ANNUAL
REPORT
2022
About this report
Annual Report 2022
This report is a summary of our operations, activities, performance
and financial position as at 30 June 2022.
Our 2022 Annual Reporting Suite
You can view all the documents in our Annual Reporting Suite
at www.south32.net, including:
Sustainable
Development Report
Sustainability
Databook
Corporate Governance
Statement
Modern Slavery
Statement
Tax Transparency
and Payments
to Governments Report
About this report:
This Annual Report is a summary of the operations, activities and performance of
South32 Limited (ABN 84 093 732 597) and its controlled entities and joint
arrangements(1) for the year ended 30 June 2022 and its financial position as at
30 June 2022.
South32 Limited is the parent company of the South32 group of companies. In this
report, unless otherwise stated, references to South32, the South32 Group, the
Group, we, us, our and similar expressions refer to South32 Limited and its
controlled entities and South32-operated joint arrangements. In addition to
South32’s wholly owned entities and South32-operated joint arrangements, this
report refers to operations that are not wholly owned or operated by South32. This
report also refers to commodities ‘we produce’ and commodities in ‘our portfolio’,
which include commodities such as bauxite, alumina, aluminum and copper that
may form part of, or be produced by, entities not operated by South32. References
in this report to ‘our operations’, or commodities ‘we produce’ or in ‘our portfolio’,
should be read in this context.
Unless otherwise stated, financial information in this report is presented on the
basis described in the Notes to the Financial Statements - Basis of preparation on
page 109, and monetary amounts in this report are expressed in US dollars.
Unless otherwise stated, metrics describing sustainability and HSEC performance
in this report apply to ‘operated operations’ that have been wholly owned and
operated by South32, or that have been operated by South32 in a joint
arrangement, from 1 July 2021 to 30 June 2022.
Forward-looking statements
Forward-looking statements in this report reflect South32’s expectations at the
date of this report, and are not guarantees or predictions of future performance or
statements of fact. They involve known and unknown risks and uncertainties, which
may cause actual outcomes and developments to differ materially from those
expressed in such statements. For further information regarding South32’s
approach to risk, see page 26.
South32 makes no representation, assurance or guarantee as to the accuracy,
completeness or likelihood of fulfilment of any forward-looking statement, any
outcomes expressed or implied in any forward-looking statement or any
assumptions on which a forward-looking statement is based. Except as required by
applicable laws or regulations, South32 does not undertake to publicly update or
review any forward-looking statements. Past performance cannot be relied on as a
guide to future performance. South32 cautions against reliance on any forward-
looking statements or guidance, particularly in light of the current economic climate
and the ongoing impact of COVID-19.
Non-IFRS
This report includes non-IFRS financial measures, including underlying measures of
earnings, effective tax rate, returns on invested capital, cash flow and net debt.
Non-IFRS measures should not be considered as alternatives to an IFRS measure of
profitability, financial performance or liquidity. For an explanation of how South32
uses non-IFRS measures, see page 36. The definitions of individual non-IFRS
measures used in this report are set out in the glossary on page 185.
(1) In this report, references to ‘joint arrangements’ mean operations that are not
wholly owned by South32, such as joint ventures and joint operations. Joint
arrangements are classified in accordance with IFRS 11 Joint Arrangements.
Cover: A geotechnical engineer at our
Cannington operation in Australia.
Below: Anindilyakwa people on Groote
Eylandt in Australia’s Northern Territory.
T
N
E
M
E
G
D
E
L
W
O
N
K
C
A
We acknowledge and pay our respects to the Indigenous, Traditional
and Tribal Peoples of the lands, waters and territories on which South32
is located and where we conduct our business around the world.
We respect and acknowledge the unique cultural and spiritual
relationships that Indigenous, Traditional and Tribal Peoples have to the
lands, waters and territories, and their rich contribution to society.
In the spirit of respect and reconciliation, we will continue to support
initiatives that strengthen culture and ways of life so that their legacy
continues and extends to future generations.
OPERATING AND FINANCIAL REVIEW
CORPORATE GOVERNANCE STATEMENT 2022TAX TRANSPARENCY AND PAYMENTS TO GOVERNMENTS REPORT 2022SUSTAINABLE DEVELOPMENT REPORT 2022SUSTAINABILITYDATABOOK2022MODERN SLAVERY STATEMENT 2022 Contents
OPERATING AND
FINANCIAL REVIEW
About this report
About us
Year in review
From the Chair
From the CEO
South32 at a glance
Our business model
Our commodities
Our sustainability approach
Our impact
Our strategy
Progress against our strategy
Risk management
Financial and operational
performance summary
GOVERNANCE
Board of Directors
Directors’ report
Lead Team
Remuneration report
FINANCIAL REPORT
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated balance sheet
Consolidated cash flow statement
Consolidated statement
of changes in equity
Notes to the financial statements
Directors' declaration
Lead auditor’s independence declaration
Independent auditor’s report
RESOURCES AND RESERVES
Information
Competent persons
Accompanying tables
INFORMATION
Shareholder information
Glossary of terms and abbreviations
Corporate directory
IFC
2
3
4
6
8
10
12
14
16
18
20
26
36
64
68
72
74
104
105
106
107
108
109
166
167
168
173
174
175
181
184
189
11
SOUTH32 ANNUAL REPORT 2022 About us
SOUTH32 IS A
GLOBALLY DIVERSIFIED
MINING AND METALS
COMPANY
We produce commodities including bauxite, alumina, aluminium, copper, silver, lead,
zinc, nickel, metallurgical coal and manganese from our operations in Australia,
southern Africa and South America. With a focus on growing our base metals
exposure, we also have two development options in North America and several
partnerships with junior explorers around the world.
Making a difference
Our purpose is to make a difference by developing natural
resources, improving people’s lives now and for generations
to come. We are trusted by our owners and partners to realise
the potential of their resources.
Learn more about how we improve people’s lives on page 16.
Optimise | Unlock | Identify
Our purpose is underpinned by a simple strategy which is focused
on optimising the performance of our operations, unlocking
their potential and identifying new opportunities to create value
for all of our stakeholders.
Learn more about our strategy on page 18.
Care | Trust | Togetherness | Excellence
While our strategy outlines what we do to achieve our purpose,
our values of care, trust, togetherness and excellence guide
how we do it. Every day, our values shape the way we behave
and the standards we set for ourselves and others.
Learn more about our people in our Sustainable Development Report at www.south32.net
2
OPERATING AND FINANCIAL REVIEW
Year in review
OUR PERFORMANCE
AT A GLANCE
Total Recordable Injury Frequency (TRIF)(1)
Underlying EBITDA(4)
5.3
FY22
FY21
5.3
6.0
US$4,755m
FY22
US$4,755m
FY21
US$1,856m
Community Investment(2)
US$31.1m
Payment of taxes and royalties
US$1,447m
FY22
FY21
US$31.1m
FY22(5)
US$1,447m
US$22.2m
FY21
US$569m
Operational greenhouse gas (GHG) emissions
Shareholder returns(6)
21.0 Mt CO2-e
US$1,320m
FY22
FY21(3)
21.0 Mt CO2-e
20.7 Mt CO2-e
FY22
US$1,320m
FY21
US$670m
(1) TRIF baseline was adjusted at end FY21 to account for the removal of South Africa Energy Coal (SAEC) and
Tasmanian Electro Metallurgical Company (TEMCO) from the portfolio.
(2) Community investment consists of direct investment, in-kind support and administrative costs.
(3) FY21 emissions adjusted to exclude GHG emissions from SAEC and TEMCO, which were divested in FY21.
(4) This is a non-IFRS measure. For an explanation of how South32 uses non-IFRS measures, see page 36.
(5) Includes Brazil Alumina, Brazil Aluminium and Sierra Gorda.
(6) In respect of FY22. Includes fully franked dividends (interim ordinary US$405 million, final ordinary
US$648 million and final special US$139 million) and on-market share buy-back of US$128 million.
(7) Market capitalisation as at 19 August 2022. Calculated as the number of shares on issue (4,628 million), the
South32 closing share price A$4.19, and an AUD:USD exchange rate of 0.69.
(8) In this report we use particular terminology in relation to climate change. Definitions of the terms ‘goal’,
‘target’ and 'low-carbon' when used in the context of climate change are set out in the Glossary of terms and
abbreviations on pages 186 and 187 of this report.
Highlights
〉 Delivered record earnings and
cash flow as our stable
operating performance and
recent portfolio improvements
enabled us to capitalise on the
significant tailwind of
commodity prices.
〉 Delivered record shareholder
returns in respect of FY22
equal to 10 per cent of our
market capitalisation(7).
〉 Achieved record production
at Worsley Alumina, record
operating margins at
Hillside Aluminium and
Mozal Aluminium, exceeded
production guidance at
Cannington and achieved a
22 per cent increase in nickel
production at Cerro Matoso.
〉 Made significant progress
transforming our portfolio,
increasing our exposure to the
metals critical to a low-carbon
future by adding copper and
doubling our low-carbon
aluminium capacity(8).
〉 Completed a pre-feasibility
study for the Taylor Deposit
and advanced study work for
the Clark Deposit at our
Hermosa project.
〉 Set a new goal of net zero
Scope 3 GHG emissions
by 2050(8).
3
SOUTH32 ANNUAL REPORT 2022 From the Chair
POSITIONING
OUR BUSINESS
FOR THE FUTURE
This year we made significant progress reshaping our portfolio to increase our exposure
to commodities critical to a low-carbon future. Despite the challenges of COVID-19 continuing
in many locations, we have maintained our stable operating performance, continued to
support our communities, and finished the year in a strong financial position.
While there is much to be proud of, it
saddens me to again report the loss of a
colleague. In November 2021 Mr Desmin
Mienies, a contractor who was working at
our Wessels Mine in South Africa, lost his
life. On behalf of the Board, I express my
deepest sympathies to his family, friends
and colleagues. The Board has reviewed
the findings of the investigation following
Mr Mienies’ death and has been briefed
on the steps taken to prevent a similar
incident occurring in the future.
We all recognise that we must continue to
improve our safety performance. It is a key
focus for the Board, our Lead Team and
our entire business. During the first half of
FY22, we partnered with a leading safety
all of our work is undertaken in a way that
is consistent with our values and Code of
Business Conduct, we have taken learnings
from recent reports into workplace
misconduct and sexual harassment in our
industry. These reports have informed our
renewed efforts to identify and respond to
the risk factors for harassment, just as we
do for other safety risks.
At the heart of all of our work is the
commitment to foster a culture where our
people feel safe to speak up when they
are the victim of, or witness, an incident of
misconduct, whatever form it takes. The
Board, working with the South32 Lead
Team, sets the direction and tone for our
workplace culture.
“
We accelerated work to improve our portfolio with
the completion of several successful transactions.
This transformational work would not have been
possible without the strength of our underlying
operating performance.”
consultant to undertake a review of our
safety performance and identify areas for
improvement. This formed the foundation
for our Safety Improvement Program,
a three-year global program of work
designed to achieve a step-change in our
safety performance. To better support our
contractors, we have developed and rolled
out our contractor management standard
which defines performance requirements
for managing our contractors.
During the year, we continued to give
particular attention to supporting all
our people to feel safe, included and
respected at work. As we strive to ensure
We are working to embed inclusion and
diversity into everything we do, through
the implementation of our Inclusion and
Diversity Action Plan. A critical component
of the Action Plan was the development
of our new internal inclusion and
diversity standard, which sets minimum
requirements for all elements of people
management. From FY23, our measurable
objectives will include actions targeted at
improving inclusion and diversity in our
workplace, in addition to measuring the
representation of women and Black People
in our workforce.
4
OPERATING AND FINANCIAL REVIEW
COVID-19 remained a challenge during the
year, but following the global vaccination
roll out, many of the countries where we
operate have adapted to living with the
virus. Notwithstanding this shift, our people
have continued to follow controls designed
to limit the spread of the virus in every
location where we operate. The Board
recognises the dedication of our people
and appreciates the level of diligence
that continues to be shown. As the world
started to open up and travel became
easier, the Board has been pleased to
restart our program of site visits following
a two-year pause, with visits to Hermosa,
Worsley Alumina and Sierra Gorda.
We achieved strong realised prices for
our commodities this year despite the
prevailing global disruption caused by
COVID-19, the tragic conflict in Ukraine,
and rising global interest rates leading
to heightened market volatility. Our
operations performed well throughout the
year and delivered Underlying earnings
before interest, tax, depreciation and
amortisation of US$4.8 billion and free cash
flow of US$2.6 billion. The Group’s statutory
profit after tax increased to US$2.7 billion.
We ended the financial year with a net
cash balance of US$538 million, having
returned US$1.3 billion to our shareholders.
This included dividends totalling
US$1.2 billion and US$128 million returned
to shareholders as part of our ongoing
capital management program. We further
expanded our capital management
program by US$156 million to
US$2.3 billion, leaving US$250 million
to be returned by September 2023.
Our strong financial performance
during FY22 and disciplined approach
to capital allocation have supported
investment in our business to improve
our portfolio by increasing our exposure
to the metals critical to a low-carbon
future. Our acquisition of an interest in
the Sierra Gorda copper mine, increased
shareholdings in Mozal Aluminium and
the Mineração Rio do Norte (MRN) bauxite
mine, and our decision to participate in the
restart of the Alumar aluminium smelter in
Brazil are significant steps for our business.
Responding to the imperative to address
a changing climate was again a focus
for South32. As we have long made
clear, effectively addressing climate
change will require a coordinated effort
across governments, businesses, and
communities, not only to transition to
a low-carbon world in a just way, but
also to adapt to the effects of climate
change. Delivering on our climate
change commitments is fundamental to
our purpose – to make a difference by
developing natural resources, improving
people’s lives now and for generations to
come, where we are trusted by our owners
and partners to realise the potential of
their resources.
Within 12 months of South32 being
established, we committed to supporting
the objectives of the Paris Agreement and
set a long-term goal to achieve net zero
operational greenhouse gas emissions by
2050. Our first emissions reduction target
was to keep our FY21 Scope 1 greenhouse
gas emissions below our FY15 baseline,
which we achieved.
In FY21, we stepped up our ambition by
setting our medium-term target to halve
our operational greenhouse gas emissions
by 2035 from our FY21 baseline.
This year we have developed our Climate
Change Action Plan, which will be the
subject of a non-binding advisory
resolution at our 2022 Annual General
Meeting. The Plan describes the actions
we are taking to address the risks and
opportunities which climate change
presents, including producing the metals
that support the transition to a low-carbon
world, in a way that minimises our impact.
Recognising that we have a critical role to
play in contributing to the decarbonisation
of the value chain, in partnership with our
customers and suppliers, the Plan includes
a new goal of net zero Scope 3 greenhouse
gas emissions by 2050.
Although we do not have direct operational
control over activities in the value chain, we
are committed to proactively collaborating
with our suppliers, customers, industry
peers and other value chain partners to
make a meaningful contribution to the
actions and innovations required to reduce
these emissions.
Just as we have progressed our work to
improve our environmental performance,
the same is also true for our social
performance. This year we evolved
our approach to partnering with our
communities to more clearly define
how we can contribute societal value
through our broader social contribution,
including economic development planning,
respecting human rights and our approach
to cultural heritage.
Many of our operations and projects
intersect areas of cultural significance
and we understand we have a critical
role to play in preserving cultural
heritage. We believe it is important for
cultural heritage and mining to co-exist
and we are committed to working with
Indigenous, Traditional and Tribal Peoples,
governments and industry.
In Australia we support the Uluru
Statement from the Heart as the pathway
towards reconciliation put forward by
Australia’s First Nations people to enshrine
the voice of First Nations into the Australian
constitution. We support the opportunity
for all Australians to participate in this act
of reconciliation.
In FY22, we completed cultural heritage
reviews for our operations in the Americas
and southern Africa, following a similar
review of our Australian operations in the
previous year. We worked on developing
a more globally consistent approach to
cultural heritage management across
operations and regions, building on our
existing cultural heritage management,
governance and risk processes by
leveraging technology platforms and
increasing engagement.
Over the past seven years, South32 has
undergone a major transformation, so
much so that the South32 of today -
a global, diversified producer of metals
critical to a low-carbon future -
is unrecognisable compared to where
we started in 2015. During FY22 we
accelerated work to improve our portfolio
with the completion of several successful
transactions. This transformational work
would not have been possible without
the strength of our underlying operating
performance, which enabled us to
capitalise on record conditions for many of
our commodities.
On behalf of the Board, I would like to thank
our shareholders for their ongoing support
and reiterate our thanks to our people for
their hard work and commitment.
Karen Wood
Chair
5
SOUTH32 ANNUAL REPORT 2022
From the CEO
DELIVERING RESULTS
IN UNCERTAIN TIMES
There is no doubt that global events continue to create a challenging environment
for businesses and communities around the world. Despite these challenges,
we look back on this year as a transformational time for our business as we continued
to deliver on our strategy.
The most important commitment we make
at South32 is that everyone goes home
safe and well at the end of every shift.
Unfortunately, this year we did not
achieve that.
We are deeply saddened by the loss of
one of our colleagues, Mr Desmin Mienies,
a contractor who was fatally injured
while undertaking electrical work at our
Wessels Mine at South Africa Manganese in
November 2021.
Our deepest sympathies are with Mr Mienies’
family, friends and colleagues and we
provided them with our support following
the tragic incident. We undertook a detailed
investigation to understand what happened,
and the learnings from the investigation were
shared across our organisation.
We recognise that we must continue to
improve our safety performance and we
are undertaking a significant amount of
work to achieve this.
During the first half of FY22, we undertook
a review of our safety performance and
identified areas for improvement. This
formed the foundation of our Safety
Improvement Program, a three-year global
program of work designed to achieve a
step-change in our safety performance.
In FY22 we saw a reduction in recordable
injuries and our Total Recordable Injury
Frequency (TRIF) decreased by 12 per cent
to 5.3 per million hours worked, but we did
not meet our 20 per cent reduction target.
We are committed to working together
safely, and continuously improving how we
work by embedding safe and sustainable
business practices every day.
Over the past two years we have also
undertaken a substantial work program
to improve contractor safety, given the
important role contractors play in our
business. The Contractor Management
System of Work defines the key phases
of the contractor management value
chain and outlines the performance
requirements for each phase, including
how we support our contractors to
undertake work safely.
During the year, COVID-19 continued to
affect our people, operations, projects
and offices, and we experienced periods
of elevated case numbers and restrictions
across all of our locations. We continue to
monitor employee and contractor infections
and provide assistance to those affected.
The macroeconomic environment
remained volatile and uncertain throughout
the year. The continued uncertainty, as a
result of geopolitical factors and supply
chain disruptions, is expected to see
inflationary pressures continue across
our industry.
“
The past 12 months have been some of the most
exciting in our history as we transformed
our portfolio to focus on the metals critical
to a low-carbon future.”
Just as we strive to create workplaces
that are physically safe, we are working
to create a culture where people feel safe
and supported to speak up if they are
experiencing any form of disrespectful
behaviour, harassment or bullying. We
manage sexual harassment as a material
safety risk and have identified proactive
and reactive control measures at a global
level to mitigate this risk. More recently, our
work has also been informed by broader
industry learnings following the publication
of key reports on this critical issue.
Against this backdrop we delivered record
earnings and cashflow in FY22 as our
stable operating performance and recent
portfolio improvements enabled us to
capitalise on the significant tailwinds of
commodity prices.
Our operations delivered to revised plans,
despite adverse impacts from weather and
labour availability caused by COVID-19.
6
OPERATING AND FINANCIAL REVIEW
Looking ahead, we are well-positioned
to navigate the immediate uncertainty.
We have a strong balance sheet with
net cash of US$538 million after funding
US$1.5 billion of investments to improve
our portfolio during the year. We expect
our ongoing focus on cost management
and an expected 14 per cent increase in
copper equivalent production in the next
financial year will mitigate industry-wide
cost inflation.
Over the past seven years we have
transformed our portfolio to focus on
increasing our exposure to the metals
critical to a low-carbon future.
This year we acquired a 45 per cent stake
in the Sierra Gorda copper mine in Chile,
providing immediate exposure to copper.
We are growing our exposure to
low-carbon aluminium, and during the
year we increased our shareholding in the
hydro-powered Mozal Aluminium smelter
in Mozambique, bringing our shareholding
to 63.7 per cent. We also achieved first
production from the restart of the
100 per cent renewable powered Brazil
Aluminium smelter. Through these
investments, we expect to double our
share of low-carbon aluminium production
capacity.
We reached an important milestone for the
Hermosa project with the completion of a
pre-feasibility study for the zinc-lead-silver
Taylor Deposit, the first development option
at the project. We have now commenced
a feasibility study ahead of a planned final
investment decision in mid-CY23.
A scoping study for Hermosa’s Clark
Deposit has confirmed the potential for an
integrated underground mining operation
producing battery-grade manganese.
Following the decision by the United
States Government to invoke the Defense
Production Act, supporting the production
of critical metals including manganese,
we are looking at different options to
potentially accelerate the pre-feasibility
study for the Clark Deposit. We also
continue to invest to advance more than
25 active exploration programs around
the world.
Subsequent to the end of the reporting
period, we announced that we would
not proceed with an investment in the
Dendrobium Next Domain project at
Illawarra Metallurgical Coal following our
consideration of recently completed study
work and extensive analysis of alternatives
considered for the complex. With this
decision, we will now focus on continuing
to optimise Dendrobium and the broader
Illawarra Metallurgical Coal complex to
extend the mine life within approved
domains.
Our approach to climate change is
integrated with our strategy and is
designed to protect and unlock long-term
value, build operational resilience, and
enhance our competitiveness in a
low-carbon world.
Shareholders will be given the opportunity
to provide feedback on our approach to
climate change when our Climate Change
Action Plan, which is part of our Sustainable
Development Report, is the subject of a
non-binding advisory resolution at our 2022
Annual General Meeting.
We continued to progress our
decarbonisation initiatives in FY22,
including the completion of pre-feasibility
studies for the mud-washing efficiency
project and gas conversion of coal-fired
boilers at Worsley Alumina.
We have commenced the rollout of energy
efficiency AP3XLE technology at the
Hillside Aluminium smelter and completed
studies on the technical feasibility of
deploying renewables to power the
smelter. We continue to work closely with
the South African Government and other
stakeholders to identify, develop and
implement options to procure low-carbon
electricity to power the smelter. We are
also working with the New South Wales
Government and CSIRO to construct a
commercial pilot Ventilation Air Methane
abatement facility at Illawarra Metallurgical
Coal.
In addition, we updated our assessments of
the physical risks of climate change across
our operated assets.
Despite global challenges, the past
12 months have been some of the
most exciting in our history and a
transformational time for our business.
I’d like to thank our people for their
contribution to our success. It is a result
of their efforts and resilience that we
have been able to make great progress to
become a truly global, diversified producer
of the metals critical to a low-carbon future.
Graham Kerr
Chief Executive Officer
7
SOUTH32 ANNUAL REPORT 2022 South32 at a glance
A DIVERSIFIED
PORTFOLIO WITH
A BIAS TO BASE
METALS
AMBLER METALS
Copper, Lead, Gold, Silver and Zinc
VANCOUVER
Operated interest/share
Non-operated interest/share
Development option
Exploration program
Office
FY22 Key Commodity Underlying EBITDA
US$4.9b(1)
12%
31%
35%
3%
19%
By Commodity
Aluminium value chain
Copper
Base and precious metals
Metallurgical coal
Manganese ore
17%
22%
61%
By Geography
Australia
Africa
Americas
HERMOSA
Zinc, Lead, Silver and Manganese
CERRO MATOSO
Nickel
BRAZIL ALUMINA
Bauxite
BRAZIL ALUMINA
Alumina
SIERRA GORDA
Copper, Molybdenum and Gold
BRAZIL ALUMINIUM
Aluminium
See Segment Reporting in Note 4 to the financial statements for more information
(1) Presented on a proportional consolidation basis and excludes manganese alloys (-US$21 million), the Brazil Aluminium smelter (-US$43 million), Hermosa (-US$12 million),
and Group and unallocated costs (-US$69 million).
8
OPERATING AND FINANCIAL REVIEW
LONDON
JOHANNESBURG
SOUTH AFRICA
MANGANESE
Manganese ore
MOZAL
ALUMINIUM
Aluminium
HILLSIDE ALUMINIUM
Aluminium
SINGAPORE
CANNINGTON
Silver, Lead and Zinc
AUSTRALIA MANGANESE
Manganese ore
PERTH HEAD OFFICE
WORSLEY ALUMINA
Alumina
ILLAWARRA
METALLURGICAL COAL
Metallurgical coal
9
SOUTH32 ANNUAL REPORT 2022 Our business model
CREATING
LONG-TERM VALUE
As a global mining and metals company, we create value by producing commodities
that are used in all aspects of modern life. Our operations, development options
and exploration programs are diversified by commodity and geography. We work
to minimise the impact of our activities and aim to create enduring value for all
of our stakeholders, at each stage of the mining lifecycle.
The resources
we rely upon
People
Our global workforce is made up of both
employees and contractors and is our most
important resource, providing the skills,
experience and technical expertise required
to run our business.
Physical
We have a suite of assets including
open-cut and underground mines,
refineries, smelters and associated
infrastructure which we focus on running
safely and reliably. We procure equipment
from suppliers globally to support our
operations, development options and
exploration programs.
Environmental
The resources and reserves we access are
the primary inputs for our business. Other
inputs such as water and energy are also
important for the operation of our facilities.
Economic
Our shareholders and lenders provide
access to financial capital which we put to
work by operating our existing facilities and
funding our pipeline of development options
and exploration programs.
Societal
We build strong relationships with
our stakeholders based on trust and
transparency and are entrusted
to develop their resources.
What we do
Explore
Develop
Refine/Smelt
Mine/Process
Market
Rehabilitate/
Close
What guides us
Our purpose
Learn more about our purpose on page 18.
10
OPERATING AND FINANCIAL REVIEW
Explore
We have more than 25 active exploration programs across
the globe to discover our next generation of mines.
Develop
Our development options have the potential to provide
commodities which support the transition to a low-carbon
world. We have a pipeline of brownfield and greenfield
options in execution or study phases.
Mine
We mine and process bauxite, copper, silver, lead, zinc, nickel,
metallurgical coal and manganese.
Refine/Smelt
We refine bauxite to produce alumina, we smelt alumina
to produce aluminium, and we smelt nickel ore to produce
ferronickel.
Market
Our marketing team generates revenue from the sale of
our commodities to a global customer base and purchases
raw materials from global markets. They also build a view
of commodities and their markets to inform our strategic
business planning and investment decisions.
Rehabilitate/Close
From exploration through to closure and beyond, we
seek to minimise our adverse impacts on the surrounding
environments. We undertake progressive rehabilitation
where possible and aim to leave a lasting and positive legacy
in our host communities.
The outcomes
we create
People
We provide meaningful employment and career
development opportunities for the people who
work for us, who in turn support their families and
the communities they live in.
Physical
We produce commodities that are used in all
aspects of modern life and play a critical role in
the transition to a low-carbon world.
Environmental
We seek to avoid, minimise, rehabilitate and offset
to deliver enduring outcomes for the ecosystems
and catchments in which we operate.
Economic
Our disciplined approach to capital management
supports investment in our business and rewards
shareholders as performance improves.
Societal
The contribution we make to society is
multi-faceted and helps improve people’s lives by
providing the commodities the world needs. In
doing so, we create employment, pay taxes and
royalties which help fund essential infrastructure
and services, invest in communities, develop
supply chains, provide returns to shareholders
and work hard to be responsible stewards of the
environment.
Learn more about our impact on page 16.
Our strategy
Our values
Learn more about our strategy on page 18.
Learn more about our values on page 18.
11
SOUTH32 ANNUAL REPORT 2022 Our commodities
HELPING CREATE
A LOW-CARBON
FUTURE
Our commodities are used in all aspects of modern life and we are actively
repositioning our portfolio to increase our exposure to the metals critical
in a low-carbon world. Key market sectors where our commodities have
an important role to play include construction, energy and renewables,
the automotive industry and consumer goods.
Aluminium
Aluminium is often referred to as the
metal of the future. It is lightweight,
durable, strong, resistant to corrosion,
recyclable and it can conduct electricity,
meaning it has a wide range of applications
including construction, electrical wiring,
transportation, packaging and consumer
goods such as electronics and household
items. We are increasing our exposure to
low-carbon aluminium and operate the
largest aluminium smelter in the southern
hemisphere.
Copper
Copper is a key metal used in electric
vehicles and charging infrastructure. It is
an excellent conductor of electricity, so as
the world moves towards electrification,
copper will increasingly be used in
power-related infrastructure, including
renewable energy. Copper is also used
in kitchen cookware and plumbing as it
conducts heat well and has antimicrobial
properties. In FY22 we acquired an interest
in our first operating copper mine.
Silver/Lead/Zinc
Silver is used in solar panels due to its
superior electrical conductivity, and is
also used to make medical appliances
and consumer electronics. Lead is used in
renewable energy storage systems. Zinc
protects metals against corrosion and
will play a key role in green infrastructure
development as a protective coating for
wind turbines and solar panels. In solar
panels zinc oxide coatings help achieve
higher energy conversion.
12
OPERATING AND FINANCIAL REVIEW
FY22 production at a glance
Aluminium (kt)
992
Zinc (kt)
64.5
Copper (kt)
25.3
Nickel (kt)
41.7
Silver (koz)
13,199
Lead (kt)
120.6
Metallurgical coal (kt)
Manganese (kwmt)
5,712
5,432
Nickel
Nickel is used in stainless steel, which is
used in transportation, manufacturing,
household items and surgical instruments.
Nickel has an important role to play as the
world transitions to a more sustainable
future as it is used as an alloy in wind, solar
and geothermal power infrastructure.
Nickel-rich batteries are also critical for the
rapid adoption of electric vehicles.
Metallurgical coal
Currently there is no viable alternative
to high-quality metallurgical coal in the
steelmaking process and the use of
high-quality metallurgical coal, such as
that we produce, supports greenhouse
gas emissions reduction targets in the
steel industry through improved blast
furnace efficiency. Growth in steel demand
is anticipated for green infrastructure
development and vehicle electrification, as
well as for the establishment of new steel
capacity in emerging markets.
Manganese
Manganese is used to improve the quality
and strength of steel in major infrastructure
such as hospitals, office towers and
bridges, and as the world increases scrap
steel recycling, this has a limited impact
on manganese as it is largely lost in the
recycling process. Manganese also has the
potential to displace cobalt in lithium-ion
batteries with significantly higher intensity
in manganese-rich cathode chemistries. We
are well positioned to meet future demand
as we are the world’s largest producer of
manganese.
13
SOUTH32 ANNUAL REPORT 2022 Our sustainability approach
DEVELOPING
NATURAL RESOURCES
TO CHANGE LIVES
FOR THE BETTER
Sustainability is at the heart of our purpose and underpins the delivery
of our strategy. In delivering our purpose, we seek to create enduring
social, environmental and economic value.
Our approach to sustainability comprises five interconnected pillars which focus
on areas that are material to our business and stakeholders.
14
OPERATING AND FINANCIAL REVIEW
Operating ethically andresponsibly Addressingclimate changeProtecting and respecting our peopleDelivering value to societyManaging our environmental impact Protecting and respecting our people
The most important commitment we all make at South32 is that everyone
goes home safe and well every day. We are committed to working
together safely, creating an environment where our people are supported
to speak up, and building an inclusive and diverse workforce.
Learn more about how we are protecting and respecting our people
in our Sustainable Development Report at www.south32.net
Delivering value to society
We are committed to making a meaningful contribution to people’s
lives by creating lasting social, environmental and economic value.
We believe trust and transparency are essential to the way we operate,
we listen to our stakeholders and work together to create shared value.
Learn more about how we are delivering value to society
in our Sustainable Development Report at www.south32.net
Operating ethically and responsibly
Operating ethically and responsibly is fundamental to fulfilling our
purpose, delivering on our strategy and achieving our aspiration of
building strong, mutually beneficial and trusting relationships with our
stakeholders. We respect human rights and apply responsible business
practices across our value chain.
Learn more about how we are operating ethically and responsibly
in our Sustainable Development Report at www.south32.net
Managing our environmental impact
Effective environmental management is essential and we are committed
to protecting natural resources including water, biodiversity, air and
surrounding ecosystems. We work hard to be responsible stewards of the
environment and treat natural resources with care so that they are
available for future generations.
Learn more about how we are managing our environmental impact
in our Sustainable Development Report at www.south32.net
Addressing climate change
Our approach to climate change is designed to protect and unlock
long-term value, build operational resilience, and enhance our
competitiveness. We are responding to the risks and opportunities
of climate change by producing metals that support the transition
to a low-carbon world, in a way that seeks to minimise our impact.
Learn more about how we are addressing climate change
in our Sustainable Development Report at www.south32.net
15
SOUTH32 ANNUAL REPORT 2022 Our impact
HELPING
TO IMPROVE
PEOPLE’S LIVES
We are committed to creating value for all of our stakeholders. We believe that,
when done sustainably, the development of natural resources can change
people’s lives for the better. Here are some of the ways we are doing this.
People
9,096
employees globally(1)
Governments
US$1,447m
in total taxes and royalties paid(2)
US$768m paid in wages, salaries and redundancies
Underlying effective tax rate of 31.7 per cent
394 new hires into entry level roles such as
apprentices and trainees
We invest in our people through training and
development to help them realise their career
aspirations
We are embedding inclusion and diversity
into everything we do to help everyone realise
their full potential
Learn more about our people in our Sustainable Development Report
at www.south32.net
(1) Includes direct employees at Brazil Alumina, Brazil Aluminium and Sierra Gorda.
(2) Includes Brazil Alumina, Brazil Aluminium and Sierra Gorda.
16
OPERATING AND FINANCIAL REVIEW
Wherever we operate, we seek to work cooperatively
with governments to help them realise value from
natural resources and transition to lower-carbon
economies
We work with a range of stakeholders to influence
public policy to help improve people’s lives
Learn more about our approach to tax in the Tax Transparency
and Payments to Government Report and our approach
to industry associations at www.south32.net
Communities
Investors
US$31.1m
invested in community programs with the aim
of creating long-term, meaningful change
Our direct community investment spend was across our
four key focus areas - education and leadership
(34 per cent), economic participation (11 per cent), good
health and social wellbeing (47 per cent), and natural
resource resilience (eight per cent)
We work closely with Indigenous, Traditional and Tribal
Peoples to perpetuate living cultures
40%
Our capital management framework prioritises
maintaining safe and reliable operations and an
investment grade credit rating through the cycle,
before distributing a minimum of 40 per cent of
underlying earnings as ordinary dividends
US$1,192m in dividends returned to shareholders
in respect of FY22
US$128m allocated to our on-market share buy-back
Learn more about our capital management framework in Our strategy
Learn more about how we deliver value to society
on page 19.
in our Sustainable Development Report at www.south32.net
Suppliers
Environment
US$907m
spent on local procurement
US$19m procured from Aboriginal and Torres Strait
Islander businesses in Australia
US$17m spent on Enterprise Supplier Development in
South Africa
We work with 5,652 direct suppliers in 50 countries to
source responsibly and enhance product stewardship
across our value chain
Learn more about our approach to responsible
value chains in our Sustainable Development
Report at www.south32.net
50%
We have set a medium-term target to halve our
operational greenhouse gas (GHG) emissions (Scope 1
and 2) by 2035 and we are committed to achieving net
zero operational GHG emissions by 2050
We have set a new goal of net zero Scope 3 GHG
emissions by 2050
276 hectares of land rehabilitated
Water use efficiency improved by 21 per cent
year-on-year
Learn more about our approach to climate change and
our approach to managing our environmental impact
in our Sustainable Development Report at www.south32.net
17
SOUTH32 ANNUAL REPORT 2022 Our strategy
A STRATEGY
TO ACHIEVE
OUR PURPOSE
Our purpose, strategy and values guide not only what we do, but
how we do it. Every day, in support of our purpose and aligned
with our values, our people work to deliver our strategy for the
benefit of all of our stakeholders.
Our purpose is to make a difference by developing natural resources, improving people's
lives now and for generations to come. We are trusted by our owners and partners to realise
the potential of their resources. This is underpinned by a simple yet powerful strategy:
We optimise our business
by working safely, minimising
our impact, consistently
delivering stable and
predictable performance,
and continually improving our
competitiveness.
I
value of our business
through our people,
innovation, projects
and technology.
E We unlock the full
S
M
T
P
O
I
We identify
and pursue
opportunities
to sustainably
reshape our
business for the
future, and create
enduring social,
environmental and
economic value.
K
C
O
L
N
U
I
Y
F
T
N
E
D
I
Our strategy outlines what we do to achieve our purpose and our values guide how we do it.
Our values shape the way we behave and the standards we set for ourselves and others.
Our values
Care
We care about people,
the communities we’re a part of
and the world we depend on.
Trust
We deliver on our commitments
and rely on each other to do
the right thing.
Togetherness
We value difference and
we openly listen and share,
knowing that together
we are better.
Excellence
We are courageous
and challenge ourselves
to be the best in what matters.
18
OPERATING AND FINANCIAL REVIEW
Capital allocation since FY16
2% 7%
23%
US$14b
allocated
31%
16%
21%
Net cash added to balance sheet
Capital expenditure
(including equity accounted investments)
Ordinary dividends
Capital management program
Acquisitions
Greenfield exploration
Risk framework and corporate
governance
We are governed by robust risk
management and corporate governance
frameworks. For more information, see
pages 26 to 35 for our Risk management
section, and our Corporate Governance
Statement which can be found at
www.south32.net
Capital management framework
Our simple strategy is underpinned
by a disciplined approach to capital
management.
Our capital management framework
remains unchanged, supporting
investment in our business and rewarding
shareholders as our financial performance
improves.
Our capital allocation priorities are to
maintain safe and reliable operations
and an investment grade credit rating
throughout the cycle. We intend to
distribute a minimum of 40 per cent of
Underlying earnings as ordinary dividends
to our shareholders following each
six-month reporting period. We encourage
internal competition for excess capital,
which can include further investment in
new projects, acquisitions, greenfield
exploration, share buy-backs or special
dividends.
We returned a record US$1.3 billion
to shareholders in respect of FY22 via
ordinary dividends, special dividends and
our on-market share buy-back. The Board
further expanded our capital management
program to US$2.3 billion in August 2022,
leaving US$250 million to be returned by
1 September 2023.
We deliver on our purpose and our strategy
by aligning our workforce behind seven
‘breakthroughs’ – commitments which
shape our annual business plans across
South32, enabling us to focus on what’s
important.
Building on the momentum created in
FY21, FY22 was a transformational year for
our company as we continued to deliver
against our strategy.
The most important commitment we all
make at South32 is that everyone goes
home safe and well every day. During
FY22 we developed a Safety Improvement
Program, a three-year global program of
work designed to achieve a step-change
in our safety performance, and we worked
to improve our approach to contractor
management.
An inclusive, diverse and engaged
workforce can unlock the full potential of
our people and our business. Throughout
FY22 we implemented an Inclusion and
Diversity Action Plan as part of our journey
to instil a culture that aligns with our
purpose, reflects our values and supports
the delivery of our strategy.
Our approach to climate change is
integrated with our strategy and is designed
to protect and unlock long-term value, build
operational resilience, and enhance our
competitiveness in a low-carbon world.
As a global mining and metals company, we
have an important role to play in responding
to the risks and opportunities of climate
change: to produce the metals that support
the transition to a low-carbon world; and to
do so in a way that minimises our impact.
We continue to reshape our portfolio,
increasing our exposure to the metals
critical to a low-carbon future. This year we
added copper to our portfolio and grew
our exposure to low-carbon aluminium. Our
next phase of growth is expected to come
from our base metals development options
in North America, and we continue to invest
to discover our next generation of mines.
Our FY22 commitments and performance
are summarised on the following pages.
19
SOUTH32 ANNUAL REPORT 2022 Progress against our strategy
OPTIMISE OUR BUSINESS
Working safely
Our FY22 commitments:
– A 20 per cent reduction in Total Recordable Injury Frequency (TRIF) against the adjusted baseline(1);
– Completion of the Safety Improvement Program milestones;
– A reported significant hazard frequency of 53(2); and
– A 20 per cent reduction in potential material health exposures against the baseline.
Progress during the year:
We are deeply saddened by the loss of one of our colleagues, Mr Desmin Mienies, a contractor who was fatally injured while undertaking
electrical work at our Wessels Mine at South Africa Manganese on 30 November 2021. Our deepest sympathies are with Mr Mienies’
family, friends and colleagues. We provided them with our support following the tragic incident and undertook a detailed investigation
to understand what happened. Learnings from the investigation were shared across our organisation.
We recognise that we must continue to improve our safety performance. During the first half of FY22, we partnered with a leading
safety consultant to undertake a review of our safety performance and identify areas for improvement. This formed the foundation for
our Safety Improvement Program, a three-year global program of work designed to achieve a step-change in our safety performance.
Consistent with the review findings, in March 2022 we published our revised internal safety standard - an important foundational
element in the implementation of our Safety Improvement Program.
Contractors make up a significant proportion of our workforce and over the last two years we have undertaken a substantial work
program to improve contractor safety. In FY22 we developed our internal contractor management standard, which describes the
end-to-end process, core components and related performance requirements of our Contractor Management System of Work. It
defines the key phases of the contractor management value chain and outlines the performance requirements for each phase,
including how we support our contractors to undertake work safely.
Our TRIF decreased by 12 per cent compared to the FY21 adjusted baseline, however we did not meet our target of a 20 per cent
reduction.
Proactive hazard reporting remains key to our approach to safety, and we exceeded our target with a reported significant hazard
frequency of 72(2). We also saw a 27 per cent decrease in total potential significant events.
We achieved a 34 per cent reduction in the number of people potentially exposed to material health exposures against the baseline, well
above our target of a 20 per cent reduction. The disciplined execution of exposure reduction projects supported a reduction in potential
material exposures at multiple operations.
COVID-19 continued to affect our people, operations, projects and offices, and we experienced periods of elevated case numbers and
restrictions across all our locations. We support the use of regulatory approved vaccines and actively encourage vaccination for all our
employees and contractors. Where possible we have worked with local authorities for our employees and contractors, their families and
our communities to access vaccines.
(1) TRIF baseline was adjusted at end FY21 to account for the removal of South Africa Energy Coal and Tasmanian Electro Metallurgical Company from the portfolio.
(2) Per million hours worked.
Reduction
in TRIF
12%
Reported significant
hazard frequency
72 (2)
20
OPERATING AND FINANCIAL REVIEW
Stable and predictable performance while minimising impact
OPTIMISE OUR BUSINESS
Our FY22 commitments:
– Production within 97-102 per cent of budget;
– Controllable costs within US$50 million of budget;
– Sustaining capital expenditure within five per cent of budget and less than 20 per cent break-in projects; and
– Achieve budget adjusted return on invested capital (ROIC)(1).
Progress during the year:
In FY22 we achieved revenue equivalent production of 98 per cent of budget. We achieved record production at Worsley Alumina, while
Hillside Aluminium and Mozal Aluminium continued to test maximum technical capacity and delivered record operating margins. At
Cannington we exceeded production guidance as we transitioned to a new mine configuration, bringing forward higher-grade material
and at Cerro Matoso we achieved a 22 per cent increase in nickel production. For more information on our operating performance, see
pages 46 to 56.
Controllable costs were US$37 million above budget. Higher contractor and maintenance costs, and higher port and demurrage costs,
were partially offset by lower labour costs with headcount efficiencies at some operations.
Sustaining capital expenditure was 94 per cent of budget, with South Africa Manganese, Hillside Aluminium, Illawarra Metallurgical Coal,
Cerro Matoso and Worsley Alumina below target, and Cannington and Groote Eylandt Mining Company exceeding target. There were
13 per cent, or 63, break-in projects and the adjusted ROIC was 6.6 per cent against the target of 6.9 per cent.
Learn more about how we minimise our impact in Create enduring social, environmental and economic value on page 24.
(1) This is a non-IFRS measure. For an explanation of how South32 uses non-IFRS measures, see page 36.
Production
versus budget
98%
21
SOUTH32 ANNUAL REPORT 2022 Progress against our strategy continued
UNLOCK THE VALUE OF OUR BUSINESS
Our people are connected and engaged
Our FY22 commitments:
– Meet our measurable objectives for representation of employees and senior leaders who are women;
– Meet our measurable objectives for representation of Black People in our South African workforce and management roles;
– Deliver our Inclusion and Diversity Action Plan; and
– Improve our employee engagement score.
Progress during the year:
In FY22 our performance either improved or remained consistent for seven of our eight inclusion and diversity measurable objectives.
There are five measurable objectives for representation of employees and senior leaders who are women. The representation of
women in our workforce improved, increasing to 19 per cent from 18 per cent in FY21. The representation of women on our Board was
unchanged at 37 per cent, while the representation of women on our Lead Team decreased to 37 per cent from 44 per cent in FY21 due
to a reduction in the size of our Lead Team. The representation of women in our Senior Leadership Team improved to 32 per cent from
30 per cent in FY21, however there is more work to do to meet our 40 per cent target. The representation of women in our Operational
Leadership Team improved to 20 per cent from 18 per cent in FY21 and met our target.
We demonstrated year-on-year improvement in the representation of Black People in our workforce in South Africa, reaching just
over 86 per cent and meeting our target. We also demonstrated year-on-year improvement in the representation of Black People in
management roles in South Africa, reaching 62 per cent and meeting our target.
In FY21 we established an inclusion and diversity working group which identified the need to embed inclusion and diversity into
everything we do, guided by an integrated program of work. This led to the formation of our Inclusion and Diversity Action Plan, which
we implemented throughout FY22. A critical component of the Action Plan was the development of our new internal inclusion and
diversity standard, which sets minimum inclusion and diversity requirements for all elements of people management.
We have carefully considered the extent to which sexual harassment occurs in our industry, and in our business, and in FY22 we
continued to undertake a significant amount of work so our people feel safe, included and respected at work. We know there is always
more to do and we are working to understand and respond to the risk factors for harassment, just as we do for other safety risks. More
recently, our work has also been informed by broader industry learnings following the publication of key reports on this critical issue.
Through engagement with our people we can better understand their day-to-day lived experience and perceptions of our culture. We
conducted our annual Your Voice employee survey in March 2022, with the survey testing five primary dimensions - safety, leadership,
employee engagement, employee experience and workplace conduct. Seventy per cent of our employees completed the survey, the
highest participation rate since 2016. The results highlighted our strong commitment to safety, the benefits of the investment we are
making in leadership, and that the majority of our people believe in our values and are proud to work at South32. Opportunities for
improvement include strengthening leadership capability, creating an environment where all our people feel safe speaking up, and
providing meaningful recognition in the workplace.
Technology and innovation unlock value
Our FY22 commitments:
– At least 80 per cent of agreed initiative milestones met for the Next Generation Mine Innovation Mission; and
– At least 80 per cent of agreed program milestones met for the Hermosa Technology Development Program.
Progress during the year:
Technology and innovation are key enablers of our transition to a low-carbon future and to realising safer, cleaner and more productive
operations. To focus our innovation investment in the areas that matter most, in FY21 we established Innovate32, our strategy-aligned,
value-creating approach to better enable innovation at South32.
One of Innovate32’s strategic focus areas is the Next Generation Mine Innovation Mission to reshape the way we mine at Hermosa, and
our future projects, to deliver transformational safety and productivity outcomes. In FY22, our key work programs were focused on
automation, electrification and sensing, processing technology enhancements and digitisation. Four of five milestones were completed,
with the fifth in progress.
Our ambition is for the Taylor Deposit at the Hermosa project to be our first next generation mine. The Hermosa Technology
Development Program defined the key technology scopes that were developed as part of the Taylor Deposit studies, including an
automation, electrification and sensing implementation plan, an ore sensing technology assessment, and digital project delivery. All
program milestones were completed in FY22.
We complement our own programs by collaborating with other companies, industry groups and research organisations through
initiatives such as the Electric Mine Consortium, BluVein, the Heavy Industry Low-carbon Transition Cooperative Research Centre
and a partnership with Australia’s CSIRO to develop new ventilation air methane abatement technologies. Learn more about these
partnerships in our Sustainable Development Report at www.south32.net
22
OPERATING AND FINANCIAL REVIEW
UNLOCK THE VALUE OF OUR BUSINESS
Project execution
Our FY22 commitments:
– Commence the Taylor Deposit feasibility study;
– Commence the Clark Deposit pre-feasibility study (PFS); and
– Progress the Flux Prospect exploration plan of operations.
Progress during the year:
We reached an important milestone for the Hermosa project in January 2022 with the completion of a PFS for the Taylor Deposit, the
first development option at the project. The PFS results support the Taylor Deposit’s potential to be the first development of a
multi-decade operation, establishing Hermosa as a globally significant producer of metals critical to a low-carbon future, delivering
attractive returns over multiple stages(1). An initial development case demonstrates a sustainable, highly productive zinc-lead-silver
underground mine and conventional processing plant, in the first quartile of the industry cost curve. The Taylor Deposit has progressed
to a feasibility study, ahead of a planned final investment decision in mid-calendar year 2023.
Separately, a scoping study for the spatially linked Clark Deposit has confirmed the potential for an integrated underground mining
operation producing battery-grade manganese, as well as zinc and silver. The Clark Deposit has the potential to underpin an additional
development stage at Hermosa, with future studies to consider the opportunity to integrate its development with the Taylor Deposit,
potentially unlocking further operating and capital efficiencies. We have subsequently commenced a PFS for the Clark Deposit.
Our third focus at Hermosa is unlocking value through the exploration of our regional scale land package. We have identified a highly
prospective corridor which will be prioritised for future drilling. Within this corridor, we have progressed the Flux Prospect exploration
plan of operations and plan to drill the prospect in early calendar year 2023 following receipt of required permits, anticipated in the
second half of this calendar year.
In May 2022 the right-of-way permits previously issued to the Alaska Industrial Development and Export Authority for the Ambler access
road were temporarily suspended to allow for additional work to be undertaken on the Final Environmental Impact Statement. Together
with our Ambler Metals Joint Venture partner, we continue to assess the impact of this decision on our own study work for the access
road. Separately, we have commenced exploration activities at Ambler Metals for the calendar year 2022 summer field season, including
additional infill drilling at the Arctic Deposit and drill testing of regional exploration targets in the Ambler Belt, which is expected to
support ongoing study work.
Subsequent to the end of the reporting period, we announced that we will not proceed with an investment in the Dendrobium Next
Domain project at Illawarra Metallurgical Coal following our consideration of recently completed study work and extensive analysis of
alternatives considered for the complex. With this decision, we will now focus on continuing to optimise Dendrobium and the broader
Illawarra Metallurgical Coal complex to extend the mine life within approved domains(2).
At Worsley Alumina, we are pursuing State and Commonwealth environmental approvals for the Worsley Mine Development which, if
approved, would provide access to future bauxite reserves and resources to sustain production for approximately the next 15 years. A
comprehensive Environmental Review Document was published in June 2022.
(1) Refer to market release dated 17 January 2022 at www.south32.net
(2) Refer to market release dated 23 August 2022 at www.south32.net
23
SOUTH32 ANNUAL REPORT 2022 Progress against our strategy continued
IDENTIFY OPPORTUNITIES
Create enduring social, environmental and economic value
Our FY22 commitments:
– Implement community investment plans for each operation and apply the impact measurement framework to all strategic
community investments;
– Update the internal community and social performance standard; and
– Complete global reviews for cultural heritage in all our operating regions outside Australia and finalise our Approach to Indigenous,
Traditional and Tribal Peoples Engagement.
Progress during the year:
Community investment plans were implemented for each operation and we invested US$31.1 million(1) in community initiatives, an
increase of 40 per cent from FY21. Our direct community investment spend was across our four key focus areas - education and
leadership (34 per cent), economic participation (11 per cent), good health and social wellbeing (47 per cent), and natural resource
resilience (eight per cent). We applied the community investment impact measurement framework to all strategic community
investments, with 97 per cent of projects that are measuring outcomes reaching their outcome targets, exceeding our target of
80 per cent of projects.
Our internal community standard has been in place since 2015 and was updated in 2018. In line with our desire to continually improve
our social performance, we reviewed the standard in FY22 considering our purpose, strategy, updates to the ICMM Mining Principles
and rapidly changing societal expectations, and enhanced it to become our internal social performance standard. It builds on the
foundations of the community standard and strengthens the requirements for social performance across the business.
Cultural heritage reviews for our operations in the Americas and southern Africa were completed in FY22. These inform the ongoing
development of our Approach to Indigenous, Traditional and Tribal Peoples Engagement.
Growing and developing small, medium, and micro enterprises (SMMEs) is fundamental to the transformation of the South African
economy. We collaborate with SMMEs on Enterprise Supplier Development (ESD) and in FY22 ESD spend more than tripled to
US$17 million(2). We also engage with and support the development of Aboriginal and Torres Strait Islander (ATSI) businesses in Australia,
with direct spend increasing by 34 per cent against a target of 10 per cent.
Our approach to climate change is aligned to our purpose and integrated with our strategy, and is focused on reshaping our portfolio,
decarbonising our operations, addressing physical climate risk, and working with others to innovate and address shared challenges.
Our reported Scope 1 and Scope 2 emissions for FY22 were 21.0 Mt CO2-e, a 1.4 per cent increase from our adjusted FY21 greenhouse
gas (GHG) emissions(3). Direct emissions from activities at our operations (Scope 1) decreased by 0.2 Mt CO2-e, however there was
an increase of 0.5 Mt CO2-e in emissions from electricity used by our operations (Scope 2). More information on our operational GHG
emissions can be found in our Sustainable Development Report at www.south32.net
We continue to look for opportunities to improve water use. We have identified material water-related risks at five operations and
have set contextual water targets for each, with one successfully completed in FY22 and the others progressing to plan. Across our
portfolio, water use efficiency improved by 21 per cent year-on-year. Learn more about how we manage our environmental impact in our
Sustainable Development Report at www.south32.net
Around the world we have land holdings of 658,005 hectares. Cumulatively, we have disturbed less than two per cent of our landholdings
for operational reasons, of which 34 per cent has been rehabilitated. In FY22 we rehabilitated 276 hectares of disturbed land across our
operations, and maintained our commitment to delivering no net loss outcomes for all new projects and major expansions.
(1) Community investment consists of direct investment, in-kind support and administrative costs.
(2) ESD consists of two activities, Enterprise Development and Supplier Development. The Enterprise Development component, which was US$7.7 million in FY22, is captured in
both the ESD total and the community investment total.
(3) FY21 emissions adjusted to exclude GHG emissions from South Africa Energy Coal and Tasmanian Electro Metallurgical Company, which were divested in FY21.
Increase in community
investment spend
40%
Enterprise Supplier
Development spend
US$17m
Increase in procurement from
ATSI businesses
34%
24
OPERATING AND FINANCIAL REVIEW
IDENTIFY OPPORTUNITIES
Sustainably reshape our business for the future
Our FY22 commitments:
– Develop and pursue opportunities to optimise our portfolio.
Progress during the year:
We have significantly enhanced the quality of our portfolio over the past 12 months and added to our pipeline of projects to improve
productivity and grow volumes into structurally attractive markets.
In February 2022 we completed the acquisition of a 45 per cent interest in the Sierra Gorda copper mine in Chile. Sierra Gorda is a large
scale, open-pit mine that brings immediate volume and future growth potential.
We are also growing our low-carbon aluminium exposure. In January 2022 we announced our decision to participate in the restart of the
Alumar aluminium smelter in Brazil (Brazil Aluminium), with first production achieved in the June 2022 quarter. Our share of production
is powered by 100 per cent cost efficient renewable power. We also acquired an additional 16.6 per cent shareholding and related rights
in Mozal Aluminium in May 2022, increasing our shareholding to 63.7 per cent. Mozal Aluminium is powered by hydroelectricity. Through
these investments, we have increased our low-carbon aluminium production capacity by more than 100 per cent.
We also acquired an additional 18.2 per cent interest in the Mineração Rio do Norte bauxite mine in April 2022, taking our ownership to
33 per cent, to further align our bauxite supply requirements within our aluminium value chain in Brazil.
We are significantly increasing our exposure to higher margin businesses that produce metals critical to a low-carbon future, and we
expect copper equivalent production growth of 14 per cent in FY23(1).
Our development options in North America have the potential to underpin a significant growth profile, and study outcomes for the
Hermosa project’s Taylor and Clark Deposits and Ambler Metals’ Arctic Deposit confirm their potential to supply critical minerals into the
future.
We continue to invest to discover our next generation of mines, with more than 25 active exploration programs around the world and
US$56 million spent in FY22 across our portfolio of greenfield and development options.(2)
In July 2022 we completed the sale of a package of non-core development-stage base metals royalties for a sale price of up to
US$200 million, a further step forward in unlocking latent value from our portfolio. Following the sale, we retain a portfolio of 36 royalties
at different stages of maturity, weighted towards base metals.
(1) Group FY22 and FY23 estimated copper equivalent production for all operations. Copper equivalent production was calculated using FY22 realised prices for all operations
except for Brazil Aluminium which is based on FY22 average index price for aluminium.
(2) Please refer to page 174 for Our exploration, research and development.
25
SOUTH32 ANNUAL REPORT 2022 Risk management
MANAGING OUR RISKS
TO PROTECT AND
UNLOCK VALUE
Risk management is fundamental to maximising the value of our business and informing its
strategic direction. Effective risk management enables us to identify priorities, allocate
resources, demonstrate due diligence in discharging legal and regulatory obligations, and meet
the standards and expectations of our stakeholders.
Our approach to risk management is
governed by our risk management
framework. The minimum mandatory
requirements for the management of risks
that can materially impact our ability to
achieve our purpose, strategy and business
plans are defined in our internal material
risk management standard. The framework
and the standard are delivered through
our system of risk management which is
aligned to the principles of the International
Standard for Risk Management AS/NZS ISO
31000:2018.
Our approach to risk management applies
to all employees, directors and contractors
of the Company and its subsidiaries. Our
risks are regularly assessed and managed
at both a company-wide strategic level and
at a tactical level for operation, project and
function and risks.
Risk appetite
Risk appetite is the level of residual risk that
South32 is willing to take in pursuit of our
strategic objectives, which is established
in relation to our operating environment.
Our Board approves the risk appetite
set by management. Our internal Risk
Appetite Statement outlines the extent to
which we are or are not willing to engage
with higher levels of risk (both threats and
opportunities) in order to realise greater
benefit in the pursuit of our purpose and
strategy and in alignment with our values
and Code of Business Conduct. Key risk
indicators (KRIs) are set by management
and used to monitor performance against
our set risk appetite. Understanding our risk
appetite across our strategic risks assists in
decision-making across the Group.
Material risks
Our system of risk management is based
on the three lines model, which describes
how key organisational roles work together
to facilitate strong risk management and
assurance. This approach is used to manage
our material risks and enables us to:
– Provide stable and consistent
processes, tools and routines to identify
and regularly assess the most impactful
threats and opportunities;
– Deliver predictable outcomes and
prevent unforeseen events with material
impacts;
– Understand our risks and manage these
at all levels of the organisation; and
– Reduce or eliminate risks where
appropriate or improve our processes
using a risk-based approach.
The effective management of our material
risks is routinely assessed by the South32
Lead Team. These risks are reviewed by
the Risk and Audit Committee and the
Sustainability Committee, which assist the
Board to carry out its role of overseeing our
risk management and assurance practices.
We report transparent real-time risk
data through our risk management tool,
Global360. This software connects data
relating to the management of our risks,
events, hazards and assurance actions.
Aside from helping us manage our
operations, projects and functions, reliable
data on material risks contributes towards
the monitoring and management of our
strategic risks. This provides insight into
trends and emerging themes that can
trigger a review of our business plans or
inform a change in strategic direction.
Strategic risks
Our strategic risks are risks which can
affect our ability to achieve our strategic
objectives. They have the capacity to affect
the whole, or a significant part, of our
organisation and therefore tend to have
significant impacts, both negative and
positive. With that in mind, our strategic
risks, associated KRIs and management
responses are monitored and evaluated
twice per year. The review process is
informed by external and internal events
that could have a potential impact on our
organisation, as well as emerging themes
across our material risks. In FY22, we
identified 13 strategic risks which could
influence our plans and the sustainability
of our business, each of which is explained
further in subsequent pages.
Strategic risk key
↑ The inherent risk impact or likelihood
has increased over the past 12 months
(i.e. without considering internal
controls or management responses).
←→ The inherent risk impact or likelihood
has remained constant over the past
12 months (i.e. without considering
internal controls or management
responses).
↓ The inherent risk impact or likelihood
has decreased over the past
12 months (i.e. without considering
internal controls or management
responses).
26
OPERATING AND FINANCIAL REVIEW
Keeping our people safe and well
Portfolio reshaping
A safe and healthy working environment is fundamental to
living our values.
Inherent risk trend 2022
←→
Opportunities
Keeping our people safe and well underpins the culture we aspire
to and sets our expectations of each other.
Threats
The impact of not having a safe working environment can be
devastating for our employees, contractors and communities.
It can alter lives and impact shareholder returns, stakeholder
confidence and ultimately our licence to operate.
Risk appetite
Aligned to our purpose and values, we will not take actions
that compromise the health, safety or wellbeing of our people,
contractors and communities.
Our response includes:
– In everything we do, we focus on the health, safety and
wellbeing of our people, contractors and communities;
– We have a system of risk management and comprehensive
internal health and safety policies, standards and systems with
associated performance requirements designed to prevent and
mitigate potential exposure to health and safety risks;
– We value and strive to build inclusion, diversity and equity in
our workplace where everyone is valued and can participate
to achieve their full potential. We do not tolerate any form of
inappropriate conduct which includes bullying, harassment,
discrimination or victimisation;
– We engage, develop and train our people so that our work is
well designed and executed;
– We investigate actual and potential significant events that
could have led to severe injury or higher outcomes, put controls
in place and share our learnings across the organisation;
– We continuously improve our work environment to make it
safer, healthier and more productive for our people; and
– We have an independent assurance function, following the
three lines model, that reviews our material risks and the
associated controls, to test how effective they are.
Our objective is to improve our return on invested capital
and create shareholder value by increasing our exposure to
high-quality operations in commodities with a strong and
sustainable outlook, in jurisdictions where we believe we
can operate in line with our values and Code of Business
Conduct.
Inherent risk trend 2022
↓
Opportunities
Increasing our exposure to the metals critical to a low-carbon
future will position our business for a low-carbon world, in
alignment with our strategy. Acquisitions of operations or
development projects, including non-operating and non-
controlling shares in these operations and projects, present us
with opportunities to increase our exposure to these metals.
The successful acquisition of a non-operating, joint controlled,
45 per cent share in Sierra Gorda highlights our ability to seek and
deliver on these opportunities. Partnering with junior explorers
also creates opportunities for us in early-stage exploration in more
challenging jurisdictions.
Threats
Changing global sentiment presents a threat to the sustainability
of our current portfolio mix if we do not act to reshape our
portfolio. In responding to stakeholder expectations, we could
make decisions to dispose of climate or carbon exposed
operations, projects and investments at less than market value.
Increasing demand for the metals critical to a low-carbon future
may drive higher valuations of operations and projects that we
want to acquire, making acquisitions challenging. Geopolitical
developments may limit those jurisdictions in which we can
operate or those counterparties with which we can partner or
transact.
Risk appetite
We accept that in actively transforming our portfolio, we need
to take risk to capture opportunities. We will seek to do so in
jurisdictions and commodities where we believe we can operate or
invest in line with our values and Code of Business Conduct.
Our response includes:
– We are actively reshaping our portfolio towards commodities
critical to a low-carbon future by transitioning out of carbon
exposed commodities and assets, seeking to enhance our
resilience to the physical impacts of climate change;
– We take more risk on early-stage exploration projects, including
jurisdictional risk as well as through joint ventures and earn-ins,
but always commensurate with the commercial exposure; and
– We will be flexible on opportunistic acquisitions including
non-controlling and non-operating shareholdings in
incorporated or unincorporated joint ventures.
27
SOUTH32 ANNUAL REPORT 2022 Risk management continued
Climate change and environment
Climate change poses physical risks to our business, our people and the infrastructure, communities and environment on
which we rely. The political, social and economic responses to the challenges posed by climate change and the transition
to a low-carbon economy also pose risks to our business performance (i.e. demand for some of our commodities, cost and
profit margins, social licence, regulatory exposure). Learn more about our approach to climate change, including our
detailed assessment of the risks climate change poses to our business, in our Climate Change Action Plan (CCAP) in our
Sustainable Development Report at www.south32.net
Our operations also have the potential to impact biodiversity, air, land and water resources. This may result in increased costs to
mitigate or address such impacts, prevent or delay project approvals, and result in reputational damage.
Water is critical to our operations and water scarcity, increased competition for supply or costs to access can impact our operations,
supply chains and communities.
Our response includes:
– Our approach to managing the transition and physical risks of
climate change is outlined in our CCAP;
– Our sustainability approach, inclusive of our environmental
performance requirements, is guided by the ICMM Mining
Principles, United Nations Global Compact Ten Principles and
United Nations Sustainable Development Goals and is outlined
in our Sustainability Policy and Sustainable Development
Report at www.south32.net;
– We seek to manage water resources using a holistic approach
to promote better water use, effective catchment management
and to contribute to improved water security and sanitation;
– We establish contextual water targets for operations exposed
to water-related material risks;
– We are committed to no net loss outcomes for all new projects
and major expansions through a balanced application of the
biodiversity mitigation hierarchy of avoidance, minimisation,
rehabilitation and offsetting;
– We integrate land management and rehabilitation processes
into our business planning and give consideration to cumulative
impacts when developing management controls to minimise
impacts on surrounding ecosystems;
– We engage regularly with investors, governments, industry
partners, membership-based sustainability organisations,
ESG proxy advisers and ESG activist groups to identify and
monitor emerging environmental and climate change risks,
opportunities and trends; and
– We are transparent in our disclosure of environment
related opportunities and threats in our annual reporting, in
accordance with the GRI Sustainability Reporting Standards.
Inherent risk trend 2022
↑
Opportunities
Aligning our business strategy, including how we operate and what
we produce, with stakeholder expectations, future technologies
and evolving climate and environmental policies and regulations,
contributes to a resilient and high performing portfolio.
We aim to increase the efficiency of our operations and support
business continuity through responsibly assessing and addressing
our climate change and environment-related risks and impacts,
and increasing the resilience of our business, value chain and
communities in which we operate.
Threats
The complex and pervasive nature of climate change means
that climate-related risks and opportunities are reflected across
our risk profile. The potential impacts of climate change on our
strategic risks are outlined on pages 99 to 101 of the CCAP.
Failure to manage environmental risks may impact our ability to
secure development approvals, permits or licences and increase
our legal exposures. It may also limit our ability to access capital
and insurances, develop strategic partnerships with Indigenous,
Traditional and Tribal Peoples or environmental organisations,
attract and retain employees, and grow our business in existing
and new jurisdictions.
Risk appetite
We recognise the impact our mining operations have on the
environment due to the extractive nature of our activities and
that the greenhouse gas emissions associated with our activities
contribute to climate change. We also recognise the role our
industry plays in providing the materials that are essential in
the transition to a net zero global economy and we want to be
part of that solution. We acknowledge that we have potential
vulnerabilities to the physical impacts of climate change and
exposure to climate-related transition risk and nature-related risk.
We accept that we need to take risks in order to minimise our
environmental impact and meet our greenhouse gas emissions
reduction target and goals. We will continue to seek opportunities
to transform our portfolio to maintain competitiveness in a
low-carbon world and reduce our exposure to physical and
transitional climate change risk and nature-related risk.
28
OPERATING AND FINANCIAL REVIEW
Maintain, realise or enhance the value of our Mineral
Resources and Ore Reserves
Major external events or natural catastrophes
We intend to realise the potential of the resources and
reserves we are entrusted to develop. We work to
continually optimise our operations through sound
technical and economic understanding of our resources
and reserves.
Inherent risk trend 2022
↑
Opportunities
We continue to enhance our understanding of our resources and
reserves. We leverage this enhanced understanding through
the annual planning cycle to define and assess additional
opportunities to add value to our business.
Threats
If we fail to continually optimise our operations and projects, it
will have a significant impact on shareholder returns, the benefits
our stakeholders receive and ultimately, the sustainability of the
company.
Risk appetite
We are not willing to take risks that inhibit our ability to realise
the potential of the resources and reserves we are entrusted to
develop.
Our response includes:
– We have capital prioritisation, capital allocation and planning
processes which prioritise the highest-value options across our
portfolio;
– We apply an annual planning process that considers the impact
of climate change on our Ore Reserves, with plans structured to
maximise value throughout the life of our operations;
– Drill plans and budgets are approved as part of our annual
planning cycle and compliance to those plans is reported
monthly. Where there is material deviation to plan, actions are
taken to get us back on track;
Our operations and logistics networks can be disrupted by
events such as pandemics, natural disasters and extreme
weather events that could impact people's wellbeing,
security, the integrity of tailings facilities and key operating
infrastructure.
Inherent risk trend 2022
←→
Opportunities
Achieving stable and predictable performance enhances the
value proposition to our shareholders, other stakeholders and
the communities in which we operate. The better we prepare for
and learn from events, the better we are placed to respond and
aim to reduce the impact of future events – strengthening our
organisational resilience.
Threats
Failure to manage major events or natural catastrophes could
result in a significant event or other long-term damage that could
harm the company’s access to logistics chains and critical goods
and services, financial performance, and licence to operate. The
role of climate change in increasing the frequency and severity
of natural catastrophes is addressed under 'Climate change and
environment’ on page 28.
Risk appetite
We are not willing to take risks that compromise our ability to
manage natural catastrophes. However, we accept we operate
in a diverse range of geographic locations, which are exposed to
natural events and other external events.
Our response includes:
– When facing potential catastrophes, we put safety and
wellbeing at the heart of everything we do;
– We use a system of risk management in design, construction
and operation phases to analyse risks, and design and
implement plans that aim to prevent or limit business impacts;
– We apply a rigorous project development process that
includes independent peer review of project risks and approval
tollgates;
– We utilise climate modelling data to inform our long-term plans
and project pipelines, and conduct physical risk assessments of
our assets every two years;
– We report Mineral Resources and Ore Reserves (including Coal
Resources and Coal Reserves) in accordance with the JORC
Code as required in Chapter 5 of the ASX Listing Rules; and
– We have an internal closure standard which requires that
our full-life-of-operations value incorporates closure and
rehabilitation liabilities.
– We have business continuity and disaster response plans in
place with trigger action response scenarios. We have tested
these to make sure we can respond rapidly to major events and
safely restore our operations, protecting the health and safety
of our people and the communities in which we operate;
– In line with the three lines model, we have assurance functions
independent of our operating activities that provide assurance
against our own comprehensive internal standards including
equipment integrity, tailings dam management and technical
stewardship. Where relevant, we work with external experts,
relevant industry bodies and technology suppliers, to provide
additional assurance and input; and
– We purchase insurance coverage against many, but not all,
potential losses or liabilities arising from major events or
natural catastrophes. This coverage has a deductible cost
to the company and limits that mean full financial coverage
cannot be achieved.
29
SOUTH32 ANNUAL REPORT 2022 Risk management continued
Maintain competitiveness through innovation and technology
Technology and innovation are advancing at a rapid pace. Companies which are unable to effectively leverage technology
and innovation will find themselves failing to deliver against shareholder expectations on returns, unable to attract and
retain talent or, in the example of decarbonisation, failing to maintain licence to operate.
Our response includes:
– We have a clearly defined approach to innovation, improvement
and technology;
– We have organised to deliver specific programs focused
on adoption and improvement of critical technology
capabilities across multiple time horizons including
cybersecurity, connectivity, underground mine automation and
decarbonisation;
– We have a value-based ‘portfolio’ approach to testing and
scaling up innovation across the company;
– We have rigorous internal technology standards and processes
(technology ‘ways of working’);
– We benchmark our digital technology performance against
industry best practice and have organised the coordination and
integration of technology advances into our growth portfolio;
– We actively manage cybersecurity and data centre risks
through a system of risk management and have increased our
cybersecurity controls in response to COVID-19 and an increase
in remote working; and
– We monitor internal customer satisfaction and manage
customer support.
Inherent risk trend 2022
↑
Opportunities
To stay competitive, we position our organisation to effectively
identify, develop and adopt sustainable business models for
technology and innovation in our operations and projects.
Priority innovation opportunities for South32 are identified
and delivered through Innovate32, our strategy-aligned,
value-focused, innovation portfolio. This approach will assist us
to deliver on shareholder return expectations and position us for
future business opportunities.
Threats
Failure to keep pace with, and leverage advances in, technology
and innovation could result in reduced shareholder returns and
impact our licence to operate.
Failure to adopt automation, electrification and digital systems
could result in deteriorating performance across safety,
productivity, returns and carbon emissions.
Cyber security incidents could pose multiple risks including
disruption to new projects and operations, theft, disclosure
or corruption of information. Conflict in Europe is resulting in
increased risk in cybersecurity and disruption to technology
supply chains.
Risk appetite
We are not willing to take risks that will result in a loss of data
or disruptions to our operations and projects due to the theft,
disclosure or corruption of information. However, aligned to our
strategy, we will pursue technology and innovation that may
have a higher risk profile (e.g. less certainty of success) with
commensurate potential for high return on investment.
30
OPERATING AND FINANCIAL REVIEW
Predictable operational performance
Delivery of our project portfolio
Loss of predictable operational performance could prevent
us from reliably delivering on our strategic objectives. We
build resilience and predictability into our business by
sustaining our ability to keep our people safe and well,
meeting our regulatory and social obligations, managing
cost inflation and consistently providing quality products to
our customers.
Inherent risk trend 2022
←→
Opportunities
We mature our Operating System to control and continuously
improve our operations and processes, so that we can deliver
stable and predictable performance and unlock the full value of
our business. We invest in our operations to sustain and improve
production capacity that generates reliable cash flow to deliver on
our strategic objectives.
Threats
If we are unable to safely and consistently achieve our production,
cash flow or profitability targets, it could negatively impact our
ability to deliver on our strategic objectives and negatively impact
shareholder returns.
Risk appetite
We are not willing to take risks that compromise the stable and
predictable performance of our operations.
Our response includes:
– We have embedded, and continuously verify and improve our
safety and risk management systems across our business
(including our pandemic response);
– We have an effective Asset Management system in place at
each operation and review our asset health, asset integrity and
capital investments on a regular basis;
– We actively verify, and improve, the effectiveness of our
Operating System by embedding best operating practices
including operational planning, work design and standards,
process control and improvement;
– We actively manage risks to our resource and reserve, mine
and operational planning including reconciliation of Mineral
Resources and Ore Reserves to production, plan and spatial
compliance and management of geotechnical risks;
– We manage an integrated system of long- and short-
term planning and scheduling processes that considers
environmental, social and governance (ESG) themes and
optimises the value from our resources;
– We actively manage product delivery and supply chain risks
including effective sales and operational planning processes,
monitoring of raw material supply and management of target
inventory operating windows; and
– We carry out rigorous quality assurance programs over our
products and operations.
Delivery of our project portfolio, both brownfield
development options and greenfield projects, forms a
critical component of our strategy. Delivery of projects
safely, on schedule and within budget allows us to optimise
and unlock the value of our business.
Inherent risk trend 2022
←→
Opportunities
The safe delivery of our project portfolio on time and within
budget allows us to improve productivity, extend the life of our
operations and grow volumes into structurally attractive markets.
Threats
The inability to deliver the project pipeline may impact on
our future cash flows, reputation, and return on investments.
Challenges to the timely and successful execution of our projects
can include satisfying conditions for regulatory approval, supply
chain constraints, skilled and specialist labour shortages, pricing
volatility for commodities, products and services, and legal actions
and activism.
Risk appetite
Aligned to our strategy of unlocking value in our business, we will
not take actions that compromise the planning and execution of
our major projects. However, we may accept greater levels of risk
to pursue opportunities to extend the life of existing operations
through brownfield projects and in executing decarbonisation
projects for our assets.
Our response includes:
– We maintain a life of operations annual planning process. By
evaluating the embedded options in our operations, we are
continuously looking to optimise value throughout the life of
our operations;
– We apply a rigorous governance approach, with our internal
standards providing clear definition of project phases and
tollgate requirements;
– We utilise our internal project management framework,
supported by fit-for-purpose processes, procedures and
systems to support project development and execution;
– We have dedicated in-house major project management
capability and use a project delivery model with clearly defined
accountabilities for our supporting functions;
– We apply a standardised valuation methodology with
consistent key macroeconomic assumptions;
– We carry out an annual review of commodity prices and
exchange rates, which we use to inform our operational plans.
This process is supplemented by tri-annual updates;
– Our internal investment standards define a mature and
independent peer review process, which we rigorously follow to
inform key investment decisions; and
– Our joint venture agreements include a mechanism to influence
project schedule and cost outcomes (such as Technical
Committees and Independent Peer Reviews).
31
SOUTH32 ANNUAL REPORT 2022
Risk management continued
Security of supply of logistics chains and critical goods and services
The inability to secure supply of critical goods and services, such as raw materials, energy, water, gas, equipment and
spare parts, consumables, technology, corporate services, labour and logistics (which includes road, rail and shipping), has
the potential to impact business performance and our strategic objectives.
The procurement of critical goods and services must be undertaken in a manner that aligns to our purpose and values, meets
stakeholder expectations and adheres to the policies and regulations where we operate. This includes sustainable sourcing and
supporting local communities.
The security of our supply chain is heavily impacted by pandemics, jurisdictional unrest, geo-political tensions and a shift from globalism
towards protectionism.
Inherent risk trend 2022
↑
Opportunities
Optimal and sustainable management of supply chain risk
positions our business to operate safely and reliably, at the
lowest possible cost and in a manner that meets or exceeds
the expectations of our stakeholders. It also provides us with
the ability to influence how others in our industry approach
sustainable sourcing and to position us to benefit as trade flows
respond to rising protectionism, social consciousness and general
trends to de-risk value chains.
Threats
The disruption of our inbound and outbound supply chains
could materially impact our operations by affecting production,
operating costs and our reputation.
Failure to meet minimum ethical supply chain standards has the
potential to damage our social licence to operate (this is further
addressed under ‘Evolving societal expectations’ on page 34).
Climate change has the potential to increase the frequency and
severity of extreme weather events which may threaten our
supply chains, particularly logistics and the availability of critical
goods and services (this is addressed under 'Climate change and
environment’ on page 28).
Risk appetite
Aligned to our strategy of optimising our business, we are not
willing to take undue risks that compromise the security of our
supply chain logistics and critical services. However, we accept
that we have a strong reliance on certain critical suppliers,
particularly to provide energy, logistics and raw materials to our
operations and we have limited ability to reduce this reliance.
Our response includes:
– We understand, assess and continually monitor the risks in our
supply chains through an integrated system that considers the
supply of critical goods and services. This includes risks relating
to potential shortages, critical suppliers and categories, vendor
liquidity, logistics, climate change and decarbonisation, and
modern slavery. Internal and external data is integrated so we
have an accurate understanding of existing and emerging risks
and can take action to mitigate;
– We use this understanding of risk to deploy controls to
support predictable operations. This includes working closely
with our vendors and operations to better match availability
with demand; understanding options for alternative sources
of supply and implementing multi-source supply where
required; optimising inventory levels; flexing commercial terms
and maintaining up-to-date business continuity plans. We
continually optimise our approach between ‘just in case’ and
‘just in time’ as supply chain risk ebbs and flows;
– We build strong strategic partnerships with key suppliers on a
long-term, mutually beneficial basis;
– We have a clearly defined transformation strategy and
enterprise and supplier development programs in South
Africa aimed at building and growing small, medium and micro
enterprises;
– We have Reconciliation Action Plan targets to develop and
support Aboriginal and Torres Strait Islander enterprises in
Australia;
– We have local procurement initiatives designed to increase
opportunities for local suppliers;
– We actively review and manage payment terms to support
small and local businesses in all jurisdictions in which we
operate; and
– We have an established process to assess and mitigate modern
slavery risks.
32
OPERATING AND FINANCIAL REVIEW
Shaping our culture and managing diverse talent
We must actively shape our culture to attract, develop, support, and retain our highly talented people to deliver safe,
predictable performance and continuously improve. To keep pace with the evolving needs of our people, business and
broader stakeholders, we review our culture and seek feedback so that we can capture learnings and enhance the
South32 experience to remain an employer of choice.
Inherent risk trend 2022
←→
Opportunities
By fostering an environment that is conducive to our aspired
culture, we will have even higher levels of employee engagement
and teams that are empowered to innovate and drive
performance.
By having an inclusive and diverse workplace, in every aspect,
we can improve our ability to attract and retain talent, and better
deliver safety and operational performance, together.
Our flexible work practices and global operating model provides
greater access to talent which can be positioned across the
company to better meet business challenges and capture
opportunities.
Threats
If we are unable to embed our preferred culture, we will likely
have lower levels of engagement, disconnected teams that
lack diversity and operate in silos, and relationship rather
than performance-based decision making. Over time, this
may constrain innovative thinking and may lead to significant
shareholder value erosion and reputational damage.
A stimulus related recovery in commodity markets has seen
competition for talent rise and voluntary turnover rates increase,
while COVID-19 has restricted travel and limited face-to-face
interaction between our key leaders and geographically dispersed
talent pool.
Risk appetite
People underpin everything we do and we are not willing to
take risks that could negatively impact our culture and the way
our people connect to our purpose. However, we recognise our
size and the competitive labour market in which we operate
and therefore must be willing to take risk to build our talent and
succession pipeline.
Our response includes:
– We actively measure and discuss culture using a Culture
Tensions framing model. This process acts as a health check
and allows us to assess positive or negative change and test
whether we are making progress towards our preferred culture
that better balances relationships with performance and
systems and processes with innovation and empowerment.
This process is supplemented by periodic Your Voice employee
surveys that measure employee engagement and test whether
our culture is enabling the delivery of our strategic objectives;
– We have an internal Inclusion and Diversity Policy, standard
and framework which sets out our commitments, strategy,
measurable objectives and approach to performance
reporting;
– Our Code of Business Conduct sets out our expected
standards of conduct, with formal training and assessment
routines in place. Anyone can report a business conduct
concern, anonymously if preferred, or by using our confidential
and independently administered reporting hotline;
– We have a leadership model which strengthens alignment to
our preferred culture and behaviours, and is integrated across
our people systems and processes;
– We have a performance and goals process which supports
our reward philosophy, and recognises and rewards aligned
leadership behaviours and performance;
– We design our reward elements to position ourselves relative
to the market, enabling us to attract appropriate skills and
experience, engage employees and improve performance;
– We routinely review our key talent and critical role successors
globally, creating individualised plans to further their
development and address talent pipeline risks as appropriate.
This includes targeted retention programs for key talent and/or
team members occupying critical roles;
– We support employees who undertake further education and
training related to their current or future career with South32;
– We utilise secondments to support the delivery of business
objectives while also providing employees with development
opportunities and exposure to other roles or areas of the
business; and
– We have an internal flexible work standard which empowers
our leaders to engage with their teams to determine the
ways of working that balance individual, team and business
requirements.
33
SOUTH32 ANNUAL REPORT 2022 Risk management continued
Evolving societal expectations
The expectations of resource companies by employees, governments, investors, lenders, host communities, non-
governmental organisations (NGOs) and broader society continue to evolve.
In order to keep pace with these rapidly evolving expectations and understand the potential impact to our business performance,
reputation and delivery of our strategic objectives, we maintain an active stakeholder engagement program and undertake external
monitoring on a wide range of financial and ESG issues, including climate change.
We regularly engage our stakeholders to understand and respond to their views, which may be divergent, and aim to identify ways we
can create enduring social, environmental and economic value.
Inherent risk trend 2022
↑
Opportunities
Proactive, collaborative and transparent engagement with our
stakeholders builds relationships based on trust and shared
understanding. Our ongoing licence to operate is built on our
contribution to our stakeholders and broader society.
Threats
Failure to meet evolving societal expectations for ESG
performance could damage our reputation and negatively impact
our licence to operate, limiting our ability to access capital, retain
and attract employees and grow our business in existing and new
jurisdictions.
Risk appetite
We are not willing to take risks that will result in a failure to meet
societal expectations, in human rights, cultural heritage, modern
slavery and community safety. However, we accept that we will
be required to take some risks in areas such as impacts of mining
(e.g. on the environment) and commodity selection that may not
completely align with societal expectations.
Our response includes:
– Our purpose and strategy expressly balance economic
outcomes with social and environmental outcomes, now and
into the future. In the decisions we take, we look to minimise
impact, respect human rights and create enduring social,
environmental and economic value for all our stakeholders;
– We undertake internal and external stakeholder analysis and
engagement on a wide range of financial and ESG issues,
including an annual materiality process to understand our
material ESG issues. Our approach is aligned with the ICMM
Mining Principles, The United Nations Global Compact
(UNGC) Ten Principles and Global Reporting Initiative (GRI)
Sustainability Reporting Standards;
– We work to build strong, positive and meaningful relationships
with local communities. We regularly complete and review
community perception surveys, human rights impact
assessments, social baseline studies and social impact and
opportunity assessments to improve our understanding of the
communities in which we operate;
– We review and amend our community investment program
annually to align with community and stakeholder priorities.
We measure the outputs and outcomes of our community
investments to better understand their impact;
– We engage with Indigenous, Traditional and Tribal Peoples
across our operations to build mutual understanding and
strengthen cultural heritage management. Our engagement
with Indigenous, Traditional and Tribal Peoples throughout
the life of our operations is sensitive to and respects cultural
protocols;
– We participate in sustainability reporting transparency
initiatives and ESG rating agency reviews that assess and score
our performance; and
– We report on our risks, opportunities, regulatory obligations,
commitments and areas where we are working that are
relevant to our stakeholders.
34
OPERATING AND FINANCIAL REVIEW
Political risks, actions by government and/or authorities
Global economic uncertainty and liquidity
Changes in legislation, regulation, policy and geopolitical
activity have the potential to impact our strategic objectives
and the way we work. This includes broader policy decisions
and regulatory changes, related but not limited to, changes
to royalty and taxation policy, nationalisation of mineral
resources, supply chains, renegotiation or nullification of
contracts, leases, permits or agreements, and environmental
and social performance requirements.
We prioritise an investment grade credit rating and a
disciplined approach to allocating capital which aims to
keeps our balance sheet strong, providing us with financial
flexibility regardless of market conditions. By creating
competition for capital and investing selectively in our
existing operations, growth options and external
opportunities, or by making returns to shareholders, we aim
to maximise total shareholder returns over time.
We aim to effectively manage this uncertainty through
engagement with key stakeholders and industry associations,
monitoring of political activity, policy, legislative and regulatory
changes, and by having access to specialised knowledge.
Inherent risk trend 2022
↑
Opportunities
Proactive engagement leading to strong relationships with
governments and authorities provides a mutual understanding of
drivers for decision-making. This increases clarity around policy
and regulatory environments, enables appropriate and tailored
responses to issues and provides investment certainty.
Threats
Legislation adverse to our business and regulatory or policy
decisions taken by governments or authorities, particularly
relating to societal expectations, can result in operational
disruption, permitting uncertainty, affect future planning or lead
to cessation of operations or non-investment in operations or
projects.
Risk appetite
We have a low appetite for activities that are likely to result in
non-compliance with applicable legal or regulatory requirements.
We maintain programs that seek to comply with those
requirements. However, there can be no guarantee that such
programs will always be effective to identify or prevent breaches
of the law. Further, we operate in certain complex environments
and jurisdictions, which are subject to legislative, regulatory
or government policy changes that may adversely impact our
business. Therefore, there will always be residual risk in relation to
compliance with legal and regulatory requirements and changes
to those requirements that may adversely impact our business.
Our response includes:
– We have specialised knowledge through in-house expertise
or the use of external experts, including tax management
capability, tax advice and external affairs advice;
– We monitor political activity, policy, and legislative and regulatory
changes in the jurisdictions where we operate, and we also
engage with relevant authorities, to understand and mitigate
potential impacts on our business performance;
Inherent risk trend 2022
↑
Opportunities
By investing selectively in our existing operations and growth options,
external opportunities, or by making returns to shareholders, we aim
to maximise total shareholder returns over time.
Threats
A significant or sharp deterioration in economic conditions can
adversely impact market demand, commodity prices, and/or
exchange rates which has the potential to significantly reduce
profitability, cash flow and returns to shareholders. An increase
in volatility, especially when it has an impact on in-bound and
out-bound supply chains, has the potential to increase working
capital requirements, affecting our liquidity. A reduction in liquidity
available in capital markets has the potential to impact our
balance sheet and ability to pursue our strategy.
Risk appetite
We are not willing to take risks that may limit our ability to
maintain a minimum liquidity balance and/or access to funding on
acceptable terms. We recognise that our preferred commodity
basket and our operating costs have the potential for price and
exchange rate volatility outside of our control, and while we accept
that as a resource company we are exposed to this inherent risk,
we will act to reduce its impact by understanding its effect on our
business.
Our response includes:
– We have a diverse portfolio of operations, commodities and
end markets which strengthens our resilience to the disruption
of any one commodity, geography or operation;
– We prioritise a strong balance sheet and an investment grade
credit rating, with the aim of remaining resilient through
economic cycles;
– We test our financial strength across a range of scenarios,
including a depressed demand and pricing environment.
We also maintain a minimum liquidity buffer and access to a
diverse range of funding sources;
– We adjust our capital allocation plans according to market
conditions;
– We maintain strong relationships with high-quality financial
– We engage with key stakeholders in all jurisdictions where we
institutions, customers and suppliers from all around the world;
operate, in accordance with our stakeholder engagement plans;
– We work through selected industry associations to influence
how the industry is positioned; and
– We produce an annual Tax Transparency and Payments to
Governments Report, which shows how we meet our regulatory
tax obligations.
– We mostly sell our products with reference to floating,
market-based prices, which are broadly correlated with floating
global currency markets and the input costs we are exposed
to; and
– We carry out an annual review of commodity prices and
exchange rates, which we use to inform our operational plans.
This process is supplemented by tri-annual updates.
35
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary
DELIVERING STABLE
OPERATING AND
STRONG FINANCIAL
PERFORMANCE
We accelerated our portfolio transformation and delivered record earnings,
cash flow and shareholder returns in respect of FY22.
In discussing the operating results of the
Group, the focus is on Underlying earnings
and ROIC. Underlying earnings is the key
measure that is used by the Group to
assess its performance, make decisions
on the allocation of resources and assess
senior management’s performance.
In addition, the performance of each of
the Group’s operations and operational
management is assessed based on
Underlying EBIT. Management uses this
measure because financing structures
and tax regimes differ across the Group’s
operations and substantial components
of tax and interest charges are levied at
a Group level rather than an operational
level.
In order to calculate Underlying EBITDA,
Underlying EBIT and Underlying earnings,
the following items are adjusted as
applicable each period, irrespective of
materiality:
– Exchange rate (gains)/losses on
restatement of monetary items;
– Impairment losses/(reversals);
– (Gains)/losses on disposal and
consolidation of interests in operations;
– (Gains)/losses on non-trading derivative
instruments, contingent consideration
and other investments measured at fair
value through profit or loss;
– Major corporate restructures;
– Joint venture adjustments for material
equity accounted investments;
– Exchange rate variations on net debt;
– Tax effect of earnings adjustments; and
– Exchange rate variations on tax
balances.
In addition, items that do not reflect the
underlying operations of South32, and are
individually, or in combination with other
related earnings adjustments, significant
to the financial statements, are excluded to
determine Underlying earnings.
The Group uses both International Financial
Reporting Standards (IFRS) and non-IFRS
financial measures such as underlying
measures of earnings, effective tax rate
(ETR), return on invested capital (ROIC),
cash flow and net cash, to assess the
Group’s performance. The Directors
believe that the non-IFRS measures are
important when assessing the underlying
financial and operating performance of the
Group and its operations. The meanings of
individual non-IFRS measures used in this
report are set out in the Glossary on page
184.
The basis of the Group’s underlying
financial results is included on page 112 in
note 4 to the financial statements, which
has been updated from FY22 to reflect
the Group’s interest in material equity
accounted joint ventures on a proportional
consolidation basis. FY21 comparative
information has been updated to reflect
this change. We believe that Underlying
earnings before interest, tax, depreciation
and amortisation (EBITDA), Underlying
earnings before interest and tax (EBIT)
and Underlying earnings provide useful
information, but should not be considered
as an indication of, or an alternative to,
profit/(loss) after tax as an indicator of
actual operating performance or as an
alternative to cash flow as a measure of
liquidity.
36
OPERATING AND FINANCIAL REVIEW
Financial key performance indicators for FY22
Financial highlights(1)(2)
US$M
Revenue
Profit/(loss) before tax and net finance costs(3)
Profit/(loss) after tax and net finance costs
Basic earnings per share (US cents)(4)
Ordinary dividends per share (US cents)(5)
Special dividends per share (US cents)(5)
Other financial measures(3)
Underlying revenue(6)
Underlying EBITDA
Underlying EBITDA margin
Underlying EBIT
Underlying EBIT margin
Underlying earnings
Basic Underlying earnings per share (US cents)(4)
ROIC
Ordinary shares on issue (million)
FY22
9,269
3,724
2,669
57.4
22.7
3.0
10,630
4,755
47.1%
3,967
39.4%
2,602
56.0
30.1%
4,628
FY21
5,476
(94)
(195)
(4.1)
4.9
2.0
7,323
1,856
26.4%
1,039
14.8%
489
10.3
6.2%
4,675
Change
69%
N/A
N/A
N/A
363%
50%
45%
156%
20.7%
282%
24.6%
432%
444%
23.9%
(1%)
(1) South Africa Manganese ore has been reported as a 54.6 per cent interest (previously 60 per cent) aligning with our interest in Hotazel Manganese Mines (HMM). South32 has a
44.4 per cent ownership interest in HMM. 26 per cent of HMM is owned by a Broad-Based Black Economic Empowerment (B-BBEE) consortium comprising Ntsimbintle Mining
(nine per cent), NCAB Resources (seven per cent), Iziko Mining (five per cent) and HMM Education Trust (five per cent). The interests owned by NCAB Resources, Iziko Mining and
HMM Education Trust were acquired using vendor finance 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.
(2) During the current financial reporting period the internal reporting of the Group’s consolidated financial results was changed, with these changes also reflected in the FY21
comparative information. The underlying information reflects the Group’s interest in material equity accounted investments and is presented on a proportional consolidation
basis, which is the measure used by the Group’s Board and management to assess their performance.
(3) FY21 includes Tasmanian Electro Metallurgical Company (TEMCO) and discontinued operation South Africa Energy Coal.
(4) FY22 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for FY22 (4,647 million). FY22 basic Underlying earnings
per share is calculated as Underlying earnings divided by the weighted average number of shares for FY22. FY21 basic earnings per share is calculated as Profit/(loss) after
tax divided by the weighted average number of shares for FY21 (4,771 million). FY21 basic Underlying earnings per share is calculated as Underlying earnings divided by the
weighted average number of shares for FY21.
(5) FY22 ordinary dividends per share is calculated as H1 FY22 ordinary dividend announced (US$405 million) divided by the number of shares on issue at 31 December 2021
(4,650 million) plus H2 FY22 ordinary dividend announced (US$648 million) divided by the number of shares on issue at 30 June 2022 (4,628 million). FY22 special dividends per
share is calculated as H2 FY22 special dividend announced (US$139 million) divided by the number of shares on issue at 30 June 2022 (4,628 million).
(6) Underlying revenue includes revenue from third party products and services.
External factors and trends
affecting the Group’s result
The following describes the main external
factors and trends that have had a
material impact on the Group’s financial
position and results of operations during
the financial year. Details of the Group’s
most significant risk factors and how
they are mitigated can be found in Risk
management on pages 26 to 35 of the
Annual Report.
Management monitors particular trends
arising from external factors with a view
to managing the potential impact on the
Group’s future financial position and results
of operations.
Commodity prices and changes in
product demand and supply
South32 produces metals, concentrates
and ores, for which prices are driven by
global demand and supply for each of
these commodities. Commodity prices
were generally higher in FY22 compared
to FY21 as most physical markets
strengthened on the back of global
economic recovery following the easing
of COVID-19 restrictions and supply
constraints. The prices that the Group
obtains for its products are a key driver of
business performance, and fluctuations in
these markets affect our results, including
cash flows and shareholder returns.
Estimated impact on Underlying EBIT of a
+/- 10% change in commodity price
US$M
Aluminium(1)
Metallurgical coal(2)
Alumina
Manganese ore
Nickel
Copper(3)
Silver
Lead
Zinc
FY22
316
220
212
104
81
25
26
24
21
(1) Aluminium sensitivity shown without any associated
increase in alumina pricing.
(2) Includes metallurgical and energy coal at Illawarra
Metallurgical Coal.
(3) Includes molybdenum, gold, and silver at Sierra
Gorda.
37
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
The following table shows the quoted market prices of the Group’s most significant commodities in FY22 and FY21. These prices differ
from the realised prices on the sale of production due to contracts to which the Group is a party, differences in quotational periods,
quality of products, delivery terms and the range of quoted prices that are used for contracting sales in different markets.
Quoted commodity prices
Year ended 30 June
Alumina(1) (US$/t)
Aluminium (LME Cash)(2) (US$/t)
Copper (LME Cash)(2) (US$/t)
Silver(3) (US$/toz)
Lead (LME Cash)(2) (US$/t)
Zinc (LME Cash)(2) (US$/t)
Nickel (LME Cash)(2) (US$/t)
Metallurgical coal(4) (US$/t)
Manganese ore(5) (US$/dmtu)
FY22
382
2,889
9,651
23.6
2,304
3,509
23,547
390
6.16
Average Value
FY21
283
2,023
7,962
25.4
1,978
2,653
16,241
122
4.63
Change
35%
43%
21%
(7%)
16%
32%
45%
220%
33%
FY22
367
2,397
8,245
20.4
1,907
3,252
23,100
302
7.27
Closing Value
FY21
Change
286
2,523
9,352
25.8
2,320
2,946
18,450
194
5.15
28%
(5%)
(12%)
(21%)
(18%)
10%
25%
56%
41%
(1) Platts Alumina Index (PAX) Free on Board (FOB) Australia – market price assessment of calcined metallurgical/smelter grade alumina.
(2) London Metal Exchange (LME) Cash represents the Official Seller price for nickel, copper, lead, zinc, and the A.M. official price for aluminium.
(3) Daily London Bullion Market Association (LBMA) Silver Fix.
(4) Platts Low-Vol Hard Coking Coal Index FOB Australia – representative of high-quality hard coking coals.
(5) FastMarkets Manganese Ore 44 per cent Mn Cost, Insurance, and Freight (CIF) Tianjin China.
The following summarises the pricing
trends of our most significant commodities
for FY22. The price change reflects the
average of FY22 over FY21.
Lead: The FY22 average LME cash
settlement price was 16 per cent higher
than FY21 despite underperformance of
global automotive sales in FY22.
Alumina: The average FOB Australia price
for the year was 35 per cent higher than
FY21 driven by supply disruptions due
to the Russia-Ukraine war. However, the
price increase was moderated in the last
quarter as new alumina supply came online
in China.
Aluminium: The average LME cash
settlement price for the year was
43 per cent higher than FY21. The price
increase was driven by improving global
demand and the rising cost of aluminium
production stemming from the tightening
energy complex. Towards the end of
FY22, price momentum was moderated
by China’s COVID-19 lockdowns and an
acceleration in US interest rate increases.
Copper: The FY22 average LME cash
settlement price was 21 per cent higher
than FY21. Prices were supported by
lower than expected mine supply in Chile
and expectations of strong long-term
demand. Prices fell in the last quarter as
US interest rate increases accelerated and
concerns around macroeconomic risks and
expectations of new supply growth over
the next few years increased.
Silver: The FY22 average LBMA silver
price was seven per cent lower than
FY21. The price fall was underpinned by
the accelerated pace of US interest rate
increases, designed to mitigate inflation,
tempering investment appetite for silver.
Zinc: The FY22 average LME cash
settlement price was 32 per cent higher
than FY21. Smelter disruptions, coupled
with elevated energy prices stemming
from the Russia-Ukraine war, continued to
provide price support.
Nickel: The FY22 average LME cash
settlement price was 45 per cent higher
than FY21, driven by strong demand, low
inventories, Russian supply concerns and
elevated derivatives trading activity. Prices
eased in the last quarter of FY22 due to
demand concerns globally.
Metallurgical coal: The FY22 average
Platts Premium Low-Vol Hard Coking Coal
price was 220 per cent higher than FY21.
The higher prices reflected a recovery in
ex-China pig iron output in the first half
of the year leading to increased demand,
while supply from major seaborne
exporting regions remained constrained
by weather induced disruptions and the
impact of COVID-19 on operations.
Manganese ore: The average Manganese
Ore Metal Bulletin 44 per cent Mn CIF China
price was 33 per cent higher than FY21.
Global demand recovery and tightness of
high-grade seaborne ore supplies due to
weather and logistical disruptions provided
support to prices.
Exchange rates
Global risk sentiment, central bank
monetary policy and commodity prices
continue to be key drivers of currency
markets. In FY22, producer currencies
generally weakened against the US
dollar, reversing gains from the previous
financial year, as the US Federal Reserve
accelerated interest rate increases to
mitigate inflationary pressures. This was
intensified in the last quarter of FY22 when
commodity prices declined, and the US
dollar gained strength as a safe haven
amidst growing concerns on economic
growth.
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, Chilean peso 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 140 to 150.
38
OPERATING AND FINANCIAL REVIEW
The following table indicates the estimated impact on FY22 Underlying EBIT of a change in the significant 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
South African rand
Colombian peso
Brazilian real
Chilean peso
FY22
201
109
30
15
4
The following table shows the average and period end closing exchange rates of the most significant currencies that affect the Group’s
results:
Exchange rates(1)
Year ended 30 June
Australian dollar(2)
South African rand(3)
Colombian peso(3)
Brazilian real(3)
Chilean peso(3)
FY22
0.73
15.22
3,903
5.24
812
Average Value
FY21
Change
0.75
15.42
3,660
5.39
746
(3%)
1%
(7%)
3%
(9%)
FY22
0.69
16.26
4,127
5.24
924
Closing Value
FY21
0.75
14.33
3,757
5.00
727
Change
(8%)
(13%)
(10%)
(5%)
(27%)
(1) Positive per cent change in foreign exchange indicates strengthening currency relative to US$.
(2) Displayed as US$ per A$ based on common convention.
(3) Displayed as local currency per US$.
Other external factors
The macroeconomic environment remained highly volatile and uncertain through FY22. The Group’s results were impacted by industry-
wide inflationary pressures most notably on raw material input prices, freight rates and energy costs. These impacts were further
exacerbated by volatility in oil prices, which traded 66 per cent higher in FY22 compared to FY21, as demand strengthened and Russian
suppliers faced sanctions as a result of the Russia-Ukraine conflict, coupled with COVID-19 related impacts.
While there remains a gap between global climate change ambition and action, activity in carbon offset and credit markets was
supported by more countries and companies pledging long-term net zero targets or strengthening short-term emissions reduction
goals. During FY22, we saw strong environmental initiatives and wider coverage of legislated carbon pricing, particularly after the
26th United Nations Climate Change Conference in November 2021. In Australia, the newly elected Labor Party committed to cutting
national emissions by 43 per cent in 2030 from a 2005 baseline, compared to the previous Coalition government’s target of a
26-29 per cent reduction. Australian carbon credit units (ACCUs) were, on average, A$18 per tonne higher in FY22 as compared to FY21,
reaching A$35 per tonne at the close of FY22. In South Africa, the headline carbon tax rate was raised by seven per cent to ZAR144 per
tonne (US$9.50 per tonne) and the government proposed to further increase it to US$120 per tonne beyond 2050 as part of the planned
two-phase transition.
Our Australian and South African operations are subject to emissions reporting and domestic carbon pricing regimes. Carbon pricing
policies and associated regulatory mechanisms may restrict emissions or increase costs for companies with liable emissions. We
annually review the signposts for changes in carbon pricing policy and integrate this work into our annual carbon price review and
planning processes.
39
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
2022 Financial year summary
Specific highlights for FY22 included:
Performance summary
The Group’s statutory profit after tax
increased by US$2,864 million to a record
US$2,669 million in FY22. We achieved
this record result as our stable operating
performance and portfolio changes that
increased our exposure to higher margin
businesses enabled us to capitalise on the
significant tailwind of commodity prices,
offsetting the impact of adverse weather
and ongoing COVID-19 related labour
restrictions at a number of operations.
Underlying earnings increased by
US$2,113 million to a record
US$2,602 million in FY22.
Underlying revenue increased by
45 per cent to US$10,630 million as we
implemented innovative logistics solutions
to mitigate challenging freight and third-
party port performance to deliver volumes
into favourable markets, capturing the
benefit of higher prices. This translated to
a record operating margin of 47 per cent
(FY21: 26 per cent), as we held increases in
controllable costs to less than two per cent
of the Group’s total cost base for the year.
Underlying EBITDA increased by
US$2,899 million to a record
US$4,755 million and Underlying
EBIT increased by US$2,928 million to
a record US$3,967 million as the Group
delivered a 30.1 per cent return on invested
capital.
We generated record free cash flow from
operations of US$2,561 million, including
distributions from our manganese
and Sierra Gorda equity accounted
investments. Our strong financial
performance supported our continued
investment in our business and portfolio
changes, that have increased our exposure
to metals critical for a low-carbon
future, while delivering record returns to
shareholders. We finished the period with
net cash of US$538 million having executed
our inaugural US dollar bond during the
period, issuing US$700 million in Senior
Unsecured Notes (Notes) to support the
funding of our Sierra Gorda acquisition.
– Group copper equivalent production
was 99 per cent of guidance, as the
majority of operations delivered to
revised plans, despite adverse impacts
from weather and labour availability
caused by the COVID-19 pandemic;
– Worsley Alumina continued to operate
above nameplate capacity, achieving
record annual production;
– Hillside Aluminium and Mozal Aluminium
continued to test their maximum
technical capacity, despite the impact
of higher load-shedding, capitalising
on strong aluminium prices to deliver
record operating margins;
– Cannington transitioned to 100 per cent
truck haulage, while also beating our
already increased production guidance;
and
– Cerro Matoso achieved a 22 per cent
increase in payable nickel production,
benefitting from improved plant
availability following the prior period’s
furnace refurbishment and higher-
grades from our investment in the
Queresas and Porvenir project.
We returned US$1,320 million to
our shareholders in respect of FY22
comprising:
– US$1,053 million fully-franked ordinary
dividends, which includes the
US$648 million fully-franked final
ordinary dividend in respect of H2 FY22;
and
– US$267 million as part of our ongoing
capital management program, with
US$128 million allocated to our on-
market share buy-back (46 million
shares at an average price of
A$3.89 per share), and a US$139 million
fully franked special dividend in respect
of H2 FY22.
From day one we have established a
successful track record for disciplined
capital allocation and returning excess
cash to shareholders in both a timely
and efficient manner, buying back
13 per cent of our shares on issue since
commencing our capital management
program at an average price of
A$2.93 per share. Reflecting our strong
financial position and disciplined approach
to capital management, the Board further
expanded our capital management
program by US$156 million to
US$2.3 billion, leaving US$250 million
to be returned by 1 September 2023.
In FY22, we made substantial progress
reshaping our portfolio towards metals
critical for a low-carbon future by:
– Adding copper exposure through the
acquisition of a 45 per cent interest in
the Sierra Gorda copper mine;
– Increasing our low-carbon aluminium
production capacity by more than
100 per cent, acquiring an additional
16.6 per cent shareholding in Mozal
Aluminium and participating in the
restart of the Brazil Aluminium smelter;
– Acquiring an additional
18.2 per cent interest in the Mineração
Rio do Norte (MRN) bauxite mine,
taking our ownership to 33 per cent,
and further aligning our bauxite supply
requirements within our Brazilian
aluminium value chain;
– Completing a pre-feasibility study for
the zinc-lead-silver Taylor Deposit,
confirming its potential to be the first
development at our Hermosa project;
– Advancing study work on our battery-
grade manganese Clark Deposit at our
Hermosa project; and
– Continuing our investment in greenfield
exploration to discover our next
generation of base metals mines,
spending US$26 million across the
Americas, Australia and Europe.
We are well positioned heading into FY23,
given our growing production profile and
strong balance sheet, and will continue to
pursue cost efficiencies to provide partial
relief from industry-wide inflationary
pressures.
Earnings
The Group’s statutory profit after tax
increased by US$2,864 million from a loss
of US$195 million to a record
US$2,669 million in FY22.
Consistent with our accounting policies,
various items are excluded from the
Group’s statutory profit/(loss) to derive
Underlying earnings. The total adjustments
to derive Underlying EBIT (US$243 million)
include the recognition of indirect tax
assets following the restart of the Brazil
Aluminium smelter (US$77 million pre-tax)
and a net impairment loss of non-financial
assets (US$145 million pre-tax) primarily
related to our Eagle Downs Metallurgical
Coal development option (US$183 million
pre-tax), partially offset by an impairment
reversal for Brazil Aluminium (US$42 million
pre-tax). Further information on these
earnings adjustments is included on page
118.
40
OPERATING AND FINANCIAL REVIEW
The Group’s Underlying EBITDA increased
by US$2,899 million (or 156 per cent) to a
record US$4,755 million as we benefitted
from the significant tailwind of commodity
prices (US$3,666 million) and we limited
increases in our controllable costs
(US$114 million or two per cent of our total
cost base). Uncontrollable costs increased
by US$839 million with significantly higher
price-linked royalties and industry-wide
inflation, most notably in raw material
prices and distribution costs. Portfolio
changes, including the divestment of lower
returning businesses South Africa Energy
Coal and Tasmanian Electro Metallurgical
Company (TEMCO), combined with the
acquisition of our 45 per cent interest in the
Sierra Gorda copper mine and additional
shareholding in Mozal Aluminium had a
positive US$211 million impact on the
result.
The Group also achieved record Underlying
EBIT of US$3,967 million in FY22, increasing
by US$2,928 million (or 282 per cent) on the
prior year as Underlying depreciation and
amortisation reduced by US$29 million to
US$788 million following the prior period
impairment at Illawarra Metallurgical Coal.
Operating costs
FY22 and FY21 comparative underlying
operating costs are set out below,
excluding earnings adjustment items
impacting operating costs. Earnings
adjustment items are detailed on page 118
in note 4(b)(i) to the financial statements.
US$M
Operating cash costs
Third party commodity
purchases
Depreciation and
amortisation expense
Total operating costs
included in Underlying
EBIT
FY22
5,411
FY21
5,255
570
392
788
817
6,769
6,464
Capital expenditure
We allocate capital in line with our strategy
and capital management framework to
optimise our business, unlock the full value
of operations and identify and pursue
opportunities to create value. In FY22 the
Group continued to prioritise capital for
the safety and reliability of our operations,
to progress life extension and innovation
and improvement projects, and to fund our
current and future greenfield growth to
sustainably grow ROIC.
US$M
FY22
FY21
Safe and reliable capital
expenditure
Improvement and life
extension capital
expenditure
Growth capital
expenditure
Intangibles and the
capitalisation of
exploration expenditure
Divested operation –
South Africa Energy Coal
Total capital
expenditure (excluding
equity accounted
investments)
Equity accounted
investment capital
expenditure
Equity accounted
investment divested
operation – TEMCO
Total capital
expenditure (including
equity accounted
investments)
(367)
(325)
(58)
(63)
(97)
(72)
(37)
–
(30)
(76)
(559)
(566)
(164)
(70)
–
(1)
(723)
(637)
Total capital expenditure, excluding equity
accounted investments, decreased by
US$7 million in FY22 to US$559 million,
following the divestment of South Africa
Energy Coal (FY21: US$76 million) in June
2021:
– Safe and reliable capital expenditure
increased by US$42 million (or
13 per cent) in FY22 to US$367 million
as we invested in longwall equipment
and ventilation infrastructure at
Illawarra Metallurgical Coal, and bauxite
residue disposal capacity at our alumina
refineries;
– Improvement and life extension
capital expenditure decreased by
US$5 million (or eight per cent) in FY22
to US$58 million as our investment in
aluminium smelter efficiency projects
and the Ore Sorting and Mechanical
Ore Concentration (OSMOC) project at
Cerro Matoso, was more than offset by
reduced activity on the Dendrobium
Next Domain project at Illawarra
Metallurgical Coal;
– Growth capital expenditure increased
by US$25 million (or 35 per cent) in
FY22 to US$97 million as we invested
in the construction of infrastructure to
support orebody dewatering for the
Taylor Deposit at our Hermosa project;
and
– Our spend on intangibles and
capitalised exploration increased by
US$7 million (or 23 per cent) in FY22 to
US$37 million as we stepped-up our
exploration activity at Hermosa and
Ambler Metals.
In addition, capital expenditure associated
with our share of our manganese and
Sierra Gorda equity accounted investments
was US$164 million with the inclusion
of Sierra Gorda (US$81 million) and our
ongoing investment in further tailings
storage capacity at Australia Manganese.
Our spend at Sierra Gorda, following our
acquisition of the 45 per cent interest in
February 2022, was primarily directed
towards deferred stripping activity and the
continued execution of the plant’s
de-bottlenecking project.
Net finance costs
The Group’s FY22 Underlying net finance
costs of US$155 million comprise the
unwinding of the discount applied to our
closure and rehabilitation provisions
(US$83 million), interest on lease liabilities
(US$54 million) primarily at Worsley
Alumina, interest and transaction costs
associated with the Notes issue and
refinancing of our revolving credit facility
(US$14 million) and our share of net finance
costs for the Sierra Gorda joint venture
(US$6 million).
Tax expense
The Group’s FY22 Underlying income tax
expense increased by US$830 million to
US$1,210 million for an Underlying ETR of
31.7 per cent. Our FY22 Underlying ETR
has reduced significantly from the prior
period’s elevated rate (FY21: 43.3 per cent),
following the derecognition of tax assets
associated with the divestment of South
Africa Energy Coal in the prior period.
Our FY22 Underlying ETR reflects the
corporate tax rates of the jurisdictions in
which we operate, as well as the inclusion of
the manganese business and Sierra Gorda
in Underlying earnings on a proportional
consolidation basis (including royalty
related taxes for Australia Manganese and
Sierra Gorda). The Underlying ETR for our
manganese business was 45.8 per cent in
FY22, including the royalty related tax and
the derecognition of certain deferred tax
assets.
Cash flow
The Group generated record free cash flow
from operations of US$2,240 million and
received US$321 million in net distributions
from our manganese and Sierra Gorda
equity accounted investments in FY22.
Our record result benefited from the
implementation of innovative logistic
solutions across multiple operations
to mitigate the impact of ongoing port
congestion, which contributed to our
strong sales performance during FY22.
Record profitability also gave rise to
a significant increase in income tax
payments made during the period (up
US$705 million to US$868 million), excluding
tax paid within our manganese and Sierra
Gorda equity accounted investments.
41
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
Free cash flow from operations, excluding equity accounted
investments
The working capital build of US$428 million was mainly attributable
to:
US$M
FY22
FY21
Profit/(loss) from continuing and
discontinued operations
Non-cash items
(Profit)/loss from equity accounted
investments
(Profit)/loss from sale of operations
Change in working capital
Cash generated
Total capital expenditure, excluding equity
accounted investments, including
intangibles and capitalised exploration
Operating cash flows before financing
activities and tax, and after capital
expenditure
Interest (paid)/received(1)
Income tax (paid)/received
Free cash flow from operations
3,724
694
(272)
–
(428)
3,718
(94)
1,419
(133)
159
61
1,412
(559)
(566)
3,159
(51)
(868)
2,240
846
(44)
(163)
639
(1) FY22 net distributions from our material equity accounted joint ventures comprises
dividends and capital returns (US$224 million) and a net repayment of shareholder
loans (US$29 million) from manganese and a distribution (US$68 million) from Sierra
Gorda. The distribution from Sierra Gorda comprises US$21 million of principal
repayments and US$47 million of accrued interest.
– Trade and other receivables increasing by US$300 million as we
realised higher commodity prices, and delivered a strong sales
result in FY22, temporarily increasing our receivables balance
at the end of the period. Our debtor days improved year-on-
year to 21 days (FY21: 24 days);
– Inventory increasing by US$206 million, mostly due to higher
raw material input prices; and
– Provisions reducing by US$82 million from a weaker Australian
dollar and South African rand,
which was offset by Trade and other payables increasing by
US$160 million, due to the timing of raw material purchases and
the impact of higher price-linked royalties.
Working capital movement reconciliation
US$M
Trade and other receivables
Inventories
Trade and other payables
Provisions and other liabilities
Working capital movement
FY22
(300)
(206)
160
(82)
(428)
FY21
(156)
(142)
264
95
61
Earnings analysis
The following key factors influenced Underlying EBIT in FY22, relative to FY21.
Reconciliation of movements in Underlying EBIT (US$M)(1)(2)(3)
Uncontrollable
3,666
(728)
Net finance
costs and tax
56
(167)
(31)
(114)
211
35
(155)
(1,210)
3,967
2,602
5,000
4,000
3,000
2,000
1,000
1,039
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(1) Sales price variance reflects the revenue impact of changes in commodity prices, based on the FY22's sales volume. Price-linked costs variance reflects the change in
royalties together with the change in input costs driven by changes in commodity prices or market traded consumables. Foreign exchange reflects the impact of exchange
rate movements on local currency denominated costs and sales. Sales volume variance reflects 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
significant items.
(2) Underlying net finance costs and Underlying income tax expense are actual FY22 results, not year-on-year variances.
(3) South32’s ownership shares of operations are presented as follows: Worsley Alumina (86 per cent share), Brazil Alumina (36 per cent share), Brazil Aluminium (40 per cent
share), Hillside Aluminium (100 per cent), Mozal Aluminium (63.7 per cent share, noting that the FY22 Income statement reflects only one month of our increased ownership
at 63.7 per cent following the completion of the acquisition for an additional 16.6 per cent shareholding on 31 May 2022), Sierra Gorda (45 per cent share), Cannington
(100 per cent), Hermosa (100 per cent), Cerro Matoso (99.9 per cent share), Illawarra Metallurgical Coal (100 per cent), Australia Manganese (60 per cent share), South Africa
Manganese ore (54.6 per cent share) and South Africa Manganese alloy (60 per cent share).
42
OPERATING AND FINANCIAL REVIEW
Earnings analysis
FY21 Underlying EBIT
Change in sales price
US$M
Commentary
1,039
3,666
Higher average realised prices for our commodities, including:
Metallurgical coal (+US$1,545 million)
Aluminium (+US$1,027 million)
Alumina (+US$386 million)
Nickel (+US$313 million)
Manganese ore (+US$279 million)
Energy coal (+US$88 million)
Zinc (+US$59 million)
Lead (+US$23 million)
Net impact of price-linked costs
Partially offset by a lower average realised price for silver (-US$54 million)
(728) Higher freight and distribution costs (-US$155 million) also partially reflected in
Underlying revenue
Higher price-linked royalties (-US$148 million)
Higher aluminium smelter raw material costs (-US$143 million), including pitch and
coke
Higher caustic soda prices at Worsley Alumina (-US$113 million) and Brazil Alumina
(-US$19 million)
Higher coal, fuel oil and diesel prices (-US$76 million), mostly at Brazil Alumina and
Worsley Alumina
Higher electricity prices (-US$21 million) at Cerro Matoso and Illawarra Metallurgical
Coal
Change in exchange rates
Change in inflation
56 Weaker Australian dollar (+US$56 million), weaker Colombian peso (+US$18 million)
and stronger South African rand (-US$11 million)
Inflation-linked indexation of our aluminium smelter electricity prices (-US$40 million)
(167)
Change in sales volume
(31)
General inflation across Australia, southern Africa and South America
(-US$127 million)
Lower volumes at: Illawarra Metallurgical Coal (-US$55 million), Cannington
(-US$49 million), Australia Manganese (-US$28 million), Brazil Alumina (-US$27 million)
and Worsley Alumina (-US$22 million)
Partially offset by higher volumes at: Cerro Matoso (+US$122 million), South Africa
Manganese (+US$18 million) and Hillside Aluminium (+US$13 million)
Controllable costs
(114) Higher contractor and maintenance costs (-US$74 million), including -US$39 million at
Illawarra Metallurgical Coal to support the additional longwall changeouts and
maintenance activity
Portfolio changes
Other
FY22 Underlying EBIT
Higher port and demurrage costs (-US$19 million) due to third party logistics
constraints
Higher consumables costs (-US$14 million)
Partially offset by lower labour costs (+US$17 million), with headcount efficiencies at
some operations
Improved profitability, following the disposal of lower returning businesses South
Africa Energy Coal and TEMCO, the acquisitions of our Sierra Gorda interest and
additional shareholding in Mozal Aluminium, partially offset by smelter restart costs
at Brazil Aluminium
Lower depreciation and amortisation at Illawarra Metallurgical Coal and the
recognition of historical tax credits at Brazil Alumina
211
35
3,967
Further analysis of operations performance is outlined on pages 46 to 56.
43
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
Balance sheet and capital management
The Group’s net cash balance increased by US$132 million in FY22 to US$538 million as we generated record free cash flow from
operations of US$2,240 million, supporting our investment in acquisitions (US$1,534 million) that have increased our portfolio’s exposure
to metals critical for a low-carbon future. We also returned US$788 million to shareholders in FY22 by way of ordinary dividends
(US$567 million), special dividends (US$93 million) and our on-market share buy-back (US$128 million, 46 million shares across FY22).
Consistent with our commitment to maintain an investment grade credit rating, during the year both S&P Global Ratings and Moody’s
reaffirmed their respective BBB+ and Baa1 credit ratings for the Group, and assigned the same ratings to the Notes.
Our capital management framework remains unchanged, and is designed to promote competition for capital through investment
in high returning options or to protect portfolio value, as well as to reward shareholders as our financial performance improves.
Demonstrating this, the Board has resolved to pay a fully-franked ordinary dividend of US 14.0 cents per share (US$648 million) in
respect of H2 FY22 in line with our dividend policy to return a minimum 40 per cent of Underlying earnings every six months.
Having established a strong track record of returning excess cash to shareholders, and reflecting our strong financial position and our
confidence in the outlook for the business, the Board has also resolved to pay a fully-franked special dividend of US 3.0 cents per share
(US$139 million) and has further expanded our capital management program by US$156 million to US$2.3 billion, leaving US$250 million
to be returned by 1 September 2023.
Net debt and sources of liquidity
Our policies on debt and treasury management are as follows:
– Commitment to maintain an investment grade credit rating;
– Diversification of funding sources; and
– Generally maintain borrowings and excess cash in US dollars.
Gearing and net cash
The table below presents net cash and net assets of the Group, based on the balance sheet as at 30 June 2022:
US$M
Cash and cash equivalents
Current external debt
Non-current external debt
Net cash
Net assets
FY22
2,365
(402)
(1,425)
538
10,779
FY21
1,613
(408)
(799)
406
8,954
As at 30 June 2022, the Group's balance sheet was modestly geared with a leverage ratio of 0.2.
Funding sources
In addition to cash flow from operations as a primary source of funding, the Group executed our inaugural US dollar bond during the
period, issuing US$700 million in Notes to support the funding of our Sierra Gorda acquisition. The Notes are due in 2032 and will pay
interest at a rate of 4.35 per cent per annum. We also retain access to significant liquidity, having successfully executed the refinancing
of our undrawn, at the time of writing, committed US$1.4 billion revolving credit facility during the year as a Sustainability Linked Loan.
This facility is a standby arrangement to the Group's US dollar commercial paper program and is not subject to financial covenants at
the Group’s current credit rating. 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 2022, the Group’s cash and cash equivalents on hand were US$2.4 billion. Details of our major standby arrangement are as
follows:
US$M
Revolving credit facility(1)
Available
FY22
1,400
Used
FY22
-
(1) The Group has an undrawn multicurrency revolving syndicated credit facility which is a standby arrangement to the US commercial paper program. This facility was refinanced
in December 2021 for a five year term to 2026 with options to extend for up to a further two years by mutual agreement.
Additional information regarding the maturity profile of the Group’s debt obligations and details of our major standby agreement is
included in note 19 to the financial statements on pages 140 to 150.
44
OPERATING AND FINANCIAL REVIEW
Operations analysis
A summary of the underlying performance of the Group’s operations is presented below and more detailed analysis is presented on
pages 46 to 56.
Operations table (South32 share)(1)
US$M
Worsley Alumina
Brazil Alumina
Brazil Aluminium
Hillside Aluminium
Mozal Aluminium
Sierra Gorda
Cannington
Hermosa
Cerro Matoso
Illawarra Metallurgical Coal
Australia Manganese
South Africa Manganese
Third party products and services(2)
Inter-segment / Group and unallocated
South32 Group (excluding South Africa Energy Coal)
South Africa Energy Coal
South32 Group
Underlying Revenue
Underlying EBIT
FY22
1,625
524
–
2,254
924
241
736
–
929
2,338
848
419
600
(808)
10,630
–
10,630
FY21
1,173
400
–
1,511
578
–
757
–
493
758
730
337
298
(573)
6,462
861
7,323
FY22
386
89
(44)
666
271
75
315
(14)
463
1,388
402
58
20
(108)
3,967
–
3,967
FY21
143
66
(3)
293
98
–
350
(8)
122
(103)
304
48
10
(131)
1,189
(150)
1,039
(1) South32’s ownership share of operations is as per footnote (3) on page 42.
(2) FY22 Third party products and services sold comprises US$110 million for aluminium, US$25 million for alumina, US$115 million for coal, US$145 million for freight services,
US$165 million for raw materials and US$40 million for manganese. Underlying EBIT on third party products and services comprises US$8 million for aluminium, US$8 million
for alumina, US$7 million for coal, (US$3 million) for freight services, nil for raw materials and nil for manganese. FY21 Third party products and services sold comprises
US$43 million for aluminium, US$10 million for alumina, US$23 million for coal, US$95 million for freight services, US$92 million for raw materials and US$35 million for
manganese. Underlying EBIT on third party products and services comprises US$8 million for aluminium, nil for alumina, US$1 million for coal, nil for freight services,
US$1 million for raw materials and nil for manganese.
45
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
WORSLEY ALUMINA
Location: Western Australia, Australia
South32 share: 86 per cent
Safety
Total Recordable Injury Frequency (TRIF)
was 6.5 for Worsley Alumina in FY22, a
four per cent decrease year-on-year.
Volumes
Worsley Alumina saleable production
increased by one per cent (or 28kt), to a
record of 3,991kt in FY22, as the refinery
delivered above its nameplate capacity
(4.6Mtpa, 100 per cent basis), realising the
benefit of embedded improvements.
Operating costs
Operating unit costs increased by
24 per cent (or US$51/t) in FY22, to
US$265/t, as the benefit of record volumes
was more than offset by a significant rise in
caustic soda prices (FY22: US$581/t, FY21:
US$302/t) that accounted for more than
60 per cent of the increase, and elevated
global freight rates.
Financial performance
Underlying EBIT increased by 170 per cent
(or US$243 million) in FY22, to
US$386 million, as higher average realised
alumina prices (+US$461 million) more
than offset higher caustic soda prices
(-US$113 million), price-linked freight rates
(-US$47 million) and energy costs
(-US$18 million).
Capital expenditure
Capital expenditure was unchanged at
US$55 million in FY22 as we continued to
invest in additional bauxite residue disposal
capacity and progressed our work to
access new bauxite mining areas.
Community investment
We invested US$1.6 million in communities
around Worsley Alumina in FY22, with a
focus on environmental protection and
restoration, economic diversification
and supporting education and cultural
programs for Aboriginal and Torres Strait
Islander Peoples.
South32 holds an 86 per cent interest in
Worsley Alumina, while Japan Alumina
Associates (Australia) Pty Ltd owns 10 per
cent and Sojitz Alumina Pty Ltd owns four
per cent.
Bauxite is mined near the town of
Boddington, 130 kilometres south-east
of Perth. It is transported by overland
conveyor to the alumina refinery near Collie
and turned into alumina powder, before
being transported by rail to the Bunbury
port. It is then shipped to smelters around
the world, including our Hillside Aluminium
and Mozal Aluminium smelters in southern
Africa.
South32 share
Alumina production (kt)
Alumina sales (kt)
Realised sales price
(US$/t)
Operating unit cost
(US$/t)
FY22
FY21
3,991
3,974
3,963
4,004
409
293
265
214
South32 share (US$M)
FY22
FY21
Underlying revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
Improvement and life
extension
Community investment
1,625
571
386
2,571
55
47
1,173
318
143
2,667
55
51
8
1.6
4
1.1
46
OPERATING AND FINANCIAL REVIEW
BRAZIL ALUMINA
Location: Pará and Maranhão, Brazil
South32 investment: Bauxite - 33 per cent
South32 share: Alumina - 36 per cent
South32 holds a 33 per cent interest
in the non-operated Mineração Rio do
Norte (MRN) bauxite mine, following the
acquisition of an additional 18.2 per cent
interest in April 2022. Vale holds
40 per cent, Rio Tinto Alcan holds
12 per cent, Companhia Brasileira de
Aluminio S.A. holds 10 per cent and Hydro
holds five per cent.
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. Together with our partners
at MRN we continue to progress a pre-
feasibility study for a life extension project.
Our share of bauxite produced from
the MRN mine is supplied to the Alumar
alumina refinery.
We also hold a 36 per cent share of the
non-operated Alumar alumina refinery.
Alcoa holds 54 per cent and Rio Tinto Alcan
holds 10 per cent.
The alumina produced from the refinery
is exported through the Alumar port
and supplied to the co-located Alumar
aluminium smelter.
South32 share
Alumina production (kt)
Alumina sales (kt)
Realised sales price
(US$/t)
Operating unit cost
(US$/t)
FY22(1)
FY21
1,297
1,299
1,398
1,391
403
288
288
203
South32 share (US$M)
FY22(1)
FY21
Underlying revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
524
150
89
696
51
51
400
117
66
570
25
25
Volumes
Brazil Alumina saleable production
decreased by seven per cent (or 101kt)
to 1,297kt in FY22 as the refinery returned
to nameplate capacity (3.86Mtpa,
100 per cent basis) from October 2021,
following an incident in July 2021 that
damaged one of the two bauxite ship
unloaders at the operation.
Operating costs
Operating unit costs increased by
42 per cent to US$288/t in FY22 with lower
volumes and additional costs to recover
from the bauxite ship unloader outage
adding to raw material and energy cost
inflation in H2 FY22.
Financial performance
Underlying EBIT increased by 35 per cent
(or US$23 million) in FY22, to US$89 million,
as higher average realised alumina prices
(+US$151 million) more than offset
higher raw material and energy prices
(-US$76 million), lower sales volumes
(-US$27 million) and increased maintenance
costs (-US$7 million) due to the bauxite ship
unloader incident.
Capital expenditure
Capital expenditure increased by
US$26 million to US$51 million in FY22 as
we stepped-up our rate of investment in
bauxite residue disposal capacity.
(1) The increase in ownership in MRN has triggered a change in accounting treatment with the investment accounted for using the equity method (formerly classified as an
investment in an equity instrument designated as fair value through other comprehensive income).
47
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
BRAZIL ALUMINIUM
Location: Maranhão, Brazil
South32 share: 40 per cent
South32 holds a 40 per cent share in the
non-operated Alumar aluminium smelter,
which was restarted during FY22 after
being on care and maintenance since 2015.
Alcoa holds a 60 per cent share.
Following the restart, first production was
achieved in the June 2022 quarter, with full
capacity from the smelter’s three potlines
expected to be achieved in FY23. It has
a solid metal production capacity of
447kt per year (on a 100 per cent basis) and
produces standard aluminium ingots for
the domestic and export markets.
Our share of Brazil Aluminium is powered
by 100 per cent cost efficient renewable
power.
South32 share
FY22
FY21
Aluminium production (kt)
Aluminium sales (kt)
Realised sales price
(US$/t)
Operating unit cost
(US$/t)
0.3
–
–
–
–
–
–
–
South32 share (US$M)
FY22
FY21
Underlying revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
–
(43)
(44)
46
1
1
–
(3)
(3)
1
–
–
Volumes
Brazil Aluminium saleable production was
0.3kt in FY22 with first production achieved
in Q4 FY22 following the restart of the
smelter.
Financial performance
Underlying EBIT in FY22 was a loss of
US$44 million as costs incurred to support
the smelter’s restart were expensed. No
revenue was recognised in FY22 as we built
inventory in line with our restart plan.
Our alumina supply is sourced from the co-
located Brazil Alumina refinery with prices
linked to the Platts index on a month minus
one (M-1) basis.
Capital expenditure
Safe and reliable capital expenditure was
US$1 million in FY22.
48
OPERATING AND FINANCIAL REVIEW
HILLSIDE ALUMINIUM
Location: KwaZulu-Natal, South Africa
South32 share: 100 per cent
The Hillside Aluminium smelter is located in
Richards Bay in the South African province
of KwaZulu-Natal and is 100 per cent
owned and operated by South32 with
a solid metal production capacity of
720kt per year.
Hillside Aluminium is the largest aluminium
smelter in the southern hemisphere. The
smelter produces high-quality, primary
aluminium for the domestic and export
markets.
To support the development of the
downstream aluminium industry in South
Africa a portion of liquid metal is supplied
to Hulamin and other local companies that
sell products in the domestic and export
markets.
South32 share
Aluminium production (kt)
Aluminium sales (kt)
Realised sales price
(US$/t)
Operating unit cost
(US$/t)
FY22
714
713
FY21
717
707
3,161
2,137
2,137
1,631
South32 share (US$M)
Underlying revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
Improvement and life
extension
Community investment
FY22
2,254
730
666
927
24
20
4
13.1
FY21
1,511
358
293
733
17
17
–
3.0
Safety
TRIF was 1.3 for Hillside Aluminium in FY22,
a 160 per cent increase year-on-year.
Volumes
Hillside Aluminium saleable production
decreased by 3kt to 714kt in FY22 as the
smelter continued to test its maximum
technical capacity, despite the impact of
increased load-shedding.
Capital expenditure
Capital expenditure increased by
US$7 million to US$24 million in FY22
as we commenced our roll-out of the
AP3XLE technology. The AP3XLE energy
efficiency project is expected to reduce
the smelter’s energy consumption and in
turn lower greenhouse gas emissions by
approximately 150,000 to 200,000 tonnes
per annum once fully deployed.
Community investment
We invested US$13.1 million in communities
around Hillside Aluminium in FY22, with
a focus on local skills and economic
development, education and strengthening
healthcare services.
Operating costs
Operating unit costs increased by
31 per cent in FY22, to US$2,137/t, as a
significant rise in raw material input costs
created inflationary pressure across the
aluminium industry. Alumina, coke, pitch
and electricity accounted for 77 per cent of
the smelter’s cost base in FY22 (FY21:
78 per cent). The smelter sources its
alumina from our Worsley Alumina refinery
with prices linked to the PAX on a M-1
basis.
Financial performance
Underlying EBIT increased by 127 per cent
(or US$373 million) in FY22, to
US$666 million, as stronger aluminium
prices (+US$731 million) more than offset
higher raw material input prices
(-US$234 million), and power costs
(-US$32 million). While additional shipping
costs (-US$25 million) from higher freight
rates and demurrage costs due to poor
third party port performance impacted
earnings, the extent of those impacts was
mitigated as we established alternative
discharge and shipping options.
162 pots were relined at a cost of
US$274,000 per pot in FY22 (FY21:
120 pots at US$244,000 per pot). Our first
pots utilising the AP3XLE energy efficiency
technology were relined during Q4 FY22.
49
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
MOZAL ALUMINIUM
Location: Maputo, Mozambique
South32 share: 63.7 per cent
South32 holds a 63.7 per cent share of
Mozal Aluminium, following the acquisition
of an additional 16.6 per cent share in
May 2022. The Industrial Development
Corporation of South Africa Limited
holds 24 per cent, Mitsubishi Corporation
(through MCA Metals Holding GmbH) holds
8.4 per cent and the Government of the
Republic of Mozambique holds 3.9 per cent
(through preference shares).
Mozal Aluminium is located 20 kilometres
west of Mozambique’s capital city Maputo
and has a solid metal production capacity
of 580kt per year (on a 100 per cent basis).
Mozal Aluminium is the only aluminium
smelter in Mozambique and the second
largest aluminium smelter in Africa (behind
our Hillside Aluminium smelter in South
Africa). It produces standard aluminium
ingots.
To support the development of the
downstream aluminium industry in
Mozambique a portion of liquid metal is
supplied to Midal Cables, a local company
that sells products in the domestic and
export markets.
South32 share
Aluminium production (kt)
Aluminium sales (kt)
Realised sales price
(US$/t)
Operating unit cost
(US$/t)
FY22(1)
278
276
FY21
265
262
3,348
2,206
2,243
1,702
South32 share (US$M)
FY22(1)
FY21
Underlying revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
Improvement and life
extension
Community investment
924
305
271
615
11
10
1
1.6
578
132
98
456
11
10
1
1.8
Safety
TRIF was 0.9 for Mozal Aluminium in FY22,
an 80 per cent increase year-on-year.
Volumes
Mozal Aluminium saleable production
increased by five per cent (or 13kt) to
278kt in FY22 with the smelter benefitting
from our roll-out of the AP3XLE energy
efficiency technology, which partially offset
the impact of increased load-shedding.
Our equity share of production reflects
the completion of our acquisition of an
additional 16.6 per cent shareholding in the
smelter on 31 May 2022.
Operating costs
Operating unit costs increased by
32 per cent, to US$2,243/t in FY22, as a
significant rise in raw material input costs
created inflationary pressure across the
aluminium industry. Alumina, coke, pitch
and electricity accounted for 74 per cent
of the smelter’s cost base in FY22 (FY21:
73 per cent).
The smelter sources its alumina from
our Worsley Alumina refinery with
approximately 50 per cent priced as a
percentage of the LME aluminium index
under a legacy contract and the remainder
linked to the PAX on a M-1 basis, with
caps and floors embedded within specific
contracts that reset each calendar year.
Financial performance
Underlying EBIT increased by 177 per cent
(or US$173 million) in FY22, to
US$271 million, as stronger realised
aluminium prices (+US$297 million) and the
benefit of our increased ownership more
than offset higher raw material input prices
(-US$109 million) and freight related costs
(-US$11 million). 127 pots were relined
in FY22 at a cost of US$266,000 per pot
(FY21: 134 pots at US$252,000 per pot).
Capital expenditure
Capital expenditure was unchanged at
US$11 million in FY22 as the smelter
continued to roll-out the AP3XLE energy
efficiency technology in its pot relining
program.
Community investment
We invested US$1.6 million in communities
around Mozal Aluminium in FY22, with a
focus on education and skills development,
health and wellbeing and development of
sustainable agriculture practice.
(1) Our underlying results reflect the completion of our acquisition of an additional 16.6 per cent shareholding in the smelter on 31 May 2022, taking our ownership to 63.7 per cent.
Prior period numbers have not been restated for this change in ownership (presented on a 47.1 per cent basis).
50
OPERATING AND FINANCIAL REVIEW
SIERRA GORDA
Location: Antofagasta, Chile
South32 share: 45 per cent
In February 2022 we completed the
acquisition of a 45 per cent interest in
the Sierra Gorda copper mine in Chile,
which is held via the Sierra Gorda S.C.M.
incorporated Joint Venture alongside
55 per cent joint venture partner KGHM
Polska Miedz, a global miner listed in
Poland.
The Joint Venture Agreement provides
South32 with joint control and governance
rights alongside KGHM Polska Miedz.
This joint control is exercised through
the Joint Venture Owners Council, which
is responsible for the strategic direction
and oversight of Sierra Gorda S.C.M. An
independent management team operates
Sierra Gorda S.C.M. and reports to the Joint
Venture Owners Council.
Sierra Gorda is a large scale, open-pit mine
in the prolific Antofagasta copper mining
region and produces copper, molybdenum,
gold and silver. Ore processing includes
crushing, grinding, flotation, thickening and
filtering to produce concentrates. The mine
is serviced by established infrastructure,
including renewable power and a seawater
pipeline, with freight rail and a national
highway connecting the operation to the
ports of Antofagasta and Angamos.
Volumes
Our share of copper equivalent production
from the date of acquisition to 30 June
2022 was 29.5kt (25.3kt of copper, 0.4kt of
molybdenum, 9.6koz of gold and 253koz of
silver).
Operating costs
Operating unit costs to 30 June 2022 were
US$14.6/t ore processed or US$1.61/lb
CuEq.
Financial performance
Underlying EBIT was US$75 million for the
period from 22 February 2022 to 30 June
2022 as we recorded US$241 million of
revenue from the sale of 27.7kt of copper,
0.6kt of molybdenum, 9.9koz of gold and
282koz of silver.
Capital expenditure
Our share of safe and reliable capital
expenditure for the period from acquisition
to 30 June 2022 was US$36 million. We also
directed US$10 million to improvement and
life extension capital expenditure for the
plant de-bottlenecking project in
FY22. Separately, FY22 improvement
and life extension capital included
US$35 million paid for expenditure incurred
for the brownfield oxide project prior to our
acquisition.
South32 share
FY22(1)
FY21
Ore mined (Mt)
Ore processed (Mt)
Ore grade processed (%, Cu)
Payable copper equivalent
production (kt)(2)
Payable copper production
(kt)
Payable molybdenum
production (kt)
Payable gold production (koz)
Payable silver production
(koz)
Payable copper sales (kt)
Payable molybdenum sales
(kt)
Payable gold sales (koz)
Payable silver sales (koz)
Realised copper sales price
(US$/lb)
Realised molybdenum sales
price (US$/lb)
Realised gold sales price
(US$/oz)
Realised silver sales price
(US$/oz)
Operating unit cost
(US$/t ore processed)(3)
Operating unit cost
(US$/lb CuEq)(4)
13.7
7.5
0.42
29.5
25.3
0.4
9.6
253
27.7
0.6
9.9
282
3.50
18.48
1,934
23.5
14.6
1.61
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
South32 share (US$M)
FY22(1)
FY21
Underlying revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
Improvement and life
extension
Exploration expenditure
Exploration expensed
241
133
75
1,402
81
36
45
2
1
–
–
–
–
–
–
–
–
–
(1) Realised sales prices and Operating unit costs presented in the table reflect the period 1 March 2022 to 30 June 2022. Whereas production and sales numbers, and all Income
Statement items reflect the period from first ownership (22 February 2022).
(2) Payable copper equivalent production (kt) was calculated by aggregating revenues from copper, molybdenum, gold and silver, and dividing the total Revenue by the price of
copper. FY21 index prices for copper (US$4.23/lb), molybdenum (US$15.7/lb), gold (US$1,796/oz) and silver (US$25.2/oz) have been used for FY22.
(3) Sierra Gorda Operating unit cost is Underlying revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may impact
operating unit costs as related marketing costs may change.
(4) US dollar per pound of copper equivalent production. FY22 realised prices for copper (US$3.50/lb), molybdenum (US$18.48/lb), gold (US$1,934/oz) and silver (US$23.5/oz) have
been used for FY22 Operating unit cost.
51
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
CANNINGTON
Location: Queensland, Australia
South32 share: 100 per cent
Located in north-west Queensland,
Cannington is 100 per cent owned by
South32 and is one of the world’s largest
producers of silver and lead.
Cannington consists of an underground
hard rock mine and surface processing
facility, a road-to-rail transfer facility and
a concentrate handling and ship loading
facility at the Port of Townsville. In Q4
FY22 we transitioned to 100 per cent truck
haulage to bring product to the surface.
Silver, lead and zinc are extracted from
the ore using grinding, sequential flotation
and leaching techniques that produce
high-grade, marketable lead and zinc
concentrates with a high silver content.
South32 share
FY22
5.4
3.5
180
299.3
12,946
2,753
2,618
Ore mined (kwmt)
Ore processed (kdmt)
Ore grade processed
(g/t, Ag)
Ore grade processed
(%, Pb)
Ore grade processed
(%, Zn)
Payable zinc equivalent
production (kt)(1)
Payable silver production
(koz)
Payable lead production
(kt)
Payable zinc production
(kt)
64.5
Payable silver sales (koz) 12,898
122.2
Payable lead sales (kt)
Payable zinc sales (kt)
66.2
Realised silver sales price
(US$/oz)
Realised lead sales price
(US$/t)
Realised zinc sales price
(US$/t)
Operating unit cost
(US$/t ore processed)(2)
3,248
2,046
120.6
21.0
133
FY21
2,819
2,746
185
5.7
3.5
319.0
13,655
131.8
67.7
13,736
131.7
69.0
25.4
1,862
2,357
124
South32 share (US$M)
FY22
FY21
Underlying revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
Improvement and life
extension
Exploration expenditure
Exploration expensed
Community investment
736
388
315
141
45
43
2
3
2
0.3
757
416
350
195
43
41
2
2
2
0.4
Safety
TRIF was 9.1 for Cannington in FY22,
a 26 per cent increase year-on-year.
Volumes
Cannington payable zinc equivalent
production decreased by six per cent (or
19.7kt), to 299.3kt in FY22, as we completed
planned maintenance and built run of mine
stocks during Q4 FY22 to support the
operation’s transition to 100 per cent truck
haulage.
Operating costs
Operating unit costs increased by seven
per cent (or US$9/t) in FY22, to US$133/t,
as we lowered volumes to complete
scheduled maintenance and work to
support the transition to 100 per cent truck
haulage.
Financial performance
Underlying EBIT decreased by
10 per cent (or US$35 million) in FY22,
to US$315 million, as our reduced sales
volumes (-US$49 million) and higher
freight rates (-US$6 million) more than
offset higher prices (+US$28 million) and
initiatives to reduce our spend on labour
and consultant activity (+US$9 million).
Capital expenditure
Capital expenditure increased by
US$2 million to US$45 million in FY22 as
we invested to support the operation’s
transition to 100 per cent truck haulage.
Community investment
We invested US$0.3 million in communities
around Cannington in FY22, with a focus
on education, local economic participation,
natural resource resilience and community
wellbeing.
(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. FY21 realised prices
for zinc (US$2,357/t), lead (US$1,862/t) and silver (US$25.4/oz) have been used for FY21 and FY22
(2) Cannington Operating unit cost is Underlying revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may impact
operating unit costs as related marketing costs may change.
52
OPERATING AND FINANCIAL REVIEW
CERRO MATOSO
Location: Córdoba, Colombia
South32 share: 99.9 per cent
Cerro Matoso is an integrated nickel laterite
mine and smelter located in the Córdoba
area of northern Colombia, consisting of
a truck and shovel open-cut mine and a
processing plant. South32 owns 99.9 per
cent of Cerro Matoso. Current and former
employees own 0.02 per cent, with the
balance of shares held in a reserve account
following a buy-back.
Cerro Matoso is a major producer of nickel
contained in ferronickel which is used to
make stainless steel. Ore mined is blended
with ore from stockpiles, which is then
dried in rotary kilns and smelted in two
electric arc furnaces where ferronickel is
produced.
The Queresas and Porvenir (Q&P) project
delivered first ore in April 2021 contributing
higher feed grades, and the Ore Sorting
and Mechanical Ore Concentration
(OSMOC) project, which is currently in
its final construction phase, is expected
to increase Cerro Matoso’s processing
capacity and maintain payable nickel
production by offsetting natural grade
decline from FY23.
South32 share
Ore mined (kwmt)
Ore processed (kdmt)
Ore grade processed
(%, Ni)
Payable nickel production
(kt)
Payable nickel sales (kt)
Realised sales price
(US$/lb)
Operating unit cost
(US$/lb)(1)
Operating unit cost
(US$/t)(2)
FY22
4,867
2,703
FY21
3,238
2,385
1.73
1.63
41.7
41.8
34.1
33.5
10.08
6.68
4.34
4.01
148
124
South32 share (US$M)
FY22
FY21
Underlying revenue
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
Improvement and life
extension
Community investment
929
529
463
349
37
18
19
3.9
493
197
122
405
45
30
15
3.3
Safety
TRIF was 2.8 for Cerro Matoso in FY22,
a 51 per cent decrease year-on-year.
Volumes
Cerro Matoso payable nickel production
increased by 22 per cent (or 7.6kt) to
41.7kt in FY22 as throughput recovered
following completion of a major furnace
refurbishment in FY21 and we added
higher-grade ore from the Q&P pit,
increasing average nickel grades by
six per cent (FY22: 1.73 per cent; FY21:
1.63 per cent).
Operating costs
Operating unit costs increased by
eight per cent in FY22, to US$4.34/lb, as a
significant increase in price-linked royalties
and energy prices, along with costs to
support processing of additional higher-
grade Q&P volumes, were partially offset by
volume benefits and a weaker Colombian
peso. The operation also recognised a
one-off benefit related to the reversal of a
royalty provision.
Financial performance
Underlying EBIT increased by 280 per cent
(or US$341 million) in FY22, to
US$463 million, as higher realised nickel
prices (+US$313 million) and sales volumes
(+US$122 million) more than offset higher
price-linked royalties (-US$31 million),
energy costs (-US$17 million) and additional
expenditure on labour and contractors to
support mining from the Q&P pit
(-US$7 million).
Capital expenditure
Safe and reliable capital expenditure
decreased by US$12 million, to
US$18 million in FY22, following the prior
period’s completion of the major furnace
refurbishment. Improvement and life
extension capital expenditure increased by
US$4 million, to US$19 million in FY22, as
we progressed the final construction phase
of the OSMOC project.
We are working to extend the mining
contract at Cerro Matoso by 15 years
from 2029 to 2044 with the extension
underpinned by the expanded processing
capacity that is expected to be delivered
by the OSMOC project.
Community investment
We invested US$3.9 million in communities
around Cerro Matoso in FY22, with a focus
on water infrastructure, cultural programs,
education and community housing.
(1) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volumes.
(2) Cerro Matoso Operating unit cost per tonne is Revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may impact
Operating unit costs as related marketing costs may change.
53
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
ILLAWARRA METALLURGICAL COAL
Location: New South Wales, Australia
South32 share: 100 per cent
Capital expenditure
Safe and reliable capital expenditure
increased by US$26 million, to
US$177 million in FY22, as we invested in
additional coal clearance and ventilation
infrastructure to support the transition to
a single longwall at Appin. Notwithstanding
the increase, FY22 expenditure was
US$38 million below our original guidance
as adverse weather and COVID-19 related
labour restrictions impacted the ability of
the operation to complete planned work.
Improvement and life extension capital
expenditure decreased by US$25 million
to US$12 million in FY22 as we scaled back
activity on the Dendrobium Next Domain
project. Subsequent to the end of the
reporting period, we announced that we
will not proceed with an investment in the
Dendrobium Next Domain project following
our consideration of recently completed
study work and extensive analysis of
alternatives considered for the complex(4).
Community investment
We invested US$1.2 million in communities
around Illawarra Metallurgical Coal in
FY22, with a focus on education, health,
community support and services, and local
economic development.
Safety
TRIF was 16.5 for Illawarra Metallurgical
Coal in FY22, a 16 per cent decrease year-
on-year.
Volumes
Illawarra Metallurgical Coal saleable
production decreased by 15 per cent
(or 1,136kt) to 6,509kt in FY22 as we
completed three longwall moves during
the year and ceased sales of low-margin
coal wash material. The impact of adverse
weather and COVID-19 related labour
restrictions also impacted the operation’s
ability to maintain planned development
rates during the period.
Operating costs
Operating unit costs increased by
45 per cent, to US$126/t in FY22, with a
significant increase in price-linked royalties,
due to higher prices, accounting for 38 per
cent of the change. Lower volumes and
increased contractor and maintenance
activities were the other main drivers.
Financial performance
Underlying EBIT increased by
US$1,491 million, to US$1,388 million
in FY22, with higher realised prices
(+US$1,635 million), partially offset
by higher price-linked royalties
(-US$101 million), lower sales volumes
(-US$55 million), and increased contractor
and maintenance activity (-US$39 million)
to support the additional longwall moves.
Depreciation decreased by US$78 million,
to US$119 million in FY22, following a
non-cash impairment of the operation’s
carrying value in FY21.
Located in the southern coalfields of New
South Wales, Illawarra Metallurgical Coal
is 100 per cent owned by South32 and
operates two underground metallurgical
coal mines, Appin mine and Dendrobium
mine, and West Cliff and Dendrobium coal
preparation plants. Illawarra Metallurgical
Coal also manages the Port Kembla Coal
Terminal on behalf of a consortium of
partners.
Illawarra Metallurgical Coal produces
premium-quality, hard coking coal
for steelmaking, and energy coal.
The operation supports the domestic
steelmaking industry by supplying
product to BlueScope Steel’s Port Kembla
Steelworks, the largest steel production
facility in Australia.
South32 share
FY22
FY21
Metallurgical coal
production (kt)
Energy coal production
(kt)
Metallurgical coal sales
(kt)(1)
Energy coal sales (kt)(1)
Realised metallurgical
coal sales price (US$/t)
Realised energy coal
sales price (US$/t)
Operating unit cost
(US$/t)(2)
South32 share (US$M)
Underlying revenue(3)
Underlying EBITDA
Underlying EBIT
Net operating assets
Capital expenditure
Safe and reliable
Improvement and life
extension
Exploration expenditure
Exploration expensed
Community investment
5,712
6,170
797
1,475
5,823
783
6,074
1,542
381
115
156
126
FY22
2,338
1,507
1,388
786
189
177
12
11
9
1.2
40
87
FY21
758
94
(103)
612
188
151
37
14
5
1.0
(1) Volumes and prices do not include any third party trading that may be undertaken independently of equity production.
(2) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volumes.
(3) Illawarra Metallurgical Coal Revenue includes metallurgical coal and energy coal sales Revenue.
(4) Refer to market release dated 23 August 2022 at www.south32.net
54
OPERATING AND FINANCIAL REVIEW
AUSTRALIA MANGANESE
Location: Northern Territory, Australia
South32 share: 60 per cent
Australia Manganese consists of Groote
Eylandt Mining Company Pty Ltd (GEMCO)
in the Northern Territory. South32 owns
60 per cent of GEMCO and Anglo American
Plc holds the remaining 40 per cent.
GEMCO is an open-cut strip mining
operation, producing high-grade
manganese ore and is located in close
proximity to Asian export markets. It is one
of the largest manganese ore producers in
the world.
The Tasmanian Electro Metallurgical
Company (TEMCO) manganese alloy
smelter was wholly owned by GEMCO until
the completion of its divestment in FY21.
South32 share
FY22
FY21
3,363
3,529
–
51
South32 share (US$M)
Underlying revenue
Manganese ore
Manganese alloy
Intra-segment
elimination
Underlying EBITDA
Manganese ore
Manganese alloy
Underlying EBIT
Manganese ore
Manganese alloy
Net operating assets
Manganese ore
Capital expenditure
Safe and reliable
Improvement and life
extension
Exploration expenditure
Exploration expensed
Community investment
FY22
848
848
–
–
488
488
–
402
402
–
258
258
62
56
6
1
–
1.1
FY21
730
685
57
(12)
385
389
(4)
304
308
(4)
243
243
55
53
2
2
1
1.7
3,372
3,372
–
3,621
3,506
115
Safety
TRIF was 7.1 for GEMCO in FY22,
a 13 per cent increase year-on-year.
–
59
5.29
4.13
1.86
1.52
Volumes
Australia Manganese saleable ore
production decreased by five per cent
(or 166kwmt), to 3,363kwmt in FY22, as
weather-related disruptions and COVID-19
workplace restrictions prevented the
re-build of stockpiles ahead of the wet
season. This contributed to adverse ore
handling characteristics that resulted in a
lower yield at the primary concentrator.
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$/dmtu, FOB)(1)(2)
Ore Operating unit cost
(US$/dmtu)(2)(3)
Operating costs
Operating unit costs increased by
22 per cent, to US$1.86/dmtu in FY22, due
to the lower volumes together with higher
diesel prices and consumable costs.
Financial performance
Manganese ore Underlying EBIT increased
by 31 per cent (or US$94 million), to
US$402 million in FY22, as higher realised
prices (+US$203 million) more than offset
the impact of lower sales volumes
(-US$28 million), higher freight rates
(-US$35 million), diesel prices
(-US$13 million) and consumable costs
(-US$9 million).
Our FY22 realised price improved year-
on-year as we benefitted from improved
market conditions and achieved the high
grade 44 per cent manganese lump ore
index, despite our low-cost Premium
Concentrate Ore (PC02) circuit operating
above its design capacity, contributing
11 per cent of total production (FY21:
10 per cent).
Capital expenditure
Safe and reliable capital expenditure
increased by US$3 million, to US$56 million
in FY22, as we continued to invest in
tailings storage capacity.
Improvement and life extension capital
expenditure increased by US$4 million, to
US$6 million in FY22 as we progressed the
feasibility study for our Eastern Leases
mine life extension project.
Community investment
We invested US$1.1 million in communities
around Australia Manganese in FY22,
with a focus on education and leadership,
economic development, and health and
wellbeing programs for Aboriginal and
Torres Strait Islander Peoples.
(1) Realised ore prices are calculated as external sales Underlying revenue less freight and marketing costs, divided by external sales volume. Ore converted to sinter and alloy,
and sold externally, is eliminated as an intracompany transaction.
(2) Manganese Australia FY22 average manganese content of external ore sales was 44.2 per cent on a dry basis (FY21: 44.4 per cent). 96 per cent of FY22 external manganese
ore sales (FY21: 97 per cent) were completed on a CIF basis. FY22 realised FOB ore prices and Operating unit costs have been adjusted for freight and marketing costs of
US$96 million (FY21: US$63 million), consistent with our FOB cost guidance.
(3) FOB ore operating unit cost is Underlying revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume.
55
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
SOUTH AFRICA MANGANESE
Location: Northern Cape and Gauteng, South Africa
South32 share: Ore - 44.4 per cent, Alloy - 60 per cent
South Africa Manganese consists of two
manganese mines and the Metalloys
manganese alloy smelter which was placed
on care and maintenance in FY20.
Hotazel Manganese Mines (HMM) is
located in the Kalahari Basin and operates
two manganese mines, the open-cut
Mamatwan mine and the underground
Wessels mine. South32 holds a
60 per cent interest in Samancor Holdings
(Pty) Ltd (Samancor Holdings) and Anglo
American Plc holds the remaining
40 per cent. Samancor Holdings indirectly
owns 74 per cent of HMM, which gives
South32 its ownership interest of
44.4 per cent. The remaining 26 per cent
of HMM is owned by Broad-Based Black
Economic Empowerment entities.
South32 holds an effective 60 per cent
interest in Samancor Manganese (Pty) Ltd
(Metalloys manganese alloy smelter). The
site remains on care and maintenance as
we assess future options for the smelter.
South32 share(1)
FY22
FY21
Manganese ore
production (kwmt)
Manganese alloy
production (kt)
Manganese ore sales
(kwmt)
External customers
Manganese alloy sales
(kt)
Realised external
manganese ore sales
price (US$/dmtu, FOB)(2)(3)
Ore Operating unit cost
(US$/dmtu)(3)(4)
2,069
2,060
–
–
2,170
2,170
2,035
2,035
–
11
3.92
3.53
2.73
2.48
South32 share (US$M)(1)
FY22
FY21
Underlying revenue
Manganese ore
Manganese alloy
Underlying EBITDA
Manganese ore
Manganese alloy
Underlying EBIT
Manganese ore
Manganese alloy
Net operating assets/
(liabilities)
Manganese ore
Manganese alloy
Capital expenditure
Safe and reliable
Improvement and life
extension
Exploration expenditure
Exploration expensed
Community investment
419
419
–
78
99
(21)
58
79
(21)
135
211
(76)
19
14
5
1
1
3.7
337
330
7
64
84
(20)
48
68
(20)
152
212
(60)
15
15
–
1
1
2.1
Safety
TRIF was 3.1 for HMM in FY22, a 72 per cent
increase year-on-year.
Volumes
South Africa Manganese saleable ore
production was largely unchanged at
2,069kwmt in FY22 as we increased
volumes of premium material from our
Mamatwan mine during the year, more
than offsetting the impact of planned
maintenance.
Operating costs
Operating unit costs increased by
10 per cent, to US$2.73/dmtu in FY22, as
the operation increased its use of higher
cost trucking (FY22: 35 per cent, FY21:
31 per cent) to deliver additional volumes of
premium product and maximise cash flow.
Financial performance
Manganese ore Underlying EBIT increased
by 16 per cent (or US$11 million), to
US$79 million in FY22, as higher realised
prices (+US$76 million) and sales volumes
(+US$13 million) more than offset increased
freight costs (-US$46 million) and a stock
drawdown as we optimised our sales mix of
premium material (-US$15 million).
Our realised sales price in FY22 was a
premium of approximately 18 per cent to
the medium grade 37 per cent manganese
lump ore index, as we maximised our
revenue by optimising our sales mix
with additional volumes of our premium
products.
Manganese alloy Underlying EBIT
was a loss of US$21 million in FY22
recognising an adjustment to the closure
and rehabilitation provision with the
Metalloys smelter remaining on care and
maintenance.
Capital expenditure
Safe and reliable capital expenditure
decreased by US$1 million, to US$14 million
in FY22. Improvement and life extension
capital expenditure increased to
US$5 million in FY22, as we progressed
work to open up new mining areas at
Mamatwan.
Community investment
We invested US$3.7 million in communities
around South Africa Manganese in FY22,
with a focus on education, health and local
economic development.
(1) South Africa Manganese ore has been reported as a 54.6 per cent interest (previously 60 per cent) reflecting our Metalloys manganese alloy smelter (60 per cent interest)
having been placed on care and maintenance, and aligning with our interest in Hotazel Manganese Mines (HMM). 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 (five per cent) and HMM
Education Trust (five per cent). The interests owned by NCAB Resources, Iziko Mining and HMM Education Trust were acquired using vendor finance 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.
(2) 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
Underlying Revenue less freight and marketing costs, divided by external sales volume.
(3) South Africa Manganese FY22 average manganese content of external ore sales was 39.7 per cent on a dry basis (FY21: 39.9 per cent). 75 per cent of FY22 external manganese
ore sales (FY21: 76 per cent) were completed on a CIF basis. FY22 realised FOB ore prices and Operating unit costs have been adjusted for freight and marketing costs of
US$88 million (FY21: US$50 million).
(4) FOB ore operating unit cost is Underlying revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume.
56
OPERATING AND FINANCIAL REVIEW
Third party product sales
The Group differentiates the sale of its production from the sale of third party products due to a significant difference in profit margin
earned on these sales. The table below shows the breakdown between the Group’s production and third party products:
US$M
Group Production
Underlying revenue
Related operating costs (net of other income)
Underlying EBIT
Margin on Group production
Third party products
Underlying revenue
Related operating costs (net of other income)(1)
Third party Underlying EBIT
Margin on third party products
(1) Includes depreciation and amortisation.
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.
FY22
FY21
10,030
(6,083)
3,947
39.4%
600
(580)
20
3.3%
6,899
(5,881)
1,018
14.8%
424
(403)
21
5.0%
Outlook
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 in this report. 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 majority of our operations delivered to guidance in FY22, despite adverse impacts from weather and labour availability caused
by the COVID-19 pandemic. While all guidance remains subject to further potential impacts from COVID-19, we expect Group copper
equivalent production to increase by 14 per cent in FY23 as we benefit from our investments in efficiency and improvement projects
and our acquisitions that will increase our production of metals critical to a low-carbon future.
Production guidance (South32's share)(1)
FY22
FY23e(2)
FY24e(2)
Key guidance assumptions
Worsley Alumina
Alumina production (kt)
Brazil Alumina (non-operated)
Alumina production (kt)
Brazil Aluminium (non-operated)
Aluminium production (kt)
Hillside Aluminium
Aluminium production (kt)
Mozal Aluminium
Aluminium production (kt)
3,991
4,000
4,000 Expected to sustain above nameplate capacity in FY23
and FY24
1,297
1,395
1,400 Expected to increase by eight per cent in FY23 as the
refinery returns to normalised production rates, before
creeping 5kt in FY24
0.3
↓100
179 Lowered in FY23 due to the slower ramp-up to nameplate
capacity of all three potlines (179ktpa, 40 per cent basis)
714
720
720 Expected to test its maximum technical capacity
Guidance remains subject to load-shedding
278
370
370 Expected to benefit from AP3XLE energy efficiency project
and our increased ownership interest
Guidance remains subject to load-shedding
57
SOUTH32 ANNUAL REPORT 2022
Financial and operational performance summary continued
Production guidance (South32's share)(1) continued
FY22
FY23e(2)
FY24e(2)
Key guidance assumptions
Sierra Gorda (non-operated)
Ore processed (Mt)
Payable copper equivalent production (kt)(3)
Payable copper production (kt)
Payable molybdenum production (kt)
Payable gold production (koz)
Payable silver production (koz)
Cannington
Ore processed (kdmt)
Payable zinc equivalent production (kt)(4)
Payable silver production (koz)
Payable lead production (kt)
Payable zinc production (kt)
Cerro Matoso
Ore to kiln (kt)
Payable nickel production (kt)
7.5
30.6
25.3
0.4
9.6
253
2,618
224.2
12,946
120.6
64.5
2,703
41.7
22.2
89.0
71.8
1.5
29.9
582
2,850
236.1
13,500
122.0
72.0
2,850
43.5
N/A Throughput capacity expected to increase by six per cent
to approximately 50Mtpa (100 per cent basis) by Q2 FY23
N/A
as the benefits of the plant de-bottlenecking project are
N/A
realised
N/A
N/A
N/A
FY24 production guidance not provided
2,700 Expected to benefit from the optimised mine configuration
233.4
13,500
124.0
68.0
delivering earlier access to higher-grade material. Recent
strong production performance is expected to continue
into FY24
2,850 Expected to increase by four per cent from FY22 as plant
43.5
availability returns to normalised levels and the OSMOC
project is commissioned, mitigating expected grade
decline
Illawarra Metallurgical Coal
Total coal production (kt)
Metallurgical coal production (kt)
Energy coal production (kt)
Australia Manganese
Manganese ore production (kwmt)
South Africa Manganese
Manganese ore production (kwmt)
6,509
5,712
797
7,400
6,500
900
5,300 Expected to increase by 14 per cent in FY23 with fewer
4,600
700
longwall moves and a recovery from wet weather, subject
to labour productivity as the operation is currently
negotiating the Appin Enterprise Agreements
Production expected to decline to 5.3Mt in FY24 as
Dendrobium moves to a new mining area, with an
expected average run-rate of approximately 5.5Mtpa
to FY28
3,363
3,400
3,400 Expected to recover from FY22’s wet weather and
COVID-19 impacts, with the low-cost PC02 circuit expected
to continue to operate above nameplate capacity
supporting higher volumes
2,069
2,000 Subject to
demand
We expect to continue optimising production rates and our
use of higher cost trucking in response to market
conditions
FY24 guidance subject to market demand and not
provided
(1) South32’s ownership share of operations is as per footnote (3) on page 42.
(2) The denotation (e) refers to an estimate or forecast year. All guidance is subject to further potential impacts from COVID-19.
(3) Payable copper equivalent production (kt) was calculated by aggregating revenues from copper, molybdenum, gold and silver, and dividing the total Revenue by the price of
copper. FY22 realised prices for copper (US$3.50/lb), molybdenum (US$18.48/lb), gold (US$1,934/oz) and silver (US$23.5/oz) have been used for FY22 and FY23e.
(4) 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. FY22 realised prices
for zinc (US$3,248/t), lead (US$2,046/t) and silver (US$21.0/oz) have been used for FY22, FY23e and FY24e.
58
OPERATING AND FINANCIAL REVIEW
Costs and capital expenditure
We continue to pursue cost efficiencies, having successfully delivered more than US$50 million of annualised savings across the Group
through the simplification of our functional structures and footprint (since FY20). This focus combined with an improvement in planned
volumes and lower producer currencies is expected to provide partial relief from further upward pressure on our Operating unit costs in
FY23, despite continuing industry-wide inflation in raw material input prices, labour and energy.
Operating unit cost performance and guidance(1)(2)
FY21
FY22
FY23e(3)(4) Commentary
Worsley Alumina
(US$/t)
214
265
296 FY21 versus FY22: Record volumes more than offset by a
significant rise in caustic soda prices (US$28/t) and elevated
global freight rates (US$10/t)
FY23 key guidance assumptions: Significantly higher caustic
soda prices and consumption, combined with increased freight
costs, partially offset by a weaker Australian dollar
Brazil Alumina (non-operated)
(US$/t)
203
288
Brazil Aluminium (non-operated)
(US$/t)
N/A
N/A
Not
provided
FY21 versus FY22: Lower volumes and additional costs to
recover from the bauxite ship unloader outage (US$7/t), added
to higher raw material (US$42/t) and energy costs (US$13/t)
FY23 key guidance assumptions: Not provided but expected
to continue to be influenced by energy and raw material input
prices, including caustic soda
Not
provided
FY23 key guidance assumptions: Not provided but expected
to be influenced by the ramp-up profile for all three potlines and
the price of raw material inputs
Hillside Aluminium
(US$/t)
Mozal Aluminium
(US$/t)
1,631
2,137
Not
provided
FY21 versus FY22: Significant rise in raw material input costs
including alumina, coke and pitch (US$323/t), and energy cost
inflation (US$45/t)
FY23 key guidance assumptions: Not provided but expected
to continue to be influenced by the price of raw material inputs,
the South African rand and inflation-linked energy costs
1,702
2,243
Not
provided
FY21 versus FY22: Significant rise in raw material input costs
including alumina, coke and pitch (US$393/t), and energy cost
inflation (US$29/t)
FY23 key guidance assumptions: Not provided but expected
to continue to be influenced by the price of raw materials inputs,
the South African rand and inflation-linked energy costs
Sierra Gorda (non-operated)
(US$/t)(5)
N/A
14.6
14.8 FY22 Operating unit costs reflect our first period of ownership
Cannington
(US$/t)(5)
Cerro Matoso
(US$/lb)
(1 March 2022 to 30 June 2022)
FY23 key guidance assumptions: Efficiencies from the plant
de-bottlenecking project, more than offset by higher diesel
prices and labour costs
124
133
129 FY21 versus FY22: Impacted by planned lower throughput as
we completed scheduled maintenance and work to support the
transition to 100 per cent trucking
FY23 key guidance assumptions: Higher throughput from the
optimised mine plan and a weaker Australian dollar, to more
than offset higher energy prices
4.01
4.34
4.97 FY21 versus FY22: Significant increase in price-linked royalties
(US$0.35/lb), energy prices (US$0.18/lb) and costs to support
processing of additional higher-grade Q&P ore (US$0.15/lb).
Partially offset by volume benefits (US$0.24/lb), a weaker
Colombian peso (US$0.19/lb) and the one-off benefit from the
adjustment of a royalty provision (US$0.14/lb)
FY23 key guidance assumptions: Higher price-linked royalties,
energy prices and the impact of the prior year’s one-off royalty
provision adjustment (US$0.13/lb), partially offset by the benefit
of additional volumes
59
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
Operating unit cost performance and guidance(1)(2)continued
FY21
FY22
FY23e(3)(4) Commentary
Illawarra Metallurgical Coal
(US$/t)
87
126
116 FY21 versus FY22: Significant increase in price-linked royalties
(US$15/t) and the impact of reduced volumes (US$15/t),
including our decision to cease sales of low-margin coal wash
material
FY23 key guidance assumptions: Higher volumes and a
weaker Australian dollar to more than offset labour and energy
cost inflation
Australia Manganese ore (FOB)
(US$/dmtu)
1.52
1.86
2.08 FY21 versus FY22: Lower volumes (US$0.12/dmtu) together
with higher diesel prices (US$0.12/dmtu) and consumable costs
(US$0.04/dmtu)
FY23 key guidance assumptions: Higher labour and contractor
costs associated with increased activity as the strip ratio
increases (FY23e: 5.9, FY22: 5.1), combined with higher diesel
prices, partially offset by a weaker Australian dollar
South Africa Manganese ore (FOB)
(US$/dmtu)
2.48
2.73
2.66 FY21 versus FY22: Higher distribution and trucking costs to
support increased sales volumes of premium products (US$0.15/
dmtu)
FY23 key guidance assumptions: Drawdown on previously
built low-cost inventory from the barrier pillar project and a
weaker South African rand
(1) South32’s ownership share of operations is as per footnote (3) on page 42.
(2) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volumes. Operating cost is Revenue less Underlying EBITDA excluding third
party sales.
(3) FY23 Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various assumptions for FY23, including: an
alumina price of US$364/t; an average blended coal price of US$265/t for Illawarra Metallurgical Coal; a manganese ore price of US$6.40/dmtu for 44 per cent manganese
product; a nickel price of US$9.94/lb; a silver price of US$22.11/troy oz; a lead price of US$2,059/t (gross of treatment and refining charges); a zinc price of US$3,480/t (gross of
treatment and refining charges); a copper price of US$4.07/lb (gross of treatment and refining charges); a molybdenum price of US$16.95/lb (gross of treatment and refining
charges); a gold price of US$1,860/troy oz; an AUD:USD exchange rate of 0.69; a USD:ZAR exchange rate of 16.62; a USD:COP exchange rate of 3,851; USD:CLP exchange rate of
814; and a reference price for caustic soda; all of which reflected forward markets as at June 2022 or our internal expectations.
(4) The denotation (e) refers to an estimate or forecast year. All guidance is subject to further potential impacts from COVID-19.
(5) US dollar per tonne of ore processed. Periodic movements in finished product inventory may impact Operating unit costs.
60
OPERATING AND FINANCIAL REVIEW
Capital expenditure
Group safe and reliable capital expenditure is expected to increase by US$312 million to US$785 million in FY23 with a full year of spend
from Sierra Gorda contributing US$169 million (or 54 per cent) of the increase. We expect our investment at Illawarra Metallurgical Coal
to increase by US$86 million to US$263 million in FY23 as we continue our work to support the return to a single longwall configuration
at Appin from FY25, including projects not executed in FY22 due to adverse weather and COVID-19 related labour constraints.
Group improvement and life extension capital expenditure is expected to increase by US$56 million to US$170 million in FY23 as we
invest in plant de-bottlenecking projects at Brazil Alumina and Sierra Gorda. At Worsley Alumina, we plan to invest US$44 million in FY23
as we commence multi-year programs to open up new bauxite mining areas, and advance decarbonisation projects at the refinery.
At our manganese business in FY23, we plan to invest in the Eastern Leases mine life extension project (US$14 million) for Australia
Manganese and continue our mine and rail infrastructure upgrades (US$28 million) at South Africa Manganese.
FY23 growth capital expenditure is expected to increase by US$193 million to US$290 million at our Hermosa project in Arizona as we
invest in infrastructure to support critical path dewatering and progress study work for the Taylor Deposit, ahead of a planned final
investment decision expected in mid-calendar year 2023. Following the decision by the United States Government to invoke the Defense
Production Act, supporting the production of critical metals including manganese, we are looking at different options to potentially
accelerate the pre-feasibility study for the Clark Deposit.
Capital expenditure guidance (South32’s share)(1)(2)
US$M
FY21
FY22
FY23e(3)
Worsley Alumina
Brazil Alumina
Brazil Aluminium
Hillside Aluminium
Mozal Aluminium
Cannington
Cerro Matoso
Illawarra Metallurgical Coal
South Africa Energy Coal
Safe and reliable capital expenditure (excluding equity accounted investments)
Worsley Alumina
Brazil Alumina
Cerro Matoso
Illawarra Metallurgical Coal
South Africa Energy Coal
Other operations
Improvement and life extension capital expenditure (excluding equity accounted
investments)
Hermosa
Growth capital expenditure
Total capital expenditure (excluding equity accounted investments)
Total capital expenditure (including equity accounted investments)
Equity accounted investments capital expenditure guidance (South32’s share)(1)(2)
51
25
–
17
10
41
30
151
23
348
4
–
15
37
53
15
124
64
64
536
606
47
51
1
20
10
43
18
177
–
367
8
–
19
12
–
19
58
97
97
522
684
45
50
10
30
17
60
40
263
–
515
44
19
4
3
–
15
85
290
290
890
1,245
US$M
FY21
FY22
FY23e(3)
Sierra Gorda
Australia Manganese
South Africa Manganese
Safe and reliable capital expenditure (equity accounted investments)
Sierra Gorda
Australia Manganese
South Africa Manganese
Improvement and life extension capital expenditure (equity accounted investments)
Total capital expenditure (equity accounted investments)
Capitalised exploration guidance (South32’s share)(1)
US$M
Capitalised exploration (excluding equity accounted investments)
Equity accounted investments capitalised exploration
Capitalised exploration (including equity accounted investments)
–
53
15
68
–
2
–
2
70
36
56
14
106
45
6
5
56
162
205
50
15
270
43
14
28
85
355
FY21
FY22
FY23e(3)
29
1
30
33
2
35
55
8
63
(1) South32’s ownership share of operations is as per footnote (3) on page 42.
(2) Total capital expenditure comprises Capital expenditure and evaluation expenditure. Capital expenditure comprises Safe and reliable capital expenditure (Deferred stripping,
Regulatory compliance, Risk reduction, and Sustained performance), Improvement (Decarbonisation) and Life extension capital expenditure, and Growth (development of our
current and future greenfields growth) capital expenditure.
(3) The denotation (e) refers to an estimate or forecast year. All guidance is subject to further potential impacts from COVID-19.
61
SOUTH32 ANNUAL REPORT 2022 Financial and operational performance summary continued
Other expenditure guidance
Underlying ETR in FY23 is expected to reflect the composition of the corporate tax rates and earnings from the jurisdictions in which we
operate, including the Australia Manganese and Sierra Gorda royalty related tax. All other expenditure guidance is provided in the table
below. These items are on a proportional consolidation basis including our manganese and Sierra Gorda equity accounted investments.
FY22
FY23e(1) Commentary
Group and unallocated Underlying EBIT (excluding greenfield exploration and third party product and services EBIT)
(US$M)
82
100 FY23 guidance reflects a normalised run-rate, including the effect of
recent portfolio changes
Underlying depreciation and amortisation
(US$M)
788
935 FY23 guidance includes the first full year of owning our interest in
Sierra Gorda
Underlying net finance costs
(US$M)
Greenfield exploration
(US$M)
155
135 FY23 guidance is expected to reflect a normalised level of
expenditure, following one-off costs associated with the Sierra Gorda
acquisition in FY22
26
44 FY23 guidance reflects increased activity as we advance our
greenfield exploration programs targeting base metals in the
Americas, Australia and Europe
(1) The denotation (e) refers to an estimate or forecast year. All guidance is subject to further potential impacts from COVID-19.
62
OPERATING AND FINANCIAL REVIEW
GOVERNANCE
Board of Directors
Directors’ report
Lead Team
Remuneration report
64
68
72
74
63
SOUTH32 ANNUAL REPORT 2022 Board of Directors
N
R
S
Ms Karen Wood BEd, LLB (Hons), 66
Chair and Independent Non-Executive Director
Appointed: 1 November 2017; Chair: 12 April 2019
Location: Australia
Career summary: Ms Wood has worked in legal practice
and business.
In 2001, Ms Wood joined the BHP Group and held several global
executive leadership roles, including Group Company Secretary,
Chief Governance Officer, Chief People Officer and President
People and Public Affairs (Corporate Affairs). Before joining
BHP she worked at Bonlac Foods Limited, where she spent five
years as General Counsel and Company Secretary. Following
her retirement in 2014, she continued as an adviser to BHP’s
Board and CEO until 2015. She also chaired the BHP Foundation
until 2019, overseeing grant provisions for not-for-profit
organisations to deliver global programs in the areas of natural
resource governance, human capability and social inclusion, and
conserving and sustainably managing natural environments.
Other key positions Ms Wood has held include being a member of
the Takeovers Panel (Australia) from 2000 to 2012 and roles with
the Australian Securities and Investments Commission (Business
Consultative Panel) and the Australian Government’s Business
Regulatory Advisory Group.
External appointments:
ASX listed: Ms Wood is currently a Non-Executive Director of
Djerriwarrh Investments Limited (since July 2016).
Ms Wood is also a Director of the Melbourne Cricket Club
Foundation, the Robert Salzer Foundation and the Board of
the State Library Victoria. She serves on the State Library
Victoria Foundation Council, is an ambassador for the Australian
Indigenous Education Foundation and is a member of the
Advisory Board of the Sir John Monash Leadership Academy.
Skills and experience: Ms Wood brings extensive corporate
governance expertise to her roles as Chair of our Board and the
Nomination and Governance Committee, and her experienced
leadership promotes a cohesive environment of constructive
challenge and oversight. Ms Wood’s substantial tenure as a global
executive within the resources industry means that she brings a
strong understanding of the regulatory landscape and the key
strategic risks and opportunities for a global mining and metals
company. Her expertise in shaping culture (including through
organisational and remuneration design), public policy, social
performance and stakeholder engagement make her a trusted
adviser in these areas.
64
GOVERNANCE
Mr Graham Kerr BBus, FCPA, 51
Chief Executive Officer
Appointed: October 2014 and as Managing Director
on 21 January 2015
Location: Australia
Career summary: Mr Kerr joined BHP in 1994 and held a wide
range of operational and commercial roles across the business,
including Chief Financial Officer Stainless Steel Materials, Vice
President Finance Diamonds and Finance Director for the BHP
Canadian Diamonds Company.
In 2004, Mr Kerr joined Iluka Resources Limited as General
Manager Commercial. He returned to BHP in 2006, leading to his
appointment as President of Diamonds and Specialty Products
where he was accountable for the Ekati Diamond Mine in Canada,
Richards Bay Minerals joint venture in South Africa, diamonds
exploration in Angola, the Corridor Sands Project in Mozambique
and the development of BHP’s potash portfolio in Canada.
Mr Kerr was appointed BHP’s Chief Financial Officer in 2011, a role
which he held until 2015 when he left to lead South32 through its
demerger from BHP and listing in three countries.
External appointments: Director, CEOs for Gender Equity.
Skills and experience: Mr Kerr’s strong track record in resource
development, and global experience as a commercial and
operational leader within the resource industry, means that
he brings deep mining and metals expertise and exceptional
financial acumen. His health and safety expertise, and passion
for promoting diversity and inclusion, are valued contributions to
our Board as it oversees our commitment to elevate our safety
performance and instil a culture where everyone feels safe and
respected at work. Mr Kerr’s strong focus on a purpose-driven
and values-led future for South32 make him a trusted leader as
we progress the next phase of our strategy.
Committee membership key:
Chair appointment
N Nomination and Governance Committee
R
Remuneration Committee
RA Risk and Audit Committee
S
Sustainability Committee
RA
N
R
N
R
RA
S
Mr Frank Cooper AO, BCom, FCA, FAICD, 66
Independent Non-Executive Director
Appointed: 7 May 2015
Location: Australia
Mr Guy Lansdown BSc (Engineering (Civil)),
MSc (Engineering (Project Management)), 61
Independent Non-Executive Director
Appointed: 2 December 2019
Location: Mexico
Career summary: Mr Cooper qualified as a chartered accountant
in Australia, leading to a 40-year career in the finance and
accounting profession. He has held a number of senior tax
and finance roles, including Partner at Ernst & Young, Partner /
Business Unit Leader, Tax Practice at PricewaterhouseCoopers
and Managing Partner for Arthur Andersen in Perth (for just over
10 years), during which time he specialised in the mining, energy
and utility sectors.
Throughout his career, Mr Cooper has had extensive involvement
in community activities, including serving as Commissioner and
Chair of the West Australian Football Commission and member
of the State Health Research Advisory Council (Western Australia).
In 2014 Mr Cooper was awarded an Officer of the Order of
Australia. He was also named West Australian of the Year in the
Professions category in 2015.
External appointments:
ASX listed: Mr Cooper is currently a Non-Executive Director of
Woodside Energy Group Limited (since February 2013) and Chair
of its Audit and Risk Committee.
Mr Cooper is also Commissioner and Chairman of the Insurance
Commission of Western Australia, Pro Chancellor of the University
of Western Australia and a Director of St John of God Australia
Limited and Wright Prospecting Pty Ltd.
Skills and experience: Mr Cooper brings exceptional financial
acumen and accounting expertise, a strong understanding of
legal and regulatory compliance and substantial experience in
risk management oversight to our Board, all of which also make
him a highly capable Risk and Audit Committee Chair. His listed
company experience and expertise in capital management
and corporate development are highly valued by our Board as
it oversees the implementation of our strategy, as is his strong
focus on organisational philosophy, values and standards.
Career summary: Mr Lansdown completed postgraduate study
specialising in civil engineering and project management and in
his early career worked as a project director for South African
engineering and construction company Group Five, and then
as an associate with global consulting firm Knight Piesold in the
United States.
In 1993, Mr Lansdown joined Newmont Mining Corporation,
where he held many senior positions over his 20 year tenure,
including Senior Vice President of Safety, Project Development
and Technical Services, Executive Manager Boddington Australia,
Operations Manager Minera Yanacocha Peru and Engineering
and Development Director Australia. His role through 2012 was
Executive Vice President Discovery and Development, where he
led Newmont’s exploration, technical services and major project
development.
External appointments: Mr Lansdown currently provides
consulting services through his American company Project
Excellence, Inc. He is also President and Director of two charities,
Un Futuro Mejor Inc and Fundación Lansdown A.C., which provide
opportunities for disadvantaged youth in Mexico to reach their
full potential.
Skills and experience: Mr Lansdown’s substantial tenure as
an executive leader in the gold mining sector and his skills
and experience in social performance, enhance our Board’s
capability to monitor our safety and operational performance
and evaluate our response to the key sustainability-related
issues facing our business. His extensive experience in early and
late stage greenfield and brownfield project development and
delivery contribute to our Board’s assessment of exploration and
development opportunities. In addition, his experience working
in the Americas gives him insight into strategic and regulatory
issues, which is an asset to our Board as we expand our presence
in those locations.
65
SOUTH32 ANNUAL REPORT 2022 Board of Directors continued
N RA
S
N
RA
Dr Xiaoling Liu BEng (Extractive Metallurgy), PhD (Extractive
Metallurgy), FAusIMM, FTSE, 65
Independent Non-Executive Director
Appointed: 1 November 2017
Location: Australia
Dr Ntombifuthi (Futhi) Mtoba CA(SA), DCom (Honoris Causa),
BCompt (Hons), HDip Banking Law, BA (Econ)(Hons), BA (Arts), 67
Independent Non-Executive Director
Appointed: 7 May 2015
Location: South Africa
Career summary: Dr Liu completed her undergraduate study
in Chongqing University in China and her PhD in Extractive
Metallurgy at Imperial College in UK, before joining the Rio Tinto
Group as a senior research scientist in 1988.
Over her 26-year career with Rio Tinto, Dr Liu held various roles
in smelting operations, including General Manager Operations
at Bell Bay (Tasmania), leading to other senior operational and
management roles, including Managing Director Technical
Services, where she led Rio Tinto’s global technical services unit.
Prior to her retirement, Dr Liu was President and Chief Executive
Officer of Rio Tinto Minerals, with responsibility for integrated
operations of mining, processing, supply chain, marketing and
sales for its Borates business in the United States, Europe and
Asia.
Dr Liu has served as Vice President of the Board of the Australian
Aluminium Council, a Board Member of the California Chamber
of Commerce, a Director of Melbourne Business School and
Chancellor of Queensland University of Technology. She has also
served as a Non-Executive Director at Newcrest Mining Limited
(September 2015 until November 2020) and Iluka Resources
Limited.
External appointments:
ASX listed: Dr Liu is currently a Non-Executive Director of Incitec
Pivot Limited (since November 2019) and Chair of its Health,
Safety, Environment and Community Committee.
Skills & experience: With her accomplished career as a global
executive in the resources industry, Dr Liu brings to our Board
expertise in mining and processing operations, the execution of
major capital projects and commodity value chain management.
Her high financial acumen, expertise in health and safety and
strong understanding of the key environmental impacts, risks
and opportunities relevant to our operations, make her a valued
contributor to the Committees on which she serves. Dr Liu’s
knowledge and experience in technology and innovation,
together with her technical background, is an asset to our Board
as it oversees our advancement towards a low-carbon future.
Career summary: Dr Mtoba qualified as a chartered accountant
in South Africa and joined Deloitte and Touche in 1988,
specialising in financial services. She was one of the first African
Black women to be appointed Partner by one of the Big Four
accounting firms, and later was appointed Chairperson of Deloitte
Southern Africa.
Dr Mtoba is President and founder of TEACH South Africa, which
recruits skilled teachers for underprivileged schools. She has held
several board positions at organisations focused on economic
development and community engagement, including the New
Partnership for Africa’s Development Business Foundation and
the African Union Foundation. Dr Mtoba has also been President
of the Association for the Advancement of Black Accountants and
Business Unity South Africa and chaired the University of Pretoria
Council for over ten years.
Other positions Dr Mtoba has held include being a member of
the International Monetary Fund Advisory Group of Sub-Saharan
Africa, the World Economic Forum Global Advisory Council, and
the United Nations Global Compact Board. She has received
several awards for contributions to business and society,
including Most Outstanding Leadership Women of the Year
(Africa Economy Builders, 2018).
External appointments: Dr Mtoba is currently a Non-Executive
Director and Deputy Chair of the Public Investment Corporation
Limited and Chair of its Audit Committee; a Director of Discovery
Bank Holdings Limited and Lead Independent Director and Audit
Committee Chair of Discovery Bank Limited and a Director of
Vumelana Advisory Fund and the International Women’s Forum
(South Africa).
Skills and experience: Dr Mtoba’s tenure as partner and a leader
at one of Africa’s predominant financial professional services
firms, and the numerous roles she has held in local, regional and
international organisations and forums, means that she provides
our Board with considerable financial, economic and public policy
expertise and leadership. Dr Mtoba brings a strong focus on
culture and her expertise in social performance and community
and stakeholder engagement are an asset to our Board as it
supports our aspiration to contribute social and economic value
where we operate.
66
GOVERNANCE
R
N
S
S
N
R
Mr Wayne Osborn Dip Elect Eng, MBA, FTSE, 70
Independent Non-Executive Director
Appointed: 7 May 2015
Location: Australia
Mr Keith Rumble BSc, MSc (Geology), 68
Independent Non-Executive Director
Appointed: 27 February 2015
Location: South Africa
Career summary: Mr Osborn worked as an engineer in the
telecommunications and iron ore industries, before joining Alcoa
(Australia) in 1979.
Mr Osborn held several senior management positions with Alcoa
over the course of his career, including having accountability for
its Asia-Pacific manufacturing operations in China, Japan, Korea
and Australia. In 2001 he was appointed Managing Director,
leading an integrated business comprised of bauxite mining,
alumina refining, coal mining, power generation and aluminium
smelting until his retirement in 2008.
Since 2008, Mr Osborn has served as a Non-Executive Director
in the mining, energy and construction industries. Most recently,
he was a Non-Executive Director of Wesfarmers Limited from
March 2010 to October 2021.
Other key roles Mr Osborn has held include 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. He is also a recipient of the WA Business
Leader Award (2007) and the Australian Institute of Company
Directors Award for Excellence (2018).
External appointments: None.
Skills and experience: Mr Osborn brings expertise in mining
and smelting operations, large-scale capital projects and
commodity value chain management to our Board. His broad
skills and experience in health and safety management and
strong understanding of the key environmental issues, risks
and opportunities relevant to our operations, are an asset to
our Board as it oversees our commitments to improve our
safety performance, address climate change and manage our
environmental impact. Mr Osborn’s experience leading large
workforces, expertise in overseeing remuneration design and
implementation and strong focus on sustainability, make him a
highly capable Remuneration Committee Chair.
Career summary: Mr Rumble is a qualified geologist. He joined
Richards Bay Minerals (at that time, a joint venture between
BHP and the Rio Tinto Group) in 1980, working in smelting and
metallurgy, and held various management positions before
becoming CEO in 1996. Prior to that appointment, Mr Rumble
spent just under three years with Rio Tinto’s iron and titanium
business as Director of International Sales and Marketing and re-
joined the business in 2000 as President and CEO of Rio Tinto Iron
and Titanium Inc. in Canada.
In 2001, Mr Rumble joined Impala Platinum, where he held the
role of CEO until 2006, after which he moved to junior miner SUN
Mining (part of the SUN Group), also as CEO.
Since his retirement as an executive in 2008, Mr Rumble has held
Non-Executive Director positions at the BHP Group and South
African infrastructure and resources company, Aveng Limited.
External appointments: Mr Rumble is currently a Director of
Enzyme Technologies (Pty) Limited and Elite Wealth (Pty) Limited.
Skills and experience: With his substantial tenure as an
executive leader in the resources industry, Mr Rumble brings
deep knowledge and experience in mining and smelting
operations. His expertise in geological and geoscience matters
and strong understanding of the key environmental impacts, risks
and opportunities relevant to our business, enhance our Board’s
capability to oversee our sustainability commitments, risks
and impacts. These skills, together with his health and safety
management expertise and proficiency in risk management,
make him a highly capable Sustainability Committee Chair.
67
SOUTH32 ANNUAL REPORT 2022 Directors’ report
This report is presented by the Board of
Directors of South32 Limited, together
with the Group’s Financial report, for the
financial year ended 30 June 2022.
The report is prepared in accordance with
the requirements of the Corporations Act,
with the following information forming part
of the report:
– Operating and financial review on the
inside front cover to page 62;
– Director biographical information on
pages 64 to 67;
– Remuneration report on pages 74 to
102;
– Note 19(a) Financial risk management
objectives and policies on pages 140 to
144;
– Note 20 Share capital on page 150;
– Note 21 Auditor’s remuneration on page
151;
– Note 23 Employee share ownership
plans on pages 152 to 155;
– Directors’ declaration on page 166;
– Auditor’s independence declaration on
page 167;
– Resources and Reserves on pages 172
to 179;
– Shareholder information on pages 181
to 183; and
– Corporate directory on the inside back
cover.
Directors and meetings
At the date of this report, the Directors in
office were:
Ms Karen Wood
Appointed 1 November 2017
Mr Graham Kerr
Appointed 21 January 2015
Mr Frank Cooper AO
Appointed 7 May 2015
Mr Guy Lansdown
Appointed 2 December 2019
Dr Xiaoling Liu
Appointed 1 November 2017
Dr Ntombifuthi (Futhi) Mtoba
Appointed 7 May 2015
Mr Wayne Osborn
Appointed 7 May 2015
Mr Keith Rumble
Appointed 27 February 2015
Board and Committee meetings
and Director attendance
There are nine regularly scheduled
meetings of our Board each year. Six of
these are usually held face-to-face over
three days and are held in one of our main
geographic areas of operation to allow
Directors to conduct site visits. Committee
meetings are also held during this time.
A further three meetings are convened
each year to consider annual disclosures,
including half and full year results, and are
usually held virtually. Additional meetings
are convened as required to address
business critical issues.
During FY22, there were a total of 15 Board
meetings. The additional meetings were
held to oversee the acquisition of a 45 per
cent interest in the Sierra Gorda copper
mine, the issuance of US$700 million of
senior unsecured notes in the United
States of America and to consider other
business critical issues and continuous
disclosure obligations. The FY22 Board
program included a dedicated strategy day
held in April 2022.
In an ongoing response to the COVID-19
pandemic and related travel disruptions,
our virtual format continued for the
majority of Board and Committee meetings
in FY22. Following the easing of travel and
social distancing restrictions in late FY22,
our Board was able to meet physically in
April and June 2022 and conducted site
visits to Worsley Alumina in Australia and
Sierra Gorda in Chile, respectively.
In addition to the two site visits, during the
period of FY22 when it was not possible to
visit our sites due to COVID-19, our Board
continued to stay connected with our
operations by way of operational overviews
and briefing sessions conducted as part of
the Board programs.
To help it carry out its responsibilities,
our Board has four standing Board
Committees. From time to time, the Board
creates other committees to address
important matters and areas of focus for
the business. For example, a committee
was established to oversee the Company’s
acquisition of an interest in the Sierra
Gorda copper mine.
All Directors have a standing invitation to
attend all Committee meetings, with the
consent of the relevant Committee Chair.
In practice, all Directors generally attend all
meetings.
Our Chair sets the agenda for each Board
meeting, with the Chief Executive Officer
(CEO) and the Company Secretary. The
meetings typically include:
– Minutes of the previous meeting and
matters arising;
– Report from our Chair;
– Update on various governance matters;
– CEO’s report;
– Finance report;
– Commercial report;
– Reports on major projects and strategic
matters;
– Board Committee Chair reports;
– Continuous disclosure checkpoint; and
– Closed sessions with Directors and
closed sessions with Non-Executive
Directors only.
In between meetings, our Board receives
regular reports from senior management
on matters, including (but not limited to):
– Sustainability (including health and
safety) performance;
– Financial and production performance;
– Government relations and political
affairs; and
– Investor relations updates (including
ESG updates).
Further, our Board receives updates on
relevant issues such as cybersecurity
risks, climate change, carbon emissions
reduction targets including information
on evolving regulation and policy
developments, shifting societal
expectations, sexual harassment in the
workplace, culture, inclusion and diversity,
cultural heritage, community matters,
business integrity and litigation. It also
receives regular reports for discussion
on operational, culture and leadership,
corporate governance and other business
matters, including market updates and
market research.
As part of their ongoing education and
training, during FY22 our Board received
external briefings on various matters
including cybersecurity risk, climate risk
governance and disclosure matters,
workplace sexual harassment and evolving
regulation and policy developments and
shifting societal expectations in relation to
these areas.
You can find information about our
Directors’ qualifications, experience, special
responsibilities and other directorships on
pages 64 to 67.
You will find the number of Board and
Committee meetings held in FY22, as well
as the Directors who attended them, in
Table 1.1.
68
GOVERNANCE
Table 1.1 Board and Committee Meeting Attendance in FY22
Board
Nomination and
Governance Committee
Remuneration
Committee
Risk and Audit
Committee
Sustainability
Committee
Eligible(1)
Attended(2)
Eligible(1)
Attended(2)
Eligible(1)
Attended(2)
Eligible(1)
Attended(2)
Eligible(1)
Attended(2)
15
15
15
15
15
15
15
15
15
15
15
15
14(4)
15
15
14(4)
5
-
5
5
5
5
5
5
5
5
5
5
5
5
5
5
7
-
7
-
6
-
7
7
7
7
7
7
7
7
7
7
-
-
10
10
10
10
-
-
10
10
10
10
10
10
10
10
8
-
-
8
8
-
8
8
8
8
8
8
8
8
8
8
Director
K Wood
G Kerr (CEO)
F Cooper
X Liu
G Lansdown(3)
N Mtoba
W Osborn
K Rumble
Member
Chair
(1) Indicates the number of meetings held during FY22 while the Director was a member of the Board or Committee.
(2) Indicates the number of meetings the Director attended during FY22.
(3) G Lansdown was appointed as a member of the Remuneration Committee effective 1 August 2021.
(4) The Director attended all scheduled meetings in FY22 and was unable to attend a meeting outside of the regular Board schedule which was convened on short notice. The
Director was consulted separately by the CEO prior to the meeting.
Principal activities, state of affairs
and review of operations
Principal activities and significant
changes during the year
In FY22, the principal activities of the
Group were mining and metal production,
from a portfolio of assets that included
bauxite, alumina, aluminium, copper, silver,
lead, zinc, nickel, metallurgical coal and
manganese.
On 6 January 2022, the Group announced
its decision to participate in a restart of
the Alumar aluminium smelter in Brazil,
together with our joint venture partner
Alcoa Corporation.
On 22 February 2022, the Group completed
its acquisition of a 45 per cent interest in
the Sierra Gorda copper mine in Chile.
On 29 April 2022, the Group acquired an
additional 18.2 per cent shareholding and
related rights in the Mineração Rio do
Norte (MRN) bauxite mine in Brazil. The
additional interest increased the Group’s
shareholding to 33 per cent.
On 31 May 2022, the Group acquired an
additional 16.6 per cent shareholding
and related rights in Mozal Aluminium in
Mozambique. The acquisition increased the
Group’s shareholding to 63.7 per cent.
There were no other significant changes in
the Group’s principal activities during the
year.
State of affairs
There were no significant changes in the
Group’s state of affairs during the year,
other than the restart of the Alumar
aluminium smelter, the acquisition of the
Group’s interests in Sierra Gorda and the
additional interests acquired in MRN and
Mozal Aluminium, and as set out in the
Operating and financial review on on the
inside front cover to 62.
Review of operations, likely
developments and expected
results
A review of the Group’s FY22 operations
is set out in the Operating and financial
review on the inside front cover to 62.
The Operating and financial review also
includes likely developments in the Group’s
operations in future financial years and
expected results.
Dividends
We paid the following dividends during FY22:
Dividend
Final dividend of US 3.5
cents per share
(fully-franked) for the
year ended 30 June
2021
Special dividend of US
2.0 cents per share
(fully-franked) for the
year ended 30 June
2021
Interim dividend of US
8.7 cents per share
(fully-franked) for the
half year ended
31 December 2021
Total
dividend
Payment
date
US$163
million
7 October
2021
US$93
million
7 October
2021
US$404
million 7 April 2022
Matters since the end of the
financial year
Non-core royalty sale
On 19 July 2022, the Group completed
the sale of a package of four non-core
base metal royalties to Anglo Pacific
Group Plc (Anglo Pacific) in exchange for
consideration comprising both cash and
shares. The Group recognised a gain on the
sale of US$192 million (US$134 million post
tax) in the 2023 financial year. Following
completion, the Group holds a 16.7 per cent
interest in Anglo Pacific.
Dendrobium Next Domain (DND) project
During the year ended 30 June 2021,
the New South Wales Independent
Planning Commission (IPC) refused
the application for the DND project at
Illawarra Metallurgical Coal (IMC). The
decision by the IPC introduced uncertainty
over the future of the DND project’s
value contribution to the IMC cash
generating unit (CGU) recoverable amount
assessment. The Group assessed the
potential implications of the IPC decision
and as a result recognised an impairment
of the IMC CGU of US$728 million during
the 2021 financial year.
On 23 August 2022, the Group announced
that it will not proceed with the
investment in the DND project following its
consideration of recently completed study
work and extensive analysis of alternatives
considered for the complex. With this
decision, the Group will focus on continuing
to optimise Dendrobium and the broader
IMC complex to extend the mine life
within approved domains. In light of the
impairment that was recognised during
the 2021 financial year, the decision not to
proceed with the investment in the DND
project has not resulted in an additional
impairment charge and the carrying value
for the IMC complex remains appropriate
as at 30 June 2022.
Capital management
On 25 August 2022, the Directors resolved
to pay a fully-franked final dividend of
US 14.0 cents per share (US$648 million)
and a fully-franked special dividend of
US 3.0 cents per share (US$139 million)
in respect of the 2022 financial year. The
dividends will be paid on 13 October 2022.
The dividends have not been provided for
in the consolidated financial statements
and will be recognised in the 2023 financial
year.
69
SOUTH32 ANNUAL REPORT 2022 Directors’ report continued
On 25 August 2022, the Group also
announced an increase to the existing
capital management program, announced
in March 2017, of US$156 million to
a total of US$2.3 billion. This leaves
US$250 million expected to be returned
by 1 September 2023.
No other matters or circumstances have
arisen since the end of the financial year
that have significantly affected, or may
significantly affect, the operations, results
of operations or state of affairs of the
Group in subsequent accounting periods.
Remuneration and share interests
Table 1.2 Directors’ Relevant Interests in
South32 Limited Shares
Director
K Wood
G Kerr (CEO)(1)
F Cooper
G Lansdown
X Liu
N Mtoba
W Osborn
K Rumble
Number of South32 Limited
shares in which a relevant
interest is held as at the date
of this Directors’ Report
367,825
9,854,524
128,010
80,000
60,000
71,386
174,104
161,380
(1) At the date of this Directors’ Report, G Kerr’s total
interest includes 3,953,544 South32 Limited ordinary
shares and 5,900,980 rights over South32 Limited
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 CEO and Managing Director, Graham
Kerr, holds rights over South32 Limited
shares, granted under the South32 Equity
Incentive Plan. You can find more details
about this in the Remuneration report on
page 100.
The total number of rights over South32
Limited shares on issue as at 30 June
2022 is set out in note 23 to the financial
statements (Employee share ownership
plans) on pages 152 to 155.
South32 Limited does not have any options
on issue. No options or rights have been
granted since the end of FY22.
As of the date of this report, the total
number of rights over South32 Limited
shares on issue is 42,614,372. The
Remuneration report contains details of
rights on issue. No shares have been issued
on vesting of rights during or since the end
of FY22.
70
GOVERNANCE
Company Secretary
Claire Tolcon
LLB, BComm, GCertCorpMgt, FGIA
Claire Tolcon is our Manager Company
Secretariat and Corporate Counsel. She
was appointed Company Secretary on
30 October 2020. Before joining South32 in
2017, Claire held the role of General Counsel
and Company Secretary for a number of
ASX listed entities, prior to which she was
a partner of a corporate law firm in Perth.
She holds a Bachelor of Laws and Bachelor
of Commerce from Murdoch University and
a Graduate Diploma of Applied Finance and
Investment from Kaplan.
Indemnities and insurance
The South32 Limited Constitution requires
that we indemnify each Director and
Company Secretary (including employees
appointed as directors of a Group
company) on a full indemnity basis and
to the extent permitted by law against
liability incurred by them in their capacity
as an officer of any Group company. The
Directors and the Company Secretary
named in this report have the benefit
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 the Company’s Directors, Company
Secretary and the Chief Financial Officer
under which we agree to indemnify those
persons on a full indemnity basis and to the
extent permitted by law.
We purchase Directors' and Officers'
liability insurance which insures against
certain liabilities (subject to exclusions) in
respect of current and former Directors
and other Officers of the Group. Due
to confidentiality obligations and
undertakings of the insurance, we can’t
disclose any further details about the
premium or insurance.
During FY22 and as at the date of this
Directors’ report, no indemnity in favour of
a current or former Director or Officer of
the Group 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 fourth edition
of the ASX Corporate Governance
Council’s Corporate Governance
Principles and Recommendations (ASX
Recommendations).
South32 is compliant with all relevant ASX
Recommendations.
Our Corporate Governance Statement
is available at www.south32.net/who-
we-are/risk-governance. It also contains
the information required under the UK
Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules.
Auditor
Our External Auditor has provided an
independence declaration in accordance
with the Corporations Act, which is set out
on page 167 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 Engagements
other than Audits or Reviews of Historical
Financial Information and ISAE 3410
Assurance Engagements on Greenhouse
Gas Statements.
A copy of the External Auditor’s assurance
report is included in the Sustainability
Databook, available at www.south32.net
Non-audit services
All non-audit services provided by our
External Auditor are considered and
approved in accordance with the process
set out in our Provision of Non-Audit
Services Policy.
No non-audit services were undertaken
by, and no amounts paid to, our External
Auditor during FY22. Refer to note 21
to the financial statements (Auditor’s
remuneration) on page 151.
Political donations and community
investment
Our Code of Business Conduct sets out
our approach to political donations and
community investment.
In FY22, we made no political donations to
any political party, politician, political party
official, elected official or candidate for
public office in any country. On occasion, our
representatives attend political events that
charge an attendance fee where attendance
is approved beforehand in accordance with
our internal approval requirements. We
record the details of attendances and the
relevant costs at a corporate level.
In FY22, we contributed US$31.1 million
for the purposes of supporting community
programs that comprised direct investment,
in-kind support and administrative costs.
For more information on our community
investment, please visit www.south32.net/
community-society/community-investment.
Responsibility statement
The Directors state that to the best of their
knowledge:
a) The consolidated financial statements
and notes on pages 103 to 165 were
prepared in accordance with applicable
accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit 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 and the responsibility
statement are made in accordance with a
resolution of the Board.
Karen Wood
Chair
Graham Kerr
Chief Executive Officer and Managing
Director
Date: 8 September 2022
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 seek to be compliant with all applicable
environmental laws and regulations
relevant to our operations.
We classify environmental incidents
based on actual and potential impact type
as defined by our internal material risk
management standard. In FY22, there were
no environmental events that resulted in a
major impact to the environment.
Fines and prosecutions
In February 2022, South Africa Manganese
received a fine of ZAR1 million (US$65,000)
to rectify a legacy issue related to unlawful
disposal of waste into Adams Pit and the
clearing of vegetation to extend stockpiles
without the required authorisations. In
determining the value of the fine (which
was considered relatively low under current
regulations), the regulator assessed that
the impact associated with the activities as
low and localised. The fine was paid in
April 2022.
In March 2022, Mozal Aluminium paid a
fine of US$162,000 in relation to a process
failure in June 2021 that resulted in
emissions from the fume treatment plant.
The incident was reported to authorities
in accordance with operating license
requirements.
In April 2022, Cerro Matoso received and
paid a fine of CLP134 million (US$33,000)
relating to an environmental violation of
exceeding emissions in the chimney of a
drying oven in 2015.
Rounding of amounts
South32 Limited is an entity to which the
Australian Securities and Investments
Commission (ASIC) Corporations (Rounding
in Financial/Directors’ Reports) Instrument
2016/191 (ASIC Instrument 2016/191)
applies. We have rounded amounts in this
report in accordance with ASIC Instrument
2016/191. This means the amounts in this
report and the financial statements have
been rounded to the nearest million US
dollars, unless stated otherwise.
71
SOUTH32 ANNUAL REPORT 2022 Lead Team
Graham Kerr
BBUS, FCPA, 51
Chief Executive Officer
and Managing Director
See page 64 for Graham Kerr’s
qualifications and experience.
72
GOVERNANCE
Noel Pillay
NHDP Mech Eng, 54
Chief Operating Officer Africa
and Colombia
Noel Pillay became our Chief
Operating Officer in October
2021 and is responsible for
our operations in Africa and
Colombia.
Prior to this role, Noel was
Vice President Operations at
Worsley Alumina where he was
responsible for the operation’s
safety, production and cost
performance. Before his time at
Worsley Alumina, Noel was Vice
President Operations at Hillside
Aluminium in South Africa.
Before joining South32, Noel
worked for BHP from 1994 as
a Maintenance Engineer at
Hillside Aluminium and has
held several leadership roles
in Maintenance, Production,
Business Improvement and
Human Resources in South
Africa and Australia.
Noel is a trained Mechanical
Engineer and holds a National
Higher Diploma from the
University of Johannesburg.
Katie Tovich
BCom, CA, GAICD, 52
Chief Financial Officer
Katie Tovich joined South32
in 2015 and became our Chief
Financial Officer in May 2019.
Prior to this role, Katie was Vice
President Corporate Affairs
and Investor Relations, as
well as Head of Treasury. She
is responsible for Financial
Reporting, Financial Analysis,
Treasury, Business Evaluation,
Tax, Investor Relations, Risk and
Group Assurance.
Katie brings more than 25
years of global experience in
the resources sector. Before
joining South32, she held
senior finance 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 mining
career, she held finance and
marketing leadership positions
at WMC Resources Limited in
Australia and North America.
Katie holds a Bachelor of
Commerce from the University
of Tasmania, is a member
of Chartered Accountants
Australia and New Zealand and
is a graduate of the Australian
Institute of Company Directors.
Jason Economidis
MBA (Executive), GAICD, 53
Chief Operating Officer
Australia
Jason Economidis became our
Chief Operating Officer in July
2020, assuming responsibility
for Australia Manganese,
Cannington, Illawarra
Metallurgical Coal and Worsley
Alumina. Prior to this role, Jason
was Vice President Operations
at Illawarra Metallurgical Coal.
Jason is an experienced mining
executive having worked in the
sector in Australia and overseas
for more than 25 years. He
joined South32 from Orica,
where he held the position of
Vice President Coal and was
responsible for 25 mining
operations across Queensland
and New South Wales.
Jason has held several other
senior positions in the industry
including General Manager of
the Coppabella and Moorvale
Complex for Peabody Energy,
Chief Operating Officer of
Vale Coal Australia, General
Manager of Goonyella-Riverside
and Caval Ridge, Vice President
Health, Safety, Environment and
Community for BHP and Chief
Operating Officer of Discovery
Metals, based in Botswana.
Jason holds a Master of
Business Administration
(Executive) from the
Australian Graduate School of
Management and is a graduate
of the Australian Institute of
Company Directors.
Simon Collins
BE (Mining), MBA, 49
Chief Development Officer
Simon Collins became our
Chief Development Officer in
October 2018. He is responsible
for Greenfields Exploration,
Corporate Development, Brazil
Alumina, Brazil Aluminium,
Sierra Gorda and the Hermosa
project. He also represents
South32 on the Board of
Directors of Ambler Metals LLC.
Simon brings over 25 years’
experience in the resources
industry in senior leadership
and business development
roles. Before joining South32, he
worked for BHP for more than
a decade, providing leadership
to the business development
teams in Australia, Belgium,
Singapore and the United
Kingdom. He began his career
in mine operations initially in
Australia and then South Africa.
Simon holds a Master of
Business Administration from
London Business School and
a Bachelor of Engineering
(Mining) from the University
of New South Wales.
Vanessa Torres
BSc (Chemical), MEng, DEng, 52
Chief Technical Officer
Vanessa Torres became our
Chief Technical Officer in
July 2020. She is responsible
for Technology, Innovation,
Business Optimisation, Risk
Management, Capital Projects
as well as Health, Safety,
Environment and Technical
Stewardship.
Vanessa joined South32
in August 2018 as Chief
Technology Officer. Before this
role, she was Vice President
Operational Infrastructure for
BHP Western Australia Iron
Ore. She has 30 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 artificial
intelligence to the mining
industry.
Brendan Harris
BSc, CPA, 50
Chief Human Resources and
Commercial Officer
Brendan Harris became our
Chief Human Resources
and Commercial Officer
in November 2020 and is
responsible for our Human
Resources, Marketing and
Supply functions. Before his
role was expanded, Brendan
was our Chief Commercial
Officer between January and
November 2020.
Brendan joined South32 as
our inaugural Chief Financial
Officer, looking after Financial
Reporting, Management
Reporting, Treasury, Business
Evaluation, Tax, Corporate
Affairs, Investor Relations,
Risk and Assurance, and Brazil
Alumina. Brendan played a
key role in the demerger from
BHP in 2015 and South32’s
public listing in three countries,
in addition to developing
our capital management
framework.
Before joining South32,
Brendan was Head of Investor
Relations at BHP, based in
the United Kingdom and
then Australia, where he was
the 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.
Kelly O’Rourke
LLB, BCom, MAICD, 43
Chief Legal and External Affairs
Officer
Kelly O’Rourke was appointed
to the role of Chief Legal and
External Affairs Officer in
July 2021 and is responsible
for Legal, Company
Secretary, Business Integrity,
Communications, Community,
Government and Sustainability
Strategy. Prior to this, Kelly was
our Chief External Affairs Officer,
having been appointed to the
Lead Team in November 2020.
Kelly joined South32 in 2016
as Head of Corporate Affairs
and Investor Relations and
later became Vice President
Corporate Affairs. She
previously worked at BHP for
nine years where she held
senior roles in Legal, Business
Development, Mergers and
Acquisitions and the Office of
the Chief Executive.
Kelly has more than
15 years’ experience in
the mining industry across
legal, commercial, business
development, mergers and
acquisitions, corporate affairs
and community roles, and has
worked in Australia, the United
Kingdom, Asia, Europe, Africa
and the Americas.
Kelly holds a Bachelor of Laws
(Distinction) from The University
of Western Australia and a
Bachelor of Commerce from
Curtin University.
From November 2021 to
August 2022, Kelly was
on parental leave. During
this time accountability for
External Affairs moved to the
Chief Financial Officer and
accountability for Legal moved
to Chief Executive Officer.
73
SOUTH32 ANNUAL REPORT 2022 Remuneration report
LETTER FROM
OUR REMUNERATION
COMMITTEE CHAIR
Dear Shareholders,
On behalf of the Board, I am pleased to present the Remuneration report for the financial year to 30 June 2022 (FY22).
Our performance
In FY22, we took important steps to transform our portfolio toward the metals critical to a low-carbon future and we accelerated the
decarbonisation activities that will help us achieve our climate change objectives.
Our operations delivered to revised plans, despite a challenging external environment which included managing the ongoing impacts
of COVID-19, labour availability and extreme weather events. We delivered record production at Worsley Alumina and operated at
maximum technical capacity at Hillside Aluminium and Mozal Aluminium. The combination of consistent operating performance and
favourable market conditions allowed us to deliver a 282 per cent increase in Underlying EBIT and a 432 per cent increase in Underlying
earnings. These record levels of profitability underpinned record shareholder returns in respect of FY22, including dividends totalling
US$1.2B and a further US$128M returned via our ongoing on-market share buy-back.
Following the divestment of South Africa Energy Coal and TEMCO in FY21, we restated our Total Recordable Injury Frequency (TRIF)
for previous years and on this basis our TRIF for FY22 decreased by 12 per cent to 5.3 per million hours worked (FY21 6.0). While our
TRIF did not meet our 20 per cent reduction target, we made strong progress in reducing injuries at a number of sites and significant
progress in reducing potential material health exposures. More broadly, a further improvement in hazard management was embedded
and this will remain a critical focus given its role as a key leading indicator for health and safety outcomes.
Our performance across the year is recognised in our Business Scorecard, where an overall outcome of 99.6 per cent (out of a possible
150 per cent) was achieved (refer to page 87 for additional detail).
Application of the Business Modifier
As the intent of the short-term incentive (STI) is to focus our executives on what they can influence in the performance year, we remove
the impacts of external factors such as commodity price volatility and foreign exchange rate movements. Conversely, the Business
Modifier component of the STI considers factors not specifically contemplated in the Business Scorecard such as fatalities, other
unexpected events, and the shareholder experience, to ensure unintended reward outcomes are avoided.
Notwithstanding our stable operating performance and strong financial results, the Board’s primary concern when considering the
application of the Business Modifier for FY22 related to the loss of our colleague, Desmin Mienies, who was fatally injured at our Wessels
mine. Recognising our commitment that our employees and contractors must go home safely at the end of every shift, the Board chose
to exercise its discretion by reducing the overall STI outcome for both the CEO and the Chief Operating Officer accountable for South
Africa Manganese at the time of the fatality by 20 per cent. A reduction of five or ten per cent has also been applied to the STI outcome
of other Executive key management personnel (KMP) and members of the Lead Team. The application of the Business Modifier reflects
our commitment to safety and takes all factors into account, including overall reward for the CEO and Executive KMP (see page 89).
Changes to the reward framework
We announced enhancements to our Reward Framework in the FY21 Remuneration report following completion of an extensive review
and a series of engagements with investors and other external stakeholders. We have implemented these enhancements from FY22,
which include:
– A 33 per cent reduction in the face value of the long-term incentive (LTI) for all Executive KMP;
– The incorporation of two strategic measures for 20 per cent of our LTI, directly linking executive reward to climate change and the
transition of our portfolio toward the metals critical to a low-carbon future;
– An increase in the weighting of the financial measures in the STI to achieve an appropriate balance across the elements of variable
pay, given the inclusion of our strategic measures in the LTI; and
– A shift from an index to a constituent group of companies for the global mining comparator group in the LTI, against which two-thirds
of relative total shareholder return performance is measured, to better align our approach to market practice.
We were pleased to receive strong support for these changes at the 2021 Annual General Meeting with over 98 per cent voting ‘for’ the
Remuneration report.
We have included an initial update for our strategic measures in this report to highlight the early progress we’ve made in the first
year of the four-year performance period (refer to page 94 for this update). We have advanced our decarbonisation initiatives with the
completion of feasibility studies and other foundational work, while we also made material changes to our portfolio with the integration
of a 45 per cent interest in the Sierra Gorda copper mine in Chile and the addition of low-carbon aluminium production capacity (refer to
page 94 for additional detail).
74
GOVERNANCE
We will continue to provide progress updates for our strategic measures in future Remuneration reports to ensure shareholders have
a clear view of how the Board and Committee assess performance with the final outcome determined at the end of the four-year
performance period.
Long-term incentive outcomes
The LTI is the component of executive remuneration most closely linked to the shareholder experience as it rewards executives for the
delivery of returns that exceed peer benchmarks across a four-year period. While South32 delivered a total shareholder return (TSR) of
37 per cent over the four-year performance period of the FY19 LTI, including 60 per cent in FY22 alone, our TSR fell short of the threshold
level required for vesting, such that all awards granted lapsed in full.
During FY22, there were important changes to Executive KMP with Mike Fraser, our inaugural Chief Operating Officer Africa, departing
and Noel Pillay replacing him as Chief Operating Officer Africa and Colombia. In parallel, Jason Economidis was permanently appointed
to the Chief Operating Officer Australia role, having acted in this capacity throughout FY21.
Importantly, only performance-tested rights are granted to Lead Team members, in accordance with standard practice. We do not
however penalise executives when they are promoted to the Lead Team, but rather allow them to retain awards granted when they were
in prior management roles, with the respective vesting conditions. As a result, service-based awards previously granted to Noel Pillay
and Jason Economidis have vested in FY22. Katie Tovich’s performance-based Transitional LTI award will also partially vest, noting this
award was granted to Katie when she was promoted to the Lead Team to avoid a potential gap in vesting arising from her transition
from the Management Share Plan to the LTI.
Looking forward to FY23
To ensure we continue to pay executives appropriately, we annually benchmark KMP remuneration against similar-sized Australian listed
companies and global mining companies that reflect the size, commodity mix, complexity and global presence of South32. Following
the completion of this process, the Board decided to award a five per cent increase to the fixed remuneration of our CEO in recognition
of his extensive experience and skillset after seven years in role, noting this adjustment will be his second increase in that time.
Fixed remuneration for other Executive KMP has also been adjusted to recognise performance and experience, and external market
pressures. Finally, to maintain competitive director fees, a three per cent increase will be applied to the Chair fee and Base fees for other
Non-Executive Directors.
Our FY23 Scorecard and LTI metrics will continue to focus executives on the safe delivery of our business priorities and the creation
of sustainable, long-term value for shareholders. We look forward to continuing to engage with shareholders and sharing in the future
success of the company.
Thank you for your support.
Wayne Osborn
Chair, Remuneration Committee
75
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
FY22 at a glance
Record dividends in respect of FY22
US$1,192M Underlying EBIT(1) up 282% on FY21
US$3,967M
FY22 Total Shareholder Return(2)
60%
Total Shareholder Return (TSR)(3)
Diagram 1.1 – Four-year South32 TSR relative to comparator
groups (AUD)
Diagram 1.2 – One-year South32 TSR relative to key indices
(AUD)
120%
)
R
S
T
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
80%
40%
0%
-40%
90%
65%
40%
15%
)
R
S
T
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
-80%
FY18
FY19
FY20
FY21
FY22
-10%
FY21
South32
Sector Index
World Index
South32
ASX100
FTSE100
S&P500
(1) This number has not been prepared in accordance with IFRS.
(2) TSR calculation uses June 2021 average return at the start and June 2022 average return at the end of the measured period.
(3) Rolling 22 day average TSR.
The following table outlines historic business performance outcomes.
Table 1.1 – Business performance
Performance measures(1)
Underlying EBIT (US$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$)
Dividends/special dividends paid (US cents)
Total Recordable Injury Frequency (per million hours worked) (unaudited)
FY22
3,967
2,602
538
0.4
3.94
14.2
5.3
FY21
1,039
489
406
0.7
2.93
2.4
4.3(5)
FY20
622
193
298
0.0
2.04
5.0
4.2
FY19
1,797
992
504
(1.4)
3.18
13.0
4.5
FY22
FY18
2,109
1,327
2,041
(6.8)
3.61(4)
13.7
5.1
(1) The financial information in this table has not been prepared in accordance with IFRS.
(2) The basis of the Group’s underlying financial results has been updated from FY22, with these changes also reflected in the FY21, FY20, FY19 and FY18 comparative
information. There is no change to the Group’s statutory reporting. Our material Equity Accounted Investments (EAIs) are now included in our underlying financial results on a
proportional consolidation basis, consistent with how their performance is assessed by the Group’s Board and management and consistent with the reporting of the Group’s
operating segments. Refer to page 112 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 effect of changes in commodity prices, commodity price linked
costs, market traded consumables, foreign exchange rates and movements in the Group’s Underlying ETR which includes our material equity accounted investments on a
proportional consolidated basis, divided by the sum of fixed assets (excluding any rehabilitation asset and unproductive capital expenditure on growth and life extension
projects, and adjusted for impairment impacts) and inventories.
(4) The closing share price on 30 June 2017 was A$2.68.
(5) TRIF baseline adjusted at end FY21 to account for the removal of SAEC and TEMCO from the portfolio, measuring our FY22 performance against a TRIF of 6.0.
76
GOVERNANCE
FY22 Executive remuneration overview
Executive key
management
personnel (KMP)
changes
On 30 November 2021, Mike Fraser stepped down from his role as Chief Operating Officer Africa to pursue
opportunities outside of South32 and ceased to be a member of Executive KMP at this time. Noel Pillay
was appointed Chief Operating Officer Africa and Colombia and as a member of Executive KMP from
1 December 2021.
Jason Economidis was appointed permanently to the Chief Operating Officer Australia role effective
1 July 2021 having acted in the role and as a member of Executive KMP during FY21.
Fixed
remuneration
No increase was applied to fixed remuneration for the CEO during FY22. Other members of Executive KMP
received increases to reflect changes in their role, their level of experience and relevant market benchmarks,
as outlined on page 85.
FY22 STI
We delivered record earnings and cashflow in FY22 as our stable operating performance and new
investments in higher-margin businesses enabled us to capitalise on the significant tailwind of commodity
prices. Underlying earnings increased by more than 400 per cent to US$2.6B, with a record US$1.3B returned
to shareholders in the form of dividends and our ongoing on-market share buy-back in respect
of FY22.
We also delivered outstanding results in a number of areas of Sustainability. We continued to reduce the
risk of material health exposures in our business, further matured our control environment that is designed
to mitigate the risk of significant events and hazards, and made another strong contribution to the
communities in which we operate.
Notwithstanding these strong results, our Board chose to apply a negative Business Modifier for Executive
KMP in recognition of the fatality at our Wessels mine at South Africa Manganese. This includes a negative
Business Modifier of 20 per cent for the CEO and Chief Operating Officer Africa at the time of the fatality,
10 per cent for our other Chief Operating Officers and five per cent for the Chief Financial Officer.
As a result, the overall STI outcome for Executive KMP ranged from 53 per cent to 88 per cent of maximum
with the CEO receiving 74 per cent of maximum.
LTI vesting
in 2022
While South32 delivered TSR of 60 per cent in FY22 and 37 per cent over the four-year performance period,
this fell short of the threshold for vesting when compared with the two performance benchmarks. As a
result, all FY19 LTI rights lapsed.
South32 does not offer retention rights to permanent members of the Lead Team, including those who are
Executive KMP. However, employees who are promoted into Executive KMP roles retain unvested awards
granted under the Management Share Plan (MSP) while in their prior role. These awards are a combination
of performance rights and retention rights. MSP retention rights granted to Jason and Noel prior to their
appointment to the Lead Team vested in FY22.
The Board may decide to grant employees promoted into the Lead Team, including into Executive KMP roles,
a Transitional LTI award in the form of performance rights with the same TSR hurdles as the LTI, albeit with a
three-year performance period. The award is designed to address a potential shortfall in vesting that arises
with the transition from the MSP to the LTI. The FY20 Transitional LTI award granted to Katie Tovich when she
was promoted to the Chief Financial Officer role in 2019 partially vested in FY22, as outlined on page 92.
FY22 total
reward
Realised pay for Executive KMP (see page 78) was below Target Remuneration as the FY19 LTI did not vest
and the Board applied a negative Business Modifier when determining the STI outcome.
The Board considered all components of remuneration in reviewing the FY22 reward outcomes to ensure
alignment to our Guiding Principles (see page 79) and believes FY22 realised pay is fair for Executive KMP
and shareholders, based on performance for the year.
77
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Realised pay for Executive KMP in FY22
Realised pay is the value of reward received by Executive KMP in relation to the financial year, rather than potential pay that may be
earned or disclosed statutory pay. We publish this information to enable our shareholders to better understand the pay delivered
to our Executive KMP through our Reward Framework (including the application of Board discretion) and how this is aligned to the
performance of South32 over time.
The intention of our Reward Framework (see our Guiding Principles on page 79) is to deliver realised pay outcomes that reflect Company
performance and the shareholder experience. The Board and Remuneration Committee believe that our realised pay outcomes reflect
this objective.
The realised pay for Executive KMP in FY22, as outlined below, includes:
– Fixed remuneration earned in FY22 (including superannuation);
– Other cash and non-monetary benefits earned in FY22;
– Total FY22 STI earned (including cash and deferred rights) based on performance during this financial year (details on page 90); and
– LTI awards that vested based on performance and/or service conditions to 30 June 2022 (details on page 93).
Realised pay is likely to vary substantially, either up or down, from potential pay and from Target Remuneration (see page 83) because
a significant portion of our Executive KMP pay is 'at risk' and based on challenging performance measures. Furthermore, as the LTI is
measured over a four-year performance period, vesting outcomes will not always correlate to the TSR outcome for a single year.
Table 1.2 – Realised pay in respect of FY22 (A$’000)
Executive KMP
G Kerr
Chief Executive Officer
K Tovich
Chief Financial Officer
M Fraser(4)(5)
Chief Operating Officer Africa
J Economidis
Chief Operating Officer Australia
N Pillay(6)
Chief Operating Officer Africa and Colombia
Fixed
remuneration
Other(1)
STI cash
STI deferred
LTI(2)(3)
Total realised
pay
1,815
1,815
863
830
417
1,000
780
713
651
-
42
27
9
12
27
78
7
64
239
-
1,215
879
691
573
398
484
482
273
352
-
1,215
879
691
573
-
484
482
137
279
-
-
-
170
163
-
-
245
145
214
-
4,287
3,600
2,424
2,151
842
2,046
1,996
1,332
1,735
-
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
(1) Other includes such items as insurances and tax advice provided to Executive KMP and the notional interest benefit M Fraser received on a one-off interest free loan. It also
includes benefits provided to N Pillay to assist with his relocation from Australia to South Africa, including a relocation allowance of ZAR1,500,000 paid on 25 October 2021
which has been converted to A$ using an exchange rate of A$1:ZAR 10.99.
(2) LTI value is based on a closing share price on 30 June 2022 of A$3.94 (FY22) and 30 June 2021 of A$2.93 (FY21).
(3) LTI includes MSP (retention) awards granted to J Economidis and N Pillay prior to becoming Executive KMP, which vested subsequent to their appointment as Executive KMP
(see page 93) and the FY20 Transitional LTI award granted to K Tovich on appointment to the Lead Team (see page 93).
(4) On 30 November 2021, M Fraser stepped down as Chief Operating Officer Africa to pursue opportunities outside the South32 Group. Termination benefits for M Fraser (not
detailed in the table above) include a payment in lieu of six months’ notice (A$500,000) and a payment for relocation and tax assistance (A$90,000).
(5) FY22 STI awarded to M Fraser was pro-rated to reflect his service up to 30 November 2021 and will be paid entirely in cash in September 2022 in accordance with the treatment
of a good leaver under the STI Plan Rules. The deferred component of the FY21 STI awarded to M Fraser (A$484,320) was paid in cash in November 2021 in accordance with the
treatment of a good leaver under the STI Plan Rules.
(6) N Pillay became Chief Operating Officer Africa and Colombia on 1 October 2021 and a member of Executive KMP on 1 December 2021. Prior to this, N Pillay was the Vice
President Operations at Worsley Alumina. FY22 remuneration reflects three months in his prior role and nine months as Chief Operating Officer. Salary relating to his time in
the Chief Operating Officer role is denominated in ZAR and has been converted to A$ using an exchange rate of A$1:ZAR 11.13.
78
GOVERNANCE
Our Reward Framework
The pages of the Remuneration report that follow (together with Table 1.1 – Business performance) have been prepared in accordance
with section 300A of the Corporations Act and audited as required by section 308(3C) of the Corporations Act. These sections relate to
those persons who were KMP of South32 during FY22, being the Executive KMP named on page 78 and the Non-Executive Directors of
South32 Limited (refer page 64).
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 and equity grants to the CEO are approved by shareholders.
Remuneration
Committee
The Remuneration Committee approves reward arrangements for our Executive KMP (other than the CEO)
and oversees the remuneration and benefits framework for all employees of South32.
By taking advice from other Board Committees (such as the Sustainability and Risk and Audit Committees),
the Remuneration Committee helps the Board oversee our remuneration policy, its specific application to
the CEO, executives and Non-Executive Directors and, in general, our employees.
The Remuneration Committee provides oversight to ensure our remuneration arrangements are equitable
and aligned to the long-term interests of shareholders, operate within our risk framework, and support our
purpose, strategy and values.
CEO and Management
Our CEO makes recommendations to the Remuneration Committee for our executives and how the
remuneration policy and framework applies to our employees.
Management provides information and recommendations to the Remuneration Committee to help them
consider and implement approved arrangements.
External Advisors
External advisors may be engaged either directly by the Remuneration Committee or via management.
These advisors provide information on remuneration-related issues, including benchmarking information
and market data.
The Remuneration Committee did not receive recommendations from external consultants, including
remuneration consultants, when determining KMP remuneration in FY22.
We seek information and analysis from a range of data sources. This allows us to make decisions that are informed, objective, weighted
and aligned to the requirements of the Company, and consistent with our Guiding Principles.
Reward practices and outcomes
Our Guiding Principles
Purpose
and Strategy
The way
we work
Shareholders
Performance
Market
Our culture is grounded in
our values and is at the
core of how we deliver our
purpose and strategy.
You’ll see it reflected in our
values, the decisions we
take, the courage we show
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
focuses executives and
management on delivering
superior total shareholder
returns.
We do this through
share ownership and LTI
performance measures
aligned to the shareholder
experience.
We value feedback and
regularly check-in with
investors and proxy
advisers.
Our reward outcomes
align to performance by
providing a large part
of executive pay 'at risk'
based on challenging
financial and non-financial
measures.
STI outcomes reflect
performance over the
financial year, while
LTI outcomes reflect
performance over a four-
year period.
Our reward is competitive
and designed to attract
and retain talented
executives.
We benchmark our reward
levels in consideration of
similar sized companies
in the ASX, as well as our
global mining peer group.
We align short-term and
long-term performance
measures to our purpose
and strategy. This includes
our efforts to:
– Optimise our business
by working safely,
minimising our impact,
consistently delivering
stable and predictable
performance, and
continually improving
our competitiveness;
– Unlock the full value
of our business
through our people,
innovation, projects
and technology; and
– Identify and pursue
opportunities to
sustainably reshape
our business for the
future, and create
enduring social,
environmental and
economic value.
79
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Changes to our Reward Framework from FY22
Our Reward Framework is designed to be fit-for-purpose through the business cycle, allowing the Board to find the right balance
between remuneration outcomes that incentivise and reward our Executive KMP, while also reflecting overall business performance and
the shareholder experience.
We have maintained a consistent approach to remuneration since the formation of our Company and continue to believe that
shareholders are better served if we retain the core elements of our Reward Framework. Last year, however, we recognised there was
an opportunity to further enhance our approach by directly linking reward to the business critical areas of climate change and our
commitment to halve our operational greenhouse gas emissions (Scope 1 and 2) by 2035, and our portfolio management activities that
are designed to increase our exposure to the metals critical to a low-carbon future.
Following extensive engagement with shareholders, we incorporated the important changes to our Reward Framework that were
outlined in our Remuneration report last year as detailed below.
Long-term incentive (LTI)
We enhanced our LTI design for FY22 by making three important adjustments that are summarised in Diagram 1.3.
Diagram 1.3 – LTI Enhancements (CEO)
300% of FR(1)
A$5,445,000
FY21
FY22
Relative TSR
vs MSCI Index
Relative TSR
vs Global
Mining Index
200% of FR
A$3,630,000
3
Strategic Measures
1
Relative TSR
vs MSCI Index
Relative TSR
vs Global Mining
Constituents
2
1 The introduction of strategic measures into
the LTI with a weighting of 20 per cent.
2 A shift from the index to a fixed constituent
group of companies in the global comparator
group at the start of the performance period
for one of the relative TSR measures.
3 Reduction in face value of the awards.
(1) Figures reflect reward for South32 CEO, based on a fixed
remuneration (FR) of A$1,815,000.
1 Introduction of strategic measures
We have incorporated two strategic measures in the LTI from FY22 that are aligned to our business priorities and will underpin the long-
term success of South32. These measures, which each have a weighting of 10 per cent of the LTI, are:
– Our response to climate change; and
– The transition of our portfolio towards the metals critical to a low-carbon future.
The success of these strategic initiatives will be measured by our ability to make material progress in these areas, whilst protecting
and creating shareholder value as we navigate this business-critical transformation. Vesting outcomes will be determined by the Board
following the end of each four-year performance period.
More detail on the measures and our progress against them is outlined on page 94.
2 Shift from Index to Constituents for the Global Mining Comparator Group
From FY22, 80 per cent of the LTI will continue to be assessed on the basis of our TSR performance compared to two comparator
groups, being the global mining comparator group (for two-thirds, or 53.3 per cent of the LTI) and a world comparator group (for one-
third, or 26.7 per cent of the LTI). By maintaining relative TSR at a weighting of 80 per cent in the LTI, we continue to ensure CEO and
Executive KMP pay outcomes are directly aligned with the shareholder experience over the longer-term.
While we have previously used the IHS Markit Global Mining Index (with constrained weighting by company and sector) for the global
mining comparator group, we have now moved to a fixed constituent group of companies from the index. This constituent group is
made up of the companies that comprise the IHS Markit Global Mining Index at the start of each performance period and is fixed for the
four-year performance period (with Board discretion to make adjustments to take into account events such as takeovers, mergers or
demergers that may occur during the performance period). This change brings South32’s approach more in line with market practice.
The Morgan Stanley Capital International (MSCI) World Index has been retained for the world comparator group and there is no change
to the vesting schedule as outlined in ‘Components of our reward’ on page 82.
80
GOVERNANCE
3 Reduction in face value
The face value of the LTI for the CEO has been reduced by 33 per cent from FY22, from 300 per cent to 200 per cent of fixed
remuneration, with proportionate reductions in the LTI face value for other Executive KMP. Notwithstanding the reduction in face value,
we have not changed the target LTI or Target Remuneration for the CEO or other Executive KMP as we believe their target pay remains
appropriate considering their roles and responsibilities (see page 83).
This change has resulted in a reduction in total reward (based on face value) for all Executive KMP.
Short-term incentive (STI)
For FY22, the overall design and key performance metrics of the STI have remained unchanged, with our Business Scorecard focused
on maintaining safe, reliable and profitable operations. We have, however, reviewed the STI measures and their weightings (see diagram
1.4) given the inclusion of the climate change and portfolio management strategic measures in the LTI from FY22 so that:
– There is no duplication between STI and LTI measures;
– There is an appropriate balance of measures across the elements of variable pay; and
– We align the performance measures with the most appropriate performance period.
Diagram 1.4 – FY22 STI performance metric weightings
Measures
Performance metrics
FY21 weighting FY22 weighting
Change to measures
Sustainability
Financial
Safety, health, risk management
and community
Production, cost and capital expenditure
Adjusted return on invested capital
Strategic priorities
Key elements of the FY22 Business Plan
25%
25%
25%
25%
28.3%
28.3%
28.3%
15%
Adjusted to increase the
weighting of the financial
measures in the STI given the
inclusion of the strategic
measures in the LTI from FY22.
X
Business Modifier
Considers factors that are not specifically
contemplated in the Business Scorecard
+/-
+/-
=
South32 Business Outcome Reflects our performance over the financial year
81
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Components of our reward for FY22
Our intention
Attract and retain talented
executives to lead South32
The majority of pay at risk reflects our commitment to pay for performance
and deliver value to shareholders
Reward business and individual
performance in the financial year
Drive long-term performance
and ownership behaviours
Component
Fixed Remuneration
Short-Term Incentive
Long-Term Incentive
The why
Fixed remuneration is set with
reference to the median of our
peer groups, reflecting each
Executive KMP’s
responsibilities, location, skills
and experience.
STI focuses effort on our key priorities to
ensure success for South32 both in the
financial year and into the future. It
motivates Executive KMP to achieve
challenging performance objectives. Our
STI reflects performance during the year
and measures outcomes within
management’s control.
The LTI is directly linked to relative TSR and
the critical strategic initiatives that are
expected to both protect and enhance
value in the long-term.
The how
Base salary and
superannuation.
50 per cent paid in
cash annually.
50 per cent
delivered in rights
to South32 shares,
deferred for two
years(1).
Rights to receive South32 shares.
80 per cent of the LTI is subject to TSR
performance measured over a four-year
period, relative to two comparator groups.
20 per cent is assessed based on our
performance against two strategic
measures.
Our approach
in FY22
We benchmark our fixed
remuneration and Target
Remuneration against two key
peer groups that reflect our
profile as a Company and the
markets in which we operate.
Our peer groups are:
– An ASX peer group based
on companies with half
to double our market
capitalisation (excluding
foreign domiciled entities
and real estate investment
trusts); and
– An international mining
peer group of 18 companies
with a similar market
capitalisation, commodity
mix and/or global presence
to South32 (see Our global
mining peer group below).
Quantum (% of fixed remuneration):
Quantum (% of fixed remuneration):
The quantum for FY22 was determined as
a percentage of fixed remuneration:
Face value
Target value
CEO
Other KMP
200%
133%
Performance measures:
120%
80%
■ TSR relative to IHS Markit Global
Mining Index constituents (53.3%)
■ TSR relative to MSCI World Index
(26.7%)
■ Climate change strategic
measure (10%)
■ Portfolio management strategic
measure (10%)
Vesting scale:
Vesting outcome(2)
0%
40%
100%
Global Mining
Index
Constituents*
MSCI World
Index*
Strategic
Measures
TSR <= 50th
percentile
TSR > 50th
percentile
TSR > 75th
percentile
TSR < Index TSR = Index
TSR > Index
+ 23.9%
Vesting outcomes will be determined
by the Board at the end of the
performance period.
*Vesting between 40% and 100% is on a straight-line
basis
There is no retesting if the performance
condition is not met at the end of the
performance period.
Target value Max. value
Executive KMP
120%
180%
Business Scorecard: The Business
Scorecard reflects a balance of financial
and non-financial measures that are a
priority for us in the financial year.
The financial measures remove the impact
of commodity prices and foreign exchange
so that we reward for items management
can control.
Performance measures:
■ Sustainability (28.3%)
■ Financial: Production, cost and
capital expenditure (28.3%)
■ Financial: Adjusted ROIC (28.3%)
■ Strategic priorities (15%)
Business Modifier: As scorecard measures
do not always reflect all aspects of
performance across a year, and to mitigate
against any unintended reward outcomes,
the Board has the discretion to apply a
Business Modifier to the Business
Scorecard outcome. The Business Modifier
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 and behaviours:
The Board also considers a member of
Executive KMP’s individual performance,
taking into account their areas of
responsibility and the alignment of their
behaviours with our values (i.e., how
outcomes have been achieved).
Our global
mining peer
group
The global mining peer group that we use as one of our reference points for benchmarking fixed remuneration and total
reward levels includes the following companies:
Agnico Eagle Mines, Alcoa, Anglo American, AngloGold Ashanti, Antofogasta, Barrick Gold, Evolution Mining, First
Quantum Minerals, Fortescue Metals Group, Freeport McMoRan, Gold Fields, Kinross Gold, Lundin Mining, Newcrest
Mining, Newmont, Northern Star Resources, Teck Resources and Vedanta.
(1) The deferred rights are subject to a service condition only as performance conditions applied during the STI performance year.
(2) The Board and Remuneration Committee use information from an external provider to inform them of the TSR performance of the relevant index and companies to assess the
vesting outcome for the LTI.
82
GOVERNANCE
Minimum
shareholding
requirement
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 Lead Team members, including those who
are Executive KMP, and must be obtained within five years of appointment to the Lead Team.
See page 101 for current shareholdings of our Executive KMP.
Our service
contracts
Contracts are entered into by Executive KMP in their personal capacity. The key terms are consistent for all Executive
KMP, and include:
– No fixed term;
– Six months’ notice by either party or payment by the Company in lieu of notice;
– Termination without notice for serious misconduct;
– Two months’ notice by the member of Executive KMP where a fundamental change occurs that materially diminishes
their status, duties, authority or terms and conditions (receiving payment in lieu of six months’ notice);
– A maximum payment in lieu of notice of six months’ fixed remuneration; and
– Post-employment restraints for a period of up to six months after their employment with the Group ends.
Shareholder approval was granted at the 2021 Annual General Meeting (AGM) for Executive KMP termination benefits.
Target Remuneration for FY22
South32 sets Target Remuneration for each Executive KMP at a competitive level to attract and retain the appropriate talent in the
markets in which we operate. Our Target Remuneration is informed by the South32 Reward Framework (see page 79) that outlines the
key factors the Board takes into consideration in setting Executive KMP reward and the strategic drivers of pay at South32.
It is important to ensure reward levels fairly reflect the responsibilities and contribution of Executive KMP and that outcomes are aligned
to performance and the delivery of total shareholder returns. As a result, a meaningful portion of our Executive KMP remuneration is at
risk, based on challenging individual and Company performance measures.
Target Remuneration, as outlined below, assumes on-target performance for the STI and considers the difficulty of achieving LTI
performance hurdles given broader industry and South32-specific share price volatility. The figures reflected in the diagram below are
therefore based on the STI being paid at 100 per cent of target and the LTI vesting at 60 per cent of face value (see page 82 for details
on face value).
Based on these principles, annual Target Remuneration for Executive KMP as at 30 June 2022 is illustrated in diagram 1.5.
Diagram 1.5 – FY22 Target Remuneration (A$’000)
G Kerr
1,815
1,089
1,089
2,178
6,171
(71% at risk)
K Tovich
870
522
522
696
2,610
(67% at risk)
M Fraser(1)
1,000
600
600
1,000
3,200
(69% at risk)
J Economidis
780
468
468
624
N Pillay(2)
694
416
416
555
2,340
(67% at risk)
2,081
(67% at risk)
0
2,000
4,000
6,000
Fixed remuneration
STI (cash)
STI (deferred rights)
LTI
(1) M Fraser ceased being a member of Executive KMP on 30 November 2021. Figures are not pro-rated for his time as a member of Executive KMP in FY22.
(2) N Pillay was appointed as a member of Executive KMP on 1 December 2021. Figures are not pro-rated for his time as a member of Executive KMP in FY22. Target Remuneration
has been converted from ZAR to A$ using an exchange rate of A$1:ZAR11.13.
83
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
FY22 Target Remuneration relative to peer groups
(unaudited)
South32 has operations and offices on six continents and
competes for talent in a global pool.
The adjacent diagrams illustrate the measured approach
adopted by South32 in positioning CEO fixed remuneration
and Target Remuneration for FY22 compared to relevant
benchmarks, being the ASX peer group and the global mining
peer group (see page 82). Fixed remuneration for the CEO has
been assessed as being comparable to the ASX peer group
median, and closer to the lower quartile when compared to
the global mining peer group. Target Remuneration for the
CEO has been assessed as being comparable to the upper
quartile of the ASX peer group, but below the global peer
group median.
As an additional reference, we have also included
supplementary peer groups reflecting companies on the
London Stock Exchange (UK) and US stock exchanges (US)
that are half to double the market capitalisation of South32,
being the markets in which we also compete for executive
talent.
Diagram 1.6 – CEO fixed remuneration vs. Peers
3,000
0
0
0
$
A
’
2,000
1,000
0
South32
1,815
ASX Peers
Global Peers
UK Peers
US Peers
Diagram 1.7 – CEO Target Remuneration vs. Peers
20,000
15,000
0
0
0
$
A
’
10,000
5,000
0
South32
6,171
ASX Peers
Global Peers
UK Peers
US Peers
South32
Median
Upper and lower quartiles
Range of possible remuneration outcomes
As actual business and individual achievement over the performance period determines reward outcomes, the amount of pay received
by Executive KMP each year will vary (see page 78).
Diagram 1.8 illustrates the range of possible remuneration outcomes for the CEO, based on three performance outcome scenarios:
minimum, target and maximum. While the figures in diagram 1.8 and explanation are for the CEO, similar analysis can be undertaken for
other Executive KMP to assess the minimum and maximum range of pay outcomes.
Diagram 1.8 – Range of CEO remuneration outcomes (A$’000)
Minimum
1,815
1,815
(all reward at risk is forfeited)
Target
1,815
1,089
1,089
2,178
6,171
(71% at risk)
Maximum
1,815
1,634
1,634
3,630
8,713
(79% at risk)
0
2,000
4,000
6,000
8,000
10,000
Fixed remuneration
STI (cash)
STI (deferred rights)
LTI
In the Minimum scenario, no STI or LTI is paid. The CEO would receive fixed remuneration, inclusive of superannuation, of
A$1.815 million.
Target outcomes would be achieved where the business meets the challenging STI performance hurdles (i.e., that extend well beyond
business-as-usual activities), resulting in STI being paid at target levels (67 per cent of maximum opportunity, or 120 per cent of fixed
remuneration, with half deferred into shares) and 60 per cent of the rights granted under the LTI vesting.
To deliver a Maximum outcome for the STI (i.e. 180 per cent of fixed remuneration, with half deferred into shares), South32 would
need to achieve the robust stretch targets for every metric in the Business Scorecard. For the LTI to vest in full over the four-year
performance period:
– The South32 TSR would need to exceed the TSR of the company at the 75th percentile in the global mining constituent group;
– The South32 TSR would need to exceed the MSCI World Index by more than 23.9 per cent; and
– The Board would need to assess performance against both strategic measures as outstanding.
Deferred STI and LTI in the Target and Maximum scenarios do not incorporate future share price movements.
84
GOVERNANCE
Fixed remuneration for FY22
In FY22, there were no increases to fixed remuneration for the CEO or Mike. Katie received a 4.8 per cent increase in fixed remuneration
from A$830,000 to A$870,000 on 1 September 2021. Jason also received a fixed remuneration increase from A$712,500 to A$780,000 on
being appointed as Chief Operating Officer Australia on a permanent basis from 1 July 2021. Noel became a member of Executive KMP
on 1 December 2021.
Table 1.3 – Fixed remuneration for Executive KMP in FY22(1)
Executive KMP
G Kerr
K Tovich
M Fraser
J Economidis
N Pillay(2)
(1) Fixed remuneration reflects a full year in the KMP role.
(2) Fixed remuneration for N Pillay has been converted to A$ using an exchange rate of A$1:ZAR11.13.
FY21 fixed
remuneration
(A$)
1,815,000
830,000
1,000,000
712,500
-
FY22 fixed
remuneration
(A$)
1,815,000
870,000
1,000,000
780,000
694,453
Increase
%
0
4.8
0
9.5
-
85
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Short-Term Incentive for FY22
Determining STI awards
Diagram 1.9 – Determination of STI awards
South32
Business Outcome
Individual
Outcome
Overall
STI Outcome
x
1A
1B
2
3
x
=
BUSINESS
SCORECARD
0%-150%
Target 100%
BUSINESS
MODIFIER
Discretion +/-
INDIVIDUAL PERFORMANCE
and BEHAVIOURS
(0%-150%)
Max 180%
Target 120%
(of fixed remuneration)
As outlined on page 82, the STI is intended to focus and reward Executive KMP for delivering our key business priorities and success
for South32 both in the financial year and into the future. The overall STI outcome is determined by assessing three key inputs – the
Business Scorecard, the Business Modifier, and individual performance and behaviours.
The Business Scorecard includes a balanced range of challenging measures (i.e., that extend well beyond business-as-usual activities)
that consider both our financial and non-financial performance, and help our Executive KMP focus on outcomes that are within their
control and a priority for the year.
The Business Modifier considers overall business outcomes or other factors that are not specifically contemplated in the Business
Scorecard, such as the shareholder experience, fatalities or other significant safety or environmental events. The Business Modifier may
be applied to Executive KMP on an individual or group basis, having regard to the perspectives of stakeholders including employees,
shareholders and communities.
Together, the Business Scorecard and the Business Modifier determine the South32 Business Outcome.
Individual performance is measured on the basis of delivery against the relevant operations’, projects’ or functions’ business plans. Our
people are also assessed on demonstrated behaviour aligned to our values (i.e., both on what is achieved and how it is achieved).
What this means in practice
Including STI performance measures that are within the
control of the executives means that the Business Scorecard
outcomes may not always mirror underlying South32 financial
outcomes.
However, the Board has designed the STI, including the use
of the Business Modifier and individual outcomes, so that
executives are rewarded for delivering strong performance
across areas within their control throughout the cycle, taking
into account overall business performance and shareholder
experience.
Diagram 1.10 demonstrates the disciplined approach applied
by the Board over the past five years.
Diagram 1.10 – CEO STI outcome vs. Underlying earnings
74%
64%
58%
54%
42%
m
u
m
x
a
m
i
f
o
%
100%
75%
50%
25%
0%
3,000
2,500
2,000
1,500
1,000
500
-
U
S
$
M
FY18
FY19
FY20
FY21
FY22
South32 Underlying earnings US$M
STI % of maximum
86
GOVERNANCE
1A FY22 Business Scorecard
Table 1.4 – FY22 Business Scorecard outcomes
Scorecard measure
Target
Performance
Outcome Zero
Target Maximum
Sustainability
Safety:
28.3%
34.7%
Fair
Achieve a 20 per cent reduction in TRIF compared to the
adjusted FY21 baseline(1). Complete the FY22 safety
improvement program milestones.
TRIF decreased by 12 per cent to 5.3 per million hours worked compared to
the adjusted FY21 baseline(1). The FY22 safety improvement milestones were
completed to plan.
We are deeply saddened by the loss of one of our colleagues, who was
fatally injured while undertaking electrical work at our Wessels Mine at South
Africa Manganese on 30 November 2021. We recognise the fatality in our STI
through the Business Modifier (see page 89).
Significant Events and Hazards:
Excellent
Ensure 90 per cent of significant event investigations are
completed and signed off within the allocated timeframe.
Achieve targets for significant hazard frequency and
significant event actions.
Significant event investigation targets were achieved.
The significant hazard frequency and significant event actions outcomes were
ahead of target.
Health:
Excellent
Achieve a 20 per cent reduction in potential material exposures
against the FY21 baseline and in accordance with our internal
health standard. Develop and implement a project pipeline to
continue to reduce potential material exposures in accordance
with our internal health standard. Assign risk and control
owners to all material health risks.
Potential material health exposures reduced by 34 per cent compared to
FY21.
A project pipeline was developed to reduce potential material exposures by
the end of FY24.
All material health risks were assigned risk and control owners.
Community:
Excellent
Implement community investment plans on time and on
budget.
FY22 community investment was delivered to plan with an increase of 40 per
cent from FY21 to US$31.1M(2).
Update our community and social performance standard, align
this with the ICMM performance standards and integrate the
standard into all phases of the project lifecycle.
Complete global reviews for cultural heritage in all our
operating regions outside Australia. Finalise our Approach to
Indigenous, Traditional and Tribal Peoples Engagement.
Apply the community investment impact measurement
framework to all strategic community investments and ensure
that 80 per cent of projects that are measuring outcomes
reach their FY22 outcome targets.
Our internal community standard was updated and enhanced to become our
internal social performance standard.
Cultural heritage reviews for all our operating regions outside Australia were
completed to plan. Our Approach to Indigenous, Traditional and Tribal Peoples
Engagement was substantively completed.
The community investment impact measurement framework was applied to
all strategic investments with 97 per cent of projects measuring outcomes
achieving their targets.
Risk Management:
Good
Implement material risk registers and control management
plans for all functions and major projects, and second line
stewardship processes over technical and health, safety and
environment material risks. Document performance
requirements in our risk management system for 80 per cent
of critical controls.
Material risk registers were implemented for all functions and major projects.
Second line stewardship processes were implemented over all technical and
health, safety and environment material risks.
91 per cent of performance requirements for critical controls were
documented in our risk management system.
(1) TRIF baseline adjusted at end FY21 to account for the removal of SAEC and TEMCO from the portfolio, measuring our FY22 performance against a TRIF of 6.0.
(2) Community investment consists of direct investment, in-kind support and administrative costs.
87
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Scorecard measure
Financial: Production, cost
and capital expenditure
Target
28.3%
Performance
Outcome Zero
Target Maximum
27.0%
Production(3):
Good
Deliver 97 – 102 per cent of revenue equivalent production.
Revenue equivalent production was 98.4 per cent.
Cost(3):
Fair
Deliver costs that are within US$50 million of budget (adjusted
for foreign exchange, price-linked and other costs). Deliver
US$50M in functional cost savings.
FY22 adjusted cost was above budget by US$37M.
Delivered US$69M in functional cost savings.
Capital expenditure(3):
Fair
Deliver sustaining capital expenditure that is within five per
cent of budget (adjusted for foreign exchange).
Achieve fewer than 20 per cent break-in projects(4).
Deliver major capital projects spend (adjusted for foreign
exchange) that is within five per cent of budget and schedule.
Normalised sustaining capital expenditure was 94 per cent of budget.
Break-in projects(4) were at 13 per cent.
Major capital projects expenditure was 60 per cent of budget.
Financial: Adjusted ROIC
28.3%
19.8%
Adjusted ROIC:
Fair
Achieve budget FY22 Adjusted ROIC, consistent with our cost,
production and capital expenditure targets.
Adjusted ROIC was 6.6 per cent versus the budget of 6.9 per cent.
Strategic priorities
15.0%
18.1%
Hermosa project:
Good
Commence the Taylor feasibility study, construction of water
plant two and shaft engineering work. Progress the Flux
exploration plan of operations. Commence the Clark
pre-feasibility study.
Taylor feasibility study, construction of water plant two and shaft engineering
work all commenced in FY22.
Progressed the Flux Prospect exploration plan of operations and commenced
a pre-feasibility study for the Clark Deposit.
Next Generation Mine:
Good
Achieve 80 per cent of the agreed initiative milestones for the
Next Generation Mine Innovation Mission and Hermosa
Technology Development Program.
Four out of five of the agreed Next Generation Mine Innovation Mission
milestones were achieved. All the Hermosa Technology Development Program
milestones were achieved.
Inclusion and Diversity:
Good
Achieve FY22 targets and deliver all elements of the Group
Inclusion and Diversity Action Plan.
Employee engagement:
Achieve target employee engagement scores.
Inclusion and Diversity targets for female representation in our operations
leadership team and for all employees were met, but we fell short of female
representation in our Lead Team and senior leadership team. The targets for
the representation of black people in South Africa in the management group
and across all employees were also met. All elements of the Group Inclusion
and Diversity Action Plan were completed.
Employee engagement scores significantly exceeded target.
Subtotal
Target = 100%
Max = 150%
99.6%
(3) Excludes non-operated entities.
(4) Capital projects with expenditure above US$100,000 that were not included in the FY22 budget.
88
GOVERNANCE
1B FY22 Business Modifier
The Business Modifier is an integral component of the STI that considers overall business outcomes or other factors that are not
specifically contemplated in the Business Scorecard, such as:
– The shareholder experience;
– Unexpected material external events, including the impact of a global pandemic or a significant disruption to global trade;
– Fatalities and significant safety or environmental issues;
– Significant reputational issues; and
– An assessment of risk, culture or any other item that the Board considers appropriate.
The Business Modifier, based on Board discretion, ensures that STI outcomes reflect overall business performance, including both what
has been delivered and how it has been achieved. The outcome may be positive or negative, and may be applied to Executive KMP on
an individual or a group basis depending on the factors under consideration.
The Board acknowledges the strong operating and financial outcomes that are recognised in the scorecard for FY22, and the efforts of
Executive KMP and all employees that allowed the Company to successfully navigate the challenging external environment. However,
nothing is more important than ensuring our people go home safe and well at the end of every shift.
We are deeply saddened by the loss of one of our colleagues, Mr Desmin Mienies, a contractor who was fatally injured while undertaking
electrical work at our Wessels Mine at South Africa Manganese on 30 November 2021. Our deepest sympathies are with Mr Mienies’
family, friends and colleagues. We provided them with our support following the tragic incident and undertook a detailed investigation
to understand what happened. Learnings from the investigation were shared across our organisation.
We recognise that we must continue to improve our safety performance. During FY22 we developed a Safety Improvement Program,
a three-year global program of work designed to achieve a step-change in our safety performance, and we worked to improve our
approach to contractor management.
More detailed information on our ongoing safety initiatives can be found in the Sustainable Development Report at www.south32.net
Taking this tragic outcome into consideration, the Board decided to apply a negative Business Modifier to the Scorecard for all Executive
KMP as outlined below in Table 1.5.
Table 1.5 – Application of the Business Modifier by the Board (multiplier applied to the Business Scorecard outcome)
CEO
COO Africa(1)
Other Executive KMP(2)
Business Modifier for
FY22
-20%
-20%
-10%
-10%
-5%
One fatality in
South Africa
FY21
-20%
-20%
-5%
Business Modifier applied in previous years
FY20
-30%
-30%
-15%
FY19
No Business
Modifier applied
FY18
-15%
-15%
-5%
One fatality in
South Africa
One fatality in South
Africa and a decline in
earnings and share
price
One fatality in South
Africa and the impact
of the Appin mine
suspension in FY17
(1) The Board decided to apply a Business Modifier of -20 per cent for M Fraser in FY22 as he was Chief Operating Officer Africa at the time of the fatality.
(2) The Board decided to apply a Business Modifier of -10 per cent for J Economidis and N Pillay in FY22, and negative five per cent for K Tovich.
89
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
2 FY22 individual performance and behaviours
Our Board determines the individual scorecard measures for Executive KMP in relation to what was delivered, as demonstrated in the
performance of the Executive KMP's portfolio, and how it was delivered, which considers leadership behaviours aligned to our values,
risk framework and governance processes.
The Board considered Graham Kerr’s individual performance in accordance with the annual performance evaluation process for the
CEO, taking into account a range of factors, including his leadership, conduct and personal impact. For FY22, the Board recognised
Graham’s exceptional performance, with key highlights being his leadership that resulted in strong financial performance and record
returns to shareholders.
Individual outcomes for other Executive KMP reflected the performance outcomes in their areas of accountability. These outcomes
ranged from 100 per cent to 140 per cent, as indicated in Table 1.6 below.
3 Overall FY22 STI outcomes
Overall STI outcomes for FY22 are determined through our Board’s assessment of the business and individual outcomes, as outlined in
Table 1.6.
Table 1.6 – STI earned by Executive KMP in respect of FY22 performance
Percentage of maximum STI
Business
Scorecard
outcome %
Business
Modifier +/- %
Individual
outcome %
Overall STI
outcome % of
target
Total
STI awarded
Cash
Deferred
rights
Awarded
Forfeited
Executive KMP
G Kerr
K Tovich
M Fraser(2)
J Economidis
N Pillay(3)
(1A)
99.6
99.6
99.6
99.6
99.6
(1B)
-20
-5
-20
-10
-10
(2) 1A x (1+1B) x (2)
(A$’000)
(A$’000)(1)
(A$’000)(1)
140
140
100
115
100
111.6
132.5
79.7
103.1
89.6
2,430
1,382
398
964
434
1,215
691
398
482
217
1,215
691
-
482
217
(%)
74
88
53
69
60
(%)
26
12
47
31
40
(1) The cash portion of the STI will be paid in cash in September 2022. The deferred rights to receive South32 shares are anticipated to be granted in or around December 2022
and will be due to vest in August 2024. The deferred rights remain subject to continued service with the South32 Group.
(2) On 30 November 2021, M Fraser stepped down as Chief Operating Officer Africa to pursue opportunities outside the South32 Group. FY22 STI awarded to M Fraser reflects his
period of employment with the South32 Group in FY22 (i.e. his pro-rated award) and will be paid entirely in cash in September 2022 in accordance with the treatment of a good
leaver under the STI Plan Rules.
(3) N Pillay was appointed as a member of Executive KMP on 1 December 2021. Details in the above table are pro-rated for his period as a member of Executive KMP in FY22.
90
GOVERNANCE
Long-Term Incentive
FY19 LTI and MSP Performance award
Our FY19 LTI award was tested for vesting subject to service and performance conditions to 30 June 2022. This award is subject to TSR
performance conditions over four years, with two-thirds measured with reference to a mining sector index (the IHS Markit Global Mining
Index with constrained weighting by company and sector) and one third with reference to a world index (the MSCI World Index). The four-
year period for this award was from 1 July 2018 to 30 June 2022.
We granted Katie, Jason and Noel the FY19 MSP Performance award prior to their appointment as members of KMP. This award has the
same performance and vesting conditions as our FY19 LTI award.
For the LTI and MSP Performance awards to vest in full, they would need to outperform both indices by at least 23.9 per cent over the
four-year performance period (equivalent to 5.5 per cent per annum cumulative). Given that our TSR failed to meet the threshold level of
performance required against both comparator indices (see Diagram 1.11 and Table 1.7), these awards lapsed in full in August 2022.
Diagram 1.11 – South32 TSR relative to comparator groups
Diagram 1.12 – Vesting scale
120%
)
R
S
T
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
80%
40%
0%
-40%
-80%
FY18
100% vesting
40% vesting
0% vesting
FY19
FY20
FY21
FY22
South32
Sector Index
World Index
TSR = index
TSR > index
by 23.9%
Table 1.7 – South32 FY19 LTI award vesting outcome
Sector Index
World Index
TSR performance(1)(2)
Vesting
outcome
Index
weighting
Weighted
vesting outcome
Index
(A)
88%
44%
South32
(B)
Required for
100% vesting
Achieved
(B-A)
37%
Index+23.9%
Index+23.9%
(51%)
(7%)
(C)
0%
0%
(D)
2/3
1/3
(C x D)
0%
0%
0%
(1) TSR calculation uses June 2018 average return at the start and June 2022 average return at the end of the performance period.
(2) The Board and Remuneration Committee use information from an external provider to inform them of the performance of the relevant index to assess the vesting outcome for
the LTI.
FY20 MSP Retention award
Although South32 does not offer MSP Retention awards to permanent members of the Lead Team, including those that are Executive
KMP, when individuals are promoted internally to Executive KMP roles, they retain unvested MSP awards that will vest while they are
KMP. Jason and Noel were granted the FY20 MSP Retention awards in 2019 prior to their appointment as members of Executive KMP. As
the service-based condition of these awards was met, our Board approved these awards to vest in full in August 2022.
The structure of the MSP is detailed on page 101.
91
SOUTH32 ANNUAL REPORT 2022
Remuneration report continued
FY20 Transitional LTI award
We granted the FY20 Transitional LTI award to Katie on her appointment to the Lead Team given the reduction in Target Remuneration
that would otherwise occur due to the three-year service period that exists for the MSP retention rights that formed an important part
of her prior remuneration arrangements, as opposed to the four-year performance period of the LTI.
This Transitional LTI award is subject to the same TSR performance conditions as the FY19 LTI award, but over a three-year period,
with two-thirds measured with reference to a mining sector index (the IHS Markit Global Mining Index with constrained weighting by
company and sector) and one third with reference to a world index (the MSCI World Index). The performance period for this award was
from 1 July 2019 to 30 June 2022.
For the Transitional LTI award to vest in full, it would need to outperform both indices by at least 17.4 per cent over the performance
period (equivalent to 5.5 per cent per annum cumulative). Our TSR exceeded the world index TSR by more than 17.4 per cent but failed
to meet the threshold level of performance against the mining sector index (see Diagram 1.13 and Table 1.8). As a result, one-third of the
rights vested in August 2022 and the remaining rights lapsed.
Diagram 1.13 – South32 TSR relative to comparator groups
Diagram 1.14 – Vesting scale
150%
100%
75%
50%
25%
0%
-25%
)
R
S
T
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
-50%
FY19
FY20
FY21
FY22
South32
Sector Index
World Index
100% vesting
40% vesting
0% vesting
TSR = index
TSR > index
by 17.4%
Table 1.8 – South32 FY20 Transitional LTI award vesting outcome
Sector Index
World Index
TSR performance(1)(2)
Vesting
outcome
Index
weighting
Weighted
vesting outcome
Index (A)
South32 (B)
79%
29%
52%
Required for
100% vesting
Index+17.4%
Index+17.4%
Achieved (B-A)
(27)%
23%
(C)
0%
100%
(D)
2/3
1/3
(C x D)
0%
33%
33%
(1) TSR calculation uses June 2019 average return at the start and June 2022 average return at the end of the performance period.
(2) The Board and Remuneration Committee use information from an external provider to inform them of the performance of the relevant index to assess the vesting outcome for
the LTI.
92
GOVERNANCE
Summary of LTI outcomes in FY22
Table 1.9 – South32 LTI awards vested or lapsed/forfeited
Executive KMP
Award
G Kerr
K Tovich
M Fraser
J Economidis
N Pillay
FY19 LTI
FY19 MSP Performance
FY20 Transitional LTI
FY19 LTI
FY19 MSP Performance
FY20 MSP Retention
FY19 MSP Performance
FY20 MSP Retention
Number of
rights granted
Number of
rights vested
Number of
rights lapsed/
forfeited
Value at
grant(1)
(A$’000)
Value lapsed/
forfeited(2)
(A$’000)
Value of
share price
movement(3)
(A$’000)
Value at
vesting(4)
(A$’000)
1,450,819
139,314
129,283
674,863
123,704
62,305
116,120
54,283
-
-
43,094
-
-
62,305
-
54,283
1,450,819
139,314
86,189
674,863
123,704
-
116,120
-
5,310
510
415
2,470
453
200
425
174
5,310
510
277
2,470
453
-
425
-
-
-
32
-
-
45
-
40
-
-
170
-
-
245
-
214
(1) ‘Value at grant’ is the number of rights granted multiplied by the grant determination price in June 2018 of A$3.66 (FY19 LTI/FY19 MSP Performance) and June 2019 of A$3.21
(FY20 Transitional LTI/FY20 MSP Retention), based on the volume weighted average price (VWAP) over the last 10 trading days in June of the respective year.
(2) ‘Value lapsed/forfeited’ is the number of rights lapsed/forfeited based on performance relative to the performance measures, multiplied by the grant determination price of
A$3.66 (for the FY19 LTI/FY19 MSP Performance) and A$3.21 (for the FY20 Transitional LTI/FY20 MSP Retention).
(3) ‘Value of share price movement’ is the number of shares that vested, multiplied by the difference between the grant determination price of A$3.66 (for the FY19 LTI/FY19 MSP
Performance) and A$3.21 (for the FY20 Transitional LTI/FY20 MSP Retention) and the closing share price on 30 June 2022 of A$3.94. This reflects the value added/(lost) 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 in August 2022, multiplied by the closing share price on 30 June 2022 of A$3.94.
LTI granted in FY22
FY22 LTI Plan
Each year we grant performance rights to our Executive KMP. Our FY22 LTI Plan awards, which were granted in December 2021, have a
four-year performance period and are subject to performance hurdles (outlined on page 82). Shareholders approved, under ASX Listing
Rule 10.14, the grant of rights for the CEO at the AGM on 28 October 2021.
FY22 Transitional awards
Participants in the MSP receive a portion of their LTI as retention rights that have a three-year service condition. As all Lead Team LTI
awards have a four-year performance period, the Board may determine that a new Lead Team member appointed from within South32
should receive a Transitional LTI award to bridge the gap between the two plans.
In FY22, the Board approved one-off Transitional LTI awards for Jason and Noel, following their appointment to the Lead Team to
address the potential shortfall in vesting in 2024. These awards are performance based and have the same TSR performance hurdles as
the FY22 LTI, but are measured over a three-year period. More information on these awards is provided on page 101.
Table 1.10 – FY22 LTI grants
Executive KMP
Award
G Kerr
K Tovich
J Economidis
N Pillay(4)
FY22 LTI
FY22 LTI
FY22 LTI
FY22 Transitional LTI
FY22 LTI
FY22 Transitional LTI
Reward determination(1)
Face value
(% of fixed
remuneration)
Face value
(A$’000)
Target value(2)
(% of fixed
remuneration)
Target value
(A$’000)
200
133
133
37.5
133
37.5
3,630
1,157
1,037
293
945
267
120
80
80
20
80
20
2,178
696
624
156
569
142
Grant (December
2021):
Number of rights
granted(3)
1,267,015
403,874
362,094
102,094
329,962
93,034
Anticipated
vesting date
August 2025
August 2025
August 2025
August 2024
August 2025
August 2024
(1) The grant of awards is based on the face value as outlined in Components of our reward (see page 82).
(2) The target value considers the difficulty of achieving performance hurdles and anticipated share price volatility.
(3) The number of awards granted to Executive KMP in December 2021 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 2021, being A$2.865. The fair value at grant for accounting purposes, as calculated by PwC, was A$2.35 per right for the FY22 LTI award and $2.39 per
right for FY22 Transitional LTI award.
(4) Fixed remuneration for N Pillay used to determine his FY22 LTI grants was converted to A$ using an exchange rate of A$1:ZAR 10.87.
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Remuneration report continued
FY22 LTI Strategic Measures Performance Update
In FY22 we introduced two strategic measures, with a total weighting of 20 per cent of our LTI grant, to directly link executive
remuneration to our ambitious but realistic approach to climate change and the transition of our portfolio towards the metals critical to
a low-carbon future.
Vesting outcomes for the strategic measures will be determined by the Board following the end of the four-year performance period
(on 30 June 2025), based on our ability to make material progress in these areas, whilst protecting and creating shareholder value as we
navigate this business-critical transformation. The Board’s rationale in assessing performance and determining the vesting outcome for
each measure will be clearly articulated and shared with shareholders following the Board’s assessment.
Table 1.11 below summarises the early progress made against each four-year strategic measure during FY22.
Table 1.11 – FY22 strategic measures update
Measure
Climate Change
We have announced plans to reduce our operational greenhouse
gas emissions (Scope 1 and 2) by 50 per cent between FY21 and
2035, by implementing our decarbonisation framework, which
includes:
– The advancement of conceptual projects through our capital
investment tollgates, and the successful commissioning of
identified emissions reduction projects;
– The ongoing assessment of new technologies and alternative
energy sources; and
– Continued participation and direct investment in research and
development partnerships.
Consistent with our purpose, we will work to provide a just transition
towards net zero in a way that supports our people, local
communities and other stakeholders.
FY22 progress against measure
In FY22(1), we made strong progress in this critically important area
with:
– Completion of the pre-feasibility studies for mud-washing and coal
to gas conversion projects at Worsley Alumina;
– Completion of a pilot plant scale CSIRO VAMMIT (Ventilation Air
Methane Mitigation Trial) at Illawarra Metallurgical Coal, and by
successfully securing a A$15M grant from the NSW Government to
progress to a commercial scale trial of the technology;
– Completion of a feasibility study for the AP3XLE (energy efficiency)
project at Hillside Aluminium and commencement of the execution
phase;
– Commencement of a pre-feasibility study to assess the potential
for low-carbon energy sources at Hillside Aluminium; and
– Investment in two new initiatives to support development of new
technologies – BluVein and Long Duration Energy Storage Council.
Portfolio Management
We are planning to further reshape our portfolio and increase our
exposure to the metals critical to a low-carbon future by:
In FY22(2), we made significant progress in this transformative area
with:
– Building a high-quality portfolio of greenfields and brownfields
– The restart of the Brazil Aluminium smelter, which was
exploration and development options;
– Optimising our existing portfolio by responsibly transferring
ownership of non-core operations or transitioning them to closure;
– Developing or acquiring operations which are cash generative
through the cycle, improving the overall quality of our business;
and
– Maintaining discipline by adhering to our proven capital
management framework.
underpinned by the establishment of long-term, renewable power
contracts;
– The acquisition of a further 18.2 per cent stake in the Mineracao
Rio do Norte (MRN) Joint Venture (to 33 per cent), optimising our
position in the Brazilian aluminium value chain;
– The acquisition of a further 16.6 per cent interest in Mozal
Aluminium, further increasing our exposure to hydro-electric
powered aluminium; and
– The completion of the acquisition of a 45 per cent interest in the
Sierra Gorda copper mine, establishing our first entry into the
global copper market.
Separately, we did not complete the sale of the Metalloys
manganese alloy smelter, which remains on care and maintenance.
(1) Further information on the progress of items listed can be found in our Sustainable Development Report at www.south32.net
(2) Further information on the progress of items listed can be found in the Progress against our strategy section on page 20.
94
GOVERNANCE
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 equity awards (including Transitional Performance and MSP awards) in the form of
share rights. These are rights to receive fully paid ordinary shares in South32 Limited(1) (or at the Board’s discretion, a
cash equivalent amount) subject to meeting specific performance and vesting conditions. As the rights are an
element of remuneration, no amount is payable by employees to be allocated the rights. If the rights vest, no
consideration or exercise price is payable for the allocation of shares. As rights are automatically exercised on vesting,
they do not 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, generally:
• Deferred STI awards vest immediately;
• LTI and MSP Performance awards are pro-rated and the reduced portion remains on foot and eligible for vesting
in the ordinary course, subject to any applicable performance hurdles; and
• MSP Retention awards are pro-rated and the reduced portion vests immediately.
Change of control
Malus and
clawback
Where awards are pro-rated, the remaining portion lapses.
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 do not obtain an inappropriate benefit. 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 South32 into disrepute; and
– Any other factor our Board deems justifiable.
A participant cannot take part in new issues of securities in relation to their unvested rights. However, the relevant
plan rules include specific provisions dealing with rights issues, bonus issues and corporate actions, and other capital
reconstructions.
Rights to participate
in new issues
(1) References in this Remuneration report to ‘South32 shares’ are references to fully paid ordinary shares in South32 Limited.
95
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Non-Executive Director remuneration
Remuneration policy
As a global company, it’s important that we offer competitive Director fees to help attract the appropriate level of experience from a
diverse global pool. These fees reflect the size, complexity and global nature of our business 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. Non-Executive
Directors receive superannuation benefits but do not receive any termination benefits.
We pay committee fees to recognise the additional responsibilities associated with participating on a Board Committee.
We pay a fixed fee to our Board Chair for all responsibilities, including participation on any Board Committees.
FY22 Non-Executive Director fees and fee pool
We review fees every year and may get external advice to help us do so. We based the review of FY22 fees on data provided by external
consultants, which resulted in no increase in the Chair and Non-Executive Directors' fees for FY22. Committee fees also remained
unchanged.
The maximum aggregate amount we can pay our Non-Executive Directors is unchanged at A$3.9M per annum (fee pool). We will always
seek shareholder approval before making any changes to this pool.
The table below outlines the fee levels for FY22.
Table 1.12 – FY22 Board fees
Fee
Board fees
Committee fees
Description
FY22 fee
(A$ per annum)
Increase %
Board of Directors
Chair of the Board
Other Non-Executive Directors
Risk and Audit, Remuneration, and Sustainability Committees
Committee Chair
Members
578,000
189,250
46,000
23,000
0
0
0
0
Minimum shareholding requirements
Each Non-Executive Director is required to accumulate a minimum shareholding level of one year’s base fees within a reasonable period.
You can find more details of their current shareholdings in Table 1.19.
Travel allowance
As a global company, our Board meetings are ordinarily held in Australia, South Africa and other locations, where travel restrictions allow
(see page 68 for more details). Site visits are also an important part of our usual Board program, giving Directors:
– A better understanding of workplace culture through interactions with site-based employees;
– An improved understanding of local and operational risks;
– A chance to participate in continuous education; and
– On-the-ground experience.
As these meetings, site visits and other engagements take time and commitment, particularly if they are in remote locations, we provide
our Directors with a travel allowance.
From FY22, our travel allowances were reduced by at least 36 per cent. For air travel to a Board commitment that is greater than three
hours but less than 10 hours to the destination, a one-off allowance of A$5,000 per trip applies (A$7,840 for FY21). Where air travel is
greater than 10 hours to the destination, the allowance per trip is A$10,000 (A$16,800 for FY21).
The travel allowance is only paid where travel is undertaken and does not apply to domestic travel to a regularly scheduled Board
meeting.
96
GOVERNANCE
FY22 Non-Executive Director remuneration
In Table 1.13, we have set out the statutory disclosures required under the Corporations Act and in accordance with Australian
Accounting Standards, in respect of FY22 remuneration paid to Non-Executive Directors.
Table 1.13 – Non-Executive Director remuneration (A$’000)
Non-Executive Director
FY22 term
K Wood
F Cooper AO
G Lansdown
X Liu
N Mtoba
W Osborn
K Rumble(3)
Total
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Board &
Committee
fees
554
556
235
237
256
235
212
214
212
212
235
237
258
305
1,962
1,996
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
Short-term benefits
Post-
employment
benefits
Non-monetary
benefits(1)
Other cash
allowances &
benefits(2)
Superannuation
-
-
-
-
1
2
-
-
-
2
-
-
2
2
3
6
10
-
10
-
25
-
10
-
20
-
10
-
20
-
105
-
24
22
24
22
1
-
24
22
1
-
24
22
1
-
99
88
Total
588
578
269
259
283
237
246
236
233
214
269
259
281
307
2,169
2,090
(1) Includes assistance with tax return preparation.
(2) Includes travel allowances paid in FY22.
(3) FY21 Board and Committee fees for K Rumble include ZAR 539,750 received for his role as a Non-Executive Director of South32 SA Coal Holdings (Pty) Ltd. This figure has been
converted to A$ using an exchange rate of A$1:ZAR11.60.
97
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Looking forward to FY23
Following the enhancements made in FY22, no major changes are proposed for the Reward Framework for FY23. The Board has
confidence in the integrity of the Reward Framework, the core elements of which have remained unchanged since demerger, and
believes it incorporates the necessary flexibility to reward our Executive KMP for performance that is aligned with the interests of
stakeholders.
Fixed remuneration
To reflect the market movement in fixed remuneration and the pressure for talent in the industry, the Board approved increases to the
fixed remuneration of Executive KMP that are aligned with those applied generally for employees in the country in which the Executive
KMP are located, (as outlined in Table 1.14). This is the first increase in fixed remuneration for the CEO since FY20.
Table 1.14 – Fixed remuneration for Executive KMP in FY23, effective 1 September 2022.
Executive KMP
G Kerr
K Tovich
J Economidis
N Pillay(1)
FY22 fixed
remuneration
(A$)
FY23 fixed
remuneration
(A$)
1,815,000
870,000
780,000
694,453
1,906,000
914,000
819,000
736,160
Increase %
5.0
5.1
5.0
6.0
(1) Fixed remuneration for N Pillay has been converted to A$ using an exchange rate of A$1:ZAR11.13.
Short-term incentive
We are not changing the design of the STI for FY23. Our Business Scorecard will continue to focus on maintaining safe, reliable and
profitable operations.
Diagram 1.15 – FY23 STI performance metric weightings
Performance metrics
FY23 weighting
Measures
Sustainability
Financial
Safety, health, risk management, water performance and community
Production, cost and capital expenditure
Adjusted return on invested capital
28.3%
28.3%
28.3%
15%
Strategic priorities
Key elements of the FY23 Business Plan
X
Business Modifier
Considers factors that are not specifically contemplated in the Business Scorecard
+/-
=
South32 Business Outcome
Reflects our performance over the financial year
Long-term incentive
We are not changing the design of the LTI for FY23. The comparator groups against which our TSR performance will be measured, the
strategic measures, and the vesting conditions will remain as outlined on page 82.
Director Fees
Board fees will increase by 3% for FY23 as outlined in Table 1.15 below. The total fees paid to Non-Executive Directors in FY23 will not
exceed the fee pool (A$3.9M).
Table 1.15 – FY23 Board fees – effective 1 September 2022
Fee
Description
FY22 (A$)
FY23 (A$)
Increase %
Board Fees
Committee Fees
Board of Directors
Chair of the Board
Other Non-Executive Directors
578,000
189,250
595,250
195,000
Risk and Audit, Remuneration, and Sustainability Committees
Committee Chair
Members
46,000
23,000
46,000
23,000
3.0
3.0
-
-
There will be no change to Committee fees or the travel allowance for FY23.
98
GOVERNANCE
Statutory disclosures
Statutory remuneration table for Executive KMP
In the following table, we have set out the statutory disclosures required under the Corporations Act and in accordance with the
Australian Accounting Standards. The amounts shown reflect the remuneration for each Executive KMP that relates to their service in
FY22.
Table 1.16 – Statutory remuneration of Executive KMP in FY22 (A$’000)
Short-term benefits
Post
employment
benefits
Termination
benefits
Other
long-term
benefits(3)
Share based
payments(4)
Total
remuneration
Executive KMP
G Kerr
K Tovich
M Fraser(5)
J Economidis
N Pillay(6)
Total
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
Salary
1,640
1,765
768
755
386
905
726
624
523
-
4,043
4,049
Cash
bonus(1)
Non-
monetary
benefits(2) Superannuation
1,215
879
691
573
398
484
482
273
217
-
3,003
2,209
42
27
9
12
27
78
7
46
101
-
186
163
25
23
28
25
-
21
40
88
-
-
93
157
-
-
-
-
590
-
-
-
-
-
590
-
LTI
2,500
2,746
698
618
480
1,296
637
425
285
-
4,600
5,085
STI
852
798
478
324
512
430
185
43
56
-
2,083
1,595
168
165
79
74
40
92
71
46
47
-
405
377
6,442
6,403
2,751
2,381
2,433
3,306
2,148
1,545
1,229
-
15,003
13,635
Percentage
of total
remuneration
which is
performance
tested
71%
69%
68%
64%
57%
67%
61%
48%
45%
-
(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 rights
(which are included in the share-based payments column of the table). The value of the deferred equity portion is amortised over the vesting period and included in the STI
share-based payments column. The FY22 pro-rated STI awarded to M Fraser will be paid entirely in cash in September 2022 in accordance with the treatment of a good leaver
under the STI Plan Rules.
(2) Non-monetary benefits are non-pensionable and include such items as insurances, personal tax assistance and the notional interest benefit on a one-off interest free loan
provided to M Fraser. This also includes relocation benefits provided to N Pillay prior to becoming a member of Executive KMP to assist with his relocation to South Africa.
(3) Other long-term benefits is the accounting expense of annual and long-service leave accrued.
(4) The related awards were not actually provided to the Executive KMP. 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 1.17 on page 100 in this report for information on awards outstanding
during FY22.
(5) Termination benefits for M Fraser include payment in lieu of six months’ notice (A$500,000) and a payment for relocation and tax advice (A$90,000). Share-based payments for
M Fraser reflect the accounting treatment of good leaver status applied to his equity awards on leaving South32, including the deferred component of the FY21 STI that was
paid in cash in November 2021 (A$484,320).
(6) Remuneration for N Pillay is for the period from when he became a member of Executive KMP (1 December 2021). Salary for N Pillay has been converted to A$ using an
exchange rate of A$1:ZAR11.13 with the exception of a relocation allowance of ZAR 1,500,000 paid on 25 October 2021 which has been converted to A$ using an exchange rate
of A$1:ZAR10.99.
99
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Details of rights held by Executive KMP
In the following table, we have set out more information about the rights over South32 shares held by Executive KMP, including the
movements in rights held during FY22. See page 95 for terms and conditions of our Equity Incentive Plans.
Table 1.17 – Detail and movement of rights over South32 shares held by Executive KMP during FY22
Award(1)(2)
Executive KMP
G Kerr
FY21 Deferred STI (S)
FY22 LTI (P)
FY20 Deferred STI (S)
FY21 LTI (P)
FY19 Deferred STI (S)
FY20 LTI (P)
FY19 LTI (P)
FY18 LTI (P)
K Tovich
FY21 Deferred STI (S)
FY22 LTI (P)
FY20 Deferred STI (S)
FY21 LTI (P)
FY19 Deferred STI (S)
FY20 LTI (P)
FY20 Transitional LTI (P)
FY19 MSP Retention (S)
FY19 MSP Performance (P)
FY18 MSP Performance (P)
M Fraser
FY20 Deferred STI (S)
FY21 LTI (P)
FY19 Deferred STI (S)
FY20 LTI (P)
FY19 LTI (P)
FY18 LTI (P)
J Economidis
FY21 Deferred STI (S)
FY22 LTI (P)
FY22 Transitional LTI (P)
FY21 MSP Retention (S)
FY21 MSP Performance (P)
FY20 MSP Retention (S)
FY20 MSP Performance (P)
FY19 MSP Retention (S)
FY19 MSP Performance (P)
FY18 MSP Performance (P)
N Pillay(6)
FY22 LTI (P)
FY22 Transitional LTI (P)
FY21 MSP Retention (S)
FY21 MSP Performance (P)
FY20 MSP Retention (S)
FY20 MSP Performance (P)
FY19 MSP Performance (P)
Opening
balance as at
1 July 2021
Grant
date
Granted in
FY22(3)
Vested in FY22
Forfeited or other
change in FY22
Closing
balance as at
30 June 2022
Anticipated
vesting date
Number
8,502,426
-
-
280,988
2,695,544
352,097
1,696,261
1,450,819
2,026,717
2,036,097
-
-
156,030
821,782
27,518
517,133
129,283
55,725
139,314
189,312
3,952,412
154,814
1,237,623
180,724
778,816
674,863
925,572
1,058,467
-
-
-
99,009
495,049
62,305
155,763
49,481
123,704
73,156
608,028
86,262
215,655
54,283
135,708
116,120
06-Dec-21
06-Dec-21
04-Dec-20
04-Dec-20
06-Dec-19
06-Dec-19
07-Dec-18
13-Dec-17
06-Dec-21
06-Dec-21
04-Dec-20
04-Dec-20
06-Dec-19
06-Dec-19
06-Dec-19
07-Dec-18
07-Dec-18
13-Nov-17
04-Dec-20
04-Dec-20
06-Dec-19
06-Dec-19
07-Dec-18
13-Dec-17
06-Dec-21
06-Dec-21
06-Dec-21
04-Dec-20
04-Dec-20
06-Dec-19
06-Dec-19
07-Dec-18
07-Dec-18
07-May-18
06-Dec-21
06-Dec-21
04-Dec-20
04-Dec-20
06-Dec-19
06-Dec-19
07-Dec-18
Number
Number(4)
1,509,175
242,160
1,267,015
-
-
-
-
-
-
561,678
157,804
403,874
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
501,816
37,628
362,094
102,094
-
-
-
-
-
-
-
422,996
329,962
93,034
-
-
-
-
-
352,097
-
-
-
-
352,097
-
-
-
83,243
-
-
-
-
27,518
-
-
55,725
-
-
335,538
154,814
-
180,724
-
-
-
49,481
-
-
-
-
-
-
-
49,481
-
-
-
-
-
-
-
-
-
-
%(5)
15
-
-
-
-
100
-
-
-
31
-
-
-
-
100
-
-
100
-
-
14
100
-
100
-
-
-
40
-
-
-
-
-
-
100
-
-
-
-
-
-
-
-
-
-
Number
2,026,717
-
-
-
-
-
-
-
2,026,717
189,312
-
-
-
-
-
-
-
-
-
189,312
2,129,903
-
798,822
-
307,582
97,927
925,572
73,156
-
-
-
-
-
-
-
-
-
73,156
-
-
-
-
-
-
-
-
%(5)
85
-
-
-
-
-
-
-
100
69
-
-
-
-
-
-
-
-
-
100
86
-
65
-
39
15
100
60
-
-
-
-
-
-
100
-
-
-
-
-
-
-
-
Number
7,632,787
242,160
1,267,015
280,988
2,695,544
-
1,696,261
1,450,819
-
2,325,220
157,804
403,874
156,030
821,782
-
517,133
129,283
-
139,314
1,486,971
-
438,801
-
471,234
576,936
-
1,437,646
37,628
362,094
102,094
99,009
495,049
62,305
155,763
-
123,704
-
1,031,024
329,962
93,034
86,262
215,655
54,283
135,708
116,120
Aug-23
Aug-25
Aug-22
Aug-24
Aug-21
Aug-23
Aug-22
Aug-21
Aug-23
Aug-25
Aug-22
Aug-24
Aug-21
Aug-23
Aug-22
Aug-21
Aug-22
Aug-21
Nov-21
Aug-24
Aug-21
Aug-23
Aug-22
Aug-21
Aug-23
Aug-25
Aug-24
Aug-23
Aug-24
Aug-22
Aug-23
Aug-21
Aug-22
Aug-21
Aug-25
Aug-24
Aug-23
Aug-24
Aug-22
Aug-23
Aug-22
(1) At the time of vesting, the quantum of all awards that vest based on performance and/or service conditions will automatically convert to South32 ordinary shares in the
participant's name for nil consideration. 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 and the maximum possible total value is the number of rights multiplied by the market price of South32 shares on the date of
vesting.
(2) Further details regarding each of the prior year equity grants are described in past South32 Annual Reports.
(3) The fair value for awards granted in FY22 is the grant date fair value for accounting purposes being A$3.36 for the FY21 Deferred STI award, A$2.35 for the FY22 LTI award and
A$2.39 for the FY22 Transitional LTI award. Shareholders approved, under ASX Listing Rule 10.14, the grant of rights for the CEO at the AGM on 28 October 2021.
(4) Rights converted to South32 ordinary shares for nil consideration on 20 August 2021. The South32 closing share price on this date was A$2.78. M Fraser’s FY20 Deferred STI
vested in full on 1 December 2021 in accordance with the treatment of a good leaver under the STI Plan Rules. The closing share price on this date was A$3.67.
(5) The percentage is based on the maximum number of rights available to vest in FY22.
(6) N Pillay became a member of Executive KMP on 1 December 2021. Opening balance is as at this date and the movements reflect changes since that date.
100
GOVERNANCE
Details of awards for MSP and FY22 Transitional award
Key terms and conditions of MSP awards and the FY22 Transitional award granted to Noel and Jason are outlined below in table 1.18.
For additional terms of the rights granted under the two plans, see terms and conditions of rights awarded under equity plans (page 95).
Table 1.18 – Key terms and performance conditions of awards(1)
Award
Key terms and performance conditions
Management
Share Plan
The MSP is our LTI plan for eligible management employees below Lead Team level. The Plan has two elements:
– Retention rights with a three-year service period from 1 July to 30 June, vesting in August three years from grant
provided the employee remains employed by South32(2); and
Transitional
Performance
award(3)
– 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 the LTI for Executive KMP (see page
82) for that year. There is no retesting if the performance condition is not met and any rights that don’t vest will
immediately lapse/be forfeited.
Rights do not attract any entitlement to voting, dividends or dividend equivalent payments.
Katie and Noel participated in the MSP prior to being appointed to the Lead Team. As Jason was acting in the Chief
Operating Officer role in FY21, he continued to participate in the MSP.
This one-off award is granted to address a potential shortfall in vesting that results from appointment to the Lead
Team due to the transition from the MSP (three-year retention rights and four-year performance rights) to the LTI plan
for the Lead Team (four-year performance rights).
The FY22 award granted to Jason and Noel is subject to the same TSR performance conditions as our FY22 LTI award
for Executive KMP (see Components of our reward on page 82), except this award has a three-year performance
period, from 1 July 2021 to 30 June 2024. The performance conditions are:
– Two-thirds is tested relative to the TSR of the constituents of a mining sector index (IHS Markit Global Mining Index) at
1 July 2021; and
– One-third is tested relative to the TSR of a world index (MSCI World Index).
For the award to vest in full, our TSR would need to exceed the TSR of the company at the 75th percentile of the IHS
Markit Global Mining Index constituent group and outperform the MSCI World Index by 17.4 per cent.
There is no retesting if the performance conditions are not met and any rights that don’t vest will immediately lapse.
Rights do not attract any entitlement to voting, dividends or dividend equivalent payments.
(1) See page 93 for key terms of the LTI.
(2) The retention rights are subject to a service condition. Performance hurdles are factored into the performance rights component of MSP awards.
(3) Further details regarding Transitional Performance awards granted in earlier years are described in past South32 Annual Reports.
Shareholdings of KMP
The minimum shareholding requirement for Executive KMP is summarised on page 83.
For Non-Executive Directors, the approach used to determine the minimum shareholding requirement of one year’s base fee is the
cost to the Non-Executive Director to acquire the shares. All Non-Executive Directors meet this requirement. The percentage of fees
reflected in the table below is based on our share price at 30 June 2022.
Table 1.19 – South32 shares held directly, indirectly or beneficially by KMP, including their related parties
Non-Executive Directors
K Wood
F Cooper AO
G Lansdown
X Liu
N Mtoba
W Osborn
K Rumble
Executive KMP
G Kerr
K Tovich
M Fraser(4)
J Economidis
N Pillay(5)
Held at 1 July
2021
Received on
vesting of rights
Received as
remuneration
Other net
change(1)
Held at
30 June 2022(2)
% of Board fees/
fixed
remuneration(3)
367,825
128,010
45,000
60,000
69,386
174,104
161,380
3,618,010
432,266
3,325,403
29,262
292,167
-
-
-
-
-
-
-
352,097
83,243
335,538
49,481
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,000
-
2,000
-
-
(165,486)
(59,935)
(250,391)
-
-
367,825
128,010
80,000
60,000
71,386
174,104
161,380
3,804,621
455,574
3,410,550
78,743
292,167
251
267
167
125
149
362
336
826
206
1,344
40
166
(1) Other net change includes purchases and sales of shares primarily to cover tax liabilities.
(2) For M Fraser, shares held is as at 1 December 2021.
(3) Based on Board fees and fixed remuneration at 30 June 2022 and the closing price of South32 shares as at that date of A$3.94.
(4) M Fraser ceased being a member of KMP effective 30 November 2021. Included in “Received on vesting of rights” are 154,814 rights that vested on 30 November 2021, and
converted to shares on 1 December 2021.
(5) N Pillay became a member of Executive KMP on 1 December 2021. Opening balance is as at this date.
101
SOUTH32 ANNUAL REPORT 2022 Remuneration report continued
Additional information
Transactions with KMP
There are no amounts payable to any KMP at 30 June 2022.
On 22 June 2021 an interest free loan of A$823,906 was made to Mike in relation to South African income tax payable on his South32
remuneration. As at 1 July 2021, the full loan remained outstanding. There was no maturity date for this loan. The final instalment to
repay the loan in full was made on 24 November 2021. The official rate of interest published by the South Africa Revenue Service for loan
fringe benefits to South African employees was 4.50 per cent at the time the loan was repaid.
During FY22, there were no transactions between KMP or their close family members and the South32 Group other than as described in
this report.
There are no loans with any other KMP.
A number of Directors of the Group have control or joint control of other entities (also known as personal entities). During the year, there
have been no transactions between those entities and the South32 Group, and no amounts were owed by or to the South32 Group from
those entities.
This Remuneration report was approved by our Board on 8 September 2022.
102
GOVERNANCE
FINANCIAL
REPORT
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated cash flow statement
Consolidated statement of changes in equity
Notes to financial statements – Basis of preparation
1.
2.
3.
Reporting entity
Basis of preparation
New standards and interpretations
Notes to financial statements – Results for the year
4.
5.
6.
7.
8.
Segment information
Expenses
Tax
Dividends
Earnings per share
Notes to financial statements – Operating assets and liabilities
9.
Trade and other receivables
10.
Inventories
11. Property, plant and equipment
12.
Intangible assets
13.
Impairment of non-financial assets
14.
Trade and other payables
15.
Provisions
Notes to financial statements – Capital structure and financing
16. Cash and cash equivalents
17.
Interest bearing liabilities
18. Net finance costs
19.
Financial assets and financial liabilities
20.
Share capital
Notes to financial statements – Other notes
21. Auditor’s remuneration
22. Pension and other post-retirement obligations
23. Employee share ownership plans
24. Contingent assets and liabilities
25.
Subsidiaries
26. Equity accounted investments
27.
Interests in joint operations
28. Key management personnel
29. Related party transactions
30. Acquisition of subsidiaries and joint operations
31. Acquisition of equity accounted investments
32.
Parent entity information
33. Discontinued operation
34. Subsequent events
Directors’ declaration
Lead auditor’s independence declaration
Independent auditor’s report
104
105
106
107
108
109
109
109
111
112
112
121
122
125
125
126
126
126
127
130
131
136
136
139
139
139
140
140
150
151
151
151
152
156
156
157
159
160
160
161
162
163
164
165
166
167
168
103
SOUTH32 ANNUAL REPORT 2022 Consolidated income statement
for the year ended 30 June 2022
US$M
Continuing operations
Revenue:
Group production
Third party products and services
Other income
Expenses excluding net finance costs
Share of profit/(loss) of equity accounted investments
Profit/(loss) from continuing operations
Comprising:
Group production
Third party products and services
Profit/(loss) from continuing operations
Finance expenses
Finance income
Net finance costs
Profit/(loss) before tax from continuing operations
Income tax (expense)/benefit
Profit/(loss) after tax from continuing operations
Discontinued operation
Profit/(loss) after tax from a discontinued operation
Profit/(loss) for the year
Attributable to:
Equity holders of South32 Limited
Profit/(loss) from continuing operations for the year attributable to equity holders of
South32 Limited:
Basic earnings per share (cents)
Diluted earnings per share (cents)
Profit/(loss) for the year attributable to equity holders of South32 Limited:
Basic earnings per share (cents)
Diluted earnings per share (cents)
The accompanying notes form part of the consolidated financial statements.
Note
FY22
FY21
4
4
5
26
18
6
33
8
8
8
8
8,522
747
9,269
183
(6,000)
272
3,724
3,704
20
3,724
(110)
79
(31)
3,693
(1,024)
2,669
-
2,669
5,102
374
5,476
157
(5,571)
141
203
193
10
203
(178)
17
(161)
42
100
142
(337)
(195)
2,669
(195)
57.4
57.0
57.4
57.0
3.0
3.0
(4.1)
(4.1)
104
FINANCIAL REPORT
Consolidated statement of comprehensive income
for the year ended 30 June 2022
US$M
Profit/(loss) for the year
Other comprehensive income
Items that may be reclassified to the Consolidated Income Statement:
Equity accounted investments – share of other comprehensive income/(loss), net of tax
Total items that may be reclassified to the Consolidated Income Statement
Items not to be reclassified to the Consolidated Income Statement:
Investments in equity instruments designated as fair value through other comprehensive income
(FVOCI):
Net fair value gains/(losses)
Income tax (expense)/benefit
Equity accounted investments – share of other comprehensive income/(loss), net of tax
Gains/(losses) on pension and medical schemes
Income tax (expense)/benefit recognised within other comprehensive income
Total items not to be reclassified to the Consolidated Income Statement
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
Attributable to:
Equity holders of South32 Limited
The accompanying notes form part of the consolidated financial statements.
Note
26
26
15
FY22
2,669
FY21
(195)
(4)
(4)
(78)
24
1
3
(1)
(51)
(55)
2,614
-
-
47
(15)
(3)
1
-
30
30
(165)
2,614
(165)
105
SOUTH32 ANNUAL REPORT 2022 Note
FY22
FY21
16
9
19
10
9
19
10
11
12
26
6
14
17
19
15
14
17
19
6
15
20
20
2,365
844
1
982
4
44
4,240
1,903
64
76
8,988
186
470
394
15
12,096
16,336
989
402
6
308
186
6
1,897
8
1,425
84
307
1,835
1
3,660
5,557
10,779
13,469
(32)
(3,558)
901
10,780
(1)
10,779
1,613
527
15
716
13
38
2,922
259
121
74
8,938
189
380
348
11
10,320
13,242
777
408
11
27
239
-
1,462
2
799
-
265
1,759
1
2,826
4,288
8,954
13,597
(22)
(3,567)
(1,053)
8,955
(1)
8,954
Consolidated balance sheet
as at 30 June 2022
US$M
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Current tax assets
Other
Total current assets
Non-current assets
Trade and other receivables
Other financial 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 financial liabilities
Current tax payables
Provisions
Deferred income
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial 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 financial statements.
106
FINANCIAL REPORT
Consolidated cash flow statement
for the year ended 30 June 2022
US$M
Operating activities
Profit/(loss) before tax from continuing operations
Profit/(loss) before tax from a discontinued operation
Adjustments for:
Non-cash or non-operating significant items
Depreciation and amortisation expense
Net impairment loss/(reversal) of financial assets
Net impairment loss/(reversal) of non-financial assets
Employee share awards expense
Net finance costs
Share of (profit)/loss of equity accounted investments
Loss on disposal of a discontinued operation
(Gains)/losses on derivative instruments, contingent consideration and other investments
measured at fair value through profit or loss (FVTPL)
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
Dividends received
Dividends received from equity accounted investments
Net cash flows from operating activities
Investing activities
Purchases of property, plant and equipment
Exploration expenditure
Exploration expenditure expensed and included in operating cash flows
Purchase of intangibles
Investment in financial assets
Acquisition of subsidiaries and joint operations, net of their cash
Acquisition of equity accounted investments
Disposal of a discontinued operation, net of their cash
Cash outflows from investing activities
Proceeds from sale of property, plant and equipment and intangibles
Proceeds from financial assets
Net cash flows from investing activities
Financing activities
Proceeds from interest bearing liabilities
Repayment of interest bearing liabilities
Purchase of shares by Employee Share Ownership Plan (ESOP) Trusts
Share buy-back
Dividends paid
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the beginning of the financial year
Foreign currency exchange rate changes on cash and cash equivalents
Cash and cash equivalents, net of overdrafts, at the end of the financial year
The accompanying notes form part of the consolidated financial statements.
Note
FY22
FY21
3,693
-
(77)
624
26
145
23
31
(272)
-
(29)
(18)
(300)
(206)
160
(82)
3,718
66
(70)
(868)
-
224
3,070
(522)
(70)
37
(4)
(222)
(114)
(1,430)
-
(2,325)
-
230
(2,095)
1,527
(932)
(22)
(128)
(660)
(215)
760
1,613
(8)
2,365
30
31
7
16
42
(340)
(55)
720
-
772
32
204
(133)
159
(44)
(6)
(156)
(142)
264
95
1,412
26
(70)
(163)
3
197
1,405
(536)
(54)
25
(1)
(152)
-
-
(70)
(788)
40
140
(608)
12
(52)
-
(346)
(115)
(501)
296
1,315
2
1,613
107
SOUTH32 ANNUAL REPORT 2022
Consolidated statement of changes in equity
for the year ended 30 June 2022
US$M
Balance as at 1 July 2021
Profit/(loss) for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Transactions with owners:
Dividends
Shares bought back and cancelled
Employee share entitlements for unvested
awards, net of tax
Employee share awards vested and lapsed,
net of tax
Purchase of shares by ESOP Trusts
Transfer of cumulative fair value loss on an
investment in equity instruments
designated as FVOCI(4)
Balance as at 30 June 2022
Balance as at 1 July 2020
Profit/(loss) for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Transactions with owners:
Dividends
Shares bought back and cancelled
Employee share entitlements for unvested
awards, net of tax
Employee share awards vested and lapsed,
net of tax
Sale of shares by ESOP Trusts
Balance as at 30 June 2021
Attributable to equity holders of South32 Limited
Share
capital
Treasury
shares
Financial
assets
reserve(1)
Employee
share
awards
reserve(2)
13,597
-
-
-
-
(128)
-
-
-
-
13,469
13,943
-
-
-
-
(346)
-
-
-
13,597
(22)
-
-
-
-
-
-
12
(22)
-
(32)
(49)
-
-
-
-
-
-
24
3
(22)
(22)
-
(54)
(54)
-
-
-
-
-
70
(6)
(54)
-
32
32
-
-
-
-
-
(22)
48
-
-
-
-
-
27
(30)
-
-
45
81
-
-
-
-
-
26
(59)
-
48
Retained
earnings/
(accumulated
losses)
(1,053)
2,669
3
2,672
Other
reserves(3)
(3,593)
-
(4)
(4)
Total
8,955
2,669
(55)
2,614
-
-
-
-
-
-
(3,597)
(3,593)
-
-
-
-
-
-
(660)
-
(660)
(128)
-
12
-
27
(6)
(22)
(70)
901
-
10,780
(765)
(195)
(2)
(197)
(115)
-
9,563
(195)
30
(165)
(115)
(346)
-
26
-
-
(3,593)
24
-
(1,053)
(11)
3
8,955
Non-
controlling
interests
(1)
-
-
-
-
-
-
-
-
-
(1)
(1)
-
-
-
-
-
-
-
-
(1)
Total
equity
8,954
2,669
(55)
2,614
(660)
(128)
27
(6)
(22)
-
10,779
9,562
(195)
30
(165)
(115)
(346)
26
(11)
3
8,954
(1) Represents the fair value movement in financial 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 reflects the difference 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 31 Acquisition of equity accounted investments.
The accompanying notes form part of the consolidated financial statements.
108
FINANCIAL REPORT
Notes to financial statements – Basis of preparation
This section sets out the accounting policies that relate to the consolidated financial 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 specific 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 financial statements of the Group for the year ended 30 June 2022 were authorised for issue in accordance with a
resolution of the Directors on 8 September 2022.
1. Reporting entity
South32 Limited is a for-profit 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 financial statements are general purpose financial statements which:
– Have been prepared in accordance with the requirements of the Corporations Act 2001, 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 post-retirement assets and obligations, derivative financial instruments and
certain other financial 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 reclassified comparative information where required for consistency with the current year’s presentation, including changes
in the presentation of the segment results as outlined in note 4 Segment information;
– Adopt all new and amended accounting standards and interpretations issued by the AASB that are relevant to the operations of the
Group and effective for reporting periods beginning on or after 1 July 2021. 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 effective as
described in note 3 New standards and interpretations.
(a) Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group. A list of significant controlled entities
(subsidiaries) at year end is contained in note 25 Subsidiaries.
The financial 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.
(b) Foreign currency translation
The functional currency of the Group’s operations is primarily 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.
The exchange rates used have been obtained from Bloomberg.
109
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Basis of preparation continued
2. Basis of preparation continued
(c) Key estimates, assumptions and judgements
The preparation of the consolidated financial statements has required management to apply accounting policies and methodologies
based on complex and subjective judgements and estimates. Management based its estimates and judgements on historical
experience and assumptions it believes to be reasonable and realistic under the circumstances. The use of these estimates,
assumptions and judgements affects the amounts reported in the consolidated financial statements. Actual results may differ from
those reported in these statements due to the uncertainties that characterise the assumptions and conditions on which the estimates
are based.
Specific sources of uncertainty identified by the Group are set out on the following pages and/or together with the applicable note, as
follows:
Key estimates, assumptions and judgements
Recognition of deferred taxes
Uncertain tax matters
Useful economic lives of assets
Impairment of non-financial assets
Closure and rehabilitation provisions
note 6
note 6
note 11
note 13
note 15
Russia-Ukraine conflict
In February 2022, the Russian government commenced a war against the people of Ukraine. The active and ongoing conflict has
resulted in a humanitarian crisis and significant disruptions to financial and commodity markets. The Group has no operational footprint
in Russia or Ukraine and has made the values based decision to cease commodity sales to Russian entities. The Group’s broader
commodity sales exposure to Russia has historically been limited and, until the current circumstances change, we will not enter into any
new transactions or business relationships with Russian entities. The Group has considered the impacts of the conflict on each of its
significant accounting estimates, assumptions and judgements, and continues to monitor potential adverse effects resulting from the
active conflict and applicable sanctions.
COVID-19 impact
The Group continues to respond to COVID-19, adjusting to the different phases of the pandemic across the jurisdictions where it
operates, focusing on keeping our people safe and well, maintaining safe and reliable operations and supporting our communities.
Estimates and assumptions made in these consolidated financial statements reflect current market conditions, including the impact of
COVID-19.
Climate change-related risks and opportunities
The Group has released its 2022 Sustainable Development Report, prepared in accordance with the Global Reporting Initiative (GRI)
Sustainability Reporting Standards (Core option), the GRI Mining and Metals Sector Supplement and the ICMM Mining Principles. The
report outlines how we manage our most important sustainability issues and the progress we are making, and includes, for the first
time, our Climate Change Action Plan (CCAP).
While we are committed to the goals of the Paris Agreement, current global signposts continue to point towards a probable trajectory
of at least 2°C warming which forms our base case for global transition to a low-carbon world. Our base case directly informs our
commodity demand outlook, forecast commodity prices and carbon prices. Any change in our base case may in turn impact our Ore
Reserve estimates, mine plans, production volumes and future costs.
The key estimates, assumptions and judgements made in these consolidated financial statements take into account the Group’s
expectations of transition and physical risks and opportunities associated with climate change, and are consistent with the Group’s
reporting on climate-related matters. These expectations may affect the Group’s financial results and financial position in a number of
ways, including the following:
– Asset recoverable amounts may be affected due to changes in estimated future cash flows driven by, for example, changes in
forecast commodity prices, operating costs and carbon prices (refer to note 13 Impairment of non-financial assets);
– The useful lives of assets, and therefore the depreciation and amortisation charged in the Consolidated Income Statement, may be
impacted by changes in mine plans (refer to note 11 Property, plant and equipment);
– The commercial viability of exploration areas of interest may impact the final investment decision and therefore the recoverability of
exploration and evaluation assets (refer to note 13 Impairment of non-financial assets); and
– Timing and cost of closure and rehabilitation activities (refer to note 15 Provisions).
The carrying amount of associated deferred tax assets may change due to changes in estimates of the likely recovery of the related tax
benefits.
The Group’s key estimates, assumptions and judgements are based on the Group’s expectations and assessments of climate change-
related risks and opportunities at the date of this report, and actual results may differ. Government policies and market developments
continue to drive uncertainty in commodity and carbon price outlooks, and the Group continues to assess the potential financial
impacts of physical risks and opportunities associated with climate change. These risks and opportunities may impact the Group’s
approach to climate change, assumptions and judgements, which may in turn result in material changes to financial results and the
carrying values of assets and liabilities in future reporting periods.
110
FINANCIAL REPORT
2. Basis of preparation continued
(c) Key estimates, assumptions and judgements continued
Ore Reserves
An Ore Reserve is the economically mineable part of the Measured and/or Indicated Mineral Resource that can be legally extracted, or
where there is a reasonable expectation that approvals for extraction will be granted. 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 justified. 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 specific 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 difficult geological assessments to interpret the data.
With the exception of Sierra Gorda, the Group reports Ore Reserves and Mineral Resources in accordance with the Australasian Code
for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), and the ASX Listing Rules Chapter 5: Additional
reporting on mining and oil and gas production and exploration activities. The Sierra Gorda estimates of mineral resources and mineral
reserves are foreign estimates under the ASX Listing Rules and are not reported in accordance with the JORC Code. Refer to the
Resources and Reserves section of this report for further information on the qualifying foreign estimates related to Sierra Gorda.
Because the economic assumptions used to estimate the Ore Reserves change from period to period, and because additional
geological data is generated during the course of operations, estimates of the Ore Reserves and Mineral Resources may change from
period to period. The Group’s planning processes consider the impacts of climate change on its Ore Reserves, including assessments of
operating costs and the impact of extreme weather events on the expectation of economic extraction.
Similar to climate-change related risks and opportunities, changes in reported Ore Reserves may affect the Group’s financial results and
financial position in a number of ways, including asset recoverable amounts, useful lives of assets, commercial viability of exploration
areas of interest, timing and cost of closure and rehabilitation activities and the recovery of any associated deferred tax assets.
3. New standards and interpretations
(a) New accounting standards and interpretations effective from 1 July 2021
The following new accounting standards and interpretations have been published that are effective for the 30 June 2022 reporting
period:
– Amendments to AASB 9, AASB 7, AASB 4 and AASB 16 - Interest Rate Benchmark Reform Phase 2.
The Group has reviewed these amendments and concluded that none have a significant impact on the Group.
(b) New accounting standards and interpretations issued but not effective
The following new accounting standards and interpretations have been published that are not effective for the 30 June 2022 reporting
period:
– Amendments to AASB 101 - Classification of Liabilities as Current or Non-current;
– Amendments to AASB 137 - Onerous Contracts, Costs to Fulfil a Contract;
– Amendments to AASB 3 - Updating a reference to the Conceptual Framework;
– Amendments to AASB 116 - Property, Plant and Equipment, Proceeds before Intended Use;
– Amendments to AASB 10 and AASB 128 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture;
– Amendments to AASB 7, AASB 101, AASB 108 and AASB 134 - Disclosure of Accounting Policies and Definition of Accounting
Estimates; and
– Amendments to AASB 1 and AASB 112 – Deferred Tax related to Assets and Liabilities arising from a Single Transaction.
The Group has reviewed these amendments and improvements and concluded that none will have a significant impact on the Group.
The Group does not intend to early adopt any of the new standards or interpretations. It is expected that where applicable, these
standards and interpretations will be adopted on each respective effective date.
111
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Results for the year
This section focuses on the results and performance of the Group. This covers both profitability 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. During the current financial
reporting period the internal reporting of the Group’s consolidated financial results and performance to the Lead Team was changed.
Consolidated financial results of the Group are reported on a proportional consolidation basis, including material equity accounted joint
ventures, consistent with the reporting of the Group’s operating segments and includes non-IFRS financial measures. Due to the change
in reporting and presentation of the Group’s consolidated results, the prior year comparative disclosures, together with the required
reconciliations, have been updated.
The principal activities of each operating segment are summarised as follows:
Operating segment(1)
Principal activities
Worsley Alumina
Brazil Alumina
Brazil Aluminium(3)
Hillside Aluminium
Mozal Aluminium
Sierra Gorda(4)
Cannington
Hermosa
Cerro Matoso
Illawarra Metallurgical Coal (IMC)
Australia Manganese
South Africa Manganese
South Africa Energy Coal (SAEC)(5)
Integrated bauxite mine and alumina refinery in Australia
Integrated bauxite mine(2) and alumina refinery in Brazil
Aluminium smelter in Brazil
Aluminium smelter in South Africa
Aluminium smelter in Mozambique
Copper mine in Chile
Silver, lead and zinc mine in Australia
Base metals exploration and development option in the United States
Integrated laterite ferronickel mining and smelting complex in Colombia
Metallurgical coal mines in Australia
Manganese ore mine in Australia
Manganese ore mines in South Africa
Energy coal mines in South Africa
(1) The Eagle Downs Metallurgical Coal exploration and development option is no longer considered a material operating segment and has been reclassified to be included as
part of Group and unallocated items/eliminations.
(2) On 29 April 2022, the Group acquired a further 18.2 per cent interest in Mineração Rio do Norte (MRN). Refer to note 31 Acquisition of equity accounted investments.
(3) On 6 January 2022, the Group announced its decision to participate in a restart of the Alumar aluminium smelter (Brazil Aluminium). First production commenced in the June
2022 quarter and Brazil Aluminium is considered a material operating segment.
(4) On 22 February 2022, the Group acquired a 45 per cent interest in Sierra Gorda Sociedad Contractual Minera (Sierra Gorda). Refer to note 31 Acquisition of equity accounted
investments.
(5) On 1 June 2021, the Group completed the sale of its shareholding in SAEC to a wholly-owned subsidiary of Seriti Resources Holdings Pty Ltd (Seriti) and two trusts for the
benefit of employees and communities. Refer to note 33 Discontinued operation.
All operations are operated by the Group except Brazil Alumina, Brazil Aluminium and Sierra Gorda.
(b) Segment results
Segment performance is measured by Underlying EBIT and Underlying EBITDA. Underlying EBIT is profit before net finance costs,
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 profit after tax is set out on the
following pages.
In FY22, following the acquisition of the Sierra Gorda operation, the Group has refined its definitions for Underlying EBIT and Underlying
EBITDA to exclude fair value gains/(losses) on contingent consideration payable related to a business combination or an asset
acquisition. There were no such transactions recorded in the comparative period, and as such the comparative period was not adjusted.
The Group separately discloses sales of group production from sales of third-party products and services because of the significant
difference in profit 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 financing (including
finance expenses and finance income) and income taxes are managed on a Group basis and are not allocated to continuing operating
segments.
Total assets and liabilities for each operating segment represent operating assets and liabilities which predominantly exclude the
carrying amount of non-material equity accounted investments, cash, interest bearing liabilities, tax balances and certain other financial
assets and liabilities.
112
FINANCIAL REPORT
4. Segment information continued
(b) Segment results continued
Revenue recognition
Revenue is measured based on the consideration specified 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, copper, silver, lead, zinc, ferronickel, metallurgical coal and
manganese ore. 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 satisfied. 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 refining 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, title passes and revenue is recognised when the goods have
been delivered to the customer.
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 final pricing. The period between
provisional invoicing and final 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 final 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 Free On Board (FOB) or Cost, Insurance, and Freight (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.
113
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Results for the year continued
4. Segment information continued
(b) Segment results continued
FY22
US$M
Revenue from customers
Other(2)
Total underlying revenue
Comprising:
Group production
Third party products and services(3)
Inter-segment revenue
Total underlying revenue
Underlying EBITDA
Underlying depreciation and amortisation
Underlying EBIT
Comprising:
Group production
Exploration expensed
Third party products and services(3)
Share of profit/(loss) of equity accounted investments
Underlying EBIT
Underlying net finance costs
Underlying income tax (expense)/benefit
Underlying royalty related tax (expense)/benefit
Underlying earnings
Total adjustments to profit/(loss)(4)
Profit/(loss) for the year
Underlying exploration expenditure
Underlying capital expenditure(5)
Underlying equity accounted investments
Total underlying assets(6)
Total underlying liabilities(6)
Worsley
Alumina
1,626
(1)
1,625
818
-
807
1,625
571
(185)
386
386
-
-
-
386
-
55
-
3,571
1,000
Brazil Alumina
Brazil
Aluminium
Hillside
Aluminium
Aluminium Sierra Gorda(1)
Cannington
Hermosa
Cerro Matoso
Coal
Manganese(1)
Illawarra
Metallurgical
Australia
South Africa
Manganese(1)
Group and
unallocated
items/
eliminations
Continuing operations
522
2
524
523
-
1
524
150
(61)
89
92
-
-
(3)
89
-
51
40
805
109
-
-
-
-
-
-
-
(43)
(1)
(44)
(44)
-
-
-
(44)
-
1
-
67
21
2,257
(3)
2,254
2,254
-
-
2,254
730
(64)
666
666
-
-
-
666
-
24
-
1,284
357
Mozal
925
(1)
924
924
-
-
924
305
(34)
271
271
-
-
-
271
280
(39)
241
241
-
-
241
133
(58)
75
76
(1)
-
-
75
-
-
-
-
-
-
-
(12)
(2)
(14)
(14)
-
-
-
927
2
929
929
-
-
929
529
(66)
463
-
-
-
2,336
2,338
2,338
2
-
-
2,338
1,507
(119)
1,388
(9)
-
1
463
1,396
(14)
463
1,388
402
Group
underlying
results(1)
10,690
(60)
10,630
10,030
600
-
10,630
4,755
(788)
3,967
3,988
(39)
20
(2)
3,967
(155)
(1,151)
(59)
2,602
67
2,669
74
684
42
17,269
6,490
(205)
(3)
(208)
-
600
(808)
(208)
(69)
(19)
(88)
(82)
(26)
20
-
(88)
37
12
-
3,666
2,844
418
1
419
419
-
-
419
78
(20)
58
59
(1)
-
-
58
1
19
-
331
196
833
15
848
848
-
-
848
488
(86)
402
402
-
-
-
1
62
-
645
387
771
(35)
736
736
-
-
736
388
(73)
315
317
(2)
-
-
315
3
45
-
555
414
-
11
-
764
149
2
81
-
1,614
212
19
97
-
67
2,098
-
37
-
592
243
11
189
2
1,277
491
(1) The segment information reflects the Group's interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure
used by the Group's management to assess their performance. This includes the proportional elimination of revenue and corresponding expenses relating to freight services
provided by the Group to these joint ventures of US$187 million and third party product revenue of US$40 million included in Group and unallocated items/eliminations. Refer
to note 4(b)(i) Underlying results reconciliation for the joint venture adjustments that reconcile the underlying proportional consolidation to the statutory equity accounting
positions included in the Group’s consolidated financial statements.
(2) Underlying other revenue predominantly relates to fair value movements on provisionally priced contracts.
(3) Underlying revenue on third party products and services sold from continuing operations comprises US$110 million for aluminium, US$25 million for alumina, US$115 million
for coal, US$40 million for manganese, US$145 million for freight services and US$165 million for raw materials. Underlying EBIT on third party products and services sold from
continuing operations comprises US$8 million for aluminium, US$8 million for alumina, US$7 million for coal and US$(3) million for freight services.
(4) Refer to note 4(b)(i) Underlying results reconciliation for further details.
(5) Underlying capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.
(6) Total underlying assets and liabilities for each operating segment represent assets and liabilities which predominantly exclude the carrying amount of non-material equity
accounted investments, cash, interest bearing liabilities, tax balances and certain other financial assets and liabilities.
114
FINANCIAL REPORT
Notes to financial statements – Results for the year continued
4. Segment information continued
(b) Segment results continued
FY22
US$M
Other(2)
Revenue from customers
Total underlying revenue
Comprising:
Group production
Third party products and services(3)
Inter-segment revenue
Total underlying revenue
Underlying EBITDA
Underlying depreciation and amortisation
Underlying EBIT
Comprising:
Group production
Exploration expensed
Third party products and services(3)
Share of profit/(loss) of equity accounted investments
Underlying EBIT
Underlying net finance costs
Underlying income tax (expense)/benefit
Underlying royalty related tax (expense)/benefit
Underlying earnings
Total adjustments to profit/(loss)(4)
Profit/(loss) for the year
Underlying exploration expenditure
Underlying capital expenditure(5)
Underlying equity accounted investments
Total underlying assets(6)
Total underlying liabilities(6)
Worsley
Alumina
1,626
(1)
1,625
818
-
807
1,625
571
(185)
386
386
-
-
-
386
-
55
-
3,571
1,000
522
2
524
523
-
1
524
150
(61)
89
92
-
-
(3)
89
-
51
40
805
109
-
-
-
-
-
-
-
(43)
(1)
(44)
(44)
-
-
-
-
1
-
67
21
2,257
(3)
2,254
2,254
-
-
2,254
730
(64)
666
666
-
-
-
-
24
-
1,284
357
(44)
666
Brazil Alumina
Aluminium
Brazil
Hillside
Aluminium
Mozal
Aluminium Sierra Gorda(1)
Cannington
Hermosa
Cerro Matoso
Illawarra
Metallurgical
Coal
Australia
Manganese(1)
South Africa
Manganese(1)
Group and
unallocated
items/
eliminations
Continuing operations
925
(1)
924
924
-
-
924
305
(34)
271
271
-
-
-
271
-
11
-
764
149
280
(39)
241
241
-
-
241
133
(58)
75
76
(1)
-
-
75
2
81
-
1,614
212
771
(35)
736
736
-
-
736
388
(73)
315
317
(2)
-
-
315
3
45
-
555
414
-
-
-
-
-
-
-
(12)
(2)
(14)
(14)
-
-
-
(14)
19
97
-
2,098
67
927
2
929
929
-
-
929
529
(66)
463
463
-
-
-
463
-
37
-
592
243
2,336
2
2,338
2,338
-
-
2,338
1,507
(119)
1,388
1,396
(9)
-
1
1,388
11
189
2
1,277
491
833
15
848
848
-
-
848
488
(86)
402
402
-
-
-
402
1
62
-
645
387
418
1
419
419
-
-
419
78
(20)
58
59
(1)
-
-
58
1
19
-
331
196
(205)
(3)
(208)
-
600
(808)
(208)
(69)
(19)
(88)
(82)
(26)
20
-
(88)
37
12
-
3,666
2,844
Group
underlying
results(1)
10,690
(60)
10,630
10,030
600
-
10,630
4,755
(788)
3,967
3,988
(39)
20
(2)
3,967
(155)
(1,151)
(59)
2,602
67
2,669
74
684
42
17,269
6,490
115
SOUTH32 ANNUAL REPORT 2022
Notes to financial statements – Results for the year continued
4. Segment information continued
(b) Segment results continued
FY21 Restated(1)(2)(3)(4)
US$M
Revenue from customers
Other(6)
Total underlying revenue
Comprising:
Group production
Third party products and services(7)
Inter-segment revenue
Total underlying revenue
Underlying EBITDA
Underlying depreciation and amortisation
Underlying EBIT
Comprising:
Group production
Exploration expensed
Third party products and services(7)
Share of profit/(loss) of equity accounted investments
Underlying EBIT
Underlying net finance costs
Underlying income tax (expense)/benefit
Underlying royalty related tax (expense)/benefit
Underlying earnings
Total adjustments to profit/(loss)(8)
Profit/(loss) for the year
Underlying exploration expenditure
Underlying capital expenditure(9)
Underlying equity accounted investments
Total underlying assets(10)
Total underlying liabilities(10)
Worsley
Alumina
1,174
(1)
1,173
605
-
568
1,173
318
(175)
143
143
-
-
-
143
-
55
-
3,674
1,007
Brazil Alumina
Brazil
Aluminium
Hillside
Aluminium
Mozal
Aluminium
Cannington
Hermosa
Cerro Matoso
Illawarra
Metallurgical
Australia
Manganese(2)
South Africa
Manganese(2)
Continuing operations
400
-
400
400
-
-
400
117
(51)
66
66
-
-
-
66
-
25
-
639
69
-
-
-
-
-
-
-
(3)
-
(3)
(3)
-
-
-
(3)
-
-
-
8
7
1,507
4
1,511
1,511
-
-
1,511
358
(65)
293
293
-
-
-
293
-
17
-
1,156
423
577
1
578
578
-
-
578
132
(34)
98
98
-
-
-
98
-
11
-
579
123
746
11
757
757
-
-
757
416
(66)
350
352
(2)
-
-
350
2
43
-
510
315
-
-
-
-
-
-
-
(6)
(2)
(8)
(8)
-
-
-
(8)
479
14
493
493
-
-
493
197
(75)
122
122
-
-
-
122
16
64
-
47
1,972
-
45
-
629
224
Coal
748
10
758
758
-
-
758
94
(197)
(103)
(97)
(5)
-
(1)
(103)
14
188
2
997
385
Discontinued
operation(5)
Group and
unallocated
items/
eliminations
Group
underlying
results from
continuing
operations
South Africa
Energy Coal
Group
underlying
results(2)
729
1
730
730
-
-
730
385
(81)
304
305
(1)
-
-
304
2
55
-
604
361
337
-
337
332
-
5
337
64
(16)
48
49
(1)
-
-
48
1
15
-
337
185
(275)
(275)
-
-
298
(573)
(275)
(93)
(28)
(121)
(113)
(18)
10
-
(121)
6,422
40
6,462
6,164
298
-
6,462
1,979
(790)
1,189
1,207
(27)
10
(1)
1,189
(127)
(326)
(53)
683
(541)
142
22
12
-
2,549
1,554
57
530
2
13,654
4,700
862
(1)
861
735
126
-
861
(123)
(27)
(150)
(153)
-
11
(8)
(150)
(43)
(1)
-
(194)
(143)
(337)
-
76
-
-
-
7,284
39
7,323
6,899
424
-
7,323
1,856
(817)
1,039
1,054
(27)
21
(9)
1,039
(170)
(327)
(53)
489
(684)
(195)
57
606
2
13,654
4,700
(1) The Brazil Alumina operating segment has been reclassified to separate Brazil Aluminium for consistency with the current year’s presentation.
(2) During the current financial reporting period the internal reporting of the Group's consolidated financial results was changed. The segment information reflects the Group's
interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess
their performance. This includes the proportional elimination of revenue and corresponding expenses relating to freight services provided by the Group to these joint ventures
of US$111 million and third party product revenue of US$35 million included in Group and unallocated items/eliminations. Refer to note 4(b)(i) Underlying results reconciliation
for the joint venture adjustments that reconcile the underlying proportional consolidation to the statutory equity accounting positions included in the Group’s consolidated
financial statements.
(3) The Eagle Downs Metallurgical Coal operating segment has been reclassified to be included as part of Group and unallocated items/eliminations for consistency with the
current year’s presentation.
(4) Underlying income tax (expense)/benefit has been reclassified to separate underlying royalty related tax (expense)/benefit for consistency with the current year’s presentation.
(5) Refer to note 33 Discontinued operation.
(6) Underlying other revenue predominantly relates to fair value movements on provisionally priced contracts.
(7) Underlying revenue on third party products and services sold from continuing operations comprises US$43 million for aluminium, US$10 million for alumina, US$23 million
for coal, US$35 million for manganese, US$95 million for freight services and US$92 million for raw materials. Underlying EBIT on third party products and services sold from
continuing operations comprises US$8 million for aluminium, US$1 million for coal and US$1 million for raw materials.
(8) Refer to note 4(b)(i) Underlying results reconciliation for further details.
(9) Underlying capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.
(10) Total underlying assets and liabilities for each operating segment represent assets and liabilities which predominantly exclude the carrying amount of non-material equity
accounted investments, cash, interest bearing liabilities, tax balances and certain other financial assets and liabilities.
116
FINANCIAL REPORT
Notes to financial statements – Results for the year continued
4. Segment information continued
(b) Segment results continued
FY21 Restated(1)(2)(3)(4)
Revenue from customers
US$M
Other(6)
Total underlying revenue
Comprising:
Group production
Third party products and services(7)
Inter-segment revenue
Total underlying revenue
Underlying EBITDA
Underlying depreciation and amortisation
Underlying EBIT
Comprising:
Group production
Exploration expensed
Third party products and services(7)
Share of profit/(loss) of equity accounted investments
Underlying EBIT
Underlying net finance costs
Underlying income tax (expense)/benefit
Underlying royalty related tax (expense)/benefit
Underlying earnings
Total adjustments to profit/(loss)(8)
Profit/(loss) for the year
Underlying exploration expenditure
Underlying capital expenditure(9)
Underlying equity accounted investments
Total underlying assets(10)
Total underlying liabilities(10)
Worsley
Alumina
1,174
(1)
1,173
605
-
568
1,173
318
(175)
143
143
-
-
-
143
-
55
-
3,674
1,007
400
-
400
400
-
-
400
117
(51)
66
66
-
-
-
66
25
-
-
639
69
-
-
-
-
-
-
-
(3)
-
(3)
(3)
-
-
-
(3)
-
-
-
8
7
1,507
4
1,511
1,511
-
-
1,511
358
(65)
293
293
-
-
-
293
17
-
-
1,156
423
577
1
578
578
-
-
578
132
(34)
98
98
-
-
-
98
11
-
-
579
123
Brazil Alumina
Aluminium
Brazil
Hillside
Aluminium
Mozal
Aluminium
Cannington
Hermosa
Cerro Matoso
Illawarra
Metallurgical
Coal
Australia
Manganese(2)
South Africa
Manganese(2)
Continuing operations
Discontinued
operation(5)
Group and
unallocated
items/
eliminations
Group
underlying
results from
continuing
operations
South Africa
Energy Coal
Group
underlying
results(2)
746
11
757
757
-
-
757
416
(66)
350
352
(2)
-
-
350
2
43
-
510
315
-
-
-
-
-
-
-
(6)
(2)
(8)
(8)
-
-
-
(8)
479
14
493
493
-
-
493
197
(75)
122
122
-
-
-
122
16
64
-
1,972
47
-
45
-
629
224
748
10
758
758
-
-
758
94
(197)
(103)
(97)
(5)
-
(1)
(103)
14
188
2
997
385
729
1
730
730
-
-
730
385
(81)
304
305
(1)
-
-
304
2
55
-
604
361
337
-
337
332
-
5
337
64
(16)
48
49
(1)
-
-
48
1
15
-
337
185
(275)
-
(275)
-
298
(573)
(275)
(93)
(28)
(121)
(113)
(18)
10
-
(121)
6,422
40
6,462
6,164
298
-
6,462
1,979
(790)
1,189
1,207
(27)
10
(1)
1,189
(127)
(326)
(53)
683
(541)
142
22
12
-
2,549
1,554
57
530
2
13,654
4,700
862
(1)
861
735
126
-
861
(123)
(27)
(150)
(153)
-
11
(8)
(150)
(43)
(1)
-
(194)
(143)
(337)
-
76
-
-
-
7,284
39
7,323
6,899
424
-
7,323
1,856
(817)
1,039
1,054
(27)
21
(9)
1,039
(170)
(327)
(53)
489
(684)
(195)
57
606
2
13,654
4,700
117
SOUTH32 ANNUAL REPORT 2022
Notes to financial statements – Results for the year continued
4. Segment information continued
(b) Segment results continued
(i) Underlying results reconciliation
The following tables reconcile the underlying segment information to the statutory information included in the Group’s consolidated
financial statements:
FY22
US$M
Underlying EBIT
Significant items(1)
Sierra Gorda joint venture adjustments(2)(3)
Manganese joint venture adjustments(2)(4)
Gains/(losses) on the consolidation of interests in operations(5)
Exchange rate gains/(losses) on restatement of monetary items(6)
Net impairment (loss)/reversal of financial assets(6)(7)
Net impairment (loss)/reversal of non-financial assets(6)(8)
Gains/(losses) on non-trading derivative instruments, contingent consideration and other investments measured at FVTPL(6)(9)
Profit/(loss) from operations
Underlying net finance costs
Sierra Gorda joint venture adjustments(2)
Manganese joint venture adjustments(2)
Exchange rate variations on net debt
Net finance costs
Underlying income tax (expense)/benefit
Underlying royalty related tax (expense)/benefit
Tax effect of significant items(1)
Sierra Gorda joint venture adjustments relating to income tax (expense)/benefit(2)
Sierra Gorda joint venture adjustments relating to royalty related tax (expense)/benefit(2)
Manganese joint venture adjustments relating to income tax (expense)/benefit(2)
Manganese joint venture adjustments relating to royalty related tax (expense)/benefit(2)
Tax effect of other adjustments to Underlying EBIT
Tax effect of other adjustments to Underlying net finance costs
Exchange rate variations on tax balances
Income tax (expense)/benefit
Continuing
operations
3,967
77
(44)
(216)
9
50
(26)
(145)
52
3,724
(155)
62
22
40
(31)
(1,151)
(59)
(26)
1
4
153
55
32
(13)
(20)
(1,024)
(1) Refer to note 4(b)(ii) Significant items.
(2) The segment information reflects the Group’s interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure
used by the Group’s management to assess their performance. Joint venture adjustments reconcile the proportional consolidation to the statutory equity accounting
positions, recognised in share of profit/(loss) of equity accounted investments in the Consolidated Income Statement.
(3) The Group’s investment in the Sierra Gorda operation is represented by the carrying value of the equity accounted investment of US$30 million, refer to note 26 Equity
accounted investments, and the carrying value of a non-current purchased credit-impaired receivable of US$1,648 million, refer to note 9 Trade and other receivables.
The earnings adjustments include a revaluation gain of US$26 million relating to the shareholder loan payable that was eliminated from the Group’s Underlying EBIT upon
proportional consolidation.
(4) Includes earnings adjustments of US$6 million included in the Australia Manganese segment and US$8 million included in the South Africa Manganese segment.
(5) Relates to a gain on the acquisition of an additional 16.6 per cent shareholding and related rights in Mozal Aluminium, recognised in other income in the Consolidated Income
Statement. Refer to note 30 Acquisition of subsidiaries and joint operations.
(6) Recognised in expenses excluding net finance costs in the Consolidated Income Statement. Refer to note 5 Expenses.
(7) Relates to a US$26 million impairment of the purchased credit-impaired receivable from Sierra Gorda that was eliminated from the Group’s Underlying EBIT upon proportional
consolidation. Refer to note 19 Financial assets and financial liabilities.
(8) Relates primarily to a US$183 million impairment of property, plant and equipment of Eagle Downs Metallurgical Coal included in Group and unallocated items/eliminations and
a US$42 million reversal of previously impaired property, plant and equipment in the Brazil Aluminium Segment. Refer to note 13 Impairment of non-financial assets.
(9) Includes a US$48 million remeasurement of contingent consideration payable related to the acquisition of Sierra Gorda included in Group and unallocated items/eliminations.
118
FINANCIAL REPORT
4. Segment information continued
(b) Segment results continued
(i) Underlying results reconciliation continued
FY22
US$M
Total revenue
Depreciation and amortisation
Share of profit/(loss) of equity accounted investments
Exploration expenditure
Capital expenditure
Equity accounted investments
Total assets
Total liabilities
Group
underlying
results from
continuing
operations
10,630
788
(2)
74
684
42
17,269
6,490
Sierra Gorda
joint venture
adjustments(1)
Manganese
joint venture
adjustments(1)
(241)
(58)
30
(2)
(81)
30
(452)
(452)
(1,120)
(106)
244
(2)
(81)
398
(481)
(481)
Group
statutory
results from
continuing
operations
9,269
624
272
70
522
470
16,336
5,557
(1) The segment information reflects the Group’s interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure
used by the Group’s management to assess their performance. Joint venture adjustments reconcile the proportional consolidation to the statutory equity accounting positions
included in the Group’s consolidated financial statements.
FY21
US$M
Continuing
operations
Discontinued
operation(1)
Underlying EBIT
Significant items(2)
Manganese joint venture adjustments(3)(4)
Gains/(losses) on the disposal of interests in operations
Exchange rate gains/(losses) on restatement of monetary items(5)
Net impairment (loss)/reversal of non-financial assets(5)(6)
Gains/(losses) on non-trading derivative instruments, contingent consideration and other
investments measured at FVTPL(5)(7)
Major corporate restructures(5)(8)
Profit/(loss) from operations
Underlying net finance costs
Manganese joint venture adjustments(3)
Exchange rate variations on net debt
Net finance costs
Underlying income tax (expense)/benefit
Underlying royalty related tax (expense)/benefit
Manganese joint venture adjustments relating to income tax (expense)/benefit(3)
Manganese joint venture adjustments relating to royalty related tax (expense)/benefit(3)
Tax effect of other adjustments to Underlying EBIT
Tax effect of other adjustments to Underlying net finance costs
Exchange rate variations on tax balances
Income tax (expense)/benefit
1,189
55
(210)
-
(35)
(764)
(9)
(23)
203
(127)
18
(52)
(161)
(326)
(53)
124
53
247
(7)
62
100
(150)
-
-
(159)
(34)
-
46
-
(297)
(43)
-
-
(43)
(1)
-
-
-
-
-
4
3
Total
1,039
55
(210)
(159)
(69)
(764)
37
(23)
(94)
(170)
18
(52)
(204)
(327)
(53)
124
53
247
(7)
66
103
(1) Refer to note 33 Discontinued operation.
(2) Refer to note 4(b)(ii) Significant items.
(3) The segment information reflects the Group’s interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure
used by the Group’s management to assess their performance. Joint venture adjustments reconcile the proportional consolidation to the statutory equity accounting
positions, recognised in share of profit/(loss) of equity accounted investments in the Consolidated Income Statement.
(4) Includes earnings adjustments of US$(5) million included in the Australia Manganese segment and US$(10) million included in the South Africa Manganese segment.
(5) Recognised in expenses excluding net finance costs in the Consolidated Income Statement. Refer to note 5 Expenses.
(6) Relates to a US$728 million impairment of property plant and equipment in the IMC segment and a US$36 million impairment of intangible assets included in Group and
unallocated items/eliminations. Impairment losses exclude a US$8 million impairment of right-of-use (ROU) lease assets included in major corporate restructures.
(7) Primarily relates to US$(8) million included in the Hillside Aluminium segment.
(8) The major corporate restructure costs primarily relate to the simplification of the Group’s functional structures and office footprint and are included in Group and unallocated
items/eliminations.
119
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Results for the year continued
4. Segment information continued
(b) Segment results continued
(i) Underlying results reconciliation continued
FY21
US$M
Total revenue
Depreciation and amortisation
Share of profit/(loss) of equity accounted investments
Exploration expenditure
Capital expenditure
Equity accounted investments
Total assets
Total liabilities
Group
underlying
results from
continuing
operations
Manganese
joint venture
adjustments(1)
Group
statutory
results from
continuing
operations
6,462
790
(1)
57
530
2
13,654
4,700
(986)
(97)
142
(3)
(70)
378
(412)
(412)
5,476
693
141
54
460
380
13,242
4,288
(1) The segment information reflects the Group’s interest in material equity accounted joint ventures and is presented on a proportional consolidation basis, which is the measure
used by the Group’s management to assess their performance. Joint venture adjustments reconcile the proportional consolidation to the statutory equity accounting positions
included in the Group’s consolidated financial statements.
(ii) Significant items
Significant items are those items, not separately identified in note 4(b)(i) Underlying results reconciliation, where their nature and
amount are considered material to the Group’s consolidated financial statements.
FY22
US$M
Recognition of indirect tax assets
Total significant items
Gross
77
77
Tax
(26)
(26)
Net
51
51
Following the Group’s decision to participate in a restart of Brazil Aluminium, the Group recognised indirect tax assets of US$77 million
that were previously expensed since the smelter was placed on care and maintenance in 2015. The recognition of the indirect tax assets
has resulted in a significant one-off amount of US$77 million (US$51 million post tax) recorded as other income in the Consolidated
Income Statement.
FY21
US$M
Disposal of royalties
Total significant items
Gross
55
55
Tax
-
-
Net
55
55
The Group divested four royalties to a wholly owned subsidiary of the Elemental Royalties Corporation for US$55 million, which
comprises US$40 million in upfront cash and US$15 million in equity. These royalties were recognised as intangible assets with a US$nil
carrying value. The transaction completed on 9 February 2021 and the Group recognised other income of US$55 million (US$55 million
post tax) in the Consolidated Income Statement and was included in Group and unallocated items/eliminations.
120
FINANCIAL REPORT
4. Segment information continued
(c) Geographical information
The geographical information below analyses statutory Group revenue and non-current assets by location. Revenue is primarily
presented by the geographical destination of the product and non-current assets are presented by the geographical location of the
operations.
US$M
Australia
China
India
Japan
Middle East
Mozambique
Netherlands
Russia
South Africa
South America
South Korea
United States of America
Rest of Asia
Rest of Europe
Rest of North America
Rest of Oceania
Unallocated assets(2)
Total
Revenue from external
customers
Non-current assets
FY22
1,013
776
581
523
283
458
1,255
44
633
156
692
439
967
1,079
278
92
-
9,269
FY21(1)
452
612
332
291
238
292
705
63
417
133
516
301
452
444
169
59
-
5,476
FY22
5,099
-
-
-
-
497
1,648
-
933
1,172
-
2,185
102
1
1
-
458
12,096
FY21
5,232
-
-
-
-
385
-
-
986
1,092
-
2,049
106
1
-
-
469
10,320
(1) Revenue from external customers comprises revenue from continuing operations of US$5,476 million and excludes revenue from a discontinued operation of US$861 million.
Refer to note 33 Discontinued operation.
(2) Comprises other financial assets and deferred tax assets.
5. Expenses
US$M
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Wages, salaries and redundancies
Pension and other post-retirement obligations
External services (including transportation)
Third party commodity purchases
Depreciation and amortisation
Exchange rate (gains)/losses on restatement of monetary items
(Gains)/losses on derivative instruments, contingent consideration and other investments
measured at FVTPL
Government and other royalties paid and payable
Exploration expenditure incurred and expensed
Net impairment loss/(reversal) of financial assets
Net impairment loss/(reversal) of non-financial assets
Lease rentals(1)
All other operating expenses
Total expenses
(1) Includes short-term, low-value and variable lease rentals.
Note
19
13
FY22
(133)
2,309
657
60
1,111
718
624
(50)
(29)
295
37
26
145
77
153
6,000
FY21
(72)
1,771
683
61
905
351
693
35
7
160
25
-
772
51
129
5,571
121
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Results for the year continued
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$M
Current income tax (expense)/benefit
Deferred income tax (expense)/benefit
Total income tax (expense)/benefit
Income tax expense attributable to:
Continuing operations
Discontinued operation(1)
Total income tax (expense)/benefit
(1) Refer to note 33 Discontinued operation.
FY22
(1,006)
(18)
(1,024)
(1,024)
-
(1,024)
FY21
(196)
299
103
100
3
103
Income tax (expense)/benefit
Income tax (expense)/benefit for the period is the tax payable on the current period’s taxable income/(loss) based on the applicable
income tax rate for each jurisdiction adjusted for changes in deferred tax assets and liabilities attributable to temporary differences
and unused tax losses. Current tax is calculated using the tax rates enacted or substantively enacted at period end and includes any
adjustment to tax payable in respect of previous years.
(b) Reconciliation of prima facie tax expense to income tax expense
US$M
Profit/(loss) before tax from continuing operations
Profit/(loss) before tax from a discontinued operation(1)
Deduct: Profit/(loss) from equity accounted investments included in continuing operations
Deduct: Profit/(loss) from equity accounted investments included in a discontinued operation(1)
Profit/(loss) subject to tax
Income tax on profit/(loss) calculated at 30 per cent
Tax rate differential on non-Australian income
Exchange variations and other translation adjustments
Withholding tax on distributed earnings
Derecognition of future tax benefits
Change in tax rates
Prior year adjustments
Other
Total income tax (expense)/benefit
(1) Refer to note 33 Discontinued operation.
FY22
3,693
-
272
-
3,421
(1,026)
72
(20)
(54)
(7)
(3)
(5)
19
(1,024)
FY21
42
(340)
141
(8)
(431)
129
5
66
(3)
(108)
-
10
4
103
Profit from equity accounted investments has been taxed in companies other than South32 Limited, being the companies whose results
are disclosed as equity accounted investments in the consolidated financial statements.
Refer to note 26 Equity accounted investments for further details of the Group’s equity accounted investments.
122
FINANCIAL REPORT
6. Tax continued
(c) Movement in deferred tax balances
The composition of the Group’s net deferred tax assets and liabilities recognised in the Consolidated Balance Sheet and the deferred
tax expense (charged)/credited to the Consolidated Income Statement is as follows:
US$M
FY22
FY21
FY22
FY21
FY22
FY21(1)
Deferred tax assets
Deferred tax liabilities
Deferred tax (charged)/credited
to the Consolidated Income
Statement
Type of temporary difference
Depreciation
Employee benefits
Closure and rehabilitation
Other provisions
Deferred charges
Non tax-depreciable fair value adjustments,
revaluations and mineral rights
Tax-effected losses
Brazil deferral incentive(2)
Leases
Other
Total
295
49
208
-
(60)
(94)
6
-
-
(10)
394
321
53
182
3
(67)
(123)
2
-
10
(33)
348
305
(11)
(51)
(13)
-
12
(7)
64
(1)
9
307
302
(12)
(49)
(14)
-
29
(11)
56
(2)
(34)
265
(29)
(3)
27
(4)
7
29
-
(8)
(10)
(27)
(18)
316
15
2
4
(73)
1
(4)
(14)
24
28
299
(1) Includes deferred tax expense (charged)/credited to the Consolidated Income Statement relating to a discontinued operation of US$6 million. Refer to note 33 Discontinued
operation.
(2) Our Brazilian subsidiary has received a 75 per cent corporate income tax deferral due to reinvestment of capital in the North East regions. The tax is deferred until earnings are
repatriated from Brazil.
Deferred tax is provided using the balance sheet liability method, providing for the tax effect of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax assessment or deduction
purposes. The tax effect of certain temporary differences is not recognised, principally with respect to:
– Temporary differences 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 profit);
– Temporary differences 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 profits 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 benefit will be realised. Deferred tax assets and liabilities are offset 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.
(d) Unrecognised deferred tax assets and liabilities
The composition of the Group’s unrecognised deferred tax assets and liabilities is as follows:
US$M
FY22
FY21
Unrecognised deferred tax assets
Tax-effected losses(1)
Mineral rights
Impairment of investments in subsidiaries
Closure and rehabilitation
Depreciable assets
Total unrecognised deferred tax assets
Unrecognised deferred tax liabilities
Taxable temporary differences associated with investments and undistributed earnings in subsidiaries
Total unrecognised deferred tax liabilities
(1) Represents tax losses that have no expiry.
21
589
945
50
8
1,613
39
39
8
588
978
57
8
1,639
39
39
123
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Results for the year continued
6. Tax continued
(e) Tax consolidation
South32 Limited and its 100 per cent owned Australian resident subsidiaries have formed a tax consolidated group with effect
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 reflected 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.
(f) Tax transparency report
More detail of the Group’s tax outcomes, including country-by-country reporting is included in the 2022 Tax Transparency and Payments
to Governments Report.
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 sufficient future taxable profits. Deferred tax liabilities arising from
temporary differences 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 profits and repatriation of retained earnings depend on management’s
estimates of future cash flows. These depend on estimates of future production and sales volumes, commodity prices, climate
change-related impacts, 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 in the Consolidated
Balance Sheet and the amount of other tax losses and temporary differences not yet recognised.
Where the final tax outcomes are different from the amounts that were initially recorded, these differences impact the current
and deferred tax provisions 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.
124
FINANCIAL REPORT
7. Dividends
US$M
Prior year final dividend(1)
Prior year special dividend(1)
Interim dividend(2)
Total dividends declared and paid during the year
FY22
163
93
404
660
FY21
48.5
-
66.5
115
(1) On 19 August 2021, the Directors resolved to pay a fully-franked final dividend of US 3.5 cents per share (US$164 million) and a fully-franked special dividend of US 2.0 cents per
share (US$93 million) in respect of the 2021 financial year. The dividends were paid on 7 October 2021. In addition to the ESOP Trusts receiving dividends from South32 Limited,
a total of 9,736,166 shares were bought back between the declaration and the ex-dividend dates, therefore reducing the dividends paid externally to US$256 million.
(2) On 17 February 2022, the Directors resolved to pay a fully-franked interim dividend of US 8.7 cents per share (US$405 million) in respect of the 2022 financial half year.
The dividend was paid on 7 April 2022. In addition to the ESOP Trusts receiving dividends from South32 Limited, a total of 2,691,419 shares were bought back between the
declaration and the ex-dividend dates, therefore reducing the dividend paid externally to US$404 million.
Franking Account
US$M
Franking credits at the beginning of the financial 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 the financial year(2)
FY22
329
555
71
(266)
689
FY21
268
47
63
(49)
329
(1) Includes the Australian FY22 liability of US$68 million and refunds of US$2 million in relation to prior year amendments lodged with the Australian Taxation Office.
(2) The payment of the final franked FY22 dividend declared after 30 June 2022 will decrease the franking account balance by US$337 million. Refer to note 34 Subsequent events.
8. Earnings per share
Basic earnings per share (EPS) amounts are calculated based on profit or loss attributable to equity holders of South32 Limited and the
weighted average number of shares outstanding during the year.
Dilutive EPS amounts are calculated based on profit or loss attributable to equity holders of South32 Limited and the weighted average
number of shares outstanding after adjustment for the effects of all dilutive potential shares.
The following reflects the profit/(loss) and share data used in the basic and diluted EPS computations:
Profit/(loss) attributable to equity holders
US$M
Continuing operations
Discontinued operation(1)
Profit/(loss) attributable to equity holders of South32 Limited (basic)
Profit/(loss) attributable to equity holders of South32 Limited (diluted)
(1) Refer to note 33 Discontinued operation.
Weighted average number of shares
Million
Basic EPS denominator(1)
Shares contingently issuable under employee share ownership plans
Diluted EPS denominator
FY22
2,669
-
2,669
2,669
FY22
4,647
32
4,679
FY21
142
(337)
(195)
(195)
FY21
4,771
14
4,785
(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 program.
Earnings per share
US cents
Continuing operations
Basic EPS
Diluted EPS
Attributable to ordinary equity holders of South32 Limited
Basic EPS
Diluted EPS
FY22
FY21
57.4
57.0
57.4
57.0
3.0
3.0
(4.1)
(4.1)
125
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Operating assets and liabilities
This section shows the assets used to generate the Group’s trading performance and the liabilities incurred. Assets and liabilities
relating to the Group’s financing activities are addressed in the capital structure and financing section, notes 16 to 20.
9. Trade and other receivables
US$M
Current
Trade receivables
Loans to equity accounted investments(1)
Other receivables
Total current trade and other receivables(2)
Non-current
Loans to equity accounted investments(1)(3)
Other receivables
Total non-current trade and other receivables(2)
FY22
FY21
643
7
194
844
1,793
110
1,903
433
10
84
527
187
72
259
(1) Refer to note 29 Related party transactions.
(2) Net of allowances for expected credit losses of US$2 million (FY21: US$2 million).
(3) Includes a purchased credit-impaired receivable of US$1,648 million (FY21: US$nil). Refer to note 19 Financial assets and financial liabilities.
Trade receivables generally have terms of up to 30 days. Trade and other receivables which are not held at FVTPL are recognised initially
at fair value and subsequently at amortised cost using the effective interest method, less an allowance for expected credit losses.
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
FY22
FY21
455
338
189
982
55
21
76
323
236
157
716
52
22
74
Inventories carried at net realisable value as at 30 June 2022 was US$31 million (FY21: US$17 million). Inventory write-downs of
US$17 million (FY21: US$42 million) were recognised in the year.
Inventories are valued at the lower of cost and net realisable value. Cost is determined primarily on the basis of average cost. For
processed inventories, cost is derived on an absorption costing basis. Cost comprises the cost of purchasing raw materials and the cost
of production, including attributable overheads. In respect of minerals inventory, quantities are assessed primarily through surveys and
assays.
126
FINANCIAL REPORT
11. Property, plant and equipment
Land and buildings
Plant and equipment
FY22
US$M
ROU lease
assets
Other
ROU lease
assets
Cost
At the beginning of the financial year
Additions
Acquisition of subsidiaries and joint
operations(1)
Foreign exchange movements in closure
and rehabilitation provisions(2)
Disposals
Transfers and other movements
At the end of the financial year
Accumulated depreciation and
impairments
At the beginning of the financial year
Depreciation charge for the year
Net impairments for the year(3)
Disposals
Transfers and other movements
At the end of the financial year
Net book value at 30 June 2022(4)
50
9
-
-
(22)
-
37
28
7
-
(20)
-
15
22
2,299
-
22
-
(2)
33
2,352
1,396
67
(15)
(2)
(8)
1,438
914
906
57
1
-
(21)
-
943
274
51
7
(17)
1
316
627
Other
13,061
152
4,468
-
95
-
(127)
(171)
194
13,204
9,001
415
(17)
(167)
7
9,239
3,965
-
(25)
104
4,547
1,894
79
102
(25)
-
2,050
2,497
Other
mineral
assets
Assets under
construction
Exploration
and
evaluation
Total
594
547
5
-
-
(331)
815
-
-
51
-
-
51
764
153
59
21,531
824
-
123
-
-
-
212
-
-
13
-
-
13
199
(127)
(241)
-
22,110
12,593
619
141
(231)
-
13,122
8,988
(1) Refer to note 30 Acquisition of subsidiaries and joint operations.
(2) Refer to note 15 Provisions.
(3) Refer to note 13 Impairment of non-financial assets.
(4) Includes US$77 million of land and buildings, US$37 million of plant and equipment, US$1,629 million of other mineral assets, US$230 million of assets under construction and
US$122 million of exploration and evaluation related expenditure that relates to the Hermosa project.
Capital expenditure commitments as at 30 June 2022 were US$114 million (FY21: US$83 million).
Land and buildings
Plant and equipment
FY21
US$M
ROU lease
assets
Cost
At the beginning of the financial year
Additions
Foreign exchange movements in closure
and rehabilitation provisions(1)
Disposals
Disposal of a discontinued operation(2)
Transfers and other movements
At the end of the financial year
Accumulated depreciation and
impairments
At the beginning of the financial year
Depreciation charge for the year(3)
Net impairments for the year(4)
Disposals
Disposal of a discontinued operation(2)
Transfers and other movements
At the end of the financial year
Net book value at 30 June 2021
51
3
-
(4)
-
-
50
13
11
8
(4)
-
-
28
22
Other
2,736
-
-
(5)
(525)
93
2,299
1,766
71
41
(5)
(477)
-
1,396
903
ROU lease
assets
905
24
-
(20)
(3)
-
906
241
53
-
(17)
(3)
-
274
632
Other
15,196
506
238
(104)
(3,082)
307
13,061
10,959
475
394
(101)
(2,660)
(66)
9,001
4,060
Other
mineral
assets
Assets under
construction
Exploration
and
evaluation
4,687
-
-
(42)
(404)
227
4,468
1,761
100
293
(42)
(284)
66
1,894
2,574
764
500
-
-
(33)
(637)
594
-
-
-
-
-
-
-
594
81
62
-
-
-
10
153
-
-
-
-
-
-
-
153
Total
24,420
1,095
238
(175)
(4,047)
-
21,531
14,740
710
736
(169)
(3,424)
-
12,593
8,938
(1) Refer to note 15 Provisions.
(2) Refer to note 33 Discontinued operation.
(3) Includes depreciation relating to a discontinued operation of US$23 million. Refer to note 33 Discontinued operation.
(4) Refer to note 13 Impairment of non-financial assets.
127
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Operating assets and liabilities continued
11. Property, plant and equipment continued
(a) Property, plant and equipment
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.
(b) Assets under construction
When Ore Reserves are estimated and development of commercial production is approved, capitalised exploration and evaluation
expenditure is reclassified to assets under construction. All subsequent development expenditure is capitalised and classified as assets
under construction, provided commercial viability conditions continue to be satisfied.
All assets included in assets under construction are reclassified 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 is defined as the search for potential mineralisation after the Group has obtained legal rights to explore in a specific area
and includes topographical, geological, geochemical and geophysical studies and exploratory drilling, trenching and sampling.
Evaluation is defined as the determination of the technical feasibility and commercial viability of a particular prospect. Activities
conducted during the evaluation phase include the determination of the tonnage and grade and/or quality of the deposit, examination
and testing of extraction methods and metallurgical or treatment process, surveys of transportation and infrastructure requirements,
and market and finance studies.
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; and
– The existence of a commercially viable mineral deposit has been established as a result of a reasonable prospect for the eventual
economic extraction.
In addition, drilling costs incurred at a producing mine for the purpose of improving confidence of the existing resource may be
capitalised when the following criteria are satisfied:
– The drilling occurs within the existing physical boundaries of the area defined as the resource; and
– The drilling costs are incurred in resources which are economically recoverable.
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 definition of an intangible exploration lease asset where
they cannot be reasonably associated with a known Mineral Resource.
(d) Other mineral assets
Other mineral assets comprise:
– Capitalised exploration and evaluation expenditure for areas now in production;
– Development expenditure for areas now in production; and
– Mineral rights acquired.
In underground mines, when production and development activity occur concurrently, development activity is separated from
production activity, and is capitalised as development expenditure in other mineral assets. Underground mine development activity
includes the cost associated with gaining access to an ore deposit which gives rise to a substantive change in the future productive
capacity of the mine.
(e) Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Group recognises a ROU asset and a lease liability at the lease commencement date. The ROU asset is initially measured at cost,
which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and estimated future cost of closure or rehabilitation, less any lease incentives received. The ROU
asset is subsequently measured at cost less accumulated depreciation, impairment charges and any adjustments for remeasurements
of the lease liability.
128
FINANCIAL REPORT
11. Property, plant and equipment continued
(e) Leases continued
The corresponding lease liability is included within interest bearing liabilities. The lease liability is initially measured at the present
value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the lessee’s incremental borrowing rate. The lessee’s incremental borrowing rate is the rate of
interest that a lessee would have to pay to borrow over a similar term, and with similar security, the funds necessary to obtain an asset
of a similar value to the ROU asset in a similar economic environment.
The lease liability is subsequently measured at amortised cost using the effective interest method. It is remeasured when there is a
change in future lease payments arising from a change in a rate or an index, if there is a change in the Group’s estimate of the amount
expected to be payable under a residual guarantee, or if the Group changes its assessment of whether it will exercise a purchase,
extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of
the ROU asset, or is recorded in the Consolidated Income Statement if the carrying amount of the ROU asset has been reduced to nil.
The nature of the Group’s leases predominantly relates to mining equipment and assets supporting the operations in line with the
Group’s principal activities, as well as real estate in the form of office buildings.
Leased assets are pledged as security for the related lease liabilities.
Short-term, low-value and variable leases
The Group has elected not to recognise ROU assets and lease liabilities for short-term and low-value leases. Short-term leases are
leases with a lease term of 12 months or less, while low-value leases are leases where the underlying asset is considered low value.
Variable leases are leases with lease payments which are variable but do not depend on a rate or an index. The Group recognises the
lease payments associated with these leases as an expense in the Consolidated Income Statement on a straight-line basis over the
lease term. If variable leases have a fixed component, these would be recognised in the Consolidated Balance Sheet.
Total cash outflows for lease obligations consist of US$99 million (FY21: US$104 million) for lease liabilities recognised in the
Consolidated Balance Sheet and US$77 million (FY21: US$73 million) for short-term, low-value and variable leases recognised in the
Consolidated Income Statement.
(f) Depreciation and amortisation
The carrying amounts of property, plant and equipment are depreciated to their estimated residual values over the estimated useful
lives of the specific assets concerned. 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 or straight-line basis using the
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
ROU assets
Mineral rights
Capitalised exploration, evaluation and development expenditure
25 to 40 years straight-line
not depreciated
3 to 30 years straight-line
based on the shorter of the useful life or the lease term (straight-line)
based on Ore Reserves on a units of production basis
based on Ore Reserves on a units of production basis
Key estimates, assumptions and judgements
Useful economic lives of assets
The useful lives of our property, plant and equipment are often dependent, either directly or indirectly, on the Reserve Life to
which they relate. Changes in economic assumptions used to estimate Ore Reserves, including the Group’s expectations with
respect to climate change-related risks and opportunities, may impact the estimated useful lives of the specific assets concerned.
Refer to note 2(c) Key estimates, assumptions and judgements for further details regarding climate change-related risks and
opportunities, and Ore Reserves as sources of estimation uncertainty.
129
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Operating assets and liabilities continued
12. Intangible assets
FY22
US$M
Cost
At the beginning of the financial year
Additions
Acquisition of subsidiaries and joint operations(1)
At the end of the financial year
Accumulated amortisation and impairments
At the beginning of the financial year
Amortisation charge for the year
Impairments for the year
At the end of the financial year
Net book value at 30 June 2022
(1) Refer to note 30 Acquisition of subsidiaries and joint operations.
FY21
US$M
Cost
At the beginning of the financial year
Additions
Disposals
Disposal of a discontinued operation(1)
At the end of the financial year
Accumulated amortisation and impairments
At the beginning of the financial year
Amortisation charge for the year(2)
Disposals
Disposal of a discontinued operation(1)
Impairments for the year
At the end of the financial year
Net book value at 30 June 2021
Goodwill
Other
intangibles
139
-
-
139
-
-
-
-
139
278
4
2
284
228
5
4
237
47
Goodwill
Other
intangibles
193
-
-
(54)
139
54
-
-
(54)
-
-
139
325
1
(28)
(20)
278
216
10
(28)
(6)
36
228
50
Total
417
4
2
423
228
5
4
237
186
Total
518
1
(28)
(74)
417
270
10
(28)
(60)
36
228
189
(1) Refer to note 33 Discontinued operation.
(2) Includes amortisation relating to a discontinued operation of US$4 million. Refer to note 33 Discontinued operation.
(a) Goodwill
Where the fair value of consideration paid for a business combination exceeds the fair value of the Group’s share of the identifiable net
assets acquired, the difference is treated as purchased goodwill. Where the fair value of the Group’s share of the identifiable net assets
acquired exceeds the fair value of consideration paid, the difference 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 identifiable 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.
Identifiable intangible assets with a finite life are amortised on a straight-line basis over their expected useful life from when the asset is
ready for use. The useful lives are as follows:
Software and licences
Contract based intangible assets
5 years
up to 35 years
The Group has no identifiable intangible assets for which the expected useful life is indefinite.
130
FINANCIAL REPORT
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). Impairment tests are carried out annually for CGUs containing goodwill and when there is
an indication of impairment or impairment reversal for all other CGUs. The Group uses discounted cash flow valuation ranges to assess
whether there is an indicator of impairment or impairment reversal for its CGUs. For any resulting 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.
For areas not yet in production, any mineral rights acquired, together with subsequent capitalised exploration and evaluation
expenditure, are regularly reviewed to determine the appropriateness of continuing to carry forward costs in relation to that area of
interest. Once the technical feasibility and commercial viability of the extraction of Ore Reserves in an area of interest are demonstrated,
exploration and evaluation assets attributable to that area of interest are tested for impairment.
The Group recorded the following net impairment for the year ended 30 June 2022:
US$M
Impairment
Property, plant and equipment
ROU lease assets(1)
Intangible assets
Impairment reversal
Property, plant and equipment
Total net impairment(2)
Note
FY22
FY21
11
11
12
11
176
7
4
(42)
145
728
8
36
-
772
(1) During FY21, the major corporate restructures earnings adjustment included an impairment of ROU lease assets of US$8 million. Refer to note 4(b)(i) Underlying results
reconciliation.
(2) Net impairment loss/(reversal) of non-financial assets is included within expenses excluding net finance costs in the Consolidated Income Statement.
(a) Recognised impairments - 30 June 2022
Eagle Downs Metallurgical Coal
In October 2021, the Group announced the commencement of a process to investigate the potential divestment of our interest in the
Eagle Downs Metallurgical Coal development option. In December 2021, as part of the negotiation for sale, the Group received non-
binding offers from external parties which, in combination with the long-term market outlook for metallurgical coal demand and prices,
resulted in the recognition of an impairment of US$79 million for the Eagle Downs CGU.
In April 2022, a preferred bidder withdrew from the negotiations and the Group has since revised its recoverable amount of the
Eagle Downs CGU to US$nil, bringing the total impairment recognised for the Eagle Downs CGU in FY22 to US$183 million. The Group
continues to investigate the potential divestment of our interest in Eagle Downs.
The long-run metallurgical coal prices and exchange rates used as part of the Group’s FVLCD determinations at 30 June 2022 were
within the following ranges as published by market commentators:
FY22
Metallurgical coal (US$/t)
Foreign exchange rates (A$ to US$)
Assumptions
used
135 to 175
0.71 to 0.80
The fair value measurement was categorised as a Level 3 fair value based on the inputs in the discounted cashflow valuation model in
combination with the use of the market approach (refer to note 19 Financial assets and financial liabilities). In determining the FVLCD,
a real US$ post tax discount rate range of between 6 and 8 per cent was applied to the post tax forecast cash flows expressed in real
terms.
In addition to the impairment of ROU lease assets of US$7 million, the impairment of US$176 million for property, plant and equipment
of Eagle Downs includes US$3 million recognised in land and buildings, US$7 million recognised in plant and equipment, US$102 million
recognised in other mineral assets, US$51 million recognised in assets under construction, and US$13 million recognised in exploration
and evaluation.
131
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Operating assets and liabilities continued
13. Impairment of non-financial assets continued
(a) Recognised impairments - 30 June 2022 continued
Brazil Aluminium
On 6 January 2022, the Group announced its decision to participate in a restart of Brazil Aluminium. The Group assessed the
implications of the restart decision and reviewed the impact on the carrying value of the Brazil Aluminium CGU as at
31 December 2021.
At 31 December 2021, the Group reversed the full impairment that was recognised when the smelter was placed on care and
maintenance in 2015, limited to the carrying amount that would have been determined (net of amortisation and depreciation) had
no impairment loss been recognised at such time. The recoverable amount remains significantly higher than the carrying amount
recorded.
The recoverable amount was based on the smelter’s FVLCD and was informed by the Group’s production profile and cost profile which
were consistent with the Group’s commitments to long-term power agreements. The key assumptions used for commodity prices were
comparable to market consensus forecasts and foreign exchange rates were aligned with forward market rates.
The fair value measurement was categorised as a Level 3 fair value based on the inputs in the discounted cashflow valuation model
(refer to note 19 Financial assets and financial liabilities). In determining the FVLCD, a real US$ post tax discount rate range of between
6 and 8 per cent, and a country risk premium of 2 per cent, was applied to the post tax forecast cash flows expressed in real terms.
The impairment reversal of US$42 million includes US$18 million recognised in land and buildings and US$24 million recognised in plant
and equipment, both within property, plant and equipment. In addition, the Group recognised indirect tax assets of US$77 million that
had been expensed since the smelter was placed on care and maintenance in 2015. Refer to note 4(b)(ii) Significant items.
The Group did not identify any impairment indicator as at 30 June 2022.
(b) Recognised impairments - 30 June 2021
Illawarra Metallurgical Coal
On 5 February 2021, the Group was advised that the New South Wales (NSW) Independent Planning Commission (IPC) refused
the application for the Dendrobium Next Domain (DND) project at IMC. The Group scaled back activity on the DND project while it
considered alternative options following the IPC decision. The decision by the IPC introduced uncertainty over the future of the DND
project, the IMC complex and the DND project’s value contribution to the IMC CGU recoverable amount assessment.
The Group assessed the potential implications of the IPC decision and reviewed the optimised IMC CGU and the resultant impact on
the carrying value of its assets as at 30 June 2021. The IMC CGU consists of the Appin and Dendrobium underground metallurgical
coal mines, and the West Cliff and Dendrobium coal preparation plants. The Group recognised an impairment of property, plant and
equipment at its IMC CGU of US$728 million. This charge reflected the increased approval uncertainty created by the IPC’s decision to
refuse the application for the DND project and the resultant impact on the economics of the broader IMC complex. The recoverable
amount of the IMC CGU was determined as US$550 million based on its FVLCD and reflected judgements in relation to the likelihood of
future mine projects for, and the Group’s major long-term coal supply arrangements connected with, the IMC complex.
In the short to medium-term, we applied an actual enacted carbon price less allowable abatements based on existing regulations with
the expectation that existing allowances will reduce over time as Australia strengthens its climate policies. In the long-term we assumed
a single global carbon price, based on an assessment of policy-driven costs, evolution of technological innovation and abatement costs.
The Group's long-term carbon price at the time of US$40 per tonne CO2-e was applied to all Scope 1 and 2 emissions and we assumed
no carbon exemptions or allowances are employed.
The fair value measurement was categorised as a Level 3 fair value based on the inputs in the discounted cashflow valuation model
(refer to note 19 Financial assets and financial liabilities). In determining the FVLCD, a real US$ post tax discount rate range of between
6 and 8 per cent was applied to discount future cash flows. The recoverable amount was informed by a production profile and costs
based on management’s planning processes.
The long-run metallurgical coal prices, energy coal prices and exchange rates used in the FVLCD determinations were within the
following ranges as published by market commentators:
FY21
Metallurgical coal (US$/t)
Energy coal (US$/t)
Foreign exchange rates (A$ to US$)
Assumptions
used
112 to 160
58 to 78
0.71 to 0.77
132
FINANCIAL REPORT
13. Impairment of non-financial assets continued
(c) Impairment test for CGUs containing goodwill
For the purpose of impairment testing, goodwill has been allocated to CGUs that are expected to benefit from the synergies of the
business combination and which represent the level at which management will monitor and manage the goodwill.
The carrying amount of goodwill has been allocated to the following CGU:
US$M
Hillside Aluminium
Total goodwill
Note
12
FY22
139
139
FY21
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 a
FVLCD calculation and was categorised as a Level 3 fair value based on the inputs in the valuation technique (refer to note 19 Financial
assets and financial liabilities). The impairment test for the Hillside Aluminium CGU indicated that no impairment was required. The
determination of FVLCD was most sensitive to:
– Production volumes;
– Aluminium and alumina prices;
– Foreign exchange rates;
– Carbon pricing and timing; 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 influenced by production input costs such as electricity prices, jurisdiction based
carbon pricing, and the selling price of aluminium.
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.
The table below shows the amount by which these assumptions must change in isolation in order for the estimated recoverable amount
to be equal to the carrying amount of the Hillside Aluminium CGU, including goodwill. Owing to the complexity of the relationships
between each key assumption, the analysis was performed for each assumption individually.
FY22
Aluminium prices (US$/t)
Alumina prices (US$/t)
Foreign exchange rates (US$ to ZAR)
Assumptions used
1,720 to 2,866
278 to 400
14.2 to 16.3
Change required for the carrying
amount to equal the recoverable
amount
Decrease of 5%
Increase of 18%
ZAR strengthening of 11%
Carbon pricing and timing – in determining the FVLCD, the current jurisdiction enacted carbon price, in real terms, of ZAR143 to ZAR150
per tonne CO2-e is applied for the life of operation for Scope 1 and 2 emissions, net of operation specific abatement allowances.
Discount rate – in determining the FVLCD, a real US$ post tax discount rate range of between 6 and 8 per cent (FY21: range of between
6 and 8 per cent), and a country risk premium of 2 per cent (FY21: 2 per cent) was applied to post tax cash flows expressed in real terms.
133
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Operating assets and liabilities continued
13. Impairment of non-financial assets continued
Key estimates, assumptions and judgements
An assessment as to whether there is any indication of impairment and the calculation of a CGU’s recoverable amount 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), foreign exchange rates, Ore Reserves, Mineral Resources,
regulatory approvals, operating costs, closure and rehabilitation costs, future capital expenditure, allocation of corporate costs,
specific jurisdiction based carbon prices, where relevant, and global carbon pricing. These estimates and assumptions are
subject to risk and uncertainty. There is a possibility that changes in circumstances will alter these projections, which may impact
the recoverable amount. In such circumstances, some or all of the carrying amount may be impaired or a previously recognised
impairment charge may be reversed with the impact recorded in the Consolidated Income Statement.
The key estimates and assumptions used in the assessment of impairment indicators are as follows:
Future production
Commodity prices
Exchange rates
Discount rates
Regulatory approvals
Carbon prices
Life of operation plans based on Proved and Probable Ore Reserve estimates, Mineral Resource
(excluding Inferred Mineral Resources) estimates, economic life of smelters and refineries and, in
certain cases, expansion projects, including future cost of production. Refer note 2(c) Key estimates,
assumptions and judgements for further details regarding Ore Reserves as a source of estimation
uncertainty.
Forward market and contract prices, and longer-term price protocol estimates which includes an
assessment of the impact carbon price assumptions might have.
Observable forward market foreign exchange rates, and longer-term price protocol estimates.
Risk-adjusted cost of capital appropriate to the resource.
Life of operation plans include assumptions associated with the successful application, and timing
thereof, of ongoing and future regulatory approvals.
Actual enacted schemes less allowable abatements, where applicable, and a long-term base case
estimate of US$60 per tonne CO2-e (real) applied to all Scope 1 and 2 emissions from FY40 onwards.
Where impairment testing is undertaken, a range of external sources are considered as further input to the above assumptions.
Exploration and evaluation expenditure
For areas not yet in production, acquired mineral rights together with subsequent capitalised exploration and evaluation
expenditure require judgement to determine the likelihood of future economic benefits from future development, and whether
sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of
the exploration and evaluation asset is unlikely to be recovered in full. When facts and circumstances suggest that the carrying
amount exceeds the recoverable amount, an impairment test will be required which may result in an adjustment to the carrying
value of acquired mineral rights together with subsequent capitalised exploration and evaluation expenditure.
In August 2018, the Group completed the acquisition of the Hermosa project located in Arizona, United States. The Hermosa
project comprises the zinc-lead-silver sulphide deposit (Taylor Deposit), the zinc-manganese-silver oxide deposit (Clark Deposit)
and the potential for further polymetallic and copper mineralisation. In January 2022, the Group announced the completed
pre-feasibility study for the Taylor Deposit, its first development option at Hermosa. Furthermore, a scoping study for the
spatially linked Clark Deposit has confirmed the potential for a separate underground mining operation which may underpin
a second development stage at Hermosa, with future studies to consider the opportunity to integrate its development with
the Taylor Deposit. At or before the final investment decision, and once technical feasibility and commercial viability has been
demonstrated, the exploration and evaluation assets and acquired mineral rights will be tested for impairment. At that time, the
Group will identify the relevant CGUs within the Hermosa area of interest, allocate historical costs and determine the recoverable
amount for each CGU. Should historical costs exceed the recoverable amount for one of more CGUs, an impairment loss would be
recognised.
134
FINANCIAL REPORT
13. Impairment of non-financial assets continued
Key estimates, assumptions and judgements continued
Climate change-related risks and opportunities
The Group’s forecast commodity prices and other key assumptions represent management’s expectations on likely
outcomes, with a base case estimation of at least 2°C climate related warming. When assessing whether there is any
indication of impairment or impairment reversal, management considers a range of possible scenarios, including a 1.5°C
scenario aligned with the ambition of the Paris Agreement, with no one scenario being conclusive in isolation.
The full cost and benefit of achieving the Group’s emissions reduction strategy is included in the Group’s valuations when it
has a high degree of confidence that a project will achieve a reduction, which typically aligns with the related capital project
being internally approved.
The Group utilises an internal price on carbon to inform decision-making and valuations. In developing forecast global
carbon prices, the Group considers policy and market-driven carbon prices as well as abatement costs, weighted across
developed and developing countries. During FY22, the Group increased its long-term base case estimate of carbon prices
from US$40 to US$60 per tonne CO2-e (real), as a result of implications from key policy and market developments over the
year, including COP26, trends in market-driven carbon prices and updated country and corporate benchmarks.
When assessing for impairment indicators, the Group has considered the sensitivity of operations to changes in carbon
prices. The Group’s operations are not uniformly impacted by carbon prices. They are influenced by the amount of Scope 1
and 2 emissions the operation generates, in combination with the respective life of operation plans. The Group’s CGUs with a
higher carbon sensitivity include Worsley Alumina, IMC, Hillside Aluminium and Mozal Aluminium.
Previously impaired CGUs
When assessing for impairment and impairment reversal indicators, the fundamental characteristics of previously impaired
CGUs are relevant to their sensitivity to key estimates and assumptions. For previously impaired CGUs these include:
– CGUs with higher operating margins and with life of operation plans longer than 10 years which are less sensitive to
short-term commodity prices and foreign exchange rates, for example Worsley Alumina;
– CGUs with lower operating margins which are highly sensitive to movements in commodity prices and foreign exchange
rates, for example South Africa Manganese and IMC; and
– CGUs with higher operating margins, shorter life of operation plans and exposure to commodities that display greater
price volatility, for example Australia Manganese.
The operating assets for previously impaired CGUs are included in note 4(b) Segment results.
135
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Operating assets and liabilities continued
14. Trade and other payables
US$M
Current
Trade creditors
Other creditors
Total current trade and other payables
Non-current
Trade creditors
Other creditors
Total non-current trade and other payables
FY22
FY21
813
176
989
7
1
8
663
114
777
-
2
2
Trade and other payables generally represent liabilities for goods and services provided to the Group prior to the end of the financial
year which were unpaid at the end of the financial 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 classified as non-
current liabilities.
Trade and other payables, other than financial guarantee contracts and financial liabilities held at FVTPL, are stated at their amortised
cost and are non-interest bearing. The carrying value of these trade and other payables is considered to approximate fair value due to
the short-term nature of the payables.
15. Provisions
US$M
Current
Employee benefits
Closure and rehabilitation
Other
Total current provisions
Non-current
Employee benefits
Closure and rehabilitation
Post-retirement employee benefits
Other
Total non-current provisions
Note
FY22
FY21
171
8
7
186
4
1,785
34
12
1,835
195
15
29
239
6
1,702
41
10
1,759
22
136
FINANCIAL REPORT
15. Provisions continued
FY22
US$M
At the beginning of the financial year
Charge/(credit) for the year to the Consolidated Income Statement:
Underlying
Discounting
Change in discount rate(1)
Net interest expense
Exchange rate variations
Released during the year
Amounts capitalised for change in costs and estimates
Amounts capitalised for change in discount rate(1)
Foreign exchange amounts capitalised
Amounts taken to retained earnings
Utilisation
Acquisition of subsidiaries and joint operations(2)
At the end of the financial year
Employee
benefits
Closure and
rehabilitation
201
1,717
156
-
-
-
(14)
(8)
-
-
-
-
(160)
-
175
3
67
(2)
-
(19)
(8)
167
(15)
(127)
-
(9)
19
1,793
Post-
retirement
employee
benefits
41
1
-
-
3
(4)
-
-
-
-
(3)
(4)
-
34
Other
39
6
-
-
-
(3)
(19)
-
-
-
-
(4)
-
19
Total
1,998
166
67
(2)
3
(40)
(35)
167
(15)
(127)
(3)
(177)
19
2,021
(1) The Group has reviewed its discount rates applied to closure and rehabilitation provisions. The corresponding net decrease in the provision is capitalised as an asset in the
case of open sites or charged/(credited) to the Consolidated Income Statement in the case of closed sites.
(2) Refer to note 30 Acquisition of subsidiaries and joint operations.
FY21
US$M
At the beginning of the financial year
Charge/(credit) for the year to the Consolidated Income Statement:
Underlying
Discounting(1)
Change in discount rate(2)
Net interest expense(3)
Exchange rate variations
Released during the year
Amounts capitalised for change in costs and estimates
Amounts capitalised for change in discount rate
Foreign exchange amounts capitalised
Amounts taken to retained earnings
Utilisation
Disposal of a discontinued operation(4)
Transfers and other movements
At the end of the financial year
Employee
benefits
Closure and
rehabilitation
188
1,830
184
-
-
-
21
(2)
-
-
-
-
(152)
(38)
-
201
16
120
(23)
-
51
(3)
271
235
238
-
(21)
(997)
-
1,717
Post-
retirement
employee
benefits
77
1
-
-
8
16
-
-
-
-
(1)
(7)
(60)
7
41
Other
78
22
3
-
-
8
(4)
-
-
-
-
(33)
(30)
(5)
39
Total
2,173
223
123
(23)
8
96
(9)
271
235
238
(1)
(213)
(1,125)
2
1,998
(1) Includes amounts relating to a discontinued operation of US$64 million. Refer to note 33 Discontinued operation.
(2) Includes amounts relating to a discontinued operation of US$(17) million. Refer to note 33 Discontinued operation.
(3) Includes amounts relating to a discontinued operation of US$5 million. Refer to note 33 Discontinued operation.
(4) Refer to note 33 Discontinued operation.
(a) Employee benefits
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 benefits 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 benefits and is measured in accordance with annual leave described above.
137
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Operating assets and liabilities continued
15. Provisions continued
(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 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, which is informed by the demand for commodities, carbon pricing and other variables; 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 depending on closure and rehabilitation requirements.
Closure and rehabilitation provisions are measured at the expected value of future cash flows, discounted to their present value and
determined according to the probability of alternative estimates of cash flows occurring for each operation.
Discount rates used are risk-free interest rates specific to the country in which the operations are located. Material changes in country
specific risk-free interest rates may affect the discount rates applied.
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 benefits 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 effect of discounting unwind and inflation, creating an expense recognised in finance expenses.
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 depreciated capitalised cost
of the related assets, in which case the carrying value is reduced to nil and the remaining adjustment is recognised first 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 flows are a
normal occurrence in light of the significant judgements and estimates involved.
(c) Post-retirement employee benefits
This relates to the provision for post-employment defined benefit pension and medical schemes. Refer to note 22 Pension and other
post-retirement obligations.
Key estimates, assumptions and judgements
The recognition of closure and rehabilitation provisions requires judgement and is based on significant estimates and
assumptions such as:
– The requirements of the relevant local 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, including physical risks and opportunities of climate change.
These uncertainties may result in future actual expenditure differing from the amounts currently provided.
The Group’s expectations and approach in relation to climate change-related risks and opportunities are reflected in the
estimates and assumptions noted above. For example, our base case estimation of at least 2°C climate related warming
impacts our mine plans and forecast carbon prices, which in turn impacts assumptions regarding timing and cost of closure and
rehabilitation activities.
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 disputes, the final liability for such matters could vary.
If risk-free interest rates were decreased by 0.5 per cent, the provision would increase by approximately US$281 million.
138
FINANCIAL REPORT
Notes to financial statements – Capital structure and financing
This section outlines how the Group manages its capital and related financing activities.
16. Cash and cash equivalents
Cash and cash equivalents include cash at bank and on hand as well as short-term deposits.
US$M
Cash
Short-term deposits
Cash and cash equivalents(1)(2)
FY22
763
1,602
2,365
FY21
596
1,017
1,613
(1) Cash and cash equivalents include US$4 million (FY21: US$5 million) which is restricted by legal or contractual arrangements.
(2) Cash and cash equivalents include US$335 million (FY21: US$285 million) consisting of short-term deposits and cash managed by the Group on behalf of its equity accounted
investments. The corresponding amount payable is included in note 17 Interest bearing liabilities.
17. Interest bearing liabilities
US$M
Current
Lease liabilities
Unsecured loans from equity accounted investments(1)
Unsecured other
Total current interest bearing liabilities
Non-current
Senior unsecured notes
Lease liabilities
Unsecured other
Total non-current interest bearing liabilities
FY22
FY21
40
335
27
402
689
610
126
1,425
37
285
86
408
-
650
149
799
(1) Refer to note 16 Cash and cash equivalents and note 29 Related party transactions.
On 14 April 2022, the Group completed the issuance of US$700 million of senior unsecured notes pursuant to Rule 144A and
Regulation S of the United States Securities Act of 1933. The Group utilised the cash proceeds from the offering, together with cash on
hand, for the repayment in full of the amounts drawn down under its acquisition bridge facility used to partly fund the acquisition of a
45 per cent interest in Sierra Gorda, refer to note 31 Acquisition of equity accounted investments. The notes will pay interest on 14 April
and 14 October each year at a rate of 4.35 per cent per annum and mature in 2032.
All borrowings are initially recognised at their fair value net of directly attributable transaction costs. Subsequent to initial recognition,
interest bearing liabilities are measured at amortised cost using the effective interest method. Gains and losses are recognised in the
Consolidated Income Statement when the liabilities are derecognised. Interest bearing liabilities are classified as current liabilities,
except when the Group has an unconditional right to defer settlement for at least 12 months after the reporting date, in which case the
liabilities are classified as non-current.
A reconciliation of movements in interest bearing liabilities to cash flows arising from financing activities is set out below:
FY22
US$M
At the beginning of the financial year
Changes from financing cash flows:
Net receipt/(repayment)
Total changes from financing cash flows
The effect of changes in foreign exchange rates
Net increase/(decrease) in lease liabilities
Other changes:
Interest expense
Interest paid
At the end of the financial year
Lease liabilities
Other interest
bearing
liabilities
Total interest
bearing
liabilities
687
520
1,207
(46)
(46)
(57)
66
53
(53)
650
641
641
9
-
23
(16)
595
595
(48)
66
76
(69)
1,177
1,827
139
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Capital structure and financing continued
18. Net finance costs
US$M
Finance expenses
Interest on borrowings
Interest on lease liabilities
Discounting on provisions and other liabilities
Change in discount rate on closure and rehabilitation provisions
Net interest expense on post-retirement employee benefits
Exchange rate variations on net debt
Finance income
Interest on loans to equity accounted investments
Other interest income
Net finance costs
FY22
FY21
31
53
65
(2)
3
(40)
110
63
16
79
31
15
55
59
(6)
3
52
178
8
9
17
161
19. Financial assets and financial liabilities
(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 financial targets while protecting its future financial security
and flexibility by taking advantage of the natural diversification of the Group’s operations and activities. A Cash Flow at Risk (CFaR)
framework is used to capture the benefits of diversification and to measure the aggregate impact of financial risks on those financial
targets. CFaR is measured on a portfolio basis and is defined as the expected reduction from projected business plan cash flows over a
one-year horizon in a pessimistic case. In addition to the CFaR framework, deterministic analysis of a range of operational, commodity
price and foreign exchange rate scenarios is also used to measure the potential impact on financial targets.
(i) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate 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.
Group activities expose it to market risks associated with movements in interest rates, foreign currencies and commodity prices. The
Group predominantly manages currency impacts, input costs and commodity prices on a floating or index basis. This strategy gives rise
to a risk of variability in earnings which is measured under the CFaR framework.
In executing the Group's strategy, financial instruments may be employed for risk mitigation purposes within a strict Board of Directors
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, other financial assets, trade
and other payables, and interest bearing liabilities from the possibility that changes in interest rates will affect future cash flows or the
fair value of financial instruments.
The Group had the following exposure to interest rate risk:
FY22
FY21
2,306
102
39
-
(334)
2,113
1,608
131
-
(14)
(314)
1,411
US$M
Financial assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Financial liabilities
Trade and other payables
Interest bearing liabilities
Net exposure
140
FINANCIAL REPORT
19. Financial assets and financial liabilities continued
(a) Financial risk management objectives and policies continued
(i) Market risk continued
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of financial assets and
liabilities affected. With all other variables held constant, the Group’s profit/(loss) after tax would increase/(decrease) as follows:
Increase/decrease in basis points
US$M
+100
–100
Impact on profit/(loss) after tax
FY22
16
(13)
FY21
15
(4)
The sensitivity analysis assumes that the change in interest rates is effective from the beginning of the financial year and the fixed/
floating mix and balances are constant over the year. For the purpose of the sensitivity analysis, the decrease of 100 basis points is
applied to the extent that the underlying interest rates do not fall below zero per cent. However, interest rates and the profile of the
Group's financial assets and liabilities may not remain constant over the coming financial year and therefore such sensitivity analysis
should be used with care.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign
exchange rates. The functional currency of the Group’s operations is primarily the US dollar. The Group’s potential currency exposures
comprise:
– Translational exposure in respect of non-functional currency monetary items; and
– Transactional exposure in respect of non-functional currency expenditure and revenues.
Certain operating and capital expenditure is incurred by operations in currencies other than their functional currency. To a lesser
extent, certain sales revenue is earned in currencies other than the functional currency of the operation, and certain exchange control
restrictions may require funds to be maintained in currencies other than the operations functional currency. When required, the Group
may enter into forward exchange contracts.
The principal non-functional currencies to which the Group is exposed to are the Australian dollar, Brazilian real, Canadian dollar,
Colombian peso, and South African rand. The following table shows the foreign currency risk arising from financial assets and liabilities,
which are denominated in these currencies:
Net financial assets/(liabilities) – by currency of denomination
US$M
Australian dollar
Brazilian real
Canadian dollar
Colombian peso
South African rand
FY22
(860)
(63)
17
(47)
98
FY21
(847)
58
19
9
(172)
Based on the Group’s net financial 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) the Group's profit/(loss) after tax and
other comprehensive income/(loss), net of tax, as follows:
FY22
US$M
10% movement in Australian dollar
10% movement in Brazilian real
10% movement in Canadian dollar
10% movement in Colombian peso
10% movement in South African rand
FY21
US$M
10% movement in Australian dollar
10% movement in Brazilian real
10% movement in Canadian dollar
10% movement in Colombian peso
10% movement in South African rand
Profit/(loss) after
tax
Other
comprehensive
income/(loss),
net of tax
(60)
(6)
-
(5)
10
-
-
1
-
-
Profit/(loss) after
tax
Other
comprehensive
income/(loss),
net of tax
(60)
(1)
1
1
(17)
-
7
1
-
-
141
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Capital structure and financing continued
19. Financial assets and financial liabilities continued
(a) Financial risk management objectives and policies continued
(i) Market risk continued
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 financial instruments and are carried at cost
(typically at nil) in the Consolidated Balance Sheet.
Provisionally priced commodity sales and purchases contracts
Provisionally priced sales or purchases contracts are those for which price finalisation, 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 creditors. Fair value movements on provisionally
priced sale contracts are disclosed as other revenue in the Group's segment results, refer to note 4(b) Segment results. The Group’s
exposure at 30 June 2022 to the impact of movements in commodity prices on provisionally invoiced sale and purchase volumes was
predominantly around nickel, silver, lead, zinc and aluminium.
The Group had 2.3kt of nickel, 1.8Moz of silver, 30.0kt of lead, 5.7kt of zinc and 27.1kt of aluminium exposure at 30 June 2022 (FY21:
3.6kt of nickel, 3.0Moz of silver, 32.0kt of lead, 9.6kt of zinc, 4.0kt of aluminium and 64.2kt of alumina) that was provisionally priced. The
final price of these sales or purchases will be determined during the first half of FY23. A 10 per cent change in the realised price of
these commodities, with all other factors held constant, would increase or decrease profit/(loss) after tax by US$18 million (FY21: US$26
million). The relationship between commodity prices and foreign currencies is complex and foreign exchange rates and commodity
prices may move concurrently in response to market conditions. These sensitivities should therefore be used with care.
(ii) Liquidity risk
The Group’s liquidity risk arises from the possibility that it may not be able to settle or meet its obligations as they fall due. Operational,
capital and regulatory requirements are considered in the management of liquidity risk, in conjunction with short and long-term
forecast information.
In line with the Group's policy on counterparty credit exposure, the Group only uses counterparties of a high credit standing for the
investment of any excess cash.
The entities in the Group are funded by a combination of cash generated by the Group’s operations, working capital facilities and
intercompany loans provided by the Group. Intercompany loans may be funded by a combination of cash, short and long-term debt and
equity market raisings.
Standby arrangements and credit facilities
Details of the Group’s major standby arrangement are as follows:
FY22
US$M
Revolving credit facility(1)
Available
1,400
Used
-
Unused
1,400
(1) The Group has an undrawn revolving credit facility which is a standby arrangement to the US commercial paper program. The facility was refinanced in December 2021 as a
five year facility maturing in December 2026 with options to extend for up to a further two years by mutual agreement. On refinancing, the size of the facility reduced by US$50
million to US$1,400 million.
142
FINANCIAL REPORT
19. Financial assets and financial liabilities continued
(a) Financial risk management objectives and policies continued
(ii) Liquidity risk continued
Maturity profile of financial liabilities
The maturity profiles of financial liabilities, based on the contractual amounts, are as follows:
FY22
US$M
Trade and other payables(1)
Senior unsecured notes
Lease liabilities
Other interest bearing liabilities
Other financial liabilities – contingent consideration
Other financial liabilities – derivative contracts
Total
Carrying
amount
956
689
650
488
84
6
2,873
On demand or
less than 1
year
1 to 5 years
More than 5
years
949
-
90
362
-
6
1,407
7
-
314
85
109
-
515
-
700
745
60
-
-
1,505
Total
956
700
1,149
507
109
6
3,427
(1) Excludes current input taxes of US$40 million and non-current input and other taxes of US$1 million included in other creditors. Refer to note 14 Trade and other payables.
FY21
US$M
Trade and other payables – financial guarantee contracts
Trade and other payables(1) – other
Lease liabilities
Other interest bearing liabilities
Other financial liabilities – derivative contracts
Total
Carrying
amount
15
754
687
520
11
1,987
On demand or
less than 1
year
1 to 5 years
More than 5
years
93
752
91
372
11
1,319
-
2
320
98
-
420
-
-
853
75
-
928
Total
93
754
1,264
545
11
2,667
(1) Excludes current input taxes of US$10 million included in other creditors. 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 defined and implemented for higher-risk counterparties to protect revenues, with more than 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. The methods include credit exposure management and overdue accounts monitoring. In addition, leading key
risk indicators are actively monitored for all customers to identify any emerging risks.
There are no material concentrations of credit risk, either with individual counterparties or groups of counterparties, by industry or
geography.
The Group’s exposure to credit risk is influenced by the individual characteristics of each counterparty or customer. However,
management also considers other factors that may influence the credit risk of its counterparty or customer base. Where there is credit
exposure for a new customer, they are assessed for creditworthiness before the Group’s standard payment and delivery terms and
conditions are offered. For these customers, credit limits are established and reviewed annually or with the release of new information
materially impacting the customer’s creditworthiness. The Group’s review includes external credit ratings, if available, credit agency
information, as well as financial institution and industry information.
The carrying amounts of financial assets represent the maximum credit exposure.
143
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Capital structure and financing continued
19. Financial assets and financial liabilities continued
(a) Financial risk management objectives and policies continued
(iii) Credit risk continued
For trade receivables, the Group uses the simplified 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.
Impairment allowances are based on a forward-looking expected credit loss model. Where there has been a significant increase in
credit risk, a loss allowance for lifetime expected credit losses is recognised.
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 remaining receivables without an external credit rating or
security option, a rating of BB (S&P Global Ratings) is used, on the basis that there is no support that it is investment grade, nor is there
any evidence of default.
Shareholder loan receivable from Sierra Gorda
Purchased or originated credit-impaired financial assets are initially recognised at fair value. They are subsequently measured at
amortised cost using the credit-adjusted effective interest method, less an allowance for changes in lifetime expected credit losses
since initial recognition. The credit-adjusted effective interest rate is determined at initial recognition and not amended for subsequent
changes to lifetime expected credit losses since acquisition. Changes in lifetime expected credit losses are recognised as impairment
and reversals of impairment of financials assets.
The Group’s investment in the Sierra Gorda operation is represented by the carrying value of the equity accounted investment of
US$30 million and the carrying value of a non-current purchased credit-impaired receivable of US$1,648 million, classified as a loan to
an equity accounted investment, refer to note 9 Trade and other receivables.
The loan has a contractual interest rate of 8 per cent and the repayment of the loan by the Sierra Gorda operation is dependent on its
financial performance. At 30 June 2022, the Group updated its estimated timing of the loan repayments and as a result recognised an
impairment of US$26 million which is included in expenses excluding net finance costs in the Consolidated Income Statement. The net
present value of the expected future cash flows of the loan was determined as US$1,648 million using a measurement methodology
consistent with a Level 3 fair value based on the inputs in the valuation technique.
The following table shows the movement in the carrying amount of this receivable:
US$M
At the beginning of the financial year
Acquisition(1)
Interest accrued
Net impairment
Repayments
At the end of the financial year
(1) Refer to note 31 Acquisition of equity accounted investments.
FY22
-
1,687
55
(26)
(68)
1,648
In determining the net present value, an effective interest rate of 9 per cent was applied to discount the future loan repayments.
The rate was determined on the date of acquisition of the Group's interest in Sierra Gorda and was informed by a production profile
based on mineral resources and mineral reserves that are qualifying foreign estimates under the ASX Listing Rules and costs based
on the most recent Sierra Gorda budget. The market announcement relating to the foreign estimate within the Resources and
Reserves section of this report underpin the aforementioned production profile. The production profile is based on the Group’s current
expectations of future results or events and should not be solely relied upon when making investment decisions. Further evaluation
work and appropriate studies are required to establish sufficient confidence of meeting this production profile.
The table below shows the key assumptions used in the net present value determinations:
FY22
Copper (US$/lb)
Foreign exchange rates (US$ to CLP)
Assumptions
used
2.70 to 4.08
635 to 827
The key assumptions for copper prices are comparable to market consensus forecasts and foreign exchange rates are aligned with
forward market rates in the short-run and thereafter are within the range published by market commentators. The potential effect of
using reasonably possible alternative assumptions in determining the net present value of the loan, based on directionally changing all
the significant inputs either favourably or unfavourably by 10 per cent while holding all other variables constant, is shown in the following
table:
FY22
US$M
Trade and other receivables
Loans to equity accounted investments
Face value Carrying value
Favourable
Unfavourable
Impact on profit/(loss) after tax
2,073
1,648
63
(157)
144
FINANCIAL REPORT
19. Financial assets and financial liabilities continued
(b) Accounting classification and fair value
(i) Recognition and initial measurement
With the exception of those classified as FVTPL, all financial assets (other than trade and other receivables without a significant
financing component) and financial liabilities are initially recognised at fair value plus transaction costs directly attributable to its
acquisition or issuance. Trade and other receivables without a significant financing component are initially measured at the transaction
price.
(ii) Financial assets: Classification and subsequent measurement
Subsequent to initial recognition, financial assets are either measured at amortised cost or at fair value.
A financial 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 flows; and
– Its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
Financial assets that are held for trading and whose performance is evaluated on a fair value basis are measured at FVTPL.
On initial recognition, the Group may irrevocably designate a financial asset to be held at FVTPL that otherwise meets the requirements
to be measured at amortised cost or for designation as FVOCI, if doing so eliminates or significantly reduces an accounting mismatch
that would otherwise arise.
On initial recognition of an investment in an equity instrument not held for trading, the Group may also irrevocably elect to present
subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an investment-by-
investment basis.
All financial assets not measured at amortised cost or designated as FVOCI are measured at FVTPL. This includes all derivative financial
assets.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing
financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the
change in the business model.
145
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Capital structure and financing continued
19. Financial assets and financial liabilities continued
(b) Accounting classification and fair value continued
(ii) Financial assets: Classification and subsequent measurement continued
Classification
Held at FVTPL
Amortised cost
Investments in equity instruments
designated as FVOCI
Subsequent measurement
Financial assets held at FVTPL are subsequently measured at fair value. Net gains and losses,
including any interest, dividend income and 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 flow 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 held at amortised cost are subsequently measured at amortised cost using the
effective interest method. The amortised cost is reduced by impairment losses. Interest income,
foreign exchange gains and losses, impairments and any gain or loss on derecognition, are
recognised in the Consolidated Income Statement.
Investments in equity instruments designated as 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 gains and losses are
recognised in other comprehensive income and are not reclassified to the Consolidated Income
Statement.
The measurement of fair value of financial assets is based on quoted market prices in active markets for identical assets. Where no
price information is available from a quoted market source, alternative market mechanisms or recent comparable transactions, the
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: Classification and subsequent measurement
Financial liabilities are classified as FVTPL, financial guarantee contracts or as measured at amortised cost. A financial liability is
classified as FVTPL if it is classified as held for trading, it is a derivative, or it is designated as such on initial recognition. Financial
liabilities held at FVTPL are measured at fair value, and net gains and losses, including any interest expense, are recognised in the
Consolidated Income Statement. Financial guarantee contracts are initially measured at fair value and subsequently measured at the
higher of the expected credit loss and the amount initially recognised less the cumulative amount of guarantee fee income recognised,
with changes in value recognised in the Consolidated Income Statement. Other financial liabilities are subsequently measured at
amortised cost using the effective 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 within a hybrid contract, with a financial liability or non-financial 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 definition 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 financial asset host is not accounted for separately. The financial asset
host together with the embedded derivative is required to be classified in its entirety as a financial asset held at FVTPL.
146
FINANCIAL REPORT
19. Financial assets and financial liabilities continued
(b) Accounting classification and fair value continued
The following table presents the financial assets and liabilities by class at their carrying amounts:
FY22
US$M
Financial assets
Cash and cash equivalents
Trade and other receivables(1)
Loans to equity accounted investments
Other financial assets:
Derivative contracts
Total current financial assets
Trade and other receivables(1)
Loans to equity accounted investments
Other financial assets:
Investments in equity instruments designated as FVOCI
Vendor loan facility
Total non-current financial assets
Total financial assets
Financial liabilities
Trade and other payables(2)
Lease liabilities
Other interest bearing liabilities
Other financial liabilities:
Derivative contracts
Total current financial liabilities
Trade and other payables(2)
Senior unsecured notes
Lease liabilities
Other interest bearing liabilities
Other financial liabilities:
Contingent consideration
Total non-current financial liabilities
Total financial liabilities
Note
Held at FVTPL
Designated
as FVOCI
Amortised
cost
16
9
9
9
9
14
17
17
14
17
17
17
-
143
-
1
144
-
-
-
39
39
183
20
-
-
6
26
-
-
-
-
84
84
110
-
-
-
-
-
-
-
25
-
25
25
-
-
-
-
-
-
-
-
-
-
-
-
2,365
554
7
-
2,926
13
1,793
-
-
1,806
4,732
929
40
362
-
1,331
7
689
610
126
-
1,432
2,763
Total
2,365
697
7
1
3,070
13
1,793
25
39
1,870
4,940
949
40
362
6
1,357
7
689
610
126
84
1,516
2,873
(1) Excludes current input taxes of US$140 million and non-current input and other taxes of US$97 million included in other receivables. Refer to note 9 Trade and other
receivables.
(2) Excludes current input taxes of US$40 million and non-current input and other taxes of US$1 million included in other creditors. Refer to note 14 Trade and other payables.
147
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Capital structure and financing continued
19. Financial assets and financial liabilities continued
(b) Accounting classification and fair value continued
FY21
US$M
Financial assets
Cash and cash equivalents
Trade and other receivables(1)
Loans to equity accounted investments
Other financial assets:
Derivative contracts
Other investments held at FVTPL
Total current financial assets
Trade and other receivables(1)
Loans to equity accounted investments
Other financial assets:
Investments in equity instruments designated as
FVOCI
Total non-current financial assets
Total financial assets
Financial liabilities
Trade and other payables(2)
Lease liabilities
Other interest bearing liabilities
Other financial liabilities:
Derivative contracts
Total current financial liabilities
Trade and other payables
Lease liabilities
Other interest bearing liabilities
Total non-current financial liabilities
Total financial liabilities
Note
Held at FVTPL
FVOCI Amortised cost
Designated as
Financial
guarantee
contracts
16
9
9
9
9
14
17
17
14
17
17
-
120
-
9
6
135
-
-
-
-
135
18
-
-
11
29
-
-
-
-
29
-
-
-
-
-
-
-
-
121
121
121
-
-
-
-
-
-
-
-
-
-
1,613
365
10
-
-
1,988
10
187
-
197
2,185
734
37
371
-
1,142
2
650
149
801
1,943
-
-
-
-
-
-
-
-
-
-
-
15
-
-
-
15
-
-
-
-
15
Total
1,613
485
10
9
6
2,123
10
187
121
318
2,441
767
37
371
11
1,186
2
650
149
801
1,987
(1) Excludes current input taxes of US$32 million and non-current input and other taxes of US$62 million included in other receivables. Refer to note 9 Trade and other receivables.
(2) Excludes current input taxes of US$10 million included in other creditors. Refer to note 14 Trade and other payables.
148
FINANCIAL REPORT
19. Financial assets and financial liabilities continued
(b) Accounting classification and fair value continued
Measurement of fair value
The carrying values of the Group’s financial assets and liabilities measured at amortised cost are equal to or approximate their
respective fair values, except for senior unsecured notes, which have a fair value of US$650 million (FY21: US$nil), and lease liabilities, for
which a fair value has not been determined. The fair value of the Group’s senior unsecured notes is estimated based on quoted market
prices at the reporting date and are classified as Level 1 on the fair value hierarchy as shown below.
The following table shows the Group’s financial 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 financial assets and liabilities.
Level 2
Valuation is based on inputs (other than quoted prices included in Level 1) that are observable for the financial 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.
FY22
US$M
Financial assets and liabilities
Trade and other receivables
Trade and other payables
Derivative contract assets
Derivative contract liabilities
Investments in equity instruments designated as FVOCI
Vendor loan facility(1)
Contingent consideration
Total
Level 1
Level 2
Level 3
Total
-
-
1
(6)
25
-
-
20
143
(20)
-
-
-
-
-
123
-
-
-
-
-
39
(84)
(45)
143
(20)
1
(6)
25
39
(84)
98
(1) The vendor loan facility relates to funding provided to a subsidiary of Seriti as part of the Group's divestment of SAEC. Refer to note 33 Discontinued operation.
FY21
US$M
Financial assets and liabilities
Trade and other receivables
Trade and other payables
Derivative contract assets
Derivative contract liabilities
Investments in equity instruments designated as FVOCI
Other investments held at FVTPL
Total
Level 1
Level 2
Level 3
Total
-
-
9
(11)
55
-
53
120
(4)
-
-
-
6
122
-
(14)
-
-
66
-
52
120
(18)
9
(11)
121
6
227
Level 3 financial assets and liabilities
The following table shows the movements in the Group’s Level 3 financial assets and liabilities:
US$M
FY22
FY21
At the beginning of the financial year
Addition of financial assets/(liabilities)
Derecognition of financial assets and financial liabilities
Realised gains/(losses) recognised in the Consolidated Income Statement(1)
Unrealised gains/(losses) recognised in the Consolidated Income Statement(1)
Unrealised gains/(losses) recognised in the Consolidated Statement of Comprehensive Income(2)
At the end of the financial year
(1) Recognised in expenses excluding net finance costs in the Consolidated Income Statement.
(2) Recognised in the financial assets reserve in the Consolidated Statement of Comprehensive Income.
52
(97)
(5)
-
52
(47)
(45)
35
(14)
-
(8)
-
39
52
149
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Capital structure and financing continued
19. Financial assets and financial liabilities continued
(b) Accounting classification and fair value continued
Sensitivity analysis
The carrying amount of Level 3 financial assets and liabilities that are fair valued using inputs other than observable market data
are calculated using appropriate valuation models, including discounted cash flow modelling, with inputs such as commodity prices,
foreign exchange rates and inflation. The potential effect of using reasonably possible alternative assumptions in these models, based
on directionally changing all the significant inputs either favourably or unfavourably by 10 per cent while holding all other variables
constant, is shown in the following table:
FY22
US$M
Financial assets and liabilities
Other financial assets and liabilities
held at FVTPL
Total
Carrying
amount
(45)
(45)
(1) Production volumes are based on future production estimates.
FY21
US$M
Financial assets and liabilities
Investments in equity instruments
designated as FVOCI
Trade and other payables
Total
Carrying
amount
66
(14)
52
Significant inputs
Favourable
Unfavourable
Profit/(loss) after tax
Production volumes(1)
69
69
(8)
(8)
Profit/(loss) after tax
Other comprehensive income/
(loss), net of tax
Significant inputs
Favourable
Unfavourable
Favourable
Unfavourable
Alumina price
Aluminium price
Foreign exchange rate
Coal price
Export volumes
-
12
12
-
(8)
(8)
35
-
35
(39)
-
(39)
(c) Capital management
The Group allocates capital in line with its strategy and capital management framework. The Group’s priorities for cash flow are to:
– Maintain safe and reliable operations and an investment grade credit rating through the cycle;
– Distribute a minimum of 40 per cent of Underlying earnings as dividends to shareholders following each six-month reporting period;
and
– Maximise total shareholder returns through other alternatives including special dividends, share buy-backs and high return
investment opportunities which compete for capital.
20. Share capital
Share capital
At the beginning of the financial year
Shares bought back and cancelled
At the end of the financial year
Treasury shares
At the beginning of the financial year
(Purchase)/sale of shares by ESOP Trusts
Employee share awards vested
At the end of the financial year
FY22
FY21
Shares
US$M
Shares
US$M
4,674,538,013
(46,106,429)
4,628,431,584
13,597
(128)
13,469
4,846,267,883
(171,729,870)
4,674,538,013
(11,676,185)
(6,379,586)
6,588,264
(11,467,507)
(22)
(22)
12
(32)
(22,495,193)
262,531
10,556,477
(11,676,185)
13,943
(346)
13,597
(49)
3
24
(22)
Shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in proportion to the number of shares
held. On a show of hands every holder of shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each
share is entitled to one vote.
Incremental costs directly attributable to the issuance of shares, net of any income tax effects, are recognised as a deduction from
equity.
150
FINANCIAL REPORT
Notes to financial statements – Other notes
21. Auditor’s remuneration
The auditor of the Group is KPMG.
US$’000
Fees payable to the Group’s auditor for assurance services
Audit and review of financial statements
Other assurance services(1)
Total auditor’s remuneration
(1) Mainly comprises assurance in respect of the Group’s sustainability reporting.
FY22
FY21
4,448
625
5,073
4,452
550
5,002
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. Full actuarial valuations are prepared for the schemes.
Defined contribution pension schemes
The Group contributed US$59 million (FY21: US$76 million) to defined contribution plans and multi-employer defined contribution plans.
These contributions are expensed as incurred.
Defined benefit pension schemes (closed schemes)
At 30 June 2022, the Group had defined benefit obligations of US$57 million (FY21: US$68 million) and defined benefit scheme assets
with a fair value of US$46 million (FY21: US$54 million) with a net liability recognised in the Consolidated Balance Sheet of US$11 million
(FY21: US$14 million).
The fair value of scheme assets by major asset class is as follows:
US$M
Bonds(1)
Equities
Cash and cash equivalents
Other(2)
Total
FY22
FY21
31
6
3
6
46
38
6
4
6
54
(1) Comprises Fixed Interest Government bonds of US$6 million (FY21: US$9 million), Index Linked Government bonds of US$20 million (FY21: US$22 million) and Corporate bonds
of US$5 million (FY21: US$7 million).
(2) Primarily comprises property and alternative investments in Australia.
Defined benefit post-retirement medical schemes (closed schemes)
At 30 June 2022, the Group had post-retirement medical scheme obligations of US$23 million (FY21: US$27 million). The post-retirement
medical scheme is unfunded.
Weighted average maturity profile of schemes
The weighted average duration of the defined benefit obligations is 7 years (FY21: 9 years) and 10 years (FY21: 10 years) for the defined
benefit pension schemes and post-retirement medical scheme respectively.
Risks associated with defined benefit pension and post-retirement medical schemes
The Group’s defined benefit pension and post-retirement medical schemes expose the Group to the risks pertaining to asset value
volatility, uncertainty in future benefit payments and uncertainty in future contribution requirements.
151
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Other notes continued
23. Employee share ownership plans
At 30 June 2022, the Group had the following employee share ownership arrangements:
Awards granted to Lead Team members(1)
Long-Term Incentive Plan
Deferred Short-Term Incentive Plan
Executive Transitional Award Plan
Management Share Plan
FY19, FY20, FY21, FY22
FY20, FY21
FY20, FY21, FY22
FY21(2)
(1) Awards granted on 7 December 2018, 6 December 2019, 4 December 2020 and 6 December 2021.
(2) During FY21, Jason Economidis, as acting Chief Operating Officer, participated in the Management Share Plan and not the Long-Term Incentive Plan.
Awards granted to eligible employees(1)
Management Share Plan
AllShare Plan
Management Transitional Award Plan
FY19, FY20, FY21, FY22
2019, 2020, 2021
FY19, FY20
(1) Awards granted on 7 December 2018, 17 May 2019, 6 December 2019, 15 May 2020, 4 December 2020, 7 December 2020, 6 May 2021, 6 December 2021 and 9 May 2022.
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. Further information on the vesting conditions of performance rights granted is disclosed in the Remuneration
report. A portion of the 2019, 2020 and 2021 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.
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 AllShare JSE plan is 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 have lapsed or
have been forfeited. 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.
FY19, FY20, FY21 and FY22 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 2018 to 30 June 2022, 1 July 2019 to 30 June 2023, 1 July 2020 to 30 June 2024
and 1 July 2021 to 30 June 2025, respectively.
The FY21 Long-Term Incentive Plan award granted to the CEO is subject to a specific vesting cap imposed by the Board of Directors. For
other Lead Team members, the Board of Directors retains the discretion to apply a vesting cap to limit the value of the rights which may
vest in the ordinary course.
FY20 and FY21 Deferred Short-Term Incentive Plan
The Deferred Short-Term Incentive Plan is the Group’s short-term incentive plan for Lead Team members. Awards vest in August 2022
and August 2023 respectively, provided participants remain employed by the Group.
FY19, FY20, FY21 and FY22 Management Share Plan
The 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 2022, August 2023 and August 2024 provided participants remain employed by the Group; and
– Performance rights vesting in August 2022, August 2023, August 2024 and August 2025 subject to performance conditions and
provided participants remain employed by the Group.
For the FY21 Management Share Plan awards, the Board of Directors retains the discretion to apply a vesting cap to limit the value of
the rights which may vest in the ordinary course.
2019, 2020 and 2021 AllShare Plan
The 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: August 2022, August 2023 and August 2024; and
– Participants elsewhere: August 2022 and August 2023.
152
FINANCIAL REPORT
23. Employee share ownership plans continued
(a) Description of share-based payment arrangements continued
(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.
FY20, FY21 and FY22 Executive Transitional Award Plan
The Executive Transitional Award Plan is a one-off grant made to 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 2019 to 30 June 2022, 1 July 2020 to 30 June 2023 and 1 July 2021 to 30 June 2024
respectively.
FY19 and FY20 Management Transitional Award Plan
The 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. FY20 was the last year in which awards were made. The FY19 and FY20
Management Transitional Award Plan has the same conditions as the FY19 and FY20 Management Share Plan and comprises both
service and performance conditions.
(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 benefit 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 trustees for the
South African Trust are made up of employer and employee representatives per the Broad-Based Black Economic Empowerment
(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 satisfied under the Group employee share ownership plans.
The shares may be acquired by purchase in the market or by subscription at not less than nominal value.
(c) Measurement of fair values
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 benefits 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 satisfied, the expense previously recognised is
proportionally reversed. If awards do not vest due to a market performance condition not being met, the expense is recognised in full,
and the share awards reserve is released to retained earnings. 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 satisfied by delivery of acquired shares, any difference between their acquisition cost and the 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:
– Expected life of the award;
– Current market price of the underlying shares;
– Expected volatility;
– Expected dividends; and
– Risk-free interest rate.
153
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Other notes continued
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:
FY22
Recurring plans
FY22 Long-Term Incentive Plan
FY21 Deferred Short-Term Incentive Plan
FY22 Management Share Plan – Retention rights
FY22 Management Share Plan – Performance rights
2021 AllShare Plan
Transitional plans
FY22 Executive Transitional Award Plan
Fair value at
grant date
(US$)(1)
Share price at
grant date
(US$)
Expected
volatility (%)(2)
Expected life
(in years)(1)
Risk-free
interest rate
based on
government
bonds (%)(1)
1.65
2.36
2.25 - 2.26
1.65 - 1.66
2.36 - 2.57
2.60
2.60
2.34 - 2.60
2.34 - 2.60
2.34 - 2.60
1.68
2.60
30
30
30
30
30
30
4
2
3
4
2 - 3
0.85
0.01
0.43 - 5.17
0.85 - 5.61
0.01 - 5.17
3
0.43
(1) Represents the range of grant date fair values, expected life, and risk-free interest rates based on the amount of rights granted on the ASX or the JSE during the year, and the
variations in offer terms and grant dates of each plan where applicable. The risk-free interest rate and expected volatility does not materially impact service-based awards.
(2) Expected volatility is based on the historical South32 Limited share price volatility at the grant date.
Fair value at
grant date
(US$)
Share price at
grant date
(US$)
Expected
volatility (%)
Expected life
(in years)
0.88 - 0.97
1.76
1.69 - 1.74
0.97 - 1.01
1.76 - 1.89
1.94
1.94
1.94 - 1.95
1.94 - 1.95
1.94 - 1.95
0.98
1.94
35
35
35
35
35
35
Risk-free
interest rate
based on
government
bonds (%)
0.25
0.07
0.16 - 5.17
0.25 - 5.77
0.07 - 5.17
4
2
3
4
2 - 3
3
0.16
FY21
Recurring plans
FY21 Long-Term Incentive Plan
FY20 Deferred Short-Term Incentive Plan
FY21 Management Share Plan - Retention rights
FY21 Management Share Plan - Performance rights
2020 AllShare Plan
Transitional plans
FY21 Executive Transitional Award Plan
154
FINANCIAL REPORT
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 2022.
FY22
Number of rights
Recurring plans
FY18 Long-Term Incentive Plan
FY19 Long-Term Incentive Plan
FY20 Long-Term Incentive Plan
FY21 Long-Term Incentive Plan
FY22 Long-Term Incentive Plan
FY19 Deferred Short-Term Incentive Plan
FY20 Deferred Short-Term Incentive Plan
FY21 Deferred Short-Term Incentive Plan
FY18 Management Share Plan - Performance rights
FY19 Management Share Plan - Retention rights
FY19 Management Share Plan - Performance rights
FY20 Management Share Plan - Retention rights
FY20 Management Share Plan - Performance rights(1)
FY21 Management Share Plan - Retention rights(1)
FY21 Management Share Plan - Performance rights(1)
FY22 Management Share Plan - Retention rights
FY22 Management Share Plan - Performance rights
2018 AllShare Plan
2019 AllShare Plan(1)
2020 AllShare Plan(1)
2021 AllShare Plan
Rights at
beginning of
the year
Granted during
the year
Vested during
the year
Forfeited
during the year
Lapsed during
the year
Rights at end
of the year
5,414,194
4,325,579
5,267,666
8,221,730
-
1,071,486
1,124,803
-
5,825,828
1,422,901
4,559,514
1,912,107
5,688,667
3,364,250
8,701,674
-
-
-
-
3,743,629
-
-
907,232
-
-
-
-
29,927
19,935
49,838
- 2,404,086
3,864,676
-
-
1,312,900
9,295
5,596,305
13,600
6,782,400
- 4,521,430
-
-
-
-
-
(1,071,486)
(273,623)
-
-
(1,422,901)
-
(222,563)
-
(170,219)
-
(28,207)
-
(1,304,825)
(3,493,490)
(178,400)
(28,620)
-
(180,082)
(501,907)
(1,264,381)
-
-
-
-
-
-
(245,622)
(187,116)
(593,751)
(511,533)
(1,385,453)
(150,947)
(265,447)
(8,075)
(153,725)
(502,400)
(169,070)
(5,414,194)
-
-
-
-
-
-
-
(5,825,828)
-
-
-
-
-
-
-
-
-
-
-
-
-
4,145,497
4,765,759
6,957,349
3,743,629
-
851,180
907,232
-
-
4,313,892
1,502,428
5,124,843
2,702,433
7,366,059
2,224,932
3,599,229
-
1,958,385
6,115,200
4,323,740
Transitional plans
FY19 Executive Transitional Award Plan
FY20 Executive Transitional Award Plan
FY21 Executive Transitional Award Plan
FY22 Executive Transitional Award Plan
FY18 Management Transitional Award Plan
FY19 Management Transitional Award Plan
FY20 Management Transitional Award Plan
Total awards
(1) Retrospective grants related to prior year plans.
81,967
129,283
154,702
-
622,195
284,923
143,183
-
-
-
195,128
-
-
-
72,008,257 15,758,776
-
-
-
-
-
(52,640)
-
(8,246,974)
-
-
-
-
-
(41,324)
(53,513)
(6,214,346)
(81,967)
-
-
-
(622,195)
-
-
-
129,283
154,702
195,128
-
190,959
89,670
(11,944,184) 61,361,529
155
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Other notes continued
24. Contingent assets and liabilities
Contingent assets and liabilities not otherwise provided for in the consolidated financial statements are categorised as arising from:
US$M
Actual or potential litigation
Total contingent liabilities
Actual or potential litigation
Total contingent assets
FY22
427
427
156
156
FY21
427
427
-
-
Actual or potential litigation liabilities 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.
Actual or potential litigation assets primarily relate to potential recovery of pre-closing tax liabilities in respect of the Sierra Gorda
acquisition, with allocation of liability for these pre-closing tax liabilities being disputed with the vendors.
The Group has entered into various counter-indemnities of bank and performance guarantees related to its own future performance
which are in the normal course of business. Additionally, the Group has provided indemnities against certain liabilities as part of
agreements for the disposal of business operations. Having taken appropriate legal advice, the Group believes that a material liability
arising from the indemnities provided is remote.
25. Subsidiaries
Significant subsidiaries of the Group, which are those with the most significant contribution to the Group’s net profit/(loss) or net assets,
are as follows:
Effective interest %
Significant subsidiaries
African Metals (Pty) Ltd
Arizona Minerals Inc.
Cerro Matoso SA
Dendrobium Coal Pty Ltd
Endeavour Coal Pty Ltd
Hillside Aluminium (Pty) Ltd
Illawarra Coal Holdings Pty Ltd
Illawarra Services Pty Ltd
South32 Finance 1 B.V.
South32 Finance 2 B.V.
South32 Aluminium (Holdings) Pty Ltd
South32 Aluminium (RAA) Pty Ltd
South32 Aluminium (Worsley) Pty Ltd
South32 Cannington Pty Ltd
South32 Eagle Downs Pty Ltd
South32 Group Operations Pty Ltd
South32 Investment 1 B.V.
South32 Marketing Pte Ltd
South32 Minerals SA
South32 SA Investments Ltd
South32 SA Ltd
South32 Sierra Gorda SpA
South32 Treasury Ltd
South32 USA Exploration Inc.
Country of incorporation
Principal activity
South Africa
United States
Colombia
Australia
Australia
South Africa
Australia
Australia
Netherlands
Netherlands
Australia
Australia
Australia
Australia
Australia
Australia
Netherlands
Singapore
Brazil
United Kingdom
South Africa
Chile
Australia
United States
Investment holding company
Exploration and development
Integrated laterite ferronickel mining and
smelting complex
Metallurgical coal mine
Metallurgical coal mine
Aluminium smelter
Investment holding company
Coal washery, rail and road transportation
Financing company
Financing company
Investment holding company
Interest in a joint operation
Interest in a joint operation
Silver, lead and zinc mine
Interest in a joint operation
Administrative, management and
support services
Interest in a joint operation
Sales, marketing and distribution
Interest in a joint operation
Investment holding company
Administrative, management and
support services
Investment holding company
Financing company
Exploration
FY22
100
100
99.9
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
FY21
100
100
99.9
100
100
100
100
100
-
-
100
100
100
100
100
100
100
100
100
100
100
-
100
100
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 affect 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 significantly affect the subsidiary’s returns. The financial statements of subsidiaries are included in the consolidated financial
statements for the period they are controlled.
156
FINANCIAL REPORT
26. Equity accounted investments
The Group’s interests in equity accounted investments with the most significant contribution to the Group’s net profit/(loss) or net
assets, are as follows:
Significant joint
ventures
Australia
Manganese(1)
South Africa
Manganese(2)
Country of
incorporation
Principal activity
Reporting date
Acquisition date
FY22
FY21
Ownership interest %
Australia
Manganese ore mine
30 June 2022
8 May 2015
60
60
45
60
60
-
South Africa
Manganese ore mines
Sierra Gorda(3)
Chile
Copper mine
30 June 2022
31 December
2022(3)
3 February 2015
22 February 2022(4)
(1) Australia Manganese consists of an investment in Groote Eylandt Mining Company Pty Ltd (GEMCO).
(2) The Group holds a 60 per cent interest in Samancor Holdings (Pty) Ltd (Samancor). Samancor indirectly owns 74 per cent of Hotazel Manganese Mines (Pty) Ltd (HMM), which
gives the Group its indirect ownership interest of 44.4 per cent. The remaining 26 per cent of HMM is owned by B-BBEE entities, of which 17 per cent of the interests were
acquired using vendor finance with the loans repayable via distributions attributable to these parties, pro rata to their share in HMM. Until these loans are repaid, the Group's
interest in HMM is accounted for at 54.6 per cent.
(3) Sierra Gorda consists of an investment in Sierra Gorda Sociedad Contractual Minera. The reporting date differs to that of the Group and is consistent with common practice in
its country of incorporation.
(4) Refer to note 31 Acquisition of equity accounted investments.
A reconciliation of the carrying amount of the equity accounted investments is set out below:
US$M
At the beginning of the financial year
Share of profit/(loss)(1)
Other comprehensive income/(loss), net of tax
Dividends received from equity accounted investments
Acquisition of equity accounted investments(2)
Disposal of a discontinued operation(3)
At the end of the financial year
(1) Includes a share of profit/(loss) relating to a discontinued operation of US$nil (FY21: US$(8) million). Refer to note 33 Discontinued operation.
(2) Refer to note 31 Acquisition of equity accounted investments.
(3) Refer to note 33 Discontinued operation.
Carrying amount of equity accounted investments
US$M
Australia Manganese
South Africa Manganese
Sierra Gorda(1)
Individually immaterial(2)
Total
FY22
380
272
(3)
(224)
45
-
470
FY22
143
180
30
117
470
FY21
460
133
(3)
(197)
-
(13)
380
FY21
106
189
-
85
380
(1) The joint venture is considered significant to the Group due to the value of the purchased credit-impaired receivable. Refer to note 19 Financial assets and financial liabilities.
(2) Individually immaterial consists of investments in Samancor Marketing Pte Ltd (60 per cent), MRN (33 per cent) and Port Kembla Coal Terminal Ltd (16.7 per cent) in FY22 and
Samancor Marketing Pte Ltd (60 per cent) and Port Kembla Coal Terminal Ltd (16.7 per cent) in FY21.
Share of profit/(loss) of equity accounted investments
US$M
Australia Manganese
South Africa Manganese
Sierra Gorda
Individually immaterial(1)
Total
FY22
211
31
30
-
272
FY21
115
20
-
(2)
133
(1) Individually immaterial consists of investments in Samancor Marketing Pte Ltd (60 per cent) of US$2 million, MRN (33 per cent) of US$(3) million and Port Kembla Coal Terminal
Ltd (16.7 per cent) of US$1 million in FY22 and Samancor Marketing Pte Ltd (60 per cent) of US$7 million, Port Kembla Coal Terminal Ltd (16.7 per cent) of US$(1) million and
Richards Bay Coal Terminal Pty Ltd (21.1 per cent) of US$(8) million in FY21. The share of profit/(loss) from Richards Bay Coal Terminal Pty Ltd in FY21 was included in the
disposal of a discontinued operation. Refer to note 33 Discontinued operation.
157
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Other notes continued
26. Equity accounted investments continued
The following table summarises the financial information relating to each significant equity accounted investment:
FY22
US$M
Reconciliation of the 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
Carrying amount of equity accounted investments
Reconciliation of share of profit/(loss) of equity accounted investments
Revenue – 100%
Profit/(loss) after tax – 100%
Profit/(loss) after tax – the Group’s share
Share of profit/(loss) of equity accounted investments
Other balances of equity accounted investments presented on a 100% basis
Cash and cash equivalents(1)
Non-current financial liabilities (excluding trade and other payables and provisions)
Depreciation and amortisation
Interest income
Interest expense
Income tax (expense)/benefit (excluding royalty related tax)
Joint ventures
Australia
Manganese
South Africa
Manganese
Sierra Gorda
328
836
(260)
(665)
239
143
143
1,239
351
211
211
-
(173)
(136)
-
(20)
(208)
258
516
(81)
(290)
403
180
180
602
59
31
31
27
(19)
(26)
3
(13)
(63)
485
4,252
(367)
(4,303)
67
30
30
535
67
30
30
154
(4,177)
(129)
-
(139)
(23)
(1) South Africa Manganese cash and cash equivalents includes US$27 million, on a 100 per cent basis, which is restricted by legal or contractual arrangements.
FY21
US$M
Reconciliation of the 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
Consolidation adjustments
Carrying amount of equity accounted investments
Reconciliation of share of profit/(loss) of equity accounted investments
Revenue – 100%
Profit/(loss) after tax – 100%
Profit/(loss) after tax – the Group’s share
Share of profit/(loss) of equity accounted investments
Other balances of equity accounted investments presented on a 100% basis
Cash and cash equivalents(1)
Non-current financial liabilities (excluding trade and other payables and provisions)
Depreciation and amortisation
Interest income
Interest expense
Income tax (expense)/benefit (excluding royalty related tax)
Joint ventures
Australia
Manganese
South Africa
Manganese
271
812
(233)
(673)
177
106
-
106
1,096
192
115
115
-
(222)
(133)
-
(23)
(179)
237
539
(89)
(277)
410
190
(1)
189
524
37
20
20
26
(28)
(26)
3
(24)
(8)
(1) South Africa Manganese cash and cash equivalents include US$26 million, on a 100 per cent basis, which is restricted by legal or contractual arrangements.
The Group’s share of contingent liabilities and capital expenditure commitments of significant equity accounted investments as at
30 June 2022 was US$6 million (FY21: US$6 million) and US$27 million (FY21: US$18 million) respectively.
158
FINANCIAL REPORT
26. Equity accounted investments continued
The Group uses the term ‘equity accounted investments’ to refer to associates and joint ventures collectively.
Associates are entities in which the Group holds significant influence. If the Group holds 20 per cent or more of the voting power of an
entity, it is presumed that the Group has significant influence, unless it can be clearly demonstrated that this is not the case. Significant
influence can also arise when the Group has less than 20 per cent of the voting power but it can be demonstrated that the Group has
the power to participate in the financial 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 for the liabilities, relating
to the arrangement. If more than an insignificant 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 reflect the share of post-acquisition profit 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 in share of profit/(loss) of equity accounted
investments in the Consolidated Income Statement.
27. Interests in joint operations
Significant joint operations of the Group, which are those with the most significant contributions to the Group’s net profit/(loss) or net
assets, are as follows:
Significant joint operations Country of operation
Principal activity
Acquisition date
FY22
FY21
Effective interest %
Ambler Metals
Brazil Alumina
Brazil Aluminium
Eagle Downs
Metallurgical Coal
Mozal Aluminium(1)
Worsley Alumina(1)
United States
Brazil
Brazil
Australia
Mozambique
Australia
Base metals exploration and development
option
Integrated bauxite mine and alumina refinery 3 July 2014
Aluminium smelter
3 July 2014
Metallurgical coal exploration and
development option
Aluminium smelter
Integrated bauxite mine and alumina refinery 8 May 2015
14 September 2018
27 March 2015(2)
11 February 2020
50
36
40
50
63.7
86
50
36
40
50
47.1
86
(1) While the Group holds a greater than 50 per cent interest in Worsley Alumina and Mozal Aluminium, participants jointly approve certain matters and are entitled to receive their
share of output from the arrangement.
(2) The Group initially acquired a 47.1 per cent interest on 27 March 2015 and subsequently acquired a further 16.6 per cent interest on 31 May 2022. Refer to note 30 Acquisition of
subsidiaries and joint operations.
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 output and economic benefits of the assets of the arrangement; and
– All liabilities are satisfied 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 financial 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 the 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.
The assets in these joint operations are restricted to the extent that they are only available to be used by the joint operation itself and
not by other operations of the Group. For certain joint operations, the Group has also either pledged, mortgaged or provided a cross
charge to joint operation partners over assets within the joint operation.
159
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Other notes continued
28. Key management personnel
(a) Key management personnel compensation
US$’000
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Total
FY22
6,321
137
293
428
4,764
11,943
FY21
6,942
182
286
-
4,611
12,021
(b) Transactions with key management personnel
There were no transactions with key management personnel during the year ended 30 June 2022 (FY21: US$nil).
(c) Loans to key management personnel
On 22 June 2021, the Group made an interest free loan of US$620 thousand to Mike Fraser in relation to his South African income tax
payable on his Group remuneration. The final instalment to repay the loan in full was made on 24 November 2021. There are no other
loans with any key management personnel (FY21: US$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 2022 (FY21: US$nil).
29. Related party transactions
(a) Parent entity
The ultimate parent entity of the Group is South32 Limited, which is domiciled and incorporated in Australia.
(b) Subsidiaries, joint ventures and associates
The interests in subsidiaries, joint ventures and associates are disclosed in notes 25 and 26.
(c) Key management personnel
The compensation of, and loans to, key management personnel are disclosed in note 28.
(d) Pension and other post-retirement obligations
The pension and other post-retirement obligations are disclosed in note 22.
(e) Transactions with related parties
Transactions with related parties
US$’000
Sales of goods and services
Purchases of goods and services
Interest income
Dividend income
Interest expense
Increase/(decrease) in short-term financing arrangements
Increase/(decrease) in loans with related parties
Joint ventures
Associates
FY22
360,674
-
60,661
224,424
2,109
49,530
1,619,366
FY21
239,670
2
4,912
197,164
1,816
1,000
10,800
FY22
3,961
53,107
-
-
-
-
(17,237)
Outstanding balances with related parties
Joint ventures
Associates
US$’000
Trade and sundry amounts owing to related parties
Other amounts owing to related parties(1)
Trade and sundry amounts owing from related parties
Loan amounts owing from related parties(2)(3)(4)
FY22
748
334,530
30,114
1,750,166
FY21
206
285,000
31,539
130,800
FY22
973
-
769
49,419
FY21
4,148
51,489
-
-
-
-
(5,759)
FY21
176
-
318
66,656
(1) Other amounts owing to joint ventures relate 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 Offer Rate less a margin of 0.05 per cent and the one-month Johannesburg Inter-Bank Agreed Rate.
(2) Loan amounts owing from GEMCO include an interest bearing loan which is repayable by 2 January 2024. Interest is paid based on the three-month London Inter-Bank Offer
Rate plus a margin of 3 per cent.
(3) Loan amounts owing from Sierra Gorda include a purchased credit-impaired loan which has a face value of US$2,073 million, incurs interest at 8 per cent per annum and is
repayable by 15 December 2024. Refer note 19 Financial assets and financial liabilities.
(4) Loan amounts owing from Port Kembla Coal Terminal include an interest free loan which is repayable by 30 June 2030.
Sales to, and purchases from, related parties are transactions at market prices and on commercial terms, or under terms and prices
that are no less favourable to the Group than those arranged with third parties. Outstanding balances at year end are unsecured and
settlement mostly occurs in cash.
A subsidiary of the Group has guaranteed its equivalent 45 per cent share of the repayment of a US$700 million revolving credit facility
entered into by Sierra Gorda. At the date of acquisition of the Group’s interest in Sierra Gorda, the facility was drawn down by US$400
million and no further drawdowns have been made by Sierra Gorda since this date. The facility extends to 30 September 2024. No other
guarantees are provided for, or have been received from, any related party.
160
FINANCIAL REPORT
30. Acquisition of subsidiaries and joint operations
Acquisition of additional interest in Mozal Aluminium
On 31 May 2022, the Group acquired an additional 16.6 per cent shareholding and related rights in Mozal Aluminium from its joint
operating partner, MCA Metals Holding GmbH (Mitsubishi), through the exercise of its pre-emptive rights in the Mozal Aluminium joint
operation. The transaction was completed for a total consideration of US$200 million, of which US$175 million was paid on completion
and US$25 million was paid in July 2022. The additional interest increases the Group’s shareholding in the Mozal Aluminium joint
operation to 63.7 per cent.
The Group acquired the additional interest in Mozal Aluminium in order to access additional outputs from the joint operation. Mozal
Aluminium continues to be accounted for as a joint operation subsequent to the acquisition as the relevant decisions in relation to Mozal
Aluminium are governed by unanimous consent of the joint operation participants, which includes South32 Investment 1 B.V. and the
Industrial Development Corporation of South Africa. The acquisition was treated as a business combination.
The fair values of the consideration transferred and additional 16.6 per cent interest in the acquired identifiable assets and liabilities of
Mozal Aluminium as at the date of the acquisition were as follows:
US$M
Purchase consideration
Cash
Deferred consideration(1)
Total consideration
Assets acquired and liabilities assumed
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Intangible assets
Trade and other payables
Provisions
Total identifiable net assets at fair value
Gain on bargain purchase(2)
Purchase consideration transferred
Cash outflow on acquisition
Direct costs relating to the acquisition(3)
Net cash acquired
Net consolidated cash outflow(4)
FY22
175
25
200
62
4
62
123
2
(25)
(19)
209
(9)
200
176
(62)
114
(1) The second and final instalment post completion adjustments was settled during July 2022.
(2) Recognised in other income in the Consolidated Income Statement.
(3) Inclusive of acquisition related transaction costs and other directly attributable costs of US$1 million which are recognised in expenses excluding net finance costs in the
Consolidated Income Statement.
(4) Cash outflow is presented as ‘Acquisition of subsidiaries and joint operations, net of their cash’ within the Consolidated Cash Flow Statement.
From the date of acquisition, the additional 16.6 per cent interest in Mozal Aluminium contributed an additional US$39 million of revenue
and US$11 million of profit before tax to the Group. If the transaction had taken place at the beginning of the year, the additional 16.6
per cent interest would have contributed, for the full year, an additional US$295 million of revenue and US$82 million of profit before tax
to the Group. The gain on bargain purchase of US$9 million is mainly attributable to fluctuations in short-term commodity prices.
161
SOUTH32 ANNUAL REPORT 2022 Notes to financial statements – Other notes continued
31. Acquisition of equity accounted investments
Acquisition of interest in Sierra Gorda
On 22 February 2022, the Group completed its acquisition of a 45 per cent interest in Sierra Gorda. The Group acquired, through a
newly incorporated wholly owned subsidiary, South32 Chile Copper Holdings Pty Ltd, 100 per cent of the share capital in five holding
companies which indirectly hold a 45 per cent interest in, and provide funding for, the Sierra Gorda operation. The transaction was
completed for an upfront payment of US$1,408 million, inclusive of purchase price adjustments, and contingent consideration with a fair
value on acquisition date of US$116 million. Contingent consideration is price linked, with up to US$500 million payable over four years at
threshold copper production rates and prices.
The upfront consideration was funded from a combination of cash on hand and a dedicated acquisition bridge facility. On 14 April 2022,
the Group completed the issuance of US$700 million of senior unsecured notes, with the Group utilising those cash proceeds, together
with cash on hand, to fully repay amounts drawn down under the acquisition bridge facility. Refer to note 17 Interest bearing liabilities for
the key terms of the issuance.
The joint arrangement is classified as a joint venture as the activities are primarily designed to provide joint venture parties with rights
to the net assets of the arrangement. The assets acquired include purchased credit-impaired loan receivables accounted for under
AASB 9 Financial Instruments and an equity accounted investment accounted for under AASB 128 Investments in associates and joint
ventures.
US$M
Purchase consideration
Direct costs relating to the acquisition(1)
Contingent consideration payable(2)
Total consideration
Assets acquired and liabilities assumed
Loans to equity accounted investments
Equity accounted investments
Current tax payable
Other
Net assets acquired
Cash outflow on acquisition
Direct costs relating to the acquisition(1)
Net cash acquired
Net consolidated cash outflow(3)
FY22
1,421
116
1,537
1,687
-
(151)
1
1,537
1,421
(1)
1,420
(1) Inclusive of acquisition related transaction costs and other directly attributable costs of US$13 million.
(2) Contingent consideration recognised represents the present value of expected future cash flows payable. The payment is contingent on the average realised copper price and
production levels for the first 4 years post acquisition. If the production thresholds are met, the consideration payable in that year is calculated as 50 per cent of the Group’s
45 per cent share in Sierra Gorda’s operating revenue, multiplied by the percentage amount by which the average realised copper price exceeds the specified copper price
thresholds. The maximum undiscounted value of the contingent consideration payable is US$500 million and the minimum value is US$nil.
(3) Cash outflow is presented as ‘Acquisition of equity accounted investments’ within the Consolidated Cash Flow Statement.
162
FINANCIAL REPORT
31. Acquisition of equity accounted investments continued
Acquisition of additional interest in MRN
On 29 April 2022, the Group acquired an additional 18.2 per cent shareholding and related rights in MRN from Alcoa Corporation. The
transaction was completed for an upfront payment of US$10 million and contingent consideration with a fair value on acquisition date of
US$16 million.
The additional interest increases the Group’s shareholding to 33 per cent, and as a result the Group has significant influence over MRN
and the investment is considered an associate which is equity accounted.
The Group’s existing 14.8 per cent interest, which was previously classified as an investment in equity instruments designated as FVOCI,
was derecognised and the fair value of US$19 million was transferred to form part of the equity accounted investment.
US$M
Purchase consideration
Direct costs relating to the acquisition
Contingent consideration payable(1)
Total consideration
Assets acquired and liabilities assumed
Equity accounted investments
Derecognition of other financial assets(2)
Net assets acquired
Cash outflow on acquisition
Direct costs relating to the acquisition
Net consolidated cash outflow(3)
FY22
10
16
26
45
(19)
26
10
10
(1) Contingent consideration recognised represents the present value of a fixed amount with a probability factor applied. The maximum undiscounted value of the contingent
consideration is US$30 million and the minimum value is US$nil. The amount becomes payable by the Group if agreed expansion milestones are met.
(2) The Group’s existing 14.8 per cent interest, which was previously classified as an investment in equity instruments designated as FVOCI, was derecognised.
(3) Cash outflow is presented as ‘Acquisition of equity accounted investments’ within the Consolidated Cash Flow Statement.
32. Parent entity information
(a) Summary financial information
The individual financial statements for the parent entity, South32 Limited, show the following aggregate amounts:
US$M
Result of parent entity
Profit/(loss) after tax for the year
Total comprehensive income/(loss)
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Total equity of the parent entity
Share capital
Treasury shares
Other reserves
Profit reserve(1)
Accumulated losses
Total equity
FY22
FY21
3,879
3,879
652
13,006
100
108
12,898
13,469
(28)
24
4,823
(5,390)
12,898
(818)
(818)
30
10,825
1,003
1,014
9,811
13,597
(17)
28
1,604
(5,401)
9,811
(1) Current and prior year profits, net of dividends paid, have been appropriated to a profit reserve for future dividend payments.
(b) Parent company guarantees
The parent entity and South32 SA Investments Ltd have jointly and severally, fully and unconditionally guaranteed the payment of the
principal and premium, if any, and interest, including certain additional amounts that may be payable in respect of the notes issued
by South32 Treasury Ltd, a 100 per cent owned finance subsidiary of the parent entity. The parent entity and South32 SA Investments
Ltd have guaranteed the payment of such amounts when they become due and payable, whether on an interest payment date, at the
stated maturity of the notes, by declaration or acceleration, call for redemption or otherwise. At 30 June 2022, the guaranteed liabilities
in respect of the notes amounted to US$689 million.
The parent entity has also guaranteed a US commercial paper program and a Group revolving credit facility of US$1,400 million which
backs the US commercial paper program. The Group revolving credit facility remains undrawn as at 30 June 2022. The facility was
refinanced in December 2021 as a five year facility maturing in December 2026 with options to extend for up to a further two years by
mutual agreement. On refinancing, the size of the facility was reduced by US$50 million to US$1,400 million.
The parent entity is party to a Deed of Support with the effect that the Company guarantees debts in respect of South32 Group
Operations Pty Ltd.
163
SOUTH32 ANNUAL REPORT 2022
Notes to financial statements – Other notes continued
33. Discontinued operation
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area
of operations that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the
operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as discontinued, the comparative
income statement is restated as if the operation had been discontinued from the start of the comparative period.
On 6 November 2019, the Group announced a binding conditional agreement for the sale of its shareholding in SAEC to a wholly-owned
subsidiary of Seriti and two trusts which will acquire and hold equity on behalf of employees and communities. The transaction was
subject to a number of material conditions which precluded the classification of SAEC as held for sale until the conditions were satisfied
on 15 May 2021. On 1 June 2021, the Group completed the sale of its shareholding in SAEC to Seriti and two trusts for the benefit of
employees and communities.
The discontinued operation represents the entire SAEC operating segment which consists of: the Khutala colliery, the Klipspruit colliery,
the Wolvekrans Middelburg Complex and other SAEC corporate assets.
(a) Results of the discontinued operation
US$M
Revenue
Group production
Third party products and services
Other income
Expenses excluding net finance costs
Loss on disposal of the discontinued operation
Share of profit/(loss) of equity accounted investments
Profit/(loss) from the discontinued operation
Finance expenses
Finance income
Net finance costs
Profit/(loss) before tax from the discontinued operation
Income tax (expense)/benefit
Profit/(loss) after tax from the discontinued operation
Total comprehensive income/(loss) from the discontinued operation attributable to the equity holders of
South32 Limited
Basic EPS (cents)
Diluted EPS (cents)
(b) Cash flows from the discontinued operation
US$M
Net cash flows from operating activities
Net cash flows from investment activities
Net cash flows from financing activities
Net decrease in cash and cash equivalents
(c) Effect of disposal on the financial position of the Group
US$M
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Property, plant and equipment
Intangible assets
Equity accounted investments
Trade and other payables
Interest bearing liabilities
Provisions
Deferred income
Deferred tax liabilities
Decrease in net assets
Consideration, net of transaction costs, satisfied in cash
Cash and cash equivalents disposed of
Net consolidated cash outflow
164
FINANCIAL REPORT
FY21
735
126
861
58
(1,049)
(159)
(8)
(297)
(52)
9
(43)
(340)
3
(337)
(337)
(7.1)
(7.1)
FY21
(180)
(149)
(3)
(332)
FY21
(58)
(235)
(167)
(164)
(623)
(14)
(13)
122
(144)
1,125
1
23
(147)
(12)
(58)
(70)
34. Subsequent events
Non-core royalty sale
On 19 July 2022, the Group completed the sale of a package of four non-core base metal royalties to Anglo Pacific Group Plc (Anglo
Pacific) in exchange for consideration comprising both cash and shares. The Group recognised a gain on the sale of US$192 million
(US$134 million post tax) in the 2023 financial year. Following completion, the Group holds a 16.7 per cent interest in Anglo Pacific.
Dendrobium Next Domain project
During the year ended 30 June 2021, the NSW IPC refused the application for the DND project at IMC. The decision by the IPC introduced
uncertainty over the future of the DND project’s value contribution to the IMC CGU recoverable amount assessment. The Group
assessed the potential implications of the IPC decision and as a result recognised an impairment of the IMC CGU of US$728 million
during the 2021 financial year.
On 23 August 2022, the Group announced that it will not proceed with the investment in the DND project following its consideration
of recently completed study work and extensive analysis of alternatives considered for the complex. With this decision, the Group will
focus on continuing to optimise Dendrobium and the broader IMC complex to extend the mine life within approved domains. In light of
the impairment that was recognised during the 2021 financial year, the decision not to proceed with the investment in the DND project
has not resulted in an additional impairment charge and the carrying value for the IMC complex remains appropriate as at 30 June 2022.
Capital management
On 25 August 2022, the Directors resolved to pay a fully-franked final dividend of US 14.0 cents per share (US$648 million) and a
fully-franked special dividend of US 3.0 cents per share (US$139 million) in respect of the 2022 financial year. The dividends will be paid
on 13 October 2022. The dividends have not been provided for in the consolidated financial statements and will be recognised in the
2023 financial year.
On 25 August 2022, the Group also announced an increase to the existing capital management program, announced in March 2017, of
US$156 million to a total of US$2.3 billion. This leaves US$250 million expected to be returned by 1 September 2023.
No other matters or circumstances have arisen since the end of the financial year that have significantly affected, or may significantly
affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods.
165
SOUTH32 ANNUAL REPORT 2022 Directors’ declaration
In accordance with a resolution of the Directors of the Company, we state that:
1. In the opinion of the Directors:
(a) The consolidated financial statements and notes that are set out on pages 104 to 165 of the Annual Report are in accordance with
the Corporations Act, including:
(i) Giving a true and fair view of the Group’s financial position as at 30 June 2022 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 Company 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 Officer
and Chief Financial Officer for the financial year ended 30 June 2022.
3. The Directors draw attention to note 2 to the financial statements on page 109, 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 Officer and Managing Director
Dated 8 September 2022
166
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 financial year ended
30 June 2022 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
Graham Hogg
Partner
Perth
8 September 2022
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks
used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under
Professional Standards Legislation.
167
SOUTH32 ANNUAL REPORT 2022 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 financial position as at
30 June 2022 and of its financial performance for the year ended
on that date; and
• complying with Australian Accounting Standards and the
Corporations Regulations 2001.
Basis for opinion
The Financial Report comprises:
• Consolidated balance sheet as at 30 June 2022;
• 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 significant accounting policies; and
• Directors’ declaration.
The Group consists of the Company and the entities it controlled at
the year-end or from time to time during the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is
sufficient 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 (including Independence Standards) (the
Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with
the Code.
Key Audit Matters
The Key Audit Matters we identified are:
• Asset valuation;
• Closure and rehabilitation provision; and
• Acquisition of Sierra Gorda.
Key Audit Matters are those matters that, in our professional
judgement, were of most significance 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 firm of the KPMG global organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks
used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under
Professional Standards Legislation.
168
FINANCIAL REPORT
Independent Auditor’s Report
Asset valuation
Refer to Note 13 Impairment of non-financial assets and Note 26 Equity Accounted Investments to the Financial Report
The key audit matter
How the matter was addressed in our audit
Our procedures included:
We assessed the Group’s view of the indicators leading to impairment
and reversal testing for the Eagle Downs Metallurgical Coal and Brazil
Aluminium CGU’s. We recalculated the impairment charge and
impairment reversal and compared to the amounts recognised.
We assessed the integrity and consistency of the models used for
impairment testing and assessment of impairment or reversal
indicators on a sample basis, including the accuracy of the underlying
formulas and consistency of modelling to the prior year.
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 project plans where applicable.
We compared the forecast operating cash flows, production volumes,
capital expenditure and reserve and resource estimates contained in
the models to the life of operation and project plans incorporating the
approved budgets. We 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 flows, capital expenditure
and production volumes.
Working with our valuation specialists, and considering the risk factors
specific 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 and long-term supply agreements.
We compared carbon assumptions to locally enacted country specific
schemes and longer term published industry views.
We considered the sensitivity of the models by varying key
assumptions, such as forecast commodity prices, foreign exchange
rates, carbon pricing, risking applied to future development 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.
For Eagle Downs Metallurgical Coal we considered other information
included in the fair value assessment including other market
participant views on the assets value.
We assessed the disclosures in the Financial Report using our
understanding obtained from our testing and against the requirements
of the accounting standards.
The assessment of the existence of impairment or reversal indicators
and impairment testing of CGUs, where required, 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 several CGUs
to recoverable amount. Combined with the volatility in both commodity
and foreign exchange markets, there is an increased sensitivity of the
carrying value of the Group’s CGUs to potential impairment and
reversal.
The Group has:
• Recorded an impairment charge of $183m in the Eagle Downs
Metallurgical Coal CGU, resulting from the potential divestment of
the operation; and
• Recorded an impairment reversal of $42m in the Brazil Aluminium
CGU, resulting from the decision to participate in a restart of the
Alumar aluminium smelter.
These further increased our audit effort in this key audit area.
The Group uses sophisticated models to perform their assessment of
impairment or reversal indicators and impairment testing, where
required. Impairment testing was performed on the following CGU’s:
• Hillside Aluminium due to the presence of goodwill;
• Eagle Downs Metallurgical Coal for which the presence of an
impairment indicator was identified; and
• Brazil Aluminium for which the presence of an impairment reversal
indicator was identified.
The models are developed in-house, and use life of operation and
project 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 significant forward-looking assumptions the Group
applied in their models, including:
• Forecast commodity prices and foreign exchange rates – the
current economic climate has resulted in significant volatility in
forecast commodity prices across the Group. 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, Brazilian Real and the Australian Dollar, increasing
forecasting risk;
• Forecast operating cash flows, production volumes, capital
expenditure and reserve and resource estimates – these are
determined by the Group based on historical performance
adjusted for expected changes or plans for development,
including consideration of regulatory approvals. This drives
additional audit effort specific 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; and
• Carbon price – the Group incorporates carbon price assumptions
in its modelling based on enacted local schemes and assumptions
around global longer-term pricing and timing.
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.
169
SOUTH32 ANNUAL REPORT 2022 Independent Auditor’s Report
Closure and rehabilitation provision
Refer to Note 15 Provisions to the Financial Report.
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 differ 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 and
disturbance, 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; and
• Economic assumptions, including country specific discount rates,
which are complicated in nature.
Our procedures included:
We assessed the scope, objectivity and competence of the Group’s
internal and external experts to provide rehabilitation cost estimates.
We evaluated key assumptions used in the closure and rehabilitation
provision, relevant to the jurisdictions of the sites the Group operates,
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 profile 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 sustainability closure specialists to assess
the reasonableness and completeness of closure activities on a
sample basis; and
• Working with our valuation specialists, comparing country specific
discount rate assumptions to market observable data, including
risk free rates.
Acquisition of Sierra Gorda
Refer to Note 31 Acquisition of Equity Accounted Investments and Note 19 Financial Risk Management to the Financial Report
The key audit matter
How the matter was addressed in our audit
On 22 February 2022, the Group acquired 100% of the share capital
in five holding companies which indirectly hold a 45% interest in, and
provide funding for Sierra Gorda SCM. Consideration of $1,537m
resulted in the recognition of Loans to equity accounted
investments and Current tax payable.
This transaction is considered to be a key audit matter due to the:
• Size of the acquisition having a significant impact on the Group’s
financial statements;
• Group’s judgement and complexity relating to the determination
of asset acquisition accounting, and allocations made to acquired
assets and liabilities, in particular Loans to equity accounted
investments;
• Group’s forecast cashflow model used to determine the Loan
effective interest rate on acquisition is complex and sensitive to
changes in key assumptions. This drives additional audit effort
specifically on the feasibility of these key assumptions and
consistency of application to the Group’s strategy;
• Estimate of the fair value of the contingent consideration. We
focused on the forecast cash flow assumptions, which are
forward-looking, inherently uncertain and tend to be prone to
greater risk for potential bias; and
• Re-estimation of forecast cashflows at 30 June 2022 due to the
update of key assumptions and forecasts. This resulted in a loss
on purchased credit-impaired receivable of $26m and a gain of
$48m on contingent consideration payable.
The key assumptions we focused on in the calculation of forecast
cashflows included production guidance, forecast commodity
prices, forecast operating and capital expenditure, discount rates
and reserve and resource estimates.
We involved our valuation specialists to supplement our senior audit
team members in assessing this key audit matter.
Our procedures included:
• We evaluated the asset acquisition accounting by the Group
against the requirements of the accounting standards;
• We read the underlying transaction agreements to understand
the terms of the acquisition and nature of the assets and liabilities
acquired;
• We assessed the accuracy of the calculation and measurement
of consideration paid to acquire Sierra Gorda based on the
underlying transaction agreements and the Group’s bank
statements;
• We challenged the forecast cash flows assumptions for the entity
acquired, which forms the basis of the calculation of effective
interest rate and contingent consideration fair value, including:
• Working with our valuation specialists, we evaluated the
valuation methodology used by the Group;
• We assessed the feasibility of assumptions and consistency
of application to industry trends and expectations. We used
our knowledge of the Group and the entity acquired, past
performance, and our industry experience;
• We compared forecast commodity prices and foreign
exchange rates to published views of market commentators on
future trends; and
• We assessed changes in forecast cashflows between
acquisition date and 30 June 2022. We focused on obtaining
supporting evidence to support such changes representing
new or updated information subsequent to acquisition.
We assessed the adequacy of disclosures in the financial report
using our understanding obtained from our testing and against the
requirements of the accounting standards.
170
FINANCIAL REPORT
Independent Auditor’s Report
Other Information
Other Information is financial and non-financial 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.
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; and
• 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 influence 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
In our opinion, the Remuneration report of South32 Limited for the
year ended 30 June 2022, complies with Section 300A of the
Corporations Act 2001.
Directors’ responsibilities
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 79 to 102
of the Directors’ report for the year ended 30 June 2022.
Our responsibility is to express an opinion on the Remuneration report,
based on our audit conducted in accordance with Australian Auditing
Standards.
KPMG
Graham Hogg
Partner
Perth
8 September 2022
171
SOUTH32 ANNUAL REPORT 2022 RESOURCES
AND RESERVES
Information
Competent Persons
Accompanying tables
173
174
175
172
RESOURCES AND RESERVES
Resources and Reserves
As required by Chapter 5 of the
Australian Securities Exchange (ASX)
Listing Rules, we report Mineral
Resources and Ore Reserves (including
Coal Resources and Coal Reserves) in
accordance with the 2012 Edition of the
Australasian Code for Reporting of
Exploration Results, Mineral Resources
and Ore Reserves (JORC Code).
In this report, information relating to
Mineral Resources and Ore Reserves is
based on, and fairly represents, information
and supporting documentation prepared
by our Competent Persons.
A Competent Person is defined in the
JORC Code. They must have a minimum
five years of relevant experience in the
style of mineralisation or type of deposit
under consideration and the activity being
undertaken.
Each of our Competent Persons has given
consent to the inclusion of the information
in this report in the form and context in
which it appears. You can find more details
on each of their professional affiliations,
employer and areas of accountability on
page 174. Unless we state otherwise, all
Competent Persons listed are full-time
employees at South32, or at one of our
related entities.
We report Mineral Resources and Ore
Reserves in 100 per cent terms and
represent estimates as at 30 June 2022.
Our Mineral Resource estimations include
Measured and Indicated Mineral Resources
which, after the application of all Modifying
Factors, and development of a mine plan,
have been classified as Ore Reserves.
We report all quantities as dry metric
tonnes, unless stated otherwise.
It is important to note that Mineral
Resources and Ore Reserves are
estimations, not precise calculations.
We have rounded tonnes and grade
information to reflect the relative
uncertainty of the estimate, which is why
minor computational differences may be
present in the totals.
Our long-range forecasts are the basis for
the commodity prices and exchange rates
used to estimate the economic viability
of Ore Reserves. Our planning processes
consider the impacts of climate change on
our Ore Reserves, including assessments of
operating costs and the impact of extreme
weather events on the expectation of
economic extraction.
Our Ore Reserves are within existing
permitted mining tenements. Our mineral
leases are of sufficient duration, or convey
a legal right to renew the tenure, to enable
all Ore Reserves on the leased properties
to be mined in accordance with the current
production schedules. These Ore Reserves
At a glance - Resources and Reserves (as at 30 June 2022)
Operations and development options
Worsley Alumina
Brazil Alumina (MRN)
Cannington
Taylor
Clark
Arctic
Bornite
Cerro Matoso
Australia Manganese
South Africa Manganese(2)
Illawarra Metallurgical Coal(2)(3)
Eagle Downs
Total Ore/Coal
Reserve (Mt)
Reserve Life
Years(1)
Total Mineral/
Coal Resource
(Mt)
227
50
17
27
41
102
104
13
4.0
7.0
7.0
3.9
42
24
1,090
458
69
138
55
37
148
322
147
213
1,200
1,140
(1) Scheduled extraction period in years for the Total Ore Reserves in the approved Life of Operation Plan.
(2) Reserve Life for Illawarra Metallurgical Coal and South Africa Manganese is reported as the life of scheduled Coal/
Ore Reserves for Bulli and Wessels respectively. The Reserve Life for the remaining operations are stated in the
following detailed disclosures.
(3) Coal Reserves in this table are presented as Marketable Coal Reserves. Process recoveries are reported in the
following detailed disclosures for each coal operation.
may include areas where additional
approvals are required, and it is expected
that such approvals will be obtained within
the timeframe needed for the current
production schedule.
Foreign estimate
In the market announcement “South32 to
Acquire a 45 per cent Interest in the Sierra
Gorda Copper Mine” dated 14 October
2021, we reported on the estimates of
mineral resources and mineral reserves
for the Sierra Gorda copper mine. These
estimates of mineral resources and mineral
reserves are foreign estimates under the
ASX Listing Rules and are not reported
in accordance with the JORC Code. We
completed the acquisition on 22 February
2022 and in accordance with ASX Listing
Rule 5.14.1, our technical team is reviewing
available information in collaboration with
the Sierra Gorda operational team to verify
the foreign resource and reserve estimates,
with the intention of enabling these
estimates to be reported in accordance
with the JORC Code.
We are not in possession of any new
information or data relating to the foreign
estimate that materially impacts on the
reliability of the estimates or our ability
to verify the foreign estimates as Mineral
Resources or Ore Reserves in accordance
with the JORC Code. We confirm that the
information contained in our 14 October
2021 market announcement in relation
to these foreign estimates continues to
apply and has not materially changed.
Competent Persons have not done
sufficient work to classify the foreign
estimates as Mineral Resources or Ore
Reserves in accordance with JORC Code
and it is uncertain that following evaluation
and further exploration, the foreign
estimates will be able to be reported as
Mineral Resources or Ore Reserves in
accordance with the JORC Code.
Our governance arrangements
and internal controls
We have internal standards and
governance arrangements that cover
regulatory requirements for public
reporting. To ensure correct and accurate
public reporting, our governance processes
are managed by the Resource and Reserve
Governance function in coordination with
the Company Secretariat function.
Our comprehensive review and audit
program is aimed at assuring our Mineral
Resource and Ore Reserve estimates. This
includes:
– Annual review of Mineral Resources and
Ore Reserves declarations and reports;
– Annual review of reconciliation
performance metrics for operating
mines;
– Periodic internal mine planning and Ore
Reserve audits; and
– Independent audits of Exploration
Results, Mineral Resources or Ore
Reserves that are new or have materially
changed.
In FY22, we undertook five independent
assurance audits of Exploration Results,
Mineral Resource or Ore Reserve estimates
and four internal mine planning and Ore
Reserve assurance audits. The frequency
and scope of the audits are generally
a function of the perceived risks and
uncertainties associated with a particular
Mineral Resource and Ore Reserve. The
increase in frequency of audits in FY22 is
associated with activities we deferred in
FY21 due to COVID-19, new opportunities
we explored and projects we reviewed
when advancing into the next study phase.
The accompanying tables, on pages 175 to
179, outline our Mineral/Coal Resources and
Ore/Coal Reserves holdings.
173
SOUTH32 ANNUAL REPORT 2022 Resources and Reserves continued
Our exploration, research
and development
Our operations carry out exploration,
research and development necessary
to support our activities. Our brownfield
exploration activities target the delineation
and categorisation of mineral deposits
connected or adjacent to our existing
operations. Our greenfield exploration
activities focus on the discovery and
delineation of opportunities outside of our
operational footprint, with a bias to base
metals.
During FY22 we continued to expand our
global exploration footprint. We funded
greenfield exploration in Australia, Peru,
Colombia, Argentina, Ireland, Canada
and the United States of America. Our
exploration expenditure for FY22 was
US$74 million (FY21: US$57 million) of
which US$18 million related to brownfield
and US$56 million related to greenfield
(FY21: US$19 million and US$38 million
respectively).
Competent Persons
Mineral Resources
Worsley Alumina: P Soodi Shoar, MAusIMM
Brazil Alumina:
Mineração Rio Do Norte (MRN): M A H Monteiro, MAusIMM, employed by
Mineração Rio do Norte S.A.
Cannington: P Soodi Shoar, MAusIMM
Hermosa:
Taylor: B Parsons, MAusIMM (CP), employed by SRK Consulting (US) Inc
Clark: B Parsons, MAusIMM (CP), employed by SRK Consulting (US) Inc
Ambler Metals Joint Venture:
Arctic: D F Machuca Mory, PEng., employed by SRK Consulting (Canada) Inc;
T Fouet, MAusIMM
Bornite: S Khosrowshahi, MAusIMM (CP) employed by WSP Global Inc.;
T Fouet, MAusIMM
Cerro Matoso: I Espitia, MAusIMM (CP)
Australia Manganese:
Groote Eylandt Mining Company (GEMCO): J Harvey, MAusIMM
South Africa Manganese:
Mamatwan and Wessels: L Lautze, Pr. Sci. Nat., SACNASP
Ore Reserves
Worsley Alumina: G Burnham, MAusIMM
Brazil Alumina:
Mineração Rio Do Norte (MRN): J P M Franco, MAusIMM, independent consultant
Cannington: R Muller, MAusIMM
Cerro Matoso: N Monterroza, MAusIMM
Australia Manganese:
Groote Eylandt Mining Company (GEMCO): U Sandilands, MAusIMM
South Africa Manganese:
Mamatwan and Wessels: A R Maier, Pr. Eng.
Coal Resources
Illawarra Metallurgical Coal:
Bulli and Wongawilli: M Krejci, MAusIMM
Eagle Downs: M Blaik, MAusIMM, employed by JB Mining Services Pty Ltd
Coal Reserves
Illawarra Metallurgical Coal:
Bulli and Wongawilli: M Rose, MAusIMM
174
RESOURCES AND RESERVES
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SOUTH32 ANNUAL REPORT 2022
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RESOURCES AND RESERVES
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(
177
SOUTH32 ANNUAL REPORT 2022
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M
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5
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1
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6
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A
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G
178
RESOURCES AND RESERVES
)
O
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179
SOUTH32 ANNUAL REPORT 2022
INFORMATION
Shareholder information
Glossary of terms and abbreviations
Corporate directory
181
184
189
180
INFORMATION
Shareholder information
Voting rights for shares
South32 Limited ordinary shares carry voting rights of one vote per share.
Shareholders may hold a beneficial entitlement to South32 Limited dematerialised ordinary shares, UK Depositary Interests and
American Depositary Shares (ADS) through the Central Securities Depositories of Strate (Strate), CREST and the 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 ADS is represented by five ordinary shares, with ADS voting managed by South32 Limited’s ADS Depositary.
Substantial shareholders
As at 5 August 2022, South32 Limited has three substantial shareholders who, together with their associates, hold five per cent or more
of the voting rights in South32 Limited, as notified to South32 Limited under the Corporations Act.
Name
BlackRock Group
Vanguard Group
State Street Corporation
Date notice received
Number of shares in notice
Percentage of capital in notice
8 December 2021
23 June 2022
21 July 2022
318,403,413
235,364,454
232,738,393
6.84
5.077
5.03
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
shares as at 5 August 2022.
Size of holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Number of shareholders
Number of shares
Percentage of capital
121,991
84,540
22,225
19,356
620
248,732
58,805,163
203,797,592
162,733,053
438,832,803
3,764,262,973
4,628,431,584
1.27
4.40
3.52
9.48
81.33
100.00
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
rights as at 5 August 2022.
Size of holding
0 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
Number of rights holders
Number of rights
Percentage of rights on issue
434
5,866
13
122
81
6,516
230,020
9,085,428
86,684
5,660,500
43,061,921
58,124,553
0.396
15.631
0.149
9.739
74.086
100.00
181
SOUTH32 ANNUAL REPORT 2022 Shareholder information continued
Twenty largest shareholders in South32 Limited
The following table sets out the 20 largest shareholders of ordinary shares listed on the South32 Limited share register and the details
of their shareholding as at 5 August 2022.
Number of fully paid shares
Percentage of capital
Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Ltd
Computershare Clearing Pty Ltd
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