Thank you for standing
by, and welcome to the South32 Update Conference Call.
All participants
are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Graham Kerr, CEO. Please go ahead.
Thanks and good morning everyone and thanks for taking the time for our call today. I'm joined by our Chief Financial Officer, Katie Tovitch And our Chief External Affairs Officer, Kelly O'Rourke. And after some brief introductory remarks, we will open the call for questions. As you would have seen yesterday, we announced the divestment of South Africa Energy Coal to Ceridi Resources is now unconditional And we expect to complete the transition on June 1. Exiting thermal coal is a transformative milestone for South 32.
With fewer operating slots and reduced accounts, we are a significantly simpler company. Today, we've released our update on Our business and strategy going forward, including a plan to half our carbon emissions by 2,035. We are optimizing our business with a strong focus on safety, while reducing our controllable cost base and delivering an overall improvement in our operating performance We are also unlocking value at our operations through projects including bringing our alumina refineries to nameplate production, Improving energy efficiency at our aluminum smelters, growing nickel production at Saramatosa and our QMP and Osmoc projects Advancing studies to extend the life of Gemco and bring forward higher grade material at Cannington. At Illawarra, we are assessing the IPC decision on dendrovia text domain and we'll be clear on our pathway forward by the next calendar year. We've added multiple growth options to our portfolio and have a pipeline of greenfield exploration projects and partnerships The biased base metals.
In Arizona, the homosidase are nearing completion of the pre feasibility study for the Taylor's Link Bed and Silver Deposit and are progressing a manganese battery scoping study for the Clark deposit. The Amber Medal has joined Vester in Alaska where we have a 50% shareholding progressing a pre feasibility study for the high grade arctic We have set new medium targets for half our operational conditions by 2,035 And we're strengthening our commitment to reach net 0 by 20.30. We will deliver the 2,035 target through decarbonizing our Egifti operations, securing green energy, designing our growth projects to be carbon neutral and low carbon technology. Our business is in a strong position and today we've announced US200 $1,000,000 expansion of our capital management program The US315 million dollars remaining to return by 3rd September. As you look to the future, We have a great foundation to build from with well performing operations, a strong balance sheet, high quality growth options in
Your first question comes from Tom Baker with RBC.
Please go ahead.
Hi. Good morning, Graham, and thanks for taking the question. I just wanted
to take a little step
on the capital allocation. I understand it's driven by Southbridge to focus on maintaining an investment grade credit rating. Just on roundabout calculation, you just have a $500,000,000 to $600,000,000 of capital is freed up on the balance sheet Post the completion of the same sale, with $200,000,000 allocated to the buyback, how should we view the remaining $300,000,000 to 400 And I'll circle back with another question, if that's okay.
Yes. No, look, I appreciate the question. I'll get you Casey to take through the detail of the calculations because I think that's Important to understand. I would start with the overarching comments. Nothing has changed in our belief that having a strong balance sheet It's critically important to us as a business.
Our capital management framework remains unchanged, and we've always said we will return cash Back to our shareholders when it's excess and it's actually in the bank, not prospective. Maybe, Kay, you can talk through the calculation.
Yes. Thanks, Graham. And thanks for the question. Probably, we do have a slide in the pack that's a good reference slide, Slide 25, when you have a look at it. But if I step you through net cash calc at the moment.
So at the end of April, We closed the net cash number of $464,000,000 And then, close to say, at completion, we would expect that net And that's off the back of broadly speaking the Present value of each package that we're putting forward in terms of the preliminary note and also on the assumption that the $50,000,000 Restructive facility will be drawn by the Ritchie at or around completion date or at least in the several months thereafter. We expect to see about $250,000,000 come out at that point. Again, if you think about our capital management announcement this morning, That additional $200,000,000 effectively we assume is committed and so that brings us to $316,000,000 of Capital management activity from here on in. And that brings you broadly speaking to around about $100,000,000 net debt number. So that In terms of our forward portfolio outlook, our forward capital profile, that's about the position we want to be in right now.
And the way I think about it, again, nothing changes. We commodity prices continue to remain strong. We'll continue to accumulate excess cash. And like we've always done, we'll look at the most effective way to get that back to our shareholders.
Sure. And that $200,000,000 expansion The buyback is just for the last December.
That's right. Yes. I mean, we have the possibility to Certainly as we look at the full year announcement, we'll consider what would manage to return between now and the end of June before we get into the blackout period And reassess what the right form of return to shareholders at that time in terms of any remaining balance.
Sure. Just on the second one, just looking at Slide 21, I think it shows South32's greenfield exploration footprint. There's a lot of targets there. And it does look like it's the commodity where most of the things are being allocated. Can you talk through how you're considering sort of that Well, this is fine.
Yes.
Look, absolutely. We've always talked about look, when it comes to Thinking about future growth opportunities, we've always had that bias to base metals and clearly everyone likes copper. We've invested a lot if you like in Exploration and early stage development projects. If you look at those exploration projects, you are correct. On Slide 21, there's a strong focus on copper.
While we talk about Hermosa, we focus on Taylor and Clark at the moment. We start to call out that there are other property, if you like, prospective targets On the property of the most obviously we're targeting copper. And also the big one for us obviously is Ambler Metals The 50% ownership we have in the joint venture with Trilogy, we've got the Ardich deposit, which we think is a great deposit and certainly provides The basis to continue to search for more copper in that space. So look, I would say, look, you'd expect to see us very active actually in the drill bit Continuing to progress Ambla Metals. M and A has always been opportunistic, but the reality is today everyone's chasing copper, the push on copper price Hi.
In my mind, it's hard to find a project. You could actually go out there and buy or a business where you're going to deliver an acceptable return to your investor. Never say never. There will always be opportunities, but it will always be done through the lens of value. Thank
you. Your next question comes from Rahul Anand with Morgan Stanley. Please go ahead.
Hi, thanks for the opportunity. A couple for you, Graeme, and one for KB, if that's okay. The first one I had was the FY 35 Target to reach half of
your emissions operational
emissions. Have you done any analysis around sort of what the capital costs So, operating cost impacts might be on the back of that. And I mean, how does Hillside fit into that picture?
Yes. Look, I mean, one of the things we So the call out is when you look at the Scope 1, Scope 2 emissions, 90% of it comes from 4 of our operations. And as you'll see in the fact there's one slide there that actually shows energy generation is a big contributor to Hillside and also Wursley. As we think about Hillside, part of the reason we talk about 2,035 is that we're very conscious about managing Products get sold downstream to companies like Huliman. This creates more jobs and more reliance in South Africa.
We're also very conscious, if you like, there are a number of ways to work. So that is 1, Eskom has got a public stated target of Doing more about renewables in their own supply of energy. So that's obviously something we're working with telecom I'm very keenly seeing how that develops over the next decade, which is a time frame they've given themselves. At the same time, we're also flooring a number of options for projects which we call green shoots at Hillside and we're really focused on 2 elements. 1 is just around energy Efficiency will be how we actually use, if you like, energy once we have it inside inside.
And the easy one there is the other PCXLE, which You've already rolled out at Moselle. We're looking at the application of that at Hillside. There are other things we're looking at there in terms of Waste heat recovery, automated anode changes, there's a whole lot of new technology that's developing quickly in that space, which we We think it will help on the Slide 1 of our energy efficiency. On the other side, we're working with obviously other parties in South Africa including Eskom To see how they sort of balance some of the energy source work they're doing
when they're particularly looking at
wind and solar. And we think that offers quite a large opportunity South Africa. But 2025 gives us time to actually get this right. The reality is, I'm guessing, most of the sell side or most people have models Yes. Typically, we would only value the next power block, which runs you up to about 2,031 in terms of time frame.
And clearly, that gives us enough time to transition to 2035 to a more renewable supply of 3Q light power.
But they'll primarily be operating cost of rental, but some of your advanced commercial options are there.
And just to your question around what does that look like for capital, I mean probably the focus in the short term will actually be at Worthy where we have a number of So, I think, we're looking at the short term, the most obvious one is what we call the mud washing project at Worsley. That has usually to have a big impact if you like on energy intensity and requirements, but also how we use water. So that's sort of progressing Through the study phase. The other one longer term is looking at how we actually convert it from an energy source of coal to gas. And that's certainly something that the team is working on down there at the same time.
If you give some guidance in the pack when you look
at the
targets About what we expected to actually spend in the next 2 years, and that was roughly $40,000,000 to $50,000,000 in terms of capital.
Perfect.
Just checking that covers the question
you had. Yes, yes, it does. And then the second one I have for you, Graeme, was around the sustaining capital guidance. Perhaps could be the Kathy as well. $450,000,000 to $550,000,000 was the previous number.
I'm citing $420,000,000 to $520,000,000 today in the pack. Is it fair to assume that you've probably tried to pay a bit at Illawarra given the Dendrobium decision? And what would be the update There as well.
I'll let Katie talk about the capital role and then I'll tell you where we're up to with dandrovian. Yes.
So sure. The 4.20 to 5.20 really is a number where we've carved out probably our innovation and improvement projects Previously $450,000,000 to $550,000,000 number that we have talked to. And also we have adjusted for FX. So the previous $4.50 to $5.50 was that $59 Aussie and we're now I said we just $78 Aussie at this level. So that number is exclusive of any material changes in terms of our thinking around Illawarra And we will certainly at the full year come back with an update in terms of what our capital looks like.
But you would expect, as 2 year window for D CAR CapEx. And then you will see increasingly life extension capital, which We'll encompass any decision we make around D and D, any decision we make around
I think Katie's point is critical there because unlike when we started the journey 6 years ago, not only do we have those external We've also got some strong internal projects, which are basically giving us the opportunity to invest in our business in high returning projects. When you think about things like Osmot Q and P, obviously, what we can potentially do at Canton to bring forward, if you like, from that high grade material. So they're all the kind of things that we'll compete for capital. So I think that's an important part of where we are today in terms of having options to actually create value for our shareholders. When it comes to D and D, as I sort of said in the opening comments, we will have greater clarity by the end of this calendar year.
And the reason I sort of give you that background and that time frame is there are a number of developments that are underway. You would have We talked earlier about we have a number of options in front of us. 1 included appealing decision. Another one was government education. And both of those are options that are being pursued at the moment.
So we actually have the appeals like currently running to the Land Court. The biggest change for us is you would have seen in New South Wales, the slate of council have passed a motion that considers DNB Great, significant infrastructure and that really allows the minister to consider revised proposal outside of the IPP process. So it's still an approval process, but it's not the IPC approval process. So the focus between now and November for us We still look at a revised mine plan that basically takes into consideration some of the issues that were raised by the ITC. Upon actually completing that revised mine plan and the Phase III study, we would then go through with the government to get the approval process on that, Which is generally in client, well, it looks like about a 24 week period of how we see the application.
So there is certainly some, if you like, You're a path forward. For us, it's more about now developing and taking to the feasibility level by revise my own plan as we can be.
Okay. Perfect. And then just the final question was a follow-up from Karnes. How do you talk about sort of how you determine the $200,000,000 number And Howard leaves you about that $100,000,000 net debt post payments of commitments forsaken And the buyback, I mean, should we take that $100,000,000 net debt number as your target going forward?
No, because I think we've talked
the fact that we want
to maintain that investment grade rating through the cycle and particularly the way we get that is in a forward sort of low price scenario Based on our forward view on our capital profile, so you will expect to see that number move around somewhat As our capital profile matures, as we make decisions around Hemota, Wawara and so on. But for now, as of today, look, we think that's the right net debt number for us to maintain that investment grade outcome on a forward view.
Okay. That's all for me. Thank you very much.
I'll pass it on. Thanks, Rahul.
Thank you. Your next question comes from Lewdyn Fagan with JPMorgan. Please go ahead.
Thanks very much. Just On the emission side of things, I'm just wondering whether you would consider direct ownership in renewable power Assets to try and reduce emissions at your assets and whether you think there could be a return there through lower OpEx?
Yes. Look, Lindon, a good question. And obviously, we'll have a look at every one of those on a case by case basis. To be perfectly honest, I'm not the person who would be willing to invest in renewables in South Africa when I think there are better people potentially set up to We do that. So I think they're going to probably be better at actually doing a renewable facility and actually running that.
It doesn't mean you might not Sign a longer term uptake that actually underpins it, but we wouldn't be the people executing it or putting our capital into the country. But somewhere down like Worsley, it might be a little bit different depending on what the opportunities are that the companies themselves down there. I think there is certainly, if you like, a large
Thanks. And maybe just to sort of cover off a bit on Hermosa and Amber Metals. There's obviously A bit of material in the slide pack on those assets. Just wondering if you could give us an update on Potential production scope and timing?
Yes. Look, I mean, if we sort of take it in 2 steps and take a step back, Maybe if you start with the Metals, there was quite a detailed release that went out yesterday, would have been out on this morning that you mapped The exploration program for this year and the way I think about it, if you like, the exploration project for this year, It's focused on basically 3 things. 1 is basically understanding more about the resource at actual Ardagh And getting greater confidence around that. The second piece is there are a number of BMS style targets in this BMS belt that we've been very We like and we showed that on the slide deck. There's some work around understanding them.
There's drilling on 3 of them and there's a fair bit of Sam putting on the others to sort of get a sense of where to zero in on. And then there's a little bit more work around the four ninety deposit. So, Tardik to me The key to this, arctic itself today will absolutely be developed. If you look at the size and you look at the quality of that material, it's going to be developed by Someone, so it's a question of when. Okay.
So the key focus point for me is we can find another Ardex style deposit in that BMS belt Or even just add more tonnages, then I think you've got a real winner in terms of the project there. And this field season, as she kicks off today, is The challenge out there obviously is we lost last year with COVID where we couldn't on the ground. We've got the right protocols and systems in place this year. And there's been quite a high vaccination rate in the vulnerable communities that gives us confidence about going back in again. But really can we add to our if it's going to be
the case at one level.
When it comes to Taylor, we called out today that we're on track to complete the pre feasibility study around the Taylor deposit and we'll talk to about that in July. In that, we'll be very clear around CapEx, throughput, timing, etcetera. I think there are some positive developments sort of coming legislatively potentially, if you like, in U. S. We've already seen part of the reason that Clarke is attractive because obviously it's leaning towards battery technology.
Diamonese is actually on the critical list, if you like, in minerals in the U. S, which helps So they're all the things that will weigh up as we complete the feasibility study. We certainly plan to have a deep dive in July, which we'll talk, if you like, about The capital component, the production rate, the timing, etcetera.
I think the
one thing that's certainly not disappointing is around the resource. The resource continues to be open. No, it's also material that we're actually going to be doing a lot of the work, particularly as we go in the shafts, We'll allow us to actually access that hydrate material quicker, but Tim will go into much more detail when we complete the pre feasibility study.
Thanks, Graeme.
Thank you. Your next question comes from Paul Matteo with Citigroup. Please go ahead.
Good morning all. So just two things. Firstly, just To turn up on the provisions that get passed across with the sale of SAEC, so I think it's €900,000,000 off, if you could just turn that up. And around Worsley, potentially transition from coal fired to gas, That's okay as a kind of transition, I guess. But beyond that, the gas probably doesn't cut the mustard too many.
So Do you have plans further down the track or longer term plans to use an alternative to long
Yes. So absolutely, I mean, I'll get Kay to talk to the provisions, Paul, and then I'll talk about the second piece, if you like, around
Paul, just in terms of provisions, I mean, as we've said, it is It is a share sale, so all assets and liabilities will transfer on completion on the 1st June. And with that, the $875,000,000 of provision that
Paul, with regards to Worsley and maybe taking a step back in 2 fronts is 1, absolutely we believe gas is obviously a Transitionary energy source, we don't think that will be the permanent one. And obviously, we'll look longer term at the South, that's around what can be done around solar, Potentially hydrogen evolves, so that's certainly on the mind of the team. The transition from coal to gas is also not going to happen overnight We need to manage adjust transition around poly. We're also very conscious of the suppliers That coal also feed, if you like, some of the offtake we take, some of the offtake goes into the power relations that provides the Critical power. So sort of pulling the pin on that is obviously problematic.
So we need to work
through that piece of work.
I think taking a further step back there, you would have seen our Color recently talked about their EK source, and they talked about the alumina carbon intensity. And they talked about the fact that out of Jarrah, razor up, we're probably running at about 0.6, if you like, CO2 emissions per ton of alumina. The global average is about 1.2. Today, Worsley runs at about 0.83 because of that dependency on Coal, but certainly we believe the move to what we're doing around mud washing, what we're going to do around the conversion from coal to gas
Okay. Thank you.
Should have been already in Brazil for 0.54. So that's something we shouldn't lose sight of as well.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Kerr for closing remarks.
Thanks everyone for joining us today on the call Short notice, the overriding message I'll leave you is look at the business is in a strong position. We've got a Great foundation we're still from with well performing operations. We have a strong balance sheet. We have high quality growth opportunities at attractive metals and jurisdictions And the plan to decarbonize our business and the removal of SAIC from South32 vastly simplifies the group And it puts us on a trajectory to continue to actually move towards that low carbon future. Thanks everyone for your time today.