Company Announcements

H1 FY23 Results Announcement

Source: RNS
RNS Number : 0776Q
South32 Limited
16 February 2023
 

FINANCIAL RESULTS AND OUTLOOK

HALF YEAR ENDED 31 DECEMBER 2022

 

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

16 February 2023

 

South32 in a strong position for further growth and returns

"In November 2022, we were devastated by the loss of two of our colleagues, Mr Cristovão Alberto Tonela and Mr Alfredo Francisco Domingos João, in a fatal accident at Mozal Aluminium. We continue to provide support and counselling to the families and friends of the deceased. We have completed an investigation and key learnings are being shared across the Group, and with industry participants. We continue to implement our Group-wide Safety Improvement Program to fundamentally shift our safety performance.

"We delivered another period of strong production results, and while commodity prices retreated from record levels, we recorded one of our largest profit results to date with Underlying EBITDA of US$1.36 billion.

"Our strong financial result was underpinned by production growth of 12%, our recent portfolio improvements, which increased our exposure to the metals critical to a low-carbon future, and continued focus on cost efficiencies. This has enabled us to resolve to pay a fully-franked ordinary dividend of US$224 million (US 4.9 cents per share) in respect of the December 2022 half year.

"This is in addition to our record US$784M fully-franked ordinary and special dividends, returned in October 2022, and US$143 million returned via our on-market share buy-back in the December 2022 half year.

"Looking forward and reflecting our strong financial position and confidence in the business outlook, we have increased our flexible capital management program by US$50 million to US$2.3 billion, leaving US$158 million to be returned by 1 September 2023.

"Commodity markets have strengthened, leaving us well placed to capitalise on planned production growth and lower Operating unit costs expected across the majority of our operations in the second half of the 2023 financial year.

"At our Hermosa project in Arizona, we are on-track to make a final investment decision on the Taylor deposit in the middle of this calendar year. We have also confirmed the opportunity for Hermosa's Clark deposit to supply battery-grade manganese into the growing North American electric vehicle supply chain.

"The long-term outlook for our business is positive as a result of our portfolio investments and high-quality development options in the metals critical for a low-carbon future."

Graham Kerr, South32 CEO

Financial highlights

 

 

 

US$M

H1 FY23

H1 FY22

% Change

Revenue

3,696

4,006

(8%)

Profit before tax and net finance income/(costs)

871

1,502

(42%)

Profit after tax

685

1,032

(34%)

Basic earnings per share (US cents)(2)

14.9

22.2

(33%)

Ordinary dividends per share (US cents)(3)

4.9

8.7

44%

Other financial measures




Underlying revenue(4)(5)

4,524

4,505

0.4%

Underlying EBITDA(5)

1,364

1,871

(27%)

Underlying EBITDA margin(6)

31.5%

44.0%

(12.5%)

Underlying EBIT(5)

922

1,514

(39%)

Underlying EBIT margin(7)

21.3%

35.5%

(14.2%)

Underlying earnings(5)

560

1,004

(44%)

Basic Underlying earnings per share (US cents)(2)

12.2

21.6

(44%)

ROIC(8)

12.1%

27.5%

(15.4%)

Ordinary shares on issue (million)

4,572

4,650

(2%)

 

SAFETY

In November 2022, we were devastated by the loss of two of our colleagues, Mr Cristovão Alberto Tonela and Mr Alfredo Francisco Domingos João, who were fatally injured in an incident while undertaking maintenance work on a raising girder at Mozal Aluminium. Our deepest sympathies remain with the families and colleagues of the deceased to whom we have provided our support and counselling. An investigation into the incident has been completed and key learnings are being shared across our organisation, and with industry participants.

We are committed to improving our safety performance and we are undertaking a significant amount of work to achieve this. We continue to implement our multi-year Safety Improvement Program, designed to fundamentally shift our safety performance and deliver the culture transformation required for sustained improvement. Earlier this year, we completed a review of our Safety Improvement Program, with input from a leading external safety expert. This review confirmed that our focus is right and we are continuing to embed safe and sustainable business practices, shift mindsets through leadership, and empower our people.  

Contractors make up a significant proportion of our workforce. We continued to deploy our Contractor Management System of Work and embed supporting systems across the business during H1 FY23, maintaining our focus on supporting contractors to undertake work safely.

Our Total Recordable Injury Frequency (TRIF)(9)(10) increased to 6.0 per million hours worked in H1 FY23 (FY22 TRIF 5.3) with Worsley Alumina, Illawarra Metallurgical Coal and Australia Manganese largely accounting for the increase, while Cannington, Cerro Matoso and South Africa Manganese saw an overall reduction.

OUR RESPONSE TO COVID-19

COVID-19 continued to affect our people, operations, projects and offices, and we experienced periods of elevated case numbers and restrictions. We support the use of regulatory approved vaccines and actively encourage vaccination for all our employees and contractors. Where possible we have worked with local authorities for our employees and contractors, their families and our communities to access vaccines.

PERFORMANCE SUMMARY

The Group's statutory profit after tax decreased by US$347M to US$685M in H1 FY23 as the combination of a decline in commodity prices from record levels in many markets, and higher inflation and uncontrollable costs, more than offset the benefit of our strong operational performance. Underlying earnings decreased by US$444M to US$560M in H1 FY23. A reconciliation of statutory profit to Underlying earnings is set out below.      

Group copper equivalent production(11) increased by 12% in H1 FY23 as we delivered strong production results and realised the benefit of our investments in Sierra Gorda and our expanded low-carbon(12) aluminium capacity. We expect to increase production by a further 6%(13) in H2 FY23 supported by embedded improvement projects and the ramp-up of the Brazil Aluminium smelter to nameplate capacity.

Underlying EBITDA decreased by US$507M to US$1,364M, for a Group operating margin of 32% due to the aforementioned commodity price and uncontrollable cost impacts. Our investments in Sierra Gorda and increased ownership in Mozal Aluminium contributed Underlying EBITDA of US$201M at an operating margin of 42%. Free cash flow from operations (including manganese equity accounted investment (EAI) distributions) was US$127M, reflecting one-off working capital and cash tax impacts. Looking forward, an expected reduction in inventory positions in our aluminium value chain in H2 FY23 and the normalisation of tax payments is expected to add to the Group's cash generation.   

We returned a record US$927M to shareholders in H1 FY23, paying US$784M in fully-franked ordinary and special dividends in respect of H2 FY22 and returning US$143M via our on-market share buy-back. We have today announced a fully-franked interim ordinary dividend of US$224M (US 4.9 cents per share), reflective of our continued strong operating performance and disciplined approach to capital management. The Board has also expanded our capital management program by US$50M, leaving US$158M to be returned by 1 September 2023(14).

The balance sheet remains in a strong position with modest net debt of US$298M at the end of the period. Our disciplined approach to capital management and strong balance sheet provides us with the flexibility to continue to return capital to shareholders in the most efficient and value accretive manner, while investing in our high-quality growth and improvement options to create shareholder value and underpin our future supply of metals critical to a low-carbon future.  

Specific highlights in H1 FY23 included:

Increased production by 12%, supported by our recent investments in copper and low-carbon aluminium;

Delivered strong production results, including record half-year production at Australia Manganese;

Commissioned the Ore Sorting and Mechanical Ore Concentration (OSMOC) project at Cerro Matoso, unlocking value by underpinning a 15-year extension to the mining contract, and supporting higher future nickel production;

FY23 production guidance is unchanged and we expect to deliver a further 6% increase in production volumes in H2 FY23;    

FY23 Operating unit cost guidance has been lowered or held largely unchanged for the majority of our operations;

Invested US$96M at Hermosa on critical path dewatering infrastructure and study work, ahead of a final investment decision for the Taylor zinc-lead-silver deposit expected in mid CY23;

Completed work on Hermosa's Clark selection phase pre-feasibility study which confirmed the opportunity to produce battery-grade manganese for the growing North American electric vehicle supply chain;     

Completed the sale of four non-core royalties for up to US$200M, unlocking further latent value in our portfolio(15), receiving US$55M of the cash consideration in H1 FY23;

Expanded our climate change goals(16) to include net zero Scope 3 greenhouse gas (GHG) emissions by 2050;

Advanced near-term decarbonisation programs to support our target(16) to halve operational GHG emissions by 2035, with Worsley Alumina expected to complete its first onsite boiler conversion in mid CY23; and


Sierra Gorda secured an agreement for cost efficient, 100% renewable electricity supply from January 2023.

 

EARNINGS RECONCILIATION

The Group's statutory profit after tax decreased by US$347M to US$685M in H1 FY23, while Underlying earnings decreased by US$444M to US$560M reflecting one-off adjustments in statutory earnings.

Consistent with our accounting policies, various items are excluded from the Group's statutory profit to derive Underlying earnings. Total adjustments to derive Underlying EBIT (US$51M), shown in the table below, include:

 

Significant items (-US$138M): gain on disposal on the sale of four non-core base metal royalties to Ecora Resources PLC (formerly known as Anglo Pacific Group PLC) (-US$189M pre-tax) partially offset by a non-cash asset write-off following our decision not to proceed with the Dendrobium Next Domain (DND) project at Illawarra Metallurgical Coal(17) (US$51M pre-tax);

Sierra Gorda joint venture adjustments (-US$57M): adjustments to reconcile the statutory equity accounting position to a proportional consolidation basis;

Manganese joint venture adjustments (US$101M): adjustments to reconcile the statutory equity accounting position to a proportional consolidation basis; and

Net impairment loss of financial assets (US$214M): periodic revaluation of the shareholder loan receivable from Sierra Gorda reflecting copper price and other macroeconomic assumptions as at Q2 FY23. An offsetting amount is recorded in the Sierra Gorda joint venture adjustments noted above.

 

Further information on these earnings adjustments is included in Note 3 (b) (i).

The Group's Underlying EBITDA decreased by US$507M (or 27%) to US$1,364M in H1 FY23, as a decline in commodity prices from record levels (-US$299M) and higher inflation and raw material input prices (-US$361M), most acute in our aluminium value chain, were partly offset by the benefit of weaker producer currencies (+US$185M). Our recent portfolio investments in Sierra Gorda and additional interest in Mozal Aluminium added US$201M to Group Underlying EBITDA with a combined operating margin of 42%. This was partly offset by Brazil Aluminium (-US$66M) as the smelter continued to ramp-up to nameplate capacity.

The Group's Underlying EBIT decreased by US$592M (or 39%) to US$922M, with Underlying depreciation and amortisation increasing by US$85M (or 24%) to US$442M following the acquisition of Sierra Gorda.  

Profit to Underlying EBITDA reconciliation

 

 

$USM

H1 FY23

H1 FY22

Profit before tax and net finance income/(costs)

871

1,502

Adjustments to derive Underlying EBIT:


 

Significant items

(138)

(77)

Sierra Gorda joint venture adjustments

(57)

-

Manganese joint venture adjustments

101

79

Exchange rate (gains)/losses on the restatement of monetary items

(48)

(32)

Net impairment loss/(reversal) of financial assets

214

-

Net impairment loss/(reversal) of non-financial assets

(4)

37

(Gains)/losses on non-trading derivative instruments, contingent consideration and other investments measured at fair value through profit and loss

(17)

5

Total adjustments to derive Underlying EBIT

51

12

Underlying EBIT

922

1,514

Underlying depreciation and amortisation

442

357

Underlying EBITDA

1,364

                 1,871

 

Profit to Underlying earnings reconciliation

 

 

US$M

H1 FY23

H1 FY22

Profit after tax

685

1,032

Total adjustments to derive Underlying EBIT

51

12

Total adjustments to derive Underlying net finance costs

(102)

(22)

Total adjustments to derive Underlying income and royalty related tax expense

(74)

(18)

Underlying earnings

560

1,004

 

EARNINGS ANALYIS

The following key factors influenced Underlying EBIT in H1 FY23, relative to H1 FY22.

Reconciliation of movements in Underlying EBIT (US$M)(5)(18)(19)(20)

Text Box: Net finance costs & taxText Box: Uncontrollable

Earnings analysis

US$M

Commentary

H1 FY22 Underlying EBIT

1,514

 

Change in sales price

(299)

Lower average realised prices for our commodities, including:

Aluminium (-US$177M)

Metallurgical coal (-US$90M)

Alumina (-US$44M)

Zinc (-US$17M), lead (-US$9M) and silver (-US$3M)

Manganese (-US$17M)

Partially offset by higher average realised prices for nickel (+US$30M) and energy coal (+US$28M)

Net impact of price-linked costs

(234)

Higher caustic soda prices at Worsley Alumina (-US$50M) and Brazil Alumina (-US$27M)

Higher aluminium smelter raw material input prices (-US$81M), including pitch and coke

Higher coal, fuel oil and diesel prices (-US$61M)

Higher electricity prices (-US$23M) at Cerro Matoso and Illawarra Metallurgical Coal 

Change in foreign exchange rates

185

Weaker Australian dollar (+US$89M), South African rand (+US$75M) and Colombian peso (+US$23M)

Change in inflation

(127)

Inflation-linked indexation of our Southern African aluminium smelter electricity prices
(-US$36M)

General inflation across Australia (-US$57M), Southern Africa (-US$17M) and Colombia
(-US$12M)

Change in sales volume

(184)

Lower volumes, mostly at Cannington (-US$77M) and Worsley Alumina (-US$54M)

Partially offset by higher volumes at Mozal Aluminium (+US$29M) and Hillside Aluminium (+US$3M)

Controllable costs

(10)

Inventory and volume related movements (+US$60M) including a planned build in stocks at Australia Manganese ahead of the wet season

Higher contractor, maintenance and labour costs (-US$48M), including at Worsley Alumina and Cerro Matoso to support maintenance activity and at Australia Manganese to support higher production

Project costs (-US$11M) relating to the deployment of our Safety Improvement Program, decarbonisation partnerships and community programs  

Portfolio changes

68

Improved profitability following the acquisition of our Sierra Gorda interest and additional shareholding in Mozal Aluminium (+US$124M), partially offset by Brazil Aluminium (-US$69M) as the smelter ramped-up toward nameplate capacity

Other

9

Profit from our equity interest in Mineração Rio do Norte (MRN), partially offset by higher depreciation and amortisation at Illawarra Metallurgical Coal

H1 FY23 Underlying EBIT

922


 

Net finance costs

The Group's Underlying net finance costs of US$88M in H1 FY23 primarily comprise the unwinding of the discount applied to our closure and rehabilitation provisions (US$51M) and interest on lease liabilities (US$28M) largely for our multi-fuel co-generation facility at Worsley Alumina. We also paid interest on our Senior Unsecured Notes (Notes) (US$15M) following our inaugural US$700M Notes offering in April 2022 (due 2032, 4.35% per annum) to partly fund the Sierra Gorda acquisition.

Underlying net finance income/(costs) reconciliation

 

 

US$M

H1 FY23

H1 FY22

Unwind of discount applied to closure and rehabilitation provisions

(51)

(39)

Interest on lease liabilities

(28)

(26)

Interest on Senior Unsecured Notes

(15)

-

Other

6

3

Underlying net finance costs

(88)

(62)

Add back earnings adjustment for exchange rate variations on net debt

4

11

Sierra Gorda joint venture adjustments(21)

85

-

Manganese joint venture adjustments(21)

13

11

Total adjustments to derive net finance income/(costs)

102

22

Net finance income/(costs)

14

  (40)

 

Tax expense

The Group's Underlying income tax expense decreased by US$174M to US$274M in H1 FY23, in-line with lower profitability, for an Underlying effective tax rate (ETR)(22) of 33.1%. Our Underlying ETR reflects the corporate tax rates of the jurisdictions in which we operate(23), as well as the inclusion of the manganese business and Sierra Gorda in Underlying earnings on a proportional consolidation basis (including royalty related taxes for Australia Manganese and Sierra Gorda). The Underlying ETR for our manganese business was 55.2% in H1 FY23, including royalty related tax(24) and the derecognition of certain deferred tax assets.

Underlying income tax expense reconciliation and Underlying ETR

 

 

US$M

H1 FY23

H1 FY22

Underlying EBIT

922

1,514

 Include: Underlying net finance costs

(88)

(62)

 Remove: Share of (profit)/loss of EAI

(7)

-

Underlying profit before tax

827

1,452

 

 

 

Income tax expense

200

430

 Tax effect of earnings adjustments to Underlying EBIT

1

2

 Tax effect of earnings adjustments to Underlying net finance costs

(1)

(3)

 Exchange rate variations on tax balances

(5)

(32)

 Significant items

(23)

(26)

 Sierra Gorda joint venture adjustment relating to income tax(21)

6

-

 Sierra Gorda joint venture adjustment relating to royalty related tax(21)

4

-

 Manganese joint venture adjustment relating to income tax(21)

56

51

 Manganese joint venture adjustment relating to royalty related tax(21)

36

26

Total adjustments to derive Underlying income tax expense

74

18

Underlying income tax expense

274

448

Underlying ETR

33.1%

30.9%


 


CASH FLOW

The Group generated free cash flow from operations of US$67M (H1 FY22: US$840M), which reflected higher capital expenditure on productivity, improvement and growth projects (-US$162M), a build in working capital in the period (-US$152M) and higher tax paid (-US$113M). The increase in tax payments reflects the lagged impact of the prior period's record profitability and one-off payments related to the acquisition of Sierra Gorda (US$111M). The Sierra Gorda payments included ~€92M (~US$94M at the payment date) related to pre-closing tax liabilities which we are seeking to recover from the vendors. 

We received a further US$60M in (net) distributions(25) from our manganese EAI in H1 FY23 (H1 FY22: US$102M), following the payment of income tax (US$94M, 100% basis), and royalties at Australia Manganese (US$82M, 100% basis). We did not receive a distribution from our Sierra Gorda EAI as the operation invested in higher deferred stripping, tailings infrastructure and the plant de-bottlenecking project to unlock future volumes.

The increase in working capital reflects a permanent increase related to the restart of Brazil Aluminium, as well as higher inventory positions in our aluminium value chain due to temporary shipping delays. We expect aluminium value chain inventory positions to normalise over H2 FY23 as our teams continue to implement logistics solutions focused on mitigating port congestion.

Free cash flow from operations, excluding EAI



US$M

H1 FY23

H1 FY22

Profit from operations

871

1,502

Non-cash or non-operating items

377

289

(Profit)/loss from EAI

(241)

(104)

Change in working capital

(152)

(333)

Cash generated from operations

855

1,354

Total capital expenditure, excluding EAI, including intangibles and capitalised exploration

(416)

(254)

Cash generated from operations after capital expenditure

439

1,100

Net interest paid

(25)

(26)

Income tax paid

(347)

(234)

Free cash flow from operations

67

840  

 

Working capital movement 



US$M

H1 FY23

Commentary

Trade and other receivables

88

Lower commodity prices, partly offset by a temporary increase in debtor days (23 days, FY22: 21 days) and inclusive of an adjustment for the hedged foreign currency loss associated with the H2 FY22 dividend payment (-US$49M) (nil earnings and cash impact to the Group)

Inventories

(134)

Restart of Brazil Aluminium and temporary shipping delays in our aluminium value chain

Trade and other payables

(81)

Timing of payments

Provisions and other liabilities

(25)

Revaluation of non-US dollar provisions

Total working capital movement

(152)


 

Capital expenditure

The Group's capital expenditure(26), excluding EAI, increased by US$162M to US$416M in H1 FY23 as we increased our investment in productivity, improvement and growth activities across our portfolio:

Safe and reliable capital expenditure increased by US$61M to US$232M as we invested in Illawarra Metallurgical Coal's transition to a more efficient single longwall configuration at the Appin mine from FY25(17);

Improvement and life extension capital expenditure was unchanged at US$24M as we progressed productivity and decarbonisation projects across our portfolio;

We directed US$96M to growth capital at Hermosa as we invested in critical path dewatering infrastructure and advanced studies for both Taylor and Clark; and

Intangibles and capitalised exploration increased by US$47M to US$64M, with a US$43M payment to the National Mining Agency of Colombia as part of the 15-year extension of Cerro Matoso's mining contract to 2044

Our share of capital expenditure for our EAIs increased by US$86M to US$131M in H1 FY23:

Capital expenditure for our manganese EAI was unchanged at US$43M as we invested in additional tailings storage capacity and progressed study work for the Eastern Leases mine life extension project at Australia Manganese; and

Capital expenditure for our Sierra Gorda EAI was US$86M during the first full half year of our ownership, with the operation investing in deferred stripping, additional tailings storage infrastructure and the plant de-bottlenecking project to unlock future volumes.

 

Capital expenditure (South32 share)(20)(26)



US$M

H1 FY23

H1 FY22

Safe and reliable capital expenditure

(232)

(171)

Improvement and life extension capital expenditure

(24)

(24)

Growth capital expenditure

(96)

(42)

Intangibles and the capitalisation of exploration expenditure

(64)

(17)

Total capital expenditure (excluding EAI)

(416)

(254)

EAI capital expenditure

(131)

(45)

Total capital expenditure (including EAI)

(547)

(299)

 

 

BALANCE SHEET, DIVIDENDS AND CAPITAL MANAGEMENT

The Group finished the period with net debt of US$298M following the payment of our record fully-franked ordinary and special dividends of US$784M in respect of H2 FY22, and a further US$143M returned via our on-market share buy-back during H1 FY23.

Our unchanged capital management framework supports investment in our business and rewards shareholders as our financial performance improves. Consistent with our dividend policy, the Board has resolved to pay a fully-franked interim ordinary dividend of US 4.9 cents per share (US$224M) in respect of H1 FY23, representing 40% of Underlying earnings.

Reflecting the Group's modest net debt position, our confidence in the business outlook and our approved capital return commitments, the Board has today further expanded our capital management program by US$50M, leaving US$158M to be returned by 1 September 2023.

Net cash/(debt)



US$M

H1 FY23

FY22

Cash and cash equivalents

1,560

2,365

Lease liabilities

(671)

(650)

Other interest bearing liabilities

(1,187)

(1,177)

Net cash/(debt)

(298)

538

Reflecting our strong balance sheet and continued disciplined approach to capital allocation, our current BBB+/Baa1 credit ratings were re-affirmed by S&P Global Ratings and Moody's, respectively. We also retain access to significant liquidity, having successfully extended our undrawn sustainability-linked revolving credit facility, with available capacity of US$1.4B to December 2026 and US$1.2B to December 2027.

Dividends announced





Period

Dividend per share
(US cents)

US$M

Franking

Pay-out ratio

H1 FY21

1.4

67

100%

49%

H2 FY21

3.5

164

100%

46%

August 2021 special dividend

2.0

93

100%

N/A

H1 FY22

8.7

405

100%

40%

H2 FY22

14.0

648

100%

41%

August 2022 special dividend

3.0

139

100%

N/A

H1 FY23

4.9

224

100%

40%

South32 shareholders registered on the South African branch register will not be able to dematerialise or rematerialise their shareholdings between 8 and 10 March 2023 (both dates inclusive), nor will transfers to/from the South African branch register be permitted between 2 and 10 March 2023 (both dates inclusive).

Details of the currency exchange rates applicable for the dividend will be announced to the relevant stock exchanges. Further dividend information is available on our website (www.south32.net).

South32 American Depositary Receipts (ADRs) each represent five fully paid ordinary shares in South32 and ADR holders will receive dividends accordingly, subject to the terms of the Depositary Agreement.

Dividend timetable

Date

Announce currency conversion into South African rand

3 March 2023

Last day to trade cum dividend on the Johannesburg Stock Exchange (JSE)

7 March 2023

Ex-dividend date on the JSE

8 March 2023

Ex-dividend date on the ASX and London Stock Exchange (LSE)

9 March 2023

Record date (including currency election date for ASX)

10 March 2023

Payment date

6 April 2023

 

outlook

 

PRODUCTION

We delivered a 12% increase in Group copper equivalent production in H1 FY23, as we achieved strong production results including record half year output at Australia Manganese and realised the benefit of recently completed transactions that have further positioned our portfolio toward metals critical for a low-carbon future.

We expect to deliver an additional 6% increase in Group copper equivalent production in H2 FY23 following the completion of improvement projects in H1 FY23 and the continued ramp-up of the Brazil Aluminium smelter.  

FY23 production guidance is unchanged and we have provided FY24 production guidance for Sierra Gorda for the first time.

 Production guidance (South32 share)(20)

 

FY22

 

H1 FY23

FY23e(a)

FY24e(a)

Key guidance assumptions

 Worsley Alumina





Guidance unchanged

 Alumina production (kt)

3,991

1,922

4,000

4,000

Planned calciner maintenance completed in
Q1 FY23 and scheduled for Q3 FY23 

 Brazil Alumina (non-operated)





Guidance unchanged

 Alumina production (kt)

 

1,297

691

1,395

1,400

On-track to return to nameplate capacity and increase production by 8% in FY23

 Brazil Aluminium (non-operated)





Guidance unchanged

 Aluminium production (kt)

0.3

23.7

75

148

Expected to complete ramp-up to nameplate capacity (179ktpa, 40% basis) in Q1 FY24

 Hillside Aluminium(27)





Guidance unchanged (subject to load-shedding)

 Aluminium production (kt)

714

362

720

720

Expected to test its maximum technical capacity

 Mozal Aluminium(27)(28)





Guidance unchanged (subject to load-shedding)

 Aluminium production (kt)

278

182

370

370

Expected to test its maximum technical capacity

 Sierra Gorda (non-operated)





FY23 copper equivalent guidance unchanged

Higher metal grades expected to offset lower planned throughput

 

FY24 guidance provided for the first time

Higher throughput expected to be offset by lower planned copper grades

 Ore processed (Mt)

7.5

10.7

21.4

21.8

 Payable copper equivalent production (kt)(29)

30.6

44.9

89.0

87.5

 Payable copper production (kt)

25.3

37.9

71.8

67.0

 Payable molybdenum production (kt)

0.4

0.4

1.5

2.5

 Payable gold production (koz)

9.6

15.3

29.9

22.5

 Payable silver production (koz)

253

338

582

550

Cannington





Guidance unchanged

 Ore processed (kdmt)

2,618

1,142

2,450

2,700

Labour availability constraints reflected in FY23 guidance

 Payable zinc equivalent production (kt)(30)

224.2

98.8

 209.4

 233.4

 Payable silver production (koz)

12,946

5,474

12,000

13,500

 Payable lead production (kt)

120.6

52.4

108.5

124.0

 Payable zinc production (kt)

64.5

30.4

 63.5

 68.0

 Cerro Matoso





Guidance unchanged

 Ore to kiln (kdmt)

2,703

1,392

2,850

2,850

Recently completed OSMOC project to support higher volumes

 Payable nickel production (kt)

41.7

20.4

43.5

43.5

 Illawarra Metallurgical Coal





Guidance unchanged

 Total coal production (kt)

6,509

3,331

7,000

5,300

Higher volumes expected in H2 FY23, following finalisation of a new industrial agreement at Appin in Q2 FY23

 

Longwall move at Dendrobium scheduled to commence in Q3 FY23

 Metallurgical coal production (kt)

5,712

2,753

6,000

4,600

 Energy coal production (kt)

797

578

1,000

700

 Australia Manganese





Guidance unchanged

 Manganese ore production (kwmt)

3,363

1,844

3,400

3,400

Tracking ahead of guidance, prior to wet season

 South Africa Manganese




 

 

Subject to demand

Guidance unchanged (subject to demand)

 Manganese ore production (kwmt)

2,069

1,093

        2,000

Continued use of higher cost trucking in response to market conditions

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

 

COSTS AND CAPITAL EXPENDITURE

Operating unit costs performance and guidance

H1 FY23 Operating unit costs were in-line with or below guidance for the majority of our operations, as our focus on delivering stable operating performance and cost efficiencies, combined with weaker producer currencies, provided partial relief from industry-wide cost pressures. Hillside Aluminium and Mozal Aluminium continued to test their technical capacity and recorded sequentially lower costs in H1 FY23 despite global smelter raw material input prices remaining elevated.

FY23 Operating unit cost guidance has been lowered or held largely unchanged for the majority of our operations, reflecting our planned production growth, as well as updated price and foreign exchange assumptions.  

While Operating unit cost guidance is not provided for our aluminium smelters, their cost profile will continue to be influenced by producer currencies, and the price of raw material inputs and energy. 

Operating unit cost(31)

 

 

H2 FY22

H1 FY23

FY23 prior guidance(a)

FY23 new guidance(b)

H1 FY23 to FY23 prior guidance commentary

FY23e(c) new guidance to FY23 prior guidance commentary

 

Worsley Alumina

 

 

 



 

(US$/t)

274

288

296

287

H1 FY23: 3% below prior guidance as a weaker Australian dollar and lower caustic soda costs, more than offset higher energy prices

 

FY23e new guidance: lowered by 3% with lower planned caustic soda consumption and prices,
partly offset by higher energy prices     

 

Brazil Alumina (non-operated) 





 

(US$/t)

312

364

Not

provided

Not

provided

H1 FY23 to H2 FY22: increased by 17% with higher prices for caustic soda, energy and bauxite, together with increased contractor costs  

 

H2 FY23e: cost profile will continue to be heavily influenced by the price of raw material inputs and energy

 

Brazil Aluminium (non-operated) 





 

(US$/t)

-

5,876

Not

provided

Not

provided

H2 FY23e: cost profile will be heavily influenced  by the ramp-up of all three potlines, as well as the price of raw material inputs and energy

 

Hillside Aluminium






 

(US$/t)

2,318

2,276

Not

provided

Not

provided

H1 FY23 to H2 FY22: decreased by 2% as a weaker South African rand more than offset elevated prices for smelter raw material inputs and inflation-linked indexation of energy costs

 

H2 FY23e: cost profile will continue to be heavily influenced by the South African rand, and the price of raw material inputs

 

Mozal Aluminium






 

(US$/t)

2,429

2,237

Not

provided

Not

provided

H1 FY23 to H2 FY22: decreased by 8% as a weaker South African rand more than offset elevated smelter raw material input prices

 

H2 FY23e: cost profile will continue to be heavily influenced by the South African rand, and the price of raw material inputs and energy

 

Sierra Gorda (non-operated) 





 

(US$/t)(d)

14.6

16.6

14.8

15.5

H1 FY23: 12% above prior guidance with higher coal price-linked energy costs and lower ore processed  

 

FY23e new guidance: increased by 5% with lower ore processed and higher energy prices in H1 FY23, ahead of the transition to 100% renewable electricity

 

Cannington


 




 

(US$/t)(d)

139

136

129

141

H1 FY23: 5% above prior guidance with a weaker Australian dollar and lower price-linked royalties, more than offset by lower ore processed 

 

FY23e new guidance: increased by 9% due to lower
ore processed

 

Cerro Matoso






(US$/lb)

4.56

4.93

4.97

4.99

H1 FY23: 1% below prior guidance as a weaker Colombian peso and lower price-linked royalties, marginally offset lower volumes in H1 FY23

 

FY23e new guidance: largely unchanged with higher
price-linked royalties and consumable costs, mostly offset by a weaker Colombian peso

 

Illawarra Metallurgical Coal 





 

(US$/t)

129

124

116

119

H1 FY23: 7% above prior guidance as a weaker Australian dollar and lower price-linked royalties, were more than offset by lower volumes

 

FY23e new guidance: increased by 3% reflecting the impact of lower volumes in H1 FY23

 

Australia Manganese (FOB) 





 

(US$/dmtu)

1.94

1.76

 2.08

1.97

H1 FY23: 15% below prior guidance with higher volumes, a weaker Australian dollar and lower
price-linked royalties

 

FY23e new guidance: lowered by 5% with lower price-linked royalties, partially offset by higher contractor costs

 

South Africa Manganese (FOB) 





 

(US$/dmtu)

2.83

2.67

2.66

2.62

H1 FY23: in-line with prior guidance as a weaker South African rand was partially offset by our continued use of higher cost trucking

 

FY23e new guidance: lowered by 2% with a weaker South African rand and lower price-linked royalties  

 

(a)       FY23 prior guidance included commodity price and foreign exchange rate forward curves or our internal expectations (refer to footnote 32).

(b)       FY23 new guidance includes commodity price and foreign exchange rate forward curves or our internal expectations as at 2 February 2023 (refer to footnote 33).

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

(d)       US dollar per tonne of ore processed. Periodic movements in finished product inventory may impact Operating unit costs.

 

Capital expenditure guidance

Group capital expenditure (including EAIs) has been revised down by US$105M (or 8%) to US$1,140M in FY23, reflecting expected activity and timing of vendor payments in H2 FY23 as we deliver our investments to support safe and reliable operations, productivity and future growth in metals critical for a low-carbon future.  

FY23 guidance for growth capital expenditure at our Hermosa project has been reduced by US$40M to US$250M as we successfully renegotiated commercial supply agreements for long lead items. We expect to invest US$154M in H2 FY23 as we continue to construct infrastructure to support critical path orebody dewatering and advance study work for the Taylor and Clark deposits. At Clark, we remain on-track for initial pilot plant production in mid CY23 to deliver first qualification samples of battery-grade manganese to potential customers. Regional exploration activity is also expected to increase as we continue exploration programs at our Peake copper-lead-zinc-silver prospect(34) and commence drilling at our Flux prospect(35), following the receipt of approvals. 

Group capitalised exploration (including EAIs) has been revised down to US$48M (from US$63M) in FY23, reflecting expected activity in H2 FY23 focused on base metals exploration programs at Hermosa, Sierra Gorda and our broader portfolio.

Capital expenditure excluding exploration and intangibles (South32 share)(20)

US$M

H1 FY23

FY23e(a)

Worsley Alumina

24

45

Brazil Alumina

29

50

Brazil Aluminium

6

10

Hillside Aluminium

9

30

Mozal Aluminium

9

17

Cannington

32

60

Cerro Matoso

17

40

Illawarra Metallurgical Coal

106

248

Safe and reliable capital expenditure (excluding EAI)

232

500

Worsley Alumina

10

44

Brazil Alumina

6

19

Cerro Matoso

3

4

Illawarra Metallurgical Coal

2

3

Other operations

3

15

Improvement and life extension capital expenditure (excluding EAI)

24

85

Hermosa

96

250

Growth capital expenditure

96

250

Total capital expenditure (excluding EAI)

352

835

Total capital expenditure (including EAI)

481

1,140

 

Capital expenditure for EAI excluding exploration and intangibles (South32 share)(20)

US$M

H1 FY23

FY23e(a)

Sierra Gorda

65

165

Australia Manganese

25

50

South Africa Manganese

7

15

Safe and reliable capital expenditure (EAI)

97

230

Sierra Gorda

21

43

Australia Manganese

7

14

South Africa Manganese

4

18

Improvement and life extension capital expenditure (EAI)

32

75

Total capital expenditure (EAI)

129

305

 

Capitalised exploration (South32 share)(20)

US$M

H1 FY23

FY23e(a)

Capitalised exploration (excluding EAI)

18

40

EAI capitalised exploration

2

8

Capitalised exploration (including EAI)

20

48

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

 

Other expenditure guidance

Our Group Underlying ETR is expected to reflect the corporate tax rates of the jurisdictions in which we operate and our geographical earnings mix, including our manganese and Sierra Gorda EAIs which are proportionally consolidated in our Underlying results. All other expenditure guidance is provided in the table below. All other expenditure items are presented on a proportional consolidation basis including our manganese and Sierra Gorda EAIs.

Other expenditure guidance

 

H1 FY23

FY23e(a)

Commentary

Group and unallocated Underlying EBIT

(excluding greenfield exploration and third party product and services EBIT)

Guidance revised to US$40M (from US$100M)

(US$M)

(10)

  40

H1 FY23 reflected the impact of inter-group inventory adjustments in our aluminium value chain

 

Normalised run-rate expected in H2 FY23

Underlying depreciation and amortisation 

Guidance revised to US$900M (from US$935M)

(US$M)

442

900

Reflects asset balances and useful life assumptions, including the Cerro Matoso mining contract extension

Underlying net finance costs

Guidance revised to US$150M (from US$135M)

(US$M)

88

 ↑ 150

Reflects balance sheet position as at H1 FY23

Greenfield exploration



Guidance revised to US$40M (from US$44M)

(US$M)

19

40

Greenfield exploration activity targeting base metals in the Americas, Australia and Europe in H2 FY23

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

 

operations analysis

 

A summary of the underlying performance of the Group's operations is presented below and more detailed analysis is presented in the following pages. Unless otherwise stated: all metrics reflect South32's share; Operating unit cost is Underlying revenue less Underlying EBITDA excluding third party sales divided by sales volumes; Operating cost is Underlying revenue less Underlying EBITDA excluding third party sales; and Realised sales price is calculated as Underlying revenue excluding third party sales divided by sales volume.

Operations table (South32 share)(20)





 

Underlying revenue

Underlying EBIT

US$M

H1 FY23

H1 FY22

H1 FY23

H1 FY22

Worsley Alumina

659

757

33

168

Brazil Alumina

247

242

(19)

49

Brazil Aluminium

47

-

(70)

(1)

Hillside Aluminium

861

992

62

311

Mozal Aluminium

482

371

65

110

Sierra Gorda

357

-

107

-

Cannington

272

378

82

162

Hermosa

-

-

(9)

(7)

Cerro Matoso

395

372

154

158

Illawarra Metallurgical Coal

801

912

340

458

Australia Manganese

355

385

149

162

South Africa Manganese

175

191

25

19

Third party products and services(36)

249

278

12

13

Inter-segment / Group and unallocated

(376)

(373)

(9)

(88)

South32 Group

4,524

4,505

922

1,514

 

Worsley alumina

(86% share)

 

Volumes

Worsley Alumina saleable production decreased by 3% (or 57kt) to 1,922kt in H1 FY23, with planned calciner maintenance completed in Q1 FY23. The refinery operated above nameplate capacity (4.6Mtpa,100% basis) in Q2 FY23 with the operation successfully mitigating short-term energy supply challenges. FY23 production guidance remains unchanged at 4,000kt, with the refinery expected to operate at nameplate capacity following scheduled calciner maintenance in Q3 FY23.

Operating costs

Operating unit costs increased by 13%, to US$288/t, 3% below prior FY23 guidance, as the benefit of a weaker Australian dollar was more than offset by higher prices for caustic soda (H1 FY23: US$714/t, H1 FY22: US$474/t) and energy.

We have revised our FY23 Operating unit cost guidance to US$287/t (previously US$296/t) reflecting lower planned caustic soda consumption (101kg/t, previously 106kg/t) and prices (US$709/t, previously US$742/t), partly offset by higher energy prices. Exchange rate and price assumptions for FY23 Operating unit cost guidance are detailed in footnote 33.

Financial performance

Underlying EBIT decreased by 80% (or US$135M) to US$33M in H1 FY23, as a 9% decrease in the average realised price of alumina (-US$65M), higher prices for caustic soda (-US$50M) and coal (-US$9M), together with  lower sales volumes (-US$33M) as a shipment was delayed to Q3 FY23, more than offset the benefit of a weaker Australian dollar (+US$29M).

Capital expenditure

Safe and reliable capital expenditure increased by US$4M to US$24M in H1 FY23 and is expected to be US$45M in FY23 as we continue our investment in additional bauxite residue disposal capacity.

Improvement and life extension capital expenditure was US$10M in H1 FY23. We expect to spend US$44M in FY23 as we advance decarbonisation projects at the refinery and work to access new bauxite mining areas. 

We expect to convert the first onsite boiler from coal to natural gas in mid CY23, at an estimated capital cost of ~US$10M, in-line with the refinery's planned energy transition.  

 


South32 share

H1 FY23

H1 FY22

Alumina production (kt)

1,922

1,979

Alumina sales (kt)

1,861

1,946

Realised sales price (US$/t)

354

389

Operating unit cost (US$/t)

288

256




South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue

659

757

Underlying EBITDA

123

259

Underlying EBIT

33

168

Net operating assets(a)

2,495

2,571

Capital expenditure

34

24

Safe and reliable

24

20

Improvement and life extension

 10

4

(a)      H1 FY22 reflects the balance as at 30 June 2022.

 

 

BRAZIL ALUMINA

(36% SHARE)

 

Volumes

Brazil Alumina saleable production increased by 10% (or 60kt) to 691kt in H1 FY23, as the refinery operated at nameplate capacity (3.86Mtpa, 100% basis), following the bauxite ship unloader outage in the prior period. FY23 production guidance remains unchanged at 1,395kt. 

Operating costs

Operating unit costs increased by 39%, to US$364/t in H1 FY23, due to a significant rise in uncontrollable costs with caustic soda prices in North American markets (H1 FY23: US$728/t, H1 FY22: US$307/t), coal-linked energy prices and bauxite costs linked to alumina and aluminium prices on a trailing basis.

While Operating unit cost guidance is not provided for this non-operated facility, the refinery will continue to be influenced by energy and raw material input prices, including caustic soda and bauxite.

Financial performance

Underlying EBIT decreased by US$68M to a loss of US$19M in H1 FY23, as higher sales volumes (+US$19M) were more than offset by a 6% reduction in the average realised price of alumina (-US$14M) and higher prices for caustic soda (-US$27M), energy (-US$24M) and bauxite (-US$12M).

Capital expenditure

Safe and reliable capital expenditure decreased by US$2M to US$29M in H1 FY23. We expect to spend US$50M in FY23 as we continue our investment in additional bauxite residue disposal capacity.

Improvement and life extension capital expenditure was US$6M in H1 FY23 and is expected to be US$19M in FY23 as we progress work on the refinery's De-bottlenecking Phase Two project. The project is expected to increase nameplate production capacity by approximately 4% to ~4.0Mt (100% basis) from H1 FY26, with anticipated capital expenditure of ~US$40M (South32 share) between FY23 and FY25.

 


South32 share

H1 FY23(a)

H1 FY22

Alumina production (kt)

691

631

Alumina sales (kt)

678

626

Realised sales price (US$/t)

364

387

Operating unit cost (US$/t)(b)

364

262




South32 share (US$M)

H1 FY23(a)

H1 FY22

Underlying revenue

247

242

Underlying EBITDA

7

78

Underlying EBIT

(19)

49

Net operating assets(c)

702

696

Capital expenditure

35

31

Safe and reliable

29

31

Improvement and life extension

6

-

(a)      The increase in ownership in MRN has triggered a change in accounting treatment with the investment accounted for using the equity method (formerly classified as an investment in an equity instrument designated as fair value through other comprehensive income).

(b)      Excludes the profit from our equity interest in MRN. 

(c)      H1 FY22 reflects the balance as at 30 June 2022.

 

BRAZIL ALUMINIUM

(40% SHARE)

 

Volumes

Brazil Aluminium saleable production was 23.7kt in H1 FY23, following the successful restart of the smelter in late FY22. Production increased by 86% (or 7.1kt) in Q2 FY23 as potlines one and two continued to ramp-up and potline three was restarted in November 2022.

The smelter is expected to reach nameplate capacity (179ktpa, 40% basis) in Q1 FY24, with guidance for FY23 and FY24 set at 75kt and 148kt, respectively.

Operating costs

Brazil Aluminium recorded gross operating costs of US$114M in H1 FY23 as the smelter continued to ramp-up to nameplate capacity. 

While Operating unit cost guidance is not provided for this non-operated facility, the cost profile of the smelter will be influenced by the ramp-up profile for all three potlines and the price of future raw material inputs which remain elevated across the industry.

Once at nameplate capacity we expect the smelter to be in the second quartile of the global aluminium cost curve, with our share of energy requirements secured under long-term, cost efficient, 100% renewable power contracts. Our alumina supply is sourced from the co-located Brazil Alumina refinery with prices linked to the Platts index on a M-1 basis.

Financial performance

Underlying EBIT was a loss of US$70M in H1 FY23, as first sales revenue (+US$47M) was more than offset by costs to support the smelter's restart and the ramp-up of all three potlines (-US$114M).

Capital expenditure

Capital expenditure was US$6M in H1 FY23 and is expected to be US$10M in FY23.

South32 share

H1 FY23

H1 FY22

Aluminium production (kt)

23.7

-

Aluminium sales (kt)

19.4

-

Realised sales price (US$/t)

2,423

-

Operating unit cost (US$/t)

5,876

-




South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue

47

-

Underlying EBITDA

(67)

(1)

Underlying EBIT

(70)

(1)

Net operating assets(a)

65

46

Capital expenditure

6

-

Safe and reliable

6

-

Improvement and life extension

-

-

(a)      H1 FY22 reflects the balance as at 30 June 2022.

 

 

 

hillside aluminium

(100% SHARE)

 

Volumes

Hillside Aluminium saleable production increased by 1% (or 4kt) to 362kt in H1 FY23 as the smelter continued to test its maximum technical capacity despite the impact of elevated load-shedding. FY23 production guidance is unchanged at 720kt(27).

Operating costs

H1 FY23 Operating unit costs of US$2,276/t represented an increase of 18% compared to H1 FY22, but were sequentially lower than H2 FY22 (US$2,318/t) as the benefit of a weaker South African rand more than offset elevated raw material input prices and inflation-linked indexation of energy costs.

While Operating unit cost guidance is not provided, the cost profile of the smelter will continue to be heavily influenced by the price of raw material inputs, including alumina supplied by our Worsley Alumina refinery with prices linked to the PAX on a M-1 basis, and other external factors including the South African rand and inflation-linked energy costs.

Financial performance

Underlying EBIT decreased by 80% (or US$249M) to US$62M in H1 FY23, as a 13% reduction in the average realised price of aluminium (-US$134M), the lagged impact of consuming higher priced alumina inventory (-US$26M), higher prices for other smelter raw material inputs (-US$58M) and energy (-US$30M), more than offset the benefit of a weaker South African rand (+US$48M).  

64 pots were relined utilising the AP3XLE energy efficiency technology in H1 FY23 at a cost of US$266k per pot (H1 FY22: 70 pots at US$259k per pot), with a total of 94 pots scheduled to be relined during FY23.

Capital expenditure

Capital expenditure was unchanged at US$10M in H1 FY23. We expect to spend US$30M in FY23 with planned investment in a replacement trucking fleet for the transportation of liquid hot metal and the continued roll-out of the AP3XLE technology to improve energy efficiency. 

 

 


South32 share

H1 FY23

H1 FY22

Aluminium production (kt)

362

358

Aluminium sales (kt)

337

336

Realised sales price (US$/t)

2,555

2,952

Operating unit cost (US$/t)

2,276

1,935





South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue

861

992

Underlying EBITDA

94

342

Underlying EBIT

62

311

Net operating assets(a)

919

927

Capital expenditure

10

10

Safe and reliable

9

10

Improvement and life extension

1

-

(a)      H1 FY22 reflects the balance as at 30 June 2022.

 

Mozal aluminium

(63.7% SHARE)(28)

Volumes

Mozal Aluminium saleable production increased by 34% (or 46kt) to 182kt in H1 FY23, reflecting our increased ownership of the smelter.

FY23 production guidance remains unchanged at 370kt(27), with the smelter having restored full production following a temporary suspension after the fatal incident in November 2022.

Operating costs

H1 FY23 Operating unit costs of US$2,237/t represented an increase of 11% compared to H1 FY22, but were sequentially lower than H2 FY22 (US$2,429/t) as the benefit of a weaker South African rand offset elevated raw material input prices.

While Operating unit cost guidance is not provided, the cost profile of the smelter will continue to be heavily influenced by the price of raw material inputs, including the price of alumina supplied by our Worsley Alumina refinery, and other external factors including the South African rand and inflation-linked energy costs.

Approximately 50% of the alumina supplied to the smelter is priced as a percentage of the LME aluminium index under a legacy contract and the remainder linked to the PAX on a M-1 basis, with caps and floors embedded within specific contracts that reset each calendar year.

Financial performance

Underlying EBIT decreased by 41% (or US$45M) in H1 FY23 to US$65M, as a 10% decrease in the average realised price for aluminium (-US$44M) and higher raw material input prices (-US$23M), more than offset the benefit of our increased ownership of the smelter (+US$17M).

32(37) pots were relined utilising the AP3XLE energy efficiency technology in H1 FY23, which was below plan due to the temporary suspension of operations following the fatal incident in November 2022 (cost of US$288k per pot, H1 FY22: US$245k per pot). Notwithstanding, we expect to complete the scheduled pot relining activity (106(37) pots) during FY23.

Capital expenditure

Capital expenditure increased by US$3M to US$9M in H1 FY23 and is expected to be US$19M in FY23 as we invest in plant refurbishment and continue the roll-out of the AP3XLE technology, which is on-track to be completed in FY24.

 



South32 share

H1 FY23(a)

H1 FY22

Aluminium production (kt)

182

136

Aluminium sales (kt)

177

122

Realised sales price (US$/t)

2,723

3,041

Operating unit cost (US$/t)

2,237

2,008




South32 share (US$M)

H1 FY23(a)

H1 FY22

Underlying revenue

482

371

Underlying EBITDA

86

126

Underlying EBIT

65

110

Net operating assets(b)

598

615

Capital expenditure

9

6

Safe and reliable

9

5

Improvement and life extension

-

1

(a)      Our underlying results reflect the completion of our acquisition of an additional 16.6% shareholding in the smelter on 31 May 2022, taking our ownership to 63.7%. Prior period numbers have not been restated for this change in ownership (presented on a 47.1% basis).

(b)      H1 FY22 reflects the balance as at 30 June 2022.

 

 

 

SIERRA GORDA

(45% SHARE)

 

Volumes

Sierra Gorda payable copper equivalent production(29) was 44.9kt in H1 FY23. FY23 guidance of 89.0kt payable copper equivalent production(29) (copper 71.8kt, molybdenum 1.5kt, gold 29.9koz and silver 582koz) reflects expected plant throughput of 21.4Mt (45% basis), an average copper grade of ~0.42% (H1 FY23: 0.45%) and higher molybdenum output in H2 FY23.

FY24 guidance of 87.5kt payable copper equivalent production(29) (copper 67.0kt, molybdenum 2.5kt, gold 22.5koz and silver 550koz) reflects an expected increase in plant throughput to 21.8Mt (45% basis), offset by a planned reduction in copper grade to ~0.38% in accordance with the mine plan. 

Operating costs

Operating unit costs were US$16.6/t ore processed in H1 FY23, 12% above prior FY23 guidance, due to higher coal price-linked energy costs and lower mill throughput reflecting our previously revised expectations for the plant de-bottlenecking project.

We have revised our FY23 Operating unit cost guidance to US$15.5/t (previously US$14.8/t) reflecting sequentially lower Operating unit costs in H2 FY23, benefitting from the transition to cost efficient, 100% renewable electricity from January 2023. Exchange rate and price assumptions for FY23 Operating unit cost guidance are detailed in footnote 33.

Financial performance

Underlying EBIT was US$107M (for an Underlying EBIT margin of 30%) in H1 FY23, as we recorded Underlying revenue of US$357M at an average realised copper price of US$3.41/lb.   

Capital expenditure

Safe and reliable capital expenditure was US$65M in H1 FY23. FY23 guidance has been lowered by US$40M to US$165M to reflect expected deferred stripping activity and the timing of investment in additional tailings storage capacity.

Improvement and life extension capital expenditure was US$21M in H1 FY23 as work progressed on the plant de-bottlenecking project. We expect to spend US$43M in FY23 as planned de-bottlenecking work is completed.

Separately, feasibility study work continued on a potential fourth grinding line, designed to sustainably lift plant throughput above 50Mtpa (100% basis). The feasibility study is now expected to be completed in H1 FY24.

 

 

South32 share

H1 FY23

H1 FY22

Ore mined (Mt)

15.4

-

Ore processed (Mt)

10.7

-

Ore grade processed (%, Cu)

0.45

-

Payable copper equivalent production (kt)(29)

44.9

-

Payable copper production (kt)

37.9

-

Payable molybdenum production (kt)

0.4

-

Payable gold production (koz)

15.3

-

Payable silver production (koz)

338

-

Payable copper sales (kt)

38.4

-

Payable molybdenum sales (kt)

0.8

-

Payable gold sales (koz)

15.4

-

Payable silver sales (koz)

345

-

Realised copper sales price (US$/lb)

3.41

-

Realised molybdenum sales price (US$/lb)

20.78

-

Realised gold sales price (US$/oz)

1,688

-

Realised silver sales price (US$/oz)

17.4

-

Operating unit cost
(US$/t ore processed)(38)

16.6

-




South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue

357

-

Underlying EBITDA

179

-

Underlying EBIT

107

-

Net operating assets(a)

1,517

1,402

Capital expenditure

86

-

Safe and reliable

65

-

Improvement and life extension

21

-

Exploration expenditure

3

-

Exploration expensed

2

-

(a)  H1 FY22 reflects the balance as at 30 June 2022.

 

 

CANNINGTON

(100% SHARE)

 

Volumes

Cannington payable zinc equivalent production(30) decreased by 13% (or 15.2kt) to 98.8kt in H1 FY23 as mill throughput was below plan due to lower than expected performance of temporary mobile crushers deployed to support the operation's transition to 100% truck haulage. Ore mined volumes also declined with lower mining rates due to skilled labour shortages and COVID-19 absenteeism.

Labour availability challenges are expected to impact mining rates over the remainder of FY23, and are reflected in our production guidance of 209.4kt payable zinc equivalent(30) (ore processed 2,450kdmt, silver 12,000koz, lead 108.5kt and zinc 63.5kt). 

Operating costs

Operating unit costs increased by 6%, to US$136/t in H1 FY23, 5% above prior FY23 guidance, as a weaker Australian dollar and lower price-linked royalties were more than offset by the impact of fixed costs on the mill's reduced throughput.

We have revised our FY23 Operating unit cost guidance to US$141/t (previously US$129/t) reflecting the volume impact of reduced mill throughput over the year. Exchange rate and price assumptions for FY23 Operating unit cost guidance are detailed in footnote 33.

Financial performance

Underlying EBIT decreased by 49% (or US$80M) to US$82M in H1 FY23, as lower prices for zinc, lead and silver (-US$29M) and a decline in sales volumes as a result of reduced throughput (-US$77M), more than offset the benefit of a weaker Australian dollar (+US$12M) and lower price-linked royalties (+US$6M).

Capital expenditure

Capital expenditure increased by US$16M to US$33M in H1 FY23 and is expected to be US$62M in FY23 as we complete planned upgrades to water and ventilation infrastructure and install additional tailings storage capacity.

 

 

South32 share

H1 FY23

H1 FY22

Ore mined (kwmt)

1,123

1,475

Ore processed (kdmt)

1,142

1,385

Ore grade processed (g/t, Ag)

175

177

Ore grade processed (%, Pb)

5.5

5.2

Ore grade processed (%, Zn)

3.6

3.4

Payable zinc equivalent production (kt)(30)

98.8

114.0

Payable silver production (koz)

5,474

6,710

Payable lead production (kt)

52.4

60.2

Payable zinc production (kt)

30.4

32.7

Payable silver sales (koz)

5,083

6,718

Payable lead sales (kt)

51.3

63.3

Payable zinc sales (kt)

27.5

32.8

Realised silver sales price (US$/oz)

20.1

21.0

Realised lead sales price (US$/t)

2,008

2,180

Realised zinc sales price (US$/t)

2,436

2,988

Operating unit cost
(US$/t ore processed)(38)

136

128




South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue

272

378

Underlying EBITDA

117

201

Underlying EBIT

82

162

Net operating assets(a)

188

141

Capital expenditure

33

17

Safe and reliable

32

17

Improvement and life extension

1

-

Exploration expenditure

3

2

Exploration expensed

3

1

(a)       H1 FY22 reflects the balance as at 30 June 2022.

 

 

cerro matoso

(99.9% SHARE)

 

Volumes

Cerro Matoso payable nickel production was largely unchanged at 20.4kt in H1 FY23. Production improved by 13% (or 1.2kt) in Q2 FY23 as mill throughput returned to normalised rates following the completion of a planned shut, while the OSMOC project was also successfully commissioned.

FY23 production guidance remains unchanged at 43.5kt, with the OSMOC project expected to support higher production volumes in H2 FY23.

Operating costs

Operating unit costs increased by 20%, to US$4.93/lb in H1 FY23, in-line with prior FY23 guidance, as the benefit of a weaker Colombian peso was more than offset by higher price-linked royalties and energy prices.

FY23 Operating unit cost guidance is largely unchanged at US$4.99/t (previously US$4.97/lb) reflecting higher price-linked royalties and consumable costs, partially offset by the benefit of a weaker Colombian peso.  Exchange rate and price assumptions for FY23 Operating unit cost guidance are detailedin footnote 33.

Financial performance

Underlying EBIT was largely unchanged at US$154M despite the planned shut in H1 FY23 (-US$5M), as an 8% increase in average realised nickel prices (+US$30M) and a weaker Colombian peso (+US$23M), was partially offset by higher price-linked royalties (-US$14M), energy prices (-US$7M) and local inflationary pressures (-US$12M).

Capital expenditure

Safe and reliable capital expenditure increased by US$11M to US$17M in H1 FY23 as we progressed planned furnace upgrades. We expect to spend US$40M in FY23 as we complete this work and invest in a new mobile fleet.

Improvement and life extension capital expenditure was lower, at US$3M in H1 FY23, as we successfully commissioned the OSMOC project which underpinned a 15-year extension to the mining contract to 2044.

 


South32 share

H1 FY23

H1 FY22

Ore mined (kwmt)

2,752

2,416

Ore processed (kdmt)

1,392

1,335

Ore grade processed (%, Ni)

1.64

1.73

Payable nickel production (kt)

20.4

20.3

Payable nickel sales (kt)

19.8

20.1

Realised sales price (US$/lb)(39)

9.05

8.39

Operating unit cost (US$/lb)

4.93

4.11

Operating unit cost (US$/t)(40)

154

136




South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue

395

372

Underlying EBITDA

180

190

Underlying EBIT

154

158

Net operating assets(a)

432

349

Capital expenditure

20

14

Safe and reliable

17

6

Improvement and life extension

3

8

(a)       H1 FY22 reflects the balance as at 30 June 2022.

 

 

ILLAWARRA METALLURGICAL COAL

(100% SHARE)

 

Volumes

Illawarra Metallurgical Coal saleable production increased by 6% (or 186kt) to 3,331kt in H1 FY23. Metallurgical coal production increased by 17% in Q2 FY23, benefitting from improved labour productivity following the conclusion of a new, four-year, industrial employment agreement at our Appin mine.  

Volumes are expected to increase further in H2 FY23 and FY23 production guidance remains unchanged at 7.0Mt, with a longwall move at our Dendrobium mine scheduled to commence Q3 FY23. 

Operating costs

Operating unit costs increased by 1%, to US$124/t in H1 FY23, 7% above prior FY23 guidance, as the benefit of a weaker Australian dollar and largely unchanged volume was more than offset by higher local energy costs.

We have revised our FY23 Operating unit cost guidance to US$119/t (previously US$116/t), reflecting sequentially lower Operating unit costs in H2 FY23, benefitting from higher planned production volumes. Exchange rate and price assumptions for FY23 Operating unit cost guidance are detailedin footnote 33.

Financial performance

Underlying EBIT decreased by 26% (or US$118M) to US$340M in H1 FY23, as a 12% decrease in the average realised price of metallurgical coal (-US$90M) and lower sales volumes (-US$49M) due to the temporary impact of protected industrial action, more than offset higher average realised prices for energy coal (+US$28M) and a weaker Australian dollar (+US$27M).

Capital expenditure

Safe and reliable capital expenditure increased by US$24M to US$106M in H1 FY23. We expect to invest US$248M in FY23 as we continue activity to support the transition to a more efficient single longwall configuration at Appin from FY25, and begin installing additional ventilation capacity to enable mining in the current Area 7 until at least 2039(17).

Improvement and life extension capital expenditure decreased by US$4M to US$2M in H1 FY23 as we ceased work on the DND project, electing to focus on optimising Dendrobium within approved domains.

 




South32 share

H1 FY23

H1 FY22

Metallurgical coal production (kt)

2,753

2,767

Energy coal production (kt)

578

378

Metallurgical coal sales (kt)(41)

2,678

2,877

Energy coal sales (kt)(41)

507

378

Realised metallurgical coal sales price (US$/t)

268

303

Realised energy coal sales price (US$/t)

164

108

Operating unit cost (US$/t)

124

123




South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue(42)

801

912

Underlying EBITDA

407

512

Underlying EBIT

340

458

Net operating assets(a)

722

786

Capital expenditure

108

88

Safe and reliable

106

82

Improvement and life extension

2

6

Exploration expenditure

8

5

Exploration expensed

4

5

(a)       H1 FY22 reflects the balance as at 30 June 2022.

 

AUSTRALIA MANGANESE

(60% SHARE)

 

Volumes

Australia Manganese saleable production increased by 8% (or 140kwmt) to a record of 1,844kwmt in H1 FY23 as improved yields supported higher primary concentrator output. Separately, our low-cost PC02 circuit continued to operate above its design capacity, delivering approximately 10% of production (FY22: 11%).

FY23 production guidance remains unchanged at 3,400kwmt, with production volumes tracking ahead of guidance prior to the commencement of the wet season.

Operating costs

Operating unit costs decreased by 2%, to US$1.76/dmtu in H1 FY23, 15% below prior FY23 guidance, as the operation built mining stocks ahead of the wet season and the benefit of a weaker Australian dollar, more than offset higher diesel prices and contractor costs.

We have revised our FY23 Operating unit cost guidance to US$1.97/t (previously US$2.08/dmtu) with lower price-linked royalties, partially offset by higher contractor costs. Exchange rate and price assumptions for FY23 Operating unit cost guidance are detailedin footnote 33.

Financial performance

Underlying EBIT decreased by 8% (or US$13M) to US$149M in H1 FY23, as lower average realised manganese prices and sales volumes (-US$30M), combined with higher diesel prices (-US$12M), more than offset the benefit of a weaker Australian dollar (+US$12M) and lower freight rates (+US$12M) as global shipping markets normalised.

Capital expenditure

Safe and reliable capital expenditure decreased by US$7M to US$25M in H1 FY23. We expect to spend US$50M in FY23 as we invest in road infrastructure and additional tailings storage capacity.

Improvement and life extension capital expenditure increased by US$5M to US$7M in H1 FY23 and is expected to be US$14M in FY23 as we complete final feasibility study work for the Eastern Leases mine life extension project. A final investment decision for the project is now expected in H2 FY23.

 


South32 share

H1 FY23

H1 FY22

Manganese ore production (kwmt)

1,844

1,704

Manganese ore sales (kwmt)

1,652

1,737

Realised external manganese ore sales price (US$/dmtu, FOB)(43)(44)

4.57

4.59

Ore operating unit cost (US$/dmtu, FOB)(44)(45)

1.76

1.79




South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue

355

385

Underlying EBITDA

197

206

Underlying EBIT

149

162

Net operating assets(a)

258

258

Capital expenditure

32

34

Safe and reliable

25

32

Improvement and life extension

7

2

Exploration expenditure

1

1

Exploration expensed

-

-

(a)       H1 FY22 reflects the balance as at 30 June 2022.

 

 

south africa manganese

(ORE 54.6% SHARE, ALLOY 60% SHARE)

 

Volumes

South Africa Manganese saleable production increased by 4% (or 40kwmt) to 1,093kwmt in H1 FY23, as improved mining performance was partially offset by planned maintenance completed in Q2 FY23.

FY23 production guidance remains unchanged at 2,000kwmt, subject to our continued use of higher cost trucking in responses to market conditions.

Operating costs

Operating unit costs were largely unchanged at US$2.67/dmtu in H1 FY23, in-line with prior FY23 guidance, as a weaker South African rand was more than offset by lower sales volumes due to a temporary reduction in third-party rail and port availability.

We have revised our FY23 Operating unit cost guidance to US$2.62/dmtu (previously US$2.66/dmtu) with the benefit of a weaker South African rand and lower price-linked royalties. Exchange rate and price assumptions for FY23 Operating unit cost guidance are detailed in footnote 33.

Financial performance

Underlying EBIT increased by 32% (or US$6M) to US$25M in H1 FY23, as a weaker South African rand (+US$15M) and lower freight rates (+US$11M), more than offset the impact of reduced sales volumes (-US$10M) and local inflationary impacts (-US$6M). 

Capital expenditure

Safe and reliable capital expenditure decreased by US$1M to US$7M in H1 FY23 and is expected to be US$15M in FY23 as we replace mobile fleet and equipment.

Improvement and life extension capital expenditure was US$4M in H1 FY23. We expect to invest US$18M in FY23 as we unlock value by accessing new mining areas and upgrading our rail infrastructure to maximise flexibility in our logistics.  

 


South32 share

H1 FY23

H1 FY22

Manganese ore production (kwmt)

1,093

1,053

Manganese ore sales (kwmt)

1,032

1,094

Realised external manganese ore sales price (US$/dmtu, FOB)(43)(46)

3.57

3.47

Ore operating unit cost (US$/dmtu, FOB) (45)(46)

2.67

2.63




South32 share (US$M)

H1 FY23

H1 FY22

Underlying revenue

175

191

Manganese ore

175

191

Manganese alloy

-

-

Underlying EBITDA

35

29

Manganese ore

36

34

Manganese alloy

(1)

(5)

Underlying EBIT

25

19

Manganese ore

26

24

Manganese alloy

(1)

(5)

Net operating assets/(liabilities)(a)

124

135

Manganese ore

197

211

Manganese alloy

(73)

(76)

Capital expenditure

11

10

Safe and reliable

7

8

Improvement and life extension

4

2

Exploration expenditure

1

1

Exploration expensed

1

1

(a)       H1 FY22 reflects the balance as at 30 June 2022.

 

notes

 

 

(1)       Net tangible assets as at 31 December 2022 includes all right-of-use assets and lease liabilities, in accordance with AASB 16 Leases.

(2)       H1 FY23 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for H1 FY23 (4,596 million). H1 FY23 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for H1 FY23. H1 FY22 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for H1 FY22 (4,657 million). H1 FY22 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for H1 FY22.

(3)       H1 FY23 ordinary dividends per share is calculated as H1 FY23 ordinary dividend announced (US$224M) divided by the number of shares on issue at 31 December 2022 (4,572 million).

(4)       Underlying revenue includes revenue from third party products and services. To align with the current period's presentation, H1 FY22 Underlying revenue has been reclassified to reflect an elimination of revenue (-US$97M) and corresponding expenses (+US$97M) on proportional consolidation, relating to freight services provided by the Group to our joint ventures. The reclassification results in a net nil impact to Underlying EBITDA, Underlying EBIT and Underlying earnings.

(5)       The underlying information reflects the Group's interest in material equity accounted joint ventures and is presented on a proportional consolidation basis. Underlying EBIT is profit before net finance (income)/costs, tax and any earnings adjustments, including impairments. Underlying EBITDA is Underlying EBIT before underlying depreciation and amortisation. Underlying earnings is Profit after tax and earnings adjustment items. Underlying earnings is the key measure that South32 uses to assess the performance of the South32 Group, make decisions on the allocation of resources and assess senior management's performance. In addition, the performance of each of the South32 operations and operational management is assessed based on Underlying EBIT. In order to calculate Underlying earnings, Underlying EBIT and Underlying EBITDA, the following items are adjusted as applicable each period, irrespective of materiality:

·          Exchange rate (gains)/losses on restatement of monetary items;

·          Impairment losses/(reversals);

·          Net (gains)/losses on disposal and consolidation of interests in businesses;

·          (Gains)/losses on non-trading derivative instruments, contingent consideration and other investments measured at fair value through profit or loss;

·          Major corporate restructures;

·          Joint venture adjustments;

·          Exchange rate variations on net debt;

·          Tax effect of earnings adjustments; and

·          Exchange rate variations on tax balances

In addition, items that do not reflect the underlying operations of South32, and are individually, or in combination with other related earnings adjustments, significant to the financial statements, are excluded to determine Underlying earnings. When applicable, significant items are detailed in the Financial Information.

(6)       Comprises Underlying EBITDA excluding third party product EBITDA, divided by Underlying revenue excluding third party product revenue. Also referred to as operating margin.

(7)       Comprises Underlying EBIT excluding third party product EBIT, divided by Underlying revenue excluding third party product revenue.

(8)       Return on invested capital (ROIC) is a key measure that South32 uses to assess performance. ROIC is calculated as Underlying EBIT less the discount on rehabilitation provisions included in net finance costs, tax effected by the Group's Underlying effective tax rate (ETR) including our material equity accounted investments on a proportional consolidation basis, divided by the sum of fixed assets (excluding any rehabilitation assets, the impairment reversal of Brazil Aluminium, and unproductive capital associated with Growth and Life Extension projects) and inventories.

(9)       To ensure that incident classification definitions are applied uniformly across our workforce, we have adopted the United States Government Occupational Safety and Health Administration (OSHA) and the International Council on Mining and Metals (ICMM) guidelines for the recording and reporting of occupational injuries and illnesses.

(10)    Total Recordable Injury Frequency (TRIF): (The sum of recordable injuries x 1,000,000) ÷ exposure hours. This is stated in units of per million hours worked for employees and contractors.

(11)    Group payable copper equivalent production calculated by applying H1 FY23 production volumes and FY22 realised prices for all operations (except for Brazil Aluminium which is based on FY22 average index prices for aluminium). The 12% increase in H1 FY23 Group payable copper equivalent production is calculated relative to H1 FY22 production volumes and FY22 realised prices for all operations (except for Brazil Aluminium which is based on FY22 average index prices for aluminium).

(12)    Refers to aluminium produced using renewable power.

(13)    Group payable copper equivalent production calculated by applying H2 FY23e production volumes and FY22 realised prices for all operations (except for Brazil Aluminium which is based on FY22 average index prices for aluminium). The 6% increase in H2 FY23e Group payable copper equivalent production is calculated relative to H1 FY23 production volumes and FY22 realised prices for all operations (except for Brazil Aluminium which is based on FY22 average index prices for aluminium).

(14)    Since inception, US$1.6B has been allocated to the on-market share buy-back (752M shares at an average price of A$3.00 per share) and US$525M returned in the form of special dividends.

(15)    Refer to market release "South32 unlocks up to US$200M in value from non-core royalty sale" dated 12 July 2022.

(16)    Goal is defined as an aspiration to deliver an outcome for which we have not identified a pathway for delivery, but for which efforts will be pursued towards achieving that outcome, subject to certain assumptions or conditions. Target is defined as an intended outcome in relation to which we have identified one or more pathways for delivery of that outcome, subject to certain assumptions or conditions.

(17)    Refer to market release "Dendrobium Next Domain Update" dated 23 August 2022 (market release). The information in the market release that refers to the Production Target and forecast financial information for the Appin mine at Illawarra Metallurgical Coal is based on Proved (14%) and Probable (86%) Coal Reserves from Bulli. The Coal Reserves estimates underpinning the Production Target have been prepared by M Rose (Competent Person) and reported in accordance with the JORC Code. The Coal Reserves estimates are available to view in South32's FY22 Annual Report (http://www.south32.net) published on 9 September 2022. The stated Production Target is based on South32's current expectations of future results or events and should not be solely relied upon by investors when making investment decisions. Further evaluation work and appropriate studies are required to establish sufficient confidence that this target will be met.

(18)    Sales price variance reflects the revenue impact of changes in commodity prices, based on the current period's sales volume. Price-linked costs variance reflects the change in royalties together with the change in input costs driven by changes in commodity prices or market traded consumables. Foreign exchange reflects the impact of exchange rate movements on local currency denominated costs and sales. Volume variance reflects the revenue impact of sales volume changes, based on the comparative period's sales prices. Controllable costs variance represents the impact from changes in the Group's controllable local currency cost base, including the variable cost impact of production volume changes on expenditure, and period-on-period movements in inventories. The controllable cost variance excludes earnings adjustments including significant items.

(19)    Underlying net finance costs and Underlying income tax expense are actual H1 FY23 results, not half-on-half variances.

(20)    South32's ownership shares of operations are presented as follows: Worsley Alumina (86% share), Brazil Alumina (36% share), Brazil Aluminium (40% share), Hillside Aluminium (100%), Mozal Aluminium (63.7% share), Sierra Gorda (45% share), Cannington (100%), Hermosa (100%), Cerro Matoso (99.9% share), Illawarra Metallurgical Coal (100%), Australia Manganese (60% share), South Africa Manganese ore (54.6% share) and South Africa Manganese alloy (60% share).

(21)    The underlying information reflects the Group's interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance. The joint venture adjustments reconcile the proportional consolidation to the equity accounting position included in the Group's consolidated financial statements.

(22)    Underlying ETR is Underlying income tax expense, including royalty related tax, divided by Underlying profit subject to tax.

(23)    The corporate tax rates of the geographies where the Group operates include: Australia 30%, South Africa 27%, Colombia 35%, Mozambique 0%, Brazil 34% and Chile 27%. The South African corporate tax rate reduced from 28% to 27% from 1 July 2022. The Mozambique operations are subject to a royalty on revenues instead of income tax. Sierra Gorda is subject to a royalty related tax based on the amount of copper sold and the mining operating margin, the rate is between 5% and 14% for annual sales over 50kt of refined copper. This royalty is included in tax expense.

(24)    Australia Manganese is subject to a royalty related tax equal to 20% of adjusted EBIT which is included in tax expense.

(25)    H1 FY23 net distributions from our material equity accounted joint ventures comprise dividends and capital returns (US$108M), partly offset by a net drawdown of shareholder loans (-US$48M) from our manganese EAI. No distributions were received from our Sierra Gorda EAI.

(26)    Total capital expenditure comprises Capital expenditure, evaluation expenditure, the purchase of intangibles and capitalised exploration expenditure. Capital expenditure comprises Safe and reliable capital expenditure, Improvement and life extension capital expenditure, and Growth capital expenditure.

(27)    Production guidance for Hillside Aluminium and Mozal Aluminium does not assume any load-shedding impact on production.

(28)    Refer to market release "South32 completes acquisition of additional shareholding in Mozal Aluminium" dated 31 May 2022. Historical income statement, production and sales figures have not been restated for our increased ownership of 63.7% (presented on a 47.1% basis to 31 May 2022).

(29)    Payable copper equivalent production (kt) was calculated by aggregating revenues from payable copper, molybdenum, gold and silver, and dividing the total Revenue by the price of copper. FY22 realised prices for copper (US$3.50/lb), molybdenum (US$18.48/lb), gold (US$1,934/oz) and silver (US$23.5/oz) have been used for FY22, H1 FY23, FY23e and FY24e.

(30)    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. FY22 realised prices for zinc (US$3,248/t), lead (US$2,046/t) and silver (US$21.0/oz) have been used for FY22, H1 FY23, FY23e and FY24e.

(31)    Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volumes. Operating cost is Revenue less Underlying EBITDA excluding third party sales. Additional manganese disclosures are included in footnotes 44 and 46.

(32)    FY23 prior Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various assumptions for FY23, including: an alumina price of US$364/t; an average blended coal price of US$265/t for Illawarra Metallurgical Coal; a manganese ore price of US$6.40/dmtu for 44% manganese product; a nickel price of US$9.94/lb; a silver price of US$22.1/troy oz; a lead price of US$2,059/t (gross of treatment and refining charges); a zinc price of US$3,480/t (gross of treatment and refining charges); a copper price of US$4.07/lb (gross of treatment and refining charges); a molybdenum price of US$16.95/lb (gross of treatment and refining charges); a gold price of US$1,860/troy oz; an AUD:USD exchange rate of 0.69; a USD:ZAR exchange rate of 16.62; a USD:COP exchange rate of 3,851; USD:CLP exchange rate of 814; and a reference price for caustic soda; which reflect forward markets as at June 2022 or our internal expectations.

(33)    FY23 new Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various assumptions for FY23, including: an alumina price of US$336/t; an average blended coal price of US$265/t for Illawarra Metallurgical Coal; a manganese ore price of US$5.20/dmtu for 44% manganese product; a nickel price of US$12.07/lb; a silver price of US$22.2/troy oz; a lead price of US$2,091/t (gross of treatment and refining charges); a zinc price of US$3,255/t (gross of treatment and refining charges); a copper price of US$3.84/lb (gross of treatment and refining charges); a molybdenum price of US$20.44/lb (gross of treatment and refining charges); a gold price of US$1,681/troy oz; an AUD:USD exchange rate of 0.69; a USD:ZAR exchange rate of 17.19; a USD:COP exchange rate of 4,601; USD:CLP exchange rate of 854; and a reference price for caustic soda; all of which reflected forward markets as at 2 February 2023 or our internal expectations.

(34)    Peake Prospect Exploration Target: The information in this announcement that relates to the Exploration Target for Peake Prospect is extracted from "Hermosa Project Update" published on 17 January 2022 and is available to view on www.south32.net. The information was prepared by D Bertuch (Competent Person) in accordance with the requirements of the JORC Code. South32 confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement. South32 confirms that the form and context in which the Competent Person's findings are presented have not been materially changed from the original market announcement.

(35)    Flux Exploration Target: The information in this announcement that relates to the Exploration Target for Flux is extracted from "South32 Strategy and Business Update" published on 18 May 2021 and is available to view on www.south32.net. The information was prepared by D Bertuch (Competent Person) in accordance with the requirements of the JORC Code. South32 confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement. South32 confirms that the form and context in which the Competent Person's findings are presented have not been materially changed from the original market announcement.

(36)    H1 FY23 Third party products and services sold comprise US$30M for aluminium, US$2M for alumina, US$60M for coal, US$63M for freight services, US$78M for raw materials and US$16M for manganese. Underlying EBIT on third party products and services comprise (US$1M) for aluminium, US$8M for alumina, US$6M for coal, (US$1M) for freight services, nil for raw materials and nil for manganese. H1 FY22 Third party products and services sold comprise US$64M for aluminium, US$22M for alumina, US$30M for coal, US$20M for manganese, US$70M for freight services and US$72M for raw materials. Underlying EBIT on third party products and services comprise US$6M for aluminium, US$2M for alumina, US$1M for manganese and US$4M for freight services.

(37)    Presented on a 100% basis.

(38)    Sierra Gorda and Cannington Operating unit cost is Underlying revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may impact Operating unit costs.

(39)    Cerro Matoso realised nickel sales price is inclusive of by-products.

(40)    Cerro Matoso Operating unit cost per tonne is Underlying revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may impact Operating unit costs.

(41)    Illawarra Metallurgical Coal sales are adjusted for moisture and will not reconcile directly to Illawarra Metallurgical Coal production.

(42)    Illawarra Metallurgical Coal revenue includes metallurgical coal and energy coal sales revenue.

(43)    Volumes and prices do not include any third party trading that may be undertaken independently of equity production. Realised ore prices are calculated as external sales Underlying revenue less freight and marketing costs, divided by external sales volume.

(44)    Manganese Australia H1 FY23 average manganese content of external ore sales was 44.2% on a dry basis (H1 FY22: 44.2%). 95% of H1 FY23 external manganese ore sales (H1 FY22: 96%) were completed on a CIF basis. H1 FY23 realised FOB ore prices and Operating unit costs have been adjusted for freight and marketing costs of US$36M (H1 FY22: US$49M), consistent with our FOB cost guidance.

(45)    FOB Ore operating unit cost is Underlying revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume.

(46)    Manganese South Africa H1 FY23 average manganese content of external ore sales was 39.2% on a dry basis (H1 FY22: 39.4%). 86% of H1 FY23 external manganese ore sales (H1 FY22: 75%) were completed on a CIF basis. H1 FY23 realised FOB ore prices and Operating unit costs have been adjusted for freight and marketing costs of US$32M (H1 FY22: US$45M), consistent with our FOB cost guidance.

 

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.

The following abbreviations may be used throughout this report: US$ million (US$M); US$ billion (US$B); December half year (H1 FY23); financial year 2023  (FY23); financial year (FY); calendar year (CY); copper equivalent (CuEq); 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); thousand dry metric tonnes (kdmt); dry metric tonne unit (dmtu); pound (lb); megawatt (MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE); Johannesburg Stock Exchange (JSE); equity accounted investments (EAI); and American Depositary Receipts (ADR).

 

 

 

south32 financial information

For the half year ended 31 December 2022

 

CONSOLIDATED INCOME STATEMENT

for the half year ended 31 December 2022

US$M

Note

H1 FY23

H1 FY22

Revenue:


 

 

     Group production


3,388

3,651

     Third party products and services


308

355


3

3,696

4,006

Other income


242

113

Expenses excluding net finance income/(costs)


(3,308)

(2,721)

Share of profit/(loss) of equity accounted investments

8

241

104

Profit from operations


871

1,502

Comprising:


 


     Group production


859

1,490

     Third party products and services


12

12

Profit from operations


871

1,502

Finance income


111

16

Finance expenses


(97)

(56)

Net finance income/(costs)

6

14

(40)

Profit before tax


885

1,462

Income tax expense


(200)

(430)

Profit for the period


685

1,032

 


 


Attributable to:


 


Equity holders of South32 Limited


685

1,032



 


Profit for the period attributable to equity holders of South32 Limited:


 


Basic earnings per share (cents)

5

14.9

22.2

Diluted earnings per share (cents)

5

14.8

22.0

The accompanying notes form part of the half year consolidated financial statements.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the half year ended 31 December 2022

US$M

 

H1 FY23

H1 FY22

Profit for the period


685

1,032

Other comprehensive income




Items not to be reclassified to the Consolidated Income Statement:


 


Investments in equity instruments designated as fair value through other comprehensive income (FVOCI):


 


Net fair value gains/(losses)


(3)

(59)

Income tax (expense)/benefit


1

18

Equity accounted investments - share of other comprehensive income/(loss), net of tax


1

-

Gains/(losses) on pension and medical schemes


2

4

Income tax (expense)/benefit recognised within other comprehensive income


(1)

(1)

Total items not to be reclassified to the Consolidated Income Statement


-

(38)

Total other comprehensive income/(loss)


-

(38)

Total comprehensive income/(loss)


685

994



 


Attributable to:


 


Equity holders of South32 Limited


685

994

The accompanying notes form part of the half year consolidated financial statements.

 

 

CoNSOLIDATED BALANCE SHEET

as at 31 December 2022

US$M

Note

H1 FY23

FY22

ASSETS




Current assets

 



Cash and cash equivalents


1,560

2,365

Trade and other receivables


794

844

Other financial assets

7

1

1

Inventories


1,119

982

Current tax assets


2

4

Other


29

44

Total current assets


3,505

4,240

Non-current assets

 

 


Trade and other receivables


1,782

1,903

Other financial assets

7

158

64

Inventories


73

76

Property, plant and equipment


9,032

8,988

Intangible assets


232

186

Equity accounted investments


604

470

Deferred tax assets


377

394

Other


15

15

Total non-current assets


12,273

12,096

Total assets


15,778

16,336

LIABILITIES


 


Current liabilities

 

 


Trade and other payables


905

989

Interest bearing liabilities


442

402

Other financial liabilities

7

-

6

Current tax payables


179

308

Provisions


167

186

Deferred income


7

6

Total current liabilities


1,700

1,897

Non-current liabilities

 

 


Trade and other payables


1

8

Interest bearing liabilities


1,416

1,425

Other financial liabilities

7

16

84

Deferred tax liabilities


272

307

Provisions


1,839

1,835

Deferred income


1

1

Total non-current liabilities


3,545

3,660

Total liabilities


5,245

5,557

Net assets


10,533

10,779

EQUITY


 


Share capital


13,326

13,469

Treasury shares


(32)

(32)

Reserves


(3,567)

(3,558)

Retained earnings


807

901

Total equity attributable to equity holders of South32 Limited


10,534

10,780

Non-controlling interests


(1)

(1)

Total equity


10,533

10,779

The accompanying notes form part of the half year consolidated financial statements.  

 

CONSOLIDATED CASH FLOW STATEMENT

for the half year ended 31 December 2022

US$M

Note

H1 FY23

H1 FY22

Operating activities


 


Profit before tax


885

1,462

Adjustments for:


 


   Non-cash or non-operating significant items


(138)

(77)

     Depreciation and amortisation expense


312

303

   Net impairment loss/(reversal) of financial assets


214

-

   Net impairment loss/(reversal) of non-financial assets


(4)

37

     Employee share awards expense


13

12

     Net finance (income)/costs


(14)

40

     Share of (profit)/loss of equity accounted investments


(241)

(104)

   (Gains)/losses on derivative instruments, contingent consideration and other investments measured at fair value through profit or loss (FVTPL)


(19)

14

     Other non-cash or non-operating items


(1)

-

Changes in assets and liabilities:


 


     Trade and other receivables


88

(145)

     Inventories


(134)

(153)

     Trade and other payables


(81)

53

     Provisions and other liabilities


(25)

(88)

Cash generated from operations


855

1,354

Interest received


29

12

Interest paid


(54)

(38)

Income tax paid


(347)

(234)

Dividends received


1

-

Dividends received from equity accounted investments


108

79

Net cash flows from operating activities


592

1,173

Investing activities


 


Purchases of property, plant and equipment


(352)

(237)

Exploration expenditure


(44)

(35)

Exploration expenditure expensed and included in operating cash flows


26

19

Purchase of intangibles


(46)

(1)

Investment in financial assets


(116)

(129)

Payment of deferred consideration related to the acquisition of a joint operation


(25)

-

Proceeds from sale of intangibles


55

-

Proceeds from financial assets


61

104

Net cash flows from investing activities


(441)

(279)

Financing activities


 


Proceeds from interest bearing liabilities


28

14

Repayment of interest bearing liabilities


(42)

(80)

Purchase of shares by South32 Limited Employee Share Ownership Plan (ESOP) Trusts


(13)

(1)

Share buy-back


(143)

(60)

Dividends paid

4

(784)

(256)

Net cash flows from financing activities


(954)

(383)

Net (decrease)/increase in cash and cash equivalents


(803)

511

Cash and cash equivalents, net of overdrafts, at the beginning of the period


2,365

1,613

Foreign currency exchange rate changes on cash and cash equivalents


(2)

(5)

Cash and cash equivalents, net of overdrafts, at the end of the period


1,560

2,119

The accompanying notes form part of the half year consolidated financial statements.


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the half year ended 31 December 2022


Attributable to equity holders of South32 Limited



 

 

 

US$M

Share capital

Treasury shares

Financial assets reserve(1)

Employee share awards reserve(2)

Other reserves(3)

Retained earnings/ (accumulated losses)

Total

Non-controlling interests

Total equity

Balance as at 1 July 2022

13,469

(32)

(6)

45

(3,597)

901

10,780

(1)

10,779

Profit for the period

-

-

-

-

-

685

685

-

685

Total other comprehensive income/(loss)

-

-

(2)

-

-

2

-

-

-

Total comprehensive income/(loss)

-

-

(2)

-

-

687

685

-

685

Transactions with owners:

 

 

 

 

 

 

 

 

 

Dividends

-

-

-

-

-

(784)

(784)

-

(784)

Shares bought back and cancelled(4)

(143)

-

-

-

-

-

(143)

-

(143)

Employee share entitlements for unvested awards, net of tax

-

-

-

14

-

-

14

-

14

Employee share awards vested and lapsed, net of tax

-

13

-

(21)

-

3

(5)

-

(5)

Purchase of shares by ESOP Trusts

-

(13)

-

-

-

-

(13)

-

(13)

Balance as at 31 December 2022

13,326

(32)

(8)

38

(3,597)

807

10,534

(1)

10,533

 










Balance as at 1 July 2021

13,597

(22)

(22)

48

(3,593)

(1,053)

8,955

(1)

8,954

Profit for the period

-

-

-

-

-

1,032

1,032

-

1,032

Total other comprehensive income/(loss)

-

-

(41)

-

-

3

(38)

-

(38)

Total comprehensive income/(loss)

-

-

(41)

-

-

1,035

994

-

994

Transactions with owners:










Dividends

-

-

-

-

-

(256)

(256)

-

(256)

Shares bought back and cancelled(4)

(60)

-

-

-

-

-

(60)

-

(60)

Employee share entitlements for unvested awards, net of tax

-

-

-

15

-

-

15

-

15

Employee share awards vested and lapsed, net of tax

-

11

-

(29)

-

10

(8)

-

(8)

Purchase of shares by ESOP Trusts

-

(1)

-

-

-

-

(1)

-

(1)

Balance as at 31 December 2021

13,537

(12)

(63)

34

(3,593)

(264)

9,639

(1)

9,638

(1)       Represents the fair value movement in financial assets designated as FVOCI.

(2)       Represents the accrued employee entitlements to share awards that have not yet vested.

(3)       Primarily consists of the common control transaction reserve of US$3,569 million, which reflects the difference between consideration paid and the carrying value of assets and liabilities acquired, as well as the gains/(losses) on the disposal of entities as part of the demerger of the Group in 2015.

(4)       Represents 56,348,933 (H1 FY22: 24,607,260) shares permanently cancelled through the on-market share buy-back program during the period.

The accompanying notes form part of the half year consolidated financial statements. 


 

NOTES TO FINANCIAL STATEMENTs

1.          Reporting entity

2.          Basis of preparation

3.          Segment Information

4.          Dividends

5.          Earnings per share

6.          Net finance income/(costs)

7.          Financial assets and financial liabilities

8.          Equity accounted investments

9.        Subsequent events

DIRECTORS' DECLARATION

DIRECTORS' REPORT

LEAD AUDITOR'S INDEPENDENCE DECLARATION

INDEPENDENT AUDITOR'S REVIEW REPORT

 

 

NOTES TO FINANCIAL STATEMENTS - BASIS OF PREPARATION

The half year consolidated financial statements of South32 Limited (referred to as the Company) and its subsidiaries and joint arrangements (collectively, the Group) for the half year ended 31 December 2022 were authorised for issue in accordance with a resolution of the Directors on 16 February 2023.

1.    REPORTING ENTITY

South32 Limited is a for-profit company limited by shares incorporated in Australia with a primary listing on the Australian Securities Exchange (ASX), a standard listing on the London Stock Exchange (LSE) and a secondary listing on the Johannesburg Stock Exchange (JSE).

The nature of the operations and principal activities of the Group are described in note 3 Segment information.

2.    BASIS OF PREPARATION

The half year consolidated financial statements are a general purpose condensed financial report which:

Has been prepared in accordance with AASB 134 Interim Financial Reporting, IAS 34 Interim Financial Reporting and the Corporations Act 2001;

Has been prepared on a historical cost basis, except for post-retirement assets and obligations, derivative financial instruments and certain other financial assets and liabilities which are required to be measured at fair value;

Is presented in US dollars, which is the functional currency of the majority of the Group's operations, and all values are rounded to the nearest million dollars (US$M or US$ million) unless otherwise stated, in accordance with ASIC Corporations Instrument 2016/191;

Presents reclassified comparative information where required for consistency with the current period's presentation, including changes in the presentation of the segment note as outlined in note 3 Segment information; and

Has been prepared on the basis of accounting policies and methods of computation consistent with those applied in the consolidated financial statements for the year ended 30 June 2022.

In preparing the half year consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 June 2022.

For a full understanding of the financial performance and financial position of the Group, it is recommended that the half year consolidated financial statements be read in conjunction with the consolidated financial statements for the year ended 30 June 2022. Consideration should also be given to any public announcements made by the Company in accordance with the continuous disclosure obligations of the ASX Listing Rules.

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.    SEGMENT INFORMATION

(a)     Description of segments

The operating segments (also referred to as operations) are organised and managed separately according to the nature of products produced.

Certain members of the Lead Team (the chief operating decision makers) and the Board of Directors monitor the segment results regularly for the purpose of making decisions about resource allocation and performance assessment. Consolidated financial results of the Group are reported on a proportional consolidation basis, including material equity accounted joint ventures, consistent with the reporting of the Group's operating segments and includes non-IFRS measures.

The principal activities of each operating segment are summarised as follows:

Operating segment

Principal activities

Worsley Alumina

Integrated bauxite mine and alumina refinery in Australia

Brazil Alumina

Integrated bauxite mine and alumina refinery in Brazil

Brazil Aluminium

Aluminium smelter in Brazil

Hillside Aluminium

Aluminium smelter in South Africa

Mozal Aluminium

Aluminium smelter in Mozambique

Sierra Gorda

Copper mine in Chile

Cannington

Silver, lead and zinc mine in Australia

Hermosa

Base metals exploration and development option in the United States of America

Cerro Matoso

Integrated laterite ferronickel mining and smelting complex in Colombia

Illawarra Metallurgical Coal

Metallurgical coal mines in Australia

Australia Manganese

Manganese ore mine in Australia

South Africa Manganese

Manganese ore mines South Africa

All operations are operated by the Group except Brazil Alumina, Brazil Aluminium and Sierra Gorda.

(b)     Segment results

Segment performance is measured by Underlying EBIT and Underlying EBITDA. Underlying EBIT is profit before net finance income/(costs), tax and other earnings adjustment items including impairments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation. A reconciliation of Underlying EBIT, Underlying EBITDA and the Group's consolidated profit after tax is set out on the following pages.

The Group separately discloses sales of group production from sales of third party products and services because of the significant difference in profit margin earned on these sales.

It is the Group's policy that inter-segment transactions are made on a commercial basis.

Group and unallocated items/eliminations represent group centre functions and consolidation adjustments. Group financing (including finance expenses and finance income) and income taxes are primarily managed on a Group basis and are not allocated to operating segments.

Total assets and liabilities for each operating segment represent operating assets and liabilities which predominantly exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities, tax balances and certain other financial assets and liabilities.


NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.      SEGMENT INFORMATION (CONTINUED)

(b)     Segment results (continued)

H1 FY23

 

 

US$M

Worsley Alumina

Brazil
Alumina

Brazil Aluminium

Hillside Aluminium

Mozal Aluminium

Sierra

Gorda(1)

Cannington

Hermosa

Cerro Matoso

Illawarra Metallurgical Coal

 

 

 

Australia Manganese(1)

South Africa Manganese(1)

Group and unallocated items/ eliminations

Group  underlying results(1)

Revenue from customers

661

247

47

859

485

349

271

 -

356

803

383

190

(127)

4,524

Other(2)

(2)

 -

 -

2

(3)

8

1

 -

39

(2)

(28)

(15)

 -

 -

Total underlying revenue

659

247

47

861

482

357

272

 -

395

801

355

175

(127)

4,524

Comprising:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group production

302

228

47

861

482

357

272

 -

395

801

355

175

 -

4,275

 

Third party products and services(3)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

249

249

 

Inter-segment revenue

357

19

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

(376)

 -

Total underlying revenue

659

247

47

861

482

357

272

 -

395

801

355

175

(127)

4,524


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying EBITDA

123

7

(67)

94

86

179

117

(7)

180

407

197

35

13

1,364

Underlying depreciation and amortisation

(90)

(26)

(3)

(32)

(21)

(72)

(35)

(2)

(26)

(67)

(48)

(10)

(10)

(442)

Underlying EBIT

33

(19)

(70)

62

65

107

82

(9)

154

340

149

25

3

922

Comprising:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group production

33

(26)

(70)

62

65

109

85

(9)

154

344

149

26

10

932

 

Exploration expensed

 -

 -

 -

 -

 -

(2)

(3)

 -

 -

(4)

 -

(1)

(19)

(29)

 

Third party products and services(3)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

12

12

 

Share of profit/(loss) of equity accounted investments

 -

7

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

7

Underlying EBIT

33

(19)

(70)

62

65

107

82

(9)

154

340

149

25

3

922

Underlying net finance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

(88)

Underlying income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(234)

Underlying royalty related tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(40)

Underlying earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

560

Total adjustments to profit(4) 

 

 

 

 

 

 

 

 

 

 

 

 

 

125

Profit for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

685


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying exploration expenditure

 -

 -

 -

 -

 -

3

3

6

 -

8

1

1

27

49

Underlying capital expenditure(5)

34

35

6

10

9

86

33

96

20

108

32

11

1

481

Underlying equity accounted investments

 -

47

 -

 -

 -

 -

 -

 -

 -

2

 -

 -

 -

49

Total underlying assets(6)

3,543

836

104

1,240

752

1,747

577

2,216

609

1,175

663

314

2,934

16,710

Total underlying liabilities(6)

1,048

134

39

321

154

230

389

84

177

453

405

190

2,553

6,177

(1)    The segment information reflects the Group's interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance. This includes the proportional elimination of revenue and corresponding expenses relating to freight services provided by the Group to these joint ventures of US$75 million and third party product revenue of US$16 million included in Group and unallocated items/eliminations. Refer to note 3(b)(i) Underlying results reconciliation for the joint venture adjustments that reconcile the underlying proportional consolidation to the statutory equity accounting positions included in the Group's half year consolidated financial statements.

(2)    Underlying other revenue predominantly relates to fair value movements on provisionally priced contracts.

(3)    Underlying revenue on third party products and services sold comprises US$30 million for aluminium, US$2 million for alumina, US$60 million for coal, US$16 million for manganese, US$63 million for freight services and US$78 million for raw materials. Underlying EBIT on third party products and services sold comprises US$(1) million for aluminium, US$8 million for alumina, US$6 million for coal and US$(1) million for freight services.

(4)    Refer to note 3(b)(i) Underlying results reconciliation for further details.

(5)    Underlying capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.

(6)    Total underlying assets and liabilities for each operating segment represent assets and liabilities which predominantly exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities, tax balances and certain other financial assets and liabilities.

 

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.      SEGMENT INFORMATION (CONTINUED)

(b)     Segment results (continued)

H1 FY22

 

 

 

US$M

Worsley Alumina

Brazil
Alumina

Brazil Aluminium

Hillside Aluminium

Mozal Aluminium

Sierra

 Gorda(1)

Cannington

 

 

 

Hermosa

Cerro Matoso

Illawarra Metallurgical Coal

Australia Manganese(1)

South Africa Manganese(1)

Group and unallocated items/ eliminations

Group 

underlying results(1)

Revenue from customers

751

241

-

992

373

-

392

-

364

894

379

191

(93)

4,484

Other(2)

6

1

-

-

(2)

-

(14)

-

8

18

6

-

(2)

21

Total underlying revenue(1)

757

242

-

992

371

-

378

-

372

912

385

191

(95)

4,505

Comprising:















 

Group production

384

242

-

992

371

-

378

-

372

912

385

191

-

4,227

 

Third party products and services(3)

-

-

-

-

-

-

-

-

-

-

-

-

278

278

 

Inter-segment revenue

373

-

-

-

-

-

-

-

-

-

-

-

(373)

-

Total underlying revenue(1)

757

242

-

992

371

-

378

-

372

912

385

191

(95)

4,505
















Underlying EBITDA

259

78

(1)

342

126

-

201

(6)

190

512

206

29

(65)

1,871

Underlying depreciation and amortisation

(91)

(29)

-

(31)

(16)

-

(39)

(1)

(32)

(54)

(44)

(10)

(10)

(357)

Underlying EBIT

168

49

(1)

311

110

-

162

(7)

158

458

162

19

(75)

1,514

Comprising:















 

Group production

168

49

(1)

311

110

-

163

(7)

158

463

162

20

(75)

1,521

 

Exploration expensed

-

-

-

-

-

-

(1)

-

-

(5)

-

(1)

(13)

(20)

 

Third party products and services(3)

-

-

-

-

-

-

-

-

-

-

-

-

13

13

Underlying EBIT

168

49

(1)

311

110

-

162

(7)

158

458

162

19

(75)

1,514

Underlying net finance costs














(62)

Underlying income tax expense














(422)

Underlying royalty related tax expense














(26)

Underlying earnings














1,004

Total adjustments to profit(4) 














28

Profit for the period














1,032

 















Underlying exploration expenditure

-

-

-

-

-

-

2

8

-

5

1

1

20

37

Underlying capital expenditure(5)

24

31

-

10

6

-

17

42

14

88

34

10

5

281

Underlying equity accounted investments(6)

 -

40

 -

 -

 -

 -

 -

 -

 -

2

 -

 -

 -

42

Total underlying assets(6)

3,571

805

67

1,284

764

1,614

555

2,098

592

1,277

645

331

3,666

17,269

Total underlying liabilities(6)

1,000

109

21

357

149

212

414

67

243

491

387

196

2,844

6,490

(1)    The segment information reflects the Group's interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance. This includes the proportional elimination of revenue and corresponding expenses relating to freight services provided by the Group to these joint ventures of US$97 million, which resulted in the reclassification of underlying revenue and expenses for the half year ended 31 December 2021 for consistency with the current period's presentation, and third party product revenue of US$20 million included in Group and unallocated items/eliminations. Refer to note 3(b)(i) Underlying results reconciliation for the joint venture adjustments that reconcile the underlying proportional consolidation to the statutory equity accounting positions included in the Group's half year consolidated financial statements.

(2)    Underlying other revenue predominantly relates to fair value movements on provisionally priced contracts.

(3)    Underlying revenue on third party products and services sold comprises US$64 million for aluminium, US$22 million for alumina, US$30 million for coal, US$20 million for manganese, US$70 million for freight services and US$72 million for raw materials. Underlying EBIT on third party products and services sold comprises US$6 million for aluminium, US$2 million for alumina, US$1 million for manganese and US$4 million for freight services.

(4)    Refer to note 3(b)(i) Underlying results reconciliation for further details.

(5)    Underlying capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.

(6)    Underlying equity accounted investments, total assets and total liabilities for each operating segment are as at 30 June 2022. Total underlying assets and liabilities represent operating assets and liabilities which predominantly exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities, tax balances and certain other financial assets and liabilities.


NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.      SEGMENT INFORMATION (CONTINUED)

(b)     Segment results (continued)

(i)      Underlying results reconciliation

The following tables reconcile the underlying segment information to the statutory information included in the Group's half year consolidated financial statements:

US$M

H1 FY23

H1 FY22

Underlying EBIT

922

1,514

Significant items(1)

138

77

Sierra Gorda joint venture adjustments(2)(3)

57

-

Manganese joint venture adjustments(2)(4)

(101)

(79)

Exchange rate gains/(losses) on restatement of monetary items(5)

48

32

Net impairment (loss)/reversal of financial assets(5)(6)

(214)

-

Net impairment (loss)/reversal of non-financial assets(5)

4

(37)

Gains/(losses) on non-trading derivative instruments, contingent consideration and other investments measured at FVTPL(5)

17

(5)

Profit from operations

871

1,502

 



Underlying net finance costs

(88)

(62)

Sierra Gorda joint venture adjustments(2)

85

-

Manganese joint venture adjustments(2)

13

11

Exchange rate variations on net debt

4

11

Net finance income/(costs)

14

(40)

 



Underlying income tax expense

(234)

(422)

Underlying royalty related tax expense

(40)

(26)

Significant items(1)

(23)

(26)

Sierra Gorda joint venture adjustments relating to income tax expense (2)

6

-

Sierra Gorda joint venture adjustments relating to royalty related tax expense (2)

4

-

Manganese joint venture adjustments relating to income tax expense (2)

56

51

Manganese joint venture adjustments relating to royalty related tax expense 2)

36

26

Tax effect of other adjustments to Underlying EBIT

1

2

Tax effect of other adjustments to Underlying net finance costs

(1)

(3)

Exchange rate variations on tax balances

(5)

(32)

Income tax expense

(200)

(430)

(1)       Refer to note 3(b)(ii) Significant items.

(2)       The segment information reflects the Group's interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance. Joint venture adjustments reconcile the proportional consolidation to the statutory equity accounting positions, recognised in share of profit/(loss) of equity accounted investments in the Consolidated Income Statement.

(3)       The Group's investment in Sierra Gorda is represented by the carrying value of an equity accounted investment of US$191 million (FY22: US$30 million) and the carrying value of a purchased credit-impaired receivable of US$1,511 million (FY22: US$1,648 million) classified as a loan to an equity accounted investment within trade and other receivables on the Consolidated Balance Sheet. The earnings adjustments include a revaluation gain of US$214 million (US$156 million post-tax) (H1 FY22: nil) relating to the shareholder loan payable that was eliminated from the Group's Underlying EBIT upon proportional consolidation.

(4)       Includes earnings adjustments of nil (H1 FY22: US$2 million) included in the Australia Manganese segment and US$4 million (H1 FY22: US$7 million) included in the South Africa Manganese segment.

(5)       Recognised in expenses excluding net finance income/(costs) in the Consolidated Income Statement.

(6)       Refer to note 3(b)(iii) Impairment of financial assets.

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.      SEGMENT INFORMATION (CONTINUED)

(b)     Segment results (continued)

(i)      Underlying results reconciliation (continued)

H1 FY23

 

 

 

 

 

 

US$M

Group underlying results

Sierra Gorda joint venture adjustments(1)

Manganese joint venture adjustments(1)

Group statutory results

Total revenue

 4,524

(357)

(471)

 3,696

Depreciation and amortisation

 442

(72)

(58)

 312

Share of profit/(loss) of equity accounted investments

 7

 161

 73

 241

Exploration expenditure

 49

(3)

(2)

 44

Capital expenditure

 481

(86)

(43)

 352

Equity accounted investments

 49

 191

 364

 604

Total assets

 16,710

(466)

(466)

 15,778

Total liabilities

 6,177

(466)

(466)

 5,245

The segment information reflects the Group's interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance. Joint venture adjustments reconcile the proportional consolidation to the statutory equity accounting positions included in the Group's half year consolidated financial statements.

 

H1 FY22

 

 

 

 

 

 

US$M

Group underlying results

Sierra Gorda joint venture adjustments(1)

Manganese joint venture adjustments(1)

Group statutory results

Total revenue(1)

4,505

-

(499)

4,006

Depreciation and amortisation

357

-

(54)

303

Share of profit/(loss) of equity accounted investments

-

-

104

104

Exploration expenditure

37

-

(2)

35

Capital expenditure

281

-

(44)

237

Equity accounted investments(2)

42

30

398

470

Total assets(2)

17,269

(452)

(481)

16,336

Total liabilities(2)

6,490

(452)

(481)

5,557

(1)       The segment information reflects the Group's interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance. This includes the proportional elimination of revenue and corresponding expenses relating to freight services provided by the Group to these joint ventures of US$97 million, which resulted in the reclassification of underlying revenue and expenses for the half year ended 31 December 2021 for consistency with the current period's presentation. Joint venture adjustments reconcile the proportional consolidation to the statutory equity accounting positions included in the Group's half year consolidated financial statements.

(2)       Equity accounted investments, total assets and total liabilities are as at 30 June 2022.

 

(ii)    Significant items

Significant items are those items, not separately identified in note 3(b)(i) Underlying results reconciliation, where their nature and amount are considered material to the half year consolidated financial statements.

H1 FY23

 

 

 

US$M

Gross

Tax

Net

Disposal of royalties

189

(56)

133

Assets write-off

(51)

16

(35)

Tax adjustments relating to the Sierra Gorda acquisition

-

17

17

Total significant items

138

(23)

115

 

Disposal of royalties

On 19 July 2022, the Group divested four royalties to Ecora Resources PLC (formerly known as Anglo Pacific Group PLC) in exchange for consideration comprising an upfront cash payment of US$48 million, deferred cash consideration of US$55 million, US$78 million in equity and a variable consideration receivable valued at US$10 million. The equity in Ecora Resources PLC has been recognised as an investment in equity instruments designated at FVOCI. The variable consideration is payable if certain production and price-linked conditions are met prior to 2032, up to a maximum of US$15 million.

The royalties were recognised as intangible assets with a nominal carrying value. On completion the Group recognised other income, net of transaction costs, of US$189 million (US$133 million post-tax) in the Consolidated Income Statement.

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.    SEGMENT INFORMATION (CONTINUED)

(b)   Segment results (continued)

(ii)    Significant items (continued)

Assets write-off

On 23 August 2022, the Group announced that it would not proceed with an investment in the Dendrobium Next Domain project at Illawarra Metallurgical Coal following its consideration of recently completed study work and extensive analysis of alternatives considered for the complex. As a result of the decision in August 2022, the Group wrote off US$51 million (US$35 million post-tax) of costs previously capitalised in relation to the project, recognised within expenses excluding net finance income/(costs) in the Consolidated Income Statement. The write-off related to capitalised exploration and evaluation assets previously included in property, plant and equipment on the Consolidated Balance Sheet.

 

Tax adjustments relating to the Sierra Gorda acquisition

During the period, the Group recognised an income tax benefit of US$31 million relating to tax liabilities recognised on the acquisition of Sierra Gorda during FY22. The US$31 million benefit comprises a reassessment of US$17 million and a foreign exchange gain of US$14 million which is separately reported as part of exchange variations of tax balances. The tax adjustments relating to the Sierra Gorda acquisition have been excluded from the Group's Underlying income tax expense on the basis that they do not relate to assessable income earned during its ownership.

 

H1 FY22

 

 

 

US$M

Gross

Tax

Net

Recognition of indirect tax assets

77

(26)

51

Total significant items

77

(26)

51

 

Recognition of indirect tax assets

Following the Group's decision to participate in the restart of Brazil Aluminium, the Group recognised indirect tax assets of US$77 million that were previously expensed since the smelter was placed on care and maintenance in 2015. The recognition of the indirect tax assets has resulted in a significant one-off amount of US$77 million (US$51 million post-tax) being recorded as other income in the Consolidated Income Statement.

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.    SEGMENT INFORMATION (CONTINUED)

(b)   Segment results (continued)

(iii)   Impairment of financial assets

The Group recognised the following impairment of financial assets:

US$M

 

H1 FY23

H1 FY22

Trade and other receivables(1)


214

-

Net impairment of financial assets


214

-

(1)    Relates to the shareholder loan receivable from Sierra Gorda.

 

Shareholder loan receivable from Sierra Gorda

The loan has a contractual interest rate of 8 per cent and the repayment by Sierra Gorda is dependent on its financial performance. At 31 December 2022, the Group updated its estimated timing of loan repayments from Sierra Gorda and as a result recognised an impairment of US$214 million which is included in expenses excluding net finance income/(costs) in the Consolidated Income Statement.  The net present value of the expected future loan repayments was determined as US$1,511 million, using a measurement methodology consistent with a Level 3 fair value based on the inputs in the valuation technique.

The future loan repayments were informed by a production profile based on mineral resources and mineral reserves that are qualifying foreign estimates under the ASX Listing Rules and costs based on the most recent Sierra Gorda budget. An effective interest rate of 9 per cent, as determined on the date of acquisition, was applied to discount the future loan repayments.

For further information on the qualifying foreign estimates and production profile, refer to the market release "South32 to acquire a 45 per cent interest in the Sierra Gorda copper mine" dated 14 October 2021 (Market Announcement). The Group is not in possession of any new information or data relating to the foreign estimate that materially impacts on the reliability of the estimates or our ability to verify the foreign estimates as Mineral Resources or Ore Reserves in accordance with the JORC Code. The Group confirms that the information contained in our 14 October 2021 market announcement in relation to these foreign estimates continues to apply and has not materially changed. Competent Persons have not done sufficient work to classify the foreign estimates as Mineral Resources or Ore Reserves in accordance with JORC Code and it is uncertain that following evaluation and further exploration, the foreign estimates will be able to be reported as Mineral Resources or Ore Reserves in accordance with the JORC Code.

The table below shows key assumptions used in the net present value determinations:

H1 FY23

Assumptions used

Copper (US$/lb)

2.70 to 4.08

Foreign exchange rates (US$ to CLP)

659 to 808

 

The key assumptions for copper prices are comparable to market consensus forecasts and foreign exchange rates are aligned with forward market rates in the short-run and thereafter are within the range published by market commentators. The potential effect of using reasonably possible alternative assumptions in determining the net present value of the loan, based on directionally changing all the significant inputs either favourably or unfavourably by 10 per cent while holding all other variables constant, is shown in the following table:

H1 FY23

US$M

 

 

Impact on profit after tax

Face value

Carrying value

Favourable

Unfavourable

Trade and other receivables





Loans to equity accounted investments

2,136

1,511

154

(235)

 

4.    DIVIDENDS

US$M

 

H1 FY23

H1 FY22

Prior year final dividend


646

163

Prior year special dividend


138

93

Total dividends declared and paid during the period(1)


784

256

(1)       On 25 August 2022, the Directors resolved to pay a fully franked final dividend of US 14.0 cents per share and a fully franked special dividend of US 3.0 cents per share in respect of the 2022 financial year. The dividends were paid on 13 October 2022. In addition to the ESOP Trusts receiving dividends from South32 Limited, a total of 9,665,568 shares were bought back between the declaration and the ex-dividend dates, therefore reducing the dividend paid externally to US$784 million.

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

5.    EARNINGS PER SHARE

Basic earnings per share amounts are calculated based on profit attributable to equity holders of South32 Limited and the weighted average number of shares outstanding during the period.

Dilutive earnings per share amounts are calculated based on profit attributable to equity holders of South32 Limited and the weighted average number of shares outstanding after adjustment for the effects of all dilutive potential shares.

The following reflects the profit and share data used in the basic and diluted earnings per share computations:

Profit for the period attributable to equity holders

 



US$M

 

H1 FY23

H1 FY22

Profit attributable to equity holders of South32 Limited (basic)


685

1,032

Profit attributable to equity holders of South32 Limited (diluted)


685

1,032

 

Weighted average number of shares

 

 


Million

 

H1 FY23

H1 FY22

Basic earnings per share denominator(1)


4,596

4,657

Shares contingently issuable under employee share ownership plans


30

24

Diluted earnings per share denominator


4,626

4,681

(1)       The basic earnings per share denominator is the aggregate of the weighted average number of shares after deduction of the weighted average number of treasury shares outstanding and shares permanently cancelled through the on-market share buy-back program.

 

Earnings per share

 



US cents

 

H1 FY23

H1 FY22

Basic earnings per share

 

14.9

22.2

Diluted earnings per share

 

14.8

22.0

 

 

NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING

6.    NET FINANCE INCOME/(COSTS)

US$M

H1 FY23

H1 FY22

Finance income

 


Interest on loans to equity accounted investments

83

3

Other interest income

28

13

 

111

16

Finance expenses

 


Interest on borrowings

(31)

(11)

Interest on lease liabilities

(26)

(26)

Discounting on provisions and other liabilities

(42)

(28)

Net interest expense on post-retirement employee benefits

(2)

(2)

Exchange rate variations on net debt

4

11


(97)

(56)

Net finance income/(costs)

14

(40)

 

7.    FINANCIAL ASSETS AND FINANCIAL LIABILITIES

The following table presents the financial assets and liabilities by class at their carrying amounts.

H1 FY23

US$M

Held at FVTPL

Designated as FVOCI

Amortised cost

 

Total

Financial assets





Cash and cash equivalents

-

-

1,560

1,560

Trade and other receivables(1)

135

-

474

609

Loans to equity accounted investments(2)

-

-

50

50

Other financial assets:





Derivative contracts

1

-

-

1

Total current financial assets

136

-

2,084

2,220

Trade and other receivables(1)

-

-

19

19

Loans to equity accounted investments(2)

-

-

1,656

1,656

Other financial assets:





Investments in equity instruments designated as FVOCI

-

109

-

109

Vendor loan facility

39

-

-

39

Contingent consideration receivable

10

-

-

10

Total non-current financial assets

49

109

1,675

1,833

Total financial assets

185

109

3,759

4,053

Financial liabilities





Trade and other payables(3)

1

-

885

886

Lease liabilities(4)

-

-

47

47

Unsecured other(4)

-

-

395

395

Total current financial liabilities

1

-

1,327

1,328

Trade and other payables

-

-

1

1

Senior unsecured notes(4)

-

-

690

690

Lease liabilities(4)

-

-

624

624

Unsecured other(4)

-

-

102

102

Other financial liabilities:





Contingent consideration payable

16

-

-

16

Total non-current financial liabilities

16

-

1,417

1,433

Total financial liabilities

17

-

2,744

2,761

(1)    Excludes current input taxes of US$135 million and non-current input and other taxes of US$107 million included in other receivables.

Included in trade and other receivables on the Consolidated Balance Sheet.

Excludes current input taxes of US$19 million included in other creditors.

Included in interest bearing liabilities on the Consolidated Balance Sheet.

 

NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING

7.    FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)

FY22

US$M

Held at FVTPL

Designated as FVOCI

Amortised cost

 

Total

Financial assets





Cash and cash equivalents

-

-

2,365

2,365

Trade and other receivables(1)

143

-

554

697

Loans to equity accounted investments(2)

-

-

7

7

Other financial assets:





Derivative contracts

1

-

-

1

Total current financial assets

144

-

2,926

3,070

Trade and other receivables(1)

-

-

13

13

Loans to equity accounted investments(2)

-

-

1,793

1,793

Other financial assets:





Investments in equity instruments designated as FVOCI

-

25

-

25

Vendor loan facility

39

-

-

39

Total non-current financial assets

39

25

1,806

1,870

Total financial assets

183

25

4,732

4,940

Financial liabilities





Trade and other payables(3)

20

-

929

949

Lease liabilities(4)

-

-

40

40

Unsecured other(4)

-

-

362

362

Other financial liabilities:





Derivative contracts

6

-

-

6

Total current financial liabilities

26

-

1,331

1,357

Trade and other payables(3)

-

-

7

7

Senior unsecured notes(4)

-

-

689

689

Lease liabilities(4)

-

-

610

610

Unsecured other(4)

-

-

126

126

Other financial liabilities:





Contingent consideration payable

84

-

-

84

Total non-current financial liabilities

84

-

1,432

1,516

Total financial liabilities

110

-

2,763

2,873

(1)    Excludes current input taxes of US$140 million and non-current input and other taxes of US$97 million included in other receivables.

(2)    Included in trade and other receivables on the Consolidated Balance Sheet.

(3)    Excludes current input taxes of US$40 million and non-current input and other taxes of US$1 million included in other creditors.

(4)    Included in interest bearing liabilities on the Consolidated Balance Sheet.

 

(i)     Measurement of fair value

The carrying values of the Group's financial assets and liabilities measured at amortised cost are equal to or approximate their respective fair values, except for senior unsecured notes, which have a fair value of US$629 million (FY22: US$650 million), and lease liabilities, for which a fair value has not been determined. The fair value of the Group's senior unsecured notes is estimated based on quoted market prices at the reporting date and is classified as Level 1 on the fair value hierarchy.

The following table shows the Group's financial assets and liabilities carried at fair value with reference to the nature of valuation inputs used:

Level 1     Valuation is based on unadjusted quoted prices in active markets for identical financial assets and liabilities.

Level 2    Valuation is based on inputs (other than quoted prices included in Level 1) that are observable for the financial asset or liability, either directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).

Level 3     Valuation includes inputs that are not based on observable market data.

 

NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING

7. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)

(i)     Measurement of fair value (continued)

H1 FY23

US$M

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets and liabilities





Trade and other receivables

-

135

-

135

Trade and other payables

-

(1)

-

(1)

Derivative contract assets

1

-

-

1

Investments in equity instruments designated as FVOCI

109

-

-

109

Vendor loan facility

-

39

-

39

Contingent consideration receivable

-

-

10

10

Contingent consideration payable

-

-

(16)

(16)

Total

110

173

(6)

277

 

FY22

US$M

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets and liabilities





Trade and other receivables

-

143

-

143

Trade and other payables

-

(20)

-

(20)

Derivative contract assets

1

-

-

1

Derivative contract liabilities

(6)

-

-

(6)

Investments in equity instruments designated as FVOCI

25

-

-

25

Vendor loan facility

-

-

39

39

Contingent consideration payable

-

-

(84)

(84)

Total

20

123

(45)

98

 

(ii)    Level 3 financial assets and liabilities

The following table shows the movements in the Group's Level 3 financial assets and liabilities:

US$M

H1 FY23

H1 FY22

At the beginning of the period

(45)

52

Addition of financial assets

10

34

Reclassification of financial asset from level 3 to level 2(1)

(39)

-

Derecognition of financial liabilities

-

14

Unrealised gains/(losses) recognised in the Consolidated Income Statement(2)

68

1

Unrealised gains/(losses) recognised in the Consolidated Statement of Comprehensive Income(3)

-

(48)

At the end of the period(4)

(6)

53

The valuation of the vendor loan facility provided to a subsidiary of Seriti Resources Holdings Pty Ltd as part of the Group's divestment of South Africa Energy Coal no longer includes inputs that are based on unobservable market data.

Recognised in expenses excluding net finance income/(costs) in the Consolidated Income Statement.

Recognised in the financial assets reserve in the Consolidated Statement of Comprehensive Income.

The carrying amount is valued using inputs other than observable market data and is calculated using appropriate valuation models, including discounted cash flow modelling. The potential effect of using reasonably possible alternative assumptions in these models, based on directionally changing all the significant inputs either favourably or unfavourably by 10 per cent while holding all other variables constant, will result in an increase of US$1 million or a decrease of US$5 million respectively in the Group's profit after tax in the Consolidated Income Statement.

 

(iii)   Standby arrangements and credit facilities

The entities in the Group are funded by a combination of cash generated by the Group's operations, working capital facilities and intercompany loans provided by the Group. Intercompany loans may be funded by a combination of cash, short-term and long-term debt. Details of the Group's major standby arrangement are as follows:

H1 FY23

US$M

 

Available

 

Used

 

Unused

Revolving credit facility(1)

1,400

-

1,400

(1)    The Group has an undrawn revolving credit facility which is a standby arrangement to the US commercial paper program. This facility was extended in December 2022 by one year to December 2027 with the size of the facility in the final year reduced to US$1,200 million.

 

 

NOTES TO FINANCIAL STATEMENTS - OTHER NOTES

8.    EQUITY ACCOUNTED INVESTMENTS

The Group's interest in equity accounted investments with the most significant contribution to the Group's net profit or net assets, are as follows: 

Significant joint ventures

Country of incorporation

Principal activity

Reporting date

Acquisition date

        Ownership interest %

H1 FY23

FY22

Australia Manganese(1)

Australia

Manganese ore mine

30 June 2022

8 May 2015

60

60

South Africa Manganese(2)

South Africa

Manganese ore mines

30 June 2022

3 February 2015

60

60

Sierra Gorda(3)

Chile

Copper mine

31 December 2022(3)

22 February 2022

45

45

Australia Manganese consists of an investment in Groote Eylandt Mining Company Pty Ltd (GEMCO).

The Group holds a 60 per cent interest in Samancor Holdings (Pty) Ltd (Samancor). Samancor indirectly owns 74 per cent of Hotazel Manganese
Mines (Pty) Ltd (HMM), which gives the Group its indirect ownership interest of 44.4 per cent. The remaining 26 per cent of HMM is owned by B-BBEE entities, of which 17 per cent of the interests were acquired using vendor finance with the loans repayable via distributions attributable to these parties, pro rata to their share in HMM. Until these loans are repaid, the Group's interest in HMM is accounted for at 54.6 per cent.

Sierra Gorda consists of an investment in Sierra Gorda Sociedad Contractual Minera. The reporting date differs to that of the Group and is consistent with common practice in its country of incorporation.

The Group's share of profit/(loss) of equity accounted investments, are as follows: 

US$M

H1 FY23

H1 FY22

Australia Manganese

52

85

South Africa Manganese

16

18

Sierra Gorda

161

-

Individually immaterial(1)

12

1

Total

241

104

Individually immaterial consists of investments in Samancor Marketing Pte Ltd (60 per cent), Mineração Rio do Norte S.A. (33 per cent) and Port Kembla Coal Terminal Ltd (16.7 per cent) in H1 FY23 and Samancor Marketing Pte Ltd (60 per cent) and Port Kembla Coal Terminal Ltd (16.7 per cent) in H1 FY22.

 

9.      SUBSEQUENT EVENTS

Capital management

On 16 February 2023, the Directors resolved to pay a fully-franked interim ordinary dividend of US 4.9 cents per share (US$224 million) in respect of the 2023 financial half year. The dividend will be paid on 6 April 2023. The dividend has not been provided for in the half year consolidated financial statements and will be recognised in the second half of the 2023 financial year.

On 16 February 2023, the Group also announced an increase to the existing capital management program, announced on 27 March 2017, of US$50 million to a total of US$2.3 billion. This leaves US$158 million expected to be returned by 1 September 2023.

No other matters or circumstances have arisen since the end of the period that have significantly affected, or may significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods.

 

DIRECTORS' DECLARATION

In accordance with a resolution of the Directors of the Company, we state that:

In the opinion of the Directors:

(a)   The consolidated financial statements and notes for the half year ended 31 December 2022 are in accordance with the Corporations Act, including:

(i)      Giving a true and fair view of the Group's financial position as at 31 December 2022 and of its performance for the half year ended on that date; and

(ii)     Complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001.

(b)   There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Board of Directors.

 

Karen Wood

Chair

 

Graham Kerr

Chief Executive Officer and Managing Director

 

Date: 16 February 2023

 

DIRECTORS' REPORT

The Directors of the Group present the consolidated financial statements for the half year ended 31 December 2022 and the auditor's review report thereon.

Directors

The Directors of the Company, both during and since the end of the period, are:

Karen Wood                           

Graham Kerr

Frank Cooper AO

Guy Lansdown

Dr Xiaoling Liu

Dr Ntombifuthi (Futhi) Mtoba

Wayne Osborn

Keith Rumble

 

The company secretary of the Company, both during and since the end of the period, is Claire Tolcon.

 

Review and results of operations

A review of the operations of the consolidated entity during the period and of the results of those operations is contained on pages 3 to 30 of the National Storage Mechanism version of the release.

 

Strategic risks and uncertainties

Due to the international scope of the Group's operations and the industries in which it is engaged, there are a number of risk factors and uncertainties which could have an effect on the Group's results and operations over the next six months.

The following information outlines the most significant strategic exposures identified across the Group. The risks are not listed in any particular order:

·      Keeping our people safe and well

·      Portfolio reshaping

·      Climate change and environment

·      Maintaining, realising or enhancing the value of our Mineral Resources and Ore Reserves

·      Major external events or natural catastrophes

·      Maintaining competitiveness through innovation and technology

·      Predictable operational performance

·      Delivering our project portfolio

·      Security of supply of logistics chains, and critical goods and services

·      Shaping our culture and managing diverse talent

·      Evolving societal expectations

·      Political risks, actions by government and/or authorities

·      Global economic uncertainty and liquidity

Further information on these risks and how they are managed can be found on pages 26 to 35 of the Annual Report for the year ended 30 June 2022, a copy of which is available on the Group's website at www.south32.net.  

 

DIRECTORS' REPORT

Events subsequent to the balance sheet date

Capital management

On 16 February 2023, the Directors resolved to pay a fully-franked interim ordinary dividend of US 4.9 cents per share (US$224 million) in respect of the 2023 financial half year. The dividend will be paid on 6 April 2023. The dividend has not been provided for in the half year consolidated financial statements and will be recognised in the second half of the 2023 financial year.

On 16 February 2023, the Group also announced an increase to the existing capital management program, announced on 27 March 2017, of US$50 million to a total of US$2.3 billion. This leaves US$158 million expected to be returned by 1 September 2023.

No other matters or circumstances have arisen since the end of the period that have significantly affected, or may significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods.

UK responsibility statements

The Directors state that to the best of their knowledge the Financial Results and Outlook is compliant with DTR 4.2.7R and DTR 4.2.8R of the Disclosure Guidance and Transparency Rules in the United Kingdom, namely:

 

includes an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and 

disclosure has been made for related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the enterprise during that period, and any changes in the related party transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year.

 

Lead Auditor's Independence Declaration

A copy of the lead auditor's independence declaration as required under Section 307C of the Corporations Act is set out on the following page.

 

Rounding of amounts

The Australian Securities and Investments Commission (ASIC) Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 applies to the Group and amounts in the half year consolidated financial statements and this Directors' Report have been rounded in accordance with this instrument to the nearest million US dollars, unless stated otherwise.

 

This Directors' Report is made in accordance with a resolution of the Board.

 

Karen Wood

Chair

 

Graham Kerr

Chief Executive Officer and Managing Director

 

Date: 16 February 2023


Lead Auditor's Independence Declaration under

Section 307C of the Corporations Act 2001

To the Directors of South32 Limited

I declare that, to the best of my knowledge and belief, in relation to the review of South32 Limited for the half year ended 31 December 2022 there have been:

i.           no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and

ii.          no contraventions of any applicable code of professional conduct in relation to the review.

 



 

 

 

 

 

KPMG

Graham Hogg

Partner


 


Perth


16 February 2023

 

 

 

Independent Auditor's Review Report


To the shareholders of South32 Limited

We have reviewed the accompanying Half Year Consolidated Financial Statements of South32 Limited.

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the Half Year Consolidated Financial Statements of South32 Limited does not comply with the Corporations Act 2001, including: 

·   giving a true and fair view of the Group's financial position as at 31 December 2022 and of its performance for the half year ended on that date; and

·   complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

 

The Half Year Consolidated Financial Statements comprises:

·   Consolidated balance sheet as at 31 December 2022;

·   Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of changes in equity and Consolidated cash flow statement for the half year ended on that date;

·   Notes 1 to 9 comprising a summary of significant accounting policies and other explanatory information; and

·   The Directors' declaration.

The Group comprises South32 Limited (the Company) and the entities it controlled at the half year's end or from time to time during the half year.



Basis for Conclusion

We conducted our review in accordance with ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity. Our responsibilities are further described in the Auditor's Responsibilities for the Review of the Financial Report section of our report.

We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the annual financial report in Australia.  We have also fulfilled our other ethical responsibilities in accordance with these requirements.

 

 

Responsibilities of the Directors for the Half Year Consolidated Financial Statements

The Directors of the Company are responsible for:

·    the preparation of the Half Year Consolidated Financial Statements that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001

·    such internal control as the Directors determine is necessary to enable the preparation of the Half Year Consolidated Financial Statements that gives a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibilities for the Review of the Half Year Consolidated Financial Statements

Our responsibility is to express a conclusion on the Half Year Consolidated Financial Statements based on our review.  ASRE 2410 requires us to conclude whether we have become aware of any matter that makes us believe that the Half Year Consolidated Financial Statements do not comply with the Corporations Act 2001 including giving a true and fair view of the Group's financial position as at 31 December 2022 and its performance for the half year ended on that date and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

A review of a Half Year Consolidated Financial Statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

 



KPMG

Graham Hogg

Partner




Perth


16 February 2023

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 operations; 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 economic climate and the significant volatility, uncertainty and disruption arising in connection with COVID-19.

NON-IFRS FINANCIAL INFORMATION

This release includes certain non-IFRS financial measures, including Underlying earnings, Underlying EBIT and Underlying EBITDA, Underlying revenue, Underlying net finance costs, Underlying depreciation and amortisation, Underlying operating costs, Underlying income tax expense, Underlying royalty related tax expense, Basic Underlying earnings per share, Underlying effective tax rate, Underlying EBIT margin, Underlying EBITDA margin, Underlying return on capital, Free cash flow, net debt, net operating assets and ROIC. These measures are used internally by management to assess the performance of our business, make decisions on the allocation of our resources and assess operational management. Non-IFRS measures have not been subject to audit or review and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.

NO OFFER OF SECURITIES

Nothing in this release should be read or understood as an offer or recommendation to buy or sell South32 securities, or be treated or relied upon as a recommendation or advice by South32.

NO FINANCIAL OR INVESTMENT ADVICE - SOUTH AFRICA

South32 does not provide any financial or investment 'advice' as that term is defined in the South African Financial Advisory and Intermediary Services Act, 37 of 2002, and we strongly recommend that you seek professional advice.

 

 

further information

 

INVESTOR RELATIONS

Ben Baker
M  +61 403 763 086

E   Ben.Baker@south32.net

MEDIA RELATIONS

Jamie Macdonald
M  +61 408 925 140

E   Jamie.Macdonald@south32.net

 

Miles Godfrey
M  +61 415 325 906

E   Miles.Godfrey@south32.net

 

 

Further information on South32 can be found at www.south32.net.

 

South32 Limited (ABN 84 093 732 597)

Registered in Australia

(Incorporated in Australia under the Corporations Act 2001)

Registered Office: Level 35, 108 St Georges Terrace

Perth Western Australia 6000 Australia

ISIN: AU000000S320

 

Approved for release by Graham Kerr, Chief Executive Officer

JSE Sponsor: The Standard Bank of South Africa Limited

16 February 2023

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