South32 Limited (S32) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the South32 Half Year Financial Results Outlook H1 FY '22 Investor and Analyst Call for the United Kingdom and South Africa. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Graham Kerr, CEO. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us today for our financial results conference call for the half year ended 31st December 2021. I'm joined today with our Chief Financial Officer, Katie Tovich; our Chief Operating Officers, Jason Economidis and Noel Pillay. I will give a summary of our results before handing back to the operator for questions. The most important commitment we make at South32 is that everyone goes home safe and well. And during the half, we didn't achieve that. In November, we tragically lost 1 of our colleagues, Mr. Desmin Mienies, a contractor with Elektra Mining who was fatally injured while working at our Wessels mine at South African Manganese. My deeper sympathies are with Mr. Mienies' family, friends and colleagues, and we have provided them with our support. We undertook a detailed investigation to understand what happened, and we are sharing these learnings across our business. During the period, we initiated a safety system of work, a multiyear program to design and achieve a step change in our safety performance. We will never be truly successful until we eliminate fatalities and significant incidents. Our teams around the world have worked incredibly hard to deliver a strong set of production results during the half, and we've achieved some significant milestones with the reshaping of our portfolio for a low-carbon future. During the period, we achieved a record operating margin of 44% and a significant increase in our underlying earnings to USD 1 billion, benefiting from a broad recovery in commodity prices and the divestment of lower-returning businesses. We maintained our focus on operating performance, holding the increase in controllable costs to less than 3% of our total cost base despite significant inflationary headwinds. We delivered record quarterly production at Brazil Alumina and South Africa Manganese, while at Worsley Alumina, we continue to operate above nameplate capacity. At Cannington, we have revised production guidance 5% higher as we prepare to transition to 100% truck haulage in the June 2022 quarter, bringing higher-grade material forward in the mine plan. We also achieved a 26% increase in payable nickel at Cerro Matoso, following the completion of the furnace refurbishment and the first ore from our higher-grade Q&P project. Production guidance has been revised lower for Illawarra Metallurgical Coal and Australian Manganese, reflecting lower first half volumes and the impact of COVID-19 on those operations. During the half, we generated a substantial improvement in free cash flow and distributions for our manganese business to USD 942 million, despite the temporary build in working capital caused by logistics congestion. We also delivered a very strong return on invested capital of 25%, and we finished December with net cash of USD 975 million, which increased to USD 1.1 billion by the end of January. Our strong financial performance has translated to increased returns to shareholders, with a record dividend USD 0.087 per share and a further USD 110 million added to our capital management program, with USD 302 million now to be returned. We have made significant progress reshaping our portfolio with the divestments of South Africa Energy Coal, TEMCO and Metalloys, which is expected to sustainably lift the group's operating margin into the future. We're adding copper to our portfolio by acquiring a 45% stake in Sierra Gorda in Chile, and we completed a pre-feasibility study for the Taylor Deposit at Hermosa in Arizona, demonstrating potential for a sustainable, low-cost operation. We're also increasing our exposure to green aluminum, increasing our shareholding in Mozal Aluminium and participating in the restart of the Brazil Aluminium smelter using renewable energy. We are well placed to continue our strong performance, remaining focused on delivering safe, stable production and realizing value from the improvements we have made to our portfolio. Thank you. And I will now hand back to the operator for questions.

[Operator Instructions] Your first question comes from Sylvain Brunet with BNP Paribas Exane.

Well done on the numbers. Two questions for me at this stage. On coking coal, given the extreme tightness of the market, I was keen to get a bit of a sense of how much you're able to capture in the spot market compared to the contract exposure and your sense of how long this tightness can prevail. And were you seeing any sort of revival of new supply or logistics that can impact [indiscernible] at the moment, for instance? My second question is on Sierra Gorda. If you could help us with a little bit of guidance on costs and volume, please, over there on the pace of the year, the increased production going into the next year in particular. But some color on cost for this year would be helpful.

Thanks, Sylvain. Nice to hear from you. Look, when we talk about metallurgical coal, I'll maybe start with the markets. Obviously, met coal has had a really strong run in terms of pricing. We would actually see, if you like, in the shortest term. So when I say shortest term, you're probably looking at something around the month end plus 3 that we would expect the price to maintain above $300 a tonne. And that will be supported by ex-China restocking demand, and obviously tight supply at the moment. We did see, obviously, a sharp increase month by month, even in January, a 24% increase. And that's been mainly driven by tight supply from Australia with COVID-related constraints and weather-reduced eruptions basically led shipment to decline about 2% for a like for the month-by-month and 8% year-on-year. So that certainly had an impact. Look, I think what we would say, if you think about 12 months down the track, so probably about end plus 12, we'd probably look at -- see the price to moderate and probably back towards that more $200 a tonne would be our view on where that's actually going. Look, to your question on how do we sell. We pretty much sell all -- we sell all the products on an index, M or M-1. So that's what all our sales are about. Sierra Gorda, to give you some background. Obviously, as part of the completion process or the conditions precedent, we spoke about the steps that we had to take with the major ones being competition clearances. We have all those competition clearances now. We're going through more of the procedural aspects of completing the transaction. We would expect that to be, as we said in February, so not too far away at all. In that, we would actually give some updated guidance about where we see it actually going. Otherwise, the best guide at the moment would still be the guidance we provided as part of the acquisition case, which I can get Tom or Alex to follow with you back on that if you want to see that. When we actually close a deal, and we're actually starting to participate in some of the operating committees, then we'll come back with a bit more tighter view on cost production guidance. So it's not far away, if you could just a little bit more patient. But otherwise, at the moment, I think the acquisition case have the best if you like numbers we have available.

Your next question comes from Myles Allsop with UBS.

Could you answer a few questions. First on working capital, what drove the build and how quickly will it unwind in the second half?

Yes. I mean working capital, I'll get Katie to talk to that and also how we're seeing it going forward.

Yes, sure. Look, we did see that $333 million increase in working cap during the period. Almost half of that was sitting in inventory, and the vast portion of that related to some logistics challenges we had in our aluminum value chain predominantly out of South Africa. Clearly, high prices are beneficial. So working cap lifting to absorb the higher prices on receivables while we see our debtor days stay constant. It's not a bad thing for us. Certainly, we're not seeing any blowout in sort of the underlying drivers there in terms of receiving or collecting cash. But the inventory build, we are -- the marketing team has been working very hard to look at alternative logistics options out of South Africa and putting those in place at the moment. We did see a slight incremental increase in working cap in January, but we do expect to see the inventory component of that unwind as we head towards the end of June. And then thirdly, price and FX is really the key variable in terms of provisions and receivables.

The bottom line, if you look at [indiscernible] you can have a look at port congestion in Richards Bay for the last couple of months is just essentially being jammed with vessels sitting there. So it's the combination of COVID impacts, COVID delays but also some challenges around transit that all contributed to a massive port congestion.

And probably just the last thing to add on that. So, as we restart the aluminum smelter in Brazil, we would expect to see working capital come in to the system related to that. So that will have a slightly mitigating impact on any unwinds on the inventory side.

Okay. So should we assume that as port congestion in Richards Bay eases, then all this working capital will normalize? There's no structural increase that we should expect from South Africa and aluminum [indiscernible]

Yes, that's right. Look, I mean, our operating window, at the moment, we're sitting outside that typical operating window. So we are looking to bring that back in line by the end of June.

So I think the key there is that Katie alluded to, we're looking at alternate ways to actually until that congestion alleviates because it's not just us, everyone's feeling it, the coal players, all people will go through that board. So until that alleviates, we are looking at some alternate ways of actually moving the product out there, little bit on road, different type of vessels. So the team have been quite imaginative in that space, and we should see some of the benefits coming through. But it certainly is a challenge at the moment, the entire port.

Okay. The next question is just on Hillside and the decarbonization. Has there been any sort of meaningful progress at this point? Or is it still kind of at the discussion stage?

Yes. And the way I think about it, I mean, now I can talk to the team. I mean, what we can be very clear is, from our perspective, there's a technical solution to this, probably on multiple fronts. Simple one about a combination of wind, a combination of solar. There's also potentially already existing new fleet capacity they have in space -- in place, how you actually potentially utilize some of that. I think the probably biggest positive news since last time we did our results is the announcement by the EU, the U.K., the U.S., France and Germany to invest significant billions of dollars, if you like, into actually greening the network in South Africa. And what we're going to continue to work on is basically the policy changes. There's still some tension at the political level and in the INC around the role the coal plays versus what the role renewables is going to play. And Noel and the team are working very clearly on how we continue to articulate that because the other thing that government needs to understand is roughly 30% to 40% of the product we produce goes downstream into South Africa to companies like [indiscernible] who then make parts that go into autos that go into Europe. So to keep that sort of more skilled, more value-adding jobs alive, they're going to have to find a way to actually green. I don't know, Noel, if you want to add anything to that at all?

Yes. Thanks, Graham. I think just to add that we've now mobilized the high-powered team to work on this project. And to your point, I think in the first instance, just to rally the stakeholders together to influence policy. And that work -- I think the technical work that you alluded to has started already. And so we've -- the project is now in a pre-feasibility stage. So we've done a concept study, and we've seen a menu of options. But like Graham said, it's technically complex, but that's just part of the issue working with the stakeholders to influence policies really where the work is. Thanks, Graham.

And to manage expectations there, we talked about that 50% reduction in Scope 1 and Scope 2 targets by 2035. The current power contract goes for 10 years plus an option to extend a couple of years. There's a lot of stuff we need to work through there where the government is going to take a bit of time to move -- a bit of time to build the capability. One thing we should add is the CEO of Eskom, André de Ruyter, has been hugely supportive of this. And he is also very focused on how he greens, if you like, his network. So I think there's a lot of things pointing in the right direction, but it will take time to get that in place. But we've got time with that target. We've also got time with the current power agreement. But we all thought to develop a plan B, that if we can't get there, what does the just transition look like and how the people of South Africa manage that because Hillside is a massive employer that brings a lot of economic benefit to an area that probably is struggling for that.

Yes. Maybe just a last question and I'll hand it over. Just thinking about CapEx. Where do we think CapEx will kind of sit over the next 5 years? Obviously, you've given guidance for this year, next year, but how do you think that's going to trend now that Hermosa is in the mix and there's some real spend coming through to give us a sense as to the profile, I think?

So the way I think about it, and Katie can give you a couple of comments. To me, it's all about competition. And there's no absolute certainty. So I mean, we gave some very clear guidance on safe and reliable capital that's been in place for a while. But in terms of the growth capital, whether it's DND project, whether it's Hermosa into execution, whether it's Clark, whether it's going to be Ambler Metals, whether it's going to be the injection of more money into South Africa to sort of get more of our manganese off the road into the rail, that is all going to compete on a returns basis, including the option of returning cash back to our shareholders. So I think that piece of particularly safe and reliable is pretty straightforward for us because we do have to make sure our people are safe and well and our equipment is maintained. The improvement capital, the growth capital that all basically competes on a continuous basis. I don't know, Katie, if you want to add anything to that?

Yes. Probably just to add to that, we have talked about decarbonization capital. And again, most of the CapEx that we're looking at or projects we're looking at in that space are value accretive and compete on economic grounds. We're starting to see more study work in that space and progressively we'll complete pre-feas and so on and provide guidance as we move forward. But not a huge lick of capital in that space in the forward plan based on our current study work. Probably worth calling out, we did have a slide in the pack, Slide 35, which does address Illawarra and CapEx associated with Illawarra. So we did call out FY '23 guidance of $300 million to $360 million. And that's really higher rates of underground development and upgrades to coal clearance and ventilation in order to support our transition to a single longwall at Appin. And that really is what we've talked multiple times about in terms of ensuring Appin can be a stand-alone business. And that will deliver cost and operational efficiencies to that business. That window of CapEx, we do expect to be elevated through '23, '24, '25 related specifically to Illawarra and then return to more normalized levels. And then probably the gross CapEx, we did call out for '22 in the second half, for the first time, an uptick in guidance on Hermosa. And that's -- a large portion of that relates to precommitment spend on dewatering in the first half -- sorry, in the second half. And we'll continue as we move through the study work there to provide updated guidance once we get feasibility decision on final investment, sorry.

I think that's the key. I mean, obviously, you keep the optionality alive, you invest to create those options. But any final execution decision, whether it's on DND, whether it's on Taylor, whether it's on rail expansion in manganese, it's always going to compete on a returns basis with the options we have in the portfolio.

And just on the rail expansion in manganese. Is that a meaningful SP4 Kind of a potential investment? Or is that relatively modest?

[indiscernible] thinking in the scheme of things, it's probably relatively modest. I mean, there's probably 2 components. What do you do around rail loop access to allow to have longer trains in how you actually fill the trains. And then there's other options around you to go to the next step to actually upgrade your infrastructure there. The team is doing some work around what the best option is to go forward on that side, but it's certainly not material capital in the scheme of things.

Less than $50 million? That's right.

Yes. I mean, certainly, the rail loop would be well less of $50 million. If you decide to put 2 rapid load-out facilities in, well then, you're probably talking around that magnitude. But we're a fair bit of making that decision.

Your next question comes from Brian Morgan with Morgan Stanley.

Can we just go to GEMCO, if you don't mind. You're talking about doing a feasibility there on the eastern leases sometime during the course of this year, which is great. Could you just chat to us a little bit more about that? And then also, you have been doing some work on the southern leases at the same time, but it looks as though you're a little bit ahead on the eastern leases. Can you give us an indication on how the 2 areas compare? Have you drilled any holes or just done [indiscernible]? Or what have you done so far?

In particular, the way you describe that is right in a nutshell. The eastern leases is well and truly ahead, if you like, of the southern leases. It's adjacent to the current mining area. It's a relatively simple move into that area. Now in saying that like and move to all new areas, you've got to do the work around understanding the resource, you've got to plan out how it's actually going to work in terms of the mine plan, stripping ratio, grades and how you're going to mix it with the rest of the products. That's all the things that are going on, if you like, as we do the work around this. In terms of that study, it is far more advanced than the southern leases. The southern leases have been more of an exploration, if you like, kind of project. And we'll come back to a bit more update on the eastern leases, but the southern leases, there are certainly a number of drill holes that have got in there to have an understanding of what we have. I think what we've always said about the southern leases, it's an extension to the southern piece of the island. It certainly is, if you like -- it's areas that haven't really been touched before. So until we get in there and to do that drilling, we weren't quite sure exactly what we had in that space. I think the overlay, if you like, that we talk about in the southern leases, it's an ongoing discussion with the traditional owners because it tends to be more around waterways and also what they call white sand. And that tends to have more cultural significance, if you like, to the traditional owners. So working our way through that with them is really important to sort of get our mind around. To sort of give you a sense of some of the numbers when we think about the southern leases, so it's not like we haven't actually touched it, it is basically -- we commenced the pre-feasibility study for the southern areas in July 2021. We've done quite an extensive program now over a couple of years, and that's evolved a number of different drilling approaches. We've got some more work to be actually done. We're probably about -- we're through that program and probably expect to complete it somewhere in 2022 calendar year. It has been impacted by some of the weather issues. It has also had some impact, if you like, again, as we try and negotiate with the traditional owners about what we can and can't do. But it has a range of outcomes. Historically, we've talked about, is it 2 years or is it 20 years? We just don't know until we go in there and actually do some of the drilling work. I guess now we'd moderate that around the fact that because we do think a lot of these areas are significantly culturally important to traditional owners, you're not going to certainly get access to the full land package. But we'll continue to work through them and we're doing some cultural heritage and sacred site surveys at the moment and working through that piece. The eastern leases. In that space, there's maybe one little approval left to be done, but all the other approvals have been activated today. We expect that tollgate probably in the last quarter of this financial year with construction work starting at the beginning of next financial year. So that's not really far away in terms of work. As we sort of finish that study, we'll talk to people what that looks like in terms of costs and timing in a bit more detail. The eastern leases, I'd say, is much more of a natural progression of where we are now with some setup capital to start with.

That's awesome. And then metallurgically, is the eastern lease quite a bit different from what you're doing at the moment? Or is it very similar?

Look, I think it's roughly the same material. I mean, the thing we are generally seeing as you get further out in the ore body at GEMCO, and this is no surprise, it's still the highest-grade, best, if you like, deposit in the world. But you naturally are seeing some change in the grade and characteristics, but it's around the margins. What you are seeing is an increasing strip ratio as you get further out, but that's been pretty well flagged since we did Strategy Day a couple of years ago, and that seems to be sort of panning out exactly as we sort of expected so far.

Okay. That's great. Can I ask one more question on South African Manganese. You spoke about the rapid load-out terminal, et cetera. And then obviously, we've had the difficulties of logistics with Transmit. Do you feel that you've been disadvantaged in any way in terms of getting trends by not having a rapid load-out fashion? The context there is everybody else in the industry reckons that if you've got a rapid load-out terminal, you have an advantage and get some trends out of Transmit. Do you feel that you have lost out or not yet?

So we -- I mean, we often talk about the day to day, but under the current MECA2, we have about 2.6 million tonne allocation from memory, of which we generally will use about 2.45 million of that, and some of those delays aren't driven by us, some of those are driven by them. I think there's always an opportunity to improve. It's probably MECA3, the next contractor that's going to be more important as they expand capacity and able to utilize their existing infrastructure more. Maybe Noel, you can come in and make a couple of comments about that.

That's exactly right, Graham. And that's the engagement with Transmit. That's what they're signaling that there is an advantage and there's an upside for us to get more on rail if we're more efficient. And so that's what we're exploring as we're going forward.

I mean, it's always [ far along ] in aggregate because the rail capacity is going to continue to grow over time. But at the moment, you're probably seeing in the market, particularly in China, there's a strong premium for high-grade material that's not coming out of the Kalahari. So not all materials are same. So our focus regionally is to get the higher-value material, if you like, on the actual train to sort of get the most manganese units out of the country. A lot of people are putting lower-grade material out there. I mean, ultimately, [indiscernible]. And I think the one thing we've been doing in the short term is actually with some changes in personnel that we've been actually capturing some additional capacity that's actually not in our numbers, which has been a real positive.

[Operator Instructions] Your next question comes from Shilan Modi with HSBC.

Congrats on a strong set of numbers today. Given the acquisition of Sierra Gorda, can you give us just an update in terms of what's required before it closes out? I know in the guidance, you said probably closing in February. Is there a ramp up? Or is the mine kind of a steady state currently? So we're just trying to get a feel for volumes just compared to like some of the industry data I've seen. And then given that and the level of debt you're going to have, how should we be thinking about your dividend payout ratio for the next year or 2 while your debt is a bit elevated? I may follow up with one question on manganese.

Yes. So I'll get Katie to talk about payout ratio and -- the dividend payout ratio and what capital and focus at Sierra Gorda at a high level and the balance sheet. What I would say from the closing of the transactions, probably the big milestones were KGHM not exercising their preemptive rights, which they didn't and gave us notice. Then we had a number of competition approvals that we needed, which they included the Chinese, European, Turkey and Brazil. Those competition clearances are not always within your control, but they have all been finalized and we have those. The way I think about it now is out just moving through the procedural aspects of closing this deal, which, as you know, had a couple of overlays, a public holiday in Chile, banking holiday in the U.S. on Monday and one in Japan on Tuesday. But we're not far away from completing this and it's very much just procedural items left. In terms of operating cost, unit cost guidance, production rates, where we see the value, the best look back is still on the actual presentation that we actually provided to people when we did the acquisition. I'd always come back to that piece that we do see, obviously, where we are today in the Catabela pit there in the process of actually doing a debottlenecking project. And that is progressing to plan. There's obviously the ability for an oxide opportunity there. There's also a broader land expansion -- if you like, exploration opportunity. And at the same time, there's a lot of, if you like, improvement opportunities that we still in that business. But when we actually announce the completion of the deal, we'll give our specific guidance for this year. But I would say if you look back at our investor pack, there hasn't been really material deviations from that. And what we are doing at the moment is, you'd expect as we get close to being in the chair, we're starting to participate in some of the various meetings around technical [ meeting ] owners council to sort of understand how things are working, but also have our key people ready to go because point of the attractiveness of this for us is obviously KGHM, our partners, working closely with them on this because we both have joint control. But I have a lot of confidence in the management team I have on the ground there. Katie, you want to talk about maybe the balance sheet implications in cash flow?

Sure. Look, I mean, I guess probably just to start with our capital management framework. That is unchanged. So you shouldn't expect to see us behave any differently than we have over the last sort of 7 years in relation to how we manage our balance sheet. We do believe in that strong investment-grade balance sheet through the cycle. In terms of the ordinary dividend, we have a minimum payout ratio policy of 40% of underlying earnings. So today's announcement, we did announce a $405 million dividend, which was $0.087 per share. That's a record dividend for us. And the way that policy is designed is to flex effectively with our earnings, to protect our balance sheet in the downside, but shareholders receive the benefits in the upside. And that's what we're seeing today with a record dividend. I think, look, the other objectives that we have is as we think about returns to shareholders, we have also announced today an upside in our capital management program of $110 million. And that brings us to -- we have $302 million outstanding on that program. So we do intend to continue to execute the return of that through the on-market share buyback that we have in place. And then as always, we will continue to assess whether we have excess cash available to return to shareholders, and we'll look to do that in the most efficient manner possible. If you think about cumulative returns to shareholders to date, we have actually returned 83% of underlying earnings to shareholders since we started at South32. And our share buyback has been very effective in terms of -- we bought back at an average of $2.88 a share. And we've managed to cancel 13% of our shares on issue. So that program, we believe in the longevity of that program, and we look to buy through the cycles. So you would expect us to continue to assess our capacity to return excess cash to shareholders in the same manner. In terms of the payment for Sierra Gorda. If you look at our pro forma net debt, we did provide Slide 18 in the deck that shows effective at the end of January, on a pro forma basis, we'd be at $439 million net debt. If you add to that our capital management program outstanding, our dividend that's due for payment, the potential completion of the acquisition of an upside share in Mozal, that brings us to a net debt, on a pro forma basis, of about $1.3 billion. So you would expect us to recover that to more normalized levels as we move forward, so that we can return it straight back to the balance sheet and remaining [indiscernible].

Should we be thinking more about further buybacks? So after the debt is kind of reduced post acquisition, should we be thinking about further buybacks? Or maybe a potential enhanced dividend? I'm just trying to get a feel for where the capital flows will go. And then the manganese question I wanted to ask is some of your neighbors in the Kalahari have capacity in terms of rapid load-out facilities. Is there potential to do some sort of JV with them to get access to the infrastructure, potentially unlock some synergies between your pits and theirs at the moment?

Yes. Maybe just to close out the dividend one then. Look, our policy is a minimum of 40% of underlying earnings. I don't expect that we should see any change to that. That's a core tenet of our capital management framework. It is intended to flex with our earnings. So we don't see any need to change that number. But as I said, we've got a capital management program that's been in place since 2017. And that program, we continue to assess our capacity to have excess capital and we return that excess capital to shareholders in how we see the most efficient manner, whether that's bought via special dividend or via an on-market share buyback. Certainly, at the moment, we still see value in our shares. So we do believe that the buyback is the most appropriate form of returning our current outstanding balance of $302 million.

Thanks. In terms of manganese, look, I think Mamatwan and Tshipi clearly are the ones that have some synergies. We've been working the barrier pillar together over a number of years, and we both get some benefits out of that. I think there are opportunities to look at how we share rail infrastructure, I think, historically because the lack of investment in this business from previous ownership, we are probably one of the only -- one of the few producers to have a rapid train load-out facility. So that's how the decision we've got to make or how we share infrastructure. I think the other thing we're doing, if you like, at manganese South Africa is actually looking at the ability to actually expand the Wessels mine. In particular, if you believe where the world is going for higher quality material, there's a potential there to actually substantially increase production and that project is currently in pre-feasibility study that we're working through at the moment. So I think rail allocation, rapid train load-out, potential size of Wessels all go together. But obviously, we're exploring opportunities to share synergies between ourselves and the other producers in the near term. [indiscernible] comment phase, one is, if you like, what we can do on the rail again, is around what we do with the railway loop with the extension. That isn't relatively capital intensive. It's the next stage you'd have to really think about the train load-out facility.

Your next question comes from Myles Allsop with UBS.

Just a couple of things just to follow-up on. One was Rio's cultural report, obviously, made some fairly sort of scary reading. But just -- yes, could you kind of say how you've looked to your own culture in light of that report and what potential issues and improvements you can sort of apply or take from it? And then just also a little bit more clarity on Illawarra and when we'll get more kind of a better sense as to how the mine will be developed and whether it's going to be core or noncore in the future?

Yes. So maybe the culture piece coming out of Rio, I guess the way I'd think about that, that is not something that sort of triggered us to start a piece of work. It's a piece of work we had underway for a period of time. For us, if you think about sexual harassment, harassment and bullying, that is, for us, physical as well as psychological safety. So probably about 18 months ago, we put together a team that sort of looked at how do we take our diversity and inclusiveness to the next level and allow people to bring the whole self to work. We also did a piece of work across our operations around physical safety and security way before that report, which resulted in upgrading of security lighting and locks, how we work and things like that. So that's been in place. When the Rio report came out, obviously, as you'd expect, we had to look at it to have a look at are there any major gaps in the work that we're doing? Is there anything we can sort of learn from? Look, I think I outside, there wasn't anything that we thought we should be doing that and we're not doing that, and that's a good idea. I think what I would say is in the Rio report, if we did a similar report, if mining companies did a similar report, I would say that our industry probably represents society. And in society, you will see a range of elements around harassment, bullying that are real. They do exist now in our business. We have reporting all the time. We have action taking all the time. And the only way you drive it out is through leadership. I think in terms of some of the comments around -- I won't comment specifically on Rio. I think this is isn't a better place to do that. We did do a lot of work, for example, around our own surveys, which we call, Your Voice. Personally, I do twice a year exercise called the Leadership Shadow, where you cut across parts in your organization to see what impact you have on people, not me doing it but other people doing it on my behalf. So I think we've got a fair few of those tools in place. I think it was brave of Rio to put out the report, and it gives them a good base on how they can improve. But again, I'd say all the industries have some of those challenges. The other question was around Illawarra. So Illawarra has a couple of components. Katie spoke about the call out of the capital, in particular for Appin. And when you think about Appin, the plan that we spoke about a while ago now, and that plan was really how do we actually sort of position ourselves for the future at Appin. And in particular, when I say get ourselves ready the future at Appin, it was really about what do we -- how do we make Appin potentially stand alone in its own right, so we can actually not be dependent on the [indiscernible] approval process. From that perspective, we talked about in -- we talked about obviously going back to a dual longwall operation in April 2022, which we achieved. And that allows us to deliver higher volumes across the complex in '21. In August 2021, we talked about the move of Appin to a single longwall operation from FY '25. And with that move to single panels, it brings further capital and operating cost efficiencies. And some of the examples there, obviously, you got longer longwall length, heads here, you're using a number of longwall moves. You've got reduced delay times around the moves, but you also take away some of the sustaining capital around development, about 30 kilometers west over 18 months. You're going from 4 to 2 bench shafts, 7 to 4 continuous miners, 12 to 4 gas stranded rigs. So that plan is in process and being executed. And when Katie talked about that uplift in capital, if you like, of $300 million to $360 million in FY '23, that really is around 2 bench shafts. It's around coal clearance and it's around a new set of shields and the new next piece of a longwall. That really allows you to position Appin to run for current approvals that run up to about 2040. And it certainly puts us in a better position to base a mine that's sustainable through the cycle. I think the unknown is Dendrobium. And if you think about our -- what we did talk to is obviously the drop-off in production that basically occurs where we've actually got a declining to about 5.5 million tonnes in FY '24 across the complex. And really, the bigger driver there is by 2 things. One -- both related to Dendrobium. One is the drop in tonnage as we set up a longwall in the new area, and that's as we move into Area 3C. The second component is Area 3C is gassier than the previous areas in Dendrobium. It's CO2 not methane. And we certainly have a small block of area where we're going to manage our way through that gas, which sort of results in gas drainage, low productivity rates until we move to the next mine, which should be Area 5, which is what the DND adapt project is all about. Now the DND adapt project, we're in the process of getting ready to finalize our submission this quarter. That's EIS submission this quarter. And obviously, then we'll go through the process of public commentary and then we'll move through the state approvals and federal approvals. Ideally, we'd like to complete that federal and state approvals by the end of this calendar year. But I guess what we are seeing with the approval of coal projects in Australia, as sort of shown by the IPC decision, has had certainly some unusual twists along the way. We do believe that the DND adapt project has done enough work to distinguish itself from the previous DND expansion projects, which is concentrating more on the higher-grade material. It has a lot less in terms of impact, if you like, across the entire complex. It addresses some of the issues -- well, mostly all the issues that were raised by the IPC, sorry. So we feel it's in a really strong position to go forward, but it needs to go through that EIS process now. And obviously, based on the feedback, we'll be in a position at the end of that to sort of incorporate feedback if we think it's appropriate. And then you're in a position where if you want to evaluate, it's just an investment decision you want to make. So it's going to be very dependent, if you like, on how we go through that process. But I think what is critical is preserving the optionality at Dendrobium until we actually have that decision.

There are no further questions at this time. I'll now hand back for closing remarks.

Thank you. Thanks, everyone, for participating today. Just a couple of last key messages to leave you with. One is, look, we recorded a strong FY '22 result, had record operating margin of 44% and a record return on invested capital, record, if you like, dividends. But to be very clear, while we benefit from higher prices, I think we've also benefited strongly from the divestment of those lower returning businesses that we've spoken about before, South Africa Energy Coal TEMCO and Metalloys. And at the same time, I think the team has done a good job on increases in the controllable costs of less than 3% of the cost base. But at the same time, as I mentioned, we've not only taken the low-value, low-margin businesses out of South32, we've also brought in a number of options to grow the business. Sierra Gorda, we'll complete in February. We've obviously doubled our green aluminum production through the Mozal acquisition in the Brazil Alumina -- Aluminium restart. At the same time, we've got high returning improvement projects at Cerro, Cannington and Mozal in execution. We've just spoken from the market about Taylor in the first stage, development of Hermosa with Clark. Peak and flux yet to come. But I think at the same time, what has remained the same is our unchanged approach to our capital management framework, which, as you see now is working its design to awarding shareholders when the financial performance improves. I do want to thank you for your support and time today, and we'll talk to you soon.

That does conclude our conference for today. Thank you for participating. You may now disconnect.