• Underlying EBITDA: Increased by 44% to USD 1 billion.
• Underlying Earnings: Increased to USD 375 million.
• Cash Flow from Operations: Improved by USD 361 million.
• Net Debt: Reduced by USD 715 million to USD 47 million.
• Interim Ordinary Dividend: USD 154 million at USD 0.034 per share.
• Capital Management Program: USD 171 million remaining to be returned to shareholders.
• Aluminum Production: Increased by 5%.
• Copper Equivalent Production: Increased by 21% at Sierra Gorda.
• Illawarra Metallurgical Coal Sale: Sold for up to USD 1.65 billion.

• Warning! GuruFocus has detected 8 Warning Signs with SHTLF.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• South32 Ltd (SHTLF) reported a 44% increase in underlying EBITDA to USD 1 billion, showcasing strong financial performance.
• The company achieved a 21% increase in copper equivalent production at Sierra Gorda, indicating improved operational efficiency.
• South32 Ltd (SHTLF) reduced net debt by USD 715 million to USD 47 million, emphasizing its focus on maintaining a strong balance sheet.
• The company announced a fully franked interim ordinary dividend of USD 154 million, reflecting its commitment to shareholder returns.
• Environmental approvals for the Worsley Mine Development Project were received, ensuring sustained production until at least FY '36.

Negative Points

• A tragic incident at Cerro Matoso resulted in the loss of a colleague, highlighting ongoing safety challenges.
• Production guidance for Mozal Aluminium was updated due to civil unrest in Mozambique, indicating operational disruptions.
• The company faces potential impacts from the wet season on GEMCO's phased restart of mining activities.
• South32 Ltd (SHTLF) increased its cost guidance for Worsley by USD 5 per tonne due to revised conditions, impacting profitability.
• The company has a limited exposure to the US market, with only 9% of group revenue coming from the region, which could limit growth opportunities.

Q & A Highlights

Q: Can you remind us of your exposure to the US market and provide insights on the global aluminum market following proposed US tariffs? A: Graham Kerr, CEO: Approximately 9% of our group revenue comes from the US, with 5% from our ferronickel book and 16% from aluminum. The US tariffs could impact trade flows, but without significant changes in domestic production, the effect on our business may be limited. The US imports about 80% of its aluminum demand from Canada, and tariffs might lead to higher premiums in the US market.

Q: Regarding CapEx changes this year, is it mainly about timing, particularly around Hermosa? Should we expect increased CapEx next year? A: Sandy Sibenaler, CFO: Yes, the rephasing of expenditure means it will now come through in FY 26. This was due to negotiations around prepayments for fabrication slots. There are no other changes to the phasing of the Taylor expenditure program.

Q: How are you thinking about capital allocation going forward, especially with strong free cash flow expectations? A: Graham Kerr, CEO: Our capital management framework remains unchanged, focusing on distributing surplus cash after basic needs. We prioritize buybacks as we believe we trade below our worth. Decisions on capital returns, including special dividends, will depend on cash in the bank and market conditions.

Q: With the environmental approval uncertainties at Worsley resolved, why hasn't the impairment been reversed? A: Graham Kerr, CEO: The deferred decision impacts are multi-dimensional and long-term. We won't return to full production until FY 27 due to infrastructure and clearing requirements. Operating costs have increased due to revised conditions, impacting NPV. Sandy Sibenaler, CFO: Under IAS 36, we apply reversal trigger testing under sustained low commodity prices, and no trigger was identified.

Q: What is your net long/short position in alumina once the full portfolio is running at normal capacity? A: Graham Kerr, CEO: Historically, about 50% of our alumina is placed in our smelters. This year, it's about 51%. We expect this to remain stable as we match alumina and bauxite to smelter needs. Most exposure is on the Australian side, with long-term deals indexed to Middle East pricing.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.