Thank you, and good morning, everyone, and thanks for joining us today. On the call with me is our Chief Financial Officer, Sandy Sibenaler, our two COOs, Jason Economidis and Noel Pillay. I'll give a short summary of our results before handing back to the operator for questions. Before I go into detail about our results, I'd like to talk about safety. Nothing is more important than the health, safety, and well-being of our people. Tragically, two of our colleagues, Tonello and Alfredo, lost their lives in a fatal incident at Mozal Aluminium in November. Our deepest sympathies remain with their families and colleagues. In response to the incident, we continued our work to fundamentally shift our safety performance and implement our multi-year safety improvement program.
Turning now to our FY 2023 results, our teams delivered strong production results during the year, achieving annual production records at Hillside Aluminium, Australian Manganese, and South African Manganese. We also embedded our recent portfolio improvements in copper and low-carbon aluminium, key metals needed for a low-carbon future. This underpins strong growth in aluminium, up 14%, base metals up 17%, and manganese up 4%. This growth, coupled with our focus on cost efficiencies, has resulted in one of our largest underlying financial results to date, with underlying EBITDA of $2.53 billion, despite a challenging backdrop of declining commodity prices and industry-wide inflation pressures. A record $1.2 billion was returned to shareholders during the year, equivalent to 11% of our market capitalization. And today, we have announced a fully franked ordinary dividend of $140 million, or $3.20 per share, in respect of the June 2023 half-year.
We have also increased our flexible capital management program by $50 million to $2.4 billion, leaving $133 million to be returned by the 1st of March 2024. Looking ahead, the improvements we have made to our portfolio are expected to deliver further growth in commodities critical for a low-carbon future, with low-carbon aluminium production expected to increase by 12% in the financial year 2024 as Brazil Aluminium continues to ramp up and we increase volumes at Mozal Aluminium. Sierra Gorda is expecting projects to increase future copper production, with the plant debottlenecking project underway and a final investment decision for the fourth grinding line expansion expected in the H2 of the 2024 financial year. We also continue to advance our portfolio of high-quality growth options to further increase our exposure to attractive markets.
Our Hermosa project in Arizona presents a significant opportunity to sustainably produce commodities for a low-carbon future from multiple deposits for multiple decades, with Hermosa recognized as the first mining project to be added to the FAST-41 process in the United States. At the Taylor Zinc-Lead-Silver Deposit, we're on track to make a planned final investment decision towards the end of this calendar year. And separately, we confirmed the opportunity to produce battery-grade manganese at Hermosa's Clark Deposit and have signed multiple MOUs with potential customers for future potential supply to North American markets. We also continue to unlock value from Hermosa's highly prospective land package, recently returning our best copper results to date at Peak. We are continuing to invest in greenfield exploration options to discover our next generation of base metal mines.
During the year, we consolidate our position in Argentina's highly prospective San Juan region, exercising our earning right to acquire a 50.1% interest in the Chita Valley Copper Prospect and acquiring strategic interest in Aldebaran Resources. In closing, we continue to prioritize a strong balance sheet to fund our growth into structurally attractive markets while retaining our disciplined approach to capital allocation. The outlook is positive as we continue to execute our strategy and our portfolio has leveraged the increasing commodity demand required for the global energy transition. Thank you, and I will now hand back to the operator for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Rahul Anand with Morgan Stanley, Australia. Please go ahead.
Hi, morning. Thanks for the opportunity. Look, I first wanted to start with perhaps the industrial action that's been talked about reappearing. Now, just wanted to get you a bit more color because we've seen some numbers around the increase that's been offered around 6.5%, but the strike seems to be still going ahead. I wanted to understand in terms of your production guidance for this year, what type of an impact have you already accounted for, and is there any further risk that we should be aware of for this year? That's the first one.
Yeah, Rahul, look, thanks for the question. I probably think more pressing is you would have seen we did talk about longwall 19A. We are expecting to see some production impact there by actually having a longer outage as we actually did a longwall move driven by the regulators looking for an increased setback on seam 15A, which has moved from about 61 meters to 120 meters. As you would be aware, Illawarra has had a strong unionized workforce for a long period of time, which we've worked very closely with. We do have one EBA, which you said is currently under discussion. We think when you look at what we put on the table, it is a very fair and attractive offer for the region. We'll continue to work with the unions as we always do.
At this stage, we don't expect to see any material production impact, and we'll continue the dialogue and keep moving forward.
Okay, so just to reconfirm, at this point in time, the strike is not part of the production guidance. Is that the right way to look at it?
So the way I think about it, the roles that we're talking about are essentially not widespread across the business, and at the moment, we can safely, absolutely run the production as we have. There might be some impacts as we sort of move into the development phase, and we sort of control some of that work, but nothing material at this stage.
Okay, thank you for that. That's clear. And look, the second one, perhaps speaking to the cost angle, I just wanted to touch upon Worsley. Admittedly, I was expecting a bit more cost out to come through in terms of the input costs coming down, and we've seen some of those positive impacts start to show for some other peers in the industry. Now, obviously, you're facing a fair bit of labor inflation as well in the part of the world that you operate in. I just wanted to get a bit more color on how you're seeing some of those impacts and how we should think about them in terms of moving forward in terms of labor costs specifically. And then you've also talked about energy. If there's any initiatives you can take for a bit of cost out there?
Yeah, that would be a good question, and obviously, we have some competitors in this space. I think one thing to sort of understand is what we include in our unit costs is slightly different. So we do include the marketing and the royalty in our unit costs. So that's probably a bit different to some of our competitors down south. Probably the single biggest driver at the moment will be caustic and the impact that that actually has. If you look at our go forward pricing at the moment based on the budget, we're using roughly about a $600-a-ton caustic assumption. The spot at the moment is probably trading more around the $400 mark. So there is potentially some costs that will come out of the business, and obviously, the other one to watch is exchange.
We are in the process of converting the first boiler from essentially coal to gas. That is included in our plans at the moment. But caustic soda would be the biggest one to continue to watch how that performs.
Understood. Okay, look, that's my two. Thank you. I'll pass it on.
Thanks, Raul.
Thank you. Your next question comes from James Redfern with Bank of America. Please go ahead.
Hi, Graham and Sandy. I hope you're well. My first question is on copper, please. So copper accounted for about 7% of revenues in FY 2023. And like most other mining companies, South32 wants more copper. The media has speculated that South32 is interested in Khoemacau in Botswana. Just wondering, how does South32 think about the Kalahari Copper Belt as a jurisdiction for copper investment? That's my first one. Thank you.
Yeah, so maybe a couple of comments in there. One, obviously, we have strong operating experience in Southern Africa or that part of the world. So we're not sort of phased. I think in all these things, when we look at options for the group, we've been very clear we have a bias towards the base metals because we think they are important as the world decarbonizes. I think when we did the acquisition of Sierra Gorda, we've been very pleased with that acquisition. You continue to see improvements in the block cave. You also will see the fourth grinding line, and we've actually increased the resource, and we think there's more exploration potential to add to that over time. So we will look at other copper options at the moment, but we're very focused on value.
From what I've seen, that's probably a very competitive process and one that'll be a little bit too rich for our blood, to be honest.
Yeah, thanks. I probably tend to agree, just given the amount of interest in that asset. Turning to manganese, around 9% of manganese end demand is from the steel industry. And I know South32 is excited about the growth of battery-grade manganese as an end market. I'm just wondering, is that enough to make manganese core for South32, or do you think that we could see manganese, I guess, divested in time to focus more on base metals? Thanks.
So look, I mean, I would start with the position that we exist at great value for shareholders. So everything's to sell at the right price. So that's where I'd start with. We've always called out that manganese is quite a different product versus iron or met coal in terms of, as you recycle steel, you will need to actually add manganese back into the process, so you can't actually drift on the units. At the moment, as you quite rightly point out, the markets are tight, particularly with not a lot of real estate development work happening in China and also a large build-up, if you like, of our lower product. We do actually see growth in the actual manganese battery space over time. Clark, in particular, we think, is uniquely positioned in terms of location.
It'll be the only real close-to-ready-go project in the U.S. that can meet domestic demand. And already, as you think about people moving away from those NCM62 batteries, we use about 17% manganese to the new ones that have been looked at. They're probably closer to 60%-70%, depending on which path you go down. So we do see potential for basically the manganese battery area to develop. I guess from our perspective, location is probably key in this, and this is where we think Clark being located in Arizona in the U.S. is really well positioned.
To give you a sense, if you think about manganese demand long-term, so I'm talking about, let's say, calendar year 2030, depending on how the uptake goes, we probably have a midpoint of about 600,000 tons of demand, but the range could be as high as 1.8 million tons, of which we'd probably see North American demand somewhere between 144,000-270,000 tons. That's why we really like the location of Clark. One of the opportunities that come to Clark as well is that it actually will leverage off some of the infrastructure that's being put in place at the moment at Taylor, particularly around the dewatering, just access power lines, etc. The key for us, as we've spoken about, is to actually get enough of a bulk sample to give enough product to basically our customers so they can help develop exactly what they're looking for.
And in that space, we've got three MOUs already in place. So now for us, it's about getting that bulk sample out and trying to grow the business. We do believe you could have a mine like there in 70 + years if this can actually sort of be successful. There's a lot of work still to be done on it, but from that perspective, we do believe manganese, both in steelmaking and in the battery space, has a role to play.
Perfect. Thanks, Graham. Appreciate the color.
The next question comes from Kaan Peker with RBC. Please go ahead.
Good morning, Graham, Sandy, and team. Yeah, two from me. Just thanks for the maiden FY 2025 guidance. Just looking at Sierra Gorda, the production guidance there and that flagged copper grade. Can you maybe give an indication if Sierra Gorda is meant to hit nameplate by then, or is it just on recoveries that you're sort of expecting in the 70s% in terms of copper production? Thanks.
Yeah, so there's probably a number of items going on there. One is the copper grade is slightly lower for the next two years as we actually walk into the shoulders of the ore body. So there is actually some impact that comes through there. To give you a sense, the copper grade in 2023 was about 0.42. It's about 0.38 in 2024. As we sort of get out of those shoulders of the ore body and back to the central parts, you're probably getting back to those numbers around 0.42-0.46 and probably think about an average after that of about 0.45, at least out to FY 2041. So from that side, you have the grade benefits. You do actually see the debottlenecking starting to come through. We're targeting from the debottlenecking project to actually get a target of somewhere around 48-49 million tons.
We achieved that on an annualized basis in quarter four this year. We would expect FY 2024 with a target of throughput of 48.5 million tons to actually deliver on the debottlenecking. That is a key enabler for the fourth grinding line, and that'll be the piece that we sort of look to sort of complete the feasibility study on that in the H2 of this year. Typically in that, you probably see around a three-year construction phase. If you look at similar kind of projects, you're probably looking at about 100% terms of capital bill of around $500 million, which we believe would sort of lift your production up from that 48-49 million tons per annum to about 57-58 million tons per annum.
Sure, thanks. Very detailed. And the second one, more on the aluminium costs. I know guidance wasn't provided, but so if you strip out energy and alumina, the other inputs such as pitch and I mean, what are the expectations over the course of the year?
Yeah, look, absolutely. I mean, first of all, I would call out that Mozal, obviously, we had some impacts from the fatalities we had in November that sort of particularly played into the third quarter of last year, but they were back to full production and quality in the fourth quarter of the year just finished. But I think Hillside, I'd call out Kelvin and the team for an outstanding job, and we've had record load shedding events and other issues going on around us, which is, I think they've done a great job. To your point, clearly, the inputs that go into the smelter are a big component of the cost base. If you think about the H2 of FY 2022, if you look at the smelter costs, so caustic, coke, pitch, AlF , alumina as a percentage of aluminium, that was about 37% in H2 FY 2022.
H1 of 2023, it was about 43. H2 of 2023, it was about 44. So what are we seeing at the moment? We are seeing alumina price slowly creep up when you talk about the 2024 estimate, and we're seeing the pitch and the coke price starting to come down. So, for example, the average pitch price in 2023 was about $1,162 a ton. Spot on the 18th of August was about $1,000. Coke was about $683 as an average for 2023. Spot is now about $540. So we are seeing that downward pressure on those items.
Cool. Thank you very much. I'll pass it on.
The next question comes from Lyndon Fagan with J.P. Morgan. Please go ahead.
Thanks, Sam. Good morning, Graham. My first question is just on a bit of a comp between Worsley and Alumar. There's around about an $80 a ton unit cost difference. Obviously, there were some operating issues at Alumar during the period, but I'm wondering if you can help me bridge the gap on what is driving that spread and where maybe Alumar is in the long term relative to, say, Worsley, just to recalibrate. Thanks.
Yeah. So you will see as years go by that those differentials sort of bounce up and down a little bit. Probably the two biggest drivers in FY 2023 that made Brazil more expensive. One is you've actually got a higher bauxite cost, about the way it actually buys bauxite into that operation from MRN. The second piece is caustic has actually been high in price, but also at the moment, we're probably in a higher consumption area. So consumption is about 94 kg per ton in Brazil. As you move into the next fiscal year in FY 2024, that probably gets closer to the 70-80 mark. So you will see some coming off there. If you talk about the caustic costs in the US or the US Gulf, you've probably been running at an average in 2023 of $766 a ton. Spot is about $465 at the moment.
The other one is obviously in FY 2023 that we had higher energy costs because the smelter is actually tied to a coal-linked energy contract.
Thanks for that. So is it possible to sort of hone in on maybe in a more normalized environment, whether you'd expect how much of a spread you'd expect between the two assets, or is it just too hard to put a number on?
I think there's different drivers around bauxite where you buy your caustic from, but if I was going to have a guide for next year, it's probably within plus or minus $10 at Worsley around that mark. Now, we're not the operator, but that's the way we sort of think about the cost for next year.
Okay. Thanks for that. The other one is in the commentary, it alludes to the bauxite permitting at Worsley being delayed. Obviously, we've got a bit of a shemozzle for the other operator in the region. I'm just wondering how you avoid that situation, and are you seeing any risks here to bauxite permitting? Clearly, you're nowhere near the water catchment, as you said on one of the other calls, but yeah, just interested on some color there. Thanks.
Yeah. So maybe we'll comment a little bit about where we are and the difference between ourselves and Alcoa, obviously, they'll talk about their situation better than we will. We have submitted a final environment review document for the Worsley mine development in January 2022. As part of that, we're looking to actually get approved in the Logue area an additional clearance, which gives us a 15-year mine life. We've responded to, if you like, all the submissions that sort of came out of the public review process, and we would expect to get final regulatory approvals in the H1 of FY 2025. At this stage, we haven't seen that we're going to have any issues around the bauxite supply space, and we have a little bit of a buffer if there are some issues, to be clear.
And the other one to sort of be very clear on is our long-term approval process is different to Alcoa's current situation. We are not close to any sensitive water areas. In fact, we're about 15 km plus away. So we have a very different approval process. Outside of that, they're probably best to give you some guidance on where they're at. But very different process, and we don't see any challenges in the short term.
Good to hear. I might just sneak a quick one in lastly. On Cerro with the effective tax rate now at 50%-60%, I mean, can you justify any investment to expand or look at some sort of optionality of the asset, or is it sort of just too hard now from a regime, fiscal regime point of view?
Obviously, the changes that occurred in January, we think, are very disappointing for the industry. I mean, the country's political situation at the moment is a little bit of up and down. So how long that lasts for, we'll wait and see. We did actually trigger with the Mozal project, which had a very clear and defined payback, an automatic 15-year life extension. I think the challenge for Cerro Matoso is the sweet spot around nickel production is probably around that 40-42,000 tons a year, and we have some grade dropping off when you look at our future guidance as we sort of think about the year FY 2025 and out. We also have an FY 2036. We actually have a major furnace rebuild coming as well.
I think your comment around justifying further expenditure. We have had some inquiries around what can we do to convert the class to the class one type nickel, particularly if you think about the relationship between Colombia and the U.S. We have historically done some heap leaching work at Cerro Matoso, which obviously is low energy, low cost. That's something we'll have a look at. We'll get that work out and redo some of that work. So you wouldn't see it as a large capital investment. We certainly wouldn't see it as a large carbon intensive. But what I would say to Ricardo and the team at Cerro Matoso is think back to when we started the demerger. We've had various projects like La Esmeralda, and we've actually had the Osmoc process. The team have done a really good job of finding ways to create value.
We're not finished, if you like, in what we think we can be done yet, but we're certainly not looking to put large amounts of capital into Cerro Matoso with the current tax structure.
Thanks for that. I'll pass it on.
Your next question comes from Lachlan Shaw with UBS. Please go ahead.
Yeah, good morning, Graham. So a couple from me. So just on the working capital, it appears to have stabilized. Can you talk to the movements in the second half and expectations for FY 2024, please?
Yeah, sure, Lachlan. I'll give that one to Sandy. She's itching and rearing to go.
Sure. So we did see an inventory build in the period with the Brazil aluminum restart along with Mozal's temporary impacts. We don't really anticipate seeing a significant move on these in terms of the Brazil aluminum component at least. Mozal, we should see start to clear out in the first quarter of the FY 2024 year.
Okay, great. That's helpful. And then just on IMC, so a couple of ones, a couple of small ones, hopefully. So just on the BlueScope contract and the work around Dendrobium tonnes, possibly fulfilling there, what's the update? And then secondly, has the thinking changed around how this asset fits in the portfolio that's tilting more and more towards future-facing commodities? Thank you.
Yeah. So we use the word bias to base metals. Particular reason. We do see a difference between met coal and thermal coal. Met coal today, there is no replacement for met coal. The world is going to need high-quality coke and met coal, which gets produced out of Illawarra. We're very comfortable with the mine plan that we have for Dendrobium now after making the decision not to actually invest in Dendrobium Next Domain. And certainly, that's a much longer timeframe that we have to FY 2038, 2039, depending on how we develop some of the options there. So from our perspective, it's paid its way in the portfolio. We have used some of that, obviously, cash generation when we saw the high prices over the last 18 months to actually finalize our purchase of Sierra Gorda and get more exposure to base metals, in particular copper.
Where we sit today with BlueScope is we have a contract that's been in place for a very long period of time, even before the demerger of South32 from BHP. We have a good relationship with BlueScope. We're constantly talking about the update and the mine plans. They have a very good understanding of what we look like in terms of what we can deliver, and it's a good open dialogue. We don't foresee any major issues in that space.
Your next question comes from Paul McTaggart with Citigroup. Please go ahead.
Morning, all. You operate in a number of jurisdictions. Maybe you could just give us a sense of how you see wage inflation pressures across those various jurisdictions. If I could, maybe you could just give me a sense too on how you see explosives prices at the moment and whether there's a variation across jurisdictions.
Yeah. So maybe if we tackle those piece by piece. If we talk about labor costs, I mean, clearly, an area of higher inflation has been in Australia. That is something we've seen in terms of competition for roles. It kind of feels like in some of the functional support roles that is eating a fair bit at the moment, but probably too early to say. Now, obviously, we've got a relatively high level of inflation across about 4.5%-5% across the Australian region at the moment. If we think about the U.S., the U.S., where obviously we've got the Hermosa project coming along, specific roles around electrical work and some specialized roles have actually increased quite substantially, but on average, still cheaper than what it would be to operate in Australia. Probably not seeing huge wage pressure outside underlying inflation in Southern Africa at the moment.
And probably similar, if you think about what's going on in Colombia and Chile at the moment, there are some increases, if you like, on wages, but probably not huge in the scheme of things. I know, Sandy, would you want to add anything different to that?
No, I'd agree with that, and look, I think we've really maintained on all of our union agreements positions that are within or below inflation across the board, so really maintaining our position in the market.
Just on Chile. So obviously, BHP, I mean, they call out wage inflation in line with CPI, which has been 17%, now 12%. Do your wage agreements for Sierra Gorda, are you locked into that level of inflation?
We didn't see that level of inflation as we went through our most recent union agreement. So we were substantially lower than that number.
Great. And just on.
Your question. Yeah, look, explosives for us. I mean, obviously, we don't have the same exposure as you would see for a large operation like Escondida or what the guy's seeing in Pilbara in iron ore. So they probably up at the top of my tab, but Ben can chase it down, but it's probably a material number for us.
Sure. Thank you.
Your next question comes from Glyn Lawcock with Barrenjoey. Please go ahead.
Morning, Graham, Sandy. Graham, can I just get you to be a little bit more direct? I mean, Illawarra, I mean, I know you say you appreciate South32 exists to create value for shareholders, but is Illawarra on the block?
I think we probably get asked this question every time we do results, and I guess the answer remains the same. Everything's to sell at the right price, no matter what the asset is. Are we actively out there running a process on Illawarra? No. Do we think met coal still has a role to play for the next 20 years? Absolutely. And that's probably as clear as we can be if that's helpful.
Yeah, no worries. No worries. I guess, is it too hard to run a process while BHP is running theirs, or is it just you don't think it's the right time?
Look, I think in all these things, you have to look at what's happening in the external marketplace, and there are probably a limited number of buyers at the moment. Obviously, we do have a long-term contract that sits here with BlueScope. For some people, that might be attractive. For other people, it might not. Again, we're comfortable with where we are with the operation.
Okay. That's great. Thanks, Graham. And then just maybe kind of draw you a little bit and get your thoughts on costs. I mean, you've given us 2024 guidance, and I think almost in every asset, you call out higher labor costs. And I assume labor is what, in the order of 30% or 40% of your cost base? Maybe I'm wrong. Just where do you think? I mean, if I look at 2024's cost guidance, generally, it's up on 2023. And if I look back two or three years, costs are materially high now across your business and all your peers. What's the medium-term outlook, do you think? I mean, is this the new norm? If you look across your asset base, where could you see material step back down to history, or is this the new norm? Thinking beyond 2024. Thanks.
Yeah. And look, Glyn, I think that is a good question. If you take a step back and look at the broader industry, I do think it perhaps is the new norm across the industry when you think about that medium-term timeframe, particularly in many of the commodities where new production coming to the market is probably not that strong. And even if you are bringing new production to the marketplace, the capital costs are probably more intensive than they were five, 10 years ago. So I think that also will ultimately shape the cost curves in terms of inducement pricing. I think the challenge for us is how can you continue to sort of be one step ahead of your peers in that space?
Particularly for every one of our operations, we have what we call in place a TARP system where we respond to certain prices if we think profitability is at threat, and that's something we've had in place for a number of years now. I think we're quite realistic in some places like GEMCO. We were given guidance for a long period of time that stripping ratios were going to shift as we move. As we move into areas like the Eastern Leases, you've got a longer trucking distance. How we actually try and get the unit cost down is through some improvements, as you'd expect us to do all the time, but it's actually volume increases, and you're thinking about where the volume increases. Obviously, last year, we had the production record that was actually set at both South African Manganese and Australian Manganese and Hillside.
I think Sierra Gorda has the option, obviously, of the debottlenecking project and then the fourth grinding line, which will help lower unit costs. But some things like Cannington, we're actually doing more stopes. And the mining has become very different than what it was 10, 15 years ago. So there is upward pressure on costs. Illawarra, I think this year is more of a volume impact, particularly around that section, the longwall 19A. We did not expect to get that regulatory commentary around basically having a larger setback. So that obviously means we're producing less as we have a longer time for the longwall move. Sierra is going to be about how we get a number of production units in there. But in broad terms, I do think medium-term inflation is sticking. It's hard to get out of the system.
You're going to see that come through on operating costs, probably across the board and also CapEx. I think that's what you really see in this reporting period. If you look across the industry of people reporting, that's been the two common things.
And then to take that a step further, Graham, which prices that you're exposed to do you think will benefit the most from maybe some adjustments to your long term? Have you been thinking about that and where you see the curve maybe steepening faster than certain commodities that you're exposed to?
So, probably the ones that we would see that we'd probably be more bullish than consensus. I would actually say it is copper. It is zinc, and I'd actually also say aluminum.
Okay. That's great. Thanks, Graham.
Your next question comes from Paul Young with Goldman Sachs. Please go ahead.
Good morning, Graham. Graham, I have to ask a question on Hermosa, seeing as we had the cyber visit there recently. A couple of things. First of all, just update us on the dewatering, the commissioning of that plant, just how that's going, because obviously that's key for the shaft construction and underground development in general. And then I know the feasibility study is coming up, but just with the recent write-down of the asset and talking about inflation and CapEx going up on the PFS, what sort of inflation have you seen across some of the packages that have gone up? And I think you did call out steel and electrical across sort of the plant and underground development. Any sort of thing you can add and sort of help us out what's actually occurred would be helpful. Thanks.
Yeah. So look, I think that's a good question to ask. I mean, what I would start by saying, you would have seen we're now publicly talking about increased mine life at Taylor from 22 to about 30 years. We are talking about Cannington going up to about 70 years. And you would have seen the total resource at Taylor grew by about 11%. And importantly, as part of the study work, the measured resource was up by 41%. And certainly, if you look at the early mine year life, we've probably got higher grades than the prior estimate. And again, Taylor is still open in a number of directions and at depth. And the other one, obviously interesting for us, would be the Peak deposit where we've now dropped about 17 holes.
And of that, we have four holes around 100 meters apart that are all running over 1% copper between 50-100 meters thick. So I'd tell you that the prospectivity of the land package continues to be attractive. But I think the impairment is important to understand. It's a non-cash impairment. And it's based on the Taylor Deposit as it is in the pre-feasibility and pre-feasibility. It's not based on the upside of what we can add there in resource. It's not based on what Clark can deliver, because that's a separate unit. It's not based on anything like Peak. And it's one of those things around the timing impact. What has been disappointing, we've made no sort of bones about that, is we are moving more water than we expected.
That's certain, if you like, given us, if you like, delays in terms of probably two and a half years and probably another 18 months for COVID. So we've lost some time there and about $365 million more capital for the dewatering. What I can tell you is water treatment plant number two, Paul, that you would have seen when you came for the site visit, is being commissioned. So it has been commissioned both dry and wet. So that's up and running. Probably the two most important holes were sunk around the shafts, and they've been executed to plan in terms of where we wanted them to go. They will now be in the process of starting to dewater, and we'll probably have a good sense over the next eight weeks what that looks like.
So far, there's no major surprises there, but until you start pumping the water out, you're not completely sure, and the other holes are on track around the dewatering. In terms of what are we seeing in this wide cost escalation, again, I think the only one we had good line of sight of when we actually had the analyst tour was around the shaft sinking at that stage, and that is pretty well held up. Where we have sort of seen increases, as we've spoken about in the past, has been electrical, the concrete, and even fabricated structural steel, so to give you a sense of some of those areas, the industrial building construction index has increased by about 37%, so I'm talking about between January 2021 and May 2023.
Concrete's up by about 29%, steel's about 60%, and construction wages, I made the comment earlier, we haven't seen moving operating wages, but specific construction wages are probably up about 13%. Now, again, we're coming close to finalizing the study. We will do, as we always do, a comprehensive dive into that to understand what it looks like, and then we'll take it to the board for the back end of this year for a final investment decision.
Okay. Thanks, Graham. Look forward to the study outcomes. Second question is on Brazil aluminum. It's one of your key, I guess, growth projects from a volume perspective. This smelter, looking at the guidance, it's a four-year ramp-up. I've never seen an aluminum smelter restart and take four years to ramp up. And I know in the past you've spoken about some challenges with the old pots, etc., but can you maybe give us an update on, again, why it's taking four years to ramp up? And then secondly, I can't obviously use the costs that you've just reported as a go-to. We need to look at the fixed and variable costs. So anything that maybe Sandy can chip in and add about what are the fixed costs 25%, some of the SA smelters, and are the full fixed costs reflected in the FY 2023 cost base?
I'll get Sandy to go through that in detail. Generally, we've spoken about the cost structure is not dissimilar from Mozal if you think about how to split the costs. Look, I mean, Alcoa is the operator, and they started the restart in June 2021. The smelter had been in a period of care and maintenance since 2015. There is no doubt that the restart has been disappointing from an Alcoa and our perspective and has really underperformed with some of the key issues, particularly in the early days relating to alumina baths and the compressor area. And that was followed by assessment of the pot conditions, which ended up being worse than they actually anticipated. And certainly, we saw a number of significant early failures. Longer term, craneage is probably the crane availability is the next issue.
They're running at about 70%, where it needs to be closer to 90%. And that impacts anode changeouts, the metal tapping, the pot restart program. Now, in saying that, we are seeing them slowly now move into position where line one is completed. Line two is well advanced with about 65% progress and expected to complete ramp-up by March 2023, which obviously happened. It is more now ramping up the third line, which is probably about 55% complete. They currently have about 500 pots out of the 710 in operation. From our view, we probably had always a slightly more conservative view than they did in terms of the ramp-up, but it's certainly proven to be more challenging than they expected. And to be honest, what we expected, maybe Sandy around the cost just to give Paul some color.
Yeah, certainly. So in terms of the operating costs, we do anticipate it'll have a similar structure to our other aluminium operations with around 70% variable and 30% in our fixed cost base. Obviously, we'll be heavily Brazil-denominated currency there, so we will be exposed to that through the period. It will also be powered by 100% renewable power under long-term contracts with a mix of hydro and wind. So positively, they are secured for the long term. We do expect our break-even, our costing to ultimately land close to those of Mozal. So if you're looking for a reference, that's the best reference point.
So, Paul, no, the performance has been disappointing by the operator. We try and work closely with them to try and rectify that as quick as we can. You might argue we're probably being slightly more conservative now, but they've had two goes at forecasts that haven't been met, so we're quite cautious now.
Yeah. Okay. Thanks. Sandy, just to confirm, you're saying that your fixed costs 30% of the total cost base. Is it all the fixed costs carried in FY 2023? Is there more labor, fixed cost components being added this year as you ramp up?
We're not expecting materially more fixed costs being added. We do really see more of the variable coming into play now.
Excellent. Perfect. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Jon Scholtz with Macquarie. Please go ahead.
Good morning, all. Just a question on the outlook for South Africa. If you can give us just how you're thinking of the country and your operations there? I noticed there's no growth in the portfolio. It doesn't seem to be a particular focus.
Yeah. It's an interesting one. I wouldn't say there's no growth options in the portfolio, particularly in the Kalahari with manganese. There is the ability for us to substantially shift the production coming out of Wessels. They did set a production record last year. I think the bigger challenge at the moment is probably the performance of Transnet and what the next contract might look like in terms of transportation of manganese by rail and then obviously to the port handling. So that probably is the key to unlocking growth potential in the Kalahari. When it comes to Hillside, we're investing in AP3XLE, but that is really about energy efficiency, not expansion. And clearly, that has to be the objective when power is a constraint. Richards Bay, I mean, I was there three weeks ago.
I mean, I think the team there continued to run a really good operation in quite challenging circumstances with additional coal trucks coming through, but also we've seen record load shedding that hasn't actually had an impact on us. So I think the team there have done a good job. We're quite clear. What we're looking to grow the group in is the base metals business. So we will have a look at geology in Africa. If we can find the right thing, we'll have a look at pursuing it, but it's going to stack up against other growth options we have in the U.S., South America, Australia, wherever we operate. I think the one we shouldn't forget, we did increase our stake in Mozal a couple of years ago when Mitsubishi sold out.
That was a really good deal with a short-term payback, so it made absolutely logical sense to do that.
Excellent. Thank you, and maybe just on GEMCO updates on the Eastern and Southern leases.
Yeah. So GEMCO obviously is something we've talked a fair bit about for the period of time. We do expect the first ore to come out of the Eastern Leases South in FY 2025. That gives you about one and a half year mine life to FY 2028. CapEx, we've got in the 24 estimate of about $35 million for that move and about $9 million in FY 2025. We're also doing some more work on what's called the Eastern Leases North, which adds probably about another half to one year. And then the southern areas have about another two years, and we expect to complete a pre-feasibility study on the southern areas by the end of this calendar year.
Okay. Thank you.
Your next question comes from Paul Young with Goldman Sachs. Please go ahead.
Yeah. Hi, Graham. Just to take a few in on Sierra Gorda. First, just on the resource upgrade, I guess you can call it that, you just stepped through how much of that was based on drilling, how much of that from a tonnage perspective could have been on changing the cut-off grade and any sort of sense of how that impacts sort of life of mine grades and grade profile?
Yeah. So look, Paul, the first thing I'd say is it's the first time we've put out a mineral resource estimate. And as you know, we use it as a foreign estimate as part of the acquisition. You have a certain timeframe to do the resource work. The team have done that resource work within the timeframe they needed to. Obviously, the next piece for us would be if we did the mine plans to actually look at the reserve and resource, etc. From that perspective, the estimate was about 1.89 billion tons at about 0.41 copper equivalent. If you look at the acquisition case, that's probably about a 47% increase, of which mainly the increase is in the inferred. There's about 34% contained copper metal increase, but overall, the grade is sort of a bit lower from about 0.36 to 0.4.
The resource itself is still open at depth, and we're going to have some more drilling campaigns to sort of test the potential for future growth. Grade would have been consistent at a lower cut-off price, so I wouldn't sort of focus too much on that. For me, it's going to be more about the more drilling work and exploration work we do over the next 12-18 months, and also, as we sort of pushed in some of the newer areas, we have found some interesting targets we'll continue to pursue.
Yeah. That's great. Thanks, Graham. And then second one, just on the fourth milling line, and I think we touched on this in the past, but I was in the region late last year, and KGHM seemed like a little bit more upbeat on the timing and wanting to get on with the fourth milling line and construction and approvals. So is it really contingent on bedding down the debottlenecking and getting the HPGRs and just the front end of the circuit working, "Oh, guys, you've got to get this working before we commit to a larger project"? Or is it more around the re-estimation with escalation and also just labor availability?
Yeah. Look, I think at KGHM, obviously, are keen to always progress this stuff, which I think is important. At the moment, we probably have a bit of a difference of when the study will be finalized and peer-reviewed. So they're talking about quarter four, calendar year 2023. We're probably one quarter later, so I don't think we're magnitudes different, Paul. I think for us, the key is they're just bedding down now the debottlenecking project of that lifted production to about that 48.5 million tons, which they achieved that on an annualized basis in the fourth quarter. That's been a key enabler for the fourth grinding line expansion. The other key component there was to actually commission and finalize a third tailings thickener and achieve solids of over 60%. In June, they've got that now to about 61.7%.
From our perspective, now it's about finalizing the study work on the fourth grinding line to take it forward. If they can progress the work faster, we're obviously not going to slow it down. Obviously, we'll make sure we have the right technical and financial checks in place. But at the moment, we're about a quarter different, so I don't think we're majorly different.
Thanks, Graham. You're always over the detail. Appreciate it.
Your next question comes from Lachlan Shaw with UBS. Please go ahead.
Thanks, Graham, for taking my follow-up question. Just a quick one. So CapEx guidance for FY 2024, a little bit of a step up there. I'm just wondering how much of that is scope versus inflation?
Yeah. Sandy, if you can take that one.
Yeah, sure. Look, it's predominantly scope. While we have seen some inflationary elements bleeding into our CapEx profiles, the bulk of the movement in the upcoming year is related to scope. So we have a number of activities across our portfolio that are important, particularly for our safe and reliable operations. You'd see that stepping up with planned activity consistent with our life of mine plans there. And then, obviously, into the growth program, that will heavily depend on the FID outcomes for our Taylor FID decision planned for November and the fourth grinding line decision, which Graham's just alluded to.
Yeah. Great. Thank you. So maybe it's like a sort of turn that around a little bit. So a step up, more scope of work, but maybe not quite keeping pace with production guidance. So is the other way to say that this is increasing intensity of safe and reliable? Is that fair?
I wouldn't say that's necessarily something we're expecting to see. There are specific activities across our operations that are particular to this year. So if you look through the operations, you can see it in each of the guidance notes. So, for example, if you think about Illawarra, which has a significant increase in FY 2024, it does relate to Vent Shaft 7 and 8, allowing us access into Area 7 there. And that's just part of the long-term mine plan, but it is obviously crystallizing in the FY 2024 year. So that's an example of one where it is consistent with the mine plan, but not something we expect to see in the long run averages.
Okay. So in terms of taking that forward, then we shouldn't be looking to bake in that FY 2024 as fully the new level, if you like.
No. We'll be baking that in as a standardized new level.
Okay. That's fantastic. Thank you.
Your next question. Apologies. There are no further questions at this time. I'll now hand back to Mr. Kerr for closing remarks.
Thank you. And thanks, everyone, for joining us today. In closing, we continue to prioritize a strong balance sheet to fund our growth in structurally attractive markets while retaining our disciplined approach to capital allocation. We still believe the outlook is positive, and we continue to execute on our strategy, and our portfolio is well leveraged to the increase in commodity demand required for the global energy transition. Thank you very much for your time today. I'm sure we'll see you on the roadshows over the next couple of weeks.