South32 Limited (S32) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the South32 2026 Full Year Results Investor and Analyst Conference Call. Today's call will begin with opening remarks from South32 CEO, Matt Daley, followed by a question-and-answer session. [Operator Instructions] I will now hand over to Matt Daley, CEO. Please go ahead.

Thanks, Kaley, and hello, everyone. Thanks for joining us today as we discuss our financial results for FY '26. On the call today with me is Sandy, our Chief Financial Officer. It's a really exciting time for our business with our positive operating performance and repositioning to base metals driving strong financial results. There's a clear pathway to substantial value-accretive growth in copper and zinc with 55% production growth expected from projects under construction or approved and a pipeline of growth and life extension options beyond this that can drive further value and returns for our shareholders. Before I run through our financial results, I just want to take a moment to speak about safety. The most important measure of our success as a company is the safety of our people, in FY '26, we didn't live up to the expectations that we set for ourselves. The death of our colleague, Simon, in an incident Worsley Alumina in March 2026 had a really profound impact on everyone at South32, particularly our people at Worsley. Simon's family, friends and colleagues remain in our thoughts. We have taken steps to further enhance awareness at Worsley existing procedures and controls for working at heights, and we continue to look for opportunities to design tasks in a way that eliminates or reduce fall from height risks. As South32 CEO, I'm unwavering in my commitment to a workplace free from fatalities. So turning to our financial results. Our base metals business drove strong earnings and cash flow with strong operating performance, enabling us to capture the benefit of commodity price tailwinds, while active cost management mitigated the impact of our industry-wide inflationary pressures. Group underlying EBITDA increased by 28% to USD 2.5 billion and underlying earnings increased by 55% to $1 billion. Group cash flow from operations increased by $352 million to $610 million after investing $700 million to grow future base metals production from Hermosa. Our balance sheet remained strong with net cash of $283 million after returning $327 million to shareholders during the period. Reflecting our strong financial performance and disciplined approach to capital allocation, the Board has today resolved to pay a fully franked ordinary dividend of $0.054 per share or $242 million in respect of the June 2026 half year. We've also extended our capital management program to September 2027, with $209 million remaining to be returned to shareholders. On the first of July, we announced the sale of our aluminum value chain assets to Alcoa for an enterprise value up to $5.6 billion, plus the assumption of related rehabilitation provisions of over $1 billion. The transaction will unlock significant value for shareholders and reposition South32 as the leading base metals company on the ASX. We have high-margin assets in Tier 1 jurisdictions, a transformational growth pipeline and a strong balance sheet to deliver this growth and shareholder returns. We're working with Alcoa how the stakeholders to satisfy the conditions to the transaction with expected completion in the second half of FY '27. Looking forward to FY '27, we're progressing a pipeline of projects under construction, approved and in study phase are expected to substantially grow our base metals production. At Sierra Gorda, this week, we announced a 61% increase in the ore reserve to 1.1 billion tonnes. An extension of the initial reserve life by approximately 5 years to 19 years, which just highlights the scale, the quality and the long-life ore body at Sierra Gorda, which is still open at depth. Sierra Gorda is expected to deliver production growth of 5% in FY '27 and a further 2% in FY '28 supported by higher planned copper grades. Beyond this, the recent approved fourth grinding line budget is expected to increase production by approximately 30% from FY '31. At Cannington, we've upgraded expected ore process with the inclusion of our low-grade stockpile material to utilize available plant capacity. Life extension work from both underground and open pit sources is continuing with the open pit development option offering the potential for further ore feed and life extension of the complex. At Hermosa, we are focused on delivering our large-scale, long-life tailor zinc-lead silver project, seeking of the ventilation shaft is advancing really well and in line with our recent project update and key processing infrastructure such as the primary and secondary mills, the flotation cells have now all been installed. Once completed, Taylor is expected to deliver attractive financial returns for decades to come and support further growth at Hermosa. This includes peak, exploration and study work is continuing to support the potential future copper production with an integrated development with Taylor. We're also progressing an exciting portfolio of exploration options in base metals. Ambler-based metals both district scale exploration potential in Alaska's unexplored and holding prospective Ambler mining district where our summer [indiscernible] to work season is currently underway, following progress on permitting and stakeholder support for the access road. This really paves the way to unlock value from angles high-grade copper-zinc options. So in closing, our operations are performing really well. We're generating strong cash flow to underpin our base metals growth and shareholder returns. The sale of the aluminum value chain business will reposition South32 as a simpler, higher margin business with a strong balance sheet and peer-leading growth, making South32 leading basement of exposure for investors. I'm going to pause there and happy to take any questions.

[Operator Instructions] Your first question comes from Ian Rossouw with Barclays.

First question, just on Hermosa, obviously, with sort of CapEx and time line reset you've announced earlier this year. Just curious to hear how that project is progressing, specifically on the I guess, cycle times from the contractors, [ shaft ] thinking, and I guess, just how you're tracking to the sort of budgets and how much of the contingency if there has been any sort of consumption of that. I'm just keen to get an update on that, please.

Yes. Thanks, Ian. Thanks for the question to hear from you. So Hermosa is progressing really well. The shafts are on track with our updated schedule we are getting very close to the bottom of the ventilation shaft in the next couple of months, it will get shaft bottom. And the main shaft is actually tracking the vent shaft now really well as well. Decline extension into Taylor ore body is progressing to plan. And of course, that allows us that early access to all that's really important. And as I mentioned in my opening comments, the surface infrastructure coming out of the ground well, mills are in place, float cells are now in place. and substations, which is really in the context of the build-out of infrastructure in the U.S., 5 out of the 6 substations are now installed, including the major substation that allows us to bring primary grid power into the project. In terms of contingency, it's still all intact as we stand here today, been 3 or 4 months since the project update, but very happy to say that it's all intact and very much looking forward to taking yourself in and other of our investors and shareholders on a site tour in September, where we can show you all the great progress that we've been making.

Great. And then just a follow-up on Cannington. Obviously, you've talked on the overnight call about the low-grade stockpiles at Cannington and could you maybe just give us a sense of what's the differential in the grade of the stockpiles versus what you mine to get a sense? And just how we should think about the proportions as you -- I guess you mentioned sort of trying to push above the 2.1% over the medium term and how that proportion from the stockpiles will change?

Yes. Thanks, Izak. So we did around 200,000 tonnes of low-grade stockpiles through the plant last year. We really saw that as a test and some of the key things we were checking for is how recoveries were through the plant and how it interacts with our pace fill system. So we built confidence through that test work. It gave us confidence to, again, put that into this year's guidance is performing really well. We potentially have some upside as we've talked in the past, we have a plant there that's done historically up to 3 million tonnes. We've got a guide of around 2.1 million. So there is some potential to push more through, and we'll continue to update the market as we progress. In terms of the grades, the ratio is probably about 2, 2.5:1, so the grade is quite variable. Given it's a historical stockpile. So preferentially, we're always going to put the underground material through the plant. But where we have opportunities. This is -- it's already been mined, that's already been paid for sitting very close to the existing crusher. It's just cost of transport and then push it through the mill. So that's how we're thinking about it for this year.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Matt Daley for closing remarks. Pardon me, we do have a question from Tim Clark with SBG Securities.

Just 1 or 2 quick questions from me. Just first of all, on the new capital allocation framework. I just -- I suppose I was interested to understand how franking credits and the transformation of the portfolio comes into the thinking on growth and dividends. So perhaps just maybe if we can get some -- a little color on that, Sandy, it would be really helpful. And then just a second one. Have you given us the amount of cash that's sitting in the lockbox as we run towards the end of this deal -- sorry, I might have missed it in the details and I didn't see it in the main announcement. Have you given us that lockbox.