Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- South32 Ltd (ASX:S32, Financial) achieved a 14% improvement in total recordable injury frequency for FY24, indicating enhanced safety measures.
- The company recorded an underlying EBITDA of USD1.8 billion and underlying earnings of USD380 million, showcasing strong financial performance.
- South32 Ltd (ASX:S32) lowered its net debt by USD329 million in the second half of FY24, strengthening its financial position.
- The Board resolved to pay a USD140 million fully franked ordinary dividend and allocated USD200 million for an on-market share buyback, reflecting confidence in the company's financial health.
- Significant milestones were achieved, including the construction progress of Hermosa's Taylor zinc-lead-silver deposit and the sale of Illawarra Metallurgical Coal for up to USD1.65 billion, simplifying the portfolio and focusing on critical commodities for a low-carbon future.
Negative Points
- The lost time injury frequency increased by 19%, indicating ongoing safety challenges despite improvements in other safety metrics.
- Operations at GEMCO were suspended due to significant damage from Tropical Cyclone Megan, impacting production and requiring phased recovery efforts.
- The West Australian Environmental Protection Authority imposed conditions on the Worsley development proposal that South32 Ltd (ASX:S32) found unreasonable and impractical, leading to an appeal process.
- The company faces potential increases in unit costs at Worsley due to stringent environmental conditions, particularly around carbon emissions.
- The business interruption insurance claims related to GEMCO are expected to be a prolonged negotiation process, potentially delaying financial recoveries.
Q & A Highlights
Q: Could you give us more color around the conditions at Worsley and their impact on unit costs?
A: Graham Kerr, CEO: The conditions announced on July 8 were unexpected. We started the process in 2019 and thought we had reached an agreement on key issues like greenhouse gas emissions. The new conditions required us to reassess our mine plan and understand the economic impact. We expect unit costs to be around $270 to $290 per tonne in the midterm, with additional costs due to the new conditions. We are working with the WA government to finalize approvals by the end of the year.
Q: Will we have clarity around the future of Worsley by the end of this year?
A: Graham Kerr, CEO: We hope to have approvals for the next 15 years of mine life by the end of the year, assuming the government sticks to its timeline. The most challenging condition is around carbon emissions, which is stricter than national policies. We are committed to reducing our emissions and are working to secure reasonable conditions.
Q: How will the insurance cover the capital cost and lost profitability at GEMCO?
A: Graham Kerr, CEO: We expect the first insurance installment in the upcoming quarter. The insurance covers both property damage and business interruption. The capital replacement is straightforward, but business interruption will involve negotiations. We expect to receive payments over the next 18 months.
Q: Is there interest in restructuring Samancor to optimize the portfolio?
A: Graham Kerr, CEO: We have a pre-emptive right to buy Anglo's stake in Samancor. We value manganese as a profitable component of our portfolio. If Anglo sells at a price we see value in, we would consider it. We have a good relationship with Anglo and are the operator of the joint venture.
Q: How are you thinking about the outlook for GEMCO and Samancor?
A: Graham Kerr, CEO: GEMCO is one of the best assets in the industry, and we plan to return to nameplate capacity by FY26. We aim to extend GEMCO's mine life and maximize rail access for South African manganese. Sandy Sibenaler, CFO: Our capital management framework remains unchanged, and we aim to maintain an investment-grade credit rating. We have allocated $300 million for buybacks, considering it the best value option for shareholders.
Q: How are you thinking about your balance sheet in light of your growth plans?
A: Sandy Sibenaler, CFO: We aim to maintain a net debt range of zero to $500 million during the early stages of the Taylor capital program. We will be conservative and iterate over time, considering any portfolio actions.
Q: What is the long-term volume outlook for GEMCO?
A: Graham Kerr, CEO: The long-term volume outlook for GEMCO is around 3.2 million tonnes, reflecting the age of the mine and declining yield and grade. This is a realistic number going forward.
Q: How will the sale of Illawarra impact your business?
A: Graham Kerr, CEO: The sale of Illawarra for up to $1.65 billion has simplified our business and strengthened our balance sheet. It allows us to focus on high-quality operations and growth options in copper, zinc, and the aluminium value chain, critical for a low-carbon future. We have significant near-term production growth in copper and low-carbon aluminium.
Q: What are your plans for the Hermosa project?
A: Graham Kerr, CEO: We are progressing with the development of the Taylor zinc-lead-silver deposit at Hermosa, which is expected to deliver attractive returns and increase our supply of critical commodities. We are also exploring the potential for a continuous copper system connecting Peake and Taylor.
Q: How are you addressing the challenges at GEMCO due to Tropical Cyclone Megan?
A: Graham Kerr, CEO: We have commenced a phased return to mining activities and expect to recommence wharf operations in the third quarter of FY25, returning to normalized production rates in FY26. Our insurers have confirmed coverage for the damage, and we expect the first insurance installment this quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
