South32’s Portfolio Shift and Operational Risks Shadow Strong Earnings

Strong Financial Performance Amid Portfolio Transformation

South32 Limited has kicked off fiscal 2025 with a robust financial performance, reporting a 25% increase in revenue from continuing operations to US$3.12 billion for the half year ended 31 December 2024. Underlying earnings attributable to members soared by 579% to US$375 million, reflecting the company’s improved operating efficiency and strategic portfolio reshaping.

The transformation was anchored by the August 2024 divestment of Illawarra Metallurgical Coal, which not only unlocked significant value with upfront net proceeds of approximately US$938 million but also streamlined South32’s focus towards minerals and metals critical to the global energy transition. This move has reduced sustaining capital intensity and strengthened the balance sheet, positioning the company to self-fund growth projects in zinc and copper.

Operational Highlights and Growth Investments

Operationally, South32 delivered solid results across its portfolio. Aluminium production rose by 5%, while copper output increased by 16%, enabling the company to capitalise on favourable commodity prices. The company’s underlying EBITDA climbed 44% to US$1 billion, with an operating margin of 27.5%, underscoring improved profitability.

Significant investments continued in growth projects, notably the Taylor zinc-lead-silver project at Hermosa in Arizona, with US$248 million invested in the half year. Exploration efforts expanded, including a strategic alliance with Noronex Limited to explore copper in Namibia’s Kalahari copper belt and acquiring a stake in American Eagle Gold Corp. in Canada, reflecting South32’s commitment to discovering its next generation of base metals mines.

Safety, Sustainability, and Operational Challenges

Safety remains a priority, with total recordable injury frequency improving by 31% to 3.5 and lost time injury frequency reducing to 1.3. However, the company mourned a fatality at Cerro Matoso and continues to implement safety improvements.

On the sustainability front, South32 reported a 9% reduction in operational greenhouse gas emissions, partly due to the sale of Illawarra Metallurgical Coal. The company reaffirmed its target to halve operational emissions by 2035 and achieve net zero by 2050, with a new Climate Change Action Plan scheduled for release in August 2025.

Operational challenges include constrained bauxite supply at Worsley Alumina due to delayed mining approvals and civil unrest in Mozambique impacting Mozal Aluminium’s production, leading to a downward revision of its FY25 guidance to 350kt. The company is actively managing these risks while maintaining overall production guidance.

Capital Management and Shareholder Returns

Reflecting confidence in its financial position and outlook, South32 declared a fully-franked interim dividend of US 3.4 cents per share, representing 41% of underlying earnings. The company also plans to continue its US$2.5 billion capital management program, with US$171 million remaining for on-market share buy-backs ahead of the program’s expiry in September 2025.

Net debt was reduced dramatically by US$715 million to just US$47 million, supported by strong cash flow generation and the Illawarra sale proceeds. Capital expenditure guidance for FY25 was revised down to US$895 million (excluding equity accounted investments), reflecting lower sustaining capital spend post-divestment and re-phasing of growth capital at Hermosa.

Outlook

South32 maintains its FY25 production guidance across most operations, with the exception of Mozal Aluminium. The company expects operating unit costs to decline in the second half of the year, supported by operational discipline and weaker producer currencies. Growth projects and exploration remain key focus areas as South32 seeks to unlock further value and sustain its positive momentum.