SOUTH32: Resilience in unprecedented times
Despite the challenges presented by COVID-19, South32 ended FY20 with a strong balance sheet, improved performance at several operations, and solid progress on reshaping its business for the future. In FY20, South32 achieved production at 98 per cent of budget despite some of its operations temporarily being placed on full or partial care and maintenance in response to COVID-19 and restrictions in several jurisdictions where the group operates.
South32 produces metals and ores, prices of which are driven by global demand and supply for each of these commodities. Commodity prices were generally lower in FY20 compared to FY19 as most physical markets weakened on the back of heightened macroeconomic uncertainty and the COVID-19 pandemic. The prices that the Group obtains for its products are a key driver of business performance, and fluctuations in these markets affects its results, including cash flows and shareholder returns.
In the face of volatile prices, South32’s strong operating performance delivered underlying earnings before interest, tax, depreciation and amortisation of US$1.2 billion and free cash flow of US$583 million.
South32 is a globally diversified mining and metals company. The company produces bauxite, alumina, aluminium, energy and metallurgical coal, manganese, nickel, silver, lead and zinc at its operations in Australia, Southern Africa and South America. With a focus on growing its base metals exposure, South32 also has two development options in North America and several partnerships with junior explorers around the world.
The Group’s statutory profit declined to a loss of US$65 million in FY20 following the recognition of impairment and restructuring charges totalling US$115 million (US$94 million after tax) in relation to company’s equity accounted manganese alloy smelters.
The company ended the financial year with a net cash balance of US$298 million, having returned US$424 million to its shareholders in respect of the period. This included US$323 million returned to shareholders as part of our ongoing capital management program, with US$269 million allocated to South32 on-market share buy-back program and US$53.5 million returned in the form of a special dividend.
“When I look back at all we have achieved over the last five years, it’s clear that South32 has evolved into a successful, stand-alone company that delivers on its purpose and strategy. Together we’ve experienced highlights and challenges, built strong relationships and made a real difference. That would not have been possible without the collective efforts of our people and I would like to thank everyone for their contribution,” said Graham Kerr, Chief Executive Officer.
RESHAPING PORTFOLIO
In FY20, South32 made good progress reshaping its portfolio. In November 2019 the group signed a binding conditional agreement for the sale of South Africa Energy Coal to Seriti Resources and, subject to a number of material conditions being satisfied, the transaction remains on-track for completion in the December 2020 half year.
Following an extensive review, the company have placed our Metalloys manganese alloy smelter on care and maintenance which preserves the option to pursue divestment of the business as a going concern.
South32 progressed the review of Tasmanian Electro Metallurgical Company manganese alloys smelter and, in August 2020, the group entered into a binding conditional agreement for the sale of the smelter to an entity within GFG Alliance.
South32’s strategy of building a pipeline of development options by partnering in early stage greenfield exploration projects saw South32 acquire a 50 per cent interest in the Ambler Metals Joint Venture, after it exercised its option with Trilogy Metals.
The Upper Kobuk Mineral Projects in Alaska comprises the high-grade polymetallic Arctic Deposit, the Bornite Deposit and an attractive regional exploration holding. South32 agreed several new greenfield exploration partnerships during FY20, further building its pipeline of base metals opportunities.
At the Hermosa project, South32 progressed the pre-feasibility study for the Taylor Deposit and published our initial Mineral Resource estimate for the Clark Deposit. The group now expect to complete the pre-feasibility study in the December 2020 quarter after COVID-19 restrictions in Arizona had an impact on timelines.
A feasibility study for the Eagle Downs project is progressing, with a final investment decision expected by the end of the calendar year.
South32 progressed decarbonisation studies at Illawarra Metallurgical Coal and Worsley Alumina – the sites where we are targeting substantial reductions in its Scope 1 emissions. At the Hermosa project, the company completed the remediation of two million tonnes of tailings from a legacy mine to reduce the risk of run-off contaminating local waterways.
