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South32 swings to a loss

Image shows South32 CEO Graham Kerr

South32 CEO Graham Kerr

24th August 2023

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Diversified miner South32 has reported a 20% drop in revenue for the full year ended June, with the company swinging to a loss of $173-million following a non-cash impairment of $1.3-billion in relation to the Taylor deposit at the Hermosa project.

South32 previously flagged the non-cash impairment expense related to the Taylor zinc/silver/lead deposit, after study work confirmed that the Taylor deposit and the Clark battery-grade manganese deposits could be developed independently, offering the potential for multiple long-life operations in critical minerals.

For accounting purposes, the company was required to separately assess each deposit and regional exploration land packages, which has resulted in the group’s financial statements for 2023 having to include a non-cash impairment of $1.3-billion in relation to the Taylor deposit.

Revenue for the full year declined from $9.2-billion to $7.4-billion, while profits after tax decreased from the $2.6-billion in the 2022 financial year, to a loss of $173-million.

Underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) also declined by 47%, from $4.7-billion to $2.5-billion. South32 told shareholders that despite the lower commodity prices and the uncontrollable cost impacts, the reported Ebitda represented one of the largest results in the company’s history.

“Our investments in Sierra Gorda and increased ownership in Mozal Aluminium contributed Underlying Ebitda of $240-million at an operating margin of 38%. Free cash flow from operations, including equity accounted investment (EAI) distributions, was $244-million, impacted by a build in inventories and one-off cash tax payments in relation to our Sierra Gorda acquisition and non-core royalty sale,” the company said in its results announcement.

During the year under review, South32 increased its supply of commodities critical for a low-carbon future, recording a 14% production growth in aluminium, a 17% growth in base metals and a 4% growth in manganese, realising the benefit of recent portfolio improvements and yearly production records at Hillside Aluminium, Australia Manganese and South Africa Manganese.

“During the year, we delivered strong production growth in commodities that are critical for a low-carbon future. We set three annual production records and realised the benefit of our recent portfolio improvements, increasing aluminium production by 14%, base metals by 17% and manganese by 4%,” said South32 CEO Graham Kerr.

“This growth, coupled with our continued focus on cost efficiencies, underpinned one of our largest underlying financial results, with Underlying Ebitda of $2.5-billion. This was achieved despite lower commodity prices and industry-wide inflationary pressures.

“A record $1.2-billion was returned to shareholders during the 2023 financial year and the board has today resolved to pay a fully-franked ordinary dividend of 3.2c per share, or $145-million, in respect of the June 2023 half-year,” said Kerr.

“Reflecting our disciplined approach to capital management, the board has also resolved to further expand our capital management programme by $50-million to $2.4-billion, leaving $133-million to be returned by March 1, 2024.”

Meanwhile, South32’s capital expenditure (capex) in the 2023 financial year increased by $335-million to $894-million, as the company increased its investment in productivity improvements and growth activities across its portfolio.

Kerr told shareholders that South32 had invested to grow its future production of critical commodities and achieved significant milestones at the Hermosa project in Arizona, the first mining project added to the FAST-41 process.

“We are on track to make a final investment decision to develop Hermosa’s Taylor base metals deposit in FY24, and continue to progress the opportunity at Hermosa’s Clark deposit to supply battery-grade manganese for rapidly forming North American markets.

“Sierra Gorda continued work on its capital efficient plant de-bottlenecking project and advanced studies for the fourth grinding line expansion, designed to deliver a significant uplift in future copper production. We added further greenfield exploration options as we worked to discover our next generation of base metals mines, consolidating our position in San Juan, Argentina.

“We continue to execute our strategy and our portfolio is leveraged to the increasing commodity demand required for the global energy transition.”

The company’s portfolio improvement is expected to underpin production growth in aluminium and copper in the 2024 financial year, which is expected to be 4% higher, and 3% higher by 2025.

For the 2024 financial year, South32 is targeting capex of $860-million, with growth capex at Hermosa expected to be around $170-million in the first half of the year.

Meanwhile, South32 on Thursday also announced the first mineral resource estimate (MRE) for Sierra Gorda, in which it holds a 45% interest.

The company has announced a sulphide MRE of 1.89-billion tonnes, averaging 0.36% copper, 0.016% total molybdenum and 0.06 g/t gold, for 6.81-million tonnes of copper, 296 000 t of molybdenum and 3.58-million ounces of gold.

“We are investing to unlock this value and grow future copper production, executing the capital efficient plant de-bottlenecking project and progressing study work for the fourth grinding line expansion. The fourth grinding line has the potential to increase copper output by 15% to 20%, with a final investment decision for this expansion planned in the second half of the 2024 financial year,” the miner said.

South32 is also studying options to realise value from oxide material that is stockpiled at surface.

Edited by Creamer Media Reporter

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