Goo d morning, everyone, and thanks for joining us today. On the call with me is our Deputy Chief CEO, Matt Daley, our Chief Financial Officer, Sandy Sibenaler, and our Chief Operating Officer for Southern Africa, Noel Pillay. I'd like to start with safety, where we're seeing improvements in key measures following our sustained effort to improve performance through our global safety improvement program. During the half, we achieved further significant improvement in significant hazard frequency, which demonstrates improved hazard awareness and a more proactive reporting culture. We've also seen positive reductions across our lagging indicators. While the data is encouraging, we're determined to continue to improve our safety performance. Moving to our financial results. I'm pleased to say we have delivered strong financial results for the half, underpinned by our operating performance and higher prices for base and precious metals.
Our FY 2026 production unit guidance is unchanged across our operated assets, off the back of our continued focus on delivering safe and reliable operating performance. This performance enabled us to capture the benefits of a positive market conditions for our key commodities. We've delivered underlying EBITDA of $1.1 billion, with group operating margin of 28.2% and growth in underlying earnings of $435 million. Our balance sheet remains strong, with net debt of $25 million at the end of the period, enabling us to invest in both high returning growth and deliver returns to our shareholders. Looking ahead, commodity price tailwinds, coupled with planned drawdown of inventories at Mozal, is expected to add to the group's cash generation in the second half.
Our strong financial performance is translating to higher returns for shareholders, with today's announcement of a fully franked ordinary dividend of $175 million in respect of H2 FY 2 026, and a $100 million increase in our $2.6 billion capital management program, with $209 million in managed returns to shareholders. We're continuing to work to increase our production of copper, zinc, and silver into structurally attractive markets. During the half, we advanced construction of our large-scale, long-life Taylor zinc-lead-silver project, and across our broader Hermosa complex, we returned further high-grade copper exploration results from the Peak deposit, which supports the potential for a continuous copper system connecting to Taylor.
As part of the scheduled project execution at Taylor, an assessment of project milestones and capital expenditure will be completed in H2 FY 2026 and will be informed by the pricing of additional underground and surface infrastructure packages scheduled to be awarded during this period. At Cannington, we announced today a 28% increase in the underground ore reserve, while also targeting further potential growth through both underground and open pit development options. Sierra Gorda progressed options to grow future copper production. We've defined an exploration target at Catabela Northeast, adjacent to the Catabela pit, ranging from 1.1 to 2.9 billion dollars—billion tons, sorry, highlighting the potential for future mine-life extension.
In addition, the feasibility study for Sierra Gorda's fourth grinding line is nearing completion, with an independent review of the feasibility study to be completed by the joint venture partners to support a potential joint final investment decision in mid-calendar year 2026. We're also pursuing further growth in copper and zinc through our Ambler Metals joint venture in Alaska. In closing, I'd like to thank our teams around the world for their work to deliver these results. Our operations are performing to plan, capturing the benefits of higher commodity prices. Our balance sheet remains strong, and our performance is translating to increased returns for our shareholders. Looking ahead, we're focused on continuing our positive momentum into the second half of the year and delivering our growth projects in base metals. Thank you. I'm now happy to take questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two, and if you're on a speakerphone, please pick up the handset to ask your question. We'll pause a moment for any questions to register. Once again, to ask a question, please press star one. Thank you. Your first question comes from Ian Rossouw from Barclays. Please go ahead.
Morning, team. Thank you. Just a follow-up on what you were saying in the previous call, Graham, around Sierra Gorda. Just wanted to better understand some of the changes you've made there around management, what's driven that, and I guess, obviously there's been some delay on the engineering and sort of the approvals of the Fourth Grinding Line. So just wanted to get a bit more of the background on that. Thanks.
Yeah, thanks, Ian, and appreciate the question. Look, Sierra Gorda, for us, obviously, is an asset that we think gives us the right exposure to copper. It was one that we believed when we acquired it, was undervalued in terms of its current performance, but also its future options. And those options include the Fourth Grinding Line, that oxide material sitting on the surface, but also exploration potential. So it's great to see the work that's been done to sort of get towards Catabela Northeast, knowing there's a lot more work to be done on that. And obviously, the oxide facility at Spence, we'll have a look at once we settle on the Fourth Grinding Line.
The Fourth Grinding Line itself had a number of issues we had to resolve around some work around additional thickness, and bringing the thickness up to scraps, where we could get a solid state of about 62% to be able to get to that next level of licensing to basically expand the facility. But if I was going to be honest, look, we, both ourselves and Sierra Gorda probably weren't quite happy with the project director's performance. And as a consequence, you know, that probably reflected on the person who was leading the Sierra Gorda business at the same time. So we agreed to make a change about halfway through last calendar year. And as part of that, we brought in a new asset leader, as well as a new project director to sort of move into that Fourth Grinding Line role.
And obviously both of them have brought a little bit of a fresh perspective on the project. Certainly got it moving in the right direction now, which we're far more comfortable with. Now it's a case of finishing the engineering, having an independent review, and then going back to both partners to basically approve it going forward. I wouldn't say materially there's been a major change in technical capabilities or project execution. It's more been about the quality of the people leading the project, which I think we're in much better shape today, plus some of those conditions precedent around the solids, et cetera, that we had to do.
Okay, thanks. And then just to follow up on Hermosa, around the awarding of some of the surface contracts. You said you're gonna do a few more of the underground and surface in the second half. How are we tracking so far against budgets and timelines?
Yep. So if we look at-
You'll do a reassessment in the second half, but just wanted to get a sense, how are we tracking at this stage?
Yeah. So the second half, we always plan to sort of do this review based on when we knew the packages of work were coming in. So to date, if you look at the total spend to date, you're talking about just over $1 billion, and that's about 48% of the schedule we had in the budget. What has worked really well for us has been the first two surface packages have come in at the price that we would have expected as part of the estimate. What's also worked well is things like the mobile equipment at the same time. I think the shafts themselves, you know, we just finished the first piece of lateral development on the 3,680 level for the bench shaft, and that was executed slightly ahead of budget and on costs.
The shafts, you know, if you look at the bench shaft, that's about 56% complete, so 459 meters of 824. Now that we've finished that first underground mining level at 3,680 level, we'll start resuming the sink in Q3 of FY 2026. The bench shaft has had some challenges along the way in terms of steel supply, but probably more importantly, a little bit of water at the start, even though water's less than what we expected, and some underperformance by Redpath on their side. Main shaft, we're at about 370 meters versus 898 meters, so that's about 41% complete. And the main shaft has certainly taken some valuable lessons from the bench shaft and continues to make much better progress.
In saying that, when we look at the schedule to date and the trend lines, we don't see any major movements in dates and production, expected production and capital costs. But again, I always say, until we get to the bottom of those shafts, because both of those contracts will be time and materials, I'm always nervous. And as we get in the second half of this financial year, we expect to have come in the next two packages of the surface construction work. We'll also have the quote in for basically the underground lateral development, and by the time we start our review, it means probably 80% of the capital would have been committed, which sort of puts you in a much better position to do a complete rebaseline. Not certainly raising alarm bells for me at the moment.
It's a normal part of the process. The one unknown besides the shafts for us is also around the tariffs. To date, we haven't seen any material impacts, but in saying that, it just bounces around from day to day, never quite knowing where it lands, but that's the environment we're operating in for a period of time. What I would say, what is going really well, all the foundations work on the process plant, the cable trays are all in. At the same time, our approval, you know, our draft EIS came out in the fourth quarter of our financial year 2025. We expect to have the final EIS out in this half.
This is our second half of financial year 2026, and we're still expecting to have a Record of Decision, so full federal permits for Taylor, Clark, and Peak, in the first half of FY 2027. So that's been a real great process for us.
Great. Thanks. And, and then maybe just lastly, on the labor side, obviously, you've previously said where the project's located, there isn't much competition for sort of skilled labor. Is that, that still the case? Is that, that's still been okay from, I guess, competing against some of the other projects in the north?
Yeah. So I think the way I think about it at the moment, we have seen very low rates of turnover in our professional people. We still manage to attract good quality people as the project grows, and we start thinking about commissioning and operating, getting prepared for that. People has not been an issue for us. And while there's a lot of projects in the U.S. talked about, there's very few that are actually in the midst of execution like we are. I also think Tucson's not a bad place to base yourself. And the project itself has certainly got a lot of momentum in the U.S., which I think is super helpful compared to other projects that have stop-started.
And I think most people in the industry out there appreciate that we're gonna get a federal approval within four years, even though we don't need it technically to eight years into production.
Okay, thanks. And then maybe just on Brazil Aluminium, what, what are sort of the underlying issues around the performance there? Obviously, it's not something, an asset you're operating, but just wanted to get a bit more color there.
Yeah, look, from our side, it's incredibly frustrating because it has been a long, painful, drawn out process, and we've got our third piece of, if you like, revised guidance from Alcoa over the journey of the restart. The most recent event is they experienced some instability in December last year, where they had an unplanned, if you like, outage of 80 pots that needed to be taken offline. So that means at the moment we're back to about 565 pots online versus a capacity of 710, which is about an 80%, you know, capacity. Alcoa have, you know, deployed a set of specialist people from their operating center of excellence. And they've worked on down there. They've provided some more supervision. They've revised the plans.
Disappointing to see, you know, the production guidance for 2026 has been guided down to 135,000 tons, and 140,000 tons in FY 2027, versus a capacity of 179,000 tons. These are obviously South32 share. You know, we have offered to provide some assistance if we can, particularly as you think about Mozal, Portuguese-speaking, a very well-run smelter. It's up to them if they want to take it on. They certainly are the operator. They certainly understand that we're frustrated and disappointed in this performance.
Okay. Thanks, Graham. That's all from me.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Myles Allsop from UBS. Please go ahead.
Graham, thank you. Maybe, obviously, it looks pretty clear that with Mozal, you know, the, you know, it's beyond the point of doing a U-turn, and it's going on care and maintenance. I mean, what is the estimated cost of, you know, restarting it?
Yeah.
Just to give us a sense, yeah, as and when we come through. Also, just on Hillside as well, obviously there's a bit of a kind of clock ticking towards the power contract renewal. You've talked about decarbonizing Hillside in the past, and if you can't get a green power source, then it may not be part of the portfolio. Could you give us a quick update on the Hillside side as well? Thanks.
Yeah. So I'll maybe start with the basics around Mozal, just for people on the call. We use about 940 MW an hour, 940 MW in terms of capacity of power. The smelter is on 24/7, 365 days, so it's a perfect load for a utility. We have generally drawn all our power from the Cahora Bassa, which is owned by the Mozambican government, by an entity called HCB. Around this time last year, they started to tell us that after two years of severe drought, that they were lacking the ability to provide Mozal's power needs.
That would be at least probably two years for the basin to recharge, and then they have some maintenance that they need to do, which means they're probably not gonna have full power somewhere between the next two to four years, a little bit unknown. The challenge for that is you need power. It's 1/3 of your cost base, no power, no aluminum smelter. We've been trying to engage to actually get some power off of Eskom. There is no real incentive for Eskom to do that. If you look globally today, outside of China, less than 1% of Western smelters have a power contract in excess of 50.
The current regulatory environment at the moment, and the only formal offer we've seen from Eskom, is for us to pay Mega flex, which is closer to $100 a US megawatt hour, which makes it totally untenable. So that does mean we have been talking about this for a while, about going into shutdown. We were hoping, obviously, that we would have maybe some breakthrough via Eskom. You know, there's a big impact for our people, roughly 4,000-5,000 people that depend on this in terms of contractors, our people, and another knock-on impact are about 20,000 people are impacted. It's about one in three jobs in Maputo. It's probably about 3.9% of GDP. So it'll be a significant loss to the government of Mozambique and the Mozambique economy. So we are planning to go into care and maintenance.
Even if you got me a power contract today that was affordable, it made sense, we have run out of pitch and coke over the next couple of weeks, and the lead time on those items are somewhere between five to eight weeks, which you're never gonna get it in time to keep the pots running for when the power contract runs out. We made the decision in December to stop buying materials, because we did not see a breakthrough coming, if you like, on the power contract, and hence we didn't want to keep pouring money out the door that you were never getting back. Now, to actually keep the smelter in care and maintenance, you're probably talking about an ongoing cost of about $5 million a year, 100% terms. The closure and rehab estimate is about $119 million.
We wouldn't be looking, obviously, we work closely with the government of Mozambique, we wouldn't be looking to go into full closure mode until the HCB power contract and future was understood. Because once they do come back online, they've got a lot of power, not a lot of off-takers, so this could become viable going forward. The challenge, I would say, is, as you've seen with Brazil, restarting a smelter over a number of years is very difficult. It's not like a mine. So that'll be the challenge. Now, when it comes to Hillside, Hillside is powered by Eskom. Today, we're allocated pretty much coal-fired based on the grid factor. The reality is, Eskom, every single week and year, is making progress on renewables and nuclear coming into their network. We are working closely with them over time to get a more balanced solution.
What we do have is time in that space. We have time because the current power contract doesn't expire till 2031. From a regulatory environment in South Africa, unlike exporting power to Mozambique, there is what's called a heavy industrial tariff that allows Eskom to be more flexible, if you like, on power, considering what impact it has on the country, but also their own performance. The other thing is we sell roughly 30% of our alumina from Hillside downstream, which goes to people like Hulamin and other, if you like, suppliers who make products out of it. There's a hell of a lot more jobs dependent on this in South Africa, and particularly in an area that's sensitive to the ANC around KZN.
So we have a lot more confidence in how Hillside's going, and I think certainly the interactions with Eskom have given us no reason to doubt that they see Hillside as an important part of the equation for them going forward.
Thanks. It's helpful. Just maybe in terms of the transition with Matt, could you give us a kind of quick update on the timing, when you'll be, you know, handing over the keys? And, you know, what advice are you giving Matt over the next kind of, sort of, two to six months?
Yeah, look, absolutely. So Matt joined us last week for his first week, and I'll get him to say a couple of words in a second. You know, Matt had his first week with us in South Africa, where we had a board meeting for most of the week. He visited HMM. Obviously this week, he's been in our head office, and also going through results presentation. He's on this call. He'll be coming on the road with me for, you know, on the East Coast, to meet all our investors. Then he'll be doing the US and other investors around the world. And in between that, and over the next couple of months, he'll be visiting all the operations. So Matt now has accountability for all the operations, reporting to him. And that gives him a chance to understand our business very quickly.
The reality from my side, my number one objective is to set Matt up for success, so when he feels comfortable, and he's ready to go, well, you know, it's his to run going forward. I guess the piece of advice I'd always give him is the key, I think, for our assets, because of the geographic spread, because of the age and some of the complexity, you know, the focus areas are making sure that, A, we run our business safely and reliably. The base business needs to deliver on its safety, production costs, and cash flow commitments to fund the growth of the business. And the next piece for me is delivering on our growth projects. 'Cause once you come out the other side of Hermosa and Sierra Gorda, you'll be very long in cash.
You've also got some other options in the growth pipeline that I think will be super exciting, like Ambler, Catabela Northeast, Clark, and some other exploration. But maybe, Matt, good chance for you to say a couple of words?
Yeah. Thanks, Graham, and nice to meet everyone. Looking forward to beginning to see some of you in the coming weeks as I travel with Graham. It's in early days for me, definitely only week number two, but focus at the moment is getting a really good understanding of the business, so lots of listening and learning, visiting the assets, and talking to people across the company. You know, what stands out thus far is you've got, you know, a really great quality of assets in the portfolio and generating cash. Lots of optionality, and obviously the organic growth projects that Graham has mentioned. And I think the way the team thinks about investment decisions with a real focus on value, it has been really, really pleasing.
Opportunity for me going forward is just to build off that really strong base, right? So to focus on improving operational performance, managing risk, and allocating capital really well. So, yeah, excited to be joining the team, and thanks very much, Graham.
Thanks, Matt.
Great, sir.
Does that help with the questions?
Yeah, no, that's very helpful. Maybe one last one, because we're getting asked by, by investors as well, around, you know, the potential for consolidation in, in alumina in Western Australia. Do you think there is a lot of value that can be created, or do you feel that, you know, you're in a relatively much stronger position given where you are with the permitting?
Look, I think obviously we're in a great position in terms of having the approvals for our next series of mine developments. Alcoa is going through that process, which is a long, painful process. And obviously they have different land holdings than we do, some water issues to deal with that we don't. So, you know, they're better to comment on that, but certainly we're very pleased to be past that piece, and actually executing on our projects going forward. And they're actually going well. Look, I think in the Southwest, there's been a long history of engagement around things like land swaps, technology exchange. Do I think potentially there is more synergies to be had there? Look, I think that is a conversation absolutely worth revisiting over time.
Probably, like, we were very focused on getting our next approvals. I'm sure Alcoa are very focused on that in the short term.
Great. That's very helpful. Thank you.
Thank you. Your next question comes from Alexander Pearce, from BMO. Please go ahead.
Hi, Graham. You've previously highlighted the potential upside from the Sierra Gorda oxide project. Have you got any update on where this project stands at the minute? And has the recent improvement in copper prices made any difference to kind of bringing that study forward?
Yeah, look, I mean, we've probably—if you think about the order priority, I guess we're sort of focused on the Fourth Grinding Line first, because that 20% production increase, throughput increase, I think is important. Lower cost, more copper, et cetera. Catabela Northeast was to understand how attractive could the Fourth Grinding Line to be defeated. I think the oxide material, we've still got some work to be done on that. There's some early thinking done on it, but I guess we've tried to focus our best people on the other two opportunities first. But if you think about that opportunity, that oxide material, we've got about 110 million tons stockpiled there. It's probably got a grade of roughly about 0.38.
I think what we're looking for at the moment is, we're completing a feasibility study to understand what we could do around low-cost heap leaching. And I think at the same time, you know, there's a number of other operators who are close by, that potentially have some capacity. So the key for us is to understand what would it cost to do it ourselves, versus what could we do in terms of toll treating it through someone else's plant, and what are we willing to pay? And hopefully, we have a greater sense of that towards the back end of this calendar year.
Great. Thank you.
Thank you. Once again, if you do wish to ask a question, please press star one. Thank you. You do have a follow-up question from Ian Rossouw from Barclays. Please go ahead.
Thank you. Just to follow up on that, Graham, around the Sierra Gorda spends and some of the other operations in the area. I mean, is there a opportunity for more, sort of operational, I guess, synergies and, I guess, as you say, using some of the other capacity, but sort of a more regional, consolidation? Just wanted to get your thoughts on that.
Look, in all these things, there's three, obviously, mines that are super close within a stone's throw of each other. If you had your time again, you'd sit back and say, "Why didn't they sort of, you know, do one major piece of infrastructure, and then actually use the different products to actually feed that mill?" Would've made the best economic sense. Obviously, that decision was made a long time ago by different people than sit in the chairs now. I do think longer term, or even medium term from our perspective, there is opportunities to explore synergies between those existing operations, and one would clearly be the oxide material at Spence. But also, as we understand Catabela Northeast and how big that could be, that gets closer and closer towards Spence. So I think, you know, there is a discussion to be had there when the time's right.
The challenge in all these things is when you have more and more players involved, it's a bit harder to sort of get, if you like, to that position where everyone feels comfortable.
Okay. No, it makes sense. Thank you.
Thank you. Your next question comes from Tim Clark, from SBG Securities. Please go ahead.
Hi there. Yes, thanks, thanks very much for taking my call, and congrats on the results. I'm just interested in just a little bit more color on Cannington. You've had a nice reserve increase, which is positive, and then there was a bit of commentary around underground resources and seeking open cost and underground, you know, opportunities. There's obviously been quite a big move in the silver price, and in the past you've spoken about having a very conservative silver price, sort of forecast in the mine plan. I wonder if you could just give us a little bit more color on how you're thinking about Cannington, and how you see it evolving over the next year or so. Thank you.
Yeah. Look, I'd start with a couple of points that I think are worth sort of drawing out, and some of these were included in our slide presentation today. The first one is, when you look at slide 11 in our pack, we talked about the zinc, lead, silver margin, which obviously today is Cannington, despite the fact that, you know, Cannington is almost, it's almost, what? 28 and a bit year old. And it tells you how old I am, because I was a graduate when we were actually building, and I was working there. You know, we're still making margins of between the last three-ish years, 46%-53%. So it is a high value business.
You've already got the capital infrastructure there, you've got the workforce in place, so anything we can do to extend the life of Cannington, I think is super important, and a low cost option and return for our shareholders. It would be fair to say probably, you know, 18 months ago, I was probably less optimistic about the team's ability to extend the life. This isn't driven by what price, in terms of, what's happened with the silver price, and we'll come back to the silver price in a second. This has probably been more around the discovery of good areas of new, new, if you like, sources of material we can bring to the underground.
It does require us to spend a little bit of money in the short term, so over 2027 and 2028, we will spend roughly $65 million-$80 million, and that's on some ventilation, electrical shafts, infrastructure, but that does potentially allow us to increase even further the underground. So what we did announce today was about a 28% increase in the ore reserve, from 3,000,000 tons to 13,000,000 tons, and that adds about two years' life, if you like, to the underground. We think there's more work to be done on that, that could potentially open up more ore to be added and extend the life of the underground.
One of the slides I did love in the presentation that we shared with people today, again, when you go back to the age of Cannington, and you think about when we actually started our journey, you know, some of the short-life assets, from day one, everyone was asking, "Well, how long is Cannington gonna last for?" Because our ore reserve in FY 2015 was only 21 million tons. We've already mined out 26 over the timeframe to today. We've added back in another 17, and we've got 13 left to go. So that sort of gives you a sense of the work that the team's done. And the underground resource itself is about 45 million tons, so the team The job of the team is gonna be: How much can we extend the life out? We have also done a bit more work on the open pits.
We've understood the potential of the underground. That allows us to redesign the pit in a different way, and probably focus, if you like, on a more value-add way to take it forward, as well as we've done some work on some of the remnant old low-grade stock piles that existed on surface, that have been historically difficult to process through the concentrator, and the team have found a way through that they can manage that far better. So I think that what that does mean is Cannington has a lot of optionality, if you like, on the base production, and how we can continue running it. That's before you consider the silver price. So we would've probably been using a silver price south of $40 when we did all this work. The question, how long will the silver price last for?
But certainly, we would expect to complete more work on this over the next, if you like, 12 months, and be in a much greater position to know what the future looks like at Cannington, but it certainly is looking optimistic.
That's very useful. Thank you, Graham. And thank you very much for all of your support over the time. If we don't get to catch up with you again, it's been much appreciated. Thanks.
No problem. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Kerr for closing remarks.
Well, thank you, and thank you everyone for taking the time today. I'm sure you're all very busy. I would like to take the opportunity to thank our teams again, around the world, for the hard work they've done to deliver these results. You know, I think we are running our operations to plan at the moment. We are therefore capturing the benefits of higher commodity prices. As always, you know, we pride ourselves on our capital decisions, and our balance sheet remains strong. You know, our strong performance is leading to increased return for our shareholders, as our model is designed to. Looking ahead, if you look at some of the spot prices versus the first half, there's more upside.
We haven't changed our costs or our production guidance, and at the same time, we've got a series of growth projects in our base metals business to continue to reshape our portfolio. But thanks, everyone, for your time today, and have a safe day.