South32 Regulatory News (S32)

South32 Limited

QUARTERLY REPORT SEPTEMBER 2017

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

Graham Kerr, South32 CEO said:

"Our key commodity markets continue to benefit from strong demand and a steepening of industry cost curves. This supportive dynamic has further bolstered our net cash position despite the continuation of our capital management program and the prepayment that will increase our interest in Arizona Mining.

"Annual production guidance is maintained for our operations following generally strong performance across our supply chain. Mozal aluminium achieved another production record, payable nickel production rose sharply at Cerro Matoso and we continued to optimise our manganese operations to benefit from elevated prices.

"We have also commenced a measured ramp-up of longwall mining activity at the Appin mine that will allow us to reset the operation's culture, re-establish minimum performance criteria and drive productivity towards a more acceptable level."

· Stronger commodity markets delivered a US$33M increase in our net cash position to US$1.7B despite an increase in working capital, the continuation of our capital management program and the prepayment that will increase our stake in Arizona Mining.

· Maintained annual production guidance for our operations and confirmed that we will operate one longwall at the Illawarra Metallurgical Coal Appin mine across the remainder of FY18.

· Achieved record quarterly production at Mozal Aluminium and robust performance at our alumina refineries despite bauxite supply being impacted by adverse weather in Western Australia and Brazil.

· Increased payable nickel production at Cerro Matoso by 21% as scheduled maintenance was deferred and the average ore grade benefitted from the ramp-up of La Esmeralda.

· Continued to take advantage of strong market conditions by maintaining South Africa Manganese ore sales at an annualised rate of 3.5Mwmt pa (100% basis).

· Successfully replaced shaft haulage with additional trucking capacity following the decommissioning of the underground crusher at Cannington, with processing rates to increase as run-of-mine stocks are rebuilt and the new crusher chamber is commissioned in the March 2018 quarter.

CORPORATE UPDATE

WORSLEY ALUMINA

(86% share)

Worsley Alumina saleable production decreased by 5% (or 46kt) to 942kt in the September 2017 quarter as calciner maintenance was undertaken and heavy rainfall temporarily affected bauxite supply from the Boddington mine. Alumina sales were 3% higher than production following the deferral of shipments in the prior period. FY18 production guidance remains unchanged at 4.0Mt with additional calciner outages scheduled for the December 2017 and March 2018 quarters.

SOUTH AFRICA ALUMINIUM

(100%)

South Africa Aluminium saleable production was unchanged at 180kt in the September 2017 quarter as the smelter continued to achieve benchmark levels of current efficiency and pot line amperage. The decrease in quarterly sales reflects the scheduling of shipments between periods. Our FY18 production guidance remains unchanged at 720kt.

MOZAL ALUMINIUm

(47.1% share)

Mozal Aluminium achieved record performance in the September 2017 quarter, increasing production by 1% (or 1kt) to 69kt as the smelter continued to optimise performance and test its maximum technical capability. Our FY18 production guidance remains unchanged at 269kt.

The US$38M (100% share) AP3XLE energy efficiency project was approved during the September 2017 quarter. This project is expected to deliver a circa 5% (or 10ktpa) increase in annual production with no associated increase in power consumption. First production is anticipated in FY20, with the full benefit to be realised in FY24. 

Brazil Alumina

(36% share)

Brazil Alumina saleable production increased by 2% (or 5kt) in the September 2017 quarter as the refinery continued to operate at its capacity. While severe drought conditions in the Porto Trombetas region of Brazil have impacted bauxite supply from the MRN mine (14.8% South32 share), we have successfully mitigated the impact across the remainder of the calendar year and our FY18 production guidance for the Alumar refinery remains unchanged at 1.3Mt.

South Africa Energy Coal

(100%)

South Africa Energy Coal saleable production decreased by 10% (or 724kt) to 6,689kt in the September 2017 quarter as we completed planned dragline maintenance, relocated critical mobile equipment at the Wolvekrans-Middelburg Complex (WMC) and continued to deplete existing pits. Following prior weather related delays, the development of new mining areas at the WMC is proceeding according to plan and our FY18 production guidance remains unchanged at 27.5Mt. Export sales were sequentially lower as congestion at the Richards Bay Coal Terminal was not fully cleared in the September 2017 quarter. Final approval of the Klipspruit Life Extension project is expected in the December 2017 quarter.

illawarra metallurgical coal

(100%)

Total saleable production for Illawarra Metallurgical Coal decreased by 53% (or 927kt) as the Appin mine remained suspended during the September 2017 quarter. While the Dendrobium mine continued to perform well during the period, production was impacted by geological conditions, consistent with the mine plan. The Dendrobium longwall is expected to pass through a fault zone in the December 2017 quarter and a longwall move is scheduled to commence at Dendrobium in the March 2018 quarter.

Production recommenced at Longwall 707 on 13 October following the completion of the necessary remedial action at the Appin mine. We will operate a single longwall at the Appin mine across the remainder of FY18 as part of a staged ramp-up of activities, before returning to a two longwall configuration in the December 2018 quarter. Longwall 707 is expected to be completed in the June 2018 quarter, at which point we will commence production at Longwall 902. FY18 production guidance for Illawarra Metallurgical Coal will be provided in due course and will be informed by the performance of Longwall 707 and other ramp-up activities at the Appin mine.

australia manganese

(60% share)

Australia Manganese saleable ore production increased by 4% (or 32kwmt) to 808kwmt in the September 2017 quarter as performance improved in the primary higher grade circuit and the contribution of the PC02 circuit reduced to 7% of total ore production. Our FY18 production guidance remains unchanged at 3,125kwmt with preparation underway for the upcoming wet season.

Saleable manganese alloy production decreased by 5% (or 2kt) to 39kt in the September 2017 quarter.

SOUTH AFRICA manganese

(60% share)

South Africa Manganese saleable ore production decreased by 8% (or 42kwmt) to 496kwmt in the September 2017 quarter, while sales were maintained at an annualised rate of 3.5Mwmt pa as strong market demand enabled us to sell Wessels concentrate and utilise higher cost trucking during the period. FY18 production guidance remains unchanged at 1,885kwmt.

Manganese alloy saleable production was unchanged in the September 2017 quarter. Metalloys continues to operate one of its four furnaces.

cerro matoso

(99.9% share)

Cerro Matoso payable nickel production increased by 21% (or 2kt) in the September 2017 quarter as scheduled maintenance was deferred into the December quarter and the average ore grade benefitted from the ramp-up of La Esmerelda. Our FY18 production guidance remains unchanged at 41.6kt.

cannington

(100%)

Cannington silver, lead and zinc payable production decreased by 17%, 4% and 17%, respectively in the September 2017 quarter as we successfully replaced shaft haulage with additional trucking capacity following the decommissioning of the underground crusher on 11 September 2017. Our FY18 production guidance (silver 14,360koz, lead 115kt and zinc 45kt) remains unchanged with processing rates scheduled to increase towards the end of the year as run-of-mine stocks are rebuilt and the new crusher chamber is commissioned in the March 2018 quarter.

Notes:

1. FY18e Operating unit cost guidance provided in our FY17 Results Announcement includes royalties (where appropriate) and the influence of exchange rates, and was predicated on various assumptions for FY18, including: an alumina price of US$299/t; a manganese ore price of US$4.50/dmtu for 44% manganese product; a nickel price of US$4.27/lb; a thermal coal price of US$72/t (API4) for South Africa Energy Coal; a silver price of US$16.82/troy oz; a lead price of US$2,135/t; a zinc price of US$2,555/t; an AUD:USD exchange rate of 0.74; a USD:ZAR exchange rate of14.17 and a USD:COP exchange rate of 2,961; all of which reflected forward markets as at May 2017 or our internal expectations.

2. In May 2017, South32 acquired 45 million Common Shares, or approximately 15 per cent of Arizona Mining as part of a private placement and investor rights agreement. The investor rights agreement allows South32 to acquire up to, but no more than 19.9 per cent of Arizona Mining within an 18-month standstill period without the consent of Arizona Mining's board of directors. Under the terms of the September 2017 forward contract, a third-party financial institution will seek to purchase the additional shares in the market over a maximum period of 12 months. Trading activity will occur at the financial institution's sole discretion, subject to certain agreed trading parameters. South32 settled the contract in full before the program commenced. The final cost will be determined on completion of the program and will be based on the daily volume weighted average price of the shares over the period.

3. Net distributions from equity accounted investments includes net debt movements and dividends.

4. 8% of South Africa Energy Coal is owned by a Broad-Based Black Economic Empowerment (B-BBEE) consortium. The interests owned by theB-BBEE consortium were acquired using vendor finance, with the loans repayable to South32 via distributions attributable to these parties, pro rata to their share in South Africa Energy Coal. Until these loans are repaid, South32's interest in South Africa Energy Coal is accounted at 100%.

5. 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 statement will continue to reflect a 54.6% interest in South Africa Manganese ore.

6. The following abbreviations have been used throughout this report: grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); 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).

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.

Further information

19 October 2017JSE Sponsor: UBS South Africa (Pty) Ltd