ANNUAL
ANNUAL
ANNUAL
REPORT
REPORT
REPORT
2019
2019
2019
OUR PURPOSE
OUR PURPOSE
OUR PURPOSE
WHO WE ARE
WHO WE ARE
WHO WE ARE
Our purpose is to make a
Our purpose is to make a
Our purpose is to make a
diff erence by developing natural
diff erence by developing natural
diff erence by developing natural
resources, improving people’s
resources, improving people’s
resources, improving people’s
lives now and for generations
lives now and for generations
lives now and for generations
to come. We are trusted by our
to come. We are trusted by our
to come. We are trusted by our
owners and partners to realise the
owners and partners to realise the
owners and partners to realise the
potential of their resources.
potential of their resources.
potential of their resources.
South32 is a globally diversifi ed mining and metals company. We produce
South32 is a globally diversifi ed mining and metals company. We produce
South32 is a globally diversifi ed mining and metals company. We produce
bauxite, alumina, aluminium, energy and metallurgical coal, manganese,
bauxite, alumina, aluminium, energy and metallurgical coal, manganese,
bauxite, alumina, aluminium, energy and metallurgical coal, manganese,
nickel, silver, lead and zinc at our operations in Australia, Southern Africa and
nickel, silver, lead and zinc at our operations in Australia, Southern Africa and
nickel, silver, lead and zinc at our operations in Australia, Southern Africa and
South America. We are also the owner of a high grade zinc, lead and silver
South America. We are also the owner of a high grade zinc, lead and silver
South America. We are also the owner of a high grade zinc, lead and silver
development option in North America and have several partnerships with
development option in North America and have several partnerships with
development option in North America and have several partnerships with
junior explorers with a bias to base metals.
junior explorers with a bias to base metals.
junior explorers with a bias to base metals.
OUR VALUES
OUR VALUES
OUR VALUES
Care
Care
Care
We care about people,
We care about people,
We care about people,
the communities we’re
the communities we’re
the communities we’re
a part of and the world
a part of and the world
a part of and the world
we depend on.
we depend on.
we depend on.
Trust
Trust
Trust
Togetherness
Togetherness
Togetherness
Excellence
Excellence
Excellence
We deliver on our
We deliver on our
We deliver on our
commitments and rely
commitments and rely
commitments and rely
on each other to do
on each other to do
on each other to do
the right thing.
the right thing.
the right thing.
We value diff erence and
We value diff erence and
We value diff erence and
we openly listen and share,
we openly listen and share,
we openly listen and share,
knowing that together
knowing that together
knowing that together
we are better.
we are better.
we are better.
We are courageous and
We are courageous and
We are courageous and
challenge ourselves to be
challenge ourselves to be
challenge ourselves to be
the best in what matters.
the best in what matters.
the best in what matters.
This Annual Report is a summary of the operations, activities and
This Annual Report is a summary of the operations, activities and
This Annual Report is a summary of the operations, activities and
performance of South32 Limited (ABN 84 093 732 597) and its controlled
performance of South32 Limited (ABN 84 093 732 597) and its controlled
performance of South32 Limited (ABN 84 093 732 597) and its controlled
entities and joint arrangements for the year ended 30 June 2019 and its
entities and joint arrangements for the year ended 30 June 2019 and its
entities and joint arrangements for the year ended 30 June 2019 and its
fi nancial position as at 30 June 2019.
fi nancial position as at 30 June 2019.
fi nancial position as at 30 June 2019.
South32 Limited is the parent company of the South32 Group of
South32 Limited is the parent company of the South32 Group of
South32 Limited is the parent company of the South32 Group of
companies. In this report, unless otherwise stated, references to South32,
companies. In this report, unless otherwise stated, references to South32,
companies. In this report, unless otherwise stated, references to South32,
the South32 Group, the Company, we, us and our, refer to South32
the South32 Group, the Company, we, us and our, refer to South32
the South32 Group, the Company, we, us and our, refer to South32
Limited and its controlled entities and joint arrangements, as a whole.
Limited and its controlled entities and joint arrangements, as a whole.
Limited and its controlled entities and joint arrangements, as a whole.
South32 Limited shares trade on the ASX, JSE and LSE under the listing
South32 Limited shares trade on the ASX, JSE and LSE under the listing
South32 Limited shares trade on the ASX, JSE and LSE under the listing
code of S32.
code of S32.
code of S32.
Monetary amounts in this document are reported in US dollars, unless
Metrics describing sustainability and HSEC performance apply to
Monetary amounts in this document are reported in US dollars, unless
otherwise stated.
operated assets that have been wholly owned and operated by South32,
otherwise stated.
or that have been operated by South32 in a joint venture operation, from
Metrics describing sustainability and HSEC performance apply to
Metrics describing sustainability and HSEC performance apply to
1 July 2018 to 30 June 2019. South32’s GRI Navigator and Sustainability
operated assets that have been wholly owned and operated by South32,
operated assets that have been wholly owned and operated by South32,
data tables are available at www.south32.net.
or that have been operated by South32 in a joint venture operation, from
or that have been operated by South32 in a joint venture operation, from
1 July 2018 to 30 June 2019. South32’s GRI Navigator and Sustainability
1 July 2018 to 30 June 2019. South32’s GRI Navigator and Sustainability
Forward-looking statements
data tables are available at www.south32.net.
data tables are available at www.south32.net.
This report contains forward-looking statements. Please refer to page 36,
which contains a notice in respect of these statements.
Forward-looking statements
Forward-looking statements
This report contains forward-looking statements. Please refer to page 36,
This report contains forward-looking statements. Please refer to page 36,
Non-IFRS
which contains a notice in respect of these statements.
which contains a notice in respect of these statements.
This report includes certain non-IFRS fi nancial measures, including
underlying measures of earnings, eff ective tax rate, returns on invested
Non-IFRS
Non-IFRS
capital, cash fl ow and net debt. For an explanation of how South32 uses
This report includes certain non-IFRS fi nancial measures, including
This report includes certain non-IFRS fi nancial measures, including
non-IFRS measures, see page 22. The meanings of individual non-IFRS
underlying measures of earnings, eff ective tax rate, returns on invested
underlying measures of earnings, eff ective tax rate, returns on invested
measures used in this report are set out in the Glossary on page 137.
capital, cash fl ow and net debt. For an explanation of how South32 uses
capital, cash fl ow and net debt. For an explanation of how South32 uses
Non-IFRS measures should not be considered as alternatives to an IFRS
non-IFRS measures, see page 22. The meanings of individual non-IFRS
non-IFRS measures, see page 22. The meanings of individual non-IFRS
measure of profi tability, fi nancial performance or liquidity.
measures used in this report are set out in the Glossary on page 137.
measures used in this report are set out in the Glossary on page 137.
For information or to contact South32, visit www.south32.net.
Non-IFRS measures should not be considered as alternatives to an IFRS
Non-IFRS measures should not be considered as alternatives to an IFRS
measure of profi tability, fi nancial performance or liquidity.
measure of profi tability, fi nancial performance or liquidity.
For information or to contact South32, visit www.south32.net.
For information or to contact South32, visit www.south32.net.
CONTENTS
CONTENTS
CONTENTS
Our company
Our company
Our company
Board of Directors
Board of Directors
Board of Directors
Lead Team
Lead Team
Lead Team
Risk management
Risk management
Risk management
Operating and fi nancial review
Operating and fi nancial review
Operating and fi nancial review
Resources and reserves
Resources and reserves
Resources and reserves
Remuneration report
Remuneration report
Remuneration report
Directors’ report
Directors’ report
Directors’ report
Financial report
Financial report
Financial report
Shareholder information
Shareholder information
Shareholder information
Glossary of terms and abbreviations
Glossary of terms and abbreviations
Glossary of terms and abbreviations
Corporate directory
Corporate directory
Corporate directory
1
1
1
11
11
11
15
15
15
18
18
18
22
22
22
40
40
40
50
50
50
72
72
72
77
77
77
132
132
132
135
135
135
141
141
141
See the rest of our 2019 annual reporting suite at www.south32.net.
See the rest of our FY19 annual reporting suite at www.south32.net
See the rest of our FY19 annual reporting suite at www.south32.net
CORPORATE
CORPORATE
CORPORATE
CORPORATE
CORPORATE
CORPORATE
GOVERNANCE
GOVERNANCE
GOVERNANCE
GOVERNANCE
GOVERNANCE
GOVERNANCE
STATEMENT
STATEMENT
STATEMENT
STATEMENT
STATEMENT
STATEMENT
2019
2019
2019
2019
2019
2019
OUR APPROACH
OUR APPROACH
OUR APPROACH
TO CLIMATE CHANGE
TO CLIMATE CHANGE
TO CLIMATE CHANGE
2019
2019
2019
TAX TRANSPARENCY
TAX TRANSPARENCY
TAX TRANSPARENCY
AND PAYMENTS TO
AND PAYMENTS TO
AND PAYMENTS TO
GOVERNMENTS REPORT
GOVERNMENTS REPORT
GOVERNMENTS REPORT
2019
2019
2019
■ Corporate Governance Statement
■ Corporate Governance Statement
■ Corporate Governance Statement
Our corporate governance practices and a description of our approach
Our corporate governance practices and a description of our approach
Our corporate governance practices and a description of our approach
to promoting responsible and ethical behaviour.
to promoting responsible and ethical behaviour.
to promoting responsible and ethical behaviour.
■ Our Approach to Climate Change
■ Our Approach to Climate Change
■ Our Approach to Climate Change
Climate-related risk and opportunities reported in accordance
Climate-related risk and opportunities reported in accordance
Climate-related risk and opportunities reported in accordance
with the recommendations of the Task Force on Climate-related
with the recommendations of the Task Force on Climate-related
with the recommendations of the Task Force on Climate-related
Financial Disclosures.
Financial Disclosures.
Financial Disclosures.
■
■
■
Tax Transparency and Payments to Governments Report
Tax Transparency and Payments to Governments Report
Tax Transparency and Payments to Governments Report
All payments to governments which meets the requirements
All payments to governments which meets the requirements
All payments to governments which meets the requirements
of mandatory and voluntary disclosure initiatives.
of mandatory and voluntary disclosure initiatives.
of mandatory and voluntary disclosure initiatives.
■
■
■
FY19 Sustainability Performance Report
FY19 Sustainability Performance Report
FY19 Sustainability Performance Report
■ Our Approach to Water Stewardship
■ Our Approach to Water Stewardship
■ Our Approach to Water Stewardship
■ Modern Slavery Statement (November 2019)
■ Modern Slavery Statement (November 2019)
■ Modern Slavery Statement (November 2019)
Printed copies of this Annual Report will only be posted to those
Printed copies of this Annual Report will only be posted to those
Printed copies of this Annual Report will only be posted to those
shareholders who have requested a printed copy. Other shareholders are
shareholders who have requested a printed copy. Other shareholders are
shareholders who have requested a printed copy. Other shareholders are
notifi ed when the Annual Report becomes available and given details of
notifi ed when the Annual Report becomes available and given details of
notifi ed when the Annual Report becomes available and given details of
where to access it electronically.
where to access it electronically.
where to access it electronically.
YEAR AT A GLANCE
12%
reduction
981
US$ million
17.3
US$ million
Total recordable injury frequency
Paid in taxes and royalties
Community investment(1)
26%
reduction
2,197
US$ million
504
US$ million
Total recordable illness frequency
Underlying EBITDA(2)
Net cash balance(2)
481
US$ million
281
US$ million
9%
below
Dividends returned in respect
of FY19
On-market share buy-back
Our Scope 1 Greenhouse gas
emissions FY15 baseline(3)
(1) Community investment consists of cash, in-kind support and administrative costs and includes donations and investments of funds in the broader community.
(2) This is a non-IFRS measure. For an explanation of how South32 uses non-IFRS measures, see page 22 of this Report.
(3) Our short-term carbon emission reduction target is to stay below our FY15 Scope 1 carbon emission baseline in FY21.
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
1
OUR COMPANY FROM
OUR CHAIR
On behalf of the Board, I am
pleased to present our 2019
Annual Report, my fi rst as Chair.
South32 was fortunate to have David
Crawford as its inaugural Chair. David
worked tirelessly to ensure South32 was
well positioned for life as an independent
global resources company. Working with
the Board and Chief Executive Offi cer,
Graham Kerr, he led the development
of the Company’s purpose and strategy,
underpinned by its values of care, trust,
togetherness and excellence.
His extensive experience in business,
particularly in the resources sector,
served the Company well in its formative
years. David’s focus on shareholder
value is evident, as is the role he played
in protecting the interests of the
communities where we operate. On behalf
of our shareholders and our people, I
thank him for his service.
The 2019 fi nancial year marked a
turning point for South32. We
completed the acquisition
of Arizona Mining,
acquired a
50 per cent interest
in the Eagle Downs
Metallurgical
Coal project, and
progressed the
divestment of South
Africa Energy Coal.
These decisions play
an important part in
reshaping and improving
our portfolio to promote long-
term shareholder value, consistent
with our purpose and strategy.
Our strong operating performance
delivered Underlying earnings before
interest, tax and depreciation of
US$2.2 billion and free cash fl ow of
US$1 billion. We fi nished the year with a
net cash balance of US$504 million, having
returned US$938 million to shareholders
during the period.
This included US$366 million returned to
shareholders as part of our ongoing capital
management program, with US$281 million
reports our progress towards emissions
reduction and the resilience of our
portfolio in a low-carbon world.
Lately, there has been much commentary
on corporate culture, particularly in the
fi nancial services sector in Australia. We
believe this commentary contains lessons
for all of us in how we approach our role
as Directors. First and foremost is the
appointment of the right Chief Executive
and a competent and capable leadership
team, whose work is underpinned by
the right values that are clearly set,
communicated and reinforced. In this,
we’re well served, but equally, not
complacent. From our purpose and our
strategy, to our reward frameworks, we’re
as committed to how we achieve our goals
as we are to the goals themselves.
Over the past four years, South32 has
delivered a total shareholder return of
84 per cent, which has exceeded both the
sector index and the world index (Morgan
Stanley Capital International). We will
continue to focus on improving return on
invested capital and prioritising a strong
balance sheet to ensure we remain in
control through economic cycles.
There will be no shortage of challenges for
our company and our sector as we grapple
with the economic and geopolitical
realities of our time. The Board is confi dent
that our people, led by Graham and his
team, are well equipped to respond and
contribute to South32’s ongoing success.
On behalf of the Board, I would like to
thank our shareholders and every one
of the South32 team for their ongoing
support.
Karen Wood
Chair
allocated to our on-market share buy-back
program and US$85 million returned in the
form of a special dividend. The increase
in our capital management program by
US$250 million to US$1.25 billion refl ects
our disciplined approach to capital
management and positive outlook for
the business.
The Board declared a fully franked fi nal
dividend of US 2.8 cents per share,
bringing the full year dividend to
US 7.9 cents per share.
We were saddened by the signifi cant loss
of life and the immense environmental
damage caused by the failure of the
tailings storage facility at Brumadinho in
Brazil. We’ve supported the work of the
International Council on Mining and Metals
to develop an international standard for
safe tailings management. In June, we
released our Tailings Storage Facilities
Management Report. We compiled
this in line with the Investor Mining and
Tailings Safety Initiative, and it details our
approach to tailings management.
The Board is committed to
making regular visits to
our operations and
offi ces around the
world to engage
with our people.
During the year, we
visited operations
and offi ces in South
Africa, Singapore,
the United States
and Australia. In each
of these places, we were
pleased to see a strong
commitment to the safety of our
people. This commitment remains at the
heart of everything we do.
We’re also committed to creating value
through social and environmental
leadership. We continued to advance
our work in response to climate change,
in line with our commitment to achieve
net zero emissions from our operations
by 2050. We have again detailed our
work in the 2019 report, Our Approach
to Climate Change, which meets the
recommendations of the Task Force on
Climate-related Financial Disclosures, and
Over the past four years,
South32 has delivered a
total shareholder return
of 84 per cent
2
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
OUR COMPANY FROM
OUR CEO
This year we continued to
reshape and improve our
portfolio, securing high potential
development options for the
future, while maintaining a
leadership position in alumina
and manganese. Overall, our
operating performance was
strong as we focused on growing
value per share.
Our commitment to improving safety
at our operations to avoid, mitigate and
manage safety risks was refl ected in a
12 per cent year-on-year reduction in our
total recordable injury frequency. We also
took a signifi cant step to improve risk
management, with our new platform for
real-time risk and control administration
successfully deployed across the business.
In the 2019 fi nancial year, we delivered
a three per cent increase in Group
production. Australia Manganese achieved
record ore sales, while Hillside Aluminium
delivered record production as the
smelter continued to test its maximum
technical capacity. Worsley Alumina
fi nished the year well, with an increase
in calciner availability, which contributed
to a 12 per cent production increase in
the June quarter. Illawarra Metallurgical
Coal production increased by 57 per cent,
following work to improve longwall and
development performance.
Our growth agenda has seen us create
a pipeline of high-quality development
opportunities in commodities we believe
will have strong fundamentals into the
future. Last August, we completed the
acquisition of Arizona Mining, adding the
high-grade zinc, lead and silver Hermosa
development option to our portfolio.
In June, we reached an important milestone
for Hermosa, declaring a Mineral Resource
for the Taylor Deposit in accordance with
the JORC Code. We also completed the
acquisition of a 50 per cent interest in the
Eagle Downs Metallurgical Coal project, and
maintained our option with Trilogy Metals
for the third and fi nal year.
an international standard for safe tailings
management.
Our operations are just one part of
a bigger picture. We support our
communities by backing community
programs and infrastructure, and
promoting jobs and business
opportunities. Our total community
spend was US$17.3 million, with
a commitment to invest up
to US$125 million over
Our operating
performance was strong
as we focused on
growing value
per share
the next fi ve years. To
make a diff erence
for those in need,
we contributed
US$800,000 in
response to fl oods in
Townsville, Australia,
as well as US$250,000
to support the recovery
from Cyclone Idai in
Mozambique.
Our success is underpinned
by our leadership capability and the
diversity of our people. Our leaders play
a critical role in creating an inclusive
and diverse culture, and we’ve invested
more than A$10 million in leadership
development over the past two years.
We closed FY19 well positioned for the
future. We have a strong balance sheet
and a solid pipeline of future opportunities.
Our portfolio will include high returning
options with a bias to base metals and
the potential to deliver meaningful growth
in shareholder value over the medium-
term. Above all, the most important thing
we must do is make sure everyone goes
home safe and well at the end of every
shift.
I would like to thank our people for all their
eff orts in making South32 a success.
Graham Kerr
Chief Executive Offi cer
Part of improving our portfolio means
assessing our current operations
against our view of the future. Divesting
South Africa Energy Coal (SAEC) is an
important next step. Our intention is
that the business becomes sustainable,
black-owned and operated, consistent
with the South African government’s
transformation agenda. We received
bids for SAEC during the June
quarter and have entered
into an exclusivity
agreement with Seriti
Resources as we work
to fi nalise the off er.
A fundamental shift
in the global market
for manganese alloys
over many years led
to the decision to
review our manganese
alloys smelters, TEMCO
and Metalloys. Our people,
suppliers and the local
communities will be top of mind as we
consider which path to take.
Eff ective environmental management is as
important to our long-term success as our
operational performance. We continued
our progress towards our fi ve-year
emissions reduction target, advancing
decarbonisation studies at Worsley
Alumina and Illawarra Metallurgical Coal.
This year, we continued our transparent
approach to reporting critical
environmental issues with the publication
of our fi rst Our Approach to Water
Stewardship Report. The report details
how we manage water consumption and
the steps we’re taking to safeguard future
water supply. This work will remain a key
focus for us, working with the Board,
through our Sustainability Committee.
We also released our 2019 Tailings
Storage Facilities Management Report.
In FY17 and FY18, we conducted a
detailed assessment of our highest
potential consequence tailings dams.
Through this, we concluded that our dam
structures are well managed, and we’ve
implemented the identifi ed improvement
actions. Through ICMM, we’re committed
to playing our part in the development of
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
3
OUR COMPANY OUR PORTFOLIO
Cu
Au
Freegold Ventures
Shorty Creek
Cu
Pb
Au
Ag
Zn
Co
Trilogy Metals
Bornite & Arctic
Vancouver
London
Hermosa
Zn
Pb
Ag
Cu Au
Silver Bull Resources
Sierra Mojada
Zn
Ag
Pb Cu
EMX Royalty Corp
Jasper Canyon, Midnight Juniper,
Sleeping Beauty, Dragons Tail
& Lomitas Negras
Cerro Matoso
Ni
Puerto Libertador Project
Ag
Cu
Brazil Alumina
Aa
Inca Minerals
Riqueza
AusQuest
Los Otros, Cerro de Fierro & Parcoy
Cu
Au
Zn
Cu
Au
Commodities
OFFICES
Aa Al
Bauxite, Alumina, Aluminium
Large alumina refineries and high-quality bauxite resources integrated with our
African aluminium smelters with a signifi cant long alumina position.
Head Offi ce
EC
Mn
MC
Ni
Energy Coal
One of the largest coal exporters and domestic suppliers
in South Africa.
Manganese
World’s largest producer of manganese ore and a producer of alloy.
Metallurgical Coal
A major exporter of high-quality metallurgical coal.
Nickel
One of the world’s largest ferronickel producers.
Ag Pb Zn
Silver, Lead, Zinc
One of the world’s largest producers of silver and lead.
Cu Copper
Au Gold
Co Cobalt
Corporate Offi ce
Marketing Offi ce
PROJECTS
Exploration
Project
Development
Option
O
U
R
C
O
M
P
A
N
Y
Cu
Co
EMX Royalty Corp
Riddarhyttan
AusQuest
Hamilton
Cu
Au
Eagle Downs
MC
North Queensland Resources
Gamboola, Lynd and Yappar
Cu
Zn
Pb
Ag Au
Superior Resources
Nicholson
Pb
Zn
Ag
Singapore
Johannesburg
South Africa
Energy Coal
Mozal
Aluminium
Hillside Aluminium
Metalloys
manganese smelter
Hotazel
Manganese Mines
EC
Al
Al
Mn
Mn
AusQuest
Tangadee
Perth
Zn
Worsley Alumina
Aa
AusQuest
Balladonia
GEMCO
Mn
Cu
Pb Ag
Cannington
Ag
Pb Zn
TEMCO
Mn
Illawarra
Metallurgical Coal
MC
4
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
5
WHO WE ARE
WHO WE ARE
Around the world, we’re helping people improve
their lives through the development of natural
resources.
We produce bauxite, alumina, aluminium, energy coal,
metallurgical coal, manganese, nickel, silver, lead and zinc in
Australia, Southern Africa and South America. We also own a high-
grade zinc, lead and silver development option in North America
and have partnered with several junior explorers with a bias to
base metals.
Whether it’s for use in infrastructure, energy generation,
consumables or vehicles, we believe the extraction and processing
of minerals and metals can be done in a responsible way.
That’s why we continually challenge ourselves to be the best
in what matters – the safety and wellbeing of our people and
communities, our operational performance, and minimising our
environmental impact.
OUR PURPOSE IS TO MAKE A DIFFERENCE
Our purpose is to make a diff erence by developing natural
resources, improving people’s lives now and for generations to
come. We’re trusted by our owners and partners to realise the
potential of their resources.
We do this by creating local jobs, empowering and investing in
communities, and contributing to governments through paying
taxes and royalties – while achieving sector-leading returns for our
shareholders.
OUR STRATEGY AND BREAKTHROUGHS
Our purpose is underpinned by our strategy, which is focused on:
■ Optimising the performance of our existing operations;
■ Unlocking their potential by converting high-value resource
into reserve; and
Identifying new opportunities to compete for capital.
■
To deliver on our purpose and strategy, we’re guided by our
‘Breakthroughs’, which outline how we’ll make a diff erence through
our safety performance, stakeholder engagement, operations,
functions, technology, environmental and social leadership, and
portfolio optimisation. Across the organisation, our Breakthroughs
form the basis of our Business Plans to ensure we’re all aligned.
While our strategy and Breakthroughs focus on the ‘what’, our
values focus on ‘how’ we achieve our purpose. We hold ourselves
and each other to account to act and make decisions aligned with
our values of care, trust, togetherness and excellence.
We all guarantee everyone goes home safe
and well
We are meaningfully connected and believe
in our purpose
Our operations run to their full potential
and maximise return on investment
Our functions are lean and enable our operations to
deliver their full potential
Technology and innovation is radically lifting
our performance
We create value through our environmental
and social leadership
We have optimised our portfolio and have multiple
growth options with a bias to base metals
6
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
OUR COMPANY OUR PEOPLE
Our people are the foundation of our success. We’re constantly challenging ourselves to ensure the work we do is well designed and
reliably delivers safe results, with a strong focus on continuous improvement and learning.
Together, we create an inclusive workplace where we hold ourselves and each other to account to demonstrate our values, where we’re
empowered to be the best we can be and contribute to exceptional business performance and sustainable outcomes.
Representation of women
Representation of Black People in our workforce in South Africa
18%
37%
Women in our workforce
Women in senior leadership
82%
Total Employees
49%
Management Roles
FY18 17%
FY18 31%
FY18 81%
FY18 45%
OUR COMMITMENT TO SAFETY
The most important commitment we make at South32 is to ensure everyone goes home safe and well. The core focus for safety at
South32 has been the creation of an inclusive workplace. This helps our people to speak up and share any concerns or ideas regarding
safety. Our openness contributes to a learning culture and helps us work towards continuous improvement in everything we do.
Occupational exposures % change from FY18
Total recordable injury
frequency per million
work hours
Total recordable illness
frequency per million
work hours
4.5
units
FY18 5.1
1.3
units
FY18 1.7
CREATING SHARED VALUE
12%
Material(1)
Occupational
Exposures
16%
Potential exposures
to airborne
contaminants
6%
Potential exposures
to noise
In FY19 we continued to create long-term value for our stakeholders by maintaining fi nancial discipline and adhering to our strategy.
Leading through our strong environmental and social commitments
From providing jobs and business opportunities, to empowering suppliers and supporting community programs, we know we can make
a signifi cant contribution to the way people live and work. We’re continually looking at ways to reduce our land requirements, biodiversity
impacts, waste, carbon and water usage.
Community
investment(2)
17.3
US$ million
Enterprise and Supplier
Development Programs
Scope 1 and 2 Greenhouse
gas emissions
Scope 1 Greenhouse
gas emissions
9.5
US$ million
23.5
Million tonnes
9%
below our
FY15 baseline(4)
FY18 US$20.4 million
FY18 US$11.2 million
FY18 22.8 million tonnes(3)
(1) Material occupational exposures include potential exposure to carcinogens and coal dust.
(2) Community investment consists of cash, in-kind support and administrative costs and includes donations and investments of funds in the broader community.
(3) Scope 2 emissions have been restated to better refl ect newly available assumption data.
(4) Our short-term carbon emission reduction target is to stay below our FY15 Scope 1 carbon emission baseline in FY21.
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
7
OUR COMPANY Running our operations to maximise return on investment
We aspire to be a leading operator in our industry, where we safely deliver stable and predictable performance and maximise the
potential of our operations. We’re doing this by ensuring our work is well designed and supported by easy-to-use systems that provide
smart data.
Underlying EBITDA(1)
2,197
US$ million
FY18 US$2,516 million
Dividends returned
in respect of FY19
481
US$ million
On-market share
buy-back
281
US$ million
FY18 US$691 million
FY18 US$254 million
Return on invested
capital(1)
11.1%
FY18 15.0%
Managing today’s portfolio while developing opportunities for tomorrow
We’re positioning ourselves for the next phase of growth in demand by creating a pipeline of opportunities to compete for capital, with a
bias to base metals.
In the fi rst half of FY19, we expanded our global footprint with the acquisition of the high-grade zinc, lead and silver Hermosa project in
Arizona. We also acquired a 50 per cent interest in the Eagle Downs Metallurgical Coal project in Queensland’s Bowen Basin.
Exploration is an important part of how we create future opportunities. We assess numerous opportunities every year and have more
than 20 active greenfi eld exploration projects in Australia, the Americas and Europe.
Acquired the remaining
83 per cent of Arizona Mining,
and declared the fi rst Mineral
Resource for the Taylor
Deposit which forms part of
the Hermosa project.
Maintained our third and fi nal
year of the Option Agreement
with Trilogy Metals targeting
a high grade copper resource
in Alaska.
Acquired a 50% interest
in the Eagle Downs
Metallurgical Coal project.
We invested US$34 million in
greenfi eld exploration projects
with our partners.
(1) This is a non-IFRS measure. For an explanation of how South32 uses non-IFRS measures, see page 22 of this Report.
8
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
OUR COMPANY OUR OPERATIONS
WORSLEY ALUMINA
South32 holds an 86 per cent interest in Worsley Alumina, while Japan Alumina Associates
(Australia) Pty Ltd owns 10 per cent and Sojitz Alumina Pty Ltd owns four per cent.
Bauxite is mined near the town of Boddington, 130 kilometres south-east of Perth. It is
transported by overland conveyor to the alumina refi nery near Collie and turned into alumina
powder, before being transported by rail to Bunbury Port. It is then shipped to smelters around
the world, including South32’s Hillside and Mozal aluminium smelters in Africa.
BRAZIL ALUMINA
South32’s interests consist of the non-operated Mineração Rio do Norte (MRN) mine
(14.8 per cent), Brazil Alumina refinery (36 per cent) and aluminium smelter (40 per cent), which is
currently on care and maintenance.
The MRN mine is an open-cut strip mining operation. Mined ore is hauled to primary crushers
and then transported by conveyor belt to the beneficiation plant. The bauxite produced from the
MRN mine is sold to its shareholders. South32’s share of bauxite produced from the MRN mine
is supplied to the Brazil Alumina refinery. The alumina produced from the refi nery is exported
through the Alumar Port.
HILLSIDE ALUMINIUM
The Hillside Aluminium smelter is located in Richards Bay in the South African province of
KwaZulu-Natal and is 100 per cent owned and operated by South32.
The smelter uses alumina predominantly imported from Worsley Alumina to produce high-
quality, primary aluminium for the export and domestic markets.
To support the development of the downstream aluminium industry in South Africa, a portion of
liquid metal is supplied to Isizinda Aluminium which, in turn, supplies aluminium slab to Hulamin,
a local company that produces products for the domestic and export markets.
MOZAL ALUMINIUM
South32 has a 47.1 per cent share of Mozal Aluminium, while Mitsubishi Corporation Metals
Holding GmbH holds 25 per cent, Industrial Development Corporation of South Africa Limited
holds 24 per cent and the State of Mozambique holds 3.9 per cent (through preference shares).
Mozal Aluminium is located 20 kilometres west of Mozambique’s capital city Maputo.
Mozal Aluminium is the only aluminium smelter in Mozambique and the second largest
aluminium smelter in Africa. It produces standard aluminium ingots.
ILLAWARRA METALLURGICAL COAL
Located in the southern coalfi elds of New South Wales, Illawarra Metallurgical Coal is
100 per cent owned by South32 and operates two underground metallurgical coal mines, Appin
mine and Dendrobium mine, and West Cliff and Dendrobium coal preparation plants. Illawarra
Metallurgical Coal also manages the Port Kembla Coal Terminal on behalf of a consortium of
partners.
Illawarra Metallurgical Coal produces premium-quality, hard coking coal for steelmaking, with
energy coal as a by-product. The product is processed at the coal preparation plants before
being transported by road and rail to the processing facilities and to the Port Kembla Coal
Terminal for distribution to domestic and international customers.
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
9
OUR COMPANY AUSTRALIA MANGANESE
Australia Manganese consists of Groote Eylandt Mining Company (GEMCO) in the Northern
Territory and Tasmanian Electro Metallurgical Company (TEMCO) in Tasmania. South32 owns
60 per cent of GEMCO and Anglo American Plc holds the remaining 40 per cent. TEMCO is
wholly owned by GEMCO.
GEMCO is an open-cut strip mining operation, producing high-grade ore and is located in close
proximity to Asian export markets. Using mainly ore shipped from GEMCO, TEMCO produces
high-carbon ferromanganese, silicomanganese and sinter, primarily using hydroelectric power.
SOUTH AFRICA MANGANESE
South Africa Manganese is made up of two manganese mines and an alloy smelter. Hotazel
Manganese Mines (HMM) is located in the Kalahari Basin and the Metalloys manganese smelter
site is in Meyerton.
South32 holds a 60 per cent interest in Samancor Holdings (Pty) Ltd and Anglo American Plc
holds the remaining 40 per cent. Samancor indirectly owns 74 per cent of HMM, which gives
South32 its ownership interest of 44.4 per cent. The remaining 26 per cent of HMM is owned
by B-BBEE entities. South32 holds an eff ective 60 per cent interest in Samancor Manganese
(Pty) Ltd (Metalloys manganese smelter).
CERRO MATOSO
Cerro Matoso is an integrated nickel laterite mine and smelter located in the Cordoba area of
northern Colombia, consisting of a truck and shovel open-cut mine and a processing plant.
South32 owns 99.94 per cent of Cerro Matoso. Current and former employees own
0.02 per cent, with the balance of shares held in a reserve account following a buy-back.
Cerro Matoso is a major producer of nickel contained in ferronickel which is used to make
stainless steel. Ore mined is blended with ore from stockpiles, which is then dried in rotary kilns
and smelted in two electric arc furnaces where ferronickel is produced.
CANNINGTON
Located in north-west Queensland, Cannington is 100 per cent owned by South32 and is one
of the world’s largest producers of silver and lead.
Cannington consists of an underground hard rock mine and surface processing facility, a
road-to-rail transfer facility and a concentrate handling and ship loading facility at the Port of
Townsville.
Silver, lead and zinc are extracted from the ore using grinding, sequential flotation and leaching
techniques that produce high-grade, marketable lead and zinc concentrates with a high silver
content.
SOUTH AFRICA ENERGY COAL
South32 owns 92 per cent of South Africa Energy Coal (SAEC), with the remaining
eight per cent held by a B-BBEE consortium, led by Phembani Holdings. Energy coal
operations consist of primary coal mining operations (Khutala colliery, Klipspruit colliery,
Ifalethu colliery and Wolvekrans colliery), as well as three processing plants. SAEC operations
are located in the coalfi elds of Mpumalanga.
From 30 April 2018, we have managed SAEC as a stand-alone business separately from the
rest of the South32 Group.
10
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
OUR COMPANY BOARD OF DIRECTORS
Mr Kerr holds a Business
degree from Edith Cowan
University and studied at
Deakin University to become a
Certifi ed Practicing Accountant
Other Directorships and
Offi ces:
■ Chair, CEOs for Gender
Equity.
and the Australian Federal
Government's Business
Regulatory Advisory Group.
Before joining BHP, she held
the role of General Counsel
and Company Secretary with
Bonlac Foods Limited.
Following her retirement from
BHP, Ms Wood chaired the
BHP Foundation, where she
oversaw grant provisions for
not-for-profi t organisations to
deliver large, long-term global
programs in the areas of
natural resource governance,
human capability and social
inclusion and conserving and
sustainably managing natural
environments.
She is currently a Non-
Executive Director of
Djerriwarrh Investments
Limited (and a member of the
Audit Committee), a member
of Chief Executive Women and
a Fellow of Monash University.
Current ASX listed
directorships:
■ Djerriwarrh Investments
Limited: Independent Non-
Executive Director since
July 2016.
Other Directorships and
Offi ces:
■ Director, State Library
Board of Victoria and
Member of the Foundation
Council;
■ Director, Robert Salzer
Foundation; and
■ Vice President, Melbourne
Cricket Club.
Mr Graham Kerr
BBus, FCPA, 48
Chief Executive Offi cer since
October 2014
Managing Director, appointed
21 January 2015
Location: Australia
Mr Kerr has been our Chief
Executive Offi cer since
October 2014. He’s responsible
for running all parts of our
business. In May 2015, he led
the charge on establishing
South32 and its public listing in
three countries.
Mr Kerr is passionate
about health, safety and
sustainability, with a strong
track record in global resource
development. Before joining
us, he worked in a range of
roles at BHP, including Chief
Financial Offi cer and President
of Diamonds and Specialty
Products.
As President of Diamonds
and Specialty Products, he
was accountable for the Ekati
Diamond Mine in Canada,
the Richards Bay Minerals
Joint Venture in South Africa,
diamond exploration in Angola,
the Corridor Sands Project
in Mozambique and the
development of BHP’s potash
portfolio in Canada. In 2004,
he left BHP for two years to
become General Manager
Commercial for Iluka Resources.
Ms Karen Wood
BEd, LLB (Hons), FCIS, 63
Chair and Independent
Non-Executive Director,
appointed 1 November 2017
(Chair from 12 April 2019)
Location: Australia
During her career, Ms Wood
has attained a variety of
executive and leadership skills
which she brings to her role as
Chair of South32.
She has held various senior
global leadership roles with
BHP, including Group Company
Secretary, Chief People Offi cer
and President Corporate Aff airs
and served as a member of
BHP’s leadership team.
Ms Wood gained extensive
expertise as a key adviser
to the Board and CEO on
matters of governance, the
composition of leadership
teams, development and
succession planning,
organisational design and
culture, remuneration
structures and stakeholder
relations. She served as
Chair of The Global Ethics
Advisory Panel, the Disclosure
Committee and as Chief
Governance Offi cer.
Following the merger between
BHP Limited and Billiton Plc
in 2001, she established the
multi-jurisdictional governance
framework for the merged
entity. She joined BHP as
Group Company Secretary in
2001, and retired in 2014.
Ms Wood’s governance
experience is strengthened
by her membership of the
Takeovers Panel (Australia)
from 2000 to 2012 and
her roles with the ASIC
(Business Consultative Panel)
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
11
OUR COMPANY BOARD OF DIRECTORS (CONTINUED)
In 2014, Mr Cooper was
awarded an Offi cer of the
Order of Australia and was
named West Australian of
the Year in the Professions
category in 2015. Mr Cooper is
also a Fellow of the Australian
Institute of Company Directors
and Chartered Accountants
Australia and New Zealand.
Current ASX listed
directorships:
■ Woodside Petroleum
Limited: Independent Non-
Executive Director since
February 2013.
Other Directorships and
Offi ces:
■ Commissioner and
Chairman, Insurance
Commission of Western
Australia;
■ Member, Senate of the
University of Western
Australia;
Trustee, St John of God
Health Care;
■
■ Director, St John of God
Australia Limited;
■ Advisor, Azure Capital;
■ President, WA Council of
the Australian Institute of
Company Directors; and
■ Member, ASIC Director
Advisory Panel.
Mr Frank Cooper AO
BCom, FCA, FAICD, 63
Independent Non-Executive
Director, appointed 7 May 2015
Chair of Risk and Audit
Committee
Location: Australia
Mr Cooper’s combined
experience gives him a
uniquely rich understanding
of the challenges and
mechanisms of operating in
diff erent cultural and political
environments. He brings
this to South32, alongside a
strong focus on organisational
philosophy, values and
standards.
Mr Cooper is a chartered
accountant with over 35 years
of experience in the fi nance
and accounting profession. He
previously held the position of
Partner at both Ernst & Young
and PricewaterhouseCoopers,
and was Managing Partner
for Arthur Andersen in
Perth. During his time in the
profession he specialised
in the mining, energy and
utility sectors.
Mr Cooper is currently a Non-
Executive Director of Woodside
Petroleum Limited (including
Chair of the Audit and Risk
Committee and member of
the Human Resources and
Compensation Committee
and Nominations Committee).
Until 2006, he was a Director
of Alinta Infrastructure Limited
and Alinta Funds Management
Limited.
Dr Xiaoling Liu
BEng (Extractive Metallurgy),
PhD (Extractive Metallurgy),
FAusIMM, FTSE, GAICD, 62
Independent Non-Executive
Director, appointed
1 November 2017
Location: Australia
Dr Xiaoling Liu is a metallurgical
engineer with a 26 year career
at the Rio Tinto Group. Dr Liu’s
technical experience is an
essential contribution to the
South32 Board.
Dr Liu’s roles at Rio Tinto
included General Manager and
Managing Director positions
in smelting operational
management. She held other
senior positions, including
Managing Director Technical
Services where she led
Rio Tinto’s global technical
services unit, and as President
and Chief Executive Offi cer
where she led the Borate
business with integrated
mining, processing, and supply
chain operations in the United
States, Europe and Asia.
Gained from this experience,
Dr Liu contributes strong
technical, strategic, marketing
and risk management skills to
the South32 Board.
She was a board member
of the California Chamber of
Commerce, Vice President
of the Board of Australian
Aluminium Council, and
member of the University
Council of the University of
Tasmania.
Before joining Rio Tinto, Dr
Liu held an academic position
as Research Fellow of City
University, London.
Since her retirement from
Rio Tinto in 2014, Dr Liu has
held the position of Non-
Executive Director of Newcrest
Mining Limited (including
as a member of the Human
Resources and Remuneration
Committee; Audit and Risk
Committee and Nominations
Committee). She was also a
Non-Executive Director of Iluka
Resources Limited until April
2019 (including member of
the Audit and Risk Committee
and Nominations Committee).
These roles have contributed
to Dr Liu’s skills and experience
in remuneration, acquisition
and divestment.
Dr Liu is a Fellow of the
Australian Academy of
Technological Science and
Engineering, a Fellow of
AusIMM and a member of
Chief Executive Women.
Current ASX listed
directorships:
■ Newcrest Mining Limited:
Independent Non-
Executive Director since
September 2015.
Previous ASX listed
directorships:
■
Iluka Resources Limited:
Independent Non-
Executive Director
February 2016 until April
2019.
Other Directorships and
Offi ces:
■ Director, Melbourne
Business School; and
■ Member, China Matters
Advisory Council.
12
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
OUR COMPANY
The Board of Directors is committed to representing shareholders and protecting the interests
of South32. Underpinned by strong corporate governance practices, the Board believes South32
has the right people and the right strategy to be positioned well for future growth.
Dr Xolani Mkhwanazi
BSc, MSc, PhD (Applied
Physics), 64
Non-Independent
Non-Executive Director,
appointed 2 July 2015
Location: South Africa
With vast experience across
global and regional mining
operations, combined
with expertise in science,
Dr Mkhwanazi has a
deep understanding and
appreciation for environmental
and sustainability opportunities
and risks as they relate
to South32.
He was previously Chairman
of BHP Billiton in South Africa
and President and Chief
Operations Offi cer of South
Africa Aluminium with BHP
Billiton. During this time,
he was responsible for the
southern African aluminium
smelters of Hillside, Bayside
and Mozal with accountability
for maximising their value
and potential by providing
appropriate strategic direction,
while also facilitating future
aluminium opportunities in
the region.
Dr Mkhwanazi also served
as Chief Executive Offi cer
of Bateman Africa Limited
and at the National
Electricity Regulator, where
he was instrumental in the
restructuring of the electricity
supply industry in South Africa.
Prior to this, he held senior
positions at the Council
for Scientifi c and Industrial
Research, where he played
a signifi cant role in the
formulation of the South
African National Science and
Technology Policy. Earlier in his
career, Dr Mkhwanazi was a
Senior Scientist at the Atomic
Energy Corporation and Head
of the Physics Department at
the University of Swaziland.
Dr Mkhwanazi is also a Director
of JSE-listed Murray and
Roberts Holdings Limited,
where he is a member
of the Risk Management
Committee, Health, Safety and
Environment Committee and
Social and Ethics Committee.
He has also been appointed as
Chairperson of EOH Holdings
Limited.
Current JSE listed
directorships:
■ Murray and Roberts
Holdings Limited:
Independent Non-
Executive Director since
August 2015; and
EOH Holdings Limited;
Director and Chairperson
since 5 June 2019.
■
Other Directorships and
Offi ces:
■ Director, South32 South
Africa Energy Coal
Holdings (Pty) Ltd; and
■ Deputy Chairman,
The Public Investment
Corporation (SOC) Limited.
Dr Ntombifuthi (Futhi)
Mtoba
DCom (Honoris Causa),
BCompt (Hons), HDip Banking
Law, BA (Econ)(Hons), BA (Arts),
CA(SA), 64
Independent Non-Executive
Director, appointed 7 May 2015
Location: South Africa
Dr Mtoba is a chartered
accountant with an extensive
career in business and
community engagement in
South Africa. In addition, she
brings valuable sustainability
and environmental experience
to our Board.
Dr Mtoba joined Deloitte
and Touche South Africa in
1988, specialising in fi nancial
services. Later, she become
one of the fi rst African black
women to be appointed as
a Partner by one of the Big
Four accounting fi rms; she
then became the fi rst African
woman Deputy Chairman and
then Chairman of Deloitte
Southern Africa.
Dr Mtoba has been a
member of the International
Monetary Fund Advisory
Group of Sub-Saharan Africa,
the World Economic Forum
Global Advisory Council, the
B20 Financing Growth and
Infrastructure Task Force
and the B20 Transparency
Task Team. She was also
the fi rst woman president
of the Association for the
Advancement of Black
Accountants of Southern
Africa.
She served as Chair of the
Public Investment Corporation
Limited, President of
Business Unity South Africa,
and board member of the
Public Accountants and
Auditors Board, the South
African Institute of Chartered
Accountants and the New
Partnership for Africa’s
Development Business
Foundation.
Dr Mtoba is engaged in the
regional and global community.
Previously, she was on the
board of the United Nations
Global Compact.
For her contributions, Dr.
Mtoba has received numerous
awards, most recently Most
Outstanding Leadership
Women of the Year (Africa
Economy Builders, 2018). She
is also a Harvard Advanced
Leadership Initiative Fellow
(2017).
Other Directorships and
Offi ces:
■ Director, Discovery Bank
Limited;
■ Director, Discovery Bank
Holdings Limited;
■ Chairman and Trustee,
WBD Trust;
■ Chair of Council, University
■
■
■
of Pretoria;
Founding Trustee, ZM
Foundation;
Trustee, Allan Gray Orbis
Foundation Endowment;
and
Trustee and Audit
Committee Chairman,
Nelson Mandela
Foundation.
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
13
OUR COMPANY
BOARD OF DIRECTORS (CONTINUED)
Mr Rumble has been a Non-
Executive Director of a variety
of private companies, including
Platinum Mining Corporation
of India PLC, Barplats Holdings
Limited, Western Platinum
(Pty) Limited, Eastern Platinum
(Pty) Limited and Sarplat
Investments Limited. He was
also an independent Non-
Executive Director at BHP
Billiton plc and BHP Limited
and at JSE-listed Aveng
Limited.
Mr Rumble completed the
Stanford (US) Executive
Program in 1990.
Other Directorships and
Offi ces:
■ Director, Acetologix Pty
Limited;
■ Director, Enzyme
Technologies (Pty) Limited;
■ Director, Elite Wealth (Pty)
Limited;
■ Member of Board of
Governors, Rhodes
University; and
Trustee, World Wildlife
Fund, South Africa.
■
Mr Keith Rumble
BSc, MSc (Geology), 65
Independent Non-Executive
Director, appointed
27 February 2015
Chair of Sustainability
Committee
Location: South Africa
Mr Rumble has more than
40 years of experience in
the resources industry,
specifi cally in titanium and
platinum mining. He also has
experience as a principal
investor and private equity
fund manager in Russia, India
and other emerging markets.
Mr Rumble contributes to the
Board of South32 this valuable
combination of skills and
knowledge.
He has held various leadership
roles including CEO of SUN
Mining (a wholly-owned entity
of the SUN Group), CEO of
Impala Platinum (Pty) Ltd and
CEO of Rio Tinto Iron and
Titanium Inc in Canada.
Mr Rumble also worked for
Verref, a division of the Anglo
American Corporation, prior to
joining Richards Bay Minerals
in 1980, working in smelting
and metallurgy, progressing
to General Manager and later
CEO in 1996.
Mr Wayne Osborn
Dip Elect Eng, MBA, FAICD,
FTSE, 67
Independent Non-Executive
Director, appointed 7 May 2015
Chair of Remuneration
Committee, Chair of
Nomination and Governance
Committee
Location: Australia
Mr Osborn brings over
40 years of experience from
the mining, resources and
manufacturing sectors to
our Board.
Mr Osborn was Managing
Director of Alcoa in Australia
from 2001 until 2008, leading
an integrated business
comprised of bauxite mining,
alumina refi ning, coal mining,
power generation and
aluminium smelting. This
included operations in Victoria
and Western Australia. His
prior role at Alcoa included
accountability for its Asia
Pacifi c manufacturing
operations in China, Japan,
Korea and Australia.
He joined Alcoa in 1979
after working as an
engineer in the iron ore and
telecommunications sector.
Since 2008, Mr Osborn has
worked as a Non-Executive
Director in the mining,
construction and energy
industries. He was also
Chairman of the Australian
Institute of Marine Science,
Chairman of the Western
Australia Branch of the
Australia Business Arts
Foundation and Vice President
of the Chamber of Commerce
and Industry, Western
Australia.
Mr Osborn is currently a
Non-Executive Director of
Wesfarmers Limited, where
he is a member of the
Remuneration Committee and
the Nomination Committee.
He has been awarded a
WA Business Leader Award
from the Australian Business
Arts Foundation in 2007 and
an Australian Institute of
Company Directors excellence
award in 2018.
Current ASX listed
directorships:
■ Wesfarmers Limited:
Independent Non-
Executive Director since
March 2010.
Previous ASX listed
directorships:
■ Alinta Energy Limited
March 2011 until
April 2017.
Other Directorships and
Offi ces:
■
■
Fellow, Australian Academy
of Technological Sciences
and Engineering; and
International Fellow,
Explorers Club (New York).
14
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
OUR COMPANY LEAD TEAM
Graham Kerr
BBUS, FCPA, 48
Chief Executive Offi cer and
Managing Director
See page 11 for Graham Kerr’s
qualifi cations and experience.
Nicole Duncan
BA (Hons), LLB, MAICD, FGIA,
FCIS, 47
Chief People and Legal Offi cer,
Company Secretary
Nicole Duncan became our
Chief People Offi cer in July
2017, having been our Chief
Legal Offi cer and Company
Secretary. She’s responsible
for our Human Resources
functions, as well as our
Company Secretariat, Legal
and Business Integrity teams.
Before joining us, Nicole was
Vice President, Company
Secretariat for BHP. She
was also Vice President
Supply, Group Information
Management from 2011 to
2013. During her legal career,
she’s worked in various BHP
roles in Australia, the United
States and the Netherlands.
Nicole graduated from the
Australian National University
with a Bachelor of Laws and a
Bachelor of History (Hons).
Simon Collins
BE (Mining), MBA, 46
Chief Development Offi cer
Simon Collins became our
Chief Development Offi cer in
October 2018. He’s responsible
for Business Development,
Greenfi elds Exploration, Brazil
Alumina and the Hermosa
project.
Before this, he was our Head
of Corporate Development and
led the acquisitions of Arizona
Mining and a 50 per cent
interest in the Eagle Downs
metallurgical coal project in
Australia.
Simon brings 25 years’
experience in the resources
industry, working in senior
leadership and business
development roles. Before
joining us, he worked for
BHP for more than a decade,
leading business development
teams in Belgium, the United
Kingdom, Singapore and
Australia.
Simon holds a Master of
Business Administration from
London Business School and
a Bachelor of Engineering
(Mining) from the University of
New South Wales.
Peter Finnimore
BCom, LLB, 54
Chief Marketing Offi cer
Peter Finnimore has been
our Chief Marketing Offi cer
since August 2017, having
been our Head of Marketing
following our Demerger in May
2015. He’s responsible for our
Commodity Marketing and
Supply functions.
Peter has more than 25 years
of global commodity marketing
experience. Before joining us,
he worked in various roles in
BHP, starting in The Hague
in 2008 as Vice President
Marketing Aluminium. He then
led the consolidation of the
Aluminium and Stainless Steel
Materials Marketing teams
in August 2012. In 2013, he
was appointed Vice President
Marketing Aluminium,
Manganese & Nickel, where he
was based out of Singapore.
In his career, Peter has worked
in various marketing roles in
Japan, Australia, Russia, Cyprus
and Switzerland, including for
Rio Tinto and Rusal.
Peter completed degrees in
Commerce and Law at the
University of Queensland.
He’ll be succeeded by Brendan
Harris in the role of Chief
Marketing Offi cer on 1 January
2020.
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
15
OUR COMPANY LEAD TEAM (CONTINUED)
Mike Fraser
BCom, MBL, 54
Chief Operating Offi cer
Mike Fraser became our
Chief Operating Offi cer on 30
April 2018, having been our
President and Chief Operating
Offi cer for the Africa region
from January 2015. He’s
responsible for the Group’s
alumina operations in Australia,
aluminum operations in
Southern Africa and the Cerro
Matoso operation in Colombia.
He’s also responsible for South
Africa Energy Coal.
Before joining us, Mike was
President, Human Resources
with BHP. Before this, he was
Asset President of Mozal
Aluminium in Mozambique.
He’s also worked in various
roles in BHP’s coal, manganese
and aluminium businesses.
During his career, Mike held
leadership roles in a large
internationally diversifi ed
industrial business, and has
worked in the United Kingdom,
South Africa, Mozambique and
Australia.
Mike holds a Master of
Business Leadership and a
Bachelor of Commerce from
the University of South Africa.
Brendan Harris
BSc, CPA, 47
Paul Harvey
BEng, 55
Rowena Smith
BCom, 52
Chief Operating Offi cer
Chief Sustainability Offi cer
Rowena Smith became our
Chief Sustainability Offi cer
in August 2017, having been
our Vice President Supply in
the Australia region. She’s
responsible for Health, Safety,
Environment, Sustainability,
Risk and Compliance.
Before joining us, Rowena
worked with BHP Nickel West
as Head of Resource Planning
and Development. In her 14
years with BHP, she also held
senior roles in marketing
and operations, including
General Manager, Kwinana
Nickel Refi nery. Before this,
she worked in operational
leadership roles within Rio
Tinto’s aluminium smelting
business.
Rowena holds a Bachelor of
Commerce from the University
of Western Australia.
In April 2018, Paul Harvey
became our Chief Operating
Offi cer for the Group’s
manganese operations in
South Africa and Australia, and
the Illawarra Metallurgical Coal
and Cannington operations
in Australia. Prior to this, Paul
was our President and Chief
Operating Offi cer for the
Australia region, and Chief
Transformation Offi cer.
Before joining us, Paul was the
Asset President of BHP’s Nickel
West operation in Australia
and Asset President at its
Ekati diamond mine in Canada.
He also held leadership roles
in operations management,
major capital projects,
business planning, strategy
and growth across uranium,
base metals, diamonds and
specialty products in Africa,
Australia and Canada.
Paul holds a Bachelor of
Engineering (Mining) from the
Western Australian School of
Mines.
Chief Financial Offi cer
(up to 1 May 2019)
Chief Marketing Offi cer (elect)
Brendan Harris will become
our Chief Marketing Offi cer
from 1 January 2020 and be
responsible for our Commodity
Marketing and Supply
operations. Brendan will move
to Singapore in the second half
of 2019 to enable a handover
of our global customer
relationships from Peter
Finnimore. Previously, he was
our inaugural Chief Financial
Offi cer, looking after Financial
Reporting, Management
Reporting, Treasury, Business
Evaluation, Tax, Corporate
Aff airs, Investor Relations, Risk
and Assurance, and Brazil
Alumina – and played a key
role in our establishment,
Demerger and listing.
Before joining us, Brendan was
Head of Investor Relations
at BHP, based in the United
Kingdom and then Australia,
having been Vice President
Investor Relations Australasia.
During his career, he also held
roles in investment banking,
including Executive Director
Metals and Mining Research at
Macquarie Equities.
Brendan holds a Bachelor
of Science in Geology and
Geophysics from Flinders
University.
16
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
OUR COMPANY Vanessa Torres
BSc (Chemical), MEng,
DEng, 49
Chief Technology Offi cer
Vanessa Torres became our
Chief Technology Offi cer
in August 2018. She is
responsible for Technology
Strategy, Digital Operations,
Innovation and Improvement,
Enterprise Resource Planning
Transformation, Greenfi eld
Technology and Global
Business Services.
Before this, Vanessa was
Vice President Operational
Infrastructure for BHP Western
Australia Iron Ore. She has
over 27 years of global mining
experience across Australia,
Canada, Brazil, Peru and
New Caledonia, and has held
various senior roles at BHP
and Vale in strategy, projects,
business development, and
operations.
Vanessa holds Doctorate
and Master degrees in
Minerals Engineering from
the University of Sao Paulo,
and a Bachelor of Science
from the Federal University of
Minas Gerais, Brazil. She was
also a Visiting Scholar at the
University of British Columbia,
Canada, where her research
focused on the application
of Artifi cial Intelligence to the
mining industry.
Katie Tovich
BCom, CA, GAICD, 49
Chief Financial Officer
Katie Tovich became our Chief
Financial Offi cer in May 2019,
having been our Vice President
Corporate Aff airs and Investor
Relations, as well as our Head
of Treasury. She’s responsible
for Financial Reporting,
Management Reporting,
Treasury, Business Evaluation,
Tax, Investor Relations, Risk
and Assurance, and Corporate
Aff airs including Community.
Katie brings more than 25
years of global experience in
the resources sector. Before
joining us, she held senior
fi nance and marketing roles
at BHP in Australia and Asia,
including Vice President
Corporate Finance, Head of
Finance Worsley Alumina
and Vice President Finance
Marketing – Carbon Steel
Materials. Earlier in her
career, she held fi nance and
marketing leadership positions
at WMC Resources Limited in
Australia and North America.
Katie holds a Bachelor of
Commerce from the University
of Tasmania and is a member
of Chartered Accountants
Australia and
New Zealand.
SOUTH32 > ANNUAL REPORT 2019 > OUR COMPANY
17
OUR COMPANY RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
At South32, risk management underpins almost everything we do, enabling us to identify and manage
At South32, risk management underpins almost everything we do, enabling us to identify and manage
At South32, risk management underpins almost everything we do, enabling us to identify and manage
threats and opportunities, to support the delivery of our business goals and company strategy.
threats and opportunities, to support the delivery of our business goals and company strategy.
threats and opportunities, to support the delivery of our business goals and company strategy.
Our risk management framework is well established, with strong governance and risk management processes in place. In FY19, as part
Our risk management framework is well established, with strong governance and risk management processes in place. In FY19, as part
Our risk management framework is well established, with strong governance and risk management processes in place. In FY19, as part
of our continuous improvement process, we have simplifi ed the approach, provided more eff ective tools and focused our eff orts on
of our continuous improvement process, we have simplifi ed the approach, provided more eff ective tools and focused our eff orts on
of our continuous improvement process, we have simplifi ed the approach, provided more eff ective tools and focused our eff orts on
lifting the risk capability and practices across our business.
lifting the risk capability and practices across our business.
lifting the risk capability and practices across our business.
Through ongoing engagement, management keeps the board informed on the strategic risks facing the Company globally. The
Through ongoing engagement, management keeps the board informed on the strategic risks facing the Company globally. The
Through ongoing engagement, management keeps the board informed on the strategic risks facing the Company globally. The
identifi cation and assessment of these risks is informed, among other things, by an understanding of our business, signifi cant trends in
identifi cation and assessment of these risks is informed, among other things, by an understanding of our business, signifi cant trends in
identifi cation and assessment of these risks is informed, among other things, by an understanding of our business, signifi cant trends in
our operating environment and the relevant interests, expectations and concerns of key stakeholders that are most likely to infl uence
our operating environment and the relevant interests, expectations and concerns of key stakeholders that are most likely to infl uence
our operating environment and the relevant interests, expectations and concerns of key stakeholders that are most likely to infl uence
our success. Our annual evaluation with senior leaders and the Board considers emerging trends, new impacts from internal and external
our success. Our annual evaluation with senior leaders and the Board considers emerging trends, new impacts from internal and external
our success. Our annual evaluation with senior leaders and the Board considers emerging trends, new impacts from internal and external
factors, while ensuring continued alignment with our purpose.
factors, while ensuring continued alignment with our purpose.
factors, while ensuring continued alignment with our purpose.
We have identifi ed 13 strategic exposures that have the potential to signifi cantly impact the performance and sustainability of our
We have identifi ed 13 strategic exposures that have the potential to signifi cantly impact the performance and sustainability of our
We have identifi ed 13 strategic exposures that have the potential to signifi cantly impact the performance and sustainability of our
business. Some elements of these risks may be relevant across the entire Group, while others may be specifi c to a single commodity
business. Some elements of these risks may be relevant across the entire Group, while others may be specifi c to a single commodity
business. Some elements of these risks may be relevant across the entire Group, while others may be specifi c to a single commodity
or operation.
or operation.
or operation.
Strategic Risk
Strategic Risk
Strategic Risk
Our Response
Our Response
Our Response
Ensuring that our people go home safe and well
Ensuring that our people go home safe and well
Ensuring that our people go home safe and well
A safe and healthy working environment
A safe and healthy working environment
A safe and healthy working environment
is fundamental to living our values. This
is fundamental to living our values. This
is fundamental to living our values. This
goal promotes the culture we aspire to and
goal promotes the culture we aspire to and
goal promotes the culture we aspire to and
meets societal expectations, as well as our
meets societal expectations, as well as our
meets societal expectations, as well as our
expectations of each other.
expectations of each other.
expectations of each other.
■
■
■
In everything we do, we focus on the health and safety of our people, contractors
In everything we do, we focus on the health and safety of our people, contractors
In everything we do, we focus on the health and safety of our people, contractors
and communities;
and communities;
and communities;
■ We engage, develop and train our people to ensure our work is well designed;
■ We engage, develop and train our people to ensure our work is well designed;
■ We engage, develop and train our people to ensure our work is well designed;
■ We continuously improve our work environment to make it safer and more
■ We continuously improve our work environment to make it safer and more
■ We continuously improve our work environment to make it safer and more
productive for our people;
productive for our people;
productive for our people;
If we don’t provide a safe working
If we don’t provide a safe working
If we don’t provide a safe working
environment, it may result in physical
environment, it may result in physical
environment, it may result in physical
harm to our employees, contractors and
harm to our employees, contractors and
harm to our employees, contractors and
communities. This could negatively impact
communities. This could negatively impact
communities. This could negatively impact
team morale, Total Shareholder Returns (TSR)
team morale, Total Shareholder Returns (TSR)
team morale, Total Shareholder Returns (TSR)
and stakeholder confi dence.
and stakeholder confi dence.
and stakeholder confi dence.
■ We have comprehensive health and safety policies, systems and standards with
■ We have comprehensive health and safety policies, systems and standards with
■ We have comprehensive health and safety policies, systems and standards with
associated performance requirements designed to prevent and mitigate exposure
associated performance requirements designed to prevent and mitigate exposure
associated performance requirements designed to prevent and mitigate exposure
to health and safety risks;
to health and safety risks;
to health and safety risks;
■ We investigate signifi cant events, put preventive and corrective controls in place,
■ We investigate signifi cant events, put preventive and corrective controls in place,
■ We investigate signifi cant events, put preventive and corrective controls in place,
and share our learnings across the organisation – so that everyone can benefi t; and
and share our learnings across the organisation – so that everyone can benefi t; and
and share our learnings across the organisation – so that everyone can benefi t; and
■ We have an independent assurance function that reviews our risk register and the
■ We have an independent assurance function that reviews our risk register and the
■ We have an independent assurance function that reviews our risk register and the
associated controls, to test how eff ective they are.
associated controls, to test how eff ective they are.
associated controls, to test how eff ective they are.
Actions by governments, political events or tax authorities
Actions by governments, political events or tax authorities
Actions by governments, political events or tax authorities
When changes in legislation, regulation, and/
When changes in legislation, regulation, and/
When changes in legislation, regulation, and/
or policy impact our strategic goals and the
or policy impact our strategic goals and the
or policy impact our strategic goals and the
way we work, we aim to eff ectively manage
way we work, we aim to eff ectively manage
way we work, we aim to eff ectively manage
this uncertainty.
this uncertainty.
this uncertainty.
This includes uncertainty surrounding
This includes uncertainty surrounding
This includes uncertainty surrounding
direct and indirect taxes and royalties in
direct and indirect taxes and royalties in
direct and indirect taxes and royalties in
the countries where we operate, as well
the countries where we operate, as well
the countries where we operate, as well
as around broader policy decisions and
as around broader policy decisions and
as around broader policy decisions and
regulatory changes, relating to:
regulatory changes, relating to:
regulatory changes, relating to:
■ Nationalisation of mineral resources;
■ Nationalisation of mineral resources;
■ Nationalisation of mineral resources;
■ Renegotiation or nullifi cation of
■ Renegotiation or nullifi cation of
■ Renegotiation or nullifi cation of
contracts;
contracts;
contracts;
Leases, permits or agreements; and
Leases, permits or agreements; and
Leases, permits or agreements; and
Environmental performance.
Environmental performance.
Environmental performance.
■
■
■
■
■
■
■ We have the specialised knowledge we need in our functions and through
■ We have the specialised knowledge we need in our function and through
■ We have the specialised knowledge we need in our function and through
consultants, including tax management capability, tax advice, and external relations
consultants, including tax management capability, tax advice, and external relations
consultants, including tax management capability, tax advice, and external relations
advice;
advice;
advice;
■ We monitor political activity in all jurisdictions we operate in;
■ We monitor political activity in all jurisdictions we operate in;
■ We monitor political activity in all jurisdictions we operate in;
■ We engage with our key stakeholders, identifying them through active mapping and
■ We engage with our key stakeholders, identifying them through active mapping and
■ We engage with our key stakeholders, identifying them through active mapping and
developing comprehensive engagement plans;
developing comprehensive engagement plans;
developing comprehensive engagement plans;
■ We work through selected industry associations to infl uence how the industry is
■ We work through selected industry associations to infl uence how the industry is
■ We work through selected industry associations to infl uence how the industry is
positioned;
positioned;
positioned;
■ While we monitor policy, legislative and regulatory changes, we also engage with
■ While we monitor policy, legislative and regulatory changes, we also engage with
■ While we monitor policy, legislative and regulatory changes, we also engage with
relevant authorities; and
relevant authorities; and
relevant authorities; and
■ We produce an annual Tax Transparency and Payments to Governments Report,
■ We produce an annual Tax Transparency and Payments to Governments Report,
■ We produce an annual Tax Transparency and Payments to Governments Report,
which shows how we meet our regulatory tax obligations.
which shows how we meet our regulatory tax obligations.
which shows how we meet our regulatory tax obligations.
18
18
18
SOUTH32 > ANNUAL REPORT 2019 > RISK MANAGEMENT
SOUTH32 > ANNUAL REPORT 2019 > RISK MANAGEMENT
SOUTH32 > ANNUAL REPORT 2019 > RISK MANAGEMENT
RISK MANAGEMENT Strategic Risk
Our Response
Portfolio composition
Our aim is to outperform our peers by
reshaping our portfolio. This will create
exposure to high-quality operations in
commodities with a strong and sustainable
outlook, as well as in jurisdictions where we
believe we can operate into the future – in
line with our values.
We invest for value in our preferred
commodity and jurisdictional exposures.
We do this by progressing our internal
development options and by acquiring
exploration opportunities, development
projects or existing operations.
If we don’t invest in a disciplined way, or
divest non-preferred exposures, we could
reduce TSR.
■ We keep our strategy front of mind – it informs our portfolio composition, including
an annual review with Board and Lead Team together;
■ We have a dedicated greenfi elds exploration team focused on delivering a fl ow of
low-cost, high-quality resource development options;
■ We apply a rigorously developed and independently verifi ed Commodity Price
Protocol (CPP) process, to develop long-term prices for our portfolio commodities;
■ We maintain a strong life of operations planning process. By evaluating the
embedded options in our operations, we can progress with organic options at the
right time;
■ We follow strong due diligence processes for acquisitions and new business
ventures;
■ We apply a standardised valuation methodology with consistent key macro-
economic assumptions;
■ We have a mature and independent peer review process, which we rigorously follow
to make key investment decisions; and
■ We actively manage portfolio change with dedicated specialists, to deliver
integration and separation benefi ts.
Global economic uncertainty and liquidity
Our aim is to manage risks related to
uncertain and changing macroeconomic
conditions. We’ll do the same when it comes
to the volatility in commodity, currency and
debt capital markets – given how much they
can impact our earnings, balance sheet and
growth goals.
■ Our diverse portfolio strengthens our resilience to the disruption of any one
commodity, geography or operation – compared with single mine or commodity
companies;
■ We prioritise a strong balance sheet and an investment grade credit rating, so that
we remain in control through economic cycles;
■ We test our fi nancial strength across a range of scenarios, including a depressed
demand and pricing environment. We also maintain a minimum liquidity buff er;
■ Our commercial strategy is designed to ensure we stay resilient and take advantage
of new opportunities;
■ We carry out qualitative global economic scenario assessments, monitor meaningful
leading indicators, and adjust our commercial approach accordingly;
■ We maintain strong relationships with high-quality customers and suppliers from all
around the world;
■ We mostly sell our products with reference to fl oating, market-based prices, which
are broadly correlated with fl oating global currency markets and the input costs
we’re exposed to; and
■ We carry out an annual review of our CPP, which we use to inform our fi nancial
planning and how we operate.
Unexpected operational or natural catastrophes
Our operations and transport networks can
be disrupted by events such as:
■ When facing potential catastrophes, we put safety and wellbeing at the heart of
everything we do;
■
■
■
Fire;
Explosion;
Flooding;
■ Geotechnical failures;
Tailings dam failures;
Loss of power supply;
■
■
■ Mechanical/electrical equipment failures;
and
■ We use a strong system of risk management in design, construction and operation
phases, to analyse risks and design plans that prevent or limit business impacts;
■ We have business continuity and disaster recovery plans in place. We’ve tested
these to make sure we can respond rapidly to major events and safely restore our
operations;
■ We have governance functions independent of the operations. These give us
assurance against our own comprehensive internal standards for equipment
integrity, tailings dams management and technical stewardship;
■ We maintain insurance against many, but not all, potential losses or liabilities arising
■ Unexpected natural catastrophes.
from operating risks. This may not fully cover all fi nancial losses; and
■ We work with external experts, relevant industry bodies and technology suppliers, to
provide additional assurance and input.
SOUTH32 > ANNUAL REPORT 2019 > RISK MANAGEMENT
19
RISK MANAGEMENT Strategic Risk
Our Response
Key talent identifi cation, attraction and retention
Our ability to identify, attract and retain
key talent and develop capabilities is
fundamental to delivering our strategic
priorities.
Failure to ensure the right capabilities
and talent within our business erodes
shareholder value.
■ We focus on enhancing our off ering to employees and potential employees to
distinguish ourselves in the market;
■ We continually seek ways to better engage and empower our workforce, including
leading fl exibility policies and a focus on ensuring we maintain an inclusive
workplace;
■ Our dedication to “making a diff erence” inspires our people;
■ We identify key talent and provide them with experience and growth through time in
critical roles;
■ We have eff ective approaches to talent and recruitment management,
remuneration, skills development and succession planning;
■ Our strategic planning process identifi es capability requirements for the future;
■ We work to strengthen our reputation and status in the community as an employer
of choice through community engagement programs; and
■ We have developed and are implementing a long-term workforce planning and
talent management program across the organisation.
Changing societal expectations and acceptance
There are growing expectations of shared
value outcomes from mining and metals
companies by government, investors,
employees, host communities and broader
society.
By understanding and maintaining
stakeholder acceptance, we can manage
the eff ect of business impacts to achieve
shared value.
■ We embrace the concept of shared value – it’s at the heart of our purpose;
■ We maintain connection and understanding of stakeholder acceptance and needs
through routine mapping and engagement on a wide range of environmental, social
and governance issues;
■ We work with appropriate industry associations and organisations who are shaping
the dialogue between society and mining. This helps us enhance our understanding
of social expectations across our portfolio;
■ We have internal subject matter expertise, policies and governance processes to
help us identify shared value opportunities, as well as integrate social expectations
into our planning and decision-making – at all levels;
■ Our organisational investment proposition and purpose is clear, to minimise any
misalignment with our owners’ expectations of us; and
■ We manage and transparently report on regulatory obligations, commitments, and
areas where we’re working. This means we can optimise our value proposition to
society and the communities we operate in.
Evolving culture of the organisation
We recognise the value of a strong culture.
It’s at the core of how we deliver our purpose
and strategy.
■ We’re working to better understand the gap between what our culture is and what
we want it to be – and to have a clear approach to help us close it;
■ We make sure our ways of working (systems, symbols and behaviours) are aligned
As our organisation grows and matures, our
culture must evolve with it. This will help us
keep delivering on our strategy, achieve our
purpose and live our values.
Predictable operational performance
Predictable operational performance
improves our ability to keep our people safe,
meet our regulatory and social obligations,
provide quality products to our customers
and deliver TSR.
If we can’t safely achieve our production
targets and mitigate rising unit costs, it will
impact directly on our profi ts and cash fl ow,
as well as our ability meet our commitments
to our stakeholders.
to our aspired culture; and
■ We identify eff ective levers to move our culture and use them deliberately to
address any misalignment.
■ We carry out rigorous quality assurance programs over our operations and marketing;
■ We review our asset health and integrity on a regular basis;
■ We reconcile the performance of our mineral resource and ore reserve quality
against production on an annual basis;
■ We carry out rigorous modelling and reviews of our geotechnical drilling data;
■ We operate within target operating windows and regularly review our internal
scheduling and operational planning;
■ We monitor raw material supply contracts and implement early detection
procedures at load port;
■ We’ve developed and implemented long-term and short-term planning, scheduling
and verifi cation of developments;
■ We carry out operational resource planning and regularly review our productivity
metrics;
■ We apply structured work design processes for critical or high value tasks; and
■ We apply verifi cation systems to ensure we’re compliant with work standards.
20
SOUTH32 > ANNUAL REPORT 2019 > RISK MANAGEMENT
RISK MANAGEMENT Strategic Risk
Our Response
Maintain competitiveness through innovation and technology
It’s clear that technology and innovation are
advancing at a rapid pace. And companies
who don’t keep up fi nd themselves falling
behind in TSR.
To stay competitive, we’ll organise our
business in a way that means we can
identify, adopt and maintain innovation and
technology that delivers shareholder return.
■ We’ve implemented a clear approach to innovation, improvement and technology;
■ We’ve organised the coordination and delivery of programs focused on adoption of
critical technology across the business;
■ We’ve planned to identify opportunities to test and scale emerging innovation and
technology;
■ We’ve developed and implemented rigorous internal standards and processes
(technology ‘ways of working’);
■ We benchmark our digital operations performance to industry best practice, and we
implement strategies to close any gaps;
■ We actively manage cyber security and data centre risks through our system of risk
management;
■ We monitor customer satisfaction and manage customer support; and
■ We follow a rigorous assurance process for our approach to innovation,
improvement and technology.
Security of supply of logistics chain and critical services
Our logistics chain includes road, rail and
ports. Our critical services include gas,
power (sourcing and generating) and water.
By securing our supply at commercially
acceptable terms, we can capitalise
on market opportunities, run safe and
predictable operations, and deliver life of
operations plans.
If we fail to do this, it could result in a
disruption to our operations, increased
operational costs and fi nancial penalties.
■ We build strong strategic partnerships with Tier 1 suppliers of road, rail, port
facilities, water, gas and power, on a long-term, mutually benefi cial basis;
■ We have a clearly defi ned B-BBEE (Broad-Based Black Economic Empowerment)
strategy in South Africa to support the secure supply of electricity to the smelters;
■ We actively work to secure resources within our control to strengthen the resilience
of our operations' logistics and critical services against supply disruption; and
■ We explore opportunities to optimise existing sources, and identify alternate
sources, for critical services.
Maintain, realise or enhance the value of our resources and reserves
We exist to realise the potential of the
resources and reserves we are entrusted
to develop.
■ We report Mineral Resources and Ore Reserves (including Coal Resources and Coal
Reserves) in accordance with the JORC Code as required by Chapter 5 of the ASX
Listing Rules;
We work to continually optimise our
operations through our sound technical
and economic understanding of our
resources and reserves.
If we fail to do this, it will have a signifi cant
impact on TSR and ultimately, the
sustainability of the Company.
Climate change resilience
By using climate change scenarios, we can
identify opportunities and threats to our
portfolio and operations.
We assess these risks through a framework
that includes policy, market and physical
factors.
■ We apply an annual business planning standard and process, structured to get
maximum value across the life of our operations;
■ Our capital prioritisation, capital allocation & short-term planning processes prioritise
the highest value options across our portfolio;
■ We apply a rigorous project development process that includes independent peer
review of project risks and approval tollgates; and
■ Our closure standard ensures that our full life of operations value incorporates
closure and rehabilitation liabilities.
■ We seek to understand our portfolio performance in a range of future climate
scenarios, considering both opportunities and threats;
■ We use the latest climate modelling data to inform us of the level of risk to our
operational plans;
■ We identify potential controls in the short, medium and long-term to improve the
climate change resilience of our portfolio;
■ We prioritise our land management eff orts to improve resilience, including
minimising land disturbance and maximising rehabilitation eff orts;
■ We support the Paris Agreement objectives and are committed to achieving net
zero carbon emissions by 2050;
■ We identify and implement greenhouse gas reduction and energy effi ciency
projects, with our emission reduction targets linked to our remuneration; and
■ We’re transparent with our disclosure of climate change-related opportunities and
threats in our annual Our Approach to Climate Change report, which is prepared
with regard to the Recommendations of the Task Force on Climate-related Financial
Disclosures.
SOUTH32 > ANNUAL REPORT 2019 > RISK MANAGEMENT
21
RISK MANAGEMENT OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW
INTRODUCTION
INTRODUCTION
INTRODUCTION
The following operating and financial review is
The following operating and financial review is
The following operating and financial review is
intended to convey the Directors’ perspective of the
intended to convey the Directors’ perspective of the
intended to convey the Directors’ perspective of the
Group’s operating performance and financial position,
Group’s operating performance and financial position,
Group’s operating performance and financial position,
development potential and future prospects.
development potential and future prospects.
development potential and future prospects.
In addition, South32 management retains the discretion to adjust
In addition, South32 management retains the discretion to adjust
In addition, South32 management retains the discretion to adjust
for other signifi cant non-recurring items that are not considered
for other signifi cant non-recurring items that are not considered
for other signifi cant non-recurring items that are not considered
refl ective of the underlying performance of the Group's
refl ective of the underlying performance of the Group's
refl ective of the underlying performance of the Group's
operations. Significant items are detailed on page 89 in note 4(b)(ii)
operations. Significant items are detailed on page 89 in note 4(b)(ii)
operations. Significant items are detailed on page 89 in note 4(b)(ii)
to the financial statements.
to the financial statements.
to the financial statements.
FINANCIAL KEY PERFORMANCE INDICATORS
FINANCIAL KEY PERFORMANCE INDICATORS
FINANCIAL KEY PERFORMANCE INDICATORS
FOR FY19
FOR FY19
FOR FY19
Financial highlights
Financial highlights
Financial highlights
US$M
US$M
US$M
Revenue(1)
Revenue(1)
Revenue(1)
Profit/(loss) before tax and fi nance
Profit/(loss) before tax and fi nance
Profit/(loss) before tax and fi nance
cost
cost
cost
Profit/(loss) after tax and fi nance
Profit/(loss) after tax and fi nance
Profit/(loss) after tax and fi nance
cost
cost
cost
Basic earnings per share (US cents)(2)
Basic earnings per share (US cents)(2)
Basic earnings per share (US cents)(2)
Ordinary dividends per share
Ordinary dividends per share
Ordinary dividends per share
(US cents)(3)
(US cents)(3)
(US cents)(3)
Special dividends per share
Special dividends per share
Special dividends per share
(US cents)(4)
(US cents)(4)
(US cents)(4)
Other fi nancial measures
Other fi nancial measures
Other fi nancial measures
FY19
FY19
FY19
FY18 Change
FY18 Change
FY18 Change
7,274
7,274
7,274
7,549
7,549
7,549
(4%)
(4%)
(4%)
887
887
887
1,719
1,719
1,719
(48%)
(48%)
(48%)
389
389
389
7.7
7.7
7.7
1,332
1,332
1,332
25.8
25.8
25.8
(71%)
(71%)
(71%)
(70%)
(70%)
(70%)
7.9
7.9
7.9
10.5
10.5
10.5
(25%)
(25%)
(25%)
1.7
1.7
1.7
3.0
3.0
3.0
(43%)
(43%)
(43%)
Underlying EBITDA
Underlying EBITDA
Underlying EBITDA
2,197
2,197
2,197
2,516
2,516
2,516
(13%)
(13%)
(13%)
Underlying EBITDA margin
Underlying EBITDA margin
Underlying EBITDA margin
33.9%
33.9%
33.9%
37.3%
37.3%
37.3%
(3.4%)
(3.4%)
(3.4%)
Underlying EBIT
Underlying EBIT
Underlying EBIT
1,440
1,440
1,440
1,774
1,774
1,774
(19%)
(19%)
(19%)
Underlying EBIT margin
Underlying EBIT margin
Underlying EBIT margin
22.2%
22.2%
22.2%
26.2%
26.2%
26.2%
(4.0%)
(4.0%)
(4.0%)
Underlying earnings
Underlying earnings
Underlying earnings
992
992
992
1,327
1,327
1,327
(25%)
(25%)
(25%)
Basic Underlying earnings per share
Basic Underlying earnings per share
Basic Underlying earnings per share
(US cents)(2)
(US cents)(2)
(US cents)(2)
ROIC
ROIC
ROIC
19.7
19.7
19.7
25.7
25.7
25.7
11.1%
11.1%
11.1%
15.0%
15.0%
15.0%
Ordinary shares on issue (million)
Ordinary shares on issue (million)
Ordinary shares on issue (million)
5,006
5,006
5,006
5,120
5,120
5,120
(23%)
(23%)
(23%)
(3.9%)
(3.9%)
(3.9%)
(2.2%)
(2.2%)
(2.2%)
(1) Revenue includes revenue from third party products and services.
(1) Revenue includes revenue from third party products and services.
(1) Revenue includes revenue from third party products and services.
(2) FY19 basic earnings per share is calculated as Profi t/(loss) after tax divided by the
(2) FY19 basic earnings per share is calculated as Profi t/(loss) after tax divided by the
(2) FY19 basic earnings per share is calculated as Profi t/(loss) after tax divided by the
weighted average number of shares for FY19 (5,048 million). FY19 basic Underlying
weighted average number of shares for FY19 (5,048 million). FY19 basic Underlying
weighted average number of shares for FY19 (5,048 million). FY19 basic Underlying
earnings per share is calculated as Underlying earnings divided by the weighted
earnings per share is calculated as Underlying earnings divided by the weighted
earnings per share is calculated as Underlying earnings divided by the weighted
average number of shares for FY19. FY18 basic earnings per share is calculated
average number of shares for FY19. FY18 basic earnings per share is calculated
average number of shares for FY19. FY18 basic earnings per share is calculated
as Profi t/(loss) after tax divided by the weighted average number of shares for
as Profi t/(loss) after tax divided by the weighted average number of shares for
as Profi t/(loss) after tax divided by the weighted average number of shares for
FY18 (5,159 million). FY18 basic Underlying earnings per share is calculated as
FY18 (5,159 million). FY18 basic Underlying earnings per share is calculated as
FY18 (5,159 million). FY18 basic Underlying earnings per share is calculated as
Underlying earnings divided by the weighted average number of shares for FY18.
Underlying earnings divided by the weighted average number of shares for FY18.
Underlying earnings divided by the weighted average number of shares for FY18.
(3) FY19 ordinary dividends per share is calculated as H1 FY19 ordinary dividend
(3) FY19 ordinary dividends per share is calculated as H1 FY19 ordinary dividend
(3) FY19 ordinary dividends per share is calculated as H1 FY19 ordinary dividend
announced (US$258 million) divided by the number of shares on issue at 31
announced (US$258 million) divided by the number of shares on issue at 31
announced (US$258 million) divided by the number of shares on issue at 31
December 2018 (5,051 million) plus H2 FY19 ordinary dividend announced
December 2018 (5,051 million) plus H2 FY19 ordinary dividend announced
December 2018 (5,051 million) plus H2 FY19 ordinary dividend announced
(US$140 million) divided by the number of shares on issue at 30 June 2019
(US$140 million) divided by the number of shares on issue at 30 June 2019
(US$140 million) divided by the number of shares on issue at 30 June 2019
(5,006 million). FY18 ordinary dividend per share is calculated as H1 FY18 ordinary
(5,006 million). FY18 ordinary dividend per share is calculated as H1 FY18 ordinary
(5,006 million). FY18 ordinary dividend per share is calculated as H1 FY18 ordinary
dividend announced (US$223 million) divided by the number of shares on issue
dividend announced (US$223 million) divided by the number of shares on issue
dividend announced (US$223 million) divided by the number of shares on issue
at 31 December 2017 (5,181 million) plus H2 FY18 ordinary dividend announced
at 31 December 2017 (5,181 million) plus H2 FY18 ordinary dividend announced
at 31 December 2017 (5,181 million) plus H2 FY18 ordinary dividend announced
(US$317 million) divided by the number of shares on issue at 30 June 2018
(US$317 million) divided by the number of shares on issue at 30 June 2018
(US$317 million) divided by the number of shares on issue at 30 June 2018
(5,120 million).
(5,120 million).
(5,120 million).
(4) FY19 special dividends per share is calculated as FY19 special dividend announced
(4) FY19 special dividends per share is calculated as FY19 special dividend announced
(4) FY19 special dividends per share is calculated as FY19 special dividend announced
(US$86 million) divided by the number of shares on issue at 31 December 2018
(US$86 million) divided by the number of shares on issue at 31 December 2018
(US$86 million) divided by the number of shares on issue at 31 December 2018
(5,051 million). H1 FY18 special dividend per share is calculated as H1 FY18 special
(5,051 million). H1 FY18 special dividend per share is calculated as H1 FY18 special
(5,051 million). H1 FY18 special dividend per share is calculated as H1 FY18 special
dividend announced (US$155 million) divided by the number of shares on issue at
dividend announced (US$155 million) divided by the number of shares on issue at
dividend announced (US$155 million) divided by the number of shares on issue at
31 December 2017 (5,181 million).
31 December 2017 (5,181 million).
31 December 2017 (5,181 million).
The following information forms part of this operating and
The following information forms part of this operating and
The following information forms part of this operating and
financial review and the information cross-referenced therein:
financial review and the information cross-referenced therein:
financial review and the information cross-referenced therein:
■
■
■
■
■
■
Year at a glance on page 1 of the Annual Report;
Year at a glance on page 1 of the Annual Report;
Year at a glance on page 1 of the Annual Report;
From our Chair and From our CEO on pages 2 to 3 of the
From our Chair and From our CEO on pages 2 to 3 of the
From our Chair and From our CEO on pages 2 to 3 of the
Annual Report;
Annual Report;
Annual Report;
■ Our portfolio on pages 4 to 5 of the Annual Report;
■ Our portfolio on pages 4 to 5 of the Annual Report;
■ Our portfolio on pages 4 to 5 of the Annual Report;
■ Who we are on pages 6 to 8 of the Annual Report, which sets
■ Who we are on pages 6 to 8 of the Annual Report, which sets
■ Who we are on pages 6 to 8 of the Annual Report, which sets
out our strategy and Breakthroughs;
out our strategy and Breakthroughs;
out our strategy and Breakthroughs;
■ Our operations on pages 9 to 10 of the Annual Report; and
■ Our operations on pages 9 to 10 of the Annual Report; and
■ Our operations on pages 9 to 10 of the Annual Report; and
■ Risk management on pages 18 to 21 of the Annual Report.
■ Risk management on pages 18 to 21 of the Annual Report.
■ Risk management on pages 18 to 21 of the Annual Report.
The Group uses a number of non-International Financial Reporting
The Group uses a number of non-International Financial Reporting
The Group uses a number of non-International Financial Reporting
Standards financial measures in addition to those reported in
Standards financial measures in addition to those reported in
Standards financial measures in addition to those reported in
accordance with International Financial Reporting Standards
accordance with International Financial Reporting Standards
accordance with International Financial Reporting Standards
(IFRS), including underlying measures of earnings, eff ective tax
(IFRS), including underlying measures of earnings, eff ective tax
(IFRS), including underlying measures of earnings, eff ective tax
rate (ETR), returns on invested capital (ROIC), cash fl ow and net
rate (ETR), returns on invested capital (ROIC), cash fl ow and net
rate (ETR), returns on invested capital (ROIC), cash fl ow and net
debt. The Directors believe that these non-IFRS measures are
debt. The Directors believe that these non-IFRS measures are
debt. The Directors believe that these non-IFRS measures are
important when assessing the underlying financial and operating
important when assessing the underlying financial and operating
important when assessing the underlying financial and operating
performance of the Group and its operations as set out below.
performance of the Group and its operations as set out below.
performance of the Group and its operations as set out below.
The meanings of individual non-IFRS measures used in this report
The meanings of individual non-IFRS measures used in this report
The meanings of individual non-IFRS measures used in this report
are set out in the Glossary on page 137.
are set out in the Glossary on page 137.
are set out in the Glossary on page 137.
Underlying earnings, Underlying EBIT and Underlying EBITDA are
Underlying earnings, Underlying EBIT and Underlying EBITDA are
Underlying earnings, Underlying EBIT and Underlying EBITDA are
included on page 86 in note 4 to the financial statements. We
included on page 86 in note 4 to the financial statements. We
included on page 86 in note 4 to the financial statements. We
believe that Underlying earnings, Underlying EBIT and Underlying
believe that Underlying earnings, Underlying EBIT and Underlying
believe that Underlying earnings, Underlying EBIT and Underlying
EBITDA provide useful information, but should not be considered
EBITDA provide useful information, but should not be considered
EBITDA provide useful information, but should not be considered
as an indication of, or an alternative to, profit/(loss) after tax as an
as an indication of, or an alternative to, profit/(loss) after tax as an
as an indication of, or an alternative to, profit/(loss) after tax as an
indicator of actual operating performance or as an alternative to
indicator of actual operating performance or as an alternative to
indicator of actual operating performance or as an alternative to
cash flow as a measure of liquidity.
cash flow as a measure of liquidity.
cash flow as a measure of liquidity.
In discussing the operating results of the Group, the focus is on
In discussing the operating results of the Group, the focus is on
In discussing the operating results of the Group, the focus is on
Underlying earnings and ROIC. Underlying earnings is the key
Underlying earnings and ROIC. Underlying earnings is the key
Underlying earnings and ROIC. Underlying earnings is the key
measure that is used to assess the performance of the Group,
measure that is used to assess the performance of the Group,
measure that is used to assess the performance of the Group,
make decisions on the allocation of resources and assess senior
make decisions on the allocation of resources and assess senior
make decisions on the allocation of resources and assess senior
management’s performance.
management’s performance.
management’s performance.
In addition, the performance of each of the Group's operations
In addition, the performance of each of the Group's operations
In addition, the performance of each of the Group's operations
and operational management is assessed based on Underlying
and operational management is assessed based on Underlying
and operational management is assessed based on Underlying
EBIT. Management uses this measure because financing
EBIT. Management uses this measure because financing
EBIT. Management uses this measure because financing
structures and tax regimes diff er across the Group’s operations
structures and tax regimes diff er across the Group’s operations
structures and tax regimes diff er across the Group’s operations
and substantial components of tax and interest charges are levied
and substantial components of tax and interest charges are levied
and substantial components of tax and interest charges are levied
at a group level rather than an operation level.
at a group level rather than an operation level.
at a group level rather than an operation level.
In order to calculate Underlying earnings, Underlying EBIT and
In order to calculate Underlying earnings, Underlying EBIT and
In order to calculate Underlying earnings, Underlying EBIT and
Underlying EBITDA, the following items are adjusted as applicable
Underlying EBITDA, the following items are adjusted as applicable
Underlying EBITDA, the following items are adjusted as applicable
each period, irrespective of materiality:
each period, irrespective of materiality:
each period, irrespective of materiality:
■
■
■
■
■
■
Exchange rate (gains)/losses on restatement of monetary items;
Exchange rate (gains)/losses on restatement of monetary items;
Exchange rate (gains)/losses on restatement of monetary items;
Impairment losses/(reversals);
Impairment losses/(reversals);
Impairment losses/(reversals);
■ Net (gains)/losses on disposal and consolidation of interests in
■ Net (gains)/losses on disposal and consolidation of interests in
■ Net (gains)/losses on disposal and consolidation of interests in
■
■
■
businesses;
businesses;
businesses;
Fair value (gains)/losses on non-trading derivative instruments
Fair value (gains)/losses on non-trading derivative instruments
Fair value (gains)/losses on non-trading derivative instruments
and other investments;
and other investments;
and other investments;
■ Major corporate restructures; and
■ Major corporate restructures; and
■ Major corporate restructures; and
■
■
■
Earnings adjustments included in profi t/(loss) of equity
Earnings adjustments included in profi t/(loss) of equity
Earnings adjustments included in profi t/(loss) of equity
accounted investments.
accounted investments.
accounted investments.
22
22
22
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW EXTERNAL FACTORS AND TRENDS AFFECTING
THE GROUP’S RESULT
Estimated impact on Underlying EBIT of a +/- 10% change in
commodity price
The following describes the main external factors and trends
that have had a material impact on the Group’s financial position
and results of operations. Details of the Group’s most significant
risk factors and how they are mitigated can be found in Risk
management on pages 18 to 21 of the Annual Report.
Management monitors particular trends arising from external
factors with a view to managing the potential impact on the
Group’s future financial position and results of operations.
COMMODITY PRICES AND CHANGES IN PRODUCT DEMAND
AND SUPPLY
South32 produces metals and ores, prices of which are
largely driven by global demand and supply for each of these
commodities. Commodity prices were generally lower in FY19
compared to FY18 as most physical markets weakened on
the back of slower demand and heightened macroeconomic
uncertainty. The prices that the Group obtains for its products are
a key driver of its business, and fluctuations in these commodity
prices aff ect its results, including cash flows and asset values.
US$M
Alumina
Aluminium(1)
Manganese ore(2)
Metallurgical coal
Energy coal
Nickel
Manganese alloy(2)
Silver
Lead
Zinc
FY19
217
198
125
99
67
43
25
18
17
10
(1) Aluminium sensitivity shown without any associated increase in alumina pricing.
(2) The sensitivity impacts for manganese ore and manganese alloy are on a pre-tax
basis. The Group’s manganese operations are reported as an equity accounted
investment. As a result, the profit after tax for manganese is included in the
Underlying EBIT of South32.
The following table shows prices of the Group’s most significant commodities for FY19 and FY18. These prices represent quoted prices
from the relevant sources as indicated. These prices diff er from the realised prices on the sale of production due to contracts to which
the Group is a party, diff erences in quotational periods, quality of products, delivery terms and the range of quoted prices that are used
for contracting sales in diff erent markets.
Quoted commodity prices
Year ended 30 June
Alumina(1) (US$/t)
Aluminium (LME Cash)(2) (US$/t)
Energy coal(3) (US$/t)
Metallurgical coal(4) (US$/t)
Manganese ore(5) (US$/dmtu)
Manganese alloy(6) (US$/t)
Nickel (LME Cash)(2) (US$/t)
Silver(7) (US$/toz)
Lead (LME Cash)(2) (US$/t)
Zinc (LME Cash)(2) (US$/t)
Average price
Closing price
FY19
435
1,921
86.3
204.9
6.68
1,150
FY18
421
2,132
93.6
203.0
6.88
1,342
12,353
12,450
15.0
1,998
2,657
16.7
2,434
3,182
Change
3%
(10%)
(8%)
1%
(3%)
(14%)
(1%)
(10%)
(18%)
(16%)
FY19
321
1,774
64.3
193.5
5.74
1,150
FY18
445
2,183
103.8
199.0
6.83
1,143
12,665
14,910
15.2
1,914
2,581
16.0
2,432
2,948
Change
(28%)
(19%)
(38%)
(3%)
(16%)
1%
(15%)
(5%)
(21%)
(12%)
(1) Platts Alumina Index (PAX) Free on Board (FOB) Australia – market price assessment of calcined metallurgical/smelter grade alumina.
(2) LME Cash represents the Official Seller price for nickel, zinc and lead and the A.M. Official price for aluminium.
(3) Richards Bay Coal Terminal (RBCT) FOB (API4).
(4) Platts Low Vol Hard Coking Coal Index FOB Australia – representative of high-quality hard coking coals.
(5) Metal Bulletin manganese ore 44 per cent Mn CIF Tianjin China.
(6) Bulk Ferro Alloy high-carbon ferromanganese (HCFeMn) Western Europe DDP.
(7) Daily London Bullion Market Association (LBMA) Silver Fix.
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
23
OPERATING AND FINANCIAL REVIEW The following summarises the pricing trends of our most
significant commodities for FY19. The price change reflects the
average of FY19 over FY18.
Alumina: The average FOB Australia price for the year was three
per cent higher than FY18. The price increase was largely driven
by supply disruptions.
Aluminium: The average LME cash settlement price for the year
was 10 per cent lower than FY18, driven by weaker demand.
Energy coal: The FY19 average API4 FOB Richards Bay price was
eight per cent lower than FY18. Higher Chinese domestic coal
output, delays in Chinese port clearance of imported coal and
higher exports from seaborne suppliers such as Australia and
Indonesia weighed on price.
Metallurgical coal: The FY19 average Platts Premium Low Vol
Hard Coking Coal price was one per cent higher than FY18. Prices
were supported by higher Chinese pig iron output and supply
disruptions in Australia.
Manganese: The average Manganese Ore Metal Bulletin
44 per cent CIF China price was three per cent lower than FY18.
While strong Chinese demand provided support, an increase in ore
supply weighed on prices. The Western Europe spot high carbon
ferromanganese average price weakened 14 per cent during FY19
due to persisting oversupply of ferroalloy in the seaborne market.
Nickel: The FY19 average LME cash settlement price was
one per cent lower than FY18. Despite a decline in exchange stocks,
prices remained stable as strong stainless steel demand was met
by rising Chinese and Indonesian nickel pig iron production.
Silver: The FY19 average LBMA silver price was 10 per cent lower
than FY18. Macroeconomic drivers, including escalating trade
tensions, pushed the silver market from a defi cit into a more
balanced position resulting in the price retreat.
Lead: The FY19 average LME cash settlement price was
18 per cent lower than FY18. In the fi rst half of the fi nancial year,
prices were supported by Chinese environmental clampdowns
which impacted supply amid historical low exchange inventories.
However, a weak global automotive sector and heightened
macroeconomic uncertainty weighed on prices in the second half
of FY19.
Zinc: The FY19 average LME cash settlement price was
16 per cent lower than FY18. Increasing concentrate supply
and the return of Chinese smelters following the environmental
clampdown weighed on prices.
EXCHANGE RATES
The Group is exposed to exchange rate risk on foreign currency
sales, purchases and expenses, as no active currency hedging
is undertaken. As the majority of sales are denominated in US
dollars, and the US dollar plays a dominant role in the Group’s
business, funds borrowed and held in US dollars provide a natural
hedge to currency fluctuations. Operating costs and costs of
locally sourced equipment are influenced by fluctuations in local
currencies, primarily the Australian dollar, Brazilian real, Colombian
peso, Euro and South African rand.
The Group is also exposed to exchange rate translation risk
in relation to net monetary liabilities, being foreign currency
denominated monetary assets and liabilities, including debt, tax
and other long-term liabilities. Details of the exposure to foreign
currency fluctuations are set out in note 19 to the financial
statements on pages 103 to 111.
The following table indicates the estimated impact on FY19
Underlying EBIT of a change in the principal currencies to which
the Group is exposed against the US dollar. The sensitivities
give the estimated impact on Underlying EBIT based on the
exchange rate movement in isolation. The sensitivities assume
all variables except for exchange rates remain constant. There is
an inter-relationship between currencies and commodity prices
where movements in exchange rates can cause movements
in commodity prices and vice versa. This is not reflected in the
sensitivities below. These sensitivities should therefore be used
with care.
Estimated impact on Underlying EBIT of a +/-10% change in
producer currencies relative to the US dollar
US$M
Australian dollar(1)
South African rand(1)
Colombian peso
Brazilian real
FY19
155
119
23
15
(1) The sensitivity impacts for manganese ore and manganese alloy are on a pre-tax
basis. The Group’s manganese operations are reported as an equity accounted
investment. As a result, the profit after tax for manganese is included in the
Underlying EBIT of South32.
The following table shows the average and period end closing exchange rates of the most significant currencies that aff ect the Group’s
results:
Exchange rates(1)
Year ended 30 June
Australian dollar(2)
Brazilian real(3)
Colombian peso(3)
Euro(4)
South African rand(3)
Average Value
Closing Value
FY19
0.72
3.86
3,125
1.14
14.19
FY18
Change
0.78
3.31
2,917
1.19
12.86
(8%)
(17%)
(7%)
(4%)
(10%)
FY19
0.70
3.83
3,197
1.14
14.17
FY18
Change
0.74
3.85
2,945
1.16
13.73
(5%)
1%
(9%)
(2%)
(3%)
(1) Positive per cent change in FX indicates strengthening currency relative to US$.
(2) Displayed as US$ to A$ based on common convention.
(3) Displayed as local currency to US$.
(4) Displayed as US$ to € based on common convention.
Local economic conditions, commodity prices and US policies remain key drivers of our producer currencies. In FY19, producer
currencies broadly weakened against the US dollar on the back of stronger US economic growth relative to local economies and
widening interest rate diff erentials as the US Federal Reserve raised interest rates twice in FY19. Heightened macroeconomic uncertainty
and escalating trade tensions also bolstered US dollar strength given its safe haven status.
24
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW We fi nished the year with a net cash balance of US$504 million
having generated free cash fl ow from operations, including
distributions from our manganese equity accounted investments
of US$1.0 billion. Our strong fi nancial position allowed us to
return US$762 million to shareholders in respect of the period.
This included payment of a US$256 million fully franked interim
dividend and declaration of a US$140 million fully franked fi nal
dividend in accordance with our dividend policy, which seeks to
return a minimum 40 per cent of Underlying earnings in each six
month period.
A further US$366 million was returned to shareholders as part of
our ongoing capital management program, with US$281 million
allocated to our on-market share buy-back program and
US$85 million returned in the form of a special dividend.
Demonstrating the disciplined approach we are taking to our
capital management program, our confi dence in the outlook for
our business and an anticipated unwind in working capital during
H1 FY20, the Board has expanded our program by US$250 million
to US$1.25 billion, leaving US$264 million expected to be returned
by 4 September 2020.
EARNINGS
The Group’s statutory profi t after tax declined by US$943 million
(or 71 per cent) to US$389 million in FY19. Consistent with our
accounting policies, various items are excluded from the Group’s
statutory profi t to derive Underlying earnings including: exchange
rate loss on restatement of monetary items (US$3 million pre-tax);
South Africa Energy Coal impairment charges (US$504 million
pre-tax); loss on fair value movements of non-trading derivative
instruments and other investments (US$35 million pre-tax); major
corporate restructures (US$28 million pre-tax); profi t associated
with earnings adjustments included in our equity accounted
investments (US$17 million); exchange rate gains associated with
the Group’s non US dollar denominated net debt (US$34 million
pre-tax), and the tax expense for all pre-tax earnings adjustments
and exchange rate variations on tax balances (US$84 million).
Further information on these earnings adjustments is included on
page 89.
The Group’s Underlying EBITDA declined by US$319 million
(or 13 per cent) to US$2.2 billion, for an operating margin of
34 per cent. Lower aluminium and thermal coal prices more
than off set stronger prices for alumina, contributing to a
US$275 million reduction in Revenue, despite higher volumes.
While the Group benefi tted from weaker producer currencies
and cost reduction initiatives across labour, energy and
materials usage, total costs rose with higher production and the
commencement of several improvement initiatives at Worsley
Alumina to support a sustainable increase in production to
nameplate capacity.
Underlying EBIT decreased by US$334 million (or 19 per cent)
to US$1.4 billion as depreciation and amortisation increased by
a modest US$15 million with the higher production volumes.
Underlying earnings declined by US$335 million (or 25 per cent) to
US$992 million as a change in our geographic earnings mix and
permanent diff erences led to an increase in our Underlying ETR.
2019 FINANCIAL YEAR SUMMARY
PERFORMANCE SUMMARY
The Group’s statutory profi t after tax decreased by 71 per cent
to US$389 million in FY19 following the recognition of impairment
charges totalling US$504 million (US$578 million after tax,
including de-recognition of deferred tax assets) in relation to our
South Africa Energy Coal operation.
Underlying earnings decreased by 25 per cent (or US$335 million) to
US$992 million as our strong operating performance that delivered
a three per cent increase in Group production volumes, and cost
reduction initiatives across labour, energy and materials usage were
more than off set by lower aluminium and thermal coal prices. Basic
Underlying earnings per share decreased by a lesser 23 per cent
to US 19.7 cents per share as we benefi tted from the continuation
of our on-market share buy-back program which has reduced our
shares on issue by six per cent since its commencement.
Specifi c highlights for the year included:
■ Record production at Hillside Aluminium and strong
performance at Mozal Aluminium, despite an increase in load-
shedding events;
■ A 57 per cent increase in production at Illawarra Metallurgical
Coal as the Appin colliery continued to ramp up towards
historical rates;
■ Manganese ore production of 5.5Mt, with South Africa
■
Manganese exceeding guidance and Australia Manganese
operating the Premium Concentrate Ore (PC02) circuit at
approximately 120 per cent of its design capacity;
The acquisition of the remaining 83 per cent interest in
Arizona Mining for US$1.4 billion (including transaction costs),
which adds the Hermosa project and a prospective land
package to our portfolio;
■ A fi rst time Mineral Resource estimate in accordance with
the JORC Code (2012) guidelines for the Taylor deposit, which
forms part of the Hermosa project, de-risking our investment
and increasing our confi dence in the project as we advance its
pre-feasibility study;
The commencement of a feasibility study at Eagle Downs
Metallurgical Coal, following our acquisition of a 50 per cent
interest in the project and assumption of operating control for
US$106 million; and
■
■ Payment of the third and fi nal instalment (US$10 million) to
maintain our option with Trilogy Metals Inc. (TSX:TMQ) to earn
a 50 per cent interest in the Upper Kobuk Mineral projects in
Alaska by committing approximately US$150 million to a
50:50 joint venture by 31 January 2020.
Subsequent to the end of the financial year following a
comprehensive and competitive process we entered into exclusive
negotiations with Seriti Resources Holdings Proprietary Limited
(Seriti) as we work towards finalisation of their indicative off er to
acquire our South Africa Energy Coal business. In November 2017
we announced our intention to broaden the ownership of South
Africa Energy Coal, with a vision that it become a sustainable,
black-owned and operated business, consistent with South Africa’s
transformation agenda. At that time we also approved a 4.3 billion
South African Rand investment to extend the life of the Klipspruit
Colliery by at least 20 years and improve the competitiveness of
the business. The recognition of an impairment charge at 30 June
2019 considers Seriti’s current off er, which includes a modest up-
front cash payment with a mechanism whereby both parties will
share commodity price upside for an agreed period, and assumes
that transaction approvals are fulfi lled by June 2020.
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
25
OPERATING AND FINANCIAL REVIEW OPERATING COSTS
NET FINANCE COST
FY19 and FY18 comparative operating costs are set out below,
excluding earnings adjustment items impacting operating costs.
Earnings adjustment items are detailed on page 89 in note 4(b)(i)
to the financial statements.
US$M
Operating cash costs
Third party commodity purchases
Depreciation and amortisation expense
Total operating costs included in
Underlying EBIT
CAPITAL EXPENDITURE
FY19
4,964
801
757
FY18
4,877
842
742
6,522
6,461
Capital expenditure continues to be scrutinised in every location
as we seek to optimise the performance of our business and
sustainably grow ROIC, without compromising the safety or
reliability of our operations.
US$M
FY19
FY18
Stay in business, Minor discretionary
and Deferred stripping (including
underground development)
Major project capital expenditure
Intangibles and capitalisation of
exploration expenditure
Total capital expenditure (excluding
equity accounted investments)
Equity accounted investment capital
expenditure (including intangibles and
capitalised exploration)
Total capital expenditure (including
equity accounted investments)
433
219
58
710
96
806
368
62
6
436
65
501
Total capital expenditure, excluding equity accounted investments,
increased by US$274 million to US$710 million as major project
activity ramped up at the Klipspruit Life Extension (KPSX) project
(US$123 million) and work progressed at the Hermosa project
(US$85 million) following the acquisition of Arizona Mining in
August 2018. Sustaining capital expenditure increased by
US$65 million to US$433 million with expenditure at Illawarra
Metallurgical Coal rising by US$44 million.
Increased spend on intangibles and the capitalisation of
exploration expenditure refl ects a greater rate of investment
in technology to support our operations and US$28 million
of expenditure on exploration. This included US$18 million at
Hermosa to improve our knowledge of the Taylor deposit where
we released a fi rst time Mineral Resource estimate in accordance
with the JORC Code (2012) guidelines and commenced work on
the broader, prospective land package. Total capital expenditure
associated with our equity accounted investments increased by
US$31 million to US$96 million during FY19 as we invested in
additional tailings storage capacity at Australia Manganese.
The Group’s Underlying net finance cost, excluding equity
accounted investments, was US$118 million in FY19 and largely
reflects the unwinding of the discount applied to our closure and
rehabilitation provisions (US$103 million) and finance lease interest
(US$47 million), primarily at Worsley Alumina.
TAX EXPENSE
The Group’s Underlying income tax expense, which excludes tax
associated with equity accounted investments, was
US$330 million for an Underlying ETR of 37.8 per cent in FY19.
The Group’s Underlying ETR reflects the geographic distribution
of the Group’s profit. The primary corporate tax rates applicable
to the Group for FY19 include: Australia 30 per cent, South Africa
28 per cent, Colombia 33 per cent (37 per cent to 31 December
2018), Mozambique zero per cent (the Mozambique operations
are subject to a royalty on revenues instead of income tax) and
Brazil 34 per cent.
It should also be noted that permanent diff erences have a
disproportionate eff ect on the Group’s Underlying ETR when
commodity prices are lower and profit margins are compressed or
losses are incurred in specifi c jurisdictions. Permanent diff erences
are items which are treated diff erently for tax and accounting
purposes.
The Underlying income tax expense for manganese equity
accounted investments was US$338 million, including royalty-
related taxation of US$92 million at GEMCO (Australia Manganese),
for an Underlying ETR of 42.2 per cent.
CASH FLOW
The Group’s free cash fl ow from operations, excluding equity
accounted investments, declined by US$302 million (or
35 per cent) to US$571 million as we increased our investment
in our development projects and underground development
at Illawarra Metallurgical Coal, with rates increasing ahead of a
planned return to a three longwall confi guration in the June 2020
quarter.
Free cash fl ow from operations, excluding equity accounted
investments
US$M
Profi t/(loss)
Non-cash items
(Profi t)/loss from equity accounted
investments
Change in working capital
Cash generated
Total capital expenditure, excluding
equity accounted investments,
including intangibles and capitalised
exploration
Operating cash fl ows before
fi nancing activities and tax, and after
capital expenditure
Interest (paid)/received
Income tax (paid)/received
Free cash fl ow from operations
FY19
887
1,335
(467)
(129)
FY18
1,719
815
(521)
(392)
1,626
1,621
(710)
(436)
916
1
(346)
571
1,185
(6)
(306)
873
26
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW We also received (net) distributions totalling US$458 million from our manganese equity accounted investments, comprising dividends
and capital returns of US$542 million and a net drawdown in shareholder loans (-US$84 million).
Working capital increased by US$129 million as we re-established inventories at Illawarra Metallurgical Coal and Cannington following
improved performance at both operations during the year. Further, provisions and other liabilities declined following the payment of
previously recognised redundancy and restructuring charges as we simplifi ed the Group’s functional structures and continued to invest in
concurrent rehabilitation at South Africa Energy Coal.
Working capital movement reconciliation
US$M
Trade and other receivables
Inventories
Trade and other payables
Provisions and other liabilities
Working capital movement
FY19
6
(58)
(13)
(64)
(129)
FY18
(153)
(99)
(22)
(118)
(392)
With no change to our payment terms, we expect a portion of working capital to unwind in H1 FY20 as trade and other receivables reduce
following receipt of the initial insurance progress payment for the Klipspruit dragline incident at South Africa Energy Coal and the collection
of receipts from June 2019 sales.
EARNINGS ANALYSIS
The following key factors infl uenced Underlying EBIT in FY19, relative to FY18.
Reconciliation of movements in Underlying EBIT (US$M)(1)(2)(3)
2,000
(333)
Uncontrollable
(44) 44
(94)
327
(129)
234
(354)
40
(25)
Net finance
cost and tax
(118)
(330)
1,000
1,774
0
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(1) Sales price variance refl ects the revenue impact of changes in commodity prices, based on the current period’s sales volume. Price-linked costs variance refl ects the change in
royalties together with the change in input costs driven by changes in commodity prices or market-traded consumables. Foreign exchange refl ects the impact of exchange rate
movements on local currency denominated costs and sales. Volume variance refl ects the revenue impact of sales volume changes, based on the comparative period’s sales
prices. Controllable costs variance represents the impact from changes in the Group’s controllable local currency cost base, including the variable cost impact of production
volume changes on expenditure, and period-on-period movements in inventories. The controllable cost variance excludes earnings adjustments including signifi cant items.
(2) Underlying net fi nance cost and Underlying income tax expense are actual FY19 results, not year-on-year variances.
(3) South32’s ownership share of operations is as follows: Worsley Alumina (86 per cent share), Hillside Aluminium (100 per cent), Mozal Aluminium (47.1 per cent share), Brazil
Alumina (Alumina 36 per cent share, Aluminium 40 per cent share), South Africa Energy Coal (100 per cent until B-BBEE vendor loans are repaid), Illawarra Metallurgical Coal (100
per cent), Australia Manganese (60 per cent share), South Africa Manganese (60 per cent share), Cerro Matoso (99.9 per cent share), Cannington
(100 per cent), Hermosa (100 per cent), and Eagle Downs Metallurgical Coal (50 per cent share).
(4) The FY19 results refl ect the Group’s adoption of AASB 15 Revenue from Contracts with Customers (AASB 15), with revenue recognised net of treatment and refi ning charges.
These changes result in lower realised prices (US$44 million) and operating unit costs (US$44 million), with no net impact to earnings.
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
27
OPERATING AND FINANCIAL REVIEW
Earnings analysis
US$M Commentary
FY18 Underlying EBIT
1,774
Change in sales price
(333) Lower average realised prices for our commodities, including:
Aluminium (-US$194 million).
Energy coal (-US$88 million).
Nickel (-US$45 million).
Lead (-US$44 million).
Zinc (-US$41 million).
Off set by higher average realised prices for:
Alumina (+US$105 million).
Treatment and refi ning charges
- Net impact from reclassifying Cannington’s treatment and refi ning charges (AASB 15).
Net impact of price-linked costs
(94) Higher royalties (-US$40 million), primarily Illawarra Metallurgical Coal volumes.
Higher smelter raw material costs (-US$35 million), including pitch and coke.
Higher freight costs and diesel prices (-US$34 million).
Higher Brazil Alumina bauxite costs (-US$17 million).
Lower LME-linked electricity costs at Hillside Aluminium (+US$19 million).
Lower caustic soda prices at Worsley Alumina (+US$34 million).
Change in exchange rates
327 Australian dollar (+US$160 million).
South African rand (+US$127 million).
Brazilian real (+US$21 million).
Change in inflation
(129) Southern Africa (-US$80 million).
Australia (-US$33 million).
Change in sales volume
234 Illawarra Metallurgical Coal (+US$449 million).
Australia and South Africa Manganese (+US$48 million).
Brazil Alumina (-US$60 million).
South Africa Energy Coal (-US$215 million).
Controllable costs
(354) Worsley Alumina (-US$111 million; initiatives to sustainably return production to nameplate capacity
and inventory drawdown).
South Africa Energy Coal (-US$66 million; higher contractor mining, rehabilitation costs and
inventory).
Illawarra Metallurgical Coal (-US$46 million; higher volumes with improvement in longwall
performance).
South Africa Manganese (-US$33 million; increased activity to take advantage of market conditions).
Other
40 Klipspruit dragline initial insurance progress payment at South Africa Energy Coal.
Proceeds from Mining Lease relinquishment at Illawarra Metallurgical Coal.
Interest & tax (equity accounted
investments)
(25) Higher eff ective tax rate in our jointly controlled manganese operations.
Lower EBIT on third party product.
Higher depreciation and amortisation.
FY19 Underlying EBIT
1,440
Further analysis of operations performance is outlined on pages 30 to 35.
BALANCE SHEET AND CAPITAL MANAGEMENT
While the Group generated US$1 billion in free cash fl ow from operations, including net distributions from our manganese equity
accounted investments, our net cash balance decreased by US$1.5 billion to fi nish the period at US$504 million. Our strong balance
sheet and disciplined approach to capital allocation allowed us to return US$938 million to shareholders during the period by way of
dividends (US$657 million) and the continuation of our on-market share buy-back program (US$281 million). We also funded the Arizona
Mining and Eagle Downs Metallurgical Coal transactions for a combined investment of US$1.5 billion out of our cash reserves.
Demonstrating our confi dence in our fi nancial position and consistent with our dividend policy, our Board resolved to pay a fully franked
fi nal dividend of US$140 million, representing 40 per cent of Underlying earnings in respect of H2 FY19. The Board has also exercised its
discretion to increase and extend our approved capital management program by US$250 million to US$1.25 billion, leaving
US$264 million to be returned by 4 September 2020, further demonstrating the disciplined and fl exible approach we are taking.
With the declaration of our fi nal dividend, we will return US$2.5 billion to shareholders in respect of the last four-year period, equivalent
to 27 per cent of our market capitalisation as at 16 August 2019 (calculated as the number of shares on issue (5,006 million) and
the South32 closing share price A$2.76). Having established this strong track record, we will continue to return any excess capital
to shareholders in a timely and effi cient manner by monitoring our optimal fi nancial position within the context of the prevailing
macroeconomic environment and our capital management framework.
From 1 July 2019, the Group’s adoption of AASB 16 Leases (AASB 16), which aff ects the accounting classifi cation of leases, will result in
an increase to our gross debt balance of approximately US$140 million following the recognition of additional liabilities. The majority of
28
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW the increase relates to the reclassifi cation of existing operating
leases which will continue to be captured in the aforementioned
monitoring of our optimal fi nancial position.
Our capital management framework remains unchanged and we
continue to believe that a combination of high operating leverage
and undue financial leverage delivers a sub-optimal outcome for
shareholders.
NET DEBT AND SOURCES OF LIQUIDITY
Our policies on debt and treasury management are as follows:
■ Commitment to maintain an investment grade credit rating;
■ Diversifi cation of funding sources; and
■ Generally maintain borrowings and cash in US dollars.
GEARING AND NET DEBT
The table below presents net cash/(debt) and net assets of the
Group, based on the balance sheet as at 30 June 2019:
FUNDING SOURCES
In addition to cash flow from operations as a primary source of
funding, the Group has a US$1.5 billion revolving credit facility,
which is a standby arrangement to the Group’s US$1.5 billion US
commercial paper program.
This borrowing facility is not subject to financial covenants at the
Group’s current credit rating. Standard and Poor’s and Moody’s
reaffirmed their respective BBB+ and Baa1 credit ratings for the
Group. Certain financing facilities in relation to specific operations
are the subject of financial covenants that vary from facility to
facility; however, these are considered normal for such facilities.
As at 30 June 2019, the Group’s cash and cash equivalents on
hand were US$1.4 billion. Details of major standby and support
arrangements are as follows:
US$M
Commercial paper program(1)
Available
FY19
1,500
Used
FY19
-
US$M
Cash and cash equivalents
Current external debt
Non-current external debt
Net cash
Net assets
FY19
1,408
(313)
(591)
504
10,168
FY18
2,970
(333)
(596)
2,041
10,709
(1) The Group has an undrawn US$1.5 billion revolving credit facility which is a standby
arrangement to the US$1.5 billion US commercial paper program. The size of the
multi-currency revolving credit facility is US$1.5 billion until February 2021, and then
US$1.4 billion from February 2021 until the facility expires in February 2022.
Additional information regarding the maturity profile of the
Group’s debt obligations and details of the standby and support
agreements are included in note 19 to the financial statements on
pages 103 to 111.
Given the net cash position of the Group, a gearing ratio is not
presented.
OPERATIONS ANALYSIS
A summary of the underlying performance of the Group’s operations is presented below and more detailed analysis is presented on
pages 30 to 35.
Operations table (South32 share)(1)
US$M
Worsley Alumina
Brazil Alumina
Hillside Aluminium
Mozal Aluminium
South Africa Energy Coal
Illawarra Metallurgical Coal
Australia Manganese
South Africa Manganese
Cerro Matoso
Cannington
Third party products and services(2)
Inter-segment / Group and unallocated
Total
Equity accounting adjustment(3)
South32 Group
Revenue
Underlying EBIT
FY19
1,619
566
1,439
556
1,037
1,135
1,095
553
489
467
815
(857)
8,914
(1,640)
7,274
FY18
1,473
551
1,583
629
1,366
686
1,111
503
559
584
870
(749)
9,166
(1,617)
7,549
FY19
541
160
(75)
(21)
(46)
359
638
188
40
104
5
(78)
1,815
(375)
1,440
FY18
422
136
213
99
276
(62)
651
186
120
183
25
(125)
2,124
(350)
1,774
(1) South32’s ownership share of operations is as follows: Worsley Alumina (86 per cent share), Hillside Aluminium (100 per cent), Mozal Aluminium (47.1 per cent share), Brazil
Alumina (Alumina 36 per cent share, Aluminium 40 per cent share), South Africa Energy Coal (100 per cent until B-BBEE vendor loans are repaid), Illawarra Metallurgical Coal
(100 per cent), Australia Manganese (60 per cent share), South Africa Manganese (60 per cent share), Cerro Matoso (99.9 per cent share), Cannington
(100 per cent), Hermosa (100 per cent), and Eagle Downs Metallurgical Coal (50 per cent share).
(2) FY19 third party products and services sold comprise US$57 million for aluminium, US$2 million for alumina, US$392 million for coal, US$239 million for freight services,
US$116 million for aluminium raw materials and US$9 million for manganese. Underlying EBIT on third party products and services comprise nil for aluminium, US$2 million for
alumina, US$9 million for coal, (US$5 million) for freight services, (US$1 million) for aluminium raw materials and nil for manganese. FY18 third party products and services sold
comprise US$206 million for aluminium, US$49 million for alumina, US$290 million for coal, US$198 million for freight services, US$124 million for aluminium raw materials and
US$3 million for manganese. Underlying EBIT on third party products and services comprise US$11 million for aluminium, US$2 million for alumina, US$12 million for coal,
(US$1 million) for freight services and US$1 million for aluminium raw materials.
(3) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese operations to the treatment of the manganese operations on an equity
accounted basis (including third party product).
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
29
OPERATING AND FINANCIAL REVIEW
ALUMINA BUSINESS
WORSLEY ALUMINA
(86% SHARE)
BRAZIL ALUMINA
(ALUMINA 36% SHARE, ALUMINIUM 40% SHARE)
Worsley Alumina is one of the largest and lowest cost bauxite
mining and alumina refi ning operations in the world.
Brazil Alumina operations include the MRN mine in the Trombetas
Region, Para, and refi nery and smelter, which is currently on care
and maintenance, located at Sao Luis, Maranhao.
2,831
3,028
Underlying EBITDA
South32 share
Alumina production (kt)
Alumina sales (kt)
Realised alumina sales price (US$/t)
Operating unit cost (US$/t)(1)
FY19
3,795
3,857
420
238
FY18
3,764
3,763
391
235
(1) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
Volumes
Worsley Alumina saleable production increased by one per cent
(or 31kt) to 3.8Mt in FY19 as we opportunistically sold stockpiled
hydrate at alumina equivalent prices during the year, off setting
the impact of additional calciner maintenance.
South32 share (US$M)
Revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
All other capital expenditure
Exploration expenditure
Exploration expensed
FY19
1,619
702
541
FY18
1,473
588
422
57
57
1
1
52
52
1
1
Operating costs
Operating unit costs increased by one per cent in FY19 to
US$238/t as lower caustic soda prices (FY19: US$489/t, FY18:
US$582/t) and consumption rates (FY19: 98kg/t, FY18: 103kg/t)
were off set by additional calciner maintenance and the
opportunistic drawdown of hydrate stocks.
Financial performance
Underlying EBIT increased by 28 per cent (or US$119 million) in
FY19 to US$541 million as a seven per cent rise in the average
realised price of alumina (+US$109 million), a weaker Australian
dollar (+US$51 million) and lower caustic soda costs (price and
consumption, +US$46 million) were partially off set by initiatives to
increase calciner availability (-US$42 million) and a drawdown in
inventory as a result of higher sales (-US$34 million).
The average realised price for alumina sales in FY19 was a
discount of approximately fi ve per cent to the Platts Alumina
Index (PAX) on a volume-weighted M-1 basis. This discount
narrowed to one per cent in the June 2019 half year and refl ects
the structure of specifi c legacy supply contracts with our Mozal
Aluminium smelter that are linked to the LME aluminium price and
the elevated alumina to aluminium price ratio in the spot market
during FY19. All alumina sales to other customers were at market-
based prices.
Capital expenditure
Sustaining capital expenditure increased by US$5 million in FY19
to US$57 million as we invested in additional bauxite residue
disposal and water catchment capacity.
South32 share
Alumina production (kt)
Alumina sales (kt)
Realised alumina sales price (US$/t)
Alumina operating unit cost (US$/t)(1)
FY19
1,255
1,240
456
270
FY18
1,304
1,341
411
252
(1) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
Volumes
Brazil Alumina saleable production decreased by four per cent (or
49kt) to 1,255kt in FY19 as poor boiler performance and power
outages impacted production.
South32 share (US$M)
FY19
FY18
Revenue
Alumina
Other income
Alumina
Aluminium
Underlying EBIT
Alumina
Aluminium
Net operating assets/(liabilities)
Alumina
Aluminium
Capital expenditure
All other capital expenditure
566
566
3
219
231
(12)
160
172
(12)
687
696
(9)
26
26
551
551
46
192
213
(21)
136
157
(21)
644
656
(12)
12
12
Operating costs
Operating unit costs increased by seven per cent in FY19 to
US$270/t as poor boiler performance resulted in lower volumes
and additional maintenance activity, while bauxite costs increased
as we sourced additional third party material in the period and the
cost of supply from MRN was reset in accordance with its linkage
to alumina and aluminium.
Financial performance
Alumina Underlying EBIT increased by 10 per cent (or
US$15 million) in FY19 to US$172 million as an 11 per cent
increase in the average realised price of alumina (+US$56 million)
and a weaker Brazilian real (+US$21 million) were partially off set
by lower sales volumes (-US$42 million), higher bauxite
(-US$17 million) and boiler maintenance (-US$9 million) costs.
Aluminium Underlying EBIT increased by US$9 million in FY19
to a loss of US$12 million as an indirect legacy tax obligation
was settled and our commitment to purchase electricity from
Eletronorte was fulfi lled during the prior period following
termination of the contract in December 2015.
Capital expenditure
Sustaining capital expenditure increased by US$14 million in FY19
to US$26 million as we invest in additional bauxite residue disposal
capacity and undertake further de-bottlenecking work at the
refi nery.
30
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW ALUMINIUM BUSINESS
HILLSIDE ALUMINIUM
(100%)
MOZAL ALUMINIUM
(47.1% SHARE)
Hillside Aluminium is an aluminium smelter in South Africa and has
a solid metal production capacity of 720ktpa.
Mozal Aluminium is an aluminium smelter located in Mozambique
and has a solid metal production capacity of 572ktpa
(100 per cent basis).
South32 share
FY19
FY18
Aluminium production (kt)
Aluminium sales (kt)
Realised sales price (US$/t)
Operating unit cost (US$/t)(1)
715
707
2,035
2,045
712
711
2,226
1,826
(1) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
Volumes
Hillside Aluminium saleable production increased by 3kt to
a record 715kt in FY19 as the smelter continued to test its
maximum technical capacity, despite an increase in the frequency
of load-shedding events.
South32 share (US$M)
Revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
All other capital expenditure
FY19
1,439
(7)
(75)
FY18
1,583
285
213
1,027
1,202
19
19
28
28
Operating costs
Operating unit costs increased by 12 per cent in FY19 to
US$2,045/t as a rise in raw material input costs for alumina, coke,
pitch and aluminium tri-fl uoride, accounting for 58 per cent of the
smelter’s cost base (FY18: 56 per cent), more than off set lower
aluminium price-linked electricity costs.
The smelter sources alumina from our Worsley Alumina refi nery
with prices linked to the Platts Alumina Index on an M-1 basis,
while its power is sourced from Eskom under long-term contracts.
The price of electricity supplied to potlines one and two is linked
to the LME aluminium price and the South African rand/US dollar
exchange rate. The price of electricity supplied to potline three
is South African rand-based. We are advancing discussions with
Eskom to agree a path forward to extend and consolidate our
power contracts.
Financial performance
Underlying EBIT decreased by 135 per cent (or US$288 million) in
FY19 to a loss of US$75 million as a nine per cent decrease in the
average realised price of aluminium (-US$134 million), higher raw
material and cathode prices (-US$129 million), an unfavourable
movement in inventory (-US$35 million) and additional pot relining
costs (-US$11 million) more than off set the benefi ts of a weaker
South African rand (+US$34 million) and lower aluminium price-
linked power costs (+US$19 million). During FY19, 171 pots were
relined at a cost of US$249 thousand per pot (FY18: 122 pots at
US$220 thousand per pot).
Capital expenditure
Sustaining capital expenditure decreased by US$9 million in FY19
to US$19 million.
South32 share
FY19
FY18
Aluminium production (kt)
Aluminium sales (kt)
Realised sales price (US$/t)
Operating unit cost (US$/t)(1)
267
268
2,075
2,026
271
274
2,296
1,810
(1) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
Volumes
Mozal Aluminium saleable production decreased by
one per cent (or 4kt) to 267kt in FY19 as the smelter’s strong
operating performance was impacted by an increase in the
frequency of load-shedding events.
South32 share (US$M)
FY19
FY18
Revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
All other capital expenditure
556
13
(21)
534
19
19
629
133
99
553
10
10
Operating costs
Operating unit costs increased by 12 per cent in FY19 to
US$2,026/t as raw material input costs increased for alumina,
coke, pitch and aluminium tri-fl uoride, which combined account
for 49 per cent of the smelter’s cost base (FY18: 49 per cent).
The smelter sources alumina from our Worsley Alumina refi nery
with approximately 50 per cent priced as a percentage of the LME
aluminium index under a legacy contract and the remainder linked
to the Platts Alumina Index on an M-1 basis, with caps and fl oors
embedded within specifi c contracts.
Electricity requirements are largely met by hydroelectric power that
is generated by Hidroeléctrica de Cahora Bassa (HCB). HCB delivers
power into Eskom’s South African grid and Mozal Aluminium
sources electricity via the Mozambique Transmission Company
(Motraco) under a long-term contract. The price of electricity is
South African rand-based with the rate of escalation linked to a
South Africa domestic producer price index plus a margin.
Financial performance
Underlying EBIT decreased by US$120 million in FY19 to a loss of
US$21 million following lower average realised aluminium prices
(-US$60 million) and sales volumes (-US$13 million), higher raw
material and cathode prices (-US$27 million), higher power costs
(-US$5 million) and additional pot relining costs (-US$4 million).
Across FY19, 103 pots were relined at a cost of US$234 thousand
per pot (FY18: 60 pots at US$211 thousand per pot).
Capital expenditure
Sustaining capital expenditure increased by US$9 million in FY19
to US$19 million as the smelter commenced the roll out of the
AP3XLE energy effi ciency technology in its pot relining program
ahead of schedule.
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
31
OPERATING AND FINANCIAL REVIEW COAL BUSINESS
SOUTH AFRICA ENERGY COAL
ILLAWARRA METALLURGICAL COAL
(92% SHARE)
(100%)
South Africa Energy Coal operations are located near Emalahleni
and Middelburg in the coalfi elds of Mpumalanga.
Illawarra Metallurgical Coal operations are located in the southern
coal fi elds of New South Wales, Australia.
FY19
FY18
South32 share
100 per cent terms(1)
Energy coal production (kt)
Domestic sales (kt)(2)
Export sales (kt)(2)
Realised domestic sales price (US$/t)
Realised export sales price (US$/t)
Operating unit cost (US$/t)(3)
24,979
15,035
9,875
24
69
40
27,271
15,396
12,518
25
79
36
(1) South32’s interest in South Africa Energy Coal is accounted at 100 per cent until
B-BBEE vendor loans are repaid.
(2) Volumes and prices do not include any third party trading that may be undertaken
independently of equity production.
Metallurgical coal production (kt)
Energy coal production (kt)
Metallurgical coal sales (kt)(1)
Energy coal sales (kt)(1)
Realised metallurgical coal sales price
(US$/t)
Realised energy coal sales price
(US$/t)
Operating unit cost (US$/t)(2)
FY19
5,350
1,297
5,044
1,262
209
66
94
FY18
3,165
1,079
2,937
1,179
203
76
142
(3) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales,
(1) Volumes and prices do not include any third party trading that may be undertaken
divided by sales volume.
independently of equity production.
Volumes
South Africa Energy Coal saleable production decreased by
eight per cent (or 2,292kt) to 25.0Mt in FY19, despite a 10 per cent
improvement in the June 2019 quarter, as export sales volumes
were impacted by an extended outage of the Klipspruit dragline
following an incident in August 2018.
(2) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales,
divided by sales volume.
Volumes
Illawarra Metallurgical Coal saleable production increased by
57 per cent (or 2,403kt) to 6.6Mt in FY19 as the Dendrobium and
Appin longwalls continued to perform strongly and we successfully
concluded the renegotiation of all major labour agreements.
100 per cent terms (US$M) (1)
Revenue(2)
Underlying EBITDA
Underlying EBIT
Net operating assets/(liabilities)
Capital expenditure
Major projects (>US$100M)
All other capital expenditure
FY19
1,037
42
(46)
(373)
213
123
90
FY18
1,366
353
276
(23)
164
62
102
(1) South32’s interest in South Africa Energy Coal is accounted at 100 per cent until
B-BBEE vendor loans are repaid.
Includes domestic and export sales Revenue.
(2)
Operating costs
Operating unit costs increased by 11 per cent in FY19 to US$40/t
as we completed concurrent rehabilitation work and added
extra contractor capacity to recover lost dragline availability at
Klipspruit. This impact was partially off set by an initial insurance
progress payment awarded in June 2019 for the volume and cost
impact of the dragline outage, and a weaker South African rand.
Financial performance
Underlying EBIT decreased by 117 per cent (or US$322 million) in
FY19 to a loss of US$46 million as lower sales volumes
(-US$215 million), average realised prices (-US$75 million),
and higher contractor mining (-US$75 million) and concurrent
rehabilitation (-US$37 million) costs more than off set a favourable
movement in inventory (+US$70 million) and a weaker South
African rand (+US$48 million).
Capital expenditure
Sustaining capital expenditure decreased by US$12 million in FY19
to US$90 million despite incurring additional costs to recover from
and mitigate the impact of the Klipspruit dragline incident, and our
investment in new mining areas at the Wolverkrans Middelburg
Complex (WMC) returning to typical levels.
We also invested US$123 million in Major project capital
expenditure in FY19 to progress the KPSX project, which was
approved by the Board in November 2017. The 8Mtpa brownfi eld
project extends the life of the colliery by more than 20 years. The
project is approximately 72 per cent complete and remains on
schedule and budget.
South32 share (US$M)
Revenue(1)
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Major projects (>US$100M)
All other capital expenditure
Exploration expenditure
Exploration expensed
FY19
1,135
542
359
1,410
138
5
133
9
3
FY18
686
103
(62)
1,408
89
-
89
7
7
(1)
Includes metallurgical coal and energy coal sales Revenue.
Operating costs
Operating unit costs decreased by 34 per cent in FY19 to US$94/t
as the operation benefi tted from a substantial increase in sales
volumes and a commercial agreement to relinquish a portion of its
Mining Lease in the Appin area.
Financial performance
Underlying EBIT increased by US$421 million in FY19 to
US$359 million as stronger sales volumes (+US$449 million),
a weaker Australian dollar (+US$47 million), and lower labour
(+US$16 million) and electricity (+US$15 million) costs were
partially off set by higher price-linked royalties (-US$31 million). The
volume-related impact on costs (-US$80 million) was tempered by
the high fi xed-cost base of the operation.
Capital expenditure
Sustaining capital expenditure increased by US$44 million in FY19
to US$133 million as we increased underground development
rates at Appin.
We also invested US$5 million in FY19 to progress studies for the
Dendrobium Next Domain project, submitting our Environmental
Impact Statement to the NSW Department of Planning and
Environment during the June 2019 quarter. While still subject to
necessary regulatory approvals, the project has the potential to
extend the mine life of Dendrobium to approximately FY36, with a
fi nancial investment decision anticipated in H2 FY21.
32
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW MANGANESE BUSINESS
AUSTRALIA MANGANESE
(60% SHARE)
GEMCO mines manganese ore in the Northern Territory, while
TEMCO is a manganese alloy plant in Tasmania.
South32 share
Manganese ore production (kwmt)
Manganese alloy production (kt)
Manganese ore sales (kwmt)
External customers
TEMCO
Manganese alloy sales (kt)
Realised external manganese ore sales
price (US$/dmtu, FOB)(1)(2)
Realised manganese alloy sales price
(US$/t)(1)
Ore operating unit cost (US$/dmtu)(2)(3)
Alloy operating unit cost (US$/t)(3)
South32 share (US$M)
Revenue(1)
Manganese ore
Manganese alloy
Intra-segment elimination
Underlying EBITDA
Manganese ore
Manganese alloy
Underlying EBIT
Manganese ore
Manganese alloy
Net operating assets/(liabilities)
FY19
3,349
154
3,438
3,094
344
151
FY18
3,396
165
3,290
2,917
373
170
6.35
6.38
Manganese ore
Manganese alloy
1,311
1.59
947
1,518
Capital expenditure
1.63
906
All other capital expenditure
Exploration expenditure
Exploration expensed
FY19
1,095
FY18
1,111
930
198
(33)
698
643
55
638
588
50
316
303
13
65
65
2
1
884
258
(31)
710
606
104
651
552
99
289
284
5
48
48
1
1
(1) Realised ore prices are calculated as external sales Revenue less freight and
marketing costs, divided by external sales volume. Realised alloy prices are
calculated as sales Revenue, including sinter revenue, divided by alloy sales
volume. Ore converted to sinter and alloy, and sold externally, is eliminated as an
intracompany transaction.
(2) Manganese Australia FY19 average manganese content of ore sales was
45.9 per cent on a dry basis (FY18: 45.7 per cent). 95 per cent of FY19 external
manganese ore sales (FY18: 94 per cent) were completed on a CIF basis. FY19
realised FOB ore prices and operating unit costs have been adjusted for freight
and marketing costs of US$47 million (FY18: US$43 million), consistent with our
FOB cost guidance.
(3) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and
marketing costs, divided by ore sales volume. Alloy operating unit cost is
Revenue less Underlying EBITDA divided by alloy sales volume and includes costs
associated with sinter sold externally.
Volumes
Australia Manganese saleable ore production decreased by
one per cent (or 47kwmt) to 3,349kwmt in FY19 as we maintained
elevated production levels, operating our PC02 circuit at
approximately 120 per cent of its design capacity. We also set an
ore sales record of 3,438kwmt in FY19 as we continued to take
advantage of strong market conditions. Manganese alloy saleable
production decreased by seven per cent (or 11kt) to 154kt in
FY19.
(1) Revenues of sales from GEMCO to TEMCO are eliminated as part of the
consolidation.
Operating costs
FOB manganese ore operating unit costs decreased by
two per cent in FY19 to US$1.59/dmtu as record sales volumes
and the optimisation of contractor usage mitigated an increase in
strip ratio (FY19: 4.5, FY18: 4.0) and a temporary decline in product
yield.
Manganese alloy operating unit costs increased by fi ve per cent to
US$947/t as raw material input costs rose and our TEMCO smelter
produced lower volumes. We continue to review options for our
manganese alloy smelters as changes in market dynamics have
reduced the attractiveness of our exposure and we will update the
market in due course.
Financial performance
Underlying EBIT decreased by two per cent (or US$13 million)
in FY19 to US$638 million as lower realised alloy prices
(-US$18 million) and a rise in diesel, coke and freight costs
(-US$13 million) were only partially off set by a weaker Australian
dollar (+US$20 million) and lower maintenance contractor costs at
GEMCO (+US$6 million).
Our average realised price for external sales of Australian ore was
in line with the high-grade 44 per cent manganese lump ore index
in FY19, despite the 40 per cent grade PC02 product contributing
10 per cent to the sales mix (FY18: nine per cent).
Capital expenditure
Sustaining capital expenditure increased by US$17 million in FY19
to US$65 million (including US$6 million for alloys).
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
33
OPERATING AND FINANCIAL REVIEW SOUTH AFRICA MANGANESE
(ORE 44.4% SHARE, ALLOY 60% SHARE)
South Africa Manganese comprises Hotazel Manganese Mines in
the Kalahari Basin and Metalloys Manganese Smelter in Meyerton.
South32 share
Manganese ore production (kwmt)
Manganese alloy production (kt)
Manganese ore sales (kwmt)
External customers
Metalloys
Manganese alloy sales (kt)
Realised external manganese ore sales
price (US$/dmtu, FOB)(1)(2)
Realised manganese alloy sales price
(US$/t)
Ore operating unit cost (US$/dmtu)(2)(3)
Alloy operating unit cost (US$/t)(3)
FY19
2,187
69
2,113
1,990
123
73
FY18
2,145
79
2,082
1,919
163
67
5.57
5.21
1,068
2.69
1,178
2.53
970
(1) Volumes and prices do not include any third party trading that may be undertaken
independently of equity production. Realised ore prices are calculated as external
sales Revenue less freight and marketing costs, divided by external sales volume.
Ore converted to alloy, and sold externally, is eliminated as an intracompany
transaction. Manganese ore sales are grossed up to refl ect a 60 per cent
accounting eff ective interest.
(2) Manganese South Africa FY19 average manganese content of external ore
sales was 40.5 per cent on a dry basis (FY18: 39.9 per cent). 74 per cent of FY19
external manganese ore sales (FY18: 70 per cent) were completed on a CIF basis.
FY19 realised FOB ore prices and operating costs have been adjusted for freight
and marketing costs of US$40 million (FY18: US$33 million), consistent with our
FOB cost guidance.
(3) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and
marketing costs, divided by ore sales volume. Alloy operating unit cost is Revenue
less Underlying EBITDA, excluding third party sales, divided by alloy sales volume.
Volumes
South Africa Manganese saleable ore production increased by
two per cent (or 42kwmt) to 2,187kwmt in FY19 as productivity
improvements at our high-grade Wessels mine delivered
an increase in premium material. Manganese alloy saleable
production decreased by 13 per cent (or 10kt) to 69kt in FY19.
South32 share (US$M)
FY19
FY18
Revenue(1)
Manganese ore(2)
Manganese alloy
Intra-segment elimination
Underlying EBITDA
Manganese ore(2)
Manganese alloy
Underlying EBIT
Manganese ore(2)
Manganese alloy
Net operating assets
Manganese ore(2)
Manganese alloy
1,269
Capital expenditure
All other capital expenditure
553
488
78
(13)
215
223
(8)
188
205
(17)
312
253
59
30
30
503
436
85
(18)
215
195
20
186
175
11
297
234
63
17
17
(1) Revenues associated with sales from Hotazel Manganese Mines (HMM) to
Metalloys are eliminated as part of the consolidation.
(2) Consistent with the presentation of South32’s segment information, South Africa
Manganese ore production and sales have been reported at 60 per cent. South32
has a 44.4 per cent ownership interest in HMM. 26 per cent of HMM is owned
by a B-BBEE consortium comprising Ntsimbintle Mining (nine per cent), NCAB
Resources (seven per cent), Iziko Mining (fi ve per cent) and HMM Education Trust
(fi ve per cent). The interests owned by NCAB Resources, Iziko Mining and HMM
Education Trust were acquired using vendor fi nance with the loans repayable via
distributions attributable to these parties, pro rata to their share in HMM. Until
these loans are repaid, South32’s interest in HMM is accounted at 54.6 per cent.
Operating costs
FOB manganese ore operating unit costs increased by
six per cent in FY19 to US$2.69/dmtu. Higher price-linked royalties
combined with an increase in workforce activity and the use
of higher cost trucking to take advantage of strong market
conditions, more than off set the eff ect of a weaker South African
rand.
Manganese alloy operating unit costs increased by 21 per cent
to US$1,178/t as an unfavourable movement in inventory and
higher labour costs more than off set higher sales volumes from
our Metalloys smelter. We continue to review options for our
manganese alloy smelters as changes in market dynamics have
reduced the attractiveness of our exposure and we will update the
market in due course.
Financial performance
Underlying EBIT increased by US$2 million in FY19 to
US$188 million as higher ore sales volumes (+US$35 million) and
a weaker South African rand (+US$24 million) were largely off set
by lower realised alloy prices (-US$14 million), an increase in costs
associated with opportunistic trucking of ore (-US$10 million), an
unfavourable movement in alloy inventory (-US$10 million), lower
other income (-US$10 million) and higher labour costs
(-US$9 million).
Our average realised price for external sales of South African ore
refl ects the medium grade 37 per cent manganese lump ore
index (FOB Port Elizabeth, South Africa) in FY19 as we increased
production of premium material, reducing the contribution of our
lower quality fi nes product (FY19: six per cent, FY18: 13 per cent).
Capital expenditure
Sustaining capital expenditure increased by US$13 million in FY19
to US$30 million (including US$6 million for alloys).
34
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW OTHER METALS BUSINESS
CERRO MATOSO
(99.9% SHARE)
CANNINGTON
(100% SHARE)
Cerro Matoso is a producer of ferronickel and has been operating
for more than 30 years in Colombia.
Cannington is a silver, lead and zinc mining and processing
operation in North-West Queensland.
South32 share
Ore mined (kwmt)
Ore processed (kdmt)
Ore grade processed (%, Ni)
Payable nickel production (kt)
Payable nickel sales (kt)
Realised nickel sales price (US$/lb)
Operating unit cost (US$/lb)(1)
Operating unit cost (US$/t)(2)
FY19
2,278
2,738
1.66
41.1
41.2
5.38
3.99
132
FY18
3,741
2,722
1.79
43.8
43.3
5.86
3.67
129
(1) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
(2) Operating unit cost per tonne is Revenue less Underlying EBITDA divided by
ore processed. Periodic movements in fi nished product inventory may impact
operating unit costs as related marketing costs may change.
Volumes
Cerro Matoso payable nickel production decreased by
six per cent (or 2.7kt) to 41.1kt in FY19 following a planned
increase in the contribution of lower grade stockpiled ore feed.
South32 share (US$M)
FY19
FY18
Revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
All other capital expenditure
Exploration expenditure
Exploration expensed
489
127
40
479
32
32
10
8
559
209
120
551
22
22
9
8
Operating costs
Operating unit costs increased by nine per cent in FY19 to
US$3.99/lb. The impact of lower production, increased contractor
and maintenance spend and costs arising from the Constitutional
Court of Colombia ruling more than off set a weaker Colombian
peso and energy procurement and usage optimisations intended
to partially mitigate infl ationary cost pressure.
Financial performance
Underlying EBIT decreased by US$80 million in FY19 to
US$40 million as the lower average realised nickel price
(-US$45 million), sales volumes (-US$25 million) and higher
maintenance expenditure (-US$10 million), were partially off set by
a weaker Colombian peso (+US$18 million).
Capital expenditure
Sustaining capital expenditure increased by US$10 million in FY19
to US$32 million.
South32 share
Ore mined (kwmt)
Ore processed (kdmt)
Ore grade processed (g/t, Ag)
Ore grade processed (%, Pb)
Ore grade processed (%, Zn)
Zinc equivalent production (kt)(1)
Payable silver production (koz)
Payable lead production (kt)
Payable zinc production (kt)
Payable silver sales (koz)
Payable lead sales (kt)
Payable zinc sales (kt)
Realised silver sales price (US$/oz)
Realised lead sales price (US$/t)
Realised zinc sales price (US$/t)
Operating unit cost (US$/t ore processed)(2)
FY19
2,725
2,495
184
5.0
3.0
193.6
12,201
101.4
51.6
13,034
101.5
47.6
14.4
1,754(3)
2,122(3)
123(3)
FY18
2,463
2,355
194
5.3
2.6
187.2
12,491
104.4
41.3
11,985
97.9
45.0
16.6
2,463
3,185
150
(1) Payable zinc equivalent (kt) was calculated by aggregating revenues from payable
silver, lead and zinc, and dividing the total Revenue by the price of zinc. FY18
realised prices for zinc (US$3,185/t), lead (US$2,463/t) and silver (US$16.6/oz) have
been used for FY18 and FY19.
(2) Operating unit cost is Revenue less Underlying EBITDA divided by ore processed.
Periodic movements in fi nished product inventory may impact operating unit costs.
(3) The FY19 results refl ect the Group’s adoption of AASB 15, with revenue recognised
net of treatment and refi ning charges (previously recognised on a gross basis with
treatment and refi ning charges included as a separate expense).
Volumes
Cannington payable zinc equivalent production increased by
three per cent (or 6.4kt) to 193.6kt in FY19 as improved
productivity underground supported higher mill throughput and
zinc grades improved in accordance with our expectations.
South32 share (US$M)
FY19
FY18
Revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
All other capital expenditure
Exploration expenditure
Exploration expensed
467
161
104
243
55
55
4
3
584
230
183
210
51
51
3
2
Operating costs
Operating unit costs decreased by 18 per cent to US$123/t in
FY19 as the adoption of AASB 15, which aff ects the accounting
classifi cation of treatment and refi ning charges, reduced costs by
US$19/t. A weaker Australian dollar and lower power costs following
the renegotiation of a supply contract provided a further benefi t,
off setting additional haulage costs incurred as a result of signifi cant
fl oods in North Queensland during the March 2019 quarter.
Financial performance
Underlying EBIT decreased by 43 per cent (or US$79 million)
in FY19 to US$104 million as lower average realised prices
(-US$107 million) and higher labour (-US$11 million) and freight
(-US$6 million) costs were partially off set by an increase in sales
volumes (+US$34 million) and a weaker Australian dollar
(+US$23 million).
Capital expenditure
Sustaining capital expenditure increased by US$4 million in FY19 to
US$55 million.
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
35
OPERATING AND FINANCIAL REVIEW THIRD PARTY PRODUCT SALES
OUTLOOK
The Group diff erentiates the sale of its production from the sale of
third party products due to a significant diff erence in profit margin
earned on these sales. The table below shows the breakdown
between the Group’s production and third party products:
US$M
Group production
Revenue
Related operating costs (net of other
income)
Group production Underlying EBIT
Margin on Group production
Third party products
Revenue
Related operating costs (net of other
income)
Third party Underlying EBIT
Margin on third party products
FY19
FY18
6,468
6,682
(5,483)
(5,424)
985
15.2%
1,258
18.8%
806
867
(801)
5
0.6%
(842)
25
2.9%
The Group engages in third party trading for the following
reasons:
■
To ensure a consistent supply of materials to its customers;
■ As a result of production variability and occasional shortfalls
■
from the Group’s operations; and
To enhance value through product blending and supply chain
optimisation.
This report contains forward-looking statements. While these
forward-looking statements refl ect South32’s expectations at
the date of this report, they are not guarantees or predictions of
future performance or statements of fact. They involve known
and unknown risks and uncertainties, which may cause actual
results to diff er materially from those expressed in the statements
contained in this Annual Report. For further information regarding
South32’s approach to risk, please see page 18 of this Annual
Report.
South32 makes no representation, assurance or guarantee as
to the accuracy or likelihood or fulfi lment of any forward-looking
statement or any outcomes expressed or implied in any forward-
looking statement. Except as required by applicable laws or
regulations, the South32 Group does not undertake to publicly
update or review any forward-looking statements, whether as
a result of new information or future events. Past performance
cannot be relied on as a guide to future performance.
Information on likely developments in the Group’s business
strategies, prospects and operations for future financial years and
the expected results that could result in unreasonable prejudice to
the Group (for example, information that is commercially sensitive,
confidential or could give a third party a commercial advantage)
has not been included below. The categories of information
omitted include forward-looking estimates and projections
prepared for internal management purposes, information
regarding the Group’s operations and projects, which are
developing and susceptible to change, and information relating to
commercial contracts.
PRODUCTION
The Group’s production volumes are expected to rise by
three per cent in FY20 (based on revenue-equivalent production
which assumes average realised prices remain unchanged from
FY19). Key guidance assumptions include:
■
■
Illawarra Metallurgical Coal returning to a three longwall
confi guration from H2 FY20;
South Africa Energy Coal recovering from the dragline incident
and commencing production from the Klipspruit Extension
Project;
■ An improvement in calciner availability at Worsley Alumina;
and
■ Brazil Alumina realising the full benefi ts of the De-
bottlenecking Phase One project following the introduction of
package boilers to improve the reliability in steam generation.
36
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW
Production guidance (South32’s share)(1)
FY19
FY20e(2)
FY21e(2) Key guidance assumptions
Worsley Alumina
FY20 guidance unchanged
Alumina production (kt)
3,795
3,965
3,965 Improvement in calciner availability and a drawdown of
excess hydrate.
Brazil Alumina (non-operated)
FY20 guidance decreased by three per cent
Alumina production (kt)
1,255
1,330
1,370 Ramp-up of package boilers installed in the June 2019
Hillside Aluminium
quarter expected to delay the realisation of benefi ts from the
De-bottlenecking Phase One project.
FY20 guidance unchanged (subject to load-shedding)
Aluminium production (kt)
715
720
720 Smelter to test its technical capacity following record FY19
production.
Mozal Aluminium
FY20 guidance unchanged (subject to load-shedding)
Aluminium production (kt)
267
273
273 AP3XLE energy effi ciency project to add incremental
Illawarra Metallurgical Coal
Total coal production (kt)
Metallurgical coal production (kt)
Energy coal production (kt)
Australia Manganese
6,647
5,350
1,297
7,000
5,800
1,200
production between FY20 and FY24.
FY20 guidance unchanged
8,000 Expected return to a three longwall confi guration during the
June 2020 quarter.
6,800
1,200
FY20 guidance provided for the fi rst time (subject to
market demand)
Manganese ore production (kwmt)
3,349
3,560 Subject to
demand
PC02 circuit to continue to operate above nameplate
capacity.
South Africa Manganese
FY20 guidance provided for the fi rst time (subject to
market demand)
Manganese ore production (kwmt)
2,187
2,100 Subject to
demand
Sales of lower quality fi nes product remain subject to market
demand.
Cerro Matoso
Ore to kiln (kt)
Payable nickel production (kt)
Cannington
Ore processed (kdmt)
Payable zinc equivalent
production (kt)(3)
Payable silver production (koz)
Payable lead production (kt)
Payable zinc production (kt)
South Africa Energy Coal
Total coal production (kt)
Domestic coal production (kt)
Export coal production (kt)
2,738
41.1
2,500
35.6
FY20 guidance unchanged
2,750 Planned furnace outage in the June 2020 quarter.
37.4
FY20 guidance increased by six per cent in payable zinc
equivalent production(3)
2,495
2,700
2,600 Silver, lead and zinc production revised higher to refl ect an
increase in mill throughput as we draw down inventory.
218.2
12,201
101.4
51.6
FY19
24,979
14,978
10,001
221.0
11,200
104.0
59.0
213.7
10,550
103.0
57.0
FY20e(2)
Key guidance assumptions
FY20 guidance decreased (previously 30.3Mt)
15,300 - 16,100
26,000 - 28,000 Recovery from the Klipspruit dragline incident and a planned
reduction in contractor activity at the WMC, as we respond to
the lower thermal coal price environment and adjust volumes
to maximise margins.
10,700 - 11,900
(1) South32’s ownership share of operations is as follows: Worsley Alumina (86 per cent share), Hillside Aluminium (100 per cent), Mozal Aluminium (47.1 per cent share), Brazil
Alumina (Alumina 36 per cent share, Aluminium 40 per cent share), South Africa Energy Coal (100 per cent until B-BBEE vendor loans are repaid), Illawarra Metallurgical Coal
(100 per cent), Australia Manganese (60 per cent share), South Africa Manganese (60 per cent share), Cerro Matoso (99.9 per cent share), Cannington (100 per cent), Hermosa
(100 per cent), and Eagle Downs Metallurgical Coal (50 per cent share).
(2) The denotation (e) refers to an estimate or forecast year.
(3) Payable zinc equivalent (kt) was calculated by aggregating revenues from payable silver, lead and zinc, and dividing the total revenue by the price of zinc. FY19 realised prices
for zinc (US$2,122/t), lead (US$1,754/t) and silver (US$14.4/oz) were used for FY19, FY20e and FY21e.
FY21 not provided subject to divestment
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
37
OPERATING AND FINANCIAL REVIEW
COSTS AND CAPITAL EXPENDITURE
Stronger production volumes, lower support costs following simplifi cation of the Group’s functional structures that are on track to deliver
US$50 million in annual savings, and the realisation of benefi ts from our labour, energy and materials usage are expected to combine
with a stronger US dollar to lower operating unit costs across the majority of our operations in FY20. While we do not provide unit cost
guidance for our downstream processing operations, the lagged eff ect of a reduction in raw material prices during H2 FY19 is expected
to provide some relief to the cost base of our aluminium smelters in FY20.
Group and unallocated costs of US$90 million are expected in FY20 as we increase functional support for our development projects and
invest in technology to support our operations. We also expect to capitalise US$30 million of expenditure on information technology
systems.
Operating unit cost guidance(1)(2)
FY18
FY19
FY20e(3)(4) Key guidance assumptions
Worsley Alumina
(US$/t)
235
238
230
Brazil Alumina (non-operated)
(US$/t)
252
270
Hillside Aluminium
(US$/t)
Mozal Aluminium
(US$/t)
1,826
2,045
1,810
2,026
Not
provided
Not
provided
Not
provided
Illawarra Metallurgical Coal
(US$/t)
142
94
97
Australia Manganese Ore (FOB)
(US$/dmtu)
1.63
1.59
1.60
Increased production, lower energy costs following the
renegotiation of legacy gas contracts and lower caustic soda
price assumptions.
Not provided but expected to benefi t from lower caustic soda
prices and a six per cent increase in production volumes.
Not provided but expected to benefi t from the lagged
eff ect of lower raw material input costs and the workforce
restructure completed in the June 2019 quarter.
Not provided but expected to benefi t from the lagged eff ect
of lower raw material input costs.
Increased production volumes and lower maintenance spend,
more than off set by the prior year benefi t from an agreement
to relinquish a portion of a Mining Lease on commercial
terms.
Equipment productivity gains and the PC02 circuit operating
above design capacity to off set a further planned increase in
strip ratio.
South Africa Manganese Ore (FOB)
Weaker South African rand and lower price-linked royalties.
(US$/dmtu)
Cerro Matoso
(US$/t)(5)
(US$/lb)
Cannington
(US$/t)(6)
2.53
2.69
2.44
129
3.67
132
3.99
128
4.00
150
123
119
Lower price-linked royalties and the continued benefi t of our
energy optimisation strategy to off set the impact of lower
production.
Higher mill throughput and lower haulage costs.
South Africa Energy Coal
(US$/t)
36
40
37-40
Weaker South African rand and a planned reduction in
contractor activity at the WMC.
(1) South32’s ownership share of operations is as follows: Worsley Alumina (86 per cent share), Hillside Aluminium (100 per cent), Mozal Aluminium (47.1 per cent share), Brazil
Alumina (Alumina 36 per cent share, Aluminium 40 per cent share), South Africa Energy Coal (100 per cent until B-BBEE vendor loans are repaid), Illawarra Metallurgical Coal
(100 per cent), Australia Manganese (60 per cent share), South Africa Manganese (60 per cent share), Cerro Matoso (99.9 per cent share), Cannington (100 per cent), Hermosa
(100 per cent), and Eagle Downs Metallurgical Coal (50 per cent share).
(2) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volume. Operating cost is Revenue less Underlying EBITDA excluding third
party sales.
(3) FY20 operating unit cost guidance includes royalties (where appropriate), the infl uence of exchange rates and includes various assumptions for FY20, including: an alumina
price of US$348/t; an average blended coal price of US$158/t for Illawarra Metallurgical Coal; a manganese ore price of US$5.64/dmtu for 44 per cent manganese product; a
nickel price of US$5.54/lb; a thermal coal price of US$69/t (API4) for South Africa Energy Coal; a silver price of US$15.82/troy oz; a lead price of US$1,921/t (gross of treatment
and refi ning charges); a zinc price of US$2,483/t (gross of treatment and refi ning charges); an AUD:USD exchange rate of 0.70; a USD:ZAR exchange rate of 15.06; a USD:COP
exchange rate of 3,112; and a reference price for caustic soda; all of which refl ected forward markets as at June 2019 or our internal expectations.
(4) The denotation (e) refers to an estimate or forecast year.
(5) US dollar per tonne of ore to kiln. Periodic movements in fi nished product inventory may impact operating unit costs.
(6) US dollar per tonne of ore processed. Periodic movements in fi nished product inventory may impact operating unit costs.
38
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
OPERATING AND FINANCIAL REVIEW CAPITAL EXPENDITURE
Sustaining capital expenditure, excluding equity accounted investments, is expected to rise by US$82 million to US$515 million as we
further increase underground development rates and expenditure on infrastructure improvements at Illawarra Metallurgical Coal in
support of a return to a three longwall confi guration, continue to invest in tailings storage capacity across our portfolio and commence
a major refurbishment of a furnace at Cerro Matoso. Sustaining capital expenditure associated with our equity accounted investments
is expected to be largely unchanged at US$90 million as we also continue to invest in additional tailings storage capacity at Australia
Manganese.
Major project capital expenditure is expected to increase by US$37 million to US$256 million in FY20 as we increase activity at the
Hermosa project and progress study work for the Eagle Downs Metallurgical Coal and Dendrobium Next Domain projects. South Africa
Energy Coal’s KPSX project is approximately 72 per cent complete and remains on schedule and budget for completion in FY21.
Capital expenditure guidance (South32’s share)(1)(2)
US$M
Worsley Alumina
Brazil Alumina
Hillside Aluminium
Mozal Aluminium
Illawarra Metallurgical Coal
Australia Manganese
South Africa Manganese
Cerro Matoso
Cannington
South Africa Energy Coal
Group and unallocated
Sustaining capital expenditure (including equity accounted investments)
Equity accounting adjustment(4)
Sustaining capital expenditure (excluding equity accounted investments)
Hermosa
Illawarra Metallurgical Coal – Dendrobium Next Domain
Eagle Downs Metallurgical Coal
South Africa Energy Coal
Major capital expenditure
Total capital expenditure (including equity accounted investments)
FY18
FY19
FY20e(3)
52
12
28
10
89
48
17
22
51
102
2
433
(65)
368
-
-
-
62
62
495
57
26
19
19
133
65
30
32
55
90
2
528
(95)
433
85
5
6
123
219
747
60
35
23
12
185
64
26
55
55
90
-
605
(90)
515
109
21
11
115
256
861
(1) South32’s ownership share of operations is as follows: Worsley Alumina (86 per cent share), Hillside Aluminium (100 per cent), Mozal Aluminium (47.1 per cent share), Brazil
Alumina (Alumina 36 per cent share, Aluminium 40 per cent share), South Africa Energy Coal (100 per cent until B-BBEE vendor loans are repaid), Illawarra Metallurgical Coal
(100 per cent), Australia Manganese (60 per cent share), South Africa Manganese (60 per cent share), Cerro Matoso (99.9 per cent share), Cannington (100 per cent), Hermosa
(100 per cent), and Eagle Downs Metallurgical Coal (50 per cent share).
(2) Total capital expenditure comprises capital expenditure, the purchase of intangibles and capitalised exploration expenditure. Capital expenditure comprises Sustaining capital
expenditure and Major projects capital expenditure. Sustaining capital expenditure comprises Stay-in-business (SIB), Minor discretionary and Deferred stripping (including
underground development) capital expenditure.
(3) The denotation (e) refers to an estimate or forecast year.
(4) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese operations to the treatment of the manganese operations on an equity
accounted basis.
EXPLORATION EXPENDITURE
Guidance for greenfi eld exploration expenditure to progress our early stage projects is US$30 million (FY19: US$34 million). We also
expect to capitalise US$25 million (FY19: US$18 million) of exploration expenditure at Hermosa to further increase our knowledge of the
Taylor deposit and the greater Hermosa land package.
DEPRECIATION AND AMORTISATION, AND TAX EXPENSE
Depreciation and amortisation (excluding equity accounted investments) is expected to reduce to approximately US$735 million
(FY19: US$757 million) following the recognition of impairment charges for South Africa Energy Coal during the period. Depreciation and
amortisation of US$95 million (FY19: US$87 million) is expected for our equity accounted investments. Guidance includes the impact from
adopting the new AASB 16 accounting standard from 1 July 2019.
Our geographical earnings mix continues to have a signifi cant bearing on our ETR given diff ering country tax rates, while the impact of
permanent diff erences is magnifi ed when margins are compressed. Although it is diffi cult to predict our ETR (excluding equity accounted
investments), we do expect it to remain at elevated levels in FY20 (FY19: 37.8 per cent) should the compressed margins within our
African aluminium operations persist. In addition, the de-recognition of tax assets in South Africa Energy Coal will further increase the
Group’s ETR should the operation make losses in FY20.
SOUTH32 > ANNUAL REPORT 2019 > OPERATING AND FINANCIAL REVIEW
39
OPERATING AND FINANCIAL REVIEW RESOURCES AND RESERVES
RESOURCES AND RESERVES
OUR GOVERNANCE ARRANGEMENTS
OUR GOVERNANCE ARRANGEMENTS
AND INTERNAL CONTROLS
AND INTERNAL CONTROLS
We have internal standards and governance arrangements
We have internal standards and governance arrangements
that cover regulatory requirements for public reporting. Our
that cover regulatory requirements for public reporting. Our
governance processes are managed by the Mining Governance
governance processes are managed by the Mining Governance
function in coordination with the Company Secretariat function.
function in coordination with the Company Secretariat function.
By doing this, we’re making sure our public reporting is correct
By doing this, we’re making sure our public reporting is correct
and accurate.
and accurate.
Our comprehensive review and audit program is aimed at
Our comprehensive review and audit program is aimed at
assuring our Mineral Resources and Ore Reserves estimates. This
assuring our Mineral Resources and Ore Reserves estimates. This
includes:
includes:
■ Annual review of Mineral Resources and Ore Reserves
■ Annual review of Mineral Resources and Ore Reserves
declarations and reports;
declarations and reports;
■ Annual review of reconciliation performance metrics for
■ Annual review of reconciliation performance metrics for
operating mines;
operating mines;
■ Periodic internal mine planning and Ore Reserve audits; and
■ Periodic internal mine planning and Ore Reserve audits; and
■
■
Independent audit of Mineral Resources or Ore Reserves that
Independent audit of Mineral Resources or Ore Reserves that
are new or have materially changed.
are new or have materially changed.
In FY19, we undertook one independent assurance audit of
In FY19, we undertook one independent assurance audit of
Mineral Resources and three internal mine planning and Ore
Mineral Resources and three internal mine planning and Ore
Reserve assurance audits. The frequency and scope of the audits
Reserve assurance audits. The frequency and scope of the audits
are a function of the perceived risks and uncertainties associated
are a function of the perceived risks and uncertainties associated
with a particular Mineral Resource and Ore Reserve.
with a particular Mineral Resource and Ore Reserve.
The accompanying tables outline our Mineral/Coal Resources and
The accompanying tables outline our Mineral/Coal Resources and
Ore/Coal Reserves holdings.
Ore/Coal Reserves holdings.
As required by Chapter 5 of the ASX Listing Rules,
As required by Chapter 5 of the ASX Listing Rules,
we report Mineral Resources and Ore Reserves
we report Mineral Resources and Ore Reserves
(including Coal Resources and Coal Reserves) in
(including Coal Resources and Coal Reserves) in
accordance with the 2012 Edition of the Australasian
accordance with the 2012 Edition of the Australasian
Code for Reporting of Exploration Results, Mineral
Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves (the JORC Code).
Resources and Ore Reserves (the JORC Code).
In this report, information relating to Mineral Resources and Ore
In this report, information relating to Mineral Resources and Ore
Reserves is based on, and fairly represents, information and
Reserves is based on, and fairly represents, information and
supporting documentation prepared by our Competent Persons.
supporting documentation prepared by our Competent Persons.
A Competent Person is defi ned in the JORC Code, they have
A Competent Person is defi ned in the JORC Code, they have
suffi cient experience relevant to the style of mineralisation,
suffi cient experience relevant to the style of mineralisation,
the type of deposit under consideration and the activity being
the type of deposit under consideration and the activity being
undertaken.
undertaken.
Each of our Competent Persons has given consent to the inclusion
Each of our Competent Persons has given consent to the inclusion
of the information in this report in the form and context in which
of the information in this report in the form and context in which
it appears. You can fi nd more details on each of their professional
it appears. You can fi nd more details on each of their professional
affi liations, employer and areas of accountability on page 42.
affi liations, employer and areas of accountability on page 42.
Unless we state otherwise, all Competent Persons listed are full-
Unless we state otherwise, all Competent Persons listed are full-
time employees at South32, or at one of our related entities.
time employees at South32, or at one of our related entities.
We report Mineral Resources and Ore Reserves in 100 per cent
We report Mineral Resources and Ore Reserves in 100 per cent
terms and represent estimates as at 30 June 2019. Our Mineral
terms and represent estimates as at 30 June 2019. Our Mineral
Resource estimations include Measured and Indicated Mineral
Resource estimations include Measured and Indicated Mineral
Resources which, after the application of all Modifying Factors,
Resources which, after the application of all Modifying Factors,
and development of a mine plan, have been classifi ed as Ore
and development of a mine plan, have been classifi ed as Ore
Reserves.
Reserves.
We report all quantities as dry metric tonnes (unless we state
We report all quantities as dry metric tonnes (unless we state
otherwise).
otherwise).
It’s important to note that Mineral Resources and Ore Reserves
It’s important to note that Mineral Resources and Ore Reserves
are estimations, not precise calculations. We’ve rounded tonnes
are estimations, not precise calculations. We’ve rounded tonnes
and grade information to refl ect the relative uncertainty of the
and grade information to refl ect the relative uncertainty of the
estimate, which is why computational diff erences may be present
estimate, which is why computational diff erences may be present
in the totals.
in the totals.
Our long-range forecasts are the basis for the commodity prices
Our long-range forecasts are the basis for the commodity prices
and exchange rates used to estimate the economic viability of Ore
and exchange rates used to estimate the economic viability of Ore
Reserves.
Reserves.
Our Ore Reserves are within existing, permitted mining tenements.
Our Ore Reserves are within existing, permitted mining tenements.
Our mineral leases are of suffi cient duration, or, convey a legal
Our mineral leases are of suffi cient duration, or, convey a legal
right to renew the tenure, to enable all Ore Reserves on the
right to renew the tenure, to enable all Ore Reserves on the
leased properties to be mined in accordance with the current
leased properties to be mined in accordance with the current
production schedules. These Ore Reserves may include areas
production schedules. These Ore Reserves may include areas
where additional approvals are required, and it’s expected that
where additional approvals are required, and it’s expected that
such approvals will be obtained within the timeframe needed for
such approvals will be obtained within the timeframe needed for
the current production schedule.
the current production schedule.
40
40
40
SOUTH32 > ANNUAL REPORT 2019 > RESOURCES AND RESERVES
SOUTH32 > ANNUAL REPORT 2019 > RESOURCES AND RESERVES
SOUTH32 > ANNUAL REPORT 2019 > RESOURCES AND RESERVES
RESOURCES AND RESERVES AT A GLANCE - RESOURCES AND RESERVES (AS AT 30 JUNE 2019)
Operations and development options
Worsley Alumina
Brazil Alumina
South Africa Energy Coal(2)(3)
Eagle Downs(4)
Illawarra Metallurgical Coal(2)(3)
Cerro Matoso
Australia Manganese
South Africa Manganese(3)
Cannington
Taylor
Total Ore/
Coal Reserve
(Mt)
Reserve Life
Years(1)
Total Mineral/
Coal Resource
(Mt)
270
44
510
107
32
65
130
21
15
2.7
26
19
10
6.4
58
12
1,190
494
4,970
1,080
1,240
312
162
235
85
155
(1) Scheduled extraction period in years for the Total Ore Reserves in the approved Life of Operation Plan.
(2) Coal Reserves in this table are presented as Marketable Coal Reserves. Process recoveries are reported in the following detailed disclosures for each Coal operation.
(3) Reserve Life for Illawarra Coal, South Africa Manganese and South Africa Energy Coal is reported as the life of scheduled Ore/Coal Reserves for Bulli seam, Wessels and
Klipspruit respectively. The Reserve Life for the remaining operations are stated in the following detailed disclosures.
(4) Metallurgical coal development option reported for the fi rst time.
OUR EXPLORATION, RESEARCH
AND DEVELOPMENT
In our operations, we carry out the necessary exploration, research
and development to support our activities. Our brownfi eld
exploration activities target the delineation and categorisation of
mineral deposits connected or adjacent to our existing operations.
Our greenfi eld exploration activities focus on the discovery and
delineation of opportunities outside of our operational footprint,
with a bias to base metals.
During FY19, we expanded our global exploration footprint;
we funded greenfi eld exploration in Australia, Peru, Colombia,
Sweden, Mexico and the United States. Our exploration
expenditure for FY19 was US$76 million (FY18: US$41.3 million)
of which US$42 million related to brownfi eld and US$34 million
related to greenfi eld (FY18: US$20.0 million and US$23.1 million
respectively).
FOREIGN ESTIMATE
The information that relates to estimates of Mineral Resources for
the Clark Deposit (formerly the Central Deposit) of the Hermosa
project is a foreign estimate under ASX Listing Rules and is not
reported in accordance with the JORC Code.
We are not in possession of any new information or data relating
to that foreign estimate that materially impacts the reliability
of the estimate, nor do we have the ability to verify the foreign
estimate as a Mineral Resource in accordance with the JORC
Code. The supporting information contained in the clarifying
statement in the market announcement 'South32 to acquire
Arizona Mining in agreed all cash off er' dated 18 June 2018
continues to apply and has not materially changed.
Our Competent Persons have not done suffi cient work to classify
the foreign estimate as a Mineral Resource or Ore Reserve in
accordance with the JORC Code. It is uncertain that following
evaluation and further exploration we will be able to report
the foreign estimate as a Mineral Resource or Ore Reserve in
accordance with the JORC Code. During FY20 we will commence
a work program to increase confi dence in the resource to ensure
that resources are reported in accordance with the JORC Code.
SOUTH32 > ANNUAL REPORT 2019 > RESOURCES AND RESERVES
41
RESOURCES AND RESERVES COMPETENT PERSONS
MINERAL RESOURCES
WORSLEY: P Soodi Shoar, MAusIMM; J Binoir, MAusIMM;
R Brown, MAusIMM, employed by SRK Consulting (Australasia)
Pty Ltd
MINERAÇÃO RIO DO NORTE: M A H Monteiro, MAusIMM,
employed by Mineração Rio do Norte S.A.
GEMCO: J Harvey, MAusIMM; D Hope, MAusIMM
WESSELS & MAMATWAN: E P Ferreira, Pri. Sci. Nat., SACNASP;
F T Rambuda, Pri. Sci. Nat., SACNASP
CERRO MATOSO: I Espitia, MAusIMM
CANNINGTON: P Boamah, MAusIMM
TAYLOR: M Readford, MAusIMM (CP)
ORE RESERVES
WORSLEY: G Burnham, MAusIMM
MINERAÇÃO RIO DO NORTE: C J da Silva, MAusIMM, employed
by Mineração Rio do Norte S.A.
GEMCO: U Sandilands, MAusIMM
WESSELS & MAMATWAN: J Lamprecht, Pri. Sci. Nat., SACNASP,
employed by Deswik Mining Consultants (Pty) Ltd
CERRO MATOSO: N Monterroza, MAusIMM
CANNINGTON: T Curypko, MAusIMM (CP)
COAL RESOURCES
LEANDRA & NAUDESBANK: S Nzama, Pri. Sci. Nat., SACNASP
KHUTALA: S Ramluggan, Pri. Sci. Nat., SACNASP
WOLVEKRANS MIDDELBURG COMPLEX: S Kara, Pri. Sci. Nat.,
SACNASP; L Visser, Pri. Sci. Nat., SACNASP
KLIPSPRUIT: J Conradie, Pri. Sci. Nat., SACNASP, MGSSA
PEGASUS & DAVEL: P Maseko, Pri. Sci. Nat., SACNASP
BULLI & WONGAWILLI: J Gale, MAusIMM
EAGLE DOWNS: M Blaik, MAusIMM, employed by JB Mining
Services Pty Ltd
COAL RESERVES
KHUTALA & KLIPSPRUIT: P Mulder, MSAIMM
WOLVEKRANS MIDDELBURG COMPLEX: P Mulder, MSAIMM;
Z Smith, MSAIMM
BULLI & WONGAWILLI: M Rose, MAusIMM
42
SOUTH32 > ANNUAL REPORT 2019 > RESOURCES AND RESERVES
RESOURCES AND RESERVES s
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(
SOUTH32 > ANNUAL REPORT 2019 > RESOURCES AND RESERVES
49
RESOURCES AND RESERVES
REMUNERATION REPORT
REMUNERATION REPORT
LETTER FROM OUR REMUNERATION
LETTER FROM OUR REMUNERATION
COMMITTEE CHAIR
COMMITTEE CHAIR
Dear Shareholders
Dear Shareholders
On behalf of the Board, I’m pleased to present the Remuneration
On behalf of the Board, I’m pleased to present the Remuneration
Report for the year ended 30 June 2019.
Report for the year ended 30 June 2019.
Our aim in preparing this report is to ensure that our shareholders
Our aim in preparing this report is to ensure that our shareholders
and stakeholders better understand our approach to
and stakeholders better understand our approach to
remunerating Executives. This includes the key principles we use
remunerating Executives. This includes the key principles we use
to determine our Reward Framework and ensure our Executives
to determine our Reward Framework and ensure our Executives
are focused on delivering long-term shareholder value consistent
are focused on delivering long-term shareholder value consistent
with our purpose and strategy.
with our purpose and strategy.
The Board endeavours to fi nd the right balance between
The Board endeavours to fi nd the right balance between
remuneration that attracts and incentivises management, while
remuneration that attracts and incentivises management, while
refl ecting business performance and shareholder returns. This can
refl ecting business performance and shareholder returns. This can
be challenging, particularly in relation to Long-Term Incentive (LTI)
be challenging, particularly in relation to Long-Term Incentive (LTI)
plans where there is greater variability of outcomes.
plans where there is greater variability of outcomes.
During FY19, we initiated a review of our Executive Reward
During FY19, we initiated a review of our Executive Reward
Framework, which will continue into FY20 and will include
Framework, which will continue into FY20 and will include
consultation with our shareholders. As this work is ongoing, we
consultation with our shareholders. As this work is ongoing, we
have not made any material changes to our approach to Executive
have not made any material changes to our approach to Executive
reward in FY19.
reward in FY19.
Short-Term Incentives
Short-Term Incentives
The intent of the Short-Term Incentive (STI) is to focus our
The intent of the Short-Term Incentive (STI) is to focus our
Executives on what they can infl uence in the performance year.
Executives on what they can infl uence in the performance year.
In FY19, our Total Recordable Injury Frequency (TRIF) improved
In FY19, our Total Recordable Injury Frequency (TRIF) improved
by 12 per cent. We also saw a 12 per cent reduction in material
by 12 per cent. We also saw a 12 per cent reduction in material
occupational exposures year-on-year. In line with our aim to
occupational exposures year-on-year. In line with our aim to
create value through our environmental and social leadership,
create value through our environmental and social leadership,
we continued to implement our approach to climate change and
we continued to implement our approach to climate change and
focus on improving our social performance.
focus on improving our social performance.
While we had strong overall operating performance, including
While we had strong overall operating performance, including
record production at Hillside Aluminium and a 57 per cent
record production at Hillside Aluminium and a 57 per cent
increase in volumes at Illawarra Metallurgical Coal, controllable
increase in volumes at Illawarra Metallurgical Coal, controllable
costs were short of target and the impact of lower production
costs were short of target and the impact of lower production
volumes at South Africa Energy Coal and Worsley Alumina
volumes at South Africa Energy Coal and Worsley Alumina
resulted in the Adjusted ROIC metric falling short of target.
resulted in the Adjusted ROIC metric falling short of target.
Good progress was made reshaping and improving our portfolio,
Good progress was made reshaping and improving our portfolio,
including completing the acquisition of Arizona Mining and a
including completing the acquisition of Arizona Mining and a
50 per cent interest in the Eagle Downs Metallurgical Coal project,
50 per cent interest in the Eagle Downs Metallurgical Coal project,
advancing the divestment of South Africa Energy Coal and
advancing the divestment of South Africa Energy Coal and
announcing the review of our manganese alloys businesses.
announcing the review of our manganese alloys businesses.
On balance, our Board resolved that Executives would receive STI
On balance, our Board resolved that Executives would receive STI
outcomes for FY19 ranging from 53 per cent to 64 per cent of
outcomes for FY19 ranging from 53 per cent to 64 per cent of
maximum.
maximum.
Long-Term Incentives
Long-Term Incentives
Our LTI aligns our Executives to the experience of our
Our LTI aligns our Executives to the experience of our
shareholders and encourages the building of long-term value.
shareholders and encourages the building of long-term value.
The fi rst South32 LTI award granted to our Executives, the FY16
The fi rst South32 LTI award granted to our Executives, the FY16
LTI, was tested for performance to 30 June 2019. Our strong Total
LTI, was tested for performance to 30 June 2019. Our strong Total
Shareholder Return (TSR) performance of 84 per cent over the
Shareholder Return (TSR) performance of 84 per cent over the
four year vesting period has meant that all equity from this fi rst
four year vesting period has meant that all equity from this fi rst
grant vested in August 2019. The 66 per cent growth in our share
grant vested in August 2019. The 66 per cent growth in our share
price over the same period has also contributed to a substantial
price over the same period has also contributed to a substantial
increase in the value of this award at vesting, resulting in a
increase in the value of this award at vesting, resulting in a
material uplift to year-on-year Actual Pay.
material uplift to year-on-year Actual Pay.
This year also sees the vesting of the last awards granted to
This year also sees the vesting of the last awards granted to
replace unvested BHP awards at the time of the Demerger in
replace unvested BHP awards at the time of the Demerger in
2015. The Replacement BHP Awards for Graham Kerr and Mike
2015. The Replacement BHP Awards for Graham Kerr and Mike
Fraser, which have a fi ve year vesting period, were eligible to
Fraser, which have a fi ve year vesting period, were eligible to
partially vest, based on the strong performance of our TSR.
partially vest, based on the strong performance of our TSR.
Following discussions between the Board and Graham, Graham
Following discussions between the Board and Graham, Graham
has volunteered to waive 100 per cent of his Replacement Award.
has volunteered to waive 100 per cent of his Replacement Award.
Mike also agreed to waive 50 per cent of his Replacement Award.
Mike also agreed to waive 50 per cent of his Replacement Award.
Our Board approved these outcomes and is satisfi ed that these
Our Board approved these outcomes and is satisfi ed that these
adjustments result in remuneration at levels aligned to the
adjustments result in remuneration at levels aligned to the
South32 Reward Framework and philosophy.
South32 Reward Framework and philosophy.
Looking Forward
Looking Forward
There are no material changes to the Reward Framework for
There are no material changes to the Reward Framework for
Executives for FY20.
Executives for FY20.
Executives will receive an increase to Fixed Remuneration for
Executives will receive an increase to Fixed Remuneration for
FY20 of 1.2 to 2.5 per cent, which is in line with increases for our
FY20 of 1.2 to 2.5 per cent, which is in line with increases for our
Australia-based employees. Graham will receive an increase of
Australia-based employees. Graham will receive an increase of
2.5 per cent, which is the fi rst increase for him since FY15.
2.5 per cent, which is the fi rst increase for him since FY15.
The base fees for the Non-Executive Directors will increase by
The base fees for the Non-Executive Directors will increase by
2.3 per cent.
2.3 per cent.
There has been, and will continue to be, an evolution in the world
There has been, and will continue to be, an evolution in the world
of executive pay due to changing community and shareholder
of executive pay due to changing community and shareholder
expectations, corporate learnings, regulatory reviews and
expectations, corporate learnings, regulatory reviews and
academic research. As such, we will continue the review of our
academic research. As such, we will continue the review of our
Reward Framework in FY20 and will outline any changes in
Reward Framework in FY20 and will outline any changes in
approach in next year’s report.
approach in next year’s report.
To our shareholders, thank you for your ongoing support.
To our shareholders, thank you for your ongoing support.
Wayne Osborn
Wayne Osborn
Chair, Remuneration Committee
Chair, Remuneration Committee
50
50
50
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT FY19 AT A GLANCE
Four-Year
Total Shareholder
Return(1)
84%
Underlying EBIT
1,440
US$ million
Total
Recordable Injury
Frequency
12%
reduction
TOTAL SHAREHOLDER RETURN (TSR)
Diagram 1.1 South32 TSR relative to comparator groups
Diagram 1.2 South32 TSR relative to major indices
150%
100%
50%
0%
-50%
150%
100%
50%
0%
-50%
FY16
FY17
FY18
FY19
FY16
FY17
FY18
FY19
World Index
Sector Index
South32
S&P500
FTSE100
ASX100
South32
(1) One-month average TSR June to June.
OVERVIEW OF BUSINESS PERFORMANCE
The following table outlines historic business performance outcomes.
Table 1.1 Business performance
Jul-15
Jul-16
Jul-17
Jul-18
Jul-15
Jul-16
Jul-17
Jul-18
Performance measures
Underlying EBIT (US$M)(2)
Underlying earnings (US$M)(2)
Closing net cash/(debt) (US$M)
Movement in adjusted ROIC (percentage point)(3)
Closing share price on 30 June (A$)(4)
Dividends/special dividends (US cents per share)
TRIF (per million hours worked)
FY19
1,440
992
504
(1.4)
3.18
13.0
4.5
FY18
1,774
1,327
2,041
(6.8)
3.61
13.7
5.1
FY17
1,648
1,146
1,640
(1.1)
2.68
4.6
6.0
FY16
356
138
312
1.8
1.54
-
7.7
FY15
(pro forma)(1)
1,001
575
(402)
n/a
1.79
-
5.8
(1) South32’s pro-forma FY15 result. To assist shareholders in their understanding of the South32 Group, pro forma financial information for FY15 was prepared to reflect the
business as it was structured and as though it was in eff ect for the period 1 July 2014 to 30 June 2015. The pro forma financial information was not prepared in accordance
with IFRS consistent with previous periods.
(2) The Underlying EBIT and Underlying earnings are not prepared in accordance with IFRS. Refer to page 89 of the Annual Report for a reconciliation to statutory earnings.
(3) The movement in adjusted ROIC is by reference to the previous performance period and removes the eff ect of changes in commodity prices, commodity price linked costs,
market traded consumables, foreign exchange rates and movements in the Group’s Eff ective Tax Rate (ETR), divided by the sum of fi xed assets (excluding any rehabilitation
asset, the impairment of South Africa Energy Coal and unproductive capital associated with Major projects).
(4) South32’s share price on 25 May 2015 (date of Demerger) was A$2.32.
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
51
REMUNERATION REPORT EXECUTIVE REMUNERATION FOR FY19 ALIGNED TO PERFORMANCE
KEY MANAGEMENT
PERSONNEL (KMP)
CHANGES
FIXED
REMUNERATION
STI
In May 2019, Katie Tovich was appointed as Chief Financial Offi cer, succeeding
Brendan Harris who served in this role since Demerger.
See page 15 for details
on our Lead Team
Brendan is moving into the role of Chief Marketing Offi cer. As this is a
non-KMP role, he ceased to be KMP from 1 May 2019.
There was no increase to the CEO's Fixed Remuneration in FY19.
Fixed Remuneration for other Executive KMP increased modestly in FY19.
The focus of our STI is to refl ect how management performed during the fi nancial
year. This means we exclude the impact of commodity price and foreign exchange.
STI outcomes for FY19 have been assessed as below target. While safety
performance has improved and key strategic measures delivered, we did not meet
production and cost guidance at key operations, which impacted the fi nancial
metrics of our Scorecard.
For FY19 Executive KMP STI outcomes varied from 53 per cent to 64 per cent of
maximum.
See page 57 for details
on our FY19 Fixed
Remuneration
See page 58 for details
on our STI outcomes
SOUTH32 LTI
The fi rst awards we granted under our four-year LTI Plan reached the end of the
performance period in June 2019 and vested at 100 per cent due to our strong TSR
over the performance period.
See page 60 for our LTI
outcomes
Management Share Plan awards also vested for Paul Harvey and Katie Tovich and a
Transitional Award vested for Paul Harvey.
REPLACEMENT BHP
LTIP AWARDS
The last of the Replacement BHP Awards were due to partially vest for Graham Kerr
and Mike Fraser, based on BHP TSR performance to the date of Demerger and the
strong performance of our TSR since Demerger for the fi ve years to 30 June 2019.
See page 63 for details
on the Replacement
Award outcomes
TARGET REMUNERATION FOR FY19
Target Remuneration for each Executive KMP is determined by the South32 Reward Framework (see page 55). This Framework outlines
the key factors the Board takes into consideration in setting executive reward and the strategic drivers of pay at South32.
It is important to ensure remuneration levels fairly refl ect the responsibilities and contribution of the Executives while ensuring that
outcomes are aligned to performance and to the creation of shareholder value. As a result, a signifi cant portion of our executive reward
is at risk and based on demanding performance measures.
Target Remuneration, as outlined below, assumes on-target performance and, for the LTI, takes into account the difficulty of achieving
performance hurdles and anticipated share price volatility. The fi gures refl ected in the graph below are therefore based on STI paid at
100 per cent of target and LTI that is 40 per cent of the Face Value. (see page 56 for details on Face Value).
Based on these principles, the total Target Remuneration for the Executive KMP for a full year is summarised below.
Diagram 1.3 FY19 Target Pay (A$’000)
Mr Graham Kerr
Chief Executive Offi cer
Mr Brendan Harris(1)
Chief Financial Offi cer
Mrs Katie Tovich(2)
Chief Financial Offi cer
Mr Mike Fraser
Chief Operating Offi cer
Mr Paul Harvey
Chief Operating Offi cer
1,770
1,062
1,062
2,124
6,018
(71% at risk)
850
510
510
680
830
498
498
664
2,550
(67% at risk)
2,490
(67% at risk)
988
593
593
988
3,162
(69% at risk)
790
474
474
790
2,528
(69% at risk)
Guaranteed
■ Fixed remuneration
At risk:
■ STI (Cash)
■ STI (Deferred rights)
■ LTI
(1) Brendan Harris ceased as a member of KMP eff ective 30 April 2019 and was appointed to the role of Chief Marketing Offi cer (Elect), a non-KMP role from 1 May 2019. Details
above are for the full year in the KMP role and are not pro-rated for his time as a member of KMP.
(2) Katie Tovich was appointed as a member of KMP on 1 May 2019. Previously, Katie was appointed to the role of Vice President Corporate Aff airs, a non-KMP role. Details above
are for the full year in the KMP role and are not pro-rated for her time as a member of KMP.
2,000
4,000
6,000
52
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT RANGE OF POSSIBLE REMUNERATION OUTCOMES
As actual business and individual achievement over the performance period determines reward outcomes, the amount of remuneration
received by an executive each year will vary.
The diagram below illustrates the range of possible remuneration outcomes for the CEO, based on a number of performance outcome
scenarios.
Diagram 1.4 Range of Remuneration Outcomes (A$’000)
Minimum
100%
1,770
(all reward at risk forfeited)
Target
29%
35%
36%
6,018
(71% at risk)
Outstanding
17%
31%
52%
Components
■ Fixed remuneration
At risk:
10,266
(83% at risk)
■ STI (Cash & Deferred rights)
■ LTI
2,000
4,000
6,000
8,000
10,000
In the Minimum scenario, all STI and LTI is forfeited. The CEO would receive Fixed Remuneration, inclusive of superannuation, of A$1.77 million.
Target outcomes would be achieved where the business meets the challenging STI performance hurdles, resulting in STI being paid at
Target levels (i.e. 67 per cent of maximum opportunity, or 120 per cent of Fixed Remuneration, with half deferred into shares) and the LTI
meeting the TSR performance threshold resulting in 40 per cent of shares vesting. Future share price movements are not included in the
value of the Deferred STI or the LTI.
To deliver an Outstanding outcome for the STI (i.e. at maximum STI, or 180 per cent of Fixed Remuneration, with half deferred into
shares) South32 will need to meet the robust stretch targets across all metrics in the Scorecard. For the LTI to vest in full, the South32
TSR will need to outperform both the sector index and the world index, each by more than 23.9 per cent over the four-year performance
period. Future share price movements are not included in the value of the Deferred STI or the LTI.
ACTUAL PAY FOR EXECUTIVE KMP IN FY19
We disclose Actual Pay to provide our shareholders with a better understanding of cash and other benefi ts our Executive KMP receive
in the performance year. The amount of Actual Pay is likely to vary substantially, either up or down, from Target Remuneration (see page
52) as a signifi cant portion of our pay is “at risk” and based on demanding performance measures.
The Actual Pay for Executive KMP in FY19 includes:
■
South32 Reward:
- Fixed Remuneration earned in FY19 (salary and pension/superannuation);
- Total FY19 STI earned (including cash and deferred rights) based on performance during this fi nancial year (details on page 59);
- South32 LTI awards that vested based on performance and/or service conditions to 30 June 2019 (details on page 60); and
- Other cash and non-monetary benefi ts earned in FY19.
■ Replacement BHP Awards (details on page 54). These include:
- Replacement BHP FY15 LTIP; and
- Dividend Equivalent Payments relating to the partial vesting of the Replacement BHP FY15 LTIP.
While Fixed Remuneration has remained unchanged for our CEO and only increased modestly for other Executive KMP, and STI
outcomes are below target, there is a material increase in Actual Pay year on year as a result of increased value in equity awards
compared to previous years. This is due to:
■
The vesting of our fi rst four-year LTI;
■ Our TSR outperforming the sector and world indices, which has resulted in 100 per cent of the performance rights vesting; and
■
The strong growth in our share price over the performance period, with the value of our LTI based on an increase in share price
from A$1.91 at grant to A$3.18 at 30 June 2019 – an increase of 66 per cent.
Diagram 1.5 South32 four-year share price performance (A$)
$4.50
$3.50
$2.50
$1.50
$0.50
A$3.18
as at
30 June 2019
Share price
growth
A$1.27
Grant price
A$1.91
FY16
FY17
FY18
FY19
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
53
REMUNERATION REPORT
REPLACEMENT BHP FY15 LTIP AWARDS
At the time of the Demerger, Replacement Awards were granted to Executive KMP to replace forfeited BHP awards, and to ensure that
these Executives weren’t negatively impacted by accepting roles with South32. The last of these awards, the Replacement BHP FY15
LTIP, which has a fi ve-year vesting period, was due to vest to Graham Kerr and Mike Fraser, based on performance to 30 June 2019.
Based on the performance outcomes, these awards would have been eligible to vest, resulting in 1,261,124 shares vesting for Graham
and 974,505 for Mike, with a value, including dividend equivalent payments, of A$4,733,000 and A$3,657,000 for Graham and Mike
respectively (based on a closing share price on 30 June 2019 of A$3.18).
Over the past four years, South32 has delivered strong fi nancial performance with a TSR of 84 per cent, which resulted in
100 per cent vesting of the FY16 South32 LTI. Coupled with share price growth of 66 per cent over the same period, this resulted in the
South32 LTI delivering signifi cant value.
This outperformance is testament to the work of Graham and his Lead Team.
Given this, and following discussions between the Board and Graham, Graham has volunteered to waive 100 per cent of his Replacement
Award. Graham also recommended, and Mike agreed, that Mike waive 50 per cent of his Replacement Award. Our Board approved these
outcomes and is satisfi ed that these adjustments result in remuneration at levels appropriate for our organisation. The waived awards
lapsed. Additional information can be found on page 63.
Information in the table below has not been prepared in accordance with Australian Accounting Standards. You can fi nd our Executive
KMP Statutory Remuneration on page 68.
SUMMARY OF ACTUAL PAY FOR EXECUTIVE KMP IN FY19
Table 1.2 Actual pay in respect of FY19 (A$’000)
Remuneration Component
Mr G Kerr
Mr M Fraser
Mr B Harris(4)
Mrs K Tovich(5)
Mr P Harvey(6)
Fixed Remuneration
Other Benefi ts(1)
STI (Cash)
STI (Deferred)
LTI (Grant value)
FY17 Transitional LTI (Grant value)
South32 Actual (LTI at Grant Value)
South32 LTI - Value of share price growth(2)
South32 Actual Pay
(inclusive of share price growth)
Replacement FY15 BHP LTIP (Grant value)
Replacement LTIP - Value of share price growth(2)
Dividend Equivalent Payment(3)
Sub-Total - Replacement BHP LTIP
1,770
29
924
924
5,735
-
9,382
3,813
13,195
2,838
1,173
722
4,733
988
31
474
474
2,619
-
4,586
1,741
6,327
2,193
906
558
3,657
Value waived by agreement
(4,733)
(1,829)
850
22
490
490
1,793
-
3,645
1,192
601
8
292
72
675
-
1,648
507
790
38
446
446
719
387
2,826
851
4,837
2,155
3,677
FY19 Total Actual Pay
FY18
13,195
7,839
8,155
6,865
4,837
3,494
2,155
n/a
3,677
3,245
(1) Other Benefi ts include insurances and tax advice provided during FY19.
(2) Value of share price growth is based on a closing share price on 30 June 2019 of A$3.18.
(3) A Dividend Equivalent Payment (DEP) of A$721,690 for Graham Kerr and A$557,670 for Mike Fraser based on the eligible vesting outcome of the Replacement BHP FY15 LTIP.
It is calculated based on BHP dividends of US$1.24 multiplied by the proportion of BHP shares that would have vested (being 89,626 for Graham and 69,257 for Mike), and
South32 dividends of US$0.313 multiplied by the proportion of South32 shares that would have vested (being 1,261,124 for Graham and 974,505 for Mike), using a conversion
rate of AUD 1 : USD 0.701. Fifty per cent of this amount will be paid in September 2019 for Mike and 100 per cent has been waived by agreement for Graham.
(4) Brendan Harris ceased as a member of KMP eff ective 30 April 2019. Details above are for the full year and are not pro-rated for his time as a member of KMP.
(5) Katie Tovich was appointed as a member of KMP on 1 May 2019. Details above are for the full year and are not pro-rated for her time as a member of KMP.
(6) As Paul Harvey is a member of the South32 Defi ned Benefi t Plan (as set out on page 68), his Fixed Remuneration presented above includes a notional company contribution to
the Plan of 9.5 per cent.
54
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT OUR REWARD FRAMEWORK
The pages of the Remuneration report that follow have been prepared in accordance with section 300A of the Corporations Act 2001
(Cth) (Act) and audited as required by section 308(3C) of the Act. These sections relate to those persons who were Key Management
Personnel (KMP) of South32 during FY19, as named on page 52 and the Non-Executive Directors of South32.
REMUNERATION GOVERNANCE
The roles and responsibilities of our Board, Remuneration Committee, Management and external advisors in relation to remuneration for
Executive KMP and employees at South32 are outlined below.
BOARD
Our Board maintains overall responsibility for overseeing the remuneration policy, and the principles and
processes that underpin it. They approve the remuneration arrangements for our CEO and Non-Executive
Directors. Changes to the Director fee pool are approved by shareholders.
REMUNERATION
COMMITTEE
The Remuneration Committee approves reward arrangements for our Lead Team and oversees the
remuneration and benefi ts framework for all employees in South32.
By taking advice from other Board Committees (such as Sustainability and Risk and Audit Committee), the
Committee helps our Board to oversee remuneration policy, its specifi c application to the CEO, Executives and
Non-Executive Directors and, in general, our employees. They make sure our remuneration arrangements are
equitable and aligned to the long-term interests of shareholders, while operating within our risk framework and
supporting our purpose and values.
CEO &
MANAGEMENT
Our CEO makes recommendations to the Remuneration Committee regarding our Lead Team, and how the
remuneration policy and framework applies to all our employees.
Our management provides information and recommendations for the Remuneration Committee, to help them
consider and implement the approved arrangements.
EXTERNAL
ADVISORS
We may engage external advisors either directly by the Remuneration Committee, or through management.
They provide information on remuneration related issues, including benchmarking information and market
data.
There were no remuneration recommendations received by the Remuneration Committee from external
advisors in relation to KMP in FY19.
We seek information and analysis from a range of data sources. This means our decisions are informed, objective, weighted and
aligned to the requirements of the Company and consistent with our guiding principles.
HOW DO WE DETERMINE REWARD PRACTICES AND OUTCOMES?
OUR GUIDING PRINCIPLES
Purpose & Strategy
The way we work
Shareholders
Performance
Market
We align short-term and
long-term performance
measures to our
strategy and purpose.
This includes our
commitment to:
■ making sure
everyone goes home
safe and well at the
end of every shift;
■ delivering
operational
excellence;
■ meeting key
■
strategic priorities;
and
achieving sector-
leading total
shareholder returns.
Our culture is at the core
of how we deliver our
strategy and purpose.
You’ll see it refl ected
in our values, the way
we work, the decisions
we take, the courage
we show in challenging
situations and the legacy
we leave.
Supporting this is a
strong belief that culture
can be actively shaped
through a focus on
what we prioritise, what
we measure, what we
reward and who we
appoint.
Our Reward Framework
ensures Executives
and management
are focused on
delivering superior total
shareholder returns.
We do this through
share ownership
and LTI performance
measures aligned to the
shareholder experience.
We value our
stakeholder's feedback,
so we regularly check-in
with investors and proxy
advisors.
We ensure our reward
outcomes are aligned
to performance by
delivering a large
part of Executive pay
“at risk” based on
challenging fi nancial
and non-fi nancial
measures.
STI outcomes refl ect
performance over the
fi nancial year, while
LTI outcomes refl ect
performance over a
four-year period.
We ensure our reward
is competitive and
allows us to attract
and retain talented
Executives.
In balance with
these principles,
we benchmark our
reward levels with
consideration given to
similar-sized companies
in the ASX, as well as
our global mining peer
group.
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
55
REMUNERATION REPORT COMPONENTS OF OUR REWARD
OUR
INTENTION
Attract & retain talented
Executives to lead South32
COMPONENT
THE WHY
↓
Fixed Remuneration
Fixed Remuneration is set with
reference to the median of our
peer groups, refl ecting each
Executive KMP’s responsibilities,
location, skills and experience.
The majority of pay at risk refl ects our commitment to pay for performance
and deliver value to shareholders
Reward business and individual
performance in the fi nancial year
↓
Short-Term Incentive (STI)
Drive long-term performance
and ownership behaviours
↓
Long-Term Incentive (LTI)
To focus eff orts on outcomes that are a
priority for us in the fi nancial year and
motivate Executive KMP to achieve
challenging performance objectives.
Our STI refl ects performance during the
year and measures outcomes within
management’s control.
LTI is aligned to the shareholder experience
and delivery of lasting, industry-leading total
shareholder returns.
THE HOW
Base salary and pension/
superannuation.
50 per cent paid in
cash annually
50 per cent in rights
to South32 shares,
deferred for two
years
Rights to South32 shares, subject to TSR
performance measured over a four-year
period, relative to two comparator groups
OUR APPROACH
IN FY19
Our peer groups are:
Quantum (% of Fixed Remuneration):
■
■
An ASX peer group based on
companies (excluding foreign
domiciled and REITs) with
half to double our market
capitalisation; and
A global mining peer group
of 15 companies with a
similar market capitalisation,
commodity mix and
geographic spread (see
below).
The level of Fixed Remuneration
for the CEO is below the median
of our peer groups.
See FY19 Target Remuneration
on page 52.
All Executive KMP
Target
Value
120%
Max.
Value
180%
Business Scorecard:
The Business Scorecard refl ects a balance of
fi nancial and non-fi nancial measures that are
a priority for us in the fi nancial year.
■ Sustainability (25%)
■ Financial: Adjusted ROIC
(25%)
■ Financial: Production, cost
and capital expenditure
(25%)
■ Strategic Goals (25%)
Business Modifi er:
As Scorecard measures do not always refl ect
overall performance over the year, and to
mitigate any unintended reward outcomes,
the Board has the discretion to apply a
Modifi er to the Business Scorecard outcome.
The Modifi er may be applied to Executive
KMP on an individual or group basis, having
regard to the perspectives of stakeholders
including employees, shareholders and
communities.
Individual Performance & Behaviours:
The Board also considers an Executive KMP’s
individual performance, taking into account
specifi c key performance indicators and
how these have been achieved (including
alignment with our values).
The Quantum is determined on Face Value as
a percentage of Fixed Remuneration:
Face Value Target Value
CEO
300%
120%
Other KMP
200% to 250%
80% to 100%
Comparator groups:
■
■
Two-thirds relative to a mining sector
index (IHS Markit Global Mining Index
with constrained weighting by company
and sector); and
One-third relative to a world index
(Morgan Stanley Capital International
(MSCI) World Index).
Vesting:
100% vesting
40% vesting
0% vesting
TSR
= index
TSR > index
by 5.5% pa
There is no retesting if the performance
condition is not met at the end of the
performance period.
MINIMUM
SHAREHOLDING
REQUIREMENT
OUR SERVICE
CONTRACTS
A Minimum Shareholding Requirement (MSR), equal to 100 per cent of Fixed Remuneration for Executive KMP, drives a
long-term focus and alignment with our shareholders. The MSR applies to all Executive KMP and must be obtained within
fi ve years of appointment as a KMP.
See page 71 for current shareholding of our Executives.
The key terms are consistent for all Executive KMP, and include:
■ No fi xed term;
■
■
■
Six months’ notice by either party or payment by the Company in lieu of notice; or
Termination without notice for serious misconduct; or
Two months’ notice by the Executive where a fundamental change occurs that materially diminishes their status,
duties, authority or terms and conditions (receiving payment in lieu of six months’ notice).
The maximum payment in lieu of notice won’t exceed six months’ Fixed Remuneration. Executive KMP will be subject
to several post-employment restraints for a period of up to six months after their employment with the Group ends.
Shareholder approval was granted at the 2018 Annual General Meeting (AGM) in relation to termination benefits for
Executive KMP for a further three years.
OUR GLOBAL
PEER GROUP
Our global mining companies peer group includes: Agnico Eagle Mines; Alcoa; Anglo American; Antofogasta; Barrick Gold;
Boliden AB; Eramet SA; First Quantum Minerals; Fortescue Metals Group; Freeport McMoRan; GoldCorp; Newcrest Mining;
Newmont Mining; Teck Resources; Vedanta.
56
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT FIXED REMUNERATION FOR FY19
In FY19, there was no increase to Graham Kerr’s Fixed Remuneration, which hasn’t changed since our Demerger in May 2015. Our other
Executive KMP received modest increases in FY19, which were outlined in the FY18 Remuneration report and were eff ective from
1 September 2018.
Table 1.3 Fixed Remuneration for Executive KMP in FY19
Executive KMP
Mr G Kerr
Mr B Harris(1)
Mrs K Tovich(1)
Mr M Fraser
Mr P Harvey
FY18
Fixed
Remuneration
(A$)
1,770,000
830,000
n/a
970,000
775,000
FY19
Fixed
Remuneration
(A$)
1,770,000
850,000
830,000
988,000
790,000
Increase
%
0.0
2.4
n/a
1.9
1.9
(1) Brendan Harris ceased as a member of KMP eff ective 30 April 2019 and Katie Tovich was appointed as a member of KMP on 1 May 2019. Fixed Remuneration above for Katie is
eff ective from 1 May 2019.
SHORT-TERM INCENTIVE FOR FY19
Diagram 1.6 Determination of STI awards
SOUTH32
BUSINESS OUTCOME
INDIVIDUAL
OUTCOME
OVERALL
STI OUTCOME
x
x
=
1A
1B
2
3
BUSINESS
SCORECARD
0%-150%
Target 100%
BUSINESS
MODIFIER
Discretion +/-
INDIVIDUAL PERFORMANCE
& BEHAVIOURS
(0%-150%)
OVERALL STI OUTCOME
Max 180%
Target 120%
(of Fixed Remuneration)
The determination of the STI outcome at South32 follows a structured process.
At the start of each year, the Board approves the Business Scorecard.
The individual performance process that applies to our CEO and Executive KMP, and is cascaded through the organisation, includes:
■
■
Setting of individual performance goals at the start of each performance year, which are aligned to the Business Scorecard, our
Breakthroughs and our Business Plans;
Ensuring regular “check ins” during the year; and
■ A review of performance relative to eff ectiveness in role, based on what is delivered and how it is delivered. For the CEO and
Executive KMP, the performance in role is measured based on delivery against the Business Plans of the Operations or Functions
for which they are responsible. In recognition that the strongest cultures are set from the top, our CEO and Executive KMP are also
assessed based on demonstrated behaviour aligned with our values and the way we work.
Following the individual performance review, the CEO recommends to the Board the individual outcomes for each Executive KMP.
The Board assesses and approves the Business Outcome, Individual Outcomes and the overall STI Outcomes for the CEO and for the
Executive KMP.
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
57
REMUNERATION REPORT 1A FY19 BUSINESS SCORECARD
The Business Scorecard, which is approved by our Board before the fi nancial year begins, helps our Executive KMP focus on outcomes
that are within their control and are a priority in that year. It also includes a balanced range of measures that take into account both our
fi nancial and non-fi nancial performance.
Our non-fi nancial measures are in line with our Breakthroughs and our values including safety and health, environment, community, risk
management and leadership. Our performance is assessed relative to the Business Scorecard (with guidance from Board Committees,
such as the Remuneration, Risk & Audit and Sustainability Committees) and individual performance outcomes.
Table 1.4 FY19 Business Scorecard outcomes
SCORECARD MEASURE
WEIGHT PERFORMANCE
SUSTAINABILITY
25%
27.0%
Safety:
Aggregated 17 per cent reduction on previous year,
equating to a TRIF of 4.3.
Health:
5 per cent reduction on previous year plus plans in
place to reduce the number of workers exposed
above the OEL by a further 5 per cent in FY20.
Environment:
Achieve emissions forecast of 24,253 kt
CO2 -e.On track for FY21 GHG reduction targets plus
decarbonisation plans for Worsley and Illawarra.
Community:
Implement Community Investment Framework and
Community Investment Plans for each operation.
12 per cent reduction in TRIF in FY19, to 4.5.
Delivered a 12 per cent reduction in material exposures >
100 per cent (coal dust and carcinogens). An exposure reduction
plan has been developed that will facilitate at least a further 10
per cent reduction in FY20.
Actual emissions (Scope 1 and 2) were 23,482 kt CO2e. We
remain on track to achieve our FY21 public target (Scope 1).
Conceptual level decarbonisation plans for Illawarra Metallurgical
Coal and Worsley Alumina operations completed.
Community Investment Plans for each operation were developed
and measures to assess the impact of investment were defi ned.
Community Action Plan implemented improving performance
outcomes.
FINANCIAL: PRODUCTION, COST
AND CAPITAL EXPENDITURE
Production:
95 per cent –105 per cent of budget
Cost:
Within US$50m of FY19 budget (adjusted for FX and
price-linked costs).
25%
23.0%
Overall, production (excluding non-operated operations) was
96 per cent of budget with record aluminium production at
Hillside Aluminium and a run-of-mine production record at
Dendrobium Coal Mine. However, volumes fell short at South
Africa Energy Coal and Worsley Alumina.
Cash operating costs were within range across most of the
business. However, controllable costs are assessed as short
of target when the cost benefi ts of lower production are
considered.
OUTCOME
(Target = 25%
Max = 37.5%)
Target not
met
Outstanding
Better than
target
Target met
Target met
Target not
met
Target not
met
Capital Expenditure: within 5 per cent of FY19
Sustaining capital expenditure budget (adjusted for
FX) and Major Projects tracking within 5 per cent of
budget (adjusted for FX)
Sustaining capital expenditure was 98 per cent of budget, but
missed target due to underspend at Illawarra Metallurgical
Coal, South Africa Manganese, Cerro Matoso and Australia
Manganese.
FINANCIAL: ADJUSTED ROIC
25%
12.5%
Achieve budget FY19 Adjusted ROIC, consistent
with our cost, production and capital expenditure
targets.
Despite positive results at many other operations, the impact
of lower production volumes at South Africa Energy Coal and
Worsley Alumina resulted in an Adjusted ROIC outcome that was
2.9 per cent behind budget.
Target not
met
STRATEGIC PRIORITIES
25%
24.5%
Implement the revised Risk Management System,
including the three lines of defence and integrated
platform with a common set of metrics.
Although slightly behind schedule, we successfully implemented
our integrated risk and event platform, Global 360, and piloted
our enhanced second line assurance routines and tools.
Lock in savings and further transform the ownership
of South Africa Energy Coal.
The ring-fenced management of South Africa Energy Coal
has delivered savings slightly lower than forecast. Divestment
activities are progressing.
Unlock the value in our portfolio.
Delivered on key projects across the Operations.
Identify new opportunities and Introduce one base
metals development project into the portfolio.
Continue to build leadership capability across the
group.
Initial JORC resources estimate for Hermosa released. Pre-
feasibility study proceeding to plan.
Trilogy option remains on track.
Progressing with new base metal options.
Leadership Development initiatives implemented globally
including capability reviews for over 1,000 leaders.
Improvement in broad-based engagement levels as measured
through pulse surveys.
SUB-TOTAL
100%
87%
Target not
met
Target not
met
Better than
target
Target met
Better than
target
58
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT 1B FY19 BUSINESS MODIFIER
The Scorecard refl ects the key focus areas of the business in the fi nancial year, with metrics that are aligned to our purpose and
Breakthroughs and that measure elements in management’s control. As the metrics and measures are set at the start of the
performance year, the Business Modifi er allows the Board to consider the impact of any event or action during the year that is not fully
factored into the Scorecard.
The Board has absolute discretion in applying the modifi er, to adjust the Scorecard outcome either up or down, or to apply to the
Executive KMP on an individual or a group basis. As it is not formulaic, the Board has discretion to ensure that the STI outcomes refl ect
overall business performance, including what has been delivered and how it has been achieved.
Factors that would be considered in the modifi er include, but are not limited to, the impact of fatalities and signifi cant safety issues as well as
the management of risk, governance, culture and reputational issues. Table 1.5 summarises the application of the modifi er since Demerger.
For FY19, our Board considered a number of factors. We had no fatalities in the year and improved overall safety indicators. We
completed the acquisition of Arizona Mining and a 50 per cent interest in Eagle Downs and made good progress with negotiations to
divest South Africa Energy Coal. While we had an impairment for South Africa Energy Coal, this was impacted by the market outlook for
thermal coal demand and prices, that are outside the control of management.
On balance, the Board determined that no modifi er would be applied for FY19.
Table 1.5 Application of the Business Modifi er by the Board (multiplier applied to the Business Scorecard outcome)
CEO:
COO Africa:
Other Executive KMP:
FY16
-24%
-40%
-10%
FY17
-2.5%
-5%
None
FY18
-15%
-15%
-5%
FY19
No modifi er
applied
Application of
the Modifi er
Four fatalities in
Africa Region
One fatality in Africa
Region
One fatality in Africa
Region and impact
of the temporary
closure of Appin
mine in FY17.
2 FY19 INDIVIDUAL PERFORMANCE & BEHAVIOURS
Our Board determines the Individual Scorecard measures for the CEO and other Executive KMP in relation to what was delivered, as
demonstrated in the performance of the Executive’s portfolio, and how it was delivered, which considers demonstrated leadership and
behaviour aligned to our values, risk framework and governance processes.
Individual outcomes were applied to Executive KMP, refl ecting the performance of their areas of accountability. These outcomes ranged
from 92 per cent to 110 per cent, as indicated in Table 1.6 below.
3 OVERALL FY19 STI OUTCOMES
Overall STI outcomes for FY19 are determined through our Board’s assessment of the Business and Individual Outcomes, as outlined in
the table below.
Table 1.6 STI earned by Executive KMP in respect of FY19 performance
Business
Scorecard
outcome
%
(1A)
Modifi er
+/-
%
(1B)
Individual
outcome
%
(2)
Overall STI
outcome
% of Target
(1A x 1B x 2)
87
87
87
87
87
-
-
-
-
-
100
110
100
92
108
87
96
87
80
94
Total STI
awarded
(A$’000)
1,848
816
144
948
891
Percentage of
maximum STI
Cash(1)
(A$’000)
Rights
(A$’000)
Awarded
%
Forfeited
%
924
408
72
474
446
924
408
72
474
446
58
64
58
53
63
42
36
42
47
37
Executive KMP(1)
Mr G Kerr
Mr B Harris(2)
Mrs K Tovich(2)
Mr M Fraser
Mr P Harvey
(1) Half of the STI will be paid in cash in September 2019, with the remaining half deferred into rights to South32 shares that will be granted in or around December 2019 and will
be due to vest in August 2021. The rights remain subject to continued service with the South32 Group. The minimum possible total value of the rights for future financial years
is therefore nil (see page 62 for terms and conditions relating to South32’s equity plans).
(2) Brendan Harris ceased as a member of KMP eff ective 30 April 2019 and Katie Tovich was appointed as a member of KMP on 1 May 2019. Details above for each are pro-rated
for their time as a member of KMP.
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
59
REMUNERATION REPORT LONG-TERM INCENTIVES
OUR LTI AWARDS THAT VESTED IN RESPECT OF FY19
FY16 South32 LTI Award and MSP (Performance) Award
Our fi rst LTI Award granted since Demerger, the FY16 LTI, was tested for vesting subject to service and performance conditions to
30 June 2019. This award is subject to TSR performance conditions over four years, with two thirds relative to a mining sector index (the
IHS Markit Global Mining Index) and one third relative to a world index (the MSCI World Index). The four-year period for this award was
from 1 July 2015 to 30 June 2019.
We granted Paul Harvey and Katie Tovich FY16 Management Share Plan (MSP) Awards before becoming members of KMP. These
performance awards have the same performance and vesting conditions as our LTI Awards.
For the LTI and MSP Awards to vest in full, they would need to outperform both indices by at least 23.9 per cent over the performance
period (5.5 per cent per annum cumulative). Our Board noted that our TSR outperformed both peer indices by more than
23.9 per cent (see Diagram 1.8 and Table 1.7), and approved these awards to vest in full in August 2019.
Diagram 1.7 Indicative TSR performance: South32 vs comparators
Diagram 1.8 Vesting outcome
100%
50%
0%
-50%
FY16
FY17
FY18
FY19
World Index
Sector Index
South32
Table 1.7 South32 LTI Award vesting outcome
A$3.18
as at
30 June 2019
Share price
growth
A$1.27
Grant price
A$1.91
100% vesting
40% vesting
0% vesting
TSR
= index
TSR > index
by 5.5% pa
● Sector Index ● World Index
● Sector Index
● World Index
TSR Performance(1)
Outperformance for
100% vesting
Vesting
outcome
Index
weighting
Index
(A)
47.6%
48.3%
South32
(B)
83.8%
Required
+23.9%
+23.9%
Achieved
(B-A)
+36.2%
+35.5%
(C)
100%
100%
(D)
2/3
1/3
Weighted
vesting
outcome
(C x D)
66.7%
33.3%
100.0%
(1) TSR Performance refl ects the one-month average return from 30 June 2015 at the start of the performance period, to the one-month average return to 30 June 2019 at the
end of the performance period.
Table 1.8 South32 LTI Awards vested
Executive
KMP
Award
Number of
rights
granted
Number
of rights
vested
Number
of rights
forfeited
Value
at grant(1)
(A$’000)
Value
forfeited(2)
(A$’000)
Value of
share price
growth(3)
(A$’000)
Growth
Value at
vesting(4)
(A$’000)
Vest
value
-
-
-
-
-
3,813
9,548
1,192
2,985
319
799
1,741
4,360
478
1,197
Mr G Kerr
South32 LTI
3,002,513
3,002,513
Mr B Harris(5)
South32 LTI
938,638
938,638
Mrs K Tovich(6)
FY16 MSP
(Performance)
251,308
251,308
Mr M Fraser
South32 LTI
1,371,204
1,371,204
Mr P Harvey
FY16 MSP
(Performance)
376,291
376,291
Grant
value
5,735
1,793
480
2,619
719
-
-
-
-
-
(1)
(2)
(3)
'Value at grant' is the number of shares granted multiplied by the grant determination price in June 2015 (A$1.91), based on the Volume Weighted Average Price (VWAP) of
South32 shares over the last 10 trading days in June.
‘Value forfeited’ is the value lapsed/forfeited based on performance relative to the performance measures, multiplied by the grant determination price in June 2015 of A$1.91.
‘Share price growth’ is the number of shares that vested, multiplied by the diff erence between the grant determination price (A$1.91) and the share price at 30 June 2019 of
A$3.18 This refl ects the value added due to the change in share price since the start of the performance period.
‘Value at Vesting’ is the estimated number of shares that vested, multiplied by the closing share price of South32 shares on 30 June 2019 of A$3.18.
(4)
(5) Brendan Harris ceased as a member of KMP on 30 April 2019. Details above are for the full year and are not pro-rated for his time as a member of KMP.
(6) Katie Tovich commenced as a member of KMP on 1 May 2019. Details above are for the full year and are not pro-rated for her time as a member of KMP.
60
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT FY17 Management Share Plan (Retention) Award
We granted the FY17 Management Share Plan (Retention) Award to Katie Tovich before she became a member of KMP. Given the
retention-focused objective of this award, the vesting conditions are service-based (with a service condition to 30 June 2019) and with no
performance conditions. As the service condition was met, our Board approved this award to vest in full in August 2019. The structure of
the MSP is detailed on page 70.
FY17 Transitional Performance Award
We granted a one-off FY17 Transitional Performance Award to Paul Harvey to cover the gap in vesting in 2019 due to his transition
from the Management Share Plan (three-year retention rights and four-year performance rights) to the Executive LTI Plan (four-year
performance rights).
This award is subject to the same TSR performance conditions as our LTI (see Components of our Reward on page 56), namely two thirds
relative to a mining sector index (IHS Markit Global Mining Index) and one third relative to a world index (MSCI Word Index), except this
award has a three-year performance period, from 1 July 2016 to 30 June 2019.
For the award to vest in full, it would need to outperform both indices by 17.4 per cent (5.5 per cent per annum cumulative). Our Board
noted that our TSR outperformed both peer indices by more than 17.4 per cent (see Table 1.9), and approved this award to vest in full in
August 2019.
Table 1.9 Transitional Performance Award vesting outcome
● Sector Index
● World Index
TSR Performance(1)
Outperformance for
100% vesting
Vesting
outcome
Index
weighting
Index
(A)
75.4%
48.5%
South32
(B)
134.4%
Required
+17.4%
+17.4%
Achieved
(B-A)
+59.0%
+85.9%
(C)
100%
100%
(D)
2/3
1/3
Weighted
vesting
outcome
(C x D)
66.7%
33.3%
100.0%
(1) TSR Performance refl ects the one-month average return to 30 June 2016 at the start of the performance period, to the one-moth average return to 30 June 2019 at the end of
the performance period.
Table 1.10 Other South32 Awards vested
Executive
KMP
Award
Number of
rights
granted
Number
of rights
vested
Number
of rights
forfeited
Value
at grant(1)
(A$’000)
Value
forfeited(2)
(A$’000)
Value of
share price
growth(3)
(A$’000)
Growth
Value at
vesting(4)
(A$’000)
Vest
value
-
-
373
188
761
383
Mr P Harvey
FY17 Transitional
Award
Mrs K Tovich
FY17 Management
Share Plan (Retention)
239,197
239,197
120,296
120,296
-
-
Grant
value
387
195
(1)
(2)
(3)
'Value at grant' is the number of shares granted multiplied by the grant determination price in June 2016 (A$1.62).
‘Value forfeited’ is the value lapsed/forfeited based on performance relative to the performance measures, multiplied by the grant determination price in June 2016 of A$1.62.
‘Share price growth’ is the number of shares that vested, multiplied by the diff erence between the grant determination price (A$1.62) and the share price at
30 June 2019 of A$3.18 This refl ects the value added due to the change in share price since the start of the performance period.
(4)
‘Value at Vesting’ is the number of shares that vested, multiplied by the closing share price of South32 shares on 30 June 2019 of A$3.18.
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
61
REMUNERATION REPORT LTI GRANTED IN FY19
As part of our FY19 LTI Plan, we granted performance rights to Executive KMP in December 2018. These have a four-year performance
period, and are subject to performance hurdles (outlined on page 56).
Shareholders approved the grant of rights for the CEO at the AGM on 25 October 2018.
Table 1.11 FY19 LTI grants
Executive KMP
Mr G Kerr
Mr B Harris(4)
Mr M Fraser
Mr P Harvey
Reward Determination(1)
(calculated at the start of the performance period - July 2018)
Grant
(December 2018)
Face value
(% of Fixed
Remuneration)
Face Value
(A$’000)
Target Value(2)
(% of Fixed
Remuneration)
Target Value(2)
(A$’000)
Number
of Rights
granted(3)
300
200
250
250
5,310
1,700
2,470
1,975
120
80
100
100
2,124
1,450,819
680
988
790
464,480
674,863
539,617
(1) The grant of awards is based on the Face Value as outlined in the Components of our Reward (see page 56).
(2) The Target Value considers the difficulty of achieving performance hurdles and anticipated share price volatility.
(3) The number of rights granted to the Executive KMP in December 2018 is calculated by dividing the Face Value by the VWAP of South32 shares traded on the ASX over the last
10 trading days of June 2018, being A$3.66. The Fair Value at grant for accounting purposes, as calculated by external consultants, was A$1.51 per right for the South32 LTI/
MSP Performance Award and A$2.79 per right for the Management Share Plan (Retention) Award.
(4) Brendan Harris ceased as a member of KMP on 30 April 2019. Grant details above are for the full year and are not pro-rated for his time as a member of KMP.
TERMS AND CONDITIONS OF RIGHTS AWARDED UNDER EQUITY PLANS
TYPE OF
EQUITY
DIVIDEND AND
VOTING RIGHTS
CESSATION OF
EMPLOYMENT
We deliver deferred STI and LTI awards in the form of share rights. These are rights to receive fully paid
ordinary shares in South32 Limited,(1) subject to meeting specifi c performance and vesting conditions (Rights).
If the Rights vest, no consideration or exercise price is payable for the allocation of shares. As Rights are
automatically exercised, they don’t have an expiry date.
Rights carry no entitlement to voting, dividends or dividend equivalent payments.
Unless our Board determines otherwise:
■ Resignation or termination for cause: all unvested Rights lapse;
■ Death, serious injury, disability or illness that prevents continued employment or total permanent
disability: all unvested Rights vest immediately; and
■ Other circumstances: a pro-rata portion of Rights to remain on foot subject to the Remuneration
Committee’s discretion to lapse.
CHANGE OF
CONTROL
MALUS &
CLAWBACK
Our Board can determine the level of vesting (if any) having regard to the portion of the vesting period
elapsed, performance to date against any applicable performance conditions and other factors they deem
appropriate.
Our Board can reduce or clawback all vested and unvested STI and LTI awards in certain circumstances to
ensure Executives don’t obtain an inappropriate benefi t. These circumstances are broad, and can include:
■ An Executive engaging in misconduct;
■ A material misstatement of our accounts results in vesting;
■ Behaviours of Executives that bring us into disrepute; and
■ Any other factor our Board deems justifi able.
RIGHTS TO
PARTICIPATE
IN NEW ISSUES
A participant can’t take part in new issues of securities in relation to their unvested Rights. However, the
relevant plan rules include specifi c provisions dealing with rights issues, bonus issues and corporate actions
and other capital reconstructions. These provisions are intended to ensure that Rights holders aren’t unfairly
disadvantaged by corporate actions.
(1) References in this Remuneration report to ‘South32 shares’ are references to fully paid ordinary shares in South32 Limited.
62
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT REPLACEMENT BHP AWARDS
BHP outlined the arrangements regarding the Replacement Awards in the Listing Document (March 2015). The unvested BHP awards
that had been granted to the Executive KMP, including LTIP, Transition Awards and Deferred STI, were to be forfeited and replaced on
similar value and terms to the BHP awards, including service and performance conditions (see Table 1.12 for key terms and conditions).
These Replacement Awards were then granted to Executive KMP at the time of the Demerger, to ensure that Executives weren’t
negatively impacted by accepting roles with us. This enabled us to acquire the appropriate talent into South32. The Replacement BHP
FY15 LTIP is the fi nal Replacement Award.
It’s important that the remuneration arrangements for Executive KMP are aligned to our strategy, performance and service conditions.
That’s why the Replacement Awards are linked to our performance, instead of BHP's, from the Demerger on 25 May 2015.
TERMS AND CONDITIONS OF REPLACEMENT BHP AWARDS
Table 1.12 Key terms and performance conditions for the Replacement Awards
Award
Key Terms and Performance Conditions
Replacement BHP
LTIP Awards
LTIP Performance Measure:
These are subject to relative TSR over a fi ve-year vesting period with reference to the Sector index determining
vesting of 67 per cent of the rights and the MSCI World index determining vesting of 33 per cent of the rights.
For the period up to 24 May 2015, BHP TSR relative to the BHP comparator groups apply. From 25 May 2015, our
TSR relative to our comparator groups apply (see page 56 for information relating to our comparator groups).
Vesting:
Vesting requires the TSR to equal or exceed the TSR of the relevant index over the performance period:
■
■
■
■
If combined TSR over the vesting period is below the index, zero per cent of the rights vest
If combined TSR is equal to the TSR of the index, 25 per cent of the rights vest
If combined TSR exceeds the index by 5.5 per cent per annum cumulative (Outperformance), 100 per cent of
rights vest
If combined TSR is between the TSR of the index and Outperformance, vesting will be on a straight line
between 25 – 100 per cent
Dividends:
Dividend equivalent payments will be made for any rights that vest at the end of the vesting period.
REPLACEMENT BHP FY15 LTIP AWARDS THAT VESTED IN RESPECT OF FY19
In assessing the performance of the Replacement BHP FY15 LTIP Award, we considered BHP’s TSR relative to BHP’s comparator groups
for the period up to Demerger (i.e. from 1 July 2014 to 24 May 2015) and our TSR performance relative to our comparator groups from
Demerger to 30 June 2019. Diagram 1.9 graphs the indicative TSR performance for the full fi ve-year performance period. The time up to
Demerger is shaded grey.
Our positive performance from July 2016 has meant that, for the full fi ve-year performance period, the combined company TSR (BHP and
South32) has exceeded both the sector index and the world index (the MSCI World).
For the awards to vest in full, they would need to outperform both indices by 30.7 per cent over fi ve years (5.5 per cent per annum
cumulative). For the performance period ending 30 June 2019, the Replacement BHP FY15 LTIP Award was eligible to partially vest in
August 2019 for Graham Kerr and Mike Fraser (as outlined in the diagrams and table below).
Diagram 1.9 Indicative TSR performance: BHP/South32 vs comparators
Diagram 1.10 Vesting outcome
5
1
0
2
y
a
M
5
2
50%
0%
-50%
FY15
FY16
FY17
FY18
FY19
BHP
Sector Index
World Index
South32
A$3.18
as at
30 June 2019
100% vesting
Share price
growth
A$0.93
Grant price
A$2.25
25% vesting
0% vesting
TSR
= index
TSR > index
by 5.5% pa
● Sector Index ● World Index
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
63
REMUNERATION REPORT
Table 1.13 Replacement BHP FY15 LTIP vesting outcome
● Sector Index
● World Index
TSR Performance(1)
vs Index
Outperformance for
100% vesting
Vesting
outcome
Index
weighting
BHP
(A)
(8.6%)
(33.1%)
South32
(B)
39.4%
34.1%
Required
+30.7%
+30.7%
Achieved
(A+B)
+30.8%
+1.0%
(C)
100%
27.4%
(D)
2/3
1/3
Weighted
vesting
outcome
(C x D)
66.7%
9.1%
75.8%
(1) TSR Performance refl ects the six-month average to 30 June 2014 at the start of the performance period, to the six-month average to 30 June 2019 at the end of the
performance period, based on the rules of the BHP FY15 LTIP.
REPLACEMENT BHP FY15 LTIP AWARDS WAIVED BY AGREEMENT
The Replacement BHP FY15 LTIP, which was granted to Graham and Mike, met the performance thresholds resulting in 75.8 per cent of
the rights being eligible to vest.
As outlined previously, over the past four years, South32 has delivered strong fi nancial performance with a TSR of 84 per cent, which
has resulted in 100 per cent vesting of the FY16 South32 LTI (see page 60). This coupled with share price growth of 66 per cent over the
same period, has resulted in the South32 LTI delivering signifi cant value.
Given this, and following discussions between the Board and Graham, Graham has volunteered to waive 100 per cent of his Replacement
Award. Graham also recommended, and Mike agreed, that Mike waive 50 per cent of his Replacement Award. Our Board approved these
outcomes and is satisfi ed that these adjustments result in remuneration at levels that is aligned to the South32 Reward Framework and
philosophy.
Graham will therefore waive 1,261,124 rights, with a value of A$4,733,000 (including a dividend equivalent payment of A$721,690). Mike
will waive 487,253 rights, with a value of A$1,829,000 (including a dividend equivalent payment of A$278,835). The waived rights will lapse.
Dividend equivalent payments will only be paid for shares that vest. The value waived is based on a closing share price on 30 June 2019
of A$3.18.
The number and value of shares that have vested are outlined below:
Table 1.14 Replacement BHP FY15 LTIP Award vested
Executive
KMP
Mr G Kerr
Eligible
to vest
based on
performance
outcome
Rights
lapsed
based on
performance
outcome
Number
of rights
granted
Rights
waived by
agreement
Number
of rights
vested
Value at
vesting(1)
(A$’000)
1,664,067
1,261,124
402,943
1,261,124
-
-
Mr M Fraser
1,285,870
974,505
311,365
487,253
487,252
1,550
Dividend
equivalent
payment(2)
(A$’000)
Total value
at vesting(3)
(A$’000)
-
279
-
1,829
(1)
(2)
‘Value at vesting’ is the number of shares that vested, multiplied by the share price at 30 June 2019 of A$3.18.
‘Dividend equivalent payment’ for Mike Fraser is based on the number of shares that vested. It is calculated by multiplying BHP dividends of US$1.24 by the proportion of BHP
shares that would have vested (34,628), and South32 dividends of US$0.313 multiplied by the number of South32 shares that vested (487,252), using a conversion rate of
AUD 1 : USD 0.701. This amount will be paid in September 2019 for Mike.
(3)
‘Total value at vesting’ is the number of shares that vested, multiplied by the share price at 30 June 2019 of A$3.18, plus the dividend equivalent payment.
64
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT NON-EXECUTIVE DIRECTOR REMUNERATION
REMUNERATION POLICY
As a global organisation, it’s important that we off er competitive Director fees – to help us bring on the appropriate level of
experience from a diverse global pool. These fees refl ect the size, complexity and global nature of our company, and acknowledge the
responsibilities of serving on our Board.
To ensure the independence of our Non-Executive Directors, their remuneration does not have an ‘at risk’ element.
We pay committee fees to recognise the additional responsibilities associated with participating on a Board Committee.
We pay a fi xed fee to our Board Chair for all responsibilities, including participation on any Board Committees.
FY19 NON-EXECUTIVE DIRECTOR FEES AND FEE POOL
We review fees every year and may get outside advice to help us do so. In FY19, we based our review on data provided by external
consultants, which resulted in the Chair, Non-Executive Directors and Committee fees increasing by up to 2.8 per cent (eff ective
1 September 2018).
The maximum aggregate amount we can pay our Non-Executive Directors is A$3.9 million per annum (Fee Pool). Before making any
changes to the Fee Pool, we would seek shareholder approval.
The table below outlines the fee levels for FY19.
Table 1.15 FY19 Board fees (eff ective 1 September 2018)
Fee
Description
Board Fees
Board of Directors
Chair of the Board
Other Non-Executive Directors
Committee Fees
Risk and Audit, Remuneration, Sustainability Committees
Committee Chair
Members
MINIMUM SHAREHOLDING REQUIREMENTS
FY19 Fees
(A$ per annum)
565,000
185,000
46,000
23,000
Our Board is committed to each Non-Executive Director achieving a minimum shareholding level of one year’s base fees to be
accumulated over a reasonable period. You can fi nd more details of their current shareholdings in Table 1.22.
TRAVEL ALLOWANCE
As a global organisation, our Board meetings are held in Australia, South Africa and other locations (see page 72 for more details on this).
For our Directors, site visits are an important part of our Board program, giving them:
■ A better understanding of workplace culture through interactions with site-based employees;
■ An improved understanding of local risks;
■ A chance to participate in continuous education; and
■ On-the-ground experience.
Required meetings, site visits and other engagements take signifi cant time and commitment – particularly if they’re in remote locations.
In these cases, we give our Directors an allowance to compensate for this additional commitment.
In FY19, where air travel to a Board commitment was greater than three hours, but less than 10 hours, a one-off allowance of A$7,840
per trip applied. Where air travel was greater than 10 hours, the allowance per trip was A$16,800. See page 67 for details of changes to
the Travel Allowance for FY20.
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
65
REMUNERATION REPORT Diagram 1.11 - Director site visits in FY19
June 2019
Board meeting Tucson, site visit
to Hermosa project and a visit to
Caterpillar Global Mining
April 2019
Board meeting Singapore,
visits to Nanyang Technological
University and TollCity
August 2018
Board meeting Perth
October 2018
Board meeting Perth
and AGM
February 2019
Board meeting Perth
December 2018
Board meeting Johannesburg
and site visit to Metalloys,
Meyerton
FY19 NON-EXECUTIVE DIRECTOR REMUNERATION
In Table 1.16, we’ve set out the statutory disclosures required under the Corporations Act and in accordance with Australian Accounting
Standards, in respect of FY19 remuneration paid to Non-Executive Directors.
Table 1.16 Non-Executive Director remuneration (A$’000)
Non-Executive
Director
FY19
term
Mr David
Crawford AO(3)
to 12 April 2019
Ms Karen
Wood(3,4)
Mr Frank
Cooper AO
Dr Xiaoling
Liu(4)
Dr Xolani
Mkhwanazi(5)
Full year
Full year
Full year
Full year
Dr Ntombifuthi
Mtoba
Full year
Full year
Full year
Mr Wayne
Osborn
Mr Keith
Rumble
TOTAL
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
(1)
(2)
Includes assistance for tax return preparation in FY19.
Includes travel allowance paid in FY19.
Short-term benefits
Post-
employment
benefits
Board &
Committee
fees
Non-monetary
benefits(1)
Other cash
allowances
& benefits(2)
Superannuation
benefits
426
530
282
137
232
228
209
137
259
198
204
198
232
227
250
243
2,094
1,898
-
-
-
-
-
-
-
-
2
2
2
2
-
-
2
2
6
6
48
115
73
57
49
66
56
40
84
84
84
84
65
74
84
84
543
604
17
20
21
13
21
20
21
13
4
5
4
5
21
20
3
5
Total
491
665
376
207
302
314
286
190
349
289
294
289
318
321
339
334
112
101
2,755
2,609
(3) David Crawford retired as Director eff ective 12 April 2019. Karen Wood was elected as Chair, eff ective 12 April 2019.
(4) Xiaoling Liu and Karen Wood were appointed to the Board on 1 November 2017, FY18 details refl ect this appointment date.
(5) Xolani Mkhwanazi received remuneration of ZAR549,858.67 for his role as a Non-Executive Director of South32 SA Coal Holdings (Pty) Ltd during FY19. This fi gure is included in
Board and Committee fees above based on a FX rate of AUD1:ZAR9.93.
66
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT LOOKING FORWARD TO FY20
During FY19, our Board commenced a review of our Executive Remuneration strategy and framework. This review will continue into
FY20 and any changes will be communicated in our FY20 Remuneration report. As such, we’re not making any changes to remuneration
arrangements in FY20, except as detailed below.
FIXED REMUNERATION
Fixed Remuneration for Graham Kerr will increase in FY20 by 2.5 per cent to A$1,815,000 – this is fi rst time we’ve increased Graham’s
pay since 2015. As Katie Tovich has only recently been appointed to the role of CFO, her remuneration will remain unchanged in FY20.
Modest increases for Mike Fraser and Paul Harvey are also outlined below.
Table 1.17 Fixed Remuneration for Executive KMP in FY20, eff ective 1 September 2019
Executive KMP
Mr G Kerr
Mrs K Tovich(2)
Mr M Fraser
Mr P Harvey
FY19
Fixed
Remuneration
(A$)
FY19
Target
Reward(1)
(A$)
FY20
Fixed
Remuneration
(A$)
FY20
Target
Reward(1)
(A$)
1,770,000
6,018,000
1,815,000
6,171,000
830,000
988,000
790,000
2,490,000
830,000
2,490,000
3,162,000
1,000,000
3,200,000
2,528,000
810,000
2,592,000
Increase
%
2.5
-
1.2
2.5
(1) Target Reward assumes STI paid at 100 per cent of target outcomes, i.e. at 120 per cent of Fixed Remuneration. Target value for the LTI Award takes into account the difficulty
of achieving performance hurdles and anticipated share price volatility. Target value for the LTI Award is therefore 40 per cent of the Face Value.
(2) Katie Tovich was appointed as a member of KMP on 1 May 2019.
STI
We are not changing the design of the STI plan for FY20. The key metrics are aligned to the business priorities and Breakthroughs for
FY20, including:
SUSTAINABILITY
Safety, health, environment and community
FINANCIAL
Adjusted Return on Invested Capital
Production, cost and capital expenditure
STRATEGIC ITEMS
Key elements of the FY20 Business Plan
25%
25%
25%
25%
X
BUSINESS MODIFIER
Applied at the discretion of the Board
=
SOUTH32 BUSINESS OUTCOME
This Business Outcome will refl ect our performance
over the fi nancial year
LTI
We’re not changing the design of the LTI in FY20.
DIRECTOR FEES
Director fees will increase by 2.3 per cent.
Table 1.18 FY20 Annual Board fees (eff ective 1 September 2019)
Fee
Description
Board Fees
Board of Directors
Chair of the Board
Other Non-Executive Directors
Committee Fees Risk and Audit, Remuneration, Sustainability Committees
Committee Chair
Members
FY19
(A$)
FY20
(A$)
Increase
%
565,000
185,000
578,000
189,250
46,000
23,000
46,000
23,000
2.3
2.3
-
-
67
From 1 September 2019, the Travel Allowance will no longer be paid for domestic travel to regularly scheduled Board meetings.
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT STATUTORY DISCLOSURES
STATUTORY REMUNERATION TABLE
In the following table, we’ve set out the statutory disclosures required under the Corporations Act and in accordance with the Australian
Accounting Standards. The amounts shown refl ect the remuneration for each Executive that relates to their service as a KMP in FY19.
Table 1.19 Statutory remuneration of Executive KMP in FY19 (A$’000)
Short-term benefits
Post-employment
benefits
Share-based
payments(4)
Non-
monetary
benefits(2)
Superannuation
benefits
Termination
benefits
Other
long-term
benefits(3)
Executive
KMP
Mr G
Kerr
Mr B
Harris(5)
Mrs K
Tovich(6)
Mr M
Fraser
Mr P
Harvey(7)
TOTAL
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
Salary
1,577
1,654
613
753
122
-
845
858
656
672
Cash
bonus(1)
924
1,015
408
480
72
-
474
553
446
388
29
-
18
7
1
-
31
18
38
14
21
27
18
23
20
-
21
21
123
112
203
183
-
-
-
-
-
-
-
-
-
-
-
-
Percentage
of Total
Remuneration
that is
Performance
Tested
Total
Remuneration
6,979
6,773
2,422
2,789
330
-
3,428
4,229
3,014
2,797
74%
73%
71%
69%
53%
-
71%
77%
71%
69%
LTI
3,386
2,971
933
986
98
-
1,476
2,167
1,279
1,152
STI
878
943
367
463
5
-
490
523
404
394
164
163
65
76
12
-
91
89
68
66
3,813
3,937
2,324
2,436
117
39
400
394
7,172
2,144
7,276
2,323
16,173
16,588
(1) STI is provided half in cash (which is included in the cash bonus column of the table) in September following the end of the performance period and half in deferred equity
(which is included in the share-based payments column of the table). The value of the deferred equity portion is amortised over the vesting period.
(2) Non-monetary benefits are non-pensionable and include such items as insurances and personal tax assistance.
(3) Other long-term benefits are the accounting expense of annual and long-service leave accrued in FY19.
(4) The amounts were not actually provided to the Executive KMP during FY19. The figures are calculated in accordance with Australian Accounting Standards and are the
amortised fair values of equity and equity-related instruments that have been granted to Executive KMP. Refer to Table 1.20 on page 69 in this report for information on awards
outstanding during FY19.
(5) Brendan Harris ceased as a member of KMP eff ective 30 April 2019 and was appointed to the role of Chief Marketing Offi cer (Elect), a non-KMP role. Details above have been
pro-rated for time in the KMP role only.
(6) Katie Tovich was appointed as a member of KMP on 1 May 2019. Previously, Katie was appointed to the role of Vice President Corporate Aff airs, a non-KMP role. Details above
have been pro-rated for time in the KMP role only.
(7) Paul Harvey is a member of the South32 Defi ned Benefi t Superannuation Plan. The amount disclosed in Table 1.19 refl ects the Company contribution as calculated under
AASB119. A more detailed explanation is provided below.
SUPERANNUATION ARRANGEMENTS FOR PAUL HARVEY
Paul Harvey is a member of the South32 Superannuation Plan (Defi ned Benefi t plan). The Defi ned Benefi t plan was in place before the
Demerger and has been closed to new members since January 2002.
In line with other participants in the Defi ned Benefi t plan, Paul’s benefi t is calculated as follows:
■
20 per cent x Final Average Salary x Membership Period x Benefi t Factor
Here’s what this means:
■
The Final Average Salary (which excludes any allowances and bonuses) is the average full-time equivalent of Paul’s salary over the
last three years, which is A$734,451.
■ As at 30 June 2019, he has been a member of the plan for 27 years (Membership Period).
■
The Benefi t Factor depends on your age at the time of leaving South32, and the maximum Benefi t Factor for persons aged 55 years
and over is 1.00. Paul’s Benefi t Factor is 1.00 as at 30 June 2019.
Upon retirement (after preservation age), pension payments are determined by the trustee of the South32 Superannuation Plan on
advice from the plan actuary, which may be subject to agreement with South32. The pension payments are not indexed. If a participant
resigns or retires prior to preservation age there’s no entitlement to the pension and the benefi t reverts to a lump sum.
The superannuation amount we’ve disclosed in Table 1.19 above is Paul’s FY19 current service cost of A$123,000 - calculated under
AASB 119.
68
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT DETAILS OF RIGHTS HELD BY EXECUTIVE KMP
In the following table, we’ve set out more information about the rights over South32 shares held by Executive KMP, including the
movements in rights held during FY19. See page 62 for terms and conditions about our Equity Incentive Plans.
Table 1.20 Detail and movement of rights over South32 shares held by Executive KMP during FY19
Award(1)
Executive KMP
Opening
balance
Number
Mr G Kerr
12,183,804
1,776,544
1,344,220
Number
Number(3)
Grant
Date
Granted in
FY19(2)
Vested in FY19
Forfeited or other
change in FY19
Closing
balance
Vesting
date
S32 FY18 Deferred STI (S)
S32 FY19 LTI (P)
-
-
7-Dec-18
325,725
7-Dec-18
1,450,819
S32 FY17 Deferred STI (S)
272,055
13-Dec-17
S32 FY18 LTI (P)
2,026,717
13-Dec-17
S32 FY16 Deferred STI (S)
359,190
2-Dec-16
S32 FY17 LTI (P)
S32 FY16 LTI (P)
Replacement BHP FY14
LTIP Award (P)
Replacement BHP FY15
LTIP Award (P)
3,277,777
2-Dec-16
3,002,513
10-Dec-15
1,581,485
29-Jun-15
1,664,067
29-Jun-15
-
-
-
-
-
-
-
%
69
-
-
-
-
Number
%
Number
596,455
31
12,019,673
-
-
-
-
-
-
-
-
325,725
1,450,819
272,055
2,026,717
-
-
-
-
357,649
99.6
1,541
0.4
-
-
-
-
-
-
-
-
-
3,277,777
3,002,513
Aug-20
Aug-22
Aug-19
Aug-21
Aug-18
Aug-20
Aug-19
986,571
62
594,914
38
-
Aug-18
-
-
-
-
1,664,067
Aug-19
Mr B Harris(4)
3,410,636
618,812
682,155 99.9
917
0.1
3,346,376
S32 FY18 Deferred STI (S)
S32 FY19 LTI (P)
-
-
7-Dec-18
7-Dec-18
154,332
464,480
S32 FY17 Deferred STI (S)
130,648
13-Dec-17
S32 FY18 LTI (P)
633,587
13-Dec-17
S32 FY16 Deferred STI (S)
213,753
2-Dec-16
S32 FY17 LTI (P)
S32 FY16 LTI (P)
FY16 Transitional
Performance Award (P)
1,024,691
2-Dec-16
938,638
10-Dec-15
469,319
10-Dec-15
Mrs K Tovich(5)
1,132,420
FY19 MSP Retention (S)
55,725
7-Dec-18
FY19 MSP Performance (P)
139,314
7-Dec-18
FY18 MSP Retention (S)
75,725
13-Nov-17
FY18 MSP Performance (P)
189,312
13-Nov-17
FY17 MSP Retention (S)
120,296
17-Nov-16
FY17 MSP Performance (P)
300,740
17-Nov-16
FY16 MSP Performance (P)
251,308
16-Nov-15
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
212,836
99.6
917
0.4
-
-
-
-
469,319
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
154,332
464,480
130,648
633,587
-
1,024,691
938,638
Aug-20
Aug-22
Aug-19
Aug-21
Aug-18
Aug-20
Aug-19
-
Aug-18
1,132,420
55,725
139,314
75,725
189,312
120,296
300,740
251,308
Mr M Fraser(6)
7,182,091
851,508
1,391,364
72
540,520
28
6,101,715
S32 FY18 Deferred STI (S)
S32 FY19 LTI (P)
-
-
7-Dec-18
7-Dec-18
176,645
674,863
S32 FY17 Deferred STI (S)
170,648
13-Dec-17
S32 FY18 LTI (P)
925,572
13-Dec-17
S32 FY16 Deferred STI (S)
171,079
2-Dec-16
S32 FY17 LTI (P)
S32 FY16 LTI (P)
FY15 Transitional
Performance Award (P)
Replacement BHP FY14
LTIP Award
Replacement BHP FY15
LTIP Award (P)
1,496,913
2-Dec-16
1,371,204
10-Dec-15
538,747
29-Jun-15
1,222,058
29-Jun-15
1,285,870
29-Jun-15
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
171,079
100
-
-
457,934
762,351
-
-
-
85
62
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80,813
459,707
15
38
176,645
674,863
170,648
925,572
-
1,496,913
1,371,204
-
-
-
-
1,285,870
Aug-19
Aug-21
Aug-22
Aug-20
Aug-21
Aug-19
Aug-20
Aug-19
Aug-20
Aug-22
Aug-19
Aug-21
Aug-18
Aug-20
Aug-19
Aug-18
Aug-18
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
69
REMUNERATION REPORT
Award(1)
Executive KMP
Mr P Harvey
Opening
balance
Number
3,096,744
664,409
647,832
100
789
Number
Number(3)
%
Number
Grant
Date
Granted in
FY19(2)
Vested in FY19
Forfeited or other
change in FY19
Closing
balance
Vesting
date
S32 FY18 Deferred STI (S)
S32 FY19 LTI (P)
-
-
7-Dec-18
7-Dec-18
124,792
539,617
S32 FY17 Deferred STI (S)
136,342
13-Dec-17
S32 FY18 LTI (P)
739,503
13-Dec-17
S32 FY16 Deferred STI (S)
183,969
2-Dec-16
S32 FY17 LTI (P)
956,790
2-Dec-16
FY17 Transitional
Performance Award (P)
239,197
2-Dec-16
FY16 Advance Award (P)
314,136
16-Nov-15
FY16 MSP Retention (S)
150,516
16-Nov-15
FY16 MSP Performance
(P)
376,291
16-Nov-15
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
183,180
99.6
789
0.4
-
-
-
-
314,136
150,516
100
100
-
-
-
-
-
-
-
-
-
-
-
-
%
0
-
-
-
-
Number
3,112,532
124,792
539,617
136,342
739,503
-
956,790
Aug-20
Aug-22
Aug-19
Aug-21
Aug-18
Aug-20
239,197
Aug-19
-
-
Aug-18
Aug-18
376,291
Aug-19
(1) Replacement Awards refer to the BHP awards that were cancelled and replaced with South32 awards in FY15. At the time of vesting, the quantum of all awards that vest based
on performance conditions will automatically convert to ordinary South32 shares for nil consideration in the participant’s name. Any rights that do not vest will immediately
lapse, hence there is no expiry date associated with the awards. (S) - Service only or (P) - Performance and Service conditions apply. As rights are subject to service and/or
performance conditions, the minimum possible total value of rights granted under South32 Equity Plans for future financial years is nil.
(2) The fair value for awards granted in FY19 is the grant date fair value for accounting purposes being A$2.91 for the FY18 Deferred STI, A$2.79 for the FY19 Management Share
Plan (Retention) and A$1.51 for the FY19 LTI/FY19 Management Share Plan (Performance).
(3) Rights converted to ordinary South32 shares for nil consideration on 24 August 2018. The South32 closing share price on this date was A$3.39.
(4) Brendan Harris ceased as a member of KMP eff ective 30 April 2019. Closing balance is as at this date.
(5) Katie Tovich was appointed as a member of KMP on 1 May 2019. Opening balance is as at this date.
(6) Mike Fraser’s FY15 Transitional Performance Award was granted in 2015 to bridge the gap between his Target Remuneration as a member of BHP’s Group Management
Committee and his Target Remuneration at South32, which was of a lesser value. The award had three equal tranches of 538,747 rights vesting in FY16, FY17 and FY18.
The level of vesting was dependent on the Board’s assessment of (1) TSR performance; (2) Company performance; and (3) Mike’s performance in role over the relevant period.
DETAILS OF AWARDS FOR PAUL HARVEY AND KATIE TOVICH
Before becoming a member of KMP, Paul Harvey and Katie Tovich already held a number of awards. The details of these awards are
outlined in Table 1.21.
Table 1.21 Key terms and performance conditions of awards
Award
Key Terms and Performance Conditions
Management
Share Plan
The Management Share Plan is our long-term incentive plan for eligible management employees below Lead Team
level. The Plan has two elements:
■ Retention rights with a three-year vesting period from 1 July to 30 June, vesting in August three years from
grant provided employees remain employed by us; and
■ Performance rights with a four-year performance and service period from 1 July to 30 June, vesting in August
four years from grant, subject to the same performance and vesting conditions as our LTI for Executive KMP
(see page 56)
There is no retesting if the performance condition is not met and any rights that do not vest will immediately lapse/
be forfeited.
Rights won’t attract any entitlement to voting, dividends or dividend equivalent payments.
Advance Award
The Advance Award is a one-off grant we made in 2015 to employees who moved from BHP and transitioned
from a three-year BHP Management Award Plan to our Management Share Plan. The awards have a three-year
performance period from 1 July 2015 to 30 June 2018, with vesting in August 2018.
These one-off awards are subject to the same service condition and relative TSR performance and vesting as
detailed above for the Management Share Plan Performance rights, but over a three-year vesting period.
There is no retesting if the performance condition is not met and any rights that do not vest will immediately lapse/
be forfeited.
Rights won’t attract any entitlement to voting, dividends or dividend equivalent payments.
70
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
REMUNERATION REPORT
SHAREHOLDINGS OF KMP
Table 1.22 South32 shares held directly, indirectly or benefi cially by each KMP, including their related parties
Held at
30 June 2018
Received on
vesting of
rights
Received as
remuneration
Other net
change(1)
Held at
30 June 2019
% of Fees/
Fixed
Remuneration(2)
Non-Executive Directors
Mr D Crawford AO(3)
Ms K Wood(4)
Mr F Cooper AO
Dr X Liu
Dr X Mkhwanazi
Dr N Mtoba
Mr W Osborn
Mr K Rumble
Executives
Mr G Kerr
Mr B Harris(5)
Mrs K Tovich(6)
Mr M Fraser
Mr P Harvey
370,627
367,825
122,866
50,000
34,337
37,405
125,704
125,680
–
–
–
–
–
–
–
–
1,278,610
1,344,220
375,690
160,167
682,155
–
1,402,650
1,391,364
98,319
647,832
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,144
10,000
–
31,981
–
–
(633,872)
(403,802)
–
(681,771)
(304,485)
370,627
367,825
128,010
60,000
34,337
69,386
125,704
125,680
1,988,958
654,043
160,167
2,112,243
441,666
209
207
220
103
59
119
216
216
357
245
61
680
178
(1) Other net change includes purchases and sales of vested shares to cover tax liabilities. Refer to 28 August 2018 ASX announcement for the CEO.
(2) Based on the closing share price of South32 shares as at 30 June 2019, of A$3.18.
(3) David Crawford retired as Director eff ective 12 April 2019. Closing balance is as at this date.
(4) Karen Wood was elected as Chair, eff ective 12 April 2019.
(5) Brendan Harris ceased as a member of KMP eff ective 30 April 2019. Closing balance is as at this date.
(6) Katie Tovich was appointed as a member of KMP on 1 May 2019. Opening balance is as at this date.
ADDITIONAL INFORMATION
TRANSACTIONS WITH KMP
During FY19, there were no transactions between KMP or their close family members and the South32 Group.
There are no amounts payable at 30 June 2019.
There are no loans with KMP.
A number of Directors of the Group have control or joint control of other entities (also known as personal entities). There have been no
transactions between those entities and no amounts were owed by or to the South32 Group during the year.
This Remuneration report was approved by our Board on 5 September 2019.
SOUTH32 > ANNUAL REPORT 2019 > REMUNERATION REPORT
71
REMUNERATION REPORT DIRECTORS’ REPORT
DIRECTORS’ REPORT
This report is presented by our Directors, together
This report is presented by our Directors, together
with the Group’s Financial report, for the fi nancial
with the Group’s Financial report, for the fi nancial
year ended 30 June 2019.
year ended 30 June 2019.
The report is prepared in accordance with the requirements of the
The report is prepared in accordance with the requirements of the
Corporations Act, with the following information forming part of
Corporations Act, with the following information forming part of
the report:
the report:
■ Operating and fi nancial review on pages 22 to 39;
■ Operating and fi nancial review on pages 22 to 39;
■ Director biographical information on pages 11 to 14 and
■ Director biographical information on pages 11 to 14 and
Company Secretary biographical information on page 15;
Company Secretary biographical information on page 15;
■ Remuneration report on pages 50 to 71;
■ Remuneration report on pages 50 to 71;
■ Note 19 (a) Financial risk management objectives and policies
■ Note 19 (a) Financial risk management objectives and policies
on pages 103 to 106;
on pages 103 to 106;
■ Note 20 Share capital on page 112;
■ Note 20 Share capital on page 112;
■ Note 21 Auditor’s remuneration on page 113;
■ Note 21 Auditor’s remuneration on page 113;
■ Note 23 Employee share ownership plans on pages
■ Note 23 Employee share ownership plans on pages
113 to 117;
113 to 117;
■ Directors’ declaration on page 126;
■ Directors’ declaration on page 126;
■ Auditor’s independence declaration on page 127;
■ Auditor’s independence declaration on page 127;
■
■
Shareholder information on pages 132 to 134; and
Shareholder information on pages 132 to 134; and
■ Corporate directory (inside back cover).
■ Corporate directory (inside back cover).
DIRECTORS AND MEETINGS
DIRECTORS AND MEETINGS
At the date of this report, the Directors in offi ce were:
At the date of this report, the Directors in offi ce were:
Karen Wood
Karen Wood
Graham Kerr
Graham Kerr
Appointed 1 November 2017
Appointed 1 November 2017
Appointed 21 January 2015
Appointed 21 January 2015
BOARD AND COMMITTEE MEETINGS AND
BOARD AND COMMITTEE MEETINGS AND
DIRECTOR ATTENDANCE
DIRECTOR ATTENDANCE
In FY19, we had nine scheduled Board meetings. You will fi nd
In FY19, we had nine scheduled Board meetings. You will fi nd
the number of Board and Committee meetings, as well as the
the number of Board and Committee meetings, as well as the
Directors who attended them, in Table 1.1.
Directors who attended them, in Table 1.1.
In our Board meeting schedule, we have six face-to-face Board
In our Board meeting schedule, we have six face-to-face Board
and Committee meetings every year. Two days are scheduled for
and Committee meetings every year. Two days are scheduled for
each program and usually include an additional day for a site visit
each program and usually include an additional day for a site visit
to an operation or a professional development activity.
to an operation or a professional development activity.
Because we operate around the world, we held meetings in our
Because we operate around the world, we held meetings in our
main geographic areas. We had three Board meetings in Australia,
main geographic areas. We had three Board meetings in Australia,
and one each in Singapore, South Africa and the United States.
and one each in Singapore, South Africa and the United States.
We also held three meetings by teleconference. In at least one
We also held three meetings by teleconference. In at least one
meeting every year, our Directors take part in a strategy session.
meeting every year, our Directors take part in a strategy session.
In FY19 this was in Singapore.
In FY19 this was in Singapore.
Our Chair sets the agenda for each meeting, with the CEO and the
Our Chair sets the agenda for each meeting, with the CEO and the
Company Secretary. The meetings typically include:
Company Secretary. The meetings typically include:
■ Minutes of the previous meeting;
■ Minutes of the previous meeting;
■ Matters arising;
■ Matters arising;
■ Report from our Chair;
■ Report from our Chair;
■ CEO’s report;
■ CEO’s report;
■
■
Finance report;
Finance report;
■ Marketing report;
■ Marketing report;
■ Health, Safety, Environment and Community (HSEC) report;
■ Health, Safety, Environment and Community (HSEC) report;
■ Board Committee Chair reports;
■ Board Committee Chair reports;
■ Continuous disclosure checkpoint;
■ Continuous disclosure checkpoint;
■ Reports on major projects and strategic matters; and
■ Reports on major projects and strategic matters; and
■ Closed sessions with Directors and closed sessions with Non-
■ Closed sessions with Directors and closed sessions with Non-
Frank Cooper AO
Frank Cooper AO
Appointed 7 May 2015
Appointed 7 May 2015
Executive Directors only.
Executive Directors only.
Dr Xiaoling Liu
Dr Xiaoling Liu
Appointed 1 November 2017
Appointed 1 November 2017
Dr Xolani Mkhwanazi
Dr Xolani Mkhwanazi
Appointed 2 July 2015
Appointed 2 July 2015
Dr Ntombifuthi (Futhi) Mtoba Appointed 7 May 2015
Dr Ntombifuthi (Futhi) Mtoba Appointed 7 May 2015
Wayne Osborn
Wayne Osborn
Keith Rumble
Keith Rumble
Appointed 7 May 2015
Appointed 7 May 2015
Appointed 27 February 2015
Appointed 27 February 2015
The following person was also a Director and Chairman during
The following person was also a Director and Chairman during
FY19:
FY19:
David Crawford
David Crawford
From 2 February 2015 –
From 2 February 2015 –
12 April 2019
12 April 2019
You can fi nd information about our Directors’ qualifi cations,
You can fi nd information about our Directors’ qualifi cations,
experience, special responsibilities and other directorships on
experience, special responsibilities and other directorships on
pages 11 to 14.
pages 11 to 14.
Our Board also receives monthly reports from each of the CFO
Our Board also receives monthly reports from each of the CFO
and CSO to keep Directors on top of our performance outcomes
and CSO to keep Directors on top of our performance outcomes
and sustainability matters. Our Board also receives periodic
and sustainability matters. Our Board also receives periodic
reports on operational and other important business matters
reports on operational and other important business matters
including global political and market updates, market research
including global political and market updates, market research
and investor relations activities.
and investor relations activities.
72
72
72
SOUTH32 > ANNUAL REPORT 2019 > DIRECTORS' REPORT
SOUTH32 > ANNUAL REPORT 2019 > DIRECTORS' REPORT
SOUTH32 > ANNUAL REPORT 2019 > DIRECTORS' REPORT
DIRECTORS’ REPORT Table 1.1 Board and Committee meeting attendance in FY19
Director
Board
Nomination and
Governance Committee
Remuneration
Committee
Risk and Audit
Committee
Sustainability
Committee
Held(1)
Attended(2)
Held(1)
Attended(2)
Held(1)
Attended(2)
Held(1)
Attended(2)
Held(1)
Attended(2)
D Crawford(3)
G Kerr (CEO)
F Cooper
X Liu
X Mkhwanazi
N Mtoba
W Osborn
K Rumble
K Wood(4)
■ Member ■ Chair
8
9
9
9
9
9
9
9
9
8
9
9
9
9
9
9
9
9
4
5
5
5
5
5
5
4
5
5
5
5
5
5
5
5
5
5
5
5
5
5
8
9
9
9
8
9
9
9
6
6
6
6
6
6
6
6
6
6
(1)
(2)
Indicates the number of meetings held during the period the Director was a member of the Board or Committee.
Indicates the number of meetings attended during the period the Director was a member of the Board or Committee.
(3) Mr Crawford retired as a Director and Chairman, eff ective 12 April 2019.
(4) Ms Wood was elected as Chair, eff ective 12 April 2019 and was Chair of the June 2019 Board meeting.
All Non-Executive Directors have a standing invitation to attend
Committee meetings, with the consent of the relevant Committee
Chair. In practice, all Directors generally attend all meetings. Their
attendance is included above only if Directors are a member of
the Committee.
From time to time, our Board also creates other committees to
address important matters and areas of focus for the business.
PRINCIPAL ACTIVITIES,
STATE OF AFFAIRS AND REVIEW
OF OPERATIONS
PRINCIPAL ACTIVITIES
In FY19, the principal activities of the Group were mining and
metal production, from a portfolio of assets that included alumina,
aluminium, bauxite, energy coal, metallurgical coal, manganese
ore, manganese alloy, nickel, silver, lead and zinc.
There were no signifi cant changes in the Group’s principal
activities during the year.
STATE OF AFFAIRS
There were no signifi cant changes in the Group’s state of aff airs
during the year, other than as set out in the Operating and
fi nancial review and Shareholder information on pages 22 to 39,
and 132 to 134 respectively.
REVIEW OF OPERATIONS
We’ve set out a review of the Group’s FY19 operations in the
Operating and fi nancial review on pages 22 to 39. It includes likely
developments in the Group’s operations in future fi nancial years
and expected results.
DIVIDENDS
We paid the following dividends during FY19:
Dividend
Total dividend
Payment date
Final dividend of
US 6.2 cents per share
(fully franked) for the year
ended 30 June 2018
Interim dividend of
US 5.1 cents per share
(fully franked) for the
half year ended
31 December 2018
Special dividend of
US 1.7 cents per share
(fully franked)
US$316 million 11 October 2018
US$256 million
4 April 2019
US$85 million
4 April 2019
MATTERS SINCE THE END OF THE FINANCIAL
YEAR
On 22 August 2019, the Directors resolved to pay a fully franked
fi nal dividend of US 2.8 cents per share (US$140 million) in respect
of the 2019 fi nancial year, with a payment date of 10 October
2019. The dividend has not been provided for in the consolidated
fi nancial statements and will be recognised in the 2020 fi nancial
year.
On 22 August 2019, the Group also announced an extension of
the existing capital management program, announced on
27 March 2017, by US$250 million to a total of US$1.25 billion
along with a 12-month extension to the completion time,
expected to be returned by 4 September 2020. This program has
US$264 million remaining.
No other matters or circumstances have arisen since the end
of the fi nancial year that have signifi cantly aff ected, or may
signifi cantly aff ect, the operations, results of operations or state of
aff airs of the Group in subsequent fi nancial years.
SOUTH32 > ANNUAL REPORT 2019 > DIRECTORS' REPORT
73
DIRECTORS’ REPORT REMUNERATION AND SHARE
INTERESTS
Table 1.2 Directors’ relevant interests in South32 Limited shares
Director
D Crawford(1)
K Wood
G Kerr(2)
F Cooper
X Liu
X Mkhwanazi
N Mtoba
W Osborn
K Rumble
Number of shares in which a
relevant interest is held as at the
date of this Directors’ Report
370,627
367,825
10,373,323
128,010
60,000
53,237
69,386
125,704
161,380
(1) Mr Crawford retired as Director and Chairman eff ective 12 April 2019. Closing
balance is as at this date.
(2) At the date of this Directors’ Report, Mr Kerr’s total interest includes 3,292,285
South32 Limited ordinary shares and 7,081,038 rights over South32 Limited
ordinary shares held under the South32 Equity Incentive Plan.
RIGHTS AND OPTIONS OVER SOUTH32 LIMITED
SHARES
No rights or options over South32 Limited ordinary shares are
held by any of our Non-Executive Directors.
Our Executive Director and Managing Director, Mr Graham Kerr,
holds rights over South32 Limited ordinary shares, granted under
the South32 Equity Incentive Plan. You can fi nd more details about
this in the Remuneration report on page 62.
The total number of rights over South32 Limited ordinary shares
on issue as at 30 June 2019 is set out in note 23 Employee share
ownership plans to the fi nancial statements on page 113 to 117.
No options or rights have been granted since the end of FY19.
As of the date of this report, the total number of rights over
South32 Limited ordinary shares on issue is 58,580,921. The
Remuneration report contains details of rights on issue. No shares
have been issued on vesting of rights during or since the end of
FY19.
COMPANY SECRETARIES
Nicole Duncan BA (Hons), LLB, MAICD, FGIA, FCIS
Nicole Duncan is the Chief People and Legal Offi cer of South32
Limited. She was appointed as Company Secretary on 21 January
2015. You can fi nd out more about Nicole on page 15.
Melanie Williams LLB, GCertCorpMgt, MAICD, FGIA
Melanie Williams is our Vice President Legal (Corporate) and
Company Secretariat. She was appointed Company Secretary on
9 August 2016. Before working at South32, Melanie was Company
Secretary and General Counsel at Tap Oil Limited, worked as
Counsel with an international law fi rm and has held legal and
fi nancial roles with Qatar Petroleum and Woodside Petroleum.
She holds a Bachelor of Laws from the University of Western
Australia and a Graduate Certifi cate of Corporate Management
from Deakin University and the Finance and Treasury Association.
INDEMNITIES AND INSURANCE
We support and hold harmless Directors and employees, including
employees appointed as Directors of a Group company, who
incur personal liability to others as a result of working for us (while
acting in good faith), to the extent we are able under law.
Rule 10.2 of the South32 Constitution requires that we indemnify
each Director and each Company Secretary on a full indemnity
basis and to the extent permitted by law against liability incurred
by them in their capacity as an offi cer of any member of the
Group. The Directors and the Company Secretaries named in this
report have the benefi t of this indemnity (as do individuals who
formerly held one of these positions).
As permitted by our Constitution, South32 Limited has entered
into Deeds of Indemnity, Access and Insurance with each of our
Directors, Company Secretaries and the CFO under which we
agree to indemnify those persons on a full indemnity basis and to
the extent permitted by law. We’re insured against amounts that
we may be liable to pay to Directors, Company Secretaries and
Offi cers of the Group (as defi ned by the Corporations Act) by way
of indemnity.
Our insurance policy also covers Directors, Company Secretaries
and relevant employees against certain liabilities (including
legal costs) they may incur in carrying out their duties. Due to
confi dentiality obligations and undertakings of the insurance policy,
we can’t disclose any further details about the premium or policy.
From time to time, we engage our External Auditor to conduct
non-statutory audit work and provide other services in accordance
with our Provision of Non-Audit Services Policy. The terms of
engagement typically include an indemnity in favour of the
External Auditor:
■ Against all liabilities incurred by the External Auditor in respect
of third party claims arising from a breach of the engagement
terms by the Group; and
For all liabilities the External Auditor has to the Group or any
third party as a result of reliance on information provided by
the Group that is false, misleading or incomplete.
■
During FY19 and as at the date of this Directors’ Report, no
indemnity in favour of a current or former Director or Offi cer of the
Group, or in favour of the External Auditor, has been called on.
CORPORATE GOVERNANCE
Under ASX Listing Rule 4.10.3, ASX listed entities are required
to benchmark their corporate governance practices against
the third edition of the ASX Corporate Governance Council’s
Corporate Governance Principles and Recommendations (ASX
Recommendations). We note the release of the fourth edition
of the ASX Recommendations on 27 February 2019 (New
Recommendations).
As at the date of this report, we comply with all relevant ASX
Recommendations. While the New Recommendations aren’t
eff ective until the fi rst full fi nancial year commencing 1 July 2020,
we’re pleased that our practices align with emerging standards
in many areas. Where appropriate, we’ve shared this in our
Corporate Governance Statement.
Our Corporate Governance Statement is available at
www.south32.net/about-us/corporate-governance. It also
contains the information required under the UK Financial Conduct
Authority’s Disclosure Guidance and Transparency Rules (DTR).
74
SOUTH32 > ANNUAL REPORT 2019 > DIRECTORS' REPORT
DIRECTORS’ REPORT AUDITOR
Our External Auditor has provided an independence declaration
in accordance with the Corporations Act, which is set out on page
127 and forms part of this report.
The External Auditor also provides our Directors with an
independent assurance conclusion. This relates to certain
sustainability information, and is in accordance with the
International Standards on Assurance Engagements ISAE 3000
Assurance Engagement other than the Audits and Reviews of
Historical Financial Information and ISAE 3410 Assurance of
Greenhouse Gas Statements.
We’ve included a copy of the External Auditor’s assurance report
in the FY19 GRI Navigator, available at www.south32.net.
NON-AUDIT SERVICES
On page 113, you can fi nd details of the non-audit services
undertaken by, and amounts paid to, our External Auditor in
note 21 Auditor’s remuneration to the fi nancial statements.
All non-audit services provided by our External Auditor were
considered and approved in accordance with the process set out
in our Provision of Non-Audit Services Policy. No services were
conducted in contravention of that policy.
The Directors have formed the view, based on written advice
from the Risk and Audit Committee, that the provision of non-
audit services during FY19 was compatible with, and did not
compromise, the general standard of auditor independence for
the following reasons:
■ All non-audit services were subject to the corporate
governance procedures and Policies we adopted and have
been reviewed by the Risk and Audit Committee to ensure
they don’t aff ect the integrity or objectivity of the External
Auditor; and
The non-audit services provided don’t involve reviewing
or auditing the External Auditor’s own work or acting in a
management or decision-making capacity for us.
■
POLITICAL DONATIONS AND COMMUNITY
INVESTMENT
Our Code of Business Conduct sets out our approach to political
donations and community investment.
In FY19, we didn’t contribute funds to any politician, elected offi cial
or candidate for public offi ce in any country. Our representatives
attended political functions that charged an attendance fee, and
where attendance was approved beforehand in accordance with
our internal approval requirements. We’ve recorded the details of
attendances and the relevant costs at a corporate level.
In FY19, we contributed US$17.3 million for the purposes of
supporting community programs that comprised cash, in-kind
support and administrative costs. For more information on our
community investment, please visit www.south32.net..
PROCEEDINGS ON BEHALF OF
SOUTH32
No proceedings have been brought or intervened in on our
behalf, nor any application made under section 237 of the
Corporations Act.
ENVIRONMENTAL PERFORMANCE
PERFORMANCE IN RELATION TO ENVIRONMENTAL
REGULATION
We classify environmental incidents based on actual and potential
impact type as defi ned by our internal material risk management
standards.
In FY19, we had one environmental event that resulted in a
major impact to the receiving environment which occurred at
our Worsley Alumina operation. The event related to detection
of dieback infestation (an infection which can impact native plant
species in Western Australia) in an area of the site that contains a
number of threatened species.
Following the event, we have engaged with the relevant
authorities and remain committed to working with them to identify
and implement improvements in our dieback management
aimed at avoiding similar occurrences. No further signifi cant
environmental events were reported in FY19.
FINES AND PROSECUTIONS
In February 2019, our Illawarra Metallurgical Coal operation was
fi ned A$30,000 by the New South Wales Environment Protection
Authority. The fi ne was made up of two A$15,000 amounts for
failure to operate/maintain pollution control equipment and
alleged pollution/impact to the Georges River against conditions
of our Environmental Protection Licence.
No impacts to aquatic fauna were observed, and because we
promptly pumped the discharge back to on-site storage dams
at Appin East colliery, we reduced the potential environmental
impacts.
Tests we did two weeks after the Environmental Protection
Authority inspection showed water in the area was clear with
no residue detected. Our environment personnel carried
out remediation work and have improved our maintenance
and monitoring systems with the intention to avoid a similar
occurrence in the future.
ROUNDING OF AMOUNTS
We’ve applied the Australian Securities and Investments
Commission (ASIC) Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191 to this report. This means the
amounts in the fi nancial statements have been rounded to the
nearest million US dollars, unless stated otherwise.
SOUTH32 > ANNUAL REPORT 2019 > DIRECTORS' REPORT
75
DIRECTORS’ REPORT RESPONSIBILITY STATEMENT
The Directors state that to the best of their knowledge:
a) The consolidated fi nancial statements and notes on pages 78 to 125 were prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, fi nancial position and profi t and loss of the Group and the undertakings
included in the consolidation taken as a whole; and
b) The Directors’ Report includes a fair review of the development and performance of the business and the position of the Group and
the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties
they face.
This Directors’ Report is made in accordance with a resolution of the Board.
Karen Wood
Chair
Graham Kerr
Chief Executive Offi cer and Managing Director
Date: 5 September 2019
76
SOUTH32 > ANNUAL REPORT 2019 > DIRECTORS' REPORT
DIRECTORS’ REPORT FINANCIAL REPORT
FINANCIAL REPORT
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
CONSOLIDATED CASH FLOW STATEMENT
CONSOLIDATED CASH FLOW STATEMENT
CONSOLIDATED STATEMENT OF CHANGES
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
IN EQUITY
NOTES TO FINANCIAL STATEMENTS –
NOTES TO FINANCIAL STATEMENTS –
BASIS OF PREPARATION
BASIS OF PREPARATION
1. Reporting entity
1. Reporting entity
2. Basis of preparation
2. Basis of preparation
3. New standards and interpretations
3. New standards and interpretations
NOTES TO FINANCIAL STATEMENTS –
NOTES TO FINANCIAL STATEMENTS –
RESULTS FOR THE YEAR
RESULTS FOR THE YEAR
4. Segment information
4. Segment information
5. Expenses
5. Expenses
6. Tax
6. Tax
7. Dividends
7. Dividends
8. Earnings per share
8. Earnings per share
NOTES TO FINANCIAL STATEMENTS –
NOTES TO FINANCIAL STATEMENTS –
OPERATING ASSETS AND LIABILITIES
OPERATING ASSETS AND LIABILITIES
9. Trade and other receivables
9. Trade and other receivables
10. Inventories
10. Inventories
11. Property, plant and equipment
11. Property, plant and equipment
12. Intangible assets
12. Intangible assets
13. Impairment of non-fi nancial assets
13. Impairment of non-fi nancial assets
14. Trade and other payables
14. Trade and other payables
15. Provisions
15. Provisions
NOTES TO FINANCIAL STATEMENTS –
NOTES TO FINANCIAL STATEMENTS –
CAPITAL STRUCTURE AND FINANCING
CAPITAL STRUCTURE AND FINANCING
16. Cash and cash equivalents
16. Cash and cash equivalents
17. Interest bearing liabilities
17. Interest bearing liabilities
18. Net fi nance cost
18. Net fi nance cost
19. Financial assets and fi nancial liabilities
19. Financial assets and fi nancial liabilities
20. Share capital
20. Share capital
NOTES TO FINANCIAL STATEMENTS –
NOTES TO FINANCIAL STATEMENTS –
OTHER NOTES
OTHER NOTES
21. Auditor’s remuneration
21. Auditor’s remuneration
22. Pension and other post-retirement obligations
22. Pension and other post-retirement obligations
23. Employee share ownership plans
23. Employee share ownership plans
24. Contingent liabilities
24. Contingent liabilities
25. Commitments
25. Commitments
26. Subsidiaries
26. Subsidiaries
27. Equity accounted investments
27. Equity accounted investments
28. Interest in joint operations
28. Interest in joint operations
29. Key management personnel
29. Key management personnel
30. Related party transactions
30. Related party transactions
31. Parent entity information
31. Parent entity information
32. Acquisition of subsidiaries and joint
32. Acquisition of subsidiaries and joint
controlled operations
controlled operations
33. Subsequent events
33. Subsequent events
78
78
79
79
80
80
81
81
82
82
83
83
83
83
83
83
83
83
85
85
85
85
90
90
91
91
93
93
94
94
94
94
94
94
94
94
95
95
97
97
98
98
100
100
100
100
102
102
102
102
102
102
103
103
103
103
112
112
113
113
113
113
113
113
113
113
118
118
118
118
119
119
120
120
122
122
122
122
123
123
124
124
124
124
125
125
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
77
77
77
FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2019
US$M
Revenue:
Group production
Third party products and services
Other income
Expenses excluding net fi nance cost
Share of profi t/(loss) of equity accounted investments
Profi t/(loss)
Comprising:
Group production
Third party products and services
Profi t/(loss)
Finance expenses
Finance income
Net fi nance cost
Profi t/(loss) before tax
Income tax (expense)/benefi t
Profi t/(loss) after tax
Attributable to:
Equity holders of South32 Limited
Profi t/(loss) for the year attributable to the equity holders of South32 Limited:
Basic earnings per share (cents)
Diluted earnings per share (cents)
The accompanying notes form part of the consolidated fi nancial statements.
Note
FY19
FY18
4
4
5
27
18
6
6,468
806
7,274
238
6,682
867
7,549
226
(7,092)
(6,577)
467
887
882
5
887
(151)
67
(84)
803
(414)
389
521
1,719
1,694
25
1,719
(168)
68
(100)
1,619
(287)
1,332
389
1,332
8
8
7.7
7.6
25.8
25.4
78
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2019
US$M
Profi t/(loss) for the year
Other Comprehensive Income
Items that may be reclassifi ed to the Consolidated Income Statement:
Available for sale investments:
Net gains/(losses) recognised in equity
Net (gains)/losses transferred to the Consolidated Income Statement
Tax benefi t/(expense) recognised within Other Comprehensive Income
Cash Flow hedges:
Net gains/(losses) recognised in equity
Transfer of net (gains)/losses recognised in equity
Total items that may be reclassifi ed to the Consolidated Income Statement
Items not to be reclassifi ed to the Consolidated Income Statement:
Investments in equity instruments designated as fair value through Other Comprehensive
Income (FVOCI):
Net fair value gains/(losses)
Tax benefi t/(expense)
Equity accounted investments – share of Other Comprehensive Income/(loss), net of tax
Gains/(losses) on pension and medical schemes
Tax benefi t/(expense) recognised within Other Comprehensive Income
Total items not to be reclassifi ed to the Consolidated Income Statement
27
15
Total Other Comprehensive Income/(loss)
Total Comprehensive Income/(loss)
Attributable to:
Equity holders of South32 Limited
The accompanying notes form part of the consolidated fi nancial statements.
Note
FY19
389
FY18
1,332
-
-
-
-
(5)
(5)
(26)
10
66
(3)
1
48
43
432
170
(33)
(3)
5
-
139
-
-
1
4
(1)
4
143
1,475
432
1,475
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
79
FINANCIAL REPORT
CONSOLIDATED BALANCE SHEET
as at 30 June 2019
US$M
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other fi nancial assets
Inventories
Current tax assets
Other
Total current assets
Non-current assets
Trade and other receivables
Other fi nancial assets
Inventories
Property, plant and equipment
Intangible assets
Equity accounted investments
Deferred tax assets
Other
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Interest bearing liabilities
Other fi nancial liabilities
Current tax payables
Provisions
Deferred income
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Deferred tax liabilities
Provisions
Deferred income
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Treasury shares
Reserves
Retained earnings/(accumulated losses)
Total equity attributable to equity holders of South32 Limited
Non-controlling interests
Total equity
The accompanying notes form part of the consolidated fi nancial statements.
Note
FY19
FY18
16
9
19
10
9
19
10
11
12
27
6
14
17
19
15
14
17
6
15
20
20
1,408
2,970
888
108
952
7
38
826
80
886
8
51
3,401
4,821
290
272
68
248
613
76
9,596
8,196
233
688
155
12
221
697
245
16
11,314
14,715
10,312
15,133
880
313
-
179
312
4
830
333
2
135
360
4
1,688
1,664
1
591
334
1,925
8
2,859
4,547
5
596
445
1,705
9
2,760
4,424
10,168
10,709
14,212
14,493
(105)
(3,490)
(448)
(83)
(3,333)
(367)
10,169
10,710
(1)
(1)
10,168
10,709
80
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2019
US$M
Operating activities
Profi t/(loss) before tax
Adjustments for:
Non-cash signifi cant items
Depreciation and amortisation expense
Impairments of property, plant and equipment
Employee share awards expense
Net fi nance cost
Share of (profi t)/loss of equity accounted investments
Fair value (gains)/losses on derivative instruments and other investments
Other non-cash or non-operating items
Changes in assets and liabilities:
Trade and other receivables
Inventories
Trade and other payables
Provisions and other liabilities
Cash generated from operations
Interest received
Interest paid
Income tax (paid)/received
Dividends received
Dividends received from equity accounted investments
Net cash fl ows from operating activities
Investing activities
Purchases of property, plant and equipment
Exploration expenditure
Exploration expenditure expensed and included in operating cash fl ows
Purchase of intangibles
Investment in fi nancial assets
Acquisition of subsidiaries and jointly controlled entities, net of their cash
Cash outfl ows from investing activities
Proceeds from sale of property, plant and equipment and intangibles
Proceeds from fi nancial assets
Distribution from equity accounted investments
Net cash fl ows from investing activities
Financing activities
Proceeds from interest bearing liabilities
Repayment of interest bearing liabilities
Purchase of shares by ESOP Trusts
Share buy-back
Dividends paid
Net cash fl ows from fi nancing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the beginning of the fi nancial year
Foreign currency exchange rate changes on cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the end of the fi nancial year
16
The accompanying notes form part of the consolidated fi nancial statements.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
Note
FY19
FY18
803
1,619
-
757
504
38
84
(467)
35
1
6
(58)
(13)
(64)
1,626
71
(70)
(346)
-
536
(31)
742
-
40
100
(521)
76
(12)
(153)
(99)
(22)
(118)
1,621
64
(70)
(306)
14
394
1,817
1,717
(652)
(74)
46
(30)
(411)
(1,507)
(2,628)
5
305
6
(2,312)
3
(37)
(99)
(281)
(657)
(1,071)
(1,566)
2,970
2
1,406
(430)
(40)
38
(4)
(273)
-
(709)
1
407
-
(301)
4
(77)
(84)
(254)
(708)
(1,119)
297
2,675
(2)
2,970
81
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2019
US$M
Share
capital
Treasury
shares
Financial
assets
reserve(1)
Employee
share
awards
reserve(2)
Retained
earnings/
(accumulated
losses)
Other
reserves(3)
Non-
controlling
interests
Total
Total
equity
Attributable to equity holders of South32 Limited
Balance as at 1 July 2018
14,493
(83)
164
Adjustments for transition to new
accounting standards(4)
-
Restated balance as at 1 July 2018
14,493
-
(83)
Profi t/(loss) for the year
Other Comprehensive Income/(loss)
Total Comprehensive Income/(loss)
Transactions with owners:
Dividends
-
-
-
-
Shares bought back and cancelled
(281)
Accrued employee entitlements
for unexercised awards, net of tax
Purchase of shares by ESOP Trusts
Employee share awards exercised
following vesting
Tax recognised for employee
awards exercised
Transfer of cumulative fair value
gain on equity instruments
designated at FVOCI(5)
-
-
-
-
-
-
-
-
-
-
-
(99)
77
-
-
Balance as at 30 June 2019
14,212
(105)
Balance as at 1 July 2017
14,747
(26)
Profi t/(loss) for the year
Other Comprehensive Income/(loss)
Total Comprehensive Income/(loss)
Transactions with owners:
Dividends
-
-
-
-
Shares bought back and cancelled
(254)
Accrued employee entitlements
for unexercised awards, net of tax
Purchase of shares by ESOP Trusts
Employee share awards exercised
following vesting
-
-
-
Balance as at 30 June 2018
14,493
-
-
-
-
-
-
(84)
27
(83)
(12)
152
-
(16)
(16)
-
-
-
-
-
-
(145)
(9)
30
-
134
134
-
-
-
-
-
164
88
-
88
-
-
-
-
-
49
-
(28)
-
-
(3,585)
(367)
10,710
(1)
10,709
-
10
(2)
-
(2)
(3,585)
(357)
10,708
(1)
10,707
-
(5)
(5)
-
-
-
-
-
-
-
389
64
453
(657)
-
-
-
(49)
17
389
43
432
(657)
(281)
49
(99)
-
17
145
-
-
-
-
-
-
-
-
-
-
-
389
43
432
(657)
(281)
49
(99)
-
17
-
109
(3,590)
(448)
10,169
(1)
10,168
57
(3,590)
(982)
10,236
(1)
10,235
-
-
-
-
-
45
-
(14)
88
-
5
5
-
-
-
-
-
1,332
1,332
4
143
1,336
1,475
(708)
-
-
-
(708)
(254)
45
(84)
(13)
-
-
-
-
-
-
-
-
-
1,332
143
1,475
(708)
(254)
45
(84)
-
(3,585)
(367)
10,710
(1)
10,709
(1) Represents the fair value movement in fi nancial assets designated as FVOCI.
(2) Represents the accrued employee entitlements to share awards that have not yet vested.
(3) Primarily consists of the common control transaction reserve of US$3,569 million, which refl ects the diff erence between consideration paid and the carrying value of assets and
liabilities acquired, as well as the gains/losses on disposal of entities as part of the Demerger of the Group in 2015.
(4) Refer to note 3 New standards and interpretations.
(5) The Group completed its acquisition of the remaining 83 per cent of issued and outstanding shares of Arizona Mining Inc. and derecognised its existing 17 per cent interest as
an investment in equity instruments designated as FVOCI.
The accompanying notes form part of the consolidated fi nancial statements.
82
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS – BASIS OF PREPARATION
(b) Foreign currency translation
The functional currency of the majority of the Group’s operations
is the US dollar as this is assessed to be the principal currency of
the economic environments in which they operate.
Transactions denominated in foreign currencies are initially
recorded in the functional currency using the exchange rate ruling
at the date of the underlying transaction. Monetary assets and
liabilities denominated in foreign currencies are translated using
the rate of exchange at year end. Exchange gains or losses on
retranslation are included in the Consolidated Income Statement,
with the exception of foreign exchange gains or losses on foreign
currency provisions for closure and rehabilitation which are
capitalised in property, plant and equipment for operating sites.
3. NEW STANDARDS AND INTERPRETATIONS
(a) New accounting standards and interpretations
eff ective from 1 July 2018
The Group has changed some of its accounting policies as a result
of new or revised accounting standards which became eff ective
for the annual reporting period commencing on 1 July 2018. New
policies and standards are:
AASB 9 Financial Instruments
The Group has adopted AASB 9 with a date of initial application
of 1 July 2018. The nature and impact of the key changes to the
Group’s accounting policies resulting from the adoption of AASB 9
are summarised below.
(i)
Classifi cation and measurement of fi nancial assets and
fi nancial liabilities
AASB 9 contains three principal classifi cation categories for
fi nancial assets: measured at amortised cost, fair value through
Other Comprehensive Income (FVOCI) and fair value through profi t
or loss (FVTPL). The classifi cation of a fi nancial asset is based
on the cash fl ow characteristics and the business model used
for the management of the fi nancial asset. AASB 9 eliminates
the previous AASB 139 Financial Instruments: Recognition and
Measurement fi nancial asset classifi cation of held to maturity,
loans and receivables and available for sale. On an instrument by
instrument basis, a policy choice has been made to designate
fi nancial assets previously classifi ed as available for sale
investments (under AASB 139) as fi nancial assets designated as
FVOCI. In the absence of this policy choice, the investments will be
accounted for as FVTPL.
The adoption of AASB 9 has not had a signifi cant impact on the
Group’s accounting policies for fi nancial liabilities as
AASB 9 largely retains the existing requirements in AASB 139 for
the classifi cation and measurement of fi nancial liabilities.
(ii)
Impairment of fi nancial assets
AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an
expected credit loss model. The new impairment model applies
to fi nancial assets measured at amortised cost, contract assets
and debt investments classifi ed as FVOCI, but not to investments
in equity instruments. Under AASB 9, credit losses are recognised
earlier than under AASB 139.
This section sets out the accounting policies that relate to the
consolidated fi nancial statements of South32 Limited (referred
to as the Company) and its subsidiaries and joint arrangements
(collectively, the Group) as a whole. Where an accounting policy,
critical accounting estimate, assumption or judgement is specifi c
to a note, these are described within the note to which they
relate. These policies have been consistently applied to all periods
presented, except as described in note 3 New standards and
interpretations.
The consolidated fi nancial statements of the Group for the year
ended 30 June 2019 were authorised for issue in accordance with
a resolution of the Directors on 5 September 2019.
1. REPORTING ENTITY
South32 Limited is a for-profi t company limited by shares
incorporated in Australia with a primary listing on the Australian
Securities Exchange (ASX), a standard listing on the London Stock
Exchange (LSE) and a secondary listing on the Johannesburg
Stock Exchange (JSE).
The nature of the operations and principal activities of the Group
are described in note 4 Segment information.
2. BASIS OF PREPARATION
The consolidated fi nancial statements are a general purpose
fi nancial report which:
■ Have been prepared in accordance with the requirements
of the Corporations Act, Australian Accounting Standards
and other authoritative pronouncements of the Australian
Accounting Standards Board (AASB), International Financial
Reporting Standards (IFRS) and other authoritative
pronouncements of the International Accounting Standards
Board (IASB);
■ Have been prepared on a historical cost basis, except for
derivative fi nancial instruments and certain other fi nancial
assets and liabilities which are required to be measured at fair
value;
■ Are presented in US dollars, which is the functional currency
of the majority of the Group’s operations, and all values are
rounded to the nearest million dollars (US$M or US$ million)
unless otherwise stated, in accordance with ASIC Corporations
Instrument 2016/191;
■ Present reclassifi ed comparative information where required
for consistency with the current year’s presentation;
■ Adopt all new and amended Accounting Standards and
Interpretations issued by the AASB that are relevant to the
operations of the Group and eff ective for reporting periods
beginning on or after 1 July 2018. Refer to note 3 New
standards and interpretations, for further details; and
■ Do not early adopt any Accounting Standards and
Interpretations that have been issued or amended but are
not yet eff ective except for those described in note 3 New
standards and interpretations.
(a) Basis of consolidation
The consolidated fi nancial statements comprise the fi nancial
statements of the Group. A list of signifi cant controlled entities
(subsidiaries) at year end is contained in note 26 Subsidiaries.
The fi nancial statements of subsidiaries are prepared for the same
reporting period as the parent entity, using consistent accounting
policies.
Changes in the Group’s interest in a subsidiary that do not result
in a loss of control are accounted for as equity transactions.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
83
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – BASIS OF PREPARATION
3. NEW STANDARDS AND INTERPRETATIONS (CONTINUED)
(a)
New accounting standards and interpretations eff ective from 1 July 2018 (continued)
AASB 9 Financial Instruments (continued)
(iii) Transition
For transition, the Group has elected to apply the limited exemption in AASB 9 relating to the classifi cation, measurement and
impairment requirements for fi nancial assets and accordingly has not restated comparative periods. Any resulting adjustments to
carrying values in the opening balance sheet have been recognised in opening retained earnings as at 1 July 2018.
The following table summarises the impact, net of tax, of transition to AASB 9 on retained earnings at 1 July 2018.
US$M
Retained earnings/(accumulated losses)
Closing balance under AASB 139 (30 June 2018)
Recognition of expected credit losses under AASB 9
Reclassifi cation of available for sale investments to investments held at FVTPL(1)
Tax impact
Opening balance under AASB 9 (1 July 2018)
Impact from
adopting AASB 9
on 1 July 2018
(367)
(2)
17
(5)
(357)
(1) The investment in unit trusts held by the South32 South Africa Energy Coal Rehabilitation Trust Fund does not meet the defi nition of an equity instrument under AASB 9. These
investments are therefore classifi ed as investments held at FVTPL (FY18: Available for sale). Refer to note 19 Financial assets and fi nancial liabilities.
(iv) Classifi cation of fi nancial assets and fi nancial liabilities on the date of initial application of AASB 9
Classifi cation under AASB 139
Classifi cation under AASB 9
Carrying amount
US$M
Financial assets
Cash and cash equivalents
Trade and other receivables(1)
Trade and other receivables – provisional
pricing
Derivative contracts
Derivative contracts
Loans to equity accounted investments(1)
Interest bearing loans receivable
Loans and receivables
Loans and receivables
Held at FVTPL
Held at FVTPL
Cash fl ow hedges
Loans and receivables
Loans and receivables
Amortised cost
Amortised cost
Held at FVTPL
Held at FVTPL
Cash fl ow hedges
Amortised cost
Amortised cost
Investments in equity instruments – FVOCI(2)
Available for sale
Designated as FVOCI – Equity
Other investments – held at FVTPL(3)
Available for sale
Held at FVTPL
Financial liabilities
Trade and other payables
Trade and other payables – provisional
pricing
Derivative contracts
Finance leases
Unsecured other
Other fi nancial liabilities at
amortised cost
Amortised cost
Held at FVTPL
Held at FVTPL
Held at FVTPL
Other fi nancial liabilities at
amortised cost
Other fi nancial liabilities at
amortised cost
Held at FVTPL
Amortised cost
Amortised cost
2,970
575
87
146
5
93
38
406
136
820
2
2
570
359
(1) Trade and other receivables and loans to equity accounted investments are reduced by the recognition of an impairment provision as a result of applying the expected credit
loss model under AASB 9, US$1 million each. The impact was recognised in opening retained earnings at 1 July 2018 on transition to AASB 9.
(2)
Investments in equity instruments designated as FVOCI represent investments that the Group intends to hold for long-term strategic purposes. As permitted by AASB 9, on an
instrument by instrument basis, the Group has elected to designate these investments as held at FVOCI at the date of initial application.
(3) Other investments held at FVTPL which were previously classifi ed as available for sale, are not equity instruments and are therefore unable to be designated as investments
held at FVOCI.
84
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS –
BASIS OF PREPARATION
NOTES TO FINANCIAL STATEMENTS –
RESULTS FOR THE YEAR
This section focuses on the results and performance of the
Group. This covers both profi tability and the resultant return to
shareholders via earnings per share.
4. SEGMENT INFORMATION
(a) Description of segments
The operating segments (also referred to as operations) are
organised and managed separately according to the nature of
products produced.
Certain members of the Lead Team (the chief operating decision
makers) and the Board of Directors monitor the segment results
regularly for the purpose of making decisions about resource
allocation and performance assessment. The segment information
for the manganese operations are presented on a proportional
consolidation basis, which is the measure used by the Group’s
management to assess their performance.
The principal activities of each operating segment as the Group is
currently structured are summarised as follows:
Operating segment
Principal activities
Worsley Alumina
Integrated bauxite mine and alumina
refi nery in Western Australia, Australia
Hillside Aluminium Aluminium smelter in South Africa
Mozal Aluminium
Aluminium smelter in Mozambique
Brazil Alumina
Alumina refi nery in Brazil
South Africa
Energy Coal
Open-cut and underground energy coal
mines and processing operations in South
Africa
Illawarra
Metallurgical Coal
Underground metallurgical coal mines in
New South Wales, Australia
Eagle Downs
Metallurgical Coal(1)
Exploration and development of
metallurgical coal deposit in Queensland,
Australia
Australia
Manganese
South Africa
Manganese
Cerro Matoso
Cannington
Hermosa(2)
Integrated producer of manganese ore in
the Northern Territory and alloy in Tasmania,
Australia
Integrated producer of manganese ore and
alloy in South Africa
Integrated laterite ferronickel mining and
smelting complex in Colombia
Silver, lead and zinc mine in Queensland,
Australia
Exploration and development option for
zinc, lead and silver sulphide deposit in
Tucson, United States
(1) The Eagle Downs Metallurgical Coal operating segment was acquired on 14
September 2018. Refer to note 32(b) Acquisition of the Eagle Downs Metallurgical
Coal project.
(2) The Hermosa operating segment was acquired on 10 August 2018. Refer to note
32(a) Acquisition of Arizona Mining Inc.
All operations are operated or jointly operated by the Group
except Brazil Alumina, which is operated by Alcoa.
3.
NEW STANDARDS AND INTERPRETATIONS
(CONTINUED)
(a)
New accounting standards and interpretations
eff ective from 1 July 2018 (continued)
AASB 15 Revenue from Contracts with Customers
The Group adopted AASB 15 from 1 July 2018 using the modifi ed
retrospective approach where transitional adjustments are
recognised in retained earnings. Therefore, the comparative
information has not been restated and continues to be reported
under AASB 118 Revenue.
The impact of the change in accounting policy did not have a
material impact on the amount of revenue recognised as the
transfer of risk and rewards under AASB 118 is equivalent to the
fulfi lment of the performance obligation to deliver commodities.
Any diff erences arising from freight services for Cost, Insurance
and Freight (CIF) contracts are immaterial in the current and
comparative periods.
Revenue has been recognised net of treatment and refi ning
charges, previously recognised on a gross basis with treatment
and refi ning charges included as a separate expense.
(b)
New standards and interpretations issued but not
eff ective
Certain new accounting standards and interpretations have
been published that are not eff ective for the 30 June 2019
reporting period. The Group has reviewed these standards and
interpretations, and with the exception of the item listed below,
none of the new or amended standards will signifi cantly aff ect the
Group’s accounting policies, fi nancial position or performance. The
Group does not intend to early adopt any of the new standards or
interpretations.
AASB 16 Leases (eff ective from 1 July 2019)
AASB 16 will generally result in leases being recognised on the
Consolidated Balance Sheet, as the distinction between operating
and fi nance leases is removed. The Group will elect to apply AASB
16 using the modifi ed retrospective approach and will therefore
not restate comparative information. The Group will also apply the
practical expedient to ‘grandfather’ previous lease assessments of
existing contracts and will apply the AASB 16 lease defi nition only
to new contracts entered into after 1 July 2019.
On transition, the present value of the Group’s operating lease
commitments excluding low-value and short-term leases, will
be shown as right-of-use assets and as right-of-use liabilities on
the Consolidated Balance Sheet. Optional renewable periods will
be included in the lease term if it is reasonably certain that an
extension will occur. In addition, variable lease payments linked to
a rate or an index, such as CPI, are now required to be recognised
within the lease liability and right-of-use asset when eff ective.
Lessees will be required to separately recognise the interest
expense on the lease liability and the depreciation expense on the
right-of-use asset. The only exceptions are short-term and low-
value leases.
The Group has completed an impact assessment of AASB 16 and
the expected impact on the Consolidated Balance Sheet at 1 July
2019 is approximately:
US$M
Right-of-use assets(1)
Right-of-use liabilities(1)
140
(140)
(1)
Includes US$52 million of variable lease payments based on a rate or an index,
such as CPI.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
85
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – RESULTS FOR THE YEAR
For certain commodities, the sales price is determined on a
provisional basis at the date of sale and adjustments to the sales
price subsequently occur based on movements in quoted market
or contractual prices up to the date of fi nal pricing. The period
between provisional invoicing and fi nal pricing is up to 180 days.
Revenue on provisionally priced sales is recognised based on the
estimated fair value of the total consideration receivable. The
revenue adjustment mechanism embedded within provisionally
priced sales arrangements has the characteristics of a commodity
derivative. Accordingly, the fair value of the fi nal sales price
adjustment is re-estimated continuously and changes in fair value
are disclosed separately as ‘Other’ revenue. In all cases, fair value
is estimated by reference to forward market prices.
Revenue from the provision of freight services
The Group sells most of its commodities on either FOB or CIF
Incoterms. In the case of CIF Incoterms, the Group is responsible
for shipping services after the date at which control of the
commodities passes to the customer at the port of loading. The
provision of shipping services in these types of arrangements
are a distinct service (and therefore a separate performance
obligation) to which a portion of the transaction price should be
allocated and recognised over time as the shipping services are
provided. The Group also provides third party freight services
which are recognised as the shipping service is provided.
The Group does not disclose sales revenue from freight services
separately as it does not consider this necessary in order to
understand the impact of economic factors on the Group.
Revenue recognition policy applicable up to 30 June 2018
The revenue recognition policy under AASB 118 is principally
aligned with the recognition requirements of AASB 15. Under
AASB 118 there was no requirement to disaggregate revenue
and separately disclose revenue from customers and provisionally
priced contracts ('Other' revenue). For provisionally priced
contracts the fair value of the fi nal sales price adjustment is re-
estimated continuously and changes in fair value are recognised
as an adjustment to total revenue, while under AASB 15 these
adjustments are disclosed separately as 'Other' revenue.
4. SEGMENT INFORMATION (CONTINUED)
(b) Segment results
Segment performance is measured by Underlying EBIT and
Underlying EBITDA. Underlying EBIT is profi t before net fi nance
cost, tax and other earnings adjustment items including
impairments. Underlying EBITDA is Underlying EBIT, before
depreciation and amortisation. A reconciliation of Underlying EBIT,
Underlying EBITDA and the Group’s consolidated profi t after tax is
set out on the following pages. Segment revenue is measured on
the same basis as in the Consolidated Income Statement.
The Group separately discloses sales of group production from
sales of third party products because of the signifi cant diff erence
in profi t margin earned on these sales.
It is the Group’s policy that inter-segment transactions are made
on a commercial basis.
Group and unallocated items/eliminations represent group
centre functions and consolidation adjustments. Group fi nancing
(including fi nance expense and fi nance income) and income taxes
are managed on a Group basis and are not allocated to operating
segments.
Total assets and liabilities for each operating segment represent
operating assets and liabilities which predominantly exclude
the carrying amount of equity accounted investments, cash,
interest bearing liabilities, tax balances and certain other fi nancial
assets. The carrying amount of investments accounted for
using the equity method represents the balance of the Group’s
investment in equity accounted investments, with no adjustment
for cash, interest bearing liabilities and tax balances of the equity
accounted investment.
Revenue recognition policy applicable from 1 July 2018
The Group has applied AASB 15 using the modifi ed retrospective
method. The impact of changes in accounting standards are
disclosed in note 3 New standards and interpretations.
Revenue is measured based on the consideration specifi ed in
the contract with a customer and excludes amounts collected on
behalf of third parties. Revenue is not reduced for royalties and
other taxes payable from group production.
The following is a description of the principal activities from which
the Group generates its revenue.
Revenue from the sale of commodities
The Group primarily sells the following commodities: alumina,
aluminium, energy coal, metallurgical coal, manganese ore,
manganese alloy, ferronickel, silver, lead and zinc. The sales of
these commodities are considered to be performance obligations
as they are the contractual promises by the Group, to transfer
distinct goods to customers.
The transaction price allocated to each performance obligation is
recognised as the performance obligation is satisfi ed. Satisfaction
occurs when control of the promised commodity is transferred to
the customer.
For the sale of commodities, revenue is therefore recognised
at a point in time, net of treatment and refi ning charges (where
applicable). The majority of the Group’s sales agreements specify
that title passes on the bill of lading date (the date the commodity
is delivered to the shipping agent), and is assessed to be the
point of time in which control over the commodity passes to
the customer. For these sales, revenue is recognised on the bill
of lading date. For certain sales (principally energy coal sales to
adjoining power stations), title passes, and revenue is recognised
when the goods have been delivered to the customer.
86
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – RESULTS FOR THE YEAR
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SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
87
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS – RESULTS FOR THE YEAR
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(
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS – RESULTS FOR THE YEAR
4. SEGMENT INFORMATION (CONTINUED)
(ii) Signifi cant items
(b) Segment results (continued)
(i) Earnings adjustments
The following table shows earnings adjustments in determining
Underlying earnings:
Signifi cant items are those items, not separately identifi ed in note
(4)(b)(i) Earnings adjustments, where their nature and amount
is considered material to the consolidated fi nancial statements.
There were no such items included within the Group’s (income)/
expense for the year ended 30 June 2019.
US$M
Adjustments to Underlying EBIT
Signifi cant items(1)
Exchange rate (gains)/losses on
restatement of monetary items(2)
Impairment losses(2)(3)
Fair value (gains)/losses on non-trading
derivative instruments and other
investments(2)(4)(5)
Major corporate restructures(2)(6)
Earnings adjustments included in
profi t/(loss) of equity accounted
investments(7)(8)
Total adjustments to Underlying EBIT
Adjustments to net fi nance cost
Exchange rate variations on net debt
Total adjustments to net fi nance
cost
Adjustments to income tax expense
Tax eff ect of signifi cant items(1)
Tax eff ect of other earnings
adjustments to Underlying EBIT(9)
Tax eff ect of earnings adjustments to
net fi nance cost
Exchange rate variations on tax
balances
Total adjustments to income tax
expense
Total earnings adjustments
FY19
FY18
Year ended 30 June 2018
US$M
Gross
Tax
Net
Unwind of the investment in
Dreamvision(1)(2)
Total signifi cant items
(31)
(31)
1
1
(30)
(30)
(1) Recognised in other income in the Consolidated Income Statement.
(2) Attributable to Group and unallocated items.
Unwind of the investment in Dreamvision
The Group’s investment in Dreamvision Investments 15 (RF) (Pty)
Ltd (Dreamvision) originated in 2006 through the formation of a
Broad-Based Black Economic Empowerment (B-BBEE) transaction.
The transaction contained a lock-in period which expired in
November 2016 and the process to unwind the investment was
triggered. Consequently, the Group elected to receive shares
in Exxaro Resources Limited in exchange for its shareholding
in Dreamvision. The net valuation gain on the available for sale
investment in Dreamvision was transferred from the fi nancial
assets reserve and recognised in the Consolidated Income
Statement.
-
3
504
35
28
(17)
553
(34)
(34)
-
56
10
18
84
603
(31)
(15)
-
73
58
(30)
55
(23)
(23)
1
(34)
7
(11)
(37)
(5)
(1) Refer to note 4(b)(ii) Signifi cant items.
(2) Recognised in expenses excluding net fi nance cost in the Consolidated Income
Statement. Refer to note 5 Expenses.
(3) Relates to impairment on property, plant and equipment included in the South
Africa Energy Coal segment. Refer to note 13 Impairment of non-fi nancial assets.
(4) Primarily relates to US$30 million (FY18: US$57 million) included in the Hillside
Aluminium segment.
(5) The investment in unit trusts held by the South32 South Africa Energy Coal
Rehabilitation Trust Fund does not meet the defi nition of an equity instrument
under AASB 9. These investments are therefore classifi ed as investments held at
FVTPL (FY18: Available for sale).
(6) Primarily relates to US$24 million included in the Hillside Aluminium segment
(FY18: primarily related to US$12 million included in the Illawarra Metallurgical Coal
segment and US$45 million included in Group and unallocated items).
(7) Recognised in share of profi t/(loss) of equity accounted investments in the
Consolidated Income Statement. Refer to note 27 Equity accounted investments.
(8) Relates to (US$17) million (FY18: (US$6) million) included in the Australia
Manganese segment and nil (FY18: (US$24) million) included in the South Africa
Manganese segment.
(9) Primarily includes net US$74 million (FY18: nil) relating to impairment losses in the
South Africa Energy Coal segment. Deferred tax assets of US$99 million (FY18: nil)
were derecognised as utilisation of the future tax benefi ts is no longer considered
probable. Of the US$132 million (FY18: nil) tax eff ect of the impairment loss, a
deferred tax asset of US$25 million has been recognised with the balance of
US$107 million not recognised.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
89
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – RESULTS FOR THE YEAR
4. SEGMENT INFORMATION (CONTINUED)
(c) Geographical information
The geographical information below analyses Group revenue and non-current assets by location. Revenue is presented by the
geographical location of customers and non-current assets are presented by the geographical location of the operations.
Revenue from external
customers
Non-current
assets
US$M
Australia
China
India
Italy
Japan
Middle East
Netherlands
North America
Other Asia
Rest of Europe
Singapore
South America
South Korea
Southern Africa
Switzerland
United Arab Emirates
Unallocated assets(1)
Total
(1) Primarily comprises of other fi nancial assets and deferred tax assets.
5. EXPENSES
US$M
Changes in inventories of fi nished goods and work in progress
Raw materials and consumables used
Wages, salaries and redundancies(1)
Pension and other post-retirement obligations
External services (including transportation)
Third party commodity purchases
Depreciation and amortisation
Net foreign exchange (gains)/losses
Fair value (gains)/losses on derivative instruments and other investments(2)
Government and other royalties paid and payable
Exploration and evaluation expenditure incurred and expensed
Impairments of property, plant and equipment
Operating lease rentals
All other operating expenses
Total expenses
FY19
FY18
601
438
529
188
406
182
437
325
257
549
1,090
48
199
1,214
511
300
-
740
373
487
313
467
243
405
354
159
562
1,076
26
160
1,248
648
288
-
7,274
7,549
Note
11, 12
11, 13
FY19
5,671
FY18
5,454
-
-
-
-
-
-
1,777
-
-
91
1,191
-
2,155
-
-
429
11,314
FY19
(96)
2,297
969
77
1,274
801
757
3
35
181
46
504
46
198
7,092
-
-
-
-
-
-
-
-
-
94
1,300
-
2,594
-
-
870
10,312
FY18
(9)
2,341
1,008
79
1,120
842
742
(15)
76
147
38
-
47
161
6,577
(1)
(2)
Includes earnings adjustments of US$28 million (FY18: US$58 million). Refer to note 4(b)(i) Earnings adjustments.
Includes fair value (gains)/losses on non-trading derivative instruments and other investments of US$35 million (FY18:US$73 million). Refer to note 4(b)(i) Earnings adjustments.
90
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – RESULTS FOR THE YEAR
6. TAX
Income tax expense comprises current and deferred tax and is recognised in the Consolidated Income Statement except to the extent
that it relates to items recognised directly in the Consolidated Statement of Comprehensive Income.
(a) Income tax expense
US$M
Current income tax expense/(benefi t)
Deferred income tax expense/(benefi t)
Total income tax expense/(benefi t)
Income tax expense/(benefi t)
FY19
FY18
313
101
414
333
(46)
287
Income tax expense/(benefi t) for the period is the tax payable on the current period’s taxable income/(loss) based on the applicable
income tax rate for each jurisdiction adjusted for changes in deferred tax assets and liabilities attributable to temporary diff erences and
to unused tax losses. Current tax is calculated using the tax rates enacted or substantively enacted at period end, and includes any
adjustment to tax payable in respect of previous years.
(b)
Reconciliation of prima facie tax expense to income tax expense
FY19
%
US$M
FY18
%
(Profi t)/loss before tax
Deduct: Profi t from equity accounted investments
(Profi t)/loss subject to tax
Income tax on profi t/(loss) at standard rate of 30 per cent
Tax rate diff erential on non Australian income
Exchange variations and other translation adjustments
Withholding tax on distributed earnings
Derecognition of future tax benefi ts
Future tax benefi ts not recognised on impairments
Change in tax rates
Resolution of pre-demerger tax disputes
Foreign exploration
Other
(803)
(467)
(336)
101
61
18
8
111
107
(5)
-
7
6
(30.0)
(18.2)
(5.4)
(2.4)
(33.1)
(31.8)
1.5
-
(2.1)
(1.8)
Total income tax expense/(benefi t)
(123.3)
414
(30.0)
0.3
1.0
(1.1)
(1.3)
-
1.4
4.1
(0.5)
(0.1)
(26.2)
US$M
(1,619)
(521)
(1,098)
329
(3)
(11)
12
14
-
(15)
(45)
5
1
287
When equity accounted investments are included in the profi t before tax used to calculate the Group’s eff ective tax rate, the rate drops
from (123.3) per cent to (51.6) per cent (FY18: (17.7) per cent).
Profi t from equity accounted investments has been excluded from eff ective tax rate calculations for the Group to enable an accurate
comparison of accounting profi t to income tax expense.
Profi t from equity accounted investments has been taxed by companies other than South32 Limited, being the companies whose results
are disclosed as equity accounted investments in the consolidated fi nancial statements.
Refer to note 27 Equity accounted investments for further details of the Group’s equity accounted investments.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
91
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – RESULTS FOR THE YEAR
6. TAX (CONTINUED)
(c) Movement in deferred tax balances
The composition of the Group’s net deferred tax asset and liability recognised in the Consolidated Balance Sheet and the deferred tax
expense charged/(credited) to the Consolidated Income Statement is as follows:
US$M
Type of temporary diff erence
Depreciation
Employee benefi ts
Closure and rehabilitation
Other provisions
Deferred charges
Non tax-depreciable fair value adjustments, revaluations and mineral
rights
Tax-eff ected losses
Brazil Alumina incentives(1)
Finance leases
Other
Total
Deferred
tax assets
Deferred
tax liabilities
Deferred tax charged/
(credited) to the
Consolidated Income
Statement
FY19
FY18
FY19
FY18
FY19
FY18
23
35
204
3
200
77
107
8
(161)
(179)
(121)
(125)
6
-
159
7
155
1
-
168
(12)
245
(354)
(384)
12
46
23
-
(36)
51
(65)
2
(13)
(334)
14
34
18
-
(54)
67
(113)
2
(29)
(445)
148
25
(109)
-
(18)
(4)
11
30
10
8
101
-
(2)
(11)
41
(1)
(77)
34
7
13
(50)
(46)
(1) Our Brazilian subsidiary has received a 75 per cent corporate income tax deferral due to reinvestment of capital in the North east region. The tax is deferred until earnings are
repatriated from Brazil.
(d) Unrecognised deferred tax assets and liabilities
The composition of the Group’s unrecognised deferred tax assets
and liabilities is as follows:
US$M
FY19
FY18
Unrecognised deferred tax assets
Tax losses(1)
Other deductible temporary diff erences
Total unrecognised deferred tax assets
Unrecognised deferred tax liabilities
Taxable temporary diff erences associated
with investments and undistributed
earnings in subsidiaries
Total unrecognised deferred tax
liabilities
(1) Represents tax losses that have no expiry.
36
1,782
1,818
37
1,572
1,609
(42)
(42)
(50)
(50)
Deferred tax is provided using the balance sheet liability method,
providing for the tax eff ect of temporary diff erences between the
carrying amount of assets and liabilities for fi nancial reporting
purposes and the amounts used for tax assessment or deduction
purposes. The tax eff ect of certain temporary diff erences is not
recognised, principally with respect to:
■
■
Temporary diff erences arising on the initial recognition of
assets or liabilities (other than those arising in a business
combination or in a manner that initially impacted accounting
or taxable profi t);
Temporary diff erences relating to investments and
undistributed earnings in subsidiaries, joint ventures and
associates to the extent that the Group is able to control
its reversal and it is probable that it will not reverse in the
foreseeable future; and
■ Goodwill.
To the extent that an item’s tax base is solely derived from the
amount deductible under capital gains tax legislation, deferred
tax is determined as if such amounts are not deductible in
determining future assessable income.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profi ts will be available against which
the asset can be utilised. Deferred tax assets are reviewed at each
balance sheet date and amended to the extent that it is no longer
probable that the related tax benefi t will be realised. Deferred tax
assets and liabilities are off set when they relate to income taxes
levied by the same tax authority and the Group has both the right
and the intention to settle its current tax assets and liabilities on a
net or simultaneous basis.
92
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – RESULTS FOR THE YEAR
7. DIVIDENDS
US$M
FY19
FY18
Prior year fi nal dividend(1)
Interim dividend(2)
Special dividend(2)
Total dividends declared and paid
during the year
316
256
85
657
333
221
154
708
(1) On 23 August 2018, the Directors resolved to pay a fully franked fi nal dividend of
US 6.2 cents per share (US$317 million) in respect of the 2018 fi nancial year. The
dividend was paid on 11 October 2018. The ESOP Trusts received dividends from
South32 Limited of US$1 million, therefore reducing the dividends paid externally
to US$316 million.
(2) On 14 February 2019, the Directors resolved to pay a fully franked interim dividend
of US 5.1 cents per share (US$258 million) in respect of the 2019 half year and
a fully franked special dividend of US 1.7 cents per share (US$86 million). The
dividends were paid on 4 April 2019. The ESOP Trusts received dividends from
South32 Limited of US$2 million (comprising of US$1 million for the interim
dividend and US$1 million for the special dividend) and a total of 7,486,555 shares
were bought back between the declaration and ex-dividend dates, therefore
reducing the interim dividend paid externally to US$256 million and special
dividend paid externally to US$85 million.
Franking Account
US$M
Franking credits at the beginning of the
fi nancial year
Credits arising from tax paid/payable by
South32 Limited(1)
Credits arising from the receipt of
franked dividends
Utilisation of credits arising from the
payment of franked dividends
Total franking credits available at the
end of fi nancial year(2)
FY19
FY18
149
237
152
184
136
100
(277)
(271)
261
149
(1)
Includes the payment of the Australian FY19 income tax liability of US$98 million
due in December 2019.
(2) The payment of the fi nal franked FY19 dividend declared after 30 June 2019
will decrease the franking account balance by US$60 million. Refer to note 33
Subsequent events.
6. TAX (CONTINUED)
(e) Tax consolidation
South32 Limited and its 100 per cent owned Australian resident
subsidiaries have formed a tax consolidated group with eff ect
from 25 May 2015. South32 Limited is the head entity of the tax
consolidated group. Members of the group have entered into a
tax sharing agreement in order to allocate income tax expense
to the wholly owned subsidiaries on a stand-alone basis. The tax
sharing arrangement provides for the allocation of income tax
liabilities between the entities should the head entity default on
its tax payment obligations. The possibility of such a default is
considered remote at the date of this report.
Members of the tax consolidated group have also entered into
a tax funding agreement. The group has applied its allocation
approach in determining the appropriate amount of current
taxes to allocate to members of the tax consolidated group. The
tax funding agreement provides for each member of the tax
consolidated group to pay or receive a tax equivalent amount to
or from the head entity in accordance with their notional current
tax liability or current tax asset. Such amounts are refl ected in
amounts receivable from or payable to the head entity in their
accounts and are settled as soon as practicable after lodgement
of the consolidated return and payment of the tax liability.
Key estimates, assumptions and judgements
Deferred tax
Judgement is required in assessing whether deferred tax
assets and certain deferred tax liabilities are recognised in
the Consolidated Balance Sheet. Deferred tax assets are
recognised only where it is considered more likely than
not that they will be recovered, which is dependent on the
generation of suffi cient future taxable profi ts. Deferred tax
liabilities arising from temporary diff erences in investments,
caused principally by retained earnings held in foreign tax
jurisdictions, are recognised unless repatriation of retained
earnings can be controlled and are not expected to occur in
the foreseeable future.
Assumptions about the generation of future taxable
profi ts and repatriation of retained earnings depend on
management’s estimates of future cash fl ows. These depend
on estimates of future production and sales volumes,
commodity prices, reserves, operating costs, closure and
rehabilitation costs, capital expenditure, dividends and other
capital management transactions.
Uncertain tax matters
Judgements are required about the application of the
inherently complex income tax legislation in Colombia, Brazil
and South Africa. These judgements are subject to risk and
uncertainty, hence there is a possibility that changes in
circumstances will alter expectations, which may impact the
amount of deferred tax assets and deferred tax liabilities
recognised on the Consolidated Balance Sheet and the
amount of other tax losses and temporary diff erences not yet
recognised.
Where the fi nal tax outcomes are diff erent from the amounts
that were initially recorded, these diff erences impact the
current and deferred tax balances in the period in which the
determination is made. Measurement of uncertain tax and
royalty matters considers a range of possible outcomes,
including assessments received from tax authorities. Where
management is of the view that potential liabilities have a low
probability of crystallising, or it is not possible to quantify them
reliably, they are disclosed as contingent liabilities.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
93
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS –
RESULTS FOR THE YEAR
NOTES TO FINANCIAL STATEMENTS –
OPERATING ASSETS AND LIABILITIES
FY19
FY18
572
36
280
888
136
33
121
290
545
27
254
826
67
38
143
248
8. EARNINGS PER SHARE
Basic earnings per share (EPS) amounts are calculated based on
profi t attributable to equity holders of South32 Limited and the
weighted average number of shares outstanding during the year.
Dilutive EPS amounts are calculated based on profi t attributable
to equity holders of South32 Limited and the weighted average
number of shares outstanding after adjustment for the eff ects of
all dilutive potential shares.
The following refl ects the profi t/(loss) and share data used in the
basic and diluted EPS computations:
This section shows the assets used to generate the Group’s
trading performance and the liabilities incurred. Liabilities relating
to the Group’s fi nancing activities are addressed in the capital
structure and fi nancing section, notes 16 to 20.
9. TRADE AND OTHER RECEIVABLES
US$M
Current
Trade receivables(1)
Loans to equity accounted
investments(1)(2)
Profi t/(loss) attributable to equity holders
US$M
FY19
FY18
Other receivables(1)
Profi t/(loss) attributable to equity
holders of South32 Limited (basic)
Profi t/(loss) attributable to equity
holders of South32 Limited (diluted)
Weighted average number of shares
Million
Basic earnings per share denominator(1)
Shares contingently issuable under
employee share ownership plans(2)(3)
Diluted earnings per share
denominator
389
1,332
389
1,332
FY19
5,048
FY18
5,159
57
80
Total current trade and other
receivables
Non-current
Loans to equity accounted
investments(1)(2)
Interest bearing loans receivable from
joint operations
Other receivables
Total non-current trade and other
receivables
5,105
5,239
doubtful debts of US$5 million).
(2) Refer to note 30 Related party transactions.
(1) Net of allowances for expected credit losses of US$7 million (FY18: Provision for
(1) The basic EPS denominator is the aggregate of the weighted average number
of shares after deduction of the weighted average number of Treasury shares
outstanding and shares permanently cancelled through the on-market share buy-
back during the period.
(2)
Included in the calculation of diluted EPS are shares contingently issuable under
employee share ownership plans.
(3) Diluted EPS calculation excludes 19,011,659 (FY18: 4,512,861) rights which are
considered anti-dilutive and are subject to service and performance conditions.
Trade receivables generally have terms of up to 30 days. Trade
and other receivables, with the exception of provisionally priced
contracts, are recognised initially at fair value and subsequently
at amortised cost using the eff ective interest rate method, less an
allowance for expected credit losses. Provisionally priced contracts
included in trade receivables are measured at FVTPL.
Earnings per share
US cents
Basic earnings per share
Diluted earnings per share
FY19
7.7
7.6
FY18
25.8
25.4
10. INVENTORIES
US$M
Current
Raw materials and consumables
Work in progress
Finished goods
Total current inventories
Non-current
Raw materials and consumables
Work in progress
Total non-current inventories
FY19
FY18
366
347
239
952
41
27
68
399
320
167
886
46
30
76
Inventories carried at net realisable value as at 30 June 2019 was
US$333 million (FY18: US$25 million). Inventory write-downs of
US$17 million (FY18: US$20 million) were recognised in the year.
Inventories are valued at the lower of cost and net realisable value.
Cost is determined primarily on the basis of average costs. For
processed inventories, cost is derived on an absorption costing
basis. Cost comprises the cost of purchasing raw materials
and the cost of production, including attributable overheads. In
respect of minerals inventory, quantities are assessed primarily
through surveys and assays.
94
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OPERATING ASSETS AND LIABILITIES
11. PROPERTY, PLANT AND EQUIPMENT
30 June 2019
US$M
Cost
Land and
buildings
Plant and
equipment
Other
mineral
assets
Assets
under
construction
Exploration
and
evaluation
At the beginning of the fi nancial year
2,641
Additions(1)
Foreign exchange movements in closure and
rehabilitation provisions(2)
Disposals
Acquisitions of subsidiaries and jointly controlled
entities(3)
Transfers and other movements
At the end of the fi nancial year
Accumulated depreciation and impairments
15,468
166
(57)
(125)
12
379
2
-
(4)
6
24
2,669
15,843
At the beginning of the fi nancial year
1,620
9,820
Depreciation charge for the year
Impairments for the year(4)
Disposals
At the end of the fi nancial year
Net book value at 30 June 2019(5)
79
-
(4)
1,695
974
532
469
(125)
10,696
5,147
2,686
93
-
(18)
1,738
2
4,501
1,496
128
35
(13)
1,646
2,855
335
595
-
-
65
(403)
592
-
-
-
-
-
2
28
-
-
-
(2)
28
-
-
-
-
-
592
28
(1) Plant and equipment additions of US$138 million (FY18: US$4 million) relate to capitalised closure and rehabilitation amounts as a result of the change in discount rate, refer to
note 15 Provisions.
(2) Refer to note 15 Provisions.
(3) Refer to note 32 Acquisition of subsidiaries and jointly controlled operations.
(4) Refer to note 13 Impairment of non-fi nancial assets.
(5) Plant and equipment includes assets held under fi nance leases with a net book value of US$612 million (FY18: US$629 million).
30 June 2018
US$M
Cost
Land and
buildings
Plant and
equipment
Other
mineral
assets
Assets
under
construction
Exploration
and
evaluation
At the beginning of the fi nancial year
2,611
Additions
Foreign exchange movements in closure and
rehabilitation provisions
Disposals
Transfers and other movements
At the end of the fi nancial year
Accumulated depreciation and impairments
15,219
163
2,649
118
(55)
(46)
187
-
(83)
2
-
-
(11)
41
2,641
15,468
2,686
At the beginning of the fi nancial year
1,557
9,319
1,484
Depreciation charge for the year
Disposals
Transfers and other movements
At the end of the fi nancial year
Net book value at 30 June 2018
73
(9)
(1)
1,620
1,021
539
(39)
1
9,820
5,648
94
(82)
-
1,496
1,190
252
312
-
-
(229)
335
-
-
-
-
-
335
2
2
-
-
(2)
2
-
-
-
-
-
2
Total
21,132
884
(57)
(147)
1,821
-
23,633
12,936
739
504
(142)
14,037
9,596
Total
20,733
595
(55)
(140)
(1)
21,132
12,360
706
(130)
-
12,936
8,196
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
95
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OPERATING ASSETS AND LIABILITIES
11. PROPERTY, PLANT AND EQUIPMENT
(CONTINUED)
(d) Other mineral assets
Other mineral assets comprise:
(a) Property, plant and equipment
■ Capitalised exploration, evaluation and development
Property, plant and equipment is stated at cost less accumulated
depreciation and impairment charges. Cost is the fair value
of consideration given to acquire the asset at the time of its
acquisition or construction and includes the direct cost of bringing
the asset to the location and condition necessary for operation
and its estimated future cost of closure and rehabilitation.
Finance leases
Assets held under lease, which result in the Group receiving
substantially all the risks and rewards of ownership of the asset
(fi nance leases), are capitalised at the lower of the fair value of the
property, plant and equipment or the estimated present value of
the minimum lease payments.
The corresponding fi nance lease obligation is included within
interest bearing liabilities. The interest component is charged to
fi nance expenses over the lease term to refl ect a constant rate of
interest on the remaining balance of the obligation.
expenditure (including development stripping) for properties
now in production;
■ Mineral rights acquired; and
■ Capitalised production stripping (as described below in
‘overburden removal costs’).
Overburden removal costs
The process of removing overburden and other mine waste
materials to access mineral deposits is referred to as stripping.
In open-pit mining, stripping costs are accounted for separately
for each component of an ore body. A component is a specifi c
section within an ore body that is made more accessible by the
stripping activity. The identifi cation of components is dependent
on the mine plan and will often comprise a separate pushback or
phase identifi ed in the plan.
There are two types of stripping activity:
■ Development stripping is the initial overburden removal during
Leased assets are pledged as security for the related fi nance
lease and hire purchase liabilities.
the development phase to obtain access to a mineral deposit
that will be commercially produced; and
(b) Assets under construction
All assets included in assets under construction are reclassifi ed
to other categories in property, plant and equipment when the
asset is available and ready for use in the location and condition
necessary for it to be capable of operating in the manner
intended.
(c) Exploration and evaluation expenditure
Exploration and evaluation expenditure (including amortisation of
capitalised licence and lease costs) is charged to the Consolidated
Income Statement as incurred except in the following
circumstances, in which case the expenditure may be capitalised:
■
■
The exploration and evaluation activity is within an area of
interest which was previously acquired as an asset acquisition
or in a business combination and measured at fair value on
acquisition or; and
The existence of a commercially viable mineral deposit has
been established.
Capitalised exploration and evaluation expenditure considered
to be a tangible asset is recorded as a component of property,
plant and equipment at cost less impairment charges. Otherwise,
it is recorded as an intangible asset (such as certain licence and
lease arrangements). In determining whether the purchase of an
exploration licence or lease is an intangible asset or a component
of property, plant and equipment, consideration is given to the
substance of the item acquired and not its legal form. Licences or
leases purchased which allow exploration over an extended period
of time meet the defi nition of an intangible exploration lease
asset where they cannot be reasonably associated with a known
minerals resource.
■ Production stripping is the interburden removal during the
normal course of production activity. Production stripping
commences after the fi rst saleable minerals have been
extracted from the component.
Development stripping costs are capitalised as a development
stripping asset when:
■
■
It is probable that future economic benefi ts associated with
the asset will fl ow to the entity; and
The costs can be measured reliably.
Production stripping can give rise to two benefi ts, being the
extraction of ore in the current period and improved access to
the ore body component in future periods. To the extent that the
benefi t is the extraction of ore, the stripping costs are recognised
as an inventory cost. To the extent the benefi t is improved access
to future ore, the stripping costs are recognised as a production
stripping asset if the following criteria are met:
■
■
■
It is probable that the future economic benefi t (improved
access to ore) will fl ow to the entity;
The component of the ore body for which access has been
improved can be identifi ed; and
The costs relating to the stripping activity can be measured
reliably.
Production stripping costs are allocated between the inventory
produced and the production stripping asset using a life-of-
component waste to ore (or mineral contained) strip ratio. When
the current strip ratio is greater than the life-of-component ratio
a portion of the stripping costs is capitalised to the production
stripping asset.
The development and production stripping assets are depreciated
on a units of production basis based on the Proved and Probable
Ore Reserves of the relevant components.
96
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OPERATING ASSETS AND LIABILITIES
11. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
(e) Depreciation and amortisation
The carrying amounts of property, plant and equipment are depreciated to their estimated residual value over the estimated useful lives
of the specifi c assets concerned, or the estimated life of the associated mine or lease, if shorter. Estimates of residual values and useful
lives are reassessed annually and any change in estimate is taken into account in the determination of remaining depreciation charges.
Depreciation commences on the date of commissioning. The major categories of property, plant and equipment are depreciated on a
units of production and/or straight-line basis using estimated lives indicated below. However, where assets are dedicated to a mine or
lease and are not readily transferable, the below useful lives are subject to the lesser of the asset category’s useful life and the life of the
mine or lease:
Buildings
Land
Plant and equipment
Mineral rights
25 to 50 years
not depreciated
3 to 30 years straight-line
based on Ore Reserves on a units of production basis
Capitalised exploration, evaluation and development expenditure
based on Ore Reserves on a units of production basis
12. INTANGIBLE ASSETS
30 June 2019
US$M
Cost
At the beginning of the fi nancial year
Additions
At the end of the fi nancial year
Accumulated amortisation and impairments
At the beginning of the fi nancial year
Amortisation charge for the year
At the end of the fi nancial year
Net book value at 30 June 2019
30 June 2018
US$M
Cost
At the beginning of the fi nancial year
Additions
Transfers and other movements
At the end of the fi nancial year
Accumulated amortisation and impairments
At the beginning of the fi nancial year
Amortisation charge for the year
At the end of the fi nancial year
Net book value at 30 June 2018
(a) Goodwill
Goodwill
Other
intangibles
Total
193
-
193
54
-
54
139
261
30
291
179
18
197
94
454
30
484
233
18
251
233
Goodwill
Other
intangibles
Total
193
-
-
193
54
-
54
139
256
4
1
261
143
36
179
82
449
4
1
454
197
36
233
221
Where the fair value of consideration paid for a business combination exceeds the fair value of the Group’s share of the identifi able net
assets acquired, the diff erence is treated as purchased goodwill. Where the fair value of the Group’s share of the identifi able net assets
acquired exceeds the cost of acquisition, the diff erence is immediately recognised in the Consolidated Income Statement. Goodwill is not
amortised, however, its carrying amount is assessed annually against its recoverable amount.
(b) Other intangible assets
Amounts paid for the acquisition of identifi able intangible assets, such as software, licences and contract based intangible assets are
capitalised at the fair value of consideration paid and are recorded at cost less accumulated amortisation and impairment charges.
Identifi able intangible assets with a fi nite life are amortised on a straight-line basis over their expected useful life. The useful lives are as
follows:
Software and licences
Contract based intangible assets
5 years
up to 35 years
The Group has no identifi able intangible assets for which the expected useful life is indefi nite.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
97
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OPERATING ASSETS AND LIABILITIES
13. IMPAIRMENT OF NON-FINANCIAL ASSETS
In testing for indications of impairment and performing
impairment calculations, assets are considered as collective
groups and referred to as cash generating units (CGUs). CGUs are
the smallest identifi able group of assets, liabilities and associated
goodwill that generate cash infl ows that are largely independent
of the cash infl ows from other assets or groups of assets. Formal
impairment tests are carried out annually for CGUs containing
goodwill. In addition, formal impairment tests are performed for all
other CGUs when there is an indication of impairment. The Group
uses discounted cash fl ow valuations to assess all of its CGUs for
impairment or impairment reversal indicators. For any resultant
formal impairment testing, and for CGUs containing goodwill,
the Group uses the higher of fair value less cost of disposal
(FVLCD) and its value in use to assess the recoverable amount.
If the carrying value of the CGU exceeds its recoverable amount,
the CGU is impaired, and an impairment loss is charged to the
Consolidated Income Statement.
Previously impaired CGUs are reviewed for possible reversal
of a previous impairment at each reporting date. Impairment
reversals cannot exceed the carrying value that would have been
determined (net of depreciation) had no impairment loss been
recognised for the CGU. Goodwill is not subject to impairment
reversal.
The Group recorded the following impairments for the year ended
30 June:
US$M
Note
FY19
FY18
Property, plant and
equipment
Total impairment
11
504
504
-
-
(a) Recognised impairment – 30 June 2019
The Group recognised impairments of property, plant and
equipment for the separately identifi able CGUs within South Africa
Energy Coal (SAEC) for the year ended 30 June 2019. The Group
received external indicative off ers for SAEC which, in combination
with the market outlook for thermal coal demand and prices,
informed the Group’s assessment of the recoverable amount for
SAEC as a collective group of CGUs. The recoverable amount for
SAEC is based on a FVLCD calculation and is categorised as a
Level 3 fair value based on the inputs in the valuation technique
(refer to note 19 Financial assets and fi nancial liabilities).
The Group impairment recognised for the year ended 30 June
2019 has been allocated to property, plant and equipment for the
CGUs on a pro-rata basis:
Year ended 30 June 2019
US$M
Impairment
recognised
Recoverable
amount
WMC
Klipspruit
Khutala
Other corporate assets
Total
253
225
26
-
504
(318)
108
(23)
71
(162)
(b) Impairment test for CGUs containing goodwill
For the purpose of impairment testing, goodwill has been
allocated to CGUs that are expected to benefi t from the synergies
of the business combination and which represent the level at
which management will monitor and manage the goodwill.
The carrying amount of goodwill has been allocated to the
following CGU:
US$M
Note
Hillside Aluminium
Total goodwill
12
Hillside Aluminium
FY19
139
139
FY18
139
139
The goodwill arose from the acquisition of Alusaf in Hillside
Aluminium (Pty) Ltd and has been allocated to the Hillside
Aluminium CGU which comprises the Hillside aluminium smelter.
The recoverable amount of the Hillside Aluminium CGU was
determined based on the FVLCD. The determination of FVLCD
was most sensitive to:
■ Production volumes;
■ Aluminium and alumina prices;
Foreign exchange rates; and
■
■ Discount rate.
Production volumes - estimated production volumes are based
on the life of the smelter as determined by management as
part of the long-term planning process. Production volumes
are infl uenced by production input costs such as electricity
prices, jurisdiction based carbon pricing, and the selling price of
aluminium.
The recoverable amount is informed by near term future cash
fl ows that assume forecast thermal coal prices which are
comparable to market consensus forecasts, and a forecast South
African rand exchange rate which is aligned with forward market
rates. It also assumes future production based on management’s
short-term planning processes.
Aluminium and alumina prices, and foreign exchange rates - key
assumptions for aluminium and alumina prices are comparable
to market consensus forecasts for each of the years of the life
of operation. Foreign exchange rates are aligned with forward
market rates in the short-run and thereafter are within the range
published by market commentators.
SAEC consists of the Khutala colliery (Khutala), an underground
bord and pillar operation; the Klipspruit colliery (Klipspruit), a
single dragline, multi seam open-cut mine that is combined with
a truck and shovel mini pit; the Wolvekrans Middelburg Complex
(WMC) and other SAEC corporate assets. The WMC consists of
the Ifalethu colliery and Wolvekrans colliery, which are open-cut
mines with a number of active pits, and are mined using draglines
combined with truck and shovel operations.
The long-run aluminium prices, alumina prices and foreign
exchange rates used in the FVLCD determinations are within the
range when compared with the following range of mid long-run
prices published by market commentators:
Mid long-run range
FY19
FY18
Aluminium price (US$/tonne)
1,900 to 2,865 1,740 to 2,865
Alumina price (US$/tonne)
300 to 400
260 to 400
Foreign exchange rate (South
African rand to US$)
12.8 to 15.0
11.4 to 16.1
98
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OPERATING ASSETS AND LIABILITIES
13. IMPAIRMENT OF NON-FINANCIAL ASSETS (CONTINUED)
(b) Impairment test for CGUs containing goodwill (continued)
Discount rate - in determining the FVLCD, a real post-tax discount rate of 7.5 per cent (FY18: 8 per cent), and a country risk premium of
up to 2 per cent (FY18: up to 2 per cent), are applied to the post-tax cash fl ows expressed in real terms.
The impairment test for the Hillside Aluminium CGU indicated that no impairment was required. At 30 June 2019 the carrying value
approximates its recoverable amount. As such any material long-term unfavourable change in the aforementioned key assumptions
could lead to the carrying value exceeding the recoverable amount. The relationships between each key assumption are complex, such
that a change in one may cause a change in several other inputs.
Key estimates, assumptions and judgements
The impairment assessment requires management to make
estimates and assumptions about expected production and
sales volumes, commodity prices (considering current and
historical prices, price trends and related factors), Ore Reserves,
Mineral Resources, operating costs, closure and rehabilitation
costs, future capital expenditure, allocation of corporate costs,
global carbon pricing and, where relevant, specifi c jurisdiction
based carbon prices. These estimates and assumptions are
subject to risk and uncertainty; hence there is a possibility that
changes in circumstances will alter these projections, which
may impact the recoverable amount of the assets. In such
circumstances, some or all of the carrying amount of the assets
may be further impaired or the impairment charge reversed with
the impact recorded in the Consolidated Income Statement.
The basis of key estimates and assumptions used in the
assessment of impairment indicators are as follows:
Future
production
Life of operation plans based on Proved
and Probable Ore Reserve estimates,
Mineral Resource (excluding Inferred
Mineral Resources) estimates, economic
life of smelters and refi neries and,
in certain cases, expansion projects,
including future cost of production.
Commodity
prices
Forward market and contract prices, and
longer-term price protocol estimates.
Exchange
rates
Discount
rates
Observable forward market foreign
exchange rates.
Cost of capital risk-adjusted and
appropriate to the resource.
Where impairment testing is undertaken, a range of external
sources are considered as further input to the above
assumptions.
When assessing for impairment and impairment reversal
indicators, the fundamental characteristics of previously
impaired CGUs are relevant to their sensitivity to key estimates
and assumptions. For previously impaired CGUs these include:
■ CGUs with higher operating margins and with life of
operation plans longer than 10 years which are less sensitive
to commodity prices and foreign exchange rates, for
example Worsley Alumina;
■ CGUs with lower operating margins which are highly
sensitive to movements in commodity prices and foreign
exchange rates, for example the Wolvekrans Middelburg
Complex, the Klipspruit colliery and South Africa Manganese;
and
■ CGUs with higher operating margins and shorter life of
operation plans and exposure to commodities that display
greater price volatility, for example Australia Manganese.
The operating assets for previously impaired CGUs are included
in note 4(b) Segment results.
Ore Reserve is the economically mineable part of the Measured
and/or Indicated Mineral Resource that can be legally extracted,
or where there is reasonable expectation that approvals for
extraction will be granted, from the Group’s properties. In order
to estimate Ore Reserves, consideration is required for a range
of modifying factors, including mining, processing, metallurgical,
infrastructure, economic, marketing, legal, environmental, social
and governmental. When reporting Ore Reserves, the relevant
studies, to at least a pre-feasibility level, must demonstrate that,
at the time of reporting, extraction could be reasonably justifi ed.
Management will form a view of forecast sales prices, based on
current and long-term historical average price trends.
Estimating the quantity and/or grade of Mineral Resources
requires the location, quantity, grade (or quality), continuity
and other geological characteristics to be known, estimated or
interpreted from specifi c geological evidence and knowledge,
including sampling in order to satisfy the requirement that there
are reasonable prospects for eventual economic extraction.
This process may require complex and diffi cult geological
assessments to interpret the data.
The Group reports Ore Reserves and Mineral Resources
in accordance with the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves (the
JORC Code 2012 Edition), and the Australian Securities Exchange
(ASX) Listing Rules Chapter 5: Additional reporting on mining and
oil and gas production and exploration activities.
Because the economic assumptions used to estimate the Ore
Reserves change from period to period, and because additional
geological data are generated during the course of operations,
estimates of the Ore Reserves and Mineral Resources may
change from period to period. Changes in reported Ore Reserves
may aff ect the Group’s fi nancial results and fi nancial position in a
number of ways, including the following:
■ Asset recoverable amounts may be aff ected due to changes
in estimated future cash fl ows;
■ Depreciation, depletion and amortisation charged in the
Consolidated Income Statement may change on the units
of production basis, or where the useful economic lives of
assets change;
■ Overburden removal costs recorded on the Consolidated
Balance Sheet or charged to the Consolidated Income
Statement may change with stripping ratios or on a units of
production basis of depreciation; and
■ Decommissioning, closure and rehabilitation provisions may
change where estimated Ore Reserves aff ect expectations
about the timing or cost of these activities.
The carrying amount of associated deferred tax assets may
change due to changes in estimates of the likely recovery of the
tax benefi ts.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
99
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OPERATING ASSETS AND LIABILITIES
14. TRADE AND OTHER PAYABLES
US$M
Current
Trade creditors
Other creditors
Total current trade and other payables
Non-current
Other creditors
Total non-current trade and other payables
FY19
FY18
798
82
880
1
1
743
87
830
5
5
Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the fi nancial year which
were unpaid at the end of the fi nancial year. These amounts are unsecured. Trade and other payables are included in current liabilities,
except for those liabilities where payment is not due within 12 months from the reporting date, which are classifi ed as non-current
liabilities.
Trade and other payables are stated at their amortised cost and are non-interest bearing. The carrying value of trade and other payables
is considered to approximate fair value due to the short-term nature of the payables.
Note
FY19
FY18
15. PROVISIONS
US$M
Current
Employee benefi ts
Closure and rehabilitation
Other
Total current provisions
Non-current
Employee benefi ts
Closure and rehabilitation
Post-retirement employee benefi ts
Other
Total non-current provisions
30 June 2019
US$M
22
Employee
benefi ts
Closure and
rehabilitation
Post-
retirement
employee
benefi ts
At the beginning of the fi nancial year
211
1,672
90
Charge/(credit) for the year to the Consolidated Income
Statement:
Underlying
Discounting
Net interest expense
Exchange rate variations
Released during the year
Amounts capitalised for change in costs and estimates
Foreign exchange amounts capitalised
Amounts capitalised from change in discount rate(1)
Amounts taken to retained earnings
Utilisation
Acquisitions of subsidiaries and jointly controlled entities(2)
At the end of the fi nancial year
191
-
-
(9)
(8)
-
-
-
-
(182)
-
203
12
103
-
(8)
(1)
26
(57)
138
-
(32)
15
1,868
3
-
9
(4)
-
-
-
-
3
(9)
-
92
199
54
59
312
4
1,814
92
15
205
80
75
360
6
1,592
90
17
1,925
1,705
Other
92
Total
2,065
30
-
-
-
(3)
-
-
-
-
(45)
-
74
236
103
9
(21)
(12)
26
(57)
138
3
(268)
15
2,237
(1) The Group has reviewed its discount rates applied to closure and rehabilitation provisions resulting in a decrease in one specifi c country rate. The corresponding increase in the
provision is capitalised as an asset or if applicable charged to the Consolidated Income Statement in the case of closed sites. The expected impact for the year ending 30 June
2020 is a decrease in fi nance expenses of US$1 million.
(2) Refer to note 32 Acquisition of subsidiaries and jointly controlled operations.
100
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS – OPERATING ASSETS AND LIABILITIES
15. PROVISIONS (CONTINUED)
30 June 2018
US$M
Employee
benefi ts
Closure and
rehabilitation
Post-
retirement
employee
benefi ts
At the beginning of the fi nancial year
212
1,565
96
Charge/(credit) for the year to the Consolidated Income
Statement:
Other
87
Total
1,960
79
-
-
-
(2)
(1)
-
-
-
-
(73)
2
92
292
105
3
10
(29)
(28)
160
(55)
4
(4)
(351)
(2)
2,065
208
-
-
-
(8)
(14)
-
-
-
-
(187)
-
211
3
105
3
-
(15)
(13)
160
(55)
4
-
(82)
(3)
1,672
2
-
-
10
(4)
-
-
-
-
(4)
(9)
(1)
90
material handling conducted as an integral part of a mining
or production process, are not included in the provision. Costs
arising from unforeseen circumstances, such as the contamination
caused by unplanned discharges, are recognised as an expense
and liability when the event gives rise to an obligation which is
probable and capable of reliable estimation.
The timing of the actual closure and rehabilitation expenditure is
dependent upon a number of factors such as the life and nature
of the asset, the operating licence conditions and the environment
in which the mine operates. Expenditure may occur before and
after closure and can continue for an extended period of time
dependent on closure and rehabilitation requirements.
Closure and rehabilitation provisions are measured at the
expected value of future cash fl ows, discounted to their present
value and determined according to the probability of alternative
estimates of cash fl ows occurring for each operation. Discount
rates used are risk-free interest rates specifi c to the country in
which the operations are located. Material changes in country
specifi c risk-free interest rates may aff ect the discount rates
applied. Signifi cant judgements and estimates are involved in
forming expectations of future activities and the amount and
timing of the associated cash fl ows.
When provisions for closure and rehabilitation are initially
recognised, the corresponding cost is capitalised as an asset,
representing part of the cost of acquiring the future economic
benefi ts of the operation. The capitalised cost of closure and
rehabilitation activities is recognised in property, plant and
equipment and depreciated accordingly. The value of the
provision is progressively increased over time due to the eff ect of
discounting unwind, creating an expense recognised in fi nance
expenses.
Underlying
Discounting
Change in discount rate
Net interest expense
Exchange rate variations
Released during the year
Amounts capitalised for change in costs and estimates
Foreign exchange amounts capitalised
Amounts capitalised from change in discount rate
Amounts taken to retained earnings
Utilisation
Transfers and other movements
At the end of the fi nancial year
(a) Employee benefi ts
Liabilities for unpaid wages and salaries are recognised in other
creditors. Current entitlements to annual leave and accumulating
sick leave accrued for services up to the reporting date are
recognised in the provision for employee benefi ts and are
measured at the amounts expected to be paid. Entitlements to
non-accumulated sick leave are recognised when the leave is
taken.
The current liability for long service leave (for which settlement
within 12 months of the reporting date cannot be deferred) is
recognised in the current provision for employee benefi ts and
is measured in accordance with annual leave described above.
The non-current liability for long service leave is recognised in
the non-current provision for employee benefi ts and measured
as the present value of expected future payments to be made in
respect of services provided by employees up to the reporting
date. Consideration is given to expected future wage and salary
levels, experience of employee departures and periods of service.
Expected future payments are discounted using corporate bond
yields at the reporting date.
(b) Closure and rehabilitation
The mining, extraction and processing activities of the
Group normally give rise to obligations for site closure or
rehabilitation. Closure and rehabilitation works can include facility
decommissioning and dismantling, removal or treatment of waste
materials, site and land rehabilitation.
Provisions for the cost of each closure and rehabilitation program
are recognised at the time that environmental disturbance occurs.
When the extent of disturbance increases over the life of an
operation, the provision is increased accordingly. Costs included
in the provision encompass all closure and rehabilitation activity
expected to occur progressively over the life of the operation
and at, or after, the time of closure, for disturbance existing at
the reporting date. Routine operating costs that may impact
the ultimate closure and rehabilitation activities, such as waste
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
101
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS –
OPERATING ASSETS AND LIABILITIES
NOTES TO FINANCIAL STATEMENTS –
CAPITAL STRUCTURE AND FINANCING
15. PROVISIONS (CONTINUED)
(b) Closure and rehabilitation (continued)
Closure and rehabilitation provisions are also adjusted for changes
in costs and estimates. Those adjustments are accounted for as
a change in the corresponding capitalised cost, except where
a reduction in the provision is greater than the undepreciated
capitalised cost of the related assets, in which case the capitalised
cost is reduced to nil and the remaining adjustment is recognised
fi rst against other items in property, plant and equipment, and
subsequently to the Consolidated Income Statement. In the
case of closed sites, changes to estimated costs are recognised
immediately in the Consolidated Income Statement. Changes to
the capitalised cost result in an adjustment to future depreciation.
Adjustments to the estimated amount and timing of future
closure and rehabilitation cash fl ows are a normal occurrence in
light of the signifi cant judgements and estimates involved.
(c) Post-retirement employee benefi ts
This relates to the provision for post-employment defi ned benefi t
pension plans and medical plans. Refer to note 22 Pension and
other post-retirement obligations.
Key estimates, assumptions and judgements
The recognition of closure and rehabilitation provisions
requires signifi cant estimates and assumptions such as:
requirements of the relevant legal and regulatory framework;
the magnitude of possible contamination; the timing, extent,
and cost of required closure and rehabilitation activity; and
potential changes in climate conditions. These uncertainties
may result in future actual expenditure diff ering from the
amounts currently provided.
The provision recognised for each site is periodically reviewed
and updated based on the facts and circumstances available
at the time.
In addition to the uncertainties noted above, certain closure
and rehabilitation activities may be subject to legal disputes
and depending on the ultimate resolution of these issues, the
fi nal liability for such matters could vary.
If the risk-free rate was decreased by 0.5 per cent, the
provision would increase by US$255 million.
This section outlines how the Group manages its capital and
related fi nancing activities.
16. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash at bank and on hand as
well as short-term deposits.
US$M
Cash
Short-term deposits
Cash and cash equivalents(1)(2)
Bank overdrafts (unsecured)
FY19
497
911
1,408
(2)
FY18
465
2,505
2,970
-
Cash and cash equivalents, net of
overdrafts
1,406
2,970
(1) Cash and cash equivalents include US$16 million (FY18: US$18 million) which is
restricted by legal or contractual arrangements.
(2) Cash and cash equivalents include US$299 million (FY18: US$321 million)
consisting of short-term deposits and cash managed by the Group on behalf of its
equity accounted investments. The corresponding amount payable is included in
note 17 Interest bearing liabilities.
17. INTEREST BEARING LIABILITIES
US$M
Current
Finance leases
Unsecured loans from equity accounted
investments(1)
Unsecured other
Total current interest bearing
liabilities
Non-current
Finance leases
Unsecured other
Total non-current interest bearing
liabilities
FY19
FY18
12
299
2
313
531
60
591
12
321
-
333
558
38
596
(1) Refer to note 16 Cash and cash equivalents and note 30 Related party
transactions.
Bank overdrafts, bank loans and other borrowings are initially
recognised at their fair value net of directly attributable
transaction costs. Subsequent to initial recognition, interest
bearing liabilities are measured at amortised cost using the
eff ective interest rate method. Gains and losses are recognised
in the Consolidated Income Statement when the liabilities are
derecognised. Interest bearing liabilities are classifi ed as current
liabilities, except when the Group has an unconditional right to
defer settlement for at least 12 months after the reporting date in
which case the liabilities are classifi ed as non-current.
102
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
17. INTEREST BEARING LIABILITIES (CONTINUED)
19. FINANCIAL ASSETS AND FINANCIAL
(a)
Reconciliation of movements in liabilities to cash
fl ows arising from fi nancing activities
Year ended 30 June 2019
US$M
Finance
leases
Interest
bearing
liabilities
At the beginning of the fi nancial year
570
359
Changes from fi nancing cash fl ows:
Net payment of fi nance lease
liabilities
Net receipt/(repayment) of interest
bearing liabilities
Total changes from fi nancing cash
fl ows
The eff ect of changes in foreign
exchange rates
Increase/(decrease) in fi nance leases
and interest bearing liabilities
Other changes:
Interest expense
Interest paid
At the end of the fi nancial year
(11)
-
(11)
(28)
12
47
(47)
543
-
(23)
(23)
(4)
29
23
(23)
361
18. NET FINANCE COST
US$M
FY19
FY18
Finance expenses
Interest on borrowings
Finance lease interest
Discounting on provisions and other
liabilities
Change in discount rate on closure and
rehabilitation provisions
Net interest expense on post-
retirement employee benefi ts
Fair value change on fi nancial assets
Exchange rate variations on net debt
Finance income
Interest income
Net fi nance cost
23
47
18
52
103
105
-
9
3
(34)
151
67
84
3
10
3
(23)
168
68
100
LIABILITIES
The Group has adopted AASB 9 with a date of initial application
of 1 July 2018. The nature and impact of the key changes to the
Group can be found in note 3 New standards and interpretations.
(a) Financial risk management objectives and policies
The Group is exposed to market, liquidity and credit risk. These
risks are managed in accordance with the Group’s portfolio risk
management strategy which supports the delivery of the Group’s
fi nancial targets while protecting its future fi nancial security and
fl exibility by taking advantage of the natural diversifi cation of
the Group’s operations and activities. A Cash Flow at Risk (CFaR)
framework is used to capture the benefi ts of diversifi cation and to
measure the aggregate impact of fi nancial risks on those fi nancial
targets. CFaR is measured on a portfolio basis and is defi ned as
the expected reduction from projected business plan cash fl ows
over a one-year horizon in a pessimistic case.
Day to day fi nancial risk management is delegated to the Chief
Financial Offi cer.
(i) Market risk
Market risk is the risk that the fair value of future cash fl ows of a
fi nancial instrument will fl uctuate because of changes in market
prices. Market risk comprises interest rate risk, foreign currency
risk and other price risk, such as equity price risk and commodity
price risk. Financial instruments aff ected by market risk include
loans and borrowings, deposits, investments in equity instruments
designated at FVOCI, other investments held at FVTPL and
derivative fi nancial instruments.
Group activities expose it to market risks associated with
movements in interest rates, foreign currencies and commodity
prices. The Group manages fi nancing costs, currency impacts,
input costs and commodity prices on a fl oating or index basis.
This strategy gives rise to a risk of variability in earnings which is
measured under the CFaR framework.
In executing the strategy, fi nancial instruments may be employed
for risk mitigation purposes with a strict Board approved mandate,
or to align the total Group exposure to the relevant index target in
the case of commodity sales, operating costs or debt issuances.
Interest rate risk
The Group is exposed to interest rate risk on its cash and cash
equivalents, trade and other receivables, embedded derivatives
and interest bearing liabilities from the possibility that changes
in interest rates will aff ect future cash fl ows or the fair value of
fi nancial instruments.
The Group had the following exposure to interest rate risk:
Interest income or expense is recognised using the eff ective
interest rate method.
US$M
Financial assets
FY19
FY18
Cash and cash equivalents
1,392
2,902
Trade and other receivables
Derivative contracts
Financial liabilities
Interest bearing liabilities
Net exposure
141
113
43
143
(332)
1,314
(359)
2,729
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
103
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
19. FINANCIAL ASSETS AND FINANCIAL
LIABILITIES (CONTINUED)
(a)
Financial risk management objectives and policies
(continued)
Based on the Group’s net fi nancial assets and liabilities as at
30 June, a weakening of the US dollar against these currencies
as illustrated in the table below, with all other variables held
constant, would increase/(decrease) profi t after tax and Other
Comprehensive Income, net of tax, as follows:
(i) Market risk (continued)
Interest rate risk (continued)
The following table demonstrates the sensitivity to a reasonably
possible change in interest rates on that portion of borrowings
and fi nancial assets aff ected. With all other variables held
constant, the Group’s profi t after tax is aff ected through the
impact on fl oating rate borrowings and investments, as follows:
30 June 2019
Currency movement
US$M
10% movement in Australian dollar
10% movement in Brazilian real
10% movement in Colombian peso
Increase/decrease
in basis points
+100
–100
Impact on profi t after tax
US$M
10% movement in South African rand
10% movement in Canadian dollar
FY19
FY18
9
(9)
19
(19)
30 June 2018
Currency movement
US$M
Other
Comprehensive
Income, net
of tax
Profi t
after tax
(59)
(3)
(2)
7
2
-
8
-
-
-
Other
Comprehensive
Income, net
of tax
Profi t
after tax
The sensitivity analysis assumes that the change in interest
rates is eff ective from the beginning of the fi nancial year and
the fi xed/fl oating mix and balances are constant over the year.
For the purpose of the sensitivity analysis, the decrease of 100
basis points is applied to the extent that the underlying interest
rates do not fall below zero per cent. However, interest rates and
the net debt profi le of the Group may not remain constant over
the coming fi nancial year and therefore such sensitivity analysis
should be used with care.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future
cash fl ows of an exposure will fl uctuate because of changes in
foreign exchange rates. The functional currency of the majority
of operations of the Group is the US dollar. The Group’s potential
currency exposures comprise:
■
■
Translational exposure in respect of non-functional currency
monetary items; and
Transactional exposure in respect of non-functional currency
expenditure and revenues.
Certain operating and capital expenditure is incurred by
operations in currencies other than their functional currency. To a
lesser extent, certain sales revenue is earned in currencies other
than the functional currency of operations, and certain exchange
control restrictions may require funds be maintained in currencies
other than the functional currency of the operation. When
required the Group may enter into forward exchange contracts.
The principal non-functional currencies to which the Group is
exposed to are the Australian dollar, South African rand, Brazilian
real, Colombian peso and Canadian dollar. The following table shows
the foreign currency risk arising from fi nancial assets and liabilities,
which are denominated in currencies other than the US dollar:
Net fi nancial assets/(liabilities) –
by currency of denomination
US$M
Australian dollar
Brazilian real
Colombian peso
South African rand
Canadian dollar
Other
Total
104
FY19
(836)
47
(19)
69
15
1
(723)
FY18
(721)
119
(18)
14
255
(1)
(352)
10% movement in Australian dollar
10% movement in Brazilian real
10% movement in Colombian peso
10% movement in South African rand
10% movement in Canadian dollar
(50)
(1)
(2)
(13)
-
-
13
-
14
26
Commodity price risk
Contracts for the sale and physical delivery of commodities are
executed whenever possible on a pricing basis intended to achieve
a relevant index target. Where pricing terms deviate from the index,
the Group may choose to use derivative commodity contracts
to realise the index price. Contracts for the physical delivery of
commodities are not typically fi nancial instruments and are carried
in the Consolidated Balance Sheet at cost (typically at nil).
Provisionally priced commodity sales and purchases contracts
Provisionally priced sales or purchases contracts are those
for which price fi nalisation, referenced to the relevant index, is
outstanding at the reporting date. Provisional pricing mechanisms
embedded within these sales and purchases arrangements
have the character of a commodity derivative and are carried at
FVTPL as part of trade receivables or trade payables. Fair value
movements on provisionally priced sales contracts are disclosed
in 'Other' revenue. Refer to note 4(b) Segment results. The
Group’s exposure at 30 June 2019 to the impact of movements in
commodity prices upon provisionally invoiced sales and purchases
volumes was predominantly around nickel, silver, lead, zinc and
aluminium.
The Group had 3.9kt of nickel, 3.0Moz of silver, 29.2kt of lead, 5.6kt
of zinc and 2.0kt of aluminium exposure at 30 June 2019 (FY18:
3.7kt of nickel, 2.2Moz of silver, 18.8kt of lead, 4.9kt of zinc and nil
of aluminium) that was provisionally priced. The fi nal price of these
sales or purchases will be determined during the fi rst half of FY20.
A 10 per cent change in the realised price of these commodities,
with all other factors held constant, would increase or decrease
profi t after tax by US$15 million (FY18: US$10 million). The
relationship between commodity prices and foreign currencies is
complex and movements in foreign exchange rates can impact
commodity prices. The sensitivities should therefore be used with
care.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(a)
Financial risk management objectives and policies (continued)
(ii) Liquidity risk
The Group’s liquidity risk arises from the possibility that it may not be able to settle or meet its obligations as they fall due. Operational,
capital and regulatory requirements are considered in the management of liquidity risk, in conjunction with short and long-term forecast
information.
The Group’s policy on counterparty credit exposure ensures that only counterparties of a high credit standing are used for the
investment of any excess cash.
Standby arrangements and unused credit facilities
The entities in the Group are funded by a combination of cash generated by the Group’s operations, working capital facilities and
intercompany loans provided by the Group. Intercompany loans may be funded by a combination of cash, short and long-term debt and
equity market raisings. Details of major standby and support arrangements are as follows:
30 June 2019
US$M
Commercial paper program(1)
Available
Used
Unused
1,500
-
1,500
(1) The Group has an undrawn US$1.5 billion revolving credit facility which is a standby arrangement to the US$1.5 billion US commercial paper program. The size of the multi-
currency revolving credit facility is US$1.5 billion until February 2021, and then US$1.4 billion from February 2021 until the facility expires in February 2022.
Maturity profi le of fi nancial liabilities
The maturity profi les of fi nancial liabilities, based on the contractual amounts, are as follows:
30 June 2019
US$M
Trade and other payables(1)
Interest bearing liabilities
Finance leases
Total
Carrying
amount
872
361
543
1,776
(1) Excludes input taxes of US$9 million included in other payables. Refer to note 14 Trade and other payables.
30 June 2018
US$M
Trade and other payables(1)
Interest bearing liabilities
Finance leases
Derivative contracts
Total
Carrying
amount
822
359
570
2
1,753
On demand
or less than
1 year
1 to 5 years
More than 5
years
871
303
58
1,232
1
45
232
278
-
32
819
851
On demand
or less than
1 year
1 to 5 years
More than 5
years
818
325
59
2
1,204
3
24
240
-
267
1
37
903
-
941
Total
872
380
1,109
2,361
Total
822
386
1,202
2
2,412
(1) Excludes input taxes of US$13 million included in other payables. Refer to note 14 Trade and other payables.
(iii) Credit risk
The Group has credit risk management policies in place covering the credit analysis, approvals and monitoring of counterparty
exposures. As part of these processes the ongoing creditworthiness of counterparties is regularly assessed.
Mitigation methods are defi ned and implemented for higher-risk counterparties to protect revenues, with approximately half of the
Group’s sales of physical commodities occurring via secured payment terms including prepayments, letters of credit, guarantees and
other risk mitigation instruments.
There are no material concentrations of credit risk, either with individual counterparties or groups of counterparties, by industry or
geography.
The carrying amounts of fi nancial assets represent the maximum credit exposure.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
105
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
19. FINANCIAL ASSETS AND FINANCIAL
LIABILITIES (CONTINUED)
(a)
Financial risk management objectives and policies
(continued)
(iii) Credit risk (continued)
Trade and other receivables – held at amortised cost
For trade receivables, the Group uses the simplifi ed approach to
recognise impairments based on the lifetime expected credit loss.
For other receivables, the Group applies the general approach and
recognises impairments based on a 12-month expected credit
loss.
The Group’s exposure to credit risk is infl uenced by the individual
characteristics of each counterparty or customer. However,
management also consider other factors that may infl uence the
credit risk of its counterparty or customer base. The Group has
an established credit policy under which each new customer
is assessed for creditworthiness before the Group’s standard
payment and delivery terms and conditions are off ered. The
Group’s review includes external credit ratings, if available, credit
agency information, as well as fi nancial institution information and
industry information. Sale limits are established for each customer
and reviewed annually or with the new release of information
materially impacting the customer’s creditworthiness.
Expected credit loss assessment as at 1 July 2018 and 30 June
2019
Impairment allowances are based on a forward-looking expected
credit loss model. Where there has been a signifi cant increase in
credit risk, a loss allowance for lifetime expected credit losses is
required.
Exposures are grouped by external credit rating and security
options and an expected credit loss rate is calculated accordingly.
Where applicable, actual credit loss experience is also taken into
account. For all other remaining receivables without an external
credit rating or security option, a rating of BB (Standard and
Poor’s) is used, on the basis that there is no support that it is
investment grade, nor is there any evidence of default.
Loans to equity accounted investments
Impairments on loans to equity accounted investments have been
measured on the 12-month expected credit loss basis, per the
general approach.
(b) Accounting classifi cation and fair value
(i) Recognition and initial measurement
All fi nancial assets (with the exception of trade and other
receivables without a signifi cant fi nancing component) or
fi nancial liabilities are initially recognised at fair value (for all items
except those classifi ed as FVTPL) plus transaction costs directly
attributable to its acquisition or issue. Trade and other receivables
without a signifi cant fi nancing component are initially measured at
the transaction price.
(ii) Financial Assets: Classifi cation and subsequent measurement
On initial recognition, fi nancial assets are measured at: amortised
cost; investments in equity instruments, FVOCI; or FVTPL.
On initial recognition of an investment in an equity instrument
not held for trading, the Group may irrevocably elect to present
subsequent changes in the investment’s fair value in OCI. This
election is made on an investment-by-investment basis.
On initial recognition, the Group may irrevocably designate a
fi nancial asset that otherwise meets the requirements to be
measured at amortised cost or at FVOCI as FVTPL if doing so
eliminates or signifi cantly reduces an accounting mismatch that
would otherwise arise.
Financial assets are not reclassifi ed subsequent to their initial
recognition unless the Group changes its business model for
managing fi nancial assets in which case all aff ected fi nancial
assets are reclassifi ed on the fi rst day of the fi rst reporting period
following the change in the business model.
A fi nancial asset is measured at amortised cost if it meets both of
the following conditions and is not designated as FVTPL:
■
■
It is held within a business model whose objective is to hold
assets to collect contractual cash fl ows; and
Its contractual terms give rise on specifi ed dates to cash
fl ows that are solely payments of principal and interest on the
principal amount outstanding.
All fi nancial assets not measured at amortised cost or FVOCI are
measured at FVTPL. This includes all derivative fi nancial assets.
Transfers of fi nancial assets to third parties in transactions that
do not qualify for derecognition are not considered sales for this
purpose, consistent with the Group’s continuing recognition of the
assets.
Financial assets that are held for trading and whose performance
is evaluated on a fair value basis are measured at FVTPL.
Financial assets: Assessment whether contractual cash fl ows are
solely payments of principal and interest
For the purposes of this assessment, ‘principal’ is defi ned as the
fair value of the fi nancial asset on initial recognition. ‘Interest’ is
defi ned as consideration for the time value of money and for
the credit risk associated with the principal amount outstanding
during a particular period and for other basic lending risks and
costs (for example, liquidity risk and administrative costs), as well
as a profi t margin.
In assessing whether the contractual cash fl ows are solely
payments of principal and interest, the Group considers the
contractual terms of the instrument. This includes assessing
whether the fi nancial asset contains a contractual term that could
change the timing or amount of contractual cash fl ows such that
it would not meet this condition. In making this assessment, the
Group considers:
■ Contingent events that would change the amount or timing of
■
cash fl ows;
Terms that may adjust the contractual coupon rate, including
variable rate features;
■ Prepayment and extension features; and
■
Terms that limit the Group’s claim to cash fl ows from specifi ed
assets (for example, non-recourse features).
106
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
19. FINANCIAL ASSETS AND FINANCIAL
LIABILITIES (CONTINUED)
(b) Accounting classifi cation and fair value (continued)
(ii)
Financial Assets: Classifi cation and subsequent measurement
(continued)
Financial assets: Subsequent measurement and gains and losses
Classifi cation
Subsequent measurement
Held at
FVTPL
Amortised
cost
Investments
in equity
instruments –
designated
at FVOCI
Financial assets held at FVTPL are subsequently
measured at fair value. Net gains and losses,
including any interest, dividend income or
movements in provisionally priced sales
agreements, are recognised in the Consolidated
Income Statement.
Forward exchange contracts and interest rate
swaps held for hedging purposes are accounted
for as either cash fl ow or fair value hedges.
Any derivative instrument fair value change
that does not qualify for hedge accounting is
recognised immediately in the Consolidated
Income Statement.
Financial assets at amortised cost are
subsequently measured at amortised cost using
the eff ective interest method. The amortised
cost is reduced by impairment losses. Interest
income, foreign exchange gains and losses and
impairments are recognised in the Consolidated
Income Statement. Any gain or loss on
derecognition is recognised in the Consolidated
Income Statement.
Investments in equity instruments designated
at FVOCI are subsequently measured at fair
value. Dividends are recognised as income in
the Consolidated Income Statement unless
the dividend clearly represents a recovery
of part of the cost of the investment. Other
net gains and losses are recognised in Other
Comprehensive Income and are not reclassifi ed
to the Consolidated Income Statement.
The measurement of fair value of fi nancial assets is based on
quoted market prices in active markets for identical assets
or liabilities. Where no price information is available from a
quoted market source, alternative market mechanisms or
recent comparable transactions, fair value is estimated based
on the Group’s views on relevant future prices, net of valuation
allowances to accommodate liquidity, modelling, credit and other
risks implicit in such estimates.
(iii)
Financial Liabilities: Classifi cation, subsequent measurement
and gains and losses
Financial liabilities are classifi ed as measured at amortised cost
or FVTPL. A fi nancial liability is classifi ed as FVTPL if it is classifi ed
as held for trading, it is a derivative or it is designated as such on
initial recognition. Financial liabilities at FVTPL are measured at fair
value and net gains and losses, including any interest expense, are
recognised in the Consolidated Income Statement. Other fi nancial
liabilities are subsequently measured at amortised cost using the
eff ective interest method. Interest expense and foreign exchange
gains or losses are recognised in the Consolidated Income
Statement. Any gain or loss on derecognition is also recognised in
the Consolidated Income Statement.
(iv)
Embedded derivatives
A derivative embedded in a hybrid contract, with a fi nancial liability
or non-fi nancial host, is separated from the host and accounted
for as a separate derivative if: the economic characteristics and
risks are not closely related to the host; a separate instrument
with the same terms as the embedded derivative would meet the
defi nition of a derivative; and the hybrid contract is not measured
at FVTPL. Embedded derivatives are measured at fair value with
changes in fair value recognised in the Consolidated Income
Statement.
A derivative embedded within a hybrid contract containing a
fi nancial asset host is not accounted for separately. The fi nancial
asset host together with the embedded derivative is required to
be classifi ed in its entirety as a fi nancial asset at FVTPL.
(v)
Derecognition
Financial assets
The Group derecognises a fi nancial asset when the contractual
rights to the cash fl ows from the asset expire, or it transfers
the rights to receive the contractual cash fl ows in a transaction
in which substantially all risks and rewards of ownership of the
fi nancial asset are transferred, or it neither transfers nor retains
substantially all of the risks and rewards of ownership and does
not retain control over the transferred asset. Any interest in such
derecognised fi nancial assets that is created or retained by the
Group is reported as a separate asset or liability.
Financial liabilities
The Group derecognises a fi nancial liability when its contractual
obligations are discharged, cancelled or expire. The Group also
derecognises a fi nancial liability when its terms are modifi ed and
the cash fl ows of the modifi ed liability are substantially diff erent, in
which case a new fi nancial liability based on the modifi ed terms is
recognised at fair value.
(vi)
Accounting classifi cation – policy applicable up to
30 June 2018
All fi nancial assets were initially recognised at the fair value of
consideration paid. Subsequently, fi nancial assets were carried
at fair value or amortised cost less impairment. Where non-
derivative, equity instrument fi nancial assets were carried at fair
value, gains and losses on re-measurement were recognised
directly in equity unless the fi nancial assets had been designated
as being held at fair value through profi t or loss, in which case
the gains and losses were recognised directly in the Consolidated
Income Statement. Financial assets were designated as being
held at fair value through profi t or loss where this is necessary
to reduce measurement inconsistencies for related assets and
liabilities.
All fi nancial liabilities other than derivatives were initially
recognised at fair value of consideration received net of
transaction costs as appropriate (initial cost) and, with the
exception of fi nancial liabilities which had been designated in
fair value hedging relationships, were subsequently carried at
amortised cost. The Group derecognised a fi nancial liability when
its contractual obligations were discharged, cancelled or expired.
Derivatives, including those embedded in other contractual
arrangements but separated for accounting purposes because
they were not clearly and closely related to the host contract,
were initially recognised at fair value on the date the contract was
entered into and were subsequently re-measured at their fair
value. The method of recognising the resulting gain or loss on re-
measurement depends on whether the derivative was designated
as a hedging instrument, and, if so, the nature of the item being
hedged.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
107
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(b) Accounting classifi cation and fair value (continued)
(vi)
Accounting classifi cation – policy applicable up to 30 June 2018 (continued)
Movements in the fair value of fi nancial assets and liabilities may have been recognised through the Consolidated Income Statement or
in the Consolidated Statement of Comprehensive Income.
Available for sale and trading investments
Available for sale and trading investments were measured at fair value. Gains and losses on the re-measurement of trading investments
were recognised directly in the Consolidated Income Statement. Gains and losses on the re-measurement of available for sale
investments were recognised directly in equity and subsequently recognised in the Consolidated Income Statement when realised by
sale or redemption, or when a reduction in fair value represented an impairment.
The following table presents the fi nancial assets and liabilities by class at their carrying amounts which approximates their fair value.
Note
Held at
FVTPL
Designated
as FVOCI
Amortised
cost
30 June 2019
US$M
Financial assets
Cash and cash equivalents
Trade and other receivables(1)
Loans to equity accounted investments
Other fi nancial assets:
Derivative contracts
Total current fi nancial assets
Trade and other receivables(1)(2)
Loans to equity accounted investments
Interest bearing loans receivable
Other fi nancial assets:
Derivative contracts
Investments in equity instruments – designated as FVOCI
Other investments – held at FVTPL
Total non-current fi nancial assets
Total
Financial liabilities
Trade and other payables(3)
Finance leases
Unsecured other
Total current fi nancial liabilities
Trade and other payables
Finance leases
Unsecured other
Total non-current fi nancial liabilities
Total
16
9
9
9
9
9
14
17
17
14
17
17
-
103
-
108
211
-
-
-
7
-
141
148
359
1
-
-
1
-
-
-
-
1
-
-
-
-
-
-
-
-
-
124
-
124
124
-
-
-
-
-
-
-
-
-
Total
1,408
698
36
108
2,250
5
136
33
7
124
141
446
2,696
871
12
301
1,408
595
36
-
2,039
5
136
33
-
-
-
174
2,213
870
12
301
1,183
1,184
1
531
60
592
1
531
60
592
1,775
1,776
(1) Excludes current input taxes of US$154 million and non-current input taxes of US$33 million included in other receivables. Refer to note 9 Trade and other receivables.
(2) Excludes a reimbursable right asset in relation to the closure and rehabilitation provision at South Africa Energy Coal of US$83 million included in other receivables. Refer to
note 9 Trade and other receivables.
(3) Excludes input taxes of US$9 million included in other payables. Refer to note 14 Trade and other payables.
108
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(b) Accounting classifi cation and fair value (continued)
As shown in note 3 New standards and interpretations the comparative designations are presented under AASB 139.
30 June 2018
US$M
Financial assets
Cash and cash equivalents
Trade and other receivables(1)
Loans to equity accounted investments
Other fi nancial assets:
Derivative contracts
Shares
Total current fi nancial assets
Trade and other receivables(1)(2)
Loans to equity accounted investments
Interest bearing loans receivable
Other fi nancial assets:
Derivative contracts
Shares
Other investments
Total non-current fi nancial assets
Total
Financial liabilities
Trade and other payables(3)
Finance leases
Unsecured other
Other fi nancial liabilities:
Derivative contracts
Total current fi nancial liabilities
Trade and other payables
Finance leases
Unsecured other
Total non-current fi nancial liabilities
Total
Loans and
receivables
Note
Available
for sale
securities
Other
fi nancial
assets and
liabilities
at
amortised
cost
Held at
fair value
through
profi t or
loss
Cash fl ow
hedges
16
9
9
9
9
9
14
17
17
14
17
17
2,970
572
27
-
-
3,569
4
67
38
-
-
-
109
3,678
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
3
-
-
-
-
403
136
539
542
-
-
-
-
-
-
-
-
-
-
-
87
-
72
-
159
-
-
-
74
-
-
74
233
2
-
-
2
4
-
-
-
-
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
815
12
321
-
1,148
5
558
38
601
1,749
-
-
-
5
-
5
-
-
-
-
-
-
-
5
-
-
-
-
-
-
-
-
-
-
Total
2,970
659
27
77
3
3,736
4
67
38
74
403
136
722
4,458
817
12
321
2
1,152
5
558
38
601
1,753
(1) Excludes current input taxes of US$140 million and non-current input taxes of US$56 million included in other receivables.
(2) Excludes a reimbursable right asset in relation to the closure and rehabilitation provision at South Africa Energy Coal of US$83 million included in other receivables.
(3) Excludes input taxes of US$13 million included in other payables.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
109
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(b) Accounting classifi cation and fair value (continued)
Investments in equity instruments – designated as FVOCI
At 1 July 2018, on an instrument by instrument basis, the Group has elected under AASB 9 to designate investments in equity
instruments as FVOCI as they represent investments that the Group intends to hold for long-term strategic purposes. In FY18 these
investments were classifi ed as available for sale (refer to note 3 New standards and interpretations).
Other investments – held at FVTPL
The investment in unit trusts held by the South32 South Africa Energy Coal Rehabilitation Trust Fund does not meet the defi nition of an
equity instrument under AASB 9. These investments are therefore classifi ed as investments held at FVTPL (FY18: Available for sale). On
transition to AASB 9 (1 July 2018), a net gain of US$12 million was transferred from the fi nancial asset reserve to retained earnings.
Measurement of fair value
The following table shows the Group’s fi nancial assets and liabilities carried at fair value with reference to the nature of valuation inputs
used:
Level 1 Valuation is based on unadjusted quoted prices in active markets for identical fi nancial assets and liabilities.
Level 2
Valuation is based on inputs (other than quoted prices included in Level 1) that are observable for the fi nancial asset or liability,
either directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).
Level 3 Valuation includes inputs that are not based on observable market data.
30 June 2019
US$M
Financial assets and liabilities
Trade and other receivables
Trade and other payables
Derivative contracts
Investments in equity instruments – designated at FVOCI
Other investments – FVTPL
Total
30 June 2018
US$M
Financial assets and liabilities
Trade and other receivables
Trade and other payables
Derivative contracts
Shares – available for sale
Other investments – available for sale
Total
Level 3 fi nancial assets and liabilities
Level 1
Level 2
Level 3
Total
-
-
-
48
-
48
103
(1)
2
-
141
245
-
-
113
76
-
189
103
(1)
115
124
141
482
Level 1
Level 2
Level 3
Total
-
-
-
277
-
277
87
(2)
6
-
136
227
-
-
143
129
-
272
FY19
272
(2)
(72)
42
(51)
189
87
(2)
149
406
136
776
FY18
334
(31)
(98)
41
26
272
The following table shows the movements in the Group’s Level 3 fi nancial assets and liabilities:
US$M
At the beginning of the fi nancial year
Disposals
Realised gains/(losses) recognised in the Consolidated Income Statement(1)
Unrealised gains/(losses) recognised in the Consolidated Income Statement(2)
Unrealised gains/(losses) recognised in the Consolidated Statement of Comprehensive Income(3)
At the end of the fi nancial year
(1) Realised gains and losses recognised in the Consolidated Income Statement are recorded in expenses excluding net fi nance cost.
(2) Unrealised gains and losses recognised in the Consolidated Income Statement are recorded in expenses excluding net fi nance cost.
(3) Unrealised gains and losses recognised in the Consolidated Statement of Comprehensive Income are recorded in the fi nancial assets reserve.
110
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(b) Accounting classifi cation and fair value (continued)
Sensitivity analysis
The carrying amount of fi nancial assets and liabilities that are valued using inputs other than observable market data are calculated
using appropriate valuation models, including discounted cash fl ow modelling, with inputs such as commodity prices, foreign exchange
rates and infl ation. The potential eff ect of using reasonably possible alternative assumptions in these models, based on changes in the
most signifi cant inputs by 10 per cent while holding all other variables constant, is shown in the following table:
30 June 2019
US$M
Financial assets and liabilities
Derivative contracts(1)
Profi t after tax
Other Comprehensive
Income, net of tax
Carrying
amount
Signifi cant inputs
10%
increase in
input
10%
decrease in
input
10%
increase in
input
10%
decrease in
input
Aluminium price(2)
Foreign exchange rate(2)
113
Electricity price(3)
(49)
46
-
-
Investments in equity instruments –
designated as FVOCI(1)
Total
Alumina price(2)
Aluminium price(2)
Foreign exchange rate(2)
76
189
-
(49)
-
46
52
52
(78)
(78)
(1) Sensitivity analysis is performed assuming all inputs are directionally moving unfavourably and favourably.
(2) Aluminium and alumina prices are comparable to market consensus forecasts and foreign exchange rates are aligned with forward market rates.
(3) Electricity prices are determined as a market equivalent price.
30 June 2018
US$M
Financial assets and liabilities
Derivative contracts(1)
Investments – available for sale(1)
Total
Profi t after tax
Other Comprehensive
Income, net of tax
Carrying
amount
Signifi cant inputs
10%
increase in
input
10%
decrease in
input
10%
increase in
input
10%
decrease in
input
Aluminium price(2)
Foreign exchange rate(2)
143
Electricity price(3)
(89)
84
-
-
Alumina price(2)
Aluminium price(2)
Foreign exchange rate(2)
129
272
-
(89)
-
84
41
41
(52)
(52)
(1) Sensitivity analysis is performed assuming all inputs are directionally moving unfavourably and favourably.
(2) Aluminium and alumina prices are comparable to market consensus forecasts and foreign exchange rates are aligned with forward market rates.
(3) Electricity prices are determined as a market equivalent price based on inputs from published data.
(c) Capital management
The Group will invest capital in assets where they fi t the strategy. The Group’s priorities for cash fl ow are:
■ Maintain safe and reliable operations and an investment grade credit rating through the cycle;
■ Distribute a minimum of 40 per cent of Underlying earnings as dividends to shareholders following each six month reporting period;
and
■ Consistent with the Group’s priorities for cash fl ow and commitment to maximise total shareholder returns, other alternatives
including special dividends, share buy-backs and high return investment opportunities will compete for capital.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
111
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – CAPITAL STRUCTURE AND FINANCING
20. SHARE CAPITAL
Share capital
At the beginning of the fi nancial year
Shares bought back and cancelled
At the end of the fi nancial year
Treasury shares
At the beginning of the fi nancial year
Purchase of shares by ESOP Trusts
Employee share awards exercised following vesting
At the end of the fi nancial year
FY19
FY18
Shares
US$M
Shares
US$M
5,119,913,775
14,493
5,217,919,888
(114,410,200)
(281)
(98,006,113)
5,005,503,575
14,212
5,119,913,775
(30,891,376)
(33,986,147)
24,394,352
(40,483,171)
(83)
(99)
77
(13,161,908)
(31,714,442)
13,984,974
(105)
(30,891,376)
14,747
(254)
14,493
(26)
(84)
27
(83)
Shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in proportion to the number of shares
held. On a show of hands every holder of shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each
share is entitled to one vote.
Incremental costs directly attributable to the issue of shares, net of any income tax eff ects, are recognised as a deduction from equity.
The Group does not have authorised capital or par value in respect of its issued shares.
112
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FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
21. AUDITOR’S REMUNERATION
The auditor of the Group is KPMG.
US$'000
FY19
FY18
Fees payable to the Group’s auditor
for assurance services
Audit and review of fi nancial
statements
Other assurance services(1)
Fees payable to the Group’s auditor
for all other services
4,726
586
4,741
717
All other services(2)
Total auditor’s remuneration
-
5,312
158
5,616
(1) Mainly comprises assurance in respect of the Group’s sustainability reporting.
(2)
Includes a number of consulting services.
22. PENSION AND OTHER POST-RETIREMENT
OBLIGATIONS
The Group operates or participates in a number of pension
(including superannuation) schemes throughout the world. The
funding of the schemes complies with local regulations. The
assets of the schemes are generally held separately from those
of the Group and are administered by trustees or management
boards. The Group operates two post-retirement medical
schemes in South Africa. Full actuarial valuations are prepared for
the schemes.
Defi ned contribution pension schemes
The Group contributed US$75 million (FY18: US$77 million)
to defi ned contribution plans and multi-employer defi ned
contribution plans. These contributions are expensed as incurred.
Defi ned benefi t pension schemes (closed schemes)
At 30 June 2019 the Group had defi ned benefi t obligations of
US$113 million (FY18: US$116 million) and fair value of defi ned
benefi t scheme assets of US$110 million (FY18: US$117 million)
with a net liability recognised in the Consolidated Balance Sheet of
US$3 million (FY18: nil).
The fair value of scheme assets by major asset class is as follows:
The principal actuarial assumptions at the reporting date
(expressed as weighted averages) for post-retirement medical
schemes are as follows:
%
Discount rate
Medical cost trend rate (ultimate)
South Africa
FY19
10.0
8.0
FY18
9.9
8.2
Assumptions regarding future mortality can be material
depending upon the size and nature of the post-retirement
medical schemes’ liabilities. Post-retirement mortality assumptions
in South Africa are based on post-retirement mortality tables that
are standard in the region.
For the main post-retirement medical schemes, these tables imply
the following expected future lifetimes (in years) for employees
aged 65 as at the balance sheet date: male employees in South
Africa 20.0 (FY18: 19.7), female employees in South Africa 24.5
(FY18: 24.1).
Weighted average maturity profi le of schemes
The weighted average duration of the defi ned benefi t obligations
are 9 years (FY18: 9 years) and 11 years (FY18: 12 years) for the
defi ned benefi t pensions schemes and post-retirement medical
schemes respectively.
Risks associated with defi ned benefi t pension and post-retirement
medical schemes
The Group’s defi ned benefi t pension and post-retirement medical
schemes expose the Group to the risks pertaining to asset value
volatility, uncertainty in future benefi t payments and uncertainty in
future contribution requirements.
23. EMPLOYEE SHARE OWNERSHIP PLANS
At 30 June 2019 the Group had the following employee share
ownership arrangements:
Awards granted to Lead Team members(1)
Long-Term Incentive Plan
FY16, FY17, FY18, FY19
Deferred Short-Term Incentive Plan
FY17, FY18
Executive Transitional Award Plan
FY17, FY18, FY19
Asset class
US$M
Bonds(1)
Equities
Cash and cash equivalents
Other(2)
Total
Fair value
Sign-on Award Plan
FY19
FY19
FY18
(1) Awards granted on 4 December 2015, 2 December 2016, 13 December 2017 or
7 December 2018.
46
12
9
43
51
11
7
48
110
117
Awards granted to eligible employees(1)
Management Share Plan
FY16, FY17, FY18, FY19
AllShare Plan
2016, 2017, 2018
Management Transitional Award Plan FY16, FY17, FY18, FY19
(1) Awards granted on 13 May 2016, 17 November 2016, 28 April 2017,
13 November 2017, 7 May 2018, 7 December 2018 or 17 May 2019.
Share ownership plans in existence at 30 June 2015
Replacement BHP Long-Term Incentive Plan
(1) Comprises Fixed Interest Government bonds of US$8 million (FY18: US$16 million),
Index Linked Government bonds of US$31 million (FY18: US$27 million) and
Corporate bonds of US$7 million (FY18: US$8 million).
(2) Primarily comprises of insurance contracts in South Africa.
Defi ned benefi t post-retirement medical schemes (closed
schemes)
At 30 June 2019 the Group had post-retirement medical scheme
obligations of US$89 million (FY18: US$90 million). The post-
retirement medical schemes are unfunded.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
113
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
23. EMPLOYEE SHARE OWNERSHIP PLANS
FY16, FY17, FY18 and FY19 Management Share Plan
(CONTINUED)
All awards take the form of rights to receive one share in South32
Limited for each right granted, subject to performance and/or
service conditions being met. A portion of the 2016, 2017 and
2018 AllShare Plan awards (participants located in Colombia and
Mozambique) take the form of rights to receive a cash payment
equivalent to the value of South32 Limited shares at the time of
payment. Employees in Africa are granted rights on the JSE and
all other employees are granted rights on the ASX.
Performance conditions are based on the Group’s Total
Shareholder Return (TSR) measured separately against two
comparator indicies over the performance period as follows:
■ One third of performance rights are measured against the
■
Morgan Stanley Capital International (MSCI) World Index; and
Two thirds of performance rights are measured against the
IHS Markit (formerly Euromoney) Global Mining Index.
Performance rights vest when the Group’s TSR equals or
outperforms the comparator index. Full vesting of performance
rights occur if the Group’s TSR outperforms both indicies by at
least 5.5 per cent per annum (cumulative) or 23.9 per cent over
four years. To the extent that the performance conditions are not
met, awards are forfeited and no retesting is performed.
Awards do not confer any dividend or voting rights until they
convert into shares at vesting. In addition, the awards do not
confer any rights to participate in a share issue, however, there is
discretion under the plans to adjust the awards in response to a
variation in South32 Limited’s share capital.
The Replacement BHP Long-Term Incentive Plan and AllShare
JSE plans are eligible to receive a payment equal to the dividend
amount that would have been earned on the underlying shares
awarded to those participants (Dividend Equivalent Payment). The
Dividend Equivalent Payment is made to participants once the
underlying shares are issued or transferred to them. No Dividend
Equivalent Payment is made in respect of awards that lapse. No
other awards are eligible for a Dividend Equivalent Payment.
(a) Description of share-based payment arrangements
(i) Recurring share-based payment plans
The awards listed below are subject to the general conditions
noted above and may be granted annually subject to approval by
shareholders at the annual general meeting for awards to the CEO
and by the Board of Directors for all other awards.
FY16, FY17, FY18 and FY19 Long-Term Incentive Plan
The Long-Term Incentive Plan is the Group’s long-term incentive
plan for Lead Team members. Awards have a four year
performance period from 1 July 2015 to 30 June 2019, 1 July 2016
to 30 June 2020, 1 July 2017 to 30 June 2021 and
1 July 2018 to 30 June 2022 respectively.
FY17 and FY18 Deferred Short-Term Incentive Plan
The FY17 and FY18 Deferred Short-Term Incentive Plan is the
Group’s short-term incentive plan for Lead Team members.
Awards vest in August 2019 and August 2020 respectively,
provided participants remain employed by the Group.
The FY16, FY17, FY18 and FY19 Management Share Plan is the
Group’s long-term incentive plan for eligible employees below
the Lead Team. The Management Share Plan comprises two
elements:
■ Retention Rights vesting in August 2019, August 2020 and
August 2021 provided participants remain employed by the
Group; and
■ Performance Rights vesting in August 2019, August 2020,
August 2021 and August 2022 subject to performance
conditions.
2016, 2017 and 2018 AllShare Plan
The 2016, 2017 and 2018 AllShare Plan is the Group’s employee
share plan for employees not eligible to participate in the other
employee share plans. Awards to the value of at least US$1,250
per employee are granted annually. Awards will vest provided
participants remain employed by the Group. The vesting period
depends on the participants’ location at the grant date:
■ Participants in Africa including Mozambique: August 2019,
August 2020 and August 2021; and
■ Participants elsewhere: August 2019 and August 2020.
(ii) Transitional share-based payment plans
The awards listed below are subject to the general conditions
noted above and are either one-off or will not be granted on an
ongoing basis.
FY19 Sign-on Award Plan
The FY19 Sign-on Award Plan is a one-off grant made to one
Lead Team member to replace the equity awards forfeited by the
participant when commencing employment with the Group. The
Award has two tranches, vesting in August 2019 and August 2020
respectively, provided the participant remains employed by Group.
FY17, FY18 and FY19 Executive Transitional Award Plan
The FY17 Executive Transitional Award Plan is a one-off grant
made to one Lead Team member in recognition of their
adjustment from the Management Share Plan (three year
retention rights and four year performance rights) to the four year
plan at the Group. Awards have a three year performance period
from 1 July 2016 to 30 June 2019. The FY18 Executive Transitional
Award Plan is a one-off grant made to two Lead Team members
in recognition of their adjustment from the Management Share
Plan (three year retention rights and four year performance rights)
to the four year plan at the Group. Awards have a three year
performance period from 1 July 2017 to 30 June 2020. The FY19
Executive Transitional Award Plan is a one-off grant made to one
Lead Team member in recognition of their adjustment from the
Management Share Plan (three year retention rights and four year
performance rights) to the four year plan at the Group. Awards
have a three year performance period from 1 July 2018 to 30 June
2021.
FY16, FY17, FY18 and FY19 Management Transitional Award Plan
The FY16, FY17, FY18 and FY19 Management Transitional Award
Plan is a grant made to certain eligible employees to bridge the
gap between their total target reward at BHP and their total
target reward at the Group. Transitional awards will be made for a
maximum of fi ve years until FY20. The FY16, FY17, FY18 and FY19
Management Transitional Award Plans have the same conditions
as the FY16, FY17, FY18 and FY19 Management Share Plan and
comprises both service and performance conditions.
114
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FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
23. EMPLOYEE SHARE OWNERSHIP PLANS
(c) Measurement of fair values
(CONTINUED)
(a)
Description of share-based payment arrangements
(continued)
(ii) Transitional share-based payment plans (continued)
Replacement BHP Long-Term Incentive Plan
The Replacement BHP Long-Term Incentive Plan awards have
a fi ve year performance period from grant of the original BHP
award. The performance hurdle testing for the awards is split
into two periods: the BHP period (from grant up to 24 May 2015)
and the Group period (from 25 May 2015 to the date of vesting).
During the BHP period, performance was based on BHP’s TSR
relative to a combination of the Peer Group TSR (a specifi ed group
of peer companies) for two thirds of the award and the MSCI
World Index for one third.
(b) Employee Share Ownership Plan Trusts
The South32 Limited Employee Incentive Plans Trust (the
Australian Trust) and the South32 South African AllShare Trust
(the South African Trust) are discretionary trusts for the benefi t of
employees of South32 Limited and its subsidiaries.
The trustee for the Australian Trust (CPU Share Plans Pty Ltd) is
an independent company, resident in Australia. The trustee for
the South African Trust is made up of employer and employee
representatives per the B-BBEE requirements under South African
law. The Trusts use funds provided by South32 Limited and/or its
subsidiaries to acquire shares to enable awards to be made or
satisfi ed under the Group employee share ownership plans.
The fair value at grant date of equity-settled share awards is
charged to the Consolidated Income Statement, net of tax,
over the period for which the benefi ts of employee services are
expected to be derived. The corresponding accrued employee
entitlement is recorded in the employee share awards reserve.
Where awards are forfeited because non-market based vesting
conditions are not satisfi ed, the expense previously recognised
is proportionately reversed. Where shares in South32 Limited are
acquired by on-market purchases prior to settling the vested
entitlement, the cost of the acquired shares is carried as treasury
shares and deducted from equity. Where awards are satisfi ed
by delivery of acquired shares, any diff erence between their
acquisition cost and the expected cumulative remuneration
expense recognised is charged directly to retained earnings, net
of tax.
The fair value of performance rights is measured using a Monte
Carlo methodology. This model considers the following:
■
Expected life of the award;
■ Current market price of the underlying shares;
■
■
Expected volatility (of the individual company and of each
peer group);
Expected dividends;
■ Risk-free interest rate; and
■ Market based performance hurdles.
The fair value of retention rights is measured using a Black
Scholes methodology. This model considers the following:
The shares may be acquired by purchase in the market or by
subscription at not less than nominal value.
■
Expected life of the award;
■ Current market price of the underlying shares;
■
■
Expected volatility;
Expected dividends; and
■ Risk-free interest rate.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
115
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
23. EMPLOYEE SHARE OWNERSHIP PLANS (CONTINUED)
(c) Measurement of fair values (continued)
The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payments plans were as follows:
Year ended
30 June 2019
Recurring plans
Fair value at
grant date
(US$)(1)
Share price
at grant
date (US$)
Expected
volatility
(%)(2)
Expected
life
(in years)(1)
Risk-free
interest rate
based on
government
bonds (%)(1)
FY19 Long-Term Incentive Plan(3)
FY18 Deferred Short-Term Incentive Plan(3)
1.09
2.11
2.24
2.24
FY19 Management Share Plan - Retention Rights(4)
1.97 – 2.02
2.24 – 2.25
FY19 Management Share Plan - Performance Rights(4)
1.09
2.24 – 2.25
32.50
32.50
32.50
32.50
4.00
2.00
3.00
4.00
2.01
1.88
1.92 – 7.63
2.01 – 7.98
2018 AllShare Plan(4)
2.11 – 2.28
2.24 – 2.25
32.50
2.00 – 3.00
1.88 – 7.63
Transitional plans
FY19 Sign-on Award Plan(3)
FY19 Executive Transitional Award Plan(3)
2.11 – 2.23
1.14
2.24
2.24
32.50
1.00 – 2.00
1.87 – 1.88
32.50
3.00
1.92
FY19 Management Transitional Award Plan(4)(5)
1.09 – 2.02
2.24 – 2.25
32.50
3.00 – 4.00
1.92 – 7.98
(1) Represents the range of grant date fair values, expected life, and risk-free interest rates based on the amount of rights granted on the ASX or the JSE during the year, and the
variations in off er terms and grant dates of each plan where applicable. The risk-free rate and expected volatility does not materially impact service based awards.
(2) Expected volatility is based on the historical South32 Limited share price volatility at the grant date.
(3) Grant date 7 December 2018.
(4) Grant date 7 December 2018 and 17 May 2019.
(5) The Management Transitional Award Plan comprises both retention rights and performance rights. The range of risk-free rates for the performance based awards are 2.01 to
7.98 per cent.
Year ended
30 June 2018
Recurring plans
Fair value at
grant date
(US$)(1)
Share price
at grant
date (US$)
Expected
volatility
(%)(2)
Expected
life
(in years)(1)
Risk-free
interest rate
based on
government
bonds (%)(1)
FY18 Long-Term Incentive Plan(3)
FY17 Deferred Short-Term Incentive Plan(3)
1.33
2.27
2.39
2.39
FY18 Management Share Plan - Retention Rights(4)
2.35 – 2.40
2.54 – 2.57
FY18 Management Share Plan - Performance Rights(4)
1.53 – 2.02
2.54 – 2.57
35.00
35.00
35.00
35.00
4.00
2.00
3.00
4.00
2.07
1.91
1.94 – 8.40
2.04 – 8.60
2017 AllShare Plan(4)
2.47 – 2.58
2.54 – 2.57
35.00
2.00 – 3.00
1.73 – 8.40
Transitional plans
FY18 Executive Transitional Award Plan(3)
1.34
2.39
35.00
3.00
1.98
FY18 Management Transitional Award Plan(4)(5)
1.53 – 2.40
2.54 – 2.57
35.00
3.00 – 4.00
1.94 – 8.60
(1) Represents the range of grant date fair values, expected life, and risk-free interest rates based on the amount of rights granted on the ASX or the JSE during the year, and the
variations in off er terms and grant dates of each plan where applicable. The risk-free rate and expected volatility does not materially impact service based awards.
(2) Expected volatility is based on the historical South32 Limited share price volatility at the grant date.
(3) Grant date 13 December 2017.
(4) Grant date 13 November 2017 or 7 May 2018.
(5) The Management Transitional Award Plan comprises both retention rights and performance rights. The range of risk-free rates for the performance based awards are 2.04 to
8.60 percent.
116
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
23. EMPLOYEE SHARE OWNERSHIP PLANS (CONTINUED)
(d) Reconciliation of outstanding share awards
None of the awards listed below have an exercise price or are exercisable at 30 June 2019.
Year ended 30 June 2019
Number of Rights
Recurring plans
FY16 Long-Term Incentive Plan
FY17 Long-Term Incentive Plan
FY18 Long-Term Incentive Plan
FY19 Long-Term Incentive Plan
FY16 Deferred Short-Term Incentive Plan
FY17 Deferred Short-Term Incentive Plan
FY18 Deferred Short-Term Incentive Plan
FY16 Management Share Plan - Retention Rights
FY16 Management Share Plan - Performance Rights
FY17 Management Share Plan - Retention Rights
FY17 Management Share Plan - Performance Rights
FY18 Management Share Plan - Retention Rights
FY18 Management Share Plan - Performance Rights
FY19 Management Share Plan - Retention Rights
FY19 Management Share Plan - Performance Rights
2015 AllShare Plan
2016 AllShare Plan
2017 AllShare Plan
2018 AllShare Plan
Transitional plans
FY16 Executive Transitional Award Plan
FY16 Advance Award Plan
FY16 Management Transitional Award Plan
Replacement BHP Long-Term Incentive Plan
FY15 Transitional Award Plan
FY17 Executive Transitional Award Plan
FY17 Management Transitional Award Plan
FY18 Executive Transitional Award Plan
FY18 Management Transitional Award Plan
FY19 Executive Transitional Award Plan
FY19 Management Transitional Award Plan
FY19 Sign-on Award Plan
Total awards
(1) Retrospective grants related to prior year plans.
Rights at
beginning of
period
Granted
during the
period
Vested
during the
period
Forfeited
during the
period
Rights at
end of the
period
-
-
-
-
-
-
-
-
6,632,568
7,845,617
5,766,758
4,906,971
(1,054,742)
(3,807)
-
-
-
-
-
796,267
1,131,116
(3,392,208)
(48,691)
-
-
(421,770)
9,917,814
(517,953)
(284,940)
3,700,699
-
(1,048,816)
10,607,898
(162,273)
(343,523)
2,475,880
-
(973,470)
6,546,153
(2,618)
(27,951)
2,621,432
-
(71,514)
5,771,094
6,632,568
7,845,617
5,766,758
-
-
-
-
4,906,971
1,058,549
796,267
-
-
-
1,131,116
-
-
-
-
19,453(1)
48,632(1)
2,652,001
5,842,608
3,440,899
10,339,584
4,503,592
11,656,714
2,962,223
7,470,991
-
-
8,851,800
8,808,480
6,552,480
(20,400)
(8,766,600)
(64,800)
-
10,080(1)
(3,641,040)
(233,280)
4,944,240
6,630(1)
(357,000)
(239,190)
5,962,920
-
6,534,100
(236,550)
(154,375)
6,143,175
1,245,689
10,231,569
3,615,474
5,753,480
538,747
239,197
2,442,581
245,840
1,140,473
-
-
-
-
-
-
-
-
-
-
-
-
81,967
530,059
437,000
(1,238,958)
(6,731)
(10,109,842)
(121,727)
-
-
(890,901)
(77,401)
2,647,172
(1,748,922)
(1,054,621)
2,949,937
(457,934)
(80,813)
-
-
-
239,197
(74,539)
(154,459)
2,213,583
-
-
(23,045)
(145,777)
-
-
(1,082)
(44,310)
-
-
245,840
971,651
81,967
484,667
437,000
112,139,572
22,180,217
(32,676,207)
(5,601,966)
96,041,616
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
117
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
24. CONTINGENT LIABILITIES
Contingent liabilities not otherwise provided for in the consolidated fi nancial statements are categorised as arising from:
US$M
Subsidiaries and joint operations
Actual or potential litigation
Total contingent liabilities
FY19
FY18
456
456
522
522
Prior to the Demerger, the Group entered into a Separation Deed with the BHP Group, which deals with matters arising in connection
with the Demerger. The Separation Deed principally covers the following key terms: assumption of liabilities, limitations and exclusions
from indemnities and claims, contracts, fi nancial support, Demerger costs and litigation. Actual or potential litigation excludes amounts
indemnifi ed by the BHP Group, as per the Separation Deed.
Actual or potential litigations primarily relate to numerous tax assessments or matters relating to transactions in prior years in Colombia
and Brazil. Additionally, there are a number of legal claims or potential claims against the Group, the outcome of which cannot be
foreseen at present, and for which no amounts have been disclosed.
25. COMMITMENTS
US$M
Capital expenditure commitments
Lease expenditure commitments
Finance leases:
Within one year
After one year but not more than fi ve years
More than fi ve years
Total minimum lease payments under fi nance leases
Less amounts representing fi nance charges
Finance lease liability
Operating leases:
Within one year
After one year but not more than fi ve years
More than fi ve years
Total commitments for operating leases
FY19
221
FY18
193
58
232
819
1,109
(566)
543
48
54
21
123
59
240
903
1,202
(632)
570
48
94
26
168
Operating lease assets are not capitalised and rental payments are included in the Consolidated Income Statement on a straight-line
basis over the lease term.
118
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT
NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
26. SUBSIDIARIES
Signifi cant subsidiaries of the Group, which are those with the most signifi cant contribution to the Group’s net profi t/(loss) or net assets,
are as follows:
Signifi cant subsidiaries
Arizona Minerals Inc.(1)
Cerro Matoso SA
Dendrobium Coal Pty Ltd
Endeavour Coal Pty Ltd
Country of
incorporation
Principal activity
United States
Exploration and development
Colombia
Australia
Australia
Ferronickel mining and smelting
Coal mining
Coal mining
Hillside Aluminium (Pty) Ltd
South Africa
Aluminium smelting
Illawarra Services Pty Ltd
Australia
Coal preparation plant
South32 Aluminium (Holdings) Pty Ltd
Australia
Investment holding company
South32 Aluminium (RAA) Pty Ltd
South32 Aluminium (Worsley) Pty Ltd
South32 Cannington Pty Ltd
South32 Group Operations Pty Ltd
African Metals (Pty) Ltd
South32 Investment 12 B.V.
South32 Marketing Pte Ltd
South32 Minerals SA
Australia
Australia
Australia
Australia
South Africa
Netherlands
Singapore
Brazil
Bauxite mining and alumina refi ning
Bauxite mining and alumina refi ning
Silver, lead and zinc mining
Administrative services
Investment holding company
Investment holding company
Commodity marketing and trading
Alumina refi ning
South32 SA Coal Holdings (Pty) Ltd(2)
South Africa
Coal mining
South32 SA Investments Limited
United Kingdom
Investment holding company
South32 SA Limited
South Africa
Administrative services
South32 Treasury Limited
Australia
Financing company
Eff ective interest
FY19
%
100
99.9
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
FY18
%
-
99.9
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
(1) Arizona Minerals Inc. was acquired on 10 August 2018. Refer to note 32(a) Acquisition of Arizona Mining Inc.
(2) The Group’s eff ective interest in South32 SA Coal Holdings (Pty) Ltd will reduce to 92 per cent pursuant to B-BBEE transactions in South Africa. The Group’s voting rights in
South32 SA Coal Holdings (Pty) Ltd is 92 per cent.
Subsidiaries are entities controlled by the parent entity. Control exists where the parent entity is exposed, or has rights to variable
returns from its involvement with the subsidiary and has the ability to aff ect those returns through its power over the subsidiary. A parent
entity has power over the subsidiary, when it has existing rights to direct the relevant activities of the subsidiary which are those which
signifi cantly aff ect the subsidiary’s returns. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements
for the period they are controlled.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
119
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
27. EQUITY ACCOUNTED INVESTMENTS
The Group’s interests in equity accounted investments with the most signifi cant contribution to the Group’s net profi t/(loss) or net assets
are as follows:
Signifi cant joint ventures
Country of
incorporation/
principal place of
business
Australia Manganese(1)(2)
Australia
South Africa Manganese(1)(3) South Africa
Principal activity
Reporting date
Acquisition date
Integrated producer
of manganese ore and
alloy
Integrated producer
of manganese ore and
alloy
30 June 2019
8 May 2015
30 June 2019
3 February 2015
Ownership interest
FY19
%
FY18
%
60
60
60
60
(1) While the Group holds a greater than 50 per cent interest in the joint ventures, joint control is contractually achieved as joint venture parties unanimously consent on decisions
over the joint venture’s relevant activities.
(2) Australia Manganese consists of an investment in Groote Eylandt Mining Company Pty Ltd.
(3) South Africa Manganese consists of an investment in Samancor Holdings (Pty) Ltd.
A reconciliation of the carrying amount of the equity accounted investments is set out below:
Investment in equity accounted investments
US$M
At the beginning of the fi nancial year
Distribution from equity accounted investments
Share of profi t/(loss)
Other Comprehensive Income/(loss), net of tax
Dividends received from equity accounted investments
At the end of the fi nancial year
Share of profi t/(loss) of equity accounted investments
US$M
Australia Manganese and South Africa Manganese
Individually immaterial(1)
Total(2)
FY19
FY18
697
(6)
467
66
(536)
688
569
-
521
1
(394)
697
FY19
FY18
448
19
467
503
18
521
(1)
Individually immaterial consists of investments in Samancor AG (60 per cent), Samancor Marketing Pte Ltd (60 per cent), Richards Bay Coal Terminal Proprietary Limited
(21.1 per cent) and Port Kembla Coal Terminal Limited (16.7 per cent).
(2)
Includes earnings adjustment of (US$17) million (FY18: (US$30) million). Refer to note 4(b)(i) Earnings adjustments.
Carrying amount of equity accounted investments
US$M
Australia Manganese and South Africa Manganese
Individually immaterial(1)
Total
FY19
FY18
582
106
688
583
114
697
(1)
Individually immaterial consists of investments in Samancor AG (60 per cent), Samancor Marketing Pte Ltd (60 per cent), Richards Bay Coal Terminal Proprietary Limited
(21.1 per cent) and Port Kembla Coal Terminal Limited (16.7 per cent).
120
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
27. EQUITY ACCOUNTED INVESTMENTS (CONTINUED)
The following table summarises the fi nancial information relating to each signifi cant equity accounted investment:
US$M
Reconciliation of carrying amount of equity accounted investments
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets – 100%
Net assets – the Group's share
Elimination of gains/(losses) on intragroup sales
Carrying amount of equity accounted investments
Reconciliation of share of profi t/(loss) of equity accounted investments
Revenue – 100%
Profi t/(loss) after tax – 100%
Profi t/(loss) after tax – the Group's share
Elimination of gains/(losses) on intragroup sales
Share of profi t/(loss) of equity accounted investments
Other balances of equity accounted investments presented on a 100%
basis
Cash and cash equivalents
Current fi nancial liabilities (excluding trade and other payables and provisions)
Non-current fi nancial liabilities (excluding trade and other payables and
provisions)
Depreciation and amortisation
Interest income
Interest expense
Income tax (expense)/benefi t (excluding royalty related tax)
Joint ventures
Australia
Manganese
South Africa
Manganese(1)
Australia
Manganese
South Africa
Manganese(1)
FY19
FY18
432
811
(268)
(569)
406
244
(1)
243
1,704
565
339
-
339
-
-
(140)
(97)
3
(24)
(309)
261
799
(101)
(301)
658
345
(6)
339
850
183
111
(2)
109
17
-
(47)
(39)
7
(16)
(88)
339
742
(295)
(336)
450
270
(1)
269
1,730
603
362
1
363
-
-
-
(94)
2
(24)
(295)
349
664
(132)
(288)
593
318
(4)
314
771
235
142
(2)
140
13
(1)
(76)
(42)
6
(18)
(41)
(1) South Africa Manganese includes a 60 per cent interest in Samancor Manganese (Pty) Ltd and 54.6 per cent interest in Hotazel Manganese Mines (Pty) Ltd.
The Group’s share of contingent liabilities and commitments of signifi cant equity accounted investments as at 30 June 2019 was
US$13 million (FY18: US$5 million) and US$29 million (FY18: US$24 million) respectively.
The Group uses the term ‘equity accounted investments’ to refer to associates and joint ventures collectively.
Associates are entities in which the Group holds signifi cant infl uence. If the Group holds 20 per cent or more of the voting power of an
entity, it is presumed that the Group has signifi cant infl uence, unless it can be clearly demonstrated that this is not the case. Signifi cant
infl uence can also arise when the Group has less than 20 per cent of voting power but it can be demonstrated that the Group has the
power to participate in the fi nancial and operating policy decisions of the associate. Investments in associates are accounted for using
the equity method.
Joint ventures are joint arrangements in which the parties with joint control of the arrangement have rights to the net assets of the
arrangement. Joint arrangements exist when two or more parties have joint control. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties
sharing control. A separate vehicle, not the parties, will have the rights to the assets and obligations to the liabilities, relating to the
arrangement. If more than an insignifi cant share of output from a joint venture is sold to third parties, this indicates that the joint venture
is not dependent on the parties to the arrangement for funding and that the parties to the arrangement have no obligation for the
liabilities of the arrangement. Joint ventures are accounted for using the equity method.
Equity accounted investments are initially recorded at cost, including the value of any goodwill on acquisition. In subsequent periods, the
carrying amount of the investment is adjusted to refl ect the share of post-acquisition profi t or loss and Other Comprehensive Income.
After application of the equity method, including recognising the Group’s share of the joint ventures’ results, the value of the investment
will be assessed for impairment if there is objective evidence that an impairment of the investment may have occurred. Where the
carrying value of an equity accounted investment is reduced to nil after having applied equity accounting principles (and the Group
has no legal or constructive obligation to make further payments, nor has made payments on behalf of the associate or joint venture),
dividends received from the associate or joint venture will be recognised as a ‘Share of profi t/(loss) of equity accounted investments’.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
121
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
28. INTERESTS IN JOINT OPERATIONS
Signifi cant joint operations of the Group, which are those with the most signifi cant contributions to the Group’s net profi t/(loss) or net
assets, are as follows:
Signifi cant joint
operations
Brazil Alumina
Eagle Downs
Metallurgical Coal(1)
Country of
operation
Brazil
Australia
Principal activity
Alumina refi ning
Metallurgical coal exploration and
development
Acquisition date
3 July 2014
14 September 2018
Mozal Aluminium SARL(2) Mozambique
Aluminium smelting
27 March 2015
Worsley Alumina(3)
Australia
Bauxite mining and alumina refi ning
8 May 2015
Eff ective interest
FY19
%
36
50
47.1
86
FY18
%
36
-
47.1
86
(1) Refer to note 32(b) Acquisition of the Eagle Downs Metallurgical Coal project.
(2) This joint arrangement is an incorporated entity. It is classifi ed as a joint operation as the participants are entitled to receive output, not dividends, from the arrangement.
(3) While the Group holds a greater than 50 per cent interest in Worsley Alumina, participants are entitled to receive their share of output from the arrangement.
Joint operations are joint arrangements in which the parties with joint control have rights to the assets and obligations for the liabilities
relating to the arrangement. The activities of a joint operation are primarily designed for the provision of output to the parties to the
arrangement, indicating that:
■
The parties have the rights to substantially all the economic benefi ts of the assets of the arrangement; and
■ All liabilities are satisfi ed by the joint participants through their purchases of that output. This indicates that, in substance, the joint
participants have an obligation for the liabilities of the arrangement.
The consolidated fi nancial statements of the Group include its share of the assets and liabilities, revenues and expenses arising jointly or
otherwise from those operations and its revenue derived from the sale of its share of output from the joint operation. All such amounts
are measured in accordance with the terms of each arrangement, which are usually in proportion to the Group’s interest in the joint
operation.
29. KEY MANAGEMENT PERSONNEL
(a) Key management personnel compensation
US$’000
Short-term employee benefi ts
Post-employment benefi ts
Other long-term benefi ts
Share-based payments
Total
FY19
6,504
224
285
6,154
13,167
FY18
6,806
219
305
6,961
14,291
(b) Transactions with key management personnel
There were no transactions with key management personnel during the year ended 30 June 2019 (FY18: nil).
(c) Loans to key management personnel
There were no loans with key management personnel during the fi nancial year and as at 30 June 2019 (FY18: nil).
(d) Transactions with key management personnel related entities
There were no transactions with entities controlled or jointly controlled by key management personnel and there were no outstanding
amounts with those entities as at 30 June 2019 (FY18: nil).
122
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FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
30. RELATED PARTY TRANSACTIONS
(a) Parent entity
The ultimate parent entity of the Group is South32 Limited, which is domiciled and incorporated in Australia.
(b) Subsidiaries, joint ventures, joint operations and associates
The interests in subsidiaries, joint ventures, joint operations and associates are disclosed in notes 26 to 28.
(c) Key management personnel
The compensation of key management personnel is disclosed in note 29.
(d) Transactions with related parties
Transactions with related parties
Joint ventures
Associates
US$’000
Sales of goods and services
Purchases of goods and services
Interest income
Dividend income
Interest expense
Short-term fi nancing arrangements to/(from) related parties
Loans made to/(from) related parties
Outstanding balances with related parties
US$’000
Trade amounts owing to related parties
Other amounts owing to related parties(1)
Trade amounts owing from related parties
Other amounts owing from related parties
Loan amounts owing from related parties(2)
FY19
FY18
232,472
207,560
154
7,544
-
4,864
535,505
393,635
11,404
22,368
84,027
8,585
58,250
FY19
2,711
91,071
FY18
2,851
54,101
-
-
-
-
-
-
-
-
(168,817)
(9,490)
15,866
Joint ventures
Associates
FY19
77
FY18
-
298,855
321,223
46,428
61,980
-
84,035
-
8
FY19
940
-
-
223
88,279
FY18
607
-
-
4,453
93,539
(1) Amount owing relates to short-term deposits and cash managed by the Group on behalf of its equity accounted investments. Interest is paid based on the three month
London Inter-Bank Off er Rate and the one month Johannesburg Inter-Bank Agreed Rate.
(2) Amounts owing from associates include loans to Port Kembla Coal Terminal Limited. An interest free loan repayable by 30 June 2030 and an interest bearing loan repayable by
30 June 2020. Interest is paid based on the Bank Bill Swap Bid Rate and is secured against other shareholders of the associate.
Terms and conditions
Sales to, and purchases from, related parties of goods and services are transactions at market prices and on commercial terms.
Outstanding balances at year end are unsecured and settlement mostly occurs in cash.
No guarantees are provided or received for any related party receivables or payables.
No provision for expected credit losses has been recognised in relation to any outstanding balances with the exception of US$1 million
on initial application of AASB 9 on 1 July 2018. No expense has been recognised in respect of expected credit losses from related parties
in FY19.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
123
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
31. PARENT ENTITY INFORMATION
32. ACQUISITION OF SUBSIDIARIES AND JOINTLY
CONTROLLED OPERATIONS
(a) Acquisition of Arizona Mining Inc.
On 10 August 2018, the Group completed its acquisition of the
remaining 83 per cent of issued and outstanding shares of
Arizona Mining Inc. that it did not already own via a plan of
arrangement. The transaction was completed for a total
consideration of US$1,351 million via a fully funded, all cash off er.
The Group’s existing 17 per cent interest was derecognised as
an investment in equity instruments designated as FVOCI and
US$253 million was transferred to form part of the consolidated
investment in Arizona Mining Inc. The acquisition was treated
as an acquisition of assets including mineral rights, exploration
licences and exploration surface facilities.
(a) Summary fi nancial information
The individual fi nancial statements for the parent entity, South32
Limited, show the following aggregate amounts:
US$M
FY19
FY18
Result of parent entity
Profi t/(loss) after tax for the year
Total Comprehensive Income
Financial position of parent entity at
year end
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Total equity of the parent entity
comprising:
Share capital
Treasury shares
Other reserves
Profi t reserve(1)
Retained earnings/(accumulated losses)
382
382
1,302
1,302
437
11,976
875
885
1,231
11,764
108
113
11,091
11,651
US$M
Cash outfl ow on acquisition
Net cash acquired
Direct costs relating to the acquisition(1)
Net consolidated cash outfl ow
Net assets
14,212
14,493
Cash and cash equivalents
(82)
88
1,451
(4,578)
(83)
68
1,726
(4,553)
Other assets
Property, plant and equipment(2)
Other liabilities
Net assets
FY19
10
(1,392)
(1,382)
10
1
1,661
(27)
1,645
Total equity
11,091
11,651
(1) Current and prior year profi ts, net of dividends paid, have been appropriated to a
(1)
Inclusive of acquisition related transaction costs and other directly attributable
costs.
profi ts reserve for future dividend payments.
(2)
Includes mineral rights of US$1,629 million.
(b) Parent company guarantees
The parent entity has guaranteed a US commercial paper
program of US$1,500 million. The parent entity has also
guaranteed a Group revolving credit facility of US$1,500 million,
which backs the US commercial paper program and remains
undrawn as at 30 June 2019.
The parent entity is party to a Deed of Support with the eff ect
that the Company guarantees debts in respect of South32 Group
Operations Pty Ltd.
(b)
Acquisition of the Eagle Downs Metallurgical Coal
project
On 14 September 2018, the Group completed its acquisition of a
50 per cent interest in the Eagle Downs Metallurgical Coal project
in Queensland’s Bowen Basin. The remaining 50 per cent interest
continues to be held by Aquila Resources Pty Ltd, a subsidiary of
China BaoWu Steel Group. The transaction was completed for a
total upfront payment of US$106 million, a deferred payment of
US$27 million and a coal price-linked production royalty capped
at US$80 million. The acquisition was treated as an acquisition
of assets including mineral rights, site infrastructure and dual
drifts which are approximately 40 per cent complete. The joint
arrangement is an unincorporated entity and is classifi ed as a joint
operation as activities are primarily designed for the provision of
output to the parties of the arrangement.
US$M
Cash outfl ow on acquisition
Direct costs relating to the acquisition(1)
Net consolidated cash outfl ow
Net assets
Property, plant and equipment(2)
Interest bearing liabilities(3)
Other liabilities
Net assets
FY19
(112)
(112)
160
(35)
(13)
112
(1)
(2)
(3)
Inclusive of acquisition related transaction costs.
Includes mineral rights of US$107 million.
Includes the deferred payment obligation of US$27 million. The coal price-linked
production royalty capped at US$80 million will be expensed as incurred.
124
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT NOTES TO FINANCIAL STATEMENTS – OTHER NOTES
33. SUBSEQUENT EVENTS
On 22 August 2019, the Directors resolved to pay a fully franked fi nal dividend of US 2.8 cents per share (US$140 million) in respect of the
2019 fi nancial year. The dividend will be paid on 10 October 2019. The dividend has not been provided for in the consolidated fi nancial
statements and will be recognised in the 2020 fi nancial year.
On 22 August 2019, the Group also announced an extension of the existing capital management program, announced on 27 March 2017,
by US$250 million to a total of US$1.25 billion along with a 12-month extension to the completion time, expected to be returned by
4 September 2020. This program has US$264 million remaining.
No other matters or circumstances have arisen since the end of the fi nancial year that have signifi cantly aff ected, or may signifi cantly
aff ect, the operations, results of operations or state of aff airs of the Group in subsequent accounting periods.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
125
FINANCIAL REPORT DIRECTORS’ DECLARATION
In accordance with a resolution of the Directors of the Group, we state that:
1.
In the opinion of the Directors:
(a) The consolidated fi nancial statements and notes that are set out on pages 78 to 125 of the Annual Report are in accordance with
the Corporations Act, including:
(i)
Giving a true and fair view of the Group’s fi nancial position as at 30 June 2019 and of its performance for the year ended on
that date; and
(ii) Complying with Australian Accounting Standards and Corporations Regulations 2001.
(b) There are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.
2. The Directors have been given the declarations required by Section 295A of the Corporations Act from the Chief Executive Offi cer
and Chief Financial Offi cer for the fi nancial year ended 30 June 2019.
3. The Directors draw attention to note 2 to the fi nancial statements on page 83, which includes a statement of compliance with
International Financial Reporting Standards.
Signed in accordance with a resolution of the Board of Directors.
Karen Wood
Chair
Graham Kerr
Chief Executive Offi cer and Managing Director
Dated 5 September 2019
126
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT
LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C
OF THE CORPORATIONS ACT 2001
To the Directors of South32 Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of South32 Limited for the fi nancial year ended
30 June 2019 there have been:
i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
ii. no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Denise McComish
Partner
Perth
5 September 2019
KPMG, an Australian partnership and a member fi rm of the KPMG
network of independent member fi rms affi liated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards
Legislation.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
127
FINANCIAL REPORT INDEPENDENT AUDITOR’S REPORT
To the shareholders of South32 Limited
REPORT ON THE AUDIT OF THE FINANCIAL REPORT
Opinion
We have audited the Financial report of South32 Limited (the
Company).
In our opinion, the accompanying Financial report of the
Company is in accordance with the Corporations Act 2001,
including:
■ giving a true and fair view of the Group’s fi nancial position as
at 30 June 2019 and of its fi nancial performance for the year
ended on that date; and
The Financial report comprises:
■ Consolidated Balance Sheet as at 30 June 2019
■ Consolidated Income Statement, Consolidated Statement of
Comprehensive Income, Consolidated Statement of Changes
in Equity and Consolidated Cash Flow Statement for the year
then ended
■ Notes including a summary of signifi cant accounting policies
■ Directors’ Declaration.
■
complying with Australian Accounting Standards and the
Corporations Regulations 2001.
The Group consists of the Company and the entities it controlled
at the year-end or from time to time during the fi nancial year
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is
suffi cient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report
section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our
audit of the Financial report in Australia. We have fulfi lled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
The Key Audit Matters we identifi ed are:
■ Asset valuation
■ Closure and rehabilitation provision
Key Audit Matters are those matters that, in our professional
judgement, were of most signifi cance in our audit of the Financial
report of the current period.
These matters were addressed in the context of our audit of the
Financial report as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
KPMG, an Australian partnership and a member fi rm of the KPMG
network of independent member fi rms affi liated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards
Legislation.
128
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT INDEPENDENT AUDITOR’S REPORT
Asset valuation
Refer to Note 13 Impairment of non-fi nancial assets to the Financial report. As at 30 June 2019 the Group’s balance sheet includes
property, plant and equipment of US$9,596m, intangible assets of US$233m, and equity accounted investments of US$688m,
assessed for impairment purposes as part of their respective cash generating units (CGUs).
The key audit matter
How the matter was addressed in our audit
The assessment of the existence of impairment or reversal
indicators and impairment testing, where required, of CGUs
was a key audit matter given the size of property, plant and
equipment, intangible assets and equity accounted investments,
and the sensitivity of valuations to certain assumptions.
Historically the Group has impaired the carrying value of some
CGUs to recoverable amount. Combined with the volatility in both
commodity and foreign exchange markets, this increases the
sensitivity of the carrying value of the Group’s CGUs to potential
impairment and reversal.
The Group received indicative off ers for the sale of South Africa
Energy Coal, which incorporates three CGUs. These off ers
informed the Group’s assessment of the recoverable amounts
of these CGUs. A pre-tax impairment expense of US$504m was
recorded, necessitating additional audit eff ort in this key audit
area.
The Group uses sophisticated models to perform their assessment
of impairment or reversal indicators and impairment testing,
where required. This testing included the one CGU which contains
goodwill (Hillside Aluminium). The models are largely developed
in-house, and use life of operation and development plans,
approved budgets, and a range of external sources as inputs
to the assumptions. Complex modelling using forward-looking
assumptions tends to be prone to greater risk for potential bias,
error and inconsistent application. These conditions necessitate
additional scrutiny by us, in particular to address the objectivity of
inputs, and their consistent application.
We focused on the signifi cant forward-looking assumptions the
Group applied in their models, including:
■
■
forecast commodity prices and foreign exchange rates
– certain sectors in which the Group operates have
experienced signifi cant volatility in forecast commodity
prices, particularly manganese, thermal coal, aluminium and
alumina. The Group’s models are sensitive to small changes
in these price assumptions, as well as changes to foreign
exchange rates, particularly the South African Rand and the
Australian Dollar, increasing forecasting risk
forecast operating cash fl ows, production volumes, capital
expenditure and reserve and resource estimates – these are
determined by the Group based on historical performance
adjusted for expected changes or development plans. This
drives additional audit eff ort specifi c to the feasibility of the
forecasts and consistency with the Group’s strategy
■ discount rates - these are complicated in nature and vary
according to the conditions and environment the CGUs are
subject to from time to time.
The Group uses fair value less cost of disposal models to assess
recoverable amount when testing for impairment.
We involved valuation specialists to supplement our senior audit
team members in assessing this key audit matter.
Our procedures included:
We considered the appropriateness of the fair value less cost of
disposal method applied by the Group for impairment testing
purposes against the requirements of the accounting standards.
We assessed the integrity and consistency of the models used
on a sample basis, including the accuracy of the underlying
calculation formulas.
We assessed the scope, objectivity and competence of the
Group’s experts responsible for preparation of the resource
and reserve estimates and compared these estimates to those
incorporated in the life of operation and development plans
where applicable.
We compared the forecast operating cash fl ows, production
volumes, capital expenditure and reserve and resource estimates
contained in the models to the life of operation and development
plans incorporating the approved budgets. We also assessed
the accuracy of the Group’s previous forecasts to assist with this
assessment.
Using our knowledge of the Group and our industry experience,
and considering the Group’s strategy and past performance,
we assessed the feasibility of the forecast operating cash fl ows,
capital expenditure and production volumes.
Working with our valuation specialists, and considering the risk
factors specifi c to the Group, we compared the discount rates to
publicly available market data for comparable entities. We also
compared foreign exchange rates to published views of market
commentators.
We compared forecast commodity prices to published views of
market commentators on future trends.
We considered the sensitivity of the models by varying key
assumptions, such as forecast commodity prices, foreign
exchange rates and discount rates, within a reasonably possible
range, to identify those CGUs at higher risk of impairment or
reversal and to focus our further procedures.
We assessed the disclosures in the Financial report using our
understanding obtained from our testing and against the
requirements of the accounting standards.
We recalculated the impairment charge to the South Africa
Energy Coal group of CGUs, with reference to the indicative
off ers received, and compared to the impairment expense
recorded.
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
129
FINANCIAL REPORT INDEPENDENT AUDITOR’S REPORT
Closure and rehabilitation provision
Refer to Note 15 Provisions to the Financial report. As at 30 June 2019 the Group’s balance sheet includes current and non-current
closure and rehabilitation provisions of US$1,868m.
The key audit matter
How the matter was addressed in our audit
Closure and rehabilitation provisioning was a key audit matter
due to the size of the provision and the judgement we used to
audit the provision estimates across the multiple sites the Group
operates.
Closure and rehabilitation activities are governed by Group
policies based on legal and regulatory requirements, which diff er
across multiple jurisdictions.
We focused on the following assumptions the Group applied in
determining the provisions in accordance with the closure and
rehabilitation plans:
■
■
■
■
nature and extent of activities required across the multiple
sites, including the magnitude of possible contamination,
which are inherently challenging to assess
timing of when closure and rehabilitation will take place,
which increases estimation uncertainty given the unique
nature of each site and long timeframes involved
forecast cost estimates incorporating historical experience,
which may not be a reliable predictor of such costs, and
risk adjustments. The Group engages external experts
periodically to assist in their determination of these
estimates
economic assumptions, including country specifi c discount
rates, which are complicated in nature.
Our procedures included:
We tested key controls in the provision estimation process.
These include management review and authorisation controls on
activities such as:
■ plans for closure and rehabilitation in accordance with legal
and regulatory requirements and Group policies; and
sourcing inputs to the estimation models.
■
We assessed the scope, objectivity and competence of the
Group’s external experts to provide rehabilitation cost estimates,
where engaged.
We evaluated key assumptions used in the closure and
rehabilitation provision, relevant to the jurisdictions of the Group’s
sites, by:
■
■
■
■
comparing the nature and extent of activities costed to
the Group’s closure and rehabilitation plans and relevant
regulatory requirements
comparing the timing of closure and rehabilitation activities
to the Group’s resources and reserve estimates and the
expected production profi le contained in the life of operation
plans
comparing a sample of cost estimates of the activities,
incorporating risk adjustments, to historical experience
and underlying documentation, the Group’s external expert
estimates, and against our knowledge of the Group and its
industry
working with our valuation specialists, comparing country
specifi c discount rate assumptions to market observable
data, including risk free rates.
Other Information
Other Information is fi nancial and non-fi nancial information in South32 Limited’s annual reporting which is provided in addition to the
Financial report and the Auditor's Report. The Directors are responsible for the Other Information.
Our opinion on the Financial report does not cover the Other Information and, accordingly, we do not express an audit opinion or any
form of assurance conclusion thereon, with the exception of the Remuneration report and our related assurance opinion.
In connection with our audit of the Financial report, our responsibility is to read the Other Information. In doing so, we consider whether
the Other Information is materially inconsistent with the Financial report or our knowledge obtained in the audit, or otherwise appears to
be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we
have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.
130
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
FINANCIAL REPORT INDEPENDENT AUDITOR’S REPORT
Responsibilities of the Directors for the Financial report
The Directors are responsible for:
■ preparing the Financial report that gives a true and fair view in accordance with Australian Accounting Standards and the
■
■
Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial report that gives a true and fair view and is free
from material misstatement, whether due to fraud or error
assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of
accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the Financial report
Our objective is:
■
■
to obtain reasonable assurance about whether the Financial report as a whole is free from material misstatement, whether due to
fraud or error; and
to issue an Auditor’s Report that includes our opinion
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian
Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be
expected to infl uence the economic decisions of users taken on the basis of the Financial report.
A further description of our responsibilities for the audit of the Financial report is located at the Auditing and Assurance Standards Board
website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report.
REPORT ON THE REMUNERATION REPORT
Opinion
Directors’ responsibilities
In our opinion, the Remuneration report of South32 Limited for
the year ended 30 June 2019, complies with Section 300A of the
Corporations Act 2001.
The Directors of the Company are responsible for the preparation
and presentation of the Remuneration report in accordance with
Section 300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration report included in pages 55 to
71 of the Directors’ report for the year ended 30 June 2019.
Our responsibility is to express an opinion on the Remuneration
report, based on our audit conducted in accordance with Australian
Auditing Standards.
KPMG
Denise McComish
Partner
Perth
5 September 2019
SOUTH32 > ANNUAL REPORT 2019 > FINANCIAL REPORT
131
FINANCIAL REPORT SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
VOTING RIGHTS
VOTING RIGHTS
South32 Limited ordinary shares carry voting rights of one vote per share.
South32 Limited ordinary shares carry voting rights of one vote per share.
Shareholders may hold a benefi cial entitlement to dematerialised ordinary shares in South32 Limited, UK Depositary Interests and
Shareholders may hold a benefi cial entitlement to dematerialised ordinary shares in South32 Limited, UK Depositary Interests and
American Depositary Shares (ADS) through the Central Securities Depositories of Strate (Strate), CREST and Depository Trust Company
American Depositary Shares (ADS) through the Central Securities Depositories of Strate (Strate), CREST and Depository Trust Company
respectively. Each share held dematerialised in Strate, or as a Depositary Interest held in CREST, entitles the holder to one vote. Each
respectively. Each share held dematerialised in Strate, or as a Depositary Interest held in CREST, entitles the holder to one vote. Each
ADS is represented by fi ve ordinary shares, with ADS voting managed by South32 Limited’s ADS Depositary.
ADS is represented by fi ve ordinary shares, with ADS voting managed by South32 Limited’s ADS Depositary.
SUBSTANTIAL SHAREHOLDERS
SUBSTANTIAL SHAREHOLDERS
As at 26 July 2019, South32 Limited has three substantial shareholders who, together with their associates, hold fi ve per cent or more of
As at 26 July 2019, South32 Limited has three substantial shareholders who, together with their associates, hold fi ve per cent or more of
the voting rights in South32 Limited, as notifi ed to South32 under the Australian Corporations Act and the UK Disclosure Guidance and
the voting rights in South32 Limited, as notifi ed to South32 under the Australian Corporations Act and the UK Disclosure Guidance and
Transparency Rules (DTR).
Transparency Rules (DTR).
Name
Name
BlackRock Group
BlackRock Group
Schroder Investment Management Australia Limited
Schroder Investment Management Australia Limited
The Vanguard Group
The Vanguard Group
Date notice received
Date notice received
Number of shares
Number of shares
Percentage of capital
Percentage of capital
29 August 2018
29 August 2018
10 July 2019
10 July 2019
5 June 2018
5 June 2018
357,382,337
357,382,337
432,674,873
432,674,873
256,669,781
256,669,781
6.98%
6.98%
8.57%
8.57%
5.01%
5.01%
DISTRIBUTION OF SHAREHOLDINGS AND NUMBER OF SHAREHOLDERS
DISTRIBUTION OF SHAREHOLDINGS AND NUMBER OF SHAREHOLDERS
The following table shows the distribution of South32 Limited shareholders by size of shareholding and number of shareholders and
The following table shows the distribution of South32 Limited shareholders by size of shareholding and number of shareholders and
shares as at 26 July 2019.
shares as at 26 July 2019.
Size of holding
Size of holding
1 – 1,000
1 – 1,000
1,001 – 5,000
1,001 – 5,000
5,001 – 10,000
5,001 – 10,000
10,001 – 100,000
10,001 – 100,000
100,001 and over
100,001 and over
Total
Total
Number of
Number of
shareholders
shareholders
Number of shares
Number of shares
Percentage of capital
Percentage of capital
138,256
138,256
89,026
89,026
20,388
20,388
17,458
17,458
567
567
67,550,229
67,550,229
207,887,059
207,887,059
147,942,241
147,942,241
394,886,379
394,886,379
4,187,237,667
4,187,237,667
265,695
265,695
5,005,503,575
5,005,503,575
1.35
1.35
4.15
4.15
2.96
2.96
7.89
7.89
83.65
83.65
100.00
100.00
DISTRIBUTION OF RIGHTS HOLDINGS AND NUMBER OF RIGHTS HOLDERS
DISTRIBUTION OF RIGHTS HOLDINGS AND NUMBER OF RIGHTS HOLDERS
The following table shows the distribution of rights holders in South32 Limited by size of rights holding and number of rights holders and
The following table shows the distribution of rights holders in South32 Limited by size of rights holding and number of rights holders and
rights as at 26 July 2019.
rights as at 26 July 2019.
Size of holding
Size of holding
1 – 1,000
1 – 1,000
1,001 – 5,000
1,001 – 5,000
5,001 – 10,000
5,001 – 10,000
10,001 – 100,000
10,001 – 100,000
100,001 and over
100,001 and over
Total
Total
Number of rights
Number of rights
holders
holders
Number of rights
Number of rights
6,026
6,026
6,807
6,807
8
8
117
117
131
131
13,089
13,089
5,291,530
5,291,530
11,624,134
11,624,134
69,272
69,272
5,456,060
5,456,060
73,451,480
73,451,480
95,892,476
95,892,476
132
132
132
SOUTH32 > ANNUAL REPORT 2019 > SHAREHOLDER INFORMATION
SOUTH32 > ANNUAL REPORT 2019 > SHAREHOLDER INFORMATION
SOUTH32 > ANNUAL REPORT 2019 > SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION 20 LARGEST SHAREHOLDERS IN SOUTH32 LIMITED
The following table sets out the 20 largest shareholders of fully paid ordinary shares listed on our shareholder register and the details of
their shareholding as at 26 July 2019.
Name
1
2
3
4
5
6
7
8
9
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Computershare Clearing Pty Ltd
Citicorp Nominees Pty Ltd
South Africa Control A/C\C
National Nominees Limited
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited – A/C 2
Citicorp Nominees Pty Limited
10 HSBC Custody Nominees (Australia) Limited
11 BNP Paribas Noms Pty Ltd
12 HSBC Custody Nominees (Australia) Limited
13 CPU Share Plans Pty Ltd
14 HSBC Custody Nominees (Australia) Limited
15 Citicorp Nominees Pty Limited
16 AMP Life Limited
17 Australian Foundation Investment Company Limited
18 BNP Paribas Nominees Pty Ltd
19 National Nominees Limited
20 CPU Share Plans Pty Ltd
Number of fully paid
shares
Percentage of capital
1,342,709,306
1,021,804,134
449,715,767
404,260,374
167,141,098
122,701,325
106,282,745
75,833,803
66,017,055
38,043,342
35,392,918
33,711,185
32,655,466
15,475,062
15,104,804
14,171,351
13,990,941
13,294,000
12,176,052
8,885,510
26.82
20.41
8.98
8.08
3.34
2.45
2.12
1.52
1.32
0.76
0.71
0.67
0.65
0.31
0.30
0.28
0.28
0.27
0.24
0.18
Total
3,989,366,238
79.70
RESTRICTED AND ESCROWED SECURITIES
DIVIDEND POLICY
As at 26 July 2019, South32 Limited does not have any restricted
securities or securities subject to voluntary escrow on issue.
SHAREHOLDERS WITH LESS THAN A
MARKETABLE PARCEL
As at 26 July 2019, there were 12,337 shareholders on the
Australian South32 Limited register holding less than a marketable
parcel (A$500) based on the closing market price of A$3.16.
ON-MARKET PURCHASES OF SOUTH32 LIMITED
SECURITIES FOR EMPLOYEE INCENTIVE PLANS
The Group purchases South32 Limited ordinary shares on-market
through the ESOP Trusts for the purposes of the South32 Equity
Incentive Plans. During FY19, 29,914,758 shares were purchased
on-market for the Australian ESOP Trust. The average price at
which the shares were purchased was A$3.51.
A further 5,895,851 shares were purchased on-market for the
South African ESOP Trust. The average price for which the shares
were purchased was ZAR35.29.
Our dividend policy is determined by the Board at its discretion.
Our priorities for cash fl ow are to maintain safe and reliable
operations and an investment grade credit rating through the
cycle.
South32 Limited intends to distribute a minimum 40 per cent of
Underlying earnings as dividends to its shareholders following
each six-month reporting period. South32 Limited intends to
distribute dividends with the maximum practicable franking
credits for the purposes of the Australian dividend imputation
system.
DIVIDEND DETERMINATION AND PAYMENT
Our dividends are determined in US dollars.
Dividends for shareholders of South32 Limited on the Australian
register are paid by direct credit into their nominated bank
account in Australian dollars, UK pounds sterling, New Zealand
dollars or US dollars, provided direct credit details and currency
election information are submitted no later than close of business
on the dividend record date.
Dividends for shareholders of South32 Limited on the South
African branch register and UK Depositary Interest holders are
paid by direct credit in South African rand and UK pounds sterling
respectively. For further information about dividends visit
www.south32.net/investors-media/investor-centre/dividends.
SOUTH32 > ANNUAL REPORT 2019 > SHAREHOLDER INFORMATION
133
SHAREHOLDER INFORMATION CAPITAL MANAGEMENT PROGRAM
SHARE REGISTRIES
In February 2018 we expanded our capital management program
to US$1 billion, comprising a US$761 million on-market share
buy-back and special dividends of US$154 million paid in 2018
and US$85 million paid in April 2019. As at 30 June 2019, we have
returned to shareholders a total value of US$986 million of the
capital management program. Subsequent to 30 June 2019, the
Board increased and extended our program by US$250 million to
US$1.25 billion, leaving US$264 million to be returned by
4 September 2020.
AUSTRALIA
Computershare Investor Services Pty Limited
Yarra Falls 452 Johnston Street
Abbotsford Victoria 3067
Australia
Telephone (Australia):
Telephone (International): +61 (3) 9415 4169
+61 (3) 9473 2500
Facsimile:
1800 019 953
The on-market share buy-back was initially announced on
27 March 2017 and purchasing commenced on 19 April 2017.
During the year ended 30 June 2019, South32 Limited purchased
114 million shares under the on-market share buy-back, which
represented 2.23 per cent of share capital at the beginning of
the fi nancial year. Total consideration paid for these shares was
US$281 million.
Between the commencement of purchasing under the on-market
share buy-back on 19 April 2017 and 30 June 2019, South32
Limited purchased a total of 318 million shares under the on-
market share buy-back, which represented 5.98 per cent of
share capital at the commencement of the program. The total
consideration paid for the shares bought back up to 30 June 2019
was US$747 million.
All of the shares purchased by South32 Limited under the
on-market buy-back have been cancelled. From 30 June 2019,
South32 has observed a blackout period in accordance with its
Securities Dealing Policy. As at 26 July 2019 the blackout remained
in place and no further shares had been purchased.
ANNUAL GENERAL MEETING (AGM)
Our AGM will be held on Thursday 24 October 2019 at 10.30am
Australian Western Standard Time (AWST) in the Golden Ballroom at
the Pan Pacifi c Hotel, 207 Adelaide Terrace, Perth, Western Australia
6000, Australia. If there is a change to the date, time or location of
the AGM, then all relevant stock exchanges will be notifi ed.
Presentations delivered at the AGM and the results of voting will
be provided to all stock exchanges and will be available on our
website.
STOCK EXCHANGES
As at 26 July 2019, South32 Limited has a primary listing on
the Australian Securities Exchange, a secondary listing on the
Johannesburg Stock Exchange, is admitted to the standard
segment of the Offi cial List of the UK Listing Authority and its
ordinary shares are traded on the London Stock Exchange.
South32 Limited also has a Level 1 American Depositary Receipts
program, which trades in the United States over-the-counter
market.
SHAREHOLDER ENQUIRIES
Shareholders can access their current holding details as well as
their transaction history, view dividend statements and payments
made, download statements and documents, change their
address, update their communication preferences and banking
details, and check their tax details online via Computershare
Investor Centre at www.computershare.com.
Alternatively, refer to the following contacts:
SOUTH AFRICA
Computershare Investor Services (Pty) Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank, 2196
South Africa
Telephone:
Facsimile:
Email enquiries:
+27 (0) 11 373 0033
+27 (0) 11 688 5217
web.queries@computershare.co.za
Holders of shares dematerialised into Strate should contact their
Central Securities Depository Participant or stockbroker.
UNITED KINGDOM
Computershare Investor Services PLC
The Pavilions, Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Telephone:
Facsimile:
Email enquiries:
+44 (0) 370 873 5884
+44 (0) 370 703 6101
web.queries@computershare.co.uk
AMERICAN DEPOSITARY RECEIPTS (ADR)
ADR holders should deal directly with Citibank Shareholder
Services.
Citibank Shareholder Services
PO Box 43077 Providence,
Rhode Island 02940-3077
Telephone:
Facsimile:
Email enquiries:
Website:
BRANCHES
+1 877 248 4237
(+1-877-CITIADR) (toll-free within US)
+1 781 575 4555 (outside of US)
+1 201 324 3284
citibank@shareholders-online.com
www.citi.com/dr
In accordance with DTR 4.1.11R(5), South32, through various
subsidiaries, has established branches in a number of diff erent
jurisdictions in which the business operates.
REGISTERED OFFICE
Information regarding the South32 Limited Registered Offi ce is
included in the Corporate directory on the inside back cover.
Shareholders are encouraged to access all South32
communications electronically at www.south32.net. Shareholders
that wish to receive electronic communications can update their
preferences online or telephone the relevant Computershare
Investor Centre.
134
SOUTH32 > ANNUAL REPORT 2019 > SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
GLOSSARY OF TERMS AND ABBREVIATIONS
GLOSSARY OF TERMS AND ABBREVIATIONS
MINING RELATED TERMS
MINING RELATED TERMS
Alumina
Alumina
Aluminium oxide (Al₂ O₃). Alumina is
Aluminium oxide (Al₂ O₃). Alumina is
produced from bauxite in the Bayer
produced from bauxite in the Bayer
refi ning process. It’s then converted
refi ning process. It’s then converted
(reduced) in an electrolysis cell to produce
(reduced) in an electrolysis cell to produce
aluminium metal.
aluminium metal.
Ash
Ash
Inorganic material remaining after
Inorganic material remaining after
combustion of coal.
combustion of coal.
ASX Listing Rules (Chapter 5): Additional
ASX Listing Rules (Chapter 5): Additional
reporting on mining and oil and gas
reporting on mining and oil and gas
production and exploration activities
production and exploration activities
This chapter of the ASX Listing Rules sets
This chapter of the ASX Listing Rules sets
out additional reporting and disclosure
out additional reporting and disclosure
requirements for mining entities, oil and
requirements for mining entities, oil and
gas entities, as well as other entities
gas entities, as well as other entities
reporting on mining and oil and gas
reporting on mining and oil and gas
activities.
activities.
AusIMM
AusIMM
The Australasian Institute of Mining and
The Australasian Institute of Mining and
Metallurgy.
Metallurgy.
Bauxite
Bauxite
Principal commercial ore of aluminium.
Principal commercial ore of aluminium.
Benefi ciation
Benefi ciation
The process of physically separating
The process of physically separating
ore from gangue to produce a mineral
ore from gangue to produce a mineral
concentrate prior to subsequent
concentrate prior to subsequent
processing.
processing.
Brownfi eld
Brownfi eld
An exploration or development project
An exploration or development project
located within an existing mineral province,
located within an existing mineral province,
which can share infrastructure and
which can share infrastructure and
management with an existing operation.
management with an existing operation.
Coal Reserve
Coal Reserve
The same meaning as Ore Reserve, but
The same meaning as Ore Reserve, but
specifi cally concerning coal.
specifi cally concerning coal.
Coal Resource
Coal Resource
The same meaning as Mineral Resource,
The same meaning as Mineral Resource,
but specifi cally concerning coal.
but specifi cally concerning coal.
Coking coal
Coking coal
Used in the manufacture of coke, which is
Used in the manufacture of coke, which is
used in the steelmaking process by virtue
used in the steelmaking process by virtue
of its carbonisation properties. Coking coal
of its carbonisation properties. Coking coal
is a form of, and may also be referred to
is a form of, and may also be referred to
as, Metallurgical Coal.
as, Metallurgical Coal.
Competent Person
Competent Person
A minerals industry professional who is
A minerals industry professional who is
a Member or Fellow of The Australasian
a Member or Fellow of The Australasian
Institute of Mining and Metallurgy, or of
Institute of Mining and Metallurgy, or of
the Australian Institute of Geoscientists, or
the Australian Institute of Geoscientists, or
of a ‘Recognised Professional Organisation’,
of a ‘Recognised Professional Organisation’,
as included in a list available on the JORC
as included in a list available on the JORC
and ASX websites. These organisations
and ASX websites. These organisations
have enforceable disciplinary processes,
have enforceable disciplinary processes,
including the powers to suspend or expel
including the powers to suspend or expel
a member.
a member.
A Competent Person must have a
A Competent Person must have a
minimum of fi ve years’ relevant experience
minimum of fi ve years’ relevant experience
in the style of mineralisation or type of
in the style of mineralisation or type of
deposit under consideration and in the
deposit under consideration and in the
activity that the person is undertaking
activity that the person is undertaking
(JORC Code).
(JORC Code).
Cut-off grade
Cut-off grade
The lowest grade, or quality, of mineralised
The lowest grade, or quality, of mineralised
material that qualifi es as economically
material that qualifi es as economically
mineable and available in a given
mineable and available in a given
deposit. It may be defi ned on the basis
deposit. It may be defi ned on the basis
of economic evaluation, or on physical
of economic evaluation, or on physical
or chemical attributes that defi ne an
or chemical attributes that defi ne an
acceptable product specifi cation (JORC
acceptable product specifi cation (JORC
Code).
Code).
Energy coal
Energy coal
Used as a fuel source in electrical power
Used as a fuel source in electrical power
generation, cement manufacture and
generation, cement manufacture and
various industrial applications. Energy coal
various industrial applications. Energy coal
may also be referred to as steaming or
may also be referred to as steaming or
thermal coal.
thermal coal.
Flotation
Flotation
A method of selectively recovering
A method of selectively recovering
minerals from fi nely ground ore using a
minerals from fi nely ground ore using a
froth created in water by specifi c reagents.
froth created in water by specifi c reagents.
In the fl otation process, certain mineral
In the fl otation process, certain mineral
particles are induced to fl oat by becoming
particles are induced to fl oat by becoming
attached to bubbles of froth and the
attached to bubbles of froth and the
unwanted mineral particles sink.
unwanted mineral particles sink.
Grade
Grade
Any physical or chemical measurement
Any physical or chemical measurement
of the characteristics of the material of
of the characteristics of the material of
interest in samples or product (JORC
interest in samples or product (JORC
Code).
Code).
Greenfi eld
Greenfi eld
An exploration or development project
An exploration or development project
located outside the area of infl uence of our
located outside the area of infl uence of our
existing mine operations/ infrastructure.
existing mine operations/ infrastructure.
Indicated Mineral Resource
Indicated Mineral Resource
That part of a Mineral Resource for which
That part of a Mineral Resource for which
quantity, grade (or quality), densities,
quantity, grade (or quality), densities,
shape and physical characteristics are
shape and physical characteristics are
estimated with suffi cient confi dence.
estimated with suffi cient confi dence.
This allows the application of Modifying
This allows the application of Modifying
Factors in suffi cient detail to support mine
Factors in suffi cient detail to support mine
planning and evaluation of the economic
planning and evaluation of the economic
viability of the deposit (JORC Code).
viability of the deposit (JORC Code).
Inferred Mineral Resource
Inferred Mineral Resource
That part of a Mineral Resource for
That part of a Mineral Resource for
which quantity and grade (or quality)
which quantity and grade (or quality)
are estimated on the basis of limited
are estimated on the basis of limited
geological evidence and sampling.
geological evidence and sampling.
Geological evidence is suffi cient to imply
Geological evidence is suffi cient to imply
but not verify geological and grade (or
but not verify geological and grade (or
quality) continuity (JORC Code).
quality) continuity (JORC Code).
JORC
JORC
Joint Ore Reserves Committee comprising
Joint Ore Reserves Committee comprising
representatives of The Australasian
representatives of The Australasian
Institute of Mining and Metallurgy
Institute of Mining and Metallurgy
(AusIMM), Australian Institute of
(AusIMM), Australian Institute of
Geoscientists (AIG) and Minerals Council
Geoscientists (AIG) and Minerals Council
of Australia (MCA) as well as the Australian
of Australia (MCA) as well as the Australian
Securities Exchange (ASX), the Financial
Securities Exchange (ASX), the Financial
Services Institute of Australasia (FinSIA)
Services Institute of Australasia (FinSIA)
and the accounting profession.
and the accounting profession.
JORC Code
JORC Code
The Australasian Code for reporting of
The Australasian Code for reporting of
Exploration Results, Mineral Resources and
Exploration Results, Mineral Resources and
Ore Reserves 2012 Edition prepared by
Ore Reserves 2012 Edition prepared by
the JORC.
the JORC.
Leaching
Leaching
The process by which a soluble metal can
The process by which a soluble metal can
be economically recovered from minerals
be economically recovered from minerals
in ore by dissolution.
in ore by dissolution.
Marketable Coal Reserves
Marketable Coal Reserves
Represents benefi ciated or otherwise
Represents benefi ciated or otherwise
enhanced coal product where
enhanced coal product where
modifi cations due to mining, dilution and
modifi cations due to mining, dilution and
processing have been considered (JORC
processing have been considered (JORC
Code).
Code).
MAusIMM
MAusIMM
Member of The Australasian Institute of
Member of The Australasian Institute of
Mining and Metallurgy.
Mining and Metallurgy.
MAusIMM (CP)
MAusIMM (CP)
Accredited Chartered Professional status
Accredited Chartered Professional status
of members of The Australasian Institute
of members of The Australasian Institute
of Mining and Metallurgy. These members
of Mining and Metallurgy. These members
have undergone an assessment of their
have undergone an assessment of their
competencies, which are maintained
competencies, which are maintained
through continuing professional
through continuing professional
development activities.
development activities.
Measured Mineral Resource
Measured Mineral Resource
That part of a Mineral Resource for which
That part of a Mineral Resource for which
quantity, grade (or quality), densities,
quantity, grade (or quality), densities,
shape and physical characteristics are
shape and physical characteristics are
estimated with confi dence suffi cient to
estimated with confi dence suffi cient to
allow the application of Modifying Factors
allow the application of Modifying Factors
to support detailed mine planning and
to support detailed mine planning and
fi nal evaluation of the economic viability of
fi nal evaluation of the economic viability of
the deposit (JORC Code).
the deposit (JORC Code).
Metallurgical Coal
Metallurgical Coal
A broader term than coking coal, which
A broader term than coking coal, which
includes all coals used in steelmaking,
includes all coals used in steelmaking,
such as coal used for the pulverised coal
such as coal used for the pulverised coal
injection process.
injection process.
SOUTH32 > ANNUAL REPORT 2019 > GLOSSARY OF TERMS AND ABBREVIATIONS
SOUTH32 > ANNUAL REPORT 2019 > GLOSSARY OF TERMS AND ABBREVIATIONS
SOUTH32 > ANNUAL REPORT 2019 > GLOSSARY OF TERMS AND ABBREVIATIONS
135
135
135
GLOSSARY OF TERMS AND ABBREVIATIONS Mineral Resource
A concentration or occurrence of solid
material of economic interest in or on
the Earth’s crust in such form, grade
(or quality), and quantity that there
are reasonable prospects for eventual
economic extraction. The location,
quantity, grade (or quality), continuity
and other geological characteristics of a
Mineral Resource are known, estimated
or interpreted from specifi c geological
evidence and knowledge, including
sampling. Mineral Resources are sub-
divided, in order of increasing geological
confi dence, into Inferred, Indicated and
Measured categories (JORC Code).
Mineralisation
Any single mineral or combination of
minerals occurring in a mass, or deposit, of
economic interest (JORC Code).
Modifying Factors
Considerations used to convert Mineral
Resources to Ore Reserves. These
include, but are not restricted to, mining,
processing, metallurgical, infrastructure,
economic, marketing, legal, environmental,
social and governmental factors (JORC
Code).
MSAIMM
Member of the Southern African Institute
of Mining and Metallurgy.
Net Smelter Return (NSR)
An estimate of revenue derived from
the sale of products and concentrates
following the application of metallurgical
recoveries and deducting transport costs,
treatment and refi ning charges, penalties
and royalties.
OC/OP (Open-cut/open-pit/open-cast)
Surface working in which the working area
is kept open to the sky.
Ore Reserves
The economically mineable part of a
Measured and/or Indicated Mineral
Resource. It includes diluting materials and
allowances for losses, which may occur
when the material is mined or extracted
and is defi ned by studies at pre-feasibility
or feasibility level as appropriate that
include application of Modifying Factors.
Such studies demonstrate that, at the time
of reporting, extraction could reasonably
be justifi ed (JORC Code).
Probable Ore Reserves
The economically mineable part of an
Indicated and, in some circumstances,
a Measured Mineral Resource. The
confi dence in the Modifying Factors
applying to a Probable Ore Reserve is
lower than that applying to a Proved Ore
Reserve (JORC Code).
Proved Ore Reserves
The economically mineable part of a
Measured Mineral Resource. A Proved
Ore Reserve implies a high degree of
confi dence in the Modifying Factors (JORC
Code).
Pr.Sci.Nat.
Professional Natural Scientist of the South
African Council for Natural Scientifi c
Professions.
Reserve Life
The scheduled extraction period in years
for the Total Ore Reserves in the approved
Life of Operation Plan reported to two
signifi cant fi gures.
ROM (Run of Mine product)
Product mined in the course of regular
mining activities.
SACNASP
South African Council for Natural Scientifi c
Professions.
SAIMM
Southern African Institute of Mining and
Metallurgy.
Sands
Tailings produced as a by-product during
benefi ciation of ore.
SP (Stockpile)
An accumulation of ore or mineral built
up when demand slackens or when
the treatment plant or benefi ciation
equipment is incomplete or temporarily
unable to process the mine output; any
heap of material formed to create a buff er
for loading or other purposes, or material
dug and piled for future use.
Tailings
Those portions of washed or milled ore
that are too poor to be treated further
or remain after the required metals and
minerals have been extracted.
FINANCE, MARKETING
AND GENERAL TERMS
AASB
Australian Accounting Standards Board.
Adjusted ROIC (Adjusted Return On
Invested Capital)
Calculated as Underlying EBIT, adjusted
for uncontrollable and one-off impacts
in the current fi nancial year, divided by
the sum of fi xed assets (excluding any
rehabilitation asset and unproductive
capital associated with our major
projects) and inventories. Underlying
EBIT is adjusted by excluding the current
period impacts of foreign currency on
revenue and cost, and commodity prices
on revenue and associated price-linked
costs, less the discount on rehabilitation
provisions included in net fi nance cost, and
tax eff ected by the Group’s prior period
Underlying eff ective tax rate.
AGM
Annual General Meeting.
AO
Offi cer of the Order of Australia.
ASIC (Australian Securities and
Investments Commission)
The independent Australian Government
body that is Australia’s integrated
corporate, markets, fi nancial services and
consumer credit regulator.
ASX
ASX Limited or Australian Securities
Exchange.
ASX Listing Rules
The rules governing the listing of an entity
and the quotation of its securities on the
ASX.
B-BBEE
Broad-Based Black Economic
Empowerment.
Total Mineral Resources
The sum of Inferred Mineral Resources,
Indicated Mineral Resources and
Measured Mineral Resources.
BHP
The group of companies headed by, and
including, BHP Billiton Ltd and BHP Billiton
plc.
Total Ore Reserves
Proved Ore Reserves plus Probable Ore
Reserves.
Yield
The percentage of material of interest
that is extracted during mining and/
or processing. A measure of mining or
processing effi ciency (JORC Code).
Black People
Refers to Africans, Coloureds and Indians
who are citizens of the Republic of South
Africa by birth or descent (as more
fully defi ned in the Broad-Based Black
Economic Empowerment Amendment Act
2013 (South Africa)).
Board
The Board of Directors of South32 Limited.
CEO
Chief Executive Offi cer.
CFO
Chief Financial Offi cer.
CIF
Cost, insurance and freight.
136
SOUTH32 > ANNUAL REPORT 2019 > GLOSSARY OF TERMS AND ABBREVIATIONS
GLOSSARY OF TERMS AND ABBREVIATIONS CO₂ -e
Carbon dioxide equivalent.
Community investment
Contributions made to support
communities that we operate in, or
have an interest in. Our contributions to
community programs comprise cash, in-
kind support and administration costs.
COO
Chief Operating Offi cer.
Corporations Act
Corporations Act 2001 (Cth).
CPP (Commodity Price Protocol)
Refers to the process whereby price
forecasts and updates are governed
internally within South32 to ensure that a
consistent set of macroeconomic inputs
and assumptions are used to develop the
commodity prices to be applied across
South32.
CSO
Chief Sustainability Offi cer
Demerger
The separation of assets from BHP eff ected
in May 2015 to create a separate entity
South32 Limited, listed on the ASX, LSE and
JSE.
DTR
UK Financial Conduct Authority’s
Disclosure Guidance and Transparency
Rules. A reference to DTR followed by a
number is a specifi c rule under the DTR.
EBIT
Earnings before interest and tax.
EBITDA
Earnings before interest, tax, depreciation
and amortisation.
Eff ective tax rate (ETR)
Income tax expense divided by profi t
before tax; both the numerator and
denominator exclude equity accounted
investments.
ESOP Trusts
The trusts which purchase and hold
South32 Limited shares for the purpose
of the South32 Equity Incentive Plans.
South32 has an Australian ESOP Trust and
South African ESOP Trust for employees
located in the respective countries.
Executive KMP
Lead Team members who are classifi ed
as KMP.
External Auditor
KPMG.
FOB (Free On Board)
The seller delivers when the goods
pass the ship’s rail at the named port of
shipment. This means that the buyer has
to bear all costs and risks of loss of, or
damage to, the goods from that point. The
FOB term requires the seller to clear the
goods for export. This term can be used
only for sea or inland waterway transport.
Free cash fl ow
Free cash fl ow before interest and tax
represents operating cash fl ows including
dividends received from equity accounted
investments, before fi nancing activities
and tax, and after capital expenditure.
FX
Foreign exchange.
FYXX
Refers to the fi nancial year ending 30 June
20XX, where XX is the two-digit number
for the year.
Gearing
The ratio of net debt to net debt plus net
assets.
GHG (Greenhouse Gas)
For our reporting purposes, these are the
aggregate anthropogenic carbon dioxide
equivalent (CO₂ -e) emissions of carbon
dioxide (CO₂), methane (CH₄), nitrous
oxide (N₂O), hydrofl uorocarbons (HFCs),
perfl uorocarbons (PFCs) and sulphur
hexafl uoride (SF₆). These are measured
according to the World Resources
Institute/ World Business Council for
Sustainable Development Greenhouse Gas
Protocol.
GRI (Global Reporting Initiative)
This is the world’s most widely used
sustainability reporting framework,
consisting of principles, guidelines and
indicators to measure and report on an
organisation’s economic, environmental
and social performance. The G4 Guidelines
is the fourth and current generation of
this framework. The GRI Navigator and
Sustainability data tables are available on
our website at www.south32.net.
Group
Refers to South32 Limited and its
subsidiaries and joint arrangements.
HSEC
Health, safety and environment and
community.
International Council on Mining and
Metals (ICMM)
A membership organisation led by the
Chief Executive Offi cers of 23 mining and
metals companies, along with national
and regional mining associations and
global commodity associations. ICMM is
an international organisation dedicated to
improving the social and environmental
performance of the mining and metals
industry.
IFRS (International Financial Reporting
Standards)
Accounting standards as issued by the
IASB (International Accounting Standards
Board).
JSE
Johannesburg Stock Exchange.
KMP
Key management personnel are people
who have authority and responsibility for
planning, directing and controlling the
activities of South32 either directly or
indirectly.
LBMA
London Bullion Market Association.
Lead Team
All Chief positions within South32.
LME
London Metal Exchange.
LSE
London Stock Exchange.
LTI
Long-term incentive.
Margin on third party products
Comprises Underlying EBIT on third party
products, divided by third party product
revenue.
MRN
Mineração Rio do Norte.
Net cash
Comprises cash and cash equivalents less
interest bearing liabilities, including fi nance
leases.
Net debt
Comprises interest bearing liabilities,
including fi nance leases, less cash and
cash equivalents.
Net operating assets
Represents operating assets net of
operating liabilities which predominantly
excludes the carrying value of equity
accounted investments, cash, interest
bearing liabilities, tax balances and certain
other fi nancial assets.
Occupational illness
An illness that occurs as a consequence
of work-related activities or exposure.
It includes acute or chronic illnesses
or diseases, which may be caused by
inhalation, absorption, ingestion or direct
contact.
Occupational Exposure Limit (OEL)
The concentration of a substance or agent,
exposure to which, according to current
knowledge, should not cause adverse
health eff ects nor cause undue discomfort
to nearly all workers.
SOUTH32 > ANNUAL REPORT 2019 > GLOSSARY OF TERMS AND ABBREVIATIONS
137
GLOSSARY OF TERMS AND ABBREVIATIONS TERMS USED IN RESOURCES
AND RESERVES
A.Al₂ O₃
available alumina
Ag
silver
Al₂ O₃
alumina
CV
calorifi c value
Fe
iron
HCFeMn
high-carbon ferromanganese
Met
metallurgical coal
Mn
manganese
Ni
nickel
Pb
lead
R.SiO₂
reactive silica
S
sulphur
SiO₂
silica
SiMn
silica manganese
Th
thermal coal
VM
Volatile Matter
Zn
zinc
OSHA
The Occupational Safety and Health
Administration (OSHA) of the United States
Department of Labor. We adopt these
guidelines for the recording and reporting
of occupational injuries and illnesses to
ensure that classifi cations are applied
uniformly across our workforce.
Post-demerger
The period from 25 May 2015 when
South32 Limited began as an independent
entity.
Pre-demerger
The period from 1 July 2014 to 24 May
2015 when South32 Limited and its
controlled entities were subsidiaries of
BHP.
ROIC (Return On Invested Capital)
Calculated as Underlying EBIT less the
discount on rehabilitation provisions
included in net fi nance costs, tax eff ected
by the Group’s Underlying eff ective tax
rate, divided by the sum of fi xed assets
(excluding any rehabilitation asset and
unproductive capital associated with our
major projects) and inventories.
Senior Leadership
The Senior Leadership Team are our
leaders who report directly to the South32
Lead Team.
Shared value
The identifi cation of opportunities
that create economic value while also
advancing the environmental and social
outcomes of the communities and regions
in which we operate.
South32 Equity Incentive Plan
An equity incentive plan that allows the
Board to make off ers to employees to
acquire securities in South32 Limited and
to otherwise incentivise employees.
STI
Short-term incentive.
Transformation
A national strategy in South Africa aimed
at attaining national unity, promoting
reconciliation through negotiated
settlement and non-racism.
Total Recordable Injury Frequency (TRIF)
The sum of (fatalities + lost-time cases +
restricted work cases + medical treatment
cases) x 1,000,000 ÷ actual hours worked.
This is stated in units of per million hours
worked for employees and contractors.
We adopt the United States Government
Occupational Safety and Health
Administration guidelines for the recording
and reporting of occupational injury and
illnesses.
Total Recordable Illness Frequency
(TRILF)
The sum of total occupational illness
x 1,000,000 ÷ actual hours worked, for
employees and contractors. This is stated
in units of per million hours worked.
Total Shareholder Return (TSR)
TSR measures the return delivered
to shareholders over a certain period
through the change in share price and
any dividends paid. It is the measure used
to compare our performance to that of
relevant peer groups under the LTI.
TSX
Toronto Stock Exchange.
Underlying earnings
Underlying earnings is profi t after tax
and earnings adjustment items. Earnings
adjustments represent items that don’t
refl ect our underlying operations. We
believe that Underlying earnings provides
useful information, but shouldn’t be
considered as an indication of, or an
alternative to, profi t or attributable profi t
as an indicator of operating performance.
Underlying EBIT
Underlying EBIT is profi t before net
fi nance costs, tax and after any earnings
adjustment items, including impairments,
impacting profi t. It’s reported inclusive
of our share of net fi nance costs and
tax of equity accounted investments.
It isn’t an IFRS measure of profi tability,
fi nancial performance or liquidity and
may be defi ned and used in diff ering
ways by diff erent entities. We believe
that Underlying EBIT provides useful
information, but shouldn’t be considered
as an indication of, or alternative to, profi t
or attributable profi t as an indicator of
operating performance.
Underlying EBIT margin
Comprises Underlying EBIT excluding third
party product EBIT, divided by revenue
excluding third party product revenue.
Underlying EBITDA
Underlying EBIT before depreciation and
amortisation.
Underlying EBITDA margin
Comprises Underlying EBITDA excluding
third party product EBITDA, divided by
revenue excluding third party product
revenue.
Underlying Eff ective Tax Rate (ETR)
Comprises Underlying income tax expense
divided by underlying profi t before tax;
both the numerator and denominator
exclude equity accounted investments.
138
SOUTH32 > ANNUAL REPORT 2019 > GLOSSARY OF TERMS AND ABBREVIATIONS
GLOSSARY OF TERMS AND ABBREVIATIONS US$/lb
US dollars per pound
US$/oz
US dollars per ounce
US$/t
US dollars per tonne
US$/toz
US dollars per troy ounce
UNITS OF MEASURE
%
percentage or per cent
dmt
dry metric tonne
dmtu
dry metric tonne unit
g/t
grams per tonne
ha
hectare
KCal/Kg
Kilo calories per kilogram
Kdmt
thousand dry metric tonne
kL
kilolitre
km
kilometre
koz
thousand ounces
kt
kilotonnes
ktCO₂ -e
kilotonnes of carbon dioxide equivalent
ktpa
kilotonnes per annum
kW
kilowatt
kwmt
thousand wet metric tonnes
m
metre
ML
megalitre
Moz
million ounces
Mt
million tonnes
Mtpa
million tonnes per annum
oz
ounce
t
tonnes
tpa
tonnes per annum
tpd
tonnes per day
tph
tonnes per hour
SOUTH32 > ANNUAL REPORT 2019 > GLOSSARY OF TERMS AND ABBREVIATIONS
139
GLOSSARY OF TERMS AND ABBREVIATIONS This page is intentionally left blank.
CORPORATE DIRECTORY
CORPORATE DIRECTORY
CORPORATE DIRECTORY
GROUP HEADQUARTERS
GROUP HEADQUARTERS
GROUP HEADQUARTERS
(REGISTERED OFFICE)
(REGISTERED OFFICE)
(REGISTERED OFFICE)
Level 35
Level 35
Level 35
108 St Georges Terrace
108 St Georges Terrace
108 St Georges Terrace
Perth 6000
Perth 6000
Perth 6000
Western Australia
Western Australia
Western Australia
Phone:
+61 8 9324 9000
+61 8 9324 9000
Phone:
+61 8 9324 9000
Phone:
Facsimile: +61 8 9324 9200
Facsimile: +61 8 9324 9200
Facsimile: +61 8 9324 9200
SOUTH AFRICA OFFICE
SOUTH AFRICA OFFICE
SOUTH AFRICA OFFICE
39 Melrose Boulevard
39 Melrose Boulevard
39 Melrose Boulevard
Melrose Arch
Melrose Arch
Melrose Arch
Johannesburg 2076
Johannesburg 2076
Johannesburg 2076
PO Box 61820
PO Box 61820
PO Box 61820
Marshalltown 2107
Marshalltown 2107
Marshalltown 2107
Phone:
Phone:
Phone:
+27 11 376 2000
+27 11 376 2000
+27 11 376 2000
SINGAPORE MARKETING OFFICE
SINGAPORE MARKETING OFFICE
SINGAPORE MARKETING OFFICE
South32 Marketing Pte Ltd
South32 Marketing Pte Ltd
South32 Marketing Pte Ltd
138 Market Street
138 Market Street
138 Market Street
#26-01 CapitaGreen
#26-01 CapitaGreen
#26-01 CapitaGreen
Singapore 048946
Singapore 048946
Singapore 048946
Phone:
+65 6679 2600
+65 6679 2600
Phone:
+65 6679 2600
Phone:
Facsimile: +65 6826 4143
Facsimile: +65 6826 4143
Facsimile: +65 6826 4143
LONDON MARKETING OFFICE
LONDON MARKETING OFFICE
LONDON MARKETING OFFICE
South32 SA Investments Limited
South32 SA Investments Limited
South32 SA Investments Limited
4th Floor, 62 Buckingham Gate
4th Floor, 62 Buckingham Gate
4th Floor, 62 Buckingham Gate
London SW1E 6AJ
London SW1E 6AJ
London SW1E 6AJ
United Kingdom
United Kingdom
United Kingdom
+44 20 7798 1700
Phone:
+44 20 7798 1700
Phone:
+44 20 7798 1700
Phone:
Facsimile: +44 20 7798 1701
Facsimile: +44 20 7798 1701
Facsimile: +44 20 7798 1701
This Annual Report is printed on
This Annual Report is printed on
This Annual Report is printed on
paper that is FSC (Forest Stewardship
paper that is FSC (Forest Stewardship
paper that is FSC (Forest Stewardship
Council) certifi ed and manufactured
Council) certifi ed and manufactured
Council) certifi ed and manufactured
from plantation-grown timber. Both
from plantation-grown timber. Both
from plantation-grown timber. Both
the paper manufacturer and printer
the paper manufacturer and printer
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are certifi ed to the highest possible
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are certifi ed to the highest possible
internationally recognised standard
internationally recognised standard
internationally recognised standard
for environmental management.
for environmental management.
for environmental management.
CORPORATE DIRECTORY SOUTH32.NET
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