Thank you, and good morning everyone, and thanks for joining us today. I'm joined today by our Chief Financial Officer, Katie Tovich, and our Chief Operating Officers, Jason Economidis and Noel Pillay. I will give a summary of our results before handing back to the operators for questions. Just as a reminder, the presentation is available on our website. The most important commitment we make at South32 is that everyone goes home safe and well. This year we did not achieve that. We are deeply saddened by the loss of our colleague, Mr. Frans Mienies, a contractor who was fatally injured while undertaking electrical work at our Wessels mine at South Africa Manganese in November. Our deepest sympathies are with Mr. Mienies's family, friends, and colleagues. We have provided them with our support following this tragic incident and undertook a detailed investigation to understand what happened.
The learnings were shared across our business, and we held stop-for-safety conversations to discuss and learn from them to prevent a similar incident occurring at any of our other operations again. During the first half of FY22, we undertook a review of our safety performance and identified areas for improvement. This formed the foundation of our safety improvement program, a three-year global program of work designed to achieve a step change in our safety performance. We will never be truly successful until we eliminate fatalities and significant incidents. Turning now to operating and financial results, we delivered stable operating performance despite a challenging external environment, which included managing the ongoing impacts of COVID-19, labor availability, and extreme weather events. We achieved record production at Worsley Alumina and at Hillside Aluminium and Mozal Aluminium. We continued to test them to maximum technical capacity.
At Cerro Matoso, we achieved a 22% increase in nickel production, and at Cannington, we exceeded our already increased production guidance as we transitioned to a new operating configuration. We delivered record earnings and cash flows as our stable operating performance, the implementation of logistics solutions, and recent portfolio improvements enabled us to capitalize on significant price tailwinds. We generated a record underlying EBITDA of $4.8 billion and record underlying earnings of $2.6 billion. Free cash flow increased by more than 200% to $2.6 billion, and we finished the period with net cash of $538 million after funding $1.5 billion of investments to improve our portfolio during the year. As we continue to transform our portfolio, our capital management framework remains unchanged. A strong balance sheet is at the core of our strategy, and our framework is designed to reward shareholders as their financial performance improves.
Reflecting our strong financial position and disciplined approach to capital management, the board has resolved to pay a record $648 million fully franked ordinary dividend in respect of FY22, and $139 million fully franked special dividend, taking total dividends to a record $25.70 per share for the year. Our total shareholder returns of $1.3 billion in respect of FY22, including our ongoing on-market share buyback, was also a record. Today, we have further expanded our capital management program by $156 million to $2.3 billion, leaving $250 million to be returned by September 2023. During the year, we accelerated our portfolio transformation, increasing our exposure to the metals critical to a low-carbon future. We acquired a 45% interest in the Sierra Gorda copper mine in Chile. We also acquired an additional 16.6% shareholding in Mozal Aluminium, which benefits from access to hydro power.
We achieved first production from the restart of the Brazil Aluminium smelter using 100% renewable energy. These investments in our aluminium value chain have increased our low-carbon aluminium production capacity by 100%. Our attractive commodity mix also includes a growth pipeline across development assets and exploration properties in these metals. Looking ahead, we are well positioned heading into FY23, given our growing production profile and strong balance sheet, and we are well placed to capitalize on the increasing demand for base metals as the world transitions to a low-carbon future. 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 using a speakerphone, please pick up the handset to ask your question. Once again, to ask a question, please press star one on your telephone. We'll now pause a moment to allow for any questions to register. There are no questions at this time.
Okay.
Pardon me, your first question comes from Peter O'Connor from Shaw and Partners. Please go ahead.
Graham, what is going on? I've been hanging around for this Q&A. Nobody's here. What's the? I've missed a call, have I?
No, I think we answered it all this morning, Peter.
Okay, look, I'm not going to waste your time, but I have got a few follow-ups, so the first one is going back to Dendrobium, flogging an old horse, but hey, I was looking at the details of this, and this is a little bit quirky, a little bit micro, but now that I've got you, you have done a lot of development towards that Area 5, and I just noticed on the plan that you presented in the pack today. When was that done? How long ago or how recently was that development done heading out towards Area 5 when you pulled it up? Is that literally up until last February, or is that something you were doing over the last year just in case? I just noticed that there was a fair bit done there.
Yeah, look, there was a bit of work done in that space to obviously allow the optionality. Maybe Jason, you can talk about the time and effort that's gone into that.
Yeah, no problems, Graham. So when we got the rejection in February of last year, we decided to review where we were at. There is actually a boundary that we could have mined to in any case that was further out than that, but we decided to stop and make it safe. We actually mined the last pillar out for ventilation, and then we stopped. So that was only after the rejection in February of last year.
Got it. Okay. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Brian Morgan from Morgan Stanley. Please go ahead.
Hi guys. I'm sorry if you've coded this morning already, but I haven't had a chance to go through that yet. But when you talk about at Worsley, you're talking about the coal supply risks or energy supply risks. Could you just give me a bit of background there, just a bit of color in terms of what you mean by that?
Yeah, look, absolutely, Brian, and thanks for the question. Look, we have, there's a mixture of energy that we actually use down at Worsley, a combination of gas, biomass, and coal. The coal is predominantly used at the moment in steam generation. There's two different, if you like, suppliers that we have of coal in the southwest of Western Australia. Those two suppliers supply us, and they also help supply, if you like, some of the energy coal-driven power stations owned by the government enterprises down in the southwest. One of them has always had a little bit of financial challenge, and they're continuing to work through that. Probably the bigger two things that are on the mind at the moment, one is the government as WA has announced that they don't intend to renew those thermal coal power stations for 2030.
So that sort of puts the longevity of both of the coal operations in jeopardy. The second short-term immediate issue is we're really seeing, if you like, some wet weather conditions with storms in the southwest of Western Australia, which is making access to the pits problematic. So it does mean our team, as you'd expect, are investigating all the opportunities around alternative power sources, including more gas, but also potentially if you have to import a small amount of coal to sort of make up the difference if things didn't go to plan.
Okay, great. That explains it really well. Thank you.
Thank you. Your next question comes from Myles Allsop from UBS. Please go ahead.
Thanks for taking the question. And sorry, I joined the call slightly late, but I apologize if this question's already been asked. But just first of all, in terms of strategy looking forward, obviously it's been a very, very successful kind of 18-month period in terms of sort of repositioning the group and pushing forward some acquisition opportunities. Do you think there's more opportunities like that in the market going forward, or do you think that the Sierra Gorda, the Mozal stakes are all quite unique, and as we look forward, that is kind of increasingly less likely rather than kind of still very much on the agenda? And from a restructuring perspective, obviously the news around Dendrobium maybe makes Illawarra look less competitive medium term. Is that now seen more as a non-core asset? And are there any other non-core assets potentially in the portfolio?
Yeah, look, I mean, I'll always start with the comment, which probably sounds a bit mercenary, but every single asset's a sale at the right price, no matter what it is. So we're always clear that we exist to create value for our shareholders. It's not about hugging onto an asset because we like it. We have talked strategically that we have a bias to base metals. And if you think about the transformation of the portfolio over the last couple of years, and we'll come back to that in a second, that has really been about pivoting the group to get far greater exposure to those metals that are going to be critical in a world that's decarbonizing.
Obviously, high metallurgical coal prices this year are probably slightly skewed with that balance looks like, but there's been a conscious effort to really push towards those base metals because we do believe that supply and demand fundamentals, shortage of product, high demand is actually going to drive good pricing outcomes from a producer perspective. Met coal, we've been also clear about we don't see met coal and thermal coal the same way. Thermal energy coal today, there is substitution through wind, hydro, solar. There is no substitution at the moment in using coking coal in the steelmaking process. Now, in saying that, we believe innovation will come, and probably somewhere beyond the next two decades, you'll see the commercialization and broad adoption of things like green steel via hydrogen, but it's not here today.
So from that aspect, as we think about the met coal place, we see there's something that makes sense for the next two decades. Beyond that, or building something new probably becomes far more problematic. So look, there is no doubt the configuration we did a trade-off of, do you go into a new mining area, spend $700 million, have lower operating costs, or the work that we've done over the last 18 months to sort of prove out that we can actually drain the CO2 gas like we need to but have a slower production rate, is that a better investment than the 700? And the simple answer is yes.
For us, every day of the week, it stacks up that you're better doing the continuation of Area 3 now that we can extract gas even at a lower production rate up to 2028, and we believe there's potential to actually take that beyond that, and the team will start now focusing at that, and Appin already has a life to about FY39. Now, Appin, we are going to that single longwall configuration, and that's due to be completed by FY25, and it requires a little bit of investment around vent shaft seven and eight in between, so that's how we think about Illawarra. To your broader question, the transformation of the portfolio, I would sort of say it in two ways. One, it's been a lot of work, but the results have sort of, if you like, sort of just come over the last 12 months.
But the flip side of that is some of those results are actually opportunistic. So it's a combination of the two. So we wouldn't necessarily have expected that Mitsubishi was going to sell out and get such an attractive price from someone else that we could preempt on. So some of the things you see coming, some of the things you don't see coming. But I think being prepared with a very clear strategy, being prepared with a team that's match-fitted and has the capability to execute is important, but nothing's more important than having the lens of value you create. And the other piece for us is never jeopardizing our balance sheet. So we've absorbed the Sierra Gorda acquisition balance sheet back to what I'd call the state it should be, which is very strong for a company like us. And where are we positioned now?
If you look over the next 12 months, we have 14% copper equivalent growth, which is probably, I think, one of the really good ones in our industry. Medium to long term, I think the investments we're making in things like Taylor, Clark, Trilogy, now with Sierra Gorda, with the fourth line, the debottlenecking project, etc., I believe we actually have a good medium-term pipeline of projects that's going to generate healthy growth, which many of our peers don't have. Doesn't mean that we won't continue to look at opportunities to add to the portfolio, but they're always going to be through the lens of, A, do they create value, and B, never putting our balance sheet at risk. Does that help?
Yeah, no, that's helpful. Maybe just clarifying a couple of things from what you're saying. First of all, with Illawarra, could you give us a sense of the different returns from if you had done the expansion versus the current one? I mean, how materially different from an economic perspective would it have been? And then as you talk around your medium-term growth options, obviously 14% copper equivalent growth this next 12 months, what do you think's a reasonable number as we look medium-long term on the pipeline that you expect to execute on?
Yeah. Maybe talk about Illawarra. Without going into specifics, it was actually a strong differential between staying in area three versus what it was in terms of investing $700 million. And that $700 million probably had more risk around, obviously, execution, but also more risk around a high inflationary environment in Australia. It wasn't the approvals piece that threw us out. It was more when you look at the straight economics, area three makes economically more sense. And then when you added the risk overlay of inflation on capital and labor availability, it just made sure that it put to bed that obviously the expansion in area three was far better. Particularly as we're locked in, if you like, to numbers up to 2028 with good planning and technical planning, we still think there's an opportunity to go beyond the 2028 that we'll start working on now.
So I think that even just tilts it more in its favor. What was the second question? Sorry, Myles, what was it?
Just your 14% copper equivalent growth this year, but what medium-term growth? Are we talking 4%, 5% as a sustainable growth with the pipeline of projects you have today, or is it going to be like 2%, 3% like the other majors?
Yeah, look, I would like to think we're at the upper end of the range, but I will caveat that by saying that we've got a PFS, a feasibility study for Taylor that we expect to finish by the end of this financial year. We've got Clark pre-feasibility study that we expect to finish by the end of the actual calendar year, so by December. And in that, we'll start getting more guidance. It's probably fair to say that there's still moving pieces in that space. In fact, I think there's a chance with the demand for manganese precursor material in the US by the car manufacturers and the Department of Defense, there is a chance that Clark might get accelerated more than Taylor. But there's still some moving pieces around that.
Clearly, when we talk about Sierra Gorda, the current debottlenecking project, that gives you an uplift, if you like, of roughly about 6% to 50 million tons by December 2022. But then the actual fourth line is actually going through a feasibility study now, and that'll take you up to 58.4 million tons at about 14%. And then we've got things like potentially doing a large expansion of Wessels. So I'd like to think, while I'm not quantified yet, we're closer to the upper end of your guidance around growth than the lower end, but that'll obviously pan out the more we advance our projects. We did have in the presentation pack on slide 25 a little bit more description of the projects and what they're getting executed to and what kind of phase they're in.
But as we get more mature in that space, we'll start getting more guidance on what the tonnages and production looks like.
Okay. That's helpful.
The other part of the answer to your question around competition, I think competition is insane at the moment, whether it's exploration projects or whether it's buying copper assets. You look at some of the numbers that people are floating around, and it's becoming very expensive.
Okay. That's very helpful. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Sylvain Brunet from Exane BNP Paribas. Please go ahead.
Good afternoon, Graham Kerr. Two questions for me, please. The first one is on Sierra Gorda. Now you've got a bit more of your hands on the assets. What would you say have been the positive surprises, and what have you identified as areas of improvement beyond the current debottlenecking you mentioned? And my second question is perhaps to get a bit more of your thinking behind the logic to keep your balance sheet in a net cash position. I understand the ability to be able to move on projects, but how should we think about it? Was the particular outlook right now making you a little bit more cautious as you've got some more spending to do, or is that more like a comfortable position you'd like to stay in? And how should we think about capital returns going forward? Please, thanks.
So I'll leave the latter question to Katie, and I'll take the first piece around Sierra Gorda. I mean, obviously, it's still early days for us around Sierra Gorda. I mean, what I would say, I was actually there, was it June? Just trying to think back of the time, been so much travel over the last six weeks. I was there in June spending time with the team, and obviously, we've had a lot more involvement from a technical perspective. So what I am actually really impressed by is the quality of the people on the ground in terms of the management team. It is an independent operator joint venture. It has joint control. It is managed through a series of committees where we have equal rights as KGHM does. We're working really well with KGHM, which has also been a positive.
But the management team, I guess, have been impressed by the quality of the people in terms of their experience. A lot of people out of BHP's, Minera Spence, but also out of Antofagasta. And you're talking about people who have 15, 20 years' experience in the industry. And some of the impressive things, I guess, when we look at some of their shovel and truck performance, they just won a couple of competitions in Chile in terms of their performance. So the way they run the business is really impressive and very tight. So that's a real positive. I think, look, where we talk to them about proven opportunities is around how they think about their projects, the sequencing, the level of review that they do, but also then the execution of the work. So, for example, the debottlenecking in the fourth line.
Where we think there are some opportunities in the short to medium term is still around their mine planning. They're all things that they're open to and we're talking to them about. Overall, look, I'd say we're very happy with the acquisition and the potential in that space and really impressed with the quality of the team there. I mean, obviously, the thing that's moving in the background, and we have a little bit of, obviously, an indemnity around, is around some of the tax changes that are sort of sitting there. They are in the process of being, let's say, discussed and moved as you sort of get different stakeholders having a say. We've got a tax stabilization agreement that runs to the end of 2028. We've also got the agreement with Sumitomo around, if you like, the tax indemnity. So we feel like we cover the majority of those risks, but we still watch it with interest. Maybe Katie, balance sheet, cash flow, returns?
Yep. Look, I think, Sylvain, in terms of balance sheet and capital returns, there's probably a couple of points worth highlighting. One is our capital management framework remains unchanged. So I think in terms of the behavior that you've seen over the last seven years, you would expect that to continue. And that's where we, on a fixed monthly basis, pay out our ordinary dividend at a minimum of 40% of underlying earnings. And there's a slide, I think slide 17 in the pack, which you can see really that ordinary dividend does flex with our earnings. And it was our largest dividend that we paid out to date, $648 million in the half. And I think what we've always said is we'll return any excess cash to shareholders. So again, what we have announced today is a top-up to our capital management program by $156 million.
And what that does, if you adjust our net cash position where we closed at $538 million, after our final ordinary divvy, our special divvy, and our remaining capital management program, we have an adjusted net debt position of $499 million. And that is the right balance sheet for us today. We always take a look at our balance sheet in the context of our existing portfolio, our forward capital profile, and a downside world to ensure that we can continue to execute both our capital management activity and our capital profile on a forward-looking basis. And that $499 million net debt is the position we've landed on as of the end of June. That's the right starting position for us as we look forward.
I think probably also the other thing I would flag is on slide 18, we have included the chart, which we have in the past, that really shows how we think about returns in the context of special divvies versus buyback. And certainly, what you see is that value-driven approach to our capital management program. It really sees us shift between dividends and share buyback as our share price moves through the cycle. And we've bought back 13% of our shares on issue to date at a price of $2.93 per share. So significantly value-accretive execution of that buyback program. And you'd expect to see that continue going forward.
Thank you. That's all the time we have today. I'll now hand back to Mr. Kerr for closing remarks.
Look, thanks, everyone. Appreciate your participation and questions today. Maybe just some parting quick comments. Look, I think FY22 was a really good year for us in terms of favorable commodity mix in terms of prices, really some big step changes in our portfolio that gave us more exposure to the metals that matter, and that supported record earnings and shareholder returns in FY22, but as I mentioned earlier, if you look in the short term, I think we have very good attractive growth over the next 12 months in terms of that 14% copper-equivalent production growth, and I think if you look at our pipeline medium to long term, I think we're really well positioned in terms of optionality, geographic location, but also the ability to execute these with a strong balance sheet while still maintaining capital returns through the cycle.
But again, thank you for your questions today, and thank you for your ongoing support, and have a safe day.