Welcome, everyone, and thank you for joining us for South32's annual general meeting. My name is Karen Wood, and it's my great pleasure to chair today's meeting. Before asking Barry Windmar to come forward to offer a Welcome to Country, I'd like to start by acknowledging the traditional owners of the land on which we meet, the Whadjuk people of the Noongar Nation, and pay my respects to elders past and present of the lands on which we are located today and the lands on which South32 conducts its business around the world. In the spirit of reconciliation and respect, we will continue to support initiatives that strengthen the unique cultural and spiritual relationships that Indigenous and tribal people have to the land, the waters, and seas, and their rich contribution to society, and to ensure their legacy continues and extends for future generations.
Would you now join with me in making Barry welcome as he conducts the Welcome to Country on behalf of the Whadjuk people? Thanks, Barry.
I begin by acknowledging my elders past and present. This morning, we're gathered on my ancestral land. This is the land of the Whadjuk Noongar people. I represent a civilization with the longest continuous connection to this place for some 65,000 years. I represent elders and leaders that have welcomed visitors to these sacred lands for more than 3,000 generations. A welcome to country is a sign of mutual respect. I acknowledge and pay my respects to South32 for including a welcome to country as part of your AGM and board meeting this afternoon. Ngalayan nénén kuring ngalayakeun nénéh Noongar Boja. Noongar mojarepeun nénéh nu kuah bedak Noongar Boja kurelung. From the beginning of time to the end, this is Noongar country. Noongar people have been graceful keepers of our nation for many, many years. Ngalajareupun mama ngalakep jareupun nyeneng Noongar Boja.
We respect the earth, our mother, and understand we belong to her. She does not belong to us. In all her beauty, we find comfort, and she is now a place for everyone to become keepers of Noongar country. Jene jeung kadé jeung jareupun néjaweun Noongar Boja ngalama-amaha bora. We ask you to look, listen, understand, and embrace all the elements of Noongar country. This is forever our home. Good afternoon, ladies and gentlemen. It's an honor and privilege to be here today in one of the most diverse countries on the planet and obviously the beautiful city of Burraloue, Perth, Western Australia. We're so lucky that we have so many cultures and nations that bring that knowledge and the strength to this particular land, and we all walk this land together now, together, hand in hand, as one united, all as Australians and as Western Australians.
We also acknowledge that the global citizens that we have become and companies that represent the global connection to all those ancient civilizations from around the world have called Perth home. With the responsibility bestowed upon me by Noongar elders and leaders, I welcome everybody here today, and I know that we are to stand strong, tall, and proud and united as we are in this place today with the strength of my ancestors. I ask the strong spirits to look after each and every one of you while you're here, and if you've traveled here, to ensure safe passage back to the arms of the families and your loved ones. I'd like to say, Kai Wanju, Ngunqor Jareupun Néjé Noongar Boja, Dajili Wangini Noongar Boja, Wanju, Wanju. Hello and welcome. I'm just happy as we're gathered here on Whadjuk Noongar Boja this afternoon. Welcome, everybody. Thank you.
Thank you, Barry. We're sincerely grateful to you for being with us. I'm joining you today from Perth along with our Chief Executive Officer and Managing Director, Graham Kerr, and our Company Secretary, Claire Tolcon. Joining me on the stage from my far right are Non-Executive Directors, Carlos Mesquita, Fudi Mutoba, Xiaoling Liu, Wayne Osborn, and on my far left, Sharon Warburton, Jane Nelson, Frank Cooper, Mandla Misimang, and Stephen Pierce. Members of South32's leadership team are also attending today, either in person or remotely. We have Jane Bailey from KPMG, the company's auditor, and Rod Soames from ComputerShare Investor Services, who's been appointed Returning Officer for the meeting and Scrutineer of the voting. I can confirm that we have a quorum and now formally declare the meeting open. I'll ask Claire to start by reading some procedural matters. Claire.
Thank you, Karen. Today's annual general meeting is being conducted as a hybrid meeting, enabling shareholders, proxy holders, and guests to attend in person or remotely via the online platform. For those shareholders joining us in person, please take note of the emergency exits and the evacuation information displayed on screen. If you would like to ask a question, when prompted, please raise your hand and introduce yourself to one of our microphone attendants. All physical voting cards will be collected at the end of the meeting. For those shareholders joining us online, in the event of an emergency in the room, please stay connected, and an update will be provided via the online platform. Written questions can be submitted via the Q&A icon on your screen or by dialing the telephone number, which will connect you to the audio question line.
Once voting opens, you can cast your vote by pressing the vote icon before the meeting closes. If we experience any major technical difficulties during the meeting, updates will be provided via our website and relevant stock exchanges. Questions received in advance of the meeting will be read out by our moderator, Belinda Truman, and if multiple questions on the same topic are received, we may group them together when we answer. I'll now hand you back to the Chair.
Thanks, Claire. As stated in the notice of meeting, voting will be conducted by way of a poll on all resolutions, and I now declare voting open, so you may begin recording your votes. Some of you may recall that at last year's annual general meeting, one of our shareholders asked that we release the proxy position on each item of business before the meeting. While I understand this isn't general practice, we have decided to trial it this year, and those proxy results were released to the ASX prior to the commencement of the meeting together with a CEO and Chair addresses. As in prior years, we'll also display the proxy position on each item of business before a call for questions on that item. We'll review this practice ahead of next year's AGM.
This year marks South32's 10th anniversary, and while much has changed over the last 10 years, our steadfast commitment to improving safety performance remains. This year, we failed to ensure that everyone went home safe and well to their loved ones. Some of you may recall that at our 2024 AGM, I spoke about the loss of Jose Luis Perez on the 17th of September 2024 while he was working at our Cerro Matoso nickel operation in Colombia. I want to reiterate what I said at the time, that we cannot be truly successful unless we eliminate fatalities and serious injuries from our business. I want to offer our sincere and heartfelt sympathies to Mr. Perez's family, his friends, and of course, his colleagues. Graham will provide more detail about the progress we're making on improving our safety performance shortly.
Also unchanged is our strategic focus on producing minerals and metals critical to the world's energy transition. The company today looks very different than the one founded in 2015. We now have a stronger portfolio of assets, having divested lower margin capital-intensive operations in coal and manganese alloys. We have also grown our base metals production and aluminium value chain. We've done this through investments in the Sierra Gorda Copper Mine, the development of our Hermosa project in Arizona, and the restart of the Alumar smelter in Brazil together with our partner Alcoa. Collectively, these steps have provided additional balance sheet flexibility and supported returns to shareholders. Throughout the year, the board again visited some of our operations. I've spoken in the past about the opportunity this gives each of us to test critical cultural aspects of our company, including the way our people are approaching safety.
These opportunities are invaluable for all board members, and we see them as a key part of our governing role. We visited our Hermosa project in Arizona in the U.S. in December, Hillside Aluminium in South Africa in February, and Worsley Alumina here in Western Australia in May. At Hermosa, we saw firsthand the progress of construction and had the opportunity to meet with local stakeholders. We also learned about the workforce initiatives being developed to support our goal of 80% of Hermosa's workforce being recruited from the local community when fully operational. This will be a significant economic boost to that local area. At Worsley Alumina, directors visited the site of the mine development project, which was the subject of the primary state and federal environmental approval processes that concluded in February.
The visit provided an opportunity to better understand how we are complying with the conditions attached to these environmental approvals and view the progressive rehabilitation of previously mined areas. This year, the geopolitical instability we've seen has resulted in a decline in the international collaboration once relied upon to tackle shared global issues. We've also seen uncertainty and significant market volatility due to trade tariff announcements. Unfortunately, our business is not immune from the impacts that arise. Despite these challenges, our strong operating results for the year, coupled with recent portfolio improvements, enabled us to deliver underlying earnings attributable to members of $666 million. We returned $350 million to our shareholders, including $294 million in fully franked ordinary dividends and $56 million via an on-market share buyback. At the end of financial year 2025, our $2.5 billion capital management program was 94% complete.
Consistent with our disciplined approach to capital management, the board has resolved to extend the program until 11 September next year, with $144 million to be returned to shareholders ahead of either its extension or its expiry. These allocations bring the total capital allocated since 2016 to $18.7 billion. In line with the three priorities of our capital management framework, approximately 36% of this was spent on maintaining safe and reliable operations, 20% returned by way of ordinary dividends, and 41% invested in the business through acquisitions, exploration, share buybacks, and special dividends. Sustainability has been central to our strategy since the formation of the company over a decade ago and remains key to the long-term performance of our business. It is simply not possible to responsibly operate in the resources sector without addressing sustainability issues like climate change, water use, and biodiversity protection.
This year, we published our second Climate Change Action Plan that builds on the plan we put to you in 2022. Our plan outlines how we've continued to position our portfolio for the energy transition and highlights the work that we're doing to reduce our operational emissions and support emissions reduction across our value chain while also strengthening the resilience to physical climate risks. We've matured our approach to climate change to reflect the progress that's been made, the lessons we've learned, and the risks and opportunities it presents. The intervening three years have given us deeper insight into the commercial and technical challenges constraining emissions reduction, particularly at Hillside Aluminium and Worsley Alumina, our highest emitting operations.
These challenges require collaboration, which, when led by governments around the world, can be a critical enabler in addressing complexities in a sustainable way that achieves a just transition for people and communities. What is apparent is that changes to our climate will result in shifts in climate extremes, and as we continue our climate change journey, there will be challenges to overcome in decarbonizing our business and ensuring the resilience of our operations. To strengthen our approach, we are managing present-day risks and embedding climate adaptation and resilience plans in our systems and decision-making. Over the course of the last couple of years, the Board has been focused on succession, both for management and for the Board.
In May, we announced that Matthew Daly will be joining us as Deputy CEO in February 2026 and that he will assume the role of CEO when Graham steps down, an event we expect to be late next year. It's important to note that February is not a CEO succession event. It's the beginning of a period that will allow Matt to get to know our people, our assets, and our shareholders. This timetable has been led by me and carefully planned by your board. It reflects the fact that South32 is a complex company with operations that span underground mining to world-scale alumina refining and aluminium smelting. We have a diverse commodity mix and a geographic spread. In many of the countries in which we operate, stakeholder relationships are critical to our success.
Many of those relationships have been led personally by Graham and have been developed over more than 10 years. As they transition to Matt, they will be handled, as you would expect, with care and respect. This is very important to our business around the world and therefore to the preservation and protection of shareholder value. It will take some time, and during this period, Graham will lead the company with the same level of focus and commitment he's shown from day one. This is a rare opportunity and one that's only possible with two people, Graham and Matt, who see this as a unique opportunity to set Matt up for success and for Graham to leave the company that he's been so effective in leading in the best possible shape.
Just as a decade on, it was inevitable that there would be a plan put in place for management change, so too have we continued to refresh the board. We've done this in a methodical way by staggering retirements to ensure South32 continues to benefit from a mix of long-serving directors and those who are new to the company, bringing with them fresh perspectives. Today, we farewell two founding directors, Frank Cooper and Fudi Mutoba. As the inaugural Chair of our Risk and Audit Committee, Frank brought deep expertise in finance, in accounting, in compliance, and risk management to guide us through our first decade. He's provided strong and steady leadership and helped the board steer our strategy and capital management with confidence. Fudi has brought her deep knowledge in finance, economics, and public policy to strengthen the work of the Risk and Audit Committee.
Her strong voice in corporate social responsibility, along with her South African perspective, has been important to our work. South32 has been better for their contributions, and I thank them both for their tireless work. Would you join me in doing that? As we farewell Frank and Fudi, we also welcome two new directors, Stephen Pierce and Mandla Misimang. Both are seeking your support for election today, and you'll shortly have an opportunity to hear from them. Finally, on succession, we announced this morning that after eight years on the board and almost seven as Chair, when I retire, this will be my last annual general meeting and that Stephen Pierce will assume the role in February of 2026. The decision to implement Chair succession at this time reflects the timing of CEO succession that I laid out earlier.
It means that Stephen will have the opportunity to work with Graham for a significant part of next year and then oversee the transition to Matt when that takes place. This will mean we'll have continuity in the lead-up to CEO succession and beyond. It is our view that this is the best way of ensuring we have a well-ordered succession transition for these two leadership roles. It reflects careful consideration of what we believe is in the best interests of South32 and all of its stakeholders, including, of course, our shareholders. Stephen has more than 35 years of financial and commercial experience in the mining, oil and gas, and utilities industries and is well equipped to lead the board as South32 moves into its second decade. Importantly, he brings a skill set that is complementary to Matt's, and I'm delighted to be passing the baton to him.
For my part, my work with South32 has been nothing but a privilege, and I thank you for that honor. That work was made easier by the governance foundations put in place by our first Chair, David Crawford, who sadly passed away at the end of last year, by our founding directors, three of whom are on the stage with me today, and of course, by all of the members of the board. We celebrate the 10th anniversary of South32 with a sense of pride for what the company has become and excitement about the opportunities which lie ahead. Our industry has an important role to play to supply minerals and metals critical for the world's energy transition, and at South32, we are focused on playing our part. We embrace the challenge and the opportunities it brings for our people, our business, and our communities right around the world.
Of course, we cannot do that without the support of our investors, and for that, I thank you. My thanks to all of our stakeholders and the communities where we work. Most importantly, my thanks go to the people who come to work each and every day to safely deliver on our purpose, which is to make a difference by developing natural resources, improving people's lives for now and generations to come. Thank you. I'll now hand over to Graham.
Thank you, Karen. I also 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. Thank you for joining us today. 2025 has been a significant year in our 10-year journey. As Karen mentioned, the South32 you see today is very different to the one that was formed in 2015. From 50% of our underlying revenue coming from our aluminium value chain and base metals compared to approximately 90% today. One thing that hasn't changed is our focus on safety. In September 2024, we were devastated by the death of Jose Luis Perez, a contractor who was fatally injured after he fell from height at Cerro Matoso. I speak for everyone at South32 when I offer my deepest condolences to Mr. Perez's family as they grieve their loss.
I visited Cerro Matoso after the incident, and the sense of sadness and loss among the team was profound. Together with Mr. Perez's employer, we have provided counseling and support, including to his family. An investigation was carried out following the incident, and the findings and lessons learned have been shared across our operations. We owe it to Mr. Perez to learn from this incident and do everything we can to prevent incidents like that from ever happening again. Embedding a culture where the health, safety, and well-being of our people is at the heart of everything we do is essential. We do this through our safety guarantee, which aims to create a sense of chronic unease, reducing complacency, and our tolerance to risk.
We also do this through our global safety improvement program, which includes our Lead Safely Every Day program, which seeks to build safety leadership across our business. Almost 16,000 of our people have taken part in this program since its launch. This includes over 95% of leadership roles at Frontline and Frontline employees at F525, and it has contributed to sustained improvements in our safety performance. This year, our lost time injury frequency and our total recordable injury frequency both decreased by more than 25% compared to FY24, and our significant hazard frequency increased by 61%, which indicates a more proactive reporting culture and improved hazard awareness. As well as physical safety, we also recognize the importance of psychosocial safety for our people, and we've developed a new framework to manage psychosocial risks, which we're rolling out across our operations in FY26.
As Karen mentioned, Matthew Daly will be joining us as Deputy CEO in February 2026. Matthew is currently the Technical and Operations Director, Anglo American, with extensive operation and leadership experience, and I'm confident he's the right person to take our business forward as CEO when I step down later in 2026. In the interim, I'll continue to lead our business, including our work to deliver our global safety improvement program and the ongoing transition of our portfolio. Since 2015, we're focused on positioning our portfolio towards minerals and metals critical to the world's energy transition. In the first quarter of FY25, we divested Illawarra Metallurgical Coal for up to $1.65 billion, which has reduced complexity in our portfolio and unlocked capital to invest in our higher returning growth options.
In July, following a strategic review in response to structural changes in the nickel market, we announced we had entered into a binding agreement to divest Cerro Matoso, with the transaction expected to complete in late 2025, subject to the satisfaction or waiver of certain conditions. We invested $517 million at our Hermosa development. We have commenced sinking of the main and vent shafts and construction of the process plant at the large-scale long-life Taylor zinc-lead-silver project. In May, we reached a key milestone in the FAST-41 federal permitting process when the U.S. Forest Service released a draft environmental impact statement, with the final EIS remaining on track for the second half of FY26. Hermosa has bipartisan support to help meet the United States' critical mineral supply. Beyond Taylor, the Clark battery-grade manganese deposit has the potential to support an emerging North American EV market.
We're also progressing exploration at Hermosa's regional scale land package. We upgraded the mineral resource to the Peak deposit, where exploration results support the potential for a copper-dominant mineralized system, and we're continuing studies on the potential to add copper production from Peak using the infrastructure established for Taylor. At Sierra Gorda, there is potential to grow our copper production through brownfield expansion projects at the Caballo Blanco Northeast Exploration Project, where all 18 exploration holes have intersected significant copper mineralization. Looking outside of South32, we've seen geopolitical tensions, conflicts, and trade wars contribute to market volatility. We continue to focus on the factors we can control by delivering strong operating performance and through our disciplined approach to cost management and capital allocation.
We increased our production of commodities critical to the energy transition and exceeded FY25 production guidance, underpinned by annual production growth of 20% in copper and 6% in aluminium. This has enabled us to capitalize on improved commodity prices with our underlying EBITDA increasing by 7% to $1.9 billion, and we finished the year with a net cash position of $123 million. In August, we announced we are limiting investment in Mozal Aluminium as we do not have sufficient confidence that we'll have sufficient and affordable electricity supply that will be secured by March 2026 when the current agreement expires. Despite our efforts, negotiations have not progressed to provide the confidence. Without the required electricity supply, we expect that Mozal Aluminium will be placed on care and maintenance at the end of the current agreement.
We completed the safety recovery of operations and resumed export sales of Australia Manganese following the extensive damage caused by Tropical Cyclone Megan in March 2024. More than 317,000 hours were invested in the wharf recovery and rebuild, with more than 970 tons of steel and 740 tons of concrete removed from the seabeds. A critical bridge connecting the northern pits of the Western Leases mining area and the processing plant was also rebuilt. With the operational recovery plan now complete, shipments have ramped up in quarter one FY26, and we're now working on options to extend GEMCO's mine life. At Worsley Alumina, primary environmental approvals received during the year have enabled us to start mining new bauxite areas under the Worsley Mine Development Project, which is expected to sustain production until at least FY36.
We remain focused on growing our base metals production, and today we're directing 100% of our capital expenditure to transition metals. We've also invested $35 million in our greenfield exploration opportunities in Australia, the U.S., Canada, Argentina, and Namibia, as we work to discover our next generation of base metals mines. Karen spoke about the release of our second Climate Change Action Plan, or CCAP. Climate change is fundamentally reshaping our industry from the commodities we produce to how we produce them. While this brings opportunities for us to increase demand for critical minerals and metals, it also brings risks given the energy intensity of metals processing, and in many cases, the technologies we need to reduce hard-to-abate emissions don't yet exist. Our second Climate Change Action Plan sets out our approach to addressing the risks and opportunities that climate change presents.
We have analyzed our portfolio's resilience under two scenarios: a sector-specific 1.5-degree scenario and a 2.8-degree scenario. Our analysis indicates economic growth and the energy transition are likely to drive demand growth for almost all our commodities under both scenarios except for lead. We have maintained our focus on reducing operational emissions and supporting emission reductions across our value chains. In FY16, we set a goal of achieving net zero operational emissions by 2050, and in FY21, we set a target to halve our net operational emissions by FY35 relative to FY21 levels. Despite our FY25 operational emissions being 1.5 million tons of carbon dioxide equivalent lower than FY21, drought conditions in the Zambezi Basin resulted in the undersupply of hydroelectric power to Mozal Aluminium, increasing our reliance on coal-fired electricity, which has led to a 2% year-on-year increase in total operational emissions in FY25.
The year-on-year increase in Scope 2 emissions linked to Mozal Aluminium more than offset the 12% reduction in Worsley Alumina's Scope 1 emissions during FY25, following the conversion of two boilers from coal to gas during the prior year. Our portfolio transformation has reduced transition risk and contributed to lowering our Scope 3 emissions by about 80% since FY19. In FY25, our Scope 3 emissions were 58% lower than FY24. This was largely due to the sale of Illawarra Metallurgical Coal in August 2024 and improvements made to the tracking of alumina and manganese sales, together with updated emissions factors. Since our first Climate Change Action Plan, we've built physical climate risks into our business risk management processes, and we've strengthened our capabilities in adaptation and climate resilience. We're implementing a three-year climate adaptation and resilience plan to improve these capabilities and continuously improve climate risk management.
We're also taking action to support our communities to understand their physical climate change vulnerabilities, which we can support more effectively in our planning process. I'd like to offer my thanks to our stakeholders, including governments around the world where we operate, for their continued support. To our people, thank you for your continued commitment to deliver our strategy and live our values. Finally, I'd like to take the opportunity to thank Karen Wood for her service to South32. It has been a privilege to work alongside Karen on the board for the past eight years and benefit from her counsel as Chair since 2019. I want to recognize Karen's outstanding leadership of the board, ensuring it is well placed with the right mix of skills and experience to guide our strategy. Karen's deep industry knowledge, legal and governance experience, and strategic oversight have positioned South32 for the future.
Her work to engage our stakeholders has been key to how we've evolved our approach to sustainability during her time as Chair and responded to our changing business context. We've been incredibly fortunate to have someone of Karen's caliber and experience in the role, and I know her legacy will continue to shape South32 for years to come. As we enter our second decade, our outlook is positive. We're focused on maintaining safe and reliable operations while remaining resilient as we navigate potential market uncertainty. With a strong balance sheet, we're well positioned to increase our supply of minerals and metals critical to the world's energy transition and deliver returns to our shareholders. Thank you. I'll now hand back to our Chair.
Thanks, Graham. We'll now move to the formal items of business. Excuse me. Each resolution and the explanatory notes are outlined in the notice of meeting dated 17 September 2025. As well as consideration of the financial statements, the business before us today includes six ordinary resolutions. As set out in the notice, 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 as I mentioned, we'll display the summary of proxies received for 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 financial year ended 30 June 2025. While we're not required to approve these reports, we are tabling them for discussion. As I mentioned earlier, we have Jane Nelson from KPMG with us and available to answer questions relating to the audit. Before I move to ask if there are questions or comments on the financial report, the Directors' report, or the auditor's report, I would like to respond to questions submitted by shareholders prior to the meeting. I'm just going to cross to Belinda, who's collected those questions, and ask her if you would, Belinda, to take us through.
Thank you, Chair. Our first question is from Mr. David Timothy Bras in relation to the federal government's list of critical minerals. What minerals that South32 produce would fall on that list of federal government critical minerals? Thanks, Belinda. It's been a good week for critical minerals right around the world. The Australian government does classify 31 resources as critical minerals, and we produce one of those in Australia. That's manganese, but we produce another two elsewhere, nickel and molybdenum. The government also, in addition to that list of critical minerals, has a strategic minerals list with five key materials, and South32 produces three of those: aluminium, copper, and zinc. We think we're well positioned. Thank you, Chair. Our next question is from Mr. James William Hyland.
Following the divestments of Illawarra Metallurgical Coal and Cerro Matoso, South32's remaining portfolio is increasingly concentrated in jurisdictions such as Australia, Southern Africa, and the Americas. How does the board evaluate geopolitical concentration risk, and are there criteria in place to guide future investments or divestment decisions based on sovereign stability, trade exposure, and ESG standards? Thanks, Mr. Hyland, for your question. This is all part of the analysis that the board does on any way that it deploys capital, and obviously that deployment of capital is consistent with our strategy, which is all about the commodities required in a low carbon world.
As we do that, we're always guided by what options we might have available for high-quality operations in commodities that have both a strong and a sustainable outlook, and in jurisdictions where we can operate not only in line with our values and our Code of Business Conduct, but also the way in which we approach our environmental, social, and governance responsibilities. We think we do that well. Notwithstanding the concentration that you mentioned, and that is right, we still remain geographically spread, diverse, with multiple opportunities, both in terms of projects and commodities in the United States, in Chile, in Argentina, Brazil, and Canada. Our next question is from Top Rock Australia on Sierra Gorda. Given copper near US $5 per pound, what are the production and grade assumptions underpinning FY26 guidance, and how sensitive is EBITDA to plus or minus 10% copper price changes?
On Hermosa, what percentage of the project's capital budget has been committed, and when does South32 expect commercial production? Has management stress-tested Hermosa's economics against current U.S. cost inflation and permitting delays? Thanks, Belinda, and thanks to the folks from Top Rock for asking the question. I am going to ask Graham to comment on the specifics of the copper question from Sierra Gorda. Just before doing so, let me say that the acquisition of our interest in Sierra Gorda has been incredibly positive. You've seen the contribution it makes to results, so we're delighted to have that exposure, and it's performed well, and we expect it to continue to do so. Graham.
Thanks, Karen. Look, Sierra Gorda, I think it's in we bought Sierra Gorda because obviously we have a strong interest in copper, and if you look at the supply-demand fundamentals over time, we do expect there will be grade degradation in existing operations, operations that go out of business, and the supply for copper is strong, which is going to provide attractive pricing. We have got our guidance out there for Sierra Gorda this year. The way I think about Sierra Gorda is, over the next couple of years, we have relatively consistent production, but we do have the opportunity to increase our production by about 20% by investing in what's called the fourth grinding line at Sierra Gorda, which will lift up production by about 20%.
Likewise, as I mentioned in my opening speech at Caballero Northeast, we've had 18 holes we've put in the ground that have all intercepted high-grade copper, which means we have the option to extend the mine life of Sierra Gorda as well. On top of that, we have about 110 million tons' worth of oxide material on the surface, which has a grade of about 0.36%, and we're looking at different ways to process that. I think, Karen, in response to the price, we'd expect a strong price to continue, with plenty of opportunities to grow as that continues to go in that direction.
Thanks, Graham. The second part of that question was to do with the Hermosa project, where we have awarded a considerable number of the capital packages, all consistent with the final investment decision that we published at the time of approval, but clearly there's more to come before that project is complete. We remain confident about first production for the second half of FY27. To date, we haven't seen a material impact from either U.S. tariffs or indeed U.S. cost inflation, although we continue to look at that and, as you would expect, monitor it very closely. On permitting, you might recall Graham mentioned when he gave his address about being the first mining company in the United States to receive FAST 41 status. That has been tremendously important to us.
Came in with the Biden administration, has been continued under the Trump administration, and basically that has allowed us to expedite the approval processes. Federally, that's been incredibly important. We do have all of the state permits that have now been received, and the U.S. Forest Service has released the draft environmental impact statement, which is obviously a key planning milestone. Thank you, Chair. Our next questions are also from Top Rock Australia. On Cannington and silver leverage, with silver at 14-year highs, what is Cannington's realized silver price versus spot, and what hedging or sales constraints limit upside? How long is current mine life at Cannington at existing cut-off grades, and is a reserve upgrade expected? Is South32 evaluating expansion or processing upgrades to capture higher silver prices?
On capital allocation and shareholder returns, given the significant rise in cash flow, will South32 reinstate or expand the buyback program in FY26? What payout ratio will govern dividends if EBITDA exceeds $2.5 billion this year, and how will management balance reinvestment in growth assets versus distributions during a commodity supercycle? That feels like a board agenda for a year, doesn't it? I'll get Graham to just comment on the order of magnitude about silver prices, but look, Cannington today has a reserve life of six years, but the team are doing a huge amount of work to see if that might not be extended. It has been a magnificent asset for South32, not least because of the silver prices that we've been enjoying more recently. A huge amount of work is going into making sure that we can continue that operation for as long as possible.
Our silver there is sold at market prices. We don't hedge, consistent with our portfolio risk management policy. Let me just jump to some of the capital management questions, and then, Graham, I'll come back to you if you don't mind just to talk about that order of magnitude on prices. Our capital management framework has been unchanged since the formation of the company. First priority, maintain safe and reliable operations and an investment-grade credit rating. Second, to distribute a minimum of 40% of underlying earnings as ordinary dividends, and third, to put other opportunities to internal competition. By that, I mean, how do we use excess capital? Do we reinvest in new projects? Do we acquire new assets? Do we do greenfield exploration? Do we spend some on share buybacks? Do we spend some on special dividends?
That's the hierarchy in which we go through our capital management, and as I say, it's unchanged since the formation. Graham, silver.
Yeah, thanks, Karen. Look, silver is an interesting one. If you look over the last three months, it was probably up about 24%. Today, it's trading about $48.55. Obviously, it follows gold as a proxy, and in times of uncertainty, there's large movements. Our shareholders, we don't hedge, to Karen's point. We probably net of RCs, TCs are about 1% of the index price that you see out there, so we pretty much realize the full price benefits of that. Last year, we probably ran at an average silver price of about $31.90, so obviously it's positive at the moment, but volatile commodity. I think more importantly for us, it's about how do we extend the life of Cannington. Cannington's been around now for about 27 years. I was actually there when we built Cannington, and funny enough, we had a silver price of $4.50.
It shows you how commodity prices can actually move. I think we shouldn't discount that, you know, Taylor also has volumes of silver. It's a zinc, lead, and silver mine, and the other commodity that's moving strongly over the last three months is zinc, which is up by about 18%, and certainly a commodity that we believe over time has the same fundamental opportunity as copper in terms of supply dropping off and demand continuing to increase. You know, again, if you look at the economics at Taylor today, and you ran the current zinc and silver price that are considerably north of the time when the board approved the project.
Thanks, Graham. Belinda.
Thank you, Chair. Our next question is from Ms. Natasha Michelle Lee. The total significant hazard frequency has increased from 122 to 196. Could you advise what has caused this increase, and what actions are being taken to reduce hazards? Thanks, Ms. Lee, for your questions. Somewhat counterintuitively, that's actually a good outcome and an outcome that the board feels very positive about. Taking account of significant hazard frequency is a leading indicator, and it's leading because it gives you some insight into the extent to which people at the operations are identifying hazards to enable us to address them before they become serious issues. I think this is showing how well entrenched the focus of the program Graham spoke about earlier, the Lead Safely Every Day program, is actually being rolled out around the business.
The fundamental piece of that program is for each one of us to be able to guarantee our own safety and the safety of those with whom we work. When that becomes how you approach everything you do in your work, we think you're going to be more alert to the things that might be hazardous to get them reported and to get them dealt with. The board's taken a lot of confidence by the increase in that frequency rate, and it's obviously something we need to continue to monitor. I did speak earlier about the visits we make to our sites around the world, and one of the really important pieces of that is the opportunity we all have as members of the board to talk to people.
They might be contract gardeners, or they might be people running some of our complex pieces of machinery, but when you're able to meet them on site and talk to them about how they're thinking about safety, what the guarantee means to them, and how they're thinking about identifying hazards, as I say, it gives us a great deal of confidence that this program is really gaining traction around the business. Our next question is from Mrs. Angela Newton. Is there a proposal in the future to buy back small shareholdings from investors? Mrs. Newton, again, thank you for your question. No, we don't have a plan to do that. I spoke earlier about the on-market share buyback that we have in place, but we don't have a facility to buy back small shareholdings from investors. Thank you. Our next question is from Mr.
Thomas Rowe and relates to reinvestment options to be included in the company employee share scheme. Look, I know a lot of companies do have dividend reinvestment plans, and I assume that's what you were meaning, Mr. Rowe. We think that's a costly way for us to raise capital, so we don't have a plan of that kind, but of course, shareholders can apply the dividend payment to buy shares if they wish to do so. Thank you, Chair. Our next question is from Mr. Michael Lancaster. Why are these shares doing nothing? Thanks, Mr. Lancaster, for your question. Look, you know, share price is influenced by so many factors. I mean, if you were just watching the market this week following the very successful meeting our Prime Minister had in the United States, we can see what happens as a result of some of those.
Broader economic conditions have an impact on this. What we have to do as a board is to focus on maintaining our strong operating momentum and capitalizing on the transformed portfolio about which both I and Graham spoke earlier. We have to do that to deliver growth and returns for shareholders. Over the last year, we have seen an enormous amount of geopolitical tension that has increased. Volatility, the trade tariffs on their own certainly did that in a very significant way earlier in the year. I would say that despite those headwinds, we have delivered strong operating results and continued with that critical work of transforming the portfolio. Thank you. Our next question is from Anusha Hashemi. How does the board justify granting extra awards to the Executive Director and incoming Deputy CEO when shareholder returns remain under pressure?
What proof is there that these awards are tied to long-term value creation rather than internal reward? Thank you for the question. There are two pieces here. The awards to Graham, that is one of the resolutions for consideration today under the long-term incentive plan, and the awards that we're making to our incoming Deputy CEO, Matt Daly, as part of the arrangements we've made for him to join the company. Let me deal with that piece first. The elements that we're asking for you to approve today for Matt are designed to partly, and I stress partly, not fully, but partly compensate him for benefits that he's giving up as he leaves Anglo American. Some of that is paid in cash, some of it is in equity, some of it is time-tested equity, and some of it is subject to our long-term incentive plan.
Where the piece is tied to our long-term incentive plan, then obviously it works against the measures of that plan, currently 80% tested by relative total shareholder return and the remaining 20% by reference to two strategic measures. The piece that's time-tested is to compensate him for what he's actually giving up, in part by leaving Anglo. As we went through this process, we wanted to make sure that we had a proposition to Matt that was sensible against the market, that obviously took the interests of shareholders into account, and that's why we landed on the structure we did. I should also say that one of the changes led by Wayne, as our Chair of the, where is Wayne on that side of our Remuneration Committee, was to increase the minimum shareholding requirement for the Chief Executive. It was one-time salary.
That's now been increased to four-time salary, or 400%, which we think is a really important initiative to make sure that our leadership roles are aligned to the shareholder experience. Graham obviously continues to serve as CEO. Up for consideration today are the awards for him under the long-term incentive plan, and as I said earlier, they will be governed and judged by the performance over the period. I should also just add to that, though, that Graham's award that we're asking you to approve today will be prorated down to reflect the actual period of service that he gives up to the date of his retirement, when that might be. Thank you. Thank you, Chair. Our next question is from Ms. Celestine Margaret Eckerick. Why grant awards to Executive Director and incoming Deputy?
These salaries are already generous, and as a new Deputy, performance record at South32 has yet to be established. I think I covered that in my earlier answer, Ms. Eckerick. Thank you. The next question is from Mr. Thomas Rowe. When will the company reduce remuneration packages of senior executives and the board to no more than 10 times the annual wage of the lowest paid worker or contractor? Thanks, Mr. Rowe, for your second question. This is a question we often get, and my answer always is we have to structure remuneration packages that are designed to attract and retain the best people in the business, and we think that we've done that. We do need to be competitive. It's the reality of the world in which we operate, and I know there's a huge amount of interest in metrics of this kind, multiples, and I understand why.
In fact, you know, that CEO pay ratio is something that we do disclose. If you have a look at our data book, our sustainability data book, you'll find some information about that in there, and you can find that on the website. I certainly understand the question, but the reality of the world in which we live is that we do need these competitive packages to not only bring people into the organization to serve the interests of South32 and its shareholders, but also to retain them. Our next question is from Mrs. Susan Jane Oakes. Are you allowing activists to drive a climate change agenda? Thanks, Mrs. Oakes, for your question. The short answer to that is no.
Our strategy, right from the outset, 2015, was to focus on commodities that will have a future in a low carbon world and to operate our business in a way that contributes, for our part, to the reduction of emissions. That is just good business sense. It's based on sound economic principles, and you'll see that articulated in the second Climate Change Action Plan that we are asking you to consider today. I think one of the great benefits of a company, if you like, being formed as recently as ours is that the founding board and Graham were able to think about these critical issues on climate and the role we have to play in the context of the company's strategy, and so they are intertwined. They're linked, and as I say, we think it makes good economic sense for the organization. Our last pre-submitted question is from Ms.
Natasha Michelle Lee. To what extent has the company considered or installed renewable energy such as solar or wind turbines to supplement the electricity supply used in mine sites, excluding the battery electric vehicle trial? Thanks, Ms. Lee, and I'll get Graham to comment if I miss any of this. Renewable energy is a key part of our energy mix, and again, since 2015, assessing renewable energy options has been a key part of how our leadership around the organization has operated. A three-megawatt solar plant was installed in Cannington, I think, in Queensland, Graham, 2019.
Correct.
That's obviously very important. We do have renewable energy supply contracts for the Alumar smelter in Brazil. We have been pursuing options for renewable power for our Hillside Aluminium smelter in South Africa. I mean, that's a critically important one for us because Hillside accounts for 58% of our Scope 1 and 2 emissions, and so that is one we absolutely have to solve for. I know work has gone on at Worsley Alumina to try and assess renewable options there. What have I missed, Graham?
Yeah, probably the only one would be Karen, obviously, at Mozal. Traditionally, we've had a hydro water source there, but at the moment, with the Zambezi River being at low levels, we are not getting the same supply. We use about 950 megawatts at Mozal, and we probably get about 350 at the moment over the next two years from the Cahora Bassa.
Thanks, Graham. Belinda, is that the end of our pre-submitted questions? Thank you. Before I go on to the remaining items of business, I will, of course, invite questions from the floor, as we ordinarily do. Before doing so, if you'd indulge me, I would like to comment on the resolution seeking approval for our remuneration report. We announced before the meeting that the report did not receive the required 75% vote in favor from our shareholders. Some of you may be aware that three of our proxy firms who advise some of our shareholders recommended a vote against the report. The reasons offered differed. There was some concern that the measures that form part of our short-term incentive plan and the outcomes were not sufficiently clear. There was also a view that we had too many measures.
Over recent years, we have endeavored to reduce the number of measures and to progressively add to the explanation for outcomes. I know this is work that Wayne, as Chair of the Remuneration Committee, has had underway, and there has been some considerable progress in that work. We do accept that there's more we can do, and I know that under Wayne's leadership, the Remuneration Committee will take the comments that have come back from shareholders into account as they think about what changes might be able to be made to those disclosures next year. On our long-term incentive plan, there was some commentary with some shareholders taking issue with the inclusion of the two strategic measures that I spoke about earlier, accounting for 20% of that outcome, with 80% continuing to be assessed against relative total shareholder return. This was the first year the strategic measures were assessed.
They were introduced in 2022, run over a four-year period, so this was year one. We do respect the differing views on how long-term performance should be assessed, but we think that at this stage of South32's life, 20% allocated to strategic measures makes sense. As always, we remain open to feedback on the best way of reporting performance against those measures. Finally, some shareholders objected to the decision by the board to increase the Chief Executive's remuneration, Graham's remuneration. In explaining that decision, it's important that I go back to the succession plan for Graham that I spoke of earlier. While Matt will join us as Deputy CEO in February, he won't succeed Graham until late in the year.
Graham will continue to lead the company, giving Matt the opportunity to get to know, as I said earlier, our complex business, spanning underground mining to world scale, alumina refining and aluminium smelting, and operating in a diverse set of countries with a diverse commodity mix. It also allows Graham to transition some of the critical stakeholder relationships, especially at senior government levels, that are so important to our success. These were all important considerations when we made that decision. What we found was that Graham's pay had fallen behind the market. He's enjoyed.
Modest pay adjustments since 2015, and none of them were designed to reflect the considerable skill and experience he's acquired over the decade. We know from the work we did in bringing Matt in that his remuneration package was market competitive, and I must say I'm very pleased to see how strongly shareholders supported the grant of awards to Matt, as they have for Graham. Before I move to the remaining items of business, why don't I take some questions, perhaps from the floor first, and then, Belinda, I'll come to you to see if there are any online. I will, of course, take questions on each of the items of business as we work through them. Anything from the floor?
Chair, may I introduce Margaret Milbeck?
Hello, Ms. Milbeck. Welcome.
Thank you. Good afternoon, Chair and Board. A recent report by Market Forces identified South32's Worsley Alumina facility as the second largest manufacturing gas user in the country last year, with gas use accounting for just under half of Worsley's operational emissions. South32 states that its interim plan for reducing emissions at Worsley is to switch its coal boilers to gas boilers, with its medium-term plan for the 2030s involving a transition towards electrification powered by renewables. This will likely substantially increase gas use at Worsley in the short to medium term. In financial year 2024, WA gas prices were two and a half times higher than they were ten years ago. This is despite gas production, that is supply, in WA more than doubling over the same period.
Given the significant financial risks associated with continued reliance on gas as a primary fuel source, including rising gas prices, network costs, and ACCU purchases under the safeguard mechanism, is South32 looking into setting quantitative targets to reduce gas use at Worsley Alumina by 2035-2040, or indeed even earlier?
Thank you for your question. As Graham indicated earlier, the transition of the two boilers at Worsley Alumina to gas was certainly part of the emissions reduction strategy for that asset. We hope to continue that because, frankly, moving to gas does mean that we have a significant reduction in emissions, which is very important. I certainly take your point about prices. Graham, you might actually want to comment on that because it does have an impact.
Yeah, look, Karen, and to Karen's point, we have five coal-fired traditional boilers that provide us to generate steam for the process. We have converted, obviously, two of those from coal to gas, and that's a drop of about 10% on our Scope 1 emissions. The coal to gas made a downward trajectory. That's a step change in the right direction. Do we think gas is the ultimate solution for Worsley? No. We're still committed to halving our Scope 1 and 2 emissions by 2035. We continue to study other ways to reduce our profile at Worsley. I think the other thing around Worsley is that coal supply that we actually use, we share with the WA government. They have the same suppliers. We actually work very closely with the WA government as we transition our way out of coal to gas and in another ultimate solution.
The economies of scale mean that both the current coal producers need both customers to be viable. We would not like to go, for example, from coal to gas super quick and then have both coal-fired suppliers collapse, and then the government's power stations no longer have suppliers. We're trying to work very closely how we transition, but our plans are to halve our Scope 1 and 2 emissions by 2035, and we have teams continuing to work on that.
Does that mean you're saying that the quantitative target to reduce gas use at Worsley Alumina is to reduce it by 50% in the 2035 to 2040 period?
Across our business, we have the global target, but all our targets are applicable to the assets, and we're pushing to that direction. We still need to develop a plan because part of the solution, when I say plan, we've got things in process, but it requires the electrification of the grid in the southwest and some other infrastructure that doesn't exist today. We continue to engage in various different options around renewables and how that will transition over time. To be clear, if we each coal-fired, we go to gas, and again, gas isn't the ultimate solution, drops our emissions profile by about 5% at Worsley.
Sorry, what was that last 5%?
5% for each one we convert from coal to gas, roughly. They're slightly different in configuration.
Coal to gas.
Coal to gas.
Thank you. Sorry, can I ask a follow-up question? Is that all right?
Sure.
Thank you very much. Has South32 estimated how much the interim coal to gas switching will increase gas use at Worsley Alumina over the next 10 years? One for you, Graham.
If I look at the broad numbers and think about we did the conversions roughly, these aren't the exact numbers, but it'll give you the ballpark. We did the conversion roughly over 12 months ago, and we used to have probably more than 50% of our power supply by energy source, so gigajoules, would have actually come from coal. In 2023, it was 57%. Gas was 42%. Today, it's kind of switched to the other way, where gas is around 41% last year. Sorry, coal was around 41%, and gas is around 57%.
57?
Yeah, that's a switch of the two.
That gives you an idea of what you're going to be doing over the next 10 years. Is that what you're saying?
Correctly. To continue to reduce it, it'll be very dependent on working closely with the WA government about how they transition down there as well.
Okay, thank you very much.
Pleasure.
Chair, may I introduce Alice Clark?
Hi, Ms. Clark. Welcome.
Thank you. Thank you. My question is, the Western Australian Environmental Protection Authority recently received over 59,000 public responses during Alcoa's public comment period, a new state record, which reflects a widespread public concern about deforestation and biodiversity impacts in the Northern Jarrah Forest. How does South32 plan to address the mounting community pressure and environmental concerns about deforestation in the Northern Jarrah Forest and reputational risks as a result of bauxite mining losing its social license in the area?
Thanks, Ms. Clark. Appreciate the question, and of course, I'm not familiar with the Alcoa process, but I do acknowledge the community concern that has been raised about this, and of course, we went through a very long process ourselves for the new permits. We've been operating in that region for more than 40 years. As you know, we're one of the largest employers in that part of the country, and that work that goes on at Worsley is an important part of the production of aluminium, which is critical to the energy transition. We did get federal approval in February, and we think the conditions that are attached to that approval for South32 are strict. We think that they are designed to avoid and minimize impact to native vegetation and to the habitats of species.
They do require us to progressively rehabilitate the land we clear, to put in place protected areas and buffer zones around known habitats. It does include putting 8,000 hectares aside to be restored to create additional habitat for the black cockatoo, which is obviously an important species in that part of the country. Through that long process, there were a number of changes made before the final permit was granted. The area that was to be cleared of native vegetation was significantly reduced by about, what, Graham, over 40%, 44%. We certainly agreed that we should avoid clearing land of high environmental value, and the protected areas were increased by a very significant amount, around 90%. I don't want to dismiss the concerns. I know they're real.
I know they're genuinely motivated by care for this part of the country, but we think we have been responsibly operating there for a long period of time, and we think the new permitting allows us to continue to do that.
Thank you.
Pleasure.
Chair, may I introduce Paul Slyth?
Hello, Mr. Slyth. Welcome.
Thank you very much. Very much appreciated and certainly honored to be able to speak here on these subjects. I believe it is very important that South32 understand four issues I'm raising here, mostly relating to the, first I'll read them out as I've written them. Because of the close relationship with Alcoa, will South32 apply to the government to gain benefit from the government as Alcoa has just been awarded $3 million for processing gallium, a critical metal required for FCEV vehicles, truthfully giving zero pollution as compared with EV that fail to give zero pollution, actually adding pollution. That's the first one.
Shall we take these in turn? Why don't we do that? Shall we take them in turn, and then I don't have to remember the four questions?
Yeah, let's do it.
Yeah, I'll take this one and then I'll come back for your second one. Is that all right?
That's fine.
Okay. We're still getting our heads around the announcement that was made earlier this week. I mean, certainly it's exciting for Alcoa, but Graham, have you got anything you wanted to add to that?
Yeah, look, obviously we're watching with interest because we've done some research on gallium as well and also done some of our own work in the southwest around that. Alcoa is one step ahead of us. We recognize that. In saying that, we have also been working with the U.S. government on a number of other fronts. For example, as Karen mentioned, we're the first mining project in the FAST 41 for the Hermosa opportunity. The Clark deposit, which is manganese, we've got funding from the Department of Defence in the form of a third of paying for the decline in the bulk sample, and they're probably going to contribute somewhere to 30% to 40% of basically the processing facility for that. The last piece, about two weekends ago, we completed an agreement with the U.S.
government around them taking an equity stake in our project in Alaska to help build and facilitate a road. We do obviously have a list of different priorities. We're ticking through those. Gallium we'll continue to look at and study, but Alcoa are probably one step ahead of us on that, but we've probably got four other things that are much further advanced.
Can you process?
We have looked at it. It's not without its challenges, to be perfectly honest, but we continue to work through that as an option.
It's in the basic mineral. The second question is, now Woodside and Japanese agreement has been approved by the WA government to provide liquid hydrogen to Japan. This will open up in two years availability of hydrogen for use in WA. Will South32 change equipment to FCEV set instead of EV that cause pollution?
I think if hydrogen comes into the energy mix in Western Australia, we'll welcome it, and we'll look at all the opportunities that come with that across the broad spectrum of energy generation.
It's a very important issue, then.
Yeah.
The next one is, Japan has now commissioned an osmotic power to drive their desalination plant, providing 24/7 base power. Has South32 considered this issue?
Sorry, was that small nuclear reactors?
Small osmotic power. It's just coming. It's been about a week ago they announced it.
Yeah, we have looked at things more for the smelters in Southern Africa around small nuclear facilities, which generally have come out of Japan. We are looking at continued energy sources. Again, we'll have a look at that new one that comes out. We certainly, as I mentioned earlier, particularly in the southwest, have a medium to long-term challenge around power supply and security. All that new technology, we have a team that's across constantly looking at the opportunities.
Effectively what it is, it's changing from one density to another, and apparently this causes an extreme high pressure, which then drives a turbine and that generates electricity. That's a very important issue that's available now. The WA government might want to give a look at it as well.
We'll take it on board.
You might want to, when we have afternoon tea, nab Erwin Schafer, who's sitting here in the front row, and he's going to wave to you so you know who to speak to.
Hands high, Erwin.
He led a session with the Board met this week, and Erwin and his team led a session with us on some of the issues that you're raising on innovation and technology. He'll be able to give you a real flavor for what we're looking at.
That's fine. The fourth one, of course, is geothermal plant. The largest in Australia is being built in North Perth. This provides 24/7 base power. Does not require wind turbines or solar panels. Has South32 considered this source of reliable power, which is used internationally around the world?
We have looked again at geothermal, but more in the Southern African context. I guess we'd have to look at the infrastructure that goes down to the southwest and see if we could tap that. The comment I'd make is you're bringing up great ideas, and I think that's a good sign of how this energy space is constantly changing. We're a high energy intensive business, and obviously we're looking to reduce our emissions profile. All these things we look at, and we continue to look at.
That's why I presented those issues to you.
Yeah.
Thank you.
Thank you.
Appreciate it.
Chair, may I introduce John Campbell?
Hello, John.
Chair, John Campbell from Australian Shareholders. We've got, I think it's 500 and something shareholders' proxies today for about $5.5 million shares. I'd like to congratulate both you and Graham. I'm not sure if we'll have the opportunity to say that to Graham this time next year, but in case we don't, I think there's a lot of kudos that should go to you both over the development of South32 over its 10-year history. I think it was widely regarded as likely to be a basket case when it was launched and demerged from BHP Group. The share price has increased by about $1 since it launched, and I know that isn't astronomic, but I think there have been benefits to shareholders along the way as well.
I'm not sure how it all pans out, but I think given the assets that were demerged into South32 and the difficulty you've had and the demonstration really that active management of those has been beneficial to the shareholders, it's a lesson that BHP Group should learn.
Thank you, John. I really do appreciate your comments. Could I also just say what a pleasure it's been to work with you and your association over the last few years. You know, retail shareholders are tremendously important to us as an organization, and we've had a number of opportunities to meet. We don't always agree on some of the issues, but the opportunity to spend time and understand the concerns of retail shareholders that you so ably represent has been very important. We all remember the names that South32 was called, don't we?
Indeed. I think too that I should thank you for the time that you give to us because it is appreciated and we do our best.
Thanks, John.
My concern would be with Hermosa, the grade there being somewhat less than Cannington, I think. I know there's different minerals involved and different grades there. The investment in Hermosa is going to be about $5 billion, I think, in total. It won't appear that on the balance sheet because you've already written off $1.3 billion of that. By the time you get Taylor into production, it's going to be that. You're going to have a change, a new Chair. You're going to have a new CEO, and new brooms like to sweep cupboards bare, and that's at the expense of shareholders. I'm just worried about that. I worry about the effect that the temptation that there'll be there because of the marginality of Hermosa to make big impairments.
I wonder if the remuneration plan is really adequate to deal with that, whether it envisages that issue and whether we shouldn't have some form of net profit gate threshold that needs to be met before any financial benefits anyway come from short-term incentive. I'd like to leave that one with you if I may. I don't know if it's too late to change the plan to accommodate these things, but certainly you've got the opportunity with a negative, with a strike if I get what you said earlier as being the case. I must say we're supporting your remuneration plan. We think it's fair and reasonable, but I guess that we differ from our competition in the proxy advice department. Perhaps if I could have comment on Hermosa, and I've got also a couple of other questions that I'd like to ask.
Sure. No, very pleased to comment on Hermosa, and you rightly say there are different views, aren't there, about what's the best way of measuring performance. What I'd say at the outset is that this is a long-term business. All of us, sitting on this stage, all of the executive team here today know that the decisions that we take today are going to be, we hope, reaping benefits for the generations of management teams and board directors to follow because projects in this sector take a long time. They take a long time to identify. They take a long time to develop. They take a long time to come into their own. We think long-term about these things, and it's one of the reasons why the long-term incentive plan runs over that four-year period, why 80% of it is attached to relative total shareholder returns.
We get that alignment between the experience shareholders have and the experience management will have. Yes, Graham will retire next year, but he will take equity in South32 into retirement with him, and he will either prosper, as all shareholders will, as a result of that investment in Hermosa or not. We think that alignment is so important. I mentioned earlier, John, the grants that we're asking shareholders to approve today will be prorated down to reflect his period of service, but he'll take that into the future. It is true to say the long-term incentive plan has not been lucrative for executives over the last 10 years. It has only vested on three occasions, only once at 100%, once at 38%, and this year at 15%. It is something that we think means executives and shareholders are aligned.
The Hermosa project is tremendously important for the future of South32, and as a board, we remain very confident about it. It's important, I think, to remember that there are three parts to that project. There's the Taylor deposit, the silver lead zinc deposit that is under construction at the moment, and we next go up there in early December to look at the progress over the last 12 months. There's the Clark deposit of manganese, and we believe there's a very strong future for manganese. It's one of the critical minerals, so we remain very confident about that. Then there's the broader land package that Graham spoke about earlier and where he shared some of the excitement about what might emerge there from a copper perspective. We remain committed to the project.
We think it's the right thing for the future of South32, and we think the structure of the remuneration arrangements in terms of long-term incentives aligns those interests. As I said earlier, there are so many different views about what the right performance measure should be for a long-term plan. There are those who think 100% total shareholder return should be it. There are those who think we should run with a total return on capital invested metric. There are those who think we should have a gateway. There are those who think we shouldn't have strategic measures equal to 20%, but they should be higher. We have to make the decision that we think is right for us, and we think we've done that.
Okay. I think my concern really relates to the short-term incentive more than the long-term. The fact that you're using underlying profit as underlying earnings as the yardstick, and adjusted underlying earnings at that, reduces the transparency of it. It allows the situation to occur where impairments in particular are excluded from the calculation. If we have a new broom that decides that he's going to write off all of Hermosa, there'll be short-term implications for long-term gain because the long-term cost of production would be reduced by the amount of the impairment. It worries me that there's no real protection there against that eventuality.
John, I obviously can't speculate on what might emerge down the track, and Graham's just indicated he'd like to add a comment. Let me just say a couple of other things. No one shies away from the fact that not everything has gone perfectly with this acquisition. We had COVID, which curtailed the development and really had a huge impact on us in 2020 and 2021. There was the delay of about two years as a result of the dewatering work that had to take place, and some inflationary pressure that we've seen. On the other side of the equation, there are a number of things that have gone very well.
Graham spoke earlier about the entry into the FAST 41 process, which has been tremendously important to us, as has the fact that we do have all-state approvals now, the work Graham referred to earlier for the PEEK deposit, the adjacent copper deposit for PEEK, and the funding that has been provided by the U.S. administration. There are negatives, there are positives, but Graham, you wanted to add a comment?
Yeah, maybe just a couple of ones, John. It's not always an interesting one as a CEO and obviously a board to approve to make a decision around an investment because it's, to your point, it's very easy to protect the short term and not take a risk for the future. You know, when we talk to investors about optionality, generally the sell side, they will love you to have growth options. They hate it when you go into execution and they discount you, and then they love you when you come out the other side. Part of that reason is you're building a large mega project over four years and the world can shift in terms of inflation and impacts. I think why I would always give Hermosa a tick and would we buy it absolutely again?
Yes, in saying that I think the cost would probably be three or four times what we paid today. It has a long life. Taylor at the moment is 28 years and it's still open in multiple directions. You're right, Cannington has higher grades, but it doesn't have the life and it can't do the three-put. Cannington at its best can get up to 2.8 to 3 traditionally, three-put. This will be 4.3 to start with. It has 20 years life. It'll probably easily add another 10. On top of that, you've got PEEK, which is a copper deposit. All the approvals we're getting now and all the infrastructure allow you to add PEEK in at probably around a $60 million CapEx cost. You'll have a copper concentrate come out as well. To Karen's point, Clark probably has, it's a manganese product designed to go into EVs.
EV penetration under Trump's administration has slowed down in the U.S. versus what you've seen around the rest of the world and what was happening under Biden, but they're going to come. Clark potentially has a 60-year mine life. On top of that, we've got 12 other exploration projects on the property, which are mainly zinc and copper, but we actually can't touch those till we get our federal approval. Once we have those, it'll be a much broader program. If we go into production just for Taylor without all the add-ons, it'll be in the first quarter of the cost curve. It'll generate strong margins for probably 30 plus years for our organization. Like Cannington has done in the first 10 years, it'll probably underpin a lot of our cash flow and growth. The challenge with an impairment is it's at a point in time.
The one thing you can't include in the impairment is all the optionality and length of the mine that I spoke about.
Very good. Second question on AMPLA. I noticed the U.S. government decision to make the road into the area and to buy into your joint venture partner there. I was trying to understand what the impact of that was on your shareholding in the quarterly report that you just released. I'd be interested to know what it will be after the thing settles down. I'd just be also very interested to hear what Graham thinks about the prospects there and how long it would take, how much it'll cost, what sort of minerals that you're able to extract there, and what it'd be like living up there to do the job.
Cold.
That's one thing I can talk to you about because I lived in the Northwest Territories of Canada for three years in the diamond mines. I know what minus 50 looks like. I would describe that AMPLA district in the northern part of Alaska as largely unexplored territory. If you think about OECD countries, it's probably one of the last few basins. At the moment, we've done some early work up there around a deposit called Arctic. Arctic has about 43 million tonnes. It has copper, zinc, high grades. It's shallow. Borneite is a much larger open and underpit underground deposit, slightly lower grade. Anywhere else in the world today, those deposits would have been developed. The challenge is that there are about 211 miles or 340 kilometers, if my math is right, from what's called the Dalton Highway, which is what you need to access it.
Because it's an unexplored territory and Arctic is a very messed-up deposit, we believe there's multiple deposits up there. Hence, we've pegged a whole lot of land with our partners around AMPLA, but we also have another project about halfway down where the road's coming, which is called Roosevelt, which we have 100%. The timeline of this, to be clear, is not tomorrow, the next year. You're probably at best looking at about going into some kind of development seven to ten years down the track. The focus for the next two years is exploration to try and grow the resource and find more deposits. I think the advantage of having the U.S. government as a partner in this is a commitment to actually build a road which opens up that district.
It's always been, do you want to spend more money on exploration or do you want the road to come? Now we know the road's coming. We can spend more money on exploration. The important thing is where the government's taken the stake is AMPLA is a 50-50 joint venture between us and a TSX company in Canada called Trilogy. We owned 11% of Trilogy. We've actually sold 5% of our shares to the U.S. government. They've sold 5% of their shares to the U.S. government, so they have 10% in Trilogy. At the end of building the road, they increase their stake up again based on completion of the road. The money we both made out of the sale to the U.S. government goes to fund our exploration programs for the next couple of years. For me, it's been a good example of a win-win scenario.
Yes, indeed. Okay, thank you.
Thanks, John. Why don't we go, Belinda, to the telephones to see if you have any questions?
Just one question on this item. Thank you, Chair. From Mr. Stephen Main, when was the external audit contract last competitively tendered, and when will it next be competitively tendered?
Frank, when did we do the last tender?
We haven't done a tender as such, but we have done a detailed review of the audit relationship at the time of each changeover of the audit partner. We have been through a pretty thorough process, I think, in terms of us verifying that we are very comfortable with the independence of the auditor. We've ensured that we get a fresh eyes look with the new partner coming in together with management as that has changed over time. We are very comfortable with the relationship as it stands. We do acknowledge that from a governance point of view, at some point, a tender will be appropriate, but it's not going to be driven by any necessity that we see at present.
Thanks, Frank. Thanks, Stephen, for your question. Anything else?
No further questions.
Okay. Let's move to the next item of business, which is Resolution 2A, which is for the election of Stephen Pierce as a director of the company. Stephen was appointed to the board on the 1st of February of this year and has served as a member of the Nomination and Governance, the Remuneration, and the Risk and Audit Committees. As I said earlier, Stephen has received the unanimous support of the board to succeed me as Chair of South32 when I step down early next year, a decision which, as I said earlier, I'm very pleased about and a role I know he will comfortably fill. He's a highly experienced public company director and his deep expertise in resources, finance, and commercial matters, and of course, his operational leadership is highly valued by the board.
We're delighted that Stephen has joined us and I'd now like to ask him to address the meeting. Stephen.
Thank you very much, Karen. Good afternoon to everyone. Since joining the South32 board in February, I've had the opportunity to get to know my fellow directors, meet many of our senior leaders, and visit a number of our operations. I've also completed a thorough induction to both the board and the company, and I've actively met with members of management through board programs and as part of my broader induction. In addition to South32, I'm currently a Non-Executive Director of ASX-listed AMPL Limited and LSE-listed BAE Systems PLC. My previous executive roles have included Group Chief Financial Officer and Executive Director at Anglo American PLC, Group CFO and Executive Director at Fortescue Metals Group, and CFO of Alinta Energy. I'm delighted to have been appointed to the South32 board and I hope to receive your support for my election today.
I'm also incredibly honored to have received the unanimous support of my fellow directors to assume the role of Chair when Karen steps down in February 2026. I look forward to building upon her outstanding legacy in that role in due course. I'll now hand back to the Chair.
Thanks, Stephen. Any questions on this resolution? Doesn't look like we have any in the room. Belinda, anything on the phone?
Just one question from Mr. Stephen Main. Congratulations to Stephen Pierce on being announced as our new Chair today, commencing in February next year. He's obviously a quick learner after only joining the Board in February this year. Was Stephen recruited last February to be the next Chair or was it a competitive internal process? Today's ASX announcement mentioned a formal process to select Stephen as the Chair. Was a search firm involved in the process and did the process include searching for external candidates? Did the formal process extend to presentations from multiple internal candidates and a formal internal vote of the Board? If so, did Chair Karen Wood run that process herself? Could Stephen please comment on his experience of the recruitment process that got him onto the Board in February and the recent Chair succession process that now sees him elevated to the top job?
Thanks, Stephen, for your question. I will cross to Stephen to allow him to comment. Let me just comment on the pieces relating to the process and the board. We announced Stephen would join our board back in December of last year. He didn't start until February, but we certainly made that announcement in December of 2023. We had a process underway using a recruitment firm to try and identify people who might make suitable candidates for our board. I might say this is something that is ongoing. We don't sort of stop and start a process. We're constantly looking at what our combined skill set is, what some of our challenges are going forward, what skills we might need to replace as we methodically retire people off the board, where we're doing our business, whether we need to enhance, for example, geographic representation.
That's a process that goes on all of the time in terms of bringing people onto the board. It wasn't a difficult decision for the board to make to invite Stephen to join us. He's just had an outstanding career working in all the areas that are absolutely critical to us. It's not just the 35 years, some of which has been in resources, but also in other sectors that are absolutely critical to our business, like energy, oil, and gas, like utilities. He's worked around the world in the places where we conduct our business. That was an easy decision. Consistent with the way in which we've brought everybody onto the board, we went through the process with external advisors. Each member of the board had a significant opportunity to spend time with Stephen, and then of course we made the decision to appoint him.
Always, as Chair, when you're recruiting people to the board, you're thinking about succession, and you're thinking about succession to the Chair. It's not true to say that we brought Stephen onto the board to take over the Chair, but it is true to say that as we were having those conversations, my board colleagues and I said, when the time comes, he looks like he would be a very good candidate. That has proven to be as we've worked with him over this time. The process to replace me as Chair was not conducted by me. It was conducted by Wayne Osborn. He stepped into the role as Chair of the Nomination and Governance Committee. I stood aside from that process. As you would expect, that is an appropriate way to handle the governance of a significant event of this kind. Stephen, anything you want to add?
Yeah, thanks, Chair. Listen, from my point of view as the person coming in from outside, it was the normal, complete professional process that I would have expected. As Karen said, I had a terrific opportunity to meet with each of the directors, each of the Senior Management Team to make sure that it was a great fit from my point of view as well as from the company's point of view. A very normal process in that space. As you know, you only take on one, two, or three of these sort of roles at any point in time, given the workloads involved. You do choose carefully as a candidate coming in. I suppose I was really attracted both because of the South32 business, but also because of the people and the values that I see in the organization. They resonated very strongly with me.
That was part of the reason why I said yes from my side. Thank you.
Thanks, Stephen. Thanks, Stephen, for your question. Belinda, anything else on the phone?
No further questions.
Okay. Could I now ask you then, please, to enter your vote on Resolution 2A? I'm now going to move to Resolution 2B, which is for the election of Mandla Misimang as a director of the company. Mandla was appointed to the board on the 1st of February this year and has served as a member of the Nomination and Governance, Risk and Audit, and Sustainability Committees. Now, I'm embarrassed to tell you we had a typographical error in our notice of meeting referencing Mandla's membership of the Remuneration Committee rather than the Risk and Audit Committee. My apologies. Mandla is a highly regarded executive and non-executive director, and her appointment brings valuable expertise in regulation, in public policy, information, and communications technology to our board. It's a great pleasure to have Mandla join us. Mandla, would you like to address the meeting?
Thank you very much, Karen, and good afternoon to everyone. Since joining the South32 board in February, I've had the opportunity, just like Stephen, to engage meaningfully with my fellow directors, to build relationships with senior leaders, and to spend time on site at several of our operations with our teams and with our communities. My induction to both the board and the broader company has been thorough, and I've connected with key members of management through the board programs and throughout my induction. In addition to South32, I am currently the Chief Executive Officer of Nozala Women Investments, a female-owned private equity firm. I'm also a Non-Executive Director at JSE-listed Telkom South Africa Limited. Since the publication of the notice of meeting, I've resigned as a Non-Executive Director of Exxaro Resources Limited.
It's truly an honor to join the board, and I look forward to your support as I stand for election today. Thank you, and I hand back to Karen.
Thanks, Mandla. It doesn't look like any questions in the room on this resolution.
No questions online. Thank you.
Thanks, Belinda. I can now ask you, if you would please, to enter your vote on Resolution 2B. Item 3 refers to the adoption of the remuneration report for the year ended 30 June 2025, about which, of course, I've already spoken. You can find a copy of that report on pages 135 to 164 of the annual report. Let me just make a few comments about the reward framework for the year. That framework remained unchanged. In considering the 2025 financial year remuneration outcomes, the board is satisfied that they reflect overall business performance, the contribution that executives have made, and the shareholder experience. Short-term incentive outcomes for our executives are determined by the business scorecard, the business modifier, and an assessment of individual performance. Our business scorecard is designed to focus and reward executives for the delivery of key priorities for South32 that are within their control.
While we delivered strong performance on most metrics last year, our aggregated financial and major project delivery outcomes were below target. Overall, the business scorecard outcome for the 2025 year was 100.8% out of a total of 150%. Our short-term incentive plan provides the board with the discretion to apply a business modifier to reflect factors that are not specifically contemplated in the scorecard. The board reduced the business scorecard outcome this year by 20% for the Chief Executive to reflect the tragic loss of our colleague, about which we spoke earlier, Jose Luis Perez, at Cerro Matoso. Negative business modifiers were also applied to other members of the executive team. The board awarded Graham an individual performance outcome of 120% in recognition of his strong personal leadership in delivering critical business and transformation initiatives during the financial year.
As a result, Graham received a short-term incentive outcome of 65% of the maximum available under the plan. As I mentioned earlier, this year was the first time we assessed performance against the two strategic measures in the long-term incentive plan that were both introduced in 2022, portfolio management and our response to climate change. The board determined a total outcome of 15%, 8% for portfolio management, and 7% for climate change. The remaining 80% was forfeited as the company did not meet the total shareholder return hurdle, despite delivering a TSR of 19.6% for the four-year performance period. Let me now go to questions on this resolution. Belinda.
Thank you, Chair. There's one question online from Mr. Stephen Main. Thank you for the change of practice this year to disclosing the proxy position early to the ASX, along with the formal addresses. This allows for a more fully informed debate about the 32.5% remuneration strike. Thank you also to the Chair for her summary of the remuneration issues. Could she please name the three proxy advisors which recommended against, and were there any proxy advisors which recommended in favor of the report? Also, how many proxy advisors recommended against the board's recommendation on the other remuneration issues items and the climate transition plan, which was opposed by 9.6% of voted proxies?
Thanks, Stephen, for your question. I agree. I actually think it is an enhancement to release the proxy results first. We appreciate that suggestion on your part, and we're very pleased to do it. The four proxy advisors, there are others internationally, but the four main proxy advisors, if I set aside the Australian Shareholders Association, and John already spoke about that earlier, having supported all of the resolutions. Institutional Shareholder Services, Ownership Matters, and AXI, the Australian Council of Superannuation Investors, all were critical of aspects of the remuneration report. As I said earlier, the criticisms differed from proxy advisor to advisor. Some related, particularly ISS, to the way in which we structured and reported short-term incentives and the way in which we'd included the two strategic measures in the long-term incentive plan.
They were not criticisms from the other two proxy advisors, Ownership Matters and AXI, but all three raised an issue with the decision we took to increase Graham's remuneration for this current financial year. I think as best I can understand their concern about that, it was that he was leaving sometime late next year, so why would we increase his pay? What has been helpful is that I, with my board colleague Wayne Osborn, Chair of the Remuneration Committee, had a lot of opportunity to talk not only to proxy advisors, but also, perhaps more importantly, to shareholders about that decision.
When we were able to explain that Graham is actually in the job, doing this job for the whole of the financial year and beyond, and how important that piece of the transition plan is, I think a great many of our shareholders recognize that as key to the overall succession plan. CGI Glass Lewis recommended a vote in favor, so not all of the proxy advisors recommended a vote against. I think I've picked up all of the elements of that question, but Stephen, if you're still online and I've missed anything, let me know.
I mean, the ISS were against both Graham and Matt's grant, but the others were.
Thanks, Wayne. Yes, thank you for that reminder. The ISS proxy advice was also against the grant of awards to Graham and to Matt's awards, no?
No, to Graham's, I think.
Just to Graham's. You're right. It's just to Graham's. Apologies.
No further online questions.
Thanks, Belinda. Nothing in the room then. Could I ask you to enter your vote, please, on Resolution 3? There are voting restrictions attached to this resolution, and of course, they're set out in the notice. I now will move to Resolution 4, the purpose of which is to seek shareholder approval for the proposed grant of rights to our Chief Executive Officer. The rights relate to the deferred equity component of Graham's short-term incentive award for the 2025 financial year and the long-term incentive for the 2026 financial year. 80% of the long-term incentive will continue to be assessed using relative total shareholder return over a four-year performance period.
As an outcome of a recent review of our executive reward framework, one of the total shareholder return comparator groups, the Morgan Stanley Capital International World Index, will be replaced from the 2026 financial year by the ASX 100 constituent group. We made that change to be consistent with peer companies. There's no change to the other total shareholder return comparator group, which will remain as the constituents of the S&P Global Mining Index. The two strategic measures will continue to each account for 10% of the award. These measures will be assessed by the board at the conclusion of the four-year performance period, which ends in June 2029. Further information on the measures and how performance is assessed is set out in the notice. Let me go to any questions on this item.
No online questions. Thank you, Chair.
Okay. Thanks, Belinda. Nothing online and nothing in the room. I can ask you, if I may, please to enter your vote on Resolution 4. Again, there are voting restrictions attached to this resolution, which are set out in the notice. I'll now move to Resolution number 5. The purpose of this resolution is to seek shareholder approval for the proposed grant of rights to our incoming Deputy CEO, Matthew Daly. As I mentioned earlier, Matthew will join South32 as Deputy CEO at the beginning of February and will transition to the CEO role late next year. The board is seeking shareholder approval to grant Matthew equity awards as part of his commencement benefits. These benefits are being offered, as I indicated earlier, as partial compensation for benefits he forfeited when he ceased his previous employment. The awards also provide alignment of Matthew's long-term interests with those of shareholders.
Almost half of the equity is being granted under South32's long-term incentive plan, and further information about how that plan works is set out in the notice. The board considers the quantum and the terms of the proposed awards to be appropriate to attract and retain an executive of Matthew's caliber. Can I now go to please any questions on this item of business? Nothing in the room, Belinda.
No questions online.
Thanks, Belinda. I'll now ask you, if you would please, to enter your vote on Resolution 5 and move to Resolution 6. This is the non-binding advisory vote on South32's Climate Change Action Plan, which is available, of course, on the company's website. Our Climate Change Action Plan for this year does build on the foundation of our inaugural plan, which we put to you in 2022 with the strong support of shareholders. Addressing the risks and opportunities presented by climate change has been central to our strategy since formation. In this updated plan, we reaffirm our commitment to climate action and outline the steps we are taking to continue to position our portfolio for the future, to reduce greenhouse gas emissions, and strengthen resilience to physical climate impacts.
Over the past decade, we've transformed our business to focus on the production of minerals and metals critical to the world's energy transition. By bringing copper into our portfolio, expanding our aluminium production capacity, and progressing development of Hermosa, we have increased our exposure to attractive base metals. We continue to work towards our target to halve our net operational emissions by FY35 from FY21 levels and our goal to achieve net zero by 2050. Our immediate focus remains on Hillside Aluminium, where we are pursuing a comprehensive and affordable energy solution. At Worsley Alumina, our focus is on fuel switching, as we talked about earlier, and steam electrification initiatives. Our portfolio transformation has significantly lowered our Scope 3 emissions. Nevertheless, we remain committed to engaging with our suppliers, customers, and other stakeholders to identify and pursue collaborative solutions to shared decarbonization challenges.
We recognize that intensifying climate variability and extreme weather will continue to affect our business. To address the challenges, we're implementing a climate adaptation and resilience plan, which focuses on strengthening present-day resilience while preparing for future climate impacts. Since releasing our inaugural plan, we've deepened our understanding of the commercial, the technical, and the policy challenges that constrain progress on climate action. We recognize that alongside strong governance and effective risk management, multi-stakeholder collaboration led by governments worldwide will be critical to achieving a just transition for people and for communities. The purpose of this resolution is to provide shareholders with an opportunity to discuss and provide feedback on our approach to climate change. As I said, this resolution is advisory only and does not bind the directors of the company.
However, as you would expect, the board will take into account any shareholder feedback when considering its future approach to climate change. Can I now ask if there are any questions, please, on this resolution?
Chair, may I introduce Alex Douglas?
Hello, Alex. Welcome. Hello, thank you. In 2022, the Intergovernmental Panel on Climate Change identified the Northern Jarrah Forest as one of a handful of Australian ecosystems at risk of collapse due to climate change. However, they noted that this risk could be substantially reduced by rapid, large-scale, and effective mitigation and adaptation to avoid and reduce forest degradation. The most immediate and emphasized remediation in line with this is to halt further clearing of native forest in the Northern Jarrah Forest. Despite this, under Ministerial Statement 1237, you recently received approval from the WA government to destroy a further 3,855 hectares of critical numbat and black cockatoo habitat for your Worsley Alumina operations in the Northern Jarrah Forest, which is in addition to the 13,663 hectares of previously approved extended mining area totaling 6,019 hectares.
The clearing of mature native vegetation as part of this represents a permanent loss of carbon storage capacity, increasing the likelihood that the Northern Jarrah Forest will transition from a net carbon sink to a net carbon source. Rehabilitation is a critical component of your mitigation and offset strategies, yet your 2025 Climate Change Action Plan only references rehabilitation once. Your Climate Change Action Plan also states, "We are committed to providing clear and meaningful disclosures and transparently reporting our sustainability performance, including in relation to how we are addressing climate change." Additionally, under the conditions of Ministerial Statement 1237, you are required to produce, under Condition B14-2, a rehabilitation performance report by December 20, 2025, Condition B14-3, an annual rehabilitation plan by September 30, 2025, and under Condition D2-2, an annual compliance assessment report by March 20, 2026.
Given your commitment to transparent reporting, a lack of clarity in actionable outcomes in your Climate Change Action Plan, and the conditions of your Worsley mine expansion on Condition B14-2, has the rehabilitation performance report been submitted, and if not, when do you intend to do so, and will the report be made publicly available?
Thanks for the question. I just want to preface my comments, and I'll ask Graham to comment on this also, with the comment I made earlier. We do understand and we respect that there are different views about how this work is progressed in the southwest of Western Australia. I don't, for a moment, write over the concerns that you have, and it's why we have taken such a long time to make sure that the permitting process we've been through is one that is consistent with the 40 years of operation that we've had there that we think is a very responsible operation. I mentioned earlier our obligation to progressively rehabilitate the site. I mentioned earlier about the protected areas and the buffer zones that we've put in place. I talked about the reservation of the 8,000 hectares that came through that approval process.
We do feel very confident about the work we do, and we stand by our record on that. We've been down as board directors and looked at the work that's gone on and feel very confident that the team on the ground there and beyond have the sort of objectives that you're talking about, which is obviously to minimize damage uppermost in their mind as they go about their work. On the lodgement of that plan, I don't know the answer to it. Graham may.
Not off the top of my head, but we can get someone very quickly out of this to do it. Obviously, we operate in line with the approved environmental plans, Flora and Fauna Conservation, and also Construction Environmental Management Plan. Since 1984, we've rehabbed about 4,039 hectares. A lot of the areas we're now mining in the new area are actually recycled forests as well, but we can have someone go through some of the detail if you like at the break. We also do offer regular tours down there for people to have a look at some of the rehabilitation we do.
Okay, that would be great to get the details on when that report will be ready. The next question is, on Condition D2-2, are you working towards a deadline of March 20, 2026, for the annual compliance assessment report, and will it be made publicly available? In the spirit of transparency, since the issuing of Ministerial Statement 1237, has there been any reported non-compliance?
I can't imagine we're not working towards a deadline, but again, I don't know the specific answer to that. You probably don't either, Graham.
I have, again, we'll follow up, but I've just had confirmation from one of our people not here that we have submitted our reports in line with the deadlines that you asked, and we'll continue to do that.
Will those be made publicly available?
I'll have to understand what we can and can't do by the actual license, but we'll get back to you on that one as well.
Just one more question on that.
No problem.
If you're committed to being transparent about your reporting, why wouldn't you be making these reports publicly available?
Again, we have to work with the regulator about what they want as well at the same time.
Okay, great. I do have one more question, if that's okay.
Of course.
One more to the one more.
No problem.
We've had reports that the Department of Water and Environmental Regulation are currently investigating reports of bores going dry, water mounding, and dying eucalypts from farming properties surrounding your Saddleback Mine. This would be a breach of Ministerial Statement 1237, Condition B16, in land waters. Will there be compensation for surrounding farmers who are now unable to operate their farming business because of water impacts from the Mount Saddleback Mine?
I can't give you that detail. I haven't seen any of those come through to my desk, but I do know we engage regularly with all our local stakeholders, including the farmers, and we do have well monitoring in place across all the business. I haven't heard of anything along those lines, but we'll follow that up for you and it can circle back.
Okay, if DEWA are investigating, is that not something that would be made aware to you?
Not that I'm aware of that it's occurring now.
Okay, all right. Thank you.
Alex, sitting next to you is Kelly O'Rourke. She might not be the person who can give you all the answers, but she'll tell you who can in the break.
Great, thank you.
Pleasure. Any other questions on this resolution from the room? Belinda?
Thank you, Chair. We have a question from Janet Barlow. Our company, alongside approximately 200 others, is required to reduce its emissions of CO2 by 5% each year, 30% by 2030. Could you inform us of the additional costs this year and last year of this in terms of both, one, internal reductions of emissions over and above those that predate the Safeguard Initiative, and two, purchases from third parties on emission credits? Could you indicate what estimates you have made for these extra costs over the next two years?
I think I'm going to ask Graham if he's got some contribution he can make in terms of cost, but it is important to recognize that our approach to addressing climate change is integrated with our strategy. You know, I'm often asked, how much money are you spending on emissions reduction? I say our capital spend is going into executing the strategy operation by operation. For example, at Hillside, any work that we're doing in trying to reduce the emissions from that asset, and I indicated earlier, it's a very significant one for us because it accounts for 58% of our Scope 1 and 2 emissions, is all designed to reduce emissions so that there is a market for the aluminium that comes from that operation.
In other words, that we can continue to export that aluminium to countries who have concerns about emissions and who put an impost on importation of the product where emissions haven't been reduced. It is economic sense for us to do the work we're doing. We don't think about this as a cost that doesn't flow through to the profitability of our commodities and therefore our company. Graham, anything you wanted to add to that?
Yeah, I mean, to your point, Karen, the two, if you think about the three biggest contributors for us, they'll be the aluminium smelters if Mozal's not running on hydro. Then it's Worsley. Obviously, it's power long-term contracts that drive the smelters. We're currently trying to renegotiate an extension of a hydro contract for Mozal. We've committed to beyond 2031, and we're working closely with Eskom and the South African government to sort of make our smelter there more green and rely on renewables. They're more medium to long-term. Mozal's more present, but Hillside's more of a medium to long-term action. There's lots of work going on. At Worsley, probably the big capital spend will be around the two boilers that we've done. The boilers, there's five in total.
They're slightly different in configuration, but you're probably talking about a CapEx number of $20 million to $30 million each over time to basically convert those. Each one's worth about a 5% reduction. That's where the capital would be for us, Karen.
Thanks, Graham.
In terms of the other piece, what have we purchased? It's minimal, around $3 million.
Thank you.
Thank you. One final question from Mr. Stephen Main. The annual report says that we have 230,908 shareholders, but less than 2% of them will have voted today, including on this important climate transition plan resolution. Politicians wouldn't tolerate a 98% no-show in elections, so why do we? One way of tackling chronically low retail shareholder voting rates is to disclose how many shareholders actually voted for and against each item of business, like with a scheme of arrangement. BAPCO, ARB, and Stockland all did this for the first time at their AGMs this month, joining the likes of ASX, Qantas, MIA, Suncorp, Tabcorp, and many others. It's very well to reveal that only 9.96% of directed proxies oppose the climate transition plan. It would be useful to see where retail shareholders sit on this issue by disclosing how many shareholders voted for and against.
If you don't disclose this data, many of us small shareholders will give up and stop voting. Also, thanks for voluntarily offering this climate vote. Will you do it again next year?
Thanks, Stephen. We talked about the earlier part of your question last year. I know I said at the time that we would certainly look at it. We have looked at it. We haven't done it this year. We made the decision not to do that, not because we don't obviously respect the important role that retail shareholders play in our company. It's a very important role. We have many of them in the room with us today. For that, I thank them. John from the Australian Shareholders Association spoke earlier about our numerous engagements. That is a very important part of the way in which we communicate with that group. I suspect that John tries to encourage his members to exercise their voting rights. Certainly, we do that when we're having those sorts of conversations. The Climate Change Action Plan, we have committed to update it every three years.
We think that's important so that we can just share with our shareholders the progress that we've made and outline any challenges that emerge over that period of time. We haven't taken a decision yet on whether we will put that to shareholders for a vote. Obviously, that will be a decision that's taken closer to the time. Thank you again.
No further online questions. Thank you.
Thanks, Belinda. Could I ask you then to please enter your vote on resolution number six? We've now considered all of the items of business. Before I close the meeting, I did just want to give another opportunity for shareholders to ask any other question if they would like. Belinda, anything?
No further questions.
Thank you. Nothing in the room either. If you haven't already done so, would you please complete your voting cards and place them in one of the ballot boxes being passed around or enter your votes online. The poll will close in 10 minutes. The results of the poll will be released to the stock exchanges and, of course, published on the company's website as soon as possible. That brings us to the end of our annual general meeting. On behalf of the board and all of us at South32, I do want to thank you, shareholders and guests, for joining us and look forward to your continued support in the coming year, particularly that support under Stephen's chairmanship.
On a personal note, as I step away from the chair, I do so with immense pride in what we've achieved together, including with our shareholders, and with deep gratitude for the trust you've placed in me. I thank my board colleagues, the leadership team, and everyone at South32, all of our stakeholders, for the privilege of serving as Chair of South32. It's been the greatest honor. I'd now like to invite those shareholders who are with us in the room to join us for some refreshments. Subject to the finalization of the poll, I now declare the meeting closed. Thank you.