South32 H2 Earnings Call Highlights

Key Points

• FY26 earnings and cash flow strengthened: Underlying EBITDA rose 28% to $2.5 billion and underlying earnings increased 55% to $1 billion, while operating cash flow reached $610 million despite $700 million invested in Hermosa. South32 ended the period with $283 million in net cash and declared a 5.4-cent-per-share dividend.
• Portfolio shift toward base metals: South32 plans to sell its aluminum assets to Alcoa for up to $5.6 billion in enterprise value, subject to conditions and expected completion in the second half of FY27. The move will refocus the company on copper, zinc and other base metals, with Hermosa and Sierra Gorda identified as key growth priorities.
• Growth projects advanced: Hermosa’s Taylor project remains on schedule, while Sierra Gorda’s expanded reserves extend its initial mine life to about 19 years and support future production increases. Cannington is also assessing stockpile processing and mine-life extensions, though GEMCO continues to face water-management and weather-related uncertainty.

South32 LON: S32 reported stronger FY26 earnings and cash flow as its base metals business benefited from operating performance, commodity-price tailwinds and cost management, while the company outlined plans to reshape its portfolio around copper, zinc and other base metals.

Chief Executive Officer Matt Daley said group underlying EBITDA increased 28% to $2.5 billion and underlying earnings rose 55% to $1 billion. Cash flow from operations increased by $352 million to $610 million, after the company invested $700 million in developing future base-metals production at the Hermosa project.

South32 ended the period with net cash of $283 million after returning $327 million to shareholders. The board declared a fully franked ordinary dividend of 5.4 cents per share, representing $242 million for the June 2026 half-year, and extended its capital-management program through September 2027. The company said $209 million remains to be returned under that program.

Portfolio Shift Toward Base Metals

Daley said South32’s July 1 agreement to sell its aluminum value-chain assets to Alcoa for enterprise value of up to $5.6 billion, plus Alcoa’s assumption of more than $1 billion in related rehabilitation provisions, would reposition the company as a base-metals-focused business. Completion is expected in the second half of FY27, subject to satisfying transaction conditions.

“The transaction will unlock significant value for shareholders and reposition South32 as the leading base metals company on the ASX,” Daley said.

Chief Financial Officer Sandy Sibenaler said the current capital-management framework, including a payout of 40% of underlying earnings, will remain in place until the sale closes. Underlying earnings during this period will include contributions from the aluminum value-chain assets.

After completion, South32 expects capital allocation to place greater emphasis on growth investments while continuing to fund safe and reliable operations and maintain a strong balance sheet, Sibenaler said. The company identified Hermosa and Sierra Gorda’s fourth grinding line as committed growth projects, with dividends, acquisitions and other shareholder returns competing for excess capital after those priorities.

Sibenaler also said South32 had about AUD 1.6 billion in franking credits. Half of an upfront distribution of Alcoa stock is expected to be delivered through a fully franked in-specie distribution. The company will consider franking future dividends as appropriate.

Hermosa Construction Progress

South32 said production from projects under construction or already approved is expected to increase by 55%, supported by investments in Hermosa and Sierra Gorda.

At the Hermosa Taylor lead-silver project, Daley said shaft development remained on schedule following the project’s earlier capital-expenditure and timing reset. The ventilation shaft was approaching its bottom, while the main shaft was tracking the ventilation-shaft schedule. Extension of the decline into the Taylor orebody was also progressing as planned, providing early access to ore.

Surface processing infrastructure, including primary and secondary mills and flotation cells, has been installed. Five of six substations are also in place, including the main substation needed to bring primary grid power to the project. Daley said the project’s contingency remained intact.

“Hermosa is progressing really well,” Daley said, adding that Taylor is expected to provide financial returns for decades after completion. South32 is also continuing exploration and study work at Hermosa’s Peak deposit, which could support future copper production through an integrated development with Taylor.

Sierra Gorda and Cannington Growth Options

South32 announced a 61% increase in the ore reserve at its Sierra Gorda operation to 1.1 billion tonnes. The updated reserve extends the initial reserve life by about five years to 19 years, according to Daley, and the orebody remains open at depth.

Sierra Gorda is expected to increase production by 5% in FY27 and another 2% in FY28, supported by higher planned copper grades. Beyond that, South32’s approved fourth grinding line is expected to lift production by about 30% from FY31.

At Cannington, the company has incorporated low-grade stockpile material into expected ore processed in order to use available plant capacity. Daley said South32 processed roughly 200,000 tonnes of the material last year as a test of recoveries and its interaction with the paste-filter system.

The low-grade stockpile material has a grade ratio of approximately 2.5-to-1 relative to mined material, although grades vary because the stockpile is historical. South32 will prioritize underground material for processing but sees an opportunity to process stockpiles that have already been mined and are located near the existing crusher.

The company’s plant has historically processed as much as 3 million tonnes, compared with current guidance of around 2.1 million tonnes, suggesting potential processing upside. South32 is also evaluating underground and open-pit life-extension opportunities at Cannington.

GEMCO Water Management and Safety

Daley said GEMCO has begun FY27 well during the dry season, but South32’s guidance range reflects uncertainty over water management and weather conditions ahead of the next wet season. Recent cyclones and high rainfall have restricted access to mining areas.

South32 is working with the Northern Territory government and traditional owners on permits that would allow larger volumes of water to be discharged through different methods. Planned capital work includes additional piping to move water between areas of the operating lease.

The company currently models GEMCO’s mine life through 2033, or about six years at current mining rates. South32 is examining potential in northern leases and areas east and south of current operations, with the northern option requiring early exploration work.

Daley also addressed a fatal incident at Worsley Alumina in March 2026 that killed a colleague, Simon. He said South32 had enhanced awareness of existing procedures and controls for working at heights and was continuing to seek ways to eliminate or reduce fall-from-height risks.

“As South32 CEO, I’m unwavering in my commitment to a workplace free from fatalities,” Daley said.

About South32 (LON:S32)

South32 Limited operates as a diversified metals and mining company in Australia, India, China, Japan, the Middle East, Mozambique, the Netherlands, Brazil, Russia, South Africa, South Korea, the United States, and internationally. The company operates through Worsley Alumina, Brazil Alumina, Brazil Aluminium, Hillside Aluminium, Mozal Aluminium, Sierra Gorda, Cannington, Hermosa, Cerro Matoso, Illawarra Metallurgical Coal, Australia Manganese, and South Africa Manganese segments. It has a portfolio of assets producing bauxite, alumina, aluminum, copper, silver, lead, zinc, nickel, metallurgical coal, manganese, ferronickel, and other base metals.

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