South32 Limited (S32) Earnings Call Transcript & Summary

Well, welcome, everybody, and thank you so much for joining us for South32's 2023 Annual General Meeting. My name is Karen Wood, and it's my pleasure to chair the meeting today. Before asking Lynn Collard to come forward to offer a welcome to country, I'd like to acknowledge the Traditional Owners of the land on which we meet, the Whadjuk People of the Noongar Nation, and pay my respects to the elders past and present of the lands on which you are located today and the lands on which South32 conducts its business around the world. In the spirit of reconciliation and respect, now more important than ever, we will continue to support initiatives that strengthen the unique cultural and spiritual relationships that indigenous and tribal people have to the land, waters and sees, and their rich contribution to society and to ensure their legacy continues and extends for future generations. Please now make Lynn welcome as he conducts a welcome to country on behalf of the Whadjuk People. Lynn?

Okay. It's always great to catch up with people on our ancestral homeland. It's great to see the Board all here. And I just want to say welcome to [Foreign Language]. And we know that all roads lead to -- all the burials to the roads lead to Perth, a bit [indiscernible] in that conversation. And when my daughter, Ingrid rang me this morning. She said, Dad, you need to get off the couch. It's like a game of footie, you're on the field today. We've got a late injury, and she can't be here. So Ingrid sends her apologies to one and all. And so I've been drawn into the fantastic opportunity to be here with you and give us a bit of a blessing [indiscernible]. Now I've been -- it's been made clear to me by the Chairperson Wood. She says, Lynn, I know those Aboriginal dreamtime stories go on and on and on, but we've got a lot of members coming today, and we've got some important business to cover, and I've heeded what the boss has said. And so I'm going to do the short version of a welcome. And one of the things you noticed when I spoke at the beginning, I was speaking the language of our ancestors on our homelands. And that, in a sense, is a part of the old diplomacy, and it's also part of the modern diplomacy and is a part of the future. We're always told as children to learn our language. [Foreign Language] Always speak to them in our language. This is our homeland. So as an international corporation, I'm sure when you travel to different sites around the globe, I imagine that the people will possibly speak to in English as a manner of goodwill or maybe they'll speak in Spanish or Portuguese or whatever they speak to in. And so we follow that diplomacy in the Noongar lands we speak in our language. Of course, we know Noongar, as a global thinking people, we know that many people come from across the world. So we pick English to speak to you. I'd like to speak to you in maybe in French or maybe Portuguese or Bahasa in Indonesia, which I probably could do a little bit, but I probably might make a fool myself so I'll just speak in Australian to you. And the final thing I'd say is good luck with the Board today. I'll be looking forward to see the outcomes about who's who on the new Board or whether you maintain your representatives or we come up with some new ones, and I'm sure there's lots of anxious heartbeats going on about that matter to happen shortly. But keep in mind, as I promise, I'll keep it short. And I'll be looking forward to catching up with South32 in some possible way I talked to Shane about a few bits and pieces of run. So hopefully, I'll get to talk to you more, maybe not this year, but maybe in 2024, and we can actually live up to the moniker, brighter futures together. So on that note, I'm going to just finish off with [Foreign Language]. And the idea behind that is to bring the good spirit or what we call the [Foreign Language] to our engagement today. Now play fair, be determining what you want, but please don't pull the knives out, and let's not have no blood on our hands. Unless we need it. No, I was only joking. So I'll finish off the speech, and I'm going to move out of the meeting, and I'll leave you good people to do the really important businesses to sort out where to from here for South32. [Presentation]

Thank you, Lynn. We really do appreciate you getting off the bench this morning. [indiscernible] to Ingrid, and we hope that her family -- her injury situation rectifies itself quickly. So ladies and gentlemen, I'm joining you today from Perth, along with our Chief Executive Officer, Graham Kerr; and Company Secretary, Claire Tolcon. Also joining me on the stage from my far right are nonexecutive directors, Frank Cooper, Xiaoling Liu and Carlos Mesquita; and on my far left, Futhi Mtoba, Jane Nelson, Wayne Osborn and Keith Rumble. We also have with us today either in person or remotely members of South32's lead team. The Board, together with some of the members of the lead team who are here, look forward to meeting with shareholders after these proceedings. In attendance also today, we have Graham Hogg, representing the company's auditor, KPMG, and Christopher Dedrick from Computershare Investor Services, who's been appointed returning officer for the meeting and scrutineer for the vote on resolutions 2a 26. I'm happy to confirm that a quorum is present and now formally declare the meeting open. I'll now ask Claire to run through a few procedural matters. Claire?

Thank you, Karen, and good afternoon, everybody. This year, we are conducting a hybrid meeting using Computershare's meeting platform, enabling shareholders, proxy holders and guests to attend. Through this platform, all virtual attendees are able to watch a live webcast of the meeting, while shareholders and proxy holders are also able to ask questions and vote. For those shareholders joining us in person, please take note of the emergency exits. In the event of an emergency, instructions will be issued over the emergency warning and into communication system. In the event the alarm activates, the following warning tones will be sounded. The Stage 1 sound is a beeping sound. Please remain seated and follow any warden instructions. The Stage 2 sound is a whooping sound. We ask you to remain calm and evacuate the building via the nearest emergency exit. Fire wardens can be identified by red hats, and they will advise when it's safe to return to the building. For those shareholders joining us online, please stay connected and we'll message you through the meeting platform as soon as possible. Questions received in advance of the meeting will be read out by our moderator, Belinda Truman. For those attending in person, microphones are available in the aisles. If you wish to ask a question, please raise your hand and introduce yourself to one of our microphone attendants who will introduce you to the meeting. For those attending online, you may begin submitting questions now by clicking on the Q&A icon. Alternatively, if you wish to ask a question verbally, please dial the appropriate telephone number to be connected to the audio question line. Continue to listen to the meeting and at the appropriate time, the Chair will ask the moderator to invite you to ask your question. If we receive multiple questions on the same topic, we may group them together when we answer. As stated in the notice of meeting, voting will be conducted by way of a poll on all resolutions, and the Chair will open voting shortly. For those attending in person, physical voting cards will be used. For those attending online, if you are eligible to vote, press the vote icon once voting opens. To cast your vote, simply select one of the options. You can cast your vote and change your vote on each resolution at any time before the chair declares the voting closed. If you have difficulties with the platform, please refer to the online meeting guide, which is available under the Documents icon. In the unlikely event that we experience any major technical difficulties, we'll provide you with updates through our website and stock exchanges. I'll now hand you back to the Chair.

Thanks, Claire. I now declare voting open on all resolutions. So you may complete your voting form or submit your votes online at any time. Some of you may recall that at last year's meeting, one of our shareholders asked that we display the proxy position on each item of business before a call for questions on that item. While I understand that this is still not general practice, we have decided to trial it this year after some consultation with shareholders. But if any shareholder would like to talk about how we do this going forward, then please don't hesitate to let us know after the meeting. It's always a pleasure to be here in Perth for the South32 AGM. Whether you're joining in person or online from another location, we genuinely appreciate your participation. So thank you. We've made substantial progress in the past financial year, and we have many reasons to be optimistic about the future. However, I want to acknowledge that despite our continuing strong focus on safety improvement across the group, our safety performance is still not where we need it to be. During the last financial year, we were profoundly shocked and saddened by the loss of 2 colleagues: Mr. Cristovao Alberto Tonela and Mr. Alfredo Francisco Domingos Joao were fatally injured while undertaking maintenance work at Mozal Aluminum in Mozambique in November. On behalf of the Board, I express my sincere and deepest sympathies to their families, their friends and their colleagues. This incident was devastating for everyone at South32 and has challenged each of us to ask ourselves every day whether our decisions and actions guarantee our own safety and that of our colleagues. We've already commenced our journey to fundamentally shift our safety performance and deliver the cultural transformation required for sustained improvement, recognizing that this will take time and needs to result in that sustained improvement. The tragic loss of our colleagues at Mozal Aluminum has demonstrated why this work is of the utmost importance and strengthened our resolve to eliminate fatalities and serious injuries from our business. And I want to assure you that I, as the Chair of South32, your Board members, Graham and the lead team and everyone at South32 is focused on improving our safety performance. We will never be truly successful until each and every person that comes to work at South32 goes home to their loved ones safe and well each day. Graham will shortly provide a more detailed summary of our financial and operating results. However, I'm pleased to say that we delivered a strong production growth throughout the year in aluminum and base metals. We set annual production records at 3 of our operations and delivered one of our largest underlying profit results to date, with underlying earnings before interest, tax, depreciation and amortization of USD 2.5 billion. This was achieved despite lower commodity prices, industry-wide inflationary pressures and a backdrop of the volatile economic and geopolitical tensions we're all so familiar with. During the financial year '23, we returned $1.2 billion to shareholders, including a fully franked ordinary and special dividend and via our on-market share buyback. Reflecting our disciplined approach to capital management, your Board has resolved to further expand our capital management program to $2.4 billion, leaving $133 million to be returned by the 1st of March 2024. Our people are fundamental to our success. Your Board and the lead team are responsible for shaping our safe, values-based and high-performance organizational culture. One of respect for our people that supports a positive employee experience and a productive workplace. Our workplace culture and approach to inclusion and diversity are critical differentiators that help improve our ability to attract and retain the diverse talent we need to take our business forward. To underpin this work, each year, we set measurable diversity and inclusion objectives. Our gender targets are based on the 40-40 vision led by HESTA, while representation of Black people is based on the South African Broad-based Black Economic Empowerment Codes. The 40-40 vision aims to achieve gender balance in executive leadership across all ASX 300 companies by 2030. And I'm pleased to say that during the year, we achieved that target with representation of women on the lead team increasing to 50% from 37.5% in the prior year. Just as we recognize that diversity and inclusion strengthens our workforce, we also believe that diversity is one of your Board's strengths. Our directors represent a broad cultural ethnic background and geographic mix. In May, we were delighted to welcome Mr. Carlos Mesquita and Ms. Jane Nelson as nonexecutive directors, both based in the Americas. Carlos and Jane have already visited a number of our operations around the world and met with our people and with some of the communities where we do our work. Their appointments further enhance the Board's broad range of skills and experience, particularly in major projects, operations and sustainability, and we are honored to have them join us. During the year, we farewelled Mr. Guy Lansdown, who resigned from the Board to concentrate on his philanthropic activities in Mexico. And I would like to take this opportunity to thank Guy for his valuable contribution during his tenure as we expanded our presence into the Americas. I said earlier that we have many reasons to be optimistic about the future. In the 8 years since our formation, South32's portfolio has undergone a major transformation to become a truly global diversified producer of commodities critical to a low-carbon world. We've identified and executed opportunities to sustainably reshape our business, and this transformation process remains a fundamental part of our strategy. The changes we've made to date and the investments we're continuing to make in the portfolio are expected to support significant production growth. We continue to be excited by our Hermosa project in Arizona, which presents a significant opportunity to sustainably produce commodities critical for a low-carbon future and for decades to come. During the year, the United States government enacted the Inflation Reduction Act, which aims to increase investment in clean energy offering tax incentives for domestic electric battery vehicle production and supply chains. The Hermosa project supports the anticipated growth in clean energy and is currently the only advanced project in the United States that could supply 2 federally designated critical minerals, zinc and manganese. Our ambition is for Hermosa to be our first next-generation mine with the potential to deliver improved safety and productivity while minimizing our environmental impact and making a significant contribution to the local community. During the year, we recorded a noncash impairment expense in relation to Hermosa's Taylor deposit, as a result of delays relating to COVID-19 and inflationary market conditions. Despite the impairment, we continue to see substantial opportunity at Hermosa. We're progressing Hermosa's Taylor and Clark deposits towards development with a final investment decision on Taylor expected in the March 2024 quarter. Improving our portfolio, producing commodities that support the transition to a low carbon future, is one way in which we're responding to the opportunities and risks presented by climate change. We support the goals of the Paris Agreement, and have a long-term goal to achieve net zero greenhouse gas emissions by 2050, inclusive of Scope 1, 2 and 3 emissions. We also have a medium-term target to halve our operational greenhouse gas emissions, that's our Scope 1 and 2 emissions, by 2035 from our FY '21 baseline. In September of last year, we published our first climate change action plan, which included a Scope 3 goal. This was the subject you might recall of a nonbinding advisory resolution at our Annual General Meeting. And we received strong shareholder support for our plan with over 89% of votes cast in favor of that resolution. We're very grateful for this strong vote of confidence in our approach. And I just want to thank all those shareholders and others who invested time in meeting with us in the lead up to the finalization of the plan and then in taking time to review it. Our team has engaged with some of the shareholders who voted against the plan to understand the areas they would like to see improved. And this feedback is taken into consideration by your Board in determining our approach to climate change going forward. During the year, we made progress against key elements of that plan, including updating the 1.5-degree scenario to stress test the potential impacts of climate change on our business. We also progressed our decarbonization initiatives with a focus on operations, which account for the majority of our greenhouse gas emissions. That's Hillside Aluminum, Illawarra Metallurgical Coal, Worsley Alumina and Mozal Aluminum. And Graham will talk to some of these initiatives in a little more detail. Your Board oversees climate change as a strategic risk and a material governance issue, and will continue to provide annual updates on our progress against the Climate Change Action Plan in our sustainable development report. Much has been said in recent weeks about the support offered by some Australian companies to the referendum campaign to enshrine a First Nations Voice to Parliament in the Australian constitution. Today's meeting gives me an opportunity to talk about why South32 supported a Voice to Parliament. In 2020, we announced our support for the Uluru Statement from the Heart as the pathway towards reconciliation put forward by Australia's First Nations Peoples. This pathway included a Voice to Parliament as the form of recognition that was sought following the Uluru Statement. As shareholders know, we mine on indigenous lands, and formed our view to support the proposed change to the constitution after consulting with Traditional Owners of those lands. It is in our company's best interests that the communities that support our operations are thriving, that community members have improved health and education outcomes, for example, and that they are safe for all. And it's our view that hearing from First Nations peoples on decisions that impact them, including how monies are spent, will lead to better outcomes. Our support, therefore, is entirely consistent with our duty to act in the best interests of our company. We will continue the work we do each day, including through our reconciliation action plan to support initiatives that address the disadvantage faced by First Nations people, both in Australia and around the world. In relation to biodiversity, we recognize the importance of minimizing our impact on ecosystems and aim to achieve no net loss for all new projects and major expansions. It's our responsibility to minimize the impact to the environment and to rehabilitate land disturbed by our activities. At South32, we participate in working groups and other forums, including the task force on nature-related financial disclosures to help develop and implement global standards and initiatives to meet emerging expectations in relation to biodiversity disclosure. During financial year 2023, we participated in a pilot study and provided feedback on the learnings and existing barriers to implementing the TNFD framework in the Australian context. We also updated our biodiversity risk and opportunity screening assessment at GEMCO, Illawarra Metallurgical Coal, Worsley Alumina and the Hermosa project considering both direct operational aspects as well as pressures on the surrounding bioregions. Our remaining operations are scheduled to complete a biodiversity risk and opportunity screening assessment in FY '24. We plan to use the outcomes of that process to update our operational and project risk profiles and identify opportunities to collaborate and promote improved land and biodiversity outcomes within the bioregions. During the year, we also updated our approach to tailings management in alignment with the global industry standard on tailings management requirements. Meeting the requirements of the standard is a key focus for South32, and we actively support improvements in tailings management through the International Council on Mining and Metals and through industry conferences and research projects. Your Board is pleased with the progress that has been made in FY '23, while acknowledging that we must continue our critical work to improve our safety performance. In the year ahead, we'll continue to work hard to transform our portfolio to meet the global demand for the commodities critical to a low-carbon future. On behalf of the Board, I'd like to thank our shareholders for their ongoing support and reiterate our thanks to our people for their hard work and commitment throughout the year. It's now a pleasure to hand you over to Graham.

Thank you, Karen. I also acknowledge the Traditional Owners of the land in which we meet, the Whadjuk People of the Noongar organization, and pay my respects to the elders, past and present. As a significant employer and investor in Australia, we recognize the positive impact we can have on reconciliation. As Karen said, we have supported the Uluru Statement from the Heart, a key component of which is the development of an Aboriginal and Torres Strait Islander Voice to Parliament since 2020. We saw the voice as a way to move reconciliation forward and improve outcomes for indigenous Australians, and viewed it as a request from indigenous Australians to non-indigenous Australians to advise them on matters impacting them. Following the referendum, we are providing support and information to our people and our communities. We remain committed to reconciliation, and we'll continue to work with all indigenous stakeholders in the areas where we operate and seek their input on matters relating to them. Thank you for joining us here today. As we look back on our year, which our teams across the world performed strongly in a challenging economic climate and we continue to make inroads in our pivot towards commodities critical to a low-carbon future. I certainly share Karen's optimism about the future of our business. I'd like to begin by talking about safety. As Karen said, we were devastated by the loss of 2 of our colleagues, Tonela and Alfredo, who were fatally injured in an incident while undertaking maintenance work on a raising girder at Mozal Aluminum in November last year. The incident had a profound impact on me personally and impacted everyone across our business. Put simply, we must do better when it comes to safety. And we owe to everyone who has been affected by the deaths of Tonela and Alfredo to learn from this tragic event. Following the incident, we implemented additional controls, including exclusion zones and controlled access to all other raising girders at Mozal Aluminum and Hillside Aluminum. Learnings were shared across our business and the immediate actions were taken where required. We also commenced work with the original equipment manufacturer of the raising girder to identify further safety improvements, which could be made including replacing critical components in all girders. During the year, we continued our work to fundamentally shift our safety performance, including the implementation of our multiyear safety improvement program. This program aims to shift mindset through leadership, empower our people, reduce risks of effective controls and improve systems and metrics. Our approach to safety includes our Lead Safely Every Day program, which supports our leaders to engage their teams on our safety guarantee. Our safety guarantee is our internal approach where each of us stop and ask ourselves whether we can guarantee our own safety and that of our colleagues before undertaking each task. It is designed to create a sense of chronic unease around safety, so we can enhance our safety culture. We will continue work -- with our work to deliver a step change in our safety performance in the year ahead. Everyone has a right to go home safe and well at the end of every shift. In addition to the work we are doing to improve physical safety, we recognize the vital importance of creating and maintaining workplaces that are psychologically safe. We're working to build an inclusive and diverse workforce that is representative of the countries and communities where we operate, a culture where everyone's unique differences are valued and celebrated, and where our people are empowered and supported to speak up if they feel unsafe in any way. For the first time in our history, in 2023, we exceeded 20% representation of women across our total workforce. In South Africa, we are working to improve in our representation of Black people. And in FY '23, we achieved 86.9% across our South Africa workforce, exceeding our target of 85%. We also achieved 55.3% of Black people in management roles in South Africa, and will continue to work to improve on this measurable objective, noting we did not reach our target this year. We know there is more work to be done to create a workforce that is more inclusive, diverse and representative of the communities where we operate. But I'm confident that we have built the right foundations to continue to shift the dial in the future. As our CEO, I'm committed to championing an inclusive culture across the organization and delivering on the measurable objectives that we have set. With the ongoing uncertainty around China stimulus and the impact of anti-inflationary policies on the developed world, the macroeconomic climate remained volatile throughout the year. Despite these challenges, our teams have delivered strong production growth during the year as we continue to position ourselves well to respond to the demands of the global energy transition. We achieved annual production records at 3 of our operations: Hillside Aluminum, Australia Manganese and South Africa Manganese. Aluminum production increased by 14%, base metals by 17% and manganese by 4%. These strong results were underpinned by our recent portfolio improvements in copper and low-carbon aluminum. This growth, coupled with our focus on cost efficiencies has resulted in one of our largest underlying financial results to date with underlying EBITDA of USD 2.53 billion. Our balance sheet remains strong, and we finished the year with net debt of $483 million as we made record returns to shareholders and invested to increase our future production of commodities critical to a low-carbon world. Looking ahead, our portfolio improvements are expected to deliver further growth in commodities critical for a low-carbon future. We expect to increase our low-carbon aluminum production by 12% in FY '24 as Brazil aluminum continues to ramp up and increased volumes at Mozal Aluminum. Sierra Gorda is expected to increase its future copper production as a result of the plant debottlenecking project, and it has advanced studies for the fourth grinding line expansion, which could lift copper throughput by 15% to 20%. During the year, we made significant progress on our Hermosa project in Arizona. As Karen mentioned, Hermosa is the only advanced project in the United States that could supply 2 federally designated critical minerals, zinc and manganese, essential minerals for a clean energy future. And in May, it was confirmed as a first mining project in the U.S. to be added to the FAST-41 permitting process, underlying its importance to provide critical local minerals. Hermosa's zinc-led silver Taylor deposit has demonstrated significant potential as an attractive, long-life base metals development option. We expect to complete the Taylor feasibility study in the December 2023 quarter and announce a final investment decision in the March 2024 quarter. Separately, Hermosa's Clark deposit is ideally positioned to supply battery-grade manganese to the North American electrical vehicle supply chain, and we have signed multiple nonbinding nonexclusive MOUs with potential customers for potential supply into the North American markets. We are also seeing some exciting exploration across the Hermosa's regional land package with recent drilling at Peake's prospect, delivering our best copper exploration results to date. In July this year, we recorded a noncash impairment in relation to Hermosa's Taylor deposit. This was driven by delays related to COVID-19, dewatering requirements to allow access to the ore body and inflationary pressures for key inputs such as steel, cement and electrical components. We continue to see substantial opportunity to unlock additional value across Taylor, Clark and our highly prospective regional exploration package at Mozal, and that optionality is not included in the impairment assessment. We are continuing to invest to discover our next generation of base metal mines, and we have more than 25 exploration programs underway in targeted regions, including Alaska, Argentina and Australia. During the year, we consolidated our position in Argentina's highly prospective San Juan region, exercising our earning right to acquire a 50.1% interest in the Chita Valley copper prospect, and we acquired a strategic interest in out-of-brand resources, owner of the Altar copper project, also in the San Juan region. Turning now to climate change. As Karen mentioned, we published our first climate change action plan in September last year, and we were pleased to see our shareholders strongly supported the plan at last year's AGM. Our work to deliver on our climate change commitments continued during the year. At Worsley Alumina, we commenced the conversion of the first on-site boiler from coal to natural gas, and that work is now complete. Work on the conversion of the second boiler is expected to commence in FY '24. The use of natural gas at Worsley Alumina remains an interim step as we pursue long-term energy transition solutions focused on electrification and renewable energy. We commenced detailed design and execution planning to a commercial scale trial of ventilation air methane mitigator, or VAMMIT technology at Illawarra Metallurgical Coal. This technology has a potential to deliver significant advancements in emissions reduction technology at underground coal mines. At Sierra Gorda, we transitioned to an agreement for cost-efficient 100% renewable electricity supply. And at Hillside Aluminum, we deployed the AP3XLE energy efficiency technology, which we expect will deliver a reduction in greenhouse gas emissions in the near term. Hillside Aluminum's longer-term decarbonization is tied to the transition to a lower carbon energy source. And there's no doubt this represents a challenge, particularly when it comes to developing large-scale renewable and low-carbon energy sources in South Africa. We will continue to investigate a range of potential solutions, including acquiring energy attributes to reduce Hillside's emissions intensity in the near term. And we have signed a non-binding memorandum of understanding with Eskom to explore the potential to enter into a pilot agreement to purchase energy attributes associated with electricity generated at Eskom's Koeberg Nuclear Power Station. Hillside Aluminum plays an important role in South Africa directly and indirectly supporting more than 31,000 jobs and directly contributing ZAR 9.9 billion to the South Africa's GDP. As part of our transition away from carbon-intensive energy, we remain mindful of the need to help support a fair and just transition for the smelter's workforce, local communities and the broader South African economy. I'm sure you heard me say it before, I fundamentally believe that when mining is done right, it can make a big difference in people's lives. With more than 9,000 employees and a presence in 6 continents, we are proud to create opportunities for our people and the communities where we operate, so they can benefit from the development of natural resources. Our social investment program focuses on education and leadership, economic participation, good health and social well-being and natural resource resilience. And we are proud to invest $27.7 million into our local communities during the year. In FY '23, we also spent more than $1 billion on local suppliers across our operations, an increase of $111 million compared to the previous year. And we paid more than $920 million in corporate income tax and $312 million in royalties, which help fund the central infrastructure and services within the communities in which we operate. As we progress into FY '24, the outlook for our business is positive. I'd like to thank our teams around the world for their hard work and contribution during the year. We are well positioned to capitalize on the transition to a low-carbon world with our portfolio geared towards meeting demand for commodities that will play a key role in the global energy transition and a strong potential for further growth and value from our pipeline of high-quality development options and exploration partnerships. Thank you for joining us today and for your ongoing support. I will now hand back to Karen.

Thanks, Graham. It's now time to move to the formal items of business. Each resolution and the explanatory notes are outlined in the Notice of Meeting dated 11 September 2023. As well as consideration of the financial statements, the business before us today includes 6 ordinary resolutions and 1 special resolution. As you will have seen from the notice of meeting, other than in respect of resolutions in which they have a personal interest, the directors recommend shareholders vote in favor of all resolutions. I intend to vote all undirected proxies that I hold as Chair in the same manner. We'll work through each resolution in order, and I'll provide you with a summary of the proxies received as we read out each item of business. I'll also invite questions on each resolution. The first item of business is to receive the financial report, directors' report and auditor's report as set out in the company's annual report for the year ended 30 June 2023. There is no requirement to approve these reports, and we are simply tabling them for discussion. As I mentioned earlier, we have Graham Hogg from KPMG with us, and Graham is available to answer questions relating to the audit. Are there any questions or comments on the financial report, the director's report or the auditor's report or indeed questions of a general nature from the floor.

Chair, this is John Campbell.

Hello, John.

Chair, thank you. I'm representing Australian Shareholders' Association with 7.2 million shares and 739 shareholders. And I have to say that from our perspective, the results were disappointing. You pointed to a very good EBITDA result, but that was then overshadowed by the write-down in Hermosa, the $1.3 billion impairment. And I've got a number of questions about that, if I may. And first, through you to the auditor. I'd like to ask the auditor what impairment indicator was identified in 2023 for Taylor? And what changed in 2023 to his assessment or to the firm's assessment of that key audit area of asset valuation in relation to Hermosa, and with the benefit of hindsight, that impairment trigger was, in fact, pulled in the previous year or prior year. And whether he's happy with the company's explanation of the cause of it being COVID, dewatering and cost inflation?

Thanks, John. I'm going to hand you to Graham as you requested to answer that question. But can I just say first, thank you for being here, and thank you for the ongoing engagement we have with your association. Graham?

Thank you, Karen, and thank you, John. As a reminder, management prepares the financial report in accordance with Australian accounting standards and also in accordance with the Corporations Act. The Board approves the financial report, and we as independent auditors, conduct an independent audit on the financial report. Asset valuation is noted as a key audit matter in our audit opinion, as you would have seen Mr. Campbell. Our audit procedures include performing an assessment of the reasonableness of management's assessment of the impairment indicators. Where impairment indicators do exist, we assess the reasonableness of the underlying assumptions used to determine the ultimate impairment. At each reporting period, we assess if there are any impairment indicators indeed across the full suite of South32 assets. Hermosa has been tested for impairment indicators since each period since acquisition. The project is accounted for under IFRS 6, which is exploration and evaluation for mineral assets. And by its very nature, the company is continuing to expand funding to determine the economic viability of the project as a whole. In June 2023, it was determined that information from in-process advanced study work was now sufficient such that an assessment could be made as to whether the capitalized expenditure could be recovered in full. As noted in our key audit matters and in Note 13 to the financial statements and impairment of this capitalized exploration and evaluation expenditure occurred as a result of this new information that was now available.

Thanks, Graham.

Thank you, Graham. The follow-up question to that, Chair, is to you, if I may, to ask if -- you've asserted that the reason for the write-down is these 3 factors of delays with COVID, the cost of dewatering and the cost inflation that's taking place. But I put it to you that this isn't as much that you paid much too much for it to start with?

Thanks, John, for your question. Look, it won't surprise you to know we spend a lot of time talking about Hermosa. In the lead up to acquiring the asset, the work that's going on at the moment in terms of the pre-feasibility and now the feasibility study and, of course, in relation to the impairment, and we've asked ourselves whether we are comfortable with the acquisition. And the answer to that question is very strongly, yes. You are right. There were 3 components that lead to that impairment. Delays that, of course, everybody experienced as a result of COVID. The cost increases as a result of inflation, particularly in the United States that we continue to see and remain concerned about and some dewatering expenses that we had to incur. We don't feel unhappy about that purchase. As I said in my address and indeed, as Graham said, we're very confident about this asset. We think the asset is a very important part of our portfolio as we move towards more of those commodities required in a low-carbon world, and we feel very positive about it going forward. But I mean, maybe, Graham, you might want to just comment about how you're seeing the work to date? I know John directed the question to me, but you might just have a few thoughts about that?

Yes. Thanks, Karen, and thanks, John. Look, the way I think about the acquisition and to Karen's point, I still think will be an acquisition that underpins the future of the company. The impairment relates to the first stage of Taylor. The first stage of Taylor actually is requiring all the capital to build the roads, the infrastructure, the dewatering for the subsequent work on Taylor will support, but also Clark and Peake. And to put this in context, when we actually bought Taylor, and Taylor's about when we bought Hermosa. It's about 1 hour 10 minutes south of Tucson in a place called the Patagonia Mountains. It is a resource-rich area that's built off the back of historical shallow mines. So we bought it for 3 pieces of value when we actually made the acquisition. One was around Taylor itself. The second piece is around what's called Clark, and Clark is a manganese oxide project that will basically feed into the battery EV in North America. And the third piece is exploration potential. So Karen touched on the things that we have been disappointed. Look COVID hurt us by about 2 years where we couldn't do any field work. There is certainly more water there than we expected, and that water is going to take us an additional 2 years to move, and has cost us an additional $365 million in capital to move that. The good news is we've finished just the most important wells around the shaft at the moment, and the water treatment plant is actually up and running. What's the upside to the acquisition? So when we talked about Taylor originally, we talked about a 20-year mine life. At the moment, we're looking for Stage 1 to be around 30-ish years. And the resource is still open laterally and at depth. If you think about on top of Taylor, we've got Clark, which is a manganese oxide deposit. That potentially has a life of 60-plus years. That isn't included in impairment assessment at all yet because it's not advanced as well. And we talk about the region of exploration package. We have a very large land position there where we've got about roughly 15 highly prospective targets. The most recent one we've been drilling is the Peake deposit, where we've now put down roughly 17 holes. We announced 4 of those as part of our June quarterly production report. And some of the hits on those holes were 139 meters at 2.5% copper equivalent, predominantly copper. We also had about 60 meters at about 3.8% copper equivalent. So we now have roughly 4 holes, if you like, that are about 100 meters apart, running over 1% copper between thickness of probably 50 to 100 meters, which would probably be one of the best copper holes or prospects of sort of being seen globally this year. So we do believe that this, if you like, play in the basin and the basin is Mozal, Taylor's the first stage, will actually give us multigenerational options to build over many decades as we ride out the different price waves. But what it does come with is some high infrastructure costs to actually set up the base in which Taylor Stage 1 is incurring.

Thanks, Graham.

Can I go on?

Please.

The next question would be this feasibility study. Can we have an undertaking that it will be at last released when you produce your half year report at the very latest.

Yes. The Board has not yet seen the result of the feasibility study. We will, before the end of the calendar year. And in our quarterly report that we released just earlier this week, it said that our intention was to release further information about that. I think what did we say, Graham, by around...

Next quarter next year, which is really our half year results.

The half year results. So February-ish. Yes.

I'm just a bit critical of the fact that we've been hearing the same story for a number of periods about feasibility studies one way or the other and they've never yet emerged.

What I can promise you is the team is going to do outstanding work, and we'll bring it to us when that work is completed. And of course, we'll share it as soon as we can.

Probably worth just touching on, John, the most recent delay has really been a positive where we've been added to the FAST-41 process. So it's looking at the benefits of that, including potentially funding for some different components of the project from the U.S. government under the Strategic Minerals Act.

It's worth making a point about that, Graham, because maybe that's not well understood. But FAST-41 is fixing America's Surface Transportation. I think it was an Obama government initiative, but it was amended in a later administration to include mining companies. And South32 is the first perhaps -- Graham, I don't know -- the only mining company to have that status. Now that's tremendously important for us. It's also tremendously important for the United States as it really beefs up its focus on critical minerals.

Could I just ask on that, because I'm a bit curious. Over the last couple of days, we've heard from Albanesian and Washington, that Australia is going to be given treatment to facilitate the export of critical minerals to the U.S. And your manganese deposits in Australia would be much better quality, much better grade than the one that you've got at Clark. Are you not able to get the same benefit from mining the Australian or than Clark?

I'll let Graham make a comment, but it's all about transportation.

So it's about transportation location and a little bit about impurities, John, because the more -- because you're really producing a high-grade product that goes into batteries and the impurities causing stability in the batteries and fires. So looking at a deposit, deposit location is important to understand the impurities. Proximity plays a role. The other advantage in the U.S., while Australia will have a good relationship with the U.S. on this, they don't necessarily have access to the same funding pools that we will at Clark. Typically, in projects like that, you've seen the U.S. government potentially provide a grant of up to 1/3 of the capital to develop a project. I think the other thing with both GEMCO and our HMM business is they're also well positioned to service other markets outside of North America. Clark has really designated where the U.S. has probably been a lag out on EVs. But certainly, the IRA Act or some of the rebate credits will drive some of the EV increases in the U.S., and that's where Clark is well positioned for that. We'll look at HMM for potentially Europe, and we'll potentially look at GEMCO, even though it's got a shorter life at the moment. We'll look at the potential there around Southeast Asia.

I'll have one more...

Please. Yes. Go ahead.

You've described it in numerous places in the annual report as being a noncash expense. I put it to you that, that is misleading and wrong that you spent the cash. You paid out $1.3 billion to acquire the project originally. And you then spent cash on the other costs -- the other $1 billion worth of costs that have been incurred since up to 30th of June. And then when you write it off, it -- it's cash that could have been retained and either spent on a more profitable project or haven't given to us as dividends. The -- or as buybacks or whatever. But it would have been -- they're alternatives to what that $1.3 billion was spent on. And it was our cash before management, and the Board blew it. So what I'm saying to you is, why have you not asked Mr. Kerr to resign as a result of the decision that was -- obviously costs the shareholders a lot of money?

Yes. We're going to have to agree to disagree on the description we've described it as noncash because that's exactly what it was. And we've also been through the reasons for this impairment, John. Again, just to repeat, the delays occasion by COVID, the inflationary pressures totally outside Graham and his management team's control and some dewatering expenses that were not foreseeable at the time that we acquired the asset. So this isn't one of those circumstances where management has a responsibility for the unfortunate impairment that we've had. Now nobody is happy about an impairment. We're all disappointed to have announced one of this magnitude. But I think the more important question is, is there still value for our shareholders in the asset and in the project itself and we feel very confident about that.

Okay. Well, I've got one other question.

John, just let me see if there's anyone else in the room who wants to ask a question. Sure, please come forward.

Anthony Fels. Chair, I would like to introduce Anthony Fels.

Hi, Mr. Fels.

Thank you. Thank you. I just want to ask a couple of questions. Firstly, in relation to the referendum on the Voice in the constitution. How much did the company commit financially? And how much did the company commit through resources, staffing or whatever?

Thanks for your question, Mr. Fels. We supported the Uluru dialogues. And our objective in financially supporting the dialogues was to make sure that we had access to people who would be able to help our employees and contractors for that matter, better understand the issues ahead of the referendum. We donated $300,000 to the Uluru dialogues. I don't know the answer to the second question as to whether we provided any in-kind support by people doing work. Graham, can you help with that?

So we took a very clear position that we weren't going to tell our employees how to vote. As a company, we support Uluru's Statement of the Heart and the move towards reconciliation, but we didn't donate directly to the YES campaign, like some other people did. What we did hold internally was a series of different educational workshops that our people attended and some other people externally attended as part of try to encourage people with an open mind. That's probably about the extent of what we actually did. We had -- as you'd expect, we're an organization that operates in different parts of Australia. We had people who were strongly yes. We had people who were strongly no. I'm certainly a strong yes, but I'm also not going to tell people how to vote in a referendum.

Thanks, Graham.

Yes. I'll ask a couple of other questions in relation to it. But just yes, or no, is all I really need. But first of all, does the -- is it easier for the company to deal with if the yes was successful and you had a national Voice in and constitution, you're dealing with a group of whoever is involved in the voice in Canberra? Is that easier for this company to deal with and be dealing with local communities in the projects and on just talk about the Australian projects on the ground here? Just yes or no is fine.

I'd love to go yes or no, but I don't feel I can do justice to it. Look, we have the good fortune to work in local communities every day. And in some parts of Australia, which is relevant to this question where we've been doing this work, our people have been involved for decades or way before South32 came to life in 2015. And we have really strong relationships with Traditional Owners in those communities, and we will continue to do that. We did form the view, after a great deal of thought, that having a Voice to Parliament of the kind that was suggested in the referendum would enhance the opportunity for First Nations people to have a say in the outcomes and the policies that were designed to impact their lives and their livelihoods. And I think that's a totally uncontested position. I think there's a well-accepted recognition across both sides of this debate that participating in decisions that impact people is going to lead to better outcomes. Now the model for doing that is obviously one that's been contested. So I'm sorry, I haven't given you a yes or no.

I wasn't necessarily expecting one. The other thing -- and you can give you a yes or no or you can explain it further. But does you and I guess the Board, unless anyone wants to descend to what your answer is. But do you believe that this process of having a referendum and supporting Uluru has been able to set the Aboriginal cause forward or backwards over the last 12 months?

Fortunately, I'm Chair of South32 and not the Prime Minister, so I don't have to worry about how the decisions that were made around taking that to a vote and all of the analysis that's being done after that time. There will obviously be a lot of soul searching and that's best done by the people who made those decisions. The fortunate thing for us is that we do have a strong presence on the ground. I mean to give you an example, I said earlier about the work that's been going on for decades. And I'm thinking particularly about Groote Eylandt, where our GEMCO asset is, where we work with the Anindilyakwa Land Council every day in making sure that what we do is consistent with the aspirations of that community. And we'll just keep doing that. We'll do what our job is, which is to make sure that all of the communities where we operate, are better off for our presence. What we do know is that there is significant disadvantage, again, an uncontested point, and one that we need to try and address through the resources we have available.

Okay. I'll ask one more question and then [indiscernible]. And then I just want to ask one question in relation to the resolution 5 about the remuneration for Graham Kerr in a positive way. But I just want to know, was there a strong lobbying from any of your institutional shareholders or any other groups that were supporting the YES campaign for the company to get involved in that? And then I guess it's another question, but was it put to this -- I didn't attend last year's meeting. I can't remember if it was an open meeting like this or it was online. But was the broad shareholder support sort like you do with environmental issues and carbon issues and things in relation to supporting political issues such as the referendum?

I don't remember any discussion at last year's AGM on this subject. Of course, it was before the Prime Minister announced that he was going to put it and when he was going to put it, I don't think we had any discussion. We haven't had strong lobbying from anybody. We formed a view entirely on the basis of what we thought was in the best interests of South32. So no. And interestingly, I did a number of meetings with investors in the lead up to the AGM, which is something we do each year. And I think out of about 35 meetings, I had just 1 question from shareholders about this. Now those meetings were before the referendum. So I would say that it was not a matter that was particularly on the minds of our investors.

Okay. Thank you. And just in relation to the resolution 5 regarding the CEO's remuneration and incentives. Because one concern I have is he seems to pick the top of the market when he sells his shares, but -- and it's not necessarily good for the company when you see the CEO disposing shares. Now I understand he's got to pay tax and whatever else he might have other reasons to do it. But is there other ways that the Board can do this? And I'll say now the remuneration package you were referring, I think the shares are going to be priced at well-significantly above what they are today, for example, because the market has gone the other direction. But is there a better way to do it than -- incentivizing any staff. But the way we're doing it here is there a way to either hold them and grow for a while or some other way where the CEO is not up for a big tax bill because of the value of his entitlements and he's not having a -- if he has to pay tax and needs to sell shares. It's just not a good look for the company and then the shareholders usually suffer a bit of a down trend in the market if the CEO is selling shares.

Yes. So as you know, if any of the key management personnel or directors, for that matter, sell any shares, it's reported to the stock exchange, and we always report the reason, and the reason has been to pay tax. I mean that is quite a usual process and only fair because if he didn't sell the shares to pay the tax, he'd have to find other remuneration to pay that tax. So he's paying the tax on the value of the shares that have been granted. And that's an Australian tax issue rather than an issue for executives themselves. If Graham was to sell any shares, he needs permission to do it under our securities dealing policy. I have absolutely no concern at all about any transaction that he might have done since he joined South32 as Chief Executive back in 2015. I mean, I should just say because sometimes these things are forgotten. He has only had 1 year where the long-term incentive has vested in the 8 years since the formation of this company. This Board holds a discretion over the granting of long-term incentives. So he might meet the performance hurdles, but we nevertheless hold a discretion as to whether we'll grant and allow those shares to vest. Now in 1 year where the Board felt that the value of the vested shares was just beyond expectations, we talked with Graham, and in consultation with him, agreed to waive or forego the value of one significant tranche of those long-term incentives. Now that was worth over $4.5 million. That's not the act of someone who's not committed to this company and prepared to invest their livelihood and back the company in the way he has. So we have a great deal of confidence.

I've got more of a comment, but I mean is -- maybe you can offer him an interest-free loan to pay his tax or whatever it might be. I'm just saying as a shareholder, the shares generally go down after CEO dispose the shares for whatever reason. It's just not a good look. And I'd love them to hang on to his shares and...

Which he's done. Yes, which he's done. He has a very significant shareholding in the company. So he's certainly putting his investment behind those of other shareholders. Absolutely. Thanks, Mr. Fels.

Chair, good afternoon. I would like to introduce Mr. Anthony Fels.

I'm sorry, was it Mr. Fels?

Paul. Mr. Paul.

Yes. Thank you. Well, from a point of view of a modest simple shareholder, I have a very simple perhaps a little silly question. And perhaps the answer to this is already in the very extensive reports -- presentations slides you had. But the question I would appreciate a very simple answer. The share price of South32 dropped about 25% from January to now, right? So my question is, could you comment on this and give a simple answer why this happened? Thank you.

Thanks, Mr. Paul. I must be overly complicating my answers because several of you have asked for a simple answer. So I'll do my very best. We don't control the share price. What we control is executing our strategy, which is to orient our portfolio towards those commodities with the future in a low-carbon world. And I think the management team under Graham's leadership have done an exceptional job on doing that, since the formation of the company back in 2015. We are not immune from the shocks that we're seeing around the world, the geopolitical tensions, but also the economic shocks that we're all now starting to see repeatedly. So there will be a consequence in share price. But again, it's not something that we control. Your Board is absolutely focused on doing our job to oversee the execution of the strategy. But Graham, I mean, you've been talking to investors following the full year result. Did you want to make a comment?

Yes. Probably 2 comments. And 1 is Karen is right, there is a large exposure to commodity prices. So about 50% of our book is probably exposed to the aluminum value chain, which demand has been weak in Europe and probably not particularly as strong as people help coming out of COVID. So that would be a component compared to prior year's pricing. And I think the other thing, if you're going to be honest, we had a disappointing quarter around production in a couple of our assets, which probably didn't help at that time. The production sort of come back, but the aluminum price has continued to be low.

Thank you. Anything else from the floor? John, do you want to squeeze in your last question?

On Sierra Gorda, you've got a deep open cut there, but no reserves on the schedule. You've only got resources. And in discussions with you, we understood that the reason was that you weren't getting full cooperation from your joint venture partner in getting the exploration done to prove up the resources and turn them into reserves. But it does seem to us pretty critical that, when you're getting down to the bottom of a hole that you know where to go next.

Thanks, John. I'm going to get Graham to comment. I'm not sure I was worried about cooperation from our partners, but go on.

So one of that is we acquired Sierra Gorda about 18 months ago. When you acquire an entity that's overseas, they don't have to report against the dual code. And general practice in doing a takeover or a deal, you have a couple of years to at least move to resource and then reserve. The measurement that is done in Australia is different, for example, than what it is in North America. Our partner there is a Polish company. They have their own set of reporting requirements. It's not about the material not being there. We continue to see strong performance out of Sierra Gorda, and we spoke about the growth options. We did the resource this year. We will do the reserve next year. And it's not a case of them cooperating. It's actually someone going through all the logs that have been drilled, piece by piece and doing a QA/QC requirement as under JORC. Usually, you have 2 to 4 years to do that after doing a foreign acquisition. We've done the resource already, and we'll look to do the reserve by next year's full year report.

Before I go on to other business, I'm conscious there have been some pre-submitted questions, Belinda. So could I just pass to you or to see if there are any questions on the phone?

Thank you, Chair. Before I move on to the pre-submitted questions, we've received one online question from Mr. Wei Busch in relation to the auditor's report. Further to Graham Hogg's auditor's report to an earlier question, there is no reference to Hermosa in KPMG's audit report in FY '22. Why didn't KPMG identify Hermosa as a key audit matter in its FY '22 report? Did KPMG raise the potential for an impairment write-down with management in FY '22?

Thanks, Belinda, and thanks, Mr. Wei Busch for your question. Graham, would you like to comment?

Thank you, Chair. And I understand the question's in relation to the FY '22 audit reports. You'll see in our CAM for FY '22, we do actually refer to or asset valuation as a key audit matter. We don't specifically call out all of the assets of the company. We called out 3 assets of the company, where they had, had impairment indicators, and that was Brazil for a reversal. That was -- sorry, it was Brazil, that was Hillside for goodwill. We have no need to call out Hermosa in our audit opinion. We are looking at assets impairment as a whole and triggers. And in the FY '22 year, there was no trigger for the Hermosa assets. As I stated before and as I stated in the FY '23 report, the trigger is all around the availability of information such that management can form a view a potential view on what the value of Hermosa is.

And I might just add to that, if I can, because this is obviously something the Board looked at very closely. When we bought Hermosa, we were treating the 3 pieces, the Taylor development, the Clark development and the additional land, as a single package. It was only when we had sufficient information to make the decision that Taylor and Clark would be separately developed that, that impairment trigger took place. Thanks, Belinda.

Thank you, Chair. We've received another question from Mr. Wai Busch. The 2019 annual report states that South32 paid $1.4 billion for Hermosa. $1.3 billion was written off in FY '23. This write-down represents over 10% of South32's equity. What changes has the Board made to its due diligence process given this material loss? How has and will this loss impact management remuneration?

Thanks, Belinda. And I think we've largely answered this to John's question earlier, but the amount of money we paid for Hermosa was for those 3 components, Taylor, Clark and the additional land package. When we determine the amount of the impairment for Taylor, we were not taking into account the value that we think will be delivered from Clark and the additional land. But Graham, do you want to add any comments to that?

Look, I think that would be, again, there's still upside on Taylor, Clark and the broader land package to walk through. And as Graham sort of mentioned about reversals, yes, the way we measure impairment is based on a discounted cash flow future cash flows. It doesn't necessarily put a great value around cash flow that occurs 20 years, 15 years out in the future. So I think there's that aspect as well that comes into play. Would we actually buy Hermosa again? Absolutely. I think, if we had another one of those projects, I think it underpins the growth of South32 for probably 20, 30, 40 decades. And probably the greatest comparative would be the Cannington deposit, which was I was actually there when we built it under BHP. It had a mine life that was probably about 10 to 12 years. It's now been running for 26 years and got another 10 years left to go. And it's generated strong cash flows and growth in the resource over multiple decades. It was never included in the original valuation decision. How you make money in the resource industry is to have resources that have optionality and can be developed over multiple decades because we will never pick the prices.

Belinda?

I'll now move on to the pre-submitted questions. The first question is from Ms. Li. I note there has been a significant increase in finance costs. While interest-bearing liabilities have decreased, the interest on borrowings increased from $31 million to $68 million, which cannot be explained by the increases in interest rates over that time.

This is referring to the increase of $37 million, which was attributed to $700 million of senior unsecured notes that we took out to support the Sierra Gorda acquisition. That's the copper acquisition in Chile. And in April of 2022, when we issued those notes, we only had to account obviously for 2 months or 2.5 months of the interest in that financial year, whereas the financial year FY '23, we accounted for the full 12 months. So that accounts for the difference.

Our next question is from Mr. Brass. Many mining companies are seeking lithium deposit opportunities. Is South32 also on the search for lithium orebodies?

We're always on the search for commodities, as I said earlier, with the future in a low-carbon world and certainly lithium is one of those. But we need to search for opportunities that add value, are value accretive. And we just haven't seen a lithium opportunity that meets our investment criteria on that front. Now if we found an early-stage opportunity that we did feel added value to our shareholders as a way of getting into the lithium business, then we would do that, but we just haven't found that opportunity to date. I mean, I should say that Graham, with key members of his team, spent a lot of time unsurprisingly, scouting the world for opportunities that fit not only our strategy at South32, but ultimately, will deliver value to shareholders. But Graham, anything you want to comment on lithium?

Look, I would just say, Karen, it clearly is an attractive commodity. For us, it's all about the price to get in. And at the moment, we probably see equity values are priced too high for us to create value for our shareholders. We seek to grow the value for our shareholders, not to grow the units we produce.

Belinda, anything else?