South32 Regulatory News (S32)

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

27 April 2021

South32 LimitedQuarterly Report March 2021

"Strong operating performance across the portfolio during the quarter combined with improving prices for most of our commodities saw our net cash position increase to US$517 million.

"During the period we returned US$90 million to our shareholders via our on-market share buy-back bringing total returns under our capital management program to US$1.5 billion.

"We set year to date production records at Brazil Alumina and Australia Manganese. We increased our production guidance for South Africa Manganese as we continue to respond to market conditions and at Cannington off the back of continued strong underground performance.

"Having successfully completed a major furnace refurbishment at Cerro Matoso, we approved further investment in a new project that will lift future nickel production.

"We continue to reshape our portfolio, moving closer to the divestment of South Africa Energy Coal while progressing studies for our base metals development options.

"Looking ahead, we expect the global economic recovery combined with fiscal stimulus to continue, driving a rebound in metal demand and sustaining higher prices for many of our key commodities."

Graham Kerr, South32 CEO

Corporate Update

Development and Exploration Update

Production Summary

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

Worsley Alumina(86% share)

Worsley Alumina saleable alumina production increased by 1% (or 16kt) to 2,885kt in the nine months ended March 2021. Alumina hydrate production increased by 4% (or 116kt) to a record 2,989kt in the same period, with the input circuit operating above nameplate capacity of 4.6Mtpa (100% basis).

FY21 production guidance remains unchanged at 3,965kt with the refinery expected to drawdown established hydrate stocks following the successful completion of planned calciner maintenance in the March 2021 quarter.

Brazil Alumina(36% share)

Brazil Alumina saleable production increased by 1% (or 7kt) to a record 1,049kt in the nine months ended March 2021 as the refinery continued to benefit from strong plant availability, realising the benefits of the De-bottlenecking Phase One project. 

FY21 production guidance remains unchanged at 1,370kt.

Hillside Aluminium(100%)

Hillside Aluminium saleable production decreased by 1% (or 3kt) to 537kt in the nine months ended March 2021 as the smelter continued to test its maximum technical capacity, despite the impact from increased load-shedding. FY21 production guidance7 remains unchanged at 720kt.

The new energy supply agreement for the smelter is currently with the National Energy Regulator of South Africa for review. The new agreement is to cover power supplied for a 10-year period with a tariff that is South African rand based, and a rate of escalation linked to the South Africa Producer Price Index.

Mozal Aluminium(47.1% share)

Mozal Aluminium saleable production decreased by 1% (or 2kt) to 199kt in the nine months ended March 2021 with the smelter continuing to perform strongly despite the impact of load-shedding and workforce restrictions related to COVID-19 in the quarter. Notwithstanding the ongoing impact of restrictions, FY21 production is expected to approach guidance7 of 273kt.

South Africa Energy Coal(100%)

South Africa Energy Coal saleable production decreased by 14% (or 2.4Mt) to 15.0Mt in the nine months ended March 2021 with reduced demand from Eskom impacting domestic sales. Export sales declined during the March 2021 quarter, impacted by disruptions to third party rail logistics and our decision to reduce activity in uneconomic pits to maximise margins.

Our export sales realised a discount of approximately 30% to the API4 (6,000Kcal) index10 in the nine months ended March 2021, as we produced a greater share of lower calorific product. Given the impact of lower realised prices, lower volumes, and a stronger South African rand, the operation remained loss-making in the March 2021 quarter.

Production guidance is not provided for the June 2021 quarter as we continue to progress our divestment of the operation, although we do expect production volumes to increase as rail logistics normalise.

Illawarra Metallurgical Coal(100%)

Illawarra Metallurgical Coal saleable production increased by 17% (or 0.9Mt) to 5.9Mt in the nine months ended March 2021 as the return to a three longwall configuration continued to deliver greater efficiencies through the operation of alternate dual longwalls at the Appin mine and we monetised further low-margin coal wash material. While this product attracts considerable grade and product-type discounts to the API5 (5,500Kcal) index12 for our energy coal sales, the incremental volume benefits our Operating unit costs by eliminating coal waste emplacement.

FY21 production guidance remains unchanged at 8.0Mt with a longwall move scheduled at Appin in the June 2021 quarter.

Australia Manganese(60% share)

Australia Manganese saleable ore production increased by 2% (or 47kwmt) to a record 2,663kwmt in the nine months ended March 2021. The primary concentrator continued to achieve strong output despite the impact of the wet season in the March 2021 quarter, while output from the PC02 circuit remained above nameplate capacity, contributing 10% of total production (9M YTD20: 11%).

While we continue to monitor the potential for further impact from the wet season, FY21 production guidance remains unchanged at 3,500kwmt.

We did not produce any manganese alloy in the March 2021 quarter following our divestment of the TEMCO manganese alloy smelter.

South Africa Manganese(60% share)

South Africa Manganese saleable ore production increased by 11% (or 162kwmt) to 1,666kwmt in the nine months ended March 2021, as we increased volumes of higher quality premium material from our Mamatwan mine and lifted our use of opportunistic, higher cost trucking. Ore production in the March 2021 quarter was 15% higher following completion of planned maintenance at the Mamatwan mine in the prior quarter. March 2021 quarter ore sales volumes declined by 15%, with third party rail logistics impacted by wet weather and shipments slipping into the June 2021 quarter following the declaration of force majeure by Transnet.

FY21 production guidance has been increased by 10% to 2,200kwmt as we continue to respond to market conditions by utilising higher cost trucking capacity. We will continue to monitor market demand and the potential for further disruption due to adverse weather.

We did not produce any manganese alloy in the nine months ended March 2021 as our Metalloys smelter remained on care and maintenance.

Cerro Matoso(99.9% share)

Cerro Matoso payable nickel production decreased by 25% (or 7.7kt) to 23.2kt in the nine months ended March 2021 following completion of a major refurbishment at one of the furnaces in the quarter. FY21 production guidance remains unchanged at 34.6kt, having completed the furnace ramp-up to normalised rates.

Payable nickel sales increased by 10% during the March 2021 quarter as production volumes lifted. While our ferronickel product sells with reference to the LME Nickel index price on a M or M+1 basis it continues to attract product discounts of approximately 10%.

Following approval to develop the low capital, higher-grade Q&P project in the December 2020 quarter, which supported an increase in our FY21 and FY22 production guidance, the Ore Sorting and Mechanical Ore Concentration (OSMOC) project was approved to proceed to execution during the March 2021 quarter. The OSMOC project is expected to deliver increased payable nickel production of up to 10% from FY23 through expanded processing capacity and improvements to the upgrading circuit to lift average ore grades13. The project has an anticipated capital spend of US$24M with US$4M expected in the June 2021 quarter.

Further to the orders issued by the Constitutional Court of Colombia in April 2018, the operation was granted a new environmental licence in the March 2021 quarter. With this licence, and our ongoing provision of health care to the community members, all outstanding orders issued have been satisfied and we have moved to a monitoring phase.

Cannington(100% share)

Cannington payable zinc equivalent production increased by 9% (or 20.7kt) to 264.1kt in the nine months ended March 2021 following strong underground mine performance which has supported the acceleration of a higher-grade mining sequence. As a result of the continued strong operating performance and expectation of higher grades in the June 2021 quarter we have further increased FY21 zinc equivalent production guidance by 10% to 382.6kt (silver 13,700koz, lead 130.7kt and zinc 69.2kt). FY22 production guidance remains unchanged at this time.

Notwithstanding the strong production performance, sales were negatively impacted in the March 2021 quarter as a result of weather related timing disruptions to rail logistics that are expected to unwind in the June 2021 quarter.

We have initiated a pre-feasibility study to assess the potential to transition the underground mine to a truck haulage operation, from the current truck/shaft configuration. The change in configuration is a low cost capital option that has the potential to bring forward further higher-grade material from FY23 at current operating costs and throughput rates.

Notes:

1. Refer to the market announcement "Agreement to Divest South Africa Energy Coal" dated 6 November 2019. Purchaser includes Thabong Coal Proprietary Limited, a wholly-owned subsidiary of Seriti, and two trusts for the benefit of employees and communities. Refer to the market announcement "South Africa Energy Coal Divestment Update" dated 1 April 2021. Final material conditions include approval from Eskom Holdings SOC Limited for the transfer of our shareholding and amendments to the terms of the Duvha Coal Supply Agreement, with the latter also subject to National Treasury consent.

2. Net cash number is unaudited and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.

3. Net distributions from equity accounted investments includes net debt movements and dividends, which are unaudited and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.

4. Since inception, US$1.2B has been allocated to the on-market share buy-back (585M shares at an average price of A$2.86 per share) and US$292M returned in the form of special dividends.

5. FY21 Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various assumptions for FY21, including: an alumina price of US$270/t; an average blended coal price (including coal wash sales) of US$96/t for Illawarra Metallurgical Coal; a manganese ore price of US$4.55/dmtu for 44% manganese product; a nickel price of US$7.51/lb; a thermal coal price of US$77/t (API4) for South Africa Energy Coal; a silver price of US$25.15/troy oz; a lead price of US$1,952/t (gross of treatment and refining charges); a zinc price of US$2,597/t (gross of treatment and refining charges); an AUD:USD exchange rate of 0.75; a USD:ZAR exchange rate of 15.69; a USD:COP exchange rate of 3,594; and a reference price for caustic soda; all of which reflected forward markets as at January 2021 or our internal expectations.

6. The primary corporate tax rates applicable to the Group for FY21 include: Australia 30%, South Africa 28%, Colombia 31%, Mozambique 0% and Brazil 34%. The Colombian corporate tax rate is 31% in CY21 and will decrease to 30% from 1 January 2022. The Mozambique operations are subject to a royalty on revenues instead of income tax.

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

8. Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales have been reported at 60%. The Group's financial statements will continue to reflect a 54.6% interest in South Africa Manganese ore.

9. 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. FY20 realised prices for zinc (US$1,416/t), lead (US$1,648/t) and silver (US$16.5/oz) have been used for FY20, 9M YTD21 and FY21e.

10. The sales volume weighted average of the Argus McCloskey API4 Coal index 6,000Kcal NAR (FOB Richards Bay, South Africa) on a basis of a one month lag to published pricing (Month minus one or "M-1") was US$67/t in the nine months ended March 2021.

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

12. The sales volume weighted average of the Argus McCloskey API5 Coal index 5,500Kcal NAR (FOB Newcastle, Australia) on a basis of a one month lag to published pricing (Month minus one or "M-1") was US$42/t in the nine months ended March 2021.

13. The information in this report that relates to the production target is based on Proved and Probable Ore Reserves (87%), and Measured (12%) and Indicated (1%) Mineral Resources for Cerro Matoso. Mineral Resources and Ore Reserve estimates for Cerro Matoso was declared as part of South32's Annual Resource and Reserve declaration in the Annual Report 2020 (www.south32.net) issued on 4 September 2020 and prepared by E Espitia (MAusIMM) and N Monterroza (MAusIMM) 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 announcement. All material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. South32 confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement. Payable nickel is calculated using long term consensus metal prices and relative metallurgical recoveries.

The following abbreviations have been used throughout this report: US$ million (US$M); US$ billion (US$B); grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); ounces (oz); thousand ounces (koz); million ounces (Moz); thousand wet metric tonnes (kwmt); million wet metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); thousand dry metric tonnes (kdmt).

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

Operating Performance

Forward-looking statements

This release contains forward-looking statements, including statements about trends in commodity prices and currency exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; capital costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; and provisions and contingent liabilities. These forward-looking statements reflect expectations at the date of this release, however they are not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this release. Readers are cautioned not to put undue reliance on forward-looking statements. Except as required by applicable laws or regulations, the South32 Group does not undertake to publicly update or review any forward-looking statements, whether as a result of new information or future events. Past performance cannot be relied on as a guide to future performance. South32 cautions against reliance on any forward-looking statements or guidance, particularly in light of the current economic climate and the significant volatility, uncertainty and disruption arising in connect with COVID-19.

Further information

27 April 2021Approved for release by Nicole Duncan, Company Secretary, South32 LimitedJSE Sponsor: UBS South Africa (Pty) Ltd