc ore grade processed (%, Zn)             3.3     3.4     3.7     3.5     3.9     3.2     3.6

Payable Zinc equivalent production(note 12)
                                           140.5   152.5    76.4    81.4     97.1   78.2    74.3
(kt)

Payable silver production (koz)            5,993   6,710    3,130   3,484   4,178   3,493   3,217

Payable silver sales (koz)                 6,326   6,718    3,359   2,950   4,460   2,718   4,000

Payable lead production (kt)                57.6    60.2     31.2    33.0    41.2    31.9    28.3

Payable lead sales (kt)                     61.4    63.3     31.9    28.4    41.9    25.3    38.0

Payable zinc production (kt)                30.4    32.7     18.0    17.8    19.5    15.4    17.3

Payable zinc sales (kt)                     31.8    32.8     20.0    15.9    21.3    14.3    18.5

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. South32 cautions against reliance on any forward looking 
statements or guidance, particularly in light of the current economicclimate and the significant volatility, 
uncertainty and disruption arising in connection with COVID-19.


FURTHER INFORMATION
 INVESTOR RELATIONS                             MEDIA RELATIONS
 Tom Gallop                                     Miles Godfrey                                  Jenny White
 M +61 439 353 948                              M +61 415 325 906                              M +44 7900 046 758
 E Tom.Gallop@south32.net                       E Miles.Godrey@south32.net                     E Jenny.White@south32.net




24 January 2022
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd




                                                                                                                                 
Date: 24-01-2022 07:05:00
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