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Edited Transcript of S32.AX earnings conference call or presentation 12-Feb-20 9:30pm GMT

Half Year 2020 South32 Ltd Earnings Presentation - Pre-recorded

PERTH Feb 25, 2020 (Thomson StreetEvents) -- Edited Transcript of South32 Ltd earnings conference call or presentation Wednesday, February 12, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Graham Kerr

South32 Limited - CEO, MD & Executive Director

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Presentation

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Graham Kerr, South32 Limited - CEO, MD & Executive Director [1]

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Thank you for joining us for our financial results for the half year ended December 31, 2019. Before we get started, I'd like to talk about our safety performance. For us, there's nothing more important than ensuring everyone goes home safe and well at the end of every shift. During the half, we reduced our total recordable injury frequency and employee occupational illness rates as we continue to work on building a strong culture of care and accountability. We also made progress on our diversity targets, with women now representing 19% of our workforce, 40% of our lead team and 38% of our board.

Moving to our financial results. Volatile markets led to a 21% reduction in the average realized prices for our key commodities. And we reported underlying EBITDA of USD 678 million. Free cash flow from operations was USD 284 million and we entered the half with a net cash balance of USD 277 million.

Irrespective of the external environment, we remain focused on sustainably improving our operational performance both in terms of production and costs. We increased output at Worsley Alumina, where we continue to invest to improve calciner availability and had record production at Brazil Alumina. At the majority of our operations, production is either on track or ahead of plan for the year. At South Africa Energy Coal, we have lowered production guidance to the bottom end of our range in response to challenging market conditions. At our South African Manganese operations, we curbed higher cost trucking in response to lower prices, which we continue to monitor. Weaker steel and alloy demand in the December half led to higher cost production exiting the market. At the end of the half year, we saw manganese ore prices recover from their lows with customers restocking from seaborne supplies.

In the first half, unit costs were lower at the majority of our operations, supported by a broad appreciation of the U.S. dollar and our strong operating performance. We expect to realize further benefits from our initiatives in labor, energy and materials usage across the second half and have lowered our 2020 financial unit cost guidance for all our operations aside from South Africa Energy Coal. Looking ahead, we continue to reshape and improve our portfolio.

We entered into a binding conditional agreement for the sale of our shareholding in South Africa Energy Coal and expect to complete that transaction by the end of the calendar year, subject to meeting a number of material conditions. The review of our manganese alloy business progressed, and we continue to assess options for both smelters, including divestment, care and maintenance or closure.

As part of our focus on adding growth options through the drill bit, we continued to invest in exploration. We have more than 20 exploration options in partnership with junior companies, focused on base metals in favorable jurisdictions. We plan to spend USD 30 million in the 2020 financial year, advancing and cycling these options and ultimately bringing more development options into our portfolio.

We exercised our option to form the Ambler Metals joint venture, funding the investment from cash on hand. This project includes a high-grade, polymetallic Arctic deposit and the Bornite copper deposit, alongside an attractive regional exploration holding in Alaska. The Arctic deposit has a JORC mineral resource estimate of 37 million tonnes, containing 3% copper and 4.3% zinc as well as lead, silver and gold. A prefeasibility study for Arctic is underway while we continue to explore both Bornite and the broader land package.

In Arizona, at our high-grade Hermosa project, work continues on a prefeasibility study which is due in the June 2020 half year. The initial JORC resource for the Taylor deposit at Hermosa has increased our confidence in the project, while an initial JORC resource for the Clark deposit is also expected in the 2020 calendar year. We have identified 15 new exploration targets in the highly prospective land package and will continue to test them this year.

We remain committed to a strong balance sheet and retaining flexibility through the cycle. Our capital management framework is unchanged, and reflecting our strong financial position, positive outlook for our business and disciplined approach, we resolved to pay a fully franked interim dividend of USD 54 million and a special dividend of USD 54 million. This takes total returns to shareholders, including our on-market buyback, to USD 300 million in respect of the half. We also increased the size of our capital management program by USD 180 million to USD 1.43 billion, leaving USD 198 million expected to be returned following payment of the special dividend. We're focusing on sustainably improving our operating performance and reshaping our portfolio, underpinned by a strong balance sheet and capital discipline that together will create value for shareholders of South32.

Thank you.