South32 Regulatory News (S32)

APPENDIX 4E

SOUTH32 LIMITED

(ABN 84 093 732 597)

RESULTS FOR ANNOUNCEMENT TO THE MARKET

This page and the accompanying 41 pages comprise the year end financial information given to the Australian Securities Exchange (ASX) under Listing Rule 4.3A. This statement includes the unaudited consolidated results of the South32 Group for the year ended 30 June 2020 (FY20) compared with the year ended 30 June 2019 (FY19) on a statutory basis.

Net tangible assets per share

Net tangible assets per ordinary share were US$1.92 as at 30 June 2020 (US$1.98 as at 30 June 2019)(1).

Dividends

The Board has resolved to pay a final dividend of US 1 cent per share (fully franked) for the year ended 30 June 2020.

The record date for determining entitlements to dividends is 11 September 2020; payment date is 8 October 2020.

Annual General Meeting

South32 Limited's 2020 Annual General Meeting (AGM) will be held on Thursday 29 October 2020 at midday (12 noon AWST) as a virtual meeting, with shareholders participating via online facilities. Further details regarding the AGM will be made available in September 2020, and shareholders are encouraged to monitor securities exchange releases and the company's website www.south32.net for information and updates.

ASX / LSE / JSE Share Code: S32 ADR: SOUHY

20 August 2020

South32 Limited

FINANCIAL RESULTS AND OUTLOOK

YEAR ENDED 30 JUNE 2020

South32 delivers strong operating result, further strengthens balance sheet and announces dividend

"As the COVID-19 pandemic continues to impact the world, our focus remains on keeping our people well, maintaining safe and reliable operations and supporting our communities through the health crisis. Even as we face this challenge, we delivered a strong operating result, with annual production records at Australia Manganese ore, Hillside Aluminium and Brazil Alumina.

"Given the extraordinary circumstances and volatility caused by the pandemic we have been quick to act to protect our strong financial position. During the year we re-designed and re-prioritised our capital expenditure programs, maintained strong control over our operating costs and suspended our on-market share buy-back.

"Looking to next financial year we are taking further action as we continue to navigate a period of potentially extended market volatility and lower commodity prices. We expect cost efficiencies and further simplification of our Group, combined with higher volumes to result in lower operating unit costs across the majority of our operations.

"We finished the year in a strong financial position, with lower costs and a balance sheet that provides flexibility. Against this backdrop we continue to invest in the exploration and growth options we have embedded in our portfolio to create shareholder value.

"At Hermosa we are progressing our pre-feasibility study for the Taylor Deposit, releasing an updated Mineral Resource estimate following the end of the financial year and have commenced a scoping study on emerging end-market opportunities in battery technology for the Clark Deposit. Having formed the Ambler Metals Joint Venture in Alaska with Trilogy Metals, we have embedded another exciting base metals project in our growth pipeline.

"Our strong financial position and disciplined approach to capital management has supported the return of US$424 million to our shareholders in respect of the year, including the Board's resolution today for a US$48 million fully franked final dividend. While our on-market share buy-back remains suspended with US$121 million remaining, it has been extended by 12 months to September 2021, giving us the flexibility to re-commence the program as COVID-19 related operational risks subside and our financial performance improves."

Graham Kerr, South32 CEO

Safety

We were deeply saddened by the fatal injury to one of our colleagues, Duncan Mankhedi Ngoato, a Diesel Mechanic Assistant for Modi Mining, following an incident at the Ifalethu Colliery at South Africa Energy Coal on 27 May 2020. We immediately responded with support to Mr Ngoato's family, friends and colleagues. A detailed investigation into this incident was undertaken, led by a member of our Senior Leadership Team, with the results reviewed by the Chief Executive Officer, management team and Board. The key learnings have been shared across our operations and the contractor's business to prevent a similar tragedy occurring again. Tragically two people were also fatally injured in off-site incidents within our contractors' road transport activities, which were associated with our operations.

We aim to ensure our work is well-designed and that activities are executed in a safe and predictable manner. We are committed to working together safely and continually improving our systems and processes at all our operations. Our Total Recordable Injury Frequency (TRIF)(10)(11) improved by 9% to 4.2 per million hours worked in FY20, compared with our FY19 TRIF of 4.6.

Our response to COVID-19

Our response to COVID-19 is focussed on keeping our people well, maintaining safe and reliable operations and supporting our communities through the pandemic. We continue to monitor the situation closely, deferring non-critical activity and ensuring our operations run safely, as we continue to adjust to the different phases of the pandemic across the jurisdictions where we operate. Accordingly, our guidance is subject to further potential impacts from COVID-19.

Performance summary

The Group's statutory profit after tax declined by US$454M to a loss of US$65M in FY20 following the recognition of impairment and restructuring charges totalling US$115M (US$94M post-tax) in relation to our equity accounted manganese alloy smelters.

Underlying earnings decreased by 81% to US$193M as volatile macro-economic conditions impacted the prices of our key commodities and we experienced a temporary increase in our Underlying effective tax rate (ETR)(12). Despite the deterioration in commodity markets we delivered a strong operating result. We recorded sequentially lower Operating unit costs at the majority of our operations, delivered US$50M in annual savings(a) across the Group through the simplification of our functional support structures and took action to protect our strong balance sheet.

(a) Compared to FY18

Looking ahead, while the volatile macro-economic conditions and uncertainty of the current health crisis pose a significant challenge to the industry we are well placed entering FY21. We expect to deliver a further reduction in capital expenditure and Operating unit costs across our operations by pursuing efficiencies to offset the impact of a weaker US dollar. In addition, by exiting low returning businesses and further simplifying the Group's functional structures and footprint we expect to deliver another US$50M in annualised savings from FY22.

Specific highlights for FY20 included:

We finished the year with a net cash balance of US$298M, having generated free cash flow from operations, including distributions from our manganese equity accounted investments (EAI), of US$583M. Notwithstanding the volatile external environment, our strong financial position and disciplined approach to capital management supported the return of US$424M to our shareholders in respect of the period including:

Having expanded our capital management program by US$180M to US$1.43B in February 2020, the Board responded to the uncertainty caused by the pandemic, suspending our on-market share buy-back program on 27 March 2020 with US$121M remaining. The Board has extended the execution window for the remaining program by 12 months, to3 September 2021, maintaining the flexibility to re-commence the program as COVID-19 related operational risks subside and our financial performance improves.

Earnings

The Group's statutory profit after tax declined by US$454M to a loss of US$65M in FY20. Consistent with our accounting policies, various items are excluded from the Group's statutory profit to derive Underlying earnings including: exchange rate gains on restatement of monetary items (US$72M pre-tax); losses on non-trading derivative instruments and other investments measured at fair value (US$149M pre-tax); loss associated with earnings adjustments included in our EAI (US$108M); exchange rate gains associated with the Group's non US dollar denominated net debt (US$6M pre-tax), and the tax expense for all pre-tax earnings adjustments and exchange rate variations on tax balances (US$79M). Further information on these earnings adjustments is included on page 37.

The Group generated Underlying EBITDA of US$1.2B, for an operating margin of 22%. A deterioration in commodity markets was the primary driver of the significant decline in profitability, reducing Revenue by US$1.6B. Our continued focus on costs across the Group meant Operating unit costs remained well controlled. The general strengthening of the US dollar against our producer currencies, a reduction in price-linked costs and the on-going realisation of savings across our labour, energy and materials usage combined to offset inflation and lower the Group's cost base(15) by 6% in FY20. Depreciation and amortisation decreased by a modest US$18M to US$739M, meaning that Underlying EBIT decreased by US$1.0B (or 69%) to US$446M. Underlying earnings declined by US$799M (or 81%) to US$193M as the derecognition of tax assets at South Africa Energy Coal, associated with its potential divestment, led to a temporary increase in our Underlying ETR.

Earnings analysis

The following key factors influenced Underlying EBIT in FY20, relative to FY19.

The reconciliation of movements in Underlying EBIT graph can be found within the National Storage Mechanism version of the release.

Operating unit cost performance

In FY20 we embedded cost savings across our operations despite the implementation of COVID-19 controls focused on keeping our people well, and maintaining safe and reliable operations. The realisation of benefits from our optimisation of labour, energy and materials usage contributed to lower Operating unit costs across the majority of our operations.

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

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

Net finance cost

The Group's Underlying net finance cost, excluding EAI, was US$145M in FY20, and largely reflects the unwinding of the discount applied to our closure and rehabilitation provisions (US$102M) and interest on lease liabilities (US$51M), primarily at Worsley Alumina.

Tax expense

The Group's Underlying income tax expense, which excludes tax associated with EAI, was US$108M for an Underlying ETR of 116% in FY20. The elevated Underlying ETR was mostly driven by the loss made at South Africa Energy Coal, following the de-recognition of tax assets associated with its potential divestment. Following its divestment we expect the Underlying ETR to more closely reflect the corporate tax rates applicable to the Group(20).

The Underlying income tax expense for our manganese EAI was US$163M, including royalty related taxation of US$56M at GEMCO (Australia Manganese), for an Underlying ETR of 43.7% (FY19: 42.2%). The higher Underlying ETR in FY20 was mostly driven by the higher proportion of profit in our Australian business and associated royalty expenses.

Cash flow

The Group generated free cash flow from operations of US$270M and received US$313M in (net) distributions from our manganese EAI(21) in FY20 despite a 20% reduction in the average realised prices for our commodities. While cash generation was impacted by the lagged effect of income tax payments from the prior period's profitability, a strong focus on controlling working capital more than offset a small increase in capital expenditure as we continued our investment in our growth and life extension projects.

Total capital expenditure(22), excluding EAI, increased by US$35M to US$745M. Major capital, excluding EAI, was US$32M higher at US$251M including US$104M at the Hermosa project as we completed the voluntary remediation program, increased the size of our landholdings in the region and established early works surface infrastructure. A further US$122M was invested at South Africa Energy Coal as we progressed the Klipspruit Life Extension (KPSX) project, advancing it to 97% completion.

Sustaining capital expenditure, excluding EAI, decreased by US$8M to US$425M, 17% below our original guidance (US$515M) as we re-designed and re-prioritised expenditure in response to the uncertainty and conditions imposed by the pandemic. Increased spend on Intangibles and capitalisation of exploration expenditure reflects a greater investment in technology to support our operations (US$36M) and exploration activity across our portfolio (US$33M), including US$19M of exploration at Hermosa. Total capital expenditure associated with our manganese EAI declined by US$5M to US$91M.

Working capital unwound by US$287M as lower realised prices and receipt of the insurance award for the Klipspruit dragline outage that occurred in the prior year contributed to a US$367M decline in trade and other receivables. Tight management of our receivables through the current market uncertainty meant debtor days remained broadly unchanged at 23 (FY19: 24 days). Our focus on ensuring our business remains resilient extended to our management of inventory, which we drew down to normalised levels, bringing a further US$208M benefit. Lower trade and other payables and provisions partially offset the above, declining by US$184M and US$104M respectively, as input prices fell for raw material supplies purchased by our aluminium smelters and we continued our investment in progressive rehabilitation at South Africa Energy Coal.

Balance sheet, dividends and capital management

The Group's FY19 net cash position reduced by US$140M to US$364M on 1 July 2019 following the adoption of AASB 16 Leases. While the Group generated free cash flow from operations, including distributions from our manganese EAI, of US$583M during FY20, our net cash balance decreased to US$298M as we returned US$246M to shareholders in the period by way of dividends and directed US$269M to our on-market share buy-back program.

We took decisive action in H2 FY20 in response to the pandemic to protect our strong balance sheet, reducing Sustaining capital expenditure and suspending our on-market share buy-back program. We continue to manage our financial position to ensure we retain the right balance of flexibility, efficiency and prudence with additional liquidity available via an undrawn US$1.45B revolving credit facility. Reflecting our strong financial position and consistent with our commitment to maintain an investment grade credit rating, Standard and Poor's and Moody's reaffirmed their respective BBB+ and Baa1 credit ratings for the Group.

Our capital management framework remains unchanged and we continue to believe that the combination of high operating leverage and undue financial leverage delivers a sub-optimal outcome for shareholders. Given the strength of our net cash position and available franking credits, the Board has resolved to pay a fully franked final dividend of US 1 cent per share (US$48M), representing 77% of Underlying earnings in respect of H2 FY20. Reflecting the prudent management of our balance sheet and disciplined allocation of capital, we suspended our on-market share buy-back on 27 March 2020 in response to the uncertainty caused by the pandemic. The Board has extended the execution window for the remaining US$121M of our current program by 12 months, to 3 September 2021, maintaining the flexibility to re-commence the on-market share buy-back as COVID-19 related operational risks subside, and our financial performance improves.

South32 shareholders registered on the South African branch register will not be able to dematerialise or rematerialise their shareholdings between 9 and 11 September 2020 (both dates inclusive), nor will transfers to/from the South African branch register be permitted between 4 and 11 September 2020 (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.

Outlook

Production

We delivered a strong operating result in FY20 despite the challenging backdrop, implementing measures to keep our people safe and well, and maintaining safe and reliable operations. While all guidance is subject to further potential impacts from COVID-19, we expect to increase production at the majority of our operations in FY21.

Costs and capital expenditure

Operating unit cost guidance

We continue to pursue cost efficiencies in our business to offset the impact of a stronger Australian dollar and the potential for an extended period of volatility and lower commodity prices. This focus is expected to contribute to the further reduction in Operating unit costs across the majority of our operations in FY21. Although guidance is not provided for our downstream processing operations, Operating unit costs are expected to benefit from the lagged effect of a reduction in raw material prices, particularly alumina.

(a) FY21e Operating unit cost guidance includes royalties (where appropriate) and commodity price and foreign exchange rate forward curves or our internal expectation, as at June 2020 (refer to page 26, footnote 24).

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

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

Depreciation and amortisation, and tax expense guidance

Depreciation and amortisation (excluding EAI and South Africa Energy Coal) is expected to reduce to approximately US$683M in FY21 (FY20: US$692M). Depreciation and amortisation for our manganese EAI is expected to reduce to US$96M (FY20: US$99M). We also expect depreciation and amortisation for South Africa Energy Coal of US$12M in H1 FY21.

Our geographical earnings mix will continue to have a significant bearing on our Underlying ETR given differing country tax rates(20), while the impact of intragroup agreements, exploration expenditure in foreign entities and other permanent differences will continue to be magnified when margins are compressed or losses are incurred in specific jurisdictions. Until it is sold,South Africa Energy Coal is expected to have an ETR of 0%, with all tax assets de-recognised and no benefit to be recorded for losses prior to sale. This will continue to influence the Group's Underlying ETR should South Africa Energy Coal make a loss prior to the planned timing of its divestment in H1 FY21(13). While it is therefore difficult to predict our Underlying ETR we do expect it to decline in FY21 (FY20: 116%). Following South Africa Energy Coal's divestment we expect our Underlying ETR to more closely reflect the primary corporate tax rates applicable to the Group.

Other expenditure guidance

Group and unallocated costs, excluding greenfield exploration, of US$80M are expected in FY21 as we continue to pursue savings through our exit of low returning businesses and ongoing simplification of the Group's functional structures and footprint.

We have a prospective portfolio of greenfield exploration partnerships targeting base metals in Australia, the Americas and Europe. FY21 guidance for greenfield exploration expenditure to progress these early stage projects is US$18M (FY20: US$15M).In addition, US$50M of exploration expenditure, excluding EAI, is expected to be capitalised in FY21 (FY20: US$33M). This includes US$29M at Hermosa (FY20: US$19M) and US$10M (South32 share) at our Ambler Metals Joint Venture.

Capital expenditure guidance (excluding exploration and intangibles)

Sustaining capital expenditure, excluding EAI, is expected to decline by US$50M (or 12%) to US$375M in FY21. Savings are expected to be realised from the re-design and re-prioritisation of activity across our operations in response to market conditions. Expenditure atIllawarra Metallurgical Coal is expected to decrease by US$35M (or 19%) as we reduce the level of spend on underground development to typical levels, following the substantial investment in prior periods. Sustaining capital expenditure associated with our manganese EAI is expected to decrease by US$15M (or 17%) to US$75M as we complete site infrastructure improvement projects and lower spend at our alloy smelters.

Major project capital expenditure is expected to decline by US$96M (or 38%) to US$155M in FY21 with South Africa Energy Coal's KPSX project expected to be completed in H1 FY21. Modest expenditure is anticipated at Eagle Downs Metallurgical Coal, ahead of an expected final investment decision in H1 FY21. Hermosa guidance includes development studies, surface and decline infrastructure to advance the project prior to completing the Taylor Deposit's pre-feasibility study (PFS). We expect to provide updated FY21 capital expenditure guidance for Hermosa with the PFS outcomes in the December 2020 quarter. External approvals for Dendrobium Next Domain (DND) are progressing and we expect to make a final investment decision in H2 FY21. Guidance of US$64M for DND includes critical path mine development, ventilation infrastructure and other long lead time equipment associated with the life extension project.

(a) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese operations to the treatment of the manganese operations on an equity accounted basis.

(b) Guidance for South Africa Energy Coal is for H1 FY21.

Operations analysis

A summary of the underlying performance of the Group's operations is presented below and more detailed analysis is presented on pages 15 to 24. Unless otherwise stated: all metrics reflect South32's share; 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; and Realised sales price is calculated as sales Revenue excluding third party sales divided by sales volume.

(a) Group and unallocated Underlying EBIT includes Hermosa (-US$5M).

(b) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese operations to the treatment of the manganese operations on an equity accounted basis (including third party product).

Worsley Alumina (86% share)

Volumes

Worsley Alumina saleable production increased by 2% (or 91kt) to 3,886kt in FY20, as the refinery benefitted from improved calciner availability. The refinery continues to benefit from improvement initiatives that are expected to support a sustainable increase in production to nameplate capacity of 4.6Mt (100% basis) in FY21 and FY22.

Operating costs

Operating unit costs decreased by 12% in FY20 to US$210/t as the refinery benefitted from lower caustic soda prices (FY20: US$366/t, FY19: US$489/t) and consumption rates (FY20: 93kg/t, FY19: 98kg/t), and lower renegotiated energy prices.

We expect FY21 Operating unit costs to decrease by 2% to US$205/t as higher volumes and the reduction of contractor rates and activity, are partially offset by higher planned caustic consumption rates (FY21: 95kg/t) and a stronger Australian dollar. Exchange rate and price assumptions for FY21 Operating unit cost guidance are detailed on page 26, footnote 24.

Financial performance

Underlying EBIT decreased by 70% (or US$381M) in FY20 to US$160M as a 30% decrease in the average realised price of alumina (-US$469M) and lower sales volumes (-US$32M) were partially offset by lower caustic soda costs (price and consumption, +US$53M), a weaker Australian dollar (+US$35M) and lower renegotiated energy prices (+US$25M).

The average realised price for alumina sales was a modest premium to the Platts Alumina Index(26) (PAX) on a volume weighted M-1 basis in FY20. Price realisations in H2 FY20 were in-line with market indices as a result of specific legacy supply contracts with our Mozal Aluminium smelter that reset each calendar year. Contracts with the smelter are linked to the LME aluminium price and alumina indices on an M-1 basis, with caps and floors embedded within specific contracts. All other alumina sales were at market based prices.

Capital expenditure

Sustaining capital expenditure decreased by US$9M in FY20 to US$48M and is expected to increase to US$57M in FY21 as we continue to invest in additional bauxite residue disposal capacity and improvements in processing infrastructure to support a sustainable increase in production to nameplate capacity.

Brazil Alumina (Alumina 36% share, Aluminium 40% share)

Volumes

Brazil Alumina saleable production increased by 10% (or 128kt) to a record 1.38Mt in FY20 as the refinery achieved improved performance in steam generation, enabling the benefits of the De-bottlenecking Phase One project to be realised. Production is expected to decrease to 1.37Mt in FY21 with planned maintenance scheduled, before increasing to 1.39Mt in FY22 as the de-bottlenecking benefits are again realised over a full year.

Operating costs

Operating unit costs decreased by 10% in FY20 to US$244/t as higher production volumes and lower caustic soda prices (FY20: US$324/t, FY19: US$503/t) and consumption rates, were partially offset by an increase in bauxite costs as we sourced third party material due to a temporary shortfall in supply from Mineração Rio do Norte S.A (MRN).

While FY21 Operating unit cost guidance is not provided for this non-operated facility, the refinery is expected to benefit from a reduction in the use of third party bauxite and a reset in the cost of supply from MRN, in accordance with its linkage to alumina and aluminium. Lower caustic soda and energy prices are also anticipated.

Financial performance

Alumina Underlying EBIT decreased by 103% (or US$177M) in FY20 to a loss of US$5M as a 37% decline in the average realised price of alumina (-US$237M), higher bauxite costs (-US$20M) and a drawdown of inventory (-US$10M) were partially offset by higher sales volumes (+US$70M) and lower caustic soda costs (price and consumption, +US$23M).

Aluminium Underlying EBIT increased by US$2M in FY20 to a loss of US$10M as we incurred costs to maintain the smelter on care and maintenance and recognised a provision related to our electricity contract with Eletronorte that was terminated in December 2015.

Capital expenditure

Sustaining capital expenditure increased by US$8M in FY20 to US$34M and is expected to decrease by US$7M to US$27M in FY21 as the rate of investment in bauxite residue disposal capacity reduces and we undertake further de-bottlenecking work at the refinery.

Together with our partners at MRN we continue to progress the life extension project's pre-feasibility study. The project has the potential to extend the life of the mine by more than 20 years at a relatively low capital cost. MRN has a substantial 494Mt(27) high grade bauxite Mineral Resource, with the pre-feasibility study expected to be completed in H2 FY21.

Hillside Aluminium (100%)

Volumes

Hillside Aluminium saleable production increased by 3kt to a record 718kt in FY20 as the smelter continued to test its maximum technical capacity, despite the impact to production from increased load-shedding. Production is expected to increase to a record 720kt in FY21 and FY22, subject to load-shedding.

Operating costs

Operating unit costs decreased by 25% in FY20 to US$1,531/t as the smelter benefited from lower raw material input prices, lower aluminium price-linked power costs and a major workforce restructure that was concluded in June 2019. Alumina, coke, pitch and aluminium tri-fluoride accounted for 54% of the smelter's cost base in FY20 (FY19: 58%).

The smelter sources alumina from our Worsley Alumina refinery with prices linked to the PAX on an M-1 basis, while its power is sourced from Eskom under separate contracts for its three potlines. We have been engaging with Eskom on a new pricing arrangement for the smelter, agreeing a new tariff to cover power supplied for a 10 year period. The new tariff is South African rand based, with a rate of escalation linked to the South Africa Producer Price Index. While the new tariff is being considered for approval by the National Energy Regulator of South Africa, we have entered into an interim arrangement for power supply with Eskom.

While Operating unit cost guidance is not provided, the combined tailwinds of lower anticipated alumina prices and a weaker South African rand are expected to mitigate the impact of higher power costs in FY21.

Financial performance

Underlying EBIT increased by US$178M in FY20 to US$103M as a 13% decrease in the average realised price of aluminium (-US$198M) was more than offset by lower raw material input costs (+US$239M), increased sales volumes (+US$35M), a weaker South African rand (+US$31M), lower aluminium price-linked power costs (+US$23M) and lower labour costs (+US$22M) following the major workforce restructure concluded in June 2019. Pot relining activity also reduced (+US$23M) in FY20, with 65 pots relined at a cost of US$248k per pot (FY19: 171 pots at US$249k per pot). 142 pots are scheduled to be relined across FY21.

Capital expenditure

Sustaining capital expenditure decreased by US$6M in FY20 to US$13M. A modest increase in Sustaining capital expenditure to US$18M is expected in FY21.

Mozal Aluminium (47.1% share)

Volumes

Mozal Aluminium saleable production increased by 1kt to 268kt in FY20 as the smelter continued to test its maximum technical capacity, despite the impact to production from increased load-shedding.

Production is expected to increase to a record 273kt in FY21 and FY22, as the benefits of the AP3XLE energy efficiency project are realised, subject to load-shedding.

Operating costs

Operating unit costs decreased by 12% in FY20 to US$1,785/t as raw material input costs decreased for alumina, coke, pitch and aluminium tri-fluoride, which combined to account for 46% of the smelter's cost base (FY19: 49%).

The smelter sources alumina from our Worsley Alumina refinery with approximately 50% priced as a percentage of the LME aluminium index under a legacy contract and the remainder linked to the Platts alumina index on an M-1 basis, with caps and floors embedded within specific contracts that reset each calendar year.

While Operating unit cost guidance is not provided, the cost profile of the smelter is expected to benefit in FY21 from the further insourcing of activity and the combined tailwinds of lower alumina prices and a weaker South African rand.

Financial performance

Underlying EBIT decreased by US$3M in FY20 to a loss of US$24M as a 12% decrease in the average realised price of aluminium (-US$74M) and an increase in pot relining costs (-US$3M) were offset by lower raw material prices (+US$42M), increased sales volumes (+US$26M) and reduced labour and contractor charges (+US$8M). 112(28) pots were relined across FY20 at a cost of US$278k per pot (FY19: 103(28) pots at US$234k per pot), with 120(28) pots scheduled to be relined in FY21.

Capital expenditure

Sustaining capital expenditure decreased by US$8M in FY20 to US$11M and is expected to decrease further to US$8M in FY21. The smelter continues to roll out the AP3XLE energy efficiency technology in its pot relining program. The project is expected to deliver a circa 5% (or 10kt pa) increase in annual production by FY24 with no associated increase in power consumption, improving the smelter's global competitiveness.

South Africa Energy Coal (100% share)

Volumes

South Africa Energy Coal saleable production decreased by 9% (or 2.3Mt) to 22.7Mt in FY20 with the operation closing loss-making pits in H1 FY20 to maximise margins, before COVID-19 restrictions further impacted activity during the June 2020 quarter.

Subject to a number of material conditions(13) being satisfied, the divestment of South Africa Energy Coal is on-track for completion in H1 FY21. Accordingly, guidance is only provided for H1 FY21 with saleable production expected to range between 10.5 and 12.5Mt as we continue to adjust volumes to maximise margins.

Operating costs

Operating unit costs increased by 5% in FY20 to US$42/t as the impact of lower sales volumes and costs to support the Klipspruit dragline's return to full utilisation, more than offset savings from reduced activity in loss-making pits and a weaker South African rand.

We expect H1 FY21 Operating unit costs to decrease by up to 14% to between US$36/t and US$39/t reflecting our intent to adjust volumes to maximise margins and a weaker South African rand. Exchange rate and price assumptions for FY21 Operating unit cost guidance are detailed on page 26, footnote 24.

Financial performance

Underlying EBIT decreased by US$109M in FY20 to a loss of US$155M as lower average export realised prices (-US$156M), lower sales volumes (-US$104M), costs to support the increase in activity at Klipspruit (-US$49M) and inventory movements (-US$45M) more than offset savings from the closure of loss-making pits at the Wolvekrans-Middelburg Complex (WMC) (+US$90M), higher average domestic realised prices (+US$78M) and a weaker South African rand (+US$67M).

Capital expenditure

Sustaining capital expenditure decreased by US$48M in FY20 to US$42M as we deferred expenditure at the WMC and reduced activity at Klipspruit following the completion of work to recover from the dragline outage in FY19. Sustaining capital expenditure of US$40M is expected in H1 FY21 as investment in new mining areas returns to typical rates.

We also invested US$122M in Major project capital expenditure in FY20 with a further US$24M expected in H1 FY21 as we progress the KPSX project towards completion.

Illawarra Metallurgical Coal (100% share)

Volumes

Illawarra Metallurgical Coal saleable production increased by 5% (or 359kt) to 7.0Mt in FY20 as the Dendrobium and Appin longwalls continued to perform strongly, with the operation returning to a three longwall configuration in the June 2020 quarter.

Notwithstanding the strong trend in longwall performance, we have lowered FY21 production guidance by 4% to 7.7Mt as Appin's dual longwall operation is optimised for capital, labour and equipment productivity to maximise value, rather than volume.

Saleable coal production is expected to decline to 7.3Mt in FY22, with metallurgical coal production largely unchanged, and lower value energy coal volumes expected to decline with an extra longwall move at Dendrobium, before normalising in FY23.

Operating costs

Operating unit costs decreased by 1% in FY20 to US$93/t as the benefit of increased sales volumes and a weaker Australian dollar were partially offset by a drawdown of finished goods and run of mine inventory.

We expect FY21 Operating unit costs to decrease by 10% to US$84/t with higher volumes and an associated increase in productivity, partially offset by a stronger Australian dollar. Exchange rate and price assumptions for FY21 Operating unit cost guidance are detailed on page 26, footnote 24.

Financial performance

Underlying EBIT decreased by US$307M in FY20 to US$52M as lower average realised prices (-US$385M), a drawdown of inventory (-US$104M) and lower other income (-US$31M) were partially offset by stronger sales volumes (+US$174M), a weaker Australian dollar (+US$32M), the benefit of coal wash diversion (+US$8M) and lower spend on consultants (+US$8M).

Capital expenditure

Sustaining capital expenditure increased by US$52M in FY20 to US$185M as we invested in infrastructure improvements and increased our underground development rates at Appin, ahead of the return to a three longwall configuration. Sustaining capital expenditure is expected to decrease by US$35M in FY21 to US$150M as we lower the level of spend on underground development to US$78M (FY20: US$94M) and other sustaining expenditure returns to typical levels following the substantial investment in prior periods.

We also invested US$14M in FY20 to progress the feasibility study for the DND project. While still subject to regulatory approvals, the project has the potential to extend the life of Dendrobium to approximately FY36. With a final investment decision anticipated in H2 FY21, Major capital expenditure is expected to increase by US$50M to US$64M with pre-commitment spend on mine development and ventilation critical path works to commence in FY21.

Australia Manganese (60% share)

Volumes

Australia Manganese saleable ore production increased by 4% (or 121kwmt) to a record 3,470kwmt in FY20, with the operation returning to full production following the removal of temporary roster changes in response to COVID-19 restrictions during the June 2020 quarter. Manganese alloy saleable production decreased by 29% (or 44kt) to 110kt in FY20 as one of the four furnaces at TEMCO remained offline.

Ore production guidance of 3,500kwmt in FY21 and 3,500kwmt in FY22 assumes we continue to operate the low cost PC02 circuit above nameplate capacity, supporting secondary product volumes.

Operating costs

FOB manganese ore Operating unit costs decreased by 3% in FY20 to US$1.55/dmtu as equipment productivity and the optimisation of volumes from our low cost PC02 circuit mitigated a further increase in strip ratio (FY20: 5.4, FY19: 4.5).

We expect FY21 Operating unit costs for manganese ore to decrease 5% to US$1.48/dmtu with an expected improvement in yield due to favourable ore characteristics and lower contractor and labour spend, partially offset by a stronger Australian dollar. Exchange rate and price assumptions for FY21 Operating unit cost guidance are detailed on page 26, footnote 24.

Manganese alloy Operating unit costs decreased by 4% to US$905/t in FY20 as the operation benefitted from lower raw material input costs. On 13 August 2020 we reached agreement to divest our shareholding in TEMCO.

Financial performance

Underlying EBIT decreased by 49% (or US$310M) in FY20 to US$328M as lower realised prices (-US$297M), lower alloy sales volumes (-US$40M) and one-off costs incurred to respond to temporary COVID-19 restrictions (-US$7M) were partially offset by lower energy, coke and freight costs (+US$22M).

Our average realised price for external sales of Australian ore was a 7% discount to the high grade 44% manganese lump ore index(31) in FY20 as we responded to market demand with an increased contribution of PC02 fines (FY20: 12%, FY19: 10%) and other secondary products.

Capital expenditure

Sustaining capital expenditure increased by US$2M in FY20 to US$67M as we continue to invest in additional tailings storage capacity and complete site infrastructure upgrades at GEMCO. Sustaining capital expenditure is expected to decrease to US$58M in FY21 as we complete upgrade work and the divestment of TEMCO during the year.

South Africa Manganese (Ore 44.4% share, Alloy 60% share)

Volumes

South Africa Manganese saleable ore production decreased by 14% (or 309kwmt) to 1,878kwmt in FY20 as we responded to weaker market conditions during H1 FY20, reducing our use of higher cost trucking and undertaking an extended maintenance shut at our underground Wessels mine. Both the open pit Mamatwan and underground Wessels mines were placed on temporary care and maintenance during the nationwide COVID-19 lockdown in the June 2020 quarter, before returning to full capacity when lockdown restrictions were lifted.

Manganese alloy saleable production decreased by 23% (or 16kt) to 53kt in FY20 as we made the decision to place the Metalloys smelter on care and maintenance.

Ore production guidance of 2,000kwmt in FY21 assumes market conditions remain attractive for the sale of lower quality fines product and the use of higher cost trucking. Ore production guidance for FY22 is not provided with volumes from the operation to be optimised subject to market demand.

Operating costs

FOB manganese ore Operating unit costs decreased by 16% in FY20 to US$2.25/dmtu as a weaker South African rand, lower price-linked royalties and the one-off benefit from settling a historical royalty claim more than offset lower sales volumes.

We expect FY21 Operating unit costs for manganese ore to remain unchanged at US$2.25/dmtu with higher volumes and a weaker South African rand expected to offset the prior period's one-off benefit and a planned increase in trucking volumes. Exchange rate and price assumptions for FY21 Operating unit cost guidance are detailed on page 26, footnote 24.

Manganese alloy Operating unit costs increased by 16% in FY20 to US$1,364/t in-line with the decline in sales volumes.

Financial performance

Underlying EBIT decreased by 71% (or US$134M) in FY20 to US$54M as lower average realised prices (-US$130M) and reduced sales volumes (-US$81M), were partially offset by a weaker South African rand (+US$20M), lower price-linked royalties (+US$16M), and reduced activity delivering lower spend on the opportunistic trucking of ore (+US$16M), contractors (+US$10M) and maintenance (+US$5M).

Our average realised price for external sales of South African ore was a 6% discount to the medium grade 37% manganese lump ore index (FOB Port Elizabeth, South Africa)(36) in FY20 as the contribution of our lower quality fines product increased (FY20: 13%, FY19: 6%) in response to market conditions throughout the year.

Capital expenditure

Sustaining capital expenditure decreased by US$7M in FY20 to US$23M and is expected to decline further to US$17M in FY21 with the Metalloys smelter placed on care and maintenance.

Cerro Matoso (99.9% share)

Volumes

Cerro Matoso payable nickel production decreased by 1% (or 0.5kt) to 40.6kt in FY20 as the operation achieved a higher rate of plant utilisation and throughput, partially offsetting planned lower ore feed grades.

FY21 production is expected to decline 17% to 33.5kt, before increasing by 15% to 38.6kt in FY22 as the operation undertakes a planned major furnace refurbishment in the December 2020 quarter. The refurbishment is expected to broaden the operating window of the furnace, resulting in higher ore to kiln volumes.

Operating costs

Operating unit costs decreased by 8% in FY20 to US$3.69/lb as a result of a weaker Colombian peso and the realisation of ongoing benefits from our energy procurement and utilisation approach.

We expect FY21 Operating unit costs to increase 8% to US$3.97/lb with the impact to volumes from the furnace refurbishment, partially offset by a weaker Colombian peso, lower price-linked royalties and the continued benefit of our energy optimisation strategy. Exchange rate and price assumptions for FY21 Operating unit cost guidance are detailed on page 26, footnote 24.

Financial performance

Underlying EBIT increased by US$67M in FY20 to US$107M with an 8% rise in the average realised nickel price (+US$38M), a weaker Colombian peso (+$27M) and lower electricity costs (+US$9M) partially offset by lower sales volumes (-US$8M).

Capital expenditure

Sustaining capital expenditure increased by US$7M in FY20 to US$39M as long lead items were purchased for the furnace refurbishment. A modest decrease to US$36M is expected in FY21 with the refurbishment scheduled for completion in the December 2020 quarter.

Cannington (100% share)

Volumes

Cannington payable zinc equivalent production(44) increased by 9% (or 19.8kt) to 238.0kt in FY20 as planned higher zinc grades more than offset lower silver and lead grades, and the operation drew down run of mine stocks to a normalised level following the Queensland flood event in FY19. The drawdown and further improvement in underground mine performance supported the realisation of efficiencies in mill throughput, resulting in a 14% lift in ore processed during FY20.

We have increased our payable zinc equivalent production(23) guidance for Cannington by 10% in FY21 (11.8Moz for silver, 113.9kt for lead and 60.7kt for zinc) as mill throughput continues to benefit from improved performance in the underground mine and higher planned grades. Production is then expected to decline by 9% in FY22 (10.5Moz for silver, 103.0kt for lead and 58.8kt for zinc) as grade varies in accordance with the mine plan.

Operating costs

Operating unit costs decreased by 8% to US$113/t in FY20 as the benefits of a weaker Australian dollar, increased mill throughput and savings from the insourcing of activity more than offset inventory movements.

We expect FY21 Operating unit costs to decrease by 2% to US$111/t as the insourcing of activity and continued benefit of lower renegotiated energy costs are partially offset by a stronger Australian dollar and lower mill throughput. Exchange rate and price assumptions for FY21 Operating unit cost guidance are detailed on page 26, footnote 24.

Financial performance

Underlying EBIT increased by 1% (or US$1M) in FY20 to US$105M as higher sales volumes (+US$45M), a weaker Australian dollar (+US$16M), lower freight expenditure (+US$5M) and a reduction in contractor costs (+US$5M) offset lower average realised prices (-US$36M) and inventory movements from higher sales and the drawdown of run of mine stocks (-US$43M).

Capital expenditure

Sustaining capital expenditure decreased by US$3M in FY20 to US$52M and is expected to decrease to US$39M in FY21 as we lower our rate of investment in underground development and additional tailings storage capacity.

Notes

(1) Net tangible assets as at 30 June 2020 includes right-of-use assets, in accordance with AASB 16 Leases, with a net book value of US$702M(30 June 2019: Net tangible assets includes assets held under finance leases, in accordance with the former AASB 117 Leases, with a net book value of US$612M).

(2) Revenue includes revenue from third party products and services.

(3) FY20 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for FY20 (4,892 million).FY20 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for FY20.FY19 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for FY19 (5,048 million).FY19 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for FY19.

(4) FY20 ordinary dividends per share is calculated as H1 FY20 ordinary dividend announced (US$54M) divided by the number of shares on issue at 31 December 2019 (4,900 million) plus H2 FY20 ordinary dividend announced (US$48M) divided by the number of shares on issue at 30 June 2020 (4,846 million).

(5) FY20 special dividends per share is calculated as H1 FY20 special dividend announced (US$54M) divided by the number of shares on issue at 31 December 2019 (4,900 million).

(6) Underlying EBIT is profit before net finance costs, tax and any earnings adjustment items, including impairments. Underlying EBIT is reported inclusive of South32's share of net finance costs and tax of equity accounted investments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation. Underlying earnings is Profit/(loss) 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 and other investments measured at fair value;

· Major corporate restructures; and

· Earnings adjustments included in profit/(loss) of equity accounted investments.

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.

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

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

(9) 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 cost, tax effected by the Group's Underlying effective tax rate (ETR) including our manganese equity accounted investments (EAI) on a proportional consolidated basis, divided by the sum of inventories and fixed assets (excluding any rehabilitation asset, the impairment of South Africa Energy Coal and our equity accounted manganese alloy smelters, and unproductive capital associated with Major projects). Our manganese EAI are included in the calculation on a proportional consolidation basis.

(10) To ensure that incident classification definitions are applied uniformly across our workforce, we have adopted the Occupational Safety and Health Administration of the United States Department of Labor (OSHA) guidelines for the recording and reporting of occupational injuries and illnesses.

(11) Total Recordable Injury Frequency (TRIF): The sum of (fatalities + lost-time cases + restricted work cases + medical treatment cases) x 1,000,000÷ actual hours worked, for employees and contractors. Stated in units of per million hours worked.

(12) Underlying ETR is Underlying income tax expense, excluding royalty related tax, divided by Underlying profit before tax; both the numerator and denominator exclude equity accounted investments.

(13) Refer to the market announcement "Agreement to Divest South Africa Energy Coal" dated 6 November 2019.

(14) Refer to the media release "Agreement to Divest Tasmanian Electro Metallurgical Company" dated 13 August 2020.

(15) Cost base excluding third party product cost.

(16) 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.

(17) Underlying net finance cost and Underlying income tax expense are actual FY20 results, not year-on-year variances.

(18) South32's ownership share of operations are presented as follows: Worsley Alumina (86% share), Hillside Aluminium (100%), Mozal Aluminium (47.1% share), Brazil Alumina (Alumina 36% share, Aluminium 40% share), South Africa Energy Coal (100%), Illawarra Metallurgical Coal (100%), Australia Manganese (60% share), South Africa Manganese (60% share), Cerro Matoso (99.9% share), Cannington (100%), Hermosa (100%) and Eagle Downs Metallurgical Coal (50% share).

(19) 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 33 and 38. 

(20) The primary corporate tax rates applicable to the Group for FY20 include: Australia 30%, South Africa 28%, Colombia 33%, Mozambique 0% and Brazil 34%. The Colombian corporate tax rate is 32% in CY20 and will decrease on an annual basis by a percent each year, stabilising at 30% from 1 January 2022. The Mozambique operations are subject to a royalty on revenues instead of income tax.

(21) FY20 net distributions from our manganese EAI comprise dividends and capital returns (US$349M) and a net drawdown in shareholder loans (-US$36M).

(22) Total capital expenditure comprises Capital expenditure, evaluation expenditure, the purchase of intangibles and capitalised exploration expenditure. Capital expenditure comprises Sustaining capital expenditure and Major projects capital expenditure. Sustaining capital expenditure comprises Stay-in-business (SIB), Minor discretionary and Deferred stripping (including underground development) capital expenditure.

(23) Payable zinc equivalent (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, FY21e and FY22e.

(24) 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$250/t; an average blended coal price of US$103/t for Illawarra Metallurgical Coal; a manganese ore price of US$4.83/dmtu for 44% manganese product; a nickel price of US$5.78/lb; a thermal coal price of US$56/t (API4) for South Africa Energy Coal; a silver price of US$18.20/troy oz; a lead price of US$1,788/t (gross of treatment and refining charges); a zinc price of US$2,102/t (gross of treatment and refining charges); an AUD:USD exchange rate of 0.69; a USD:ZAR exchange rate of 17.68; a USD:COP exchange rate of 3,665; and a reference price for caustic soda; all of which reflected forward markets as at June 2020 or our internal expectations.

(25) FY20 Third party products and services sold comprise US$42M for aluminium, US$14M for alumina, US$276M for coal, US$165M for freight services, US$86M for aluminium raw materials and nil for manganese. Underlying EBIT on third party products and services comprise US$2M for aluminium, (US$4M) for alumina, (US$15M) for coal, (US$2M) for freight services, US$2M for aluminium raw materials and nil for manganese. FY19 Third party products and services sold comprise US$57M for aluminium, US$2M for alumina, US$392M for coal, US$239M for freight services, US$116M for aluminium raw materials and US$9M for manganese. Underlying EBIT on third party products and services comprise nil for aluminium, US$2M for alumina, US$9M for coal, (US$5M) for freight services, (US$1M) for aluminium raw materials and nil for manganese.

(26) The quarterly sales volume weighted average of the Platts Alumina Index (FOB Australia) on the basis of a one month lag to published pricing (Month minus one or "M-1") was US$283/t in FY20.

(27) The information in this report that relates to Mineral Resource estimates for MRN was declared as part of South32's Annual Resource and Reserve declaration in the Annual Report 2019 (www.south32.net) issued on 5 September 2019 and prepared by M A H Monteiro 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.

(28) Presented on a 100% basis.

(29) South Africa Energy Coal Revenue includes domestic and export sales Revenue.

(30) Illawarra Metallurgical Coal Revenue includes metallurgical coal and energy coal sales Revenue.

(31) The quarterly sales volume weighted average of the Metal Bulletin 44% manganese lump ore index (CIF Tianjin, China) on the basis of a one month lag to published pricing (Month minus one or "M-1") was US$5.04/dmtu in FY20.

(32) Realised ore prices are calculated as external sales Revenue less freight and marketing costs, divided by external sales volume. Realised alloy prices are calculated as sales Revenue, including sinter Revenue, divided by alloy sales volume. Ore converted to sinter and alloy, and sold externally, is eliminated as an intracompany transaction.

(33) Manganese Australia FY20 average manganese content of external ore sales was 44.6% on a dry basis (FY19: 45.9%). 95% of FY20 external manganese ore sales (FY19: 95%) were completed on a CIF basis. FY20 realised FOB ore prices and Operating unit costs have been adjusted for freight and marketing costs of US$46M (FY19: US$47M), consistent with our FOB cost guidance.

(34) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume. Alloy operating unit cost is Revenue less Underlying EBITDA divided by alloy sales volumes and includes costs associated with sinter sold externally.

(35) Revenues associated with sales from GEMCO to TEMCO are eliminated as part of the consolidation.

(36) The quarterly sales volume weighted average of the Metal Bulletin 37% manganese lump ore index (FOB Port Elizabeth, South Africa) on the basis of a one month lag to published pricing (Month minus one or "M-1") was US$3.98/dmtu in FY20.

(37) 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 Revenue less freight and marketing costs, divided by external sales volume. Realised alloy prices are calculated as sales Revenue, divided by alloy sales volumes. Ore converted to sinter and alloy, and sold externally, is eliminated as an intracompany transaction. Manganese ore sales are grossed-up to reflect a 60% accounting effective interest.

(38) Manganese South Africa FY20 average manganese content of external ore sales was 40.1% on a dry basis (FY19: 40.5%). 72% of FY20 external manganese ore sales (FY19: 74%) were completed on a CIF basis. FY20 realised FOB ore prices and Operating unit costs have been adjusted for freight and marketing costs of US$33M (FY19: US$40M), consistent with our FOB cost guidance.

(39) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume. Alloy operating unit cost is Revenue less Underlying EBITDA divided by alloy sales volumes.

(40) Revenues associated with sales from Hotazel Manganese Mines (HMM) to Metalloys are eliminated as part of the consolidation.

(41) Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales have been reported at 60%. South32 has a 44.4% ownership interest in HMM. 26% of HMM is owned by a B-BBEE consortium comprising Ntsimbintle Mining (9%), NCAB Resources (7%), Iziko Mining (5%) and HMM Education Trust (5%). The interest owned by NCAB Resources, Iziko Mining and HMM Education Trust 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, South32's interest in HMM is accounted at 54.6%.

(42) Cerro Matoso realised nickel sales price is inclusive of by-products. Realised sales price is calculated as sales Revenue divided by sales volume.

(43) Cerro Matoso Operating unit cost per tonne is Revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may impact operating unit costs as related marketing costs may change.

(44) Payable zinc equivalent (kt) was calculated by aggregating Revenue from payable silver, lead and zinc, and dividing the total Revenue by the price of zinc. FY19 realised prices for zinc (US$2,122/t), lead (US$1,754/t) and silver (US$14.4/oz) have been used for FY19 and FY20.

(45) Cannington Operating unit cost is Revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may impact operating unit costs as related marketing costs may change.

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); financial year (FY20); calendar year (CY); 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); 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 year ended 30 June 2020

BASIS OF PREPARATION

The financial information included in this document for the year ended 30 June 2020 is unaudited. The financial information does not constitute the South32 Group's (the Group) full financial statements for the year ended 30 June 2020, which will be approved by the Board, reported on by the auditors, and filed with the Australian Securities and Investments Commission. The Group's full financial statements will be prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board.

The financial information set out on pages 29 to 40 for the year ended 30 June 2020 has been prepared on the basis of accounting policies and methods of computation consistent with those applied in the 30 June 2019 financial statements contained within the Annual Report of the Group, except for the adoption of AASB 16 Leases which became effective from 1 July 2019 without restatement of prior years. The impact of adopting AASB 16 has been disclosed in the Group's 31 December 2019 half year financial statements, with transitional adjustments of US$135 million and US$140 million recognised as additional right-of-use assets and lease liabilities respectively on the Consolidated Balance Sheet.

As required, and unless otherwise stated, comparative financial information for the Group has been presented.

All amounts are expressed in US dollars unless otherwise stated. The Group's presentation currency (and the functional currency of the majority of its operations) is US dollars as this is the principal currency of the economic environment in which it operates.

Amounts in this financial information have, unless otherwise indicated, been rounded to the nearest million dollars (US$M or US$ million).

CONSOLIDATED INCOME STATEMENT

for the year ended 30 June 2020

The accompanying notes form part of this financial information.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 June 2020

The accompanying notes form part of this financial information.

CONSOLIDATED BALANCE SHEET

as at 30 June 2020

The accompanying notes form part of this financial information.

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 30 June 2020